Tag: exchange controls

Venezuela Verifies Hayek on Exchange Controls

Foreign airlines have begun to restrict ticket sales in Venezuela. As the bolivars’ value evaporates, and with exchange controls in force, the airlines fear that the funds they have in Caracas will evaporate, too. By restricting ticket sales, the airlines will limit the amount of new money that is trapped behind the government’s wall of exchange controls.

Of course, President Nicolas Maduro isn’t the first autocrat to impose exchange controls, and he won’t be the last to impose these confiscatory policies. Indeed, the pedigree of exchange controls can be traced back to Plato, the father of statism. Inspired by Lycurgus of Sparta, Plato embraced the idea of an inconvertible currency as a means to preserve the autonomy of the state from outside interference.

So, the temptation to turn to exchange controls in the face of disruptions caused by hot money flows is hardly new.  Tsar Nicholas II first pioneered limitations on convertibility in modern times, ordering the State Bank of Russia to introduce, in 1905–06, a limited form of exchange control to discourage speculative purchases of foreign exchange.  The bank did so by refusing to sell foreign exchange, except where it could be shown that it was required to buy imported goods.  Otherwise, foreign exchange was limited to 50,000 German marks per person.  The Tsar’s rationale for exchange controls was that of limiting hot money flows, so that foreign reserves and the exchange rate could be maintained.  The more things change, the more they remain the same.

This brings me to Nobel laureate Friedrich Hayek’s 1944 classic, The Road to Serfdom. Many thought Prof. Hayek hurt his case because he was extreme. What nonsense. Just consider the Wall Street Journal’s reportage from Caracas about the real concerns of foreign airlines that have funds locked up in Venezuela. And then reflect on the following insightful analysis from the Road to Serfdom:

The extent of the control over all life that economic control confers is nowhere better illustrated than in the field of foreign exchanges. Nothing would at first seem to affect private life less than a state control of the dealings in foreign exchange, and most people will regard its introduction with complete indifference.  Yet the experience of most Continental countries has taught thoughtful people to regard this step as the decisive advance on the path to totalitarianism and the suppression of individual liberty.  It is, in fact, the complete delivery of the individual to the tyranny of the state, the final suppression of all means of escape—not merely for the rich but for everybody.

Hayek’s message about convertibility has regrettably either been overlooked, or thought to be too extreme. Exchange controls are nothing more than a ring fence within which governments can expropriate their subjects’ property. Open exchange and capital markets, in fact, protect the individual from exactions, because governments must reckon with the possibility of capital flight.

ObamaCare’s False Promise of Cost Savings: ACO Edition

One of ObamaCare’s selling points was that it would supposedly reduce costs through such innovations as “accountable care organizations” or ACOs. I have explained how ACOs are an innovation with many benefits, how markets developed ACOs decades before the government’s central planners caught on, and have predicted that ObamaCare’s centrally planned ACO program would fail to deliver on the promised savings. The reason is simple, and explained by industry expert Robert Laszewski:

Here’s a flash for the policy wonks pushing ACOs. They only work if the provider gets paid less for the same patient population. Why would they be dumb enough to voluntarily accept that outcome?

Turns out, health care providers are not that dumb. They have threatened to bolt ObamaCare’s ACO program in the past, and are doing so again [$] if Medicare tries to cut their pay:

One of CMS’ highest profile health care delivery reform initiatives is on rocky ground as most of the Pioneer ACOs are threatening to drop out of the demonstration if CMS makes them start meeting quality measures instead of merely requiring that they report the measures, according to a letter [$] obtained by Inside Health Policy…The Pioneer ACOs were supposed to be the few shining examples of organizations that could handle outcomes-based pay…

CMS often touts the high level of participation in ACOs, and it would seem that CMS has too much at stake to ignore the Pioneers’ requests and let the demo implode, a health care consultant says. However, it’s difficult to believe that this is the first time that the ACOs have brought these concerns to CMS – some innovation center officials come from the very organizations in the Pioneer demo – all of which indicates that negotiations have not gone well with the agency, the sources say. CMS could make changes to the quality metrics without announcing them in the Federal Register because the Pioneer ACOs are a demonstration, but the cat is out of the bag now, the sources note.

The Pioneer ACOs account for a little more than 30 of the some 250 ACOs in Medicare, and the Pioneers are supposed to be the most advanced, integrated systems of them all.

And thus ObamaCare’s false promise of cost savings comes into sharper focus. File this one under “markets are smart, government is stupid.”

How Dare Conservatives Stand athwart ObamaCare Yelling, Stop!

In a column for Kaiser Health News, Michael L. Millenson, President of Health Quality Advisors LLC, laments that conservatives in the U.S. House are approaching ObamaCare like, well, conservatives.  He cites comments by unnamed House GOP staffers at a recent conference:

The Innovation Center at the Centers for Medicare & Medicaid Services? “An innovation center at CMS is an oxymoron,” responded a  Republican aide…”Though it’s great for PhDs who come to Washington on the government tab.”

There was also no reason the government should pay for “so-called comparative effectiveness research,” another said.

“Everything’s on the chopping block,” said yet another.

No government-funded comparative-effectiveness research?  The horror!  For my money, those staffers (and whoever hired them) should get a medal.

Millenson thinks conservative Republicans have just become a bunch of cynics and longs for the days when Republicans would go along with the left-wing impulse to have the federal government micromanage health care:

After all, the McCain-Palin health policy platform in the 2008 presidential election called for coordinated care, greater use of health information technology and a focus on Medicare payment for value, not volume. Once-and-future Republican presidential candidates such as former governors Mike Huckabee (Ark.), Mitt Romney (Mass.) and Tim Pawlenty (Minn.), as well as ex-Speaker of the House Newt Gingrich, have long promoted disease prevention, a more innovative federal government and increased use of information technology. Indeed, federal health IT “meaningful use” requirements can even be seen as a direct consequence of Gingrich’s popularization of the phrase, “Paper kills.”

He even invokes the father of modern conservatism, William F. Buckley, as if Buckley would disapprove of conservatives standing athwart ObamaCare yelling, Stop!

Millenson’s tell comes toward the end of the column, when he writes:

traditional GOP conservatives… [have] eschewed ideas in favor of ideological declarations.

Eschewed ideas in favor of…ideas?  My guess is that what’s really troubling Millenson is that congressional Republicans are eschewing left-wing health care ideas in favor of freedom.

Better late than never.  Now if only GOP governors would do the same.

Obama’s Fiscal Commission and Health Care Spending

Following up on what Dan and Chris have said …

If the co-chairs of President Obama’s fiscal commission were serious about reducing federal spending and deficits, they would have proposed eliminating the federal deficit, rather than “reduc[ing] it to 2.2 percent of GDP by 2015.”  Yawn. They would have proposed cutting federal spending (currently, 24 percent of GDP and rising) to match federal tax revenue (currently at 15 percent of GDP).  But the co-chairs proposed only to “bring spending down to 22 percent and eventually 21 percent of GDP.”  Not only does that elicit another yawn, but since the co-chairs only asked for half a loaf, they won’t even get that much.

If the co-chairs were serious about reducing federal spending and deficits, they would have proposed a balanced-budget amendment.  They would have proposed block-granting Medicaid.  They would have proposed implementing Medicare vouchers immediately.  (Vouchers are the only way to reduce Medicare spending while protecting seniors from government rationing.  They would also change the political dynamics that repeatedly stymie efforts to reduce Medicare spending.)  Instead, the co-chairs propose the same ol’ failed strategy of trying to limit Medicare and Medicaid spending using government price-and-exchange controls, which they euphemistically describe as “rebates” and ”payment reforms.”  Along the same lines, they propose strengthening IPAB, ObamaCare’s rationing board.  IPAB’s mandate is – you guessed it – to ration care by fiddling with Medicare and Medicaid’s price and exchange controls.  It will therefore inevitably fall prey to the same political buzzsaw.  To appease Republicans, the co-chairs propose unwise and unconstitutional federal rules that would prevent patients injured by negligent physicians from recovering the full amount they are due (euphemism:  medical malpractice liability “reform”).  Finally, the co-chairs propose that if federal health spending continues to grow faster than GDP growth plus 1 percent, Congress should consider “a premium support system for Medicare” (which could mean vouchers) and “a robust public option and/or all-payer system” for people under age 65 – a debate that wouldn’t even begin until 2020.

Fiscal Commission members, congresscritters, and citizens who are serious about reducing federal spending and deficits – and who are looking for specific ways to cut government spending – should instead consult Cato’s excellent web site DownsizingGovernment.org.