Uncommon Sense

politics and society are, unfortunately, much the same thing

What happens when no one asks whether insurance is really a good way to deal with health care costs?

original article: How Obamacare Hurts Millions Of Americans By Robbing Peter To Pay For Paul
May 10, 2017 by Scott Ehrlich

In my prior article, I tried to outline the pre-existing condition issue. I concluded the amount of people potentially affected by this issue ranged somewhere between 500,000 and 1.9 million and, due to political reasons, it is much likelier to be on the lower end of that spectrum.

So for this article, I will use 1 million people as my number. Based on this data from Avalere, it’s a pretty sensible estimate, if you only count states that are solely Republican-run and therefore likely to seek a waiver.

This 1 million people are adults covered by the individual market, at the moment largely through the federal exchanges. People on group insurance are not affected by pre-existing conditions laws, as those plans do not do individual underwriting. People in government insurance such as Medicaid, Medicare, and Tri-Care are guaranteed issue upon meeting certain conditions. Children under 19 who aren’t covered by Medicaid are covered by the Children’s Health Insurance Program, which has no pre-existing condition exclusions. Futher, people in Maine, Massachusetts, New Jersey, New York, Vermont, and Washington have state laws that mandate guaranteed issue.

So our at-risk people are made up of the remaining 7 million or so people in the other 45 states who choose to self-insure, have pre-existing conditions that stop them from getting insurance, have states granted waivers under the American Health Care Act (AHCA, if it passes Congress in its current form), and have failed to keep continuous coverage.

Assuming your eyes glazed over a quarter of a way through that sentence, that shows just how many safety nets one has to fall through to be at risk of being denied coverage at the market rate, or any rate, for pre-existing conditions. Recall that just because someone has a pre-existing condition or is denied by an insurance company for one, doesn’t mean he will be denied by all. So that is why my numbers are lower than many others being reported.

Let’s Pin Down How Much These Folks’ Health Care Costs

So let’s go with that 1 million number, which is still a lot of people needing help. What can we do with them? That is the challenge. When enrolling a random assortment of 1 million Americans in a pool, theoretically about 27 percent could have some sort of ailment requiring immediate treatment. Depending on the mix of other people, it’s possible to make that pool actuarily sound.

But high-risk pools don’t work that way. In that pool, 100 percent of enrollees have pre-existing conditions. Therefore, it’s impossible to provide them insurance and keep a stable pool. You can’t insure someone for a condition he already has any more than you can insure a house that is already on fire or a car that has already crashed. There is no ability to pool risk.

So this group of people is very expensive to cover, as they are already sick and use a lot of health care. Average costs in the PCIP federal high-risk pool, the one the Affordable Care Act set up as a bridge to the exchanges, averaged more than $32,000 per enrollee per year. Based on those numbers, at 1 million enrollees, we’d be looking at more than $32 billion annually in costs for high-risk people. That $8 billion that got Rep. Fred Upton to vote yes on House Republicans’ Obamacare tweaks? That would cover only three months of expenses at full enrollment.

If the entire amount appropriated in AHCA were applied to pre-existing conditions, a whopping $123 billion, we’d only have enough to make it through four years if that cost were accurate.

Luckily, That Cost Is Likely Overstated

Reading deeper into the report, you find that, fortunately, it may not be. Not all people with pre-existing conditions are created equally: “4.4 percent of PCIP enrollees accounted for over 50 percent of claims paid, while approximately two-thirds of enrollees experienced $5,000 or less in claims paid over the same period.” So while Avalere used the $32,000 figure, it probably vastly overstates the cost of a program like this. That’s because the people most likely to have been enrolled in PCIP would be the sickest, who need the most care immediately.

Someone with early-stage diabetes with no side effects, like myself, who may currently be tough to insure may ignore a high-risk pool like this since it costs more than I spend on treatment, while someone with advanced cancer requiring frequent doctor visits, expensive medication, and consistent chemotherapy would seek something like this out. Therefore, if the pool of 115,000 enrollees in PCIP were expanded to the 1 million people who have pre-existing conditions but couldn’t be insured, we’d likely see many more costing about $5,000 per year than the ones costing $100,000 and up.

Therefore, I prefer the number $12,000 as the cost per additional enrollee. This uses the average benefit used by a person enrolled in Medicare based on the total benefits paid divided by the total people covered. Since these people are older, sicker, or disabled and have high health utilization, I think it makes a good proxy for the sort of person likely to seek a high-risk pool who would not have jumped at the opportunity to sign up for PCIP.

Adding 900,000 people at that cost to the 100,000 people at $32,000 in PCIP gives us a total annual cost of $14 billion. That means if people in these pools were to cover about 10 percent of their own health-care expenses, the money AHCA appropriates could cover the entire affected population of the high-risk pools for the entire 10-year budget window.

This Is Still a Lot of Money

So now we’ve seen the numbers. About a million people may need help. Pooling them with the healthy has real costs to a lot of people to help a few. But we have decided as a society that we can’t just let those few suffer. Yet helping pay for their care will be staggeringly expensive. Even in my example, with this smaller pool and smaller assumed costs, we would burn through the entire pool of $123 billion in a decade. These people will still need help at the end of that decade. How do we take care of our sick population into the 2030s without busting our budget?

That is why people argue we should keep the Affordable Care Act provisions regarding pre-existing conditions, which are community rating and guaranteed issue. The benefits are obvious, as they have been blasted all over the media. People getting operations they might not otherwise have had, seeing doctors they couldn’t otherwise see, getting care they wouldn’t have otherwise received. Who would be so heartless as to take that away?

This is a classic example of concentrated and observable risk and diffuse and hard to see benefits. Remember what has happened to premiums since ACA was implemented. All these people were not covered without a cost. That cost comes out of the pockets of everyone else in the exchanges. While much harder to see, and much less heart-wrenching in a soundbite or a video or a tweet, those costs did make a difference.

Adding a few hundred dollars a month to health premiums can mean the difference between eating terrible food and eating healthy, not working out and a gym membership, scrimping and stressing over every dollar and rationing essentials which adds mental and physical health costs, or a budget that more comfortably covers your fixed expenses.

More severely, higher premiums for lower-quality policies may mean that some people who may have formerly been able to afford some form of insurance now are going without, causing exactly the sort of problem ACA was supposed to fix. To act like the days, weeks, months, and years taken off the lives of some people due to the costs ACA imposes to help others is without consequence is sadly mistaken.

When Compassion Is Cruel

Those realities aren’t purely speculative, either. Rates are rising year over year. Even with rising subsidies, the plans get more expensive to both buyers and the taxpayers. And there is no sign these rising rates will abate, as more people for whom insurance has a marginal value will choose to go without, leaving a sicker pool, causing not only rates to rise but insurance companies to lose more and more money on these policies.

That leads to insurers dropping out of markets entirely. This is why doing it the “compassionate” way has not only costs for people whose rates will rise, but also costs for those this is supposed to help, as this adverse selection will result in many of them also having no insurance options. Guaranteed issue and community rating do very little good if no one is willing to sell policies because the cost risk is too high.

That is why, whichever way you lean politically, both the ACA and AHCA seem to be just a band-aid. Neither are sustainable, needing significant federal money pumped into them to survive. ACA will need it to subsidize the cost of policies to get healthy people to sign up while also subsidizing the losses insurance companies suffer in an effort to keep them on the exchanges when they don’t.

AHCA will need massive continued subsidies to fund high-risk pools, all as health-care gets more individualized and potentially more expensive. This is in addition to the increasing burden Medicare will put on state and federal budgets as baby boomers retire and live to a ripe old age, while higher birth rates among poorer Americans, in addition to ACA expansion, should cause a massive increase in Medicaid spending.

This is why any comprehensive health insurance reform is doomed to fail. Americans want great quality care at cheap prices that is abundantly available. At best, we can get two of those three. At worst, we get very expensive plans that provide very little real health care for the most vulnerable while making things worse for everyone else. That is why our efforts should focus on ways to provide better health care for everyone, increasing the size of the pie of good-quality, available health care rather than locking in the worst parts of our current system and merely fighting about who should pay for them.

crisis, culture, economics, government, health care, legislation, nanny state, public policy, reform, regulation, spending, tragedy, unintended consequences

Filed under: crisis, culture, economics, government, health care, legislation, nanny state, public policy, reform, regulation, spending, tragedy, unintended consequences

Confusion between care and insurance guarantees costs will rise

original article: When Replacing ObamaCare, Remember Health Insurance Isn’t Health Care
March 7, 2017 by WILLIAM M BRIGGS

Big Louie whispers to you, “Say, Mac. The fix is in. The Redskins are throwing it to the Browns. It’s all set. Guaranteed.”

“No, kiddin’, Louie?”

“I’m tellin’ ya. Now listen. I want you to bet me the Skins win.”

Wha…? But you just told me ….”

“You aren’t paying attention. What’s wrong with you, Mac? You want trouble? I said the Skins will lose and you will bet they’re going to win. Now gimme sixty bucks that says the Skins will win.”

“Hey! You don’t have to be so rough …”

“Say, these twenties are new! Considerate of you. Listen. Don’t be so glum. You’re contributing to a good cause: me.”

What Insurance Is

Any of this remind you, Dear Reader, of the insurance business? It shouldn’t. Yet the word insurance has undergone a strange metamorphosis, which is caused, as you won’t be surprised to learn, by government.

Insurance used to be a bet you would make that you hoped you wouldn’t win. You went to an insurer and made a bet that something bad would happen, say, you got cancer or your house would burn down. The insurer figured out how much it would cost to pay you to fix the bad thing. He then said, “Okay, gimme Y dollars, and if the bad thing happens, I pay you X.” If you didn’t like Y or X, you negotiated with the insurer until a pair of numbers were mutually agreeable — or you agreed to part ways.

But suppose you told the insurer, “I have cancer. It will cost X to treat. I want to bet with you that I get cancer. What’s the minimum Y I should pay you?”

The insurer would either laugh you out of his office, as he commiserated with you about the sad state of your health, or he would pick a Y greater than X. Why? Because it was guaranteed that the insurer would pay out X. Why would he ever take an amount less than X?

The Government “Fix”

Because government, that’s why. Because your cancer is a “pre-existing condition” and it was seen as cruel and heartless for the insurer not to lose money on your behalf. But government forced the insurer to lose money. Government enjoyed playing Robin Hood. Hood as in criminal, crook, confidence trickster (did you not know that? Big Louie knew).

However, because the entities that comprise government move in and out of insurers (and their banks), the government also took pity. Government knew insurers had to make up their forced deficits. So it mandated that citizens who did not want to make a bet with any insurer had to give the insurer money for bad things that would almost never happen. ObamaCare became Big Louie muscling twenty-somethings to insure themselves against Alzheimer’s.

Thanks to Supreme Court Justice Roberts, you being forced to fork over funds to a private entity was called a tax. (Same thing Big Louie calls it!) Thus, not only was the word insurance gutted of most of its actual meaning, so was tax. Orwell lives.

Of course, insurers assisted in their own demise. They, like everybody else, were happy to let folks conflate the incompatible terms health insurance and health care. Once people could no longer keep these separate in their minds, the end of insurance was guaranteed.

What Insurance Isn’t

Insurers blurred these distinctions by separating themselves from the purely betting side of business, by dealing with people’s employers and not people (a condition ensconced by further Government mandates), by paying doctors and hospitals and not people, and by writing blanket instead of specific contracts. It came to be seen as normal for a person to expect “insurance” to pay for their kid’s visit to the doctor for sniffles.

Having the sniffles is almost guaranteed; it is thus numerically no different than a pre-existing condition. Having an insurer pay out on these “sure bets” meant that an additional layer of bureaucracy had to be built to handle the paperwork and shuffle funds around. Insurers unwisely moved to make a profit on these sure bets, which caused them to be penurious when paying out on large claims. Doctors had to increase their staff to handle the busywork. Monies that would have gone to pay for “bettable” diseases had to be diverted to pay for aspirins and bandages. Every step along the way caused premiums to be driven higher.

Now no one understand’s the true cost of care. Worse, we’re at the point where the true meaning of insurance is under active attack. A recent article in Bloomberg complains that it would be better if insurers used data to calculate a person’s chance of this or that disease — which is exactly what insurers should do. The author of that article also frets that insurers might “once again [be] allowed to charge extra for pre-existing conditions, an idea currently being debated in Congress.” In other words, the author is worried that insurers might once again be allowed to do what insurers are supposed to do, and what they must do if insurance is to work.

When Congress scraps ObamaCare, they must not replace it with any scheme that confuses insurance and care. This confusion guarantees that costs will go up and the bureaucracy will grow.

bureaucracy, crisis, cronyism, economics, government, health, health care, nanny state, politics, reform, unintended consequences

Filed under: bureaucracy, crisis, cronyism, economics, government, health, health care, nanny state, politics, reform, unintended consequences

Flawed anthropology leads to flawed economics

original article: We’re all Dead: How J.M. Keynes – And His Critics – Went Wrong
June 29, 2016 by Liz Crandell

“Critics of John Maynard Keynes were so determined his economics were wrong that they allowed Keynes to dictate the terms of the debate,” says Victor Claar, professor of economics at Henderson State University, in his Acton University lecture. He continues to describe Keynes flawed anthropology with respect to classical economists and the Great Depression. Key observations of human nature include the principles of work, property, exchange, and division of labor. We can survive and prosper, take ownership of our work, support and rely on each other through exchange, and specialize in exchange at an opportunity cost. Furthermore, these observations are linked to moral imperatives.

Work allows us to combat sloth, we can practice good stewardship, serve other people, and provide richer options for all. Keynes, who was focused on how consumption worked rather than what human life looked like, did not understand these things. Maynard, like his father, Neville, was a large proponent of the Cambridge method, and the distinctions between positive and normative economics laid out by John Stuart Mills. The great legacy and wide scope of this method still exists today, as most economists continue to try and steer clear of normative statements, and try to stick to descriptive value judgments. However, by the nature of the problems we face, dealing with poverty, unemployment, and development, we inherently deal with positive statements and issues.

Supporters of Keynes’ theories use The Great Depression and post-World War eras as evidence of their effectiveness. Claar grants insight into the attractiveness of such policies, saying that such a recession created pessimism about the ability of market forces to self-correct, and since government management worked “reasonably well” after World War I, state management became tempting again. There is fault in this, since Keynes “focuses on the inherent instability of the market and the need for active policy intervention to achieve full employment of resources and sustained growth.” Keynes maintains that recessions and high unemployment are due to the fact that firms and consumers in the private sector do not spend enough on new capital and equipment and goods and services due to insecurity and nervousness about the future. As such, the remedy lies in the public sector, with the government spending using deficit financing if necessary. Ideally, after people get back to work, revenues will increase and the budget will balance once more. The obvious downside to this thought is that reducing pain in the short run, putting a band aid on the problem, leads to inflation and slower rates of long-term growth. Claar draws students’ attention to a revealing quote from Keynes that creates a moral dilemma: “In the long run, we’re all dead.” Keynes is perfectly happy to allow future generations pay off the debt that his creates.

Claar concludes there are three keys to understanding Keynes: The classical model’s predicted equilibria are mere special cases and are rarely satisfied in practice; hubris, or that the State is more capable of managing the economy that we ourselves are; and consumption is the purpose of all economic activity. This “flawed anthropology leads to flawed economics,” and “caught hold in the same period that men and women of science began to believe that systematic management of human beings was both possible and useful in all areas of society.” Keynes himself declared eugenics to be “the most important, significant and, I would add, genuine branch of sociology which exists.” Claar leaves students with a hopeful message that we can combat this dangerous line of thinking with well-functioning markets that let prices send strong signals to all of us regarding where our services may be needed most by others; clearly defined and enforced property rights that lead to good stewardship; and influential institutions, such as churches and families, to share wisdom.

bias, economics, elitism, eugenics, government, history, ideology, nanny state, philosophy, progressive

Filed under: bias, economics, elitism, eugenics, government, history, ideology, nanny state, philosophy, progressive

Obamacare Premium Hikes Expected in 2017

original article: Get Ready for Huge Obamacare Premium Hikes in 2017
April 21, 2016 by Eric Painin

Amid rising drug and health care costs and roiling market dynamics, the spokesperson for the nation’s health insurers is predicting substantial increases next year in Obamacare premiums and related costs.

Without venturing a specific percentage increase, Marilyn Tavenner, the president and CEO of America’s Health Insurance Plans (AHIP), said in an interview with Morning Consult that the culmination of market shifts and rising health care costs will force stark increases in health insurance rates in the coming year.

“I’ve been asked, what are the premiums going to look like?” she said. “I don’t know because it also varies by state, market, even within markets. But I think the overall trend is going to be higher than we saw previous years. That’s my big prediction.”

If Tavenner is right, Obamacare will jump dramatically—last year’s premium for the popular silver-level plan surged 11 percent on average. Although Tavenner didn’t mention deductibles, in 2016, some states saw jumps of 76 percent, while the average for a 27-year-old male on a silver plan was 8 percent.

The warning to consumers from Tavenner, the former administration official who headed the Center for Medicare and Medicaid Services (CMS) and oversaw the disastrous launch of HealthCare.gov, the Obamacare website, comes at a time of growing uncertainty about the evolving makeup of the Obamacare health insurance market. With many insurers struggling to find profitability in the program, the collapse of nearly half of the 23 Obamacare insurance co-ops and this week’s announcement that giant UnitedHealth Group intends to pull out of most Obamacare markets across the country, anticipating future premiums and copayments is largely risky guesswork.

Premiums for the current 2016 season rose on average by 8 percent over the previous year, with 12.7 million Americans enrolling for coverage and government subsidies, according to CMS. Federal officials stress that the average rate doesn’t tell the whole story, and that in many cases after consumers shop around for the best price and government subsidies are applied, the actual premium increase is lower.

The Department of Health and Human Services did a study looking at what consumers were estimated to pay based on initial filings compared to what they actually paid. The study found that last year, the average cost of Obamacare marketplace coverage for people receiving tax credits went from $102 a month to $106 per month, a 4 percent change — despite warning from some of double-digit hikes.

Tavenner’s prediction may well be an opening gambit in the negotiations between the industry and insurance regulators about the 2017 premiums. As Morning Consult noted, many insurers have begun submitting opening bids on raising their premium rates and copayments, which will then be reviewed by the government and finalized this fall.

With a major presidential and congressional election looming this fall, the administration is doing all that it can to tamp down fears of major hikes next year in Obamacare insurance premiums and related out-of-pocket costs. Benjamin Wakana, a Department of Health and Human Services spokesperson, said on Thursday that changes in health care insurance rates are “not a reliable indicator” of what typical consumers on average will pay. “Marketplace consumers would do well to put little stock in those initial numbers,” he said in an email.

But Tavenner outlined several factors that she could put considerable pressure on premium prices next year. Those include:

  • A general rise in the nation’s health care tab. Overall, U.S. health care spending grew by 5.3 percent in 2014 – reaching an historic level of $3 trillion, after years of relative cost stability. Medical costs rise from year to year and will certainly affect the next round of premium hikes.
  • Soaring prescription drug prices. Insurers as well as government health care programs have been struggling to keep pace with rising drug prices, especially newer specialty drugs to treat the Hepatitis-C virus and cancer. Pfizer Inc., Amgen Inc., Allergan PLC and other companies have raised U.S. prices for scores of branded drugs since late December, with many of the increases between 9 percent and 10 percent, according to the Wall Street Journal .
  • The combination of market forces and limitations imposed by the Affordable Care Act will put enormous pressure on insurers to up their premiums. Under the law, there is a cap on insurers’ profits, companies are obliged to insure anyone regardless of their general health or pre-existing conditions, and the insurance plans must be structured in a certain way that often lead to losses.
  • Finally, two of three federal “risk mitigation” programs created under Obamacare are due to expire in 2017. Those programs were set up to protect insurers from huge, unexpected losses from providing health insurance on the Obamacare exchanges. UnitedHealth and other major insurers have found it difficult to accurately anticipate their costs in providing coverage to sicker or older Americans, and set premiums that were inadequate to cover their risks. Without those programs to fall back on, many companies likely will seek to jack up their premiums.

“It’s kind of a myriad of factors,” Tavenner said in predicting rising premium costs. “It’s not one factor.”

Clare Krusing, director of communications for AHIP, said in an interview on Thursday that health insurance companies “are working through” these factors right now in setting rates for the coming year and deciding whether to participate.

“Plans are just beginning to file their rates, and it’s a long process with state and federal regulators, until those are approved,” she added. “Certainly plans are going to evaluate market conditions and regulatory approvals, and that will all impact their participation overall” in Obamacare.

bureaucracy, crisis, economics, government, health care, legislation, medicine, nanny state, public policy, reform, tragedy, unintended consequences

Filed under: bureaucracy, crisis, economics, government, health care, legislation, medicine, nanny state, public policy, reform, tragedy, unintended consequences

Do Democrats really realize how difficult it has been on working-class Americans to finance Obamacare?

original article: Watch: Mom Says The 15 Words No Democrat Wants To Hear Right To Hillary’s Face On Live TV
March 15, 2016 by Warner Todd Huston

One woman at CNN’s recent Democrat town hall seemed to sense the possible dangers of voting for a left-leaning candidate, and shocked Hillary with what she had to say about Obamacare.

During the CNN televised town hall Teresa O’Donnell of Powell, Ohio, stood to ask a question of the former Secretary of State, first explaining how Obamacare has seriously hurt her and her family due to the exorbitant costs it has inflicted upon them.

“I would like to vote Democratic,” O’Donnell said, “but it has cost me a lot of money.”

She went on saying, “And I’m just wondering if Democrats really realize how difficult it has been on working-class Americans to finance Obamacare.”

O’Donnell told the audience that since the President’s signature Affordable Care Act went into effect the monthly premium for her family healthcare costs has “skyrocketed.” She says her costs have soared from $490 a month to $1,080.

The woman did note she hadn’t purchased her insurance through an Obamacare exchange so, in an effort to rescue Obamacare from the bad publicity, Hillary said the woman should check out the exchange avenue for her insurance.

This Ohio woman isn’t alone in her distaste over Obamacare. As Independent Journal noted, a recent Rasmussen poll found that 54 percent of respondents do not like Obamacare.

Hillary, though, has made Obamacare a major plank in her campaign noting she was for “Obamacare” before it even existed since she tried to get universal healthcare put in place when she was First Lady during her husband Bill’s presidency in the mid 1990s.

“What we have to do, I think, is defend the Affordable Care Act and fix it,” Hillary said in a recent campaign video. Late last year Clinton said, “I’m not going to let them tear up that law, kick 16 million off their health coverage and force the country to start the healthcare debate all over again.”

She has also attacked insurance companies for “predatory pricing” and said that they are “gouging” Americans with their rates.

Her Democrat opponent, self-avowed socialist Sen. Bernie Sanders, wants to go even farther by proclaiming healthcare a “right.”

“My view is simple,” Sanders says on his website, “health care is a right, not a privilege.”

campaign, Democrats, economics, government, health care, nanny state, progressive, public policy, reform, tragedy, video

Filed under: campaign, Democrats, economics, government, health care, nanny state, progressive, public policy, reform, tragedy, video

Seattle’s Minimum Wage Hike Is Underway. Hiring Has Slowed Already

original article: Seattle’s Minimum Wage Hike Is Underway. A Damning Chart Shows How That’s Working Out…
October 26, 2015 by PARKER LEE

Since Seattle, Washington’s Minimum Wage Ordinance went into effect on April 1, many have looked to the city as a sort of litmus test, specifically how the local economy is able to bear the weight of a $15 minimum wage.

Though the ordinance allows for the changes to become fully implemented over the next 3 or 7 years, depending on the size of the business, it has already proven to be too much for some owners to handle.

Now, as financial experts get a look at the newest hiring data from Washington, it appears that one particular Seattle sector is feeling the pinch of the historic measure in an eye-catching way.

Image Credit: AEI

Image Credit: AEI

Using employment data from the last five years, the American Enterprise Institute found that Washington state as a whole has seen an increase of about 5,800 restaurant jobs thus far in 2015, while Seattle has seen a decrease of 700 in the same time period.

It’s worth noting that Washington has one of the highest state minimum wages at $9.47, though it’s still significantly lower than Seattle’s.

Proponents of Seattle’s ordinance argue that the move is the correct course of action to address income inequality and to make the city’s high cost of living more manageable. But business owners like Ritu Shah Burnham would be likely to disagree.

Burnham was forced to close the doors of her Z Pizza restaurant because she simply couldn’t afford to stay open, despite her best efforts:

“I’ve let one person go since April 1, I’ve cut hours since April 1, I’ve taken them myself because I don’t pay myself..

I’ve also raised my prices a little bit, there’s no other way to do it.”

Though it’s too early to make a definitive call on the data, it certainly seems telling that Seattle’s seeing a decline in restaurant employment in a state that appears to otherwise be experiencing an industry boom.

economics, economy, government, left wing, liberalism, nanny state, progressive, public policy, reform, regulation, socialism, unintended consequences

Filed under: economics, economy, government, left wing, liberalism, nanny state, progressive, public policy, reform, regulation, socialism, unintended consequences

This is how cronyism works

original article: New York’s Taxi King Is Going Down
October 26, 2015 by Jared Meyer

People don’t deserve to be millionaires because they can get government to let them pick people’s pockets.

Evgeny “Gene” Freidman is no fan of Uber. The increasing popularity of this vehicle-for-hire (or ridesharing) company has lost him millions of dollars. He has even asked New York City taxpayers for a bailout. As difficult as bailing out the big banks was to swallow, bailing out a taxi mogul—who at one point owned more than 1,000 New York City taxi medallions—is an even harder sell. A bailout would be especially outrageous considering that Freidman and his financial backers are actively working to make consumers pay more for fewer options.

Freidman reluctantly took over his father’s modest yellow taxi business as a young man. He brought his experience in Russian finance to the industry, and started to accumulate increasing numbers of taxi medallions using highly leveraged financing. Freidman expanded a company with just a few taxis into a conglomeration of three- to five-car mini-fleets.

As Freidman’s taxi empire grew, he expanded into other cities, including New Orleans, Philadelphia, and Chicago. He gained control of hundreds more medallions that are also now in financial trouble. His willingness to bid on practically any medallion that came up for sale helped drive a rapid increase in medallion prices across the country.

Subprime Taxi Medallions

This model can work when times are good but, as the housing crisis showed, it has its dangers. It works until another technology emerges, consumers move on, and funding dries up.

This is where Uber comes in. Competition from Uber has left investors wondering how much the company will grow and what further effects its growth will have on taxis’ market share. While yellow taxi medallions were selling for $1.32 million as recently as May 2013, now they may be worth as little as $650,000.

This drastic drop in price has made the banks and credit unions that fund Freidman’s vast enterprise nervous. For example, his companies still owe around $750,000 for each medallion financed by Citibank. Without new loans to meet existing obligations and expand his fleet, Freidman’s companies became insolvent. This is why he sought the bailout and wants the government to support the medallion market by offering taxpayer-guaranteed loans.

Adding to this financing crunch, the lease rates Freidman now can charge taxi drivers who rent his cars have declined. Many taxi drivers switched to Uber, which offersincreased earning potential, flexible work schedules, and improved driver safety. Competition led Freidman to complain that he is no longer able to charge the city’s legal maximum lease rate. This is promising news for drivers, but problematic for Freidman’s income.

There’s Not Much Argument for a Monopoly

Medallions commanded such astronomical prices in New York because yellow taxis had, and still do have, a monopoly on street hails in Manhattan south of the northern boundary of Central Park. Ubers come rapidly, but they are not street hails, because people summon them beforehand with a smartphone. In cities across the country that also use a medallion system, the same reasoning applies. Government restricts the supply of taxis below the level of demand, and medallion owners reap the profits—all at the expense of consumers.

It is not just Freidman’s companies that are in trouble. The banks and credit unions that funded him and other medallion owners are also worried. Just four credit unions hold security interests in over 5,300 medallions, for which they are on the hook for about $2.5 billion. In the face of greater potential losses, these companies have resorted to calling people who work in policy (myself included) to try and convince researchers that Uber is illegal and needs to be banned.

The credit union argument progresses as follows:

  1. Yellow taxi medallion owners were granted a monopoly on street hails.
  2. For-hire vehicles are only allowed to offer pre-arranged rides.
  3. Uber uses street hails, not pre-arranged rides, to connect riders with its driver partners.
  4. Therefore, Uber is illegally using street hails, and this infringes on yellow taxi medallion owners’ government-granted monopoly.

If the third premise is true, this argument could hold some rule-of-law water. It is not.

The law governing New York City’s street hails date back to the Haas Act of 1937. This law restricted the number of New York yellow taxi medallions to 16,900, which was lowered and now stands at 13,437—even though the city’s population has grown byover 20 percent since 1940.

The Haas Act also set the stage for other common carrier regulations that apply to the taxi industry. These regulations place substantial limits and requirements on taxi owners and drivers in exchange for their monopoly privileges. For example, the city’s Transportation and Limousine Commission sets fare prices, and fares cannot change with increased demand for rides. This is one of the main reasons it is so difficult to hail a taxi in the rain or at the beginning of rush hour.

Updating regulations takes time, but New York City taxis were finally granted the ability to accept ride requests from smartphones (e-hails) early this year. Once taxis were allowed to accept e-hails, something they needed to compete with new technologies, four credit unions argued that the technology was now off-limits for Uber—the company that had popularized e-hails. They sued New York City for infringing upon medallion holders’ monopoly privileges.

This makes no sense. How can a decades-old law covering street hails be construed to cover ride requests made through smartphones? Anyone who has tried to hail a taxi on the side of the road, and then used Uber, knows that the two experiences are vastly different. Simply put, holding your hand up is not the same as pressing a button on your phone.

How to Save Taxis Without Squeezing People

The path forward is not to ban ridesharing or bail medallion owners out. It is to make taxis more like Ubers. This takes more than simply allowing taxis to accept e-hails. Rather, the only ways to save taxis are greater flexibility in pricing and service and increased competition.

As Uber’s rise has made obvious, when the crucial aspect of competition is missing from markets, established companies do not have to worry about improving their services to attract and keep customers. Regulations need to be continually modified and updated in light of new technology.  There is no reason to require New York taxis to have expensive (and annoying) Taxi TVs. Pointless mandates such as this only increase the cost of taxi rides.

Even with a relaxed regulatory framework that embraces ridesharing and competition, taxis will still have an advantage. No one is talking about taking away New York City’s yellow taxi monopoly on street hails. Applying antiquated laws and regulations to new technology is what laid the groundwork for the rise of Uber and other ridesharing services in the first place.

Everyone Shouldn’t Pay for Some People’s Bad Bets

Credit unions oppose allowing Uber to grow because they want to protect their investments. The Queens County Supreme Court ruled against the credit unions last month. The court found that the credit unions did not have a cause of action against the city and its Transportation and Limousine Commission. This was a major win for Uber and consumers, but a death-knell for Freidman’s business and its financers.

The whole yellow taxi financing model is crashing, along with medallion prices. After the ruling, Montauk Credit Union, one of the plaintiffs, was seized by the New York State Department of Financial Services because of “unsafe and unsound conditions.” The day that New York City’s proposed cap on Uber’s growth was defeated, 22 of Freidman’s mini-fleet companies filed for bankruptcy.

Even if medallion holders such as Freidman lost a lot of money, it does not follow that the public should subsidize their losses. The returns from a yellow taxi medallion in cities such as Philadelphia, Chicago, or New York far outpaced the stock market or gold for many years. The values of these medallions about doubled in each city from 2009 to 2013.

Investments carry risk, as Freidman knows from his background in finance. He made a poor calculation that the Manhattan yellow taxi street hail monopoly would continue to provide him enough future cash flow to satisfy bankers, who would loan him more money to expand his fleet. Freidman and his investors have no claim to a taxpayer-funded bailout to cover their poor business decisions. Perhaps they should consider investing in Uber instead.

bailout, corruption, cronyism, economics, funding, government, greed, hypocrisy, law, nanny state, public policy, regulation, taxes

Filed under: bailout, corruption, cronyism, economics, funding, government, greed, hypocrisy, law, nanny state, public policy, regulation, taxes

A Truly Honest Leftist Says Our Incomes Are the “Rightful Property” of Government

original article: A Truly Honest Leftist Says Our Incomes Are the “Rightful Property” of Government
September 21, 2015 by Dan Mitchell

In a perverse way, I admire leftists who openly express their desire for bigger government and less liberty.

That’s why I (sort of) applauded when Matthew Yglesias wrote in favor of confiscatory tax rates while admitting the government wouldn’t generate any revenue.

And I gave Katrina vanden Heuvel credit for openly admitting her desire to redefine “freedom” so that it means a claim on other people’s income and property.

Both are proposing horrible policy, of course, but at least they’re honest about their goals and motivations. Unlike politicians, they’re not trying to disguise their intentions behind poll-tested platitudes.

We can now add another person to our list of honest leftists. The new leader of the Labour Party in the United Kingdom, Jeremy Corbyn, is a British version of Bernie Sanders, except he really is a socialist who believes in government ownership and control of business. And the chief economic adviser to Corbyn is Richard Murphy.

And, as reported by the U.K.-based Sun, Mr. Murphy openly says everyone’s income belongs to government.

Chartered accountant Richard Murphy, 57, is the brains behind the “Corbynomics” strategy of renationalisation, higher taxes and printing millions of pounds in “new” money. …his bizarre ideas have already sparked fears among Britain’s top economic experts… One of Murphy’s strategies was revealed in August 2014… The dad-of-two claimed taxpayers’ money was NOT their own – and was instead the state’s “rightful property”. Murphy said: “I would suggest that we don’t as such pay taxes. The funds that they represent are, I suggest, in fact the property of the state.”

To be fair, sometimes people mangle their words. To cite one hypothetical example, accidentally omitting a  word like “not” might totally change the meaning of a sentence and give a journalist an opportunity to make a speaker look foolish.

So maybe Mr. Murphy didn’t really mean to say that the government has first claim on everyone’s income.

But if you continue reading, it becomes apparent that he really does believe that government is daddy and the rest of us are children who may be lucky enough to get some allowance.

“…if we give the state the power to define what we can own, how we can own it and, to a very large degree, what we can do with it – and we do – then I would argue that we also give the state the right to say that some part of what we earn or own is actually its rightful property and that we have no choice but pay that tax owed as the quid pro quo of the benefit we enjoy from living in community. Murphy went on: “Well let me inform you that there is no such thing as ‘taxpayers’ money’: it is the government’s money to do what it will with in accordance with the mandate it has been given and for which it will have to account.

Wow, this truly gives us a window into the soul of statism.

Though let’s be fair to Murphy. He’s simply stating that untrammeled majoritarianism is a moral basis for public policy, even if it means 51 percent of the population ravages 49 percent of the population. And that’s an accurate description of how economic policy works in the United States ever since the Supreme Court decided to toss out the Constitution’s limits on the power of the federal government.

Moreover, Murphy’s view is basically reflected inthe “tax expenditure” concept used in Washington and the “state aid” concept in the European Union.

None of this justifies Murphy’s poisonous ideology. Instead, I’m simply making the grim point that statists already have achieved some of their goals.

But maybe it will be easier to counter further attacks on economic liberty now that Murphy has openly said what his side wants.

P.S. There are two types of honest leftists. Richard Murphy, like Matt Yglesias and Katrina vanden Heuvel, are honest in that they openly state what they really believe, even when it exposes their radical agenda.

Some other folks on the left have a better type of honesty. They’re willing to admit when there is a contradiction between statist ideology and real-world results. Just look at what Justin Cronin and Jeffrey Goldberg wrote about gun control and whatNicholas Kristof wrote about government-created dependency.

bullies, communism, corruption, economics, elitism, extremism, government, greed, ideology, left wing, liberalism, marxism, nanny state, politics, power, progressive, socialism

Filed under: bullies, communism, corruption, economics, elitism, extremism, government, greed, ideology, left wing, liberalism, marxism, nanny state, politics, power, progressive, socialism

Capitalism and Morality: Walter Williams vs. Pope Francis

original article: Capitalism and Morality: Walter Williams vs. Pope Francis
September 22, 2015 by Daniel J. Mitchell

The biggest mistake of well-meaning leftists is that they place too much value on good intentions and don’t seem to care nearly as much about good results.

Pope Francis is an example of this unfortunate tendency. His concern for the poor presumably is genuine, but he puts ideology above evidence when he argues against capitalism and in favor of coercive government.

Here are some passages from a CNN report on the Pope’s bias.

Pope Francis makes his first official visit to the United States this week. There’s a lot of angst about what he might say, especially when he addresses Congress Thursday morning. …He’ll probably discuss American capitalism’s flaws, a theme he has hit on since the 1990s. Pope Francis wrote a book in 1998 with an entire chapter focused on “the limits of capitalism.” …Francis argued that…capitalism lacks morals and promotes selfish behavior. …He has been especially critical of how capitalism has increased inequality… He’s tweeted: “inequality is the root of all evil.” …he’s a major critic of greed and excessive wealth. …”Capitalism has been the cause of many sufferings…”

Wow, I almost don’t know how to respond. So many bad ideas crammed in so few words.

If you want to know why Pope Francis is wrong about capitalism and human well-being, these videos narrated by Don Boudreaux and Deirdre McCloskey will explain how free markets have generated unimaginable prosperity for ordinary people.

But the Pope isn’t just wrong on facts. He’s also wrong on morality. This video by Walter Williams explains why voluntary exchange in a free-market system is far more ethical than a regime based on government coercion.

Very well stated. And I especially like how Walter explains that markets are a positive-sum game, whereas government-coerced redistribution is a zero-sum game (actually a negative-sum game when you include the negative economic impact of taxes and spending).

Professor Williams wasn’t specifically seeking to counter the muddled economic views of Pope Francis, but others have taken up that challenge.

Writing for the Washington Post, George Will specifically addresses the Pope’s moral preening.

Pope Francis embodies sanctity but comes trailing clouds of sanctimony. With a convert’s indiscriminate zeal, he embraces ideas impeccably fashionable, demonstrably false and deeply reactionary. They would devastate the poor on whose behalf he purports to speak… Francis deplores “compulsive consumerism,” a sin to which the 1.3 billion persons without even electricity can only aspire.

He specifically explains that people with genuine concern for the poor should celebrate industrialization and utilization of natural resources.

Poverty has probably decreased more in the past two centuries than in the preceding three millennia because of industrialization powered by fossil fuels. Only economic growth has ever produced broad amelioration of poverty, and since growth began in the late 18th century, it has depended on such fuels. …The capitalist commerce that Francis disdains is the reason the portion of the planet’s population living in “absolute poverty” ($1.25 a day) declined from 53 percent to 17 percent in three decades after 1981.

So why doesn’t Pope Francis understand economics?

Perhaps because he learned the wrong lesson from his nation’s disastrous experiment with an especially corrupt and cronyist version of statism.

Francis grew up around the rancid political culture of Peronist populism, the sterile redistributionism that has reduced his Argentina from the world’s 14th highest per-capita gross domestic product in 1900 to 63rd today. Francis’s agenda for the planet — “global regulatory norms” — would globalize Argentina’s downward mobility.

Amen (no pun intended).

George Will is right that Argentina is not a good role model.

And he’s even more right about the dangers of “global norms” that inevitably would pressure all nations to impose equally bad levels of taxation and regulation.

Returning to the economic views of Pope Francis, the BBC asked for my thoughts back in 2013 and everything I said still applies today.

bias, capitalism, crisis, cronyism, economics, economy, ethics, ideology, nanny state, poverty, reform, video

Filed under: bias, capitalism, crisis, cronyism, economics, economy, ethics, ideology, nanny state, poverty, reform, video

Seattle sees fallout from $15 minimum wage, as other cities follow suit

original article: Seattle sees fallout from $15 minimum wage, as other cities follow suit
July 22, 2015 by Dan Springer

Seattle’s $15 minimum wage law is supposed to lift workers out of poverty and move them off public assistance. But there may be a hitch in the plan.

Evidence is surfacing that some workers are asking their bosses for fewer hours as their wages rise – in a bid to keep overall income down so they don’t lose public subsidies for things like food, child care and rent.

Full Life Care, a home nursing nonprofit, told KIRO-TV in Seattle that several workers want to work less.

“If they cut down their hours to stay on those subsidies because the $15 per hour minimum wage didn’t actually help get them out of poverty, all you’ve done is put a burden on the business and given false hope to a lot of people,” said Jason Rantz, host of the Jason Rantz show on 97.3 KIRO-FM.

The twist is just one apparent side effect of the controversial — yet trendsetting — minimum wage law in Seattle, which is being copied in several other cities despite concerns over prices rising and businesses struggling to keep up.

The notion that employees are intentionally working less to preserve their welfare has been a hot topic on talk radio. While the claims are difficult to track, state stats indeed suggest few are moving off welfare programs under the new wage.

Despite a booming economy throughout western Washington, the state’s welfare caseload has dropped very little since the higher wage phase began in Seattle in April. In March 130,851 people were enrolled in the Basic Food program. In April, the caseload dropped to 130,376.

At the same time, prices appear to be going up on just about everything.

Some restaurants have tacked on a 15 percent surcharge to cover the higher wages. And some managers are no longer encouraging customers to tip, leading to a redistribution of income. Workers in the back of the kitchen, such as dishwashers and cooks, are getting paid more, but servers who rely on tips are seeing a pay cut.

Some long-time Seattle restaurants have closed altogether, though none of the owners publicly blamed the minimum wage law.

“It’s what happens when the government imposes a restriction on the labor market that normally wouldn’t be there, and marginal businesses get hit the hardest, and usually those are small, neighborhood businesses,” said Paul Guppy, of the Washington Policy Center.

Seattle was followed by San Francisco and Los Angeles in passing a $15 minimum wage law. The wage is being phased in over several years to give businesses time to adjust. The current minimum wage in Seattle is $11. In San Francisco, it’s $12.25.

And it is spreading. Beyond the city of Los Angeles, the Los Angeles County Board of Supervisors this week also approved a $15 minimum wage.

New York state could be next, with the state Wage Board on Wednesday backing a $15 wage for fast-food workers, something Gov. Andrew Cuomo has supported.

Already, though, there are unintended consequences in other cities.

Comix Experience, a small book store in downtown San Francisco, has begun selling graphic novel club subscriptions in order to meet payroll. The owner, Brian Hibbs, admits members are not getting all that much for their $25 per month dues, but their “donation” is keeping him in business.

“I was looking at potentially having to close the store down and then how would I make my living?” Hibbs asked.

To date, he’s sold 228 subscriptions. He says he needs 334 to reach his goal of the $80,000 income required to cover higher labor costs. He doesn’t blame San Francisco voters for approving the $15 minimum wage, but he doesn’t think they had all the information needed to make a good decision.

corruption, culture, economics, economy, entitlements, funding, government, nanny state, politics, poverty, progressive, public policy, reform, regulation, socialism, unintended consequences

Filed under: corruption, culture, economics, economy, entitlements, funding, government, nanny state, politics, poverty, progressive, public policy, reform, regulation, socialism, unintended consequences

Pages

Categories

July 2017
M T W T F S S
« Jun    
 12
3456789
10111213141516
17181920212223
24252627282930
31