Tag: government failure

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.”

Democracy - Whatever That Is - and Education

Democracy is inherently good, and since public schools are democratically controlled they, too, are inherently good. Right?

You’d think so from the way many people invoke “democracy” when championing government schools, but thanks to a recent blog post from the Fordham Institute’s Mike Petrilli, we might have a rare opportunity to actually scrutinize that assumption. A few days ago, Petrilli questioned the value of local school boards in light of what seems to be frequent capture by teachers unions, and was immediately accused of attacking “democracy” by historian Diane Ravitch.

“Gosh, Mike,” Ravitch wrote in the comments section, “it sounds as though you have identified the real problem ‘reformers’ face: democracy.”

With that the battle was on, and it’s one I’m happy to join: A huge problem we face in education is, indeed, democracy.

Before I go further, the first thing that’s necessary to do is define “democracy.” Unfortunately, that’s something rarely done by those who wield the term like a rhetorical chainsaw, swinging it wildly at anyone who might question government schooling.  Typically, it seems the word is employed to just vaguely connote some sort of action by “the people” – whoever they are – as opposed to “elites,” or to indicate that popular voting is in some fashion used to make laws.

That said, the most basic definition of democracy – the one you probably learned in grade school –  follows these lines: “Control of an organization or group by the majority of its members.” You might also assume the word means representative democracy, where people vote for their representatives and majorities of reps make the laws, but usually the word’s use isn’t even that precise.

This lack of precision leads to numerous problems, and a big one was illustrated in an exchange between Bob Bowdon – of Cartel and ChoiceMedia.tv fame – and Rutgers University professor Bruce Baker. Bowdon had a Flypaper post pointing out numerous cases in which ”the people” enacted education policies disliked by teachers unions, and the unions, instead of accepting the “democratic” outcomes, headed to the courts to thwart the new laws. Baker would have none of this argument, in the comments section of Petrilli’s post calling Bowdon’s entry an “absurd and misinformed rant.” Why? Largely because Bowdon failed to acknowledge that courts in Georgia – where one of the legal actions cited by Bowdon occurred – were taking perfectly legitimate action in striking down a charter school law that violated the state’s constitution.

Of course, Baker isn’t talking about democracy, at least in any precise way (or the feel-good, “people rule” sense I think Ravitch meant to convey) but a constitutional republic with separation of powers. That’s a very different thing, with a very different goal, from simple majority rule. As The Federalist discusses with great insight, a constitutional republic with checks and balances is a system intended to minimize the threat government poses to individuals, while enabling it to do those things that government must do.  That does not at all seem to be the “democracy” Ravitch and company were lauding, and you can’t reasonably blame Bowdon for turning that against them. Live by the loaded, imprecise definition, die by the loaded, imprecise definition. Unfortunately, that makes it much harder to have a useful debate about education governance.

But why don’t we want pure democracy?

Aside from the towering logistical problems, uninhibited majority rule is an existential threat to individual liberty, the true foundation of American society. Should my ability to drum up support from 50.1 percent of voters be all that’s needed to have your house taken from you, your speech quashed, and your family imprisoned? Of course not, but pure democracy would not only allow that, it would give it complete legal sanction.

So a constitutional republic, with its checks, balances, and enumerated powers, is infinitely preferable to pure democracy. However, it is a much harder concept to employ when you just want people to feel good about public schools, or angry about efforts to change them. “For crying out loud, they are democratic schools – schools controlled by the people – you evil 1-percenter!” (Cue foreboding tyranny-of-the-majority music.) And just because a form of governance is better than democracy doesn’t mean it works well.

Why does this superior form of government still largely fail? To really get into this question I recommend Cato’s Government Failure: A Primer in Public Choice, available free online! I’ll just briefly hit the main, inherent pathology of government that constantly leads to skewed results.

Ultimately, it comes down to concentrated benefits and diffuse costs: The people who get the greatest benefit from a policy will be the most motivated to participate in the politics of that policy, while the costs are usually highly diffuse, giving the people paying for it relatively little incentive to politick. In education, the greatest benefit is accrued by the school employees – the people whose very livelihoods come from the system – hence they exert hugely disproportionate power. They are also much easier to organize than parents or taxpayers.  

In light of this basic inequality of incentives, it is no surprise that teachers unions (and other education employee organizations) wield disproportionate influence. Teachers and administrators aren’t bad people, it’s simply that normal incentives give them much more reason to constantly engage in education politics than the average voter, taxpayer, or even parent, for whom there are many other major concerns than trying to influence the district, state, of federal government on education policy. 

To deal with the effects of concentrated benefits and diffuse costs in school districts, Petrilli suggests a couple of possible options: a move toward greater mayoral control of the schools, as exists in New York City, or having states control education. But these are fraught with at least as much peril as local control.

At the risk of violating an Italian corollary of Godwin’s Law, the mayoral control argument seems to come down to this: Mussolini made the trains run on time. Essentially, if you can put someone with dictatorial power in charge he won’t have to worry about special interests and can do what needs to be done. Plus, in the case of mayoral control there wouldn’t be real dictatorship – Il Duce could be voted out in four years.

Obviously, though, there’s a reason the term “dictator” doesn’t enjoy the same esteem as, say, ”chocolate,” or “Betty White” – people generally don’t like the way dictators turn out. Maybe you’ll get one who’s benevolent and wise – in which case you’ll just be troubled by your ultimately nonexistent freedom – but more likely you’ll get one who’s stupid, or cruel, or a combination of the two. And what do you do when the dictator imposes a bad reading curriculum on your kids, or closes a school that might have served them well? Just suffer.

But there’s the election – you can hold a mayor responsible then! Of course, that puts us right back in the concentrated benefits, diffuse costs problem, where the special interests are likely to be much more active in politicking than the average voter. And the problem isn’t just that: When the public votes for mayor, the vote is based not only on education policies, but also law enforcement, sanitation, sodium speakeasy crackdowns, and myriad other things. In other words, it is almost impossible to send an unambiguous message that the public is angry about education when so many issues affect who votes and why.

All these problems remain with state or federal control. There’s a reason the National Education Association, American Federation of Teachers, American Association of School Administrators, etc., have big headquarters in the Washington, DC, area, and their state affiliates run hefty operations in state capitals: they are wielding political power! And, like mayoral elections, voting in state or federal elections isn’t just about education, but taxation levels, wars, roads, bridges to nowhere, extramarital affairs, “do nothing” congresses, birth certificates, and so on.

At this point you might feel that democracy really is bad, and generally doomed to failure. And you’d be right, which is why government should be restricted to doing only those things that private individuals cannot do, and one of those things is not furnishing education. We know that private individuals can and do supply widespread education from our own history, in which education and literacy had very broad reach before government schools existed, and in which private schools often thrived – including a huge system of parochial schools – despite having to compete with “free” alternatives. Perhaps even more compelling, we can see it in the massive for-profit schooling industries that out-teach government schools in the poorest places in the world.

So what is the viable solution to our education governance problems? To end government control of education, setting both educators and parents free. Move to a system of universal school choice, in which funding is controlled by parents, educators have the autonomy to run their own schools, and all involved have equal power because free, voluntary exchange – not wielding political influence – is how business is done. Don’t make parents and taxpayers engage in endless, plodding, political warfare in which they’ll always be outgunned. Let them exercise immediate power by taking their kids – and the money to educate them – out of schools that do not satisfactorily serve them and put them into schools that do.

Thanks again to Mike Petrilli for daring to question “democracy,” and I hope it spurs a truly thoughtful, honest discussion about this absolutely crucial topic.

This Week in Government Failure

Over at Downsizing the Federal Government, we focused on the following issues this past week:

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The Federal Government and Financial Literacy

Almost 600 pages into the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act is a provision directing the Government Accountability Office to assess the feasibility of the federal government certifying organizations that provide financial literacy. The GAO released its report this week and concluded that “While a federal process for certifying financial literacy providers appears to be feasible, doing so would pose challenges.”

The challenges cited by the GAO are generally of the bureaucratic variety: What agency or agencies would be in charge? What criteria would be used? How would oversight be conducted? And most importantly, how much would it cost [taxpayers] to implement and operate a federal process for certifying financial literacy providers?

Fortunately, the GAO says that the majority of the representatives of private sector financial literacy organizations, federal agencies, and academic experts that it interviewed said that the disadvantages outweighed the advantages. Numerous concerns were cited, but one in particular stands out: Financial literacy certification may not be an appropriate role for the federal government.

Well, Hallelujah. I’ve read my share of GAO reports – almost all of which have dealt with activities that are not a proper role of the federal government – and I don’t recall that concern being mentioned.

Not only is individual financial literacy not an appropriate concern of the federal government, the federal government itself is a monument to financial illiteracy. It isn’t just that GAO report after GAO report continues to document financial mismanagement across the entire government complex. No, it’s the fact that Washington’s financial mismanagement has left us with a bloated government that’s mired in debt and crippled by massive “entitlement” programs that operate like Ponzi schemes.

The additional irony is the Dodd-Frank regulatory overhaul was passed in the wake of an economic meltdown perpetrated in large part by government failure. Alas, there might not be a lot of shame in Washington, but the hypocrisy is seemingly without limit.

Thursday Links

  • The Obama Doctrine fails to address the limitations of Washington’s attempts to shape foreign conflicts.
  • The 2012 Republican presidential field has thus far failed to produce a small-government conservative.
  • FREE E-BOOK: Government Failure: A Primer on Public Choice is available for reading and download (PDF) for a limited time on our website.
  • Republicans and Democrats are quibbling over a measly $61 billion in spending cuts–that’s a failure of leadership.
  • Under the failing status quo, Big Sugar wins, and Joe Taxpayer loses.
  • Ian Vásquez, director of Cato’s Center for Global Liberty and Prosperity, joined C-SPAN’s Washington Journal to talk about the failure of foreign aid:


Sen. Rand Paul Proposes Serious Cuts

Freshman Sen. Rand Paul (R-KY) has raised the bar in Washington by releasing a bill that would make substantial, specific, and immediate cuts in federal spending. While policymakers on both sides of the aisle have largely paid lip service to stopping Washington’s record run of fiscal profligacy, Paul’s proposal makes good on his campaign promise to seriously tackle the federal government’s bloated budget.

Paul’s bill would target $500 billion in cuts for fiscal 2011 alone. While audacious by Washington standards, cutting federal spending by that amount would still leave us with a projected $1 trillion deficit this year. Nonetheless, the federal government’s scope would be dramatically curtailed, which would pay dividends in coming years as the economy is unshackled from numerous failed federal interventions.

A description of Paul’s proposed cuts can be viewed here, but some of the bolder ideas merit a comment or two.

First, Paul would eliminate most Department of Education spending, with the exception of higher education subsidies. He correctly notes that the federal government’s increased involvement in education has been “detrimental” and that “the mere existence of the Department of Education is an overreach of power by the federal government.”

Second, the Department of Energy, which is becoming a chief source of corporate welfare, would be zeroed out. Paul would eliminate subsidies for all energy industries – from fossil fuels to so-called “green” energies. He notes that the government’s interference in energy development should be ended and the free market allowed to “start taking the reins.”

Third, the Department of Housing and Urban Development – one of most visible examples of government failure – would be eliminated. Among the HUD programs that Paul singles out, it is his criticism of housing vouchers that deserves the most applause as they remain popular in some Republican and conservative quarters.

Paul deserves credit for proposing cuts at the Department of Defense, although the savings would be relatively small. However, his proposal would cut the Department of Homeland Security almost in half, and would zero out billions of dollars in foreign aid. The latter is well-timed given the situation in Egypt, a major recipient of U.S. foreign aid dollars.

Finally, Paul would chop a quarter of the Department of Health and Human Service’s budget, although he doesn’t take on Medicare or Medicaid. He is reportedly at work on separate legislation that would address Medicare and Social Security. Because Paul’s proposal is focused on immediate cuts, his decision to tackle the big mandatory spending programs separately shouldn’t be viewed as a cop out.

Thus far, the spending cut bar in Washington has been set pretty low. Policymakers from both parties and varying ideological backgrounds have been timid in spelling out precisely what they would cut. By getting specific, Paul has raised the bar, which will hopefully put pressure on others – in particular, the congressional Republican leadership – to move beyond a vague, myopic fixation on nondefense discretionary spending.

This Week in Government Failure

Over at Downsizing the Federal Government, we focused on the following issues this week:

  • Unfortunately, the president’s Fiscal Commission appears to have operated on the premise that the federal government should continue to do everything it now does.
  • Getting Rep. Jeff Flake on appropriations is a step in the right direction, but his appointment can’t be a token gesture.
  • A new study finds that policymakers needn’t fear spending cuts.
  • House Republican leaders’ support for “Prince of Pork” Hal Rogers to chair the chamber’s appropriations committee is a slap in the face of voters who demanded change in November.
  • Michigan Gov. Jennifer Granholm, whose state’s unemployment rate is almost 13 percent, has advice for Washington on how to create jobs. No, it’s not April 1st.