A thoughtful comment on healthcare. Not mine.

Financial blogger Bill Frezza asked this question recently: "As the public debate over pending healthcare legislation veers into the surreal with angry voters who have never read the bill shouting at cowering Congressmen who have never read the bill, are you amused or frightened to see the debate becoming ever more shrill?"

Yes, it is both surreal and shrill, and prompts me to invent the portmanteau "shrillreal." But we should expect debates to get this way when they are waged around faith and promises, rather than facts or logic.

Yet we can cut through the escalating histrionics by asking one simple question. I will tell you what this question is in a moment, and then explain why it probably won't sway many people one way or another.

Since very few people except lawyers and vested medical interests have a true understanding of what is in the actual Obama proposal, most everyone else is getting shrillreal about what they think or expect based upon their conservative or liberal "faith."

For conservatives, it is faith in the belief that any Obama healthcare plan will bring us the dreaded socialism in medical care, After this happens, they believe death panels will send grandpa off the special facility where they make Soylent Green.

On the other side, the liberal faith is that Obama will bring order to our screwed up "free" healthcare system, because every other civilized country has national healthcare--which works perfectly great as film-maker Michael Moore has shown with anecdotes about Cuba. (I'm being sarcastic, if you couldn't tell.)

Both sides have their heads up their own backsides.

The first problem is the belief that we have a free market healthcare system. The medical industry is the most heavily regulated and controlled business in the US. Ask anyone in the medical care profession, and they can tell you about the mountains of paperwork required to comply with the mountains of regulation, compounded again by insurance company red-tape which itself is under the weight of a heavy regulatory thumb.

And this is to say nothing of the FDA, which has the most stringent, expensive and lengthy requirement for drug or medical device approval of any nation on earth.

Conservatives don't understand that we have de facto medical socialism already. Medicare and Medicaid are nothing if not socialistic institutions. And the cozy relationship between government and the HMO industry is nothing less than fascist. So Conservatives believe that we don't have medical socialism, and Liberals believe that the problems with 90% socialism will be solved by going the last 10%.

The real goal of any reform should be to bring about cheaper healthcare. So what will bring us that?

Let's divert for a moment for a little lesson in basic economics. The price of anything is determined by supply and demand. If supply increases--all else being equal--you can expect prices to fall.

If you are in doubt of this, imagine what would happen to the price of diamonds if tomorrow they started falling from the sky.

Conversely, if supply drops, or does not increase to meet rising demand, then prices will rise. So let's apply this to healthcare. Healthcare prices are rising because there is a rising demand for healthcare, but supply is not rising to meet it. So there is only one real question to ask about any proposed healthcare reform: How will it INCREASE the actual supply of healthcare?

Obama claims he wants to make healthcare "affordable." Is the Obama proposal a plan to increase healthcare, or simply redistribute the costs of healthcare?

No other question really matters, because all paths lead to the same destination. Stack the chips any way you wish, propose any form of redistribution scheme, in the end it will not matter if there is no increase in the SUPPLY of healthcare.

A government redistribution of healthcare costs will eventually crash for the same reason Ponzi schemes do: You must have an increasing number of people paying in to make up for the rising tide of folks demanding payouts. In fact, redistribution will accelerate the rise in healthcare costs. This happens whenever you separate the consumer of goods from the price of goods.

Look at it this way: Suppose the government started a program to give away free doughnuts. Of course, the doughnuts are not free, they are paid for by tax redistribution. But since I pay taxes according to my income, there is no cost difference to me between having one doughnut or ten doughnuts. Therefore, I have an incentive to consume more doughnuts rather than less to maximize the return on my tax dollars. And since everyone has this incentive, the demand for "free" doughnuts will rise until the government is forced to limit the amount of doughnuts one may have, or raise taxes to pay for the rising demand for doughnuts, or both.

In the meantime, private producers of doughnuts will tend to be driven out of business, thus reducing the supply of doughnut providers. There will perhaps remain a few small specialty companies that cater to the wealthy, but most remaining doughnut producers will be exclusive providers for the government.

The government may have good intentions in providing this valuable public doughnut service, but it has no profit motive to see that doughnuts are made in the most cost effective manner as possible.

And the profit motives are removed from the doughnut makers as well. They know the government will tend to buy a set amount of doughnuts, and they will settle into a production process that will meet the government requirements as cheaply as possible.

Innovation will disappear; there is no incentive for it, since it requires investment and risk taking. There is no consumer to lure away from other doughnut products, there are only government minimum standards to meet. Without innovation, doughnut making will become a static, backward industry, left in the dust by free market pastry makers with modern production techniques.

The cost of the free-market pastries will tend to fall, while the cost of doughnuts will tend to rise for no other reason that it will become increasingly costly to divert resources to continue to make doughnuts in an inefficient manner. Over time, the average person will regard doughnuts as "free," and a "right" to which he is entitled. That person will gladly buy pastries for mere pennies, but not be able to conceive that doughnuts can be provided in the same manner. He is separated from the cost of doughnuts, so the rising price per unit is only felt when government adjusts the doughnut limit, or when a tax hike is proposed by a politician. No one will really know the true cost of doughnuts in relation to anything else.

My little doughnut analogy is inexact, of course. We can do without doughnuts; we can't do without healthcare.

Liberals, upon hearing this, tend to ask the same question: If national healthcare leads to rising costs, how come so many other westernized nations have successful national healthcare?

The answer is: Are healthcare costs rising in those nations? If the answer is yes, then they won't be successful much longer.

This is more true for countries like England than for say, Canada or France. This is because England, like the US, is squandering its wealth on wars and attempts to occupy the world. But the others will fall eventually.

Also, "successful" depends on who you talk to. This is why the debate is mostly waged in terms of anecdotes. For every Stephen Hawking who believes he has gotten excellent healthcare in a national system, you can find another with a horror story.

We tend to give weight to whichever anecdote tends to support our "faith." But we don't get to ask the opinions of would-be Stephen Hawkings who died because innovative medical procedures were never developed. And this situation already exists in the US.

More people have died waiting for life-saving drugs held up by the FDA's draconian approval process than have ever been saved by the same's ass-covering caution.

Economic statistics show that--if we factor out inflation--virtually every single good and service has tended to DECREASE in cost pretty much since the advent of the Industrial Revolution.

There are two big exceptions in the 20th century. The two exceptions are education, and medical care. Not coincidentally, these are two things very highly controlled by the government.

The simple maxim is: If you want less of something, regulate it. Any successful healthcare reform MUST provide for an increase in healthcare supply.

The Obama Administration is dimly aware of this, and has proposed incentives to increase the number of doctors. But this is typical of all government solutions: Break someone's leg and then propose a program to hand out free walking canes.

The only real reform must involve massive deregulation of the medical, drug and insurance industries. Conservatives reveal their hypocrisy by opposing Obama, but don't counter-propose any plan that involves deregulation.

"No," they cry, "we don't need socialism, we just need to stack the chips a little differently". In one breath they decry medical socialism, and then warn that Medicare and Medicaid shouldn't be touched. And this is why we are doomed.

Obama's proposals will lead to catastrophe, and various "restacking" proposals will lead to catastrophe, and doing nothing will lead to catastrophe. And a rollback is something Conservatives will not support because, at heart, they have as much invested in government control as Liberals.

But explaining this logic matters very little. You can explain to a gambling addict that the odds favor the house, and he can logically grasp that the longer he plays the more he'll lose. But compulsions and addictions work precisely because they are immune to logic, and the gambler will be compelled to play on little more than the faith and hope that a big win is right around the corner. It is only when he is broke and has hit rock bottom that the reality of his destructive behavior begins to translate into change.

And so explaining these will likely not convince the vast majority of people. It is only when we have hit rock bottom and start casting about for new explanations that the reality of our folly will sink in. And so these explanations are only futile in the present, but lay in wait to be recalled when we hit that bottom.

Most probably, some form of government alternative health option will pass, and then it will be a matter of time before private insurance providers are reduced to virtually nil.

Doctors will actually begin leaving the country, just as they did England in the 50's and 60's when socialized medicine was enacted. They will leave searching for freedom, because where government pays the bills, regulatory escalation will follow.

There will be less innovation and cutting edge treatments in the US, and there will be an acceleration in Americans traveling overseas for medical procedures.

Opinion will be divided on national healthcare. Those who don't have insurance but only require basic treatments will sing its praises, interspersed with the occasional horror story. As healthcare consumption increases, costs will rise faster, and medical bureaucrats will have to make the same rationing and cost control decisions that HMO executives make now.

As this happens, people with long term chronic problems will begin to grope for any and every hope. There will be a huge surge in medical quackery to meet this desire for hope. Along with this, there will be an emerging blackmarket for healthcare. Unlicensed practitioners will perform procedures for cash in back-alley establishments where illegal abortions were once done.

The system will go bankrupt, possibly several times. It will be saved by the diversion of public money from other sources. But this can't last forever, and portions of the country will begin to rebel.

At the same time, the screeching of entitlement seekers will escalate. They will demand healthcare as a "right," even while major portions of the country fight to remove themselves from the system. It will contribute to waves of civil strife that are going to be provoked by a general decline in the standard of living for Americans.

Rock bottom is difficult to define. It will be reached when there is a consensus awareness that Americans are moving backward medically, and certainly economically, and that the promises made by Obama and the Congressional leadership are not coming to fruition. This might be within Obama's term of service--however long that ultimately is--or it might be a few years down the road.

The point is, it will come.