Taking Medicare into Account—Individually Like the retirement portion of the Social Security system, Medicare too is heading toward financial crisis. And that's spurring consideration of longer-term private alternatives to Medicare, which now uses taxpayers' money to cover medical bills for 30 million old and disabled people.
Over the last decade, the maximum tax levy for Medicare—now 1.45 percent of an individual's taxable income, matched by an identical amount paid by the employer—has doubled. In fiscal 1985 alone, Medicare cost taxpayers more than $70 billion, greater than five times its cost just 10 years ago. Worse, its cost is expected to rise some $20 billion over the next two years. If things continue as they are, the Medicare trust fund is expected to go broke by at least 1998, if not sooner, according to a government study last year—despite the strict limits on Medicare reimbursements to hospitals pushed through by the Reagan administration.
The good news, however, is that there has recently emerged some smart, market-oriented thinking on how to steer clear of a Medicare mess—and there's a chance that at least some of it may be put into action. A quartet of Republican congressmen has introduced a bill in the House to allow workers to establish "Health IRAs." As explained by Peter Ferrara, an analyst with the Washington, D.C.-based think tank the Cato Institute and an originator of this idea, workers could contribute to their private health IRAs up to the amount now paid in Medicare taxes by them and their employers.
Instead of the income-tax deduction available to existing IRA contributors, Ferrara explained in a recent Cato study, "workers would receive an income-tax credit equal to 60 percent of their contributions to their Health IRAs. Employers could make some or all of the Health IRA contributions for their employees and receive the 60 percent credit accordingly." Those funds could accumulate tax-free until retirement, when they could be used to purchase medical insurance or pay for medical care directly. Funds left in an individual's account upon his death would go to the person's heirs.
Reagan's new secretary of Health and Human Services, Otis Bowen, has proposed a similar plan, by which individuals could contribute to tax-sheltered "individual medical accounts" (IMAs) in order to ease the burden of catastrophic health care on the elderly. "This is one of my main priorities," Bowen told a Senate committee considering his nomination for HHS secretary.
Shifting the burden of medical insurance from the hands of the federal government into the private sector would simultaneously achieve several important things. "The plan offers the advantage of depoliticizing medical care to a degree," noted Ferrara. "Medical professionals would consequently have greater opportunity to work under the same market freedoms as people in other disciplines, rather than as targets of government scapegoating campaigns [over high medical costs] and increased government regulations." Moreover, faced with paying insurance premiums or medical costs out of their own accounts, individuals would tend to seek out lower rates and to be more responsible in getting medical care, which in turn would greatly help contain health-care costs.
Given the dire direction in which Medicare is headed, policymakers have to move fast to avert a large-scale catastrophe. Individual medical accounts seem a good starting place.
Environmentalists Could Get Hooked on New Fishing Angle Environmentalists (most of them) pin the blame for depleted and degraded resources on private owners who care only about their own gain. Government management is what they urge. Economists (most of them) say that resources are best managed and conserved precisely when specific people have something to gain from the resource. Private ownership is what they advocate.
Enter Trout Unlimited, a group of…environmentalists who are busy cleaning up streams because…they'll benefit from the improved fishing. Maintenance of fishing streams used to be the province of state game departments, but it appears that private groups want better stream management than they were getting. Trout Unlimited has mustered 77,000 members in the United States, Canada, Japan, and New Zealand. Some of them spend their weekends stocking streams, chopping up beaver dams (okay by environmentalists—the dams clog streams and block drainage ditches), and otherwise improving the quality of life for our gilled friends.
Trout Unlimited volunteers worked on 136 rivers in 30 states last fall alone. Jay D. Hair, vice-president of the National Wildlife Federation, approves. "What these folks are doing is crucial," he told Fortune. "I've never fished for trout in a place that wasn't absolutely beautiful. If you can save a stream for trout, you preserve lots of other natural values."
Trout streams are so valuable, in fact, that some people are able to make a business out of providing them. Consider Bozeman, Montana, entrepreneur Rich McIntyre, first profiled in REASON in February 1983. Avid fly-fisherman McIntyre founded his Timberline Reclamations firm in 1978 to clean up "dead" trout streams. It took some marketing to convince landowners and developers that stream doctoring needn't be left to wildlife officials in public parks. But he did, and for fees of up to $50,000 a mile, McIntyre has dredged muck, dumped in boulders, planted trees, and rechanneled creeks to increase the value of real estate with working trout streams.
A self-described "environmentalist who is also a businessman," McIntyre has spawned a school of competitors, including one started by four former employees. Now, McIntyre is planning to sell Timberline and start fresh with an environmental consulting firm.
If recreational fishing benefits from private management, it stands to reason that commercial fishing would too. That's just what S. Fred Singer, a former Interior Department official, suggested in a recent essay in the Wall Street Journal.
As it stands now, he noted, most fishing grounds are operated as commons: anyone can obtain a license and take fish. As a result, "an increasing number of commercial fishermen are chasing after and threatening a limited supply" of fish. But as fishermen spend their capital and time netting a smaller catch, the price of fish goes up. "Paradoxically," wrote Singer, "fish is expensive because it is free—i.e., without private owners."
The difference made by private owners can be seen in the Chesapeake Bay. On the Virginia side of the bay, Singer reported, about half the oyster beds are under private control. They're managed like farms, with efficient "modern production and harvesting methods." On the Maryland side, by contrast, oyster beds are predominantly accessible to all. To avoid overfishing, regulations limit fishing periods and impose "antiquated" methods to reduce productivity.
Singer would extend the Chesapeake Bay experience by "establishing transferable property rights for quantities of specific kinds of fish caught in each important fisheries region." These rights would be allocated by lottery or auction, and commercial fishermen could trade or sell the rights among themselves. This is an alternative to the fishing industry's lobbied-for solution to overfishing and therefore declining catches: more subsidies and more restrictions on fish imports and foreign fishing in US waters. "The best way to both preserve our fishing resources and slow down the rising price of fish is to privatize U.S. fishing grounds," counters Singer.
The efficiencies garnered by clearly defined property rights are evident in the growing industry of fish farming, which "grows" fish in confined areas and now accounts for 9 million of the nearly 75-million-ton global fish harvest. With property rights securely in place, fish farmers from China (where fish farming is 4,000 years old) to Africa are increasingly applying the traditional techniques of agriculture to increase productivity.
Meanwhile, property rights are being extended to cover the new kid on the block, fish ranching, which harvests fish such as salmon that spawn in freshwater streams, spend most of their life in the ocean, and return to their birthplace when they are mature. As environmentalist Lester R. Brown of the Worldwatch Institute noted in a recent article in The Futurist, "For salmon ranching to be an attractive investment, those who operate the hatcheries must of course have exclusive authority to harvest the fish returning to them." And in fact, three states—Alaska, California, and Oregon—now recognize this new kind of property right.
Brown might be the last to recognize it, but his enthusiasm for fish farming and ranching bridges the supposed gap between the environmentalists' and economists' perspectives on scarce resources. As William J. McNeil, a marine biologist quoted by Brown, observes, "salmon ranching represents a visible step in a transition from a hunting to a farming economy in the oceans." Perhaps it won't be long before Fred Singer's proposal to "privatize the oceans" is recognized as environmentally sound.
Meeting Needs Is the Market's Forte Put together two enterprising women and some hapless homeowners, and you've got a success story with a couple of interesting twists.
Five years ago, Linda Hamm and Christine Graves, friends who live in the San Fernando Valley north of Los Angeles, realized that other people probably experience the same problem they'd been having: when hiring workers to paint, repair, roof, add on to, clean, and otherwise work on and in your home, how do you know who's to be trusted? So they started a company, Homes Guild Inc., that connects skilled workers with potential customers.
General contractors, electricians, plumbers, and other repair and tradespeople pay a fee to join Homes Guild. Before accepting members, Hamm and Graves require information about the candidate's licensing, insurance, bonding, and training. They also request the names of 15 recent customers, who are then asked to rate the tradesperson on personality, work, punctuality, and price fairness. As a result of this screening process, Hamm and Graves have turned away almost 100 applicants.
The 250 current members pay monthly dues of $50 and an average yearly fee of $600, depending on the trade's potential for profit. Homes Guild gives its members a "seal of approval," which some use in their own advertising for customers. Simi Valley plumber Danny Ney claims his membership is "a very worthwhile investment." In his first year he paid a total of $800 in fees and made four times that amount on work resulting from Homes Guild referrals.
The 200 customers a week, 90 percent women, also think Homes Guild is a good deal—it's free for them. And if they have problems with the service they receive, Hamm and Graves look into the complaint.
The interesting twists? Women are increasingly finding entrepreneurial niches in the marketplace. Consumers can be served and protected quite independently of any government action. And services such as this—not just low-paying wage labor—are increasingly the stuff of the booming service sector that it's so fashionable in some quarters to lament.
The creativity of the market in meeting the needs of an increasingly service-oriented economy can be seen in yet another new offering: for-profit telephone hot lines. Back in 1974, Minneapolis-based Control Data Corporation founded EAR (Employee Advisory Resource), an in-house telephone and computer counseling service for employees. Within three years Control Data was offering the service on a subscription basis to other corporations nationwide; there are now about 150 EAR subscribers. "Our program provides immediate access to counseling services twenty-four hours a day, seven days a week," EAR director David Robinson told Omni magazine.
Unlike many community nonprofit hot lines, EAR relies not on volunteers but on experienced counselors with advanced degrees in psychology, law, social work, industrial relations, and finance. EAR also stresses early intervention. "Every day we deal with a major life-threatening situation," Robinson said.
Dealing with emergencies, however, is not its primary service. Most people call about legal problems. Following in frequency are calls about financial problems, relationships, mental health, and alcohol and drug abuse. And if callers can't get what they need from the phone counseling, EAR may refer them to specific individuals in their region who are culled from a computerized list of community resources and professionals.
Corporations gladly pay the annual fee of about $15 per employee, reported Omni, "because problems like alcoholism, divorce and depression cost them money in lost productivity and higher insurance." And employees themselves like having instant, anonymous, no-commitment help whenever they need it.
The market can be a big help!
Jobs and Imports: Free Trade 1, Protectionism 0 Do imports cause a net loss of US jobs? Yes, say trade protectionists, a claim that is possibly their most politically powerful argument. The AFL-CIO, for example, takes it as an article of faith that for every $1 billion of the so-called trade deficit—about $150 billion in 1985—25,000 US jobs are lost to foreign lands. Such contentions, however, are now the subject of a growing debate, which has produced some useful discussion of the link between imports and jobs.
An economist at the Bureau of Labor Statistics recently told the New York Times: "A lot of people say imports do nothing but reduce jobs. That's not true." And, according to the Los Angeles Times, many economists "suggest that imports may actually have spurred the creation of more jobs than they have destroyed."
A look at some salient statistics supports that view. Since 1981, the last year of a US trade surplus, the US economy has generated 7 million additional jobs. And of all US adults, more than 60 percent are now employed, the highest proportion ever.
How do imports spur US jobs? By increasing, say, the demand for longshoremen, warehouse workers, truck drivers, sales people, etc. By supplying goods—raw materials like oil and chromium, for instance, or manufactured items like computer chips—to domestic firms (petro-chemical manufacturers, steel makers, computer firms) that in turn hire workers. And so on.
Still, protectionist sentiment is high—Congress has seen some 300 protectionist bills introduced during the latest wave of trade-deficit anxiety. Already, import restrictions cost American consumers $58 billion a year in higher prices, according to Murray Weidenbaum, former chief advisor to President Reagan. But the debate is shifting, and the protectionists' key claim about imports and lost jobs is finally being exposed for what it really is—baseless rhetoric.
Milestones • Hey, Dad. What's that? Turner Outdoor Advertising of Atlanta has burst the condom barrier by erecting 30 billboards boosting the Ramses brand. It's the first time in American history that such wares have been hawked via billboard.
• Booze canards on the rocks. Two Case Western Reserve University professors have found, contrary to the claims of the neo-prohibitionists, that states that have increased their drinking ages have not experienced declines in alcohol-related traffic deaths. Profs. Frederic Bolotin and Jack DeSario note that enforcing strict laws against drunk driving seems to be the more effective strategy in reducing deaths.
Global Trends Brazilians Control Their Numbers—Voluntarily Brazil—With 135 million people, Brazil is the most populous country in Latin America. But the size of Brazilian families is shrinking and the rate of population growth has slowed in the last few years. What's interesting is that the force behind this new demographic trend is not any government policy but voluntary family planning in response to changing economic conditions.
Since 1960, the fertility rate of Brazilian women between the ages of 15 and 49 has dropped by a third, from an average 6.2 to 4.3 births per woman. Contraception is readily available, and men, as well as women, are often choosing sterilization. Brazilian men are increasingly accepting voluntary family planning as one way to cope with economic hardship and improve the living conditions of their families.
A major factor in controlling population growth has been employment. So many women have taken jobs in offices and factories that, according to market analyst Alexander Jose Periscinoto, they now outnumber male wage earners. Employment has slowed population growth even in the poorest rural areas, and Brazilian life expectancy has increased. "An important social revolution seems to be under way," observed the Los Angeles Times, "without any policy being spelled out by the government."
Are you listening, Deng Xiaoping?
The Right to Ignore the State Belgium—Since 1984, Belgian law has forbidden the publication of public-opinion polls in the 30-day period preceding elections, to "guarantee objectivity," according to the sponsors of the measure. The law met little opposition at first among either politicians or the press—until last fall.
Just a week before last October's election, the magazine Knack boldly published the results of a public-opinion poll. The next day the Knack poll was reported on by other Belgian papers, also in violation of the law. The papers, in widespread editorial agreement, charged that the 1984 law violates the Belgian Constitution's guarantee of freedom of the press and freedom of expression.
Though poll-publishing is a violation of the "law of public order," the government took no action against the press. The violation was on a far too extensive scale and the perpetrators, the media, are far too influential to be harassed with impunity.
Not everyone drew the proper lesson from this incident, however. Knack's editor-in-chief argued: "It is the way opinion polls are conducted that will guarantee objectivity. So this law ought to be repealed and replaced by another law regulating the profession of taking opinion polls." Two steps forward, one step back. Yet it is refreshing to see people, and especially people of the press, revolt against unjust laws.
Global Roundup • British heave-ho for Unesco. Britain, one of the main founders of the United Nations Educational, Scientific and Cultural Organization (Unesco), has left the organization, taking its budgeted $9-million 1986 contribution with it. Britain's withdrawal from the 160-member Unesco comes one year after the United States' departure. The New York Times quoted Overseas Aid Minister Timothy Raison charging that the agency is inefficient, badly managed, and "harmfully politicized."