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  To Capitalism

  Thoughts From a Supply-Side Conservative

  2nd Edition

  WILLIAM H. NORTHWALL, M.D.

  Copyright © 2018 WILLIAM H. NORTHWALL, M.D.

  All rights reserved. In accordance with U.S. Copyright Act of 1976, the scanning, uploading, and electronic sharing of any part of this book without permission of the publisher constitute unlawful piracy and theft of the author’s intellectual property. No part of this book may be reproduced in any form by any electronic or mechanical means (including photocopying, recording or information storage and retrieval) without permission in writing from the author or publisher. Thank you for your support of the author’s rights.

  Book Cover Design: Richter Publishingwww.richterpublishing.com

  Photo Credit: Pierce Brunson Photography www.piercebrunsonphotography.com

  Editors: Natalie Meyer, Katharina Jung, Monica San Nicolas, Kati Scanlon, Savannah Grooms & Lil Corner

  ISBN:

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  DISCLAIMER

  This book is designed to provide information on capitalism only. This information is provided and sold with the knowledge that the publisher and author do not offer any legal or medical advice. In the case of a need for any such expertise, consult with the appropriate professional. This book does not contain all information available on the subject. This book has not been created to be specific to any individual people or organization’s situation or needs. Reasonable efforts have been made to make this book as accurate as possible. However, there may be typographical and or content errors. Therefore, this book should serve only as a general guide. This book contains information that might be dated or erroneous and is intended only to educate and entertain. The author and publisher shall have no liability or responsibility to any person or entity regarding any loss or damage incurred, or alleged to have incurred, directly or indirectly, by the information contained in this book or as a result of anyone acting or failing to act upon the information in this book. You hereby agree never to sue and to hold the author and publisher harmless from any and all claims arising out of the information contained in this book. You hereby agree to be bound by this disclaimer, covenant not to sue and release. You may return this book within the guarantee time period for a full refund. In the interest of full disclosure, this book contains affiliate links that might pay the author or publisher a commission upon any purchase from the company. While the author and publisher take no responsibility for any virus or technical issues that could be caused by such links, the business practices of these companies and or the performance of any product or service, the author or publisher has used the product or service and makes a recommendation in good faith based on that experience. All characters appearing in this work are fictitious. Any resemblance to real persons, living or dead, is purely coincidental. The opinions and stories in this book are the views of the author and not that of the publisher.

  A NOTE FROM THE AUTHOR

  This book is about how to achieve an efficient government, how to accomplish prosperity for all, and how to reform healthcare. For those of similar persuasion, let's join together and seek out politicians who can help us in creating this change. Creeping socialism has stolen so many of our freedoms, especially in healthcare. My near 30 years of practicing radiology gives me unique perspective about healthcare that I wished to share via this book. I started this book with a broad view of economics that affects our daily lives before delving into the broader topics. I proceed on to the entitlements and other critical issues. I, myself, identify as a supply-side conservative alarmed at our loss of freedom. I am someone who longs for a return to a capitalistic spirit in America. Let freedom ring.

  CONTENTS

  ACKNOWLEDGEMENT

  INTRODUCTION

  PART ONE – THE BACKGROUND

  1 - CAPITALISM

  2 - SOCIALISM

  3 - THE SISTER OF SOCIALISM: IDENTITY POLITICS

  4 - ENTREPRENEURS

  5 - GIANTS OF ECONOMIC THOUGHT

  6 - ECONOMIC PRIMER

  PART TWO - ECONOMIC GROWTH AND PROSPERITY

  7 - ECONOMIC MOBILITY

  8 - ECONOMIC GROWTH AND PROSPERITY

  9 - BARRIERS TO ECONOMIC GROWTH 1. EXCESSIVE TAXES

  10 - BARRIERS TO ECONOMIC GROWTH 2. BURDENSOME REGULATIONS

  11 - BARRIERS TO FREE ECONOMIC GROWTH 3. TARIFFS AND DECREASED FREE TRADE

  12 - BARRIERS TO ECONOMIC GROWTH 4. DEPRIVING MONEY AS A STORE OF VALUE AND THE NEED FOR A GOLD STANDARD

  PART THREE – ECONOMIC ISSUES AND POLICIES

  13 - FEDERAL DEBT

  14 - INFLATION

  15 - INFRASTRUCTURE SPENDING

  16 - THE ENTITLEMENTS

  17 - EDUCATION

  18 - TERRORISM, WAR AND THE MILITARY

  PART FOUR – CLOSING DOWN

  19 - THAT LEFT UNDONE

  20 - ENDING

  APPENDIX

  CHART TO RANK CANDIDATES

  INDEX

  ABOUT THE AUTHOR

  ACKNOWLEDGEMENT

  The Wall Street Journal has given me much material and many ideas that you will find throughout my book. I have enjoyed reading the Journal for many years. I am indebted to their many writers who have educated, enlightened, and contributed so much to my understanding of the world. Thank you.

  A special thanks to Art Laffer, who liked my book and took time to meet with me and offer helpful ideas and thoughts to make it better. Thank you, Dr. Laffer.

  INTRODUCTION

  Unhappy with the political debates by the presidential candidates in the spring of 2016, I decided to embark on writing out my views on economic issues and politics. As I had strong views on economics, I was disappointed in how shallow many of the candidates understanding of economics was, which wasn’t nearly as shallow compared to the various news outlets. My book was finished by summer of 2017, but after about six months, it dawned on me that I had written a book about capitalism, but I had failed to describe capitalism as I viewed and understood it. Hence, I now address this more thoroughly in this, my second edition.

  My focus now is to get my views “out there” and somehow, someway advocate for my views and thereby influence a few others. I would love to start a movement, but realistically I must start small and try to build on my advocacy.

  The assassination of President John F. Kennedy happened during my freshman year of medical school. This seminal event became indelibly etched in everyone’s mind from that time; we all remember where we were back then. Kennedy had run against Richard Nixon and won. Kennedy favored a national healthcare system, and despite Kennedy’s youth and vigor, which I admired, I wanted no part of training to be a government employee, so I voted for Nixon. But Kennedy won and then he was gone. Lyndon Johnson assumed the presidency and was shortly up for election after that; his opponent was the “father” of conservatism, Barry Goldwater. Goldwater came to speak to a group of us, and I was smitten. But Johnson won. Soon, all variety of liberal social items appeared. His War on Poverty planted the seeds that greatly expanded the welfare state. Johnson’s Medicare became the first step toward President Truman’s wish for a single-payer national healthcare system. Kennedy’s minor conflict in Vietnam was expanded by Johnson into a major war involving 500,000 combat troops sent overseas.

  From the welfare expansion came the inadvertent destruction of so many African-American families, and from Medicare came an explosion of healthcare costs. Today, Medicare is essentially bankrupt. The war not only took 50,000 lives from my generation, but it also produced major societal changes. It incurred debt that set the country up for an inflationary plague in the next administration under President Richard Nixon. This inflation was u
nlike anything that any of us had ever experienced before. Though I was raised in a conservative household by parents who lived through two world wars and a depression, my conservative conviction was not strong. But after the profound changes set off by Lyndon Johnson and the aftermath during the Richard Nixon years, my conservative convictions deepened.

  Medicare became law in 1965. I graduated with an M.D. in 1967 and soon was out in the community. The older doctors would say that before 1965, nobody in town was ever without good healthcare; the poor were always cared for somehow. This changed with the advent of Medicare. What physicians had previously treated for free was now treated for money paid by Uncle Sam, and these physicians had never had it so good. They were happy with Medicare, but in typical Washington style, nobody worried about cost controls and Medicare expenses skyrocketed. As the annual cost of Medicare increased year after year, government payments to doctors started decreasing, and with time, doctors’ payments got one trim after another. Then doctors became unhappy when they saw their reimbursements drop.

  Medicare’s fee schedule started by taking the private practicing doctors’ fee schedule and paying the same. After a few years at the hospital I was affiliated with, the patient population became half private and half Medicare. Over the years, the federal payment scheme continuously decreased in value and the private side kept inflating. When I retired in 1998, Medicare was paying 50 cents on the dollar, and the private pay patient was paying 150 cents on the dollar. For those on the private side who had insurance, this was no big deal, but the private pay patients without insurance got screwed.

  Now, skip forward in time to the appearance of President Barack Obama, who was a dyed-in-the-wool socialist if there ever was one, and he, and his party in Congress, gave us Obamacare (The Affordable Care Act). Again, no cost controls were put in place, and doctors’ payments decreased. And, of course, we all know the story today. Premiums are going out of sight and major insurance players are quitting. Anyway, I have my opinions and I would like to put forth solutions.

  Now, let me jump back to how my career went after training. Nixon finally got elected President in 1968. What I remember most from that era was Vietnam. Kennedy had introduced a few “advisors” and Johnson went all the way. Nixon then worked diligently to get us extricated. Inflation followed, as it always does with war. To fight the inflation, Nixon imposed wage and price controls, but as we now know, controls never work. They always result in shortages. Before long, inflation accelerated and the price of gasoline skyrocketed. More controls brought up the shortage of gas at the pump. This shortage of gas led to long lines at the gas stations.

  By 1972, I had settled down in private practice in Kearney, Nebraska. I was an independent contractor based in a hospital setting, which was typical for most radiologists back then. The radiology department I settled in was put together years before, and before there were price controls, and the department was woefully deficient and ancient. We needed everything. Upgrading required money, but we were locked into controlled fee schedules impossible to be raised, and the controls on those schedules made it impossible to raise prices to pay for upgrades. No thanks to Richard Nixon. Though I’d voted for him, I was plenty upset with him. On top of that, I now lived in a rural area where much highway travel became necessary, but again, thanks to Nixon, we had 55 mph speed limits to save gas. The Nixon administration told us the world was running out of oil and that’s why its price was going up, which explained the controls and the reduced speed limits.

  As I said, I got to Kearney in 1972. After the CT scanner was invented in 1973,a rich man in a neighboring town offered to buy us one even though they cost $500,000. He’d seen one recently at the Mayo Clinic. This happened in 1975, and now the Carter administration had given us the Certificate of Need law. We couldn’t buy a scanner because it wasn’t approved under the new HMA law (Health Maintenance Administration). My hospital administrator told me to go ahead anyway, and make plans to proceed. Getting government approval to buy one required me to ask the State of Nebraska Legislature to change the state Certificate of Need law. This took me a year, with trips to Lincoln, the state capital, and speeches to the legislators. Approval finally came, and a group of us from the hospital drove over and met with the philanthropist. However, at this point, he had changed his mind and turned us down. Here I was with the government approval I needed, but no $500,000.

  After consultation with attorneys and accountants, I decided to take the plunge and buy it myself. There were now time delays for design and construction of the scanner room and assembly of the machine. During this time, inflation had started to accelerate. The five banks willing to lend me money dropped out one by one as interest rates went up. I finally found a lender in Kansas City: 2¼ over prime, and prime that day hit 19% (The prime rate is an average interest rate that banks charged their best customers. This rate ispublished daily in The Wall Street Journal). So here I was, 33 years old, barely starting out, agreeing to borrow half a million at 22% interest. After this, the company building the scanner had a six-month delay, and in six months, interest rates declined, and I refinanced at 15% in 1980.

  I take the time to tell this tale because I was quite aware of things happening in the country at this point in history. Still, I was clueless as to where the inflation came from. Nixon had pulled the country away from a gold standard in 1971. In this book, I will go further into the story of the gold standard, but suffice to say, I didn’t even know the country had been on a gold standard, let alone that we went off one. I have to believe that almost all Americans were oblivious to what a gold standard was and why Nixon took us off of it, and I don’t think anyone predicted what the consequences would be. Vietnam and Johnson’s socialist spending were big factors that caused the scourge of inflation. Nixon attempted to control the rise of inflation by instituting price controls whereby in the hospital setting, no price increases were allowed (and many other industries were also affected). But as we now know, price controls always produce shortages. Disruption of supply and demand may be a hard concept to understand, but the proof of this statement was demonstrated by the long lines of customers waiting at the gas pumps, hoping to buy gas. The controls held down the gas price, so the supply was restricted. At the same time, the customers demanded gas and the result was dry pumps and long lines. I now believe that the dollar’s devaluation that followed abandoning the gold standard gave rise to the inflation, which then forced the oil producers in the Middle East to raise the price of oil.

  In 1980, Ronald Reagan came to power and it was a breath of fresh air. Reagan had been the governor of California when it had experienced a property tax revolt. Howard Jarvis, angry at the ever-rising property tax, started a movement that became known as Proposition 13. This was an amendment to the California Constitution enacted in 1978, affirmed by the U.S. Supreme Court, which decreased property tax to the level it was at in 1975 and limited its rise to 2% per year. Property taxes were cut by 57%. A Californian economist, Arthur Laffer, was one of the few economists to endorse Proposition 13, and in fact, Laffer helped to write it. At the time, Laffer was teaching at the USC Marshall School of Business. In 1974, he met with Dick Cheney and Donald Rumsfeld, officials in the Nixon/Ford administration. At this time, Laffer made a sketch on a napkin showing a curve to illustrate his argument that a tax rate cut in federal income taxes could lead to increased tax revenues. He later postulated that the maximum amount of federal revenue from income taxes didn’t come from the highest rate possible, but rather that there was some point between a 100% tax rate and a 0% tax rate that produced the maximum amount of federal revenue. Further, it was up to the astute politician to guess at what the ideal tax rate should be. The term “Laffer Curve” was then coined with much fanfare by journalist Jude Wanniski. Laffer today is famous for his “Laffer Curve.”

  Wanniski was an associate editor of The Wall Street Journal from 1972 to 1978. He spent a lot of time on the phone with Art Laffer, and from their conversation became a
self-taught economist, and from there he began advising politicians on economic policy. The first he advised was candidate Ronald Reagan, and later, presidential hopefuls Jack Kemp and Steve Forbes. Wanniski advocated the reduction of trade barriers, the elimination of capital gains taxes, and a return to the gold standard. He was instrumental in popularizing the ideas of lower tax rates embodied in the “Laffer Curve,” having been present when Laffer drew the now-famous curve on the napkin. Reagan advocated and got passed a top rate income tax rate of 28%. That’s the rate that people with the highest income have to pay. It previously had been as high as 91%. Under Kennedy, it was reduced to 70%, and lowered again by Nixon to 50%.

  It is for this insight, which should be obvious to all, yet was not, that with the big spenders forever too blinded to reality to see that there was a practical limit to how high the top income tax rate could go, its elevation was always threatened. When Laffer suggested they try 150%, they just didn’t get it. But soon all open minds focused on the “curve” and the majority realized that the top bracket had to be less than 100%, and to maximize federal revenue, a lot less. This insight led as I see it to the “Reagan Revolution,” and for which, I nominate Art Laffer as one of the most influential economists of all time.

  The most instrumental tool to my writing is George Gilder’s 1981 bestseller, Wealth and Poverty. This book helped advance a practical and moral case for supply-side economics and capitalism during the early months of the Reagan administration and made him Ronald Reagan’s most quoted living author. His father was killed in the Army Air Force during World War II when Gilder was three. David Rockefeller, a college roommate of his father, was deeply involved with Gilder’s upbringing. In the ‘60s, Gilder served as a speechwriter for Nelson Rockefeller, George Romney, and Richard Nixon. Supply-side economics was formulated in the mid-1970s by Jude Wanniski and Robert Bartley at The Wall Street Journal as a counterweight to the reigning “demand-side” Keynesian economics. Gilder also published in 2013 Knowledge and Power: The Information Theory of Capitalism and How It Is Revolutionizing Our World.