Watering the Tree of Liberty

I was listening recently to a comment about a recent protester at an Obama rally who had a shirt mentioning "watering the Tree of Liberty" which, of course, comes from Thomas Jefferson's famous quote "The tree of liberty must be refreshed from time to time with the blood of patriots and tyrants."

Unfortunately, the situation is more bleak than he seems to realize. The Revolution of 1776 work only because the majority of the colonists, through the unanimous approval of their elected representatives, supported first the revolution and then the Constitution. Though we certainly don't have a Constitutionally limited government anymore, we clearly still have a democracy (in fact, the root of the problem is that we have too much of a democracy and not enough of a republic). This means that our government oversteps the powers granted it by the Constitution not in spite of the approval of the majority, but because the majority wants it. This is of critical importance to this protester's cause.

If we can convince most Americans that limited government is needed to secure our freedoms, then an armed revolution is unnecessary. If we can't convince them, it is insufficient. Even if we overthrew the government it is only through tyranny that we could inflict "freedom" on a populace that wants to vote themselves the fruits of others' labor.

Human Nature

In his press conference last night, Obama stated that one of the problems with the current cost of medicine is that doctors will see a child with a sore throat and recommend a tonsillectomy, not because it is indicated, but because it has a preferable fee schedule to what is indicated. I'm sure this happens, but I think it's a slander against the medical profession to insinuate it happens often enough to be a concern with the cost of medical care.

Let's assume, for the sake of argument, that the profit motive is so strong that at least a huge minority of doctors recommend costly, but unneeded, procedures on a routine basis purely to increase their billable fees. Does anyone think bureaucrats won't commit the same sins? Is it really a winning argument that we can't trust doctors to make the right decision for the person standing in front of them who can get a second opinion, but an unaccountable bureaucrat hundreds of miles away who gets to make an almost unappealable call for masses of people he will never meet will always make the call with their best interest at heart? Gallup conducts a poll on what professions are viewed as the most trustworthy and ethical every year. In the last poll doctors, nurses, and pharmacists were all in the top ten with the lowest of them having a 6% unfavorable rating. Congressmen were just above used car salesman at 48% unfavorable. They didn't poll for unelected bureaucrats, but I'd have to guess they're near or below officials you can actually vote out of office.

Or is it that doctors have a profit motive, but bureaucrats are only accountable to getting the right answer? I think we know intuitively that this isn't true. Obama previously promised that the government would be hands off in running its new car company, but the same day he called Detroit to promise that they would be staying in expensive office space there and Congress has (predictably) fought tooth and nail to prevent dealer closures in each representative's neighborhood. I don't feel qualified to make a judgment on whether or not the cancellation of the F-22 was militarily advisable, but I'm pretty sure both GA Senators wouldn't have voted against it if Lockheed's F-22 plant was in Marietta, OH.

I'm sure lobbyist groups are already putting together plans to try to get their pet procedure funded under the new government regulations. It would not at all surprise me, for instance, if the bureaucrats deciding what health insurance must cover decide you must pay for other people's abortions if you buy health insurance. At least 12 states already have mandates that require people paying for health insurance to compensate people getting IVF. I'm not saying IVF is the same as abortion, but there are people with moral objections to it and it's certainly not something any sane person would "insure" against. I'm pretty sure at no point in my life will something happen that requires me to get emergency IVF.

So what I really want to know from Obama is, assuming that Doctors are recommending needless procedures (for reasons other than lawsuit protection) so often that there's a quantifiable cost savings to preventing it, are bureaucrats and congressmen just better people than doctors, or is he going to structure the bill so that, for the first time in history, there's no way Washington can tailor their policies to the needs of special or parochial interest instead of the American people?

Rethinking the Constitution, again

I had previously written a series of posts inspired by an article by Larry Sabato summarizing his book "A More Perfect Constitution." Now there's another effort to remake the Constitution out, and I honestly think this one is a more serious effort. Robert Nelson wrote an excellent article for U. Maryland's Philosophy and Public Policy Quarterly. I say excellent not because I agree with it, but because it's extremely well thought out.

The original Constitution (including, if you like, up to the first 15 Amendments) was written primarily in an attempt to protect us from a national democracy. That is why, as I have previously noted, the Senate was originally picked by state legislatures. That is why Article I Section 8 carefully lays out the powers allocated to Congress and Amendment 10 specifies that all powers not specifically allocated to the United States are reserved to the States or the people.

But across the twentieth century, beginning with T.R. and continuing mainly through the administrations of Wilson, Hoover, FDR, Truman and Johnson, our Federal Government has moved from one that provides a very limited set of services that are enumerated in the Constitution and thought to be beyond the capabilities of the states to a Taylorist administrative state that seeks to oversee everything from what can be broadcast on media to what food your local grocery store can offer.

Nelson rightly points out that the structure of our national government is ill-suited to handle such detailed work and proposes, thouroughly consistent with Talyor and Wilson, a Chief Administrator to oversee committees of experts to run things outside the necessarily inefficient elected structure. I think his proposal is well thought out and enlightened in its structure of a national administrative state. His chosen example of the failures of the floodwall in New Orleans (which is a seperate, and much better chosen, issue from the response to that failure) is a fantastic example of the failings of the current mishmash administrative state, but also a power that makes no sense for the Federal Government to have. I understand that the Constitution allows for the establishment of Federal armies, but I don't think the framers envisioned that one of the responsibilities of that Army would be creating a permanent city below Sea Level within the boundaries of the United States.

The problem is that I think a national administrative state, though it may well be the inevitable destination of the weight of democracy, is doomed to fall into tyranny. As Tocqueville brilliantly describes in a chapter titled "What Sort Of Despotism Democratic Nations Have To Fear"

Above this race of men stands an immense and tutelary power, which takes upon itself alone to secure their gratifications, and to watch over their fate. That power is absolute, minute, regular, provident, and mild. It would be like the authority of a parent, if, like that authority, its object was to prepare men for manhood; but it seeks on the contrary to keep them in perpetual childhood: it is well content that the people should rejoice, provided they think of nothing but rejoicing. For their happiness such a government willingly labors, but it chooses to be the sole agent and the only arbiter of that happiness: it provides for their security, foresees and supplies their necessities, facilitates their pleasures, manages their principal concerns, directs their industry, regulates the descent of property, and subdivides their inheritances—what remains, but to spare them all the care of thinking and all the trouble of living? Thus it every day renders the exercise of the free agency of man less useful and less frequent; it circumscribes the will within a narrower range, and gradually robs a man of all the uses of himself. The principle of equality has prepared men for these things: it has predisposed men to endure them, and oftentimes to look on them as benefits.

After having thus successively taken each member of the community in its powerful grasp, and fashioned them at will, the supreme power then extends its arm over the whole community. It covers the surface of society with a net-work of small complicated rules, minute and uniform, through which the most original minds and the most energetic characters cannot penetrate, to rise above the crowd. The will of man is not shattered, but softened, bent, and guided: men are seldom forced by it to act, but they are constantly restrained from acting: such a power does not destroy, but it prevents existence; it does not tyrannize, but it compresses, enervates, extinguishes, and stupefies a people, till each nation is reduced to be nothing better than a flock of timid and industrious animals, of which the government is the shepherd.

(Yes, I'm shamelessly ripping that off from Paul Rahe and I'll admit to not having read all of Democracy in America, but it's made it fairly high on my to-read list.)

Preexisting conditions

I find it almost unbelievable that both the Democrat's bill and the Republican counter offer specify that private plans (and the government plan) should not be allowed to discriminate based on pre-existing conditions. I know several people who either have or have children with very expensive pre-existing conditions, so I feel for the fact that you can't get private insurance if you have cancer. But, I don't see how you can possibly end up with a decent health insurance system if you allow people to get into the program after they're already sick.

Imagine a system where you couldn't exempt "pre-existing conditions" from home owners insurance. You would be crazy to buy insurance before your house burned to the ground, because you would have to pay to rebuild the houses of the smart people who bought their coverage when their house was a smoldering ruin. I actually suspect, based on the breakdowns that I have seen, that a fair portion of the Democrat's 50 million uninsured are currently making the gamble that if they get to the point where they need insurance they can just depend on the fact that corporate policies and Medicare can't look at preexisting conditions and get it when they get sick.

Ultimately I would like to see health insurance work something like home owners insurance does now. You can select your coverage ahead of time and choose what is covered and if you suffer something that's covered then it will get paid for. If you choose not to insure against loss then you pay dearly. I'm not claiming that the government should let people die (though, as I note in my previous post, at some point they have to), but you should bear a great deal of the burden for your choices. That's how markets pressure people to make good decisions.

I understand that it's very, very difficult to get from where we are now to a system where you can get real catastrophic coverage without severely harming people who came down with a disease while depending on their current corporate policy, but nobody seems to want to even try.

An analogy on health insurance

As a way to explain the current proposals (such as they are) to "reform" health insurance, I thought I might employ an analogy. I realize that, like all analogies, this is flawed, but I think it actually does a pretty good job of illustrating the current problems.

Lets imagine that your car insurance was run just like the current health insurance system. This would mean:

• There was a tax break for getting car insurance through your employer
• That insurance gave group rates assuming everyone at your company had the same driving history
• That insurance was not allowed to reject people because of prior driving records
• You lost that insurance if you left the company (or shortly after)
  
• Any insurance you purchased on your own not only took into account your driving records, but did not cover any defects in your cars that existed before purchase.
• The standard method for insurance is to pay for all repairs for a small copay
• There were government mandates that, for instance, if your car was dented then a full repainting must be paid for, and the coverage must include rebuilding the exhaust system of clunkers to modern emissions compliance (1).
  
• Those mandates include that oil changes, tires, and regular recommend maintenance must be covered, but allowed the insurance company to set a maximum liability payout of $10,000 in the case of an accident.
• Anyone can sue a mechanic for any reason and if they lose they pay only their own lawyer, but if they win the mechanic will likely be out many times what he makes in a year.
• There is a government program to fix the cars of old and poor people, which pays repair shops 85-90% of market rates, meaning the shops have to recoop that cost by charging you more.
  
• Other countries legally limit the price of newly developed systems, so when a new system for brake flushing or whatever comes along, they pay the cost of the actual hardware, we have to pay for all the development work.
  

As a solution to this the Democrats have offered that they'll offer another program, just like an employer provided health plan, but run by the Federal Government. They will, of course, use taxpayer money to subsidize this plan. They will likely also decide what they are going to pay doctors and legally force doctors to accept their plan, even if they don't take private plans at the same rate. This plan is not subject to state mandates, but they will have their own mandates for it (and for any competing plan, which is still subject to the state mandates, too)

Their current idea is to take out the public plan, but establish a clearing house for private plans that still have to meet their mandates (and that still meet all the other conditions above, except not being tied to their employer).

Obama claims that this will save money because part of this is a plan to make consumers better informed about their choices in healthcare. If you took your car to the mechanic and he said that it has a seal that's slightly cracked. It's unlikely to cause a problem in the next 6 months so you could just get it checked again the next time you get an oil change, but he can change it now (at a cost of a couple hundred dollars) and you won't have to pay any more. Would the information that you don't really need to get it done now really make that much of a difference?



I'll note I'm leaving off one of the major drivers of cost in the health business, which is that people will pay anything for health. If something out there has a 2% chance of saving your baby's life and costs $10 million, it's worth it. Health care costs will grow uncontrollably because we will spend on it constrained only by what we can come up with. This means that the government can never solve every health problem. There are only a few possible approaches to expensive or new treatments:

1. Do nothing and let the market decide. This will mean that in the short term people will die where we have treatments available (but as we'll shortly see, that is always going to happen) but historically treatments have gotten cheaper so hopefully in the future the treatment will be available to those with less means.
2. Set a maximum government payout and let the market decide. Same as above, but with more government involvement, which in this case means (interestingly) that we're more likely to get future treatments that are more expensive.
   
3. Make rules for who lives and who dies. This is pretty much what most current purely government plans do. They might pay for an expensive treatment for someone who is 30, but not for the same condition in someone who is 70 because they don't have enough time left to be worth the expense. Several of them also cut down on costs by having waiting lists so that some people become untreatable while waiting, allowing them to only fund operations for those who can wait that long and still be treatable. This could either go with an option to buy treatment if you're outside the rules (like Britain, iirc) or eliminate private healthcare entirely (like Canada would be if they didn't have a private system to their South)
   
4. Artificially set the price for treatment and offer it to everyone. This will work for most things now, but it will completely eviscerate future spending on development, so more people will die in the future because of cures we won't discover that would have been discovered if they were predicted to sell at a higher cost. This isn't as bad if somebody else is paying unlimited amounts for new developments since then the research cost for some things can be paid by somebody else and we can just pay for production costs(2)
   

Obviously you can have some combination of these (Canada, iirc, has rules and also artificially lowers the cost of prescriptions, which in some cases means they don't get the latest drugs imported at all.) but no matter what you do, you need to face the fact that some people are going to die as a result of your decision. You can't, as Obama seems to want to, simply say that we're going to fix it and ensure everybody will get every treatment they need.

(1) If you think this is an insane analogy, I know several states require that cancer patients be provided with wigs by insurance. I've known people in chemo and I know how much hair pieces can mean to them, but do we really need a law stating that an insurance policy must cover that?

(2) Imagine I have an idea for a new cancer drug which I think has a 10% chance of success, will cost $100 million to get through research and $5 per patient for production, and will affect 1 million people per year worldwide. If I get 7 years on my patent and spend 2 of those in approval testing with the FDA then I need to recoup $100 million in 5 years after approval. This would cost $25 per patient to recoup the costs if it's successful, but there's no way I persue it if my expected return is $25 per patient because there's a 90% chance I lose $100 million. To make the expected return equal the cost I would need to charge at least $185 per patient. If half of those patients are in country X and they normally only give double the production cost in their price fixing operation then I'll still want to sell to them if I succeed (since that's $5 per patient in profit, assuming the research is successful) but when I'm deciding if I can afford to start I need to assume I can sell to the other half of the patients at $365 to recoup the expected loss on research. In reality I don't think any of the current price fixing countries are setting prices based on production costs (with the possible exception of some African anti-virals, which don't account for substantial expected profits anyway) so it's not quite this bad, but this does illustrate why price fixes work, so long as somebody else is willing to pay for research.

Those 150k jobs that were saved or created.

I'm sure everyone has seen the chart by this point comparing Obama's prediction with and without the stimulus to the actual unemployment data. What I find interesting is the comparison of the trend line with the stimulus to Obama's new model of what would have happened without the stimulus.

Using the May BLS numbers for jobless claims we get 13,973,000 unemployed with 9.4% unemployment. I don't remember how to get the payroll numbers out of BLS data, so let's presume that it's exactly 9.4% and there are 148,648,936 people considered. That means that under Obama's predictions in January we would now have around 8.3% unemployment without the stimulus or 7.8% with. We passed the stimulus and we're now at 9.4%. So how far is his original estimate of 7.8% from the actual data at 9.4%? Well 148,648,936*.078 = 11,594,617 or a difference of 2,378,383 jobs.

The claim now is that that 9.4% number is much better than it would have been because he has "created or saved" 150,000 jobs. For the sake of argument, lets assume that his predictions were 2.3 million jobs off and yet his estimate of jobs created or saved is deadly accurate. How much worse would it be if we hadn't passed a trillion dollars in spending? That would be 150/(148648+150) or — wait for it — .1%.

Great.

Illustrations on Health Care

There were two events this week that really show what a government healthcare system would look like.

The first is the crash of the French airliner in the Atlantic. The interesting thing to me about that crash is that I just learned that damages from airlines for crashes, even resulting in fatalities, is limited to around $200k by international treaty. This treaty was passed in the early 20th century in order to promote the growth of an international airline system. It seems to have do extremely well at that, but interestingly it also seems not to have limited pressure on airlines to fly safely. If you listen to people opposing limits on liability for doctors you would expect that similar limits on air carrier would cause us to have accidents all the time, but in fact it's much safer to fly than drive and I learned about these limits only because of a very, very rare fatal crash. Comair has the worst safety rating of any North American carrier, having lost 2 planes out of 5 million. I'll go ahead and state that I would be willing to go to a doctor with such an atrocious safety record.

The second is Obama's takeover of GM. I think any reasonable observer would instantly come to the realization that his gutting the rights of top priority lien holders in favor of the UAW reflects the fact that the government takeover gives favor to parties favored by the government. We can also see this in the fact that he has already assured the Mayor of Detroit that GM's headquarters will remain there, regardless of the business sense of that. It also makes sense to question what now happens to non-government owned automakers. Can Ford fairly get fleet vehicles bought by the fed? Will the UAW negotiate terms to the independently held Ford the same as to their own automaker? If they don't and Ford takes them to court, can we expect the Federal Government to fairly hear the case that the UAW discriminated in favor of a company they jointly hold with the Federal Government? There were local utilities a decade or two ago that tried to get into the TVA's market, but were rebuffed because TVA drastically cut their prices long enough to hold them out. TVA lost money during this time, but they're a Federal agency so we were there to bail them out. Can we reasonably exclude GM from following the same pricing plan? When the government is setting safety, emissions, or fuel economy standards, would it make sense for them to look at what their line of cars already produces? How closely can we expect this to be tailored? Currently the standards are different for light trucks. How about a different standard for cars that have exactly the same weight and interior volume as the Chevy Obama?

This is the ultimate in vertical integration, and it should raise exactly the same red flags as a "government option" in healthcare.