The Independent Institute


Note to Brazil’s Embattled President: It’s Time to Go

51660345_MLA technical committee of the Chamber of Deputies has voted to recommend the impeachment of Brazilian President Dilma Rousseff. If two-thirds of the lower house of Congress vote to impeach her, her fate will rest with the Senate, where a simple majority will certainly accept the case. During the process, Rousseff will be suspended and replaced by her Vice President and political foe, Michel Temer, until a final decision is reached.

A “fin de siècle” atmosphere has pervaded Brazil as the country has descended into the moral abyss of Operation Car Wash, the corruption case that has engulfed the political class and the business community. This process has coincided with the collapse of the populist, statist socioeconomic model that has dominated the country under the Workers’ Party for a decade and a half, first under Lula da Silva and then under Rousseff.

Although Rousseff was the head of Petrobras, the state-owned oil giant, when most of the graft took place, Operation Car Wash, a vast scheme of bribes exchanged for succulent public work contracts primarily related to that entity, has so far failed to produce evidence that she was personally involved. There is little doubt, however, that she turned a blind eye when the evidence of what was happening surfaced and that she has tried to protect some of those involved, including former president Lula, who is now largely running her government.

DOD vs. CIA: Syria Edition

18234409_MLFile this under the category of “I told you so.”

In 2014, I wrote a piece on the idea of arming “moderate” Syrian rebels. The threat posed by the Islamic State, known also as ISIL or Deash, led many in Congress and President Obama to call for hundreds of millions of dollars to assist rebel forces.

I argued this was far from a good idea. I pointed out that the U.S. government has a track record of gifting weapons to those fighting those entities considered “unfriendly” to U.S. interests. Between 1970 and 1979, for example, the U.S. government sent some $74 billion in weapons abroad. Fueled by Cold War tensions, similar trades took place up until the early 1990s. Although the USSR collapsed and communism is no longer considered the predominant threat, the trend of giving arms to groups has continued ever since.

The idea behind such transfers is straightforward, by equipping those sympathetic to U.S. interests with weapons, the government hopes to defeat their opposition while decreasing or eliminating the “need” for U.S. troops.

While this may sound all well and good, the reality is not nearly as simply. I argued that these plans are doomed to fail. Put simply, these plans assume that the U.S. government can identify a problem, construct a solution, and effectively implement it. It neglects the fact that any intervention abroad involves operating in a highly complex system. Success requires an intimate knowledge of politics, economics, and religion, among other things. Moreover, any foreign intervention impacts hundreds of thousands, if not millions of people. It is absolutely impossible to know ex ante how these actors will react to a new policy, and how their reactions will cause other changes. This often results in positively disastrous consequences.

California’s High-Speed Rail Authority Wins Dishonor of the California Golden Fleece Award


The California High-Speed Rail Authority (CHSRA) has won the Independent Institute’s first California Golden Fleece Award for its lack of transparency and history of misleading the public about key details of the state’s “bullet-train” project, which no longer reflect what voters approved in 2008.

The agency’s “bait-and-switch” strategy justifies a statewide vote on whether or not to proceed with the train system. Californians should reject this unnecessary and expensive boondoggle.


Artist's Rendering of CA high speed rail

Artist’s rendering of California’s high speed rail

In November 2008, California voters approved Proposition 1A, a $9.95 billion bond measure authorizing construction of a high-speed “bullet train” between downtown San Francisco and the greater Los Angeles area. The vote was 53 percent in favor and 47 percent opposed. The ballot measure contained key details regarding the project’s cost, dedicated tracks, trip time, and financing plan. Many of these details have been changed repeatedly since 2008.

The Cost: A Moving Target

Before the 2008 vote on the bond measure, the California High-Speed Rail Authority said: “The total cost to develop and construct the entire high-speed train system would be about $45 billion.” Proposition 1A also promised voters that the train system would operate without taxpayer subsidies: “The planned passenger service by the authority in the corridor or usable segment thereof will not require a local, state, or federal operating subsidy.” Soon after voters approved the project, however, cost projections escalated.

Obamacare’s Unintended Consequences: People Buy Short-Term Policies

30216439_MLObamacare has driven individual health insurance premiums up so high that people are forgoing comprehensive health coverage in favor of short-term policies, according to the Wall Street Journal:

Robin Herman, the 34-year-old owner of a marketing firm in San Francisco, bought a short-term policy in December. The monthly cost of her short-term coverage, plus conventional ACA-compliant plans for her two children, is roughly one-quarter of what she would have paid for conventional health plans covering all three of them, she says.

“This is saving me a ton of money for the year,” she said, despite the penalty. Plans that comply with the health law’s rules cost more than her old pre-ACA policy and are “just not affordable,” she said.

(Anna Wilde Mathews,” Sales of Short-Term Health Policies Surge,” Wall Street Journal, April 10, 2016.)

Sales of these policies have doubled or more since 2014, according to sources cited by Ms. Mathews. This surely feeds into the problem that Obamacare enrollees are sicker than expected: The healthy candidates are choosing these policies.

Because these policies are underwritten for pre-existing conditions, the healthy can buy them. However, when the term is up, they are underwritten again. This is very perverse. Imagine if your term life insurance policy lasted only one year, after which you were underwritten again. If you had a heart attack, for example, your premium would jump dramatically next year, such that you could not afford it. The whole point of the term life insurance would be defeated!

Guard Your Liberty

By Christopher J. Coyne and Abigail R. Hall Blanco

30064649_MLOne of the greatest threats to freedom is indifference by those who possess it. In the aftermath of shootings, terror attacks, wars, and other unsettling geopolitical events, the political elite frequently confronts citizens with a supposed tradeoff between liberty and “safety”. Citizens are told that government can protect them, but only if they relinquish some of their freedoms and liberties to government.

The period following the September 11 attacks on the United States is only the latest illustration of this dynamic. The scope of government power has increased on a variety of margins including surveillance, detainment, and the transnational drone war that includes extrajudicial killing. For many, the supposed security-liberty tradeoff is an easy choice. We have all heard someone say, “I have nothing to hide,” implying they have nothing to fear from expanded government intrusions into their lives.

This reasoning is wrongheaded on a number of margins. Perhaps the most important is that it poses a significant threat to the maintenance of individual liberties and freedoms, which proponents of increased government security purport to protect. As Nobel Laureate F.A. Hayek argued, in times of national emergency, principles must trump political expediency. The temptation to respond quickly, Hayek warned, risks undermining the very principles of a free society that government policies purport to protect.

The preservation of a free system is so difficult precisely because it requires a constant rejection of measure which appear to be required to secure particular results, on no stronger grounds than that they conflict with a general rule [a steadfast commitment to individual liberty], and frequently without our knowing what will be the costs of not observing the rule in the particular instance.

Chicken and Egg in Consumer-Driven Health Care

17728847_MLAn advocate of consumer-driven health care will often be challenged by this question: “So, when I am hit by a bus, or have a heart attack or stroke, or am suffering from dementia, you want me to go shopping around for medical care?”

Obviously not. Nevertheless, this is a serious challenge and invites the question: How much of our health spending can be meaningfully controlled by discriminating patients? Researchers at the Health Care Cost Institute (HCCI) recently addressed this. The HCCI has a unique advantage in producing such research, because it has access to a database of claims for employer-based plans run by a number of insurers.

The research categorized “shoppable” versus “non-shoppable” services. It found:

  • At most, 43 percent of the $524.2 billion spent on health care by individuals with employer-sponsored insurance in 2011 was spent on shoppable services.
  • About 15 percent of total spending in 2011 was spent by consumers out-of-pocket.
  • $37.7 billion (7 percent of total spending) of the out-of-pocket spending in 2011 was on shoppable services.

Medicare Pays for Prevention – For the First Time

17463088_MLThe Centers for Medicare & Medicare Services has announced that Medicare (that is, taxpayers) will pay for lifestyle-intervention program that prevents type 2 diabetes:

In 2011, through funding provided by the Affordable Care Act, CMS awarded the National Council of Young Men’s Christian Associations of the United States of America (Y-USA) more than $11.8 million to enroll eligible Medicare beneficiaries at high risk for diabetes in a program that could decrease their risk for developing serious diabetes-related illnesses. Beneficiaries in the program attended weekly meetings with a lifestyle coach who trained participants in strategies for long-term dietary change, increased physical activity, and behavior changes to control their weight and decrease their risk of type 2 diabetes. After the initial weekly training sessions, participants could attend monthly follow-up meetings to help maintain healthy behaviors. The main goal of the program was to improve participants’ health through improved nutrition and physical activity, targeting at least a five percent weight loss for each individual.

The results of the Diabetes Prevention Program model are striking:

  • Medicare beneficiaries enrolled in the program lost about five percent of their body weight, which is enough to substantially reduce the risk of future diabetes. Average weight loss was 4.73 percent of body weight for participants attending at least four weekly sessions. Participants who attended at least nine weekly sessions lost an average of 5.17 percent of their body weight.
  • Over 80 percent of participants recruited attended at least four weekly sessions.
  • When compared with similar beneficiaries not it the program, Medicare estimated savings of $2,650 for each enrollee in the Diabetes Prevention Program over a 15-month period, more than enough to cover the cost of the program.

Statism—the Broken Window Fallacy Writ Large

broken_window_MLThe success to date of Bernie Sanders’s campaign for the Democratic presidential nomination and the visible support for socialism on display among the U.S. public, especially among young adults, demonstrate once again the enduring vitality of economic nonsense and ideological folly. (Please note, however, that the foregoing statement should in no way be understood as an endorsement of anyone else seeking a major party’s presidential nomination. Every serious contender is a statist of some stripe.)

If sincere (as opposed to purely opportunistic) statism is anything, it is Frederic Bastiat’s broken window fallacy writ large. The visible accomplishments of the state are hailed to the heavens, but the opportunity costs of these accomplishments are ignored or pooh-poohed (e.g., taxes reaped from “the rich” are regarded not as genuine costs but as payback for the exploitation they allegedly used to get their wealth in the first place).

Statists, however, not only avert their eyes from opportunity costs in the form of sacrificed current goods and services. More important, they act as if their glorious state projects have no adverse dynamic consequences, including discouragement and suppression of technological changes, economic innovations, and capital investments that might otherwise have produced more rapid economic growth and a widely shared improvement in the standard of living. For the statist, tunnel vision focused on the state’s current, visible benefits is the only vision that counts. Such an optical deficiency well nigh guarantees that statism will produce destitution and ruin in the long run, as it has everywhere it has been pushed to its feasible limits (e.g., the Soviet Union, Maoist China, North Korea, Cuba and, most recently, Venezuela), regardless of the propaganda and coercion the state employs to obfuscate and deflect blame for what it has done.

Like Lord Keynes, statists do not stop to weigh opportunity costs especially when those costs take the form of sacrificed goods and services in the more remote future, when presumably all the statists will be dead. The trouble is that as one generation of statists dies off, another comes along to take its place. The childish wishful thinking of getting something for nothing seems impossible to discredit successfully among a large segment of the public.

Reconsidering “Must Vote” Arguments

9445484_MLAs Americans move closer to November’s elections, the campaigns are gearing up to tell each of us how important it is to vote. One illustration is a recent Michael Barone article titled “A very few votes can make a big, big difference.”

Barone makes his point by citing several close elections. Most prominent was George W. Bush’s election win due to a 537-vote margin in Florida. He also offered several other examples, focusing on the current primary season, where vote differentials as small as 1,148 made a difference.

Unfortunately, when the closest election cited was decided by more than 500 votes, Barone’s conclusion that “a few votes can make a big difference” does not support the conclusion that your individual choice of whether to vote or who to vote for makes a big difference. In fact, it implies that your vote will make no difference in the outcome. The results will be the same, whether you voted for the winner, a loser, or no one. And that has some important implications.

It means that many of the “get out the vote” arguments American hear every four years are invalid.

“If you don’t vote, you don’t have a voice in government”: This claim is falsified by the fact that even casting your vote won’t give you an effective voice in government.

Blue Cross Blue Shield Confirms Obamacare Death Spiral

16494121_MLThe Blue Cross and Blue Shield Association, which represents 36 Blue Cross and Blue Shield plans covering 105 million Americans, has just released a study of its members’ claims data in Obamacare exchanges 2014 and 2015. It confirms that Obamacare exchange enrollees are sicker and more expensive than enrollees in pre-Obamacare individual plans or employer-based plans. Here I quote four of the study’s findings:

  • Members who newly enrolled in BCBS individual health plans in 2014 and 2015 have higher rates of certain diseases such as hypertension, diabetes, depression, coronary artery disease, human immunodeficiency virus (HIV) and Hepatitis C than individuals who had BCBS individual coverage prior to health-care reform.
  • Consumers who newly enrolled in BCBS individual health plans in 2014 and 2015 received significantly more medical care, on average, than those with BCBS individual plans prior to 2014 who maintained BCBS individual health coverage into 2015, as well as those with BCBS employer-based group health insurance.
  • The new enrollees used more medical services across all sites of care—including inpatient admissions, outpatient visits, medical professional services, prescriptions filled and emergency room visits.
  • Medical costs of care for the new individual market members were, on average, 19 percent higher than employer-based group members in 2014 and 22 percent higher in 2015. For example, the average monthly medical spending per member was $559 for individual enrollees versus $457 for group members in 2015.