Thursday, May 21, 2020

COVID Pandemic Highlights Need for Reform of US Healthcare

The COVID-19 pandemic has highlighted longstanding weaknesses of the U.S. healthcare system. In a May 20 webinar sponsored by the Niskanen Center, I examined three key issues:

  • Where has our healthcare system failed?
  • What can be done to make it work better?
  • Is healthcare reform as we know it even relevant any more?
By "healthcare reform as we know it," I mean the kinds of reforms discussed endlessly during 2019 Democratic primary campaign and before that, during Republican efforts to "repeal and replace" the Affordable Care Act. I highlight three reform models:
I explain how each of these can at least partially address problems raised by the pandemic, including loss of employer-sponsored coverage by tens of millions of job-losers and inadequate provision for testing, treatment, and supported isolation. I also discuss some problems that existing reforms do not adequately address.

My slideshow from the webinar is available here. A link to the complete video, including comments by Jeff Flier and additional Q&A by participants, will be available soon. 


Friday, May 15, 2020

A Social Safety Net for the Pandemic and Beyond

America's social safety net has been severely strained by the COVID-19 pandemic. Although the virus has affected people in all walks of life, the burden of illness and lost jobs has fallen most heavily on people in the lower half of the income distribution.

As the chart shows, those in the bottom half are the households whose financial condition is most fragile. They suffered the greatest economic harm in the 2008 financial crisis. Unlike their wealthier peers, they have not yet recovered, and they will experience even greater financial stress this time.

To cope with the economic effects of the pandemic, we need a social safety net that is fast, fair, and work-friendly. Federal efforts to provide income support in this crisis are commendable, but they have not reached everyone in timely fashion, and they have often been poorly targeted.

The safety net needs top-to-bottom reform. A reformed system would place more emphasis on cash assistance, with less in-kind and means-tested welfare. It would be "always on" in the sense that everyone would be automatically pre-enrolled for the minimum level of support needed in good times, so that aid could be quickly ramped up when a crisis strikes. It would provide adequate pay for essential workers and encourage others to return to work when the crisis has passed.

All of this and more was discussed in a webinar presented jointly by the Niskanen Center and the Center for Ethics, Economics, and Public Policy at the University of San Diego on May 14, 2020. You can view a slideshow presented during the webinar at this link or watch a complete video of the webinar, including Q&A, here.

Saturday, May 9, 2020

Ozzie Zehner is at it again: Green Illusions, and Planet of the Humans

Are solar, wind, and other alternatives the magic bullets that will solve the world’s environmental and energy problems? Take a closer look, wrote Ozzie Zehner in his 2012 book,  Green Illusions. He is still saying much the same thing, in a new movie, Planet of the Humans, despite the great strides renewables have made in the past eight years.

My Niskanen Center colleague Nader Sobhani has reviewed the movie, and finds it wanting. I'll let you read his movie review. Here is a repost my own 2012 review of the book:

Zehner not only argues that green energy has technological, environmental and economic limits, but also that without an appropriate policy context, some forms of alternative energy could do more harm than good.

The dirty secrets of clean energy

The first part of Zehner’s book—by far the best—is devoted to explaining why neither photovoltaic, nor wind, nor biomass, nor any of the other alternatives to fossil fuels will be able to deliver a future of abundant, cheap, clean energy. Chapter by chapter, he brings out the environmental and economic limitations of each technology. Among the highlights—

Sunday, May 3, 2020

COVID-Related Spending Must Not Become an Excuse for a Post-Crisis Fiscal Straitjacket

Writing for the Brookings Up Front blog, Stuart Butler and Timothy Higashi urge fiscal policymakers to look beyond the current crisis. Extraordinary short-term spending is justified, they agree, but, they urge that “we also need to put in place – ideally as part of ongoing stimulus measures – procedures that will help policymakers and the public to prepare for the less urgent but equally important task of managing the future fiscal and economic threats from today’s emergency actions.”

They are right that we need better long-term fiscal rules to avoid long-term budget chaos. Even more importantly, we need good rules to avoid premature austerity that could slow the recovery, as happened half-way through the rebound from the 2008 financial crisis. But just what should the rules look like?

Above all, in my view, any such rules must not become a fiscal straitjacket that would impair our prosperity for years to come. The once-popular notion of a balanced budget amendment is a classic example of what we do not need. A rule requiring annual budget balance would be profoundly procyclical. It would require cutting expenditures when tax revenues fell during a slump, and in boom times, it would put no real constraint on tax giveaways like the 2017 Tax Cuts and Jobs Act.

No one seems to be pushing a balanced budget amendment now, but some ideas that are floating around would not be much better. One example is the Enzi-Whitehouse plan (S.2765), which Butler and Higashi are a good deal warmer toward than I am. As I read it, the central pillar of the Enzi-Whitehouse plan is a hard cap on the debt-to-GDP ratio that could be overcome only by a supermajority. Unless the bill were very carefully crafted, it would become a de-facto balanced budget requirement as soon as the debt ceiling were reached, which it inevitably would be. If the current draft of the bill contains safeguards to keep that from happening, I can’t spot them in the text.

Thursday, April 23, 2020

Tired of the COVID-19 Lockdown? Here is a Responsible Reopening Plan

People are getting tired of the COVID-19 lockdown. Surveys show that a majority still put a greater priority on protecting public health than on reopening the economy, but either way, we would all prefer to do both. A plan released yesterday from the Harvard-based Safra Center for Ethics shows that is possible, if we are willing to take the necessary steps.

The Roadmap for Pandemic Resilience (“The Roadmap,” in what follows) is not the first try at finding a way to safely reopen the economy, but it outclasses all previous attempts with its a realistic timetable, fact-based quantitative benchmarks, and a detailed institutional structure. By comparison, the vague guidelines offered by the White House are little more than slogans and aspirations. Here are the key features that distinguish The Roadmap from other reopening plans:

Testing. The White House talks of expanding testing from its current rate of 150,000 or so a day to 300,000. That is barely enough to test people who have severe symptoms, let alone enough to test nonsymptomatic essential workers to make sure they do not spread the virus or to conduct the random surveillance testing we need to know exactly where the virus is (and is not) in our communities. The Roadmap calls for 2 million tests a day, quickly rising to 5 million. Sound like a lot? Those numbers fall only in the middle of a range of credible testing estimates reviewed by the Kaiser Family Foundation, but they are enough if the right people are tested at the right times.

Tuesday, April 21, 2020

The Shaky Logic Behind Hopes for a Quick Recovery

President Donald Trump promises that the economy will soar "like a rocket ship" as soon as the COVID-19 pandemic ends. Writing for the Independent Institute, R. David Ranson, like many who fear the government more than they fear the virus, agrees.

“We ought to be thankful that the economic system is resilient in a way that the human body is not,” Ranson says. As the figure shows, he foresees a short, notch-shaped “interruption,” preceded by an anticipatory stocking-up surge and followed by a similar post-pandemic boomlet as shelves are restocked.

Ranson bases his hopes for such a growth trajectory on the notion that the interruption to production will destroy no physical capital.
[A]fter the production shutdowns end, GDP will shift back above pre-crisis trend as businesses and consumers make up for lost time. Events do not as yet add up to a significantly weaker full-year performance for the US economy. Economic activity will go into hiatus, but it can be made up quickly once the crisis is over.
As I explained in this earlier post, Ranson is right to say that pandemics, which hit the economy from the supply side, disrupt things in a very different way from ordinary recessions, which hit from the the side of demand. He is also right that clumsy, improvised public health interventions like universal stay-at-home orders do more damage than would more nuanced interventions based on the test-trace-isolate principle. Everyone knows that by now. We all hope that we will be better prepared for the next pandemic than we were for this one, so that the tradeoff between saving lives and saving the economy will not be so stark.

But Ranson misses some critical parts of the story. Although it is true that the virus does not destroy industrial equipment or commercial structures, it will destroy some very important intangibles if it goes on for long.

For one thing, it will destroy critical business relationships. Employer-employee relationships, supply-chain relationships, and lender-borrower relationships cannot necessarily be turned on and off without harm. It will take time to re-establish them, leading to slower recovery. Policies like payroll protection loans will help a little, but they are not a panacea.

A second problem is that even a temporary downturn will lead to widespread bankruptcies among the many firms and households who were over-leveraged going into the crisis. Fixed-payment obligations like bonds, mortgages, and leases cannot easily be suspended during the Ransom’s "interruption." Bankrupt business entities cannot instantly or painlessly be brought to life after the crisis is over, even if they were viable concerns to begin with, which not all were. Bankrupt consumers will have to limit their consumption for months or years as they rebuild their credit. State and local governments, whose revenues are falling, but whose fixed bond and pensions obligations remain, will have to undertake painful layoffs or tax increases. Either will be a further drag on the recovery.

Finally, Ranson completely misses, or is indifferent to, how unevenly the costs of the “interruption” will be distributed. People who work in restaurants and airports will be hammered, while those who staff grocery stores and Amazon warehouses may even see their paychecks swell with overtime. Investors who foolishly put their money in airlines or cruise ships will suffer badly, while those who invested in on-line service providers or makers of medical supplies will do well. Losses to the former will exceed gains to the latter. Inevitably, some whole communities will have more losers than winners. They will recover slowly.

In Ranson’s view, the greatest dangers we face from the pandemic come from “over-zealous efforts to quarantine and delay the spread of disease” and “a larger and more authoritarian central government unlikely to be scaled back afterwards.” In my view, the greater danger comes from those who tell us everything will be fine if we just stay calm and carry on.

Previously posted at

Wednesday, April 15, 2020

A Social Safety Net For an Age of Uncertainty

The COVID-19 pandemic is turning out to be a wake-up call, not just for public health, but for economic security, as well. We are learning that any one of us can be knocked off the ladder of prosperity at any time, no matter what rung we are on today.

What is more, COVID-19 is by no means the last crisis we are likely to face. Just a few things that may be coming down the pike:
  • A really bad virus, one as contagious as measles and as deadly as Ebola. 
  • Floods, wildfires, droughts, and famines brought on by climate change.
  • A job apocalypse, in which entire middle-class occupations disappear one by one.
Meanwhile, none of the old risks are going away. The risk of being born poor, making even the first step to self-sufficiency precarious. The risk of being born with a disability or congenital illness. The risks of bad choices — dropping out of school; falling into crime; falling into substance abuse.

This crisis has shown everyone, left, right, or center, just how inadequate our fragmented social safety net is for dealing with what the world is throwing at us. Encouragingly, the first response has been a sound one: Send money, and send it fast. To think how radical the idea of universal cash assistance seemed, oh such a short time ago.

The idea that cash is what people need most when adversity strikes is far from new. Decades ago, Milton Friedman argued for programs that give help “in the form most useful to the individual, namely cash.” More recently, Charles Kenny cites examples from around the world in support of a simple policy recipe: “Give poor people cash without conditions attached, and it turns out they use it to buy goods and services that improve their lives and increase their future earnings potential.”

However, the current push for emergency cash assistance is ad hoc and impulsive. So be it. Get the first checks in the mail fast. But meanwhile, we should give some careful attention to designing a more orderly system of cash assistance, custom-tailored for an age of uncertainty. The requirements are clear: The new system should be seamless, work-friendly, and resilient. But what form should it take? A universal basic income? A negative income tax? Wage subsidies? This commentary examines each of these alternatives and concludes by recommending a reform program that including features of each of them.