“A Real Regulator”

Sunday’s Meet the Press had a fascinating colloquy on securities regulation, revealing Washington’s immense capacity for self-deception.

David Gregory set up the story, on which CNBC’s Erin Burnett commented:

MR. GREGORY: … I want to stay in New York and something else that has rocked Wall Street beyond the economy, and that is Bernard Madoff. Big money man, investment man who was the darling of Wall Street for many, many years. Now it turns out he ran a giant Ponzi scheme and billions have been lost, from the small investor to, to Jewish organizations and, and philanthropies across the country. Steve Pearlstein, who writes about the economy for The Washington Post, wrote this: “With the Madoff story, it is now revealed that the masters of the universe aren’t just too clever by half—they’re not that clever at all. For years, they not only allowed themselves to be bamboozled by a con artist but also willingly and enthusiastically served as his market agent, offering friends, relatives and favorite charities the opportunity to invest with their good pal, Bernie Madoff. (So much for the idea that wealthy individuals and ‘sophisticated’ institutional investors don’t need the protection of government regulators.)” Was anybody watching?

MS. BURNETT: It, it is incredible, because there had been credible complaints brought to the SEC that said along the lines of, “This is too good to be true. You don’t get these sorts of consistent returns.”

MR. GREGORY: Mm-hmm.

MS. BURNETT: And they didn’t do anything about it. But they’re—you know, I was talking to Mort Zuckerman, the New York real estate man, earlier this week, and he had lost $30 million in one of his charities that was invested with Bernie Madoff. And he said, “I didn’t even know who the guy was. I had given my money to somebody else who actually”…


MS. BURNETT: …”entrusted the entire $30 million to one guy, a guy I’d never heard of, and then I get a letter finding out that it’s completely gone.” So you’re talking about some very sophisticated people who were completely duped, and maybe some of them should have been doing more due diligence. Some of them were trusting that role to others…


MS. BURNETT: …who had a fiduciary responsibility to do it. But there’s no question we need a real regulator.

“[W]e need a real regulator.”

Ms. Burnett, the SEC that failed to prevent this is a real regulator.

When regulators fail to address a problem ahead of time, when they regulate inefficiently, when they hand their rulemaking organs to the industries they are supposed to oversee, those are all the actions of real regulators. That’s what you get with real regulation.

What Burnett meant when she called for a “real” regulator, of course, was “the regulator I can imagine.” The regulators people imagine are foresighted, interested only in the public good, they’re resistant to lobbying, and they run efficient organizations. But these characteristics are simply imaginary.

Watching discussions like these, you come to realize how legislation and regulation thrive on self-deception and the appeal to ego.

Thousands of people come to Washington and stay because they believe that they can design the ideal regulatory system. They think they know how to write a law or a regulation that works for everyone, that protects consumers, that doesn’t pick winners and losers in the marketplace, that doesn’t make the glaring errors that we see month in and month out on Sunday morning political shows.

(If only voters didn’t elect the wrong guy. If only lobbyists didn’t ‘corrupt’ the system. If only, if only, if only … .)

Alas, we’re stuck with real regulators. They fail, and when people rely on them, the failures of regulation are magnified. (Not that Mort Zuckerman should get his money back from anyone other than Bernard Madoff. No bailout.)

Libertarians and pro-Washington people (for lack of a better term) have the same goals: honest, transparent marketplaces, productive economies, healthy and happy people. The difference is that Washingtonians strive to defeat human nature rather than harnessing it, and they build a bigger and bigger machine for doing that, sometimes calling it “real regulation.”

I’m So Poor I Can Barely Fire My Raku Pottery!

With L.A. school officials constantly complaining about funding shortfalls, the State of California seemingly in perpetual financial crisis, and federal lawmakers assuming that school districts have poor facilities due to lack of funds, this little number really makes you think: Does any district really need a $232 million art-school building equipped with, among other things, “floor-to-ceiling windows with motorized blackout shades….an outdoor atrium for firing Japanese raku pottery” and “a conical library whose dazzling interior swirls upward to an off-center skylight”? Probably not, and it really makes it hard to keep tolerating the incessant public-schooling complaints about woeful underfunding. Neither the broad data (see Indicator B1), nor such anecdotal evidence as the far-too-mundanely named Central High School No. 9, support the claim.

Kennedy on Jerusalem

Getting named New York’s junior senator apparently requires pandering to those who support Israel’s right wing.

From Nick Confessore’s written interview with Caroline Kennedy (and her staff) in the New York Times:

Q. Do you believe that an undivided Jerusalem must be the national capital of the State of Israel?
A. Yes, Caroline believes that an undivided Jerusalem must be the national capital of the State of Israel.

To Stimulate the Economy, Defeat Health Care Reform

The Church of Universal Coverage is telling us that national health insurance will stimulate economic growth.

  • Senate Finance Committee chairman Max Baucus (D-MT) says universal health insurance coverage is the key to a healthy economy.
  • MIT economist Jonathan Gruber says “health care reform is good for our economy.”
  • Business Week columnist Chris Farrell writes, “Universal coverage would stimulate the economy [and] boost the financial security of ordinary Americans.”

That seems to contradict their usual spiel — which happens to be correct — that America’s health care sector is wasteful and inefficient.  Americans spend twice the amount that other advanced nations spend on medical care, yet we’re not noticeably healthier.  Researchers estimate that one third of U.S. medical spending produces nothing at all — that’s about $700 billion wasted per year.  How is pumping more money into such an inefficient economic sector supposed to stimulate growth?

It also doesn’t seem to square with the facts. If anything, the economy appears to grow faster when Congress rejects universal coverage.

  • After Congress defeated President Harry Truman’s proposal for national health insurance in 1949, the nation enjoyed four years of robust economic growth.
  • The defeat of the Clinton Health Security Act in 1994 was followed by six years of robust economic growth.
  • The largest step Congress has taken toward universal coverage was when it launched Medicare and Medicaid in 1966.  Real economic growth averaged 5.7 percent in the four years prior to 1966, but only 2.7 percent in the four years that followed.

If history is any guide, politicians who want to stimulate the economy should be trying to defeat universal coverage.

Source: Bureau of Economic Analysis

The right kind of health care reform will reap economic dividends.  Letting consumers control their health care dollars and choose their own health plan will make us healthier and wealthier by encouraging innovation, eliminating wasteful spending, and making health care more affordable.  Nationalizing health insurance, on the other hand, will suppress innovation and encourage wasteful spending, as evidenced by Medicare, Medicaid, etc.

My favorite New Yorker cartoon shows a bar patron telling his compatriot, “I figure if I don’t have that third Martini, then the terrorists win.“  People will seize on a crisis to justify, well … anything.

Are You High Enough on Barack Obama’s List of Priorities?

Today’s The USA Today tells the story of “Phyllis Smith, a 60-year-old uninsured seamstress in Yantis, Texas, [who] goes without medications for high blood pressure and diabetes because she can’t afford a visit to her doctor to get her prescriptions refilled.”  The article quotes Smith:

With the condition this world is in right now, [Barack Obama] has his hands full…. Whether I get my high-blood-pressure medicine is not going to be high on his priority list.

Sort of argues against giving some distant ruler that much control over your life, doesn’t it?

And who knows?  Were those distant rulers not doing so much to make health insurance more expensive, perhaps Smith wouldn’t be uninsured.

Were they not doing so much to make routine care so expensive, perhaps Smith could afford that doctor’s visit, or have a nurse practitioner adjust her prescription.

Were they not doing so much to make prescription drugs more expensive, perhaps Smith could better afford her medications too.

Who Says Health Care Reform Is Likely?

After so many PG-13 stories about health care reform and a new administration that everybody’s really hoping makes it happen, the press is starting to write rated-R stories about the actual chances for comprehensive reform. Today, I was quoted in a couple of the R-rated stories.

Investor’s Business Daily reports on two Congressional Budget Office reports released yesterday.  Both were launched and largely completed under the tenure of then-CBO director Peter Orszag, who has since been tapped to direct President-elect Barack Obama’s Office of Management and Budget.

Before becoming Barack Obama’s budget chief, Peter Orszag gave his future boss an indirect warning Thursday that health care reform will be neither cheap nor easy.

“(The first report) shows that many of the things that Obama and Congressional Democrats think will save costs, such as preventive care and information technology, won’t really save much money,” said Michael Cannon, director of health policy studies at the libertarian Cato Institute. “It also shows that covering the uninsured will cost a lot of money.”

Better preventive care and health IT would save Medicare $850 million and $22 billion, respectively, over 10 years. Over that time, Medicare is expected to cost $6.7 trillion….

“If you read between the lines, he’s saying that health care reform will be a blood bath, not quick and easy,” said Cannon.

The USA Today reports:

[F]or significant change to occur, health care must stay a priority for his administration and for Congress. Special interest groups whose conflicts helped derail change in 1994 must come together.

There are signs that may happen. A coalition of conservative business groups, including the National Federation of Independent Business (NFIB), has teamed with a major labor union, the Service Employees International Union, and a left-leaning advocacy group, Families USA, to push for action in the first 100 days. Key groups, including hospitals, doctors and consumer advocates, are meeting with congressional staffers for leaders such as Sen. Edward Kennedy, D-Mass., a longtime champion of overhauling health care.

The health insurance industry — whose “Harry and Louise” ads helped turn public opinion against the last attempted overhaul — says it wants change….

“In the 26 years I’ve been involved with health care, I’ve never seen such interest and cooperation in trying to get to yes” on change, says Ron Pollack, head of Families USA, which supports expanding government programs to cover all Americans….

Others aren’t sure that will be enough. Health policy consultant Robert Laszewski, a former insurance industry executive, [says,] “There is no consensus in Congress or the country on what a comprehensive health care bill would look like…. Plus we don’t have the money.”

“They all want to be at the table because they don’t want to be on the menu,” Cannon says of the interest groups.  “Sooner or later, someone is going to be on the menu. You can’t do comprehensive reform without goring someone’s ox.”