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Doctors and DVDs Jason Berryhill July 30, 2004 A colleague was recently asking some of us at work about car insurance. He wanted to know what company we did business with. He was attempting to ascertain if he could obtain a better price from a company other than his current insurer. He was upset that rates were going up 'for no reason.' There is indeed a reason that his rates are going up, several in fact. Arguably the main reason is that health costs, as all of us know too well, are up sharply. Medical costs make up a significant percentage of the cost of auto insurance. What explanation can we give my colleague for the rise in cost of health insurance, a large component of automobile insurance premiums? The popular explanations and media are quick to point to how we have better procedures and newer equipment today. Or, they say the 'evil drug and insurance companies' are gouging us so they can obtain unreasonable profits. Contrary to these notions it is this authors contention that the primary driver behind rising health costs is that there are more dollars in our country. In other words, monetary inflation is causing health care costs to rise. Another way that we might relate this to my coworker is to say that rather than his car insurance premiums rising in cost, the dollars he is using to pay for them are falling in value. Why though are health care costs going up faster than the prices of other goods and services? Two reasons: Globalization and Socialism. For the most part, you cannot outsource health care labor. There is no labor arbitrage of doctors, nurses, dieticians, therapists, etc. There are some hospitals that are utilizing overseas doctors for viewing x-rays and such, but the majority of high-skilled labor still resides here in the United States. You cannot make doctors in a Chinese factory and you cannot send nursing jobs to India. You see, it is the labor and manufacturing arbitrage that allows you to buy a state-of-the-art DVD player for $59 dollars at Best Buy but go broke paying for a two-day hospital stay. The socialistic health care model lauded by the press and the naïve public is the other major culprit lurking behind the high-cost of health care. Most of us in this world, not just in my native US, labor under the silly notion that everyone is entitled to whatever health care they desire, regardless of cost. What is more, we have complained about this for so long that our friendly neighborhood politicians have listened and given us what we asked for. Hospitals struggle in a valiant attempt to provide decent care for all when so many are freeloaders in the system. Medicare, Medicaid, HMOs and other third-party payers (or rather non-payers) are looked to as the arbiters of fair health care. Those of us who actually pay out of our pocket for some of our care are shocked by rising costs. We shake our heads in pity when we hear stories about how long it takes to obtain health care in Canada yet somehow don't see how we are on the same road as our northern neighbors. We are merely a turn or two behind them. Let's return to monetary inflation: As many of you know - who read commentaries like this one - more dollars chasing after the same or fewer goods and services results in higher prices. This is a basic economic law. The rising price of a DVD player is hidden to us as the dollars we use to buy such manufactured goods are flooded into the countries that make them, seemingly far removed from the US on the other side of the globe. However, the hospital is right here and the costs are directly in front of us every time we open a statement from our insurance provider. To complete the circle, the reason that my colleague is starting what will prove a fruitless search to find the equivalent insurance and service for a lesser cost is that we have too many dollars. A dollar, as we should all start to think of it, is one share of common stock in the United States of America. When a company that you own stock in issues more shares you subsequently own less of that company. You have a diminished claim to that company's future revenue stream. Each share that you own is worth less than before the dilution. So it is as well with the dollar. Every time more dollars are created each existing dollar that you have to your name represents less intrinsic value than before the new dollars existed. We all intuitively know this to one degree or another. This is the reason that we all seek a return on our investments that is 'greater than inflation.' In other words, a return that will outpace the dilution of the share of common stock of USA, Inc which we possess. There are many ways to do this. One method is via resource based investments. These are investments that lay claim to future revenue streams that are garnered from materials that cannot be created out of thin air. These resources are needed for our existence as we know it. Additionally these investments also benefit from the growth of emerging economies. July 30, 2004 Jason Berryhill email: jasonberryhill@yahoo.com The preceding article was written with academic intentions. Therefore the opinion of the author is not to be construed as advice to buy or sell particular securities or investment vehicles. Investing in the financial markets can be very risky therefore decisions should not (unless you are being contrary here too!) be made without the advice of a certified financial planner. The author of this article shall not be held responsible for losses incurred due to action taken based upon the reading of this article. Ryan Wilday and Jason Berryhill are the co-authors of the Lake Effect Forecast -- an investment newsletter with an expected launch date of November 1, 2004. The Lake Effect Forecast will take interest in the general global markets with a bent toward investing in resources including precious and base metals, and energy. Watch for more to come! ________________ 321gold Inc