The Agnoptimists

There’s an irritating meme circulating among socialists: Private insurance companies spend roughly 20% of their budgets on administrative and overhead costs, while government agencies around the world spend only a few percent. Therefore, government is more efficient than private enterprise!

Not so fast. It turns out, not shockingly, that Medicare vastly overpays for much of what it buys on patients’ behalf. This article from the NY Times gives five examples of goods for which Medicare pays more than a private buyer would pay if she simply sat down and Googled the item in question. Many Medicare prices were set during the 1980s and simply have not been changed as technology has improved and prices have fallen.

How bad is it? Here are the numbers:

Item				Private Price	Medicare price

Home Oxygen system		$3,500		$8,280 

Power Wheelchair		$1,452		$4,024 

Semi-electric bed		$690		$1,475 

Erection pump			$108		$449 

Blood glucose test strips	$17		$36

Medicare overpays by more than a factor of two in each case. Now here are the overhead numbers, assuming that the private buyer spent 20% of total costs and Medicare spend 3% of total costs on administration, etc.

Item				Private		Medicare

Home Oxygen system		$875		$256 

Power Wheelchair		$363		$124 

Semi-electric bed		$173		$46 

Erection pump			$27		$14 

Blood glucose test strips	$4		$1

Medicare does spend less in this category, but because its budget is inflated to begin with, the gap is significantly reduced.

Now here are the totals, with the ratio between the two costs:

Item			Private		Medicare	Ratio

Home Oxygen system	$4,375		$8,536		2.0

Power Wheelchair	$1,815		$4,148		2.3

Semi-electric bed	$863		$1,521		1.8

Erection pump		$135		$463		3.4

Glucose test strips	$21		$37		1.7

So, for these items Medicare pays between 70% and 240% too much. Now for the kicker: Medicare expenditure and the savings that a private buyer could realize, with administration costs figured in.

Item			Medicare (millions)	Possible savings

Home Oxygen system	$1,800			$877 

Power Wheelchair	$650			$366 

Semi-electric bed	$209			$90

Erection pump		$21			$15 

Glucose test strips	$806			$345 

Total			$3,486			$1,693

So, for only these five items, Medicare overpays by a total of nearly $1.7 billion dollars. This is nearly half of its total expenditure on these items, which means that (by definition) the single biggest factor in Medicare costs is the institution’s own bureaucratic inefficiencies.

Such problems have been noted in a variety of regulatory reports, but reform will not come easily. A few brave lawmakers have tried to introduce cost-saving measures, but companies have used their patient relationships for political leverage. First they mislead, characterizing benign cost-cutting efforts as cuts in benefits, and then they mobilize, suggesting exactly whom and how the worried patients should attack. It will take a real hero to fight such powerful special interests.

Conversations between Libertarians and Socialists often stall because of disagreements surrounding what may properly be considered "rights." In my view, inter-paradigm debate is more productive when focused on outcomes: simply put, the central question is whether centralized government programs are really more attractive than market outcomes.

Anyone who seeks the best solutions to society's dilemmas should embrace experiments that allow direct comparison between government projects and private enterprise. Such experiments require us to sacrifice absolute equality, but can produce new ideas and strategies that government can adopt at no cost to taxpayers. The US Post Office is constantly improving its service in response to competition from companies like Federal Express, and public education is subsidized by private and charter schools’ efforts to develop efficient teaching methods, to name two prominent examples.

The Federal Reserve is a favorite target for libertarian critique, and with good reason. There is no inherent value backing the US Dollar; instead, a small group of powerful individuals unilaterally and undemocratically controls our nation's money supply. They are free to redistribute wealth from savers to borrowers, which they do incrementally but consistently by creating new money, and their inability to manage interest rates perfectly is at least partially responsible for the economically destructive boom/bust business cycle and the current housing crisis. Worst of all, US citizens are forced to accept the US dollar – the term "legal tender" means that people cannot refuse the dollar even if inflation renders it worthless. Alan Greenspan was famously skeptical of this deeply flawed system, and Americans should not be content.

The Liberty Dollar is one of perhaps 60 alternative currencies that represent a first step toward comparing other possible monetary systems against the current regime. Most are used in small communities and intended only as supplements to the US dollar, but the Liberty dollars' creators are more ambitious. The Liberty dollar, which boasts 20 million units in circulation, is meant to compete with the US Dollar on its strengths as a stable, easily identifiable, and difficult to counterfeit store of value. The company, which is run on a for-profit basis, promises to redeem its currency for gold and silver at any time, and the integrity of its systems is monitored by an independent auditor. The costs of the experiment are born exclusively by the buyers of Liberty Dollars, who continue to pay for the Federal Reserve and US Mint through taxes, and merchants are and will always be free to reject the new money. Some observers, including some libertarians, have criticized the Liberty dollar’s distribution methods and choice of commodity backing, but we should not expect immediate perfection from a new idea. A free market in currency would likely produce a handful of competing moneys, the proliferation of which would be limited by menu and transactions costs.

Last year, the government warned the public that the use of Liberty dollars could earn a 5-year prison term. On November 14th, FBI agents raided the Liberty Dollar offices, seizing gold and silver, manufacturing equipment, and customer records. The news received little coverage, and the idea of an alternative currency was quickly dismissed as a fringe movement. What the pundits fail to understand, however, is that the prohibition of completely voluntary and privately funded monetary experimentation dooms Americans to live with an unsatisfactory status quo.

The government’s actions in this case demonstrate the danger of overly centralized authority, and the public’s complacency is worrisome. Everyone should agree that government hurts the public by prohibiting others from providing a better service than its own, but Ron Paul is the only prominent politician willing to address this critical issue.

I've spent a lot of time advocating for libertarian ideas and free market solutions lately, and I'm often frustrated when the conversation turns to consumer protection. I argue that truly valuable services, including scientific testing of new medicines, food safety checks, and auto crash testing, represent a profit opportunity, and that the private sector would provide the service if the government didn't undermine competition by offering a 'free' solution. The logic is compelling, but my friends frequently say something like "That sounds good in theory, but I just don't think it would work."

Well, imagine my excitement to find this article in today's NY Times. The short version: several recent toy and jewelry recalls have been issued after consumer advocacy groups or individual 'consumer vigilantes' (!) independently tested products for dangerous contamination and reported troubling results to federal officials at the Consumer Product Safety Commission. The commission claims to welcome such tips, but consumers who've reported unsafe products complain that the commission is slow to respond and sometimes ignores them altogether. The commission has even been known to publically deny consumers' findings, and when they do acknowledge a problem, they give no recognition to the people who dedicated their own time, energy, and money to protecting the public. Sally Greenberg, executive director of the National Consumers League, described dealing with the commission as "screaming in the wilderness."

The Consumer Product Safety Commission is not an isolated case of bureaucratic sloppiness; rather, it's an illustration of the systematic failure of government. Such agencies actually hurt consumers in a number of ways:

(1) The government's 'free' solution makes consumers complacent with regard to their own safety. The notion that anything in the grocery store must be safe to eat or that any car must be safe to drive distorts consumer perception and makes it extremely difficult for profit-driven safety agencies to compete.

(2) The difficulty of dealing with government bureaucracy favors large, existing companies and disadvantages entrepreneurs, thus unnecessarily raising prices for consumers. Large companies have even been known to lobby for cumbersome regulation in some cases since it insulates them so powerfully from competition.

(3) The centralization of regulatory / safety authority spreads accountability until there is none. In an unregulated regulatory market, comparatively small companies would oversee specific sectors or dangers. Important sectors would probably be covered by more than one company, and business owners would have a strong incentive to protect consumers better than competitors. Just imagine what would happen to Aaron's Oral Hygiene Products Safety Co. if poison were discovered in a toothpaste Aaron had approved. Now contrast that with the current situation: government rarely even apologizes for its foul-ups and never shares authority.

(4) Government punishment lets bad companies off easy. Lobbyists influence the legislative process so that fines are usually modest, and in some cases companies knowingly take illegal actions because the profit opportunity is worth the risk of punishment. Consumer advocacy groups, if they had the money, could punish companies by attacking their brand image in the media – the punishment under this system would scale with consumer outrage. Some forward-thinking government officials, including New York Governor Eliot Spitzer, have already used this technique.

I'm all for keeping lead out of children's mouths – the question is how best to do it, and this is tangible evidence that the status quo is not the best approach.

Vote Ron Paul – if not for me, for the children.

This is a complicated situation, and I'm not in a position to offer lengthy analysis. The basic facts, though, are that Somalia has had 14 "transitional governments," the first 13 of which failed. The US has intervened militarily at least twice, once under Clinton and again in 2006 because the Islamist government was supposedly harboring Al Qaeda. I have no idea whether or not that was true, but the UN's top expert on Somalia now calls the 6-month period of Islamist rule the "golden era." In contrast, the current government, which we helped put in place, has presided over more bloodshed and higher malnutrition rates than currently exist in Darfur.

It's been hard to escape the ongoing coverage of Pakistan in Crisis over the last few days, but the facts are complicated, so I figured I'd offer a summary and some analysis.

First, some background: Pakistan's president, General Pervez Musharraf, took power in a military coup and remains the nation's top military commander. He's pro-West, speaks English, and considered a chief Muslim ally in the ongoing war on terror. He's always faced internal opposition, both from liberally-minded citizens who view his general-president role as a threat to democracy, and the hard-liner Islamist types who hate him for associating with the decadent West. He's survived a couple of assassination attempts over the years, and he's occasionally quarrelled with the nation's judiciary, but he's held on to power. Recently, though, things have got much worse. He's approaching the constitutional limit on his presidential term, but shows little sign of going quietly into the night. Instead, he's suggested that he might try to change the constitution to allow himself a longer term. Tensions have grown and there have been a variety of clashes between government and protesting forces. In the last few days, they've reached a new low. He's declared a state of emergency, which he's used to implement a state of near-martial law. The country's high courts and constitution have been suspended, 1 in 4 lawyers have been rounded up and jailed without specific charges, independent media outlets have been silenced so that only state-run TV remains, and nobody knows when this will end. Musharraf assures everyone that he's taken these actions to save Pakistan from extremists, but he seems headed for autocratic rule or an unfriendly ousting from power. The first scenario will almost certainly create a new front in the war on terror and in turn spawn a whole new generation of terrorists, while the second will give the existing extremists possible access to real firepower: Pakistan tested a series of 5 nuclear weapons back in 1998.

While it doesn't seem possible to track down a hard number, studies have estimated that we've given $10 billion in military to Pakistan since 2001. That might not seem like much -- only 2.5 weeks worth of Iraq war spending, at the current rate -- but it's an awful lot in a country where the per capita income is $2600 and 24% of the people live in poverty. Despite our "generosity," less than 20% of Pakistanis claim to have a favorable impression of the US, and it's not uncommon for crowds to gather in the streets to cheer "death to America" and burn the stars and stripes.

If this sounds familiar, it should. We've tried similar interventionist strategies and faced similar results many times. In 1953, when Iran's democratically elected prime minister tried to nationalize the oil industry, we installed a military monarch in his place. In the '80s, we armed and radicalized what has since evolved into the Taliban so that the Soviet Union would struggle to take over Afghanistan. Today, we're struggling to eliminate the Taliban, threatening to attack Iran if they decide to develop technology that we have (and share with their enemies), and wishing we hadn't created the Iraq quagmire. All of these unintended consequences, which the CIA affectionately calls "blowback," may ultimately seem small compared to a chaotic fall of Pakistan's government. They have every reason to hate us, and they already have the bomb.

What can we do? We don't have many good options these days, but I think we'd be best served to pull our troops out of the region, put an end to military aid, apologize for so much meddling over the last 50 years, open trade channels and share productive enterprise wherever possible, and hope they understand how much we've changed. This would not be an isolationist strategy; it would be a realistic attempt to overcome our sins and make friends with the world. For once we would lead by example rather than force. Ron Paul has outlined such a strategy in his recent book, "A Foreign Policy of Freedom: Peace, Commerce, and Honest Friendship."

Michael Pollan's NY Times article on the "farm bill" definitely bears reading. The central point is that the federal government is close to passing another monstrous set of commodity crop subsidies that will poison Americans' diets with high fructose corn syrup, further degrade the environment, and undercut low-income farmers in poor countries around the world. Don't take my word for it; digest every farcical morsel for yourself.

Ron Paul has never voted for a farm bill. My senators, on the other hand, need a letter.