Sweden, Coronavirus, and Lessons for the Next Pandemic

When I write about Sweden, it is usually to point out the nation’s schizophrenic approach to public policy – very bad on fiscal issues but very good in other areas like trade, regulation, and monetary policy.

Though there are even some good Swedish fiscal policies, such as personal retirement accounts and no death tax.

Heck, Sweden even became a poster child for my Golden Rule back in the 1990s.

Today, though, we’re going to focus on Sweden’s libertarian-ish approach to the coronavirus pandemic. And we’ll start with this chart showing that Sweden had fewer excess deaths than any other developed nation.

The chart comes from a story in the U.K.-based Spectator, authored by Michael Simmons. Here’s some of what he wrote.

Pandemics kill people in two ways, …directly and indirectly, via disruption. …The only real way of counting this would be to look at ‘excess deaths’, i.e. how many more people die every month (or year) compared to normal. That data is now coming through.  Using the most common methodology, Sweden is at the bottom – below Australia and New Zealand, which had plenty of lockdowns but very few Covid deaths. …Like other studies (including one commissioned by Swedish newspaper Svenska Dagbladet from a statistician at the country’s equivalent of the ONS) this puts Sweden at the bottom, with just 3.3 per cent more deaths than were expected. Another way of doing this is to express excess deaths not as a percentage of the previous baseline but as a share of population. So the below chart using OECD data show it per 100,000 population: Sweden is again at the bottom.

Here’s the chart mentioned in the final sentence. Once again, Sweden looks very good.

Brad Polumbo approves. Here are some excerpts from his column in the Washington Examiner.

…more data just vindicated the Scandinavian nation’s approach, which kept schools open and largely rejected government lockdowns of the economy. …Sweden comes out looking fantastic. …Sweden still took COVID-19 seriously and encouraged people to behave responsibly. Officials encouraged adults, and especially the elderly, to take the COVID-19 vaccine and saw very high rates of uptake, yet it did not push it on young children, except those with unique risk factors. The country did have some government interventions, such as travel restrictions, in place, but by and large, it took a much more restrained approach. And as a result, its citizens were left freer yet saw fewer deaths overall.

Interestingly, even the New York Times gave the Swedes some semi-favorable coverage.

Here are some excerpts from a column by David Wallace-Wells.

…the country followed a radical, contrarian public health path. Its hands-off approach to Covid-19 mitigation — no stay-at-home orders to begin with, and no mask mandates later on — was one that many on the pandemic left quickly derided as sadistic public policy…those who believe the pandemic response went overboard have been excitedly sharing charts purporting to show that Sweden “won” the pandemic — in theory, a vindication for public health libertarianism. …The Swedish national government leaned heavily into its quasi-libertarian messaging, emphasizing the individual responsibility of its citizens and avoiding national stay-at-home orders and most other forms of intrusive mandates. …But there wasn’t an absence of guidance, just an absence of mandates. …In the end, “what the ‘Swedish model’ really suggests is that pandemic mitigation measures can be effectively deployed in a respectful, largely noncoercive way,” Francois Balloux wrote recently.

By the way, the article suggests that Sweden’s excess mortality numbers are not as good as reported by the Spectator, so it certainly should not be interpreted as an endorsement.

But, at the very least, Sweden was better than most peer nations.

And Swedes also got good results in terms of education, at least based on some early research.

The most high-profile Swedish study examining pandemic learning loss suggests that students in the country did not suffer at all compared to their prepandemic counterparts — a striking finding, and one that does seem to set the country apart.

Now let’s look at some of Fraser Nelson’s column in the U.K.-based Telegraph.

Anders Tegnell, Sweden’s state epidemiologist,…didn’t claim to be right. It would take years, he’d argue, to see who had jumped the right way. His calculation was that, on a whole-society basis, the collateral damage of lockdowns would outweigh what good they do. …Sweden…emerged with one of Europe’s lower Covid death tolls: the rate is 1,614 per million people, just over half the amount of Britain (2,335). …unlike Brits, they had a government that trusted them. …the lack of rules allowed for people to use their judgement while minimising economic and social damage. Sweden’s GDP fell by 2.9 per cent in 2020, while Britain’s collapsed by 9.4 per cent. The cost of the various Covid measures is best summed up by the debt mountain: an extra £8,400 per head in Britain, and £3,000 in Sweden. …there is no talk in Sweden about educational devastation.

So what’s the bottom line?

The honest answer is that we don’t know the ideal pandemic policy. There will be studies 10 years from now and 20 years from now that will give us a better understanding of the costs and benefits of different approaches.

For now, though, there seems to be good data that Sweden did a very good job minimizing overall excess deaths and an okay job of limiting deaths from the virus.

And they did that while minimizing the costs to childhood learning and getting better-than-average economic and fiscal outcomes. And don’t forget that they also gave people the freedom to choose, which is appealing for libertarians who believe freedom is a good outcome.

P.S. There’s another lesson to be learned, though it’s not about Sweden. In the United States, we learned that the FDA and CDC were ineffective and incompetent. Internationally, we learned the same thing about the WHO.

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Long-Run Policy Lessons from the Coronavirus Pandemic, Part II

In mid-2021, I wrote about long-run policy lessons from the coronavirus pandemic.

That column focused on insights from my five-part series (see here, here, here, here, and here) about the failure of big government.

More specifically, the CDC and FDA did a terrible job domestically and the WHO did a terrible job internationally.

By contrast, millions of lives were saved by the private sector.

But we also learned fiscal policy lessons in addition to public health lessons.

The most depressing fiscal lesson is that politicians love having any excuse to spend more money.

Though that’s hardly a surprise.

Now that we are in early-2023, are there more lessons to be learned? The answer is yes.

A new study by Professors Alex Tabarrok and Robert Tucker Omberg, published by the Oxford Review of Economic Policy, finds no relationship between supposed pandemic preparedness and health outcomes.

How effective were investments in pandemic preparation? We use a comprehensive and detailed measure of pandemic preparedness, the Global Health Security (GHS) Index produced by the Johns Hopkins Center for Health Security (JHU), to measure which investments in pandemic preparedness reduced infections, deaths, excess deaths, or otherwise ameliorated or shortened the pandemic. We also look at whether values or attitudinal factors such as individualism, willingness to sacrifice, or trust in government—which might be considered a form of cultural pandemic preparedness—influenced the course of the pandemic. Our primary finding is that almost no form of pandemic preparedness helped to ameliorate or shorten the pandemic. Compared to other countries, the United States did not perform poorly because of cultural values such as individualism, collectivism, selfishness, or lack of trust. General state capacity, as opposed to specific pandemic investments, is one of the few factors which appears to improve pandemic performance.

The study is not free to access, but Professor Tabarrok cited it at Marginal Revolution and shared this chart comparing death rates in the (allegedly) best prepared nation and the least prepared nation.

The Omberg-Tabarrok study shows us that pre-pandemic government policies were ineffective.

What about government policies once the pandemic hit?

In a column for the Washington Times, Richard Rahn points out that heavy-handed government intervention also was ineffective.

Sweden had the lowest aggregate excess mortality percentages (2.79)… Sweden was unique in that it had the fewest “lockdown” requirements, while countries like the U.S., with substantial lockdowns, had much higher excess deaths. We also know that within the U.S., states with very onerous lockdown requirements, like New York, have total age-adjusted higher death rates than states like Florida with few lockdown requirements. The big mistake the CDC people (Dr. Anthony Fauci, Dr. Francis Collins, etc.) made was to single-mindedly focus on potential deaths directly from COVID-19 while largely ignoring the potential deaths indirectly induced by the lockdowns. …Other studies support the evidence of health harm to people who have not yet died but are likely to have their lives shortened by the indirect effects of the lockdowns. …If the above-described mistakes had not been made, it is no overstatement to say that hundreds of thousands of lives and trillions of dollars could have been saved.

The information about Sweden is worth noting.

But the biggest lesson from Richard’s column is that politicians and bureaucrats failed to consider direct and indirect effects (a problem that is sadly common with government), so their cost-benefit analysis (to the extent they did any) was very flawed.

And we also need to learn that it is depressingly easy for governments to curtail liberty.

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Part I: Does the United States Have Free-Market Health Care?

Does the United States have a market-based health care system or a socialist health care system?

That’s not an easy question to answer.

Because of Medicare, Medicaid, and other government programs, taxpayers directly finance about 50 percent of overall health expenditures. Does that mean we have a 50-percent socialist system?

Once again, there’s no easy answer.

On one hand, Uncle Sam does not operate the hospitals and employ the doctors and nurses (like we see – often with horrifying consequences – in the United Kingdom).

But on the other hand, policies in Washington (not just Medicare and Medicaid, but also the tax code’s exclusion for fringe benefits such as employer-provided health care) have replaced market forces with a massive third-party payer problem.

While there’s no easy answer, my back-of-the-envelope guess from back in 2013 is that the US health system is 79 percent government and 21 percent free enterprise.

If you want words rather than numbers, we have an incoherent and inefficient system that is part socialist, part interventionist, and part market.

That being said, is the US system more market oriented than other nations?

That’s also a hard question to answer. But let’s look at a couple of charts that suggest the answer is more negative than positive.

First we have a chart from Michael Cannon’s recent analysis of the tax treatment of healthcare. As you can see, the United States has a much-higher-than-average amount of health spending dictated by government.

By the way, if you look at dollars spent per capita, you find something similar.

In the United States, government has a huge footprint in the health sector.

For our next chart, Andrew Biggs of the American Enterprise Institute shared a chart last year showing which nations have the most third-party payment (i.e., someone other than the consumer paying the cost of healthcare).

It showed that the United States had a much-lower-than-average share of expenses financed by consumers.

But his chart relied on 2016 data and we now have data from 2019. So here’s the latest look at how the United States is not market-oriented, at least when compared to other developed nations.

Basically the same look as the chart from Andrew Biggs, but I didn’t want anyone to think the data may have changed.

I’ll conclude by noting that America’s healthcare system is a mess. But as I explain in this video, it’s a mess because government plays a big role. Even bigger than some of the nations that have “socialist” health systems.

P.S. You can see the impact (or lack thereof) of third-party payer by looking at prices for birth control, plastic surgery, and abortion.

P.P.S. Everyone should watch this Reason video to see how third-party payer makes healthcare more expensive.

P.P.P.S. And look at these two visuals to grasp the difference between a free market and Obamacare.

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In Five Sentences, Everything You Need to Know about Bureaucracy

One thing that became very apparent during the pandemic is that government schools are mostly run for the benefit of bureaucrats rather than students.

Not that any of us should have been surprised.

The same is true for other government bureaucracies, as well as parts of the private sector where there is a lot of government intervention that subsidizes featherbedding.

What’s especially galling is when budget increases are used to hire more bureaucrats, yet taxpayers get nothing of value in exchanges.

That’s certainly the case in the United States, where education bureaucracies (and education spending) have dramatically increased, yet there has been no concomitant increase in educational outcomes.

Another examples come from the United Kingdom where the government-run National Health Service gets more money and more bureaucrats every year, as explained in CapX by Fiona Bulmer, yet there’s never an improvement in health outcomes.

Indeed, these five sentences are a perfect example of government bureaucracies in action.

…the NHS in England employs the full time equivalent of 1.2 million people, nearly 200,000 more than they did in 2012.

…in 2021, the NHS was around 16% less productive than before the pandemic.

…one of the managers lamented to me that he could schedule a maximum of four knee operations a day but in the private sector they manage eight a day. 

…7m people on NHS waiting lists.

The NHS, like all organisations where users have no choice defaults to accommodating the providers not the consumers.

I’m left with two conclusions after reading those depressing numbers.

• First, the Conservative Party is unwilling to do anything to restrain spending on the NHS (or any other part of the UK budget), which is why their main role nowadays is to be the tax collectors for the welfare state.
• Second, the so-called national conservatives in the United States, given their dirigiste policy agenda of more intervention and more government spending, seem to want a very similar fate for the United States.

The obvious takeaway, as I’ve previously noted, is that if you don’t want massive future tax increases, there’s no alternative to what critics call “free-market fundamentalism.”

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(Non) Exploitation and Plasma Sales

A core libertarian principle is that people have the right to do whatever they want with their own bodies. And that includes things that may be harmful, such as taking drugs, smoking, and over-eating.

It also includes personal choices that are not harmful, but may upset the sensibilities of others, such as selling your organs.

As you might expect, I also think people should be allowed to sell their plasma.

But this rubs some people the wrong way.

Vanessa Veselka has a column in the New York Times grousing about the fact that poor people in the United States have the freedom to benefit from voluntary exchange.

Very few countries allow payment for plasma, in part out of concern that financially vulnerable people would risk their health for money. Other developed nations place stricter limits on the number of times one can donate. In Britain, plasma can be given every two weeks; in Germany, it’s up to 60 times a year. The United States allows a person to sell plasma 104 times a year. The word “sell” is, of course, rarely used in the United States. Instead, the term is “donate,” which allows companies to pretend they are not in the business of scavenging the bodies of poor people for biological treasure. Our system of “donation” is so successful that the United States provides about two-thirds of the plasma available worldwide and accounts for 35 percent to 40 percent of the plasma used in medicine in Europe — so much of which comes out of the veins of America’s poor.

The author is right, of course, that people sell rather than donate their plasma.

Other than that, however, her hostility does not make sense. The only good news is that Ms. Veselka does not want to prohibit plasma sales.

I have no problem with people being paid for plasma. I just think that companies should take less of the plasma and that donors should be paid more.

Since I sold plasma during my college years, I would have been happy if there was more compensation. But I also would have been happy if I was paid more when I worked at the Heritage Foundation and Cato Institute.

We all want to receive more income and we all want to pay less for the things we buy.

What makes capitalism a moral system is that there’s no ability to use coercion to turn our preferences into reality.

P.S. Returning to the topic of organ sales, there’s also a very persuasive utilitarian case because many lives would be saved. Plasma sales presumably have the same indirect effect.

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Mitchell’s Law and Insulin Prices

The central message of “Mitchell’s law” is certainly not something I concocted.

Economists and other policy experts have known for a couple of hundred years that politicians have a tendency to makes mistakes and then use the resulting damage as a justification for even more intervention.

I simply gave this phenomenon a name so I didn’t have to offer repeat explanations.

Over and over and over and over again.

Today we’re going to look at another example of politicians demanding more intervention to address a problem caused by previous interventions.

In an article for National Review, Michael Cannon has a very depressing explanation of how government has messed up the market for insulin.

…a proposal by congressional Democrats to mandate that private insurance companies cap out-of-pocket spending on insulin…neglects to address the way the government drives up the cost of insulin. Further intervention would make matters worse. …government makes it both unnecessarily difficult and expensive for diabetics to access this lifesaving drug. …Thanks to government, new insulin is expensive to bring to market. …The high cost of government regulation discourages the development of new insulin products, reduces the number of insulin manufacturers, and increases the prices of any products that do make it through that process… Government increases the cost of insulin by requiring diabetics to get prescriptions before purchasing many insulin products. …Canada generally allows diabetics to purchase any insulin product without a prescription. If the FDA or Congress were to remove those requirements, both the price of insulin and the ancillary costs of obtaining it would fall. …Thanks to government, most people end up with excessive insurance coverage and little awareness of how much things cost. …excessive health insurance encourages providers to increase prices because heavily insured patients care less about price increases.

I’ll augment these observations by explaining that “excessive insurance coverage” refers to how the tax code’s exclusion for fringe benefits leads both employees and employers to use health insurance as a way of not only covering large, unexpected costs, but also as a way of pre-paying for health care.

Unfortunately this pre-payment system has turned much of the health care system into an all-you-can-eat buffet, but with (the perception of) someone else paying the bill.

At the risk of understatement, this system of government-created third-party payer has produced an extraordinarily expensive and inefficient health system.

But I’m digressing. Let’s get back to the column.

So what’s the bottom line? As Cannon explains, the right answer is less government rather than more government.

Had government never intervened in the health sector, private insurance companies might already be offering more comprehensive cost-sharing for insulin than congressional Democrats propose, without driving insulin prices higher. Or perhaps insulin prices would be so low that no one would feel the need to purchase insurance that covers it. All we know for sure is that, like past government interventions, attempts by government to cap cost-sharing for insulin will have unintended consequences that make matters worse for diabetics and all consumers.

P.S. In his column, Cannon observed that, “When Congress capped cost-sharing for contraceptives at $0, prices for hormones and oral contraceptives skyrocketed.”

This is illustrated very clearly by this chart.

As you might expect, deregulation would be the way to lower the cost of birth control (just like deregulation would be the way to lower the cost of insulin).

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Plastic Surgery and Third-Party Payer

Most people would say high prices are the biggest problem with health care in the United States. But high prices should be viewed as the symptom of the real problem, which is “third-party payer.”

And what is third-party payer?

It’s the fact that consumers purchase health care with other people’s money. And we should blame government intervention.

To be more specific, the vast majority of purchases are financed by government programs such as Medicare and Medicaid, or by insurance policies that are subsidized by the tax code’s healthcare exclusion.

And that means people have very little reason to care about the cost of care – creating a recipe for higher costs and inefficiency.

Mark Perry of the American Enterprise Institute explains the problem.

One of the reasons that the costs of medical care services in the US have increased more than twice as much as general consumer prices since 1998 is that a large and increasing share of medical costs are paid by third parties (private health insurance, Medicare, Medicaid, Department of Veterans Affairs, etc.) and only a small and shrinking percentage of health care costs are paid out-of-pocket by consumers. …Consumers of health care have significantly reduced incentives to monitor prices and be cost-conscious buyers of medical and hospital services when they pay less than $1 themselves out of every $10 spent, and the incentives of medical care providers to hold costs down are greatly reduced knowing that their customers aren’t paying out-of-pocket and aren’t price sensitive.

Some people wonder whether there’s something about the health sector that automatically and inevitably causes higher prices.

But that’s not true. Mark has a table showing that cosmetic surgery costs have not increased faster than inflation.

And what makes cosmetic surgery different than other types of medical procedures?

As Mark explains, people directly pay for things like tummy tucks and breast augmentation.

Cosmetic procedures, unlike most medical services, are not usually covered by insurance. Patients typically paying 100% out-of-pocket for elective aesthetic procedures are cost-conscious and have strong incentives to shop around and compare prices at the dozens of competing providers in any large city. Providers operate in a very competitive market with transparent pricing and therefore have incentives to provide cosmetic procedures at competitive prices. Those providers are also less burdened and encumbered by the bureaucratic paperwork that is typically involved with the provision of most standard medical care with third-party payments. …the prices of most cosmetic procedures have fallen in real terms since 1998, and some non-surgical procedures have even fallen in nominal dollars… In all cases, cosmetic procedures have increased in price by far less than the 132% increase in the price of medical care services between 1998 and 2021 and the 230% increase in prices for hospital services.

If you want videos on the topic, here’s a Dutch expert explaining the issue. I also recommend this clever cartoon video that explains third-party payer and this video from the Center for Freedom and Prosperity. And this Reason video on how costs are lower when actual markets operate.

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The Economics of Food vs. the Economics of Healthcare

The health care system in the United States is expensive and inefficient, and both of those problems are caused by government.

More specifically, politicians have enacted laws (everything from the tax code’s exclusion of fringe benefits to programs such as Medicare and Medicaid) that have produced a system overwhelmingly based on third-party payer.

And with so many people using (what they perceive to be) other people’s money to buy healthcare, we shouldn’t be surprised to see perverse results.

In a genuine free market, buyers and sellers directly interact. Both sides of the transaction have an incentive to get the best-possible outcome, and this process promotes efficiency and low prices.

In America’s healthcare system, however, government policies have saddled us with intermediaries that weaken, distort, or even eliminate normal market forces.

Which explains high costs and inefficiency, which is how we began this column.

To understand why third-party payer plays such a pernicious role, let’s look at a column that Dr. Ryan Neuhofel wrote for the Foundation for Economic Education.

He imagines a world where we buy food at the grocery store the same way we currently buy healthcare.

You enter the grocery store parking lot at 4:15 pm, having taken off work early because this particular store closes at 5:00 pm. This FoodMart wasn’t your personal preference based on quality, service, amenities, or price. You choose it, like all of your previous food choices, because it was included in your new food management plan’s network. …You are first greeted by a few women sitting behind a glass-enclosed desk. By greeted, I mean they ask you for your photo ID and food plan card and hand you a clipboard with a stack of forms to complete. The lobby is crowded, but you manage to find a seat… You have completed these types of forms dozens of times previously but dutifully do so again. (You still prefer 2 percent milk, don’t like more than four vegetables, and your peanut allergy is unchanged.) Forms completed, you check back in with the receptionist. After 20 minutes of waiting, she assigns you a cart, and you start to shop with your list in hand. …As you scurry up and down the aisles, you see there are no prices listed on anything, nor labels telling you what is a Bronze-Select item. …During check-out, the cashier rings up the items and asks you for a $30 copay. You are given a six-page receipt with indecipherable codes and then asked to sign a few other forms because some of your items will be billed to you later. …Several months in the future you get a bill for $276 from FoodMart. Although vaguely suspicious that you’ve been taken advantage of somehow, you are happy that you got a big discount on your $18 box of Tasty Flakes cereal.

He also imagines a world where our restaurant visits are akin to the current healthcare system.

…you are saddened to learn that Lola’s Cocina is not part of your GCGS plan. You decide to go down the street to Burrito King, which prominently displays “Proud to accept GCGS Bronze-Select members” in its window. …Upon checkout, you present the waiter your GCGS card, and you are asked to pay a $10 copay. (The billing statement weeks later reveals that the “plan discount” did reduce the initial charge from $64 to $37 and that GCGS paid Burrito King another $27 a few months later, which was applied to your deductible.) You question how a simple burrito can cost $37… Burrito King, a small restaurant, employs four cashiers out front and seven people in their business office in addition to the usual staff to cook and serve food. Their head chef, Bob, spends much of his time completing forms to justify why the Deluxe burrito you ordered included black beans instead of the standard pinto.

Dr. Neuhofel paints a dystopian vision, but can anyone doubt this is what would happen if government intervened in the food market the same way it does in the health market?

I’ve previously engaged in the same exercise, asking people to imagine what would happen if the market for homeowners insurance and auto insurance worked the same way as it does in the health sector.

Needless to say, the result would be higher costs and inefficiency.

I’ll close by pointing out that free markets work in health care when they’re allowed. Consider how we see rising quality and falling prices in the market for cosmetic surgery. Why? Because people are paying with their own money.

P.S. I strongly recommend this video from Reason.

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California Democrats Reject Single-Payer Health Scheme

I wrote last month about a tax-and-spend proposal for single-payer healthcare in California (sort of a state version of “Medicare for All“).

I also analyzed the scheme in this discussion with Gene Tunny of Australia.

What’s remarkable, as Gene mentioned in his preface, is that the left’s push for single payer failed – even though Democrats have complete control of the Golden State, including more than three-fourths of the seats in both chambers of the state legislature.

So why didn’t those politicians hasten the state’s slow-motion economic suicide?

Almost certainly, the biggest reason is that even folks on the left have second thoughts about the enormous tax increase that would have been required.

As I noted back in 2016, big government is only fun when somebody else is picking up the tab.

Which motivates me to unveil a Thirteenth Theorem of Government.

Let’s take a closer look at what happened with single payer in California.

Here are some excerpts from a report by Sophia Bollag for the Sacramento Bee.

Efforts to create a government-run health care system for all Californians stalled Monday when the lawmaker pushing the legislation announced he didn’t have the votes in time for a key deadline. Assembly Bill 1400 aimed to create a so-called single-payer health care system in California that would essentially replace private insurance with a state-run health system. …To fund it, lawmakers would have also needed to pass a separate bill to increase taxes… The taxes Kalra proposed would also require voter approval. …Kalra said the fight for single-payer health care won’t die with AB 1400. Lawmakers could craft a different bill to implement such a system in the future. The bill’s failure represents a blow to the California Nurses Association, which had backed the bill. …This isn’t the first time a bill to create a single-payer system has died in the Assembly. The Senate advanced a similar bill in 2017, but it died in the Legislature’s lower chamber. Gov. Gavin Newsom…has said he supports single-payer health care.

Giant tax increases were the big obstacle (as was the case a few years ago).

…higher taxes are a tough sell, even in the California Legislature where Democrats hold a super-majority. …Fiscal analyses estimate the bill could cost between $314 billion and $391 billion per year if it were implemented. That would dramatically increase total state spending; California’s current budget is $262 billion. To pay for it, Kalra proposed taxing businesses 2.3% of their income after the first $2 million through a proposed amendment to the California Constitution. His proposal would also have imposed a 1.25% payroll tax on employers of 50 or more people and an additional payroll tax on wages for California residents over $49,900 per employee. The measure would have added progressive income taxes starting at .5% for people making more than $149,500, up to 2.5% for people making more than about $2.5 million per year.

By the way, the higher income tax rates mentioned in the last sentence would be in addition to California’s already-highest-in-the-nation income tax rates.

In a column for Forbes, Patrick Gleason points out that the failure of single payer in California is part of a pattern.

For progressive lawmakers and activists who want to enact a national single-payer health care system, rejection of a state-level “Medicare For All” proposal in one of the bluest states in the nation, where Democrats have sweeping control of state government, is seen as a major set back. …California isn’t the only state, let alone the only blue state, where single-payer health system legislation has crashed and burned. New York Assemblyman Richard Gottfried (D), the longest serving member of the history of the New York Assembly, has long pushed for the New York Health Act, a single-payer proposal for the Empire State. Assemblyman Gottfried’s bill was approved by the New York Assembly five times between 1992 and 2018, only to see the state senate decline to take it up. As in California, exorbitant cost projections have been the main obstacle to single-payer’s enactment. …it is single-payer champion Bernie Sanders’ state of Vermont where state-level Medicare-For-All first proved to be unworkable. More than a decade ago, Vermont state lawmakers enacted legislation to implement a single-payer system called Green Mountain Care. …Shortly after the single-payer bill was enacted in 2011, Vermont officials were confronted with the reality that “free” health care is actually pretty costly for taxpayers. Governor Shumlin and Vermont lawmakers discovered they would need to impose a new 11.5% state payroll tax and a 9.5 percentage point income tax increase to pay for the new entitlement. Together these tax increases would’ve represented a more than 150% hike in the state’s income tax.

If you want more information, I wrote about deep-blue Vermont’s disastrous (but fortunately temporary) experiment with single payer back in 2014.

The article also should have mentioned that blue-leaning Colorado voters had a chance to adopt a single-payer scheme in 2016. By a stunning margin of 80-20, they voted it down.

The bottom line is that people (sadly) are willing to use government as a tool to steal from their neighbors. But the message of the Twelfth Theorem is that they generally don’t like to steal from themselves.

P.S. Here are the other 12 Theorems of Government.

• The “First Theorem” explains how Washington really operates.
• The “Second Theorem” explains why it is so important to block the creation of new programs.
• The “Third Theorem” explains why centralized programs inevitably waste money.
• The “Fourth Theorem” explains that good policy can be good politics.
• The “Fifth Theorem” explains how good ideas on paper become bad ideas in reality.
• The “Sixth Theorem” explains an under-appreciated benefit of a flat tax.
• The “Seventh Theorem” explains how bigger governments are less competent.
• The “Eighth Theorem” explains the motives of those who focus on inequality.
• The “Ninth Theorem” explains how politics often trump principles.
• The “Tenth Theorem” explains how politicians manufacture/exploit crises.
• The “Eleventh Theorem” explains why big business is often anti-free market.
• The “Twelfth Theorem” explains you can’t have European-sized government without pillaging the middle class.

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California and Economic Suicide

I wrote back in 2012 that California voters opted for “slow-motion economic suicide” by voting to raise the state’s top income tax rate to 13.3 percent.

Sure enough, having the nation’s highest state income tax rate has been bad news.

More and more companies and households are leaving the (no-longer) Golden State for zero-income-tax states such as Texas, Nevada, and Florida.

Unfortunately, it appears that California politicians aren’t learning any lessons from this exodus.

They’re now pushing for a massive tax increase to fund a government takeover of health care.

The Wall Street Journal opined about the new plan.

California Democrats are busy reviving government-run, single-payer health care, despite its failure in the state five years ago. …Their revived legislation would replace Medicare, Medicaid and private health insurance with a state-run system… Californians would also be entitled to an expansive list of benefits including vision, dental, hearing and long-term care. A board of bureaucrats would control costs—i.e., ration care. …While Californians would technically be entitled to a “free” knee replacement, they might not get one if bureaucrats consider them too old—but the state won’t let people know that’s the reason. …Arizona could soon become a hot destination for medical tourism. …As for the tax increases… Start with a 2.3% excise tax on business with more than $2 million in annual gross receipts… Employers with 50 or more workers would also pay a 1.25% payroll tax, which would be passed onto workers. Workers earning more than $49,900 would pay an additional 1% payroll tax. …would raise the effective income tax on wage earners making more than $61,213 to 11.55%—more than millionaires pay in every state but New York. …An additional progressive surtax would start at 0.5% on income over $149,509 and rise to 2.5% at $2,484,121. …The top marginal rate would rise to 15.8% on unearned income, including capital gains, and 18.05% on wage income.

In a column for Reason, Joe Bishop-Henchman and Andrew Wilford of the National Taxpayers Union explain the likely impact of the proposed tax increases.

As the mad scientist laboratory for bad tax policy in America, California is constantly striving to come up with poorly designed and harmful taxes to pay for ever-increasing spending. But even by its own lofty standards, California has truly outdone itself with its latest proposal to fund a state single-payer health care system. …Not only would the proposed $163 billion in new tax revenue nearly double last year’s total revenue for the tax-happy state, but California would structure these new taxes in such a way as to be even more harmful than doubled tax liabilities already imply. …the 2.3 percent gross receipts tax sticks out. …whether a business has a profit margin of 0.1 percent or 10 percent, it would still have to pay the same percentage of its total revenues. …a rate that is three times the level of the nation’s current highest. …the proposal to institute a payroll tax on businesses with 50 or more employees…would create an obvious disincentive for businesses to hire their 50th employee. …the payroll tax would discourage both hiring employees and paying them higher wages, a disastrous outcome for workers. …individual income tax rates…would effectively be…an 18-bracket tax structure with a top marginal tax rate of 18.05 percent. …a trend that California appears to have its head in the sand about: overtaxed businesses and individuals fleeing for greener pastures.

Let’s elaborate on that final sentence and ask ourselves what the tipping point will be for various taxpayers.

• Imagine you run a business and you have to pay a 2.3 percent tax on all your receipts, even if you happen to be losing money? Do you leave the state?
• Imagine if you are a typical employee and government takes more than 10 percent of your income in exchange for bad roads and bad schools? Do you leave the state?
• Imagine that you are a high-value entrepreneur facing the possibility of having to pay more than 18 percent of your income to state politicians? Do you leave?
• Imagine being an investor who is thinking about forgoing consumption in order to make an investment that might result in a punitive capital gains tax? Do you leave?

And while you contemplate those questions, remember that California is already very unfriendly to taxpayers, ranking #48 according to the Tax Foundation and ranking #49 according to the Fraser Institute.

Moreover, while California politicians consider a massive tax increase, other states are lowering tax rates.

In other words, California already is in trouble and many state politicians now want to double down on a losing bet.

P.S. California considered a government-run health plan a few years ago and backed off, so maybe there’s hope.

P.P.S. Illinois has been the long-time leader in the poll that asks which state will be the first to suffer political collapse. That may change if this California plan is enacted.

P.P.P.S. When I’m feeling petty and malicious, I sometime hope jurisdictions adopt bad policy because that will give me more evidence showing the adverse consequences of bad policy.

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Cosmetic Surgery and the Economics of Healthcare

The healthcare sector is a tragic example of Mitchell’s Law in action, with politicians expanding the role of government in response to problems (rising prices and inefficiency) caused by previous expansions of government.

The solution is free markets, and Hannah Cox points the way in this short video.

Ms. Cox is definitely correct to use cosmetic surgery as an example of how free markets work.

I’ve previously cited great research from Mark Perry showing how prices for various procedures have risen by less than the overall consumer price index.

And far less than prices for the parts of the health care system where government plays a big role (in the table, see the section outlined in red).

The bottom line is that we get lower costs and greater efficiency when buyers and sellers directly interact without lots of interference from government.

Ms. Cox also wrote about this topic, to augment what she said in the video.

If you’re somehow under the impression that the problems with our healthcare system were created by “capitalism,” you have been lied to. …If we were to cut the insurance companies and the government out of the picture, prices would naturally have to fall to meet what the market could actually afford to pay. No more $100,000 knee surgeries. A model of this can easily be found in the plastic surgery industry, which is a rare niche in the healthcare market that both the government and insurance companies have largely not touched. Because it is seen as an elective service, insurance does not cover these services, and therefore the government hasn’t been able to get its grubby hands on the industry. And because of that, the quality of service has consistently risen while the prices have fallen simultaneously. …True capitalists want the entire healthcare system to look like the cosmetic industry. But that can only happen if we get the government out of the way.

Economists refer to the problem Ms. Cox is discussing as “third-party payer,” and it exists because government policies (everything from the tax code’s healthcare exclusion to programs such as Medicare and Medicaid) have crippled market forces by creating a big wedge between buyers and sellers.

How much of a wedge?

Well, consumers directly pay for only 10.5 percent of healthcare expenditures.

P.S. Here’s my first-hand story of dealing with the problems caused by third-party payer.

P.P.S. Regardless of one’s views on abortion, it’s another example of how markets can work in healthcare.

P.P.P.S. This video from Reason is a compelling real-world illustration of how markets can succeed in the health sector. And here are two other excellent videos.

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Vaccine Mandates, Property Rights, and Libertarianism

Just like I’ve never had (until recently) any reason to define capitalism, I also have never felt any need to define libertarianism.

Some people use the non-aggression principle, but that strikes me as more of a statement about how we should behave.

What if we’re trying to define the rules for libertarian governance?

In that case, my definition is very much based on property rights. What’s mine is mine and what’s yours is yours, and we both have the right to engage (or to not engage) in voluntary exchange.

I realize that’s not the most elegant or comprehensive statement of principles, but I think it provides a useful framework for the debate over vaccine mandates.

Regarding that issue, I’m glad that private companies had the expertise and opportunity to develop vaccines against the coronavirus, and I got vaccinated as soon as possible.

That being said, I definitely don’t think government should force anyone to make that choice.

But I also think that people who opt against vaccination should accept the non-governmental consequences.

Here’s some of what I wrote about this topic back in April.

What if private businesses decide that customers are only allowed if they prove they’ve been vaccinated? From a libertarian perspective, guided by core principles such as property rights and freedom of association, that should be totally acceptable. And that’s true even if we think the owners of the businesses are making silly choices. After all, it’s their property.

The Dispatch has an article on this controversy.

Written by Andrew Egger, it starts by pointing out that there’s a political fight in South Dakota because a private company has announced that all employees must be vaccinated.

South Dakota’s largest employer is Sanford Health, a hospital and health care system that employs nearly 10,000 people in the eastern half of the state. On July 22, Sanford, which operates in both Dakotas and Minnesota, announced it would begin requiring all its employees to get vaccinated for COVID by November 1. Within weeks, two Republican members of the state House, Reps. Jon Hansen and Scott Odenbach, had introduced legislation punching back. The COVID-19 Vaccine Freedom of Conscience Act would give South Dakotans “the right to be exempt from any COVID-19 vaccination mandate, requirement, obligation, or demand on the basis that receiving a COVID-19 vaccination violates his or her conscience.” …By the end of August, state House Speaker Spencer Gosch had come aboard the mandate ban effort as well. …The only problem: Noem doesn’t support the legislation.

Why is Governor Kristi Noem against the legislation?

For a very libertarian reason. She doesn’t think the government has the right to tell a private company how to operate.

…the laissez-faire approach that made Noem a conservative folk hero in last year’s fights has gotten her crosswise with her fellow Republicans on the issue of vaccine mandate bans. “Frankly, I don’t think businesses should be mandating that their employees should be vaccinated,” she said in a video posted to Twitter last week. “And if they do mandate vaccines to their employees, they should be making religious and other exemptions available to them. But I don’t have the authority as governor to tell them what to do.”

Amen.

If you believe in private property, the owners of a business should have the right to decide whom they employ and whom they do business with.

Just as consumers can choose where to shop and workers can choose to leave jobs they don’t like.

Here’s a final excerpt from the article.

“Nobody is stopping you from making that decision [not to get vaccinated], but you don’t have a right to a particular job,” Noem spokesman Ian Fury told The Dispatch. “The business owner has the right to his business. You do not have a right to an individual job, because you don’t own that business.” …Philosophically, that puts Noem firmly in the camp of free-market Republicans past: largely content to preside passively over a state economy in which companies are free to set their own standards of conduct and employees are free to work for companies that share their values—and quit jobs if they don’t.

The bottom line is that libertarians (and small-government conservatives) should not be upset about private companies making private decisions.

Instead, we should get irked when politicians try to mandate those decisions.

In a column for the Washington Examiner, Quin Hillyer condemns Joe Biden’s recent declaration that companies either must require vaccination or conduct constant testing.

President Joe Biden’s decision to require large private employers to ensure their workers are vaccinated or tested for the coronavirus is problematic not just in terms of the Constitution, statutes, and liberty interests, but it is also highly impractical. …This is crazy. If the onus is on the businesses, what are businesses to do if employees refuse to comply? Fire them all? …This rule is a recipe for lawsuits. Will businesses be caught in a bind — penalized for unvaccinated workers but also charged with unfair labor practices if they evade the mandate by reducing payrolls below 100? …If massive new testing is required as a mere screening method, even for those feeling perfectly healthy, how will medical personnel keep up? Who will keep administrative tabs on all this? And if businesses are required to provide time off for workers to get tested, how will their own efficiency and productivity suffer?

Given the fact that Biden is a career politician with no experience in the private sector, I guess we shouldn’t be surprised by this White House proposal.

After all this is an Administration that thinks copying the failed fiscal policies of Greece, France, and Italy is how you “build back better.”

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Free-Market Health Care

Programs such as Medicare and Medicaid, along with the tax code’s healthcare exclusion, have created a system where consumers directly pay for only about 10 percent of the care they receive.

We think it’s normal and appropriate for either the government or an insurance company to foot the bill.

Yet this system of “third-party payer” explains why the health care system in the United States is inefficient and expensive.

Is it possible, though, to put the toothpaste back in the tube? Can we unwind the bad government policies that have undermined market forces?

There are certainly big-picture reforms that would be helpful. Genuine entitlement reform could address the problems with Medicare and Medicaid, and fundamental tax reform could get rid of the healthcare exclusion.

But progress is possible even without major policy change.

Reason interviewed a doctor, Lee Gross, who decided to set up a practice based on “direct primary care,” which means no involvement from government or insurance companies. Just health consumers and health providers directly buying and selling.

Here’s some of what he said about this market-based approach.

When I was in the fee-for-service system, I felt like I was playing a game of Whac-A-Mole with Medicare. …Eventually we just said, “No more.” …the epiphany was “Why are we inserting so many people at the primary care level between the doctor and the patient? Why are we insuring primary care?” The more people that you insert between the doctor and patient, the more expensive it gets, the more cumbersome it gets…we created one of the first direct primary care practices in the country. …essentially it’s a membership-based primary care program. …Once a patient is a member of our practice, anything that we can do within the four walls of our office is included at no additional charge. …Insurance is good for the big stuff. It’s not good for the little stuff. It’s too complicated. What we do in direct primary care is we make the predictable things affordable for everybody. We take the stuff that you’re going to need on an everyday basis and we put affordable price tags on it, and we say you don’t need your insurance for this. In fact, the insurance makes it more expensive. …You need your homeowners insurance if your house burns down. You don’t need it to mow the lawn.

The good news is that Dr. Gross’ practice is part of a growing movement.

Direct primary care is absolutely a growing movement. …There’s well over 1,500 practices around the country… There are some regulatory barriers that get in the way of expanding this model. …if we’re looking for the ideal health care system, we want to see three pillars. We want to see lower cost, better quality, and more choices. You cannot have all three of those in a government-run system. You can only have those in a free market capitalist system.

Indeed, I’ve shared previous examples of this phenomenon from Maine and North Carolina.

And it even works for surgery, as you can see from this must-watch video from Reason.

Let’s now circle back to some analysis of what’s wrong with the current system.

John Stossel explained a few years ago how government-encouraged over-insurance causes problems.

Someone else paying changes our behavior. We don’t shop around. We don’t ask, “Do I really need that test?” “Is there a place where it’s cheaper?” Hospitals and doctors don’t try very hard to do things cheaply. Imagine if you had “grocery insurance.” You’d buy expensive foods; supermarkets would never have sales. Everyone would spend more. Insurance coverage—third-party payment—is revered by the media and socialists (redundant?) but is a terrible way to pay for things. Today, 7 in 8 health care dollars are paid by Medicare, Medicaid or private insurance companies. Because there’s no real health care market, costs rose 467 percent over the last three decades. By contrast, prices fell in the few medical areas not covered by insurance, like plastic surgery and LASIK eye care. Patients shop around, forcing health providers to compete.

The final couple of sentences are extremely important.

As illustrated by this data from Mark Perry, there are a few parts of the health care system where there’s little or no third-party payer.

And what do we find? Prices go down rather than up.

For all intents and purposes, the goal should be to make health insurance more like homeowners insurance or auto insurance.

Speaking of the latter, David Graham compared market-driven auto insurance and government-subsidized health insurance.

There are…similarities between health care and car ownership… We can go for many years with predictable spending on both cars and medical care until — out of the blue — something terrible happens. For that reason, we value insurance for both. But there’s a key difference… Car insurance, while not a trivial expense, is a relatively small share of the total cost of owning a car. According to the AAA, the average premium was $1,023, just under 12 percent of the total cost of ownership. Even excluding depreciation, insurance is just one-fifth of the total cost. In other words, we do not expect auto insurers to pay claims for most of the cost of operating and maintaining a car. Health care is completely the opposite. …Insurance adds administrative costs and bureaucratic interference. …Left to our own devices, we would never buy coverage for every single medical expense.

The moral of the story is that government intervention has made America’s health system a mess.

Unsurprisingly, many politicians say the answer it to have even more government (which is how we got Obamacare).

P.S. In less than eight minutes, I explain the economics of third-party payer in this speech.

P.P.S. Government-created third-party payer also has led to higher costs and widespread inefficiency in higher education.

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Coronavirus and Property Rights

Looking at the dismal performance of the FDA, CDC, and WHO, the obvious takeaway from the pandemic is that big government doesn’t work very well.

Indeed, that was the point of a five-part series (see here, here, here, here, and here) on the topic.

One implication of all this analysis is that it’s almost always a good idea to let the private sector take the lead.

Which is why businesses rather than governments should decide whether to impose vaccine requirements.

Today’s column is motivated by two stories, the first of which is from ABC News. It involves a Texas hospital that is getting sued because it requires employees to be vaccinated.

Over 100 employees have joined a lawsuit against Houston Methodist hospital in Texas for requiring all employees to get the COVID-19 vaccine. The network, which oversees eight hospitals and has more than 26,000 employees, gave workers a deadline of June 7 to get the vaccine. If not, staffers risk suspension and termination, according to the lawsuit. …The complaint cited that forcing employees to get the vaccine violates Nuremberg Code, a medical ethics code which bans forced medical experiments and mandates voluntary consent. …Houston Methodist…released a statement in response to the lawsuit Friday, saying 99% of the network’s employees have been vaccinated. “It is unfortunate that the few remaining employees who refuse to get vaccinated and put our patients first are responding in this way.”

Our second story is from Florida.

Here are some excerpts from a Washington Post column about whether cruise ships operating out of Florida can exclude non-vaccinated passengers.

Cruise lines see vaccine requirements as their quickest path back to sailing from the United States. But Florida, home to the largest operators and busiest cruise ports in the world, has passed a law saying those companies are not allowed to ask passengers for proof of vaccination status. …Jim Walker, a maritime attorney..called the vaccine law “singularly the greatest impediment to the resumption of cruising in the state of Florida.” …DeSantis told reporters that he wanted cruise lines to operate and be able to make decisions about how they want to handle health and safety rules — within certain parameters. …he said even if some people were okay with the idea of having to prove that they were vaccinated to take a cruise, “it will not stop at that.”

I have the same response to both stories, which is that it’s not the government’s job to tell private businesses how to operate.

Simply stated, I believe in property rights. The hospital should have the liberty to require vaccinations as a condition of employment and cruise ship companies should have the liberty to require vaccinations as a condition of taking a cruise.

It doesn’t matter, buy the way, whether I think the hospital or the cruise ship companies are making wise choices. I’m not a shareholder, so my opinion is irrelevant.

I do have the right, of course, to decide whether to seek a job at the hospital, or to choose to be a patient there. Likewise, I also have the right to choose whether go on a cruise, or whether to seek a job on a cruise ship.

In both cases, I can make my choices based on whether I like their vaccine policy. Or for any other reason.

I’m a free person and the people running companies also have freedom. If we don’t mutually agree to a transaction, it doesn’t happen.

It’s called “freedom of association,” and it’s a principle of a free society.

The bottom line is that there should be no philosophical objection to “vaccine passports” in the private sector.

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Save Lives and Save Money by Letting People Sell Organs

I first wrote about allowing markets for body parts back in 2009 and 2010.

Let’s revisit that issue today, starting with John Stossel’s case for legal organ sales in a video for Reason.

This should be a slam-dunk issue.

• I want drugs to be legal, even though I personally disapprove of drug use.
• I want prostitution to be legal, even though I’ve never swapped sex for money (no matter what women offer me).
• I want gambling to be legal, even though I find that activity to be very boring.
• I want alcohol to be legal, even though I generally find booze to be distasteful.

So it should go without saying that I want organ sales to be legal. Indeed, the case for legalizing organ sales is far stronger because I can’t think of a legitimate argument against a policy that creates no downsides for third parties and unambiguously benefits both sides (sick people and organ donors) of the transaction.

Professor Ilya Somin of George Mason University’s law school has been a long-time advocate of saving lives with organ sales.

Here’s some of what he wrote in 2019 for Reason.

Many Americans die every year because they need kidney transplants, but cannot find one in time, in large part due to federal laws banning organ sales. A recently published article finds that the number of such deaths is likely to be much greater than previous estimates indicate. It finds that over the 30 years between 1988 and 2017, an average of over 30,000 Americans have died each year, because the ban on organ sales prevented them from getting transplants in time. …even if the true figure is only, say, half as high, it still represents a vast amount of unnecessary suffering that could largely be prevented simply by allowing financial compensation for organ donors, thereby increasing the supply of available kidneys to the point where it can meet the demand.

Writing for the American Enterprise Institute, Sally Satel has a very personal interest in encouraging organ sales.

…there have never been enough kidneys, livers, hearts, and other organs. Kidneys, the organ most in need and most easily donated by the living, can be given by living friends and relatives and even the occasional “good Samaritan donor.” But, by law, they must be given for free, in the spirit of “altruism.”  Altruism is a beautiful sentiment, and I have personally benefited: two magnificent friends have donated kidneys to me; one in 2006 and then again in 2016.  Thousands others in the U.S., where I live, and elsewhere around the world, are not so lucky – they die waiting. …Compensating donors as a way to recruit people who would like to be rewarded for saving the life of another is long overdue. …Objections…ring hollow. The most common is that compensation “commodifies the body.” We already commodify the body, speaking strictly, every time there is a transplant: The doctors get paid to manipulate the body. So does the hospital. Why, then, object to enriching the donor — the sole individual in this entire scenario who gives the precious item in question and assumes all the risk?

In an article for CapX, Sam Dumitriu and Samuel Hammond make the case for pro-market reforms in the United Kingdom.

…increasing the number of living donors is becoming a major imperative for healthcare systems worldwide. For better or worse, altruism alone won’t fill the gap. Britain needs to change the law to give organ donors, particularly kidney donors, a financial incentive to donate. Rewards for donors are currently illegal… While the average time patients spend on the kidney waiting list has declined, it still routinely takes over three years before a match is found. In contrast, it’s clear from markets where financial rewards for donors are permitted that they are effective at increasing supply. …Kidney donors not only save lives and allow patients to come off dialysis, they also save the NHS money. According to the National Kidney Federation, each kidney transplant saves the NHS over £200,000 by reducing the need for expensive dialysis treatment. That’s significantly more than $40,000 price the Nobel Laureate Gary Becker and his co-author Julio Elias estimated would be necessary to eliminate the kidney shortage altogether.

In a column for the Federalist, Liz Wolfe makes the case that she should be allowed to help others by selling a kidney.

Four thousand dollars is my price, I think. … But I can’t do any of this because the government says it’s wrong. You know what else is wrong? Having 43,000 people die annually due to the current kidney shortage in our country. I’d love to help, but I don’t currently have a huge incentive to do so. …kidney-selling should be a person’s choice to make. …the naysayer might argue, isn’t autonomy undermined by desperation? Can consent truly take place if someone is debating between a set of imperfect options—selling an organ and profiting handsomely versus starving to death? …That would be more compelling if we didn’t already allow poor people to work in horribly dangerous industries for money. …Commercial fishing has a very high mortality rate and relatively low median wages. Roofers, garbage collectors (and recyclables collectors), construction workers, iron and steel workers, electricians, and truck drivers all have high mortality rates as well. Government does not intervene to protect these people from working in these industries… Either desperation undermines autonomy and invalidates consent or it doesn’t, but we should be more consistent. …Since we’re failing at pure altruism, maybe it’s time we turn to cold, hard cash as a better way to save lives.

In a column for the Foundation for Economic Education, Hans Bader looks specifically at kidney transplants.

Kidney failure shouldn’t be a death sentence. But for thousands of people, it is, thanks to federal laws banning organ sales. Those laws radically shrink the supply of kidneys and other organs that people desperately need to stay alive. …a recent study in the Journal of the American Society of Nephrology, titled “The Terrible Toll of the Kidney Shortage”…notes that the “106,000” people “who do not receive a transplant” due to the current kidney shortage “are fated to live an average of 5 years on dialysis therapy before dying prematurely.” …kidney donor Alexander Berger…predicted that allowing kidney donors to be compensated would save countless lives by giving people an incentive to donate their kidneys, resulting in a vast increase in kidney donations. …the taxpayers would save money, too. The government would be able to simply pay for kidney transplants for poor and elderly people…rather than paying for years and years of costly dialysis treatment through Medicare and Medicaid.

The bottom line is that paying donors would be good for sick people and good for taxpayers (Medicaid and Medicare are two of the most burdensome programs in the budget).

Sadly, politicians are standing in the way. But one potential seller has launched a court case.

John Bellocchio is suing the federal government to gain the freedom to sell his organs, as reported in the New York Post by Priscilla DeGregory.

A New Jersey man is suing the federal government for the right to sell his own organs — challenging a US law that bans the practice, new court papers show. John Bellocchio, 37, of Oakland filed the suit against United States Attorney General Merrick Garland in Manhattan federal court Thursday. He says in the suit that he struggled financially and looked into offloading some of his organs — perhaps a kidney — only to find out it’s illegal to make a buck on your body parts. Bellocchio, a career academic who now owns a business that helps connect people with service dogs, argues that the law contravenes his constitutional right to freedom of contract in determining what can be done with his own personal property — or, more specifically, his own body.

Christian Britschgi wrote about this legal challenge for Reason, but also made lots of strong arguments for why organ sales should be legal.

…the 1984 National Organ Transplant Act (NOTA)…makes it a crime for anyone to “acquire, receive, or otherwise transfer any human organ for valuable consideration for use in human transplantation if the transfer affects interstate commerce.” Violators of this ban face a maximum fine of $50,000 and up to five years in prison. That prohibition has left the 90,000 patients in need of a kidney on the national transplant list…it’s estimated that between 5,000 and 10,000 people die for want of a kidney transplant each year. Many more are left to undergo expensive, draining dialysis treatment. Medicare, which covers kidney patients of all ages, spent $81 billion on patients with chronic kidney disease in 2018. Medicare-related spending on patients with end-stage renal disease totaled $49.2 billion that same year.

As you probably figured out, most of the opposition to organ sales is from people who inexplicably feel squeamish or uncomfortable with the notion of using money to save lives.

But you know what’s even more important for life than a kidney? Food.

Yet that doesn’t stop us from utilizing private farms, private food processors, and private grocery stores in order to get lots of food at very cheap prices.

And even the limited intervention in this sector (farm subsidies and food stamps, for instance) have nothing to do with qualms about private provision of food.

So let’s be rational and humane by allowing markets for organ sales.

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Importing Price Controls from Europe Will Undermine Pharmaceutical Innovation

Last November, I criticized Nancy Pelosi’s scheme to impose European-style price controls on pharmaceutical drugs in the United States.

I wasn’t the only one who objected to Pelosi’s reckless idea.

We have forty centuries of experience demonstrating that price controls don’t work. The inevitable result is shortages and diminished production (sellers won’t produce sufficient quantities of a product if they are forced to lose money on additional sales).

Which helps to explain why the Wall Street Journal also was not a fan of Pelosi’s proposal

Here’s some of the paper’s editorial on the adverse impact of her proposed intervention.

Mrs. Pelosi’s legislation would direct the secretary of Health and Human Services to “negotiate” a “fair price” with drug manufacturers… Any company that refuses to negotiate would get slapped with a 65% excise tax on its annual gross sales that would escalate by 10% each quarter. Yes, 65% on sales. …The bill also sets a starting point for Medicare negotiations at 1.2 times the average price of drugs in Australia, Canada, France, Germany, Japan and the U.K.—all of which have some form of socialized health system. …foreign price controls have reduced access to breakthrough treatments. …Price controls are also a prescription for less innovation since they reduce the payoff on risky research and development. …Only about 12% of molecules that enter clinical testing ultimately obtain FDA approval, and those successes have to pay for the 88% that fail. …Price controls would hamper competition by slowing new drug development. The U.S. accounts for most of the world’s pharmaceutical research and development, so there would be fewer breakthrough therapies for rare pediatric genetic disorders, cancers or hearing loss.

A damning indictment of knee-jerk interventionism, to put it mildly.

Well, a bad idea from Democrats such as price controls doesn’t magically become a good idea simply because it subsequently gets pushed by a Republican (unless, of course, you qualify as a partisan as defined by my Ninth Theorem of Government).

Unfortunately, we now have a new example of bipartisan foolishness.

Andy Quinlan of the Center for Freedom and Prosperity opined on President Trump’s misguided plan to adopt European-style price controls.

…other nations have been free riders on America’s innovative pharmaceutical industry. …they have enacted socialist price controls to limit what they pay knowing that the largest market would pick up the slack to ensure a steady supply of new lifesaving drugs. It needs to stop, but President Trump’s recent executive order is not the right way to do it. …his “Most Favored Nations” Executive Order to…limit…prescription medication payments made through Medicare… But this is a flawed way of thinking about the problem. Other nations are…engaging in theft via price controls. …drugs can take months or even a year longer to arrive in countries with socialist healthcare systems. Patients suffer as a result… Another likely consequence is less innovation. Some drugs in this new price environment will no longer be cost effective to be developed. Patients again will suffer. …Getting foreign jurisdictions to pay for their share of pharmaceutical innovation by putting a stop to price manipulation is a noble goal. But it should not come at the expense U.S. industry and patients.

A study by Doug Badger for the Galen Institute points out that the Trump Administration’s approach – for all intents and purposes – would use Obamacare’s so-called Center for Medicare and Medicaid Innovation to impose foreign price controls on prescription drugs in the United States.

The Affordable Care Act created CMMI and vested it with extraordinary powers. …The statute also shields CMMI projects against administrative and judicial review. …two HHS secretaries have claimed authority under CMMI to mandate a Medicare Part B payment mechanism without having to seek new legislation. …the Trump administration issued an advance notice of proposed rulemaking (ANPRM) announcing its intention to propose a far more sweeping Medicare Part B drug demonstration project….to…scrap the ASP Medicare reimbursement methodology in favor of one based on drug prices paid in other countries. …CMS is considering the establishment of an “international price index” (IPI). It would calculate the IPI based on the average price per standard unit of a drug in select foreign countries.

This is troubling for several reasons.

…the other countries on the proposed list have lower living standards than do Americans, as measured by per capita household disposable income… The median disposable per-capita income in the IPI countries is thus about one-third less than in the U.S. …Medicare reimbursement for physician-administered drugs would largely be based on international reference prices in which the regulatory agency of one government sets drug prices based at least in part on those set by regulatory agencies in other countries. …for all the different payment methodologies Congress has devised for medical goods and services, it has never based reimbursement on prices that prevail in foreign countries. The agency’s role is to implement congressionally-established reimbursement systems, not to create them out of whole cloth.

As you might expect, the Wall Street Journal has also weighed in on Trump’s plan.

The editorial points out there will be very adverse consequences if the President imposes European-style price controls.

Mr. Trump signed an executive order that could make…life-saving therapies less likely. Mr. Trump has been threatening drug makers for months with government price controls. …The President’s order directs the Department of Health and Human Services to require drug makers to give Medicare the “most favored nation” (i.e., lowest) price that other economically developed countries pay. …This ignores some crucial details. …Other countries also have to wait longer for breakthrough therapies, which is one reason the U.S. has much higher cancer survival rates. …The larger reality is that developing novel therapies isn’t cheap and can take years—sometimes decades—of research. Most products in clinical pipelines fail, and even those that succeed aren’t guaranteed to produce a profit. …The risk for all Americans is that drug makers will shelve therapies for hard-to-treat diseases that are in the early stages of development because of the high failure rate and low expected profit. This risk is most acute for therapies that treat rarer forms of diseases… The victims will be the cancer patients of the future, including perhaps some reading this editorial.

The bottom line, as I noted in the above interview and as many others have observed, is that other nations are free-riding on American consumers.

They get access to most of the drugs at low prices (since pharmaceuticals are cheap to produce once they are finally approved).

But the net result, as I tried to illustrate in this modified image, is that American consumers finance the lion’s share of new research and development.

This isn’t fair.

But we’d be jumping from the frying pan into the fire if we had European-type price controls that stifled innovation by pharmaceutical companies.

Sure, we’d enjoy lower prices in the short run, but we would have fewer life-saving drugs in the future.

P.S. There’s an analogy between prescription drugs and NATO since Americans bear a disproportionate share of costs for both. However, there’s a strong argument that there’s no longer a need for NATO. By contrast, I don’t think anyone thinks it would be a good idea to stifle the development of new drugs.

P.P.S. As an alternative, a friend has been urging me to support the idea of using the coercive power of government to mandate that American-based pharmaceutical companies charge market prices when selling overseas – an approach that would give foreign governments a choice of paying more or not getting the drugs. That seems like a better approach, at least in theory, but my friend has no answer when I point out that those companies would then have an incentive to leave the United States (as many firms did before Trump lowered the corporate tax rate to improve U.S. competitiveness).

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Third-Party Payer Hurts American Healthcare

I’ve shared many videos (here, here, here, here, here, and here) explaining how government has made America’s health system expensive and inefficient. I especially recommend my 2019 speech to the European Resource Bank.

Now let’s add this video to our collection.

One lesson to take from all these videos is that the main problem with America’s health care system is multiple forms of government intervention (Medicare, Medicaid, the tax code’s healthcare exclusion, etc).

And the main symptom of all that intervention is pervasive “third-party payer,” which is the term for a system where people buy goods and services with other people’s money.

And guess what happens when people go shopping with other people’s money?

Mark Perry of the American Enterprise Institute explains that third-party payer leads to higher costs.

One of the reasons that the costs of medical care services in the US have increased more than twice as much as general consumer prices since 1998 is that a large and increasing share of medical costs are paid by third parties (private health insurance, Medicare, Medicaid, Department of Veterans Affairs, etc.) and only a small and shrinking percentage of health care costs are paid out-of-pocket by consumers. …It’s no big surprise that overall health care costs have continued to rise over time as the share of third-party payments has risen to almost 90% and the out-of-pocket share approaches 10%. Consumers of health care have significantly reduced incentives to monitor prices and be cost-conscious buyers of medical and hospital services when they pay only about $1 out of every $10 spent themselves, and the incentives of medical care providers to hold costs down are greatly reduced knowing that their customers aren’t paying out-of-pocket and aren’t price sensitive.

The best part of his article is when he compares cosmetic medical care to regular medical care to show how market forces – when allowed – lead to lower costs in the health sector.

Cosmetic procedures, unlike most medical services, are not usually covered by insurance. Patients typically paying 100% out-of-pocket for elective cosmetic procedures are cost-conscious and have strong incentives to shop around and compare prices at the dozens of competing providers in any large city. Providers operate in a very competitive market with transparent pricing and therefore have incentives to provide cosmetic procedures at competitive prices. Those providers are also less burdened and encumbered by the bureaucratic paperwork that is typically involved with the provision of most standard medical care with third-party payments. Because of the price transparency and market competition that characterizes the market for cosmetic procedures, the prices of most cosmetic procedures have fallen in real terms.

Here’s Mark’s chart showing how costs have changed over the past 20 years.

Pay special attention to the bottom right, where I’ve highlighted in red  how competition and markets have lowered relative prices for cosmetic care – which starkly contrasts with the health sectors where government plays a dominant role.

Singapore seems to have the most-market-oriented system in the world.

In a column for the Wall Street Journal, George Shultz and Vidar Jorgensen explain that the system is successful because people spend their own money.

If the U.S. wants lower costs, better outcomes, faster innovation and universal access, it should look to the country that has the closest thing to a functioning health-care market: Singapore. The city-state spends only 5% of GDP on medical care but has considerably better health outcomes than the U.S. …What does Singapore do that’s so effective? …All health-care providers in Singapore must post their prices and outcomes so buyers can judge the cost and quality. …Singaporeans are required to fund HSAs through a system called MediSave and to purchase catastrophic health insurance. As a result, patients spend their own money on health care and get to pocket any savings. …The combination of transparency and financial incentives has led to price and quality competition so intense that health-care costs are 75% lower in Singapore than in the U.S. …Singapore’s system of health-care finance shouldn’t seem foreign to Americans, nor should we doubt that it could work here. The U.S. has already seen that the combination of competition and price transparency can be successful: Witness the falling prices for Lasik and cosmetic surgery, which aren’t covered by insurance.

My modest contribution to this discussion is to share this OECD data showing that almost all other member nations are better than the United States on this issue.

No wonder heathcare is more expensive in the United States.

P.S. There’s also more government spending on healthcare in the United States, per capita, than there is in almost every other nation.

P.P.S. Government-created third-party payer also has led to higher costs and widespread inefficiency in higher education.

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The Case Against the Public Option

Even though Joe Biden has embraced a very left-wing agenda, I suspect many of the items on his wish list are designed to placate Bernie-type activists who have considerable influence in the Democratic Party.

As such, I don’t think Biden will push “Medicare for All” if he’s elected. But I fear he may support a “public option” that is less radical but still misguided.

The strongest argument in the video is that a government-created competitor to private insurance companies will be much more expensive than politicians are promising.

This is what always happens with government programs (see Medicare, Medicaid, and Obamacare) because politicians have a never-ending incentive to buy votes with other people’s money. And it will happen with any new program.

But I think the video overlooks an argument that would be even more politically effective, which is the fact that a public option would slowly but surely begin to strangle employer-based health insurance.

Simply stated, vote-buying politicians will deliberately under-price the cost of the public option. And the presence of a subsidized and under-priced government health plan will make employer-based policies less attractive over time – especially since the subsidies almost certainly will expand.

However, people generally like their employer-based health plans and presumably will be skeptical of any plan that threatens that system (and it’s probably safe to assume that health insurance companies will have an incentive to educate people about that likely outcome).

By the way, it’s not my intention to defend the employer-based system, which largely exists because of a foolish loophole in the tax code. As far as I’m concerned, that system is a convoluted and inefficient mess that has contributed to the health care system’s third-party payer crisis.

What we need is a restoration of free markets in health care.

But with the public option, the best-case scenario is that many people over time will get pushed from the top line of this image to the bottom line.

And that’s also the worst-case scenario since no problems will be fixed, but overall costs will be even higher thanks to greater government involvement.

For what it’s worth, some advocates of the public option claim it can actually save money by lowering reimbursement rates to doctors and hospitals. That could happen in theory, but exploding costs for Medicare, Medicaid, and Obamacare show that it doesn’t happen in reality.

The bottom line is that more government intervention in health care won’t solve the problems caused by existing levels of government intervention in health care (a tragic example of Mitchell’s Law). Which is why I fear that the public option ultimately would be a slow-motion version of Medicare for All.

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Recognizing the Deadly Impact of Economic Lockdowns

Last October, before coronavirus became the world’s dominant issue, I shared this clever Remy video to help make the point that policies designed to save lives can go too far. Indeed, if they do enough harm to the economy, they can actually cause additional death.

I’ve written about this tradeoff in the context of the coronavirus, pointing out that policymakers should look at total deaths, not just deaths from the virus.

In a column for the Philadelphia Inquirer, Professors Antony Davies and James Harrigan elaborate on these tradeoffs.

In times of crisis, people want someone to do something, and don’t want to hear about tradeoffs. This is the breeding ground for grand policies driven by the mantra, “if it saves just one life.” …Rational people understand this isn’t how the world works. …Unfortunately, even mentioning tradeoffs in a time of crisis brings the accusation that only heartless beasts would balance human lives against dollars. …Five-thousand Americans die each year from choking on solid food. We could save every one of those lives by mandating that all meals be pureed. Pureed food isn’t appetizing, but if it saves just one life, it must be worth doing. …Legislating…these things would be ridiculous, and most sane people know as much. How do we know? Because each of us makes choices like these every day that increase the chances of our dying. …The uncomfortable truth is that no policy can save lives; it can only trade lives. Good policies result in a net positive tradeoff. But we have no idea whether the tradeoff is a net positive until we take a sober look at the cost of saving lives. …It’s time we took a sober look at what this shutdown is costing us.

Opining for the Wall Street Journal, Joseph Sternberg warns that all options are bad, but herd immunity may be the least-worst approach.

The experts might have been right the first time. …The stated goal was not to vanquish the virus but merely to try to control its spread so as not to overwhelm health-care systems. …Those opinions now are widely derided, often in insulting terms. Yet subsequent events suggest they’re mainly correct. …The trouble started in mid-March when “herd immunity,” previously the tacit or acknowledged endgame for most of the world, became a toxic phrase. Critics pointed out that allowing the virus to spread in a controlled manner would cost lives. …But if those experts have a more plausible plan than taking a controlled path to herd immunity, the world is waiting to hear it. …A vaccine is a year or more in the future, if one ever emerges. An effective mass test-and-trace regime would require a level of competence and focus that typically eludes modern governments.

The tradeoffs are especially important in poor countries.

A new report in South Africa, largely prepared by actuaries, finds that the health costs of the lockdown could be 29 times greater than the health costs of the virus. Here are some details in a story published by the Financial Mail.

The lockdown will lead to 29 times more lives lost than the harm it seeks to prevent from Covid-19 in SA, according to…a new model developed by local actuaries. …They have sent a letter…to President Cyril Ramaphosa…they call for an end to the lockdown, a focus on isolating the elderly and allowing children to go back to school, while ensuring the economy restarts so that lives can be saved. …The actuaries used a model comparing “years of lives lost” from Covid-19, to “years of lives lost” from the lockdown. …their model translated into a minimum of 26,800 “years of lives lost” due to Covid-19, and a maximum of 473,500 years. …The actuaries then used the figures predicted by the National Treasury to model the impact on poverty. … their model showed that the number of years lost owing to the economic contraction caused by lockdown lies between 14-million and 24-million.

I have no idea, of course, whether these numbers are correct. Especially since even the world’s biggest experts are still learning about the disease.

But the underlying methodology is sensible. Policies that cause a weaker economy (and South Africa already has plenty of those) will make a country poorer and its people poorer.

And poorer people in poorer nations will die at younger ages.

Somebody sent me this image, which helps to capture the health costs of lockdowns.

P.S. Back in 2012, I pointed out that the economy’s sub-par performance under Obama would lead to almost 60,000 premature deaths. I openly acknowledged that this back-of-the-envelope calculation was very speculative, but what’s not speculation is that richer societies are healthier societies.

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Coronavirus, Economics, and Saving Lives

I’ve shared plenty of jokes about how America is getting a trial run of life under socialism thanks to the coronavirus.

But, as discussed in this interview, there are some very serious issues relating to economic policy during a pandemic.

I started the interview by stating that we’re in uncharted territory. And I openly acknowledge I’m not an expert on epidemiology in general or the coronavirus in particular. (And neither are the politicians and pundits who dominate Washington, even if they pretend otherwise.)

Which is why, in this list of four takeaways from the interview, I start with the need for more information.

1. Testing is key – We desperately need to get the economy going again, but that’s not going to happen until we know the extent of the disease. Without that information, I suspect it won’t matter whether politicians officially lift the lockdowns. Many individuals won’t go back to work because of concerns about personal safety and many businesses won’t reopen because of concerns about things such as liability and profitability.

2. The FDA and CDC have failed – As I stated in the interview (and as I’ve repeatedly stated in my columns), the Washington bureaucracies have hindered an effective and rapid response to the coronavirus. We need to get rid of the rules and red tape that prevent the private sector from responding to the demand for tests.

3. Be concerned about a long-run expansion in the burden government – I’m extremely worried about the coronavirus being the pretext for a permanent expansion in Washington’s power over the private sector.

A column in today’s Wall Street Journal by former Senator Phil Gramm, along with Mike Solon, echoes my fears.

…even in a time of bitter partisanship, consensus can almost always be found in a crisis to spend a large sum of taxpayer money. …politicians and interest groups have…sought to use the crisis to expand permanently government spending and the role government plays in the aftermath. …Based on the massive programs already adopted and the decision to use the Fed as a crisis lender, the role of government in post-coronavirus America will be significantly expanded. …the capacity of private businesses and banks to lead the recovery could be smothered. …The government would direct the recovery and the Fed would allocate credit. Is that a future most Americans want to fight for?

4. An extended economic shutdown is bad for health outcomes – I wrote about this issue last month, explaining that a weak economy leads to adverse consequences for health and longevity.

Andrew Sullivan succinctly captured this painful tradeoff in his column for New York.

There are costs to this collective exercise in empathy and compassion. You contemplate the rising chances of a long and devastating global depression. You look ahead to months and months more of quarantine, empty streets, crippled businesses, shrinking retirement savings, and rising poverty. And you realize that our choice for life over wealth is a little more complicated. There will come a point at which we will have to risk some lives to reopen and save the economy. …in principle, at some point, there will be a crossover moment when quarantine and lockdown cease to have the net-positive impact they are now having.

If you want more information, click on any of these stories and tweets and you’ll learn more about why there is a very legitimate concern.

macro-economic evaluation of #covid19 measures in the UK using CGE modelling. I will let you draw your own conclusions. @healtheconomics @Covid19Rc pic.twitter.com/Rbq9j5zKPZ

— Eline van den Broek-Altenburg (@E_line) April 2, 2020

Let’s close with excerpts from a column by Tim Worstall for the U.K.-based CapX.

…there are no solutions, only trade-offs. There are costs to everything just as there are benefits and the task is to balance them… This is not to make the mistake of claiming that money, share prices and asset values outweigh lives. Rather, it’s to point that GDP is the sum of economic activity, production, incomes and consumption. If that falls 15% that means we are are all significantly poorer – and that poverty will kill people as surely as the virus is doing. …It’s also why the NHS limits access to treatments to those which cost less than £30,000 (or £50,000 for some diseases) per quality adjusted life year gained. …healthcare is something society spends more of its income upon as incomes rise. Naturally, a richer country will spend a higher portion of GDP on health care than a poorer one. …The optimal point is to balance spending on maintaining human life, while avoiding the damage to those same lives caused by a slump in economic activity. …The aim now is to…minimise overall deaths from all causes. To my mind, a six month shutdown risks missing that target by tipping the world into a depression that is more damaging than the disease itself.

Tim is right.

If politicians impose too many restrictions on the economy, we can lose more lives in the long run.

Which is why this Venn Diagram accurately shows where I am. And hopefully where everyone is.

P.S. This lesson about tradeoffs applies to all types of government policy, not just the coronavirus (cleverly captured in the Remy video at the end of this column).

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Dealing with Coronavirus: What Can Be Learned from Germany and the United Kingdom?

Near the beginning of the croronavirus crisis, I observed that “government-run health systems have not done a good job” of dealing with the pandemic.

And I’ve repeatedly noted the failure of government bureaucracies to respond effectively in the United States.

Is there, perhaps, a lesson to be learned about what happens when politicians get more control of the health sector?

Let’s consider the different experiences of two European nations.

Kai Wess of the Austrian Economics Center in Vienna has a column for CapX on the performance of the German system.

…the responses of national governments to the crisis have been starkly different. …Germany’s approach is particularly interesting. …the death rate of Germany has been hovering around 0.2% to 0.5% for the entirety of March, only rising to the current 1.1% in the last days after deaths spiked in the first days of April. And yet, 1.1% is still light years away from Spain’s 8.7% Italy’s 11.7%, Britain’s 7.11%, and France’s 6.8%. …Germany’s lockdown has also been somewhat more lenient than in other European countries. …So why is Germany doing comparatively well? For one thing, mass testing has taken place for weeks… The second key factor is the good condition of Germany’s health sector. The number of critical care beds in Germany previously stood at 29.2 per 100,000 inhabitants – the highest of the countries most affected by Covid-19 other than the US (34.7). …why does Germany have these testing capacities? And why is the health sector so well-equipped? One of the main answers is that, at least relatively speaking, Germany’s health sector is more decentralised and leaves more room for competition… Germany does not have an NHS-style one-size-fits-all approach, but an insurance-based system. Everyone has to have health care and the government bears the cost for poorer patients. …there is competition between different insurance plans and individuals can pick their preferred plan. The health sector’s revenue comes from the premiums paid by patients as well as their employer – not through state funding. …The testing system has also been very decentralised, with a mixture of government agencies, private enterprise, and research organisations working on expanding testing capabilities – indeed, the January test was made possible by a private biotech entrepreneur. …when it comes to testing, Germany does not have a centralised diagnostic system, but a network of local authorities. As Christian Drosten explain, “Germany does not have a public health laboratory that would restrict other labs from doing the tests.”

Now let’s look at the performance of National Health Service in the United Kingdom.

Writing for the Telegraph, Charles Moore opines on its less-than-impressive track record.

The Government’s policy of lockdown is in significant part dictated by the demands not of patients, but of the NHS, and by its lack of adaptability and readiness. …A significant reason for the slow development, arrival and use of the antigen tests (“Have I got it?”) and the antibody tests (“Have I had it?”) seems to be the reluctance of the health service, and of Public Health England, to look outside their own spheres for help. In a culture almost proudly hostile to the private sector and mistrustful of independent academic work, the NHS’s first instinct is to defend bureaucratic territory. …the NHS belatedly admitted within government that it had failed to get enough ventilators. …University College Hospital, Formula I and Mercedes Benz got together to produce the CPAP… Next week, the repurposed Mercedes Benz F1 factory in Brixworth expects to produce 1,000 CPAPs a day. …the amazing 4,000-bed capacity Nightingale field hospital at the ExCeL centre in east London, opened yesterday… For two weeks after it was proposed, NHS top brass opposed it. When they finally admitted they needed it, the Army and the private contractors were the ones who made it happen in nine days. …Ten days ago, government contacts found the only company in Britain with expertise in making reagent for antigen swab tests. The firm was put on to the NHS, but at the time of writing, the health service had still not had a conversation with it. …That system is the problem. …The defects are baked into our system of national bureaucratic command. People have noticed that Germany has been more successful in managing the virus spread through testing. This is not a coincidence. Germany does not have our lumbering central diagnostic system, because it does not have, in our sense, a national health service.

These two columns are very instructive, not only because they show the adverse consequences of too much government, but also because they show that there are big differences in European health systems.

Many people have the (very!) inaccurate belief that the United States has a market-based system. And many of them also share the mistaken belief that all European nations have systems where everything is financed and provided by government.

In reality, there’s a wide divergence of policies across the globe.

Back in 2013, I created a back-of-the-envelope “Freedom Meter” to illustrate how Obamacare was best viewed as in incremental step on a long (and well-traveled) road to a government-dominated health care system.

Simply stated, we already greatly reduced the role of markets thanks to a range of programs and policies (Medicare, Medicaid, the tax code’s healthcare exclusion, etc).

Obamacare simply added another layer of taxes, spending, and regulation.

I actually suspect many nations that supposedly have “government-run healthcare” actually would be closer to the free-market side of the Freedom Meter than the United States.

Sort of like what I’m depicting in this revised, worldwide version.

Though I admit I’m just guessing that Germany and Switzerland might be better than the United States.

What we really need is the healthcare equivalent of what the Tax Foundation does with its State Business Tax Climate Index and its International Tax Competitiveness Index.

Only instead of a fiscal ranking based on factors such as income taxes, business taxes, property taxes, and consumption taxes, we’d have a health ranking based on factors such as third-party payer, degree of centralization, consumer choice, regulatory burden, financing mechanisms, and extent of direct government provision.

If anybody’s aware of anything like this, please share.

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Coronavirus and Big Government, Part III

I wrote about “Coronavirus and Big Government” on March 22 and then followed up on March 27 with “Coronavirus and Big Government, Part II.”

Now it’s time for the third installment, and we’ll start with this hard-hitting video from Reason, which shows how red tape has hindered the development and deployment of testing in the United States.

Next, here are a bunch of stories and tweets about the deadly impact of bureaucracy and regulation.

As with the Part I and Part II, feel free to click on any of the stories for the details.

The FDA just waived their usual demanding face-mask regulatory standards!

Awesome, let's get making masks:https://t.co/TaBXdNyUK5

— Robert Wiblin (@robertwiblin) March 27, 2020

FDA greenlights COVID-19 point-of-care test that can return results in as little as 5 minutes https://t.co/8ZYWdbr0Oz by @AnjKhem pic.twitter.com/QPBOUgtFDb

— Yahoo Finance (@YahooFinance) March 29, 2020

By the way, the problem of excessive government exists in other nations.

Here are two tweets about the situation in the United Kingdom.

The first one deals with having to get government approval for medical devices.

To everyone making 3D printed ventilator parts in the UK – there is good news from the regulators!

You can apply for approval to supply a non-compliant medical device on humanitarian grounds during the #COVID19 pandemic. Decision made in 48 hours.https://t.co/vjlYtVYRGe

— Hugh Harvey (@DrHughHarvey) March 25, 2020

The second one deals with how politicians and bureaucrats have misallocated public health resources – similarly to some of the foolish misadventures of the FDA and CDC (and let’s not forget the World Health Organization).

"Only a tiny fraction of the £4 billion spent on public health in England goes towards the prevention of infectious disease. Far more is spent hassling people about their lifestyles." https://t.co/smMMnAjJOU

— Matt Ridley (@mattwridley) March 29, 2020

I’ll close with another story from the United States.

This report from Reason is especially useful because it contains a 30-minute interview with Professor Alex Tabarrok of George Mason University. So if you liked the short video at the start of this column, you’ll definitely want to click through and watch this video.

The message here isn’t that government shouldn’t exist. As I wrote earlier this month, collective action is appropriate to protect life, liberty, and property. Needless to say, that libertarian principle applies during a pandemic.

But that doesn’t mean government should be micro-managing everything.

In normal times, excessive regulation is a costly nuisance because things cost more and take longer.

In a crisis, however, that means needless death and suffering. Which is exactly what’s happening today.

Let’s hope the folks in Washington learn from this awful experience.

P.S. Another lesson to be learned is the Seventh Theorem of Government.

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The Temporary Tradeoff Between Health Outcomes and Economic Outcomes

In the past couple of weeks, we’ve discussed a bunch of coronavirus-related issues, ranging from big-picture topics such as the proper role of government and the catastrophic downsides of excessive bureaucracy to more-focused topics such as how gun control puts families at risk, why laws against “price gouging” are misguided, and how government-encouraged debt makes the economy more vulnerable.

The crisis even led me to unveil a new theorem. And I also shared some amusing cartoons in hopes of lightening the mood.

The latest chapter in the coronavirus saga is that people are beginning to question how much economic damage we should be willing to accept in order to get the disease under control.

Public health experts argue that isolation and lockdown are critical if we we to “flatten the curve” so that new cases don’t overwhelm the ability of the system to treat patients (thus resulting in unpalatable forms of triage, with older and sicker patients set aside to die so that limited resources can be utilized to save others).

But if the economy is put on hold for several months, the economic damage will be catastrophic. At some point, policy makers won’t have any choice but to relax restrictions on people and businesses.

So how do we assess the costs and benefits of various options?

Eline van den Broek-Altenburg and Adam Atherly, both from the College of Medicine at the University of Vermont, explain the necessary tradeoffs.

While a growing number of people are starting to understand the message of the intuitive picture of “Flattening The Curve”, some health economists are starting to wonder how flat the curve should actually be for the benefits to exceed the costs. …how does the economic cost of the flattening fit into the discussion? …we use publicly available data to calculate the cost effectiveness of the flattening the curve. …When considering the value of a healthcare intervention to inform decision-making, benefits are usually measured in terms of life years gained, with the life years adjusted for the “quality” of the life (using standard formulas) to create a “Quality Adjusted Life Year” or QALY. …interventions in younger populations will typically yield more QALYs than interventions in older populations: because younger people have longer life expectancy. …Heath systems then compare the QALYs gained to the cost and calculate a cost per QALY gained. In the United States, interventions that cost less than $100,000 per QALY gained are often considered “cost effective,” although the precise number is somewhat controversial.

What you just read is the theoretical framework.

The authors then apply the model to the current situation.

…is the current “stay at home” and social isolation-policy, with school closed and businesses shuttered, cost effective using the standard health economics framework? …The years of life-gains are relatively straightforward. …statistics on the people who died of COVID19 in China and Italy are the best source of currently available data. …The average 80-year old in the United States has a life expectancy of about 9 years, suggesting that on average, a death averted will “buy” 9 extra years of life. …If we use diabetes as a reasonable proxy for the many chronic diseases, we would adjust the 9 years down to 7.8 years or QALYs. In other words: the average loss per person of quality-adjusted life years is 7.8. …This implies the pandemic, if unchecked, will lead to a loss of between 1.56 million and 13.26 million QALYs. …What, then, is the cost of the intervention of social distancing? One easy estimate would be to use the cost of the current stimulus bill before congress — 1 trillion dollars. This is likely an underestimate of the true cost, but is a reasonable starting place. …the cost per QALY gained from the current approach to be somewhere between approximately $75,000 and $650,000.

So what’s the bottom line?

Here’s a graphic they prepared.

And here’s their explanation.

…the key variable is the expected number of deaths. A pandemic that is likely to lead to 1.7 million deaths can justify the enormous public costs. However, if the pandemic is in the lower end of the predicted range, then the public funds would have been more valuable if spent elsewhere. …Some claim it is impossible or even unethical in times of a crisis, to think about cost when lives are involved. But in a world of finite resources, it’s necessary to make choices. Why not use a framework that has been defended by governments and scientists for decades?

Richard Rahn, former Chief Economist for the U.S. Chamber of Commerce, is very explicit about the downsides of an economic shutdown for future generations.

Some government officials, politicians and commentators keep saying words to the effect, “we need to spend whatever it takes to stop the coronavirus deaths.” They, of course, do not literally mean the government should spend an infinite amount of money to save a life — because, if they did, we would not let people drive more than five miles an hour in order to save more than 35,000 Americans who die on the roadways each year. …What is missing in this discussion is what American taxpayers and workers in terms of job losses should spend to save each life… Such calculations are necessary for insurance companies to price their products correctly, and for all of those government agencies involved in health and safety to determine both the proper form and degree of regulation. …If we learn that a 35-year-old MD has unexpectedly passed away, we are likely to feel far worse about the tragedy than if we hear her 90-year-old grandfather has died.

That’s Richard’s conceptual framework.

Here are his calculations.

Let’s assume that the low-cost measures will result in 50,000 more deaths (which is almost certainly on the very high-side given the experience of other countries). If we value the average death at…$2,000,000 figure… (which is high, because of the advanced age of most of the coronavirus victims), then policies that cost taxpayers, and the hit to GDP, more than $100 billion are counterproductive. Even if you assume that my figures are off by a magnitude of three, the mitigation policies should not cost more than $300 billion — not trillions.

Jeffrey Polet, a political scientist at Hope College, also explores the adverse consequences of an economic lockdown.

A panicking public will produce bad consequences, and we are already seeing its destructive effects on our economy. …While the elderly and infirm are the most vulnerable populations, small businesses, low wage laborers, and less healthy social institutions are the most likely to succumb to the economic consequences of the reaction to the virus. …The result will be, as we already see, a call for more government programs to aid those made destitute by the government’s reactions. …collective overreacting has profound social, economic, and political effects. …Good leadership neither overreacts nor under-reacts but reacts sensibly. …Calling something a “pandemic” excites public fear, even if the majority of the population is unlikely to be either directly or indirectly harmed. …For many people in this country, the prospect of losing their business or their job is far more frightening and harmful than the prospect of getting infected with the virus. An already insolvent government is hardly in a position to get this economy up and running, particularly if its policies create massive economic dislocations. …One of the appeals of utilitarianism is that it actually provides a functioning calculus, however imperfect in implementation.

I’ll close with the observation that I want to err on the side of public health in the short run, though I confess I’m not even sure what that means in terms of public policy since we not only need to agree on how much a life is worth (an unpleasant number to consider), but also get a handle on how many lives might be at risk (a very speculative number).

The goal of today’s column is simply to point out that the tradeoffs are real and to applaud the people who have the honesty to write about the issue.

In the long run, we should all appreciate the overlooked point that there is no tradeoff between health outcomes and economic outcomes.

That’s because wealthier societies are healthier societies. Here are a couple of chart from an article I wrote for the Journal of Regulation and Social Costs way back in 1992.

I’ve written about this correlation many times, both as a general concept, and also when addressing specific topics such as the adverse impact of President Obama’s anti-growth policies (and I cited one of Obama’s top economic appointees, Cass Sunstein, who explicitly agrees about the link between health and wealth).

P.S. There’s a very amusing Remy video about health-and-wealth tradeoffs at the end of this column.

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Coronavirus and Big Government

When the current health crisis heated up, I wrote a column on “Government, Coronavirus, and Libertarianism” and made four simple points.

1. Libertarians believe government should protect life, liberty, and property
2. Libertarians correctly warn that a big sprawling federal government means it is less capable of handling the few things it should be doing
3. Other government-run health systems have not done a good job
4. The federal government has hindered an effective response to the coronavirus.

Today, I want to elaborate on point #4 by highlighting an avalanche of reports on how bureaucracy and red tape have been endangering our health.

Readers are welcome to click on some or all of the stories and tweets to learn more about how we’re at risk because of clumsy and inefficient government. Though if you’re pressed for time, this first story is the one to read.

And here are many more reports that confirm how government has largely been the source of problems rather than a solution.

"Where other nations are expediting these deliveries, trusting proven suppliers in their claims that they simply want to get their goods to those who need it… the FDA has resorted to its favorite fetish: bureaucratic lethargy." https://t.co/kdiy9Rssub

— Tom Rogan (@TomRtweets) March 20, 2020

This is sad, but all too predictable. "Stockpiles of masks, hand sanitizer, and other supplies," @TomRtweets reports, "are sitting in warehouses waiting for FDA inspectors to get around to them."https://t.co/pELgHvUSzw

— Philip Wegmann (@PhilipWegmann) March 20, 2020

Shitshow USA: "CDC botched its own test development. It sent testing kits to state public-health labs with a nonfunctioning ingredient. And by then, the virus was already spreading. It was already spreading as the [FDA] held up independent labs that had made their own tests…" https://t.co/ZLO2hysWxL

— Amy Alkon (@amyalkon) March 21, 2020

It’s been maddening to watch coronavirus testing get strangled in red tape from the FDA & CDC pic.twitter.com/ZGhfD8ki2E

— Alec 🌐 (@AlecStapp) March 14, 2020

The risk calculus part is important. Up until this point, the cost of biomedical delay was invisible and deniable.

But what FDA's CDRH division did in terms of delaying EUAs for lab tests has now very publicly cost us trillions of dollars and likely many American lives.

— Balaji S. Srinivasan (@balajis) March 15, 2020

For what it’s worth, the stories I shared above are just a small sampling. I could have shared dozens of additional reports.

But rather than beat a dead horse, let’s focus on the key takeaway from this tragedy. David Harsanyi of National Review nicely summarizes the lessons we should be learning.

…the coronavirus crisis has only strengthened my belief in limited-government conservatism — classical liberalism, libertarianism, whatever you want to call it. Years of government spending and expanding regulation have done nothing to make us safer during this emergency; in fact, our profligate spending during years of prosperity has probably constrained our ability to borrow now. …government does far too much of what it shouldn’t, and is far too incompetent at doing what it should. The CDC, an agency specifically created to prevent the spread of dangerous communicable diseases, has failed. Almost everyone would agree that its core mission should be under the bailiwick of government. Yet, for the past 40 years, its mission kept expanding as it spent billions of dollars and tons of manpower worrying about how much salt you put on your steaks and imploring you to do more jumping jacks. …The CDC — and other federal agencies such as the FDA — haven’t just moved too slowly in tapping the expertise of our academic and private sectors to fight COVID-19; they’ve actively impeded such private efforts. …The CDC didn’t merely botch the creation of a COVID-19 test, it failed to turn to private companies that could have created a test faster and better. …I’d simply like government to do much less much better.

David’s final sentence about a government that does less and does it better deserves to be emphasized. Observers ranging from Mark Steyn to Robert Samuelson have pointed out that the federal government is more likely to do a good job if it focuses on core responsibilities. And there’s plenty of academic evidence in support of this position, though this anecdote from Belgium may be even more persuasive.

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Debating the Best Economic Policy Response to Coronavirus

I wrote last week about the libertarian response to the coronavirus crisis and made four simple points.

1. Governments should focus on protecting life, liberty, and property. That includes fighting pandemics.
2. A big sprawling federal government will be less capable and competent when responding to a real crisis.
3. International evidence suggests greater government control is not a good recipe for success.
4. Domestic evidence indicates that bureaucracies such as the FDA and CDC are exacerbating the problem.

That column led to an invitation, from the folks at Pairagraph, to participate in a debate with Jason Furman, a Harvard professor who served as Chairman of President Obama’s Council of Economic Advisers.

Here are some excerpts from Jason’s opening statement.

Dan, you wrote a thoughtful piece the other day on a “Libertarian Perspective on the Coronavirus Response.” …But, I would also hope you would support me…in supporting a temporary increase in the share of Medicaid costs paid by the federal government. …health treatment is essential, and extra money…will help hospitals expand capacity as needed. After the pandemic is over we can take more time to debate the cost-benefit of this public funding for a low-income entitlement.

He then lists these four fiscal proposals.

Here’s some of what I wrote in my opening response.

Regarding potential steps to boost the economy, …conventional remedies may not be effective in the current environment. I don’t think my preferred policies (lower tax rates, for instance) will have much impact when people and businesses are focused on curtailing the spread of the virus. And I also don’t think Keynesian policies will be effective… That being said, we are facing a black-swan environment. …there is enormous pressure for Washington to do something.

What about Jason’s four proposals?

I agree on his first suggestion, but not on the mechanism.

…more health infrastructure would be very helpful. Which is why I want the private sector to take the lead. We’ll get faster results at lower cost.

As you might guess from what I wrote two days ago about paid sick leave, I’m very skeptical about program expansions.

I don’t want politicians to exploit a crisis to impose their long-standing policy preferences – especially when taxpayers, consumers, and workers will be burdened with long-run costs.

However, I’m open to his other two proposals.

I don’t think universal payments and/or business loans will prevent short-term economic harm. But if the federal government is going to do something, then payments and loans at least address a real problem (temporary loss of income) with a plausible action (temporary provision of cash).

Though I do warn that these ideas will have adverse unintended consequences.

In an ideal world, firms would guard against black-swan events by having business interruption insurance and households would similarly protect themselves by setting aside funds in savings accounts. Those prudent steps will be less likely in a world where people expect government intervention.

Our submissions are limited to 500 words, so neither of us had much opportunity to share details (there will be a second round, so the debate isn’t over yet).

Even with that limit, I made sure to mention Crisis and Leviathan, Robert Higgs’ must-read book about the unfortunate history of politicians using crises as an excuse to seize more power and control over the private economy.

That’s because my biggest fear is that this temporary crisis will lead to permanent expansions in the size and scope of government.

Libertarians don’t fear the “slippery slope” because we’re paranoid. We fear it because we understand the perverse incentive structure of politicians.

I don’t know whether we’ll become Greece or Venezuela if we tumble down that slope. But I know it will lead to a bad outcome.

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In a Single Graph, Everything You Need to Know about Third-Party Payer

The main problem with America’s health care system is government intervention (Medicare, Medicaid, the tax code’s healthcare exclusion, etc).

The main symptom of all that intervention is pervasive “third-party payer,” which is the term for a system where people buy goods and services with other people’s money.

And pervasive is no exaggeration. According to government data, nearly 90 percent of health care expenditures are paid for by someone other than the consumer.

And that means buyers are not sensitive to price. Which means sellers have little incentive to be efficient and keep prices under control.

The net effect is that the free market is not allowed to operate in most parts of the health care system. So it shouldn’t be a surprise that we have ever-rising costs and lots of bureaucracy.

Let’s look at an example.

One of my former colleagues, Michael Cannon, recently wrote about what happened when Obamacare mandated that birth control be covered by insurance (third-party payer) rather than being directly purchased by consumers.

The Affordable Care Act (ACA) dramatically expanded insurance coverage for prescription contraceptives such as “the pill.” From August 2012 through January 2014, the federal government phased in the ACA’s requirement that nearly all private health insurance plans must cover all Food and Drug Administration‐​approved prescription contraceptives with no cost‐​sharing. …As a result of these changes, the share of consumers who are sensitive to the price of contraceptives plummeted. …among women with large‐​employer coverage who use oral contraceptives, “the share experiencing out‐​of‐​pocket spending…declined from 94 percent in 2012 to 11 percent in 2017.” …The ACA’s reshaping of the market for oral contraceptives precisely coincided with a dramatic increase in prices for those items. …As the mandate began to take effect and as the ACA made oral contraceptives seem “free” to more purchasers, prices for hormones and oral contraceptives began to rise. …Once the mandate took full effect, prices began to rise rapidly. From May 2013 through May 2019, while real prices for non‐​prescription drugs and prescription drugs overall rose just 12 percent and 37 percent, respectively, prices for hormones and oral contraceptives rose 108 percent. …these data suggest that trying to make oral contraceptives “free” for insured consumers had the unintended consequence of making them far more expensive.

Here’s the chart, which is a powerful – and depressing – illustration of how government intervention leads to rising prices.

Notice how birth control costs (the orange line) begin to skyrocket as the Obamacare mandate took effect.

Another depressing thing to consider is that consumers get tricked into thinking that birth control is free.

In reality, of course, the higher costs get built in to the price of health insurance, which then means less take-home pay for the people who thought they were benefiting. But since they don’t understand that this is what’s happening, they decide their employers are too greedy or that compensation is stagnant.

Sigh.

Needless to say, the companies selling birth control lobbied to get their product automatically covered. After all, they knew they could raise prices (as shown in the chart) once customers started buying with other people’s money.

P.S. Several 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, these images, this cartoon, and this video.

P.P.S. When markets are allowed to operate in healthcare, relative prices fall.

P.P.P.S. Government-created third-party payer is also generating higher costs and needless bureaucracy in higher education.

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The “Public Option” Is a Slow-Motion Version of Medicare-for-All

Government intervention has made a mess of health care in America. Programs such as Medicare and Medicaid, along with the tax code’s healthcare exclusion, have created a massive third-party-payer problem.

The inevitable result is systemic inefficiency and ever-rising prices.

Some politicians look at these government-created problems and want us to believe that the right solution is to have even more government.

Consider, for example, the radical Medicare-for-All scheme that is supported by “Crazy Bernie” and “Looney Liz.” That’s like driving in the wrong direction at 100 miles per hour.

It’s also a bad idea to head the wrong direction at 50 miles per hour.

In a column for the Wall Street Journal, Lanhee Chen exposes the reckless nature of the so-called public option that is supported by other candidates.

Joe Biden, Pete Buttigieg and Mike Bloomberg claim they’re proposing a moderate, less disruptive approach to health-care reform when they advocate a public option—a government policy offered as an alternative to private health insurance—in lieu of Medicare for All. Don’t believe it. …those effects are predicated on two flawed assumptions: first, that the government will negotiate hospital and provider reimbursement rates similar to Medicare’s fee schedules and far below what private insurers pay; second, that the government would charge “actuarially fair premiums,” which cover 100% of provided benefits and administrative costs.

Mr. Chen explains that politicians can’t resist buying votes by offering ever-more goodies at ever-lower costs (I made similar points in a video explaining why Obamacare would be a fiscal boondoggle).

Political pressure upended similar financing assumptions in Medicare Part B only two years after the entitlement’s creation. The Johnson administration in 1968 and then Congress in 1972 had to intervene to shield seniors from premium increases. Objections from health-care providers to low reimbursement rates have regularly led to federal spending increases in Medicare and Medicaid.

And when politicians offer more goodies at lower cost, that means someone else will have to pay.

Either taxpayers today (higher income taxes and payroll taxes) or taxpayers tomorrow (more borrowing).

If premiums can’t rise to cover program costs, or reimbursement rates are raised to ensure access to a reasonable number of providers, who’ll pay? Taxpayers… If Congress’s past behavior is a guide, a public option available to all individuals and employers would add more than $700 billion to the 10-year federal deficit. The annual deficit increase would hit $100 billion within a few years. Some 123 million people—roughly 1 in 3 Americans—would be enrolled in the public option by 2025, broadly displacing existing insurance. These estimates don’t include the costs of additional Affordable Care Act subsidies and eligibility expansions proposed by Messrs. Biden, Buttigieg and Bloomberg. …if tax increases to pay for a politically realistic public option were limited to high-income filers, the top marginal rate would have to rise from the current 37% to 73% in 2049… Congress could enact a new broad-based tax similar to Medicare’s 2.9% Hospital Insurance payroll tax. The new tax would be levied on all wage and salary income and would reach 4.8% in 2049.

Mr. Chen also reminds us that the public option would surely have a very bad effect on private insurance.

Beyond fiscal considerations, the public option would quickly displace employer-based and other private insurance. …Consumers seeking coverage would be left with fewer insurance options and higher premiums. …Longer wait times and narrower provider networks would likely follow for those enrolled in the public option, harming patients’ health and reducing consumer choice.

For those of you who like lots of numbers, I also recommend a new report from the Committee for a Responsible Federal Budget.

The folks at CRFB are a bit misguided in that they focus too much on deficits and debt when they should be mostly concerned about the size of government.

But they do reliable work and their new report, Primary Care: Estimating Leading Democratic Candidates’ Health Plans, is filled with horrifying data.

We’ll start with this table looking at the details of the plans that have been put forth by Biden, Buttigieg, Sanders, and Warren. The red numbers are new spending. The black numbers are offsets (mostly tax increases).

As you can see from the above table, Warren and Sanders are definitely in the go-rapidly-in-the-wrong-direction camp.

But that shouldn’t distract us from the fact that Biden and Buttigieg also are proposing a big expansion in the burden of government.

Here’s another graphic from the CRFB report, but I’m focusing solely on the numbers for Biden and Buttigieg so that it’s clear to see that they both want about $2 trillion of new spending over the next decade.

If you look closely at the numbers for Buttigieg in Figure 2, you’ll notice that his health plan supposedly will reduce the deficit by $415 billion over 10 years (the difference between $3.3 trillion of new spending and $2.85 trillion of cost reductions and offsets).

Does that make his plan desirable? Of course not. What he’s really proposing (and this is how CRFB should have presented the data) is $1.65 trillion of net new spending (the difference between his “new spending” and his “cost reductions” ) accompanied by $2.1 trillion of new taxes.

P.S. Most of the “cost reductions” in Buttigieg’s plan are achieved with price controls on prescription drugs. At the risk of understatement, that’s a very costly way of trying to save money.

P.P.S. And if his plan is ever enacted, don’t forget that the actual amount of “new spending” will be much higher than the estimate of “new spending.”

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Don’t Copy the United Kingdom’s Government-Run, Single-Payer Health System

I’m on my way back to the United States from England. My election-week coverage (starting here and ending here) is finished, but I’m still in the mood to write about the United Kingdom.

Yesterday, I shared some “Great Moments in British Government” and today I want to look at the U.K.’s single-payer health scheme.

The National Health Service (NHS) is inexplicably popular. Boris Johnson and Jeremy Corbyn basically competed over who would dump the most money into the system.

This near-universal affection is a mystery. There’s a lot of data suggesting the system doesn’t work.

Consider these details from a column by a British doctor.

One of the most curious political phenomena of the western world is the indestructible affection in which the British hold their National Health Service. No argument, no criticism, no evidence can diminish, let alone destroy, it. …Yet again, however, the NHS is in ‘crisis.’ The British Red Cross has called the present situation an incipient humanitarian crisis, as if the country were now more or less in the same category as Haiti after a hurricane… The current NHS has a budget 50 per cent greater than it had 10 years ago. It employs 25 per cent more doctors than it did then. …but the net result, according to those who say the present situation is the worst ever, is that it is less able than ever before to perform satisfactorily its most elementary tasks such as treating emergencies promptly. …The difference in the standard mortality rate of the richest and poorest is now almost double what it was when the NHS began. …in 2014 the Commonwealth Fund of New York, a foundation whose purpose is to promote an effective, efficient and equitable health care system, published a report in which it compared 11 western health care systems. …The measure on which it was next to worst was the number of deaths preventable by health care. …thousands of people die every year in Britain who would have been saved in any other country in Europe.

Here are some passages from a recent editorial by the Wall Street Journal.

The NHS managed to treat only 83.6% of emergency-room patients within four hours in October, compared to 89.1% a year earlier and well short of the government’s target of 95%. …The NHS also missed its target for 93% of patients with suspected cancer to be seen by a specialist within two weeks of referral by a family doctor. In September, 90.1% of patients saw a specialist within two weeks, down from 91.2% in September 2018. A bureaucrat or Senator Elizabeth Warren might think that’s good enough for government work. But it’s definitely not for the nearly 10% of patients and their families who had to live with a suspected cancer diagnosis… Politicians who want a U.S. version of the NHS via Medicare for All should explain why they want Americans to catch this British disease.

Here are some insights from a former British hospital director.

…the people at the very top of the NHS’s regional and national organisations still truly believe in command and control. They are the only people left who still believe in the power of the five year plan to solve pressing public policy problems. They set targets in the same way as the managers of the Soviet tractor factories… The hospital I was involved in had a problem with its A&E waiting times. We were provided with “help” from multiple NHS intervention teams. There were so many of them that they arrived in a bus… Each of them wanted slightly different information, each had a different view of what the problem was… After several weeks of this they came up with an action plan containing 147 individual actions, each of which then had to be measured and monitored and reported back to the intervention teams. We all knew that the action plan was there to tick the box required by the central bureaucracy, not to solve the problem. …Every profession has its own powerful union, dressed up as a professional body, that is quite happy to hold their employer to ransom. When I was on the hospital board it took two years of negotiations to get the pharmacists to work shifts so that the pharmacy could stay open until 7pm.

Even the left-leaning Guardian recognizes there are major problems.

British households will need to pay an extra £2,000 a year in tax to help the NHS cope with the demands of an ageing population, according to a new report that highlights the unprecedented financial pressures on the health system. …The report said the NHS has been struggling to cope… Niall Dickson, chief executive of the NHS Confederation, which commissioned the report and represents 85% of NHS bodies, said: “This report is a wake-up call. And its message is simple – if we want good, effective and safe services, we will have to find the resources to pay for them.” …“If we are to have a health and social care system which meets our needs and aspirations, we will have to pay a lot more for it over the next 15 years. This time we won’t be able to rely on cutting spending elsewhere – we will have to pay more in tax…” The report said…the money would have to be found from the three main sources of government revenue: income tax, VAT or national insurance.

An expert from the U.K.’s Taxpayers Alliance exposes some warts in the NHS.

Hardly a day goes by without stories of how cash-strapped the service is and how it is on the brink of collapse. According to pretty much everyone in the newspapers, on the TV, and on social media the solution is simple – more money. …The NHS is certainly in a sickly state, but more money is not the solution. International league tables frequently rank the NHS near the bottom in terms of healthcare quality. Moreover, the UK ranks 19th out of 23 for mortality amenable to healthcare and 20th out of 24 developed countries for cancer survival. The failings of the NHS are perhaps best summed up by The Guardian…: “The only serious black mark against the NHS was its poor record on keeping people alive”. …A specific ‘NHS tax’ is a particularly bad idea. …throwing more money at the NHS is not an adequate solution. Scotland spends more money per capita on healthcare than England, but has longer waiting times for appointments and slower response times for ambulances. …As the head of the NAO Amyas Morse observed… “Over the last ten years, there has been significant real growth in the resources going into the NHS, most of it funding higher staff pay and increases in headcount. The evidence shows that productivity in the same period has gone down, particularly in hospitals.”

Sally Pipes of the Pacific Research Institute also reveals some NHS shortcomings.

The United Kingdom’s single-payer system is in turmoil. It’d be foolish to import that failed model. The NHS has rationed care for decades. But wait times and delays have gotten markedly worse in recent months. The NHS recently canceled 55,000 non-urgent operations… Last month, nearly 15 percent of emergency-room patients had to wait more than four hours to be seen by a physician. The conditions are so bad in U.K. hospitals that, in a letter to the nation’s government, 68 British emergency room physicians recently complained about patients “dying prematurely in corridors” as a result of overcrowding. …no amount of money can fix a system in which government bureaucrats, and not markets, determine how to distribute healthcare resources.

Bruce Bawer is certainly not impressed with the NHS.

…the Brits have been brainwashed for generations into thinking their NHS is some kind of miracle. …What makes this NHS-worship especially grotesque is that the NHS, far from being successful, is a world-class disaster. Last July the BBC reported that the NHS was “increasingly” rationing such treatments as “hip and knee replacements and cataract surgery … as well as drugs for conditions such as arthritis.” …the NHS has always “covertly” rationed health care…cutting corners, canceling operations and doctor appointments, and extending already long waiting times even for urgent treatments. In October came reports that patients’ obesity and tobacco use were increasingly being used as excuses for denying them care. In November, a Cambridge University study concluded that 120,000 Brits had perished unnecessarily during the previous seven years…hospitals all over Britain — including operating rooms and maternity wards — were infested by cockroaches, maggots, insects, and rats. …the NHS is no role model. On the contrary, its history is a cautionary tale — and its prospects are nothing less than nightmarish.

Charles Hughes of the Manhattan Institute shares some grim news about the NHS’s performance.

A tracker from the BBC found that for 18 months hospitals across England, Wales, and Northern Ireland have failed to meet any of their three key targets, namely four-hour waits at the emergency department, cancer care within 62 days, and treating at least 92 percent of patients for planned hospital care or surgery within 18 weeks.  Waiting lists have ballooned. As of August 2017, the most recent month of data available, 409,000 had been waiting longer than 18 weeks for hospital treatment, an increase of almost 73,000 from the previous August. The median wait now stands at 7.1 weeks. …Citizens dissatisfied with rationing and wait times are turning to alternative options, forbidden in Canada. About 10 percent of people purchase supplemental private insurance for more timely treatment, many through company offerings. …Profit-driven hospital firms have seen a 15-25 percent year-on-year increase in the number of patients paying for their treatment themselves. People are also venturing abroad in their quest to get needed medical care. According to the Office of National Statistics, the total number of people leaving the U.K. for medical care surged from 48,000 in 2014 to almost 144,000 in 2016.

Some of the rationing and delays are simply due to government incompetence.

Some of it involves targeting certain segments of the population.

The NHS will ban patients from surgery indefinitely unless they lose weight or quit smoking, under controversial plans drawn up in Hertfordshire. The restrictions – thought to be the most extreme yet to be introduced by health services – immediately came under attack from the Royal College of Surgeons. …In recent years, a number of areas have introduced delays for such patients – with some told operations will be put back for months, during which time they are expected to try to lose weight or stop smoking. …The criteria also mean smokers will only be referred for operations if they have stopped smoking for at least eight weeks, with such patients breathalysed before referral.

My understanding is that the NHS does a good job with emergency care (you get maimed in a car accident) and a decent job with routine care (your annual check-up).

But you’re in big trouble if you have a chronic condition. Like people with cancer in Scotland.

More than 1,300 cancer patients in Scotland suffered agonising delays of more than two months to start treatment last year in breach of government targets. New figures show that, on average, 110 patients every month waited longer than 62 days for medical care after they were red-flagged by doctors for suspected cancer. The disclosure has prompted a wave of fresh criticism of the SNP, which in 2007 made a manifesto pledge to “ensure” suspected cancer patients were diagnosed and treated within 62 days.

I want to close by basically replicating some of my conversations from this past week with ordinary people in and around London.

When I highlighted shortcomings of the NHS, they routinely got defensive, admitted that their system isn’t perfect, and then attacked the American health system.

I think I surprised them by then stating that the U.S. healthcare system is a convoluted mix of waste and inefficiency.

I basically tried to give them this short speech, pointing out that our problems also are caused by government.

The Brits mess up their system by having the government directly provide medical care. We mess up our system with government-created third-party payer. In either case, the results aren’t pretty.

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The Deadly Impact of Pharma Price Controls

Yesterday, I shared part of an interview that focused on Mayor Pete Buttigieg’s scheme to give more subsidies to colleges, thus transferring money from poorer taxpayers to richer taxpayers.

Here’s the other part of the interview, which revolved around a very bad idea to copy nations that impose price controls on prescription drugs.

In some sense, this is a debate on price controls, which have a long history (going all the way back to Ancient Rome) of failure.

But my comments focused primarily on the adverse consequences of Pelosi’s approach.

And if you want more details, Doug Badger explained how Pelosi’s approach would backfire in a report for the Heritage Foundation. He starts with an explanation of the legislation.

The Lower Drug Costs Now Act of 2019 (H.R. 3), introduced last week with the backing of House Speaker Nancy Pelosi, D-Calif., would double down on the failures of existing government policies that have distorted prescription drug prices and contributed to higher health care costs. …H.R. 3 would establish a system in which the U.S. government bases prices for cutting-edge drug treatments on those set by foreign governments. The measure would set an upper price limit at 1.2 times a drug’s average price in six other countries (Australia, Canada, France, Germany, Japan, and the United Kingdom). The secretary of health and human services then would seek to “negotiate” prices below that upper limit for at least 25—and as many as 250—drugs each year. …A manufacturer that declined to negotiate the price of any of its products would incur an excise tax of up to 95% of the revenues it derived from that product in the preceding year.

Doug then warns against an expansion of government power.

The bill represents an unprecedented exercise of raw government power. The federal government already imposes price curbs across a range of programs, requiring manufacturers to pay the government rebates… These provisions all are confined to federal programs, but nonetheless have distorted drug prices throughout the health sector. It’s one thing for the government to dictate the prices it pays in programs it finances. It is quite another for the government to impose a price for a product’s private sale and to extract money from a company on a long-ago settled transaction.

He then concludes by showing some of the negative consequences.

…aggressive government price-setting has damaged innovation and limited access to new treatments in all six of the countries whose price controls the bill would import. If the U.S. adopts price controls, it risks the same results here. Access to new drugs is much greater in the U.S. than in countries with price controls, in part because of having shunned price controls. …This lack of access can have damaging effects. A study by IHS Markit…concluded that Americans gained 201,700 life years as a result of faster access to new medicines. …Countries with price controls also suffer a decline in pharmaceutical research and development. In 1986, European firms led the U.S. in spending on pharmaceutical research and development by 24%. After the imposition of price control regimes, they fell behind. By 2015, they lagged the U.S. by 40%. …the president’s Council of Economic Advisers…concluded that while price controls might save money in the short term, they would cost more money in the long run. Government price-setting, it wrote, “makes better health care costlier in the future by curtailing innovation.”

As you can see, price controls have a deadly effect in the short run (the 201,700 life years).

But as I stated in the interview, the far greater cost – in terms of needless deaths – would become apparent in the long run as new drugs no longer come to market.

By the way, it’s not just me, or folks on the right, who recognize that there will be adverse consequences from price controls.

Writing for left-leaning Vox, Sarah Kliff acknowledges that there are trade-offs.

The United States is exceptional in that it does not regulate or negotiate the prices of new prescription drugs when they come onto market. …And the problems that causes are easy to see, from the high copays at the drugstore to the people who can’t afford lifesaving medications. What’s harder to see is that if we did lower drug prices, we would be making a trade-off. Lowering drug profits would make pharmaceuticals a less desirable industry for investors. And less investment in drugs would mean less research toward new and innovative cures. …In other words: Right now, the United States is subsidizing the rest of the world’s drug research by paying out really high prices. If we stopped doing that, it would likely mean fewer dollars spent on pharmaceutical research — and less progress developing new drugs for Americans and everybody else.

Here’s a chart from her article, which I’ve modified (in red) to underscore how other nations are free-riding because American consumers are picking up the tab for research and development.

By the way, I have no idea where the red lines actually belong. I’m just trying to emphasize that consumers who pay the market price (or closer to the market price) are the ones why underwrite the cost of discovering new drugs and treatments.

And Ms. Kliff definitely agrees this trade-off exists.

Every policy decision comes with trade-offs… If the United States began to price regulate drugs, medications would become cheaper. That would mean Americans have more access to drugs but could also expect a decline in research and development of new drugs. We might have fewer biotech firms starting up, or companies deciding it’s worth bringing a new drug to market. …Are we, as a country, comfortable paying higher prices for drugs to get more innovation? Or would we trade some of that innovation to make our drugs more accessible to those of all income levels?

For what it’s worth, I don’t actually think there’s much of a trade-off. I choose markets, both for the moral reason and because I want to maximize long-run health benefits for the American people.

P.S. Because pharmaceutical companies got in bed with the Obama White House to support Obamacare, some people may be tempted to say Pelosi’s legislation is what they deserve. While I fully agree that it’s despicable for big companies to get in bed with big government, please remember that the main victims of Pelosi’s legislation will be sick people who need new treatments.

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Senator Warren’s Looney Medicare-for-All Scheme

I’ve always considered Senator Bernie Sanders to be the most clueless and misguided of all presidential candidates.

But I also think “Crazy Bernie” is actually sincere. He really believes in socialism.

Elizabeth Warren, by contrast, seems more calculating. Her positions (on issues such as Social Security, corporate governance, federal spending, taxation, Wall Street, etc).) are radical, but it’s an open question whether she’s a true believer in statism. It’s possible that she simply sees a left-wing agenda as the best route to winning the Democratic nomination.

Regardless of motive, though, her proposals are economic lunacy. So maybe it’s time to give her “Looney Liz” as a nickname.

Consider, for instance, her new Medicare-for-All scheme. She got hammered for promising trillions of dollars of new goodies without specifying how it would be financed, so she’s put forward a plan that ostensibly fits the square peg in a round hole.

But as Chuck Blahous of the Mercatus Center explains, her plan is a farce.

…presidential candidate Sen. Elizabeth Warren released her proposal to ostensibly pay for the costs of Medicare for All (M4A) without raising taxes on the middle class. As published, the plan would not actually finance the costs of M4A. …the Warren proposal understates M4A’s costs, as quantified by multiple credible studies, by about 34.2%. Another 11.2% of the cost would be met by cutting payments to health providers such as physicians and hospitals. Approximately 20% of the financing is sought by tapping sources that are unavailable for various reasons, for example because she has already committed that funding to other priorities, or because the savings from them was already assumed in the top-line cost estimate. The remaining 34.6% would be met by an array of new and previous tax proposals, most of it consisting of new taxes affecting everyone now carrying employer-provided health insurance, including the middle class.

Here’s a pie chart showing that Warren is relying on smoke and mirrors for more than 50 percent of the financing.

By the way, the supposedly real parts of her plan, such as the new taxes, are a very bad idea.

Brian Riedl of the Manhattan Institute unleashed a flurry of tweets exposing flaws in her proposal.

Since I’m a tax wonk, here’s the one that grabbed my attention.

Combination of 35% corporate rate (worldwide, no deferral), “Real corporate profits tax,” curtail depreciation, huge capital gains taxes, financial transactions tax, bank tax, and 6% wealth tax is economic fantasyland. Taxes on capital would be through the roof. 9/

— Brian Riedl (@Brian_Riedl) November 1, 2019

Wow. Higher taxes on domestic business income, higher taxes on foreign-source business income, higher taxes on business investment, more double taxation of capital gains, a tax on financial transactions, and a very punitive wealth tax (which would be a huge indirect tax on all saving and investment).

If ever enacted, the United States presumably would drop to last place in the Tax Foundation’s competitiveness ranking.

And let’s not forget that Medicare-for-All would dramatically increase the burden of government spending. In one fell swoop, we’d become Greece.

Actually, that probably overstates the damage. Based on my Lassez-Faire Index, I’m guessing we’d be more akin to Spain or Belgium (in other words, falling from #6 in the rankings to the #35-#40 range according to Economic Freedom of the World).

P.S. Don’t forget that Medicare has a massive shortfall already.

P.P.S. Looney Liz’s plan is terrible fiscal policy, but keep in mind it’s also terrible health policy since it would exacerbate the third-party payer problem.

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