The Independent Institute


Cubs Fans Swing and Miss on Understanding Basic Economics

48265965_MLCubs fans, rejoice! This may be the year you can finally stop blaming a goat for all your problems and win a World Series.

Without a doubt, sports are a goldmine of economic topics. With the popularity of books and movies like Moneyball: The Art of Winning and Unfair Game, many people have been exposed to how the logic and mathematical tools of economics are readily applied to sports. In my honors principles classes, I ask my students to write op-eds of their choosing, with the condition that they apply the economic way of thinking to their topics. Without fail, at least one paper turned in will be about baseball, basketball, soccer, or football.

The most recent World Series is bringing up a different type of economic problem, however. It’s reported that bars near Wrigley Field are charging some $250 per person just to get inside to watch the Cubs play in the World Series. These prices include drinks and a buffet, but not a seat. A chair is an additional charge.

The Federal Budget in Plain English

According to the President’s Office of Management and Budget, the 2016 federal budget looks like this (p. 115):

The 2016 Federal Budget  
National debt held by the public $14,129,000,000,000
Total national debt $19,765,000,000,000

Now let’s pretend this is a household budget by removing eight zeros:

The Family Budget 
Annual family income$33,360
Annual family spending$39,510
New debt on the credit card$6,150
Outstanding balance on the credit card$141,290
Money owed to credit card and relatives$197,650

Clearly, this family is financially irresponsible, as rising debt and debt-service costs consume the family budget. To continue the analogy with the federal government, a large portion of the credit-card debt is from charging current consumption to the card, including groceries. This is reckless financially and changes need to happen immediately. The same is true for the federal government.

In a recent New York Times commentary titled “Ignoring the Debt Problem,” Paul A. Volcker, former chairman of the Federal Reserve, and Peter G. Peterson, former secretary of commerce, said:

Delaying action now will make the needed changes only more painful and difficult later on, while also increasing the risk of financial crisis before the reforms are even made. That is why the real debate should begin immediately.

Yet at the final presidential debate, both candidates missed the opportunity to clearly lay out their visions for a fiscally responsible, long-term future for our country. There’s still time to solve this problem. But our next president needs to show leadership in the first months.

At our age, neither of us will personally suffer from a failure to act. It is those with long lives ahead—grandchildren and great-grandchildren—who deserve the benefit of prospering in a nation with sound finances.

Take some advice from two observers who have been around for a while: The long term gets here before you know it.

Say What?! Global Charity Rejects Free Vaccines

42685883 - vaccination, syringe, medicine.Doctors Without Borders /Médecins Sans Frontières (MSF) has decided to reject a donation of one million doses of pneumonia vaccine from Pfizer, Inc. The global health charity’s convoluted reasoning goes like this:

There is No Such Thing as “Free” Vaccines

Pneumonia claims the lives of nearly one million kids each year, making it the world’s deadliest disease among children. Although there’s a vaccine to prevent this disease, it’s too expensive for many developing countries and humanitarian organizations, such as ours, to afford.

Free is not always better. Donations often involve numerous conditions and strings attached, including restrictions on which patient populations and what geographic areas are allowed to receive the benefits.

Critically, donation offers can disappear as quickly as they come. The donor has ultimate control over when and how they choose to give their products away, risking interruption of programs should the company decide it’s no longer to their advantage.

This remarkable document goes on to praise GSK, a competitor of Pfizer’s, for having declined to offer pneumonia vaccines for free, but instead offer them for $3.05 per dose to all humanitarian organizations. I don’t know about you, but I will take free over three bucks any day.

Obamacare Premiums to Increase 25 Percent

55162849 - health insurance assurnace medical risk safety conceptEven I did not think it would be this bad: The Obama administration has confessed that the average 2017 Obamacare premium hike for the benchmark (second-lowest-cost) Silver plan will be 25 percent. (Back in June, it looked like the hike would be 16 percent.)

Don’t worry, says the administration, tax credits will ensure that beneficiaries pay only a fraction of their premiums. It is true that very few people would buy Obamacare plans without the tax credits, the administration cheers. In reality, however, that is not a sign the plans are “affordable”; it’s only a sign that taxpayers are bearing more of the burden.

When the Affordable Care Act was passed in 2010, the Congressional Budget Office estimated that 23 million people would get coverage from the exchanges in 2017, subsidized by $75 billion of tax credits. That’s an average tax credit of about $3,260 per person (including those who receive no tax credit).

Trump and Clinton Are Both (Partly) Right on Economics

Neither of the major party presidential candidates is a font of economic wisdom. However, if you look hard enough, you can find a glimmer of truth in some of their rhetoric. In this post I’ll analyze two of the issues raised by the candidates, showing how each contained some truth but also confusion.

Economic Growth

At one point during the third presidential debate, Trump said he just left “some high representatives in India,” and that that country was growing at 8 percent, while China was growing at 7 percent, which for them (he claimed) was “a catastrophically low number.” In contrast, the United States economy has only been growing at “around the 1 percent level.”

Now on Twitter and other online forums, economists roundly mocked Trump for being unaware of the concept of economic “convergence,” in which standard models predict that poorer countries grow faster than rich countries. The economists’ critique is valid as far as it goes: Trump seemed to be claiming that India and China are growing faster than America merely because they enjoy better government policies, and not because they are starting from a lower level of per capita real income.

Whether You Know It or Not, You Are a Tax Slave

2658137 - checking money in wallet. white background. shallow dof.In the antebellum South, it was not uncommon for slaves to rent themselves from their masters. As a young man, Frederick Douglass did so, for example. His owner gave him leave to go out on his own, to find employment where he could, and to pocket the pay he received for such work, except that each month he had to pay his master a fixed sum for his freedom. Douglass worked in the shipyards of Baltimore, caulking ships. Aside from his rental payment for his own body, he lived as he wished, subject to his income constraint. He found his own housing, acquired his own food and clothing, and so forth, just as a free wage worker would have done.

It strikes me that this practice has much in common with the situation in which an ordinary private person finds himself in any modern country today. The person is in general at liberty to arrange his own employment, spend his earnings as he pleases, acquire his own food and housing, and so on, except that he must pay a rental for this personal liberty, which takes the form of a portion of his earnings that must be paid to the various governments that collect income and employment taxes in the jurisdiction.

Lest you imagine that this likening is hyperbolic, consider what happens to someone who resolutely refuses to pay the governments the rental payment for his body. He is subjected to a series of enforcement actions, culminating—if he resists at every step—in his being hauled off to jail and having his personal property seized to satisfy the governments’ demands. Thus, he loses both his property and his personal liberty.

People imagine that they own themselves and that they are free. But don’t tell that tale to the tax men. They know who really owns you.

Everybody Gets a Medal: Performance “Incentives” in Medicare Reform

33919068 - doctor typing on a computer keyboard at officeIn April 2015, huge bipartisan majorities passed a milestone Medicare reform bill called MACRA (Medicare Access and CHIP Reauthorization Act), which imported all the worst elements of Obamacare into Medicare. At the time, I wrote a series of posts (culminating in this one), which anticipated that physicians would refuse to swallow the medicine MACRA prescribed.

Currently, most Medicare payments to physicians are based on activities doctors perform. For example, if a doctor checks your Body Mass Index and records it in your file, he can submit a claim for that. However, these activities alone do not necessarily make patients healthy. MACRA attempts to change this by paying doctors for improving patients’ health status, rather than just performing a bunch of activities. Doctors who score poorly on MACRA’s value measurements are supposed to be penalized financially and those who score high are supposed to be rewarded.

Since the bill was signed, the details have percolated from the elite physician executives who run the medical societies that lobbied for the bill down to practicing physicians. There has been pushback.

Easterly, Buchanan, Hayek, and Economic Development

48791353_ML (1)When I was an undergraduate student, the vast majority of my readings came from textbooks. For several years I looked at supply and demand graphs, calculated unemployment rates and elasticities, and answered questions about how changes in particular variables would impact inflation and economic growth according to various models.

During my senior year, however, our economic research class was assigned two “popular press” books by well-known economists. The topic of the course that semester was economic development. I’m forever grateful for those book assignments.

One of these books I have, and will probably always keep, in my office. Occasionally, I look back at the highlights I made and the questions I wrote in the margins what seems like a lifetime ago. Some of the questions I’ve since been able to answer. Others are still a mystery to me. I frequently recommend this book to students interested in economic development.

Bureaucratic Insolence at the Border: Five Haiku

49949787_MLSyrian Christians

Must not enter US church

Might be terrorists

Computer whizzes

From India and China

H-1B required

Parents in Thailand

Sorry Charlie, no quota

State before mother

Good friends in Iran

Stay away you mad bombers

US picks my friends

Who chooses for me?

Bureaucrats in Washington

Arrogant “experts”

Why Aren’t Consumer-Driven Health Plans More Popular?

51173645_MLIn a recent post I discussed new evidence that so-called consumer-driven health plans (CDHPs) reduce health spending one-eighth among employer-sponsored group plans run by national health insurance companies.

CHDPs are defined as High-Deductible Health Plans coupled with Health Savings Accounts (or Health Reimbursement Arrangements). These plans became available in 2005. However, they appear to cover only a little over one-quarter of employed people or their dependents who are enrolled in their benefits.

The case for CDHPs is that consumers (patients) will spend their health dollars more prudently than insurers or employers will. So: Why is such a small proportion of people enrolled in CDHPs despite over a decade of evidence supporting the case that they cut the growth rate of health spending?