Tag: market

Events This Week

Tuesday, March 31, 2009

POLICY FORUM - Can the Market Provide Choice and Secure Health Coverage Even for High-Cost Illnesses?

12:00 PM (Luncheon to Follow)

In a study recently published by the Cato Institute, economist John Cochrane argues that the market can solve a huge piece of the health care puzzle: providing secure, life-long health insurance and a choice of health plans to even the sickest patients. The key, Cochrane explains, is to eliminate government policies that force the healthy to subsidize the sick, such as the tax preference for employer-sponsored coverage and other attempts to impose price controls on health insurance premiums.

Featuring John H. Cochrane, Myron S. Scholes Professor of Finance, University of Chicago Booth School of Business Research Associate, National Bureau of Economic Research; Bradley Herring, Assistant Professor, Johns Hopkins Bloomberg School of Public Health; moderated by Michael F. Cannon, Director of Health Policy Studies, Cato Institute.

Please register to attend this event, or watch free online.


Friday, April 3, 2009

PglennOLICY FORUM - Drug Decriminalization in Portugal

12:00 PM (Luncheon to Follow)

In 2001, Portugal began a remarkable policy experiment, decriminalizing all drugs, including cocaine and heroin.

In a new paper for the Cato Institute, attorney and author Glenn Greenwald closely examines the Portugal experiment and concludes that the doomsayers were wrong. There is now a widespread consensus in Portugal that decriminalization has been a success. The debate in Portugal has shifted rather dramatically to minor adjustments in the existing arrangement. There is no real debate about whether drugs should once again be criminalized. Join us for a discussion about Glenn Greenwald’s field research in Portugal and what lessons his findings may hold for drug policies in other countries.

Featuring Glenn Greenwald, Attorney and Best-selling Author; with comments by Peter Reuter, Department of Criminology, University of Maryland; moderated by Tim Lynch, Director, Project on Criminal Justice, Cato Institute.

Please register to attend this event, or watch free online.

Topics:

Week in Review: No End to Spending and Regulation in Sight

Geithner to Propose Unprecedented Restrictions on Financial System

geithnerThe Washington Post reports, “Treasury Secretary Timothy F. Geithner plans to propose today a sweeping expansion of federal authority over the financial system… The administration also will seek to impose uniform standards on all large financial firms, including banks, an unprecedented step that would place significant limits on the scope and risk of their activities.”

Calling Geithner’s plan another “jihad against the market,” Cato senior fellow Jerry Taylor blasts the administration’s proposal:

What President Obama is selling is the idea that government must be the final arbiter regarding how much risk-taking is appropriate in this allegedly free market economy. It is unclear, however, whether anybody short of God is in the position to intelligently make that call for every single actor in the market.

Cato senior fellow Gerald P. O’Driscoll reveals the real reason behind the proposal:

Federal agencies have long had extensive regulatory powers over commercial banks, but allowed the banking crisis to develop despite those powers. It was a failure of will, not an absence of authority.   If the authority is extended over more institutions, there is no reason to believe we will have a different outcome.  This power grab is designed to divert attention away from the manifest failure of, first, the Bush Administration, and now the Obama Administration to devise a credible plan to deal with the crisis.

A new paper from Cato scholar Jagadeesh Gokhale explains the roots of the current global financial crisis and critically examines the reasoning behind the U.S. Treasury and Federal Reserve’s actions to prop up the financial sector. Gokhale argues that recovery is likely to be slow with or without the government’s bailout actions.

In the new issue of the Cato Policy Report, Cato chairman emeritus William A. Niskanen explains how President Obama is taking classic steps toward turning this recession into a depression:

Four federal economic policies transformed the Hoover recession into the Great Depression: higher tariffs, stronger unions, higher marginal tax rates, and a lower money supply. President Obama, unfortunately, has endorsed some variant of the first three of these policies, and he will face a critical choice on monetary policy in a year or so.

Obama Defends His Massive Spending Plan

President Obama visited Capitol Hill on Wednesday to lobby Democratic lawmakers on his $3.6 trillion budget proposal. Both the House and Senate are expected to vote on the plan next week.

obama-budget1In a new bulletin, Cato scholar Chris Edwards argues, “Sadly, Obama’s first budget sets a course for more government bloat, more economic distortions, and ultimately lower standards of living for everyone who is not living off of federal hand-outs.”

On Cato’s blog, Edwards discusses Obama’s misguided theory on government spending:

Obama’s budget would drive government health care costs up, not down. But aside from that technicality, the economics of Obama’s theory don’t make any sense.

Obama’s budget calls for a massive influx of government jobs. Writing in National Review, Cato senior fellow Jim Powell explains why government jobs don’t cure depression:

If government jobs were the secret of success, then the Soviet Union wouldn’t have collapsed, because it had nothing but government jobs. Communist China, glutted with government jobs, would have generated more income per capita than Hong Kong where, at least before the Communist takeover, there were hardly any government jobs, but Hong Kong’s per capita income was about 20 times higher than that on the mainland.

Multiplying the number of government jobs did nothing then and does nothing now to revive the private sector that pays all the bills, in large part because of the depressing effect of taxes required to pay for government jobs.

Cato on YouTube

Cato Institute is reaching out to new audiences with our message of individual liberty, free markets and peace. Last year, we launched our first YouTube channel, which has garnered thousands of views and subscriptions. Here are a few highlights:

More Praise for Cochrane’s ‘Health-Status Insurance’

This time, it’s coming from Reihan Salam at Forbes.com:

Choice and Security: Professor John Cochrane’s advice to President Obama

Last week, at a White House forum on reforming health care, President Obama issued a challenge to advocates of less government control of the medical marketplace.

“If there is a way of getting this done [i.e., reforming health care] where we’re driving down costs and people are getting health insurance at an affordable rate and have choice of doctor, have flexibility in terms of their plans, and we could do that entirely through the market, I’d be happy to do it that way.”

More to the point, Obama added that he’d be just as happy to pursue an approach that involved more government control as well, and that seems to be the tack he’s taking…

Congressional Republicans have criticized Obama’s approach, and they’ve been particularly hostile to the idea of a new public insurance plan. They argue that Obama’s reforms will eventually lead to a nationalized health care system. But as of yet they’ve failed to offer an alternative that meets Obama’s criteria for a successful health care reform.

Enter John Cochrane, an economist at the University of Chicago Booth School of Business. Professor Cochrane has long advocated a proposal he calls “health-status insurance,” an approach that could guarantee long-term health security while also freeing medical insurers to compete for customers. To most health care reformers, this sounds like a contradiction in terms.

Cochrane’s paper is, “Health-Status Insurance: How Markets Can Provide Health Security.”

“Fascinating ‘Outside-of-the-Box’ Thinking on Health Insurance Reform”

At Reason Online, Ronald Bailey reviews John Cochrane’s recent Cato Policy Analysis, “Health-Status Insurance: How Markets Can Provide Health Security.”

Writing in advance of last week’s health care summit held by President Obama, Bailey explains:

Summit attendees will break into various working groups that are supposed to engage in “outside-of-the-box” thinking. As it happens, they now have some fascinating “outside-of-the-box” thinking on health insurance reform to draw on. Earlier this month, University of Chicago economist John Cochrane published an intriguing policy analysis for the libertarian Cato Institute that looked at how “health-status insurance” can provide health security for Americans. Cochrane claims that with health-status insurance, free markets can solve the vexing problem of how to insure people with pre-existing medical conditions and “provide life-long, portable health security, while enhancing consumer choice and competition.”…

Creating and selling separate health-status insurance policies would mean that medical insurance companies would no longer have an incentive to offload sick people. Instead, because those with pre-existing conditions would have the funds to pay higher premiums, insurers would compete for their business. “Constant competition for every consumer will have the same dramatic effects on cost, quality, and innovation in health care as it does in every other industry,” argues Cochrane.

Health-status insurance also helps delink medical insurance from employment because…a worker diagnosed with diabetes…can switch jobs without worrying about whether or not he can obtain medical insurance…

While Cochrane acknowledges that his proposal is not a comprehensive health care reform program, adopting it would go a long way toward satisfying President Obama’s eight health care reform principles, especially affordability, aiming toward universality, portability, and choice, and being fiscally sustainable. “Health-status insurance can simultaneously give us complete and portable long-term insurance, great individual choice, and cost-containment beyond the dreams of any health policy planner,” concludes Cochrane. Asked if he has been invited to the president’s health care reform summit this week, Cochrane said no, but quickly added, “If I got the phone call, I would definitely be there.” Mr. President, there’s still time for your summiteers to hear about this outside-of-the-box thinking.

There Ain’t No Such Thing as Market-Based Universal Coverage

Over at The Corner, Harvard Business School professor and Manhattan Institute scholar Regina Herzlinger urges conservatives to support universal coverage – but in a market-oriented way. That is an absurdity. Once the government adopts a policy of universal health insurance coverage, a free market is impossible and the casualties begin to mount.

As a model, Herzlinger points to Switzerland, “which enables universal coverage without any governmental insurance through this system.” Switzerland requires all residents to purchase “private” health insurance; dictates the content of that insurance; and dictates the price. As I explain in a recent Cato paper, once the government controls those decisions, you’ve got socialized medicine.

My colleague Mike Tanner observes that the Swiss government’s power to control the content of “private” health insurance allows special interests to lard up people’s health insurance with their services – whether Swiss consumers want them or not:

The expansion of benefits has driven up the cost of insurance…As Uwe Reinhardt has noted, “Over time, the growth in compulsory benefits has absorbed an increasing fraction of the consumers’ payment, thus compromising the consumer-driven aspects of the Swiss system.”

Tanner also reports that the government’s power to dictate health insurance premiums is harming the sickest Swiss:

Evidence shows that the community rating requirements are…leading to the over-provision of care to the healthy and the under-provision of care to the sick. In addition, the prohibition on risk management discourages the development of new and innovative products.

In this Cato paper, University of Chicago business school professor John Cochrane explains how such price controls harm sick patients and suppress innovative new products.

Herzlinger is an extremely passionate and knowledgeable advocate of market-based health care. But when it comes to universal coverage, readers of National Review are better counseled by the magazine’s editors, who write:

to achieve universal coverage would require either having the government provide it to everyone or forcing everyone to buy it. The first option, national health insurance in some form or other, would either bust the budget or cripple medical innovation, and possibly have both effects. Mandatory health insurance, meanwhile, would entail a governmental definition of a minimum package of benefits that insurance has to cover…

Republicans should go in a different direction, proposing market reforms that make insurance more affordable and portable. If such reforms are implemented, more people will have insurance.

Some people, especially young and healthy people, may choose not to buy health insurance even when it is cheaper. Contrary to popular belief, such people do not cause everyone else to pay much higher premiums. Forcing them to get insurance would, on the other hand, lead to a worse health-care system for everyone because it would necessitate so much more government intervention. So what should the government do about the holdouts? Leave them alone. It’s a free country.

Herzlinger is correct that “it is 2009, not 1992.” If we want America to remain a free country in 2009 and beyond, we must reject universal coverage.

Work, Social Production, and Inequality

Matt Yglesias links to an interesting discussion about the growth of activities that raise our standard of living without being captured in economic statistics. Wikipedia is a great example of this: it’s tremendously valuable to hundreds of millions of Internet users, but because it’s given away for free that value is not reflected in our economic statistics.

I think this general insight is right, but I don’t agree with John Quiggin’s conclusions about the social implications. In particular, Quiggin writes:

It seems unlikely that large inequalities in income are beneficial to anyone except the recipients of high incomes.

If improvements in welfare are increasingly independent of the market, it would make sense to shift resources out of market production, for example by reducing working hours.

The first point ignores the fact that rich people are a crucial part of many public-spirited enterprises. Jimmy Wales was able to finance the initial development of Wikipedia (then called Nupedia) because he had previously earned profits building commercial websites. The Ubuntu project, creators of an extremely popular Linux-based operating system, is supported to the tune of millions of dollars a year by successful entrepreneur Mark Shuttleworth. Brewster Kahle used the profits from his successful Internet businesses to build the Internet Archive, a crucial repository of public domain works. John Gilmore, who made his fortune as one of Sun’s first employees, has used his wealth to promote a variety of free software projects, including GNU radio and Gnash. I could provide plenty of other examples.

The important thing to recognize is that these projects could only exist because of the combination of their founders’ expertise and their money. Without cash, these folks would have been unable to provide the support necessary to get these projects off the ground. But even more important, these projects also wouldn’t have succeeded without their deep understanding of their fields. Only someone with years of experience in the software industry would have the judgment and the relationships necessary to make a project like Ubuntu successful.

In particular, if the policy option on the table is to reduce inequality by redistributing wealth from rich people to the government, there’s absolutely no reason to think that the federal government could support these kinds of projects with anything like the degree of success that these private actors have done. Congress has plenty of cash, but members of Congress and their staff haven’t the faintest clue what it takes to build an operating system. Moreover, they wouldn’t even know how to tell a competent operating system designer from an incompetent one, so if they sought outside expertise they’d likely get bad advice.

I think it’s a little bit surprising that Matt would endorse Quiggin’s argument about working hours. If you read Matt’s blog, it’s obvious that he works a lot more than the 1824 hours/year national average. I suspect that Matt works so much in part because his job involves goofing off on the Internet and because he’s excited about the mission of his non-profit employer. Moreover, I’d wager that a large fraction of Matt’s readers read his blog at their jobs while they’re theoretically “on the clock.” In other words, one of the most important but unmeasured ways that our standard of living has improved in recent decades is that more and more of us are blessed with white collar jobs with intellectually-engaging work, pleasant working conditions, and the flexibility to spend time at the office doing things like reading blogs.

Probably the best illustration of these trends is Google. Google is, of course, a fabulously profitable company. It’s also a company that’s famous for the long hours put in by its employees—one reason they offer their employees free food and other perks is so they’ll be less likely to go home in the evenings. At the same time, Google has a policy of “20 percent time” that officially encourages employees to spend company time working on personal projects that may or may not contribute to the company’s bottom line. And Google is also one of the most enthusiastic users and supporters of free software, employing a number of key free software developers such as Guido Van Rossum and Jeremy Allison.

There is, in other words, no particular reason to think that the growth of the non-monetary sector of the economy can or should lead to reduced working hours, on average. Rather than using higher wages or shorter working hours to attract employees, firms may increasingly compete for workers by giving workers more interesting work and more on-the-job flexibility. Indeed, it seems likely that an increasing fraction of the time the Labor Department considers as time spent “working” actually consists of employees reading blogs, editing Wikipedia, and otherwise contributing to the richness of the non-commercial sector of the Internet.

In Defense of Gouging

Kevin Drum writes,

There are lots of things to hate about our current medical system, and all of us have our own favorite things to hate. This is mine: the fact that the system massively overcharges you if you’re uninsured, and they do it just because they can. If you’re uninsured, you’ve got no leverage, no alternatives, no nothing. So you get screwed. It’s like the shopkeepers who charge twenty bucks for a pair of flashlight batteries after hurricanes. Maybe it’s the free market at work, but if so, that’s all the worse for the free market. In the healthcare biz, it just doesn’t work.

I see it’s time to roll up the sleeves.

First, let’s look at price gouging after a hurricane. I admit it — in a free market, that’s precisely what happens. People get charged much higher prices. And I actually don’t mind calling it gouging.

But do you know what happens when a disaster strikes in an unfree market? Forced appropriation by the politically well-connected. Instead of higher prices for everyone, you get free stuff for a privileged few — and nothing, or very little, for everyone else.

Let’s use the proper term here as well: theft. In a free market, you see gouging. In an unfree one, you see theft.

How this is an improvement is beyond me. Gouging, remember, is the first step toward its own remedy. Gouging is temporary. Gouging encourages everyone to return to the status quo ante, and it does so in the most direct way possible, by paying people until the goods are cheap again. The worse the gouging, the faster the return.

By contrast, theft actually discourages a return to normalcy. Few will bother producing under harsh conditions when, if times get tough, the state just appropriates and rations everything anyway. Life’s going to be miserable in a disaster. It’s the nature of the beast. But we do have a choice in how miserable it’s going to be, and for how long.

I’d suggest that the many, many regulations on U.S. health care actually make the unfree market the better analogy here. The government is already the dominant player in the health care industry, and it already sets prices to a degree unappreciated by the general public. Indeed, it’s difficult for consumers with low-deductible, employer-provided insurance (the “good” kind) even to consider the price of their health care, let alone to comparison-shop. The situation is still worse for those with government-funded health care. These are the beneficiaries of our mostly unfree market.

Should we be surprised, then, when the full price — that is, the price paid by the uninsured — keeps rising with no end in sight? There’s certainly a problem here, but it’s not a market problem.