Kathleen Sebelius Sticks American People With Higher Costs, Fewer Choices, and Lost Jobs

Congress passed the misnamed Patient Protection and Affordable Care Act four years ago.  It was a signal political achievement.  Alas, ObamaCare is proving to be a policy bust as Kathleen Sebelius leaves her job as Secretary of Health and Human Services. 

For instance, health insurance premiums are rising dramatically, especially for the young.  The federal government now mandates expensive “benefits” that many people do not need or desire.

Even more dramatic is the reverse Robin Hood redistribution from the generally lower-income young to the mostly wealthier old.  As I point out in my new Forbes online article:  “By requiring coverage irrespective of health status and limiting risk-based premium differentials ObamaCare shifted costs from gray-haired investment bankers to newbie sales associates.  Despite the administration’s faux shock at the huge premium increases for the young, the legislation is working precisely as intended.” 

Your Freedom Is Someone Else’s Hell

Yonah Freemark, a writer over at Atlantic Cities–which normally loves any transit boondoggle–somewhat sheepishly admits that light rail hasn’t lived up to all of its expectations. Despite its popularity among transit agencies seeking federal grants, light rail “neither rescued the center cities of their respective regions nor resulted in higher transit use.”

Not to worry, however; Atlantic Cities still hates automobiles, or at least individually owned automobiles. Another article by writer Robin Chase suggests that driverless cars will create a “world of hell” if people are allowed to own their own cars. Instead, driverless cars should be welcomed only if they are collectively owned and shared.

The hell that would result from individually owned driverless cars would happen because people would soon discover they could send their cars places without anyone in them. As Chase says, “If single-occupancy vehicles are the bane of our congested highways and cities right now, imagine the congestion when we pour in unfettered zero-occupancy vehicles.” Never mind the fact that driverless cars will greatly reduce congestion by tripling roadway capacities and avoid congestion by consulting on-line congestion reports.

Revisiting Central Clearing for Derivatives

The Dodd-Frank requirement that over-the-counter derivatives be centrally cleared is one of the (slightly) less controversial provisions of the Act, at least in spirit if perhaps not always in substance. But for a time, a few observers have worried - myself included - that concentrating derivatives clearing activities in one or two single-purpose entities may increase, rather than reduce, the risk to the broader economy posed by the default of a counterparty.

As it turns out, we skeptics are not alone. In yesterday’s Wall Street Journal, the good folks at BlackRock are cited as having raised concerns in a recent study about the lack of clarity regarding where the risk ultimately falls in the event of default by a large counterparty. Banks and investors want the clearinghouses themselves to backstop some of this risk. The BlackRock study notes that “post-crisis rules have forced a large swath of risky trades… and this risk needs to be addressed.”

It is perhaps, therefore, a good time to hark back to Craig Pirrong’s Cato Policy Analysis from 2010, released on the day the Act was signed into law. In it, Mr. Pirrong argues that central clearing leads to better and more efficient risk pricing ONLY if the clearinghouse has perfect information. He notes the risk sharing that occurs through the clearinghouse mechanism encourages excessive risk taking, which creates moral hazard. Pirrong also highlights that “if the clearinghouse has imprecise information, the margin levels it chooses will sometimes overly constrain the trading of its members and sometimes constrain them too little…all of these factors mean that it is costly for the clearinghouse to control moral hazard.” As Pirrong notes, a clearing mandate reduces market efficiency and poses “its own systemic risks in a world where information is costly.”

One of the major criticisms of the previous or “bilateral” approach to derivatives clearing was that banks and investors could not adequately monitor their own risk exposure to counterparties (with some side complaints about banks mispricing risk etc.). However, as the BlackRock study notes, it is not clear that the central clearing approach addresses this concern, especially since the rules governing outcomes in the event of a major default have yet to be finalized. In particular, if a major counterparty defaults and the clearinghouse is not holding sufficient collateral to cover that counterparty’s trades, who loses out? Is it the members? The Federal Reserve? (Remember, one of the Board’s first actions under Dodd-Frank was to allow clearinghouses to borrow at the discount window in the same way that commercial banks do). Will the clearinghouse perhaps declare bankruptcy (and, if so, what impact will the failure of a major utility have on operational stability)?

More importantly, just when counterparties have realized these products must be treated with caution, the system is incentivizing the market participants with the best information (the members) to pool and therefore increase the riskiness of their activities. Derivatives are an important economic tool and vital to most companies’ (financial or otherwise) risk management. But we should not assume that the framework created by Dodd-Frank will eliminate risk in the derivatives trade, real or perceived.

Migrating for Marijuana

From the Washington Post:

For the parents of children with intractable epilepsy, the stream of constant seizures, emergency-room visits and powerful medications can become a demoralizing blur. Beth Collins of Fairfax County said her teenage daughter suffered as many as 300 epileptic seizures per day.

“There were days when I just laid in bed with her and prayed,” Collins said, “and watched her because I wasn’t sure what would happen.”

Now, the seizures have all but stopped. Each day, Collins gives her daughter Jennifer a dose of medical marijuana oil from a syringe, as any parent might administer liquid medicine to a child.

But Collins can’t offer the cannabis extract from her kitchen in Fairfax, where she raised Jennifer for 14 years. Instead, she does so in a small two-bedroom apartment in Colorado Springs….

“I feel a lot better,” Jennifer said of the treatment, which is scientifically untested. “I can focus more, I’m doing better on tests in school. My memory’s improved a lot.” Her seizures are “not completely gone,” but her mother said that “we’ve had days where I’ve seen very few, maybe one or two. That’s a major decrease.”

Another Virginia parent, Dara Lightle, says her daughter started having seizures at age 6.  Nothing seemed to work.  When doctors suggested removing part of her brain, Ms. Lightle put aside her earlier reservations about marijuana, and moved to Colorado.  Daughter is doing much better.  Instead of five seizures a day, she has had three seizures over the past 13 weeks.

Colorado and 19 other states have an medical exception to their laws banning marijuana.  There is no exception in the federal law.  To repeat, in the eyes of federal law, anyone who possesses marijuana is guilty of a crime.  One more snippet from the Post:

Officials with the FDA, the Drug Enforcement Administration, the National Institute on Drug Abuse, and the Office of National Drug Control Policy all declined to discuss the government’s position on marijuana oil or relaxing restrictions on marijuana for research purposes.

Hmm.  

More here.

The Washington Post Quietly Corrects Justice John Paul Stevens’s Grievous Error about Gun Laws

Last week, former Justice John Paul Stevens penned an op-ed for the Washington Post on “The Five Words that Can Fix the Second Amendment.” The piece is actually an excerpt from his new book Six Amendments: How and Why We Should Change the ConstitutionIn the book, Stevens suggests some changes that would ratify his view of cases in which he stridently dissented, such as Citizens United and Heller

Stevens’s dissent in Heller, the case in which a 5-4 Court held that the Second Amendment conveys an individual right to own guns even for those not part of a militia, is largely re-hashed in his Washington Post op-ed. In addition, there is, or was, a glaring error that the Post has since corrected sub rosa, that is, without acknowledging at the bottom that the piece was edited. As Josh Blackman originally reported, and thankfully preserved by excerpting, the first version contained this error:

Following the massacre of grammar-school children in Newtown, Conn., in December 2012, high-powered automatic weapons have been used to kill innocent victims in more senseless public incidents.

As Josh and others noted, not only were automatic weapons not used at any recent high-profile mass shooting, they’ve been essentially illegal in the U.S. since 1934 and since 1986 they’ve been almost impossible to come by. Justice Stevens also repeated his error a few paragraphs down: 

Thus, even as generously construed in Heller, the Second Amendment provides no obstacle to regulations prohibiting the ownership or use of the sorts of automatic weapons used in the tragic multiple killings in Virginia, Colorado and Arizona in recent years.

When you view the piece now, however, the words have magically disappeared. But they have not, apparently, disappeared from Justice Stevens’s book, which went to press with those errors. I don’t have a copy, but I checked by searching the inside of the book on Amazon for the word “automatic.” 

Why is this omission important? Well, for one it is part of a long series of mistaken statements by many gun-controllers, including President Obama, who made a similar statement in a speech last spring. More generally, the gun control crowd often shows a pronounced ignorance of how guns work and which guns are actually illegal, which certainly doesn’t help when they try to make their case for more strict controls. For just two famous examples, Rep. Carolyn McCarthy (D-NY) once described a barrel shroud as the “shoulder thing that goes up” (it’s not), and Rep. Diana Degette (D-CO) once remarked that after high-capacity magazines are emptied they would not be reusable (they are). 

It seems reasonable to conclude that, based on the prevalence of these errors by people who should know better, they don’t care too much whether their statements are accurate. To them, the fact that someone used a weapon to commit a mass shooting is enough to ban that weapon. Unfortunately for them, there is nothing about the weapons used in those atrocious crimes that meaningfully distinguishes them from weapons used every day by responsible, law-abiding Americans. The AR-15, for example, used by the shooter at Newtown, is the most popular rifle in the U.S. Ninety-nine point nine percent of the time it is used responsibly, including for self-defense. Ipso facto, it is not just for “spraying death.”  

A better argument can be made that actual automatic machine guns “spray death.” And if those are what Justice Stevens believes were used at Newtown, then that seems relevant to his position on guns. I imagine, however, that his views wouldn’t change if he understood the truth. At the very least, however, the Washington Post should make clear that the piece was edited. 

Close the Advanced Technology Vehicles Manufacturing Program

The Government Accountability Office’s annual duplication report is out. This year, the report highlights 30 ways that the federal government can save money. One way is to terminate the Advanced Technology Vehicles Manufacturing (ATVM) program, which provides government-subsidized loans to companies that make fuel-efficient cars. The program has been a failure, and it has cost taxpayers millions of dollars.

Established by the Energy Independence and Security Act of 2007, ATVM was authorized to provide a total of $25 billion in loans for projects that “support the production of fuel-efficient, advanced technology vehicles and components in the United States.” Companies that participated in the program could borrow funds directly from the government with very little out-of-pocket expenses—participants only had to pay some upfront borrowing costs. But Congress made the program even more lucrative in 2009 by provided $7.5 billion to help offset those borrowing costs.

The Department of Energy (DOE) has issued five ATVM loans totaling $8.4 billion so far—with an additional $3.3 billion in borrowing costs. In its promotional material for the program, DOE highlights three of the recipients: Ford Motor Company, Nissan North America, and Tesla Motors.

However, these DOE materials don’t mention loans to two other companies, Fisker Automotive and Vehicle Production Group (VPG). I think I know why: taxpayers lost almost $200 million on those two loans.

Fisker Automotive borrowed $529 million from the federal government to produce its luxury car, Karma. The loan was touted by the administration, including by Vice President Biden. Biden said “the story of Fisker is a story of ingenuity of an American company, a commitment to innovation by the U.S. government and the perseverance of the American auto industry.”

The car was a flop from the beginning. It was recalled, and it received poor performance ratings. Fisker lost an estimated $35,000 on each vehicle sold. A year after issuing the loan, DOE halted Fisker’s borrowing authority after the company had already borrowed $192 million. Fisker filed for bankruptcy shortly thereafter. Only $50 million of the $192 million has been recovered for taxpayers.

Vehicle Production Group had financial and production problems as well. In addition, its loan was questioned due to the political connection between its adviser and the White House. The adviser was a fundraiser for the White House and “headed Obama’s vice presidential selection committee in 2008.” The company quietly folded costing taxpayers the full $50 million loan.

The taxpayer losses from Fisker and VPG were in addition to the losses from other federal energy loans to companies such as Solyndra and Abound Solar. After all the bad press from these failed energy subsidies, demand for the loans dried up. According to a March 2013 report from GAO, DOE was no longer considering applications for the remaining $16.6 billion in loan authority and $4.2 billion in borrowing cost subsidies. Auto companies told GAO that the “costs of participating outweigh the benefits.”

However, Congress still has not rescinded ATVM’s loan authority. DOE could start reissuing loans under the failed program at any point, and it is re-launching its promotional efforts. Closing the program would not only save taxpayers money, it would reduce government interventions in the energy and automobile markets. For reformers in Congress, this change should be a no-brainer.

Government Keeps Growing

Political scientist Matt Grossmann discussed the results of his research on federal government growth in the Washington Post last week.

I combed through hundreds of history books covering American public policy since 1945, tracking the most significant domestic policy changes that made it into law and the actors that historians credit for those changes. Of the 509 most significant domestic policies passed by Congress, only one in five were conservative, in that they contracted the scope of government funding, regulation or responsibility. More than 60 percent were liberal: They clearly expanded government. The others offered a mix of liberal or conservative components or took no clear ideological direction.

Grossman mentioned one of the structural reasons why this has happened:

Liberal policies are self-reinforcing because they create beneficiaries who act as constituencies for their continuation and expansion. Policy debates center on what additional actions government should take, not whether to discontinue existing roles.

Grossman is essentially saying that not only has the size of the federal government expanded, but so has the scope. The problem is not just that programs such as Medicare keep growing, but also that Congress keeps adding new programs.

The following chart shows an official count of the number of federal benefit, subsidy, and aid programs—Medicare, farm subsidies, food stamps, and more than 2,000 others. The source is the CFDA website for recent years and hard copy CFDA catalogs for the older years.