Cato @ Liberty
CBO Projections: Unhealthy Basis for Health Policy
Fri, 24 Mar 2017 16:33 EDT

In the political hullabaloo over efforts to shift costs of health care to someone else, the argument for keeping Obamacare’s compulsory insurance and ever-expanding Medicaid enrollment relies naïvely on notoriously comical Congressional Budget Office (CBO) 10-year “projections.” 

CBO claims the initial House Republican plan would eventually cause 3 million to “lose” health insurance simply because they would no longer be fined up to 2.5% of income for not buying a policy designed by and for politicians. This not a loss, but a gain – in freedom of choice.

CBO claims the GOP plan would “lose” another 14 million by not expanding Medicaid enrollment as rapidly as Obamacare hopes to. The federal government pays about 57% of the cost of Medicaid for poor people, but 90-93% (until 2022) to the 31 states that provide Medicaid to those earning up to 138% of the poverty line. That has added 17 million to the Medicaid rolls, and enriched big health insurers and Kaiser Permanente.

Since expanded Medicaid added only 17 million, how could the Republican plan’s modest frugality possibly subtract 14 million?  Only because CBO assumes that if nothing changes then more and more states will leap on this stalled bandwagon, thus shoving millions more on Medicaid.  This seems politically unlikely (few Republican governors have done so), but also unhealthy. All those new patients on Medicaid may have to drive very far to find an MD who accepts Medicaid. Having a third-rate health insurance card is not “health care.” It’s a card.  

Some of the biggest public policy blunders of recent years resulted from taking CBO’s crystal ball far too seriously.  Higher 1991 tax rates on high incomes and luxuries worsened the recession and lost revenue, for example, yet seemed courageous by the low standards of faulty CBO bookkeeping. 

An even better example of CBO dominating policy decisions was the foolishly phased-in and poorly-targeted 2001 Bush tax cuts.

In January 2001, CBO predicted that budget surpluses would add up to $5.6 trillion by 2011. That absurd CBO forecast made their (overestimated) $1.35 trillion 10-year revenue loss from look puny – merely nibbling away at 24% of projected surpluses.  Little wonder the 2001 law was a grab-bag of feel-good giveaways (10% tax rate, refundable credits, etc.) thanks in large part to the CBO’s blurred vision of endless surpluses.

Why does this have anything to do with health insurance policy?  Because CBO projections for the Affordable Care Act (ACA) have also been embarrassingly wrong. In March 2010 CBO estimated only 21 million would be uninsured by 2016, but the actual number turned out to be 27 million.  CBO expected 21 million policies on the Exchanges by 2016, but the actual number turned out to be 12 million.  

By using CBO projections as the baseline, as is being done with the GOP plan, it could be said that Obamacare “lost coverage” for 6 million people in 6 years –compared with 2010 CBO projections.

In short, the CBO has always grossly overestimated the success of Obamacare. And they still do.  They appear to underestimate how much larger federal subsidies to Medicaid and the Exchanges “crowd out” other insurance – luring people out of unsubsidized insurance into subsidized insurance, or into seemingly “free” expanded Medicaid in 31 states. 

The CBO’s rosy scenario about the future success of Obamacare exchanges, and about future growth of expanded Medicaid coverage, results in a grossly exaggerated estimate of the number of policies to be “lost” by reducing compulsion, mandates and taxpayer subsidies.  Good policy requires more good judgment, not more bad estimates.

A Tale of Two Statements
Fri, 24 Mar 2017 14:20 EDT

Remarks made by Secretary of State Rex Tillerson in Beijing caused a collective gnashing of teeth among the foreign policy establishment this week. At least twice, Tillerson said that the U.S.-China relationship was built on “non-conflict, non-confrontation, mutual respect, and win-win solutions.” These exact words have often been used by China’s president Xi Jinping to describe a “new model of major country relations” between the United States and China.

China watchers based in D.C. rushed to criticize Tillerson’s statements for mirroring Xi’s language. Writing for Politico, Ely Ratner of the Council on Foreign Relations said, “terms like ‘mutual respect’ and ‘nonconfrontation’ are code in Beijing for U.S. accommodation of a Chinese sphere of influence in Asia.” A headline in the Washington Post said that Tillerson handed a “diplomatic victory” to China. The article featured quotes from experts such as Bonnie Glaser from the Center for Strategic and International Studies who said, “By agreeing to [mutual respect], the U.S. is in effect saying that it accepts that China has no room to compromise on these issues.” In Foreign Policy, former State Department and National Security Council official Laura Rosenberger argued that U.S. allies in East Asia “may question [U.S.] commitments given Tillerson’s wording in Beijing.”

The consensus seems to be that Tillerson’s statements are bad for the United States and good for China. But this overinflates the importance of Tillerson’s words. The reaction to then president-elect Donald Trump’s statements about the One-China policy offers a useful point of comparison to Tillerson’s statements. Hand wringing over Trump’s statements were justified, but the response to Tillerson’s statements are overblown.

In a December 2016 interview with Fox News Sunday, Donald Trump suggested that the United States would no longer be bound by its longstanding One-China policy “unless we make a deal with China having to do with other things, including trade.” Trump’s statements prompted a strong, mostly negative response from American experts, and rightly so.

The reaction to Trump’s One-China policy remarks was justified because of the circumstances at the time. The interview came shortly after news broke about a precedent-breaking phone call between Trump and the president of Taiwan, which also caused considerable angst among China watchers. The phone call and One-China policy remarks raised serious questions about the future of U.S.-China relations because there was no policy record to judge these actions against.

Supporters of Trump’s behavior argued that his status as president-elect muted the impact of his actions, and since taking office he has taken steps to reassure China that a significant change in American policy toward Taiwan is not likely. However, at the time the actions were taken it was prudent for China watchers to account for worst-case scenarios given the lack of policy to compare the actions against. Even though worst-case predictions turned out to be false, the shadow of uncertainty that loomed over the incoming Trump administration meant that such dire assessments could not be ruled out.

Tillerson’s recent statements in Beijing can be judged against Trump administration policies. When such policies are taken into account, the “diplomatic victory” won by Beijing quickly loses its significance. The first elements of the Terminal High Altitude Area Defense (THAAD) missile defense system, which Beijing stringently opposes, arrived in South Korea shortly before Tillerson’s trip to the region. A few days before Tillerson’s statements, an aircraft carrier strike group operating under the command of the U.S. Navy’s Third Fleet arrived in South Korea to conduct military exercises alongside the South Korean navy. According to U.S. Pacific Command, this marks the first time that a carrier strike group under Third Fleet command has operated alongside allies in the Western Pacific since World War II.

The Trump administration is also threatening to put greater economic pressure on China, despite its early decision to withdraw from the Trans Pacific Partnership, which many China watchers saw as a boon for Beijing. A recent report by Reuters claims the administration is considering “sweeping sanctions aimed at cutting North Korea off from the global financial system,” which could apply to Chinese banks and firms that do business with North Korea. Robert Lighthizer, Trump’s nominee for U.S. Trade Representative, said he would put more pressure on China in response to its economic practices that hurt the U.S. economy in his confirmation hearing.

The foreign policy establishment is overreacting to Tillerson’s statements in Beijing. There are plenty of U.S. policies, military movements, and economic rhetoric that point to a reality that is divorced from Tillerson’s rhetoric. Words do matter for Beijing, and it may take succor from Tillerson’s words, but this is unlikely to ease their concerns over THAAD deployment, deepening U.S.-South Korean ties, and gathering storm clouds of American trade policy. 

25 Years Later, Is It Still the Hayek Century?
Thu, 23 Mar 2017 09:44 EDT

F. A. Hayek died 25 years ago today. His secretary called Cato Institute president Edward H. Crane, who confirmed the sad news to the New York Times.

Hayek’s life spanned the 20th century, from 1899 to 1992. In his youth he thought he saw liberalism dying in nationalism and war. Thanks partly to his own efforts, in his old age he was heartened by the revival of free-market liberalism. John Cassidy wrote in the New Yorker that “on the biggest issue of all, the vitality of capitalism, he was vindicated to such an extent that it is hardly an exaggeration to refer to the twentieth century as the Hayek century.”

Back in 2010 the New York Times said that the Tea Party “has reached back to dusty bookshelves for long-dormant ideas. It has resurrected once-obscure texts by dead writers [such as] Friedrich Hayek’s “Road to Serfdom” (1944).” I responded at the time,

So that’s, you know, “long-dormant ideas” like those of F. A. Hayek, the winner of the Nobel Prize in Economics, who met with President Reagan at the White House, whose book The Constitution of Liberty was declared by Margaret Thatcher “This is what we believe,” who was described by Milton Friedman as “the most important social thinker of the 20th century” and by White House economic adviser Lawrence H. Summers as the author of “the single most important thing to learn from an economics course today,” who is the hero of The Commanding Heights, the book and PBS series by Daniel Yergin and Joseph Stanislaw, and whose book The Road to Serfdom has never gone out of print and has sold 100,000 copies this year.

On the occasion of Hayek’s 100th birthday, Tom G. Palmer summed up some of his intellectual contributions:

Hayek may have made his greatest contribution to the fight against socialism and totalitarianism with his best-selling 1944 book, The Road to Serfdom. In it, Hayek warned that state control of the economy was incompatible with personal and political freedom and that statism set in motion a process whereby “the worst get on top.”

But not only did Hayek show that socialism is incompatible with liberty, he showed that it is incompatible with rationality, with prosperity, with civilization itself. In the absence of private property, there is no market. In the absence of a market, there are no prices. And in the absence of prices, there is no means of determining the best way to solve problems of social coordination, no way to know which of two courses of action is the least costly, no way of acting rationally. Hayek elaborated the insights of the Austrian economist Ludwig von Mises, whose 1922 book Socialism offered a brilliant refutation of the dreams of socialist planners. In his later work, Hayek showed how prices established in free markets work to bring about social coordination. His essay “The Use of Knowledge in Society,” published in the American Economic Review in 1945 and reprinted hundreds of times since, is essential to understanding how markets work.

But Hayek was more than an economist. As I’ve written before, he also published impressive works on political theory and psychology. He’s like Marx, only right. Tom Palmer noted:

Building on his insights into how order emerges “spontaneously” from free markets, Hayek turned his attention after the war to the moral and political foundations of free societies. The Austrian-born British subject dedicated his instant classic The Constitution of Liberty “To the unknown civilization that is growing in America.” Hayek had great hopes for America, precisely because he appreciated the profound role played in American popular culture by a commitment to liberty and limited government. While most intellectuals praised state control and planning, Hayek understood that a free society has to be open to the unanticipated, the unplanned, the unknown. As he noted in The Constitution of Liberty, “Freedom granted only when it is known beforehand that its effects will be beneficial is not freedom.” The freedom that matters is not the “freedom” of the rulers or of the majority to regulate and control social development, but the freedom of the individual person to live his own life as he chooses. The freedom of the individual to break old molds, to create new things, and to test new paths is the mark of a progressive society: “If we proceed on the assumption that only the exercises of freedom that the majority will practice are important, we would be certain to create a stagnant society with all the characteristics of unfreedom.”

Reagan and Thatcher may have admired Hayek, but he always insisted that he was a liberal, not a conservative. He titled the postscript to The Constitution of Liberty “Why I Am Not a Conservative.” He pointed out that the conservative “has no political principles which enable him to work with people whose moral values differ from his own for a political order in which both can obey their convictions. It is the recognition of such principles that permits the coexistence of different sets of values that makes it possible to build a peaceful society with a minimum of force. The acceptance of such principles means that we agree to tolerate much that we dislike.” He wanted to be part of “the party of life, the party that favors free growth and spontaneous evolution.” And I recall an interview in a French magazine in the 1980s, which I can’t find online, in which he was asked if he was part of the “new right,” and he quipped, “Je suis agnostique et divorcé.”

Hayek lived long enough to see the rise and fall of fascism, national socialism, and Soviet communism. In the years since Hayek’s death economic freedom around the world has been increasing, and liberal values such as human rights, the rule of law, equal freedom under law, and free access to information have spread to new areas. But today liberalism is under challenge from such disparate yet symbiotic ideologies as resurgent leftism, right-wing authoritarian populism, and radical political Islamism. I am optimistic because I think that once people get a taste of freedom and prosperity, they want to keep it. The challenge for Hayekian liberals is to help people understand that freedom and prosperity depend on liberal values, the values explored and defended in his many books and articles.


rssfeedwidget.com