Tag: innovation

Americans Are Not Convinced of Top Down Economics

Several recent polls have shown Americans are becoming increasingly skeptical of Washington’s economic planning capabilities. According to a recent Washington Post poll, 73 percent of Americans doubt Washington’s ability to solve economic problems. In fact, these numbers have leapt from 52 percent last year and from 41 percent in 2002. It appears that the more the government has tried to fix the U.S. economy, the less confident Americans are that the government is capable of doing such things.

When the government in Washington decides to solve economic problems, how much confidence do you have that the problem actually will be solved: A lot, some, just a little, or none at all?


 Source: Washington Post Poll

Another example of this skepticism toward government economic planning comes from a recent Rasmussen poll finding that 71 percent of Americans believe the private sector is better than the government at determining technological potential.

Who is better at determining the long-term benefits and potential of new technologies, private sector companies and investors or government officials?

 71 percent: Private sector companies and investors

11 percent: Government officials

17 percent: Not sure

This suggests the public is not convinced that President Obama’s “investment” spending will necessarily be properly directed to its most useful ends. For example, in the president’s 2011 State of the Union address, he marshals the word “invest” or “investment” 13 times, with 8 specifically referencing government investment. It is important to remember that when government “invests” in the economy, it requires officials to make decisions about who gets funding. This presupposes that the government has the knowledge to know which technologies have the greatest potential and thus are worthy of investment. Instead of letting billions of individuals work through a marketplace to best allocate resources to the technologies with the greatest potential, this would instead rely on a small, centralized group of intellectuals deciding who gets what.

Also, according to this Rasmussen poll the public is not convinced that when the government does “pick winners” to receive government funding, that the money will not be wasted. 64 percent believe it is likely that if a private company, which cannot find investors, gets funding from the government that the money will be wasted.

Sometimes a company cannot find investors for a new technology and they seek research funding from government. Suppose a private company cannot find investors but gets funding from the government. How likely is it that government funding will be wasted?

30 percent: Very likely

34 percent: Somewhat likely

21 percent: Not very likely

4 percent: Not at all likely

11 percent: Not sure

It might be time to rethink the alluring sound of government “investment” and reevaluate the merits that government has the knowledge necessary to make these sorts of economic decisions.

Cross-posted from Reason.com 

Wednesday Links

HHS Wildly Overstates the Problem of Pre-Existing Conditions — and Ignores Its Cause

On the eve of a House vote to repeal ObamaCare, the Department of Health and Human Services has released a report claiming that if repeal succeeds, “1 in 2 non-elderly Americans could be denied coverage or charged more due to a pre-existing condition.”  A few problems with that claim:

  • An HHS survey found that in 2001, only 1 percent of Americans had ever been denied health insurance.
  • Economists Mark Pauly and Len Nichols write, “the fraction of nonelderly uninsured persons…who would be rated as actuarially uninsurable is generally estimated to be very small, less than 1 percent of the population.”
  • RAND health economist Susan Marquis and her colleagues find that in markets that do not impose ObamaCare-style government price controls on health insurance, such as California’s individual market, ‘‘a large number of people with health problems do obtain coverage…Our analysis confirms earlier studies’ findings that there is considerable risk pooling in the individual market and that high risks are not charged premiums that fully reflect their higher risk.’’
  • It is true that insurers charge higher premiums to many people with pre-existing conditions – and it is crucial that they have the freedom to do so.  Risk-based premiums create virtuous incentives for people to buy insurance while they are healthy and to be cost-conscious consumers.  They also encourage insurers to develop innovative products that protect against the risk of higher premiums.  The real problem here is that the government has created an employment-based health insurance system that denies consumers the protections that unregulated markets already provide, as well as additional protections that insurers would develop absent this government intervention.
  • ObamaCare’s health-insurance price controls will encourage insurers to deny care to the very sick people those price controls are intended to help.
  • The Obama administration projected that 375,000 people would sign up for ObamaCare’s “Pre-Existing Condition Insurance Plans” by the end of last year. But only 8,000 people enrolled in such plans by December 2010, suggesting the demand isn’t nearly as great as the administration claimed.

Is ObamaCare Pushing Rope?

Regarding ObamaCare’s first adverse-selection death spiral, Julie Rovner posts this over at Shots, the NPR health blog:

The advocacy group Health Care for America Now was the first to bring the action to widespread attention. “Even for the insurance industry this behavior is surprisingly brazen,” HCAN Executive Director Ethan Rome wrote in a blog entry for the Huffington Post. “They don’t like the rules, so they’re going to take their ball and go home.”

But the insurance industry trade group America’s Health Insurance Plans rejected HCAN’s contention that the companies’ refusal to sell to all comers is somehow a violation of a promise made earlier this year by AHIP CEO Karen Ignagni that insurance companies would comply with regulations regarding children and pre-existing conditions.

In an interview, AHIP spokesman Robert Zirkelbach said Ignagni was responding only to promises that children wouldn’t be excluded from their parents’ plans and that if the kids are covered, the policies would include treatment of their pre-existing condition.

What emerged in the regulations, however, Zirkelbach said, was, in effect, a  requirement that insurance companies accept children even if they are already sick. That, he said, would be tantamount to exactly what companies want to avoid with the adult population — letting people wait until they are sick to sign up for insurance. Which is exactly why the insurance industry is so insistent on a coverage mandate: It needs premiums of healthy people to help cover the costs of those who are not.

In effect, ObamaCare supporters said to the public, “Give the government more power over insurance companies and the government will make health insurance more accessible and secure.”  These few paragraphs capture how that strategy has turned into a cat-and-mouse game with insurers, and is turning ObamaCare’s most attractive selling point – guaranteed coverage for kids with pre-existing conditions – into an empty promise.

In stark contrast stands the individual insurance market.  Yes, insurers there generally (but not always) charge premiums that correspond to risk, and sometimes turn people down – but that market has also been remarkably innovative when it comes to protecting sick people from higher premiums.  RAND Health economist Susan Marquis and her colleagues write, “a large number of people with health problems do obtain coverage” in the individual market: “Our analysis confirms earlier studies’ findings that there is considerable risk pooling in the individual market and that high risks are not charged premiums that fully reflect their higher risk.”  Even as Congress debated ObamaCare, UnitedHealthcare introduced an innovative new product that protects people with employer-sponsored coverage from facing sky-high premiums when they leave their company plan.  Economist John Cochrane predicts that further innovations can make health insurance more secure and improve the quality of medical care.

Which process seems more likely to improve quality and reduce costs?  The political process, where politicians and regulators try to force insurance companies to act against their financial self-interest?  Or the market process, where self-interest forces insurers to find innovative ways to give consumers more of what they want?

One From Silicon Valley: Leave Us Alone

A passionate plea from Michael Arrington TechCrunch, the number three tech blog in the country and the number four blog overall, according to Technorati’s current rankings:

Silicon Valley has fueled much of the growth in our economy over the last few decades and has created amazing (and highly profitable) companies that are making the world a much better and more interesting place to live. All that happened while the government ignored us.

We don’t want handouts. We don’t want “public-private partnerships,” and we sure as hell don’t want legislation. Just let us do our thing and maybe say thanks to those companies that create jobs by the hundreds of thousands and send in those humongous corporate tax payments on profits. Because all you can do is screw up something beautiful. Really.

While maintaining his hugely popular site, Arrington has made himself something of a controversialist. His policy preferences aren’t strictly libertarian, but his instincts are that freedom produces innovation much better than any alternative public policies.

Political Economy in Three Panels

Indeed, every improved product or service may make us no longer value products and services we previously used. That’s what Schumpeter called “creative destruction.” A longer version of the same phenomenon was on the front page of Monday’s Wall Street Journal, in an article about how Wal-Mart’s rivals secretly fund “grassroots local campaigns” against Wal-Mart, organized by political consulting firms, to protect the existing firms’ positions. Every innovator puts somebody out of business, as Agnes’s friend recognizes.

Beware of Americans Proselytizing the Chinese Economic Model

In a Cato paper released earlier this month, I argued that the glacial pace of America’s economic recovery and its growing public debt juxtaposed against China’s almost uninterrupted double-digit annual economic growth and its role as Congress’s sugar daddy have bred insecurity among U.S. opinion leaders, many of whom now advocate a more strident approach to China, or emulation of its top-down approach.

I cite, among others, Thomas Friedman of the New York Times, who is enamored of autocracy’s capacity to facilitate China’s singularity of purpose to dominate the industries of the future:

One-party autocracy certainly has its drawbacks. But when it is led by a reasonably enlightened group of people, as China is today, it can also have great advantages. That one party can just impose the politically difficult but critically important policies needed to move a society forward in the 21st century. It is not an accident that China is committed to overtaking us in electric cars, solar power, energy efficiency, batteries, nuclear power, and wind power. China’s leaders understand that in a world of exploding populations and rising emerging-market middle classes, demand for clean power and energy efficiency is going to soar. Beijing wants to make sure that it owns that industry and is ordering the policies to do that, including boosting gasoline prices, from the top down.

Friedman’s theme—but less googoo eyed and more all-hands-on-deck!—is echoed in an op-ed by China-expert James McGregor, which ran in yesterday’s Washington Post.  McGregor conveys what he describes as an emerging sentiment within the U.S. business community in China.  That is: the Chinese government is hell bent on creating national economic champions; is using its increasing leverage (as global financier and fastest-growing market) to impose its own interpretations of the global rules of economic engagement in support of its comprehensive industrial policy, and, ultimately; the United States must wake up and rise to the challenge by crafting some top-down industrial policy of its own.

I don’t dispute some of McGregor’s premises.  China’s long process of market liberalization has slowed down, halted, and even reversed in some areas.  Policies are proliferating that favor local companies (particularly state-owned enterprises), hamper the operations of foreign-owned firms, and impede market access for imports.  Indeed, many of these policies are likely the product of industrial planning. 

But McGregor’s conclusion is extreme:

The time has come for a White House-led, public-private, comprehensive examination of American competitiveness against a clear-eyed view of China’s very smart and comprehensive industrial development policies and plans…What technology do we protect? What do we share? What are our commercial strategic imperatives as a nation? How do we retool the U.S. government’s inadequate and outdated trade bureaucracy to provide thoughtful strategic focus and interagency coordination? How do we overcome the fundamental disconnect between our system of scattered bureaucratic responsibilities and almost no national economic planning vs. China’s top-down, disciplined and aggressive national economic development planning machine?

Central planning may be more en vogue in Washington than usual nowadays, but to even come close to reaching his conclusion requires disregarding many facts, which is how McGregor gets there sans tongue in cheek.

First, in an effort to preempt any suggestion that China’s protectionism is nothing exceptional and can be remedied through the World Trade Organization and other channels, McGregor offers this blanket statement: “Chinese policymakers are masters of creative initiatives that slide through the loopholes of WTO and other international trade rules.”  I realize that op-ed writing forces one to economize on words, but that statement, which serves as McGregor’s springboard to socialism, cannot suffice for an analysis of the facts.  One of those facts is that the United States has been successful in compelling changes in China’s protectionist practices in all of the formal WTO disputes it has lodged that have been resolved thus far (6 of 8 formal cases have been resolved).  If China violates the agreed rules of trade, and its actions impair benefits or impose costs on U.S. interests that are too large to ignore, pursuing a WTO case is a legitimate and proven channel of resolution. Chinese protectionism can be addressed without the radical changes McGregor counsels. 

But I think McGregor—sharing the tactics of other in the media and politics—exploits public angst over a rising China to promote his idea as the obvious and only solution to what he sells as a rapidly-metastasizing problem.  McGregor argues that China is aiming to create national champions through subsidies and other preferential policies, while charging foreign companies admission to its market in the form of technology transfer, joint-venturing requirements, and local content rules.  McGregor claims, that this appropriation of foreign technology will be used to “create Chinese ‘indigenous innovations’ that will come back at us globally.”  Ultimately, McGregor fears that “American technology companies could be coerced to plant the seeds of their destruction in the fertile China market.”

It is telling that McGregor doesn’t consider U.S. government expropriation of those companies’ technology assets as planting the seeds of their own destruction.  Indeed, it is nothing short of expropriation when technology that is owned by individual companies in the private sector, making unique decisions to improve their own bottom-lines on behalf of their own shareholders is suddenly subject to the questions McGregor wants answered: What technology do we protect? What do we share? What are our commercial strategic imperatives as a nation?  Those questions, let alone the answers, imply that the U.S. government should have at least de facto ownership and control over these privately-held technology assets.

What is wrong with allowing each of these companies to decide for themselves whether they want to license or transfer some of their technology to Chinese companies, as the price of doing business in China?  Some will, some won’t, but the presupposition that those who do are selling the golden goose is not based on fact.  Let companies decide for themselves how to use their resources, and don’t treat industry as a monolith, as in “What are our commercial strategic imperatives as a nation?” 

Had we tried to answer and implement the answer to that question in the face the Japanese “threat” two decade ago, we’d be bereft of some of the most ingenious technological breakthroughs and the hundreds of industries and thousands of products that “our system of almost no national economic planning” has yielded.

When we peel away the chicken-little rhetoric, when we dispense with neo-Rahm Emanualism (“Never manufacture a good crisis and then let it go to waste”), when cooler heads and analytical minds prevail, the economic question boils down to this: What has been more successful at creating growth, central planning or decentralized dynamism?  For both China and the United States, it has been the latter. 

My bet is that China’s re-embrace of greater central planning will be brief, as it wastes resources, yields few -if any- national champions, and limits innovation.  For similar reasons, U.S. opinion leaders will eschew central planning, as well.