TANSTAAFL

Back in 1982 when I was an electrical engineering major at San Jose State University, one of the better professors there was illustrating the application of an operational amplifier in an amplifier circuit that was connected to a network of capacitors and inductors. Then he pointed out something that had to be given up in order to increase the gain out of that circuit. If you wanted more gain, you had to give up frequency response, and if you wanted more of a frequency range that the circuit would operate in, you had to give up gain.

At that point he brought up a word that I hadn't heard of before that time: TANSTAAFL. He explained that it came out of a Robert Heinlein novel called "The Moon is a Harsh Mistress", which I went on to read shortly after that lecture. TANSTAAFL stands for "There Ain't No Such Thing As A Free Lunch". Sure, you could have an amplifier with all the gain that you wanted if you were willing to give up frequency response. (You could also change the values of the capacitors and inductors, but that in itself would have some other implications).

Now it's August of 2009, and the debate on health coverage in the United States is raging. There seems to be a mentality amongst the "single payer" proponents that if the government's paying for it, that it's a good thing, and it won't hit your average Joe or Jane in the pocketbook.

The thing of it is, is that this kind of system isn't really "free". The money has to come from somewhere. Think about it. Several billion dollars has to be raised to set up the infrastructure to deliver this kind of health care system. Where does that money come from?

Some of you will say "that's no problem, we can raise taxes on the rich". That sounds logical except that the wealth of the rich are in the forms of stocks, bonds and other investments, and do not become cash until these assets are liquidated. If you kick them into a higher tax bracket, you are removing liquid assets that are converted into consumption, investments, or venture capital.

What about taxing their wealth and not their income? Liquidating a large block of stock in a corporation can raise cash but this will cause the stock price to go down, thus impacting the market capitalization of that corporation....thus causing a decrease in the "wealth" of that corporation. This can only be avoided if a buyer can be found who will buy out that block of stock, but where are you going to find such a buyer? There are only a finite amount of people or institutional investors in the world who could buy that stock and keeps its price up. Even if you do find such a buyer, what's to stop the other investors into not panicking and selling? Mutual funds who have also invested will take a hit, and this in turn will impact the retirement savings of millions of Americans.

OK, so what's another option? How about raising taxes on cigarettes? After all, cigarette smokers are in the minority, and they can't very well stop us from taxing them, can they?

Here is where the Law of Unintended Consequences comes in. Let's say that you slap a $5 tax per pack of cigarettes to raise money for universal health care. In order for this to work, you are going to have to make sure that the taxes are collected in the first place, which means that you will need lot of people to smoke cigarettes. I think a great many smokers will give up the habit in that kind of situation, which means that the revenue stream that you were counting on isn't there any more, at which point you raise the tax to $10 per pack, which in turn gets more people to quit since they can't afford the tax or don't want to pay it.......you see where this is going? If you tax fast food, you're going to have the same issue....and you would with any other "sin" tax.

There's one more option. Print the money. Just turn on those presses, get them chucking out $1000 bills 24/7/365, and print what you need. You're not raising taxes and you're not depending on a revenue stream from a sin tax.

The problem here is, is that if you create money out of thin air, you're inflating the currency. There's no getting around that. If say, there is in existence 5 trillion dollars out there, and you print 5 trillion more, then guess what? You now have 10 trillion dollars in existence, with no commensurate increase in the amount of goods and services that will be bought with those 10 trillion dollars. In this simplistic example, you've doubled the price of every commodity. If your income is also doubled to cover this, what you get is twice as many dollars that are only worth half as much as they were when you started out. And if your income isn't doubled -- say that your pay went up by 40% in this example -- then five per cent of your income has been confiscated from you and you won't even know about it!

What I'm saying here, is that you can't get away from TANSTAAFL when it comes to government-run health care. Even if you balance all three of these options, providing that such a balance that satisfies all concerned can be found in the first place, the amount of health care available is still a finite fixed quantity. It's going to have to be rationed. There's no getting around that either.

I'll grant that health care is expensive. That's because the system for getting the product of health care to the end consumer is extremely complicated. Pharmaceutical companies spend millions of dollars researching treatments. Research and development costs are no doubt a huge factor, but you also have product liablity issues to contend with. How often do you hear of a new wonder drug that comes out, gets approved by the FDA, but then gets banned when it's learned that this new wonder drug causes liver damage or cancer or something else that's bad? You now have a pharmaceutical company facing a class action lawsuit. That company has to prepare for those suits, and the costs that they face absolutely positively will be recovered and that recovery will come in the form of expensive drugs.

Likewise, you have thousands of medical professionals paying millions (if not billions) of dollars in the form of malpractice insurance. I'm not saying that quack doctors should be immune to lawsuits....what I'm saying is that their mistakes are being paid for by competent doctors who really have no choice but to pass those costs on to the insurance companies, who in turn pass that on to the consumer or the corporation that provides that health plan to their employees.

The bottom line is that we have a complex problem that is going to defy every simple solution that's thrown at it. I don't think that an 1100 page long piece of legislation is going to fix this, but neither is a simple approach like "single payer" that can be written up twenty pages.

TANSTAAFL certainly does indeed apply here, and we should realize that if we decide to take it upon ourselves to "fix" this problem.