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Quartz #45—>Actually, There Was Some Real Policy in Obama’s Speech

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Link to the Column on Quartz

Here is the full text of my 45th Quartz column, “Actually, there was some real policy in Obama’s speech,” now brought home to supplysideliberal.com. It was first published on January 29, 2014. Links to all my other columns can be found here.

If you want to mirror the content of this post on another site, that is possible for a limited time if you read the legal notice at this link and include both a link to the original Quartz column and the following copyright notice:

© January 29, 2014: Miles Kimball, as first published on Quartz. Used by permission according to a temporary nonexclusive license expiring June 30, 2015. All rights reserved.

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In National Review Online, Ramesh Ponnuru described last night’s State of the Union speech as “… a laundry list of mostly dinky initiatives, and as such a return to Clinton’s style of State of the Union addresses.” I agree with the comparison to Bill Clinton’s appeal to the country’s political center, but Ponnuru’s dismissal of the new initiatives the president mentioned as “dinky” is short-sighted.

In the storm and fury of the political gridiron, the thing to watch is where the line of scrimmage is. And it is precisely initiatives that seem “dinky” because they might have bipartisan support that best show where the political and policy consensus is moving. Here are the hints I gleaned from the text of the State of the Union that policy and politics might be moving in a helpful direction.

  • The president invoked Michelle Obama’s campaign against childhood obesity as something uncontroversial. But this is actually part of what could be a big shift toward viewing obesity to an important degree as a social problem to be addressed as communities instead of solely as a personal problem.
  • The president pushed greater funding for basic research, saying: “Congress should undo the damage done by last year’s cuts to basic research so we can unleash the next great American discovery.” Although neither party has ever been against support for basic research, budget pressures often get in the way. And limits on the length of State of the Union addresses very often mean that science only gets mentioned when it touches on political bones of contention such as stem-cell research or global warming. So it matters that support for basic research got this level of prominence in the State of the Union address. In the long run, more funding for the basic research could have a much greater effect on economic growth than most of the other economic  policies debated in Congress.

  • The president had kind words for natural gas and among “renewables” only mentions solar energy. This marks a shift toward a vision of coping with global warming that can actually work: Noah Smith’s vision of using natural gas while we phase out coal and improving solar power until solar power finally replaces most natural gas use as well. It is wishful thinking to think that other forms of renewable energy such as wind power will ever take care of a much bigger share of our energy needs than they do now, but solar power is a different matter entirely. Ramez Naam’s Scientific American blog post “Smaller, cheaper, faster: Does Moore’s law apply to solar cells“ says it all. (Don’t miss his most striking graph, the sixth one in the post.)
  • The president emphasized the economic benefits of immigration. I wish he would go even further, as I urged immediately after his reelection in my column, “Obama could really help the US economy by pushing for more legal immigration.” The key thing is to emphasize increasing legal immigration, in a way designed to maximally help our economy. If the rate of legal immigration is raised enough, then the issue of “amnesty” for undocumented immigrants doesn’t have to be raised: if the line is moving fast enough, it is more reasonable to ask those here against our laws to go to the back of the line. The other way to help politically detoxify many immigration issues is to reduce the short-run partisan impact of more legal immigration by agreeing that while it will be much easier to become a permanent legal resident,citizenship with its attendant voting rights and consequent responsibility to help steer our nation in the right direction is something that comes after many years of living in America and absorbing American values. Indeed, I think it would be perfectly reasonable to stipulate that it should take 18 years after getting a green card before becoming a citizen and getting the right to vote—just as it takes 18 years after being born in America to have the right to vote.

  • With his push for pre-kindergarten education at one end and expanded access to community colleges at the other end, Obama has recognized that we need to increase the quantity as well as the quality of education in America. This is all well and good, but these initiatives are focusing on the most costly ways of increasing the quantity of education. The truly cost-effective way of delivering more education is to expand the school day and school year. (I lay out how to do this within existing school budgets in “Magic Ingredient 1: More K-12 School.”)
  • Finally, the president promises to create new forms of retirement savings accounts (the one idea that Ramesh Ponnuru thought was promising in the State of the Union speech). Though this specific initiative is only a baby step, the idea that we should work toward making it easier from a paperwork point of view for people to start saving for retirement than to not start saving for retirement is an idea whose time has come. And it is much more important than people realize. In a way that takes some serious economic theory to explain, increasing the saving rate by making it administratively easier to start saving effects not only people’s financial security during retirement, but also aids American competitiveness internationally, by making it possible to invest out of American saving instead of having to invest out of China’s saving.

Put together, the things that Barack Obama thought were relatively uncontroversial to propose in his State of the Union speech give me hope that key aspects of US economic policy might be moving in a positive direction, even while other aspects of economic policy stay sadly mired in partisan brawls. I am an optimist about our nation’s future because I believe that, in fits and starts, good ideas that are not too strongly identified with one party or the other tend to make their way into policy eventually. Political combat is noisy, while political cooperation is quiet. But quiet progress counts for a lot. And glimmers of hope are better than having no hope at all.

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John Cochrane: What Free-Market Medical Care Would Look Like

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Link to ungated copy of “What to Do When Obamacare Unravels” on John Cochrane’s website “The Grumpy Economist”

I love John Cochrane’s health care proposal in the December 26, 2013 Wall Street Journal op-ed "What to Do When Obamacare Unravels"  (ungated on John’s blog).  It should work very well, and to the extent it is imperfect, experimenting with John Cochrane’s proposal would teach us a lot more about health care delivery than the Obamacare experiment will. 

My favorite passage is this:

No other country has a free health market, you may object. The rest of the world is closer to single payer, and spends less.

Sure. We can have a single government-run airline too. We can ban FedEx and UPS, and have a single-payer post office. We can have government-run telephones and TV. Thirty years ago every other country had all of these, and worthies said that markets couldn’t work for travel, package delivery, the “natural monopoly” of telephones and TV. Until we tried it. That the rest of the world spends less just shows how dysfunctional our current system is, not how a free market would work.

I wish I had written "What to Do When Obamacare Unravels.” I have some hopes that what I did write, "Don’t Believe Anyone Who Claims to Understand the Economics of Obamacare," is still worth reading as a companion article to what John says.

Update: There is a very interesting discussion of this post on my Facebook wall. 

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Quartz #33—>Don’t Believe Anyone Who Claims to Understand the Economics of Obamacare

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Link to the Column on Quartz

Here is the full text of my 33d Quartz column “Don’t believe anyone who claims to understand the economics of Obamacare,” now brought home to supplysideliberal.com. It was first published on October 3, 2013. Links to all my other columns can be found here.

If you want to mirror the content of this post on another site, that is possible for a limited time if you read the legal notice at this link and include both a link to the original Quartz column and the following copyright notice:

© October 3, 2013: Miles Kimball, as first published on Quartz. Used by permission according to a temporary nonexclusive license expiring June 30, 2015. All rights reserved.

Below, after the text of the column as it appeared in Quartz, I have the original introduction, and some reactions to the column.  

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Republican hatred of Obamacare and Democratic support for Obamacare have shut down the US government. Now might be a good time to remind the world just how far the country’s health care sector—with or without Obamacare—is from being the kind of classical free market Adam Smith was describing when he talked about the beneficent “invisible hand”  of the free market. There are at least five big departures of our health care system from a classical free market:

1. Health care is complex, and its outcomes often cannot be seen until years later, when many other confounding forces have intervened.  So the assumption that people are typically well informed—or as well informed as their health care providers—is sadly false. (And the difficulties that juries have in understanding medicine create opportunities for lawyers to get large judgments for plaintiffs in malpractice suits.)

2. Even aside from the desire to cure contagious diseases before they spread, people care not only about their own health and the health of their families, but also the health of strangers. On average, it makes people feel worse to see others suffering from sickness than to see others suffering from aspects of poverty unrelated to sickness.

3. “Scope of practice” laws put severe restrictions on what health care workers can do. For example, there are many routine things that nurses could do just as well as a general practitioner, but are not allowed to do because they are not doctors–and the paths to becoming a “medical doctor” are strictly controlled.

4. Those who have insurance pay only a small fraction of the cost of the medical procedures they get, leading them to agree to many expensive medical procedures even in cases where the benefit is likely to be small.

5. In order to spur research into new drugs, the government gives temporary monopolies on the production of life-saving drugs—a.k.a. patents—that push the price of those drugs far above the actual cost of production. 

Sometimes these departures from a classical free market cancel each other out, as when insurance firms shield patients from the official price of a drug and make the cost of that drug to the patient close to the social cost of producing it, or when laws prevent outright quacks from performing brain surgery on an ill-informed patient. But one way or another, there is no obvious “free market” anywhere in sight. That doesn’t mean that the economic reasoning behind the virtues of the free market doesn’t help, it just means that when we think about health care policy, we swim in deep water.

At the level of overall health care systems, one of the most important things we know is that many other countries seem to get reasonably good health care outcomes while spending much less money than we do in the US. There are several factors that might contribute to relatively good health results in other countries:

•   There are large gains in health from making sure that everyone in society gets very basic medical care on a basis more regular than emergency room visits.

•   Most other countries have less of a devotion to fast food—and food from grocery store shelves that is processed to taste as good as possible (in the sense of “can’t eat just one”) without regard to overall actual (as opposed to advertising-driven) health properties.

•   Most other countries are either poor enough, or rely enough on public transportation, that people are forced to walk or ride bicycles significant distances to get to where they need to go every day.

Part of the recipe for spending less in other countries is the fact that they can cheaply copy drugs and medical techniques developed in the US at great expense, But, there are two simple ingredients to the recipe beyond that:

•   Ration procedures that don’t seem very effective (inevitably along with some inappropriate rationing as well)

•   Use the fact that most of the money for health care runs through the government as leverage to push down the pay of doctors and other health care workers.

My main concern about Obamacare is the fear that it will inhibit experimentation with different ways of organizing health care at the state level. So far that is only a fear, but it is something to watch for. But there is one way in which state-level approaches are severely limited: they can’t push down the pay of doctors and other health care workers without causing an exodus of doctors and other health care workers to other states. National health care reform can be more powerful than state-level health care reform if a key aim, stated or not, is to reduce the pay of doctors and other health care workers (and workers in closely connected fields, such as those who work in insurance companies) in order to make medical care cheaper for everyone else. Fewer stars would go into medicine if it paid less—but if most of the benefits from health care are from basic care, that might not show up too much in the overall health statistics. And if less-expensive nurses can do things that expensive doctors are now doing, those who would have been nurses will still do a good job if they end up becoming doctors because the pay is too low for the stars to fill the medical school slots.

Reducing the total amount of money flowing through the health care sector should reduce both the amount of health care and the price of health care. But even in a best-case scenario, in which reasonably judicious approaches to rationing and dramatic advances in persuading people to exercise and eat right kept the overall health statistics looking good, a reduction in the price and quantity of health care could mean a big reduction in income for those working in health care and related fields.

Still, the key wild card in judging Obamacare will be its effect on health care innovation. Subsidies may get people more care now, but crowd out government funding for basic medical research. Efforts to standardize medical care could easily yield big gains at the start as hospitals come up to best practice, yet that standardization could make innovation harder later on. An emphasis on cost-containment could encourage cost-reducing innovations, but discourage the development of new treatments that are very expensive at first, but could become cheaper later on. And Obamacare will tend to substitute the judgments of other types of health care experts in place of the judgments of business people, with unknown effects. Whatever the effects of Obamacare on innovation, we can be confident that over time these effects on innovation will dwarf most of the other effects of Obamacare in importance.

The October 2013 US government shutdown is only the latest of many twists and turns in the bitter struggle over Obamacare. A large share of the partisan energy comes from people who feel certain they know what Obamacare will do. But ideology makes things seem obvious that are not obvious at all. The social science research I have seen on health care regularly turns up surprises. To me, the most surprising thing would be if what Obamacare actually does to health care in America didn’t surprise us many times over, both pleasantly and unpleasantly, at the same time.

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Here is my original introduction, which was drastically trimmed down for the version on Quartz: 

Republican hatred of Obamacare, and Democratic support for Obamacare, have shut down the “non-essential” activities of the Federal Government. So, three-and-a-half years since President Obama signed the “Patient Protection and Affordable Care Act” into law, and a year or so since a presidential election in which Obamacare was a major issue, it is a good time to think about Obamacare again.

In my first blog post about health care, back in June 2012, I wrote:

I am slow to post about health care because I don’t know the answers. But then I don’t think anyone knows the answers. There are many excellent ideas for trying to improve health care, but we just don’t know how different changes will work in practice at the level of entire health care systems.  

That remains true, but thanks to the intervening year, I have high hopes that with some effort, we can be, as the saying goes, “confused on a higher level and about more important things.” 

One thing that has come home to me in the past year is just how far the US health care sector—with or without Obamacare—is from being the kind of classical free market Adam Smith was describing when he talked about the beneficent “invisible hand” of the free market. 

Reactions: Gerald Seib and David Wessel Included this column in their “What We’re Reading” Feature in the Wall Street Journal. Here is their excellent summary:

The key to the long-run impact of Obamacare will be whether it smothers innovation in health care — both in the way it is organized and in the development of new treatments. And no one today can know whether that’ll happen, says economist Miles Kimball. [Quartz]

(In response, Noah Smith had this to say about me and the Wall Street Journal.) This column was also featured in Walter Russell Mead’s post "How Will We Know If Obamacare Succeeds or Fails." (Thanks to Robert Graboyes for pointing me to that post.) He writes:

Meanwhile, at Quartz, Miles Kimball has a post entitled “Don’t Believe Anyone Who Claims to Understand the Economics of Obamacare.” The whole post is worth reading, but near the end, he argues that the ACA’s effect on innovation could eventually be the most important thing about it’s long-term legacy…

From our perspective, these are both very good places to start thinking about how to measure Obamacare’s impact. Of course, Tozzi’s metric is easier to quantify than Kimball’s: it will be difficult to judge how the ACA is or isn’t limiting innovation. But that doesn’t mean we shouldn’t try: without innovation, there’s no hope for a sustainable solution to the ongoing crisis of exploding health care costs.

I have also been pleased by some favorable tweets. Here is a sampling:

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Clay Christensen, Jeffrey Flier and Vineeta Vijayaraghavan on How to Make Health Care More Cost Effective

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A “minute clinic”

Clay Christensen, Jeffrey Flier and Vineeta Vijaraghavan argue in their Wall Street Journal op-ed "The Coming Failure of Accountable Care" a few days ago that Obamacare’s “accountable care organizations” will have trouble changing doctors’ behavior in the dramatic ways envisioned. They will have even more trouble changing patients’ behavior, since accountable care organizations provide few incentives for patients to change their behavior.  

In the debates over health care reform, advocates of Obamacare have made a great deal of the lower per-patient costs of medical care in other advanced countries. Those lower per-patient costs of medical care in other advanced countries have a lot to do with lower pay for doctors and other medical-care providers. If something on the Obamacare model  succeeds in lowering medical costs significantly, I suspect it will be because it forces down doctors’ pay, as government budget constraints lead to tighter and tighter price controls.

Clay, Jeffrey and Vineeta’s list of recommendations would instead use market liberalization to lower the amount paid for medical services. Here is their prescription:  

• Consider opportunities to shift more care to less-expensive venues, including, for example, “Minute Clinics” where nurse practitioners can deliver excellent care and do limited prescribing. New technology has made sophisticated care possible at various sites other than acute-care, high-overhead hospitals.

• Consider regulatory and payment changes that will enable doctors and all medical providers to do everything that their license allows them to do, rather than passing on patients to more highly trained and expensive specialists.

• Going beyond current licensing, consider changing many anticompetitive regulations and licensure statutes that practitioners have used to protect their guilds. An example can be found in states like California that have revised statutes to enable highly trained nurses to substitute for anesthesiologists to administer anesthesia for some types of procedures.

• Make fuller use of technology to enable more scalable and customized ways to manage patient populations. These include home care with patient self-monitoring of blood pressure and other indexes, and far more widespread use of “telehealth,” where, for example, photos of a skin condition could be uploaded to a physician. Some leading U.S. hospitals have created such outreach tools that let them deliver care to Europe. Yet they can’t offer this same benefit in adjacent states because of U.S. regulation.

Free market advocates have been calling for such approaches for some time. Doctors have understandably lobbied for a continuation of market restrictions that boost their pay. Now that doctors face reduced pay under budget pressures created by Obamacare as well, such market liberalization in medical care may begin to seem like the lesser of two evils for doctors. And it could be a great boon to the rest of us.

For the record, here is my position on health care reform, quoted from my post "Evan Soltas on Medical Reform Federalism—in Canada"

Let’s abolish the tax exemption for employer-provided health insurance, with all of the money that would have been spent on this tax exemption going instead to block grants for each state to use for its own plan to provide universal access to medical care for its residents.

This recommendation is based on what I said in my first post about health care, "Health Economics":

I am slow to post about health care because I don’t know the answers. But then I don’t think anyone knows the answers. There are many excellent ideas for trying to improve health care, but we just don’t know how different changes will work in practice at the level of entire health care systems.  

The more the Washington encourages a diversity of approaches to health care, the more we will learn about what works. On the other hand, the more Washington does to force health care policy into the same mold in each state, the more likely it is that we will only learn one thing at the systems-level: that the first try in the one-size-fits-all approach doesn’t work very well.  

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God and Devil in the Marketplace

Jonathan Haidt, in The Righteous Mind: Why Good People Are Divided by Politics and Religion, pp. 303, 304:

The next time you go to the supermarket, look closely at a can of peas. Think about all the work that went into it—the farmers, truckers, and supermarket employees, the miners and metalworkers who made the can—and think how miraculous it is that you can buy this can for under a dollar. At every step of the way, competition among suppliers rewarded those whose innovations shaved a penny off the cost of getting that can to you. If God is commonly thought to have created the world and then arranged it for our benefit, then the free market (and its invisible hand) is a pretty good candidate for being a god. You can begin to understand why libertarians sometimes have a quasi-religious faith in free markets.

Now let’s do the devil’s work and spread chaos throughout the marketplace. Suppose that one day all prices are removed from all products in the supermarket.  All labels too, beyond a simple description of the contents, so you can’t compare products from different companies. You just take whatever you want, as much as you want, and bring it up to the register. The checkout clerk scans in your food insurance card and helps you fill out your itemized claim. You pay a flat fee of $10 and go home with your groceries. A month later you get a bill informing you that your food insurance company will pay the supermarket for most of the remaining cost, but you’ll have to send in a check for an additional $15. It might sound like a bargain to get a cartload of food for $25, but you’re really paying your grocery bill every month when you fork over $2000 for your food insurance premium. 

Under such a system, there is little incentive for anyone to find innovative ways to reduce the cost of food or increase its quality. The supermarkets get paid by the insurers, and the insurers get their premiums from you.  The cost of food insurance begins to rise as supermarkets stock only the foods that net them the highest insurance payments, not the foods that deliver value to you. 

As the cost of food insurance rises, many people can no longer afford it. Liberals (motivated by Care) push for a new government program to buy food insurance for the poor and the elderly. But once the government becomes the major purchaser of food, then success in the supermarket and food insurance industries depends primarily on maximizing yield from government payouts. Before you know it, that can of peas costs the government $30, and all of us are paying 25% of our paychecks in taxes just to cover the cost of buying groceries for each other at hugely inflated costs.

In 2009, [David] Goldhill published a provocative essay in the Atlantic titled "How American Health Care Killed My Father": One of his main points was the absurdity of using insurance to pay for routine purchases. Normally we buy insurance to cover the risk of a catastrophic loss. We enter an insurance pool with other people to spread the risk around, and we hope never to collect a penny. We handle routine expenses ourselves, seeking out the highest quality for the lowest price. We would never file a claim on our car insurance to pay for an oil change.   

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