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American Guilds   Leave a comment

When I did my series on the Medieval period a while back, I ran across some articles that were critical of capitalism and advocated for a return to the guild system that operated during the Middle Ages. I found it interesting because the commentators were from both the right and the left. Under this system, each occupation had its own guild and all employees and employers belonged to that guild. The guild regulated business particulars like prices, wages, hours of operation, and product quality. It prevented shops from underselling one another and encouraged cooperation over competition. The result was occupational stability. Everybody had a niche in a given line of work.

Image result for image of a guildThe guild system seems superficially plausible, so it seems attractive to some minds. But, remember, I’m a fan of Bastiat, so I have taken to running every economic proposal through the “seen and unseen” filter.

Consider how a guild system must work in practice. For a guild to work properly, certain people who wish to enter a particular trade are denied entry. If a particular guild happened to have a relatively liberal policy of admitting new producers to its craft, it would insist on a minimum price for all goods sold under the guild’s auspices and/or it would limit the amount of the good that any given master was permitted to produce. Whichever of these three control options (high barriers to entry, fixed minimum prices or fixed production quotas) are employed, the outcome results in higher prices and less production than if free entry into the profession, a free-price system, and unrestricted production were allowed.

Aspects of the guild system have existed in our economy in the past and some continue today, with clearly destructive consequences. Perhaps the most obvious example was the National Recovery Administration, established by the New Deal’s National Industrial Recovery Act in 1933. President Roosevelt believed that business competition had to be restricted in order to tame the alleged problem of “overproduction” and to spread among as many firms as possible what consumer demand existed.

I won’t attempt to explain FDR’s economic reasoning. Biographer John T. Flynn noted that “it is entirely possible that no one knew less about that subject than Roosevelt.” (The Roosevelt Myth, c. 1948 [1998] page 116). Roosevelt’s belief in economic fallacies had terrible consequences. The President’s faulty grasp of what caused the Depression led him to introduce a system similar in operation to the old guild structure, with the explicit intention of reducing competition. FDR borrowed heavily from a system established by Mussolini, by the way.

Under the NRA, each industry was “invited” to establish a production code. This code would set minimum wages, minimum prices, and a variety of other regulations to be observed by the firms in that industry. Note that the code established minimum prices. All sellers would have to sell their products for at least the prescribed minimum. This dramatically reduced intensity of economic competition, since with an established minimum price in effect it was not really possible to undersell one’s competitors.

The great New York Times editorial writer Henry Hazlitt had no illusions about the NRA:

[T]he American consumer is to become the victim of a series of trades and industries which, in the name of “fair competition,” will be in effect monopolies, consisting of units that agree not to make too serious an effort to undersell each other; restricting production, fixing prices—doing everything, in fact, that monopolies are formed to do. . . . Instead of a relatively flexible system with some power of adjustment to fluid world economic conditions we shall have an inadjustable structure constantly attempting—at the cost of stagnant business and employment—to resist these conditions.2

You hear this a lot on social media these days. “Businesses shouldn’t compete. They should cooperate.” It’s held up as some sort of ideal economic arrangement. The NRA gave the force of law to producers’ collusion with regard to minimum prices and wages, hours of operation, amount of output, and still other factors, thereby eliminating competition among producers in exactly the same way the guild system did.

The NRA was a complete disaster in practice. First, although such a system would indeed raise prices, such an outcome obviously defeated the program’s other aim of increasing wages, since a rise in prices must reduce the real value of wages. Increases in prices reduce what wages can buy, so at best increased wages keep even with increased prices, so really aren’t an increase. Second, the program produced such an outcry among sensible people that the U.S. Senate finally managed to force FDR into appointing a commission to investigate the NRA. Its report, issued in 1934, described the agency as “harmful, monopolistic, oppressive, grotesque, invasive, fictitious, ghastly, anomalous, preposterous, irresponsible, savage, wolfish.”3  The act establishing it was declared unconstitutional the following year.

The NRA has been gone for a long time, but a great deal of the guild mentality remains in the U.S. economy. We can observe it in the behavior of such organizations as the American Medical Association, the American Bar Association, and others. These organizations lobby the government to institute stiff requirements to acquire a license to practice, and then places obstacles in the path of anyone else who might want to provide medical, legal, or other services. Milton Friedman suggests what is often really at work in such agitation:

The justification offered is always the same: to protect the consumer. However, the reason is demonstrated by observing who lobbies at the state legislature for the imposition or strengthening of licensure. The lobbyists are invariably representatives of the occupation in question rather than of the customers. True enough, plumbers presumably know better than anyone else what their customers need to be protected against. However, it is hard to regard altruistic concern for their customers as the primary motive behind their determined efforts to get legal power to decide who may be a plumber. (Milton and Rose Friedman, 1979, “Free to Choose: A Personal Statement”, Page 229)

The American Medical Association serves to reduce the number of people who can practice medicine, and thereby increases the cost of medical treatment beyond what it would be in a competitive market. According to Clark Havighurst, Duke University Professor of Law, “Professional licensure laws have long made the provision of most personal health services the exclusive province of physicians. Obviously, such regulation limits consumers’ options by forcing them to use highly trained, expensive personnel when other types might serve quite well.”6

Consider Friedman’s description of the guild’s operations:

One effect of restricting entry into occupations through licensure is to create new disciplines: in medicine, osteopathy and chiropractic are examples. Each of these, in turn, has resorted to licensure to try to restrict its numbers. The AMA has engaged in extensive litigation charging chiropractors and osteopaths with the unlicensed practice of medicine, in an attempt to restrict them to as narrow an area as possible. Chiropractors and osteopaths in turn charge other practitioners with the unlicensed practice of chiropractic and osteopathy.7

Yes, I’m sure most members of the AMA believe that such requirements work to the consumer’s benefit by protecting us from substandard medical care, but truthfully, this highlights how interest groups subconsciously conflate their own interests with those of society as a whole. Mancur Olson cautions people to “note that the examinations are almost always imposed only on entrants. If the limits [on entry into the field] were mainly motivated by the interest of patients, older physicians would also be required to pass periodic qualifying examinations to demonstrate that they have kept their medical knowledge up to date.”8 The fact is, studies find that non-physician providers of medical care, such as midwives, nurses, and chiropractors, “can perform many health and medical services traditionally performed by physicians—with comparable health outcomes, lower costs, and high patient satisfaction.”9

Government regulations on the chiropractic profession, lay midwifery, and on the freedom of nurse practitioners to offer services within their competence, all of which make perfect sense from the point of view of the medical guild that lobbied for them, often make no sense at all from the point of view of consumer wishes or from economic considerations. For example, studies have shown that lay midwives have a much lower mother-infant death rate and a substantially lower delivery complication rate than doctors or nurse-midwives, but they remain outlawed in many states. In many cases, non-physician medical professionals can provide health services far more cheaply than can licensed physicians, but consumers are prevented from making their own decisions regarding their medical care. We shouldn’t be surprised to find that the AMA has put so much effort into undermining its professional opposition.

But if the government doesn’t do it, who will keep us safe from unqualified people practicing medicine? Economist George Reisman explains:

[T]he members of the various state medical licensing boards around the country could constitute themselves into private certification agencies and give or withhold their seal of approval to individual medical practitioners on any basis they wished. They would simply lack the power to make the absence of their particular seal of approval the basis of fining or imprisoning anyone who chose to practice medicine without it. The consumers of medical care, who presently retain the right to judge the qualifications of the state governors and legislators who are responsible for the appointment of the members of the medical licensing boards, would decide for themselves the value of certification by this or that organization. . . . Indeed, if ordinary men and women are to be allowed to vote in elections in which their votes ultimately determine the most complex matters of foreign and domestic policy, and thus where their decisions affect not only their own lives and those of their immediate families but also the lives of everyone else in the country, then surely they are entitled to the responsibility of determining matters pertaining exclusively to their own well-being.10

Reisman further observes that if government regulations allowed only automobiles less than five years old on the roads, there would certainly be an overall increase in the quality of automobiles on the roads. But a great many perfectly serviceable automobiles would thereby become unavailable for use at all. The main victims of such a policy would be the poor.11

The legal profession in the United States is also akin to a guild (or could be called a cartel).  Everyone knows that legal services are expensive, but few realize that the barriers to entry erected by what is in effect a lawyers’ guild bear much of the responsibility for that expense. Thanks to the lobbying of bar associations, the only people who may enter the legal profession are those who possess a license from the state, which is available only to those able to afford the extraordinarily costly path of law school and the bar exam. The outcome is the desired one: fewer lawyers, and therefore higher fees.

As with the medical profession, where costs could be dramatically reduced by allowing medical personnel below the rank of physician to perform routine work, paralegals are more than capable of performing a variety of legal tasks that the guild currently reserves for lawyers only. That means people wind up paying a lot more for basic legal services. In 1987, the chairman of the Legal Services Corporation, W. Clark Durant, made an extraordinary address to the American Bar Association in which he suggested that his agency be abolished and that all barriers to competition in the market be removed. One day later, the president of the ABA was calling for Durant’s resignation.

One paralegal in Portland, Oregon, decided that enough was enough. Robin Smith, who worked for several years in a large law office, had grown tired of lawyers charging exorbitant fees that their clients could barely afford, all for work that she herself had done. She opened her own business, People’s Paralegal, Inc., where she and her colleagues offered basic legal services, such as the drafting of common legal documents, at lower prices. Not surprisingly, the guild went into action. People’s Paralegal found itself on the receiving end of a lawsuit by the Oregon State Bar, accusing the firm of violating Oregon’s prohibition on the “unauthorized practice of law.” People’s Paralegal was shut down, and ordered to pay the legal fees incurred by the Oregon State Bar when litigating them out of business!

The guild mentality results in a privileged few reaping abnormally high salaries while the vast majority are made poorer by higher fees. Should anyone attempt to give consumers an alternative to this kind of exploitation, the guild springs into action to quash the challenge. An entire society organized along these lines is scarcely conceivable, but that is what the guild system amounts to.

Lesser examples abound. During the 1990s, 15-year-old Monique Landers of Kansas opened her own African hair-braiding business. Upon returning from a visit to New York, where she was honored as one of five outstanding high school entrepreneurs, she was informed that the state licensing board of Kansas was shutting her down. No customers had complained, but the guild mentality of already existing establishments didn’t like her competing with them. She was told that she could stay in business if she spent a year at a licensed cosmetology school, but few of them teach the particular skill she already possessed, and none of them would admit her prior to her seventeenth birthday. “The Board won’t let me earn my own money, and won’t let kids like me learn to take care of ourselves,” she said. “I think owning your own business is a way of being free.”15

In The State Against Blacks, Walter Williams provides a lengthy catalog of occupational licensure laws and other barriers whose effect is to place overwhelming obstacles in front of those who wish to enter an industry.

For example, to operate a taxi in New York City, a potential driver needs a medallion from the city, which costs hundreds of thousands of dollars. It is impossible to measure how many jobs are destroyed by this kind of behavior, but we can get a sense of how much higher taxi fares are now that Uber is competing with taxis in some markets.

Agriculture provides perhaps the most disgraceful example of what the guild mentality wrought in reality. The federal government’s assistance to farmers has often amounted to encouraging them to destroy (or not plant in the first place) huge stocks of crops, in order to increase their selling prices. This is what a guild would do, though the guild would more likely keep supplies down and prices up by allowing fewer people entry into the guild in the first place, and/or requiring existing guild members to adhere to a production quota. Government is a substantially less far-sighted than guides were.

The costs and consequences of such an antisocial policy are staggering, and are all the more insidious because the beneficiaries of these policies are clear and visible, while the victims are dispersed and largely unaware that an organized cabal is taking advantage of them. Right, that sounds like Henry Hazlitt’s “Economics in One Lesson”, where he stressed the need to assess the outcome of a given policy — to be aware of the long-term consequences for all groups rather than the short-term gains of one group. How many Americans realize that the price they have to pay for sugar and all foods containing sugar as an ingredient is much higher than necessary as a result of a government program?

For most of the 20th century, the price of sugar to Americans was 500% higher than the world price, thanks to government price supports.17  Sugar producers receive an average of $235,000 a year from the policy, but it costs consumers well over $3 billion per year, and it puts all American industries that use sugar at a competitive disadvantage to foreign producers who are not forced to pay such an inflated price for sugar.18  This latter point is always overlooked by opponents of free trade, who in their zeal to protect jobs in Industry X from foreign competition neglect altogether the destructive effects that their preferential policy for Industry X has for Industries A, B, and C that use X as an input in the production of their own products. Job losses in those industries will rarely be attributed to the tariff or other privileges shown to Industry X. Meanwhile, the government can point with pride to the jobs it has “saved.”

What is seen and what is not seen.

Since 1937, as much as 40% of all oranges grown annually in the U.S. have, by law, been destroyed, fed to livestock, or exported in order to raise domestic prices. Think about that the next time you wince at the price of oranges at the grocery store.

Quotas on peanuts effectively double the price of peanuts and peanut butter.

Every dairy cow in America is subsidized to the tune of $700 per year.

All this inefficiency and destruction of wealth impoverishes society as a whole, and hurts  the poor the most. We will never know the full cost of these policies, since many of their costs include jobs never created and businesses never started.

Still, is this really how we’d like our entire economy to be run?

All of these examples of genuine exploitation amount to one of many reasons that free-market economists hold the beliefs that they do. The greater the scope of state activity, the greater the potential for each pressure group to use the state apparatus for its own enrichment, at the expense of the rest of society. Since the benefits that accrue to such pressure groups from their political agitation are sizable and concentrated, while their costs are dispersed and hidden, the tendency over time is for more and more of this kind of activity to go on at the expense of the ordinary person.

Since guilds operate to restrict competition and price cutting, we must expect that the monopoly power of the guilds will have consequences analogous to those of the government favoritism we have just examined. Through a variety of methods, the federal government has granted special privileges to certain industries. In one way or another, these privileges dramatically limit competition, just as the guild system did and would.

Posted June 24, 2017 by aurorawatcherak in economics, Uncategorized

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Confessions of an Uninsured Graduate | Marianne March   Leave a comment

A few days ago I donned my gown and my cap with its little gold tassel, and I graduated with highest honors from my college. Now that I am transitioning out of student life, I have many decisions to make. What will I do? Where will I work? What am I going to do without my generous Obamacare stipend?

Image result for image of the happily uninsuredImmediately following high school, I entered the working world as a retail manager. I enjoyed the hard work, the promotions, and the encouragement I received from my supervisors. I was making just enough money to live in a rented 2-bedroom townhouse with a roommate, and my full-time status qualified me for healthcare coverage through the company. At the same time, I longed for work that would be more meaningful for me. I was disinterestedly interviewing to be the manager of my own store when I decided to pursue my education.

My passion for politics steered me towards a degree in policy and economics. For over four years I diligently prepared for exams, listened to several hundred hours of lectures, and participated in group projects that made me wish I could strangle my classmates without repercussions. I also worked part-time jobs, volunteered, interned at three different organizations, and attended a semester abroad.

When I turned 27, I was no longer covered by Mom’s insurance plan. As a student with a low-wage part-time job and the occasional unpaid internship, my tiny income allowed me to qualify for bodacious healthcare stipends. As a wage-earner in the lowest tax bracket, over 90% of my Obamacare costs were covered by a so-called premium tax credit. In 2017, things will be more complicated.

Related imageAs a recent graduate, I imagine myself carving a path in the world with the same patience that the Colorado River took to erode the Grand Canyon: slow and tedious, but not when you think of the intensity of the rapids and the roar of water as the waves pummel through the canyons and stone is forced to make way for water. I am taking a chance and accepting a temporary apprenticeship which excites me and will give me an opportunity to test-drive a career of passion.

At least one person looked me in the eye and urged me to reconsider. After all, I’m 28, I live in my parent’s basement, and I had a post-graduation plan that included dental and a 401k, not a benefit-free six-month gig. I admit it, this choice is a gamble. What am I going to do about money and healthcare? I have six months before student loan collectors come a-knockin’. Sure, there are many jobs that will provide for a closet full of clothes, a pile of bricks, and a matching storage unit. However, this opportunity just might be the onramp to a life that I long for and that I didn’t think was possible.

Unfortunately, as a temporary employee, I am not eligible for benefits like a 401k or employer-generated healthcare. I will receive compensation for my work, but my modest income will render my healthcare stipend to nearly evaporate. I will be earning too much money to keep my government assistance, but earning too little to comfortably afford the monthly premiums. Of course, there is always a choice to make: I can go back to work that is completely unfulfilling but will allow me to pay for healthcare coverage, or I can try to earn less money so that I qualify for support.

I can even shove my fists in my eyes and out-ugly Kim Kardashian’s cry-face, or I can be grateful that my organization is taking a chance on me. I can be happy that, although my financial future is questionable, delayed gratification is the very hallmark of adulting. I can’t know the future, but I believe this is the best move I can make at present.

And so, when the enrollment deadline for HealthCare.gov rolled around, I had another choice to make. My decision is to go without health insurance.

For weeks, I have received emails, automated phone calls, and voicemails, sternly reminding me, “Don’t wait for your monthly health care costs to increase by 50 percent or more in January,” and, “Come back to HealthCare.gov and try to find a less expensive plan.” But the plans are already outrageous. So, last night, at the zero-hour for signing up for healthcare, I decided to go without.

It makes me nervous. I fear the penalty. It seems ridiculous that my choice to pay out of pocket for medical visits will be punished later, and at a rate of 2.5% of my income. I think we can all agree that a monetary penalty would be better spent compensating a doctor, nurse, or dentist for their skills. The incentives are completely out of whack.

Weaning off the government teat is painful, I don’t enjoy the sensation, but there are no satisfying alternatives. So pass the vitamins and kale chips, I can’t afford any illnesses for at least six more months.

Source: Confessions of an Uninsured Graduate | Marianne March

Small Business Cheers   Leave a comment

You’ve probably heard the hysterical wailing and gnashing of teeth in the media following President Donald Trump’s withdrawal from the Paris climate agreement. Dogs will be mating with cats and polar bears with penguins any day now. It’s the end of the world as we know. President Trump cited a National Economic Research Associates’ study in his speech and  the New York Times, in one of its most hyperbolic editorials in recent years, heaped disgust and disdain on the citation of this study:

“Mr. Trump justified his decision by saying that the Paris agreement was a bad deal for the United States, buttressing his argument with a cornucopia of dystopian, dishonest and discredited data based on numbers from industry-friendly sources.”

Image result for image of climate changeThe study (which you should read and decide for yourself, but I found credible … and alarming) speculated that meeting the emissions targets could cost 2.7 million jobs, with manufacturing hit particularly hard. Overall growth would suffer. Professional economists today are skeptical of such studies, and the authors definitely hedged their bets while writing it, but you don’t even have to read such studies to know that more industrial controls via government will cost jobs and productivity. That should be common sense and history bears it out. Financial market’s responded positively to Trump’s move to withdraw, which makes you wonder what the media hysteria is about.

What exactly did we decide to opt out of? The US declined to plot decades of mandatory, top-down regulations governing the precise pace of technological innovation concerning greenhouse gases. That appears to have reduced some economic anxiety, perhaps even made some businesses breath a sigh of relief.

As someone who lives in a cold climate where heating our homes is not something we can choose not to do, I know I felt a bit of relief to know that bureaucrats in Paris would not be driving up the cost of the fuel I require to heat my home in an attempt to control the global climate.

 

Image result for image of climate change debunkedThe New York Times’ freak-out makes it seem that to be “friendly” to “industry” is enough to discredit what you say. You don’t need to know what was said and you certainly needed look at the data they used to support their conclusion. Knowing they’re “industry-friendly” is enough to disqualify any opinion, no matter how well supported, they might have. It’s like arguing economics with a socialist who uses the Marxist trick of dismissing any economic logic on grounds that its source is a member of the bourgeoisie and therefore intellectually trapped and unable to see socialist truth.

So any study paid for by those most affected by a policy must automatically discredit itself. “Industry” is supposed to be a bad thing. To be “friendly” to “industry” is proof enough that no one should ever pay attention to what you say.

But if you read the editorial, you see the NYT’s then complains that Trump ignored the advice of top industry “experts”:

Perhaps most astonishing of all, a chief executive who touts himself as a shrewd businessman, and who ran on a promise of jobs for the middle class and making America great again, seems blind to the damage this will do to America’s own economic interests… America’s private sector clearly understands this opportunity, which is why, in January, 630 businesses and investors — with names like DuPont, Hewlett Packard and Pacific Gas and Electric — signed an open letter to then-President-elect Trump and Congress, calling on them to continue supporting low-carbon policies, investment in a low-carbon economy and American participation in the Paris agreement.

 

Image result for image of climate change debunkedWell, that’s interesting. Elon Musk (Tesla) resigned as an advisor in the Trump administration in protest of the Paris pullout. Most CEOs won’t go that far, but many of the heads of the largest US companies are on record in support of the Paris climate agreement. Again, the New York Times reports:

Many prominent business executives have advocated for policies to address climate change. They’ve made the case not just on environmental grounds but on commercial ones, saying that American competitiveness would suffer if the United States abdicated leadership on climate.

It’s an entirely different picture among small- and medium-sized businesses, which make up 90% of the employers in the nation. Loud cheers went out among these owners and managers when Trump pulled out. A report from Toledo, Ohio:

“While multinational corporations such as Disney, Goldman Sachs and IBM have opposed the president’s decision to walk away from the international climate agreement, many small companies around the country were cheering him on, embracing the choice as a tough-minded business move that made good on Mr. Trump’s commitment to put America’s commercial interests first.”

What could possibly cause such a split? It really comes down to crony capitalism. Large companies are fine with the regulations, and even advocate for them. Smaller companies employing a few hundred people – which account for half of private sector employment – are almost universally opposed. There really is no such thing as “industry interests” in the political arena. There are well-connected big businesses versus everyone else. I’m in favor of the free market, but we need to be honest that the political influence of big business is not always in the best interest of everyone else.

 

Image result for image of climate change debunkedFor more than 100 years, big business has lobbied extensively for more intense government controls over trade, enterprise, labor, and property in general. Go on. Read some history which will show that government controls can benefit existing companies in the competitive process while hobbling upstarts and innovators. The large, established businesses can bear the new costs while their smaller competitors cannot.

And, thus we have a political split between big and small business over the Paris climate agreement. Whenever you hear that politicians are gathering “stakeholders” from the “business community” to find out their thoughts, become suspicious. That word “stakeholders” is synonymous with “special interests”. The interests of large companies are frequently different from the interests of free enterprise in general.

Why would the “progressive” voices at the New York Times weigh in on behalf of large business against smaller business? Well, it is itself a big business, which means … no matter what they pretend, they aren’t on the side of the “little guy”. Historically, progressives and corporate interests have often linked arms to build the state at the expense of everyone else. This includes the legions of activists who believe they are fighting for the little guy when in reality they are rigging the system to favor elites. If you drill down just a bit to the pressure-group politics behind the Paris agreement you find a partnership of government, various corporate interests, and ruling class intellectuals trying to skew the system in their favor.

The Paris agreement is not really about magically manipulating the global climate to take a certain shape in another century. That’s probably not even possible, given the size of the global climate, our current technological level and the fact that the planet has cyclically warmed and cooled for billions of years without any help from humans. We might as well just start throwing our virgin daughters to the the god Hephaestus in the same way the ancient Germans did to Ullr back when the glaciers were encroaching in the alpine meadow. It’ll have just about the same effect. And in reality, that is what we would be doing if we crippled the US economy to satisfy the Paris climate agreement … sacrificing our children’s future in order to appease an idol of man’s imagination. By choosing not to walk lockstep off an economic cliff, the United States keeps its options open. It can still try to affect the climate through environmental improvements, but without shipping trillions of dollars to the 3rd world that we might need to adapt to infrastructure damage and other issues tied to global climate change.

 

ObamaCare House of Cards   Leave a comment

The Congressional Budget Office scored the American Health Care Act and claimed the bill will reduce deficits by $119 billion over the next decade and result in 23 million fewer people being insured by 2026. So clearly, people would be better off if Obamacare were unchanged. This new report from the Department of Health and Human Services dispels that myth.

Reality Bites

The DHHS report shows that premiums in the individual market exchanges increased by 105% in the 39 states using Healthcare.gov from 2013 to 2017. This is equivalent to $244 per month ($2,928 per year) in additional premium payments for people buying insurance through the exchanges. People not eligible for exchange subsidies are fully exposed to these increases, while taxpayers will bear the brunt of subsidies for eligible enrollees.

Despite the promises that Obamacare would “cut the cost of a typical family’s premium by up to $2,500 a year,” average premiums on the exchanges more than doubled over this period. In some states, such as Alabama and Alaska, the average premium more than tripled. Welcome to my world.

B-b-but, Alaska is a small-population state with a huge land mass and people who have to travel long distances to medical care. Surely ….

No, the high average increase is not driven by a few outliers. Twenty-three out of the 39 states included in the analysis experienced premium increases in excess of 105%. Only three states, North Dakota, New Hampshire, and New Jersey, had cumulative premium increases below 50%.

 

As the report acknowledges, the composition of the population enrolling in plans through the exchanges has changed over time due to the adverse selection problems created by the law’s subsidy and regulation frameworks.

Example?

The community rating age bands, which dictate how much more companies can charge older, higher-risk enrollees, were set at 3:1 under Obamacare. A recent study by Milliman estimated that relaxing these age bands to 5:1 would reduce premiums for people aged 20-29 by 15% while increasing premiums for older enrollees.

Lower premiums for younger, healthier people would encourage more of them to enroll through the exchanges instead of foregoing health insurance because it is too expensive for them. Older, less healthy people make up a larger share of the exchange population now than in earlier years, which exacerbates the premium increases on that population.

Due to data limitations, the report does not deal with the population getting plans on the individual market but not through the exchanges. These people accounted for more than a third of the total individual market. They are not eligible for the law’s subsidies, so there is likely less adverse selection for the off-exchange population, but these enrollees have to bear the entirety of the costs of those increases.

Families choosing a plan through the exchanges have seen their premiums more than double since 2013. Alabama and Alaska, which have seen the two highest cumulative premium increases, are both down to only one insurer. In the entire country, only Virginia saw the number of participating insurers increase from 2016 to 2017. Just today, Blue Cross Blue Shield of Kansas City announced it would be exiting the exchange, leaving 25 counties in Missouri without a participating insurer for now.

The trend is absolutely unsustainable.

The lack of choices and competition in a growing number of places makes it unlikely that there will be an end to rapid premium growth without reform. While the CBO estimates will provide some insight into the effects of the bill in its current form, a working group of Senators is crafting a revised bill with major alterations.

Getting the design of replacement legislation right is important, and the CBO score will give the working group more information about which aspects of the bill that passed the House need the most adjustment. Provisions that allow for more competition and choice for people trying to get insurance through the individual market should help bring down annual premium increases.

Real vs Fake Health Care Reform, and How to Tell the Difference | Jeffrey A. Tucker   Leave a comment

You want to know why the “freedom caucus” has balked at passing the Trump-backed Ryancare health care proposal?

Source: Real vs Fake Health Care Reform, and How to Tell the Difference | Jeffrey A. Tucker

Image result for image of freedom caucus balking at ahcaBecause the package does not address the core problem of the existing system. They are leaning – correctly – on a brilliant insight from F.A. Hayek.

Let’s think this through.

Objecting to Obamacare doesn’t have to be a matter of ideology. The contraption just didn’t work.

What was the most fundamental problem with Obamacare? It attempted to set up an artificial market that lacked the most salient feature of markets: genuine competition. Real competition. I don’t mean teams struggling for control. I mean an institutional setting in which producers can innovate. They face free entry and exit. Their well-being depends on serving the consumer.

Obamacare has flopped because it disabled what remained of the competitive system with defined benefits packages, mandates that everyone be covered, requirements that everyone must purchase, and geographic limits on service provision. All these together took health care out of the realm of markets and made it a form of central planning.

And so: Obamacare resulted in soaring premiums, soaring deductibles, shoddy access, and ever-increasing bureaucracy. It became untenable. Objecting to it doesn’t have to be a matter of ideology. The contraption just didn’t work.

The core insight of the “freedom caucus” comes from Hayek and his fascinating piece “The Meaning of Competition”:

It is only through competition that we can assume that these possible savings of cost will be achieved. Even if in each instance prices were only just low enough to keep out producers which do not enjoy these or other equivalent advantages, so that each commodity were produced as cheaply as possible, though many may be sold at prices considerably above costs, this would probably be a result which could not be achieved by any other method than that of letting competition operate …

Yet the current tendency in discussion is to be intolerant about the imperfections and to be silent about the prevention of competition. We can probably still learn more about the real significance of competition by studying the results which regularly occur where competition is deliberately suppressed than by concentrating on the shortcomings of actual competition compared with an ideal which is irrelevant for the given facts.

I say advisedly “where competition is deliberately suppressed” and not merely “where it is absent,” because its main effects are usually operating, even if more slowly, so long as it is not outright suppressed with the assistance or the tolerance of the state.

The evils which experience has shown to be the regular consequence of a suppression of competition are on a different plane from those which the imperfections of competition may cause. Much more serious than the fact that prices may not correspond to marginal cost is the fact that, with an entrenched monopoly, costs are likely to be much higher than is necessary …

Competition is essentially a process of the formation of opinion: by spreading information, it creates that unity and coherence of the economic system which we presuppose when we think of it as one market. It creates the views people have about what is best and cheapest, and it is because of it that people know at least as much about possibilities and opportunities as they in fact do. It is thus a process which involves a continuous change in the data and whose significance must therefore be completely missed by any theory which treats these data as constant.

Let me paraphrase and apply: no, there will not be a perfect world. Total freedom is not a political option right now. So what’s the priority for any reform? The most crucial institutions in any society are the signaling systems of prices that reflect existing knowledge and possibilities.

When those are malfunctioning, nothing else works. Costs go up, quality goes down, innovation stops, and the sector starts to atrophy.

Competition Restoration Means Health Care Restoration

The first priority is that competition must be restored through some measure of deregulation. The mandates must go. The pre-set benefits packages must die. Insurers must gain control over their business affairs and customers have to be able to shop and choose.

It is not about ideology. It is about a system of health care insurance that actually works to serve the common good.

We must regain flexibility to inspire innovation and achieve profitability. This must happen or else premiums will keep going up. This is a requirement. Obamacare failed because it disabled the market. Any reform must restore that market. This is more important than any other feature of reform.

Trumpcare or Ryancare or whatever you want to call it does not do that. It replaces a mandate to buy with a tax incentive to buy. Otherwise it leaves the problem of the absence of genuine competition in place. True, the alternative doesn’t do anything about the transfer of payments, but, if you follow Hayek, you know that these are less important to eliminate than are the barriers to competition.

The restoration of competition will discover for us things we do not know about service provision: treatments, plans, new institutional arrangements, new forms of insurance, new methods for serving the public. Competition will grow the market and make profitability the test of success or failure.

If that does not happen, premiums will keep increasing, quality will go down, access will continue to shrink, and public anger will grow as a result.

Now is the time. Again, it is not about ideology. It is about a system of health care insurance that actually works to serve the common good.

California Considers Economic Suicide with Single-Payer Health Care | Daniel J. Mitchell   Leave a comment

Image result for image of single-payer health insurance destroying the economyIn the Dirty Harry movies, one of Clint Eastwood’s famous lines is “Go ahead, make my day.”

Source: California Considers Economic Suicide with Single-Payer Health Care | Daniel J. Mitchell

I’m tempted to say the same thing when I read about politicians proposing economically destructive policies.

Indeed, I sometimes even relish the opportunity. I endorsed Francois Hollande back in 2012, for instance, because I was confident he would make the awful French tax system even worse, thus giving me lots of additional evidence against class-warfare policies.

Mission accomplished!

Now we have another example. Politicians in California, unfazed by the disaster of Obamacare (or the nightmare of the British system), want to create a “single-payer” healthcare scheme for the Golden State.

This Would Be a Catastrophe

Here’s a description of the proposal from Sacramento Bee.

It would cost $400 billion to remake California’s health insurance marketplace and create a publicly funded universal health care system, according to a state financial analysis released Monday. California would have to find an additional $200 billion per year, including in new tax revenues, to create a so-called “single-payer” system, the analysis by the Senate Appropriations Committee found …Steep projected costs have derailed efforts over the past two decades to establish such a health care system in California. The cost is higher than the $180 billion in proposed general fund and special fund spending for the budget year beginning July 1.

…Lara and Atkins say they are driven by the belief that health care is a human right and should be guaranteed to everyone, similar to public services like safe roads and clean drinking water. …Business groups, including the California Chamber of Commerce, have deemed the bill a “job-killer.” …“It will cost employers and taxpayers billions of dollars and result in significant loss of jobs in the state,” the Chamber of Commerce said in its opposition letter.

Yes, you read correctly. In one fell swoop, California politicians would more than double the fiscal burden of government. Without a doubt, the state would take over the bottom spot in fiscal rankings (it’s already close anyhow).

Part of me hopes they do it. The economic consequences would be so catastrophic that it would serve as a powerful warning about the downside of statism.

Accelerating their Slow-Motion Suicide

The Wall Street Journal opines that this is a crazy idea, and wonders if California Democrats are crazy enough to enact it.

…it’s instructive, if not surprising, that Golden State Democrats are responding to the failure of ObamaCare by embracing single-payer health care. This proves the truism that the liberal solution to every government failure is always more government.

…California Lieutenant Governor Gavin Newsom, the frontrunner to succeed Jerry Brown as Governor next year, is running on single-payer, which shows the idea is going mainstream. At the state Democratic convention last weekend, protesters shouted down speakers who dared to ask about paying for it. The state Senate Appropriations Committee passed a single-payer bill this week, and it has a fair chance of getting to Mr. Brown’s desk.

I semi-joked that California was committing slow-motion suicide when the top income tax rate was increased to 13.3 percent.

As the editorial implies, the state’s death will come much faster if this legislation is adopted.

A $200 billion tax hike would be equivalent to a 15% payroll tax, which would come on top of the current 15.3% federal payroll tax. …The report dryly concludes that “the state-wide economic impacts of such an overall tax increase on employment is beyond the scope of this analysis.”

California’s forecasting bureaucrats may not be willing to predict the economic fallout from this scheme, but it’s not beyond the scope of my analysis.

If this legislation is adopted, the migration of taxpayers out of California will accelerate, the costs will be higher than advertised, and I’ll have a powerful new example of why big government is a disaster.

If Single Payer Gets Enacted

Ed Morrissey, in a column for The Week, explains why this proposal is bad news. He starts by observing that other states have toyed with the idea and wisely backed away.

Vermont had to abandon its attempts to impose a single-payer health-care system when its greatest champion, Gov. Peter Shumlin, discovered that it would cost far more than he had anticipated. Similarly, last year Colorado voters resoundingly rejected ColoradoCare when a study discovered that even tripling taxes wouldn’t be enough to keep up with the costs.

So what happens if single-payer is enacted by a state and costs are higher than projected and revenues are lower than projected (both very safe assumptions)?

The solutions for…fiscal meltdown in a single-payer system…all unpleasant. One option would be to cut benefits of the universal coverage, and hiking co-pays to provide disincentives for using health care. …The state could raise taxes for the health-care system as deficits increased, which would amount to ironic premium hikes from a system designed to be a response to premium hikes from insurers. Another option: Reduce the payments provided to doctors, clinics, and hospitals for their services, which would almost certainly drive providers to either reduce their access or leave the state for greener pastures.

By the way, I previously wrote about how Vermont’s leftists wisely backed off single-payer and explained that this was a great example of why federalism is a good idea.

Simply stated, even left-wing politicians understand that it’s easy to move across state lines to escape extortionary fiscal policy. And that puts pressure on them to be less greedy.

This is one of the main reasons I want to eliminate DC-based redistribution and let states be in charge of social welfare policy.

Using the same reasoning, I’ve also explained why it would be good news if California seceded. People tend to be a bit more rational when it’s more obvious that they’re voting to spend their own money.

Stay Golden

Though maybe there’s no hope for California. Let’s close by noting that some Democrat politicians in the state want to compensate for the possible repeal of the federal death tax by imposing a huge state death tax.

In a column for Forbes, Robert Wood has some of the sordid details.

California…sure does like tax increases. …The latest is a move by the Golden State to tax estates, even if the feds do not. …A bill was introduced by state Sen. Scott Wiener (D-San Francisco), asking voters to keep the estate tax after all. …if the feds repeal it, and California enacts its own estate tax replacement, will all the billionaires remain, or will high California taxes spark an exodus? It isn’t a silly question.

Of course billionaires will leave the state. And so will many millionaires. Yes, the weather and scenery are nice, but at some point rich people will do a cost-benefit analysis and decide it’s time to move.

And lots of middle-class jobs will move as well. That’s the inevitable consequence of class-warfare policy. Politicians say they’re targeting the rich, but the rest of us are the ones who suffer.

Will California politicians actually move forward with this crazy idea? Again, just as part of me hopes the state adopts single-payer, part of me hopes California imposes a confiscatory death tax. It’s useful to have examples of what not to do.

The Golden State already is in trouble. If it becomes an American version of Greece or Venezuela, bad news will become horrible news and I’ll have lots of material for future columns.

Posted June 8, 2017 by aurorawatcherak in economics

Tagged with , , ,

Environmentalists Have It Wrong   Leave a comment

Walter E. Williams

https://www.lewrockwell.com/2017/04/walter-e-williams/environmentalists-dead-wrong/

Each year, Earth Day is accompanied by predictions of doom. Let’s take a look at past predictions to determine just how much confidence we can have in today’s environmentalists’ predictions.

In 1970, when Earth Day was conceived, the late George Wald, a Nobel laureate biology professor at Harvard University, predicted, “Civilization will end within 15 or 30 years unless immediate action is taken against problems facing mankind.” Also in 1970, Paul Ehrlich, a Stanford University biologist and best-selling author of “The Population Bomb,” declared that the world’s population would soon outstrip food supplies. In an article for The Progressive, he predicted, “The death rate will increase until at least 100-200 million people per year will be starving to death during the next ten years.” He gave this warning in 1969 to Britain’s Institute of Biology: “If I were a gambler, I would take even money that England will not exist in the year 2000.” On the first Earth Day, Ehrlich warned, “In 10 years, all important animal life in the sea will be extinct.” Despite such predictions, Ehrlich has won no fewer than 16 awards, including the 1990 Crafoord Prize, the Royal Swedish Academy of Sciences’ highest award.

In International Wildlife (July 1975), Nigel Calder warned, “The threat of a new ice age must now stand alongside nuclear war as a likely source of wholesale death and misery for mankind.” In Science News (1975), C.C. Wallen of the World Meteorological Organization is reported as saying, “The cooling since 1940 has been large enough and consistent enough that it will not soon be reversed.”

In 2000, climate researcher David Viner told The Independent, a British newspaper, that within “a few years,” snowfall would become “a very rare and exciting event” in Britain. “Children just aren’t going to know what snow is,” he said. “Snowfalls are now just a thing of the past.” In the following years, the U.K. saw some of its largest snowfalls and lowest temperatures since records started being kept in 1914.

In 1970, ecologist Kenneth Watt told a Swarthmore College audience: “The world has been chilling sharply for about 20 years. If present trends continue, the world will be about 4 degrees colder for the global mean temperature in 1990 but 11 degrees colder in the year 2000. This is about twice what it would take to put us into an ice age.”

Also in 1970, Sen. Gaylord Nelson wrote in Look magazine: “Dr. S. Dillon Ripley, secretary of the Smithsonian (Institution), believes that in 25 years, somewhere between 75 and 80 percent of all the species of living animals will be extinct.”Scientist Harrison Brown published a chart in Scientific American that year estimating that mankind would run out of copper shortly after 2000. Lead, zinc, tin, gold and silver were to disappear before 1990.

Erroneous predictions didn’t start with Earth Day. In 1939, the U.S. Department of the Interior said American oil supplies would last for only another 13 years. In 1949, the secretary of the interior said the end of U.S. oil supplies was in sight. Having learned nothing from its earlier erroneous claims, in 1974 the U.S. Geological Survey said that the U.S. had only a 10-year supply of natural gas. The fact of the matter, according to the U.S. Energy Information Administration, is that as of 2014, we had 2.47 quadrillion cubic feet of natural gas, which should last about a century.

Hoodwinking Americans is part of the environmentalist agenda. Environmental activist Stephen Schneider told Discover magazine in 1989: “We have to offer up scary scenarios, make simplified, dramatic statements, and make little mention of any doubts we might have. … Each of us has to decide what the right balance is between being effective and being honest.” In 1988, then-Sen. Timothy Wirth, D-Colo., said: “We’ve got to … try to ride the global warming issue. Even if the theory of global warming is wrong … we will be doing the right thing anyway in terms of economic policy and environmental policy.”

Americans have paid a steep price for buying into environmental deception and lies.

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