Clintonite Matt Miller Makes the Case Against the Public Option

matt millerMatt Miller is the host of my favorite treadmill companion, KCRW’s weekly podcast “Left, Right and Center.”  The four (sic) participants might more accurately be described as “Left, Left, Left and Right,” since Miller, who represents the nominal Center, is a former Clinton White House aide — although I’ll concede he’s more of a centrist than Arianna Huffington and Bob Scheer.  But I digress.

Miller is out today with a sensible op-ed titled “Why Liberals Should Drop the Public Option” in the Washington Post.  He argues that universal coverage can best be achieved by market-based means — pointing to Switzerland and the Netherlands as models, rather than “fully socialized systems, such as those in Britain and Canada.”

I respect those in my party who seek the single-payer system into which the public option might eventually evolve. But I don’t agree that it’s the best answer for the United States. Though single payer has merits, especially in administrative efficiency, it is also likely to freeze in place our fragmented, uncoordinated system of fee-for-service care. It would encourage providers to goose volume (to boost their incomes) rather than improve quality and would offer greater rewards for providers of acute care when we need a fresh focus on chronic disease management. Single payer also asks government to do things I don’t think it is competent to do, such as setting prices across a large swath of the health sector in ways that seem certain to create damaging rigidities or resource misallocations (as happens in Medicare).

Finally, if government is the sole payer, provider payments will become even more politicized than they are today. On the eve of beneficial innovations in drug therapies, devices and cost-effective ways to deliver better care, it is ill-advised to make the government’s hand too rigid. Private health plans have many flaws, to be sure, but if sensibly regulated they’re likely to respond more nimbly to disperse medical innovations.

Liberals should make peace with the notion that a regulated market of competing private health plans can be the vehicle for getting everyone covered.

This argument resonates for me — even though in a single paragraph (see boldfacing), Miller opines that single-payer would be more efficient, then notes that Medicare (a limited single-payer system) causes resource misallocations.

No system will be perfect, but to me it’s axiomatic that competing, regulated insurers will be more responsive to change and innovation than a government bureaucracy.

BTW, I found Miller’s column via “The Slatest,” Slate‘s new thrice-daily compilation of the hottest stories in the current news cycle.  My politics have moved to the right since 1998, when I (and perhaps a few dozen other people) shelled out $19.95 for a year’s subscription to Slate, but I still give them props for online innovation.  I also like their weekly political podcast, “The Gabfest” — even though it could be described as Left, Left and Left.

The Perverse Incentives of Our Health-Care System

healthcare costsAn article in the September Atlantic does the best job I have ever seen of describing why health care is so resistant to cost-control efforts.  At 11,000 words, “How American Health Care Killed My Father” is not a quick read, but it’s not a dry policy treatise by any means.  (Hat tip: TigerHawk.)

When David Goldhill’s father died from an infection he contracted in the hospital, Goldhill went looking for someone to blame.

But my dad’s doctors weren’t incompetent—on the contrary, his hospital physicians were smart, thoughtful, and hard-working. Nor is he dead because of indifferent nursing—without exception, his nurses were dedicated and compassionate. Nor from financial limitations—he was a Medicare patient, and the issue of expense was never once raised. There were no greedy pharmaceutical companies, evil health insurers, or other popular villains in his particular tragedy.

As a business executive, Goldhill is no enemy of capitalism or market-based systems.  As a self-identified Democrat, he is no enemy of government.  And while he may have started his year-long research effort in anger over his father’s premature death, he has produced an absorbing essay that is remarkably measured and clear-eyed. Anyone of any political stripe who cares about America’s health-care system would benefit from reading it.

Some excerpts, with emphasis added:

But health insurance is different from every other type of insurance. Health insurance is the primary payment mechanism not just for expenses that are unexpected and large, but for nearly all health-care expenses. We’ve become so used to health insurance that we don’t realize how absurd that is. We can’t imagine paying for gas with our auto-insurance policy, or for our electric bills with our homeowners insurance, but we all assume that our regular checkups and dental cleanings will be covered at least partially by insurance.

Insurance is probably the most complex, costly, and distortional method of financing any activity; that’s why it is otherwise used to fund only rare, unexpected, and large costs. Imagine sending your weekly grocery bill to an insurance clerk for review, and having the grocer reimbursed by the insurer to whom you’ve paid your share. An expensive and wasteful absurdity, no?

Is this really a big problem for our health-care system? Well, for every two doctors in the U.S., there is now one health-insurance employee—more than 470,000 in total. In 2006, it cost almost $500 per person just to administer health insurance. Much of this enormous cost would simply disappear if we paid routine and predictable health-care expenditures the way we pay for everything else—by ourselves.

The unfortunate fact is, health-care demand has no natural limit. Our society will always keep creating new treatments to cure previously incurable problems. Some of these will save lives or add productive years to them; many will simply make us more comfortable. That’s all to the good. But the cost of this comfort, and whether it’s really worthwhile, is never calculated—by anyone. For almost all our health-care needs, the current system allows us as consumers to ask providers, “What’s my share?” instead of “How much does this cost?”—a question we ask before buying any other good or service. And the subtle difference between those two questions is costing us all a fortune.

How would the health-care reform that’s now taking shape solve these core problems? The Obama administration and Congress are still working out the details, but it looks like this generation of “comprehensive” reform will not address the underlying issues, any more than previous efforts did. Instead it will put yet more patches on the walls of an edifice that is fundamentally unsound—and then build that edifice higher.

You get the idea.  Read the whole thing.

(Illustration from The Atlantic.)

Madoff Hoped for Eventual Freedom

Bernie Madoff got the maximum sentence of 150 years in prison for stealing billions in what the judge called his “extraordinarily evil” Ponzi scheme. Probably it should now be renamed a Madoff scheme — Mr. Ponzi has been dead since 1949, and his take was denominated in mere millions. He was sentenced to only five years in prison in his initial trial for the scheme that made him famous, and upon release he promptly returned to a life of crime.

Madoff, 71, will never draw another free breath, and that’s probably the way it should be.  I hereby repent from my smug earlier post, “Sorry, No Tears Here for Madoff’s Clients,” written just days after Madoff’s arrest, when it seemed like the victims were primarily high-rollers who got too greedy chasing returns that were too good to be true.  It turns out many of the victims are clearly worthy of sympathy, and besides, even high-rollers don’t deserve to be cheated in a highly sophisticated scheme.

Interestingly, Madoff’s attorney had suggested a sentence of 12 years, a duration one year shorter than his expected lifespan according to the actuarial tables.  You know you’re in trouble when your own lawyer wants to put you away for 12 years.

Obama’s Intimidation Trumps Fiduciary Duty

The group of secured lenders who were holding out for fair treatment in the Chrysler bankruptcy has disbanded, after two more defections in the face of pressure from the Arm-Twister in Chief.

“After a great deal of soul-searching and quite frankly agony, Chrysler’s non-TARP lenders concluded they just don’t have the critical mass to withstand the enormous pressure and machinery of the US government,” [said] Thomas E. Lauria, … the lead lawyer for the group. “As a result, they have collectively withdrawn their participation in the court case.”

Welcome to our new, nationalized banking industry.  Think twice before relying on contractual guarantees or the rule of law, especially if you’re doing business with a Democratic constituency like the UAW.

When Obama Says “Hedge Fund,” Think “Widows and Orphans”

chrysler-winged-badgeAt least one of Chrysler’s “secured” lenders is vowing to stand fast against President Obama’s efforts to bully the lenders into abdicating their fiduciary responsibility.

NEW YORK (Reuters) – Plans for a quick sale of Chrysler to a new company majority-owned by a union-aligned trust is “patently illegal” and will be fought in bankruptcy court, one of the holders of the automaker’s secured debt said on Thursday.

“We don’t succumb to pressure and don’t agree to unfair and illegal payment schemes,” said George J. Schultze, the managing member of Schultze Asset Management. “We’re not conflicted by TARP money or active stress tests.”

Good for him.  I just hope he has bodyguards.

Obama is all too willing to stir populist anger in support of his favored constituencies.  It’s important to understand just how perversely Obama is framing the debate — and why his cram-down tactics make it less likely that future troubled borrowers will be able to raise the capital they need.

In criticizing the “hedge funds” that refused the terms that might temporarily have kept Chrysler out of bankruptcy court,  he said:

I don’t stand with them.  I stand with Chrysler’s employees and their families and communities.  I stand with Chrysler’s management, its dealers, and its suppliers. I stand with the millions of Americans who own and want to buy Chrysler cars.  I don’t stand with those who held out when everybody else is making sacrifices.

OK, Mr. President, I got it: hedge funds = bad, families and communities = good.  But at Pajamas Media, Tom Blumer reminds us that hedge funds manage money not just on behalf of rich people, but also on behalf of retirement funds, pensioners, college endowments and other constituencies that are every bit as much a part of the fabric of America as the UAW is.

He also describes the legal duty these secured lenders owe to the ultimate owners of the securities.

The Employee Retirement Income Security Act (ERISA), passed in 1974 with strong bipartisan support, subjects retirement plans to a very strict standard of fiduciary duty, specifically:

(1) … a fiduciary shall discharge his duties with respect to a plan solely in the interest of the participants and beneficiaries and —

(A) for the exclusive purpose of:

(i) providing benefits to participants and their beneficiaries; and

(ii) defraying reasonable expenses of administering the plan

There is nothing ambiguous about this requirement and nothing about the word “solely” or the term “exclusive purpose” to misunderstand.

Mr. Schultze and the secured lenders are trying to protect their investors by enforcing the agreement that was made when the capital was supplied to Chrysler.  In a bankruptcy, secured creditors are entitled to recover 100% of their money before unsecured creditors receive a penny.  That’s the deal they signed up for, and that “security” is why they were willing to supply capital to a basket-case company.  That protection was baked into the terms of the funding agreements.

In Chrysler’s case, as in many bankruptcies, the secured lenders were willing to settle for less than 100%, even while letting the unsecured lenders share in the settlement, for the purpose of trying to nurse the company back to health.  Blumer explains:

In a normal bankruptcy, first-lien creditors get paid what they are owed before anyone else. Since assets rarely fetch their ongoing-use value in liquidation, it appears reasonable that Lauria’s group [the secured creditors] would have come down in negotiations from 100% to 65%, and then to 50%, in the interest of avoiding bankruptcy. Presumably, 50% is a reasonable estimate of what might be realized in liquidation.

But if the secured creditors think they can recover more money for their investors by forcing a liquidation, they have a fiduciary duty to do so.  If they don’t get a higher payout than the unsecured creditors, they are betraying their investors, and making it less likely that troubled companies will be able to raise capital in the future.   That’s what Obama is trying to force by demonizing the holdout creditors.

The big TARP-program banks that agreed to the Chrysler deal had already had their turn at being beaten into submission less than a month earlier, when Obama told their CEOs “my administration is the only thing between you and the pitchforks.”   In the face of that fairly explicit threat from the most powerful man in the world, it’s unsurprising that they would fall into line the next time push came to shove.  I’m just glad that at least one smaller, less conficted creditor is willing to stand up for the rule of law.

Obama’s Not-So-Invisible Hand

Now that the Automaker-in-Chief has fired the CEO of General Motors and instructed Chrysler to sell itself to Fiat by the end of April,  he’s turning his attention to a variety of other essential American industries, from blue jeans (“Levis yes; Wrangler no”) to toothpaste to ballpoint pens.  President Obama also graciously acknowledged the important consultative role played by former President Clinton.

(Ed. note: alas, the Saturday Night Live video clip originally displayed here is no longer posted anywhere I can find.  But here’s a transcript of the skit.)

Here’s hoping that the president’s next step will be to instruct corporate America to make greater use of independent consulting services.

Slouching Towards Europe: Obama’s Domestic Agenda Undercuts American Exceptionalism

obama-flagI’ve been pleasantly surprised by President Obama’s steadfastness regarding national security issues.  After winning his party’s nomination by promising to surrender in Iraq more quickly than the other Democrats would, Obama has:

  • retained his predecessor’s defense secretary;
  • adopted his predecessor’s timetable for responsible disengagement in Iraq;
  • supported his own rhetoric about the importance of Afghanistan by sending more troops; and
  • continued, as recently as Saturday, his predecessor’s policy of pilotless drone missile strikes at Taliban and al Qaeda fighters in Pakistan.

Credit where credit is due: Thank you, President Obama.

But in the long run, America’s national security depends as much on our economy as it does on our military prowess. And on that score, my Obama-inspired surprises have been less pleasant.

Senator Tom Coburn of Oklahoma sums it up:

I believe President Obama has proposed the most significant shift toward collectivism and away from capitalism in the history of our republic. I believe his budget aspires to not merely promote economic recovery but to lay the groundwork for sweeping expansions of government authority in areas like health care, energy and even daily commerce. If handled poorly, I’m concerned this budget could turn our government into the world’s largest health care provider, mortgage bank or car dealership, among other things.

In short, the goal seems to be to make America more like Europe.  And while there is much to admire in Europe’s history, to emulate the Europe of today is to risk compromising the self-sufficiency and sense of personal empowerment that have made America the strongest country in the world, both militarily and economically.  Charles Murray:

If we ask what are the institutions through which human beings achieve deep satisfactions in life, the answer is that there are just four: family, community, vocation, and faith. Two clarifications: “Community” can embrace people who are scattered geographically. “Vocation” can include avocations or causes. …

Seen in this light, the goal of social policy is to ensure that those institutions are robust and vital. And that’s what’s wrong with the European model. It doesn’t do that. It enfeebles every single one of them. …

The problem is this: Every time the government takes some of the trouble out of performing the functions of family, community, vocation, and faith, it also strips those institutions of some of their vitality–it drains some of the life from them. It’s inevitable. Families are not vital because the day-to-day tasks of raising children and being a good spouse are so much fun, but because the family has responsibility for doing important things that won’t get done unless the family does them. Communities are not vital because it’s so much fun to respond to our neighbors’ needs, but because the community has the responsibility for doing important things that won’t get done unless the community does them. Once that imperative has been met–family and community really do have the action–then an elaborate web of social norms, expectations, rewards, and punishments evolves over time that supports families and communities in performing their functions. When the government says it will take some of the trouble out of doing the things that families and communities evolved to do, it inevitably takes some of the action away from families and communities, and the web frays, and eventually disintegrates.

Murray’s lengthy speech is worth reading in its entirety, but here’s another key excerpt:

American exceptionalism is not just something that Americans claim for themselves. Historically, Americans have been different as a people, even peculiar, and everyone around the world has recognized it. I’m thinking of qualities such as American optimism even when there doesn’t seem to be any good reason for it. That’s quite uncommon among the peoples of the world. There is the striking lack of class envy in America–by and large, Americans celebrate others’ success instead of resenting it. That’s just about unique, certainly compared to European countries, and something that drives European intellectuals crazy. And then there is perhaps the most important symptom of all, the signature of American exceptionalism–the assumption by most Americans that they are in control of their own destinies. It is hard to think of a more inspiriting quality for a population to possess, and the American population still possesses it to an astonishing degree. No other country comes close. …

The exceptionalism has not been a figment of anyone’s imagination, and it has been wonderful. But it isn’t something in the water that has made us that way. It comes from the cultural capital generated by the system that the Founders laid down, a system that says people must be free to live life as they see fit and to be responsible for the consequences of their actions; that it is not the government’s job to protect people from themselves; that it is not the government’s job to stage-manage how people interact with each other. Discard the system that created the cultural capital, and the qualities we love about Americans can go away. In some circles, they are going away.

Some level of increased government intervention is necessary to avoid catastrophic damage to the global economy.  But the Obama administration, having decided not to let a good crisis go to waste, has set off on a course that will vastly increase the scope of government power.  This needs to be resisted.

"Stimulus" Bill Would Gut Welfare Reform

Buried deep in the so-called “stimulus” bill is an appalling sneak attack on one of the most important positive legacies of the previous Democratic president. As a National Review Online headline calls it, the provision amounts to “Ending Welfare Reform as We Knew It.”

At the Heritage Foundation website, Robert E. Rector and Katherine Bradley explain:

Under the old AFDC (Aid to Families with Dependent Children) program, states were given more federal funds if their welfare caseloads were increased, and funds were cut whenever the state caseload fell. This structure created a strong incentive for states to swell the welfare rolls. Prior to reform, one child in seven was receiving AFDC benefits.

When welfare reform replaced the old AFDC system with TANF (Temporary Assistance to Needy Families), this perverse financial incentive to increase dependence was eliminated. Each state was given a flat funding level that did not vary whether the state increased or decreased its caseload. In addition, states were given the goal of reducing welfare dependence (or at least of requiring welfare recipients to prepare for employment).

The House and Senate stimulus bills will overturn the fiscal foundation of welfare reform and restore an AFDC-style funding system. For the first time since 1996, the federal government would begin paying states bonuses to increase their welfare caseloads. Indeed, the new welfare system created by the stimulus bills is actually worse than the old AFDC program because it rewards the states more heavily to increase their caseloads. Under the stimulus bills, the federal government will pay 80 percent of cost for each new family that a state enrolls in welfare; this matching rate is far higher than it was under AFDC.

It is clear that–in both the House and Senate stimulus bills–the original goal of helping families move to employment and self-sufficiency and off long-term dependence on government assistance has instead been replaced with the perverse incentive of adding more families to the welfare rolls. The House bill provides $4 billion per year to reward states to increase their TANF caseloads; the Senate bill follows the same policy but allocates less money.

On August 22, 1996, President Bill Clinton signed the Responsibility and Work Opportunity Reconciliation Act, which imposed work requirements, provided job training and education, limited the length of time an individual could spend on welfare — and perhaps most importantly, changed the funding mechanism to eliminate the “perverse incentives” described above. This fulfilled the vow Clinton made in his first inaugural speech, to “end welfare as we know it.”

I’ve grown more conservative since the days when I voted for Clinton twice, but even during his presidency I admired him for his two most conservative accomplishments — welfare reform and NAFTA. Now the first of those stands to be undone, and the “stimulus” bill also undermines the spirit of NAFTA, requiring that all iron and steel used for construction under the bill must be produced in America.

I’m not so penurious as to want to abolish welfare altogether. I just think it should be, as Clinton described it, a temporary “hand up,” not a permanent “hand out.” Welfare should not become a multigenerational way of life. I don’t think there’s anything unreasonable about requiring that any adult welfare recipient who is physically able to work should be working or training for work as a condition of participation.

Some have argued that welfare reform has hurt poor children and that the provisions should be liberalized. Fine; let’s have that debate. But don’t sneak the change into a provision buried 600 pages deep in a 1,600 page “stimulus” bill. There is nothing stimulating about giving the states a financial incentive to add more people to the welfare rolls.

Grateful to Live in the Shining City on the Hill

Conservative Peggy Noonan takes a step back from the gloomy economy and focuses on the big picture:

People are angry but don’t have a plan, and they’ll give the incoming president unprecedented latitude and sympathy, cheering him on. I told a friend it feels like a necessary patriotic act to be supportive of him, and she said, “Oh hell, it’s a necessary selfish act—I want him to do well so I survive. We all do!”

This is a good time to remember who we are, or rather just a few small facts of who we are. We are the largest and most technologically powerful economy in the world, the leading industrial power of the world, and the wealthiest nation in the world. “There’s a lot of ruin in a nation,” said Adam Smith. There’s a lot of ruin in a great economy, too. We are the oldest continuing democracy in the world, operating, since March 4, 1789, under a vibrant and enduring constitution that was formed by geniuses and is revered, still, coast to coast. We don’t make refugees, we admit them. When the rich of the world get sick, they come here to be treated, and when their children come of age, they send them here to our universities. We have a supple political system open to reform, and a wildly diverse culture that has moments of stress but plenty of give.

The point is not to say rah-rah, paint our faces blue and bray “We’re No. 1.” The point is that while terrible challenges face us—improving a sick public education system, ending the easy-money culture, rebuilding the economy—we are building from an extraordinary, brilliant and enduring base.

In the second presidential debate, on October 7, it was already becoming clear that my candidate was going to be defeated. The next day I wrote, “I’m starting to get used to the idea of President Obama.” But while McCain was outmatched in that debate, he gave me one moment of inspiration:

I’ve heard a lot of criticism about America, and our national security policy, and all that, and much of that criticism is justified. But the fact is, America is the greatest force for good in the history of the world.

Yes. My preferred formulation has always been, “America is the greatest force for good in the world this side of the Almighty.” But McCain has a bigger soapbox and a far more noble resume — I’ll sign on to his version.

I mean no disrespect for any other country. About 9% of my readers come from outside the United States, according to the flag-bedecked widget in the right column. Just this morning I logged my first visitor (since installing the widget) from Slovenia — Dobrodošel! (That supposedly means “welcome!” in Slovenian.)

Other cultures are worthy of respect, and great people can emerge from any nation. But some people will always face greater challenges because of where they live. Those of us who have been born as American citizens need to remember from time to time that we hit the citizenship lottery.

Sorry, No Tears Here for Madoff’s Clients

(After learning more about Madoff’s victims, I recanted in a later post — KP)

Apparently regulators ignored warning signs for more than a decade while Bernie Madoff stole and/or lost as much as $50 billion of his clients’ money. Holman Jenkins explains why we should not waste our sympathy on the clients:

There are costs and benefits to everything, including the cumbersome apparatus of firms that subject themselves to intrusive monitoring and conform to standards of transparency. Mr. Madoff’s clients chose to avoid those costs. For that matter, they chose to forgo lower but safer returns, as many rich people do, by entrusting their fortunes to T-bills.

The herding automatons of the media can never encounter lawbreaking in the financial markets without concluding that it demonstrates the necessity of more laws against lawbreaking. Congress, now in the process of convincing itself it should run the auto industry, no doubt will see in Mr. Madoff proof that Congress is needed to manage rich people’s money and ordinary people’s too. Then we’ll all be in the same position as Mr. Madoff’s clients.

I’ve never been burdened by great wealth. Hedge funds like those that invested with Mr. Madoff typically require $1 million or more to open an account — no danger for me! As a 50-year-old “thousandaire,” I probably don’t have to worry about what I would do with a million dollars in investable assets.

But it’s at least theoretically possible that I could strike it rich — by starting a successful business, say, or writing a bestselling book. If so, I’ll have to have quite a few “safe millions” in investments no riskier than an S&P 500 index fund before I’ll even think of risking a million dollars with a hedge fund.

Most of the investors who lost millions have other millions to fall back on. Somewhere there may be an investor who invested his only millions with a fund victimized by Mr. Madoff. If so… well… bummer. But no tears here.