On November 13th, the U.S. Postal Service reported its Fiscal Year (FY) 2020 results. This revealed many insights about the agency with the largest takeaway being a disappointing $9.2 billion net loss. USPS, like so many other operations, has been adversely affected by the Covid-19 pandemic; mail volume, for example, declined 13.8 billion pieces. However, it is important to note that the USPS financial troubles far predate the coronavirus pandemic.
Frontiers of Freedom president George Landrith states, “The USPS has been consistently losing money year after year and has requested up to $75 billion in taxpayer money to remain solvent, but until thoughtful postal reform is completed, this money will merely kick the problem down the road.” He continues, “If we give USPS the money they are requesting, but allow the agency to continue with failed policies, we will inevitably have to bail them out again in the future.”
The agency states in the report that losses within the management’s control was $3.8 billion this year. This is a $334 million increase from the controllable loss in 2019. The agency is trending in the wrong direction and without postal reform it will only continue to decline.
In fact, although operating revenue has actually increased by nearly $2 billion due to a surge in e-commerce and greater package demand, the USPS’ out-of-date pricing system means the agency is unable to afford package costs or make a profit on these deliveries. Further, USPS calls shipping and packages its most “labor-intensive” effort, which is especially true during Covid-19, but how and to what extent that translates to its costs and full accounting picture continues to be unclear.
Landrith concludes, “In order to effectively manage and reduce the agency’s $160 billion debt, the USPS must update its policies and work with the incoming Biden administration to create thoughtful reform that will help preserve and ensure the success of our most important public institutions.”
By • Townhall Finance
In Washington, bad ideas are like bad pennies: They keep turning up.
In early 2019 a group of well-connected Washington insiders was suggesting with the utmost sincerity that it would be best to have the Pentagon in charge of the push to 5G, the next-level communications network. The primary reason for this, they said, was national security and the threat posed by China.
President Donald J. Trump, a man who is in no way soft on China, wisely rejected their advice. In a Rose Garden press conference with Federal Communications Chairman Ajit Pai, he rejected the government-led approach, calling it “not as good, and not as fast.” Instead, he committed to a 5G buildout that would be “private sector driven, and private sector led,” ending talk of a nationalized network.
Or so we thought. The Wall Street Journal recently reported that the idea of a 5G network run out the Pentagon is once again on the table. A new proposal for a government-managed system under the supervision of a single company is once again under discussion. And, as before, the firm the DoD has in mind has little to no experience managing large information clusters.
The reason the idea’s come back has more to do with the swamp-dwellers who profit off big government contracts than with the science involved, the efficiency needed to bring 5G to life quickly, or the ability of firms in the private sector to make it all happen. It’s crony capitalism at its worst.
The best way to get to 5G is to allow the best minds and best engineers in the best firms to develop competing technologies – with the winner to be chosen in the marketplace. The plan being pushed yet again by the DoD gives one company – in this case, most likely Rivada Networks – control of the spectrum and its allocation as well as access to the protected intellectual property of those who’d be doing the job if the Pentagon had not taken the project over. At least that’s the opinion of 19 U.S. Senators who wrote the department complaining the way it wanted to move forward “contradicts the successful free-market strategy that has embraced 5G.”
Somehow what President Donald J. Trump likes to call “the race to 5G” is again in danger of being taken over by the officials in charge of it. Instead of fair competition, a vital future national and economic security project is being influenced unfairly by what leading congressional Democrats including House Energy and Commerce Committee Chairman Frank Pallone, D-N.J., say is a plan “specifically crafted to enrich President Trump’s cronies.”
Partisan hyperbole aside, it’s easy to see Pallone’s point. Building a national 5G network requires more than influential political connections. Rivada Networks, the company lobbying hardest to win the bid, is not exactly known for its ability to build out and manage broadband networks. Its proposal to manage FirstNet, a nationwide public safety broadband system, was shot down due to concerns at the Interior Department over concerns about the insecurity of its technology.
One might think this would give the Pentagon pause, yet Rivada’s advocates within the department say they are confident the company can get the job done and have an operating network functioning within three years. Of course these are some of the same people who have already spent more than a decade and hundreds of billions or more on the development of the new multi-service Joint Strike Fight and still haven’t gotten it right.
Chairman Pai, a national hero for his work preventing the Internet from coming under the thumb of the U.S. government as a regulated utility, has dismissed the effort to get to a nationalized 5G run by the Pentagon as being a costly and counterproductive distraction from what America ought to be doing. The federal government moves slowly by design. Processes that work quickly in an authoritarian country like China don’t work in America. Here, roadblocks and rulemaking are the order of the day. Washington can’t compete with the U.S. private sector. In Beijing, the private and public sectors are indistinguishable.
Thanks to President Trump, Chairman Pai, and others who understand the stakes, America is a lot farther down the road to a working 5G network than people might believe. Thanks to a competitive market where the nation’s three largest carriers have all prioritized building the nation’s biggest, fastest 5G network, we’ll get there faster and in better shape than if we let the government do it.
Dear Mr. President and Director Navarro,
We write in support of the Administration prioritizing incentives for onshoring certain manufacturing, including pharmaceutical products and ingredients. As you well know, about 72 percent of pharmaceutical ingredients supplying the United States are not manufactured here. That is an alarming percentage, especially considering we are fighting a global pandemic.
For decades, American manufacturing has been disincentivized and pushed overseas. The Trump administration pledged to bring the supply chain and everything that it entails, including jobs and security, back to the United States. That is why President Trump made the tactical move to invoke the Defense Production Act, typically a wartime move, to bring the pharmaceutical supply chain home.
One tangible step the Administration has taken to secure our drug supply chain is early approval of a loan to Eastman Kodak to manufacture key pharmaceutical ingredients in Upstate New York. This move included some controversy, after some alleged that Kodak executives made improper stock transactions in advance of the loan announcement. But now that an internal investigation has cleared the company of wrongdoing, it is imperative that we stay the course and bring pharmaceutical manufacturing home from places like China, that are often at odds with American national security.
The Trump administration should be encouraging any capable American company to move its manufacturing back to the United States. Making America a compelling place to do business and also having robust trade relations with nations of goodwill is smart, but policies must change, and American companies must be incentivized and encouraged to take that step. The Trump administration has the opportunity to revamp American manufacturing – I hope you both follow through.
Thank you for your thoughtful consideration.
Sincerely,
George C. Landrith
President and CEO
Frontiers of Freedom
James L. Martin
Founder/Chairman
60 Plus Association
Judson Phillips
Founder
Tea Party Nation
Richard Manning
President
Americans for Limited Government
Andrew Langer
President
Institute for Liberty
Seton Motley
President
Less Government
Chuck Muth
President
Counsel on Government Relations
Rick Trader
Founder, Producer & Co-host
Conservative Commandos Radio Show
Saulius “Saul” Anuzis
President
60 Plus Association
John Cooper
President
Defending America Foundation
Susan Taylor
President
Strengthening America for All
Scott Johnson
President
The Last Best Hope on Earth Institute
Nicholas Willis
President
Americans for Liberty & Security
Martha Boneta
President
Vote America First
Kerri (Houston) Toloczko
President
Tacita Strategies
By • Issues & Insights
For years U.S. lawmakers and special interest groups have promoted policies that drove U.S. manufacturing offshore without people really being aware of it. Higher taxes, workplace regulations, environmental rules with onerous penalties, and other actions by government drove the costs of making things in America up so high it became a matter of corporate survival to take it to other countries.
Good for them, bad for us. China’s middle class has risen at the expense of U.S. workers and their families. Jobs have left places like Michigan and New York and Illinois for places with names most Americans can’t pronounce let alone find on a map.
It was a tragedy for workers and entire communities as the job providers moved away. Middle America understood what was going on, providing Donald Trump with fertile ground for his rhetoric about “bad trade deals” when he ran for president in 2016. For the coastal elites who only looked at the soaring values of their retirement portfolios, it was another story. It wasn’t until the COVID-19 pandemic struck that they realized what they had done.
For probably the first time since World War II, the U.S. economy was riddled with shortages. No matter how much money you had to spend, in some places, there wasn’t a roll of toilet tissue or a bottle of hand sanitizer to be found. Unless, in a few cases, you were willing to wait and buy it from China.
Memories may be short, but it wasn’t just these common household items that were in short supply. Items thought necessary for treating coronavirus patients like ventilators and pharmaceuticals as well as the personal protective equipment for hospital workers on the frontlines fighting the pandemic needed to protect themselves were not available in the quantities needed. China, where the outbreak was first detected, was hoarding what they made for their own use.
Recognizing the problem and expanding on what he promised while campaign, Mr. Trump has been looking for opportunities to bring the manufacturing of these products — and the jobs that go with them — home. And, unsurprisingly, he’s been criticized for doing it.
The Trump administration recently signaled its support for the launch of Kodak Pharmaceuticals, which would be a branch of the once-mighty Eastman Kodak company, by providing a $765 million loan to get things going. Kodak has been the anchor of Rochester, New York’s economy but has had difficulty adapting to the digital age.
This deal would not only stabilize a domestic supply chain, but it would reestablish the Rochester economy with a huge boom in the job market. So you would think the establishment of a new corporate entity to manufacture pharmaceutical ingredients in the United States that will help secure America’s drug supply chain and create what the Democrats used to call “good jobs at good wages” would be met with cheers and brass bands. Instead, the company finds itself under examination because the news caused the company’s stock to rise in value, creating the illusion that some company executives benefited financially.
It’s that kind of muddled thinking that drove so many jobs and companies out of the United States in the first place. At a time when initiative at home is desperately needed in the corporate sector, the first ones to step to the front of the line find themselves the victims of bad press and potential investigations. This is not to excuse any bad actions or actors – and if there were any, they would have been uncovered by Kodak’s independent review, but none were.
We should expect that a company’s “good news” should lead to an increase in the price of its stock. That’s good for the shareholders, which should be any company’s principal if not the only concern, as well as the country. The idea that people working for the company might also profit is the hallmark of the suspicious, anti-free market attitudes that infected the media, members of the political class, and consumer watchdogs for decades and which, more than once, nearly destroyed the American economy.
Senior White House trade advisor Peter Navarro recently called COVID-19 a wake-up call for the nation, not just because of the threat it posed to our health or healthcare system but because it left us defenseless in economic and national security terms. “We have already witnessed over 80 countries impose some form of export restrictions on medicines or medical supplies, proving that no matter how strong our friendships or alliances may be, they mean nothing in a pandemic,” he told the Wall Street Journal.
Kodak was found innocent of all “charges” after an in-depth internal investigation. Policymakers and watchdogs need to move on and come up with a plan to bring manufacturing and jobs home, by creating incentives to do just that.
There are a lot of tools in the tool kit to make this possible: tax breaks, additional deregulation, export assistance, and opportunity zones are just a few of the things that can be dangled in front of the heads of big companies to lure them to bring their operations home.
America needs a big plan that ties them and other ideas together to bring the manufacture of essential goods like pharmaceuticals and PPE home, before the next global pandemic hits. Breaking our 100% dependence on foreign manufactures located in countries whose interests may diverge from ours at some future and highly inconvenient time must become a national priority now.
By • Frontiers of Freedom
Unexpected expenses are never welcome and no one likes a costly surprise. So it isn’t surprising that there has been a lot of talk in Washington and Congress about “protecting” patients from surprise medical bills. And if rumors swirling around Washington are true, the Administration will enter the fray with an announcement about an executive order that will supposedly “fix” the surprise medical billing problem. This may sound good, but in reality it won’t be good news despite the Administration’s best intentions. In the end, a government “solution” will simply drive out and crowd out market forces which if allowed to work would not only solve the surprise billing problem and reduce costs to consumers, but also maintain the highest levels of quality and incentivize innovation in our healthcare system.
The most common cause of a surprise medical bill is when a person uses a healthcare provider that is not in their insurance plan’s network of providers. While it doesn’t happen that often, it is a real challenge for consumers when it does happen. Insurance companies have contracts with healthcare providers to provide medical services at discounted rates. That makes them “in-network.” The “out-of-network” providers charge a price without any pre-negotiated discounted rates which means the out of network costs are greater.
These circumstances, no matter how rare, are used by politicians to make us think they are proactively solving problems for our benefit. Sadly, they are doing nothing of the sort. One only needs remember how President Obama and Vice President Biden repeatedly promised that they would save us all thousands of dollars every year and allow us to keep our health insurance and our doctor. Obviously, Obama and Biden failed to deliver on that promise. It was the lie of the year even as judged by liberal fact checkers. Literally, millions of Americans lost their preferred plans and virtually everyone saw their health insurance costs increase — not decrease by thousands.
So a healthy dose of skepticism about promises to fix surprise billing with government price controls is entirely justified. Government imposed price controls skew incentives and reduce the availability of quality healthcare. To make things worse, government imposed price controls also reduce the likelihood of future healthcare innovations and slow the development of promising medicines and procedures. But the bad news doesn’t end there — government mandates almost invariably shift power to government bureaucrats and health insurance companies, rather than giving consumers more control over their own healthcare.
And it is fair to ask what is the government’s track record on reducing costs? And on top of that, government mandates will do nothing to reward innovation or to empower consumers.
The marketplace — and the negotiations that take place when you have two or more parties all trying to maximize the value that they receive — has a knack for providing high quality goods and services for the lowest possible prices. That is the process that has brought us smart phones that have more computing power than was used in the 1960s in the Apollo program. Today, the average American eats better and spends a lot less to feed themselves than our great grandparents did. We also have access to all manner of foods — something even kings didn’t have a few generations ago. Additionally, we work far fewer hours to obtain that food. This is the power of the marketplace and the innovation that it encourages.
We need to harness that market power which will deliver high quality and low prices in the medical arena. Because the government has historically been such a big player in the medical field and because it is always arguing for a larger and more powerful role, we will see less quality and higher prices than the marketplace could have provided.
Instead of continuing to empower government, let’s try reforms that put economic power back in the hands of healthcare consumers. Where’s the proof that government run schemes produce the needed quality and lower costs? Let’s trust the marketplace to do what it does so well — boost quality and keep prices comparatively low. We trust the marketplace to provide us with food, housing, technology, and a thousand other things. Why not healthcare?
By • Breitbart
President Trump has done a lot in his first term to strengthen the U.S. Economy, make America more competitive, and bring good paying jobs back to America. As a result, before the Chinese COVID pandemic and the almost complete economic shutdown imposed by various governors and mayors, Americans saw their wages on the rise at record levels and had record high employment opportunities. So President Trump gets high marks for his work on the economy and understanding market forces. But I am concerned that his administration’s “most favored nation” executive order, which would impose an international pricing index on medicines and drugs in Medicare Part B, is a huge mistake and will do a great deal of harm both to our economy and to those who suffer from illness and disease and are in need of cures.
Most of the nations that would be used in the international pricing index have socialized medicine. So, effectively such an approach would simply import an element of socialized medicine to America. President Trump has wisely opposed attempts to socialize our medical industry.
It is worth noting that the U.S. is the unchallenged world leader in the development of new, innovative, and life-saving medicines. There is a reason for this, and it isn’t because all the smart medical minds are born in America. We are the world’s leader in innovation because our system of intellectual property makes it potentially profitable to invest millions and even billions into research to develop new devices, processes, and medicines. Most medicines cost hundreds of millions of dollars to develop. Some work and provide miracle cures. Some don’t pan out. But that investment has to be recovered at some point. That’s simply how reality works.
If you’re going to invest and risk millions of dollars trying to develop something new and innovative, you want to know that if you’re successful, you can get your investment back over time when the new product is sold to the public.
If government makes it clear to those who do such research that the law will not permit them to recover their investment, that needed research will come to an effective end. Then we will see far fewer innovative cures that save and improve lives in the future. Who pays the cost of that policy? Everyone who at some point during their life becomes sick, needs medical help, and hopes not to live a diminished life or even worse, die. People who are suffering and dying of terrible diseases will be left to suffer and die because government de-incentivized medical research that could have treated them.
Many of the nations that would be used in the international pricing index tell American drug manufacturers what they will pay and typically demand prices well below the costs of developing the medicine. Often, they are only willing to pay the cost of producing the pill, but won’t accept paying for the full research and development that made the pill possible.
Why do American firms sell to them given the legal plunder that these governments engage in? Because often if they don’t sell at the demanded price, they are told they cannot sell any medicine in that nation. So in effect, these foreign governments engage in legalized robbery or blackmail of American pharmaceutical firms. That leaves Americans to pay the full cost of the research and development. And it is one of the big reasons Americans pay more for medicines than Europeans. Simply stated, Europe cheats and steals.
President Trump has worked hard to be sure that Americans are treated fairly in the trade agreements that he has negotiated. As a result, we see a resurgence in American manufacturing and good paying American jobs. The administration should use trade agreements to require developed nations — like those in Europe — to pay their fair share for the medicines they use.
Every developed nation should be sharing the costs of research and development. When Europeans buy mobile phones or computers or TVs, the cost they pay includes not just the cost of the parts to build the device, but also the costs of research and development for the product. There is no reason why they shouldn’t do the same for medicine.
If developed nations are paying their fair share of the research and development costs, Americans won’t be forced to bear the full cost. So if you want to have lower cost medicine and lots of future new and innovative medicines and cures, forcing developed nations to pay their fair share is a much better approach than importing their incentive-killing socialized medicine tactics.
I encourage the administration to continue to use trade agreements as a way to make sure that Americans are not cheated and robbed by other nations. This is a win-win approach. We will get the benefit of less costly medicines and we will get the benefit of a system that incentivizes innovation and research into new cures and medicines. This will save American dollars and lives! That is a policy that we can all get behind!
By • American Action News
The United States is in a race for strategic mineral supremacy. Many of the essential minerals involved in the design of computer components vital to the nation’s defenses are found, ever increasingly, overseas. And that, during a time of conflict, would leave America in an untenable position.
Just as both President Donald Trump and former Vice President Joe Biden have promised to bring manufacturing jobs back to our shores they should also place America on a course to minimize our reliance on other countries in potentially dangerous parts of the world to provide us with the strategic resources needed to keep the economy flowing and our defenses strong.
The opening of Alaska’s Pebble Mine, which analysts believe may be one of the richest sources of gold and copper remaining untapped anywhere in the world, would significantly reduce the nation’s need to import certain vital minerals. It’s in the final stage of the permitting process and, since the U.S. Army Corps of Engineers recently gave it a positive environmental review, there should be nothing in the way of its beginning to operate save for a few final, minor bureaucratic hurdles.
Unfortunately, that’s not the case. America’s so-called “green” organizations, which oppose the expansion of U.S. development of indigenous fossil fuel resources like oil and natural gas are equally bent on bringing the once robust mining industry to heel. Through their efforts they’ve managed to elevate the possibility of damage to the “native” salmon population to a level that’s getting the attention of policymakers that, incredible as it seems given what’s at stake, block the Trump Administration’s “final Record of Decision” expected sometime in the next few weeks that would give Pebble Mine the green light to begin operations.
The project, just like any that come before the Army Corps of Engineers for review, has been through a well-established environmental review process. It should be given the go-ahead. For some reason, some former senior Trump officials including Nick Ayers, the former chief of staff to Vice President Mike Pence, are reportedly engaged in efforts to stop it.
Pebble Mine would not only be a source of strategic minerals, it would provide jobs at a time when the economy needs them desperately. The U.S. Bureau of Labor Statistics recently reported that, in the last quarter for which the numbers are available, on an annualized basis nearly a third of the nation has become jobless because of the coronavirus lockdown. As the final Environmental Impact Statement compiled by the Army Corps found the concerns regarding the salmon to be baseless and pose no significant threat to its genetic diversity, the continued effort by the greens to push this line of argument is without merit.
Yet the implications of the outcome go well beyond this one project. “Pebble Mine is the poster-child of critical projects delayed by a broken permitting process,” Mike Palicz, a policy analyst with the non-profit group Americans for Tax Reform recently blogged. “The Obama Administration went as far as issuing a preemptive veto to prevent the mine from even receiving a proper environmental review. Last year, the Trump Administration righted this wrong by withdrawing Obama’s preemptive veto, allowing the project to move through the standard review process.”
That process is now nearing completion. The administration has the power to keep things on track and get the mine open. It should ignore additional calls from both environmental activists and those who pretend to be its friends for additional delays and unneeded further evaluation. The final Record of Decision, based on the Army Corps’ review, is expected to be favorable and should be allowed to stand.
Many of those who oppose the Pebble Mine project oppose all mining projects. They want the industry to go the way of the Passenger Pigeon and other extinct species. Their interests and America’s do not coincide.
By • Real Clear Health
If all you did was listen to the politicians and commentators, you’d think America’s health care system was on the verge of collapse. Nothing could be further from the truth. There are problems, but most of them have been caused by the self-same reformers who’ve been trying for more than two decades to “fix” it.
Much progress has been made since the New York Times and presidential candidate Bill Clinton declared a crisis existed and proposed solving it by increasing the role played by the government in managing the delivery of services and prices. Once the voters learned the potential adverse impacts on the quality of care they received, the debate changed.
Through it all, America has continued providing the best care anywhere. The spirit of invention and innovation that is the hallmark of our civilization exists robustly in the health care sector and, because it does, people are living longer, generally healthier lives. Yet, instead of encouraging that, scholars and policymakers continue to focus on flattening the cost curve through fiat. Price controls and rationing may reduce the perceived costs of medical care but won’t solve the problem.
The real solutions will come from innovations in care. That means continuing the development of radical new treatments that were unthinkable a generation ago and, in a few cases, going back to what was working before the government messed things up.
One place where looking back is already helping us move forward is kidney dialysis. In 1972, thinking they were helping, Congress passed legislation creating a Medicare program to pay for dialysis treatment and patients with end-stage renal disease gravitated to more expensive, center-based care using machines built for use in centers that are large, hard-to-use, and too expensive for home use.
In 1973, 40 percent of dialysis patients received treatment at home. Today, 90 percent receive treatment at dialysis centers and hospitals — at much greater cost and at greater risk to their health because the entire time they are there, checking in, checking out, waiting for and receiving treatment, they’re in the company of others who might be sick with something like COVID-19 that science tells us preys on those whose immune systems are compromised.
We spend more than $110 billion on kidney disease, the ninth leading cause of death in the United States. More than 37 million Americans have some form of this disease and the money paying for their dialysis comes from Uncle Sam through Medicare. That’s not sustainable.
The alternative to spending more is to spend smarter. The Trump Administration, which earlier this year announced a plan to “shake up” the kidney care medical complex is pushing for a return to home-based hemodialysis as a cost-saving measure and one more in line with patient concerns. His executive order on the issue included a direction to the Department of Health and Human Services to develop policies to reduce the number of Americans getting dialysis treatment at dialysis centers.
That’s the right move. The in-home care alternative will have the biggest impact in the shortest amount of time. The current care cycle, where treatment begins when it’s too late to stop disease progression. Must be broken. Instead of throwing more money at dialysis clinics, the priority is being repurposed in the right place, on early diagnosis, better patient education, and comprehensive and holistic care services.
Home-based options for hemodialysis, where blood is pumped out of the body under supervision into a machine that acts as a kidney and filters the blood before returning it to the body, and peritoneal dialysis, where blood vessels in the lining of the belly filter the blood with the help of a cleansing fluid, exist and should be utilized to the fullest extent possible.
Starting in 2021, ESRD patients will also be able to enroll in Medicare Advantage plans – great for the ESRD patients, but it could increase premiums for all seniors if we don’t help these plans negotiate for fair rates and prevent costs from rising. The Centers for Medicare and Medicaid Services should remove any roadblocks that exist to making this option viable.
With COVID-19 is changing how people go about their lives, the incentive to adapt and innovate in the health care sector is there. Telehealth, which was generally frowned upon before the current crisis, has taken off like a moonshot. Changing the kidney dialysis model to one where the care is mostly provided at home could liberate those receiving treatment now held prisoner by their illness and could lead the transformation of American medicine. Anyway, it’s worth a try.
By • The Huntsville Item
In late spring, oil prices dipped below zero for the first time ever. Futures contracts for May delivery traded as low as negative $37 a barrel, as producers and speculators paid refineries and storage facilities to take excess crude off their hands.
In some sense, this historic moment was inevitable. Oil markets are completely saturated. Worldwide coronavirus lockdowns have depressed energy demand. And in March, Saudi Arabia and Russia announced they would increase production, thus exacerbating the glut.
President Trump has tried to help beleaguered U.S. producers. He recently mediated a deal between Saudi Arabia, Russia, and other major oil producers, who collectively agreed to cut production by nearly 10 million barrels a day.
But prices are still falling. And now, the White House is toying with other ways to prop up U.S. oil producers, ranging from tariffs on imported oil to direct cash payments to energy companies.
This desire to help energy companies, and the millions of workers they employ, is commendable — but ultimately counterproductive. In the long run, the industry will emerge stronger if the White House allows the free market to resolve this crisis.
This pandemic-induced economic crisis is going to be painful for the energy sector. Cost-cutting and layoffs are already underway.
But the industry is strong and adaptive, and has bounced back from past crises by investing in technology. In fact, economic pressure encourages the kind of innovation and belt-tightening that helps companies thrive in the long run.
The United States last faced low oil prices in 2014 and 2015, when Saudi Arabia ramped up output to try to cripple U.S. producers that specialized in fracking — a technique used to extract oil from underground shale rock. By early 2016, prices had dropped below $30 a barrel, well below what U.S. shale producers needed to break even.
The government didn’t come to the rescue, which forced frackers to get creative. They researched how to extract more oil for less, and came up with a variety of new techniques, like drilling several wells simultaneously and using drones to detect faulty equipment. As a result, the average break-even price for frackers dropped from $69 a barrel in 2014 to an average of $40 a barrel by 2017. Had the government tried to solve the problem by slapping tariffs on Saudi crude, the U.S. oil industry likely would have never set its all-time production record of 13.1 million barrels a day in February.
We can be confident the U.S. energy industry will apply its ingenuity to this crisis, too — because these days, it excels at invention. In 2019, the oil and gas sector increased adoption of digital technologies, including cloud data storage and new software. Over the next five years, digitizing could slash the cost of oil production by almost 10 percent.
By using sensor technology — tiny, data-tracking devices attached to oil-field gear — producer ConocoPhillips recently cut in half the amount of time it took to drill new wells in South Texas. Other companies are using data analytics to search for the best drilling locations.
In short, the pressures of a downturn are likely to encourage even more future-focused transformation. The industry doesn’t need to hide behind tariffs. If we trust the free market to encourage creativity, in the long run, we’ll all benefit from a cheaper and more efficient energy supply.
Editor’s Note: This is an edited excerpt, comprising the Introduction and Conclusion, from a longer essay by Mr. Atlas. Titled ‘The Costs Of Regulation And Centralization In Health Care,' it is published by the Hoover Institution as part of a new initiative, "Socialism and Free-Market Capitalism: The Human Prosperity Project."
Introduction
The overall goal of US health care reform is to broaden access for all Americans to high-quality medical care at lower cost. In response to a large uninsured population and increasing health care costs, the Affordable Care Act (ACA, or “Obamacare”) aimed first and foremost to increase the percentage of Americans with health insurance. It did so by broadening government insurance eligibility, adding extensive regulations and subsidies to health care delivery and payment, and imposing dozens of new taxes. The ACA was projected to spend approximately $2 trillion over the first decade on its two central components: expanding government insurance and subsidizing heavily regulated private insurance.
Through its extensive regulations on private insurance, including coverage mandates, payout requirements, co-payment limits, premium subsidies, and restrictions on medical savings accounts, the ACA counterproductively encouraged more widespread adoption of bloated insurance and furthered the construct that insurance should minimize out-of-pocket payment for all medical care. Patients in such plans do not perceive themselves as paying for these services, and neither do physicians and other providers. Because patients have little incentive to consider value, prices as well as quality indicators, such as doctor qualifications or hospital experience, remain invisible, and providers do not need to compete. The natural results are overuse of health care services and unrestrained costs.
In response to the failures of the ACA, superimposed on decades of misguided incentives in the system and the considerable health care challenges facing the country, US voters at the time of this writing are being presented with two fundamentally different visions of health care reform: (1) a single-payer, government-centralized system, including Medicare for All, the extreme model of government regulation and authority over health care and insurance, which is intended to broaden health care availability to everyone while eliminating patient concern for price; or (2) a competitive, consumer-driven system based on removing regulations that shield patients from considering price, increasing competition among providers, and empowering patients with control of the money. This model is intended to incentivize patients to consider price and value, in order to reduce the costs of medical care while enhancing its value, thereby providing broader availability of high-quality care.
Outside a discussion of the role of private versus public health insurance are two realities. First, America’s main government insurance programs, Medicare and Medicaid, are already unsustainable without reforms. The 2019 Medicare Trustees report projects that the Hospitalization Insurance Trust Fund will face depletion in 2026. Most hospitals, nursing facilities, and in-home providers lose money per Medicare patient. Dire warnings about the closure of hospitals and care provider practices are already projected by the Centers for Medicare and Medicaid due to the continued payment for services by government insurance below the cost of delivery of those services. Regardless of trust fund depletion, Medicare and Medicaid must compete with other spending in the federal budget. America’s national health expenditures now total more than $3.8 trillion per year, or 17.8 percent of gross domestic product (GDP), and they are projected to reach 19.4 percent of GDP by 2027. In 1965, at the start of Medicare, workers paying taxes for the program numbered 4.6 per beneficiary; that number will decline to 2.3 in 2030 with the aging of the baby boomer generation. Unless the current system is reformed, federal expenditures for health care and social security are projected to consume all federal revenues by 2049, eliminating the capacity for national defense, interest on the national debt, or any other domestic program.
Second, beyond the growing burden from lifestyle-induced diseases, including obesity and smoking, that will require medical care at an unprecedented level, America’s aging population means more heart disease, cancer, stroke, and dementia—diseases that depend most on specialists, complex technology, and innovative drugs for diagnosis and treatment. The current trajectory of the system is fiscally unsustainable, and millions are already excluded from the excellence of America’s medical care.
Conclusion
In most nations, heavy regulation of the supply of health care goods and services care is coupled with marked centralization of payment for medical care. The United States has a far less centralized but still highly regulated system in which health expenditures are roughly equal from public and private insurance. The system is characterized by its unique private components: more than 200 million Americans, including most seniors on Medicare, use private insurance. The US system is the world’s most effective by literature-based, objective measures of access, quality, and innovation, but US health care demands reform. Health care costs are high and increasing, and the projected demand for medical care by an aging population and the future burden of lifestyle-related disease threaten the sustainability of the system.
Although the regulatory expansion under the Affordable Care Act reduced the uninsured population, it generated increased private insurance premiums, a withdrawal of insurers from the market, and sector-wide consolidation that is historically associated with higher prices and reduced choices of medical care. In its wake, American voters are now presented with two fundamentally different visions for reform that have a diametrically opposed reliance on regulation and centralization: (1) the Democrats’ single-payer proposals, including Medicare-for-All, based on the most extreme level of government regulation and authority over health care and health insurance; or (2) the Trump administration’s consumer-driven system that relies on strategic deregulation to increase market-based competition among providers and empowering patients with control of the money. Both pathways are intended to contain overall expenditures on health care and broaden access.
Intuitively, a single-payer model of health care represents a simplification, but the reality is that such centralized systems impose overwhelming restrictions on both demand and supply. Government-centralized single-payer systems actively hold down health care expenditures mainly by sweeping restrictions on the utilization and payment for medical procedures, drugs, and technology under the single authority of the central government. The overall costs of this false simplification are enormous, creating societal costs that extend beyond calculated tax payments that are required to support such a system.
The alternative approach involves rule elimination and decentralization, that is, strategic deregulation, to induce competition for value-seeking patients. Reducing the price of health care by competition, instead of more regulation, generates lower insurance premiums, reduces outlays from government programs, and broadens access to quality care. Broadly available options for cheaper, high-deductible coverage less burdened by regulations; markedly expanded health savings accounts; and tax reforms to unleash consumer power are keys to achieving price sensitivity for health care. Reforms to increase the supply of medical care by breaking down long-standing anti-consumer barriers to competition, such as archaic certificates‐of‐need for technology, unnecessary state‐based licensure of physicians, and overly regulated pathways to drug development, while facilitating transparency of price and quality among doctors and hospitals, would generate further competition and reduce the price of health care. Preliminary results from such deregulatory actions demonstrate promising results and offer an evidence-based context for the broader discussion of the role and reach of government regulation in socialism compared with free-market systems.
By • Townhall
Unexpected expenses are never welcome and no one likes a costly surprise. So it’s no wonder that there is a lot of talk in Washington and Congress about “protecting” patients from surprise medical bills. Current legislation — SB 1895 — sponsored by Senators Lamar Alexander (R-Tenn) and Patty Murray (D-Wash.) makes such claims. It sounds good until you realize that all the “protecting” talk is just that — talk. Even worse, is that rather than protecting consumers, it will make things worse.
The most common cause of a surprise medical bill is when a person uses a healthcare provider that is not in their insurance plan’s network of providers. While it doesn’t happen that often, it most typically happens in a hospital emergency room — either because the patient is not able to consent to care or because the patient received inaccurate information about insurance coverage.
Insurance companies have contracts with healthcare providers (both doctors and hospitals) to provide medical services at pre-negotiated discounted rates. That makes them “in-network.” The “out-of-network” providers charge a price without any pre-negotiated discounted rates, meaning the out of network costs are greater.
While it is true that most doctors are in most insurance networks and hospitals often have ways to shield their patients from higher costs, there are occasional gaps that remain. And while it is uncommon, it can be costly when it occurs. But despite their rarity, these circumstances are used by politicians to make us think they are proactively solving problems for our benefit. Sadly, they are doing nothing of the sort.
There are a number of proposals currently under consideration in the halls of Congress to fix surprise billing, but they have a couple important things in common. In one-way or another, all of these pieces of legislation entrust the government with the power to set prices. This will impose heavy costs even if executed properly, an idea that is almost laughable given the government’s track record on reducing costs.
This reminds me of the Obama-Biden repeated promise that they had a plan that would save us all thousands of dollars every year and allow us to keep our healthcare plan if that’s what we wanted. Obviously, Obama and Biden failed to deliver on that promise. It was the lie of the year even as judged by liberal fact checkers. Literally, millions of Americans lost their preferred plans and virtually everyone saw their health insurance costs increase, not decrease, by thousands.
So a healthy dose of skepticism about promises to fix surprise billing with government price controls is entirely justified. It should not be enough for politicians to repeat over and over the mantra that they’ve got the fix. We’ve seen this play before. It doesn’t end well.
Government-imposed price controls skew incentives and reduce the availability of quality healthcare. To make things worse, government-imposed price controls also reduce the likelihood of future healthcare innovations and slow the development of promising medicines and procedures. But the bad news doesn’t end there — current proposals shift more and more power to health insurance companies, rather than giving consumers more control over their own healthcare.
Regardless of what their true motives were or are, the results we have witnessed in the last 50 years from politicians promising “fixes” has been that things end up costing a lot more than promised, and government gets more and more control. Those who can afford lobbying efforts may escape the costly impact of these government mandates. But rarely do these promised fixes on balance help the average citizen.
The marketplace — and the negotiations that take place when you have two or more parties all trying to maximize the value that they receive — has a knack for providing high quality goods and services for the lowest possible prices. That is the process that has brought us smart phones that have more computing power than was used in the 1960s in the Apollo program. It’s also the process that allows consumers to own huge flat screen televisions at a cost of several hundred dollars. We need to harness that power and that drive to high quality and low prices in the medical arena.
Instead of continuing to empower government and those who can afford lobbyists to protect their interests, let’s try reforms that put economic power back in the hands of healthcare consumers. Let’s trust the marketplace to do what it does so well — boost quality and keep prices comparatively low. We trust the marketplace to provide us with food, housing, technology, and a thousand other things, why not our healthcare as well?
Today, the average American eats better and spends a lot less to feed themselves than our great grandparents did. As a result, we have access to all manner of foods — something even kings didn’t have a few generations ago. Additionally, we work far fewer hours to obtain that food. As a result, we have more money for larger, more comfortable homes, nice automobiles, vacations, and hospitals — something average Americans in 1776 didn’t even dream about.
So if we want to see more affordable and better quality healthcare available to us all — why not harness the power of the marketplace? Where’s the proof that government-run schemes produce the needed quality and low costs? In contrast, the marketplace has a strong track record. Let’s try it!
By • Daily Times
In his final attempt to torpedo Pennsylvania’s Mariner East 2 pipeline, now-former Chester County District Attorney Thomas Hogan filed criminal charges against security contractors hired to secure pipeline construction sites. Sadly, the accusations are merely another publicity stunt in the D.A.’s crusade to upend the permitted project rather than an honest effort to serve the public. Pennsylvanians deserve better than this kind of gamesmanship that puts political agendas ahead of residents’ welfare.
The charges accuse several security personnel employed by Mariner East of paying state constables to provide security for the pipeline during construction. The constables’ authority, Mr. Hogan alleges, was used as a “weapon” to “intimidate citizens.” But the facts of the situation tell a different story – one that when coupled with the D.A.’s record of claims against the Mariner East point a finger back at Mr. Hogan for politicizing his public office.
It’s not uncommon for businesses of all industries to employ private security. That’s especially true for energy developers and operators, who regularly hire personnel to not only protect their investments, but also to ensure individuals are not inadvertently injured by equipment or ongoing construction around infrastructure sites.
Long before the Mariner East developers contracted the security personnel now under scrutiny, they consulted local law enforcement about the possibility of using state constables. Those authorities raised no concerns. And it’s hard to imagine why they would.
Pipelines have become targets for environmental extremists, and reports of sabotage and other criminal activities against energy infrastructure have grown in recent years. In fact, one disgruntled central Pennsylvania landowner even lured bears to pipeline work sites, set fires near equipment, and harassed workers in an unlawful attempt to halt the pipeline. Another group admitted to sabotaging equipment in southeast Pennsylvania. It’s a sad reality that pipeline operators often need extra security to prevent senseless attacks, and based on past criminal activity, it’s necessary for the Mariner East builders to take additional precautions.
It’s also important to understand the function of Pennsylvania’s constables. Like a sheriff, a constable is an elected or appointed position in the executive branch of government. Primarily, they serve at the direction of the courts to issue summons and warrants and the like, but they are fully empowered to enforce both criminal and civil laws.
Unlike most law enforcement officials, constables do not receive a set salary. They are compensated by assignment at rates established by state law. As public peace officers, constables are employed by a third party – never directly, as a security guard would be. In that way, Mariner East’s situation is not unusual: The developer hired a private contractor to secure the construction sites. The contractor then enlisted the support of state constables.
John-Walter Weiser and Philip Intrieri, the president and the solicitor of the Commonwealth Constable Association, respectively, recently called out the absurdity of the Chester County D.A.’s claims. “It is frankly offensive to accuse a constable of ‘selling his badge,’ when he is only operating under a fee-driven system he did not create, and which is intended to save our tax dollars,” Weiser and Intrieri wrote last month. “Filing felony charges of law when that law is unclear is a grievous abuse of power.”
It’s impossible to reconcile the precautions taken to add extra security around the Mariner East Pipeline with the charges now being leveled. Instead, the evidence points to an ideological campaign against midstream energy infrastructure. Mr. Hogan has criticized Mariner East and has promised that other charges are “coming down the line.” In his statement announcing the most recent allegations, Mr. Hogan goes so far as to accuse Gov. Tom Wolf of being “asleep at the wheel.” All this was said and done as Mr. Hogan was leaving office.
The D.A.’s attacks against the Mariner East Pipeline seem to peel back the true motives behind these latest charges – which are to derail energy infrastructure deployment in Pennsylvania. But these accusations are too serious for residents to accept as politics as usual. As Hogan’s successor Deborah Ryan takes office, it is critical that Pennsylvanians are afforded an open debate about the Commonwealth’s energy security – not policy by litigation that, apparently, will readily sacrifice those who find themselves on the wrong side of the agenda of those in power.
So many of our institutions failed us during the pandemic. Free enterprise isn’t one of them.
By • National Review
When future historians tell the story of this pandemic, I hope American capitalism is not so despised and maligned by the professoriate that they leave out the pivotal role private enterprise and individual autonomy played, not just in slowing and ultimately defeating the virus, but in getting the country back to work.
It was individual Americans who started socially distancing in March, as COVID-19 took hold in Italy and many mayors and governors were still calling fears of contagion from China overblown, if not bigoted. By the time our leaders came around to the crisis, millions of American workers and their employers were already taking steps to keep each other safer. And while Republicans and Democrats in Washington played politics with financial aid aimed at blunting the great economic pain necessitated by shutdowns, thousands of businesses, trade associations, and patrons were starting relief funds for the most heavily impacted.
Among the companies that could stay open, I will admit I am biased in my pride for one in particular.
Home Depot, the company I helped found, boosted wages and doubled overtime to acknowledge the valor of workers who wanted to stay on the job during some very scary times. Knowing that kids were at home because schools were closed, Home Depot expanded paid time off to help parents and made hours more flexible for older workers who were deemed at risk for COVID-19 infection. Many other companies offered similar incentives.
When it came time to attack the virus itself, businesses around the country showed the same decency and ingenuity, quickly repurposing to meet demand for personal protective equipment (PPE) such as masks and gowns for frontline medical workers. Apparel company Brooks Brothers and MLB uniform tailor Fanatics switched their stitch to make masks. So did hockey company Bauer and retail stores David’s Bridal and Jo-Ann Stores. A NASCAR team, North Carolina-based Stewart-Haas Racing, helped its neighbors by putting idle racing transports back on track, delivering 2 million medical masks to Novant Health facilities in North Carolina, South Carolina, and Virginia. Whiskey and vodka distilleries, especially small, locally owned ones, switched to making bottles of alcohol-based hand sanitizer.
Cutting-edge manufacturers used 3-D printers to make PPE. Charlottesville-based women’s shoemaker OESH made a mask that had soft edges, making its seal as strong if not better than what would be provided by N95-rated masks. There wasn’t time for FDA approval (which is a question we should take up later), but the skillful engineering made the mask a success.
One Delaware company, ILC Dover, worked with the National Institute for Occupational Safety and Health to shorten the regulatory review process from one month to a week. That way the company could make its new Powered Air Purifying Respirator hood, which provides 100 times the protection of an N95 mask, available to health-care workers attending to patients with COVID-19.
National big-box stores, corner-store pharmacy chains, and delivery services really stepped up in hiring temporary workers. Wal-Mart, Walgreens, CVS, Costco, 7-Eleven, Ace Hardware, Dollar Tree, Dollar General, Domino’s, Pizza Hut, Papa John’s, Instacart, FedEx, UPS, and grocery chains around the country all upped their hiring to meet demand and provide opportunities to the recently unemployed.
Perhaps most strikingly of all, tech companies have really shined. Amazon, Uber Eats, GrubHub and dozens like them made it possible to keep a social distance while keeping the homestead supplied with groceries and supplies. Tech companies didn’t just keep us fed, they kept us on the job. Employers used existing, but often untapped, IT capabilities provided by companies such as Zoom, Microsoft, Apple, and Google to transform a cubicle and conference-room workforce into a remote team interacting through a camera and video screen. In the short term this kept a company’s productivity up, and long-term applications could create a more flexible workplace that could better support parents or employees who want to live in a rural area.
Of course, the biggest heroes are yet to earn their fame. Hard at work are the world’s leading scientific and research minds toiling for vaccines and treatments. Eli Lilly, Johnson & Johnson, and Moderna all have billion-dollar investments into fast-tracking a cure.
Throughout this entire ordeal, which is far from over, our blinkered press has focused on the negative, on anecdotes of price gouging, temporary supply-chain disruptions and shortages, and companies that saw outbreaks in the workplace.
But it takes a special kind of dumb to look at all the institutions that came up short under the pandemic and put free enterprise anywhere near the top of the list. Our free-enterprise system is the best at allocating resources and responding to crises. The private sector should be praised, not demonized, for its efforts during this pandemic. The examples are numerous, and they keep on coming.
The best thing the government did, arguably, is get out of the way. Government watchdog Americans for Tax Reform has identified more than 600 rules or regulations that were changed to give companies the room to innovate and adapt to meet the demand for equipment and other goods created by the pandemic. My hunch is these are probably 600 regulations that do not need to come back once this is over.8
We are not a perfect country, but we do have something that will always help us prevail — either over a pandemic or the next pitfall we encounter. We have regular people who dare to do heroic things.
Americans don’t need to be told what to do, and companies don’t need command-and-control regulation to do what’s best for a community. That’s because Americans’ entrepreneurial spirit is the biggest factor flattening the curve.
By • Frontiers of Freedom
ALEXANDRIA, Virginia, June 10 — The 60 Plus Association issued the following letter:
To: President Donald J. Trump, The White House, 1600 Pennsylvania Avenue, NW, Washington, D.C. 20500; The Honorable Alex M. Azar, Secretary, U.S. Department of Health and Human Services, 200 Independence Avenue, SW, Washington, D.C. 20201; Vice President Michael R. Pence, The White House, 1600 Pennsylvania Avenue, NW, Washington, D.C. 20500; The Honorable Seema Verma, Administrator, Centers for Medicare and Medicaid Services, 7500 Security Boulevard, Baltimore, MD 21244; Brooke Rollins, Assistant to the President, Director, Domestic Policy Council, 1600 Pennsylvania Avenue, NW, Washington, D.C. 20500
President Trump, Vice President Pence, Secretary Azar, Administrator Verma, Mrs. Rollins:
On behalf of millions of taxpayers and consumers across the United States, the Coalition Against Rate-Setting (CARS) urges you to oppose price controls on the healthcare system. For the past year, some members of Congress and some individuals in the Trump administration have repeatedly floated the idea of “fixing” the pressing problem of surprise medical billing through a “rate-setting” system. These fatally flawed proposals would have Washington, D.C.bureaucrats dictating to doctors the prices they should charge patients. Recently, Politico reported that the administration is considering a plan that would, “outlaw health care providers from putting patients on the hook for thousands of dollars in expenses — but without mandating how doctors and hospitals would recover their costs from insurers.”
While such reporting gives cause for cautious optimism, we recognize that much remains to be negotiated. As such, the Coalition would like to reiterate that any mandates or price controls would make surprise billing problems worse and disrupt care for millions of patients across the country. These effects would be particularly devastating as the COVID-19 pandemic continues to claim far too many lives. We therefore urge you to reject rate-setting and embrace market-oriented solutions to solve the pressing problem of surprise medical billing.
During the worst public health emergency in our lifetimes, millions of patients across the country have found themselves in emergency rooms and healthcare clinics. Many of them reasonably assumed their troubles would be over after being discharged, only to receive a surprise medical bill in the mail days or even weeks after being discharged.
Each year, 1 in 7 patients in the U.S. receive these unwanted, unexpected expenses after being sent home by their doctors. This devastating problem stems from increasingly narrow health insurance networks which increasingly refuse to compensate attending doctors at in-network medical facilities. Far-reaching pieces of legislation such as the Affordable Care Act (aka Obamacare; signed into law in 2010) have simply made the problem worse, and now, an estimated three-quarters of Obamacare plans feature narrow insurance networks.
Yet, despite federal interventions and regulations making the problem worse, some government officials want to double-down on bureaucratic control over the healthcare system. Members of Congress such as Sen. Lamar Alexander(R-Tenn.) and Rep. Frank Pallone (D-N.J.) have proposed rate-setting for doctors and repeatedly tried to insert this “fix” in Coronavirus-related relief legislation. Officials in the Trump administration have worked hard to get a thorough understanding of this issue and deliberate on their own plan to end unwanted medical expenses. But rate-setting would only make the problem worse, and lead to the widespread consolidation of hospitals, clinics, and doctor’s offices across the country. California has already tried this failed approach, implementing healthcare price controls in 2017. According to a 2019 American Journal of Managed Care study examining the law, rate-setting has led to healthcare facilities closing their doors and merging with other, larger practices. Doctors are even contemplating leaving California altogether.
On January 22, 14 advocacy groups and think-tanks formed CARS to warn lawmakers and the Trump administration about the myriad unintended consequences of rate-setting. CARS is now 34 groups strong, and its work has been cited extensively by national and state media. On April 28, CARS released a letter signed by more than 160 economists urging officials to reject healthcare price-controls.
CARS urges you to take these scholars’ arguments into account, and remain vigilant against federal overreach in the healthcare system. Millions of doctors are on the frontlines of the COVID-19 pandemic treating patients, and now would be the worst possible time to impose onerous price controls on them. Thank you for your time and consideration of this pressing issue.
Sincerely,
Tim Andrews, Executive Director Taxpayers Protection Alliance
Christopher Sheeron, President, Action For Health
Bob Carlstrom, President, AMAC Action
Brent Wm. Gardner, Chief Government Affairs Officer, Americans for Prosperity
Norman Singleton, President, Campaign 4 Liberty
Ryan Ellis, President, Center for a Free Economy
Andrew F. Quinlan, President, Center for Freedom and Prosperity
Jeffrey L. Mazzella, President, Center for Individual Freedom
Thomas Schatz, President, Citizens Against Government Waste
Twila Brase, RN, PHN, President & Co-Founder Citizens’ Council for Health Freedom
Matthew Kandrach, President, Consumer Action for a Strong Economy
Jason Pye, Vice President of Legislative Affairs, FreedomWorks
George Landrith, President, Frontiers of Freedom
Saulius “Saul” Anuzis, President, 60 Plus Association
Mario H. Lopez, President, Hispanic Leadership Fund
Andrew Langer, President, Institute For Liberty
Harry C. Alford, Co-Founder, President/CEO, National Black Chamber of Commerce
Pete Sepp, President, National Taxpayers Union
Robert Fellner, Vice President & Policy Director, Nevada Policy Research Institute
Wayne Winegarden, Ph.D, Senior Fellow & Director, Center for Medical Economics and Innovation Pacific Research Institute
Joshua H. Crawford, Interim Executive Director, Pegasus Institute
Renee Amar, Vice President for Policy and Government Affairs, Pelican Institute for Public Policy
Paul Gessing, President, Rio Grande Foundation
Robert Alt, President & CEO, The Buckeye Institute
David McIntosh, President, The Club For Growth
James Taylor, President, The Heartland Institute
James L. Martin, Founder/Chairman, 60 Plus Association
Jessica Anderson, President, Heritage Action For America
By pressuring companies to put ‘sustainability’ before profit, they hurt pensioners, small investors, and all those who depend on a robust economy.
By • National Review
Many years ago now, Milton Friedman explained something that should never have needed explaining, when, writing for the New York Times Magazine, he reminded his readers what —and whom — a company is meant to be for:
In a free-enterprise, private-property system, a corporate executive is an employee of the owners of the business. He has direct responsibility to his employers. That responsibility is to conduct the business in accordance with their desires, which generally will be to make as much money as possible while conforming to [the] basic rules of . . . society, both those embodied in law and those embodied in ethical custom. . . .
What does it mean to say that the corporate executive has a “social responsibility” in his capacity as businessman? If this statement is not pure rhetoric, it must mean that he is to act in some way that is not in the interest of his employers.
The executives who retool a company’s mission to suit a particular conception of “social responsibility” are spending shareholders’ money on a moral agenda unrelated to company objectives, an affront that’s only made worse if their crusade depresses returns, share price, or both.
Friedman was writing in 1971. Since then, like so many bad ideas, corporate social responsibility has become institutionalized. To take a recent example, in 2017 JP Morgan Chase gave $500,000 to the Southern Poverty Law Center, an organization that, sadly, has strayed far from its original ideals. Had they learned of it, this gift would probably have irritated a good many shareholders. The employee who had to justify it was — you guessed it — the bank’s “head of corporate responsibility,” a title that signifies how deep the rot has gone.
It’s been a long time since companies’ supposed social responsibility could be discharged by a handout or two, but the pressure on them to toe some outsider’s line has, in recent years, been stepped up. Often repackaged as a demand that corporations be measured by the extent to which they match arbitrary and ever-tightening E (environmental), S (social), and G (governance) standards, it is now a way of corralling private enterprise without the bother of legislation. The G, which can cover such issues as transparency and compliance, is relatively uncontroversial, but so far as many shareholders are concerned, insisting on the E and, to a lesser degree, the S, which can range from the benign (worker safety) to the malign (stipulating what legal products a company may or may not sell), is a form of expropriation.
It is a mark of just how ingrained the ideas behind ESG have become that the Financial Times, mistakenly thought by the old-fashioned to be the house journal of capitalism, now has a section presumptuously called “Moral Money,” billed as “the trusted destination for news and analysis about the fast-expanding world of socially responsible business, sustainable finance, impact investing, [ESG] trends, and the UN’s Sustainable Development Goals” — a rebarbative combination for which those running the FT clearly believe there is an audience.
If Davos is any indicator, they are right. Here’s an extract from the World Economic Forum’s “Manifesto for 2020”:
A company serves society at large through its activities, supports the communities in which it works, and pays its fair share of taxes. It ensures the safe, ethical and efficient use of data. It acts as a steward of the environmental and material universe for future generations. It consciously protects our biosphere and champions a circular, shared and regenerative economy. It continuously expands the frontiers of knowledge, innovation and technology to improve people’s well-being. . . .
A company is more than an economic unit generating wealth. It fulfils human and societal aspirations as part of the broader social system. Performance must be measured not only on the return to shareholders, but also on how it achieves its environmental, social and good governance objectives.
Unfortunately, what goes on in Davos does not stay in Davos.
The existence of the FT’s “Moral Money” section is yet more evidence of this larger trend. In a recent edition, we could read about how a Bank of America analyst examined the environmental implications (at least as seen from the perspective of climate warriors) of bringing supply chains closer to home in the wake of COVID-19. The author’s conclusion that doing so would reduce emissions would, in happier times, not have concerned investors — their interest would only have been in the financial consequences of such a change. But we do not live in those times.
Banks are not charities. They would not write research reports of this type unless there was a market for them, and there is. ESG investing is becoming big business. Thus, as one of the “Moral Money” team reports:
According to research from Sustainable Research and Analysis, an independent research shop based in New York, the total assets held in sustainable mutual funds and ETFs hit $1.6tn in 2019, growing from a base of just $400bn at the end of 2018. Even with the coronavirus outbreak sending markets into a tailspin, ESG funds added a further $500bn in assets through Q1 2020.
Reading on, there is a glimmer of hope:
But only a small portion came from net new money. In 2019, investment managers rebranded 475 existing funds to incorporate ESG factors, which accounted for more than $1tn, or 86 per cent of the total “new” ESG assets.
So Wall Street is behaving with its customary cynicism, and in the moral universe of “Moral Money” that will not do:
On the face of it, this seems troubling and sends up red flags for greenwashing.
It would take a heart of stone not to laugh here, but one would be laughing too soon:
Henry Shilling, director of research at Sustainable Research and Analysis, says most asset managers are not just slapping an ESG label on their funds and calling it a day. “Most of the rebranded funds have adopted ESG integration strategies,” he said, explaining that they had explicitly changed their prospectus documents to include ESG as a part of their investment process and were engaging with portfolio companies on ESG issues.
“Engaging with,” however, can mean sending a token memo or doing something more substantive. So it’s time for some more pearl-clutching:
Even with all of the companies making public commitments to cut emissions and look out for stakeholder interests, a shocking minority have gone so far as to tie executive pay to any sort of ESG metric. In fact, new research from Sustainalytics shows just 9 per cent of all companies in the FTSE AW index have done so. And on top of that, the vast majority of those that have done so have only targeted occupational health and safety.
“Only” is doing a lot of work there.
It’s worth pausing to note the citations of Sustainanalytics, which describes itself as “the leading independent global provider of ESG and corporate governance research and ratings to investors,” and of Sustainable Research and Analysis, a firm that serves “as a source for sustainable investment management information, research, opinions and sustainable fund ratings.” Both are part of the flourishing (and profitable) ecosystem that ESG investing has created. It encompasses consultancies, advocacy organizations, “chief sustainability officers,” and many, many more rent-seekers besides. ESG is bad news for investors, but it is not a bad way of filling the wallets of those that feed off it.
None of this is to deny that there is room for ESG-based investment strategies. If investors want to base their stock selection in whole or in part on ESG criteria, that is, of course, up to them, and if investment companies wish to market ESG-compliant funds, that’s fine. Funds that will not invest in companies that, say, sell guns or alcohol have been around for a long time. ESG-compliant funds are simply an extension of the entirely reasonable idea that investors should not be forced to choose between their principles and smart investment. The more choice that such investors have the better.
But choice is the key word here. Much of the pressure for companies to raise their ESG game comes either directly from state or other governmental pension funds, which are not exactly free from political pressure and ideological bias, or from the investment companies that wish to sell to them. Thus “Moral Money” reports on a number of proxy fights over ESG issues brewing at companies such as ExxonMobil and the British bank Barclays. Among those named as leading the charge in these battles are Brunel Pension Partnership, which manages the pension funds for ten local British governments, the Liverpool-based Merseyside pension fund (also for local government employees), and — this is far from just a British thing — the New York State Common Retirement Fund.
Turn to Brunel’s website, and you find that:
[Brunel’s] investment team [has] the ability to clearly think in 10 to 20-year timeframes. As such, environment and social risk considerations, along with good governance and stewardship, are integrated into [its] decision making processes. . . .The key objective of our climate policy is to systematically change the investment industry to ensure that it is fit for purpose for a world where temperature rise needs to be kept to well below 2°C compared to pre-industrial levels.
Pension funds ought to be trying to deliver the best possible economic returns for their pensioners, who are, in a sense, captive clients. Equally, where such pensions are funded or, in the case of defined-benefit schemes, underwritten in whole or in part by taxpayers, there is — or there ought to be — a duty owed to those who may end up on the hook for them. But for Brunel, other objectives now seem to have come into play.
A still bigger problem may yet come from investment groups such as BlackRock. As the FT notes, the firm is currently coming under fire from ESG activists, despite the stance taken by its chairman and CEO, Larry Fink, who claimed in a letter earlier this year that “climate change has become a defining factor in companies’ long-term prospects,” and went on to explain how:
BlackRock [has] announced a number of initiatives to place sustainability at the center of our investment approach, including: making sustainability integral to portfolio construction and risk management; exiting investments that present a high sustainability-related risk, such as thermal coal producers; launching new investment products that screen fossil fuels; and strengthening our commitment to sustainability and transparency in our investment stewardship activities.
More details were set out in a letter to clients:
We have been working to improve access for several years — for example, by building the industry’s largest suite of ESG ETFs, which has allowed many more individuals to more easily invest sustainably. . . . We intend to double our offerings of ESG ETFs over the next few years (to 150), including sustainable versions of flagship index products, so that clients have more choice for how to invest their money.
Some of this merely reflected BlackRock’s self-interest — and there’s nothing wrong with that. As noted above, extending investor choice is to be welcomed. But there is also the fact that:
Every active investment team at BlackRock considers ESG factors in its investment process and has articulated how it integrates ESG in its investment processes. By the end of 2020, all active portfolios and advisory strategies will be fully ESG integrated — meaning that, at the portfolio level, our portfolio managers will be accountable for appropriately managing exposure to ESG risks and documenting how those considerations have affected investment decisions.
Investors are free not to invest with BlackRock, but because BlackRock is so large, that doesn’t eliminate the problem that this new policy could pose. Before the coronavirus crisis began, BlackRock had over $7 trillion under management. If a company doesn’t play by BlackRock’s ESG rules, it risks shutting itself off from a potentially substantial source of capital and/or support for its share price. If a company’s management decides that it doesn’t want to run that risk, it may have to adopt policies that damage the business’s long-term prospects. That might help the share price, at least for a while, but it is hardly a desirable outcome.
Even if a company has no interest in having BlackRock as a shareholder, BlackRock may have an interest in it. Once BlackRock takes a stake in a company, the chances are that it will apply pressure on management, as any shareholder has the right to do. Most shareholders only do so to increase their return, but BlackRock, whatever its claims about the connection between “sustainability” and longer-term profitability, has other targets in mind:
We have engaged with companies on sustainability-related questions for several years, urging management teams to make progress while also deliberately giving companies time to build the foundations for disclosure consistent with the Sustainability Accounting Standards Board (SASB) and TCFD. We are asking companies to publish SASB- and TCFD-aligned disclosures, and as expressed by the TCFD guidelines, this should include the company’s plan for operating under a scenario where the Paris Agreement’s goal of limiting global warming to less than two degrees is fully realized. Given the groundwork we have already laid and the growing investment risks surrounding sustainability, we will be increasingly disposed to vote against management when companies have not made sufficient progress. [Emphasis added.]
SASB and TCFD are two other creatures in the ESG ecosystem. The former was once chaired by Michael Bloomberg, while the latter still is. SASB says that it is on a “mission . . . to help businesses around the world identify, manage and report on the sustainability topics that,” it claims boldly, if inaccurately, “matter most to their investors.” Meanwhile, TCFD, the Task Force on Climate-related Financial Disclosures, says it aims to “develop voluntary, consistent climate-related financial risk disclosures for use by companies in providing information to investors, lenders, insurers, and other stakeholders,” an objective with a clever twist: If companies do not go along with these “voluntary” disclosures, their banks and insurers — part of a sector unusually susceptible to political pressure — may turn the screws.4
As a shareholder, BlackRock has every right to insist that the managements of the companies in which it invests comply with its diktats. Equally, other shareholders are free to insist that BlackRock be told to take a hike, at which point the whole thing can be thrashed out at a general meeting. But many of the other shareholders will also be institutional investors. Even if they do not agree with BlackRock’s agenda, they may feel compelled by commercial pressures of the type that I have mentioned above to go along.
In effect, therefore, many companies — and not just those that are publicly listed — will be forced to change the way they do business as they try to keep up with ever-more-stringent rules set not by democratically elected legislators but by the unaccountable, the ambitious, the greedy, and the fanatical. Milton Friedman would have been appalled (if not altogether surprised) that activists such as these ESG vigilantes could exercise such a power through their ownership of shares. Today’s small investors, pensioners, and, for that matter, anyone else who depends on a robustly growing economy ought to be angrier still.
