Archives: 06/2007

It Dawns Upon Gore

This Fast Company profile of Al Gore (via Jim Henley) contains this delicious nugget:

One problem he had in politics, he says, was identifying an issue too early–“ ‘predawn’ is the term I use”–to be able to act on it. But “in the business world, particularly at a time when things are moving so swiftly, if you can see it early, you can make a business opportunity out of it.” He pauses. “For whatever reason, the business world rewards a long-term perspective more than the political world does.”

“For whatever reason”!

It may be that “predawn” Al Gore has killer entrepreneurial instincts, but, being the scion of a political family, just got caught in the wrong game. However, I suspect he landed on the board of Apple, for example, for reasons other than his proven track record as a market ace. And the $175,000 speakers fee may have something to do with his having won the popular vote in a contest against one of history’s most unpopular presidents. But we can only hope that Gore’s many new business ventures help create new wealth and earn him and a bunch of other people a ton of money. For whatever reason, the incentives provided by markets to look further in the future than the next election tend to do us all a lot of good.     

Announcing the Anti-Universal Coverage Club

Inspired by National Review’s recent editorial and Andrew Sullivan’s embrace of same (as well as by Greg Mankiw), I have decided it would be fun and educational to keep tally of those who reject the idea that federal or state governments should strive to provide every American with health insurance.  Call it the Anti-Universal Coverage Club.

Here are the guiding principles of the Anti-Universal Coverage Club:

  1. Health policy should focus on making health care of ever-increasing quality available to an ever-increasing number of people.
  2. To achieve “universal coverage” would require either having the government provide health insurance to everyone or forcing everyone to buy it.  Government provision is undesirable, because government does a poor job of improving quality or efficiency.  Forcing people to get insurance would lead to a worse health-care system for everyone, because it would necessitate so much more government intervention.
  3. In a free country, people should have the right to refuse health insurance.
  4. If governments must subsidize those who cannot afford medical care, they should be free to experiment with different types of subsidies (cash, vouchers, insurance, public clinics & hospitals, uncompensated care payments, etc.) and tax exemptions, rather than be forced by a policy of “universal coverage” to subsidize people via “insurance.”

If you’d like to join the Anti-Universal Coverage Club, let me know by posting something to your own blog, or by emailing me mcannon [at] cato [dot] org (here).  Feel free to forward items from other like-minded individuals.

I predict that neither the American Medical Association, nor the Federation of American Hospitals, nor America’s Health Insurance Plans will join the Anti-Universal Coverage Club.

Lazy Leftists

A certain segment of the political left is, shall we say, lazy in its critique of letting consumers control their health care dollars and decisions. 

For example, I recently wrote about my experience using my health savings account (HSA) to pay for medical care after I tore my anterior cruciate ligament.  When my orthopedist learned that I faced a high deductible, he helped me weed out unncessary expenses that would provide little benefit.  In particular, we skipped an X-ray because I didn’t hear or feel any bones break, and he agreed there (probably) would be no harm in doing so.  The only reason I shared that information about my injury, indeed the only reason we gave the X-ray a second thought, was because I had a financial incentive to do so: I was paying for the X-ray.

Big deal, says Ezra Klein:

That’s all for the good, when it’s all for the good. On the other hand, that’s just a hop, skip, and a jump away from “She had shortness of breath, but no radiating arm pain, so she decided to wait through the weekend because she couldn’t afford the ambulance ride. She died.”

Here’s why that’s lazy. 

Klein knows that when people face additional cost-sharing, some patients will forgo some medical care and some of those patients will end up less healthy.  But he also knows that when people have HSA-like coverage, on balance, people do not end up less healthy. 

That’s right: for every lady who loses her life because she didn’t call an ambulance, someone else’s life is saved because he or she kept the doctor away.  (Remember: guns don’t kill people, doctors do.)  So it’s no refutation of HSAs to note that some people who forgo care will suffer.

Klein’s critique is of course more nuanced than “HSAs…bad!”  After all, he himself supports cost-sharing – if done smartly, by people with expertise.  If cost-sharing is devised willy-nilly, he says, people get hurt.  For example:

A recent study looked into what happens if you increase cost sharing on pharmaceuticals in Medicare. In other words, what happens when the patients have what Cannon calls a “financial incentive to avoid unnecessary spending.” The answer? “[S]ubjects whose benefits were capped had higher rates of nonelective hospitalizations, visits to the emergency department, and death. In addition, subjects whose benefits were capped had lower pharmacy costs but higher hospital and emergency department costs, with no significant difference in total medical costs between the two groups.”

Here’s why that’s lazy. 

First – and I’m sorry that I have to repeat this – the best evidence available instructs that, regardless of what the cost-sharing looks like, cost-sharing does not lead to worse overall health outcomes.

Second, if greedy insurance companies can save money and lives by eliminating cost-sharing on certain medical expenses, they will do so.  (Why?  Because they’re greedy, and offering more health for less money gives them a competitive advantage.)  Of course, the literature is mixed on whether cost-sharing for pharmaceuticals increases or decreases overall medical spending.  But assuming that coverage for certain medical services will actually save money overall, who does Klein think will sooner identify and eliminate cost-sharing for those services: government or the market?  Before he answers, he should consider that the market brought prescription drug coverage to consumers, oh, 30 years before Medicare did.

Third – and this is the kicker – Klein’s preference for planning-by-experts is what produced the very style of cost-sharing that he derides.  The requirements for an HSA-qualified high-deductible health plan were devised by Congress, not the market.  The Medicare drug benefits in the study he cites (above) also were not designed by the market.  They were designed by Congress and employers.  And when Medicare finally brought drug coverage to all seniors, Klein still didn’t like the result.

Klein may object that it wasn’t his experts who wrote those laws, or even that he doesn’t want Congress meddling with what his experts decide.  But the loyal opposition’s experts will always be around.  And I don’t know how he plans to get around that whole Article I thing. 

If Klein wants experts to calibrate cost-sharing, he has to include the entire political process – including his ideological opponents (hellooo!) and every wretched lobbyist for the health care industry – in his model.  He has to argue that that process will calibrate cost-sharing better than greedy insurance companies who have to provide value to consumers who control their health care dollars. 

I look forward to him making that case.

Cheney’s Secret Failure

The Washington Post has been running a huge series on the power and influence of Vice President Cheney. The first two parts examined his immense influence on the administration’s response to 9/11, “pushing the envelope” of presidential power (not to mention vice-presidential power) and crafting the administration’s position on the use of torture — or rather “cruel, inhuman or degrading” methods of questioning.

But the third part, although written with the same sinister soundtrack, tells a very different story. The Post reporters seem to want us to be alarmed by Cheney’s power over fiscal policy and by his relentless push to reduce the burdens of taxes and spending on the American people. But there’s a problem with that story: not only is fiscal conservatism a good thing — unlike, say, secret authorization for domestic surveillance — but if Cheney’s goal was to constrain spending, he failed utterly.

Jo Becker and Barton Gellman report on Cheney’s power over the budget:

Cheney has changed history more than once, earning his reputation as the nation’s most powerful vice president. His impact has been on public display in the arenas of foreign policy and homeland security, and in a long-running battle to broaden presidential authority. But he has also been the unseen hand behind some of the president’s major domestic initiatives….

And it was Cheney who served as the guardian of conservative orthodoxy on budget and tax matters….

The vice president chairs a budget review board, a panel the Bush administration created to set spending priorities and serve as arbiter when Cabinet members appeal decisions by White House budget officials. The White House has portrayed the board as a device to keep Bush from wasting time on petty disagreements, but previous administrations have seldom seen Cabinet-level disputes in that light. Cheney’s leadership of the panel gives him direct and indirect power over the federal budget — and over those who must live within it….

Cheney often stepped in if he sensed the administration was softening its commitment to Republican “first principles,” Bolten said, and he was “a pretty vigorous voice for holding the line on spending and for holding the line on tax cuts.” Longtime Cheney adviser Mary Matalin said the vice president brings a “spine quotient” to internal debates.

To a fiscal conservative, this all sounds just fine: The most powerful vice president in American history, known as a strong conservative, is put in charge of fiscal policy and forces bureaucrats and Cabinet officers to “live within the budget.”

But we know the rest of the story: President Bush has increased federal spending at a faster pace than any president since Lyndon Johnson — or indeed faster. (And it is by no means all defense and homeland security spending.)

The Post reporters never quite tell us that, though there are some hints:

Cheney shared conservative trepidations about the president’s signature education initiative, the No Child Left Behind Act, which gave the federal government more control over K-12 education. He has griped privately to confidants, such as economist and CNBC host Lawrence Kudlow, about the administration’s failure to control spending. And in robust internal White House discussions, he raised concerns about the cost of the administration’s decision to expand Medicare to include a new multibillion-dollar drug entitlement, but bowed to the political reality that the president had to fulfill a campaign promise….

“Dick once told me that our president is a ‘big-government conservative,’” said former senator Phil Gramm (R-Tex.), in a recollection disputed by Cheney’s office. “Now, Dick keeps his opinions to himself whenever he disagrees with the administration, as he should. But I believe that Dick is a small-government conservative.”

In a way, Cheney’s story is the story of the Bush administration: Where they pushed bad policies, policies that dramatically expand the power of the federal government and infringe on our liberties, they have had much success. When Cheney and occasionally Bush backed good policies, policies that would constrain government, they failed miserably. Indeed, if Vice President Cheney is indeed a “small-government conservative” who used his unprecedented power to “hold the line” for “conservative orthodoxy on budget and tax matters,” he has been a failure of Carteresque proportions.

Maybe taxpayers would be better off if Cheney had had his own staff prepare a secret federal budget and implement it without input from Bush’s staff, relevant Cabinet officers, Congress, or the courts.

Government Makes Things Worse, Not Better

In this column, John Stossel eviscerates David Brooks, the ostensibly conservative columnist for the New York Times. Brooks has argued for big new government initiatives to boost human capital. Stossel correctly explains, though, that Brooks wants to expand failed government programs when the right approach is to move in the other direction:

David Brooks is a bright guy, so I wonder how he can blame the free market for failing in this way. He continues, “Despite all the incentives, 30 percent of kids drop out of high school and the college graduation rate has been flat for a generation.” Excuse me, but why is that the market’s fault? Government dominates education in America. K-12 education is a coercive, often rigidly unionized government virtual monopoly that fights every attempt to experiment with free-market competition. Brooks writes that Hamiltonians like him “think government should help people get the tools they need to compete.” But when has government ever been good at that? He claims the state can “increase the quality of human capital” by, for example, providing “Quality preschool [to] help young children from … disorganized homes. … ” Really? What is the chance that it would be “quality” preschool if government runs it? Even the acclaimed Head Start has not been shown to have any lasting effect on academic performance. …When I asked Brooks why a government that performed as ineptly as FEMA did after Hurricane Katrina will be better at running preschools, he said, “Some lives are so screwed up, it’s hard to make them worse.” Government coercion almost always makes things worse. It discourages individual effort, and sucks capital away from more productive uses. …America became an economic power despite, not because of, Hamiltonian intervention. Hong Kong and much of East Asia went from abject poverty to affluence in a few decades not because their governments gave people “tools they need to compete” – they didn’t – but because they exercised limited powers.

Jurisdictional Competition is the Only Hope for Europe’s Taxpayers

A new report from the European Commission shows that the tax burden continues to climb. The only silver lining to this dark cloud is that tax competition is forcing politicians to lower corporate rates and to consider lowering tax rates on labor. A Dow Jones report notes that Eastern European nations are having a good effect since their low-rate tax systems are forcing reforms elsewhere in Europe:

Eurostat said the E.U.’s tax burden remained below the high of 41.0% reached in 1999. The tax burden last increased in 2003. Taxes on work rose to 35.2% from 35.1% in the E.U., and to 36.8% from 36.2% in the euro zone. Eurostat said the decline in labor taxes that began at the turn of the century had come to a halt “despite a wide consensus on the desirability of reducing labor taxes.” E.U. governments have agreed that persuading more Europeans to work is essential if the bloc is to remain economically competitive with the U.S. and Asia. Cutting taxes on work is seen as a vital step in that direction. Eurostat said that although taxes on work remained below the 2000 high of 36.5%, they are “much higher…than in the other main industrialized economies.” …there is growing evidence of tax competition between E.U. members that is pushing tax rates down. In general, new E.U. members from eastern Europe have lower top rates of income and corporation tax. Fearing that companies may move production to the new members, some older members of the E.U. have begun to cut corporation tax rates, including Germany and the U.K..

Is Efficient Government A Good Thing?

One of the behind-the-scenes initiatives of President Bush’s budget staff the past six years has been something called the Program Assessment Ratings Tool (PART) analysis. It’s an effort to measure the “effectiveness” and “efficiency” of nearly 1,000 federal programs. Each program is graded on how well it achieves its “goals,” with marks ranging from “effective” (the equivalent of an A grade) to “ineffective” (the equivalent of an F grade).

In Tuesday’s Investor’s Business Daily op-ed section, Ernest Christian and Gary Robbins take a look at the results to date of the effort:

Congress is about to wave its wand over nearly $1 trillion of additional “discretionary” spending that will, among other things, perpetuate or increase funding for nearly 500 expenditure programs that are not even “moderately effective,” according to the Office of Management and Budget. This includes more than 200 expenditure programs that have failing grades of D or F.

By our calculations, the OMB study, called Program Assessment Ratings Tool (PART), further reveals that on average more than half of all federal expenditure programs are falling about 50% short of their stated goals.

This means that out of every dollar spent, 50 cents may possibly be accomplishing something worthwhile, but the remaining 50 cents might as well have been poured down a rat hole. In these cases alone, the cost of government incompetence is over $250 billion per year.

The list of programs with the lowest grades might make any supporter of limited government point wildly and say, “Told you so!” This rogue’s gallery includes the Department of Housing and Urban Development’s pork-filled Community Development Block Grants, the Department of Education’s Even Start literacy program, and Amtrak.

But what about the ones that received the equivalent of an A or B grade – those programs that are “effective” or “moderately effective”? That list includes homeless assistance grants, agricultural export subsidies, Indian housing loan guarantees, the non-insured crop assistance program, and corporate welfare programs like the Trade and Development Agency which subsidizes overseas demand for the products of various corporations.

The main activity these programs are really “efficient” at is spending your money in new and interesting ways on things they shouldn’t be spending your money on in the first place.

Take the non-insured crop assistance program, for instance. This program subsidizes farmers who aren’t holding a federal crop insurance policy in the event of a crop-damaging natural disaster. What did it do to earn the honor of being listed as “moderately effective”? It became very good at increasing the number of crops eligible for subsidies.

Sure, knowing when the government is losing money to fraud or mismanagment is important. But it makes more sense to determine whether these programs should exist at all before deciding what they should be “efficient” at doing. Besides, an efficient but unjustified wealth-redistribution program might actually be worse than an inefficient one. The former will likely be better at finding innovative ways of expanding the scope of its operations.

Slapping the “efficiency” label on certain federal programs is a bit like putting lipstick on a pig. You can dress up Leviathan, but it’s still Leviathan.