“On further reflection, the fact that health insurance is too expensive for the poor is actually an important argument for deregulation of the health industry in order to bring costs down. For starters, there are many regulations on the books that specify what health insurance companies have to cover - mental health being the most notorious. In a free market, insurance companies could offer more restrictive policies that the poor might actually be able to afford. More importantly, though, health insurance is expensive because regulation sharply raises the cost of health care itself. Medical licensing regulations, for example, sharply raise the cost of medical labor. Economists like Milton Friedman have been arguing for decades that mere certification, or even reputation, could give you the same protection at much lower cost. And while you probably want an M.D. to do your brain surgery, licensed physicians are over-qualified for much, if not most, of the work they do - as you might have noticed if you ever saw a dermatologist for acne.” — Bryan Caplan, economist responding to the question of free market healthcare
“The smart response to market failure varies sharply depending on what the market failure is supposed to be. If the problem with free-market health care is just that poor people can’t afford health care, then the smart response is simply to give poor people more money (or possibly a cash voucher), and leave insurance companies alone. Think about how we usually handle hunger among the poor. We don’t set up byzantine regulations for grocery stores. We give the poor welfare checks and/or food stamps, and leave the grocery stories alone.” — Bryan Caplan, economist responding to the question of free market healthcare
Why Would Wal-Mart Support Obama’s Healthcare Reform?
Published by in Economics, HealthCare, ModernPolitics and Wal-Mart. 0 CommentsMegan McArdle explains the basic economics behind the decision:
…Wal-Mart is in favor of this because it raises the barriers to entry in the retail market, and hammers Wal-Mart’s competition.
… even in liberal academic literature, it is a commonplace that regulations disproportionately benefit several types of firms:
a) Incumbents
b) Market leaders
c) Firms with the most employeesRegulation has a very high fixed cost for compliance; the larger the firm, the more dollars/employees over which to amortize the fixed cost. Meanwhile, market leaders have disproportionate bargaining power, and tend to get better rates from suppliers than smaller competitors. Finally, a high fixed cost means either that it’s harder to initially enter the market, or (if there are exemptions for the smallest firms) harder to grow.
On the other side, there is regulatory capture. Wal-Mart is always going to have a seat at the table when employer mandates are discussed, because Wal-Mart is the nation’s largest private employer. Target and Macy’s probably won’t have a seat at the table. So Wal-Mart can influence the rules in ways that benefit Wal-Mart at the expense of the competition. This is partly because the regulators often cycle into jobs at the firms they regulate, but also simply because the regulator’s attention is finite, so being consistently at the table allows you to shape their views over time. Again, this isn’t some kind of crazy right-wing analysis; regulatory capture was first diagnosed by a Marxist historian named Gabriel Kolko.
All of which is to say, Bootleggers and Baptists should be required reading in all schools. When you find strange bedfellows in politics, don’t look for a surprising outbreak of spontaneous virtue: looking for the hidden conspiracy.
The full article can be found here.
“Health insurance is, in large part, a Prisoners’ Dilemma. If everyone but you has it, medicine will seem prohibitively expensive. Demand is high, comparison shopping is unheard of, and no one cares but you. When nobody has insurance, though, you probably don’t need it. Lower demand and more comparison shopping make treatment affordable. Which makes me wonder: Where would you rather live - a country where everyone has health insurance, or a country where no one does?” — Bryan Caplan
“The young interviewer, Conor Clarke, owes a huge debt to Milton Friedman, who did more for him and for every healthy American male under age 54 than [liberal economist] Samuelson ever did. I’m referring, of course, to Friedman’s “nutty libertarian” crusade against the draft. The draft ended in 1973 and among the leaders who pushed to end it were Milton Friedman, Alan Greenspan, W. Allen Wallis, William Meckling, and Walter Oi, all of whom were or are strong believers in the free market. Meanwhile where was Samuelson? He was AWOL. He was represented by a Senator, Ted Kennedy, who was one of the staunchest proponents of the draft and, if Samuelson ever wrote against the draft or ever tried to talk Kennedy out of it, I can find no record of it. In 1980, when Senator Sam Nunn was trying to bring back the draft and I circulated an economists’ statement against the draft, Samuelson refused to sign. Friedman, by contrast, not only served on President Nixon’s Commission on the All-Volunteer Force but also lobbied Congressmen personally against the draft.” — David Henderson, commenting on an interview with liberal economist Paul Samuelson
“To fight this recession the Fed needs more than a snapback; it needs soaring household spending to offset moribund business investment. And to do that, as Paul McCulley of Pimco put it, Alan Greenspan needs to create a housing bubble to replace the Nasdaq bubble.” — Paul Krugman, writing in 2002, Link via Arnold Kling here, who has more here.
“Despite a few exceptions that are tirelessly (and selectively) cited by advocates of a higher minimum wage, the bulk of the evidence — from scores of studies, using data mainly from the U.S. but also from many other countries — clearly shows that minimum wages reduce employment of young, low-skilled people. The best estimates from studies since the early 1990s suggest that the 11% minimum wage increase scheduled for this summer will lead to the loss of an additional 300,000 jobs among teens and young adults. This is on top of the continuing job losses the recession is likely to throw our way. The reduction in jobs for youths might be an acceptable price to pay if a higher minimum wage delivered other important benefits. Many people believe, for instance, that it helps low-income families. Here, too, the evidence is discouraging. There is no research supporting the claim that minimum wages reduce the proportion of families living in poverty. Research I’ve done with William Wascher of the Federal Reserve Board and Mark Schweitzer of the Cleveland Fed indicates that minimum wages increase poverty.” — David Neumark, professor of economics at the University of California, Irvine, and the author, with William Wascher, of “Minimum Wages” (MIT Press, 2008).
“As an aside, I do not see how the same policymakers can support both stimulus and TARP. If you support the stimulus, it’s because you believe there is a lack of demand for loanable funds. If you support TARP, it’s because you believe there is a lack of supply of loanable funds.” — Arnold Kling
“On health care, we live in an Orwellian world. What is called “reform” is really an attempt to entrench the existing, unsustainable system of third-party fee-for-service reimbursement for service providers. This third-party reimbursement in turn is know as “insurance,” even though it does not serve that function.” — Arnold Kling
“How is a $118 billion structural deficit, $35 billion in Medicare Part D, and a theoretical end to the Iraq presence forcing Barack Obama to spend nearly $1 trillion in 2018? How is it forcing him to spend roughly $650 trillion more than he takes in in 2012?…The problem with the budget deficit is that, unlike the deficits George Bush ran, the deficits projected under Obama (and beyond) are actually large enough to potentially precipitate a fiscal crisis. If our interest rates suddenly spiked up, perhaps because lenders were worried about the size of our budget deficits, we’d find ourselves in the kind of nasty fiscal jam that regularly plagues third-world countries. The difference is, no one has enough money to bail us out.” — Megan McArdle, on Obama’s budget deficit
The Clinton Years vs The Bush Years - A Pet Peeve I have
Published by in (modern day) Liberalism, Economics, General, ModernPolitics, Myths and Personal. 5 CommentsCasey B. Mulligan, professor of economics at the University of Chicago, made a comment that he should know is disingenuous, he wrote:
the “big spending Democrat” stereotype is incorrect — government spending / GDP fell under Clinton and increased under Bush.
This comparison, used to argue that when it comes to spending there is no difference between Republicans and Democrats, is made often, both in the blogosphere and by academics who should know better. The main problem I have with it is that it is not comparing apples to apples. Milton Friedman argued that the best form of government, from a small government and low spending perspective, is a Democratic president and a Republican Congress, where Republicans control the spending (congress), and Democrats control foreign policy - precisely what we had under Bill Clinton. The worst form of government is when the same party controls the presidency and congress - precisely what we had under George W Bush.
In other words, you are comparing arguably the best scenario under a Democratic president with the worst scenario under a Republican president - of course they are going to be alot closer than what they really are. Don’t get me wrong: I am not arguing that Republicans are true fiscal conservatives, no, I am arguing that the gulf between the two is larger than what these “Clinton years vs Bush years” argument would lead you to believe.
The difference between the two is even larger when you compare the kind of spending each does: Republicans tend to overspend on wars while Democrats tend to overspend on entitlements. Wars are temporary, they are one time events that come to an end, whereas entitlements are forever and worst of all, they get more inefficient and expensive with time. Take FDR and LBJ - both were involved in wars and both created entitlements, FDR with World War II and social-security and LBJ with the Vietnam war and medicare. Yet today we worry about the growing costs of social-security and medicare while the financial costs of World War II and Vietnam, though expensive at the time, are now but forgotten.
And Bill Clinton would not have been any different, had he had more control of congress, Matthew Yglesias explains:
If the health care bill that the Clinton administration authored, pushed for, and staked its presidency on had passed you would say that FDR, LBJ, and Bill Clinton were the three main architects of the modern welfare state. Because the bill didn’t pass, the institutional legacy of the Clinton years is considerably more moderate than that and the Clinton administration is instead remembered for its responsible stewardship of national affairs. But that’s because congress blocked the bill not because of Clinton’s moderation.
That was the Republican controlled (for the first time in ~50 years) congress that blocked the bill.
A better comparison is between the Bush years and the Obama years - but given the fact that in Obama’s first 100 days in office, he’s already proposed spending more than Bush spent in his entire 8 years, including both wars, its a strong argument that there really is a difference between the two parties. Especially considering that most of Obama’s spending comes in the form of very expensive entitlements - entitlements that Obama is hoping will last forever.
You can argue that entitlements are worth the costs, that is an argument for another day, but you can’t make the argument that the spending is the same between the two parties.
“The left’s complaints make far more sense than Mr Cheney’s. Mr Obama is adjusting the Bush administration’s policies here and there and seeks to put them on a sounder legal footing. This recalibration is significant and wise, but it is by no means the entirely new approach that he led everybody to expect. Mr Obama is in the right, in my view, but he owes his supporters an apology for misleading them. He also owes George W. Bush an apology for saying that the last administration’s thinking was an affront to US values, whereas his own policies would be entirely consonant with them. In office he has found that the issue is more complicated. If he was surprised, he should not have been.” – Clive Crook, writing in the Financial Times on Why Obama Owes Bush An Apology
Why Are Companies Eager To Support Cap And Trade?
Published by in Environment and ModernPolitics. 0 CommentsWhy would companies be eager to support something that would be a cost on them? Because it would be an even bigger cost on their competition:
I think they see it as a way to keep the competition at bay. “Cap and trade” is essential to the Obama plan. If emission permits cost $20 per ton (per year, presumably), “then cap and trade might add $460 million a year to Alcoa’s annual operating costs.” That sounds pretty painful for Alcoa stockholders. But Alcoa is pushing for a plan in which the government gives, “companies like Alcoa nearly enough free permits in the early years of cap and trade to cover emissions.” In fact, there seems to be some expectation that Alcoa may get so many permits that it would have surplus permits to sell. What looks like a self-sacrificing corporation rising above itself to act in the social benefit turns out to be ordinary rent seeking.
And Alcoa is not the only established business in a position to enjoy such largess. “The White House has signaled a willingness to provide financial offsets and other relief to the states and companies that would be hit hardest by new cap and trade rules.” Existing firms are subsidized and startups are taxed simultaneously. Welcome to the brave new world tiresome old world of “partnership” between business and government.
The full post can be found here.
Regina E Herzlinger, the Nancy R. McPherson Professor of Business Administration at Harvard Business School, wrote a blog that is a must read for anybody who supports a single-pay healthcare system in the United States.
Here are a couple of snippets:
In the United States, Medicare is alleged to be a good cost controller and one that avoids the rationing tactics of the single-payer economies. So how does it achieve this miracle? Give considerable credit to government accounting: Medicare is low cost because the government accountants are permitted to ignore some inconvenient truths: $34 trillion in unfunded liabilities plus $89 billion in underpayments to medical care providers, which are ultimately paid by private insurers. With correct accounting, Medicare’s cost would increase by more than a trillion dollars. Further, if Medicare were the sole US health insurer, it would either increase its payments to providers by $89 billion or the current near-shortage in doctors would reach crisis proportions as medical students and graduates, burdened by huge debts and limited financial prospects, chose other professions.
She also writes:
There is no question that single-payer systems control health care costs: Canada, in which private payment is virtually illegal, and the United Kingdom, in which most of the funding comes from the government, have substantially lower costs. But do single-payer health care systems achieve cost control in a manner that would be acceptable to the American people?
Single-payer systems control health care costs primarily by rationing services to the 20 percent of the people who account for 80 percent of the costs. The political calculus is cruel but irresistible: 80 percent of the people, the healthy ones, will love their system, while some of the sick, a mere 20 percent, will not. As a result, the United Kingdom has the lowest uptake of new cancer drugs among the Big Five European economies and commensurately low cancer survival statistics. The percentage of people treated for end-stage renal disease in the UK is roughly a third of that in the United States and about 50 percent less than it is in other Organisation for Economic Co-operation and Development (OECD) countries. Lack of treatment is essentially a death sentence because most people cannot afford to pay the high costs of treating these diseases from their own pockets.
The full article, which should be read in full, can be found here. Link via the American Enterprise Blog here.
Ezra Klein Makes Sense On Healthcare Reform - Sometimes
Published by in Economics and HealthCare. 0 CommentsNormally I don’t agree with him, but this post is spot on:
It is evidence of the chaotic, unplanned, irrational nature of our health care system that the most decisive piece of health care policy — save maybe Medicare — is a World War II-era tax quirk. The Roosevelt administration had instituted wage and price controls to prevent profiteering. Excess profits were taxed at mind-bogglingly high rates. Wages were frozen so employers couldn’t offer raises. But the government decided to exempt health benefits from these rules. So corporations took their wartime profits and plowed them into health care benefits. In 1953, with the war over, the IRS tried to overturn the rule. Congress overruled the IRS.
And so here we are. If you walk out, on your own, and attempt to give your friendly neighborhood health insurer a dollar, you’re taxed on that dollar. If your employer gives the health insurer that dollar on your behalf, that dollar is not taxed. As a result, getting health insurance through your employer became — and remains — a much better deal than purchasing it with your wages.
The full article is worth the read. You can find it here.
More On The Problems With The Stimulus
Published by in Economics, Fiscal Stimulus and ModernPolitics. 0 CommentsEconomist Arnold Kling reports:
Greg Mankiw reports that the yield curve is steep, meaning that long-term interest rates have risen. In my view, this is perfectly rational, and it shows that the short-run effect of the fiscal stimulus is negative, as Jeff Sachs predicted.
This is all based on a Keynesian type of macro analysis. As we know, most of the stimulus spending does not take place until next year and beyond, so the short-run gains are puny. On the other hand, the big increase in the projected deficit creates the expectation of higher interest rates, which raises interest rates now. These higher interest rates serve to weaken the economy.
According to this standard analysis, the stimulus is going to hurt GDP now, when we could use the most help. Much of the spending will kick in a year or more from now, with multiplier effects following afterward, when the economy will need little, if any, stimulus.
This is the flaw with using spending rather than tax cuts as a stimulus. The lags are longer when you use spending.
The full post can be found here.
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