Conservatives for Higher Taxes

Center for a Free Economy president Ryan Ellis writes in the Washington Examiner that President Trump “has caved to the socialists” by proposing to set the prices that Medicare pays for certain drugs at a percentage of the prices that foreign governments set for those drugs:

Unfortunately, rather than fighting the socialists, the president has decided to become one with them — at least when it comes to prescription drugs. After spending most of this year rightly condemning governments in Europe and elsewhere for ripping off Americans by imposing below-market price controls on drugs, Trump and [Secretary of Health and Human Services Alex] Azar basically surrendered to the price controls and announced we would be adopting them ourselves…

By letting the foreign price controls serve as a reference price control here, Trump has put us down the same path of scarcity and rationing all too often seen in the rest of the developed world.

The purpose of Trump’s proposal is indeed to reduce the prices Medicare pays for these drugs. Medicare currently pays much more for these drugs than government-run health systems in other nations.

Beyond that, Ellis’s oped crystallizes everything conservatives get wrong about drug pricing and Medicare purchasing in general. A few clarifications:

  1. No one knows what the “right” price is for any drug. We need market prices because they create incentives that naturally and always push prices in the right direction. 
  2. Medicare’s administered (read: ouiji-board) prices are indeed price controls, but not in the usual meaning of the term. They do not restrain prices anywhere but within the Medicare program.
  3. Medicare’s administered/controlled prices are not market prices, any more than other governments’ administered/controlled prices are market prices. 
  4. The Trump proposal would merely change the way Medicare comes up with the prices it pays for drugs. Those prices would not be any more “price-controlled” after the Trump proposal than they were before. They would just be lower–if the proposal achieves its stated goal, that is, which may or may not happen (more below).
  5. Conservatives who argue Medicare should not pay less than it currently does for drugs need to address the paradox inherent in their argument that, in order to restrain government and have a free economy, government must spend more. In order to fight socialism, taxes must be higher.
  6. One cannot import a price control. That’s not how they work. A government can either impose price controls on its own populace, or not. It cannot import the coercion another government exerts on its own citizens.

Ellis is correct when he writes, “Markets do a much better job reducing drug prices than government price controls do, and they do it while making prescription medicines widely available to patients, as opposed to rationed due to scarcity.” But the end result of these misunderstandings and misconceptions is that conservatives end up crowding out markets and/by opposing efforts to reduce government spending. This is why the Left believes, with justification, that when it comes to health care conservatives are just a bunch of cronyists.

Another irony: the more likely impact of Trump’s reference-pricing scheme is that prices in other nations would rise, which is exactly what Ellis says he wants.

Overcharged by Cato adjunct scholars Charlie Silver and David Hyman is the antidote to this strand of un-conservative conservative thinking. 

Power Problems Podcast Survey

Power Problems is one year old! In our first year, the podcast has covered a lot of ground, from the death of the Iranian nuclear deal to the defense budget, trade policy and nuclear weapons. Surprising no one, we’ve spent way too much time talking about the Middle East and the curious foreign policy perspectives now emanating from 1600 Pennsylvania Avenue.

But as we head into the second year of our podcast, we’d like to get some feedback from our listeners, so we can give you more of what you enjoy. To help us out, please take a couple of minutes and fill out a quick survey on the podcast. You can find the survey here.

If you’re not already a listener, and want to hear what we’re all about, you can hear myself, Trevor Thrall, and a selection of guests from across the political spectrum discussing top foreign policy issues biweekly. You can find us on iTunes, Stitcher or via the Cato Audio app. 

Thanks for your feedback, and thanks for listening to Power Problems! 

Ridiculous Claims in Yoram Hazony’s The Virtue of Nationalism

President Trump recently said, “I’m a nationalist. OK? I’m a nationalist.”  Trump didn’t give a definition of what a nationalist is or what that ideology entails.  Fortunately, political theorist Yoram Hazony recently wrote The Virtue of Nationalism where he attempted to define and present a persuasive argument in favor of nationalism.  This was a worthy goal as nationalism is currently a popular political ideology.  The time is right for a book that defines nationalist and coherently and consistently makes the case for it.  Unfortunately, The Virtue of Nationalism is not that book. 

Other reviewers have identified its many problems, so instead of writing another review, I’m going to list some ridiculous claims that Hazony makes in his book and some of the logical implications of those claims.  Those claims and implications are numbered below and come from his book and I identify them as one or the other.  They are my summaries of his claims and NOT direct quotes.

1.  Nationalists can’t do the bad things that nationalists are most known for, according to Hazony’s definition.

Early in his book, Hazony wrote that he “will not waste time trying to make nationalism prettier by calling it ‘patriotism,’ as many do in circles where nationalism is considered something unseemly.”  True to his word, Hazony wasted zero-time conflating nationalism and patriotism, the latter being different and mostly positive.  He just wasted most of his book arguing that any nation-state that attempts to conquer other nations is not really a nation-state. 

According to Hazony, a nation is combination of “a number of tribes with a common language or religion, and a past history of acting as a body for the common defense and other large-scale enterprises” (18) and that “the world is governed best when nations are able to chart their own independent course, cultivating their own traditions and pursuing their own interests without interference” (3). 

Hazony contrasts nation states with imperialist states that have universal ideals that he claims leads to conquest.  Thus, nation-states cannot seek to conquer other nation-states as that would make them imperialist states because they do not respect the independent course of other nations.  According to Hazony, a state cannot be a nation-state and imperialist (dominating or seeking to dominate other nations) at the same time due to his unique definition that conveniently excludes the “bad” nation-states.  In my reading of the literature on nationalism, historian Douglas Porch was more likely correct when he wrote: “Colonialism was not, as Lenin claimed, ‘the highest stage of capitalism.’ Rather it was the highest stage of nationalism.”

2. Hitler and the Nazis were not nationalists.

Following his definition of nationalism, Hazony repeatedly claims that the Nazis were not really nationalists.  I know of no other serious historian of the Third Reich or other thinkers on nationalism who would go so far as to say that Hitler or the core ideology of the National Socialist German Workers Party weren’t nationalists.  They were, of course, nationalists.  The first point of their political platform was: “We demand the unification of all Germans in the Greater Germany on the basis of the people’s right to self-determination.”  The evidence that the Nazis considered themselves nationalists, that others considered them nationalists, and that they fit into the scheme of nationalism is so massive that it would be silly to run through it all. 

Hazony should have just argued that not all nationalists are Nazis and that very few of them have achieved or even attempted to achieve that level of evil – which would be perfectly reasonable and true statement!  Not all nationalists are Nazis (very few are, in fact), so this would have been a very reasonable acknowledgment for him to make that would barely even rise to the level of a concession.  Carlton Hayes wrote a useful taxonomy of nationalism with Nazism on one extreme and liberal nationalism on the other.  There was no need for Hazony to make the blatantly false historical claim that the Nazi’s weren’t nationalists in order to argue in support of nationalism in the modern world.

3. Europe has never had nation-states, even during the age of nationalism.

This is an implication of Hazony’s unique definition of nationalism and nation-states, not something that Hazony explicitly wrote in his book.  According to his unique definition, there were no nation-states in the so-called age of nationalism in Europe.  During the age of European nationalist in the 19th and 20th centuries, France, the United Kingdom, Spain, Portugal, the Netherlands, Germany, Italy, Belgium, Denmark, and other nation-states were imperialists too.  They conquered colonies and overseas territories populated by non-nationals that they ruled with ghastly humanitarian consequences.

If Nazi Germany was not nationalist because it conquered other countries, then surely those European nation-states in the age of nationalism were also not nationalist because they conquered other countries.  I asked Hazony about this and his response was unsatisfying (Figure 1). 

Figure 1

Twitter Exchange Between Yoram Hazony and Alex Nowrasteh

 

 Source: Alex Nowrasteh’s Twitter Account on September 19, 2018.

 4.  Nationalism has nothing to do with race or ethnicity (page 20 of his book).

Hazony makes this claim specifically about the ancient Israelites.  I’m not a Torah scholar so he may be correct in that specific case.  However, many other nation-states are explicitly defined by ethnicity.  The Latin root of nationalism is natio, which means tribe, ethnic group, race, breed, or other divisions by birth.  Hazony’s definition that a nation-state forms from “a number of tribes with a common language or religion, and a past history of acting as a body for the common defense and other large-scale enterprises” is highly correlated with ethnicity, to say nothing of the historical inaccuracy of his theory.  There is much research arguing that there is a link between ethnicity and nation. 

Hazony could have argued that nation-states can also be formed by civic attachments too, thus widening the definition as many modern scholars do so they can avoid the ugly implications of arguing for a race- or ethnicity-based nation-state.  However, Hazony specifically wrote that nations formed along civic lines are systematically unstable and impossible to hold together, at best temporary, and that they function poorly relative to nation-states created with the ethnicity-correlated attributes above (156-157).  The United States, Switzerland, Canada, Australia, and New Zealand are four wealthy states that are functioning very well despite not being nation-states under his strict definition.

5.  Nation-states are governed by consent, not coercion. 

 Hazony makes this claim several times in his book.  Nation-states have police, courts, military, and other institutions to coerce individual compliance with its law and rules just as every government does.  Perhaps governments in nation-states require less coercion to govern well as they are more homogeneous, thus theoretically making it easier to reach more broadly held policy consensuses that require less coercion.  But that would be an empirical claim that Hazony does not address that is doubtful given the large and complex legal enforcement apparatuses of nation-states.     

6.  Tribes voluntarily combined to form modern nation-states.

As mentioned earlier, Hazony claims that nations are formed by tribes that voluntary combine.  Economic historian Mark Koyama thoroughly debunked this claim far better than I could have, so please read his review.  My only additional comment on this is that a thorough listing and description of all the historical situations where Hazony’s claim does not hold would fill many, many volumes and describe the history of virtually every country.  

We are living in a time of renewed nationalism.  Whether this is a temporary blip or a long-term shift remains to be seen, but there is a scarcity of modern books, articles, or other writings that can competently explain that political ideology and make the case for it.  Hazony’s book fails for many reasons, but his insistence on defining nationalism in such a specific way that excludes virtually all nation-states that have ever existed should be a big red flag to anybody interested in this topic.

The Trump Administration’s Latest Trade Move

The latest attack on international institutions by the Trump administration distinguishes itself by being quite obscure: It’s about postage. It also may have more of a basis than most of the administration’s complaints about trade. 

The administration is concerned about the Universal Postal Union (UPU), a specialized agency of the UN. The UPU was established by the Berne Treaty of 1874 and became a UN agency in 1948. The administration has taken issue with the “terminal dues” rates issued by the UPU, under which, the administration argues, the United States has been subsidizing the shipping costs of foreign suppliers in certain countries, including China, when they send goods to the United States. The basic story is as follows (some good background is here).

When companies or individuals ship goods abroad, they use their domestic postal service to send the item. When that item arrives in the foreign country, the postal service of the shipping country makes a payment to the postal service of the destination country in the form of “terminal dues.” These “terminal dues” are set by the UPU and are designed to cover the destination country’s portion of the transportation costs – basically an agreed upon reimbursement rate to transport the item to the recipient.

The Trump administration’s concerns relate to the “terminal dues” rates set through the UPU for less wealthy countries, such as China. These countries’ rates are set very low, and do not necessarily cover the actual costs of shipping (and are sometimes significantly less than the rate American companies pay to ship within the United States). What this means in practice is that American taxpayers are sometimes subsidizing the transport costs of American companies’ foreign competition. It appears, then, that there is some legitimacy to the administration’s concerns about unfairness. 

Of course, as is often the case with the Trump administration, its approach to the problem is confrontational and perhaps risks inflaming tensions. The administration has, yet again, decided to use a threat of withdrawal from a treaty as a negotiating tactic, taking steps to withdraw from the UPU. Perhaps the withdrawal threat will force quick action to change the fee structure at the UPU, although there are some risks. Pulling out of the treaty would give the United States the flexibility to set our own transport rates, but it would also mean that we lose the power to stop others from charging us higher rates in return, while doing away with a mechanism that was designed to reduce, and streamline, transaction costs. In essence, the administration’s approach could lead to a postal “trade war.”

Are there alternative approaches? A Bloomberg editorial board piece sets out what they think may be a workable solution: having the administration look for a compromise on a postal rate during the broader trade negotiations with China. Of course, there would have to be some negotiations going on for this to work.

If it weren’t for all of the other aggressive trade actions taken by the Trump administration, this issue might be more easily addressed. Because it is part of a larger package of contentious moves, it might get lost in the mix of all the real and perceived trade slights the administration is complaining about. In calmer times, this might be a simpler problem to fix.

Thanks to Logan Kolas for research assistance with this post.

Topics:

Scottish Banks and the Bank Restriction, 1797-1821, Part 2

In my opening post about Scottish banks’ suspension of specie payments, I explained that, although the suspension was technically illegal, it failed to provoke any lawsuits in part because it was no less in the interest of many Scottish citizens, and Scottish bank creditors especially, than it was in that of Scottish bankers themselves. Rather than sue their banks, large numbers of prominent Scotsmen resolved publicly to make and receive payments in notes issued either by the Bank of England or by the Scottish banks themselves.

But while many Scots may have been willing, at least grudgingly, to accept bank notes rather than specie in payments, it doesn’t follow that none were harmed by the suspension. In today’s post I’ll consider just what the costs were, and who bore them. I’ll then turn in my third and final post to considering whether these costs should be regarded as a black mark against the Scottish bankers, and as a reason for denying that the Scottish free banking episode serves as a good example of the advantages of unregulated banking.

The Migrant Caravan Probably Doesn’t Contain Many Criminals

One concern about the caravan of Central American migrants making its way to the U.S. border is that it may contain criminals. Although we don’t know the identities or criminal histories of the actual people in the caravan, we can get an indication by looking at estimates of the incarceration rates of immigrants in the United States who come from the Central American countries where the caravan originated.

Hondurans are likely the largest contingent in the caravan. The Honduran incarceration rate in the United States was 1,130 per 100,000 Hondurans in 2016 (Figure 1). The incarceration rate of native-born Americans is about 25 percent higher than for those born in Honduras at 1,498 per 100,000 natives. In 2016, the incarceration rate for immigrants from all of Mexico and Central America is about 35 percent below that of native-born Americans. 

Figure 1: Incarceration Rate by Nationality of Birth Per 100,000, Ages 18-54, 2016

Figure 1 controls for the size of the population to create a meaningful comparison of incarceration rates between the national-origin groups. For instance, the incarceration rate for American natives is 1,498 per 100,000 American natives and the Mexican incarceration rate is 996 per 100,000 Mexican-born residents in the United States. The incarceration rate for all immigrants from Mexico and Central America was 970 per 100,000 immigrants from that part of the world.    

The data for the estimates in this blog come from the 2016 American Community Survey (ACS). These are estimates from the group quarters population for those aged 18-54. Figure 1 is an estimate because not all inmates in group quarters are in correctional facilities. Most inmates in the public-use microdata version of the ACS are in correctional facilities, but the data also include those in mental health and elderly care institutions and in institutions for people with disabilities. As a result, we narrowed the age range to 18-54 to exclude most of those in mental health and retirement facilities. 

Commenting on the likely criminality of members in the migrant caravan based on the incarceration rates of their co-nationals in the United States is not fully satisfying. People in the migrant caravan could be more crime-prone than their fellow countrymen in the United States, for instance. However, the incarceration rates of their fellow countrymen in the United States at least provide some evidence to cut through the political statements made without any evidence.    

Most of the members of the caravan will likely seek asylum in the United States while the others will try to enter unlawfully. The government will vet the asylum-seekers to identify serious criminals and national security threats. However, it is impossible to vet those who enter as illegal immigrants – which is one of the better arguments for allowing them to enter legally as they would then be subject to vetting.

Special thanks to Michelangelo Landgrave from crunching many of the numbers for this post.

C-SPAN: Health Care and Campaign 2018

This weekend, I appeared on C-SPAN’s Washington Journal alongside Families USA’s Frederick Isasi to discuss “the role of health care  in the 2018 mid-term elections.” Specific topics were covered include Cato’s latest health care book, Overcharged: Why Americans Pay Too Much For Health Care; the recent vote by Senate Democrats that would have thrown patients with preexisting conditions out of their health plans and left them with no coverage; how ObamaCare’s preexisting-conditions provisions are unpopular and reduce quality; how markets make access more secure for the sick than employer-sponsored plans; the benefits and costs of short-term plans; the Veterans Health Administration; the single-payer two-step; and how ObamaCare supporters want to take away your freedom to choose your health benefits. 
 

Prepare yourself for the greatest 55 minutes and 30 seconds of your life.

Topics: