Archives: 05/2008

How Many Impossible Things Can You Believe before Breakfast?

Yesterday, an announcement from the Commonwealth Fund landed in my inbox. The subject line read:

How to Achieve Universal Coverage While Lowering Health Spending

A colleague received the same release, and forwarded it along with this note:

Coming next, anti-gravity and perpetual motion machines.

To which I replied:

eternal youth, gold from base metals, a lasting peace in the Middle East

To which he replied:

The dead shall rise, the lame shall walk, the blind shall see.

I’m tempted to throw in something about the Cubs winning the World Series. But even that wouldn’t convey the level of impossibility we’re talking about here. You see, there’s an outside chance that the Cubs actually could take the Series.

I’d say we’re as likely to see the dead, the lame, and the blind win the World Series as we are to achieve universal coverage while lowering health spending.

Or does even that overstate the odds?

Can You Trust Cato?

After noting that “some of my best friends work for think tanks,” The Atlantic blogger Megan McArdle contends that these organizations cannot be trusted because the purported ideological homogeneity of their employees renders them intellectually blindered, lazy, and compromised. Since Cato was apparently the first think tank Ms. McArdle thought of in the context of school choice (and I’m not even one of her best friends!), I couldn’t resist the temptation to respond.

All human institutions are flawed (I used to work for one of the most successful corporations in the world, and it was no exception), but I haven’t noticed the crippling “groupthink” that McArdle warns of in my time at Cato. I have had stimulating debates with colleagues on a host of issues, including education policy. As it happens, I’m not alone. Cato made waves in the blogosphere not so long ago due to a very public disagreement among its staff over domestic surveillance law and policy. One of the bloggers who noted this lack of ideological groupthink at Cato was… Megan McArdle. Cato scholars have at times publicly disagreed on high profile foreign policy questions as well.

Getting to the heart of her argument, though, I’m puzzled as to why someone conversant with public choice theory would imagine that think tanks are categorically different from other sources of scholarship when it comes to ideological bias. McArdle contends that donors would balk if think tanks produced publications at odds with the donors’ preferences. Some do. Cato has in fact lost donors on a number of occasions for this reason. But this incentive system is not fundamentally different from what obtains in the academic world. In academia, career advancement is tied to journal publication, but journal editors and peer reviewers have their own biases (as do academic authors themselves), and these are felt in their decisions of what to publish. Hence, there is pressure on academics to conduct studies they expect to be more rather than less publishable.

The most notable difference between academic and think tank papers is that naive some readers grant academic papers an unwarranted presumption of impartiality. The same applies to government publications. For think tanks, the absence of that presumption means that our work is more stringently checked by the media when the ideological flavor of the medium is different from the presumed slant of the think tank. Since there are few libertarian media outlets, Cato output is subjected to more extensive fact checking by the media than is the typical academic paper, government pronouncement, or the media’s own reporting. For example, I recently wrote an op-ed noting that the press grossly understates per pupil spending in DC public schools. In making my case, I observed that local media had claimed “$8,322 is spent for each student” and then I showed that when the district’s total budget is divided by its enrollment the real figure is over $24,000 per pupil. The editor of the paper publishing my piece asked for my source for the inaccurate media figure, claiming that his own paper knew better. I pointed him to an article in his own paper that used it (among others).

This is not unusual. It is far more common that we at Cato point out inaccuracies in the mainstream media and in government claims and reports than the other way around. 

In a world in which everyone who collects and analyzes data invariably is subject to complex economic pressures, there is only one reliable path to the truth: read their publications critically and assess them for yourself, on their intrinsic merits. In cases where you lack the expertise to critically evaluate a study yourself, the next best thing is probably to seek out a proxy reviewer – an expert in the field whose conclusions you have reason to trust. But simply dismissing an entire category of scholarly institutions due to a misplaced faith in the impartiality of the other categories is an epistemological error.

Hitler’s America? Only to an Anti-Trade Liberal

In an op-ed in today’s Wall Street Journal the political liberal Thomas Frank paints a Depression-era picture of American workers and households.

“Real hourly wages for most workers … have risen only 1% since 1979,” he writes. Median “non-elderly” household income is down since 2000. Americans work more hours per year than their counterparts in other industrialized countries. The phrase “modern American slave labor” even finds its way into his column. All this reminds Frank of “those what-if stories in which Hitler wins World War II. Could this really have happened to my country?”

What is to blame for this “disaster”? According to Frank, “tax cuts, trade agreements, deregulatory measures, and enforcement decisions all finely crafted to benefit one part of society and leave the rest of us behind.”

Facts on the ground show a far different America. In a study from last October, titled “Trading Up,” I found that expanding trade and trade agreements have actually lifted the living standards of most Americans. Consider a few facts that directly contradict Frank’s doom-saying:

  • In the past decade, the average hourly real compensation—wages and benefits adjusted for inflation—earned by American workers is up 22 percent.
  • Median household income for all Americans (what, don’t the elderly count, too?) is up 6 percent in the past decade.
  • The share of American households earning LESS than $35,000 a year continues to fall.
  • The median net worth of American families, adjusted for inflation, is up by more than one-third since the mid-1990s.
  • Total employment is up by 16.5 million and the unemployment rate is down. (And since when did liberals find it objectionable that Americans seem to have plenty of work to do?)

Critics of free markets and free trade may find it politically expedient to paint a grim picture of economic “stagnation,” but in the real world Americans continue to progress.

The Gas Tax Holiday Explained

The commentariat (including Cato folks and friends) have spent the past couple of weeks sounding off on John McCain and Hillary Clinton’s proposals to suspend the federal motor fuels tax this summer. The commentary has been almost uniformly critical of the idea, and some of the harshest critics have been economists.

Unfortunately, a lot of this commentary seems to be value judgments disguised as economics. Also, much of the economic analysis makes assumptions about the market that may not be correct or that may be offset by other market conditions — but the commentators do not mention (and may even forget) those problems. Put simply, though the idea of a gas tax holiday may be flawed, many of the opinion and analysis pieces on the McCain and Clinton proposals appear to be flawed as well.

Peter Van Doren and I have put together this short paper on the microeconomics of the gas tax. Don’t let the figures and the talk of “elasticities” throw you — the ideas are easy to understand.

The upshot is this: Contrary to many economists’ claims, it’s quite possible that a tax holiday could give consumers some price relief on motor fuels. (This is an economic insight.) However, it’s an open question whether that savings is worth its cost. (Answering that question requires a value judgment.)

The Perils of Government-Run P4P

One of the hottest trends in health policy – wait, where are you going? – is for insurers to pay doctors and hospitals based on the value of their services. I know: how novel. But as it happens, in the United States we generally pay providers based on volume, rather than value. The new trend of value-based purchasing goes by the name “pay-for-performance” or P4P.

P4P can be tricky, since patients vary in terms of their preferences and how they respond to even high-quality care. So if you’re going to have insurers define and reward value, it makes sense to let patients choose their health plan. That way, patients can avoid a P4P system that might (ironically) leave them with lower-quality care.

Unfortunately, the government doesn’t see it that way. The federal Medicare program – which covers 45 million seniors and disabled Americans, making it the nation’s largest purchaser of medical services – is developing a P4P scheme that enrollees will find unavoidable, for two reasons. First, many Medicare enrollees do not have the option of switching insurers. Second, even if they do have that option, private insurers will simply follow the P4P scheme developed by Medicare. Why spend your own money doing something when a big government bureaucracy will do it for you?

The reactions to a study in this week’s Journal of the American Medical Association illustrates another concern with government-administered P4P. According to that study:

Safety-net hospitals tended to have smaller gains in quality performance measures over 3 years and were less likely to be high-performing over time than non–safety-net hospitals. An incentive system based on these measures has the potential to increase disparities among hospitals.

This is not necessarily a problem: a P4P scheme should penalize low-quality care and spur those hospitals to improve quality.

The problem is that when government administers the P4P scheme, the low-quality providers and their advocates will lobby their elected officials for more money in advance of improving quality. In some cases, such as safety-net hospitals, providers may indeed require more resources to improve the quality care. But because the P4P scheme is politically controlled, even providers who don’t will demand more resources – and get them. Moreover, what will those providers say if the “pre-improvement” subsidies fail to deliver any improvement? I’m willing to bet my hat that they’ll ask for even more subsidies.

As I argue here, better that we just let patients choose their health plan, and leave the P4P-ing to the private sector, where the low-quality providers won’t be able to lobby their way out of making some badly needed behavioral changes.

A Cross Between Bill Lumbergh and Robert Strange McNamara


For a look through the keyhole into the bizarre world of the Rumsfeld-era DOD establishment, take a look at these documents describing the DOD military analysts/”force multipliers” program. Or better yet, listen in to some of Rumsfeld’s Roundtables, with audio available here and here. Over the slurpings and mastications of people like Jed Babbin, now editor of Human Events who was then thought to be a reliable pitcher of “softballs” designed to defend the DOD line of the day, you can hear what your half-a-trillion per year pays for. (Sounds like expensive china their forks and knives are clinking against, at least.)

The topics of conversation range from Rumsfeld likening himself to Churchill, Rumsfeld grousing about obstruction to his ideas on the Hill, Rumsfeld grousing about Moqtada al-Sadr (“he’s not a real cleric!”), and various people (including Babbin) fawning over Rumsfeld. The discussion is peppered with Pentagon-speak, good-old-boys-club outbursts of laughter, and Rumsfeldian aphorisms (“you don’t want to eat your seed corn…”) It’s a little nauseating and a little enlightening. Bill Lumbergh meets Robert McNamara.