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The Lighthouse®

The Lighthouse® is the weekly email newsletter of the Independent Institute.
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Volume 19, Issue 19: May 9, 2017

  1. Senate’s Healthcare Bill Should Rely on High-Risk Pools
  2. The High, Hidden Costs of Government’s Money Mischief
  3. Supreme Court Hearing Oversteps Judicial Bounds
  4. Nanny State Consumption Taxes Not So Helpful
  5. Independent Updates

1) Senate’s Healthcare Bill Should Rely on High-Risk Pools

With the House’s narrow, 213-217 passage of the American Health Care Act, the fate of the nation’s healthcare policy now rests in the hands of the Senate. If its legislation is to be a major improvement, Congress’s upper chamber should consider using high-risk pools to cover the otherwise uninsurable, instead of Obamacare’s provisions of guaranteed issue, community ratings, health exchanges, and benefit mandates. Although high-risk pools before the advent of the Obamacare health exchanges were not perfect—most the problems arose from inadequate funding—they worked much better than the individual market works today, according to Independent Institute Senior Fellow John C. Goodman.

“The high-risk pool solution cost far less and targeted subsidies far more efficiently than Obamacare,” write Goodman and co-author Linda Gorman in an op-ed at Forbes. CoverColorado—the name for the Centennial State’s high-risk pool—had premiums “set at 147 percent of the average premium for similar insurance.” Premiums covered half of the cost, the state’s unclaimed property fund covered one-fourth, and assessments on insurers covered up to another fourth.

“Insurers received tax credits worth about $5 million to offset some of those assessments, and they added their assessment to policy holder premiums,” Goodman and Gorman continue. CoverColorado was by no means perfect—its lifetime cap on policy payouts was set too low—but it outperformed the federal risk-pool that replaced it before the Obamacare exchanges came online. There is little question that CoverColorado channeled public subsidies far more efficiently than did Obamacare’s efforts. “Reforming Obamacare by replacing it with the high-risk pools that preceded it would be a good place to start,” Goodman and Gorman conclude.

High Risk Pools Worked Just Fine Before Obamacare, by John C. Goodman and Linda Gorman (Forbes, 5/2/17)

A Better Choice: Healthcare Solutions for America, by John C. Goodman


2) The High, Hidden Costs of Government’s Money Mischief

World trade faces a menace far greater than any possibility that President Trump will gut multilateral trade pacts and raise import tariffs. The actual menace we face can be seen in the chaos of currency trading, according to the esteemed George Gilder, a founding member of the Independent Institute’s Board of Advisors. To be precise, Gilder argues, in an op-ed in the Dallas Morning News, that the threat comes not from currency trading per se, but rather from the cause that has made foreign-exchange markets highly volatile: a global financial system of currencies untethered to gold and vulnerable to the caprice of the world’s central banks.

To get some idea of just how volatile foreign-exchange markets have been, it’s helpful to note that, according to Gilder, since January 1994—the month that the North American Free Trade Agreement took effect—the value of the Mexican peso has plunged from nearly 35 cents per U.S. dollar to less than a nickel. Such volatility has cost many American workers their jobs—far more than any displaced by NAFTA—notwithstanding Ross Perot’s 1992 warning that the trade pact would produce a “giant sucking sound” as jobs were pulled south of the U.S.-Mexico border. Erratic foreign-exchange markets have also contributed to what Gilder calls “a bloat of banking” that has helped grow the U.S. financial industry’s share of total corporate profits.

The best solution to the volatility of the current system is, according to Gilder, to replace fiat currencies with ones fixed to a stable commodity—namely, gold. “Gold always guided entrepreneurs better than did politicians who believed that business could thrive under price controls, confiscatory taxes, tariff gouges, communist and fascist labor movements, and abrupt currency shifts,” Gilder writes. “The success of the Trump administration will depend on recovering our cultural memory of stable money.”

Currency Trading Is in Chaos, by George Gilder (Dallas Morning News, 5/5/17)

VIDEO: “The Secret to Restoring the American Dream,” featuring George Gilder (Independent Institute, 6/7/16)

The Unicorn Economy and the Disturbing Plight of the Middle Class by George Gilder (San Francisco Chronicle, 6/3/16)

The New Wall Street and the High Cost of Manipulating Money, by George Gilder (The Independent Review, Spring 2017)


3) Supreme Court Hearing Oversteps Judicial Bounds

Columbia, Missouri’s Trinity Lutheran Church applied to a state program to secure a grant for improving its preschool’s playground. A legal battle ensued. Last month the Supreme Court heard the case of Trinity Lutheran v. Comer, which some claim offers a clear test for Establishment Clause hardliners on one side and Equal Protection hardliners on the other. Which part of the U.S. Constitution best applies? The answer probably isn’t what you think, according to Independent Institute Research Fellow William J. Watkins Jr.

If you subscribe to the above dichotomy, then you’re already far off track, Watkins argues in an op-ed in the Wall Street Journal. The legal conflict shouldn’t pit the First Amendment against the Fourteenth Amendment—or any other constitutional amendments or provisions—because, according to Watkins, the case doesn’t belong in federal courts in the first place. Missouri’s courts and constitution should have sufficed. In support of his argument, Watkins calls a witness to the stand: Thomas Jefferson and a letter about the Constitution’s purview that he wrote in 1823. “In a Jeffersonian federalist system, Missourians would be free to work this out themselves,” Watkins writes.

Moreover, leaving the case in Missouri would have prevented yet another controversial issue from rising to national prominence and widening political divisions—divisions which, in this instance, are based on a false alternative that relies on a weak understanding of constitutional history. “If Trinity Lutheran had been handled in state court, it would now be moot,” Watkins writes in the Wall Street Journal. “The Supreme Court should remove the case from its docket and let the matter stand resolved.”

A Case the Justices Shouldn’t Have Heard, by William J. Watkins Jr. (The Wall Street Journal, 5/3/17)

Crossroads for Liberty: Recovering the Anti-Federalist Values of America’s First Constitution, by William J. Watkins Jr.


4) Nanny State Consumption Taxes Not So Helpful

Excise taxes on unhealthy foods are morally objectionable, but their supporters don’t see it that way. As long as the taxes are believed to discourage consumption of the targeted products, such taxes will likely continue to be proposed—freedom of choice be damned. However, a new study in the Journal of Entrepreneurship and Public Policy demonstrates something about them that may—just may—cause some of their advocates to reconsider.

According to the study, such taxes don’t do as much to reduce consumption as many people believe. “Expenditures on the items we studied don’t vary much with income, meaning that the poor spend a higher share of their income on these products—making taxes on them regressive,” Independent Institute Research Director William F. Shughart II and co-author Michael D. Thomas, two of the study’s four authors, write in a shorter piece for The American Conservative.

Not only do the taxes have little effect on consumption, they also disproportionately hit less affluent consumers. “The problem is that the link between taxes on unhealthy food and the consumption of such food is weak, and that those taxes come at the expense of the most vulnerable segments of society.”

Taxes on Unhealthy Food Are Ineffective and Hurt the Poor, by William F. Shughart II and Michael D. Thomas (The American Conservative, 4/24/17)

Taxing Choice: The Predatory Politics of Fiscal Discrimination, edited by William F. Shughart II


5) Independent Updates
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MyGovCost: New Blog Posts
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