Grubergate Part II: The Truth

MIT economist Jonathan Gruber, who advised policymakers on the economics of healthcare during the debate over the Patient Protection and Affordable Care Act (Obamacare), landed himself in hot water for the second time (demonstrating, again, why academics and politicians have fundamentally different goals and skill sets). Critics of the law discovered video of a Penn conference in which Gruber said the following

This bill was written in a tortured way to make sure the CBO [Congressional Budget Office] did not score the mandate as taxes. If CBO scored the mandate as taxes, the bill dies. So it's written to do that.

In terms of risk-rated subsidies, in a law that said health people are gonna pay in - if it made explicit that healthy people are gonna pay in, sick people get money, it would not have passed. Okay - just like the ... people - transperen- lack of transparency is a huge political advantage. And basically, call it the stupidity of the American voter or whatever, but basically that was really, really critical to get anything to pass.

Republicans gleefully pounced on the remarks to further their case against the law, while Democrats angrily denounced Gruber. David Axelrod, a former chief strategist for President Obama, tweeted that you'd find Gruber's picture under a definition of stupid in the dictionary. The House Oversight Committee even called Gruber to testify at a hearing next month. 

Overstating this outrage and its importance would be quite easy. After all, I have real doubts that the vast majority of the public even knows who Gruber is. Indeed, when people started referring to his remarks on Twitter last week, I wondered how Hans Gruber resurrected himself and what he did (If you don't know who Hans Gruber is, go watch Die Hard. NOW). 

Nonetheless, the outrage among the political class raises two important questions: did Gruber violate a taboo, but speak honestly, or did he speak out of bitterness, frustration or a failure to properly understand the legislative process? Additionally, did Gruber's comments reveal something untoward or nefarious about the legislative process?

Gruber basically spoke the politically inconvenient truth. Undoubtedly, calling the voting public stupid represented a poor choice of words and a foolish blunder for someone who should know better. Gruber would have been far better served using a phrase like uneducated about the political process and public policy, or under informed about policy matters.

Both would have been far more accurate and less inflammatory. Yet, speaking at an academic conference, Gruber displayed a political tin ear and employed shorthand that guaranteed that he'd make news and look foolish (Of course, as an academic, at an academic conference, he freely spoke in a way that no one in the political world would have done). He likely assumed that his audience would understand that stupid meant ill-informed about policy and the activities of Congress. 

This poor choice of words aside, as Ezra Klein wrote, Gruber otherwise spoke the truth. As anyone who has ever read R. Douglas Arnold's seminal Logic of Congressional Action knows, members of Congress always try to obscure the chain of responsibility for the costs (i.e. unpleasant aspects of legislation), while loudly claiming credit for the benefits. 

It's why Congress has created mechanisms to vote for congressional pay raises without actually voting on raises. The sad truth is that politicians who choose honesty over such maneuvering tend to find themselves in trouble politically (as Walter Mondale famously learned). Rather than being rewarded for their honestly, they are punished for whatever ill effect they've admitted to causing. 

Almost all legislation has costs and benefits. Even when those costs are diffused among the population, they still exist. Gruber was also undoubtedly correct that the attempt to hide these costs led to more complex legislation, which made it even harder for the public to be well informed. 

In fact, as the work of Suzanne Mettler, Brian Balogh, and Jacob Hacker has shown, Congress often produces needlessly complex legislation that obscures even its benefits in order to avoid stirring anxieties about government power and the welfare state. While members of Congress certainly try to make sure that constituents who benefit from legislation know that they deserve credit, they still steer clear of the sorts of ideological debates required by more simple, straightforward legislation. 

In fact, the paradox at work is that legislators feel compelled to create overly complex legislation to hide costs and benefits because it is difficult to explain the reasoning behind legislation in a culture of thirty second soundbites.

Congress understood that the claim that the Affordable Care Act raised taxes could be potentially fatal both to the legislation and to their careers. Congressmen did not believe that they could win the messaging debate, and explain the need for these provisions in a way that could counter the potency of simple accusations of burdening the taxpayer. The two or three minute explanation (I'm being generous here—it might be 15-20 minutes) of these provisions complete with citations to studies would never reach the public. 

But because of this belief, Congress made the legislation even harder for Americans to understand, and may have contributed to its unpopularity and to the suspicion that many people have towards the legislation and the legislative process behind it. 

The only way to undo this process of obscured costs and benefits and overly complex legislation would be for the public to engage with the legislative process to a sufficient degree that they understood minute policy details and ramifications. The public would also need to develop a newfound willingness to pay the costs for popular things (in the case of the Affordable Care Act, a ban on insurers disqualifying people because of preconditions). 

Gruber's comments certainly won't help in this regard. Nonetheless, we should understand that his careless word choice aside, Gruber spoke the truth, and identified a major problem with our political and governing processes. The practice he identified was not limited to or unique to the Affordable Care Act. Nor was Congress trying to fool the public about the Affordable Care Act. Rather, Congress was doing what it always does to protect itself against demagogues and talking points, and to ensure passage of legislation in a soundbite culture. 

This practice does a real disservice to the public's understanding of legislation, but it's more reflective of a systemic process flaw than a problem with the Affordable Care Act. The process itself also does not signal that legislation is bad. Merely that it is overly complex and might be better. 

The Dangers of Relying on the Market

I'm a believer that government ought to ensure that every American has shelter, food, quality education, and health care (i.e. the necessities for survival). That seems to be the minimum that a moral society requires. I also believe that government needs to strongly regulate the market for any product that is essential for people to have (for example credit, prescription drugs, health insurance, housing, utilities, etc). Otherwise, it becomes far too easy for profit driven companies to take advantage of people's needs to profit outrageously, while making it hard for consumers to survive. 

But that does not mean I oppose freedom, or want to have a socialistic society. In fact, beyond those essentials, I'd let the market regulate itself in most cases. The example I like to use is that Merck and Pfizer should not be able to charge you whatever they want for prescription drugs, because you might well need them to survive, but Apple should be able to charge whatever it wants for iPhones, because as much as we might be addicted to them, people have been known to survive iPhoneless. 

Where I think calls to allow the market economy to work largely unimpeded (under the guise of increasing freedom) are most dangerous and misguided are in areas where a market economy only somewhat exists. 

Health care is the best example of this flawed conception. A market economy does not really exist in the health care realm. It's exceedingly difficult to price shop for treatments (when your doctor recommends a test or a treatment do you call around to doctors' offices asking how much they charge for the procedure? If you did, would they even provide an answer?)

Additionally, much of our medical care occurs on an emergency basis, often while the patient is  not awake and alert to make decisions (you don't get to ask about how much the doctor will charge for unclogging your arteries when you're sedated after a heart attack). Even when the patient is awake and alert, it can be difficult to price shop because he/she needs immediate care and few options exist. 

Further, our patent laws often prevent competition when it comes to producing prescription drugs. During the period under which a company has a patent, other drug manufacturers cannot produce similar, generic drugs, which would be far cheaper for the consumers. As I detailed in my blog on the healthcare system, the pernicious practice of repatenting often extends this period. 

Finally, statutory bars also exist that prevent a truly free market from existing. For example, in adding a prescription drug benefit to Medicare in 2003, President Bush and the Republican Congress prohibited Medicare from using its market dominance (and the sheer number of beneficiaries it has) to negotiate lower drug prices. While private companies that provide the Medicare prescription drug benefit can negotiate, they represent fewer beneficiaries than the government would represent, which equals less leverage. 

So whatever benefits open competition and a free market might offer, we often have a semi-free market that benefits whoever had the political power to shape the laws and regulations that govern the market. 

Moreover, in many areas of life, we lack sufficient competition to truly protect consumers. Or competition produces a race to the bottom (such as when one airline announces a new type of fee, and all of the other airlines jump on the bandwagon). 

Claire Cain Miller of the New York Times wrote about how Americans pay more for slower internet access than people in many other countries. Initially, this might seem stupefying given that most of the biggest and most important tech companies are based in the United States. Yet, it is a perfect case of why leaving the free market to its own devices often hurts the vast majority of Americans.

Miller details how the FCC deregulated the internet market in 2002 in the hopes of spurring competition. Unfortunately, competing companies have largely stayed out of each other's markets. The result is that consumers are almost entirely at the mercy of local providers who can freely set whatever prices they choose and provide slower connections for those prices (FCC Chairman Tom Wheeler estimates that 75% of Americans lack competitive choices among providers). 

We can argue about how essential internet access is. Certainly it ranks lower than healthcare, power, and water. But with each passing year, internet is an incresingly essential element of the modern world. It is becoming something from which many, if not most, Americans feel like they cannot easily abstain without significant inconvenience and, in some cases, hardship. 

What alternatives could government provide? According to Miller, many countries in Europe have regulations designed to spur competition by forcing companies that own the pipes carrying broadband to lease space in those pipes to their competitors.

Alternatively, Miller writes that the cities in the United States with the fastest internet have publicly owned fiberoptic networks. Currently, internet providers have little incentive to upgrade to fiberoptic networks. But the government could either build these networks and then lease them to internet providers (they might even promise to lease the networks to the company that offers the best deal for consumers), or the government could regulate that companies upgrade by a certain date. There might also be other laws or regulations that could spur competition (for example tax credits for companies that enter new markets, or for companies that invest in fiberoptic networks). 

None of these arguments is to advocate for socialism or not having relatively free markets. Indeed, I could offer a pretty passionate sermon against the dangers of socialism— among them freeloaders, lack of innovation, etc. 

But the pure libertarian notion that we ought to let the market work unimpeded, and the constant Republican argument that we should reduce regulation because it ipso facto hurts the economy simply lack practicality, common sense, and an understanding of the proper role of government. Too often conservatives seem to chase an admirable theoretical ideal that, in reality, reduces the quality of life for many Americans. 

What would I propose instead?

Each regulation/law ought to be reevaluated periodically. The question ought to be what good does it serve, and what downside does it present? Have there been unintended consequences? Do they outweigh the benefits? If so, scrap the regulation. Not every law works in the way in which it was envisioned. Government needs to be flexible and adaptable. 

Additionally, however, Congress (and state legislatures) must recognize that businesses, by their nature, care about increasing profits, not about what benefits the public. Government, in turn, MUST serve as the watchdog for the public interest. 

In an area like the internet or health care where people do not have the same flexibility to stay completely out of a market, the government needs to aggressively, but intelligently, regulate these industries to make sure that the products are affordable. Regulations can be designed to encourage competition and to use market forces to achieve public ends. They don't have to be blanket edicts and prohibitions (nor should they be).

But government (and the public) cannot expect companies to do anything other than what most benefits their bottom lines absent a nudge. When possible, that nudge should come from consumers. When, however, consumers either don't have the choice necessary to provide that nudge, or don't have the leverage to provide it because of unofficial collusion, or a race to the bottom, government must step in. 

Too often it seems as though many politicians (Republicans for philosophical reasons and Democrats for political reasons) willfully ignore that their job is to safeguard the public interest. Additionally, they seem oblivious to the fact that failing to regulate adequately actually plays favorites and interferes in the free market in the same way that regulating can. How? When people pay more for health insurance or internet, they have less disposable income to spend in other areas. Thus, the government essentially safeguards profits for these industries at the expense of other businesses. 

Unlike some of my conservative friends, I do not worry that such regulation might create a slippery slope of some sort. If voters are vigilant, educated, and intelligent in evaluating government action, slippery slopes are of little concern. I also don't mind trading a small modicum of freedom for a more just society and a higher standard of living. 

It's easy to have a blanket ideology and apply that ideology to all issues. Philosophically, I have a lot of sympathy for the conservative ideal. Nonetheless, when one translates that philosophy into reality, it can damage the lives of the vast majority of citizens, and even lead to more government and more government spending in the long run (for example, extra health care and internet costs = less money for eating healthy, gym memberships, etc., which reduce health care costs in the long run).