Justified

Policy-makers have a hard time adjusting themselves to the reality that every policy they can devise is dead on arrival as soon as it hits the ground and starts breathing. The healthcare reform legislation just passed by the Congress will not be an exception to this:

Yesterday AT&T announced that it will be forced to make a $1 billion writedown due solely to the health bill, in what has become a wave of such corporate losses.

This wholesale destruction of wealth and capital came with more than ample warning. Turning over every couch cushion to make their new entitlement look affordable under Beltway accounting rules, Democrats decided to raise taxes on companies that do the public service of offering prescription drug benefits to their retirees instead of dumping them into Medicare. We and others warned this would lead to AT&T-like results, but like so many other ObamaCare objections Democrats waved them off as self-serving or “political.”

Accounting rules require that companies restate their earnings immediately to reflect the present value of their healthcare liabilities. I won’t argue that AT&T ($1 billion in writedowns), Deere and Co. ($150 million), Caterpillar ($100 million), AK Steel ($31 million), 3M ($90 million), and Valero Energy ($20 million) are evaluating these costs correctly. However, these companies, merely the leading edge of a massive wave of such writedowns, can unquestionably justify their actions and that’s all that’s necessary.

Whether correct or justified this will result in a decrease in economic activity, a further drag on economic growth.

Human beings may not be completely rational but they are intelligent actors, capable of responding to changes in policies with changes of their own. These changes result in changes in the assumptions that underpin policies that can shake them to the core.

Advocates of the healthcare reform bill will be quick to remind us that the bill is better than no bill at all, a proposition hard to prove. It will be increasingly difficult to justify as the economic ripples, many of which will take place long before whatever positive aspects of the bill take hold, spread through the economy.