Topic: Cato Publications

It’s Roy Childs Week!

Over at Libertarianism.org, we’re celebrating our old friend Roy Childs, once the anarchist enfant terrible of the mostly Objectivist libertarian movement, later a Cato foreign policy analyst, editor of Libertarian Review, and editorial director of Laissez Faire Books. Libertarianism.org has published its first ebook, Anarchism and Justice, a collection of Roy’s essays on anarchism available in book form for the first time. And they’re posting never-before-seen videos, including this one on the history of the libertarian movement from the Cato Summer Seminar in Political Economy:

Today I posted my own reminiscences about Roy at the Libertarianism.org blog, Free Thoughts:

When I got involved in the tiny libertarian movement back in the early 1970s, I had the impression that its two leading intellectuals were Murray Rothbard and the much younger Roy Childs. Rand, Mises, and Hayek were out there as great thinkers; Milton Friedman was regarded with some skepticism as a “Chicagoite”; but the fledgling movement seemed centered around Rothbard and Childs….

In two stints as editor of Libertarian Review and as editor of Laissez Faire Books, Roy brought his keen insight and radical vision to a dazzling range of topics: the nature of rights, neoconservatism, foreign policy, Third World land reform, Iran, Ayn Rand’s influence on libertarianism, and much more. He seemed to have read everything and to know how it fit into his overall worldview. And he knew everybody. What fun it would be to read his correspondence – or better yet, listen to his phone calls – with Rothbard, Friedman, Nathaniel Branden, Barbara Branden, Thomas Szasz, and Robert Nozick. You can read his formal interviews with some of those people in the Libertarian Review archives….

Watch for more videos this week.

Theory and Practice in the Austrian School

This month’s Cato Unbound looks at the Austrian school of economics. Specifically, how do Austrian insights apply to the “real” world—not just theory, but economic history and policy?

In his lead essay, Professor Steven Horwitz argues that Austrian economists are making important and under-appreciated empirical contributions. The Austrian school even stands to teach mainstream economics a good deal about how to conduct empirical work and interpret it properly.

To discuss with Horwitz, we have invited three other distinguished economists, each of whom has been influenced by the Austrian school—while ultimately settling elsewhere methodologically: Bryan Caplan, George A. Selgin, and Antony Davies.

As always, Cato Unbound readers are encouraged to take up our themes, and enter into the conversation on their own websites and blogs, or on other venues. We also welcome your letters. Send them to jkuznicki at cato dot org. Selections may be published at the editors’ option.

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.

Cato Unbound: Mental Health and the Law

We have lately witnessed several high-profile criminal events for which insanity may or may not be a tempting explanation. To name only the most prominent, consider the spree killings in Aurora, Colorado and Oak Creek, Wisconsin; Anders Breivik’s rampage in Norway; and the shooting of former representative Gabrielle Giffords and a group of her constituents. Giffords’ shooter, Jared Lee Loughner, was medicated against his will for nearly a year and recently entered a guilty plea. Anders Breivik has denied the suggestion that he was mentally ill, insisting that he is of sound mind and motivated only by ideology.

At Cato Unbound this month, we’re taking a close look at mental health and the law. American University’s Dr. Jeffrey A. Schaler is skeptical that “insanity” is a good explanation for criminal—or any—behavior. Indeed, Schaler denies that “mental illness” is a valid category of disease. For that reason he is also one of the world’s foremost exponents of consensual psychiatry, a branch of the discipline first comprehensively defended by Dr. Thomas Szasz: if a patient wishes to be treated, he should be allowed to seek treatment; if not, his behavior remains his own responsibility.

Dr. Allen Frances, professor emeritus of psychiatry at Duke University, disagrees in part: while mental illness is unlike many other diseases, those who present a clear threat to others owing to mental illness should not be treated either as criminals or as harmless. They have a condition that needs to be treated in order for them to rejoin the rest of society.

Jacob Sullum, a journalist and author who has often written on mental health, therapy, and the law, points out that psychiatry can’t have things both ways—either a criminal is responsible for his actions, in which case he should be punished; or the criminal is not responsible for his actions, in which case one might argue for involuntary treatment. Yet current laws, particularly regarding sexually violent predators, often try to do both to the same person.

Amanda Pustilnik, an associate professor of law at the University of Maryland, argues that the outrage about coercive psychiatry is misplaced: more mentally ill people inhabit our prison system than are to be found in our psychiatric hospitals. They get there not because they are more criminal, but because they are less cooperative with police, worse at defending themselves in court, and find it difficult to comply with the rules of prison life and parole. Many of these people would prefer to be in mental institutions, where they would receive the treatment they both need and want.

The conversation will remain open through the end of the month, so be sure to subscribe via RSS or follow us on Twitter. We welcome readers’ letters and may publish them at our option; send them to J Kuznicki (at) cato . org.

You’re Eight Times More Likely to be Killed by a Police Officer than a Terrorist

It got a lot of attention this morning when I tweeted, “You’re Eight Times More Likely to be Killed by a Police Officer than a Terrorist.” It’s been quickly retweeted dozens of times, indicating that the idea is interesting to many people. So let’s discuss it in more than 140 characters.

In case it needs saying: Police officers are unlike terrorists in almost all respects. Crucially, the goal of the former, in their vastest majority, is to have a stable, peaceful, safe, law-abiding society, which is a goal we all share. The goal of the latter is … well, it’s complicated. I’ve cited my favorite expert on that, Audrey Kurth Cronin, here and here and here. Needless to say, the goal of terrorists is not that peaceful, safe, stable society.

I picked up the statistic from a blog post called: “Fear of Terror Makes People Stupid,” which in turn cites the National Safety Council for this and lots of other numbers reflecting likelihoods of dying from various causes. So dispute the number(s) with them, if you care to.

I take it as a given that your mileage may vary. If you dwell in the suburbs or a rural area, and especially if you’re wealthy, white, and well-spoken, your likelihood of death from these two sources probably converges somewhat (at very close to zero).

The point of the quote is to focus people on sources of mortality society-wide, because this focus can guide public policy efforts at reducing death. (Thus, the number is not a product of the base rate fallacy.) In my opinion, too many people are still transfixed by terrorism despite the collapse of Al Qaeda over the last decade and the quite manageable—indeed, the quite well-managed—danger that terrorism presents our society today.

If you want to indulge your fears and prioritize terrorism, you’ll have plenty of help, and neither this blog post nor any other appeal to reason or statistics is likely to convince you. Among the John Mueller articles I would recommend, though, is “Witches, Communists, and Terrorists: Evaluating the Risks and Tallying the Costs” (with Mark Stewart).

If one wants to be clinical about what things reduce death to Americans, one should ask why police officers are such a significant source of danger. I have some ideas.

Cato’s work on the War on Drugs shows how it produces danger to the public and law enforcement both, not to mention loss of privacy and civil liberties, disrespect for law enforcement, disregard of the rule of law, and so on. Is the sum total of mortality and morbidity reduced or increased by the War on Drugs? I don’t know to say. But the War on Drugs certainly increases the danger to innocent people (including law enforcement personnel), where drug legalization would allow harm to naturally concentrate on the people who choose unwisely to use drugs.

The militarization of law enforcement probably contributes to the danger. Cato’s Botched Paramilitary Police Raids map illustrates the problem of over-aggressive policing. Cato alum Radley Balko now documents these issues at the Huffington Post. Try out his “Cop or Soldier?” quiz.

There are some bad apples in the police officer barrel. Given the power that law enforcement personnel have—up to and including the power to kill—I’m not satisfied that standards of professionalism are up to snuff. You can follow the Cato Institute’s National Police Misconduct Reporting Project on Twitter at @NPMRP.

If the provocative statistic cited above got your attention, that’s good. If it adds a little more to your efforts at producing a safe, stable, peaceful, and free society, all the better.

Mass Tragedy Boilerplate and Rebuttal

On the road last week, and allergic to getting too heavily involved in the issue de l’heure, I only today saw Holman Jenkins’ Wall Street Journal commentary: “Can Data Mining Stop the Killing?

After the Aurora theater massacre, it might be fair to ask what kinds of things the NSA has programmed its algorithms to look for. Did it, or could it have, picked up on Mr. Holmes’s activities? And if not, what exactly are we getting for the money we spend on data mining?

Other than to collect it in a great mass along with data about all of us, the NSA could not have “picked up on” Mr. Holmes’s activities. As I wrote earlier this year about data mining’s potential for averting school shootings:

“[D]ata mining doesn’t have the capacity to predict rare events like terrorism or school shootings. The precursors of such events are not consistent the way, say, credit card fraud is. Data mining for campus violence would produce many false leads while missing real events. The costs in dollars and privacy would not be rewarded by gains in security and safety.

Jeff Jonas and I wrote about this in our 2006 Cato Policy Analysis, “Effective Counterterrorism and the Limited Role of Predictive Data Mining.”

If the NSA has data about the pathetic loser, Mr. Holmes, and if it were to let us know about it, all that would do is provide lenses for some pundit’s 20/20 hindsight. Data about past events always points to the future that occurred. But there is not enough commonality among rare and sporadic mass shootings to use their characteristics as predictors of future shootings.

Jenkins doesn’t drive hard toward concluding that data mining would have helped, but his inquiry is mass tragedy boilerplate. It’s been rebutted by me and others many times.

Fair and Balanced, Think Tank Edition

The website CapitolWords.org allows you to track the use of words uttered by members of Congress. Our intern wrangler, Michael Hamilton, decided to compare uses of the term “Cato Institute” to the names of other think tanks around town. Here’s what he found:

Cato is mentioned roughly equally by both Republicans and Democrats in Congress. It’s hard to draw conclusions based solely on members’ use of the names of think tanks, but it seems clear that Democrats and Republicans make roughly equal use of Cato research in making appeals to their colleagues and the public.

Note: The Brookings Institution is sometimes misstated as “Brookings Institute,” so both are included.