Archives: 10/2008

Anti-Socialism = Racism ??

At Salon.com, Michael Lind asks and answers, “Is Barack Obama a socialist?  If he is, then so is John McCain.“ I have to agree.  McCain so often plays the class warrior that his “desperate use of the socialist smear is particularly shameless.” I might add that McCain is giving anti-socialism a bad name by associating it with hypocrisy, anger, piety, trigger-happiness, etc.

But I can’t go as far as Lind, who doesn’t really seem interested in the answer to his own question. Indeed, it appears Lind’s purpose is to teach McCain the true meaning of shameless. Lind writes:

McCain and Palin claim that Obama’s proposed healthcare system is socialist. It is nothing of the sort. It is a variant of the employer-friendly, insurance-friendly “play-or-pay” scheme discussed in the 1990s. Employers will be given the choice of providing tax-favored health insurance to their employees or being taxed to support a public insurance system. Over time the latter might expand, but for the foreseeable future our dysfunctional private insurance system will survive.

I’m sorry, but the fact that Obama would preserve private health insurance says absolutely nothing about whether his health-care plan is socialist. (If your jaw just hit the space bar, you probably need to read my paper, “Does Barack Obama Support Socialized Medicine?”) The Church of Universal Coverage loves pointing to the presence of “private” health care because it distracts attention from what they’re really doing.

Lind further attempts to innoculate Obama from the charge of socialism by associating the candidate with that great anti-socialist Friedrich Hayek. Lind describes Hayek’s Road to Serfdom as “the bible of free-market libertarians,” and refers to the part where Hayek writes:

Nor is there any reason why the state should not assist the individuals in providing for those common hazards of life against which, because of their uncertainty, few individuals can make adequate provision. Where, as in the case of sickness…neither the desire to avoid such calamities nor the efforts to overcome their consequences are, as a rule, weakened by the provision of assistance — where, in short, we deal with genuinely insurable risks — the case for the state’s helping to organize a comprehensive system of social insurance is very strong. There are many points of detail where those wishing to preserve the competitive system and those wishing to supercede [sic] it by something different will disagree on the details of such schemes; and it is possible under the name of social insurance to introduce measures which tend to make competition more or less ineffective. But there is no incompatibility in principle between the state’s providing greater security in this way and the preservation of individual freedom.

When Hayek wrote that in 1943, the world had little experience with health insurance at all, much less with market provision of health insurance. Today, we have lots of experience with the former and enough experience with the latter to know that markets “can make adequate provision” of health insurance for more than just a “few individuals.” In 1943, Hayek and his contemporaries also knew little about how health insurance affects the incidence of health “losses.” Today, we have lots of evidence to show that moral hazard is real and — as Hayek would predict — governments have only the bluntest of tools for dealing with it. Finally, universal-coverage schemes have come to consume such considerable shares of workers’ earnings, as well as other aspects of individual self-determination, that it is implausible to suggest that socialized medicine is compatible with individual freedom.

In short, Hayek was wrong here. (So much for the whole “bible” thing.) Even if Hayek were right, that wouldn’t make Obama’s health plan any less reliant on centralized planning — i.e., any less socialist.

“Another champion of healthcare socialism,” writes Lind, ”was the late Milton Friedman, [who] proposed that major costs be paid for by mandatory catastrophic healthcare coverage run by the federal government.” Lind cites Friedman’s support of a Negative Income Tax as further evidence of Friedman’s socialist tendencies. 

Unlike Lind’s claims about Hayek, this is just silly. Friedman offered those ideas as second-best alternatives to prominent proposals that were far more socialist — some of which had already been enacted (socialized medicine for the elderly, the expanding welfare state) and some of which merely seemed inevitable (socialized medicine for all). Anyone looking for Friedman’s true preferences need only consult Free To Choose (which he coauthored with his wife Rose):

In our opinion, there is no case whatsoever for socialized medicine. On the contrary, government already plays too large a role in medical care. Any further expansion of its role would be very much against the interests of patients, physicians, and health care personnel.

Since Obama would vastly expand the federal government’s role in health care, I think we can guess where the Friedmans stand.

Lastly, Lind gets nasty:

McCain’s last-minute clarion call is really a racial “dog whistle.” The McCain campaign may appear to be debating public philosophy, when in fact it is making a disguised appeal to white racism. If that is the case, then “redistributionist” and “socialist” may be intended to be understood by white swing voters as code words that function the way that “welfare queen” did for the Reagan campaign. A “socialist” or “redistributionist” is a politician who taxes white people like Joe the Plumber and gives money to … you know who.

Does Lind mean to suggest that voicing opposition to “socialist” policies, “redistribution,” and “spreading the wealth around” is necessarily racist? If not, then is there any way an anti-socialist could say such things without Lind suspecting him of racism? Or of race-baiting?

And what’s with this eagerness to impute evil motives to those who disagree with you? That’s so … McCain-esque.

The ‘Business Case of the Century’

On Monday, the Supreme Court will hear the case of Wyeth v. Levine, which the U.S. Chamber of Commerce has called the “business case of the century.” A Vermont woman who had to have an arm amputated after a nausea drug was improperly administered sued the drug’s manufacturer, Wyeth (she also sued the clinic, physician, and physician’s assistant, but these parties settled). She won in state court, and Wyeth sought review in the U.S. Supreme Court under the theory of “preemption” — that states cannot regulate (by statute or common law) in fields, like pharmaceuticals, where the federal government already does. Here the FDA had approved Wyeth’s label, but Wyeth did not change that label to conform to Vermont’s particular (and stronger) laws.

I don’t know whether this is the “business” case of the century, but it may well be that for the pharmaceutical industry. The outcome turns on a close reading of the statute — as Dan Troy and Becky Wood detailed in the most recent Cato Supreme Court Review, the Court is much more likely to endorse “explicit” rather than “implicit” preemption — but everyone (especially patients) will be better off if the Court upholds FDA preemption here. The courts should not be micro-managing what goes on labels or we will end up with the “overwarning” problems that defeat the labels’ purpose. Moreover, litigation is a blunt regulatory instrument that tends to skew the FDA’s already warped incentives to give too much weight to rare side-effects at the cost of prohibiting or suppressing useful drugs. These incentives, and the related litigation costs, ultimately affect the development of new drugs.

Personal Accounts for Social Security: Still the Best Deal

With the stock market in turmoil, opponents of personal accounts for Social Security have once again raised the specter of Social Security “privatization” in political campaigns across the country. “Imagine if your Social Security taxes were invested in the stock market today,” they suggest ominously. The implication is that if we had allowed today’s seniors to privately invest a portion of their Social Security taxes when they were young, those seniors would be destitute today.

But let’s look at what would really have happened. Someone retiring today, who started paying Social Security taxes when they were, say, 22, would have begun investing 43 years ago, in 1965. As Figure 1 below shows, at that time, the Dow was at 969.26. Even adjusting for inflation, as shown in Figure 2, the Dow was at 43.25.

To show just how much better a deal private investment would have been, look at Figure 3. Assume you had invested a hypothetical $100 in 1965. The redline shows what would have happened if that money had annually earned Social Security’s imputed rate of return (about 2.2 percent for someone retiring today). The blue line represents what would have happened if you earned the actual market return. If you invested $100 in 1965 at Social Security’s rate of return, today you would have $254.91. But if you invested that $100 in the market, today, even with the current down market, you would have $4,135.92.

Any way you look at it, personal accounts are still a better deal.

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Bush’s Midnight Regulations?

The lead story in today’s Washington Post — above the economy, above the election — is a warning that the Bush administration may deregulate something before it leaves office. Here’s the online headline and subhead:

White House Makes a Last Push to Deregulate

New regulations, which would weaken rules aimed at protecting consumers and environment, could be difficult for next president to undo.

The story begins:

The White House is working to enact a wide array of federal regulations, many of which would weaken government rules aimed at protecting consumers and the environment, before President Bush leaves office in January.

The new rules would be among the most controversial deregulatory steps of the Bush era and could be difficult for his successor to undo. Some would ease or lift constraints on private industry….

Once such rules take effect, they typically can be undone only through a laborious new regulatory proceeding, including lengthy periods of public comment, drafting and mandated reanalysis.

OK, that’s news. A fair story. Although of course the reporter quotes no economist critical of regulation — just a couple of White House flacks and a business lobbyist — though he does quote at least three pro-regulation “public interest” activists issuing dire warnings of impending doom.

But I was curious: Did the Post run a prominent story a few days before the 2000 election about the Clinton administration’s push to impose sweeping regulations before they left office? You know the answer: of course they didn’t. Before election day, according to a Nexis search, there was one reference at the tail end of the jump of a Post story in the Business section to the Mercatus Center’s Midnight Regulations website. So they knew about the problem — Mercatus was publicizing it, and the Houston Chronicle ran a front-page story — but the Post didn’t think voters needed to know.

Even though, as today’s story mentions after the jump,

[T]he last-minute rush appears to involve fewer regulations than Bush’s predecessor, Bill Clinton, approved at the end of his tenure. …

“Through the end of the Clinton administration, we were working like crazy to get as many regulations out as possible,” said Donald R. Arbuckle, who retired in 2006 after 25 years as an OMB official.

Maybe they didn’t quite grasp the problem back in 2000. We’ll see whether there are such stories toward the end of the Obama administration in the Post — and on Diane Rehm, and on ABC News, and in the New York Daily News, and all the other places that are very concerned about “midnight deregulation.”

Obama’s Non-Plan for Social Security

In the closing days of the presidential campaign, Barack Obama has had relatively little to say about Social Security — other than attacking John McCain for his (tepid) support for personal accounts. There may be a good reason for his reticence. 

Senator Obama has explicitly rejected any proposal to allow younger workers to privately invest part of their payroll taxes through personal accounts. He has also ruled out any reduction in Social Security benefits. Instead, he has proposed a 4 percentage point payroll tax hike, beginning in 2019, for individuals earning more than $250,000 per year in wages. While this fits in well with Sen. Obama’s “tax the rich” philosophy, it does very little for Social Security. 

As we know, Social Security will begin running a deficit — paying out more in benefits than it takes in through taxes — in just nine years, by 2017. Of course, in theory, Social Security is supposed to continue paying benefits after 2017 by drawing on the Social Security Trust Fund until 2040, after which the Trust Fund will be exhausted. In reality, the Social Security Trust Fund is not an asset that can be used to pay benefits. Any Social Security surpluses accumulated to date have been spent, leaving a Trust Fund that consists only of government bonds (IOUs) that will eventually have to be repaid by taxpayers. Therefore, in looking at Social Security’s looming crisis, what really counts is the program’s cash-flow solvency, which turns negative in 2017.

Senator Obama’s proposal would do very little to change this. Most people earning more than $250,000 per year receive the vast majority of their income in forms other than wages or salary. In fact, according to the IRS, only a little more than $1 billion in wages were earned by people with more than $250,000 in wage income. Assuming standard wage growth in the future, Senator Obama’s tax would generate barely $50 million per year. That would not even push back Social Security’s cash-flow insolvency by an additional year.

On one hand, compared to Senator Obama’s other proposed tax hikes, this one offers relatively little pain. On the other hand, it offers even less gain.

If you want to see a Social Security plan that actually works, check out Cato’s 6.2% solution.

The American Way of War

On TPM Cafe, a part of the Talking Points Memo media empire, I’m in a week-long discussion of a new book, The American Way of War: Guided Missiles, Misguided Men and a Republic in Peril, which oddly takes the title of the Russell Weigley classic without acknowledgement.

The other participants are the author, Eugene Jarecki, who directed Why We Fight, Greg Mitchell, editor of Editor & Publisher, Andrew Bacevich, the Boston University professor, Joe Cirincione, president of the Ploughshares Fund, and Naomi Wolf. Lawrence Wilkerson, former chief of staff to Secretary of State Colin Powell, is supposed to show up, but hasn’t yet.

I can’t recommend that you read the book, but I do recommend the discussion, especially if you’re interested in military-industrial complexes.

Against Intellectual Monopoly Forum - Nov. 10

It is commonly believed that intellectual property law in the form of copyright and patent is necessary for innovation and the creation of ideas and inventions such as machines, drugs, computer software, books, music, literature and movies.

But Michele Boldrin and his coauthor David K. Levine argue that intellectual property laws are costly and dangerous government grants of private monopoly over ideas. Their book Against Intellectual Monopoly seeks to show through theory and example that these legal regimes are not necessary for innovation and are damaging to growth, prosperity, and liberty.

The argument that intellectual property laws actually retard progress is a fascinating challenge to conventional beliefs about their foundations and utility. At the onset of the Information Age, the role of copyright, patent, and other legal regimes in the progress of science and arts is centrally important.

Join us Monday, November 10th for an interesting discussion of the book with coauthor Michele Boldrin, featuring commentary from Robert Atkinson, Founder and president of the Information Technology and Innovation Foundation.

Register here.

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