Dog Bites Man: Congressional Leaders Don't Understand Unintended Consequences

Steven Horwitz

And so it begins.  As many folks predicted, the passage of so-called "health care reform" has sent the signal to major US corporations that their insurance costs will be rising.  The result is that several have already announced plans to take large charges on their budgets to offset the costs.  In the case of AT&T, for example, it's $1 billion due to changes in the tax treatment of their in-house subsidies for the health care costs of their retirees. 

Equally predictable has been the reaction of Congress:  demand that the CEOs come to Washington and justify those charges.  If you didn't think we were on the road to the world of Atlas Shrugged, this should make matters clearer.  

What's most amusing though is the way that Representatives Waxman and Stupak phrased matters in their letter to the CEOs:

“The new law is designed to expand coverage and bring down costs, so your assertions are a matter of concern.”

In other words:  "this law isn't working out how we intended, dammit, and it must be your fault! We said this would bring down costs, so that should be sufficient!"  It really is the equivalent of a five year-old's temper tantrum at not getting his way in a complicated world.

It never occurs to Waxman, Stupak, et. al. that there might be a set of economic laws out there that not even the mighty power of Congress and King Obama can bend to their wishes.  If their law "said" coverage would expand and costs would come down, then only the evil designs of greedy people could be frustrating that result.

It couldn't be that the legislation was doomed from the start and that this is the result that a number of critics predicted, could it?

That Congress would ignore or discount unintended consequences is indeed a "Dog Bites Man" story.  But for those who claim that opponents of ObamaCare were fear-mongering or racists or just opponents of change, I will only suggest that this will be the first of many of our predictions about its effects that are likely to come to pass.  And I will be doing my personal best to document as many as I can, so watch this spot.

Comments

[Frank]

There's a nonzero probability that your characterization of these events as "unintended consequences" is too charitable. It's entirely possible that Waxman and his ilk want to create corporate bogeymen and want to undermine the employer provided insurance arrangement* to hasten the move to completely socialized medicine (aka single payer).

*The current employer provided (actually facilitated would be a better word) model isn't so hot, of course, but it beats Waxmancare.

[lukas]

Oh, the poor rent-seeking babies got their subsidies cut? I'm sorry, but these events, intended or unintended, should not be used as arguments by either side of this debate.

If we cut sugar tariffs, ADM would have a lot of write offs to make.

[Steve Horwitz]

In AT&T's case, yes it was a lost tax break. But that's still part of the UC point. You might look at the memo that Verizon sent its employees to see what the future looks like there.

[twitter.com/KipEsquire]

Let's also keep in mind that these publicly traded companies are required by federal securities laws to take these charges and to announce them promptly.

[Barkley Rosser]

It is legitimate to poke at Waxman and his silly letter, but it is also the case that it is too soon to see how all this shakes out after the exchanges are set up, which may indeed bring down insurance rates over the longer term. Certainly in the short run, the move by AT&T and some othe large companies should have been expected and is reasonable.

[John V]

Rosser,

Nice white-wash.

It's a bit disturbing for a non-economist like me who simply understands and heeds core unchangeable basics of economic law to watch those far more versed in economics be so dismissive about these inevitable developments.

Why can I not shake the impression that you and many others who I see at Leftist economic blogs are leading with your hearts rather than your heads?? ALL of you should know better, it would seem, and you all probably do. YET, your desire for a well-intended idea dwarfs and overshadows your sober understanding of likely outcomes based on basic economic principles that you all know all too well.

Basic Sound Economics points to a variety of solutions both large and small yet you all seem to start from a well-intended (yet foolhardy) social democratic prism and force your analysis through it rather than in a more "economic" manner that sadly defies what you to be true.

WHY??

Believe me, I don't question motives. It's not uncommon to want more for others than we can logically deliver. But THAT, by itself, should not form the basis of action. Sorry.

[Mario Rizzo]

I view this a little differently. The accounting requirements of the SEC are what this is about in an immediate sense. What the Congress may really be annoyed about is that ATT's (et al) accounting is not as *dishonest* as the government's.

[Charles N. Steele]

Let them have it, Steve. This legislation will not have the results its backers claimed, and it's important to document this. One of most important "unintended" consequences (we can never be sure what the real intentions are) is that it politicizes all sorts of things that were not previously political.

Lukas isn't bothered that executives can be hauled before Congress to explain when accounting conflicts with politicians' empty promises. Good grief!

[Roger Koppl]

John V asks Barkley Rosser, "Why can I not shake the impression that you and many others who I see at Leftist economic blogs are leading with your hearts rather than your heads?"

Because you haven't bothered to listen carefully to or think hard about what such "Leftist" thinkers are saying.

[lukas]

Charles, that does bother me. The companies made a big deal out of this, so now we are going to have a little show trial? Disgusting.

But with a major piece of legislation like this, of course it is going to have positive effects on some and negative effects on others. Since the intent was to take from those who have good health care coverage ("keep them from spending so much damn money on health care", in DC-speak) to cover the uninsured, I'm not surprised that employees of big corporations have to take some cuts.

Messrs Waxman and Stupak, on the other hand, seem to be surprised for some reason. Is it just political posturing or abject ignorance about what the law they just passed actually does? Both alternatives are equally unsettling.

[Jerry O'Driscoll]

Why is surprising?

Congress routinely passes legislation with unintended consequences, e.g., minimum wage legislation, regulation, authorization for wars, etc. Not to mention taxes.

Lukas asks whether this is just "political posturing or abject ignorance." How about they don't care if it benefits them?

[Ben Southwood]

I'm not convinced that the proponents of minimum wage laws don't know it puts low-skilled workers out of work -- after all haven't high-skilled workers and unions been the main proponents of minimum laws, and also the main beneficiaries?

Think of the pro-prohibition gangsters etc., the term "unintended consequences" may be too charitable

[Roger Koppl]

Ben and Jerry's exchange raises a fundamental point in "Austrian" policy analysis. Mises said economics is about means and not ends. He did not question the motives of those advocating, say, a minimum wage. Instead he conducted a "positive" analysis showing that the policy would not serve the ends its proponents say they promote. As far as I can tell, that's the best way to evaluate any given policy proposal such as the minimum wage. But we need a realistic assessment of true motives if we are designing a constitution or evaluating the political process. We need to know that the dictator will probably like his power and choose to exercise in increasingly brutal ways, that most candidates for office will be "ambitious," and so on. When evaluating a policy on its merits we make an "even if" argument. Even if the proponents are sincere, we should reject it. When evaluating the political process, rather than a given policy proposal, this "even if" reasoning doesn't really help us and we must consider the likely motives of legislators and other political actors.

[Current]

The nice things about not questioning motives is that it makes for easier arguments. When I've debated with socialists and conservatives in the past I've often found that arguments about unintended consequences and socialist calculation arguments work well. If you target public choice arguments straight away then you're branded a cynic.

The problem that Roger points out though is that for supporting consitutions cynical public choice arguments are quite necessary and can't be avoided. Most people are very bad at thinking about the long run and assume that the future will be just like today. So, in times when politics is less cynical, or times when it is *perceived* as less cynical, many see consitutions simply as impairments to government efficiency.

I think the trick here is to make it clear that it's a timeless sort of impersonal argument.

[Current]

Incidentally. How will the government ensure that health insurers don't discriminate against those with pre-existing conditions.

Why can't health insurers simply ignore letters they recieve from those with pre-existing conditions? Why can't they say that things have been lost in the post or some other sort of excuse. It seems difficult to enforce.

If the answer is simple remember I'm not from the US, have patience.

[Zach]

Has anyone actually done an actuarial study to determine if the premiums from newly enrolled healthy people will balance out the higher costs of the newly enrolled, undroppable, and/or price capped unhealthy people? It's entirely possible that it's been done and I just missed it.

All I've heard so far are principle based arguments: We need to force everyone to buy insurance to eliminate the adverse selection problem. But that only holds premiums at current levels in the very specific case that uninsured healthy people match uninsured unhealthy people at the same rate and in the same ways as currently insured groups. The actual results will be based on demographics, and I haven't heard much about those.

[topills.com review]

don't buy the Scott Sumner argument for what the Fed should have done in 2008. But I do agree with Tyler that Bernanke did better in this job than any of the realistic alternatives.