Speaking of Geithner, About Those ObamaCare Regulations....

Stephen Brill asks, why is it that Geithner's getting a free pass on the postponement of the employer mandate under the PPACA?

The explanation for the postponement was that the rules, instructions, and reporting forms necessary to implement the requirement could not be written in time. The Treasury Department has responsibility for that paperwork and has had three years and three months to get it done. Geithner was in charge of Treasury for all but five of those 39 months....

Can’t someone tell us why Geithner and his team couldn’t get their homework done in 39 months? Is 39 months too fast to be “thoughtful and careful?” What happened? Why wasn’t the White House staff monitoring them from the day the bill passed to make sure the work was getting done? What about the Office of Management and Budget, which was run during most of those 39 months by Peter Orszag and Jacob Lew (who now runs Treasury) and which is supposed to supervise regulation-writing at federal agencies?

Brill echoes some of Joe Klein's anti-administration rhetoric, but it is a fair question to ask: why couldn't Geithner get the job done, and why wasn't he held accountable for his failure?

In fairness to Geithner, the answer may be political - it may be that the regulations are in place, and the forms aren't all that complicated, but that the Administration was responding to political concerns and pressures and used complexity as an excuse. But as Brill points out, nobody seems to be investigating the issue.

Jeb Bush Flatlines in the WSJ

Jeb Bush seems to be trying to set himself up as the candidate people wish had run for the Republican nomination. It's a "Don't pay any attention to what I did as governor (or what my brother and father did as Presidents, or what my grandfather did as a Senator) - I've discovered Ron Paul and libertarianism, and regret "succumbing" to the temptation to "do something" about economic problems.

The short version is that Jeb has supposedly been moved by Ron Paul's allusion to "The right to rise" as a "core concept of economic freedom", and as a result wants to free businesses of regulation and to free individuals from any form of government assistance.

We have to make it easier for people to do the things that allow them to rise. We have to let them compete. We need to let people fight for business. We need to let people take risks. We need to let people fail. We need to let people suffer the consequences of bad decisions. And we need to let people enjoy the fruits of good decisions, even good luck.

You know, like being born to a family that has been fabulously wealthy and politically connected for more than a century. The sort of fortunate birth that many people confuse with qualification for public office, but that's apparently something we are now supposed to celebrate rather than regret in the wake of a duopoly of increasingly disastrous Bush presidencies. (Anybody wanna go for a trifecta?)

The primary target of Jeb's editorial is regulation, which he tells us "abridge our own economic freedoms". He paints with an incredibly broad brush, but fails to identify any actual regulation that he sees as harmful, or to identify any actual harm. I don't think that's because he could not identify a regulation in which the costs and benefits were out of balance. I suspect that it's because to do so would reveal that this is penny ante stuff - that he could not identify any significant impediments to big business arising from regulation and that people would very easily identify the need for the regulations he specifically described even if agreeing that they should be modified.

It is fair to say that regulation of business impairs the ability of small businesses to enter highly regulated markets, and to compete with larger businesses that have legal departments that allow them to navigate or bypass regulation. But it's also fair to observe that as much as businesses rail against regulation, they recognize that complexity can be their friend - a clear regulation must be obeyed, while labyrinthine regulations are inevitably full of loopholes. Simple regulation also doesn't serve as a barrier to entry, while complexity may deter competitors from entering their markets. A similar phenomenon can be seen with newer high tech companies complaining about patents as a barrier to their success, and then not seeming so bothered by them after they build their own catalog of patents to use to threaten or negotiate with competitors.

But Jeb is speaking about personal freedom, and he provides no link between the regulation of businesses and the freedom of individuals. Having supposedly been inspired by Ron Paul, perhaps he has been listening to some of Paul's inanities on libertarian markets. As much as a certain faction of right-winger would like to pretend otherwise, history's lesson is clear: In the absence of regulation, business and wealth run roughshod over individual rights and freedoms.

Jeb offers some stump speech-style rhetorical questions,

Have we lost faith in the free-market system of entrepreneurial capitalism? Are we no longer willing to place our trust in the creative chaos unleashed by millions of people pursuing their own best economic interests?

If you succumb to the temptation to answer the questions, they're easily revealed as simplistic and inane. But that's not the point. Jeb is suggesting that there's a horrible "other" at work in our government that is out to undermine "entrepreneurial capitalism" and individual economic freedom and, implicitly, that it's men like him who are the answer... that is, now that they're out of power and no longer "succumb" to the temptation to pass the regulations that they would not dream of passing if they are returned to power.

When Jeb says, "We see an industry dying and we demand it be saved," I expect that he's speaking of the domestic auto industry, more specifically of GM and Chrysler, that both his brother and President Obama thought necessary to save within the context of a massive economic meltdown. Except the auto industry was not going to fail - just two of the three domestic manufacturers. Do you believe for a second that, had Jeb been President, he would have stepped back and allowed GM to collapse rather than providing funding to keep it afloat while pushing it through a structured bankruptcy? I suppose he could be referring to the financial industry, as that industry might have collapsed pretty much in its entirety had it not been bailed out by the government, but the chance of President Jeb not stepping in with a bailout package would have been zero percent. Let's be real. The "right to fail" is an individual right, and provides a context in which Jeb would have no difficulty distinguishing large corporations from real people.

I liked this line:

The right to rise does not require a libertarian utopia to exist.

Have you ever paused to wonder what a libertarian utopia would look like? Were you to smoke opium you might dream up something along the lines of Ron Paul's fantasy:

The regulations are much tougher in a free market, because you cannot commit fraud, you cannot steal, you cannot hurt people, and the failure has come that government wouldn't enforce this. In the Industrial Revolution there was a collusion and you could pollute and they got away with it. But in a true free market in a libertarian society you can't do that. You have to be responsible. So the regulations would be tougher.

I once heard a sarcastic, but much more likely vision of a libertarian utopia: anarchy with lawyers. You only have rights to the extent that you can privately enforce them, meaning that you need lawyers and money (or guns) on your side to prevail. Once you start allowing the government to regulate such things as what you do with the toxic sludge you dump on your own land, such that it doesn't leach into the groundwater or create toxic runoff onto neighboring parcels, you're creating the "collusion" that Ron Paul assures us will only serve to ensure that the polluter will get away with it, or the "loss of personal freedom" that Jeb implies will inevitably arise from the regulation of industry.

Jeb, as a politician, saw his party cater to the legal drug dealers of his state - pain clinics that rake in millions of dollars legally selling pain medications to addicts from around the country - and failed to pass legislation that would have created a state system for tracking the prescription of scheduled medications. Such a database is an imperfect tool, but is one that can help the state track both doctor shopping by patients and the doctors who are most obviously selling prescriptions as opposed to practicing medicine. Perhaps, having seen the "folly" of such regulation, Jeb has come to believe that people should have the freedom to get intoxicated on the substance of their choice. More realistically, he came to understand that it's sometimes the most immoral, most repugnant businesses who have the deepest pockets for lobbyists and to find ways to buy off government officials who might otherwise limit their harmful practices.

Within that context, I have a difficult time not being cynical about Jeb's call for "Rules that sunset so they can be eliminated or adjusted as conditions change". The non-cynical interpretation is that he's proposing that we test how regulations work in practice and only renew them if they work as planned, and return benefits that exceed their cost. The cynical interpretation is that if you set a sunset period of, let's say, four years, every four years you get to return to the trough to be fed by the industry's lobbyists.

Meanwhile we are to pretend that regulations are never revisited, that nobody ever looks at costs and benefits, and that nobody can figure out how they work. Great hyperbole, and like any good lie containing a kernel of truth, but a lie nonetheless. Sure, there's always an element of uncertainty in the creation and passage of new regulations, and there are always regulations that continue long after their original goals are fulfilled. But it's absurd to pretend that industry doesn't figure out how to operate in a regulated environment, that its lobbyists are not consistently working to amend or revoke unwanted regulations, and that some of the zombie regulations live on because they benefit an industry, directly or indirectly subsidizing certain activities and operations. We can also easily look back on episodes of deregulation and see direct, negative consequences on industries, public welfare and the economy. For example, although Jeb would probably prefer that we not recall his brother Neil, whose reputation was shattered by his role in the Savings & Loan debacle, or how the more recent financial industry collapse was a repeat of the S&L collapse, on steroids, but it would take a fool to not see how deregulation played a significant role in both financial disasters.

With no apology for his hyperbole, Jeb tells us the horrors that will inevitably come from regulation:

We either can go down the road we are on, a road where the individual is allowed to succeed only so much before being punished with ruinous taxation, where commerce ignores government action at its own peril, and where the state decides how a massive share of the economy's resources should be spent.

You might believe from Jeb's first statement that, since his father was in the West Wing and Oval Office, taxes have been on the rise. But then there are those nasty facts - taxes went down significantly under big brother G.W., and have again been reduced under President Obama. If Jeb wants us to believe that we're on an inescapable downward spiral of regulation that can lead to nothing but higher taxes, the facts have a cruel way of raining on his parade. Now it is fair to say that our course is unsustainable - that the damage the G.W. Bush years, with their unfunded wars, entitlements and tax cuts, bloated budgets, stagnant wages and out-of-control spending did to the economy leaves us with no choice but to raise taxes. But none of that has a whit to do with regulation. And, as a good Republican, Jeb prefers to pretend that we can magic away all of that harm by eliminating regulations and cutting entitlements.

I'm not sure when we were last in a world in which commerce could avoid paying attention to government action. It appears that Jeb is unfamiliar with the U.S. Constitution and how it empowers the federal government to regulate interstate commerce, or how that regulation has facilitated commerce between the states. Or how he can be unaware that treaties and negotiations have facilitated commerce between nations. Even so-called "free trade" agreements are a form of regulation, not deregulation - rules and policies that both sides must follow in order to avoid tariffs. You don't believe me? Read NAFTA and... in a few hours, or perhaps tomorrow, when you're done, come back and explain to me how little it regulates.

As for Jeb's concern that the state "decides how a massive share of the economy's resources should be spent", well, let's take a look at the budget. The biggest expenditures are for Social Security and the military. Social Security is an insurance program, perhaps a redistribution of wealth but not the government deciding how the money is to be spent - the government may write the check but, as a beneficiary, you're free to spend your check as you please. (The same is true for income security programs such as unemployment). So is Jeb railing against military spending? Unquestionably, the government controls how every penny of the military budget is spent. But we know what would happen if we were to directly ask Jeb about military spending as the state deciding how a massive amount of money should be spent - we would get a word salad that boils down to "That's different."

But I'm (cough) beating around the bush. Jeb is talking about medical spending, and is implying that the Affordable Care Act's shifting around of the deck chairs on the Titanic amounts to deciding how the nation's healthcare dollars are spent. Never mind that for most people there will be no discernible difference between their health care or health insurance expenditures before and after 2014, or that the plan pushes money into the hands of private health insurance companies. Never mind that if "free markets" inevitably brought the efficiencies that people like Jeb promise, we would already have the cheapest, most accessible health care system in the world, while instead we have the highest costs in the world without a corresponding level of access or performance. Never mind that the ACA at least attempts to reign in medical inflation, and that without corrective action the present system will collapse.

The alternative to Jeb's imaginary parade of horribles is the "return" to a world that exists only in his imagination:

Or we can return to the road we once knew and which has served us well: a road where individuals acting freely and with little restraint are able to pursue fortune and prosperity as they see fit, a road where the government's role is not to shape the marketplace but to help prepare its citizens to prosper from it.

Would that be a road through which the son of a millionaire can become a millionaire Senator, and have a millionaire son who becomes President, and have a millionaire grandson who despite a track record of non-achievement can also become President while his more accomplished (but still not all that impressive) brother can become a governor who obviously hopes to also become President? Because the road is a lot tougher for the rest of us, and the Horatio Alger myth remains a myth. Jeb speaks of choice between "the straight line promised by the statists" (an allusion, perhaps, to equality?) that turns out to be "a flat line" and "the jagged line of economic freedom" (where you and I have our ups and downs, while brothers like Tripper and Tumbler - the Secret Service code names Jeb and George respectively earned as they staggered through their drunken young adulthood - emerge from their wastrel youth float into adulthood, buoyed by an inherited name, family fortune and political connections... but in fairness, Jeb did let us know, up front, that we need to let people enjoy "the fruits of... good luck".

So let's pretend that a return to the era of the robber barons, the age in which the Bush family fortune was first accumulated, will be an era of equal opportunity, of a rising middle class. Let's ignore that the greatest innovations in the world's history occurred in no small part through public-private partnerships of the modern era - NASA, ARPAnet, the Manhattan Project, military technology, etc. - and pretend that we would be better off in the era of child labor, violent union-busting, rampant inequality, and corrupt government. Because it would appear that to Jeb Bush, those are the good old days. Make the pie lower.

For the diminishing number of people who still believe that a new candidate can enter the Republican primaries and save the party from Mitt, sorry, it won't be Jeb. It's far too late for that. So why emerge from the woodwork now? To attempt to position himself as relevant and, should the economy stagnate for another four years, to point back on his essay with an "I told you so". Why offer an essay that is so lightweight, weakly reasoned, devoid of examples? For the same reason - in the event that the economy turns around, by leaving the meat off of the bones he's not making any statements that his future opponents might use against him.

Bitter Pills from Steve Jobs

Steve Jobs' comments to President Obama have been getting a lot of attention, and most of it seems to be critical. I have to say that if Steve Jobs was half as good at taking blunt criticism from others as he was at giving blunt criticism to others, it's no small wonder he was a good business executive. I also have to say that if I were meeting with somebody like Steve Jobs for ideas on how to improve the nation's economy, I would want to hear his actual opinions, not sugar-coated, eager to please, "everything's coming up roses" nonsense. If you want to know what it would take for Apple to open up a manufacturing plant in the United States, it's helpful to know that the CEO perceives a shortage of people with adequate education to oversee workers, and an educational system that is turning out people who are unprepared to be the workers at the plants he would open. His proposed solutions may have been simplistic, and more reflective of his reported propensity to divide people into two camps (the worthy, who will produce ideas and generate wealth, and everybody else) than of viable reforms, but at least you know where he's coming from.

One of the interesting things about major companies is that they have a lot of opportunity to open factories in relatively undesirable locations, with the locals rolling out the welcome mats and competing to offer the most generous incentives. But as the area in which you want to open a plant or put up a large building or warehouse store becomes more desirable, as a general rule, the offers diminish and the obstacles grow. I'm reminded of a Michigan community which had zoned a large tract of land as "light industrial" in the hope of attracting an industrial park, only to have it sit empty. A major retailer made noises about opening a location there - cheap land, close enough to major roads and population centers to be viable. A local store owner who, having spent decades pulling profits out of his store and putting nothing back in, fought tooth and nail to prevent the rezoning and, when it passed, litigated the issue. By the time the dust settled the land was rezoned, but the big box merchant had moved on. In China? The government was behind the redevelopment plan, so it would have happened. (And if the government wasn't behind it, odds are a 'consultant' could have found a way to bribe convince local officials to change their minds.)

Whatever Jobs thought about environmental regulations, I suspect that his objection was more to the inefficiency of local government and the ability of a local business or citizens group to tie things up for years. I suspect he was speaking from comparative experience opening Apple stores in the U.S. versus other nations. And I suspect he was thinking specifically of why the A6 chip was not going to be manufactured in the United States. For somebody in high tech, a six month delay in opening a chip factory may as well be a lifetime. For somebody in consumer electronics, a relatively small increase in production costs can mean the difference between profit and loss.

Jobs was reportedly 'infuriated' by President Obama's "focus on the reasons that things can't get done". That's what you might expect from a man who didn't have to accept excuses from those under him - "If you can't get it done, I'll put somebody else in charge." That's not even the way most industry works, though, and it's certainly not the way our form of government works.

Would I want to reinvent the country in a way that would have pleased Steve Jobs? From what I've been hearing, no, I would not. I believe China would be better off adopting some of our regulations than we would be in adopting their system of... what's the word for a totalitarian state led by a corrupt oligarchy that will treat you like a king if they expect to profit? There's no easy way to avoid problems and delays in rezoning, development and redevelopment that don't trample somebody's toes, and we know how Steve Jobs reacted when it was his own toes that were being trampled.

Fees on Debit Cards

At The Atlantic, David Indiviglio complains that Congress is gouging consumers,

That WSJ article quotes one angry Bank of America customer, saying that she feels the bank is "gouging" her. That's not quite right: she paid this fee before -- she just didn't know it. It was incorporated into the prices of the goods and services that she purchased with her debit card. The fee was then paid to banks by the retailer where she shopped. Now Bank of America is just cutting out the middle man to collect a portion of the fees. This move isn't meant to create new revenue for the bank, but to replace the revenue that Congress forbid them to collect through their old fee policies.

I'm not sure if he's simply being contrarian or if he's not familiar with the terminology, but "gouging" doesn't involve putting money into somebody else's pocket. It's a reference to exploiting a consumer's position in order to sell products above their fair market value. The customer who feels gouged by Bank of America is actually correct - right now she has a lot of choices, and can go to banks that won't charge her similarly high fees on her debit card. If other banks respond by raising their fees the problem isn't Congress - it's oligopoly pricing. Which, come to think of it, is the same thing that led to the legislation that reduced maximum debit card fees from 44 cents per transaction down to 24 cents.

It's fair to observe that, at least from the coverage I've seen Bank of America is not claiming that its debit card operations will cease to be profitable at 24 cents per transaction, or even that they will cease to be immensely profitable. The complaint appears to be that the lower fees will result in lower profits and, implicitly, that the easiest way to make up the shortfall is to slap a new fee on debit cards. It appears to be a problem not of profits versus losses, but of profits versus the banks' feeling of entitlement to windfall profits.

I'm not sure where Indiviglio sits on "free market" issues, but if he's a fan of free markets he should be applauding the rule change. Rather than hiding exorbitant transaction costs in swipe fees, banks have to either forego that portion of their profits or be forthright with their customers. Does Indiviglio believe consumers are better able to make informed choices when fees are hidden from the consumer and a product is falsely depicted as "free"?

Indiviglio lectures,

In a perfect world, customers would end up paying the same amount in fees as they did before through this new approach. The only difference should be that they're paying more money directly and less indirectly. That means that the prices of the goods and services they purchase ought to decline accordingly.

Unfortunately, we don't live in a perfect world. As I pointed out on Wednesday, retailers aren't cutting prices. Instead, they're pocketing the $7 billion or so they'll save in fees. While this could theoretically change in the future, they have indicated that they aren't cutting prices at this time.

The thing is, I don't recall anybody claiming that we live in a perfect world, let alone that we should expect that merchants will lower prices the second that the new fee regime goes into effect. If you think about it, you will realize that not every customer uses a debit card, and that there is no easy way for merchants to translate lower swipe fees into a direct cost savings to debit card users. You will also recognize that most merchants aren't looking at the fees on a per transaction basis, but are looking at the total amount they pay in transaction fees over a given accounting period. A merchant that no longer needs to budget as much money for bank transaction fees might find that money to be better spent on something other than a price cut. Renovations, new locations, servicing debt, pay raises, increased health care costs, or even turning a small profit instead of going near or into the red in a difficult economic environment.... Even in a "perfect world", Indiviglio's claim would be simplistic.

Indiviglio also claims that "customers will end up paying more than they did before once this new law goes into effect", a claim that is only true for those customers whose bank imposes a new fee on debit cards, and who choose to stay with that bank, and who choose to use their debit cards so as to incur the fee. Most consumers won't pay a cent more than they did before, the only difference being that they might be paying with cash, a check, or a credit card instead of their debit card. Indiviglio's whine that "This financial regulation effort will amount to a gift to retailers, courtesy of Congress" is misplaced - he's really talking about a regulation that attempts to end a windfall to major financial institutions at the expense of retailers. (Indiviglio has worked for financial institutions, but it seems reasonable to infer that he has never worked at a retailer that struggles to maintain a reasonable profit margin after a bank takes its swipe fee.)

Indiviglio claims concern for the working poor, "this action by Congress will hurt low- to middle-income Americans more than wealthier Americans". The thing is, so did the old rules. The fact that banks, having been instructed that an old regulatory regime needed to be changed in order to avoid imposing an undue burden on low- to middle-income Americans, find a new way to impose an undue burden on low- to middle-income Americans is not so much a problem with Congress as it is SOP for banks. If gouging is going on, I would rather have it be transparent than take the form of hidden fees and charges.

The Downside of Building Codes

The question, "Are we really better off with building codes", has spawned an interesting discussion. "Yes, but...."

The best built house on my street sold last year for considerably less than it cost to build. (I'm not sure when the last house on this street sold for more than its replacement cost, but that's another issue.) The second-best constructed house sold more recently, also for less than it cost to build. They did both sell for more than the house my wife and I purchased last year, but they're selling on par with what you would expect on a "per square foot with finished basement" basis. If you choose to build a house above and beyond code, you can't expect to get much (if any) of that investment back when you sell.

Building codes represent the minimum standard of construction, and in many ways are to home construction what domestic cars in the 1970's were to advanced automotive engineering. Yes, code improvements have increased amounts of insulation typically used and, despite it being true that there are some astonishing homes built over a century ago that put most modern homes to shame, for the most part homes are actually more solid and comfortable than they were a century ago. (It's like music - you focus on the works of art of past generation, but forget how much ended up as noise in history's scrap heap. A lot of older homes exist only due to significant renovation or have been replaced, and it's pretty easy to find older homes that are barely standing.) But if you build to code you're getting a house that's substantially less solid, less energy efficient, and less likely to last than a house that could be built based upon readily available knowledge, materials and building technologies.

I do agree that part of the problem is that it's easy to become a builder, and up until the housing crash was pretty easy to make money building and selling homes on a "maximum square feet for the money" basis using semi-skilled labor. I personally would like to see a concerted effort in developing and implementing new construction technologies that can help make housing better, longer-lasting, more energy efficient and less expensive. But I see little sign that the residential construction industry will collaborate to make that a reality, or that the government will impose something analogous to CAFE on home builders, requiring them to build better homes and thus creating an economic incentive to use, develop and implement better techniques and technologies.

Gingrich & Goodman Idea #10: "Make Medical Breakthroughs Accessible to Patients"

The final "GOP idea" shared by Newt Gingrich and John C. Goodman is to "Make medical breakthroughs accessible to patients".

Breakthrough drugs, innovative devices and new therapies to treat rare, complex diseases as well as chronic conditions should be sped to the market. We can do this by cutting red tape before and during review by the Food and Drug Administration and by deploying information technology to monitor the quality of drugs and devices once they reach the marketplace.

The FDA doesn't get much love from anybody. When it doesn't approve medications or medical devices quickly, it is a behemoth that must be streamlined. But when it makes a mistake, approving a dangerous drug or device, even if the error was caused in part by streamlining the same critics previously demanded. At the far extreme, some call for eliminating the FDA and simply letting the market do its magic - I guess if enough patients die, people will figure out that they don't want a particular medication, treatment or medical device.

With some of the FDA's sluggishness it does appear that a new device or treatment could be a genuine boon to patients, and could potentially decrease medical costs. Consider, for example, the artificial pancreas. The FDA describes itself as having taken a "proactive role" in the development of the technology, but diabetes patients still wait. The FDA cites concerns about safety and the accuracy of sensors - after all, an error in the administration of insulin could be lethal - and that at best an artificial pancreas won't function as well as the real thing. But no question, there are diabetes patients who would accept that risk and find the FDA's caution to be both excessive and frustrating.

But let's take a step back for a moment. Let's assume that the FDA's approval process could be streamlined, such that new devices and drugs could be approved much more quickly without jeopardizing patient health. Although there are exceptions, and the artificial pancreas may prove to be one, how often have new medications and new technologies reduced the cost of health care? Usually they have the opposite effect - investment in new technologies and the high cost of patented drugs and devices push overall healthcare costs up. With due respect for Gingrich's love of science fiction, how does he expect that a proliferation of drugs and devices, not fully tested, will decrease health care costs as opposed to increasing them - not only to pay for the patented technologies themselves, but to treat patients who experience bad outcomes due to errors resulting from an accelerated approval process?

If Gingrich and Goodman have answers then, once again, I expect that this is a proposal that would get broad bipartisan support. Without answers, given their insistence that the reform bill be revenue-neutral, I expect that the GOP will be quick to reject it.

(Return to Parent Article.)

Gingrich & Goodman Idea #2: "Make Health Insurance Portable"

Why is it that group health insurance plans cost less - usually far less - per enrollee than individual plans with comparable benefits? There are two obvious reasons. First, the larger the group, the more health care costs can be spread across the group, making the insurer's costs far more predictable even while insuring people with pre-existing conditions. Second, people who are healthy enough to work jobs that carry health insurance benefits are, on the whole, going to be healthier than a population of people willing to pay out-of-pocket for comparable coverage but who do not hold jobs.

Newt Gingrich is acutely aware of the fact that people who want health insurance, and perhaps particularly those who want comprehensive health insurance coverage but cannot afford it, are concerned about the cost of medical care for themselves and their families. He has thus made it a cornerstone of his own "reform" proposals to shift risk from the insurer to the individual - that is, to make the individual "responsible" for more of the cost such that the individual will "choose" to consume fewer healthcare services. I don't know how much Gingrich believes that this approach would "save" in the broader market - relatively healthy individuals who take a fevered infant to the emergency room rather than waiting to see if a high fever breaks, or who seek treatment for a lung infection before it either clears up on its own... or turns into pneumonia). But I suspect that his actual goal is to target people with chronic health conditions so that, for example, diabetics will pay more out-of-pocket for their continuing care, medicine and supplies. It would be nice if Gingrich were more specific on the subject but, if my hunch is correct, it's easy to understand why he's not.

The second idea proposed by Gingrich and Goodman as a "GOP health idea" is to "Make health insurance portable". They propose portability as a "way of solving the problems of pre-existing conditions", and advocates for employment-based insurance to "travel" with employees between jobs and "in and out of the labor market". It's really difficult for me to be charitable to Gingrich here - to find a way to interpret this proposal as consistent with his words. Because the net effect of the proposal would be to eliminate the insurer's ability to define a predictable group for its group rates. If, three years into the plan, the "group" now includes a significant number of people who have quit to take dangerous jobs, who have become too sick to work, who are self-employed doing who-knows-what, who are scattered across dozens of employers... the dynamics of the group are no longer the same. The "group" rate can be expected to skyrocket, amounting to an averaging of individual rates as opposed to the formerly discounted group rate.

Gingrich and Goodman are similarly dishonest in suggesting, "individuals should have the ability to purchase health insurance across state lines". At present, if I want to offer insurance in a state with strong consumer protection laws, I have to abide by the laws and regulations of that state. Gingrich and Goodman want me to be able to skip across state lines into whatever state offers the fewest protections and mandates the least amount of coverage, yet still be allowed to offer insurance in the more protective state without following its laws.

This proposal is unlikely to draw additional insurers into a state due to high costs of entry: there is a huge cost in developing a provider network within a state, signing up enough customers to make a plan profitable, and maintaining that level of subscribers. But you can bet your money that insurers will scramble into the state with the fewest regulations to fatten their bottom lines.

Gingrich and Goodman state, without connecting the thought to their specific proposals, that "When insurers compete for consumers, prices will fall and quality will improve." That goal can be achieved within the current system, such as when an employer offers a cafeteria plan allowing employees to choose between participating insurers and multiple insurance plans. That goal could be advanced by adding a serious national player to the scene - such as a "public option". But it's at best disingenuous to pretend that undermining group-based insurance rates or allowing insurers to regulate across state lines to avoid consumer protection laws and state regulations will increase "competition" in any way that is beneficial to consumers. On the other hand it is consistent with Gingrich's long-stated goal of weakening the scope of insurance coverage while forcing consumers to pay for more of their care out-of-pocket. What a surprise.

Finally, given that the current Senate bill includes some language allowing for the type of portability Gingrich and Goodman favor, why isn't the GOP working with the Senate over the details of that idea rather than stonewalling the Democratic bill and pretending that this is exclusively a GOP idea?

(Return to Parent Article.)

Too Big To Fail?

The Financial Times offers an opinion rejecting the notion that any business should be deemed "too big to fail". The argument comes in X parts. First, sluggish giants aren't a source of innovation:

If “too big to fail” is incompatible with democracy, it also destroys the dynamism that is the central achievement of the market economy. In principle, there is no reason why disruptive innovations and radically new business models should not come from large, established, dominant companies. In practice, the bureaucratic culture of these organisations is such that this rarely happens. Revolutions in business generally come from new entrants

Arguably, some large companies - and especially the "too big to fail" companies - retard innovation by taking advantage of their market position to exclude new competitors. Second, selective government support for any company "distorts competition" and is "damaging to innovation and progress". Third, promises of future regulation are not credible and fail to hold current managers to account for their failures.

The author argues that banking is no different from any number of other essential services, including the electric grid and water supply, and that it's continuity of service that's important, not who happens to be providing the service.

In all industries where there is or might be a dominant position in the supply of essential public services, there needs to be a special resolution regime. The key requirement is that assets that are needed for the continued provision of these services can be quickly separated from the organisations engaged in their supply. The businesses involved must be required to operate in such a way that such a separation is possible.

Not a bad idea.

More On The Financial Mess

The AP covers how, in 2005, the Bush Administration's contemptuousness of regulation and deference to lobbyists led to its rejecting regulations that could have helped diminish the bad lending practices that contributed to the housing bubble.

The Bush administration backed off proposed crackdowns on no-money-down, interest-only mortgages years before the economy collapsed, buckling to pressure from some of the same banks that have now failed. It ignored remarkably prescient warnings that foretold the financial meltdown, according to an Associated Press review of regulatory documents.

"Expect fallout, expect foreclosures, expect horror stories," California mortgage lender Paris Welch wrote to U.S. regulators in January 2006, about one year before the housing implosion cost her a job.

Bowing to aggressive lobbying — along with assurances from banks that the troubled mortgages were OK — regulators delayed action for nearly one year. By the time new rules were released late in 2006, the toughest of the proposed provisions were gone and the meltdown was under way.

Also, CJR covers a Wall Street Journal article observing that, while the financial industry is presently being given a free pass for the incompetence of its management, it has a lot more in common with the auto industry than Congress has so far acknowledged:

For their part, banks have found lots of causes for their predicament aside from their own failings. The crisis, they have argued, is down to an impossible-to-predict perfect storm, predatory hedge funds, panicked investors, unrealistic accounting rules and economic changes that emerged so quickly there was no way to be prepared for them.

If only. The reality is the crisis is due to bad lending and investment decisions. And those, after all, form the core of the banking business. In auto terms, it’s as if banks designed cars that suffer from catastrophic mechanical failures, or can’t be driven during snow storms.

CJR concludes that the author is "right to point out there’s more urgency with fixing the banking system, and right to point out that doesn’t mean they should come out looking the same."Bush

Silly Bureaucratic Rules

The Chair of the FCC proposes,

A company that owns a newspaper in one of the 20 largest cities in the country should be permitted to purchase a broadcast TV or radio station in the same market. But a newspaper should be prohibited from buying one of the top four TV stations in its community. In addition, each part of the combined entity would need to maintain its editorial independence.

Does that mean that a newspaper would also be required to sell its TV station if it rose in popularity to the point of being one of the top four stations in the market? If not, it seems like a silly rule that would primarily serve as a burden on competition by other newspapers in the same market.