Michael F. Cannon
At a forum sponsored by Khosla Ventures, Google co-founders Sergey Brin and Larry Page discussed the burden of health care regulations in the United States. When asked, “Can you imagine Google becoming a health company?”, Brin responded:
Health is just so heavily regulated, it’s just a painful business to be in. It’s just not necessarily how I want to spend my time. Even though we do have some health projects, and we’ll be doing that to a certain extent. But I think the regulatory burden in the U.S. is so high that I think it would dissuade a lot of entrepreneurs.
I am really excited about the possibility of data also to improve health. But I think that’s what Sergey’s saying. It’s so heavily regulated, it’s a difficult area…I do worry, you know, we kind of regulate ourselves out of some really great possibilities.
But surely, the United States does not have government-run health care.
The discussion begins at about 29:00.Fireside chat with Google co-founders, Larry Page and Sergey Brin with Vinod Khosla
Michael F. Cannon
The latest bit of chatter about a someday-forthcoming ruling from the D.C. Circuit in Halbig v. Burwell is the banter between myself and Washington & Lee University law professor Timothy Jost. (For a quick primer on the Halbig cases, click here. For a comprehensive reference guide to the cases, click here.) Or as my email traffic has described it, “The subtle repartee between Michael Cannon and Tim Jost continues.” And, “What a summer! Argentina vs. Germany, Cannon vs. Jost. What’s next?“
Jost explains that while the Supreme Court’s ruling against the government in Hobby Lobby will not have much of an impact on the Patient Protection and Affordable Care Act, “a number of ACA lawsuits percolating up through the courts could be much more destructive. The theory of these suits seems to be that the drafters of the ACA planted a secret bomb in the heart of the statute.” Jost, along with a federal judge he quotes approvingly, thinks it’s “preposterous” that Congress would have intended to give states the power to block the expansion of health-insurance coverage that’s supposed to happen through the PPACA’s health-insurance “exchanges.”
Never mind that Congress did exactly that with the other coverage expansion – the Medicaid expansion – in the very same bill. Or that Congress has allowed states to block the entire Medicaid program for the past 49 years. Or that that’s how Jost himself proposed Congress could set up the bill’s health insurance Exchanges. Or that in 2009, both Republicans and Democrats introduced legislation that would have conditioned health-insurance subsidies on states establishing Exchanges. Or that, in particular, the other leading bill advanced by Senate Democrats in 2009 also gave states the power to block Exchange subsidies. Or that that’s what Jost admits the plain language of the PPACA “clearly” says.
Forget all that. Following the clear, consistent, uncontradicted language of the statute, which is completely consistent with the law’s legislative history, would be preposterous. Why? Because if the courts implement the law as Congress intended, then not even ObamaCare’s supporters would like how ObamaCare works.
The technical arguments against the Export-Import Bank are provided in this excellent summary by Veronique de Rugy. However, one argument against Ex-Im and other business subsidies is not stressed enough in policy debates: subsidies weaken the businesses that receive them.
Subsidies change the behavior of recipients. Just like individual welfare reduces work incentives, corporate welfare dulls business competitiveness. Subsidies give companies a crutch, an incentive not to improve efficiency or to innovate, as I noted here.
Yesterday, I looked at Chapter 1 of Burton and Anita Folsom’s new book, Uncle Sam Can’t Count, which examines federal fur trading boondoggles of 1795-1822.
Now let’s look at Chapter 2, which focuses on the steamboat industry of the 19th century. The historical lesson is clear: subsidies make companies weak, inefficient, and resistant to innovation.
Here is a thumbnail sketch of the Folsoms’ steamboat story:
- In 1806 New York gives Robert Fulton a legal monopoly on steamboat travel in the state. Breaking this misguided law, a young Cornelius Vanderbilt launches a competitive service in 1817.
- The U.S. Supreme Court strikes down the New York law in 1824. The effect is to usher in an era of steamboat innovation and falling prices for consumers.
- Vanderbilt launches many new steamboat routes whenever he sees an opportunity to drive down prices.
- With subsidies from the British government, Samuel Cunard launches a steamship service from England to North America in 1840. In response, Edward Collins successfully lobbies Congress to give him subsidies to challenge Cunard on the Atlantic route. With this unfortunate precedent, Congress proceeds to hand out subsidies to steamship firms on other routes.
- By the 1850s, Congress is providing Collins a huge annual subsidy of $858,000. Irked by the subsidies and Collins’ inefficient service, Vanderbilt builds a better and faster ship and launches his own Atlantic service.
- In 1856 two of Collins’ inferior ships sink, killing almost 500 people. Collins builds a new ship, but it is so shoddy that it is scrapped after only two trips.
- Congress finally realizes that the aid to Collins is damaging, as it has spawned an inferior and mismanaged business. Congress cuts off the subsidies in 1858. Without subsidies, Collins’ steamship company collapses.
- Vanderbilt also out-competes subsidized steamship companies on the East Coast-to-West Coast route through Central America.
- In England, an unsubsidized competitor to Cunard—the Inman Line—is launched and begins out-competing and out-innovating the subsidized incumbent.
- The subsidized Cunard and Collins aim their services at the high-end luxury market. The more efficient and unsubsidized Vanderbilt and Inman focus on driving down prices for people with more moderate incomes.
- Government subsidies “actually retarded progress because Cunard and Collins both used their monopolies to stifle innovation and delay technological changes in steamship construction.”
Government subsidies have similar negative effects today, whether it is subsidies to energy companies, aid to farm businesses, or the Ex-Im program.
The difference is that in the 19th century Congress eventually cut off subsidies when the damage became clear, as it did with steamship subsidies in 1858 and fur trading subsidies in 1822. Maybe I’m overlooking something, but I can’t think of a business subsidy program terminated by Congress in recent years, or even in recent decades.
Low-income residents of the Twin Cities can rest easy, as planners at the Metropolitan Council, the area’s regional planning agency, are proposing a regional transit equity plan. According to the Metropolitan Council’s press release, this equity plan consists of:
- Building 75 bus shelters and rebuilding 75 existing shelters “in areas of racially concentrated poverty”; and
- “Strengthen[ing] the transit service framework serving racially concentrated areas of poverty” by building bus-rapid transit and light-rail lines to the region’s wealthy suburbs.
Bus shelters for the poor, light rail for the rich: that sounds equitable! Of course, the poor will be allowed to ride those light-rail trains (for example, if they travel to the suburbs to work as servants), just as the well-to-do will be allowed to use the bus shelters. But for the most part, the light rail is for the middle class.
As with most American urban areas, Twin Cities poverty is concentrated in the core cities. Minneapolis and St. Paul have less than a quarter of the region’s population but more than half of the poor and more than 60 percent of the poor blacks. On average, 23 percent of residents of Minneapolis and St. Paul are in poverty, compared with just 7 percent of their suburbs.
The Twin Cities’ first light-rail line–the blue line on the above map–went to Bloomington, where less than 10 percent of people are considered poor. The next light-rail line, the green line east of “the Interchange” in downtown Minneapolis, connected Minneapolis and St. Paul, but it goes from downtown to downtown through the University of Minnesota and a neighborhood that planners hope to convert into a mixed-use, New Urban community complete with creative-class yuppies, fancy restaurants, and organic supermarkets.
The next line to be built–the green line west of Minneapolis–would go to Eden Prairie, with 9 percent poverty and mean per capita incomes that are eight times the $6,000-per-person poverty threshold for a family of four. Census data indicate that 1,100 poor blacks live in Eden Prairie compared with 48,000 in Minneapolis and St. Paul.
After that will be lines to Lakeland and Lakeville, which have 4 percent poverty rates, mean per capita incomes six times the poverty threshold, and just 340 poor blacks. All the other proposed lines on the map go to suburbs with low poverty rates and high incomes.
Perhaps the only one that comes close to serving many low-income people is the proposed line going northwest from Minneapolis to an area unnamed on the map but which is actually Brooklyn Park. Brooklyn Park’s poverty rate is 11.5 percent including 3,200 poor blacks–more than any other suburb that would be served by the proposed rail or BRT lines but less than 7 percent as many as live in Minneapolis and St. Paul.
According to the 2012 American Community Survey, 13 percent of Twin Cities commuters whose incomes are below the poverty level take transit to work, while 61 percent drive alone and 14 percent carpool. Only 3 percent of Twin Cities workers live in households with no cars, and 39 percent of those drive to work (most of them driving alone, presumably in borrowed cars) compared with 37 percent taking transit. Transit clearly isn’t working for low-income people today, and it’s hard to see how a few bus shelters plus trains to the suburbs will help.
Many if not most Twin Cities suburbs are already served by express buses that are probably faster than the light-rail lines the council wants to build. On the other hand, inner-city neighborhoods tend to be served by local buses that stop frequently and therefore have low average speeds.
Let’s say bus service to the suburbs averages 20 mph and light rail can increase this average to 24 mph. By comparison, bus service in inner cities averages 10 mph and improvements can increase this to 12 mph. Which would save people the most time? Increasing speeds from 20 to 24 mph would cut one-half minute off the time it takes to go one mile, but increasing speeds from 10 to 12 mph would cut a full minute off the time to go a mile. What this means is that, to really improve transit service, transit agencies should concentrate on increasing the speeds of their slowest transit services, not ones that are already fast. That usually means inner-city buses, not suburban lines.
If the Metropolitan Council truly wanted to help low-income people, it would concentrate on improving bus service rather than building light-rail to the suburbs. But the council is apparently more interested in getting federal funds for rail transit than helping the poor. By calling this “transit equity,” it hopes that no one notices how inequitable it actually is.