Archives: October, 2010

How ObamaCare Is Destroying Consumer Protections

In this morning’s Charlotte Observer, I explain how ObamaCare is destroying consumer protections.  Exhibit A is Blue Cross Blue Shield of North Carolina’s decision to refund $156 million to its policyholders:

BCBSNC’s refunds show that ObamaCare is leaving seriously ill patients with less protection, not more. Health insurance was hardly perfect before ObamaCare, but BCBSNC’s policyholders had insurance that had pre-funded many of their future medical bills.

Now, ObamaCare has effectively transferred those reserves from the sick to the healthy. Seriously ill policyholders now have less protection against BCBSNC reneging on its commitments to them. Competition used to discourage skimping; ObamaCare rewards it.

Due to space considerations, the editors dropped the parts where I explain (A) how research by Harvard economist (and sometime Obama advisor) David Cutler shows that under ObamaCare’s price controls, insurers must compete to avoid the sick, and (B) that ObamaCare is blocking further innovations – such as those foreseen by University of Chicago economist John Cochrane – that would provide even greater protection to the sick.

Grok Heinlein?

The biographer of the great libertarian science-fiction novelist Robert A. Heinlein will speak at Cato on October 21. I liked Michael Dirda’s Washington Post review of the book:

Picture a Saturday morning during one of those endless summers of the late 1950s and early ’60s. A boy climbs on his red Schwinn bicycle and rides like the wind to the public library, then to several drugstores and thrift shops. He is on a mission. He is looking desperately for a book, any book, by Robert A. Heinlein (1907-1988), the greatest science-fiction writer in the world.

The greatest? Back then, few adolescent sf readers would have seriously questioned such a cosmic truth. Isaac Asimov’s “Foundation Trilogy” was certainly cool (Hari Seldon! Psychohistory!), and Ray Bradbury’s “The Martian Chronicles” could be poetic, scary and ghoulish almost at the same time, and, yes, Alfred Bester’s “The Stars My Destination” just might be the single best sf novel of them all, but Heinlein was … Heinlein….

[William H.] Patterson even asserts – and will presumably discuss more fully in Vol. 2 – that Heinlein “galvanized not one, but four social movements of his century: science fiction and its stepchild, the policy think tank, the counterculture, the libertarian movement, and the commercial space movement.”

I hope you can join us on October 21, or watch it streamed on the web.

Unfair Subsidies for Buses

Cato essays on the Department of Transportation contain a common theme: federal subsidies for various modes of transportation have stifled privately funded and operated alternatives. One emerging bright spot is private intercity bus companies.

From a Cato essay on Amtrak subsidies:

If Amtrak is privatized, passenger rail will be in a much better position to compete with resurgent intercity bus services. The rapid growth in bus services in recent years illustrates how private markets can solve our mobility needs if left reasonably unregulated and unsubsidized. A Washington Post reporter detailed her experiences with today’s low-cost intercity buses: “This new species offers curbside pickup and drop-offs, cheap fares, clean restrooms, express service, online reservations, free WiFi and loyalty programs … The bus fares undercut Amtrak and, depending on the number of passengers, personal vehicles.”

That’s why a story out of Minnesota is disturbing. According to the Duluth News Tribune, Jefferson Lines, which operates a bus line between Duluth and the Twin Cities, received $2.65 million in federal stimulus money to purchase five of the eight buses it has in service. One of Jefferson Lines’ competitors isn’t happy:

That angers Dave Clark, owner of Skyline Shuttle, which provides transportation from Duluth to the Twin Cities. Clark claims it’s unfair for Jefferson Lines to use government money to compete with his business and cut into his revenue.

“When there’s a market and they are competitors, it should be left to the market without government interference,” Clark said. “They could have taken the risk themselves, but they relied on the taxpayer to take the risk.”

The first problem is that federal taxpayers across the country are being forced to subsidize a private bus line in Minnesota. The second problem is that the government is effectively picking winners and losers in the market for intercity bus services. Instead of spreading transportation subsidies across every form of transportation, the federal government should cease with the seemingly endless interventions and allow free individuals to figure out what makes the most sense.

Would You Trade Higher Taxes for Much Lower Spending and Less Red Tape?

I dislike taxes as much as the next person (and probably a lot more), but other policies matter as well, so if I had the choice of replacing current government policies with the ones that existed at the end of the Clinton years, I would gladly make that trade. Yes, it would mean higher tax rates, but it also would mean slashing government spending from 24 percent of GDP down to 18 percent of GDP. It would mean no sleazy TARP bailout, no Sarbanes-Oxley red tape, no expansion of Fannie Mae and Freddie Mac, and no added power and authority for the federal government.

This is the argument that I made in this interview on CNBC, though my opponent tried to do his version of the Brezhnev Doctrine (what’s mine is mine, what’s yours is negotiable), so I concluded the interview by stating that in the real world higher taxes are completely unacceptable.

To elaborate on this discussion, here’s a chart showing actual revenue over the past decade and what spending would be if policy makers had simply maintained the overall budget level from the last year of the Clinton Administration and allowed spending to grow in line with inflation and population. The deficit would be much smaller. More important, the burden of federal spending would be almost $1 trillion lower.

Evo Morales’ Soccer Behavior Mirrors His Governing Style

The video speaks volumes: During a “friendly” game played in La Paz, Bolivia’s President Evo Morales (wearing green jersey number 10) approaches a rival player to confront him for a previous foul. Suddenly, Morales takes justice into his own hands and savagely knees the player in the groin. The referee sees the action but doesn’t red card Morales. Even the teammates of the assaulted player don’t complain. Instead, the referee expels the attacked player. The game goes on and Morales scores the tying goal for a 4-4 match. It was later reported that Morales’ security detail tried to arrest the player.

Evo Morales’ thuggish attitude towards his soccer rivals mirrors his attitude towards political opponents (actually, the team he was playing against was led by the mayor of La Paz, a political foe of the president). Before and since becoming president in 2006, Morales has repeatedly resorted to violence in order to advance his socialist agenda. A couple of other episodes are indicative of Morales’ governing style:

In November 2007, after months of impasse in the Constitutional Assembly in which the text of a new constitution could not be approved because of a lack of an absolute majority, the government called for a session of the Assembly to be held at a military base. When the opposition delegates tried to enter the premises, they were prevented from doing so by the military, the police and Morales’ supporters. The text of Bolivia’s new constitution was thus approved by the unrepresentative Assembly.

To become the law of the land, the new constitution had to be approved by a national referendum. However, the opposition-controlled Senate refused to call a referendum on a constitutional text that was rightly viewed as illegitimate. In February 2008 Morales called the leaders of the opposition to his official residence for a negotiation. Upon arrival, they were told that the president wasn’t there and that the bill to call for a referendum was about to be submitted for a vote on the Senate floor. When the legislators tried to return to the Congress, they were prevented doing so by Morales’ supporters and the police. The Senate passed the bill and Morales went on to win the referendum by a wide margin.

A couple of years ago, Evo Morales candidly recounted his attitude to following the rules: “When some lawyer tells me ‘Evo, you’re making a judicial mistake; what you’re doing is illegal,’ well, I keep going even though it’s illegal. I then tell the lawyers: ‘If it’s illegal, go ahead and make it legal. That’s what you went to school for.’”

Nobody should be surprised by Evo’s soccer antics. They are just a metaphor for his governing style.

Deirdre McCloskey at Cato Unbound

This month’s Cato Unbound features a lead essay by economist and polymath Deirdre McCloskey. Though she’s been professionally associated with the Chicago School, her ideas are anything but predictable, and she’s been one of the strongest critics of the mainstream of her discipline.

Economic activity, she argues, is driven primarily by forces outside of conventional economic theory. Sure, there’s supply and demand, and we all know the story, and there’s nothing terribly wrong with it, at least as far as it goes. Elaborations on the model aren’t wrong either – externalities, transaction costs, asymmetrical information, problems of coordination and public goods – these too are fine, as far as they go.

Where she disagrees is in her claim that a whole lot of things have to happen inside people’s minds before these things become terribly interesting to talk about. The decision to enter a marketplace, or to behave in ways that we might call “a market,” or even just the decision to look for economic incentives, all depend on some fairly deep value judgments. The creation of a highly market-driven society implies a commitment to a set of values.

What values are we talking about? Here’s a sample:

The Big Economic Story of our times has not been the Great Recession of 2007–2009, unpleasant though it was. And the important moral is not the one that was drawn in the journals of opinion during 2009 — about how very rotten the Great Recession shows economics to be, and especially an economics of free markets. Failure to predict recessions is not what is wrong with economics, whether free-market economics or not. Such prediction is anyway impossible: if economists were so smart as to be able to predict recessions they would be rich. They’re not. No science can predict its own future, which is what predicting business cycles entails. Economists are among the molecules their theory of cycles is supposed to predict. No can do — not in a society in which the molecules are watching and arbitraging.

The important flaw in economics, I argue here, is not its mathematical and necessarily mistaken theory of future business cycles, but its materialist and unnecessarily mistaken theory of past growth. The Big Economic Story of our own times is that the Chinese in 1978 and then the Indians in 1991 adopted liberal ideas in the economy, and came to attribute a dignity and a liberty to the bourgeoisie formerly denied. And then China and India exploded in economic growth. The important moral, therefore, is that in achieving a pretty good life for the mass of humankind, and a chance at a fully human existence, ideas have mattered more than the usual material causes.

A society that denigrates small businesses, small landowners, entrepreneurship, thrift, and innovation will see less of each. It will have different laws, customs, and institutions. Its resources will be used differently. Even its class structure will be different.

Societies that make a place for the artisan, the entrepreneur, the innovator – societies that see these people as valuable – will prosper. That’s the essence of the argument, anyway, and I’m only disappointed that we can’t present it in more detail (McCloskey is in the middle of a four-book series on this one very big idea).

Through the rest of the week, we have a lineup of notable response essayists, including U.C. Davis’s Gregory Clark, science journalist Matt Ridley, and Yale University’s Jonathan Feinstein. Be sure to stop by often, or just subscribe to our RSS feed.