No, Really — You Have a Point

Matthew Holt of TheHealthCareBlog.com devotes a lengthy post to criticizing my (much lengthier) paper, “Health Savings Accounts: Do the Critics Have a Point?

Holt – who has an HSA himself, as I understand it – is not entirely critical. For example, he calls Cato “the sensible libertarian’s think-tank.” As for the uncomplimentary parts, I found them odd.

For example, Holt accuses me of concluding that no, critics of HSAs do not have a point. Yet the paper has an entire section titled “Criticisms That Raise Serious Issues” (pp. 11-22) where I validate many criticisms of HSAs. In particular, I agree that in some instances people with high-deductible insurance might skimp on care in ways that harm their health (though there is scant data to demonstrate that this actually happens). Thus, I agree with the Commonwealth Fund that HSAs should be liberalized to allow people to choose insurance with coverage below the deductible.

Also, Holt accuses me of ignoring the fact that risk segmentation results in reduced subsidies to the sickest insureds. Yet that is a central theme of the “students & professors” hypothetical (pp. 6-8). And on page eight I write:

Though HSAs may reduce hidden subsidies to sicker workers, they do not preclude subsidizing those workers in other ways.

I could go on. From his criticism of it, it doesn’t appear Holt read the paper very closely.

Politics Is Not Religion

Will Wilkinson offers some telling criticisms of Charles Morris’ recent New York Times op-ed.

Morris writes that the economy has a “spiritual dimension” that is lacking in contemporary America. He implies that an active and expansive government should supply a “conviction of fairness, a feeling of not being totally on one’s own, a sense of reasonable stability and predictability.”

The state, then, should be in the business of providing spiritual goods.

Morris’ essay reminded me of what one of the founders of neo-conservatism, Irving Kristol, once wrote: “A nation whose politics turn on the cost of false teeth is a nation whose politics are squalid.”

So politics is apparently about more than mere material matters; it has a higher dimension. In our time, that higher dimension has become the politics of national greatness that in turn became a crusade to bring democracy to others.

Both Kristol and Morris are confusing politics for religion. They expect more from politics than it can or should give. Or at least, they expect more than a politics consistent with liberty can give.

Good News (and Some Uncertainty) from the Peruvian and Czech Elections

Citizens in Peru and the Czech Republic rejected the far left in those countries’ elections this weekend.

Peruvians gave 54 percent of their votes to former president Alan Garcia against 46 percent for nationalist candidate Ollanta Humala. Garcia is no market liberal, but at least he promises to stick to democracy, orthodox macroeconomic policies and not reverse the gains of Peru’s economy since it began liberalizing in the early 1990s. Thus Peruvians rejected Hugo-Chavez style populism and contributed to the regional backlash against the Venezuelan President’s desire to unite Latin America under his leadership. A more moderate and modern Latin America is taking shape among the countries along the Pacific Rim (with the possible exception of Ecuador) that are opting for free trade with the United States.

The fact that Peruvians voted for a candidate who is remembered as one of the worst presidents in Peruvian history (1985-1990) rather than for Humala says a lot about how deep anti-populist sentiment goes–at least among those who voted for Garcia. The problem for Garcia, and for governability in Peru, is that Humala won in the majority of Peru’s departments, mainly in the andean and jungle interior, thus revealing a divided country. The leftist-populist party also has the largest representation in the Peruvian congress. Already, Humala has declared the formation of a nationalist front, calling for all leftist organizations to unite. This may represent democracy in action, but it is a sign that Humala will remain a major irritant to the next government and possibly to social and political stability if Humala follows Bolivian President Evo Morales’s example of forging a path to power by creating unrest and instigating riots and violence to achieve political ends. Populism and the influence of Chavez have not been definitively defeated in Peru.

In the Czech Republic, the communists lost seats in the parliament and the pro-market Civic Democrats won a plurality, with 34 percent of the vote. Normally, the head of the leading party, in this case Mirek Topolanek, would form a government. But the elections resulted in an even split in the parliament–with the Civic Democrats and their allies holding 100 seats and the communists and the Social Democrats holding the remaining 100 seats. It is difficult to see how Topolanek will form a majority, but the coming days and weeks will surely see lots of political negotiations and some degree of compromise. If that doesn’t work out, the Czech Republic will have to hold general elections again in the next few months and hope that voters are more decisive in choosing between free-market reforms and euro-socialist polices.

Spending Your Tax Dollars to Advocate for Even Higher Taxes

In 2003, Congress created a “Citizens’ Health Care Working Group” to gather from the citizenry ideas on how to fix America’s health care sector. This past Friday, the group released interim recommendations worthy of the Clinton Health Care Task Force:

It should be public policy that all Americans have affordable health care

This and other of the recommendations contained here call for actions that will require new revenues… We recommend adopting financing strategies…such as enrollee contributions, income taxes or surcharges, “sin taxes”, business or payroll taxes, or value-added taxes that are targeted at supporting these new health care initiatives.

One need not be an advocate of socialized medicine to see that America wastes gobs and gobs of money on health care, which is one of the reasons that health care is so unaffordable. And these people think we should spend more? The group does recite the usual incantations about how the government should use electronic medical records, evidence-based medicine, et cetera to improve efficiency. But it does not pretend that such efforts would obviate the need for new taxes to achieve its goals. Nor does it consider that such a tax burden would hamper the economy’s ability to deliver on the group’s promises. Nor does the group seem to have any comprehension of the enormity of the task of making “affordable health care” actually happen. (For more on that point, see the introduction to Healthy Competition.) The public can read the group’s interim recommendations here and comment on them until August 31.

Kudos to the Left. They seem to have successfully hijacked this panel – despite the group having a chairman from the business community and one member who is a cabinet official in the Bush Administration.

Go figure.

Who’s Freaking Out?

In Friday’s New York Times, Charles R. Morris concludes his op-ed, “Freakoutonomics,” with the following thought:

If one counts only the size of houses and cars, and the numbers of electronic gadgets stuffed into rec rooms, Americans are probably better off than ever before. But as the 1870’s suggest, economic well-being doesn’t come just from piling up toys. An economy has psychological or, if you will, spiritual, dimensions. A conviction of fairness, a feeling of not being totally on one’s own, a sense of reasonable stability and predictability are all essential components of good economic performance. When they were missing in the 1870’s, in the midst of a boom, the populace was brought to the brink of revolt.

Well, all right. How about if we count lifespan? Number of people suffering from near-constant bacterial infections? Portion of the population with adequate nutrition? Average height? This is all of a piece with big cars, big houses, and shiny geegaws in the rec rooms. Yeah, if one counts all this stuff—all the women that didn’t die in childbirth, all the people not crippled from polio, etc.—we’re probably better off. Just maybe.

Morris is right that there is a psychological or spiritual dimension to the economy. But its rather absurd to imply that the populace is now a slow-burning fuse ready to explode if we don’t suddenly veer toward Morris’s politics.

Pundits seizing upon the happiness data often make try to make hay of the fact that average happiness hasn’t risen with income over the last half-century. The trend in average happiness is flat as Kansas. But then the point cuts both ways: judging from that data, we’re exactly as happy as our grandparents in the communitarian, “Leave It to Beaver,” bowling league, 1950s Golden Age.

Earlier in his column, Morris writes that in the days of the rapacious “Robber Barons,” “the yawning gap between the very rich and everybody else fanned resentments.” Morris then mentions that our present gap is just about as yawning, and so, it is implied, we had better brace ourselves for the inevitable resentment, and a populace “at the brink of revolt.” The proletariat may yet rise!

It’s a thought, isn’t it? Maybe someone has even tried to find out whether it is true!

In their fascinating paper, “Inequality and Happiness: Are Americans and Europeans Different?” Alberto Alesina and Rafael Di Tella of Harvard and Robert McCulloch of Imperial College London measured the effect of income inequality on average self-reported happiness. (Here is the downloadable full paper [pdf].) Does inequality breed ill-feelings? It depends. It turns out that inequality has no significant effect on average reported happiness in the U.S., but it does in Europe. Why?

First, Americans believe that our system affords a high degree of income mobility, so people at the bottom see themselves as having the chance to rise. Therefore income gaps, even yawning ones, breed little resentment. (Indeed, a bigger gap implies a bigger payoff for making it big time.) In Europe, on the other hand, folks see it as harder to move up and down the income ladder, so inequality chafes among the poor. Additionally, ideology matters. The authors write, “There is evidence of inequality generated unhappiness in the US only for a sub-group of rich leftists.” That’s it: rich leftists.

Now, I have no idea whether Charles Morris is a “rich leftist,” or what, but Alesina, Di Tella, and Maculloch’s finding is wonderfully illuminating. NYT editorials generally are not written by people at the bottom of the income distribution, but by people ranging from the middle to the top. Rich leftists, aggravated for ideological reasons by inequality, might assume that the aggravation can only be so much worse for those deprived of condos with a Park view. However, they’d be wrong; there is no detectable aggravation further down the distribution. Whatever you think the opiate of the proletariat is, well, it’s working. So the idea that inequality is breeding widespread discontent–driving Americans toward the brink of revolt, even–is probably little more than a grossly fallacious generalization from an unrepresentative sample.

Freakoutonomics, indeed.

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When Going Gets Tough, Public Schools Get Private

School choice opponents love to declare that “unlike private schools, public schools have to teach everyone.” Well it turns out that that’s not really true. As Dan Keating and V. Dion Haynes expose in today’s Washington Post, when kids’ disabilities get too tough, the D.C. Public Schools turn to private institutions, where disabled students can finally get the specialized attention they need.

This doesn’t just happen in Washington, though. According to the National Association of Private Special Education Centers, almost every state in the union has disabled children attending private institutions at public expense. Unfortunately, at least in the nation’s capital, the public schools tend to greatly understate what they are doing, either as a result of bureaucratic dysfunction, as Keating and Haynes suggest, or simply because no one likes getting caught in a lie.

Whatever the reason, for public schools the truth hurts.

New at Cato Unbound: Richard Florida on the Future of Work

Today, in the hot-off-the-WordPress new edition of Cato Unbound, Richard Florida writes about “The Future of the American Workforce in the Global Creative Economy.”

Bestselling author of Rise of the Creative Class, Florida argues that the old industrial era has given way to a new creative era. Science and technology, art and design, and culture and entertainment have superceded natural resources and industrial infrastructure as the key to economic success. Talent is now the key factor of production and winners in global economic competition will be those who can best deploy and attract it. However, the creative economy is a source of increasing inequality both within and between nations. Florida argues that the key to bridging the gap between the creative and service sectors is to harness the creativity of service sector workers to make their jobs both higher-paying and more satisfying.

Florida’s essay is just the beginning of what promises to be an eye-opening conversation about “The Future of Work.” Big-thinkers Robin Hanson, Ed Leamer, and Frank Levy will reply in the days to come. As always, bloggers are encouraged to join the fray and respond to Cato Unbound essayists on their home turf; we’ll excerpt and reprint some of the best of the blogosphere.