Free Markets, Free People

Daily Archives: January 12, 2010

Health Reform Bill – Makes Bernie Madoff Seem Like A Piker

Today the Wall Street Journal asks what many of us have been asking for quite some time – why aren’t the numerous and specific warnings about the real cost and destructiveness of the proposed health care plan being heeded?

Of course the simple answer is those who are determined to take health care under the government’s purview really don’t care – they finally have the opportunity long denied them and they plan on taking advantage of it. So, much like the “science” of man-made global warming, they’ve picked their narrative, settled on it and will not entertain anything which might impede them from attaining their goal – government control of the health care market.

Those who’ve read this blog are very familiar with how Democrats have gamed the system (CBO’s statutory 10 year window) and used cheap accounting tricks (collect taxes immediately, don’t start paying benefits for 5 years – gives the appearance of bending the cost curve down) to make the case that they’re actually spending less on health care over the years and saving us from the bankruptcy they claim the status quo will eventually bring.

Another report, which I mentioned last week, carries a devastating warning about the plan being considered behind closed doors by Congressional Democrats. Yet it has received no major media exposure.

It is the Centers for Medicare and Medicaid Services (CMMS) report. And chief actuary Richard Foster is very candid about the impact of what Congress is planning. Not the smoke and mirror show Congress puts out there, but a peek at the reality of what Congress is proposing:

Richard Foster, the chief actuary for the Centers for Medicare and Medicaid Services, reports that under his analysis national health spending will rise under the bills by $222 billion over the next 10 years. In other words, ObamaCare really does “bend the cost curve”—up.

Even that estimate exists only on paper, as Mr. Foster has the honesty to admit. Because “most of the coverage provisions would be in effect for only six of the 10 years of the budget period, the cost estimates shown in this memorandum do not represent a full 10-year cost for the proposed legislation,” he writes. The report is punctuated by phrases like “unrealistic” and “doubtful,” and Mr. Foster adds that “the scope and magnitude of these changes are such that few precedents exist for use in estimation.”

Let’s stop right here with the obvious point to be made. The $222 billion, as mentioned, is the estimate for the next 10 years. However, as Foster points out, the spending would occur in only 6 of those 10 years. So that spending is offset by 4 years of revenue collection. If we remove that buffer and simply take 6 into 222 and then multiply it by 10, we’re most likely a bit closer to the real spending number than the contrived one – $370 billion, a difference of a mere $148 billion. Or, in reality, the $222 is a number that was tweaked to ensure when it was added to the other numbers the total fell below the threshold of $900 billion – the point at which it was claimed the cost curve would be bent upward. Had Congress found that to get to the number they needed they would have to collect taxes for 10 years and not provide benefits for 8 years, that’s how the bill would have been written.

It was never really about actually bending the cost curve down – it was all about creating the perception that the cost curve was being bent down, nothing more.

And there’s more to understand about that $222 billion number:

That $222 billion is a net figure, even after accounting for the fact that most of the newly insured—18 million people—will be dumped into Medicaid, “where provider payment rates are well below average.” And for the fact that ObamaCare is “paid for” only in the sense that Medicare’s payments to doctors are assumed in the bill to be cut by more than 20% this spring and even deeper after that, which will never happen in practice.

Mr. Foster adds that other planned Medicare cuts would damage doctors and hospitals: “Over time, a sustained reduction in payment updates, based on productivity expectations that are difficult to attain, would cause Medicare payment rates to grow more slowly than, and in a way that was unrelated to, the providers’ costs of furnishing services to beneficiaries.” This is how price controls would work in practice, even as Medicare has hit its spending targets only four times in the last 25 years.

Again, we know that Congress plans a “doc fix” which will amend the law to keep the 20% cut from taking place this year. And there’s nothing, given the history of this program, that argues that 20% cut will ever take place. It is a figure based on an assumption that will most likely never happen. Note well the last sentence – with an addition of 18 million new Medicaid insured, how many times in the next 25 years do you supposed Medicaid will hit its spending targets? You might also want to keep in mind that is mostly a federally mandated program administered by the states who share the cost. What will this addition of 18 million new insured do to state budgets – especially if the assumed cuts in payments are never made?

But let’s say Congress, somewhere along the line, finds the intestinal fortitude to cut those payments to providers as they say they are. What would be the impact?

He says many providers will be forced to stop accepting patients who are insured by the government, as opposed to those who have private coverage “with relatively attractive payment rates.” The resulting two-tier health-care system “should be considered plausible and even probable initially.”

If they cut, those patients they bring on may not be able to find a health care provider, so the patients suffer. If they don’t make the cuts, spending goes through the roof and the taxpayer suffers. It’s a lose/lose. But what should be patently obvious to anyone reading all of this is the $222 billion net spending claim by Congress for this particular part of the health care reform bill is as bogus as their promise of transparency.

Just delving into the particulars of this one portion of the bill should disabuse any objective person of the belief that what is being proposed is going to cost less than what we presently have. It is all a wretchedly wrought political façade designed to gain your support for long enough to pass this monstrosity. And my guess is should it pass, we’ll all be poorer and eventually sicker for its passage.


How Terrorism Wins – Part II

Fareed Zakaria provides the second installment in how terrorists win (the example of the Met deciding not to show art depicting the prophet Mohammed being the first):

In responding to the attempted bombing of an airliner on Christmas Day, Sen. Dianne Feinstein voiced the feelings of many when she said that to prevent such situations, “I’d rather overreact than underreact.” This appears to be the consensus view in Washington, but it is quite wrong. The purpose of terrorism is to provoke an overreaction. Its real aim is not to kill the hundreds of people directly targeted but to sow fear in the rest of the population. Terrorism is an unusual military tactic in that it depends on the response of the onlookers. If we are not terrorized, then the attack didn’t work. Alas, this one worked very well.

He is exactly right. Terrorism is all about effecting change through the threat of or use of violence. It is a tool of the weak that can be devastatingly effective if those at whom it is aimed overreact. The aim may be political change. The aim may be economic change. Or terrorists may be satisfied with any change they can effect through their actions which makes life miserable for those at whom it is aimed. As Zakaria points out, given our response, the latest terrorist failure is, in fact, a win. We’re jumping through our collective arses trying to react to the threat and pretty much settling on making air travel more miserable for everyone.

Overreacting to terrorist attacks plays into al-Qaeda’s hands. It also provokes responses that are likely to be large-scale, expensive, ineffective and possibly counterproductive. More screening for every passenger makes no sense. When searching for needles in haystacks, adding hay doesn’t help. What’s needed is a larger, more robust watch list that is instantly available to all relevant government agencies. Almost 2 million people travel on planes in the United States every day. We need to isolate the tiny percentage of suspicious characters and search them, not cause needless fear in everyone else.

We know, to this point the one common thread that links these “needles” and separates them from the “hay”. But we continue to resist using that as a discriminator as we refine our security searches because, apparently, discrimination (aka “profiling”) is a much worse political sin than getting airliners with 300 souls on board blown out of the sky.

It simply defies common sense.


Green Jobs, Distorted Markets And “Comprehensive” Energy Policy

This is what it takes to create “Green Jobs“?

President Obama’s announcement earlier today of an additional $2.3 billion in federal tax credits for creating approximately 17,000 subsidized temporary jobs in the green energy industry is drawing a less than enthusiastic response from Thomas J. Pyle, president of the Institute for Energy Research:

“Show me one other industry that requests and receives a nearly 30 percent taxpayer subsidy. That’s what the wind and solar industries require – at a minimum – to exist. All the president did today is throw more money at an unproven technology that is not economically viable in the marketplace. Unfortunately, the only winners in this latest taxpayer giveaway will be Wall Street money managers and corporate interests in the wind and solar industry.

Of course, dividing the subsidy by the number of jobs shows us that each job costs the taxpayers $135,295 each. The usual inefficient and wasteful spending for which the government is famous.

But there’s another bit of truth in Pyle’s statement that the right likes to mostly ignore – corporate interests, not just in the wind and solar industry, are deeply intertwined with political interests in this country and those corporate interests use their ability to influence in ways that give them an advantage (even to the point of helping to write legislation). However, that’s a post for another day.

Today, we’re looking at a perfect example of a governmental distortion of a market. Without the subsidy, the wind and solar industries most likely wouldn’t survive. But since it is a politically favored industry, it gets a hand out to keep it afloat. Meanwhile, it finds only a limited market share because the alternatives – coal, natural gas, oil, etc. – are much cheaper, more reliable and more readily available. Says Pyle:

“If the president really wants to create an environment that will foster economic growth and job creation, he need not look any further than the domestic oil, gas and coal industries. These three industries and energy sources built this nation. For the administration to continue to ignore this fact and to keep the vast resources that taxpayers own under lock and key at the Department of Interior is irresponsible and a disservice to the American people.

“The Outer Continental Shelf (OCS), if opened for business, would create over 1 million high-wage jobs. It would reduce our dangerous dependence on hostile nations for their energy resources and spur economic growth across all 50 states. Development of these energy resources will create sustainable employment, not taxpayer dependent make-work jobs.”

Instead, as I pointed out in a post last week, this administration is doing the opposite. New rules from Secretary of the Interior Ken Salazar make such exploration and exploitation of these known reserves much more difficult to do. It is step 2 in the government’s distortion of the energy market.

And it’s distortion of markets does have an effect – mostly unintended and, frankly, negative. Take the biofuel mandates Congress passed into law a year or so back.

It sounded like a good idea: Provide a little government money to convert wood shavings and plant waste into renewable energy.

But as laudable as that goal sounds, it could end up causing more economic damage than good — driving up the price of raw timber, undermining an industry that has long used sawdust and wood shavings to make affordable cabinetry, and highlighting the many challenges involved in decreasing the nation’s dependence on oil by using organic materials to create biofuels.

In a matter of months, the Biomass Crop Assistance Program — a small provision tucked into the 2008 farm bill — has mushroomed into a half-a-billion dollar subsidy that is funneling taxpayer dollars to sawmills and lumber wholesalers, encouraging them to sell their waste to be converted into high-tech biofuels. In doing so, it is shutting off the supply of cheap timber byproducts to the nation’s composite wood manufacturers, who make panels for home entertainment centers and kitchen cabinets.

The subsidy has distorted the market that has historically seen timber byproducts go to composite wood manufacturers and, since the subsidy pays more, seen those byproducts go to the production of biofuels. Result? Higher timber prices, an important market segment in trouble and an industry which couldn’t survive in the market without the subsidy continues to function.

In fact, the tail is wagging the dog as the government uses its power and purse to attempt to meet the arbitrary mandates that Congress passed into law:

The federal government is actively working to support the growth of as many of these biomass crops as possible, in part to meet requirements under the 2007 energy bill: The country must produce 5.5 billion gallons of advanced biofuels annually in five years, and 21 billion gallons by 2022. Right now, almost no U.S. land is devoted to raising biomass crops; according to congressional estimates, by 2022 the country will need between 22.2 and 55.5 million acres for this purpose

Did you get that? In 13 years it is estimated that between 22 and 55 million acres will be devoted to growing crap “crops” – like switch grass – instead of food – just to feed this contention that biofuels are better for us than fossil fuels. Those, I suppose, will be “green jobs” as well.

Speaking of green jobs – the government doesn’t even have a definition of what that means:

Even the Bureau of Labor Statistics, which has been cogitating on the problem since last spring, hasn’t made up its mind on how to count green jobs.

“There’s alternative ways for doing that and we haven’t yet finalized our methodology,” says John Galvin, associate commissioner for employment statistics at the BLS.

So you, and they, can call just about whatever you want a “green job” – and I have little doubt that the spinmeisters in government will do exactly that for the foreseeable future (especially when inventing statistics for “created and saved” jobs).

In reality I have no problem with “green jobs” or alternate and renewable fuels. I only have one demand – that they carry their own weight in the marketplace. Subsidizing each doesn’t meet that demand. Instead it unleashes the law of unintended consequences in all its negative fury and distorts exiting markets in ways that cost jobs and productivity that this economy badly needs. As Thomas Pyle points out, we have existing resources and existing technology that could create more available energy while creating thousands of good paying jobs not requiring a single dollar in subsidies that we’re ignoring to push an industry (or industries) which aren’t economically viable and, with existing technology, won’t be for years if not decades.

It is a short-sighted, politically driven policy which will hurt us in the long run. While this administration talks about a “comprehensive” energy policy, it is clear it has settled on one which is focused on an nonviable but politically correct industry to the detriment of the viable but carbon based existing industry. That is not a comprehensive policy regardless of how many times the politicians claim it is or put it in the title of their bills. A comprehensive strategy would recognize the reality with which we’re faced, exploit the traditional carbon based fuels while putting together a rational timetable for switching over to alternative (nuclear) and renewable fuels as the technology proved viable and cost effective.

Instead we get subsidized distortion of the markets, eschewing of readily available carbon based fuels and a push for jobs no one has yet to be able to define.

It’s madness. And, unfortunately, it is a madness which is going to cost us dearly in the not too distant future.