Price Controls: A Troubling Trend in Latin America

By
Steve H. Hanke

Argentina, Venezuela, and now even Ecuador have all embraced an unfortunate, if familiar, economic craze currently sweeping the region – price controls. In a wrong-headed attempt to “suppress” inflation, the respective governments have attempted to fix prices at artificially low levels. As any economist worth his salt knows, this will ultimately lead to scarcity.

Consider Venezuela, where the government sets the price of a number of goods, including premium gasoline, which is fixed at only 5.8 U.S. cents per gallon. As the accompanying chart shows, 20.4% of goods are simply not available in stores.

While price controls ostensibly keep the prices of goods on official markets low, they ultimately lead to empty shelves, depriving many consumers access to essential goods (such as toilet paper). This, in turn, leads to “repressed” inflation – given the price controls that exist, the “true” rate of inflation is held down, or repressed through Soviet-style government intervention. As the accompanying chart shows, the implied annual inflation rate for Venezuela (using changes in the black-market VEF/USD exchange rate) puts the “repressed” inflation rate at 153%.

Likewise, Argentina is facing a similar dilemma (see the accompanying chart).

In addition to scarcity and repressed inflation, price controls can lead to unintended political consequences down the road. Once price controls are implemented it is very difficult to remove them without generating popular unrest – just consider the 1989 riots in Venezuela when President Carlos Perez attempted to remove price controls. 

Hopefully, Ecuador – which, thanks to its dollarization, is experiencing an annual inflation rate of only 3% – will see this folly and abandon its expirement with price controls.

If countries like Venezuela are really interested in keeping inflation under control, they should follow Ecuador’s lead – simply junk their domestic currencies and “dollarize”.

Topics: 
Finance, Banking & Monetary Policy, International Economics and Development

Questions for Secretary Sebelius

By
Michael F. Cannon

Secretary of Health and Humans Services Kathleen Sebelius has been making the rounds on Capitol Hill, testifying in favor of President Obama’s proposed budget and generally trying to assure members of Congress that all is well with ObamaCare implementation. Even supporters of the law are freaking out nervous, as I discuss here.

Since everyone else is pestering Sebelius with questions, I thought I would post some questions I would like to hear her answer.

Read the rest of this post »

Topics: 
Government and Politics, Health Care

Video of Baucus’ ‘Train Wreck’ Comments

By
Michael F. Cannon

Perhaps you have now heard that today ObamaCare’s primary author, Sen. Max Baucus (D-MT), predicted a “huge train wreck” when the law takes full effect later this year. Here’s the video: 

Max Baucus, Obamacare’s Lead Author, Sees “Huge Train Wreck Coming”

Edited for you by the folks at American Commitment. They even coined a hashtag: #trainwreck.

Topics: 
General, Government and Politics, Health Care

In the Wake of Tragedy, Policymakers Should Exercise Restraint

By
Tad DeHaven

An article in Politico reports that some policymakers are already using the tragedy in Boston to criticize the sequestration spending cuts that went into effect in March. With the nation’s nerves frayed, policymakers should choose their words more carefully. 

At a press conference held yesterday morning, House Minority Whip Steny Hoyer (D-MD) told reporters that he doubted that sequestration had “any impact presently.” He should have left it at that. Instead, he strayed far from the issue of national security and sequestration by lumping in other issues that didn’t have anything to do with the bombing: 

“I think there are multiple reasons for ensuring that we invest in our security – both domestic and international security. That we invest in the education of our children. That we invest in growing jobs in America. And don’t pursue an irrational, across-the-board policy of cutting the highest priorities and the lowest priorities essentially the same percentage…. I think this is another proof of that – if proof is needed, which I don’t think frankly it is.”

There’s a time and a place to discuss education spending and “growing jobs in America.” At a press conference less than 24 hours after a tragedy is not the right time.  

 

Topics: 
Tax and Budget Policy

WSJ: ‘Roofer Union Calls for Repeal of Obama Health Law’

By
Michael F. Cannon

Take it, Janet Adamy:

A labor union representing roofers is reversing course and calling for repeal of the federal health law, citing concerns the law will raise its cost for insuring members.

Organized labor was instrumental in getting the Affordable Care Act passed in 2010, but more recently has voiced concerns that the law could lead members to lose their existing health plans. The United Union of Roofers, Waterproofers and Allied Workers is believed to be the first union to initially support the law and later call for its repeal.

“After the law was passed, I had great hope…that maybe the rough spots would be worked out and we’d have a great law,” said Kinsey Robinson, international president of the union, which represents 22,000 commercial and industrial roofers…

Mr. Robinson says the union’s concerns about the law began to pile up in recent months after speaking with employers.

The roofers’ union’s current insurance plan caps lifetime medical bill payouts at $2 million for active members and $50,000 for retirees. Next year, the plan has to remove those caps in order to comply with the health law. Other aspects of the retiree plan must become more generous in order to meet the law’s minimum essential coverage requirements next year. All that will increase the cost of insuring members, Mr. Robinson said, and has prompted the union to weigh eliminating the retiree plan.

Adding to those cost concerns is a new $63-per-enrollee fee on health plans that pays insurers to cover people with pre-existing conditions next year. Looking ahead to 2018, when the law levies an excise tax on high-value insurance plans, Mr. Robinson predicts that at least some of the union’s plans will get hit by it…

Over time, Mr. Robinson says, his optimism that regulators or lawmakers would address the union’s concerns diminished. “I don’t think they are going to get fixed,” he said. On Tuesday, the union called for a repeal of the health law or a complete reform of it.

Will the last ObamaCare supporter please turn off the lights?

Topics: 
General, Government and Politics, Health Care

Will the Last ObamaCare Supporter Please Turn off the Lights?

By
Michael F. Cannon

Senate Finance Committee chairman Max Baucus (D-MT) was the primary author of the Patient Protection and Affordable Care Act, known colloquially and affectionately as ObamaCare. Today, he predicted his own law would cause a “huge train wreck” when the federal government begins implementing it fully later this year. He’s not the only one who’s worried. Other Democratic senators have expressed concerns. An Obama administration official recently offered this vote of confidence:

We are under 200 days from open enrollment, and I’m pretty nervous…The time for debating about the size of text on the screen or the color or is it a world-class user experience, that’s what we used to talk about two years ago…Let’s just make sure it’s not a third-world experience.

How could Baucus come to fear his own bill? Maybe because he never read it, as he admitted to his Libby, Montana, constituents in 2010:

Sen. Max Baucus (D-MT): It’s A Waste Of Time For Me To Read The Health Care Bill

Naturally, a Baucus flack later clarified what he meant:

Senator Baucus wrote the bill that passed the Finance Committee and then worked with his colleagues to write the health care bill that is law today. He has spent years crafting this policy and hundreds of hours reading and perfecting it. There is simply no question that he understands the provisions in the health care law…

If so, perhaps Baucus could explain the law to his colleague, Sen. Jay Rockefeller (D-WV). Rockefeller may have spent more time studying health care than any other U.S. senator, Baucus included. For example, Rockefeller founded the Alliance for Health Reform and headed the organization for more than a decade. And yet Rockefeller finds ObamaCare to be “the most complex piece of legislation ever passed by the United States Congress” and “just beyond comprehension”:

Democrat Sen. Jay Rockefeller: ObamaCare is “Just Beyond Comprehension”

But can we really blame Baucus if ObamaCare supporters – including himself – didn’t understand the bill they were passing? After all, he warned us that not all of them would understand it:

Max Baucus, Author of the HEALTH BILL concedes, not all Senators can understand it!

So to recap: Baucus wrote an early draft of the law, helped to write subsequent drafts, didn’t read the final law, totally understands it, and now fears it.

Will the last ObamaCare supporter please turn off the lights?

Topics: 
Government and Politics, Health Care

The Costs of Our Overseas Military Presence

By
Christopher A. Preble

The AP’s Donna Cassata is reporting today on a study commissioned by the Senate Armed Services Committee, which purports to calculate the costs of the U.S. military presence overseas. This is a hot topic, but it isn’t exactly a new one. Americans have long been frustrated by inequitable burden sharing, with many of our wealthy allies spending a fraction of what we do on defense. On Monday, Cato published a new infographic on the subject to coincide with tax day (see below).

Unfortunately, the committee’s estimate that the permanent stationing of U.S. troops overseas costs us $10 billion each year is too low–in all likelihood, much too low. I have not yet had a chance to read the entire report, but the DoD’s own estimate of overseas military costs includes the costs of personnel, and is more than twice that amount, $20.9 billion (see p. 207 in the latest budget submission). Even the DoD’s figure, however, understates the true cost of our commitments to defend other countries that can and should defend themselves, because it doesn’t fully account for the additional force structure that is required to maintain a presence many thousands of miles away from the United States. If the U.S. military operated chiefly in the Western Hemisphere, with regular expeditionary operations far afield, we could safely have fewer people on active duty, and mobilize a large and well-trained reserve for genuine emergencies. This smaller military would require ships and planes to take them where they were needed, when they were needed, but not as many planes and ships as we have today. And no report can actually assess the costs and risks when and if our security commitments compel us to become embroiled in a distant war that does not engage vital U.S. interests. 

Other studies have attempted to assess all of the costs of these various global commitments, and the estimates vary widely. Graham Fuller and Ian Lesser of the RAND Corporation, for example, estimated in 1997 that the U.S. military presence in the Persian Gulf cost between $30 and $60 billion per year. A more recent study by Mark Delucchi and James Murphy estimated costs between $47 and $98 billion. Several of us at Cato have been compiling these estimates, and coming up with our own, as part of a comprehensive study of the costs of our global military presence. We will publish our key findings when they become available.

In the meantime, this much is clear: our security commitments, many of them holdovers from the Cold War, induce other countries to spend less than they could on their own defense. And they compel Americans to spend more than we should.  

 

Subsidizing the security of wealthy allies

 

Topics: 
Foreign Policy and National Security

Pages