Why Does the WSJ Have a Preferred Monopolist?

Today’s Wall Street Journal once again defends the mayoral takeover of Los Angeles public schools. The editorial board’s argument is that we shouldn’t make “the perfect the enemy of the good.” Fine.

But the pointless is the enemy of both the good and the perfect.

What the WSJ is saying is that it is “good” to substitute one education monopolist for another. In what other field does the WSJ have a preferred monopolist? In what other field would they suggest that simply dividing authority over a monopoly between a mayor and another government agency will lead to meaningful improvement?

The only way of “fixing” monopolies is to break them up and return power to consumers by instituting a level, free, competitive playing field for producers.

C’mon, guys, Adam Smith had all this figured out in 1776 – even with specific respect to education. And the evidence proves him right.

More Welfare, More Poverty

News that the poverty rate remained at 12.6 percent last year, statistically unchanged from the year before, has set off a predictable round of calls for increased government spending on social welfare programs.

Yet, last year, the federal government spent more than $477 billion on some 50 different programs to fight poverty.  That amounts to $12,892 for every poor man, woman, and child in this country.  And, it does not even begin to count welfare spending by state and local governments.  For all the talk about Republican budget cuts, spending on these social programs has increased an inflation-adjusted 22 percent since President Bush took office.

Despite this government largesse, 37 million Americans continue to live in poverty.  In fact, despite nearly $9 trillion in total welfare spending since Lyndon Johnson declared War on Poverty in 1964, the poverty rate is perilously close to where we began more than 40 years ago.

One definition of insanity is doing the same thing over and over again and expecting different results.  What does that say about our welfare policy?

Mass Health Plan: I Told You So

Supporters of Governor Romney’s Massachusetts health care plan scoffed when I warned that it “opens the door to widespread regulation of the health care industry and political interference in personal health care decisions.  The result will be a slow but steady spiral downward toward a government-run, national health care system.”  Recent events, alas, suggest that I was right.

When the plan was passed I said, “special interests representing various health care providers and disease constituencies can certainly be expected to lobby for the inclusion of additional services or coverage under any mandated benefits package.”  Now it appears that my only mistake was in not realizing just how fast the special interests would move.  Already the state has been forced to delay implementation of some aspects of the plan because of a bitter battle over issues such as whether dental benefits should be included in the basic plan that residents must buy.

Fortunately, however, members of the State Health Care Connector, which is designing the plans, say that the legislature didn’t really mean it when it passed a law setting the deadline.  Of course, one might wonder what other aspects of the law they will feel free to ignore.

And, now the Boston Globe reports that Christian Scientists are lobbying hard to change the definition of health care under the law so as to include faith healers.  Such are the perils of having the government design the products you must buy.

I also warned that as costs increased there would be increased pressure to increase subsidies or cap insurance premiums.  This week, the Globe reported that State Senator Richard T. Moore, a key architect of the law, is complaining that health insurance premiums are too high.  He is demanding that either premiums or subsidies be adjusted so that no one earning less than 300 percent of the poverty level ($58,000 for a family of four) will have to pay more than 5 percent of their income for insurance.

The plan is less than five months old and already the wheels are coming off.  It would be sad if it had not all been so predictable.

Boudreaux’s Time Machine

Over at Cafe Hayek, George Mason economics chair and Cato adjunct scholar Don Boudreaux has come up with a wonderful thought experiment to illustrate just how absurdly inaccurate the government’s methods for calculating real wages are. Don looks at the Census Bureau report (from the depths of which the New York Times editorial page draws forth the blackest despair) and finds that real median family income has increased an unimpressive 31 percent in the 37 years from 1967 to 2004. In 1967 it was $35,379 (in 2004 dollars), and in 2004 it was $46,326.

Are we really only 31 percent–less the 1 percent a year–better off? Don’s thought experiment asks us to imagine that the incomes and years are swapped, and then see how we feel. Would you rather live in 1967 on $46,000 a year (the 2004 median), or in 2004 on $35,000 (the 1967 median).

Let’s take it up a notch. So, it’s 2004 and you make $35,000 (let’s pretend it’s individual, instead of family income). A gangly professor with crazy hair drives up in a time-traveling Delorean and offers you the 1967 equivalent of $46,000 (that’s a 31 percent raise!) if you’ll let him drop you off in 1967, where you’ll live for one year. You say, “Right on!” and take a lift to yesterday.

So now you’re in 1967 with about $8,500 in your pocket, and you’re ready to roll. Have you become wealthier?

Well, as Don notes, housing is smaller and more expensive. Central air conditioning, I should add, is a luxury. Your expensive and ridiculously large (but not the screen) TV gets three channels with fuzzy reception. No Deadwood (or the Wire, or Weeds, or Sports Center, or Project Runway, or Good Eats, etc.) for you! It’s a darn fine year for rock & roll, but you’d like to be able to listen to Dylan on your iPod (you used to download anything you wanted to listen to on demand) or in your car. Your car! It costs almost exactly the same as a 2004 car, but is less comfortable, has no auto anything, gets horrifying gas mileage, and is a death trap without a shoulder belt, airbags, or anti-lock brakes. It handles like a whale. You start to think your Jetta back in 2004 has rather more than an $11,000 edge on this bucket. That makes you a little depressed. Which is a problem, because your Prozac prescription ran out and there’s no recourse but a Freudian therapist who tells you your malaise has something to do with your mother. Trying to look on the bright side, you attempt to be grateful that you don’t need Cialis, or chemotheraphy. The food is terrible. You can’t get a cup of coffee that doesn’t taste like cardboard. The book stores seem to have nothing. A simple calculator costs about the same as your Blackberry. You lose a contact lens, and end up with Coke bottle “birth control” glasses. You want to go home.

The professor materializes again and tells you that he lied. Ha! You’re not staying for a year. You’re staying for the rest of your life. But he guarantees your salary each year will be that year’s inflation-adjusted equivalent of the salary that you have in the “stayed-in-2004” timeline. (In 1973, you’ll get your 2010 wages, etc.) You start to cry (no Prozac!). The professor exclaims, “What’s the problem, kid? You’ll always be wealthier than you would have been. And besides, it’s a simpler time. People bowl together!”
You get the idea. Don has a bunch of great examples of things you can’t get in 1967, only some of which I stole.

How much would you have to be paid each year to agree to live the rest of your life from 1967 on? Maybe I’m weird, since my entire life would be different–and almost certainly worse–if it wasn’t for the Internet. (I almost certainly wouldn’t have most of my friends, my very cool job, and more.) There are so many things I rely upon that you couldn’t buy at any price in 1967 that it’s pretty hard to think of a number that’s high enough to compensate for the loss. Personally, I don’t care that much about improvements in TV picture quality, or even how comfortable, safe, and gadget-laden cars are now. It’s the things that just didn’t exist in 1967 that do it for me.

Here’s another thought experiment: Suppose you get a medical procedure with new technology that saves your life. It didn’t exist last year, but now it does. If you had been sick like this last year, you’d be gone. So, in a year, you went from a condition in which no amount of money would have been able to save you from death, to one in which a mere $10,000 buys you the ability to see your daughter’s wedding. How much wealthier did you become in the space of that year? Is it more than 31 percent?

Fear of Freedom in Health Care

Ezra Klein writes,

From there, we part. Kling’s other solution relies on a massive increase in the amount of health costs that come out of pocket. The “very poor” would be subsidized, as would the “very sick” (neither term is defined in his book), but everyone else would be paying for their own care. This makes sense in a very specific sort of world – one in which you believe consumers have the capacity to make rational health care decisions – and to a very specific sort of person – one who believes those who make mistakes with their health care should simply pay the costs, be they financial ruin or death.

I am not that sort of person, and I am highly dubious of that world. I see no evidence for the claim that a gas station manager in Bakersfield, California, will be able to second- or third-guess his cardiologist’s recommendation of an angioplasty. Will he have the money to get a second opinion? A fourth? Or will Kling’s system convince him to foolishly underestimate his risk? Economists, after all, have shown time and again that we overestimate the pain of financial loss – that, when it comes to money, we are not nearly so rational as one might hope.

In the simulation of my proposals in the chapter on matching funding to needs, I define poor as below the poverty line and I define very sick as having annual expenses over $5000 for the non-elderly and over $20,000 for the elderly.  I think that one can, and should, come up with better definitions, but the terms are not left undefined.

How should consumers make decisions about their health care? Let me define a “good” decision as one that is optimal in terms of expected benefits relative to expected costs. A different decision is a “mistake.”

I propose making more consumers more accountable for more of their own health care spending. Let me describe this as a system where consumers make their own mistakes.

What is the alternative to a system where consumers make their own mistakes? The opponents of consumer choice would have you believe that the alternative is a system where no mistakes are made, and instead we simply see good decisions. But that is not the alternative that we observe. In fact, no one would say that the medical decision-making process is mistake-free in America today.

The realistic alternative to having consumers make their own mistakes is to have mistakes made on their behalf by doctors, insurance companies, and government.

In my health care proposals, I envision doctors, insurance companies, and government still available to offer advice. In fact, I envision a much stronger advisory role in health care coming from a commission that studies costs and benefits of health care proposals.

What I propose is that consumers have the incentive to use information about costs and benefits. Any treatment that is proposed today, under the presumption that a third party will pay for it, would still be available under a system where consumers are allowed to make their own mistakes. It’s just that under the latter system, consumers would take costs into account.

I get the sense that the rhetorical attack on consumer choice in medicine is based primarily on the implicit assumption that the alternative to consumers making their own mistakes is consumers making no mistakes. Once you strip away that rhetorical support, the case for paternalism in medicine seems difficult to make.