Tag: price controls

Price Controls: A Troubling Trend in Latin America

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”.

The Only Ones Who Misunderstand ObamaCare More than Its Detractors Are Its Supporters

Ezra Klein has a post arguing that ObamaCare is unpopular because the public doesn’t understand it. It would be more accurate to say that ObamaCare is popular with people like Klein because they don’t understand it.

Klein notes an apparent negative correlation between the popularity of certain provisions of the law and public awareness of those provisions. If only more people knew about the good stuff in ObamaCare – you know, the subsidies to seniors and the provisions forcing insurers to cover the sick – more people would like it. But the polls showing public support for those provisions don’t ask respondents whether they think the benefits of those provisions are worth the costs. They only ask about the benefits. Since none of those provisions is a benefits-only proposition, those polls tell us essentially nothing.

For example, last year a Reason-Rupe survey asked respondents about laws forcing insurers to cover the sick. What made this poll interesting is that it was the first poll in 18 years to ask respondents to weigh the costs of such laws against the benefits. The below graph (from my latest Cato paper, “50 Vetoes”) displays the results.

Reducing the quality of care is actually the most likely negative effect of banning higher premiums for people with pre-existing conditions. (Don’t take my word for it. The authors of the law knew those provisions reduce the quality of care, and so included an awful lot of regulations that they hope will prevent that from happening.) When people learn about this negative effect, they oppose those provisions by a ratio of five to one. Greater public understanding of ObamaCare increases public opposition to the law.

Klein also writes:

Obamacare can have a hard implementation in 2014, but President Obama isn’t going to repeal it or even lose reelection over it (though congressional Democrats might).

If he means there is no way the law will make things so bad that Obama would have to repeal it, I again think he doesn’t understand the law itself or the challenges of imposing a law like this on a hostile public. I cannot predict that President Obama will repeal his own signature domestic-policy achievement. Indeed, the odds are against it. But we cannot rule it out, and I have already predicted the president will at least sign major revisions to this law before he leaves office.

Where I agree with Klein is when he predicts that ObamaCare will become much harder to repeal if people (in particular the health care industry) get hooked on the trillions of dollars of new taxpayer subsidies that begin to flow in 2014:

My guess is the law’s top-line polling will change a bit, but the bigger change will be that the intensity of its supporters will come to match that of its detractors. All of a sudden, a lot of people will have something to lose if Obamacare is ever repealed.

It’s worth noting that this isn’t an argument that ObamaCare will survive because it’s a good law, but because people will be dependent on it.

If ObamaCare Isn’t Vulnerable, Why Is the President Violating the Law to Save It?

From my oped in today’s Daily Caller, heralding the release of my new Cato white paper, “50 Vetoes: How States Can Stop the Obama Health Law”:

But the surest sign that Obamacare remains vulnerable is that the Obama administration is violating its own statute, congressional intent, and even a Supreme Court ruling in order to save the law.

In “50 Vetoes,” a study released today by the Cato Institute, I explain the administration is so afraid of a sticker-shock fueled backlash that it is preparing to spend more than $600 billion that Congress never authorized to numb consumers to the costs of this law. Along the way, the administration will impose roughly $100 billion in illegal taxes on employers and individuals (including some legal immigrants below the poverty level), and deny millions of individuals the right to purchase low-cost “catastrophic plans.”

To cement the law’s Medicaid expansion in place, the administration is also violating the Supreme Court’s ruling in NFIB v. Sebelius. The Court prohibited the federal government from coercing states into implementing the expansion. Yet HHS is still threatening every state with the loss of all federal Medicaid funds if they fail to implement parts of the expansion. These are not the actions of an administration that feels its health care law is secure.

Finally, supporters forget that President Obama and congressional Republicans have already repealed important parts of the law, including Obamacare’s third entitlement program — a long-term care program known as the CLASS Act, repealed as part of the “fiscal cliff” deal. President Obama is already repealing his law one provision at a time.

Obamacare supporters may scoff at repeal. But if vulnerable Democratic senators start hearing from their constituents about the chaos and sticker shock they experience later this year, the scoffing will cease.

Read the whole paper.

ObamaCare’s False Promise of Cost Savings: ACO Edition

One of ObamaCare’s selling points was that it would supposedly reduce costs through such innovations as “accountable care organizations” or ACOs. I have explained how ACOs are an innovation with many benefits, how markets developed ACOs decades before the government’s central planners caught on, and have predicted that ObamaCare’s centrally planned ACO program would fail to deliver on the promised savings. The reason is simple, and explained by industry expert Robert Laszewski:

Here’s a flash for the policy wonks pushing ACOs. They only work if the provider gets paid less for the same patient population. Why would they be dumb enough to voluntarily accept that outcome?

Turns out, health care providers are not that dumb. They have threatened to bolt ObamaCare’s ACO program in the past, and are doing so again [$] if Medicare tries to cut their pay:

One of CMS’ highest profile health care delivery reform initiatives is on rocky ground as most of the Pioneer ACOs are threatening to drop out of the demonstration if CMS makes them start meeting quality measures instead of merely requiring that they report the measures, according to a letter [$] obtained by Inside Health Policy…The Pioneer ACOs were supposed to be the few shining examples of organizations that could handle outcomes-based pay…

CMS often touts the high level of participation in ACOs, and it would seem that CMS has too much at stake to ignore the Pioneers’ requests and let the demo implode, a health care consultant says. However, it’s difficult to believe that this is the first time that the ACOs have brought these concerns to CMS – some innovation center officials come from the very organizations in the Pioneer demo – all of which indicates that negotiations have not gone well with the agency, the sources say. CMS could make changes to the quality metrics without announcing them in the Federal Register because the Pioneer ACOs are a demonstration, but the cat is out of the bag now, the sources note.

The Pioneer ACOs account for a little more than 30 of the some 250 ACOs in Medicare, and the Pioneers are supposed to be the most advanced, integrated systems of them all.

And thus ObamaCare’s false promise of cost savings comes into sharper focus. File this one under “markets are smart, government is stupid.”

Holman Jenkins: ObamaCare Is Part of the Insanity, Not Its Cure

I’m a week late on this, but Holman Jenkins has an excellent discussion of why health care costs and pricing (not the same thing!) are insane, and why ObamaCare will only make it worse:

Duke University’s Clark Havighurst [wrote] a brilliant 2002 article that describes the regulatory, legal and tax subsidies that deprive consumers of both the incentive and opportunity to demand value from medical providers. Americans end up with a “Hobson’s choice: either coverage for ‘Cadillac’ care or no health coverage at all.”

“The market failure most responsible for economic inefficiency in the health-care sector is not consumers’ ignorance about the quality of care,” Mr. Havighurst writes, “but rather their ignorance of the cost of care, which ensures that neither the choices they make in the marketplace nor the opinions they express in the political process reveal their true preferences.”

You might turn next to an equally fabulous 2001 article by Berkeley economist James C. Robinson, who shows how the “pernicious” doctrine that health care is different—that consumers must shut up, do as they’re told and be prepared to write a blank check—is used to “justify every inefficiency, idiosyncrasy, and interest-serving institution in the health care industry.”

Hospitals, insurers and other institutions involved in health care may battle over available dollars, but they also share an interest in increasing the nation’s resources being diverted into health care—which is exactly what happens when costs are hidden from those who pay them.

Put aside whether President Obama could have pushed real reform if he wanted to. ObamaCare as it emerged from Congress fulfills the insight that any highly regulated system ends up benefiting those with influence, i.e., health-care providers and high-end customers, not those of modest means.

What are ObamaCare’s mandates on individuals and employers except an attempt to force back into the insurance market those who have been priced out by previous “reforms” so their money can be used to prop up a system of gold-plated coverage that mostly benefits those in the highest tax brackets? What are ObamaCare’s minimum coverage standards except a requirement that these customers buy more costly coverage than they would choose for themselves so their money can be used for somebody else?

I include a lengthy excerpt from Robinson’s excellent article in my chapter for the Encyclopedia of Libertarianism.

Matt Yglesias Cools Out the Marks

Ben Smith has a mostly excellent piece titled, “Obama Prepares to Screw His Base”:

[T]he health care overhaul known as ObamaCare [is] calculated to screw his most passionate supporters and to transfer wealth to his worst enemies.

The passionate supporters are the youth, who voted for him by a margin of 60% to 36%, according to exit poll samples of people 29 and under. His enemies are the elderly: Mitt Romney won 56% of the votes from people 65 and over…[W]hat follows may come as an unpleasant surprise to many of the president’s supporters. The provisions required to make any sort of health insurance plan work — not just ObamaCare, but really any plan of its sort — require healthy young people to pay more in health insurance than they consume in services, while the elderly…consume far more than they pay in…[T]his year will be spent laying plans to shift the burden further toward the young…

And so this vast transfer or resources from young to old — just the latest in a long line of these transfers — hasn’t been discussed much because it is totally uncontroversial.

The piece falls shy of totally excellent because Smith incorrectly asserts, contrary to the economics literature, that young people have to subsidize old people for health insurance markets to work. Smith correctly notes that ObamaCare screws young people, but thinks that’s unavoidable, if unfortunate. Since there’s no reason to screw young people at all, ObamaCare is even worse than Smith portrays it.

But Matt Yglesias takes the cake. ObamaCare does not screw the young, he writes. Sure, millions of young adults will pay more for health insurance, even after accounting for ObamaCare’s subsidies. But young adults shouldn’t sweat the triple-digit premium hikes ObamaCare forces them to pay solely for the benefit of subsidizing older people who have more resources than they do. Why? Because today’s young adults will benefit later when ObamaCare does the same for them at the expense of subsequent generations. You know, if they don’t die first. What could go wrong?  

Social scientists have a term to describe the role that people like Yglesias play in a confidence game. It’s called “cooling out the mark.” In his classic 1952 article, sociologist Erving Goffman explains. See if you can find any similarities:

The confidence game – the con, as its practitioners call it – is a way of obtaining money under false pretenses by the exercise of fraud and deceit…

The typical play has typical phases. The potential sucker is first spotted and one member of the working team (called the outside man, steerer, or roper) arranges to make social contact with him. The confidence of the mark is won, and he is given an opportunity to invest his money in a gambling venture which he understands to have been fixed in his favor. The venture, of course, is fixed, but not in his favor. The mark is permitted to win some money and then persuaded to invest more. There is an “accident” or “mistake,” and the mark loses his total investment. The operators then depart in a ceremony that is called the blowoff or sting. They leave the mark but take his money. The mark is expected to go on his way, a little wiser and a lot poorer.

Sometimes, however, a mark is not quite prepared to accept his loss as a gain in experience and to say and do nothing about his venture. He may feel moved to complain to the police or to chase after the operators. In the terminology of the trade, the mark may squawk, beef, or come through. From the operators’ point of view, this kind of behavior is bad for business. It gives the members of the mob a bad reputation with such police as have not yet been fixed and with marks who have not yet been taken. In order to avoid this adverse publicity, an additional phase is sometimes added at the end of the play. It is called cooling the mark out. After the blowoff has occurred, one of the operators stays with the mark and makes an effort to keep the anger of the mark within manageable and sensible proportions. The operator stays behind his team‑mates in the capacity of what might be called a cooler and exercises upon the mark the art of consolation. An attempt is made to define the situation for the mark in a way that makes it easy for him to accept the inevitable and quietly go home. The mark is given instruction in the philosophy of taking a loss.

So remember, young voters. ObamaCare doesn’t screw you. ObamaCare is good for you.

See you next time.