David Strom

David Strom

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My commentary "Divided government: You know you want it" is now up at the Star Tribune.

Last week CNN came over to roll tape with my comments on the money going to the Heart of the Beast puppet theater from the legacy amendent, and whether it "stimulates" the economy or not. They visited Phil Krinkie at his place of work as well. You can see the result here.

 

 

The Tea Party Movement, the Republican Party, and the American people all scored a big victory this week with election of Scott Brown to the US Senate.

Brown’s election was almost certainly the last nail in the coffin of President Obama’s push for a comprehensive health care reform initiative. That’s the good news.

Unfortunately there’s the bad news that has so far remained unnoticed amidst the justified celebrations of the reform package’s demise.

Democrats have been making what seem to be encouraging noises about scaling back their health care package to cover only the popular portions of the bill. In doing so they hope to either encourage or bully Republicans into jumping on board the bandwagon. They emphatically will not, however, come close to adopting the smarter Republican ideas about how to reform health care. Instead, they will focus on the most popular portions of their bill and drop the least popular.

What would that mean? The centerpiece of their proposal will be banning insurance companies from limiting coverage for pre-existing conditions. This would be popular, and be very difficult for Republicans to oppose.

However good it sounds, however, passage of such a measure without a corresponding requirement that everyone buy health insurance would put the current insurance system into a death spiral.

Here’s how it would (not) work: by banning insurance companies from limiting coverage of pre-existing conditions Congress would be creating a massive incentive for consumers to abandon health insurance entirely, even to the point of moving into a fee-for-service model for routine health care. After all, most of us would pay much less for medical services than insurance premiums if we stick to going to the doctor for routine care.

 Sounds OK at first, doesn’t it. After all you would inject more market forces into the provision of routine health care, which would lead to lower costs and more competition.

But the flip side of that shift would be the trend of purchasing health insurance only after a serious medical condition hits in the family. Since insurance companies would have no choice but to accept all comers, a consumer could forgo purchasing insurance in good times, and subsequently shift the more expensive care onto insurance companies once disaster strikes.

That’s a great deal for consumers, at least at first. It would lower their outlay for health care without putting their finances at risk.

But how would that work for insurance companies? Put simply, their business model would likely collapse and insurance costs would skyrocket. The current insurance model works just like it does for car or homeowner’s insurance. Just as you can’t purchase car insurance to cover an accident after it occurs, you can’t purchase health insurance after you get sick.  Premiums paid in good times provide the financial cushion for the large payouts necessary when disaster strikes, the insurance premiums of the healthy subsidize the payouts of the ill. This is a good deal for everyone because none of us can indefinitely or reliably count on remaining healthy.

There’s an easy way to fix this problem, in principle: convert all insurance into high deductible policies that only cover major medical expenses, while maintaining stringent pre-existing condition exceptions (thus incentivizing insurance purchase). But that is not what Democrats have in mind, because it would not be popular with their core constituencies or indeed the American public at large.

Hence the potentially disastrous consequence of the collapse of the current health care reform package, however welcome that demise is. We could actually get something worse if this alternative is not headed off at the pass, and soon.

Of course this disaster scenario is predicated on the assumption that Democrats will be supremely cynical in their attempt to salvage something out of their defeat. Maybe I am not giving them credit for responsibility that they deserve. We can only hope.

Should Presidents lead, follow, or get out of the way?

Yes, is the answer.

I was thinking about this question because much of the discussion regarding the Massachusetts election centers on its implications for President Obama’s legislative centerpiece, the health care reform bill.

Republicans are pointing out, and they are right, that voters have been sending a message to Washington that they don’t like the health care proposal, and they want it killed. It wasn’t only Massachusetts voters, by the way, but Virginia and New Jersey voters and Americans as a whole through polls and in townhall meetings.

But I have been chewing over the question of what responsibility Obama and Congress have to rethink their legislative agenda in light of public opposition. Politically it would be wise to change course, and fast, but governing is not just about politics.

Obama and his liberal allies seem to believe that whatever its flaws, the health care reform package they put together is a substantial improvement over the current health care system. They assert, I assume honestly, that without these reforms our country will go bankrupt. Those beliefs are not shared by the majority of Americans nor by me, although almost everyone agrees that the current arrangements are deeply flawed and in need of real reform. If Obama does believe he is on the right path, should he change course to save his political hide?

This obviously brings up the question of whether politicians should lead, follow, or get out of the way.

Leadership is a grossly overrated virtue. Although necessary in times of crisis, and even in the management of institutions, great leaders are more a danger than a blessing in more normal times. Every politician wants to be a leader, but in a reasonably well-functioning society political leaders usually just muck things up. Government, at its best, tends to muddle through and satisfice. Good enough is a reasonable goal for government.

Successful politicians often follow or get out of the way, taking credit for things for which they have little responsibility. That’s fine by me. It strokes their egos and leaves the private sector to pursue the things which improve our lives. Government is especially good at providing pipes, pavement, police, and parks, and usually should stick to those things.

However, while leadership is often overrated, it is a quality we need in abundance in times of crisis. And in those times we need our politicians to pay attention to public opinion, but not be solely guided by it. Wars are the most obvious circumstance where this is true. Roosevelt maneuvered to help our allies in the early days of WWII, despite public opposition. Lincoln stayed the course when the Civil War was going badly. Nixon had a tough nut to crack in Vietnam. Reagan stayed the course during both economic crisis and to conclude the Cold War. And of course both Presidents Bush had their own wars to deal with.

Now if Obama is correct in his assertion that health care is in crisis and that the current course will bankrupt the country, one could argue that pushing forward in spite of the polls and political consequences is the right thing to do. I think it is an open question whether he or many of his allies believe this, or simply believed that getting a bill passed would be an historic achievement for which they would be lauded for decades. But assuming sincerity, Obama would be failing the test of leadership were he to abandon course due to political headwinds.

In some ways Obama faces a parallel situation to what Bush faced after his crushing electoral defeat in 2006, largely due to Iraq fatigue. In those circumstances Bush shifted course from an unpopular unsuccessful strategy to an initially unpopular successful strategy. He did so because he sincerely believed the stakes were too high to bow to political pressures.  He read the polls, ignored them, and was eventually proven right.

Does Obama believe the same? I don’t know. I believe that his diagnosis of the situation is deeply flawed and his solution will lead to disaster. Apparently Obama does not.

If Obama sincerely believes the American health care system is so deeply flawed that it will cripple the country, then I see no alternative to him choosing the hard path of leadership. Following or getting out of the way would not be options.

In sum, I hope Obama is a cynical politician who conjured up a phony crisis to shove a questionable policy  down our throats. If not, he has little choice but to lead and ask the rest of us to follow him into the bowels of hell.

On July 31st, 2009 the Minnesota Free Market Institute held its annual Milton Friedman birthday party. The event was a great success.  Over 100 people attended the Friday afternoon event, hosted by Free Market Institute Chairman Tom Kelly. A drawing was held for 10 copies of Friedman’s Free to Choose and several Milton Friedman posters.

I gave some brief remarks and offered a toast. You can read the text of the remarks here at the Minnesota Free Market Institute web site

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David's Tweets

  • DavidStrom

    RT @IMAO_: How many hours have Obama gone on and on about how the time for talk is over?

    by DavidStrom 39 minutes ago

  • DavidStrom

    I hav e pretty much the same thoughts about the Toyota recalls: http://nyti.ms/98EMgE

    by DavidStrom 40 minutes ago

  • DavidStrom

    RT @notJasonDeRusha: Tonight's Bad Question: How many snowmen must we lose before we win this war on Spring? #JournalismLives

    by DavidStrom about 4 hours ago

  • DavidStrom

    You have to give Obama credit for pushing popular issues: http://bit.ly/cNYz5t

    by DavidStrom about 10 hours ago