Is the Faculty of Harvard University Irrational?

As an irony junkie, this New York Times article on the outrage among Harvard’s faculty that they should face greater cost-sharing in their health benefits – and the incredulity of Harvard’s health economists at their colleagues’ reactions – is one of the most wonderful things I have read in the course of my career. And it reminded me of another Ivy League health economist: Princeton health economist Uwe Reinhardt.

It has long been one of Reinhardt’s hobby horses that “the American public’s idea of ‘common sense’ in health care” is fundamentally irrational:

To be responsive, then, to the “simple common sense” of the American people, any proposed health reform must not reduce the revenue of hospitals, lest some neighborhood hospital may have to close; or of doctors, lest some doctors might refuse to see patients; or of the manufacturers of health products, lest they are unable to innovate; or of anyone on the supply side of the health sector, lest they go out of business and have to lay off employees.

At the same time, the “simple common sense” of the American people dictates that any health reform that fails to bend down the growth curve of future health spending — the current jargon for controlling health spending better — is unacceptable, too.

At the time Reinhardt penned this particular expression of his exasperation (July 2009), I noted that the irrationality he decries is a direct result of policies he and other left-leaning health reformers have enacted into law:

The [explanation] is actually pretty simple: government has given us a health sector where everyone is spending someone else’s money.  In such an economy, individuals can make irrational demands (cut spending — but don’t reduce my access to care!) because they don’t bear the cost of their irrationality.

Emphasis added. People who pay for their own consumption don’t have the luxury of being able to pretend that tradeoffs don’t exist. Walk into a BMW dealership and announce, “I want a 7-series at Hyundai prices!”, and the dealer will laugh at you. When Medicare enrollees do the same thing – Keep Your Government Hands Off My Medicare! – the people who run Medicare praise and court them.

The seeds of such irrationality can also be seen in the case of Harvard University or any other employer-sponsored health plan, where the federal government imposes stiff tax penalties on anyone who does not (1) surrender $5,000 or $11,000 of their income to their employer and (2) let their employer use that money to select their health plan. Since this goverment policy means that workers don’t control that portion of their compensation, and don’t perceive the direct and negative relationship that employer-provided health insurance has on their wages (partly because they can’t get that money back by declining health benefits), workers end up demanding mutually incompatible things: comprehensive health-insurance coverage that doesn’t cost them anything. If that seems irrational, it is because, as I put it in that 2009 blog post, “Socialized Medicine Socializes the Cost of Irrationality, Too.”

Now that the Smartest People In The Universe – the faculty at Harvard University, naturally – are displaying the same behavior as the supposedly irrational American public, would Reinhardt still describe that behavior as irrational? Or is it Reinhardt and like-minded health economists who are irrational for expecting the lab mice to behave some other way? 

Foreign Policy Lessons for 2015 and Beyond

A new year offers a fresh start, an opportunity to reminisce about the year past, and to set goals for the future.

2014 was a busy year. Vladimir Putin hosted the world at Sochi, then reacted to a popular revolt in Ukraine by supporting a counter-revolution and annexing Crimea. Other civil wars raged in Libya and Syria, while Egypt’s military quashed any remaining semblance of democracy that had survived from the 2011 protests. The not-destroyed insurgency returned to Iraq with gusto, fueled by American weapons left behind by an Iraqi army unwilling to fight. And the United States continued its habit of conducting numerous tactical operations abroad without any overarching strategy.

The news wasn’t all bad: Germany and the world celebrated the 25th anniversary of the fall of the Berlin Wall; President Obama proposed normalizing relations with Cuba; and NATO operations in Afghanistan have (kind of) ended.

The lessons from these episodes suggest some useful resolutions for U.S. policymakers:

Interpreting the New Deportation Statistics

Shortly before Christmas the Department of Homeland Security (DHS) released a report detailing deportations (henceforth “removals”) conducted by Immigration and Customs Enforcement (ICE) during fiscal year 2014.  Below I present the data on removals in historical context – combined with information from the Migration Policy Institute and Pew.  See my previous writing on this topic here and here.       

ICE deported 102,224 unauthorized immigrants from the interior of the United States in 2014, down from a peak of 188,422 in 2011.  Removals from the interior are distinct from removals of recent border crossers.  Removals from the interior peaked during the Obama administration and have since fallen to a level equal to that of 2007. 

Source: MPI and DHS.

The number of interior removals under the last six years of the Bush administration (the first two years is unavailable so far) was about 475,000.  From 2009-2014, the Obama administration has removed about 950,000 from the interior of the United States.  

President Bush’s administration removed an average of about 276,000 unauthorized immigrants per year for the years available and an average of 79,000 of them annually were interior removals.  President Obama’s administration has removed an average of 405,000 unauthorized immigrants a year, an average of 158,000 of them annually were interior removals.  There were a large numbers of unknowns during the Bush administration that decreased as the years progressed. 

 

Source: MPI and DHS.

The Obama administration’s decrease in the number of interior removals is not the whole story.  The best way to measure the intensity of immigration enforcement is to look at the percentage of the unauthorized immigrant population removed in each year.  Based on estimates of the total size of the unauthorized immigrant population, 0.89 percent of that population was removed from the interior of the United States in 2014 – down from 1.15 percent in 2013. 

 

Source: MPI, Department of Homeland Security, Pew, Author’s Calculations. 

For every year for which data was available, the Bush administration removed an average of 0.7 percent of the interior unauthorized immigrant population.  President Obama’s administration has removed an average of 1.39 percent of the interior unauthorized immigrant population every year of his presidency – about twice the rate as under the Bush administration.  Even when focusing on interior removals, President Obama is still out-deporting President Bush based on the data available.

The unauthorized immigrant population increased under the Bush administration from 9.4 million in 2001 to a peak of 12.2 million in 2007 and then declined to 11.7 million in 2008.  During Obama’s administration, the number of unauthorized immigrants has, so far, stayed at or below 11.5 million.    

Obama’s interior removal statistics show a downward trend beginning in 2012 through to 2014.  The Obama administration has also focused immigration enforcement on criminal offenders (not all unlawful immigrants are criminals) but the data is a little difficult to disentangle for 2014 so I left it out of this blog post – stay tuned for a future one on that topic. 

The Obama administration has clearly not gutted interior immigration enforcement as their 2014 figures for interior removals are higher than they were for every year of the Bush administration except for 2007 and 2008.  

How to Design an Education Savings Account

State legislatures across the nation are considering an innovative new education reform: education savings accounts. Hailed as “School Choice 2.0,” ESAs empower parents to customize their child’s education beyond the school walls—a development that could substantially alter the way students are educated. There is “no reason to expect that the future market will have the shape or form that our present market has,” observed Nobel laureate economist Milton Friedman in a 2003 interview, “How do we know how education will develop? Why is it sensible for a child to get all his or her schooling in one brick building?”

Two states have already enacted ESA laws. In Arizona, parents of eligible students that opt out of their assigned district school can access 90% of what the state of Arizona would have spent on those students. The Arizona Department of Education deposits the funds directly into a privately managed bank account that parents can access through a restricted-use debit card. The parents can then spend the ESA funds on any qualifying education-related service or provider they choose. In the first year, eligibility was restricted to students with special needs. Since then, Arizona has expanded eligibility to include children in foster care, children of military personnel, and children assigned to low-performing district schools. Last year, Florida adopted a special-needs ESA law similar to Arizona’s except that it is privately managed.

Today, National Affairs published an essay I coauthored with Lindsey Burke of the Heritage Foundation. Our essay explores the administrative, regulatory, and constitutional issues that policymakers will have to address when designing an ESA law. Policymakers should consider crafting a privately managed and privately funded ESA law that offers tax credits in return for donations to scholarship organizations that manage the ESAs. Florida’s privately managed model is already proving to be more operationally efficient and effective than Arizona’s government-run model. A privately managed ESA would be less susceptible to capture by hostile parties than a government agency, more likely to generate and retain best practices, and more likely to have the ability and incentives to be responsive to the needs of families. Privately funded ESAs also have several advantages over government-funded ESA laws. In particular, they are more likely to pass constitutional muster in states with restrictive “Blaine amendments” and less likely to include burdensome regulations that undermine the effectiveness of the program.

We conclude:

Most school choice programs offer significant but not revolutionary changes to the traditional educational model. But true educational choice, and the educational market it could help foster, promise to radically improve education for many children. As Milton Friedman observed, “not all ‘schooling’ is ‘education’ and not all ‘education’ is ‘schooling.’” Charter schools and voucher programs still conflate the two, but education savings accounts embody a more expansive understanding of education.

ESAs offer several key advantages over traditional school choice programs. Because families can spend ESA funds at multiple providers and can save unspent funds for later, ESAs incentivize families to economize and maximize the value of each dollar spent in a manner similar to spending their own money. ESAs also create incentives for education providers to unbundle services and products to better meet students’ individual learning needs. […] These laws hold great potential to expand educational opportunity and remake the entire education system in ways that better and more efficiently meet the needs of children.

You Ought to Have A Look: Examples of Real-world Realities vs. Naïve Thinking

You Ought to Have a Look is a feature from the Center for the Study of Science posted by Patrick J. Michaels and Paul C. (“Chip”) Knappenberger. While this section will feature all of the areas of interest that we are emphasizing, the prominence of the climate issue is driving a tremendous amount of web traffic. Here we post a few of the best in recent days, along with our color commentary.

In his article “Hot Stuff, Cold Logic” from the January/February 2015 issue of The American Interest, University of Sussex professor of economics Richard Tol takes us through the logical fallacies used to support arguments for aggressive regulation of greenhouse gas emissions from fossil fuel use in the name of mitigating climate change. These range from “if there is a human impact, it must be regulated,” to “future catastrophe awaits.” Tol effectively debunks these claims with historical examples.

Here is a taste:

Just as there is no logical or scientific basis for thinking that climate change is new, there is no self-evident reason to assume that the climate of the past is “better” than the climate of the future. With just as little logic, we might assume that women’s rights, health care, or education were necessarily better in the past. Any such judgment also contradicts Hume’s Law and, perhaps worse, is grounded in a fallacious appeal to nature understood in a very slanted wy. There is no prima facie reason to assume that any given past climate was better than the prospective one. The climate of the 21st century may well be unprecedented in the history of human civilization; the number of people living in countries with free and fair elections is unprecedented, too. So what? “Unprecedented” is not a synonym for “bad.”

Scientist/political scientist Roger Pielke Jr. recently announced that Tol’s article topped his list of the Top 5 Climate Essays of 2014. If Tol’s name seems familiar, recall that back in 2013 he made headlines by withdrawing from the United Nation’s Intergovernmental Panel on Climate Change (IPCC), deriding their irrational negativity. Tol frequently points out (and does so in this essay), that the costs incurred by moderate climate change are equivalent to (or perhaps even less than) the costs associated with trying to mitigate it—a point of view that the IPCC and many others do not want to admit.

While we may not agree with everything in Tol’s most recent analysis, there is a lot of good stuff in the article and you ought to have a look to see why he believes that “politically correct climate change orthodoxy has completely destroyed our ability to think rationally about the environment.”

Along the same lines—that overly simplistic logic leads to incorrect conclusions—is a piece by Georgetown University’s Arik Levinson for the National Bureau of Economic Research. In his study “How Much Energy Do Building Energy Codes Really Save? Evidence from California,” Levinson describes the results of his look into the effect of efficiency standards on residential energy usage.

Food and Cancer—A Complicated Relationship

Cancer, we are told, lurks everywhere: popcorn, non-organic fruit, canned tomatoes, processed meats, farm-raised salmon, potato chips, foods (salted, pickled, and smoked), GMOs (of course), candy, artificial sweeteners, diet soda, alcohol, red meat; even white flour can kill you.

Enough already!

In fact, a recent study by researchers at the Johns Hopkins University School of Medicine contends that most occurrences of cancers are simply a result of bad luck. To wit, “Plain old bad luck plays a major role in determining who gets cancer and who does not, according to researchers who found that two-thirds of cancer incidence of various types can be blamed on random mutations and not heredity or risky habits like smoking.”

So, why do we obsess about what we eat and drink? Why do we see death lurking in every sip of coffee and every piece of bacon (the latter surely being the best proof yet that God truly loves us)?

Well, maybe it is due to evolution. For most of our existence on this blue dot hurtling through the universe, skepticism was perfectly warranted. Sometimes a delicious-looking berry was just a berry, and sometimes it made your stomach explode. (I exaggerate, but only a little.)

(As a side note, in some places skepticism about food and drink continues to be appropriate. Those who spend sleepless nights worrying about big, faceless corporations infusing us with poison may find it illuminating that in Zimbabwe it is generally safer to drink a can of Diet Coke than a glass of tap water.)  

Interestingly, obsession about the purity of food and drink seems to be much more prevalent among one sub-group of our species (and, according to MSNBC, the most highly evolved). I am, of course, talking about Homo Progressivensis.

Industrial Policy Courtesy of the Cromnibus…Because No More Inferior Potassium

Though a monument to the ravages of Soviet central planning, the barren Magnitogorsk steel works complex still inspires America’s industrial policy proponents.  “Failure to plan is a plan for failure,” said comrade Rep. Dan Lipinski (D-IL), as he described the “pro-manufacturing” legislation he helped slip into the mammoth Cromnibus bill, which became law this month.

The Revitalize American Manufacturing and Innovation Act directs the Secretary of Commerce to establish a “Network for Manufacturing Innovation” to:

  • improve the competitiveness of U.S. manufacturing and increase production of goods manufactured predominately within the United States;
  • stimulate U.S. leadership in advanced manufacturing research, innovation, and technology;
  • accelerate the development of an advanced manufacturing workforce; and
  • create and preserve jobs

Of course, the verbs “revitalize,” “improve,” “stimulate,” “accelerate,” “create,” and “preserve” are euphemisms for protect, subsidize, regulate, and intervene.