Thursday, September 01, 2016

Clinton Economist Favors Force over Freedom

As Leftists generally do -- JR

Tyler Cowen

Few candidates spell out their policy proposals in as much detail as Hillary Clinton, but there’s still room to wonder about how a President Clinton would set her agenda for 2017 and beyond.

One clue comes in the naming of Heather Boushey to be chief economist of her transition team, giving Boushey an inside track for a major political appointment. She is currently the executive director and chief economist of the Washington Center for Equitable Growth, and recently published “Finding Time: The Economics of Work-Life Conflict.” That book is one good source for which ideas might rise in a Clinton administration.

The central insight is that American institutions do not support a proper balance between work and family life, and that the burdens fall disproportionately upon women. The proposed remedies are an extensive set of government interventions, including paid sick leave, paid parental leave, subsidized child care and better care for the elderly to relieve care burdens on grown children.

Do we trust the legal machinery of government to be making that decision anew over decades of social and economic change?

This is a thoughtful and intelligent book, but for my taste Boushey holds too much faith in mandated and centralized solutions.

It is striking, for instance, that private insurance companies offered prescription drug coverage long before Medicare did, and many business employers offered benefits for same-sex partners before the federal government did. When it comes to innovation, including benefits innovation, the federal government is often a laggard, due to the nature of bureaucracy, political checks and balances and the one-size-fits-all feature of most legislation. I am therefore reluctant to give government a much larger role in managing American family lifestyles.

Boushey portrays her policies as boosting rather than restricting freedom of choice, but usually trade-offs are involved. She does argue that recent state-level experiments show that mandatory paid sick leave doesn’t destroy jobs, but there is not yet a lot of hard evidence on the question. And what works in California may not be well-suited to Mississippi.

The Long-term Effects of Government Intervention

Most likely, there is a big difference between short-run and long-run effects. For instance, employers value the workers they have, and are reluctant to fire them when labor costs go up. A lot of “pro-worker” policies thus seem to be a kind of magical free lunch. Over time, however, as a generation of workers turns over and is replaced, mandatory benefits represent a real added cost, evaluated anew, and employers will respond accordingly. They will cut the paid dollar wage, cut other job benefits, require more hard work, automate more, or cut back on plans for growing the business. The downward-sloping demand curve is the best established empirical regularity in all of economics, and in this context that means some laborers -- maybe most laborers -- will pay a price for their new benefits, one way or another.

So let’s say America’s future means better sick leave and pregnancy leave for employed women, but a narrower choice of jobs, including lower pay, for those same women. Is that better? And do we trust the legal machinery of government to be making that decision anew over decades of social and economic change? Keep in mind that there is an alternative mechanism, which for all its imperfections is far more flexible: Let companies and workers make such decisions through employment bargains.

Unrealistic Optimism

Boushey doesn’t estimate or indicate the expense of her proposed mandatory benefits, although she does suggest on page 1 that the cost would be “very small.” She is developing a new kind of supply-side economics, this time on the left, but like her right-wing counterparts she is running the risk of excess optimism about how much her suggested improvements will boost productivity in the system.

I usually suggest comparing any proposed program for amelioration to the simple alternative of sending people cash or leaving more cash in their hands, whether through tax cuts, tax credits or outright payments. With that cash in hand, individuals could try to create better arrangements for child care, elder care, and other problems of work-life balance. Some might work fewer hours or take lesser-paying but more flexible jobs, relying on their cash transfers to make up the difference. Others would spend the money on better neighborhoods, better health care or better schools, or in some cases the expenditures will be wasted.

Freedom vs Government-Mandated Benefits

Might that freedom be better than receiving a big package of government-mandated benefits? There is already a big distortion in the employment relationship that comes from taxing money wages at higher rates than workplace benefits. Workers, at the margin, actually receive higher workplace benefits than they ideally would desire, relative to being paid more cash. The way to remedy that misallocation is a lower net tax on the cash, not more benefits.

A more left-wing version of the cash transfer query would ask this: If workers can claim more resources from their bosses for free, through the exercise of legal bargaining power, why not focus policy changes on boosting minimum and mandated wages?

“Finding Time” doesn’t find time to address, much less resolve, such questions. The most plausible response to these criticisms is that individual Americans cannot be trusted to make good decisions for themselves, and I am afraid that is the view being swept under the carpet here.



Obamacare's Economic Assumptions Collapse

Economic reality is making it increasingly obvious that we are in the midst of Obamacare’s long anticipated death spiral. Most recently, Aetna joined UnitedHealthcare and Humana as the third of the "big five" insurance firms to announce major cuts to its Obamacare exchange business.

For insurers, it's simple math: Premiums collected must exceed claims paid. If too few healthy, low risk individuals enroll to offset the costs of insuring unhealthy, high risk individuals, the math doesn’t work. This imbalance forces insurers to raise premiums on the low risk individuals who do enroll to cover the costs of insuring high risk individuals. The rising premiums cause even more healthy individuals to drop coverage – resulting in what has been called a death spiral.

Aetna’s CEO Mark Bertolini explained that his company was dropping out of the exchanges because "[p]roviding affordable, high-quality healthcare options to consumers is not possible without a balanced risk pool," and that “individuals in need of high-cost care represent” a percentage of the risk pool so large that it “results in substantial upward pressure on premiums and creates significant sustainability concerns.”

The result: Aetna suffered a second-quarter pretax 2016 loss of $200 million and total pretax losses of more than $430 million since January 2014 when the exchanges opened for business. Aetna wasn’t alone.

In April, the nation’s largest health insurer UnitedHealthcare, announced that it was pulling out of nearly all ObamaCare exchanges. In 2017, it will participate in only three exchanges instead of the 34 this year. CEO Stephen Hemsley similarly explained that “[t]he smaller overall market size and shorter-term higher risk profile within this market segment continue to suggest we cannot broadly serve it on an effective and sustained basis.”

UnitedHealth lost $475 million in the exchanges in 2015 and expects to lose $650 million in 2016.

The problem extends beyond big insurers. ObamaCare established 23 non-profit health insurance companies called Consumer Operated and Oriented Plans (co-ops). According to the Center for Medicaid and Medicare Services, they received $2.4 billion in taxpayer dollars because they demonstrated “a high probability of financial viability”. To date, 16 of the 23 co-ops (or 70 percent) have failed due to weak balance sheets. Six of the remaining seven are on the brink of collapse.

As a result, the competition between insurers that ObamaCare counted on to keep the quality of coverage up and the costs down is vanishing.

According to a recent analysis by the consulting company Avalere Health, in 2017 nearly 36% of markets may have only one insurer participating in the exchanges, up from 4% in 2016. Nearly 55% may have two or fewer choices, up from 33%. The reasons: “Lower-than-expected enrollment, a high cost population, and troubled risk mitigation programs have led to decreased plan participation for 2017.”

The all too predictable consequence is daunting rate hikes. In an ongoing analysis, independent analyst Charles Gaba recently crunched the numbers for insurers participating in the exchanges. He concluded that for 2017, the national average increase requested is a whopping 24.3%. For the eight states that have approved rate hikes to date (representing about 10% of the total population) the average approved increase was 25.6%. And that’s with current overall inflation at about 1 percent. So much for President Obama’s promise that the average family would see its premiums decline by $2,500.

Even President Obama knows something must be done. As recently as August 2nd, he proposed a “public option” government run insurance company that would compete against private insurers on the exchanges. This "public-option" insurer could operate at a loss indefinitely with taxpayers footing the bill, driving private insurance companies that actually have to turn a profit, out of the market. The result: A massive taxpayer-funded government bureaucracy supporting a single-payer healthcare system that eliminates consumer choice as well as the competition necessary to keep benefits up and costs down.

Hillary Clinton, who sees more government as the solution to every problem, has endorsed the idea. Perhaps those sceptics who saw ObamaCare as an intentionally flawed plan paving the way for a single payer system had a point after all.

But making ObamaCare more bureaucratic, economically indefensible and politically untouchable is not the answer. Americans deserve quality affordable care, not more bureaucracy. It’s past time to do something that makes sense.

Any meaningful effort to repeal and replace Obamacare will require cooperation between the President and Congress on a plan that incorporates economically rational free market principles while preserving ObamaCare’s most popular provisions. The good news is that both GOP presidential nominee Donald Trump and Speaker of the House Paul Ryan have outlined such plans.

Among other complimentary proposals, they both would encourage much needed competition by allowing insurance sales across state lines while using health savings accounts and tax credits or deductions to reduce insurance costs. They would also increase the role of states to more effectively manage and administer Medicaid (the state-federal program for low income Americans that accounts for the lion’s share of those added to the rolls of the insured under ObamaCare).

Ryan’s more detailed plan would, among other things, implement much needed medical malpractice reforms and allow small businesses and individuals to pool their collective purchasing power. It would also preserve ObamaCare’s more popular provisions such as protecting those with pre-existing conditions and prohibiting sudden cancellations if continuous coverage is maintained.

At this point, it is evident that ObamaCare’s economic assumptions are collapsing. It’s time to elect lawmakers who will offer effective legislation, vet it through congressional committees and learn what’s in it before they pass it. Trump and Ryan are on the right path.



It Pays to Be a Liberal

Wall Street is accused of many things — some legit, some not — but flying under the radar is its alleged watchdog, the federal government, which is actively utilizing an egregious form of blackmail that makes banks' impropriety look like child’s play. Writing in The Wall Street Journal, Freedom Partners Chamber of Commerce adviser Andy Koenig makes a startling revelation of the federal government’s forcing large banks to fund leftist fads in the name of “social justice.” Here’s how Koenig describes it:

“The administration’s multiyear campaign against the banking industry has quietly steered money to organizations and politicians who are working to ensure liberal policy and political victories at every level of government. The conduit for this funding is the Residential Mortgage-Backed Securities Working Group, a coalition of federal and state regulators and prosecutors created in 2012 to ‘identify, investigate, and prosecute instances of wrongdoing’ in the residential mortgage-backed securities market. In conjunction with the Justice Department, the RMBS Working Group has reached multibillion-dollar settlements with essentially every major bank in America.”

Koenig adds, “Combined, the banks must divert well over $11 billion into ‘consumer relief,’ which is supposed to benefit homeowners harmed during the Great Recession. Yet it is unknown how much, if any, of the banks' settlement money will find its way to individual homeowners. Instead, a substantial portion is allocated to private, nonprofit organizations drawn from a federally approved list.” Some of the groups include La Raza, the National Urban League and the National Community Reinvestment Coalition — entities with an obviously leftist bent. The total windfall is unclear, but these and other leftist groups have benefited handsomely off the $11 billion the government has managed to purloin from the nation’s largest banks.

This sounds appalling — and indeed it is — but it’s not without precedent. Consider that something similar happened with Obama’s infamous “stimulus” package. The near-trillion dollar injection of taxpayer funds went almost exclusively toward funding Obama’s leftist cronies. As much flack as banks receive, their indiscretions are nothing compared to what the feds are doing behind the scenes.



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