November 12, 1999

by Peter J.M. Orvetti

Electric Spark
Life Support For Medicare
A Free Lunch?

Electric Spark

Eleven new power plants have sprung up in Arizona following the deregulation of the electricity industry, the Arizona Republic reported. The state's economic and population growth has given rise to the new plants over the past year and one-half. The plants would offer enough energy to light four million homes, though most are merchant plants that will produce power for sale to wholesale customers.

"The deregulation of regulated industries has been one of the main legislative stories of the past 20 years," says the Cato Handbook for Congress. "The trucking, railroad, airline, bus, banking, natural gas, and telecommunications industries have all been-to one degree or another-introduced to the world of economic competition. And now the $200 billion electricity industry awaits its turn to receive federal regulatory parole. The potential gains are great. A study by economists Michael Maloney and Robert McCormick of Clemson University estimates that the introduction of market prices would probably cut off-peak electricity prices by 25 percent... Unfortunately, the early debate over whether and how Congress should deregulate the electricity industry has been almost completely about the former. Most of the industry's would-be reformers seek to impose their vision of how the industry ought to be organized; delegate much if not most of the detailed work of deregulation to federal and state regulators; and continue exercising political control over the transmission, distribution, and sale of electricity…

"The entire federal electricity apparatus should be repealed because the market failure rationales for it do not exist. The Federal Power Act, PURPA (a limited version of mandatory access, the main function of which has been to force utilities to purchase power from third parties at nonmarket prices), and the archaic PUHCA (which strictly controls the ownership and management structures of electric utilities) should all go. Congress should also ensure a level economic playing field by privatizing the federal power marketing authorities, the Tennessee Valley Authority, and all federal power generation facilities; and tax and fiscal preferences granted municipal power companies and electricity cooperatives should be terminated. All federal price subsidies, tax incentives, and regulatory preferences for renewable energy should also be eliminated. The environmental benefits of renewable energy are dramatically overstated. In fact, every single renewable energy source has drawn legitimate opposition from environmental organizations on various counts. If and when fossil fuels become more scarce, the electricity industry, without assistance, will turn to more abundant (i.e., cheaper) alternatives."

Life Support For Medicare

The House and Senate are completing legislation to restore about $10 billion in Medicare reimbursement reductions over the next five years, AP reported. The funds would go to hospitals, nursing homes, managed care providers and home health agencies.

But "[t]he Medicare system cannot be saved by raising taxes and cutting benefits. That would impose too much harm on both workers and retirees," writes Peter J. Ferrara in the Cato Policy Analysis "The Next Steps for Medicare Reform". "If allowed to continue on its present course, Medicare will ultimately bankrupt workers, the federal government, and the elderly. The solution lies in reforming the system to take advantage of the efficiencies, incentives, competition, and productivity of the private sector. This study showed how that could be achieved through reform involving two basic components. First, retirees would each be allowed to use their share of Medicare funds to purchase more cost-effective private coverage that in many instances would provide better benefits than Medicare, as was begun in the 1997 reforms. Second, workers would be allowed to save and invest their Medicare funds through the private sector instead.

"The cost-reducing effects of the private alternatives under the first component along with the increased resources resulting from the second component would be sufficient to eliminate the enormous long-term financial deficits of the current Medicare system, with little or no cost burden to retirees. Indeed, through the reform retirees would be guaranteed that Medicare premiums would grow no faster than their incomes, unlike the current system under which such premiums would grow enormously over time. Retirees would also be able to get better benefits through the private alternatives than are offered by Medicare. Retirees would enjoy as well greater freedom of choice, power, and control over their health and its care."

A Free Lunch?

Nine food processing organizations have asked Congress to kill a measure that would temporarily ban large-scale agribusiness mergers, Reuters reported. "Under the proposed merger moratorium bill, a faltering agribusiness would simply close its doors, leaving employees, farmers and communities to look for other sources of income. Like farmers who seek to sell their land when they retire, mergers and acquisitions often serve as the retirement plan for small business owners. Banning such mergers or acquisitions will effectively destroy the financial futures of many small- and mid-sized business owners and their families," the American Bakers Association, American Meat Institute, Grocery Manufacturers of America, International Dairy Foods Association, National Association of Manufacturers, National Food Processors Association, National Meat Association, North American Meat Processors and Produce Marketing Association wrote in a letter to senators. Sen. Paul Wellstone (DFL-Minn.) has proposed a bill that would bar agribusiness mergers and acquisitions if one partner had assets or revenue exceeding $100 million and the other had assets or revenue of $10 million.

"Opposition to mergers, though in theory based on worries that competition may be impaired, often in practice comes not from consumers whose interests antitrust is supposed to defend, but from competitors faced with the prospect of a larger, more aggressive rival," writes William F. Shughart II in the Cato Policy Analysis "The Government's War on Mergers:The Fatal Conceit of Antitrust Policy". "Because they respond to the demands of competitors, labor unions, and other well-organized groups having a stake in stopping mergers that promise to increase economic efficiency, the antitrust authorities all too often succeed, not in keeping prices from rising, but in keeping them from falling."

And agribusiness has been treated well by the government, according to the Cato Policy Analysis "How Corporate Welfare Won". "Since 1985 the federal farm price support programs have cost U.S. consumers and taxpayers some $370 billion--enough money to purchase all the farmland in 41 states... The federal sugar program provides the owners of the 33 largest sugar plantations in America more than $1 million each per year and doubles the price of sugar to U.S. consumers. A courageous bipartisan effort to end the subsidies by Dan Miller (R-Fla.) and Charles Schumer (D-N.Y.) was squashed. The 60-year-old peanut quota system--which limits the number of farmers who may grow peanuts--raises the cost of peanut butter by up to 70 cents per jar. It went largely untouched."