Matthew Yglesias's Blog, page 2340

The Sensible Conservative Alternative To The Affordable Care Act Is The Affordable Care Act

Ramesh Ponnuru and Yuval Levin have a thoughtful New York Times op-ed about the desperate need for conservatives to come up with a substantial alternative on health insurance reform. There proposal, which has a lot of intuitive appeal, is to rescind the costly tax break for employer-provided health insurance and use the funds thereby raised to provide Americans with subsidies to purchase health insurance on the individual market.

There's a lot to like about this idea, but there's also a major problem: Adverse selection.

If you simply do what Ponnuru and Levin propose, every insurance company will be competing to make a profit that's attractive to young men with no chronic health problems and unappealing to everyone else. To turn this idea into an idea that actually works for people with medical needs you need to do three things. One, you need to prevent firms from turning customers away because of their health status or demographic characteristics. Two, you need some kind of regulatory definition of the minimum benefits that need to be offered in order to qualify as "health insurance" that's eligible for the tax credit. And three, you need some kind of penalty for failing to enroll yourself in a plan to ensure the existence of a viable risk pool. What you need, in other words, is the Affordable Care Act and its regulate/subsidize/mandate tripod structure.

Which is exactly how it should be. The Affordable Care Act is the sensible centrist alternative to the progressive idea of Universal Medicare and the free market idea of Nobody Gets Health Insurance Because of Adverse Selection. That's not to say that center-right thinkers need to love the Affordable Care Act in all its details. My assumption is that Ponnuru and Levin would prefer a less generous minimum benefits package than the ACA envisions as well as a less redistributive tax policy to pay for it. And in a sensible world, this is what the ACA debate would have looked like. Conservatives would have asked for concrete concessions on the tax and generosity side, Democrats eager for bipartisan cover would have made some concessions, and a bipartisan bill would have passed. Then in decades to come, we'd continue debating the precise contours of the subsidy levels and the regulatory minimums. But instead the right wages a scorched earth campaign against a centrist proposal and now we have smart National Review writers reinventing the wheel on the Times op-ed page.

Rising Oil Prices Highlights The Cost Of America's Suburbanization Driven Industrial Policy

In our dynamic, highly competitive ever shifting economy the best thing to do is be a large legacy firm in the natural resource extraction business:

First-quarter crude prices averaged about $100 a barrel, or about 20% higher than a year ago, pushed upward by oil-supply concerns due to political unrest in the Arab World and a recovering global economy. That spike is expected to lift earnings by about 50% at Exxon Mobil Corp., and about 33% each at Chevron Corp. and ConocoPhillips, compared with a year earlier.

Everywhere you look, the short-term price elasticity of demand for gasoline is low. People basically own the cars they own, they live where they live, and they work where they work. So when gas prices get more expensive, spending on gasoline booms. With households credit-constrained, that means huge cutbacks in spending on things that aren't gasoline. That becomes a huge hit to aggregate demand, and a big drag on our economy.

But while gasoline consumption isn't very price sensitive in the short-run, longer term factors about taxation, housing policy and transportation policy play a big role in this process. In Europe, a smaller share of the population drives to work. And they drive lighter, more fuel efficient cars. And they commute shorter distances. Consequently, their economy is less vulnerable to this kind of shock. The only real security for America in the long-run is that kind of transformation to an economy less driven by the assumption that gasoline will always and forever be cheap.

Freedom and The Weak State

In one provocative passage of his The Origins of Political Order: From Prehuman Times to the French Revolution, Francis Fukuyama challenges the assumption that freedom and a strong central state are opposing values:

Progressive enserfment was not, as noted at the beginning of this chapter beginning of this chapter, limited to Hungary. It occurred as well in Bohemia, Poland, Prussia, Austria, and Russia. Nobles throughout the region were pressing to increase taxation, take away freedoms, and restrict the movement of their dependent populations. The twentieth century has taught us to think about tyranny as something perpetrated by powerful centralized states, but it can also be the work of local oligarchs. In contemporary China, many of the worst abuses of peasant rights, violations of environmental and safety laws, and cases of gross corruption are the work not of the central government in Beijing but of local party officials or of the private employers who work hand in hand with them. It is the responsibility of the central government to enforce its own laws against the oligarchy; freedom is lost not when the state is too strong but when it is too weak. In the United States, the ending of Jim Crow laws and racial segregation in the two decades following World War II was brought about only when the federal government used its power to enforce the Constitution against the states in the South. Political freedom is not won, it would seem, only when the power of the state is constrained but when a strong state comes up against an equally strong society that seeks to restrict its power.

This seems related to Philip Pettit's idea of freedom as non-domination. The individual maximizes his freedom when other powerful actors in his life exist in some kind of rough equipose. Elsewhere in the book, Fukuyama talks about the "tyranny of cousins" that exists in many traditional human societies whereby in the absence of a strong state or a market economy, an individual's autonomy is sharply circumscribed by the demands of an extended kin group.

Multi-Party Systems And Attack Ads

This Conservative Party hit on Liberal Party leader Michael Ignatieff is just unbelievably devastating. To a small extent they seem to me to have buried the lead and it's the final seconds where they really nail him:

The interesting thing is that in a multi-party system it's difficult for the party behind an attack ad like this to reap all the benefits. This makes Ignatieff and the Liberals look terrible, but depending on your ex ante political preferences thinking worse of Ignatieff could turn you into a voter for the separatist Bloc Québécois or the social democratic NDP rather than the center-right Conservatives. And, indeed, over the past week we've been seeing a surge in support for the NDP.

Gas Price Politics

Sad but true:

Republicans are getting ready to capitalize on record prices at the pump with a May focus on oil and gasoline. The government shutdown battle put the issue on the back burner even though prices at the pump have been rising steadily since February. Now, with President Barack Obama already on the defensive, the GOP is ready to pounce. House Republicans are planning bill introductions, hearings, markups and floor votes on legislation aimed at expanding domestic oil production in response to high gasoline prices.

Politics is politics, but for the sake of improved public understanding it's worth underscoring the fact that the only way government impacts the price of gasoline over the long and medium term is through taxes. And America already has basically the lowest gasoline taxes in the developed world, a policy that's currently starving our transportation infrastructure. The basic gas price problem we face is that the American economy is growing slower than the global average. China and India are both poor enough to grow faster than we do, and large enough that rapid growth from a small base has an appreciable impact on the worldwide total. If we ask them nicely to stop growing so quickly and they choose to comply, then natural resources will start becoming more affordable. If not, then not.

The Disamenity Value of Smog In Chinese Cities

In a developing country like China, the same things that drive a city to increased prosperity (more industrial activity) tend to drive more pollution. And increased prosperity also tends to drive activities like more driving that lead to more pollution. But all else being equal, less pollution should make for a more prosperous city since people don't like dealing with foul air.

Siqi Zheng and Jing Cao and Tsinghua University team up with UCLA's Matthew Kahn to derive a clever estimate in "China's Rising Demand for Green Cities:: Evidence from Cross-City Real Estate Price Hedonics" (PDF) and show that "in a typical Chinese city, about 15% of air pollution in terms of PM10 blows in from neighbor cities and the sandstorm origin, and on average, a 10% decrease of the imported pollution from neighbors is associated with a 2.5% increase in home prices." So it seems that measures a city can take to reduce its self-generated pollution will, ceteris paribus, make it a more desirable place to live. Though it also seems that cities don't fully internalize the negative externalities associated with air pollution anymore than firms do.

The Real Problems With Consumer-Driven Health Care

Despite having some good words to say about about the consumer-focused approach to health care policy, I do think the liberal conventional wisdom is basically correct to think that stingier insurance coverage isn't some kind of miracle worker in this regard. One important factor here is the 5:50 rule whereby about half the costs in a health care system are driven by just five percent of the patients. In other words, a huge share of resources go to treating people who are very, very ill so even though at any given time a consumer model might apply to most people, it doesn't apply to the majority of the spending.

The other reason is what Karl Smith is pointing to here, namely that there's very little reason to think that when human beings act like health care consumers they behave like rational health-maximizing agents. People do not appear to be interested in pursuing cost-effective improvements in health outcomes, so there's little reason to think that giving individuals more autonomous choices would result in that end. The most cost-effective systems out there appear to be highly statist systems that become stingy due to tax-aversion and then ration the provision of care.

Patent Warriors

The new competition:

Samsung Electronics has shot back with a tit-for-tat lawsuit against Apple, exactly a week after the US company sued South Korea's biggest company by sales for "slavishly" copying the iPad and iPhone. In suits filed on Friday in South Korea, Japan and Germany, Samsung sued Apple for infringing 10 patents, in areas such as data transmission and wireless technology for connecting mobile phones with personal computers.

I'm sort of reminded of the time back in the 1990s when Apple was trying to use intellectual property law against Windows. At the time, it seemed perfectly clear to me that Windows was, in fact, basically an effort to copy Mac OS. And yet I think it's hard to deny that we've all benefitted as consumers from the fact that the copying was allowed to proceed….

Health Care As A Consumption Good

I think the argument that we can't treat health care services exactly like other consumer goods makes sense. If someone makes some questionable decisions and hits a run of bad luck and can't afford a television, then he goes without television and it's fine. If there's a car crash and there's an injured man on the side of the road, then letting him die because he has no savings isn't an ethically acceptable option. So that's a big difference.

But I think some of my co-ideologues take this too far. Jon Cohn, for example, endorses Liam Yore's view that patients aren't consumers because procedures are medically necessary:

Health care is generally not a refusable or elective service. By this, I mean that in most cases, the health care costs are driven by medically necessary procedures. You get pneumonia. Your knees wear out. You find a lump in your breast. You notice blood in your stool. Barring the denial/self-neglect approach that some people take, when you develop a medical problem, you need to spend money to remedy it. While the timing of your knee replacement may be elective, whether to do it or not generally is not, if the alternative is being disabled and non-ambulatory.

Thus, "the demand for medically needed care is not going to be terribly price responsive."

I think this is the wrong way to think about the issue. "Knee replacement surgery" doesn't denote a single unique thing. Our methods for doing it change and improve over time. And there are multiple dimensions along which they might improve. One kind of improvement might be to develop a way that's 10% "better" and twice as expensive. Another kind of improvement might be to develop a way that's 90% as good and half as expensive. In the economy as a whole we see lots of improvements of both kinds. HDTVs are better than conventional TVs, but when they first came on the market they were very expensive. Ikea, by contrast, was all about making furniture cheaper even while compromising slightly on quality. In a universe where knee replacement surgery was universally paid for out of pocket, then we'd see lots of innovations of both sorts. But in the universe we have, innovation in the health care sector almost always drives us in the "more and better" direction.

Thinking about this is further complicated by the fact that in the USA, health care programs are a major means of income redistribution. Try imagine instead a country with a single payer health insurance system funded by a VAT, and, separately, a progressive income tax to redistribute income. In that country, it's clear that "higher income tax and more redistribution" would always be the authentically left-wing posture. It's much less clear that "higher VAT and bigger health insurance budget" would be.

Our Hatable Congress

Jonathan Bernstein notes that congress is both despicable and regularly despised:

Everyone hated Congress in the pre-institutionalized Congress of the 19th century, when it was the House that had the filibuster; they hated Congress when it ran with ruthless efficiency under Speakers Reed and Cannon and during the early years of Woodrow Wilson's presidency; they hated Congress during the New Deal; they hated it during the era of bipartisanship and the conservative coalition; they hated it when liberals took over and ended segregation and passed Medicare and Medicaid; they hated the reformed Congress of the 1970s; they hated it during the era of divided government; they hated it after the rise of the routine filibuster in the Senate; they hated it when the Gingrich Republicans took over; they hated it when the historic 111th passed tons of legislation. Trying to connect the American people's deep and long-standing contempt for their Congress with any particular set or arrangements or procedures is a mug's game.

This fact explains a lot about the practical operation of American politics. In theory, Congress is supposed to act as an important freedom-preserving "check" on executive power. In practice, everyone hates Congress so this doesn't really work. If the President wants to challenge the prerogatives of some socially and politically powerful group of people or interests, then Congress is a highly efficacious tool for blocking reform. But if the executive branch wants to persecute the weak and the defenseless, then from Indian Removal to the Internment of the Japanese straight on through to detaining Bradley Manning without charges or trial, congress is almost invariably missing in action.

Meanwhile, as a smart member of congress about his or her ideas for tackling a tough problem and the solution almost invariably turns out to be using a commission of some sort to take congress out of the decision-making loop. And, indeed, most democracies have basically taken their national legislatures entirely out of the policymaking process—they simply appoint a cabinet and then wait for a new election.