The Fog Is Getting Thicker…

Over at Cato Unbound, Harold Meyerson argues that as employer-provided health benefits erode,

[c]ompanies that persist in offering such benefits are placed at a disadvantage when their competitors don’t. And consumers clearly can’t afford those benefits, either. As some recent surveys have made clear, precious few Americans can afford to buy medical insurance on their own or to utilize the Health Savings Accounts that the president is peddling.

Taking Meyerson’s points in reverse order:

  1. His comment that HSAs are unaffordable makes no sense.  Does he mean premiums?  HSAs are required to be coupled with high-deductible insurance, which has lower premiums than other types of insurance.  So the insurance component of HSAs is more affordable than … well, anything else.  Does he mean out-of-pocket expenses?  Sherry Glied and Dahlia Remler report that “the group responsible for half of all medical spending would see no change or a decline in cost sharing at the margin and on average” with HSAs.  That is, the people who need the most medical care would have less financial exposure with HSAs.  Soooo, Meyerson should like HSAs, right?
  2. Meyerson plays blame-the-victim with the individual health insurance market.  Meyerson writes that “precious few Americans can afford to buy medical insurance on their own,” as opposed to having their employer purchase coverage for them.  Let’s set aside that workers pay for the cost of those benefits through reduced wages.  The feds and state officials have wrecked the individual market by (A) diverting consumers to employer-sponsored insurance and Medicaid, and (B) driving customers out with costly regulations.  If Meyerson and I set up fruit stands on opposite sides of the street, and the government whacks people with a 2x4 whenever they tried to cross to Meyerson’s side, would he attribute his lack of business to, say, market failure?
  3. Meyerson fails to consider that the market may be sending him a message.  He complains that consumers cannot afford to purchase for themselves the benefits that employers had been purchasing for them.  Again setting aside that workers were paying for those benefits all along, might that mean that traditional employer-provided health benefits were unsustainable?  Perhaps that they were contributing to rising health care prices & premiums?

Nobel Winner Phelps on Dynamism, Enterpreneurship, and Justice

This year’s newly minted Nobel Prize winner in economics, Columbia University’s Edmund Phelps, has a wonderful essay on the difference between the American economic model and the various forms of European social democracy in today’s Wall Street Journal.

Phelps says the difference is the exceptional “dynamism” of the American free enterprise system:

[T]he free enterprise system is structured in such a way that it facilitates and stimulates dynamism while the Continental system impedes and discourages it.

Drawing on Hayek and Polanyi’s ideas about “personal knowledge” and entrepreneurship, Phelps explains how greater dynamism encourages a greater degree of innovation. Under capitalism, Phelps writes,

the financier and the entrepreneur do not need the approval of the state or of social partners. Nor are they accountable later on to such social bodies if the project goes badly, not even to the financier’s investors. So projects can be undertaken that would be too opaque and uncertain for the state or social partners to endorse.

Consequently, the U.S. has a remarkable record of innovation that much of the rest of the world, including the European social democracies, relies upon to maintain their own standards of living. This is a crucial point to hammer home when American statist liberals point to what they see as the success of the Western European institutions: the viability of European social democracy depends in part on the ability to, as Phelps puts it, “sail in the slipstream” of American innovation.

But the most fascinating part of Phelps’ essay is his attempt to justify capitalism in terms of John Rawls’ political philosophy. As one of a handful of classical liberals who think that Rawls identified something close to the correct method of political justification, I found Phelps’ appeal to Rawls darn interesting, even if he does slightly misinterpret him.

Like Rawls and Amartya Sen, Phelps denies that material resources alone are sufficient for well-being, and, again like Rawls and Sen, he leans heavily on the importance of self-realization through the exercise of our intellectual and creative capacities. Phelps notes that a higher degree of economic volatility is a pretty straightfoward consequence of a dynamic system in which enterpreneurs are free to shake things up without having to get buy-in from the state and all the veto-happy “stakeholders.” But if dynamism buys us higher productivity and higher incomes across the distribution, volatility will turn out to be a far cry from economic insecurity or precariousness. (Jacob Hacker, listen up.) And, Phelps thinks, more importantly, once we’ve passed a threshold of economic sufficiency, the concern for more profound matters such as self-realization becomes paramount. Capitalist dynamism offers greater opportunities for self-realization through challenge and the engagement of our higher capacities. And this is so not only for the enterpreneurs who are shaking things up, but for workers inside firms who are faced with the constant, stimulating challenge of creatively adjusting when things get shaken.

Instituting a high level of dynamism, so that the economy is fired by the new ideas of entrepreneurs, serves to transform the workplace–in the firms developing an innovation and also in the firms dealing with the innovations. The challenges that arise in developing a new idea and in gaining its acceptance in the marketplace provide the workforce with high levels of mental stimulation, problem-solving, employee-engagement and, thus, personal growth.

Now, Rawls’s standard for a just set of institutions is that it be the best feasible alternative in terms of the welfare of the “least advantaged.” In Rawls’s philosophy, advantage is understood in terms of “primary goods,” the necessary basic means to any meaningful and fulfilling human life. In addition to material goods, Rawls adds our moral rights, the availability of opportunites, and “the social bases of self-respect.” In justifying his theory, Rawls leans heavily on the the importance of “the Aristotelian Principle” that other things equal, we are better off if we engage our distinctively human capacities at a higher level. So it is not technically true that, as Phelps writes:

In the classic case to which Rawls devoted his attention, the lowest score is always that of workers with the lowest wage, whom he called the “least advantaged”…

The lowest score is always that of those who have the least primary goods, whatever those might be. But Phelps is right that most discussion of Rawls proceeds as if was talking about the distribution of money. So it turns out that Phelps’ self-realization-based argument for dynamically entrepreneurial capitalism is truer to Rawls than Phelps seems to think.

In an economy in which entrepreneurs are forbidden to pursue their self-realization, they have the bottom scores in self-realization–no matter if they take paying jobs instead–and that counts whether or not they were born the “least advantaged.” So even if their activities did come at the expense of the lowest-paid workers, Rawlsian justice in this extended sense requires that entrepreneurs be accorded enough opportunity to raise their self-realization score up to the level of the lowest-paid workers–and higher, of course, if workers are not damaged by support for entrepreneurship. In this case, too, then, the introduction of entrepreneurial dynamism serves to raise Rawls’s bottom scores.

If Ayn Rand and John Rawls had a love child, isn’t this what he’d say?

An Immigrant’s View

My friend Constantino Diaz-Duran, an immigrant from Guatemala and now a student at Columbia University, offers his views in the Columbia Spectator on the shameful violent shutdown of the “Minuteman forum” at Columbia, and on the benefits to the nation of immigrants, as well as the dangers of welcoming immigrants into the welfare state, rather than productive work.  Constantino has written for Cato’s Spanish-language website,, and was involved in the production of Cato’s bilingual English-Spanish edition of the American Declaration of Independence and the Constitution of the United States.


Kaiser Flubs HSAs

A new report on health savings accounts (HSAs), published by the Kaiser Commission on Medicaid and the Uninsured, is wrong or misleading in nearly every particular.  In essence, the report claims that HSAs are not good for poor people, when in fact all it shows is that poverty is not good for poor people.

I briefly considered doing a point-by-point response.  But then I remembered that I had already done so, in a paper titled “Health Savings Accounts: Do the Critics Have a Point?”, released five months ago.

WSJ Weighs in Against ‘REAL Bad ID’

This morning’s Wall Street Journal opinion page blasts Republicans for passing the REAL ID Act.  [subscription required] 

Keyed to a recent report showing the costs of compliance at $11 billion, the piece notes that all Americans will have to reapply for their drivers’ licenses and ID cards if states go along with this unfunded federal surveillance mandate.  It also addresses whether a national ID protects against terrorism or provides effective immigration control and finds REAL ID wanting on both counts.  My book Identity Crisis shows why.

Sooner rather than later, Congress will recognize its error in passing the REAL ID Act.  Most likely it will try to kick the can down the road.  Look for a quiet attempt to change the deadline for getting a national ID in everyone’s hands. 

But that is not the solution.  If Congress wants a national ID, it should have hearings, markup and pass legislation, then fund and implement a national ID itself. 

Congress didn’t have a single hearing or up-or-down vote on the REAL ID Act.  This much exposure would kill a national ID plan, of course.


As we enter the last quarter of what feels like the tenth year of a two-term presidency, the Bush administration’s trade apologists have yet another setback to rationalize. Last week, in an effort to overcome limited opposition to a bill that would grant Vietnam “permanent normal trade relations” (PNTR) status ahead of that country’s accession into the World Trade Organization, the administration announced it would “self-initiate” antidumping cases against Vietnamese exporters of clothing should conditions warrant.

Under the law, only domestic industries producing the product in question, unions representing workers producing the product in question, or the Commerce Department itself can initiate antidumping investigations. Rarely has the executive branch—and never has this administration—initiated an antidumping case on behalf of an industry or its workers. Almost every one of the thousands of U.S. antidumping cases over the years was initiated by industry, and that is why last week’s concession is significant.

Opposition to the bill was mostly confined to the textile industry, which is always opposed to measures that would expand the freedom of Americans to engage in commerce with the world at large. That opposition was expressed as a hold over a vote on the PNTR bill by two Republican senators from textile states, Elizabeth Dole of North Carolina and Lindsey Graham of South Carolina. Their opposition could have been overcome with a far less intrusive concession, if the administration was unwilling to stand on principle. After all, Senator Jim DeMint (R-SC) won his seat by a vast margin in 2004, running unapologetically on a free trade ticket against a candidate hand-picked and financed by South Carolina’s textile magnates.

Instead, the administration delivered to the textile industry it’s most coveted prize. You see, the U.S. textile industry does not have standing in antidumping cases involving imported clothing. Textile producers make the threads, yarns, and fabrics that are used in the manufacture of clothing, but they don’t make clothing. In fact, other than high-end fashion and uniforms made for the military, there isn’t much of a domestic clothing industry to speak of. Apparel producers left long ago, setting up shop in the Caribbean, Mexico, and Central America. Producers remaining in the United States generally don’t compete with imports, and most of those that do are also importers of clothing, and have no interest in impeding access of foreign producers to the U.S. market. In other words, there is no industry in the United States that could actually bring a consequential antidumping case against foreign producers.

The administration’s concession changes all that. If the administration is willing to initiate such cases, U.S. textile producers are that much closer to cordoning off the U.S. market for their own customers and keeping the Vietnamese, the Chinese, and other Asian suppliers at bay, while Americans pay more than they should have to for clothing.

Tongue in cheek, Bush apologists will argue that the administration outsmarted the opposition by agreeing only to take antidumping actions without specifying the conditions that would trigger such actions. But by even indulging in talk of self-initiating antidumping actions, the Bush administration makes crystal clear the insincerity of its own rhetoric about the virtues of free trade. And, it has set a terrible precedent that future administrations and policymakers will have a tougher time disavowing. You can bet your last dollar that presidential candidates stumping through textile country over the next two years will be pressed to honor this unforgivable commitment made by the Bush administration. And as the textile industry’s recourse to special safeguard measures against Chinese clothing imports expires at the end of 2008, it’s a virtual guarantee that its lobby will push for a similar antidumping commitment with respect to Chinese imports. And who knows, other industries might also line up for such treatment.

Prospects for significant trade liberalization were already hanging on by a thread, and the best we could hope for was for the administration holding the line. Last week’s “compromise” constitutes a colossal breach in that line. And none of it makes any sense from a political or diplomatic perspective anyway. The concession was made to improve prospects that the Vietnam PNTR bill would pass in a lame duck session ahead of the president’s visit to Hanoi next month. But does anyone in the White House think the Vietnamese are going to roll out the red carpet for a president bearing such a tainted gift: unfettered access to the U.S. market for all but their most important exports?

Rock Against Intolerance

The Washington Post recently ran an inspiring article, “Rock Star Rattles Radical Islam,” about Ahmad Dhani and the Indonesian popular music group Dewa. Their popular song “Warriors for Love” is a counter to radical political Islamism and a call for peace and social harmony.

Dewa work closely with an outstanding group based in Indonesia, LibForAll. They have published in Bahasa Indonesia a book on Islam, the State, and Civil Society. My colleagues at the Lamp of Liberty are working with LibForAll to produce a full edition in Arabic, thus taking an Islamic message of toleration and freedom from Indonesia to the Arab world.