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When I argue with my statist friends about the proper size and scope of government, they accuse me of not wanting public services.

My typical response is to explain that I am a strong supporter of markets as the method to get high-quality roads, schools, and healthcare.

But I’m wondering whether this answer pays too much attention to the trees and doesn’t focus on the forest.

After all, the debate isn’t whether we should be Liberland or Venezuela. It’s whether government should be bigger or smaller compared to what we have now.

So the next time I tussle with my left-leaning buddies, I’m going to share this chart (based on data from the IMF’s World Economic Outlook database) and ask them why we can’t be like the fast-growing, small-government nations of Asia.

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To elaborate, not only do jurisdictions such as Hong Kong and Singapore enjoy impressive growth, they also get very high scores for infrastructure, education, and health outcomes.

In other words, these nations are role models for “public sector efficiency.”

What they don’t have, by contrast, are expensive welfare states that seem to be correlated with poor outcome for basic public services.

For all intents and purposes, I want to focus the debate on how much government is necessary to get the things people want, sort of like I did in Paris back in 2013.

I asked the audience whether they thought that their government, which consumes 57 percent of GDP, gives them better services than Germany’s government, which consumes 45 percent of GDP. They said no. I then asked if they got better government than citizens of Canada, where government consumes 41 percent of GDP. They said no. And I concluded by asking them whether they got better government than the people of Switzerland, where government is only 34 percent of economic output… Once again, they said no.

I assume (hope) Americans also would say no given these choices. And hopefully they would say yes when asked if we should be like Hong Kong and Singapore.

P.S. If I rotated the above chart clockwise by 90 degrees we’d have a pretty good approximation of the downward-sloping portion of the Rahn Curve.

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Back in 2012, I shared a chart showing that workplace deaths declined substantially after the creation of the Occupational Safety and Health Administration.

But I then shared a second chart showing that workplace deaths declined just as much before OSHA was created.

The moral of my story was quite simple. Deaths primarily fell because America become much more prosperous. And there’s a lot of evidence that wealthier is healthier.

Today, let’s look at a similar example.

A study published by the National Bureau of Economic Research looks at the impact of public health measures in the early 1900s. They start by sharing some good news.

Since the mid-19th century, mortality rates in the Western world have plummeted and life expectancy has risen dramatically. Sometimes referred to as the mortality transition, this development is widely recognized as one of the most significant in the history of human welfare (Fogel 2004). Two features characterize the mortality transition. First, it was driven by reductions in infectious diseases and diseases of infancy and childhood (Omran 2005; Costa 2015). Second, it was concentrated in urban areas.

Do government policies deserve the credit?

There’s some evidence for that hypothesis.

…recent reviews of the literature emphasize the role of public health efforts, especially those aimed at purifying the water supply. For instance, Cutler et al. (2006) argue that public health efforts drove the dramatic reductions in food- and water-borne diseases at the turn of the 20th century. Similarly, Costa (2015) argues that clean-water technologies such as filtration and chlorination were “the biggest contributor[s] to the decline in infant mortality”

To be sure, there were huge public projects in the first several decades of last century. Here’s the data on sewage treatment facilities.

And here’s some data on milk purification efforts.

And the study has data on other aspects of public health as well.

The key question is whether all these efforts were successful. The three authors decided to investigate.

Using data on 25 major American cities for the years 1900-1940, the current study revisits the causes of the urban mortality decline at the turn of the 20th century. Specifically, we conduct a statistical horse race that attempts to distinguish the effects of ambitious, often extraordinarily expensive (Costa 2015, p. 554), public health interventions aimed at controlling mortality from food-and-water-borne diseases. Following previous researchers (Troesken 2004; Cutler and Miller 2005; Beach et al. 2016; Knutsson 2018), we explore the extent to which filtering and chlorinating drinking water contributed to the decline in typhoid mortality observed during the period under study and, more generally, to the observed declines in total and infant mortality. In addition, we explore the effects several other municipal-level efforts that were, at the time, viewed as critical in the fight against typhoid and other food- and water-borne diseases (Meckel 1990; Levitt et al. 2007; Melosi 2008) but have not received nearly as much attention from modern-day researchers. These interventions include: the treatment of sewage before its discharge into lakes, rivers and streams; projects designed to deliver clean water from further afield such as aqueducts and water cribs; requirements that milk sold within city limits meet strict bacteriological standards; and requirements that milk come from tuberculin-tested cows. Because the urban mortality transition was characterized by substantial reductions in infant and childhood mortality (Omran 2005) and because exclusive breastfeeding was not the norm during the period under study (Wolf 2001, 2003), improvements in milk quality seem a particularly promising avenue to explore.

But here’s the surprising result.

They did not find much evidence that public health efforts made a difference.

…our results suggest that the building of a water filtration plant cut the typhoid mortality rate by nearly 40 percent. More generally, however, our results are not consistent with the argument that public health interventions drove the extraordinary reductions in infant and total mortality observed between 1900 and 1940. Specifically, we find that efforts to purify milk had no appreciable effect on infant mortality and no effect on mortality from non-pulmonary tuberculosis (TB), which was often transmitted through infected milk. Likewise, neither chlorinating the water supply nor constructing sewage treatment plants appears to have been effective. …Our results point to other factors such as better living conditions and improved nutrition as being responsible for the sharp decline in urban mortality at the turn of the 20th century.

Here’s the chart showing that infant mortality consistently declined, largely independent of public health efforts.

I’m not suggesting, by the way, that public health spending is bad. Nor am I asserting that it’s a waste of money.

Notwithstanding some of the jokes that target libertarians, the goal isn’t to abolish every regulation or program governing safety and health. Maybe I’m a bad libertarian, but I’d pick a city with sewage treatment over one without.

But my main point is that I don’t need to make that choice. Nobody does.

The data strongly suggests that economic growth and rising levels of prosperity are the real drivers of improved health outcomes. Market-driven prosperity is what generates the wealth needed to improve public health, whether the actual delivery takes place via public or private action.

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America’s healthcare system is a mess, largely because government intervention (Medicare, Medicaid, Obamacare, and the tax code’s healthcare exclusion) have produced a system where consumers almost never directly pay for their medical services.

This “third-party payer” system basically means market forces are absent. Consumers have very little reason to focus on cost, after all, if taxpayers or insurance companies are picking up the tab for nearly 90 percent of expenses.

As a result, we get ever-higher prices.

But we also get a lot of featherbedding and inefficiency because providers want to take advantage of this system.

Athenahealth offered some sobering analysis on the system last year.

The number of physicians in the United States grew 150 percent between 1975 and 2010, roughly in keeping with population growth, while the number of healthcare administrators increased 3,200 percent for the same time period. Yes, that’s 3,200 percent in 35 years…the growing number of administrators is…driven by…ever-more-complex regulations. (To cite just a few industry-disrupting regulations, consider the Prospective Payment System of 1983; the Health Insurance Portability & Accountability Act of 1996; and the Health Information Technology for Economic and Clinical Act of 2009.) Critics say the army of administrators does little to relieve the documentation burden on clinicians, while creating layers of high-salaried bureaucratic bloat in healthcare organizations.

And here’s the chart that succinctly captures so much of what is wrong with America’s government-distorted healthcare regime.

By the way, the chart implies that the rising number of administrators is driven by additional regulations from Washington. I certainly won’t disagree with the notion that more red tape is counterproductive, but I suspect that third-party payer is the primary cause of the problem.

Third-party payer is what causes prices to climb, and then the government and insurance companies respond with various cost-control measures that require lots of paperwork and monitoring. Hence, more administrators.

In other words, third-party payer is the problem and regulations and administrators are both symptoms.

I’ll close by noting that I shared a version of this chart last year and warned that the numbers might be exaggerated. But there’s no question about the trend of more bureaucracy, red tape, and inefficiency.

P.S. Because it’s so important to fix the third-party payer problem, I’ve actually defended one small provision of Obamacare.

P.P.S. Here’s how genuine free markets result in lower costs for healthcare.

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I very much suspect Obama partisans and Trump partisans won’t like this column, but the sad reality is that both Obamacare and Trump’s protectionism have a lot in common.

  • In both cases, government is limiting the freedom of buyers and sellers to engage in unfettered exchange.
  • In both cases, the fiscal burden of government increases.
  • In both cases, politicians misuse statistics to expand the size and scope of government.

Today, let’s add another item to that list.

  • In both cases, the Washington swamp wins thanks to increased cronyism and corruption.

To see what I mean, let’s travel back in time to 2011. I wrote a column about Obamacare and cited some very persuasive arguments by Tim Carney that government-run healthcare (or, to be more accurate, expanded government control of healthcare) was creating a feeding frenzy for additional sleaze in Washington.

Congress imposes mandates on other entities, but gives bureaucrats the power to waive those mandates. To get such a waiver, you hire the people who used to administer or who helped craft the policies. So who’s the net winner? The politicians and bureaucrats who craft policies and wield power, because this combination of massive government power and wide bureaucratic discretion creates huge demand for revolving-door lobbyists.

I then pointed out that the sordid process of Obamacare waivers was eerily similar to a passage in Atlas Shrugged.

Wesley Mouch…issued another directive, which ruled that people could get their bonds “defrozen” upon a plea of “essential need”: the government would purchase the bonds, if it found proof of the need satisfactory. …One was not supposed to speak about the men who…possessed needs which, miraculously, made thirty-three frozen cents melt into a whole dollar, or about a new profession practiced by bright young boys just out of college, who called themselves “defreezers” and offered their services “to help you draft your application in the proper modern terms.” The boys had friends in Washington.

Well, the same thing is happening again. Only this time, as reported by the New York Times, protectionism is the policy that is creating opportunities for swamp creatures to line their pockets.

The Trump administration granted seven companies the first set of exclusions from its metal tariffs this week and rejected requests from 11 other companies, as the Commerce Department began slowly responding to the 20,000 applications that companies have filed for individual products. …several companies whose applications were denied faced objections from American steel makers. …companies that have applied for the exclusions criticized the exercise as both long and disorganized. “This is the most screwed-up process,” said Mark Mullen, president of Griggs Steel, a steel distributor in the Detroit area. “This is a disservice to our industry and the biggest insult to our intelligence that I have ever seen from the government.”

From an economic perspective, it certainly is true that this new system is “disorganized” and “a disservice” and an “insult to our intelligence.” Those same words could be used to describe the welfare state, the EEOC, farm subsidies, the tax code, and just about everything else the government does.

But there’s one group of people who are laughing all the way to the bank, The lobbyists, consultants, fixers, and other denizens of the swamp are getting rich. Whether they’re preparing the applications, lobbying for the applications, or lobbying against the applications, they are getting big paychecks.

And the longer this sordid protectionist process continues, we will see a repeat of what happened with Obamacare as senior-level people in government move through the revolving door so they can get lucrative contracts to help clients manipulate the system (yes, Republicans can be just as sleazy as Democrats).

Washington wins and we lose.

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I try not to pay much attention to the staffing decisions of President Trump’s “Boston-phone-book presidency.” Yes, I realize those choices are important, but my focus is policy.

As such, I don’t have any strong opinions on the ouster of David Shulkin, the now-former Secretary at the Department of Veterans Affairs. But I definitely have something to say about whether America’s military vets should be consigned to an inefficient (at best) and costly form of government-run healthcare.

We should never forget that the VA put vets on secret – and sometimes fatal – waiting lists. And then the bureaucrats awarded themselves big bonuses. That is horribly disgusting.

By the way, the VA scandals haven’t stopped.

Here are some excerpts from a report in USA Today.

A USA TODAY investigation found the VA — the nation’s largest employer of health care workers — has for years concealed mistakes and misdeeds by staff members entrusted with the care of veterans. …In some cases, agency managers do not report troubled practitioners to the National Practitioner Data Bank, making it easier for them to keep working with patients elsewhere. The agency also failed to ensure VA hospitals reported disciplined providers to state licensing boards. In other cases, veterans’ hospitals signed secret settlement deals with dozens of doctors, nurses and health care workers that included promises to conceal serious mistakes — from inappropriate relationships and breakdowns in supervision to dangerous medical errors – even after forcing them out of the VA. …The VA has been under fire in recent years for serious problems, including revelations of life-threatening delays in treating veterans in 2014 and efforts to cover up shortfalls by falsifying records.

So what’s the answer? How can we fix a dysfunctional bureaucracy?

The honest answer is that we can’t. Inefficiency, sloth, and failure are inherent parts of government (yes, the free market also is far from perfect, but at least there’s a profit-and-loss incentive that rewards good firms and punishes bad ones).

So it’s time to get the private sector involved. Though I noted in the TV discussion that not all privatization is created equal. If the government simply contracts with selected healthcare providers, that could be a recipe for cronyism since politicians would try to help their campaign contributors.

I much prefer the advance-funding model developed by Chris Preble and Michael Cannon, which would give active-duty service members added money, up front, to purchase a benefits package to cover future costs related to their military service.

For what it’s worth, former VA Secretary Shulkin, in a recent column for the New York Times, was very critical of privatization. But it isn’t clear whether he was referring to the contracted-out version or the advance-funding version.

I am convinced that privatization is a political issue aimed at rewarding select people and companies with profits, even if it undermines care for veterans. …individuals, who seek to privatize veteran health care as an alternative to government-run V.A. care, unfortunately fail to engage in realistic plans regarding who will care for the more than 9 million veterans who rely on the department for life-sustaining care. …privatization leading to the dismantling of the department’s extensive health care system is a terrible idea.

But even if you accept that he’s criticizing the less-preferred from or privatization, he definitely likes throwing rocks in a giant glass house considering the VA received ever-larger amounts of money and generated a horrible track record.

As I said at the end of my interview, a private healthcare provider might get a contract via cronyism, but it still would be a better option for vets since that company presumably wouldn’t let them die on secret waiting lists.

And since the advance-funding option obviously would be for future veterans, we do need a better market-based approach for current veterans.

I’ll close by sharing a Politico article on the infamous boondoggle that got Shulkin in trouble.

Veterans Affairs Secretary David Shulkin’s chief of staff altered an email to create a pretext for taxpayers to pay for Shulkin’s wife to accompany him on a 10-day trip to Europe last summer, the agency’s inspector general reported… The report by Inspector General Michael Missal also claims that Shulkin improperly accepted a gift of Wimbledon tickets during the trip, and a VA employee’s time was misused planning tourist activities for Shulkin and his entourage. …the VA paid for Shulkin’s wife’s airfare, which cost more than $4,300.

This obviously does not reflect well on Shulkin. But the real scandal almost certainly is that the trip to Europe occurred. We don’t know how many bureaucrats participated and what supposedly was going to be achieved by this junked, but I’m guessing the total tab was enormous and the total value was zero. The fact that taxpayers also were saddled with the cost of Shulkin’s wife’s trip merely added insult to injury.

P.S. Since money isn’t unlimited, I think the focus should be on helping veterans injured in battle rather than providing lavish benefits to anyone and everyone who ever wore a uniform.

P.P.S. I mentioned in the interview that the VA is run for the benefit of its bureaucrats. If you doubt me, check out this double-dipping bureaucrat with the triple-dipping scam.

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When writing about the Obamacare and its birth-control mandate, I’ve made a handful of observations.

President Trump recently announced that his Administration would relax the mandate. I think that is good news for the above reasons.

Critics are very upset. But rather than argue about the desirability of insurance coverage and the wisdom of Washington mandates, they’re actually claiming that the White House has launched some sort of war on birth control. I’m not joking.

Jeff Jacoby of the Boston Globe analyzes the issue. He starts by observing that nobody is proposing to ban birth control

…the Supreme Court ruled, in Griswold v. Connecticut, that government may not ban anyone from using contraceptives. …That freedom is a matter of settled law, and hasn’t been challenged in the slightest by President Trump or his administration.

He then points out that some folks on the left have gone ballistic.

Hillary Clinton accused Trump of showing “blatant disregard for medicine, science, & every woman’s right to make her own health decisions.” Elizabeth Warren, denouncing “this attack on basic health care,” claimed that the GOP’s top priority is to deprive women of birth control.

Their arguments, however, are utter nonsense. If Person A no longer has to subsidize Person B, that doesn’t mean Person B can’t buy things. It simply means there won’t be third-party payer.

Jacoby agrees.

News flash to Warren, et al.: There is no attack on health care, and no in America is being deprived of birth control. You are losing nothing but the power to force nuns to pay for your oral contraceptives. …As a matter of economics and public policy, the Affordable Care Act mandate that birth control be supplied for free is absurd. …Especially since birth control will remain as available and affordable as ever.

Indeed, the Trump Administration was actually far too timid. There should be no birth-control mandate for any insurance plan. It should be something negotiated by employers and employees.

…the new White House rule leaves the birth-control mandate in place. Trump’s “tweak won’t affect 99.9 percent of women,” observes the Wall Street Journal, “and that number could probably have a few more 9s at the end.” Washington will continue to compel virtually every employer and insurer in America to supply birth control to any woman who wants one at no out-of-pocket cost.

Jacoby closes his column with some very sensible observations and recommendations.

…there is no legitimate rationale for such a mandate. Americans don’t expect to get aspirin, bandages, or cold medicine — or condoms — for free; by what logic should birth control pills or diaphragms be handed over at no cost? …By and large, birth control is inexpensive; as little as $20 a month without insurance. …access to birth control, as the Centers for Disease Control reported in 2010, was virtually universal before Obamacare. The White House is right to end the burden on religious objectors. But it is the birth-control mandate itself that should be scrapped. Contraception is legal, cheap, and available everywhere. Why are the feds meddling where they aren’t needed?

The last sentence is key. The federal government (heck, no level of government) should be involved with birth control. They shouldn’t ban it. And they shouldn’t mandate it, either.

P.S. About five years ago, Sandra Fluke got her 15 minutes of fame by asserting that she had a right to third-party-financed birth control. That led to some clever jokes, including this cartoon and this video.

For what it’s worth, I think this cartoon is the best summary of the issue.

P.P.S. Predictably, the United Nations supports a “right” to taxpayer-financed birth control.

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In a strange way, I admire Bernie Sanders. He openly embraces big government. Back during the 2016 campaign, I frequently observed that the difference between the Vermont Senator and Hillary Clinton is that he wanted America to become Greece at a much faster rate.

Well, he just installed a turbo-charged engine and stepped on the accelerator. He’s proposed a single-payer healthcare scheme that is being called “Medicare for all.”

According to Sanders and other advocates, the government’s health system is a good role model: People pay a tax while working and they get health care when they’re old. But there’s a not-so-slight problem with that approach. For every dollar that Medicare recipients paid to the program, taxpayers are financing three dollars of spending.

That approach is workable (though only in the short run) for Medicare. But it won’t work if government is paying for everyone’s health care.

So even Bernie admits that a tax increase will be necessary. And not just any tax hike. He’s proposing the biggest tax hike in the history of the United States. Heck, it’s the biggest tax hike in world history. Here are some of the frightening details, as reported by the Washington Post.

The Medicare for All legislation backed by Sen. Bernie Sanders (I-Vt.) and 16 Senate Democrats does not include details on how it might be paid for. …Sanders’s Senate office released a white paper on possible ways to pay for the legislation.

He starts with a giant payroll tax of 11.5 percent (on top of the 15.3 percent payroll tax that already exists).

The taxes themselves would fall on both employers and employees. Sanders floats the idea of a 7.5 percent tax on employers… Another tax, of 4 percent, would hit individuals.

To understand what this means, just contemplate the disastrous impact of Obamacare on the job market.

Sanders also has a big class-warfare tax hike.

The next big slice of funding: higher tax rates on the very wealthy. Income…$250,000…higher…would be hit harder, on an upward sliding scale, ending at a 52 percent tax on income over $10 million.

By the way, imposing a tax is the easy part. Collecting revenue will be a much harder task, especially since Sanders wants to take the very successful experiment of the 1980s and run it in reverse. He also wants a big levy on banks (foreign financial institutions are probably praying for that outcome), an extra layer of tax on American companies competing in world markets (foreign corporations are cheering for that one), along with a huge boost in the death tax and the imposition of a wealth tax (lawyers and accountants doubtlessly are licking their chops).

Sanders imagines a tax on financial institutions worth more than $50 billion, a one-time tax on offshore profits (an idea that is continually floated then sunk in tax reform negotiations), a higher estate tax (topping out at 55 percent), and a 1 percent wealth tax on the richest 0.1 percent of households.

That’s all the tax hikes listed in the Washington Post story, but Sanders also has some additional material on his office website.

A huge increase in the double taxation of dividends and capital gains (particularly when you consider that personal tax rates will be much higher.

…end the special tax break for capital gains and dividends on household income above $250,000, treating this income the same as income earned from working.

A restriction on itemized deductions.

…itemized deductions would be capped at 28 percent for households making over $250,000. In other words, for every dollar in tax deduction a high-income household could save at most 28 cents.

For what it’s worth, I don’t like the state and local tax deduction and the charitable deduction, and I also don’t like preferences for housing.

But I want to eliminate such distortions only if the revenue is used to finance lower tax rates, not to finance bigger government.

That being said, let’s get back to our list. Sanders has a special tax targeting small business.

…ensure that all business income of high-income people would be subject to the existing 3.8 percent tax to fund Medicare, either through the net investment income tax or the additional Medicare tax on earned income.

Last but not least, he wants to skim $112 billion over 10 years from corporations by manipulating accounting rules.

…eliminate the “last-in, first-out” (LIFO) accounting method.

The bottom line is that Sanders, in one fell swoop, would saddle America with a European-sized government. And that would mean European-level taxes. The only thing that’s missing is he didn’t propose a value-added tax.

Though I’m sure that would get added to the mix since the huge increase in the government’s fiscal burden would retard growth. And since that would mean sluggish revenue, politicians would seek another way to extract more money from the economy’s productive sector.

P.S. I’m a policy wonk rather than a political tactician, but my guess is that Bernie is misreading the mood of the American people. Yes, “free” healthcare sounds nice, but people get understandably scared when they get a price tag. This is why single-payer was repealed in Bernie’s home state. And it’s why Colorado voters rejected a similar scheme by a landslide margin.

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