Tag Archives: Price Controls

It’s a Big Government Mess

22 Tuesday Nov 2022

Posted by in Big Government, Uncategorized

≈ 1 Comment

Tags

, , , , , , , , , , , , , , , , , , , , ,

I’m really grateful to have the midterm elections behind us. Well, except for the runoff Senate race in Georgia, the cockeyed ranked-choice Senate race in Alaska, and a few stray House races that remain unsettled after almost two weeks. I’m tired of campaign ads, including the junk mail and pestering “unknown” callers — undoubtedly campaign reps or polling organizations.

It’s astonishing how much money is donated and spent by political campaigns. This year’s elections saw total campaign spending (all levels) hit $16.7 billion, a record for a mid-term. The recent growth in campaign spending for federal offices has been dramatic, as the chart below shows:

Do you think spending of a few hundred million dollars on a Senate campaign is crazy? Me too, though I don’t advocate for legal limits on campaign spending because, for better or worse, that issue is entangled with free speech rights. Campaigns are zero-sum events, but presumably a big donor thinks a success carries some asymmetric reward…. A success rate of better than 50% across several campaigns probably buys much more…. And donors can throw money at sure political bets that are probably worth a great deal…. Many donors spread their largess across both parties, perhaps as a form of “protection”. But it all seems so distasteful, and it’s surely a source of waste in the aggregate.

My reservations about profligate campaign spending include the fact that it is a symptom of big government. Donors obviously believe they are buying something that government, in one way or another, makes possible for them. The greater the scope of government activity, the more numerous are opportunities for rent seeking — private gains through manipulation of public actors. This is the playground of fascists!

There are people who believe that placing things in the hands of government is an obvious solution to the excesses of “greed”. However, politicians and government employees are every bit as self-interested and “greedy” as actors in the private sector. And they can do much more damage: government actors legally exercise coercive power, they are not subject in any way to external market discipline, and they often lack any form of accountability. They are not compelled to respect consumer sovereignty, and they make correspondingly little contribution to the nation’s productivity and welfare.

Actors in the private sector, on the other hand, face strong incentives to engage in optimizing behavior: they must please customers and strive to improve performance to stay ahead of their competition. That is, unless they are seduced by what power they might have to seek rents through public sector activism.

A people who grant a wide scope of government will always suffer consequences they should expect, but they often proceed in abject ignorance. So here is my rant, a brief rundown on some of the things naive statists should expect to get for their votes. Of course, this is a short list — it could be much longer:

  • Opportunities for graft as bureaucrats administer the spending of others’ money and manipulate economic activity via central planning.
  • A ballooning and increasingly complex tax code seemingly designed to benefit attorneys, the accounting profession, and certainly some taxpayers, but at the expense of most taxpayers.
  • Subsidies granted to producers and technologies that are often either unnecessary or uneconomic (and see here), leading to malinvestment of capital. This is often a consequence of the rent seeking and cronyism that goes hand-in-hand with government dominance and ham-handed central planning.
  • Redistribution of existing wealth, a zero- or even negative-sum activity from an economic perspective, is prioritized over growth.
  • Redistribution beyond a reasonable safety net for those unable to work and without resources is a prescription for unnecessary dependency, and it very often constitutes a surreptitious political buy-off.
  • Budgetary language under which “budget cuts” mean reductions in the growth of spending.
  • Large categories of spending, known in the U.S. as non-discretionary entitlements, that are essentially off limits to lawmakers within the normal budget appropriations process.
  • “Fiscal illusion” is exploited by politicians and statists to hide the cost of government expansion.
  • The strained refrain that too many private activities impose external costs is stretched to the point at which government authorities externalize internalities via coercive taxes, regulation, or legal actions.
  • Massive growth in regulation (see chart at top) extending to puddles classified as wetlands (EPA), the ”disparate impacts” of private hiring practices (EEOC), carbon footprints of your company and its suppliers (EPA, Fed, SEC), outrageous energy efficiency standards (DOE), and a multiplicity of other intrusions.
  • Growth in the costs of regulatory compliance.
  • A nearly complete lack of responsiveness to market prices, leading to misallocation of resources — waste.
  • Lack of value metrics for government activities to gauge the public’s “willingness to pay”.
  • Monopoly encouraged by regulatory capture and legal / compliance cost barriers to competition. Again, cronyism.
  • Monopoly granted by other mechanisms such as import restrictions and licensure requirements. Again, cronyism.
  • Ruination of key industries as government control takes it’s grip.
  • Shortages induced by price controls.
  • Inflation and diminished buying power stoked by monetized deficits, which is a long tradition in financing excessive government.
  • Malinvestment of private capital created by monetary excess and surplus liquidity.
  • That malinvestment of private capital creates macroeconomic instability. The poorly deployed capital must be written off and/or reallocated to productive uses at great cost.
  • Funding for bizarre activities folded into larger budget appropriations, like holograms of dead comedians, hamster fighting experiments, and an IHOP for a DC neighborhood.
  • A gigantic public sector workforce in whose interest is a large and growing government sector, and who believe that government shutdowns are the end of the world.
  • Attempts to achieve central control of information available to the public, and the quashing of dissent, even in a world with advanced private information technology. See the story of Hunter Biden’s laptop. This extends to control of scientific narratives to ensure support for certain government programs.
  • Central funding brings central pursestrings and control. This phenomenon is evident today in local governance, education, and science. This is another way in which big government fosters dependency.
  • Mission creep as increasing areas of economic activity are redefined as “public” in nature.
  • Law and tax enforcement, security, and investigative agencies pressed into service to defend established government interests and to compromise opposition.

I’ve barely scratched the surface! Many of the items above occur under big government precisely because various factions of the public demand responses to perceived problems or “injustices”, despite the broader harms interventions may bring. The press is partly responsible for this tendency, being largely ignorant and lacking the patience for private solutions and market processes. And obviously, those kinds of demands are a reason government gets big to begin with. In the past, I’ve referred to these knee-jerk demands as “do somethingism”, and politicians are usually too eager to play along. The squeaky wheel gets the oil.

I mentioned cronyism several times in the list. The very existence of broad public administration and spending invites the clamoring of obsequious cronies. They come forward to offer their services, do large and small “favors”, make policy suggestions, contribute to lawmakers, and to offer handsomely remunerative post-government employment opportunities. Of course, certaIn private parties also recognize the potential opportunities for market dominance when regulators come calling. We have here a perversion of the healthy economic incentives normally faced by private actors, and these are dynamics that gives rise to a fascist state.

It’s true, of course, that there are areas in which government action is justified, if not necessary. These include pure public goods such as national defense, as well as public safety, law enforcement, and a legal system for prosecuting crimes and adjudicating disputes. So a certain level of state capacity is a good thing. Nevertheless, as the list suggests, even these traditional roles for government are ripe for unhealthy mission creep and ultimately abuse by cronies.

The overriding issue motivating my voting patterns is the belief in limited government. Both major political parties in the U.S. violate this criterion, or at least carve out exceptions when it suits them. I usually identify the Democrat Party with statism, and there is no question that democrats rely far too heavily on government solutions and intervention in private markets. The GOP, on the other hand, often fails to recognize the statism inherent in it’s own public boondoggles, cronyism, and legislated morality. In the end, the best guide for voting would be a political candidate’s adherence to the constitutional principles of limited government and individual liberty, and whether they seem to understand those principles. Unfortunately, that is often too difficult to discern.

Biden’s Rx Price Controls: Cheap Politics Over Cures

08 Tuesday Nov 2022

Posted by in Prescription Drugs, Price Controls, Uncategorized

≈ 1 Comment

Tags

, , , , , , , , , , , , , , , , , , , , , , ,

You can expect dysfunction when government intervenes in markets, and health care markets are no exception. The result is typically over-regulation, increased industry concentration, lower-quality care, longer waits, and higher costs to patients and taxpayers. The pharmaceutical industry is one of several tempting punching bags for ambitious politicians eager to “do something” in the health care arena. These firms, however, have produced many wonderful advances over the years, incurring huge research, development, and regulatory costs in the process. Reasonable attempts to recoup those costs often means conspicuously high prices, which puts a target on their backs for the likes of those willing to characterize return of capital and profit as ill-gotten.

Biden Flunks Econ … Again

Lately, under political pressure brought on by escalating inflation, Joe Biden has been talking up efforts to control the prices of prescription drugs for Medicare beneficiaries. Anyone with a modicum of knowledge about markets should understand that price controls are a fool’s errand. Price controls don’t make good policy unless the goal is to create shortages.

The preposterously-named Inflation Reduction Act is an example of this sad political dynamic. Reducing inflation is something the Act won’t do! Here is Wikipedia’s summary of the prescription drug provisions, which is probably adequate for now:

“Prescription drug price reform to lower prices, including Medicare negotiation of drug prices for certain drugs (starting at 10 by 2026, more than 20 by 2029) and rebates from drug makers who price gouge… .”

“The law contains provisions that cap insulin costs at $35/month and will cap out-of-pocket drug costs at $2,000 for people on Medicare, among other provisions.”

Unpacking the Blather

“Price gouging”, of course, is a well-worn term of art among anti-market propagandists. In this case it’s meaning appears to be any form of non-compliance, including those for which fees and rebates are anticipated.

The insulin provision is responsive to a long-standing and misleading allegation that insulin is unavailable at reasonable prices. In fact, insulin is already available at zero cost as durable medical equipment under Medicare Part B for diabetics who use insulin pumps. Some types and brands of insulin are available at zero cost for uninsured individuals. A simple internet search on insulin under Medicare yields several sources of cheap insulin. GoodRx also offers brands at certain pharmacies at reasonable costs.

As for the cap on out-of-pocket spending under Part D, limiting the patient’s payment responsibility is a bad way to bring price discipline to the market. Excessive third-party shares of medical payments have long been implicated in escalating health care costs. That reality has eluded advocates of government health care, or perhaps they simply prefer escalating costs in the form of health care tax burdens.

Negotiated Theft

The Act’s adoption of the term “negotiation” is a huge abuse of that word’s meaning. David R. Henderson and Charles Hooper offer the following clarification about what will really happen when the government sits down with the pharmaceutical companies to discuss prices:

“Where CMS is concerned, ‘negotiations’ is a ‘Godfather’-esque euphemism. If a drug company doesn’t accept the CMS price, it will be taxed up to 95% on its Medicare sales revenue for that drug. This penalty is so severe, Eli Lilly CEO David Ricks reports that his company treats the prospect of negotiations as a potential loss of patent protection for some products.”

The first list of drugs for which prices will be “negotiated” by CMS won’t take effect until 2026. However, in the meantime, drug companies will be prohibited from increasing the price of any drug sold to Medicare beneficiaries by more than the rate of inflation. Price control is the correct name for these policies.

Death and Cost Control

Henderson and Hooper chose a title for their article that is difficult for the White House and legislators to comprehend: “Expensive Prescription Drugs Are a Bargain“. The authors first note that 9 out of 10 prescription drugs sold in the U.S. are generics. But then it’s easy to condemn high price tags for a few newer drugs that are invaluable to those whose lives they extend, and those numbers aren’t trivial.

Despite the protestations of certain advocates of price controls and the CBO’s guesswork on the matter, the price controls will stifle the development of new drugs and ultimately cause unnecessary suffering and lost life-years for patients. This reality is made all too clear by Joe Grogan in the Wall Street Journal in “The Inflation Reduction Act Is Already Killing Potential Cures” (probably gated). Grogan cites the cancellation of drugs under development or testing by three different companies: one for an eye disease, another for certain blood cancers, and one for gastric cancer. These cancellations won’t be the last.

Big Pharma Critiques

The pharmaceutical industry certainly has other grounds for criticism. Some of it has to do with government extensions of patent protection, which prolong guaranteed monopolies beyond points that may exceed what’s necessary to compensate for the high risk inherent in original investments in R&D. It can also be argued, however, that the FDA approval process increases drug development costs unreasonably, and it sometimes prevents or delays good drugs from coming to market. See here for some findings on the FDA’s excessive conservatism, limiting choice in dire cases for which patients are more than willing to risk complications. Pricing transparency has been another area of criticism. The refusal to release detailed data on the testing of Covid vaccines represents a serious breach of transparency, given what many consider to have been inadequate testing. Big pharma has also been condemned for the opioid crisis, but restrictions on opioid prescriptions were never a logical response to opioid abuse. (Also see here, including some good news from the Supreme Court on a more narrow definition of “over-prescribing”.)

Bad policy is often borne of short-term political objectives and a neglect of foreseeable long-term consequences. It’s also frequently driven by a failure to understand the fundamental role of profit incentives in driving innovation and productivity. This is a manifestation of the short-term focus afflicting many politicians and members of the public, which is magnified by the desire to demonize a sector of the economy that has brought undeniable benefits to the public over many years. The price controls in Biden’s Inflation Reduction Act are a sure way to short-circuit those benefits. Those interventions effectively destroy other incentives for innovation created by legislation over several decades, as Joe Grogan describes in his piece. If you dislike pharma pricing, look to reform of patenting and the FDA approval process. Those are far better approaches.

Conclusion

Note: The image above was created by “Alexa” for this Washington Times piece from 2019.

Fueled, Ignored, Misdiagnosed in DC, Inflation Broadens

18 Monday Jul 2022

Posted by in Inflation

≈ Leave a comment

Tags

, , , , , , , , , , , ,

Inflation accelerated at the consumer level in June and the advances continued to broaden. That’s confirmed by the median item in the Consumer Price Index (CPI) and a measure of the CPI that “trims” out items with the largest and smallest price hikes (see chart above from the Cleveland Fed). Wholesale inflation also picked up in June. At this point, there’s a very real danger that increasing expectations of future inflation are getting embedded into current pricing decisions. Once that happens, the cycle is very hard to break. And wage rates are not keeping pace, so inflation is reducing real incomes for many workers. The sad fact is that inflation takes its greatest toll on the well being of low income earners.

And why did inflation accelerate from 1.4% in January 2021 to 9.2% in June? Don’t ask Joe Biden, at least not if you want a straight answer. He’s been changing his tune almost every month, with a rotating cast of the characters coming in for blame. First, the story was that higher inflation was just transitory; then too, the Administration said it only hurt the rich, a wholly preposterous assertion; the blame then shifted to the oil companies; then to Putin; and then big corporations generally; more recently, it’s independent gas retailers! Nothing is said about Biden’s early pledge to shut down fossil fuels. Nothing is said about the federal government’s profligate spending and the money printing that paid for it. Nothing is said about the extended payment of unemployment benefits, which pinched labor supply. More generally, nothing is said about the extension of Biden’s pandemic emergency powers, which allows continued Medicaid and food stamp benefits to many who are otherwise ineligible. The federal spigot has been wide open!

So here’s a quick synopsis of events leading to our inflationary surge: demand strengthened as pandemic restrictions were lifted across the country. Unfortunately, businesses were not ready to meet that level of demand. Operations had been sharply curtailed during the pandemic all along business supply chains. Hiring staff was next to impossible for many firms, especially given the Biden Administration’s ineptitude with respect to labor incentives. The Administration also set out to starve the fossil fuel industry of capital and to shut down drilling and refining operations through restrictions and binding regulations. The price of oil began to soar early in the Administration, which has been working its way into the prices of other goods and services, including food and transportation. Reinforcing these ill effects was the broader regulatory onslaught instigated at many agencies by Biden, actions which tend to increase costs while limiting competition in many industries.

Most of the factors just listed were limitations on supply. However, the price pressure was accelerated on the demand side by government stimulus payments. And in fact, none of this inflation would be sustainable without easy monetary policy — and monetization of government debt.

Later, of course, Vladimir Putin’s invasion of Ukraine exacerbated worldwide energy and food shortages. Meanwhile, Democrat efforts to push through additional social spending, née “infrastructure”, were unrelenting. They are still pushing for more climate change regulation, not to mention funding “investments” intended to improve the “equity” of highways! Thank God for Joe Manchin for shutting it down, though even he seems intent on imposing drug price controls. Biden now says he’ll impose green energy policy via executive order.

Until about March of this year, Federal Reserve policy remained extremely accommodative, despite the central bank having completely missed its so-called inflation target rate of 2% well before that. Take another look at the chart at the top of this post. CPI inflation shot above 2% in early 2021. The Fed did not really react until March 2022. The chart below shows that growth in the GDP deflator was slightly more muted than the CPI, but it too was above 2% in the first quarter of 2021 and accelerated from there. It’s as if there had been no Fed target at all!

The story, again, was “not to worry, it’s transitory”. Moreover, the Fed was convinced the inflation was driven entirely by supply problems. In fairness, it’s true that tighter monetary policy won’t stop inflation from supply shocks without great cost in terms of lost output. But monetary accommodation, which is what happened in 2021, simply validates inflation and runs the risk of allowing inflation expectations to become embedded in pricing. And again, that’s hard to undo.

Despite the dominance of supply-side inflation pressures early in 2021, it’s no wonder that a different kind of pressure has cropped up since then. The following chart from David Beckworth is helpful:

We now have primarily demand-side inflation fueled by the earlier accommodation of supply constraints and the monetization of government deficits. Sure, there remain significant supply constraints, whether induced by the actions of Russia, Biden, or lingering pandemic dysfunctions. But supply-side inflation cannot sustain without monetary accommodation. An early reading for the second-quarter GDP deflator will be available in late July, but it may well show accelerating pressures from both the demand side and the supply side.

There is no way to eliminate the inflation surge without curtailing the growth of liquidity. Unfortunately, the risk that monetary tightening by the Fed will induce a recession is already very high, even a likelihood at this point. A fairly reliable signal of recession is an inversion of the yield curve, and we now see two-year Treasury debt yielding 15 – 20 basis points more than 10-year bonds. Again, real wages are declining. Real retail sales are down two months in a row and down from a year ago. Here’s a chart showing the most recent dismal reading on the index of consumer sentiment:

Whether a recession has already begun is not clear, but inflation certainly hasn’t abated, and the Fed is expected to continue tightening, albeit belatedly. Meanwhile, the Biden Administration and key Democrats don’t seem to want to make the Fed’s job any easier. They simply don’t comprehend the reality and their role in fostering the upward price trends we’re experiencing. They still cling to hopes of another big spending package that would add to deficits and the inflation tax, despite contemplating tax hikes on private employers, but so far Manchin has put the kabash on that. Still, we’re nowhere close to putting our fiscal and monetary houses in order.

Rejecting Fossil Fuels at Our Great Peril

18 Wednesday May 2022

Posted by in Central Planning, Energy, Risk, Technology

≈ 2 Comments

Tags

, , , , , , , , , , , , , , , , , , , , ,

The frantic rush to force transition to a zero-carbon future is unnecessary and destructive to both economic well-being and the global environment. I do not subscribe to the view that a zero-carbon goal is an eventual necessity, but even if we stipulate that it is, a rational transition would eschew the immediate abandonment of fossil fuels and adopt a gradual approach relying heavily on market signals rather than a mad dash via coercion.

I’ve written about exaggerated predictions of temperature trends and catastrophes on a number of occasions (and see here for a similar view from a surprising source). What might be less obvious is the waste inherent in forcing the abandonment of mature and economic technologies in favor of, as yet, under-developed and uneconomic technologies. These failures should be obvious when the grid fails, as it does increasingly. It is often better to leave the development and dispersion of new technologies to voluntary decision-making. In time, advances will make alternative, low- or zero-carbon energy sources cost effective and competitive to users. That will include efficient energy storage at scale, new nuclear technologies, geothermal techniques, and further improvements in the carbon efficiency of fossil fuels themselves. These should be chosen by private industry, not government planners.

Boneheads At the Helm

Production of fossil fuels has been severely hampered by the Biden Administration’s policies. The sanctions on Russian oil that only began to take hold in March have caused an additional surge in the price of oil. Primarily, however, we’ve witnessed an artificial market disruption instigated by Biden’s advisors on environmental policy. After all, neither Russian oil imports nor the more recent entreaties to rogue states as Iraq and Venezuela for oil would have been necessary if not for the Administration’s war on fossil fuels. Take a gander at this White House Executive Order issued in January 2021. It reads like a guidebook on how to kill an industry. In a column this weekend, Kevin Williamson quipped about “the Biden administration’s uncanny ability to get everything everywhere wrong all at once.” That was about policy responses to inflation, but it applies to energy in particular.

Scorning the Miracle

Fossil fuels are the source of cheap and reliable energy that have lifted humanity to an unprecedented level of prosperity. Fossil fuels have given a comfortable existence to billions of people, allowing them to rise out of poverty. This prosperity gives us the luxury of time to develop substitutes, not to mention much greater safety against the kind of weather extremes that have always been a fact of life. The world still gets 80% of its energy from fossil fuels. These fuels are truly a miracle, and we should not discard such valuable technologies prematurely. That forces huge long-term investments in inferior technologies that are likely to be superseded in the future by more economic refinements or even energy sources and methods now wholly unimagined. There are investors who will still wish to pursue those new technologies, perhaps with non pecuniary motives, and there are a few consumers who really want alternatives to fossil fuels.

Biden’s apparent hope that his aggressive climate agenda will be a great legacy of his presidency is at the root of his intransigence toward fossil fuels. His actions in this regard have had a profoundly negative psychological effect on the oil and gas industry. Steps such as cancellations of pipeline projects are immediately impactful in that regard, to say nothing of the supplies that would have ultimately flowed through those pipelines. These cancellations reinforce the message Biden’s been sending to the industry and its investors since his campaign: we mean to shut you down! Who wants to invest in new wells under those circumstances? Other actions have followed: no new federal oil and gas leases, methane restrictions, higher drilling fees on federal land, and a variety of climate change initiatives that bode ill for the industry, such as the SEC’s mandate on carbon disclosures and the Federal Reserve’s proposed role in policing climate impacts.

And now, Democrats are contemplating a move that would make gasoline even more scarce: price controls. As Don Boudreaux says in a recent letter to The Hill:

“Progressives incessantly threaten to tax and regulate carbon fuels into oblivion. These threats cannot but reduce investors’ willingness to fund each of the many steps – from exploration through refining to transporting gasoline to market – that are necessary to keep energy prices low. One reality reflected by today’s high prices at the pump is this hostility to carbon fuels generally and to petroleum especially. And gasoline price controls would only make matters worse by further reducing the attractiveness of investing in the petroleum industry: Why invest in bringing products to market if the prices at which you’re allowed to sell are dictated by grandstanding politicians?”

The kicker is that all these policies are futile in terms of their actual impact on global carbon concentrations, let alone their highly tenuous link to global temperatures. The policies are also severely regressive, inflicting disproportionate harm on the poor, who can least afford such an extravagant transition. Biden wants the country to sacrifice its standard of living in pursuit of these questionable goals, while major carbon-emitting nations like China and India essentially ignore the issue.

Half-Baked Substitution

Market intervention always has downsides to balance against the potential gains of “internalizing externalities”. In this case, the presumed negative externalities are imagined harms of catastrophic climate change from the use of fossil fuels; the presumed external benefits are the avoidance of carbon emissions and climate change via renewables and other “zero-carbon” technologies. With those harms and gains in question, it’s especially important to ask who loses. Taxpayers are certainly on that list. Users of energy produced with fossil fuels end up paying higher prices and are forced to conserve or submit to coerced conversion away from fossil fuels. Then there are the wider impediments to economic growth and, as noted above, the distributional consequences.

Users of immature or inferior energy alternatives might also end up as losers, and there are likely to be external costs associated with those technologies as well. It’s not widely appreciated that today’s so-called clean energy alternatives are plagued by their need to obtain certain minerals that are costly to extract in economic and environmental terms, not to mention highly carbon intensive. And when solar and wind facilities fail or reach the end of their useful lives, disposal creates another set of environmental hazards. In short, the loses imposed through forced internalization of highly uncertain externalities are all too real.

Unfortunately, the energy sources favored by the Administration fail to meet base-load power needs on windless and/or cloudy days. The intermittency of these key renewables means that other power sources, primarily fossil-fuel and nuclear capacity, must remain available to meet demand on an ongoing basis. That means the wind and solar cannot strictly replace fossil fuels and nuclear capacity unless we’re willing to tolerate severe outages. Growth in energy demand met by renewables must be matched by growth in backup capacity.

A call for “energy pragmatism” by Dan Ervin hinges on the use of coal to provide the “bridge to the energy future”, both because there remains a large amount of coal generating capacity and it can stabilize the grid given the intermittency of wind and solar. Ervin also bases his argument for coal on recent increases in the price of natural gas, though a reversal of the Biden EPA’s attacks on gas and coal, which Ervin acknowledges, would argue strongly in favor of natural gas as a pragmatic way forward.

Vehicle Mandates

The Administration has pushed mandates for electric vehicle (EV) production and sales, including subsidized charging stations. Of course, the power used by EVs is primarily generated by fossil fuels. Furthermore, rapid growth in EVs will put a tremendous additional strain on the electric grid, which renewables will not be able to relieve without additional backup capacity from fossil fuels and nuclear. This severely undermines the supposed environmental benefits of EVs.

Once again, mandates and subsidies are necessary because EV technology is not yet economic for most consumers. Those buyers don’t want to spend what’s necessary to purchase an EV, nor do they wish to suffer the inconveniences that re-charging often brings. This is a case in which policy is outrunning the ability of the underlying infrastructure required to support it. And while adoption of EVs is growing, it is still quite low (and see here).

Wising Up

Substitution into new inputs or technologies happens more rationally when prices accurately reflect true benefits and scarcities. The case for public subsidies and mandates in the push for a zero-carbon economy rests on model predictions of catastrophic global warming and a theoretical link between U.S. emissions and temperatures. Both links are weak and highly uncertain. What is certain is the efficiency of fossil fuels to power gains in human welfare.

This Bartley J. Madden quote sums up a philosophy of progress that is commendable for firms, and probably no less for public policymakers:

“Keep in mind that innovation is the key to sustainable progress that jointly delivers on financial performance and taking care of future generations through environmental improvements.”

Madden genuflects to the “sustainability” crowd, who otherwise don’t understand the importance of trusting markets to guide innovation. If we empower those who wish to crush private earnings from existing technologies, we concede the future to central planners, who are likely to choose poorly with respect to technology and timing. Let’s forego the coercive approach in favor of time, development, and voluntary adoption!

Price Controls: Political Gut Reaction, Gut Punch To Public

06 Thursday Jan 2022

Posted by in Price Controls, Shortage

≈ 1 Comment

Tags

, , , , , , , , , , , , , , , ,

In a gross failure of education or perhaps memory, politicians, policymakers, and certain academics seem blithely ignorant of things we’ve learned repeatedly. And of all the dumb ideas floated regarding our current bout with inflation, the notion of invoking price controls is near the top. But watch out, because the Biden Administration has already shifted from “inflation is transitory” to “it only hurts the rich” to “it’s fine because people just want to buy things”, and now “greedy businessmen are the culprits”. The latter falsehood is indeed the rationale for price controls put forward by a very confused economist at the University of Massachusetts-Amherst named Isabella Weber. (See this for an excerpt and a few immediate reactions.) She makes me grieve for my profession… even the frequently ditzy Paul Krugman called her out, though he softened his words after realizing he might have offended some of his partisan allies. Of course, the idea of price controls is just bad enough to gain favor with the lefty goofballs pulling Biden’s strings.

To understand the inflation process, it’s helpful to distinguish between two different dynamics:

1. When prices change we usually look for explanations in supply and demand conditions. We have supply constraints across a range of markets at the moment. There’s also a great deal to say about the ways in which government policy is hampering supplies of labor and energy, which are key inputs for just about everything. It’s fair to note here that, rather than price controls, we just might do better to ask government to get out of the way! In addition, however, consumer demand rebounded as the pandemic waned and waxed, and the federal government has been spending hand over fist, with generous distributions of cash with no strings attached. Thus, supply shortfalls and strong demand have combined to create price pressures across many markets.

2. Economy-wide, all dollar prices cannot rise continuously without an excess supply of a monetary asset. The Federal Reserve has discussed tapering its bond purchases in 2022 and its intention to raise overnight interest rates starting in the spring. It’s about time! The U.S. money supply ballooned during 2020 and its growth remains at a gallop. This has enabled the inflation we are experiencing today, and only recently have the markets begun to react as if the Fed means business.

Weber, our would-be price controller, exhibits a marked ignorance with respect to both aspects of price pressure: how markets work in the first instance, and how monetary profligacy lies at the root of broader inflation. Instead, she insists that prices are rising today because industrialists have simply decided to extract more profit! Poof! It’s as simple as that! Well what was holding those greedy bastards back all this time?

Everyone competes for scarce resources, so prices are bid upward when supplies are short, inputs more costly, or demand is outpacing supply for other reasons. Sure, sellers may earn a greater margin on sales under these circumstances. But the higher price accomplishes two important social objectives: efficient rationing of available quantities, and greater incentives to bring additional supplies to market.

So consider the outcome when government takes the advice of a Weber: producers are prohibited from adjusting price in response to excess demand. Shortages develop. Consumers might want more, but that’s either impossible or it simply costs more. Yet producers are prohibited from pricing commensurate with that cost. Other adjustments soon follow, such as changes in discounts, seller credit arrangements, and product quality. Furthermore, absent price adjustment, transaction costs become much more significant. Other resources are consumed in the mere process of allocating available quantities: time spent in queues, administering quotas, lotteries or other schemes, costly barter, and ultimately unsatisfied needs and wants, not to mention lots of anger and frustration. Lest anyone think this process is “fair”, keep in mind that it’s natural for these allocations to take a character that is worse than arbitrary. “Important people” will always have an advantage under these circumstances.

Regulatory and financial burdens are imposed on those who play by the rules, but not everyone does. Black market mechanisms come into play, including opportunities for illegal side payments, rewards for underworld activity, along with a general degradation in the rule of law.

Price controls also impose rigidity in relative prices that can be very costly for society. “Freezing” the value of one good in terms of others distorts the signals upon which efficient resource allocation depends. Tastes, circumstances, and production technology change, and flexible relative prices enable a smoother transitions between these states. And even while demand and/or input scarcity might increase in all markets, these dynamics are never uniform. Over time, imbalances always become much larger in some markets than others. Frozen relative prices allow these imbalances to persist.

For example, the true value of good A at the imposition of price controls might be two units of good B. Over time, the true value of A might grow to four units of good B, but the government insists that A must be traded for no more than the original two units of B. Good B thus becomes overvalued on account of government intervention. The market for good A, which should attract disproportionate investment and jobs, will instead languish under a freeze of relative prices. Good B will continue to absorb resources under the artificial tradeoff imposed by price controls. Society must then sacrifice the gains otherwise afforded by market dynamism.

The history of price controls is dismal (also see here). They artificially suppress measured inflation and impose great efficiency costs on the public. Meanwhile, price controls fail to address the underlying monetary excess.

Price controls are destructive when applied economy-wide, but also when governments attempt to apply them to markets selectively. Posturing about “strategic” use of price controls reveals the naïveté of those who believe government planners can resolve market dislocations better than market participants themselves. Indeed, the planners would do better to discover, and undo, the damage caused by so many ongoing regulatory interventions.

So beware Joe Biden’s bluster about “greedy producers” in certain markets, whether they be in “Big Meat”, or “Big Oil”. Price interventions in these markets are sure to bring you less meat, less oil, and quite possibly less of everything else. The unintended consequences of such government interventions aren’t difficult to foresee unless one is blinded with the scientism of central planning.

Markets and Mobility

25 Thursday May 2017

Posted by in Markets, Poverty

≈ Leave a comment

Tags

, , , , , , , , , , , , , , , , ,

Government aid programs tend to perform poorly, especially in developmental terms. In the U.S., anti-poverty programs keep the poor running in place, at best. Yes, they provide minimal income, but they seldom offer a way out and usually discourage it. Moreover, the administration of such programs diverts a significant share of funds to well-heeled civil servants and away from the intended recipients. Foreign aid programs are probably even worse, functioning as catch basins for funding corrupt officials. Progressives, in particular, persist in taking the paternalistic view that we must rely on government action to “care for” and “protect” the poor, able or not. Markets, on the other hand, are held to offer no promise in fighting poverty. In fact, the general assumption made by the progressive left is that markets exploit them.

The truth is that markets offer great promise for encouraging economic mobility. Arnold Kling offers a good conceptual construct in a recent post: while humans are often subject to irrational tendencies in their assessment of choices, their interactions in markets offer a way of smoothing irregularities and disparate bits of information, providing useful signals about the availability of resources and demands for their use. The result is a flow of information that best signals opportunity. Kling calls the process of market interactions the “collective mind”. Rather than encouraging individuals to fully participate in effective markets, free of intervention, we instead deny them the best opportunities for gain. The notion that the poor must be “protected” from markets is embedded in policies like wage and price controls, benefit mandates, overtime rules, drug laws, occupational licensing, and innumerable other harmful regulations. The poor should have the unfettered ability to avail themselves of the social efficiencies of Kling’s collective mind.

Last Thursday, Don Beaudroux’s “Quotation of the Day” was taken from an essay by Ludwig von Mises in which he characterized private property in a market economy as “property by consumer consensus”. In other words, consumers reward sellers who create value, and those rewards accumulate in the form of private property. Likewise, consumers punish poor performance, which has a cumulative negative impact on one’s ability to accumulate or hold onto private property. The benefits conferred by consumer preference do not stop with the owners of the firm. Others productively affiliated with the firm also reap gains in rewards, allowing them to accumulate private property. And of course, consumers are the beneficiaries in the first place: in their judgement the firm delivers value in excess of price. The key here is that free market rewards and penalties are deserved and based on productivity in meeting desires, and only the market can distribute property so efficiently. The able poor can certainly add value and thereby accumulate property, if only given the opportunity.

Jeffrey Tucker has stated that “Only Markets Can Win the War on Poverty” (ellipses are my edits):

“The default state of the world is grueling poverty, universal insecurity, and short lives. When governments do come along, they nearly always serve themselves first. … Capitalism made huge progress toward the conquest of poverty. For the first time in history, the productive resources of society turned from serving mainly the elites toward serving the common person. This change alone began to flip the power narrative of social evolution.

And this revolution continued for two some two-hundred years, during which time the average life span expanded dramatically, infant mortality collapsed, incomes rose, and the great project of universal ennoblement achieved an unprecedented boost. And this trend continues today wherever markets are given freedom to function, property rights are secure, and people can associate and trade without molestation by the elites. … In short, capitalism made huge progress toward the conquest of poverty.“

Markets are not harmful to the poor. To the contrary, as Tucker says, they have helped lift billions out of poverty around the globe. But government increasingly plays the role of big provider and arbiter of what can and can’t be traded, by whom, and at what price. The suspension of the market mechanism by this process denies the poor the opportunities made possible via participation in free markets, whereby Kling’s “collective mind” processes massive quantities of information and acts upon it spontaneously. But the “collective mind” concept, as a description of market interactions, is too simple: we know that individuals act on the signals provided by the market and are rewarded based on how effectively they do so. There is no doubt that the poor can do that too. It’s time to cast aside the paternalistic and destructive notion that the able poor must be insulated from markets.

The Looting Wage and Its Ultimate Victims

15 Wednesday Feb 2017

Posted by in Living Wage, Markets, Minimum Wage

≈ 1 Comment

Tags

, , , , , , , , , , , , , , ,

img_3920

Like children asking their peers to exchange quarters for nickels, advocates of a “living wage” hope that the government and voters will agree that workers should be paid by private employers at a rate the activists deem appropriate, regardless of skills. (The “living wage” is left-speak for a very high minimum wage.) Even worse, those advocates actually believe that such a trade can be justified. Or do they? The simple economics of the claim is undermined by assertions that a living wage is simply a matter of social justice. But social justice cannot be served in this way unless one’s definition is so bound up in virtue signaling that you don’t know the difference. It’s even too charitable to say that the left’s definition of social justice is simply bound up in the present and the short-term interests of specific groups. The unfortunate truth is that the “living wage” sacrifices the very well-being of a large number of individuals in those groups, now and in the future. Here’s why:

Suppose the government mandates a “living wage” as well as a series of measures intended to neutralize all of its unintended consequences. These measures would include a complete prohibition of involuntary terminations, investments in automation, price hikes, movement of capital abroad, and immigration. The measures must also include subsidies for failing employers. Just imagine the burden of compliance costs related to these measures, and the complex task of carving out exceptions, such as the allowable price hike in the wake of an increase in the cost of raw materials. What about the additional workers who would enter the labor force to seek employment at the higher wage? Should they be prohibited from doing so, or should employers be required to hire them, or should they be subsidized to hire them? And how will taxpayers afford all of these government subsidies?

Clearly, the situation described thus far is not sustainable. Both the initial wage hike and many of the other steps, ostensibly intended to cushion the blow on various parties, represent flagrant abridgments of private property rights, or rather, property takings! Of course, the real intent is for private parties to pay for the “living wage”. Presumably, employers are to pay the costs, especially large employers and their wealthy investors, like you when the value of those shares in your IRA, pension or 401k plan begins to tank. The reality is, however, that the unintended consequences will spread the cost in a variety of unpleasant ways.

Those in the coalition for living-wage legislation have not given much thought to the reverberations of such a change. At the most basic level, some people cannot command a high wage because they lack higher-order skills. Some have not learned the importance of reliability, of making sure they arrive at work by a specific time every day. Some have not learned the importance of concentrated work effort, of demonstrating that effort and avoiding excessive slack time. Some communicate poorly, or fail to comport themselves in a manner that commands trust. Some have a sketchy work record, presenting a risk to prospective employers. Living wage advocates assert that all of this is irrelevant, but it means everything to an employer.

How would employers attempt to to survive under a living wage? One doesn’t have to think too deeply to realize that wage floors lead to a loss of jobs for several reasons. Those lacking the skills to justify the higher wage will be out the door. Some employers will fail, finding it impossible to pay the hike in their labor costs or to pass it along to their cost-conscious clientele. The living wage is likely to lead to premature automation of many tasks otherwise requiring unskilled to more moderately-skilled workers. The capital investment needed to automate any manual process may well become worthwhile given such a shock to wage rates. Moreover, while some in the living wage movement complain that U.S. employers seek-out lower wage rates abroad, the living wage itself would lead to more of this substitution. The living wage also creates opportunities for those willing to work illegally at sub-minimum wages, including many undocumented immigrants. By driving a larger wedge between the wages of other home countries and the U.S., the living wage creates an incentive migrate In pursuit of the enlarged set of black-market opportunities for labor.

So just imagine having the government mandate a wage that is nearly double the market-clearing level. The quanity of labor demanded declines and the quantity supplied increases, leaving a surplus of workers at the mandated wage. The demand for labor declines still more as the weakest firms close shop. And it declines still more over horizons long enough to enable investment in automation and relocation of production to foreign shores. Add to the mix an expanded flow of workers from abroad. Not all of these surplus workers, native and immigrant, would be willing to take “underground” work at a rate below the living wage, but some will.

So, which of the measures listed in the second paragraph would mitigate the costs imposed by the living wage? In reality, none of them would succeed without spreading the cost more widely. Prohibiting involuntary terminations? Businesses will fail and/or prices will rise. Prohibiting investment in automation? The same. Prohibiting price hikes? Business failures, terminations, and premature automation. Prohibiting movement of capital abroad? An outright revocation of property rights and a distortion of incentives for productive investment, which would also discourage the movement of capital into the country, not just out.

Are there measures that could make the “living wage” a sustainable outcome? Yes, but they cannot be accomplished immediately by decree. Indeed, doing so would thwart the achievement of the objective. In short, productivity must increase. While productivity is multi-dimensional, education, training and work experience all foster improvement in a worker’s ability to add value. Unfortunately, our system of public primary and secondary education has been unsuccessful in producing graduates who can compete in the labor market, even at today’s minimum wage. Wholesale reforms are needed, but even the best educational reforms will take time to come to fruition. In the workplace itself, apprenticeship programs could provide under-skilled workers an avenue toward greater competitiveness at higher wages. Again, apprenticeships may only make economic sense to employers at a legalized sub-minimum wage, as Australia allows.

Second, productivity is dependent on the quality and quality of the capital invested in a business. The key to improving this capital is profitability. It’s ironic that living-wage advocates fail to see that their proposal runs directly counter to steps that would contribute to  productivity and wages. Instead, they seem intent on killing the geese that lay golden eggs! Far better to allow those eggs to be transformed into new capital assets that can enhance worker productivity and justify higher wages. Some jobs will be replaced by automation, but capital and new technology tend to create new kinds of jobs and inevitably boost worker productivity. (See “Will Automation Make Us Poor?” by Aaron Bailey.) Employers will still have an interest in seeking out, if not developing, new talent. The automation should take place as part of a more natural evolution, not one prematurely hastened by unrealistically high wage mandates.

The living wage is a prescription for failure and a death-knell for the private economy. It will fail the least-skilled workers and even some semi-skilled workers who cannot compete for jobs at the living wage. It will automate jobs before the natural time dictated by the market-driven process of technical evolution. It will lead to higher prices, which drive down the real value of any wage gains that workers manage to capture. It will lead to business failures, especially among small businesses. It will offer false hope to unskilled immigrants. It will reduce capital investment among smaller firms struggling to meet the higher wage bill. It may well lead to a slew of even more destructive public policies, such as business subsidies and other price controls. And it will create dependency on the state. The living wage is a destructive policy and ultimately a prescription for the death of self-sufficiency. It  cannot foster real social justice.

Horizons Lost To Coercive Intervention

27 Wednesday Jan 2016

Posted by in Human Welfare, Price Controls, Regulation

≈ Leave a comment

Tags

, , , , , , , , , , , , ,

ceiling prices

Every action has a cost. When you’re on the hook, major decisions are obviously worth pondering. But major societal decisions are often made by agents who are not on the hook, with little if any accountability for long-term consequences. They have every incentive to discount potential downside effects, especially in the distant future. Following Frederic Bastiat, Don Boudreaux writes of three levels of “What Is Not Seen” as a consequence of human decisions, which I summarize here:

  1. Immediate foregone alternatives: Possession, use and enjoyment of X is not seen if you buy Y.
  2. Resources not directed to foregone alternatives: The reduction in X inventory is not seen, compensating production of X is not seen, and extra worker hours, capital use and flow of raw materials needed for X production are not seen.
  3. The future implied by foregone alternatives: Future impacts can take many forms. X might have been a safer or healthier alternative, but those benefits are unseen. X might have been lower quality, so the potential frustration and repairs are unseen. X might have been less expensive, but the future benefits of the money saved are unseen. All of these “unseens” have implications for the future world experienced by the decision-maker and others.

These effects take on much more significance in multiples, but (2) and (3) constitute extended unseen implications for society at large. In multiples, the lost (unseen) X production and X labor-hours, capital and raw materials are more obvious to the losers in the X industry than the winners in the Y industry, but they matter. In the future, no vibrant X industry will not be seen; the resources diverted to meet Y demand won’t be seen at new or even old X factories. X might well vanish, leaving only nontransformable detritus as a token of its existence.

Changes in private preferences or in production technologies create waves in the course of the “seen” reality and the “unseen” world foregone. Those differences are caused by voluntary, private choice, so gains are expected to outweigh losses relative to the “road not traveled”. That’s not a given, however, when decisions are imposed by external authorities with incentives unaligned with those in their thrall. For that reason, awareness of the unseen is of great importance in policy analysis, which is really Boudreaux’s point. Here is an extreme example he offers in addressing the far-reaching implications of government intrusions:

“Suppose that Uncle Sam in the early 20th century had, with a hypothetical Ludd Act, effectively prohibited the electrification of American farms, businesses, and homes. That such a policy would have had a large not-seen element is evident even to fans of Bernie Sanders. But the details of this not-seen element would have been impossible today even to guess at with any reliability. Attempting to quantify it econometrically would be an exercise in utter futility. No one in a 2015 America that had never been electrified could guess with any sense what the Ludd Act had cost Americans (and non-Americans as well). The not-seen would, in such a case, loom so large and be so disconnected to any known reality that it would be completely mysterious.“

Price regulation provides more familiar examples. Rent controls intended to “protect” the public from landlords have enormous “unintended” consequences. Like any price regulation, rent controls stifle exchange, reducing the supply and quality of housing. Renters are given an incentive to remain in their units, and property owners have little incentive to maintain or upgrade their properties. Deterioration is inevitable, and ultimately displacement of renters. The unseen, lost world would have included more housing, better housing, more stable neighborhoods and probably less crime.

A price floor covered by Boudreaux is the minimum wage. The fully predictable but unintended consequences include immediate losses in some combination of jobs, hours, benefits, and working conditions by the least-skilled class of workers. Higher paid workers feel the impact too, as they are asked to perform more (and less complex) tasks or are victimized by more widespread substitution of capital for labor. Consumers also feel some of the pain in higher prices. The net effect is a reduction in mutually beneficial trade that continues and may compound with time:

“As the time span over which obstructions to certain economic exchanges lengthens, the exchanges that would have, but didn’t, take place accumulate. The businesses that would have been created absent a minimum wage – but which, because of the minimum wage, are never created – grow in number and variety. The instances of on-the-job worker training that would have occurred – but, because of the minimum wage, didn’t occur – stack up increasingly over time.“

Regulation and taxation of all forms have such destructive consequences, but policy makers seldom place a heavy weight on the unobserved counterfactual. Boudreaux emphasizes the futility of quantifying the “unseen” effects these policies:

“… those who insist that only that which can be measured and quantified with numerical data is real must deny, as a matter of their crabbed and blinding scientism, that such long-term effects … are not only not-seen but also, because they are not-seen, not real.“

The trade and welfare losses of coercive interventions of all types are not hypothetical. They are as real as the losses caused by destruction of property by vandals. Never again can the owners enjoy the property as they once had. Future pleasures are lost and cannot be observed or measured objectively. Even worse, when government disrupts economic activity, the cumulative losses condemn the public to a backward world that they will find difficult to recognize as such.

 

ZIRP’s Over, But Fed Zombies Linger Over Seed Corn

24 Thursday Dec 2015

Posted by in Central Planning, Monetary Policy, Price Controls

≈ Leave a comment

Tags

, , , , , , , , , , , ,

Fed Rate Cuts

The Federal Reserve plans a few more increases in short-term interest rates in 2016, which should be welcome to savers who are not overexposed to market risk. The Fed took its first step away from the seven-year zero-interest-rate policy (ZIRP) last week, increasing its target rate on overnight loans between banks (“federal” funds) for the first time in almost ten years. ZIRP was grounded in the Fed’s desire to stimulate the economy after the last financial crisis, an objective that met with limited success. ZIRP’s most profound “success” was to distort prices, with negative consequences for conservative savers, those dependent on retirement assets, and the long-term growth of the economy.

ZIRP necessarily constitutes a price ceiling when expected inflation is positive. It implies negative real rates of return, but real rates of time preference are not and cannot be negative. Given the choice, no one intends to forego present pleasure to purposefully suffer a loss later. The imperative to earn positive real returns does not end simply because the Fed and ZIRP make it more difficult. 

Anyone with funds parked in near zero-return assets, such as money market funds and certificates of deposit, earned a negative real return during the ZIRP regime, as inflation remained positive despite misplaced fears to the contrary. Those kinds of savings vehicles earn relatively low returns and should carry little risk to savers.

What are savers and retirees to do under a ZIRP regime? If they absolutely must defer consumption, they can accept the predicament and leave funds to decay in real value. They can dis-save in response to the disincentive, consuming their accumulated wealth. Some, for whom retirement is near, might even put more aside with the full knowledge that it will erode in real terms. But many will seek out yield in other ways, investing in assets bearing greater risk than they would otherwise prefer. All of these alternatives are likely to be less-preferred by the public than rates of saving and portfolios constructed in the absence of the Fed’s rate distortions.

The Fed’s policies and zero rates have contributed to inflated equity prices over the past six years as savers sought enhanced returns, and those valuations are certainly vulnerable. Over the past week, market jitters have shown the extent to which traders and investors feel threatened by the Fed’s tightening move.

The impact of ZIRP on the well-being of savers is only part of the story, however. Such a regime compromises the fundamental process of aligning preferences with the physical transformation of present resources into future consumption. Like any price distortion, ZIRP misallocates resources, but it misallocates across time and across sectors of the economy. When discounted at ultra-low rates, the values of future financial flows are grossly inflated, diminishing the need to set additional amounts aside today. At the same time, zero or near-zero rate borrowing confuses the evaluation of alternative capital investment projects. Resources may be committed to projects that would be rejected given accurate price signals. The artificially-enabled bidding for resources prompted by ZIRP, and the distortion of the risk-return trade off, might even cause more worthy projects to be rejected. And there is every reason to expect that saving by some individuals will be channeled into immediate consumption by others.

Who would do such wasteful things, undertaking projects with low or nonexistent future returns? Those facing distorted price signals, most prominently government technocrats for whom meaningful price signals are seldom a concern. And that also goes for the subsidy-hungry private beneficiaries of the state’s tax-extracted and borrowed largess. The ultimate consequence of this behavior is a deterioration in the economy’s growth potential.

Ronald-Peter Stoferle provides a short catalogue of ZIRP’s destructive impacts in the “Unseen Consequences of ZIRP“. One of his more interesting statements is the following, with reference to “zombie” banks:

“Low interest rates prevent the healthy process of creative destruction. Banks are enabled to roll over potentially non-performing loans practically indefinitely and can thus lower their write-off requirements.“

Thus, ZIRP promotes economic rot in several ways. Last week’s rate move by the Fed is a step in the right direction, away from zero rates and drastic overvaluation of consumption flows now and in the future. However, the monetary excesses of the past six years will not be reversed by this one move. The Fed is still imposing an artificial ceiling on rates. Even if that restriction is eased in further steps during 2016, the Fed is committed for the long-term to the manipulation of interest rates in the execution of policy. That sort of activist market manipulation is likely to continue; like all forms of central planning, it will be based on woefully incomplete information, a poor understanding of individual and market behavior, and bad timing. It will degrade economic conditions and have the classic boom-and-bust repercussions typical of central bank intervention.

Obamacare’s Medical Road To Serfdom

03 Tuesday Feb 2015

Posted by in Government, Obamacare, Regulation, The Road To Serfdom

≈ 1 Comment

Tags

, , , , , , , ,

HealthCareCrisis

The arrogance and shortsightedness of regulators and central planners is often astonishing and sometimes worthy of disgust. Here is a case of the latter, and it is one of the most damning things I have read about Obamacare, and that takes some doing.

Dr. Kristin Held is a physician who gained some notoriety last year when she live-tweeted a professional conference as ophthalmologists walked-out on a presentation about implementing and complying with Obamacare. More recently, she has written about the health care law’s perverse incentives for physicians. It is an excellent piece about a sickening effort at medical central planning by the government. Please read it!

What good can be said of a law that discourages physicians from performing procedures that would be of great benefit to most patients with a particular health issue; discourages physicians from tackling the more complex cases; encourages them to prolong an operation, having made the decision to operate. The standards by which outcomes are judged successful under Obamacare, and other rules governing remuneration to providers (Relative Value Units), represent crippling impediments to effective care and innovation in many areas of specialization. Here is part of Dr. Held’s summary:

“Consider again the perverse incentives created by government medicine. If I take a really long time operating — even though it subjects the patient to greater risk — and if I pick and choose who I will operate on, refusing the sickest, neediest patients, I am rated more highly by the government’s published “physician feedback” reports and hospital “performance scores” — and paid commensurately. If, on the other hand, I am skilled and quick and tackle the sickest, most challenging cases, subjecting me and my family to great risk, I am paid less or nothing and potentially punished. ”

HT: Dr. John Probst