Three Steps To True Health Care Reform

It’s been over a year since President Obama signed into the “Patient Protection and Affordable Care Act” , commonly known as “ObamaCare”.  An enormous bill (at one point, over 2000 pages before being pared down to a mere 906), it is chock-full of mandates, prohibitions, taxes, and bureaucracy deemed “reform” by its advocates and ostensibly designed to provide “universal coverage”.  The law has become the signature accomplishment of the Obama Administration but remains unpopular:  a majority of citizens still favor its repeal, every announced Republican presidential candidate has vowed its reversal, and the Department of Health and Human Services has had to issue over 500 waivers to companies and unions to prevent them from dropping coverage for their employees and members.

Advocates of the government-centric approach (many of whom thought the law didn’t go  far enough, preferring a total government takeover with a European-style “single-payer” system) continue to accuse critics of being against health care reform altogether and having no alternative.  There are a number of free market reforms that would improve access to health care and reduce costs without imposing costly taxes or intrusive mandates on individuals and families, and without increasing the size and scope of the federal government.  Three easy, market-based reforms in particular should form the basis for any reform plan.

First, give individuals the same tax benefits for purchasing health insurance that employers currently get for offering it.  Employees could still have the option of getting health insurance through their employer, but would no longer have to worry about losing their health coverage if laid off or if they wanted to change jobs or start their own business.  Coverage would be portable, and millions of new consumers would be unleashed into the marketplace, creating new competition.  Rather than looking only at the options provided at work, individuals and families could shop around for coverage that more fits their own needs.  Insurance companies would be forced to cater to a wider variety of interests and would be forced to sell directly to the consumer, not a benefits department at a large corporation.

Second, further expand competition and choice by ending the federal prohibition against buying health insurance across state lines.  If a resident of Texas wants to buy a laptop computer, a car, or even food, he doesn’t have to buy from a company chartered in the state; unfortunately, such is not the case when purchasing health insurance.  The explosion of internet-based commerce has made it even easier to shop for nearly any item around the country, or even around the world.  Imagine what increased market access could do for health insurance consumers if insurance companies were no longer sheltered from out-of-state competition.  Companies like Amazon that have revolutionized shopping for books, movies, and electronics could become retail outlets for insurance, further expanding the market and making companies more accountable to their customers.  More personalized options would be offered as companies compete for the consumers’ dollars, and the insurance companies themselves could cut expensive overhead by not having to meet state-by-state regulatory requirements.  States themselves could then compete to streamline their own requirements to induce companies to move there, removing even more red tape from the insurance process, with savings passed along to consumers.

Third, increase consumers’ ability to leverage by removing barriers to group plans.  Groups as varied as the NAACP or  the National Small Business Association could pool members together from all 50 states and leverage those groups to negotiate with the insurance companies.  For example, many architects are self-employed and lack insurance; think the American Institute of Architects would be interested in providing insurance options to its members?  Many with diabetes are worried about getting coverage for their “pre-existing condition”:  enter the American Diabetes Association, with its ability to leverage a potential customer base of up to 25 million people.  In an open market, most insurance providers would probably be interested in competing for those customer pools.  And, as the market expanded, further groups could be formed with the sole purpose of consolidating groups to bargain for better rates and more options.

Cellular phones were once large, clunky devices, owned exclusively by the rich; market competition and innovation have brought down the costs of cellular service dramatically while simultaneously improving the service and options.  The result:  over 80% of Americans now own a cell phone, and “smart phone” innovation is breathtaking.  Why not apply the same principles of free market competition to the health insurance market?  The three steps outlined above would expand access, decrease costs, improve options, and empower individuals and families.

That would be true health care reform.

China, The US, And The IMF

Before its former managing director, Dominique Strauss-Kahn, put the International Monetary Fund in the headlines with his alleged criminal behavior, the IMF was making the headlines with economic news with projections that China’s surging economy would surpass the United States as number 1 in the world sometime around 2016 if currently-predicted growth rates continue.

The response to this forecast was dramatic:  Marketwatch proclaimed that the “Age of America nears end”; Fox News warned that “America’s economic dominance on the world stage could end”.  Erstwhile Republican presidential contender Donald Trump has been a frequent critic of China, blaming outsourcing of American manufacturing for the current US economic slump, claiming that “we don’t make things anymore” and that “China is just ripping this country like nobody has ever ripped us before”, even criticizing the official state dinner President Obama held for Chinese President Hu Jintao earlier this year.

So does the rise of China’s economy really signal the decay of the American age?  The numbers bear closer investigation.

First of all, despite the claims of Trump, labor union bosses, and other politicians, American manufacturing has been on the rise over the past 30 years.  As shown by University of Michigan economics professor Mark Perry, American manufacturing output has increased by nearly 250% since 1970.  While we require fewer workers thanks to technological innovations like computers, robotics, and other high-tech advances that have resulted in an explosion in the productivity of American factories, we produce more “stuff” than anyone in the world.  While there are plenty of anecdotes about factories closing up shop in the US and moving to Mexico or China, Americans are still producing high-value products like airplanes, medical equipment, chemicals, and pharmaceuticals.

While much is made of the US “trade deficit” with China, over the past decade American exports to China have increased by over 400%.  While the demand for Chinese-made products continues to increase, imports from China are largely lower-value products like shoes, apparel, and video games.  But even that doesn’t tell the whole story, as even many higher-value items are only assembled in China, with the real value coming from components made elsewhere.  One such example is the iPod:  while “made in China”, the majority of the value of the iPod is attributable to American workers and companies.  Yet every dollar spent on an iPod adds to the “trade deficit” with China and to the calculated size of the Chinese economy.

In spite of its tremendous economic growth, China remains a country of extreme poverty.  According to private intelligence firm Stratfor, “[m]ore than 1 billion Chinese live in households whose income is below $2,000 a year (with 600 million below $1,000 a year)”.  While the industrial areas of China are indeed booming, the interior of the country is still extremely poor and undeveloped, and the Chinese government heavily restricts travel to those areas where the jobs are located.  In addition, the Chinese government’s “one child” policy has made shortages of cheap laborers inevitable over the coming years, and Europe’s looming population decline will mean fewer consumers to purchase those Chinese goods.

Finally, it is important to remember that even if, as the IMF predicts, China’s economy does grow larger than the US’s on an absolute scale, it will still lag on a per capita basis.  China currently has a population of approximately one billion more people than does the United States.  Even at the same overall economic output, the US would still be five times more productive than the Chinese.  That’s a significant advantage.

Will the Chinese “Asian tiger” overtake the American economy over the next 5-10 years?  Perhaps.  If so, it will still not signify the end of the American economic empire that rose out of the ashes of World War II and the fight against Communism.


The Real Herbert Hoover Record

Herbert Hoover, 1931, Oil on canvas by Douglas ChandorWith the after-effects of the so-called “Great Recession” still lingering — unemployment is still at close to 9%, even after the “stimulus” spending of nearly a trillion dollars (spending that was supposedly necessary to keep the unemployment rate below 8%), and economic growth is still sluggish — and the landslide election victories for Republicans in November 2010, there is now real debate around cutting government spending at the local, state, and federal level.

Predictably, such calls for fiscal discipline bring the inevitable references to President Herbert Hoover and his response to the stock market crash of 1929 and his response to what would become the Great Depression.  According to the conventional narrative, it was Hoover’s supposed laissez faire inaction that was the catalyst for the economic malaise that consumed the United States for the next decade and a half.  As is often the case, however, the conventional narrative departs from the truth:  Hoover, far from the caricature, was not a free market, limited government advocate; rather, he fit in with the progressives of his day, seeing government as a tool for shaping a better world.  He sought a much more aggressive, progressive, activist government than had been the hallmark of his predecessor Calvin Coolidge.

When Hoover took office, the top marginal income tax rate was 25%.  The top bracket started at an annual salary of $100,000 — quite a sum at that time.  Hoover’s response to the building economic crisis was to raise taxes.  Only on the “rich” of course.  President Hoover dispatched his Treasury Secretary, Andrew Mellon, to Congress to lobby for an increase in the top tax rate from 25% to 63% on those making over $1,000,000 per year.  He was successful:  Congress granted his request, and the tax increase was enacted.  Taxes were also increased on estates (today known as the “death tax” by opponents) and corporations.  Secretary Mellon, who was reluctant to request the increase and ultimately lamented it, was later chastised as one of the greedy capitalists, “economic royalists” in Roosevelt’s vernacular, responsible for the depression.

President Hoover also sought to shore up the economy by protecting American businesses, particularly farmers, from overseas competition.  He pressed Congress to pass the Smoot-Hawley Tariff Act, which raised tariffs on nearly every sector to historically high rates.  As predicted in a letter written to President Hoover by 1,028 economists urging him to veto the act, enactment of the new tariffs spurred reprisals from other countries — a “trade war” — resulting in a worldwide slowdown in trade and commerce that further exacerbated the economic malady.

So the Hoover approach to a “credit crunch”, bank closures, and a crisis on Wall Street was to raise taxes on corporations and “the rich”, and to increase tariffs on imported goods and services.  But that wasn’t all:  Hoover also greatly increased federal government intrusiveness and expense.  As detailed by economist Don Boudreaux of George Mason University, “spending rose significantly during Hoover’s term in the White House…The overall increase in real per-capita spending from 1928 to 1932 was a whopping 53.5 percent.”   In her book The Forgotten Man, Amity Schlaes also details how President Hoover called business and industry leaders to the White House to harangue them on matters economic.

President Hoover’s tax increases, protectionism, and expansion of the size, scope, intrusiveness, and expense of the federal government did nothing to halt the steady economic decline of the early years of the Great Depression.  Of course, that didn’t stop Hoover’s successor, Franklin Roosevelt, from doubling down on the Hoover approach — FDR simply raised taxes even further and spent even more in a desperate attempt to fight off economic decline.  The result was the worst economic period in the history of the United States:  rampant joblessness persisted until the country mobilized to fight World War II, and prosperity did not return until the war was ended and the governmental shackles were loosened.

That is the real Herbert Hoover record:  tax increases, spending initiatives, and trade interference.  It is modern-day budget-busting big spenders — not budget-cutting restrainers of government — that carry on his legacy.