I was pleased when I learned that Harvard professor Lawrence Lessig had asked to come speak to us at Cato. Julian Sanchez has done a terrific job of capturing some of the subjects highlighted by his visit last week. Lessig is very keen on public financing of elections. In the end, however, Lessig’s visit reminded me of a birthday party I attended many years ago – something had been wrong with the cream sauce on the tortellini.

The day after Professor Lessig spoke to a small group of us at lunch, a friend forwarded me an email he had sent to his followers describing his visit to our “prominent conservative think tank.” His email, PowerPoint presentation, and talk were all framed as if we are on “the right,” which doesn’t sit well with many of us given the profound errors of modern conservatism.

I don’t mind when politicians, reporters, and cab drivers call the Cato Institute “conservative.” I don’t expect them to know better. I’ll even use the “conservative” moniker to advantage as an advocate if it can communicate that our support of civil liberties spans ideologies. But Lessig knows the difference between conservative and libertarian, and he wasn’t trying to show that there’s pan-ideological agreement on certain ideas. Or maybe he was…

His email talked about how, “nearly universally, [we] saw the same problems [he] did,” about our “shared” views, and “agreement that 20 years of conservative Presidents in the last 29 did not produce less government or simpler taxes.” Conspicuously absent was any reference to the polite but persistent challenges we addressed to Professor Lessig’s thesis, framing, and assumptions in the discussion that followed his presentation.

I think most of us believe that money ineluctably follows power. Accordingly, smaller government – not “better” campaign finance laws, and definitely not speech controls – will reduce the need for, and power of, money in politics.

But as I thought about it, I continued to grow doubtful that Professor Lessig was interested in an actual discussion of such issues. Why, for example, did he deliver a 20-minute, canned PowerPoint presentation – decent fare for college students – to ten or so Ph.D.s in economics and political science, top think-tank executives, and deeply experienced Washington hands? (And, ugh, the corny appeal to Ronald Reagan.) It wasn’t to bring the conference staff up to speed. My conclusion is that Lessig came to produce a video he could tout to his fan-base. Lessig tames the conservative lions.

Reviewing the tape with this thesis in mind, I had reason to second-guess Lessig’s assertion that he had convinced Richard Epstein to support public funding of elections in a recent debate. What Lessig said, exactly, was this:

Richard Epstein … at the end of this debate was willing to concede that in his view the only solution he saw – or one solution, he also wants term limits – but one solution to this economy of influence, this economy of corruption, was, as he described it, public funding.

I’d characterize it as a recorded conversation, but Lessig spins it as a full-fledged debate, taking Epstein’s cordiality as concessions on key points.

The image I’ve reproduced here, from Lessig’s PowerPoint, reaffirms to lay audiences that Epstein is a supporter of public funding. Imagery like this is fair in political campaigns. But it’s unfair in intellectual discussions – especially when communicated to thousands of people who don’t know Epstein’s thinking well.

I also went ahead and asked Professor Epstein what he thinks of Professor Lessig’s characterizations – something Lessig might have done before splashing “public funding” across Epstein’s face. Professor Epstein’s thoughts appear in a companion to this post.

Professor Lessig is an important public intellectual, and the issues he has focused on are important. But my sense is that his visit to Cato used the pretext of intellectual inquiry to make the Cato Institute a prop in his campaign to promote public funding of elections. I don’t think he should have associated our organization with that campaign.

This is big.

The federal tax code creates a large tax preference for employer-sponsored health insurance.  As a result, 61 percent of non-elderly Americans obtain health insurance through an employer.  That tax preference creates all sorts of problems.  It encourages more comprehensive health insurance and wasteful health care spending.  It deprives many workers of their health coverage at the moment they need it most: when they get sick and can no longer work.  And it denies workers the benefits of being able to choose their health plan.  Eighty percent of those who work for an employer that offers health benefits have at most two health-plan choices, which are typically both run by the same insurer.

To date, no one had really quantified the damage done by denying workers the ability to choose their own health insurance.  The only guesstimate of which I had been aware was by Mark Pauly, Allison Percy, and Bradley Herring, who “infer[red] that the true value of the welfare loss may actually be in the neighborhood of 5–10 percent,” which was enough to negate any advantage that employer-sponsored insurance offers by virtue of its lower administrative costs.

A new working paper titled, “Let them Have Choice: Gains from Shifting Away from Employer-Sponsored Health Insurance and Toward an Individual Exchange,” by Leemore Dafny, Katherine Ho, and Mauricio Varela, offers a more precise estimate of how much workers suffer because the federal tax code denies them their choice of health plan – and how much they would gain if they had greater choice.  (The authors have a shorter paper explaining their results here.)  They write:

We estimate the median welfare gain from expanding choice amounts to roughly 20 percent of premiums.  For the vast majority of employee groups and alternative model specifications, the gains from choice are likely to outweigh potential premium increases associated with a transition from large group to individual pricing.

Dafny, Ho, and Varela’s results provide a huge boost to free-market health care reforms.

One of the main goals of free-market reforms is to eliminate the tax code’s preference for employer-sponsored insurance – and the corresponding tax penalty imposed on people who purchase health insurance directly from an insurer.  There are many ways level that playing field, including health-insurance tax credits, a standard deduction for health insurance, and (my preference) “large” health savings accounts.  Those reforms would give people seamless coverage between jobs, protection against premium increases if they got sick, and much greater choice.

The standard criticisms of those proposals is that they would tax health benefits (“for the first time in American history,” no less!) and move people onto the “individual market,” where medical underwriting and higher administrative costs would increase premiums. In a recent paper, I explain how Large HSAs would result in an effective tax cut of nearly $10 trillion over 10 years, with the largest effective tax cuts going to the sickest workers.  I further explain how Large HSAs would reduce the problem of pre-existing conditions enabling people to purchase seamless coverage that doesn’t become more expensive just because you get sick.

Dafny, Ho, and Varela buttress the argument for Large HSAs and other tax reforms by showing that even though administrative costs may rise slightly, the benefits of giving workers more health insurance choices would overwhelm those costs.

Of course, advocates of greater government regulation will claim that Dafny, Ho, and Varela’s results show that the “exchanges” implemented in Massachusetts and envisioned in President Obama’s health plan would also benefit workers by giving them more choices than their employers currently offer.   As I explain elsewhere, however, the Massachusetts and Obama health plans would actually limit health insurance choices, both immediately and over time, until they marched all Americans into a narrow range of health plans, or just one type of plan.  Dafny, Ho, and Varela’s results are an argument against ObamaCare, not for it.

Many thanks to Dafny, Ho, and Varela for highlighting the harm done by government interference in health care markets, and the benefits of free-market reforms.

In the defensive-sounding statement released with his budget this morning, President Obama repeatedly blames the previous administration for leaving him in a position where he had “no choice” but to send the nation deeper into debt. He blames “irresponsible risk-taking and debt-fueled speculation—unchecked by sound oversight” for a deep recession that he speciously claims his administration’s massive spending prevented from becoming a depression.

Not once does the president acknowledge the role the government played in fomenting the recession. Instead, the president promises to move away from “business as usual” even though more spending, deficits, and debt are precisely that: business as usual. In this regard, the Obama administration’s first term is looking more like George W. Bush’s third term. Bush left the president with a $1.4 trillion deficit in FY2009; the deficit under Obama’s first year is set to rise to $1.6 trillion and would still be $1.3 trillion in FY2011. 

Just like Bush, the president proposes minuscule savings through a small number of program terminations and reductions. But overall spending continues to rise, and in a $3.8 trillion budget the president’s disingenuous attempt to “cut” anything amounts to little more than a rounding error. The president also proposes to freeze non-security discretionary spending for three years, which he falsely claims will “help put our country on fiscally sustainable path.”  In reality, last year’s stimulus and appropriations spending binge will mean actual outlays for this tiny portion of the overall budget will still be higher than what Obama inherited.

The president says that “rising to these challenges is the responsibility we bear for the future of our children, our grandchildren, and our nation.” The truth is our children and grandchildren are going to pay a painful price for the Bush/Obama profligacy. Present and future generations would be better served by Washington putting on the spending brakes and bringing to an end the economic distortions caused by government interventions.