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Home > Social Issues
More Education Isn't the Answer to Poverty & Health Care
by Bob Powell, 6/18/05
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More education won't solve our problems related to either health care or poverty for two major reasons:

1. Adverse selection: Health care is subject to what's known as adverse selection that creates a health insurance death spiral. I explain this in detail at Health Care Dynamics. Any approach to addressing the health care crisis that doesn't deal with adverse selection is doomed.

In addition, to be efficient as this article describes, we must avoid negative externalities and take advantage of positive externalities.

The Republican idea that "private health savings accounts" will take care of the problem is incorrect. First, because it doesn't avoid adverse selection and, second, there's no way that low or even average income families can possibly save enough to have enough to pay for a catastrophic health problem.

2. National policy: Education to increase income won't do it because poverty is designed into our economic and governmental systems   

A. Through political Federal Reserve policies: I explain at There's no "free market" for Labor that Fed policy assures there are always more people than jobs. Official unemployment statistics are a vast underestimate. The result of an effective unemployment of 10% and an operative un- and under-employment of on the order of 20% or more is to create a game of musical chairs where the added value of any one worker is zero. This drives wages to zero at the bottom and guarantees poverty for many. It explains one reason Americans work so many hours ... do it or lose your job to one of those who doesn't have a job.

Even if everyone were to suddenly earn a Ph.D. tomorrow, there would still be 10% effective unemployment due to Fed policy.

"Trade" in Advanced Technology Products ... going from a $40B surplus to a $43B deficit in 14 years
And how can more education help when the U.S. production and export of Advanced Technology Products is falling? "Trade" in ATP has gone from a $40B surplus in 1991 to a $43B deficit in 2005.
Note: "Trade" is in quotes because it's actually “transfer of the factors of production” – labor, capital and land – to low-wage and low-regulation countries by large multi-national corporations to produce goods for sale in the U.S. This offshoring is undermining our economy, jobs, and wages (see The Fallacy of Composition and its links to other papers).

B. Though political economic policy:

First:  There's a (primarily Republican-driven) push to tax wages more heavily than capital gains and dividends. Their desire is to not tax capital gains and dividends at all and have taxes on wages pay for the infrastructure (policing, national defense, firefighting), courts, and systems that allow those returns. Their usual argument is that capital gains and dividends are "double taxed." In Explaining Liberal Principles, I explain why this is false.

Second: My comments in Wealth Happens on the 04/01/02 Harvard Business Review article, "Wealth Happens," describes what is known as "path dependence" in system dynamics and "success to the successful" in systems thinking. This structure drives, among other behaviors, the "rich get richer and the poor get poorer" syndrome. Even if everyone were to start with equal ability, work ethic, resolve, and resources, there would still be extremes of wealth and poverty ... so it's not simply a matter of individual responsibility. As the HBR article describes, sales taxes and low capital gains taxes lend power to the path dependence dynamic.

URL: http://www.exponentialimprovement.com/cms/educ.shtml

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© 2003 Continuous Improvement Associates
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