Tag Archives: markets

Seller’s Remorse

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Not because they mistakenly sold, though, rather because they’re being blocked from selling. The People’s Republic of China’s telecom company Huawei is suing over an FCC ruling that prevents American rural wireless telecom companies from using Federal dollars to buy Huawei equipment.

Huawei executives have long hung their hats on this bit as their primary reason for being allowed into our national communications networks:

Huawei has long said that it is owned by its employees, operates independently of Beijing and would never spy on behalf of any government.

Nothing could be farther from the truth.  PRC law requires government-run or -owned and private companies to cooperate in every respect with the PRC government—including government-demanded surveillance.  Even trusting to the sincerity of Huawei executives, they’ll spy if their government tells them to.  They have no choice.

Beyond that, it would be the height of foolishness for us to trust our national security to the good offices of foreign executives and to a foreign government that controls them.  Especially when that foreign government is, at best, a competitor of ours and, more likely, an enemy.

Especially when that foreign government has a history—long and venerable—of hacking our government and our private computers, stealing personal data of our government and military personnel, stealing our negotiation, policy, and military secrets, stealing the proprietary data of our private enterprises.

Especially when that company has been found to have multiple backdoors and other weaknesses in its software, waiting to be exploited.

A proximate example of Huawei’s sincerity is their claim, made by Song Liuping, Chief Legal Officer for Huawei, in the company’s FCC suit:

The FCC should not shut down joint efforts to connect rural communities in the US[.]

This is just straight-up dishonest. Neither the FCC, nor any other Federal entity, is blocking any joint efforts to connect our rural communities.  The only matter here is that Huawei is restricted in its efforts to join in those connections.  Indeed, the only restriction on Huawei in this case is that the company may not use Federal dollars—American citizens’ dollars—to join the connection efforts.

“The Burden of Compliance”

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Hospitals have filed their initial suit to prevent the Trump administration from promulgating a rule that would require hospitals to make public the secret rates they agree with insurers. Their argument centers on this:

The burden of compliance with the rule is enormous, and way out of line with any projected benefits associated with the rule[.]

It’s hard to understand the degree of burden in simply publishing the agreed rates. Paper and ink aren’t expensive, and electrons are even cheaper.  Beyond that, the benefits are enormous: it would allow patients and prospective patients to know which hospital charges what for a given procedure, so the patient could determine—under his own imperatives—which hospital has the most cost effective procedure.

The benefits also include each hospital knowing what its competitors charge, resulting in price competition—also the benefit of patients and prospective patients.  And to the benefit of the insurers, as price competition brings prices obtained in their direction, and seemingly paradoxically, to the benefit of those same hospitals as price competition brings prices paid in their direction, with the two pressures driving prices to an intermediate level optimal for the patients and prospective patients, for consumers.

Health and Human Services has the right of it. Here’s HHS spokesman Caitlin Oakley:

Hospitals should be ashamed that they aren’t willing to provide American patients the cost of a service before they purchase it. President Trump and Secretary [Alex] Azar are committed to providing patients the information they need to make their own informed health-care decisions and will continue to fight for transparency in America’s health-care system.

Medicare for All

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Simon Johnson, of the MIT Sloan School of Management and an “informal” advisor to Progressive-Democratic Party Presidential candidate and Senator Elizabeth Warren’s (D, MA) presidential campaign, thinks her Medicare for All scheme is the cat’s meow.  It would, he claims

cut costs by reducing inefficiency, eliminating predatory pricing (for example, for prescription drugs) and using the purchasing power of a single-payer system. Her plan would also constrain the growth rate of underlying medical costs.

This, of course, is utter nonsense.  While Johnson correctly notes that our present health care burden hangs around the neck of every company in America, and this dead weight gets heavier each year, government intervention only makes things worse, as each of the points he makes, ostensibly in support of his contention, illustrate clearly. Medicare for All schemes—not only Warrens, but all of them—only and severely exacerbate that government intervention and increase the costs heavily.

First, there is the onerous contribution most companies are required to make through employer-sponsored insurance. Every business owner wants employees and their families to have health insurance, but the cost rises inexorably.

Labor market competition and labor unions are the source of this “requirement,” and the government-mandated restrictions on businesses’ ability to band together—unless they’re in a narrowly defined “similar” business—denies them the market power to negotiate effectively.

Second, companies cannot by themselves easily constrain health-insurance premiums. They need healthy workers who are not ruined financially when a family member is rushed to the emergency room. In most competitive markets across the US, if an employer cuts back on health benefits (or raises deductibles, copays or out-of-pocket expenses), it raises the burden on employees and increases the risk that the best will leave.

See above regarding labor market competition, union power, and government-mandated limits on businesses’ negotiating power.

Third, the unpredictable nature of health-care costs makes it significantly harder to start and run a company. Every year, entrepreneurs and managers hold their breath while insurance companies decide what to charge them.

Again, see above regarding businesses’ government-mandated limits on negotiating power, now in contrast with the unpredictability of realized health care needs.

Nor is Medicare for all damaging only fiscally: such schemes eliminate choice; in fact, their proponents say that we Americans are too stupid to make our own choices; each of the plans’ proponents would throw the millions of us who have private health coverage, coverage better tailored to our individually determined needs, from one source or another off those plans.

 

Further restricting our choice—our right to decide for ourselves on what we’ll spend our property, our money, is Medicare for All’s requirement that we buy that one-size-fits-all government insurance—even though we judge ourselves healthy enough to not need a coverage plan or to not need Government’s dictated plan, or we just choose to run the risk and spend our money on our own needs and wants.  After all, these Progressive-Democrats Know Better, so by their fiat, we are to be denied.

 

Then Johnson sneers at efforts to switch to competition, but as the political economist should know, the failures here are failures of Republicans and failures of Progressive-Democrat obstructionism. The failures have nothing to do with competition.

Finally, the health care coverage costs—which are apart from health care needs—exist and burgeon by government fiat at the State level as well as the Federal, and the costs inflicted have little to do with health care provision or cost of provision, nor are they related to the likelihood of any particular health care need. Businesses—and we consumers—are not allowed to trade across state lines, and State insurance commissions set the range of premiums health care coverage entities are allowed to charge.

Obamacare made that even more explicit at the Federal level: the coverage plans carried coverages for matters we consumers neither want nor need and at fixed prices that are by design independent of the likelihoods of those mandated coverages. Beyond that, Obamacare forced millions of consumers off our privately held plans that we preferred and forced us to buy from the Federal government’s “market.”

Medicare for All is just an extreme version of Obamacare. In every respect. At trillions of dollars of higher cost.

Financial Transaction Tax

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The Progressive-Democratic Party Presidential candidates (with, for now, the lonely exception of Joe Biden) all want one.  Fred Hatfield, once a (Democrat) commissioner on the Commodity Futures Trading Commission, correctly identified one downside of such a thing.

The tax would be bad for farmers, whose support is critical in the Feb 3 Iowa caucuses.  Farmers manage risk by entering into futures contracts, a type of derivative. Under Mr [Progressive-Democratic Party Presidential candidate and Senator Bernie (I, VT)] Sanders’s proposal, trades of corn and soybeans futures would be taxed at a rate of 0.5 basis point [0.5%].

Even if farmers could somehow be exempted from a financial transaction tax, their cost of hedging would rise because the general cost of trading—of any sort—in commodities would rise, both from the tax and from the reduced liquidity of the derivatives as other traders eschew those markets. Such a tax could only negatively distort the market—as any tax in any market will do.

Moreover, those distortions would extend to other markets: grocery prices would rise from the increased prices faced by farmers and passed on to farm product buyers, beef and chicken prices would rise from the increased cost of feed, alternative farm produce would rise as other crops would substitute in (with their own increased demand-driven prices), and on and on.

And that’s just in agriculture.  The same cascading consequences would occur in all equity and debt markets, in all other commodity futures and forward markets—like metals: iron, aluminum, copper, in addition to “currency” metals—and on and on.

Investment in general, including for plant improvement and innovation, would be depressed by such a tax.

Sanders’, et al., financial transaction tax would have all the broadly negative impact on our economy as does any other social engineering-motivated tax.

In Which Biden Has the Right of It

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Progressive-Democratic Party Presidential candidate Joe Biden is taking heat for his position on legalizing marijuana at the Federal level.  No less a light than Congresswoman Alexandria Ocasio-Cortez (D, NY) objects to Biden’s hesitation:

Marijuana should be legalized, and drug consumption should be decriminalized. These are matters of public health.

And Progressive-Democratic Party Presidential candidate and Senator Bernie Sanders (I, VT):

Too many lives were ruined due to the disastrous criminalization of marijuana[.]

Biden, though, doesn’t see the need for the rush:

I want a lot more [data] before I legalize it nationally. I want to make sure we know a lot more about the science behind it.

On this one, Biden is right, even if his version of the science is centered on whether marijuana is a gateway drug. There’s better science that argues for reluctance to legalize, and if we do so, to legalize only under very narrow circumstances.

There is considerable evidence that THC, the chemical putatively of interest, in uncontrolled use damages brains. There is, also, considerable evidence that various chemicals, including THC, and chemical combinations in marijuana can have beneficial medicinal effect.

Research needs to be done to identify with clarity those chemicals and chemical combinations. If the research bears out, then growing marijuana for the production of medically beneficial chemicals and chemical combinations can be licensed—just as is done with heroin into morphine and related chemicals.

Then, as with morphine, controlled doses of those chemicals/chemical combinations, with their known side effects and trade-offs, can be prescribed pursuant to useful treatment regimes.