Millennials, already disproportionately suffering under the enduring Great Recession, likely have a bleak 2014 in store.

Millennials suffer unemployment rates 50% higher than their elders. When you add in those working part-time while looking for full-time work, that already-high figure doubles. And half of last year’s college graduates work in jobs that don’t require a degree.

With the first few years out of college crucial to establishing the course for one’s entire career, Millennials face the very real prospect of being a “lost generation”—never overcoming this early handicap.

The roll-out of ObamaCare “piles on,” disproportionately burdening the young and healthy with the higher healthcare costs of the older and sicker. Our 29-year-old son—who became self-employed after his architecture career was killed off by the bursting of the federally-induced housing bubble—saw his health insurance premiums double this fall. Will his animal-care clients accept double fees for dog-walks, boarding, and training?

And now Mr. Obama is promising a higher minimum wage, the fall-out from which will, again, disproportionately hurt the young:

Economist David Neumark, an expert on minimum-wage economic studies, says that an economic rule-of-thumb is that every 10% increase in the minimum wage reduces teen employment by about 1% to 3%. In October the U.S. teen jobless rate was 22.2% and for black teens it was 36%. The Obama minimum wage combined with the health mandate could mean up to a 10% reduction in jobs for the poor and young.

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I’ve just finished reading Peter Schweizer’s book, Extortion: How Politicians Extract Your Money, Buy Votes, and Line Their Own Pockets. It is solidly researched and loaded with facts to back up Schweizer’s claim that Washington politicians are extorting money from Americans for their own benefit.

Political “contributions,” Schweizer notes, are often viewed as bribes given to politicians in exchange for favorable treatment. In fact, these transfers of funds are more typically demanded by politicians, either in exchange for legislative, regulatory, or other benefits, or in an attempt by the payee to avoid being harmed by some government action.

Bribery and extortion look similar, the difference being who initiates the transaction. Schweizer argues that as politics has evolved in Washington, it is the “permanent political class” who demands payment for the services they provide.

The book is filled with specific examples of cases where legislation is held up until those who favor the legislation pay a sufficient amount to the campaigns or PACs of legislators who then will move it to a vote. More perniciously, legislation is often designed to harm specific groups, who then are strong-armed into paying up to stop the legislation from going forward. This is how legislators can “milk” citizens for more money.

“Double-milkers” can raise even more money. If there are interests on both sides of an issue, legislators can extort funds from both.

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According to a recent report, Democrats plan to use a drive to increase federal and state minimum wages as a 2014 election strategy. (“Democrats Turn to Minimum Wage as 2014 Strategy”, NYT 12/30/13.)

Generally, a binding minimum wage law will reduce the employment of the lowest-skilled workers. However, two economic fallacies that cloud the issue are prevalent, one among opponents of the minimum wage, and one among proponents.

The first fallacy is that an increase in the minimum wage (MW) will invariably lead to layoffs of the lowest-skill workers. In fact, a moderate increase in the MW could easily lead to no perceptible layoffs at all, and a windfall gain for workers at the expense of employers who have invested in their training. But to the extent employers can foresee the increase in the MW, they would never have hired these workers in the first place.

The second fallacy is that a MW can permanently increase low-skill employment when labor markets are not perfectly competitive. While it is true that a MW could conceivably increase employment of some workers in the short run, this is again at the expense of employers who have invested in capacity in the expectation of the market wage. If they had anticipated the MW, they would have invested on a smaller scale, or perhaps not at all.

In either case, in the long run, a MW unambiguously reduces the employment of low-skilled workers, even when labor markets are imperfectly competitive.
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Keyhole no longer needed

As most Americans were contemplating where to put their new Christmas presents, President Obama on Thursday signed into law the 2014 National Defense Authorization Act (NDAA), the annual federal law that provides the budget for the Department of Defense—and lately has delivered a whole lot of power to the Executive, to boot.

As reported previously, NDAA 2012 was dubbed the “Homeland Battlefield Bill,” because it defined the entire United States a “battleground” in the war on terror, and provided the president, for the first time, the power to capture and indefinitely detain any American citizen he deems a suspected “belligerent”—at his own discretion, with no evidence and no trial necessary.

Thus the end of habeas corpus.

Despite his promises to revoke his total discretionary powers of indefinite detention, President Obama has left them untouched—never know when they may come in handy—and the new and improved NDAA 2014 gives him a neat new added bonus: the ability to use, at will, the Total Information Awareness data being captured and indefinitely stored by NSA and other surveillance agencies.

Section 1071(a) of NDAA 2014, directs the Secretary of Defense to “establish a center to be known as the ‘Conflict Records Research Center,’” authorized to compile a “digital research database including translations and to facilitate research and analysis of records captured from countries, organizations and individuals, now or once hostile to the United States.”

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Professor John H. Cochrane of the University of Chicago had an op-ed in the Wall Street Journal on December 25, in which he gave a brief description of (among other things) a market in which individuals buy our own health insurance – and not from an Obamacare exchange.

According to Professor Cochrane: “.....we should transition to fully individual-based health insurance”. This is the Holy Grail of free-market reformers, and likely unattainable as long as Obamacare’s political opponents are unwilling to take the risk of a reform that can be twisted as “taking away” employer-based benefits. (Although, as I have described in a previous post, the task would not be impossible if free-market reformers improved our communications skills.)

In Professor Cochrane’s approach, each individual would buy health insurance that actually combines two policies. The first would cover the beneficiary for catastrophic illness and accidents this year. The second, called health-status insurance, is insurance against being underwritten again in future years.

Traditional employer-based coverage is re-underwritten every year (sometimes within limits prescribed by state laws). Before Obamacare, individual insurance was never re-underwritten, but that fell apart if the beneficiary switched insurers. Healthy beneficiaries found it easy to switch insurers, but people who became sick were forced to stay with their plans, even if they preferred to switch.

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Here is a story about a recent court case in which a federal judge blocked the State of Georgia from charging $5 per month charge to low-income recipients for federally-subsidized cell phone service. One reason I find this interesting is that as recently as 1999 only 32% of Americans had cell phones, according to this site, and 25 years ago almost nobody had one.

Cell phone service, an almost unobtainable luxury a quarter of a century ago, has now become an entitlement that the poor should not be forced to go without. Charging poor people even $5 a month for one is, apparently, a large enough burden that the charge was struck down be a federal judge.

The article notes that about 14 million households receive this federal entitlement. With about 116 million households in the US, that is about 12% of all US households.

What an amazingly wealthy country we are that people would think it is unreasonable to deprive the poor of cell phone service, and even that it should be illegal for them to have to pay $5 a month for it!

Hooray! The Medicare “Doc Fix” Is Fixed Until March 31.

Once again, Congress pretends to have fixed the unfixable: The way Medicare pays doctors. An earlier blog entry describes how Medicare pays physicians by using a method that puts the old Soviet Gosplan to shame.

The simplest description is that a government-authorized committee determines how much time it takes a doctor to do a procedure. For example, a session of psychotherapy for a patient with panic attacks takes 45 minutes. A hysterectomy takes about twice as much time as the session of psychotherapy, plus 3.8 times as much mental effort, and 4.47 times as much technical skill and physical effort, as well as 4.24 times as much risk. Needless to say, negotiation over these estimates consumes a lot of energy in a zero-sum game between specialist medical associations.

The outcome is a “relative value” for every single thing doctors get paid for by Medicare. A highly complex and time consuming procedure earns a high relative value. Each relative value is adjusted for geography (e.g., Manhattan is more expensive than Dallas) and multiplied by a conversion factor to determine how much Medicare will pay a doctor.

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Julie Appleby of Kaiser Health News recently reported on a presentation by Paul Mango of McKinsey & Co. to an audience of health-insurance executives. According to Appleby’s report, Mr. Mango’s research found:

• About two-thirds of hospital networks on the exchanges are “narrow” or “ultra-narrow”;
• This was defined by surveying 20 urban areas and identifying the 20 biggest hospitals in each area;
• An insurer with at least 15 hospitals in network have a “broad” network; those with 7 to 14 hospitals have a “narrow” network; and those with 6 or fewer hospitals have an “ultra-narrow” network.

Furthermore, Appleby reported that Mango’s research concluded that the “narrow” and “ultra-narrow” network plans did not always have the lowest premiums. Nevertheless, “broad” network plans have premiums 26 percent higher than the plans with smaller networks, according to Appleby’s report.

The point of this blog entry is to discuss why health insurers have networks at all. However, before we get to that, I would like to emphasize that the previous paragraphs specify “Appleby’s reporting of Mango’s research” and not “Mango’s research” itself.

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The winter 2014 issue of The Independent Review is hot off the press! This edition of the Independent Institute’s 160-page scholarly journal includes a stimulating mix of timely topics and enduring themes, including a symposium on Nobel laureate economist James M. Buchanan and classical liberalism. Read it and gain a deeper understanding of the ideas and legacy of a hero of the liberty movement who pioneered the study of government failure, public choice, and constitutional economics. Other subjects in the winter issue include Iceland’s and Ireland’s recent banking crises, healthcare without government intervention, economics lessons from The Treasure of the Sierra Madre, worrisome trends in unemployment, and a tribute to the late Charles K. Rowley.

As always, The Independent Review includes insightful book reviews written by leading subject-matter experts. The new issue features reviews of the following books: John P. Tiemstra’s Stories Economists Tell: Studies in Christianity and Economics; Jonathan V. Last’s What to Expect When No One’s Expecting: America’s Coming Demographic Disaster; Samuel Gregg’s Becoming Europe: Economic Decline, Culture, and How America Can Avoid a European Future; James T. Bennett’s They Play, You Pay: Why Taxpayers Build Ballparks, Stadiums, and Arenas for Billionaire Owners and Millionaire Players; and Benn Steil’s The Battle of Bretton Woods: John Maynard Keynes, Harry Dexter White, and the Making of a New World Order. Read them all to better understand current trends and historical turning points.

Special Internet Offer: Subscribe to The Independent Review now—and select a free book. It’s never too late for great holiday gifts!

[This post also appears in the 12/24/13 issue of The Lighthouse. To subscribe to this weekly newsletter from the Independent Institute, enter your email address here.]

In two recent posts I discussed out-of-control prices for hospital services, especially emergency-room care. In the first, I argued that sky-high hospital prices are the result of government interference. In the second, I cheered the fact that consumer-driven health plans are inducing hospitals (ever so gradually) to be more upfront with patients (at least, those coming in for scheduled surgeries) about how much they will have to pay out of pocket, and agreeing on payment plans before admission.

Obamacare promises to come to the rescue of uninsured patients who are charged outrageous prices by hospitals. Statutory language purports to limit hospital charges to uninsured patients in the ER to “not more than the lowest amounts charged to individuals who have insurance covering such care.” Hospitals that fail to adhere to this policy risk losing their non-profit status. (The relevant text is on page 739 of the enrolled version of the bill here.)

Hospitals take threats to their non-profit status very seriously. So, since the Affordable Care Act was passed in 2010, you might expect that the overcharging of uninsured patients has long since stopped. You would be wrong. Like everything else in Obamacare, this has malfunctioned.

In Time magazine, Steven Brill reports that hospitals continue to levy exorbitant charges on uninsured patients treated at ERs, and accuses the Obama administration of “bungling the easy stuff.” Well, the “stuff” is never “easy” when the federal government gets involved.

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