Why Government Cannot Work To Increase Prosperity

Private enterprises are forever engaged in the maelstrom of creative destruction, where businesses and jobs that are insufficiently productive are destroyed by powerful economic forces and replaced with higher-productivity undertakings.  And thus we have Manhattan, at the center of the world's best natural port, having not one remaining active freight pier or longshoreman's job.  The space became too valuable for that.  Instead we have burgeoning digital media, tech firms, investment banks, and, at the very top of the food chain, hedge funds.  The Port Authority's massive former freight-transfer building is now the New York headquarters of Google.   All this is located in a place where most employees must cross a mile-wide estuary every morning to get to work and again in the evening to get home.  Would any central planner ever have come up with this?

In Obamacare they think they have an alternative model where the cost of healthcare can be reduced (that's a form of increased productivity) through study and direction from the all-knowing experts in the federal bureaucracy.   For example, now that you have finished reading the first 3,021 sections of the Affordable Care Act and have made it to Section 3022, you know that the ACA establishes so-called "Accountable Care Organizations."  Here is a law firm web site with a good description of how this is supposed to work, and a further link to the statutory text.  (You can try reading the statutory text if you want, but believe me it is incomprehensible.) 

To summarize, the basic concept is that healthcare providers like doctors and hospitals can sign up with HHS to become an ACO.  In the first instance, the providers must submit reams of data.  Then the geniuses at HHS analyze the data for ways to save money.  If ways are found, the government mandates use of the new cheaper methods through Medicare/Medicaid reimbursement and the ACO providers receive payments for the "shared savings."

And then there is the new Innovation Center of the Centers for Medicare and Medicaid Services, funded to the tune of $10 billion under the ACA to (according to Gina Kolata of the New York Times) "discover how to most effectively deliver health care."   How could we not have realized before that the millions of people already in the healthcare industry could not figure out "how to most effectively deliver health care," and that it could only be done by bureaucrats funded with $10 billion of federal money?  Anyway, now we know.  Take that, capitalism!

Well, these things are barely under way, and already some are starting to realize not only that they can't work, but in the grand tradition of government they will be designed and implemented to declare success and keep the funding going even as they are failing spectacularly.  Megan McArdle at Bloomberg has a report covering developments on both initiatives.  Perhaps most interesting about her report is that she cites articles from both the New York Times and the Washington Post.  If those two can spot the problem, it must be pretty glaring.

The Washington Post article, from Jenny Gold on January 31, deals with the government's first reported results from the ACOs, and is headlined "Medicare won't give a straight answer on Obamacare cost savings."   Seems that CMMS put out a big announcement on January 30 claiming that the ACOs had "saved a total of $380 million in the first year."  But OK, compared to what?  They say that the savings came from 54 of the 114 ACOs that had lower spending than projected.  So what about the other 60?  From Gold of the Post:

It’s . . . unclear whether the savings figures factored in any losses from some of the ACOs that did not do well. And the agency did not release information about which ACOs saved money and which did not.

McArdle accuses CMMS of engaging in the famous "Texas sharpshooter fallacy," where the sharpshooter first shoots at the side of a barn and only then draws the target and bullseye where the bulk of his shots had hit.  Well, fallacy is one possibility, and intentional deception of the public is another.  I'm not so quick as Megan to give the benefit of the doubt.

And how about that Innovation Center?  Kolata of the Times reports:

[N]ow that the center has gotten started, many researchers and economists are disturbed that it is not using randomized clinical trials, the rigorous method that is widely considered the gold standard in medical and social science research. Such trials have long been required to prove the efficacy of medicines, and similarly designed studies have guided efforts to reform welfare-to-work, education and criminal justice programs.  But they have rarely been used to guide health care policy — and experts say the center is now squandering a crucial opportunity to develop the evidence needed to retool the nation’s troubled health care system in a period of rapid and fundamental change.

I have a quibble with Kolata, which is that "randomized clinical trials" are only the "gold standard" in the world of bureaucratic government evaluations; in the real world, the gold standard is the definitive up or down delivered by a marketplace of people spending their own money.  But put that quibble aside, because Kolata at least has a point that randomized trials might deliver some real information.   Yet instead we have a series of so-called "demonstration projects" where nobody needs to face a competitor and everybody gets to declare success. 

Question:  When they've run through the initial $10 billion, will they be back for another $10 billion?  You can task them to find and implement better and cheaper ways to do things, but in actual practice they will just set up a useless bureaucracy and then fight to the death every year to maintain and increase the funding.

Shall we take up an Exhibit B for today?  That would be President Obama's designation last week of VP Joe Biden to lead an "across-the board reform" of federal job training programs to get rid of those that are ineffective or redundant.  HAHAHAHAHAHAHAHA.

There just can't be a better illustration than job training programs of federal spending that is ridiculously ineffective and redundant and yet somehow can never be cut.  The Wall Street Journal had an editorial on this on Monday following Obama's announcement last week.  The WSJ cites the most recent (2011) big GAO study as identifying 47 (!) federal job training programs with total spending of $18 billion in 2009.

It seems that GAO previously did, or tried to do, a big study on the effectiveness of the various job training programs back in 2003.  I say "tried to" because the report is full of statements like "Little Is Known about What the Program Achieves," and "No nationwide data exist on whether the Food Stamp E&T Program is effective in helping participants get and keep employment," and "While there are no nationwide data on the characteristics of Food Stamp E&T participants, state and local officials we spoke with in all 15 states said their Food Stamp E&T participants have multiple characteristics that make them hard to employ," and "We were unable to obtain unduplicated data for fiscal year 2001 from Florida," (and same for numerous other states), and so forth.  Wow!  You'd think this is about as bad as it could possibly get for federal programs.  Well, guess what?  By the time of the 2011 study eight years later, the number of federal job training programs had increased by three, from 44 to 47. 

Here's my prediction for Biden's effort:  there will be a big announcement of some consolidation and rationalization.  The number of programs will be reduced somewhat, maybe by half or so.  But the number of federal employees working on this and the level of funding will remain at least the same or grow.  Nobody will get fired.  And the bureaucrats will continue to make 100 percent sure that there are no data collected sufficient to show the complete ineffectiveness of their efforts.

You just have to understand the bureaucracy's version of the Brezhnev Doctrine:  Once a government program is in place, it must never be eliminated, or its funding reduced by even a dollar.  All collection of data must be done in a way to support continuation and increase of all programs.  That's the way it works.  And despite the fancy-sounding names and statutory mandates of the new ACA programs, that's how it will work for Obamacare.