Archives: 07/2010

Abortion, Third-Party Payer, and the Cost of Health Care

A major problem with America’s health care system, both before and after Obamacare, is the fact that consumers very rarely spend their own money when obtaining health care. Known as third-party payer, this problem exists in part because government directly finances almost 50 percent of health care expenditures. But even a majority of supposedly private health care spending is financed by employer-provided policies that are heavily distorted by a preference in the tax code that encourages insurance payments even for routine expenses. According to government data, only 12 percent of health care costs are financed directly by consumers. And since consumers almost always are buying health care with somebody else’s money, it should come as no surprise that this system results in rising costs and inefficiency. This is why repealing Obamacare is just the first step that is needed if policymakers genuinely want to restore a free market health care system (all of which is explained in this 4-minute video).

Unfortunately, many people think that market forces don’t work in the health care system and that costs will always rise faster than prices for other goods and services. There are a few examples showing that this is not true, and proponents of liberalization usually cite cosmetic surgery and laser-eye surgery as examples of treatments that generally are financed by out-of-pocket payments. Not surprisingly, prices for these treatments have been quite stable – particularly when increases in quality are added to the equation.

I just ran across another example, and this one could be important since it may resonate with those who normally are very suspicious of free markets. As the chart from the Alan Guttmacher Institute shows, the price of an abortion has been remarkably stable over the past 20-plus years. Let’s connect the dots to make everything clear. Abortions generally are financed by out-of-pocket payments. People therefore have an incentive to shop carefully and get good value since they are spending their own money. And because market forces are allowed, the cost of abortions is stable. The logical conclusion to draw from this, of course, is that allowing market forces for other medical services will generate the same positive results in terms of cost and efficiency.

None of this analysis, by the way, implies that abortion is good or bad, or that it should be legal or illegal. The only lesson to be learned is that market forces control costs and promote efficiency and that more government spending and intervention exacerbate the third-party payer crisis.

Last Stand in Massachusetts?

As national education standards continue their hushed and rushed adoption process, there may be only one chance left to significantly slow them down: Massachusetts.

The Bay State is seen by national-standards supporters as having the toughest mathematics and language arts standards in the nation, and if Mass refuses to adopt the Common Core standards on the grounds that they’re not up to the state’s high snuff, then national standards will lose a very high profile state.  It certainly wouldn’t be the end of the line for national standards – lots of federal money coercing adoption will see to that – but it would be a relatively high-profile, and maybe even attention-grabbing, loss.

Unfortunately, Massachusetts is on the same eye-blink adoption schedule as every other state trying to get Race to the Top bucks, and its Board of Elementary and Secondary Education will be voting on the standards Wednesday. That’s left almost no time for Bay Staters to imbibe the proposed standards, much less analyze them and absorb the analyses. The Pioneer Institute, though, is doing all it can to shed light on the Common Core standards despite the impossible timeline. Today, it published its analysis of the language arts standards, finding that the extant standards of Massachusetts and California are appreciably higher. Tomorrow, it will dissect mathematics.

The sad reality, though, is that Pioneer is likely fighting a stacked, losing battle. As Pioneer executive director Jim Stergios weaves together in a recent blog post, despite the appearance of objective deliberation, the powers-that-be in Massachusetts have been on the national standards bandwagon from the get-go, and they’ve got everything in line to adopt the Common Core. Real debate and deliberation, disappointingly, was probably never in the cards.

At least, though, Pioneer has been able to fire off some shots. With a little luck, maybe they’ll even get a hit on this hyper-sonic target.

ObamaCare Is Unpopular: a Response to Maggie Mahar

The Century Foundation’s Maggie Mahar is one of the Left’s more knowledgeable and insightful health policy wonks.  Today, she blogs about my colleague Michael Tanner’s claim – made in his recent white paper, “Bad Medicine: A Guide to the Real Costs and Consequences of the New Health Care Law” – that ObamaCare, which became law in March, “remains deeply unpopular.  Recent polls show substantial majorities support repealing it.”  To support that claim, Tanner cites a May poll showing support for repeal at 63 percent.

Mahar says Tanner is “cherry picking”:

Bad Medicine was released July 12. Why didn’t Tanner include June numbers? Instead, he  hand-picked the one poll, over a seventeen week span, that shows support for repeal running as high as 63 percent…Indeed, the May 22 poll turned out to be a “bounce”—merely a blip on the screen. Over the next five weeks, the number of respondents who favored repeal fell, while opposition to killing the bill rose.

I’m not sure why Tanner didn’t include more recent numbers, but it may have been because it often takes 6 weeks for a paper to emerge from Cato’s publishing process.

More important, while Mahar is correct that the 63-percent figure is so far the high water mark for repeal, it was hardly “merely a blip.”  She herself reports that support for repeal was 60 percent in the very next Rasmussen poll.  Nor is it quite accurate to say that support for repeal fell over the next five weeks.  Support for repeal reached 60 percent again on July 1, and at no point does Rasmussen show support for repeal falling below 52 percent.  In fact, Rasmussen today reports that support for repeal climbed three points to 56 percent in its July 16-17 poll, while opposition to repeal fell by four points to 38 percent.  It would be more accurate to say that Rasmussen finds opposition to repeal hovering between 32-42 percent, and support for repeal hovering between 52-63 percent, with no clear trend on either side.  But Rasmussen does find far greater intensity on the pro-repeal side: in the July 16-17 poll, 47 percent “strongly favor” repeal, while only 25 percent are “strongly opposed.”

Mahar then selects her own polls to support the Left’s theme that the more Americans learn about ObamaCare, the more they like it.  But when we take all available polls into account (as I did earlier today using Pollster.com), we see that opposition to ObamaCare still leads support and the trendline is not moving in the direction Mahar says it is.  When we look only at polls of likely & registered voters, opposition to ObamaCare commands a slight majority and leads support by a consistent 9-point margin.

Tanner may have picked the most dramatic numbers, but he didn’t need to.  ObamaCare remains deeply unpopular – in spite of Mahar and major media outlets misleading the public by claiming that the law makes preventive care (and other services) available to patients “free of charge.”

Public Transit: A Classic Example of Government in Action

Since 1970, the number of workers needed to operate America’s public transit systems has increased by 180 percent while the inflation-adjusted cost of operating buses, light rail, and heavy rail (the only modes whose costs are known back to 1970) increased by 195 percent. Yet ridership on those modes increased by only 32 percent.

Flickr photo by Bradlee9119.

Each transit worker produced 53,115 transit trips in 1970, but only 26,314 trips by all modes in 2008. The real cost per rider grew by 124 percent, while subsidies (fares minus operating costs) grew by more than 8 times. Though capital cost data prior to 1992 are sketchy, capital costs also grew tremendously, almost certainly by more than operating costs. By any measure, then, transit productivity has declined more than 50 percent. “It’s uncommon to find such a rapid productivity decline in any industry,” noted the late University of California economist Charles Lave.

(All transit data are from the 2010 Public Transportation Fact Book, tables 1, 12, and 38. 1970 dollars adjusted for inflation using the GDP deflator.)

What accounts for this huge decline in productivity? Simple: government ownership. Prior to 1965, most transit systems were private and the industry as a whole was declining but profitable. In 1964, Congress passed the Urban Mass Transit Act, which promised federal capital grants to any government-owned transit systems. Cities and states quickly took over private transit systems, and transit agencies soon discovered that the federal government was just as willing to fund expensive transit systems as inexpensive ones, so they overbought, purchasing giant buses where small ones would do and building expensive rail lines where buses would do.

To cover their operating losses, transit agencies taxed as large an area as they could, but were then politically obligated to provide transit service to the entire taxed area. While transit’s main market is in the dense inner cities, agencies began running buses and, in many cases, building rail lines to relatively wealthy low-density suburbs that have three cars in every garage. The result of overbuying and extended service was lots of nearly empty buses and railcars: the average transit vehicle load is only about one-sixth of capacity, so if you are the sole occupant of a five-passenger SUV, you can be smugly proud that the car are driving has a higher occupancy rate than public transit.

On top of this, to be eligible for federal transit grants, Congress required transit agencies to obtain the support of local transit unions, giving unions leverage to negotiate generous pay and benefits packages. The highest-paid city employee in Madison, Wisconsin last year was a bus driver who earned nearly $160,000. The New York Times recently documented that more than 8,000 employees of the New York Metropolitan Transportation Authority (MTA) earned more than $100,000, with one collecting $239,000, last year.

Union employees reach such lofty pay levels by putting in lots of overtime. MTA even pays $34 million a year in overtime to employees who are on vacation, on the theory that if they weren’t on vacation they would probably be working overtime. When Los Angeles’ transit agency tried to save money by hiring more employees so it won’t have to pay as much overtime, union workers went on strike for 30 days and forced the agency to back down.

The American Public Transportation Association (APTA), a lobby group whose budget is several times larger than all of the highway lobby groups in DC combined, promotes increased subsidies for transit by claiming transit is better for the environment than automobiles – a claim the Cato Institute has refuted. Per passenger mile, transit and cars actually use about the same amount of energy and emit the same amount of pollution. In fact, all but a handful of transit system are far worse for the environment than cars. Moreover, cars are rapidly becoming more energy efficient, while transit has grown less energy efficient as agencies run more and more empty buses and trains into remote suburbs.

Urban transit buses are some of the most energy-intensive vehicles around because they are mostly empty. Yet private, intercity buses are some of the most energy-efficient vehicles in the country because the private operators know to run them where people want to go, and thus they average half to two-thirds full.

APTA’s other argument for transit is that it saves people money. Many transit agencies have a calculator on their web sites purporting to show how much people can save riding transit instead of driving their cars. But all these claims ignore the huge subsidies to transit.

This Cato briefing paper compared the costs of different forms of travel in 2006. Updating to 2008, auto owners spent about 22 cents a passenger mile driving, and subsidies to highways added another penny a passenger mile. Airfares averaged about 14 cents a passenger mile, and subsidies to airports added another penny. Amtrak fares averaged 30 cents a passenger mile, and subsidies brought the total to nearly 60 cents. Urban transit is about the most expensive form of travel in the United States, with fares averaging only about 21 cents a passenger mile but subsidies of 72 cents a passenger mile. This makes transit 4 times as expensive as driving.

In short, those who want to get people out of their cars and onto transit are trying to get people from an inexpensive, convenient, and increasingly energy-efficient form of travel to an expensive, inconvenient, and increasingly energy-wasteful form of travel.

The real solution for transit is privatization. Private operators would use smaller buses and would mainly serve the dense inner cities that have low rates of auto ownership. At a broader level, the transit industry offers lessons for anyone who thinks that government can do a better job at providing goods and services than the free market.

The Washington Post Looks at “Top Secret America”

(Photo by Melina Mara: Washington Post)

Intel-watchers have been waiting with bated breath for the launch of the Washington Post’s investigative series “Top Secret America,” the first installment of which appeared today, along with a searchable database showing the network of contractors doing top-secret work for the intelligence community. Despite the inevitable breathless warnings that the Post’s reporting would somehow compromise national security, there’s nothing online as yet to justify such fears, as even the Weekly Standard notes: The information was vetted by intel officials before being posted, and a good portion of it was already in the public domain, if not necessarily collated in such a convenient form.  Indeed, writers like Tim Shorrock, author of the invaluable Spies for Hire, have been reporting on the explosion of intelligence contracting for some time now—and in some instances the information you’ll find in Shorrock’s own contractor database is more usefully detailed than what the Post provides.

None of this, to be clear, should at all diminish the enormous achievement of Dana Priest and William Arkin here: The real threat of their damning exposé should be to the job security of intelligence officials and contractors.  They paint a portrait of a sprawling intelligence-industrial complex drowning in data they’re unable to effectively process, and choked by redundancy:

After nine years of unprecedented spending and growth, the result is that the system put in place to keep the United States safe is so massive that its effectiveness is impossible to determine…. Analysts who make sense of documents and conversations obtained by foreign and domestic spying share their judgment by publishing 50,000 intelligence reports each year - a volume so large that many are routinely ignored…. Every day, collection systems at the National Security Agency intercept and store 1.7 billion e-mails, phone calls and other types of communications. The NSA sorts a fraction of those into 70 separate databases. The same problem bedevils every other intelligence agency, none of which have enough analysts and translators for all this work.

One retired admiral quoted in the piece complains that the much ballyhooed National Counterterrorism Center (NCTC) “had never produced one shred of information that helped me prosecute three wars.” (Three?) Another anonymous official describes “60 classified analytic Web sites still in operation that were supposed to have been closed down for lack of usefulness.” One really needs to read the whole piece to get the full sense of dysfunction, but I’d like to immodestly suggest that this bears out what I wrote back in May, when the Senate’s report on the Christmas “underwear bomber” was released:

[Y]ou’ll notice that in the wake of such failures, the political response tends to be heavily weighted toward finding ways to collect more dots.  We hear calls for more surveillance cameras in our cities, more wiretapping with fewer restrictions, fancier scanners in the airport, fewer due process protections for captured suspects. Sometimes you’ll also see efforts to address the actual causes of intelligence failure, but they certainly don’t get the bulk of the attention.  And little wonder! Structural problems internal to intelligence or law enforcement agencies, or failures of coordination between them, are a dry, wonky, and often secret business. The solutions are complicated, distinctly unsexy, and (crucially) don’t usually lend themselves to direct legislative amelioration—especially when Congress has already rolled out the big new coordinating entities that were supposed to solve these problems last time around.

It also, somewhat orthogonally, jibes with a point Clay Shirky has pressed about complex organizations:

Complex societies collapse because, when some stress comes, those societies have become too inflexible to respond. In retrospect, this can seem mystifying. Why didn’t these societies just re-tool in less complex ways? The answer [historian Joseph] Tainter gives is the simplest one: When societies fail to respond to reduced circumstances through orderly downsizing, it isn’t because they don’t want to, it’s because they can’t.

In such systems, there is no way to make things a little bit simpler – the whole edifice becomes a huge, interlocking system not readily amenable to change. Tainter doesn’t regard the sudden decoherence of these societies as either a tragedy or a mistake—”[U]nder a situation of declining marginal returns collapse may be the most appropriate response”, to use his pitiless phrase. Furthermore, even when moderate adjustments could be made, they tend to be resisted, because any simplification discomfits elites.

The Post piece really highlights two failures: A failure of the myriad organizations and programs launched since 9/11 to produce the quantity of useful intelligence that might justify the tens of billions of dollars spent on them,  and a failure of the intelligence community’s congressional overseers to provide any kind of serious accountability. As Salon’s Glenn Greenwald and Wired’s Spencer Ackerman both stress, both are predictable consequences of the intense secrecy surrounding intelligence work. Back in March, Ackerman quoted a former senior intelligence analyst on what he dubbed the “Coordination Myth”:

that it is somehow possible to “coordinate” the work of hundreds of thousands of people across dozens of agencies operating in nearly every country of the world. Anyone who has worked in complex organizations knows, or should know, that it is possible to coordinate only a few select activities and that there are always tradeoffs, because every time you coordinate some activities you are simultaneously weakening coordination among others. To cite just one example, the creation of the National Counterterrorism Center may have enhanced interagency coordination among terrorist operators, which is a good thing, but it has surely weakened coordination between them and the country and regional experts. The net result is that the Intelligence Community is probably stronger in tactical counter- terrorist coordination but is surely weaker in strategic counterterrorism. While we are looking for the next car bomb, we may be missing the next generation of terrorist threats.

That problem is especially salient when you combine a data glut with extraordinary compartmentalization of information—justified by a mix of genuine security concerns and the interest of agencies in guarding their turf.

If we were getting this little value for our money in any other sector, you’d find no shortage of legislators eager to make the issue a personal crusade—but investing time and resources in ferreting out inefficiency in a Special Access Program is likely to be a costly endeavor with little promise of a self-congratulatory press release as a reward for one’s trouble.  And that’s on the generous assumption that legislators are in a position to provide much more than oversight kabuki: Intelligence briefings, as many have complained, are typically minimalist affairs where no documentation is provided and note-taking is forbidden. In practice, legislators need to rely on the specialized expertise of a handful of cleared staffers who, even when they’re allowed to attend briefings, are spread gossamer thin. The intelligence agencies themselves are happy to paint any moves toward accountability as efforts to “handcuff” them—with little danger of being publicly gainsaid—and we’ve got 1,931 private firms with a vested interest in keeping the sluice gates jammed open.

Little wonder, then, that John McCain told Meet the Press in 2004 that “but we really don’t have, still don’t have, meaningful congressional oversight,” or that he later remarked it was a “good year” when his Armed Services Committee appropriations panel spent ten minutes on the intelligence budget. Shamefully, even as House Speaker Nancy Pelosi strives to provide some tiny modicum of added oversight in this year’s intelligence authorization bill, she’s being attacked by fellow Democrats like Dianne Feinstein, and even facing a veto threat from President Obama. Legislators are happy to expand their own oversight role, of course—but for the reasons sketched above, that’s unlikely to do more than provide an occasion for additional oversight theater.  The general consensus among intel scholars is that congressional oversight generally operates on a “fire alarm” model, where the exposure of some sufficiently alarming scandal prompts a brief period of intense scrutiny.  What’s needed is the kind of steady “patrolling” that could be provided by greater scope for investigation by the Government Accountability Office or a well-staffed umbrella Inspector General for whole of the intel community.

Michael Gerson Calls on Republicans to Stick with Big Government

Last week Washington Post columnist and former George W. Bush speechwriter Michael Gerson took one of his periodic potshots at libertarianism. Tom Palmer and I responded in the Post’s letters column. Since the published letter was shortened for space, here’s a more complete version:

Michael Gerson, who wrote the words that created the George W. Bush administration and thus led to the sweeping Democratic victories in 2006 and 2008, once again warns Republicans to stick to big-government conservatism and avoid the siren song of small-government libertarianism.

This time he describes libertarianism as “a scandal” because it “involves not only a retreat from Obamaism but a retreat from the most basic social commitments to the weak, the elderly and the disadvantaged, along with a withdrawal from American global commitments.” That is, he charges libertarians with a “retreat” from a welfare-state philosophy that is at odds with the American tradition and with basic principles of limited government. Moreover, he charges us with wanting to change a set of policies that have not served the weak, the elderly and the disadvantaged well, because they have encouraged and promoted weakness and long-term dependence. Libertarians warn that to continue down the current road leads to the Greek crisis, in which the utter cruelty of making promises that can’t be kept is revealed.  The state will soon have to retreat from the unsustainable commitments and promises that politicians and pundits are blithely making now. 

Gerson also charges libertarianism with “rigorous ideological coldness.” He considers reason, arithmetic, and a realistic assessment of what those “commitments” really mean to be “cold.”  That tells more about him than about libertarianism. 

As for the “global commitments” that Gerson writes such beautiful words about, the real scandal here is that our soldiers have been put in harm’s way all over the world, fighting other people’s battles and deploying deadly force that inevitably kills the innocent, the “collateral damage” that advocates of “global commitments” so conveniently forget. And more broadly, we are all at risk when U.S. foreign policy involves America in foreign quarrels and encourages hatred and terrorism in response to our foreign interventionism.

Gerson’s warfare-welfare state philosophy has given America two wars, serious threats from terrorism, and a $106 trillion unfunded liability. It might be kinder and gentler to try the Founders’ vision, the libertarian vision, of a limited state that provides a framework in which we can all enjoy life, liberty, and the pursuit of happiness.

As we noted in the original draft, Gerson was the intellectual architect of Bush’s “compassionate conservatism,” which came to be better known as “big-government conservatism” – from Bush’s 1999 Indianapolis speech that Ed Crane criticized in the New York Times as “Clintonesque” (worse, he meant Hillary) to his unReaganesque inaugural address to his speeches advancing such triumphs as No Child Left Behind, the Medicare prescription drug program, subsidies to religious groups, the Iraq War, the Bush doctrine, and massive increases in foreign aid. Thus he can also be seen as an architect of the Democratic victories in 2006 and 2008, in which the ideas and policies that he helped to shape were rejected. Now he warns Republicans that they shouldn’t fall for small-government ideas just because their big-government agenda led to a Democratic White House and Congress.

Here’s a response to a previous Gerson attack on libertarianism.

For Gates and Buffett, the Deity’s in the Details

As I write in the San Jose Mercury News today:

Bill Gates and Warren Buffett want the world’s billionaires to donate half their wealth to charity. If they’re successful with just their American peers, they’ll raise about $600 billion — an amount U.S. public schools spend in a single year. And therein lies a problem.

The problem is that one of their chief goals, shared by many of their billionaire peers, is to improve American education – an institution whose ultimate outcomes have not improved in four decades despite the infusion of trillions of additional dollars.

Buffett blames some of our educational woes on a “distorted” market system that rewards great investors ”with sums reaching into the billions,” while it “rewards a great teacher with thank-you notes.”

But the problem is not that our market system is distorted, the problem is that education isn’t part of it.

If we want educational excellence to be replicated and scaled up the way it is in other fields, we have to structure it as we have structured those other fields. Make it possible for the greatest educators to become billionaires, make it necessary for the worst to find different work, and let the former be separated from the latter through the countless choices of individual families.