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Cato Dispatch for June 26, 2009

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(Links to outside sources were active as of the date of this dispatch; however, not all news sources maintain links to current stories indefinitely. Some links also may require registration.)

Cato Scholars Challenge Obama's Push for Government-Run Health Care
Obama's Cool Response to Iranian Politics Appropriate
Michael Jackson: A Great American Capitalist

Cato Scholars Challenge Obama's Push for Government-Run Health Care

President Obama took to the airwaves Wednesday in an effort to promote his plan for a national government-run health care system. He  answered questions on rising costs, taxing benefits and many other issues during an ABC News special on health care reform called "Questions for the President: Prescription for America." Cato analysts Michael D. Tanner and Michael F. Cannon offered live commentary and analysis the night of the program. In case you missed it, you can watch the show and follow along with expert analysis on Cato's blog.

For more commentary, watch Cannon and Tanner dissect the new health care plan in a special Cato video.

Writing on ABCNews.com, Cannon lists 11 questions the public needs to ask Obama about his plan before it goes any further. According to Cannon, the "health of millions depends" on Obama getting the answers to these questions right.

If, under his new plan, Americans will be forced to spend more on health care, where is that money going to come from? In a Tax and Budget Bulletin, Michael Tanner and Chris Edwards argue that the government may have to raise taxes on the middle class to pay for this kind of "reform:"

Expanding government health care will likely involve huge tax increases on the middle class….There has also been talk of using revenues from a cap-and-trade global warming plan to fund health care. Obama's budget included an $80 billion per year revenue increase for cap-and-trade, and economists calculate that the relative burden of such a plan would be far greater on lower-income than higher-income families. Thus, as Americans consider the current health care debate in Congress, they should remember the words of humorist P.J. O'Rourke: "If you think health care is expensive now—just wait until it's free."

The number of Americans without health insurance has been debated extensively.  Estimates range as high as 46 million, but with a little help from Carl Bialik at The Wall Street Journal, Cannon points out some major flaws in that estimate:

Experts including the non-partisan Congressional Budget Office said that no, 40-some million is the number who are uninsured on any given day, and a lot of those people quickly regain coverage.  The number of Americans who are uninsured for the entire year is actually 20-30 million.  Yet the Church of Universal Coverage kept using that 40-some million estimate as if nothing had happened – even though the meaning of that estimate had completely changed.

The Congressional Budget Office also reports that as many as 15 percent of those 20-30 million chronically "uninsured" are eligible for government programs, so they're effectively insured.

According to economists Mark Pauly of the University of Pennsylvania and Kate Bundorf of Stanford, as many as three-quarters of the uninsured could afford coverage but choose not to purchase it.  Again, according to the Congressional Budget Office, 60 percent of the uninsured are under age 35, and 86 percent are in good-to-excellent health.

Government intervention has made health insurance unnecessarily expensive for them, so these folks quite sensibly don't want to be ripped off.  Mandating that they buy coverage is really about hunting them down and taxing them.

Cato scholar and Harvard economics professor Jeffrey A. Miron argues that whether it's 46 million people without insurance or 46, it does not matter:

The problem is thus that insurance companies can determine all too well who is a good health risk and who is not, so they will price insurance accordingly if the law permits. This strikes many people as unfair, so they want to subsidize insurance for those born with unhealthy genes.

If insurance subsidies had few unintended consequences, this might be a reasonable form of social insurance. The problem is that subsidizing insurance exacerbates moral hazard, the tendency of people with insurance to consume too much health care. This is a crucial reason for rapidly increasing health expenditures.

Policy must therefore accept a trade-off: subsidizing health insurance will increase some people's perceptions of fairness, but it will make the health care market less efficient.

A reasonable balancing of these two concerns suggests subsidizing insurance for the truly poor, but no more. In fact, the U.S. already does that via Medicaid. The uninsured are mainly people with too much income to qualify for Medicaid, or people eligible but fail to apply. Thus expansion of subsidized insurance to the currently uninsured, whatever their number, is likely to generate substantial inefficiency relative to any increase in "fairness" it creates.

For more Cato research on health care reform, visit Healthcare.Cato.org.

Obama's Cool Response to Iranian Politics Appropriate

As the voices of protest to the Iranian election grow louder, many have called upon President Obama to use bolder rhetoric when speaking about the elections in Iran. Last week, Charles Krauthammer and Paul Wolfowitz opined in The Washington Post that Obama's reaction has not been nearly enough. Cato foreign policy expert Christopher Preble disagrees, saying that Obama's calculated reaction is appropriate:

The louder the neocons become in their braying for a free and fair counting of the election results, the less likely it is to occur. In their more candid moments, a few are willing to admit that they would prefer Ahmadinejad to Mousavi.

…It is possible to view President Obama as a more credible messenger, given that he opposed the Iraq war from the outset and has shown a willingness to reach out to the Iranian people. Perhaps a full-throated, morally self-righteous, public address in support of Mousavi's supporters might have tipped the scales in the right direction.

It seems more likely, however, that Obama's patient, measured public response to recent events is well suited to the circumstances. As the president said earlier this week, Americans are right to feel sympathy for the Iranian protesters, and we should all be free to voice our sentiments openly. But it is incumbent upon policymakers to pursue strategies that don't backfire, or whose unintended consequences don't dwarf the gains that we are trying to achieve. In many cases, the quiet, private back channel works well. And if we discover that there is no credible back channel to Iran available, similar to those employed in 1986 and 1991, then we'll all know whom to blame.

Cato scholar Justin Logan says that the U.S. government should stay silent on Iran:

President Obama should keep quiet on the subject of Iran's elections. At least two pernicious tendencies are on display in the Beltway discussion on the topic. First is the common Washington impulse to "do something!" without laying out clear objectives and tactics. What, after all, is President Obama or his administration supposed to do to "support protesters" in Iran in the first place? What would be the ultimate goal of such support? Most importantly, what is the mechanism by which the support is supposed to produce the desired outcome? That we are debating how America should intervene in Iran's domestic politics indicates the sheer grandiosity of American foreign policy thought.

Michael Jackson: A Great American Capitalist

News sources confirmed that Michael Jackson died Thursday in Los Angeles, allegedly due to cardiac arrest.

Ilya Shapiro comments:

While the big news of the day wouldn't seem to have a public policy angle, Michael Jackson's death allows us to remember that such phenomenal career achievements can only be possible in an economic system that rewards and harnesses talent.

The King of Pop's creativity allowed him and his family to make hundreds of millions of dollars, yes, but it also created thousands of jobs in the music and marketing industries and brought joy to fans around the world. Whatever his personal eccentricities — perhaps, in part, as a result of them — Jackson represents a capitalist success story.

No central planner could have invented him, and no government bureaucracy could have transformed pop music in the way he did.

Chris Moody, editor, cmoody@cato.org