Greed. It’s a dirty word (a deadly sin, even). Some think only government can protect us from ourselves. But this view is mistaken.

Maybe it comes from that helpless reflex-thought: "Somebody should do something about this!" We’ve all had it — especially recently. And government, like God, comes into our thoughts almost as second nature whenever we want to explain something inexplicable, or fix something unfixable. But we must stand before our own natures with humility and acknowledge that we, as a species, are greedy.

Nobel Laureate James Buchanan put it best. He argued that you can’t assume that under certain circumstances (markets) people are greedy and in other circumstances (government) they are angels. In whatever circumstances, people pursue their own interests.

To think otherwise is to go against human nature’s grain. But in their pursuit of self-interest, people will respond to the incentive systems they’re operating within. As Buchanan reminds us,

"Much of the growth of the bureaucratic or regulatory sector of government can best be explained in terms of the competition between political agents for constituency support through the use of promises of discriminatory transfers of wealth."

Or risky loans. Or carbon credits. Or bailouts. There is nothing that suddenly changes the human being when the system changes. Only the incentive structure changes. To expect people to rise out of said system with a halo, wings and a moral birds-eye view is not just unrealistic, it’s impossible. Greed and government mix. And the mixture is combustible.

This is the lesson of Buchanan’s "politics without romance." With it, we can "understand why pork-barrel politics dominated the attention of legislators; why there seems to be a direct relationship between the overall size of government and the investment in efforts to secure special concessions from government (rent seeking); why the tax system is described by the increasing number of special credits, exemptions, and loopholes; why balanced budgets are so hard to secure; and why strategically placed industries secure tariff protection."

SO WHENEVER YOU HEAR SOMEONE SAY SOMETHING ABOUT GOVERNMENT INTERVENING IN ANYTHING, remember politics without romance. (You might also ask if government was already there.) It is a lesson we must tattoo on our brains: from global warming policy to mortgage-backed securities, greed goes unchecked when it is shielded (or perversely incentivized) by politics.

No matter what our good intentions may be at the outset, government-plus-greed is a deadly combination. As we stand in eerie silence before an approaching economic Tsunami, we must remember that government catalyzed greed in this situation, too, allowing it to grow beyond sustainability.

Whether we look at the Community Reinvestment Act and other federal housing regulations, which forced banks to loosen their lending practices for the sake of "underserved communities," (read: high risk borrowers) or to government-sponsored enterprises like the insolvent Freddie Mac, we can find the combustible combination of greed and government. The now-common phrase "socialized risk and privatized profit" should have been upon our lips way back in 1999, when a New York Times headline read: "Fannie Mae Eases Credit To Aid Mortgage Lending."

The very same organization, operating with the promise of a bailout and pressure from HUD, had changed the risk calculation forever. The change was predictably perverse. The distortion grew. One small series of perturbations — government caused — was set on a trajectory toward 2008. By the time it got here, it was a tidal wave.

Greed is best checked by the distributed forces of market reward and punishment (based firmly in the rule of law). By rule of law, I don’t mean capricious legislation cranked out either by venal men or do-gooders. I mean a basic, unchanging set of institutions that ensures predictability, transparency and equality before the law. These rules should be simple: Protect people from force, theft and fraud.

There are those who think that if we can just build the right program, add enough resources, or find the right angels, we’ll somehow find an optimum point of public welfare. They are mistaken. Repeated mistakes and bitter experience should remind us otherwise. Government and greed ought never to mix.

And it will not mix well with a big bailout, either. Washington is now involved in a vicious cycle. As leaders go about cleaning up the mess they helped to create, remember the words of James Madison: "If angels were to govern men, neither external nor internal controls on government would be necessary."

The post Getting Greed Out of Government appeared first on Civitas Institute.

The recently completed two-year budget cycle (2007-08) saw very little in the way of transportation reform. Rumor has it 2009 will be the year of transportation reform. Let’s hope so. Currently, the situation is dire.

What They Did

Capped The Gas Tax

The General Assembly finally capped the variable wholesale component of the motor fuels tax at 12.4 cents per gallon through June 30, 2009. This means the total gas tax North Carolinians will pay at the pump will be no more than 30.15 cents per gallon. By contrast, residents of Virginia pay 17.5 cents per gallon while South Carolinians pay 16 cents per gallon in state excise taxes.

Gave more slush money to the Board of Transportation

In the 2007 budget bill, the General Assembly continued an annual appropriation of $14 million in “economic development” funds to be used at the discretion of the Transportation Board. The appropriation, however, did not appear in the 2008 budget.

Raised the age to 16 that a child may ride in a truck bed

HB 2340 prohibits children under the age of 16 to ride in an open bed or cargo area of a vehicle, except when an adult is present, the occupants are participating in a parade, or the child is secured by an approved safety restraint. The previous age limit was 12.

Implemented an NCDOT maintenance program

Legislation (SB 830) was crafted for the N.C. Department of Transportation (NCDOT) to “develop performance standards” and to “modify motor vehicle registration requirements.” In effect, the law requires NCDOT to determine the status of the highway system and then to develop a plan ensuring maintenance is carried out regularly.

What They Didn’t Do

Scrap the Equity Formula

North Carolina’s Equity Formula for the distribution of transportation dollars means a lot of unnecessary roads are being built in areas losing vehicles, while areas gaining vehicles are getting short-changed—causing traffic jams and maintenance shortfalls around the state. The General Assembly, dominated by powerful members who direct inefficient funding to their home districts, is in no hurry to scrap the formula. The entire state suffers so a few can get reelected.

Prioritize resources based on vehicle usage, maintenance and safety

Of course, because the Equity Formula hasn’t been scrapped, no alternative distribution reform has been introduced. North Carolina should move to a model that prioritizes transportation resources based on need—i.e. vehicle-usage, maintenance needs, and safety. Discretionary (patronage) projects should be eliminated by statute if they exceed a cost-effectiveness cap.

Wean us off the gas tax and migrate us to a VMT-model

Higher gas prices mean people are consuming less fuel—and that means reduced revenues for needed transportation projects. New technologies mean the state can tax people based on the number of miles they drive, rather than how many gallons they buy. Indeed, we may soon be driving hydrogen cars. But hydrogen cars use roads, too. A VMT (vehicle miles tax) would ensure everyone pays for roads based on usage, which is fairer and more efficient than fuel taxes.

Devolve any roads to regional or local control

Since the Great Depression, N.C.’s state government has had responsibility for taxation, construction and control of virtually all the roads in the state. The trouble is centralized bureaucrats have control over planning decisions that could be made more effectively and efficiently at the county level. But with control of transportation dollars comes power. Therefore, the legislature has made no effort to devolve any responsibility for roads from NCDOT to local governments.

Reform or eliminate the board of transportation

Since the mid-1990s, North Carolina has had a politically-appointed 19-member Board of Transportation—down from 25 after a time of scandal. Patronage projects have not gone away with changes to the Board’s numbers. It’s time to eliminate the Board, or severely restrict its activities.

The post Transportation: Traffic Jams, Roads Crumble, Reform Stalls appeared first on Civitas Institute.

The recently completed two-year budget cycle (2007-08) was marked by legislation that will make energy more expensive and do little, if anything, to protect the environment. The following highlights some of the major things our General Assembly did and didn’t do over the biennium:

What They Did

Raised the costs of home energy via a bill mandating “renewables”
SB3 – legislation requiring energy companies get a certain percentage of their portfolios from renewable sources – will do nothing for the environment, but will jack up energy bills and enrich special interests. Major energy concern Progress Energy just got approval to raise energy rates by 16-plus percent – barely a year after the passage of SB3. Consumers are harmed.

Raised taxes on waste disposal, made failure to recycle a criminal offense
Not only will it be more expensive for the average citizen to dispose of waste, business-owners who fail to recycle are now looking at jail time. SB 1492 adds taxes and fees to waste disposal, but creates artificial scarcities by making it virtually impossible to open a new landfill in the state. The state will use revenues from trash taxes to fund recycling.

Handed out green corporate welfare and green boondoggles
Over the past two budgets, the General Assembly has given out millions in green corporate welfare. Examples include zero-percent interest loans for “green” businesses, $2.2 million for a biofuels company, $1 million to a “green business fund” and $5 million to a biofuels center. Biofuels like ethanol drive up food prices and do more environmental harm than good. Such companies are special interests that could not exist but for subsidies and handouts.

Used non-voter-approved debt for “open space” and waste water
The “Land for Tomorrow” fund will disburse* $50 million in state debt not authorized by voters (COPs) — debt saddled to the backs of N.C. taxpayers — purportedly to preserve open space. Half of the $1.45 billion spent by N.C. Conservation Trust Funds between 1987-2007, however, has gone to local wastewater treatment—a questionable expenditure given that these are offered under the rubric of environmental conservation. The state land purchases mean taxpayers will pay more for land management and property values will go up artificially in urban areas.

*Corrected from an earlier version.

Gave us draconian drought management
The Legislature (via HB 2499) gave new drought/water management powers to the state in 2008, which authorizes the Governor to set water restrictions statewide. This policy unnecessarily centralizes water-management policies, when local policymakers should employ their own measures.

What They Didn’t Do

Pressure Washington to lift the offshore drilling moratorium
In the face of high gas prices, the General Assembly took no action to enable offshore drilling – a policy that would bring jobs to eastern N.C. and relieve pressures on citizens hurt by fuel prices.

Pressure Washington to lift the ban on new nuclear plants
True leadership in North Carolina would require the General Assembly demand that Washington change its policy on the expansion of nuclear power in our state. Nuclear power is safer and more effective than ever before. Yet – in the face of soaring energy prices – the Legislature remained flatfooted on lifting the current ban on new nuclear facilities.

Lift a finger to suspend onerous regulations creating boutique gasolines
No legislation was introduced to suspend or repeal state-level legislation creating boutique gasoline blends in certain areas. These gas blends have marginal, if any, environmental benefit and only add to costs at the pump.

End corporate welfare associated with biofuels
Nationwide, there has been a sea-change in opinion about ethanol and biofuels. Not only do biofuels increase food prices, but they have no measurable effect on global warming, they do more damage to the air and land than gas, and biofuel subsidies destroy wealth in other sectors. Though biofuels are a terrible idea, the General Assembly continues to give handouts to biofuels companies.

Make system-wide upgrades to our transportation network
Efficiencies in our transportation network add up to fuel efficiencies, because people don’t sit in traffic as long. And yet the 2007-08 biennium was an example of status-quo transportation policy. In other words, there is heavy investment in roads built in rural areas and underinvestment in infrastructure where the vehicles actually travel—all due to the continued use of the outmoded Equity Formula, introduced in 1989.

The post Energy and Environment: Higher Prices, No Benefits appeared first on Civitas Institute.

Mandatory recycling programs don’t bother most people. But if you thought you were being forced to do something dumb or were getting ripped off—wouldn’t you be troubled? When it comes to municipal recycling in the Triangle, there are only two possible scenarios—either the things we recycle really are just garbage, or the city is helping big companies steal our labor and resources. Sound crazy? Bear with me.

Every billing cycle, you get the privilege of paying the city a recycling fee. Check your bill. It’s there. (Note: some cities build fees into property taxes.) Now, let’s suppose that the things you toss into the recycling bin really are just garbage. If it isn’t garbage – i.e. it has value to someone – they’ll be willing pay you for it (or at least collect it at no charge). But the situation is not so clear when it comes to recycling—because the city gets between you and willing buyers of your bottles and cans.

Or, look at it this way: we’re paying the city to haul things off in extra trucks. That means there are twice the number of trucks on the road (trash-plus-recycling), which means we double both the fuel consumption and pollution emissions, compared with garbage collection alone. At best, we’re using up one type of resource (oil) to save another (plastic). At worst we’re wasting money and trading garbage for pollution increases. (Nevermind the personal inconvenience of washing, sorting and lugging.)

With current fuel prices, things get worse. Obviously, it’s just plain expensive to fuel recycling trucks—and we pay for that. Still, it may nevertheless soon be cost-effective to recycle plastic bottles, since they’re made from petroleum. But when we get to that price-point, won’t it be cost-effective to strip-mine landfills of plastics or pay people to turn them in, rather than rely on all those diesel-spewing trucks? Given that energy conservation and air pollution are becoming bigger issues, it’s hard to see how cities can justify recycling. (Can you hear the protestors? “No oil for glass!”)

Which is scarcer? Landfill space or fuel? Prices say fuel. But suppose people just don’t like the idea that a plastic container might lie in the ground for a thousand years. It’s true: we don’t think of Cheerwine bottles as being artifacts for the museums of the future. But beyond that, what’s the problem? Landfills aren’t poisoning anyone.

Not even the EPA sees fit to regulate municipal solid waste disposal. Indeed, according to 30-year EPA veteran Dr. David Schnare: “EPA regulates the toxic stuff through its hazardous waste disposal regulations. Municipal waste isn’t hazardous, and the only regulations that apply are [landfill] siting, construction and air emissions regulations for methane. The EPA doesn’t regulate risks from these sites because the risks, if any, are undeserving of regulation.” With the advent of geotextile technologies, modern landfills are well able to contain leachate – the only significant landfill pollutant. Basically, you have a greater chance of being hit by a recycling truck than being harmed by a landfill.

Landfill companies have also learned to pack in much more garbage-per-square-yard than any time in history. According to environmental economist Daniel K. Benjamin, “Ted Turner’s flying D ranch outside Bozeman, Montana, could handle all of America’s trash for the next century—with 50,000 acres left over for his bison.” (Read: we’re never going to be ‘buried in garbage’). Apart from NIMBYism about the sight or smell, why are we worried about making continued use of landfills? After all, one person’s smelly landfill is another’s bread-n-butter.

Now, suppose those recyclables are valuable. If they are, why are we paying the city? The presence of value means a market will emerge without the city (or its fees). Maybe we should ask Raleigh, Durham and Cary why they are forcing us to use our time, resources and labor to benefit the companies they sell recyclables to. If cans are so valuable, what’s the city’s interest in recovering assets otherwise stranded at the dump? Isn’t that what the aluminum industry should be sorting out? (Pun intended.) Of course companies benefit from this whole arrangement, because they’re able (via the city) to shift the costs of recycling onto us! The city is complicit.

We should be more than a little troubled by these possibilities. Cities are using proceeds from valuable recyclables like aluminum to subsidize wasteful and stupid recycling like glass and paper. (One need only head to the beach to see there are no silicon shortages. Likewise, there are more trees in North America than at any time in recorded history, because the more paper we use, the more trees get planted.) But we should be more disturbed that cities are wasting our energy, time and money to benefit special interests. In either scenario – waste or theft – municipal recycling is no good to citizens. Sadly, city officials must only hide behind America’s quasi-religious fixation with everything “green” to get away with it.

Max Borders is a policy analyst for the Civitas Institute (nccivitas.org).

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Recent media reports about state Senator Tony Rand’s (D-Cumberland) grip on N.C. transportation resources have stirred up the Hornet’s Nest. Despite the fact that old Fayetteville buddies Secretary Lyndo Tippett and Sen. Rand have been content to let road resources get funneled down east for years, all this is apparently news to people in Charlotte. That’s a shame.

Sorely-needed projects – such as the Yadkin river bridge bottlenecking 85 at Salisbury, or the completion of 485 – have been perennially pushed aside by eastern N.C. projects supported over the years by powerful politicians with pork on their fingertips. Let me explain.

In 1989, way back when the movie Field of Dreams was in theaters, the Governor and General Assembly introduced highway reform legislation. They would use more transportation revenues to build roads in rural areas around the state for the sake of economic development.  In other words: “if we build it, they will come.” Trouble is, nobody came. The centerpiece of that legislation – the Equity Distribution Formula – remains to this day. But as it happens, the formula is not terribly equitable if you think resources ought to track road usage. Instead, here’s what the Equity Formula actually does: 

It takes a quarter of the state’s Highway Trust Fund resources for building out the “intrastate system.” Sounds okay, right? Till you get the translation—build four-lane highways in the middle of nowhere. They’ve been doing this for decades. Clearly it hasn’t worked. All you have are pricey highways, exits and bridges in areas losing population, according to demographic data.  (All of which is great for eastern politicians, of course, who can claim they “brought” goodies to their districts. Want vinegar sauce with that, Senator?)

Now, another quarter of the funds are divided “equally” among seven geographical super-districts. These super-districts have no connection whatsoever with population-centers, traffic patterns, or any other factor that might help you get road money to places that need it. Instead, they are drawn based on pre-Depression-era prison regions, because the state used to use chain gangs to build roads. So in the 21st Century, we’re distributing a full quarter of precious Highway Trust Fund resources by consulting a map drawn in the heyday of Henry Ford.

Finally, half of the Highway Trust Fund money is distributed based on population. This is the best thing we can say about the Equity Formula—and that’s not saying much. People are not necessarily vehicles. Nor do population numbers take into account seasonal traffic patterns—for example, traffic created by folks down from Jersey here to see the Outer Banks, or up from Florida to see the Blue Ridge.  In short, the way we distribute road resources in North Carolina makes about as much sense as Secretary Tippett dropping bags of cash around the state from Governor Easley’s airplane.

But there is method to the madness. Leaving aside dubious discretionary projects ordered by members of the Legislature and the Board of Transportation, powerful Eastern North Carolina politicians like Senator Pro Tem Marc Basnight (D-Dare), Lt. Governor Beverly Perdue (D-Craven), and Senator Rand benefit from the Equity Formula as it is. As long as we’re not distributing resources based on vehicle usage and maintenance needs – you know, where the cars and potholes are – eastern North Carolina benefits at the expense of all the major urban centers. Charlotte sits in traffic. Ole boys win elections.

As Charlotte recently learned, Sen. Rand’s hometown loop – added by statute in 2003 – is way ahead of Charlotte’s loop (485) added in 1989. Charlotteans may also be interested to know that the exorbitant $120 million Neuse River Bridge in New Bern was a pet project of then-state Senator Bev Perdue, and was, at the time, the largest public works project ever built in N.C. This year, her Democratic primary challenger suggested Perdue benefitted personally from that project, citing a 150-acre residential development she co-owned and profited from once the bridge was finished. Whether or not there were conflicts for Perdue is unclear. Suffice it to say that compared with other potential projects around the state, the Neuse River mega-bridge would never have passed any cost-effectiveness smell test, had any been in place.

And that’s a good note on which to close. We have got to move away from political networks and outmoded Formulas towards a system of prioritization that eliminates projects of excess. How? We allocate resources based on vehicle usage, maintenance needs, and safety—not highway boondoggles attached to “Field of Dreams” hopes or quid pro quo deals.

Soon the General Assembly will come, hat in hand, to ask the citizens for more money to build roads. Until the Equity Formula is scrapped, however, this will virtually assure cities like Charlotte and Salisbury continue to pay more for roads and get less.  We need political leadership who will be stewards of our tax dollars—putting road money where it’s needed, instead of using it for a down payment on re-election. The transportation status quo is no longer sustainable. It’s time for an overhaul.

Max Borders is an original Charlottean and analyst at the Civitas Institute in Raleigh (nccivitas.org).

The post Charlotte’s Traffic Woes Aren’t Going Anywhere appeared first on Civitas Institute.

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(A version of this article appeared in the Clayton News.)

1. If we want gas prices to be lower, we have to increase supply. People are already responding to high prices by reducing their fuel consumption—and it hurts. We also have to increase our domestic supply. Therefore, we need to drill off the N.C. coast and do it now. It comes down to the law of supply and demand. As long as we continue to depend on unstable countries for the majority of our vehicle-fuel needs, we will continue to see high prices—particularly as developing-world economies come online and consume more of the available oil.

2. Drilling now can lower prices at the pump now, despite the fact that the new supplies won’t come online for a while. Why? Oil would be less scarce in the future. The so-called “speculators” and other investors who are currently investing in oil due to the current scarcity (scarcity that’s reflected in the price per barrel) would then bid down the price—given the prospect of a real increase in oil supply. (Consider the $16 per barrel price decrease on the day the President announced he was lifting the Bush/Clinton executive drilling moratorium.)

3. Drilling will help create jobs in Eastern North Carolina. Gas and oil exploration, along with associated industries, will spring up in our state. Royalties to the state will also increase. One need only look at 2007 revenues (royalties) to states where limited drilling is allowed: TX ($65 million); LA ($158 million). (Note: 68 percent of North Carolinians support drilling.)

4. Drilling is safer than ever before. There has been a drastic reduction in the number (and severity) of oil spills since the 1980s, due to improved technologies and techniques. In fact, the Department of the Interior reports that damage due to the spills caused by Katrina and Rita were “minor.” N.C. should have few concerns about hurricanes causing severe oil spills, particularly since what is likely to be discovered offshore in N.C. is natural gas, not oil. And while we don’t put it into our cars, natural gas discoveries will relieve pressures on the energy market as a whole (and our pocketbooks). Royalties can be used for an environmental fund.

5. “Speculators” serve a valuable function in oil markets. Leave them be. They not only ensure that investment goes to areas where there are shortages in supply, but they make the market more predictable (less volatile) for people who depend on these commodities for their businesses, not to mention consumers. Most importantly, they help investment gets to where it’s needed. Blaming speculators for the price of gas is like blaming a thermometer for the temp.

6. We should not tax oil profits. Taxing profits is a tax on the incentives that prompt oil companies to make risky investments in finding new oil supplies (expensive ocean platforms, etc.) If they won’t profit from doing so, they won’t explore. Taxing profits means they’ll do less of what brings us more gas at lower prices. Oil companies’ profit margins are only 9.5 percent—which is in line with other major industries. (Compare the publishing industry, whose margins are around 20 percent.)  The price of a barrel of oil + fuel taxes = 83 percent of the price of a gallon. The remaining 17 percent goes to marketing, refining, and logistics (and, yes, profit).

Information in this brief comes from the EIA, U.S. Dept of Interior and the Institute for Energy Research.

For a more extensive presentation on energy policy, please contact Max Borders — max.borders -at- nccivitas.org.

The post Talking about Energy: Drill Here, Drill Now appeared first on Civitas Institute.

The U.S. has never really had a healthy, well-functioning healthcare system. Instead, we have had a patchwork of regulations, government programs, quasi-markets, and socialism. But we can imagine what a healthy system would look like. To remedy the problems in our healthcare system, we have to isolate them.

Let’s start with state coverage mandates.  Coverage mandates are items in your plan the state government forces you to pay for.  North Carolina, for example, has 47 mandates, including: chiropractic, drug/alcohol abuse treatment, and pastoral counseling. By contrast, Idaho has only 15.

N.C.’s average annual premium costs $3,080, while Idaho’s is only $2,006. Since some mandates are more expensive than others, a simple counting of mandates doesn’t explain everything. But when you consider both the number and the total cost of a given mandate, you’ll find a direct correlation between mandated coverage items and the cost of the average health plan.  In short, mandates drive up costs, which makes insurance less affordable.

The second major problem of healthcare is the unequal tax treatment of different types of health insurance. “Workers may receive this tax-favored benefit only if health coverage is provided through an employer” says health expert Grace Marie Turner. “Because it is excluded from their taxable income, the value of the health coverage, the tax benefit, and the costs in foregone cash wages are largely invisible to workers.” All of which is to say: if you’re lucky enough to get health insurance through your employer – once you have it – you don’t think about it. But what about the distortions this causes?

First, job-based insurance undermines cost-consciousness by hiding the true costs of both insurance and medical care from employees. Because the full cost is not entirely visible, there is increased demand for medical services and more expensive insurance. As a result, wasteful, inefficient healthcare delivery is subsidized at the expense of more efficient care and coverage.

Next, as health insurance costs rise, people get lower wages and salaries. That’s because any economic growth goes to expanded health insurance costs at work (that you pay little attention to). Of course, most employees with job-based coverage have little choice about their health insurance provider. Most jobs offer only one provider. But because it’s subsidized, why would you shop around? But that limits competition.

Ultimately, tax benefits are skewed to favor higher-income individuals. So the tax system actually subsidizes wealthier people and the gainfully employed! That’s no way to deal with the problem of the uninsured. Millions of Americans who are unemployed or whose employers do not offer health insurance are discriminated against because they receive much less assistance, if any at all, when they purchase health insurance.  In short, if you’re employed by a big company, you’re probably getting subsidized healthcare. If you’re not – say you’re a waiter, are self-employed, or unemployed – you get unfavorable tax treatment.

Now, consider the third major pathology: Overconsumption.

“Overconsumption?” you may be wondering. How is this a problem? Well, think about the last time you went to the doctor’s office. And let’s say she did a blood test. Can you say how much this cost? If you answer is $15, your answer is incomplete. We’re looking for the full cost. How much did the doctor charge your insurance company? You probably don’t know. Most people don’t care, either.  But that extra cost you don’t ever hear about everyone pays for – in the form of higher insurance premiums. And that blood test? It might have been $300. Someone has to pay for that.

Here’s how it works. Imagine you’re at a restaurant dinner party. Everyone at the party decides to split the costs of the dinner evenly. Do you order the chicken or the surf-and-turf? Since the costs are shared evenly, you conclude you might as well get the most expensive item. Otherwise, everyone else will, and you’ll be subsidizing their more expensive meal. But what happens to the total price when everyone thinks that way? That’s right, the total price goes up.

Likewise, if you’re only paying $15 for any prescription you may be getting, or any doctor visit you might have: why not choose the most expensive option or let the care provider choose it for you?  For example, heartburn sufferers can pay a co-pay for a prescription of Nexium, or they can get Prilosec OTC. (Zantac would be even cheaper.) If you’re only paying $15, why not go for the most expensive stuff (Nexium, which is more than a $100 per prescription)?

Or say you’ve got a case of the sniffles.  Is there any reason for you to go to a licensed MD? But people do. With a third-party payer system, we are simply insulated from the full costs. Indeed, most people don’t even know what healthcare prices are. How can anyone ever be cost-conscious if they don’t what anything costs? But when you add up all of the overconsumption that results from our third-party payer system, premiums go up.

Let’s turn now to Medicaid.  Medicaid was originally intended for the very poor. But now, many politicians want to extend Medicaid benefits to people who aren’t poor –especially children. The problem with this approach is manifold:

First, Medicaid is a massive unfunded liability that threatens to break the bank sometime in the future.  This is not just a problem of demographics, but of a perverse system in which – for every $1 a state like North Carolina pays in Medicaid – the state gets $3 from the federal government. Such sends a signal to politicians: Find more ways to spend money on Medicaid. Why do you think states are going after middle class children? But this doesn’t make sense given that not nearly all of the poorest people are enrolled. Shouldn’t Medicaid priorities should go to the poor?

Another problem with expanding Medicaid into the middle class is that it causes “crowd-out.” That means people who could afford private insurance opt instead for Medicaid. But this shifts costs onto a system that is already straining state and federal budgets. What’s worse: since people have to qualify for Medicaid based on income, they will be less inclined to get a better job if they think they will lose the health benefit. They become dependent on Medicaid and locked in at one level of wages. This is known as a “wage trap.” If you get a raise, you lose your overall benefit. But isn’t upward mobility a good thing? Medicaid discourages upward mobility.

Let’s go back to the idea of expanding children’s Medicaid (or SCHIP). This might seems on its face to be a good thing. Who doesn’t want children to have health insurance? The trouble with expanding children’s Medicaid is that it helps drive adeath spiral, as we will see. Consider a risk pool in health insurance. Risk pools work because people who are lower risk (younger, healthier) offset costs of those who are higher risk (older, sicker). As folks get older, more young people offset their increasing risks. But when you take younger, healthier people out of the private risk pool—who is left? Older, sicker people. Their costs go up.

Indeed, as premiums go up, younger adults starting their careers who might otherwise get insurance decide it’s too expensive to get insurance. But this represents a further strain on the risk pool. Older, sicker people can’t do without insurance, so they have to pay a lot more.  Young “invincibles” who go without insurance invariably get hurt or sick, anyway, and strain the system in other ways. But since they opt out, prices keep going up for everyone else. The whole process is a vicious cycle known as the “death spiral”. Medicaid expansion contributes to that cycle. 

The fifth major problem is called “in-state lock.” Simply put: have you ever tried to buy less expensive insurance in another state? You can’t. Know why? Because the government won’t let you. Part of the reason for this is linked to the mandated regulations mentioned earlier. North Carolina, New York, and Massachusetts each have their own government regulations on healthcare.

The problem is that since there is no interstate competition for health insurance (at least none to speak of), virtual in-state monopolies emerge.

In North Carolina, it’s Blue Cross Blue Shield. In another state it might be Aetna or Anthem. But in all those cases, it’s not worth it to try to compete within another state in which a provider is already dominant. But people aren’t dropping like flies in Idaho because they don’t have our insurance regulations. So why can’t you get cheaper insurance from a company in Idaho? The regulations are used to protect the monopoly power. But consumers don’t benefit. Since regulations protect in-state monopolies and limit competition, costs go up.

The sixth pathology of our healthcare system is un-pooled risk.  In other words, we currently have a number of fractured markets, which means it becomes increasingly difficult to put more people in a risk pool. There is a risk pool for the individual market, a risk pool for employer-based insurance and a risk pool for group insurance. Many times the pool may only include the people in your small office. If your office is composed of older people in poorer health, you’re probably paying more than you need to for health insurance. (So much for that big raise this year.) The upshot? If risk is not pooled as it could be, costs go up.

When one considers the six major pathologies of the U.S. healthcare system, you see exactly why the system – taken as a whole – is unhealthy. What do all of these pathologies have in common? In one way or the other, they are all caused by government.  Thus, only changes in the law can fix these six major pathologies.

So, what are the prescriptions? What do we do?

First, we have to do something about state mandates. One option for North Carolina is to do what a number of other states have done and offer “Mandate Lite” legislation. This means insurance companies are mandated to offer certain coverage items, but consumers can choose whether or not to include them.

Another option is simply to take out as many “unnecessary” mandates as possible. This, of course, is tough, because what is considered by one person to be necessary may not be for another. Nevertheless, there are certainly some things on which a legislature might find consensus.

Second, what about the inequitable treatment of job-based insurance in the tax code? The best thing that could happen is for the federal government simply to change the tax code. That means that the federal government would give the same subsidy for people on the individual market as they get buying insurance through their job. Simple. If the federal government continues to sit on its hands, state governments could offer tax credits until the federal government decides to act. Equalizing the tax code makes healthcare more affordable.

Third, what do we do about overconsumption and the lack of price transparency? Expand the availability and use of Health Savings Accounts (HSAs). HSAs are tax protected accounts that allow people to save money for out of pocket healthcare expenses. That means, if you aren’t sick or injured, you get to save money (with interest) using pre-tax dollars instead of using all your healthcare dollars on insurance. HSAs are coupled with a catastrophic plan so that if you get seriously injured, you’re still covered. But since these plans have a higher deductible (say, $1500 or $3,000), you pay more out of pocket for routine care. Still, what you don’t spend, you save—which means you’ll be more cost conscious (that is, you may pick the Prilosec over the Nexium, or think twice before seeing a doctor for a simple cold.)

When more people think of healthcare dollars as theirs to keep, they’ll be wiser about how they spend. Indeed, an army of thrifty healthcare shoppers will eventually make care providers much more transparent about their prices. Until that time, we must find ways to encourage the use of HSAs and catastrophic plans. In short, expanding consumer-driven plans makes healthcare and health insurance more affordable.

Fourth, what do we do about Medicaid spending and crowd-out? Before anything else, we must stop expanding eligibility.  95 percent of the poorest people (defined, say, as 200% of the federal poverty limit) should be covered before any Medicaid expansion beyond that threshold. Then, we should offer refundable tax credits (subsidies) and private-sector options like HSAs as an alternative to Medicaid. We should return to federal block grants that track the rate of inflation, which will take away the incentive for bureaucrats to find ways to spend more on Medicaid. In short, reining in Medicaid will make healthcare more affordable.

Fifth, what do we do about in-state monopolies? Easy. Government should allow people to buy insurance in any state they choose. Federal legislation ensuring interstate competition would achieve this. Individual state governments, however, should take a hard look at allowing their own citizens out of intra-state lock.  Competition will drive down costs.

Sixth, what should we do about un-pooled risk? Pooling risk through government fiat is okay. It would be better than the status quo. For example, expanding associated health plans (AHPs) and high-risk pools are by in large good things. But nothing would be more effective than de-fracturing the health insurance market in order to allow it to evolve risk pooling mechanisms that would be unforeseen by bureaucrats.

So, what do you get when you practice holistic medicine? You get a healthy system. And that means healthier individuals and healthier families.

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But isn’t it? There is a silver lining to high gas prices. And there is a modicum of right in the profits they’re earning, too. Allow me to back up.

First, “record profits” is misleading every time it hits the paper. Consider the following industry profit margins, according to economist Sterling Terrell: “Periodical Publishing 24.9%; Shipping 18.8%; Application Software 22.5%; Tobacco 19%; Water Utilities 10.2%.”

Oil and gas profit margins are only 9.5%. So while the oil industry profits may achieve numerical records, their margins – compared with industries such as retail – are just average.  If oil companies are gouging folks, then publishers and shippers are pillaging them. And yet we never get Congressional investigations into Big Magazine or Big Shipping.

Indeed, maybe Congress and our state legislature should check the mirror: fuel taxes are, on average, double that of fuel profits (more in North Carolina, which enjoys the highest motor-fuels taxes in the Southeast, despite inferior roads.) Double.

Demagogues running for office are quick to leap on “record profits” headlines because they think they can tap into your consternation. But fuel prices are out of their control. Don’t be fooled when you hear some slick politician say he’s going to “do something” about Exxon-Mobil. Doing something a la Washington, D.C. means one of three things: price controls; “windfall” profits taxes; or subsidized biofuels. These are all bad options.

Price controls are an attempt to amend the law of supply and demand, which is a law in the same way gravity is a law—you can’t change it. If you charge people less for something they need, they’ll consume more of it. This causes shortages. It’s why you had long lines of angry people in the 1970s. Basic economics could have helped the country avoid deepening that crisis. But leave it to the politicians to ‘do something,’ which invariably makes things worse. If the U.S. was to impose price controls on gas, we’d be watching that 70’s show all over again.

Taxing oil profits is just as bad. Those billions of dollars the oil companies are making not only pad the retirement funds of teachers, firemen and other hard-working folks, they are the impetus for oil companies to go out and find more oil—maybe even oil that’s not under hostile sands. Profits attract investment.  But if there is less profit, there will be less investment. That means less capital for expensive oil platforms that travel 2000 ft. below the ocean’s surface. No platform? Higher gas prices.

Here’s some perspective: if you took away all the profits of the oil companies, it would only knock $.20 per gallon off the price. That’d still be $3.71 per gallon at that Sherron Road Citgo. But not for long, though. With no incentive to bear risk, explore, or increase refining capacity, demand would outstrip supply, as oil companies would’ve thrown up their hands. Why risk it if there is no money in it? For the social good? Seriously folks, profits keep gas in your car, not out. So don’t let demagogues fool you.

As far as biofuels are concerned, enough ink has been spilled in recent weeks about that corn-hogging, food-price spiking, environmentally ruinous, special-interest bonanza (which keeps cars running less efficiently and Iowa agribusinesses fat-n-happy on Caucus Day). So I’ll leave ethanol alone.
But cries for government action will get louder as gas prices rise and Election Day draws nigh — as if the President had some magical authority over the ups and downs of energy markets. An electorate largely ignorant of economics – inflation, speculation, demand in China, and foreign oil cartels – will happily exchange votes for promises of lower-priced gasoline. Sadly, the costs of such action will simply be spread to places we can’t easily see, but will feel anyway.

Ah—but here’s that silver lining: high prices make people ‘go green’ and innovators ‘see green.’

People like my dad may take their motorcycles to work because filling their pickups is too expensive. I just got a fuel-efficient Scion. Some will buy hybrids. Others will ride their bicycles to work or take the bus. But the price causes us to change our behavior in ways greens have been begging us to for years. (In fact, I find it curious that environmentalists are often the same people complaining about fuel prices and profits. They should be celebrating!)

Perhaps more importantly, however, prices send signals to entrepreneurs working on alternative energy sources and more efficient technologies. These signals work much better than government directives or subsidies. Just think about improvements in fuel economy and emissions achieved since the last energy crisis—due to competitive innovation, not efficiency standards (which, prior to this year, hadn’t been updated since the 1980s).

Due to current conditions, think of the lighter, stronger construction materials that will emerge later. Think of the improved motors. Think of the prospects for hydrogen power, or even oil taken from the Albertan tar sands. The possibilities are endless—endless due to prices, profits and human innovation.

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How can the state of North Carolina do its part to lower gas prices? We should put a moratorium on recycling program. That’s right. Stop recycling.

In all those walks to-and-from the curbside, have you ever asked yourself: why am I helping the city burn gas to save glass? That’s exactly what recycling programs do. (Well, diesel fuel.) But with fuel prices at more than $4 per gallon, why are we sending around extra trucks – that is, in addition to our normal garbage collection – to save bottles (silicon, which is abundant) and newspaper (wood, which is renewable)? Why are we rescuing garbage?

‘Garbage,’ you may be mumbling to yourself. ‘It’s not garbage. That’s why we recycle it.’ But I can prove it’s garbage. All I have to do is look at the price. If it weren’t garbage, someone would pay you for it. (Currently, in fact, you pay someone to take it away—and way more than you need to). Prices are an indicator that something has value. Since we have to count on volunteerism or mandatory recycling programs, we know that the practice of recycling is little more than a religious rite from which the only benefit is feeling good. As environmental policy expert John Baden says, “applying resource economics to recycling is like applying nutritional analysis to the Holy Communion.”

Now, when you factor in fuel prices, some things stick out:  First, it may soon be cost-effective to recycle plastic bottles, since they are made from petroleum (the feedstock of which doesn’t go in our cars, by the way). But when we get to that price-point, won’t it be easier to strip-mine landfills of plastics or pay people to turn them in, rather than to rely on all the extra diesel-spewing garbage trucks on the road? Given that energy conservation and air pollution are becoming bigger issues, it’s hard to see how cities can justify recycling at all.

Which is scarcer? Landfill space or fuel? Prices tell us it’s fuel. (That despite the artificial scarcity of landfill space created by Marc Basnight (D-Dare) and the left-dominated N.C. General Assembly. Last year’s de facto moratorium on new landfills in the state is driving up the price of waste disposal). But suppose people just don’t like the idea that non-bio-degradable materials might lie in the ground for millennia. We certainly don’t think of water bottles as being like clay artifacts from ancient Greece. But so what? What’s the problem?  Landfills aren’t poisoning anyone.

Not even the EPA sees fit to regulate municipal solid waste disposal. Indeed, according to 30-year EPA veteran David Schnare: “EPA regulates the toxic stuff through its hazardous waste disposal regulations. Municipal waste isn’t hazardous, and the only regulations that apply are [landfill] siting, construction and air emissions regulations for methane. The EPA doesn’t regulate risks from these sites because the risks, if any, are undeserving of regulation.”

With the advent of high-density polyethylene and geotextile technologies, modern landfills are able to contain leachate – the only significant landfill pollutant – very effectively. And landfill companies have learned to pack in much more garbage per square yard than ever before. In short, you have a greater chance of being hit by a recycling truck than being harmed by a landfill. Apart from NIMBYism (not-in-my-back-yard syndrome) about sights or smells, which can easily be resolved through application of the common law, why are we worried about making use of landfills?

Here’s a puzzling fact: the more paper we consume, the more trees there are. There are more trees now than any time in modern history. That’s because paper companies have an incentive to plant more trees when we buy and discard their products. Yet most towns seem bent on recycling newspapers and cardboard. 

What about aluminum, which isn’t renewable? Again, look at price: aluminum is worth recycling. The trouble is mandatory recycling programs make people think they should give their aluminum to the city when they could be profiting. Might a more robust, efficient recycling market in aluminum cans exist were it not for city recycling programs? They simply make it such that aluminum companies leech off of our labor (the privilege of which we get to pay for in higher taxes) and the city uses your aluminum profits to offset the non-cost-effective recycling of glass, plastic and paper.

When it comes right down to it, we have to ask: are we using scarce resources to conserve more abundant ones? Economics says we are. So while it might make people feel good to recycle, we are actually doing more harm to the environment than good.

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