Paul Krugman, "Insurance and Freedom": California's Next Earthquake

In his latest New York Times op-ed entitled "Insurance and Freedom" (http://www.nytimes.com/2013/04/08/opinion/krugman-insurance-and-freedom.html?_r=0), Paul Krugman writes regarding Obamacare:

"In fact, it’s hard to think of a proposition that has been more thoroughly refuted by history than the notion that social insurance undermines a free society. Almost 70 years have passed since Friedrich Hayek predicted (or at any rate was understood by his admirers to predict) that Britain’s welfare state would put the nation on the slippery slope to Stalinism; 45 years have passed since Medicare went into effect; as far as most of us can tell, freedom hasn’t died on either side of the Atlantic."

I agree with Krugman: Social insurance in and of itself does not undermine a free society. On the other hand, social insurance that bankrupts state governments and causes the federal deficit to spiral out of control can result in collapse.

As reported by The Huffington Post in a recent article entitled "Obamacare Will Cause Medical Claims Costs To Jump 32 Percent: Study" (http://www.huffingtonpost.com/2013/03/26/obamacare-medical-claims-costs_n_2956986.html):

"Insurance companies will have to pay out an average of 32 percent more for medical claims on individual health policies under President Barack Obama's overhaul, the nation's leading group of financial risk analysts has estimated.

. . . .

The report by the Society of Actuaries could turn into a big headache for the Obama administration at a time when many parts of the country remain skeptical about the Affordable Care Act.

While some states will see medical claims costs per person decline, the report concluded the overwhelming majority will see double-digit increases in their individual health insurance markets, where people purchase coverage directly from insurers.

The disparities are striking. By 2017, the estimated increase would be 62 percent for California, about 80 percent for Ohio, more than 20 percent for Florida and 67 percent for Maryland. Much of the reason for the higher claims costs is that sicker people are expected to join the pool, the report said."

A 62 percent increase for California? And only a week ago, Krugman was telling us that California was poised for a comeback (see: http://jgcaesarea.blogspot.co.il/2013/03/paul-krugman-lessons-from-comeback.html). Instead, it will be facing a different kind of earthquake, destined to put paid to any kind of would-be comeback.

Paul Krugman, "Lessons From a Comeback": California Dreaming

In his latest New York Times op-ed entitled "Lessons From a Comeback" (http://www.nytimes.com/2013/04/01/opinion/krugman-lessons-from-a-comeback.html?_r=0), Paul Krugman asks, "is California still the place where the future happens first?" Commending Governor Jerry Brown for pushing through tax hikes that have given rise to a projected budget surplus, Krugman writes:

"Again, however, reports of the state’s demise proved premature. Unemployment in California remains high, but it’s coming down — and there’s a projected budget surplus, in part because the implosion of the state’s Republican Party finally gave Democrats a big enough political advantage to push through some desperately needed tax increases. Far from presiding over a Greek-style crisis, Gov. Jerry Brown is proclaiming a comeback."

Those tax increases? As observed by The Sacramento Bee (http://blogs.sacbee.com/capitolalertlatest/2012/12/high-income-californians-may-pay-nations-highest-tax-rate.html) in December 2012:

"Thanks to passage of Proposition 30 last month, high-income Californians would pay the nation's highest marginal income tax rates -- nearly 52 percent -- if President Barack Obama and Congress fail to make a deal to avoid the so-called 'fiscal cliff,' according to a new study.

. . . .

Proposition 30 added three percentage points to the marginal state income tax rate for California's highest-income taxpayers, bringing it to 13.3 percent. That action raised California over other high-tax jurisdictions to a marginal rate of 51.9 percent, slightly higher than New York City's level. Hawaii was the only other place with a calculated rate above 50 percent."

But not to worry, says Krugman: "serious studies have found very little evidence either that tax hikes cause lots of wealthy people to move or that state taxes have any significant impact on growth."

Unemployment in California? Down to a "mere" 9.6% (see: http://articles.latimes.com/2013/mar/29/business/la-fi-california-jobs-20130330), among the highest rates in the country.

But the real kicker? As recently observed by The Los Angeles Times in an article entitled "California's debt still a heavy cloud over state's future" (http://articles.latimes.com/2013/jan/13/local/la-me-state-debt-20130114):

"Sacramento is legally obligated to pay many billions of dollars withheld from schools, local governments and healthcare providers as lawmakers struggled repeatedly to balance the books. It owes Wall Street more per resident than almost every other state. And it has accumulated a crushing load of debt for retiree pensions and healthcare, now totaling more than taxpayers spend each year on all state programs combined.

. . . .

When he released his budget plan, Brown vowed to knock down the state's 'wall of debt.' He presented a timeline for repaying nearly $28 billion the state owes to government programs that it raided for cash or deprived of funds over the years, as well as some bonds sold to balance the budget.

. . . .

But numerous reports by state agencies, think tanks and academics have shown the wall of debt to be many stories higher than $28 billion — hundreds of billions of dollars over the next few decades. Brown's repayment plan does not significantly reduce the sizable debt to Wall Street or account for promises the state has made to its current and future retirees but is not setting enough money aside to cover."

Now go back and read Krugman's op-ed one more time. Does the word "debt" appear even once in his opinion piece? Afraid not. A "wall of debt"? What, me worry?

California could be "the place where the future happens first?" It could well be, but it's not going to be pretty.