Saturday, July 27, 2019

Comparing Presidents Reagan and Trump: The Case of Regulation


Thanks to a book written in 1986 by former Reagan CEA member William Niskanen, it is easy for an economist from the Trump CEA to rigorously compare economic policies and processes between the two presidents.  On these pages I will compare regulation, trade, tax, spending/deficit, and “draining the swamp.”  I will also look at policy processes and personalities.

The results surprised me and will likely surprise readers too.  The amount of deregulation in health, banking, environment, and employment is far greater during the Trump years than the Reagan years.  Telecommunications were deregulated by both presidents, but probably more so during the Trump years.  Natural gas may be a deregulatory area where President Reagan exceeded.  It terms of aggregate net benefits as a share of national income, it seems clear that changes in the natural gas industry were not enough to outweigh the deregulatory changes in health, employment, etc occurring during the Trump years.



Contrary to today’s conventional wisdom (more on this below), Niskanen in 1986 did not see Ronald Reagan as a major deregulator in practice:

“The failure to achieve a substantial reduction in or reform of federal regulations, building on the considerable momentum established during the Carter administration, was the major missed opportunity of the initial Reagan program.” (Niskanen, p. 115) 
“…all too often the administration ruled against a change in regulation that would benefit consumers at the expense of some concentrated business group.” (Niskanen, p. 137)

Telecommunications and Transportation

Specifically, Niskanen (pp. 119-20) cites a mixed record by the Reagan Federal Communications Commission (FCC) in terms of promoting competition in telecommunications.  In contrast, President Trump’s FCC removed anticompetitive vertical price controls from the wired and wireless internet service industries with its “Restoring Internet Freedom” rule.  President Trump and the 115th Congress also sharply reduced internet service prices by nullifying an Obama-era FCC regulation on the types of internet service products that could be sold to consumers.  CEA estimated that these two actions alone have net benefits of more than $50 billion per year (about 0.3 percent of national income).

By historical standards, 0.3 percent of national income is a lot for the net benefit of deregulatory actions for just one industry.  There are some historical industry deregulations that may be about that magnitude, such as the deregulation of airlines, trucking, railroads, or petroleum circa 1980.  These changes are sometimes associated with President Reagan, but as Niskanen accurately notes most of this deregulation occurred due to laws passed by Congress and signed by President Carter.

(Reagan's EO 12887 did, with some fanfare as his first EO, accelerate by 8 months the petroleum price regulations that would have automatically expired pursuant to the 1975 Energy and Conservation Act.  See also p. 102 of the 1983 ERP or p. 166 of the 1986 ERP.  Reagan's FAA also created a market in landing slots at the four largest airports; see 50 FR 52180 or pp. 178-9 of the 1986 ERP or pp. 218-20 of the 1988 ERP). Although little noticed at the time, the Bus Regulatory Reform Act of 1982 should also be credited to the Reagan Administration).

Natural gas

Before the 1980s, the natural gas industry was heavily regulated both at the wellhead and along the pipelines.  The 1978 Natural Gas Policy Act “provided for the phased deregulation of most gas discovered after 1977 but maintained price controls on ‘old’ gas.” (p. 121)  That is, partial deregulation at the wellhead occurred during the Reagan years, but only as the result of a law signed by President Carter.  President Reagan’s Federal Energy Regulatory Commission (FERC) did meaningfully add to this deregulation. Niskanen wished that deregulatory legislation had also been passed during the Reagan years, and it eventually was during the first year of the Bush Administration (the Natural Gas Wellhead Decontrol Act of 1989).  Led by Reagan- and Bush-appointed commissioners, FERC removed most remaining vertical price controls in 1992.  All of these actions together created net benefits estimated to be about 0.2 percent of national income.

Health

President Trump and the 115th Congress deregulated health insurance, especially by eliminating (technically, “setting to zero the penalty established by”) the individual mandate and removing Obama-era restrictions on: the sales of short-term plans, the pooling of plans among small employers, and the use of employer benefit dollars for individual-market plans.  As I wrote earlier, President Obama’s individual mandate was epically inefficient because it penalized people for turning down large amounts of government assistance.  These health insurance deregulations have net benefits estimated to be about $50 billion per year.

An Obama Administration rule prohibited insurers from offering a Medicare plan that failed to be "meaningfully different" from other plans.  This was a not-so-subtle tactic to limit competition among insurers; President Obama's Centers for Medicare and Medicaid Services (CMS) even bragged that the health insurance industry was in favor of this rule.  President Trump's CMS eliminated this requirement.

I am not aware of any significant health-insurance deregulation by President Reagan; none are mentioned by Niskanen.

Under both Presidents Reagan and Trump, the Food and Drug Administration (FDA) removed barriers to entry into prescription-drug markets.  According to Niskanen, the Reagan-era changes related to the entry of new drugs.  He does not provide any statistics (although see p. 218 of the 1989 ERP), but during the Reagan years there was no reduction in the inflation-adjusted price of prescription drugs as measured by the Consumer Price Indexes (this absence of a drop may reflect the “new goods problem” with the CPI).  President Trump’s FDA also eased entry for generic drugs, and a significant drop in prescription-drug prices followed, indicating net benefits of about 0.15 percent of national income.

Additional deregulation at the FDA occurred when the 115th Congress passed, and President Trump signed, the Right to Try Act allowing experimental therapies to be sold to terminally ill patients before the FDA has approved them.  Note that previously the FDA had other pre-approval processes in place that put more liability on manufacturers and involved more FDA and IRB involvement and, interesting, got additional attention from the Reagan Administration.

A recent Executive Order sets to relax price controls in the market for kidney donations.  Even the Washington Post applauded this partial deregulation.

The Obama Administration erected significant barriers to entry of new safer cigarette ("nicotine delivery") products.  The Trump Administration acknowledged the importance of product innovation and relaxed the Obama restrictions somewhat, although the British example suggests that there may be room for more beneficial deregulation.

Perhaps out of character with the overall deregulatory agenda (see also the principles articulated in the Administration's Choice and Competition Report), two significant new and costly regulations were proposed since 2017.  Over the objections of Administration economists, these proposed economic regulations were authored by the Department of Health and Human Services (HHS).  One of these was the "rebate rule" (a complicated system of vertical price controls), which the HHS actuary estimated would, among other things, transfer tens of billions from taxpayers (and most senior citizens) to pharmaceutical manufacturers.  President Trump ultimately told the HHS Secretary to withdraw this rule or receive an embarrassing return letter from the Office of Information and Regulatory Affairs (OIRA).  Another economic regulation from HHS further mandated the content of pharmaceutical advertising but has been struck down by a Federal judge pending a decision by HHS/DOJ to appeal.

Environmental

Neil Gorsuch’s mother led President Reagan’s Environmental Protection Agency (EPA), and Niskanen describes that she was “completely dependent on [a] staff” that she distrusted and that “EPA technocrats won the day.” (pp. 126-7).  He does give the EPA credit for “strengthen[ing] the emissions trading program on existing stationary sources of air pollution.” (p. 127)

President Reagan’s staff attempted to significantly reduce fuel economy standards for cars and light trucks, but only succeeded in reducing them by 1.5 MPG per vehicle (p. 122).

In contrast, President Trump’s Department of Transportation (DOT) and EPA have proposed to reduce fuel economy standards (which now are closely related to limits on Green House Gas emissions) by almost 13 MPG per vehicle below what they would be with Obama-era rules.  When this rule is finalized (press rumors say that the final rule is coming soon), I will provide a simple and obvious demonstration of why reducing the standards has especially large net benefits (including environmental costs).

(The Reagan Administration's DOT did attempt to reverse a Carter-era requirement that automobiles have passive safety restraints, but was reversed by the courts; this regulation was later updated as a requirement for driver-side airbags).

(Although not a deregulation, a worthwhile 1985 environmental rule by President Reagan’s EPA prohibited the sale of gasoline with lead content as high as had prevailed previously.)


Banking

Earlier versions of the Federal Reserve’s “Regulation Q” prohibited banks to pay interest to many of their depositors.  This price control was largely relaxed by a law passed before Reagan was inaugurated, although the Reagan Administration help extend the deregulation to saving banks.  “The [Reagan] Administration was less successful in changing other types of bank regulation.” (Niskanen p. 123)

In contrast, the “2018 Economic Growth, Regulatory Relief, and Consumer Protection Act… removes the restrictions from smaller banks that were misapplied to them as part of prior efforts to alleviate the ‘too big to fail’ banking problem. The CEA posits that this act ‘recognizes the vital importance of small and midsized banks, as well as the high costs and negligible benefits of subjecting them to regulatory requirements better suited for the largest financial institutions. [It] is expected to reduce regulatory burdens and help to expand the credit made available to small businesses….’” (CEA p. 14)

President Trump and the 115th Congress also nullified Obama-era (and trial-lawyer approved) rules prohibiting arbitration agreements in financial contracts.  His administration stopped the Consumer Financial Protection Bureau’s (CFPB) rule “to largely eliminate the payday lending industry…. The CFPB expected that its rule would reduce activity in the payday loan industry by 91 percent, even while acknowledging that consumers found the loans helpful for paying ‘rent, childcare, food, vacation, school supplies, car payments, power/utility bills, cell phone bills, credit card bills, groceries, medical bills, insurance premiums, student educational costs, daily living costs,’ and other pressing expenses.” (82 FR 54515 as quoted by CEA p. 15).

Page 121 of the 1983 ERP briefly notes deregulatory activity by the Commodity Futures Trading Commission under the Reagan Administration.

Employment

The only Reagan-era employment deregulations mentioned by Niskanen relate to regulations implementing statutory prevailing wage requirements for Federal contractors. (p. 124)

In contrast, the Trump Administration has removed or is removing (sometimes with the assistance of rulings by Federal judges) a number of costly employment regulations from the Obama years.  Perhaps the most costly of these is the Federal rule, ultimately nullified by President Trump and the 115th Congress, giving states permission to mandate employers to provide state-administered retirement accounts.

Other Obama-era rules imposed large costs on employers and employees for the stated purpose of providing labor unions a small advantage in recruiting members from new industries.  As a university professor, I was particularly bothered by the Obama National Labor Relations Board’s (NLRB) assertion that university graduate students are employees of their university rather than customers, and thereby should have the terms of the university-student relationship set by labor unions.  With President Trump’s appointments to the NLRB, this approach was stopped at the University of Chicago literally days before it was to go into effect.

CEA estimates that employment deregulations by the Trump Administration have net benefits of more than $40 billion per year.


Process changes

President Reagan’s Executive Order 12291 required Federal agencies to use cost-benefit analysis to evaluate major rules.  It also helped the OIRA get more involved with regulatory approval.  The results above suggest that EO 12291 did not cause much deregulation (a fact ignored here), although one could argue that it constrained new regulations during the Reagan Administration and beyond.  There is something to the argument, but it should be noted that President Clinton weakened the Reagan order with his EO 12866 by requiring only that a rule’s benefits “justify” the costs.  In practice this means that benefits are typically described in purely qualitative terms, which (together with other process maneuvers) allowed President Obama and others to implement rules where costs greatly exceed benefits.

President Trump’s Executive Order 13771 established a budget for regulations, including budget constraints for each agency.  A lot of deregulatory activity followed EO 13771 (many cited above), but that connection cannot be entirely causal.  For example, independent agencies are not covered by EO 13771 but nonetheless FCC, CFPB, and others meaningfully deregulated (unless they were solely motivated by the threat of coming under an update of EO 13771?).  Another question is whether EO 13771 will last as long as EO 12866; one perspective is that budgeting aligns so well with common sense and is familiar enough to Congress that Congress will one day take over regulatory budgeting so that future presidents have little choice in the matter.


Other commentators on Reagan vs Trump deregulation

Using different methods from above, Patrick McLaughlin and former OIRA administrator Susan Dudley also concluded that President Trump’s deregulation is extraordinary even when using President Reagan as a benchmark (see also here).  Dudley’s chart, reproduced below, shows how President Trump’s “executive agencies completed 33 final economically-significant regulations, in contrast to 89 during the same period in the Obama administration and 63 in the Reagan administration.”


Final Economically-Significant Regulations - First 18 Months in Office

Without citing specific regulations from the Trump era, the usual suspects dismiss claims that deregulation since 2017 has been quantitatively important compared to what happened during the Reagan years.  The New York Times’ “Fact Check,” for example, cites elimination of unnamed “economic regulations in the transportation, telecommunications and energy industries” during the Reagan Administration without acknowledging what has happened in those industries since 2017, let alone what recently happened in the health insurance and banking industries, or what has happened with employment regulation recently.  Others limit the Reagan-Trump comparison to environmental regulations, without any quantitative discussion of vehicle fuel economy and emissions standards.  Others cite Reagan as the big deregulator because of the novel deregulatory ideas that were discussed, albeit never implemented.

Others acknowledge the differences between President’s Trump and Reagan, and attempt to explain them.  Professor Marissa Golden points out that Reagan had a divided Congress whereas President Trump began his term with Republican majorities in both houses.  Indeed, significant deregulation came about when the 115th Congress and the Trump Administration used the Congressional Review Act to nullify several Obama-era rules.

To that I add that President Trump happened to follow a prolific regulator (Obama), which made it comparatively easy to find costly regulations for elimination.  In contrast, President Reagan followed Carter who had already charted the elimination of some of the most costly regulations of his time.

[trade, tax, spending/deficit, and “draining the swamp” are coming later.   The Reagan-Trump comparison on trade policy is particularly surprising.]

Friday, July 12, 2019

Economic Theory in the White House: The Rebate Rule

The "rebate rule" was proposed by the Dept. of Health and Human Services (HHS) in February 2019.  It would have prohibited rebates in the Medicare Part D prescription drug market.  Chicago Price Theory was intensively used in the White House to project the effects of the rule on market outcomes and the distribution of surplus between senior citizens, taxpayers, and firms at various positions in the supply chain.

HHS described rebates as follows "Prescription drug manufacturers prospectively set the list price ... of the drugs they sell to wholesalers and other large purchasers. Manufacturers also retrospectively pay PBMs or other entities in the drug supply chain, under rebate arrangements, that meet certain volume-based or market-share criteria." (84 FR 2340)  The Part D rebates alone exceed $30 billion per year and this rule by itself was projected to increase the Federal deficit by about $20 billion per year, which is historic as a single regulation.

This proposal to eliminate rebates was obviously controversial, as reported in the news and evidenced by the facts that the rule was proposed, received almost 26,000 comments from the public, and then this Thursday was withdrawn by HHS.  The proposed rule was complicated because it was a vertical (business-to-business) price control in a market that already has nonlinear pricing, nonlinear and interdependent government subsidies, and longstanding price regulations of various kinds.  The President himself described the rule as requiring a 193 IQ in order to understand its effects:
But prescription drugs, look, it's a rigged system, OK, if I told you how crazy it is, the Web, it's the Web, you need 193 I.Q. to even understand.  This web of geniuses, they put this thing to lower drug prices. It has 19 effects here and 27, so we got it down and we're getting it down further. We have the smartest people, the best people in that world working on it.... (President Donald Trump April 27, 2019, Green Bay WI)



[other of the regulations discussed in that speech were analyzed with Chicago Price Theory too.  Several dozen parts of other CEA reports draw closely on specific pages of Chicago Price Theory].

I agree that it would be essentially impossible to understand the economic effects of this rule in a timely manner without the extensive assistance of Chicago Price Theory and Automated Economic Reasoning. An important tool for analyzing nonlinear pricing is affectionately known as "the Murphy football" among Chicago economics students (and I associate with this Klein and Murphy article about competition with nonlinear pricing; see Chapter 5 and Chapter 13 of the text).

The football picture shows, among other things, the distinction between list price and net price (i.e., list minus rebate), but in order to prevent revealing too much of the answer to one of the new book's homework problems, I show it in more abstract form below.


For the same reason, among others, I will not say what was CEA's projected impact of the rule.  But take Chicago Price Theory and perhaps you can join the "web of geniuses."

There is no other textbook that teaches the "Murphy football."

There is no other textbook that brings its students so immediately to rigorous and timely policy applications of economic theory.


Tuesday, July 9, 2019

"No One in Ohio Cares About Burma": The Washington Bubble

Less than 600 Federal employees are directly accountable to the voters.  Almost a half million Federal employees live in the DC metro area and are accountable to someone who lives in the DC metro area.  Naturally, Federal agencies are sensitive to media coverage, and journalists and think tanks covering Federal matters also disproportionately live in the DC metro area.

This results in groupthink, a.k.a., the Washington bubble.  Groupthink results in unnecessary errors, of which being surprised by the 2016 election is the most famous instance of a large sample.

Both General Kelly and Mick Mulvaney encouraged EOP staff and agency leadership to spend time outside the Washington bubble.  E.g., holding policy events outside the bubble, or even going to the site of a Presidential rally.  CEA’s high turnover helps too, although professors living near DC are disproportionately interested in taking a CEA position.

I went home to Illinois every other weekend and immediately noticed the contrast.  Here are three examples drawn from those trips.

The opioid epidemic.  Between 2009 and 2016, there were over 100,000 U.S. overdose deaths involving illicit opioids (especially illicit fentanyl).  I have been to funerals in Illinois where overdose was the cause of death.

Yet, in the Washington bubble, attention to this subject was low.  The CEA published 16 Economic Reports of the President during the Bush and Obama Administrations, and none of them mentioned opioids, overdoses, or heroin.  By comparison, the 2013 Economic Report of the President had a full chapter on climate change.  (That attention to the opioid epidemic changed beginning with President Trump's CEA).

I’ve read two memoirs from staffers in the Obama White House.  Rhodes’ memoir mentions climate change 21 times (Trump is mentioned 95 times) but never the opioid epidemic.  The 2016 meeting between Presidents Obama and Xi receives a lot of attention in the book because climate change was discussed, but no mention of the Chinese production and export of illicit fentanyl (fentanyl was a topic of the meeting, but apparently not important enough to explicitly appear on the White House fact sheet, which did mention space debris and protecting elephants). 

(A related film that also features Samantha Power and Susan Rice also has a lot of climate change and zero opioid epidemic).

Pfieffer’s memoir mentions climate change 9 times (Trump 303 times) but never the opioid epidemic.  (The "fact-checked" memoir does find space to declare that, with President Trump, we staff "wander[] the halls of the White House doing dumb, mean, s[]t"). 

In contrast, the memoir Hillbilly Elegy -- cited by the New York Times as one of "6 books to help understand why Trump won" -- mentions climate change zero times and (in some detail) the opioid epidemic ten times.

To be a bit more systematic about this, I looked at google trends for “fentanyl” and “climate change” state by state over the past 5 years.  The results are well summarized by comparing Ohio and DC, both of which had age-adjusted overdose death rates of 39 people per 100,000 in the year 2016.  By this metric, Ohio's attention to fentanyl was more than triple DC's, as shown in the chart below.






Wage stagnation.  Last summer the bubble’s economic meme was that real wages had “stagnated”: that is, since 2016 (if not longer) worker’s wages had not advanced beyond inflation and that workers were suffering from “feeble bargaining power.”

Meanwhile back home I was seeing more striking workers than I can ever remember.  Is that what feeble bargaining power means?  Local friends and neighbors asked me “I read/heard about this ‘wage stagnation’ stuff – why aren’t I seeing it in my line of business?”

CEA had been working on a report about measuring wage growth, using the economic literature on how to do such things.  The report showed that wages were growing significantly more than inflation; the groupthink was wrong.  More surprising, some of the perpetrators of the groupthink acknowledged that they had suspected that real wages were growing but for some reason did not speak up about their understanding until CEA’s report was published.  (The charitable interpretation is that, living in the bubble, they viewed it as too risky to say what they knew until CEA offered more evidence as protection).


The cost of an American lifestyle in a Nordic country.  As part of its work on socialism, CEA looked at the costs of living an American lifestyle in a Nordic country.  Part of the American lifestyle is driving a vehicle.  Because the top three selling vehicles are pickup trucks (I see them all the time at home), our October socialism report looked at the cost of owning and operating a pickup truck in Nordic countries.

That was a mistake (entirely mine).  Although the President’s speeches (which rely on some of CEA’s socialism findings) are for the entire country, CEA reports are primarily read inside the Washington bubble where pickup trucks are objects of derision.  So the subsequent Economic Report of the President's socialism chapter deleted all references to pickup trucks and change the analysis to a Honda Civic.


Much of the public has an interest in bringing outsiders into elected Federal offices.  While an outsider can initiate important changes, he still has the challenge that much of the Federal manpower lives and works in the Washington bubble, if not originating from it.

Many among the UNELECTED in the Washington bubble are unaware of the gaps above, and at best dimly aware of any gap at all, between them and the rest of the nation.

Take Ben Rhodes (unelected), who had to be repeatedly reminded by (elected) President Obama that "no one cares about Burma in Ohio" (pp. 174, 390 of Rhodes' memoirs).  Mr. Rhodes absorbed the lesson well enough to italicize it in his book, and well enough to recall that candidate Obama himself ran against the DC bubble (p. 403), but not deeply enough to think about gaps such as those mentioned above (or the economic damage from Obamacare, historic regulatory overreach, etc.) that in principle his party could manage.  Even with a year of reflection, the best he can discern is that his party lost the White House and both houses of Congress primarily due to "racist, mean-spirited, truthless politics" (p. 401).

The best Dan Pfeiffer (p. 95) can discern is that technological change in journalism created an environment where a purportedly unqualified outsider could win a Presidential election.  Pfeiffer does perceive that the economy may be one issue among many (pp. 269-71), but only regarding economic messaging; there were no policy mistakes between 2009 and 2016 that caused significant and genuine harm to voters living outside the Washington bubble.

There is a London bubble too, with a large gap in perspectives between those living in the London metro area and those living elsewhere in Britain.  Sir Kim Darroch invited me, several White House staffers, and many others from DC to an April event at the British embassy with Phil Hammond as guest of honor.  I was shocked that the public remarks were so straightforward as to their continued disdain for UK and US voters' decisions, almost 3 years past.  I expected that Darroch and Hammond would have short political life spans but not so short that Darroch would enter political intensive care already today.

As the Spectator put it,
"This high-handed [policy-making] process relieves us of the burden of thinking about what our rules will do to individuals on the receiving end. In its own way, this is a species of dehumanisation; when people rebel at the ballot box, we are shocked."

[My experience at the Irish embassy was entirely different (a smaller group with Finance minister Paschal Donohoe and Ambassador Daniel Mulhall).  Although preferring that UK remain (Ireland is part of the EU, so exit would put an EU-nonEU barrier on their island), these smart, thoughtful people understood why many British would want to Brexit.  Perhaps there is no "Dublin bubble"?]

Consider it good news for US political outsiders that the Washington bubble shows little sign of adjusting its outlook.



Monday, July 8, 2019

Marxist Provisions in "Medicare for All"


This post refers to four bills entitled “Medicare for All”: two introduced in the previous Congress (S.1804H.R.676) and two bills recently introduced in the current Congress (S.1129H.R.1384).  Although few people have actual read them, they are popular and enjoy enthusiastic support.  The bills’ titles give the impression that they are merely opening up the U.S. Medicare program to all ages.

The titles belie the actual text.  Closely following Marxist principles, the “Medicare for All” bills eliminate profits and private enterprise in health-related industries.  They centralize decisions about capital investment.  They give healthcare away “for free.”  These provisions are rarely undertaken by other countries and are contrary to media claims that actual Federal policy proposals have little to do with socialism or Marxism.

                                              
Prohibition of profits

The net operating surplus of a business is its revenue minus depreciation, labor costs, and materials costs.  The net operating surplus of an economy is the net operating surplus added across all of its businesses.  It can also be called profit, as long as capital or financing expenses are not subtracted.

According to Karl Marx, net operating surplus exists only because of the exploitation of workers by the capitalist class.[1]  Time preference and other “reasons” for a positive net return on capital are merely bourgeois justifications (i.e., flimsy excuses disseminated by capitalist-financed commentators) for labor exploitation.[2]

Zero net operating surplus is therefore necessary to eliminate exploitation by Marx’s definition.  The two House “Medicare for All” bills (hereafter, M4A) would prohibit health providers from earning profits.  As the new House bill puts it:

There is a moral imperative to correct the massive deficiencies in our current health system and to eliminate profit from the provision of health care.[3]

In contrast, neither profits nor net operating surplus are prohibited in the current Medicare system.


Government ownership of an entire industry’s businesses

Government ownership of the (nonlabor) means of production is one socialist proposal for eliminating profits.[4]  That is, the government would effectively (if not legally) own all businesses in the industry: it would make all business decisions and prohibit private control of any competing enterprises.

All three Medicare for All bills take the “single payer” principle literally and have the government taking over the health insurance industry.  The Federal government would monopolize the industry; private health insurance would be prohibited (it would be legal to sell insurance for “cosmetic surgery or other services and items that are not medically necessary” -- is that health insurance?).  Under the new House bill, the same applies to the medical-advertising industry.  This is contrary to the current Medicare system, which has thousands of private providers, more than one thousand private insurers, and permits advertising.

If consumers were better served by an industry with zero net operating surplus, the prohibition of private enterprises might seem redundant because they would be outcompeted by a nonexploitive (and unsubsidized) government business.  A second justification is therefore added: that health insurance – if not health care in general – has virtually unlimited economies of scale.  A government monopoly of health insurance would purportedly “be more productive by avoiding 'waste' on administrative costs, advertising costs, and profits and would use its bargaining power to obtain better deals from healthcare providers.”[5]

The new house bill also has the Federal government monopolize the dissemination of information to patients and health providers about health goods and services.  Specifically, providers are prohibited from advertising/marketing/promoting their health goods and services and, based on the costs of dissemination, we presume that the Federal government would be the only institution doing it.[6]  Under current Federal policy, providers are permitted to advertise, especially when product promotions involve discounts or the provision of product information.  This activity is especially significant in the pharmaceutical industry, where resources are spent disseminating pharmaceutical information to health professionals.


Central planning: all capital investment is directed and financed by the Federal government

Providers, which would have no profits, are prohibited by the new House bill from using M4A reimbursements to pay for capital investments (Sections 614(b), 614(d) and 611(b)(3)). Capital investments would be approved, prioritized, and financed by the Federal Department of Health and Human Services (HHS).[7]  Charitable contributions cannot be used to supplement the HHS capital budget (Section 614(c)(4)).

In contrast, the current Medicare program allows providers and insurers to make capital investments without HHS approval.


“Free”: Patients receive health goods and services with zero cost sharing

Aside from the normal tax obligations, none of the four M4A bills charge patients for health insurance premiums or at the point of use. 

In contrast, the current Medicare program has premiums and copays to be paid by program participants.


Other countries’ health programs are not so Marxist

Nordic countries are held up as purported proof of concept for Medicare for All, but in fact they do not adopt any of the Marxist provisions above.

All of the Nordic countries’ health systems have user fees or out-of-pocket payments, whose share of overall health spending is similar to what it is currently the case in the United States—although Denmark is the Nordic outlier, in that its patient cost sharing is essentially limited to prescription drugs.[8]

Private and for-profit health providers and health insurers exist in these countries and are accounting for a growing share of the market.

Private health insurance is important in a number of other universal-coverage countries, such as Switzerland, where all residents are required to purchase health insurance.[9]

Even single-payer countries allow providers to promote their products to health professionals.[10]





[1] Marx 1867 refers to net operating surplus as “surplus value.”
[2] Time preference is the term familiar from modern economics; Marx (1867, Chapter 24) called it “abstinence.” (Later Böhm-Bawerk 1890 distinguished the abstinence theory from the modern idea of time preference, but the distinction is unrelated to Marx's discussion of abstinence).
[3] H.R. 1384 Section 614(a), emphasis added.  See also Section 103 of H.R. 676 that requires all health providers to surrender their for-profit status.  For an alternative view, see McCloskey (2016, esp. Chapter 59 and 61).
[4] Marx (1867) focuses more on the existence and magnitude of surplus value rather than the ownership relations that allow it to exist.  See also Roemer (1982).
[5] Quoted from CEA (2019, p. 420).  For evidence of the modern currency of these views, see Kliff (2014), Kliff (2018), Frank (2017), Konrad (2017), and Weisbart (2012).  CEA (2019) notes that historical nationalizations were justified on similar grounds.
[6] H.R. 1384 Section 614(b)(1).
[7] Section 614(c).  Capital investments are defined to be "the construction or renovation of health care facilities, excluding congregate or segregated facilities for individuals with disabilities who receive long term care services and support; and major equipment purchases." (Section 601(a)(6)) and later as "expenses for the purchase, lease, construction, or renovation of capital facilities and for major equipment."
[8] Universal coverage systems are common internationally, but they are different from free health care and from single-payer systems.  Regarding cost sharing, see Rice et al. (2018); Globerman (2016); Anell, Glenngård, and Merkur (2012); Olejaz et al. (2012); Ringard et al. (2013); Sigurgeirsdóttir, Waagfjörð, and Maresso (2014); and Vuorenkoski, Mladovsky, and Mossialos (2008).
[9] See Sturny (2017). The Netherlands achieves universal coverage by mandating the purchase of health insurance from private insurers (Wammes et al. 2017). Private health insurance is also required in Japan (Matsuda 2017).