Should the Government Prioritize Income Inequality?

By BRINK LINDSEY

"The America I grew up in was a relatively equal middle-class society. Over the past generation, however, the country has returned to Gilded Age levels of inequality." So sighs Paul Krugman, the Nobel Prize–winning Princeton economist and New York Times columnist, in his recent book The Conscience of a Liberal.

The sentiment is nothing new. Political progressives such as Krugman have been decrying increases in income inequality for many years now. But Krugman has added a novel twist, one that has important implications for public policy and economic discourse in the age of Obama. In seeking explanations for the widening spread of incomes during the last four decades, researchers have focused overwhelmingly on broad structural changes in the economy, such as technological progress and demographic shifts. Krugman argues that these explanations are insufficient. "Since the 1970s," he writes, "norms and institutions in the United States have changed in ways that either encouraged or permitted sharply higher inequality. Where, however, did the change in norms and institutions come from? The answer appears to be politics."

To understand Krugman's argument, we can't start in the 1970s. We have to back up to the 1930s and '40s—when, he contends, the "norms and institutions" that shaped a more egalitarian society were created. "The middle-class America of my youth," Krugman writes, "is best thought of not as the normal state of our society, but as an interregnum between Gilded Ages. America before 1930 was a society in which a small number of very rich people controlled a large share of the nation's wealth." But then came the twin convulsions of the Great Depression and World War II, and the country that arose out of those trials was a very different place. "Middle-class America didn't emerge by accident. It was created by what has been called the Great Compression of incomes that took place during World War II, and sustained for a generation by social norms that favored equality, strong labor unions and progressive taxation."

The Great Compression is a term coined by the economists Claudia Goldin of Harvard and Robert Margo of Boston University to describe the dramatic narrowing of the nation's wage structure during the 1940s. The real wages of manufacturing workers jumped 67 percent between 1929 and 1947, while the top 1 percent of earners saw a 17 percent drop in real income. These egalitarian trends can be attributed to the exceptional circumstances of the period: precipitous declines at the top end of the income spectrum due to economic cataclysm; wartime wage controls that tended to compress wage rates; rapid growth in the demand for low-skilled labor, combined with the labor shortages of the war years; and rapid growth in the relative supply of skilled workers due to a near doubling of high school graduation rates.

Yet the return to peacetime and prosperity did not result in a shift back toward the status quo ante. The more egalitarian income structure persisted for decades. For an explanation, Krugman leans heavily on a 2007 paper by the Massachusetts Institute of Technology economists Frank Levy and Peter Temin, who argue that postwar American history has been a tale of two widely divergent systems of political economy. First came the "Treaty of Detroit," characterized by heavy unionization of industry, steeply progressive taxation, and a high minimum wage. Under that system, median wages kept pace with the economy's overall productivity growth, and incomes at the lower end of the scale grew faster than those at the top. Beginning around 1980, though, the Treaty of Detroit gave way to the free market "Washington Consensus." Tax rates on high earners fell sharply, the real value of the minimum wage declined, and private-sector unionism collapsed. As a result, most workers' incomes failed to share in overall productivity gains while the highest earners had a field day.

This revisionist account of the fall and rise of income inequality is being echoed daily in today's public policy debates. Under the conventional view, rising inequality is a side effect of economic progress—namely, continuing technological breakthroughs, especially in communications and information technology. Consequently, when economists have supported measures to remedy inequality, they have typically shied away from structural changes in market institutions. Rather, they have endorsed more income redistribution to reduce post-tax income differences, along with remedial education, job retraining, and other programs designed to raise the skill levels of lower-paid workers.

By contrast, Krugman sees the rise of inequality as a consequence of economic regress—in particular, the abandonment of well-designed economic institutions and healthy social norms that promoted widely shared prosperity. Such an assessment leads to the conclusion that we ought to revive the institutions and norms of Paul Krugman's boyhood, in broad spirit if not in every detail.

There is good evidence that changes in economic policies and social norms have indeed contributed to a widening of the income distribution since the 1970s. But Krugman and other practitioners of nostalgianomics are presenting a highly selective account of what the relevant policies and norms were and how they changed.

The Treaty of Detroit was built on extensive cartelization of markets, limiting competition to favor producers over consumers. The restrictions on competition were buttressed by racial prejudice, sexual discrimination, and postwar conformism, which combined to limit the choices available to workers and potential workers alike. Those illiberal social norms were finally swept aside in the cultural tumults of the 1960s and '70s. And then, in the 1970s and '80s, restraints on competition were substantially reduced as well, to the applause of economists across the ideological spectrum. At least until now.

Stifled Competition

The economic system that emerged from the New Deal and World War II was markedly different from the one that exists today. The contrast between past and present is sharpest when we focus on one critical dimension: the degree to which public policy either encourages or thwarts competition.

The transportation, energy, and communications sectors were subject to pervasive price and entry regulation in the postwar era. Railroad rates and service had been under federal control since the Interstate Commerce Act of 1887, but the Motor Carrier Act of 1935 extended the Interstate Commerce Commission's regulatory authority to cover trucking and bus lines as well. In 1938 airline routes and fares fell under the control of the Civil Aeronautics Authority, later known as the Civil Aeronautics Board. After the discovery of the East Texas oil field in 1930, the Texas Railroad Commission acquired the effective authority to regulate the nation's oil production. Starting in 1938, the Federal Power Commission regulated rates for the interstate transmission of natural gas. The Federal Communications Commission, created in 1934, allocated licenses to broadcasters and regulated phone rates.

Beginning with the Agricultural Adjustment Act of 1933, prices and production levels on a wide variety of farm products were regulated by a byzantine complex of controls and subsidies. High import tariffs shielded manufacturers from international competition. And in the retail sector, aggressive discounting was countered by state-level "fair trade laws," which allowed manufacturers to impose minimum resale prices on nonconsenting distributors.

Comprehensive regulation of the financial sector restricted competition in capital markets too. The McFadden Act of 1927 added a federal ban on interstate branch banking to widespread state-level restrictions on intrastate branching. The Glass-Steagall Act of 1933 erected a wall between commercial and investment banking, effectively brokering a market-sharing agreement protecting commercial and investment banks from each other. Regulation Q, instituted in 1933, prohibited interest payments on demand deposits and set interest rate ceilings for time deposits. Provisions of the Securities Act of 1933 limited competition in underwriting by outlawing pre-offering solicitations and undisclosed discounts. These and other restrictions artificially stunted the depth and development of capital markets, muting the intensity of competition throughout the larger "real" economy. New entrants are much more dependent on a well-developed financial system than are established firms, since incumbents can self-finance through retained earnings or use existing assets as collateral. A hobbled financial sector acts as a barrier to entry and thereby reduces established firms' vulnerability to competition from entrepreneurial upstarts.

The highly progressive tax structure of the early postwar decades further dampened competition. The top marginal income tax rate shot up from 25 percent to 63 percent under Herbert Hoover in 1932, climbed as high as 94 percent during World War II, and stayed at 91 percent during most of the 1950s and early '60s. Research by the economists William Gentry of Williams College and Glenn Hubbard of Columbia University has found that such rates act as a "success tax," discouraging employees from striking out as entrepreneurs.

Finally, competition in labor markets was subject to important restraints during the early postwar decades. The triumph of collective bargaining meant the active suppression of wage competition in a variety of industries. In the interest of boosting wages, unions sometimes worked to restrict competition in their industries' product markets as well. Garment unions connived with trade associations to set prices and allocate production among clothing makers. Coal miner unions attempted to regulate production by dictating how many days a week mines could be open.

MIT economists Levy and Temin don't mention it, but highly restrictive immigration policies were another significant brake on labor market competition. With the establishment of countryspecific immigration quotas under the Immigration Act of 1924, foreign-born residents of the United States plummeted from 13 percent of the total population in 1920 to 5 percent by 1970. As a result, competition at the less-skilled end of the U.S. labor market was substantially reduced.

Solidarity and Chauvinism

The anti-competitive effects of the Treaty of Detroit were reinforced by the prevailing social norms of the early postwar decades. Here Krugman and company focus on executive pay. Krugman quotes wistfully from John Kenneth Galbraith's characterization of the corporate elite in his 1967 book The New Industrial State: "Management does not go out ruthlessly to reward itself—a sound management is expected to exercise restraint." According to Krugman, "For a generation after World War II, fear of outrage kept executive salaries in check. Now the outrage is gone. That is, the explosion in executive pay represents a social change…like the sexual revolution of the 1960's—a relaxation of old strictures, a new permissiveness, but in this case the permissiveness is financial rather than sexual."

Krugman is on to something. But changing attitudes about lavish compensation packages are just one small part of a much bigger cultural transformation. During the early postwar decades, the combination of in-group solidarity and out-group hostility was much more pronounced than what we're comfortable with today.

Consider, first of all, the dramatic shift in attitudes about race. Open and unapologetic discrimination by white Anglo-Saxon Protestants against other ethnic groups was widespread and socially acceptable in the America of Paul Krugman's boyhood. How does racial progress affect income inequality? Not the way we might expect. The most relevant impact might have been that more enlightened attitudes about race encouraged a reversal in the nation's restrictive immigration policies. The effect was to increase the number of less-skilled workers and thereby intensify competition among them for employment.

Under the system that existed between 1924 and 1965, immigration quotas were set for each country based on the percentage of people with that national origin already living in the U.S. (with immigration from East and South Asia banned outright until 1952). The explicit purpose of the national-origin quotas was to freeze the ethnic composition of the United States—that is, to preserve white Protestant supremacy and protect the country from "undesirable" races. "Unquestionably, there are fine human beings in all parts of the world," Sen. Robert Byrd (D-W.V.) said in defense of the quota system in 1965, "but people do differ widely in their social habits, their levels of ambition, their mechanical aptitudes, their inherited ability and intelligence, their moral traditions, and their capacity for maintaining stable governments."

But the times had passed the former Klansman by. With the triumph of the civil rights movement, official discrimination based on national origin was no longer sustainable. Just two months after signing the Voting Rights Act, President Lyndon Johnson signed the Immigration and Nationality Act of 1965, ending the "un-American" system of national-origin quotas and its "twin barriers of prejudice and privilege." The act inaugurated a new era of mass immigration: Foreign-born residents of the United States have surged from 5 percent of the population in 1970 to 12.5 percent as of 2006.

This wave of immigration exerted a mild downward pressure on the wages of native-born low-skilled workers, with most estimates showing a small effect. Immigration's more dramatic impact on measurements of inequality has come by increasing the number of less-skilled workers, thereby increasing apparent inequality by depressing average wages at the low end of the income distribution. According to the American University economist Robert Lerman, excluding recent immigrants from the analysis would eliminate roughly 30 percent of the increase in adult male annual earnings inequality between 1979 and 1996.

Although the large influx of unskilled immigrants has made American inequality statistics look worse, it has actually reduced inequality for the people involved. After all, immigrants experience large wage gains as a result of relocating to the United States, thereby reducing the cumulative wage gap between them and top earners in this country. When Lerman recalculated trends in inequality to include, at the beginning of the period, recent immigrants and their native-country wages, he found equality had increased rather than decreased. Immigration has increased inequality at home but decreased it on a global scale.

Just as racism helped to keep foreign-born workers out of the U.S. labor market, another form of in-group solidarity, sexism, kept women out of the paid work force. As of 1950, the labor force participation rate for women 16 and older stood at only 34 percent. By 1970 it had climbed to 43 percent, and as of 2005 it had jumped to 59 percent. Meanwhile, the range of jobs open to women expanded enormously.

Paradoxically, these gains for gender equality widened rather than narrowed income inequality overall. Because of the prevalence of "assortative mating"—the tendency of people to choose spouses with similar educational and socioeconomic backgrounds—the rise in dual-income couples has exacerbated household income inequality: Now richer men are married to richer wives. Between 1979 and 1996, the proportion of working-age men with working wives rose by approximately 25 percent among those in the top fifth of the male earnings distribution, and their wives' total earnings rose by over 100 percent. According to a 1999 estimate by Gary Burtless of the Brookings Institution, this unanticipated consequence of feminism explains about 13 percent of the total rise in income inequality since 1979.

Racism and sexism are ancient forms of group identity. Another form, more in line with what Krugman has in mind, was a distinctive expression of U.S. economic and social development in the middle decades of the 20th century. The journalist William Whyte described this "social ethic" in his 1956 book The Organization Man, outlining a sensibility that defined itself in studied contrast to old-style "rugged individualism." When contemporary critics scorned the era for its conformism, they weren't just talking about the ranch houses and gray flannel suits. The era's mores placed an extraordinary emphasis on fitting into the group.

"In the Social Ethic I am describing," wrote Whyte, "man's obligation is…not so much to the community in a broad sense but to the actual, physical one about him, and the idea that in isolation from it—or active rebellion against it—he might eventually discharge the greater service is little considered." One corporate trainee told Whyte that he "would sacrifice brilliance for human understanding every time." A personnel director declared that "any progressive employer would look askance at the individualist and would be reluctant to instill such thinking in the minds of trainees." Whyte summed up the prevailing attitude: "All the great ideas, [trainees] explain, have already been discovered and not only in physics and chemistry but in practical fields like engineering. The basic creative work is done, so the man you need—for every kind of job—is a practical, team-player fellow who will do a good shirt-sleeves job."

It seems entirely reasonable to conclude that this social ethic helped to limit competition among business enterprises for top talent. When secure membership in a stable organization is more important than maximizing your individual potential, the most talented employees are less vulnerable to the temptation of a better offer elsewhere. Even if they are tempted, a strong sense of organizational loyalty makes them more likely to resist and stay put.

Increased Competition, Increased Inequality Krugman blames the conservative movement for income inequality, arguing that right-wingers exploited white backlash in the wake of the civil rights movement to hijack first the Republican Party and then the country as a whole. Once in power, they duped the public with "weapons of mass distraction" (i.e., social issues and foreign policy) while "cut[ting] taxes on the rich," "try[ing] to shrink government benefits and undermine the welfare state," and "empower[ing] businesses to confront and, to a large extent,crush the union movement."

Obviously, conservatism has contributed in important ways to the political shifts of recent decades. But the real story of those changes is more complicated, and more interesting, than Krugman lets on. Influences across the political spectrum have helped shape the more competitive more individualistic, and less equal society we now live in.

Indeed, the relevant changes in social norms were led by movements associated with the left. The women's movement led the assault on sex discrimination. The civil rights campaigns of the 1950s and '60s inspired more enlightened attitudes about race and ethnicity, with results such as the Immigration and Nationality Act of 1965, a law spearheaded by a young Sen. Edward Kennedy (D-Mass.). And then there was the counterculture of the 1960s, whose influence spread throughout American society in the Me Decade that followed. It upended the social ethic of group-minded solidarity and conformity with a stampede of unbridled individualism and self-assertion. With the general relaxation of inhibitions, talented and ambitious people felt less restrained from seeking top dollar in the marketplace. Yippies and yuppies were two sides of the same coin.

Contrary to Krugman's narrative, liberals joined conservatives in pushing for dramatic changes in economic policy. In addition to his role in liberalizing immigration, Kennedy was a leader in pushing through both the Airline Deregulation Act of 1978 and the Motor Carrier Act of 1980, which deregulated the trucking industry—and he was warmly supported in both efforts by the left-wing activist Ralph Nader. President Jimmy Carter signed these two pieces of legislation, as well as the Natural Gas Policy Act of 1978, which began the elimination of price controls on natural gas, and the Staggers Rail Act of 1980, which deregulated the railroad industry.

The three most recent rounds of multilateral trade talks were all concluded by Democratic presidents: the Kennedy Round in 1967 by Lyndon Johnson, the Tokyo Round in 1979 by Jimmy Carter, and the Uruguay Round in 1994 by Bill Clinton. And though it was Ronald Reagan who slashed the top income tax rate from 70 percent to 50 percent in 1981, it was two Democrats, Sen. Bill Bradley of New Jersey and Rep. Richard Gephardt of Missouri, who sponsored the Tax Reform Act of 1986, which pushed the top rate all the way down to 28 percent.

What about the unions? According to the Berkeley economist David Card, the shrinking of the unionized labor force accounted for 15 percent to 20 percent of the rise in overall male wage inequality between the early 1970s and the early 1990s. Krugman is right that labor's decline stems in part from policy changes, but his ideological blinkers lead him to identify the wrong ones.

The only significant change to the pro-union Wagner Act of 1935 came through the Taft-Hartley Act, which outlawed closed shops (contracts requiring employers to hire only union members) and authorized state right-to-work laws (which ban contracts requiring employees to join unions). But that piece of legislation was enacted in 1947—three years before the original Treaty of Detroit between General Motors and the United Auto Workers. It would be a stretch to argue that the Golden Age ended before it even began.

Scrounging for a policy explanation, economists Levy and Temin point to the failure of a 1978 labor law reform bill to survive a Senate filibuster. But maintaining the status quo is not a policy change. They also describe President Reagan's 1981 decision to fire striking air traffic controllers as a signal to employers that the government no longer supported labor unions.

While it is true that Reagan's handling of that strike, along with his appointments to the National Labor Relations Board, made the policy environment for unions less favorable, the effect of those moves on unionization was marginal.

The major reason for the fall in unionized employment, according to a 2007 paper by Georgia State University economist Barry Hirsch, "is that union strength developed through the 1950s was gradually eroded by increasingly competitive and dynamic markets." He elaborates: "When much of an industry is unionized, firms may prosper with higher union costs as long as their competitors face similar costs. When union companies face low-cost competitors, labor cost increases cannot be passed through to consumers. Factors that increase the competitiveness of product markets increased international trade, product market deregulation, and the entry of low-cost competitors—make it more difficult for union companies to prosper."

So the decline of private-sector unionism was abetted by policy changes, but the changes were not in labor policy specifically. They were the general, bipartisan reduction of trade barriers and price and entry controls. Unionized firms found themselves at a critical disadvantage. They shrank accordingly, and union rolls shrank with them.

Postmodern Progress

The move toward a more individualistic culture is not unique to the United States. As the political scientist Ronald Inglehart has documented in dozens of countries around the world, the shift toward what he calls "postmodern" attitudes and values is a predictable cultural response to rising affluence and expanding choices. "In a major part of the world," he writes in his 1997 book Modernization and Postmodernization, "the disciplined, self-denying, and achievement-oriented norms of industrial society are giving way to an increasingly broad latitude for individual choice of lifestyles and individual self-expression."

The increasing focus on individual fulfillment means, inevitably, less deference to tradition and organizations. "A major component of the Postmodern shift," Inglehart argues, "is a shift away from both religious and bureaucratic authority, bringing declining emphasis on all kinds of authority. For deference to authority has high costs: the individual's personal goals must be subordinated to those of a broader entity."

Paul Krugman may long for the return of selfdenying corporate workers who declined to seek better opportunities out of organizational loyalty, and thus kept wages artificially suppressed, but these are creatures of a bygone ethos—an ethos that also included uncritical acceptance of racist and sexist traditions and often brutish intolerance of deviations from mainstream lifestyles and sensibilities.

The rise in income inequality does raise issues of legitimate public concern. And reasonable people disagree hotly about what ought to be done to ensure that our prosperity is widely shared. But the caricature of postwar history put forward by Krugman and other purveyors of nostalgianomics won't lead us anywhere. Reactionary fantasies never do.

Scalia vs. Federalism

Spitzerism Revisited

Scalia invites assaults on national banks.

Eliot Spitzer has departed the national stage in ignominy, but the damage he did as an unrestrained state Attorney General lives on, notably in a dubious 5-4 victory yesterday before the Supreme Court.

The case is Cuomo v. Clearing House Association, but it was Mr. Spitzer, New York AG Andrew Cuomo's promiscuous predecessor, who brought the suit in 2005. At issue was whether New York's AG could demand mortgage data from federally chartered banks to fish for evidence of discrimination under the state's fair lending laws. Mr. Spitzer was running for Governor, and he wanted to play the racial lending card even as he now denounces the same banks for lending too much to the same people.

We'll defend federalism as staunchly as anyone, but the National Bank Act dates all the way back to the Lincoln Administration, and over the years the courts, including the High Court, have been clear about its intent: A national bank should be regulated by federal overseers and not subject to harassment by states for the way it conducts banking. As recently as two years ago, in Watters v. Wachovia, the Supreme Court upheld precisely this principle. But now a five-Justice majority, improbably led by Antonin Scalia, who was joined by the Court's entire liberal wing, has opened the gates of state regulation against national banks.

Justice Scalia's opinion distinguishes between "visitorial" and "prosecutorial" power over national banks. By visitorial he means the power to demand whatever information may be necessary to regulate an institution. Mr. Scalia argues that while the federal Office of the Comptroller of the Currency (OCC) has sole visitorial power over federal banks, state AGs may nonetheless "prosecute" those banks for violations of state law.

There's nothing wrong with this argument as it pertains to, say, state employment law, fraud or other laws of general applicability. No one argues that a national bank should be immune from a state sexual harassment investigation simply because its banking activities are regulated by the OCC.

But as Justice Clarence Thomas points out in his dissent, lending, including mortgage lending, is a core banking activity authorized by the 1864 National Bank Act and already regulated by the OCC. It is exactly the kind of banking that national banks are supposed to have the freedom to do under a law designed to create a uniform regulatory environment across the entire country.

Justice Scalia argues that prosecutorial pursuit of a national bank is fundamentally different from a bank regulator's visitorial powers because prosecutors are subject to judicial checks and balances. The Justice must not have been paying attention to Mr. Spitzer, whose career is a living testament to the ways that an unscrupulous AG can twist the power to prosecute into the power to "visit" and regulate and legislate. Justice Scalia's opinion may well expose national banks to the depredations of 50 state AGs, making a mockery of "national" bank regulation.

When the political progeny of Mr. Spitzer crank up their fishing expeditions against national banks, we doubt those banks will take much comfort because they are being "prosecuted," rather than "visited."

Coup in Honduras

Is the foreign policy of President Obama inching ever closer to the morally confused foreign policy of ex-president Jimmy Carter? It may be too early to tell, but Obama's attitude towards Latin America looks increasingly feckless. A few points:

• As a senator and presidential candidate, Obama trumpeted the virtues of "soft economic" power over military strength. Then, before the Ohio and Michigan primaries, he pranced around vowing to renegotiate N.A.F.T.A. unilaterally, trying to compete with Hillary Clinton to see who knows the LEAST about economics. Then, in an act extreme perfidy, he sent Austin Goolsbee, University of Chicago economics professor and Obama advisor, to the Canadian Foreign Ministry to say "hey, Mr. Obama is only kidding." Left-wingers hailed this as "leadership" and "hope."
• As a senator and presidential candidate, Mr. Obama refused to show solidarity with the only center-right government and American ally in the region, Alvaro Uribe's government in Columbia. Congressional Democrats have repeatedly trotted out the canard that Mr. Uribe hasn't done enough to stem the violence against labor leaders and union workers in the country despite, on Uribe's watch, massive drop-off on such killings. More than likely, Mr. Obama was caving to political pressure from John Sweeney at the AFL-CIO and other union thugs to favor domestic industries over foreign markets.
• At the Summit of America's, much was reported on his chummy encounter and book exchange with Venezuelan caudillo Hugo Chavez, as well his fraternizing with Nicaraguan pest Daniel Ortega and Ecuador mini-Chavez Rafael Correa. Civil liberties in these countries have been evaporating faster than you can say "Castro," yet Mr. Obama cannot bring himself to say anything negative about these leaders.

Over the weekend, the military deposed the president of Honduras, Mel Zelaya. Mel Zelaya is being described in the Western media as the "duly-elected" president of Honduras, although to be fair, many are describing him as an ally of Hugo Chavez. Curiously, the Obama administration is condemning the move as a fascist putsch despite the fact that the Honduran military is keeping the constitutional flame alit...and it is Mel Zelaya who is committing the power grab.
An editorial in today's Investor's Business Daily skewers this adminitration:

During his campaign, President Obama made a big deal of criticizing leaders who are elected democratically but don't govern democratically. He's had a chance to show that it mattered in Honduras. He didn't.

That's the sorry story as Honduras' now ex-president, Mel Zelaya, last Thursday defied a Supreme Court ruling and tried to hold a "survey" to rewrite the constitution for his permanent re-election. It's the same blueprint for a rigged political system that's made former democracies like Venezuela, Bolivia, Nicaragua and Ecuador into shells of free countries.

Zelaya's operatives did their dirt all the way through. First they got signatures to launch the "citizen's power" survey through threats — warning those who didn't sign that they'd be denied medical care and worse. Zelaya then had the ballots flown to Tegucigalpa on Venezuelan planes. After his move was declared illegal by the Supreme Court, he tried to do it anyway.

As a result of his brazen disregard for the law, Zelaya found himself escorted from office by the military Sunday morning, and into exile. Venezuela's Hugo Chavez and Cuba's Fidel Castro rushed to blame the U.S., calling it a "yanqui coup."

President Obama on Monday called the action "not legal," and claimed that Zelaya is still the legitimate president.

There was a coup all right, but it wasn't committed by the U.S. or the Honduran court. It was committed by Zelaya himself. He brazenly defied the law, and Hondurans overwhelmingly supported his removal (a pro-Zelaya rally Monday drew a mere 200 acolytes).

Mary Anistasia O'Grady has more here:

It seems that President Mel Zelaya miscalculated when he tried to emulate the success of his good friend Hugo in reshaping the Honduran Constitution to his liking.

But Honduras is not out of the Venezuelan woods yet. Yesterday the Central American country was being pressured to restore the authoritarian Mr. Zelaya by the likes of Fidel Castro, Daniel Ortega, Hillary Clinton and, of course, Hugo himself. The Organization of American States, having ignored Mr. Zelaya's abuses, also wants him back in power. It will be a miracle if Honduran patriots can hold their ground.

That Mr. Zelaya acted as if he were above the law, there is no doubt. While Honduran law allows for a constitutional rewrite, the power to open that door does not lie with the president. A constituent assembly can only be called through a national referendum approved by its Congress.

But Mr. Zelaya declared the vote on his own and had Mr. Chávez ship him the necessary ballots from Venezuela. The Supreme Court ruled his referendum unconstitutional, and it instructed the military not to carry out the logistics of the vote as it normally would do.

The top military commander, Gen. Romeo Vásquez Velásquez, told the president that he would have to comply. Mr. Zelaya promptly fired him. The Supreme Court ordered him reinstated. Mr. Zelaya refused.

Thoughts please!

Harvard Economist Greg Mankiw on ObamaCare

GREGORY MANKIW

Published: June 27, 2009

IN the debate over health care reform, one issue looms large: whether to have a public option. Should all Americans have the opportunity to sign up for government-run health insurance?

President Obama has made his own preferences clear. In a letter to Senators Edward M. Kennedy of Massachusetts and Max Baucus of Montana, the chairmen of two key Senate committees, he wrote: “I strongly believe that Americans should have the choice of a public health insurance option operating alongside private plans. This will give them a better range of choices, make the health care market more competitive, and keep insurance companies honest.”

Even if one accepts the president’s broader goals of wider access to health care and cost containment, his economic logic regarding the public option is hard to follow. Consumer choice and honest competition are indeed the foundation of a successful market system, but they are usually achieved without a public provider. We don’t need government-run grocery stores or government-run gas stations to ensure that Americans can buy food and fuel at reasonable prices.

An important question about any public provider of health insurance is whether it would have access to taxpayer funds. If not, the public plan would have to stand on its own financially, as private plans do, covering all expenses with premiums from those who signed up for it.

But if such a plan were desirable and feasible, nothing would stop someone from setting it up right now. In essence, a public plan without taxpayer support would be yet another nonprofit company offering health insurance. The fundamental viability of the enterprise does not depend on whether the employees are called “nonprofit administrators” or “civil servants.”

In practice, however, if a public option is available, it will probably enjoy taxpayer subsidies. Indeed, even if the initial legislation rejected them, such subsidies would be hard to avoid in the long run. Fannie Mae and Freddie Mac, the mortgage giants created by federal law, were once private companies. Yet many investors believed — correctly, as it turned out — that the federal government would stand behind Fannie’s and Freddie’s debts, and this perception gave these companies access to cheap credit. Similarly, a public health insurance plan would enjoy the presumption of a government backstop.

Such explicit or implicit subsidies would prevent a public plan from providing honest competition for private suppliers of health insurance. Instead, the public plan would likely undercut private firms and get an undue share of the market.

President Obama might not be disappointed if that turned out to be the case. During the presidential campaign, he said, “If I were designing a system from scratch, I would probably go ahead with a single-payer system.”

Of course, we are not starting from scratch. Because many Americans are happy with their current health care, moving immediately to a single-payer system is too radical a change to be politically tenable. But for those who see single-payer as the ideal, a public option that uses taxpayer funds to tilt the playing field may be an attractive second best. If the subsidies are big enough, over time more and more consumers will be induced to switch.

Which raises the question: Would the existence of a dominant government provider of health insurance be good or bad?

It is natural to be skeptical. The largest existing public health programs — Medicare and Medicaid — are the main reason that the government’s long-term finances are in shambles. True, Medicare’s administrative costs are low, but it is easy to keep those costs contained when a system merely writes checks without expending the resources to control wasteful medical spending.

A dominant government insurer, however, could potentially keep costs down by squeezing the suppliers of health care. This cost control works not by fostering honest competition but by thwarting it.

Recall a basic lesson of economics: A market participant with a dominant position can influence prices in a way that a small, competitive player cannot. A monopoly — a seller without competitors — can profitably raise the price of its product above the competitive level by reducing the quantity it supplies to the market. Similarly, a monopsony — a buyer without competitors — can reduce the price it pays below the competitive level by reducing the quantity it demands.

This lesson applies directly to the market for health care. If the government has a dominant role in buying the services of doctors and other health care providers, it can force prices down. Once the government is virtually the only game in town, health care providers will have little choice but to take whatever they can get. It is no wonder that the American Medical Association opposes the public option.

To be sure, squeezing suppliers would have unpleasant side effects. Over time, society would end up with fewer doctors and other health care workers. The reduced quantity of services would somehow need to be rationed among competing demands. Such rationing is unlikely to work well.

FAIRNESS is in the eye of the beholder, but nothing about a government-run health care system strikes me as fair. Squeezing providers would save the rest of us money, but so would a special tax levied only on health care workers, and that is manifestly inequitable.

In the end, it would be a mistake to expect too much from health insurance reform. A competitive system of private insurers, lightly regulated to ensure that the market works well, would offer Americans the best health care at the best prices.

The health care of the future won’t come cheap, but a public option won’t make it better.

N. Gregory Mankiw is a professor of economics at Harvard. He was an adviser to President George W. Bush.

Global Warming...I Mean "Climate Change"

Kim Strassel in today's Wall Street Journal

The Climate Change Climate Change

The number of skeptics is swelling everywhere.

Steve Fielding recently asked the Obama administration to reassure him on the science of man-made global warming. When the administration proved unhelpful, Mr. Fielding decided to vote against climate-change legislation.

If you haven't heard of this politician, it's because he's a member of the Australian Senate. As the U.S. House of Representatives prepares to pass a climate-change bill, the Australian Parliament is preparing to kill its own country's carbon-emissions scheme. Why? A growing number of Australian politicians, scientists and citizens once again doubt the science of human-caused global warming.

Associated Press

Steve Fielding

Among the many reasons President Barack Obama and the Democratic majority are so intent on quickly jamming a cap-and-trade system through Congress is because the global warming tide is again shifting. It turns out Al Gore and the United Nations (with an assist from the media), did a little too vociferous a job smearing anyone who disagreed with them as "deniers." The backlash has brought the scientific debate roaring back to life in Australia, Europe, Japan and even, if less reported, the U.S.

In April, the Polish Academy of Sciences published a document challenging man-made global warming. In the Czech Republic, where President Vaclav Klaus remains a leading skeptic, today only 11% of the population believes humans play a role. In France, President Nicolas Sarkozy wants to tap Claude Allegre to lead the country's new ministry of industry and innovation. Twenty years ago Mr. Allegre was among the first to trill about man-made global warming, but the geochemist has since recanted. New Zealand last year elected a new government, which immediately suspended the country's weeks-old cap-and-trade program.

The number of skeptics, far from shrinking, is swelling. Oklahoma Sen. Jim Inhofe now counts more than 700 scientists who disagree with the U.N. -- 13 times the number who authored the U.N.'s 2007 climate summary for policymakers. Joanne Simpson, the world's first woman to receive a Ph.D. in meteorology, expressed relief upon her retirement last year that she was finally free to speak "frankly" of her nonbelief. Dr. Kiminori Itoh, a Japanese environmental physical chemist who contributed to a U.N. climate report, dubs man-made warming "the worst scientific scandal in history." Norway's Ivar Giaever, Nobel Prize winner for physics, decries it as the "new religion." A group of 54 noted physicists, led by Princeton's Will Happer, is demanding the American Physical Society revise its position that the science is settled. (Both Nature and Science magazines have refused to run the physicists' open letter.)

The collapse of the "consensus" has been driven by reality. The inconvenient truth is that the earth's temperatures have flat-lined since 2001, despite growing concentrations of C02. Peer-reviewed research has debunked doomsday scenarios about the polar ice caps, hurricanes, malaria, extinctions, rising oceans. A global financial crisis has politicians taking a harder look at the science that would require them to hamstring their economies to rein in carbon.

Credit for Australia's own era of renewed enlightenment goes to Dr. Ian Plimer, a well-known Australian geologist. Earlier this year he published "Heaven and Earth," a damning critique of the "evidence" underpinning man-made global warming. The book is already in its fifth printing. So compelling is it that Paul Sheehan, a noted Australian columnist -- and ardent global warming believer -- in April humbly pronounced it "an evidence-based attack on conformity and orthodoxy, including my own, and a reminder to respect informed dissent and beware of ideology subverting evidence." Australian polls have shown a sharp uptick in public skepticism; the press is back to questioning scientific dogma; blogs are having a field day.

The rise in skepticism also came as Prime Minister Kevin Rudd, elected like Mr. Obama on promises to combat global warming, was attempting his own emissions-reduction scheme. His administration was forced to delay the implementation of the program until at least 2011, just to get the legislation through Australia's House. The Senate was not so easily swayed.

Mr. Fielding, a crucial vote on the bill, was so alarmed by the renewed science debate that he made a fact-finding trip to the U.S., attending the Heartland Institute's annual conference for climate skeptics. He also visited with Joseph Aldy, Mr. Obama's special assistant on energy and the environment, where he challenged the Obama team to address his doubts. They apparently didn't.

This week Mr. Fielding issued a statement: He would not be voting for the bill. He would not risk job losses on "unconvincing green science." The bill is set to founder as the Australian parliament breaks for the winter.

Republicans in the U.S. have, in recent years, turned ever more to the cost arguments against climate legislation. That's made sense in light of the economic crisis. If Speaker Nancy Pelosi fails to push through her bill, it will be because rural and Blue Dog Democrats fret about the economic ramifications. Yet if the rest of the world is any indication, now might be the time for U.S. politicians to re-engage on the science. One thing for sure: They won't be alone.

Not a Good Day for Political Heroes

South Carolina Governor, Marshall "Marc" Sanford, explained his mysterious absence last week by admitting he had been having an affair with an 8 year friend in Argentina. Marc Sanford had been my pick in the Republican field in 2012. He had endeared himself to fiscal conservatives by refusing federal stimulus money in the name of responsible economic stewardship. Other governors, such as the colossally incompetent Jennifer Granholm (D-MI) and the action movie star-turned-human toothbrush Arnold Schwarzenegger (R-CA), were too busy making a racket by rattling their tin cups in front of the Treasury so that they could paper-over their fiscal malfeasance---kind of like applying a band-aid to a gunshot wound.

Brendan Miniter of the Wall Street Journal briefly describes some highlights of his tenure:

Until yesterday, Mr. Sanford was head of the Republican Governor's Association -- a spot usually given to top GOP prospects to help build a national network of allies. Grassroots Republicans across the country were quietly forming ranks into a Sanford volunteer army. Conservatives were attracted by his unflinching fight against wasteful government spending. As governor, he once hauled two squealing piglets into the state house to protest a pork-barrel culture. His recent campaign to reject Obama stimulus dollars irritated every elected official in South Carolina. In Congress, he voted against creating a breast cancer awareness stamp because there was no money to fund it. He was warned at the time he was destroying his political future.

Mr. Sanford nursed his growing reputation by opening his doors to any conservative journalist passing through Columbia, S.C. The first time I spoke with him on the phone, he invited me for lunch. He never hesitated to criticize the excesses of his own party, saying Republicans had lost self-control as well as their principles in free-spending Washington. Republicans have to "walk the walk, and not just talk the talk," he said.

Obviously the "sex scandal" is the portion of the story that editors are going to splash across the front pages. Sex sells, and will always sell. And I suspect some well-meaning citizens, probably those who are clustered around the middle of political spectrum, wonder why the body politic and commentariat concern themselves with the personal lives of other citizens. Others cannot seem to divorce a politician's personal foibles with his or her political fitness. This fissure widened during the Clinton presidency, where Americans struggled to come to terms with sickeningly flawed man who governed skillfully.

But I believe these scandals are important for other reasons, not simply because of the harm they inflict on spouses and children. A few points:

• In the case of Governor Sanford, there was complete abandonment of his office and his reckless abdication of his duties as chief executive of the South Carolina government. His staff has no idea where he was, nor did state congressional leaders. Evidently the police chief tried to contact him a few times while he was A.W.O.L. Usually if the governor leaves the state for any reason, he or she has to transfer his or her constitutional authority to the second in command (usually a lieutenant governor or congressional leader). Mr. Sanford neglected to do this, as did former New York State Governor Eliot Spitzer. What would have happened if there was an emergency in South Carolina? A hurricane? A landslide? An earthquake or flood? Who will command the National Guard and state police? This shear negligence on Mr. Sanford's part

• Engaging in sordid behavior while serving elected office leaves the elected office subject to blackmail and other forms of manipulation. We learned after the discovery of Senator John Ensign's affair that the woman with whom Senator Ensign was straying had tried to extort him. Politicians are supposed to serve the public at-large, not individual interests. We have a hard enough time persuading the political classes to ignore special interests and campaign contributors.

• Many offenders are using campaign funds or state resources, e.g. planes, security details, taxpayer dollars, etc., to carry out their nefarious behavior. Hopefully, I don't have to go into much detail on why this is wrong.

• It's not so much the affair, but they way they do it and their belief that they will not get caught. Sean Trende of RCP blog weighs in here:

To me that's the most amazing thing about this -- not so much that Eliot Spitzer paid a prostitute, but that he thought that as Governor he had a decent chance of not ever getting caught (because if there's any group of Americans known for their honesty and discretion, its prostitutes). Heck, three of the people on the list above were prospective Presidential candidates -- John Edwards was apparently carrying on during a Presidential campaign. John Ensign was gearing up for one. And again (sorry if I keep repeating this, but it blows my mind) Sanford disappeared for a weekend to Argentina to have an affair, while he was in the semi-Presidential spotlight. And he thought that he might get away with it. And of course there's an actual President who thought that a 21-year-old, star-struck intern would keep her mouth shut.
If one has any faith in the rationality of man, one has to think that the higher degree of scrutiny politicians are subjected to would deter such behavior. I guess there's an offsetting "rock star" quotient that might give more opportunities for affairs than the average person. But again, most of these aren't just average, everyday affairs of the Jim Bunn or Tim Hutchinson variety. They're stunning displays of hubris and stupidity.
So I find it really, really disturbing that so many people who are in charge of so many important things -- potentially even with a finger on a nuclear trigger -- display such amazingly poor judgment so frequently. On the other hand, I guess it also explains a lot.


So Marc Sanford's promising political future is gone. He has himself to blame. He has made a complete mockery of the lives that his wife Jenny and his four boys were living.

Mr. Sanford: I have been touting you for the last four years as presidential timber. You let me down, and Americans really needed you (as a candidate, at least). Please finish out your term and leave us the hell alone.

Platonic Friends of the Opposite Sex

HitchedMag.com weighs in. You be the judge:

Dating 101: Can Romantic Partners Have Friends of the Opposite Sex?

10 tips to having opposite-sex friends without ruining the relationship with your significant other

By dating expert Sharon M. Rivkin, MA, MFT, for Hitched

Opposite-sex friendships are tricky and can be a direct threat to the relationship you have with your mate, but they don't have to be. For most people, fear comes not from the friendship, but in keeping the friendship platonic, which can be difficult given that 90 percent of the time one of the individuals has experienced romantic feelings for his/her friend. Sometimes this is talked about and sometimes it isn't, but the feelings are there.

But limiting our friendships with the opposite sex once you're in a committed relationship doesn't allow us the richness and perspective that we can gain from a member of the opposite sex. With some foresight and consciousness, it's possible to have friends of the opposite sex and keep your love relationship strong and healthy.

To beat the odds, follow these ground rules for opposite-sex friendships:

Don'ts

Tip #1. No secrets! All parties should know each other and know about the friendship. If anything should change in the friendship, your partner needs to know.

Tip #2. Time spent with the friend should never supersede time spent with your partner, unless there is a dire emergency.

Tip #3. Never make an agreement that can't be changed. The agreement should always be negotiable, so that if thefriendship isn't working for your partner, it can always be modified or cancelled.

Tip #4. Never make your partner feel that he/she isn't the most important relationship to you. This is basically uncharted territory, so be aware and sensitive of your partner's feelings.

Tip #5. Never put your friend's needs first. By keeping your partner as your number-one priority, the mystery surrounding the friendship diminishes, and your partner will more likely view the friend as a real person and not just a fantasy.

Do's

Tip #6. To ensure comfort and trust, there needs to be a high level of maturity and self-esteem with all involved. Evaluate this with your partner and really talk about everyone's concerns and fears.

Tip #7. Ground rules need to be established from the beginning, i.e., what's okay and what's not for all the people involved. For instance, is it okay for the friends to get together when the partner is out of town? How much time is spent with the friend on a monthly basis? What do the friends do together? Is dancing okay? Is dinner okay? Each couple will have their own individual concerns and questions to consider.

Tip #8. Everyone needs to be in agreement that it's okay for the friendship to take place. No one should be left out of the process.

Tip #9. The person having the friendship needs to have strong, clear personal boundaries and open communication with their partner and their friend. They need to be up front at all times with their partner, letting him/her know when they're seeing their friend.

Tip #10. If the partner ever feels uncomfortable with the arrangement, he/she can speak up at any time. Their feelings and concerns need to be considered and taken seriously.

In theory, most couples want their partners to be happy and to have friends of the opposite sex. In reality, this can only happen by following ground rules. The main issues surrounding these friendships are usually jealousy and physical intimacy. If you can talk about your friend freely and make him/her a real person to your partner, there is less likelihood of these types of problems occurring.

Keep the lines of communication open at all times with everyone involved. Be honest with yourself about your ability to have good boundaries, and clarity about what is appropriate in a friendship and your relationship. There are differences. As long as everything is out in the open and with appropriate ground rules, friendships with the opposite sex are possible.

Gender Bias in Theater

An article in today's Arts section of the New York Times reads:

Rethinking Gender Bias in Theater

As someone who has been reading the New York Times for the better part of the last two decades and has watched the Sulzberger mafia turn the paper into one of those tawdry tabloids one might find at a supermarket check-out, I am used to reading such provocatively vapid headlines. It reminds me of one of those fantastical headlines one might find in any given issue of the Grey Lady:

World Explodes; Women And Minorities Hit Hardest, Endure Long Suffering


Just a note, that's not a real headline---just making a point.

However, it’s a slow day at work, so I decided to give this article a look. The study was done by a Princeton economics student named Emily Glassberg Sands. While not necessarily peer-reviewed per se, according to the article, "eminent economists vouched for its high quality, including Christina H. Paxson, the chairwoman of Princeton’s economics department and the newly named dean of Princeton’s Woodrow Wilson School of Public and International Affairs; Cecilia Rouse, a member of the White House Council of Economic Advisers; and Steven D. Levitt, the co-author of Freakonomics.”

Okay, now I am getting excited. Will Ms. Sands blow the lid on the theater industry's version of Jim Crow? Let's read.

"To sort out the findings, it helps to look at the research. Ms. Sands conducted three separate studies. The first considered the playwrights themselves. Artistic directors of theater companies have maintained that no discrimination exists, rather that good scripts by women are in short supply. That claim elicited snorts and laughter from the audience when it was repeated Monday night, but Ms. Sands declared, “They’re right.” In reviewing information on 20,000 playwrights in the Dramatists Guild and Doollee.com, an online database of playwrights, she found that there were twice as many male playwrights as female ones, and that the men tended to be more prolific, turning out more plays. What’s more, Ms. Sands found, over all, the work of men and women is produced at the same rate. The artistic directors have a point: they do get many more scripts from men"

So, for the first of three studies, Ms. Sands concludes that there is NO evidence of discrimination in the realm of selecting scripts. The pool of eligibility contains more male-written scripts. An analogous situation would be as follows: If I were drawing blindly from a burlap sack with 900 oranges and 100 apples, the chances are pretty good I will draw more oranges given 30 tries. You can work the probabilities on your own.

Ms. Sands stops well short of alleging gender bias simply because of the varied outcomes of men and women. Good for her...she should have. Let's keep reading.

"For the second study, Ms. Sands sent identical scripts to artistic directors and literary managers around the country. The only difference was that half named a man as the writer (for example, Michael Walker), while half named a woman (i.e., Mary Walker). It turned out that Mary’s scripts received significantly worse ratings in terms of quality, economic prospects and audience response than Michael’s. The biggest surprise? “These results are driven exclusively by the responses of female artistic directors and literary managers,” Ms. Sands said. Amid the gasps from the audience, an incredulous voice called out, “Say that again?” Ms. Sands put it another way: “Men rate men and women playwrights exactly the same.” Ms. Sands was reluctant to explain the responses in terms of discrimination, suggesting instead that artistic directors who are women perhaps possess a greater awareness of the barriers female playwrights face."

This passage begins with so much potential. Let's try sending identical scripts to various directors---half attributed to men and the other half attributed to women---and see if they are treated any differently. And sure enough, they are! We have our 'smoking gun.' But wait! The people responsible for discrimination of women are........female directors and literary managers? Is this possible?

Isn't this akin to claiming that Blacks discriminate against other Blacks in professional sports? Or, the idea that homosexuals discriminating against other homosexuals in the workplace is pandemic?

I'm not being facetious. Do women discriminate against other women on the basis of sex and NOT merit? I have never heard of such a theory, but my guess is that maybe some women "buy into" the idea that the theater industry IS dominated by men, and that they had better play by the rules and actively contribute to the status quo. We know, for instance, that throughout American history Blacks have kowtowed to the "white establishment" and "white powerocracy" simply because not doing so would have caused them anything from needless trouble to physical danger.

I really wish Ms. Sands would have commented on this. It seems the second phase of her study doesn't definitively "prove" gender discrimination, but leaves readers of both the study and article wondering if there are other sociological forces at work.

Moving on….

"For the third piece, Ms. Sands looked specifically at Broadway, where women write fewer than one in eight shows. She modeled her research on work done in the 1960s and ’70s to determine whether discrimination existed in baseball. Those studies concluded that black players had to deliver higher performing statistics — for example, better batting averages — than white players simply to make it to the major leagues. Ms. Sands examined the 329 new plays and musicals produced on Broadway in the past 10 years to determine whether the bar was set higher. Did scripts by women have to be better than those by men? Of course, there are many ways to define “better,” but on Broadway, with the exception of three nonprofit theaters, everyone can agree that one overriding goal is to make a profit. So did shows written by women during that period make more money than shows written by men? The answer is yes. Plays and musicals by women sold 16 percent more tickets a week and were 18 percent more profitable over all. In the end, women had to deliver the equivalent of higher batting averages, Ms. Sands said. Yet even though shows written by women earned more money, producers did not keep them running any longer than less profitable shows that were written by men. To Ms. Sands, the length of the run was clear evidence that producers discriminate against women."

Ahah! Ms. Sands finally found her economic talons. On Broadway, women tend to write plays that sell more tickets and are more profitable, yet recently have been closed or discontinued at the same rate as male-written plays.

Forgive me if I still remain unconvinced. The entire linchpin of her gender discrimination conclusion rests on identical "run lengths" of 368 Broadway shows in the last 10 years. Ms. Sands doesn't define Broadway, but my understanding is that Broadway includes only major productions and only in the city of New York. Is this an appropriate sample in both size and scope? What about off-Broadway and "off-off" Broadway? Given the current economic downturn---not to mention the fact that all but a slight few Broadway shows are being discontinued faster than you can say "BRAVO!!!"--- is it appropriate to use production "run-length" as bedrock for your argument? Producers and managers need to be mindful of not only historical ticket sales but also projected future sales and costs. Most businesses make economic decisions based not on past performance but the economic viability of those decisions in the future.

I would love to see Ms. Sands examine several 100 Broadway and non-Broadway shows and perhaps compare critical acclaim to run-length. For instance, during a period of economic vibrancy, are male-written and female-written plays of similar artistic acclaim and quality treated differently? Is this trend repeated, or is it a statistical outlier?

Before I get savaged by hyperventilating uber-feminists, like the ones who targeted their thuggery at former Harvard President and current chairman of Obama’s Council of Economic Advisers Lawrence Summers, please note: I am not asking these questions as "denier" of gender discrimination in various aspects of our society. I am demand both high evidentiary standards burdens of proof when accusations of discrimination and/or racism are thrown about. The New York Times has been very eager to publish any study that has been confluent with its worldview that society is sodden with racism and discrimination in all forms.

Ms. Sands is going to continue her economic studies at Harvard and I sincerely hope that she studies this issue further.

Thoughts please. Except from Professor Nancy Hopkins of M.I.T.

Update: Here is Ms. Sands paper

Obama's Health Care Plan, Part II

I wrote first about the Obama health care plan here.

Obama "took on" the insurance lobby yesterday, and revealed one of the shallowest understandings of economics, in particular the phenomenon of "crowding out," that I have ever seen out of an American president

Hat tip to Big Lizards.

Obama Confuses Corruption with Competition. So What Else Is New?

Democratic Culture of Corruption , Health Insurance Insurrections

Hatched by Dafydd

Another question that answers itself:

President Barack Obama on Tuesday squared off with the insurance lobby over industry charges that a government health plan he backs would dismantle the employer coverage Americans have relied on for a half-century and overtake the system....

"If private insurers say that the marketplace provides the best quality health care ... then why is it that the government, which they say can't run anything, suddenly is going to drive them out of business?" Obama said in response to a question at a White House news conference.

"That's not logical," he scoffed, responding to an industry warning that government competition would destabilize the employer system that now covers more than 160 million people.

Wow, that's a toughie: If the free market provides the best quality health care -- then how can feckless, inefficient, corrupt federal government drive them out of business? Here are a few possible answers:

• By jacking up taxes, administrative fees, and punishing profit on private insurance -- but not government-run health care.
• By running the government health care at a loss, forcing taxpayers to pick up the difference.
• By regulating private insurers out of the market.
• By adding so much red tape to private insurance plans that medical-care approval takes too long.
• By extorting employers to dump their private plans in favor of the government plan, upon threat of fines, audits, and denial of necessary licenses.
• By forcing doctors to charge private insurance a premium, under threat of the feds cutting off or reducing Medicare payments if they don't.
• By seizing control of companies (surely the federal government would never do that!), dumping the private plan, and signing aboard the government plan.
• By enacting legislation giving unions veto power to block any private health-care plan.
• By removing a corporate CEO and installing an Obama crony in his place.

Whew! That exercise took all of two and a half minutes.

Next question?

Also, Paul Ryan (R-WI) on CNBC on the Obama Health Plan.

Senator Tom Coburn On Heathcare

Sen. (and Dr.) Tom Coburn on Health Care

by Jed Babbin (more by this author)

Oklahoma’s junior senator, Republican Tom Coburn, is best known as a staunch conservative, an opponent of abortion, and one of the strongest voices against wasteful government spending. But Coburn is also a doctor. According to the Almanac of American Politics, Coburn has delivered over 4,000 babies and served on medical missions around the world.

Which causes his strong opposition to President Obama’s health care “reform” proposals. HUMAN EVENTS Editor Jed Babbin and intern Kathryn Gaines interviewed him about that on June 17. Here is a transcript of the interview edited for length.

JB: Senator, is there a health care crisis in this country?

Sen. Coburn: Well there is a cost crisis and an access crisis. When people want to be critical of health care in this country, they look at death rates and they look at life expectancy, but when you normalize life expectancy for the American style of living, our life expectancy competes with everyone.What we don’t do well is neo-natal deaths. We don’t do well there, but that comes from one segment of the population where we’ve addressed with a lower level of quality (which is mainly enabled by Medicaid and Title 19) to moms. So there is a crisis for cost, and there is a crisis in terms of access and half of that crises for access is in Medicaid because 40% of physicians 60% of sub-specialists won’t see a Medicaid patient because reimbursement doesn’t pay for their time to see them.

JB: There are a lot of people, the president for starters, who are saying we are having a crisis in the quality of medical care here. As a 17-year cancer survivor, I have a problem with that argument

Coburn: Well I’m a 35-year cancer survivor and a 6-year cancer survivor and I would take great issue with that. Look, do we have disparate qualities and do we have disparate qualities related to cost? Yes, and that is why this debate is so important, because if we get it wrong we not only raise the cost, which they want to do (but I think we can cut costs in half in healthcare). But Number two, is their proposal tears up the best health care system in the world, that accounts for 70% of all innovations in the world, in health care. In health care -- the advances in human care -- three quarters of them come from this country under our system.

JB: Why is it that I think you see when someone from a socialized medicine country, even Canada or Britain, they get into a real jam, they are coming here, why?

Coburn: Because the leading edge of technology, if they have the resources, they’ll come where the leading edge of technology is. Even if they don’t have, like the lady from Canada with a brain tumor, she mortgaged her house to come get her brain tumor taken care of here, she was on the waiting line for 6 months, she would have been dead. What we shouldn’t get is lost in the weeds.

JB: The veterans?

Coburn: No. After WWII, we had a bill which established the ability of communities to build hospitals, prior to that the hospitals were all owned by the doctors. I mean, go look at them, the doctors owned them and we didn’t have price inflation in health care. As we have ratcheted up the sophistication in our healthcare system, and this disconnected the patient from the cost, we have this problem [of price inflation]. And the real problem is the unsustainable growth in cost. Now why is it there? Some people argue part of it is technology, and I agree part of it is. But most of it is because we don’t have real forces allocating scarce resources, and we don’t have real consumers who are making economic choices based on their pocket book because someone else is paying their bill.

JB: Let’s go to, well I guess it’s not even a bill yet, but its kind-of sort of an outline for a bill that Sen. Kennedy’s crew came up with. I’ve seen a lot of numbers tossed around. They’re saying that for the mere cost of about a trillion dollars in the first 10 years, there would be an increase of 16 million people covered by health insurance. First off, the costs seem completely out of control in this proposal. Do you agree?

Coburn: Well, first of all, that’s not the cost. That does not count the costs that are going to go to the states, to change Medicaid from 100% to 150% -- which I just heard Tennessee will be 1.2 billion dollars a year. I just asked Oklahoma what our state Medicare costs will go to with 150%. So at a minimum, you’re talking for state costs probably another 15-20 trillion dollars over the next 10 years just to ramp up Medicaid.

JB: forgive me for the interruption, but 150% of what?

Coburn: Of Medicaid of poverty level. Right now the federal Medicaid law is 100% of poverty. Changing that to 150% of poverty level puts all this cost on the states. And that hadn’t been scored at all in the bill. [Ed. note: Medicaid provides health care benefits to the poor and makes benefits available for people who have 100% or less than the federally-defined “poverty level” of income. The 2009 poverty level income for a family of four is $22,050].

JB: Well there are a lot of things [in the Kennedy bill] which have not been scored. Because we don’t know what level of the poverty level they are going to link this to, we don’t know what other changes in Medicaid they are going to propose. Let’s start right there though. What are the big holes that have yet to be drafted in the Kennedy bill?

Coburn: The first big [hole] is, do we want a government program? Whether you do it from a co-op or a federal, you are still going to have a federal government co-op. Tell me what program in the federal government works effectively and efficiently? Just name one off your head?

JB: Our combat pilots are pretty good.

Coburn: They are not necessarily efficient. They are effective. Our military, our front line military, effective. The cost behind that is worth $50 billion in waste a year at the Pentagon. So the product is good, the efficiency of getting the product is not. So there isn’t anywhere where you are going to have somebody who doesn’t have a motive for efficiency built into their demand going to control cost. So they're not going to control cost. So that hasn’t been identified, it won’t put the money in a trust and they know that, that is the big bugaboo.

JB: Well, the Medicaid issue

Coburn: Well, the Medicaid issue hasn’t been scored. The cost for play-or-pay mandate, what that will do in terms of jobs, what that does, see that hasn’t been scored -- how that will decrease revenue for the federal government. 72% of all our jobs come from the small businesses. Sixty percent of them don’t cover insurance, so 60% of 72% of the jobs have a new cost, which means we’re going to fire people because we won’t be able to afford that. [Ed. Note: The “play or pay” mandate establishes a price to be paid by individuals who don’t have health insurance and for companies that don’t provide it to their employees.]

JB: And we’ve got a new federal bureaucracy which is, I guess is going to get in between the doctor and the patient.

Coburn: They claim that’s not.

JB: How is it not, as you understand it?

Coburn: Because they envision insurance… let me make this point first. The incentive behind creating government insurance is that the overhead of the private industry is too high. The other assumption is...that the federal government can regulate insurance better than the state. Now, any insurance which is regulated anywhere in this country is regulated by a very efficient state regulatory agency, which I think do a pretty good job. The states do. And we’ve said, no, you don’t do a good enough job. We’ve got to have one up here.

The second point behind that is, what is their motivation for doing that? Well, Medicare and Medicaid only cost 6% to administer, their cost of capital is 3%. Their fraud and abuse waste is 20%, so you add 20% plus 6% plus 3% and you get 29%. Compare that to the overhead plus profit of every insurance company out there, and it is under 21%. So they beat the federal government already in the two programs they already largely administer by a third.

JB: Well forgive me, I’m an old Defense Department guy myself, and the thought of having, or even the thought that the government can be more efficient in administering anything than the private sector just seems insane.

Coburn: It can’t, and neither can a co-op.

JB: So we are in a position here where they are saying this is not going to get between the patient and the physician.

Coburn: Well, they are also saying it is not going to cause anyone to lose the insurance that they have. [The Congressional Budget Office] just said 16 million people are going to lose their insurance under this bill.

JB: Well, it is probably more than that, isn’t it? Because we have not seen the other portions of this, and when they start monkeying with Medicare that’s all…

Coburn: Well, look, what’s going to happen is small businesses are going to say, OK, I’ll pay the two thousand dollars a year, I no longer have any health insurance costs. And I will also reduce my staff by 10%.

JB: So we are going to end up with employers having a huge disincentive to provide health insurance. And then we are also going to have a situation where employers who still do, now the president is saying, as I understand it, that he is going to tax employer provided healthcare.

Coburn: Well, he, he hasn’t said that yet. He had campaigned against that. And to be honest, our bill does that, but we give it all back to you in terms of a credit that applies to your health care. And we have all these examples up to $185,000 [in income levels] that is essentially a tax cut for you. Up to $185,000 everybody will get a tax cut.

JB: Describe to me, please, the differences, and again I keep focusing on the patient doctor relationship. And what is the difference between the Republican bill and what little we have seen so far from the Kennedy Obama package?

Coburn: Our bill, you get to make all choices. All choices.

JB: You choose your doctor.

Coburn: You choose your doctor, you choose your hospital, you choose the procedure you want, you don’t have the federal government at any level. But we do tie an economic string to that.

JB: How do you do that?

Coburn: We do that because you are now paying for your insurance. We do that with Medicaid too. We allow every Medicaid family to take the stamp of Medicaid off their forehead. A doctor will never know weather they are Medicaid or not, because they now have an insurance card, and a fund with which to pay their co-pays. So we are really helping the people that need to be helped. And the scoring on ours says 26 million who are uninsured now will be insured in 10 years. That is 10 million more than the health -- and we don’t raise the first tax, there is no net tax increase, there is no new net revenue change under our bill. So we deny we need more money in health care. We can do it all without raising the first tax.

JB: In terms of the Republican alternative you have, I think I am hearing from you that the level of care, the kinds of care the advances in care are not changed, there is nothing like rationing, nothing like …

Coburn: You, you get to make the choice. How do we get savings, how do we control the costs, that is the key thing.

Number one is we create transparent market in terms of quality, and we create a transparent market in terms of price. You can actually know what something is going to cost. So you get to pick quality, you get to pick price.

Number two, and this is where the Kennedy bill fails, let’s say we are going to have government-run healthcare. Let’s say we are going to put everybody in the same plan. The problem is -- and we are not going to put any limits on it -- the problem is how do you control the 7.2% cost increase? The only way you control it is through incentives prevention well-ness and care of chronic disease.

Now do you really think the bureaucrats up here, with white hair, at my age, can decide for me what the best medicine is for me? Or are there genetic factors with my past genetic health conditions and my past history that would say, my doctor with his gray hair or her gray hair and her training, would say no, you need to go here? Well the plan is for them, to tell all of us what drug to take, and to limit the art of medicine. The art of medicine is one of the things which has made it more costly here, and which has made it better here, and what they plan on doing is taking the art of medicine out. They say everyone fits into a peg, everyone is round, and they will fit into this hole, even when you are star-shaped or square-shaped. So we are going to spend all this time fitting squares into holes, and we are going to get bad outcomes.

JB: What are the two or three most important things that you think America ought to know about the Republican alternative?

Coburn: Absolutely get to choose it. Everybody gets covered. If you choose not to get covered, great, you can still choose not to get covered. You still have freedom. Number four is the states, they can form groups of states or individual states, they can choose and decide how they want to handle this, but we are going to put the money available to individuals, so they can have the freedom to choose and they can have the access. Nobody will lose their home, nobody will file bankruptcy under our bill.

JB: In terms of this business, what you were just talking about, the cost the quality in terms of the crisis here? I keep hearing a lot of different things about thousands of families going bankrupt every year over healthcare costs, is that true to your knowledge?

Coburn: There are some, and any is too many. Because that means that we haven’t had the market resources out there, with their buying power to allow that to happen.

And we have some pretty stiff things in our bill that say we want a real market in health insurance. We don’t want you to make the most money by only insuring healthy people. We want to incent you to invest in people with chronic disease, so you will come up with innovative ways to incentive them to manage their chronic disease.

See, that is what we have been missing. People will say we have a market-oriented healthcare industry. We don’t. We have very limited market forces on it. But the most important thing is to allow choice in connecting, so that you make a good economic decision for you. And if we put the safeguards both at the bottom and the top so that nobody is going to lose their home, nobody is going to have to file bankruptcy. And that even though you didn’t sign up and you are the 25 year old riding a Harley without the helmet and you go to the ER, we give the states the right to buy an umbrella policy on anybody who doesn’t sign up for a high deductible policy so that everybody else doesn’t have to share in the cost of things.

So we end up ultimately covering everybody by default who chooses not to be covered and were just going to take your tax credit, your $5,700 tax credit, and we are going to buy you a high deductible policy. If the states don’t want to do that, they don’t have to, but they would be stupid not to. The other great thing about our bill is Washington doesn’t know best. States really do now more about their constituencies than we do. Let’s use the states to find out the best way to… and what will happen in Oklahoma will copy California or Arizona after a couple of years because they are doing it better, and having it cost less. Rather than us saying here is what you must do.