Support for Decentralized and Limited Government from the 18th Century Scottish Enlightenment

In the wake of my second-highest viewed post of all time, which covered the topic of decentralization of government (please don’t ask for actual viewing values; allow a man writing an obscure blog his small relative victories), I was pleased to get philosophical support from one of the greatest writers on the topic of government and political science of all time – David Hume. Most people who have enjoyed, or endured, depending on one’s perspective, an Economics 101 course are well familiar with one lion of the Scottish Enlightenment, Adam Smith. Smith gave credence in his Wealth of Nations to a philosophy of full-throated support of the individual liberties of merchants practicing their crafts and generating profits unencumbered by the meddling state that was a novel philosophy and code of ethics for the times. Smith forcefully advocated that betterments in society occurred in imperceptible and novel ways through people seeking profits, guided by the “invisible hand” of the pricing mechanism, which effectively coordinated their ideas and actions in ways that no government planner could match. Never mind that both modern day proponents and detractors of Smith both seem to believe that Adam Smith was some form of Machiavellian profit maximizer and utilitarian, thereby completely missing his comprehensive views of bourgeois ethics that he espoused in his perhaps even more compelling and powerful book, The Theory of Moral Sentiments, in which Smith speaks of the “impartial spectator” within us which guides and regulates our behavior such that it is socially acceptable and in most cases benevolent. The impartial spectator of Smith is driven by a mysterious combination of divine nature and the nurture that occurs as people (or the vast majority of people comprising society) interact with each other and seek approbation and praise of others. Scorn is something most of us do our best to avoid. In other words, while profit-seeking is a virtue of prudence, the vast majority of people operate in their daily lives with other self-regulating and self-controlling virtues that balance the prudence of profit-seeking. All of this social self-regulation is performed through emergent order without the need of heavy-handed law and government.

I digress, so back to the topic of David Hume. Hume was a Scottish Enlightenment contemporary and great friend of Adam Smith, and it is through his remarkable Selected Essays as compiled by Oxford World Classics that I find support for decentralized government under a different and additional rubric than I articulated in my original musings on the subject. Specifically, in his essay on Of The Rise and Progress of the Arts and Sciences, in which Hume generally makes the case that people living in free governments are much more likely to contribute to the progress of arts and sciences than those living in autocracy, Hume makes compelling arguments for divided and decentralized government. The first point Hume articulates is this:

A large government is accustomed by degrees to tyranny, because each act of violence is at first performed upon a part, which being distant from a majority, is not taken notice of, nor excites any violent ferment. Besides, a large government, though the whole be discontented, may, by a little art, be kept in obedience; while each part, ignorant of the resolutions of the rest, is afraid to begin any commotion or insurrection: not to mention that there is a superstitious reverence for princes, which mankind naturally contracts when they do not often see the sovereign, and when many of them become not acquainted with him so as to perceive his weaknesses. And as large states can afford a great expense in order to support the pomp of majesty, this is a kind of fascination on men, and naturally contributes to the enslaving of them.
In a small government any act of oppression is immediately known throughout the whole; the murmurs and discontents proceeding from it are easily communicated; and the indignation arises the higher, because the subjects are not to apprehend, in such states, that the distance is very wide between them on their sovereign. ‘No man,’ said the prince of Conde, ‘is a hero to his Valet de Chambre.
In other words, a large central government presiding over a wide swath of people and with large amounts of power can more readily get away with persecuting minorities, be they ethnic minorities or minorities in dissenting thoughts and views. Additionally, the further removed from proximity to a ruler or ruling elite, the more prone people are to superstitious reverence and obsequious behavior towards them. I loved the quote related to no man being a prince to his valet, since such close proximity as to that of a valet makes us all aware of any human’s noxious flaws and weaknesses. I would gently point out that Americans are no strangers to this superstitious reverence for powerful leaders – witness the rise of the bumptious Trump riding a wave of American voters seeking brash authority. Witness also the esteem, admiration, and honor we typically reserve for presidencies such as the two Roosevelts, who consistently abused executive power and authority. Contrast that to practitioners of great executive power restraint, such as Calvin Coolidge and William Howard Taft, who receive no such comparative historical encomiums.
Hume proceeds in the essay with the following observations:
But the divisions into small states are favorable to learning, by stopping the progress of authority as well as that of power…To balance a large state or society, whether monarchical or republican, on general laws, is a work of so great difficulty, that no human genius, however comprehensive, is able by the mere dint of reason and reflection, to effect it. The judgments of many must unite this work: experience must guide their labour: time must bring it to perfection: and the feeling of inconveniences must correct the mistakes, which they inevitably fall into, in their first trials and experiments. Hence appears the impossibility that the undertaking should be begun and carried on in an monarchy; since such a form of government, ere civilized, knows no other secret or policy, than that of entrusting unlimited powers to every governor or magistrate, and subdividing the people into so many classes and orders of slavery. From such a situation, no improvement can ever be expected in the sciences, in the liberal arts, in laws, and scarcely in the manual arts and manufactures. The same barbarism and ignorance, with which the government commences, is propagated to all posterity, and can never come to a period by the efforts or ingenuity of such unhappy slaves.

In other words, a centralized government taking on too much power is reduced to trying by sheer exertion of a “Tyranny of Experts” to borrow the William Easterly phrase, of trying to plan for and rule a great diversity of people. As Hume implies, it is an impossible task that starves us of all natural freedoms and the ingenuity that we would have exhibited without the heavy hand of a meddling government, and it makes us “unhappy slaves.” Or as Hume’s good friend Adam Smith might say, it also torches our invisible hand and extinguishes the impartial spectator within. Lest anyone think that I am speaking of some distant and ancient European monarchy, I am looking at you America and your Centers for Medicare and Medicaid Services, your Health and Human Services, your Obamacare, and your Dodd-Frank.

 

Exhibit A: Industrial policy that protects the few at the expense of the many – Carrier keeps jobs in Indiana but on the backs of taxpayers and consumers

Image result for Carrier JObs

I just received an article from the Wall Street Journal that indicated that Carrier has agreed to keep roughly 1,000 jobs in a manufacturing plant rather than shift the employment to Mexico. Rather than celebrate this as a great example of private and public partnership and the deal-making style of Trump that successfully and benevolently puts Americans first, I am going to put a different, and perhaps unpopular, spin on this and call it what I believe it to truly be – arbitrary manipulation and industrial policy developed by government for the benefit of the few at the expense of the many.

Of course, the “saving” of 1,000 jobs is a positive thing on the surface, and it will no doubt lead to declarations of success and subsequently votes for the protectionist politicians who promoted it well into the future. Less visible will be the unintended consequences and foregone opportunities of non-government intervention. I will start with the obvious and work my way to the more philosophical, but just as important, reasons to decry, rather than to celebrate, such government interventions:

  • The 1,000 jobs were kept and promoted at a hefty price tag per worker. At a $7,000,000 tax incentive agreement, this works out to $7,000 per job “saved.” This means the rest of Indiana taxpayers are subsidizing this arbitrary policy. No doubt, you will find many lower-paid workers subsidizing their higher-paid brethren. I am sure the Indiana taxpayer could think of a million different things they could do with that $7,000 to help their own careers and families. This is the unintended consequences that are diffused and don’t get highlighted in the media that happens with industrial policy. This is also what happens when rent-seeking corporations get the ear of government officials who control too many of the levers of economic policy. They get to decide how to use our tax dollars and declare it a successful investment with little accountability or visibility to what ends those dollars could have gone to had they left them in our pockets.
  • The inability to shift labor to take advantage of wage rate/productivity imbalances leaves costs higher for American consumers in the long-run. Once again, this is government meddling in support of one small class of citizens at the expense of the many.
  • Preventing Mexico from taking advantage of their comparative advantages in their specific mixture of labor force participation, wages, and productivity will continue to put pressure on their citizens but not allowing them to grow economically, which further puts pressure on its citizens to immigrate. Being able to take advantage of cross-border trade is mutually beneficial and is not the zero-sum game that protectionists such as Trump believe it to be. The great irony is that plugging one “problem” of imbalanced trade only exacerbates another one of immigration- or at least in the sense that self-described American Economic Nationalists believe trade and immigration to be problems.
  • Sustaining or creating new abusive and arbitrary government power to take tax dollars from citizens in support of the few establishes/continues a dangerous precedence. What well-connected company or connected political body will take their turn next in using their connections to politicians to extract resources from the rest of us under the auspices of “America first?” Do we really trust the government to pick and choose these winners wisely and with all of our freedom, liberty, and economic interests in mind? I hope to someday make this a rhetorical question.
  • I keep coming back to this point from previous posts – but what right does the government have to tell me as a consumer where I can and can’t buy goods? By implication – browbeating, cajoling, and incenting them to stay (using my money) in America through taxpayer funds is ultimately an act to usurp my rights to buy goods from the provider who can make the highest quality good at the lowest cost and in the end is little more than theft of my resources to support their own arbitrary decisions.

Finally, freedom and liberty requires a tradeoff of uncertainty in outcomes that don’t always redound to every individual, but is the only way with which we can grow economically (and in turn emotionally and spiritually) in the long run. The fundamental question then becomes do we want to bequeath to our future generations and children an open and dynamic society where people are free to create the exciting and enriching occupations of the future, or do we want to confine them to the known quantities of the past and present?  We shouldn’t demand equality in outcomes, but rather demand the equality of opportunity combined with blind justice – good arbitration when conflicts arise over contracts between free people. Otherwise, we should keep government at a safe arm’s length that is akin to a good and impartial referee who knows a foul when it sees it and has a consistent redress for those fouls irrespective of the player that committed them. Instead, what we have these days is a referee who changes the rules in the middle of a game to the advantage of his favorite and most well-connected players. On this note of equality of opportunity and why it is extremely important, I land with a powerful excerpt from Deirdre McCloskey’s remarkable book, Bourgeois Equality, of which I have written more at length about in a separate post, but for today’s topic pull out this specific section:

The ideas of equality [in the English and Scottish Enlightenment period] led to other social and political movements not uniformly adorable. Hannah Arendt remarked in 1951 that ‘equality of condition…is among the greatest and most uncertain ventures of modern mankind.’ Alexis de Tocqueville had said much the same a century earlier. And Scottish equality has a harsh, even tragic side. It entails equal reward for equal merit in a marketplace in which others, by freedom of contract, can also compete. As John Stuart Mill put it in On Liberty, ‘Society admits no right, either legal or moral, in the disappointed competitors to immunity from this kind of suffering; and feels called on to interfere only when means of success have been employed which it is contrary to the general interest to permit – namely, fraud or treachery, or force.’ Yet in the real world, unhappily, if the poor are to be raised up, there is no magic alternative to such competition. An ill-advised and undercapitalized pet store, into which the owner pours his soul, goes under. In the same neighborhood a little independent office for immediate health care opens half a block from a branch of the largest hospital chain in Chicago, and seems doomed to fail the test of voluntary trade. Although the testing of business ideas in voluntary trade is obviously necessary for betterment of the economy (as it is too by non-monetary tests for betterment in art and sport and science and scholarship), such failures are deeply sad if you have the slightest sympathy for human projects, or for humans. But at least the pet store, the clinic, the Edsel, Woolworth’s, Polaroid, and Pan American Airlines face the same democratic test by trade: Do customers keep coming forward voluntarily? Does real income rise?

We could all by state compulsion backed by the monopoly of violence remain in the same jobs as our ancestors, perpetually “protected,” though at $3 a day. Or, with taxes taken by additional state compulsion, we could subsidize new activities without regard to a test by voluntary trade, “creating jobs” as the anti-economic rhetoric has it. Aside even from their immediate effect of making national income lower than it could have been, perpetually, such ever-popular plans – never mind the objectionable character of the violent compulsion they require – seldom work in the long run for the welfare of the poor, or the rest of us. In view of the way a government of imperfect people actually behaves in practice, job “protection” and job “creation” often fail to achieve their gentle, generous purposes. The protections and the creations get diverted to favorites. Laws requiring minority or female businesses to be hired, for example, tend to yield phony businesses run in fact by male whites. In a society run by male whites or inherited lords or clan members or Communist Party officials, or even by voters not restricted by inconvenient voting times and picture IDs, the unequal and involuntary rewards generated by sidestepping the test of trade are seized by the privileged. The privileged are good at that.

 

 

The central government planners behave as conflicted madmen, creating a muddle of healthcare

madman

The federal government created the “Affordable” Care Act, which by this point is a laughable misnomer in the face of never ending premium increases, alongside the creation of payment and delivery reform structures such as Accountable Care Organizations, knowing full well that it would drive health system consolidation. In fact, one might argue this consolidation was a specific goal of the reforms in the government planners belief that newly minted behemoths would drive cost down due to scale and drive care quality up through better coordination across the system continuum up. Meantime, the same federal government is also fighting against that urge to consolidate through the Federal Trade Commission, as this Modern Healthcare Article indicates.

If we were to view a man trying to push the walk button at a busy intersection with his right hand while his left hand tugged it back, we would think him a madman. Well, this is our own government intervention into the healthcare “market” at its finest.

Can we ever get to a state of sensibility on immigration?

Rarely a day goes by that I am not subjected to a television, radio, print, or sponsored advertisement on social media that is a blatant attempt at generating the ire of the potential voter about the ravages of the illegal immigrant. By implication, only the vigilant would-be congressman can solve it for us, through stepped up border enforcement and deportations of illegal immigrants. Not mentioned are the billions of taxpayer dollars that need to be spent to do so, the families that will be torn apart, the relationships – both private and business – that will be disrupted and harmed. Without apparent irony, these congressman on the “right” use some of the same rationale, logic, and language that those on the left use to justify healthcare market takeovers and price controls on pharmaceuticals. In other words, politicians who on the surface are supposed to love freedom and the free market are just as guilty of succumbing to the fallacy that big government must solve challenges that are in fact a creation of previous bad government policy.

It is bad enough to consider the economic and moral insanity of such border enforcement and deportation policies. A personal grievance I have is that it is one thing to discuss the economics of such policies (where any sane analysis indicates it is economically harmful to America and Americans to close off the border, even if that was remotely posssible), it is altogether of a different and much more depressing element to witness people of a spiritual Christian bent becoming some of the most forceful advocates of nativist policy. The implicit prayer is, “Lord, please love your children, whatever their color and background, but please, for the sake of my own selfish desires and notions of culture, keep them out of my own back yard, and send them back home. Not that you have notions of what a person’s earthly home focus should be. I mean, I love the man who does my yard, and the restaurant down the street, so keep them intact and where they are, whatever their status. They can stay, but let’s get rid of the rest of them and let’s keep any more of them from coming in.” I digress on these economic and spiritual dimensions. What really should make us all question the politicians, and chief among them the ever-waffling, say what I need to say based upon who is sitting in front of me Donald Trump, is the unquestionable sense that politicians saying such things understand the inherent untruths that they are speaking in order to whip up the mob.

Reason’s Matt Welch brings together salient points on the topic, as well as some reasonable and logical quotes from Libertarian Presidential candidate Gary Johnson on the matter in a recent blog post titled, Gary Johnson: Trump and Other Politicians Are Lying to You About Immigration. First, Welch demonstrates the inherent depravity and devolution of the Republican party policy in the last decades:

Donald Trump’s so-far incoherent softening this week of his hardline immigration policy is a good time to remind people of a fact that, in a just world, would be cause for painful introspection among Republican politicians and conservative commentators for years to come: This outsider real estate/TV mogul, less than three years after blaming Mitt Romney’s loss on the 2012 candidate’s “mean-spirited,” “crazy,” and “maniacal” policy of encouraging self-deportation, managed not only to win the GOP nomination on an explicitly anti-constitutional hostility to immigrants, but to pull almost his entire competitive set into an authoritarian fantasy land where borders can be “sealed,” human beings can be treated like FedEx packages, the 14th Amendment can be wished away, and—what the hell!—a wall might be a good idea up north as well.

The GOP’s nativist summer was revealing not just in the way that it accelerated the party’s long trend away from the Reagan/Bush welcome mat toward a more Tancredoan restrictionism, but also in how it ratified the obviously unattainable demands of conservatism’s entertainment wing as the party’s preferred policy approach. Those commentators who damn well knew that you could never deport 15,000 illegal immigrants a day (plus another 5,000 or so of their U.S.-citizen children), yet cheered Trump on when he said crazy stuff like that, deliberately chose know-nothingism over reality. Never forget that the same National Review that showily came out “Against Trump” in January, were spending last August editorializing that “Trump’s Immigration Plan Is a Good Start—for All GOP Candidates,” while its editor encouraged the party to “pander to Trump on immigration.”

Contrast that with some sensible thoughts from Gary Johnson on the matter:

Rounding up more than 11 million people—a population larger than all but the 7 largest states in the union—is a ludicrous notion to begin with. Everyone knows it, including Donald Trump. It was a lie cloaked in a promise. Even if it were possible, the idea of federal authorities rounding up millions of people and loading them on buses is an image America could never stomach.

The fear-mongers would have you believe 11 million people swam the Rio Grande, burrowed under a fence or otherwise sneaked into our communities in the dead of night. Yes, some of them did. But a significant number of undocumented immigrants actually came here legally—and stayed.

Many didn’t come—and nor do they remain—for nefarious reasons, but because they found work, established relationships or joined family members. They couldn’t stay legally due to special-interest-driven restrictions on their visas. They were students who graduated or found jobs, seasonal workers who found year-round work, or children brought here by their parents.

Of those who did hike the mountains of Arizona or stow away in a container ship, how many of them would have rather come here legally if the line to enter was actually moving? Almost all of them.

Finally, I do wish we could all take a step back and recognize the reason so many people jump the line, so to speak, and enter or stay in the country illegally is the absurdly slow and byzantine process of actually getting in line and moving through it in the first place. Welch provides a useful analogy that Americans should appreciate:

The key to illegal immigration, as we keep telling you here at Reason (and Ronald Reagan and George H.W. Bush did 36 years ago), is to stop looking at it like a criminality problem, and start recognizing it as an artifact of prohibition and bureaucratization. As Johnson writes, “If it took months or years to get a driver’s license, how many of us would throw up our hands, get behind the wheel, and take our chances driving without one? You know who you are.” The reality of “Get in Line!” is the unspoken tagline: “And stay out.” The Libertarian approach? “The way to stop illegal entry is to spend our resources making legal entry efficient for people coming here for the right reasons.”

My hope is that we can understand the deeper causes and values of immigration, welcome it as both uniquely economically beneficial as well as charitable, and stop promoting politicians who pander to base elements with base and simplitic solutions that they know well won’t solve anything, all the while extracting more money from the taxpayer, restricts her choice to choose whom to buy from and whom to employ, and gives government more powers in the process.

Explaining the EpiPen (hint – the company can jack its prices up because of government intervention, not because of the lack of it)

This author does as admirable of a job as any I have seen, so I am sharing it. http://slatestarcodex.com/2016/08/29/reverse-voxsplaining-drugs-vs-chairs/

The only point he leaves out that I would like to make is the laughable hypocrisy of government officials, including one candidate for President, claiming we need more government intervention and price controls. I have a better idea for policymakers – how about trying something that comes completely unnatural to you – get out of the way and let innovators do what you could never do, actually create products that people want at lower cost and higher quality, if only you would let them. I promise it will be more effective and help the poor and middle class a lot more than your prescriptions (lame pun intended.) But I suppose that is the point, your job security is only justified if you are seen as hyperactive in your “protection” of the people. If only the people knew that the only protection we often need is actually precisely from you – the paternalistic functionary.

Here is the key crux of his argument, wrapped into a simple market analogy of chairs:

Imagine that the government creates the Furniture and Desk Association, an agency which declares that only IKEA is allowed to sell chairs. IKEA responds by charging $300 per chair. Other companies try to sell stools or sofas, but get bogged down for years in litigation over whether these technically count as “chairs”. When a few of them win their court cases, the FDA shoots them down anyway for vague reasons it refuses to share, or because they haven’t done studies showing that their chairs will not break, or because the studies that showed their chairs will not break didn’t include a high enough number of morbidly obese people so we can’t be sure they won’t break. Finally, Target spends tens of millions of dollars on lawyers and gets the okay to compete with IKEA, but people can only get Target chairs if they have a note signed by a professional interior designer saying that their room needs a “comfort-producing seating implement” and which absolutely definitely does not mention “chairs” anywhere, because otherwise a child who was used to sitting on IKEA chairs might sit down on a Target chair the wrong way, get confused, fall off, and break her head.

(You’re going to say this is an unfair comparison because drugs are potentially dangerous and chairs aren’t – but 50 people die each year from falling off chairs in Britain alone and as far as I know nobody has ever died from an EpiPen malfunction.)

Imagine that this whole system is going on at the same time that IKEA spends millions of dollars lobbying senators about chair-related issues, and that these same senators vote down a bill preventing IKEA from paying off other companies to stay out of the chair industry. Also, suppose that a bunch of people are dying each year of exhaustion from having to stand up all the time because chairs are too expensive unless you’ve got really good furniture insurance, which is totally a thing and which everybody is legally required to have.

And now imagine that a news site responds with an article saying the government doesn’t regulate chairs enough.

 

 

 

Healthcare isn’t a marketplace

A great summation exhorting us to stop using the term “marketplace” to describe healthcare.

https://www.linkedin.com/pulse/quit-using-word-marketplace-when-you-talk-healthcare-america-hull?trk=hp-feed-article-title-publish

The key point and question that the author goes on to answer is:

A market is a place where buyers and sellers, functioning as independent agents in pursuit of their self interest, meet to negotiate a mutually agreeable exchange of money for products/services.  At Wharton, they taught us, furthermore, that an efficient market has three basic qualities: A critical mass of buyers and sellers, low transaction fees, and information transparency between buyers and sellers.   Do either of those two scenarios remind you of the American healthcare system?

The rest of the post is succinct and on point.

Government – the only sphere on earth where abject failure leads to more power and responsibility

It is a curious and novel tendency that government failures don’t lead to accountability and a search for knowledge and truth, but rather inexorable demands for yet more powers. Witness the increasing calls for the public option in healthcare insurance. Are we really going to trust the powers who gave us the VA and the monumental failures of Obamacare with even more arbitrary and market upending powers that will be impossible to claw back? This is a remarkable centrifugal force unique to government. Try getting away with this in the private sector and see how long it lasts.

The problem isn’t the scapegoated free market (that has not actually existed in healthcare for decades) or insurance companies when we witness rising premiums, the failure of insurance exchanges, and the decades-long march of healthcare costs rising faster than the rate of inflation. Although one can’t help but engage in just a tiny bit of schadenfreude at insurance companies groaning under the weight of their own Faustian bargains with the government in support of the Affordable Care Act (the tradeoff being forced and locked in customers in exchange for standardized coverage plans coverage of pre-existing conditions, and an overall environment of cross-subsidization of low-risk policyholders to higher risk ones). Too bad that there are real lives at stake and 20% of our economy continuing its long rapid descent into a massive government intervention – making this no small laughing matter.

The problem is the unintended (and often intended, as is the case of the mergers of health systems and the demise of the private physician practice) consequences of strangulating regulations and inept government policies foisted on the market by the tyranny of experts who are too arrogant to perceive that no individual or collection of elite individuals could ever effectively replace the collective and mysterious emergent order of free individuals making free choices. This aforementioned comedy of errors was entirely predictable, at least among those not within tenured positions within CMS and HHS and the rent-seekers that lobby them for rules that further entrench their monopolies (ahem, large insurers and large health systems).

Speaking of the tyranny of experts, I can’t help but view them as analogous to the competing architects in a Monty Python sketch in which one accidentally designs a slaughterhouse and one designs something that does exactly the opposite of what he says it will do – still somehow winning the contract. For the time-strapped for comedy, the best analogy occurs starting at the 3:15 mark.

 

The left’s massive remake of healthcare strikes and fails again

Bagdad Bob.jpg

In a recent Modern Healthcare article, it is evident that small health plans and insurers are being heavily penalized by the ACA’s risk corridor program in a shocking, but not entirely unpredictable, bit of reverse corporate wealth redistribution in which money is actually flowing from small businesses and insurers to the behemoths in the industry such as Anthem and Aetna. Since the ACA and ancillary modern healthcare legislation seems to be openly promoting and favoring the large health system and large insurer over the small private practice and small insurer, this really should not be a surprise. Perhaps it is bringing scarcely disguised huzzahs from those in progressive camps .

Meantime, officials at CMS, in true Baghdad Bob soothsaying fashion, continue to maintain that everything is working to plan. If by working according to plan they mean standing ready to cover and excuse their errors while promising to correct their original mistakes with more thousand page complex and inscrutable reforms (in other words, the standard government playbook of creating a problem through market intervention, blaming venal companies, and then creating more market intervention to further compound the original errors), then I guess they are correct. Meantime, there is less care plan choice due to mandated standardization, less consumer choice of  health providers and insurance companies due to industry consolidation, and precipitously increasing premiums. The next step from progressives is inevitable – proposals that only a single payer health system can resolve this government induced mess. The question to free citizens is, do you really trust the government that can’t build a bridge to manage the entirety of your health insurance system?

Limiting health insurance plan choice is harmful to consumers

A significant component of the Affordable Care Act is the forced standardization of health care coverage through prescribed components that must be carried by insurance plans. Ultimately, this approach has been tremendously disruptive and has moved millions of people off of the plans that in the previous market paradigm they were happy to buy. I refuse to call it a free market since it really has not been that for decades. This disruption is the impetus behind much of the lampooning of Obama’s language, which later proved to be an astoundingly incorrect bit of marketing and hype, that if you had a plan that you liked you could keep it.

Standardization of plans ostensibly removes buyer searching costs for complicated products. Such as approach would only make economic sense if the searching costs were higher than the benefits obtained from the selected product. The challenge is that this sets a remarkably paternalistic precedent – if we dupes in America can’t be trusted to buy health coverage that suits our needs, perhaps we can’t be trusted to buy financial instruments or real estate either. It also has the perverse effect of cutting off product innovation that caters to individuals and unique segments of the healthcare market. Something to consider and question: can government possibly keep up with the changing demands of consumers as well as the unpredictable emergent order that drives market-betterment ideas and innovations? Even if government might be approximately right on the first iteration of defining product standards, it would be impossible for them to keep up with the pace that a free market comprised of consenting adults engaging in commerce could drive. Furthermore, a significant philosophical challenge is that such an approach mandated by government significantly violates an essential freedom of consumers to choose for themselves what is best for them. Finally and perhaps most perniciously, such an approach allows government to enact their own views of desirable social policy through diktat. The Supreme Court case of Burwell vs. Hobby Lobby  is an example in which a private employer was forced to provide contraceptives against their own religious beliefs. Whether one believes Hobby Lobby is outside of the societal norms in their stance on contraceptives is quite beside the point. The point is really whether we believe government should be powerful enough to be able to force anyone in society to choose which product to purchase and what it should contain. This is the first-order principle freedom-loving citizens should be concerned with.

In the book The Future of Healthcare Reform in the United States, Richard Epstein, of the NYU School of Law, pens the following compelling narrative on the challenges with the elitist assumptions of government needing to protect consumers through standardized plans:

Any decision such as that made in healthcare markets – to require given firms to offer a particular type of contract with predetermined coverage – does not facilitate competition but thwarts it by restricting the dimensions over which innovative firms can compete. To be sure, it is unlikely that either midsize firms or ordinary consumers can canvass the entire market. But they can make a series of initial cuts to focus on the market segment they care about most. At this point, one of the key drivers of good competition is the ability to offer a particular configuration of goods and services that make sense to some segment of the overall market. The standardization of service packages thus prevents innovation along certain key dimensions, which hardly improves the overall competitive market. Put otherwise, product differentiation is the great and beneficent spoiler because it allows rapid and discontinuous changes in the market such as the rise and fall of BlackBerry and the now possible decline of Apple in the face of potential disruptive technological developments from a host of competitors. In my view, these large gains dominate any negative effects. Indeed the constant use of product differentiation, both large and small, in market after market, suggests healthcare regulators engage in a dangerous gambit by limiting product choice to a few set choices in order to reduce the buyer’s costs of search. People can truncate searches using sensible strategies. They do not have similar ways to expand market options.

Imagine if government decided that our smartphone choices were overwhelming to consumers and determined that we should all have certain features based upon some government committee’s determination of a rightful specific set of requirements. I suspect the product so described by the committee in the duly published 500 page document would prescribe usage of something resembling the BlackBerry more so than the iPhone. And despite Hillary Clinton’s fondness for this device, we obviously would be immediately worse off as consumers. Further imagine that the government decided that we could no longer buy the phones at Apple stores or Best Buy, but purchasing of these devices had to occur at government licensed locations. Behold the entirety of the healthcare market: a market in which there is an inherent paternalistic assumption that consumers are too ignorant and overwhelmed to make their own choices. The government committee decisions on what we can buy and where we can receive our products described in the smartphone analogy is precisely the kind of marketplace we have allowed our government to create in healthcare. Perhaps it is time to step back and ask ourselves why and whether we are getting good outcomes out of this approach.

 

Let’s repeal Obamacare and replace it with something more consumer-centric

At long last, Republicans have started to coalesce their various one-off healthcare reform ideas from the past 6 years into a semblance of a comprehensive Obamacare repeal and replace proposal. There is much to appreciate in this proposal, which includes oft-repeated catchy taglines of, “a better way,” “patient-centered,” and my personal favorite, “backpack.” I will discuss more on the backpack later. The whole presentation, which I have linked above, can be watched in a recent AEI video.

What this proposal does not promote is my own personal preferences of a drastically reduced role for health insurance, a product that should be beaten back into its proper place for coverage of catastrophes only. The price-obfuscating impacts of coverage for every service and the price-decreasing impact that would ensue if consumers were able to see prices and outcomes more transparently by paying more directly out of their pockets is not part of this proposal. Nor does it address the supply-side needed reforms such as lifting the competition stifling (and therefore price increasing) impacts of the various regulatory mandates and rent-seeking political lobbying of regional monopoly hospitals that prevent new hospitals and clinics from opening. Finally, while it promotes Medicare and Medicaid reform, it leaves Medicare, which is mostly a middle class welfare and wealth transfer that has a naturally price inflating impact, largely intact. These are my caveats for why I don’t consider this a perfect proposal. That being said, the main themes presented certainly stanch the government takeover of healthcare bleeding and presents significant and politically feasible patient-centric reforms in place of the current construct of byzantine, dizzying, and unsustainable complex web of government controls and mandates. For this fact alone, this substantial reform proposal should be applauded and supported as a significant improvement to the status quo that just might get enough electoral support if Americans pay attention to it and can keep from being distracted by the ongoing Trump/Clinton circus. As a former boss of mine used to tell me, “don’t let perfect be the enemy of good.”

The focus is clearly on consumer choice, portability, decentralization of decisions to state and local levels, and sustainability of Medicare. It is this concept of portability that is referenced as a backpack of items that will allow consumers to move across companies and states and maintain their same coverage and access to health services. Paul Ryan opened the session indicating that Obamacare is singularly focused on quantity of people insured, while ignoring the staggering costs in the system that Obamacare caused that are, in his words, causing the act to collapse under its own weight. Not to mention the tremendous loss of individual freedom and choice that resulted from centralized decision making and mounds of mandates arising out of D.C. Allowed to blossom, these are salient points that I believe will resonate with a public that has been remarkably skeptical and loathing of Obamacare. The marketing pitch is clear – consumers, take back your choice and freedom to choose the health plans that are right for you and not dictated by a government bureaucrat. Perhaps it is more appropriate to say take it back from thousands of bureaucrats, as one Congressman indicates in the video, there are fully 159 agencies and commissions currently involved in interpreting and implementing the dictates of Obamacare.  Several congressmen, including Budget Committee Chairman Tom Price (R-GA), Education and the Workforce Committee Chairman John Kline (R-MN), Energy & Commerce Committee Chairman Fred Upton (R-MI), and Ways & Means Committee Chairman Kevin Brady (R-TX) took turns articulating the proposal once Ryan got off the dais. Below, I have summarized the important components of the proposal, ranked in order of my opinion on which are the most important to least important.

  • Extending the health insurance tax break to individuals that businesses currently receive, and capping the amount that businesses can receive tax breaks. This concept will sever the link that causes Americans to be solely dependent on their employer for health insurance and promotes portability and accessibility of insurance. Hopefully, it results in more people taking the initiative to get insurance on their own and subsequently bargaining for higher direct compensation from their employers. The capping of tax breaks for businesses is intended to serve as a cost inflation and “over-insurance” containment provisions. Coupled with the ending of specific coverage mandates, also part of the proposal, this could go a long way towards incenting people to get more affordable coverage that makes sense for their life situation and promote innovative models such as high deductible plans, insurance coupled with wellness programs that promote actual health and wellness, and insurance that covers catastrophes only complemented with health savings accounts. These forces could make a major dent in insurance cost inflation and concomitantly overall health cost inflation.
  • Free up insurance purchasing across state lines – this simple and sensible act will drive up competition and will do much more to drive consumer choice and put downward pressure on prices than the continually failing exchanges and insurance co-ops (most of which have declared bankruptcy by now) could ever do, even though that was their ostensible original purpose. The challenge is that it is impossible to drive choice and cost containment when you also force standardized minimum levels of coverage and mandated cross-subsidization of high risk individuals.
  • Promotion of Health Savings Accounts – Provisions of Obamacare amazingly and wrong headedly penalize HSAs through the tax codes. This proposal would wisely end those disincentives and work to actively promote their use. HSAs are popular despite their government created disadvantages.. Furthermore, usage of HSAs promotes pricing transparency and healthcare service usage portability and flexibility.
  • Medicare Reform – The proposal kills off the unpopular and unaccountable Independent Payment Advisory Board and promotes consumer choice through expansion of the popular Medicare Advantage Program.
  • Provide state block grants for Medicaid – this will provide greater flexibility at the state level to craft cost saving programs at the localized level.
  • Provide for ability of Small Business Group Purchasing Associations – the proposal would allow for small businesses to band together for group purchasing of insurance coverage. While I prefer a high degree of an individualized market(which hopefully the tax breaks to consumers will promote), the fact is that most employees now expect and HR departments like to offer health insurance as a hiring incentive. Allowing small businesses to band together and to receive the same tax incentives as larger businesses will promote further consumer access with the nice boon to small business employment. Currently, Obamacare punishes small businesses through a web of complex rules that force them to either cover employees on increasingly expensive and bloated plans or pay a tax penalty per employee that they do not cover.
  • Protection of Pre-Existing conditions coupled with state incentives to create risk pools. While I would submit that a free-market system that promoted insurance for catastrophic conditions only would solve for this without the need for regulatory enforcement, this provision that is currently part of Obamacare is one of the few things that is actually politically popular. Thus, it is important from a politically feasible standpoint to keep it. One way of potentially holding down cross-subsidization amongst premiums and spiking premium costs for the average holder is to also create risk pools for certain conditions as a backstop to insurance coverage. The concept of risk pools is also promoted in the proposal.

These are simply the highlights. I will need to dig into the documented details of the plan to provide additional thoughts, but I certainly appreciate the direction this is heading.