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Monday, September 26, 2016

Have Economists Become Something More Dangerous — Policy Wonks?

Economists have a responsibility to argue for the best policies they believe in, not the best compromise they think lawmakers can pass.

The annual convention of economists and other social sciences is always difficult to get a handle on. It is large and unwieldy, with hundreds of panels and forums. I was in Chicago for this year’s pageant, and despite its many different moving parts, one thing rarely changes. Economists’ conclusions remain almost completely predictable. That’s true at least of the mainstream economists, who the redoubtable libertarian rebel Deirdre McCloskey insists we call something other than mainstream, such as “standard.” In sum, markets usually work, they say, but sometimes a little sand gets thrown into the gears. Since the financial crisis, perhaps there has been a little more sand than usual. Solution: clean it up.

Yet something out of the ordinary occurred this year. Economists agreed to a code of ethics, requiring them to make public who finances their research and with what fee-paying institutions they are associated. This reform was neither a result of guilt or newfound conscience. George DeMartino, an economist from Denver, has been loudly and admirably arguing for ethics standards and that a stronger code be adopted. McCloskey, according to a news report, argued outright that economists have become too much like lawyers, defending their clients’ positions no matter what. But the movie Inside Job, which caught economists like Glenn Hubbard and Fred Mishkin embarrassingly off-guard on camera, is what forced the profession into action.

But I came away with another concern. What are economists, anyway? Are they paid and/or consulted with for their unvarnished economic expertise, or do they tailor their views to carry weight in the political and lobbying arena with little regard for genuine economic evidence? The politicians and press who seek their advice prefer the latter, of course.

I went to a session called “The Political Economy of U.S. Debt and Deficits.” It included Alan Blinder, former vice chairman of the Federal Reserve, and three former heads of the Congressional Budget Office: Alice Rivlin, Douglas Holtz-Eakin, and Rudolph Penner. The latter two are Republicans; Blinder and Rivlin Democrats.

  • freethinker

    Economics is not a science even if the economists generally wish it were so. That main thing to look at are your personal finances. If you are borrowing too much, you can quickly get into trouble. Living paycheck to paycheck? When that next unexpected expense hits, you are now in trouble. Taking care of yourself by spending less and putting funds away for a rainy day or retirement means less stress and more options. Pretty much the same deal on a national scale.

  • Hankk

    Social Security is not in debt, nor is it in trouble. Our congress has stolen between 2 and 4 trillion dollars from our citizens S.S. trust fund and added it to our National Debt. How do we get rid of congress? One by one doesn’t help, because who ever takes their place falls right into their pattern, and soon becomes a mult-millionaire. hankk, MI

  • Common Sense Patriot

    I’m retired now and on Social Security and Medicare. I don’t consider myself as someone with his hand out, because I paid FICA (SS & Medicare) taxes. During my career, I worked for two insurance companies (BC/BS and Equitable)but spent the majority of my career in Human Resources management, retiring as the head of HR for a major organization. I know what the costs for employers is, and how it has risen over the years. We instituted every reasonable cost-cutting measure we could think of, including shopping around for a carrier, preventative coverage, and wellness education programs, a company fitness center, improved healthy meal choices in the cafeteria, and even incentives to employees for identifying “mistakes” in medical or insurance company billing. All those efforts may have slowed down the steady growth in costs, but they certainly did not stem the tide. Employees complained as we raised the cost of their premiums/co-pays/coinsurance even though the company was “eating” a larger and larger share of those costs rather than passing them 100% on to employees. It will come as no surprise when I tell you that insurance companies do like to keep their costs down so they can make more money. And even with actuarial expertise, they do lose money on some contracts. The greatest cost saving measure insurance companies put in was “provider networks” where they negotiated much lower prices with the providers than they would charge a regular patient. But that eventually worked a lot like a “sale” price at your local jeweler or furniture retailer – the providers just raised their “regular” prices so that the discounted price is still expensive. Companies worked with pharmaceutical retailers and major providers (Caremark, Merck, etc.) to limit the cost of drugs by having an exclusive relationship, getting volume discounts, and setting up higher co-pays for name brand drugs than generics. Part of the problem is that American pharmaceutical companies soak the American consumer (employers and patients) by charging much greater prices in the U. S. than they do for the same drugs in other countries (who have national health care and offer the lucrative big contracts only to the companies that agree to the huge discounted prices). But even with “Obamacare” (Affordable Care Act) a deal was struck with American pharmaceutical companies not to seek such drastically discounted prices in return for their support with Congress to get the bill passed. I’d say that was a major “caving in” to political pressure by the Obama administration. I read one person who says, “It’s the greedy insurance companies.” Another says, “It’s the greedy pharmaceutical companies.” Another, “The greedy hospitals and doctors.” Another, “The greedy, lazy people with the hands out for entitlements.” And on and on. There is some truth to all these accusations. But no single entity is responsible for the problem. The ACA won’t solve the problem. Neither will repealing the ACA. The answer is simple: Set up non-profit Regional Health Care Alliances (HCA’s) that everyone in that region can join (about 12 across the country of about the same size should do it). These would operate like an insurance company except there is no profit motive. They should have Board of Directors elected by the policy holders, and salaries of Board members would be no more than 50% of a Congressman’s salary, and salaries of HCA executives would be limited to no more than the President of the United States’ salary. There should be a General Auditor who oversees the audit staff in each RCA. HCA employees would be prevented from having a labor union and would not be part of civil service. (It works for the Federal Reserve System; there’s no reason it won’t work for HCAs. Fed staff is paid well but not extravagantly and they have no problem attracting employees.) For consumers, there would be no disapproval because of pre-existing conditions, age, or anything else. No raising premiums on people with serious health issues; no one could be thrown out of the HCA except for fraud. Get rid of Medicaid and provide a voucher for qualifying recipients to pay the premiums of the RCAs. The same could be done with Medicare. Anyone that knows anything about insurance knows that a basic principle that guides it is, “The law of large numbers,” meaning that if you have enough people insured, then costs even out and your buying power is tremendous. According to the Census Bureau, as of 1/5/12, there are 312,805,834 people in the U. S. If there were 12 HCA’s that would potentially be a little over 26 million people in each regional HCA, which would give them huge buying power. (Actually, the number would be less because many people would still buy private insurance and some would choose to go without insurance.) Let the HCAs be free to negotiate prices with medical providers and pharmacies, just as the insurance companies do now. They would have tremendous bargaining power and that would bring the costs down to an affordable rate. They should have their own medical auditing teams, just like private insurers do, to make sure they are not being cheated. (Which is a major problem with Medicaid and Medicare.) Allow these regional HCA’s to operate in competition with private insurers, i.e., nobody is forced to join but everybody has the alternative. The competition between the private, for-profit insurance companies and the HCAs would drive them to keep prices down to attract consumers, and in turn, they would use their buying power to keep the medical providers and drug companies from overcharging. Their premiums would be as low as market forces can work to drive them down. And that would be a lot cheaper than what’s being paid today. Thus, it’s capitalism, not socialism. Competition works, if there’s no special gimmicks or tax breaks or government contracts involved. No one would be forced to join anything, just as they are not presently forced to buy insurance. If employers wanted to continue to offer private insurance, along with regional HCAs, they could. Their costs would go down, too, because of the huge incentives to providers and the competition factor to keep their costs down to participate in the regional HCA networks. Everybody would win – except the insurance companies, medical providers, pharmaceutical companies, and others who are making huge profits off the present system and ultimately making health care un-affordable for most Americans. This will work. It’s not government controlled health care. Networks would be huge so consumers would have plenty of choice, just as they do now with private insurance Preferred Provider Organizations (PPOs, i.e., Networks). The elected Board members would see that the HCAs are run for consumer benefit. Providers would make money, just as they do now from private insurance companies when they join their PPOs. The profit motive, with some restrictions, would operate to everyone’s benefit. Everyone who wants coverage would have it. No government run bureaucracies like Medicare and Medicaid. In fact, a lot of money would be saved by getting rid of the inefficient and bloated Medicaid/Medicare bureaucracies. Private insurers could stay in the business if they are willing to bring their prices into line.

  • kurt.lorentzen

    Whether yo’re talikng campaign finance, economic theories, or dietary advice, yuo must consider the source – or more importantly, the source of the “expert’s” paycheck. Almost all of the political influence can also be traced back to the money source. In a post on another article’s forum I used the sinking boat analogy to the debt. Saying that the deficit spending and mounting debt won’t be a problem for 10 years is like sying you don’t need to do anything about the hole in the bottom of the boat because the water hasn’t rise to the point that the boat is sinking yet. Economists notwithstanding, that’s a pretty stupid outlook. To not contain deficit spending is to just keep fishing and watch the water level rise

  • LogicObserv123

    In truth, I know little about insurance, but this is the very first time I have read any kind of alternative proposal that seems to make sense, BUT Opening up Medicare to All, which would still seem more efficient than creating 12 new entities and 12 new sets of money-gobbling management in order to get 1/12 of the numbers and the clout that Medicare would have in setting caps on payments for Providers ( Hospitals, Doctors, Pharmaceuticals and other health related products ) Medicare worked quite nicely when it was first instituted and it set maximum payouts based upon the prevalent pricing in a given area. You could tell how effective it was based upon the volume of pissing and moaning you heard from providers at the time. Somehow they managed to not only survive, but to thrive in the following years, mostly by jacking up the costs on all non-Medicare patients, which would be really hard to do when 95% of all patients become Medicare patients.

    Take that and multiply the effect by a factor of 600%. We are talking about Medicare being totally funded without any increase in Medicare tax rates because Medicare would be Insuring everybody, the young and healthy as well as the old and more likely to get sick. The entire point of “insurance” is to assemble the broadest age range and biggest pool of participants setting aside some money to pay for preventative care as well as illnesses when they happen.

    The big problem with the current set-up is that for-profit insurers have zero interest in cost-containment, nor do they have the power of numbers nor the mandate to accomplish it. SO WHAT if Medicare represents “socialized insurance”? It’s still not socialized medicine, and who gives a crap if it works better and is cheaper, as it has proved to be in every other industrialized nation in the world? The Constitution of the US does NOT guarantee citizens the right to run an insurance scam that is inherently a conflict of interest, denies care to 1/6 of the population, and contributes to abuses and over-charging by providers. It DOES recognize the concept of the General Welfare of the people, in writing, and the health of the entire population would seem to be exactly that.

    The very first thing that would happen is an immediate 20% drop in the cost of insurance for participants. That is a minimum (not maximum) insurance company profit factor, and it is thoroughly documented that the existing Medicare system does deliver care with 20% less cost than private insurers. The next thing that would happen is that providers would smash into that cap on payments, which would likely drop health care costs another 20% in the first year.

    The other benefit is that Medicare would be so adequately funded that they could institute much stronger fraud investigation procedures, especially focusing on providers, who without question are the source of the overwhelming majority of fraud. If you thinks it’s yer grandma doing the defrauding, rather than companies like Rick Scott’s Columbia/HCA you are out of touch with reality. They could also establish a healthy reward fund for whistle-blowers. The other benefit to this is it puts the responsibility for detecting and preventing fraud largely in the lap of the of the Officers and Boards of providers. If Medicare is the only game in town, and they catch you in a fraudulent scheme, your name goes on a list, and you are done (forever) in providing medical care or services in the US. Period. Game over. I think that providers would devote a lot of attention to keeping their operations squeaky-clean after they see operations cease to exist, and CEO’s forfeiting personal assets and doing the perp-walk to prison, rather than just having the corporation paying a fine of a tiny percentage of the money they stole from all of us.

    This goes into the area of modifying corporate charters and eliminating immunity of Officers and Boards of ALL corporate ventures, which needs to be done, but where better to start than healthcare and maybe defense contractors who are daily defrauding the entire citizenry of our nation? It is way past time for the Citizens to institute a zero-tolerance standard for fraud in this country. Maybe a company and its officers gets only one second chance to pay back every penny and clean up their act, but if they screw up twice, the company and the individuals involved are blacklisted from EVER doing business with the USA. We have this problem ONLY BECAUSE we allow it.

  • patricia wiseman

    By 2015 most companies will not provide health care. Today many employer’s make sure that you make just enough so that you can qualify for madicaid. You say ok at least you have coverage, but with most health insurance policies you may have a $1000 deductible for a year and once you pay it you don’t have to worry about it. With medicaid you have up to a $1000 a month so not unless you have a major illness you might as well not have any insurance. American’s are sheep we’ver been told that government help makes you weak, government control is bad, basically government is bad, but without a strong government our country will become just like all the rest of the 3rd world countries. The only thing that less government does is let the crimanils(big business, banking, health care, and real estate)run wild and the average working person become slaves. As a nation we need to reclaim our government and make this country great again.