Why Are Markets Crash Prone?

John Cassidy answers deftly in the New Yorker. He is answer takes more of a behavioral economics approach and not a "this guy defrauded that guy" approach. Also has a nice sprinkling of game theory in the middle.

When the subprime-mortgage market faltered, the business model of giving loans to all comers no longer made sense. Nobody wanted mortgage-backed securities any longer; nobody wanted to buy the underlying mortgages. Some of the Wall Street firms that had financed New Century’s operations, such as Goldman Sachs and Citigroup, made margin calls. Federal investigators began looking into New Century’s accounts, and the company rapidly became one of the first major casualties of the subprime crisis. Then again, New Century’s executives were hardly the only ones who failed to predict the subprime crash; Alan Greenspan and Ben Bernanke didn’t, either. Sharp-dealing companies like New Century may have been reprehensible. But they weren’t simply irrational.

The same logic applies to the decisions made by Wall Street C.E.O.s like Citigroup’s Charles Prince and Merrill Lynch’s Stanley O’Neal. They’ve been roundly denounced for leading their companies into the mortgage business, where they suffered heavy losses. In the midst of a credit bubble, though, somebody running a big financial institution seldom has the option of sitting it out. What boosts a firm’s stock price, and the boss’s standing, is a rapid expansion in revenues and market share. Privately, he may harbor reservations about a particular business line, such as subprime securitization. But, once his peers have entered the field, and are making money, his firm has little choice except to join them. C.E.O.s certainly don’t have much personal incentive to exercise caution. Most of them receive compensation packages loaded with stock options, which reward them for delivering extraordinary growth rather than for maintaining product quality and protecting their firm’s reputation.

Prince’s experience at Citigroup provides an illuminating case study. A corporate lawyer by profession, he had risen to prominence as the legal adviser to Citigroup’s creator, Sandy Weill. After Weill got caught up in Eliot Spitzer’s investigation of Wall Street analysts and resigned, in 2003, Prince took over as C.E.O. He was under pressure to boost Citigroup’s investment-banking division, which was widely perceived to be falling behind its competitors. At the start of 2005, Citigroup’s board reportedly asked Prince and his colleagues to develop a growth strategy for the bank’s bond business. Robert Rubin, the former Treasury Secretary, who served as the chairman of the board’s executive committee, advised Prince that the company could take on more risk. “We could afford to seek more opportunities through intelligent risk-taking,” Rubin later told the Times. “The key word is ‘intelligent.’ ”

Prince could have rejected Rubin’s advice and told the board that he didn’t think it was a good idea for Citigroup to take on more risk, however intelligently it was done. But Citigroup’s stock price hadn’t moved much in five years, and maintaining a cautious approach would have involved forgoing the kind of growth that some of the firm’s rivals—UBS and Bank of America—were already enjoying. To somebody in Prince’s position, the risky choice would have been standing aloof from the subprime craze, not joining the crowd."

AND

"Because financial markets consist of individuals who react to what others are doing, the theories of free-market economics are often less illuminating than the Prisoner’s Dilemma, an analysis of strategic behavior that game theorists associated with the RAND Corporation developed during the early nineteen-fifties. Much of the work done at RAND was initially applied to the logic of nuclear warfare, but it has proved extremely useful in understanding another explosion-prone arena: Wall Street.

Imagine that you and another armed man have been arrested and charged with jointly carrying out a robbery. The two of you are being held and questioned separately, with no means of communicating. You know that, if you both confess, each of you will get ten years in jail, whereas if you both deny the crime you will be charged only with the lesser offense of gun possession, which carries a sentence of just three years in jail. The best scenario for you is if you confess and your partner doesn’t: you’ll be rewarded for your betrayal by being released, and he’ll get a sentence of fifteen years. The worst scenario, accordingly, is if you keep quiet and he confesses.

What should you do? The optimal joint result would require the two of you to keep quiet, so that you both got a light sentence, amounting to a combined six years of jail time. Any other strategy means more collective jail time. But you know that you’re risking the maximum penalty if you keep quiet, because your partner could seize a chance for freedom and betray you. And you know that your partner is bound to be making the same calculation. Hence, the rational strategy, for both of you, is to confess, and serve ten years in jail. In the language of game theory, confessing is a “dominant strategy,” even though it leads to a disastrous outcome.

In a situation like this, what I do affects your welfare; what you do affects mine. The same applies in business. When General Motors cuts its prices or offers interest-free loans, Ford and Chrysler come under pressure to match G.M.’s deals, even if their finances are already stretched. If Merrill Lynch sets up a hedge fund to invest in collateralized debt obligations, or some other shiny new kind of security, Morgan Stanley will feel obliged to launch a similar fund to keep its wealthy clients from defecting. A hedge fund that eschews an overinflated sector can lag behind its rivals, and lose its major clients. So you can go bust by avoiding a bubble. As Charles Prince and others discovered, there’s no good way out of this dilemma. Attempts to act responsibly and achieve a coöperative solution cannot be sustained, because they leave you vulnerable to exploitation by others. If Citigroup had sat out the credit boom while its rivals made huge profits, Prince would probably have been out of a job earlier. The same goes for individual traders at Wall Street firms. If a trader has one bad quarter, perhaps because he refused to participate in a bubble, the results can be career-threatening"

The Public Option-Excellent Post

courtesy of the Volokh Conspiracy.

Thursday, June 25, 2009

[David Hyman, June 25, 2009 at 7:22pm] Trackbacks

Health Insurance and the Public Plan: Where's The Beef?

The proposal to allow a public plan (also called a “public option” or a “government plan” depending on the normative atmospherics one wants to signal) to compete directly with private health insurers has become one of the hottest flashpoints in the debate over health reform. President Obama spoke to the issue earlier this week and yesterday’s Wall Street Journal had a lengthy op-ed by (former Labor Secretary) Robert Reich on the subject. Many others have been heard on the subject as well – including (in alphabetical order) Jonathan Cohn, Tyler Cowen, Tim Greaney, Jacob Hacker, Ezra Klein, Arnold Kling, Paul Krugman,Megan McArdle, and Frank Pasquale. The Cato Institute had a conference last week on health reform where there was a panel on the public plan at which I spoke, along with Cathy Schoen (Commonwealth Fund), Gail Wilensky (former administrator of CMS - then called HCFA) and Karen Davenport (Center for American Progress). A recent New York Times poll showed strong support for the public plan, but critics quickly pointed out those polled skewed heavily Democratic.

Design details matter; part of the complexity is that different groups are using the same words - "public plan" — to refer to very different proposals. For example, the Commonwealth Fund'sNew America Foundation. Leaving that complexity aside, proponents argue that the public plan will improve the performance of the market, by creating more options and keeping the insurance companies “honest.” Critics argue that a public plan will be an unfair competitor, and will inevitably dominate the market. version of a public plan is radically different than the one put out by the

There are different ways of conceptualizing the debate – I’m going to organize my analysis around the three M’s of a public plan: Monopoly, Monopsony, and Maverick. (I had a former colleague who told me the key to a good title for an article or speech is to pick three words that all start with the same letter, and use them to organize the analysis. So, monopoly, monopsony, and maverick it is).

I’ll concentrate in this post on monopoly and monopsony. Proponents of a public plan argue that the market for health insurance is monopolistic, and that a public plan will provide consumers with more options – thus making the market more competitive. The assertion that the health insurance market is monopolistic is usually based on some throwaway claims about the number of mergers of health insurers over the past several years, followed by statistics on market share or market concentration of health insurers in all 50 states. The original source of these statistics is a series of papers on HMO and PPO market share done by the American Medical Association, written to support their larger legislative agenda of allowing joint negotiation of fees by independent physicians and tightening regulation of health insurers. In 2004, Professor James Robinson published a paper in Health Affairs on the subject, providing detailed information on market concentration in all 50 states, for HMO/PPO and commercial insurance.

Let's ignore the irony that the AMA's work has provided the intellectual foundation for the Obama Administration to propose a public plan — which the AMA has now come out against. Instead, focus on whether the proffered statistics actually prove what they purport to establish. As I outlined in a paper in Health Affairs I co-authored several years ago, there are numerous difficulties with this approach to determining whether there is a monopoly problem in health insurance. (There may well be other problems with health insurers – but let’s put those aside for the moment). First, counting up the number of mergers doesn’t tell you anything useful at all. Mergers across discrete geographic and product markets are unproblematic, while mergers within such markets may or may not raise antitrust issues. Second, although states are a natural regulatory unit, the marketplace for coverage often does not track state borders – and market share/concentration ratios for something that isn’t a market are meaningless. The AMA’s focus on the market share of HMOs and PPOs also omits other options – such as self-funded ERISA plans (for large and small groups) and high-deductible health insurance plans (for individuals, often coupled with a health savings account). If the state is, in fact, the relevant market, all options need to be included for the market share/concentration ratios to mean anything. Third, market concentration ratios are a screening tool – and no one with antitrust enforcement responsibility in the past several decades has thought that de-concentration in the absence of an actual antitrust violation was a strategy that would go anywhere in court, or had much of anything to recommend itself as a general policy.

This doesn’t mean that there are no problems with health insurer performance – nor that no health insurance markets are oligopolistic – but you can’t answer those issues in the abstract or assume that there’s an antitrust problem, or that there isn’t such a problem – you have to actually go and look.

More importantly, if you think there is actually a monopoly problem in certain coverage markets, then we have an established way of dealing with that — prove it up, and use the remedies provided for by the antitrust laws. The principal remedy is structural – break up the monopoly, and restore competition to the market. As far as I can tell, in the entire history of antitrust, no one has ever thought a plausible response to a monopoly is for the government to go into the business of providing the monopolized services, in order to create some competition. (And, as I will detail in a subsequent post, when the government has gone into the business of providing insurance, the results have not been pro-competitive).

Let's be concrete. The government is currently investigating Intel and Google, and previously prosecuted Microsoft for antitrust violations – but anyone who suggested that the way to address a monopoly in these areas was for the federal government to go into the business of developing computer chips, web browsers and search engines would have been laughed out of the antitrust bar. If you want more competition in the market for health insurance, the most direct and obvious (and standard approach, if history is any guide) is to address the problem head-on – by bringing cases against violators, eliminating state-created barriers to entry, and otherwise trying to address the source(s) of market failure.

Next, monopsony. If a public plan can rely on Medicare’s purchasing power and pricing, it can probably under-price private insurance – although if proponents of a public plan are right that private insurers have a monopoly position in the market, its hard to see how a public plan gets much more leverage than that. And, if private insurers don’t have enough market power to engage in monopsony pricing, that means there isn’t a monopoly problem in the coverage market – which, after all, was the primary justification for a public plan in the first place.

Leaving all that aside, it is important to remember that consumers are harmed by both monopoly and monopsony. So, proponents might view the monopsony purchasing power of a public plan as a feature, but its actually a bug.

In my next post, I will address the "maverick" issue. This issue involves a series of sub-claims: that a public plan will have lower administrative costs than a private plan; that a public plan will behave differently than a private plan; and that we should not have a "level playing field" for purposes of regulation and taxes because doing so will strip the public plan of its "inherent advantages."

Insurance Reform vs. Regulation

An interesting--and quite horrifying---article made the rounds yesterday, and I received it as both an email and as a posting on Facebook from several of my friends.

Rape Victim's Choice: Risk AIDS or Health Insurance?

Christina Turner feared that she might have been sexually assaulted after two men slipped her a knockout drug. She thought she was taking proper precautions when her doctor prescribed a month's worth of anti-AIDS medicine.

Only later did she learn that she had made herself all but uninsurable.

Turner had let the men buy her drinks at a bar in Fort Lauderdale. The next thing she knew, she said, she was lying on a roadside with cuts and bruises that indicated she had been raped. She never developed an HIV infection. But months later, when she lost her health insurance and sought new coverage, she ran into a problem.

I implore you to read the whole thing. This is truly horrifying. The article goes on to illustrate how women face the choice of revealing their medical histories, in this case as victims of heinous crimes, and risk not getting an insurance policy due to preexisting conditions. Or they could stay silent about their crimes.

I am reminded of some of the existing by laws at some universities which state that if a woman were to lob a sexual harassment charge at another student, she would have to leave school and discontinue her education until the matter was resolved. I can only guess that these laws were intended to discourage the frivolous and meritless accusations against other student from being slung haphazardly. Furthermore, as Heather MacDonald illustrates in an issue of the City Journal a few years ago, campus activists propagated an unsubstantiated epidemic of date-rapes and sexual harassment at universities and colleges. And we all remember at Duke University a few years back, right? So perhaps some of these by-laws were put in place as a response to some high-profile false accusations.

But the idea that a female accuser has to excuse herself from her education and classes seems like an undue burden to me. Interrupting their educations is not something that a lot from which people can can recover. What if someone had to leave an institution of higher learning for two years while her case was resolved? Can he or she immediately step back into a learning environment, especially at an academically intense university? I wouldn't wish that upon anybody.

So that was a slight tangent. But I believe that there are parallels between the situation at universities and the victims of assault or worse who can't get coverage for things like exams or drugs to treat infections. In both scenarios, women are incentivized to stay silent about a crime.

The notion of insuring "pre-existing conditions" has been percolating through the current health care reform debate. It is an article of faith among the supporters of health care reform that insurance companies ream exhorbitant profits mostly by denying care to those who need it. This would naturally include those who are terminally ill or those who have very serious diseases...and those who need very expensive life-saving drugs for very long periods of time.

First of all, this notion that insurance companies earn "record profits" is tenuous AT BEST. Allow me to reference a post from MarginalRevolution.Com on the profit margins of the insurance industry.

How profitable are health insurance companies?

Here is one report:

Health insurers, in fact, ranked below many other industries in profitability, including other health sectors, according to the latest Fortune magazine rankings. While pharmaceutical companies were the third-most profitable industry last year, with a 19.3 percent profit margin, health insurers ranked 35th, with a 2.2 percent profit margin. Health insurers also ranked lower in profitability than medical products and equipment makers, pharmacies and medical facilities.

Here is a related list on relative profitability. It's true that profits are up a lot in percentage terms since 2000 but that doesn't mean profits are high. Of course it is possible these accounting measures of profit are lies or misleading.

Here are the share prices of Aetna over time and make sure you notice the splits. It's not clear we can infer anything from this data (for instance if the monopoly position were evident from the beginning, equity returns would be quite modest), but if you wish you can peruse Yahoo Finance for evidence. I don't find it. Recent low equity returns may be the downturn at work but the original question is how profitable these companies are in absolute terms.

I'm very willing to "Cry Uncle" on this one because all I've done is some blogger research using Google. But I would genuinely like to know: if you favor a public plan, or if you think insurance companies are holding strong monopoly positions, what is your evidence for their extreme profitability? If you go to the second link you'll see lots of people claiming the companies are very profitable and should be squeezed in some manner. Or do you simply think the companies are not very profitable?

But lets look at preexisting conditions and whether they should be insured. Several states, including New York and Washington, already possess state regulations called "guaranteed issue" which were designed to keep health insurance plans accessible to the very sick, as well as other regulations designed to keep insurance prices both low and equitable. These types of reforms at the state level are precursors to the reform ideas the proponents of ObamaCare are espousing. It would certainly be instructive to see what has happened in those states to the individual insurance market.

"according to a Manhattan Institute study released last month by Stephen T. Parente, a professor of finance at the University of Minnesota and Tarren Bragdon, CEO of the Maine Heritage Policy Center. In 1994, there were just under 752,000 individuals enrolled in individual insurance plans, or about 4.7% of the nonelderly population. This put New York roughly in line with the rest of the U.S. Today, that percentage has dropped to just 0.2% of the state's nonelderly. In contrast, between 1994 and 2007, the total number of people insured in the individual market across the U.S. rose to 5.5% from 4.5%.The decline in the number of people enrolled in individual insurance plans, the authors say, is "attributable largely to a steep increase in premiums" because of the state's regulations. Messrs. Parente and Bragdon estimate that repeal of community rating and guaranteed issue could reduce the price of individual coverage by 42%.

New York's experience with guaranteed issue and community rating is not unique. In 1996, similar reforms in Washington state preceded massive premium spikes in the individual market. Some premiums increased as much as 78% in the first three years of the reforms—or 10 times medical inflation—according to a study presented at the annual meeting of the Association for Health Services Research in 1999. Other results included a 25% drop in enrollment in the individual market, and a reduction in services offered. Within four years, for example, none of the state's major carriers offered individual insurance plans that included maternity coverage.

A 2008 analysis by Kaiser Permanente's Patricia Lynch published by Health Affairs noted that in addition to Washington and New York, the individual insurance markets in Kentucky, Maine, Massachusetts, New Hampshire, New Jersey and Vermont "deteriorated" after the enactment of guaranteed issue. Individual insurance became significantly more expensive and there was no significant decrease in the number of uninsured."

So "guaranteed issue" distorts the insurance market for obvious reasons. People who know that they can always buy insurance plans when they get very sick will clearly wait until the last minute to buy insurance. There is virtually no incentive whatsoever for healthy people to buy insurance when they are not sick. The end result is that many healthy people opt out, leaving a small pool of sick individuals with very high premiums.

HOWEVER.....

In the aforementioned case of victims of rape and assault: Denying them coverage or benefits because they have a "preexisting" condition"? This is MORALLY INDEFENSIBLE!!! When I speak of preexisting health conditions, I speak specifically of the people who have not taken good care of their bodies and health, e.g. smokers, drug abusers, and those who have eaten sugar and deep-fried skittles their whole lives, who then expected to get coverage and cheap benefits for lung cancer treatment, heart disease, diabetes drugs, and the like. I would make a strong case that people are responsible for their own well-beings and ought to douse their health with a little more "forward-thinking" and foot the bill for some of their future health care expenditures.

But victims of rape and assault are, in no way, shape, or form, responsible for their predicaments. To deny them the benefits of care associated with their victimhood, or to quietly nudge them into silence so that they continue to receive care, is completely inhumane. This is where sensible regulation of the insurance industry is needed.

I am skeptical that this would lend evidence to the idea that we need a nationalized health care system. Yes, our health care system is a complete mess...a complicated mish-mash of rules and regulations that do nothing but raise the cost of insurance beyond the reach of people who need it. But the Cafe doesn't think that socializing medicine will increase access to expensive medicines for those who need it.

But I welcome the debate. Thoughts please!!!

Executive Pay - To Regulate or Not?

The New Yorker hits another home run. here is the abstract:
ABSTRACT: THE WORLD OF BUSINESS about Nell Minow and the regulation of executive compensation. This past June, Minow was among a small group of experts who met with Treasury Secretary Timothy Geithner to discuss executive compensation. Mentions the public anger over bonuses paid out by A.I.G. and other financial companies after receiving bailout money from the federal government. Americans aren’t necessarily opposed to gargantuan pay packages, but injustice is another matter, and the nation’s ongoing financial crisis has provided numerous occasions for public fury. This summer, President Obama appointed Kenneth R. Feinberg, a Washington lawyer, as the country’s “special master” on corporate pay. In recent months, there have been calls for establishing a ratio between a C.E.O.’s salary and the average wage; for controlling the use of stock options; and for capping certain salaries. Minow argues for a different approach. She thinks the government’s efforts to control compensation directly are typically ineffective. Her preferred remedy is to allow the market to deal with most such problems, by removing impediments that prevent shareholders from playing the role that economic theory says they are supposed to play. “I want executives to create shareholder value, and I want them to earn a lot of money when they are successful. But I do not want them to be paid a lot of money when they fail,” Minow says. Executives currently have abundant opportunities to enrich themselves at shareholders’ expense, and to pursue business strategies that serve their own interests rather than those of their companies’ putative owners. Tells about Lens, an investment fund created by Minow and Robert A. G. Monks. In the mid-nineties, Monks and Minow scored one of their biggest successes, in a lengthy confrontation with Sears. Monks and Minow founded the Corporate Library in 1999. The company’s main product is a huge database which aggregates and analyzes public information about thousands of companies. The database is a manifestation of Monks’s and Minow’s conviction that the antidote to many forms of corporate malfeasance is full public disclosure. Mentions several prominent C.E.O.s, including Jack Welch and Robert Nardelli. Tells about the “compensation fairness” bill, which passed the House in July.


The House Reform and Government Oversight Committee has a hearing on executive pay and the "Pay Czar." One of the witnesses is Professor Russell Roberts from George Mason University, one of the bloggers at CafeHayek.com

The Attorney General?

Eric Holder asks a for D.C. councilman and school choice activist to pull an advertisement?

Attorney General Tries to Silence School Choice Ad

Posted By Andrew J. Coulson On October 27, 2009 @ 2:29 pm In Education and Child Policy, General | Comments Disabled

This, finally, is too much: Eric Holder, Attorney General of the United States, walked up to former DC Councilman Kevin Chavous at an event and told him to pull an ad ^[1]criticizing the administration for its opposition to the DC school voucher program ^[2]. The Attorney General of the United States!

This is as outrageous and shameful as it is consistent with other administration hostilities toward free speech ^[3] (see also here ^[4]) and freedom of the press ^[5].

There is a deep revulsion to such behavior in this country. It is not a Republican or a Democratic revulsion, it is an American one. Obama administration officials seem not to understand that, but voters will help them get the message the next time they go to the polls.

My Martin OMJM Guitar gets into Modeling.

Who would have thought that may Martin OM John Mayer signature would get into modeling? I took it recently to get it "set up" and they decided that they were going to use it to plug the new soundhole humidifiers made by planet waves. Below is the blogpost from Chicago FretWorks

The Best Humidification For Your Guitar

posted by Steve | October 22nd, 2009

“An ounce of prevention beats a pound of cure.” In this post, we’ll break down the best way to protect your guitar in the cool months ahead.

Chicago winters kill guitars. The weather gets dry and cold, so we turn on our furnaces – drying out the air in our homes even further. Many will see their indoor relative humidity drop below 20% . That’s 25-30% lower than the factories where guitars are made and the wood just doesn’t like it. Like the skin on our fingertips and the seams on our hardwood floors, dry guitars can split open without ever being dropped or otherwise mishandled. Other symptoms we see include:

• rough fret ends that stick out past the edge of a fretboard
• loose bridges and braces
• loose neck joints
• separations along the many glue joints that hold a guitar together
• dramatic changes in playing ‘action’

So what can you do to prevent costly repairs to these problems? There’s so many choices hanging in guitar stores that it can be hard to tell which one to buy. We may kick ourselves for giving away the secrets that keep us in business – but here’s a look at the products that will best help you keep your guitar healthy and happy this winter. You’ll also find a simple formula for how to effectively use them.

We’ve heard some interesting home remedies over the years – from leaving a baggie with a wet sponge in a guitar case to putting an apple or potato inside a case (NOT recommended by these two technicians.) And we’ve seen lots of products too -from film canister size humidifiers with clay inside to rubber tubes with a sponge inside to space-age devices that can offer protection for months. When selecting products to carry here at Chicago Fret Works, we applied the lessons we’ve learned over the years and chosen these winners:

Best Choice For Acoustic Guitars – Planet Waves Humidipak*

($30) We were thrilled when Planet Waves (D’addario) recently re-released the Humidipak for guitars. It utilizes sophisticated modern technology for a low-maintenance, long-term solution to keeping fine acoustic guitars properly humidified. Three removable packets hang in black mesh pockets (two for the soundhole and one for behind the headstock,) releasing just enough moisture to keep the inside of your guitar case at 48% for 3-4 months. The moisture is all in those packets – no need for constant refilling with water. Read more about it at www.planetwaves.com . While you’re there, be sure to check out the video of Bob Taylor from Taylor Guitars to see what he thinks.

*Planet Waves did recall this product twice in the past few years for design flaws. They’ve spent lots of time and money eliminating those problems and are releasing it now, confident that it is finally ready for prime-time. More on that subject here.

Runner-up Choice for Acoustic Guitars – Oasis

($20) We really like these humidifiers. They hold enough distilled water to last from one to two weeks without needing to be refilled. Special crystals inside expand into a super absorbent paste that should be replaced each year (replacement kits are available at CFW for $6.) One advantage Oasis holds over every other product is that it will tell you when it’s time to refill by collapsing into a raisin-like appearance that says “Yo! Gettin’ a little dry over here!”

For the tight budget – Planet Waves Humidifier

($8) If you play your guitar every day or two and don’t mind refilling a sponge that often, Planet Waves’ original guitar humidifier is the least expensive option. It’ll work as well as the others but will need more attention.

Humidifying F-hole guitars on a budget

($8) Finally, we do keep a few of the old-style tube humidifiers for guitars and mandolins that have F-holes or for those who just like this style. Fill them up every one to two days.

The Recipe For Keeping A Guitar Properly Humidified:

• A FULL humidifer
• Inside the guitar
• Inside the case (NOT hanging on the wall or on a stand.)
• From October through April (or as long as the heat is on in your home)

Must Be Lonely In There

Peter Boyer is a staff writer for the New Yorker, and as far as I can tell, he is the lone center-right contributor. Below is his profile from the New Yorker homepage:

Peter J. Boyer joined The New Yorker as a staff writer in 1992. He has written on a wide range of subjects, including politics, the military, religion, and sports. Among his recent articles were the story of Addie Polk, a ninety-year-old widow whose eviction symbolized the national foreclosure crisis; a recounting of the demise of the American automobile industry; and Profiles of the broadcaster Keith Olbermann and the Thoroughbred-horse trainer Larry Jones.

Before joining The New Yorker, Boyer was a reporter for the Los Angeles Times and the New York Times, a contributing editor at Vanity Fair, and a television critic for National Public Radio’s “Morning Edition.” He won a George Foster Peabody Award, an Emmy, and consecutive Writers Guild Awards for his reporting for the documentary series “Frontline.”

I happen to love the New Yorker magazine because the quality of the writing is difficult to find elsewhere. Sure, it's a center-left publication. But it possesses a maturity factor that one might not find on the editorial pages of the New York Times. One gets the feeling that if a subject is not written about in the New Yorker, it might not be written about AT ALL.

Peter Boyer must get pretty lonely being the sole contrarian among the liberal denizens of the New Yorker, an esteemed list that includes Jeffrey Toobin, Hendrik Hertzberg, George Packer, and Ryan Lizza. Jeffrey Toobin even had the audacity to describe President Obama and his federal court nominees as practioners of judicial restraint and Senator Roland Burris of Illinois (the man who was appointed, controversially, by impeached governor Rod Blagojevich) as something other than a Democratic Party hack. But liberal economics writer James Surowiecki
writes some of the most compelling arguments against, well, pretty much every thing I believe in. He even hit a home run a few weeks ago with his analysis of the failings of the ratings agencies and their relation to the fiscal calamities of the last few years.

Anyways, back to Mr. Boyer. He wrote a brilliant piece a few weeks ago about the future of the American Right. Below is the abstract.

ABSTRACT: THE POLITICAL SCENE about conservative Republican strategy in the Age of Obama. In late spring, the writer travelled to Bethlehem, Pennsylvania, to hear a political talk by Pat Toomey, the conservative former congressman who had effectively driven Sen. Arlen Specter out of the Republican Party. Toomey’s decision to challenge Specter in the 2010 primary caused Specter to join the Democrats, all but assuring them a filibuster-proof majority. The Toomey challenge crystallized the stresses that tore at the Republican Party in the early months of the Barack Obama era. Toomey was a candidate of the conservative base. Republican moderates and the Party’s leadership, wary of the base, saw in Toomey’s move the flawed impulses of a defeated and contracting Party. In Bethlehem, Toomey talked about the economy, and the perils posed by the Democratic program in Washington. He did not mention abortion or gay marriage, both of which he opposes. He also said that the Republican tent had to make room for constituencies besides social conservatives, but that there needed to be a unifying idea—personal freedom, and its corollary, limited government. It was Toomey’s calculation that Obama’s policies and governing philosophy would do more to rehabilitate conservative doctrine than Republicans themselves ever could, and that by 2010, the American public would ask the Republicans to apply a brake. The way back for Republicans was through resolute opposition to the Obama spending programs. Jim DeMint, the junior senator from South Carolina, and Toomey are natural allies. Mentions the Club for Growth. DeMint and Toomey stand on the side of the Republican divide which believes that the Party failed because it strayed from its core principles, and that if Republicans hold fast in opposition the Party can regain its lost identity. DeMint is a first-term senator in establishment Washington, but he has managed to become a leading insurrectionary voice. In a July 17th teleconference call with activists opposing Obama’s health-care initiative, DeMint said, “If we are able to stop Obama on this, it will be his Waterloo.” With this remark, DeMint emerged as the de-facto voice of the Republican opposition. He has tapped into the wrath of the conservative base, which was magnified by Fox News, talk radio, and the Internet. The loss of Congress in 2006 sent the Republican Party into a period of pained introspection, its partisans divided into roughly two camps: those who insisted that renewal could come from a return to low-tax, limited-government fundamentals; and reformers who believed that the Party had become too harshly doctrinaire and urgently needed to broaden its appeal. Sen. Specter says that the Party has now become a captive of the DeMint wing. The question remaining for many Republicans is whether the Party can develop a strategy beyond opposition, an argument for governing that will expand its appeal beyond its ideological core.

Who Is Smarter??

Are Liberals Smarter Than Conservatives?

By Jason Richwine Wednesday, October 21, 2009

What if we could know, scientifically, that one side has the edge in brainpower? Should that change how we think about political issues?

Who are smarter, liberals or conservatives? This is the kind of question that could spark fierce and endless debates between political opponents, but what if we could know, scientifically, that one side has the edge in brainpower? Should that change how we think about political issues?

Though few partisans on either side are likely to admit it, most people at one time or another have suspected that their political opponents are dim bulbs. Sometimes these sentiments get aired publicly, and both the Left and the Right have been guilty of leveling the “you’re stupid” accusation. Last summer, for example, conservative activists pushed the view that Supreme Court Justice Sonia Sotomayor, then a nominee, is an intellectual lightweight who lacks the brainpower to be an effective justice.

But questioning the IQ of opponents is a specialty of liberals. When John Stuart Mill labeled British Conservatives “the Stupid Party” in the 19th century, he apparently started a long-term trend. Ronald Reagan, after all, was an “amiable dunce,” according to Clark Clifford and other Democrats. And when Vice President Dan Quayle told a 12-year-old student in a spelling bee that potato had an “e” at the end of it, Democrats milked the incident for all it was worth and then some. They even had the same student lead the Pledge of Allegiance at their 1992 convention.

Smarter people usually make better choices, and smarter people are less likely to be conservative. So how are we to conclude anything but the obvious? Conservatism is stupid, right?

Numerous commentators questioned George W. Bush’s intellectual capacity, especially compared to his Democratic opponents. Howell Raines, former executive editor of the New York Times, wrote before the 2004 election, “Does anyone in America doubt that Kerry has a higher IQ than Bush?” In fact, an analysis of military aptitude tests by columnist Steve Sailer showed that Bush’s IQ is at least as high as John Kerry’s, but more notable is Raines’s supreme confidence about Bush’s deficiency.

More recently, Sarah Palin was routinely attacked for her alleged cognitive limitations. A false rumor even floated around the liberal blogosphere that she scored an absurdly low 841 on the SAT.

So are these attacks unfair? Yes, if they are leveled at top politicians. It is nearly impossible to rise to the top of the American political scene without some real smarts. Party leaders are rarely geniuses, but it is almost inconceivable that they could have below average IQs.

Nevertheless, liberals are on to something when they question the IQ not of the conservative politicians themselves, but of some of the voters they represent. A certain bloc of the conservative electorate may very well be less intelligent than its liberal counterpart. Lazar Stankov, a visiting professor at Singapore’s National Institute of Education, published “Conservatism and Cognitive Ability” earlier this year in the peer-reviewed journal Intelligence. Here is a quote from the article’s abstract:

Conservatism and cognitive ability are negatively correlated … At the individual level of analysis, conservatism scores correlate negatively with SAT, vocabulary, and analogy test scores. At the national level of analysis, conservatism scores correlate negatively with measures of education … and performance on mathematics and reading assessments.

Provocative, yes. But two important caveats are needed. First, by “conservatism” Stankov does not necessarily mean people who favor free market economics. He has in mind a kind of traditionalism probably best described as social conservatism:

Bruce Charlton, a professor of theoretical medicine at the University of Buckingham, recently coined the term ‘clever sillies’ to describe people who hold wacky political views seemingly because of—rather than despite—their high intelligence.

The Conservative syndrome describes a person who attaches particular importance to the respect of tradition, humility, devoutness and moderation; as well as to obedience, self-discipline and politeness, social order, family, and national security; and has a sense of belonging to and a pride in a group with which he or she identifies. A Conservative person also subscribes to conventional religious beliefs and accepts the mystical, including paranormal, experiences.

The second caveat is that social conservatives do not always vote for conservative candidates. Most black Americans, for example, clearly exhibit “the Conservative syndrome” as Stankov defined it—70 percent voted to abolish gay marriage in California—but they routinely give about 90 percent of their votes to the Democratic Party.

Still, the “syndrome” described by Stankov is a prominent feature of the political Right. The protests of libertarians notwithstanding, social conservatism and economic conservatism tend to go together. Republicans do almost universally support tax cuts, but no Republican presidential candidate is likely to get his party’s nomination without also opposing abortion, gay marriage, and secularism.

So it is clear what many people will think about conservatism in general when they hear about this study. Stankov does not draw any explicit political conclusions himself, but he doesn’t really have to. After all, smarter people usually make better choices, and smarter people are less likely to be conservative. So how are we to conclude anything but the obvious? Conservatism is stupid, right?

Just a minute. Let’s critique that logic. For one thing, the smartest people do not necessarily make the best political choices. William F. Buckley once famously declared that he would rather give control of our government to “the first 400 people listed in the Boston telephone directory than to the faculty of Harvard University.” Bruce Charlton, a professor of theoretical medicine at the University of Buckingham, recently coined the term “clever sillies” to describe people who hold wacky political views seemingly because of—rather than despite—their high intelligence. Conservative writer John Derbyshire has also observed that political naivety exists at both extremes of the IQ distribution, not just the lower one. The reason is that brilliant people can sometimes be so consumed by abstract philosophy that they forget common sense. The late Irving Kristol once illustrated this phenomenon with an anecdote about his friend, the novelist Saul Bellow:

People who subscribe to non-traditional ideas probably have above-average intellects, but that does not mean other smart people are going to like those ideas.

Saul, then an undergraduate at the University of Chicago, was, like so many of us in the 1930s, powerfully attracted to the ideologies of socialism, Marxism, Leninism and Trotskyism, as well as to the idea of “the Revolution.” He and a group of highly intellectual and like-minded fellow students would meet frequently at his aunt’s apartment, which was located next to the university. The meetings lasted long into the night, as abstract points of Marxism and Leninism agitated and excited these young intellectuals. Saul’s aunt, meanwhile, would try to slow things down by stuffing their mouths with tea and cakes. After the meetings broke up in the early hours of the morning, Saul’s aunt would remark to him: “Your friends, they are so smart, so smart. But stupid!”

Saul’s aunt may not have been a brilliant intellectual, but she had the wisdom and experience to see the fallacies of Marxism that her nephew and his friends could not.

But even if we concede that more intelligence generally means better political choices, the conservatism-is-stupid argument still does not follow from Stankov’s research. Consider that social conservatism is about following traditions. It is intellectually easier, in some sense, to follow the crowd. Iconoclasts face a cognitive hurdle—they have to justify to themselves and others why they feel differently. Probably for that reason, non-traditionalists tend to be smarter than the average person.

But, crucially, this does not mean most intelligent people oppose tradition. As long as smarter people are more likely to be skeptical of tradition, then full-blown rejection of tradition will almost inevitably be correlated with higher IQ, even if a majority of smart people still favor traditionalism.

Consider the example of religious belief, which is a major component of the “syndrome.” Let’s say that the bottom half of the IQ distribution never questions the religion of their upbringing, while the top half is skeptical. Now, just among that skeptical top half, let’s say that 80 percent end up affirming their faith and remain religious, while the rest reject faith and become atheists.

Liberal elites could easily be in the minority politically, but different social circles keep them insulated from finding that out.

Religion would seem to be the clear choice of smart people in this hypothetical example, but there would still be a positive correlation between IQ and atheism. The correlation exists not because smart people have necessarily rejected religion, but because religion is the “default” position for most of our society.

This same principle works in places where the default and iconoclastic beliefs are reversed. Japan, for example, has no tradition of monotheistic religion, but the few Japanese Christians tend to be much more educated than non-Christians in Japan. By the logic of someone who wants to read a lot into the Stankov study, Christianity must be the wave of the future, perhaps even the one true faith! But, of course, the vast majority of educated Japanese are not Christians. Just as with atheism in the West, the correctness of Christianity cannot be inferred from the traits of the minority who subscribe to it in Japan.

To reiterate, people who subscribe to non-traditional ideas probably have above-average intellects, but that does not mean other smart people will like those ideas. This is a point often lost on liberals who work in universities or in the news media. They observe, usually correctly, that friends and acquaintances in their social circle are smarter than the average (and likely more conservative) people they encounter on the street. But too many elites see this correlation between smartness and liberalism as somehow a validation of their political views. They seem unaware that the wider world features plenty of intelligent people who are not professors or movie critics or government bureaucrats. Even among the nation’s smartest people, liberal elites could easily be in the minority politically, but different social circles keep them insulated from finding that out. The result is a convenient but damaging political meme that circulates among some people on the Left—the belief that their opponents simply can’t understand what makes for good policy.

The bottom line is that a political debate will never be resolved by measuring the IQs of groups on each side of the issue. Even if certain positions tend to be held by less intelligent people, there will usually be plenty of sharp thinkers who take the same side. Rather than focus on the intellectual deficiencies, real or imagined, of certain politicians and their supporters, people should strive to find the best and brightest spokesmen for the opposing side.

There is a certain devilish fun to contemplating the intelligence of liberals and conservatives, but it should have no effect on how we think about issues. Political debates would be better without it.

Jason Richwine is a National Research Initiative Fellow at the American Enterprise Institute.

Where Does the U.S. Rank in Health Care?

I referenced Steven Chapman's article a few months ago here.

Today's Wall Street Journal carries an instructive article about the World Health Organization rankings that are often cited by many Democrats about the failings of our health care system. However, the article goes a little too far, in my opinion, of leaving open the possibility that our health care system is much worse than other advanced countries. It, of course, is not.

This article won't prevent Michael Moore, Bill Maher, and other leftwing hucksters from quoting the statistic though.

Ill-Conceived Ranking Makes for Unhealthy Debate

In the Wrangle Over Health Care, a Low Rating for the U.S. System Keeps Emerging Despite Evident Shortcomings in Study

• By CARL BIALIK

During the health-care debate, one damning statistic keeps popping up in newspaper columns and letters, on cable television and in politicians' statements: The U.S. ranks 37th in the world in health care.

The trouble is, the ranking is dated and flawed, and has contributed to misconceptions about the quality of the U.S. medical system.

Among all the numbers bandied about in the health-care debate, this ranking stands out as particularly misleading. It is based on a report released nearly a decade ago by the World Health Organization and relies on statistics that are even older and incomplete.

Few people who cite the ranking are aware that some public-health officials were skeptical of the report from the outset. The ranking was faulted because it judges health-care systems for problems -- cultural, behavioral, economic -- that aren't controlled by health care.

"It's a very notorious ranking," says Mark Pearson, head of health for the Organization for Economic Cooperation and Development, the 30-member, Paris-based organization of the world's largest economies. "Health analysts don't like to talk about it in polite company. It's one of those things that we wish would go away."

More recent efforts to rank national health systems have been inconclusive. On measures such as child mortality and life expectancy, the U.S. has slipped since the 2000 rankings. But some researchers say that factors beyond the control of the health-care system are to blame, such as dietary habits. Studies that have attempted to exclude these factors from the equation don't agree on whether the U.S. system looks better or worse.

The WHO ranking was ambitious in its scope, grading each nation's health care on five factors. Two of these were relatively uncontroversial: health level, which is roughly the average healthy lifespan of a nation's residents; and responsiveness, which is a sort of customer-service rating encompassing factors such as the system's speed, choice and quality of amenities. The other three measure inequality in health-care outcomes; responsiveness; and individual spending.

These last three measures struck some analysts as problematic, because a country with unhealthy people could rank above a healthier one where there was a bigger gap between healthy and unhealthy people. It is certainly possible that spreading health care as evenly as possible makes a society healthier, but the rankings struck some health-care researchers as assuming that, rather than demonstrating it.

An even bigger problem was shared by all five of these factors: The underlying data about each nation generally weren't available. So WHO researchers calculated the relationship between those factors and other, available numbers, such as literacy rates and income inequality. Such measures, they argued, were linked closely to health in those countries where fuller health data were available. Even though there was no way to be sure that link held in other countries, they used these literacy and income data to estimate health performance.

Philip Musgrove, the editor-in-chief of the WHO report that accompanied the rankings, calls the figures that resulted from this step "so many made-up numbers," and the result a "nonsense ranking." Dr. Musgrove, an economist who is now deputy editor of the journal Health Affairs, says he was hired to edit the report's text but didn't fully understand the methodology until after the report was released. After he left the WHO, he wrote an article in 2003 for the medical journal Lancet criticizing the rankings as "meaningless."

The Numbers Guy Blog

• The Trouble With Ranking National Health-Care Systems

The objects of his criticism, including Christopher Murray, who oversaw the ranking for the WHO, responded in a letter to the Lancet arguing that WHO "has an obligation to provide the best available evidence in a timely manner to Member States and the scientific community." It also credited the report with achieving its "original intent" of stimulating debate and focus on health systems.

Prof. Murray, now director of the Institute for Health Metrics and Evaluation at the University of Washington, Seattle, says that "the biggest problem was just data" -- or the lack thereof, in many cases. He says the rankings are now "very old," and acknowledges they contained a lot of uncertainty. His institute is seeking to produce its own rankings in the next three years. The data limitations hampering earlier work "are why groups like ours are so focused on trying to get rankings better."

A WHO spokesman says the organization has no plans to update the rankings, and adds, "We would not consider it current."

And yet many people apparently do. The 37th place ranking is often cited in today's overhaul debate, even though, in some ways, the U.S. actually ranked a lot higher. Specifically, it placed 15th overall, based on its performance in the five criteria. But for the most widely publicized form of its rankings, the WHO took the additional step of adjusting for national health expenditures per capita, to calculate each country's health-care bang for its bucks. Because the U.S. ranked first in spending, that adjustment pushed its ranking down to 37th. Dominica, Costa Rica and Morocco ranked 42nd, 45th and 94th before adjusting for spending levels, compared to the U.S.'s No. 15 ranking. After adjustment, all three countries ranked higher than the U.S.

Still, people often claim that the 37th-place ranking refers to quality or outcomes. High spending rates pushed the ranking down but didn't degrade the quality of care. Among those who have recently failed to make that distinction in published comments are Colorado Rep. Diana DeGette; Iowa Democratic Sen. Tom Harkin; and Margaret E. O'Kane, president of the National Committee for Quality Assurance, an advocacy group.

Representatives for Ms. DeGette and Mr. Harkin didn't respond to requests for comment. A spokeswoman for the National Committee for Quality Assurance said, "WHO is a respected organization. ...We have no reason to believe it is inaccurate, and we would never knowingly misrepresent or misuse another organization's data."

The flawed WHO report shouldn't obscure that the U.S. is lagging its peers in some major barometers of public health. For instance, the U.S. slipped from 18th to 24th in male life expectancy from 2000 to 2009, according to the United Nations, and from 28th to 35th in female life expectancy. Its rankings in preventing male and female under-5 mortality also fell, and placed in the 30s.

But even such analyses, more limited in scope than the WHO's effort, face similar problems: How to differentiate between the quality of the medical system and other factors, such as diet, exercise and violent-crime rates.

Some think that if the U.S. health-care system isn't responsible for troubling outcomes, trying to fix it doesn't provide the best return on investment.

"We might get more bang for the buck by setting aside some of our health-care money to support novel approaches to improve nutrition, education, exercise or public safety," says Alan Garber, an economist and professor of medicine at Stanford University. "Not every health problem has a medical solution."

Nor can everything be ranked -- especially health-care systems. "I think it's a fool's errand," says Dr. Musgrove.

James Buckley...30 years later...

Probably none of you remember former Senator James Buckley from New York, a member of the conservative party who won a senate seat in 1970. That particular election, because of its rarity, has become something of a rare specimen for political science nerds to put on their white lab coats and dissect. Because of the distinct advantages the two major political parties have in organization and resources, it is quite rare for third party candidates to win a state wide election--although Jesse Ventura of Minnesota, Bernie Sanders of Vermont, and Joseph Lieberman of Connecticut have all done it in recent memory. What is particularly interesting about Mr. Buckley victory is that:

- He won has a Conservative Party member in a state that is not that conservative
- He won in 1970, 6 years after the Goldwater candidacy but well before the conservative was defined, let alone on the ascent.
- He won during a year (first midterm after presidential year) that was difficult for Republicans and those on the political right-wing of the spectrum.

30 years later, something very interesting is happening in upstate New York. All of this began last fall with the election of President Obama. A post of Brendan Miniter below:

The White House Springs a Trap

When President Obama named GOP Rep. John. McHugh to be secretary of the army, political cynics suspected a White House plot to capture one of last GOP-held seats in New York State. But local GOP leaders had an answer: Assemblywoman Dierdre "Dede" Scozzafava.

Ms. Scozzafava may be the most liberal Republican in the state legislature, but national GOPers rallied to her as the best shot to hold the McHugh seat. Former Rep. Tom Davis, instrumental in organizing past GOP House victories, became a key supporter. House Republicans Rep. Charlie Dent and Rep. Pete Sessions took the lead in raising money for her. Backers said that even if Ms. Scozzafava diverges on some important issues, she would be a reliable vote for Republican leader John Boehner to become Speaker if Republicans manage to retake the House next year.

So why are so many Republicans less than enthused? At a closed-door meeting in Washington recently, Mr. Sessions reportedly came in for a drubbing by conservative members worried that Ms. Scozzafava will go wobbly on, say, opposing Big Labor's card check campaign. The Club for Growth, which recently endorsed her Conservative Party opponent Doug Hoffman, is planning on spending about $250,000 on ads in the district pounding her on the issues. Former senator and presidential candidate Fred Thompson has also endorsed Mr. Hoffman. If that weren't enough, Ms. Scozzafava, who represents a good chunk of the district in the state legislature and was supposed to cruise to victory on name-recognition, is suddenly trailing little-known Democratic first-timer Bill Owens in a new Siena College poll by 33% to 29%. (Mr. Hoffman, the Conservative Party candidate, is also coming on strong, now at 23%, up seven points in two weeks).

Her GOP critics have another reason to worry. Even if Ms. Scozzafava were somehow to eke out a win next month as a Republican, at the first sign of a conservative challenge, she might switch to the Democrats (who've already courted her). But at least one group feels vindicated -- the cynics who questioned Mr. Obama's motives in naming Mr. McHugh to the Pentagon post in the first place. The White House subsequently planted itself squarely in the battle to capture his seat. Joe Biden has already raised money for Mr. Owens, an air force veteran who runs a local law firm. Mr. Obama plans to headline an Owens fundraiser in New York City today. Also shaking the money tree is Bill Clinton, telling supporters the race is an important referendum on the Obama agenda in Washington. Democrats are going all-out to win the seat, and Republicans, outsmarting themselves, appear to have played right into the White House's hands.

The Weekly Standard has more here.

Upstate GOP bosses (county chairmen) met behind closed doors to nominate veteran assemblywoman Dede Scozzafava of Watertown, whose record qualifies her as the most liberal Republican congressional candidate in memory. She is pro-card check, pro-abortion, and twice voted in the assembly to legalize gay marriage. She repeatedly has won the endorsement of the ACORN-backed Working Families party, sharing that party's ballot with John Kerry in 2004 and Obama last year.

In her official assembly biography, she lists herself as chief operating officer of her family-owned corporation. But now that the firm is in trouble, facing state and federal tax liens, the local press reports she says "she has nothing to do" with the company. Meanwhile, her husband is the regional president of the AFL-CIO.

National Republican leaders have been bombarded by conservative activists to force the pull back of Scozzafava's nomination. To date the National Republican Campaign Committee is stubbornly sticking with her.

But there are developments in the 23rd that may make both political party machines irrelevant.

Doug Hoffman, a native of Saranac Lake, is a self-made successful businessman and accountant with offices throughout the district. A lifelong Republican, he had never thought of becoming a political candidate. The closest he had ever been to political power was shaking hands last year with New York governor David Paterson, who was awarding a medal of heroism to Hoffman's state trooper son, shot while successfully capturing a wanted criminal.

But something happened to Hoffman as he watched the special election in the neighboring 20th District. To Hoffman, the performance of the candidates perfectly exemplified the failure of national business and political leadership in America.

So when Republican chairmen announced they would select someone to run for the McHugh seat, Hoffman declared his candidacy. "If ever there was a time when we need people in Congress who can read a balance sheet, it is now," says Hoffman.

Like nine other candidates, he met with the party bosses behind closed doors to make the case for his candidacy. He learned of the Scozzafava nomination through a party press release.

In the days that followed, Hoffman was shocked to learn of Scozzafava's positions in press reports about the coming race. He called friends who put him in touch with conservative leaders, and a meeting was arranged with New York Conservative party chairman Mike Long who was in Lake Placid to watch his own son, a New York City fireman, run in the Iron Man Triathlon.

"I met [Hoffman] early in the morning," Long recalls. "I was struck by his honesty and his refreshing grasp of the issues. I didn't know they made people like this any more. I didn't try to talk him into running, but I sure didn't try to talk him out of it."

Driving back to his hotel after the meeting, Long thought to himself, "That man has a shot at being another Jim Buckley." In 1970 Buckley was elected to the U.S. Senate on the Conservative party line against two liberals, a Republican and a Democrat.

Update: John Fund writes more here.

Barracuda v. Scozzafava

Sarah Palin's decision to endorse the Conservative Party candidate in an upstate New York special election for Congress has dramatically raised the stakes in the race.

Establishment Republicans have largely lined up behind Republican Dede Scozzafava, despite a voting record in the state legislature that puts her to the left of half of the Democrats in that body. Ms. Palin, former House Majority Leader Dick Armey, former presidential candidate Fred Thompson, and Rep. Michelle Bachman of Minnesota are all backing Conservative Doug Hoffman, who narrowly failed to beat Ms. Scozzafava for the support of the ten GOP county chairmen who selected the Republican nominee.

Ms. Palin alluded to the fact that Ms. Scozzafava was picked by party bosses and not by a primary electorate. "Best of all, Doug Hoffman has not been anointed by any political machine," she wrote her supporters. "Unfortunately, the Republican Party today has decided to choose a candidate that more than blurs the lines, and there is no real difference between the Democrat and the Republican in this race. This is why Doug Hoffman is running on the Conservative Party's ticket."

Mr. Hoffman seems to have benefited from a surge of financial support in recent days, following an endorsement by the Club for Growth. His campaign reports that he has raised $210,000 in on-line contributions just since October 15.

The Hoffman campaign has used some of the cash to launch a radio ad lampooning an incident that befell the Scozzafava campaign earlier this week. Weekly Standard magazine reporter John McCormack went to a Scozzafava appearance to ask about her stances on union card-check legislation and other issues. Despite his persistent questioning, she refused to respond. After the meeting, Ms. Scozzafava's husband, a union organizer, insisted the police investigate the incident. Mr. McCormack was questioned and let go, even as the Scozzafava campaign accused him of "screaming" questions at their candidate.

Mr. McCormack promptly produced his tape of the meeting, which showed he never raised his voice. The Scozzafava campaign was forced to retract its accusation.

Mr. Hoffman has created a radio ad that simulates a "911" call to the police from a Scozzafava campaign worker apparently distressed at being asked questions. The make-believe aide says about Ms. Scozzafava: "She's a professional politician. Who has the right to ask her questions? Her campaign's going to get killed if taxpayers find out how liberal Scozzafava is."

This race will have many twists and turns before the November 3 election. President Obama has just emailed supporters an endorsement of Democrat Bill Owens, who narrowly leads both Ms. Scozzafava and Mr. Hoffman in the latest polls. Anything can happen in this race, but it looks increasingly like the Republican candidate may be slipping into third place. A poll last week showed Mr. Hoffman at 23%, only six points behind Ms. Scozzafava.

-- John Fund

The Baucus Reform Plan

Quite a fuss has been made about the Democratic health care reform plan conceptualized by Senator Max Baucus (D-MT), who chairs the Senate Finance Committee. His plan was generally scored very favorably by the Congressional Budget Office last week, which claimed that the plan "will reduce the overall federal deficit by $81 billion after 10 years with further savings beyond that".

What's interesting is that the Congressional Budget Office wasn't allowed to look at the actual text of the bill. In fact, the CBO scoring was based on verbal assumptions offered by the Senate Finance Committee that was likely anxious for any headline that was somewhat positive for their plan. According to John Fund,

Skeptics point out that the CBO numbers are written in sand. "This is an estimate of a concept, not a formal cost analysis of an actual bill," says Tennessee Sen. Lamar Alexander, chairman of the Senate Republican Conference. He points out the bill presumes massive Medicare cuts of a sort never delivered by Congress in the past. "We need to see the actual bill text and know its exact text before we begin a lengthy debate about whether it's the right direction for our country.

Nonetheless, the CBO scoring is likely to provide some political cover for conservative and moderate Democrats who are nervous about facing voters in 2010. Polls consistently show that the economy and deficits are bigger concerns to the public than the so-called "health care crisis" that the political Left insists will break the back of America.

Well, PriceWaterhouseCoopers just cried "foul" on the Baucus plan (hat tip to Powerlineblog.com)

Dumb "Reform"

Today's big news story is the release of a report by PriceWaterhouseCoopers on the impact the Senate Finance Committee's health care "reform" bill will have on health insurance premiums. PWC concluded that the cost of health insurance for the average family will rise by $4,000 by 2019, as compared with doing nothing:

The PWC analysis covered four features of the Baucus bill; the report acknowledges that other provisions of the bill could reduce costs slightly, but those reductions are very small compared to the effects discussed in the report.

Democrats responded angrily to the PWC report. AARP, which risibly denies that it is in the bag for the Dems, called it "fundamentally dishonest." A Baucus spokesman called the report "a hatchet job." The Democrats' denunciations are hollow, however. It is possible that they could have read the report before condemning it--it is only 26 pages long--but the PWC report relies mainly on statistical work done by the Hay Group, which is not part of the report and to my knowledge has not been made public. In any event, even if the Democrats had access to the Hay Group's work, they couldn't possibly have had time to analyze it.

Nor, of course, can I vouch for Hay's conclusions. But PWC is one of the world's most respected consulting firms. Its conclusions carry a great deal more weight than the fuzzy math and pie-in-the-sky assumptions that typically drive politicians' claims.

And the logic of the PWC report is clearly correct. I want to focus on just one feature of the Baucus plan that the PWC report addresses: the "weak mandate" to buy insurance, coupled with a strong requirement on the insurance industry that it insure everyone, regardless of pre-existing conditions or state of health. This combination will devastate the individual insurance market:

The modeling results summarized in the table below show the impact of the guarantee issue requirement coupled with a low, weak or no individual coverage requirement. In states that allow underwriting of individuals (45 states plus the District of Columbia), premiums could increase by approximately 41% to 59% on average by 2016, depending on the strength of the individual coverage requirement. These increases would take several years to be fully realized, but would begin to rise as unhealthy or sick individuals began to purchase coverage, while younger, healthier individuals decided it was less expensive for them to forgo coverage without consequence or consideration of the impact of the overall pool.

PWC is stating the issue politely, to say the least. What is meant by a "weak mandate" is that, in the current version of the Baucus bill, there is no requirement to buy health insurance at all until after 2013, and by 2017 the penalty for failing to buy health insurance still amounts to only about 15% of the cost of the insurance. Now, think about it: if you know that you don't have to buy health insurance when you are young and healthy, but if you should get sick, or just get older, you can apply for health insurance at any time and it will be illegal for the insurance company to turn you down, what would you do? Obviously, you would defer buying insurance unless and until you get sick. This means that the pool of those who are insured will be lower quality, and the cost therefore higher for everyone who buys insurance. It is as though you could wait until you die, and then your heirs can buy life insurance on you.

This isn't reform, it is stupidity.

It actually would be very easy to make health insurance cheaper. All we have to do is allow insurance companies to compete nationally instead of state-by-state and eliminate all mandates that limit consumer choice. It has been estimated that these simple reforms--which are not part of any of the Democrats' "reform" bills, for obvious reasons--would reduce health care costs by one-quarter to one-third. Instead of such common-sense reforms, the Dems are proposing Rube Goldberg measures that will make health care more expensive. Instead of eliminating mandates, their measures, including the Baucus bill, increase them--in effect making cheaper health insurance illegal.

Once more: this isn't reform, it is stupidity.