March 1, 2025 • 22 mins
As the U.S. deficit balloons toward $2 trillion annually and total national debt surpasses $36 trillion, the financial sustainability of government spending has never been more uncertain. Economist and UVA professor Edwin Burton joins host Hunter Craig to break down the underlying economic forces shaping America’s future.
Topics Covered:
✅ The impact of rising debt and deficits on the economy
✅ How healthcare spending is driving the debt crisis
✅ The unintended consequences of government-run healthcare
✅ Social Security’s flaws and potential reforms
✅ What policymakers could learn from private insurance models
Key Takeaways:
🔹 Government-run healthcare often leads to rationing and declining quality
🔹 Social Security disproportionately benefits wealthy retirees while failing lower-income earners
🔹 The absence of competitive pricing in healthcare fuels inefficiency and waste
🔹 Policy reforms could introduce more market-driven solutions to control costs
Financial Disclaimer:
The information provided in this podcast is for educational purposes only. It does not constitute financial or investment advice. Please consult with a professional before making any financial decisions.
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Connect With Us:
Email: rubbermeetstheroadeconomicspod@gmail.com
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Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
(00:00):
Welcome to The Rubber Meets The RoadEconomics, the podcast where we explore
(00:03):
the driving forces behind today's economyand their real world implications.
Join investor Hunter Craig as heinterviews professor Edwin Burton
from the University of Virginia,delving into the complexities of
economics with clarity and insight.
Whether you're an economicsenthusiast or just curious about how
economic policies affect your dailylife, you're in the right place.
(00:25):
Let's get started.
Today is February 27th, 2025.
We're here with world renowned professorEd Burton from the University of Virginia.
Professor, we are in a Economic brew ofrising interest rates, sticky inflation,
debt, 36 trillion and growing, annualdeficit approaching 2 trillion, Department
(00:50):
of Government efficiency doge is makingsignificant cuts in the federal workforce.
Is this good or bad for economics?
The economy always suffers whenpeople lose jobs, whether it's
through the efforts of Doge orthrough the regular economy.
Those jobs will have to be madeup for folks, and that's not
going to be easy to do that.
(01:11):
Now, looked at from a different point ofview, if you're trying , slice the cost
of government, those are all pluses,but in terms of the macroeconomic
effect, That'll add to unemployment.
We have a deficit of a couple trilliona year, almost just shy of two trillion.
Total debt of over 36 trillion,growing to 50 trillion in the
next seven to eight years.
You've stated before that, youcan't move the needle without
(01:34):
dealing with health care.
How would you deal with healthcare?
Let me say at the outset that thisis not uniquely a U. S. problem.
It's a problem with a couple of factors.
First of all, we've so greatly improvedthe world's health capabilities
that people live a lot longerthan they did, say, 50 years ago.
(01:55):
Second, the fertility rates havedropped throughout the developed
world and even, China is strugglingto maintain their population as well.
The number of children born isnot enough to replace what we
lose from normal mortality.
So most populations in the developedworld would be shrinking were it
not for some form of immigration.
(02:16):
And that's true of the U. S. It'sreally notoriously true of a country
like Japan, which has been shrinkingfor quite a number of years.
But it's also going to be true of China.
They're going to lose population as well.
And the population that you haveis getting older, much older.
The demographics look for furtherconcentration in the oldest ages.
And that's where a lot ofyour health care concerns are.
(02:38):
So health care costs, if youcontinue to provide the same health
care we now provide in the U.
S. It's going to cost an enormousamount more than it does even today.
And that's true of England, it's trueof France, true of Germany, it's true
of China, it's true of Japan, it'strue of every place in the world.
So that's the nature of the problem.
(02:58):
Question is how do you solve it?
And if you dial the clock back 30or 40 years ago, well, I remember
many discussions about why don't wejust adopt what goes on in Europe?
Europe has government providedhealthcare for everybody, and
that all seems to work fine.
Well, with an ocean in between us, a lotof Americans didn't know the reality of
(03:20):
what goes on in Europe and in the UK.
People that live in the U. K. willtell you right away that most low
income to middle income peopleget almost no health care at all.
And that's true in mostEuropean countries.
And especially, they don'thave access to surgeries.
You don't have older peoplegetting massive numbers of
surgeries in a place like England.
(03:42):
And when they list the deaths, theyalmost never die on a surgical table
because they never really get there.
They just die wherever it is.
Again, whenever you have a governmentcontrolled health care program.
Rich people do great.
They basically avoid the health careprogram and they hire private sources
or fly themselves to India or somewhereover the U. S., somewhere where they
(04:04):
can get access to private doctors.
But the average person, he's stuck withthe government provided health care.
And what happens over time, as the costsrise, they just quit doing certain things.
Every day, the list of things that they'lldo for you in, countries like France or
the UK just gets smaller and smaller.
So they're kind of quietly erodingthe national health care system.
(04:27):
And they'll be the first to admit it.
That's a huge political issuein the United Kingdom right now.
There's a lot of discussion about it.
In our country, for a long time, we hadessentially a private health care system.
Prior to 1963, the health care systemin the U. S. was largely private,
(04:48):
with a number of charity hospitalssprinkled throughout the country.
Every major city had a charity hospital,and a number of private hospitals,
and when you went to a privatehospital, the first question they
ask you is, how are you going to pay?
And if you said, I can't pay,they said, there's the door.
And you left.
That, well, I remember when I was,as a child, I, we had that kind of a
(05:08):
confrontation with my grandfather, whowas quite ill, could not get him in
a hospital, and he died out in somefacility somewhere, because he couldn't.
afford some kind of surgery.
And that was quite common.
That was not an unusual story.
Then in 1963, John F. Kennedy hadproposed something as a senator
that ultimately became the KerrMcGee Act, which became Medicare.
(05:31):
And originally, Medicare was just topay one fourth of health insurance.
You were, To go out and get your ownhealth insurance, and then the government
would pay one fourth of that cost.
And that was billed to cost thecountry as a whole about 2 billion
a year, as we projected out.
Wouldn't that be nice ifit was 2 billion a year?
If it was truly 2 billion ayear, or even a hundred times
(05:54):
that, we'd be in great shape.
And what is it today?
Over a trillion a year.
It's trillions of dollars, butit's really where it's going.
There's no slowing it down becausewe have more and more aged folks.
And by the way, they'reless and less healthy.
Our aging population feels like theydon't really need to protect themselves
very well, so they tend to overeat andget very little exercise, retire as
(06:17):
early as possible, and the net resultis we spend an enormous amount of
money on health care for people whoonly have a year or two left to live.
A significant part of the health careexpenditures are in that category,
and they tend often to be people, somepeople have illnesses just because
they couldn't help it or genetics.
(06:38):
But America is almost unique in havinga large number of people who kind of
eat their way into health problems.
If you go on the streets in a big city inAmerica and you watch elderly people walk
down the street, you'll see it right away.
Compare that to being inParis or Rome to what you see.
You see a lot of thin peoplein Paris, thin, older people.
You don't see a whole lotof thin, older people.
(07:00):
In America, the thin, older peopletend to be rich people, and the not
thin, older people tend to be poorpeople or middle income people.
And they have access throughMedicare and Medicaid, to
a lot of health facilities.
So, we don't take proper care ofourselves, and we're getting older.
And so we're going to have a wholelot more people hitting the health
(07:21):
care system than it there today.
But the biggest difference between1963 and today is, before 1963, I told
you the story of how we tried to getmy grandfather in a hospital and we
couldn't pay, so he couldn't get surgery.
Now, somebody would think that was almostcriminal for the hospital to do that.
Oh, they've got to take him in.
(07:41):
And in my grandfather's case, not tothrow cold water on my grandfather, but
he was a hopeless alcoholic and smoked,two, three packs of cigarettes every day.
And he was dealt some pretty goodgenetics, but he took a sledgehammer
to the genetics and there he was.
So, the current thought is if someonelike my grandfather shows up at the
hospital who essentially created hisown health care problem, which he did,
(08:05):
taxpayers of the country should foot it.
And that's what's going on.
So people feel like their healthcare is a right, that you can't deny
health care on the basis that someonecan't afford it, and it doesn't
matter why they have bad health care.
They may have You know, they couldbe a bank robber going into a bank,
trying to shoot up the bank, and theyactually get shot by a policeman.
(08:27):
Okay, fine.
That's how they got shot, but thenthey go to a hospital, and they
become the number one project,and taxpayers paid for all that.
And they do.
It doesn't make any differencewhy you get into a hospital.
If you're just an American citizenthese days, they can't turn you away.
And people know that.
So if you know that, whytake any special care?
(08:47):
Why go out for that next run or becareful about your diet or anything else?
When you had to pay for your own healthcare, and you knew that you might not be
able to get any, you might have a secondthought about that third cheeseburger
or about that fifth drink one night.
But if somebody else is going to coverall your health care and you don't have
to worry about it, you just do whateveryou want, there's a tendency to maybe
(09:10):
not take as much care of yourself.
So And then when you use the healthcare system, what do you want?
Well, you want everything.
Imagine if you had a free cardto go to the grocery store.
If we gave everybody in America a we said,we think everybody has the right to eat.
So therefore, here's what I'm going togive every family in America, a free
card to buy all the food they want.
And now they go intothe local grocery store.
(09:30):
What do they buy?
And they take the kids with them.
Well, they just buy everything.
I might as well buy the most expensivethings you can find or whatever, but
you're not a very careful shopper.
You're not going to sit there and comparethe price of this to the price of that.
You won't do that.
And people don't do itin the healthcare system.
Most people have no idea whatthe cost for their healthcare is.
They go in, they go to thehospital, they get something done.
(09:52):
And they have no idea what it costs.
So Adam Smith said the key tooptimal outcomes is competition.
How do we instillcompetition into Medicare?
And there's a way to adopt a systemsimilar to our car insurance, where
you have catastrophic insurance,
complicated subject, and youhave to look at it from a number
(10:12):
of different points of view.
First of all, from the userof the health care system.
The user assumes that it's a right toget free health care, and therefore
they do not shop for health care.
They don't care what they get charged.
And doctors know that.
So, if you're, suppose you're in abusiness, and you know that the customer
does not care what he pays, and he comesin, and he says, I want to buy a shirt,
(10:36):
well, how about these four shirts?
You're not paying anyway.
Maybe you want this one and thatone, and how about ten of them?
So there's an incentive on the partof the hospital and the doctor, too.
So you've got a shopper who doesn'tcare what price he's paying.
And, you know, doctors are only human.
I mean, it's not evil to suggestthat, well, maybe this test is not
(10:59):
absolutely necessary, but let's do it.
You probably wouldn't do it ifyou were paying for it yourself.
You'd say, well, do I need that?
Do I need really to have that?
You know, I'm struck by, I went inmyself one time to get an MRI, and when
I got to the hospital, the lady at thedesk said, your MRI has been canceled.
And I said, oh, who canceled it?
(11:21):
He said, it's been canceled.
You can go home.
I said, I didn't cancel it.
She says, it's been canceled.
I said, who has the right to cancel it?
My doctor didn't cancel it.
I didn't cancel it.
He said, Oh, well, the insurancecompany won't pay for it.
I said, That's not the samething as it being canceled.
I want my MRI.
The doctor told me I neededone, and I'm here to take it.
(11:41):
So I went and had my MRI, andI came out from the MRI, and
the lady said, You're in luck.
The insurance company has decidedthey're going to pay for it when they
found out you just went in and got it.
And I said, Let me ask you a question.
Do other patients, when the insuranceturn them down, do they just get told
it's canceled, and then they go home?
(12:02):
She said, Yes.
so much.
No one ever gets an MRI unlessthe insurance company pays for it.
Well, now that's interesting.
Who decides whether theinsurance company pays for it?
it's not the doctor that's decidingwhether you should have the MRI.
It's some person who has no ideawhat the healthcare situation
is, he's making that decision.
And so people are not only payingtoo much because they kind of want
(12:26):
everything if it's available, they'reoften getting the wrong things.
There's a great study by John Goodman.
He took doctors who saw very similardiagnoses, and he found out if you
looked at what they prescribed Forthe patients, they tended to subscribe
similar things only in the case where thepatients had the same insurance company.
(12:47):
And if the patient had a different,same doctor had a different insurance
company with the same diagnosis, they'regoing to describe something else.
And it fit what the insurancecompany would pay for.
So doctors look at whatthe reimbursement is.
And they decide on thatbasis how to treat you.
people respond to incentivesis the way it works.
And if you tell people that theprice system doesn't matter, go
(13:10):
into the grocery store and justprices don't make any difference.
You can have whatever you want.
Then they will not shop intelligently.
They will not try to get what's reallyappropriate for them, and if the store
realizes they're going to be reimbursedfor everything, they'll just give whatever
they want out, but they won't giveout what they won't be reimbursed for.
They'll keep that, maybe sell it.
And so you have a crazy systemwhere the healthcare that people
(13:33):
get isn't really very good.
And it's unbelievably expensive, and thepeople that get the best health care in
America are the same people that get thebest health care in Europe, rich people.
They do great.
If you're really rich, or somehowconnected, I'll never forget when I
spent a fair amount of time at UVAthe hospital, I don't know if you
(13:55):
remember the room I had, Hunter, butit was the best room in that hospital,
because I was Professor Burton.
I was treated like the king of Siam,and I'm sure the guy that comes in and
sweeps the Ground seems to snow off thesidewalks, I bet he didn't get that room.
He got some room with three otherroommates somewhere in the building.
So, if you don't allocate aproduct by price, which is,
(14:19):
well, we don't in healthcare.
Price is not the issue.
Then it gets allocated by who has lotsof money, who has lots of connections.
And that's how you get health care.
And you're, you're gonna allocateit one way or another because you
don't have an unlimited amount of it.
So do you allocate it by theprice system or the buddy system?
(14:40):
So if you're a well known,connected politician, suppose
you're the local congressman,think you get good health care?
Of course, you get the best.
But if you're the guy that cuts hisgrass, no, you'll wait 12 hours in
the emergency room to even be seen.
So, you end up with really a veryunfair healthcare system, which
is what we have in this country.
So you've recommended a bookbefore, Priceless, on healthcare,
(15:02):
who is the author of Priceless?
Uh, John Goodman.
John Goodman, the Claremont Institute,he's, he wrote a book called Priceless,
which was originally published in 2014.
And I knew John, butI never read the book.
And then about a year ago, I read thebook, and I honestly couldn't believe it.
That's one of the best research treatmentsof American healthcare I've ever seen.
(15:25):
And John suggests a lot of reforms,but they're mostly, people need to know
that health care costs and they needto pay for a lot of their health care.
Just like if you want somebodyto take care of their car, they
should pay for their, repairs.
Insurance companies know that.
That's why they have deductibles.
If you know that the insurance companyis just going to cover every wreck
(15:45):
you have, you're going to drivequite a bit differently than if you
know you're the one that has to pay.
It affects behavior,knowing who's going to pay.
And that's.
That's what happened, that'swhat's happened in this country.
I think our concern about healthcare, the drug habits that have gone
completely rampant among young peoplein America, and it's not, you know, when
you think of the drug problem, peopleoften think poor people are using drugs.
(16:09):
No, it's not poor people using drugs.
Go to any major university in America,go to Harvard and find out how much
drug use there is all over the place.
It's actually people that have a lot ofresources that use drugs quite a bit.
That's what drives the drugtraffic in a lot of the East Coast.
You'd think, do they worryabout the long run consequences?
We know that drugs have a terribleeffect on you over time, and
(16:31):
that's why they're not a good idea.
That's why they're illegal.
And even marijuana, which moststudents, if you poll students,
they think marijuana's good for you.
And we have a huge amount of evidencethat it's terrible for you, but the
universities won't tell them that.
And certainly the drug dealers they'rebuying from won't tell them that.
And so you have all these health problemsthat develop because students feel
(16:51):
like, well, it really doesn't matter.
And besides, I'm not payingfor my health care anyway.
If something happens, I can just godown to my friendly, hospital and
they'll take me in and I'll be fine.
you're stuck in a quandary here.
The heart of the problem is to runthe health care system correctly and
efficiently and cheaply and providegood health care means you have to turn
(17:13):
away people that can't sometimes pay.
Now, if those people happento not be able to pay because.
They just are poor and never beable to pay, then there's probably
a place for the government.
But that's not the system we have.
The system we have appliesto everybody, no matter what
their income or anything else.
Everybody assumes that theydon't pay for their health care.
(17:35):
There's not an employee of theUniversity of Virginia where I work.
It doesn't assume that they don'tpay anything for health care.
They assume they pay nothing.
the U. S. government isarguably in a debt spiral.
This year, in 2025, , willspend more money on debt
service than on the military.
We can't solve the annual deficitproblem, which is approaching 2
(17:58):
trillion, without dealing withhealthcare and Social Security.
What would you do with Social Securityto solve that problem and make Social
Security viable for the next 50 years?
Well, I think Social Security is easybecause there's a huge amount of Social
Security payments going to peopleover the age of, say, 70, and the vast
bulk of those people are well healed.
(18:19):
They don't really need theSocial Security payments.
So given that much of Social Security,it's almost a reverse Robin Hood situation
because poor people who work all theirlives die at a much earlier rate than
rich people that just live on forever.
Warren Buffett's still alive and going,Charlie Munger last is 99, but I bet there
are people that cut their grass didn't.
(18:40):
So poor people tend to die muchearlier, their lives are much tougher,
and they don't have access to healthcare and diet and everything else,
so since Social Security is going to apretty well heeled group, it would be
pretty easy to You could either do itthrough taxes, or you could just outright
say, from now on we just don't paySocial Security to people whose asset base
(19:02):
is above a certain level or something.
There's all kind of ways.
Or people, a lot of people would justvoluntarily give up their Social Security
if they saw improvement in the system.
I would.
If you told me that I, if I voluntarilygave mine up, we could begin to end this
system, I would give it up in a heartbeat.
So the Burton family gets 70,000 a year in Social Security.
(19:26):
And low income people who triggerit at 62, what do they get?
They get about 18, 000 a year.
So it's not very beneficial tolow income people at all, because
they tend to trigger it early.
35 percent of all Social Securityretirees trigger the benefits early,
and so they get very low benefits.
People that have a lot of money or a lotof income, they can last till age 69 and
(19:48):
it goes up 8 percent a year per year.
So, Social Security actuallyis more beneficial to rich
people than poor people.
Poor people get very little out of it.
Even though it's heralded as incomemaintenance program, it's really not.
you got rid of that, suppose you justgot rid of the whole thing and quit
giving benefits to fairly wealthypeople and just gave people who are
(20:10):
poor benefits as they retire, thatwould not be a big number, frankly.
Because it all ends when theydie, unless they have a spouse.
I mean, you could work all your life, andif you die before you start collecting and
you don't have a spouse, that's the end.
You get nothing.
You pay in your entire life.
No affordability, your heirsget zero, unless they're minors.
And if you're 60, they'reprobably not minors.
(20:32):
So it's a terrible system for poor people.
And it's, just look at the numbers.
, it's 13%.
It's six and a half by the employee,six and a half by the employer.
So if you make 50, 000 ayear Do the arithmetic.
That's 6, 500 a year.
6, 500 a year.
If you put that in the S&P, oh my goodness, you could
retire a multimillionaire.
And, and a lot of them putthat 6, 500 a year in all their
(20:55):
lives and they get nothing.
Zero.
If you die of a gunshot wound at 59 andhave no spouse, that's the end of it.
So it's a terrible system.
What you need to do is offerpeople the opportunity to save.
We need to get the savingsrate up anyway in this country.
And you can do that with taxes.
You can do whatever you want to do.
Just say We'll match whatever yousave up to 10, 000, we'll match
(21:19):
it 50 cents for every dollaryou save or something like that.
It'll turn out that'll be a lotcheaper than Social Security.
Social Security is just a terrible thing.
And I don't know why it's alwayshad such a political defense.
It's probably becausepeople don't understand it.
And I think especially low income peopledon't realize that they get almost
(21:39):
no benefit out of Social Security.
A handful of low income peoplelive long enough to do any good.
The people that live long enough and dowell are white women who make it to 105.
They do great.
There are not too many ofthem, but they really, they,
they knock it out of the park.
And, you know, Charlie Munger,he did pretty well, and Warren
(21:59):
Buffett, he did pretty well, andI'm sure Bill Gates will do great.
In spite of drinking many cherry Cokes.
That's right.
Well, Professor, you'rethe best of the best.
Next podcast, we need to talk about Doge.
Thank you, Professor.
Thank you, Hunter.
Thank you for joining us for the RubberMeets the Road Economics Podcast.
(22:20):
If you enjoyed the discussion,remember to subscribe and stay
updated with future episodes.
Join us soon for more conversationsabout modern economics on the Rubber
Meets the Road Economics Podcast.
Welcome to The Rubber Meets The RoadEconomics, the podcast where we explore
(00:03):
the driving forces behind today's economyand their real world implications.
Join investor Hunter Craig as heinterviews professor Edwin Burton
from the University of Virginia,delving into the complexities of
economics with clarity and insight.
Whether you're an economicsenthusiast or just curious about how
economic policies affect your dailylife, you're in the right place.
(00:25):
Let's get started.
Today is February 27th, 2025.
We're here with world renowned professorEd Burton from the University of Virginia.
Professor, we are in a Economic brew ofrising interest rates, sticky inflation,
debt, 36 trillion and growing, annualdeficit approaching 2 trillion, Department
(00:50):
of Government efficiency doge is makingsignificant cuts in the federal workforce.
Is this good or bad for economics?
The economy always suffers whenpeople lose jobs, whether it's
through the efforts of Doge orthrough the regular economy.
Those jobs will have to be madeup for folks, and that's not
going to be easy to do that.
(01:11):
Now, looked at from a different point ofview, if you're trying , slice the cost
of government, those are all pluses,but in terms of the macroeconomic
effect, That'll add to unemployment.
We have a deficit of a couple trilliona year, almost just shy of two trillion.
Total debt of over 36 trillion,growing to 50 trillion in the
next seven to eight years.
You've stated before that, youcan't move the needle without
(01:34):
dealing with health care.
How would you deal with healthcare?
Let me say at the outset that thisis not uniquely a U. S. problem.
It's a problem with a couple of factors.
First of all, we've so greatly improvedthe world's health capabilities
that people live a lot longerthan they did, say, 50 years ago.
(01:55):
Second, the fertility rates havedropped throughout the developed
world and even, China is strugglingto maintain their population as well.
The number of children born isnot enough to replace what we
lose from normal mortality.
So most populations in the developedworld would be shrinking were it
not for some form of immigration.
(02:16):
And that's true of the U. S. It'sreally notoriously true of a country
like Japan, which has been shrinkingfor quite a number of years.
But it's also going to be true of China.
They're going to lose population as well.
And the population that you haveis getting older, much older.
The demographics look for furtherconcentration in the oldest ages.
And that's where a lot ofyour health care concerns are.
(02:38):
So health care costs, if youcontinue to provide the same health
care we now provide in the U.
S. It's going to cost an enormousamount more than it does even today.
And that's true of England, it's trueof France, true of Germany, it's true
of China, it's true of Japan, it'strue of every place in the world.
So that's the nature of the problem.
(02:58):
Question is how do you solve it?
And if you dial the clock back 30or 40 years ago, well, I remember
many discussions about why don't wejust adopt what goes on in Europe?
Europe has government providedhealthcare for everybody, and
that all seems to work fine.
Well, with an ocean in between us, a lotof Americans didn't know the reality of
(03:20):
what goes on in Europe and in the UK.
People that live in the U. K. willtell you right away that most low
income to middle income peopleget almost no health care at all.
And that's true in mostEuropean countries.
And especially, they don'thave access to surgeries.
You don't have older peoplegetting massive numbers of
surgeries in a place like England.
(03:42):
And when they list the deaths, theyalmost never die on a surgical table
because they never really get there.
They just die wherever it is.
Again, whenever you have a governmentcontrolled health care program.
Rich people do great.
They basically avoid the health careprogram and they hire private sources
or fly themselves to India or somewhereover the U. S., somewhere where they
(04:04):
can get access to private doctors.
But the average person, he's stuck withthe government provided health care.
And what happens over time, as the costsrise, they just quit doing certain things.
Every day, the list of things that they'lldo for you in, countries like France or
the UK just gets smaller and smaller.
So they're kind of quietly erodingthe national health care system.
(04:27):
And they'll be the first to admit it.
That's a huge political issuein the United Kingdom right now.
There's a lot of discussion about it.
In our country, for a long time, we hadessentially a private health care system.
Prior to 1963, the health care systemin the U. S. was largely private,
(04:48):
with a number of charity hospitalssprinkled throughout the country.
Every major city had a charity hospital,and a number of private hospitals,
and when you went to a privatehospital, the first question they
ask you is, how are you going to pay?
And if you said, I can't pay,they said, there's the door.
And you left.
That, well, I remember when I was,as a child, I, we had that kind of a
(05:08):
confrontation with my grandfather, whowas quite ill, could not get him in
a hospital, and he died out in somefacility somewhere, because he couldn't.
afford some kind of surgery.
And that was quite common.
That was not an unusual story.
Then in 1963, John F. Kennedy hadproposed something as a senator
that ultimately became the KerrMcGee Act, which became Medicare.
(05:31):
And originally, Medicare was just topay one fourth of health insurance.
You were, To go out and get your ownhealth insurance, and then the government
would pay one fourth of that cost.
And that was billed to cost thecountry as a whole about 2 billion
a year, as we projected out.
Wouldn't that be nice ifit was 2 billion a year?
If it was truly 2 billion ayear, or even a hundred times
(05:54):
that, we'd be in great shape.
And what is it today?
Over a trillion a year.
It's trillions of dollars, butit's really where it's going.
There's no slowing it down becausewe have more and more aged folks.
And by the way, they'reless and less healthy.
Our aging population feels like theydon't really need to protect themselves
very well, so they tend to overeat andget very little exercise, retire as
(06:17):
early as possible, and the net resultis we spend an enormous amount of
money on health care for people whoonly have a year or two left to live.
A significant part of the health careexpenditures are in that category,
and they tend often to be people, somepeople have illnesses just because
they couldn't help it or genetics.
(06:38):
But America is almost unique in havinga large number of people who kind of
eat their way into health problems.
If you go on the streets in a big city inAmerica and you watch elderly people walk
down the street, you'll see it right away.
Compare that to being inParis or Rome to what you see.
You see a lot of thin peoplein Paris, thin, older people.
You don't see a whole lotof thin, older people.
(07:00):
In America, the thin, older peopletend to be rich people, and the not
thin, older people tend to be poorpeople or middle income people.
And they have access throughMedicare and Medicaid, to
a lot of health facilities.
So, we don't take proper care ofourselves, and we're getting older.
And so we're going to have a wholelot more people hitting the health
(07:21):
care system than it there today.
But the biggest difference between1963 and today is, before 1963, I told
you the story of how we tried to getmy grandfather in a hospital and we
couldn't pay, so he couldn't get surgery.
Now, somebody would think that was almostcriminal for the hospital to do that.
Oh, they've got to take him in.
(07:41):
And in my grandfather's case, not tothrow cold water on my grandfather, but
he was a hopeless alcoholic and smoked,two, three packs of cigarettes every day.
And he was dealt some pretty goodgenetics, but he took a sledgehammer
to the genetics and there he was.
So, the current thought is if someonelike my grandfather shows up at the
hospital who essentially created hisown health care problem, which he did,
(08:05):
taxpayers of the country should foot it.
And that's what's going on.
So people feel like their healthcare is a right, that you can't deny
health care on the basis that someonecan't afford it, and it doesn't
matter why they have bad health care.
They may have You know, they couldbe a bank robber going into a bank,
trying to shoot up the bank, and theyactually get shot by a policeman.
(08:27):
Okay, fine.
That's how they got shot, but thenthey go to a hospital, and they
become the number one project,and taxpayers paid for all that.
And they do.
It doesn't make any differencewhy you get into a hospital.
If you're just an American citizenthese days, they can't turn you away.
And people know that.
So if you know that, whytake any special care?
(08:47):
Why go out for that next run or becareful about your diet or anything else?
When you had to pay for your own healthcare, and you knew that you might not be
able to get any, you might have a secondthought about that third cheeseburger
or about that fifth drink one night.
But if somebody else is going to coverall your health care and you don't have
to worry about it, you just do whateveryou want, there's a tendency to maybe
(09:10):
not take as much care of yourself.
So And then when you use the healthcare system, what do you want?
Well, you want everything.
Imagine if you had a free cardto go to the grocery store.
If we gave everybody in America a we said,we think everybody has the right to eat.
So therefore, here's what I'm going togive every family in America, a free
card to buy all the food they want.
And now they go intothe local grocery store.
(09:30):
What do they buy?
And they take the kids with them.
Well, they just buy everything.
I might as well buy the most expensivethings you can find or whatever, but
you're not a very careful shopper.
You're not going to sit there and comparethe price of this to the price of that.
You won't do that.
And people don't do itin the healthcare system.
Most people have no idea whatthe cost for their healthcare is.
They go in, they go to thehospital, they get something done.
(09:52):
And they have no idea what it costs.
So Adam Smith said the key tooptimal outcomes is competition.
How do we instillcompetition into Medicare?
And there's a way to adopt a systemsimilar to our car insurance, where
you have catastrophic insurance,
complicated subject, and youhave to look at it from a number
(10:12):
of different points of view.
First of all, from the userof the health care system.
The user assumes that it's a right toget free health care, and therefore
they do not shop for health care.
They don't care what they get charged.
And doctors know that.
So, if you're, suppose you're in abusiness, and you know that the customer
does not care what he pays, and he comesin, and he says, I want to buy a shirt,
(10:36):
well, how about these four shirts?
You're not paying anyway.
Maybe you want this one and thatone, and how about ten of them?
So there's an incentive on the partof the hospital and the doctor, too.
So you've got a shopper who doesn'tcare what price he's paying.
And, you know, doctors are only human.
I mean, it's not evil to suggestthat, well, maybe this test is not
(10:59):
absolutely necessary, but let's do it.
You probably wouldn't do it ifyou were paying for it yourself.
You'd say, well, do I need that?
Do I need really to have that?
You know, I'm struck by, I went inmyself one time to get an MRI, and when
I got to the hospital, the lady at thedesk said, your MRI has been canceled.
And I said, oh, who canceled it?
(11:21):
He said, it's been canceled.
You can go home.
I said, I didn't cancel it.
She says, it's been canceled.
I said, who has the right to cancel it?
My doctor didn't cancel it.
I didn't cancel it.
He said, Oh, well, the insurancecompany won't pay for it.
I said, That's not the samething as it being canceled.
I want my MRI.
The doctor told me I neededone, and I'm here to take it.
(11:41):
So I went and had my MRI, andI came out from the MRI, and
the lady said, You're in luck.
The insurance company has decidedthey're going to pay for it when they
found out you just went in and got it.
And I said, Let me ask you a question.
Do other patients, when the insuranceturn them down, do they just get told
it's canceled, and then they go home?
(12:02):
She said, Yes.
so much.
No one ever gets an MRI unlessthe insurance company pays for it.
Well, now that's interesting.
Who decides whether theinsurance company pays for it?
it's not the doctor that's decidingwhether you should have the MRI.
It's some person who has no ideawhat the healthcare situation
is, he's making that decision.
And so people are not only payingtoo much because they kind of want
(12:26):
everything if it's available, they'reoften getting the wrong things.
There's a great study by John Goodman.
He took doctors who saw very similardiagnoses, and he found out if you
looked at what they prescribed Forthe patients, they tended to subscribe
similar things only in the case where thepatients had the same insurance company.
(12:47):
And if the patient had a different,same doctor had a different insurance
company with the same diagnosis, they'regoing to describe something else.
And it fit what the insurancecompany would pay for.
So doctors look at whatthe reimbursement is.
And they decide on thatbasis how to treat you.
people respond to incentivesis the way it works.
And if you tell people that theprice system doesn't matter, go
(13:10):
into the grocery store and justprices don't make any difference.
You can have whatever you want.
Then they will not shop intelligently.
They will not try to get what's reallyappropriate for them, and if the store
realizes they're going to be reimbursedfor everything, they'll just give whatever
they want out, but they won't giveout what they won't be reimbursed for.
They'll keep that, maybe sell it.
And so you have a crazy systemwhere the healthcare that people
(13:33):
get isn't really very good.
And it's unbelievably expensive, and thepeople that get the best health care in
America are the same people that get thebest health care in Europe, rich people.
They do great.
If you're really rich, or somehowconnected, I'll never forget when I
spent a fair amount of time at UVAthe hospital, I don't know if you
(13:55):
remember the room I had, Hunter, butit was the best room in that hospital,
because I was Professor Burton.
I was treated like the king of Siam,and I'm sure the guy that comes in and
sweeps the Ground seems to snow off thesidewalks, I bet he didn't get that room.
He got some room with three otherroommates somewhere in the building.
So, if you don't allocate aproduct by price, which is,
(14:19):
well, we don't in healthcare.
Price is not the issue.
Then it gets allocated by who has lotsof money, who has lots of connections.
And that's how you get health care.
And you're, you're gonna allocateit one way or another because you
don't have an unlimited amount of it.
So do you allocate it by theprice system or the buddy system?
(14:40):
So if you're a well known,connected politician, suppose
you're the local congressman,think you get good health care?
Of course, you get the best.
But if you're the guy that cuts hisgrass, no, you'll wait 12 hours in
the emergency room to even be seen.
So, you end up with really a veryunfair healthcare system, which
is what we have in this country.
So you've recommended a bookbefore, Priceless, on healthcare,
(15:02):
who is the author of Priceless?
Uh, John Goodman.
John Goodman, the Claremont Institute,he's, he wrote a book called Priceless,
which was originally published in 2014.
And I knew John, butI never read the book.
And then about a year ago, I read thebook, and I honestly couldn't believe it.
That's one of the best research treatmentsof American healthcare I've ever seen.
(15:25):
And John suggests a lot of reforms,but they're mostly, people need to know
that health care costs and they needto pay for a lot of their health care.
Just like if you want somebodyto take care of their car, they
should pay for their, repairs.
Insurance companies know that.
That's why they have deductibles.
If you know that the insurance companyis just going to cover every wreck
(15:45):
you have, you're going to drivequite a bit differently than if you
know you're the one that has to pay.
It affects behavior,knowing who's going to pay.
And that's.
That's what happened, that'swhat's happened in this country.
I think our concern about healthcare, the drug habits that have gone
completely rampant among young peoplein America, and it's not, you know, when
you think of the drug problem, peopleoften think poor people are using drugs.
(16:09):
No, it's not poor people using drugs.
Go to any major university in America,go to Harvard and find out how much
drug use there is all over the place.
It's actually people that have a lot ofresources that use drugs quite a bit.
That's what drives the drugtraffic in a lot of the East Coast.
You'd think, do they worryabout the long run consequences?
We know that drugs have a terribleeffect on you over time, and
(16:31):
that's why they're not a good idea.
That's why they're illegal.
And even marijuana, which moststudents, if you poll students,
they think marijuana's good for you.
And we have a huge amount of evidencethat it's terrible for you, but the
universities won't tell them that.
And certainly the drug dealers they'rebuying from won't tell them that.
And so you have all these health problemsthat develop because students feel
(16:51):
like, well, it really doesn't matter.
And besides, I'm not payingfor my health care anyway.
If something happens, I can just godown to my friendly, hospital and
they'll take me in and I'll be fine.
you're stuck in a quandary here.
The heart of the problem is to runthe health care system correctly and
efficiently and cheaply and providegood health care means you have to turn
(17:13):
away people that can't sometimes pay.
Now, if those people happento not be able to pay because.
They just are poor and never beable to pay, then there's probably
a place for the government.
But that's not the system we have.
The system we have appliesto everybody, no matter what
their income or anything else.
Everybody assumes that theydon't pay for their health care.
(17:35):
There's not an employee of theUniversity of Virginia where I work.
It doesn't assume that they don'tpay anything for health care.
They assume they pay nothing.
the U. S. government isarguably in a debt spiral.
This year, in 2025, , willspend more money on debt
service than on the military.
We can't solve the annual deficitproblem, which is approaching 2
(17:58):
trillion, without dealing withhealthcare and Social Security.
What would you do with Social Securityto solve that problem and make Social
Security viable for the next 50 years?
Well, I think Social Security is easybecause there's a huge amount of Social
Security payments going to peopleover the age of, say, 70, and the vast
bulk of those people are well healed.
(18:19):
They don't really need theSocial Security payments.
So given that much of Social Security,it's almost a reverse Robin Hood situation
because poor people who work all theirlives die at a much earlier rate than
rich people that just live on forever.
Warren Buffett's still alive and going,Charlie Munger last is 99, but I bet there
are people that cut their grass didn't.
(18:40):
So poor people tend to die muchearlier, their lives are much tougher,
and they don't have access to healthcare and diet and everything else,
so since Social Security is going to apretty well heeled group, it would be
pretty easy to You could either do itthrough taxes, or you could just outright
say, from now on we just don't paySocial Security to people whose asset base
(19:02):
is above a certain level or something.
There's all kind of ways.
Or people, a lot of people would justvoluntarily give up their Social Security
if they saw improvement in the system.
I would.
If you told me that I, if I voluntarilygave mine up, we could begin to end this
system, I would give it up in a heartbeat.
So the Burton family gets 70,000 a year in Social Security.
(19:26):
And low income people who triggerit at 62, what do they get?
They get about 18, 000 a year.
So it's not very beneficial tolow income people at all, because
they tend to trigger it early.
35 percent of all Social Securityretirees trigger the benefits early,
and so they get very low benefits.
People that have a lot of money or a lotof income, they can last till age 69 and
(19:48):
it goes up 8 percent a year per year.
So, Social Security actuallyis more beneficial to rich
people than poor people.
Poor people get very little out of it.
Even though it's heralded as incomemaintenance program, it's really not.
you got rid of that, suppose you justgot rid of the whole thing and quit
giving benefits to fairly wealthypeople and just gave people who are
(20:10):
poor benefits as they retire, thatwould not be a big number, frankly.
Because it all ends when theydie, unless they have a spouse.
I mean, you could work all your life, andif you die before you start collecting and
you don't have a spouse, that's the end.
You get nothing.
You pay in your entire life.
No affordability, your heirsget zero, unless they're minors.
And if you're 60, they'reprobably not minors.
(20:32):
So it's a terrible system for poor people.
And it's, just look at the numbers.
, it's 13%.
It's six and a half by the employee,six and a half by the employer.
So if you make 50, 000 ayear Do the arithmetic.
That's 6, 500 a year.
6, 500 a year.
If you put that in the S&P, oh my goodness, you could
retire a multimillionaire.
And, and a lot of them putthat 6, 500 a year in all their
(20:55):
lives and they get nothing.
Zero.
If you die of a gunshot wound at 59 andhave no spouse, that's the end of it.
So it's a terrible system.
What you need to do is offerpeople the opportunity to save.
We need to get the savingsrate up anyway in this country.
And you can do that with taxes.
You can do whatever you want to do.
Just say We'll match whatever yousave up to 10, 000, we'll match
(21:19):
it 50 cents for every dollaryou save or something like that.
It'll turn out that'll be a lotcheaper than Social Security.
Social Security is just a terrible thing.
And I don't know why it's alwayshad such a political defense.
It's probably becausepeople don't understand it.
And I think especially low income peopledon't realize that they get almost
(21:39):
no benefit out of Social Security.
A handful of low income peoplelive long enough to do any good.
The people that live long enough and dowell are white women who make it to 105.
They do great.
There are not too many ofthem, but they really, they,
they knock it out of the park.
And, you know, Charlie Munger,he did pretty well, and Warren
(21:59):
Buffett, he did pretty well, andI'm sure Bill Gates will do great.
In spite of drinking many cherry Cokes.
That's right.
Well, Professor, you'rethe best of the best.
Next podcast, we need to talk about Doge.
Thank you, Professor.
Thank you, Hunter.
Thank you for joining us for the RubberMeets the Road Economics Podcast.
(22:20):
If you enjoyed the discussion,remember to subscribe and stay
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Join us soon for more conversationsabout modern economics on the Rubber
Meets the Road Economics Podcast.
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