ACA

Accountability, Equality, and Partial Fairness

Seal of the Handicapper General - Harrison Bergeron

Seal of the Handicapper General – Harrison Bergeron

One of the bigger problems with the ACA or any health insurance system which outlaws medical rating is its removal of the financial consequences of bad health habits. Progressives believe heavy taxes on cigarettes will reduce smoking and thereby reduce lung cancer and early death; a financial penalty on a self-destructive habit justified by the social welfare state’s future payment of medical expenses. (One issue is whether this is even true — it turns out most actuarial calculations show those who die early as a result of lung cancer have less spent on their medical care in old age and forego social security payments, so they save the welfare state money.)

But if you equalize the cost of medical insurance regardless of health habits, you are reducing the consequences of unhealthy habits and thus encouraging them. Accountability — having to be responsible for one’s actions — suffers under equalizing systems. Drivers with many accidents and drunk-driving convictions on their record will pay much more for (and find it difficult to even obtain) car insurance, and that’s normally considered a Good Thing because we want there to be financial penalties for habits that endanger others, like driving recklessly or under the influence.

The reasonable objection to charging for health insurance based on health record is that health status is only partly controlled by previous habits and behavior; a big chunk is genetics and chance. So it seems unfair to those who are sick because of bad luck in the genetic lottery — or even by accident, as cancers, for example, are thought in some cases to be created by accidental mutations, and only some cancers are caused by avoidable environmental exposures like smoking.

And many children begin life behind the eight-ball, having inherited problematic genes that make them more likely to suffer from conditions that cost a great deal to treat. Should insurance companies be able to use the results of genetic tests to offer low-cost policies to some, and much higher-cost policies to the unlucky?

In a laissez-faire world, insurance is an adversarial game with customers trying to hide any damaging information from the insurer as the policy is being sought, and the insurer doing their best to deny claims afterward. As a result, governments set up insurance commissions and regulators since it was impractical to adjudicate disputes over every consumer’s insurance policy in an expensive court of law. Arbitration and insurance commissions have done a fairly good job in the past of managing this conflict of interest, with some states being more pro-consumer than others.

One partial workaround for the medical rating problems is the idea of “continuous coverage.” The initial risk pool is assumed equal, and anyone who keeps paying for coverage continuously is allowed to stay in that average-risk category because some small part of their earlier premiums is true insurance — covering the risk that a health issue will turn up which makes them a bad risk in the future. Insurance contracts typically cover one year, and so if there is no requirement to continue coverage beyond that contract, rates could adjust upward or renewal could be denied based on negative events that happened during that year. Requiring renewal at the same rate as the rest of the risk pool makes the contract insurance against the long-term costs of treating any illness acquired during the period, not just that year’s costs.

What happens to people who allow their insurance coverage to lapse because they can’t afford the premiums or simply forget to pay? Most states had a high-risk pool with required must-issue, but rates were very high (of course — since the people seeking insurance under it were far more likely to need expensive care in the short term.) Some hybrids, like exclusions for pre-existing conditions for six months or a year, helped get people coverage at in-between prices.

The PPACA (“Obamacare”) tried to eliminate the problem with must-issue (no one could be refused insurance) combined with narrow time windows for seeking coverage and penalties for going uninsured. These were intended to force everyone to get insurance and to keep them paying for their insurance even if they were being charged much more than they were likely to receive in benefits. Younger, healthy people were expected to pay more to cover the costs of older, sicker people. In practice this did not work — even the subsidized rates were too high to get healthy young people to join up, and the penalties of going without insurance were small compared to the inflated new prices for insurance. So individual insurance coverage pools shrank and were dominated by new customers needing a lot of expensive, deferred care, and rates rose further as doctor networks were narrowed and more healthy people stopped paying.

The Supreme Court’s ruling deeming the ACA constitutional was only partial — the attempt to force states to increase Medicaid enrollments was deemed unconstitutional, so many states did not expand Medicaid. This left a bizarre hole in coverage in those states where a person could make too much to get Medicaid coverage, but too little to get private insurance subsidized through the exchanges. And the expansion greatly increased Medicaid enrollments in those states that participated, accounting for nearly all of the decrease in the uninsured in the US, but Medicaid itself has never been shown to improve medical outcomes or decrease mortality, and many people complained that they were forced to join Medicaid when they would have preferred to buy private insurance.

Also, the Supreme Court’s swing voter on the case, Chief Justice John Roberts, specifically warned that the fine for not having approved insurance was only constitutional if it was viewed as a tax, and an increase to the fine to an amount sufficient to force compliance would make it unconstitutional. This cuts off the ACA proponents’ attempt to raise fines to try to force more enrollment.

Which brings us to the subject of this essay — how do we decide what is fair when consequences of simple bad luck and genetics are mixed with the downside of behavior under a person’s control? Suppose a well-off person (let’s say the son from a wealthy family who left him a trust fund) drinks, smokes, and plays video games all day throughout his life. In his 40s now, he’s obese and unhealthy, with emphysema and cardiac problems imminent. Should his expensive future healthcare be subsidized by middle-class families who have worked hard, exercised, and been careful to avoid bad habits? That is the way ACA policies are now set up. Even unsubsidized, policies for wealthy people in poor health are much cheaper under the ACA than they would be in a free market, and those who have restrained their appetites and sacrificed to maintain their health better pay more than they otherwise would to make up for those costs.

But there’s no easy way to separate those “bad unhealthy” people whose illness is due to their own choices from those “deserving unhealthy” people who are ill because of chance or genetic inheritance.

The ACA plan tried to compel more equality of premiums regardless of actual risk or likely use of medical services, which removed some of the incentive for healthier behavior and burdened those who made the effort and sacrifice to keep themselves healthy. This tried to protect those who were simply unlucky, but many of those people are worse off than they were under previous high risk pool plans provided by the states, and have had their care disrupted or cut off by the high prices and narrow networks.

Every complex system is adaptive, and human systems especially so, with people quite capable of understanding the rules and seeking out every loophole to their advantage. The ACA has failed because people aren’t easily herded by programs designed by committees, and by finding the loopholes (paying for one month and using it for three, staying off until actually ill then signing up under the many loopholes in enrollment windows to get expensive care then dropping out again), the people have ensured the ACA cannot be sustained in its current form.

The ACA, which was promoted as saving everyone money, has ended up being much more costly for most than the old system. It has helped a few, but cost far more tax and premium dollars to help those few than a direct subsidy to the existing high-risk pools would have. The redistributionists have again discovered that unintended consequences will make nonsense of their social engineering schemes.

Philosopher John Rawls is usually cited by progressives intent on redistribution; his thought experiment suggested we view a system as just if we would choose it willingly, not knowing in advance what advantages or disadvantages we would be born with. You can argue that much behavior is also dictated by fate — our example of the obese videogamer may well have been doomed by being born into his particular family with parents who could not guide him toward a better way of living. But under that view, no one is responsible for anything, and we know that people can change to overcome even the worst background and genetic inheritance. Removing rewards for modifying one’s behavior toward the socially-valuable means a society which is less civilized and poorer in every way.

The classic Vonnegut story “Harrison Bergeron” takes equality to the extreme. The government has decreed that all must have equal abilities and outcomes, and so those who are more intelligent or talented are handicapped to bring them down to average. Of course, this becomes a nightmare with tragic outcomes as society grinds to a totalitarian halt.

But suppose we already have a little bit of this deadening effect introduced by the government’s emphasis on hiring by ethnicity or sex rather than ability. Would we even realize that the but-for world where only merit is considered would be wealthier, happier, and more fulfilling for most if not all people? If one has never seen a ballet performed to perfection by the most talented dancers on Earth, would we notice that the dancers are being dragged down by lead weights they have been forced to carry — or selected for political reasons rather than talent — making their performance less satisfying?

Socialists and redistributionists tend to think diversity and choice and product improvement are not as important as providing the poorest an equal quantity of goods, and the central planners of the USSR counted quantities of production, not quality; the stories of great quantities of useless, poor-quality, ugly products available from state stores while people schemed and bribed to get better-quality goods from abroad show how central planners failed to understand what mattered to the people. Even Bernie Sanders, who should know better, suggested there was too much choice in deodorant and shoes, and restricting choice would somehow allow more poor people to be fed, clearly missing a lesson or two of the socialist past.

So if you had never seen a perfect ballet or operatic performance, you might not notice how the ones you have seen have been compromised for the sake of political goals. Similarly, if you’ve never seen a world of free enterprise without identitarian politics or Party corruption, you will never realize how much freer and more productive your society might have been. The US overcame a history of race and sex discrimination to more closely approach the standard of merit alone — then has been backsliding incrementally as race- and sex-conscious employment policies took hold. While it appears the US is now limiting progressive overreach by not electing Hillary Clinton president, there has been a lot of damage already, with government agencies especially dysfunctional. It will take a lot of work battling entrenched special interests to reverse the educational system’s failure to teach children civics, history, and economics.


Death by HR: How Affirmative Action Cripples OrganizationsDeath by HR: How Affirmative Action Cripples Organizations

[From Death by HR: How Affirmative Action Cripples Organizations,  available now in Kindle and trade paperback.]

The first review is in: by Elmer T. Jones, author of The Employment Game. 

Corporate HR Scrambles to Halt Publication of “Death by HR”

Nobody gets a job through HR. The purpose of HR is to protect their parent organization against lawsuits for running afoul of the government’s diversity extortion bureaus. HR kills companies by blanketing industry with onerous gender and race labor compliance rules and forcing companies to hire useless HR staff to process the associated paperwork… a tour de force… carefully explains to CEOs how HR poisons their companies and what steps they may take to marginalize this threat… It is time to turn the tide against this madness, and Death by HR is an important research tool… All CEOs should read this book. If you are a mere worker drone but care about your company, you should forward an anonymous copy to him.

 


For more reading goodness:

Materialism vs Purposeful Life: Trump, Bannon, and Teilhard de Chardin
Sekrit Reform Agenda: Untangling Government: Medical Deregulation
No More Elections or Campaigns: Liquid Democracy
“Death by HR” – High Tech Threatened by Social Justice Activists

Seal of the Handicapper General - Harrison Bergeron

Seal of the Handicapper General – Harrison Bergeron

Bootleggers and Baptists

Prohibition: Sheriff Dumps Bootleg Booze

Prohibition: Sheriff Dumps Bootleg Booze

When a campaign is underway to regulate a business or a product, it’s usually easy to identify two groups promoting increased regulation: “Bootleggers” (people who will benefit because the regulation hobbles a competitor) and “Baptists” (people who sincerely believe the new regulation will help others.) The Baptists naively think goodness will come from outlawing bad things, while the bootleggers are aware of unintended consequences and second- and third-order effects of the proposed regulation that will benefit them personally, but pretend to join the Baptists on a moral crusade. Marching together, they agitate for more laws and less freedom of choice.

“Bootleggers and Baptists” is a catch-phrase invented by regulatory economist Bruce Yandle for the observation that regulations are supported both by groups that want the ostensible purpose of the regulation, and by groups that profit from undermining that purpose.

For much of the 20th century, Baptists and other evangelical Christians have been prominent in political activism for Prohibition and Sunday closing laws restricting the sale of alcohol. Bootleggers sold alcohol illegally, and got more business if legal sales were restricted. “Such a coalition makes it easier for politicians to favor both groups. … [T]he Baptists lower the costs of favor-seeking for the bootleggers, because politicians can pose as being motivated purely by the public interest even while they promote the interests of well-funded businesses. … [Baptists] take the moral high ground, while the bootleggers persuade the politicians quietly, behind closed doors.

Strongly-motivated minority interest groups can move the political process toward satisfying their demands, as Prohibitionists did when they succeeded in getting the Eighteenth Amendment passed outlawing alcoholic beverages in the US, a ban which lasted from 1920 to 1933 before it was repealed by the Twenty-First Amendment. It took a decade of rising organized crime and disrespect for the law to finally rouse the great middle of the electorate to demand repeal.

Similar battles still take place on smaller scales. In a recent example,

Arkansas liquor stores have allied with religious leaders to fight statewide legalization of alcohol sales. The stores in wet counties don’t want to lose customers. The churches don’t want to lose souls. Larry Page, a Southern Baptist pastor and director of the Arkansas Faith and Ethics Council, which traces its roots to the Anti-Saloon League of Arkansas in 1899, [also recalled]. . .when his group joined with feminists to oppose pornography and cooperated with Mississippi casinos to fight gambling in Arkansas.

The selfish motivations of the bootleggers hide behind the naive but high-minded feelings of the Baptists. How can a politician oppose Goodness in the form of legislated morality?

Here are some other examples of the phenomenon:

Universal pre-K: Who can be against the education of young children, especially those growing up in poor environments for early learning? Surely extending public school to even earlier years will help underprivileged children catch up! And parents can use even more public-funded daycare to ease their burden, right?

While it’s common to see articles and editorials accepting the positive benefits of pre-K programs without question, the evidence is thin and suggests that some children can benefit from very high-quality programs, but that such benefits disappear after a few years. The Head Start federal program targeting poor children has been expensive and disappointing, with recent studies demonstrating little permanent improvement in outcomes in the long term.

As often happens, proponents start a few pilot programs, recruit highly-motivated staff and parents, and find significant positive benefits. When expanded and managed via the standard education bureaucracy and with less-motivated, unionized staff, benefits to the children shrink or disappear completely, with some programs actually worse for children than being left in a standard private preschool or home setting.

A well-regarded and funded program in Tennessee was studied by a grant-funded group of social scientists and educators at Vanderbilt who had every reason to bias the study to favor the state’s pre-K program. The result? (Emphasis added):

By the end of kindergarten, the control children had caught up to the TN‐VPK children and there were no longer significant differences between them on any achievement measures. The same result was obtained at the end of first grade using both composite achievement measures. In second grade, however, the groups began to diverge, with the TN‐VPK children scoring lower than the control children on most of the measures. The differences were significant on both achievement composite measures and on the math subtests. … In terms of behavioral effects, in the spring the first grade teachers reversed the fall kindergarten teacher ratings. First grade teachers rated the TN‐VPK children as less well prepared for school, having poorer work skills in the classrooms, and feeling more negative about school. It is notable that these ratings preceded the downward achievement trend we found for VPK children in second and third grades. The second and third grade teachers rated the behaviors and feelings of children in the two groups as the same; there was a marginally significant effect for positive peer relations favoring the TN‐VPK children by third grade teachers.

The constant drumbeat of publicity promoting Universal pre-K is motivated by the desire of teacher and public employee unions to employ more staff who will provide more revenue and political power for them. They are the bootleggers in the coalition pushing for Universal pre-K at local and federal levels, and the disorganized voices of those who would be hurt by such programs — operators of private preschools, parents of children who want to choose which daycare they pay for or handle pre-K nurturing themselves — are rarely heard, while the propaganda from the government PR offices and unions is well-funded by tax dollars and compulsory union dues.

Free College For All: Bernie Sanders is currently promoting a plan for free tuition at public colleges and universities for everyone. “Education” (in the form of conventional regimented schooling) is a sacred cow, and the belief that everyone is better off being sent to college after high school has been promoted by politicians for years. We’ll cover the pernicious results of policies based on that belief later in the chapter on Higher Education, but we’ve already seen what happens when you make subsidized student loans available to everyone: you get millions of deeply-indebted former students, both those who failed out because they should never have been admitted in the first place and those who learned little of value to the job market. You also get a high rate of inflation in college costs, as these loans allowed colleges to expand and compete for students with less concern for costs or outcomes.

The Baptists in this case are all those well-meaning people who believe everyone should go to college and get a professional white-collar job. The bootleggers are all of those college administrators and employees who benefit from increased funding and enrollment, the prospective students who want to have a free ride, and the politicians who rely on the support of academics. The scribes and government workers who are products of academia themselves write all the narratives in our society, and blue-collar workers and nonacademics who would be taxed to pay for this freebie get no taxpayer funding to tell their own stories.

Let well-known philosopher of labor Mike Rowe explain this:

Consider the number of college graduates today, who can’t find work in their chosen field. Hundreds of thousands of highly educated twenty-somethings are either unemployed or getting paid a pittance to do something totally unrelated to the education they borrowed a fortune to acquire. Collectively, they hold 1.3 trillion dollars of debt, and no real training for the jobs that actually exist. Now, consider the country’s widening skills gap – hundreds of thousands of good jobs gone begging because no one wants to learn a useful trade. It’s madness. “College For All” might sound good on the campaign trail, but in real life, it’s a dangerous platitude that reinforces the ridiculous notion that college is for people who use their brains, and trade schools are for people who use their hands. As if the two cannot be combined.

Universal Healthcare: The Baptists here are well-meaning people who think everyone should get good healthcare, and because they have been told by propagandists that everyone in Europe and Canada has free, quality healthcare that costs their government far less, they can’t imagine why the US shouldn’t have it, too. Which ignores the major differences between such programs — only Canada has single-payer without a parallel private-pay healthcare system, and even that is changing, while the Canadian provinces vary in costs and coverages, as well as waiting periods for nonemergency care. Meanwhile, European countries have systems that vary from Britain’s NHS, a completely government-owned and run healthcare system with enough problems that its breakdowns are daily news fodder, to Swiss and French programs that are really public-private insurance plans with cheaper basic options. “Medicare-for-All” as proposed by US universal healthcare proponents would expand the Medicare system, which is already headed for financial disaster as the population ages, to cover everyone. It’s never acknowledged that rising costs will then require rationing and onerous cost controls that would make the US system start to resemble Britain’s NHS — cheaper but lower quality, with worse outcomes for cancer treatments and limited access to more advanced care.

Who are the bootleggers? The ACA co-opted the big health insurance and drug companies to guarantee them a captive market with higher revenues in return for turning the private insurance market into a kind of regulated utility that everyone would be forced to join, which allows regulations to essentially tax younger and healthier people to subsidize the costs of the older and sicker without regard to ability to pay. We now have lower-middle-class working families paying much more than they would in a free market so that wealthy people with pre-existing conditions can get insurance at subsidized rates. While many pre-existing conditions were unfortunate accidents, some were acquired because of poor life choices and self-indulgent health and dietary habits — so now the rich couch potato who drank and ate himself to diabetes and heart problems suffers no penalty, at least financially, since some group of healthy families is paying extra to subsidize his care.

Single-payer, Medicare-for-All is another step toward micromanagement of both citizen lifestyles and medical procedures. The politicians are dreaming of more dependent voters who will always support them, as in Britain, where voters are continually told they can have a “better” NHS by voting in the right people. The problems of the British NHS cannot be solved by a change in administrations because they are due to its structure as a socialized service, with unionized civil service-style employee protections and the accompanying limited accountability for poor service and failure. Once in place, such systems are very difficult to repeal, and their bureaucracies, like today’s federal HHS and Medicare bureaucracies, provide a good place for political supporters to collect a paycheck while serving as the party of government’s permanent supporting class.

Climate Change: The Baptists here are citizens who believe that not only is global warming a man-made phenomenon resulting from increases in greenhouse gases in the atmosphere (that much is probably true), but that its onset will be rapid and severe enough to justify virtually any costly program proposed to limit the threat (which appears untrue, or at least unproven, as the simplistic early climate models have failed to correctly predict the amount of actual warming.) What price would you pay to save the planet? Even questioning the cost of proposed programs is viewed as heresy by true believers.

The bootleggers are the rent-seeking part of the coalition to “do something,” which began when the danger was first popularized and resulted in large increases in research funding for the small number of climate scientists who specialized in climate change research. As momentum built and more governments funded research and activism in the field, whole labs and careers depended on finding the danger to be as large as possible, to justify ever more research funding. Stoking popular fear, politicians could appear to be protecting citizens by promising more and more measures to slow greenhouse gas emissions. It became clear, though, that vested interests would not allow the least-cost, most economically-sound means of reducing emissions: research on solar and nuclear power generation and low, rebated carbon taxes which would allow businesses and citizens to gradually reduce emissions over time without sacrificing current plants and arrangements.

What happened instead: complex emissions credit schemes which allowed politicians to favor some interest groups over others while raking in hidden taxes from consumers; mandates requiring utilities to pay much more to purchase ever-increasing percentages of “green” power, generated at high cost from subsidized windmills and solar power plants which proved to work poorly or have limited service lives; and command-and-control regulations that shut down existing plants and closed down coal mines.

Each of these schemes had bootleggers waiting to profit: politically-connected investors in solar power schemes like Solyndra (bankrupt in 2011, with $535 million in federally-guaranteed loans and $25 million in California tax credits lost) and the Ivanpah steam-solar project ($2.2 billion, obsolete and unable to generate its designed power since the day it opened.) Both Ivanpah and Solyndra were huge bets on the wrong technologies, with standard photovoltaic panels falling in price so much that these huge investments were rendered uncompetitive shortly after they were funded. Ivanpah received $1.6 billion in loan guarantees from federal taxpayer funds, covering investments by its owners, BrightSource Energy, NRG Energy, and Google. The company has delayed payment on its loans and in late 2014 requested an additional $539 million in funding via a federal tax credit program.

Spain’s Abengoa, a multinational alternative energy company, has filed for Chapter 11 protection in the US, and in March of 2016 filed for bankruptcy. The federal loan guarantees for $1.45 billion for the Solano solar plant in Arizona and the $1.2 billion for the Mojave solar project in California now appear to be US taxpayer losses. Again, enormous sums of taxpayer money built scaled-up projects with obsolete technology which could only produce power at many times the cost of natural gas plants.

In parts of Europe and the US, poor and middle-class ratepayers pay much more for electricity because of these state-required green energy programs, while many wealthy consumers avoid paying the inflated rates by installing subsidized solar panels.

Other bootleggers include the large number of government staff now employed to work on climate change issues and propaganda in governments around the world, with the many UN climate meetings in cities like Paris and Copenhagen serving as luxurious junkets for tens of thousands of functionaries.

Even businessmen in the petroleum industry will surreptitiously support green activist organizations they believe will harm competitive fuels more than theirs. Aubrey McClendon, who made and then lost a huge fortune pioneering the fracking production of natural gas in the US, “secretly gave $25 million to the Sierra Club for the Sierra Club’s ‘Beyond Coal’ campaign, for the obvious reason that it would benefit his natural gas company if coal were squeezed by new regulation.”:

But as the Sierra Club and other environmental groups have made clear, once they’re done killing coal they’re going after natural gas next. Did McClendon think they’d spare him? He was a perfect example of Churchill’s description of an appeaser as someone who feeds the crocodile hoping he’ll be eaten last. I lost all respect for McClendon when this news leaked out, and it was a great embarrassment to the Sierra Club as well. He was rent-seeking bootlegger. A lot of them died in high-speed crashes back during Prohibition, usually being chased by the law.

Internet Gambling Prohibitions: This is closer to the coalitions against alcohol, with many religious and social organizations concerned about gambling addiction (the Baptists) joining with casino magnates, Indian tribes, and state lotteries (the bootleggers) to try to outlaw a competitor — easy gambling on the Internet. In 2015, Sheldon Adelson, billionaire head of the Las Vegas Sands and numerous hi-revenue casinos worldwide, promoted a bill in Congress (The Restoration of America’s Wire Act, or RAWA) intended to prohibit Internet gambling at the federal level, superseding state authorizing laws. He hired a lobbying firm, Steptoe and Johnson, which was then also hired by fantasy sports companies — which would be exempt under the proposed Act. By outlawing some forms of online gambling but exempting others, the proposed law would preserve casino monopolies and take control away from states.

Tobacco: Vaping equipment, or e-cigs, provide the appearance of cigarettes and a dose of the nicotine smokers crave in a delivery format (evaporated carrier with nicotine and flavoring) that is much less harmful to smoker’s lungs. Many experts recommended smokers switch to e-cigs immediately, since harm to their health would be much reduced. But e-cigs threaten both the makers of the highly-regulated and taxed legacy cigarettes and the makers of smoking cessation products like nicotine gum and patches — often the same companies! So paid “medical authorities” and lobbyists began to work hard to promote the view that the new and untested e-cigs were just as hazardous — if not more hazardous, since their long-term effects were unknown! — than traditional cigarettes. Cato’s Regulation put out a good paper on the bootleggers-and-Baptists pattern in this new propaganda war:

Now consider the situation with electronic cigarettes (e-cigs) and their incumbent competitors: tobacco companies that produce and sell traditional cigarettes and drug companies that produce nicotine replacement therapies (NRTs). The U.S. cigarette market has been regulated, one way or another, since colonial times. Along the way, federal regulation—coupled most recently with the state attorneys general Master Settlement Agreement (MSA, about which we say more later)—effectively cartelized the industry, bringing increased profits to the industry and higher cigarette prices and reduced cigarette consumption throughout the nation. Falling cigarette consumption gladdened the hearts of health advocates, who fought for the elimination of tobacco products, while higher industry profits brought joy to tobacco company owners.

This happy Bootlegger/Baptist equilibrium is now threatened by the exploding sales of e-cigs, a new technology for delivering nicotine to all who want it without simultaneously bringing the harmful combustion-induced chemicals associated with burned tobacco. Today, there are many e-cig producers and numerous small shops selling e-cigs and customized nicotine-dispensing products. It is a rapidly evolving market that has been relatively open to new entrants and innovation in product design. Given the quick growth in e-cig use (much of which comes at the expense of cigarette sales), previous political deals that stabilized tobacco industry profits are at risk. The major tobacco companies are understandably not sitting idle. They, too, have entered the e-cig marketplace and are responding in other ways to the new competition.

The major pharmaceutical companies have not been idle either. The makers of smoking cessation products, including NRTs such as the nicotine patch and nicotine gum, are major players in the politics of tobacco and nicotine. The producers of traditional nicotine delivery devices and NRTs are at work trying to stop the disruptive e-cig producers. These Bootleggers are joined by health advocates (Baptists) who raise questions about unknown potentially harmful effects that may be associated with e-cig use. Both groups—cigarette and NRT producers on the one hand, and health advocates on the other—would like to stop new e-cig producers or severely crimp their ability to compete.

Lawfare between the tobacco industry and state attorneys general was settled in 1998 with the MSA (Master Settlement Agreement), which set the payments due to the states to compensate them for the additional Medicare and Medicaid costs states would bear because of tobacco products. The agreement was carefully designed to send money to the states while protecting the incumbent manufacturers from competition, allowing them to raise prices more than required to pay the fines.

Again from Cato’s paper:

The heart of the MSA was the promised payment of $206 billion by the four participating cigarette companies to the participating states. Those payments would be tax deductible and the costs would be paid by consumers in the form of higher cigarette prices. (Because cigarette consumption is highly price inelastic, the cost of the price increase was largely borne by consumers rather than producers.) The MSA presented state legislatures with a simple choice: either accept the MSA, in which case they would be able to spend their state’s share of the billions of dollars raised from smokers, or reject the proposed statute and their states’ smokers would still pay the higher prices necessary to fund the deal but they would lose their claim on the money. Not surprisingly, every state legislature took the money.

Responsibility for the payments was allocated among the cigarette companies in proportion to their current market share, thereby reducing the incentive for the participating cigarette companies to engage in price competition to increase their respective market shares. The structure of the MSA thus provided a powerful incentive for each company to be satisfied with the status quo.

The MSA also attempted to protect the major cigarette companies from new competition. At the time of the agreement, the four participating cigarette companies accounted for about 99 percent of domestic cigarette sales. Increasing cigarette prices to pay for the settlement risked a loss of market share to marginal competitors or new entrants. Therefore the MSA provided that for every percent of market share over 2 percent lost by a participating cigarette manufacturer, the manufacturer would be allowed to reduce its payments to the states by 3 percent, unless each participating state enacted a statute to prevent price competition from non-participating manufacturers (which each state did). The statutes require nonparticipating cigarette producers to make payments equal to or greater than what they would owe had they been participants in the agreement, to eliminate any cost advantage.

The MSA also included restrictions on cigarette marketing practices agreed to by the participating producers. The advertising limits were portrayed as a public health measure because they reduced advertising that could influence young adults and teens. The limits also reinforced the anticompetitive nature of the MSA by making it more costly for new brands or entrants to secure market share through promotional efforts.

The MSA’s cartel-reinforcing provisions sufficiently suppressed competition to enable cigarette companies to take advantage of the price inelasticity of cigarette demand and obtain record profits. This made it possible for the major cigarette manufacturers to increase prices by more than was necessary to make the mandated MSA payments.

Having made a deal to get big money for states and attorneys while protecting the companies from competition and raising prices more than enough to make the addicted smokers themselves pay the full cost of the settlement, many of the states decided to grab their money immediately by selling municipal (federal tax-free) bonds backed by the MSA payments expected. California alone issued at least $16.8 billion in such bonds, proceeds being used for both immediate expenses and long-term capital improvements. Legislators appear to have forgotten that the supposed purpose of the payments was to cover smoking-related expenses of future medical care for the state’s population, and instead chose to spend the money immediately on unrelated matters while leaving the burden of those health expenses with future taxpayers.

In some cases, however, the bonds are backed by secondary pledges of state or local revenues, which creates what some see as a perverse incentive to support the tobacco industry, on whom they are now dependent for future payments against this debt.

Tobacco revenue has fallen more quickly than projected when the securities were created, leading to technical defaults in some states. Some analysts predict that many of the bonds will default entirely. Many of the longer-term bonds have been downgraded to junk ratings. More recently, financial analysts began raising concerns that the rapid growth of the electronic cigarette market is accelerating the decline of $97 billion outstanding in tobacco bonds…. Lawmakers in several states proposed measures to tax e-cigarettes like traditional tobacco products to offset the decline in TMSA revenue. They anticipate that taxing or banning e-cigarettes would be beneficial to the sale of combustible cigarettes. — Wikipedia on “Tobacco Master Settlement Agreement”

Vested interests, including tobacco companies and the states, now actively seek to suppress e-cigs or at least tax them enough to make up for any lost revenue as they are adopted. This means they are actively working to keep smokers addicted to the most hazardous form of nicotine consumption, with its resultant cancers and other diseases. The original Baptist goal of helping smokers quit the habit to avoid cancer and early death has long since been forgotten.

Minimum Wage: Baptists: voters who want low-paid workers to have better lives and higher incomes, imagining poor families will benefit while businesses will pay the costs. Bootleggers: Politicians needing an issue to show they want to help “working families” and unions who represent some minimum-wage workers, but more importantly represent many more workers who make more than that, who will get even higher wages as a result of existing contracts and the outlawing of lower-paid laborers who might compete with them.

Economically, it’s very clear: minimum wage laws harm inexperienced and unskilled workers by making it illegal for them to be employed at wage rates that reflect the value they can add with their labor. Those workers won’t be hired, and many will be replaced by automation as they are priced out of the labor market. Politicians and union bosses won’t lose their jobs, even as unemployment among the unskilled increases as a result of the new minimum wage law. Most unionized workers make much more than minimum wage now, so they will keep their jobs while outlawing lower-priced nonunion competition. Economists who study the issue tend to agree there is a small negative effect on employment when minimum wages are increased slightly, but the large increases now proposed may do much greater harm by reducing hours and eliminating jobs for unskilled workers. The economists who find no negative effects tend to be labor economists, who tend to be supported by government and labor union funding and so have some conflict of interest in their researches.

Meanwhile, small business owners are ignored when they explain their response to much higher minimum wages has to be reduced hours, higher prices, and possibly going out of business since many have committed to expensive leases and can’t withstand a huge increase in costs:

[Seattle restaurant owner Grant Chen wrote of] his struggles to stay in business as he faces a 61% increase in his labor costs from Seattle’s $15 minimum wage initiative. As I’ve mentioned before on CD, the $15 an hour minimum wage law isn’t really ultimately “a political problem as much as it’s a simple math problem,” as Anthony Anton of the Washington Restaurant Association explained the situation. And Grant Chen and other Seattle restauranteurs like Brendan McGill (owner of Hitchcock Restaurant and Hitchcock Deli) are finding out that the new restaurant math of Seattle’s $15 minimum wage is breaking the system…. a 61% increase in wages from $9.32 to $15 an hour is like imposing an annual tax on restaurants of $11,360 per full-time employee. If you understand that a $11,360 tax per employee (and $113,600 in higher labor costs for every 10 employees) would drive many restaurants out of business, you’ll understand why the “new restaurant math of a $15 minimum wage” is making Grant Chen’s restaurant unprofitable, and why it is driving him out of business.

The Baptists are told hard-working poor families will enjoy richer lives, but it’s rarely mentioned that young people looking for summer work or just starting out will find it much harder to reach that first rung on the career ladder.

As Glenn Reynolds of Instapundit says:

The Los Angeles Times report somehow fails to list union workers among the winners. They earn quite a bit more than the minimum, but many of them have their pay scales indexed to the minimum wage. Unions also give heavily to Democratic politicians who support union-friendly issues like hiking the minimum wage.

And the losers? Anyone whose labor is worth less than $15 an hour, and who is about to learn the hard way that the real minimum wage is always zero.

They Wrote a Book On It: Economist Bruce Yandle (who coined the term “bootleggers and Baptists” in 1983) has a book out with co-author Adam Smith, Bootleggers and Baptists: How Economic Forces and Moral Persuasion Interact to Shape Regulatory Politics. Recommended for further study and examples, notably TARP, a $700 billion emergency response to the economic crisis of 2008 which ended up as a field day for bootleggers and rent-seekers.


Death by HR: How Affirmative Action Cripples OrganizationsDeath by HR: How Affirmative Action Cripples Organizations

[From Death by HR: How Affirmative Action Cripples Organizations,  available now in Kindle and trade paperback.]

The first review is in: by Elmer T. Jones, author of The Employment Game. Here’s the condensed version; view the entire review here.

Corporate HR Scrambles to Halt Publication of “Death by HR”

Nobody gets a job through HR. The purpose of HR is to protect their parent organization against lawsuits for running afoul of the government’s diversity extortion bureaus. HR kills companies by blanketing industry with onerous gender and race labor compliance rules and forcing companies to hire useless HR staff to process the associated paperwork… a tour de force… carefully explains to CEOs how HR poisons their companies and what steps they may take to marginalize this threat… It is time to turn the tide against this madness, and Death by HR is an important research tool… All CEOs should read this book. If you are a mere worker drone but care about your company, you should forward an anonymous copy to him.

 


More reading on other topics:

Jane Jacobs’ Monstrous Hybrids: Guardians vs Commerce
The Great Progressive Stagnation vs. Dynamism
Death by HR: How Affirmative Action is Crippling America
Death by HR: The End of Merit in Civil Service
Corrupt Feedback Loops: Public Employee Unions
Death by HR: History and Practice of Affirmative Action and the EEOC
Civil Service: Woodrow Wilson’s Progressive Dream
Bootleggers and Baptists
Corrupt Feedback Loops: Justice Dept. Extortion
Corrupt Feedback Loops, Goldman Sachs: More Justice Dept. Extortion
Death by HR: The Birth and Evolution of the HR Department
Death by HR: The Simple Model of Project Labor
Levellers and Redistributionists: The Feudal Underpinnings of Socialism
Sons of Liberty vs. National Front
Trump World: Looking Backward
Minimum Wage: The Parable of the Ladder
Selective Outrage
Culture Wars: Co-Existence Through Limited Government
Social Justice Warriors, Jihadists, and Neo-Nazis: Constructed Identities
Tuitions Inflated, Product Degraded, Student Debts Unsustainable
The Morality of Glamour

On Affirmative Action and Social Policy:

Affirmative Action: Chinese, Indian-Origin Citizens in Malaysia Oppressed
Affirmative Action: Caste Reservation in India
Diversity Hires: Pressure on High Tech<a
Title IX Totalitarianism is Gender-Neutral
Public Schools in Poor Districts: For Control Not Education
Real-Life “Hunger Games”: Soft Oppression Destroys the Poor
The Social Decay of Black Neighborhoods (And Yours!)
Child Welfare Ideas: Every Child Gets a Government Guardian!
“Income Inequality” Propaganda is Just Disguised Materialism

The greatest hits from SubstrateWars.com (Science Fiction topics):

Fear is the Mindkiller
Mirror Neurons and Irene Gallo
YA Dystopias vs Heinlein et al: Social Justice Warriors Strike Again
Selective Outrage
Sons of Liberty vs. National Front
“Tomorrowland”: Tragic Misfire
The Death of “Wired”: Hugo Awards Edition
Hugos, Sad Puppies 3, and Direct Knowledge
Selective Outrage and Angry Tribes
Men of Honor vs Victim Culture
SFF, Hugos, Curating the Best
“Why Aren’t There More Women Futurists?”
Science Fiction Fandom and SJW warfare

More reading on the military:

US Military: From No Standing Armies to Permanent Global Power
US Military: The Desegration Experience
The VA Scandals: Death by Bureaucracy

Older Couples Avoiding Marriage For Financial Reasons

One of the themes I will bring up often is how legal marriage has been manipulated by legislatures who seem to want to promote it, then set up financial disincentives because in most of the tax and welfare policies they promote, they want to appear “progressive” — in other words, tax at a higher rate for the well-off, and remove social subsidies from people whose incomes go up. As a result, two income couples must seriously consider whether it is worth the legal protections of marriage when their taxes may rise and their subsidies fall. For older couples with children from previous marriages, legislatures have often taken away their freedom to give their estate away as they wish, requiring certain percentages to the surviving spouse. Even with complex prenups, courts may not follow their wishes, and so it is safer and cheaper to forgo legal marriage and try to get what protection they can from medical and financial powers of attorney and trusts. Which are also expensive to draft.

The New York Times covers this here.

More on Divorce, Marriage, and Mateseeking

Marriages Happening Late, Are Good for You
Monogamy and Relationship Failure; “Love Illuminated”
“Millionaire Matchmaker”
More reasons to find a good partner: lower heart disease!
“Princeton Mom” Susan Patton: “Marry Smart” not so smart
“Blue Valentine”
“All the Taken Men are Best” – why women poach married men….
“Marriage Rate Lowest in a Century”
Making Divorce Hard to Strengthen Marriages?
Student Loan Debt: Problems in Divorce
“The Upside of ‘Marrying Down’”
The High Cost of Divorce
Separate Beds Save Marriages?
Marital Discord Linked to Depression
Marriage Contracts: Give People More Legal Options
Older Couples Avoiding Marriage For Financial Reasons
Divorced Men 8 Times as Likely to Commit Suicide as Divorced Women
Vox Charts Millennial Marriage Depression
What’s the Matter with Marriage?
Life Is Unfair! The Great Chain of Dysfunction Ends With You.
Leftover Women: The Chinese Scene
Constant Arguing Can Be Deadly…
“If a fraught relationship significantly shortens your life, are you better off alone?
“Divorce in America: Who Really Wants Out and Why”
View Marriage as a Private Contract?
“It’s up there with ‘Men Are From Mars’ and ‘The Road Less Travelled’”
Free Love, eHarmony, Matchmaking Pseudoscience
Love Songs of the Secure Attachment Type
“The New ‘I Do’”
Unrealistic Expectations: Liberal Arts Woman and Amazon Men
Mark Manson’s “Six Healthy Relationship Habits”
“The Science of Happily Ever After” – Couples Communications
Free Dating Sites: Which Have Attachment Type Screening?
Dating Pool Danger: Harder to Find Good Partners After 30
Mate-Seeking: The Science of Finding Your Best Partner
Perfect Soulmates or Fellow Travelers: Being Happy Depends on Perspective
No Marriage, Please: Cohabiting Taking Over
“Marriage Markets” – Marriage Beyond Our Means?
Rules for Relationships: Realism and Empathy
Limerence vs. Love
The “Fairy Tale” Myth: Both False and Destructive
When to Break Up or Divorce? The Economic View
“Why Are Great Husbands Being Abandoned?”
Divorce and Alimony: State-By-State Reform, Massachusetts Edition
“Sliding” Into Marriage, Small Weddings Associated with Poor Outcomes
Subconscious Positivity Predicts Marriage Success…
Why We Are Attracted to Bad Partners (Who Resemble a Parent)

Making Divorce Hard to Strengthen Marriages?

Really! Because being trapped in a marriage makes it better!

Divorce Cake
Megan McArdle dissects this idea from the economic perspective, suggesting that making divorce harder might actually prevent marriages. To make marriage more attractive to both men and women, it would help if the family law system did not make unwarranted assumptions about the intentions of the parties. As someone points out in her comments section, a woman (or man!) who agrees to stay home and care for children deserves in all fairness to be compensated monetarily if the breadwinner dumps him or her. But that kind of arrangement is rare in the modern era, and those who enter marriage under a different division of labor deserve to have their intentions recognized and upheld in case of divorce, which is often not the case.

One issue is the single marriage contract allowed by the state and fiddled with by legislators based on their simplistic models of fairness. While prenups can have some effect on modifying the one-size-fits-all treatment by family courts, they are often ignored when the court feels social policy trumps the parties’ intentions at the time of their marriage. It would be better (and encourage men especially to be willing to commit to marriage) if there were a variety of marriage contracts: “Catholic marriage,” indissoluble except in extremis; “Family marriage,” designed to protect planned children and difficult to dissolve until they are of age; “Marriage lite,” perfect for people who want to test their compatibility with a no-fault-divorce, no division of property contract–many of whom would go on to a stronger contract with time. But we’d call them all married and treat them as such legally. As it is now, only the wealthy can afford the serial marriages now common among the upper classes. leaving those with fewer financial resources less likely to marry at all.

And the government’s strange subsidization of divorce continues; the ACA (“Obamacare”), for example, rewards many middle-income people who divorce by providing both of the newly single with much larger health insurance subsidies. Two people making $30K a year are now penalized to the tune of several hundred dollars a month if they wed. Meanwhile, other benefits have similar (if less extreme) phaseouts and discourage marriage.

For more on family law and politics:

Divorced Men 8 Times as Likely to Commit Suicide as Divorced Women
Life Is Unfair! The Militant Red Pill Movement
Leftover Women: The Chinese Scene
“Divorce in America: Who Really Wants Out and Why”
View Marriage as a Private Contract?
Madmen, Red Pill, and Social Justice Wars
Unrealistic Expectations: Liberal Arts Woman and Amazon Men
Stable is Boring? “Psychology Today” Article on Bad Boyfriends
Ross Douthat on Unstable Families and Culture
Ev Psych: Parental Preferences in Partners
Purge: the Feminist Grievance Bubble
The Social Decay of Black Neighborhoods (And Yours!)
Modern Feminism: Victim-Based Special Pleading
Stereotype Inaccuracy: False Dichotomies
Real-Life “Hunger Games”: Soft Oppression Destroys the Poor
Red Pill Women — Female MRAs
Why Did Black Crime Syndicates Fail to Go Legit?
The “Fairy Tale” Myth: Both False and Destructive
Feminism’s Heritage: Freedom vs. Special Protections
Evolve or Die: Survival Value of the Feminine Imperative
“Why Are Great Husbands Being Abandoned?”
Divorce and Alimony: State-By-State Reform, Massachusetts Edition
Reading “50 Shades of Grey” Gives You Anorexia and an Abusive Partner!
Why We Are Attracted to Bad Partners (Who Resemble a Parent)
Gaming and Science Fiction: Social Justice Warriors Strike Again
Culture Wars: Peace Through Limited Government