The Economic Sniff Test and Telecom Investment

Whenever coming across a new economic study offering surprising findings, I initially give it the quick economic sniff test.

After all, depending on the assumptions and interpretations made, economic models can spit all kinds of findings, with some disconnected from the real-world economy.

What’s the economic sniff test? Quite simply, do the findings line up with how the economy actually works, including incentives and costs?

A study released on February 11 by Cbeyond, Inc. about broadband investment clearly fails the economic sniff test. The company’s release asserts that broadband investment has faltered in the U.S. in recent times. In reality, however, a wide array of data and analysis show that broadband investment – including wireless – has grown substantially. As a result, broadband access and choices have expanded for both residential and business consumers.

And contrary to the assertions made in the Cbeyond release, this investment has been and continues to be made because government has not stepped in with unwarranted mandates, regulations and interference – or has rolled back such regulations.

Nonetheless, Cbeyond claims that having the FCC mandate resale of bandwidth to other businesses will spur broadband investment. In reality, though, we have learned from history and economics that such mandates will actually decrease investments in broadband infrastructure. After all, why invest in an alternative when you can tap into the investments made by others?

Broadband investment is important for business and employment growth. For example, a January 2010 study from the Public Policy Institute of California found the following: “Our analysis indicates a positive relationship between broadband expansion and economic growth. This relationship is stronger in industries that rely more on information technology and in areas with lower population densities.”

Given the importance of broadband investment to consumers, small businesses and the economy in general, government intervention and interference – with the increased costs and skewing of incentives that come with such actions – can only create uncertainty and problems that wind up restraining and/or distorting such investment.

Raymond J. Keating

Chief Economist

Small Business & Entrepreneurship Council

Small Biz Health Care Daily: Health Care and the Budget

On February 9, CNN.com reported: “‘And by the way, all of it is paid for,’ Obama said. ‘Not only is it deficit neutral, but the Congressional Budget Office, which is the bipartisan office that is the scorekeeper for how much things cost in Congress, says it is going to reduce the costs by $1 trillion.’ Obama called health care reform the ‘single best way to bring down our deficits.’ ‘Nobody has disputed that,’ he added. ‘Nobody can dispute the fact that if we don't tackle surging health care costs, then we can't control our budget,’ he said.”

In reality, the President is off base on each of these assertions. The entire health care reform effort being pushed by the President is focused on expanding the size of government. That means taxes will go up, and there are increased risks of higher budget deficits.

Meanwhile, ObamaCare will drive up health care costs due to, for example, increased government regulations and mandates, and government’s expanded role in funding health care expenditures.

This amounts to a recipe for higher budget and health care costs.

Raymond J. Keating
Chief Economist
Small Business & Entrepreneurship Council

Small Biz Health Care Daily: The President’s Offer

President Obama has presented the idea of hosting a televised bipartisan meeting on health care on February 25. The idea is to jumpstart stalled health care legislation in Congress.

But why is that necessarily a good idea?

After all, what was passed in both the House and Senate made for bad policy, bad economics, and according to the polls, bad politics. Why should this effort be in anyway restarted?

According to the February 9 New York Times, House Republican Minority Leader John Boehner (OH) and Rep. Eric Cantor (R-VA) sent a letter to the President on Monday noting that “members of their party would be ‘reluctant to participate’ in the meeting with Obama if the bills passed by the House and the Senate were the starting point. The American people have ‘soundly rejected’ those bills, they said.”

And they are correct.

Bipartisan meetings in our nation’s capital often do not turn out well for the taxpayers, and/or can serve as only means for trying to score political points. Is this a serious attempt to debate and discuss health care issues, or is it just an effort to regain political ground for costly, misguided big government health care policies?

Raymond J. Keating
Chief Economist
Small Business & Entrepreneurship Council

Small Biz Health Care Daily: Democratic Plan Already Does Good Stuff – Really?

There is a strange piece by Erza Klein on The Washington Post’s site titled “The six Republican ideas already in the health-care bill.”

Klein opens: “At this point, I don't think it's well understood how many of the GOP's central health-care policy ideas have already been included as compromises in the health-care bill.”

Golly, what’s all the fuss about then?

Well, Klein attempts to transform measures in the Senate health care bill into something they are not.

First, Klein declares that allowing individuals to purchase health insurance across state lines is in the Senate bill because the bill allows states to form interstate compacts. But that is all about the states making decisions as to who gets to buy insurance and where. It’s not about consumers and businesses making those choices, and benefiting accordingly.

Second, Klein says that allowing individuals, small businesses and associations to pool together to buy insurance is accomplished through the effort to set up insurance exchanges. But insurance exchanges are all about government being in control, that is, vehicles for mandates and regulations.

Third, allowing the states to innovate is not the same as the waiver in the Senate bill allowing states an opt out if “they can do it better or cheaper.”

Fourth, Klein acknowledges that the Senate bill does not really do what many want in terms of medical malpractice reform, but he does not seem too concerned over this point since he apparently does not like it.

Fifth, on taxes, the key is to equalize tax treatment for purchasing health care. That is not accomplished, obviously, in the Senate bill. Klein dances around this.

Sixth, Klein insists Senate bill is “a private-market plan,” when of course it is not. It is all about more government funding and control over health care.

When it comes to expanding government’s role in health care, supporters seem willing to say just about anything. Consumers, small business owners and taxpayers beware.

Raymond J. Keating
Chief Economist
Small Business & Entrepreneurship Council