A number of opponents of Obamacare, such as Wall Street Journal columnist William McGurn, have criticized the President and his people for referring to pending proposals as “health insurance reform” rather than “health care reform.” I suppose these critics think the President is engaging in a sleight of hand in an effort to minimize the significance of the reform proposals — as in, “We’re not reforming the whole health care system, just health insurance. No biggie.” But Mr. Obama is right. This proposal is about insurance rather than the provision of health care itself. And that’s the main problem.

At the outset, the President claimed that a central goal of reform was to reduce the cost of health care itself. While Mr. Obama was always concerned with expanding health insurance coverage to the uninsured, he maintained that health care cost reduction is also key (and, in fact, necessary for expanding coverage without breaking the bank). For example, in a June 2009 radio address setting forth his goals for health care reform, the President insisted, “We must attack the root causes of skyrocketing health care costs,” and he reiterated his “belief that any health care reform must be built around fundamental reforms that lower costs, improve quality and coverage, and also protect consumer choice.” Similarly, his Council of Economic Advisers listed a reduction in actual health care costs as one of the two goals (along with insurance coverage expansion) of health care reform:

CEA’s findings on the state of the current system lead to a natural focus on two key components of successful health care reform: (1) a genuine containment of the growth rate of health care costs, and (2) the expansion of insurance coverage.

So I have a question for supporters of Obamacare (either the House bill, the Senate bill, or the President’s own proposal): What provisions of the proposed legislation will reduce the costs of health care itself? This is an honest question. I’m really trying figure out, if a reduction in health care costs is a primary goal of this legislation (and mustn’t it be?), what is the strongest possible case for the pending proposals?

(more…)

A common theme throughout the day has been the declining number of seed companies–increasing concentration–and its effect. Except no one has talked about the effect.  Other than pointing to the structural change itself, no one seems to have any evidence relating to the effect of the change.  One farmer at the open mic session (coincidentally one who had been sued by Monsanto) asserted that the move from 70 seed companies to 4 represented a relevant decline in competition.  But he didn’t talk about any relevant effect; he had nothing to offer on declining return on investment–no evidence that the change actually affected his bottom line.

Unfortunately, Diana Moss is the lone antitrust expert on the seed industry concentration panel (also known as the “is Monsanto an antitrust problem?” panel), and it falls to her to put meat on these bones.  But she fails in the effort, and really just repeats the same mantra as the farmer, with exactly the same amount of evidence (zero, in case I wasn’t clear on this point).  (Moss’s AAI paper on biotech seeds is available here; our ICLE paper partially addressing Moss’s is here).

(more…)

Bill Northey, IA Ag Sec’y, sounds a bit like an economist (ah, turns out he has a degree in ag business and an MBA . . . ).  Yes, price of seeds has gone up, but so has yield, and so has overall value.  The issue, he says, is how to divide the surplus, and he suggests that it’s dividing the pie that drives farmer concerns.  That’s not at all a surprise, but it’s also not much of an antitrust issue.  Unless the pie could be bigger absent, say, Monsanto’s huge investment in seeds and the resulting relatively-concentrated market structure (and basing enforcement on the theoretical possibility of that counter-factual is a perilous enterprise, as Josh and I have suggested many times), this is just a question of pecuniary transfers.  Sure, they matter a lot to the parties involved and there’s always an incentive to deputize the government to put a thumb on the scale of that dispute, but that’s not a matter of allocative efficiency, and not a matter for the antitrust laws.

Now we hear Iowa AG Miller pushing for the development of “the non-antitrust laws to deal with concentration.”  By which he means the Packers and Stockyards Act.  Maybe the DOJ has their Section 5 after all!

As if on cue, AG Miller trots out the pendulum story of antitrust enforcement–”how to bring the antitrust law back to the middle.”  This is not really an accurate description, unfortunately.  Even worse, it’s not an economically-sensible concept, and measuring the efficiency of antitrust enforcement by counting enforcement actions (or looking at rhetoric) is usually just flimsy cover for an essentially-political determination.  Combine that with Miller’s suggestion that the P&S Act’s “unfair practices” language should be enlisted in the service of dealing with concentration, and the risk of false positives is much magnified.  Which, of course, is a perfect lead-in for Christine Varney. (more…)

As readers may know, Eric Holder was added to the workshop at the last minute (see the latest agenda here).  So the day starts out with Holder and Vilsack, and they are joined by Varney and Tom Miller (the Iowa AG) and a host of other politicos including Senator Grassley and Congressman Boswell.

Vilsack is introducing the event, and seems to be lamenting the extraordinary increase in productivity in the farm sector–by which I mean, he laments the loss of farm jobs even though output has increased by leaps and bounds.  That’s an unfortunate framing of the issue, but it suggests that economic efficiency won’t be at the core of the discussion.

Some choice quotes from Vilsack:

“Great efficiencies have led to consolidation.  They’ve also led to lower prices for consumers.  . . . Is marketplace providing a fair deal to ranchers and farmers.”

“We know seed companies control the lion’s share of certain commodities–does that help or hurt farmers?”

“The purpose of the workshops is to determine if the system is fair [not efficient, fair --ed.].”

And now Eric Holder:

“erosion of free competition is one of the greatest threats to our economy.”

“We’ve learned the hard way that reckless deregulation can foster conduct that is harmful [this is a paraphrase . . . ]”

“Enforcement of the antitrust laws does not fully address the concerns of farmers and other stakeholders.  [Which explains why this isn't an antitrust event . . . ]“

And now comments from the panel, moderated by Vilsack . . . I’ll focus on the most relevant (if any) . . .

Holder:

“commitment to enforcing the antitrust laws in the ag sector.”

Grassley:

refers to “concentration and lack of competition in agriculture”

“not enough competition and too much concentration [I'll assume that's not an economic conclusion]“

“bigger isn’t per se bad but it can lead to predatory practices and behavior.”

“I don’t want anything to be done that stifles innovation.”

Well, as the political speeches proceed, there’s not much to report.  I’ll post this and await Varney’s comments . . . .

UPDATE:  Trying to find the right hash tag for the event, I’ve changed the title of this post and we’ll follow the convention for our live blogging today–posts from the Workshop will all have “#agworkshop” in the title.

Later this week Mike Sykuta and I will be winging our way to Iowa on behalf of the ICLE to attend the first of the year-long series of DOJ/USDA Workshops on Agriculture and Antitrust Enforcement Issues.  You can find the agenda for the first workshop, to be held Friday, March 12 in Ankeny, Iowa, here.  Intrepid reporters, we, our plan is to “live blog” the event for those of you unable to attend.  This first workshop, in addition to introducing the series, will focus on farming, which means seeds, which means the dispute between DuPont and Monsanto over licensing terms and everyone’s perennial favorite: industry concentration.

The agenda clearly reflects the highly-politicized nature of the issues under discussion, and, for example, a few news reports have suggested that the agenda has changed in response to pressure from Iowa Senator Tom Harkin.  Regardless, we expect a lively and interesting discussion.

For ease of reference all of our blogs from the workshop will be categorized under “ag/antitrust workshop,” and each post will have “DOJ/USDA Workshop” in the title.

TOTM is no stranger to the issues, and Mike and I have blogged a few times about the antitrust/licensing issues involved.  See:

Competition in Agriculture Redux (Manne, Kieff and Wright)

Competition in Agriculture (Sykuta)

Monsanto’s Licensing Case Victory (Manne)

Yet More Evidence Against the DOJ’s Antitrust Plantings (Sykuta)

The Seeds of an Antitrust Disaster (Manne)

DOJ Disconnect: Do We Really Need a Roadshow? (Sykuta)

Together with Scott Kieff and Joshua Wright, we also submitted a comment to the DOJ on the topic, “Comment on Intellectual Property, Concentration and the Limits of Antitrust in the Biotech Seed Industry,” available here (SSRN) or here (if you prefer to get it directly from the DOJ website).

The news has also been covering the seed industry antitrust issues, the DOJ/USDA workshops and agricultural antitrust issues more generally, and you can find a host of relevant news articles here.

We’re looking forward to the workshops and to your comments on the day’s events.

As predicted, President Obama has called upon Congress to enact his health insurance reform plan using the reconciliation process, which allows the Senate to avoid a filibuster attempt and would permit enactment of the legislation without any Republican support. As I mentioned the other day, the reconciliation process was created to deal with budget-related bills, and one of the key architects of the procedure, Democratic Senator Robert Byrd, has insisted (repeatedly) that it should not be used for sweeping social legislation like the pending health care proposal. Utilizing reconciliation to enact health care reform would represent a massive change in the Senate’s procedures.

Not surprisingly, the President and his people insist that this just isn’t so. They say reconciliation has frequently been used to bypass the Senate’s effective supramajority requirement (i.e., the need for 60 votes to cut off debate and end a filibuster), even when the legislation at issue has been major social legislation. In a speech today, for example, the President, while carefully avoiding the word “reconciliation,” insisted that his health care proposal:

deserves the same kind of up or down vote that was cast on welfare reform, that was cast on the Children’s Health Insurance Program, that was used for COBRA health coverage for the unemployed, and, by the way, for both Bush tax cuts — all of which had to pass Congress with nothing more than a simple majority.

White House Press Secretary Robert Gibbs pointed to the same examples of reconciliation’s use in brushing off questions about the propriety of the process:

[R]econciliation … was the vehicle for welfare reform; it was the vehicle for the Bush tax cut in 2001, at a cost of $1.3 trillion; it was the vehicle for the tax cut in 2003 at a cost of $350 billion; it is how S-CHIP came to be, which is parlance for the Children’s Health Insurance Program; it is how COBRA came to be, which provides the ability for an individual that loses their job to continue their health care coverage when that happens.

The message of the White House is thus consistent and clear: “Move along, folks. Nothing to see here! We’ve done it before with COBRA, Welfare Reform, the S-CHIP, and the Bush tax cuts.”

Except that we haven’t. Congress has never before used the budget reconciliation process to enact broad social legislation (as opposed to focused taxing and spending legislation) that lacked bipartisan support and could not command a sixty-vote majority in the Senate. Never. Not once.

Consider, in historical order, the examples the President and his people cite.

COBRA, the Consolidated Omnibus Budget Reconciliation Act of 1985, was major social legislation in that it mandated an insurance program giving some employees the ability to continue health insurance coverage after leaving employment. But reconciliation absolutely was not needed to enact the statute. The original Senate bill passed on a 93-6 vote. The reconciled bill (the one incorporating compromises with the House bill) then passed by a voice vote, indicating that the outcome was so apparent that no tally was required. If you’re interested, the voting record on COBRA is here.

President Clinton’s welfare reform statute, officially titled the Personal Responsibility and Work Opportunity Act of 1996, was also a relatively sweeping piece of social legislation (though not nearly as sweeping as the Obama health insurance reform proposal, which mandates a reordering of one-sixth of the U.S. economy). Again, though, the statute had significant bipartisan support and did not depend on the reconciliation process for its enactment. On the final vote, there were 78 Yeas and 21 Nays, with one Democrat not voting. Twenty-five Democrats (the minority party) joined 53 Republicans in supporting the bill. The voting record is here.

S-CHIP, the Children’s Health Insurance Program, was created by the Balanced Budget Act of 1997. Again, S-CHIP involves matters beyond mere revenue issues. But, again, reconciliation played no role in ensuring passage of the legislation. The statute at issue was enacted on a vote of 85 Yeas to 15 Nays. Forty-two Democrats (the minority party) joined 42 Republicans in supporting the bill. The voting record is here.

That brings us to the first Bush tax cuts, which were accomplished by the Economic Growth and Tax Relief Reconciliation Act of 2003. This reconciliation bill passed the Senate with 58 Yeas and 33 Nays. Two senators voted “present” and 7 senators didn’t vote. (Voting record here.) Aha! A statute that wouldn’t have passed without reconciliation! Well, I’m not so sure. Two of the seven non-voting senators were Republicans (Senators Domenici of New Mexico and Enzi of Wyoming). Had they voted in favor of the bill, it would have commanded a 60-vote majority. I assume they would have done so had the reconciliation procedure not applied; each voted in favor of the second Bush tax cuts, which were far more controversial. It’s also possible that one or two of the non-voting Democrats would have voted in favor of the bill. After all, twelve Democrats joined the Republican majority in supporting the legislation. This is hardly analogous to the current proposal, where there are zero minority party Senators in favor of the pending legislation and the majority is incapable of passing the bill following the normal (non-reconciliation) procedures.

So what about the second Bush tax cuts? Well, here we have a statute that legitimately could not have been enacted outside the reconciliation process. That statute, officially the Jobs and Growth Tax Relief Reconciliation Act of 2003, passed with 50 Yeas, 50 Nays, and a tie-breaking Yea vote from Vice-President Cheney. Even that bill, though, had some bipartisan support: 2 Democrats joined 48 Republicans in supporting the bill (and 3 Republicans joined 47 Democrats in opposing it — voting record here.) That alone distinguishes the second Bush tax cuts from the pending health care proposal — unless, of course, you ascribe to Speaker Pelosi’s nonsensical view that a “bill can be bipartisan even though the votes might not be bipartisan.” (Come again?)

More significantly, though, the second Bush tax cuts were hardly sweeping social legislation. Press Secretary Gibbs mentions that they were valued at $350 billion, but that’s chump change these days — especially compared to the price tag of the Obama proposal. (If you really believe the plan will reduce the deficit because Congress will severely cut Medicare reimbursement rates, then you either just fell off the turnip truck or are on glue.) To get a sense of the difference in the scope of the bills, compare the 18-page tax cut bill with the 2407-page Senate health insurance reform bill. To be fair, the Senate bill is double-spaced, so I guess we should cut that down to 1200 pages. Still, though, there’s simply no comparison between these two statutes.

President Obama has been very careful not to talk too much about reconciliation — so much so that he didn’t use the word in his speech calling for enactment via the reconciliation process. His reticence is likely due in part to prior statements he’s made about the process. In 2005, for example, the Senate was considering reauthorization of Temporary Assistance for Needy Families using the reconciliation process. Then-Senator Obama was opposed. He explained (at 151 Congressional Record 13527):

I support Senator Carper’s motion to instruct reconciliation conferees to reject the House TANF provisions. Assisting needy families is too important an issue for this Chamber to cede its legislative authority to the House of Representatives. The TANF Program affects millions of American children and families. It deserves a full and fair debate. The reconciliation process does not permit that debate. Reconciliation is not the place for policy changes.

He was right, and he knows it. He also knows that prior uses of reconciliation are nothing like the one Congress is currently contemplating and that using reconciliation to pass the health insurance bill will mark a tremendous change in the Senate’s practice, a change that strikes at the very heart of the institution itself and that will be remarkably difficult to undo the next time a piece of controversial legislation comes along.

I’ve previously posted on the moral bankruptcy of the campaign against Wal-Mart in Chicago. Those fighting to prevent the company from opening outlets in Chicago’s inner-city neighborhood — including Alderman Ed Burke, the busybody who once tried to ban trans fats in the City of Broad Shoulders — continue to flex their illiberal muscles to deny inner-city residents access to the “everday low prices” wealthier suburbanites regularly enjoy. They’re also depriving inner-city residents of job opportunities that plenty of folks find desirable. Indeed, the Wal-Mart that opened a few years back in Evergreen Park, Illinois (just over the Chicago border on the southwest side), received a whopping 25,000 applications for 325 positions — and that was before the economy headed south!

Fortunately, a group of black ministers from churches on Chicago’s southside have decided to speak truth to power and demand that their elected representatives stop denying their congregants access to lower prices and jobs. Godspeed, friends!

(Be sure to watch the video.)

Well, it looks like Congress is going to attempt to enact the Senate’s health care bill using the reconciliation process. President Obama certainly suggested as much in Thursday’s Health Care Summit, downplaying the significance of such a move and suggesting it may be necessary in order to “move forward.”

First, he said to Senator McCain:

You know, this issue of reconciliation has been brought up. Again, I think the American people aren’t always all that interested in procedures inside the Senate. I do think that they want a vote on how we’re going to move this forward. And, you know, I think most Americans think that a majority vote makes sense, but I also think that this is an issue that could be bridged if we can arrive at some agreement on ways to move forward.

I interpret that as, “Agree with us, or we’ll pursue this using reconciliation. Americans won’t mind.” That also was the thrust of the President’s closing remarks, where he said:

[T]he question that I’m going to ask myself and I ask of all of you is, is there enough serious effort that in a month’s time or a few weeks’ time or six weeks’ time we could actually resolve something? And if we can’t, then I think we’ve got to go ahead and make some decisions, and then that’s what elections are for. We have honest disagreements about — about the vision for the country and we’ll go ahead and test those out over the next several months till November. All right?

This is most unfortunate. Reconciliation — the process by which budget-related bills can be approved without threat of a filibuster (and thus without winning the support of at least 60 Senators) — moves the Senate away from its constitutional role as a moderating, consensus-building check on the other two entities that must approve legislation, the House of Representatives and the President. While the House and the President are designed to respond to majority impulses, the Senate is explicitly designed not to work that way; otherwise, California, with its 38 million people, wouldn’t have the same voting power as Wyoming, with its population of 540,000. If the Senate transforms itself into what is effectively a second House of Representatives for this piece of non-budget legislation (which, somewhat ironically, is actually opposed by a majority of Americans) then what’s to stop it from doing so on any future bill? The Senate will no longer be the Senate.

But don’t just take my word for it. Democratic Senator Robert Byrd, who defined the narrow contours of the reconciliation process in the so-called “Byrd Rule,” adamantly insists that the process is inappropriate for sweeping social legislation like the pending health care reform bill. On April 2, 2009, he wrote the following to his Senate colleagues:

I oppose using the budget reconciliation process to pass health care reform and climate change legislation. Such a proposal would violate the intent and spirit of the budget process, and do serious injury to the Constitutional role of the Senate.

As one of the authors of the reconciliation process, I can tell you that the ironclad parliamentary procedures it authorizes were never intended for this purpose. Reconciliation was intended to adjust revenue and spending levels in order to reduce deficits. It was not designed to cut taxes. It was not designed to create a new climate and energy regime, and certainly not to restructure the entire health care system.

Just last week, Senator Byrd reiterated his position in another “Dear Colleague” letter. In that letter, he insisted that any attempt to use reconciliation to enact health care reform would be “grossly misguided.”

Senator Byrd isn’t the only Democrat who recognizes the importance of maintaining the Senate’s supramajority rule for important social legislation. Friday afternoon, I spent several hours reading through the Congressional Record from May 10, 2005 to May 25, 2005, a period during which the then-Republican majority leadership in the Senate was threatening to eliminate the supramajority requirement for approving judicial nominees. A number of Democratic senators — including Senators Bayh, Biden, Clinton, Dodd, Durbin, Feingold, Feinstein, Harkin, Kohl, Lautenberg, Leahy, Murray, Nelson, Reid, and Schumer — spoke eloquently and passionately about the Senate’s crucial and constitutionally prescribed role as a non-majoritarian body. Their characterization of the Senate’s special role was spot on.

Here’s some of what they had to say (emphasis added, of course):

SENATOR CHUCK SCHUMER, May 10, 2005:

It is the Senate where the Founding Fathers established a repository of checks and balances. It is not like the House of Representatives where the majority leader or the Speaker can snap his fingers and get what he wants. Here we work many times by unanimous consent where you need all 100 Senators to go along. In some instances, we work where 67 votes are needed, in some with 60, and in most with 51. But the reason we don’t always work by majority rule is very simple. On important issues, the Founding Fathers wanted — and they were correct in my judgment — that the slimmest majority should not always govern. When it comes to vital issues, that is what they wanted.

The Senate is not a majoritarian body. My good friend from Utah spoke. He represents about two million people in Utah. I represent 19 million in New York State. We have the same vote. You could have 51 votes for a judge on this floor that represents 21 percent of the American people. So the bottom line is very simple. This has not always been a 50.1 to 49.9 body. It has been a body that has had to work by its rules and by the Founding Fathers’ intent. Even when you are in the majority, you have to reach out and meet not all, not most, but some of the concerns of the minority.

***

SENATOR HARRY REID, May 18, 2005:

For further analysis, let’s look at Robert Caro. He is a noted historian and Pulitzer Prize winner, and he said this at a meeting I attended. He spoke about the history of the filibuster. He made a point about its legacy that was important. He noted that when legislation is supported by the majority of Americans, it eventually overcomes a filibuster’s delay, as a public protest far outweighs any Senator’s appetite to filibuster.

But when legislation only has the support of the minority, the filibuster slows the legislation-prevents a Senator from ramming it through, and gives the American people enough time to join the opposition. Mr. President, the right to extended debate is never more important than when one party controls Congress and the White House. In these cases, the filibuster serves as a check on power and preserves our limited government. …

For 200 years, we have had the right to extended debate. It is not some ” procedural gimmick.” It is within the vision of the Founding Fathers of this country. They did it; we didn’t do it. They established a government so that no one person and no single party could have total control.

Some in this Chamber want to throw out 214 years of Senate history in the quest for absolute power. They want to do away with Mr. Smith, as depicted in that great movie, being able to come to Washington. They want to do away with the filibuster. They think they are wiser than our Founding Fathers. I doubt that is true.

***

SENATOR CHRIS DODD, May 20, 2005:

One of the reasons the extended debate rule is so important is because it forces us to sit down and negotiate with one another, not because we want to but because we have to. I have helped pass many pieces of legislation in my 24 years here, both as a majority and minority Member of this institution. I have never helped pass a single bill worth talking about that didn’t have a Republican as a lead cosponsor. I don’t know of a single piece of legislation here that didn’t have a Republican and a Democrat in the lead. We need to sit down and work with each other. The rules of this institution have required that. That is why we exist. Why have a bicameral legislative body, two Chambers? What were the Framers thinking about 218 years ago? They understood the possibility of a tyranny of the majority. And yet, they fully endorsed the idea that in a democratic process, there ought to be a legislative body where the majority would rule.

So the House of Representatives was created to guarantee the rights of the majority would prevail. But they also understood there were dangers inherent in that, and that there ought to be as part of that legislative process another institution that would serve as a cooling environment for the passions of the day. So the Framers … sat down and said: There is a danger if we don’t adopt a separate institution as part of the legislative branch where the rights of the minority will also prevail, where you must listen to the other side in a democracy, pay attention to the other side.

***

SENATOR JOE BIDEN, May 23, 2005:

At its core, the filibuster is not about stopping a nominee or a bill, it is about compromise and moderation. That is why the Founders put unlimited debate in. When you have to-and I have never conducted a filibuster-but if I did, the purpose would be that you have to deal with me as one Senator. It does not mean I get my way. It means you may have to compromise. You may have to see my side of the argument. That is what it is about, engendering compromise and moderation.

Ladies and gentlemen, the nuclear option extinguishes the power of Independents and moderates in this Senate. That is it. They are done. Moderates are important only if you need to get 60 votes to satisfy cloture. They are much less important if you need only 50 votes. I understand the frustration of our Republican colleagues. I have been here 32 years, most of the time in the majority. Whenever you are in the majority, it is frustrating to see the other side block a bill or a nominee you support. I have walked in your shoes, and I get it. …

I say to my friends on the Republican side: You may own the field right now, but you won’t own it forever. I pray God when the Democrats take back control, we don’t make the kind of naked power grab you are doing. But I am afraid you will teach my new colleagues the wrong lessons.

***

Much, much, much more below the fold. Please read it — it’s important and, well, a little fun! (more…)

As Todd mentioned, the Obama Administration has released its latest plan for regulating (and mandating) health insurance. The new plan includes a novel element: the creation of a seven-member Health Insurance Rate Authority that would issue an annual schedule of “reasonable” rate increases. Increases deemed unjustified could be blocked, and insurers that imposed unjustified rate increases would have to provide rebates to overcharged consumers.

This is, of course, an old-fashioned price control. The sort the Nixon and Ford Administrations imposed, with a spectacular lack of success, on gasoline markets in the 1970s. The sort that either has no effect (if the rate regulators set the maximum price at or above the market-clearing rate) or causes shortages and/or service cuts (if the rate regulators set the maximum price below the market-clearing rate). The sort that wins short-term political points because it sounds good to lots of well-meaning folks who are too busy living their lives to worry about the unintended consequences their elected representatives are supposed to be considering.

The Obama Administration included this added feature in its new health insurance proposal because some health insurers — most prominently, Wellpoint’s Anthem Blue Cross — have recently raised premiums on individually purchased policies. Ironically, other features of the Obama proposal would encourage all insurers to follow Anthem’s lead.

Anthem raised premiums on individually purchased policies because the current economic downturn has motivated many of its customers who ascribe a relatively low value to insurance coverage — in general, its healthiest policy holders — to drop their insurance coverage. As these healthier customers have dropped out of the pool of insureds, Anthem’s average policyholder has become less healthy and more likely to make claims. To deal with that change in its risk pool, Anthem has had to raise premiums.

This “drive out the healthy folks” dynamic will occur in spades if the Obama plan becomes law. That’s because the plan’s elimination of pre-existing condition prohibitions, coupled with its lax penalties for not carrying health insurance, will incentivize a huge percentage of healthy people who buy their own insurance to drop it until it’s needed.

Suppose you’re a 27 year-old man living in Columbia, Missouri (65203 ZIP Code) earning $40,000 a year. To buy a health insurance policy with a $1,000 deductible (which is susbtantially higher than the average deductible for employer-provided insurance), you’d have to pay $187.84 per month, or $2,254.08 per year. (Price data are from this website.) Now, if the law prohibits insurers from denying you or charging you extra for a pre-existing condition, you could hold off buying that insurance policy until you get sick and need it. Under the Obama plan, you’d have to pay a maximum penalty of $1,000 (2.5% of your income) if you forego coverage.

So what are you going to do? Pay an extra $1,254 to ensure that you’re covered for any expense greater than $1,000, or pocket that money and take the risk that you might have to pay out-of-pocket for some expenses you incur before you have a chance to buy insurance from a company that can’t penalize you for a pre-existing condition?

Lots of folks will take the latter option. And guess who those folks will be? Young, healthy people.

Once those people drop their insurance, the cost of covering the people remaining in the risk pool will rise. And as those costs rise, premiums will follow. As premiums rise, the amount one can save by dropping one’s coverage — i.e., one’s “payment” for taking the risk of some uninsured loss — will grow. This will lead even more healthy people to drop their insurance and will drive costs and premiums higher still.

Of course, the government could use force to stop premium hikes, and the new Obama proposal seems to authorize such coercion. But even brute force has its limits. If the Health Insurance Rate Authority refuses to allow the premium increases necessary to cover an ever unhealthier risk pool, it will eventually drive private insurers out of business, leaving only the government as insurer of last resort.

But perhaps that was the goal all along.

The subject of antitrust exemptions has been an oft-discussed topic here at TOTM (see, e.g. here and here).  In the latter of those two links I was somewhat critical of the DOJ for taking a neutral stance on the insurance industry exemption, which has now become rather wrapped up in the health care reform debate. I wrote:

Look, when Harry Reid says that he knows insurance companies are anti-competitive “Because they make more money than any other business in America today,” its pretty hard to refrain from criticizing a political ploy that doesn’t have anything to do with the antitrust merits.  Not to mention that Congress is simultaneously considering passing other antitrust exemptions while its striking down others.  I’m sympathetic.  But just to be clear.  Whatever one thinks about the difficulties of application of the antitrust laws to single firm conduct (I’ve certainly been a critic of much of the modern approach to monopolization), it is worth repeating:  cartels are bad.  They raise price.  They reduce output.  That is not what the economy needs.  There is a substantial economic literature on this.  And I don’t think that any economist who has looked at the literature has or would ever support an industry wide antitrust exemption.  If I’m wrong, I’d love to see some citations.  Maybe there is some evidence out there that I’ve not seen that indicates that exemptions improve consumer welfare in practice.  I doubt it.  But that’s what the comments are for.

As the Antitrust Modernization Committee Report and Recommendation says:

Statutory immunities from the antitrust laws should be disfavored. They should be granted rarely, and only where, and for so long as, a clear case has been made that the conduct in question would subject the actors to antitrust liability and is necessary to satisfy a specific societal goal that trumps the benefit of a free market to consumers and the U.S. economy in general.

And:

to extent that insurance companies engage in anticompetitive collusion, however, then they appropriately would be subject to antitrust liability.

To be absolutely clear, I am NOT saying that I believe that repeal of the federal exemption will do much to lower prices or that I believe there is a high incidence of collusive behavior by the insurance firms.   But that’s not the point.  The point is that we should not be defending the merits of exemptions for prohibitions on cartel activity.  Personally, I believe that state imposed barriers to entry, regulatory constraints and rate regulation are more likely a much bigger problem for consumers than anticompetitive behavior and efforts aimed at increasing competition between the states will have a much bigger bang for the buck for consumers.  But the fact that state regulation is also a problem is not a good argument in favor of an antitrust exemption that allows collusion.

The Competitive Enterprise Institute’s Gregory Conko and Kevin Hiferty offer a defense of the exemption (HT: Washington Times):

There is no evidence that McCarran-Ferguson has resulted in higher premiums or profits, however. So, not only is federal intervention unnecessary for ensuring fair competition, it could actually hurt consumers by eliminating practices that help small insurers compete and drive down costs.  The law gives states the primary role in regulating “the business of insurance,” and exempts insurers from most federal regulation, including antitrust laws, as long as the states have laws governing the same conduct.  But where critics see only dominant market power and higher premiums, a closer look reveals a careful balancing by the states that helps promote competition and keep costs in check. As the Congressional Budget Office concluded in October, repealing the exemption would have little or no effect on insurance premiums because “state laws already bar the activities that would be prohibited under federal law if this bill was enacted.”

It is true that a handful of states have highly concentrated markets. In Hawaii, Rhode Island and Alaska, 95 percent or more of the small-group health insurance market is served by just two insurers. But the McCarran-Ferguson Act only shields activities that are integrally related to providing insurance and unique to the insurance industry, and consolidation isn’t one of them.  Practices that are not inherent to underwriting insurance, such as firm mergers, bundling and tying arrangements, agreements to allocate geographic market shares, and many other allegedly anti-competitive activities are, even under current law, subject to federal antitrust enforcement and actively policed by the Federal Trade Commission. So, additional federal intervention would have no effect on insurance industry consolidation.

What would be newly subject to federal enforcement is a variety of ongoing collaborative practices among health and medical-malpractice insurers that are now permitted by the states because they have pro-competitive effects.  At the state level, insurers actively share loss-experience data and related information through rating bureaus, so that each firm has a large enough pool of information to accurately price risks and set aside reserves. In some states, industry-run rating bureaus aggregate this underwriting data and calculate “target” or “advisory” rates under the supervision of state regulatory authorities. Many states also permit insurers to create joint underwriting associations that help insurers pool difficult-to-manage risks and share in the associated profits or losses.

This kind of collaborative activity tends to lower costs, promote insurance industry solvency, and help small insurers compete with bigger firms. Although the Leahy-Whitehouse bill would permit a limited amount of data sharing, the other practices would be subjected to federal antitrust enforcement. That would, ironically, further strengthen the power of the biggest insurers and disadvantage smaller competitors.  Even aside from these important collaborative practices, federal antitrust law would still be a bad fit for the insurance industry. When faced with a market containing two or three dominant firms, a typical antitrust enforcer’s response is to break up the firms into smaller pieces – think of the dissolution of AT&T’s local service monopoly into seven Baby Bells.

But as Boston University health economist Austin Frakt has noted, limiting the size of insurers would also limit their ability to negotiate down prices with health care providers. On the whole, economics research “supports the notion that recent increased market power of insurers does not lead toward monopolistic pricing, but rather it provides a counterbalance to the power held by hospitals and provider groups.”  There are, however, other ways to promote competition in the health insurance market. One change Congress should consider is to permit individuals and business purchasers of health insurance to buy their policies from any willing provider in any U.S. state.  Under current law, an insurance firm registered in one state may not cover individuals in another without registering in the second state and being subject to all of its taxes and laws. This raises the cost of doing business across state lines and prevents many smaller and midsize companies from entering new markets to compete.

Allowing consumers in Alabama, for example, to escape Blue Cross-Blue Shield’s 83 percent market share in that state by shopping for an insurance policy in neighboring Florida’s highly competitive market would increase competition significantly. And it would do so without jeopardizing important pro-competitive business practices that help keep costs in check.  If congressional Democrats genuinely wanted to help consumers, they would seek ways to reduce burdensome regulations on the insurance industry that raise health premiums. Instead, if their effort to “get tough” on the insurance industry succeeds, they would do more harm to consumers than good.

What do readers think?  The economist cited invokes the countervailing power defense argument raised by Steve Salop.  I’m a strong supporter of the idea of opening sales of insurance across state lines as a measure that could help and would not harm.  But that’s not the issue here.   Is there any evidence that lifting antitrust exemptions helps consumers?  I read this article as largely offering the defense that lifting the exemption just won’t matter much.  Are you convinced?

Steve Horwitz writes a short, lay piece on crowding out and job creation.

Brad “smacks down” Steve Horowitz.

Russ Roberts amplifies Horwitz with a nice point about the dangers of aggregation.

David Henderson notes that Brad misses what Horwitz is really saying.

Brad DeLong “smacks down” Steve Horwitz again, not acknowledging any of the criticisms.  Brad writes:

Me: I don’t think so. Take

Government can only spend what it takes from the private sector one way or another, either through taxation, borrowing, or the redistribution effects of inflation. For every dollar that government spends, there is one less dollar being spent somewhere else in the economy…

and replace “government” by “Larry and Sergei’s internet company.” It then reads:

Larry and Sergei’s internet company can only spend what it gets from other businesses and consumers one way or another, either through sales or borrowing. For every dollar that Larry and Sergei’s internet company spends, there is one less dollar being spent somewhere else in the economy…

Brad’s claim is that Horwitz wouldn’t make the second claim and thus, he doesn’t really mean to make the first claim because they are equivalent.  So Horwitz is a partisan hack.

Brad, Brad, Brad, Brad.  This is so revealing.  Brad really believes, I guess, that the government randomly spending money digging ditches or the equivalent (without regard to Russ’s well-highlighted concerns about where money is being spent, among many other things) is as productive as Google spending money inventing, making and improving its products for sale in the market.  Brad really believes, I guess, that when Google engages in voluntary exchange with customers that it is offering value exactly equivalent to the value the government offers in exchange for an equivalent amount of involuntary taxation or inflation.  Apparently Brad believes that the two cases are equivalent, so anyone who disagrees with the second must disagree with the first (and is thus being disingenuous in supporting the first claim).  But anyone who would claim that these two cases should be treated equivalently and who would disregard the obvious and essential differences between government action and private exchange is an ethics-free partisan ass and shouldn’t be taken seriously.

Via Ted Frank, I have been perusing e21: Economic Policies for the 21st Century.  It seems to be a site run by some Republican policy wonks, and includes contributions from some excellent academics including Charlie Calomiris, Ed Lazear and Phil Swagel.

A recent posting there on The High Price of Job Creation has some important if scary graphs and offers some enormously important statistics to the ongoing stimulus debate.  As everyone knows, Obama called for more job-creating stimulus in his SOTU, one of the many elements from his SOTU that eerily tracks elements of previous SOTUs from his reviled predecessor.  But even if we accept that a government stimulus package would achieve its intended goals (I know, I know . . . ) what would it need to look like?  Given some seemingly reasonable assumptions about workforce participation, in order to reduce the unemployment rate to 8% (what Obama’s economists claimed the original stimulus package would accomplish) by November (I’m not sure why this date was chosen . . . ) the economy would need to

generate between 1.1 million and 1.9 million net new jobs per month to reach 8% unemployment by November.  Few expect aggregate employment to increase by these amounts over the entire ten month period, let alone each month until then.

The amount of spending required to achieve this objective would be staggering (it took $787 billion to “create or save” an alleged 2 million jobs in a year, recall).  And that’s assuming stimulus would be effective in its intended goal–an extraordinarily dubious assumption (rap video explanation here).  Most important, however, is a clear understanding of where such jobs would be created (or saved), and maybe the scariest graph from the post is this one, looking at public sector versus private sector employment since January 2007:

Alarming, no?  Of course past performance is no guarantee of future results, but given the political dynamics that shaped the first stimulus, I wouldn’t expect the apple to fall too far from the tree.  Every time partisan hacks like Brad DeLong and Paul Krugman argue that we need stimulus now, and we can worry about managing government costs later, think of this graph, and think about how easy it will be to pare down that bloated, inefficient and growth-curtailing government workforce.

Today the SEC voted 3-2 to approve an interpretive release offering guidance to companies on disclosure obligations as they relate to climate change.  Commissioners Casey and Paredes voted to reject the proposed guidance.

Everyone can agree that companies may have an obligation under Regulation S-K to disclose risks arising from, among other many things, climate change laws and regulations.  But this guidance goes further, urging companies to disclose risks arising from “physical effects of climate change.”  This is nonsense on stilts.  Leave aside the underlying inanity of the larger enterprise built on the premise that rationally-ignorant and rationally-passive individual investors should read, assess and make active investment decisions on the basis of massive amounts of regularly-disclosed information.  Here corporations are asked to disclose “information” about risks to the company posed by future, possible environmental conditions about which the firms know nothing, the science is utterly un-settled and speculative, and the actual physical and economic consequences of which are even less certain.  (I put the word information in scare quotes because nothing so speculative and uncertain can reasonably be called information).  What possible value could there be to investors (assuming there is any value to investors from disclosure of this type of information anyway) from the sorts of disclosures that would reasonably follow?:  “There is somewhere between a 0% and 90% chance that the temperature during either the summer or the winter or maybe-but-not-definitely both will be either warmer or colder by somewhere between 0.01 and 5 degrees sometime within the next 300 years.  This may or may not be bad for our business depending on whether it makes our customers richer or poorer, improves or harms our productivity and helps or harms our competitors by more or less than it helps or harms us.”

At least Troy Paredes isn’t buying it and once again stands nearly alone (Commissioner Casey also voted to reject) for common sense in Washington.  An extended quote from his statement at today’s hearing:

Second, the release states that companies “whose businesses may be vulnerable to severe weather or climate related events should consider disclosing material risks of, or consequences from,” the “physical effects of climate change, such as effects on the severity of weather (for example, floods or hurricanes), sea levels, the arability of farmland, and water availability and quality.”

The prospect that this guidance will in fact foster confusion and uncertainty about a company’s required disclosures troubles me. What triggers a “reputational damage” or “physical effects” disclosure is far from certain, as is the scope of any such disclosure if and when required. More to the point, reputational damage and the impact on a company of the physical effects of climate change can be quite speculative. There is a notable risk that the interpretive release will encourage disclosures that are unlikely to improve investor decision making and may actually distract investors from focusing on more important information. Here, it is worth recalling that, in rejecting the view that a fact is “material” if an investor “might” find it important, Justice Marshall, writing for the Supreme Court in TSC Industries, warned that “management’s fear of exposing itself to substantial liability may cause it simply to bury the shareholders in an avalanche of trivial information — a result that is hardly conducive to informed decisionmaking.

Also problematic are the interpretive release’s introductory and background discussions on climate change and its regulation. To me, the effect of the discussions is to find the Commission joining the ongoing debate over climate change by lending support to a particular view of climate change. Although the release does not expressly take sides, the release emphasizes the “concerns” and potential harms of climate change and discusses a range of regulatory and legislative developments, along with international efforts, aimed at regulating and otherwise remedying causes of climate change. In particular, the release highlights new EPA regulations, proposed “cap-and-trade” legislation, the Kyoto Protocol (which the U.S. has not ratified), the European Union Emissions Trading System, and recent discussions at the United Nations Climate Conference in Copenhagen. While the release stresses the risks of climate change and ongoing efforts to regulate greenhouse gas emissions in the U.S. and abroad, the release fails to recognize that the climate change debate remains unsettled and that many have questioned the appropriateness of the regulatory, legislative, and other initiatives aimed at reducing emissions that the release features. In short, I am troubled that the release does not strike a more neutral and balanced tone when it comes to climate change — an area far outside this agency’s expertise.

Finally, given that there are more pressing priorities before the Commission, now is not the time for this agency to consider climate change disclosure.

For these reasons, I am not able to support the release before us. Nonetheless, I would like to thank the staff for their efforts and professionalism.

On the bright side, maybe this means the SEC is qualified to investigate the fraudulent disclosures in the UN IPCC’s Fourth Assessment Report.  On the other hand, the existence of such . . . misstatements in the authoritative global survey of climate change science suggests that, as Troy suggests, this whole endeavor will have few of the intended–and plenty of unintended–consequences.

Russ Roberts’ brilliant and eagerly-awaited Keynes vs. Hayek rap video is here.  It’s the best economics pop music since Merle Hazzard.  Here are the lyrics:

We’ve been going back and forth for a century
[Keynes] I want to steer markets,
[Hayek] I want them set free
There’s a boom and bust cycle and good reason to fear it
[Hayek] Blame low interest rates.
[Keynes] No… it’s the animal spirits

[Keynes Sings:]

John Maynard Keynes, wrote the book on modern macro
The man you need when the economy’s off track, [whoa]
Depression, recession now your question’s in session
Have a seat and I’ll school you in one simple lesson

BOOM, 1929 the big crash
We didn’t bounce back—economy’s in the trash
Persistent unemployment, the result of sticky wages
Waiting for recovery? Seriously? That’s outrageous!

I had a real plan any fool can understand
The advice, real simple—boost aggregate demand!
C, I, G, all together gets to Y
Make sure the total’s growing, watch the economy fly

We’ve been going back and forth for a century
[Keynes] I want to steer markets,
[Hayek] I want them set free
There’s a boom and bust cycle and good reason to fear it
[Hayek] Blame low interest rates.
[Keynes] No… it’s the animal spirits

You see it’s all about spending, hear the register cha-ching
Circular flow, the dough is everything
So if that flow is getting low, doesn’t matter the reason
We need more government spending, now it’s stimulus season

So forget about saving, get it straight out of your head
Like I said, in the long run—we’re all dead
Savings is destruction, that’s the paradox of thrift
Don’t keep money in your pocket, or that growth will never lift…

because…

Business is driven by the animal spirits
The bull and the bear, and there’s reason to fear its
Effects on capital investment, income and growth
That’s why the state should fill the gap with stimulus both…

The monetary and the fiscal, they’re equally correct
Public works, digging ditches, war has the same effect
Even a broken window helps the glass man have some wealth
The multiplier driving higher the economy’s health

And if the Central Bank’s interest rate policy tanks
A liquidity trap, that new money’s stuck in the banks!
Deficits could be the cure, you been looking for
Let the spending soar, now that you know the score

My General Theory’s made quite an impression
[a revolution] I transformed the econ profession
You know me, modesty, still I’m taking a bow
Say it loud, say it proud, we’re all Keynesians now

We’ve been goin’ back n forth for a century
[Keynes] I want to steer markets,
[Hayek] I want them set free
There’s a boom and bust cycle and good reason to fear it
[Keynes] I made my case, Freddie H
Listen up , Can you hear it?

Hayek sings:

I’ll begin in broad strokes, just like my friend Keynes
His theory conceals the mechanics of change,
That simple equation, too much aggregation
Ignores human action and motivation

And yet it continues as a justification
For bailouts and payoffs by pols with machinations
You provide them with cover to sell us a free lunch
Then all that we’re left with is debt, and a bunch

If you’re living high on that cheap credit hog
Don’t look for cure from the hair of the dog
Real savings come first if you want to invest
The market coordinates time with interest

Your focus on spending is pushing on thread
In the long run, my friend, it’s your theory that’s dead
So sorry there, buddy, if that sounds like invective
Prepared to get schooled in my Austrian perspective

We’ve been going back and forth for a century
[Keynes] I want to steer markets,
[Hayek] I want them set free
There’s a boom and bust cycle and good reason to fear it
[Hayek] Blame low interest rates.
[Keynes] No… it’s the animal spirits

The place you should study isn’t the bust
It’s the boom that should make you feel leery, that’s the thrust
Of my theory, the capital structure is key.
Malinvestments wreck the economy

The boom gets started with an expansion of credit
The Fed sets rates low, are you starting to get it?
That new money is confused for real loanable funds
But it’s just inflation that’s driving the ones

Who invest in new projects like housing construction
The boom plants the seeds for its future destruction
The savings aren’t real, consumption’s up too
And the grasping for resources reveals there’s too few

So the boom turns to bust as the interest rates rise
With the costs of production, price signals were lies
The boom was a binge that’s a matter of fact
Now its devalued capital that makes up the slack.

Whether it’s the late twenties or two thousand and five
Booming bad investments, seems like they’d thrive
You must save to invest, don’t use the printing press
Or a bust will surely follow, an economy depressed

Your so-called “stimulus” will make things even worse
It’s just more of the same, more incentives perversed
And that credit crunch ain’t a liquidity trap
Just a broke banking system, I’m done, that’s a wrap.

We’ve been goin’ back n forth for a century
[Keynes] I want to steer markets,
[Hayek] I want them set free
There’s a boom and bust cycle and good reason to fear it
[Hayek] Blame low interest rates.
[Keynes] No it’s the animal spirits