The Rise of Political Charlatans

The growing support among democrat presidential candidates for Medicare for All suggests that they haven’t heard of or don’t believe  Groucho Marx’s observation that “politics is about searching for problems, finding them everywhere, misdiagnosing them, and applying the wrong solutions.”  Indeed, these candidates help to explain why Washington DC is known as 68 square miles surrounded by reality.

The leaders of the Medicare for All movement, Senators Sanders and Warren, have somehow convinced themselves and others that replacing an oligopoly with a monopoly will solve all of our health insurance problems.  This is truly a case of “Woodenheaded”—assessing problems in terms of preconceived notions while ignoring contrary facts.  Indeed, they are really political charlatans—see real insight.

There are no examples in history where monopolies have made lives better or perform better than markets over the long run. Do voters really want a health insurance system modeled after the Postal Service or the Veterans Administration hospital system?

Our health insurance problems can be traced to a lack of competition and third-party providers.  Allowing insurance to be sold across state lines, being tougher on the consolidation race, discontinuing employer deductibility for employee health insurance, and providing a mechanism to fund catastrophic illnesses would represent major improvements in delivery of services and costs.     

The countries that have the best health care systems have not adopted the Medicare for All model.  Sweden and Switzerland are generally viewed as having health insurance programs that are among the world’s best.  Neither promotes a health insurance monopoly.  The governments mandate universal coverage that is managed at the local level but allows for private insurance for those who want more extensive coverage.  Individuals bear the cost of insurance.

While free everything might sound good to many voters, most will realize that there is no such thing as a free lunch. Someone always pays and the top 1% don’t have enough wealth to pay for all the promises that progressive democrats are making.  Just Medicare for All has been priced at over $32 trillion in its first decade.  These promises are a prescription for economic disaster.  But the politicians who make them are probably not sincere and believe that voters don’t know when they are being bamboozled.

The Avoided Question

The democrat candidates for president have an almost unending list of new programs they want to implement if elected.  Among others these range from Medicate for All, to achieving zero CO2 emissions, to wealth taxes, and billions for teachers.  The list goes on as the 20 candidates attempt to out bid their competition.  The questions that doesn’t get asked is how are they going to pay for these promises and how are they going to deal with the national debt under control?

Our nation has a large number of problems and the next president, at best, will only be able to address a small number.  One of them will not be a program to reduce the national debt.  And as a result, it will keep growing because it is easier to kick the can down the road than to lessen the burden on future generations. 

Addressing the national debt, which now stands at $22.8 trillion, up $17.1 trillion since 2000, would require an act of political courage and a willingness to be a one term president.  Unfortunately, there is no evidence that such a paragon of fiscal responsibility exists.

Politicians who like spending, and that is most of them, blame our current debt and deficit problems on tax cuts and republican irresponsibility that led to the 2008 financial crisis.   This is a case of convenient self delusion and what the late historian Barbara Tuchman referred to as wooden headeness—“assessing a situation in terms of preconceived fixed notions while ignoring or rejecting any contrary signs. …acting according to wish while not allowing oneself to be deflected by the facts.”

The Reagan, Bush and Trump tax cuts and a deregulation fervor are asserted to be the root of our fiscal problems.  This is a case of not letting facts get in the way of a self-serving narrative. Federal revenue has grown almost every year since the Reagan tax cuts of 1983.  The exception was the years involving the 2008 financial crisis when federal tax revenue shrank from 2008 to 2013.  

According to The Balance– www.thebalance.com–.“The government’s annual income only pays for 77% of spending. It creates a $1.1 trillion billion.” The rest is deficit spending.

The case for reducing the debt well below the current level is powerful.  The Peterson Institute has stated the case clearly, “If our long-term fiscal challenges remain unaddressed, our economic environment weakens as confidence suffers, access to capital is reduced, interest costs crowd out key investments in our future, the conditions for growth deteriorate, and our nation is put at greater risk of economic crisis. If our long-term fiscal imbalance is not addressed, our future economy will be diminished, with fewer economic opportunities …”  This is also the view of most economists.

What should be done?  Since politicians cannot restrain themselves, the first action is to pass a balanced budget amendment and balancing law until the amendment is ratified.  There also should be the equivalent of another Hoover Commission to restructure and streamline the Executive Branch.  There is obvious waste in all departments and agencies.  For example, the Department of Energy was created when during a time of crisis when it was believed that we were running out of oil.  Only crony capitalists would miss it now.  While a strong national defense is a primary government function, do we need a $10 billion aircraft carrier and a fighter jet costing between $140 and $300 million per plane?  The military services were structured to fight a World War II type conflict.  They should be restructured for the conflicts of the future.

Social Security and Medicare currently represent 60 % of federal spending and the cost of those programs will only grow larger.  Promises to current recipients and those nearing retirement have to be kept but saving both programs for future generations justifies changes like gradually raising the retirement age to reflect increased longevity, raising the earning limit subject to the payroll tax and indexing it for inflation, increasing the Medicare payroll tax by 1% and also the surtax on earning of $200,000 or more.

Burdening future generations with a debt that will make them poorer should be a strong incentive for politicians to find common ground.  The fact that Congress ignores this crisis is disgraceful.

Redistricting, the Constitutional Equivalent of Fermat’s Last Theorem

The French mathematician, Pierre de Fermat, in 1632 wrote about a problem whose roots went back to ancient Greece. Everyone knew that a squared number could be broken down into two squared components.  Fermat’s Theorem was that it was not possible to do that with any number raised to a power greater than 2.  Fermat’s Theorem withstood being solved until 1994 when a Princeton professor, Andrew Wiles, provided the proof.

What has that to do with redistricting?  The Supreme Court has accepted several gerrymandering cases which creates a problem as complex and difficult as Fermat’s Last Theorem. Article 1, sections 2 and 4 gives state legislatures authority over elections and simply establishes that there will be one representative for every 30,000 people in the states.  

In a review of redistricting by the Congressional Research Service stated that “The goal of redistricting is to draw boundaries around geographic areas such that each district results in “fair” representation.”  However, since districts are drawn by political bodies– state legislatures–it is virtually impossible to eliminate politics in seeking fairness.  The Supreme Court recognized this previously when it ruled that if partisan gerrymandering is extreme, it is unconstitutional.  In 2006, the Court referred to “partisan symmetry” meaning that parties have an equal opportunity to win elections which conflicts with the less than extreme gerrymandering standard.

Partisan symmetry seems to be a simple and straightforward concept.  It is anything but.  How much partisan bias is too much?  Candidates are not necessarily of equal quality and voter intensity is not necessarily equal.  There are no objective metrics for deciding when the line is crossed between acceptably partisan and extreme gerrymandering.  In ruling on the cases before it, the Court could rule narrowly in a way that is case specific or it could rule in a way that gives legislatures constraining criteria for drawing congressional districts.  No matter how it rules, gerrymandering will continue. Legislatures are made up of politicians; not angels.  And political parties that control redistricting will continue to seek to maintain its political control.

Suggestions for redistricting may make the process less partisan but will likely fall short of achieving fairness.  Three approaches have been suggested, none of which are without some degree of political bias.

One popular idea is to use independent commissions instead of legislatures to redraw the districts. However, this solution has the flaw that most humans act in their own self-interests which includes political interests.  

Some have suggested that computer models be used. Although models can be developed in ways that incorporate political biases, models can be tested to determine the “efficiency”—the extent to which votes are wasted—of projected outcomes.  

A Cornell University paper proposed a technique modeled after the “I cut, you choose,” method of sharing. Applied to redistricting, each party would take turns proposing divisions and freezing districts. The controlling party would divide the state into the appropriate number of districts, satisfying all legal requirements. The second party freezes one of those districts and then divides the unfrozen parts into new districts. The first party then freezes one of the new districts, redraws the remaining ones and returns it to the other party. This iterative process continues until all districts have been frozen.

Since the Constitution assigns the redistricting responsibility to state legislatures, they do not have to accept either commission or model results.  The “Cut and Choose” approach probably offers the best approach to achieving relative fairness.

Like Fermat’s Last Theorem achieving redistricting fairness is going to take a lot of time and hard work.

Beware of Guardian Angels

According to the Wall Street Journal, the CEO of CVS justifies the merger with Anthem by saying the “ultimate goal is to reduce health care spending by steering patients to lower cost settings.” That would be laudable if it was the real justification. Students of economics know that the primary duty of a CEO is to increase shareholder value which comes via increased profitability.

The two objectives do not have to be in conflict but there is reason for not being convinced that the delivery of lower cost is the primary driver. Although the Justice Department approved the merger, Judge Richard Leon apparently is not convinced which is why he is reviewing Justice’s approval. Although judges routinely approve such mergers once they have DOJ approval, Judge Leon has made clear that he has concerns and wants to make sure that the merger is in the public interests.

Health care costs have been rising faster than inflation and over the past 5 years increases have ranged between 5% and 7%. In part this is due to the health care delivery system and in part due to the incentives created by employer provided insurance. In addition to mergers that are increasing concentration, physicians aligned with hospitals are referring patients to in-house labs for tests and patients are less concerned about total costs of tests and prescriptions than their out of pocket costs.

Dr. Scott Atlas of the Hoover Institute has cited data showing that the “monthly cost of common drugs could vary by more than a factor of 10 in the same city.” That would not happen in a competitive market with transparency. .

The CVS-Anthem merger and Cigna’s acquisition of Express Scripts, one of the nation’s largest pharmacy benefit manager, are signs of the increasing concentration. A study by this Commonwealth Fund found that the health care markets became more concentrated after 2010. It concluded that “As market concentration in the health care system accelerates, more consumers and employers across most of the country are left with higher prices and fewer choices.”
This provides a context for Judge Leon’s review. The potential effects of the vertical integration reflected in CVS acquiring Anthem and Cigna acquiring Express Scripts could be a way to wring costs out of the system. But there could also be anti-competitive reasons that allow the firms to increase profits while pushing higher costs on to third party providers. Nobel Laureate George Stigler identified three reasons for vertical integration—to practice price discrimination, put an obstacle in the way of potential entrants, and to eliminate monopoly.

In the CVS case, the merger with Anthem allows for price discrimination and creates an obstacle to competitors. Pharmacy Benefit Manager firms like CVS’ Caremark negotiate discounts with drug producers and then pass these discounts along to insurance companies, either up-charging the drugs or retaining portions of the discounts in order to secure profit. Since CVS Anthem now captures the entire discount, it is in a position to underprice competitors that have not merged. Increased concentration is not likely to be in the consumers best interest because according to one economist “eventually these mergers will make it harder for new insurers to enter the market since they won’t be able to negotiate lower drug prices than larger firms. That reduces competition, and having fewer competitors often leads to prices going up.”

So, beware of guardian angels who claim that they want to save you money.

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Bipartisan Politicization of EPA

Environmental organizations have been unrelenting in their criticism of the Trump EPA.  Most of the criticism is because agency biases that favored their positions are being corrected. Politicizing EPA didn’t begin in 2017 and it won’t end anytime soon unless Congress acts responsibly, which is not likely.

The most recent criticism is EPA’s decision to allow 15% ethanol in gasoline year-round is an exception.  There is no environmental justification for increasing the ethanol percentage in gasoline.  Indeed, there is no justification for requiring ethanol.  It has always been a payoff to the farm lobby.  In the case of the 15% mandate, EPA is attempting in part to offset the damage of the President’s wrong-headed tariffs and trade war with China.  The major reason is pure 2020 politics.

Criticism of the agency’s roll back of the Obama CAFÉ rule, its revised guidance for committee membership, and changes in how health benefits are measured are actions that simply correct abuse by EPA during the Obama years. Lisa Jackson and Gina McCarthy took politicization of the agency to new levels. 

CAFÉ, a response to the 1973 oil embargo, was intended to boost miles per gallon so that cars would use less gasoline and emit fewer pollutants. Using CAFÉ as an instrument to reduce CO2 emissions was a tortured interpretation of the Clean Air Act made possible by a bad Supreme Court decision. Congress had previously decided against using the Clean Air Act to regulate CO2 emissions.

Changing the guidance for participating on EPA committees corrected an abuse that had been going on for years.  Recipients of EPA research grants were put on committees where they would be judging their own work and the work of fellow committee members. The unwritten understanding among committee members was you don’t criticize my work and I won’t criticize yours. Conflicts of interest were rampant.

EPA models, research, and assumptions were all biased to produce worst case results and justify over regulation.  There is no basis in science for the “one hit” model or using epidemiological research to assert small health effect benefits that are beyond accurate measurement.  A computer modeler who left the agency during the Obama years pulled back the curtain on how regulations were being justified.  He summarized his perspective this way, “I realized that my work for the EPA wasn’t that of a scientist …It was more like that of a lawyer. My job, as a modeler, was to build the best case for my client’s position.” 

EPA has a long history of being politicized by its pandering to environmental organizations and by promoting regulations that centralize control in Washington.  Its credibility has been eroded by subservience to the environmental lobby.  Since most of the major environmental problems that justified the creation of EPA have been solved or on their way to being solved, it is time to restructure EPA’s mission.  It should focus on research, being totally transparent, providing guidance to states for achieving regulatory or legislative requirements, and being an information resource for environmental compliance.Cabinet level departments and agencies should be subjected to independent reviews every 15-20 years as a way of shaking up the bureaucracy and making sure that their missions are aligned with important national priorities