Tag: government

Africa: the Good, the Bad and the Ugly

Last week, President Obama hosted the U.S.-Africa Leaders Summit in Washington, D.C. He welcomed over 40 African heads of state and their outsized entourages to what was a festive affair. Indeed, even the Ebola virus in West Africa failed to dampen spirits in the nation’s capital. Perhaps it was the billions of dollars in African investment, announced by America’s great private companies, that was so uplifting.

Good cheer was also observed in the advertising departments of major newspapers. Yes, many of the guest countries paid for lengthy advertisements–page turners–in the newspapers of record. That said, the substantive coverage of this gathering was thin. Neither the good, the bad, nor the ugly, received much ink.

What about the good? Private business creates prosperity, and prosperity is literally good for your health. My friend, the late Peter T. Bauer, documented the benefits of private trade in his classic 1954 book West African Trade. In many subsequent studies, Lord Bauer refuted conventional wisdom with detailed case studies and sharp economic reasoning. He concluded that the only precondition for private trade and prosperity to flourish was individual freedom reinforced by security for person and property.

More recently, Ann Bernstein, a South African, makes clear that the establishment and operation of private businesses does a lot of economic good (see: The Case for Business in Developing Countries, 2010). Yes, businesses create jobs, supply goods and services, spread knowledge, pay taxes, and so forth. Alas, in the Leaders Summit reportage that covered the multi-billion dollar investments by the likes of Coca-Cola, General Electric, and Ford Motor Co., the benefits of the humdrum activity of business and trade were nowhere to be found. But, as they say, “that’s not the president’s thing.”

Let’s move from the good to the bad and the ugly, and focus on the profound misery in Sub-Saharan Africa. I measure misery with a misery index. It is the simple sum of inflation, unemployment, and the bank lending interest rate, minus year on year GDP per capita growth. Using this metric, the countries for Sub-Saharan Africa are ranked in the accompanying table for 2012.

“We’re from the Government and We’re Here to Help,” Schoolyard Edition

In an epic case of unintended consequences, government-mandated anti-bullying programs are actually increasing bullying by teaching kids how to bully, according to a new study published in the Journal of Criminology:

The study concluded that students at schools with anti-bullying programs might actually be more likely to become a victim of bullying. It also found that students at schools with no bullying programs were less likely to become victims.

The results were stunning for Jeong [the author]. “Usually people expect an anti-bullying program to have some impact—some positive impact.”

The student videos used in many campaigns show examples of bullying and how to intervene. But Jeong says they may actually teach students different bullying techniques—and even educate about new ways to bully through social media and texting.

Jeong said students with ill intentions “…are able to learn, there are new techniques [and gain] new skills.” He says students might see examples in videos and then want to try it.

According to Jeong, some programs even teach students how to bully without leaving evidence behind. “This study raises an alarm,” he said. “There is a possibility of negative impact from anti-bullying programs.”

So under the pretense of helping, the government essentially created a “How To Bully and Get Away With It” program that has made the lives of tens of thousands of schoolchildren more miserable. 

A Time for Choosing: The GOP and the Marijuana Initiatives

Attorney General Eric Holder is soon expected to announce the federal government’s response to the marijuana legalization initiatives recently approved in Colorado and Washington.  For conservatives and GOP persons in the Congress, it is a time for choosing.

The first path is to turn against the federal drug war.  Call it a correction–just as many have acknowledged the runaway spending errors during the Bush years.  Recall that conservatives just took a principled stand against federal overreaching in the Obamacare legal fight.  It would be a drastic mistake to shift ground now and start defending federal police raids.  Clarence Thomas has the constitutional law right.  And William F. Buckley and Milton Friedman were right on the policy side–legalization of drugs is the correct policy stance to take.  The neocon approach championed by Bush administration alumni (William Bennett, John Walters, and Michael Gerson) has been profoundly misguided.  

We’ve heard a lot about demographics in the election aftermath.  Immigration has received most of the attention, but consider drug policy.  Young people just don’t think marijuana users are “criminals.”  Hispanic-Americans see the  chaos in Mexico more clearly than average Americans.  African-Americans bear the brunt of drug law stops, raids, arrests and incarceration.  And let’s not forget that this policy debate is taking place in the context of a fiscal crisis.  The GOP likes to think of itself as the party that is willing to tackle government policies that don’t work and have unintended consequences.  One cannot talk seriously about criminal justice reform and corrections spending without addressing the drug war.  It’s past time to end the federal war on drugs.  

The second path is to champion the DEA and federal police powers.   Flip-flop back to big government conservatism?  From arguing that it’s a federal overreach to fine someone for not buying health insurance …to lock up that gal over there with a joint in her purse?  Alienate the tea party folks and their small government movement?  Alienate young voters and African-Americans with talk about how the government is helping everyone with increasing numbers of arrests?  Alienate Hispanic-Americans and fiscal hawks with talk about another billion dollar aid package to the Mexican government to fight the drug war?  Sounds like a foolish consistency with the past.

Betsy Woodruff of the National Review Institute gets it right.

[T]here’s one easy ideological maneuver that Republicans could make that would simultaneously burnish their stance as the party of freedom and expand their base while alienating the president from his. It is a move that might also make one swing state a little easier to win in 2016. Congressional Republicans and conservative leaders could get on the weed bandwagon.

Hear, hear.  Some on the religious right–Pat Robertson–are already on that bandwagon.

Some may ask, “Isn’t there some sorta middle position between legalization and stay-the-course-drug war policy?”  Yes–that position is this: “I am not sure about Colorado and Washington are doing, but that’s their prerogative in our federal system.”

To paraphrase Ronald Reagan, no one is saying the choices are going to be easy, but the policy choices are fairly simple.

California Officials: ObamaCare ‘Exchange’ Will Hike Premiums up to 25%

California is one of the few states charging ahead on establishing one of ObamaCare’s health insurance “exchanges.” According to the Los Angeles Times:

California insurance officials have expressed concern about substantial rate hikes for some existing policyholders going into the exchange.

Under a new rating map approved by state lawmakers, the Department of lnsurance estimated that premiums for similar coverage could increase as much as 25% in West Los Angeles, 22% in the Sacramento area and nearly 13% in Orange County.

California officials have floated the idea of legislating lower prices. One way would be to throw West Los Angeles and Orange County into the same risk pools. That might reduce premiums in West L.A., but only by increasing premiums in Orange County. With a few simplifying assumptions, premiums in both  West L.A. and the O.C. could rise by 19 percent. An alternative would be to cap premium increases. One state official proposes a cap of 8 percent. But that would just be an implicit form of government rationing. If insurers cannot charge premiums that cover their costs, they will cover fewer services.

If Oklahoma prevails in its lawsuit against the IRS, or if any similar plaintiffs prevail, California will look pretty silly for charging forward with an Exchange. California will have imposed on its employers an unnecessary tax of $2,000 per worker – a tax that California employers can avoid by relocating to states that have not created an Exchange. It will also have unnecessarily exposed 2.6 million California residents to ObamaCare’s individual mandate – i.e., a tax of $2,085 on families of four earning as little as $24,000 per year, which those residents can likewise avoid by relocating to another state.

Watch this space for development.

‘Dems and GOP Agree, Government Needs More Money’

That’s the (fair) title of this blog post over at National Journal’s Influence Alley:

The federal government needs more money. That’s one thing both parties can agree on, Republican and Democratic lawmakers said Tuesday. The rub, of course, is how to get it.

Reps. Peter Roskam, R-Ill., and Allyson Schwartz, D-Pa. said at a National Journal panel on Tuesday morning that there’s no question that more revenue is needed. Democrats say they can raise the money by letting upper-income tax cuts expire, while Republicans say economic growth alone will help raise the cash.

“We need more revenue,” said Roskam, the House GOP’s chief deputy whip. “If you can get the money to satisfy obligations, that’s an area of common ground.”

Let’s hear it for duopoly, eh, comrades? Without it, we might suffer political parties that question whether those government “obligations” are wise, or necessary, or constitutional; or that point out governments don’t have needs, people do; or that reject the premise that politics is an exercise in deciding who needs what; or that argue for eliminating entire spheres of government activity. Can you tell I’ve just watched a presidential debate?

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.

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