Connecting younger audiences with the ideas that drive the capitalism vs. socialism debate is challenging. If done right, it can be fun, though. Here’s the latest effort from the American Institute for Economic Research: A rap battle between Karl Marx and Ludwig von Mises. Share it with your friends, boyee.
Last November, Ontario’s government scrapped rent controls for new rental properties. Activists called it class warfare against low-income renters and predicted huge rises in rents.
“The class war fare (sic) launched by Doug Ford’s mean-spirited government continues. Their regressive policies including removal of rent control is going to make Toronto and Ontario less affordable and livable. That’s unacceptable. We must fight this,” tweeted a self-described “human rights activist” in Toronto.
A Toronto city councilor tweeted: “Doug Ford’s decision to remove rent control from new buildings will make Toronto even less affordable. It removes tenants’ rights & drives young people out of our city.”
Eight months later, Bloomberg reported that a spike in new apartment construction and permits had created a “record apartment surge” in Toronto. The rapid addition of new units pushed the vacancy rate up to its highest level in four years and slowed the high rate of rent increases.
“The vacancy rate rose to 1.5% in the second quarter, the highest since 2015, when research firm Urbanation began tracking the data. Rent increases eased to 7.6% from 10.3% last year, bringing the cost of an average-sized unit of 794 square feet to C$2,475 ($1,894).”
This outcome should have been as surprising as hearing a Canadian say “eh.”
Reams of research show that removing rent control laws raises rental property values, encouraging construction and leading to an increase in the supply of rental housing. That increase in supply, if not artificially restricted, puts downward pressure on rents.
A Stanford University study published in March found that rent control in San Francisco reduced the supply of rental housing by 15 percent. “Thus, while rent control prevents displacement of incumbent renters in the short run, the lost rental housing supply likely drove up market rents in the long run, ultimately undermining the goals of the law.”
“In addition, the conversion of existing rental properties to higher-end, owner-occupied condominium housing ultimately led to a housing stock increasingly directed towards higher income individuals. In this way, rent control contributed to the gentrication of San Francisco, contrary to the stated policy goal. Rent control appears to have increased income inequality in the city by both limiting displacement of minorities and attracting higher income residents.”
New Hampshire has its own version of rent control: Local land use regulations.
Needlessly burdensome restrictions on the size, location and type of apartments reduces the number of available units. These government-imposed constraints on the supply of rental units raise rents.
That, in turn, makes it harder for high-school and college graduates to afford to stay in New Hampshire after they leave the nest. And a shortage of rental units makes it more challenging for employers to recruit new talent, which puts an artificial restraint on economic growth.
It’s been widely reported this summer that many New Hampshire employers face a severe shortage of workers. A contributing factor is that many local governments have priced younger people out of the housing market.
More apartments would mean lower rents, which would make the state (Rockingham and Hillsborough Counties in particular) more accessible and attractive to the people employers are trying to hire. The same goes for single-family homes.
Through a combination of one-time expenditures and increases in baseline formulas, the new state budget produces significant increases in education funding over the next two years. It is no wonder that state officials hailed the compromise as a windfall for public schools.
The budget was built upon an education funding compromise that dramatically reduced the budget’s structural deficit by shifting more than $60 million in recurring education spending to one-time spending.
But the other part of that compromise built into the budget several increases in baseline education spending that will require additional revenues in the future.
As part of the deal, increases in fiscal capacity disparity aid and free-and-reduced-price meal aid expire at the end of the 2021 fiscal year rather than continue indefinitely. Those bumps in aid are financed with $62.5 million in one-time money from the state’s budget surplus.
But other education aid increases are built into the baseline budget.
The budget changes the formula for kindergarten aid to count all kindergarteners as full-day rather than half-day students. That change will cost about $9.5 million a year above what Keno revenues had previously covered, according to the Office of Legislative Budget Assistant.
The budget also eliminates the formula by which stabilization grants were being gradually reduced. Stabilization grants are supplemental funds school districts receive as compensation for student enrollment declines. That is, schools get state funds to “stabilize” their budgets as they lose students (and the state adequacy aid that comes with those students).
The stabilization grants had been scheduled to decline by four percent of the 2012 grant level each fiscal year. The compromise budget restores them to 100 percent, permanently.
That change in state law increases 2020-2021 education spending by $56 million and adds about $6.2 million a year to the state budget going forward, according to the Office of Legislative Budget Assistant.
Finally, the budget increases the base per-pupil adequacy grant from $3,363 to $3,708. This increase was already scheduled under previous law, so it is not a new change. But it does drive state education spending higher.
Figures from the Office of Legislative Budget Assistant show that, including one-time and recurring expenditures, the budget spends $196 million more on education from FY19 through FY21, a 19.9% increase in appropriations over the 2019 budget.
Of that, $41 million is added for FY 2019, and $155 million for fiscal years 2020-21.
The line-item increase in total budgeted state education spending from FY19 to FY21 weighs in at 9.6%.
Adequate education aid accounts for the largest portion of the added spending. It rises by $111.9 million over the FY 2019 numbers approved in the previous budget.
Those are substantial spending increases, celebrated by both the Republican governor and Democratic Legislature. Yet we can’t help but suspect that political attack ads next year will frame things somewhat differently.
Throughout 2019’s prolonged budget debate, two competing claims dominated the dispute over business tax rates. This week’s budget deal confirms conclusively which side was correct.
For months, Democratic leaders in the Legislature claimed that their budget — the one Gov. Chris Sununu vetoed — “stabilized” business tax rates. The budget did not raise taxes, they said repeatedly, but maintained existing tax rates and only eliminated tax cuts that were scheduled to take place in the future.
Republican Gov. Chris Sununu countered by accusing legislators of raising both the 2019 business tax rates and the 2021 rates.
The budget compromise Gov. Sununu signed this week reveals the truth. Unlike the vetoed state budget, this one actually keeps business tax rates the same for 2019 and 2020. It confirms that legislative leaders were incorrect when they claimed that their previous budget did not raise taxes.
On Jan. 1, 2019, the Business Profits Tax rate dropped from 7.9 percent to 7.7 percent and the Business Enterprise Tax rate dropped from 0.675 percent to 0.6 percent.
The budget that Gov. Sununu vetoed raised those rates back to their 2018 levels of 7.9 percent and 0.75 percent. It did so immediately, not in the future. It further eliminated the reductions (to 7.5 percent and 0.5 percent) scheduled to take place in 2021.
The governor insisted that the 2019 tax rates remain intact. Legislators insisted that rates return to their 2018 levels. There seemed to be no middle ground. Until this week.
How did this budget bring the two sides to agreement?
It did so by keeping this year’s tax rates intact and using revenue targets to trigger future changes.
The compromise budget keeps this year’s rates at 7.7 percent and 0.6 percent. Legislative leaders do not call this a tax cut. That is an admission that their previous budget did, in fact, raise business tax rates in 2019, not just in the future.
Under the compromise, if total general and education fund revenue for the current state fiscal year neither rises nor falls by 6 percent or more, those tax rates remain in place through the next fiscal year.
That is, the rates remain stable if revenue remains stable. At last, the budget “stabilizes” business tax revenue.
However, if total revenue rises by 6 percent or more, business tax rates will fall to the rates they were already scheduled to hit in 2021: 7.5 percent and 0.5 percent.
If total revenue falls by 6 percent or more, business tax rates will automatically snap back to their 2018 levels of 7.9 percent and 0.675 percent. This is another admission that the vetoed budget raised, rather than stabilized, business tax rates.
In essence, each side is betting that the economy will turn in their political favor in the next year.
In this deal, Democrats seem to be taking the bigger risk. To get what they have spent the better part of this year advocating, they need the economy to tank.
They have insisted that “out-of-state corporations” are unfairly undertaxed and that the state desperately needs more revenue. To achieve both, they have advocated higher business tax rates. Yet they get those higher rates only if state revenue comes in more than $155.8 million below expectations.
(Revenues have fallen slightly so far this fiscal year, but not at a rate that would trigger the tax increase.)
Gov. Sununu, on the other hand, gets two additional years of stable, relatively low tax rates (2019 and 2020). In the third year, he gets either a continuation of those rates or an additional tax cut unless state revenues quickly crater.
U.S. Sen. Ted Cruz, R-Texas, will headline the Josiah Bartlett Center for Public Policy’s 2019 Libertas Award Dinner.
(You can jump to our reservations page here, or you can click the “You’re invited” link in the top, right corner of the website.)
Sen. Cruz has represented Texas in the U.S. Senate since 2013. Prior to that he was solicitor general for the State of Texas, an attorney in private practice, and a domestic policy advisor to George W. Bush.
He is a cum laude graduate of Princeton University and a magna cum laude graduate of Harvard Law School.
Our Libertas Award honoree is Patty Humphrey, charter school founder and long-time school choice advocate. Mrs. Humphrey founded the N.H. Charter School Resource Center in 1995 and the N.H. Center for School Reform in 2003. These organizations were instrumental in the creation of New Hampshire’s first charter school law and in the growth and expansion of charter schools since 1995.
The dinner will be held on Thursday, Nov. 14, at the Grappone Center in Concord, N.H.
The reception begins at 6:30 p.m., dinner at 7:30.
For reservations, click .
If San Francisco tech bro hipsters invented a carbon-free way to generate power 24/7, they would be hailed as saviors of the planet. Though they might yet come up with some use for a venti Matcha Green Tea Frappuccino, the energy technology in question predates them and even their retro clothes. In 1951 in Idaho, scientists for the first time used a nuclear reaction to generate electricity.
Though 59 nuclear power plants generate about 55 percent of the non-carbon-emitting power in the United States, they are still opposed by environmental activists who came of age in the 1970s.
Some of those greens are celebrating 50 years of activism in New Hampshire this month. As they celebrate, there are signs that younger Democratic politicians and activists, fearing climate change more than nuclear meltdowns, are ignoring them and embracing the promise of carbon-free nuclear power.
This spring, the Pilgrim nuclear plant in Plymouth, Mass., closed. It followed the retirement in 2014 of Vermont Yankee. The closings leave only two nuclear plants in New England: Seabrook Station in Portsmouth and Millstone in Connecticut.
These closures have left New England more reliant on carbon-emitting fossil fuels.
When Pilgrim closed, ISO New England, the region’s power grid operator, concluded that three new plants that burn natural gas or oil would more than make up for Pilgrim’s 680 megawatts.
Vermont Yankee’s closure increased carbon emissions in New England as the 604 mw of nuclear power was replaced with natural gas, ISO New England confirmed.
As the Springfield Republican reported at the time, “while replacing coal with a natural gas plant reduces carbon emissions, replacing a nuclear plant with natural gas-fired generation has the opposite effect.”
That’s why some politicians and activists on the left are questioning the wisdom of anti-nuke extremism.
Seabrook Station offers a cautionary tale.
Scheduled to open in 1974, New Hampshire’s only nuclear power plant did not come online until 1990. In those 26 years, carbon-free power was replaced with carbon-emitting power.
A planned second reactor at the site was scrapped after lengthy legal battles. The additional 1,150 mw of power that would have been generated by a second reactor were instead generated by fossil-fuel-burning plants.
Coal-burning Merrimack Station and oil/gas-burning Newington have a joint capacity of 918 mw. Had the second reactor been finished, they might have been made redundant.
In fact, instead of opening a nuclear plant in 1974, PSNH opened its oil-burning plant at Newington. The announcement of plans to build this plant came in 1969, shortly after activists formed the Seacoast Anti-Pollution League to fight the nuclear plant, according to Peter Evans Randall’s history of Hampton.
To get an idea of how the anti-Seabrook movement led to unintended consequences, one need only look at NextEra Energy’s license renewal application for Seabrook. It estimated that replacing the nuclear plant with coal would create 9.5 million tons of carbon dioxide emissions per year and replacing it with natural gas would create 3.5 million tons. Those estimates were based on modern technologies, not the higher-emitting ones under which Merrimack Station and Newington operated for the 26 years before Seabrook opened.
Environmental activists still claim the 26-year delay and the killing of the second reactor as wins for the environment. The ironically named Seacoast Anti-Pollution League, formed in 1969 to oppose Seabrook Station’s construction, is holding a 50th anniversary celebration next week.
But this week’s CNN climate town hall showed that some Democratic politicians are not buying the anti-nuke nostalgia.
Some presidential candidates, like Elizabeth Warren, remain steeped in the ‘70s.
“The problem is it’s got a lot of risks associated with it, particularly the risks associated with the spent fuel rods,” she said on Wednesday. “In my administration we are not going to build any new nuclear power plants.”
Fears such as Warren’s are misguided, author Ben Rhodes documented for the Yale School of Forestry and Environmental Studies last year.
Other candidates seem to have been swayed by more recent research such as Rhodes’. The Washington Post identified five remaining Democratic presidential candidates as open to nuclear power development. At the CNN town hall, Andrew Yang and Cory Booker embraced the promise of new nuclear technology.
“Right now nuclear is more than 50 percent of our non-carbon causing energy,” Booker said, accurately. “So people who think that we can get there without nuclear being part of the blend just aren’t looking at the facts.”
“We can actually go to the kind of innovations that make nuclear safer or safe,” he said.
That one word — “innovation” — marks the change in mindset.
For generations, environmental activism has been guided by a fixation on government control. Protesters believed that the only path to Eden led backwards into the past, formed by state suppression of disfavored technologies.
New nuclear technology is showing the old greens to be wrong. MIT Technology Review reported in February that nuclear power is critical for reducing global carbon emissions, a fact being recognized even by some environmental groups:
“If the current situation continues, more nuclear power plants will likely close and be replaced primarily by natural gas, causing emissions to rise,” argued the Union of Concerned Scientists—historically nuclear skeptics—in 2018. If all those plants shut down, estimates suggest, carbon emissions would increase by 6%.
At this point, the critical debate is not whether to support existing systems, says Edwin Lyman, acting director of the UCS’s nuclear safety project. “A more practical question is whether it is realistic that new nuclear plants can be deployed over the next several decades at the pace needed.”
The recognition that the path to Eden will be cleared by innovators, not regulators, is a huge insight. It hasn’t permeated the presidential field — or even Sen. Booker’s own environmental plan — yet. But the fact that some candidates and environmental organizations are embracing it at the risk of angering Prius-driving, Pete Seeger-listening Baby Boomers is encouraging.
Among the modern American Labor Day traditions are cookouts, excursions to large bodies of water, and politicians portraying America as a battle-scarred, Marxist’s nightmare where the ruling class preys mercilessly on defenseless commoners.
For instance, in 2011, President Obama said “the decks were too often stacked against ordinary folks in favor of the special interests” and “these are tough times for working Americans.”
In 2014, Bernie Sanders said in Manchester, “It is no secret right now that the billionaire class and the big money interests are targeting organized labor.”
But it wasn’t always this way. In his Labor Day speech of 1903, Teddy Roosevelt made the case that Americans of all classes share an interest in economic growth.
“It cannot be too often repeated that in this country, in the long run, we all of us tend to go up or go down together. If the average of well-being is high, it means that the average wage-worker, the average farmer, and the average businessman are all alike well off. If the average shrinks, there is not one of these classes which will not feel the shrinkage…”
The idea that we all fare well during periods of economic growth and poorly during periods of recession (a rising tide lifts all boats, as another famous president said) is out of fashion in some circles these days.
On Labor Day weekend 2019, politicians may tell tales of terrible times, but most Granite Staters will have their own experience as evidence that Roosevelt was right.
- New Hampshire in July boasted the largest labor force in its history, at 770,000 people. That month, 751,150 New Hampshire residents had jobs. There are more Granite Staters with jobs than there are Vermonters — in total. New Hampshire has a larger labor force than Maine, though the states have similar populations.
- Business boomed, and wage increases followed. New Hampshire posted the largest year-over-year wage gains of any New England state in 2018 (though that growth rate has slowed so far this year). Among New England states, only Massachusetts has had a higher rate of growth in personal income since the recession, according to Pew Charitable Trusts research.
- New Hampshire scored a No. 1 ranking in U.S. News & World Report’s list of best states for opportunity, helping it land the No. 2 Best State ranking overall. It ranked best in New England for economic growth.
- There’s so much opportunity in New Hampshire that thousands of millennials are moving here instead of to Brooklyn. A study of Census data by SmartAsset put New Hampshire in the top ten for millennial in-migration.
There are always areas for improvement, but these are good times for New Hampshire. Taxes are low. Employment has never been higher. Growth is creating so much opportunity that the biggest economic problem is finding enough people to fill all the jobs.
Labor Day is a time when politicians wax nostalgic about the labor strife of the early 20th century. But if life for the Regular Joe or Jane in New Hampshire today had a soundtrack, it would sound more like LMFAO than Woody Guthrie.
To keep the party going, the state should stay focused on policies that promote growth, not redistribution.
On Tuesday, a few protesters dumped a few buckets of coal at the State House. It was, they said, a bold act of civil disobedience because they stole the coal from the Merrimack Station power plant in Bow. Yes, they admitted this. They even helpfully provided the Bow Police with evidence by posting an incriminating photo on their own website.
Activists organized by the Climate Disobedience Center routinely commit crimes against fossil fuel infrastructure. They theorize that a rapidly arriving climate catastrophe justifies the criminality. The Tuesday publicity stunt was orchestrated to pressure the state to shut down the coal-burning Merrimack Station.
’60s-style protesting is a gas, as they said back then. But sometimes logic and clear thinking get lost in all the excitement of “sticking it to the man.” Inconvenient truths are hard to see when blinded by self-righteousness. Among them: these activists have helped prolong the life of Merrimack Station and increase the number of days it operates.
Merrimack Station is no longer in daily use because fracked natural gas is cheaper to burn than coal. The station remains online only as a backup generator for when the region’s natural gas plants can’t meet demand, primarily during winter and summer spikes.
The station is most needed during periods of peak demand, and New England’s peak electricity demand comes in… August. Last year’s heaviest day of electricity use was August 29. Activists demanded the closure of New Hampshire’s most important backup power plant right when it is most needed to prevent blackouts. Genius.
Environmental activists demand that the coal plant be shuttered and replaced with renewable energy. But wind and solar cannot fill this spot need because they are not on-demand power sources. They generate power when nature dictates, not when humans flip a switch.
Ironically, coal remains a go-to backup power source in large part because activists have succeeded in restricting New England’s supply of the cleaner, cheaper fuel that has nearly displaced coal entirely: natural gas.
Huge supplies of cheap natural gas produced by fracking dramatically dropped the price of electricity in New England in the last decade, dropping coal to just 1 percent of the region’s energy generation.
“The high efficiency of natural-gas-fired generators and the generally low cost of nearby domestic shale gas (which emerged as a resource in 2008) are largely responsible for a 46% decrease in the average annual price of New England’s wholesale electricity over the past 10 years,” ISO New England, the region’s non-profit electric grid operator, wrote in this year’s Annual Energy Outlook. “Lower wholesale prices translate into lower power-supply charges for consumers.”
Abundant, cheap natural gas was the single biggest factor in the almost complete collapse of coal use in New England.
“Since 2000, electricity generation from coal has declined and the contribution from natural gas has increased markedly, primarily because two large natural gas-fired power plants came online in 2002 and 2003,” the U.S. Energy Information Administration has concluded. “However, as increasing amounts of natural gas are used to generate electricity, in New Hampshire and in New England as a whole, assurance of natural gas supply has become a critical energy issue for the region.28“
Critically, the EIA notes that after years of decline, coal use in New Hampshire has been trending upward as natural gas use has fallen.
“New Hampshire’s natural gas-fired generation has declined in the past three years and now is at its lowest level since 2002. The decrease has been compensated for primarily by increases in coal-fired generation and hydroelectric power.29”
In other words, we were on the verge of eliminating coal as a fuel source when a decline in natural gas generation caused a turn back to coal to fill the gaps.
Much of the credit for this goes to climate activists who have helped to block natural gas pipeline and import terminal construction. By slowing the construction of new natural gas infrastructure, activists from the Climate Disobedience Center and other groups forced electricity generators to turn to coal to meet demand on peak days.
Climate Disobedience Center activists have boasted about protesting, among others, the expansion of the Algonquin Pipeline, which would bring additional natural gas supplies into New England, further reducing the region’s dependence on dirtier-burning coal and fuel oil.
A few years ago, ISO New England commissioned a study of natural gas capacity. It projected that inadequate pipeline capacity would lead to gas shortages on 24-34 days per winter by the winter of 2019-20.
Days like those are when Merrimack Station is fired up.
The quickest way to close Merrimack Station is not to protest its operation. The quickest way is to stop blocking the pipelines that would supply New England with enough natural gas to replace coal permanently.
(Photo credit: Si Wilson, Flickr)
On Thursday, a coalition worthy of a wacky ensemble buddy comedy pressed the state not for a subsidy or a handout, but for something much more valuable. Labor unions, business leaders and mayors asked the state to use market forces to lower prescription drug prices.
The state hires a business called a pharmacy benefits manager (PBM) to handle its prescription drug purchases. PBMs negotiate with drug makers to determine what drugs are covered under insurance plans and at what price. Their formulas are complex and opaque, which has made them a ripe political target in recent years.
PBMs can reduce an employer’s or insurer’s prescription drug expenditures by negotiating volume discounts and managing efficiently a large volume of complex drug transactions. But an increasing number of studies (some summarized here) are finding that bad incentives and a lack of price transparency make it hard for customers to produce greater efficiencies and greater savings.
The answer is to change the incentives in ways that empower purchasers, not sellers and contractors.
New Hampshire hires its PBM by putting out a request for proposals and having a group of reviewers pick the best one. Last year it used this process to sign a three-year, $212.4 million contract with Express Scripts, one of the nation’s dominant PBMs.
But there is a better way. Corporations and the federal government have for years employed an online reverse auction to force contractors to bid aggressively to win their business. It works sort of like eBay, but in reverse. The buyer starts the auction, and contractors place their bids. The auction then cycles through multiple rounds, with contractors having the chance in each new round to outbid each other.
- MIT marketing professor Sandy Jap found that online reverse auctions “not only save buyers money but also can increase the competitiveness of the supply base. Suppliers that participate in open-bid auctions are able to benchmark competitors and their cost structures, which can lead to greater efficiency for all suppliers.”
- University of North Texas professors also found in 2004 that online reverse auctions “A large number of studies have demonstrated that ORAs not only improve the buyer’s purchasing efficiency, but also reduce its overall procurement costs” and that sellers “also benefit from new business opportunities to increase their sales.”
- A 2011 study found that they drive prices down, create efficiencies, save time, produce real-time market pricing, and increase competition.
- A GAO report found that they may have saved federal agencies more than $100 million in 2016 alone.
- New Jersey recently switched to an online reverse auction for its PBM contract to save a reported $1 billion.
New Hampshire has the potential to save tens of millions of dollars by creating an online reverse auction process for awarding its new PBM contract next year.
That’s what the wacky coalition on Thursday pressed the state to do. Public-sector unions and local elected officials correctly see the potential to lower their own drug costs too.
Prescription drug prices continue to rise because our complex web of laws and regulations prevents the creation of competitive marketplaces in which consumers can comparison shop.
An online reverse auction takes a step in the right direction by employing market forces — not heavy-handed regulations — to reduce state prescription drug expenditures for the state and its employees.
Following the lead of a self-proclaimed socialist, on Tuesday and Wednesday the top Democratic candidates competing to lead the world’s most successful capitalist country diagnosed the source of America’s health care ills to be… capitalism.
- Bernie Sanders: “…the health care industry makes tens of billions of dollars in profit…. If you want stability in the health care system, if you want a system which gives you freedom of choice with regard to a doctor or a hospital, which is a system which will not bankrupt you, the answer is to get rid of the profiteering of the drug companies…”
- Elizabeth Warren: ““The basic profit model of an insurance company is taking as much money as you can in premiums and pay out as little as possible in health care coverage. That is not working for Americans…”
- Kamala Harris: “Let’s talk about math. Let’s talk about the fact that the pharmaceutical companies and the insurance companies last year alone profited $72 billion, and that is on the backs of American families.”
- Tulsi Gabbard: “So the core of this problem is the fact that big insurance companies and big pharmaceutical companies who’ve been profiting off the backs of sick people have had a seat at the table, writing this legislation.”
- Kirsten Gillibrand: “The truth about health care in America today is people can’t afford it. They cannot afford — and the insurance companies for these plans that rely on insurance companies, I’m sorry, they’re for-profit companies. They have an obligation to their shareholders. They pay their CEO millions of dollars. They have to have quarterly profits. They have fat in the system that’s real and it should be going to health care.”
- Julian Castro: “What I don’t believe is that the profit motive of big pharma or big insurance companies should ever determine, in our great nation, whether somebody gets healthcare or not.”
- Bill de Blasio: “Yeah, I don’t understand why Democrats on this stage are fearmongering about universal health care. It makes no sense. Ask the American people, they are sick of what the pharmaceutical companies are doing to them.”
The Democratic Party is following the wrong Brooklyn-born Jewish immigrant.
Tooting “The Internationale” on his pipe, Bernie Sanders is leading the Democratic Party down the dark path toward state control of the economy. His anti-capitalism rantings have shifted the party’s base far to the left. He led the health care debate on Tuesday, and on Wednesday Elizabeth Warren and others danced to his seductive tune.
Wednesday, as it happened, was the birthday of Milton Friedman, “the 20th century’s most prominent advocate of free markets.” Born in Brooklyn 29 years before Bernie Sanders, the Nobel laureate economist became famous for explaining to popular audiences how free markets combat poverty and empower the powerless, as he did here on Phil Donahue’s show.
Sanders’ progressive push for a government-run health care system is based entirely on the notion that health care and health insurance in the United States are controlled by for-profit companies preying upon citizens in an unrestrained free market. It’s an interesting theory, considering that exactly the opposite is not only true but demonstrably true.
The United States does not have a free-market health care system. In a free market, a seller cannot raise prices with impunity. The existence of price signals and competition would allow consumers to choose alternatives, keeping prices down and service quality high.
In health care in the United States, the government prevents this from happening. Because of a terrible tax incentive, consumers are locked into health insurance plans chosen by their employers. Those insurers negotiate prices with providers, and consumers have little say in that process. Additional laws prevent consumers from purchasing the lowest-cost insurance plans, instead forcing insurers to pay for routine health expenses and all manner of services that not everyone needs.
In a classic essay written five years before his death, Friedman identified the structural problems with health care delivery in the United States.
“Two simple observations are key to explaining both the high level of spending on medical care and the dissatisfaction with that spending,” Friedman wrote. “The first is that most payments to physicians or hospitals or other caregivers for medical care are made not by the patient but by a third party—an insurance company or employer or governmental body. The second is that nobody spends somebody else’s money as wisely or as frugally as he spends his own.”
“No third party is involved when we shop at a supermarket. We pay the supermarket clerk directly: the same for gasoline for our car, clothes for our back, and so on down the line. Why, by contrast, are most medical payments made by third parties? The answer for the United States begins with the fact that medical care expenditures are exempt from the income tax if, and only if, medical care is provided by the employer. If an employee pays directly for medical care, the expenditure comes out of the employee’s after-tax income. If the employer pays for the employee’s medical care, the expenditure is treated as a tax-deductible expense for the employer and is not included as part of the employee’s income subject to income tax. That strong incentive explains why most consumers get their medical care through their employers or their spouses’ or their parents’ employer. In the next place, the enactment of Medicare and Medicaid in 1965 made the government a third-party payer for persons and medical care covered by those measures.”
Is the raw greed of insurers and for-profit health care providers to blame for skyrocketing health care costs?
“A look at the data is instructive. The effect of tax exemption and the enactment of Medicare and Medicaid on rising medical costs from 1946 to now is clear. According to my estimates, the two together accounted for nearly 60 percent of the total increase in cost. Tax exemption alone accounted for one-third of the increase in cost; Medicare and Medicaid, one-quarter.”
Market-distorting government interventions — not greedy corporations — are the real drivers of health care and insurance costs in the United States, where about half of health care spending comes from government.
“The high cost and inequitable character of our medical care system are the direct result of our steady movement toward reliance on third-party payment. A cure requires reversing course, reprivatizing medical care by eliminating most third-party payment, and restoring the role of insurance to providing protection against major medical catastrophes,” Friedman concluded.
That is the answer because removing those distortions is the only way to create largely efficient, functioning consumer markets in health care that empower consumers.
That doesn’t require eliminating all regulations. We have functioning food and clothing markets that are subject to some level of regulation. It requires undoing the laws and regulations that deny consumers the ability to shop for health insurance and health care in a competitive marketplace.
Friedman understood this and explained it well. But one party is choosing to follow Sanders and his nonsensical rantings instead. Maybe Friedman should’ve spent more time waving his arms and yelling.