So first of all I haven't updated this thing in over a month, and I have lots of excuses. I was taking my last few finals in law school, and I also don't currently have a functioning computer. I am hoping to write several posts in the next week as there is a lot to talk about including potential NCAA football conference realignment, Elena Kagan's upcoming confirmation hearings, and the gulf oil spill has even made some people speculate that the Senate will move on cap and trade this session. I will address these issues at a different time.
For now I just want to say a few words about my boy Rand Paul. Anyone who new me during the 2008 election cycle knows that that I was a steadfast Ron Paul supporter. I obviously knew that he had no chance at obtaining the GOP nomination, but I still thought his campaign did a great job of bringing about a resurgence of the libertarian leaning edge of the republican party. In fact, I personally credit with Ron Paul for providing at least part of the spark that his given rise to the tea party movement. Naturally, now that his son (who holds many views that are in tune with his father) is running for Senate in Kentucky, I am fully supporting and following his campaign.
A few weeks ago, Paul committed what many people are calling a huge mistake. He went on the Rachel Madow Show and said that he did not support portions of the 1964 Civil Rights Law that prohibited discrimination by private individuals and businesses. He also reaffirmed his belief that the portions of the act that prohibited state and local governments from discriminating based on race (basically prohibiting Jim Crow laws) were necessary, just, and fully appropriate. Many members of the media jumped on these comments, and although they stopped short of calling him a racist, they claimed the comments showed that he was too radical to hold public office.
First, I must state that I personally agree with what Rand articulated on MSNBC. I don't believe it is the role of government to mandate who a private actor can or must serve. However, that does not a racist make. I believe in letting private actors set their own rules, and allowing the actors to make rational decisions based on the incentives provided to them. In fact, I think you could make an argument that this would be a better policy. Not only would individual actors in this scenario have more liberty and freedom, but a public understanding that the government is not the primary tool for eradicating racism could potentially do more to help stop racism than the law itself.
First, let's imagine a scenario where the 1964 Civil Rights Act did not address private discrimination. Obviously, then any business or restaurant could discriminate an not serve someone based on race. I believe that a majority of people (including potential customers and suppliers) would find this abhorrent. In fact, I'm sure many people would not do business with such an institution. These types of boycotts were already taking place and had been somewhat effective prior to the 1964 Act (for example look at the Montgomery Bus Boycott which nearly bankrupted the line). Now, after the Act is passed and Jim Crow is dead, it is my belief that that these types of private demonstrations and boycotts would have become even more effective. With out the state government's racist laws propping up these private discriminators, there would have been far fewer ways for boycotts and sit-ins to be disrupted. Additionally, I believe far more people would take up the cause of supporting such a cause if they believed that such an action was the only way to remedy the situation.
Now many will argue that racism was so institutionalized in the South that private boycotts would not have been enough. We needed strong federal intervention to break the spines of the evil racists. Unfortunately that is an untestable hypothesis as we can't know what would have occurred in that scenario. I don't live in the South (I live in Texas! ha) so I'm not sure how many people are still out there denying black people a seat at the lunch counter, but my general inclination is to say its better than it was. However, how much is attributable to laws prohibiting private discrimination rather than a shift in attitudes brought about by the fact that these horrors were being put in the lime light is debatable. Regardless, even if we assume that more discrimination would occur it almost certainly would be limited to smaller business in restaurants that only have one location that serve mostly a racist clientèle. Obviously it would be unfortunate that people would be denied service in these places based on their race, but are these few disruptions worthy of the long arm of government meddling with the affairs of private actors? The Civil Rights Act has probably cost billions in attorney's fees and court costs to enforce, and has surely led to many dubious claims over time that burden the justice system and drive up the costs of litigating and of just doing business. Do the benefits outweigh the costs? Debatable. But just cause you go one way on that issue does not make extreme, a racist or unfit for office as some of Paul's haters have contended.
So pretty much out of nowhere immigration has become the hot topic in Washington. Before Arizona passed its own version of immigration control, no one in Washington was really talking about the issue. My own cynical opinion is that the Democrats saw immigration as a way to steer the debate away from their unpopular policy debacles (stimulus, auto bailouts, health care, and what is slowly becoming a handout for big banks - financial reform). With the so-called "jobless economic recovery" and voters pissed as hell at government in general, the Democrats looked poised to suffer monumental losses in November. In this environment I'd probably want to change the subject as well. Whether changing the issue to immigration is a smart political move is yet to be seen.
Very few issues are as divisive as immigration. This has almost always been the case throughout the history of American politics. Historically, many Americans born here have always felt an aversion to allowing more people to enter "their" country. This was true in the nineteenth century - Irish, Italian, Asian and Eastern European immigrants were treated extremely harshly by traditional Protestant white majorities that dominated the country at the time. Not much has changed today other than the fact that many of the people's whose ancestors once belonged to these oppressed groups now wish to limit immigration, themselves, while the majority of the anti-immigration sentiment is now focused on Mexicans. This idea that we shouldn't allow anymore immigrants into the country when we have so many other problems of our own is what I like to refer to as the "Labor Union View of Population."
I don't mean to say that labor unions around the U.S. espouse a policy view that we should close our borders. In fact the opposite is true. Many influential unions see a large amnesty as a tremendous opportunity to expand their ranks. Currently many illegal immigrants compete directly with union labor in a variety of industries such as farming, construction and other day-laborer jobs. Part of the reason some of these workers do not join unions themselves is because of their undocumented status. Amnesty could change all of that. But I regress. The reason I term the anti-immigration view the "Labor Union View" is because in my opinion most Americans who hold anti-immigrant views do so for the same basic reason why a worker joins a labor union: to restrict the size and diversity of the labor pool. Labor unions operate by restricting the supply of workers an employer has to choose from. By imposing rules that only union members can be eligible for a job, the price of such labor rises. Many anti-immigration components feel the same way. By limiting the amount of immigrants into the country, the total supply of labor will decrease, thereby increasing the price of labor. Remember the old South Park adage, "THEY TIRK ERRR JEEERBBBSSS?!?" (see clip below)
Now first of all I do not want to make you think that this is the only reason why some anti-immigration view holders do not support a comprehensive immigration reform bill. I think there is a lot of merit to the argument that the control of our own borders is an urgent national security issue. Unfortunately we live in an age where thousands of people around the world wish to do innocent, American civilians harm simply because of the way we live our lives. We have an obligation as a people to stand up to these people that challenge our free and open society. This means that we must do everything in our power to prevent attacks within our border against our fellow citizens. However, in my opinion this national security issue is often used by as a smokescreen by politicians whose ultimate goal is to simply close the border. I also believe the argument that we should not reward those people who break our laws by granting them amnesty is deserving of merit.
There is also no doubt that some prejudice is involved as well. These prejudicial views combined with the idea the immigrants will come in here and take away good well-paying, all-american jobs leads to a political culture that simply demonizes any type of comprehensive immigration reform. This view point is simply wrong on the policy and wrong on the facts. Immigration can be a tremendous source of growth in our economy, but only if it is coupled with other pro-growth initiatives along the way. We must move away from the idea of "Zero-Sum" economics that dominates the immigration debate. Just because an immigrant comes here and takes a low paying manual labor job does NOT mean that there is one less job for an native born American. When an employer hires an immigrant for less money than he would have to pay native american to do the same work, the companies overall efficiency has increased. These savings are eventually reinvested either in the business itself, or passed on to shareholders who can use the money to fund other productive ventures elsewhere in the economy. This creates real job growth, not the artificial spikes in demand that are the dominant effect of short-term government "stimulus."
So what would effective reform look like? First, the emphasis of any policy must incentivize well-educated, hard-working immigrants to come to America. These are keystone innovators of any society, and technology driven economy like the United States needs these types of thinkers in greater numbers in order to prosper. The most important proposal I could make in this category would be to be institute a rule that any foreign graduate from a U.S. university with a science or engineering background should be offered a permanent green card and the opportunity to work towards citizenship. By increasing the number of innovators we can harness the economic growth associated with these individuals over the course of their lives. I don't think many people could make a strong argument why such a policy is against U.S. interests.
Secondly, I believe that some type of amnesty is necessary. As I have written many times before, inherent economic realities often provide very strong incentives to break laws that limit the individual's ability to economically prosper. Take for instance the market for illegal drugs. The penalties associated with the traffic of these substances is very harsh, in fact much harsher than any anti-immigration laws, but every year millions of Americans take risks anyway to sell and purchase the drugs. Regardless of the basis for such demand, the economic incentives provided by its mere existence almost forces many poor Americans into entering drug trade. When the rewards of success are so high, even the chance of criminal punishment does not substantially decrease the average expected value of engaging in such an enterprise. This is also the case regarding illegal immigration. The incentives provided by the good working conditions and economic opportunities available in the U.S. make it economically rational to break U.S. immigration laws even taking into account the chance of apprehension. Therefore illegal immigration will continue regardless of any attempt to truly secure the border because the incentive to break the law is too high.
In this situation, I believe that the prudent and cost-effective strategy would be for the government to attempt to facilitate the actions of economically rational actors in a way that still protects vital national interests such as preventing terrorists from coming into the country. It makes no sense for government to attempt to completely eliminate a segment of a natural market (in this case outlawing a section of the natural labor market), as it is impossible. As long as the underlying economic rational remains (which in this case will remain as long as the U.S. economy is prosperous) , people are going to pursue their economic best interests regardless of the penalties that are put into place. Even the strict criminal penalties instituted in Arizona do not provide enough incentive to overcome the rational economic decision making that immigrants have made in my opinion. As long as the worse the U.S. government can do is to send them back home, there is little incentive not to try to enter the country.
Therefore I believe the best immigration policy the U.S. can establish would be one that liberalizes the rules for permanent residency. However, in a country with as many government "social safety net" programs as the U.S., allowing this sort of unfettered immigration could easily lead to abuses. Obviously I am for the reduction, if not the complete elimination, of many of these wasteful programs that incentivize people to be unproductive. However, I am in the minority so many of these programs are unfortunately here to stay. Therefore I would propose that in exchange from dramatically liberalizing and increasing the immigration quotas, the new immigrants would be required to waive any right to participate in a list of certain government programs. This would include medicaid, the new health care entitlement, and other types of welfare subsidies. In exchange for giving up access to these handouts, we should end the cap on the number of new immigrants we allow into the country. If someone does not have a criminal history and wishes to enter the U.S. to work, then we should allow it provided that he or she agrees to give up his ability to simply live off the state. It is a fair compromise, but I doubt anyone in Congress, especially the Democrats who are simply trying to liberalize immigration so that there will be more wards of the state, would even consider this proposal.
In conclusion, my basic premise is that illegal immigration is mainly caused by rational economic decision making of these immigrants. When something is a rational economic decision even in circumstance where the government is attempting to completely ban it (undocumented immigration, drugs, prohibition) then it is nothing more than a tremendous waste of government resources to enforce such a policy. If there is one thing I firmly believe it is that if a market for some good or service naturally exists (in the case of immigration it is a strong market for labor in the U.S.), then government prohibition of such a market does nothing but push it underground where the rule of law no longer applies. This gives economic power to those who openly disobey the law and should not be the policy of our government. Instead we should recognize that we cannot unilaterally eliminate a natural market in our free society, so instead we should attempt to structure the market in such a way that maximizes the benefits to everyone involved. In the case of immigration I would argue that the best way to do this would be to encourage people who want to work hard to come here and do just that, while still instituting important checks regarding their background. Are some people that have broke the law in the past or potential terrorists going to slip through the cracks in this type of liberalized system? Most definitely yes. However, I believe that is part of the price you must pay in a free and open society. The economic benefits of liberalization outweigh these risks by an order of magnitude, and I believe that terrorists will get around even the most stringent rules if they really wanted to. Remember that we have thousands of miles of open border with Canada. Instead, by eliminating the possibility that immigrants are coming here for a handout, these immigrants could be a tremendous source of growth for years to come. That would be good for all Americans.
Last night GOP senators blocked an attempt by the Democratic majority to bring Chris Dodd's (D-CT) financial reform bill the the floor of the Senate so that it could be debated and voted upon. Majority Leader Harry Reid has already said that he would bring the bill back to the floor for another cloture vote this afternoon. Democrats are attempting to characterize this GOP opposition as purely political: according to their storyline the Republicare in the bed with the likes of Goldman Sachs and are only attempting to block reform so that they can increase their campaign contributions. This blatant partisan attack does little more that distract from the substance of the bill, and I have no doubt that the Democratic attacks are designed to do just that. Anyone who has followed the housing and financial markets over the past decade understands that one of the major causes of the financial crisis were some of the policies enacted by Dodd's Banking Committee and his counterpart in the House, Barney Frank (D-MA). Obviously neither man admits any of this, and their financial reform bill does nothing to stop many of the practices that led to the housing bubble. So, in the interest of having a informed debate, rather than one of rhetoric, I will lay out may objections to the current financial reform proposal and explain how I would address the problem instead.
From what I can tell, Dodd's bill has three major sections: 1) The creation of a Consumer Financial Protection Agency that will regulate the so called "predatory lending practices" that dooped so many people into buying homes they couldn't afford and spending to much money on their credit cards; 2) Ends the over-the-counter treatment of most derivative investment contracts (CDOs, MBSs, etc.) by forcing them to be traded on an exchange; and 3) Creating a "Resolution Authority" within The FDIC that would be capable of dissolving banks, bank holding companies and other financial institutions deemed to be a systematic risk if they fail. Man that is some exciting stuff. Now you can see why it is so easy for the Democrats to claim that this is major reform because 98% of Americans have no idea what any of these things mean.
Starting with number one, my basic beef with the Consumer Financial Protection Agency is that it even if one was in place prior to the recession, it probably would have done very little to help stop the financial crisis. We all now agree that many people were taking on more loans that in retrospect they could not afford. This was based on the faulty presumption that the housing market would continue to climb in value, and that even if borrowers were paying very high interest rates after the teaser rate of a sub-prime or Alt-A loan expired, this imbalance would more than be made up for by the increase in equity owned by the homeowner based on the home's increased value. Presumably he could use this increased equity to refinance if payments could not be met. Well guess what? The market fell out, and now many homeowners owe more than the total equity value of their house. This makes defaulting a rational decision in many cases.
So according to the Democratic pundits the Consumer Protection Agency would have stopped these bad loans from happening and all would be well. BULLSHIT. If there is one thing that is true about all governmental regulators it is that they are backward looking. All regulators were created because of some event in the past that caused a large amount of financial hardship. The regulators attempt to stop that specific type of situation from happening again. The sub-prime crisis was a novel problem in the financial markets. The very large majority of people, including many sophisticated investors who are much smarter and more savvy than any potential regulators, did not see it coming and lost A LOT of money. When people lose that much money, then it is a sign that the downturn was very hard to foresee. It is easy in hindsight to try and stop things that have happened in the past, but in reality it is impossible to predict the problems that will arise in the future. The next "crisis" will probably have nothing to do with the mortgage market, and even if it did the CFPA would probably fail to stop it anyway. This really is about a government power grab, so that the government can set all the applicable rates and provisions of almost any financial deal. They will outlaw certain kinds of loans, favor others, and basically attempt to micromanage decisions that should be made of individual, case-by-case basis. As is always the case, lobbyists will have a field day because their clients will want to get tight with the regulators so that their offerings will get preferred treatment over that of a competitor. This will inevitably lead to crony capitalism at its worst.
Secondly, I really think that derivative contracts have gotten a bad name from all of this. Yes, I ONE HUNDRED PERCENT AGREE that the proliferation of mortgage backed securities and credit default swaps (which were instruments that were intended to spread risk) led to a situation were counter parties were dependent on each others' solvency. However, why, fundamentally, is this a bad thing? Because it leads to "too big to fail" says Paulson/Bernacke/Geithner/Summers. No it does not. Period. No one, and I mean no one, is too big to fail. Let's look at what happened to Lehman Brothers. They failed. They went bankrupt. Did it have an extremely negative impact of financial markets? Of course. Credit was extremely hard to find, people started calling debts and most firms had short term liquidity issues. Did it lead to the end of the world? No. That is because we have a bankruptcy system in this country for a reason. Just because Lehman was forced to take huge losses and dissolve does NOT mean that the good assets of the company went away. Lehman provided many profitable services and products even up to and after its bankruptcy. These sectors were sold off during their bankruptcy to help pay off creditors and finance losses in other business areas. To this day I am not convinced that AIG/Goldman Sachs/CitiBank bankruptcies would have led to the end of the world. Are you? Would things have been bad for a while? Yes, but they are also very bad right now. But what happens when you allow of a market correction rather than a bailout is that you get the bad assets out of the system immediately. Instead, we prolonged the problem and helped pass it on to our kids through ridiculous amounts of debt. In a non-bailout world, the smart firms who could afford to buy up Goldman's bad assets in bankruptcy would be the ones with market share today, and the moral hazard of bailouts would be eliminated. Nothing sends a better signal to market actors to rethink their positions than the knowledge that they bare both the risk of failure and are entitled to the benefits of success. Instead, we rewarded failed firms that that in retrospect misused many derivatives to the detriment of firms that did not. No amount of regulation of derivatives would do more to temper there use than allowing firms that use them in ultimately unprofitable ways to fail, just like any other multiparty contracts.
Additionally, derivatives serve many important roles in the financial system such as providing a hedge to risk. A lot has been made about Goldman's supposed "fraud." That type of "fraud" (selling a security to two sides: one side with a long position, one side with a short position) helps drive markets to their true value by increasing total information built into the product prices. Even if people were using derivatives to bet against the housing market, that is a good thing. It shows that people believe prices are overvalued, helping to deflate the bubble earlier than it would have been absent the derivative trades. Rather than forcing all derivatives to be traded on exchanges, counter-party solvency and fear of default would provide enough incentive for firms to contract accordingly. That is only true, however, if firm failure is an option.
Lastly, and in my mind most importantly, is the resolution authority granted to the FDIC. First, you just read my take on too big to fail, but that doesn't mean that we currently have a perfect mechanism for dissolving failing financial firms. We don't. But the best place to do that is in a bankruptcy court, which can provide at least a little bit of insulation from political interests interfering with the process. But anyway if all the bill did was to create this resolution authority for the purposes of liquidating of a firm entering resolution, that wouldn't be too bad. However, the Dodd bill gives the FDIC clear authority to engage in loan guarantees during a crisis for any company deemed to be systemically important to the financial system. This is a bailout authority for creditors in addition to the resolution authority!!!!! The FDIC can accept any collateral it chooses to borrow up to 90% of the assets value to provide guarantees for for these companies creditors. And nowhere in the bill does it say that these guaruntees must be made equally and fairly for all creditors. WE ARE JUST ASKING FOR THE SAME KIND OF FAVORITISM SHOWN TO CREDITORS IN THE CHRYSLER/GM BAILOUTS. This is simply unacceptable. Obviously it makes legislators' jobs very easy to simply leave it to the FDIC to determine how and when to exercise this authority, but this puts the the U.S. taxpayer on the hook for the mistakes of political favorites. For example, take CitiBank. If the FDIC had used this authority to bailout Citi's creditors it could have borrowed up to $1 trillion.
Finally, it is absolutely ridiculous that the role of Fannie Mae and Freddie Mac played in the financial crisis is completely ignored in the bill. Together the two firms have already borrowed $125 billion from the feds and the Congressional Budget Office predicts they ultimately will drain $380 billion. This is far more than any of the TARP expenses for all the financial firms and auto makers combined. And we probably have no chance of ever being repaid. Almost of these losses were realized because of a misplaced government mandate that Fannie and Freddie provide loan guarantees to spur home ownership among low income individuals. These companies were a moral hazard in the housing market. They were implicitly backed by the government and were more than willing to back some of the riskiest loans in the housing market. But alas, they are ignored in the legislation.. Hopefully, the CFPA will crack down on Fannie and Freddie's predatory lending practices.
So from time to time I actually do read an occasional book. Although I would have to say over half of what I read is non-fiction, I do enjoy a good novel from time to time. Unfortunately, it has been over a year (since Christmas 2008) that I have read a book cover to cover. So I have decided that I am going to read a book.
As I said, I enjoy non-fiction books. The subject matter that these books come in are in two basic categories: economics/philosophy and golf. However, I really want to read a fictional novel that seems to be a least somewhat related to these two categories. As you may have guessed, this combination does not tend to lead to many dramatic tales of heroism, especially since the political philosophies I enjoy reading about are more libertarian in nature. Nobody seems to want to make their protagonist a golf pro or a champion of laissez faire economics. However, after reading an article in Fortune about Wisconsin Republican Congressman Paul Ryan (btw great article link here), one of his favorite authors caught my eye: Ayn Rand.
Now I have heard of Rand numerous times before, and I knew that her books had been very influential on people like Ronald Reagan, Alan Greenspan, Jack Kemp and Newt Gingrich; however, I have never personally read any of her work. Obviously, anything that is read by conservative leaders like those mentioned above has never been anywhere near a public high school reading list (where most of the novels I have read have come from). So I am going to check it out. And I encourage you to do the same. Listed below is a link to Rand's masterpiece Atlas Shrugged on Amazon. From what I have heard, Rand is an excellent writer who champions the idea of free markets and individualism, while still keeping the reader actually engaged in a riveting story. We shall see. I am buying the book today, and I will review it on this site when I am finished, although I have no idea when that will be. Until then, here's to a reading experiemnt. Hopefully I won't get lazy and try to find a movie version...
The Democrats are in a tough spot. Their healthcare bill is unpopular. They don't have any idea how to create private sector jobs. The House and Senate are so far apart when it comes to financial reform that it makes their differences on healthcare look like the differences between Kristina and Karissa Shannon (see Exhibit A). Basically, the Dems are now coming upon the realization that they have no path to anything other than complete and utter decimation in November. At this point it does not matter if they scuttle Obamacare or not.
Exhibit A
With this backdrop, Pelosi, Reid and Obama have decided to simply go all-in. They have accepted these losses and now want to force through the most liberal, far-reaching and redistributive healthcare bill possible. They have decided that since they are not going to have the power to do anything after November, they might as well do as much dirty work as possible now, making it almost impossible to roll back these unpopular and tremendously expensive initiatives until at least 2012 (when Obama leaves office), which is effectively too late to stop it. Just look at all the talk about bringing back the public option.
I watched several hours worth of coverage of last week's healthcare summit at the Blair House. Basically, I came away with the fundamental understanding that the two parties fundamentally see two different healthcare problems. In the democratic paradigm the world works like this:
Health insurance is so important that every single american should get it regardless of their ability to pay for it. It should be an affirmative, government provided right. The 60 million Americans who don't have health insurance need and want it, they simply can't afford it. This is the biggest problem with regards to health care in America. Health insurance companies face no competition and can gouge consumers, pricing people out of the market. The federal government should mandate both the minimum protections private insurers can offer, the minimum coverage that a citizen must buy, and will provide subsidies for people up to four times the federal poverty level to purchase this insurance. This manipulation of the health insurance market will not have many unforseen consequences, and people will be able to keep their current coverage if they like it. The subsidies can be paid for by taxing just the rich.
On the other hand, the GOP sees the problem this way:
Healthcare costs are rising too fast. Perversions in the market destroy the price incentives that normally provide information regarding the relative supply and demand for a given product or service by allowing the customer (you and I) to receive full services without having to realize the full costs of those services (through use of co-pays, premiums and low deductibles). By disturbing these incentives, the price system is not allowed to function correctly, allowing for an efficient allocation of resources. This situation inevitably will lead to excess demand, driving up costs. Excess demand is also created when doctors practice defensive medicine in fear of malpractice lawsuits down the road. Capping non-economic pain and suffering damages can reduce this defensive medicine. The solution is to add market discipline to the health insurance market, by opening competition (like allowing people to buy insurance across state lines) and re-instituting price discipline (like by promoting health savings accounts and eliminating the differential tax status between employer and individual purchased health insurance). High risk pools can be created to help insure those with preexisting conditions.
Both sides are open to criticism. Democrats say the republicans plan does little to help the uninsured get insurance. That is mostly true, although there plans would drive down healthcare costs in the private market, making insurance more affordable for everyone. This would allow some people currently priced out of the market to purchase insurance. Republicans counter with the argument that the Democratic plan would be vastly expensive, would drive up the costs of insurance in the private market (through the coverage mandates) and amounts to little more than a vast wealth redistribution system. In addition, by adding millions to the insurance market on the public dime, Obamacare will eventually lead to healthcare rationing when the program becomes underfunded (like all other public entitlements). The true costs of providing healthcare to these individuals will be shifted to private payers whose premium costs are not mandated by the federal government, which could either lead to increases in private insurance premiums/decreases in quality of care or to the destruction of the private market all together when people begin dropping costly private insurance that is subsidizing the entitlement.
In my opinion, both sides are missing the larger point. What was the original point of health insurance? To hedge against the risk large healthcare costs if you are in a accident or are diagnosed with an unforeseeable disease. The reason health insurance today provides the much different service today of covering not only unforeseen injuries and illnesses but everyday check-up and dental visits is because of the tax structure that was in place over the past 25 years that allowed employers to purchase health insurance for their employees using tax free money. This made it cheaper for employers to offer an increase in health insurance value to their employees (which they paid for before being taxed) to a corresponding increase in pay (which would be paid for post taxes). This scenario inevitably lead to hugely expensive insurance plans that covered all types things instead of simply increasing an employees pay. Until the U.S. moves away from the tax system that heavily favors employer purchased plans, it will be difficult to have any price discipline in this market.
The most effective way to reform the health insurance market would be to simply give move away from the employer provided system and towards and individual market system. In this scenario, consumers would be better able to gauge their true health care costs, and make rational decisions using a cost-benefit analysis. Despite all the talking points about "waste" in the health care system, the only way to truly keep costs at an appropriate level is to allow effective market signals (using the price mechanism) establish the equilibrium level for these services. History has shown that when a market is able to provide such incentives, resources will be distributed in the most efficient way possible. This is perhaps the most important reform that could be considered in any health care overhaul, unfortunately neither side seems to grasp this important point.
