Why Are We Moving Toward Socialized Medicine?
Government intervention in medicine is wrecking American health care. Nearly half of all spending on health care in America is already government spending. Yet President Obama's "reforms" will only expand that intervention.
Prior to the government’s entrance into medicine, health care was regarded as a product to be traded voluntarily on a free market--no different from food, clothing, or any other important good or service. Medical providers competed to provide the best quality services at the lowest possible prices. Virtually all Americans could afford basic health care, while those few who could not were able to rely on abundant private charity.
Had this freedom been allowed to endure, Americans’ rising productivity would have afforded them better and better health care, just as, today, we buy better and more varied food and clothing than people did a century ago. There would be no crisis of affordability, as there isn’t for food or clothing.
But by the time Medicare and Medicaid were enacted in 1965, this view of health care as an economic product--for which each individual must assume responsibility--had given way to a view of health care as a “right,” an unearned “entitlement,” to be provided at others’ expense.
This entitlement mentality fueled the rise of our current third-party-payer system, a blend of government programs, such as Medicare and Medicaid, together with government-controlled employer-based health insurance (itself spawned by perverse tax incentives during the wage and price controls of World War II).
The resulting system aimed to relieve the individual of the “burden” of paying for his own health care by coercively imposing its costs on his neighbors. Today, for every dollar’s worth of hospital care a patient consumes, that patient pays only about 3 cents out of pocket; the rest is paid by third-party coverage. And for the health care system as a whole, patients pay only about 14 percent.
Shifting the responsibility for health care costs away from the individuals who accrue them led to an explosion in spending. In a system in which someone else is footing the bill, consumers, encouraged to regard health care as a “right,” demand medical services without having to consider their real price. When, through the 1970s and 1980s, this artificially inflated consumer demand sent expenditures soaring out of control, the government cracked down by enacting further coercive measures: price controls on medical services, cuts to medical benefits, and a crushing burden of regulations on every aspect of the health care system.
As each new intervention further distorted the health care market, driving up costs and lowering quality, belligerent voices demanded still further interventions to preserve the “right” to health care: from regulations mandating various forms of insurance coverage to Bush’s massive prescription drug bill.
The solution to this ongoing crisis is to recognize that the very idea of a “right” to health care is a perversion. There can be no such thing as a “right” to products or services created by the effort of others, and this most definitely includes medical products and services. Rights, as the Founders conceived them, are not claims to economic goods, but to freedoms of action.
You are free to see a doctor and pay him for his services--no one may forcibly prevent you from doing so. But you do not have a “right” to force the doctor to treat you without charge or to force others to pay for your treatment. The rights of some cannot require the coercion and sacrifice of others.
Real and lasting solutions to our health care problems require a rejection of the entitlement mentality in favor of a proper conception of rights. This would provide the moral basis for breaking the regulatory chains stifling the medical industry; for lifting the tax and regulatory incentives fueling our dysfunctional, employer-based insurance system; for inaugurating a gradual phase-out of all government health care programs, especially Medicare and Medicaid; and for restoring a true free market in medical care.
Such sweeping reforms would unleash the power of capitalism in the medical industry. They would provide the freedom for entrepreneurs motivated by profit to compete with each other to offer the best quality medical services at the lowest prices, driving innovation and bringing affordable medical care, once again, into the reach of all Americans.
Congress In Fantasyland
by Richard W. Rahn
If Congress suddenly required every car and truck in America (all 250 million of them) to be immediately destroyed and replaced with new cars and trucks that got better gas mileage, would the country be worse off or better off? Those members of Congress who voted for the "cash for clunkers" program would probably say "better off," even though a perfectly good auto and truck stock would be destroyed.
The congressional clunker caucus would say millions of workers would be employed to replace all of the existing cars and trucks. Yes, that would be true, but everyone else would be poorer. Those who had to buy a new car would have less money to spend on everything else, which would mean fewer jobs in the rest of the economy -- more autoworkers but fewer farmers, teachers and medical researchers -- not a good trade-off.
Congress would likely respond by proposing a tax credit for the purchase of the new car. The tax credit could only be paid for by higher taxes now or in the future, which means people would be worse off because of the dead weight loss of collecting taxes in addition to the amount actually collected.
Richard W. Rahn is a senior fellow at the Cato Institute and chairman of the Institute for Global Economic Growth.
More by Richard W. RahnMembers of Congress would then say that we are saving gasoline by having a more efficient auto fleet -- which ignores the fact that building a new car takes far more resources, including petroleum, than could possibly be saved by the gain of additional miles per gallon.
Congressional "logic" could also be applied to housing.
Why not knock down all houses built in America before 2000 and replace them with new and more energy-efficient houses? Wait -- we already evidenced the results of that experiment -- it happened in New Orleans. Rather than the government directly knocking down the houses, Hurricane Katrina did it for us. Are the people of New Orleans better off or worse off because of Katrina? Are all of the American taxpayers who footed much of the rebuilding cost -- hundreds of billions of dollars -- better off or worse off because of Katrina?
Many in Congress argue that the reason New Orleans is still a mess is because of federal, state and local government mismanagement and corruption. Yes, but now don't they want the government to run the health care system? And these folks are telling us that their new medical system will cover more people, will cost less, give us better care and not add to the budget deficit -- hmmm. Fantasyland!
Members of Congress and the Obama administration keep telling us that the "new health care system," the "cap-and-trade" energy program, "clunkers for cash" and the "stimulus" program can all be paid for by taxing the rich, i.e., the top 1 percent of income earners. Let's check the math.
The Congressional Budget Office projects a total additional deficit of approximately $4.9 trillion dollars during President Obama's first term (2009-2012). Currently, the top 1 percent of taxpayers pay 40 percent of the tax, or $450 billion a year, or approximately $1.8 trillion dollars during the next four years, leaving a $3.1 trillion hole. Increasing the tax rate on those high earners to 100 percent might yield an additional $1.5 trillion the first year, but this will only work for the first year. Most people, after being taxed 100 percent on their income, will quit work and/or put their investments in nontaxable entities, such as tax-free local government bonds.
It is also not mathematically possible to take care of all the new spending by increasing taxes on the top 5 percent of taxpayers (those making $160,000 or more annually) who already pay 61 percent of the federal tax (or $676 billion per year). Most of these people are now paying close to the revenue maximizing rate, which means that any increase in their tax rate is unlikely over the long run to bring in much more tax revenue.
Quite simply, upper-income people have options. History shows that when tax rates are raised, many will choose to work less (leisure is nontaxable), retire earlier than they had planned and save and invest less in taxable, productive activities. Those making more than $160,000 per year would need to have their taxes roughly tripled to take care of just this year's deficit. (One merely has to look at the tax evasion practiced by the chairman of the congressional tax writing committee, the secretary of the Treasury and the former majority leader, et al. at today's tax rates to know that they and their colleagues, as well as most everyone else, will find either legal or illegal ways to avoid paying the tax.)
Those who do not live in Fantasyland understand that the only options are:
- To greatly increase taxes on middle- and lower-income groups (a political nonstarter).
- To "fund" all of the new spending by selling bonds to the private market at much higher interest rates (thus sucking out private capital and increasing the cost of homeownership, which will lead to slower growth and higher unemployment).
- To have the central bank (the Fed) buy the new debt (leading to higher rates of inflation, making everyone poorer).
- Or for the government to act responsibly and reduce spending.
Obama vs. Mathematics
by Jagadeesh Gokhale and Kent Smetters
Even a popular president like Barack Obama cannot win arguments against two forces: God and mathematics. While the president has openly shared his reverence for the former, he has decided to take on the latter. It's a fight that he will lose.
Upon taking office, President Obama decided to postpone his campaign promise to implement a true cost-saving reform of Social Security and Medicare. Instead, he's trying to expand the nation's entitlement offerings with massive new government spending on health care.
The Congressional Budget Office's mid-July "score" of the main House health-care bill puts the price tag at about $1 trillion over the next decade; the Blue Dog Democrats managed to shave off only about $100 billion. But ten-year budgets, as even the CBO has warned in the past, are not reliable for assessing entitlement programs. Most of the spending in the House plan is phased in over several years, making the ten-year cost look deceptively small. Extending the budget window by just three years doubles the program's cost to over $2 trillion.
Jagadeesh Gokhale is a senior fellow at the Cato Institute and Kent Smetters is a professor at the Wharton School and a visiting scholar at the American Enterprise Institute.
More by Jagadeesh GokhaleAnd that's just a start. The most comprehensive view of a program's projected shortfall comes from calculating the present value of all of its future outlays and subtracting any new revenue sources. The House plan has a present-value shortfall of $13.6 trillion. That's the amount of additional money that must be set aside, in today's dollars, to put this program on a sustainable course. This estimate optimistically assumes that health-care costs will eventually grow with the general inflation rate (they're currently growing much faster).
This enormous shortfall is equal to about 1.6 percent of all future projected GDP, or 3.5 percent of all future payrolls subject to Social Security taxes. From those numbers, this additional burden might actually seem manageable. But President Obama promised that he would raise taxes only on those in "rich" households.
That's where the arithmetic gets especially interesting. Funding the new health-care plan on the backs of households making $200,000 or more per year would require permanently increasing their annual total tax payments by about 50 percent. So, for example, a household that currently pays $50,000 in federal income taxes would need to pay another $25,000. Remember, however, that Social Security and Medicare already face enormous shortfalls. Shoring up these programs — another Obama campaign promise — would require collecting 328 percent more tax revenue from the rich. No, we didn't forget a decimal point: That is three hundred and twenty-eight percent.
Most households making between $200,000 and $500,000 per year would not have enough money to pay their federal, state, and local tax bills, much less eat. Rich households in California or New York would not be able to pay their tax bills regardless of their incomes. And a family of four living in a low-tax state (South Dakota) would need to gross almost $900,000 per year to have enough income left over to reach the poverty line. In fact, there is no mathematical configuration of taxes on the current rich alone — including additional levies on the "super-rich" making more than $1 million per year — that is compatible with putting the nation's entitlement programs and the new health-care plan on a sustainable course.
U.S. federal income taxes are already very progressive. The top 10 percent of income earners pay the majority of federal income taxes. The top 1 percent of income earners pay a quarter of all taxes.
But can't we expect the rich to pay even more? Maybe for a few years — but not without disastrous consequences to America's future.
A major tax increase causes the tax capacity of the rich to shrink gradually as two factors kick in. First, many of the households falling into Obama's "rich" definition are married couples in which both partners are working professionals. When tax rates rise, the lower-earning spouses in these couples tend to work less. Often, they quit work entirely. Second, many of the "rich" are budding entrepreneurs and small-business owners. They finance their operations using their own after-tax income, or with after-tax resources from family and friends. Small-business innovation is the fuel for long-term economic growth. In fact, many of the largest companies in the United States today were either small or nonexistent just 25 years ago. Killing small business kills the American economy.
We cannot allow federal health-care subsidies — mainly Medicare and Medicaid — to continue to grow faster than inflation indefinitely. The challenge is to find ways to make the nation's commitments to retirees and others sustainable without harming economic growth prospects. In this regard, the Obama administration is charting a course in the wrong direction — expanding entitlements on the backs of our nation's job creators. The math will work against the Obama administration and, eventually, against us all.
Michael Shermer is the executive director of the Skeptics Society, founding publisher of Sketpic magazine, an author of several books, most recently The Mind of the Market: How Biology and Psychology Shape Our Economic Lives. He has a long track record of engaging in libertarian ideas, critical thinking, and "baloney detection."
In this interview with Reason Editor in Chief Matt Welch, shot at The Amazing Meeting in Las Vegas, Shermer talks about the history of modern skepticism, the connection between evolution and market economics, and how President Barack Obama is better than his predecessor on science.
WHY THE FAA FAILS
BEHIND SATURDAY'S COLLISION
SATURDAY'S helicopter-plane collision over the Hudson stems in part from the politicization of decisions about air safety and air traffic control, both of them the province of the Federal Aviation Administration.
When a crash occurs, members of Congress from the area are quick to point fingers and call for tougher regulations. But few people realize how much Congress and aviation interest groups can be obstacles to improved air safety.
Private planes like those involved here are referred to as "general" aviation (as opposed to commercial aviation -- mostly airlines). The general aviation trade associations have large memberships in every congressional district, and are very active in both lobbying and campaign donations. So when these groups take a position on aviation issues, members of Congress on aviation subcommittees feel considerable grassroots pressure to make decisions that are GA-friendly.
One example is defining the airspace under which planes needn't file flight plans or be directed by air traffic control. That's the category of airspace over the Hudson River below 1,100 feet, where the collision occurred.
Everyone recognizes that airspace above and around major airports must be controlled, but GA groups resist any expansion of controlled airspace, which restricts their members' freedom to fly. In turn, because the GA crowd has a lot of clout with Congress, the FAA (which gets its budget from Congress) must take that into account in any redesign of airspace.
Another example is the use of next-generation technology to keep track of where planes are, even outside of controlled airspace. Today, all planes must carry transponders which, when interrogated by FAA radars, transmit the plane's ID number and altitude, which appears on the air traffic controller's display.
But radar only scans once every 5 to 12 seconds, and isn't very effective where there is lots of ground clutter.
The FAA is beginning to implement new technology called ADS-B, which dispenses with radar for this purpose. Instead, each plane equipped with ADS-B reports its position (based on GPS) every one to two seconds, giving the controller much faster and more accurate information. And the more advanced version will put a display in every cockpit, showing the pilot where other air traffic is, in real time.
But here's where the politics of GA comes in. Even in large-scale mass production, the ADS-B box that includes the traffic display will likely cost several tens of thousands of dollars. GA groups, out to protect their members from increased costs, have fought hard to put off the deadline date for installing even the basic (no-display) version of ADS-B until 2020. And the FAA knows that imposing a more aggressive schedule would lead to intense GA lobbying of Congress, so it has so far gone along.
Besides the political problem, the FAA has a built-in conflict, because it has two distinctly different missions. One is to be the aviation-safety regulator -- deciding the rules of the airways, licensing pilots and mechanics, certifying new planes as safe to be manufactured, overseeing airline maintenance, etc. In carrying out that role, it is quite properly at arm's length from the parties that it regulates.
But its second mission is running the air-traffic-control system, which includes decisions about implementing new technologies like ADS-B.
The ATC system is a 24-hour- a-day, high-tech service business, trapped inside a government bureaucracy. When it tries to make modernization decisions (like replacing radar surveillance with ADS-B), it can't simply consult with its customers and work out an implementation plan. Instead, it must make every decision with one eye on Congress, knowing that some interest group will complain to the politicians that the decision hurts its members. And when regulating the safety of air traffic control, the FAA is "regulating" itself.
Nearly all Western nations (including Australia, Canada, the UK and almost all EU members) have separated air-safety regulation from the ATC business, usually divesting ATC as a stand-alone, customer-supported enterprise. That puts safety regulation at arm's length from ATC operations, while depoliticizing business decisions such as ATC modernization.
The Clinton administration tried to make the same reform here, but got shot down by GA and other interest groups.
Depoliticizing air-traffic control would be very positive for air safety. It would speed the introduction and use of better technology like ADS-B, while freeing the FAA to focus on tougher safety regulation.
It's too late for the victims of Saturday's crash, but such changes could prevent many future collisions.
Robert W. Poole Jr. is the direc tor of transportation studies at Reason Foundation.
Cash for Climate
How to get your money's worth on climate change geoengineering
Let's say the world will spend $250 billion a year for the next 10 years to minimize the suffering caused by climate change. What's the best bargain we can get for the money?
The Copenhagen Consensus Center (CCC), a think-tank in Denmark headed by Skeptical Environmentalist Bjorn Lomborg, has commissioned 21 papers from leading climate experts and economists to answer that very question. Over the coming month, the CCC will be looking at the benefits and costs of proposed actions in four different areas: climate engineering, cutting future greenhouse gas emissions, economic growth, and green energy technologies. Each topic will feature a main research paper accompanied by a series of critiques by other experts called perspective papers.
At the end of the process, the CCC will assemble a panel of five leading economists, three of them Nobelists, to rank all of the proposed solutions as to their relative cost-effectiveness. This ranking process is the CCC's specialty—it has twice used this technique to rank order various proposals for solving some of the world's biggest problems, including disease eradication, sanitation, economic development, malnutrition, and the oppression of women.
This week, the CCC kicked off the process with the high-tech topic of climate engineering, starting with a paper by J. Eric Bickel, an assistant professor at the University of Texas at Austin in Operations Research and a fellow in the Center for International Energy and Environmental Policy, and Lee Lane, a resident fellow at the American Enterprise Institute in Washington, D.C., where he also serves as the co-director of the Institute's Geoengineering Project. Bickel and Lane accept that global warming poses some risks to humanity and use cost-benefit analysis to weigh various proposals for engineering global climate. The chief question that they address is how much research and development funding should be devoted to investigating the feasibility of climate engineering.
The two geoengineering options to manage climate change that Bickel and Lane consider are blocking sunlight or capturing carbon. They favor blocking sunlight—or solar radiation management—over taking carbon out of the atmosphere—or air capture. Bickel and Lane estimate the costs of various solar radiation management scenarios that would offset 0.6° C, 1.3° C, and 1.9° C of future warming, and find that the benefits of deploying some proposed solar radiation management techniques outweigh the costs by between $4 and $18 trillion. (Assuming the calculations of Dynamic Integrated Model of Climate and Economics developed by Yale University economist William Nordhaus, which suggests that the 200-year present value of climate damages would be about $22 trillion, are in the right ballpark.) Air capture involves technologies that would remove ambient carbon dioxide from the atmosphere and most likely bury it underground. Bickel and Lane argue that air capture technologies are too expensive and so do not spend a great deal of time on the topic.
The planet is warming because greenhouse gases like carbon dioxide re-radiate heat from the sun back toward the earth as it tries to escape into space. Solar radiation management techniques aim to increase the amount of sunlight radiated back into space in order to lower the globe's temperature. Bickel and Lane look at proposals that would purposely inject sulfur or other reflective particles into the stratosphere on an ongoing basis to counter the effects of man-made global warming.
This phenomenon sometimes occurs naturally. Volcanoes occasionally inject sulfur particles high into the stratosphere 8 to 12 miles above the earth's surface where they reflect sunlight back into space cooling the planet. For example, when Mount Pinatubo erupted in 1991 in the Philippines, it injected huge amounts of sulfur particles into the stratosphere lowering the globe's average temperature by about 0.5° C for the next year.
The priciest option that Bickel and Lane analyze is a proposal to install a sunshade involving about 4 trillion autonomous "flyers" placed at about 1 million miles in space to dim the sunlight before it reaches the earth. To offset temperatures by 0.6° C, it would take 4 trillion flyers, each about 400-inches square, and weighing a total of 5 million tons. Assuming each launch could carry 800,000 flyers up at a time, that would mean 5 million launches. If a launch occurred every 5 minutes, the entire sunshade could be in place in about 50 years. Using current numbers for launch and satellite manufacturing costs, the sunshade would cost $135 trillion to make and $395 trillion to get it into space. These costs greatly exceed mainstream estimates of the damages that might be caused by climate change. In fact, those figures add up to about 10 times the size of the current world GDP.
Stratospheric aerosols are next up for consideration. Bickel and Lane report that one recent study suggested it would be possible to use a fleet of 167 F-15 airplanes flying three times per day to inject about 1 billion tons of sulfur particles into the stratosphere each year. This would cost about $4.2 billion per year. The same study calculated firing 8,000 artillery shells daily loaded with sulfur into the stratosphere would cost about $30 billion annually or launching 37,000 stratospheric balloons daily would cost between $21 billion and 30 billion per year. Bickel and Lane calculate that the benefit-cost ratio for using artillery shells to loft aerosols into the stratosphere is 27 to 1. The F-15 option's benefit-cost ratio would be even more favorable.
The third solar radiation management technique Bickel and Lane consider is marine cloud whitening, a proposal that involves hundreds of ships cruising the world's oceans spewing salt water as a mist into the atmosphere. The salt particles would function as cloud condensation nuclei which would increase the extent and brightness of low level clouds over the oceans. These clouds would reflect sunlight back into space cooling the earth's surface.
In this case, to offset 0.6° C of warming would involve 284 ships spewing salt water into the air at a cost of $1 billion per year. To reduce future temperatures by 1.9° C, 1881 vessels would have to be deployed at a cost of $5.8 billion annually. Bickel and Lane calculate that the benefit-cost ratios for cloud whitening range from 7,000-to-1 to 2,500-to-1.
On the strength of these high benefit-cost ratios, Bickel and Lane argue that the Copenhagen Consensus panel of economists should allocate an average of 0.3 percent of its $250 billion climate change budget ($750 million per year) to solar radiation management and air capture research over the next decade.
To help the final panel in their evaluations, the CCC commissioned two critiques of the Bickel and Lane paper. In her perspective paper critiquing Bickel and Lane's assessment of climate engineering, Anne E. Smith, an economist who heads up the climate and sustainability practice at the consultancy Charles River Associates, delves deeper into the uncertainties about the benefits and costs of solar radiation management. One important goal of R&D into solar radiation management is to reduce uncertainties about its risks.
A remarkably interesting observation by Smith is that such research will have no value to people who are inclined to have positive views about climate engineering. This is because partisans of the technique will tend to dismiss research that suggest that it poses higher risks as false alarms. On the other hand, research might also have no information value because it will never be good enough to convince hyper-cautious people that geoengineering is safe. Finally, Smith opines that Bickel and Lane have given air capture too short shrift and that it could serve as a backup option should new costly risks emerge after solar radiation management has been deployed.
The second perspective paper, from University of Colorado environmental studies professor Roger Pielke, Jr. takes a harder look at the costs and benefits of air capture of carbon dioxide from the atmosphere. Among other reasons, Pielke favors air capture over solar radiation management because it meets the three rules for technological fixes, which are quite useful and worth examining in more detail here.
The first rule is that the technology must largely embody the cause-effect relationship connecting problem to solution. In this case, solar radiation management fails because it addresses the effect of higher average global temperatures rather than the cause, which is accumulating concentrations of greenhouse gases in the atmosphere. On the other hand, air capture aims to remove the cause—e.g., greenhouse gases—from the atmosphere thus preventing an increase in temperature.
The second rule is that the effects of the technological fix must be assessable using relatively unambiguous or uncontroversial criteria. Air capture clearly meets this criterion. Pielke notes, "If the accumulation of carbon dioxide in the atmosphere is judged to be a problem, then its removal logically follows as a solution."
The third rule of technological fixes is that research and development is most likely to contribute decisively to solving a social problem when it focuses on improving a standardized technical core that already exists. In this case, Pielke argues that air capture technologies have been developed now that can be refined and deployed with no risk to the climate system.
To assess the costs of air capture Pielke points out that various estimates for reducing the emissions of carbon dioxide might cost between 1 to 3 percent of total global GDP over the next century. Assuming about 3 percent global GDP growth to 2100, Pielke calculates that the cost of air capture at even $500 per ton of carbon would cost 2.7 percent of global GDP if the goal is to make sure that carbon dioxide concentrations do not exceed 450 parts per million. Pielke concludes, "My bottom line is that the geoengineering of the earth system as a way to adapt to increasing concentrations of greenhouse gases is a losing proposition."Despite the cautions of Smith and Pielke, it is hard to disagree with Bickel and Lane's conclusion on climate engineering: "The results of this initial benefit-cost analysis place the burden of proof squarely on the shoulders of those who would prevent such research."
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