SMALL GOVERNMENT VS STINGY GOVERNMENT

Please consider this excerpt from The Road to Serfdom, by Friedrich Hayek, the legendary free-market economist, appearing at page 87 of the Bruce Caldwell “Definitive Version” of the work:

“There are, finally, undoubted fields where no legal arrangements can create the main condition on which the usefulness of the system of competition and private property depends: namely, that the owner benefits from all the useful services rendered by his property and suffers for all the damages caused to others by its use. Where, for example, it is impracticable to make the enjoyment of certain services dependent on the payment of a price, competition will not produce the services; and the price system becomes similarly ineffective when the damage caused to others by certain uses of property cannot be effectively charged to the owner of that property . . .  Thus neither the provision of signposts on the roads nor, in most circumstances, that of the roads themselves can be paid for by every individual user . . .   In such instances we must find some substitute for the regulation by the price mechanism.  . . . “

English translation:  Free-market competition yields better outcomes than governmental action (“central planning,” in Hayek’s lexicon), with only one exception:  where too many of the people who would benefit from a project or enterprise would be unwilling or unable to pay for it.  Everyone uses the roads, but not enough people could afford to pay their usage-based share of the price for the building and maintaining of them, so the roads would not get built without governmental action.

A suggested corollary to the Hayek proposition:  Just as government should do what only it can do, government should not do what the private sector can do better or at lower cost. Government should outsource everything but its core competencies, which are few.

Hayek would have been fine with President Eisenhower’s decision to fund and manage improvements to the nation’s infrastructure, such our interstate highway system, built during the 1950s.  (See William J. Bennett for corroboration of  this inference:

https://books.google.com/books?id=X4c5YV7XNdAC&pg=PT708&lpg=PT708&dq=william+bennett+on+hayek+on+interstate+highway+system&source=bl&ots=huaoCuzapi&sig=LBuTsiDa4NkEja0gZjjvfK1alPk&hl=en&sa=X&ved=0ahUKEwj59LqqnazWAhXGYiYKHbrkAOkQ6AEIJjAA#v=onepage&q=william%20bennett%20on%20hayek%20on%20interstate%20highway%20system&f=false

We already had toll roads by the ‘50s, and many more have been built since them, and some can be maintained primarily through toll revenues, but it has always been unrealistic to assume that tolls would pay for the original construction of a toll road.

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President Trump is a Hayekian (even if not a conventional “conservative”), in that he would build infrastructure but avoid regulating it.   He believes improved infrastructure would contribute mightily to the nation’s economic growth, but excessive regulation would impede growth.

Republican opposition to Mr. Trump’s economic policies is curious.  The ideological Right, while continuing to belittle him for tastes and manners that might be OK at Wharton but not at Yale, senses the president is not one of their own; they are scandalized not only by his manner but by his apostasies involving increased federal-spending and modified  trade-relationships.  The moderate Right is even-less reasonable: they claim to seek healthcare reform and tax reform but find excuses to oppose initiatives to achieve them; they are stunned when the president takes seriously his pledge to restore free-market pricing to healthcare and economic sense to our tax structure.  Neither the ideologues nor the moderates seem won-over by the president’s nomination of an original-meaning jurist to the Supreme Court, his revocation of Obama’s DACA executive “memorandum,” or his massive reductions in federal regulations.  They seem frightened by his switch to a “big stick” posture on national security.

The suggestion here is that the president is essentially a conservative, and that he is misunderstood because few people are willing and able to distinguish between reducing government regulations (the “size of government”) and reducing government expenditures.  The president wants to reduce regulations; red tape drives him wild.  He hates it when meritorious business ventures, like the Keystone Pipeline, are held back by regulators with political agendas.  But he supports federal assistance for recovery from major disasters (viz, Hurricane Harvey) and resists cutting Social Security and Medicare. (He does not seem to share Hayek’s ambivalence about whether entitlements are re-distributive steps down the road to serfdom.) The president’s main priority is economic growth, which is needed if we are to pay for entitlements.

The president is more of a conservative than many of his detractors, even though his conservatism is based upon his business experiences and instincts.  He is anti-regulation but not anti-government.  He is pro-markets but willing to provide governmental assistance.  Do his critics miss the point because they, too, are distracted by matters of taste and manners?

Leadership For Healthcare Reform

To everyone who mocks the Republican Party leadership for breaking their promise that they would repeal and replace Obamacare as soon as the Republicans achieved a majority in the House, or as soon as the Republicans also achieved a majority in the Senate, or as soon as the Republicans also captured the White House:

The Senate is not controlled by Republicans.  John McCain, Susan Collins, and Lisa Murkowski are not Republicans in any meaningful sense of the term, certainly not when it comes to important legislation. The three, like too many of the other 49 nominal Republicans, are fine for the occasional show-vote, where they get to propound Republican values (pro-life, make America great again, etc.), but when it comes to the hardcore stuff of Republican principles, like free markets and limited government, they are not Republican or conservative at all.

One could blame the healthcare debacle on insincerity and ignorance, but that is only part of the story.  The missing Republicans are not the root cause of our failure on healthcare-reform, just as they will not be the cause when tax-reform suffers a similar fate.  The root cause is a failure of leadership.  We already knew that Majority Leader McConnell is a parliamentarian but neither a conservative nor a leader, and we already knew that Speaker Ryan, who could not explain the meaning of “good morning” in fewer than 100 pages, is certainly not a leader.  What we did not know was whether our president, despite his crudeness, vulgarity, and other shortcomings, could translate his unquestioned skills as a communicator into a functional form of leadership.  Short answer:  so far, not so good.

Possible cause: the president has neither the patience nor the skill-set to study-up on the healthcare problem and master it sufficiently to “sell” a conservative/Republican solution to the American public and the Congress.  It is not as though the solution were a mystery:  free-market pricing of healthcare and insurance (to satisfy the Republicans), coupled with financial assistance to the needy and the people with pre-existing conditions (to satisfy the Democrats).  Democratic generosity, Republican competitiveness, combined in one easy package.  That is the bi-partisan solution, the one that would satisfy both parties if they were in fact really looking for a solution.  But are they?

 

EPITAPH FOR HEALTHCARE REFORM

Where did it all go wrong for repeal-and-replacement of the Affordable Care Act?

Short answer:  pre-existing conditions (PECs).  The PEC solution in the ACA is the one part of the law that most people want to rescue, the one that represents financial protection of people who are unable to obtain healthcare insurance because their health issues make insurance unavailable or prohibitively expensive.  But the Republican Congress was unable to agree on a PEC fix.

Longer answer:  the conservative mantra, a big factor in the Republican wins last November, was that healthcare insurance (and healthcare itself) should be offered and purchased in a free market, where the competitive forces of supply and demand would drive down the prices of insurance and care.  But after the dog chased the car for 7 years and finally caught up with it, the dog had no idea what to do with it.  Republicans seemed stunned to learn that the public cared more about taking care of people with PECs than it did about free-market competition for the pricing of healthcare and insurance..

The problem:  after 85 years of living with ever-increasing governmental regulation and price controls, America no longer remembers how markets work.  The ACA solution fixed prices and had people with PECs paying the same prices for insurance as everyone else, which amounted to a cross-subsidy – people without PECs would pay more than they should, in order to allow people with PECs to pay less.

Conservative Republicans in Congress were put-off by the price-fixing/cross-subsidy apostasies.  Recalling the 1970s oil-price debacle, they knew that price-fixing never yields sustainably-lower prices.  Recalling Economics 101, they regarded cross-subsidies as “re-distribution of income,” a sad relic of communism.  But only Sen. Ted Cruz seemed to consider that there might be a way to avoid price-fixing and automatic re-distributions while still taking care of people with PECs.  The Cruz amendment would have been the gateway to a format that Nobel economist Milton Friedman had discussed decades earlier,  vouchers:  first you free up the markets for healthcare and insurance, which drives down prices, and then you give money (or vouchers) directly to people who cannot afford to pay market prices – whether because they are broke or because their PECs put the cost of insurance beyond their means.

It is clear that Americans want to help those in need.  The stumbling block is not a flaw in our moral character, it is a flaw in our governmental approach.  The Cruz approach was to separate the pricing of healthcare and insurance from the granting of assistance to people with PECs.  To those who might ask whether this would induce everyone to put off buying insurance until he or she developed a condition that required healthcare services, the answer is simple:  put the feds in charge of deciding who is entitled to assistance, when, how much, and for how long, and make sure no one gets any money without first having substantially exhausted his or her financial resources. Gaming the system, as people have been gaming the ACA, would be minimized.

A pair of concise summations of this approach:  “If we’re going to subsidize Americans who can’t afford health insurance, do it directly. Don’t do it through the premiums of others,” said Sen. Jeff Flake (R., Ariz.).  “The obvious compromise, the only good solution, is to do both: free-market pricing of healthcare and insurance in order to drive down prices, coupled with government subsidies for the needy to enable them to buy care and insurance at market prices,” said your humble scribe in an earlier blog post.

So, why was the Cruz model rejected?  Were the Republican resisters just under-informed, or should we be more cynical about their motives?  Did the insurance industry or anyone in the “swamp” really want a free-market solution? Why didn’t the Trump administration endorse and sell the Cruz draft proposal?  Does anyone believe that repealing ACA or letting it die on its own would be anything but a meaningless stunt, possibly an invitation to financial or civic chaos, with no way to sustain American healthcare without massive infusions of new money our government does not have?

 

A SOLUTION TO THE HEALTHCARE DEADLOCK

The way to fix the Affordable Care Act is not to punish the people who are unfortunate enough to have pre-existing conditions or financial need, it is to assist such people in a way that does not undercut the benefits that would be afforded by switching to free markets for the pricing of insurance and healthcare.

Here is the dirty little secret about solutions for healthcare and insurance: there are two primary elements, and there is no such thing as a good solution that addresses only one.  Republicans have no trouble uniting around one of the elements: the creation of a competitive, Milton Friedman-style free market in healthcare and healthcare-insurance, where pricing of healthcare is based on supply and demand and where premiums on healthcare insurance are based both on supply and demand and on actuarial calculations derived from the applicant’s “risk profile” rather than the applicant’s financial means.  Democrats, on the other hand, are united around a demand for the subsidies element:  assisting the needy, including those whose need is created or increased by the higher cost of buying insurance that covers pre-existing conditions.  All the quibbling about Medicaid, taxes, and other issues is misdirection, a subset of the subsidies argument, a small tail wagging a big dog.

Republicans think free-market competition for products and services yields lower prices.  Democrats view that as voodoo economics; in their world, the only way to reduce prices for healthcare and insurance is for government to control prices, a policy Republicans believe solves nothing but leads inevitably to government bailouts, such as the bailout that will soon be needed to rescue the ACA from its death spiral.  Democrats think of governmental assistance in healthcare as an expression of social values, that no one should be denied a reasonable level of healthcare merely because he cannot afford it, even if the reason he cannot afford it is that he has a pre-existing condition.  Republicans are repelled by government handouts in general but are moved by a fundamental inclination toward charity, toward helping the needy.

To a visitor from Mars, the obvious compromise, the only good solution, is to do both: free-market pricing of healthcare and insurance in order to drive down prices, coupled with government subsidies for the needy to enable them to buy care and insurance at market prices.  In the markets + subsidies model, government’s main role would be to define and identify financial need, including need arising from having a pre-existing condition. Government assistance, in the case of people whose financial need arises from the higher cost of insuring people who have a pre-existing condition, would make up the difference between the premiums charged to such people and the premiums then being charged to people who have no pre-existing conditions but otherwise-similar risk-profiles.

This compromise model would embrace both the Democrats’ social policy and the Republicans’ free-market policy.  The two policies are compatible, even complementary:  the cheaper the prices for care and insurance, the lower the governmental outlay for subsidies.  Why hasn’t Congress gone to this solution?  One possible explanation:  (i) the Republicans fear that their constituents oppose the notion of subsidies and vouchers –  government “handouts;” and (ii) the Democrats fear markets and are afraid this solution might actually succeed and expose the fallacy of the price-control model. Meanwhile the public, if you read between the lines of the various polls, actually wants this kind of compromise.

Speaker Ryan knows all of this.  In fact, the compromise model is pretty much baked-into the plan that Ryan drafted and the House approved, though it is obscured by the complexity and indirectness of the drafting.  For whatever reasons, a lot of important people act as though they do not understand what Ryan has crafted  – including the president, many Republican senators and representatives, and most conservative talk-show commentators (the primary spokeshumans for the Deplorables).   Granted, the Ryan model contemplates additional actions by the executive branch (Executive Orders, etc.) in order to accomplish major parts of the overall free-markets/subsidies model, such as giving the states the power to waive the “community rating” system of pricing insurance – a critical component of price-controls.  Some congresspeople might not trust the White House to come through with such actions.

In all events, both the House bill and the Senate draft bill, warts and all, are way better than the ACA.  We would be well on our way toward a much-freer market once either bill were enacted and the Administration started peeling back the key ACA regulations, and the individual states waived the federal regs that mandate the terms of private insurance policies (like the community rating requirement), and the states switched to getting block grants for Medicaid.  The president knows all this – but by now he might be giving-up on the anti-Trump wing of his own party and deciding whether to go shopping elsewhere for ACA solutions, even if those solutions might give short shrift to free-market principles.

The president should consider that the compromise suggested here, markets-plus subsidies, would hold considerable appeal for the public, that the public would support it, probably love it, because it addresses their wish to retain the subsidies, and if they also get lower prices as part of the deal, that would be a win-win.  Once the Cruz/Lee faction gets it that their constituents want both market economics and charitable behavior, they might find the plan harder to resist.

 

NO MORE PRESS BRIEFINGS

Why do we still have press briefings by the Press Secretary?  In fact, why do we still have a press secretary, if his primary function is to argue with an adversarial press corps?  The mainstream media have become so partisan that the briefings no longer serve the function of keeping the public informed on current events; the reporters believe their role is to present opinions and arguments and to bait the Trump Administration into policy debates. These adversarial proceedings have little upside for the Administration and are a waste of its time, because the only verdicts from these contests are the ones the media choose to declare.  Guess who turns out to be the winner most of the time.

The purpose here is not to debate the existence or utility of leftward bias in the media.  Everyone knows what is going on, that the media have supplanted the Democratic Party as the political representative of the American Left and are attempting to re-educate the electorate in a leftward direction. Everyone knows the Deep State and the Never-Trump wing of the Republican Party are more foe than friend. Everyone knows there is no way for the Right to win a debate when the media act as judge and jury. No matter what the Administration does, the media respond with negative editorial opinion presented as though it were fact, opinion that ignores, distorts, redacts, or misrepresents the Administration’s views.  So, what to do?  How can the public be kept informed, when the Left has a virtual monopoly in the media?

The press briefing is not the answer.  Fox News is not the answer, now that the second generation of Murdochs has destroyed Roger Ailes and Bill O’Reilly and exiled or muzzled many other conservatives in its pursuit of “fair and balanced” reporting.  For now, conservatives still have talk radio and the Editorial Department of The Wall Street Journal, though one wonders how much longer can Paul Gigot et al fight the good fight, considering the paper is owned by the Murdochs and the Editorial Department already has to share quarters with the Journal’s left-leaning News Department?

A proposed solution:  a Trump Administration news service, aimed at those who still know there is a difference between fact and opinion but have no way to know about important stuff that has been buried by the mainstream media, events they had no idea had occurred.  How about a service that would report the most-important news and identify the incorrect, incomplete, or misleading stuff being peddled by The New York Times, the Washington Post, the principal newspapers in most other major metropolitan areas, ABC, CBS, NBC, CNN, NPR, the Associated Press and other national press services, the majority of news-oriented periodicals, and the social media?  There would be no “live” audience, no questions from media people, no debates or arguments with them, just a distillation of the latest news and a listing of errors and omissions made by the media.  Would at least Fox telecast it?  Could it be done via the social media?  Governance by tweet and scripted-announcement, anyone?