Texas is not Pro-Life

Posted on November 17, 2013 by Chris Ladd — 1 Comment

A pair of Scottish businessmen found themselves alone late at night in Houston’s elite Memorial neighborhood. They went knocking on doors hoping someone would let them call a cab. Peter De Vries, age 28, was shot and killed by a homeowner through a locked door. To the disgust of De Vries’ family and the British government, no charges were filed because no law had been broken.

Welcome to the “Friendship” state. Get the hell off my lawn.

Life is cheap in Texas, yet the state remains a passionate bulwark of the “pro-life” movement. This apparent contradiction goes a long way toward revealing the values that matter most in pro-life politics.

Texas goes to spectacular lengths to protect a private right to kill. The state’s laws on lawful killing are premised on the killer’s perception of the circumstances, leaving them open to an almost unlimited range of subjective interpretation. In Texas:

You can kill an unarmed, 13-year old intruder in your home by making them kneel and shooting them in the back.

You can confront and kill an unarmed car thief.

You can kill someone who is invading your neighbor’s home.

You can kill someone whom you believe has burglarized someone else’s home even after they have fled the scene.

You can kill someone for driving on your property without permission.

You can kill someone for no discernible reason and not even get arrested.

Life is cheap in Texas.

The right to initiate lethal force to resolve a remarkably broad range of situations is deeply enshrined in Texans’ idea of their basic rights, but the private right to kill is just the tip of the death-loving iceberg.

If Texas was a country, it would rank 8th in the world in the annual number of government executions, keeping company with such pro-life nations as North Korea, Iraq, and Yemen. The state recently racked up its 500th execution since the Supreme Court reopened the practice in 1976. Half of those executions have occurred under the passionately pro-life Governor Rick Perry.

Executions may be an awkward way to measure respect for life since all of the people executed by the state (well, nearly all) were guilty of a serious crime. Unfortunately, Texas finds innumerable other ways to express its tepid regard for humanity.

Unborn life may be precious, but once you’re born in Texas don’t expect to see a lot of compassion. Texas has the country’s fifth-highest rate of child poverty, a figure that has been steadily rising across the course of Gov. Perry’s economic miracle years.

Texas’ pro-life enthusiasm somehow fails to prevent the state from leading the nation in toxic emissions, and the percentage of uninsured adults and children. It is perhaps unsurprising that Texas has the lowest rate of voter participation in the country as well as the lowest voter participation by women. Faced with one of the country’s highest poverty rates, Texas spends less on its citizens per capita than any other state besides Nevada.

Every year about 12 American women die from complications of an abortion and about 45,000 Americans die as a consequence of being uninsured. The Texas Legislature, in its passion for life, has successfully placed tighter “safety” constraints on abortion clinics while fighting tooth and nail to prevent an expansion of Medicaid.

Life is cheap in Texas, so why is the Legislature so enthusiastic about pro-life politics?

A broad range of policies are available that reliably reduce the incidence of abortion.  Ready access to contraception, honest sex ed, and strong protection from domestic abuse are enormously successful not only in preserving lives, but improving them. When women have greater freedom over their own lives and health, abortion is increasingly rare. And that’s the problem.

For all its talk about the horrors of abortion, the pro-life movement is strangely opposed to these commonsense, humane measures in almost every scenario. Restrictive abortion laws offer opportunities to constrain women’s behavior in ways that education and contraception do not. The pro-life movement takes little interest in preventing abortion if it costs them their chance to dictate women’s sexual choices.

Pro-life political success in a kill-happy place like Texas reveals the values that matter most to the movement. The pro-life movement poses no threat to the state’s vast private right to kill or its disregard for children and families post-birth. “Life” in this case is just a brand, not a value. Texas is not pro-life and neither is the pro-life movement.

If you’re planning a trip to Texas, do not be misled by all the recent public chatter about the sanctity of human life. Knock on the wrong door and a local homeowner may resort to 2nd Amendment remedies. Pro-life politics is making it tough to get an abortion in Texas, but buying a gun is always easy.

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Posted in Neo-Confederate, Religious Right, Reproductive Rights

Our Most Overregulated Underregulated Industry

Posted on November 17, 2013 by Chris Ladd — Leave a comment

The Securities Act of 1933 is one of the most elegant and successful pieces of complex legislation in history.  In less than 60 pages it constructed a regulatory framework that would allow Wall Street to survive its self-immolation and re-emerge as the engine of Western capitalism.

Then you have Dodd-Frank, a lumbering, 2300 page behemoth of special interest carve-outs.  Dodd-Frank replaces eighty years of careful emphasis on informed risk with a smothering muddle of pointless new agencies and arcane rules.

Finance is probably the most overregulated under-regulated sector of the economy.  Washington’s obsession with control has saddled the industry with appalling compliance costs while leaving the public increasingly exposed to abuse.  There is no better way to illustrate this problem and its solution than to compare Dodd-Frank with the 1933 Act.

Dodd-Frank adds to the current regulatory scheme three brand new regulatory bodies and will require thousands of additional pages of enabling regulation.  Why all the new agencies?  Because in spite of its spectacular length, Congress did not actually update our regulatory scheme, it merely delegated the hardest questions to the agencies.

 

Simple and Elegant…

It almost miraculously fails to halt risky practices by federally insured banks and regulated entities that gave rise to the 2008 collapse.  The Act does, however, seek to regulate the trade in blood diamonds, report on mine safety, and monitor minority hiring.

Dodd-Frank doesn’t get federally insured banks out of the business of derivatives trading.  It doesn’t impose margin rules and reserve requirements on banks or insurance companies trading CDO’s.  The proprietary trading, mass securitization, collusion between investment banks and rating agencies – they are all untouched.  2300 pages later these matters are left to the regulators to sort out.

By contrast, why was the Securities Act of 1933 successful in building a reasonable regulatory foundation that successfully constrained fraud?  Congress in 1933 resisted the urge to eliminate every market risk or anticipate every potential securities scenario.

Instead of trying to keep up with financial innovation, the Securities Act of 1933 created a regulated zone and required companies to abide certain rules if they wished to access that zone.  It did not try to keep qualitatively bad investments from reaching the public markets.  It tried to keep fraudulent investments from reaching the public markets.  The rules emphasized disclosure and let investors judge quality on their own.  Further, the Act preserved a range of innovation outside the regulated markets.  There, investors could take greater risks, free from the burden of most regulation.

We’ve been slowing dismantling our regulatory structure since the Reagan years, but the effort has strangely increased the burden of financial regulation.  To preserve federal protection over insurance and banking entities while allowing them to step outside this zone of protection, government has tried to keep pace with the accelerating rise in financial complexity.  Government is inherently slow.  It has not kept up.

We are left with a growing body of increasingly unstable banks, investment houses, and insurance companies.  They find life under “deregulation” to be accompanied by an absurd burden of new and largely pointless documentation requirements as government struggles to keep pace with their innovations.  Banks are doing more with your money than they were ever allowed to do before, and your government has little authentic grasp of their activities.

The philosophy behind the 1930’s Era financial regulations offers a template for a solution.  Government should not try to protect what it can’t comprehend.  Federally protected entities like FDIC insured banks should not engage in risky derivatives trading.  Pension funds, 401k investors, most insurance companies, and other protected entities should not be allowed into commodities markets, derivatives, or other environments with a high-disaster quotient.

On the other hand, private equity groups and hedge funds should be free to be as risky as they want within the limits of fraud laws.  If regulated exchanges, insured banks, insurance companies, and our quasi-government mortgage financiers were constrained from dealing in exotic instruments engineered to obscure risks we would never have been introduced to the phrase “too big to fail.”  Federally guaranteed organizations simply cannot be on the bleeding edge of financial innovation without dragging the public into their disasters.

Ambitious regulatory schemes like Dodd-Frank exist to protect financial institutions, allowing them to benefit from public backing while in engaging in activities for which they are not suited.  The same problem haunts regulatory efforts in other fields like oil exploration, food safety, or education.

Effective regulation recognizes that government cannot do everything.  It creates protected zones emphasizing transparency, while carefully limiting its own reach.  Regulations that respect the public interest over special interests consistently do less and accomplish more.

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Posted in Economics, Ownership Society, Social Capital

What Communism, Socialism and Fascism Actually Mean

Posted on November 17, 2013 by Chris Ladd — 1 Comment

Overused terms can lose their meaning.  Few words are thrown around as carelessly as Communism, Socialism, and Fascism.  Socialism is not the cheese touch.  There are realities behind these ideologies.  Reducing a word like “Communist” to the rhetorical equivalent of “doodoohead” is dangerous.

Communism

Communism solves the problem of inequality by abolishing private property ownership in favor of state control. Everyone receives all of their basic needs equally from the state (though some are more equal than others).  Economic decisions are centrally planned.  No competition or private enterprise is tolerated.  Most Communist governments permit the ownership of a few personal items, but nothing more. Totalitarian economic control effectively eliminates personal liberty.

Union membership in Communist countries is usually compulsory.  Unions operate as an arm of the central government.

North Korea, Laos and Cuba are the world’s last remaining Communist regimes.  China and Vietnam are still governed by their Communist Parties, but have abandoned Communist economics in favor of an awkward, still-evolving hybrid.  The most powerful historical examples of Communism are Russia under the Soviets and China prior to the 1980’s.

Socialism

In a Socialist system the government owns the companies in key sectors of the economy (usually, steel, airlines, utilities, energy, and major manufacturers), while private economic activity is otherwise permitted.  Technically, Socialism as described by Marx was a developmental stage in the progress toward Communism.  In practical terms it has been defined by the social democracies of post-war Western Europe.  European Socialists abandoned Marxism early in the postwar period in favor of a partnership between government, labor, and capital.

Private property ownership is protected, but taxes are very high, close to 60% today in some countries.  Top marginal rates have reached nearly 100% at times in the past.

In return for high levels of government and labor input, industries receive significant public subsidies and protection from competition.  Individuals receive state pensions, a broad range of subsidies on housing and child care, and generous unemployment and disability benefits.

European Democratic Socialism preserves broad civil individual rights while other Socialist regimes, like Venezuela, are relatively repressive.

Socialism was successful as Western Europe worked to rebuild from World War Two.  However, by the ‘70’s the absence of creative destruction under Socialist governments bred widespread stagnation and unemployment.

The Thatcher government in Britain led the way in dismantling the old Socialist model, selling off inefficient state-owned businesses and rolling back entitlements.  By the nineties, much of Europe was embracing a mixed-model Capitalism.  Union membership in Europe has been steadily declining (only 9% in France).

The governments of the Scandinavian countries have resisted the trend toward economic liberalization and remained committed to Socialism.

Fascism

Fascism leverages a powerful central authority to protect a supposedly superior, but embattled religious, cultural, or racial identity.  Fascism is totalitarian, using fear to support the complete elimination of basic civil liberties.

A Fascist government is generally organized around a single charismatic figure and seldom survives that leader’s death.  Union activity is violently suppressed and labor figures are often jailed or executed.  In many Fascist regimes a thin or non-existent social safety net is cushioned by heavy public employment in the security services and maintenance of a large military.

The Nazis are the most common example of Fascism, but perhaps not the most successful.  The Third Reich rose and collapsed spectacularly in a fairly short span.  The governments of Spain and Portugal which held power into the ‘70’s are perhaps the most emblematic examples of Fascism.

The business climate under Fascism is relatively free.  Taxes are very low and strikes are illegal.  The only major state expenditure under Fascism is the extensive police and security infrastructure, so the public sector as a percentage of GDP remains modest.   In 1965 the public sector in Spain was only 15% of GDP, less than a third of France or Britain.

Fascist states cultivate a climate of fear, usually focused on a racial or religious minority, or a perceived external threat.  Religion was a key pillar of Fascism in Spain and Portugal, with members of Opus Dei taking vital roles throughout the Franco government.  Jews, Masons, Marxists, Gypsies, and Homosexuals were targets of conspiracy theories and official repression.

Women’s rights were tightly constrained in Spain and Portugal, as they were under German and Italian Fascism.  Divorce was banned, adultery was a crime, and a woman needed a husband’s permission to get a bank account or take a job.  Contraceptives and abortion were strictly banned.  Even Playboy was outlawed in Spain until after Franco’s death.

Some argue that the Pinochet regime in Chile, the Colorado Party in Paraguay, Arab Baathists, and apartheid South Africa were Fascist, though each had many unique characteristics that make them tough to generalize.

*********

America has never been fertile ground for any of these ideologies because they each infringe either economic (Communism or Socialism) or personal (Fascism and Communism) liberties in ways that conflict with our culture.  Nonetheless each has had their moments.

The Communists played an important role in the labor movement until about World War II.  Socialists were somewhat successfully locally in the Industrial North early in the 20th Century.

Fascism had its own parallel in the Jim Crow regimes of the segregated South.  In the north Father Coughlin had a popular, if politically enigmatic, radio show in the ‘30’s.  He expressed support for the Nazis and blamed the Depression on an “international conspiracy of Jewish bankers.”

Charles Lindbergh and Henry Ford both expressed admiration for the Nazis.  Brent Bozell, who ghost-wrote Goldwater’s Conscience of a Conservative, was a staunch defender of Franco who promoted the Spanish Fascist model in the US over resistance from Goldwater and William F. Buckley.

In modern American politics these ideologies have gone the way of the Whigs, but their fragmentary remains are embedded all over the spectrum.  A skilled polemicist can play “Six Degrees of Fascism” and tie any modern political figure to any or all of these systems.  That game earns ratings, but it trivializes the sacrifices of people who suffered under these regimes.  Crying wolf to light up an audience isn’t merely deceitful, it leaves us more vulnerable to repeat terrible mistakes.

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Posted in Economics, Political Theory

Libertarian until Graduation

Posted on November 17, 2013 by Chris Ladd — Leave a comment

See that line there moving through the station?
I told you, I told you, I told you – I was one of those

Leonard Cohen, First We Take Manhattan

The images of college students thronging to Ron Paul campaign events inspire a nostalgic twinge in me.  Once I upon a time, I too needed nothing more in life than to be left free to achieve.  I was oppressed by forces all around seeking to impose mediocrity, stymie the producers and redistribute wealth.  I was a fierce Libertarian, at least until graduation.

I still remember my first brush with Ayn Rand.  At the end of a semester a professor passed out a thick photocopy of John Galt’s speech.  It was electricity on paper.  I learned that everyone who wanted something from me was a leech.  Every duty imposed without my voluntary assent was extortion.  It was my moral responsibility to evaluate everyone else entirely in terms of their worth to me.  It was cool.

There’s irony in the appeal of hardcore Libertarianism on college campuses.  Sure, college students are in principle at least, the cream of our education system, but they’re also the most uniformly dependent ‘adult’ population outside of prison.

With tuition now ranging from $20-50K a year virtually none of them are paying their own way.  Unless they’ve made some serious scratch as a child star or a drug dealer, they are getting their daily bread from either parents, government facilitated loans, or the generosity of their school’s donors.  The overwhelming majority of them will grind through many post-graduate years waiting tables before they find any credible foothold in the “producer class.”

Even at the peak of my enthusiasm for Rand it occurred to me that someone who actually took this stuff seriously could wreak havoc.  At the time, though, that was a remote concern.  The fear that Ayn Rand’s values might be cross-bred with religious fundamentalism to create some Neo-Confederate political mutant that would eat the Republican Party would have sounded loony, like predicting that terrorists might fly planes into the World Trade Center.

When I read Rand now the words are drowned out by one question ringing over and over in my head – “Did this woman have a mother?”  She writes as though she hatched fully formed, scales shimmering in the sunlight, ready on day-one to squeeze the breath from her prey.  Whatever else might dent the gleaming universal completeness of Objectivism, nothing stops it in its tracks quite like human biology.

As Rand herself acknowledges, we are each just a soft pink morsel with no armor, weak claws, and nearly useless teeth.  She insists that it is our minds that make us dominant, but those minds emerge into the world utterly dependent on someone else with nothing offer in a bargain.

And what happens to all that voluntary exchange of value when people get sick, or when it comes time to build a sewer system, or someone needs to clean up the toxic waste from Dagny Taggart’s factories?  Galt’s Gulch is a cruel, dirty hole, no fit place for a student.

Life outside the university tends to beat the Objectivism out of just about anyone with a minimal willingness to pay attention.  However, there are some valuable lessons I learned from Ayn Rand.  I should strive to deliver authentic value in any interaction.  There truly is an innate satisfaction from working hard and doing a job, any job, with integrity and quality. And, depressing as it may be, many of the people who seem in greatest need of help are in fact beyond helping.

Mostly though I just learned something I should have already known – that there is no one model for the universe that holds true in every circumstance.  There is no one philosophy that can successfully strip life of its frustrating ambiguities.  You never stop discovering new questions and you never lose the obligation to cope with complexity.

So, to all those college students who are finding “love” spelled backward in the word “Revolution,” ah…to live those days again…  I look forward to having you join us out here and find a way to support yourselves.  Your parents (remember them?) will be so proud.

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Bonus Video: Ron Paul defends Liberty by explaining that the Confederates were right and Abraham Lincoln was morally wrong about Emancipation and the Civil War.  Extra bonus, he gives the speech standing in front of a giant Confederate flag.

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Posted in Economics, Libertarian, Neo-Confederate

Economics is Broken

Posted on November 17, 2013 by Chris Ladd — 1 Comment

“We really do not know how this system works.” – Alan Greenspan, 1999

There’s a reason we place more value on astronomy than we do on astrology.  Your astrologer can tell you that maybe, perhaps, this is a good day to do something very vague like “start a new venture,” or “explore romantic options.”  Your astronomer, on the other hand, can so precisely calculate the speed and location of an object hurtling through space that engineers can successfully land a delicate robot on it.

If astrology was as useful as astronomy, your chart would not just advise you to “be open to a relationship,” it would include a name, email address, Facebook profile, specify your future wedding date, and describe your great-grandkids’ favorite hobbies.  We trust science because it works.

That’s why economics has developed into such a monumental disappointment.  It claims the authority of a science, but it doesn’t work.  It’s time to send it back to the lab.

In fairness, the social sciences are hobbled by a problem that physicists and astronomers don’t face.  The uncertainty that frustrates physicists at the quantum level is a day to day reality for economists at every level.  They work to define, understand, and manipulate a broad series of interconnected systems which are actually growing more complex while they are observed.

Consider those NASA scientists and engineers that landed a rover on Mars.  How much more difficult would their task have been if the solar system was prone to spew out or destroy new moons or planets on a whim on any given Thursday afternoon?  The physical laws of the universe are not changing. Economists are studying systems which are alive; driven by human values and gaining in complexity by the moment.

To cope with this complexity and dynamism, economists build simplified theoretical models.  Those models can be very useful in understanding broad-stroke concepts, like the manner in which money supply can influence inflation, or how supply and demand interact to set prices.  However, because of their assumptions and simplifications, those models cannot deliver the precision of a science.  Economists of recent generations have been reluctant to fully acknowledge those limitations, (see Krugman, Paul).

Instead they build ever more precise mathematical equations atop their flawed models.  The math is reliable; at least so much as it can predict an outcome in the real world that perfectly matches the assumptions in their models.  But nothing in the real world ever matches the simplifications of their models.

Economics in our time is a philosophy dressed up in equations. That does not imply that economics is worthless, only that is should not be trusted to deliver precision or provable certainty.

Bank of England economist Andy Haldane described the problem well:

“I think one of the great errors we as economists made was that we started believing the assumptions of economics, and saying things that made no intellectual sense. We started to believe that what were assumptions were actually a description of reality, and therefore that the models were a description of reality, and therefore were dependable for policy analysis.

“With hindsight, that was a pretty significant error.”

Political theorists, by contrast, are able to make real, meaningful contributions without claiming any empirical authority.  And their insights are getting better, as demonstrated in the recent book, Why Nations Fail.

Economics is beginning to feel the influence of complexity theory bleeding over from physics and evolutionary biology.  New thinkers are moving past the old reductionist methods and taking advantage of technology to develop a more realistic understanding of markets.

Popular investment writers like Barry Ritholtz at The Big Picture blog are carving holes in traditional, street-level economic assumptions.  Business thinkers like Eric Beinhocker are demonstrating the practical implications of complexity.   Umair Haque is exploring a fresh understanding of capitalism that incorporates a more realistic set of assumptions about human needs in a marketplace.  There is reason to hope that economics might one day offer advice that works.

In the meantime, we should trust economics in the same manner that we trust philosophy.  Economics in our time cannot predict outcomes, but like political science, it can help us build policies that reflect our values.  Economics can inform political decisions, but it cannot replace them.

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Posted in Economics

The Purpose of the Social Safety Net

Posted on November 17, 2013 by Chris Ladd — Leave a comment

When my father was young, my grandfather was seriously injured in a ranch accident.  He was unable to work for an extended time and was never able to return to his previous job.  While he struggled to recover and find a new way to earn a living, a wife and four young children were left with very little support.  The neighbors banded together to help, but their resources were limited.

The situation got steadily worse.  A neighbor in town had a disused chicken coop with a standpipe for running water and for a time that became the family’s home.  People occasionally brought food and helped out where they could.

They survived, deeply hungry and cold, thanks to their own hardscrabble efforts and the mercies of a community around them.  However, the damage to the family in personal terms and in their future economic capacity was serious and sustained.  The Panhandle winter they passed in a renovated chicken coop would echo in a thousand little ways.

I was a young teenager when my father was crushed by a forklift in his third major industrial injury.  He lived, but he was unable to work for more than a year and unable to ever return to his previous duties.  Neighbors were supportive, but their efforts do not explain why we retained our home, our security, and our dignity.  This difficult incident did not destroy our family financially because a few things had changed since the Chicken Coop Winter.

Texas’ evolving workers compensation laws meant that Dad, unlike my grandfather, retained some income and access to health care while he recovered.  We never needed welfare or food stamps because the middle class portions of the safety net worked for us.  Our educations were not interrupted.  As kids we hardly noticed a change apart from Dad being around a lot more.  We retained the same landscape of options for our lives that we had before the accident.

Those contrasting stories demonstrate what effective social programs are meant to accomplish.  In the conservative vision, best expressed by the late Jack Kemp, the primary purpose of the safety net is not to eliminate poverty, mandate better decisions, or create some utopia in which all human suffering disappears.  We maintain government assistance programs in order to broaden the landscape of available choices.

Conservatives need to take a breath, prepare themselves, and repeat this sentence three times without puking – “social welfare programs can have positive effects.”

An improved workers compensation program gave my father a better range of choices than his father faced in the same situation.  Those programs did not replace our individual responsibilities.  They did not turn my family into “slaves to government.” They freed us to pursue our potential.

How Republicans managed in such a short time to travel from Jack Kemp’s enterprise zones and tenant ownership programs to Mitt Romney’s “47%”slander is a sad story of fear-based politics and Neo-Confederate nightmares.  However, nothing keeps us from retracing our steps and recapturing that positive vision.

From public schools to tax policy, there is a massive political gap waiting to be exploited by a party willing to embrace a pragmatic, bottom-up approach to social welfare.  Progressives still promote government intervention that effectively replaces individual initiative with the guidance of elite experts.  Their top-down, intrusive solutions embrace what George Bush once called “the soft bigotry of low expectations” and feeds endless bureaucratic expansion.

On the other hand, you have far-right conservatives who consider nearly everything government does to be “socialism.” The Dixiecratic refugees that have fled into the Republican Party will wreck the safety net if they get half a chance.

There is a growing consensus that neither extreme has it right.  There is room in that emerging consensus for conservatives to choose a fresh approach.

Poverty is influenced by personal decisions, but not everyone has access to the same choices.  One person may have to decide whether she’s willing work hard in school so that she’ll be prepared to take over the company from Dad.  Another person may have to decide whether to resist the local gang that wants him to sell drugs.

Social welfare helps most when it expands, rather than replaces, personal options.  Our safety net works best when we use public schools, welfare, food stamps, workers compensation, unemployment, a progressive income tax, and a hundred other public policy tools not to force people to make choices we find preferable, but to make a better range of choices available.

That doesn’t mean that every program will be geared to produce an entrepreneur.  To be effective we have to acknowledge that the mentally ill, the addicted, the sick or elderly, those scarred by long years of abuse, and others may never take advantage of freer social mobility.  Opening up the pathways of capital accumulation will not help them directly.

Everyone should be offered the potential to stand on their own, but there will be some among us who will not master the skills to function effectively.  We should cooperate through government to provide for their survival and protect their basic human dignity.

There is no rational reason that conservatives should find themselves twisted into demonizing the unfortunate.  The Republican Party is in a unique position, if it could exploit it, to turn the entire debate over poverty on its head and align itself solidly with urban voters and Hispanics.  A healthy, effective Republican Party should be promoting the idea that the social safety net is a form of personal decision insurance.  By cooperating through a representative government we are preserving our access to certain choices that could otherwise by yanked away by fate.

The fight over the New Deal has been over for decades.  Conservatives need to get over it and play a role in shaping the future.

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Posted in Economics, Ownership Society, Welfare State

Universal Health Care for the Ownership Society

Posted on November 17, 2013 by Chris Ladd — 5 Comments

Sooner or later, Republicans will be forced to offer a pragmatic alternative to the Affordable Care Act. We haven’t done this because health care is a miserable political swamp for the GOP. It forces us out of our comfort zone, leaving us to confront problems that do not yield to our favorite, market-driven solutions. We can’t put this off forever. We need to move past slogans and build a plan.

The fundamental problem with health care as a market is that the “consumers” in a medical marketplace are typically ill, sometimes seriously so. A patient’s vulnerability creates a coercive effect which ruins the price-setting mechanisms of a market. This means that the tools we love most in other scenarios fail us here.

We can’t simply stand pat. Our current system is an escalating disaster. It is vastly more expensive than anything found elsewhere in the world. Its costs fall heavily on businesses ($500bn a year) and local governments ($400bn a year). Our system chains families to an employer, since individual coverage is grotesquely expensive.

Employers are groaning under spectacular costs, while retirement is being priced out of reach by the dangers of medical costs. And this system punishes the activity that our economy most needs – entrepreneurship.

The Affordable Care Act takes the existing model and buries it in a blizzard of bureaucracy. It mandates individual coverage without creating any realistic method of making it affordable. It retains our dependence on employment-based insurance while creating burdens on business which will cost millions of Americans their coverage. It is less a solution than a crisis engineered to force a solution.

The country needs a solution that acknowledges the strengths and weaknesses of our current arrangements along with the political realities than constrain our options. How can Republicans build a solution that meets conservative desires for an ownership society and liberal ambitions for universal care? Like this:

Create a Federal program for universal private insurance coverage. This program would be funded by a payroll tax and each state would have to decide whether to participate. This combines characteristics of the French (coverage and service by private providers) and the German (controlled by individual states) systems.

The program would fully fund the purchase of a private insurance plan with no premiums or deductibles. Any insurer who participated would have to insure everyone, without ratings. The menu of policies would be fairly uniform and would include co-pays to avoid over-consumption.

In effect, every citizen of every participating state would be aggregated into a giant pool. Insurers would operate in a manner similar to our utilities. They would compete on quality of service and derive profit from administrative efficiency.

Medicare and Medicaid would be obsolete, since everyone in the opt-in states would have full private coverage. The programs would be wound down over a five year period, shrinking the Federal workforce by about 8,000 and replacing a $600bn a year expense. States that chose not to participate in the Federal universal coverage program would have to replace Medicare and Medicaid on their own.

Some states might opt-out in favor of true-single payer healthcare, as California and Vermont have already tried to do. They would find this process far easier under this system than under our Federally-controlled approach. Others would…well, have to think real hard about whether Rick Perry is right for their future.

There are two main challenges in such a system, along with a galaxy of small complications. First, the cost, though cheaper than our present approach, would be relatively transparent and individual, leading to some political difficulties. Second, rules would have to be established to prevent “state-shopping.”

The cost of this proposal would be readily apparent while the savings would show up in a thousand small ways. Research suggests that such a program funded by a flat payroll tax with an income cap of around $250K a year would require a tax rate ranging somewhere between 11-13%. That’s consistent with a study done for the state of Minnesota and with the proven cost of the French system.

Much of that cost could be borne by employers in the form of a payroll tax without significantly burdening individual contractors or entrepreneurs. Their challenge is not so much FICA as the nearly bottomless cost of insurance and the difficulty obtaining individual coverage.

For an analysis, use the highest cost estimates and assume a system in which the individual payroll tax burden is 4% and the employer portion is 9%. Then consider the fact that this tax would replace the 3% we already pay in FICA for healthcare (split between employer and employee). There would also have to be some provision for individuals earning capital gains, perhaps at a slightly lower rate.

You get a comparison that looks like this:

Take a family of four earning the 2013 median income of $75,000. They have a better than average insurance plan provided by an employer, which costs $3600 in annual premiums with a $1000 deductible. In reasonably healthy years they spend about $4,200 on premiums and co-pays. They pay $1,087 in Medicare taxes. Their annual out of pocket for insurance, care, and related FICA taxes is about $5,300.

The employer’s cost for a plan this generous would be about $18,000. The employer pays an additional $1,087 in Medicare taxes for this employee. Under the present system, this family’s health care in a healthy year costs the employer about $19,000 (subsidized by a tax deduction) and costs the family directly about $5,300.

Under this plan the family would no longer pay premiums or deductibles. Their 1.45% FICA tax ($1,087) would be replaced with a 4% tax, costing $3,000. They would still have a private insurer of their choice with some responsibility for co-pays. Their average “healthy-year” costs would be about $3,500 instead of $5,300. The employer’s costs go from $19,000 to $6,750 and they no longer have to shop for health insurers.

The main political problem with this plan comes from its impact on higher-earners. Families in very good health earning more than about $150,000 (top 15%) who have good insurance from an employer will find this plan costing more out of pocket per year than our current system. They will see other benefits from the change, but they may not recognize them.

First, they will never again worry about losing health care if their company collapses, they start a business, or they retire. They won’t need to carry enough life insurance to cover health insurance premiums. They will no longer fear the prospect that a child’s illness will destroy their chance for retirement or their ability to pay for college.

Wealthier taxpayers hit by the new tax would experience vastly greater opportunities to semi-retire, work as contractors, or launch a new business, since those choices will not burdened with the spectacular fixed cost of individual health insurance. And they will live in a country that provides good quality medical care to all of its citizens without going further into debt.

If the resistance to the new tax burden were strong enough, a state could simply opt-out of the plan and finance medical coverage in another way. There would be a political outlet valve and the possibility that someone could develop a better approach.

The State shopping problem could be curbed fairly easily. New residents to an opt-in state would not only pay their tax, they would pay additional premiums influenced by how many adult years they had been living in an opt-out state.

If my income in an opt-out state dropped to zero I might be attracted to an opt-in state to obtain health care. I would have to pay a health insurance premium, perhaps $400 a month, for a fraction of the years that I had been living as an adult in an opt-out state. Still attractive, perhaps, but not exactly a free ride.

This plan could appeal to conservatives by shrinking the Federal bureaucracy, strengthening small businesses, fostering entrepreneurship, and retaining access to private, for-profit insurers. It would also restore the authority of individual states to build innovative care structures appropriate to their needs.

Liberals would finally get universal, tax-financed health care. Never again would anyone go bankrupt because of an illness in the family. The poor would have access to exactly the same care as everyone else.

There would still be hundreds of details to work out, more than can be addressed with this already long post. For the purposes of a political platform, that’s fine.

Our medical finance system provides quality care to the successfully employed, the elderly, and the wealthy. Everyone else is left to struggle through one stopgap or another. This is a poor practice that has made our system wildly expensive while delivering unimpressive outcomes and dampening business innovation. Most of all, it is morally intolerable.

Conservatives must abandon their dead-ender commitment to obstructing any and every possible solution to our medical finance problems. It’s time to face facts and try to build real-world solutions that can lead to better health outcomes, limited government scope, lower costs, and preserve the greatest possible range of individual autonomy.

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Posted in Health Care, Ownership Society

Health Care is Not a Market

Posted on November 17, 2013 by Chris Ladd — Leave a comment

“Where it is impossible to create the conditions necessary to make competition effective, we should resort to other methods of guiding economic activity.”
-Friedrich Hayek, The Road to Serfdom, p.37

Here’s a simple solution to our health care mess. Eliminate all the insurance companies, government subsidies, and other intermediaries and let people purchase medical services directly from a provider of their choice at the going market rate.

Believe it or not, this is actually a popular concept on the Republican far right, and not just from Ron Paul. Call it the “Chicken Plan” after Senator Tom Coburn’s nostalgic comments on how well this program worked in the old days, when people bartered livestock for medical care.

Republicans still struggle to promote a credible ownership culture largely because we refuse to wrestle honestly with the hard-cases; the situations in which market forces fail to allocate value effectively. Medical care is probably the most frustrating example since it stubbornly resists market solutions and affects everyone deeply.

Health care is not a market. It lacks any of the vital features of a market. Treating health care like a market means living (dying) without modern medicine. To advance the ownership culture we need an alternative to state-owned health care that keeps key decisions in personal hands, preserves market triggers where appropriate, and rids us of the strangling influence of the massive Federal bureaucracy. Republicans cannot do this until we abandon some cherished fantasies about the unquestionable, divinely-ordained righteousness of markets.

In a free market, goods and services are allocated through transactions entered into with mutual consent. No one is forced to buy from a particular supplier. No one is forced to engage in any transaction at all. If a price cannot be agreed, then a transaction simply does not occur.

The medical industry exists to serve people who have been rendered incapable of representing their own interests in an adversarial transaction. When I need health services I often need them in a way that is quite different from my desire for a good quality television or a fine automobile. As I lay unconscious under a bus, I am in no position to shop for the best provider of ambulance services at the most reasonable price. All personal volition is lost. Whatever happens next, it will not be a market transaction.

Insurance is the obvious solution, but an insurance-funded medical system means abandoning an unregulated free market for health care. The insurer-model creates a three-party managed market in which the patient has surrendered their buying power and much of their discretion to an entity whose interests are not aligned with their own. This arrangement can actually work quite well, but not under unregulated, free market conditions.

We cannot maintain an insurance-based system of health care unless there is some force aligned with the consumer that has the superior authority and financial backing to hold the insurance providers to their end of the deal. What if my insurance company refuses to pay? What if the company with which I contracted for insurance services collapses and cannot pay for my medical care when I need it?

Patients, at the moment they make their insurance purchase, have no way to be certain which provider will actually deliver on their promise. They will only discover the answer when their life, or the lives of their family members, depend on it. Under an insurance system without regulation, the market forces that would exist in a face to face transaction between consumer (patient) and supplier (doctor) disappear, replaced with a grim gamble in which the provider has every incentive to cheat.

Modern health care with all its fancy instruments, amazing methods, and success in extending life and happiness only exists because we started abandoning the free market in medicine a century ago. Go back to paying your doctor with chickens and your doctor will go back to being a part-timer who learned his craft from a book in order to augment his income from farming.

Does that mean we will eventually have to submit to single-payer health care controlled entirely by the federal government? No, the developed world includes a kaleidoscope of different approaches to health care from single-payer to almost exclusively private-insured that deliver better care at lower cost than ours. There are alternatives, but so far conservatives have refused to even look at them.

It will take more than one post to discuss the options. However, it should be noted that until Obama got elected, the most popular health care proposal among conservatives was the Heritage Foundation’s plan for an insurance mandate, formulated in 1989. Republicans in Congress proposed an individual mandate in 1993 as the Nickles-Stearns Bill and it was supported by such notorious RiNO’s as Jesse Helms and Trent Lott. That plan was adopted by Massachusetts under Mitt Romney and eventually formed the core of the Affordable Care Act. It is hard to imagine any Republican now who could survive while dealing so honestly with health care issues.

The biggest long-term structural obstacle to the progress of the ownership culture is our health care system. It punishes entrepreneurs, chains employees to traditional work, and leaves millions of Americans without access to care. We count on conservatives to deliver pragmatic, sensible solutions, but when it comes to health care Republicans are off their meds. Until Republicans are ready to move past their free market fundamentalist fantasies, the spread of the ownership society will remain stalled.

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Posted in Economics, Health Care, Ownership Society

Gun Control in the Ownership Society

Posted on November 17, 2013 by Chris Ladd — 7 Comments

In an ownership culture, government does less to dictate individual choices and more to ensure accountability, transparency and responsibility. Those values are sorely lacking in current gun laws and almost completely absent from proposals under consideration.

Our current gun laws create a thicket of largely artificial, ineffectual, and often unenforceable rules riddled with loopholes. They are practically engineered to create the impression that only criminals can obtain a weapon. Strict compliance with the laws is challenging due to their complexity and contradictions.

At the same time, laws severely limit the ability to track weapons and identify and prosecute illegal dealers, making law enforcement efforts to stop criminal abuses unreasonably difficult. As a consequence, we have not only flooded the country with firepower, we have become a primary arms market for criminals in neighboring countries.

New proposals add more symbolic regulation on top of existing symbolic regulation. For example, an assault weapons ban sounds useful until you look at how vague the restrictions are. It is easy to circumvent them and also easy to accidentally violate them. Background checks are a modest help at the moment of purchase, but they don’t follow that gun through its lifespan. Our thinking around weapons regulation fails to address the need for choice bounded by accountability, transparency, and responsibility.

We need a new approach, but the effort to craft better laws is complicated by relative indifference to gun rights on one side and tin-hat paranoia on the other. Here’s an idea that might work.

First, regarding choice, loosen most of the explicit Federal curbs related to functionality, shape, and other characteristics of guns. They sound good, but they do not accomplish their goals and they needlessly entangle responsible gun owners.

In the interests of accountability and transparency, establish a formal, national gun registry with owner’s names and weapons’ serial numbers. That registry should have roughly the same privacy protections we give to medical records and would be accessible by law enforcement and insurers. Building and maintaining the registry would be expensive. It would be funded by a sales tax on ammunition. Owning an unregistered weapon would be a Federal crime, punishable by imprisonment. Owners would also be accountable for those weapons, possessing a duty to notify authorities within a fixed time, perhaps seven days, of any theft or loss.

Gun owners would be responsible financially for their choices. No weapon could be registered or remain registered without proof of liability insurance provided annually. Lapsed insurance would be a crime which could be remedied by surrendering the uninsured weapons, paying a bond (self-insurance) or facing penalties for unlicensed possession.

Owners would bear civil liability for crimes or injuries resulting from the use of weapons registered to them. Gun ownership would cease to be a casual choice like buying a fishing pole, but it would still be available to those who handle the right responsibly. A significant percentage of the annual royalties from Cat Scratch Fever would be diverted toward insuring Ted Nugent’s arsenal, but as long as he could afford the duties of responsible ownership, The Nuge could keep whatever guns he wants.

The registration and insurance requirements would make it very difficult for irresponsible or unstable owners to maintain a large hoard of weapons. A gun owner who was falling apart mentally or failing to take reasonable safety precautions would probably start getting attention from the authorities long before they, or someone with access to their weapons, shot up a movie theater.

State and local governments might enact additional requirements, within the bounds of a general right to gun ownership, or they might not. It would probably be much harder to carry a weapon in Manhattan than in Wyoming. That is entirely appropriate. That’s Federalism.

The choice to own almost any type of gun would remain, but it would be bounded by responsibilities. That is what liberty looks like to a traditional conservative.

As for my untrammeled right to own any weapon I want with no accountability or regulation, that does not exist and has never existed. As for my right to hold weapons as a method of “defending” myself from my elected government, that does not exist and has never existed. It is not in the Constitution or the Bill of Rights and never has been found under any Constitutional interpretation we have ever used. Pack the Supreme Court with nine Scalia’s and you still won’t have those rights.

Such claims run counter to the any conservative notion of liberty. Where we are free, we are accountable. Freedom, as we like to say, is not free.

In more practical terms, if you actually believe that you’re going to defend yourself from Obama with your cache of AR-15′s and a cellar full of canned goods, there’s little to discuss here. No weapon ever developed can shoot down the black helicopters that hover silently over your dreams. Private arsenals do not guarantee our freedom. The wise use of our political power and the protection of our basic institutions preserves liberty for ourselves and our children.

It is true that no proposal this sweeping could make it through our current Congress. In fairness though, almost nothing can. We can’t even pass a budget. When our partisan political logjam clears, and it will, this framework might be the best hope for preserving relatively broad personal gun ownership for the long term.

Under this set of rules, America would remain the most heavily armed nation in the developed world by a vast margin, but we could do it with far less mayhem. Choice, accountability, transparency, and responsibility; these values of the ownership society could drastically reduce the cost and carnage of unregulated weaponry while preserving America’s unique relationship to personal firearms.

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How to End the Welfare State

Posted on November 17, 2013 by Chris Ladd — Leave a comment

How would Republicans react to a proposal that would eliminate the food stamp program, shut down welfare, slash the state and federal workforce, replace Social Security, and end the minimum wage? How would Democrats respond if that same program extended the social safety net across the entire scope of the population, eliminating poverty and fueling opportunity in under-developed areas?

The answer: Both sides would ignore it.

Those seemingly contradictory goals could actually be accomplished with an idea conceived by Libertarian economists. Neither major party, nor the Libertarian Party for that matter, has any interest in the idea but as the “big government” concept rattles to pieces under the weight of modern complexity, this approach to social welfare may rescue representative democracy from itself.

Establishing a universal “Basic Income” would eliminate the administration, politics, and preference that travel in the wake of the welfare state while snuffing out poverty once and for all. Friederick Hayek described the concept in Law, Legislation, and Liberty, Vol 3:

The assurance of a certain minimum income for everyone, or a sort of floor below which nobody need fall even when he is unable to provide for himself, appears not only to be wholly legitimate protection against a risk common to all, but a necessary part of the Great Society in which the individual no longer has specific claims on the members of the particular small group into which he was born.

Milton Friedman worked with the Nixon Administration in 1969 to propose something along these lines, calling it the Family Assistance Plan. The effort failed in Congress and has not been revisited in a serious manner.

Scholars meanwhile have kept the idea alive. Charles Murray, of all people, has formulated what may be the best plan. It involves paying every adult, regardless of need, a minimum monthly income sufficient to stave off poverty, probably about $10,000 a year.

There would be no needs analysis, no application, and no bureaucracy to decide who gets what. Everyone would receive a basic income on a monthly basis.

Income tax and a surcharge to recover the grant would start at around $25,000 in earnings. This would avoid work disincentives and the complex qualification standards that plague current welfare measures. The surcharge would end at the first $75,000 in individual income, taxing away only half of the grant.

In order to be effective, the program would have to be augmented with a universal health insurance measure. Murray rejects this concern, but that doesn’t make it go away. Without universal insurance, health costs would destroy the impact of the minimum payments. A tax-funded, state-administered, private health insurance program might be the best fit.

At current population levels, a basic income would carry an annual cost of around $2.4tr. That’s roughly double what we spend on welfare programs and Social Security now. The price tag sounds high until the savings are calculated.

To meet the $2.4tr revenue goal a budget might be structured as follows. Phase out Social Security (value accrued to current payees would have to be paid), and eliminate the rest of our suite of welfare programs. That saves currently about $1.2tr.

A 6% consumption tax would bring in about $300bn (the dynamics of a basic income might drive this revenue much higher). The tax surcharge would recover approximately $700bn. The remaining $200bn would come from a personal income tax increase of about 15% if it were applied across the board. That means an earner in the top 5% who currently pays on average almost 21% of their income in federal income tax, would instead pay roughly 24%. If we decided to keep Social Security or something like it, the income tax increase would be roughly double to cover the gap.

Such a modest tax increase could fund the end of the welfare state as we know it, end poverty, slash the size of the state and federal bureaucracy, and shrink government to a pre-World War II scale. Other benefits could include revitalization of our dying countryside, improved range of options for young people pursuing a continuing education, and support for mothers or fathers who wish to take time out of the workforce to raise children. It is solid value for the money.

Despite the potential advantages, there is little if any support for this concept on either side of the political spectrum. For all its promise, the pursuit of such an ambitious plan raises valid questions, some of which are nearly impossible to answer with certainty.

How would our lives, economy, and culture change if no one ever faced the possibility of being penniless? By opening up basic support to everyone, would we see massive new influx of entrepreneurship and risk-taking, or a great new age of sitting on the couch consuming entertainment?

Traditional conservatives are queasy about a basic income because it replaces one massive social engineering scheme with a brand new massive social engineering scheme. Liberals resist removing government from its nanny role. They fear the impact of an ownership-oriented social safety net on those who they feel need the benevolent guidance of government bureaucrats.

Circumstances may soon force a closer look at this solution. Our bureaucracy was built to tackle the problems of a mid-20th industrial democracy. That structure is failing under the pressure of a vastly more dynamic economic and cultural environment. Proposals like a basic income open a window to adaptation that could preserve the features we value in our government while stripping away much of its ponderous bulk. The idea has its problems, but it deserves serious consideration.

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Posted in Economics, Ownership Society
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