Topic: General

Response to Holt

My back and forth with Matthew Holt on HSAs continues…

In my previous post, I wrote that Holt’s critique of my paper made it appear that he hadn’t read the paper very closely. As I understand his response, he is “not very interested” in doing so. He is already convinced that we need “compulsory social insurance” with “incentives for providers that induce them to provide cost-efficient care.” Fair enough.

Or maybe not. Holt continues to misrepresent my views and what that paper says. He variously accuses me of believing that his owning an HSA invalidates his criticisms of HSAs; believing that health insurance is unnecessary; and having no interest in (or proposals for) reducing the burden of expensive flat-of-the-curve medicine. These and other errors could have been avoided by carefully reading my paper.

Since this exchange seems to be bearing little fruit, I will not take it much beyond the following brief summary of my actual views on these issues.

There are some medical expenditures that should not be covered by insurance. Beyond a certain point, problems of moral hazard, fraud, low-quality care, medical errors, and loss of control over one’s medical decisions tend to overwhelm the benefits of additional coverage. (This occurs whether the excess coverage comes through the private sector or the public sector, and even if the state limits supply.) Consumers do a better job than government of establishing coverage up to that point and then stopping. That argues for letting consumers control all the dollars involved, which is at the heart of my large HSAs proposal.

In other words, if you want to subsidize uninsurable medical expenses, you don’t want to do it through insurance. You would do less damage by giving them cash.

What Would You Do?

You know you haven’t done anything wrong, so you have always assumed that you have nothing to worry about from police officers and prosecutors. Maybe a remote chance of a misunderstanding, but nothing that couldn’t be quickly cleared up. After all, why would the police bother you when you do not break any laws?

Now consider the nightmare case of James Calvin Tillman.

The police arrest Tillman for rape. He asserts his innocence, but the victim says she is sure that he is the culprit. Prosecutors offer Tillman a plea bargain. If Tillman will agree to waive his right to a trial and plead guilty, the state will agree to a 8 year prison sentence. However, if Tillman declines the deal and exercises his right to a trial, the state promises to seek the maximum penalty: 45 years imprisonment.

Questions:

What do you think a guilty man would do in such circumstances?

What would you have done in those circumstances?

What do you think Tillman did?

Tillman went to trial and was found guilty. After serving 18 years in prison for doing nothing wrong, he was just released on the basis of a recent DNA test.

It is always curious how the Governor, the Mayor, the Warden, the District Attorney, and the Police Chief never seem to be on the scene when the wrongly convicted person is released from jail. Maybe they just happened to be out of town on more important business!

Anyway, some people hold the view that it is not realistic to expect perfection. They say, “What’s important here is that a tragic mistake was discovered and corrected. The system worked.” Well, yes, but does it not make sense to see how that mistake was discovered and to consider ways in which such mistakes can be avoided in the future?

If we assume that the police and prosecutors are correct 95 percent of the time, then there are 100,000 innocent people in prison. On top of that, thousands and thousands more may not be locked up, but they have acquired criminal records because they got swept up in a police investigation and no one in the government believed their story.

At the risk of sounding unsophisticated, one way to minimize the mistakes is to actually have more trials, so that an impartial jury can weigh evidence. We really don’t have trials anymore. The cases that you hear about on the news—Scott Peterson, Michael Jackson, Martha Stewart, Enron CEOs—are part of the paltry 4 percent of cases that go to trial. Our courthouses are mostly gigantic plea bargaining centers. And plea bargaining rests upon the legal fiction that the government does not retaliate against a person for exercising his constitutional right to a trial.

When a judge accepts a plea deal, he’ll ask whether the accused is pleading guilty “voluntarily.” This is a staged ceremony. No one is supposed to mention the prosecutorial threats (we’ll throw the book at you!) that will be carried out if the accused insists upon a trial.

One might say, “Tillman got a trial and look what happened to him.” True enough, but I suspect many, many more errors are buried in the plea bargaining statistics.

Let’s reduce the dishonesty and wrongful prosecutions in our system by abolishing plea bargaining.

“Libertarian Democrats”?

Blue-Team Blogfather Daily Kos has posted an ode to the “Libertarian Democrat,” a creature he sees as the possible salvation of the party:

A Libertarian Dem rejects government efforts to intrude in our bedrooms and churches. A Libertarian Dem rejects government “Big Brother” efforts, such as the NSA spying of tens of millions of Americans. A Libertarian Dem rejects efforts to strip away rights enumerated in the Bill of Rights – from the First Amendment to the 10th. And yes, that includes the 2nd Amendment and the right to bear arms.

That’s the part traditional libertarians will like best. The rest, not so much. The “libertarianism” Kos describes checks its antistatism at the door, emphasizes economic security and fears corporate power as much as state power. Though judging by Kos’s legal blogger “Pericles,” who I should thank for his or her very kind write-up of “Power Surge,” libertarians and Libertarian Democrats have some common ground on constitutional issues. See “Cato vs. Caesar.”

Does the Libertarian Democrat exist? It’s doubtful, though Kos has a few examples, including the impressive James Webb, Vietnam war hero, former Secretary of the Navy, and current Democratic challenger to Virginia Senator George Allen. But then the Libertarian Republican has been an elusive creature of late as well, judging by the GOP’s constitutional amendment fetish. The last time the flag-burning amendment came up for a vote in the House, only an even dozen Republicans voted against it, and only a couple of those could reasonably be described as “libertarian.” Neither party is a reliable friend of liberty, but any effort to move either party in the right direction ought to be applauded.

The Democratic party is quite unlikely to evolve in the direction Kos’s post suggests. But if it did, for all its flaws, it would still beat “Big Government Conservatism” any day of the week.

Death and Taxes: The Revenue Is Uncertain

The Senate votes on estate tax repeal tomorrow. Nothing gets the political emotions flowing more than “tax cuts for the rich.” The Washington Post’s Harold Meyerson recently called repeal “estate tax lunacy,” for example. But let’s look at a few points made by the Washington Post in an editorial yesterday, which opposed repeal.

1) The Post says that the revenue loss from repeal would be too large—$776 billion over 10 years starting in 2012. But that’s less than two percent of expected revenues during those years. Besides the Congressional Budget Office says that under current law the estate tax will raise $45 billion in 2012 rising to $67 billion in 2016. Thus, the Post’s figure looks exaggerated. The source appears to be the left-wing Center on Budget and Policy Priorities. Harvard’s Greg Mankiw looks at the revenue impact of estate tax repeal in his blog.

2) Under estate tax repeal, the current tax exclusion of unrealized capital gains at death would be partly ended. Thus, the government’s revenue loss under repeal would be partly offset by rising capital gains tax revenue, as I discuss in my new bulletin.

The Post says that “Congress’s Joint Committee on Taxation has analyzed this claim [about the capital gains offset] and found it empty.” Actually, it’s a huge mystery what the JCT includes in its estate tax estimates, or any of its estimates. JCT’s official estimates have a huge impact on the debate over tax policy, yet its methods and assumptions are highly secret. The public cannot find out how the JCT is dealing with capital gains in its estimates. Even members of Congress usually can’t find out how the JCT comes to its sometimes suspicious-looking numbers.

As Mankiw and other experts have noted, estate tax repeal might not lose the government any money at all, but the JCT says repeal would lose the government $290 billion over 10 years (2006-2015). It’s absurd that Congress is making a crucial decision on tax policy tomorrow, yet we cannot have an open discussion regarding the budget impact with the taxpayer-funded experts employed by Congress.

Note that the Heritage Foundation recently published an excellent book on the issue of JCT secrecy

Bloviating about “Boutique” Fuels

The House Energy & Commerce Committee held a hearing today on the subject of “boutique” fuels. Republicans are positively obsessed with this matter, convinced beyond sanity or reason that gasoline prices are high in large part because EPA is tolerating a large number of different gasoline blends around the country.

Ed Murphy, group director for downstream and industry operations at the American Petroleum Institute, gamely tried to introduce a bit of economic rationality into this debate. While there are certainly reasons to decry the proliferation of gasoline blends around the country, the recent run-up of gasoline prices has nothing to do with them. His testimony, however, apparently failed to impress Republicans according to the trade pub Greenwire.

Now, if EPA were making gasoline more expensive, I’m sure API would be the first bunch to say so. The fact that they are not speaks volumes. That is, it speaks volumes only to those interested in listening. Beating up on Greens is more important to the GOP than beating up on high prices. Having even a scintilla of evidence to back up their charges is apparently irrelevent.

Hey Baby

Did you know that last year, Paris was a much more popular girls’ name than Britney? Or that Madison was the 3rd most popular girls’ name, while Jefferson was only ranked 628th among boys’ names? Or that 179 baby boys were actually named Baby?

More importantly, do you care about any of this? I sure don’t, but the government does.

As Senator Tom Coburn points out, the Social Security Administration, wastes significant time and money compiling this report on popular baby names.

Senator Coburn astutely jests, “Increasing one’s web traffic doesn’t seem to be in the Constitutional charter of the Social Security program. Your tax dollars hard at work, indeed.”

Should We Criminalize OPEC?

Well, should we? An increasing number of Congressmen seem to think so. Last year, Sen. Mike DeWine (R-OH) introduced the “No Oil Producing and Exporting Cartels Act” (S. 555), aka “NOPEC,” which would make oil-producing and exporting cartels abroad illegal. Although the bill went nowhere, supporters have tried repeatedly to attach it to energy legislation moving through the House and Senate. The idea was last spotted when Sen. Arlen Specter (R-PA) embraced elements of the bill in his relatively unhinged “Oil and Gas Antitrust Act of 2006” (S. 2557), and the trade press is full of reports that the next GOP energy bill might well include NOPEC in its legislative basket of economic buffoonery.

You might think that imposing U.S. antitrust law on foreign, state-owned companies that (with the exception of CITGO) operate nowhere near U.S. borders is such a crackpot idea that only an American politician could entertain such a thing with a straight face. You would be wrong. The other day, Ariel Cohen and William Schirano at the Heritage Foundation gave NOPEC an enthusiastic thumbs-up. “If Congress is serious about alleviating the price-gouging that contributes to high gas prices,” they wrote, “it ought to begin by allowing the federal government to sue OPEC.”

The temptation is to simply ignore nonsense like this. But nonsense like this (particularly on the energy front) is increasingly the coin of the legislative realm. So let’s do what its proponents have obviously not done and give the idea a few moments of thought.

First, the obvious question arises—exactly how would the U.S. government enforce such a law? After all, I rather doubt that Saudi Arabia, Kuwait, Iran, Venezuela, et al will quickly disband the cartel in a panic once Uncle Sam deems their club illegal under U.S. law. “You and who’s army?!” is the natural response we might expect. Given that no army would be on the way to stamp out such illegal activity, which leaves trade sanctions or nothing. The former would be counterproductive while the latter would be embarrassing.

Next, exactly what gives the Congress the right to impose U.S. economic regulations on companies that aren’t doing business in the United States? Do all national governments have this right, or only the United States? If the former, what’s to prevent Saudi Arabia from declaring it illegal for U.S. banks to charge interest on loans (an activity ostensibly banned in many Islamic countries)? If the latter, then it’s a naked statement that U.S. policy is premised upon the idea that the biggest guy on the playground makes the rules for everyone else whether they like it or not—might makes right. And if so, then wouldn’t those forced against their will to live under U.S. law rightly argue that subjects of governmental power ought to have a right to vote about the laws they are compelled to live under? Or is that a right that only applies for some and not others?

Finally, there’s an economic principle of real importance at stake. To wit, who should have the final say over how much of a product or service is delivered by a commercial enterprise; the owners or the customers? If the latter, then companies are merely slaves of the state, dictated to produce as much as the public wants regardless of business considerations. Does the Heritage Foundation really want to plant their flag on that proposition?

One might argue that the state can prohibit price fixing and collusion without prohibiting companies from having the final say over their own production schedules absent coordination between firms. But there are a large number of oil economists who maintain that OPEC is not really a cartel at all—it’s simply a vehicle through which Saudi Arabia unilaterally exercises power over the market—and that collusion within OPEC is not particularly meaningful. If so, then NOPEC would have little effect even if by some miracle it could be enforced.

Even so, what if OPEC countries preferred to constrain production so that sufficient reserves would be available down the road when they would presumably be more valuable? In that case, production restraint might simply be another form of national savings. Should the U.S. Congress be in the business of declaring such trade-offs between present and future revenues “illegal”?

Sure, it would be wonderful if private companies owned oil reserves, not national governments. And it would be nice from the consumers’ point of view if those companies produced as many barrels of crude as a normal profit would allow. And it would be wonderful if OPEC disappeared tomorrow. But Congress’ ability to translate those wishes into reality as far as foreign petroleum operations are concerned is probably nonexistent.

The best we can do is to refuse to help the Cartel or its members in the course of their enterprise. Sending the Texas Rangers or some such after them would render us an international joke.