No, pumping up demand through government intervention is not “basic macroeconomics.” In the long run, only great ideas in a free market create economic growth.

In a recent social media debate, I found myself engaged in a discussion about whether government regulation and intervention can create economic growth and jobs. Readers here won’t be surprised at which side I am on generally with this topic . My opposite interlocutor ended his closing argument with something to the effect of, “government can help to increase the velocity of money (and therefore GDP). Just basic macro.”

“Just basic macro” is how progressive economists and those in never-ending faith in big government view the “expert” technocratic interventions in the market. The basic concept is one in which during market downturns, there can be a multiplier effect that ripples throughout the economy when government spends money. Thus, a $1 spend out of government (read taxpayer) coffers can magically create $3 out in the broader economy, and at least in theory results in economic growth and a positive return to the taxpayer for their “investment” which happens to have been forced upon them via the government’s monopoly on violence (if this statement seems dramatic to you, try not paying your taxes one year and see what happens). A true win-win! However, while this concept may be “just basic macro” to John Maynard Keynes, Paul Samuelson, and Paul Krugman, to the Austrian school economists and those of us toiling away on Main Street, we can grasp a sense of what the elitists in Ivory Towers can’t. To put an economic term to it, these “prime the pump to multiply” government interventionists inevitably always fail to account for opportunity costs. In layman’s terms, opportunity costs are defined as the next best alternative that was not pursued because of decisions to use scarce resources to pursue some other objective end. Very often, the opportunity cost can be larger than the objective end that was ultimately pursued. To use a simple analogy, think of an investor with $1,000 in 2006 who chose to invest in Microsoft rather than Apple. While the Microsoft investment may very well have been positive, it paled in comparison to the return on the investment in Apple. In this scenario, the cost of a foregone opportunity exceeded the option that was actually pursued.

On this topic, I am gaining some great insights as I am slowly and deliberately making my way through Deirdre McCloskey’s incredible book Bourgeois Equality, which is the final installment of a trilogy in which McCloskey sets out to prove a remarkable thesis that can be broadly summarized as follows: the global outlook and economic growth changed dramatically for the better when some geographic regions’ ethics changed substantially in the direction of valuing and dignifying the bourgeois class of traders, merchants, bankers, businessmen, etc. The slow and deliberate pace is due to my desire to fully absorb all of the insights and jot down and highlight the key sections to commit to memory, so to the extent that this post is one-part book review, please don’t let my pace suggest lack of interest in the book or that it is  a difficult and laborious read, because I assure you wholeheartedly that this is far from the case. The thesis is essentially that all of the conventional notions of what caused rapid economic development since the 1800s, such as sound government institutions, development of the rule of law, property rights, the Industrial Revolution, and so on, are all sideshows, byproducts, and/or elements that had long existed in a world in which for most of history, life was nasty, brutish, and short, and which most of humanity lived on a mere equivalent of $3 a day. McCloskey powerfully asserts, backed by an unparalleled mountain of facts and her own research, along with quotes from the global history of economics, sociology, philosophy, and literature, that it truly was the ethics and growth of the bourgeois engaging in open competition, resulting in what she calls “trade-tested betterments” that catapulted us to over 1,000% economic growth (from the $3 a day base) in developed parts of the world. Trade-tested betterments is a term coined uniquely by McCloskey, and is just one of many examples of the creative and brilliant mind of the author. One might mistakenly call what McCloskey calls trade-tested betterment “innovation,” but McCloskey stresses the importance of innovators being forced to face competition and global trade to truly push remarkable and rapid innovation to fuel economic growth. In essence, innovation at its best occurs when we don’t allow trade restrictions and competition, both forces that are inevitably rife when a government intervenes in the market.

McCloskey’s Chapter 16 in her book is titled, Most Government Institutions Make Us Poorer. This chapter resonates with the point of my blog post today and ties back to the debate in which it was declared that government intervention grows the economy and creates jobs as “Just Basic Macro.” McCloskey begins the Chapter with a quote from 19th Century French Economist Frédéric Bastiat that is apropos:

“The bad economist confines himself to the visible effect; the good economist takes into account both the effect that can be seen and those effects that must be foreseen….Whence it follows that the bad economist pursues a present good that will be followed by a great evil to come, while the good economist pursues a great good to come, at the risk of a small present evil.”

Again – the bad economist ignores opportunity costs, moral hazards, and tramples on the rights of citizens with their arbitrary wealth redistribution schemes.

But what if government technocrats could prove themselves truly capable of beating the next best alternatives? Here is what McCloskey has to say about that:

“The fact suggests that the projects of betterment enacted by governments, compared with voluntary deals made among consenting adults free of force or fraud, will fail, as they regularly have, because they are directed not at general betterment but at enriching special interests at the expense of generality, or merely spending mindlessly what money the government can appropriate under the threat of violence. The modern social-democratic habit of regarding the government as a wise and honest distributor of public goods ignores the unseen, the contents of Swiss bank accounts and the misdirected expenditures in aid of the prime minister’s second cousin, which practices govern most of the world. It supposes that every government is like Denmark’s, New Zealand’s, or Finland’s (which together govern 2 percent of the world) when most are instead like Russia’s, China’s, or India’s (39 percent). In James Madison’s words in 1787, ‘If angels were to govern men, neither external not internal controls on government would be necessary.’ Angles are rare, if unseen.”

McCloskey closes the chapter with a sweeping declaration comparing government intervention and regulation with a free market:

“The relevant comparison is not of some unattainable utopia of perfect trade-tested betterment with actual, imperfect government regulation. It is the comparison of the actual record of liberated trade, and the betterment it has brought to the powerless of the world, with the actual record of populism, fascism, socialism, and thick regulation bettering a few favored groups of the poor, every Party official, and most of the owners of the bigger enterprises able to corrupt the government, all at the expense of the rest.”

Once again, the ignored opportunity costs, the actual historical record of how bad governments are at market interventions (either through regulation or prime the pump spending), and the abuse of power and moral hazards it creates, means we as citizens should be extremely skeptical of these interventions.

Taking a quote from one my my favorite blogs, Cafe Hayekfurther illustrates the point of how Keynesians fail to capture the true essence of economics when they reduce everything to their formulas and theories.

Quotation of the day is from page 40 of Arnold Kling’s excellent new book, published this year, Specialization and Trade: A Re-introduction to Economics (link added):

[Paul] Samuelson and his successors taught that the economic machine had a gas pedal that could be used to avoid economic slowdowns.  That device was “aggregate demand,” which could be increased by the government’s printing money, running a budget deficit, or both. In this economic subfield, known as macroeconomics, the concept of specialization is forgotten entirely.  Instead, economists employ an interpretive framework in which every worker performs the same job, toiling in one big factory that produces a homogeneous output.  Macroeconomics replaces specialization with that GDP factory.

Indeed, it’s not too much to say that macroeconomics in the Samuelsonian-Keynesian mode abstracts away from most of what is essential in economics.  Market processes and entrepreneurial searches for profit; specialization; the complementarity of different capital goods with each other and with labor; the role of relative prices; the reality and importance of institutions; the reality and importance of the fact that politicians are relatively uninformed and self-interested agents. These important aspects of economic and social reality are either ignored or treated haphazardly in too much of what is called “macroeconomics.”

In short – “Just Basic Macro” is shorthand for legerdemain to justify government abuse, power, and expropriation of citizen wealth that in aggregate would have created higher economic growth (especially in the long run) than all the government experts in the world pumping out formulas could ever achieve.


In praise of decentralized government

Image result for Texas PanhandleImage resultImage resultImage result for Texas A&MImage resultImage result for hanover new hampshire

I have lived everywhere from a tiny Texas Panhandle farm community, a turkey farm in the rural Ozarks of Missouri, a college town (Gig ’em!), the West Texas border town of El Paso, all the way to the great northeastern communities of Hanover, NH and Boston (a slight difference in size between them),  Kansas City after a brief tour in Orlando, and recently back down to the West Texas city of Lubbock. I have witnessed and lived with many different communities that ranged quite starkly in their habits, ethics, socioeconomics, religion, and political compositions.This has given me a tremendous sense of appreciation for the diversity our great land possesses and the different strengths, weaknesses, and decision tradeoffs that each unique community dealt with, and how they responded to their own local needs. As a result of these peregrinations, it is a marvel to me that we don’t force governments to allow more of our substantial decisions on taxation, education, health, and welfare to the lowest possible level that reflects the unique natures of these far-flung communities. This post, then, is an attempt at defending the idea of taking back more control from our central government and in the spirit of federalism that this nation was founded upon, devolving more of it to the communities in which we live and therefore can more directly influence.  Whereas most of my topics on this blog focus on limiting government in the aggregate, this post is directed at the virtues of decentralizing the government and reducing it to the lowest possible polity possible. With this concept of fostering greater use of decentralized tax and spend policies I hope to someday appeal to my progressive friends under the guise of more freely allowing you to build communities on the model that suits you and to craft them in direct competition to your more conservative cousins. If you hate that democracy and the federal government can result in a Donald Trump ruling over the spoils and levers of government, then by all means, join hands to limit the power of central government and remain free to build progressive communities of your own making. Make San Francisco even better than you believe it to be, since you will send less money to the centralized coffers and can retain it in your own backyard. Obviously, for my part, I would like to believe that being unyoked from the decisions that progressives have taken centralized government since the FDR era that in turn limited and decentralized government communities would thrive and grow into my idealistic vision for communities – vibrant, dynamic, innovative, growing, and combining virtue and charity with competent and accountable local government, which is able to bring more decision making into its remit on account of what the central government has given up. Even poorer communities could make decisions that are more efficient and optimized for their needs, lifting them up faster than any central planner could ever do.

The cataclysmic and visceral reactions to last night’s election got me to thinking about why the Presidential and other federal elections matter so much to us as a people. The simplest of ways to reduce the problem logically is that the stakes are extremely high given how much the two dominant parties and their core adherents are fighting over the spoils of big government. The desires and end goals are quite different, but too often the centralizing mechanisms and controls over the levers of government are the same. Recognizing that there is tremendous power and centralized decision making in everything from military base posture, entitlements, health, energy, education, environment, and many more, it is little wonder that the controlling levers are so bitterly contested. If we want to get out of this cycle of high stakes gambles, we will necessarily have to devolve more of these fought over powers to lower levels of government. Tying this back to my list of locations that I have lived in, this devolution has the great benefit of allowing each of these municipalities to focus on the tax and spend and regulation policies that make sense given its populations and all its attendant mixture of demographics, ethics and philosophical beliefs. Lubbock,TX may need greater focus on their water access to aid cotton farmers while Granby, MO may need greater focus on Farm to Market road to support turkey transport trucks. Pulling back money blindly sent to state and federal programs allows them greater flexibility to focus on their unique needs. Getting more specific, the deliberate decentralization of government has many benefits that I find completely intuitive:

  • Local government is more responsive and accountable directly to its constituents.
  • Centralized government is able to obfuscate and hide what they spend money on and its impact – complexity and unaccountability is the enemy of good governance and the friend of easy corruption and pet projects that favor the connected
  • Individual communities making a wide diversity of tax and spend decisions promotes tremendous competition, which is good for us individuals as “consumers” of places to live and work
  • Individual communities making a wide diversity of tax and spend decisions promotes tremendous experimentation, giving us real-world learning labs of what policies actually work versus those that fail. Contrast that with central government decisions in which if the decision is a terrible one, as they often are (see the second bullet point and then connect the logical dots to Obamacare for a great example), then we all go down in a sinking ship due to the central government’s large ability to own the “monopoly of violence” which does not allow us to opt out of their decisions. Furthermore, such sinking ships oddly have very few people with which we can directly point to as accountable for the decisions and the failures
  • Decentralized government is much more consistent with liberty and freedom and mobility. In a world in which power and decisions are increasingly centralized, we are all subjected to the same standards (witness Common Core as an example). In decentralized models and with the competition promoted therein, if we don’t like the tax and spend policies of one community, then we can move on to the next that may have a mixture of these that we personally favor.
  • Greater individual liberties as a result of decentralized government allows us to pursue more meaningful charitable work in which we see the direct and tangible impacts in our own communities, and this is of incalculable personal, spiritual, and community value. One of the most fundamental frameworks of economics is to always keep in mind the opportunity costs. An opportunity cost is the foregone opportunity that could not be pursued due to a decision. In a simple example, the fact that Dr. Jones has to send 20% of her income to the federal government to have it spent by much less accountable bureaucrats means that that same 20% was not able to be taxed by her local community, county, or state – lower levels of government who are in a progression more accountable to her tax dollar. Taking this all the way to its opportunity cost extension, it means Dr. Jones also can’t directly spend that 20% in her local business, church, or community and can’t devote that portion to the charity of her choosing, where she could have uniquely observed a direct impact that connects the community to her and her to the community, all the while boosting her spirits.

I suspect all of this seems quite straightforward but still leaves us needing specific examples to debate the points. I think some natural areas, to name but just a few in my limited time, that are ripe for debate for decentralization are education, criminal justice, health systems, health payment (i.e. Medicaid block grants), commerce, agricultural policy, and determining the role of private charity versus local municipality tax and spend decisions. Each of these topics could use its own further paragraph about the key differences in philosophy, strategies, and expected outcomes when comparing centralized versus decentralized models, but that will be a topic for another day.


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


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.

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.

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.




What freedom entails: facing the good and the bad consequences of our decisions

For men and women to be free from paternalistic domination from others and free to make our own choices necessarily means that we are in turn subjected to the vicissitudes and the consequences, for better or for worse, of those decisions. It is a fundamental concept that for us to remain free, we must not in turn be “protected” by government from the downside risk of flawed choices or bad luck. It was in fact this form of “protection” that for centuries kept peasants under the feudal domination of their class superiors – the knights, earls, and dukes under which they served and whom they paid exorbitant rents to. Predictably, famine only ever struck the peasants when harvests failed, while nobles and priests always maintained a relatively bountiful diet. Ostensibly, this was the price to be paid for protection by the lords of the castle and his soldiers and mercenaries. The reality was that for most peasants throughout the ages, the only real danger to their lives was in fact the deprivations of the lords supposedly protecting them.

Alas, for centuries and the better part of human history, this system kept a stable class of hereditary beneficiaries in control of a never growing and largely agrarian-based economic pie. People lived consistently on the modern equivalent of $3 a day and under a Malthusian system in which population growth led to a decrease in individual agrarian and artisanal wages, wages which only rose again the next time a plague wiped out swaths of the population and the supply of labor.  On that note, this never growing economic pie also led to no real advancements in science and medicine, and those frequent plagues (thought for centuries to arise out of miasmas in the sky that needed to be avoided by clustering indoors and blood that needed to be let out of the body – an ignorantly fatal combination) killed noble and peasant alike. In the words of Thomas Hobbes, life for the vast majority of our ancestors’ histories was lived in “continual fear, and danger of violent death; and the life of man, solitary, poor, nasty, brutish, and short.” Shakespeare poetically wrote of death as, “the arbitrator of despairs, just death, kind umpire of men’s miseries…” Let me pause for a moment and express my extreme gratitude to have been born into the relative bounty and ease of modern-day American life. Whatever our problems, they pale in comparison to the way humanity lived for thousands of years; well into the 1800s most people lived in these Hobbesian conditions. Many millions of people on earth still reside in dark removes of similar medieval conditions in places such as Somalia and Afghanistan.

Deirdre McCloskey, in her remarkable book, Bourgeois Equality: How Ideas, Not Capital or Institutions, Enriched the World, makes the above points eloquently and with her unique ability to draw upon an impressive panoply of analogies, anecdotes, and historic intellectual luminaries’ thoughts and writings to buttress her points. I highly recommend the book and credit it with much of my facts (i.e. the $3 a day factoid, Malthus’ theories). In direct contrast to the idea that we as individuals need protection and on the topic of the reality and essential connection between freedom and potential loss, she observes:

“The ideas of equality 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 implicit conclusion is that while there are unfortunate consequences of freedom and a free market, the alternative is worse. The plea, as McCloskey states in her book’s foreword, is this:  “Perhaps you yourself still believe in nationalism or socialism or proliferating regulation. And perhaps you are in the grip of pessimism about growth or consumerism or the environment or inequality. Please, for the good of the wretched of the earth, reconsider.”

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.


We are from the government, and while we created this mess, we are here with a 900 page dictate to help

Price is high

Health and Human Services, ever so helpful, is now taking aim at simplifying patient billing, a problem largely of the government’s own creation due to decades-long healthcare meddling (thanks to my friend Bob for the picture above). A HISTalk post on the hypocrisy of HHS taking this challenge on has a quote that captures the essence of the true underlying reasons for the mess in the first place:

This is the height of hypocrisy. Does CMS think providers on their own created the insane billing requirements and processes? It started with Medicare Part A, then B, then D. Co-payments, deductibles, out of network, referral approvals, contractual allowances, UC charges, and on and on. Next, billing systems will have to deal with VBP, P4P, bundled payments, MACRs, and more. Providers never asked or suggested any of these — they just have to figure out how to carve up charges/costs and services and put it all on a one-page bill. A 1995 analysis found that the Federal Register contains 11,000 pages dealing with an IRS 1040 submission, but hospital billing required 55,000 pages to describe. If CMS really wants to simplify the patient bill, they need to go to a single-payer system. Until they do that (not likely), the patient bill will continue to be the mess it has been for the last 50 years. Who do I call to collect my $5k?

Of course, I wholeheartedly disagree with the author’s prescription to create a single-payer health system as a result. He is inviting the wolf that created the mess in the first place farther into the hen-house and proposing making them even more all-powerful and monopolized. Does he really believe that they will somehow suddenly find sagacious angels to run the system at that point? The real answer is market-based and comprehensive demand and supply side reforms of the kind I captured in a separate blog post.

Here is what I predict: HHS will view a few isolated reform proposals that might work in certain settings but not all, decide that it is something that should be centrally mandated and in fact applicable to all, follow that with the creation of a 900 page unreadable document that hospitals and clinics, in despair, are forced to hire a team of consultants to figure out, but which gets the actual needs of patients and consumer transparency on pricing and outcomes precisely wrong.



“Socialism is for the Uninformed”

Sanders.PNGThomas Sowell makes a compelling case for going beyond surface level platitudes and shibboleths being all that it takes to realize that socialism can’t possibly work and that all evidence of countries that have tried a planned and wealth confiscatory approach have all failed. After making the case through some examples and counterpoints to the Sanders’ socialist agenda, Sowell delivers my favorite quote from the article, “None of this is rocket science. But you do have to stop and think — and that is what too many of our schools and colleges are failing to teach their students to do.”