Ancient Regime

Shortly before the stock markets closed yesterday afternoon, the US Supreme Court announced a ruling on the so-called “Affordable Care Act” (also known as ACA.)  Health care stocks generally rose on the news of the ruling, in some cases sharply, while shares in health insurers showed a mixed reaction.  Today, the trend has been slightly downward across the board.

A majority of the US Supreme Court held that the US government does have the power to compel citizens and other residents of the USA to buy health insurance.  While the court rejected the Obama administration’s argument that this power, the core of the law, was within the scope of the authority the Constitution grants the federal government to regulate interstate commerce, it concluded that, because the law is to be enforced by the Internal Revenue Service in the process of collecting taxes, it is supported by the government’s authority to levy taxes.

In effect, the law establishes a tax that will be paid directly to health insurance companies.  US residents who refuse to pay this tax will be assessed an alternative tax, one paid to the treasury.  As written, the statute did not include the word “tax,” speaking instead of “premiums” and “penalties.”  These words are euphemisms.  This is clear not only from the Supreme Court’s legal reasoning, but also from the most basic economic logic.  A law which directs people to dispose of their wealth in a particular way to advance a particular set of policy objectives is a tax, whatever label marketing-minded politicians may choose to give it.

Many opponents of the ACA have spoken out against the idea of a tax directly payable to private citizens.  For example, today on the Counterpunch website Dr Clark Newhall complains that the bipartisan Supreme majority represents “Corporatists United.”  Dr Newhall denounces the statute and the ruling in strong terms.  I would like to make three quotes from Dr Newhall’s piece abd add my own comments to them:

In an eagerly anticipated opinion on the Patient Protection and Affordable Care Act, colloquially known as “Obamacare’, an unusual alignment of justices upheld the Act nearly entirely.  The crucial part of the decision found the ‘odd bedfellows’ combination of Chief Justice Roberts joining the four ‘liberal’ justices to uphold the ‘individual mandate’, the section of the law requiring all Americans to buy health insurance from private health insurance companies…

Many supporters of the ACA object to the term “Obamacare.”  The law was crafted on the model of a regime of health insurance regulations and subsidies enacted in Massachusetts in 2006.  That regime is widely known as “Romneycare,” in honor of Willard M. Romney (alias “Mitt,”) who, as Massachusetts’ governor at the time, had been its chief advocate.  So calling the federal version “Obamacare” is simply a matter of continuing to follow the Massachusetts model.  Now, of course, Mr Romney is the Republican Party’s choice to oppose Mr Obama in this year’s presidential election.  Therefore Mr Romney and his surrogates are creating much merriment for political observers by trying to attack the president’s most widely-known legislative achievement, which as it so happens is identical to Mr Romney’s most widely-known legislative achievement.

Dr Newhall goes on:

Those who make, interpret and enforce the laws no longer lie on the ‘left-right’ political continuum. Instead, they are in effect at ‘right angles’ to that continuum.  The ideology that drives the Supreme Court, the political administration and the Congress is not Conservative or Liberal but can best be described as “Corporatist.”  This is the ideology that affirms that “corporations are citizens, my friends.”  it is the ideology that drove the Roberts Court to the odious Citizens United decision.  it is the ideology behind a bailout for banks that are ‘too big to fail.’  And it is the ideology that allows Congress to pass a law like the ACA that is essentially written by a favored industry…

It seems to me very clear what Dr Newhall means to evoke in these sentences is the spectre of fascism.  During the 1930’s, fascists in Italy, Britain, Belgium, and several other countries used the words “fascism” and “corporatism” interchangeably, and economic historians still cite Mussolini’s Italy, and to a lesser extent Hitler’s Germany, as examples of corporatist economics in practice.  The American diplomat-turned-economist-turned-journalist-turned-pariah Lawrence Dennis argued in a series of books in the 1930’s that laissez-faire capitalism was doomed, that state ownership of industry was a dead end, and that the economic future of the developed world belonged to a system in which the state coordinated and subsidized the operations of privately-owned corporations.  The most famous of the books in which Dennis endorsed this system was titled The Coming American Fascism.

Not only the word “corporatism,” but also the image of a ruling elite “at right angles” to the old left/right politics might well remind readers of fascism.  The fascists continually claimed to represent a new politics that was neither left nor right; while such anticapitalist fascist tendencies as il fascismo della sinistra or Germany’s Strasserites were not markedly successful in the intra-party politics of fascist movements,* all fascist parties used anticapitalist rhetoric from time to time (think of the “National Socialist German Workers’ Party,” and of Joseph Goebbels’ definition of revolution as a process by which the right adopts the language and tactics of the left.)  Moreover, the image of “left” and “right” suggests that political opinions form a continuum that stretches from one extreme to another, with any number of points in between.  That in turn suggests that people who disagree may have enough in common with each other that their conflicts may be productive.  Fascism, on the other hand, demands a one-party state in which a single ideology is imposed on everyone.  Fascism finds nothing of value in political conflict, and strives to annihilate disagreement.  I think that’s what the late Seymour Martin Lipset was driving at in his book Political Man when he placed most fascist movements, including the Italian fascists and German Nazis, not on the far right, but in the “Radical Center.”

Counterpunch is edited by Alexander Cockburn, who recently declared that the United States of America has completed its transition to fascism.  So it would not be surprising if by these remarks Dr Newhall were insinuating that the ACA is fascist in its substance.  I would demur from such an assessment.  Before I can explain why, permit me to quote one more paragraph from Dr Newhall’s piece:

Why does Corporatism favor Obamacare?  Because Obamacare is nothing more than a huge bailout for another failing industry — the health insurance industry.  No health insurer could continue to raise premiums at the rate of two to three times inflation, as they have done for at least a decade.  No health insurer could continue to pay 200 million dollar plus bonuses to top executives, as they have done repeatedly.  No health insurer could continue to restrict Americans’ access to decent health care, in effect creating slow and silent ‘death panels.’  No health insurer could do those things and survive.  But with the Obamacare act now firmly in place, health insurers will see a HUGE multibillion dollar windfall in the form of 40 million or more new health insurance customers whose premiums are paid largely by government subsidies.  That is the explanation for the numerous expansions and mergers you have seen in the health care industry in the past couple of years.  You will see more of the same, and if you are a stock bettor, you would do well to buy stock in smaller health insurers, because they will be snapped up in a wave of consolidation that dwarfs anything yet seen in this country.

Certainly the health insurance industry was in trouble in 2009, and the ACA is an attempt to enable that industry to continue business more or less as usual.  In that sense, it is a bailout.  Indeed, the health insurance companies are extremely influential in both the Democratic and Republican parties, and there can be little doubt that whichever of those parties won the 2008 elections would have enacted similar legislation.  Had Mr Romney been successful in his 2008 presidential campaign, doubtless he would have signed the same bill that Mr Obama in fact signed.  The loyal  Democrats who today defend the ACA as a great boon to working-class Americans would then be denouncing it in terms like those Dr Newhall employs, while the loyal Republicans who today denounce the ACA as a threat to the “free-enterprise system” that they fondly imagine to characterize American economic life would then defend it on some equally fanciful basis.

In a deeper sense, however, I disagree with Dr Newhall’s assessment quite thoroughly.  A moment ago, I defined taxation as any law that requires people to dispose of their wealth in particular ways to advance particular policy objectives.  If we think about that definition for a moment, we can see that the United States’ entire health insurance industry exists to receive taxes.  In the USA, wages paid to employees are subject to a rather heavy tax called FICA.  Premiums that are paid for employees’ health insurance policies are not subject to FICA, and so employers have an incentive to put a significant fraction of their employees’ compensation packages into health insurance premiums.  Since the health insurers have been collecting taxes all along, it is quite misleading to call the ACA a bailout.  It is, rather, a tax increase.

Now, as to the question of fascism, certainly fascist regimes did blur the line between the public and private sectors.  The most extreme case of this was of course the assignment of concentration camp inmates as slave labor for I. G. Farben and other cartels organized under the supervision of the Nazi state.  So it would not have been much of a stretch for fascists to grant corporations the power to collect taxes.  Even if they had done so, however, fascists could hardly claim to have made an innovation.  Tax farming, the collection of taxes by private-sector groups in pursuit of profit, was the norm in Persia by the sixth century BC, and spread rapidly throughout the ancient world.  In ancient Rome under the later Republic, tax farming proved itself to be a highly efficient means of organizing tax collection. So the fact that tax farming is one of the principal aspects of the US economy is not evidence that the USA is a fascist or a proto-fascist regime.  Indeed, the fact that the Supreme Court seriously considered a case that would have challenged the legitimacy of tax farming is an encouraging sign, however unedifying the opinions that the court issued as a result of that consideration might be.

Of course, in the ancient world tax farmers bid competitively for the right to collect taxes, and the winners put their bids into the public treasury.  In the USA, there is no such bidding, and no such payment.  Instead, wealthy individuals and interest groups buy politicians by financing their campaigns and their retirements.  Perhaps we would be better off to adopt the ancient system.

At any rate, “fascism” seems a misnomer for our economic system, almost as misleading as “free enterprise” or as anachronistic as “capitalism.”  A more accurate term, at least as regards the components that are dominated by tax farming, would be neo-feudalist.  The US political class is increasingly an hereditary class; Mr Obama defeated the wife of a former president to win his party’s nomination to succeed the son of a former president, and now faces the son of a former presidential candidate in his campaign for a second term.  This hereditary nobility will now sit atop a system in which the non-rich are legally obligated to pay tribute or provide service to those in power in the land, who will in turn honor certain obligations to them.

*Fascism being what it was, “not markedly successful in intra-party politics” often meant “shot several times in the head and dismembered,” as happened to Gregor Strasser.

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Car Insurance vs Health Insurance

Earlier this evening, I posted a long comment on a post at Secular Right.  In the post, blogger Heather MacDonald said that she was, in principle, a supporter of the idea that the law should require people to buy health insurance.  In support of this view, she pointed out that motorists are required to buy car insurance.  My reply:

“I see little difference between mandated car insurance and mandated health insurance—in most places, having a car is virtually a necessity of life” Car insurance and health insurance have a couple of things in common. The chief of these is that both categories of products are called “insurance.” The rest of the similarities, such as the fact that the some of the same companies sell them and some of the same agencies regulate them, stem from this point of vocabulary.

The similarities between car insurance and health insurance, however, are dwarfed by the differences between them. You choose an auto dealer, choose a car, negotiate a price for that car, arrange financing for it, pay that price, buy the fuel of your choice for it, decide which routine maintenance tasks you will perform on it yourself and which you will entrust to a mechanic, choose the mechanic who will perform those tasks, and pay that mechanic for those routine tasks, all without input from your insurer. If car insurance were the same thing as health insurance, you would be dependent on the insurer to make all of these payments and all of these decisions for you. To use mandates for car insurance as an analogy to justify mandates for health insurance, then, is like saying that because lightning rods protect your house from lightning, they should also protect your garden from lightning bugs.

If the USA’s political leaders were serious about controlling the cost of health care, in fact, they would move to make health insurance more like car insurance- not by making it mandatory, but by removing the tax incentives that reward employers for redirecting money from employee’s paychecks to health insurance premiums. Under our current system, a substantial percentage of the compensation US employers pay to keep their employees on staff goes, not to them in the form of money they can spend as they see fit, but to insurers to form funds from which employees can draw only in the form of medical expenses. Therefore, when those employees become consumers of health care they have no incentive to keep the cost of their health care down. Health care providers obviously have no such incentive. Even employers and insurance companies have only a very weak incentive to keep costs down, since employers are paying premiums with money that would otherwise go to the corporate income tax or to some other tax shelter. That’s why the cost of health care has for many consecutive years grown at a rate well in excess of the general rate of inflation, something which is not true of cars, car insurance, or any of the services car insurance usually covers.

If the corporate income tax were abolished, it would be possible for health insurance to become like car insurance. Consumers could choose and pay for their own routine health care, and pay also for insurance to cover catastrophic health expenses, as consumers now buy car insurance to cover catastrophic auto expenses. Doubtless, the modern world being what it is, there would be a political demand for substantial public sector subsidies for low-income people who have need of health care. So long as these subsidies were in the form of direct transfers of money to these potential consumers, they might leave the recipients with as much incentive to negotiate for lower prices as they have when considering the purchase of other goods and services that money could gain them. Not being as far to the right (or as secular) as most people who hang around here at Secular Right, I would be eager to support a generous program of subsidies along these lines.

Will visits to the doctor go the way of visits from the doctor?

In the last few days, television audiences in the USA have been hearing a great deal about IBM’s “Watson” computer system.  The occasion of this publicity is Watson’s appearance as a contestant on the popular quiz show Jeopardy.  IBM has emphasized Watson’s potential in the medical field:

Throughout this material, IBM’s spokespeople keep inviting us to imagine a near future in which Watson or systems like it will be found “in every doctor’s office.”  What this phrasing suggests to me is a situation in which there are about as many doctors as there are now, those doctors are distributed in offices as they are now, and in those offices they examine patients who come to them as they do now.  The state of affairs that this phrasing suggests is that these future offices will differ from their present-day counterparts in that Watson-like natural language processors will be installed to provide the patient with an “instant second opinion.”

A moment’s reflection will reveal that there is essentially no likelihood of such a scenario being realized, at least not in the USA.  As soon as a machine is invented that is capable of giving a medical opinion that is of any value whatsoever, flesh-and-blood doctors will vanish from the lives of low-income patients forever.  Once the machine is so improved that it can be trusted to give a sound diagnosis most of the time, with none but the trickiest cases requiring review by human doctors and none but a small percentage of those requiring active intervention to overrule the machine, the only patients who will ever meet their doctors will be the very wealthy and the scientifically interesting.

The parallel I would draw is with the institution of the “house call.”  As recently as 40 years ago, it was so common for doctors to call on their patients at home that when people occasionally had to go to the doctor’s office to receive care, it was considered grounds for a radical overhaul of the healthcare system.  Now, when a doctor does make house calls, it’s national news.  I predict that 40 years from now, it will be as rare for a patient to visit a doctor for examination as it is today for a doctor to visit a patient at home.

What will the consequences of this change be for public policy?  The central dilemma in technology policy is always the same, that there is little or no interval between the time when it is too soon to say what the effects of a development will be and the time when it is too late to do anything about that development.  One thing we can say is that demand for medical doctors will drop dramatically, probably to 1% or less of the current per capita demand by 2050.  Whether that means we will have only 1% as many doctors then as we do now, or that some larger number will share 1% of the income that doctors now collect, of course depends on a wide range of factors.  Whichever way it goes, certainly no prudent investor would be interested in funding a new medical school at this time.

The cost of health care is a focus of much discussion in the USA, where it represents at least 1/7 of GDP.  Eliminating doctors would change the way this spending breaks down, but would neither reduce demand for health care nor increase its supply.  Moreover, many have argued that the reason health care costs so much more in the USA than in similar countries is that Americans do not really have a market for health care.  Rather, employers pay for health insurance in order to avoid paying the corporate income tax.  Since employers pay insurance companies money that would otherwise go to the taxman, they have little incentive to negotiate lower premiums; since insurers raise premiums when providers charge them more, they have no incentive at all to negotiate for lower prices.  As long as the corporate income tax and its health-insurance deduction remain in place, US health care costs will continue to rise no matter how little money goes to doctors.  Perhaps if the USA were to abolish the corporate income tax and replace it with a consumer-driven revenue source like the Value Added Tax, a consumer-driven health care system might emerge, but until then, technology cannot solve our problems.

Of course, unemployment is also a public policy problem.  What happens to all the M.D.s whose degrees will become worthless in the years ahead?  And what happens to public opinion when the appearance of a horde of jobless doctors makes it clear that education is no guarantee of employment?  Marxism may be dead, but will it stay buried in a world where the owners of capital are the only economic group who lead lives secure enough to plan for their futures?

The American Conservative, November 2009

american conservative november 2009In this issue, former FBI employee Sibel Edmonds names some prominent US officials whom she believes to have accepted bribes from foreign governments.   

Eve Tushnet visits a Washington, DC locale known to the federal government as Meridian Hill Park, though she has “only seen its maiden name in two places: District government plaques and local girl Florence King’s autobiography, Confessions of a Failed Southern Lady.”  Everyone else calls it Malcolm X Park.  Tushnet compares the design of the place to a ziggurat, a Sicilian village, a complex borad game, and the world’s largest Slinky.  I can see why; there are also some views which remind me of M. C. Escher.  Whatever the park’s designers were thinking, they don’t seem to have been thinking of crime prevention.  “It’s an array of alcoves linked by narrow paths and staircases… The high walls and ample foliage make it a haven for people whose professions or hobbies require a talent for lurking.”  No one seems to be committing any crimes during Tushnet’s visit, though she does have her suspicions about a man who introduces himself as a podiatrist.  

A humor piece is written as if it were a diary entry by classicist-cum-neoconservative madman Victor Davis Hanson.  The locution “No American wishes to contemplate the idea of war, but” occurs three times, the locution “No Namibian mercenary wishes to contemplate the idea of war, but” occurs once.  A truly Hansonian piece, I’d say.   

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The Atlantic, September 2009

atlantic september 2009David Goldhill’s piece about health policy identifies the main problem with the current US system as health insurance.  Not the fact that so many people lack health insurance, or the way health insurers operate, or any of the usual complaints, but in the sheer fact that Americans pay for health care primarily by means of health insurance.  Goldhill argues that this payment system strips patients of the ability to make informed decisions about their own care, subjects health care providers to a regime of incentives that are unrelated to the rationality of the marketplace, and inflates the costs of health care to unsustainable levels.  Goldhill proposes a far-reaching plan to replace this system. 

Under Goldhill’s plan, the government would operate an insurance plan that would provide coverage to every American who faced catastrophic health care expenses; that plan would, in time, “ultimately replace Medicare, Medicaid, and private insurance.”  It would pay only for genuinely catastrophic expenses.  Goldhill acknowledges that it would be difficult to define the limit of “catastrophic,” and discusses various dollar amounts that might be used as a cutoff.  Perhaps a percentage of national median income would be a better determinant than any absolute number of dollars, but Goldhill doesn’t bring that up. 

The second part of Goldhill’s plan are Health Savings Accounts.  Already in existence, these tax-sheltered accounts would under Goldhill’s plan be mandatory for all Americans, and would be the source from which virtually all health care would be paid.  Goldhill proposes that the government should subsidize low-income Americans with direct payments to their Health Savings Accounts, so that everyone would have at least as much money in his or her Health Savings Account as any patient would likely be able to claim from Medicare or Medicaid today.  The difference is that under Goldhill’s system, the patients themselves would be the ones writing the checks to health care providers.  The providers would then have to compete for patients.  That competition would take the mystery out of health care prices, and would give health care providers an economic incentive to keep prices down and quality of service up. 

Goldhill’s system would also give health-care providers an incentive to adopt best practices, breaking down resistance from entrenched stakeholders.  As an example of such resistance, Goldhill opens the piece with the story of his father’s death from a hospital-borne infection in 2007.  Remarking that about 100,000 Americans die of hospital-borne infections annually, Goldhill brings up Dr. Peter Pronovost, who has developed a checklist of simple disinfection procedures.  Hospitals which have adopted Dr Pronovost’s checklist have seen deaths by hospital-borne infection decline by about 2/3.  Yet most hospitals have refused to adopt the checklist, backing down in the face of doctors who are offended that anyone would suggest they need to be reminded to keep clean.  Goldhill closes the piece by asking us:

Imagine my father’s hospital had to present the bill for his “care” not to a government bureaucracy, but to my grieving mother. Do you really believe that the hospital—forced to face the victim of its poor-quality service, forced to collect the bill from the real customer—wouldn’t have figured out how to make its doctors wash their hands?

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