Topic: General

Libertarianism and Health Care

I recently did an interview with Catallarchy, a group blog made up of young libertarians. Sample Q&A:

While you come out in favor in free-market reforms in your book, how politically feasible do you think these reforms are?

Not at all. The most important proposal I make is to phase out Medicare. That’s a non-starter politically. But these ideas only become possible if you start to talk about them and people begin to understand that they make sense.

Many people view the US healthcare system as “free-market” and the rest of the world, especially England and Canada, as “socialized”. Is this the case?

The more I look at, the less free-market it seems. Take health care finance. In every major country, the consumer is insulated from at least 80 percent of health care costs. In the U.S., it’s 85 percent, which is one of the highest rates of third-party payments, or what I call insulation. In most other countries, it’s 80-85 percent government, and 10-15 percent paid for by consumers out of pocket. In the U.S., it’s about 45 percent government and 40 percent private insurance, with 15 percent out of pocket. So if we’re more market-oriented, it’s because of that 40 percent that’s paid for by private insurance. That is not a big deal.

As I have realized lately (since writing the book), health insurance is a favorite playtoy for state regulators. You could say that in most states, insurance products and services are designed by regulators, and the private companies just compete in terms of marketing. So insurance companies cannot innovate either in terms of product or in terms of risk management. In my book, I say that the main benefit of markets is innovation. The way the insurance market is regulated, we don’t get that. What’s not in my book is my rant about regulation of health care providers, with its heavy credentialism and rent-seeking. My latest pet peeve is physical therapy, which I suspect could be taught reasonably well in a one- year trade school course to high school graduates, and which recently instead had its requirement raised to three years of post- graduate training!

Although it uses my new Cato book Crisis of Abundance as the main focus, the interview ranges into other topics, from teaching economics to where I like to take vacations.

“Fair Trade” Coffee: Answering Peter Singer

It just came to my attention that noted Princeton philosopher Peter Singer blogged recently about a Cato study I did back in 2003 on the slump in world coffee prices. (By the way, this isn’t Singer’s first brush with Cato. He served graciously as one of the commenters in the March issue of Cato Unbound, which addressed the question “When Does Inequality Matter?”

In his blog post Singer takes issue with my characterization of the growing market for “fair trade” coffee (coffee sold at a premium price that benefits farmers in “fair trade” cooperatives) as a “well-meaning dead end.” Here’s an excerpt:

With some justification, he argues that the real cause of the fall in coffee prices was not the profiteering of multinationals, but big increases in coffee production in Brazil and Vietnam, combined with new techniques that make it possible to grow coffee with less labor and hence more cheaply.

In Lindsey’s view, if we want to assist coffee growers, we should encourage them either to abandon coffee and produce more profitable crops – and here he rightly points to rich nations’ trade barriers and subsidies as obstacles that must be dismantled – or to move into higher-value products, like specialty coffees, that bring higher prices.

What is curious about Lindsey’s argument, however, is that the Fairtrade coffee campaign can be seen as doing just what he recommends – encouraging coffee farmers to produce a specialty coffee that brings a higher price. Pro-market economists don’t object to corporations that blatantly use snob appeal to promote their products…. So why be critical when consumers choose to pay $12 for a pound of coffee that they know has been grown without toxic chemicals, under shade trees that help birds to survive, by farmers who can now afford to feed and educate their children?

To which my response is: I agree! If people want to produce and market coffee under a “fair trade” label and other people want to buy it, I’m all for it. Far be it from a libertarian to speak ill of capitalist acts between consenting adults….

So why did I call “fair trade” coffee a dead end? I did so in the context of discussing the causes of and possible solutions to the worldwide coffee glut that had resulted in record-low prices for struggling farmers. In that particular context, I criticized the “fair trade” movement for demonizing all other segments of the market as unfair and exploitative. Further, I argued that socially conscious coffee was never going to be more than a small niche market, and thus it was a “dead end” as far as resolving what was then called the “coffee crisis.” Far more promising, I wrote, was the booming “specialty” or gourmet coffee market. That assessment was based on the empirical judgment that, for the foreseeable at least, the upside of the snob appeal market was dramatically greater than that of the social conscience market.

Three years later, that assessment is holding up. As of 2005, “fair trade” coffee constituted only 1.8 percent of the overall U.S. market and 4.1 percent of the specialty market. In other words, snob appeal is outselling social conscience by better than 20 to 1. “Fair trade” products are doing somewhat better in Europe, but they’re still a minority taste.

Meanwhile, what’s going on with coffee prices? The coffee crisis was due primarily to a big runup in low-cost supply (from Brazil and Vietnam in particular). As a result, green coffee prices were stuck around 50 cents a pound during the first years of decade. With recent production cutbacks in Brazil, however, prices have now rallied to nearly a dollar a pound. Shifts in supply and demand, not quixotic denials of their relevance in determining prices, have brought improved market conditions for the world’s coffee farmers – at least for the time being.

Surrendering the Argument on Health Care

A new Rasmussen poll shows that a third-party presidential candidate promising universal health care coverage would run virtually even with a Republican candidate and ahead of a Democrat. This is the latest sign of dissatisfaction with our current health care system.

But it also shows what happens when we abandon principles and co-opt the arguments from the left. From Massachusetts Governor Mitt Romney’s individual mandate to President Bush’s Medicare prescription drug benefit, many Republicans and conservatives appear to have conceded to the idea that expanded—indeed universal—coverage should be the goal of health insurance policy.

Very seldom do you see anyone making the case that government-run health care will inevitably lead to rationing and the denial of care. Even less do you see anyone, outside of Cato, arguing that we must shift the health care debate away from its single-minded focus on expanding coverage to the bigger question of how to reduce costs and improve quality through greater consumer control.

Given a choice between national health care and national health care “lite,” it’s not surprising that a great many people favor the real thing. We are not going to win this argument unless we a) make a clear case against more government involvement in health care, and b) offer a clear consumer-based alternative.

Robert Jackson and NSA Spying Reconsidered

I enjoyed Roger Pilon’s and Bob Levy’s debate on NSA surveillance Friday. I’ll confess I’m in general agreement with Bob. However, I post to note one wrinkle: Bob mentioned Justice Jackson’s opinion in the Steel Seizure Case (Youngstown Sheet & Tube Co. v. Sawyer) in support of his position against the NSA surveillance program. In the Steel Seizure Case, Jackson’s concurrence set out a tri-partite framework for assessing presidential power, in which he argued that the power of a President acting without congressional authorization is at its lowest ebb. The problem is that no one knows what exactly this means.

In the spring edition of The Green Bag (available here), Jack Goldsmith (my onetime international law professor and former head of the Office of Legal Counsel) discusses a recently discovered draft of Jackson’s (never filed) concurrence in In re Quirin—the case involving the military trial and eventual execution of enemy saboteurs captured on U.S. soil during World War II. The draft opinion sheds some further light on Jackson’s views.

Here’s the basic gist:

[Jackson] ‘began in Quirin with the fixed presumption that the Court has no business reviewing military judgments in time of war, and he never deviated from that position.’ Jackson clearly stated the basis for this presumption in the closing paragraph of his draft opinion in Quirin:

‘[I]n the long run it seems to me that we have no more important duty than to keep clear and separate the lines of responsibility and duty of the judicial and of the executive-military arms of government. Merger of the two is the end of liberty as we in this country have known it. If we are uncompromisingly to discountenance military intervention in civil justice, we would do well to refuse to meddle with military measures …’

Jackson’s is a somewhat strange middle position: He felt it was the Court’s duty to declare extra-legal actions undertaken in the service of national security unconstitutional when the Court confronted such acts. But Jackson also seemed to believe that courts should not directly interfere with the carrying out of such unconstitutional “military measures.” In effect, Jackson believed the Court, when confronted with illegal actionj must declare it as such, but should leave the remedy to the political process.

What would Jackson have done in a case reviewing the NSA surveillance program.? It is hard to tell. But to the extent he would have viewed the program as a “military measure,” part of the “necessities and practices” of warfare, he might well have wanted the Court to declare it illegal and then abstain from directly ordering an end to the surveillance program.

What if They Held an Election and Nobody Came?

The interesting story about the new Associated Press-Ipsos poll is not the further decline in approval ratings for President Bush and the Republican Congress. The interesting story is how the decline is being driven by discontent among self-identified conservative voters.

Bush’s disapproval rating among conservatives is 45%. That is not as high as the overall 66% disapproval score, but it is quite remarkable considering Bush is supposed to be—according to the media—the most conservative president since Ronald Reagan. Even more stunning is the whopping 65% negative score among polled conservatives for the Republican Congress. Close to a third of conservatives surveyed would be happier if the GOP lost control of Congress.

There are many reasons for the low poll numbers. But one of the primary drivers of conservative discontent with the GOP has got to be that the Republican Congress and President Bush are the biggest spenders since LBJ.

The AP-Ipsos results seem to corroborate what other pollsters have discovered among likely voters over the past two years. In February 2006, a George Washington University Battleground poll revealed that only 36% percent of those surveyed trusted Republicans in Congress to keep spending under control—down from 47% in the same poll two years before. This isn’t because Democrats have effectively wrapped themselves in the mantle of fiscal responsibility. It’s entirely a result of the public realizing that the GOP is no longer a party committed to small government.

As a result of this, many Republicans might shift from being “likely voters” in November to deciding they’d rather not put up with the fuss of showing up to vote at all. And that’s exactly what has Republican strategists worried. Why would conservatives bother to pull the lever for a Republican candidate when continued GOP control of Congress seems likely only to give them the sort of Big Government they would expect from Democrats? That’s not what Republican leaders want to hear from their base before a mid-term (read: low turnout) congressional election in which support of the party faithful is essential to victory.

Pundits suggest that the poll numbers of late are a harbinger of a 1994-like realignment in Congress. It’s probably too early to make such grand predictions. Perhaps a better historical comparison is with the 1998 congressional elections.

At that time, Republicans were coming off of a year when they seemed to have made peace with Big Government. A few weeks before the midterm elections of 1998, the Republican Congress approved a budget that hiked non-defense discretionary spending by over 5% that year—low by comparison to today’s budgets, but over twice what was promised in the Contract with America budget. They also funded a record amount of pork-barrel projects, reversed their promise to phase-out farm subsidies, and passed a highway bill that at the time was the most expensive and earmark-laden in U.S. history. In other words, the 1998 session of Congress was in every way a rout of the very ideals that sparked the Republican Revolution in the first place.

What was the result? The GOP lost a net three seats in the House, narrowing their majority to five seats. Exit polls showed that turnout among self-identified conservatives dropped 6% from 1994 to 1998. This may not sound like a lot, but consider this: Republican House candidates received a total of 32 million votes, and Democratic candidates received 31 million votes—a difference of about 2%. In a race that close, Republicans needed all the help that could be mustered from self-identified conservatives. But those voters were clearly peeved that Republicans had lost their fiscal backbone and decided to stay home on Election Day.

Whether 2006 will be a replay of 1998 or even 1994 will at least partly depend on whether Republicans can dispel their reputations as big spenders. 

The Devil in Massachusetts

Betsy McCaughey digs into some of the details on the effects on business of Massachusetts’ brave, new health insurance experiment:

Say, for example, you open a restaurant and don’t provide health coverage. If the chef’s spouse or child is rushed to the hospital and can’t pay because they don’t have insurance, you – the employer – are responsible for up to 100% of the cost of that medical care. There is no cap on your obligation. Once the costs reach $50,000, the state will start billing you and fine you $5,000 a week for every week you are late in filling out the paperwork on your uncovered employees (Section 44). These provisions are onerous enough to motivate the owners of small businesses to limit their full-time workforce to 10 people, or even to lay employees off.

What else is surprising about this new law? Union shops are exempt (Section 32).

Of course, in states like Maryland (where I live), the possibility of killing off jobs in small businesses would hardly deter the passage of similar laws.  As far as politicians here are concerned, undermining the private economy is not a legislative bug.  It’s a feature.

Back from the Former USSR

I’ve just returned from a fascinating week in Russia and Ukraine. I was in Moscow last week to deliver some lectures regarding my book on globalization, Against the Dead Hand, which was recently translated into Russian. From there I traveled down to Kiev to improve Cato’s contacts with liberal (in the everywhere-but-America sense of that word) organizations there. 

My overwhelming impression from the visit: what a difference an oil boom makes! Now in the fifteenth year since the collapse of the Soviet Union, neither Russia nor Ukraine has had much success in making the transition from communism to a viable market economy (according to the latest Economic Freedom of the World report, Ukraine ranks 103rd in the world, with Russia trailing just behind at 115th). Despite this and many other similarities, there is one critical difference between the two countries: Russia has oil and gas, and Ukraine doesn’t.

As a result, Moscow fairly reeks of money these days – luxury retail outlets everywhere, the roads choked with Mercedes sedans, non-stop construction projects. On a plane flight I met an American whose job seems to be schmoozing the new Russian nomenklatura on behalf of American investors. Boy, did he have some stories to tell – like one about a group of bigwigs who recently paid a big-name Hollywood actor a half-million bucks just to fly to Russia and hang out with them for a few days. While I can’t vouch for the accuracy of that story (and therefore won’t give the actor’s name), the fact that it seemed entirely plausible tells you something about the amount of money sloshing around that town these days.

Kiev, meanwhile, is a charming, beautiful city – but poor. Just off Kreshchatik Street, the city’s main boulevard, are lovely old buildings in dismal, Soviet-era disrepair. And the only Western retail establishments I saw were McDonald’s, Reebok, and Benetton – not exactly catering to the glitterati.

For precisely this reason, I am much more optimistic about Ukraine’s propects for reform than I am about Russia’s. Seduced by all the easy money, Russia under Putin has decided for the time being that Jed Clampett beats Adam Smith as an economic role model. And with the abandonment of economic reform has come a nasty crackdown on political freedom. Ukraine, on the other hand, has no easy way out. And so, perhaps, its improving political climate (whatever one makes of the results of the recent parliamentary elections, at least they were free and fair) will create the space within which durable economic improvements can eventually be achieved.