[Mb-civic] Abracadabra Economics - Michael Kinsley - Washington Post Op-Ed

[William Swiggard]

Abracadabra Economics

By Michael Kinsley
Friday, February 24, 2006; A15

The hideous complexity of President Bush's prescription drug program has 
reduced elderly Americans -- and their children -- to tears of 
bewildered frustration. The multiple options when you sign up, each with 
its own multiple ceilings and co-payments; the second round of red tape 
when you actually want to acquire some pills; the ludicrously complex 
and arbitrary standards of eligibility, which play a cruel and pointless 
game of hide-and-seek as they lurch up and down the graph paper like 
drunks. Suddenly a mystery is solved: So this must be what he means by 
"compassionate conservatism."

<>Thus Bush's only major domestic accomplishment in six years as 
president has not achieved its intended purpose of cementing the 
affection of senior citizens for the Republican Party. Many Republicans 
are sobbing with frustration, too. It is one thing to put aside your 
principles and spend hundreds of billions of taxpayer dollars on the 
largest expansion of the welfare state since the Great Society if it is 
going to help you win elections (so you can pursue your dream of smaller 
government). It is another to sell your soul and not get anything for 
it. No one looks more foolish than a failed cynic.

But look on the bright side, say the Bushies. The wretched thing does 
seem to be restraining drug prices and costing the government less than 
it was supposed to. The current cost estimate is only $678 billion over 
10 years. That's down 8 percent from the previous estimate of $737 
billion. Cool. But when the prescription drug benefit was enacted in 
2003, it was supposed to cost $400 billion over 10 years. As 
disenchanted conservative Bruce Bartlett retails in his new book about 
the Bush presidency, delicately titled "Impostor," there was a 
mini-scandal and an official investigation when it came out that the 
administration was hiding its own estimate of $534 billion. When the 
dust settled, that figure had become $557.7 billion.

Who believes any of these numbers? Do you? I will bet anyone a month's 
supply of Lipitor, collectible in 2016, that the 10-year bill will be 
more than $678 billion. Any takers?

What's shocking about this, more than the numbers (hundreds of billions 
of dollars are hard to fathom), is that Bush's drug benefit comes 
without even a theory about how it will be paid for. Even after nearly 
three decades of Republican abracadabranomics, this may be a first. A 
transparently phony theory at least pays tribute to the hypothesis that 
money doesn't grow on trees. Not even to bother coming up with a phony 
theory is an arrogant insult to democracy. It raises "because I said so" 
to a governing philosophy.

The classic Republican phony theory is, of course, supply-side 
economics. Every proposed tax cut from before Reagan until Bush's own 
has been defended on the grounds that it will pay for itself by 
stimulating new economic activity. This is a theory based more on faith 
than on evidence, but at least it's a theory.

Bush's other big attempt at a domestic initiative -- Social Security 
privatization -- came with a theory: Investing in stocks pays better 
than government bonds. So you can close the looming gap between Social 
Security revenue and benefits -- and even give the oldsters a bit extra 
-- by letting folks invest for themselves at least part of what the 
government is now investing for them in those dismal bonds. The theory 
had a comically obvious flaw: How can society as a whole divert money 
from government bonds to private stocks as long as the government is 
still spending and borrowing as much as ever? But at least, as I say, it 
was a theory. At least it paid us the compliment of obfuscation. Better 
to be duped than ignored. Bush's proposed health savings accounts -- as 
a way to cover the uninsured and restrain the rise in health costs -- 
come with a theory that may even have some merit.

But the drug program has no theory. It addresses none of the conundrums 
of the pharmaceutical age. Pills are increasingly central to medical 
care, and many more miracles await. But pills are also a characteristic 
post-industrial product, like software or movies: They can cost billions 
to develop but can be mass-distributed for practically nothing. 
Conventional supply-and-demand economics offers a compelling explanation 
of how an "invisible hand" sets the price and distribution of brooms or 
spaghetti sauce so that the benefit to society and individuals is 
maximized. But it has almost nothing to say about Fosamax or Windows or 
"Brokeback Mountain." Conventional compassion, however sincere, is 
little guide to what you do about a lifesaving drug that costs $100,000 
a year. And spraying government subsidies on the insurance industry and 
other big companies does not equal using the power of the free market to 
solve these problems.

Without a theory, the prescription drug benefit is -- like most 
government now -- a straightforward matter of writing checks. Nothing 
wrong with that, in my book. But even if this subsidy to senior citizens 
survives its rocky premiere, it is doomed. Simple transfers of money 
cannot keep up with the rising cost -- and rising benefit -- of 
pharmaceutical drugs.

Long ago, in 1988, a Republican president and Congress enacted a bill to 
address the other missing piece in Medicare: insurance against the cost 
of long-term or catastrophic illness. But seniors, initially delighted, 
recoiled in horror when they discovered that they were actually expected 
to pay premiums to cover the cost of this insurance. The benefit program 
was repealed the next year, amid much embarrassment. It didn't occur to 
them back then to pass the benefit and ignore the cost. That's progress.

http://www.washingtonpost.com/wp-dyn/content/article/2006/02/23/AR2006022301367.html?nav=hcmodule
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