Archives: July, 2006

Poker and Sausage

Forbes today posts a terrific article looking at many of the peripheral issues surrounding the online gambling debate that I touched on yesterday. A few key passages:

Big credit-card associations MasterCard and Visa have allowed issuing banks to prevent payments from going through to Internet gambling sites for several years by using specially coded computer software that identifies a vendor as an online gambling site. American Express also blocks transaction with gambling sites. The online payment service PayPal actually got into hot water over the issue and had to pay $10 million to the federal government two years ago to settle charges it helped facilitate illegal online gambling.[…]

But with billions of such payments made every year, compliance with a new set of monitoring laws will be difficult at best and financially onerous to say the least. Smaller banks would be hit harder than larger banks, which have the resources to build the compliance technology that would be needed to track payments and block them if need be. Smaller banks are already struggling with the additional costs of complying with stricter anti-money laundering rules under the Patriot Act.

[…]

Blocking wire transfers through banks would force people to be more creative if they still wanted to use the online sites–for example, opening accounts in foreign banks or using non-U.S. Internet payment services.

Certainly, the House bill, should it become law, would be a boon to PayPal because it essentially eliminates all other online payment service competitors from the U.S. market. That would include Neteller, a U.K.-based online payment service, whose stock was down 15% on the London Stock Exchange’s alternative investment marketplace, and Firepay, owned by FireOne Group, whose stock was off nearly 20% on London’s AIM market. Both those companies would have to give up their online gambling site customers if they wanted to do business in the U.S. “It’s a protectionist bill for PayPal,” says Cato Institute’s Radley Balko.

Not surprisingly PayPal, owned by eBay, enthusiastically supported last week’s legislation. Its only remaining competitor in the U.S. market would be Google’s fledgling Internet payment service.

But other financial firms have been supportive of the effort to clamp down on Internet gambling. In a statement Tuesday, MasterCard said the vast majority of its cards deny authorization for Internet gambling. “MasterCard will continue to work aggressively with all appropriate parties to combat illegal Internet gambling,” it said.

It isn’t surprising that the credit card companies are supporting the ban. They already agreed to block their customers’ access to gambling sites and offshore payment services years ago, under threats from the Justice and Treasury Departments, as well as from aggressive state attorneys general, particularly New York’s Elliott Spitzer. It’s a similar story with the larger banks, who can absorb the costs associated with the news legislation. Probably doesn’t hurt that it’ll deliver a blow to their upstart competitors, who will have to spend a higher percentage of operating costs to comply with the law than will the bigger banks.

And neither banks nor credit card companies want to incur the wrath of the ban’s supporters in Congress, who some insiders I’ve spoken with say have made clear that how these industries approach the gambling ban might well effect the outcome of what the banking and credit card industries consider to be higher-priority issues.

All of which means banks and credit card issuers are supporting the online gambling bill, even though it will raise the cost of doing business, and require them to infringe on the privacy of their customers.

Sausage-making at its finest.

Conscientious Objectors

Can pharmacists have a conscience? Activists are demanding that Congress and state legislatures pass laws forcing pharmacists and other health workers to act against their own conscience in such matters as abortion, morning-after pills, and gay parenting.

Some doctors say it violates their conscience to perform abortions or provide artificial insemination for unmarried or gay people. Some pharmacists believe that the morning-after pill is a form of abortion, and their religious commitment forbids them to dispense it.

And now some patients and activists are demanding laws to force health professionals to dispense the care the patients want, no matter how it violates the health worker’s conscience. Activists who march for a woman’s right to choose want the government to overrule a pharmacist’s right to choose.

I was reminded of Arnold Kling’s question “Is Bioethics an Oxymoron?” when I read in the Washington Post the comments of official bioethicist R. Alta Charo: “As soon as you become a licensed professional, you take on certain obligations to act like a professional, which means your patients come first.” As I wrote in an online debate for Legal Affairs magazine,

this is an example of how one state intervention generates the demand for additional interventions. We say you can’t be a pharmacist unless you get a state license, and now you want to say that that license should empower the state to impose morally offensive obligations on those who were required to get the license.

Similarly, we require a prescription to get many drugs, including some forms of contraception. Why should a woman need a prescription for contraception? Why not just grant access to contraception by allowing it to be sold over the counter? Here we’ve created one intervention—the requirement that people get a prescription from a licensed doctor, which they must take to a licensed pharmacist—and it has led to a situation you don’t like, in which some tiny number of pharmacists are refusing to dispense a particular prescription. So you say we should have another rule, another regulation, another intervention.

As philosopher Loren Lomasky of the University of Virginia puts it in the Post article, “Freedom of conscience has been central to our political notions since even before the United States existed. People should not be forced into doing things that they find morally odious.”

Do the people who want doctors and pharmacists to be forced to provide abortions and morning-after pills want anesthesiologists to be forced to participate in executions? I’d bet not. These activists want their moral values enforced by law, they don’t want a neutral rule that all doctors must obey the laws of the state. If they did take such a consistent position, of course, I’d still disagree: anesthesiologists shouldn’t be forced to participate in what they may regard as murder, any more than gynecologists should.

This seems like such a clear issue to me. Yet most of the people in the Post’s online chat about the issue were insistent that health workers must be forced to do as they’re told, regardless of their own conscience. Whatever happened to the liberal claims of individual autonomy, of the right of conscience, of the individual exercising his or her own mind? Gone with the wind, it seems, when liberals have the power to impose their values on other people’s consciences.

In a country of 290 million people and 14 million businesses, we should let these issues sort themselves out in the marketplace. Chances are that major drugstore chains like CVS and Walgreen’s are going to insist that their stores fill all prescriptions. If they have more than one pharmacist on duty at a time, then they may be willing to tolerate pharmacists who avoid filling certain prescriptions. If they do insist that all pharmacists be prepared to fill any prescription presented by a customer, then pharmacists who can’t accept such rules will have to look for jobs elsewhere. And if customers encounter a pharmacy that won’t give them what they want, then they will have to find another pharmacy.

A prime reason for freedom is pluralism. In the modern world we don’t all share the same moral and religious perspectives. The fact of moral diversity is a good reason for toleration and allowing people to sort themselves out in society according to their own moral choices. Freedom in a pluralistic society should mean that individuals get to make their own choices. Sometimes other people aren’t willing to do what we want them to do. But frankly, it’s involuntary servitude to force other people to work for us when they prefer not to. And it’s appalling that 141 years after the Thirteenth Amendment, some people still want to hold others to involuntary servitude.

The Incredible Expanding Farm Program

The Washington Post reports that a federal program to help dairy farmers and ranchers hurt by drought has been expanded to benefit farmers untouched by drought conditions:

In all, the Livestock Compensation Program cost taxpayers $1.2 billion during its two years of existence, 2002 and 2003. Of that, $635 million went to ranchers and dairy farmers in areas where there was moderate drought or none at all, according to an analysis of government records by The Washington Post. None of the ranchers were required to prove they suffered an actual loss. The government simply sent each of them a check based on the number of cattle they owned.

It’s a typical story of government handout programs. Under “pressure from ranchers and politicians in a handful of Western states that were hit hard by drought,” the Bush administration in 2002 created a fund to compensate them. Within days members of Congress were demanding that more counties be included, and they were. But that still wasn’t enough, and in 2003 Congress expanded the program to cover any kind of weather-related disaster. And then President Bush declared that the shuttle explosion over Texas constituted a disaster, so that made more counties eligible. County USDA officials were pressured to find any kind of “disaster” that would qualify local farmers for handouts.

The Post has run other articles in this series, with titles like Farm Program Pays $1.3 Billion to People Who Don’t Farm and Growers Reap Benefits Even in Good Years. Yet even with front-page stories in Congress’s hometown newspaper, the farm program rolls merrily along, handing out more and more subsidies with less and less plausibility.

It’s enough to make you a public choice economist. So the question is, why doesn’t it make Washington Post and other mainstream-media journalists and editorial writers more skeptical about the benefits of government programs? A great deal of what we know about the failures of government, or way that politics really works, comes from mainstream journalists. Yet many journalists continue to assume that every problem in society suggests a government program to fix it.

“A Monumentally Stupid Idea”

That is how Augustus Richard Norton, a Middle East specialist at Boston University, characterized a proposal to send UN peacekeepers to southern Lebanon, an idea championed by Prime Minister Tony Blair and others at the just-concluded G-8 summit.

Norton should know. He once deployed to southern Lebanon as part of a small U.N. observer force that has been there since Israel’s first incursion in 1978. He is also a retired army colonel, a former West Point professor, and the author of several books on Middle East politics and culture.

But Norton is not alone in questioning the wisdom of an expanded UN force in southern Lebanon, as this Washington Post article by Peter Baker and Robin Wright points out.

“It’s a non-starter,” said Timur Goksel, who, like Norton, served with the U.N. force. He now teaches in Beirut. Goksel told the Post, “If the intention is to observe, there is already a force in place. If they are talking of a deterrent force to prevent fighting, it will immediately be seen as an occupation force here. And when you have an occupation force, no matter what your flag, even under the United Nations, that’s when the trouble starts. This is a most ridiculous idea. Nobody will accept it.”

But some people are accepting it – and promoting it, despite the fact that an international peacekeeping force in southern Lebanon is unlikely to succeed in bringing an end to the violence.

Consider the tragi-comic exploits of the current UN mission, the UN Interim Force in Lebanon (UNIFIL). The force was first sent there in March 1978, nine days after Israel invaded southern Lebanon in pursuit of PLO terrorists holed up in the territory, and UNIFIL has since witnessed not one but TWO more Israeli incursions into Lebanon, in June 1982 and now in July 2006. On Monday, as the Post reports, UNIFIL issued a statement complaining “that it was unable to supply food and water to its own troops, much less help deliver humanitarian aid to civilians, because Israel had not guaranteed free passage.”

The international impulse to just do something – despite the long track record of failure – might be overwhelming. An argument (not a very good one) could be made that a larger force with a clearer mandate might succeed where the current UNIFIL mission has failed.

Regardless of those particular details, however, the U.S. military should not be involved. As Norton warns in the closing line of the Post article: “The military is overstretched. Most of the army is wrapped up in Iraq. A deployment in Lebanon would potentially be interminable.” 

Our men and women in uniform have more than enough on their plate right now, and the last thing that they (or we) need is to become embroiled in yet another long-running conflict.

 

Paternalism in Arizona

NPR reports:

In a bid to increase voter participation in Arizona, Dr. Mark Osterloh is spearheading a ballot initiative that would automatically make each person who casts a vote eligible to win a million dollars in unclaimed state lottery money.

I would ask two questions about this proposal: Will it work?  Should it be undertaken?  I think “no” should be the answer to both questions. 

Will it work? Many experts argue that it is rational not to vote. The act of voting involves costs and benefits. The costs are getting information about the candidates, going to the polling place, standing in line and so on. The benefits to the voter are the benefits a voter expects his preferred candidate or party to deliver multiplied by the probability that his vote will swing the election to his preferred party or candidate. That probability is very low, which means that the benefits a voter can expect from voting are also quite low. They are much lower, in fact, than the costs of voting. 

The lottery measure proposes to add to these benefits the expected value of a $1 million dollar payoff. However, that value is also quite low.  2,038,069 people voted in Arizona in 2004.  Each would have had an equal chance of winning the payout. Hence, the expected value of the lottery payment in 2004 would have been 49 cents. Would that additional 49 cents attract many more voters to the polls in Arizona? It seems unlikely. Imagine that every voter was promised two quarters to come to the polls and vote. Would that tip their cost-benefit calculations toward voting? 

Of course, we might say that the state of Arizona should exploit the irrationality of voters who lack information about the number of voters or the ability to calculate an expected value. States already exploit such shortcomings with state lotteries. In that regard, the proposal seems unseemly, even immoral. 

Advocates would no doubt argue that the state might exploit voter irrationality for the higher good of getting people to the polls. Is voting such a valuable activity that the state should force taxpayers to subsidize it? 

Clearly voting is not valuable for those who choose not to vote. The justification for subsidizing voting and the lottery must be that voting provides benefits to people other than the voters who choose not to vote. At one time, experts thought non-voters differed substantially in outlook from voters. If so, voters were a skewed sample of the electorate, and elections did not contain all information about the preferences of “the people.” Studies have shown, however, that non-voters do not differ substantially in ideology or in partisanship from those who do not vote. If everyone voted, the outcomes of elections would change little if at all. It is unlikely, therefore, that society would gain much new information from the electorate by subsidizing an election lottery. 

In the end, for all the appearances of incentives and rational calculation, Mark Osterloh is just another paternalist who believes that people would be morally better if they participated in politics. He enlists the greed of the gambler to serve the endless crusade to “improve” the character of other people through state action. The proponents of the lottery inhabit a world where voting has replaced prayer, and politics has taken the place of religion. What is missing from this crusade, like other crusades before, is any sense that people should be left alone to make their own decisions about whether to vote and that whatever decision they make should be respected, even by the busybodies who think politics is next to godliness. 

And the unclaimed lottery money, of course, should be sent back to the people of Arizona through a tax cut.  

U.K. Gambling CEO Arrested at U.S. Airport

Details are still sketchy, but it looks as if David Carruthers, a U.K. citizen and CEO of the U.K.-incorporated, U.K.-traded public company BetOnSports.com, has been detained at a Fort Worth airport while switching flights between the U.K. and Costa Rica. He will now apparently be charged in the U.S. for running a company that’s legal in just about every Western country except America.  Reuters reports:

The U.S. Department of Justice said on Monday that BetOnSports was among 11 individuals and four corporations facing various charges of racketeering, conspiracy and fraud.

The founder of BetOnSports, Gary Kaplan, 47, was also charged with 20 felony violations, and a warrant has been issued for his arrest, the Department of Justice added.

“BetOnSports.com and other gambling Web sites operated by Gary Kaplan and his co-defendants offered gamblers in the United States illegal wagering on professional and college football and basketball,” said a copy of the indictment seen by Reuters.

It’s probably worth noting that Carruthers is an outspoken advocate for legalizing online gambling in the U.S. He recently debated Rep. Jim Leach on the issue in the Wall Street Journal. If Carruthers is being held solely because U.S. customers illegally do business with his legal, U.K.-based company, that’s disturbing enough.

But things could get even more interesting.

Carruthers was careless enough to have step foot on U.S. soil, even if only to switch planes. But as the Voluntary Trade Council’s Skip Oliva explains, the U.S. and the U.K. have also entered into some curious extradition treaties since September 11, and the U.S. has exploited those treaties to effectively kidnap British citizens who broke no British laws, and extradite them to the U.S. for trial on charges of violating U.S. law.  It’s worth noting that the cases Oliva writes about are iffy white collar crimes that have nothing to do with terrorism.

And let’s not forget the Mark Emery case, in which the DEA’s zealous persecution of medical marijuana users led them to extradite a medical marijuana activist from Canada for charges of marijuana distribution in the U.S..  It was inarguably a purely political arrest. The DEA bullied Canadian and British Columbia law enforcement officials – where marijuana laws are lax, if enforced at all – into doing its bidding.

The jihad against online gambling spilling out from Congress these last few months portends a showdown between the U.S. and the U.K. What’s interesting is that this time, the U.K. is unlikely to back down.  Britain has embraced Internet gambling and gets a substantial amount of tax revenue from the $12 billion U.S. consumers spend gambling online each year, much of it with U.K.-incorporated gaming sites.  You have to think U.K. officials would have an interest in maintaining those revenues, not to mention in protecting their citizens, and in the integrity of the tech sector of their markets, which took a spill after Carruthers’ arrest.

Might the U.S. try to enforce its gambling ban by extraditing gambling executives in other countries? Would those countries comply? What are the implications of either scenario?

If Congress succeeds in pushing through its farcical, ill-considered ban on online gambling, these are just a few of the issues that’ll inevitably pop up down the road. I’ve written before about some possible free trade entanglements the bill presents. But here’s another: One way U.S. consumers may get around the bill’s deputizing U.S. banks to enforce the gambling ban would be to simply open accounts in banks based overseas. Will Congress then attempt to ban wire transfers between U.S. banks and overseas banks that allow transactions with gaming sites? I wouldn’t put it past them.

The heartening side of all of this is that it shows how technology, trade, and commerce can work together to circumvent heavy-handed government meddling. The distressing part is just how far some in the U.S. government will go to impose their values on American citizens.

I guess nobody ever said moral crusading was easy.

No Need for a Mandate

Much of the justification for an individual health insurance mandate, like that pushed by Massachusetts Governor Mitt Romney and the Heritage Foundation, is that people who lack insurance in the current system still receive medical treatment when needed.  The cost of treating these “free riders” is shifted to the insured and the taxpayer.  In particular, it is suggested that these uninsured individuals will end up at hospital emergency rooms.  Advocates of universal single-payer systems often make similar arguments.

But a new study in Health Affairs shows that that there is no significant difference in emergency room use between insured and uninsured populations.  The study concludes that increases in the number of uninsured are not likely to lead to an increase in emergency room visits.  However, the study does show that Medicaid beneficiaries use emergency rooms more than either the insured or the uninsured.  This may result both from the difficulty that Medicaid patients have in finding primary-care physicians willing to treat them at Medicaid’s low reimbursement rates, and from the fact that emergency room visits are essentially free for the Medicaid patient.

One other finding is worth noting as well.  Contrary to public perception, noncitizen immigrants actually use emergency rooms less than citizens.  Emergency rooms are not being overrun by illegal immigrants.