In the New York Times, Reed Abelson published an article talking about President Obama’s plan for a government operated healthcare system. The article is a good one which I found to be fair both in its description of President Obama’s proposed system (at least, to the extent that it has a description) and of some of the criticisms which surround it. The bulk of the article is spent discussing how a government healthcare system could coexist with private healthcare with a particular emphasis placed on how the government could be a fair competitor in the marketplace. Although the article raises several good points, I believe it misses certain fundamental flaws in the notion that the government could compete fairly.

As both I and Mr. Abelson understand President Obama’s proposed healthcare plan, the President’s idea is essentially that the government would become a health insurance company. It is distinguished from other healthcare plans proposed by Democrats by the fact that it is not, on its face, a single-payer system. Instead, the government would enter the insurance market as a large nonprofit insurance organization in competition with private insurance. The apparent theory is that the government would be able to use its size to negotiate price reductions with healthcare providers and drug makers while simultaneously having lower overhead than private insurers because the government plan would not be a profit seeking venture. Cost savings would then be passed on to consumers in the form of lower insurance premiums.

From this point, Mr. Abelson spends most of his article presenting one major reason that the government would not be a fair competitor. The government, the argument goes, would have such a size advantage that it would be able to push prices well below anything a private insurer could accomplish. In so doing, the government would effectively out compete private insurance. To the extent that this argument is true, it is ultimately uninteresting. If the government’s competitive advantage is volume leverage, then so be it.

The real threat to fair competition comes not from the first part of the theory, but from the second. Not only would the government not need to seek profit, it would not even need to break even. This immediately gives the government an advantage that even private nonprofits do not have. The government could easily charge below cost and still remain viable by subsidizing the shortfall out of tax revenue. Indeed, a government insurance plan would almost be forced to do this if it is truly going to guarantee some form of coverage to every American, even those with $0 available to spend on premiums.

The only way to have truly fair competition is for the government to restrict its healthcare funding to premiums paid by actual participants in the plan. Of course, there is no chance of that happening, because doing so would entirely defeat the purpose. Private insurers will, therefore, be forced to compete in a market dominated by a competitor which, in the private sector, would almost certainly be found guilty of anti-competitive predatory pricing.

With no meaningful hope that the government would act in the market as a fair competitor, it strikes me as highly unlikely that private insurance would be able to compete. Perhaps private insurance would take on a role similar to what we see now with Medicare gap insurance, with private insurers picking up the slack where government insurance cuts off. For the bulk of coverage, however, the real question will not be if private insurers will be able to compete, but how long they will try before closing their doors.

Tags: free markets, healthcare

A lot of noise has been made regarding the AIG bonuses. Obama has expressed his outrage. Congress has weighed in. AIG executives have been harassed in their own homes. So, is there cause for outrage?

Indeed there is, Virginia, indeed there is. However, it may not be directed at who everyone assumes.

As part of the ill-advised bailout plan, AIG has received about $170 billion of taxpayer dollars. One would assume that injecting that much money into a company would buy the American people a little bit of say into how the company is run. And, as far as I’m concerned, one would be right. In fact, Congress has made its wishes known in the stimulus bill. In that, they specifically allowed AIG to make good on pre-exiting bonuses. In fact, these bonuses represent contractual obligations on the part of AIG to its employees. In effect, Obama and Congress are upset that AIG is paying its debts.

It goes beyond that, however. During the uproar, we’ve had President Obama, Senator Chris Dodd (Senate Banking Committee Chairman), who wrote the amendment, and Secretary Geithner (Treasury Secretary) all claim they didn’t know about this. How can this be?

Obama voted for the stimulus bill. Did he not read it?

Dodd was the one who wrote the amendment regarding “excessive” executive compensation, where the exemption lies. After saying that he didn’t know how the exemption got there, he then said it was requested by Treasury. Which is it, Senator Dodd? If you were asked to put it in there, how can you not know how it got there?

Secretary Geithner, for his part, claimed no knowledge, until Sen. Dodd fingered him. Then he acknowledged requesting it.

This means that the Obama administration requested the exemption be placed into law, then made a public outcry when it was followed. On top of that, they tried to cover it up. At best, this screams of gross incompetence. More cynically, it speaks of intentional deception of the American public for purposes of demagoguing the issue for political gain. Is it time to ask “What did the President know, and when did he know it?”

Worse than that, however, is the decision by the House of Representatives to pass an ex-post-facto tax of 90% on those who received the bonuses. That’s right, congress writes the law to give them the money, then they take it back. That would be disgusting enough, however, even without the blatant disregard for the constitution that such a move demonstrates. Using the tax code as a weapon to punish those that the Congress doesn’t like is not just a disgusting piece of legislative abuse, it is also a Bill of Attainder, which is explicitly prohibited in the Constitution. It is also in violation of the equal protection clause and the prohibition on ex-post-facto laws.

What is surprising (or, alas, not-so surprising) is the number of Republicans who have voted for this law, including Virginia’s Eric Cantor. To disregard the Constitution in such a way, in pursuit of crass political points shows that they have learned nothing from the losses in 2006 and 2008. Cantor, and the rest of the Republicans who voted for this, need to find themselves in the unemployment line, come 2010.

The silver lining in all this, however, is the comic value for those who have been paying attention. Not only for the rank sanctimony, but also for the cognitive dissonance. Especially amusing is President Obama telling his Secretary of Treasury, despite all his screw-ups in such a short time, that he would not accept Geithner’s resignation. Yeah, you’re doing a heckuva job, Brownie.

I recently happened across an article published by Jed Rubenfeld in the Stanford Law Review entitled The End of Privacy.  Although that phrase is usually thrown about in the context of discussions about how the government is increasingly intruding into private life (and let me just say, Mr. NSA Agent, you have a very handsome shirt), the essence Mr. Rubenfeld’s article actually has almost nothing to do with that.  Instead, his core argument is against believing that the Fourth Amendment is a privacy amendment at all.  His argument is interesting on several levels.

From a textualist standpoint, Mr. Rubenfeld gets us a fair bit closer to what the Fourth Amendment actually says than anything the courts have done in recent memory.  His essential argument begins with the observation that the word “private” does not appear anywhere in the Fourth Amendment.  The word “secure” does.  Therefore, what the Fourth Amendment must actually protect is security rather than privacy, or the “reasonable expectation” (Katz v. United States, Harlan, J., concurring) thereof.

If the textual argument alone is unpersuasive, Mr. Rubenfeld goes on to dismantle the “reasonable expectation” doctrine, and does so rather handily.  He points out the circularity problem, which boils down to the observation that the amount of privacy a person can “reasonabl[y] expect[]” is fundamentally tied to how much privacy they know they are actually being afforded.  Mr. Rubenfeld tells us that the courts have avoided the circularity problem by “root[ing] individuals’ privacy expectations in widespread social norms drawn … from outside the law enforcement context.” (The End of Privacy, pg 8)  This avoidance mechanism, as a practical matter, has led the courts to develop what Mr. Rubenfeld calls the “Stranger Principle,” the principle that anything “we have exposed to perfect strangers, we cannot claim to be private.” (ibid)  Replace “perfect strangers” with “third parties” (Smith v. Maryland) and you have the effective destruction of any meaningful limit on what information the government might actually be able to obtain.

With the privacy logic thus dealt with, Mr. Rubenfeld moves on to talking about security.  At the risk of oversimplifying what would often be a subtle distinction, what Mr. Rubenfeld seems to be proposing is a reading of the Fourth Amendment in which the government is disabled from not only taking information from you directly, but also from taking information indirectly through third parties, and from conducting espionage undercover operations against its own citizens.

The remainder of the article eventually turns to arguments of how this approach to the Fourth Amendment could have stopped Bush from doing some of the things he allegedly did.  I found these arguments to be overstated, though they did expose some interesting other aspects of Mr. Rubenfeld’s thinking.  Of greatest interest was his conception of the Fourth Amendment as being both an individual and collective right in which the individual security right may be violated when the government engages in activities (e.g. NSA wiretapping) which tend to decrease the sense of security held by society as a whole.  Also interesting was his view that courts would be disabled from engaging in balancing tests.

Although it is a bit long for general consumption, there is a lot to like about Mr. Rubenfeld’s article.  His foundation strikes me as being a whole lot closer to the actual text of the Fourth Amendment than the current practices of the courts.  That is not, of course, to say that his argument is perfect, and it appears to leave some important questions unanswered.  it does, however, create a good starting point for anyone looking for a way out of the wilderness of Fourth Amendment “privacy.”

Tags: 4th Amendment, constitution

As I have followed some of the lingering fallout from CPAC 2009, I have found myself spending a bit of time considering some of the stuff Rush said about putting principles before policy.  It should come as no surprise to anyone that I agree with that approach, as I began my own posting on this blog with an articulation of First Principles which I view as being important to the future of American conservatism.  Rush tells us that there is no need for anyone to redefine conservatism and complains that anyone who tries to redefine it is at best missing the mark, and at worst a destructive force.  While I’ll take no position on that debate, I am sure that there is a significant and growing population for which conservatism needs to be defined in the first place, and that some of those in the “redefinition” business are actually trying to figure out just what the actual definition is.

The essential hallmark of a true blooded conservative appears to be a deep belief in God and Ronald Reagan.  Conservative principles are Reagan’s principles, and those who would seek to deviate are frowned upon or ostracized.  For members of the current political class, for people like Rush, and for Baby Boomers in general, the invocation of Reagan’s name codes for a whole collection of principles and policies which set most or all of the entire definition of modern conservatism.  For these people, who lived through Reagan, the full set of principles is entirely clear, and perfectly summarized in speaking His name.

America has reached a point in time where people who have never known Reagan are beginning to become politically active.  Though they are only just now becoming politically active, the up and coming leaders and opponents of Reagan’s Party are people who were just starting elementary school when Reagan himself left office.  Their knowledge of Reagan comes not from bearing witness, but from teachers and textbooks.  To them, and to the liberals who have no incentive to correct any misunderstanding, he is the man of Iran-Contra, compassionate conservatism, and that silly trickle-down “Reaganomics” thing.  Oh, and the end of the Cold War.

These relatively useless bits of information are not helpful to an up and coming conservative when it comes to understanding conservative principles, particularly if that understanding is meant to make conservatism sound like a good thing.  To make matters worse, young conservatives and pretty much all liberals now define conservatism not in relation to Ronald Reagan, but to George W. Bush.  What Reagan actually stands for has been communicated very poorly from the elder to the coming generation, leaving younger conservatives to pretty much try to make it up as they go along.

Perhaps one upshot of the current squabbling will be an effort not so much to redefine conservatism, but for the people who already know the definition to spend some time filling the rest of us in.

As I was on the road to an appointment this morning, I happened to flip on the local talk radio station in my car.  The show that was on at the time was doing some sort of a call-in segment which included what at first sounded like a rather confused sounding businessman arguing with the radio show host.  As the argument went, the businessman was saying that the bank had foreclosed on his business mortgage even though he was making all of his payments, with the radio show host insisting that banks just don’t do that.  Since banks really don’t just do that, I figured that the guy had something else going on that he wasn’t telling anyone, and it wasn’t too disappointing when the host hung up on the guy.  When a second guy called in saying the same thing happened to him, the radio show host sat there confused, and I got to wondering what might make this make sense.  I think the answer lies in the time value of money.

To begin with, there was certainly nothing incorrect about the radio show host insisting that banks don’t foreclose mortgages against people who are making their payments even if they have the right to.  The way lending programs work, banks give you a lot of money right now, and profit when you pay it back with interest later.  To a bank, foreclosure is generally an outcome best avoided and most will go to considerable lengths to avoid foreclosing on a property.  The reason, quite simply, is that banks have very little desire to own real estate; it’s expensive to maintain, not easy to convert into another type of asset, laden with taxes, and bothersome to sell.  As a result, banks sell them for prices well below market rate in order to get them off the books quickly.  In the end, the owner is out the property and the bank suffers a substantial loss on the loan.  Since everyone loses in foreclosure, it seems as though it would be most irrational for banks to foreclose on companies which are making their payments.

However, what might make the move make sense is the time value of money.  A central axiom of finance is that a dollar today is worth more than a dollar tomorrow.  From the bank’s point of view, a mortgage is a series of promises that they will receive a dollar today, a dollar tomorrow, a dollar the day after that, and so on until the mortgage is paid off.  This is normally good for steady cash flow, but not so good for getting money right now.  With the economy still in crisis mode, banks have a strong desire to have cash available to them immediately, and one way to do that and to reduce their liabilities at the same time is to demand final payment on mortgages, foreclosing where necessary.

To understand why a bank would close out mortgages of well paying borrowers, it is only necessary to consider where else the banks might get money from.  Borrowers who aren’t making payments are probably in a financial position where they can’t afford to make payments, which means they certainly aren’t in a position to repay the mortgage in full.  Borrowers who are making payments and who have enough capital will likely find a way to repay or refinance the mortgage rather than suffer major damage to their credit rating, so the bank will get their money.  Borrowers who are making payments but do not have enough capital to cover the mortgage, borrowers like the call-in businessmen, get caught in foreclosure.  Banks could be gambling for money between the second and third class of borrower.

While I have no particular insight to know if my conclusion is correct, it does at least seem plausible that banks are making a money play to get some cash on hand today rather than waiting for it to trickle in on schedule later.  Banks do have a need for immediate cash and there is a class of borrower which can supply money after sufficient arm twisting.  It certainly appears to be a horrible business practice, but at least it might make sense.

Tags: economics

Politics is a dangerous subject. In its practice, we ask the people to, at best, surrender some of their liberty, and more often, vote to involuntarily deprive others of theirs.

For this reason, the chief qualification to practice politics should not be an interest in governance, but rather a love of liberty, even above peace and prosperity. By that definition, the most dangerous person to whom we can trust politics is as politician. Even successful businessmen are dangerous, in as much as their success requires them to have entirely more control than is safe.