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Archive for July, 2014

Market failure is often cited as a justification for policy intervention. However, one always faces the possibility that the costs of government failure may be greater than the costs of market failure. In the end, there must be a weighing of the costs and the benefits of policy. We witnessed a great example of government failure in the rollout of the Affordable Care Act, as the Obama administration responded to failures in the health care market by trying to create a “federally facilitated marketplace” (FFM). Yes, that is the term and, yes, it has an acronym.

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Today the Government Accountability Office released its report on Healthcare.gov (available here). As you might guess, the development of the website and supporting systems for the FFM were not cheap:

As of March 2014, CMS [Centers for Medicare & Medicaid Services] reported obligating $840 million for the development of Healthcare.gov and its supporting systems, over 88 percent of the federal total [$946 million].

The $150 million in cost overruns and the poor performance more generally stemmed, in part, from administrative problems in overseeing the development of a high complex system:

CMS undertook the development of Healthcare.gov and its related systems without effective planning or oversight practices, despite facing a number of challenges that increased both the level of risk and the need for oversight….CMS incurred significant cost increases, schedule slips, and delayed system functionality for the FFM and data hub systems due primarily to changing requirements that were exacerbated by oversight gaps. From September 2011 to February 2014, FFM obligations increased from $56 million to more than $209 million. Similarly, data hub obligations increased from $30 million to nearly $85 million. Because of unclear guidance and inconsistent oversight, there was confusion about who had the authority to approve contractor requests to expend funds for additional work. New requirements and changing CMS decisions also led to delays and wasted contractor efforts. Moreover, CMS delayed key governance reviews, moving an assessment of FFM readiness from March to September 2013—just weeks before the launch—and did not receive required approvals. As a result, CMS launched Healthcare.gov without verification that it met performance requirements.

The GAO report was prepared for a House Energy and Commerce Committee hearing on July 30th. According to the National Journal, “Rep. Fred Upton, the chairman of the Energy and Commerce Committee, noted that key pieces of the HealthCare.gov system—including the part that pays insurance companies—still haven’t been built.”

One can only guess that the final bill will greatly exceed anything anyone would have anticipated. And these are simply the costs of setting up the ACA Rube Goldberg machine. We have yet to see if it will work.

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Governments behaving badly… We’ve all seen it. Get a bunch of libertarians from around the world together, and each seems to take perverse pride in proving that her own government is the worst of all. How can we quantify governments’ badness?

On the economic side, we might look to the Economic Freedom of the World index. The Economist has come up with a clever new one: the DOG factor (“discount for obnoxious governments”). It’s the deviation of the price-to-earnings ratio in the domestic market from global standard valuations. Some governments score very high indeed on the DOG factor:

Iran, like Russia a target of Western sanctions, trades on a p/e of just 5.6 and has a total stockmarket value of $131 billion; were it to be rated on a par with the average emerging market, its market value would be $292 billion, so its DOG factor is $161 billion or 55%.

Argentina’s government has manipulated its inflation rate, defaulted on its debt back in 2001 and, thanks to the legal battle that ensued, may do so again in a few days’ time. Its stockmarket trades on a price-earnings ratio of 6.1. As a result, its total value is $56 billion, rather than the $115 billion it might have commanded (a DOG factor of 51%). After its hyperinflationary episode last decade, Zimbabwe’s rating has recovered a bit, although it still lags the emerging-market average.

Someone oughta run a correlation between DOG factor and economic freedom score. I bet there’d be a strong one.

Bonus question: How could you calculate DOG factor equivalents for American states?

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The New York Times

The editorial board of the New York Times has supported liberty twice in the past few days. First, there was the editorial calling for a repeal of the federal ban on marijuana.

There are no perfect answers to people’s legitimate concerns about marijuana use. But neither are there such answers about tobacco or alcohol, and we believe that on every level — health effects, the impact on society and law-and-order issues — the balance falls squarely on the side of national legalization. That will put decisions on whether to allow recreational or medicinal production and use where it belongs — at the state level.

On July 27, the board supported Senator Patrick Leahy’s bill to reign in the NSA’s bulk collection of Americans’ telephone records “and bring needed transparency to the abusive spying programs that have tarnished the nation’s reputation.”

Both positions are good ones (even if Leahy’s bill may be weaker than one might like). Of course, it won’t be long until the editorial board makes me grit my teeth again.

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I know of quite a few people who harbor rather dark conspiratorial theories of how government works. There is this sense that the government possesses some malevolent genius and the technical expertise to execute the most complex strategies with speed and accuracy. Yet, I always respond: “show me the evidence.” There is ample evidence of sloppy, buffoonish, and ham-handed behavior and unintended consequences, often cloaked in arrogance and obscured by the opacity of thousand-page statutes. Of course, this shouldn’t give anyone too much cause for relief. A bully with an IQ of 80 is still worrisome. And government can still cause a lot of damage through its inattentive and sloppy actions. There is a reason why a common response to mediocrity is: “close enough for government work.”

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I predicted Oklahoma would win its case against federal exchange subsidies. The D.C. Circuit Court of Appeals has now ruled against the government on this issue. For more on this breaking news story, check out Jonathan Adler at Volokh.

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The always entertaining P.J. O’Rourke has some reflections on the recent FreedomFest in Las Vegas (DailyBeast). Much of the piece is good fun (as one might expect). But O’Rourke does end with an important question that has bedeviled libertarians for quite some time: how do you make the leap to mass politics?   In O’Rourke’s words:

people love to hear what libertarians have to say until those people go into the voting both. Then limitations on the size, power, and expense of government start to get personal.

According to the Census Bureau, 49 percent of Americans receive some kind of government benefits. And political scientists Suzanne Mettler and John Sides of The Century Foundation (which is liberal-centrist) say that if you throw in everything that can be construed as a government benefit, e.g. mortgage interest deductions, 96% of Americans are on the take.

What would be a good yard sign for a libertarian politician?

Vote for _______
He Can Give You Less 

Make Sure Not Much Happens Ever” isn’t a catchy slogan. As O’Rourke notes: “I suppose we could infiltrate the government and do nothing.  But federal employees, at the V.A. for instance, seem to have that base covered.”

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I have not read something new on the New Deal in some time, so I turned with some anticipation to Ira Katznelson’s Fear Itself: The New Deal and the Origins of Our Times as one (of many) books I am reading this summer. It is a wonderfully interesting analysis that devotes a good deal of coverage to the New Deal’s accommodations with Southern Democrats. A sample quote:

“In embracing features of planning that had been identified mainly with the radical program of the Bolsheviks, in supporting features of corporatism that principally had been associated with Fascist Italy, and in backing the delegation of great power to administrative agencies that regulated the private economy in a manner that had a family resemblance to the active economic project of Nazi Germany, the South helped to show that each of these policies could be turned in a democratic, not totalitarian, direction.”

Of course, Southern legislators who controlled the most important committee chairmanships, extracted a high price:

“As economic legislation advanced, they fortified Jim Crow by making certain that southern employers could continue to draw without hindrance on the still-enormous supply of inexpensive and vulnerable black labor. They did so by ensuring that key New Deal bills on subjects sensitive for the South, such as labor relations, would be adapted to meet the test of not disturbing the region’s racial structure. The main techniques by which this goal was accomplished were a decentralization of responsibility that placed administrative discretion in the hands of state and local officials whenever possible, a recognition in law of regional differentials in wage levels, and the exclusion of maids and farmworkers–fully two thirds of southern black employees–from key New Deal programs” (all quotes, pp. 162-63).

The book could be a bit more critical of the performance on the New Deal programs (for those who are interested, Amity Shaes’ The Forgotten Man provides a pretty compelling account). But the Katznelson volume provides the best analysis I have seen of the role of race in shaping the New Deal and the incredible uncertainty faced by policymakers and citizens during the period in question.

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