Tag Archives: Woodrow Wilson

Defang the Administrative State

14 Wednesday Apr 2021

Posted by in Administrative State, Discrimination, Free Speech

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The American administrative state (AS) was borne out of frustration by statist reformers with expanded voting rights. It continues to be an effective force of exclusion and discrimination today, according to Philip Hamburger of Columbia Law School. I’ve discussed Hamburger’s commentary in the past on the extra-legal power often wielded by administrative agencies, and I will quote him liberally in what follows. At the first link above, he provides some historical context on the origins of the AS and discusses the inherently discriminatory nature of administrative law and jurisprudence.

An Abrogation of Voting Rights

Hamburger quotes Woodrow Wilson from 1887 on the difficulty of appealing to a broad electorate, a view that was nothing short of elitist and bigoted:

“‘… the reformer is bewildered’ by the need to persuade ‘a voting majority of several million heads.’ He worried about the diversity of the nation, which meant that the reformer needed to influence ‘the mind, not of Americans of the older stocks only, but also of Irishmen, of Germans, of Negroes.’ Put another way, ‘the bulk of mankind is rigidly unphilosophical, and nowadays the bulk of mankind votes.’”

Wow! Far better, thought Wilson, to leave the administration of public policy to a class of educated technocrats and thinkers whose actions would be largely independent of the voting public. But Wilson spoke out of both sides of his mouth: On one hand, he said that administration “lies outside the proper sphere of politics“, but he also insisted in the same publication (“The Study of Administration“) that public administration “must be at all points sensitive to public opinion“! Unfortunately, the views of largely independent public administrators seldom align with the views of the broader public.

Administration and Prejudice

Wilson was elected President 25 years later, and his administration did much to expand the administrative powers of the federal executive. Over the years, the scope of these powers would expand to include far more than mere administrative duties. Administrative rule-making would come to form a deep body of administrative law. And while traditional legislation would nominally serve to “enable” this activity, it has expanded in ways that are not straightforwardly connected to statute, and its impact on the lives of ordinary Americans has been massive. Furthermore, a separate legal system exists for adjudicating disputes between the public and administrative agencies, with entirely separate rules and guarantees than our traditional legal system:

“It is bad enough that administrative proceedings deny defendants many of the Constitution’s guaranteed civil procedures. … In addition, all administrative proceedings that penalize or correct are criminal in nature, and they deny defendants their procedural rights, such as their right to a jury and their right to be presumed innocent until proven guilty beyond a reasonable doubt. Of course, these administrative proceedings deny procedural rights to all Americans, but they are especially burdensome on some, such as the poor.“

The AS has truly become a fourth, and in many ways dominant, branch of government. Checks and balances on its actions are woefully inadequate, and indeed, Wilson considered that a feature! It represents a usurpation of voting rights, but one that is routinely overlooked by defenders of universal suffrage. It is also highly prejudiced and discriminatory in its impact, which is routinely overlooked by those purporting to fight discrimination.

Bio-Medical Discrimination

Hamburger devotes some of his discussion to Institutional Review Boards (IRBs), which are mandated by federal law to conduct prior reviews of research in various disciplines. These boards are generally under the authority of the Department of Health and Human Services. One major objective of IRBs is to prevent research involving human subjects, but this prohibition can be very misguided, and the reviews impose costly burdens and delays of studies, often stopping them altogether on trivial grounds:

“This prior review inevitably delays and prevents a vast array of much entirely innocent bio-medical research. And because the review candidly focuses on speech in both the research and its publication, it also delays and prevents much bio-medical publication.

The consequences, particularly for minorities, are devastating. Although supposedly imposed by the federal government in response to scientific mistreatment of black individuals, such as at Tuskegee, the very solicitousness of IRBs for minorities stymies research on their distinctive medical problems. …

When government interferes with medical research and its publication—especially when it places administrative burdens on research and publication concerning minorities—the vast costs in human life are entirely predictable and, of course, discriminatory.”

Stifling Political Speach

Hamburger tells the story of Hiram Evans, a 1930s crusader against religious influence on voters and legislators. Evans also happened to be the Imperial Wizard of the Ku Klux Klan. Hamburger classifies Evans’ agitation as an important force behind nativist demands to outlaw religious speech in politics. Ultimately, Congress acquiesced, imposing limits on certain speech by non-profits. Individuals are effectively prohibited from fully participating in the political process through religious and other non-profit organizations by Section (501)(c)(3) of the Internal Revenue Code. Of course, tax-exempt status is critical to the survival and growth of many of these institutions. More traditionally religious individuals are often heavily reliant upon their faith-based organizations not just for practicing their faith, but as centers of intellectual and social life. Needless to say, politics intersects with these spheres, and to prohibit political speech by these organizations has an out-sized discriminatory impact on their members.

The insulation of the AS from the democratic process, and the effective limits on religious speech, often mean there is little leeway or tolerance within the AS for individuals whose religious beliefs run counter to policy:

“The difference between representative and administrative policymaking is painfully clear. When a legislature makes laws, the policies that bear down on religion are made by persons who feel responsive to religious constituents and who are therefore usually open to considering exemptions or generally less severe laws.”

But there are other fundamental biases against religious faith and practices within the AS:

“… when policies come from administrative agencies, they are made by persons who are chosen or fired by the executive, not the public, and so are less responsive than legislators to the distinctive needs of a diverse people. They are expected, moreover, to maintain an ethos of scientism and rationality, which—however valuable for some purposes—is indifferent and sometimes even antagonistic to relatively orthodox or traditional religion, let alone the particular needs of local religious communities.“

Sucking Life From the Republic

The administrative state imposes a variety of economic burdens on the private sector. This is not just costly to economic growth. It also creates innumerable opportunities for rent-seeking by interest groups of all kinds, including private corporations whose competitive interests often lead them to seek advantage outside of traditional participation in markets.

Hamburger’s arguments are even more fundamental to the proper functioning of a republic, but they are probably difficult for many journalists and politicians to fully grasp. He identifies some core structural defects of the administrative state, and he does so with great passion. He sums things up well in his closing:

“… was founded on racial and class prejudice, it is still supported by class prejudice. Moreover, by displacing laws made by elected lawmakers, it continues to discriminate against minorities of all sorts. Along the way, it stifles much scientific inquiry and publication with devastating costs, particularly for minorities. It is especially discriminatory against many religious Americans. And it eviscerates the Constitution’s procedural rights, not least in cases criminal in nature.

So, if you are inclined to defund oppression, defund the administrative state. If you want to tear down disgraceful monuments, demolish the prejudiced and discriminatory power that is Woodrow Wilson’s most abysmal legacy. If you are worried about stolen votes, do not merely protest retail impediments to voting, but broadly reject the wholesale removal of legislative power out of the hands of elected legislators. And if you are concerned about the injustice of the criminal justice system, speak up against the loss of juries, due process, and other rights when criminal proceedings get transmuted into administrative proceedings.

Little in America is as historically prejudiced or systematically discriminatory as administrative power. It is a disgrace, and it is time to take it down.“

Insurance Subsidies: Taxes vs. High Premiums

16 Tuesday May 2017

Posted by in Health Care, Subsidies, Taxes

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Here’s a question a friend posed: Why do we care whether health care coverage for high-risk individuals is subsidized by taxpayers versus premium payers via common (community) rating in a combined risk pool? For convenience, let’s call those two scenarios T and C. Under C there is no segmentation whatsoever, while T involves a division of individuals into two groups: standard and high risk. Both scenarios involve guaranteed issue, though T assumes that high-risk individuals must purchase their coverage in the appropriate market. I’ll tackle T first because separate treatment of the distinct risk archetypes yields results that are useful as a baseline.

Taxpayers Subsidize Pre-Existing Conditions

Under scenario T, suppose that all standard risks face the same expected outcome in each period. Everyone in that group pays based on their expected health care costs. In the end, some will have greater health care needs than others, but only a few will be truly unlucky, incurring extremely high health care expenses. On balance, the pooling of risk makes the arrangement sustainable. People enter into these contracts voluntarily because they are risk averse. No one forces them; they are capturing value from protection against financial ruin. The paid-in cash can be invested by the plan in the interim between premium and claims payments. The combination of premium payments and investment income must be enough to cover claims and allow the managers of the plan to defray their administrative costs and make a tidy profit. The profit matters because it attracts voluntary resources to bear on the problem of health-expense risk. Therefore, these insurance transactions are mutually beneficial to the insured and the owners of the insurer.

Conceivably, the smaller high-risk group could be handled the same way, as long as their aggregate health care expenses are predictable. Those expenses will be high, however, so the cost of coverage for individuals in such a pool might be prohibitive. One solution is to force taxpayers to subsidize coverage for this group. The transactions in this market are also mutually beneficial to the insureds and the insurers, just as in the market for standard risks. In both cases, the value to purchasers of coverage is no less than the cost of providing it, including compensation for any capital employed in the process.

In the simplified world of scenario T, we have an optimal insurance outcome for both standard and high-risk individuals. The downside is the cost of the subsidies to taxpayers, which distort a variety of incentives, including labor supply, saving and investment. These lead to misallocations, but they are spread across the economy rather than concentrated on the outcomes in a single market. Is this better than simply pooling all risks, as in Scenario C (common rating)?

Common (Community) Rating

Common rating means that all risks are combined into one pool and everyone is charged the same premium. High-risk individuals get to participate just as if they are standard risks. However, because the combined risk pool has greater expected health care costs on average than the standard risk population, the premium must be greater than the one charged to standard risks in Scenario T. Otherwise, the plan could not cover all expenses nor earn a profit. Worse yet, the standard risks now have an incentive to exit the market while high-risk individuals have every reason to leap in. This is called adverse selection, and it leads to the sort of insurance death spiral we’ve witnessed under Obamacare. And not only does the risk pool deteriorate: the incentive to offer coverage is diminished as well. Thus, an entire industry is rendered dysfunctional. Those who wish to pool together voluntarily in order to efficiently hedge their risks are, by law, prohibited from doing so. The next step might well be for government to mandate participation in an attempt to keep the plan afloat.

Those who favor forced redistribution (not my set) might have other reasons to prefer Scenario T, as it creates greater latitude for progressive tax funding of the subsidies. However, the subsidies themselves could be sensitive to income such that the risky but well-heeled pay more.

From a libertarian perspective, Scenario C has obvious drawbacks, starting with the coercion of insurers to provide coverage to the high-risk population at rates that do not compensate for risk. Then, too, the mis-pricing of risk places a burden on individuals of standard risk. With the pooling of all risks, community rating and coverage mandates result in individual and aggregate over-insurance against most types of risk, tying up scarce resources in insurance assets that could be invested more productively in other uses. In addition, resources are absorbed by compliance costs as authorities find it necessary to enforce the many rules made in hopes of proping-up an otherwise unsustainable arrangement.

Then There’s Single-Payer

It’s often argued that going beyond this point in Scenario C to a single-payer system will yield better outcomes at lower costs. Megan McArdle shreds this idea in a recent column: well over 40% of health care spending in the U.S. is paid by government already; the average growth of that share is even higher than private health care spending; the quality of care is often lower in the government health sector, and in any case, single payer systems around the world do not enjoy slower growth in costs. Rather, they started from lower levels of health care costs. Our relatively high level of costs in the U.S. evolved many years ago, before single-payer systems were adopted abroad. We have many more private and semi-private hospital rooms in the U.S., we often have greater availability of advanced technology, and waiting times for care tend to be significantly shorter.

The high standard of living in the U.S., i.e., our level of consumption, explains a lot of the gap in health care spending. Overall, our health care outcomes are good relative to other developed countries. Unfortunately, we’ve also pushed-up costs from the demand side by offering tax subsidies on employer-provided care, and government in the U.S. has had a role in “managing” health care since the time of the Woodrow Wilson Administration, largely to the detriment of cost control. Government control stultifies competition, creating monopoly-like conditions in both insurance and the provision of care. That manifests in higher profits, safer profits, or slovenly performance by organizations and agents that lack accountability to customers and market forces. Costs rise.

Liberty or Coercion

Libertarians will object to the tax in Scenario T, which like all taxation is coerced, but the taxes necessary to pay for adequate coverage for pre-existing conditions is minor relative to the potential costs of distorting the entire health insurance industry, repleat with the costs of government regulation and compliance that entails, and the potential for still more encroachment of government in health care.

Finally, the question posed by my friend about tax subsidies versus common insurance rating was prompted by a presumed “right to health care”. One must ask whether that right is legitimate. Kevin Williamson argues that scarcity interferes with any such claim. More to the point, in a free society, one cannot simply demand health care from another free individual. Our choices for distributing scarce health care fall into one of only two categories: voluntary and coerced. We should always prefer the former, which may take the form of charity or a mechanism under which care is provided via free exchange. The latter works very well when incentives are clear and pricing is efficient. For those who cannot participate in exchange for any reason, including pre-existing conditions that make coverage prohibitive, private charity is an alternative to government subsidies. At a minimum, charity should serve as an important relief valve for the burden on taxpayers. The Left, however, is always quick to condemn private charity as if it is somehow an illegitimate mechanism for solving social problems, but it is often superior to government action.