Category Archives: Public Policy and Governance

If you’ve been following the financial news (and these days, who hasn’t?), you’ve probably come across stories about various wealthy and well-connected folks who are so incensed about Obama’s intention to let Bush’s tax cuts for the wealthy expire that they are threatening to “go Galt.”

The reference is to John Galt, the hero of Ayn Rand’s monumental book, Atlas Shrugged. In the book, Galt and other highly productive members of society decide to simply withdraw from participation in an economic system that has—in Rand’s view—become corrupted. The economic environment in Atlas Shrugged is highly politicized, with the result that it takes from those who are productive and honorable, and gives to those who are intellectually dishonest and morally defective. Rand characterizes the latter as “looters” and as “pull-peddlers” (what we would call “influence peddlers”)—people who know how to work the system to gain advantage over those who play by the rules.

What is so ironic, of course, about these publicized threats to “go Galt”—which in this case means to cut back on work in order to keep one’s taxable income under $250,000—is that they are being made by folks who have a lot more in common with Rand’s “looters” than with John Galt. These rants and threats are coming from people who have been prospering by doing all the things Rand (and Galt) hated. They are the people who were born into privilege, the people whose companies benefitted from favorable tax breaks, lax regulation, and the ability to hire lobbyists to skew the system in their favor, rather than through the production of anything of value. To those of us who have actually read the book, they look a lot more like James Taggert, the slimy, politically-connected, perpetually whining brother of the heroine Dagny Taggert.

It isn’t only Atlas Shrugged that the “don’t raise the tax on my marginal income another three percent” folks are mischaracterizing. As the noted economist Amartya Sen pointed out in a recent essay in the New York Review of Books, these self-righteous, self-proclaimed “pro-business” types have also been playing fast and loose with Adam Smith and the “Wealth of Nations.”

As Sen points out, Smith viewed markets and capital as doing good work “within their own sphere,” but he also explicitly recognized that markets required “restraint and correction” by other institutions–including well-devised government regulations and state assistance for the poor–in order to prevent “instability, inequity and injustice.” Smith—who was not an economist, but a Professor of Moral Philosophy—also recognized that “commercial exchange could not effectively take place until business morality made contractual behavior sustainable and inexpensive–not requiring constant suing of defaulting contractors, for example.”

It’s bad enough that extremists on the political right have insisted upon highly selective readings of both the bible and the constitution. Now they are selectively reading both Ayn Rand and Adam Smith, as well.

Or maybe they haven’t actually read any of them. That really would explain a lot.

Earlier in my academic career, I did research into what Americans erroneously call “privatization”—outsourcing government functions to for-profit and nonprofit organizations. (True privatization would require government to divest itself of that activity. Through outsourcing and grant-making, government essentially “hires” an outside entity to do the work, but still pays the bills and retains responsibility for providing the service.)

 

Outsourcing raises constitutional issues, because only government can violate the Bill of Rights, and outsourcing makes it difficult to tell when government has acted. Recent headlines remind us that blurring the lines between public and private raises other thorny issues as well. The mess at FSSA is one recent reminder that contracting can create as many problems as it can solve.

 

Outsourcing is a tool. Sometimes it is the appropriate tool, sometimes it isn’t. Government agencies aren’t alone in losing control over contractors or grantees; the practice of outsourcing mortgage processing contributed significantly to the current banking crisis.

 

One truly bizarre result of the increasingly complicated relationship between the public and private sectors was the recent invalidation of the mayoral election in Terre Haute. Duke Bennett had defeated former Mayor Kevin Burke, and Burke sued, alleging that Bennett was ineligible to hold the office.

 

Bennett was employed as Director of Operations at Hamilton Center, a nonprofit established primarily for the purpose of providing behavioral health services. In 2007, the Center also opened a Head Start program, supported partly by a grant from HHS. The grant was $861,631,of which $125,789 was for Head Start’s proportionate share of overhead (security, maintenance, liability insurance, etc.)

 

Burke sued to have Bennett declared ineligible under a law that applied the Hatch Act to Head Start Grant recipients, and provided that such recipients should be “treated as a local government agency funded through Federal grants or loans.”

Bennett was responsible for providing and managing some of those overhead services, not simply for the Head Start program, but for all programs the Center operated. The Court found that $2,041—or 1.84% of Bennett’s salary and benefits for 2006-2007—came from the federal grant.

 

The court also found that “the violation was not willful or intentional,” that the issue hadn’t been raised during any of Bennett’s three prior election bids, and that his role with Head Start was essentially non-existent. Nevertheless, the Court held that Bennett was effectively a government employee, and thus prohibited from running for office.

 

There are many things we could say about the insanity of this result—all negative. The ruling has already encouraged other losing candidates to sue, and promises to create electoral uncertainty across Indiana.

 

The Hatch Act was intended to prevent abuses of power, not to limit the pool of people willing to engage in the political process. Indeed, in smaller communities, where overlapping civic commitments are the norm, that will almost certainly be the result.

 

If we continue down this path, we may end by transforming every recipient of a government grant, however minimal or accidental, into a government employee.

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Whoever said “The more things change, the more they stay the same,” was probably thinking of Indiana.

Governor Mitch Daniels recently held a press conference at which he addressed the critical challenges now facing our state. He was flanked by former Governor Joe Kernan, a Democrat, and Indiana Chief Justice Randall Shepard, a Republican. The message was simple and direct: Indiana’s looming fiscal crisis makes adoption of the Kernan-Shepard Commission recommendations especially urgent.

The response of Indiana elected officials was dispiriting, to put it mildly. According to the Indianapolis Star, “ County officials said they don’t want to give up their elected positions. School boards stressed that they oppose forced consolidation. And House Speaker B. Patrick Bauer said the General Assembly has more pressing matters to consider next year than ‘an academic’s view of how government should operate, without any consideration given to whether such ideas are practical, or even feasible, in the real world.’”

Bauer’s comment, in particular, reminded me why the late Harrison Ullmann used to call the Indiana General Assembly “The World’s Worst Legislature.” It also reminded me of a lengthy conversation I had some years ago with George Geib, Indiana’s pre-eminent political historian. As he told me then, what really drives Indiana’s political culture is not ideology, but patronage.

Patronage and political self-interest have kept Indiana’s government bloated, costly and inefficient. In fact, the only good thing you can say about our resistance to modernization is that the effort to keep state government mired in the late 1800s has been entirely bipartisan—a lonely example of co-operation in our otherwise polarized politics.

It is understandable that people whose jobs are on the line would resist efforts to bring Indiana into the 21^st century. But it was Pat Bauer’s snide dismissal of the Kernan-Shepard recommendations as “academic” that provided us with a perfect example of what is wrong with the Indiana General Assembly.

Leaving aside the use of the word “academic” to mean nonsensical (okay, I’m a bit sensitive there!), how many overlapping units of government does Bauer’s “real world” need? Indiana has 3100 units of government, run by 10,300 people paid for with our tax dollars. We have more counties than California. The reforms recommended by the Commission have long characterized government in most other states.

Maybe this slicing and dicing of jurisdictions into so many small units made sense when it took half a day (by horse) to reach the county seat. But in the “real world” I live in, it takes half an hour or less. Increasingly, I don’t need to travel at all; I can renew many permits and obtain needed information online.

The Kernan-Shepard Commission studied Indiana’s multiple levels of government, held hearings around the state, reviewed reforms instituted elsewhere in “the real world” and issued recommendations of 27 ways to cut waste, become more efficient, increase accountability and save tax dollars.

Government officials are supposed to work for us. Thanks to Indiana’s entrenched patronage, we seem to be working for them. 

 

 

 

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In 2006, the Economist—hardly a leftwing publication—had this to say about the U.S. healthcare system:

“America’s health care system is unlike any other. The United States spends 16% of its GDP on health, around twice the rich country average, equivalent to $6,280 for every American each year. Yet it is the only rich country that does not guarantee universal health coverage. Thanks to an accident of history, most Americans receive health insurance through their employer, with the government picking up the bill for the poor (through Medicaid) and the elderly (through Medicare).

[…]

In the longer term, America, like this adamantly pro-market newspaper, may have no choice other than to accept a more overtly European-style system.” 

 

We have all heard the litany: Forty-six million Americans are uninsured. America spends more per person than any other country, but ranks 37^th in overall quality of service. If our infant mortality rate was as good as Cuba’s—Cuba’s!—we would save the lives of an additional 2,212 babies every year. Duplicative paperwork wastes billions each year. People with pre-existing conditions are chained to jobs they don’t like. The list goes on, and I don’t intend to stand here and repeat it, or add to it. Most of you are already all too aware of the problems.

 

Instead, I want to make an economic development/American competitiveness argument for single-payer national health insurance—something along the lines of what United Senior Action has called, if I am not mistaken, “Medicare for all.”

 

As I analyze the situation, if the United States adopted a “single payer” health insurance system funded through tax revenues and administered through a single insurer, we could expect a number of positive economic results, in addition to better health and reduced social anxiety.

 

First of all, we would see an increase in economic development/job creation. The business sector currently spends an amount in excess of its net profits to provide  health insurance for employees, and the cost of health insurance is the single largest “drag” on new job creation. The difference between what it costs an employer to create a new position and the amount that employee actually receives is sometimes called the employment “wedge.” As health costs and insurance premiums escalate, the wedge grows larger, and inhibits hiring additional workers. In good economic times, that is troubling; in times like these, it can be catastrophic.

 

For the shrinking number of companies that can afford to offer health insurance, negotiating and administering medical benefits, and complying with the government regulations attendant to them, consumes untold hours of HR time. This is a drag on productivity—a generator of overhead costs that reduce profits and divert effort away from the core business operations.  Single-payer would remove those costs and that burden. If you don’t think that would be economically significant, let me share an example. In the case of our struggling auto industry, amounts paid for employee health adds somewhere between 1800 and 2000 of the price of each new car. No wonder American automakers find it difficult to remain competitive! It should be noted that in a single payer system, doctors’ overhead would similarly decline: currently, medical offices spend considerable sums on personnel whose only job is dealing with insurers—confirming coverage, complying with insurer regulations, submitting claims on multiple different forms and collecting amounts due. The US could save millions of dollars each year JUST by standardizing insurance forms!

 

Smaller companies—the engines of economic growth and job creation—are increasingly unable to offer benefits, and that puts them at a competitive disadvantage when they try to hire good employees. If health coverage were de-coupled from employment, the United States would become a much more attractive location for new businesses, and incentives to outsource production to overseas workers would be reduced. (Tell Toyota/Canada story.)

 

We should also note that, if the burden of providing health care coverage were removed from employers, they could increase wages by some percentage of the amount currently being paid for insurance.

 

There are two predictable, immediate responses to suggestions that we provide national health insurance. The first is that we can’t afford it; the second that quality of care would be compromised.

 

Let’s dispose of  the question of costs first, because there is enormous public ignorance of the costs we already incur. It may surprise many of you to know that any additional tax revenues needed in order to accomplish universal basic coverage would be minimal, for the following reasons:

·         government at all levels already expends huge amounts for health, through Medicaid, Medicare and other federally required programs (Mothers and Children, AIDS, etc.), through health care research grants,  through insurance for public employees (Universities, police, public school teachers, state and municipal workers, etc.), and through support for public hospitals like Wishard. By some estimates, American government at all levels already pays for over 60% of American health care now. We just do it in the least efficient, most wasteful way imaginable. In single-payer countries, governments pay an average of 70% of all health costs.

·         Furthermore, the economies of scale available in a national system would allow us to effect significant savings. We could save money not just by standardizing paperwork, but also by lowering the  costs of administration. It is estimated that between 25-30% of private U.S. healthcare expenditures are eaten up by administrative overhead. Medicare, on the other hand, keeps its overhead costs between 2 and 3%. It’s not just big salaries for the insurance executives—although that’s part of it. The biggest chunk is marketing, including the costs involved in “cherry-picking” (explain). We could save a very large percentage of these overhead costs by administering insurance through government, or even by doing as some European countries do—by contracting with a few insurers to administer the program on government’s behalf, on condition that the premium structure eliminate the marketing costs that are now included.

·         An often-ignored benefit of a national system is that it would provide an incentive for more effective public health and prevention services—incentives our current, patchwork system lacks. Total costs decline when people are able to access routine medical care soon after the onset of symptoms, rather than visiting far more expensive emergency rooms when they can no longer ignore the problem.

·         A national system could—and should—save money by negotiating with drug manufacturers and other medical vendors for lower prices. Every other industrialized country does this, and to be honest, I was outraged when the Bush Administration prohibited such negotiations in the bill that expanded Medicare’s prescription drug coverage. That bill was a cynical give-away to drug and insurance companies. I used to believe the drug company argument that research and development would suffer if they couldn’t price new drugs at high levels. But that was before I understood how much medical and pharmaceutical research is underwritten by taxpayers through grants from institutions like the NIH. Frankly, we would all be better off if drug companies diverted some of the five billion dollars they spend each year on television ads for Viagra and the “purple pill” to research and development. 

·         Cost controls would also be enormously enhanced by eliminating the practice of cost-shifting by hospitals. Those practices are increasingly irrational; as you all know, those of us who are hospitalized and who have insurance pay prices that have been inflated in order to cover the costs that cannot be recovered from those without. On the other hand, because insurance companies exercise considerable pressure on hospitals, those same providers will often charge uninsured but solvent patients more for the same procedures. There is no uniformity to these practices, and they make rational cost accounting difficult, if not impossible. (Dan Hodgkins story)

 

These savings are often identified by proponents of national health care. What is far less frequently recognized is that even if taxes did go up, individuals would save money as well.

·         Automobile and homeowners insurance premiums would decline significantly, because the underwriting would no longer need to take the costs of medical care into account.

·         The considerable percentage of citizens who are currently uninsured would not incur significant out-of-pocket costs attributable to illness or accident.

·          And of course, those who are currently paying for their own insurance would have that considerable expense lifted. I had a student a year or so ago who did not have employer-paid coverage. She worked for a nonprofit CDC, and she and her husband were paying over 12,000/year for their family of two adults and two children. That is without co-pays and other out-of-pocket costs.

 

Those are just a few of the quantifiable, cash savings we could realize under a single-payer system. But there are also significant social costs associated with our current haphazard approach to healthcare. If all citizens had basic health coverage, America would arguably see a decline in the social costs associated with the current dysfunctional system. Let me just give you a few examples of what I mean:

·         Over 50% of personal bankruptcies are attributable to medical bills; those bankruptcies cost local businesses millions of dollars, and are a drag on the economy.

·         Employees with pre-existing conditions would no longer be chained to jobs they dislike.

·         Absenteeism could be expected to decline.

·         Immunizations would increase, and infant mortality decline.

·         Studies also suggest that violent crime rates decline and social trust climbs as social safety nets increase.

Even a small drop in crime yields huge savings and increases the quality of life.

While not quantifiable, these consequences are far from insignificant.

 

So much for costs. What about the argument that “socialized medicine” will cause a decline in the quality of American health care? That markets are most efficient way to allocate services/costs?

 

I am a great believer in markets. But functioning markets require a willing buyer and seller, both of whom have access to adequate relevant information. They do not work in areas where there is unequal access to information and widely unequal bargaining power. Both of those situations characterize the sale and purchase of medical care.

 

Even if markets in medical services did work, however, we don’t have a market now, if we ever did. We already have socialized medicine, but we have the very worst possible system—we have socialized medical care through the private insurance companies. The result is that we have the worst of both systems. A recent study by the Commonwealth Fund found that 82% of Americans are dissatisfied with our current patchwork approach to health care, and believe the system should be fundamentally changed.

 

One in three adults reported their doctors had ordered a test that had already been done, or had recommended unnecessary treatment or care within the past two years.  Forty-seven percent had experienced poorly coordinated care—meaning they hadn’t been informed of test results, or had to call repeatedly to get them, or that important medical information had not been shared between doctors and nurses, or between primary care physicians and specialists.

 

We hear a lot about waiting times in nationalized systems, but wait times are a significant problem in the US right now. Nearly 3 out of 4 Americans reported difficulty getting timely doctor’s appointments, telephone advice, or after-hour’s care, and that included people with health insurance. There is a reason that America consistently ranks 37^th or 38^th in quality of health care, despite the fact that we spend over twice as much per person as the next most expensive system.

 

I do not pretend to have expertise in how we should proceed to overhaul our system, but I do know we are not limited to Canada and Great Britain as models. (Which is not to say those systems aren’t working; despite the criticisms we hear, I have friends in Canada and a granddaughter in Great Britain, and they are very happy with their care.) But France and New Zealand have widely praised systems, just to name two others. My son lived in France for three years (explain).

 

 We have the luxury of learning from the history and performance of multiple other systems. All that stops us is ideology and a stubborn refusal to believe that other countries might have lessons to teach.    

 

The one bright hope is that the bankrupt nature of our current system has become apparent to anyone who cares to look. Large employers like GM, who have historically been opponents of national health care, are now favorably inclined. Even the AMA has offered a plan—although it is a pretty flawed one. Doctors have largely come to recognize that their interests would be better served by a single-payer system, and groups like Physicians for National Health Care are working hard to make that happen. There are rumors that Senator Kennedy is working feverishly on a plan, because he wants health care to be his legacy. And with the election of a President who actually understands the economics of our current situation, I am cautiously optimistic that the time for change may FINALLY have come.

 

It can’t happen a moment too soon!

 

 

 

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Recently, a lunchtime discussion turned to the extent to which Indiana lags in mass transit. Wouldn’t it be great, someone said, if we had high-speed rail to Chicago?

That question recalled one of our state’s multiple “missed opportunities.” I’m told that when I65 was being built, the question arose whether overpasses should be built with a single support pillar, or with two. Two supports would make it far cheaper and easier to lay track for a train at a later time; there would be no need for added land acquisition, and the train could be run between the two pillars.

Anyone who has driven to Chicago knows that immediate gratification—in the form of lower front-end costs—won out. Now, in order to use the right-of-way, we would have to replace all the existing single supports with doubles, at far greater cost than would have been incurred by doing two pillars at the time.

Penny wise, pound foolish.

On November 4^th, Indianapolis voters living within the IPS boundaries will face a similar choice, in the form of a vote on the bond issue for the third phase of IPS building renovations. (The need for the bonds is yet another example of our “penny-wise” politics; had improvements been made in a timely fashion, rather than constantly postponed, the upgrades would have been far less expensive.) These bonds will improve learning environments at 32 schools, housing 15,000 children.

The timing is hardly auspicious—but of course, it seldom is. In recognition of the economic climate, IPS has dramatically reduced the scope of work to include improvements needed for health, safety and academic achievement. The original cost estimate was 475 million; that has been reduced to 278 million. And IPS points out that payment on the bonds will not kick in until 2010—after property tax controls have taken effect. Thus, even with the increase from Phase 3, property taxes will be lower than they currently are.

Proponents of a “yes” vote make a number of arguments: every year of delay increases the cost of needed renovations by between 16-20 million dollars; 25,000 IPS children and teachers are working in aging and inadequate buildings; even after the contemplated improvements are made, IPS buildings will not be comparable to suburban ones. There are no fancy athletic facilities, computers, or other “frills” in this budget—only basic needs.

The question we will answer on November 4^th is really more basic than whether we will vote to give our children an adequate learning environment, important as that is. It is whether—for once!—we will choose our long-term best interests over short-term gratification. We know that failing to invest in children today will cost us all much more in the long run. An educated workforce attracts the employers who provide jobs and pay taxes. Educated citizens are less likely to need welfare services, or engage in crime. Investing now will save dollars later.

Can we be “pound wise” for once? We’ll see on November 4^th.

 

 

 

 

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