The Labor Shortage Crisis


Everywhere you go these days there are signs that say “Help Wanted.” Every restaurant seems to have a shortage of servers. Every large department store has a shortage of cashiers. Every supermarket has a shortage of deli workers – and cashiers. There are about 10.4 million job openings out there but very few are being filled. There’s a backlog of freighters waiting to unload at our ports because there aren’t enough truck drivers. Already they’re predicting Christmas presents will be in short supply. What’s going on?

I’m a surgeon, not an economist, but I don’t buy this is all because of the pandemic. John C. Goodman is a real economist, specializing in healthcare issues, who writes for Forbes. Goodman says the latest jobs report was dismal, despite the claims of the White House. Only 194,000 people were newly employed, a far cry from the 500,000 predicted. He says there are 5 million fewer people employed today than before the Covid pandemic struck and 7.7 million are officially counted as unemployed. But another 6.0 million say they want a job, but are not counted as unemployed because they are not actively seeking work.

This is remarkable given there are record high job openings and employers around the country report difficulty hiring workers, even after offering higher pay! Goodman agrees with me that fear of Covid is not the most important factor. He says federal policies that punish work and reward non work are more important.

It’s all about incentives to work. Income and payroll taxes reduce worker take-home pay and more than thirty federal entitlement programs reduce benefits as family income rises. In other words, many families find they can make more money not working than working.

It is a monumental task to research the complexity of the entitlement programs, but Boston University professor Lawrence Kotlikoff and his colleagues have taken on this task. They have calculated the lifetime incentive effects of all the tax and entitlement programs for families at different ages and income levels. The study finds that workers in their 20s who are in the bottom fifth of the income distribution stand to lose $770 in taxes and reduced benefits if they earn an additional $1000 of income.  That’s a 77% net marginal tax rate and it is higher than for any other income group. The top 1%, for example, faces a net marginal tax rate of 44.5%.

Kotlikoff gives the example of a single mother living in Oregon with three children and earning $37,157 a year. She qualifies for such annual benefits as food stamps ($1,334), Section 8 housing vouchers ($15,015), Obamacare subsidies ($11,372) and other benefits. If she earns $1,000 more, she will violate the Section 8 housing requirement to maintain continuous eligibility. That will cost her a lifetime of housing support with a present value of $184,456!

In another example, a father of four in Wyoming earns $57,432 per year. He receives $23,921 in annual childcare support and a $40,337 Obamacare subsidy. Additional earnings of $1,000 would cause the loss of his entire childcare subsidy, which, extended over future years, has a present value of $149,197.

In a third example, a retired Alaskan couple receives Supplemental Security Income (SSI), which in Alaska automatically qualifies them for adult Medicaid. An additional $1,000 of earnings, however, would cause the couple to lose their eligibility for SSI and Medicaid, with a present value of $39,539.

As if this is not bad enough, according to Goodman, Democrats in Congress want to make it much worse. For example, the newly proposed Child Tax Credit (CTC), which would increase the maximum benefits to $3,000 or $3,600 per child (up from $2,000). The current system has pro-work incentives, but the new proposal would make the full credit available to all low- and middle-income families regardless of earnings or income.

Democrats claim this would reduce child poverty by 34% and deep child poverty by 39% – which assumes families will not change their work behavior. But the authors of a new study estimate that an additional 1.5 million workers will exit the work force, meaning child poverty will fall by only 22% and deep child poverty would not fall at all!

University of Chicago economist Casey Mulligan writes: “The implicit employment and income taxes in the bill would increase marginal tax rates on work by about 7 percentage points. I expect that such a change in the disincentive would reduce full-time equivalent employment by about 4.5%, or about 7 million jobs.”

That’s 7 million fewer people employed than now! Goodman says, “Economics teaches that incentives matter. The more perverse the incentives, the more perverse the results.” Sounds like we need to get used to ordering at the counter and bussing our own tables.

Medicare for All – Sooner or Later


Vermont Senator Bernie Sanders ran for president in 2020 on a platform pushing Medicare for All. During the presidential campaign, I wrote extensively on the evils of Medicare for All. These posts can be viewed by simply searching on the blog site under “Medicare for All.” You might have thought this information was irrelevant now that Joe Biden was elected president – but you would be wrong.

Even The Wall Street Journal editorial board believes Bernie Sanders is calling the shots in this White House. Therefore, Medicare for All is far from dead. The next step in implementation of this radical rewriting of Medicare is the so-called $3.5 Trillion budget bill that most now concede is more like $5.5 Trillion.

The newest push by Democrats is to expand Medicare coverage to include dental, hearing, and vision benefits. This despite the recent report that the Medicare Trust Fund is due to run dry in 2026 (Medicare Going Broke). The WSJ editors say Democrats claim that half of Medicare recipients have no dental insurance, but this is not accurate. Nearly 9 in 10 low-income seniors have access to dental coverage through Medicaid. AARP sponsors dental plans with low premiums, and many graduate dental schools offer charity care for low-income seniors.

Seniors can also get dental, vision, and hearing benefits through privately managed Medicare Advantage plans. Bill Clinton and Republicans in Congress established Medicare Advantage in 1997 to reduce wasteful spending under the program’s traditional fee-for-service payment model and increase competition with the goal of improving care. This program has been widely embraced and now covers 24.1 million seniors, or about 40% of the Medicare population. Competition has also lowered average premiums by 34% since 2017 even as most added benefits. About 74% of Medicare Advantage enrollees have access to dental benefits and 79% to vision care including eye exams and glasses. Some 72% get help paying for hearing aids.

You would think this tremendous success would be welcomed by both Republicans and Democrats – but not so. Democrats dislike Medicare Advantage because it reduces government control over healthcare. Instead, they want to require traditional Medicare plans to cover benefits that seniors are already getting elsewhere – because traditional Medicare is government controlled. No need to worry about wasteful spending.

This will not only raise the cost of Medicare for taxpayers at a time when Medicare is already on the way to bankruptcy, it will also impact the cost of private healthcare. Because Medicare reimburses hospitals below the cost of care, privately insured patients get charged much more to compensate. The expansion of Medicare could result in privately insured Americans paying more for their contact lenses and dental work.

The estimated cost of this expansion of Medicare is $81 billion a year when fully phased in, or more than $800 billion over ten years. To disguise the real cost, Democrats plan to delay phasing in the dental plan until 2028. That saves $60 billion a year and helps squeeze the expansion into their 10-year budget window.

Naturally, Democrats cite polls showing the popularity of this expansion of Medicare benefits. Who wouldn’t agree to “more free stuff” when asked that simple question? But few voters know any of these fiscal or other facts because the press doesn’t report them, apart from WSJ. The same folks don’t know the Medicare Board of Trustees recently reported the fund faces a $578 billion shortfall over the next decade.

The WSJ editors sum up the situation: “All of which proves that when it comes to entitlements, looming bankruptcy is no barrier to expansion. Bernie Sanders wants Medicare for All on the installment plan, and the reconciliation bill is one giant step. The surprise medical bill will come later in rationed care and higher taxes for the middle class.”

The Miracle Cancer Test


Cancer may be the most frightening word in the English language. As a physician, I know that if I have to approach that word with my patients, I must be prepared for their frightened reaction. In fact, I am so careful to broach the subject of cancer with my patients that I am even careful when I tell them they don’t have cancer, lest they mistake what I’m saying to mean the opposite!

We all know detecting cancer early is very important to the prognosis. Many types of cancer are curable if detected early, such as breast, prostate, colon, kidney, and skin cancers. Unfortunately, many cancers are nearly always detected late when treatment is rarely curative, such as pancreatic, lung, and brain cancers.

Just imagine, what if you could take a simple blood test to detect 50 different types of cancer early enough to be cured? Sounds like a fantasy – but it isn’t. In fact, such a blood test has already been developed. But alas, it is stuck in regulatory purgatory and may take years to reach availability.

Regular readers of The Wall Street Journal know the Saturday edition always has a section called The Weekend Interview. This week Allysia Finley interviewed Francis deSouza, CEO of a company called Illumina. She tells us that eight years ago a scientific breakthrough occurred by serendipity. Meredith Halks-Miller, a pathologist at the genetic-screening company Illumina, stumbled on something unusual while running prenatal blood tests for fetal chromosomal abnormalities. In some blood samples, the fetal genes were normal but the maternal DNA wasn’t.

Illumina alerted pregnant women’s doctors to the finding. After further investigation, all the women were diagnosed with cancer, though none had symptoms when their blood was drawn. This led to the development of a blood test that can now detect 50 types of cancer and has the potential to save tens of thousands of lives a year if it becomes widely available. But currently, regulators are slowing down the process.

The Federal Trade Commission last month wrapped up an administrative trial in which it seeks to block Illumina’s $8 billion acquisition of Grail, the company that makes the blood test. Illumina founded Grail in 2015 and spun it off a year later. The Menlo Park, California -based startup is named Grail because scientists have long been on a quest for a blood test that can diagnose cancer early – the Holy Grail!

“We know that cancer kills about 10 million people a year – about 600,000 in the U.S. And we know that even for some of the deadliest cancers, your odds of survival are much higher if you catch the cancer in Stage 1 or Stage 2,” says Illumina CEO Francis deSouza. “So a blood test that can catch cancer early can truly be life-changing.”

Currently there are only recommended screenings for five cancers – breast, colon, prostate, cervical, and lung in high-risk smokers. While these tests can be very helpful, they are also prone to false positives – suggesting cancer that isn’t really there. Cancer is absent in about 70% of patients with an elevated PSA test for prostate cancer detection and 7 to 12% of suspicious mammograms. The Grail blood test has a false positive rate of less than 1%.

To be sure, the Grail blood test is not perfect. But it can detect the 12 deadliest cancers with 60% accuracy. But Grail estimates that adding the blood test to existing screening could reduce late-stage cancer diagnoses by more than half among patients ages 50 to 79, which translates into a 26% overall reduction in five-year cancer mortality.

Why, you might ask, did Illumina spin off Grail after the discovery of this blood test? After Dr. Halks-Miller’s discovery, more research, clinical testing and investment were needed before a test could launch to the public. Illumina spun off Grail so that it could raise more money for studies. Grail ultimately raised $1.9 billion in capital, while Illumina maintained a 12% stake. With a commercially viable product nearly in hand, Grail in September 2020 began exploring an initial public offering (IPO). That’s when Illumina made its $8 billion offer.

Why is the FTC holding up the Illumina acquisition of Grail?

Illumina is the leading manufacturer of gene-sequencing machines, were the first to identify the novel coronavirus in late 2019, and more than 70 countries are using them to find new variants. Moderna and Pfizer also relied on DNA sequencing from Illumina machines to develop their mRNA vaccines.

The company’s dominance in the DNA-testing market, however, attracted regulatory scrutiny. In March the FTC sued Illumina and Grail to block the acquisition, arguing that it would “lessen competition in the U.S. multi-cancer early detecting test market by diminishing innovation and potentially increasing prices.” Mr. deSouza pushes back from this analysis, saying, “Today, there is nobody who is even starting the studies to develop a 50-cancer test like Grail, and once you start the study, it’s still a few years before you actually get the test. We think there will also be blood tests for single cancers, for colorectal cancer and other cancers. Those won’t compete with Grail. They will be complementary to Grail.”

Illumina promised the FTC it wouldn’t thwart Grail’s potential competitors and would give its clinical oncology customers contractual guarantees of ‘equal and fair access.” But the FTC wasn’t satisfied. Although it asked the federal judge overseeing the case to dismiss its complaint in June, it’s still alive as an administrative proceeding. Frustrated by the slow process, Illumina and Grail closed the deal in August despite the risk that it could be undone if it loses in U.S. or European courts. As for the U.S., the Supreme Court likely wouldn’t hear a case until 2025, so Illumina faces the risk that the deal could be blocked for years.

It’s frustrating to imagine the number of lives lost by the delays before this breakthrough, exciting scientific development becomes a reality. But the future is nevertheless bright. Mr. deSouza says, “I truly believe that, within our lifetime, we can make a significant dent in cancer survival rates, and a lot of that will come through the work that’s done in genomics.”