Big Jolly Politics

politics in Harris County and Texas

Book Review: They’re Both Wrong by John Tamny

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“Let cities and states experiment, after which other cities and states can asses the good and bad of their experimentation. Such an approach is far superior to national solutions that don’t take into account how different we all are. And that doesn’t take into account how experiments most often fail. Local is bliss.”

Review by Steve Parkhurst

John Tamny’s new book, They’re Both Wrong: A Policy Guide for America’s Frustrated Independent Thinkers, available next week, is going to make people think, and for the partisans on either side, it will hopefully make them ask questions about their own arguments. I have reviewed Tamny here before, back in 2016 when he published Who Needs the Fed?, and the things I said about him and his writing style then, I maintain those words now. Good prose is my bliss, so I can turn to John Tamny anytime.

John Tamny is a first-rate educator. And if he were a politician, we would all be admiring his ability to “stay on message” and to “control a narrative.” In all his writing, continuing into this work, Tamny has thoughts and phrases that continue to appear, and that is necessary because as soon as the reader starts to deviate from common sense thinking, he reins the reader back in to the central theme.

In his opening chapter, Tamny lays out that our obsessed political culture (my words, not his) was not the vision of the Founders as prescribed by the Constitution, which “as written made it possible for Americans to have very little interest in politics, and particularly national politics.” The Constitution’s “few and defined” powers meant that people could live the lives they wanted as almost all government that actually affected them was local.

Now, Americans almost “care about politics today because they have to.” As Tamny writes, “Americans who can no longer avoid policy errors foisted on them by the political class are understandably more and more political by the day.”

Tamny continues, “My view is that both Democrats and Republicans have turned the Constitution on its head by virtue of both parties presuming to govern us from Washington, DC, as opposed to each leaving us free to choose our policy bliss through our choice of city or state.” Later on in defining all levels of government programs, Tamny further clarifies, “most government and government services should be local, and it will be understood that if these programs are going to be offered by government, they should be offered locally, if at all.” Precisely.

From there, John Tamny launches into critiques of arguments from both major political parties with regard to various issues such as immigration, global warming, taxes, spending, the minimum wage, charitable giving, free trade, school choice, stimulus spending, and more. He does all of this from an economic perspective, looking at what markets recognize and how they function, and how government seemingly fails to realize that individuals are the market, that “economies are just individuals.” Politicians tinkering with the economy is not only unnecessary, it is usually counterproductive. 

There is almost nothing the federal government loves more than trying to prevent failure. John Tamny is slowly but surely educating America that not all failure is bad. “Failure is information that informs the doings of investors in ways that persistently enhance the allocation of capital,” he writes. “Liberals ultimately believe that government is necessary to save economies, but all governments can do in fighting slowdowns is to elongate them. Never forget that economies are just individuals, and the faster individuals realize their errors, the quicker the recovery.” Tamny recalls the brilliant, late Warren Brookes and his book from the early 1980s, The Economy in Mind to remind us that, “To bail out or subsidize those companies and individuals who fail, we must tax, and therefore punish, those who succeed.”

Tamny’s argument can be further boiled down to calling attention to government spending and what the real economy, what he terms the “productive economy,” loses for every one dollar that the federal government spends. The argument is both fundamental and utterly fascinating. This is also not a new concept per se, it is just ignored by the politicians of today.

“Governments only have money to spend insofar as the private sector is creating wealth in the first place. Government spending is an effect of economic growth, not a driver of it, plain and simple,” Tamny writes. “So when the federal government spends, those in its employ are using the money of liberals and conservatives alike to compete with the private sector for access to what’s precious and what businesses cannot do without.”

As already mentioned, Tamny really does use this effort to take aim at government, more so federal than state and city. In fact, a major theme of this work is that we should be seeking to return power and decision making to the states and cities. They’re Both Wrong is not simply a screed against all government, Rand Paul has that market covered. Instead, this book is a hearty defense of more economic freedom, of more politicians doing less, and of people making the best use of their time and talent to achieve their bliss.

Let us be clear on a crucial point about this book: Tamny is not taking opposing sides to the issues of our time and pointing out disagreements among the political parties that currently rule, he is using the issues to show where both sides are wrong in their argument on those issues, especially from an economic perspective. It is a big difference, and an enjoyable one.

Take Tamny’s masterful critique of immigration. He talks about immigrants in America and the value they add to what America is. And just when it appears that his immigration concept is understood, he starts zigging and zagging, and it’s amazing. Tamny notes, “Furthermore, let’s not forget one likely reason some immigrants pursue low-wage work in the first place. Precisely because the pay is slim, they have better odds of hiding themselves and their employment from government officials. Conversely, if their work were legal, immigrants would more comfortably pursue all manner of work at all levels of pay, thus broadening their impact on the job market in general.”

A bit later, in driving home the point about government involvement in immigration, and the lack of a national “fix” to the issue, he points out a truth many of us forget, and one that others want to pretend does not exist when he states, “And as the ever-expensive—and failed—drug war has hopefully reminded everyone, increased border patrol (or worse from a conservative standpoint: more muscular policing of U.S. businesses) will grow government, but not do much to keep immigrants out.”

Finally, in his defining the idea of making work in America legal, he delivers this challenge, “In that case, arguably the best solution is an Athens, Greece-style approach. During its renaissance Greece legalized work, as opposed to citizenship. The ambitious flocked there, and its economy soared. Ideally U.S. legislators would legalize work once again, while requiring new arrivals to announce themselves.”

This country is a great and wondrous place, and it can be even more so, as Tamny opines, “The United States is the place where individuals cure their poverty, and where ideas become global corporations.” “Economic growth has the best track record of all when it comes to freeing people from lives of misery.” Perhaps both sides have been wrong about immigration for a long time now, and clearer thinking beyond platitudes and talking points is required once and for all.

Tamny early on points to the “low quality of national policy decisions” made in Washington. Recent events, typically involving shootings and crazy murderers, always have pundits and leaders looking to legislate, to “do something,” and many will utter that we need a “national discussion” on either mental health or gun rights, or both. This is precisely the idea for a book like They’re Both Wrong and for a writer like John Tamny to address the point that these decisions need to be local, not national.

The nonsense that follows is one side yelling at the other, CNN and Fox News panels (the ungodly ones with four yackers on the same screen) muddy the waters, accusations and insults are launched, presidential tweets are dissected, and eventually people stop talking to each other, then the issue (usually) dies. Rather than the sideshow, get the problem (in theory) solved locally, to the contentment of the people where they live, and if the solution works long term, other states will follow. If the solution fails, at least the failure was limited to that locale, and perhaps the next place can refine the solution until eventually maybe someone someplace gets it right. Markets work the same way, thanks to Tamny I understand better that markets, or economies, are individuals. And whether dollars and cents, or major political issues, we can get both right, locally.

One final point that needs to be made. On the issue of healthcare, Tamny makes a point that caught yours truly by surprise: Nearly everyone has a cell or smart phone, right? Did the government force everyone to buy a cell or smart phone? Did conservatives show up with a plan for cell/smart phone savings accounts? No and no. Instead, the market worked the way markets work and people got to make a choice and almost everyone now owns a phone that they chose and they can add what they want, like extra data or a protective case or a stylus or new earbuds, maybe even cordless ones. Instead of the federal government picking places to intervene and regulating this aspect and taxing or diverting dollars to the other aspect, the federal government should remove itself from the equation and let the states govern. People that are unhappy with their state, can elect new legislators, or they can choose to leave for a place that provides them their legislative bliss.

How do you chase your bliss now? First, read John Tamny, that can happen quickest. Second, choose elected officials that support your ability to chase your bliss. Those that are choosing for you, or those who want to use your earnings to reward someone else so they can build up favors for the future at the expense of your bliss, well, they’re both wrong.

How the United States Subsidizes the World

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matt wiltshire
Matt Wiltshire

One of the most often stated arguments in favor of government intervention in American healthcare are the enormous costs paid by consumers in the United States in comparison to the rest of the Western world. Sadly what is left out of this analysis is a mathematical and economic understanding of the difference in drug prices between nations. With the recent nomination of an avowed socialist in New York, now is as good a time as any to discuss conservative policy proposals to counter the inevitable siren-song of socialized medicine. This essay will attempt to provide a basic introduction to the concept that a comparison between national healthcare expenditures is flawed and should result in altering the goals (and policies for achieving those goals) of government intervention.

American spending on healthcare is the topic of constant hand wringing by political do-gooders in Washington and their allies around the country. Americans, we are told, are being screwed out of their hard earned money by greedy CEOs and insurance companies. Leftists say we need to regulate prices and subsidize the sick with the healthy in order to do reduce spending the way Europeans and Canadians do. While I cannot prove that American costs would lower to those of our Western counterparts (or that theirs would rise to be the same as ours), I can show that Western social democracies leverage American spending to their benefit (in much the same way they do with NATO). In effect Americans subsidize the cost of European and Canadian healthcare in such a way that comparing international prices results in, at best, misleading information and, at worst, a misguided path that ends in the total elimination of private medical research.

Medical innovations do not happen accidentally. Research and development of new drugs is an enormous cost ranging from, on average, roughly $800 million to $1.2 billion.[1] The only method by which pharmaceutical companies can bear such enormous costs is by passing the expense of R&D on to the consumer. This should be patently obvious to anyone who has ever purchased cutting edge technology–the cost of a mobile phone in 1982 was $3995 (the price would be more than double that if you calculate for inflation).[2] Paying enormous prices while the technology was in its infancy has allowed us to live in a world where we have more computing power in our pockets than the computers that landed astronauts on the moon while costing less than 10% of 1982 mobile phone prices, inflation adjusted. 

The process of funding medical advancement is no different. A pharmaceutical company that invests a billion dollars into research relies on market prices that make such investments a reasonable financial decision in order to finance further innovation. Opportunity cost of investing in R&D must be taken into consideration. For those unfamiliar, opportunity cost is the cost incurred by placing finite resources (time, money, etc.) in one venture rather than another. When I spend $500 on cigars in a year I forgo the returns I could have made by investing that money in my retirement account. The rational decision maker must enjoy the cigars more than the cost of the cigars multiplied by the growth rate compounded annually. So if you assume a 10% per annum growth rate, I need to value the cigars more than $550 a year from now, and $605 two years from now. Clearly I’m not spending my money wisely, but I digress. A company investing in R&D must, in order to justify the costs, expect long term return on investment (ROI) to be greater than the alternative uses for their capital.

This is all to say that when a new drug is developed the cost of the drug is passed along to consumers. In order to turn a profit the average price of the new drug must be greater than the average total cost (ATC) as defined by the following equation where C represents cost and Q represents quantity[3]:

subsidize

It should be noted that this is different from marginal cost (MC) in that MC is the change in cost relative to the change in quantity without regard to fixed costs (MC being a differential equation and the constant disappears following differentiation). Often the cost of producing additional units of any good rise due to situations such as the necessity of purchasing additional equipment in order to meet increased production requirements. For the sake of simplicity we will assume that our hypothetical pharmaceutical company can purchase additional factories a zero cost. This actually can be useful in our understanding as long term outcomes can treat additional infrastructure expenses as fixed costs. Finally, from a practical actuarial perspective, ATC is a far more useful business metric than that of MC (although both obviously have different uses).

How does this all relate to the difference between American healthcare prices and those of Western social democracies? American consumers of healthcare pay market prices, although they primarily deal with pharmaceutical oligopolies rather than the ideal market situation of multiple buyers and multiple sellers. As such, the companies producing the goods can sell at the highest price that the market is willing to bear; the price at which the average consumer values the good is equal to the price of the good. Conversely, Western social democracies utilizing a single payer system can demand prices of producers far lower than what the market would otherwise predict. Pharmaceutical companies, as they have the American market to recoup their R&D costs, evaluate the minimum price they are willing to sell at to single payer systems through the following equation:

subsidize

The result is that, in the long run, the minimum price that a producer will accept is the cost of producing another unit of the drug rather than the ATC.[4] This is the leverage that single payer systems utilize to reduce the prices they pay. But given that the average price worldwide of the good sold must remain higher than the ATC, the consumers in the United States end up being required by pharmaceutical companies to pay higher prices to offset the worldwide prices which may be lower than the ATC. This is American subsidization of research, plain and simple. It’s not just me saying this–every[5] single[6] one[7] of[8] these[9] articles[10] refers[11] to it as subsidization (and that’s just the front page of Google).

This difference in drug prices has a large impact on the overall price of healthcare in the United States. A 2003 study found that the difference in price of healthcare is primarily due to the higher price of health goods and services.[12] With this information it should be plainly obvious that comparing American healthcare costs to those of Western social democracies with the intention of attempting to mimic the cost-saving measure of other countries is folly without the ability to predict where prices would be without American subsidies.

There is one thing that is undeniably true: if American healthcare consumers suddenly started paying the same prices as their European and Canadian counterparts the world’s private medical research would come to a screeching halt. This should give pause to any American single payer advocate (I’m looking at you, hippies).

So what policy suggestions can be made to rectify the situation? There is no magic pill (pun totally intended) to solve all our problems regarding medical spending but we can start by getting accurate numbers. Any bill aimed at improving healthcare costs must include the requirement for pharmaceutical companies, both foreign and domestic, to treat American consumers with “Most Favored Nation” status. This means that companies who wish to do business within the United States may not charge more than their lowest price abroad. That forces companies who do not wish to lose access to the wealthiest nation in the world’s consumer base to raise their prices abroad, lower their prices within the United States, or a combination of both.

Again, this does not necessarily solve the problem but we cannot solve something for which we have inaccurate information.

QED, y’all.

Matt Wiltshire is a Republican campaign veteran. He was Rick Walker’s campaign manager during the CD2 primary and Jeff Williams’ during the runoff for JP5, Place 2.

[1]Elizabeth Whitman, “How The US Subsidizes Cheap Drugs For Europe,” http://www.ibtimes.com, (Accessed February 5, 2017)

[2] Josh Smith, “History of Cellphones: Shrinking Sizes and Prices [Infographic],” http://www.gottabemobile.com, (Accessed February 5, 2017)

[3] I should admit that it has been many years since I took formal economics or calculus classes–so while my equations might be slightly off, the principle should be apparent enough.

[4] One obvious flaw in the equation is that no producer plans on producing infinite units of a good. The actuarial calculations vary from company to company and will take into account the expected lifespan of a product which is a variable I am not qualified to make any guess at.

[5] Ezra Klein, “Why an MRI costs $1,080 in America and $280 in France,” https://www.washingtonpost.com, (Accessed February 5, 2017)

[6] Elizabeth Whitman, “How The US Subsidizes Cheap Drugs For Europe,” http://www.ibtimes.com, (Accessed February 5, 2017)

[7] Beth Kowitt, “How the U.S. Subsidizes Europe’s Health Care Costs,” http://fortune.com, (Accessed February 5, 2017)

[8] Paul Soloman, “Do Other Countries Piggyback On U.S. Healthcare Spending?,” http://www.pbs.org, (Accessed February 5, 2017)

[9] Raymond Raad, Glen Whitman, “Bending the Productivity Curve: Why America Leads the World in Medical Innovation,” https://www.cato.org, (Accessed February 5, 2017)

[10] Megan McArdle, “U.S. Consumers Foot the Bill for Cheap Drugs in Europe and Canada,” https://www.bloomberg.com, (Accessed February 5, 2017)

[11] Denver Nicks, “This Is Why the U.S. Pays More for Prescription Drugs Than Other Countries,” http://time.com, (Accessed February 5, 2017)

[12] Gerald F. Anderson, Peter S. Hussey, Varduhi Petrosyan, Uwe E. Reinhardt, “It’s The Prices, Stupid: Why The United States Is So Different From Other Countries,” http://content.healthaffairs.org, (Accessed February 5, 2017)

Open Memo about Health-Care to Our U.S. Senators and GOP members of our Congressional delegation from Texas

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health-care

ed-hubbard
Ed Hubbard

I am sending this memo to each of you, not as a local party official or conservative activist, but as a concerned constituent who has been following the current health-care debate as closely as any other citizen.  It appears that the seven-year long effort to address the Democrat’s ill-conceived health-care albatross is finally reaching a climax and the very complexity of Obamacare is making it difficult for you all to find a consensus as to how to fix the mess the Democrats made.

With all due humility, I ask that you consider a simple approach now:  repeal of Obamacare, effective two years from enactment; and a commitment to create a two-tiered system of private, employer-provided insurance for the employed (with certain basic requirements, such as coverage for pre-existing conditions and continued coverage for dependents), and Medicare for everyone else.  If this system is coupled with fundamental corporate and middle-class tax reform, it could provide the certainty that our private economy needs to sustain the level of economic growth needed to address so many other issues we now face, while making our public health system more efficient and sustainable.

Everyone has discussed and debated how we got to this point, but let’s remember this—too many Americans have structured their lives based on the existence of private insurance when employed, and a social safety net when they are not employed, to create a totally free-market based system now.  However, unlike European countries and other nation-states, the existence of a vast private insurance system has allowed our country to meet defense and security commitments that it could not otherwise afford if it had to underwrite a national single-payer system, while providing the capital for the research, development and delivery of medical practices and medicines that has lead the way to the greatest extension of life-expectancy in human history.  Moreover, the existence of a thriving private-insurance industry provides our private economy with a vast source of capital from premium income for investment and growth, which a single-payer system would extinguish.  In the meantime, though, state budgets have become overburdened by the under-funded Medicaid mandates, and our federal bureaucracy has shown itself to be too incompetent to meet our national commitment to provide even the most basic medical care for veterans, Native Americans and other specific groups.    Simply put, the idea of a single-payer or provider system does not fit the United States, and the United States needs its private insurance industry.

The simple reform plan would be consistent with the institutional competence of our limited federal government, and would provide the framework for a more efficient and effective delivery system for medical care.  This plan would have three basic parts:

  • an employer-provided private insurance market protected by the federal tax code for everyone who is employed, including a pooled market for the self-employed;
  • a means-tested reimbursement structure for the unemployed, the disabled, the poor, the retired, veterans, and Native Americans; and
  • a re-insurance trust fund to underwrite treatment expenses catastrophic illnesses or traumas, that our beyond the ability of the private insurance market to cover.

Both the Medicare and re-insurance trust would be funded through a revised Medicare tax program.  Committing to such a system should be coupled with repeal of Medicaid in its entirety, and closure of the federal VA and Native American hospitals and clinics (though the Defense Department should still maintain a network of hospitals for the treatment of our soldiers), and with the lowering of the corporate tax rate to a flat 15{997ab4c1e65fa660c64e6dfea23d436a73c89d6254ad3ae72f887cf583448986} (or lower) rate to provide businesses of all sizes the ability to pay for private insurance plans and remain competitive.  Moreover, state and local governments could still supplement this system through their own re-imbursement or direct-care alternatives, but they would be relieved of the immense financial burden that is sapping their resources to provide for education and other programs within their sphere of responsibility.

I know this is not an ideologically pure free-market system, but we haven’t had that type of system at any time during our lifetimes, and it is too late to change our whole country’s expectations to fit our ideology.  And, of course, the devil would still be in the details of such a system, but at least it would provide a certain plan to debate and implement over the next two years while Obamacare is unwound—and parts of it should draw some bipartisan support, which any program of such reach should have had from the beginning.

Again, this is one citizen’s recommendation—but, if one lonely conservative can describe and recommend such a simple and comprehensive idea, I have to believe you all can get together and finally address the health-care issue.

Our Health Care Dilemma

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Ed Hubbard

In today’s Wall Street Journal, columnist Holman W. Jenkins, Jr., provides this interesting analysis (Conservatives and the Mandate)  of the root problem with our health care system.  Distilled to its essence, the problem with Obamacare (and Romneycare, and Schwarzeneggercare), it that they perpetuate and worsen an already existing distortion of the market for health care.  Ladies and Gentlemen, I hate to tell you this, but there has been no free market for health care in a very long time, and we will have to accept a lot more personal responsibility in our lives if we want to re-establish a free market in that industry.

Since the end of World War II, when unions negotiated for insurance coverage in lieu of wage increases, the provision of health care in this country increasingly has come to be managed by middlemen:  private for-profit insurance companies; private non-profit insurance companies; federal and state government agencies; and local public hospital systems.  Moreover, most privately-employed full time workers have another middleman, their employer, involved in the process of selecting the insurance coverage, negotiating its price, and collecting and paying the premiums.  Most doctor-patient relationships, including the cost and scope of care, are initiated and managed, directly or indirectly, by one of these middlemen.  Relatively few individuals (if any) today “choose” their doctors and can negotiate the cost and scope of their care.

In the meantime, the premiums paid by employers and employees are no longer dictated by the actuarial pricing of the risk of illness, disease or injury, because coverage is so broad that it covers basic medical services for which there is no fortuitous risk involved.  This means that increasingly the cost we pay for coverage has little or no relation to the individual needs of each person, but rather is based on the cost of sustaining the insurance coverage for everyone enrolled in a specific plan, or for everyone covered by a carrier or government program.

In turn, the decisions of the middlemen dictate how much health care is provided, to whom it is provided, when it is provided and where it is provided.  These decisions affect the decisions of doctors in the treatment of patients, and distort the allocation of medical resources in every community.

The only major benefit of the private insurance market to the overall free-market economy is that the premium funds are re-invested in the private economy.  But, if you think you are paying premiums to buy a free-market relationship with your doctor, you’re simply wrong.

What Obamacare and its state counterparts do is not a fix to these problems, so that the same quality and amount of medical care is accessible to everyone, and that you regain control of your doctor-patient relationship.  Instead, these programs further institutionalize the role and power of middlemen, and raise their decisions from contractual dictates to legal mandates.  Meanwhile, the program is designed, over time, to reduce the incentive to purchase private insurance, which eventually will reduce the primary economic benefit of such a product—the re-investment of premiums into the private economy.  Eventually, Obamacare will lead to a pure transfer payment entitlement funded with tax dollars and public debt.

The only way to fix this mess in the long term is to restructure the health care industry into a free-market system where most of the economic and medical decisions are kept at the level of the doctor-patient relationship, and the middlemen’s role is greatly reduced.  This can be done by creating three delivery systems:

  • A private insurance system that only provides coverage for major medical issues—major illnesses, diseases or injuries—and that requires high deductibles or health savings accounts, and personal responsibility, for the payment of all other health care;
  • Local hospital and clinic systems paid for with local tax dollars, and administered by local governments, for the indigent (and the continuation of a similar federal program for veterans); and
  • A means-tested voucher system to fund the payment of private insurance premiums for insurance coverage for the elderly, paid for from the Medicare tax.

Although these changes sound like common-sense, conservative approaches to fixing the system, I have been amazed by the reaction of many conservatives to these ideas when you discuss them privately.  Over the years, as I’ve tried to discuss our current predicament and these types of policy changes with people around the dinner table or in relaxed conversations, their eyes glaze over.  More importantly, I have discovered another phenomenon during such discussions:  many spouses and single parents, who control family finances and handle the doctor appointments (and, in my anecdotal experience from these conversations, these spouses and single parents are women, regardless of whether both spouses in a marriage work outside the home), hate the idea of losing the simplicity derived from the involvement of middlemen, and they especially hate the idea of losing the convenience of co-pays.  They may complain about a specific bad experience with an insurance company over a coverage issue; but the idea of a return of more control over medical decisions and payments to families, and the resulting increase in personal responsibility over such transactions, is simply an anathema to many of these spouses.

Now add to this pre-disposition against assuming more responsibility over the doctor-patient relationship, the recent flap over Obama’s mandate for church-related hospital and charities to provide services and prescriptions, or insurance coverage for such services and prescriptions, which violate the tenets of the religious institutions that manage such hospitals and charities, and you see that this issue is more politically volatile and complex than we conservatives often think.  Yes, conservatives and many independents viscerally recoil at the notion of government having and exercising the power to mandate us to do anything, and especially when such power is used to interfere with the decisions and doctrines of a church (and most believe that such government action is unconstitutional).  On the other hand, even many conservatives are much more ambivalent about middlemen in their medical decisions, including government, when they are forced to consider the alternative.  So, when these people hear that access to contraceptives could be denied to some women, and that the alternative to mandates that are designed to require such access is responsibility they don’t want, their reaction to the issue is not predictably supportive of the religious liberty of the church.

Where does all of this lead to?  As I’ve said so often that I’m beginning to feel like a broken record, it leads to the hardest question we Americans have to face this fall, and for many years to come:  are we willing to take back the personal responsibilities that the maintenance of liberty and a society of free people requires?  If not, then electing Republicans to Washington this fall will not matter in the long-run, because the trajectory of public policy will continue in a leftward direction toward a European system with the trade-offs between social programs and national defense that Europeans have made, and with the acceptance of increasing public and private debts to finance such a system—until it inevitably collapses, internally or externally.

If electing Republicans this fall is to mean real change, we will have to look in the mirror and accept the personal responsibilities such changes will demand of us.