Archives: 01/2012

Oops, Maybe ObamaCare’s Cost Controls Won’t Work after All

One of ObamaCare’s big selling points was that it would launch lots of pilot programs so that Medicare bureaucrats could learn how to reduce health care costs and improve the quality of care. Yesterday, the Congressional Budget Office threw cold water on the idea.

In 2010, Peter Orszag and Ezekiel Emanuel explained the promise of ObamaCare’s pilot programs:

[The law’s] pilot programs involving bundled payments will provide physicians and hospitals with incentives to coordinate care for patients with chronic illnesses: keeping these patients healthy and preventing hospitalizations will be financially advantageous…And the secretary of health and human services (HHS) is empowered to expand successful pilot programs without the need for additional legislation.

Atul Gawande wrote even more glowingly:

The bill tests, for instance, a number of ways that federal insurers could pay for care. Medicare and Medicaid currently pay clinicians the same amount regardless of results. But there is a pilot program to increase payments for doctors who deliver high-quality care at lower cost, while reducing payments for those who deliver low-quality care at higher cost. There’s a program that would pay bonuses to hospitals that improve patient results after heart failure, pneumonia, and surgery. There’s a program that would impose financial penalties on institutions with high rates of infections transmitted by…

You get the idea.

The thing is, pilot programs in Medicare are not new.  And in a review of dozens of Medicare pilot programs released yesterday, the Congressional Budget Office revealed they aren’t very successful, either:

The disease management and care coordination demonstrations comprised 34 programs…

In nearly every program, spending was either unchanged or increased relative to the spending that would have occurred in the absence of the program, when the fees paid to the participating organizations were considered…

Only one of the four demonstrations of value-based payment has yielded significant savings for the Medicare program.

No big deal, you say. Startups fail all the time. What’s important is not that 37 startups failed, but that one succeeded.

That’s how things are supposed to work. But as Alain Enthoven explained to Gawande, the really perverse thing about Medicare pilot programs is that even the successful ones die:

Gawande got it wrong about pilots…The Medical Industrial Complex does not want such pilots and often strangles them in the crib. For example, nothing lasting and significant came of the pilot to reward people for getting their heart bypass surgery at regional centers of excellence. I don’t remember the details of how it died, but I believe it was tried and went nowhere.  No doubt every hospital thought it was a center of excellence and wanted to be so rewarded.

Another more recent example is durable medical equipment.  David Leonhardt had an excellent article in the New York Times on June 25, 2008 called “High Medicare Costs Courtesy of Congress.”  Someone had sold the good idea that prices of durable medical equipment should be determined by competition, and there was a provision in law for pilots to test competition. The industry lobbied hard to stop it and promulgated scare stories. “Grandma won’t get her oxygen.”  Leonhardt recounts how Democratic and Republican leaders got together and postponed the pilot— and, I suspect, postponed it forever.  There were proposals to test health plan competition, fought off by the industry of course.  So this is not a fertile political environment for pilots.  In fact, one of the most important lessons that has come out of the current “reform” process is the enormous power of the medical industrial complex and their large financial contributions and armies of lobbyists to block any significant cost containment.

Rather than a reason for more government interference in health care, the death of these pilots is a consequence of government interference. If the federal Medicare program weren’t such an enormous player in the U.S. health care sector, industry lobbyists (and their servants in Congress) wouldn’t have so many ways to protect themselves from competition by more efficient providers.

Enthoven summed up ObamaCare’s approach to cost control best:

The American people are being deceived. We are being told that health expenditure must be curbed, therefore “reform is necessary.”  But the bills in Congress, as Gawande acknowledges, do little or nothing to curb the expenditures.  When the American people come to understand that “reform” was not followed by improvement, they are likely to be disappointed.  Our anguish is only intensified by the fact that the Republicans are no better at fiscal responsibility, probably worse as they demagogue reasonable attempts to limit expenditures.

Congress is sending the world an unmistakable signal that it is unable or unwilling to control health expenditures and the fiscal deficit.  That is not going to make it easier to sell Treasury bonds on international markets. I fear this will lead to higher interest rates.

FYI, Enthoven wrote those words in 2009.

Would an Extra $27 Billion Improve CA Public School Performance?

As I explain in an op-ed in today’s Orange County Register, that’s not a theoretical question. After adjusting for inflation and enrollment growth, CA spent $27 billion more on K-12 public schooling in 2010 than it did when Jerry Brown was first elected governor back in 1974. SAT scores fell over that period (see chart below).

And if a $27 billion spending boost was associated with a decline in SAT scores, why would anyone expect Governor Brown’s proposal to raise another $7 billion in education taxes to do any good?

Note that the above version of the chart includes an extra two years of (estimated) spending data from the Brown administration’s current budget document, compared to the version than ran in the OCR. I’d left off those years because I didn’t want to include estimates, only concrete figures, but I’ve already been asked about them so I include them here. The picture’s the same either way.

What’s Next for SOPA and PIPA?

With popular sites all over the Internet “going dark” to protest well-intentioned but ill-considered antipiracy legislation, the Stop Online Piracy Act and PROTECT-IP Act are shedding supporters faster than Anthony Weiner on a Twitter spree. But as I explain in a Cato podcast today, neither is dead yet: Rep. Lamar Smith has pledged to continue marking up SOPA next month, and PIPA is still set for a cloture vote next week.

In a huge about-face, given their prior intransigence on this point, both have said they’re prepared to remove, at least temporarily, an onerous and controversial provision to require DNS blocking of accused “rogue sites,” which is an encouraging sign. But if DNS blocking was the worst piracy-fighting proposal on the table, it’s hardly the only one.

The Justice Department and private copyright owners can still seek to have entire foreign sites branded as infringers, triggering an array of remedies that would still deter technological investment and innovation, and still impose serious burdens on American companies and ordinary Internet users. Contrary to the claims of SOPA and PIPA supporters, copyright holders have often been perfectly able to sue the foreign “rogue sites” they cite as evidence new legislation is needed… the problem is that sometimes, they lose. Instead of all that messy litigation, SOPA and PIPA would establish one-sided hearing mechanism that mocks true due process. Any site a single friendly judge deems “rogue” would still be starved of advertising and subscription revenue. American search engines and other “information location tools” would still have to filter their content to redact any links to the shunned site. As Wikileaks has learned, repressive regimes have long known, and the Supreme Court acknowledged in Citizens United, economic regulation can silence speech (and run afoul of the First Amendment) as effectively as overt censorship.

That means we’re bound to see many more stories like the one entrepreneur Dmitri Shapiro tells: His innovative company Veoh won repeated copyright lawsuits filed by movie studios, but was still killed off by the cost of litigation. SOPA and PIPA will ensure that future lawsuit targets lack the means to fight back—which almost certainly means they’ll never get off the ground in the first place.

Such fears are hardly “hypothetical,” as Rep. Smith likes to argue, given industry’s ugly history of abusing copyright law to squelch competition and criticism. Remember, at the end of the day, that the market position of major studios and record labels is very much bound up with their control of traditional distribution channels.  Artists don’t need to be signed to a major label in order to record a great album—but they’re key to marketing the album and getting it into stores.

Any large platform that gives creators an easy way to reach audiences directly, or gives consumers easier mobile access to their legal content, will inevitably do two things: It will enable some amount of copyright infringement, because that’s what digital communications technologies tend to do, and it will cut out incumbent middlemen by circumventing their distribution channels. Industry complains loudly (and often rather dishonestly) about the first effect; the more serious long term threat to their business models is the second.

We’ve already seen a decade of futile efforts to stop unauthorized circulation of copyrighted materials online by “cracking down” ever harder. More new regulations aren’t likely to do the job—but the collateral damage they inflict will keep rising. As a recent and very thorough study by the Social Science Research Council argues, and Netflix has already shown within the United States, the most effective remedy for piracy is to make content easily available online at an attractive price.  Since it’s become a “political fact” that we Must Do Something Right Now to reduce online infringement, why not try that?

How Google Destroyed American Democracy

Eugene Volokh poses some pertinent questions about Google and freedom of speech.

Google notes that Congress is considering the Protect IP Act (PIPA) in the Senate and the Stop Online Piracy Act (SOPA) in the House. They urge their readers to sign a petition opposing both bills.

You may recall the First Amendment says “Congress shall make no law…abridging the right of the people peaceably to assemble and to petition the government for a redress of grievances.” Google the corporation is also exercising its freedom of speech in this case.

As Volokh notes, many critics of Citizens United have argued corporations should not have First Amendment rights because they are not persons. Letting corporations fund political speech, they say, will destroy democracy.

If that position were judicial doctrine, Google would have no right against congressional regulation to speak on this issue or “to petition the government for a redress of grievances.” Congress would have the power to prohibit the speech associated with the link above.

If McCain-Feingold were still good law, Google’s case would be a bit complicated. As the speech stands, McCain-Feingold would not prohibit it. Google is addressing an issue which was permitted. However, if just prior to an election, Google had said “contact Lamar Smith (a sponsor of the House bill) and tell him you oppose SOPA!,” McCain-Feingold would have prohibited that speech or petition.

Because of Citizens United, Google can criticize Congress as it wishes. They can even mention the name of a member of Congress in their speech if they want. If the critics of Citizens United have their way, Google’s criticisms of Congress could become a criminal act.

North Korea Reprises Its Role as International Beggar

The death of North Korea’s Kim Jong-il put relations with the rest of the world on hold.  But Pyongyang has stirred, reprising its role as international beggar.

The new regime, at least nominally headed by Kim’s 28-year-old son, Kim Jong-un, issued its first statement regarding relations with Washington.  The United States should send more than 300,000 tons of previously promised food aid and end economic sanctions to “build confidence” with the North.  In return, the so-called Democratic People’s Republic of Korea might be willing to suspend its uranium enrichment program. The United States, Japan and South Korea stated yesterday that a “path is open” to restarting the six-party talks to address the concern over the North’s nuclear program.

Pyongyang seemed particularly aggrieved that the Obama administration would link humanitarian assistance to security issues.  Shocking!

As Yogi Berra famously said, it is déjà vu all over again.  North Korea makes agreement.  North Korea gets aid.  North Korea breaks agreement.  North Korea blames West.  North Korea offers to negotiate agreement.  And the cycle starts again.

No one knows what to do with the DPRK.  So far regime elites have preferred even impoverished stability over anything more than pro forma reform.  The death of Kim Jong-il creates an opportunity for change, but there is no obvious constituency for revolution among the party apparatchiks and military officers who dominate the system.

That almost certainly means that Pyongyang is not prepared to negotiate away its existing nuclear capability.  Only two men have ruled the North in the past 63 years; Kim Jong-un has none of their authority, and there are several plausible claimants for the throne.  None is likely to be so foolish to alienate the military by campaigning to give away its ultimate weapon.

It still is worth talking with North Korea.  Despite good reason for skepticism, lesser objectives might be achievable—limits on missile development, withdrawal of advanced conventional units, even caps on nuclear capabilities.  Moreover, the DPRK appears to moderate its behavior while engaged in negotiations.

However, Washington should not pay for more promises.  And the U.S. should not provide inducements just to get Pyongyang to talk.  America has much to offer—diplomatic relations, end of sanctions, access to international aid, military withdrawal from the South.  If confidence is to be rebuilt, it must be rebuilt on both sides.

Washington should make no exception for food aid.  The suffering of the North Korean people is tragic, but it remains the result of conscious policies adopted by the North Korean regime.  In fact, that is what “Juche,” the oft-proclaimed policy of self-reliance, is all about.

Moreover, the DPRK would view any government assistance as political affirmation.  And any assistance would bolster a system under siege, aiding the government as it attempts to demonstrate its power and wealth this year during its centenary celebrations of founder Kim Il-sung’s birth.  If the North needs more help, let it go to China, which already is keeping this desolate land afloat economically.

Refusing to engage other nations rarely makes sense, even in the case of North Korea, despite the monstrous nature of the regime.  However engagement does not mean appeasement.  In the future, Washington should restrict its rewards to the North for acting, not promising.

Cross-posted from the Skeptics at the National Interest.

It Was the Republican Banker on the Fed Board Raising Concern about Housing

If you’ve followed Obama’s nominations to the Federal Reserve, he’s been pretty consistent, displaying a strong preference for coastal academics or politicos.  Not one of his nominations came from the private sector (or “flyover country”), despite the very clear requirements of the Federal Reserve Act.

Recently released Fed transcripts reveal an interesting fact: it wasn’t the all-knowing, impartial Ivy League academics (like Bernanke and Yellen) or the long-term bureaucrats (like Geithner) that expressed concern about the housing and mortgage markets, it was the Republican banker from Tennessee, Susan Bies.  Unfortunately it appears that the academics and bureaucrats on the Board treated Governor Bies’s concerns with their usual contempt for anyone who’s actually had to make payroll (or didn’t do their graduate work at Harvard or Yale). 

In Obama’s defense, we are talking about the Federal Reserve Board as it existed in 2006.  Bush was almost as bad about filling important economic positions with either New Keynesian academics (Mankiw, Bernanke) or Wall Street insiders (Paulson).  Bush, however, did occasionally bow to some voices outside the Cambridge-Wall Street-Washington echo chamber, with Fed appointments such as Bies and the current Fed governor Duke.

The relevance for public policy choices facing us today?  First, while a Board is no panacea, it does mean alternative voices are at least heard before they are dismissed (think the Consumer Financial Protection Bureau) and second, having a bunch of arrogant (and ignorant of real markets) academics run our economy is a recipe for disaster.  And I’m not suggesting we turn our government over to corporate America, I’m suggesting we return our economy to the control and choices of free individuals.

The Internet Is Not .gov’s to Regulate

Imagine that Congress passed a law setting up a procedure that could require ordinary citizens like you to remove telephone numbers from your phone book or from the “contacts” list in your phone. What about a policy that cut off the phone lines to an entire building because some of its tenants used the phone to plot thefts or fraud? Would it be okay with you if the user of the numbers coming out of your phone records or the tenants of the cut-off building had been adjudged “rogue” users of the phone?

Cutting off phone lines is the closest familiar parallel to what Congress is considering in two bills nicknamed “SOPA” and “PIPA”—the “Stop Online Piracy Act” and the “PROTECT IP Act.”

Julian Sanchez has vigorously argued several points about these bills. Here, I’ll try to describe what they try to do to the Internet.

Simplifying, every computer and server has an IP (or “Internet Protocol”) address, which is a set of numbers that uniquely identify its location on the Internet. The IP address for the server hosting Cato’s Spanish language site,, for example, is

Now, these numbers are hard to remember, so there is a system that translates IP addresses into something more familiar. That’s the domain name system, or “DNS.” The domain name system takes the memorable name that you type into the address bar of your computer, such as, and it looks up the IP address so you can be forwarded along to the IP address of your choice.

One of the major ideas behind SOPA and PIPA is to cut Internet sites that violate copyright out of the domain name system. No longer could typing “” get you to the Web site you wanted to visit. Much of the debate has been about the legal process for determining whether to strike out a domain name.

But preventing a domain name lookup doesn’t take the site off the Internet. It just makes it slightly harder to access. You can prove it to yourself right now by copying “” (without the quotes) and plugging it into your address bar. (The Internet is complicated. Some of you might be directed to other Cato sites.) Then come back here and read on, por favor!

The government would require law-abiding citizens to “black out” phone numbers—or Internet service providers to do the same with domain names—for this little effect on wrongdoing? It doesn’t make sense. The practical burdens on the law-abiding Internet service provider would be large. “Blacking out” an entire building—just like a Web site—would cut off the lawful communications right along with the unlawful ones. It’s through-the-looking-glass information control, with enormous potential to obstruct entirely lawful communications and impinge on First Amendment rights.

Which is why many Web sites today are “blacking out” in protest. In various ways, sites like, Wikipedia, and many others are signaling to their visitors that Congress is threatening the core functioning of the Internet with bills like SOPA and PIPA. And threatening all of our freedom to communicate.

The Internet is not the government’s to regulate. It is an agreement on a set of protocols—a language that computers use to talk to one another. That language is the envelope in which our communications—our First-Amendment-protected speech—travels in hundreds of different forms.

The Internet community is growing in power. (Let’s not be triumphal—government authorities will use every wile to maintain control.) Hopefully the people who get engaged to fight SOPA and PIPA will recognize the many ways that the government regulates and limits information flows through technical means. The federal government exercises tight control over electromagnetic spectrum, for example, and it claims authority to impose public-utility-style regulation of Internet service provision in the name of “net neutrality.”

Under the better view—the view of freedom behind opposition to SOPA and PIPA—these things are not the government’s to regulate.