This transcript was generated using AI automation and may contain minor formatting or transcription errors. Please refer to the original audio to verify specific quotes or context.

Supply-Side Solutions to the Housing Affordability Problem

Cato on Tour: Austin

Speaker: Stephen Slivinski, Senior Fellow, Cato Institute

Jenna: Tonight, we’re here to talk about one of the most important arguments happening right now: affordability. Have you heard 2026 is the year of affordability? Everyone in Washington is talking about it, and for once, they’ve noticed something real. Affordability is one of the defining concerns for Americans right now, and has emerged as a defining political issue.

This past spring, we published Cato’s Handbook on Affordability to help clarify the debate, outlining more than 100 reforms that would improve living standards through sound money and economic freedom rather than government intervention. The handbook asks a simple question: What would actually make things more affordable? Both parties have the answers; they just reached for different tools, and are often confused about the root cause of rising prices and what can be done to make goods less expensive. One side leans towards tariffs, tax cuts, and bringing production home. The other leans toward subsidies, public spending, and new regulation.

Sometimes a policy really does make something cheaper. It’s rare, but sometimes it boosts demand without adding supply, and prices go up. Sometimes the cost just lands on taxpayers. And sometimes Washington discovers the ultimate affordability solution: making something cheaper for the person buying it while making it more expensive for the person paying for it. That’s why the diagnosis matters. If you want things to be more affordable, you have to start by asking why they’re so expensive in the first place.

Let’s take housing. Housing is the single largest expense for American households. And the problem isn’t just that homes are expensive. We’ve made it harder and more expensive to build them. So when politicians respond with rent control, subsidies, or 50-year mortgages, they’re often treating the symptom rather than the shortage. Cato’s approach is more basic: If we want housing to cost less, we should make it easier to produce more of it.

Stephen Slivinski has studied how we got here and what we could do to change it. Please join me in welcoming Stephen Slivinski.

Stephen Slivinski: Thank you all for showing up today. I’m looking forward to talking to you. And Jenna really did a great job of laying out what I, as an economist, generally think about, the framework of thinking about these issues. And so I’m going to do a very quick segue into a very brief economics lesson. I promise it’s not going to be painful. I won’t even have any math. It’s really more of a thought experiment.

The idea is you’ve got these two competing views on how to make something, quote, “more affordable,” because the word affordability really does mean different things to different people. For some people, it means, as Jenna had alluded to, lowering the sticker price. In the context of housing, that means mortgage subsidies, rent control, or rent subsidies, to basically lower the amount of money you’re paying out for a product. It looks like it’s cheaper because it’s being subsidized, frankly.

But then you always have to look at both sides as an economist, and so you also have to look at the supply side. Economists can tell you that if you start goosing demand, which is what you would do with those rent subsidies or those mortgage subsidies, but you can’t increase supply, you’re going to have a constriction here. Demand goes up, and you’re going to have inflation, or rather, more specifically, price increases. And that’s exactly the kind of thing we’re seeing, because the root cause of the affordability problem in housing is not a demand problem. People always need a place to live. There’s not going to be any shortage of demand, for the most part, at least not in a broader sense, in the aggregate. The real problem is the supply issues, the supply restrictions.

But where are the supply restrictions coming from? They’re coming from state and usually local governments that restrict the amount of building you can do, or more specifically, put limits on what you can do with your land. Now, of course, as you can imagine, these laws are pretty complicated. And when I think of something complicated like that, and I want to back it into a thought experiment, I put it in a different context. So I’d like us all, together, to think about what having a backyard barbecue would look like if we applied zoning laws to something called, I guess, a backyard barbecue code.

Now, I’ve been informed, by the way, I’m an East Coast boy, I used to call these things backyard barbecues. I believe they’re called grill-outs here in Texas. Is that correct? So whenever I say barbecue, I don’t really mean brisket and pork, although I love that kind of stuff. I’m really talking about backyard grill-outs, if you will. Right? But let’s think about what would happen if we applied the comparable version of a zoning code to that activity.

The first would be you would need to get a grilling permit. So you need to get one before you can even invite people over to your house. Oh, and by the way, getting approval for that takes a really long time. Sometimes six months, maybe a year, sometimes two years. You might reconsider even having that barbecue in your backyard at that point. But let’s say you finally get a grilling permit. Okay. You get the grilling permit, but then the grill-out board, the barbecue board, I guess, I don’t know, the barbecue bureaucrats, what they tell you is your backyard has to be a certain size. Not only that, you actually have to have the chairs in the backyard, or the seats, arranged in a very specific way. Setbacks is what they call it, to avoid certain types of potential downstream negative impacts. But okay, fine. You do that. Great. I got the permit. The chairs were arranged where they need to be. This is perfect. I can invite my friends over.

And you do that. And then the barbecue bureaucrats tell you that the grill you’ve got there, the burgers have to be six inches apart. And it doesn’t matter to me that you got the really big grill. You’ve got to really make sure they’re spaced out. You can’t have too much density on your grill. This is a real thing, by the way. There are density requirements in zoning laws, in localities. By the way, I’m going to tie these all back to zoning. It wasn’t obvious, and in some sense that’s the punch line here.

Then maybe you want to go ahead and have more than just burgers on the grill. You’ve got some friends who are vegetarians, strange as that might be. You put veggie burgers on there too. And you also have hot dogs. Everyone wants hot dogs. But then the zoning board says, no, you don’t have a mixed-use grill. You can only do burgers, and one certain kind of burger. I say, okay, fine, I guess I’ll just do burgers now. So then your vegetarian friends don’t want to come over and they’re angry at you, and that’s going to be a big hassle. But then you abide by the law. So it’s like, okay, fine, fine, fine.

And then you’re like, but wait a second, I can do some beans on the side on those little side grills. Have you seen those? They’re kind of cool, and they’re attached to the side. I can do one of these. This is great. And then the grilling board says, no, that’s an accessory grill unit. You can’t have that. And if you do have one, there are certain codes that go around it, and you can’t have it even attached to your grill. You have to have that over there, a couple of feet away. Okay, fine. After all this hassle, you might realize it’s probably just not worth it anyway.

If you think about all of these rules, there are real-world versions of this in the zoning laws. It maps right back onto this: The grilling permit, of course, is the building permit. Right? We all have heard about these, and in some places it takes six months to, to, to do yours, possibly. In fact, I’ve been told that people in Austin don’t really think of Dallas as being part of Texas, but let’s just assume it is for now. In Dallas, there’s a very famous example that I’ve written about, where it takes somewhere between six months to a year to get a building permit, in the city of Dallas, or at least it did for many, many years. And they decided to try to do some reforms to expedite that process. One of the ways they decided to expedite that process was to put everything into a kind of one-stop shop in a building in Dallas. And so they did that. Then they had to close the building down because the building itself didn’t have the proper permits either. It’s like a bad joke, really. But permits are a real problem.

The size of your backyard and the density restrictions: the burgers have to be six inches apart, right? So these, again, are density restrictions that you have. And building more types of units, or different types of units, say townhouses instead of single-family homes, duplexes and triplexes instead of townhouses, apartments instead of townhouses, these are the types of restrictions that government imposes. And by the way, the government is substituting the preferences of the market for their own, I would argue, arbitrary preferences. And they put these zoning laws or codes into place to say, well, you can’t have a certain type of building in those areas, even if there’s demand for it. You can’t do that kind of thing.

Mixed use is another good example: the hot dogs and the burgers on the grill together. There are actually a lot of urban areas beginning to experiment with zoning in the form of what they call mixed-use zones. So basically, you might have seen some of the businesses, stores and shops on the bottom level, and you’ve got apartments going above it. This is considered commercial and residential kind of combined, mixed use. There’s actually a lot of potential here, especially for high-growth urban areas. And again, some cities just don’t have this option, for homeowners or builders, for that matter.

And then the final one, the accessory grilling unit. Excuse me. There’s actually a thing called accessory dwelling units. You guys might have heard about these. They’re basically a secondary building unit, or a secondary home, really, a housing unit you can put on a residential property, a single-family home’s residential plot. And you can rent it out. You can have your in-laws live there. Your son or daughter could live there after college or something while they’re getting on their feet in the workforce. But some places don’t allow them. And if they do, there are certain types of codes they have to abide by. There are aesthetic codes, design codes, things like that.

So all of these restrictions that are being burdened on home builders, of course, make it hard to build homes, obviously restrict the supply, and so prices are going to be higher. But they’re so arbitrary because they don’t really acknowledge the fact that people have different preferences. Not everyone wants a single-family home. Not everyone wants to live in an apartment either. And so being able to provide more space for creativity and for innovative use of the land is an important part of zoning reform.

And so let me just finish real quickly with four ideas that are tied directly to the four broad concepts that I just mentioned. One idea that I’ve been pretty fond of, and we’ve been starting to experiment with, looking at other places to see how well it works, is something called permit shot clocks. The idea here is that if you put your application in, there should be a law, usually at the state level, because a lot of the time the local level will try to find various ways around things. So you actually kind of have to have a cause of action legally, where the state says the local government has to do this. Let’s say you put the application in; it starts a clock. You have 30 days to turn that permit application around for the builder, or for the person who’s putting a deck on their house, for instance. If you get to that 30 days, it could be 60 days, but I prefer 30, it has to be automatically approved, and they have to refund the permit fees. There’s nothing government officials hate more than having to give up revenue, but if you put that incentive there, they might actually get their butts in gear to get these permits approved.

More density, what they call light-touch infill density: sort of liberalizing that, especially for new construction, but also for old construction, for places where people are demanding more housing. One of the real reasons we have a shortage of what people call starter homes, or what they call missing middle homes, but a better way of thinking about it is these are homes that we used to think about as being places that you buy. You buy your first home. It’s going to be relatively small. But for that to make sense to the builder, to actually create that kind of home, you have to have lot sizes that you can subdivide. If you have what they call a minimum square footage requirement, or more specifically a minimum lot size, that becomes impractical. And so it doesn’t pencil out economically, right? The cost-benefit doesn’t make sense. So builders have stopped building that. And so in places where you have higher limits like this, basically making it harder to subdivide land, you’re going to have fewer houses of the lower-end starter home variety. So allowing more density is an important part of all of this.

Allowing mixed use in commercial zones: I talked a little bit about that. People who want apartments on top of commercial should be able to do that, and they should be able to have that option. So allow more mixed use in commercial zones, and allow more residential into those commercial zones. I’m not really talking about manufacturing or industrial. I mean simple retail, frankly, and that seems to work out pretty well in places where it’s been tried.

And then finally, the idea of just allowing ADUs by right. If you’re a home, they call it “by right,” meaning you’re automatically approved if you have a home, a single-family residential plot that’s already zoned for residential and for people to live there. Allow them to put a secondary house on the same property. Seems fairly simple and straightforward, and of course it’s restricted in a lot of places.

And so we’ve got some time for questions in a moment, but the main thing I want you to take away from all of this is that the problem with affordability, in terms of housing, is having to ask permission from government all the time to do something with your property that you probably would have normally been able to do. And in some cases, you can get a better deal just by crossing the street and building your house over there, because zoning laws are so parochial and so local in a lot of ways. And so I think there needs to be statewide reform that actually reaches down into the local level. That effectively creates, in a sense, a foundational protection of property rights for builders and for homeowners and for buyers, because less permission is going to mean more freedom, and more freedom is going to lead to more building. That’s going to lead to more housing, and that’s going to lead to lower prices. That’s the way out of the quandary we’re in. And so with that, I’m opening to questions, and thanks for listening. I appreciate it.

Audience Member: Since Houston does not have zoning but does have some strong property owner and homeowners associations in areas, is that a good model, and do they have more affordable housing there?

Stephen Slivinski: The answer is yes and yes. But the longer answer is, you are correct. Part of the reason that Houston works so well is they never really had zoning in the traditional sense, as you pointed out. But they have land use rules, right? And that’s the difference. That’s more of a common-law sort of approach to things, and it’s actually a much more ground-up, emergent solution. So it’s a contract, in a sense, a deed restriction, or covenants, for instance. And it basically says, we’ll do this with this kind of land. For instance, we won’t build a gas station close to a school. Okay? It’s a very simple rule. It doesn’t mean you can’t build a gas station in that broader zone. It just can’t be next to a school.

And if you look at the way Houston is laid out, and it’s been like this for generations, it looks very similar to a lot of other major cities. People aren’t building factories next to homes, right? Yet government didn’t tell them to do that. It’s partly because people have different preferences. Someone building a factory doesn’t want to be building their factory next to residential, because that just doesn’t make a lot of sense economically. You want to be closer to the highway, where you can get more of your product out the door. So there are actual realities here that I think zoning precludes. And so zoning, by definition, is exclusionary. And when you’ve got a market incentive, you know, to make your community more inclusionary, you’re going to get more housing. And that’s exactly why Houston works so well.

Audience Member: I just have a comment. Last week I was fishing with my family in Wyoming. The gentleman who founded this lodge, this beautiful, large, multi-thousand-acre property, when he went to build the lodge, he was going to do it in Colorado. And they loaded him up with so many restrictions. He said, “What the hell, I’m going to Wyoming.” And that’s what he did.

Stephen Slivinski: Yeah, absolutely. It actually brought to mind a funny story. There’s something I didn’t mention here, although it’s really important as well: there’s another zoning restriction called minimum parking requirements. It basically says if you have a business, for instance, or even an apartment building, you’ve got to have a certain number of parking spots for what you’re building. And sometimes it can be really high, like three or four spots per unit or something ridiculous like that.

There was a gentleman I spoke to, I think it was in Oregon, and he was trying to build a coffee shop. He bought an old historic property, and there were actually two buildings kind of connected. He wanted to subdivide it, and the zoning board didn’t have a problem with that, so he was able to subdivide. He wanted to make one side kind of like a shop, and the other side was going to be a coffee shop. But because he did this in such a way that he wanted to separate the two, he suddenly had to put in, I think it was like eight parking spots or something like that. And he didn’t really want them, because it was close to transit. He does have people come on the train, or on their bike or something. It’s a scooter culture, I don’t know. But the point is that he looked at the amount of room that he had, and there wasn’t enough room to build those spaces. He was going to have to tear down the other historic property just to build the parking spaces, just to get approval for the coffee shop. So those are the kinds of unintended consequences that these things have. And again, moving to another state is probably something they didn’t intend to happen. Oh, Roger.

Audience Member: So, full disclosure, I’m a land use lawyer, so I speak your language very, very fluently. And I have to say, we’ve got a fairly new law here in Texas that reduced our minimum lot size, which has been, to some extent, very helpful in increasing our housing supply, as far as the minimum lot size for a single-family residence. One of the issues that we’ve run into, and I kind of want to get your thoughts on how to address it, is these private contractual arrangements that end up in deed restrictions, where there might be a ten-acre lot, but it’s restricted to one single-family residence in the deed. And it’s not necessarily even a ten-acre lot; it could be even smaller lots. But we have these deed restrictions in Austin and all across the state. Have you thought of a way? Because I haven’t yet, and I’ve been thinking about it a lot. How do we address that issue?

Stephen Slivinski: So I agree with you. That is difficult. Roger and I can talk more about this later, because some of this gets into the weeds. I think the broader point is that, even though, okay, I have a love-hate relationship with HOAs, I think we all do, probably. Right? Because by definition, a libertarian should love them. They’re private governance. But they can also be fairly, if I’m being brutally honest, tyrannical, you know? So some of these laws, I don’t know, you’d have to correct me, and we can talk about this later. I have seen some of these reforms in other states, maybe not so much this one, that effectively would bind us as well in certain elements. And so maybe there’s part of that. Because, in a sense, if you’re trying to defend property rights or protect property rights, maybe property rights can’t be given away in certain dimensions. And so maybe that’s one way of thinking about it. Right? So the property rights default is sort of slightly different. But we’ll talk more about this later. The answer is I don’t have a good answer, other than these things are complicated. But yes.

Oh, one more thing I’ll point out, and I do want to get to another question. All the things I talked about, what I would consider the ADU reforms, I think even the minimum lot size movements, ADUs, these types of things are what I would consider the low-hanging fruit of zoning reform. What’s interesting about each of those proposals is that, first of all, it doesn’t require you to get rid of zoning at all. Secondly, it also doesn’t require you to really do much about existing zones. All it does is say, if you have this kind of zone, maybe diversify a little bit with more density, or maybe allow more than one structure on it, or more than one type of structure on it. These are things that I think are a little less controversial. I know they’re not zero controversy, there’s some controversy involved, but the idea that you can unlock a lot of potential for more affordable housing just by doing little things along the way that are still within the construct of the existing zones, that I think we haven’t even tried yet. And I think maybe starting there is probably the best first policy step.

Audience Member: Pardon my reach. Thank you. So, hello. I live in a suburb of Austin that has a one-acre minimum lot size and has, of course, setback rules, which actually meant that when I purchased a lot and put a house on it, and it was next to an empty lot, I had the confidence of knowing that there wasn’t going to be an apartment complex built next to me. There wasn’t going to be somebody putting a house on one foot from the line. And I was able to put my house there knowing what wouldn’t appear because of those rules. And I have great concern when I hear people talking about wanting to broaden those rules and force that on me. I really don’t want that empty lot next to me to, instead of having a single-family dwelling 30 feet from my house, have, maybe, oh, how about 14? You know, there’s plenty of room there for 14 houses. And just put it right next to my house, right?

Stephen Slivinski: No, I totally understand your point. I think that’s usually where a lot of the controversy comes into play: people concerned about just that sort of thing. I do think, to bring it back to the Houston example, you don’t tend to see a lot of that in places that have more liberalized zoning. Part of it is not because the government says you can’t do it. A lot of it is because people in the area don’t want it, and they know there’s not going to be really much demand for living in that kind of structure, or living in a neighborhood that actually has that, where you’re obstructing the views. And so I think the market does sort some of this out. I mean, again, that sounds like a simplistic rendition of this, but I do think, again, you can get around some of these problems without having outright prohibitions on everything, or on most things. Right? So maybe the threshold is a little different in certain zones than it might be in, say, a mixed-use zone. I would expect to get an obstructed view in a mixed-use zone in a different way than I would in, say, a single-family one. You wouldn’t really expect that kind of obstruction.

So I’m sympathetic to that point, which is actually part of the reason why I wanted to make sure that when we think about, at least at Cato, the low-hanging fruit, some of these things, you just need to take a lighter touch, and I understand that. And that’s kind of where the lighter-touch solutions come in, which still help out but don’t have to go too far in the other direction. So thank you for the comment. I do think it’s an important concern.

Audience Member: Let’s imagine that we live in a country. There are two parties. Only one is the red party and the other one is the green party. The green party and the red party know they actually can nominate a driver to a bus that they can use on a long journey, and the driver can drive a very long time, like in France. And these people can bring a couple of bottles of wine to keep them fit in the backseat. Okay. Now they’re driving this bus. One guy is sitting in the driver’s seat and says, “Oh my God, look at this, dear. I’m going to turn to the right all the way.” And the other guy says, “Idiot, you shouldn’t be doing that.” So he sits in the driver’s seat, and now he’s driving along, and on the next turn he looks at this big cliff that the bus could fall off.

This has been the economic and monetary policy of this country since 2000. We came from common sense to zero interest rates, no less than two or three times. Old geezers like me borrowed money at 3%, which is negative, adjusted for inflation and taxes. We’re sitting on the largest home equity in the history of this nation. And young people, like my daughter, who is, mind you, a board-certified surgeon, can’t buy a home. So, affordability: we’ve got to come up with a way. Maybe mortgages have a ten-year term, you know, you can borrow the money. But come on. This is what Covid was, a classic example. The politicians said, let’s not lose the opportunity. Let no disaster go to waste.

Stephen Slivinski: There’s definitely a lot of points that you’re making there, and I think they’re all valid. So, given that, the point is, I’m going to just say affordability cannot be solved unless and until we come up with common-sense solutions. And in fact, to put a plug in for the Handbook on Affordability, which you can get there on the table, right up front, it opens with a description, and there are other chapters about monetary policy. So I think you particularly would love that. But feel free, there are many, many chapters. I think Michael wrote some of the chapters in that book as well. So, anyway, one more question. Well, let Serena choose.

Audience Member: In Austin in recent years, there was an interesting and kind of eclectic coalition that formed, libertarians and conservatives and progressives and liberals and all kinds of different people, to support the successful passage of Home Act One and Home Act Two, deregulating in many respects, allowing for more houses to be built all over town. And, you know, big surprise: rents came down when they built more rental housing. Who could have seen that one? I’m just curious, though, are academics around the country paying close attention to Austin’s, seemingly, to a first approximation, successful experiment? Is word getting out, or are people studying this?

Stephen Slivinski: Absolutely. In fact, there’s a really good piece that came out, I think, a few weeks ago from the Pew Charitable Trusts, or Pew Research Center. They did a deep dive on what’s going on in Austin, which has been really, really great, actually. A lot of people are interested in this sort of thing as well.

And the coalition aspect, I think, is important. And I’ll end on this: how you get these changes can vary by different places, but I’m starting to see more, as you pointed out, libertarians, pro-environmental people on the left, and market-liberal libertarians on the right, because for things like parking minimums, lefty environmentalists don’t like parking because it encourages more driving, which encourages more pollution. Free-market libertarians dislike parking minimums because they restrict how much land you can use to build stuff, right? So there’s an automatic coalition there.

I was talking to one of these coalition builders who were doing reforms in Virginia. He had put together what they call a YIMBY coalition: “yes in my backyard.” I’m sure you’ve got plenty of these here, too. And I asked him, “Who are you seeing that have most of the new interest in your issue?” And he says, “We’ve been teaming up with AARP pretty successfully.” I was like, well, that’s strange. My first hypothesis was that, well, these retirees would want to maintain the value of their house, and therefore they’d want fewer houses, that way their house is more valuable. The problem they’re discovering is that these seniors actually want to downsize, and they can’t buy a smaller home because it’s not affordable enough for them. And so if anything, if they do get a smaller home, it’s going to be just as expensive as the one they got out of. They’re not saving any money. And so, anyway, that’s an interesting set of coalitions. I think that’s the only way we’re going to see any real change: if you have some kind of broader coalition like that. Thank you all, guys. I had a great time.

This transcript was generated using AI automation and may contain minor formatting or transcription errors. Please refer to the original audio to verify specific quotes or context.

The Good News and Bad News on Healthcare Affordability

Cato on Tour: Austin

Speaker: Michael F. Cannon, Director of Health Policy Studies, Cato Institute

Jenna: We’ll move right on to health care, which I think we should be able to solve in the next 30 minutes or so. Americans spend more on health care than people in any other advanced economy. And yet, the usual answer to affordability is to have the government pay more of it. As Michael argues in the Handbook on Affordability, that mostly changes who pays, and it doesn’t make care cheaper. So Cato starts somewhere else: What is keeping health care so expensive in the first place? Michael Cannon has spent years examining that question and what it would take to make health care more affordable. Please join me in welcoming Michael Cannon.

Michael F. Cannon: Thank you, Jenna. Thank you, Vanessa and Serena, for putting this event together. Thank all of you for coming. It’s wonderful to see so many friends. Old friends, very old friends. William, I can’t see you because of the lights, but William has known me since I was, I think, 14 years old. Medium-tenured friends: Charlie Silver, Kovic, Roy, Richard, Maureen, Allison. Sabrina, new friends, Emily, JP, and everyone else I haven’t mentioned. It’s great to be here with you.

I’m going to be talking about how the state of Texas by itself can make health care more affordable by reforming clinician licensing, to give away the, the, the ending, and by reforming health insurance, to make health insurance companies have to compete. How the state of Texas can reduce health insurance premiums by 60% or more for most people who buy it themselves, and reduce the price of a well-child visit by 16%, according to some studies. But before we get there, we’re going to make a couple of stops, because I think it’ll help illustrate the point. I’m going to tell you about the longest minute of my life, and we’re going to make a detour to talk about some things that are wrong with health care that Texas cannot change.

So first, the longest minute of my life. The longest minute of my life was the first minute of my son’s life. He came into the world in the usual way, and they whisked him over to the French fry lamp. And as I watched him there, I heard my wife, who had just gone through the usual hell, and her work wasn’t quite yet done, asking me, “How is he?” And I’ll tell you what: I didn’t tell her at the time. He was not so good. He was blue. He was blue. He was not breathing. For those of you who know what this means, his one-minute Apgar was four. It should be ten. It should be at least north of seven. But it was the longest minute of my life because I stood there. My wife, who had lost her father eight months before and had just been through what she had been through, is asking me how our first child is doing. And I stood there helpless, not knowing what to say.

He’s okay now. And I’m going to have some slides, and if you can’t see the slides, that’s fine. I can’t see my notes either, so we’re even. He did not breathe for a minute or more. I didn’t know what to say to her. All I wanted to say was, “Would you please just start breathing?”

So, Liam is fine, by the way. I’m telling that as much to myself as to you. He’s now 17 years old. He’s healthy, he’s applying to colleges. He’s teaching calculus to his fellow high school seniors. He’s even practicing his blue steel, as you can see in this photo. He’s more than fine. He’s wondrous. And I am in absolute awe of him.

But what happened during and after that first minute of his life speaks to why it’s so important to make sure Texas gets health reform. Texas puts up barriers to the sorts of things, the processes, that helped him and have helped so many other children, so many other neonatal babies in his situation. Now, I’m going to talk about what that process is and what those policy recommendations are.

But when I was previewing this presentation for Jenna, she said, “Okay, I’m with you on all of the policy stuff.” If you haven’t met Jenna, you have to meet her. She’s the one who put this event together. But she said, “Michael, I just don’t understand why. Why is health care so frustrating? Why is it so complex? Why is everything so expensive? Why is everything so confusing, so hard to navigate? And why is it that while everyone else is trying to make things simpler for us, health care keeps getting more and more complicated? Everything from communications to banking and everything else is so much simpler, but health care is not keeping up. Why is that? Oh, and also, everything is so political. And if you don’t want the government to give the health care industry everything that it wants, you’re a horrible person. What is going on here?”

So we’re going to stop there, and Texas can’t do anything about these things, but it might help to shed some light on why it’s so frustrating. And then we’ll get back to Texas.

I’ll give you the good news. It is possible to get health care with lower prices, more affordable health care. It’s possible to get simpler insurance, simpler billing. It’s possible to get long-term health insurance without gaps, cradle-to-grave, womb-to-tomb health insurance that doesn’t disappear when you get sick, where your premiums don’t go up when you get sick. But you can’t get that kind of health insurance. You can’t get that kind of price competition and dynamism in health care. Why? Because you’re not in control. You’re not in control because you don’t control the money, so the system doesn’t serve you.

We spend about $6 trillion on health care in this country. Six trillion dollars. The share of that spending that consumers control, versus how much the government controls, is staggeringly small. This pie chart is not from some concocted libertarian story to tell people about how awful U.S. health care is. This is from the OECD. They look at health spending in the 30-whatever member countries, the wealthiest countries in the world. They measure how much of that spending the consumers control versus the government. And when they look at the United States, they say $5 of that $6 trillion is not money that the consumer controls. It’s money the government controls. Half of it, the government controls directly through government programs like Medicare, Medicaid, the Veterans Health Administration, and so forth. Another third of it or so, about $2 trillion, is money that, like our tax dollars, we earn, but we don’t get to control, because the government lets our employers control it, or really penalizes us unless we let our employers control that money. That’s about $2 trillion that employers spend on health insurance for their workers, and we don’t control that either.

And so even if you add a million or 10 million or 100 million of your closest friends who want to get together and pay for health care that is better and simpler and cheaper, you can’t do it. You can’t do it because the government doesn’t let you control the money. Now, what if you said, “Okay, hey, you know what, we’ll pay all the taxes for the government programs, and then we’ll pay the tax penalties on controlling that other $2 trillion ourselves. We’ll lose a third of that to taxes. We just want to control the rest.” Then can we have insurance that is better and more affordable and more secure? And the answer is still no.

And that does bring us back to Texas, because Texas prevents that from happening. There are regulations in Texas, and some regulations at the federal level as well, that prohibit lifelong health insurance, that prohibit the kinds of innovations that make health care better, that made it better for my son, that make health care better for all and save lives for all sorts of patients among us. Texas can’t control the money. Only Congress can change who controls that $6 trillion, that $5 trillion. But there are things that you can do in Texas, because Texas creates barriers to universal health care. And my son Liam’s story illustrates this.

I’ll make a little more of a stop here, because you might be wondering, is that a lot, 83% of health spending that the government controls? Yeah, it is. The OECD compares that to other countries, and that’s more than the OECD average that the government controls, which is about 75%. And we’re at 83%. That’s more than in Canada, where the government controls only 70% of the spending, more than in the UK, where the government controls 81%. It’s not as much as Germany, at 86%. But you see who we’re right next to. Cuba. Cuba, if you’re not familiar, is a small communist country, not social democrat, not democratic socialist, not even socialist, in the Caribbean. And we’re on a par with them in terms of government control of health spending. This is how it looks with all of the OECD countries. That’s us and Cuba, those two orange bars, cozying up in our collective paradise. But we are toward the higher end when it comes to government control.

And here’s a fun party trick. That also means that 15% of U.S. GDP is not just health spending, but compulsory health spending, which is more than any other country spends as a share of GDP on health care in total. So if anyone ever asks why we spend so much on health care in the United States, now you know the answer. It’s because government requires us to.

So, back now to Liam. In the 1950s, there was an obstetric anesthesiologist at Columbia University named Virginia Apgar, and she proposed a ten-point scale to measure and keep track of how the little babies are doing. We call it the Apgar score. For these five criteria, heart rate, breathing, reflexes, muscle tone, and color, you assign the baby either zero or one or two. And if they’re doing great on all of these, full marks is a ten. If they’re above seven, they kind of stop measuring, you know, at five minutes. They might do another five minutes or so, but if they’re at a four, it’s a, I have yet to tell this, this is the first time I’ve told this story publicly, and I’ve yet to tell it even privately without getting choked up. If your child’s at a four, it can be a very scary thing.

But when Doctor Apgar developed this system, it gave people a way to collect data on what was working in terms of resuscitating babies. That was sort of the ultimate outcome, and we don’t want to wait until the ultimate outcome to find out if something worked. So the OBs had a way of measuring what they were doing to resuscitate these children, and that allowed them to figure out what worked and what didn’t. People routinely use Apgar scores right now as either a secondary or sometimes a primary endpoint when they’re studying interventions to try to save the lives of neonates. And because they had this way of measuring, they were able to try things. They were able to experiment, they found out what worked, and they were able to save more lives. And that part has been miraculous.

But there’s another miraculous part that you might have missed if you were watching this happen. When you have an economist in the room, they notice these things even in moments of horrible terror. And that is this: while my wife was over here, still needing the attention of the OB-GYN, it was not an MD who took my son over to the French fry lamp. It was, as far as I know, some registered nurses, and they were the ones who resuscitated him. I don’t even know what techniques they used, but they were the ones resuscitating him. And they brought his five-minute Apgar, which was eventually also the longest five minutes of my life, eventually up to a nine.

And the important thing there is that once they discovered what works, they discovered that you didn’t need to be an MD to do what works. And that is as miraculous and marvelous a discovery, because it means that if you can have the midwife do it instead of an MD, there are more midwives, and they don’t cost as much as the MDs do. And if you can have a nurse practitioner do it instead of a CNM, a certified nurse midwife, it might cost even less. And if you can have an RN do it, you are taking that new technology, those new methods of resuscitating neonates, and you are making them more widely available. And this is the process through which markets make health care more affordable and more universal all the time. Economists call it technology-assisted specialization and the division of labor. Or you could just call it saving babies’ lives and saving other people’s lives as well. The same process throughout health care. Health care will never be as universal as it could be unless we make maximum use of this process.

And you have seen it all the time, and you might not have noticed it. This is Liam again, I think seven years old or something like that, getting his blood pressure checked, reading Harry Potter, I forget which one. Very precocious child, in the middle of his doctor’s appointment. That is not an MD taking his blood pressure. I don’t even think it’s an RN. I think it’s a nursing assistant. And you can see from the graphs that show the average hourly wage of these different kinds of primary care providers, the more of these tasks that you can push down, and you see this when you go to the doctor, it’s not the doctor that takes your vitals. It’s not the doctor that takes the initial history. It’s usually an RN or a nursing assistant. The more of these tasks that we can push down to the lowest-cost providers consistent with offering quality services, the more we make health care universal. He’s not very good at taking shots, by the way. I should point that out. And we need to use this process throughout health care, or else we’re not making health care as universal as we can.

And that brings us to Texas. Texas is not doing a good job of letting people experiment and make health care more affordable. There was a study recently that showed if you just let nurse practitioners prescribe, you can drive down the cost of a well-child visit by 16%. But in Texas, you have one of the most restrictive regulatory environments when it comes to clinician licensing, when it comes to nurse practitioners and other clinicians. A dental therapist is a nurse practitioner for dentistry. Raise your hand if you’ve ever heard of a dental therapist. Usually, I don’t get many hands. I don’t see any hands going up. There’s a reason for that. Texas should be a blue or green state here. Those are the states that have allowed dental therapists. Instead, Texas prohibits nurse practitioners for dentistry. You cannot use this market process in Texas to make dentistry more affordable for people. And so instead of having the dental therapists, which are the middle bar right there, make fillings and extractions more affordable, so that more families and more kids in Texas can have access to affordable dental care, there’s a tremendous gap.

Texas also makes it harder to collect the sort of data that Doctor Apgar made it possible to collect, by prohibiting the sorts of health plans that collect these data. There are all sorts of regulatory barriers. This shows those sorts of health plans trying to pop up. We call them direct primary care. They’re trying to pop up all over the country, and they’re running into regulatory barriers. Texas has removed some of them, the insurance barriers, but not all of them. So these practices still can’t collect the kind of data that we need to find these ways to make health care more affordable.

So what is the solution here? The solution is to let the people with the new ideas compete. And the way that Texas can do that is entirely within Texas’s grasp. They can recognize clinician licenses from other states, so that nurse practitioners who have the authority, or a license from another state, to prescribe can come and make well-child care visits more affordable in Texas. And they can recognize health insurance plans that do not come with all of the regulations that Texas and the federal government impose. Those are available in U.S. territories, where President Obama himself exempted health insurance plans from Obamacare, those most expensive regulations. It is within Texas’s power just to recognize those plans, which multiple nonpartisan observers have said can reduce premiums for some people by 60% or more compared to the lowest-priced Obamacare plans. There is legislation to that effect in Kentucky. There could be legislation to that effect in Texas.

The red light has been flashing for a while, and Vanessa is pacing in the back of the room. So I’m going to stop there and take as many questions as I can in the time that we’ve got, and let Serena pick who gets the mic. Thank you.

Audience Member: So 30 years ago, one would go to the doctor. The doctor would have maybe a receptionist, and maybe an assistant would give you a piece of paper with the ICD‑9 code. Next, you would staple that to your standard form and send it in to your insurance company, and then your insurance company would send you a check. Now, the doctor’s office has a room full of people who have to understand every single insurance plan that there is in the entire state or country. Is that part of why it costs so much more to go to the doctor now? And why did that change?

Michael F. Cannon: So the administrative overhead is certainly excessive in the U.S. health sector, because we pay for more things through insurance than we should, because the federal government penalizes every dollar of earnings that we don’t spend on health insurance, in fact. And so we buy more health insurance, and so there are more claims to file, instead of just writing a check or tapping at the doctor’s office.

And then I would argue that we need more competition from health insurance plans. But one of the reasons that you need more competition from health insurance plans is not so that doctors’ offices will have to contend with more of them, but because they’ll then have to contend with fewer. The sort of model that allows for the gathering of the information that tells us what modes of care work better and are cheaper, and that the nurse practitioners can do, are the same types of plans that integrate the health insurance and all of health care delivery. So you’re only dealing with one. And if you’re a doctor, you don’t even have to worry about the billing. And if you’re a patient, you don’t get surprise medical bills, and you can get transparent price information, because you are getting your insurance and your health care from the same place. And that could vastly simplify the patient experience, if you wanted to. I liken it to picking a school for your kid instead of homeschooling and having to put the curriculum together yourself. If you want to put your health care curriculum together yourself, you could still do that. But deregulating health insurance, removing the barriers to these sorts of plans, is essential for simplifying it, not just making it more affordable.

Audience Member: Cato does not oppose Medicaid, but it does favor the downsizing and the restructuring of Medicaid, if I understand correctly. Is that right?

Michael F. Cannon: So I do oppose the Medicaid program. And for a number of reasons, I think, you know, it’s a…

Audience Member: Before you go on, let me finish the question, or pose the question. If I happened, a city like Austin, a wealthy city, the cost for the poor would be redistributed and we’d get by. But Texas is a very big state. We’ve got lots of rural hospitals, and 30%, 40%, in some cases 50% of their revenue comes from Medicaid, for treatment of the poor. Now if you live in a rural area, you may have to drive 30 miles to get to a hospital. If some of those hospitals closed, we’re talking about 50, 60 miles, perhaps, between the patient and the hospital. How do you address that?

Michael F. Cannon: That’s actually one of the reasons I oppose the Medicaid program. I was going to go through the whole list, but economic inefficiency is one of them. You have to decide, you have to use some mechanism to decide where you’re going to put the hospitals, unless you’re going to strap a general hospital to the back of every hermit or backpacker who ventures off into the wilderness. You have to decide at some point we’re going to stop spending on general hospitals, and you have to come up with a mechanism for deciding where. I haven’t heard of a better mechanism for letting people vote with their dollars, cast their dollar votes: “I want to be in a health plan that will, you know, we all live in this area and we’re willing to pay for this type of health care facility.” And an entrepreneur is taking a risk and seeing if that’s a viable business model. If it’s not, it closes, but if it is, and the people there can sustain it, then they get a general hospital or a smaller facility.

And that approach has problems. One of them is that if you live out in the hinterlands, you might not get all of the medical care that you would get in a more urban, more densely populated area. But the advantage of that approach is that it doesn’t waste resources the way that the Medicaid approach does or the Medicare approach does. And here I’m thinking about a study. There’s a group that advises Congress on Medicare policy called the Medicare Payment Advisory Commission, MedPAC. They did a study where they looked at this. People who represent rural areas are always saying, “You can’t let our rural hospitals go under.” What MedPAC found is that actually some of these hospitals should go under, because what was happening with the hospitals that were closing is that the patients in that area were driving past them to get to other hospitals that they preferred. They weren’t missing out on medical care. They were saying, “We don’t like these hospitals.” But those hospitals go to Congress and say, “Well, the community needs us, and we provide this many jobs,” and so forth, when the people in that community are saying, “No, we don’t want this one. It’s not a good hospital.” But still we have excess rural hospitals, and those are soaking up resources that could go to facilities that people care about more, or to non-health uses of income that would promote their health, or other values that people hold.

And so I would never say that a system without Medicaid or Medicare in it would have no one falling through the cracks. But if we’re going to have a program like Medicaid, let’s look at all of the ways that people are falling through the cracks. And some of those ways are very subtle and very hidden, and they have to do with wasting lots of money on rural hospitals that should not be there.

Audience Member: I was part of the medical board for seven years, the Texas Medical Board. I was also on the board of acupuncture, but I saw how the medical board and all the other licensing agencies work. You can’t just have a nurse practitioner do someone else’s job, because there are lobbyists who focus on the board, and that makes a difference. And as long as they have this board, it’s a licensing system in Texas. I don’t know how you’re going to make any appreciable difference in who does what job. When I was on the acupuncture board, there were not that many acupuncturists. They don’t have a lot of problems like chiropractors do, but there are lots of chiropractors, and they tried to come in and prevent acupuncturists from using their techniques. The chiropractic board got their techniques from acupuncture or acupressure. But the point is, I don’t know how you can follow through with some of your suggestions as long as Texas has that system, and I don’t know what’s going to change it.

Michael F. Cannon: That’s big. So I want to talk to you so much. You’re raising so many thoughts. Just a couple. One is that I want to eliminate licensing as well as the Medicaid program, and among the reasons is, raise your hand if you’ve ever heard the name John Duntsch. Oh, only two. Of course you have. Go to the Wondery podcast Dr. Death. And when you listen to season one of Dr. Death, listen for what the medical board was doing. Spoiler alert: almost nothing to stop this doctor who killed or maimed dozens of people on the operating table. The medical board’s clinician licensing is not providing the guarantee of safety that people think it is. Getting rid of it will not pull the chair out from underneath you. It would pull out a piece of paper that’s between you and the chair. What is protecting patients is other things. And if you listen to that Wondery podcast, you’ll also hear the mellifluous tones of Cato Adjunct Scholar and our guest tonight, Professor Charles Silver of the University of Texas at Austin School of Law, talking about another government intervention that weakened quality protections in Texas.

And so the recommendation I made, which is recognize licenses from other states, is the next best thing to eliminating clinician licensing, because it makes the regulators in Texas compete with the regulators in New York and California and Oklahoma and Florida and all of the other states to find the optimal level of regulation. I have a reply. And Serena tells me that is time. That was the last question. Okay. Thank you all so much. I look forward to chatting with you more.