Why the Economy Cannot be Reformed

[Musburger1]

It boils down to complexity and financialization.

Let's take the entire health industry for example.

As of May 2015 (see link) 12.4 million Americans were employed in this industry. The total number of doctors actively practicing in the United States is 854,000 (see link). This is a ratio of about 15 to 1. Everytime you are seen by a doctor, there are 14 other people drawing a paycheck either directly or indirectly from your visit. I don't even know if the 12.4 million figure includes pharmacists and insurance personnel but I'm guessing it does. If not the ratio is even higher.

U.S. health care spending grew 5.8 percent in 2015, reaching $3.2 trillion or $9,990 per person. As a share of the nation's Gross Domestic Product, health spending accounted for 17.8 percent. ​

The costs keep rising more than double CPI on an annual basis which is draining the wealth from millions of Americans. But each transaction means a paycheck for 15 people and revenue for one or multiple businesses. The paychecks of the 12.4 million people are taxed as is the profits of the corporation involved. To lower costs, no matter how it is accomplished, will cut into GDP, tax revenue, and/or income for individuals. Also, if health care represents nearly 18% of the economy, that means a large percentage of retirement portfolios depend on profits. Should Congress find a way to implement needed reforms to help make health care affordable, the counter side of the argument is that GDP falls, tax revenue decreases, health care workers see wages trimmed or jobs reduced and stock portfolios take a hit.

As health care evolved and medical technology improved, the industry became more complex (ever tried to decipher some of the charges?) and the spread of financialization turned medicine into a major commodity for Wall Street and has now gotten to the point where it is about to threaten the sustainability of the government. Medicare/Medicaid continue to eat away at the country's budget. But the industry, like the big banks, is too big to fail and to big to reform. We can't continue indefinitely like we have been, yet any restructuring will set off a chain reaction where Wall Street products and government revenues take large hits and participants in the industry itself would be either laid off or face cuts in income.

What about the housing/construction industry?

As we know, a tremendous amount of construction related jobs are performed by illegal aliens. This has allowed home builders to reduce costs and become more profitable. And like the health industry, as construction exploded and interest rates fell, Wall Street got into the act by creation innovative financial products sold for hundreds of billions of dollars. And as with health care, pension funds and the like are loaded with stocks based on construction. Mortgage brokers, real estate agents, home insurers, furniture stores, appliance manufactures, all owe a large percentage of their business to the construction industry which has become dependent on inexpensive labor.

There are many good arguments for obeying the law and forcing employers not to hire non-citizens. If the laws were enforced, the stream of "undocumented workers" would cease quite quickly, wages for unskilled labor and trade jobs would rise, and the government would have less of a welfare drain including medical costs for illegal aliens (which also raises the costs for everyone). So why aren't the laws enforced?

Again, just as with health care, the construction industry and the downstream related jobs as well as the enormous holdings within the financial sectors have become dependent on the status quo. You enforce the law and Wall Street suffers as well as regular people dependent on pensions. Margins become smaller when labor costs rise. This section of the economy is now too big to fail and too important to reform. So the flow of illegals cannot be stopped.

We've created systems that cannot be reformed lest the system implode. But somewhere down the road it appears the system will collapse under its own weight. What am I missing?

 

[Mr. Deez]

I think reforming healthcare would be much tougher than housing and construction. If you cut off the illegal immigrants, it would definitely boost labor costs, at least some of which would be passed along. Houses and all forms of new construction would become more expensive. However, there is real competition in the housing market, and the ultimate purchaser is price sensitive, because he is buying the product with his own money. I think that would help make the adjustment smoother. I'm sure some of the weaker businesses in the industry would fold, but I think most would survive. After several years, I think it would be in good shape again.

Healthcare is much tougher, because you have insurance distorting the entire picture, and it has become a monster all by itself. It impacts every facet of healthcare in very profound ways, and since the patient isn't price sensitive, there's little incentive to keep costs under control. I think that's why it has become as big of a mess as it is.

Let's suppose our government tried to go single payer. The actual providers would still exist, though they'd make less money. However, millions who work in the insurance business or in businesses ancillary to insurance would lose not only their jobs but their careers. A few would probably get hired by the government as staff for the new healthcare financing agency but not even close to all of them. The high rollers in those businesses would probably line up at the government trough and try to get the government to buy some of their infrastructure. Some of it would be needed, but most of it wouldn't be. They'd expect some kind of bailout, and I can sorta understand. They'd have their entire industry destroyed by government edict.

Overall, enough people would be out of work and enough economic activity would shut down to really hurt GDP (and if costs actually come down, that's unavoidable) and tax revenue.

 

[4th_floor]

Let's take the entire health industry for example.

................The paychecks of the 12.4 million people are taxed as is the profits of the corporation involved. To lower costs, no matter how it is accomplished, will cut into GDP, tax revenue, and/or income for individuals. Also, if health care represents nearly 18% of the economy, that means a large percentage of retirement portfolios depend on profits. Should Congress find a way to implement needed reforms to help make health care affordable, the counter side of the argument is that GDP falls, tax revenue decreases, health care workers see wages trimmed or jobs reduced and stock portfolios take a hit.

As health care evolved and medical technology improved, the industry became more complex (ever tried to decipher some of the charges?) and the spread of financialization turned medicine into a major commodity for Wall Street and has now gotten to the point where it is about to threaten the sustainability of the government. Medicare/Medicaid continue to eat away at the country's budget. But the industry, like the big banks, is too big to fail and to big to reform. We can't continue indefinitely like we have been, yet any restructuring will set off a chain reaction where Wall Street products and government revenues take large hits and participants in the industry itself would be either laid off or face cuts in income.

You assume that money saved from health care will not be spent or invested elsewhere. Savings from health care, much like a tax cut or a drop in the price of gasoline will eventually be spent elsewhere. This will cause growth in another area of the economy. So the big question is "Can health care costs be cut without laying off large numbers of people?" My answer is probably not. But assuming your 15 to 1 ratio is correct, that's a highly inefficient, unsustainable system which will fail at some point anyway. I disagree that nothing can be done. But I fear nothing, or almost nothing will be done.

.....Again, just as with health care, the construction industry and the downstream related jobs as well as the enormous holdings within the financial sectors have become dependent on the status quo. You enforce the law and Wall Street suffers as well as regular people dependent on pensions. Margins become smaller when labor costs rise. This section of the economy is now too big to fail and too important to reform. So the flow of illegals cannot be stopped.

Again there would be a disruption and some discomfort. But the current system is also unsustainable. When I graduated from high school, back when dinosaurs roamed the earth, several of my classmates went to work building houses. After learning the trade, they hoped to become contractors or builders. That career path is no longer available, since a very large number of illegal aliens are willing to work for less than the minimum wage and with no benefits. A large majority of contractors are now former illegals who were smart enough to learn english and become legal. These guys take advantage of the illegals to provide cover for the builders. They are driving legitimate contractors out of the business.

So if we stop this corrupt and unsustainable practice, there will be disruption in the marketplace. But houses will be built and the economy will recover. I think it would be better to take our medicine now, rather than wait for these systems to fail over the long term. But I doubt anything will be done to fix this problem either.

 

[Musburger1]

You assume that money saved from health care will not be spent or invested elsewhere. Savings from health care, much like a tax cut or a drop in the price of gasoline will eventually be spent elsewhere. This will cause growth in another area of the economy. So the big question is "Can health care costs be cut without laying off large numbers of people?" My answer is probably not. But assuming your 15 to 1 ratio is correct, that's a highly inefficient, unsustainable system which will fail at some point anyway. I disagree that nothing can be done. But I fear nothing, or almost nothing will be done.



Again there would be a disruption and some discomfort. But the current system is also unsustainable. When I graduated from high school, back when dinosaurs roamed the earth, several of my classmates went to work building houses. After learning the trade, they hoped to become contractors or builders. That career path is no longer available, since a very large number of illegal aliens are willing to work for less than the minimum wage and with no benefits. A large majority of contractors are now former illegals who were smart enough to learn english and become legal. These guys take advantage of the illegals to provide cover for the builders. They are driving legitimate contractors out of the business.

So if we stop this corrupt and unsustainable practice, there will be disruption in the marketplace. But houses will be built and the economy will recover. I think it would be better to take our medicine now, rather than wait for these systems to fail over the long term. But I doubt anything will be done to fix this problem either.

Good points about the savings of health care costs going elsewhere. If cost uts are achieved, the majority of the population would have the choice of more capital to spend or put to use toward business. Of course the protected cartels (Wall Street, Insurers, Pharmacy, etc.) will fight reform all the way and they have the clout in Congress.

 

[Run Pincher]

Mus I’ll have to ask an important question, and I’ll admit I don’t have all the info/data available, but I’ll present what I do know. First, when I was taking Econ 302 I think it was, I had a professor that claimed illegals don’t affect the unemployment rate of US citizens because they only take jobs citizens won’t do anyway. Of course he had data and graphs to back it up.

Second, I’ve worked for a number of large corporations and every single one of them use very sophisticated software and do extensive background checks to make sure all applicants are legal. Although I didn’t work in HR, I worked with them enough to know they took this VERY SERIOUSLY to avoid any fines or penalties. I’ve see a couple of very good employees dismissed because their checks didn’t pass. I can’t imagine the healthcare industry being much different when it comes to worker verification policy and procedure. Just how many jobs can an illegal get that isn’t cash and something a citizen would even consider?

I don’t know that much about the construction industry but is it that common they’re in violation of the law when manufacturing companies are doing about everything possible to be in compliance? Are they really that dependant on illegal workers? And I’ve been witness to the laws being enforced very strictly upon a couple of manufacturing companies. You would be amazed at how serious some of the HR people are and how scared they are of the EEOC and sate agencies. And per 4th’s post maybe the construction business is different, I dunno? But just how many jobs are we talking about?

Finally, I’ve visited with around 10 people in the last year with the title Plant Manager, Manufacturing/Operations Director/Manager, etc. When I ask them what their biggest challenge is the response is, “we can’t get enough people”. And this is all over the US. They state that everyone that wants a job, has one. I’ve personally witnessed more people than I can count walk off the job at the first break or not return the next day stating, “this is hard work, why am I doing this when I can sit at home and get paid for doing nothing”? OK, I made the second part up, but they are essentially saying that.

You can’t convince me there are unskilled workers that can’t get a job because I know too many managers that would hire them instantly if they would just show up and put forth a little effort. The claim that an illegal has taken their job just simply isn’t valid. I realize starting pay is usually not much above minimum wage, but I’ve certainly seen a few people who actually had some motivation work their way up too well paying jobs. The opportunity is certainly there for anyone wanting to achieve it.

Of course I didn’t say anything to address health care costs other than labor, and the other issues in healthcare are so huge I’m not even sure where to begin.

 

[Musburger1]

As far as illegals only take jobs Americans won't do and therefore don't suppress wages, that's kind of a chicken before the egg argument. Taken as an instantaneous snapshot of the market, it's a true statement, in the context over an extended period of time, its another story. Simple supply and demand. If you import enough qualified applicants willing to work for low compensation, the compensation will be low.

In today's America, if a person can survive on disability or other state support, why would they slave 40 hours or more per week with no significant increase of living standard? It's not so much a question of being lazy as it is weighing the available choices and choosing the one most beneficial. So it's not a question of being able to get a job, but a question of getting a job which improves a person's living standard.

 

[4th_floor]

Mus I’ll have to ask an important question, and I’ll admit I don’t have all the info/data available, but I’ll present what I do know. First, when I was taking Econ 302 I think it was, I had a professor that claimed illegals don’t affect the unemployment rate of US citizens because they only take jobs citizens won’t do anyway. Of course he had data and graphs to back it up.

Second, I’ve worked for a number of large corporations and every single one of them use very sophisticated software and do extensive background checks to make sure all applicants are legal. Although I didn’t work in HR, I worked with them enough to know they took this VERY SERIOUSLY to avoid any fines or penalties. I’ve see a couple of very good employees dismissed because their checks didn’t pass. I can’t imagine the healthcare industry being much different when it comes to worker verification policy and procedure. Just how many jobs can an illegal get that isn’t cash and something a citizen would even consider?

I don’t know that much about the construction industry but is it that common they’re in violation of the law when manufacturing companies are doing about everything possible to be in compliance? Are they really that dependant on illegal workers? And I’ve been witness to the laws being enforced very strictly upon a couple of manufacturing companies. You would be amazed at how serious some of the HR people are and how scared they are of the EEOC and sate agencies. And per 4th’s post maybe the construction business is different, I dunno? But just how many jobs are we talking about?

First of all, your Econ prof is a liberal kool aid drinker. Visit a new home construction site and see if you can find anyone who speaks English well enough to have a simple conversation. I expect it's true that you can't find citizens who will work a construction job for less than $5/hour, who will sleep on the floor of a slummy apartment with 2 or 3 other illegal workers, and who will work without any benefits. If you look at it that way, it's true there is no real effect on the unemployment rate. However, the reason these jobs pay so little is that there is a large supply of illegals who will work under these conditions. If we are able to dry up the supply of illegals, eventually the old jobs might come back. Then again, they might be gone for good as automation is becoming more economically feasible.

Second, I've worked for large corporations as well. In the mid-90s, I was a production manager for one such corporation. I was sent an applicant that I was basically told to hire from corporate HR. His mother worked in another department in the company. He had no DL, but presented me with a SS card that had a suspiciously low number for someone his age. But I hired him despite my suspicions. When his mother was swept up in an immigration raid and sent back to Mexico, he disappeared for more than 3 days, which allowed me to terminate him. I will tell you for certain that the job he took was one that a citizen would do.

Illegals who purchase ID from indentity theives can work for any employer. It can take years for these illegals to be discovered. Another common way for illegals to work is to work for small contractors who specialize in providing cheap labor. The business pays the contractor, who is legal. The contractor, who claims to be small enough to escape immigration scrutiny, pays cash to his workers and keeps books that make him look legit.

When you consider that there are 10 to 20 million illegals working in the US, how many jobs do you think they are taking? When you consider that home construction, landscaping, agriculture, and the restaurant industry are largely staffed by illegals, how can you claim that there is no effect on employment of citizens?

 

[Run Pincher]

First of all, your Econ prof is a liberal kool aid drinker. Visit a new home construction site and see if you can find anyone who speaks English well enough to have a simple conversation. I expect it's true that you can't find citizens who will work a construction job for less than $5/hour, who will sleep on the floor of a slummy apartment with 2 or 3 other illegal workers, and who will work without any benefits. If you look at it that way, it's true there is no real effect on the unemployment rate. However, the reason these jobs pay so little is that there is a large supply of illegals who will work under these conditions. If we are able to dry up the supply of illegals, eventually the old jobs might come back. Then again, they might be gone for good as automation is becoming more economically feasible.

Second, I've worked for large corporations as well. In the mid-90s, I was a production manager for one such corporation. I was sent an applicant that I was basically told to hire from corporate HR. His mother worked in another department in the company. He had no DL, but presented me with a SS card that had a suspiciously low number for someone his age. But I hired him despite my suspicions. When his mother was swept up in an immigration raid and sent back to Mexico, he disappeared for more than 3 days, which allowed me to terminate him. I will tell you for certain that the job he took was one that a citizen would do.

Illegals who purchase ID from indentity theives can work for any employer. It can take years for these illegals to be discovered. Another common way for illegals to work is to work for small contractors who specialize in providing cheap labor. The business pays the contractor, who is legal. The contractor, who claims to be small enough to escape immigration scrutiny, pays cash to his workers and keeps books that make him look legit.

When you consider that there are 10 to 20 million illegals working in the US, how many jobs do you think they are taking? When you consider that home construction, landscaping, agriculture, and the restaurant industry are largely staffed by illegals, how can you claim that there is no effect on employment of citizens?

That's why I stated it as a question, because I don't work in the construction, land, etc industries so I really don't know. One thing I do know is that there are currently plenty of unskilled jobs available for anyone that wants to work. I know too many people that would hire 50-100 workers today if they could get them, but they can't get people that will work and if they wont work in manufacturing, they aren't going to work construction either so it's hard to claim an illegal is taking a job away from them. That isn't always the case, but it is right now with the unemployment rate so low.

As to the Econ prof, well certainly but I was just using it as an example. But they all aren't. I had a few in the McCombs school that were pretty conservative.

 

[BrntOrngStmpeDe]

That's why I stated it as a question, because I don't work in the construction, land, etc industries so I really don't know. One thing I do know is that there are currently plenty of unskilled jobs available for anyone that wants to work. I know too many people that would hire 50-100 workers today if they could get them, but they can't get people that will work and if they wont work in manufacturing, they aren't going to work construction either so it's hard to claim an illegal is taking a job away from them. That isn't always the case, but it is right now with the unemployment rate so low.

As to the Econ prof, well certainly but I was just using it as an example. But they all aren't. I had a few in the McCombs school that were pretty conservative.

I think these manufacturing jobs you speak of must be the sort that are paying about a nickel above the minimum wage. Wages make a difference. In Econ we all learned that utility, opportunity cost and viable options all factor in to the decision. Immigrants don't have a lot of other options so they'll take whatever wages they can because it is likely better than anything they had back home. Whereas US citizens have other options. Wrongly, IMO, but they do have other options besides work.

If the wages aren't enough to pay my bills and the additional child care expense then I may be better off financially just staying home and collecting a govt check. I think most people that want to limit immigration are probably of the mind that we should also end this practice and limit perpetual welfare and handouts.

Both things need to happen. End illegal immigration and limit all immigration, AND put a lifetime cap on welfare benefits. It's supposed to be a hand up not a permanent income stream.

There's was a time not too long ago that most of these jobs were done by US citizens. They will be again when the wages match up.

 

[Mr. Deez]

First, when I was taking Econ 302 I think it was, I had a professor that claimed illegals don’t affect the unemployment rate of US citizens because they only take jobs citizens won’t do anyway. Of course he had data and graphs to back it up.

I'm generally a believer in experts. However, I become a skeptic when the issue being researched involves hundreds of billions or trillions of dollars, because there is an overwhelming incentive for the research to be result-driven to fit the agenda of whoever is funding it. That's especially true when it's in stark conflict with what's ordinarily pretty basic logic.

Illegal immigrants probably don't impact unemployment or wages across the board. However, to suggest that they don't impact unemployment and/or wages in the areas in which they work is absurd. That's like saying that a huge chain of gas stations that sell gas for 50 cents a gallon won't impact the price of gas nationwide. Of course it would.

I don’t know that much about the construction industry but is it that common they’re in violation of the law when manufacturing companies are doing about everything possible to be in compliance? Are they really that dependant on illegal workers? And I’ve been witness to the laws being enforced very strictly upon a couple of manufacturing companies. You would be amazed at how serious some of the HR people are and how scared they are of the EEOC and sate agencies. And per 4th’s post maybe the construction business is different, I dunno? But just how many jobs are we talking about?

Second, I’ve worked for a number of large corporations and every single one of them use very sophisticated software and do extensive background checks to make sure all applicants are legal. Although I didn’t work in HR, I worked with them enough to know they took this VERY SERIOUSLY to avoid any fines or penalties. I’ve see a couple of very good employees dismissed because their checks didn’t pass. I can’t imagine the healthcare industry being much different when it comes to worker verification policy and procedure. Just how many jobs can an illegal get that isn’t cash and something a citizen would even consider?

I can only speak from anecdotal experience. As most know, before moving to Europe, I represented personal injury plaintiffs and worked for a firm that marketed heavily to the Hispanic community. In other words, I represented lots of illegal immigrants. They generally had two kinds of arrangements with their employers. Those who built houses or did landscaping for a living usually worked for very small subcontractors and got paid in cash or by personal check, and they would be illegally classified as independent contractors if the boss acknowledged their existence at all.

Those who worked for larger or more superficially legitimate businesses got phony Social Security cards, and once they had those, they could pretty much work anywhere they wanted. I got to see some of these, and there's no way they were fooling the employers. They had the appearance of a Social Security card, but they didn't feel like it at all. Imagine someone giving you a $100 bill, and it looked like a $100 bill but felt like a note card - didn't bend in your wallet, etc. Would you be fooled? But the point isn't to fool the employer. The point is for the copy to look real so that the employer will have plausible deniability if the feds investigate, which rarely happens.

You may think that companies with HR departments wouldn't hire illegal immigrants, but here are some that I know for certain did hire illegals, because I represented them and sued some of these employers. HEB, McDonald's, Johnny Carino's, Otis Spunkmeyer, Pilgrim's Pride, Barton Creek Resort & Spa, and the City of Austin (Yes, the City of Austin.). The illegal immigrants were not classified as subcontractors. They were classified as employees - had personnel files, got W-2s, etc. These are the ones I can think of off the top of my head and without access to my old files. There were tons of commercial construction companies and contractors, restaurant chains, hotels, etc.