David Frum and Bruce Bartlett are full of it

I have followed David Frum for years. I read probably every post he wrote on New Majority/FrumForum. I have defended him in arguments with friends. Boy do I feel like a fool.

From my reading Frum was genuinely a free marketer, who made the legitimate point that the GOP needs to be more intellectual and advocate more moderate policies on some issues.

Bruce Bartlett in contrast is just another Social Democrat, someone who claims taxes do not affect economic behavior in a major ways, someone who wants people to accept the delusion that the payroll tax is not a tax on the worker’s income, someone who wants the U.S to be impressed by and emulate the French economy, even though the U.S produces 50% more on a per capita basis than France.

I twice took the time to point out errors in Fromforum, once when they claimed there were 1 million Iranians in the U.S (they corrected this), and once when they claimed typical Americans earning 50.000 a year only pay 7.5% in federal taxes, because they are in the 7.5% bracket (they did not correct this).

But the last few days has convinced me I was wrong to trust David Frum.

Regarding the dispute between AEI and David Frum on why he was let go, I am of course no mind reader. However Frum and Bartlett, especially Bartlett, have made claims that were demonstrably false and that they have subsequently had to retract.

Attacks on conservatives by other conservative attract a lot of media. However if the only thing you do is attack other conservatives, and if there is the suspicion that you only refer to yourself as a conservative to be more effective in undermining the right, people get understandably upset. Yet, if the attacks are based on legitimate concerns, conservatives should take them to heart. More importantly, the substance of the criticism tells us something about Frum and Bartlett’s motivations.

So the core issue is whether there is some merit to Frum and Bartlett´s original attacks regarding Obamacare. While I don’t want to waste reader’s time with personal feuds, I can tell you what free-market theory on American health care policy is. Reasonable people can disagree about whether or not the free market side arguments I believe in are correct, but it is nevertheless useful to articulate what my side of the argument believes.

Frum and Bartlett central claim is that free market people at AEI in particular and Republicans in general intellectually like Obamas health care plan (or, they should like if they just were less partisan). From the “intellectual” free market perspective that Bartlett and Frum have, Obama’s plan is decent. Republicans should have worked with Obama to make it even better.

AEI scholars deep inside know the plan is good and that the current system is in need of reform, they are just pressured not to say this. Frum and Bartlett claim that to the extent that the right does not support Obama, it is because they are not intellectuals. They further claim that the intellectual cadre of right wing thinker secretly approve of Obama’s plan, but are just afraid of saying so.

Are these claims plausible? No. They are moronic. Here is the free market view:
We believe there is a massive problem in American Health care, caused by the collective action problem of third party finance. The third party system is arguably caused by government policy.

In 1945 the way Americans paid for health care was the same way they paid for other services, out of their own pockets. Around 70-80% of health finance was out of pocket. Due to wage caps and due to the tax system this system was replaced by insurance tied to the employer (another reason insurance is tied to the employer is adverse selection, but free marketers emphasize the tax reasons). Even in 1960 out of pocket was still 60% of health care finance. At this point the government further entrenched the third party payer system by introducing Medicare and Medicaid, which grew rapidly. These trends completely transformed how health care was produced:

Since almost all of the clients are third party payers. Health producers no longer have functioning systems of buying health care directly. Currently, out of pocket is 13% of health care finance. 87% of the system is third payer.

The health care inflation caused by collective action problems has contributed to increasing the number of uninsured. More problematically, being uninsured is now much worse than being uninsured in 1945, because you no longer can buy reasonably prices health services.

The health care bill passed by Congress only exacerbates the central problem of the American system. If the problem is too much health spending and third party payers, the plan *increases* the government subsidy to employer provided health care. It expands Medicaid, a entitlement plan already trillion dollars in the red long term. It worsens the even larger deficits of Medicaid, by taking out the low hanging fruit in terms of tightening the program and using them to finance more subsidies.

The plan also creates massive implicit tax rate increases. These tax rates are worse even than ordinary taxes for the supply of taxable income. The reason is that the tax increases not only have a negative substitution effect on supply, they are combined with a subsidy, so they also have a income effect that reduces supply.

Bruce Bartlett has repudiated mainstream economics and thinks that taxes do not adversely affect the economy. But remember, we are not discussing what a Social Democrat thinks about Obama’s reform. The claim is about intellectual conservatives. Frum and Bartlett claim that Republicans should like this plan, and that AEI scholars secretly already do. A plan that massively raises implicit taxes on large parts of the middle class, that introduces regulations that incentivize corporations to stay small, that increases the subsidy for third party financed health care.

Milton Freidman was the main pro market intellectual of the century. Do you think, that if Milton Friedman was alive today, he, as an intellectual, would have supported the general thrust of Obamacare? This is essentially what Frum and Bartlett claim. Are we supposed to take these people seriously?

Read how Milton Friedman diagnosis the American Health Care in 2001 and judge yourself what the top free market intellectual would have thought of Obama-care. I guess if Milton Friedman were alive today and criticized Obama, Bruce Bartlett would say that he was not really an intellectual, and David Frum would claim that Friedman was secretly in favor of Obama-care and afraid of “donors” to reveal his true feelings.

The second claim of David Frum is that Republicans should have worked with Obama to make the plan better, and passed it in a bipartisan fashion. Let us say, for the sake of the argument, that this would have made the plan somewhat less catastrophic for the country. Of course with the political balance of power being what it is, the core of the plan would have passed.

But at what long term cost for free-market policies?!? Obama-care is likely to worsen health inflation in the U.S. It worsens the financing problem of Medicare. It probably increases the deficit. It is complex and massive intrusion in the economy, and will probably lead to unintended consequences (but I guess “intellectuals” Bartlett and Frum have not taken this into account).

When those problems inevitably emerge, what position will Republicans have if they helped Obama pass it?!?

With Frum’s political masterplan Democrats will get the political benefits of expanding entitlements to the lower middle class, and Republicans will not even have the benefit of principled free-marketers and the tax-paying groups that oppose the reform. What would libertarians think, many of whom already believe that Republicans are as bad fiscally as Democrats?

Are Republicans suppose to think David Frum has their best interest at heat, given how ludicrous his criticisms is, and how politically disastrous his advice would be? Are free-marketers supposed to think Bruce Bartlett is still a serious intellectual, given his shallow and almost dogmatically Social Democratic views?

And are observers of the AEI-Frum controversy who know the basics of free-market liberalism suppose to believe that intellectual at the AEI secretly admired Obama´s ruinous plan? David Frum would not have wasted my time and that of others had he just beeen more honest about who he has turned into.