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.