How Much to Trust the Medicare Trustees’ Projections?

The recently released Medicare Trustees Annual Report [pdf] contains a stark reminder of the Alice in Wonderland nature of Medicare’s financial projections and policy-making. Page 219 of the report carries the chief actuary’s “Statement of Actuarial Opinion.” Its contents should be mandatory reading for those worried about the program’s future. The statement’s second paragraph is reproduced here:

…the Board of Trustees has emphasized the strong likelihood that actual Part B expenditures will exceed the projections under current law, due to further legislative action [emphasis added] to avoid substantial reductions in the Medicare physician fee schedule. While the Part B projections in this report are reasonable in their portrayal of future costs under current law, they are not reasonable as an indication of actual future costs. Current law would require physician fee reductions totaling an estimated 37 percent over the next 9 years—an implausible result.

In other words: Despite Medicare being in a deep financial hole, don’t expect policymakers to stop digging for a while yet.

The funny part is that the actuarial method used in making projections is perfectly legitimate; it makes projections by completely ignoring future policy changes—no matter how likely they are. But the chief actuary is also correct to point out that certain aspects of current Medicare law are ridiculously out of touch with political reality.
Most official budget analysts have thrown a fit whenever I’ve used the words “debt” or “liabilities” to describe current-law Medicare obligations to future retirees. “We don’t ‘owe’ anyone anything because Congress can change current laws!” they’ve protested.

The chief actuary’s statement exposes the hypocrisy: His statement means that we are also obligated to pay future medical providers MORE than current laws stipulate. And, oh, by the way, don’t call that “debt” either because, in this case, Congress can choose NOT to change the laws!

Congress Rouses Itself

At last Republican congressional leaders have found an abuse of executive power that offends them:

An unusual FBI raid of a Democratic congressman’s office over the weekend prompted complaints yesterday from leaders in both parties, who said the tactic was unduly aggressive and may have breached the constitutional separation of powers between the executive and legislative branches of government….

Republican leaders, who previously sought to focus attention on the Jefferson case as a counterpoint to their party’s own ethical scandals, said they are disturbed by the raid. Senate Majority Leader Bill Frist (R-Tenn.) said that he is “very concerned” about the incident and that Senate and House counsels will review it.

House Speaker J. Dennis Hastert (R-Ill.) expressed alarm at the raid. “The actions of the Justice Department in seeking and executing this warrant raise important Constitutional issues that go well beyond the specifics of this case,” he said in a lengthy statement released last night.

“Insofar as I am aware, since the founding of our Republic 219 years ago, the Justice Department has never found it necessary to do what it did Saturday night, crossing this Separation of Powers line, in order to successfully prosecute corruption by Members of Congress,” he said….

Former House speaker Newt Gingrich (R-Ga.), in an e-mail to colleagues with the subject line “on the edge of a constitutional confrontation,” called the Saturday night raid “the most blatant violation of the Constitutional Separation of Powers in my lifetime.”

If they are finally awake to the executive branch’s indifference to constitutional restrictions, they could find some more opportunities for oversight and correction here and here.

Tories for Happiness

The politics of happiness research just got a bit more interesting. British Conservative leader David Cameron is now campaigning on a happiness platform. In a speech at a conference organized by Google in Hertfordshire, Cameron said,

It’s time we admitted that there’s more to life than money, and it’s time we focused not just on GDP, but on GWB—General Well-Being.

This is interesting because up until now, the politics of “well-being” have been primarily a welfare-liberal or social democratic phenomenon. So why the happiness schtick for the Tories? Why now? The Financial Times editorial page says:

Mr Cameron’s call for the Tories to address GWB is not a coded cry for redistribution. After green issues and childcare it is another sensible step towards increasing the opposition party’s appeal by redefining popular values in modern Britain. From the Thatcher era onwards, the Conservatives have faced the charge of being cold and uncaring. Mr Cameron’s task is, in part, to persuade voters that the Tories are warm and cuddly.

Although there is much support in the happiness literature for proposals to allow individuals greater control over our lives, I worry that creating a climate hospitable to risk-taking, entrepreneurship, and greater personal control (and, necessarily, greater personal responsibility) may be perceived as bracing, but not so much as “warm and cuddly.” In his talk, Cameron dilated on the wonders of Howies, a “socially conscious” Welsh company in the mold of the US’s American Apparel, praising their lack of hierarchy and the flexibility in work arrangements.

Now, greater work flexibility is great, and that’s a big part of what it would mean policy-wise to enhance well-being by giving people more control over their lives. But what does Cameron have in mind? Is this anything more than emotionally appealing talk? If so, genuine work flexibility requires deregulating the labor market, allowing individuals to bargain terms of employment for themselves, rather than getting stuck with the terms their union (which workers in certain areas often have little choice but to join) negotiated, or with terms set by the government, independent of the desires of the parties to the agreement. A system in which a certain wage, a certain package of benefits, certain labor conditions, etc., are mandated by the government is a system in which it is harder for people to opt in and out of the labor market, or to negotiate flexible contracts that uniquely suit their individual and family needs. There is a lot to be said in favor of companies that create a hospitable, flexible climate for their employees. But as the FT editorialist points out:

Not every employer can introduce flexible work practices and not every job carries high satisfaction levels. To behave as though this were possible could invite cause for dissatisfaction.

If Cameron seeks to mandate Howie’s-like flexible work practices, rather than removing existing labor market interference from unions and government, he will end up reducing real flexibility for workers. Furthermore, as UCLA law professor Stephen Bainbridge points out, not every worker wants a non-hierarchical work environment. Not everyone likes being saddled with participation in management decisions in addition to their regular work. Companies should certainly be encouraged to create work environments that inspire loyalty and productivity from their workers—and good returns for their shareholders. And if you’re a consumer for whom the production process is part of what you’re buying, you should feel free to patronize businesses that reflect your values. But mandating flexibility, or a particular “work-life balance,” won’t deliver it. The heirs of Thatcher should know this, and it is sad if they think thay have to act like they don’t. We’ll see.

In defense of GDP, it is worth pointing out that focus on the size of the economy does not imply the state’s endorsement of a narrow-minded, acquisitive ethos. Wealth is not a morally questionable, or even a morally neutral, end. It is easy for people to imagine that the size of the economy grows magically, due to some incomprehensible ju ju down in the basement at Google Labs or something. But it’s not magic; it’s virtue. The economy grows primarily because innovations in knowledge enable us to produce more, and therefore to offer more, to others in cooperative exchange. GDP growth is the steady increase in the size of the surplus from human cooperation. Extended, peaceful, increasingly effective human cooperation is not an easy thing to sustain, and the institutions, and the habits of heart and mind, that do sustain it are moral triumphs. As Deidre McClosky draws out in the brand new Cato Policy Report :

“Modern economic growth,” as the economists boringly call the fact of real income per person growing at a “mere” 1.5 percent per year for 200 years, to achieve a rise in per capita income by a factor of 19 in the countries that most enthusiastically embraced capitalism, is certainly the largest change in the human condition since the ninth millennium BC. It ranks with the first domestications of plants and animals and the building of the first towns. Possibly, modern economic growth is as large and important an event in human history as the sudden perfection of language, in Africa around 80,000 to 50,000 BC. In a mere 200 years our bourgeois capitalism has domesticated the world and made it, from Chicago to Shanghai, into a single, throbbing city.

There has been no force in history that has done more to promote “general well-being” than economic growth. There is no force that will do more good in the foreseeable future. I hope that Cameron takes note that in cross-national econometric studies the only variable that correlates with reported well-being more strongly than GDP per capita is a society’s degree of economic freedom.

There is a politics of limited government and personal repsonsibility lurking in the happiness data. If Cameron is going to run on happiness, let’s hope he is able to find it, and allay Frank Furedi’s worries, and mine, about an illiberal, infantalizing therapeutic state.

Libertarians and Liberals

Last week I looked at a Pew Research Center analysis of libertarians and other ideological groups in the United States. Using the Pew results, let’s compare libertarians to liberals as way of speculating about the upcoming election. 

The two groups have a lot in common demographically. Both libertarians and liberals are more likely than other groups to be found in the highest income groups and to have a college education (though liberals are by far the most educated group). Strikingly, both groups are the least likely among the Pew respondents to be supported by African-Americans.

Libertarians and liberals are the least religiously observant among the Pew groups. Both are much more likely than others to say they are “secular” and to state that they “seldom or never” attend church. This secular tendency showed up when Pew looked at responses by groups to some questions about issues. Libertarians and liberals were about as likely to believe homosexuality should be accepted, to favor stem cell research, and to oppose more restrictions on abortion. (Liberals more so on each issue). In each case, the two groups oppose positions endorsed by Roman Catholicism or evangelical Protestant groups. Judged only by these issues, libertarians and liberals should be quite similar politically. 

But they are not, and you can guess why. The two differ over the scope of government power over economic life. The Pew data defines liberals in part by their faith that government regulation is needed to protect the public interest. Liberals also oppose tax cuts much more than any other group and to think businesses make too much profit. Liberals are about as likely as any American to believe free trade is good for the nation, their only significant departure from what you might expect on the economic front.

This difference on economic policies translates into partisan differences. Exactly half of libertarians in the Pew survey identified themselves as Republicans or leaning that way. 57 percent voted for President Bush in 2004. When forced to choose, these voters seem to assign more weight to the economic aspects of liberty than the social side.

On the other hand, 41 percent of the Pew libertarians identify with, or lean toward, the Democratic party. Could that number rise?

Here’s one guess, popular with libertarians angry with the GOP. Libertarians are close to liberals demographically and on social issues, and liberals are overwhelmingly Democratic. If Republicans support economic policies similar to liberal positions, libertarians have little reason to vote Republican. The only difference between the parties would concern social questions, and on those issues, the Democrats are more often if not always more libertarian than Republicans.

Here’s the problem with this guess about the future. Libertarians have to consider what Republicans and Democrats will do in the future, and rationally, they need not simply extrapolate from the recent past to do that.

It is true that Republicans have expanded government rapidly to maintain control of Congress (among other reasons). But that does not mean Democrats in power would not expand government even more rapidly for reasons of ideology and interest. Democrats complained that the Medicare prescription drug benefit was not generous enough, not that it expanded government too much. More generally, the American National Election Survey found in 2004 that two-thirds of self-identified liberals and 56 percent of Democrats believed “it is important for the government to provide many more services even if it means an increase in spending.”  This support for expanding government, by the way, is the highest ever reported for both liberals and Democrats. It is almost 40 percent higher for liberals and 47 percent more for Democrats than it was in 1996 when Bill Clinton declared the end of big government. If Democrats in power listen to their base in 2007 (or 2009 with the presidency in hand), they will not be responding to the moderates at the Democratic Leadership Council. 

Given all that, I don’t think many libertarians who have been voting Republican are likely to start voting Democratic. As bad as the Republicans have been on limiting government, libertarians primarily concerned with economic liberty have reason to think the Democrats would be worse. So they will continue doing what they have been doing unless the Democrats start looking better or the Republicans become even worse.

The Other War

The media has focused great attention on the news that the Iraqi prime minister had finally managed to assemble a cabinet, albeit with the three most important posts (those of interior, defense and national security) having been filled by interim appointees. Still, Americans are anxious for good news from Iraq, and they are likely to be heartened by Prime Minister Nouri al-Maliki’s stated goal that Iraqis will have control of security in most of the country by the end of this year. In a related story, President Bush told an audience in Chicago that the United States had “reached a turning point in the struggle between freedom and terror.”

Meanwhile, on the pessimism front, the war in Afghanistan has taken an ugly turn. The front page of today’s Washington Post features a story of heavy fighting in Kandahar province. Reuters is reporting that Taliban fighters ambushed a squadron of Afghan police in southern Afghanistan. The AP on Sunday described heavy fighting in Helmand province, the country’s main opium-producing region, and also violent clashes in Zabol, and today is reporting still more violence in and around Kandahar. 

The good news appears to be that Taliban loyalists and insurgents are bearing the brunt of these attacks. Among the estimated 305 people killed in the last week, the AP determined (somehow) that “most of the dead were militants.” Still, as the United States plans to turn over security responsibilities in southern Afghanistan to NATO by the end of July, the question must be asked: If, after nearly four and a half years of fighting resistance remains strong and the Karzai government dangerously weak, is it time to question our strategy in the country that played host to the 9/11 plotters, and where, it is believed, a number of Al Qaeda and Taliban officials continue to operate? Or, more to the point, if the goal of operations in Afghanistan is to eliminate Al Qaeda and its affiliates and allies, are we, to quote the immortal words of Secretary Rumsfeld, “capturing, killing or deterring and dissuading more terrorists every day than the madrassas and the radical clerics are recruiting, training and deploying against us?”

If the answer were yes, then the number of attacks should be declining. Alas, the answer appears to be no. Seth Jones, a security analyst at the RAND Corporation, told the Australian Broadcasting Corporation:

We’ve seen since 2002 the level of violence has gone up each year. The number of attacks by insurgents and the number of deaths caused by them has gone up every single year.

For most of the last few years what we’ve seen is small numbers of Taliban insurgents. Now we’re seeing growing numbers.

This is actually a disturbing trend, more of a conventional rather than an unconventional war.

Those seeking a new approach might turn to two papers published by Cato on the subject: Ted Galen Carpenter’s “How the Drug War in Afghanistan Undermines America’s War on Terror” (Foreign Policy Briefing no. 84, November 10, 2004); and Subodh Atal’s “At a Crossroads in Afghanistan: Should the United States Be Involved in Nation Building?” (Foreign Policy Briefing no. 81, September 24, 2003).

The war in Afghanistan is, and always should have been, the true central front in the war on terrorism. We cannot undo the decision to divert intelligence and military assets away from the fight there, and toward the fight in Iraq. But we can refocus our attention back to Afghanistan and we must be prepared to alter our strategy if the current course is not leading in a positive direction.

When is Market Power Not Market Power?

… When it’s online!

Google is the dominant search engine. Everybody knows that. As such, it’s an important bottleneck. If you can’t get your stuff out on Google, you’ll have a hard time getting your stuff out. Right?

Rumors are swirling that Google News has declined to treat certain news sources as news sources because of allegedly “hateful” content. Are sites critical of Islam being “disappeared” from Google News? If it’s true, that’s a bad thing. I don’t agree with hatred of Islam, but I want the fullest airing of people’s views on those issues.

So, if it’s true, something should be done. But what? Sue? Seek public-utility-style regulation for search, as is being done with broadband?

Or maybe what needs to be done is already being done.

I just said that rumors are swirling. How much of a bottleneck can Google be when its alleged censoriousness is broadcast by popular blogger Instapundit? This has probably already given more ‘ink’ to these marginal sites than being ranked on Google would.

Take a look again at the NewsBusters site I linked to above where I said “Rumors are swirling”. The discussion includes lots of people swearing off Google, arguing about Google’s search algorithms, comparing Google searches to Yahoo! searches, and yapping about other, dumber stuff.

In other words, based on the rumor that Google is treating certain sites badly, the people that disagree with that are talking about it, changing their search habits, and encouraging others to do so. In precise proportion to the importance of this issue to people in society, Google is losing business. This is what we call a self-correcting market. Google’s market power is feeble. Consumers are in the driver’s seat.

(N.B. Haters of Islam are but a small part of the overall market. If Google chooses not to make those sites available and the majority of consumers accept that, that is by definition what serves the greatest number in the best way. Opponents of that freedom should be clear that they want consumers not to get what they want. They want to force disagreeable speech on an unwelcoming public using government power. Now that would be a bad thing.)

 (Cross-posted from TechLiberationFront)

News from A Region of Hot Spots

My Azeri friends have brought to my attention two interesting news items from Azerbaijan and the large Azeri community in northern Iran. First is that the editor of a leading opposition paper, Bizim Yol (“Our Path”) (and formerly deputy editor of Azadlig [“Freedom”], which ran a story on my visit to Baku earlier this year), was savagely beaten on May 18 and that opposition leaders (such as Ali Kerimli), have pointed the finger at the authorities. (This is not the first time that journalists from the opposition side have been attacked.)

One email from an Azeri news group described the attack thus:

Bahaddin Haziyev, one of the best Azerbaijani journalists and one of the brillian minds of our country, was kidnapped, taken to Masazir lake, severely beaten and left to die almost to death last night by some people. He was deputy editor of Azadlig newspaper and since recently became a editor in chief of Bizim Yol newspaper. His newspaper an himself are very critical of Aliyev’s regime, the most recent series dedicated to caviar/fish mafia of Azerbaijan, portraying that Aliyev senior sacrificed lifes for monopoly in this sector.

Haziyev is in Intensive Therapy in the Emergency hospital. Doctor said that it is miracle that he survived. His leg is broken in five places, he has trauma of head, ribs are broken.

That is what happens to journalists in this country.

It takes real bravery to continue to speak up for freedom when under threat of such violence.

The other is a news story that was reported in the Washington Post about protests against Persian chauvinism among the very large Azeri minority in Iran. Photos are available here (on an Azeri nationalist website).

The cartoon that has caused the furor was published in Iran’s official newspaper (not, as in the Danish cartoons, in a private paper in a country with a free press):

The cartoon, which appeared in Friday’s edition of the official Iran newspaper, showed a boy repeating the Persian word for cockroach in different ways, while a cockroach in front of the boy asked “What?” in Azeri.

The Iranian mullahs may be creating difficult conditions for themselves by alienating, not only many young people (who yearn for what the Eastern Europeans used to call “a normal country”), but major ethnic minorities, as well.