David R. Henderson  

WSJ Highlights

The Monopoly Motive... Tight money leads to lower int...

I spent part of Sunday catching up on Wall Street Journals that had piled up when I was at my cottage in Canada. Some highlights, in chronological order.

1. "ObamaCare Undercover," August 1-2, 2015 (July 31 on-line).

Last year the Senate Finance Committee asked investigators at the Government Accountability Office, or GAO, to test the Affordable Care Act's internal eligibility and enrollment controls. So they created a dozen fictitious identities and applied for insurance subsidies--and 11 fake claimants got them.

The GAO didn't know ObamaCare's verification protocols in advance, so they weren't trying to exploit some known security hole. Online or over the phone, they simply supplied invalid Social Security numbers, doctored citizenship status or misstated their income on tax documents.

The federal exchanges paid some $2,500 a month or $30,000 per year to each John Doe. When it came time to re-enroll at the end of 2014, the 11 fake applicants were able to extend their plans and, in some cases, even received more generous subsidies without providing additional documentation.

The exchanges are supposed to verify income and identity because the dollar value of subsidies is tied to those data. If people can burn taxpayers for money they don't qualify for, ObamaCare will be far more expensive than it has already become.

Yet the GAO notes with its dry wit that "we circumvented the initial identity-proofing control," though the exchanges are "required to seek post-approval documentation in the case of certain application 'inconsistencies.'" The GAO also reports that the follow-up was often unclear or inaccurate and didn't turn off the subsidies. The GAO even includes transcripts of their sleuths bluffing the clueless customer service reps.

I checked the web for the whole GAO report and it's here.

One correction, though. I don't think the subsidies are $30,000 per year to each John Doe. That sounded suspiciously high. Here's what the GAO report actually says on page 6:

For the 11 applications that were approved for coverage, we obtained the advance premium tax credit in all cases. The total amount of these credits for the 11 approved applications is about $2,500 monthly or about $30,000 annually.

That sounds more realistic. It's still a huge problem, but why overstate by an order of magnitude?

2. Mike Ramsey, "Tesla Presses Case on Fuel Standards," August 3 (August 2 on-line).

PALO ALTO, Calif.--Auto makers have been laying the groundwork to seek relief from U.S. regulators on lofty fuel-economy targets. But Tesla Motors Inc. is rowing in the opposite direction, saying it wants to make the rules even tougher.

The Silicon Valley electric-car maker is preparing to make a public case this week for leaving mileage and emissions regulations intact, or making them even more stringent, a Tesla executive said. The company also will fight to keep other auto makers from loosening regulations in California, which has more ambitious targets than the federal government.

U.S. fuel-economy targets call for manufacturers to sell vehicles averaging 54.5 miles a gallon by 2025.

Tougher regulations could benefit Tesla, while challenging other auto makers that make bigger profits on higher-margin trucks and sport-utility vehicles.

Tesla's vice president of development, Dairmuid O'Connell, plans to argue to auto executives and other industry experts attending a conference on the northern tip of Michigan that car companies can meet regulations as currently written.

"We are about to hear a lot of rhetoric that Americans don't want to buy electric vehicles," Mr. O'Connell said in an interview ahead of a Tuesday presentation in Traverse City, Mich. "From an empirical standpoint, the [regulations] are very weak, eminently achievable and the only thing missing is the will to put compelling products on the road."

The presentation likely will further Tesla's reputation as industry agitator, a role often taken on by founder Elon Musk, who rankles rivals with proclamations about their apparent lack of progress in building viable electric vehicles. It also will mark a significant departure from other auto makers that historically have tried to soften fuel-economy regulations.

The industry typically has agreed to tougher standards under political pressure and only after thorough negotiations. In Detroit earlier this year, Mr. Musk urged auto makers to continue advancing electric vehicles amid falling oil prices, even while disclosing his company likely won't be profitable until 2020.

Bottom line: Elon Musk is a subsidy-sucker and a regulation seeker.

3. Holman W. Jenkins, "Tesla Is a Compliance Company," August 8-9 (August 7 on-line).

Tesla's $70,000 Model S is as much a "compliance" vehicle as the electric cars built by other auto makers. That's one truth the audience didn't hear from Diarmuid O'Connell, Tesla vice president of business development, who made a much-noted appearance at a Michigan automotive seminar this week.

Mr. O'Connell called on Washington to stiffen the already-stiff Obama fuel-mileage mandates. He criticized electric cars churned out by other car makers as mere "compliance vehicles" that are not "compelling" to consumers.

Uh huh. The kettle speaks. Tesla benefits from a $7,500 buyers tax credit, and generates millions in revenues by selling emissions credits to other car makers under California's zero-emissions-vehicle mandate and federal greenhouse rules.

Tesla is a compliance company. Don't take our word for it. Mr. O'Connell said if other makers don't want to build electric cars, "they can buy credits from us, and we will invest in electric vehicles for them."

As for the Model S, Tesla's big seller may be "compelling" to its customers but it's also an absurd, anachronistic take on the electric automotive future it's supposed to herald. Form eschews function: It apes the conventional sports car with a long, sweeping hood to conceal a powerful piston engine that isn't there. It appeals to confused consumers who simultaneously want to display ostentation and green virtue.

Which brings us to Mr. O'Connell's vocal support for increased mileage mandates. These, in theory, are a mixed bag for Tesla. They generate tradable credits but also pollute the market for electric cars with vehicles built and dumped at a loss. But the rules also prop up Tesla's share price by making the company a potential acquisition target for a full-line auto maker looking to offset its pickups and SUVs.

Bottom line: Elon Musk is a subsidy sucker and a regulation seeker.

4. L. Gordon Crovitz, "The Christie vs. Paul Debate," August 10 (August 9 on-line).
The highlight was Crovitz's cheap shot at the end. He wrote:

Mr. Christie responded, "The hugs that I remember are the hugs that I gave to the families who lost their people on Sept. 11." As Mr. Christie spoke, Mr. Paul ostentatiously rolled his eyes. Voters get to decide if it's reasonable to shrug off American deaths made possible by politicians who prohibit intelligence agencies from operating intelligently.

Really, Gordon? Rand Paul rolled his eyes at the murders of Americans on 9/11? It had nothing to do with Christie's emotional appeal?

Comments and Sharing

COMMENTS (12 to date)
ThomasH writes:

1. Type one errors, Type 2 errors. Perhaps it would be cost effective to spend more on enforcement to avoid Type 1 errors, or spend less to avoid Type 2 errors unless there is a free lunch reform that will do both costlessly. Personally, I suspect taxpayers would be better off if same enforcement dollars went to the IRS so it could audit more tax returns.

2. Question about second-best policy: do higher or lower "fuel efficiency" standards better mimic the effects on “fuel efficiency” of a carbon tax? Ideally, both sides would lobby for a carbon tax to replace the regulations and subsidies. If neither does, I do not see why Mr. Musk is more blameworthy that those taking the other position.

3. I think this is a criticism of Tesla Motors for something, but I cannot quite figure out what. Giving its customers the design, they want? If "fuel efficiency" standards are too high, then other firms will buy too many certificates from Tesla. If they are too loose, other firms will buy too few. In either case, the criticism should be directed at the policy of having “fuel efficiency” standards instead of a carbon tax, not at the market participants who maximize profits given the incorrect incentives.

4. Paul clearly holds this kind of appeal in as much contempt as Liberals do.

Steve Brecher writes:
Elon Musk is a subsidy sucker and a regulation seeker
Yes. But he's also an innovative genius.

I've never had any special interest in "green" issues, and, unlike Musk, I have no concern about continuing fossil fuel consumption, but I have a Tesla on order. In the past several weeks I've been closely following internet forums devoted to the car, and my observation is that a large majority of owners are primarily interested in and motivated by the utility and pleasures of the car rather than by signaling, political issues, ecological issues, etc.

Hazel Meade writes:

I thought that ACA subsidies were paid directly to the insurance companies. Are you saying that the John Doe's actually received checks from the government for premiums they weren't paying?
I don't see (much) point in scamming the system if you aren't getting a positive return, if the premiums still cost more than the subsidies.
Surely the government doesn't just send checks to people without bothering to verify if they are actually purchasing the insurance their supposed to be purchasing.

David R. Henderson writes:

@Hazel Meade,
Are you saying that the John Doe's actually received checks from the government for premiums they weren't paying?
No. Actually, it’s the GAO, and what it showed is that it was relatively easy to scam by getting a higher subsidy than the people were “due.”
I don't see (much) point in scamming the system if you aren't getting a positive return, if the premiums still cost more than the subsidies.
Really, Hazel? So if you’re supposed to get, say, $100 a month on a $400 per month premium, and, instead, you scam and get $300 a month, you don’t see much point in doing that? I bet a lot of scammers would.

Daniel Kuehn writes:

David -
A lot of these subsidies and regulations can be sincerely justified on economic grounds. Contested on *other* economic grounds of course, but a good case could be made. So is the only basis of calling Musk those things that he has a pecuniary interest in the subsidies and regulations? Isn't it reasonable to think that an innovative person like Musk that thinks these policies are justifiable would also jump into the work himself?

Hazel Meade writes:

Sorry, what I meant is that people wouldn't scam it just for the money. It would be individuals trying to get subsidies for their insurance, but that would be a once-per-household kind of thing, since there's no point in having more than one insurance policy. Nobody's going to run a large-scale criminal operation attempting to milk the system for cash. The article makes it sound like people just got paid cash.

David R. Henderson writes:

@Daniel Kuehn,
I don’t share your premise, and so there’s no need to answer your question.

Brad writes:

CAFE standards seem like a bad way of regulating emission standards. Why not simply increase the price of gas and then let consumers decide what kind of car/truck they wish to own. Those who value size over MPG will buy larger vehicles. At least consumers would still get a choice under this scenario. (I'm not advocating for price regulation but it seems like a better alternative.)

Steve Y. writes:

Eye-rolling, like snickering, reflects so badly on the perpetrator that a mature adult should not be caught doing it however justified it may seem (to see the immediate consequences, do it when your spouse is speaking). But your point about the misattribution of Mr. Paul's display is well-taken.

To test your own discipline, read the following from the WSJ regarding the anniversary of another tragedy:

"Speaking in one of the hardest-hit areas of the historic Louisiana city, Mr. Obama said economic inequality, an inadequate emergency response and a country that tolerated poverty were responsible for much of the human suffering from the 2005 storm in a city that he called the 'gateway to America’s soul.'

'What started out as a natural disaster became a man-made disaster—a failure of government to look out for its own citizens,' Mr. Obama said."

Yes, Mr. Crovitz, it is not "reasonable to shrug off American deaths made possible by politicians " but that's not why we're rolling our eyes.

brian h. writes:

Brad is right, a carbon tax applied generally to each fossil fuel seems a more efficient way of limiting catastrophic global warming.

But the impact would then be felt directly by consumers, which makes it less popular than going after CAFE standards.

In any case, attacking Tesla and Elon Musk for benefiting from subsidies is unfair given how far the company's R&D has brought electric vehicles. No one had achieved anywhere near the same kind of range and performance in electric vehicles before. Now General Motors, BMW, and other companies are finally getting serious about electric cars. That is an obvious public good even if you don't care about catastrophic global warming--the oil isn't going to last forever.

ThomasH writes:

I can't agree with brian h. There is no externality that I know of that would lead to a justification for regulating gasoline (or petroleum) use per se. That a resource is finite is not a reason; all resources are.

"Energy Independence" is just Conservative sloganeering. Fifty years ago gasoline taxes may have been a not-bad way of charging for road use, but vehicle monitorig technology would be a better way today. Air pollution externalities can be addressed by regulating (ideally taxing) auto emissions.

Josiah writes:

Tesla does get government subsidies, which is bad. But so do Ford, GM, and Chrysler. It's not even clear to me that Tesla gets proportionately more subsidies than other companies (they certainly don't in absolute terms).

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