The effect of one-party rule

In New Orleans, when William Jefferson was caught with $90,000 in the freezer, the voters had an opportunity to replace him with a Republican.  Hardly anyone had heard of Joseph Cao.  He was a Republican in a district dominated by Democrats.  He was a Vietnamese-American in a heavily African-American district.

However, the voters refused to follow the one-party script, and sent Jefferson packing.  The odds of Cao being re-elected may be slim and none, but it was clear the voters in NOLA were willing to look past party lines when they had to do so.

Contrast that to the voters in Georgia’s 4th Congressional District, who were inflicted with Cynthia McKinney, but insisted on solving the problem among the Democrats eight years ago.  As a result, they got her back in 2004.  They still took the primary option, and replaced her with Hank Johnson.

Well, Ace of Spades tells us where that got them: the voters of Georgia 4 will forever be known as the folks who elected a man convinced the island of Guam could “tip and capsize.”

Loyalty to the Democrats rewarded!

Cross-posted to VV

In re health care (part 2)

Yesterday, I talked about how most Americans – and in particular politicians – view health care, and how mistaken that vantage point was.  Today, this part will delve into how this led to the status quo ante Democare.

The discussion begins with Medicare, sold to the Congress and the public by the Johnson Administration as a medical version of Social Security: workers pay into the system, than take out what they put it at retirement.  Only instead of cash payments, the funds in Medicare would insure the recipient’s health.

It didn’t take long for this to lead to higher government spending on health care, as elderly Americans now had less financial incentive to avoid the doctor.  Because it was so relatively new (health insurance itself was not widely held even at that time), no one could see at the time that Medicare was becoming, essentially, America’s first and largest HMO.

As Medicare grew, and Medicaid (essentially the same thing for America’s poor, only it was clearly funded by the rest of the public) joined it, the government grew into what economists call a monopsony – a rather unusual situtation in general, and almost unheard of in a product or service market.  While a monopolist is one seller dealing with multiple buyers, a monopsonist is one buyer dealing with multiple sellers.  This happens frequently in resource markets, where a monopolist selling a product is also the only firm hiring workers or buying materials to build the product, and it usually leads to artificially lower resource prices.  In this case, we had artificially lowered health care prices.

This created two distortions in the private health care market: 1) patients that could not get in under the monopsony blanket got pushed into a market with less care (and thus, higher prices) and (2) doctors and hospitals taking Medicare/Medicaid patients had to charge higher rates for non-M/M patients to maintain profits.  Thus, prices outside Medicare and Medicaid were distorted upward.

One other effect not realized at the time (and hardly noticed since, either) was the effect on younger Americans.  To see what I mean, take a look at life insurance in America.  There are largely two types: term and whole.  Whole life insurance is permanent, and will pay out survivors whenever the client dies.  Thus it is more expensive than term life insurance, which is effectively a bet between the client and the insurer as to when the former will pass.  If the client dies within the term, the insurer pays; if not, the insurer doesn’t, but the client did get some peace of mind for ten or twenty years – and if that didn’t hold any value, there’d be no market for term life insurance.

The same concept can apply to health insurance, but for one problem: the would-be insured has already won the “bet” thanks to Medicare.  Without assurances of government health insurance at age 65, twentysomethings might (and thirtysomethings almost certainly would) decide it would be prudent to consider a lifetime health insurance plan to make sure they’re covered in old age.  Insurance companies, by contrast, would balance future losses against immediate gains, and via the concept of present value, find a rate acceptable to younger Americans.

In the current situation, however, younger Americans have no incentive to acquire health insurance, unless it comes with their employment (in which case, the true cost is hidden from view), they have children, or have pre-existing conditions.  In the case of the first option, an insurer has already inked a deal with a firm, and in the last, the firm knows it will likely “lose” the “bet,” and responds by refusing to cover.

So what we had in the ear before Democare were distorted health markets, a government monopsony so pervasive even Ron Paul succumbed to it, and an insurance market that bureaucrats made smaller, less profitable, and less efficient . . . and millions of Americans who had no incentive to buy insurance until the point where the insurers had no incentive to offer it to them.

The Democrats were absolutely right to call this a mess (in fact, most Republicans agreed with them), but what they enacted will make things much worse.  I’ll explain how in part 3.

Cross-posted to VV

Once again: Silvio!

Sex scandals, endless investigations into his finances, physical attacks, a messy divorce, all were plauging Italian Prime Minister Silvio Berlusconi and his center-right coalition going into regional mid-term elections this week.

So, naturally, his alliance tripled the number of regions they control (Financial Times):

Declaring that “love has triumphed over hate and envy” after his coalition’s gains in regional elections, Silvio Berlusconi, Italy’s centre-right prime minister, promised political and economic reform on Tuesday in his government’s remaining three years in office.

Results showed that the alliance of Mr Berlusconi’s People of Liberty (PdL) and the Milan-based Northern League had won six of the 13 contested regions, ousting the centre-left Democratic party from four.

Close victories in Piemonte in the north-west and Lazio, including Rome, mean that four of the five largest economic regions now come under the rule of the centre-right, with the opposition Democrats almost wiped from the north’s political map.

The FT piece also gave a taste of the media bias that faces Italy’s most successful politician in the 21st Century.  The entire piece emphasized the supposed differences between Berlusconi and his coalition partner – Umberto Bossi – before a quote by the Finance Minister at the end made the theme look ridiculous.

One other thing I found curious about Italy’s politics (same link, emphasis added):

“We have three years without elections, enough time to carry out reforms,” said Giulio Tremonti, the finance minister, whose tight control over spending has won plaudits from the European Union and International Monetary Fund, while shielding Italy from potential fallout from the Greek debt crisis.

So a government emphasizing lower spending and avoiding debt scores big gains at the polls?  Why, one would almost think responsible government is popular!

Cross-posted to VV

http://www.ft.com/cms/s/0/97c6937c-3c1f-11df-b40c-00144feabdc0.html

In re health care (part 1)

This is the first of a multi-post series on health care (I’m projecting four right now).  This has been inspired by the passage of Democare, of course, and the reaction to it, including several conversations and emails I’ve shared with many of my friends.  In this part, I will examine how we view health care as a whole, and why it is so badly mistaken.

First, let’s remember what health care is: it is a service, like any other good or service in the economy.  Now, it may be more valued than other goods, but that does not mean the laws of microeconomics suddenly cease to apply.  Yet politicians and pundits across the spectrum seem to have forgetten this fact.  Why?

The reason is the classic danger to every republic: the tyranny of the majority.  The best example of this (other than health care) is rent control, where the focus on the small minority of landowners in urban areas has led to the tenant majority demanding price ceilings for rents.  Nearly every American city adopted rent control of some form during the first half of the twentieth century.  A few have since discarded it.  New York remains infamous for the myraid regulations that have come with “rent stabilization.”

What was forgotten in the discussion was this: in any market – grocers, restauranteurs, toy sellers, clothiers (for lack of a better word), dry cleaners, barbers/stylists, etc. - the suppliers are a small minority, yet no one talks about price ceilings in those markets.  What makes rent different is that housing is a good that everyone “consumes” (for lack of a better word) continuously.  Thus, the consumers dominate the discussion.

It’s exactly like that with health care; Americans “consume” it, and their employers (for the most part) pay for it.  Thus we have the situation where the 83-84% of the economy not involved health care considers it a “cost” and a “drag” on their business.

This situation has led the majority (non-health-care firms and individuals) to blame the minority (health care providers and insurers) for over two decades.  In the 1980s, it was doctors; in the 1990s, it was doctors and health insurance firms.  In this decade, it has been health insurance firms and pharmaceutical companies.  In every case, however, the discussion avoided basic economic theory in favor of scoring political points.  Even Republicans and conservative lunged for personal-injury lawyers to blame.

Before we can look at any of these groups, however, we need to look at what happened to the health care market in recent years.  To do that, we need to look at not just the cost of health care (which can be found in the NHE Summary including share of GDP file on this page), but also the price of health care (which the Bureau of Labor Statistics has), from which we can calculate the quantity of health care consumed.

So what did we find?  Well, going back to 1960, health care prices have risen by more than 6% a year, but Americans consume over four times as much health care now as we did then (2.5 times per capita).  Looking back to 1994, health care inflation actually falls to an average of less then 4.4% annually, while Americans consumed 34% more health care (18% more per capita) than that year.

So, the rising cost of health care has two causes.  Prices have risen, but Americans have also consumed more health care over time.  The basic rules of supply and demand tells us that when this happens – demand is gaining faster than supply.

One of the implications of this – that health care is more expensive – is obvious, and well known for some time.  What is not discussed as much is this: health care is a major industry in America, and a growing one.  In fact, if the cost were not felt by everyone else in the economy in one form or another, odds are health care would be considered one of the crown jewels of the American economy, to be celebrated instead of pilloried.

Instead, because health care is seen far too often in political terms instead of economic terms, the tyranny of the majority has sicked government regulation and subsidies on the health care market.  While Democare has quickly become the best-known and least-liked of these government interventions, government was sticking its nose into health care long before last Sunday, with predictably bad results.  I’ll discuss those results in Part 2.

Cross-posted to VV

Um, how is this better?

It didn’t take long for reports of an RNC expense at an X-rated club to circle the blogosphere.  NRO‘s The Feed picked it up from The Daily Caller, and we were off to the races.

At first, it was assumed that Chairman Michael Steele got the reimbursement himself.  Turns out that was wrong (The Corner):

I asked an RNC spokesman about the story — specifically the charge that money was spent at Voyeur West Hollywood.The spokesman said: “We are investigating the expenditure in question. The story willfully and erroneously suggests that the expenditure in question was one belonging to the chairman. This was a reimbursement made to a non-committee staffer. The chairman was never at the location in question, he had no knowledge of the expenditure, nor does he find the use of committee funds at such a location at all acceptable. Good reporting would make that distinction crystal clear. The committee has requested that the monies be returned to the committee and that the story be corrected so that it is accurate.”

Further, the spokesman gives the indication that there’s more to the plane story — or, rather, less to it — than the piece suggests and insists that “Steele’s expenses” are not always “Steele’s expenses” but finance and fundraising expenses.

Note: the “I” is Kathryn Jean Lopez of NRO.

Here’s my question, though: why sould we be happier that the RNC is so incompetent as to not check and flag this expenditure beforehand, even if it was from a “non-committee staffer”?  Wouldn’t, in fact, a “non-committee staffer” get more scrutiny than the Chairman?

In other words, why should we feel any better about this?

Cross-posted to VV

The Iraqi results

Iraq’s first set of complete election results were released earlier today, and it had good news and bad news.

The Good News: Iyad Allawi’s al-Iraqiya managed to slip past Prime Minister Maliki’s State of Law Coalition and into first place.  Now, the margin is only two seats; it could flip via recounts; and Maliki is, well, unhappy (Wall Street Journal and Washington Post), but it is still a dramatic blow against the “religious parties” – especially the Tehran-tinged Iraqi National Alliance (INA, which I’ve previously misnamed the NIA).

The Bad News: Said NIA has nearly enough seats (70) to put Allawi (91) or Maliki (89) in power all by themselves (163 are needed for a majority).

But . . . most of the rest of the seats are spread among the bunch of Kurdish parties, the Sunni-dominated Tawafuq, and the broad-based Unity for Iraq.  In theory, all of them could come together with Allawi to freeze out Maliki (or vice versa).

I should also note that while I prefer Allawi to Maliki, the latter is far, far better than he was before the surge.  Frankly, I just want to make sure the INA has no role in governing – something more likely if Allawi is Prime Minister.

The only reports I’ve been able to find on Fadhila (the one party in INA that is outside Tehran’s orbit) did poorly within the INA.  That’s too bad; Fadhila could have split off from INA (and I suppose still can, but it won’t be of much influence).  This means the Sadrists did very well, which is not good.

Still, Allawi’s success is very good news.  If he can manage to cobble together a coalition without the Sadrists or SIIC (the main Khomeinists within INA), it would be fantastic.

Stay tuned.

Cross-posted to VV

Excellent analysis of Mitt Romney’s problem

Bill Pascoe (h/t Matt Lewis) hits it square on the head:

Romney could have . . . become the tribune of the anti-ObamaCare forces, telling his first-hand story of trial and error, and making himself a hero in the process.

But that, apparently, requires a level of intelligence (to see the problems his reforms have led to), and cunning (to see how he could turn that massive political negative into a political positive), and courage (to be willing to say in public that he was wrong, and to apologize) that the former governor seems to be lacking.

So say goodbye to Mitt Romney as a Republican presidential contender in 2012. He had his chance, and he blew it.

Replacing Democare with Romneycare isn’t going to cut it in 2012, period.

Cross-posted to VV

Well that explains it

One of the more unusual political events is – or appears to be – the internal Republican revolt against Senator Robert Bennett.  The reaction of many Republicans is summed up by this New York Times quote:

His fate is being watched not only by grass-roots conservatives testing their ability to shape the party, but also by many elected Republicans in Washington who are wondering, If Bob Bennett is not conservative enough, who is?

I must confess even I had been confused and surprised by what seems to be happening in Utah – until I read the Times piece, in particular Paragraph 10 (emphasis added):

He said he knew that a tough fight for re-election awaited him after he voted for the bank bailout in 2008 and a few days later walked into a town meeting and “it was through clinched teeth that they welcomed me.”

Certainly clears that up.

Cross-posted to VV

Majority of likely voters want Democare repealed

Rasmussen (emphasis added):

The latest Rasmussen Reports national telephone survey, conducted on the first two nights after the president signed the bill, shows that 55% favor repealing the legislation. Forty-two percent (42%) oppose repeal. Those figures include 46% who Strongly Favor repeal and 35% who Strongly Oppose it.

In terms of Election 2010, 52% say they’d vote for a candidate who favors repeal over one who does not. Forty-one percent (41%) would cast their vote for someone who opposes repeal.

Not surprisingly, Republicans overwhelmingly favor repeal while most Democrats are opposed. Among those not affiliated with either major party, 59% favor repeal, and 35% are against it.

Of course, the GOP can’t just stop with “repeal.”  Nor, from what I can tell, do they intend to do so.  I’ve heard “repeal and replace” and “repeal, replace, and reform.”  Either should do nicely.

The thing to remember, however, is that Democare remains so unpopular that it is still politically unsustainable in the long-term (that the benefits are backloaded for years doesn’t help its chances for survival either).  That could change, of course (and the Democrats are sure it will), but inevitable, this still isn’t.

Cross-posted to VV

Now this is an amendment I can support (UPDATED)

From Congressman Jeb Hensarling (NRO – The Corner):

Over the last five years, federal spending increased from around 20 percent as a share of GDP to 24.7 percent, and the government’s expenditures increased from $2.47 trillion to $3.52 trillion — a 42 percent increase. These are the highest levels of spending as a share of the economy since World War II.

President Obama’s budget proposes increases in federal spending over the next ten years to a level approximately 56 percent over the 2010 level. To accomplish this, the president proposes growing federal spending from its 2010 estimated level of $3.618 trillion — $30,981 per household — to $5.67 trillion in 2020, which is $48,552 per household.

This level of spending is not sustainable even in socialized European countries.

. . .

That is why, together with Mike Pence and John Campbell, I have offered H.J. Res 79, a Spending Limit Amendment to the Constitution of the United States that would limit spending to one fifth of the economy — our historical spending average since World War II. The limit could only be waived by a declaration of war or by a two-thirds congressional vote.

One reason I’ve been skittish about Balanced Budget Amendments was that they could be used for tax increases as much as for spending restraints.  This amendment solves that problem.

I wholly back the Spending Limit Amendment.

Cross-posted to VV

UPDATE: Turns out there are already 43 co-sponsors to this, including my member of Congress (Rob Wittman, VA-1).