Power & Market

The Transportation Boom Ends

02/16/2019Doug French

Sales of Class 8 trucks (18-wheelers) hit the ditch in January, with orders down 58 percent from a year ago hitting a level not seen since October 2016, near the end of the transportation recession, “when Class-8 truck orders had plunged to the lowest levels since 2009, and truck and engine manufacturers responded with layoffs,” writes Wolf Richter.

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The other day I posted about the plunge in the Baltic Dry Index and now news is the Cass Freight Index dropped in December. The Cass “index covers shipments of merchandise for the consumer and industrial economy but does not include bulk commodities, such as grains or chemicals. It was the first year-over-year decline since the transportation recession of 2015 and 2016 — and trucking companies have seen this coming for months:”

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Baltic Dry Index

Shipping indexes provide a barometer for how the economy is doing. Less shipping means less buying, selling, and producing. Government interference in the form of low interest rates and the threat of tariffs pulled economic activity forward. However, now the economy is digesting that bubble (malinvestment) of activity. Richter explains,

The trucking business is a barometer of, and dependent on, the goods-based economy. In late 2017 through the summer of 2018, demand for transportation services, such as shipping by truck, surged under the simultaneous impact of a strong goods-based economy led by red-hot e-commerce; a buildup of inventories; pandemic front-running of potential tariffs, a resurgence of drilling activity in the oil patch that required equipment and supplies to be trucked in, etc. Freight rates spiked. Squeezed shippers wheezed in their earnings reports about these spiking transportation costs, while truckers were on Cloud-9 and ordered new trucks to meet the demand, and truck manufacturers were swamped with orders.

Now shipping activity has cooled off and trucking capacity has improved.

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The Flatbed Monthly Load-to-Truck Ratio by DAT tracks demand-capacity imbalances. After skyrocketing, the industry figured out how to deal with ELDs just as a slowdown in the industrial sector set in, particularly oil & gas. Now, the average load-to-truck ratio has plunged, down 41% from December a year ago.

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Talking about "Affordable Housing" on the Tom Woods Show

02/05/2019Ryan McMaken

Tom and I talked about how governments make housing less affordable, and how the best way to make housing more affordable is to build more. But both government planners and private owners will often join forces to prevent new housing from being built. Thus, the most commons "solution" ends up being schemes to subsidize housing.

 

Ep. 1334 The Government's War on Affordable Housing

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The Myth of Swedish Socialism with Per Bylund

02/01/2019Mises Institute

In a new interview with Pete Raymond, Sweden-born economist Per Bylund describes the Swedish economic system and takes a closer look at the claims of those who say Sweden is an example that ‘socialism’ can work in practice.

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The Reforms that Venezuela Needs Right Now

02/01/2019Rafael Acevedo

Venezuela's government is in a state of upheaval. Foreign nations are lining up to support either the regime of Nicolás Maduro — who claims to be the legitimately elected president — or that of Juan Guaidó, who the opposition claims is now the constitutionally mandated interim president.

The current situation has been brought on by nearly twenty years of Chavismo, a hard-left socialist ideology, which has left the Venezuelan economy in ruins.

Understandably, many Venezuelans are now hoping for a political change. and many believe no real change can be had until the current regime is gone.

But no matter who is president a week — or a year, or five years — from now, prosperity can only be regained by enormous reforms to the Venezuelan political and economic systems.

Venezuelans must act now to demand these changes, because bringing in new politicians won't be enough to turn the nation around:

  1. Open the road to monetary freedom, eliminating all legal tender laws and the nation's central-bank supported system of fractional-reserve banks. Allow Venezuelans to adopt whatever medium of exchange they wish. Even dollarization ought to be on the table.
  2. Open the country to International Trade: eliminate all tariffs, taxes, and trade barriers. All of them.
  3. Privatize Everything! All state-owned companies and assets, following Econintech's proposal.
  4. Decentralize the Government: Grant total administrative and budgetary autonomy to Venezuela's twenty-three states . Decentralization is a key to minimizing the damage an abuse central government can do.
  5. Lower taxes drastically, and decentralize tax collection and administration to the state level. All new taxes must be approved by referendum.
  6. Allow private Venezuelans to access and accept both humanitarian and security assistance from foreign organizations.
  7. Guarantee the right to self-defense: demobilize all the armed groups, purge the prisons, implement widespread private gun ownership, and auction to the public all weapons confiscated by the state.

Should Venezuela finally move toward real reform, Venezuela could reclaim its position as one of the most prosperous nations in Latin America. At times like this, Venezuelans can look at former communist countries — such as Poland — that applied radical free-market reforms and now are moving toward a far more prosperous future.

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The Statist (and Senseless) Agenda of Kamala Harris

It seems like every Democrat in the country plans to run against Trump in 2020 and presumably all of them will feel compelled to issue manifestos outlining their policy agendas.

Which gives me lots of material for my daily column. I’ve previously written about statist initiatives from Bernie Sanders and bizarre ideas put forth by Elizabeth Warren.

Today, let’s review the two big ideas that have been unveiled by Kamala Harris, the Senator from California who just announced her bid for the White House.

We’ll start with her idea to create a federal subsidy for rent payments. I wrote about this new handout last year, and warned that it would enrich landlords (much as tuition subsidies enrich colleges and health subsidies enrich providers).

Here’s some of what Professor Tyler Cowen wrote for Bloomberg about the proposal.

One of the worst tendencies in American politics is to restrict supply and subsidize demand. …The likely result of such policies is high and rising prices, restricted access and often poor quality. If you limit the number of homes and apartments, for example, but give buyers subsidies, that is a formula for exorbitant prices. That is what makes early accounts of Senator Kamala Harris’s economic plans so disappointing. …Consider Harris’s embrace of subsidies for renters, as reflected by her recent sponsorship of the Rent Relief Act of 2018. Given the high price of housing in many parts of the U.S., it is easy to see why the idea might have appeal. But the best and most sustainable way of producing cheaper housing is to build more homes and apartments. The resulting increase in supply will cause prices to fall… That is basic supply and demand, with supply doing the active work. The Harris bill, in contrast, calls for tax credits to renters. …There is an obvious problem with this approach. If you subsidize renters, that will push up the price of apartments. Furthermore, economic logic suggests that big rent increases are most likely in those cases where the supply of apartments is relatively fixed, a basic principle of what is called “tax incidence theory.” In sum, most of the gains from this policy would go to landlords, not renters.

In other words, this is a perfect plan for a politician who understands “public choice” theory.

Ordinary voters think they’re getting a freebie, but the benefits actually go to those with political influence and power.

Now let’s look at her $2.7 trillion tax cut. I believe that people should be allowed to keep the lion’s share of any money they earn, so my gut instinct is to cheer.

But it’s always good to be skeptical when a politician is offering something that sounds too good to be true.

Kyle Pomerlau of the Tax Foundation has done the heavy lifting and looked closely at the details. He has a thorough explanation of her plan and its likely impact.

The “LIFT the Middle-Class Act” (LIFT) would create a new refundable tax credit available to low- and middle-income taxpayers. …LIFT would provide a refundable credit that would match a maximum of $3,000 in earned income ($6,000 for married couples filing jointly). …The credit would begin to phase out for single taxpayers starting at $30,000 of adjusted gross income (AGI) and $80,000 for single taxpayers with children, and begin phasing out for married taxpayers at $60,000 of AGI. The phaseout rate for all taxpayers would be 15 percent. …LIFT’s impact on the economy is primarily through its effect on the labor force. LIFT phases in from the first dollar of earned income to the maximum credit of $3,000 per tax filer. It then phases out starting at different levels of income, depending on a tax filer’s marital status and whether they have children. These phase-ins and phaseouts create implicit marginal subsidies and tax rates that impact individuals’ incentive to work.

At the risk of oversimplifying, Harris is proposing a new version of the earned income credit.

And that means some taxpayers get subsidized for working and some taxpayers get penalized.

For taxpayers in the credit phaseout range, tax liability would increase by 15 cents for each additional dollar earned. This means that these taxpayers would face an additional implicit marginal tax rate of 15 percent, which would reduce these taxpayers’ incentive to work additional hours. In contrast, taxpayers in the phase-in range of the credit would get $1 for each additional $1 of income they earn. As such, these taxpayers would benefit from an effective marginal subsidy rate, or negative marginal tax rate, of 100 percent. A negative tax rate of 100 percent would increase the incentive for these taxpayers to work additional hours.

Kyle crunches the numbers to determine the overall economic impact.

While the positive labor force effects of the phase-in of the credit could offset the negative effect of the phaseout, we find that, on net, the size of the total labor force would shrink under this policy. This is primarily due to the large number of taxpayers that would fall in the phaseout range of the credit relative to the number of individuals that would benefit from the phase-in. …We estimate that the credit…would reduce economic output by 0.7 percent and result in about 825,906 fewer full-time equivalent jobs.

Here’s the relevant table from the Tax Foundation’s report.

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This is remarkable. It would seem impossible to design a $2.7 trillion tax cut that actually hurts the economy, but Sen. Harris has succeeded in that dubious achievement.

For all intents and purposes, she has figured out how to have an anti-supply-side tax cut.

And there are two other problems that deserve attention.

  • First, as noted in Kyle’s paper, the tax cut is “refundable.” This means that money goes to people who don’t pay taxes. In other words, it is government spending being laundered through the tax code. So Harris claims to be cutting taxes, but part of what she’s doing is expanding redistribution and making government bigger (and encouraging more fraud).
  • Second, Harris is very cagey about how the numbers work in her proposal. Does she want the tax cuts (and new spending) financed by more borrowing? By printing money? By offsetting class-warfare tax increases? Some combination of the three? Whatever the answer, the negative economic damage will be substantially higher if financing costs are included.

Considering the poor design and upside-down economics of the rent subsidy scheme and the new tax credit, the bottom line is rather obvious: Kamala Harris wants to buy votes, and she has decided that it is okay to hurt the economy in hopes of achieving her political ambitions.

No wonder she fits in so well in Washington!

Originally published at International Liberty
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The Austrian School at the European Parliament

01/16/2019Max Rangeley

Last year we at the European branch of the Ludwig von Mises Institute (Europe) organised the first ever Austrian school event in the European Parliament. Member of the European Parliament Amjad Bashir — a great supporter of free enterprise within the Parliament — kindly sponsored the event, which was set up to coincide with the release of one of the best books on the Austrian school in recent years, Banking and Monetary Policy from the Perspective of Austrian Economics.

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As well as me, the other two speakers were Member of the European Parliament Professor Joachim Starbatty MEP, and Brendan Brown, Chief Economist of Mitsubishi Bank, arguably the largest bank in the world by assets other than China’s state banks. While there have been other pro-enterprise and free market events in the European Parliament, they have all neglected the “money issue” so far, at least as those within the Austrian school would see it. Professor Starbatty MEP gave an eloquent outline of the Austrian business cycle theory, while Brendan Brown brought Austrian principles to bear on current issues in the banking sector. I decided to speak about the current bubble and how this can be explained with Austrian concepts. This event also reinforces the place of the Ludwig von Mises Institute (Europe) as one of the premier think tanks in Europe; within a few months we have published a defining textbook and introduced the Austrian school within the European Parliament itself.

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In my experience, more and more free market thinkers are tending towards the Austrian School, and it is the farce of years of zero percent interest rates that has achieved this. When the current Super Bubble bursts, we must be prepared to provide answers to how this bubble was created as many will blame the “free market” and demand the government “take action”.

Below you can see my speech in which I outlined how central banks’ policies of zero percent interest rates and quantitative easing have created the largest bubble in all of human history. The West has had a Faustian Pact with the central banking system for an entire generation, with each recession being responded to by creating an even larger debt bubble with ever lower interest rates -- and of course ever worse debt dependency.

Max Rangeley Speech in the European Parliament on the Coming Economic Collapse

The book “Banking and Monetary Policy from the Perspective of Austrian Economics” is published by Springer, one of the best academic publishers. The Ludwig von Mises Institute (Europe) did the excellent work of gathering contributors for the book, which includes Jesus Huerta de Soto, Walter Block, Guido Hulsmann and Gunther Schnabl as well as other great contemporary Austrian School thinkers. Annette Godart-van der Kroon, President of LvMI-Europe, edited the book. If you are a student or lecturer see if you can persuade your institution to get a copy.

Let’s hope the trend can continue with policy-makers taking an interest in the Austrian School. We have to be patient in explaining some of these issues, but more and more minds are open to explanations for how central banks distort the economy.

Incidentally, two days later I also gave a speech at the “Future of Money Conference” at the Frankfurt School of Finance and Management. People from the Bank of England, European Central Bank and Swedish Riksbank among others were discussing how money will develop over the next generation, including so-called Central Bank Digital Currencies (CBDCs, of which you will no doubt hear more over the coming years). I had the pleasure of hearing William White, former chief monetary economist at the Bank for International Settlements and Chief Economist at the OECD, give a terrific speech about the bubble created by radical monetary policy. Bill has had distinct Austrian tendencies during his time at the top of the global monetary establishment, citing Hayek and others in his work.

The intellectual tectonic plates within economics are shifting, and the Austrian School is well placed to provide explanations for the coming bursting of the Super Bubble.

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Trump's "Gut Feeling"

01/12/2019Doug French

Speaking to the Washington Post, President Trump said, “My gut tells me more sometimes, than anybody else’s brain can ever tell me.” This comment generated scoffs aplenty, as people imagine the receptacle of a daily intake of gallons of Diet Coke and multiple Big Macs somehow provides anything intelligent. However, this classic Trump quip has some merit after reading John Coates’s The Hour Between Dog and Wolf: How Risk Taking Transforms Us, Body and Mind.

Part II of the book is titled “Gut Thinking,” and the book’s thesis is that our minds and bodies are connected in our actions. Coates focuses his story on treasury bond traders who successfully act by instinct gained from experience. He writes, “Thinking, one could say, is something we do only when we are no good at an activity.”

“There are few phenomena in finance more remarkable, even mysterious,” Coates writes, “than this close linkage between market and body.”

The fact is, our bodies react to news and risks quicker than our brains do. Conscious thought is left in the dust when we react and especially when we take risks. Of course neoclassical economists would poo-poo the notion of our bodies reacting to threats and risks, after all, we’re all rational beings, doing what’s rational at all times. Yeah, right.

While the above is essentially Coates’s contention, he later writes,

Lifting the hood of our brain does not reveal the netherworld of Kant’s unsayable, nor the volcanic will of Nietzsche’s superman, nor yet the hellish subterranean den of Freud’s subconscious. It reveals something that is a lot closer to the inner workings of a BMW.

Not everyone’s brain is of BMW quality, not to mention the various levels of body quality. Traders, Coates contends, must have IQs that are “high enough,” but more important is “a hearty appetite for risk and a driving ambition.” Also important is physical stamina. He points out that many traders are ex-athletes.

Certainly, the president, has the ambition and risk appetite. His gut feelings, as Coates describes gut feelings generally, “act powerfully,” and “are not only real; they are essential to rational choice.”

The author contends the gut “has its own ‘brain.’ The vagus nerve, the main nerve in the rest-and-digest nervous system, links the brain stem, voice box, lings, heart, pancreas and gut. In total, 80 percent of its fibers carry information back to the brain, mostly from the heart and gut.”

As the book progresses, the focus turns to dopamine, testosterone, and cortisol. Dopamine modulates levels of motivation, how eagerly humans (or animals) want things. Dopamine drives humans to try new things and solve F.A. Hayek’s knowledge problem. “The knowledge of the circumstances of which we must make use never exists in concentrated or integrated form,” explained Hayek, “but solely as the dispersed bits of incomplete and frequently contradictory knowledge which all the separate individuals possess.”

Trying new things involves taking risks and that’s where testosterone comes in. Traders and entrepreneurs are driven by testosterone. Coates worries that testosterone lowering obesity, “may be dimming the gut feelings and entrepreneurial drive upon which our prosperity and happiness depend.”

Winning trades increase testosterone while market crashes deplete the hormone, sometimes for years. Testosterone feedback, unfortunately, can lead to traders and entrepreneurs to believe themselves invincible. And thus, rallies turn into bubbles. Coates mentions ill-conceived takeovers and record-breaking skyscrapers, providing biological support to Mark Thornton’s work on The Skyscraper Curse.

Cortisol is testosterone’s opposite. As markets crash, cortisol is released “causing [the] body and brain to hunker down for a long term.” Cortisol essentially immunizes the body against trauma, suppressing testosterone production, while being a powerful anti-inflammatory.

Cortisol levels rise with volatility. Coates speculates that this hormone forms “the physiological foundation of the derivatives market.”

Cortisol and CRH (a chemical produced during stress) lead traders (and everyone else one can assume) to be vulnerable “to rumor and suspected conspiracy.” Coates writes, “Each rumored catastrophe is now given as much credence, and has as much effect on markets, as hard economic data.”

“Cortisol is the molecule of irrational pessimism,” explains Coates. Older folks are especially susceptible because they stop producing testosterone and produce high levels of cortisol.

While professional traders and investors have high amounts of testosterone flowing through them, amateurs have “chronically raised cortisol levels.” The constant anxiety forces them to bail out of what could be winning trades.

The November 30th edition of the Elliott Wave Financial Forecast cited examples of the financial press attempting to keep individual investor spirits high. This was before the December downdraft in stock prices. For example, “Ignore the Gloom,” USA Today said.

Trump’s gut has it right. The stock market is in trouble and he knows he needs to blame someone — Fed Chair Jerome Powell — early and often.

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Trump's Neocons Reverse His Syria Withdrawal Plan

01/10/2019Ron Paul

I’m starting to wonder whether President Trump has any power over US foreign policy at all. Many people believe that the US president is just a figurehead, with actual foreign policy firmly in the hands of the deep state. Trump’s latest dramatic U-turn on pulling troops from Syria certainly feeds such theories.

When President Trump announced just a couple of weeks ago that the US was removing its troops from Syria and possibly reducing troops from Afghanistan, the neocons, the media, the military-industrial complex, and the left-wing “never-Trump” people were livid. They were silent when President Obama made the horrible decision to overthrow Assad in Syria and sent weapons to jihadists to do so. They never said a word when billions of dollars were committed to this immoral and dangerous “regime change” policy. They weren’t interested in the rule of law when President Obama thumbed his nose at Congress and sent troops into Syria.

But when President Trump declared the obvious – that ISIS was effectively defeated and that we had no business being in Syria – these above groups in unison declared that actually bringing US troops home was a “gift to Russia.” They said bringing US troops home would create instability in the regions they left. Well, is there any proof that occupation by US troops actually brings stability?

No sooner did President Trump announce our departure than his neocon advisors began walking his words back. First he had to endure a lunch with Sen. Lindsey Graham reading him the riot act, where, according to the Senator, Trump agreed to no timetables for departure. Then his National Security Advisor, John Bolton, and his Secretary of State, Mike Pompeo, began to tell the world that President Trump’s statements on troop pullout were just empty words, not US policy.

While Syrian Christians newly liberated from the rule of US-backed extremists celebrated Christmas for the first time in years, John Bolton dusted off the old warning to Assad that the US would attack if he “again” gassed his people. With the Syrian president personally taking part in some of the Christmas celebrations, does anybody really believe he’d go back to his office and order a gas attack?

Bolton then claimed that the US would shift troops from Syria to Iraq to continue fighting ISIS and that the US fully backs Israeli airstrikes on Syrian territory. Did President Trump even agree to any of this?

Even worse, Secretary of State Pompeo is embarking on a Middle East tour where he will essentially tell leaders in the region that the US president is a liar. According to one State Department official quoted in a report on Sunday, Pompeo’s message to the Middle East will be, “Despite reports to the contrary and false narratives surrounding the Syria decision, we are not going anywhere. The secretary will reinforce that commitment to the region and our partners.”

Calling the US president’s actual words on Syria “false narratives”? How is this not insubordination?

Will President Trump stand by and watch this coup taking place under his nose? Does he realize how his credibility suffers when he boldly announces a US withdrawal and the does a U-turn days later? Has he noticed recent polls showing that the majority of the American people agree with him? Why is he so intimidated by the neocons?

Reprinted with permission.

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The Democrats' Opposition to the Electoral College Reveals Their Distaste for Real Democracy

01/04/2019Ryan McMaken

That didn't take long. Now that the Democrats hold a majority in the House of Representatives, Democratic Rep. Steve Cohen (Tenn.) introduced a constitutional amendment to abolish the electoral college.

Cohen surely doesn't expect the legislation to pass. But now that the Democrats have the Speakers' chair and committee chairmanships, Cohen can now get more political mileage out of the bill rather than have it immediately "disappeared" by a Republican House leadership.

The bill does little more than revive the longstanding claim among leftwing populists that the US presidency ought to go to whichever candidate wins a majority of all the votes from all the states added together.

The effect would be to lopsidedly favor heavily urbanized coastal regions over other regions of the US. Without an electoral college, it becomes far more economical for candidates to focus their views and election efforts on a small number of highly-populated regions, while ignoring the rest of the country.

In an age when politicians continually decry how the US is so "divided," abolishing the electoral college would only serve to further drive apart politically distinct regions of the US by eliminating a political institution that encourages candidates to take positions more likely to appease voters outside the areas with the most heavily-concentrated populations.

Moreover, in an age when we're told to decry populism, and embrace a politics of "compromise," a rejection of the electoral college seems rather odd indeed.

After all, the purpose of the electoral college is to ensure that a successful presidential candidate appeals to a broader base of voters than would be the case under a simple majoritarian popular vote.

This, by the way, is a big reason that Hillary Clinton lost, and why the Democrats are convinced the electoral college is stacked against them.

The electoral college makes it harder to win by doing what Clinton did during the 2016 campaign: focus on a thin sliver of rich Hollywood and business elites, coupled with urban ethnics.It's true that those two groups can offer a lot of votes and a lot of campaign dollars. But they also tend to be limited to very specific regions, states, and metro areas.

The groups Clinton ignored: the suburban middle class and working class make up a much larger, more geographically diverse coalition. This can be seen in the fact that Trump won such diverse states as Alabama, Pennsylvania, and Wisconsin.

In 2016, the electoral college worked exactly as it's supposed to — it forces candidates to broaden their appeal. Or as a cynic like myself might say: it forces politicians to pander to a broader base.

There's Nothing "Undemocratic" About the Electoral College

The party-line on the electoral college, of course, has long been that it's undemocratic. In its coverage on Cohen's bill, the Huffington Post editorialized:

Another bill would get rid of the Electoral College, an archaic system of electing presidents that allowed Trump to win the presidency despite his rival, Hilary Clinton, receiving millions more votes.

The conclusion you are supposed to draw here, of course, is that the electoral college works against what we can all see is common sense: that the candidate with the most votes ought to win.

Unfortunately, many supporters of the electoral college adopt this line of thinking as well, and many think the primary benefit of the electoral college is that it's undemocratic. These claims are often accompanied by tiresome bromides about how the United States is allegedly "a republic not a democracy."

The truth, however, is not that the electoral college is undemocratic. It is, in fact, more democratic.

It's true that the electoral college prevents Clinton-style demagoguery. But 50 separate presidential elections (plus DC and the territories) is not somehow less democratic than holding one big national election. It's simply a democratic method designed to ensure more buy in from a larger range of voters, not less. Other similar tactics include "double majorities" as used in Switzerland. And for all these reasons, as I note here, the electoral college should be expanded:

Double-majority and multiple-majority systems mandate more widespread support for a candidate or measure than would be needed under an ordinary majority vote.

Unfortunately, in the United States, it is possible to pass tax increases and other types of sweeping and costly legislation with nothing more than bare majorities from Congress which is itself largely a collection of millionaires with similar educations, backgrounds, and economic status. Even this low standard is not required in cases where the president rules via executive order with " a pen and ... a phone ."

In response to this centralization of political power, the electoral college should be expanded to function as a veto on legislation, executive orders, and Supreme Court rulings.

For example, if Congress seeks to pass a tax increase, their legislation should be null and void without also obtaining a majority of electoral college votes in a manner similar to that of presidential elections. Under such a scheme, the federal government would be forced to submit new legal changes to the voters for approval. The same could be applied to executive orders and treaties. It would be even better to require both a popular-vote majority in addition to the electoral-vote majority. And while we're at it, let's require that at least 25 states approve the measures as well.

These sorts of measures mean more voting, more debate, and more public buy-in. It prevents knee-jerk policies designed to attack unpopular minority groups. Eliminating the electoral college, on the other hand, moves in exactly the opposite direction.

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This Obamacare Program Was Meant to Save Money, Instead it Killed Thousands

12/21/2018Tho Bishop

When crafting Obamacare, the top priority for policy writers was not identifying the best ways for patients to receive the medical care they needed, but instead to identify ways to reduce the costs of care. Rather than working to undo the labyrinth of regulation and government programs that directly contribute to the high costs of American healthcare, the policy wonks within the Obama Administration worked to identify ways government could save money by reforming existing programs and changing the operations of hospitals. 

One such initiative was the Hospital Readmissions Reduction Program, designed by the government agency in charge of Medicare and Medicaid. The purpose of the plan was simple, studies showed that 20% of Medicare patients discharged from hospitals ended up returning within 30 days – often for preventable causes. The aim of this new program was to incentivize hospitals to take proactive measures to treat such patients by penalizing them for high readmission rates.

The program was initially hailed as one of the most successful parts of the Affordable Care Act. Readmission rates went down, resulting in savings for the Medicare program. Some even called for expanding the program.

While the program did manage to save the government money, new studies now show that the savings may have contributed to thousands of preventable deaths.

In the New York Times, cardiologists Rishi K. Wadhera, Robert W. Yeh  and Karen E. Joynt Maddox, explained the findings of a new study looking at the program.

In their words:

[A] deeper look at the Hospital Readmissions Reduction Program reveals a few troubling trends. First, since the policy has been in place, patients returning to a hospital are more likely to be cared for in emergency rooms and observation units. This has raised concern that some hospitals may be avoiding readmissions, even for patients who would benefit most from inpatient care.

Second, safety-net hospitals with limited resources have been disproportionately penalized by the program because they tend to care for more low-income patients who are at much higher risk of readmission. Financially penalizing these resource-poor hospitals may impede their ability to deliver good care.

Finally, and most concerning, there is growing evidence that while readmission rates are falling, death rates may be rising.... If we assume that the program was directly responsible for these increases in mortality and that prior trends would have continued unabated, the program may have resulted in 10,000 more deaths among patients with heart failure and pneumonia.

The authors of the article conclude by asking the question “Why are policies that profoundly influence patient care not rigorously studied before widespread rollout?”

The better one is, “why should government policy makers be influencing the general practices of hospitals in the first place?”

Unfortunately this is simply the latest example of the dangers of government managed healthcare in America. From government insurance plans with payment schedules, to medical coding, to top-down government programs waged in the name of “costs control,” Washington politicians have continued to place government bureaucrats and insurance companies between a patient and their medical professional.

In the words of Dr. Michel Accad:

Of all economic sectors, health care should clearly rank among those most dependent on local knowledge. After all, how to best treat a patient is decidedly circumscribed in the here and now. Yet, lured by the idea that medicine is a scientific enterprise, we persevere in our attempt to manage health care with the same methods that would fail to optimize the construction and distribution of even a simple pencil.

While this new study should give pause to all federal policymakers striving for even greater government control over healthcare, we know that it won’t. Already the drumbeats are growing for the Democratic-controlled House to force a vote on the misnamed Medicare for All bill championed by Bernie Sanders and his fellow democratic socialists.

They will continue to say their program will “save money.” Those familiar with history will know it will simply cost lives.

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