The Wedding Cake

Americans harbor many conflicting views on many subjects. Our right to freely express them is guaranteed in the American Constitution’s First Amendment. It is precisely this right that has enabled the LGBT community to convince an ever-growing number of our fellow citizens that they should be entitled to the same protections under the law as anyone else.

Public discussion of conflicting opinions in a spirit of civility and mutual respect is an important aspect of developing consensus as well as tolerance for other beliefs and ways of living. While we are required by the Civil Rights Act of 1964 to set aside our personal opinions and tastes when we open for business to serve the public (the non discriminatory public accommodations requirement), our personal views are much more likely to be meaningfully changed by persuasion than by legal requirements. “There-will-be-no-winners-in-the-supreme-courts-wedding-cake-case/2017/12/04/”

In 2012, Charlie Craig and David Mullins, a same-sex couple, walked into Masterpiece Cakeshop in Lakewood Colorado to order a cake for a celebration of their wedding. Jack C. Phillips, the owner and cake designer of the shop, refused to bake it on the grounds that he opposed same-sex marriage. In the case of Masterpiece Cakeshop v. Colorado Civil Rights Commission, now before the Supreme Court, Colorado’s Civil Rights Commission maintains that Mr. Phillips has violated the state’s public-accommodations law, which forbids discrimination against LGBT customers. The case pits the Constitution’s First Amendment protection of the right to free speech against the right of everyone, including gay and lesbian Americans, to the equal protection of the law on non discriminatory public accommodation. The Supreme Court must now decide how to balance these two rights.

Phillips argued that making him create a cake that celebrates a same-sex wedding would violate his First Amendment rights to free speech and free exercise of religion, by forcing him to express a message, and celebrate an event, that runs against his beliefs.  Messrs. Craig and Mullins argued that the cake shop had discriminated against them.  How can the rights and needs of each best be satisfied in our society of diverse beliefs?

There were many other cake shops happy to bake the desired cake. Why would Messrs. Craig and Mullins want to give their business to an unwilling baker? What goal was served by challenging the baker’s refusal in court? Did they think that a judge could force the baker to change his views about same sex marriage? Really? Public attitudes toward LGBTs have improved dramatically in recent years including attitudes toward same-sex marriage because of persuasion, not because of legal coercion. In fact, in 1996 legal coercion was used to prevent same-sex marriage with passage of the Defense of Marriage Act (DOMA). The Supreme Court fortunately overturned it in June 2015 in the case of Obergefell v. Hodges. What ever the Supreme Court decides, the LGBT community looses from this case. George Will: “A-cake-is-food-not-speech-but-why-bully-the-baker”/2017/12/01/

Everyone should worry about the threat of state-compelled speech, says gay marriage supporter Andrew Sullivan:  “It always worries me when gays advocate taking freedom away from other people. It worries me as a matter of principle. But it also unsettles me because some gay activists do not seem to realize that the position they’re taking is particularly dangerous for a tiny and historically despised minority. The blithe unconcern for the First Amendment in the war on ‘hate speech,’ for example, ignores the fact that, for centuries, the First Amendment was the only defense the gay minority ever had — and now, with the first taste of power, we are restricting the rights of others in this respect? Ugh. Endorse the state’s right to coerce speech or conscience and you have ceded a principle that can so easily come back to haunt you.” New York Magazine December 8, 2017.

The LGBT community should look first to improved understanding and then to tolerance of diversity. The courts are the last place to search for a workable balance between free speech and conscience and equal treatment of everyone under the law.

Heath Care Reform Fatigue

On average, Americans spend about twice as much on medical care as do Europeans and with poorer results. About half of that cost is paid for by government. If we could get the cost of medical care down to European levels either the government (i.e., tax payers) could stop paying for any of it with no change in the cost to patients, or patients could stop paying anything with no change in the cost to government. Of course it wouldn’t work like that and is much more complicated but it does focus the mind about the issues concerned.

Both the Affordable Care Act of Obama and the current drafts of its replacement by the Republicans are limited to what can be considered budget authorizations so that they can be passed with simple majorities. In June 2015, when the Supreme Court rejected challenges to the constitutionality of parts of the ACA (the insurance mandate), Chief Justice Roberts complained that: “Congress wrote key parts of the Act behind closed doors. . . . Congress passed much of the Act using a complicated budgetary procedure known as ‘reconciliation,’ which limited opportunities for debate and amendment, and bypassed the Senate’s normal 60-vote filibuster requirement. . . . As a result, the Act does not reflect the type of care and deliberation that one might expect of such significant legislation.” Now the Republicans are doing the same thing. Once again George Will is right on target: Why-repeal-and-replace-will-become-tweak-and-move-on/2017/06/27/

This means that the most important elements of health care reform in America—reducing supply side costs—must await other legislation. However, limited market forces are already eating away slowly at the American Medical Association’s (the doctors’ union) self protective strangle hold on the delivery of medical services. The information technology now exists to dramatically improve the quality of service while lowering its cost. Nurse practitioners have already taken over some routine functions previously preserved for MDs. With a growing shortage of doctors, more restrictive practices are likely to be relaxed such as phone consultations, etc.

The focus of the ACA and the current Republic efforts to “repeal and replace” it, has been how best to finance these costs for those financially unable to pay them. The two overriding challenges for this effort should be to adequately target those who need such assistance and in the process to avoid undermining to the extent possible the incentives for both doctors and their patients to provide and to seek the most cost effective care.

There are many small and large details in ACA and proposed Republican replacements that could be changed to improve targeting of financial assistance and the incentives for seeking and delivery cost effective care. See my earlier discussion: A-mistitled-tax-proposal. The largest issues are how best to remove the unfair tax treatment of employer provided health insurance vs. the “private” market and how to insure that the risk pools in the private insurance market include both healthy and sick premium payers.

The point of insurance is to pool the cost of the risk of bad things happening, like breaking a leg or getting sick. Thus the lucky (healthy) share the costs of the unlucky (sick or injured). The group as a whole must pay the total medical costs of all members of the group. It follows that health insurance should be mandatory for every one in a properly defined group. The risk pool of employer provided health insurance consists of the company’s employees, and premiums are set on the basis of the average medical costs of that group. There is no such predefined risk pool for those who buy insurance in the “private” market. The logic of insurance suggests that everyone within each age group should be required to buy insurance at a cost to each that reflects the total medical costs of the full group. The-individual-health-insurance-mandate.

The simplest, cleanest, and most comprehensive way to insure that those unable to pay for whatever medical care they need can do so is to require that all people in their group buy insurance so that those who later don’t need it finance those who do. I have earlier advocated that this approach be integrated as part of a guaranteed minimum income (GMI). A GMI would provide the basis for eliminating most government welfare programs from Social Security and food stamps, to disability and unemployment insurance. But first a brief word about minimum wage laws.

Charles Lane has proposed a sensible approach to balancing the political attraction for legal minimum wages with the economic case against them. He proposes that the issue be removed from the political arena by legislating an automatically adjusting formula for a legal minimum wage that closely matches actual historical wage experience so as to minimize the harm to low skilled and inexperienced (teenagers) workers that would be hurt by higher minimum wages. Forget the $15 minimum wage–here’s what a sensible compromise would look like/2017/06/28

A legal minimum wage does not help the unemployed. A Guaranteed Minimum Income would. It should be paid to every man, woman, and child but the amount might vary with age (but not with income). It could be administered by the Social Security Administration, which it would replace. Saving-social-security. Fixed shares of the GMI would be placed in an individual health insurance account, a pension account, and an education account (school tuition or college fund). The amount deposited to the health savings account would be required to be used to purchase general health insurance and would be sufficient to do so.

The GMI would be paid for from general tax revenue. Clearly our existing, hole riddled income tax laws (both personal and business) are a mess and need to be cleaned up. As I have argued earlier the fairest, least distorting and easiest to administer tax is a consumption tax. I should replace all income taxes, wage taxes and existing sales taxes with one uniform Value Added Tax (VAT). My-political-platform-for-the-nation-2017.

Let’s try for better health care that costs less for both patients and tax payers.

Economics Lesson: Income Inequality

French economist Thomas Piketty’s bestselling book on wealth inequality, “Capital in the Twenty-First Century,” has become the focus of a debate over increasing income inequality in the US and many other countries. I have not read the book, which apparently presents lots of interesting data, the use and interpretation of which is also being debated. A recent paper on Piketty worth reading is by a young PhD candidate at MIT:

The issue that interests me in this note is the great divide in attitudes toward inequality and thus the policies proposed to address it. Some people think income inequality, or at least too much of it, is bad per se. Thus taxing the rich and redistributing the proceeds to middle and lower income families is the solution. For me, and many others, the issue is whether the wealthy (to simplify) earned their income fair and square (to be explained below) and is thus a just reward for their contributions to the economy providing an important incentive for their efforts. To the extent that they have not (monopoly power, government favors, etc.) the solution is to attack and remove the policies and impediments to competitive markets that made their exorbitant incomes possible.

If it is not desirable (fair) for some people to be wealthy when others are not, the collateral damage from income redistribution may be a price worth paying. This collateral damage is well known. If the wealthy cannot keep the income they get from their efforts and/or from their investments in innovative technology, miracle drugs, or the companies that produce what we want and provide our jobs, they will reduce their efforts and investments, thus reducing the income available to us all and available to redistribute. At the other end—recipient—of the redistribution, if the programs through which middle and lower income families receive such income are not well designed they will reduce incentives to work and or misallocate resources further reducing the income available to redistribute. The policy issues become how to design such programs and what is the optimal balance between the “good” effect of more equal income distribution and the bad effects of lower income.

In my book of moral principles, disapproval of the higher incomes of others per se is due to envy, and envy is not a virtue and should be resisted. There is some evidence that many people care both about their absolute income and their income relative to others. Such envy should be discouraged in my view. My standard of morality in this area is that people deserve what they fairly earn but this requires an understanding and agreement on what income is fair. Economists have a straightforward definition of “fair” income. Profits (revenue in excess of costs) earned without artificial government help (subsidies, regulations that keep out or discourage competitors, or state sanctioned monopolies) are fair because they are the (ultimately) competitive return on providing something people value. With competition, profits will be normal, what economists call a normal rate of return on investment.

Unless the government interferes, excessive profits (those above a normal rate of return) will ultimately be competed away as others enter the field to grab some of the high return. While the inventor and developer of a new technology or product may enjoy a quasi monopoly return initially, as long as there are no artificial impediments to competition, i.e. as long as the monopoly is contestable, returns will ultimately become normal. George Will provides some relevant and interesting cases drawn from a new book by John Tamny. “With the iPod, iPhone and iPad, unique products when introduced, Jobs’ Apple created monopolies. But instead of raising their prices, Apple has cut them because ‘profits attract imitators and innovators.’ Which is one reason why monopolies come and go.” “Since 2000, the price of a 50-inch plasma TV has fallen from $20,000 to $550.” “Henry Ford doubled his employees’ basic wage in 1914, supposedly to enable them to buy Fords. Actually, he did it because in 1913 annual worker turnover was 370 percent. He lowered labor costs by reducing turnover and the expense of constantly training new hires.”

There are many examples of profits that are not normal or contestable, which by definition are unfair. Those on my side of this issue would look for the government favors or interferences that made them possible and seek to remove them. There is no doubt, for example, that US monetary and regulatory policies have made possible lopsided returns from one-sided risk taking by Wall Street (the moral hazard of tax payer bail outs when excessive bank risk taking goes wrong). These policies need to be reformed in order to make the economy fairer and more efficient. See my Letter from the Editorial Board in the next issue of the Cayman Financial Review.

A very large political/policy battlefield in America today is between those who wish to redistribute income to make it more equal and those who want to make income distribution more equal by reducing or removing the economic rents generated by excessive and inappropriate government regulations and subsidies. They are each motivated by dramatically different philosophies and conceptions of what is fair and what is good. We might call these positions “egalitarianism” and “capitalism.” The motivation of an egalitarian to redistribute income from the rich to the poor is dramatically different than the desire of virtually all American’s to provide what Ronald Reagan called an adequate social safety net for the truly disadvantaged and those who have fallen off the ladder. I am on the side of capitalism.