A Health Fed?

Lots of people, on both the Left and the Right, want government to plan economic activity.  Honest central planners recognize that highly concentrated and well-organized groups of producers and consumers typically hijack the plan’s new taxes, subsidies, and regulations.  The central planners are typically horrified to see what their carefully laid plans look like after being put through the political grinder.

Clever central planners look for ways to protect their plans from the influence of their fellow citizens.  For example, some planners seek to restrict their fellow citizens’ right to petition the government for a redress of grievances.  (I have often remarked that if you can’t implement your plans without taking away someone else’s First Amendment rights, maybe you should rethink your plans.)

Other central planners seek to create special government bodies to execute their plans.  These bodies would have the power to tax, spend, and regulate, but their decisions could only be overturned by the people’s representatives with great difficulty.  Indeed, the very purpose of these bodies is to allow the planners to govern their fellow citizens without having to worry so much about the consent of the governed. 

Certain health care reformers have set about this path.  Across the political spectrum, observers acknowledge that government wields enormous power over America’s health care sector, and that those powers are often co-opted to serve private ends.  For example, former Senate Majority Leader Tom Daschle (D-SD) recently remarked:

Congress is just not capable of being the manager of a health care system and yet it’s largely Congress today that has that responsibility. It hasn’t worked for the last 50 years. It’ll work even less in the next 50.

As a result, Daschle and others propose that Congress create a “federal health board” to manage the health care sector.  The Federal Health Board would do things like require you to purchase health insurance, dictate what kind of health insurance you will purchase, set the prices for health insurance and medical goods and services, etc..  In other words, the Federal Health Board would have the power to bankrupt corporations, to force doctors to change the way they do business, to deny medical care to patients, and to shift massive amounts of resources from one part of the country to another.  The problem is, some corporations, doctors, patients, and regional interests would try to block parts of The Plan, either on their own or through their representatives in Congress.

Since it would be so hard for the Federal Health Board to do its job with all that meddling by the governed, Daschle et alia want to insulate the Board from the political process.  Specifically, they want Congress to model a new Federal Health Board on the existing Federal Reserve Board.  That would enable the “health Fed” to focus on the public good, much like the Federal Reserve Board manages the money supply and guides interest rates without any of the unseemly pandering to special interests that goes on in Congress and other government bodies.  Because that’s how the Fed operates, right?

Maybe not.  Economist Allan H. Meltzer of Carnegie-Mellon University has read the transcripts of every meeting of the Fed’s Open Market Committee going back to 1913, and has written a two-volume history of the Federal Reserve.  Interviewed recently for one of Russ Roberts’ excellent EconTalk podcasts, Meltzer dismissed the idea that the Federal Reserve is immune from political pressures:

We talk about an independent Federal Reserve, but in reading and writing the history of the Federal Reserve, there are very few occasions since the 1930s when the Fed actually practiced independence.  There was the [Paul] Volcker era; he was certainly an independent central bank governor.  But [current Fed chairman Ben] Bernanke is anything but an independent central bank governor.  He is being leaned on by the Congress, and he accedes to them.  So even though he may worry about inflation … he’s … trying to respond to the short-term pressures instead of thinking ahead and thinking longer-term …

That brings him to the interest rate, because that’s the thing that people in the market see.  The Wall Street people …  put him under great pressure because they own a lot of bonds and mortgages.  And they believe that if he lowers the federal funds rate, it will lower the price of their mortgages and bonds, and they will have smaller losses.  And so they are on his back all the time to do more, to cut the interest rate that he controls, hoping that the rates that they see and own will go down, and their … losses will become smaller …

In reading the minutes of the Fed and watching what they do, the Fed has always been very much afraid of Congress.  And it took someone with the stamina and arrogance, in a way, of Volcker to be able to get around that … By the summer of 1982, [Congress was] facing an election and they were on his back to ease up … He wouldn’t admit that he was [easing up], but he did …

The idea of having a really independent agency in Washington, that’s just not going to happen … The Federal Reserve derives its power from Congress … The Fed’s power is delegated, and they are very much aware that Congress could always change that … [The Fed] manages to hang on to some measure or vestige of independence, but it is very much concerned – always – about what the Congress is doing, and doesn’t want to deviate very far from that.

What can’t come through in a transcription is that Meltzer chuckled at “the idea of having a really independent agency in Washington.”

So if the central planners seek to insulate their health care reforms from the political process, modeling a new health planning board on the Fed won’t achieve that goal.  That’s probably a good thing.  Power with accountability is dangerous enough.  Power without accountability is truly frightening. 

An important advantage of free-market health care reforms is that they provide accountability without allowing anyone to consolidate much power at all.  That seems a much happier state of affairs.

Who’s Un-American?

Kevin Carey over at The Quick and the Ed has been in a bit of a spat with Andrew Coulson about education tax credits and school choice, and Andrew has been doing just fine dealing with Carey’s substantive arguments. I just want to quickly hit one of his non-substantive attacks, an all-too-typical smear against people who dare question delivering education through government schools: Preferring a system of private provision of education is “un-American.”

That is utter, utter bunk, and the history of American education makes this abundantly clear. I’m on the road right now on borrowed computer battery time so I offer only one tiny timeline to illustrate this. There are lots of good histories, though, that Carey and others can–and should–read for more in-depth discussion. Anyway, the tiny timeline: The U.S. Constitution was ratified in 1789. Horace Mann began his common schools crusade in 1837. That means that the nation was founded almost five decades before the basic seed of the modern, government-dominated, public-school system was planted. And, of course, the basic building block of the nation wasn’t government schooling, but quite the opposite: individual liberty. The Declaration of Independence–written more than six decades before Mann went to work–explains that.

So what seems “un-American” now?

WSJ: Medicaid Ripe for Welfare-Style Reforms

Medicaid is a large government program that provides medical care and nursing home services to millions of needy Americans.  And probably to millions of non-needy Americans as well.  Each state runs its own separate Medicaid program.  About half the funding comes from the states and half comes from Congress – which means that neither really owns the program, and explains why Medicaid is rife with waste and fraud.

Earlier this week, a Wall Street Journal editorial explained how one variety of Medicaid fraud works:

The swindle works like this: A state overpays state-run health-care providers, such as county hospitals or nursing homes, for Medicaid benefits far in excess of its typical rates. Then the federal government reimburses the state for “half” of the inflated bills. Once the state bags the extra matching funds, the hospital is required to rebate the extra money it received at the scam’s outset. Cash thus makes a round trip from states to providers and back to the states – all to dupe Washington…

The right word for this is fraud. A corporation caught in this kind of self-dealing – faking payments to extract billions, then laundering the money – would be indicted. In fact, a new industry of contingency-fee consultants has sprung up to help states find and exploit the “ambiguities” in Medicaid’s regulatory wasteland.

The Journal argues that the only way to rid Medicaid of such fraud is to reform the program as Congress reformed welfare back in 1996:

A reform alternative would be for the government to distribute block grants, rather than a set fee for every Medicaid service. That would amputate Washington from state accounting and insulate taxpayers from these shakedowns. States would have an incentive to spend more responsibly, and also craft innovative policies without Beltway micromanagement. 

I’ve advocated block grants here, here, and here.  Good to see the Journal grasps something that Republicans apparently cannot.

Why Is The ACLU Joining Media Ownership Hysteria?

Cato has long had a strong relationship with the ACLU, an organization that has been on the forefront of efforts to protect civil liberties and constitutional government. But every once in a while, the venerable public interest organization wanders off the reservation and takes a position that’s unrelated to—if not outright at odds with—civil liberties. We saw a good example of this last week when the group threw its weight behind efforts to repeal the FCC’s absurdly timid deregulation of media ownership rules.

The proposal would allow a newspaper in one of the 20 largest cities to purchase a TV or radio station—but not one of the metro area’s four largest TV stations.  None of the FCC’s other media ownership rules would be changed. In other words, a newspaper would be allowed to buy an also-ran TV station in a cacophonous media market like New York or LA, but the vast majority of cities would see no changes at all.

Yet even that is too much for the ACLU, which issued a press release condemning the changes and urging Congress to roll them back. Unfortunately, the ACLU doesn’t appear to have done its homework, claiming that “Six major companies control most of the media in the country, including the most popular sites on the Internet.” Over at Techdirt, I point out how silly this is:

There’s just no way you can argue that these six companies own “the most popular sites on the Internet.” According to Alexa, most of the top 10 sites are owned by Google, Yahoo, and Microsoft, all independent companies. Only MySpace, recently acquired by News Corp., is in the top 10. But maybe she meant the top 10 media companies? Well, a good source for the sites most discussed in the blogosphere is the Memeorandum Leaderboard. Three of the top 10 are controlled by the “Big Six”: CNN at #3, the Wall Street Journal at #9 and MSNBC at #10. Four others – the Associated Press, New York Times, the Washington Post, and the Atlantic, – are mainstream media outlets not controlled by the “Big Six.” The final three slots are held by the Huffington Post and the Politico (twice), pure Internet publications not owned by the “Big Six.”

Indeed, the whole idea that “six major companies” are gaining monopolistic control over the media marketplace doesn’t make sense. There are, in fact, a ton of independent media companies. In addition to the New York Times and Washington Post companies, there are other big, independent newspaper chains like the Tribune Company (owner of the LA Times and Chicago Tribune) and Gannett (owner of USA Today and numerous other papers). There are foreign outlets like the BBC and the Guardian. There are magazine publishers like Conde Nast, book publishers like Pearson, and music publishers like EMI. The “Big Six” own a lot of media outlets, to be sure, but it’s a big world, and there is no shortage of prominent media outlets that aren’t controlled by these major players. And as media critic Ben Compaine has documented, the media marketplace has barely gotten more concentrated at all in the last couple of decades. For example, between the mid-1980s and the late 1990s, the market share of the top ten media companies increased from 38 percent to just 41 percent. More importantly, there’s been a lot of turnover. The list of top media companies in 1988 would look very different from today’s top ten list. In short, there’s no real problem here.

The ACLU is a key ally in the fight to hold the Bush administration accountable for trampling civil liberties and the rule of law. Given the enormity of that fight, it’s troubling to see them divert scarce resources away from civil liberties—supposedly their raison d’être—to advocate more government regulation of private media outlets.

E-Verify Debunking Exposes Debunking Errors

Congratulations are due once again to the Department of Homeland Security for engaging in open dialogue about its programs, even controversial ones like “E-Verify” – a system that Congress may require all U.S. employers to use for running federal background checks on every single new employee.

Openness is healthy, and the comments to a recent post on E-Verify by my old friend DHS Assistant Secretary for Policy Stewart Baker are poking some holes in his somewhat facile analysis. I’ll weigh in with a little more, based mostly on my recent paper “Electronic Employment Eligibility Verification: Franz Kafka’s Solution to Illegal Immigration.”

Baker says that critics claim the error rate in E-Verify is as high as 4% and will lead to millions of Americans losing their jobs by mistake. To refute this, he points to a study commissioned by the Department of Homeland Security showing that 94.2% of new hires in a sample of 1,000 E-Verify queries were automatically verified, 0.5% resolved a mismatch, and 5.3% received a final nonconfirmation (that is, they either didn’t try or couldn’t challenge the finding that they were ineligible for employment under U.S. immigration law).

Unfortunately, Baker doesn’t point to the actual study. He just links to a picture of a conclusion from it, so we can’t do much to analyze these figures. If these are the results from reviewing only 1,000 new hires by current E-Verify users, that is far too small a sample and too skewed a group to reflect what would happen were the program taken national.

And he concludes: “Of the thousand, 942 are instantly verified. Instant verification of legal workers surely can’t be an error.” Of course it can! Any number of the 942 might have been illegal immigrants who submitted the name and Social Security Number of a legal worker to the employer.

But putting Baker’s glib, erroneous conclusion aside, I believe the 4% figure cited by critics is not about today’s small E-Verify program. It’s the error rate in the Social Security Administration’s Numident database found by the SSA’s own Inspector General (and it’s 4.1%!). Simple math suggests that this would produce a tentative nonconfirmation in 1 out of 25 new hires in the country were E-Verify to go national.

In fairness, that simple math may actually be simplistic – perhaps some cohorts have higher error rates and others lower. We know, for example, that naturalized citizens suffer error rates in the area of 10%. Perhaps older citizens that are leaving the workforce have higher error rates, leaving a lower error rate among current workers. And over time, the error rate would drop as workers were sent from their jobs to Social Security Administration offices trying to get their paperwork in order. (Put aside for now that the SSA takes more than 500 days to issue disability rulings.)

Baker’s conclusion that the 5.3% of workers finally nonconfirmed are illegal workers is without support. The statistic just as easily could show that the 5.3% of law-abiding American-citizen workers are given tentative nonconfirmations, and they find it impossible to get them resolved. More likely, some were dismissed by employers, never informed that there was a problem with E-Verify; some didn’t have the paperwork, the time, or the skills to navigate the bureaucracy; and some were illegal workers who went in search of work elsewhere, including under the table.

American workers pushed out of the workforce by E-Verify – Baker treats it as “common sense” that they’re illegal aliens, and he doesn’t look any further. The E-Verify program does the same - it has no system for contesting or appealing final nonconfirmations.

With his post, Secretary Baker has only raised the question of error rates in E-Verify. There are many sources of error in a system like this, and making it bigger would reveal more. Just because you have a glass coffee table, that doesn’t mean you can build a glass sundeck.

And we shouldn’t take our eye off the ball. “Mission creep” is a governmental law of gravity. Once in place, a national E-Verify system would be used to give the federal government direct regulatory control over law-abiding Americans. Federal authorities would use it to control not just work, but housing, financial services, and access to alcohol, tobacco, and firearms – for starters. Secretary Baker himself recently suggested using a national ID to control our access to cold medicine. The list of things his successors might do is endless.

Fannie Mae’s Rent-Seeking Empire Expands

Jeffrey Birnbaum, who covers lobbyists for the Washington Post, reports:

Lorraine A. Voles, until recently communications director for the congressional office of Sen. Hillary Rodham Clinton (D-N.Y.), has joined Fannie Mae as a senior vice president.The move is a reunion of sorts. Voles, who was communications director to Al Gore when he was vice president, worked previously at the public relations firm Porter Novelli. There, her boss was Charles V. Greener, who is now Voles’s boss at Fannie Mae.Greener had been the mortgage finance giant’s senior vice president in charge of communications and is now chief of staff to Fannie Mae chief executive Daniel H. Mudd. Voles is taking his old job. Before he joined Porter Novelli, Greener was a spokesman for the Republican National Committee.

That’s right: A former mouthpiece for Clinton and Gore is working quite happily for a former GOP spokesman – for a second time. Only in Washington.

One big happy family here in the Imperial City. Those who are paid to fight the red-blue wars, fight. Those who are paid to lobby both sides against the taxpayers, lobby. And as the McCain campaign is demonstrating, the most effective players can switch roles on a moment’s notice.

It’s relevant to note that Ms. Voles and Mr. Greener are now working for Fannie Mae, one of the most skilled rent-seekers in Washington and a pioneer in hiring top players from both parties. As a Cato study noted a few years ago, “The special governmental links that apply to Fannie Mae and Freddie Mac yield little that is socially beneficial, while creating significant potential social costs.” And as an earlier Cato study (by financial analyst Vern McKinley, now a candidate for Congress) noted, “Fannie Mae and Freddie Mac preserve their privileged status through a multi-million-dollar lobbying effort that includes massive ‘soft money’ campaign contributions and the payment of exorbitant salaries to politically connected executives and lobbyists.” Ten years later, that’s still the bottom line.