Archives: August, 2012

Clint Eastwood, Lawyers, and the ADA

It wasn’t everyone’s idea of what a political speech should be, but this morning it was the speech everyone wanted to talk about: Addressing an empty chair representing President Obama, movie great Clint Eastwood took a swipe at the legal profession (“I never thought it was a good idea for attorneys to be president, anyway”) and made a case against the Democrats without actually showing all that much enthusiasm for the Republican Party. And those of us who’ve followed Eastwood’s comments on government and liberty over the years weren’t quite as surprised as many in the press seemed to be.

Did you know, for example, that Eastwood testified before Congress in 2000 on an issue that symbolizes the dysfunctional collision of law, legislation, and politics—that is to say, opportunistic ADA lawsuits? As I wrote at Overlawyered at the time:

The Hollywood actor and filmmaker got interested in the phenomenon of lawsuit mills that exploit the Americans with Disabilities Act … when he was hit with a complaint that some doors and bathrooms at his historic, 32-room Mission Ranch Hotel and restaurant in Carmel, Calif. weren’t accessible enough; there followed demands from the opposing side’s lawyer that he hand over more than just a fistful of dollars—$577,000, the total came to—in fees for legal work allegedly performed on the case. “It’s a racket”, opines Eastwood. “The typical thing is to get someone who is disabled in collusion with sleazebag lawyers, and they file suits.” … Eastwood told the WSJ he isn’t quarreling with the ADA itself, and the proposed legislation would affect only future cases and not the one against him; but “I just think for the benefit of everybody, they should cut out this racket because these are morally corrupt people who are doing this.”

Congress heard Eastwood’s and similar testimony and then did … nothing at all, not wanting to offend the more uncompromising lawyers in the disabled-rights movement. (More here, etc.)

There’s nothing like exposure to ADA filing mills to give one a jaundiced view of the legal profession. Although Democrats quickly pointed out that Romney and several other leading Republicans have law degrees, that doesn’t really blunt Eastwood’s point: by heading for legal academia, Obama signaled that the training “took” in a way that the business types like Romney didn’t.

There’s also nothing like exposure to ADA filing mills to give one a feeling that while the Democratic Party is more problematic overall, the Republicans aren’t necessarily a bargain either. While conservative GOPers are typically the ones who lead the charge to curtail ADA shakedown suits, much of the party is unwilling to cross the disabled-rights community on the issue – and this too is a long-running theme, with Presidents Bush both pere et fils having made a huge to-do about their unconditional support for a broadly applied ADA.

For many good reasons, not least diplomacy toward many Republicans in the audience, it could be predicted that Eastwood would say not a word about the ADA issue last night. But when he talked of the economic damage caused by feckless governance, I wonder whether he drew on his own experience as a small businessperson—and his awareness that when bad law closes down a restaurant, as has happened repeatedly in his own northern California, one can wind up with not just a single vacant chair but a whole roomful of them.

Section 337: A Second Bite at the Samsung

Last Friday, a court determined that Samsung phones did not copy the iPhone’s design and found Apple liable for infringing Samsung’s patents on mobile technology.  Wait, is that right?  Yes—in Korea.  The same day that a California jury found that Samsung owed Apple $1 billion for infringing design and utility patents, a court in Korea came to a very different conclusion.

In fact, courts all over the world have weighed in on the dispute and the results have not been at all consistent.  Just today, Apple lost in Japan, but it has had better results in Germany and Australia.  So far, the most entertaining decision has come from the United Kingdom, where a judge decided that Samsung’s products were not “cool” enough to be confused with the iPad or iPhone and then ordered Apple to issue a public apology to Samsung in paid newspaper ads.

The bizarre drama that is the smartphone patent wars is the byproduct of an international patent system in which products are global but patents are national.  Each country issues its own patents under its own rules, and any infringement determination must be made at the national level.  Samsung and Apple have sued each other in at least half a dozen countries.   In the United States, they are doing it twice.

Unlike every other country in the world, the United States allows patent holders to seek relief from allegedly infringing competitors in both a court of law and an administrative agency.  The U.S. International Trade Commission (ITC) has the power to exclude imported products from the U.S. market if it determines (based on its own separate investigation) that a respondent company has infringed the complainant’s patent and imported the offending product from abroad.

ITC investigations are authorized by Section 337 of the Tariff Act of 1930, a law designed to protect domestic manufacturers who could show that their foreign competitors engaged in “unfair methods of competition or unfair acts.”  Patent infringement has long been the most common allegation made under Section 337.  Although in many ways indistinguishable from a court trial, ITC investigations are generally faster than court cases, have only one remedy available (an import ban), and can only be used against alleged infringers who manufacture their products outside the United States.

In an upcoming Cato Policy Analysis, I explain why the existence of Section 337 is so problematic and argue for its repeal:

The only reasonable justification offered for retaining Section 337 is that district courts lack the power to stop infringement by foreign manufactur­ers. This argument is premised on an inac­curate perception of Section 337 respon­dents as untraceable foreign counterfeiters hiding behind national borders to leach off of innovative U.S. industries. In truth, the vast majority of respondents at the ITC are well-known corporations with operations in the United States, and many are cham­pions of the innovative U.S. industries that Section 337 is supposedly meant to protect. Having a special patent enforcement mecha­nism just for imports serves no legitimate purpose and poses substantial risk to the effectiveness of the patent system, the abil­ity of the United States to participate in the international trading system, and the rights of American consumers to pick their own winners and losers in a globalized economy.

Section 337 violates U.S. obligations as a member of the WTO because it treats imports less favorably than domestic goods.  There is simply no need to give patent holders two chances to get a favorable verdict in patent litigation—foreign manufacture doesn’t change that.

The existence of Section 337 also raises the possibility of conflicting judgments.  In December, the federal district judge in the case Samsung just lost will decide whether to issue a permanent ban on the importation and sale of certain Samsung products.  The ITC is scheduled to make a similar determination by the end of October.  Apple gets two chances, because Samsung has to win both.  If the court decides to issue a ban, the ITC proceeding is a complete waste of time.  If the court doesn’t issue a ban, the ITC may make that determination irrelevant by issuing its own.  If the ITC finds that Samsung did not infringe Apple’s patents, the whole thing is a complete mess.

Paul Krugman, Won’t You Help Me Be a Better Person?

I find myself on the wrong side of the facts. Again. So says Paul Krugman:

Still, wouldn’t private insurers reduce costs through the magic of the marketplace? No. All, and I mean all, the evidence says that public systems like Medicare and Medicaid, which have less bureaucracy than private insurers (if you can’t believe this, you’ve never had to deal with an insurance company) and greater bargaining power, are better than the private sector at controlling costs.

I know this flies in the face of free-market dogma, but it’s just a fact.

And Krugman should know. As the following clip shows, this is a guy who always has the facts on his side:

Yes, that was me at the beginning of the clip. Krugman was selflessly trying to instill in me his respect for evidence and his command of the facts. For some reason, I have yet to absorb either.

The proof is in this paper I wrote (and still stand by, for some reason):

Is Government More Efficient?

Supporters of a new government program note that private insurers spend resources on a wide range of administrative costs that government programs do not. These include marketing, underwriting, reviewing claims for legitimacy, and profits. The fact that government avoids these expenditures, however, does not necessarily make it more efficient. Many of the administrative activities that private insurers undertake serve to increase the insurers’ efficiency. Avoiding those activities would therefore make a health plan less efficient. Existing government health programs also incur administrative costs that are purely wasteful. In the final analysis, private insurance is more efficient than government insurance.

Administrative Costs

Time magazine’s Joe Klein argues that “the profits made by insurance companies are a good part of what makes health care so expensive in the U.S. and that a public option is needed to keep the insurers honest.” All else being equal, the fact that a government program would not need to turn a profit suggests that it might enjoy a price advantage over for-profit insurers. If so, that price advantage would be slight. According to the Congressional Budget Office, profits account for less than 3 percent of private health insurance premiums. Furthermore, government’s lack of a profit motive may not be an advantage at all. Profits are an important market signal that increase efficiency by encouraging producers to find lower-cost ways of meeting consumers’ needs. The lack of a profit motive could lead a government program to be less efficient than private insurance, not more.

Moreover, all else is not equal. Government programs typically keep administrative expenditures low by avoiding activities like utilization or claims review. Yet avoiding those activities increases overall costs. The CBO writes, “The traditional fee-for-service Medicare program does relatively little to manage benefits, which tends to reduce its administrative costs but may raise its overall spending relative to a more tightly managed approach.” Similarly, the Medicare Payment Advisory Commission writes:

[The Centers for Medicare & Medicaid Services] estimates that about $9.8 billion in erroneous payments were made in the fee-for-service program in 2007, a figure more than double what CMS spent for claims processing and review activities. In Medicare Advantage, CMS estimates that erroneous payments equaled $6.8 billion in 2006, or approximately 10.6 percent of payments… . The significant size of Medicare’s erroneous payments suggests that the program’s low administrative costs may come at a price.

CMS further estimates that it made $10.4 billion in improper payments in the fee-for-service Medicare program in 2008.

Medicare keeps its measured administrative-cost ratio relatively low by avoiding important administrative activities (which shrinks the numerator) and tolerating vast amounts of wasteful and fraudulent claims (which inflates the denominator). That is a vice, yet advocates of a new government program praise it as a virtue.

Medicare also keeps its administrative expenditures down by conducting almost no quality-improvement activities. Journalist Shannon Brownlee and Obama adviser Ezekiel Emanuel write:

[S]ome administrative costs are not only necessary but beneficial. Following heart-attack or cancer patients to see which interventions work best is an administrative cost, but it’s also invaluable if you want to improve care. Tracking the rate of heart attacks from drugs such as Avandia is key to ensuring safe pharmaceuticals.

According to the CBO, private insurers spend nearly 1 percent of premiums on “medical management.” The fact that Medicare keeps administrative expenditures low by avoiding such quality-improvement activities may likewise result in higher overall costs—in this case by suppressing the quality of care.

Supporters who praise Medicare’s apparently low administrative costs often fail to note that some of those costs are hidden costs that are borne by other federal agencies, and thus fail to appear in the standard 3-percent estimate. These include “parts of salaries for legislators, staff and others working on Medicare, building costs, marketing costs, collection of premiums and taxes, accounting including auditing and fraud issues, etc.”

Also, Medicare’s administrative costs should be understood to include the deadweight loss from the taxes that fund the program. Economists estimate that it can easily cost society $1.30 to raise just $1 in tax revenue, and it may sometimes cost as much as $2.36 That “excess burden” of taxation is a very real cost of administering (i.e., collecting the taxes for) compulsory health insurance programs like Medicare, even though it appears in no government budgets.

Comparing administrative expenditures in the traditional “fee-for-service” Medicare program to private Medicare Advantage plans can somewhat control for these factors. Hacker cites a CBO estimate that administrative costs are 2 percent of expenditures in traditional Medicare versus 11 percent for Medicare Advantage plans. He writes further: “A recent General Accounting Office report found that in 2006, Medicare Advantage plans spent 83.3 percent of their revenue on medical expenses, with 10.1 percent going to nonmedical expenses and 6.6 percent to profits—a 16.7 percent administrative share.”

Yet such comparisons still do not establish that government programs are more efficient than private insurers. The CBO writes of its own estimate: “The higher administrative costs of private plans do not imply that those plans are less efficient than the traditional FFS program. Some of the plans’ administrative expenses are for functions such as utilization management and quality improvement that are designed to increase the efficiency of care delivery.” Moreover, a portion of the Medicare Advantage plans’ administrative costs could reflect factors inherent to government programs rather than private insurance. For example, Congress uses price controls to determine how much to pay Medicare Advantage plans. If Congress sets those prices at supracompetitive levels, as many experts believe is the case, then that may boost Medicare Advantage plans’ profitability beyond what they would earn in a competitive market. Those supracompetitive profits would be a product of the forces that would guide a new government program—that is, Congress, the political system, and price controls—rather than any inherent feature of private insurance.

Economists who have tallied the full administrative burden of government health insurance programs conclude that administrative costs are far higher in government programs than in private insurance. In 1992, University of Pennsylvania economist Patricia Danzon estimated that total administrative costs were more than 45 percent of claims in Canada’s Medicare system, compared to less than 8 percent of claims for private insurance in the United States. Pacific Research Institute economist Ben Zycher writes that a “realistic assumption” about the size of the deadweight burden puts “the true cost of delivering Medicare benefits [at] about 52 percent of Medicare outlays, or between four and five times the net cost of private health insurance.”

Administrative costs can appear quite low if you only count some of them. Medicare hides its higher administrative costs from enrollees and taxpayers, and public-plan supporters rely on the hidden nature of those costs when they argue in favor of a new government program.

Cost Containment vs. Spending Containment  

Advocates of a new government health care program also claim that government contains overall costs better than private insurance. Jacob Hacker writes, “public insurance has a better track record than private insurance when it comes to reining in costs while preserving access. By way of illustration, between 1997 and 2006, health spending per enrollee (for comparable benefits) grew at 4.6 percent a year under Medicare, compared with 7.3 percent a year under private health insurance.” In fact, looking at a broader period, from 1970 to 2006, shows that per-enrollee spending by private insurance grew just 1 percentage point faster per year than Medicare spending, rather than 2.7 percentage points. That still omits the 1966–1969 period, which saw rapid growth in Medicare spending.

More importantly, Hacker’s comparison commits the fallacy of conflating spending and costs. Even if government contains health care spending better than private insurance (which is not at all clear), it could still impose greater overall costs on enrollees and society than private insurance. For example, if a government program refused to pay for lifesaving medical procedures, it would incur considerable nonmonetary costs (i.e., needless suffering and death). Yet it would look better in Hacker’s comparison than a private health plan that saved lives by spending money on those services. Medicare’s inflexibility also imposes costs on enrollees. Medicare took 30 years longer than private insurance to incorporate prescription drug coverage into its basic benefits package. The taxes that finance Medicare impose costs on society in the range of 30 percent of Medicare spending. In contrast, there is no deadweight loss associated with the voluntary purchase of private health insurance.

Hacker nods in the direction of non-spending costs when he writes, “Medicare has maintained high levels of … patient access to care.” Yet there are many dimensions of quality other than access to care. It is in those areas that government programs impose their greatest hidden costs, on both publicly and privately insured patients.

Mr. Krugman, won’t you please help me care about the facts as much as you do? It just seems like such bliss.

The GOP’s Insipid American Exceptionalism

I’ve had it with “American exceptionalism.” Enough already.

The phrase has garnered a considerable amount of attention lately, namely because Republicans are saying it over and over again. The Atlantic points out that the term itself was coined by Joseph Stalin, lamenting America’s inability to go communist (cf. Louis Hartz). Of course, the concept that America was different than Europe goes back at least to Tocqueville, but is it too much to ask that we recall Tocqueville was writing nearly 200 years ago? Might we not pause, at least momentarily, to reconsider the argument from authority and subject it to a bit of scrutiny?

I complained about the pervasive theme at the Republican convention in my podcast yesterday, and Alex Massie holds forth against the exceptionally exceptionalistic speechifying at Foreign Policy today. Republicans—and the rest of us—ought to just shut up about exceptionalism already. As it stands now, a few word substitutions could make Herder or Fichte feel right at home at a GOP convention. We ought not to like this.

Encouraging citizens to reify, then flutter with excitement at the uniqueness of their own “imagined community” lubricates both the administrative capacity of and enthusiasm for the Great American Welfare/Warfare State that is presently bankrupting our unborn children. Those of us who would like a bit more federalism, veering toward sectionalism even, do so realizing that this would create downward pressure on the centralization of our lives in the body of the national government. (“Who is this fellow 2,000 miles away from me and why should I subsidize his career and pay his flood insurance and pension?”) That the disgrace of slavery accompanied the last era of sectionalism in this country is no reason to throw out the concept itself.

Bizarrely, the GOP married this nationalistic theme with an ostensible concern for how America is viewed across the world. Might we not consider that the world finds this constant self-congratulation unseemly and perhaps even dangerous? Imagine your coworker, or neighbor, or spouse, constantly parading about, preening and pronouncing that he is the greatest person ever to have been made and marveling at how lucky are those subject to his ministrations. Any impartial observer would forgive you for nudging him off a pier, and all the more so if he were, in fact, great.

This is perhaps the saddest part of the whole garish spectacle. The United States is a great country. Take a look around you. Saying it over and over again doesn’t make it any more so; in fact it makes it less. All the bleating about our exceptionalism from our leaders is enough to make you think that they don’t really believe it. The party doth protest too much, methinks.

The next time your would-be ruler holds forth about exceptionalism, remind yourself what Mencken said:

Democratic man, as I have remarked, is quite unable to think of himself as a free individual; he must belong to a group, or shake with fear and loneliness—and the group, of course, must have its leaders. It would be hard to find a country in which such brummagem serene highnesses are revered with more passionate devotion than they get in the United States. The distinction that goes with mere office runs far ahead of the distinction that goes with actual achievement.

That’s what this is all about: If we allow the other party or candidate to insert its peculiar and grotesque proboscides into our homes, wallets, and lives—well, we’ll be just that much less exceptional.

Much more in the podcast:

The Contrast Is Fairly Clear

Today POLITICO Arena asks:

Was Romney able to deliver his best possible introduction to the American people?

My response:

In stark contrast to Obama, Romney’s plainly not comfortable tooting his own horn. He’ll stand out in Washington. Thus it fell to others last night to bring out his many good qualities, and they did it well.

But put the Romney and Ryan speeches together, as the Wall Street Journal does admirably this morning, then contrast that with what you hear from the Obama camp, and you get an equally stark picture of the differences between the two parties. As the Journal says, Obama’s single greatest flaw is that “he thinks economic growth can be ordered up by central planners. Tax more here, spend more there, regulate this or subsidize that, and prosperity will follow.”

Romney and Ryan know better. Prosperity comes from the bottom up—from free people pursuing their dreams, not from government planners. Our stagnant economy is no accident. Obama’s done all the wrong things. As the chant went last night, “He just doesn’t get it.”

The big question is whether enough Americans get it. These are not easy ideas to communicate through the fog of campaign rhetoric. But these last few days were a good start.

Waiting for Bernanke

Cato senior fellow Gerald P. O’Driscoll Jr. has some advice for the Fed in today’s Wall Street Journal:

Quantitative easing is the Fed’s version of “stimulus,” the complement to fiscal stimulus. The trouble with all forms of temporary spending is that they have no permanent effects. They delay needed adjustments in the economy.

Today’s state and local governments are a case in point. Municipal and state spending was propped up by federal transfers of many billions of dollars in the president’s 2009 stimulus package. But as this federal money has dried up, public payrolls are declining, ironically enough for this administration, close to the presidential election. President Obama received bad advice when he was told that government spending would prime the pump of the economy. Instead it had the effect of temporarily transferring resources from the productive private sector to a bloated public sector.

The Fed’s version of temporary stimulus will likely involve purchasing government bonds. If past is prologue, this will act as a sugar rush to financial markets. There will be equity- and bond-market rallies. Wall Street will rejoice, but none of this will translate into “substantial and sustainable” economic growth, the FOMC’s stated goal….

What would stir the spirits of investors and employers would be some policy certainty, reining-in of out-of-control government spending, stopping ill-advised regulations, and clearing the air of antibusiness rhetoric. No repeat of a one-off round of bond buying by the Fed substitutes for the fundamental and permanent changes needed.

Read it all. And while you’re there, don’t miss Seth Lipsky on “The Gold Standard Goes Mainstream.”

After the Welfare State

Cato senior fellow Tom G. Palmer, who is lecturing about freedom in Slovenia and Tbilisi this week, asked me to post this announcement of his new book, After the Welfare State, published through the efforts of Students for Liberty and the Atlas Economic Research Foundation. Check out this 57-second video introduction:

The book is directed at young people, and Students for Liberty is distributing 125,000 copies on college campuses. Tom’s introduction begins:

Young people today are being robbed. Of their rights.  Of their freedom.  Of their dignity.  Of their futures.  The culprits?  My generation and our predecessors, who either created or failed to stop the world-straddling engine of theft, degradation, manipulation, and social control we call the welfare state.

Contributors to the volume include experts from Great Britain, Sweden, Italy, and Greece, as well as Cato’s own Palmer and Michael Tanner.

Learn more about After the Welfare State—and download a free PDF immediately–here.

Pages