Thomas Sowell on Tax Cuts

One of the most contentious topics in recent American politics has been tax policy. Republicans have advocated tax cuts to relieve the tax burden on Americans and, in doing so, (hopefully) improve the economy. In contrast, Democrats have advocated tax rate increases on the “rich” (who are mistakenly considered to be high income earners regardless of wealth) in the hope that tax revenues can be increased so that the federal government can be more generous with its welfare and entitlement programs. Republicans argue that increased tax rates will increase the tax burden on Americans, which will ultimately hurt both the economy and tax revenues. Democrats have made some serious arguments against Republican plans for tax cuts, but more often than not have attacked those plans as “tax cuts for the rich”, “trickle-down theory”, etc.

Economist Dr. Thomas Sowell has written a superb and informative article addressing these leftist attacks on “trickle-down theory” and the like. The article — which everyone should read — explains that leftists are attacking straw men when they make such arguments since no one has ever actually advocated a “trickle-down theory” or anything like it. As Dr. Sowell explains this fallacious thinking:

What is…inconsistent [about such arguments] is attributing [leftists’] own assumptions to those who are arguing on the basis of entirely different assumptions. Challenging those other assumptions, or the conclusions which derive from them, on either analytical or empirical grounds would be legitimate, but simply attributing to them arguments that they never made is not.

Dr. Sowell demonstrates that not only has no conservative or Republican has ever argued for a “trickle-down theory” or the like, but that Democrats like Woodrow Wilson and John F. Kennedy and even economists like John Maynard Keynes have argued for tax rate cuts in order to improve the economy and increase tax revenues.

Avoiding the leftist assumptions and inflammatory word choices, Dr. Sowell offers the following succinct explanation of the actual theory (emphasis his):

[H]igh tax rates that many people avoid paying do not necessarily bring in as much revenue to the government as lower tax rates that more people are in fact paying, when these lower tax rates make it safe to invest their money where they can get a higher rate of return in the economy than they get from tax-exempt securities.

In other words, lower tax rates encourage people — poor, rich, low income, high income, etc. — to invest their money in the economy rather than in tax-exempt securities, which results in an improved economy and increased tax revenues. Tax revenues increase despite lower tax rates since there is more taxable income overall.

Finally, it’s worth noting — as Dr. Sowell points out in his article — that tax cuts have resulted in increased tax revenues as recently as George W. Bush’s presidency. As much as the left hates the Bush tax cuts, even the New York Times admitted that a

steep rise in tax revenues from corporations and the wealthy is driving down the projected budget deficit this year, even though spending has climbed sharply because of the war in Iraq and the cost of hurricane relief.

This is a telling admission since the New York Times is hardly a friendly source for conservatives and Republicans — betraying its already obvious leftist bias, the Times called this increase in tax revenues “surprising” and “unexpected” despite the fact that such an increase in tax revenues was and is entirely expected by conservatives. It’s also noteworthy that the increased tax revenues came mostly from corporations and the wealthy, which are precisely the groups the left keeps telling us they want to “ask to pay a little bit more”.

Dr. Sowell’s article explains all this and more (in layman’s terms, as he is known for) so be sure to read the entire article.


Milton Friedman on Health Care

The other day I came across a superb article by economist and Nobel laureate Milton Friedman on how to cure health care (H/T Swiss Economist who originally linked to the article, and who posted a comment about it on Enjoyment and Contemplation). The article is somewhat long but definitely worth reading, especially in light of the recent Supreme Court ruling on the Patient Neglect and Unaffordable Care Act (known as the Patient Protection and Affordable Care Act in Newspeak, or as “Obamacare”). The government naturally ignored all of Friedman’s advice in the Patient Neglect and Unaffordable Care Act, and Friedman hints at why the government’s health care reform will fail (despite the fact that Friedman died even before “Obamacare” was written).

First, Friedman explains why health insurance — unlike many other forms of insurance — is bought through one’s employer:

We have become so accustomed to employer-provided medical care that we regard it as part of the natural order. Yet it is thoroughly illogical. Why single out medical care? Food is more essential to life than medical care. Why not exempt the cost of food from taxes if provided by the employer? Why not return to the much-reviled company store when workers were in effect paid in kind rather than in cash?

The revival of the company store for medicine has less to do with logic than pure chance. It is a wonderful example of how one bad government policy leads to another. During World War II, the government financed much wartime spending by printing money while, at the same time, imposing wage and price controls. The resulting repressed inflation produced shortages of many goods and services, including labor. Firms competing to acquire labor at government-controlled wages started to offer medical care as a fringe benefit. That benefit proved particularly attractive to workers and spread rapidly.

Initially, employers did not report the value of the fringe benefit to the Internal Revenue Service as part of their workers’ wages. It took some time before the IRS realized what was going on. When it did, it issued regulations requiring employers to include the value of medical care as part of reported employees’ wages. By this time, workers had become accustomed to the tax exemption of that particular fringe benefit and made a big fuss. Congress responded by legislating that medical care provided by employers should be tax-exempt.

I had always wondered why health insurance was bought through one’s employer. It is indeed “thoroughly illogical”. Next, Friedman explains that the meaning of insurance has undergone a drastic change in the context of health insurance:

Employer financing of medical care has caused the term insurance to acquire a rather different meaning in medicine than in most other contexts. We generally rely on insurance to protect us against events that are highly unlikely to occur but that involve large losses if they do occur—major catastrophes, not minor, regularly recurring expenses. We insure our houses against loss from fire, not against the cost of having to cut the lawn. We insure our cars against liability to others or major damage, not against having to pay for gasoline. Yet in medicine, it has become common to rely on insurance to pay for regular medical examinations and often for prescriptions.

This is exactly what I was explaining in my argument against health insurance mandates. The problem with using insurance to cover regular medical expenses like examinations is that a third party (the insurance company or government) needlessly interferes with normal economic transactions between caregiver and patient, and the patient has no incentive to pay attention to costs since the insurance company is paying for the care (i.e. the costs are hidden from the patient). As Friedman puts it:

Third-party payment has required the bureaucratization of medical care and, in the process, has changed the character of the relation between physicians (or other caregivers) and patients. A medical transaction is not simply between a caregiver and a patient; it has to be approved as “covered” by a bureaucrat and the appropriate payment authorized. The patient—the recipient of the medical care—has little or no incentive to be concerned about the cost since it’s somebody else’s money. The caregiver has become, in effect, an employee of the insurance company or, in the case of Medicare and Medicaid, of the government. The patient is no longer the one, and the only one, the caregiver has to serve. An inescapable result is that the interest of the patient is often in direct conflict with the interest of the caregiver’s ultimate employer. That has been manifest in public dissatisfaction with the increasingly impersonal character of medical care.

This system results in high costs for health care due to the fact that

nobody spends somebody else’s money as wisely or as frugally as he spends his own.

This principle is the ultimate basis for conservative arguments against such heavy government involvement as created and perpetuated in the most recent health care reform — government cannot and does not spend money as wisely or frugally on health care as patients themselves, who are also most familiar with their health care needs.

Friedman gives a solution to reducing the high cost of health care:

A cure requires reversing course, reprivatizing medical care by eliminating most third-party payment, and restoring the role of insurance to providing protection against major medical catastrophes.

The ideal way to do that would be to reverse past actions: repeal the tax exemption of employer-provided medical care; terminate Medicare and Medicaid; deregulate most insurance; and restrict the role of the government, preferably state and local rather than federal, to financing care for the hard cases. However, the vested interests that have grown up around the existing system, and the tyranny of the status quo, clearly make that solution not feasible politically.

Note that Friedman’s solution does call for some government involvement, particularly for the “hard cases” (individuals with pre-existing conditions, the poor, etc.). The conservative approach to health care does not mean the poor and unhealthy must be neglected or that government has no role in health care — despite what many leftists think and would have you believe — but it does limit the government to its proper role.

A politically feasible approach to Friedman’s solution (that actually exists to some degree already) is a medical savings account:

A medical savings account enables individuals to deposit tax-free funds in an account usable only for medical expense, provided they have a high-deductible insurance policy that limits the maximum out-of-pocket expense…it eliminates third-party payment except for major medical expenses and is thus a movement very much in the right direction. By extending tax exemption to all medical expenses whether paid by the employer or not, it eliminates the present bias in favor of employer-provided medical care.

This solution not only restores the true meaning of health insurance as insurance against major, unexpected, and catastrophic health expenses, but it weakens the current model of employer-based health insurance. With employers paying less for high deductible health insurance plans than for low deductible plans, employees can receive more of their compensation in the form of wages rather than health insurance. Cash is more flexible than insurance, so employees can choose to either spend their extra wages on health care (their out-of-pocket expenses would be higher) or on whatever else they want to spend it on (for example, if they are healthy and don’t need much health care).

Given the clear benefits of medical savings accounts, can you guess what the Patient Neglect and Unaffordable Care Act does? Although the law does allow such accounts, it restricts what they can be used to purchase (non-prescription medications cannot be paid for with funds from such accounts) and limits the amount of tax-free contributions that can be made to the accounts.

For completeness, Friedman does briefly mention the leftist approach to health care and its benefits and drawbacks:

In terms of holding down cost, one-payer directly administered government systems, such as exist in Canada and Great Britain, have a real advantage over our mixed system. As the direct purchaser of all or nearly all medical services, they are in a monopoly position in hiring physicians and can hold down their remuneration, so that physicians earn much less in those countries than in the United States. In addition, they can ration care more directly—at the cost of long waiting lists and much dissatisfaction.

The reason why this government approach to health care leads to rationing and long wait times is, of course, explained by basic economics:

Legislation cannot repeal the nonlegislated law of demand and supply: the lower the price, the greater the quantity demanded; at a zero price, the quantity demanded becomes infinite. Some method of rationing must be substituted for price, which invariably means administrative rationing.

With artificially low prices due to insurance mandates (like the “free contraceptives” mandate) demand rises and the low or zero price product is over-utilized. Furthermore, although the government can use its monopoly position to hold down physicians’ compensation, doing so reduces supply in a system of rising demand so that even more rationing is required. There are obvious reasons why monopolies should be avoided, so the leftist desire for a government monopoly (which, unlike a private monopoly, also has the authority of law and armed force to coerce) is “thoroughly illogical”.

Developing a good system of health care is certainly a difficult problem that requires much serious thought and debate, especially when dealing with the “hard cases” like the poor and individuals with pre-existing medical conditions. Both the left and the right have solutions to this problem, although as Milton Friedman has shown the left’s solution has serious logical and practical conflicts with the laws of economics. The conservative approach outlined by Friedman, on the other hand, takes into account the laws of economics and gives patients the power to choose how best to spend their money — on health care as well as other expenses — rather than impose an “individual mandate” tax.

On Motives in Politics

A common political tactic is to attack a political opponent’s motives instead of his policies. This is a fantastically effective tactic since it puts one’s political opponents on the defensive and forces them to explain their motives rather than the merits of the policies they support. Yet from a logical perspective it is an extremely weak argument for the attacker’s political position since it is an “appeal to motive” ad hominem logical fallacy (it also suggests further weakness for the attacker’s position, since one would expect the attacker to use a logical argument instead if such a logical argument was persuasive).

A recent example of such an attack is the leftist “war on women” rhetoric in response to anti-abortion legislation (and even conservative positions that oppose things like “free” contraceptives). The fallacious argument goes something like this: conservatives want to limit the availability of abortions and prevent women from obtaining “free” contraceptives because they hate women and want to “punish” them with pregnancy as a means to control and oppress them, and to maintain The Patriarchy™. But the idea that conservatives’ motive for opposing abortions and “free” contraceptives is because they hate women is absurd, and doubly so when the conservative in question is a woman. Conservatives do not hate women — many conservatives are women themselves or care about and love their wives, mothers, sisters, etc. Even if conservatives did hate women, it would be utterly foolish to publicly attack women since women have the same power to vote as men and can seriously reduce a politician’s chance to get elected or re-elected. The actual conservative motive is of course to reduce the number of abortions — which many conservatives consider unjust killing in all but a few rare cases — and to avoid the wasteful, unfair cost of “free” contraceptives (which, in the case of some leftist “free” contraception policies, also violates religious freedom). The fact that these policies affect women is a secondary effect. Moreover, the same policies affect men as well — reduced abortions mean that a father whose child would have been aborted would have to support the child (even if he didn’t want the child), men as well as women pay insurance premiums which cover the costs of “free” contraceptives, etc.

Another leftist appeal to motive that occurs very frequently is the charge that conservatives who oppose same-sex marriage and similar “gay rights” legislation are homophobes and bigots who are motivated solely by their fear, intolerance, and hatred of homosexuals. Rather than engage in meaningful debates on such topics as the appropriate legal definition and purpose of marriage, leftists attempt to shut down any debate by labeling their opponents as bigots whose opinions are illogical and meaningless. Ironically, leftists who do this are themselves acting with bigotry since a bigot is

a person who is utterly intolerant of any differing creed, belief, or opinion

By refusing to listen to conservative arguments against same-sex marriage (and similar policies) and instead calling their opponents homophobes and bigots, leftists display an intolerance to conservative opinion.

Yet another example of the appeal to motive fallacy is the occasional but persistent leftist claim that certain statements made by conservatives are really “code” or contain “unspoken words” expressing racism, sexism, etc. When Representative Joe Wilson shouted “You lie!” and interrupted a speech to Congress by Barack Obama, Maureen Dowd claimed that her apparently superhuman hearing allowed her to hear Wilson shout “You lie, boy!” — an apparently racist attempt by Wilson to assert his superiority over Obama since Wilson could not accept a (half) black man as U.S. President. By his own actions Wilson had already embarrassed himself enough, but Dowd had to invent code words to advance the leftist narrative that conservatives don’t like Barack Obama only because we’re allegedly racist and he’s (half) black (this narrative is itself a case of leftists impugning conservatives’ motives rather than addressing our policy arguments). Dowd is certainly not the only leftist claiming to have cracked conservatives’ “racist” and “sexist” code book: Andrea Mitchell and Craig Melvin claimed that Newt Gingrich was using “dog whistle” rhetoric during his 2012 presidential campaign in South Carolina to appeal to South Carolinian racists (wait…if Andrea Mitchell claims to be able to hear whistles that only dogs can hear, and she’s female…is she telling us something in code?). There are numerous examples of similar leftist accusations, but The Young Turks went the furthest and published an entire “guide to conservative code words” which is filled with fallacious appeals to motive.

Leftist appeals to motive occur in nearly every political debate: voter ID laws (claimed to really be “voter suppression” laws that prevent the poor and minorities from voting, despite video proof that without voter ID requirements it is possible to defraud even prominent leftists of their voting rights), conservative budget proposals to reduce spending on entitlement programs (claimed to hurt seniors, the poor, etc.)*, tax rates (conservatives’ preference for low tax rates is claimed to be due to greed and desire to coddle the rich), etc. In fairness, leftists are not the only ones who engage in appeals to motive. Conservatives also fallaciously appeal to motive when discussing a variety of policy debates: leftists want to tax the rich because they “hate” them, the poor who support leftists for their social programs are motivated by “laziness” and “greed” for someone else’s money, etc. However, it is typically leftists who appeal to motives (and leftists often guess conservatives’ motives incorrectly). The reason for this can be understood from Charles Krauthammer’s “law” that “conservatives think liberals are stupid [and] liberals think conservatives are evil.” It makes little sense for conservatives to appeal to leftists’ motives since we tend to think that leftists mean well but are misguided fools. On the other hand, leftists tend to think that conservatives are motivated by evil and/or selfishness, so it is easy to attack this perceived motive in order to attack the conservative position (who wants to enact a policy supported by evil people?).

Unfortunately, so much time is wasted speculating on others’ motives, and a person whose motive is attacked often feels compelled to waste time defending his motives. This time would be better spent engaging in more civil debates that argued facts, theories, and statistics. By recognizing appeals to motive and pointing out that such arguments are fallacies the time needed to engage in civil and meaningful debate is not lost.


* Notice how leftists never claim that cutting defense spending hurts the men and women in the military by depriving them of more and better weapons, increased pay, etc. This is because leftists actually do like to cut defense spending.

On Trayvon Martin, Media Bias, and Self Defense

There’s so much hypocrisy in the media narrative of the Trayvon Martin incident that it makes one’s head spin. The media narrative is also driving a similarly hypocritical public response. The media narrative of the incident is basically: an innocent, unarmed Florida teenager named Trayvon Martin was shot by a half-white half-Hispanic (emphasis white) neighborhood watch volunteer named George Zimmerman (who is probably a racist), and the police aren’t charging Zimmerman with a crime because of Florida’s so-called “stand your ground” law that allows an individual to use deadly force in self-defense rather than retreat from an attacker. The incident certainly looks suspicious for Zimmerman (though he does have possible exculpatory evidence), but both the media framing of it and the leftist public’s response to it have some serious flaws.

The reason the Trayvon Martin incident has gotten such leftist media attention is twofold: it is a case of alleged racism and white-on-black crime (even though the alleged perpetrator is half white and half Hispanic), and it can be used to attack self defense laws like Florida’s “stand your ground” law which allow the use of deadly force such as from a gun (and thus it can also be used to promote stricter gun control). To the first point, the media is running stories about things like black men warning their sons about public perception of black men as criminals and about pervasive white-on-black crime, despite the fact that such crime is relatively rare compared to black-on-white crime, and especially relatively rare compared to black-on-black crime. That the public often perceives black men as criminals is certainly tragic, but not entirely unreasonable or inherently racist (the author who warned his son about being black at least admits this) given actual crime statistics. To the second point, the leftist media hates guns and doesn’t understand them (they usually can’t even identify them) so they will run any story that could possibly convince the public to increase gun control or remove laws that allow the use of guns (like Florida’s “stand your ground” law).

The actual M-16 and AK-47 are in the top row and labeled in reverse

The problem with the media’s portrayal of Florida’s “stand your ground” law as preventing Florida police from arresting Zimmerman is that the “stand your ground” law is not much different than any basic self-defense law. The relevant text of the law is

(1)  A person is presumed to have held a reasonable fear of imminent peril of death or great bodily harm to himself or herself or another when using defensive force that is intended or likely to cause death or great bodily harm to another if

(2) The presumption set forth in subsection (1) does not apply if:

(c)  The person who uses defensive force is engaged in an unlawful activity or is using the dwelling, residence, or occupied vehicle to further an unlawful activity

(3) A person who is not engaged in an unlawful activity and who is attacked in any other place where he or she has a right to be has no duty to retreat and has the right to stand his or her ground and meet force with force, including deadly force if he or she reasonably believes it is necessary to do so to prevent death or great bodily harm to himself or herself or another or to prevent the commission of a forcible felony. A person who is not engaged in an unlawful activity and who is attacked in any other place where he or she has a right to be has no duty to retreat and has the right to stand his or her ground and meet force with force, including deadly force if he or she reasonably believes it is necessary to do so to prevent death or great bodily harm to himself or herself or another or to prevent the commission of a forcible felony.

The issue in the Trayvon Martin incident is whether Zimmerman acted in self-defense or not. If Zimmerman did not act in self-defense then by (2) (c) the “stand your ground” law does not even apply (nor would any self-defense law, of course) since Zimmerman would in that case have been engaged in unlawful activity. If Zimmerman did act in self-defense then the only difference between Florida’s “stand your ground” law and a “duty to retreat” self-defense law is that under Florida law Zimmerman’s legal defense would not have to prove that Zimmerman was unable to retreat. This is a fine distinction as it is, and if Zimmerman’s claim that Martin was slamming his head against the sidewalk is true then Zimmerman may not have been able to retreat (and thus would have been justified in shooting Martin even under a “duty to retreat” self-defense law). On the other hand, one can argue that self-defense is not applicable — either under “stand your ground” or “duty to retreat” — since Zimmerman apparently pursued and confronted Martin. Despite these legal arguments, the media are assuming that Florida’s “stand your ground” law would make any difference in the incident compared to a “duty to retreat” law. We the public just don’t have enough information to know whether the “stand your ground” law is even applicable, much less if it would make any difference.

Another hypocrisy in the leftist media narrative and many leftists’ public response is the fact that the same leftists who constantly admonish everyone not to “judge” people have rushed to judgment of Zimmerman. Not only do they judge him as a murderer even though he hasn’t been arrested, but they also judge him as a racist based on the fact that Martin was black and Zimmerman is (half) white. Once again, Irreverend Al Sharpton is accusing the local authorities of racism if they don’t charge Zimmerman (which, after the Tawana Brawley rape hoax, probably means that the police really don’t have enough evidence to arrest Zimmerman). Instead of pre-judging that Zimmerman and the police are all racists and that Zimmerman murdered Martin, we must all wait and allow the legal system to judge whether or not a crime was committed. That’s what it’s for.

In some extreme cases the public response has been particularly and obviously hypocritical. While Zimmerman has been accused of having acted like a vigilante during his encounter with Martin, some members of the public have reacted to the incident with their own vigilantism: fliers labeling Zimmerman as “Wanted Dead or Alive” have been created and circulated, and the New Black Panther Party has posted a $10,000 bounty for the capture of Zimmerman (H/T StuphBlog). It is disturbing that these anti-Zimmerman vigilantes fail to see such blatant hypocrisy in their actions (fortunately, the Martin family attorney seems to see it).

No matter how the investigation of this incident turns out, it is ultimately a tragedy. As a result of it Trayvon Martin has lost his life and George Zimmerman’s life will be forever tainted by it even if he is not held criminally responsible. One can only hope that the legal system brings to light the truth. If George Zimmerman really committed murder then hopefully he will be charged and convicted of the crime, and if not then hopefully he will either not be charged or will be acquitted at trial. Either way, we would do well to reserve judgment and not attempt to use an isolated incident for political gain.

On Health Insurance Mandates

The Obama administration’s introduction of a mandate that employers provide health insurance to their employees that includes “free” contraceptives has sparked a debate over government mandates like these vs. religious freedom, since this mandate would require religious employers to pay for contraceptives for their employees even if the religious employer opposes the use of contraceptives on religious grounds. The furor caused by the mandate forced the administration to “compromise” by amending the mandate so that employers may decline to provide insurance plans with “free” contraception for religious reasons, but that in such cases insurance companies must provide “free” contraception directly to women who request it. Anyone who understands basic economics (i.e. not your typical leftist — H/T Eternity Matters) understands that this “compromise” is a distinction without a difference since insurance companies in such cases will simply raise insurance premiums – which are paid by the religious employer — to cover their costs of providing “free” contraceptives. Religious employers would thus still be paying for contraceptives (albeit indirectly), and so the debate rages on.

Leftists have many “arguments” in response to the objection that the mandate violates religious freedom. One that particularly highlights leftists’ inability to understand basic economics is the claim that the mandate will actually save money for everyone — including the insurance companies — since it is less costly to provide contraceptives than pay for all the expenses related to pregnancy and providing health care for a child (the economically enlightened response: if it was true that “free” contraceptives save money overall then the “greedy” insurance companies would already be providing free contraceptives to save themselves money, even without a government mandate). Another leftist “argument” in favor of the mandate uses an amazing twist of logic: some leftists argue that for a religious organization to decline to provide contraceptives via health insurance is tantamount to imposing its religious beliefs on its employees and is therefore a violation of its employees’ freedom of religion. In other words, by this leftist “logic” the only way to maintain religious freedom on the matter of contraceptives is for religious employers to actively pay for contraceptives for their employees! But of course this falsely assumes women are unable to acquire contraceptives on their own, with or without health insurance. The actual way to maintain religious freedom is to permit women to purchase contraceptives (which they already can) while allowing those who object to contraceptives to decline to pay for them (which, of course, is the exact opposite effect achieved by the mandate).

The argument against the “free” contraceptives mandate on the grounds of religious freedom is an important one as a challenge against the constitutionality of the Patient Neglect and Unaffordable Care Act (Patient Protection and Affordable Care Act, in Newspeak). However, there is a far more important and fundamental argument against the “free” contraceptives mandate in particular and government mandates on health insurance in general: government mandates unnecessarily drive up costs of health insurance, and insurance companies have no business “covering” contraceptives in the first place (whether ordered to do so by the government or not).

Let us first consider why insurance companies are not in the business of covering contraceptives. The purpose of insurance is to alleviate risks which would cause unexpected and significant loss to the insured. Insurance companies are profitable while protecting against these risks because (a) these risks are spread amongst all the insured who pay the insurance premium and (b) these risks are not certain to occur (though of course these risks must have some nonzero probability of occurring, otherwise the insured would be wasting their money on insurance). But in the case where an insurance company protects against the monetary loss of purchasing contraceptives (by providing “free” contraceptives) condition (b) is not met. A woman who is using contraceptives (e.g. she regularly takes birth control pills) is certain to incur the “risk” of having to purchase contraceptives and her insurance company knows that, so the insurance company will calculate its cost of providing her and every other woman with “free” contraceptives and raise everyone’s premium to not only recover this cost but also make a small profit. But these predictable expenses are less costly overall if the insurance company middleman is cut out and people pay for them directly. Insurance is not meant to cover predictable expenses — it’s the reason why auto insurance doesn’t cover predictable expenses like gas, oil changes, regular car maintenance, etc., why homeowner’s or renter’s insurance doesn’t “insure” against mortgage or rent payments, and why there’s no such thing as “food insurance” for groceries (yet most of these items cost considerably more per month than contraceptives!).

Condition (b) is also not met if an insured risk is certain not to occur. For the case of “free” contraceptives provided by insurance, the “risk” of having to purchase them is exactly zero for many individuals: people who want children, post-menopausal women and their partner(s), the abstinent, homosexuals*, those who are morally opposed to contraceptives, those who are using free alternative methods of preventing pregnancy, etc. But if an insurance company is forced to provide “free” contraceptives to anyone who asks, the insurance company will be forced to raise premiums on all their customers — including everyone who has no need for contraceptives. While is it theoretically possible for an insurance company to only raise the premiums of those who do need contraceptives, the insurance company has no way of knowing a priori whether to raise the premium for a particular individual or not (someone can claim a desire to have children — and thus have no need for contraceptives — in order to obtain a reduced premium but later demand “free” contraceptives from the insurance company, which is mandated by law to provide these contraceptives for free). The effect is that the insurance company’s costs of providing “free” contraceptives are passed on to all the insured (which, per the individual mandate, includes everyone — even those who don’t need contraceptives and/or morally oppose them) even though the “risk” of having to purchase contraceptives has no possibility of occurring. It’s like forcing people without a car to buy car insurance so that they are “insured” against costs for their “car”.

Government mandates that insurance companies provide certain “free” products (like contraceptives) and services ultimately result in unnecessarily higher costs for such products and services. For one, as already mentioned the insurance company becomes an unnecessary middle entity which raises premiums to cover its costs and make a small profit for providing the “free” products and services — it would cost less to buy those products and services directly, if possible (as is certainly the case for contraceptives). Secondly, basic economics says that a reduced price will result in more demand — consequently, there will be more demand for “free” contraceptives. The problem is that the cost of supplying those contraceptives hasn’t decreased — instead, the costs are obfuscated from the recipients of the contraceptives and spread to all the insured (whether they want contraceptives or not). The added demand for contraceptives will therefore result in an increase in the overall cost of contraceptives. Considering one of the selling points of the Patient Neglect and Unaffordable Care Act was to “bend the cost curve down”, the “free” contraceptives mandate is a particularly dumb way to attempt to reduce overall health care costs.

Despite the fundamental problems with the “free” contraceptives mandate, leftists usually try to justify it by arguing that it is necessary to help poor women who can’t afford contraceptives (the “think of the poor” appeal to emotion has become the new “think of the children”). But the most appropriate way to do this would be to propose a tax that would subsidize contraceptives for poor women. Unlike insurance, taxes can be and are used to subsidize all sorts of expenses that are predictable yet not used by everyone (like food stamps). The problem with a tax subsidized contraceptives approach, of course, is that such a proposal would sound less appealing than “mandating free contraceptives for women’s health” and would therefore receive even more political opposition than the contraceptives mandate. It would also require an act of a divided Congress to pass such a tax, which would be much harder to accomplish than declaring an executive diktat.

*If roles were reversed and a leftist was making this argument, you’d probably be called a “homophobe” at this point. How dare you make homosexuals pay for something they don’t need!

On Planned Parenthood and Susan G. Komen for the Cure

Planned Parenthood (PP) and Susan G. Komen for the Cure (SGK) were in the news last week after the media broke the fact that SGK had stopped donating to PP because SGK had recently adopted a new rule not to fund any organization under government investigation (Republican Rep. Cliff Stearns started an inquiry to determine whether PP had used government money to fund abortions, which PP is forbidden to do). Leftists quickly denounced and attacked SGK on a variety of grounds to the point that SGK has seemingly changed its decision and is again donating to PP. The rationale (to use the term lightly) used by leftists to attack SGK’s initial decision has been invariably ill informed and/or completely illogical. Leftists’ objection to SGK’s initial decision has been the claim that, without SGK’s donations to PP (SGK donated $680,000 SGK to PP in 2011), millions of poor women will be unable to afford and obtain breast cancer prevention and treatment services from PP and, as a result, many will die from breast cancer. This claim is absurd on multiple grounds.

The first problem with this claim is that it assumes PP is the only organization that can provide such services to poor women. There is nothing special about PP that makes it the only organization able to provide these services, an obvious fact since SGK donates to other organizations. Furthermore, PP often just provides referrals for mammograms and breast cancer related treatment rather than providing the actual service: Nancy Brinker, founder and CEO of SGK, made this point after SGK came under fire for withdrawing grants to PP:

It was nothing they were doing wrong. We have decided not to fund, wherever possible, pass-through grants. We were giving them money; they were sending women out for mammograms. What we would like to have are clinics where we can directly fund mammograms.

If all PP is doing is providing referrals it makes much more sense for SGK to just fund the organizations actually providing breast cancer prevention and treatment services (and referrals by PP don’t cost any money, so in those cases PP would be able to use SGK funds for their other costs…such as abortion costs). And those leftists who support PP (either for their abortion or breast cancer related services, or both) might as well donate directly to PP, which many PP supporters did after learning that SGK had stopped funding PP.

The second problem with the claim that SGK’s initial decision to stop donating to PP would prevent poor women from obtaining breast cancer prevention and treatment services is that SGK’s donations have been a miniscule portion (0.07%) of PP’s budget anyway (Eternity Matters has a great pie chart illustrating this). Leftists’ hysterical wailing that millions of poor women were going to die because PP would not be able to provide breast cancer screening without SGK’s donations is ridiculously overblown. If SGK’s $680k in donations to PP is so critical to health care for poor women then leftists should demand that PP’s executives take a pay cut (many PP executives are paid more than $250k and PP President Cecile Richards is paid nearly $400k). That would leave more SGK money for breast cancer prevention and treatment (whether donated to PP or to another organization) and would lower “income inequality”! Doubleplusgood!

The reason SGK’s decisions regarding donations to PP have been so controversial is that PP is at the center of the abortion debate. Leftists claim that donations to PP from SGK and the government do not fund abortions, but they overlook the fact that money is fungible. SGK donations to PP that fund breast cancer related services cover (part of) the cost of performing those services and in doing so allow PP to use their other funds (e.g. money obtained from direct donations to PP) on abortions. PP claims only 3% of their services are abortions (a dubious claim on closer reflection — H/T Eternity Matters), but because of the fungible nature of money SGK donations indirectly fund PP provided abortions as long as any abortions are performed by PP. It also means that PP’s claim to not have used money from the government for abortions is meaningless — any government money used on PP’s other services frees up more PP money for abortions and thus indirectly funds abortions.

SGK’s decisions have ultimately been a fiasco. After its initial decision to stop donating to PP leftists donated millions directly to PP, and much of that money will no doubt be used to fund abortions. At the same time, many who oppose abortion donated to SGK in support of their decision to stop donating to PP…but now that SGK seems to have reversed its decision some of that money may be donated to PP and thus can be used to (indirectly) fund abortions. The only good things about this fiasco is that (1) SGK should see reduced donations from abortion opponents who now know about its connection to PP and (2) the tarnishing of the SGK brand and pink ribbons may alleviate the nauseating onslaught of pink every October (Breast Cancer Awareness Month — as if anyone these days is unaware of breast cancer). However, this is little consolation for all the PP abortions that have been funded — directly or indirectly — as a result of SGK’s decisions.

A more appropriate logo for PP: Runes and the Totenkopf

One final note: lest I be attacked for “not caring about women” or something similarly ridiculous (leftists have a bad habit of impugning the motives of their political opponents), I should mention that I have experienced the problem of breast cancer in my own family — my mother is a breast cancer survivor.

On Income Inequality

The latest leftist, anti-capitalist fad is income inequality — the fact that some people have higher incomes than others. Although income inequality is present in every society (no matter what economic system), it is apparently now a major concern because it appears to be growing in Western countries that are more or less capitalist. In fact, according to a panel of “experts” income inequality is the biggest global risk of the near future — right up there with massive national debts, high unemployment, etc. (isn’t it odd that income inequality suddenly became such a huge global risk right after the media started talking about it?).

Speaking of the media and income inequality, the BBC has an article reporting on analyses of U.S. and British income inequality which shows that income inequality has been rising for the past several decades (for some reason the title of this article is “The Wealth Gap” despite the fact that the article is about income, and it should be obvious that wealth != income). For the U.S., the BBC cites data from the CBO which show that between 1979 and 2007 real after-tax income (i.e. adjusted for inflation) increased from a high of 275% for the top 1% to a low of 18% for the bottom 20%. For the U.K., data from the World Top Incomes Database show that between 1997 and 2007 the average income for the bottom 90% increased from £10,567 to £12,430 while the average income for the top 0.1% increased more dramatically from £646,358 to £1,179,947. It’s clear from the data that income inequality is rising.

So what?

It’s also clear from the data cited that real income is rising at all levels. In the U.S. the bottom 20% saw an increase in their real after-tax income by 18%. That means that, in terms of income, even the bottom 20% of 2007 were about 18% better off than the the bottom 20% of 1979 (actually, data on the increase in wealth over this period would be even more enlightening). The rich are getting richer…and so are the poor (just not as quickly as the rich). We’re supposed to be fretting about the “global risk” posed by a world where even those with the least income are on average earning more and more?

Although the BBC article is clear in showing that income inequality is rising yet real income is also rising in all income brackets, it is really a superficial analysis which leaves several important details about income unclear. For one, it simply breaks down income into various classes (e.g. bottom 20%) instead of tracking individuals. Not all of the bottom 20% income earners in 1979 were still the bottom 20% income earners in 2007. This is due simply to the fact that individuals do not stay in the same income brackets during their lifetimes — they tend to earn more income over their careers (from promotions, raises, etc.) and rise from lower brackets to higher ones (and then back to lower brackets once they’ve accumulated enough wealth to retire). That CEO in the top 1% of income earners wasn’t always earning so much income — the income from his first job almost certainly put him in a lower income bracket. Similarly, some number of even the bottom 20% of 1979 were in a higher income bracket in 2007, in which case those individuals saw even more than an 18% increase in income between 1979 and 2007.

Another detail about income which is left unclear by the BBC article is how much income is from wages versus entitlement benefits — did the analyses cited include entitlement benefits as “income”? Individuals in lower brackets receive income from various entitlement programs, and these can add up to a significant portion of their disposable income. As an example (H/T Wintery Knight), it has been calculated that when taking into account entitlement benefits and different tax rates

a one-parent family of three making $14,500 a year (minimum wage) has more disposable income than a family making $60,000 a year.

The income increase for the lower brackets may be underestimated by the analyses if entitlement benefits were not considered income. On the other hand, if entitlement benefits were considered income then one could appear to reduce income inequality by simply increasing entitlement benefits (and thus income in the lower brackets) — but such a naive solution would only exacerbate this already significant welfare trap while neglecting the far more productive goal of trying to increase income from wages.

It turns out that the BBC article isn’t the first time Britain has expressed worry about income inequality — British leftists have been unduly concerned about wealth and income inequality for decades. One such leftist challenged Margaret Thatcher on the fact that income inequality had increased during her time as Prime Minister, and the Iron Lady gave the same obvious response: all income levels had increased, so there’s no problem. The priceless video of this amusing exchange is here (H/T Wintery Knight):

It is certainly worth investigating why income and wealth inequality are increasing, but only to better understand the global economy and to help determine how to increase the income and wealth of the poor even faster. The real question is not how to reduce income and wealth inequality but how to increase the income and wealth of everyone. Increasing income and wealth inequality is not a problem if real income and wealth are also increasing at all levels, as is the case now. Leftists, who dislike capitalism and envy the rich, want everyone to be focused on the wrong issue (income inequality) in order to avoid talking about the fact that the free market has succeeded in increasing real incomes at all levels.