College Campuses Are Not Gun-Free Zones

Wishing for something to be true does not make it true. Declaring an area to be gun-free is wishful thinking. We know campuses are not gun-free zones from the news reports of campus shootings.

Declaring an area to be a gun-free zone discourages law-abiding citizens from carrying guns there, but it encourages people who intend to commit crimes with firearms because it gives them some assurance they will not meet with armed resistance from law-abiding citizens.

Even the most dim-witted among us can surely see that such a declaration invites criminals to engage in firearm-related crimes in an area where they know law-abiding citizens will not shoot back. This could be mass shootings, robberies, rape, or any crime in which an armed criminal wants more assurance of having the upper hand. Criminals, by definition, do not obey the law.

Declaring an area to be a gun-free zone makes it more likely that a gun crime will occur there.

The argument in favor of declaring an area a gun-free zone is that despite the news reports, mass shootings and other gun crimes are relatively rare, and there is a bigger risk of accidental harm from the actions of law abiding citizens than from criminals. The benefit from preventing accidents by law-abiding citizens outweighs the increased risk of gun crimes that gun-free zones encourage.

The only reasonable argument in favor of gun-free zones is that the threat from armed law-abiding citizens is greater than from armed criminals.

Taxation and Wealth Redistribution as Lowbrow Morality

Peter is a wealthy man and has $1,000 in his wallet. He plans to use it for a variety of things—some groceries, taking his wife out to dinner, and buying some new golf clubs he’s been admiring.

Enter Paul. Paul thinks that Peter’s money could be put to better use, like helping low-income families get healthcare and putting children into preschool, among other things. As a result of his beliefs, Paul threatens Peter. Peter can “voluntarily donate” to these programs, but if he refuses, or doesn’t offer “enough” of his income, Paul will take Peter’s money anyway and hold him in captivity.

Would you consider this to be fair? Probably not. Just because Paul wants Peter to spend his money on certain honorable causes doesn’t mean that Paul has the right to take Peter’s money. Paul is stealing from Peter. He is violating Peter’s rights by stealing his property.

Most people would take issue with the above scenario. However, many people advocate this kind of activity everyday. Instead of just Paul and Peter, however, it’s Peter, Paul, and the government. Paul thinks Peter should spend his money in some particular way and Peter disagrees. Since Paul is not powerful enough to compel Peter to fork over his money for certain causes, he lobbies the government and votes to raise Peter’s tax rate.

“Peter is rich,” Paul says. “He’s in the top 20 percent of income earners! He should do his part to help his fellow man.”


Understanding the Climate Science Boom

tir_20_2_210Like an economy, a scientific discipline can undergo periods of boom and bust. Is climate science experiencing an unsustainable boom? Certainly its growth has been astounding. Over the past 20 years, the number of scientific papers related to “anthropogenic climate change” has increased twelve-fold, according to a search using Google Scholar. But whether or not climate science will ultimately suffer a bust may depend on the causes of its surge. While several factors have contributed, the role of Big Players—namely, the Intergovernmental Panel on Climate Change and various government agencies that dole out huge sums as research grants—has been critical. It also raises a red flag.

One reason is that a change in the priorities, funding, or prestige of Big Players can turn a boom into a bust. But another reason may yield greater cause for concern, William N. Butos and Thomas J. McQuade explain in the Fall 2015 issue of The Independent Review. Although large organizations that set the direction for scientific inquiry or business activity can conceivably accelerate progress, their tremendous size and influence—and the way they interact with social phenomena such as opportunism and ideology—distort the feedback loops that otherwise help make science and markets self-correcting processes.

Climate science may or may not be experiencing a bubble that will burst in the foreseeable future. But this uncertainty is beside the point. The major lesson, Butos and McQuade write, “is that in science, as in the economy, Big Players of any sort distort normal systemic activity, render the emergent outcomes unstable and unreliable, and create an ideal breeding ground for incentives that motivate ideologically biased people to circumvent normal constraints in the name of pursing a ‘greater good.’”

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[This post first appeared in the September 29, 2015, issue of The Lighthouse. To subscribe to this weekly newsletter, enter your email address on the Independent Institute’s sign-up page.]

Producer Price Index: Big Gap in Hospital Inpatient & Outpatient Prices

August’s Producer Price Index was flat, month on month, and dropped 0.8 percent, year on year, continuing the trend we saw in July. Producer prices for health goods and services are rising faster than other producer prices (see Table I).

Outside health care, goods for both final and intermediate demand declined from July. Although it has taken a while, it looks like prices increases for pharmaceutical preparations and their inputs are moderating significantly. Prices for medical devices are still growing faster than prices for final demand goods overall, but not dramatically so.

Producer prices for health services actually grew a little slower than prices of other services. What is interesting is the difference in the rate of inflation for hospital inpatient versus outpatient services. Outpatient prices are declining, while inpatient prices are rising, resulting in quite a gap.

I’d like to believe the outpatient prices are under pressure from ambulatory clinics. As for inpatient prices – well, this data gibes well with the Quarterly Services Survey, which showed an increase in hospital profits.

20150911 TI

Health Spending an Increasing Share of GDP

Last week’s third estimate of Gross Domestic Product for the second quarter confirms that growth in health spending might be moderating somewhat from its initial Obamacare-fueled rush. Unfortunately, it is not a clear break in the trend of health spending consuming an increasing share of our national income.

Current GDP grew $264.4 billion, or 1.5 percent, from Q1 (Table I). One-tenth of this growth, $25.2 billion, was health services. At this rate, health services grow in line with their share of GDP. However, if we look over the entire year since 2014, Q1, we note a trend that seems to be persisting, despite last quarter’s moderate growth (Table II). At $110.13, health services spending accounted for 17 percent of GDP growth over the four quarters. The rate of growth was 5.69 percent, in excess of current GDP growth.

The GDP estimates corroborate other estimates discussed in this blog that indicate health spending has resumed its upward trajectory.

Technical note: When I discuss health services in these quarterly GDP releases, I mean only health services. I do not include purchases of medical equipment, or facilities construction. While I include Medicare and Medicaid, I do not include Veterans Health Administration or other government benefits. So, these dollar figures undercount the amount of our economy consumed by the government-health complex.

(See: Measuring the Economy: A Primer on the GDP and the National Income and Product Accounts, Bureau of Economic Analysis, October 2014, pages 5-2 and 5-3; Micah B. Hartman, et al., “A Reconciliation of Health Care Expenditures in the National Health Expenditures Accounts and in Gross Domestic Product,” Research Spotlight, Survey of Current Business, September 2010, pages 42-52.)

20150929 GDP I

20150929 GDP II

Fossil Fuels Are the Lifeblood of Modern Civilization

TheMoralCaseForFossilFuelsWe don’t want to ‘save the planet’ from human beings; we want to improve the planet for human beings.” —Alex Epstein

I never thought I would encounter a book titled The Moral Case for Fossil Fuels. After all, in this day and age, it is the politically correct and fashionable trend for activists, media, politicians, and even the Pope to call upon each and every one of us to break our “addiction” to oil.

For as long as I can remember, my science classes from grade school through college carried some variation of the environmental message that warns of doom to future generations and our planet unless we embrace “sustainability” and drastically change our patterns of production and consumption. If we do not curb our usage of resource X and reduce humanity’s “impact” on the Earth, apocalyptic scenarios from overpopulation to reaching “peak oil” were bound to become reality.

But it’s now 2015, and the “population bombdid not go off. And by every indication, we are nowhere close to running out of petroleum anytime soon (largely thanks to the shale revolution). Perhaps most astoundingly, even as human populations have grown dramatically and increased their use of fossil fuels, the world has become a much better place. This is the message that Alex Epstein emphasizes in his well-written, persuasively argued book.


Employee Health Benefits on a Winning Streak?

Mercer, a leading firm of consulting actuaries, tells us that the cost of employee benefits in 2016 will grow slowly – a “winning streak”:

Early responses from a major Mercer survey still in the field show employers predicting that health benefit cost per employee will rise by 4.2% on average in 2016 (see Fig. 1) after they make planned changes such as raising deductibles or switching carriers.

One way employers have learned to keep cost growth low by increasing deductibles. We call this “consumer-driven health care” because when employees control a larger share of health dollars directly they will consume medical care more prudently. The next step is private exchanges, which give employees a wider choice of plans. These exchanges have reduced benefit costs.

However, we still have not cracked the problem that prices are formed by health plans and providers: Patients can increasingly react to prices, but they cannot participate in forming prices, like they do in normal markets. This might explain why there is no real reduction in growth of the cost of employee benefits, despite Mercer’s cheering a “winning streak.”

Indeed, even without the increase in deductibles – which have risen seven times faster than wages over the last ten years – the real growth in cost of health benefits is a little higher than it was a decade ago. This is clear in Mercer’s Figure 1. Current price inflation is zero, so the nominal cost growth of 4.2 percent is all real growth. In the mid-2000s, nominal cost growth was a 6.1 percent annually, but inflation was around 3 percent, indicating real growth of about 3 percent.

Overall, if the cost curve is bending at all, it is bending in the wrong direction.

20150924 Mercer

Hollywood Joins the Fossil Fuel Divestment Movement

ClimateDivestmentI published an op-ed in the Philadelphia Inquirer recently challenging the mindsets of student activists lobbying to force college administrators to purge coal and oil stocks from their investment portfolios.

Now, reportedly, but not surprisingly, Leonardo Di Caprio and a few other left-leaning Hollywood personalities are jumping on the divestment bandwagon. He, along with some like-minded individuals and organizations spearheaded by a shadowy special-interest group called “Divest Invest”, apparently believe (with fervent faith in “green” energy shared and perhaps envied by Pope Francis) that their actions will save the planet from destruction by greedy capitalists.

Insofar as today’s environmentalists adhere to a religion claiming humankind to be doomed unless something is done to lighten our collective carbon footprint, I may be on dangerous theological ground. But I am happy that Mr. DiCaprio is a least putting his money in his own proverbial mouth. Owing to the shale “fracking” revolution of the past decade, stocks in fossil fuel producers have fallen sharply. The divesters therefore stand to sustain capital losses on the equity shares they sell now or in the foreseeable future.

On the other hand, while climate-change believers see the environmental benefits of solar and wind farms once they are in place, they studiously ignore the rather substantial carbon footprints of manufacturing wind turbines and solar panel cells as well as of disposing of them at the ends of their useful lives.


Health Plan Deductibles Grew Seven Times Faster Than Wages

HealthInsThe Kaiser Family Foundation just released its 2015 Employer Benefits Survey:

Single and family premiums for employer-sponsored health insurance rose an average of 4 percent this year, continuing a decade-long period of moderate growth, according to the Kaiser Family Foundation/Health Research & Educational Trust (HRET) 2015 Employer Health Benefits Survey released today. Since 2005, premiums have grown an average of 5 percent each year, compared to 11 percent annually between 1999 and 2005.

The average annual premium for single coverage is $6,251, of which workers on average pay $1,071. The average family premium is $17,545, with workers on average contributing $4,955.

Since 2010, both the share of workers with deductibles and the size of those deductibles have increased sharply. These two trends together result in a 67 percent increase in deductibles since 2010, much faster than the rise in single premiums (24%) and about seven times the rise in workers’ wages (10%) and general inflation (9%).

“With deductibles rising so much faster than premiums and wages, it’s no surprise that consumers have not felt the slowdown in health spending,” Foundation President and CEO Drew Altman said.

I would state that a little differently: It is consumers who are causing some of the slowdown, because they are increasingly sensitive to health spending. So, the movement to faster growing deductibles and slower growing premiums as a good thing. However, I have to qualify that remark: There is still too much price-fixing conducted between health insurers and providers, and not enough price formation by consumers and providers directly.

I would also quibble with the way the lead author describes the effect of the Cadillac tax, a punitive excise tax Obamacare will begin to levy on employers with health plans valued above a threshold in 2018:

“Our survey finds most large employers are already planning for the Cadillac tax, with some already taking steps to minimize its impact in 2018,” said study lead author Gary Claxton, a Foundation vice president and director of the Health Care Marketplace Project. “Those changes likely will shift costs to workers, but exactly how and how much will vary for individual workers.”

Like premiums, the Cadillac tax will be entirely borne by workers. Whether it is passed on as a hike in premium or a reduction in wage growth is a secondary matter.

The Employer Benefits Survey, which the KFF has sponsored for many years, continues to be an important and excellent resource. The whole survey is worth reading.

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For the pivotal alternative to Obamacare, see A Better Choice: Healthcare Solutions for America, by John C. Goodman (Independent Institute, 2015).

Time for Bond Investors, Especially in Chicago, To “Know What You Own”

Four U.S. cities went belly up recently, and all declared bankruptcy due to unaffordable government pension costs. The outcomes of these bankruptcies should make everyone think twice about lending money to cities with serious public pension debts.

The graphic below shows the outcome of the municipal bankruptcies in Vallejo, Detroit, Stockton, and San Bernardino, respectively.


Source: The graphic appeared in an excellent article on the status of public pensions in the United States by Ellie Ismailidou of MarketWatch titled “The Next Greece May Be In The U.S.

In Vallejo, Stockton, and San Bernardino (pending), the “plan of adjustment” left pension benefits intact. Pensioners were spared a haircut or even a slight trim.

Detroit was the exception. Motor City pensioners will take an 18 percent hit to their total benefits. This outcome should be worrisome to any current or future government retiree of a U.S. city with financial problems. But this 18 percent reduction is small change compared to the hurt inflicted on bondholders, who contested vigorously the final plans.

In Vallejo, bondholders were clipped 40 percent, while Stockton investors took a 59 percent hit. Detroit bond investors lost 88 percent of their holdings, while San Bernardino investors will likely be wiped out in the final agreement.

In Stockton’s bankruptcy, Franklin Templeton lost 59 percent of its holdings. In San Bernardino, Ambac Assurance Corp. and EEPK will likely lose 99 percent of their holdings.

Now let’s turn to Chicago, the nation’s third-largest city. On May 12, Moody’s Investors Service downgraded Chicago’s credit rating to junk status, making it the only major city to carry a junk bond rating from Moody’s. The downgrade applies to $8.9 billion of outstanding city debt, almost all of it general obligation bonds.

In June, Chicago Public Schools (also downgraded by Moody’s) said it will borrow $1 billion to make a $688 million payment to the teachers’ pension plan. The Chicago Public School Teachers’ Pension and Retirement Fund is underfunded by $10 billion. Chicago’s six public pension plans are collectively only 40 percent funded with a combined unfunded liability of $30 billion. The public pension plans in Chicago would likely collapse if not for infusions of money from bond investors.

In its May 12 downgrade announcement, Moody’s said that it expected:

Chicago’s credit quality will weaken as unfunded liabilities of the Municipal, Laborer, Police, and Fire pension plans grow and exert increased pressure on the city’s operating budget. In the near term, Chicago’s administration must comply with a 179 percent contribution increase to its Police and Fire pension plans in 2016.

To shore up police and fire pension funds, Chicago Mayor Rahm Emanuel is now proposing “the largest city property tax increase in modern history,” according to the Chicago Tribune. But there is no guarantee the Illinois state legislature will approve the tax hike.

Given all we know, I don’t want to hear a single complaint from a bondholder—not a peep—after they get burned in the next Chicago fire: a financial meltdown of historic proportions. Everyone should now know the rule: You lose your principal if you lend money to a city whose finances implode because of overwhelming public pension costs. The old chestnut applies: “Know what you own.”