Thursday, October 30, 2008


What's a good Halloween costume for a libertarian couple this year? The only criteria are that costumes be: 1. Satirical; 2. Irreverent/Politically incorrect; and 3. Timely.

Wednesday, October 29, 2008

The Perversity of Employer-Based Health Insurance

I wrote yesterday and this morning about the problems underlying the liberal arguments against individual-based health insurance, the conservative/libertarian arguments against single-payer health insurance, and the far greater problems underlying liberal arguments in favor of the current employer-based health insurance system. I argued that the only solution to the problems of health insurance and care in this country lies in moving to individual-based insurance while simultaneously - and contrary to libertarian doctrine - permitting a sizable expansion of government safety net programs along the lines of Medicare, Medicaid, and SCHIP.

Responding to the same article to which I was responding, Ron Chusid, another blogger for whom I have massive respect (and who is also a doctor) cites with approval an argument that de-incentivizing employer-based health insurance, as the McCain plan seeks to do, will not only discourage employers from providing health insurance, but also that it will increase the costs of insurance to individuals because individual insurance plans are more expensive.

There are several problems with this latter argument, which is premised in the notion that employers are able to negotiate lower rates and better policies due to their large size. First, the fact is that most Americans currently have employer-based health insurance, yet our health care system is about the most expensive in the world, which suggests that employers don't do a very good job negotiating better rates.

Second, to the extent employers are able to negotiate better rates, those gains are lost because the insurance company has no need to treat the end consumer as a customer since the employer is the real customer. This creates an incentive to deny or restrict benefits or to create administrative hurdles to the granting of claims (all of which raise the final costs to the individual); indeed, Ron himself has indicated that under the current system, it is usually a worse bureaucratic hassle for doctors to receive payments from insurance companies than the government (he alludes to this here, although I know he specifically made the point in another post). But this perverse incentive is eliminated when the customer and the consumer are the same thing. Third, employer-based health insurance has a lot of deceptive costs to the employee; specifically, although an employee may nominally only need to pay a percentage of the insurance costs directly out of their paycheck, the fact is that employers may (and, I know from experience, effectively do) largely shift their "share" of the costs back onto the employees by simply paying lower initial salaries and wages. Indeed, employer-based health insurance largely arose as a way of replacing pay raises during WWII, when wage and price controls prevented pay raises.

This isn't to say I support the McCain proposal. For the most part, I don't, and many of the ways it seeks to achieve individual-based health care are extremely wrongheaded. His attempts to argue that he wants to preserve the employer-based health insurance system are either dishonest or completely moronic. But at the same time, liberals are wrong to now argue for the superiority of employer-based health insurance to individual-based health insurance. On this point, they should keep in mind the fundamental truth that, as Ezra Klein said yesterday, employer-based health insurance has "arguably been among the most costly and perverse mistakes in the history of American public policy." And of course Klein is right - it combines the worst elements of socialism and capitalism, without any of the mitigating effects of either. So terrible is the existing system that I would actually prefer a complete single-payer system to the existing one, at least if that is the only choice we have (and, thankfully, it isn't).

A Libertarian Argument for (Limited) Single Payer Health Care (UPDATED)

Yes, you read that title correctly. Before all the hate-mail starts pouring in, let me first make the caveat that all other things being equal, I would vastly prefer a truly free market approach to health care over either outright single payer or our current employer-based approach to health care. But depending on the goal of the health care system, single-payer health care might be a vast improvement over our current system. More likely, though, the absolute ideal would be a system in which almost all elements of the system were private and individual-based and other elements of the system were public and government based, with a very clear and recognizable boundary between the two.

First, this post is inspired by this CNN article, which seeks to create a panic by implying that McCain's health insurance proposal would be the death of employer-based health insurance. Seeing this, as well as an admission by the McCain campaign that individual-based health insurance would be less comprehensive than employer-based health insurance, much of the left side of the blogosphere, including some I hold in extremely high regard, has been in effect celebrating the employer-based health insurance system as the last bastion against the collapse of decent health care coverage.

In the course of reading these various discussions, what has become clear is that the arguments in favor of employer-based health insurance are essentially:

1. Employer-based health care is important because the participation of younger workers reduces the health care costs of older workers (implicit in this is the obvious fact that younger workers pay far, far more into the health insurance system than they get out of it); and

2. Younger workers who choose individual-based health insurance (including high-deductible insurance) will receive less than full insurance coverage.

The second of these two arguments is something of a red herring - younger workers will largely receive less than full insurance coverage because they're younger and therefore are not in need of as much insurance coverage. I don't think anyone is entitled to say that those workers should be required to spend more on health insurance than they need to, especially when they could use their resulting savings on more worthwhile pursuits.

That leaves the argument that employer-based health care is important because it creates a situation in which younger workers in essence subsidize the health care of older workers. The problem is that this rationale is the identical rationale that underlies just about every conceivable system of wealth transfer or social safety net. If, indeed, this wealth transfer/safety net is the primary goal of a health care system, then employer-based health insurance is nothing other than a privately run welfare system. If that is the case, then health insurance should not be in the private sector at all - government is uniquely qualified to run welfare programs due to the economies of scale involved plus the fact that it is not charging a premium to pocket a profit (I'm hardly against profits, but there's no reason in the world that younger employees should pay a premium for the "privilege" of sending a good chunk of their paychecks to older employees' health care). And then, of course, there is the fact that you are never going to be able to get everyone enrolled in a privately-run health care system, mandates or no mandates - a fact that was the subject of much discussion throughout the Dem primaries.**

Simply put, if the primary goal of our health care system is to make sure that older employees have their health care at least partially subsidized, then the solution is not to worship at the altar of employer-based health insurance and try to get more people enrolled in employer-based health insurance. The solution is to advocate for government to run the program.

Alas, I don't think anyone this side of Hugo Chavez would argue that the sole goal of a health care system should be to ensure that everyone has the same health care coverage. Quality and availability of care is pretty important as well. And on that issue, I don't think there can be much argument that the competition and incentives provided in a free market system are the best way of encouraging innovation and creating more doctors, to say nothing of the additional problems of regulatory capture that would inevitably appear in a purely government-run system. Additionally, a free market system in which costs are reduced from their current levels is a system that will be able to cover more people than are currently covered (albeit less than would be covered under single payer).

The problem with a pure free market approach to health care - beyond the argument that it doesn't go nearly far enough in increasing equality of access - is that a purely free market approach has some unusual flaws in the context of health care (and yes, I know that this concept comes up whenever someone doesn't like the results of the free market). For example, as John and I discussed the other day, the problem of pre-existing conditions (amongst other things) can completely eliminate consumer choice on a micro-level even in an individual-based insurance regime. And it is truly a complete elimination of consumer choice - we're not talking about a situation where the result of you choosing to end your relationship with the provider just means you can't get cable TV any more, but rather one where ending that relationship means either death or a drastically shortened life span. I would think that all but the most die-hard Objectivist would find such a result unacceptable.

In the end, though, our current system of employer-based health insurance combines the worst of socialist planning and the worst of free market capitalism, with only limited benefits of either (to the extent socialist planning has any benefits). As in the worst socialist systems, individual choice is severely limited, and the individual's ability to receive medical care is a function of the "central planning" of a nameless, faceless bureacracy. Meanwhile the profit motive, normally a driving force behind innovation and quality customer service, becomes perverted due to the dearth of consumer choice and thus treats the problems associated with socialism as features rather than flaws. The result? Higher costs and unequal access to care. Fortunately, these problems have not affected the amazingly high quality and quantity of doctors in this country - but then again, the employer-based health care system at least largely leaves in tact the need for doctors to have good relationships with their patients in order to be financially successful.

Any attempt to fix the problems of health care needs to recognize that employer-based health care in many ways represents the worst of all worlds. But it must also recognize that a purely free market approach will have some results that are unacceptable in a civilized society, while a purely socialized approach will necessarily result in a drastic reduction in the quality and quantity of medical care. I'm not enough of a regulator to even suggest what the exact delineation between public and private should look like. But those contours must be abundantly clear so as to ensure the Rule of Law. At a minimum, I suspect that any solution worth its salt will involve a sizable expansion of social safety net programs like SCHIP, Medicare, and Medicaid; but it will also involve putting an end to the insanely expensive system of employer-based health care and replacing it with an actual free market for the vast majority of consumers, which would more than make up for the difference (of course, bringing our troops home and drastically cutting military spending wouldn't hurt either).

** All of this says absolutely nothing about the perverse incentives created by employer-based health insurance, in which the insurer's customer is not the end consumer but is instead the employer.

(More at memeorandum).

***UPDATE*** Ezra Klein, unlike the Obama campaign, keeps his eye on the ball and maintains intellectual honesty, arguing that short-term strengthening of the employer-based health insurance system is not an end in itself but instead only a necessary political step to eventually transitioning to a universal system. He writes that "recognizing the political necessity of that strategy is very different than trying to convince people that employer-based health care has been a "success." Quite the opposite. It has arguably been among the most costly and perverse mistakes in the history of American public policy." But why complicate things? I'm less knowledgeable in this area than Klein, but why not just push for a gradual expansion of Medicare, Medicaid and SCHIP while simultaneously phasing out the incentives that make the employer-based system more viable than an appropriate individual-based system?

Tuesday, October 28, 2008

Know Your Audience: The Ineptness of the McCain Campaign

The National Law Journal is probably the most widely circulated periodical in the legal world, reaching many tens of thousands of attorneys every week (at least in theory . . . . it has a tendency to stack up and get ignored by busy junior associates). But it is read almost exclusively by attorneys, which are hardly what you would term a core Republican demographic.

Well, it seems that John McCain was asked to write a piece in the NLJ describing his views on "the rule of law, the federal court system, judicial appointees and priorities for the U.S. Department of Justice." The piece is, to say the least, underwhelming. It begins promisingly enough, though:

Our nation needs a new direction — different from the path pursued by the current administration, and also different from the failed liberal policies of the past proposed by Senator Barack Obama. We face enormous challenges and you, the voters, deserve more than platitudes. I feel it is my duty as a candidate to tell you specifically how my presidency would improve our government and our country.

Unfortunately, "platitudes" are exactly what we get, and the "different path" from the Bush Administration turns out to be the Bush Administration on steroids, with one exception.

Rather than discussing "the rule of law, the federal court system, judicial appointees and priorities for the U.S. Department of Justice" in any kind of depth, what we get are vacuous platitudes about "strict constructionist" vs. "liberal activist" judges, counterterrorist operations (but not even the slightest mention of civil liberties issues implicated thereby), and the need to double down on the War on Drugs, not to mention the Nixon-era claim that Dem-appointed judges will "coddle criminals."

To be sure, there is a brief, one-sentence mention of the need to de-politicize the Department of Justice, but beyond that, McCain's commentary reads like a Mitt Romney stump speech rather than an attempt to convince thousands of overly-educated, mostly left-of-center professionals to vote for him. In other words - McCain is writing for the "base," even when the only audience is about as far from the "base" as you can get.

I am not saying that McCain should have written a column that does not reflect his actual viewpoints or that throws the Republican "base" under the bus. I am simply amazed that he made absolutely no attempt to explain, in detail, why he thinks he would do a better job at, say, appointing judges but instead simply throws around buzz words like "strict constructionist" and "liberal activist" that both make most attorneys' eyes glaze over (because they are meaningless terms) and gratuitously insult judges as a group, who are quite well regarded within the legal profession.

For instance, would it have been so difficult for McCain or, more likely, his ghost writer for legal affairs, to put forward an honest and meaningful description of his judicial philosophy? If he sincerely wants to make a push for increased enforcement of banking rules and tighter banking regulations, couldn't he have discussed how he wishes to do this, particularly in light of the dramatic effect of Sarbanes-Oxley on the legal profession? Simply put, McCain's piece demonstrates a complete lack of seriousness or intellectual rigor about legal issues, two traits one needs to display in order to get the support of any well-educated group interested in a set of issues.

This isn't just a function of McCain having disagreements with the vast majority of the legal profession - it's about him nominally seeking our support while refusing to engage us on terms that have actual meaning to us, instead addressing us on terms better suited for convention speeches. In other words - it's not just bad policy, it's bad politics. And therein lies the rub. Here we are, just one week from Election Day, and McCain is still focusing almost all of his campaigning on mobilizing the "base," even when he is not speaking to the "base." To be sure, a Republican would have little chance of winning in the current economic and anti-war climate no matter what; but for someone who was always portrayed as a "moderate," whatever that means, McCain has been forced to spend the last 7-8 months trying to convince the "base" that he's one of them. That's not a good way to compete in an election.

(via Memeorandum).

Friday, October 10, 2008

The Fall (and Eventual Rise) of the Conservative Intellectual

(via Memeorandum)

For all the problems libertarians should and do have with David Brooks (who is as unlibertarian a conservative as they come), the fact is that he is a gifted writer who makes a sincere attempt at intellectual honesty capable of getting well beyond standard political talking points. His column yesterday is typical of that intellectual honesty and, I think, describes one of the GOP's central problems right now to a "T." It's tough to pick one quote that does the whole piece justice, but this quote fairly well sums up his point:

But over the past few decades, the Republican Party has driven away people who live in cities, in highly educated regions and on the coasts. This expulsion has had many causes. But the big one is this: Republican political tacticians decided to mobilize their coalition with a form of social class warfare. Democrats kept nominating coastal pointy-heads like Michael Dukakis so Republicans attacked coastal pointy-heads. Over the past 15 years, the same argument has been heard from a thousand politicians and a hundred television and talk-radio jocks. The nation is divided between the wholesome Joe Sixpacks in the heartland and the oversophisticated, overeducated, oversecularized denizens of the coasts. What had been a disdain for liberal intellectuals slipped into a disdain for the educated class as a whole.

As a result, says Brooks, the GOP has completely alienated the educated classes through a form of class warfare at the same time as its economic policy views have alienated large segments of the working class. In a thoughtful response that thoroughly supplements Brooks' piece, publius at ObsidianWings writes that the real problem that has pushed intellectuals away is the GOP's "nasty embrace of social views that [intellectuals] find stupid and repellent."

I think they're both right. But more importantly, I think they both put in perspective not only how the coalition of the Right is withering away, but also (perhaps inadvertently) provide some useful insight into how the coalition of the Right will be restructured in the aftermath of this election. What little intellectual infrastructure the GOP had was a combination of Burkean conservatives like Buckley or Kirk, libertarianish economists, and neoconservative intellectuals. Of course, coastal intellectuals don't translate into votes in the Southeast and Middle America - former Dem strongholds that didn't start moving to the GOP until the 60s. And so entered the rise of religious-based conservatism, which was - at least initially - relatively compatible with the GOP intellectual elite on the leading issues of the time. Of course, issues change, and eventually that compatibility began to crack, a topic on which I've written extensively before. Since the (inherently anti-intellectual) religious-based conservatism most easily translated into votes, it was only natural that appeals to it would become increasingly central to any electoral strategy. But as the GOP philosophy became less coherent, the party was forced to turn to something that would allow religious conservatives to ignore the incompatibility while still maintaining enough of their other positions to keep the other philosophical strains in the fold: fear (and yes, the Dems are no less willing to deploy fear as an electoral strategy when it suits their purposes - they just deploy it on different issues). The problem, however, was that there are a lot of unintended consequences when you deploy fear as an electoral strategy - most notably, as publius says, the religious conservatives (and really movement conservatives as a whole) became the brooms from the Sorcerer's Apprentice. The increasingly heated rhetoric coming from these stoked flames inevitably took on a hateful and anti-intellectual tone, causing conservatives of the more Burkean and neo-conservative variety, including Brooks himself, to become increasingly lukewarm in their support of the GOP. The more libertarian intellectuals have increasingly left the GOP coalition entirely.

However, that is not to say that GOP intellectualism is permanently dead, replaced by a purely theocratic vision of the world. Neo-conservatives and Burkeans have largely remained within the fold even as they have been less vocal in their partisanship. Their problem with the party, I suspect, is more a problem with tactics than philosophy - neo-conservatism as a philosophy plays particularly well with others, and Burkean conservatives largely agree with many of the prescriptions of the more theorcratically-inclined, if not their tactics and rhetoric. Instead, these intellectuals have begun to push for something akin to a new type of "movement conservatism" that more properly reflects the current makeup of the GOP coalition and can help the party's standing with the working class.

With libertarians leaving the party in droves, the remaining GOP opinion-makers are increasingly free to abandon free market rhetoric; put another way, they have become smaller and thus have to please fewer groups. The result? National Greatness Conservatism and so-called Sam's Club Republicans, two worldviews that are 1. intellectually honest; 2. capable of appealing to the GOP base; 3. capable of eventually bringing in groups not currently in the GOP coalition; 4. are currently quite compatible with each other; and 5. are completely incompatible with any version of libertarianism.

In many ways, the reason I was unsurprised by - and correctly predicted - the success of McCain and Huckabee in the primaries was that they each represented one of these (coherent) worldviews, allowing them to appear "authentic" and "sincere," traits that are required to get votes from thoughtful voters. Romney, who tried to represent each leg of the Coalition's so-called "stool," including libertarians, came across as insincere and robotic and, as a result, completely untrustworthy. But Romney was always going to garner a lot of support from the GOP "base" because his worldview was identical to theirs, defined not by a coherent philosophy but rather by the GOP's Frankenstein's Monster philosophy that was simply a bizarre mish-mosh of various strains of conservatism, libertarianism, and religion.*

So, if McCain actually does represent a coherent philosophy that is capable of both keeping the GOP coalition mostly intact and appealing to other groups, why is he getting beaten so badly by Obama? Several reasons: 1. The fundamentals in this election are really, really bad for any Republican; 2. Although he has largely succeeded in keeping movement conservatives in the fold, this has come at a price of having to sound an awful lot like Romney at times, not to mention doubling-down on fear tactics; 3. New political movements take time to gain steam, especially when they are taking the place of a movement that has fallen into disrepute; 4. He made a really bad choice on his running mate.

All of this is to say that I think Brooks' column (and publius' response) correctly diagnoses what has happened to the GOP. But it is also to say that the GOP's decline is not a death - it will rise again, with the once-dominant ideology of Russell Kirk and William F. Buckley subsumed within the ideology of not only Bill Kristol, but also people like Ross Douthat and Brooks himself. Despite publius' hopes, Sarah Palin - who represents the increasingly small segment of Romney-style movement conservatism - will not stay long in the GOP spotlight, at least not in a position of honor. Instead, I think we can expect a GOP in which Mike Huckabee becomes the party sage, delivering the final blow to the last vestiges of libertarianism in the GOP while at the same time stealing ever-more working class (and more importantly, populist-leaning) votes from the Dems. Naturally, this will also make the Dems increasingly less hostile to libertarianism as they trade their least libertarian supporters for libertarianish former Republicans.

*I have written before how adherence to such a "pu-pu platter" philosophy is the inevitable result of becoming overly loyal to a political party, whose policy positions are inherently the result of tradeoffs and logrolling amongst member coalition groups.

UPDATE: More on Brooks' column from Schwenkler, who thinks the current state of the party stems largely from a combination of bad ideas and bad candidates. For the reasons I lay out both above and in the comments to John's post, I respectfully disagree with this explanation without disagreeing that the GOP's main Presidential candidates were astoundingly bad. I just think it was no twist of fate that left the GOP with astoundingly bad candidates like Romney and Giuliani.

Thursday, October 9, 2008

We Done All Lost Our Minds!

(Via memeorandum)

Last night, I mentioned to my wife that I thought nationalizatin of the banking industry, at least in the near term, was "highly unlikely." I was wrong. Very, very wrong.

What most disturbs me about this is that, after the last 8 years of warrantless wiretapping and various other abuses of government power through proxy corporations and private enterprises (Blackwater, anyone?), it is many liberals and progressives most loudly supportive of this move (notably, I do not at this moment believe Obama has expressed support for it, and I have noticed several prominent lefty bloggers who appear openly skeptical of it).

Liberals/Progressives ought to rethink their support of nationalizing the banking industry. If we are talking only short-term nationalization, then so be it, as long as there is a clear date by which government dumps its ownership (not that I support even short-term nationalization; I just don't think it would be completely disastrous). But if we are talking about something more long-term, then this creates a severe potential for true corporatism/fascism.

To demonstrate, I simply point out how the warrantless wiretapping program began - the administration approached the phone companies about instituting the program. Those who agreed to do so were rewarded; those who didn't, not so much. Now imagine the danger created when government decides which businesses do and do not get credit, which is so often a necessary requirement for business growth and survival, both large and small. Isn't it rather easy to imagine large corporations getting loans conditioned on their willingness to go along with the ruling administration's "Policy X"? Nationalization of the banking industry, in this sense, allows the ruling administration to do an end run around the Constitution by getting corporations and business to "voluntarily" do things on behalf of the government that the government would otherwise be prohibited from doing itself.

At a minimum, long term nationalization of the banking industry creates a situation that is rife for corruption. Take a look at some of what occurred in South (yes, South) Korea in the 1980s, where, IIRC, only one of the 30 largest corporations refused to play along with the ruling party's demands (for bribes, kickbacks, and IIRC compliance with party policy preferences). That one corporation suddenly found, amongst other things, that it was no longer able to obtain credit.

Perhaps a President Obama would be rather benevolent in his use of these powers afforded by nationalization, and maybe he would try to ensure that his underlings were in fact fair and neutral in making determinations on the issuance of credit. Problem is that: 1. there is no guarantee he will win, 2. we have no idea who will be in power 4 or 8 years from now, and 3. even the most benevolent of leaders will be tempted to use this tremendous power as a way of serving his concept of the "greater good" under the view that the ends justify the means.

Indeed, point 3 is precisely what has been the problem the last 8 years. While I think the Bushies have dramatically overstated the threats we face to national security, I also don't doubt that they believe those threats are real and severe. And therein lies the rub - because they view the "greater good" of national security as so important, however honestly, almost anything done in service of that "greater good" can be justified.

Admittedly, the details of the takeover plan have not been announced yet, and it does not appear that the government will be taking a controlling interest in the banks (as the Fed did with AIG). If the details contain a plan to divest the government of whatever interest it takes in the banks over a period of time (and that plan is complied with) and it does not exercise control over day-to-day decisions on issuance of credit, then perhaps there is not much to worry about. But if the details are otherwise....well, Switzerland is looking better by the day.

(Cross-posted at RCP Cross-Tabs)

Thursday, October 2, 2008

A Government Failure. Nothing Else.

Professor Steven Horwitz's "An Open Letter to My Friends on the Left" is a must read. An excerpt:

Consider instead that the problems of this mess were caused by the very kinds of government regulation that you now propose. Consider instead that effects of the profit motive that you decry depend upon the incentives that institutions, regulations, and policies create, which in this case led profit-seekers to do great damage. Consider instead that the regulations that may have been the cause were supported by, as they have often been throughout US history, the very firms being regulated, mostly because they worked to said firms' benefit, even as they screwed the rest of us. Consider all of this as you ask for more of the same in the name of fixing the problem. And finally, consider why you would ever imagine that those with wealth and power wouldn't rig a new regulatory process in their favor.

Long story short, what we are seeing in the credit markets is a government failure, not a market failure. The same people who want us to embrace "government as coolness", who, not uncoincidentally, are naive in their opinion that a belief in free markets comes from some knee-jerk response to government, seem to think that this problem was caused by deregulation. Maybe Horwitz's piece will at least sway liberal bloggers, who may ultimately disagree on the cure to this issue, to back off on their position on the cause because it is, I believe, incorrect. Also, a change of heart, not that I expect it, would go a long way to strengthening the possibility of the sort of left-libertarian alliance Mark tends to favor.

For more on how those subject to regulations end of being able to rig the game in their favor, I strongly recommend this post by Mark or this post over at the Amateur Economist (the Baptist and Bootleggers Dilemma).

Note: It doesn't necessarily mean that we oppose regulation (most libertarians support certain forms of regulation), but rent seekers make us very skeptical towards regulation, as it should be determined whether such regulations serve a valid public purpose (health, safety, welfare, etc.) or seek to prop up some favored interest group at the expense of others (i.e. labor unions). Most of us would support the former and deplore the latter. It's hardly a reflexive knee-jerk reaction to regulation.