Russian Government – a New Dog using Old Tricks

images

Whether from the hands of Comrades Lenin and Stalin or the modern day Tsar of a kleptocracy in Vladimir Putin, there has been one thing that has remained constant in Russian ‘justice’ over the last century, and that is the vicious and cynical tool of oppression of a political show trial. Putin has racked up several of these by now, including high profile cases of eventually jailed oil tycoon and would be politician Mikhail Khodorkovsky and the political activist  Alexei Navalny. These show trials are meant to create fictitious enemies so as to justify emergency and arbitrary rule by decree, intimidate potential enemies, whip up the fervor of the committed supporters, and distract the population of the corruption and ineffectiveness of the regime in improving the lives of its citizens. Show trials were perfected under Stalin, a topic I commented on in a recent post. While the outcomes may no longer result in a death sentence in the Siberian gulags, the underlying means and desired political outcomes under Putin are much the same as in Stalin’s day.

The recent case of a show trial of Ukrainian pilot Lieutenant Nadezhda Savchenko seems particularly pernicious, cynical, and captures my enhanced attention and respect. The entire story is equally horrifying for the banality of evil that Russia continues to treat as a normal course of action as well as the surface level laughability (if indeed it were a laughing matter) of the case against her – which involves accusations that she is responsible for killing two journalists by directing a mortar attack on them and that she illegally entered Russia. First of all, one does not direct a mortar attack in the way one points a gun, so any journalists killed, while certainly tragic, is an expected collateral casualty of war and the justice of the battlefield would not expect a combatant in a fight to be able to separate civilian from enemy troops when those civilians are embedded with the enemy force. One suspects the real Russian anger here is not over journalists killed but over the deaths of Russian soldiers the journalists were with and for which Russia denies are in Ukraine. As most media is under the thumb of the Russian state these days, I have to imagine that these journalists were there under Russian state direction in the first place embedded with the unmarked Russian soldiers (“little green men” as many in the region have taken to calling them) that have invaded and occupied Eastern Ukraine. The other incredibly hard to believe aspect of the story is that Lt. Savchenko would willingly cross into Russia. Far more likely is that she was abducted with the intention of holding her captive.

The other aspect of this story that I find fascinating is the the Russian evil revanchist menace contrasted with the defiant courage of Lt. Savchenko. She has brought international attention to her plight by going on hunger strikes, acting defiant in court, and more recently, singing a Ukrainian national song when her trumped up sentence was read out, forcing the judge to clear the courtroom. Add this to the fact that Lt. Savchenko was fighting on the front lines in Eastern Ukraine effectively as an infantryman of her own free will while not in use as a pilot makes her courage in defense of her homeland all the more remarkable.

 

Advertisements

Yet another Islamic terrorist attack

Terrorism

http://www.nytimes.com/2016/03/23/world/europe/brussels-attacks-what-we-know-and-dont-know.html

The nature of Islamic terrorism is one of cowardly beastly animals that don’t deserve the title of humanity. How long will the world wait before crafting a legitimate strategy to destroy ISIS and Boko Haram? How long will America fail to lead and organize the nations and isolate ourselves out of a mistaken sense that the macabre descent into chaos across the Middle East that is the disease causing this symptom is out of our hands?  Collectively, civilized nations and people have the resources and manpower to destroy these forces of evil, starting with taking their territory and killing them wherever they can be found and thus removing a main source of their draw to new recruits while promoting safe havens and sources of refuge for people who just want to live peaceable lives within places such as  Iraq and Syria. Sadly, we lack the resolve until ever more of these inevitable events force us into action.

What made America great in the first place?

us-constitution

As I have mentioned in other posts, I am making my way through Mary Beard’s remarkably readable account of Roman history, SPQRBeard has the unique talent of bringing ancient history forward and modernizing it and making it tremendously relatable to modern times while maintaining the integrity of the critical historical elements. One of the remarkable anecdotes that Beard draws upon is the assassination of the Emperor Gaius, also commonly known as Caligula (which loosely translates into “Bootikins” on account of the footies he has as a child, making it a nickname that Gaius actually rather disliked). In the aftermath of this event, Beard chronicles how the Roman Senate took to the Temple of Jupiter, a highly revered and symbolic place for Romans of the time, and, as Beard states, “exchanged fine words about the end of political slavery and the return of liberty.” Calculating that it had been about 100 years since the end of freedom, one of them delivered a stirring speech on the need to return to Republican ideals. While admitting that he was too young to see the true Republic in its old form, he claimed to see with his own eyes ‘the evils with which tyrannies fill the state. No despot is set over you now who can get away with ruining the city…what recently nurtured the tyranny was nothing other than our inaction…Weakened by the pleasure of peace we learned to live like slaves….Our first duty now is to give the highest possible honors to those who killed the tyrant.”

Unfortunately for the speaker, one observer in the crowd noticed that he was wearing the signet ring that featured the face of Gaius on it, a symbol of sycophantic loyalty to the Emperor, and proceeded to rip the ring from his finger. The entire spectacle completely undermined the eloquent speech he had just delivered.  As Beard indicates, the Jewish historian Josephus hinted in his writings at the time that, “anyone who could loudly advocate a return to Republican rule while sporting the emperor’s portrait on his ring did not understand what Republican rule was about.”

I use this as a parallel for the current state of the American polity and our lost sense of what actually makes America great. As the author of a blog post The Jacobins of the Right states, “There is something almost Jacobin – and thus deeply unconservative – about the idea that a virtuous, plain-speaking, authentic outsider can just step into politics and fix everything, and that when all is done, the nation as a whole will be regenerated. Or great again. Or something quite like it. There is something equally Jacobin, and unconservative, about the idea that our country or any other needs to be radically remade.” This is not just about the current presidential election, although it is certainly a symptom of the disease, in my mind, modern Americans have forgotten, or were never really taught, what made America great in the first place. The opening lines of the Declaration of Independence embodies the greatness of what the American Republic aspired to be:

We hold these truths to be self-evident, that all men are created equal, that they are endowed by their Creator with certain unalienable Rights, that among these are Life, Liberty and the pursuit of Happiness.–That to secure these rights, Governments are instituted among Men, deriving their just powers from the consent of the governed..

What was unique about this incredible endeavor was a paradigm shift from paternalistic aristocratic government structures that predominated the globe at that time and indeed throughout the vast majority of history to one where individuals had unassailable rights and that government existed by the sole consent of the governed. While the United States founding fathers could look to examples of the Athenian democracy, Roman Republican era, and writings from classical liberal (mostly) English philosophers such as John Locke, Edmund Burke, Adam Smith, and David Hume, for the most part they were building and executing on something entirely new. It would not have escaped their (or the rest of the world’s) notice that those previous rare examples from Rome and Greece were ultimately flawed and doomed to failure.

As a bulwark against those flaws and with additional wisdom provided by the troubles of the Articles of Confederation period, the U.S. Constitution weaved together a tapestry of government checks and balances across not only the legislative, executive, and judicial branches but also across the central federal government and state governments. While I could make much of this artfully wise construct of checks and balances across government institutions, suffice it to say that by its very inherent design the U.S. Constitution was purposefully constructed to make rapid and dramatic change very difficult and yield to the less efficient incremental and slow changes that are reached by overwhelming support and consensus. For anyone that doubts this, make the Federalist Papers authored by James Madison, Alexander Hamilton, and John Jay your next reading project. A less talked about but equally important nature of the American construct was combining the government checks and balances with elements of an indirect democracy as a form of population oversight of the government; or, in other words – the consent of the governed was never intended to be ‘the majority votes, the majority rules, the majority rides roughshod over the losing minority’. It is critical to note that this was not direct democracy, as the founding fathers were afraid of mob mentality, or what the French aristocrat and prescient writer Alexis de Tocqueville would coin as “the tyranny of the majority” in his observations of America in Democracy in America.

There seem to be two competing populist strains in American politics these days –  one is of a reliance on a single man to somehow ‘make us great again’ by, as the author of the Jacobin blog puts it, “cranky protectionist math that just doesn’t add up.” The other is a naive belief that we can somehow stop a “rigged” system (one of Bernie Sanders favorite terms) by consolidating much more power into the hands of government and create a “fair” society by ironically confiscating wealth from the minority and redistributing it to the minority. These political forces of authoritarian machismo and tyranny of the majority to trample on the rights of an outvoted minority would not have been a surprise to the founding fathers, who did everything they could to try to prevent this type of descent in their founding government charters. For the American people who mistakenly believe that their support of a would-be despot who can get things done by the sheer dint of force due to his leadership and personality and that this is somehow consistent with American greatness, the echoes of the Roman senator droning on about Republican greatness while wearing the Emperor’s portrait begin to ring a loud clarion call.

In Democracy in America, de Tocqueville prophetically states that,  “Governments usually perish from impotence or from tyranny. In the former case, their power escapes from them; it is wrested from their grasp in the latter. Many observers who have witnessed the anarchy of democratic states, have imagined that the government of those states was naturally weak and impotent. The truth is, that, when war is once begun between parties, the government loses control over society. But I do not think that a democratic power is naturally without force or resources; say, rather, that it is almost always by the abuse of its force, and the misemployment of its resources, that it becomes a failure. Anarchy is almost always produced by its tyranny or its mistakes, but not by want of its strength.’

Those bidding for stronger and more effective and decisive government are missing the point of America and are drawing the wrong conclusions. Our government is not without power and it certainly isn’t weak and in need of a saviour. We don’t need more government or more tyranny that I believe both a Trump or Sanders presidency would bring about in different forms. We need greater individual freedoms, less government, less laws so that the rule of law can be adhered to and respected, and a much greater veneration and knowledge of our founding charters and how government is supposed to function and the people’s role within it. Without these forces, the de Tocqueville prophecy of descent into anarchy is ever closer at hand.

 

 

 

 

 

“He was good at life.” In honor of Taylor Force

Force

The tragic and untimely death of Taylor Force commands our attention and it demands that we pay our respects in our own ways for the life that was lost. Indeed, his family and friends recently did just that in Lubbock, Texas, as a recent Lubbock Avalanche Journal article reports.

For the uninitiated, Force was taken from this world while he was in the prime of his life while visiting Israel on an Owen School of Management at Vanderbilt school-sponsored trip. His loss, like so many others these days, was due to a senseless and barbaric act of terrorism as Force and multiple others were attacked by a knife-wielding terrorist. To survive tours in Iraq and Afghanistan and then die at the hands of a coward is an insult to life and decency. The only solace family and friends must feel is the inordinate impact Force had on life in the short years he had on earth to live it.  I did not know Force personally, but I can’t help but marvel at some of the intersections and connections that his story holds to mine and thus identify with him: we both grew up in Lubbock, both served as officers in the United States Army, and both pursued MBAs. One final intersection is that the Owen School of Management at Vanderbilt Dean, Eric Johnson, was a professor of mine at the Tuck School of Business at Dartmouth and also was a faculty sponsor of  Association of Christian Tuck Students (ACTS) that I was a member of. Dean Johnson is a wonderful man that was giving of his time and talents, opening his wonderful home in the woods of Vermont to students on numerous occasions while he served at Tuck. Dean Johnson had this to say of Force’s character, “He was a very valued part of the community, a student leader…the kind of young man that we would all hope is one of our sons…one that wasn’t quick to talk but when he talked it was always with insight and impact.”

Friends and family have described Force as someone that excelled in whatever he did. And yet the leadership, talents, and success were leavened with humility and a spirit of servanthood. To me, this combination of humility and not thinking too much of oneself while devoting one’s life to service to others, productivity, personal growth, relationships with others, making an impact on life and those around you is the essence of virtue. Force’s father, said it best in the linked article above when he said, “He was good at life.”  I am impressed not only with Force’s success and path in adulthood, but his seriousness and maturity in his youth, where he achieved success as an Eagle Scout and made the remarkably mature decision to attend high school away from home at the New Mexico Military Institute, accomplishments that allowed him to obtain the Congressional District’s sole West Point appointment that year. How many of us can say that we were busy developing character and virtue in our youths? Sadly, I know that I cannot.

With the general coarsening and crudeness of our society as manifested by the fact that we are collectively on the cusp of elevating a man to the Presidency who makes crass comments on the size of his genitalia on a nationally televised debate, I can’t help but think of Force and wonder how we can create a more just and virtuous society on his life model? How can I ensure that my own son and daughters emulate such a life at an early age? I have to ponder the question of if I was to meet an untimely death, whether the outpouring of grief and emotion would include the epitaph, “he was good at life.” Aristotle would define this virtuous life as finding the right balance of decency, prudence, wisdom, courage, deliberation, temperance, and modesty, and that true happiness and life fulfilment only comes from these virtues. Jesus Christ would indicate that the ultimate commandment is to love God and our neighbors more than ourselves. Force was the full embodiment of these virtues. I pray that the rest of us can busy ourselves with discovering those virtues for ourselves.

The Gender Revolution We Often Forget About

We-Can-Do-It-Rosie-the-Riveter-Wallpaper-2-AB

I found a recent podcast of EconTalk to be highly fascinating. As a father of three girls, I do spend a great amount of time worried about the career opportunities and lifestyle choices that my daughters will face. I do wonder whether there is in fact a glass ceiling that my daughters will face should they choose to devote their lives to careers with equal commitment and skill relative to their male counterparts. I do worry about the challenging forks in the road that they will face between careers and child-rearing, which for better or worse tends to fall more heavily on their shoulders. All of these reflections drew me to this episode in which Professor Alison Wolf, Baroness of Dulwich, put focus into the tremendous growth in education and economic prospects that have occurred amongst the top 15-20% of the global women elite. The offshoot is that these elite women have closed the gap amongst their men social class peers and consequently have created a tremendous gap between their less educated and less well-off women gender peers. In essence, the Gender Revolution of the last 50 years is as much about professional women catching up to men in their class as it is about those same women diverging quite starkly from their less educated gender peers. One might add that these same professional women have also quite distanced themselves from blue-collar men, but that issue was not heavily explored in the podcast.

The host, Economist Russ Roberts of Stanford’s Hoover Institute, opens with a quote from Professor Wolf’s recent book, The XX Factor: 

Until now, all women’s lives, whether rich or poor, have been dominated by the same experiences and pressures. Today, elite and highly educated women have become a class apart. However, these professionals, businesswomen and holders of advanced degrees, the top 15 or 20 percent of developed countries’ female workforce–have not moved further apart from men. On the contrary, they are now more like the men of the family than ever before in history. It is from other women that they have drawn away.

Wolf’s response puts it into perspective that I have never really thought about before:

Think back to, for example, a world of–America. And what you would find is that whether or not you are a girl in a well-off Boston household or a girl on a hardscrabble Appalachian farm, what decided your life was whether or not you made a good marriage. Essentially, you had to make a good marriage. Everything else was secondary. You had to make a good marriage because that’s what you were born into the world to be. You were born into the world to be a wife and a mother. Which would mean you would have status and security and hopefully children to look after you in old age. And you would be the one who reared them. Or, you were going to be a spinster, on the shelf, with essentially no capacity of making a career. So, whereas a boy from a tough background could, occasionally, with difficulty make it on his own, as a woman you just couldn’t. You simply couldn’t. So, whatever you were, that was what being a woman was. I don’t mean that it was all utter misery for everybody but it didn’t make any real difference. What the wealth of your family was, that was what defined you. And that meant that all women had a completely common set of concerns and experiences. And in that sense, they were a sisterhood. I don’t mean they all liked each other, and there were definitely rivals. But they were a genuine sisterhood in the sense that they had all this in common. And today, if you are a clever or privileged young person, whether you are at Oxford, Harvard, Brown, Kings–where I teach–you have far more in common as a female student with the male students who were alongside you than you will with a vast majority of other young women in your country. And it’s the class that really matters. The class has always mattered. But as a woman you just kind of hung on to whichever class you were born or married into. It wasn’t really ¬your class in the sense that you’d created your class position. You just kind of hung in there. Today, you as a woman can also be upwardly mobile or downwardly mobile. And it’s your self-made class–it’s you as an educated or less educated, fortunate or less fortunate, careerist, non-careerist woman who makes your fate. And you are very likely to marry somebody like you, if you marry at all. But what really decides your life is that you are or aren’t a member of that top 15%

In the back and forth dialogue between Roberts and Wolf, they both discuss the contrast between women of “high society” today compared to those in the Jane Austen novel era. The key difference is that in those days, women’s “success” was largely defined by who they married. Pulling in another historical narrative on the topic, my recent reading of Mary Beard’s book on Roman History, SPQR, painted a picture of women’s lives in the late B.C. and early A.D. era that were dreadfully oriented chiefly around their ability to produce children. Whether from the class of aristocracy or bondaged slaves – the chief aim of women’s lives who were often subjected to arranged marriages was, to put it crudely, economically beneficial maternal production. The high rates of death during childbirth in Roman antiquity certainly did not add to the allure of being a woman during this time, so I am easily grateful for the prospects and choices that my daughters will have. That being said, it does present a fair degree of pressure on the parent to focus on and promote their daughters’ education, which is another focal point of the podcast dialogue.

Much of the rest of the discussion focuses on some of the key differences that have driven separation in woman’s class – namely achievement in education levels, marrying much later in life, marrying exclusively within their professional class, divorcing infrequently, and working throughout child rearing (although sometimes taking what Wolf calls “sideway” positions that are no longer taking them rapidly up the corporate ladder) Contrast these factors with less educated women lifestyles where one sees much higher rates of children born out of wedlock, children born at much earlier ages, higher divorce rates, and an often complete removal from the workforce once child rearing begins.

Less focused on in the podcast is the divisive issue over whether men and women doing the same work are paid differently, so listeners looking for deep thoughts on this hot button issue won’t find answers or even that much speculation, although Wolf does make the observation that one reason for the disparity is likely the continued social acceptability of women taking a step back or taking the “sideways” path to provide more time to raise children compared to men. Wolf and Roberts also make the observation that women are beginning to dominate graduating classes of defined professions such as medical and legal, which Wolf observes one reason behind this is that these are fields where women can still contribute meaningfully to while balancing child rearing compared to less defined roles in business management where the lack of defined professional success factors and paths lead to hours worked as proxy for success. The implicit prediction here is that there remains much to be seen and revealed in where these career choices of women play out in the way our culture and society is structured, although Roberts, as a classically trained libertarian economist out of the Chicago/Austrian school would no doubt indicate that social forces that are not really controllable or predictable will determine the outcomes and that heavy-handed government will at best be counterproductive.

There is a lot in an hour podcast that I won’t fully discuss here, but I do highly recommend the listen.  I provided a link to the desktop file, but EconTalk can be found and subscribed to on many smartphone podcast apps. My personal favorite happens to be Podcast Addict.

 

 

 

The U.S. Government Bank Prosecution Racket

rakoff_1-010914

A recent Wall Street Journal article highlighted the astounding value of $110 Billion that various federal and state governments have received from their prosecution of banks for their alleged part in “creating” the conditions for the mortgage-induced financial market crash that led to the Great Recession. First, let me get this racket straight: The Federal Reserve spends years promoting over-investment into property through use of loose monetary policy. That same loose monetary policy leads to a predictable chase for yield in risky asset classes, including subprime mortgages. For its part, federal and state government agencies provide a complementary punch to central bank policies by actively promoting and manipulating investments in properties through distortionary tax policies such as the mortgage interest rate deduction and subsidized loans through agencies such as Fannie Mae and Freddie Mac. Furthermore,  various government bodies craft legislation designed to push lenders into lending to higher risk individuals lest they get prosecuted for discrimination in an effort to promote home ownership as the ultimate American dream. Then when the whole house of cards come crashing down, ignore your own creation of the mess as the puppet-master and instead scapegoat and go after the puppets.

In essence, the mortgage-induced financial crisis was a result of government involvement, not a lack thereof, as this Forbes article written in the immediate aftermath indicates. I quote the key section below:

It is popular to take low lending standards as proof that the free market has failed, that the system that is supposed to reward productive behavior and punish unproductive behavior has failed to do so. Yet this claim ignores that for years irrational lending standards have been forced on lenders by the federal Community Reinvestment Act (CRA) and rewarded (at taxpayers’ expense) by multiple government bodies.

The CRA forces banks to make loans in poor communities, loans that banks may otherwise reject as financially unsound. Under the CRA, banks must convince a set of bureaucracies that they are not engaging in discrimination, a charge that the act encourages any CRA-recognized community group to bring forward. Otherwise, any merger or expansion the banks attempt will likely be denied. But what counts as discrimination?

According to one enforcement agency, “discrimination exists when a lender’s underwriting policies contain arbitrary or outdated criteria that effectively disqualify many urban or lower-income minority applicants.” Note that these “arbitrary or outdated criteria” include most of the essentials of responsible lending: income level, income verification, credit history and savings history–the very factors lenders are now being criticized for ignoring.

The government has promoted bad loans not just through the stick of the CRA but through the carrot of Fannie Mae and Freddie Mac, which purchase, securitize and guarantee loans made by lenders and whose debt is itself implicitly guaranteed by the federal government. This setup created an easy, artificial profit opportunity for lenders to wrap up bundles of subprime loans and sell them to a government-backed buyer whose primary mandate was to “promote homeownership,” not to apply sound lending standards.

Now fast forward a few years, and the Government is assuming the mantle of champion of the jilted poor, tirelessly and heroically prosecuting the banks whose malfeasance created the mess. Except as laid out above, the government is the entity that created the conditions for the mess. Turning to the research provided by the Wall Street Journal, when the money can be accounted for, it is going to pay for things such as barns and stables for the state fair in New York. The vast majority of the funds are staying within the organizations that prosecuted the banks, who predictably want no part of the people paying attention to the fake wizard that is really a corrupt man behind the curtain. As far as money being retained by organizations such as the Justice Department – talk about a tremendous conflict of interest. The Wall Street Journal reports that, “…some of the biggest chunks of money stayed with the entity that levied the fines in the first place. Of $109.96 billion of federal fines related to the housing crisis since 2010, roughly $50 billion ended up with the U.S. government with little disclosure of what happened next, according to a Wall Street Journal analysis”.

The richest and most tragicomic part of the analysis is that the Treasury Department itself received almost half of the $110 Billion that government has captured in these prosecutions. Much of this money was funneled to Treasury by Fannie and Freddie Mac. This is analogous to a chief arsonist, who gathered all of the needed accelerants and who lit the first match and set a building ablaze and then directed others to loot the property before the fire gets too hot, is now busy prosecuting the looters and taking the loot that they happened to gain before the fire consumed it all. While banks may hold little esteem in the minds of many, and while there was no doubt some wrongdoing on the part of banks that drives the partially deserved reputation, I don’t believe justice is served with one set of corrupt and incompetent entities scapegoating and profiting from another set of corrupt and incompetent entities simply because the former has the title of government. To paraphrase a Milton Friedman quip on governments somehow being morally superior to the private markets, “you think the U.S. and State government bureaucrat doesn’t have greed and reward virtue? Where are you going to find these angels to run mortgage markets for us”

The antidote to such malfeasance is not more government regulation and centralization of markets, it is less government involvement and decision making in the markets in the first place.

“America’s Drift Toward ‘Socialism’ Is Generational, But Also Educational”

Bern
Young supporters cheer on Bernie Sanders, an avowed democratic socialist, in Iowa (Andrew Harrier/Bloomberg)

There is a great article in Forbes that essentially shows a tremendously concerning growth in support of Socialism, particularly within the 18-24 age group. The great challenge is that most of them can’t even define what socialism actually is. Thus, we have a gap in both understanding of the evils of state owned means of production (in other words, what socialism actually is) and a lack of understanding of what socialism actually means for society.  So we either have people opposed to capitalism on its own merits or people that are fooled into supporting something that they don’t understand. I am not sure which is a bigger problem – hatred of what has made America great and freed millions from penury and big government control or outright ignorance of the term and underlying political philosophy.

A key statement by the author, David Davenport is below:

A November NYT/CBS poll found that only 16% of those under 30 could accurately define socialism, compared with 30% for respondents over 30. Even more to the point, when a Reason-Rupe survey in 2014, which again confirmed young people’s support for socialism at 58% for those ages 18-24, turned around and asked whether they favored government running businesses, the clear answer was “no.” When asked whether they want government or private markets leading the economy, they chose markets 2 to 1 (64% versus 32%).

I don’t know which is more discouraging: that young people are becoming comfortable with socialism, or that they have no idea what it is. Any definition of socialism involves government ownership of the means of production and distribution. It’s most assuredly not private ownership of business or a market economy. So for starters, young people have embraced some kind soft collectivism and mislabeled it as socialism. That’s bad enough.

The Next Frontier in Healthcare Reform and Why it Will Harm Consumers

There is a working group chartered by Health and Human Services (HHS) comprised of a combination of private, public, and non-profit players in the healthcare industry that have been active in determining the direction of the next frontier in healthcare reform. Namely, the next frontier in healthcare reform will focus on how providers and organizations are paid for the services that they deliver. This working group has been given that rather lengthy title of, “The Health Care Payment Learning & Action Network (LAN),” and they recently created a whitepaper that sheds tremendous light light on the Centers for Medicare and Medicaid Services (CMS) most likely direction and next steps with looming payment reforms. The whitepaper can be found at https://hcp-lan.org/workproducts/apm-whitepaper.pdf. At the outset I will say that I am a tremendous skeptic of this type of crony capitalism in which entrenched monopolistic industry players such as large hospital networks and insurance companies that have close connections with government are the ones that are creating frameworks for payment models. We won’t be surprised when such models are favorable to them at the expense of consumers and the small-market players, would-be new entrants, and competitive market forces that are so sorely needed in healthcare.  That is a topic I will leave to a future post and in many ways I discussed in my healthcare section of  a recent blog post where healthcare is one section addressed within a broader economics manifesto in which I borrow liberally from University of Chicago Economist John Cochrane.  Suffice it to say that asking the fox for the right ways to guard a henhouse are likely to result in a more well-fed fox then it will result in protected hens.  Let me also say at the outset that I am not an advocate of the largely fee-for-service regime that exists in healthcare today. I will briefly indicate that I do not believe government “expert” led attempts to change healthcare demand and supply through insanely complicated bundled payments for episodes of care will be the new tweak that bends down our healthcare cost curve while protecting quality and consumer choice. The new reforms are analogous in my mind to building a pretty white picket fence on a trash heap. Broad market-oriented reforms are the real cure, the effective way to remove the trash heap and create meaningful healthcare reform, but again, that is a future post.

Now turning to the merits of the plans put forth by the HCPLAN. What good is a government body if it does not have a 6 letter acronym?  The graphic below reveals how they group categories of Alternative Payment Models being advocated.

Payment Reform

It is clear that the working group (and one can assume they will guide in large part the decisions that CMS will make) holds in high regard the bundled payment for a specific episode (i.e. hip and knee replacement) and a population based payment (payment that is for a beneficiary as a whole and agnostic to the services they actually wind up using) as the holy grail models of payment reform. It is also interesting to note the convergence of government and private payer focus on such payment reform models (my point above on crony capitalism at work). Thus, this is not simply a government thrust, but is being directed by the large industry players that will benefit from more complicated payment structures that only large providers will have the scale to work around  The working group makes their strategy clear with statements in the white paper such as, “The Work Group believes that shifting from traditional fee for service (FFS) payments to person focused payments (in which all or much of a person’s overall care or care for related conditions is encompassed within a single payment) is a particularly promising approach to creating and sustaining delivery systems that value quality, cost effectiveness, and patient engagement.” Thus, healthcare systems can anticipate that what CMS has begun with bundled payment pilots and the recent Comprehensive Care for Joint Replacement Model (CCJR or CJR) is but a mere crack in the opening of the door that will highly likely culminate in many other healthcare conditions being moved into a bundled payment models. Indeed, in the work group whitepaper, the call is for health payments to increasingly shift towards Category 3 and 4 payments. This will intuitively fuel consolidation across the acute and outpatient settings as well as drive a much more narrow and controlled continuum of care networks. In other words, as healthcare consumers, we will be left with much fewer options and much less control over where and how we consume healthcare services.  In this era of payment structures, hospitals will have great incentives to create unprecedented levels of of hospital-based control (if not outright ownership) over outpatient and post-acute settings through tightly controlled referral agreements and at risk quality and financial contracts between hospitals and outpatient settings. The outpatient settings that can’t keep up in this space will inevitably be shutting their doors.Many hospitals will find it to their advantage to simply acquire the outpatient and post-acute players around them. Indeed, to their credit the working group admits in their whitepaper that, “The transition away from FFS may be costly and administratively difficult….the Work Group recognizes the possibility that shifts in payment can result in unintended and unanticipated consequences, such as cost increases owing to provider consolidation, reduced provider willingness to exchange data, and a potential reduction in costly but effective medical services”

On the points made related to the unintended consequences, something to watch out for will be how CMS plans to address the natural incentives that bundled payments will create to reduce innovation and quality of care in order to cut costs. It won’t come as any surprise that a bundled payment will fuel cost reduction at the expense of quality and consumer value.  I personally am skeptical that government apparatchiks will be able to command these tradeoffs from up on high effectively.  Since the ultimate aim in any industry should be to both reduce cost and increase value in order to please and gain more customers, a bundled payment by its inherent nature will greatly incentivize lower cost care that does not in fact improve quality, or even worse, will highly likely decrease quality. Thus, there will have to be some efforts to couple the bundled payment to pay for quality reforms. All that being said, health systems and consumers can anticipate government reform to continuously work towards the rapid shift from fee for service to at least one of the APM payment frameworks despite the recognized challenges. After all, recognized challenges did not stop the Obama administration from rolling out disastrous insurance exchanges.

The graphic below reveals a rough representation of the shift that the Work Group believes must occur. While the precise amount that flows into Categories 2-4 can’t be predicted at this juncture, what seems a foregone conclusion is the shift out of Category 1 (Fee-For-Service) is all but inevitable in today’s current environment. Those organizations that do not opt for full on Accountable Care Organization models created under ObamaCare will increasingly find the majority of their payments in the form of person-centric population bundled payments, episode of care bundled payments, or payments for services in which a significant portion of the payment is dependent upon achieving certain quality measures.

 

Model Shift

In its discourse on the payment models, the Work Group unveils its construct of the holy grail of health care delivery: the integrated care delivery network. It states within the white paper that, “On one end of the spectrum, plans and providers in Category 4B models may be virtually integrated. On the other end of the spectrum are highly integrated arrangements that are characterized by vertical integration of financing and care delivery, common ownership, and strong linkage across strategy, clinical performance, quality, and resource use. These groups may also have a higher percentage of salaried physicians. After reviewing the literature and discussing these highly integrated arrangements with people who operate within them, the Work Group has reached the conclusion that they can be ideally suited for delivering person centered care because they: 1) force transformational thinking about delivery system reform; 2) optimize coordination of infrastructure investments; 3) most fully remove financial incentives for volume; and 4) expedite community investment and engagement.”

There you have it – a frank admission that these payment models will drive consolidation of health systems, drive small players out of the market, and drive private physicians into the arms of working directly for hospitals. I personally believe that a competitive market without the insane supply restrictions and prevention of new entrants of the market and removing of the insurance premiums and government programs that create tremendous price and demand distortions would create the cost and quality driven models we seek, but what we are getting instead will be more complexity, less choice, and potentially less quality. With some luck, maybe our costs will go down, but I am not betting on the benevolence of even larger industry monopolies passing their cost savings on to consumers.

Trump’s Erosion of the Legacy of Reagan and the Roots of Modern Authoritarianism

My dear friend Adam Goldman, who is an active member of many conservative and Republican organizations (you can see his impressive credentials below the article), has contributed the following article that I believe readers of The Gymnasium will appreciate. Adam is an astute political observer and defender of the Republican Party and its historic big-tent compromising approach that he defends as a natural and necessary component of Federalism and American values. While the libertarian-leaning purist in me personally wants to push the party into one of much more limited government and classical liberal directions, Adam makes excellent observations on the value of the party that exists today, of the two-party system, and illustrates that even the hero Reagan compromised and performed actions inimical to populists on the right. Further, he draws a remarkable contrast between the optimistic and moral approach of Reagan to the brash authoritarianism of Trump. I hope my readers will enjoy this article and comment on it and I hope you value and look forward to contributions from Adam and others for diverse viewpoints in the days to come.

Trump’s Erosion of the Legacy of Reagan and the Roots of Modern Authoritarianism 

Splinter movements from our twin political parties are nothing new in American history. While it is of utmost concern, considerable examination into Donald Trump’s highly questionable personal and business backgrounds have been undertaken elsewhere and need no further recitation herein. I examine and compare, rather, the rise of the Trump phenomenon to that of the Reagan revolution, through the lens of America’s late 20th century history political culture as well as its Constitutional and partisan framework.

The Republican and Democratic parties are by nature very large businesses that encompass a very diverse range of both the religious and the secular, including both labor and business, and other movements, spread across a continent.  For America to enjoy relative benefit of the stability of a two-party system, it must out of necessity subordinate the purist impulses of certain factions within these diverse coalitions. This simple logic of 2 + 0, and not 2+1 or 2+2, is not embraced by many who revile their “establishment” leadership within their respective parties. These rejectionists are imbued with an authoritarian impulse, and when its spokesman meets with a base of support that crescendos in a positive feedback loop, the results can be inherently destabilizing, as the GOP is witnessing this year with the rise of Trump.

Trump has very successfully redirected the Tea Party angst of 2010 from Obama against the Republican party as a whole. By comparison, in 1968 violent counter-cultural and student movements joined to force their way into Eugene McCarthy’s coronation, a moderate Democrat. The assassination of Robert F. Kennedy earlier unglued the Democratic party, temporarily. It became unstable and dysfunctional. The result was the election of their arch-nemesis, Richard Nixon, a flight to stability and a symbol of strength for most voters. The uprising on the furthest flank from the center of the party led to a result in direct contradiction to its stated goals.

In 1996, Pat Buchanan led a similar, but much more orderly, rejectionist insurrection within the GOP. Frustrated with the dilution of Reagan’s supposedly pure vision of conservatism, millions flocked to his side. Memories fade quickly though: Reagan made numerous compromises with Tip O’Neill, his famous “six o’clock” friend, and Democratic Speaker of the House, in order to secure broad tax cuts and increased defense spending. Reagan in turn agreed to raise gas taxes, eliminated the IRS deduction for auto loan interest, raised the Social Security eligibility age, incurred massive deficits, barely made a dent to social welfare spending, lost 200 Marines in a terrorist bombing during a U.N. peacekeeping mission in Lebanon, and signed the 1986 law granting amnesty to illegal aliens without guarantees regarding promised enhanced border security. Republicans under Newt Gingrich made corrective progress over the course of the decade following Reagan’s tenure by reforming welfare and reducing deficits dramatically. This is the essence of the process of America’s constitutional process, which always defies quick solutions, but if permitted its arc always bends toward limiting the Federal power. Nevertheless, President Clinton quickly dispatched his GOP rival Senator Bob Dole, whose campaign emerged gravely wounded from the purist Buchanan-led primary uprising.

The GOP benefited dramatically in 2010 from the Tea Party’s grassroots coalition, which turned out millions of voters only four years following the GOP’s huge losses in the 2006 Congressional elections. For all of the Tea Party’s purity of purpose toward resurrecting a second Reagan Revolution, it forgot its own history: the necessary compromises that Reagan strategically agreed to, and the failed insurgence of Buchanan, who prevailed in a tactical victory but lost the war. It is of no surprise that Pat Buchanan several years ago touted the effectiveness of the “Christian” Vladimir Putin of Russia. Putin in turn, stated his recent admiration for Trump, whom the latter has not yet disavowed.

The roots of authoritarianism are neither peculiar to the right or the left. Trump may be its spokesman on the right today, however tomorrow it is all but certain that the tides of unwritten history will give rise to another on the left. The result is always certain in a two-party political environment, which is that the results of its efforts are always self-defeating.

The banality of Trump is a reflection of the temperament of his supporters, who have neither the disposition nor inclination to consider the long-arc of Constitutional lawmaking. In fact, the very words “Constitutional lawmaking” provoke disdain and anti-“establishment” mockery from his supporters. They view compromise as not only unnecessary but anathematic, despite all mathematical proofs regarding veto overrides, a bicameral legislature, and an independently elected executive (unlike European parliamentarian systems). Comparisons to the rise of Hitler in 1930s Germany are exaggerated, but the impulse to authoritarianism is by no means to be conveniently ignored, despite America being the oldest democracy. The renown historical philosopher Hanna Arendt examined the rise of the Third Reich closely and concluded that in spite of Germany’s position as the most highly technical and educated society in continental Europe, a motivated and large plurality of its citizens were drawn to Hitler’s crudity and demagoguery. How did this occur?

Hitler exploited four themes that motivated ordinary Germans: the loss of the German middle class’ purchasing power due to hyperinflation from post-war debt, the loss of international prestige and status (due to the Versailles Treaty’s disarmament clauses), and impatience with the new, inexperienced fledgling democracy in Berlin which could not produce a consensus regarding which policies ought to address these crises.  The fourth theme tied together the previous three, which blamed these crises squarely upon the “establishment”. Hitler further stoked fears of an establishment “conspiracy” against ordinary Germans by gradually amplifying xenophobic rhetoric of a Jewish fifth-column, which reflected old mythologies from the Middle Ages which still resonated.

The goodwill of the majority of America’s people and the strength of its community organizations, whose Protestant and Catholic spokesman have weighed in recently against Trump, all but guarantee that the horrors of the Reich will never be repeated here. However, for the Tea Party to successfully overcome its impulse to authoritarianism and regain its focus on continuing the Reagan revolution, it must re-embrace the Constitutional process, and unequivocally denounce demagoguery. It begins with an honest self-assessment of its own disregard for Reagan’s principles, which follow.

Reagan’s speech, manners, and civility always shamed his occasionally crude, low-minded opponents with a forceful appeal to moral reasoning. For Reagan, the goal was never “winning” at the expense of anyone. For Reagan, winning was a tide that lifted all boats, including those of the left. For Trump, personal wealth is the goal for not only himself but for his supporters. Reagan, on the other hand, felt the tide of rising wealth that lifted all boats was merely a means to an end. The end was not wealth, but security and a realization that God desires to bless those that are His. That financial security can then be used to bless the world and lift millions out of poverty and oppression. Reagan believed that America should lead in that effort. Trump has cast his vision for America as merely one of acquiring more goods and personal wealth and self-satisfaction, a shallow appeal at best to consumerism. By contrast, Jesus taught an entirely different paradigm of the reason for wealth, as a means to a different end altogether. At the risk of hyperbole, we can conclude that Reagan’s economic vision is consistent with that of Jesus of Nazareth, although I’m sure Reagan’s humility would most certainly preclude his agreement to such notions.

For the foregoing reasons, we can safely conclude that the character and values of Reaganism stand in diametric opposition to that of Trump. What is more, we can rest assured that Ronald Reagan himself would very likely have absolutely nothing to do with someone of the persona of Donald Trump.

Adam Goldman is current Board Member and former Vice President of Florida Right to Life, a founding member of the Center-Right Coalition of Central Florida,  serves on the Central Board of James Madison Institute, and served on the statewide Florida steering committee of the Mitt Romney campaign.

Free Trade Lessons for the Economically Challenged

Yes, the would be trade war General Donald Trump is included in those that need these lessons. Whether he actually believes his own tirades against Mexico and China or whether he finds them politically astute given his blue collar base is beside the point, the lesson on the virtues of free trade are in constant need of defending – like a garden that is surrounded by malevolent spreading weeds that are aggressive but thoughtless.

This Neighborhood Tale from Cafe Hayek is one Orwellian dystopian view of the topic that asks the obvious question – why should government backed by freedom-hating voters decide what I get to consume and where I get my products from? Drawing the arbitrary consumption boundary to the United States is really no different philosophically and morally than drawing a consumption boundary around my neighborhood. When one paints it in this light, then the restrictions on individual liberty and punitive tariffs becomes quite the sophistry.

Another highly insightful and thought provoking entry on the topic comes from the American Enterprise Institute constructed video debate between Trump and Milton Friedman on the topic. Of course, Friedman having passed away some years ago we don’t get the pleasure of Friedman actually destroying Trump’s immature trade arguments in real time, but the artful creation of AEI does the job well enough.

A key phrase from Friedman in the video montage that I particularly enjoy (at the 2:00 minute mark) summarizes the topic of free trade quite well, “When I look at the legislation it always seems to me that the legislation is enacted to benefit a small group at the expense of the large group. Free trade is a way of benefiting a large group at the expense of the small group. But, politically, a small group always speaks with a bigger voice.”

Another common bogeyman of the protectionist is the trade deficit. To the protectionist, this is a pernicious sign of unfair trade practices. The problem with this simplistic view is an assumption that those dollars will exist in a permanent vacuum of no escape. Eventually, those dollars will have to be spent on something, which is most often re-invested back into the United States. Friedman also observes that trade surplus countries are often driven by the lack of savings opportunities in their own countries, driving them to invest in countries such as America where investment opportunities are better.

“When I look at the legislation it always seems to me that the legislation is enacted to benefit a small group at the expense of the large group. Free trade is a way of benefiting a large group at the expense of the small group. But, politically, a small group always speaks with a bigger voice.” – Milton Friedman

Another brilliant quote that I want to call out is when Friedman uses a quote (7:35 minute mark) from the classical American economist Henry George (circa 1890) that, “It’s a very interesting thing that in times of war, we blockade our enemies in order to prevent them from getting goods from us. In time of peace we do to ourselves by tariffs what we do to our enemy in time of war.”

AEI provides a fuller version of Henry George’s arguments on the inanity of protectionist policies in their text, which I have copied below. I find the similarities between Trump’s proposed 45% tariff and the 47% tariff of George’s day that President Grover Cleveland was attempting to lower an amazing coincidence.

Trade is not invasion. It does not involve aggression on one side and resistance on the other, but mutual consent and gratification. There cannot be a trade unless the parties to it agree, any more than there can be a quarrel unless the parties to it differ. England, we say, forced trade with the outside world upon China, and the United States upon Japan. But, in both cases, what was done was not to force the people to trade, but to force their governments to let them. If the people had not wanted to trade, the opening of the ports would have been useless.

Civilized nations, however, do not use their armies and fleets to open one another’s ports to trade. What they use their armies and fleets for, is, when they quarrel, to close one another’s ports. And their effort then is to prevent the carrying in of things even more than the bringing out of things—importing rather than exporting. For a people can be more quickly injured by preventing them from getting things than by preventing them from sending things away. Trade does not require force. Free trade consists simply in letting people buy and sell as they want to buy and sell. It is protection that requires force, for it consists in preventing people from doing what they want to do. Protective tariffs are as much applications of force as are blockading squadrons, and their object is the same—to prevent trade.The difference between the two is that blockading squadrons are a means whereby nations seek to prevent their enemies from trading; protective tariffs are a means whereby nations attempt to prevent their own people from trading. What protection teaches us, is to do to ourselves in time of peace what enemies seek to do to us in time of war.

Can there be any greater misuse of language than to apply to commerce terms suggesting strife, and to talk of one nation invading, deluging, overwhelming or inundating another with goods? Goods! what are they but good things—things we are all glad to get? Is it not preposterous to talk of one nation forcing its good things upon another nation? Who individually would wish to be preserved from such invasion? Who would object to being inundated with all the dress goods his wife and daughters could want; deluged with a horse and buggy; overwhelmed with clothing, with groceries, with good cigars, fine pictures, or anything else that has value? And who would take it kindly if any one should assume to protect him by driving off those who wanted to bring him such things?