What a PR disaster for Toyota: the company is having to recall millions of cars because four people were killed in a crash that apparently involved improperly installed floor mats. Apparently, both the accelerator and brake pedal stopped working, a fact that was relayed via cell phone just before the crash.
This will not help Toyota's warm and fuzzy image. What I sort of don't get is, why didn't they just shift into neutral, slam on the emergency lights, pull the parking brake, and coast to a stop? I'm sure that this is a perfectly idiotic question, and I will immediately be set straight by the car buffs. If so, please enlighten me.
Is the Second Amendment a Real Amendment?
It looks like we'll soon find out; the Supreme Court has accepted cert on McDonald v. Chicago, a gun rights case brought by Alan Gura, the lawyer who won the Heller case. The court has been dodging the twin questions of whether the Second Amendment protects an individual right to bear arms, and whether it can be incorporated against the states, for decades. It looks like the question will finally be settled--at least as much as Supreme Court decisions ever settle things--in the next year.
What's the Function of a Mandate?
Last night after an event, someone asked me and another libertarian if we supported an individual mandate for health insurance.
It's a complicated answer. I think that you can argue that because we cannot, in American society, make a credible commitment not to treat those who choose to go without insurance, the temptation to free ride is too great. So I'm not necessarily opposed on liberty grounds; it may be one of those things, like taxation, that is simply the price of living in society. And, in point of fact, it basically is taxation, so that makes sense.
However. I have practical objections. A mandate to buy insurance comes with a bunch of other things that have to be put into place to make it work. Guaranteed issue, community rating, subsidies, and regulations as to what constitutes basic coverage. These make the individual mandate very, very expensive for both individuals and The American Taxpayer. Before Massachusetts, there was a fair amount of hope that by introducing the healthy youngsters currently foregoing insurance into the pool, the average cost of treatment would actually fall. Massachusetts has fairly conclusively disproved that theory; health insurance premiums in the individual market are going to rise 10% this year, according to the Boston Globe.
There are a lot of reasons for that, but one is mandate creep, something that has particularly bedeviled New York. A mandate essentially becomes an opportunity for various medical service providers groups to pick the pockets of consumers and taxpayers. They lobby to get their service included in the mandatory package. Consumers use it, because hey, it's practically free. Insurance costs go up--but there's no reason not to keep on using podiatrists and massage therapists, because your personal actions will not make a difference in bringing costs down.
Then, as I've earlier discussed, the government's temptation in response to these problems is often price controls. Overall, I'm not a fan.
So while I think there's some theoretical justification for it, in practice, I'm not a big fan.
Bear Raiders
Matt Taibbi is apparently back on the finance beat with a story on the collapse of Bear Stearns and Lehman that goes "deep into the weeds" of naked shorting. It's not clear to me why, since the only academic paper I'm aware of that actually studied the question found that the volume of shorts and naked shorts intensified after the bad news that caused the stock to plummet, not before, and at any rate, was never done in a large enough volume to cause price declines of the magnitude that we saw.
Taibbi seems to be more worried about the moral offensiveness of the practice than its actual impact:
The real significance of the naked short-selling issue isn't so much the actual volume of the behavior, i.e. the concrete effect it has on the market and on individual companies -- and that has been significant, don't get me wrong -- but the fact that the practice is absurdly widespread and takes place right under the noses of the regulators, and really nothing is ever done about it.
It's the conspicuousness of the crime that is the issue here, and the degree to which the SEC and the other financial regulators have proven themselves completely incapable of addressing the issue seriously, constantly giving in to the demands of the major banks to pare back (or shelf altogether) planned regulatory actions. There probably isn't a better example of "regulatory capture," i.e. the phenomenon of regulators being captives of the industry they ostensibly regulate, than this issue.
There are much better examples of regulatory capture, even in the financial industry, such as the SEC's ban on shorting financial stocks last summer . . . but that is neither here nor there. Naked shorting has benefits as well as drawbacks--it enhances the efficiency of the market in price discovery, as well as its liquidity. It is often done by exchange market makers who fill orders on the fly, and then hunt down the actual stock later, in order to keep orders flowing. It is also, of course, hated by CEOs, who like to blame evil short sellers, rather than their own mismanagement, for driving down the stock price.
In theory, a "bear raid"--selling a flurry of shares in order to push the stock price into a downward spiral--is possible. In practice, counterattacks are possible, making this a very risky strategy for shorts who can end up bankrupt if they can't find shares to buy at a reasonable price. It's also difficult, with a large and liquid stock, to sell enough volume to permanently depress the price; your counterparties start wondering where you're getting all this stock to sell. That's why, while there's pretty decent evidence that shorts, and naked shorts, can speed the mean-reversion of overpriced stocks, there's a lot less evidence--virtually none--that it can cause stocks to become underpriced for any length of time.
Even if there were evidence for successful bear raids, Lehman's creditors had ample reason to worry without a decline in the stock price. By the time the volume spiked, Lehman's fate was already sealed; either they were going to find a buyer, they were going to get a bailout, or they were going to bankruptcy court.
So why should this be priority #1, or even #30, for the SEC? Obviously, CEOs do not like any practice that speeds up negative price discovery in their stock, but this is not supposed to be the SEC's concern. There's legitimate reason to punish people for failing to deliver--after all, they're in breach of contract. But this is a problem for the contractees, or the exchange, not the SEC.
Update: Someone in the comments asks if I'm not conflating regular shorting and naked shorting. Answer: no; the paper I linked deals specifically with naked shorts, and finds that at least since the introduction of Regulation SHO in 2005, they have functioned primarily as a liquidity enhancer and a price discovery mechanism, rather than a market manipulation mechanism.
Our results are in sharp contrast with the extremely negative pre-conceptions that appear to exist among media commentators and market regulators in relation to naked short-selling. While unregulated naked short-selling could be potentially manipulative, and the associated settlement failures could be somewhat disruptive to the smooth functioning of financial markets, the duly regulated naked short-selling that has existed after Regulation SHO appears to havebeen net beneficial for pricing efficiency and market liquidity, and Regulation SHO also appears to have successfully curbed the impact of manipulative naked shorting, and this reduction in the impact of manipulative naked shorting has continued through the 2008 financial crisis.
Good Advice
From Alex Massie to Roman Polanski's friends: stop digging.
September 29, 2009
The Housing Market Shows Signs of Life
So what to make of this morning's news that house prices actually rose at a decent clip in July? Not as much as some commentators have.
For starters, house prices peak in the spring and early summer, because people want to move in time for the school year. As we head into winter, those prices will fall.
And they may get a little push down that slope. Amid everything the government is doing in the economy, it's easy to forget that they've been putting quite a lot of effort into supporting house prices. (Supporting, a relative term, in this case meaning keeping them from falling farther). The FHA has stepped in as the lender of last resort, while the first time homebuyer tax credits have encouraged at least a few people to jump into the market. Meanwhile, the mortgage modification efforts have kept some foreclosures from happening--but since optimistic estimates place the projected redefaults at 35%, and more conservative estimates look for half or more of the modifications to fail, many of those foreclosures have simply been delayed, and will end up back on the market in winter and early spring.
Too, the sheer volume of the claims has meant the banks aren't moving any too fast on their own. But as they ramp up their modification and foreclosure capacity, the people who are currently stuck in limbo--not paying the mortgagea nd waiting for the bank to act--will be forced out of their homes, and those homes will be sold. That will put further downward pressure on houses.
Add to that the fact that many analysts think the biggest problem in the mortgage market is no longer exotic loans, but unemployment--people are defaulting because they basically can't afford any mortgage payment.
So while the worst of the bloodshed may be over, I don't think anyone should be looking for a price recovery any time soon.
Public Option, We Hardly Knew Ye
It looks like the public option is dead. Stand by for Jay Rockefeller's creative reasoning as to why it's a great bill even without a public option.
Ultimately, the problem for liberals is that they can't make a credible commitment not to vote for any bill. They've got too much invested in health care reform to make the perfect the enemy of the good. So naturally their concerns are going to get thrown out of the sled when the wolves get too close.
The big remaining issue is the subsidies. Make them too big, and your constituents will murder you because their taxes will go up. Make them too small, and your constituents will murder you because they have an expensive new mandate to buy insurance. I'm not sure there is any "just right" in this scenario.
Income Inequality Still Rising?
Clusterstock points to the new census data, which show that inequality actually increased in 2008:
The recession has hit middle-income and poor families hardest,
widening the economic gap between the richest and poorest Americans as
rippling job layoffs ravaged household budgets.
The wealthiest 10
percent of Americans -- those making more than $138,000 each year --
earned 11.4 times the roughly $12,000 made by those living near or
below the poverty line in 2008, according to newly released census
figures. That ratio was an increase from 11.2 in 2007 and the previous
high of 11.22 in 2003.
Household income declined across all
groups, but at sharper percentage levels for middle-income and poor
Americans. Median income fell last year from $52,163 to $50,303, wiping
out a decade's worth of gains to hit the lowest level since 1997.
Poverty jumped sharply to 13.2 percent, an 11-year high.
"No
one should be surprised at the increased disparity," said Richard
Freeman, an economist at Harvard University. "Unemployment hurts normal
workers who do not have the golden parachutes the folks at the top
have."
I'm a little surprised; the work of Piketty and Saez seems to suggest that the incomes of the wealthy are disproportionately affected by crises, because they destroy so much asset value. This effect may show up in the 2009 numbers, when the full effect of the carnage in the markets will be seen in high-end incomes.
For now, this seems like yet another argument for both extending unemployment benefits, and making them more generous. Most of the folks I talk to expect 10% unemployment to arrive, and persist. The people at the bottom of the income distribution have no cushion; they need their salaries to survive.
Will Abortions Be Crowded Out?
Some of the supporters of health care reform have rediscovered worries about crowding out. That's because it now looks as if the bill may not allow Federal subsidies to be used to buy insurance that covers abortions. Suddenly, a big chunk of the left sounds like a bunch of Republicans, warning about what happens to insurance markets when the government gets involved:
Abortion opponents in both the House and the Senate are seeking to
block the millions of middle- and lower-income people who might receive
federal insurance subsidies to help them buy health coverage from using
the money on plans that cover abortion. And the abortion opponents are
getting enough support from moderate Democrats that both sides say the
outcome is too close to call. Opponents of abortion cite as precedent a
30-year-old ban on the use of taxpayer money to pay for elective
abortions.
Abortion-rights supporters say such a restriction
would all but eliminate from the marketplace private plans that cover
the procedure, pushing women who have such coverage to give it up.
Nearly half of those with employer-sponsored health plans now have
policies that cover abortion, according to a study by the Kaiser Family
Foundation.
The question looms as a test of President Obama's
campaign pledge to support abortion rights but seek middle ground with
those who do not. Mr. Obama has promised for months that the health
care overhaul would not provide federal money to pay for elective
abortions, but White House officials have declined to spell out what he
means.
Democrats had originally tried to get around this by requiring insurers to "segregate" the public funds and only use private funds to pay for the abortion coverage, but this is transparently silly; money is fungible. There is no effective difference between giving someone $300 for an abortion, and giving them $300 to cover their dermatologist's bills so that they can afford to go have an abortion.
I think that not paying for abortions is morally and politically correct; you cannot use public money to subsidize an activity that half the public thinks is something akin to murder. Even if Democrats win this battle, the minute the Republicans get control, they'll just undo it. If you think crowding out is real, then you need to accept the fact that national health care may reduce access to this particular procedure. Maybe Republicans could learn to love this plan after all . . .
Of course, if you think crowding out is real, there are a lot of other problems with the plan. Abortion is just the beginning of the distortions it will create in the health care markets.
September 28, 2009
No Money Down!
Joe Wiesenthal reads a book on mortgage fraud from 2005, and concludes that the biggest problem was the low-to-no downpayment loans:
The author, Michael Richardson, owned a Colorado mortgage company
that was busted by HUD for processing too much fraudulent paperwork.
This caused him to discover that unbeknownst to him his employees were
(on their own) engaging in mortgage fraud, prompting him to write this
book and try to warn the industry.
This alone is interesting -- that even on the small-time level,
there was an information problem (bosses not knowing what the
underlings were doing) -- and the book is rich with details about the
nuts and bolts of mortgage fraud.
But beyond that, one point he makes clear -- and remember, this is
before 2005, so before the crash and before conservatives blamed
government intervention in the housing market for the crash -- is that
the FHA's subsidization of $0-down loans made it all possible.
If you make someone pay 10% or 20% of a house's cost upfront, then
there's no way you can alter the paperwork enough to make an ineligible
buyer buy a house for an inflated price. But once you drop that
requirement, everything goes. You can sell any house to any buyer for
any price as long as you put in the effort to falsify documents and go
through the cumbersome legwork.
As far as I know, by the end, private lenders were also doing a fairly booming business in low downpayment loans. But it's probably true that they thought it was safe because, after all, FHA loans were doing okay. And the broader point stands: the low downpayments, not the adjustable interest rate or other exotica, were probably the biggest single problem in the market.
That's true for a number of reasons. As Joe points out, when people have to put a big chunk of the purchase price down, this serves as a limit on your ability to commit fraud; you're no longer gambling with just your credit score, but also with tangible money that has other immediate uses. It also serves as a limit on house price appreciation; if the prices rise too fast, they will outstrip the resources of new buyers.
On the other end, requiring LTVs of 80-90% would have made the markets much less vulnerable to a correction. People who lost their jobs and couldn't make their mortgage payments could sell their homes rather than getting foreclosed and trashing their credit rating.
Of course you could argue that in an era of easy leverage people would just have created "synthetic" debt positions on their house--borrowed on their credit cards on the assumption that rising home equity would let them pay it all off one way or another. But at least this would have rescued some of the folks who thought they "had" to buy a house in a good school district. When we're looking at tougher mortgage regulations, a good place to start--maybe even stop--would be requiring people to have lower leverage ratios.
Roman Polanski has been arrested on his 32-year old statutory rape charge and is scheduled for deportation to the United States. If the girl had been 15 or 16, I think many of us would rightly say, "let it go, already". But she was thirteen. He plied her with champagne and Quaaludes. And he knew how old she was. Ick (warning: link has a pretty graphic description of anal rape.)
His victim now says she has forgiven him and doesn't want him to serve jail time, but at this point, it's not really about her. We're doing this pour encourager les autres.
The French, too, have forgiven him of course:
"Seeing him alone, imprisoned while he was heading to an event that was
due to offer him praise and recognition is awful. He was trapped,"
French Culture Minister Frederic Mitterrand said at a news conference
Sunday. "In the same way there is a generous America that we like,
there is also a scary America, that has just shown its face."
You would think we'd busted him for unpaid parking tickets. The guy drugged a thirteen year old girl in order to rape her. Perhaps the French have some sophisticated, European point of view on these things that I, with my puritan ancestry, simply cannot rise to.
Why watch Saturday Night Live in L.A. when the twitters from back East say it's weak? Does that mean TV shows now have a New York problem like movies have a Friday problem? Movies: If twitterers don't like on Friday, it will die on Saturday. TV: If the East doesn't like it, it will die in West? Just asking! Not my industry. ... 1:45 A.M.
Incidentally, we saw The Informant, which has had surprisingly weak box office. Both Peter and I gave it two thumbs up--though Mark Whitacre's bumbling was at times almost too painful to watch. The movie was both funny in many parts, and well structured, which is not a combination that's really all that common. But apparently, people don't want to see whistleblower comedies . . .
September 26, 2009
Tragedy in Kentucky
Also in the "too bizarre to accurately categorize" is the murder of a part-time census worker in Kentucky, who was found hanged in a remote area. He had the word "fed" scrawled on his chest, which suggests anti-government loons. But the census is not a traditional bugbear of said loons, who don't generally regard apportionment as an unpardonable blow against liberty. Moreover, there's no evidence as yet that he disappeared while doing census work. It sort of defies the imagination that a resurgent militia would decide to start its reign of terror by kidnapping a schoolteacher in his fifties who happens to do census work on the side. Don't they have any postmasters or county clerks in Kentucky?
So what to think? Until the police say more, nothing but "What the hell?"
September 25, 2009
Annals of Allegations
I have no idea what to think about the accusation that an NBC producer responded to a blast email from Americans for Limited Government by writing "Bite me, jew boy!"
It's so bizarre that I simply can't believe that an NBC producer did this. But it's also so bizarre that it's not actually all that much more plausible that Americans for Limited Government made the thing up. It's not like they're playing to the common stereotype that the television world is hostile to Jews.
ALG says they checked where the email comes from, in language that suggests they tracked it at the server level, not from the email headers.
The most likely explanation is that someone punk'd them. But who? And how?
The New Profit Picture
When I was talking about pharma's role in innovation, a lot of people confused this with being pro-pharma. The implication was that I should be in favor of anything that's good for Big CDrugs. This is sort of like thinking that because I like watching Derek Jeter play baseball, I would also enjoy watching him stab a puppy to death.
Time for a brief comment on health care reform, now that Sen. Baucus
has presented a bill to the Finance Committee (which, to be sure, I
believe has already attracted over 500 proposed amendments). As is well
known, the largest drug industry trade group, PhRMA, signed on to the
whole idea of a large reform effort early, in exchange for a seat at
the table (and a chance to make things go favorably). How's that
working out so far?
As Steve Usdin at Biocentury writes, the answer is "fairly blatantly":
The parochial value of PhRMA's
controversial decision to cut a deal with the Senate Finance Committee
and the White House became clear last week as details of the
committee's healthcare reform bill emerged that favor big pharma
companies over their biotech siblings. The bill also pounds the medical
device industry and slams laboratory service providers, sectors that
didn't agree on "voluntary" contributions to healthcare expansion. . .
. . .A 233-page summary of the America's Healthy Future Act
released by Finance Committee Chairman Max Baucus (D-Mont.) includes
most of PhRMA's healthcare reform wish list and has only one major
provision pharma companies hope to kill: a commission with powers to
constrain Medicare spending.
The tax put on medical devices by this bill has already been noted widely in the press, and I see that Sen. Kerry is already objecting
to that provision - naturally enough, since Massachusetts has some big
players in that area. The Senators from Guidant and Medtronics (also
known as Indiana and Minnesota) are speaking up as well. The trade
association for that industry (AdvaMed) apparently couldn't come to
terms with Washington, so this tax is their reward - which, in a
nutshell, is the sort of thing that keeps gradually turning me into a
libertarian.
Profits are good when they result from providing a service people want. When they are the result of capturing the government by cutting special deals, they're immoral and inefficient. And this is just the beginning . . .
Healthcare: Parsing the Polls
I still think a substantive health care deal is more likely than not. But boy, are these poll numbers from the New York Times/CBS unpromising. Opinion on little things like whether the government should guarantee health care for everyone has moved against the Democrats. But what's really remarkable is the people saying that they're worried about their own health insurance--it's actually improved slightly. I never would have guessed that three months of talking about recission would improve peoples' opinions of the insurance industry.
Liberal analysts are saying that opinion appears to be frozen, but I don't think that's quite true. As I've said before, vague things poll better than specific things. And the Democratic plans are not yet fully specific. Once they are, they will have a price tag and other definite drawbacks that the Republicans can talk up, while the Democrats have already fired all their best ammo.
I still think the Democrats will do it. But only if they move quickly. If it stretches beyond early November, I'd put the odds at less than 25%, unless they manage some surprise upset in the elections they look set to lose.
The End of ACORN
Atlantic correspondent Wendy Kaminer has a fairly scathing piece noting that ACORN has had problems for a long time--and that its defenders have always responded by dismissing any problems as "minor" and complaining that partisan interests are harming all the fine work it does. Are the people who go after it partisan? Undoubtedly, as were the people who exposed problems at Halliburton, etc. But when your workers are caught on tape offering to help you smuggle your illegal underage prostitutes across the border, impugning the motives of the tapers hardly suffices.
I don't see how ACORN survives at this point; the IRS is the latest to pile on, severing ties with ACORN, and slapping a tax lien for unpaid payroll taxes on top of that blow. The lawsuit seems like an even worse attempt--less of a Hail-Mary Pass than an own-goal. At best, it keeps this distressing story in the news, more firmly impressing it into peoples' consciousnesses and making it therefore more difficult for Democrats to quietly let the organization back on the government gravy train at some future date. At worst, the lawsuit opens up ACORN to discovery, during which the defense can plunder their records. ACORN appears to be trying to avoid this fate by suing for intentional infliction of emotional distress rather than defamation (for which truth is an absolute defense). But that just makes it more likely that the case will be removed to federal court and dismissed. When that happens, the public mind will not make fine distinctions about legal doctrine. They'll just remember that a judge thought ACORN was in the wrong.
Liberals have legitimate reason to be mournful--they think ACORN does good work. But no organization is irreplaceable. Voters can be registered, tax advice proffered, and federal monies disbursed without ACORN's dubious help.
IE Errors
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Who is this "former NEA Director of Communications" that Landesman
keeps referring to? Does he have a name? Is he an un-person? Are they
airbrushing him out of group photos? Is his name an unpronounceable
symbol, like Prince's?
When Glenn Beck Says Frog, You . . . Die?
I was pretty sure that Glenn Beck did not kill an actual frog. Not because I like Glenn Beck, but because a television show is not a one man stunt--it involves a lot of people, all of whom would have had to be okay with throwing frogs into boiling water, and thus triggering the wrath of PETA, as well as violating the various showbusiness codes on animal treatment. Not impossible that he somehow managed to do it without anyone quite realizing what he was up to--but very unlikely.
Also, most of those shows are taped, and if the frog died, why would he have aired the segment? If it wasn't taped, why didn't we get a close up of the dying frog? Presumably, he would have cued a cameraman to do a close up of the frog as it jumped out of the water.
Further, his reaction was too pat--he looked like a B-list actor doing a double-take in a sitcom. Most people who are taken that much by surprise do a lot more standing around and stammering when they don't have to fit the bit into a 24-minute air time.
And finally, I didn't see any frog actually come out of his hands. This led to quite a spirited discussion last night over the possibility of actual frog death.
It appears I was right: it was indeed a fake frog. Now the only question is . . . what the hell? I don't think I understand the point.
Cuts at Conde
For journalists, Conde Nast has been one silver lining in an otherwise gloomy cloud. Everyone else might be struggling along on ever-more-meager pittances, but glossy Conde maintained the glamour of a bygone era, with luscious expense accounts and lavish salaries. We watched Conde the way audiences in the Great Depression watched Hollywood's lavish spectacles about rich people: jealously, but also with a certain glad hunger.
That era seems to be ending; Conde is joining the rest of us in the more ascetic future. The struggling publishing giant has mandated big cuts at signature titles like Gourmet and Glamour.
As jittery as the building is going to be over looming
layoffs, there is some relief in that it appears there are no imminent
title closures.
"The McKinsey people are number crunchers," said one
source. "They're going to tell you to get to a certain number. I keep
hearing nothing is going to close."
The most likely scenario for some magazines over the next few weeks will be reducing frequency.
According to someone familiar with McKinsey's
recommendations, the consultants were particularly interested in basic
calculations in the ratio between edit pages and ad pages. A magazine
like Gourmet, which in September had 40 ad pages versus 74
editorial pages, just barely squeaked above the minimum book
requirement of 104 pages (compare that to Vogue, which had 427 ad pages versus 157 editorial pages in September). Gourmet is therefore a prime candidate for reducing frequency, a source said.
Meanwhile, it appears men's mag Details,
oft-thought to be beleaguered, has been thrown a lifeline. However,
since there are only about 35 staffers on the editorial side there, a
25 percent cut could be quite damaging.
Yet another source pointed out that even though there
are no immediate plans to close down any magazines, a decision doesn't
have to be made until the end of January, which is the end of the
fiscal year. (The home-decor magazine Domino was shuttered on Jan. 28, 2009.)
Advertising has plummeted for most publications (although, of course, she noted modestly, the Atlantic actually recently enjoyed its best ad month ever). When people aren't buying, it doesn't make sense to spend scarce dollars chasing fewer sales. And, of course, the steady migration of readers to the internet continues--a venue where almost no one except Google has yet figured out how to make much money. Conde, which lived by big, glossy advertising layouts, will now die by same. I expect these aren't the last cuts we'll see before the economy recovers.
September 22, 2009
Thought For the Day
Felix Salmon on the FDIC's new proposal to raise money from healthy banks, rather than going to Treasury:
There's one more problem with the proposal, under which, according to the NYT, "the lending banks would receive bonds from the government at an interest rate that would be set by the Treasury secretary and ultimately would be paid by the rest of the industry." If the bonds are coming from the government, that's likely to mean they'll be treated as government debt, and it certainly means that there's an implicit government guarantee there. Once again, the FDIC is using government guarantees, rather than real cash, and pretending that doing so doesn't cost the government anything. We've done that too many times already -- including in the Bear, BofA, and Citi bailouts -- and we should be putting an end to such shenanigans.
Amen. But I doubt this will change. Government officials don't care about saving money as much as the appearance of saving money. The odds are very good that by the time this government guarantee turns out to be expensive, Sheila Bair will not longer be around.
When could GM have been saved? In my opinion, GM started its slow motion death roll in the 1980s, when it refused to confront the unions or the brand managers and streamline the thing. Every decision they've taken since then has been made in light of the fact that they couldn't really afford the kind of showdown with the UAW that it would have taken to strip the company down to a nimble, profitable core. They skimped on quality and stopped taking care of the brand, mostly to feed the unions, but also to feed their bloated management structure. By the time it became obviously suicidal to keep on as they were, it had also become almost as suicidal to try and turn things around, because the company was no longer healthy enough to take the blow.
September 21, 2009
There Are No Villains in Financial Crises
Who led us into the financial crisis, and why? Zubin Jelveh writes up some intriguing findings calling into question the notion that securitization was at the heart of the financial crisis:
Instead of a smooth curve, at certain FICO scores there are big jumps in the number of people with mortgages.
The reason? Rules of thumb observed by those in the mortgage industry for judging the chances a borrower will default. In the 1990's, Fannie and Freddie released research showing that about 50% of defaults are associated with borrowers who have FICO scores below 620. That happens to be where the biggest jump in the graph above takes place, suggesting that the industry looks far more kindly on a borrower with a score of 621 than a borrower with a nearly identical score of 619.
But who used this rule-of-thumb?
The economists -- Benjamin Keys, Tanmoy Mukherjee, Amit Seru, and Vikrant Vig -- assert that securitizers followed the rule in deciding whether to buy a loan from an originator. Problem is, that meant the originator then knew he didn't have to spend much time vetting someone with a FICO score above 620, since there was a good chance the loan would be securitized and off his books. For the opposite reason, the originator would be more likely to put in the proper due diligence when considering lending to a borrower with a score below 620.
What we should then see is borrowers with FICOs just above 620 defaulting more often than nearly identical borrowers with scores just below 620. And lo and behold, when the economists looked at the data, that's exactly what they found.
Case closed, right? Not quite.
In a new paper, two Harvard PhD candidates -- Ryan Bubb and Alex Kaufman -- take an academic swipe at the big boys and point out the following: Although there is a big jump in mortgages at the 620 credit score, there isn't a commensurate jump in mortgages that get securitized at that score.
This "executive compensation" theory of the crisis is now the keystone of the conventional wisdom, having been embraced by President Obama, the leaders of France and Germany, and virtually the entire financial press. But if anyone has evidence for the executive-compensation thesis, they have yet to produce it. It's a great theory. It "makes sense"--we all know how greedy bankers are! But is it true?
The evidence that has been produced suggests that it is false.
The evidence I presented in my latest article, which deals in part with banker pay, also suggests that banker pay doesn't cause risk; rather, as the financial system gets more complicated (and therefore riskier, because it's harder to properly understand), there are more profits to be earned, because the returns to knowledge/skill are higher.
All of these papers suggest that the search for a villain behind the crisis will ultimately be fruitless. There are two basic narratives of what happened. The first is that bankers had bad incentives: they took massive risks because the profits were so good in the up years that it was worth the risk of the bad, or because they could pass the risks onto some other sucker, or they thought Uncle Sugar would bail them out. The other narrative is that bankers had bad information: they didn't understand the risks they were taking.
I've always preferred narrative B, because Narrative A doesn't make much sense. The CEOs of big banks lost vast sums of money, and their jobs, most of their social status, and so forth. They held onto the worst tranches of their securities, which implies they didn't know how badly they were going to blow up. Etc.
I find it vastly more plausible, if not so comforting, to believe that systems can occasionally produce bad results even if the incentives basically point in the right direction. The FICO score revolution was valuable, but we took it too far. The money sloshing around US markets disguised the problems, because people who got into trouble tapped their home equity, or in a pinch, sold the house at a tidy profit. Everyone from borrowers to regulators was getting the same bad signal, that their behavior was much less risky than it actually was.
That doesn't mean that nothing can be done. Maybe we decide we want a less complex financial system. But it won't be because there's some villain manipulating everything into ruin; rather, we may decide that there are certain kinds of risks we can trust ourselves to handle.
I'm not sure that this would work, and I'm skeptical that it's a good idea. But the more time we waste trying to figure out who did us wrong, the less quickly we will arrive at an actual solution.
Arrividerci, Acorn
I have to say, I'm finding the defenses of ACORN pretty ridiculous. ACORN is not going down because there's a conservative media conspiracy, or other explanation du jour. There is clearly something deeply wrong with the organization. One or two bad apples could be explained away, but six, across the country, indicates that at the very least, their HR policy is very troubled. There's no way to defend this.
Mike Tomasky makes the rounds of the talking points, which are so bad that even his considerable writing skill can't make them sound good:
Finally, Acorn president Bertha Lewis immediately appointed an
independent panel to study the group and recommend ways for it to shape
up. When you think about all the stonewalling that goes on in the
world, and especially the corporate word (did AIG do this?), I'd say
that's pretty laudable. It's headed by John Podesta, a Democrat,
obviously, but an absolutely upright and no-nonsense guy whose own
nonprofit, the Center for American Progress, is incredibly scrupulous
and careful about how it conducts its own business.
One last
point. Joe's piece reminds me of something I'd forgotten totally about.
Last year, a group called Young Political Majors did a GOP voter
registration drive in some states. In California, the group was found
to have duped people outside supermarkets and what not into registering
Republican even though they were, or intended to be, Democrats or
independents. They are believed to have duped at least "several dozen"
people.
So Acorn's paid volunteers made maybe 20 mistakes out of
one million. YPM's paid volunteers used intentional chickanery to do a
seriously crappy thing. Which of those is worse?
Oh -- and YPM's leader was arrested last October. I believe trial is pending. His lawyer says the charges are baseless.
Now.
Imagine that Bertha Lewis, or an Acorn leader in a large, vote-rich
state, had been arrested last October. Acorn would be finished. The
right-wing press would be screaming that the election was an
out-and-out fraud.
So why have you (unless you're a massive
news junkie) never have heard of YPM? Because for all the right's
whining about the liberal media, the mainstream media aren't
ideologically committed to party warfare in remotely the way that the
conservative media are.
Huh? You've never heard of YPM because, well, you've never heard of them. It's not as if most people first heard of ACORN when Breitbart started to go after them; they're on the news radar because they are a massive nationwide organization that takes millions of tax dollars every year. Complaining that the left is somehow being unfairly targeted because a regional company that tricked "dozens" of people into registering with the wrong party--not falsely registering, not preventing them from voting, but registering as Republicans--didn't grip the national consciousness in the same way as seeing ACORN activists offer advice on camera to help someone smuggle their illegal underage El Salvadoran hookers into the country--well, the mind boggles.
Nor is it some act of extraordinary courage that led ACORN to appoint an independent panel. At this point, ACORN's shelf life is probably about 90 days. This was not a bold, gutsy move; it's a desperate hail mary pass. Appointing an independent panel is what all organizations do when something truly indefensible has happened. I'm sure Arthur Anderson appointed an independent panel to find out why they'd been peddling their integrity to the nice folks at Enron.
There are times when, no matter how much you like them, you need to throw one of your own off the bus. Democrats need to recognize that this is one of those times. There is no upside to defending the indefensible. All it does is throw your credibility after theirs.
September 18, 2009
Health Care Reform Starts Looking Like an Established Fact
I now put the chances of a substantial health care bill passing at 75%, and the chances of the Democrats losing the house in 2010 at about 66%.
Replacing Ted Kennedy is major, of course, but the real game changer is that the CBO is willing to score health care savings on the grounds that the bill contains automatic spending cuts.
Conservatives are filled with rage and anguish. The spending cuts, they argue, mostly will not be done, which means that this bill is going to cost hundreds of billions more than its proponents claim. They are absolutely right: the savings cuts will not be made, and I doubt that many in the Democratic party leadership, or the liberal wonkosphere believe that they will.
But I'm not sure what good it does to protest this. That's the way the system works. The fact that the CBO has minimal discretion and uses roughly the same standards for every analysis is, despite its problems, a feature rather than a bug. We may not like the fact that the CBO scores what's in the law, rather than what is most likely to happen. But the alternative is what? An agency that can give the thumbs up or thumbs down according to how it feels about the legislators?
I assume that the CBO is going to score all these largely imaginary savings, and that this will make it very hard to keep the bill from passing, because legislators are, natch, more concerned about the appearance of fiscal rectitude than actual conservative budgeting. Conservatives can, and should, raise the reasons to believe that htis bill will cost more than its CBO score allows. But frankly, the public is probably going to accept the CBO numbers.
I think that ramming through the bill on a party line vote makes it very likely that the Democrats will lose the house in 2010; the American public doesn't like uniparty votes, especially on something this controversial. A lot of liberals have gotten angry at me for saying this, but it's not a normative statement; it's an observation. IF the Republicans had been willing to push forward on a controversial bill with no Democratic cover, we'd have private social security accounts right now. But they weren't, for a reason.
But if I were a Democrat, I'd take that bet. What's the point of electing Democrats if you can't get national health care passed? If Republicans were smart, they'd find a couple of Democratic senators from swing states and pound the Teddy Kennedy rule change until they forced one of them to sit out the cloture vote. But I'm not exactly holding my breath on a resurgence of Republican strategic brilliance.
No, I think that for those of us who were opposed to this bill, it's game--almost--over. This isn't exactly surprising; Democrats have a commanding lead in the house and the Senate, and now they have the presidency too. If public opinion on this thing craters again, I'll reassess. But for now it looks like it's time to start preparing for an ambitious health care reform, and all the dislocations, and the budget crisis that we now have even less ability to aver.
Mental Health Break
September 17, 2009
There Will Be Blood
I'm not sure what Nancy Pelosi is trying to say in this video. Is she furthering the largely unsubstantiated claim that the American right is planning a reign of terror? Or is she trying to tell us that Owosso was just the beginning? Either way, this doesn't seem like it's adding much to the national conversation.
Jim Henley, Ezra, et al, want to know why I am worried about the effect on innovation of government price controls, but not the effect on innovation of cutting Medicare benefits. Says young Ezra Klein:
For a long time, I took questions about stifling innovation very seriously. So did a lot of liberals.
But then I realized that the people making those arguments wanted to do
things like means-test Medicare, or increase cost-sharing across the
system, and generally reduce costs in this or that way, which would cut
innovation in exactly the same way that single-payer would hypothetically cut innovation: by reducing profits.
I also found that I couldn't get an answer to a very simple
question: What level of spending on health care was optimal for
innovation? Should we double spending? Triple it? Cut it by 10 percent?
Simply give a larger portion of it to drug and device manufacturers?
I'd be interested in a proposal meant to maximize medical innovation.
I've not yet seen one.
It turned out that concerns about innovation weren't really about
innovation at all. They were just about attacking universal health care
ideas of a certain sort. Which is why I stopped taking them seriously.
As it is, I'm less worried about squeezing out medical innovation than
I am about rising medical costs squeezing out innovation in every other
sector of society. Maybe some day the situation will change, and so too
will those concerns. But we're not there yet.
This seems like a fair question, except, no, it's not, it's a crazy question. And it's especially shocking coming from Jim Henley, who was, until recently, a libertarian.
Let's take off our magic health care glasses, which make stupid questions about market and governments look reasonable, and apply this logic to some other policy areas.
Libertarians are often, even usually, the kind of geeks who want to go into space. Shouldn't libertarians support increasing NASA's budget to $7 trillion?
Libertarians tend to be quite fond of new computer technology. Why don't the libertarians want a gigantic government agency with a $3 trillion budget to invent electronic devices?
Libertarians like eating. Isn't it hypocritical, then, that they oppose a US agricultural policy that makes many kinds of food, particularly corn-fed animal flesh, much cheaper?
Why . . . it's almost as if libertarians think that government spending is different from private spending!
Liberals get mad when conservatives call them socialists, and I do too, because it doesn't exactly enhance the tone of the debate. But then they go and ask questions like this, which seem to indicate that everyone kind of missed the socialist calculation debate, and for that matter, the fall of the Soviet Union. I like new pharmaceuticals in the context of a market where supply is matched to consumer demand through a price mechanism. If people, in their role as consumers, decide that the new pharmaceuticals coming out aren't worth their price, and decline to buy them, I like that too.
What I don't like is the government stepping in and deciding what drugs are worth how much money. The government does not do a good job at setting prices. How do we know this? Generations of attempts at wage and price controls. Price controlled markets don't work well, whether the price controls are a ceiling or a floor.
It's kind of embarrassing to have to explain this, because it's a pretty elementary and widely understood component of the classical liberal analytical framework. I frequently disagree with liberals (obviously). But I hope I don't often airily proclaim that I don't take them seriously, because after all, they don't really mean anything they say about market failures--it's all just a fig leaf for their ideological mission to destroy the private sector.
Rush Limbaugh Swift
A number of you are arguing that Rush Limbaugh is actually putting together a high-flown satire that I missed. Umm, okay, maybe. The problem is, if so many missed it, it's not a very good satire.
I know, I know--I'm a humorless west coast liberal who doesn't get an obvious joke. No offense, but Limbaugh's listeners are not known for their ability to appreciate maybe-sort-of-satire. I don't think it's ridiculous to say that for Rush Limbaugh, racism isn't a big problem in this country, but anti-racism is one of the greatest threats facing America today. So when he does a "satire" that comes perilously close to his normal rants against feminazis and raice-baiters, well, I don't really think you can expect the rest of America to get the joke.
Update: Okay, perhaps I am unfairly tarring Rush Limbaugh's viewers with his own behavior. But I have, in fact, listened to Rush Limbaugh quite a bit, though not recently, and at least back then, he was a humorless jerk who really didn't find, say, Michael Moore or Jon Stewart funny. His main product is outrage at the vast conspiracy against him and his people. Sound familiar?
This is not funny, or acceptable, for the same reason that Michael Moore's "truthy" BS isn't acceptable. The "humor", such as it is, comes at too high a cost.
And yes, I think that the people who are claiming that Rush is inciting a race war or a revolution are also humorless twits. But what he's doing is quite bad enough. The world is not desperately in need of more anger, hatred and paranoia.
September 16, 2009
Mental Health Break
Killer baby seals
Limbaugh Hits a New Low
I have a dilemma. The other day, I boldly stated that I could not possibly like Rush Limbaugh less. Then he went and described bullying attacks as what happens in "Obama's America". As Rod Dreher notes:
Look, I think it's important to talk about black male violence, or at
least as important as it is to talk about any other important social
trend. I don't think we should be squeamish about discussing it in a
responsible and fair-minded way, despite what the politically correct
say. But good grief, Limbaugh is up to something wicked. He's plainly
trying to rally white conservatives into thinking that now that we have
a black president, blacks are rising up to attack white kids! Christ
have mercy, what is wrong with these people?
This is possibly the first time I have ever heard the word "wicked" deployed in a public debate, and boy, is it on target. It is perfectly true that if the races had been reversed, Al Sharpton would probably be out there saying this was a symptom of America's lynching culture, and also perfectly irrelevant. The response to Al Sharpton's antics is not to emulate them. Race-baiting is not a team sport that anyone should want to join. And I assure Limbaugh, from vivid memory, that horrible bullying also took place in Ronald Reagan's America, and every other America since at least 1978.
The only decent thing for me to do now is apologize and note that at the time, I really did not think it was possible for me to like Rush Limbaugh any less. Now I realize that I was mentally excluding all sorts of activities from the realm of the possible, like murdering boatloads of Guatamalan orphans, or this sort of vileness. It won't be the last time I'm wrong, but I certainly hope it's the last time I'm that wrong about talk radio's capacity for socially destructive quasi-populist virulent nonsense.
Catastrophic Medicare Reform
Everyone else thinks that Medicare Advantage is DOA. Democrats hate it because private insurers are involved. It costs more than traditional Medicare. Only 25% of seniors are on it. "Overpayments" to insurers cost more than $15 billion a year. Isn't that a big, fat, target?
A few notes: first, the "overpayments" provide extra benefits. The program is growing. And patient satisfaction between Medicare Advantage and Traditional Medicare is similar. Opponents argue that this means Medicare Advantage won't be missed. This is like saying that if you made happy Escalade owners switch cars with happy Prius owners, neither one would care, because hey, they're both happy with their current cars!
But mostly, I look to the history of Cat Care, aka the Medicare Catastrophic Coverage Act of 1988. Unlike killing Medicare Advantage, this enjoyed broad bipartisan support. Democrats liked expanding coverage for seniors and the disabled. Republicans were happy as long as you paid for it, and thought it would boost their image with seniors. The AARP gave it the big thumbs up. All sides had to stage a dramatic retreat a year later because seniors screamed bloody murder over the premiums. The benefits were actually pretty useful, but deficit neutrality was political suicide. The post mortem strikes some familiar notes:
Mr. Reagan stipulated that the program would be financed entirely by
the elderly, who would pay a flat fee of $4.92 a month. ''We were
forced to accept the premise that Reagan insisted upon: financing
entirely by the elderly,'' recalled Representative Henry A, Waxman, the
California Democrat who is chairman of the health subcommittee of the
Energy and Commerce Committee.
Long-term nursing care was what
the elderly wanted. But that was financially out of reach; the annual
cost was estimated at $20 billion or more, doubling within a few years.
The cost of the expanded hospital and doctor coverage proposed by
Secretary Bowen was much more modest.
Indeed, the proposal
was too modest for many. It was the first major health care bill to
come before Congress in years, and advocates of health programs seized
on it. ''The bill became the vehicle for the deferred agenda in health
care,'' said John Rother, legislative director of the American
Association of Retired Persons, the major lobbyist for the bill. ''It
was the health policy community seeing this as a way to fix all their
problems.'' Mr. Burke, now a health policy consultant, added,
''Congress went on a feeding frenzy.''
The late
Representative Claude Pepper, the Florida Democrat who was chairman of
the Committee on Aging, and Mr. Waxman were demanding protection for
the cost of long-term care. To induce them to drop that demand, the
House leadership agreed to support an expensive prescription drug
benefit. Other additions followed. The Senate voted coverage for
mammography screening and proctoscopic examinations for the elderly and
disabled, as well as for certain drugs at home, hospice care and a
program to provide help for those who cared for sick relatives at home.
The House voted to extend nursing home benefits from 100 days to 150
days and eliminated the requirement that patients spend at least three
days in a hospital before becoming entitled to the benefit. It added a
program to protect a spouse from becoming bankrupt from the costs of a
husband or wife in a nursing home, and a provision having nothing to do
with the elderly: a requirement that states provide Medicaid benefits
for poor pregnant women and infants under the age of 1.
''When the original Reagan proposal came to Congress,'' Mr. Waxman
said, ''all elderly groups were united in opposition. But when other
benefits were added, the elderly thought that on balance it was a step
in the right direction. But it was a step with plenty of reservations.''
The
total cost from 1989 through 1993 was initially estimated at $31
billion. The flat premium of $4.92 proposed by President Reagan became
a fee that increased from $4 in the 1988 fiscal year to $10.20 in 1993.
And Congressional leaders realized that the flat fee could not raise
enough money to finance the program, so Congress enacted a surtax, to
be added to the income tax bills of the wealthiest Americans aged 65
and older.
The Administration balked at the new benefits
added by Congress. ''We wanted the President to veto this bill,''
recalled Mr. Burke, then Secretary Bowen's chief of staff.
''Unfortunately, this was not the President's strongest time. We didn't
count on a guy named Ollie North and the Iran-contra scandal.''
President
Reagan signed the bill on July 1, 1988, at the behest of Vice President
George Bush, then in the middle of his Presidential campaign.
The end result?
At first, the Senate and House leaders minimized the protests and
said they would not revise the program at all. But by spring, the flood
of mail and phone calls became too much to ignore. Critics called the
leadership arrogant and out of touch with their consituents.
To
ease the protests of the elderly, Senator Lloyd Bentsen, the Texas
Democrat who is chairman of the Finance Committee, said the surtax
could be cut because revenue was going to be greater than needed to
finance the program. But he quickly ate his words when the
Congressional Budget Office increased the 1989-93 estimate from $31
billion to $48 billion.
Responding to constituents, the House
Ways and Means Committee spent three weeks developing a compromise
intended to end the protests and salvage the program. It would have cut
the surtax in half, increased the flat fee and retained most of the
benefits. But last week the House ignored the committee and the
Democratic leadership, and voted to repeal the program.
Taking anything at all from seniors is extraordinarily difficult. They have a lot of time on their hands, and they use it to vote. The AARP blessing is not the all-powerful talismanic protection that many seem to imagine. Even if you pass Medicare Advantage cuts, my sense is that this will survive just as long as it takes for an insurance company to mail out notices to its Medicare Advantage patients, regretfully explaining that the payment cuts mean they will no longer be able to offer the following benefits . . .
I don't think that, in the end, Congress is going to be able to take much money out of Medicare. This is not something I'm happy about--it's something I've been lamenting for a decade or so. But reforming senior entitlements has always looked difficult. In the wake of Social Security reform, it's starting to look damn near impossible.
Your Morning Health Care Roundup: Exeunt Snowe, Republicans
So Snowe's left the building on health care reform, barring miracle. That means that the Democrats pass this on a straight party-line vote, if they pass it at all, making the parallels to Social Security reform ever more compelling. As I thought might happen, the fact that Baucus wants to pay for his bill by taxing high cost health plans has alienated Snowe, since she comes from a state with some of the highest premiums in the country. Baucus has added a provision to scale the tax to local cost--but of course, when you do that, you don't raise so much money with it.
I'm reliably informed that the Democrats think they're better off doing this alone than not doing it at all, and so it has to pass. If so, it will be the first time in history that I can think of that a single party passed anything of this size--certainly not a major new entitlement. Medicare and Social Security both had considerable Republican votes, something I don't see this time around.
At the very least, this changes the tenor of the debate. I'm willing to bet that the Democrats start throwing the less popular provisions out of the bill. If you're going to pass a $1 trillion bill all by your lonesome, you don't want to, say, piss off 25% of seniors who like their Medicare Advantage, even if you and all of your fellow party members hate the program. Unfortunately, the popular bits are the expensive things. The unpopular parts are where you pay for them.
Luckily for the Democrats, outside of the Concord Coalition, no one votes on deficits.
September 15, 2009
ObamaCare v. Prescription Drugs, Part III
The squabbling continues. Andrew prints a reader email:
Pace McArdle, health reform is nothing like Medicare Part D. Medicare Part D is available to all
beneficiaries regardless of income. The subsidies provided in the
reform bills scale with income and are in place to make workable a
mandate that will, by itself, lower the average cost of individual
care relative to current law. Additionally, health subsidies are
fully funded for 10 years according to stingy estimates by the CBO
(that don't jive with reform advocates' predictions of how reform will
bend the cost curve). On top of that, Obama's now pledged that
deficit neutrality will be written into the bill; finding new funding
or modifying the program would require Congressional action in the
future. There is simply no comparison between Medicare Part D and
health reform.
Pace the reader, the overall estimate for HR 3200, issued two weeks after the preliminary score he/she cites, places the Year 10 cost of the coverage provisions at $202 billion, not $140 bb. It isn't fully funded; it has a rapidly growing deficit of tens of billions of dollars, even with big spending cuts and big taxes--surtaxes on joint incomes above $350,000 that start at 2% of AGI and go up to 5.4% on really big incomes. If any of the cuts or the taxes fails, the deficit starts bigger, and gets bigger faster. Meanwhile, Obama has moved forward one of the really expensive bits, covering people who are uninsurable because they have some expensive disease.
How are we paying for this? Dunno. It's all too vague. But to my ears, Obama has so far failed to rule out anything expensive, like generous subsidies, and also failed to outline who he's going to tax or cut benefits to if he's serious about deficit neutrality. So a mere stated wish to stay deficit neutral just won't do--every president states that sort of wish. The question is, what will they do to get there? Obama's coyness on this topic is reaching it's sell by date. It's time for the president to commit to an actual plan with actual numbers we can check.
It's possible that he will manage to pay for it all, in which case, I salute him--but that still leaves that deficit of 4% of GDP in 2019. Even George Bush made a stab at getting his future deficits lower than that, and in fact managed to get it down near 1% towards the end of his second term. Spending your limited ability to raise taxes on new programs, rather than reducing the existing deficits, and hoping that someone else will be forced to fix the problem sometime in the future, is not fiscally responsible. Fiscally responsible is when you put balancing the budget in front of the other things you want to do. Neither Bush or Obama has, thus far, evinced any actual willingness to do so.
CBO estimates the "effects on the deficit of insurance coverage
provisions" in the House bill, H.R. 3200, to be $1,042 billion over a
ten year period. (See page 2 of the estimate.) The $800B - $900B figure cited by the President may be his expectation of the still-private Baucus bill.
But the program is in effect for only about five of these ten
years. In the House bill, the new coverage provision begins in year 4
(2013) and phase up to full effect only in year 6 (2015). To calculate
the per-year cost, therefore, you should divide by roughly six, rather
than by 10.
In addition, the new spending grows really fast, so the
spending in year 10 (2019) is much bigger than in year six. CBO
estimates the new coverage provisions would cost $202 B in 2019, rather
than the President's $80 B (last Saturday) or $100 B (last Thursday)
annual cost figures.
Even if you knock 20% off that estimate (assuming the still-private
Baucus bill is 20% less expensive than the House bill), you're looking
at a $160 B annual cost. In another document CBO estimated this 2019
cost would grow faster than 8% per year in the long run.
There are revenue provisions, of course, but it's not clear which of them--other than cutting Medicare Advantage, which gets you something over 10% of the final year cost--Obama's plan may include. It's also not clear whether he intends to subsidize people up to 300% or 400% of the poverty line. On the other hand, he promised to insure the uninsurable through a high-risk pool immediately, which will up the cost substantially.
But to my mind perhaps the most worrisome part is that anything Obama does to "pay" for this program is something that cannot be done to "pay" for our growing Medicare problem. Slashing provider reimbursements, Medicare advantage, etc, if it is done, is something that should be done in order to close the projected 3.4% budget gap in 2019. Once we've used them for new entitlements, we are less able to pay for the entitlements we've already got.
When Good Goals Go Bad
Derek Lowe outlines some of the ways that pointless research projects get funded--or more often, continued past their sell-by date--in Big Pharma. A follow up to a good post on such goings-on in academia.
Bankruptcy: Comparing Ourselves With Our Neighbor to the North
I've been meaning to blog this Fraser Institute study on medical bankruptcy, which compares bankruptcy rates in the US and Canada, and finds that medical bankruptcies can't be driving the US rate, because the Canadian bankruptcy rate is . . . higher.
What I immediately thought, when I saw the study is, "But 2006 and 2007 are not representative years". The 2005 bankruptcy reform caused everyone who even thought they might need to file bankruptcy to file in 2005, before the reforms kicked in. That artificially depressed the rate of personal bankruptcy in 2006 and 2007. That's why David Himmelstein, Elizabeth Warren et al picked 2006 for their execrable study claiming that most bankruptcies in America are medical--medical bills are harder to see coming than an unsustainable mountain of credit card debt, or a business failure (in a boom year). Now the right apparently wants in on the con.
But I didn't get around to it, and the thing slipped my mind, and now I see that Credit Slips did the legwork some time ago, which is a lesson to you children: the early bird gets the worm! And it turns out that yes, the US bankruptcy rate is normally higher than the Canadian bankruptcy rate.
But here's the odd thing: it's not very much higher. Which is strange because, first, US bankruptcy law is still more generous than the Canadian code, and second, they're not supposed to have any medical bankruptcies, because they're not really supposed to have any substantial medical bills. So if so much of our bankruptcy is driven by medical bills, it should be much, much higher, not 30 basis points.
Interestingly, it turns out that research commissioned by the Canadian government shows that 15% of people over the age of 55 who declare bankruptcy cite a medical problem as the primary reason. Medical bankruptcies can, as I've been saying for a while, be driven by something other than the lack of free government provided medical care.
Still, the narrowing of the gap is unexpected, and worth watching. Of course, if the differences in bankruptcy go back up to pre-2005 levels, then it will stop being surprising. But though rates are rising sharply in the recession, the latest numbers are still below comparable rates in 2005 and 2006. And presumably bankruptcies are up at least somewhat in Canada as well.
The Medicare prescription drug entitlement almost immediately was projected to cost $1.2 trillion over ten years - more than Obama's cost-projections. The CBO's estimate of long-term spending in the program is $8.2 trillion.
Unlike Obama's healthcare plan, which focuses on the younger uninsured
working and middle class, Bush's massive bribe was directed at seniors,
a demographic set to grow very fast in the near future.
Now Megan is right that we do not know the final cost of the current
proposal or what the future will bring. But when the CBO scores the
final version, let's contrast and compare, shall we? And one more
thing: the more immediately expensive one was rammed through by Republicans,
the allegedly small government party. I still, for some reason, expect
a little more fiscal responsibility from the right than the left. But
we now know, of course, the both are dreadful but the GOP is worse.
These are not quite the right comparisons to make. For starters, those figures aren't really the right ones. As the web page from which Andrew picked that Washington Post figure notes, the CBO's estimate of the ten year cost was considerably lower at the time. Also, the $8.1 trillion is a GAO report, not a CBO report, and it's from 2004. The Medicare prescription drug benefit has (so far, knock wood) turned out to be cheaper than we then thought because of heavier use of generics, and the Medicare Trustees now place the unfunded general revenue liability at 7.2 trillion over the 75 year horizon.
But that is still a large number, and it is true that the projected costs increased rapidly. When the prescription drug benefit was passed, it was scheduled to cost $534 billion over ten years. That number immediately started going up. Why? Because the CBO scores from the ten year period starting when the law is passed. But the program didn't actually go into effect until 2006. That's why the price tag had gone up so much when the Washington Post wrote that article in 2005. Also, the Bush OMB was fond of issuing hysterical projections so that it could wow us with a "surprisingly" low deficit number every mid-term review.
All the Democratic bills on the table this year use the same delay dodge, with an extra year added in order to give them lots of time to get past the 2012 elections before their constituents find out that the government isn't giving them health care out of taxes on "the rich", but making them buy it out of their own money. If we actually break down the cost by year of operation of this $900 billion program--taking the heroic assumption that Obama's number is actually correct, rather than the more traditional White House lowball--that makes it $150 billion a year, not less than $100 billion a year. Of course, as health care costs are growing at quite an impressive clip, by the time we get close to actually starting this program, its 10 year cost will be much closer to $2 trillion than to $1 trillion.
Meanwhile, the cumulative undiscounted 10 year cost that the Medicare trustees are now projecting for the next ten years is $945 billion, thanks to that happy surprise on generics in the formularies. I am not counting premiums, which pay for slightly more than 10% of the program. Nor am I including estimates that Medicare Part D saves other parts of Medicare money by cutting down on surgeries, hospitalizations, and other costly care. I want to compare apples to apples, spending to spending.
We do not yet have any good way to look at the Obama numbers, because there is no plan specific enough to score. But I have yet to hear anyone make a credible argument that what Obama is promising can be done at the quoted price tag.
As for whether the Republicans are "worse" on budget deficits than the Republicans . . . well, I think that was a much easier argument for both of us to make nine months ago. Now Obama's projected deficit in 2019 is are higher than the worst of the Bush deficits--4% of GDP, almost a trillion dollars. The CBO is slightly kinder--they project 3.4% of GDP as a budget
deficit, and $722 billion, but of course that's without any changes to
the Bush tax cuts, any annual AMT "fix", any delay of the draconian cuts that
are supposed to happen to Medicare doctor reimbursement rates, and no
ObamaCare.
You cannot blame those deficits on Bush's tax cuts, or his war spending, because the objectionable bits are slated to end next year. (I assume that Andrew still supports the invasion of Afghanistan). You can certainly blame Bush for is a $100 billion increase in the on budget net interest on the debt (though that figure is should really be adjusted for inflation). You can also blame him for about $100 billion worth of Medicare Part D But that still leaves you more than $500-700 billion worth of deficit that Obama has to own--larger than any Bush deficit. He has made no indication that he has any plans to pay for this. Instead, like Bush before him, he is adding a huge, expensive new entitlement on top of grotesque budget gaps.
But the fiscal picture he is starting from is considerably grimmer, and the entitlement he is adding is considerably larger. Assuming that we actually cover most of the uninsured who are not illegal immigrants, this is a program with nearly as many beneficiaries as all of Medicare. Some of them will be paying their own way. But according to the Robert Woods Johnson Foundation, almost 18 million of the uninsured will end up on Medicaid under any plan that extends it to 133% of the poverty line, which is virtually all of them. Altogether, between 2/3 and 3/4 of the uninsured will be receiving some sort of subsidy under any of the proposed plans, depending on whether they offer assistance up to 300% or 400% of the poverty line.
Maybe Obama will "bend the curve". Maybe he will raise taxes on the middle class, and really spike them up on the wealthy. Maybe aliens from the Horsehead Nebula will invade, and we'll have bigger things to worry about than the US budget. But based on the actual information we have now, Obama will leave the United States in much worse fiscal shape than his predecessor.
This is not because George Bush made him do it, or screwed up the economy for him. It's mostly because Medicare is about to turn into the sucking chest wound of the Federal budget, and Obama is the chap lucky enough to be there as the hemorrhaging really gets going. It's not really his fault (other than in the sense that he chose to run for office in an unpropitious sort of year). But it doesn't matter whose fault it is, because the answer is "every single president since Coolidge". He's the guy who has to figure out to close the budget gap that was bequeathed to him by Lyndon Johnson and FDR, and which his predecessors--Democrat and Republican--have been punting on for decades. Rather than embrace that responsibility, or even eye it warily, he's decided to ignore it in favor of his personal policy priorities. That's entirely understandable, and hardly unique. But it hardly puts him on a higher plane than George Bush.
Frankly, I'm not sure how useful it is to try to figure out which side is "worse". I don't judge political parties based on how far their performance deviates from my expectations--and frankly, given how quickly Obama has abandoned his previously rather surprisingly honest approach to policy numbers, his more ardent supporters should be glad I don't. I judge them on what they do. Bush was a bad president, Medicare Part D was bad policy, and he left the budget in worse shape than he found it. But that doesn't mean Obama gets a pass because, after all, what else do you expect from Democrats?
Obama on Kanya: the Triumph of Irrelevance over Experience
The problem with this is not that an ABC News reporter tweeted an off the record conversation. The problem with this is that we do not actually need the president's opinion on every issue facing America.
Update: Okay, sorry, I wasn't criticizing Obama. I was criticizing a news culture that thinks that this is, well, news, whether it was on or off the record. Who cares what Barack Obama thinks about Kanye West?
September 14, 2009
Patrick Swayze Dead At 57
It was the most ridiculous movie ever. But no girl who was thirteen the summer it came out will ever forget its star
I've been reading a bunch of conservative bloggers today arguing that if you look at the polls the right way, they show that Obama is really in trouble. Even squinting hard and invoking the Nine Secret Names of Buddha, I don't know how you get that from these numbers. Pretty much every poll that's come out since the speech has shown a quite sizeable bounce, proving me utterly wrong about the speech's appeal. (Which is not surprising, since what would really appeal to me is if Obama had brought a laptop, a copy of STATS and a few Oracle databases worth of data . . . )
Maybe the bounce will go back down; they often do. But it's pretty hard to deny that there has been a noticeable improvement in the appeal of both health care reform, and Barack Obama, since last week. Wishful thinking will not help advance your cause, and in this case, it won't even make you feel better if things go awry. Yes, yes, I know, concern troll and all that. The fact remains. Folks still like him, and they're even starting to like his health care plans, such as they are.
Right to Death
I think I just mentioned that I think protests are counterproductive. I'm also pro-choice. And I take a very dim view of people waving gross-out anti-abortion signs in front of schools, though, of course (she said tiredly) I fully respect their constitutional right to do so. I doubt that Jerry Pouillon and I would have much enjoyed sitting down for small-talk over an icy beverage.
Nonetheless. I don't think it helps the pro-choice side when a New York Times reporter writes an article on the fellow who was shot the other day and does everything but headline it "He was asking for it!" By the end, I was half expecting a quote to the effect that he liked to wear short skirts and bum cigarettes off of married men in bars.
The Future of Finance
Obama gave a speech today on financial regulation. The core of it:
First, we're proposing new rules to protect consumers and a new
Consumer Financial Protection Agency to enforce those rules. This
crisis was not just the result of decisions made by the mightiest of
financial firms. It was also the result of decisions made by ordinary
Americans to open credit cards and take on mortgages. And while there
were many who took out loans they knew they couldn't afford, there were
also millions of Americans who signed contracts they didn't fully
understand offered by lenders who didn't always tell the truth.
This is in part because there is no single agency charged with
making sure it doesn't happen. That is what we'll change. The Consumer
Financial Protection Agency will have the power to ensure that
consumers get information that is clear and concise, and to prevent the
worst kinds of abuses. Consumers shouldn't have to worry about loan
contracts designed to be unintelligible, hidden fees attached to their
mortgages, and financial penalties - whether through a credit card or
debit card - that appear without warning on their statements. And
responsible lenders, including community banks, doing the right thing
shouldn't have to worry about ruinous competition from unregulated
competitors.
Now there are those who are suggesting that somehow this will
restrict the choices available to consumers. Nothing could be further
from the truth. The lack of clear rules in the past meant we had
innovation of the wrong kind: the firm that could make its products
look best by doing the best job of hiding the real costs won. For
example, we had "teaser" rates on credit cards and mortgages that lured
people in and then surprised them with big rate increases. By setting
ground rules, we'll increase the kind of competition that actually
provides people better and greater choices, as companies compete to
offer the best product, not the one that's most complex or confusing.
Second, we've got to close the loopholes that were at the heart of
the crisis. Where there were gaps in the rules, regulators lacked the
authority to take action. Where there were overlaps, regulators often
lacked accountability for inaction. These weaknesses in oversight
engendered systematic, and systemic, abuse.
Under existing rules, some companies can actually shop for the
regulator of their choice - and others, like hedge funds, can operate
outside of the regulatory system altogether. We've seen the development
of financial instruments, like derivatives and credit default swaps,
without anyone examining the risks or regulating all of the players.
And we've seen lenders profit by providing loans to borrowers who they
knew would never repay, because the lender offloaded the loan and the
consequences to someone else. Those who refuse to game the system are
at a disadvantage.
Now, one of the main reasons this crisis could take place is that
many agencies and regulators were responsible for oversight of
individual financial firms and their subsidiaries, but no one was
responsible for protecting the whole system. In other words, regulators
were charged with seeing the trees, but not the forest. And even then,
some firms that posed a "systemic risk" were not regulated as strongly
as others, exploiting loopholes in the system to take on greater risk
with less scrutiny. As a result, the failure of one firm threatened the
viability of many others. We were facing one of the largest financial
crises in history and those responsible for oversight were caught off
guard and without the authority to act.
That's why we'll create clear accountability and responsibility for
regulating large financial firms that pose a systemic risk. While
holding the Federal Reserve fully accountable for regulation of the
largest, most interconnected firms, we'll create an oversight council
to bring together regulators from across markets to share information,
to identify gaps in regulation, and to tackle issues that don't fit
neatly into an organizational chart. We'll also require these financial
firms to meet stronger capital and liquidity requirements and observe
greater constraints on their risky behavior. That's one of the lessons
of the past year. The only way to avoid a crisis of this magnitude is
to ensure that large firms can't take risks that threaten our entire
financial system, and to make sure they have the resources to weather
even the worst of economic storms.
Even as we've proposed safeguards to make the failure of large and
interconnected firms less likely, we've also proposed creating what's
called "resolution authority" in the event that such a failure happens
and poses a threat to the stability of the financial system. This is
intended to put an end to the idea that some firms are "too big to
fail." For a market to function, those who invest and lend in that
market must believe that their money is actually at risk. And the
system as a whole isn't safe until it is safe from the failure of any
individual institution.
If a bank approaches insolvency, we have a process through the FDIC
that protects depositors and maintains confidence in the banking
system. This process was created during the Great Depression when the
failure of one bank led to runs on other banks, which in turn
threatened the banking system. And it works. Yet we don't have any kind
of process in place to contain the failure of a Lehman Brothers or AIG
or any of the largest and most interconnected financial firms in our
country.
That's why, when this crisis began, crucial decisions about what
would happen to some of the world's biggest companies - companies
employing tens of thousands of people and holding trillions of dollars
in assets - took place in hurried discussions in the middle of the
night. And that's why we've had to rely on taxpayer dollars. The only
resolution authority we currently have that would prevent a financial
meltdown involved tapping the Federal Reserve or the federal treasury.
With so much at stake, we should not be forced to choose between
allowing a company to fall into a rapid and chaotic dissolution that
threatens the economy and innocent people, or forcing taxpayers to foot
the bill. Our plan would put the cost of a firm's failure on those who
own its stock and loaned it money. And if taxpayers ever have to step
in again to prevent a second Great Depression, the financial industry
will have to pay the taxpayer back - every cent.
The Consumer Financial Protection Agency, as I've written before, would seem more compelling if there were any substantial evidence that people have gone wrong for reasons that were less easily discernible than "I am using credit to buy consumption goods that are far, far outside of what people in my income group can usually afford". Even basically sympathetic accounts of the housing bubble always arrive at a moment where they ask someone how they thought they could afford to buy a house that cost six or eight times their annual income, or cash hundreds of thousands in equity out of a fairly modest home, and the people kind of shrug and blame it on the bank. Yes, the banks were stupid, but this required quite a bit of willful ignorance of reality on the part of the borrowers, too.
As for the notion that we will finally put together a system that will make the whole industry pay if its members require a bailout . . . that sounds hopeful, but there's a catch. The problem is, the time at which you realize that you need the money to pay for the massive bailout is the time at which you have a lot of weak companies that could be tipped over the edge by the additional levy, which is why the PBGC has been underfunded for as long as I've been writing about it. The problem is even more acute in the financial system.
Your best shot is at trying to structure firms that can withstand a crisis, and quickly shutter those that can't. The problem with that is that this was the mandate we gave our regulators before September 2008.
Why Not Extend Health Benefits to Illegal Immigrants?
In this week's Newsweek, Andrew Romano suggests that we should be eager to extend the boon of health insurance to illegal immigrants, because they're young and healthy, and will lower the average cost of the pool.
Here's the problem: illegal immigrants don't have any money. Not all illegal immigrants, of course. But as a group, they're really, really poor. According to Pew, almost 60% of illegals lack health insurance. A third of their children, and 21% of the adults, live in poverty. Also, "the median annual household income of unauthorized immigrants was $36,000, compared with $50,000 for people born in the United States. These differences in household income are particularly notable because the unauthorized immigrant households have more workers per household on average (1.75) than U.S.-born households (1.23)."
Romano, like many commentators, seems to be confusing average with total cost. Yes, adding illegal immigrants to the pool will probably lower the average cost, because they are younger than the average American. But that only lowers the average cost. It still costs you extra money to care for each undocumented worker. Pooling only works if the younger, healthier members bring in more money in premiums than they cost in benefits. And the illegal immigrants really don't have a lot of money to shell out in premiums.
So no, this is not all that likely to be a net fiscal benefit. It might be a good way to make hiring illegals unattractive, as Romano suggests--except that there are, apparently, many employers in America willing to take the highly illegal step of paying undocumented workers off the books. Adding a requirement that they pay imaginary health insurance on top of the imaginary taxes and imaginary minimum wage they are paying now will probably not much faze them.
Unlike many of these tea-partiers and their supporters, I actually took
on the Bush administration's big government tendencies, fiscal
recklessness and massive expansion of executive power at the time (and
was largely cast out of the conservative coalition as a result). I
opposed the Medicare prescription drug benefit as unaffordable - and no
one can argue that what looks like the current healthcare reform would
cripple future finances as profoundly as that Bush entitlement.
Call me "no one" then: I don't see how you even could argue that this bill will cost less than Medicare Part D. I mean, we don't have a bill, so technically, who knows. We have a series of statements that Obama wants to do a bunch of stuff that does not really sum to the $900 billion he promised--his plan seems, from the vague description to be more generous on the benefit side, and less stringent on the revenue side, than the one put forward by Max Baucus at the same price.
But you want to add 20-30 million to the insurance rolls, many of whom require subsidy. A substantial portion of those will be going straight to Medicaid. Obama has pegged the 10 year cost at $900 billion, a figure that is not likely to be too low high. The annual cost of Medicare Part D, even leaving premiums the retirees pay, is less than 50 billion according to the Medicare trustees.
Yes, yes, Obama says he'll pay for it. We pay for Medicare Part D, too, with premiums . . . sort of. Even assuming that seniors will let you take away the Medicare Advantage "overpayments" which currently fund extra benefits for those in the plan, this will save only $149 billion over a 10-year period. And that's the concrete, politically likely part of Obama's plan. All the other parts, like the excise tax on "Cadillac coverage", are either politically trickier, raise little money, or both. Moreover, unless the "automatic spending cuts" that Obama has promised actually work, after the ten year window, the thing explodes. And automatic spending cuts have been tried and failed with Medicare already.
In the late 1990s, Congress enacted a rule saying that if costs grew too fast, there would be automatic cuts to doctor reimbursements. The problem is that just as with the AMT, every year, Congress ritually repeals them, because if they don't, the doctors will stop taking Medicare patients, who are already not very profitable. So the "automatic spending cuts" have so far saved approximately zero dollars; depending on who you ask, doctors are now overpaid by 20-40%.
In short, it is not only not true that "no one" believes that this will cost more than Medicare Part D, it's not really very reasonable for anyone to disbelieve it. We are, after all, preparing to provide health care for millions of more people, who will not only be consuming prescription drugs, but also heart catheterization and asthma treatment and the leg amputations that doctors apparently prefer to providing routine diabetes care. Prescription drug costs are on the order of 10% of overall spending, even for Medicare.
Of course, maybe Obama will succeed in cutting costs and thereby pay for his program. But if he cuts costs for the new people, he'll cut costs for Medicare Part D, too.
That doesn't mean that it's a bad idea, of course. But you cannot be credibly mad at Bush for the budget problem inherent in Medicare Part D, and give Obama a pass. This is a bigger entitlement that has the potential to be a much, much bigger disaster for our political system, for our budget, and potentially even for the beneficiaries, then a modest prescription drug benefit for Medicare's 45 million beneficiaries. Me, I was against both of them. But I'm funny that way.
Stepping Up the Heat
My favorite new attack ad: Republicans voted to end Medicare
This is, of course, not, well, er, true. But you have to admire the brazenness of the thing. And I'd really like to know whether this sort of thing works, or whether it comes across as so ludicrous that people start wondering about the Democrats' sanity.
Why not just tell the truth: Republicans essentially voted in favor
of turning Medicare over to private industry. With only a few words of
explanation, this could easily be more effective than the ad that
actually ran. Like so:
Republicans voted to turn Medicare over to private insurance
companies! You heard right: they want to hand Medicare over to the
same companies that [insert two or three insurance company outrages
here, maybe a Wall Street reference, something about profits over
people, etc.]. Democrats will never do that. Blah blah blah.
Would that really be any less scary than the ad that actually ran?
Or is the DNC afraid that the urban legends are true, and everyone
thinks Medicare is a private plan already?
Because part of it is a private plan, at least as much as the one described in the ad. It's called Medicare Advantage, about 25% of seniors, and growing, are already on it, and they like it.
The Party's Over
Conor Friedersdorf and I share an aversion to protests, on the grounds that they rarely work. But he adds: "If you're going to have a big protest -- or even a mid-sized family
reunion -- you can't help it that some loonies are gonna show up. This
is part of why I am averse to big protests, but it's also why no one
should judge the average protester by the looniest signs that
surrounded them."
To me, this is why protests are a bad idea. You will always be judged by your looniest adherents, in part because badly hand-lettered signs with ho-hum slogans at a PTA level of anger are just not very photogenic. Unless you can police your movement as effectively as, say, the Civil Rights marchers did, you will likely end up giving your political enemies ammunition. And of course, the Civil Rights movement was more easily able to present a united front because people who acted anything but saintly in their Sunday best were very likely to be beaten by the actual police.
That said, I confess I am surprised--though I probably shouldn't be--to see a respected anti-war libertarian site, whose proprietor got quite testy when people lumped him in with the ANSWER goons and the puppeteers, embracing the notion that the worst signs you can photograph from an event represent the collective point-of-view of everyone who attended the protest. One knows this will happen, which is why, as I say, protests are generally a bad idea. But one doesn't expect this sort of gross generalization from every quarter.
On a side note, I find the question of how many people attended quite interesting. I don't see how you can make these photos jibe with the low-tens-of-thousands estimates left-wing blogs are pushing. I also don't know how anyone ever thought millions were possible, when the inauguration involved months of planning and millions of dollars to pack people onto the mall like sardines. But what I really don't understand is how a New York Times headline writer got to "thousands", which is the size of the crowd at a decent high school football game. Crowd estimates are an uncertain science, and the police have stopped doing them precisely because everyone gets so emotionally involved in distorting them. But this is perhaps the most dramatic example of this I've seen.
The End of An Era
I think that ACORN is probably not long for this world. One set of organizers willing to help a pimp and a prostitute set up a brothel is disturbing. Two, in different cities, is a sign of some deep, deep problems with the organization. And Breitbart's new site played this for maximum effect, holding back the second video until ACORN committed itself to saying this was an isolated invident. The Census has already severed ties. I expect other government agencies will soon follow suit. And government money is ACORN's oxygen.
September 11, 2009
Doing the Math on the Uninsured
Peter Orszag walks us through the decision to downgrade the number of American citizens who cannot afford health insurance to "more than 30 million".
Last night, President Obama stated: "We are the only democracy--the
only advanced democracy on Earth--the only wealthy nation--that allows
such hardship for millions of its people. There are now more than 30
million American citizens who cannot get coverage."
Today, the Bureau of the Census released the most recent data on the number of uninsured Americans. The report, Income, Poverty, and Health Insurance Coverage in the United States: 2008, reveals
that 46 million people were uninsured in 2008, the last year for which
there are data. These data are based on the Current Population
Survey. With two different numbers, there has been some confusion as to
which is accurate. Well, both are -- and the President's version is
more focused on the relevant target population for health reform since
it excludes unauthorized immigrants.
The Census report indicates that of the 46 million uninsured
individuals, 34 million were native born and 2.8 million were
naturalized citizens. The report thus shows that there were 36.8
million uninsured U.S. citizens (native born and naturalized) in
2008. An alternative calculation includes legal immigrants, which based
on a figure from the Pew Hispanic Center would bring the total to
something like 39 million.
Some ambiguity surrounds how to treat individuals who are already
eligible for public insurance programs like Medicaid and S-CHIP but do
not enroll in those programs, which estimates from the Kaiser Commission on Medicaid and the Uninsured suggest
may amount to millions of individuals. These individuals are uninsured
but some interpretations would suggest they should not be counted among
those who "cannot get" coverage. Subtracting them from the total would
produce a number closer to 30 million.
To be conservative, the President thus stated that "more than 30 million American citizens" cannot get coverage.
I can't get this math to work. The actual number of the uninsured, according to the census, is 46.3 million. Of those, 36.8 million were natives of the US or naturalized citizens. There is no "alternate figure" for the number of American citizens that includes legal residents. Legally resident immigrants are fine people. But they are, definitionally, not American citizens.
Now when I click through to the Kaiser link that Orszag provides, I find that it says that "A quarter of the uninsured (11 million) are eligible for public programs but not enrolled." 36.8mm - 11mm is 25.8 million, not more than 30 million. But of course, that 11 million figure is from 2007 and will have grown, because that's what population statistics do--there's no evidence that we've gotten better at enrolling people in Medicaid since 2007. I mean, the Medicare rolls have gone up. But the number of poor people went up in tandem. Demographics being what they are, the number of seniors on Medicaid for nursing home care went up as well.
So it's actually something less than 25.8 million. How much less? Dunno.
A "conservative" estimate would have been "more than 20 million American citizens", not "more than 30 million".
Of course, if they'd wanted to be really conservative, they would have grappled with the other figures in that study, such as the 15%--6.7 million +/- natural growth--that Kaiser designated as being able to afford health insurance. To be fair, the study also concluded that some of them might have difficulty obtaining it for various reasons, so it's hard to know exactly how many of them to include. Still, the number of people who can afford insurance, but choose not to buy it, is not zero, or even close to zero. Indeed, their existence is implied in the very fact that reform advocates are expecting to use their premiums, through the magic of pooling, to help pay for the uninsurable, and the indigent. If they don't exist, we're in even deeper financial trouble than we thought.
But really, in most states, an income of $66,000 for a family of four, or $32,000 for a single, is not too poor to spend several hundred dollars a month on insuring against a catastrophic health event, which is how much insurance costs when you risk rate it, include cost sharing, and don't load it up with mandatory coverage. Obviously, there are exceptions: people in high cost cities that mandate high cost policies (New York), and people who have a gnarly pre-existing condition that makes them uninsurable. But you should probably account for the rest, somehow, if you are going to talk about those who are "unable" to obtain insurance.
Someone trying to be truly conservative would also have attempted to control for the fact that government figures tend to show that only around half of the uninsured lack insurance for as much as a year--though of course, that too, is tricky, because it seems that 40% of the very long-term uninsured are Hispanic, and we have to assume that a lot of those are illegal immigrants, who would be the group most likely to lack insurance. We already threw them out of the sample. Trying to back a reasonable modifier out of that would be hell.
Still, once you adjust for (mostly young people) who are choosing not to buy insurance, and families taking a short term gamble between jobs, neither of whom I think can technically be said to be "unable to afford insurance", you're conservatively going to end up with a number below 20 million. Generously, a serious "conservative estimate" would be "more than 15 million". But of course, the administration does not really want to be conservative; they want to have the flashiest numbers possible for their plan. All administrations do.
Still, even if you say that my modifications are too indeterminate (fair enough), and go back to the figures that Orszag himself laid out, his calculations are off by millions of people.
Does it matter? 15 or 20 or 25 million people is still a lot of people. But it matters for the same reason that the difference between 66% and 80% matters. You can't have a debate where everyone gets to bring their own statistics.
What Does Olympia Snowe Want?
Ezra Klein is puzzled. On the one hand, she wants a lower price tag. On the other hand, she wants more generous subsidies.
I think what Olympia Snowe wants is not to vote for an unpopular health care bill that pisses off her constituents. She's already the Republican who enabled the stimulus. If she does this, she's going to have to leave the party. The electoral history of Lieberman, Jeffords, and Specter does not indicate that leaving your party for the other side is the gateway to an exciting and rewarding electoral career. If she leaves the party and Republicans regain the Senate, they will take their revenge.
Maine has had an unpleasant recent experience with guaranteed issue and community rating. It's a high cost state even for employer based insurance, which means that more of its citizens are likely to get hit with the excise tax on "Cadillac coverage" that seems to be on the table.
The problem is that what she wants--a cheap bill that doesn't either force a bunch of people to buy coverage they can't afford, or leave a bunch of people uninsured--is not possible. I assume that she actually knows this. So her public dithering means one of two things: she has decided to break with her party, and she wants to signal how difficult this decision is; or she has decided to torpedo the hope of busting a filibuster, and wants to signal to her Democratic constituents that she was forced to it by a bad plan. Which is it? Only God and Olympia Snowe know.
I will say that she must know that time is not the friend of the Democrats on the issue. The longer this drags out, the more opportunity there is for something to go wrong. Every time the Republicans force them to take some bad-sounding provision out of the bill, public trust erodes. So the longer she dithers, the less helpful she is to the Democrats. She may be hoping that if she holds out long enough, the Democrats will break ranks and she won't have to make a painful choice. This does not seem very likely to me. But what does it cost her to try?
It's basically fine, though, except for this one paragraph that's become pundit conventional wisdom lately:
It is revealing that Obama is facing nearly unanimous Republican
opposition on health care just four years after President Bush couldn't
persuade a single congressional Democrat to back his comparably
ambitious Social Security restructuring.
I understand why people write stuff like this, and the parallels are
strong enough to make it defensible. But is it really true?
Maybe I'm remembering things through partisan-colored glasses, but
my recollection is that there are some pretty significant differences
here. First, George Bush never sought out any compromise at all.
He insisted on a pure, budget-busting carve-out privatization scheme
and never gave Democrats so much as a chance to make a deal. But what
if he'd made it clear that he was open to compromise? Say, part
carve-out, part add-on, and with a modest collection of benefit cuts
and tax increases to go along with it? I suspect a lot of Dems would
have been open to something like that, but Bush never gave them a
chance.
Second, it wasn't just Democratic opposition that killed Social
Security privatization. Thanks to Bush's intransigence, his plan
became so radioactive that even a lot of Republicans didn't support
it. By the time Congress returned from its summer recess, it was
obviously DOA and no bill was even introduced.
There are obvious superficial similarities between Social Security
in 2005 and healthcare reform in 2009. But in the former, Bush
outlined a purely conservative proposal and never gave an inch on it.
In the latter, Obama has outlined a generally liberal proposal but
allowed some give and take with Republicans.
I don't understand. What Kevin is outlining as the "moderate" option that Bush refused to offer seems to me to be almost exactly what Bush was proposing:
Who could open an investment account? The accounts are
voluntary. But participation would be phased in over three years
according to age. In the first year -- 2009 -- workers born from 1950
to 1965 could open accounts. In the second year, workers born from 1950
to 1978 could open accounts. In the third year, anyone born after 1950
could opt for an account.
How much payroll tax would be diverted to individual investment accounts?
President Bush indicated that eventually, workers would be permitted to
invest up to a third of the 12.4 percent payroll tax that they and
their employers pay on their wages. (Workers pay 6.2 percent and their
employers pay the other 6.2 percent.)
Annual contributions would be capped at $1,000 in 2009 and thereafter rise slightly more than $100 per year.
. . .
What other options would the president consider to make Social Security solvent?
President Bush again ruled out increasing the payroll tax -- which is
12.4 percent of one's wages up to a certain cap ($90,000 this year).
But in his remarks Wednesday he said, "fixing Social Security
permanently will require an open, candid review of the options. ... I
will work with members of Congress to find the most effective
combination of reforms."
Among those he cited as "on the table" were:
limiting benefits for wealthy retirees;
indexing benefits to prices rather than wages;
increasing the retirement age; and
discouraging taking Social Security benefits early.
I also believe that it always commanded majority support among Republican voters; Congress caved when too few Democrats and independents were willing to go along. Nor was this any more radical than a massive new health care benefit you plan to "pay for" mostly with fictional spending cuts. Partial private accounts were instituted in Sweden fer goshsakes. Over the long run, a portfolio of stocks transitioned to a portfolio of bonds is still a much better bet than Social Security benefits, and of course, 2/3 of the system would still have been the traditional Social Security.
Democrats were against it because a) this would make it harder to use the system as a progressive transfer and b) scaring the bejeesus out of senior citizens is an excellent, excellent way to take a political scalp. In 2005, you heard exactly the same cry from Republicans that Democrats are raising now: "What's your plan, bozo?" Democrats steadfastly refused to put any serious alternative forward until private accounts were taken off the table. Kevin's belief that Democrats would have been willing to compromise if Republicans hadn't been so damn partisan just isn't true. They insisted that Republicans give up the one thing they wanted in order to even start talking about reform. That's not the act of a party that is willing to make a deal.
Healthcare: Parsing the Polls and Focus Groups
Well, we've got the first of the very preliminary poll ratings on the healthcare speech. Rasmussen, predictibly, says that the bounce wasn't that big, and consisted almost entirely of rising support in the president's own party; Rasmussen's results are almost always considerably more negative for Democrats than other polls. Meanwhile, my esteemed colleague has obtained an internal Democratic memo on their focus grouping:
Research conducted with 49 voters in Tempe, Arizona by David Binder,
who was Obama's campaign focus group guru, suggests to Democrats that
the speech was "effective at alleviating concerns of voters
and impressing upon them that the President has a strong plan to reform
health care," the memo says. "Even among those voters who held neutral
or negative opinions of the President, substantial positive movement
was shown as the proportion of these participants supporting the
President's plan increased by nearly 40% after the speech.
Let's break that apart. In the latest independent poll I'm aware of, the pre-speech support for the health care plan was at 29% among independents, 10% among Republicans, and 37% overall. A "nearly 40% increase in those numbers" means something under 40% support among independents, 14% among Republicans, and still solidly less-than-50% overall. Getting more support among Democrats doesn't help him--they'll mostly vote for Democrats anyway.
Some other thoughts:
Focus groups are problematic; it's very hard for those who run them to keep their biases from subtly affecting the results, and the sample is necessarily very small.
Democrats may not need majority support to strengthen their legislators' spines; they may just need to tip the balance from 37% in favor and 39% against to 39% in favor and 37% against, figuring the undecideds won't vote on it. On the other hand, my sense is that independents tend to break against both incumbents and policies, rather than for. Witness the storied history of Social Security Reform polling. People actually got more anxious about the state of Social Security as things went on--but also became less willing to change it.
Bounces have half-lives. The real action comes as Republicans and Democrats start their final push. The fact that Max Baucus is scrambling on the illegal immigration issue suggests that Joe Wilson didn't hurt Republicans as much as I initially thought--or at least, he simultaneously dealt a blow to Democrats.
So split the difference between the Democrats and Rasmussen: support probably rose modestly among independents, strongly among Democrats, and fell or stayed pat among Republicans. The Republican support was so low that it really isn't a factor. It will all hinge on what the independents do. And indeed, though this CBS poll shows that more people support the plan than before, and Obama's approval rating has flipped on the issue, more people still think that the reforms will hurt them than help them, and more think that Obama has not clearly explained his plans, than that he has. Which is about what we'd expect from a moderate speech bump. But hell, in the history of political speeches, moving the dial a little bit is a rousing success.
Still, what will really matter is whether Obama manages to seize this bump and move it forward. If he doesn't, the modest improvement will dissipate into fall busyness.
Developing . . .
Update: Nate Silver points out that more Democrats probably watched the speech than independents or Republicans . . . but says that their votes matter too.
Anti-abortion Protester Shot and Killed
An anti-abortion activist has been shot and killed in Michigan. It seems to be linked to another homicide in the area, so this seems more like a lone lunatic than a political killing, at least for the nonce. I certainly hope so. The abortion wars are quite damaging enough without further escalating the reprehensible violence.
I also hope that if it does turn out to be someone with a political agenda, the right can manage to refrain from claiming that this is really a symptom of some dark rot at the center of liberalism. You hate it when liberals give into the temptation of this sort of bigoted partisan nonsense, and if you really want to piss them off, set an example they'll be forced to live up to.
Update: Yup, looks like he was targeted because of his protests. Prepare for the demands that every liberal commenter repudiate this, and liberal commentators complaining when pro-lifers make a public show of mourning their martyr. Happy Friday, everyone.
At a town-hall meeting in Portsmouth, N.H., last month, our
uninformed lawyer in chief suggested that we physicians would rather
chop off a foot than manage diabetes since we would make more money
doing surgery. Then President Obama compounded his attack by claiming a
doctor's reimbursement is between "$30,000" and "$50,000" for such
amputations! (Actually, such surgery costs only about $1,500.)
Physicians have never been so insulted. Because of these affronts, I
will gladly volunteer for the important duty of controlling and
regulating lawyers. Since most of what lawyers do is repetitive
boilerplate or pushing paper, physicians would have no problem
dictating what is appropriate for attorneys. We physicians know much
more about legal practice than lawyers do about medicine.
Following are highlights of a proposed bill authorizing the
dismantling of the current framework of law practice and instituting
socialized legal care:
• Contingency fees will be discouraged, and eventually outlawed, over a five-year period.
This will put legal rewards back into the pockets of the deserving--the
public and the aggrieved parties. Slick lawyers taking their "cut"
smacks of a bookie operation. Attorneys will be permitted to keep up to
3% in contingency cases, the remainder going into a pool for poor
people.
• Legal "DRGs." Each potential legal situation will be
assigned a relative value, and charges limited to this amount. Program
participation and acceptance of this amount is mandatory, regardless of
the number of hours spent on the matter. Government schedules of flat
fees for each service, analogous to medicine's Diagnosis Related Groups
(DRGs), will be issued. For example, any divorce will have a set fee
of, say, $1,000, regardless of its simplicity or complexity. This will
eliminate shady hourly billing. Niggling fees such as $2 per page
photocopied or faxed would disappear. Who else nickels-and-dimes you
while at the same time charging hundreds of dollars per hour? I'm
surprised lawyers don't tack shipping and handling onto their bills.
The piece is a little over the top, but it does highlight a sort of odd feature of the arguments over health care: that medicine is a very, very special market unlike all other markets, and that the normal rules of supply and demand don't apply.
This argument has always been a little thin. When you prove that health insurance markets can't function because of adverse selection, you're also proving that no other insurance market can exist, because most customers have much better information about their relative risk than the insurance company does. How do insurance companies deal with this problem? Risk rating and recission--they ask you about your risks, and if you lied to them on the insurance application, they can adjust the payout to reflect the rate you should have been paying, or deny the claim entirely.
Likewise, the argument that consumers find it hard to make informed decisions on healthcare is true of many services, particularly professional services. Do you know whether your lawyer is doing a good job? If so, how? Unless he's actually dozing through the trial or forgetting your name and the pertinent details of your case, you don't have any very good way of evaluating his work. Is the house you're buying going to be snug or drafty? Did your auto mechanic do a good job on your car? In most cases, the answer is . . . shrug.
Yet most lawyers could readily explain why trying to pay every lawyer in the country on a flat-fee basis based on what some bureaucrat thinks it should cost to take a case would probably not result in optimal outcomes. Indeed, most every professional, from engineers to journalists, would reject such a scheme for their own profession in short order. So why do these things sound so sensible when the target is wearing a white coat?
Where's Osama?
Every year, I'm surprised by the way it still punches me in the gut. I was closer to 9/11 than most people: just out of business school, huge numbers of my friends and classmates were working down there. I was living with my parents a few miles uptown. And of course, I ended up working at the disaster recovery site for almost a year. I knew a number of people who died, including someone I dated. When I watch the President and the First Lady standing, hands over hearts, as Taps is played, it is of them that I think . . . and the thousands of faces that were posted on flyers all over downtown, all of them beaming out happy and unknowing from their snapshots.
The rage for revenge, though, has abated, at least on my part. Capturing Osama will not give any of those people another breath. I care only insofar as it helps us prevent another attack, either because we cripple Al Qaeda, or pour encourager les autres. Will we? Unlikely, but maybe. I'm told that the Taliban's popularity is waning rapidly in Pakistan, thanks to some ill-thought-out attack on the Sri Lankan cricket team, and a horrifying video of Taliban members beating a girl in Swat. On the other hand, I'm not really convinced that he isn't dead. So Al Qaeda gets its propaganda victory. On the other hand, we got eight years free of terrorist attacks.
September 10, 2009
Confessions of a Swing Voter
As longtime readers know, I am related to The Swing Voter, which is to say, my mother is usually a surprisingly reliable barometer of public sentiment. She loved the speech and thinks Republicans need to put something real on the table. She was shocked and appalled by the Joe Wilson booing. Until we get more reliable polls, I would assume that this was the general sentiment among independents.
The Joe Wilson Backlash
One wild-card in all of this is how Congressman Joe Wilson's shout of "Liar!" when Obama said that his plan wouldn't cover illegal immigrants. Wilson's opponent says he's raised almost $100,000 since that very special television moment aired. Will Wilson help Obama pass a health care bill?
Pro: backlashes do happen. This kind of rank incivility may well make people view the foofooraw at the August town hall meetings in a different, more negative light.
Con: Wilson has already apologized, both in a call to the White House, and in a published statement. Other Republicans have jumped on him. They may succeed in casting this as a lone moment of intemperance from someone temporarily unhinged, rather than a symptom of the broader nastiness in the conservative movement.
Overall, I can't see how this could help triggering sympathy for Obama. But I don't know if the effect will be big enough to make much difference. I do know that the Republicans had better play very, very nice for the rest of this debate.
Update: One commenter argues that this could actually help, by moving the focus to illegal aliens
I think this is a win for Republicans as well, in that it calls
attention to a point that Democrats would prefer remains unexamined --
coverage of illegal aliens.
I was not aware of this issue until the post-speech coverage last night. I am sure others will be made aware of this as well.
Possible, but likely? I dunno. I think predicting how these things are going to play out in the news cycle is a generally unrewarding task.
Forcing a Filibuster
The idea is popular among a lot of Democrats impatient with the Republican minority's ability to block their bills--just as it was popular with Republicans when Democrats were filibustering their judicial nominees. While the idea of a Jimmy Stewart type marathon is appealing, this article lays out, at more length than I've ever seen, why that the majority can't actually force a minority to do it.
September 9, 2009
Why Has Obama Downgraded the Number of Uninsured?
Byron York notes that Obama started talking about 30 million uninsured citizens tonight, rather than 47 million "people in this country". The question is, why? Politicians don't usually underplay their most dramatic statistic.
I can explain most of it with this table. There were 45,657,000 people without insurance in the 2007 Census estimate. 12,388,000 of those were foreign born, and 9,737,000 were not citizens, leaving 33,269,000. I assume Obama is leaving room to ensure that no one can claim that he is going to cover illegal immigrants (or for that matter, legal ones). But that still leaves 3 million people unaccounted for.
Waste, Fraud and Abuse
Mickey Kaus liked the speech better than I did, but wonders about this:
Orszagism: Still there, but gets an image makeover. In it's new, airbrushed form, we're told that "our health care problem is our deficit problem" (which it is) but not that Obama's reforms are necessarily the solution
to the deficit problem (which they aren't, even if they'll work--you
could also raise taxes or cut spending elsewhere). The content of those
long-term structural reforms is redefined along free-lunch, no-grandiose lines:
only "waste and abuse" that does "nothing to improve your care" will be
targeted. That's a relief! Only "common sense best practices" will be
encouraged by the new cost-cutting panel. All building up to the central iffy policy pitch
[W]e've estimated that most of this plan can be paid for by finding savings within the existing health care system
Reducing the waste and inefficiency in Medicare and Medicaid will pay for most of this plan ..
a) Does anyone really believe this--that is, if you
define waste and inefficience as things that don't actually help
improve your health, as opposed to things that might improve your
health marginally but aren't worth the cost? b)
Specifically, does the average Medicare recipient feel that the system
that he enjoys is rife with waste, inefficiency, fraud, and abuse? I
suspect not. This seems like the greatest point of vulnerability in the speech;
Ah, our old friends, waste, fraud, and abuse, the bane of politicians everywhere. Based on the number of politicians I have heard during my adult lifetime promising to generate massive savings from cutting waste, fraud, and abuse, I estimate that this diabolical trio accounts for approximately 113% of all Federal spending. The percentage may be even higher at the state and local levels.
It was not actually a bad speech, and no more than ordinarily filled with political fairy stories. But it wasn't a good speech, certainly not good enough. I don't think this speech persuaded many people not to worry about the health care plan: it made it sound complicated, wonky, and uncertain. And it is people's worries that need to be overcome more than their hopes need to be stoked. People who already loved Obama, and his health care plans, whatever they were, still love Obama, and his health care sort-of-plans. But I just don't see this massively shifting the game.
Meanwhile, I'm not sure that WF&A really cuts it any more. As Mickey Kaus says, I doubt most people consider Medicare to be full of fraud. But more to the point, politicians have been promising to pay for their programs, or their tax cuts, with our old friends for a long, long time. Has everyone really failed to notice that the savings never materialize?
Well, hell, maybe. Hope springs eternal and all that.
Reducing the waste and inefficiency in
Medicare and Medicaid will pay for most of this plan.
And if we don't pass this plan, does he intend to keep the waste and inefficiency, out of spite?
Health Care Speech: Wrapup
So, the speech. Here's what we've got:
Guaranteed issue
Community rating
Portability
Exchanges
Mandate
Deficit neutrality
The public option is negotiable
In other words, virtually nothing that we haven't heard before. The most powerful parts were the beginning and end, but I wonder how many people were watching by the end. Television is not a good medium for detailed policy. The need to lay out all of these details interfered with the normally stirring flow of his rhetoric. Interjecting attacks on Republicans and insurance companies did little to liven it up.
At least the Republicans have a set of talking points that everyone hasn't heard already, though about all you can say about the Republican response is, well, erm . . . he's not nearly as robotic as Sebelius was!
However, I think the line he's taking is smart. Start over and do it on a bipartisan basis, which polls well. Don't add another layer of hard-to-understand bureaucracy. Don't break the budget. They're putting out a platform of modest, easy to understand reforms that can be done "without destroying jobs, exploding the deficit, rationing care, or taking away the freedoms American families cherish." Emphasizing their desire for a bipartisan package is going to make it harder for Democrats to push this through on their own. But only if they actually get that message out early, consistently, and often. Republicans have not exactly been bringing their A game recently.
In the end, I think this speech satisfied no one. There's a little information for the wonks, but not nearly enough. There's a little stirring rhetoric for the non-wonks, but again, not nearly enough. Journalists seem to have liked it. But if journalists were any reliable key to the sentiment of the American people, we'd already have national healthcare, and national second homes in Maine.
Overall, I'd expect a modest bump, but one that will be sorely tested as Republicans roll out their attacks.
Running Thoughts on the Obama Speech
Saying we've been trying to do this for 100 years is an excellent tactic, though to be sure, not exactly unexpected.
Saying we are the only advanced democracy on earth that has this sort of system is not a good political move: Americans do not like arguments along the lines of "But how will we look to the French?"
Obama is dropping a lot of statistics about the uninsured, including a note that one in three Americans will be uninsured at some point over the course of two years. I wonder if this isn't counterproductive. When you get to numbers that size, people start gut checking them against their experience, and that of their neighbors. Have one in three of the people you know gone without treatment because they were uninsured? Not so much, particularly if you're not an immigrant, or under the age of thirty.
Recission is the most powerful argument Obama has. Unless we get either comprehensive high-risk reinsurance, or a mandate/guaranteed issue/community rating, this will continue to be a problem.
Democrats should not have clapped for a single payer system.
Obama says "The plan I am announcing tonight will meet three goals. It will provide more security and stability to those who have health care. It will provide insurance to those who don't. And it will slow the growth of costs for our families, our businesses, and our government." Unless he has a miracle in his pocket, this is not likely to be true.
Saying "Nothing in this plan will require you or your employer to change what you have" is probably the best he can do, but "trust your employer not to dump you on the private market" is not the best selling point when you're complaining about heartless companies rescinding people's coverage.
Preventative care may save lives, but it does not, as Obama just claimed, save money.
The exchange is too wonky. It even sounds boring when Obama is talking about it, and he's a good talker.
Also, he's making the exchange sound voluntary. What's the point?
He's offering immediate coverage for the uninsurable. Huh? How? Across state lines? Locally? Where's the money coming from? This is the group of people who are expensive to cover; if you move their coverage up four years, you'll bust the affordability, since part of the reason the various bills are supposed to be deficit-neutral over the next ten years is that the insurance doesn't kick in until 2013.
We've hit pillar numbers one, two, and three: guaranteed issue, community rating, and an individual mandate, though he did his best to sort of tuck that one in the back where it wasn't so noticeable. Where are the subsidies? How much will it cost?
Death panels are a lie spread by "prominent politicians". Sarah Palin's ears must be burning . . .
Reforms will not insure illegal immigrants. Democrats boo: bad move. What about legal immigrants, though? Paying for their health insurance is not going to be much more popular than paying for the illegals. Update: They seem to have been booing a Republican rep who yelled "lie!" or "liar!" when Obama claimed illegal aliens wouldn't be covered. This makes much more sense . . . but if I missed the shout out, so did other people. On the other hand, they might well just think it was the Republicans.
No funding of abortions.
"Consumers do better when there is choice and competition". As a friend tweets, why not school vouchers, then?
Obama says he doesn't want to demonize insurance companies--he just wants to hold them accountable. This is the best line of the night.
Public option would be great, but negotiable . . . same thing he's been saying for months.
Public option won't be subsidized. Claims that it will have to rely on premiums--can save money by eliminating profits, administrative costs, and flash executive salaries. Problem #1: most of the public insurers, like the FDIC and the PBGC, are currently underfunded. Problem #2: The public plan is going to have administrative costs, if it a) looks for fraud and b) collects premiums, neither of which Medicare really does--most premiums are deducted straight from social security checks.
Note from a commenter: "Blue Cross Blue Shield Alabama, the largest insurer in the state, is a non-profit." For those who didn't actually watch the speech, Obama singled out Alabama's dangerously concentrated insurance market as a huge problem.
The speech, overall, was dangerously wonky. I'm guessing a lot of people tuned out well before the end, and more probably can't hold the details in their head. The speech won't change much; this is going to be fought out in sound bites and attack ads.
I think the lecturing tone at the end is a mistake. Obama's trying to evoke community and can-do spirit, but it comes off like having, well, an elite university professor lecture you on your moral obligation to provide health care to a third party.
The complaints about Republicans at the end also didn't sound, to me, like they'll play well. Right now, more voters are on their side than yours. Don't tell them they're gullible dupes, and/or mean-spirited obstructionists.
Preview: Obama's Health Care Speech
Looking ahead to the speech, I think there are four key pillars of any health care plan: guaranteed issue, community rating, an individual mandate, and a subsidy. Obama has so far avoided talking about this too specifically, because he's got to navigate this bill through a very narrow political space. On the one hand, the bill can't cost too much, because the American people have sticker shock from the stimulus, the projected deficit is huge and keeps getting bigger, and there are no politically acceptable ways to pay for a huge program. On the other hand, if you have an individual mandate without generous subsidies, you have a bill that any halfway competent Republican could demagogue with one tongue tied behind his back.
I listened to the Republican talking points on the drive over, and here are the key ones:
You're adding a government bureaucracy on top of a health care bureaucracy, which is stupid
Obama's paying for this by cutting Medicare
Medicare is already going broke, so how are we going to pay for the new benefits?
Most people's health insurance works just fine, and it doesn't make sense to destroy the system to help the few who need it
Medical malpractice reform now!
Editorializing aside, these have the advantage of being mostly true, and fairly reasonable-sounding. Luckily for Obama, the skill of the Republican delivery ranged between "Fourth grade Christmas pageant" and "Assistant deacon at the 6 am mass".
Bob Dole had the best comment I heard on CSPAN: "If you get the votes, you can force the American public to swallow just about anything. But you can't make them keep it down." Earlier today, I was speaking with some pretty sharp political analysts, and I asked them why Social Security reform didn't pass? It was a legislative priority that Republican legislators and policy wonks strongly believed in, and had been readying the ground for in the decades since the Greenspan commission. But they couldn't do it.
At the end of the day, I was told, they couldn't get it out of committee because Republicans weren't willing to do this alone. Social Security reform commanded a majority among Republicans, but it was unpopular with independents, and Democrats hated it. They weren't willing to do it with no Democratic votes. They needed political cover, and they didn't get it.
Is this as risky as social security reform? Maybe, if you attach Medicare cuts to it--Democrats may hate Medicare Advantage, but the seniors who use it are presumably pretty attached. I'm struggling to think of a single instance in which we have succeeded in taking any significant service away from even a relatively small group of seniors. Maybe even without the Medicare cuts. Once you get specific, the sob stories are going to come out: the family of six who can't afford the family policy they'll be forced to buy, the widow who just loves her Medicare Advantage, etc. Yes, there will be sob stories on the other side. But people are loss averse. When faced with certain loss over a possible loss/possible gain, they tend to choose the certain loss. That's why scare ads work. Plus the uninsured are less likely to vote than the population as a whole, and in the case of immigrants, they can't.
So I think Democrats are left with two questions:
How much popularity will the bill lose? I think it loses some, because vague things tend to poll better than specific things. Vague things are a blank slate upon which you can project your wishes. Specific things have actual drawbacks. But other, wiser commentators disagree with me here; only time will tell.
Are Democrats willing to put over an unpopular bill with no political cover? The latest poll shows Obama's approval on health care at 42-52. Say it just stays where it is--are they going to muscle it through on a straight party line vote? The really marginal blue dogs are probably toast anyway, but they don't seem to see it that way. But what about the others? A lot of people are pushing the line that Democrats need this because it will boost Obama's popularity, and through it, their own. This rather assumes that ramming through a massive and unpopular bill will improve Obama's popularity. Would Republicans really have done better in 2006 if they had manned up and passed a bill without Democratic support? That's what Democrats need to decide--and if the answer is no, they need to ask themselves whether they're willing to sacrifice their careers on the altar of health care reform.
Judging from the excerpts that have been released, Obama's not going to change this much. If his speech moves the dial on the popularity of health care reform, he'll give them new backbone. But the excerpts are vague and don't say anything we haven't heard a lot of times before. Also, he's competing with several hundred cable channels, and So You Think You Can Dance--the ratings of his recent speeches haven't exactly been stellar. I think it's pretty iffy as to whether this is actually going to galvanize the American public to a whole new committment to health care.
Edutopia
Matt Yglesias dispenses with the notion that liberals aren't allowed to favor merit pay for teachers because this is "teacher bashing".
. . . the implication that the idea that pay should be differentiated
based on effectiveness constitutes "teacher-bashing" is bizarre. When
it comes to compensation, it seems to me that there's an easy way to
distinguish between people who have a favorable attitude toward
teachers and people who have a negative attitude toward teachers. If I
were interested in "teacher-bashing" I would think our society should
dedicate a smaller quantity of aggregate resources toward paying
teachers. In fact, I think we should dedicate a larger
quantity of resources toward paying teachers. That's because I think
education is important and evidence suggests that teacher quality is among the biggest non-demographic factors
in determining student achievement. Under the circumstances, it makes
sense to invest a lot of money in hiring and retaining teachers.
That said, once we've hit upon a given pot of money to spend on
teacher compensation, a question arises of how it should be divided up.
One way to divide it up would be evenly--each teacher could make the
same salary. That would, however, be a bit weird and we don't do it
that way. Instead, we pay teachers more the more experience they have,
and we also pay them more when the acquire master's degrees. As I said
yesterday, I think the only way to make sense of these forms of
differentiated pay is that they're already a system of "merit
pay." The point of paying higher salaries to people with advanced
degrees has to be the belief that teachers with advanced degrees are
more effective than teachers without advanced degree. It turns out to
be the case, however, that research says this is wrong.
I don't think it's "pro-teacher" to be giving teachers financial
incentives to essentially waste their time acquiring advanced degrees
that don't help them. This is simply an irrational way of divvying up
the compensation pot.
It makes a lot more sense to take that money and try to spread it
around in ways that better track actual teacher effectiveness. One
objection to this is that it's hard to do really well. And, indeed,
it's not easy to do perfectly.
At the same time, the fact that creating a better system would be
difficult isn't a very good reason to stick with a system that
definitely doesn't work. Either way, I don't really like the term
"merit pay" which I think is silly. Among other things, as I've said
nobody I'm aware of actually believes in paying teachers on a flat
salary schedule so the whole idea is a red herring. Paying more for
more experienced teachers makes sense, but currently we seem to be
giving more weight to seniority than it deserves. Paying more for extra
degrees makes no sense. Paying more for people with in-demand technical
skills makes sense. Paying more for people who take on more challenging
assignments in high-poverty classrooms makes sense. And trying harder
to directly measure and reward effectiveness also makes sense. But if
I'm "bashing" anyone it's purveyors of useless M. Ed. degrees.
This is one of those odd areas where Matt and I are in total agreement. We should pay teachers much more than we do. Right now, they take a substantial portion of their "pay" in the form of near-total job security. People like this benefit. But in most cases, they shouldn't have it, because it has predictible effects on performance--particularly when it is coupled with a pay scale that relies on measurable but not very useful traits like advanced degrees (totally useless) and seniority (the benefits of experience eventually level off). The only thing teachers have a financial incentive to do under this system is keep their butts in the teacher's chair, and acquire useless degrees from programs that mostly teach students how to sit through long and pointless classes.
The obvious thing to do is to strip the protections and up the pay, while using merit metrics to determine how that pay is allocated. But the union has very good reasons to resist this. For one thing, depending how you implement it, you'll substantially reduce the role that the union has in setting salaries, and thus its value to the membership. For another, more than 50% of their membership are, definitionally, average or below-average. Merit pay is probably not a good deal for them. Especially if they've spent valuable years of their lives acquiring useless M. Ed. degrees.
On a life-cycle basis, merit pay is only good for the minority of teachers who can produce outstanding results early and often. The rest used to have the comfort of knowing that they would eventually get to the top if they just ground away long enough. Hopefully, we can overcome this if we throw in enough money to sweeten the deal--as we should, anyway, if we want to attract great teachers. But it's a grinding battle everywhere it's been fought.
Drafted
Kevin Drum dares someone to defend the booming business in overdraft fees. Basically, a lot of people running their finances close to the line use their debit cards for small purchases, and find that each one has triggered an overdraft fee of $35. I wouldn't discourage a law making opt-out, rather than opt-in, overdraft mandatory. But what's to stop the bank from selling it to you at time of purchase? It probably sounds great if you're the kind of young or financially uneducated person who racks up a lot of overdraft fees. I have an overdraft because someone asked me during a routine call to Citibank, and I thought, sure, why not.
Meanwhile, we'll probably get annual fees on our checking accounts anyway. The banks need to repay TARP and get out from under the eye of their legislators, and the banking business is only getting more competitive as customers can shop tiny differences in interest rates. Bounced check fees are drying up, because people no longer write many checks.
In theory, you could switch banks if they imposed a small monthly fee. But are you really going to, for a couple of dollars a month in fees? Especially if all the other banks are having the same problem?
But no attempt to save people from their overdrafts will work if we don't get to work educating people to know that they need a buffer of savings between themselves and the bottom of their bank account--and to watch their bank balance to make sure they're not going to incur overdraft charges. Yet most people don't; I've incurred an overdraft more than once through stupidly failing to transfer money from savings to checking. And I'm not sure I even noticed what the fee was.
Mental Illness Break
Matt Welch calls this "possibly the worst sports column ever written". I'd say that possibly has one modifier too many. Let me summarize, in the words of a friend: "Sorry that you spent most of your teenage life being serially raped by
a psychopath, but the real tragedy is that you missed a bunch of sports
highlights!" No, seriously. Maybe it's because I'm not a sports fan, but I want to hop up and down on his editors desk, waving a game of Clue and shouting "What on earth were you thinking?"
When Good Polls Go Bad
This political poll from the Associated Press and GFK is a prime example of why you should not rely on polls to "prove" that lots and lots of people support your pet project. Check out the issues that people feel are "very important". That would be . . . all of them. The American public feels very strongly about every single issue you ask them about. Forgive me if I think that most Americans are not wearing themselves to a frazzle over all of the following: healthcare, immigration, the economy, unemployment, the budget deficit, taxes, terrorism, the environment, energy, gas prices, our relations with other countries, Iraq, and Afghanistan. I get exhausted just typing it.
Fr'instance, 67% of the people polled say that the situation in Afghanistan is "Extremely" or "Very" important to them. Now, how many of those people do you think could name two major cities in this country with which they claim to be practically obsessed?
Most people have a couple of key issues they care about. But few of them want to tell pollsters that no, they really don't much care what's happening in Afghanistan. So you get nonsense like this. The relative numbers matter--people clearly do care about health care and the budget deficit more than Afghanistan. But the absolute numbers are nearly worthless.
There Oughta Be A Law
Should gadget makers "brick" your phone--refusing to let a new use register it--if it's stolen?
The biggest worry most people have with a lost device is that someone will call Guam on their phone and talk for 9 hours, so gadget makers say their priority is shutting down the account to prevent fraudulent charges. And the New York Times wrongly implies with its headline that gadget makers can always find your phone; in the cases where I've had something stolen, the thieves usually tried to use it a few times, then tossed it.
Still, no one should be able to use a stolen phone, Kindle, or other gadget. The manufacturers have an easy way to make the black market in used electronics much less profitable, and it's just obvious common sense that they should disable the device immediately, and seize any stolen phones that are activated on their network. If you're using a Kindle or an iPhone, the company has quite a lot of information on you, and they should use that information to reunite owners with their lost property.
But apparently they don't, because they'd rather sell content to the thief, or the person who purchased the device from the thief. This seems like an obvious place for some basic regulation.
Playing With Fire
Why are Jon Henke and I firing into our own ranks on the birther nonsense? Wouldn't it be better to take on Democrats?
Well, two answers to this. First, the WND folks are not, in any sense of the word, my people. I supported Obama, remember?
Second of all, it's not, like, true. It's not even reasonable to believe that it might be true. It is crazy nonsense. Even if everything that the truthers say were factually correct, Barack Obama was the son of an American mother, which means he is a natural born American citizen. This is a waste of time and energy that could be put to better use, like learning to play the banjo.
And third of all, as David Corn makes clear, allowing the Truthers and the Birthers to fester just sets you up for grief later on. So to the extent that I would like to vote for a Republican president in the future, if they can manage to find a candidate who doesn't actively give me hives, I think it would be nice if his campaign isn't undermined by revelations that key staff members supported the notion that Obama was a crypto-fascist secret Indonesian Muslim, or whatever.
How Much Will Insurance Companies Benefit From the Mandate?
A lot of people, left and right, view the mandate as a giveaway to the insurance companies. I'm not sure I see it. The sweetener to get them to buy into the package, yes. But how profitable are these extra people going to be?
The uninsured, for our purposes, consist of three groups of people: the young and healthy, the poor and average, and the uninsurable. This package probably makes group one worse off, group two better off (depending on where the subsidy kicks in), and group three gets the most benefit, because now they pay the same as everyone else. (I am assuming for the nonce that this plan has what I've come to think of as the four pillars of reform: guaranteed issue, community rating, mandate, and subsidies). Only the first group make desirable customers, but things are being stacked so that it's hard to woo them, and them alone.
The mandate doesn't mean that insurance companies will be able to raise their average price--indeed, with the government breathing down their necks, they will face considerable pressure to lower it. As long as there is competition in the market, the mandate probably won't help any individual firm.
Ah, but is there competition in the market? Insurance markets tend to be highly concentrated. If the number of firms is small enough to allow collusion, then denying customers the right of exit is indeed a license to print money.
However, even oligopolies have a hard time colluding--market outcomes with oligopolies can range from rigged quasi-monopolies (think the Big Three), to fierce competition (think Airbus and Boeing). Which will health insurance be?
Somewhere in between, I think. Even with highly concentrated regional markets to play in, health insurers as a group aren't particularly profitable. I would expect to see much higher margins if the companies were really price makers. The fear of exit should hold down some of the profits, of course. But still. These levels don't scream "monopoly" at me.
So there will be some advantage to having more customers: more revenue across which to amortize your fixed costs. Insurance does seem to have scale benefits, after all. But a lot of those customers will be sick people who were previously uninsurable, which is not exactly a huge bargain. And with medical technology advancing the way it is, there's no telling when some lousy scientist will invent a great new treatment that you'll have to pay some unknown, but certainly huge, sum to purchase.
Perhaps I'm wrong. But overall, I don't see that insurance companies are getting a particularly fabulous deal out of this. Of course, if regulation forms a big new barrier to entry--as it tends to do--that could all change . . .
Department of Lunatic Fringes
One of my correspondents finds it hard to believe that anyone seriously argued that Bush was going to cancel the 2008 elections. Well, yes, there were a bunch of lunatics who did--possibly including, according to one eyewitness acount, Congressman John Oliver (Oliver has denied he said this to a group of liberal activists). Whether or not he said this, (and I'd be surprised if he did, since politicians are usually more keenly alive to their electoral fortunes) the fact that people on his own side were willing to believe he had said it says a lot. It was also popular among the Ohio voting machine conspiracists. This is not anything like the mainstream of the Democratic party, any more than the militias and other lunatics are the mainstream of the Republicans. But yes, there really were people who gave every appearance of sincerely believing that this was a possibility.
September 8, 2009
Political Theory
Obama's poll numbers have been improving steadily over the last week. Theory: people like Democrats much better when they are not talking about health care. Corollary: the liberal commentators saying that no, really, health care is in a good position to pass are indulging in wishful thinking. (To be sure, it is possible to level exactly the same accusation at me).
The Townhall ruckuses were not the end of the Republican opposition on health care. They were the beginning. There is an observed regularity in politics so consistent that I am tempted to dub it Megan's First Law of Politics: intentions are more popular than concrete proposals. As long as there was no one Obama Plan on the table, people could project their fondest dreams onto the president. Once there are plans on the table, Republicans will be able to attack specific propositions that are specifically attached to the president.
For example, polling last year found that a majority of Democratic primary voters were opposed to a mandate to buy health care. Mandates were popular among two groups: people with post-graduate education, and people who made more than $100K. Polls this year are a little more positive--but people aren't paying attention to the details of the debate right now. I'm betting that support for mandates drops once people aren't hearing about them for the first time from a pollster. When someone asks you, "Should people have to buy health insurance?", if you haven't really thought about the question, your answer is likely to be different--and more positive--than it will be after you've been musing on the oppo ads for a while.
Moreover, this mandate will come with a specific price tag on the subsidies, not a fuzzy "should people have to buy health insurance" question. Republicans will be able to find plenty of people who are going to be forced to buy insurance that they can't really afford under the new plan, or taxed heavily for their failure to comply. Even worse, these people will be easier to identify with than the uninsured: at or above the nation's median household income, possibly living in a high-cost area. The lower Democrats cut the subsidies to make the price tag politically powerful, the more dramatic the sob stories will be.
This is not the only problem area. The budget deficit is big enough--and projected to stay big enough--that people are starting to care about it again. All of the plans on the table at this point stay deficit neutral only because the program doesn't kick in for four years; after that window, the costs explode. Most of the plans are similar enough to what prevails in Massachussetts that Republicans can reasonably point to the runaway costs there.
Once there is a specific plan to make any cuts at all to Medicare, seniors will go ballistic.
. . . and so on, ad infinitum. Health care reform has not survived the worst Republicans can throw at it. It's survived--barely--the opening volley.
Dick Fuld Looks For a Comeback
Here's hoping that there is no second act in this American life.
Department of Education
Time to savor the Obama education speech, and the sweet, sweet smell of hypocrisy rising from both sides of the congressional aisle.
All Health Care Politics is Local
Ezra Klein likes the Max Baucus plan to tax "Cadillac coverage" in order to pay for health care reform. That is, he likes the idea of taxing this sort of coverage in order to pay for health care reform, though he thinks that doing it through an excise tax on pricey policies is doing "a good thing in an inefficient way in order to say that we're taxing
insurance companies rather than workers, even though the end result
will be the same".
Unfortunately for New Yorkers, their state already had the same idea. Those excise taxes, enacted to cover New York's massive budget gap, have been passed along to consumers not as taxes, but as rate increases. As a result, the New York Post reported a few months ago that virtually every health insurance plan offered in New York City busts the $21,000 cap for a family plan. Most of them by quite a bit:
The average monthly premium for family health coverage has soared from
$3,866 last April to $4,354 -- a 13 percent increase -- according to a
Post analysis of new data from the state Insurance Department. . . .
Premiums for those who agree to stay in-network were less expensive, but still on the rise.
The average in-network family plan jumped from $2,624 to $2,966 last year -- or 13 percent.
Atlantis Health Plan's in-network plan provided the cheapest family coverage, at $2,267 a month.
At 35%, the new excise tax will add about $1,000 to the cost of the lowest priced plan, in an area already known for having some of the highest insurance costs in the nation. For families receiving the average, the excise tax will tack on $11,000--or almost $1,000 a month--onto their premiums.
New York City is probably the worst off, since it's a high cost area that already has guaranteed issue, community rating, and an absurdly generous benefits package thanks to Denny Rivera and a host of other powerful health care lobbying machines. But other high cost states will have similar, smaller issues, especially near large metro areas, and for small businesses that have had what used to be euphemistically called "bad experience" when I was helping buy insurance for my employer a million years ago.
Perhaps I'm wrong, but it seems to me that the unions will be hit particularly hard. A lot of them provide health insurance for their workers through multi-employer plans that are already hemorrhaging money. As I understand it, these tend to be subsidized by one or two big employers who can be hit up at contract time to help the weaker companies. But UPS can't continue offering ever-greater subsidies to every other firm that employs teamsters forever, and so far, the Teamsters legislative efforts to rope Fedex in to help pay the bills haven't gone anywhere. Given the souring public attitude on unions, they probably won't, either. These plans offer generous coverage, coverage that the membership is hardly likely to vote to scale back in the face of an excise tax.
So while the excise tax sounds more politically palatable than the alternative, I'm suspicious that it's going to survive the inevitable attacks by the unions and the New York delegation. Can Schumer really afford to vote to raise his constituents health care bills by hundreds of dollars a month? Maybe he can . . . but it seems more likely that this gets quietly dropped along the way.
When the fire chief of Jericho, Arkansas, finally got fed up and
went to court a few days ago to challenge his second traffic ticket in
as many days, the town's entire 7-man police force showed up for the
hearing. And then shot him.
Seriously. Apparently a scuffle broke out and one of the cops
pulled out his gun and shot the guy in open court. He's OK, but the
police department, which was already in deep trouble for its habit of
ticketing everything on wheels that rolled through Jericho, has been
disbanded and all outstanding tickets have been voided. The town's
part-time judge has quit too. And nobody knows what's happened to all
the ticket revenue.
Some penalty for employers who don't buy health insurance for low-wage workers
Medicaid up to 133% of the poverty line
Tax credits for buying insurance up to 300% of the poverty line
Taxes on cadillac coverage that greatly exceeds the national average
Guaranteed issue
Something close to community rating
His price tag is somewhere in the $900 billion range.
I'm not seeing it. The unions hate taxes on cadillac coverage, and it's not going to be exactly popular in high-cost states like New York and California, where there are a lot of Democratic house members who have to vote for this thing. Cutting off the subsidy at an income of $66,000 for a family of four is also going to be worrisome for high cost states, since in the New York Metro area, that's less than the combined income of a small firm secretary and a moderately well paid delivery truck driver.
Meanwhile, $900 billion sounds a lot like $1 trillion--and it will be hard to do through reconciliation, because the deficits explode after the ten year window. The need to keep it in the window is why the Bush tax cuts sunset next year. I'm not sure Democrats want a plan that runs for six years and then abruptly stops unless someone finds the money to pay for it.
But I'm sure that to reform proponents, I just sound like one of the nattering nabobs of negativism.
Labor's Love Lost
The auto bailouts seem to have come at a very steep price for the labor movement. Public support for unions has now dropped below 50% for the first time since Gallup started asking the question in the 1930s. I think we can now expect that EFCA is not going to pass, with or without card check. When progressives look back at the first hundred days of Obama's presidency, I think they're going to ask if they didn't squander their opportunity for pyrrhic short term gains. High speed rail for health care? GM bailout for EFCA?
Is Pfizer Too Big to Fail?
Derek Lowe on the Pfizer settlement:
The six whistleblowers in the case are getting anywhere from $2.3
million to $51 million now that the settlement has been announced (that
upper figure is Kopchinski, who seems to have provided the most serious
evidence). As I mentioned the other day, I think this is a good thing.
It takes a lot of nerve to step up when your employer is doing
something outside the limits of the law (and asking you to do it as
well). A chance to make up for the certain loss of your job (and the
near-certain loss of any future prospects in the field) goes a long way.
And there's an interesting perspective on why a settlement was reached:
. . .Pfizer is the pharmaceutical equivalent of
insurance giant American International Group Inc., which was too
interwoven into the global economy to be allowed to fail. Likewise, if
Pfizer were convicted of a crime, it would face debarment from federal
programs. And that would mean that Medicaid and Medicare patients would
have to either somehow pay pocket for vital medicines the company
produces or go without.
Hadn't thought of that one. I wonder if any company will have the
nerve to use this as a negotiating tactic? Perhaps Pfizer already did,
come to think of it. . .
This implies that the larger the share of government spending in health care, the more license pharma will have to misbehave . . .
I had a heated online discussion a few weeks back with a friend who
is a liberal Democrat; eventually I realized that he was reacting
strangely to my comments because he assumed that the federal government
was going to give everyone in the country 100% free health care paid
for out of taxes. So I quoted him the relevant passage from the House
of Representative summary of their proposal; and then I had to quote
him another passage to get him to believe that they actually meant to
charge people a penalty for not getting insurance because it cost too
much. He was quite shocked, and is now among the liberals who oppose
the Democratic Party proposals. And he's an intelligent, educated man
with a strong interest in politics. He just had not read the actual
proposals, and had assumed that what Congress was delivering was what
he had hoped for a year ago. I'm sure he's not the only one.
I think also of the young woman with whom I exchanged comments more
recently; when I suggested the possibility of her getting her employee
health benefits as an increase in pay to spend on her own health care,
she thought I was referring to the $100 a month she has deducted from
her pay. She apparently had no idea that her employer was paying out
several times as much to her insurance carrier, over and above her pay.
That is, she didn't know one of the basic and important facts about
American health care policy.
Both of these things are distressingly common, and no, conservatives, not just among Democrats. People don't know what's in various bills, because bills are very complicated, so they just project whatever they think would be neat onto the ones authored by politicians they like--for all the policy heat about mandates during the Democratic primaries, I doubt 1% of the audience understood or cared.
And most people are unaware of how much their benefits cost their employer. That's why when someone points out that their wages aren't growing so fast, they get all angry and outraged, instead of thinking, "Yeah, but I have $3,000 more health care every year!" That's partly because people just don't realize that the stuff costs employers as much as it does . . . and partly because insurance is a lousy consumer good. I remember having a conversation with a coworker within three minutes a) complained that there was no reason that health insurance should cost so much and b) insurance was really important, because a few years ago his wife had had a baby prematurely with massive complications for her, and if they hadn't had insurance it would have cost several hundred thousand dollars. More broadly, as I pointed out a few weeks ago, If you suddenly get organ transplant coverage, this is a big valuable benefit--but you probably only notice if you need an organ transplant, which is pretty rare.
No one should claim that the real problem with the health care debate is that ignorant people are being tricked into disagreeing with you. The ignorant people infest both sides of the debate, and it's not clear to me which pool of ignorance is more powerful.
September 4, 2009
What's the Price of an Acceptable Health Care Bill?
Ezra asks a question that Peter and I were talking about last night: what's the price tag after which health care reform's supporters no longer think it's worth passing? We were discussing the rumors that the administration is going to try to shave the price tag in order to make the thing more politically palatable. The problem is, what do you cut?
At this point, all the remaining items on the table: mandate,
guaranteed issue, community rating, subsidies--are pretty much a
package deal. If you take out the mandate, guaranteed issue and
community rating will make insurance very expensive, driving all but
the very sick, and relatively affluent, out of the market. If you take
out guaranteed issue, the mandate is nonsensical. Take out community
rating, and you lose the main point, which is to have young healthy
people pool their premiums with those of the old and sick. And if you
lose the subsidies, you will be in effect commanding people to buy
something they can't afford.
You could just sort of trim the subsidies . . . but I think the key sell on health insurance is, as Mickey Kaus has said, the security aspect: tell people it may be expensive, but for the first time in their lives, they can have total health care piece of mind. However. If you cut the subsidies to the middle class, they will freak out about the mandate. Rather than increasing their security by relieving them of worry that they will end up uninsured, you're suddenly telling folks that they could end up with no employer coverage and a gigantic mandatory bill. If they wanted to plan on buying health insurance if they lose the coverage they've got, they wouldn't be voting for Democrats.
I will be very interested to see what Obama says next week.
Answers to Three Questions I Have Received Over IM
Yes, I am technically on vacation. Yes, I am blogging about healthcare. Yes, I need professional help.
Embracing Rationing
Chris Bertram
takes the hard stand that I think advocates of any sort of
comprehensive single-payer plan, which Chris Bertram definitely is, are
going to have to take: that some lives aren't worth saving.
In other worlds, what conditions would rational individuals not choose
to buy insurance to secure treatment of? Here are Dworkin's answers:
(1) "almost no-one would purchase insurance that would provide
life-sustaining equipment once he had fallen into a persistent
vegetative state .... (212). (2) nor would anyone buy insurance to
provide expensive treatment for themselves in late-stage Alzheimer's
(it would be better to spend the money in the here and now whilst
you're fit and healthy). (3) people would also prefer to spend their
money on their vigorous and healthy younger selves rather than on
keeping themselves alive, at enormous expense, for a few additional
months of low-quality life. So people wouldn't choose to spend
thousands of dollars (or pounds) on insurance to buy expensive
treatements to prolong the life of terminal cancer sufferers, or severe
heart failure cases: people would rather spend the money on other
things. And we can extend the thought to cover a lot of R&D too. It
may be all very nice (stimulating, good for careers etc) for scientists
and/or drug companies to devote billions to speculative research that
might or might not issue in treatments extending the life of the
terminally ill by a few month, but almost nobody faced with a choice
between that investment of resources or spending the money on other
stuff (education, culture, vacations, their kids) would squander their
resources on such research.
So it turns out that the McMegans of this world are right about one
thing: in a just society (not that they'd call it that) there would be
less spent on expensive medical/drug research and development than a
country like the US spends now. But that's a good thing :
against a background of fairness and equality, rational and fully
informed people would look at the opportunity cost of such activity and
say "no thanks!"
I
don't think this really follows. First of all, with the exception of
cancer drugs, there aren't many drugs that are developed for people in
the last few months of life. In other contexts, people complain about
this: instead of developing a cure for cancer, we've got another
goddamn antidepressant.
Expensive end-of-life interventions
are stuff and procedures: high tech equipment, and doctors using that
equipment to keep people alive. Hospice care, which specifically does
not aim to keep people alive artificially, is cheaper than a hospital,
but it's still not that cheap.
Furthermore,
the things that keep elderly people alive also keep alive young people
with years of high quality life ahead of them, if they can survive the
crisis. People do come off of ventilators, heart-lung machines, and so
forth. It might be worth having them for young people, and once we've
got them, the marginal cost of using them on old people may be worth it.
Then
there's the time inconsistency problem. How much are we really willing
to argue that it's wrong to stop a would-be suicide, wrong to dissuade
people from smoking, wrong to refuse to pay for your 19 year old
daughter to pursue her dreams of a rock career rather than a degree in
accounting? But unless we are, we have to ask how thoroughly we should
attend to the desire of the young self to ignore the needs of the old
self. Dworkin thinks we should ask people what they would buy for themselves from behind a sort of personal veil of ignorance. But why is the perspective of someone at the beginning of their life the right one? Why not ask people what they would want at the end of their life? There's a problem of specificity, but surely you could develop some kind of average set of services, which would probably be very different from what you would pick in youth.
Of course, for me, the core problems are more basic: I
don't think that there is "a" regime of social justice to which all
right-thinking people subscribe, which me reluctant to empower
technocrats to enforce this mythical consensus.
There's
another intuition that at least libertarians have, which is that it is
not as bad to have undesirable things result from an impersonal
process than from an active decision. It is bad if someone's house
burns down and they couldn't afford insurance. It's worse if someone's
house burns down, and they were in the class of people deemed unworthy
by a bureaucrat of having their house rebuilt.
I think almost
all progressives have the opposite intuition. They think it's better
to try to produce an optimal result, even if that results in individual
injustices (which it will--government rules are very broad brush, and
will always involve error at the margins). I'm not sure how to bridge
that intuitive gap.
Department of Awful Statistics
A reader sends in this note:
I
am a former tax lawyer who worked for years on pharmaceutical
international transfer pricing cases. The basis for such cases revolves
around what share of profits is attributable to a given country. Let me
tell you, you will never get an accurate figure, because no such figure
exists - all the numbers are purely notional.
As you know, pharmaceuticals are essentially a zero-marginal-cost
product. However they have huge up-front costs that include the
R&D, clinical trials, setting up manufacturing facilities,
regulatory submissions, IP legal work, promotion with thought leaders,
etc. All this work may be done in various countries while benefiting
the pharmaceutical company in all countries in which it sells the drug.
Revenues for a given country are generally easy to determine, but
costs - the other necessary variable to assess profitability - depend
entirely on how you attribute these costs to each country.
There are dozens of plausibly fair and logical ways to attribute the
costs. In a typical transfer pricing case both the company and the tax
authorities will have good arguments as to how to best attribute them
(for this reason, most cases are settled), but they can differ by
several billion of dollars of profit on a single drug.
For this reason, any number as to the percentage of pharma profits made
in the U.S. should be treated as arbitrary and bogus. It will entirely
depend on how the costs were allocated, which will differ from company
to company, and may even differ from one company's financial statements
to its tax returns.
I find this argument pretty compelling. So it looks like I got taken,
at least in the sense that there's probably no way to come up with an
estimate that I would find acceptable. I wouldn't have put that number
in a blog post, because I would have looked for better corroboration,
and I'm sorry that I used it when responding on the fly, which I did
several times.
I'm now adding this to my long list of "dark
numbers", with the best available proxy being the global sales of New
Chemical Entities. Two thirds of those, not more than three quarters, occur in the United States,
versus about a quarter in Europe. You can argue about what the fixed
costs are in various places, but as my correspondent implies, given how
much cross border activity there is, the problem seems to be
indeterminate, so I'll stick with a number we know. This doesn't
really change my assessment of the problem, since 2/3 is still pretty
overwhelming, but statistics matter.
On a side note, the
reason I said 80% was a hypothetical in the Washington Post chat is
that . . . well, I didn't. I forgot that conversation, and thought the
commenter was referring to this post. These are the perils of typing thousands of words a week, and also, of getting old.
September 3, 2009
Tech Talk
I am blogging this from a Delta flight to Atlanta, en route to Fort Walton Beach. We are in the future.
Unfortunately, the future has rotten battery life.
Do Clinical Trials Mirror Clinical Practice?
Another good comment on clinical trials:
It's not necessarily true that "efficacy from clinical trials is a
worst case scenario." Study participants can differ from patients in
the general population in ways that favor research subjects with regard
to outcomes. Some of these differences are medical, such as patients
having coexisting medical conditions that were exclusion criteria in
the study, thereby making treatment outside that setting potentially
more dangerous. Others have to do with the fact that study participants
are selected for factors other than their specific medical situation
that enhance the likelihood they will complete the study. This includes
everything from literacy to having the means to get to and from study
visits.
The preious commenter was speaking of cancer trials, where there may be fewer exclusion criteria. But it's still a good point.
The Government's Role in R&D
So, John Holbo leaves philosophy and gets to the nub of the practical question:
We'll get to the shortages in a minute. But first, assuming McArdle is
right about the r&d shortfall, I would prescribe: r&d. The
government should fund it (if, ex hypothesi, no private party will). I
expect that if the single payer system is otherwise performing
tolerably the taxpayers will be willing to pay and consider it a fair
deal overall. Presumably they want medical innovation. (If they aren't
willing to pay, then maybe things have advanced to the point where
everyone is happy with the existing level of medicine. But I would be
surprised if that ever happens.) The fact that we have moved to a
'planned health care economy' would be no structural barrier to ramping
r&d back up. We don't need private insurance companies to signal
where to look for that bold new cancer treatment. (I'm not saying the
private market is useless for signaling worthy goals, or working out
good systems of provision; but it isn't indispensable, so far as I can
tell, not like the generic economic growth/free markets case.) It isn't
that hard for government to spend money on big programs (I'm sure
McArdle agrees with that.) Doing so helps get politicians re-elected.
The people like it. So, if there really were a sort of upset, in the
wake of a shift to single payer, with r&d sinking, I would expect
it to recover when people noticed this had happened.
He also talks about rationing, but I'm going to leave aside the rationing debate for this reason: I do not particularly worry about rationing within the context of the US system. I don't think we have the political will for it. Holbo and a number of his commenters are spending a lot of time arguing about whether it's rationing if some number of people can leave the system, which is to me not the relevant or interesting question about rationing, though I quite understand why people are worried about the moral philosophy of the thing. I'm sheerly worried about the fact that rationed markets function badly on all levels, including providing for the needy.
I responded to people who were saying that "We have rationing now" to point out that this is a silly reading that has nothing to do with the two major concerns people have with rationing. Economists worry about the market screw ups. Ordinary people worry that they won't be able to get their hands on the rationed goods. Neither of these are in any way affected by a moral philosophy argument about whether it is somehow morally problematic to provide basic service which the rich can opt out of. In the relevant sense for economists, the opt out is rarely large enough to overcome the market distortions, and in the case of the ordinary people, the crowding out effects of a government program for which substantial taxes must be paid has for them all the negative features of rationing, whether or not we call it "rationing".
But that doesn't mean I think we should worry about rationing. I understand why seniors do, because, well, people are loss averse. But I think price controls will come long before outright denials of treatment. And with that, I hope, we put the topic of rationing to rest for a while.
Why shouldn't the government do R&D? Let me respond by discussing a phenomenon that regularly pisses the hell out of a lot of progressives, and also, me. It's a dialogue that goes something like this:
Progressive: If we abolish welfare, some people will end up in degrading, awful poverty, and children may starve.
Libertarian: That should be provided by private charity.
Progressive: Yes, well, it isn't.
Libertarian: That's because the government does it.
This argument is obviously non-falsifiable. In fact, some people are supported by private charity rather than welfare, so private charity does exist. It's possible that without the distortions of the government, private charity would take over the whole show and do a better job--I think there's good reaosn to believe that when private charity does these things, it often does a better job than the government can.
But I can't really come up with any very plausible mechanism by which there is a clearing market in private charity. The amount of food produced corresponds, give or take, to the amount of food that we as a society want to consume. That's because of the magic of prices and incentives. But there's no particular reason that the supply of charity should meet or exceed the amount that most people probably believe should be delivered, i.e. one where no one in America starves to death.
The government sucks at a lot of things. But it is, IMHO, probably better than the private sector at the fairly simple task of ensuring that no American starves by giving food and money to those who need it, and yes, sure, some people who don't.
When we look at the last time there was no substantial public safety net, I don't see poverty "markets" clearing. I see people suffering pretty extensively from want. Yes, we were poorer then, etc. Nonetheless. The supply of charity did not meet the demand for it at a minimally acceptable standard of existence.
Perhaps unlike my fellow libertarians, I do not view the government as worse than the private sector at all things. I view it as better than the private sector at some things, like producing streetlamp and policemen and armies and the FDIC and unemployment insurance. I view it as worse than the private sector at producing many other things, like consumption goods and services.
I view NIH research as invaluable--as with welfare, I see no particular reason to believe that the market will "clear" at a socially optimal amount of scientific research, and my natural bias is towards more scientific research. But companies do a different thing that is also valuable, for different reasons, and in different ways. In every system that we know of, the government's ability to step in and do this part of research and development--the part where you develop a robust supply of products that has a fairly fine-tuned tradeoff between the strength of demand for the product, the number of people who demand it, and the likelihood of producing a working drug. The private sector is orchestrated towards this result by a complex interplay of prices and exit rights that government just doesn't have. Government doesn't worry about going out of business. Academic researchers are not oriented towards applied research on a P&L.
Now, you can say that profits aren't the best guide to socially optimal production. But I don't need profits to produce the results that would be ordained by God Himself, if we could persuade him to take a break from running heaven in order to run Pfizer. I need profits to produce a better result than the government does when it sets out to produce goods, rather than basic research. And profits really do produce better results than fiat consistently and reliably.
There is no country in which government has outperformed the market at the production of basic needs (distribution is a different question that we can fight about later). The only industry that's even vaguely hopeful is defense, and I hope I don't need to persuade progressives that if our pharmaceutical industry starts looking like our defense industry, we're screwed. It's usually dominated by a few major contractors who are deeply intertwined with the people who buy from them, it's wildly expensive, everyone thinks it's horribly inefficient and produces a lot of products we don't need because they're the pet project of some congressman, and the rest of the world free rides off of our hog-wild spending. You don't like me too drugs? Wait until the pet company of some powerful committee member wastes billions of dollars chasing a never-never cure for cancer rather than a promising antidepressant that could produce a 20% improvement over existing treatments in large classes of patients.
Just as private charity does save some people, the government does produce some drugs. But this is not the rule.
Maybe you think this can change. Great! Build the institutions to do it--I'm totally serious about supporting Dean Baker's plan to try to make a government agency to develop drugs. If they can develop more drugs more cost effectively than private pharma, that's a worthy use of tax dollars. Here's the thing: you have to do it before you dismantle the old system. Not after.
I do think there are big holes in innovation left by the patent system that the government should spend more time covering, particularly clinical trials of off-label uses for generics, orphan drugs, and drugs for the third world. I think it's worth experimenting with direct funding and prizes to see if either can close the gap. But until I've got better proof of concept, I'm loathe to tamper with the old system.
The Price of Life
Really interesting comment on cost-benefit analysis on cancer drugs:
I'm not familiar with the specifics
of Tarceva, but I do work in anti-cancer drug development. There are a
couple things that folks should consider which might add some nuance to
this particular drug/disease combination.
Fist, pancreatic cancer has one of the highest mortality rates of
any form of cancer (it's right up there with lung cancer). The
statistic I'm most familiar with is 3% chance of surviving five years.
That statistic is from about four years ago, but I'm fairly certain
that I would have heard about any major advances in this area. So like
Megan mentioned, small advances against this disease can be really good.
The other situation people should consider is that efficacy from
clinical trials is a worst case scenario. Patients who qualify for
these trials are generally not responsive to the current standard of
care and can have complications which might not exist in the general
patient population. So it's not unreasonable to expect that someone
recently diagnosed with pancreatic cancer might derive more benefit
than someone in a clinical trial. These data can take a while to
accumulate after a drug has been approved, and this is also the period
where drugs are the most expensive.
He says my call for right-of-center organizations to stop supporting WND's conspiracy peddling is "bullying tactics".
He says he has never heard of me.
He says that WND didn't say they were "concentration camps"; they just said that the legislation "appears designed to create the type of detention center" that people "fear" could be used as "concentration camps for political dissidents, such as occurred in Nazi Germany." He calls this "nuanced".
He claims I have called "for an all-out jihad against WND."
He says, "Am I scared? No, folks. I'm not." and says he's just standing up for "truth".
In The Washington Times,
Farah "questioned Mr. Henke's motives and standing", arguing that The
Next Right is "pretty much a Republican establishment group who has
worked for the RNC and the Republican Party and I can certainly
understand why a group like that would have problems with World Net
Daily." He added "these are not journalists, they are political
activists who have their own agendas."
So, he's taking the "you can't handle the truth!" approach
so beloved by true believers and conspiracy theorists. He also seems
to think I'm part of the "Republican establishment" and aligned with
the RNC. This is an interesting argument, considering the fact that
I'm trying to get the RNC to stop working with Joseph Farah.
Some WorldNetDaily readers also wrote to offer feedback.
Dave says I'm a Commie Leftist or RINO and he does't read this blog.
"Tell me son are you a Commie Leftist incognito or just
a RINO being stupid? I've read WND for years, which is more than I can
say for your blog. I can't wait to read your blog after BO gets his
army of maggots after you one day."
Randy Curtis says Birchers and Birthers were right and I've drunk the Kool-Aid
Etc., etc.
You know what this reminds me of? It reminds me, ever so poignantly, of a lengthy email dispute I had with a liberal commenter/emailer a few years back. After some initial heat, he (she?) calmed down, and we had a fairly reasonable discussion of his/her fears problems with the Bush administration, some of which I shared.
But then my correspondent mentioned that htey thought it was reasonably likely that there would be no election in 2008. Not certain, but enough that we should be preparing for it. I think at one point they called it more likely than not.
At this point, I was at a loss. What does one say in the face of an entirely sincere belief that an American system of government that revolted when FDR tried to pack the Supreme Court would, suddenly and for no apparent reason, allow George Bush to cancel elections and appoint himself dictator for life? I mean, other than, "You are a lunatic. An apparently nice and well meaning lunatic. But nonetheless. A barking moonbat."
So I'm kind of dizzy with deja vu when I read this sort of prime-aged poppycock coming from the right of me. When you hear that "some people fear" that an utterly anodyne bill creating emergency response centers "could be used as "concentration camps for political dissidents, such as occurred in Nazi Germany", the correct response is not to repeat that remark, except to make fun of it. The kinder, more adult response would be to reach out to the person who said this in concert with a team of trained professionals and gently suggest that it is perhaps time to tweak the meds.
Yes, yes, I know . . . these things can creep up on you. There was a time when people did not understand the threat that Hitler posed. (We will leave aside the question of whether Hitler's various antisemitic ravings and other wacky notions constituted an adequate warning.) Here's the thing. If it is true that there is a period where you can't definitely tell that a head of state is about to turn into a mad dictator, that period is, almost definitionally, hard to distinguish from the actual majority of the time when a head of state is in fact not about to turn into a mad dictator. It is not enough to note that Hitler was fond of high speed rail. He also liked puppies. Yet when George Bush bought one, we were no closer to a mad dictatorship than we had been before.
The American people are not such as can be seduced by high speed rail, puppies, or emergency response centers, into accidentally establishing concentration camps. There will be plenty of time, should such camps be proposed, to leap into action and unleash the mighty force of your righteous opposition on the hapless would-be dictator. Premature anti-fascism just makes you history's clown.
I'm not quite sure why I'm addressing this, when clearly Joseph Farah has little interest in reasonable debate. But hey, I don't have a team of trained professionals at my disposal. All that leaves is making fun of it.
The Problem With Talking About Health Care
This comment to my last post is so central to the debate about health care issue that I had to share it:
I'm not sure I wholly understand the argument here.
The idea is that were the government to make some cost-benefit
analysis and decide this drug didn't give enough of a benefit to be
worth paying for, that would be a bad outcome, yes? How would this
differ from a private insurance company making the same choice?
In both cases individuals able to raise the money through outside means would be able to purchase the drug anyway.
No offense to the commenter who I'm sure is a fine and clever human being. But: huh? I write a post on why superficially bad sounding tradeoffs--$3,500 a month for an extra 12 days of life--might actually be good uses of money. I tried, and I thought succeeded, in keeping the debate entirely on the terms that progressives looking to build a CER agency with some power would be interested in. And I nowhere mention whether this would be better or worse if a private entity were doing it.
I mean, I think that, to a much greater extent than most liberals think, insurance companies have largely dealt with this problem by throwing up their hands and erring on the side of approval, which is why health care costs are going up so fast. But one could certainly argue that private insurers are going to have to crack down harder on this stuff soon. Or turn it around and say that the public insurer is not going to bother, no matter how much Peter Orszag devoutly hopes otherwise, so that this is moot--an argument I actually find rather compelling. But I did not comment on the relative awesomeness of private versus public, because regardless of their comparative fabulosity, a public agency is probably a more useful thought experiment to discuss the question Julian asked, which is the limits of the treatments that we think people have a reasonable right to.
It seems almost impossible to get anyone to engage in this kind of discussion. As I replied to him, you have to try to enter an imaginary thought world where not all discussions are instrumental in some larger argument about the level of government intervention in the economy. Where it is possible that I am not simply attempting to subtly maneuver my opponent into accidentally embracing my position so that I can jump out from behind a tree and scream gotcha! Where one might simply hear Julian Sanchez ask whether we really want to guarantee access to an expensive cancer drug that buys a modest increase in lifespan, and want to explore the reasons that you might answer, "Yeah, maybe."
But I wasn't concern trolling, or trying to set up a gotcha. I'd be genuinely interested to know how Ezra thinks those questions should be addressed, and not because I think that his answers will be stupid, or provide some launching platform from which I can attack the left. I simply think Ezra's answer is likely to be smart, nuanced, and interesting.
Personally, I'm not that interested in addressing them as a policy matter, because I am one of the few commentators who just doesn't think that cost growth is all that important--it may be a political problem, but it is simply not true that the economy cannot handle vastly greater expenditures on health care, provided that our incomes continue to grow.
But if we are going to address cost control as a major policy issue at either the public or private level--and given that I'm in a minority, this seems like an eventuality we should prepare for--then I'm certainly interested in how we go about it. So I thought it was worth exploring why days of life is not the simple metric it sounds like when you're reading a New York Times article, rather than talking to a patient about their very short future. That's all. Sometimes a blog post on cost-benefit analysis is just a blog post on cost-benefit analysis.
The Gift of Life
No sooner do I say that perhaps it's time to stop blogging about health care short of interesting economic side issues, then Julian Sanchez raises an interesting economic side issue:
Do we believe that? That every American has basic right to
extremely expensive drugs that provide very little benefit? It's one
thing to say there's a shared obligation not to let people suffer or
die when we know how they could live many years longer, or in much less
pain. I find it a whole lot less compelling to suggest that people are
entitled to public provision of, say, Tacerva--which the Times article says was approved to treat pancreatic cancers because it improves survival time by a whopping 12 days
at a monthly cost of $3,500. Another is good for an additional month
and a half on average, at a per-patient cost of $50,000. Is it only
people who favor dismantling Medicare who might think that this goes
beyond what people must have as a matter of basic justice?
I think one of the genuine problems that liberals will face if they get the comprehensive system they want with some sort of cost-effectiveness review board, is that cost-benefit analyses break down at the margins of life. I'm not concern trolling here; it's just an intellectually fascinating, and politically thorny, problem, which is why Ezra Klein wrote the original post that Julian linked.
For starters, I'm not sure that it's meaningful, in discussing a medical treatment, to say that a drug, improves survival time by a whopping 12 days. Here's what the New York Times wrote:
And even some of those drugs offer only a few months at most of extra life or tumor stabilization despite prices that often reach thousands of dollars a month. The drug Tarceva, which costs about $3,500 a month, was approved as a treatment for pancreatic cancer because it improved survival by 12 days.
The battle to treat cancer has become, as a commentary in a leading journal put it, a "grinding war of the trenches."
I think that when we talk about it this way--and this is how we talk about so many diseases--we're prone to composition fallacy. Which is not to say that this is how Julian is thinking about it, but that this is how such statistics are often taken when policymakers discuss them among themselves.
Twelve days indeed does not sound like a lot. The problem is that the drug does not improve each patient's life expectancy by 12 days, in which case yeah, it doesn't sound like such a great deal. It gives some people extra months of lives, probably slightly shortens some lives because most serious drugs have iatrogenic effects, and does less for other people.
If you frame the question as "do you want to pay $12,000 to get a 20% chance of an extra two months?" you probably get a different answer than if you ask whether someone wants to spend it on an extra twelve days. Particularly when you consider that the mean survival time for metastatic pancreatic cancer--60% of all cases--is four to six months from diagnosis. For another 30%, who have locally advanced cancer, mean survival is 8-9 months. Twelve days, or two months, doesn't sound like so much to me, when I'm in my thirties and, as far as I know, cancer free. But if we were talking about a 20% chance of increasing my lifespan somewhere between 25% and 50%, I'd probably want to pay for Tarceva. I might even start sobbing and call my local television station if my doctor, or insurer, denied it.
Expected value calculations just don't work very well when you're facing imminent death--a criticism that liberals justly make of libertarians who claim that the only problem with the health care market is third-party payment. We get away with doing these sorts of cost benefit analyses for environmental regulations and highway safety issues because they don't involve directly denying a specific person a treatment that has a decent chance of extending their life. Even countries where the political culture is much friendlier to bureaucratic limits have ended up backing down on these sorts of decisions in the face of exactly the kind of outrage American wonks are getting from seniors when we propose not just showering them with money every time they ask.
I think you could make a coherent argument that in fact people who have just found out they have imminently fatal diseases should get more money spent on comparatively small gains in lifespan, for the same reason that I'm potentially willing to incur a large deadweight loss in order to transfer $500 a month from the middle class to welfare mothers who earn a few thousand dollars a year, and not potentially willing to incur the same deadweight loss transfer $5,000 a month from Warren Buffett to me. I'm not saying that this is the standard we should adopt. But I actually think that it has a fair amount of emotional resonance, which is why appeals from cancer patients are so effective when they're denied marginal treatments.
There are a few other considerations that I think we have to at least consider adding into any sort of cost-benefit analysis. My understanding of cancer treatment is that it is incredibly incremental. Doctors improve survival rates not with one or two eureka! drugs, but by grinding out often tiny incremental improvements:
Most scientific progress is incremental
and unspectacular, and some spectacular successes have been progressive
but, some would say, scientifically mundane. The cure rate for
childhood leukemia went from virtually zero to 80% over 50 years with
only two novel ideas. The use of drugs in combination instead of
singly, adapted from the successful antibiotic treatment of
tuberculosis, and the application of treatment of pre-symptomatic
leukemic involvement of the central nervous system. Even those
innovations failed to cure any children at first.
But a systematic series of clinical
trials, that tested variations in the sequence, doses, and combinations
of available therapy, led progressively to this amazing success. This
occurred despite having no effective new drugs introduced after 1970.
All of these studies made scientific sense, were doable, and were
funded by grants from the NCI.
A twelve day improvement in lifespan may be part of a package that doubles or triples pancreatic cancer mean survival times. I'm not saying that this is necessarily true of Tarceva--some drugs don't work so well. But 12 days probably isn't the right way to look at the problem.
There are the next drugs that we may want to encourage--unfortunately, we don't know that a drug won't give us spectacular lifespan enhancements until it's cleared Phase III trials. Reducing the return on the drugs that offer modest improvements reduces the number of drugs brought to market, reduces the number of eureka drugs, yada yada. That tradeoff may be worth it. But it should be in your calculation as a good social planner, even if only to worry about how you are going to replace the lost R&D.
There's also a question about how many months of life we're expected to bear this cost. A very expensive drug for pancreatic cancer still probably doesn't cost us that much money, because of those ugly, ugly mean survival times.
And finally, a core problem that comparative effectiveness research is going to have to face is that mortality is much easier to measure than morbidity. This can cut either way--we all hear the horror stories of old people senselessly hooked up to machines to keep them miserably alive for a few more days, or cancer patients taking punishing chemo regimes that offer little hope of much prolonging their life, and a near-certainty of immiserating what time they have left. But chemotherapy and radiation regimes, even quite expensive ones, can also be palliative care, shrinking tumors that cause pain or other sorts of misery. Maybe it's not worth $3,500 a month to approve Tarceva in order to get patients an extra 12 days. But it might be worth it to give patients an extra 12 days, and a 10% decrease in their cancer symptoms.
Again, I'm not saying that this is necessarily the case with Tarceva for pancreatic cancer--but it does seem to offer palliative as well as life-extending benefits in other forms of metastatic cancer with a pretty attractive side effect profile--most common effects were diarrhea and rash. These are things that doctors can go over with patients when they're making a decision. I think it's harder for a comparative effectiveness research board to determine whether the tradeoff between digestive upsets and skin disorders, and more rapid progression of a really very unpleasant cancer, plus whatever the extension in mean survival time, is worth $3,500 a month for 4-8 months.
Obviously, Julian is only considering what the New York Times wrote, not what it didn't. And I suspect he's primarily interested in the theory of justice rather than the policy theory. But for the wonks who will actually be deciding the application of this theory of justice, things rapidly get more complicated. Especially when you add politics into it. Because I suspect that while in theory "we" don't want to spend $3,500 a month to buy a measly twelve extra days of live, in practice we'll find that "we" actually do want to spend $3,500 a month to give a frightened cancer patient a slightly better quality of life, and a decent shot at a few extra months to say good-bye to her family.
Numbers Game
I confess, I love the Duggars. 18 Kids and Counting is one of my guiltiest, most favorite tv pleasures. It's like Little House on the Prairie, with real people, and more convincing prayers.
Yes, I am aware that reality television is not "real", but heavily stage managed. I have no idea if the show is representative of their life, much less life in their very religious subculture--indeed, I have some idea what the editors are slicing out, so I'm quite sure it isn't an accurate representation. Nonetheless, when I'm really exhausted, few things are quite as soothing as the champions of the baby olympics.
So of course, I was very happy to learn that Michelle Duggar is expecting her nineteenth:
I mean, as long as she's hapy. Which she seems to be.
The National Ledger wonders if networks should continue to promote these families with a zillion children. This makes me wonder if the National Ledger has ever watched the show. I think a lot of things while I'm lounging on the couch in front of "18 Kids and Counting". But not once have I thought: "Gee, having enough kids for a fantasy football league sure does look like fun!"
Rail: It's Not Just for Passengers
Commenter Pete on high speed rail:
The discussion of "High Speed Rail" is not correct! The correct name
for the discussion should be "High Speed Passenger Rail". As a former
regional freight railroad employee, yes the extra word will make a
difference.
The citizens, taxpayers, and voters of the USA need to understand 3 very important concepts:
{1}All railroad track in the USA is owned by a freight railroads, with
small exceptions for Amtrak and the commuter rail operators. In the
current legislation, that means taxpayer money will be given to
"for-profit" freight railroads to build HSR corridors.
{2}Americans have not used passenger rail travel over the past 50 years
because of cheap petro-fuels, AND because many hundreds of millions of
tax payer dollars have been invested in air travel (building municipal
air ports), and invested in the national highway systems [the
interstate, US highway, and state highway systems].
{3}There is no Passenger Railway Travel industry in the USA!! One
company, Amtrak, does not make an industry. It makes a monopoly!
He goes on to note that if you want high speed passenger rail, you need to get passenger rail off the freight tracks.
As a practical matter, we'd probably get more environmental benefit (and save more wear-and-tear on our roads) from improving our freight rail system, like the abysmal mess in Chicago, than from high speed passenger rail that is very unlikely to carry more than a handful of Americans on any regular basis. . But this does not attract one eightieth of the interest that you see in HS(P)R. As I understand it, there is finally some actual progress on Chicago, but it's still bogged down in process, and it's not clear to me whether it's really enough. It seems clear to me that switching freight to rail whenever possible should be a policy priority, but it's the red-headed stepchild of the environmental movement. We need freight cars that look more like pandas.
September 2, 2009
Is There Any More Point to Talking About Health Care?
So we've arrived at an impasse. I think fiat will screw up the health care system even worse than fiat has already screwed up the health care system, and that this will be bad for everyone in the long run. I think that any program enacted now is likely to be the tipping point--once the government controls more than 50% of the health care system (it's over 45% now), it crowds out private health insurance for most people. I think that this is what the people behind the system want it to do, largely because that's what they keep saying they want.
I think probably most people would agree that if Rand is right, and price controls shave, say, almost a year off of average lifespans, this is not necessarily a good deal for even the squishiest bleeding heart liberal--for the same reasons that socialism turned out not to be a good idea. No, I'm not calling you a socialist. I'm saying that if nationalizing companies and 90% tax rates on the very wealthy had worked well anywhere, a lot more liberals would be in favor of those things, because if you take away the unintended consequences that they turned out to have, they seem to conform to a lot of progressive priorities about justice, distribution, and so forth. But they didn't, and so most progressives have (or so I devoutly hope) abandoned these sorts of ideas in favor of a less intrusive agenda.
So ultimately I'm saying, I think this is the way that our government works, and this is the way that markets work, and for all the screaming, these are not crazy positions. There's plenty of evidence for government crowding out. There's plenty of evidence for price controls. There's plenty of evidence for what happens to markets that are largely governed by price controls.
You may disagree. You think government works better than I do. You think we'll be able to draw a line in the sand and keep the government from crossing over it to take over more of the market. You think government spending can substitute for R&D, because you don't find the socialist calculation debate compelling. Or maybe you say, hey, yeah, well, 0.7 years off the average lifespan isn't a bad tradeoff for covering the uninsured.
I can't talk you out of it. You can't talk me out of thinking that 0.7 years of life is a whole lot of life when you apply it to 400 million people. Numbers like that seem kind of meaningless-it's just eight months!--but this is composition fallacy. Some people won't live longer. Some people will die sooner, because treatment is iatrogenic in at least some cases. And some people will get extra decades of healthy life to hug their children or compose symphonies.
It's a judgement call. Not all values are commensurable. There are multiple theories of politics. And justice.
So why talk any more? I can't believe how nasty this debate has gotten. I can't believe that people who claim to value a classically liberal market society, on the one hand, and people who say that all they want to do is help people, turn into such screaming, hate-filled lunatics when the subject comes up. A debate over health care should not remind me so much of a debate over the Iraq War. I write thousands of words on innovation, and John Holbo boils my concerns about lost years of life down to "indifference to the poor"--as if, first, the poor will not be helped by new treatments, and second, we should do anything at all, no matter how horrific the results, as long as it helps the poor. Well, and third, as if the poor weren't on Medicaid, but that's another rant. This is about as useful as my saying that John Holbo's basic philosophical premise is a desire for my grandchildren to die young. I devoutly hope that if any of his freshmen said anything remotely this silly in a paper, Mr. Holbo would flunk them.
I'm actually happy to be at the impasse, which I knew was coming. All I wanted to do was get some liberals to admit that there might be some reason that someone with basically progressive ethical priorities might be worried. I don't think we'll go beyond that, because progressives also have a lot of priors about the market that I don't share, to wit that it rarely produces anything really useful.
But I'm sad about what's happened along the way. I'm sad that people are carrying guns to protests, even though I think they have a right, and I'm sad that so many liberals have caricatured the opposition to the health care agenda as legions of astroturfed militiamen who accuse Nancy Pelosi of appointing Hitler to a death panel, or something. I'm sad that libertarians and conservatives are casting this as some sort of massive conspiracy of power-mad idiots, when there's obviously a very large left-wing policy apparatus built up around health care that knows a thing or two, and virtually all of the progressives advocating this are for it because they are worried about people who can't get basic health care. I'm sad that liberals are casting their opposition as being mostly about racism and hatred of the poor. I'm sad that the debate has taken place 95% at the level of the gut revulsion Red and Blue Americas are actively nurturing for each other.
So I'm not sure it's much worth continuing beyond this point, unless there's some interesting economic side issue. But it's certainly been interesting, and most of the commenters have remained reasonably civil most of the time. Thanks for that.
Does the US Really Account for So Much Pharma Profit?
There's quite a lot of question about whether Obama can turn health insurance reform around when he comes back from vacation next week. My guess is that he has to do it pretty quickly--within a few weeks--or any idea of really substantial reform is fairly hopeless. But I certainly don't think it's impossible. The man can talk.
But I gather that liberals are getting more and more worried. Why? Because the gratuitous nastiness from across the aisle. Take this post from the American Prospect:
I'm not saying The Atlantic should fire her. But perhaps
her bosses ought to sit her down and have a discussion about the rigor
with which one should approach writing, even blog writing. For
instance, there are claims of opinion ("Coffee ice cream is tasty"),
which require no particular support or justification, and then there
are claims of fact ("Pharmaceutical companies make most of their
profits in the United States") which do require that one be accurate.
McArdle doesn't seem to know the difference. Fortunately, today we have
this thing called "the Internet," which on a whole range of topics
allows one to quickly and easily verify whether the impression one has,
or something one vaguely remembers hearing somewhere, is actually true.
If you can't be bothered to look it up, you might try inserting some
qualifiers - "I seem to remember that..." or "I believe that..." or "I'll
have to check this, but I think that..." - before making emphatic
empirical claims. That way, if it turns out that you're wrong, you can
easily correct the record, without looking like an idiot or a jerk (or
maybe both).
If they had that conversation with her, then maybe she'd be less
likely to find herself saying things like, "It wasn't a statistic - it
was a hypothetical."
The reference is to my off-the-cuff remark about slashing pharmaceutical profits by 80%. I should note, to be fair, that there were two portions of the comment: one in which I repeated an estimate I had heard from several people, that the US accounted for something in the range of 85% of pharma net profits after you accounted for various issues, which I then turned into 80-90% when typing--a fairly common way to give a range on an uncertain verbal statistic. And then I said, "So if you slashed pharma profits 80% . . . " When asked about it on the Washington Post live chat, I forgot the first, and thought the commenter was referring to the postulated hypothetical destruction of all US profits. It's not clear which part of the comment they are referring to.
But this "error" that I didn't check was not, contra Waldman, in a blog post, but in a comment, followed by a live chat on the Washington Post's site. Waldman doesn't seem to know that, which implies that he didn't look. I mean, I'm not saying that Waldmann should be fired. But maybe his bosses should sit down and have a talk with him about primary sources.
I may be in error on that--I've heard 80-90% from people in healthcare consulting, and I've seen that sales and profits in the US are usually larger when they're broken out on financial statements, which they aren't all that often. But they were not speaking on the record, and financial statements are not necessarily a very good guide to allocating the net profitability of a drug, because of various tedious pricing strategies involving market timing that you can read about in an exhaustive volume from the OECD that I have on my desk, if you want to come to my office, or spend $100 to buy it yourself. There are also issues of the way that companies allocate profits across international borders, which vary for all sorts of reasons, including the location of the company.
For example, GlaxoSmithKline, which Waldman mentions as a counterargument to my estimate, just had a catastrophic collapse in its US revenues due to the expiration of important patents like Wellbutrin XL, Paxil CR, Imitrex, and Lamictal. Waldman would have known this had he, like, Googled it.
But there are other ways that we can back into the question of which markets are the most important. Sadly, there are no definitive numbers on the topic that I am aware of. And I've asked a lot of researchers, left and right.
We can, first of all, look at financial statements longitudinally. We can examine what happens to profits of pharmas when sales in the US decline, while sales in Europe (and overall revenues) rise. The answer, for GlaxoSmithKline, was that profits fell 13%. The US is punching massively out of its weight class on their balance sheet.
Next, we can look at where the revenues come from. According to the OECD's invaluable Pharmaceutical Pricing Policies in a Global Market, which really is a bargain at the price, 45% of global sales come from the United States, 30% from Europe, and 9% from Japan, meaning that the US accounts for the lion's share of profit--sales in other countries are too low margin to be currently important markets, though they're undoubtedly nice gravy, and serve an investment function. The OECD also says that the United States accounts for more than half the growth in pharmaceutical revenue. And it singles out the United States as the "important exception" to the otherwise iron rule that no country's prices much affect the level of R&D spending.
We can look at per-capita pharma spending. The United States spends about twice the OECD average, and as aforementioned, does more than half of the OECD spending on pharmaceuticals.
We can back into it from prices. We know that prices are higher in the United States than anywhere else for on-patent drugs (our generics can actually be cheaper, which further ups the implied profit on first-line treatments). How do we know this? Because the American Prospect, among many other media outlets, spends a great deal of time complaining about the fact that we don't use Medicare's "purchasing power", etc. etc. If the prices are higher here, so are the profits.
We can look at prices in Canada and Mexico. They're higher than they should be, relative to the general price level in those countries and other national health systems. This implies that companies are protecting a very profitable US market.
Or we could go to the academic literature. Not the literature from advocacy groups which too often fills the pages of political magazines on the left and right, but something from someplace like Rand. And fortuitously, Rand happens to have published a paper on this very topic! Their analysis of the effect of a 20% price decrease--about what they estimate we could get:
Exhibit 1 illustrates the impact of introducing U.S. price controls on the longevity of cohorts ages 55-59, using our baseline parameter values. It shows that the introduction of price controls would reduce life expectancy by two-tenths of a year for Americans ages 55-59 alive in 2010 and by one-tenth for Europeans ages 55-59 alive in the same year. In percentage terms, these correspond to 0.8 percent and 0.7 percent declines from the status quo.
The longevity effects are larger for the older cohorts, because the effects of price controls take time to set in. The early cohorts are not exposed to innovation reductions for a number of years. This dampens the impact on their life expectancy. By 2060, Americans and Europeans in this age group lose almost 0.7 years of life expectancy as a result of U.S. price-control implementation.
On the benefit side, U.S. price controls reduce spending on dr ugs and medical care. Exhibit 2 quantifies this effect. Price controls adopted in 2005 would reduce lifetime per capita health spending by $9,000 in the United States and $400 in Europe, for those ages 55-59 alive in 2010. Reductions in Europe come about as a result of reductions in life expectancy. The U.S. effects combine life expectancy reductions with direct reductions in cost. For those ages 55-59 alive in 2060, Americans can expect $14,400 less in lifetime spending; Europeans, $2,100 less.
Exhibit 3 shows that U.S. price controls have very modest benefits in the present but substantial costs in the long r un. For the 2010 cohort, price controls pro-duce $1,100 of net per capita benefit in the United States but $8,000 of net per capita cost to Europeans in that cohort. By 2060, the cohorts ages 55-59 lose $51,000 and $54,000 in the United States and Europe, respectively.
If you're wondering how much levels of spending matter, you could go to Acemoglu and Linn, who estimate that a 1% increase in market size (aka revenue) for pharmaceuticals results in a 3-4% increase in the number of drugs being approved.
I don't want my off-the-cuff comment, based on conversations with people who were not speaking on the record, to become the source of a fake statistic for the right. 80% may not be right, and I can't back it up with any hard numbers, because there are no hard numbers available. But multiple corresponding sources suggest that the number is well over 50%. 60% is probably the floor of likely.
The thing is, the US is less than 25% of the population of the OECD. And we're the ones driving the majority of the revenue growth.
The really irritating thing is that this is not remotely controversial to anyone who has ever spoken with anyone who is in the pharmaceutical business. It is not controversial that the center of gravity of pharmaceutical research and biotech is slowly but steadily tipping towards United States, though the reasons for this are still debated. It is not controversial that when the US starts looking like it might move towards price controls, R&D departments hunker down and wait. It is not controversial that the United States is by far the most important market for pharmaceuticals as a whole. This is only a surprising finding to people who do not want to sully themselves by getting any information from the pharmaceutical industry, who, after all, are interested parties. Rather than risk contaminating themselves with the dreaded taint of business, they rely on reports written by "experts" who have never run, or even studied, businesses.
Perhaps I shouldn't use scare quotes, because of course, those experts often are real experts in important things. But their work usually betrays the belief that running a business does not take any very interesting skill beyond a ruthless willingness to kill babies for fun and profit.
So we can quibble about whether the percentages are in the high double digits, or the very high double digits, but what does the exact percentage matter? Even if we had a beautiful, firm number, it would change two years hence--probably, if history is any guide, in the direction of making the US a higher percentage of profits. The upshot is that the overwhelming weight of the available evidence indicates that the effect of price controls in the US would be real, significant, and bad.
This is particularly rich since in his actual written columns, not his off-the-cuff remarks, Waldman displays a certain penchant for inflating already inflated statistics:
Fifty million uninsured, the highest per-capita costs in the world,
millions of people pushed into bankruptcy by medical bills, worse
health outcomes than most of the industrialized world? Are you kidding
me?
We don't even have "millions" of people pushed into bankruptcy by all causes. He's inflated the number of uninsured by almost 10%, and that number is itself inflated by the inclusion of people who lack insurance for as little as a day. Worse health outcomes is, to say the least, highly contested outside of Waldman's circle of advocates. Etc.
The left used to be the side that said "You're entitled to your own opinion, but not your own facts." The idea that the United States market is by far the most important pharmaceutical market in the world, and that any significant change in the profit margins on drugs sold here will have enormous impact on the future of pharmaceuticals, is as close to a fact as we can get in this vale of uncertainty. This is not the hill on which liberals should try to stake their claim to the moral high ground.
First Class Citizens
James Fallows notes that the TSA's willingness to let business and first class ticket holders have express lanes is unseemly, and also, that the TSA isn't doing much good, anyway. Hear, hear on both counts. Don't get me wrong--when American bumps me, I too enjoy whizzing through security. But it isn't right, and the distinctions should be abolished. It's perfectly appropriate for airlines to offer perks to those who pay more. But the US government is not supposed to offer classes of service. I know we fall short of that ideal in ever so many ways. But that's no reason to abandon it entirely.
Can We Really Protect Consumer Finances?
Todd Zywicki is a law professor at George Mason who specializes in bankruptcy and similar consumer financial law. I learned to fear Zywicki when I pooh-poohed his prediction that the 2005 bankruptcy reform would permanently reduce the rate of filings; the latest data we have shows that despite the downturn, filings are still lower than they were in 2004.
He's got an interview up with Nick Gillespie of Reason on the proposed Consumer Financial Protection Agency.
He's probably more sanguine than I am about the wonders of credit cards. But his basic point is correct: a consumer financial protection agency is not going to do much to help consumers. It is true that people don't always understand all the terms in their credit card contracts or mortgages. The problem is, it is almost never the tricky hidden terms of those loans that get people into trouble. People get into trouble because hyperbolic discounting, or an insurmountable crisis, leads them to borrow more money than they can reasonably pay back. By the time a 5% increase in your credit card interest rate spells financial ruin, you've been in deep trouble for several years.
For some people this is an argument for laws that make it unprofitable to loan money to people who are likely to default, aka those living on marginal incomes. The problem is, there are two groups of people among the poor: those who will be made better off by credit, and those who will be made worse off. Judging from the bankruptcy statistics, the former group is larger. And there is no way to distinguish between them. The alternate forms of credit that poor people have traditionally used, like pawn shops and loan sharks, are worse than Bank of America.
So if the CFPA confines itself to ensuring full disclosure, this will not much help consumers, because the terms that matter are already disclosed, i.e that you are borrowing money and will have to pay it back with a high rate of interest. If it goes farther, this will probably not result in a net improvement in welfare, because poor people who really need credit will have to hock their belongings or go to loan sharks who will ding up much more than your credit rating if you default.
Practical Linguistics Semantics
Let me see if I can make this even simpler:
1. There is more than one meaning of the word rationing. Economics is a young discipline, and hasn't had the opportunity to nail all its terms down as perfectly as philosophy has. There is a fairly rare technical usage, which refers to any allocation of a scarce good: i.e. "price rationing versus fiat rationing". Then there is the common usage of the term, which refers to a fiat system in which the government uses fiat in order to abrogate the price system and impose a different distribution of the aforementioned scarce goods.
2. The former is a fact. The latter is a mistake.
3. It is no more technically incorrect to use both the common usage and the technical usage in discussing an issue than it would be to use "cost" in both the economist's sense--as any price, non-monetary or monetary, attached to an action--and in the common usage, as "price".
4. My problem with the latter is that abrogating the price system generally results in a distribution and supply of goods that does not enhance the general welfare, or even, in the long run, the welfare of the people it is supposed to be helping. (See, United Soviet Socialist Republics, economic history of). There is substantial reason to believe that rationing in World War II led to sub-optimal material outcomes, whatever its moral or spiritual benefits.
5. That said, Mr. Holbo is mistaken about the common usage. Rationing does not have to control 100% of a relevant good in order to constitute rationing, and indeed, no government ever succeeded in doing so (or for that matter, tried particularly hard). For example, during World War II, people who ate in restaurants could get around some rationing requirements in the US, and I believe also in Britain. Taxicabs got preferred access to gasoline. Both allowed the wealthy to "opt out" of the system. Yet I hope we can both agree that rationing during World War II was in the common sense, rationing.
The Third Dimension
Yipee! 3D television is coming! As longtime readers know, I'm a big fan of 3D movies. If we can get the technology broadly adopted, I don't see why it couldn't replace flat movies in a couple of decades.
Well, I mean, I can. 3D is not quite the same as stereo vision, it's more expensive to produce, and of course the technology lag will be a big barrier. Plus, at least so far, the goggles slightly dim the color. And there's the problem of handing out goggles to your guests . . .
Nonetheless, I still think the case for 3D is compelling. In a way, it's like the transition from black-and-white to color. Sure, you get all the necessary information from a black and white film. And in some ways, black and white can be more beautiful than color. But in the end, most people want to see movies the way we see the world. In color. And in stereo.
And spare me the whining about how the Republicans don't have a better
plan. They don't have the White House. They don't have the Senate.
They don't have the House. They don't have to have a better argument
than the claim that the Democrats' plan isn't better than the status
quo. It's not as if the Democrats shot down Social Security in 2005
and have now done something better.
The Presidents We Love to Hate
I found this post at Pollster.com really fascinating, particularly this chart:
What's going on here? One possible lesson is "don't mess around with the health care system". But the correlation between recent presidencies, and precipitous declines, seems even more obvious. What changed?
There are two candidates I can think of. The first is a general rise in partisanship, and decline in respect for institutions like the presidency. The second is the media.
The pre-Nixon presidents enjoyed a certain media conspiracy of silence. They were treated with a fair amount of deference, which is why the public didn't know about FDR's wheelchair, or JFK's affairs. Post Nixon, they started being a little more aggressive, so approval ratings became more volatile.
One could postulate that Carter, Clinton, Bush I, and Reagan, were all heavily influenced by the old consensus liberal media. That media had high hopes for Democrats, and didn't much like Republicans. So all Republicans had to do was, like, not invade Poland, and their approval ratings rose. The expectations for Carter and Clinton were higher, and therefore their ratings fell.
By Bush II, that consensus had been eroded by the proliferation of niche outlets. We are now inundated with information about our presidents. And the more information we have--the more time we spend watching them give bad speeches and make embarassing gaffes--the faster our approval falls. I suspect that emotionally, we actually prefer that the Great Oz stay behind the curtain, so we could content ourselves with the occasional ceremonial display. But those days are long gone.
On the other hand, this is all just so much armchair sociology. Thoughts?
September 1, 2009
Practical Philosophy, Again
I continue to find myself puzzled by John Holbo. This statement makes no sense to me:
In all seriousness: I realize I have been arguing, for several posts
now, at an unsatisfactorily high level of abstraction. (I have seized
on the strange case of McArdle because she started it, insisting on
talking only at the philosophical level, thereby giving me an excuse to
continue in that vein.) But there is a point. Philosophically, there
just isn't a case to be made against reform unless it's this simple
one: if you don't have any money, you shouldn't be entitled to any
medicine. McArdle is very indignant when people accuse her of
indifference to the fate of the poor, but - honestly - if it isn't
that, then it's nothing. At the philosophical level.
This echoes his earlier post. John Holbo, who is, I believe, a professor of philosophy, seems to believe that you can develop a philosophical opinion on a policy issue without reference to particulars.
Imagine a universe consisting entirely of two identical blue spheres. Is there a right to national health care in that universe? Please show your work.
Obviously you need a very large number of specific priors before you can even think about developing a "philosophical" opinion on health care. Of course, we do need to operate at some level of abstraction. But Holbo's response to me consists of abstracting away all of the potential problems with national health care, and then demanding to know why I don't support it--I mean, apart from the fact that if millions of poor people die, there will be more room on the subway for me. Libertarians think like that, you know.
So I'm not sure that this conversation is likely to be productive, since at least one side of it has decided to substitute sarcasm for engagement. But let's see if we can't tone down the nastiness a little, and try to have a reasonable discussion.
I'm afraid, however, that any discussion will include our assessment of the likely outcomes of our policy decisions. It's not enough to defend the principles of communism if what you get in practice is a nasty, murderous dictatorship every time.
Some philosophic principles:
We have some obligations to future generations, if not necessarily future individuals within those generations. Extreme thought experiment to clarify the principle: we cannot strip mine the earth and leave them to die.
People have no obligation to perform labor for others. I may not force a surgeon to save my mother at gunpoint. (To be sure, I might. But society would justly punish me for doing so.)
States have an absolute right to tax their citizens to provide public goods, i.e. goods that are broadly beneficial but non-excludable. They have a right to enact other laws, such as public health rules, to achieve similar ends. Both rights are constrained by the basic rights of their citizens. You may perhaps quarantine Typhoid Mary. You may not shoot her.
Societies have a right to organize themselves to improve the justice of their income distribution. That organization may include taxation. It may also include property rights, or outlawing behavior like blackmail.
Property rights did not spring full-blown from the head of Zeus into a natural right. They're contingent, evolving arrangements that happen to work really, really well for encouraging many sorts of beneficial economic activity.
Just income distribution is not just a matter of relative position, but also of how the income is acquired, and absolute need. I do not have any moral claim whatsoever on a dime of Warren Buffett's fortune, because I have a perfectly adequate lifestyle. I still wouldn't have any claim on his fortune if he suddenly got 100 times richer, provided that he acquired that money through means that we regard as licit.
Societies should strive to organize themselves so that everyone in the
society can, if they desire, acquire the means to provide their basic
needs.
There is no per-se right to health care, since "health care" is not a thing, but a shifting collection of goods and services with amorphous boundaries. Health care is a subset of the modern "basic needs" package, and therefore falls under broader distributional justice claims. No matter what your distributional justice intuitions are, it would be perfectly acceptable, if impractical, to give very sick people the cash required to treat their cancer, and let them blow it on a trip around the world.
No one should have to work more hours for the state than for themselves. This should inform our approach to taxation.
Taxation should strive to equalize the personal cost of taxation among all members of society, not the dollar amount or the percentage of income. That is, it is appropriate for Warren Buffet to pay a higher percentage of his income in taxes for shared public goods than I do, because the personal cost of taking 25% of his income is much lower than the personal cost of taking 25% of mine.
An equal distribution of misery is not a good social goal. When policies to redistribute goods or money result in fewer or poorer quality goods being available, that cost should limit the redistributive impulse.
If people will not comply with your regime, and their non-compliance may have unpleasant results for themselves or others, this is an important side constraint.
The government should not interfere in voluntary transactions unless there are significant direct externalities. The fact that you get stressed or unhappy thinking about something does not qualify as a direct negative externality. Nor does the cultural miasma that emanates from these transactions.
The government certainly should not forbid anyone to purchase something on the grounds that other people are not able to purchase that thing.
I am sure that John Holbo would quarrel with some of these principles. But on the broad package that he thinks leads to national health care, we're probably in rough agreement.
Yet I do not think that they lead to national health care! How can this be?
Mr. Holbo's answer is that I am an evil idiot who hates poor people, doesn't understand how markets and governments really work, and is philosophically incoherent. My more boring answer is that we have different assessments of how the world to which we would like to apply these philosophical principles works.
For starters, Holbo has a very simplistic view of rationing--or perhaps, the objection to rationing that most libertarians have. Either it is Britain in World War II, and the government has forbidden you to purchase more than 6 bandaids, or we don't have rationing.
This is not true either philosophically, or technically. That last principle I articulated is only one of the possible objections to rationing--one that I take it Mr. Holbo and I share, unless he is simply unwilling to come out and say he favors letting rich people die if poor people can't get a given treatment. I might point out that rationing interferes with voluntary transactions, and that if the government wants to redistribute things, it should damn well raise the taxes and buy them. I could question the justice of whatever regime you come up with. These are all actual problems with any of the proposals that will be passed.
But even after you get beyond that, the more "practical" considerations remain. If the government crowds out private health insurance for many people--a result that a number of analysts on both right and left think (hope) is likely, then the government rationing regime becomes actual rationing for the majority of the population. There is also the fact that private insurers often base their services around what the government does, setting their rates as a percentage of Medicare rates, using Medicare to define what standard medical practice is, and so forth.
The core problem with rationing, for most libertarians, is that even if you think that the government's interference is just--and hey, in the case of World War II, I am probably willing to listen--that it has other effects we recognize as bad. Black markets breed crime. Government rules are necessarily extremely broad and will make some people worse off. But the core issue is that when you disable the price signal, you usually severely degrade the production and distribution of the good in question. I hate to drag out Hayek again, but that old chestnut is still the single best exposition of why you might choose not to ration, set price floors/ceilings, or otherwise disable the price mechanism, even if you would like to see some more just distribution of the goods in question:
Assume that somewhere in the world a new opportunity for the use of
some raw material, say, tin, has arisen, or that one of the sources of
supply of tin has been eliminated. It does not matter for our
purpose--and it is very significant that it does not matter--which of
these two causes has made tin more scarce. All that the users of tin
need to know is that some of the tin they used to consume is now more
profitably employed elsewhere and that, in consequence, they must
economize tin. There is no need for the great majority of them even to
know where the more urgent need has arisen, or in favor of what other
needs they ought to husband the supply. If only some of them know
directly of the new demand, and switch resources over to it, and if the
people who are aware of the new gap thus created in turn fill it from
still other sources, the effect will rapidly spread throughout the
whole economic system and influence not only all the uses of tin but
also those of its substitutes and the substitutes of these substitutes,
the supply of all the things made of tin, and their substitutes, and so
on; and all his without the great majority of those instrumental in
bringing about these substitutions knowing anything at all about the
original cause of these changes. The whole acts as one market, not
because any of its members survey the whole field, but because their
limited individual fields of vision sufficiently overlap so that
through many intermediaries the relevant information is communicated to
all. The mere fact that there is one price for any commodity--or rather
that local prices are connected in a manner determined by the cost of
transport, etc.--brings about the solution which (it is just
conceptually possible) might have been arrived at by one single mind
possessing all the information which is in fact dispersed among all the
people involved in the process.
Mechanisms to distribute tin without prices have been tried, and found wanting. So have mechanisms to distribute practically every other good you can think of, from housing to hotdogs. Rent control distorts the housing market and discourages landlords from building or improving their housing stock. Price controls on bread result in shortages, and often distort the non-controlled sectors of the market. Fuel subsidies result in your precious tax dollars being diverted to Columbian roadside vendors who will siphon the gas out of your tank at great danger to themselves and pay something closer to market rates for it. Etc.
I mean, fine, let's not call it rationing. Let's call it "Fred". You'll still end up with a crappy, overcrowded housing stock and shortages of basic goods. What philosophical principal favors this?
Holbo says I'm oscillating between endorsing rationing, and abhoring it. As it happens, I'm not "oscillating" between anything. For one thing, I'm not particularly worried about IMAC denying treatments to people, though I think it's perfectly rational that seniors are, because frankly right now they get a really great deal.
There are two entirely separate questions here. The first is that we would like everyone to have all the health care they could ever possibly consume, but we can't. This is true of other goods, like food and housing. I find the process of figuring out what to produce, or provide, fascinating, which is why I am a business journalist. It is especially important in medicine because of the somewhat unique market. Whether the government is paying, or private companies are, there will continue to be core tensions between what the doctors want, and what the people writing the checks will approve. Right now, Medicare and Medicaid handle these problems somewhat differently--they simply slash the reimbursements until some providers refuse to take their patients. But if the government comes to dominate health care payment, that problem will become more explicit. One way or another, we're going to have to confront the fact that we can't all have everything we want--and that not having everything we want, in this case, probably includes suffering and earlier death for at least some people.
The second problem, which makes a less stirring Sunday supplement article, is that this allocative process can get badly screwed up when the government gets involved. To take one small example: we have a comprehensive national health care plan for seniors. Yet we have a shortage of geriatricians, the one specialty that you would think would be booming. Why? Because Medicare sets a single price for the services of geriatricians, and it is low. Since the field is not particularly enticing (though arguably it really should be, since geriatricians have extremely high job satisfaction compared to many more popular specialties), very few people go into it. It's one of relatively few specialties that consistently has most of its slots and fellowships unfilled.
I've already discussed what I think will happen to new medical technology and prescription drugs under a more comprehensive government system. For the same reason: prices are very useful things. And contra the liberals who keep saying I am maintaining this belief in the face of overwhelming evidence, we in fact have overwhelming evidence for two things:
National health care systems control the prices of inputs, especially the prices of inputs produced by corporations: medical technology and drugs.
Price controls lead to shortages and other suboptimal results that decrease the general welfare, even though they may very well benefit some specific people.
People talking about how Europe is not paying its "fair share" of drug development costs have the problem wrong. Drug companies charge what the market will bear. Drugs wouldn't be any cheaper here if Europe dropped its price controls. What we would have is more drugs. But this is a hidden cost. And governments almost always prefer hidden costs to explicit ones. It's just electoral logic.
I understand that progressives object to price rationing because it implies that people who don't have the money aren't worth saving. But the number of people who actually don't get treatment they would benefit from because of their insurance status is small, and there are more direct ways to deal with this problem. You don't gut rehab an entire industry because 2% of the population can't afford its products. You figure out a way to help them buy the products.
Let me close with two thoughts.
John Holbo challenged me in a former post to say what I would think about the various proposals, or a putative single payer system, if it worked just the way progressives think it will. I thought I had, but I'll do it again. The answer is that I would be against it because I don't believe in taking money from the rich to subsidize the middle class--I don't think that people whose basic needs are taken care of have any distributional claim on people with more money, even though it is perfectly fair to ask the wealthy to pay more for goods that are broadly publicly enjoyed.
If it were up to me, I'd combine a broad income subsidy like the EITC with some sort of reinsurance pool for high-risk patients, then I'd probably force everyone to buy some sort of catastrophic medical coverage on the grounds that otherwise, people with adequate income but few assets will be too tempted to freeload off the generosity of the public. But anything that involved price controls I would shoot down faster than a duck at an NRA convention.
That said, if we end up with some sort of single payer system, and I turn out to be totally wrong and there's no issue with innovation and quality stays high, I will be happy. I will still object, in principle, to middle class subsidies. But as an issue for me, it will recede to somewhere between public highways, and the words "under God" in the pledge of allegiance.
Now, having embraced Holbo's thought experiment, and hopefully illuminating the principles by which I am evaluating future health care plans, I'd hope he'd return the favor. I've asked once before, but Holbo has so far ignored the question in favor of long disquisitions on what he thinks rationing is. So here goes again:
I've answered your thought experiment, saying what I would do if everything went just as you think and hope it will. Now please turn the question around and try the same thought experiment. What if everything goes the way I think it will? What if converting the United States to a single payer system causes the pace of medical innovation to slow to a crawl? People who have diseases for which there are not now good therapies lose all hope, because there is virtually no pharma or medtech industry which might invent something to save their life. Lifespans stop lengthening. Pharma and medtech turn into fat, soft, government suppliers, using the regulatory power of the healthcare agencies to keep out incumbents. There are periodic shortages of various treatments because the government has a budget problem, or has gotten the prices wrong--and knowing us, the whole system comes with a "buy American" mandate.
Is that a tradeoff you would make? Save the few thousand who might be kept alive by healthcare they now can't afford, and take the possibility of new treatments from the millions who might be cured, or at least have their conditions improved?
It's no good dismissing it on the grounds that it's unlikely, because you can't think it any more unlikely than I think the notion of a healthcare reform that is all upside, no downside.
I can see the arguments for both sides. There's no right answer, and certainly no happy one. I'm well aware that there are real people who may die because of my preferences. And other real people who may die because of yours. None of them are any less worthy of life than any other.
That's why I found the First Things article interesting: because it faced up to the fact that on the margin, any choice we make about healthcare has terrible implications. When it comes to healthcare, we cannot help but play God. And unlike Him, we are cursed with imperfect knowledge. All we have is our intuitions, our observations of the world, and our best guess about the future.
More Reasons to Hate the CPSIA
Hold onto your hats. For the first time in human history, a large incumbent is using an ill-thought-out safety regulation as a way to kill competition from smaller firms that can't afford their own elaborate compliance apparatus.
Please can we repeal this thing now? Pretty please, with cream, sugar, etc?
Leaving the Lunatics Behind
This strikes me as a very good idea. If the right ever wants to get back in power, it needs to start policing its lunatic fringe.
Guilty Until Proven Innocent
I don't even know what to say about this. I'm against the death penalty for a number of moral and philosophical reasons that have little to do with my fear of executing an innocent man; frankly, I don't think that penning one up like an animal for forty years is all that big of an improvement. And I doubt that many of the men on death row are innocent.
Still. When those who are innocent have evidence of their innocence uncovered, you can give them some shred of their life back. There's not much you can offer a dead man except an apology to whatever portion of his spirit you think may have survived the execution.
As libertarians go, I'm a big fan of high-speed rail. I think it would be very nice if we had some in the Northeastern United States, where it might actually work, rather than the pathetic Acela that shaves a whole fifteen minutes off the trip between DC and New York. Unfortunately, that is apparently never going to happen, because in the United States, acquiring new rail rights-of-way seems to be virtually impossible. That means that the Acela has to run on existing track, which is not very good for high speed rail because, first, it was not designed for a train that accelerates to hundreds of mph, and second, there are other trains on it that don't go hundreds of mph, which slows everything down.
So we're not going to get true high speed rail in one of the two areas of the country where it stands a decent chance of working. Instead, we're going to get high speed rail in between Dallas and Houston or some other likely location--at least if the HSR part of the stimulus actually has its intended effect.
Ryan Avent defends these sorts of rail links on the grounds that if you view intercity rail as a substitute for air travel rather than car travel, they make sense. And I think that's fair. But I think that Avent underestimates the difficulties in doing this. The northeast corridor is the only place where people use trains as a substitute for cars for relatively short distances (sub 4-5 hours), because you don't need a car when you get there--and also, because road congestion makes car travel dicey, schedule-wise. This generally isn't much of a problem in flyover country.
Ah, but what about all the people who do fly between Houston and Dallas? Surely they might be persuaded to take a train if it existed?
Maybe. But I think there are a number of problems with this. First of all, many of the people flying between Dallas and Houston are not actually ending up in those cities; they're going somewhere else, because Dallas is a major hub. When I want to fly up to see my family in upstate New York, I don't take Amtrak to Penn Station and then trek out to LaGuardia, even though I much prefer rail travel to air travel. So high speed rail doesn't readily substitute for air travel unless you have a lot of connections running out of Dallas. I don't think it's an accident that the two places in America where rail kind of works--the northeast corridor, and the LA-San Diego route--are coastal runs where the regional links run down a basically straight line. And the reason that they are conveniently in a straight line is that both regions happen to be sandwiched on a narrow strip between the coastline and a big mountain range that limited inland development during the formative years. In the middle of the country, where you need to add an east-west axis to your planning, things rapidly get more expensive.
The other reason I don't think that rail is going to compete with air in most places is the very thing that makes air travel so environmentally problematic: frequency of service. For high speed rail--or any sort of rail, really--to be an environmental boon, the trains have to run pretty full.
During peak times, by my count a flight leaves Dallas for Houston every half hour, the better to allow people to tailor their flights to their schedule and their connections. But most of these flights are tiny regional jets that carry perhaps 60 passengers when full. An Acela, by contrast, carries 300. If every single one of those planes was full, and every single one of the passengers switched to rail, you'd have a peak schedule of once every hour and a half to run the train at 80% capacity. But of course, those planes aren't all full, and not all of the passengers will switch to rail, because as I mentioned above, many of them are connecting to other flights.
Maybe you could put the train station in the airport, but that doesn't encourage dense urban development, and also, even then I doubt people would use it. Once you have to clear security, you're going to fly, because for all but the shortest trips, it's faster.
More realistically, moderately cost effective and environmentally friendly trains are going to run, in most places, at best once every several hours. This multiplies the already large disadvantages of trains over air travel, because it means long layovers in a (usually) small train station.
None of this is exactly original insight to most rail professionals, which is why I don't understand why so many rail advocates get so angry at Ed Glaeser for pointing out some of the difficulties.
I'm not particularly opposed to the high-speed rail stimulus, though I do have a strong opinion that the money ought to all go to the LA-SF line, which is the only one I can see that has any probability at all of working. But I think that Ryan, and other high speed rail advocates, are guilty of severely downplaying the obstacles to ever having a European-style system. Yes, America is dense in many parts, but our areas of densest population are several thousand miles away from each other. The distance between New York and LA is greater than the distance between Paris and Istanbul--a trip that in my experience, most Europeans would hop on a plane for.
Like Will, I think that a lot of libertarians underestimate both the charms of urban density, and the role of the state in creating our current built environment. (Though I do sort of notice that the most avid mass transit advocates I know have one or none children, while the suburban ethusiasts tend to have more than that. So Will and I may be missing something.)
On the other hand, I think that liberals underestimate the role of people's preferences in the decisions the state makes. Yes, there are political failures and market failures, but the fact remains that people voluntarily move to suburbs with large lawns and no train service, which means that some of them must like to live there. They also underestimate the role of geography. It is true that most Americans live near relatively dense cities. But that is still very different from the European situation, where virtually every town is basically a suburb of one of a handful of major national cities. (Before the various regionalists start stoning me, I mean this geographically; almost every town in Europe is close enough to a major city that in America, it would be considered to be a suburb.) This enables them to build rail networks on a scale that I just don't see us being able to match here.
That's not a total argument against high speed rail; I think it does have a shot at succeeding on the coasts, where even conservatives should love its ability to relieve the congestion at airports and on highways. But as I see it, the primary obstacle to high speed rail in those locations is not conservatives of any stripe--it's community activists, environmental groups, and various other sorts of lawsuit-happy left-wing institutions. They tie up the projects in so much procedural nonsense that by the time they're built, they're way over budget, and crippled by the various compromises that had to be made along the way. The Southeast High Speed Rail Corridor, established in 1992, is expected to finish its final environmental impact statement sometime in 2011. Some unspecified time after that, it will begin building out the links between Washington DC and Charlotte, North Carolina. For somewhere between 2-5 billion dollars, and three or more decades, we will finally be able to travel from Washington to Charlotte in 6 hours and 50 minutes--just 30 minutes more than it takes to drive the same route. On the plus side, you can read while you travel. On the minus side, it will cost at least three times as much, and you'll still have to rent a car when you get there.
People who are really serious about rail should probably spend less time yelling at Ed Glaeser, and more time trying to herd the obstructionists among their own ranks into some sort of agreement. Because whether or not high speed rail theoretically could succeed in America, if the process of building it keeps going on like this, it definitely won't.
