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Delta force: conservatism's best young economists.

The creeping rot of multiculturalism, feminism, deconstructionism, and other fashionably radical intellectual trends has spread to nearly every branch of study in American universities. But economics appears to have developed an immunity to such diseases. It is one of the few disciplines in which radical Left ideology has failed to take root. Market capitalism--anathema to the bulk of the professoriate--flourishes in economics departments, where Keynesians have been unable to prevent the growth of various offshoots of classical free-market thought. This lack of political correctness is one of the reasons why U.S. economics programs are considered to be among the best in the world, while humanities and most other social sciences attract fewer foreign students.

The University of Chicago--which once commanded the heights of free-market economic thought--no longer stands alone at the summit. Ideas that originated at Chicago have disseminated throughout the nation's economics departments, and many of the country's top young economists are now emerging from schools like the University of California at Los Angeles (UCLA), the University of Minnesota, and George Mason University in Virginia.

What follows is a brief description of some of the best work of the rising generation of free-market oriented economists. They are tackling controversial issues, such as the legacy of Reaganomics, the privatization of the economies of the former East Bloc, and the prospects for Third World economic development.


What caused the rising income inequality of the 1980s? Many economists argue the wage gap was caused by the switch from high-paying manufacturing jobs to lower-paying service sector jobs, among the working class. But Kevin Murphy, of the University of Chicago, provides another explanation. He and UCLA's Finis Welch show that those with college degrees have always earned more than non-degree holders, but the gap widened precipitously during the 1980s. Their article, "The Structure of Wages," originally published in the Quarterly Journal of Economics, demonstrates that, in the 1980s, possession of a college degree became more crucial than ever to financial success.

Murphy gives two reasons for this. During the 1980s, degree holders became more valuable due to a dwindling supply of graduates. Simultaneously, there was an increased demand for advanced education and skills in the workplace.

During the 1970s, college graduates earned about 40 percent more than high school graduatcs. By 1980, the difference had declined to about 25 percent. But by 1985, the gap had widened to 55 percent. According to Murphy, this is because colleges were flooded with Baby-Boomer students during the 1970s, and the flood subsided during the 1980s. Murphy says that, even within the same profession, degree holders pulled away from less-educated peers. For instance, during the 1980s, college-educated secretaries outearned non-degree holding secretaries by a considerable margin. Murphy claims that those with advanced degrees continue to earn more throughout their lifetime. Recent college graduates entering the job market can expect to earn hundreds of thousands of dollars more, over the course of their lifetimes, than those with only a high school diploma.

Employers are seeking well-educated employees more than ever. By the mid-1980's, nearly three times as many employees held college degrees as during the late 1960s. The danger is that those who do not earn college degrees will drop further and further behind. In a separate article, published in the American Enterprise, Murphy relates this study to the economic plight of black Americans: "The key point is that the failure of our nation's educational system to provide blacks with the quantity and quality of schooling required to compete in today's labor market may be a reason for the lack of economic progress for blacks in recent years."

Murphy and Nobelist Gary Becker provide intellectual ammunition for school choice advocates. They argue that public schools are actually more segregated than private ones, since they draw all their students from the same neighborhood. Private schools, which attract students from different areas and are permitted to charge varying tuition fees, tend to be more integrated in actual practice. The authors advocate a voucher system, to facilitate greater integration.

Becker and Murphy have also modeled the economic behavior of a seemingly irrational group--drug addicts. They wrote an oft-cited article in the American Economic Review (AER) on the theory of "rational addiction." It shows that even addicts are sensitive to price, defying conventional wisdom that addicts will "do anything" to get their next fix. Murphy and Becker conclude that reducing the price of drugs through legalization would increase their use, particularly among young people, for whom price is often a barrier. While lower prices raise consumption, the converse is also true. A June 1994 AER article by Becker and Murphy disputes estimates of the massive savings that a cigarette tax will bring in, since cigarette consumption will decline--even among nicotine addicts--if high "sin" taxes are levied. They estimate that the $2.24 per-pack tax in the Senate Finance Committee's health reform bill would lower cigarette consumption by almost 73 percent, yielding considerably less tax revenue to finance insurance subsidies than is expected.

Murphy received his Ph.D. at Chicago and has been a member of the faculty since 1982. Now 35, he is an associate professor in the Graduate School of Business.


Most people view the "hostile takeover wave" of the Eighties, which took place among American business corporations, as monopolistic maneuvering by corporate giants. Chicago's Robert Vishny and Harvard's Andrei Shleifer say otherwise, showing in a Science article that the takeover wave was beneficial for the American economy. In contrast to earlier acquisition binges, this one broke up conglomerates that made little economic sense, and refocused American businesses on their core competency. Conglomerates; had become overextended, reaching into areas unrelated to their specific expertise, areas in which they proved to be uncompetitive. "Conglomerate builders ignored Adam Smith's principle that specialization raises productivity," says Vishny. In effect, non-specialists in central offices were calling the shots for specialized operations.

In many cases, corporate raiders sold off the inefficient elements of a company, while retaining the most effective one. Vishny considers Revlon a prime example. The company's cosmetic business suffered when its management dedicated its scarce capital to expanding its health-care ventures. Ronald Perelman reversed the slide when he took over the company; he dismantled the health-care operation and refocused on beauty products. This research by Vishny and Shleifer on takeovers suggests an unfettered antitrust policy is best. "Too strict an antitrust policy is ineffective," says Vishny. "The rules on takeovers and junk bonds are distortionary, precluding the market from working effectively."

Vishny and Shleifer met at MIT while pursuing their doctoral degrees, which they earned in 1985 and 1986, respectively. Shleifer, Russian by birth, earned his BA from Harvard, then taught at Princeton and Chicago, before returning to Cambridge as a full professor. London's Economist recently called the 33-year old Shleifer, "Undoubtedly the best Russian neoclassical economist around." Vishny, 35, is the Eric J. Gleacher Professor of Finance at Chicago. He is also Program Director of the Program in Corporate Finance for the influential National Bureau of Economic Research (NBER) in Cambridge, Massachusetts.

Vishny and Shleifer combined forces to investigate the economic impact of corruption. In "Bribonomics," published last Fall in the Quarterly Journal of Economics, they show why the economy of the former Soviet Union seems to be getting worse before it gets better. With the breakdown of central authority, but without the establishment of a rule of law, there are more people to be bribed than in the past. Vishny and Shleifer suggest that the most wasteful corruption is independent and disorganized, occurring in developing countries and post-Communist Russia. Monopoly corruption--that of the former communist bloc and autocracies such as the late Ferdinand Marcos's Philippines--is somewhat more efficient, since fewer palms must be greased. Vishny makes an analogy to the Chicago Mafia, which tends to run more organized and efficient criminal operations than do independent operators. Vishny and Shleifer's model of corruption (organized vs. disorganized) explains why the "free-for-all" corruption taking place in both contemporary Russia and developing nations of Africa is often more burdensome for businesses and economic development than were predictable, hierarchical systems of bribery established under communism and dictatorship.

Vishny and Shleifer--who speaks fluent Russian--have taken an active role in curbing corruption by encouraging economic privatization efforts in Russia. They advised the Russian Privatization Ministry on how to sell off state-owned companies and write the rules governing private enterprise. Despite extensive privatization, many firms remain partially controlled by the state, and are often less interested in profit-making than in governing government subsidies. "The state must have a lesser role. When politicians run the show, it is hard to separate the goals of the firm and political objectives," says Vishny. He believes that the legal and political obstacles to privatization are more formidable than the economic ones. A proud disciple of the Chicago School, Vishny views his research and privatization work as a means of extending the "Chicago view of the world" toward the newest frontiers of economic inquiry.


Australian economics is a subfield of the profession which departs widely from mainstream academic thought. It emphasizes human behavior, not mathematical calculations. Members of the Austrian School, building on the insights of Karl Menger, Ludwigvon Mises, and Friedrich Hayek, emphasize that governments can never fine-tune market systems because human behavior is unpredictable, and the knowledge used by individuals to make market decisions can never be efficiently collected by a central planner, since it is constantly changing. Markets themselves are also in a state of constant flux, as the individual entrepreneurial decisions of every member of society move the economy forward. Mainstream economists study markets in a state of equilibrium, which, according to Austrians, can never be attained.

Senior economists of the Austrian School agree that Peter Boettke is one of the brightest lights on the horizon. Boettke received his doctorate from George Mason in 1989, while studying under. James Buchanan, Gordon Tullock, and Don Lavoie, then spent a year as a Hoover National Fellow. Now 34, Boettke teaches in the Austrian Economics Program at New York University, where he works with noted Austrian Israel Kirzner. His own work focuses on the former Soviet Union, concentrating on its political economy. The actual Soviet economy, in Boettke's interpretation, never operated like the stereotypical command economy envisioned by theorists. "The importance of the black market and unofficial trading is ignored," says Boettke. "It would be a mistake to study the Soviet economy without emphasizing the internal behavior. Individuals did not always conform to the system. If you look at the economy as a top-down hierarchy, then you are missing the point." According to Boettke, there were three interdependent economics operating at the same time--the centrally planned one, a black market designed to help localities meet designated targets, and a black market for consumers. Diverse entrepreneurial roles were created. For instance, tolkachis, or middlemen, provided local economies with the supplies necessary to meet targets designated by the central government. Boettke compares this role with that of Klinger on the popular sitcom "M*A*S*H," who was operating in a wartime command economy. Klinger made a great effort to bring unauthorized fans and other luxuries into the M*A*S*H camp because he knew he could sell them on the sly and make a profit. Thus, in Boettke's analysis, the innate entrepreneurialism of individual citizens was never actually extinguished by the state, but took place within nonmarket institutions, such as local Party cells. Individuals conducted business transactions, but were unable to expand their operations because they were operating within a Communist system.

Boettke has already written two books. The more recent, Why Perestroika Failed: The Politics and Economics of Socialist Transformation discusses the Gorbachev reforms of 1985-1991. Boettke is critical of half-hearted efforts such as the Law on Private Economic Activity, enacted in November 1986. This law was intended to inspire previously illegal private entrepreneurship. It allowed individuals to drive private taxi cabs, but only if they complied with strict government regulations. Licensed cabbies had to moonlight, since they were required to continue working at their state jobs during the day. They also had to pay a registration fee and taxes amounting to 560 rubles in 1987 currency, equivalent to three months of their state salary. According to Boettke, this is why--even at the height of perestroika--most taxi cabs were still unlicensed, operating as part of the black market.

Boettke wants to study European history to learn how capitalism developed in places like the Dutch Republic. He feels that Austrian economists can learn from historians such as Gertrude Himmelfarb about how contemporary societies can make the transition to capitalism. He views the present state of the Austrian School as paradoxical. "We don't have anyone tenured at Harvard yet, but people on Wall Street are fascinated by it. People who work there come to NYU to get their M.A.s instead of their M.B.A.s, because they are interested in studying economics they can apply. Unfortunately, the professional rewards are for building a better econometric model, not for making historical arguments."


Kenya is known as a breeding ground for long-distance runners, not free-market economists. But when Samson Kimenyi, a graduate of the University of Nairobi, came across the writings of public choice theorists, he had a transforming intellectual experience. Students of public choice theory apply economic analysis to the behavior of politicians and government officials, unlike many conventional economists, who have assumed that government officials act in the "public interest." Public choice economists assume that politicians are self-interested individuals who rationally pursue incentives, such as the campaign funding and special interest support that will ensure reelection. Bureaucrats who are not subject to market forces also come under fire from public choice enthusiasts, who accuse them of "rent-seeking." Rent-seekers try to guarantee monopoly rents, or profits, for themselves, by erecting government-enforced barriers to employment of outsiders. These barriers include unions, complex licensing requirements, quotas and ideological litmus tests--all of which immunize existing producers from competition.

Kimenyi decided to pursue his doctorate at George Mason, where he studied under James Buchanan and Robert Tollison. As an African native with a public choice orientation, Kimenyi, now an associate professor at the University of Connecticut, has developed a unique perspective on issues of race relations, poverty, and development--his research interests. This perspective is far from politically correct.

Kimenyi has had the temerity to criticize the ethnic and gender studies programs that have sprung up like weeds on campuses across America. The seeds of such specialty programs were sown during the late 1960s, and today hundreds are firmly established within the nation's universities. These programs have come under fire by traditionalists, but Kimenyi is among the few to subject them to rigorous economic analysis. Several years ago, he received a grant from the Sarah Scaife Foundation to conduct such a study. Kimenyi published research results of his analysis of salaries paid at 20 American universities in Academic Questions.

He concluded that rhetoric about helping "disadvantaged" groups serves as a smokescreen to obscure the true purpose of specialty programs--to allow rent-seeking faculty to feather their own nests. Kimenyi shows that faculty teaching in these departments tend to be underqualified and overpaid in comparison with their counterparts in traditional disciplines. Teaching in "academic ghettos" allows faculty members to insulate themselves from competition, while increasing the demand for their services. Kimenyi argues that the programs exist because of a coalition between rent-seeking faculty and administrators who fear campus activism. The appeasement of campus radicals is the only viable function that these programs serve, according to Kimenyi. "The quality of these programs or what happens to students who graduate from them appears to be of little concern to the university administrators or the faculty," he writes.

Kimenyi's gripe with specialty programs carries over into his professional life. In a Lincoln Review article, Kimenyi describes encounters with black studies departments, whose administrators discriminated against him due to his unorthodox views. Kimenyi, who served as minority affairs administrator for the School of Business Administration while teaching at the University of Mississippi, also expresses dismay at the way many such administrators casually and callously enforce lower academic standards for minority students.

Kimenyi's article, "Rational Choice, Culture of Poverty, and the Intergenerational Transmission of Welfare Dependency" was named the Southern Economic Journal's article of the year for 1991. This research has strong implications for the current debate over welfare reform. His analysis of African and East European dictatorships discusses the effect of economic rent-seeking by groups as diverse as tribes, military units, foreign aid recipients, civil servants, urbanites, and farmers.


Unlike most economic specialties, developmental economics has often demonstrated a strong bias against capitalism. Many developmental economists take their cue from scholars such as Immanuel Wallerstein, who formulated the "world systems" theory. Wallerstein claims that a "center" of industrialized nations systematically exploits the less-developed nations, or "periphery," by mining their natural resources while exercising a favorable balance of trade with them, made possible by superior productive capacities. Such economists advocate that less developed nations erect trade barriers and establish price controls in order to "protect" their citizens from foreign capitalists. Variations of these policies were actually adopted by most Latin American nations after World War II. In the mid-1980s, Latin American economies had "the highest degree of protectionism in the world," according to Sebastian Edwards, Chief Economist for Latin America and the Caribbean at the World Bank. History has delivered a harsh verdict on these policies.

The oil shock of 1973 and the debt crisis of 1982 called into question highly statist economic policies. But it is only recently that they have come under direct assault. In an upcoming paper, Edwards writes:

It became increasingly apparent that the high

degree of reliance on the state to run the economy

had not produced the expected results. Instead if

protecting the public from major external shocks, the

overexpanded state has greatly weakened the ability

of these economies to react to foreign disturbances.

Politicians and policy makers began to sense--slowly

at first, and then at an increasing speed--that

the inward-oriented policies followed by the majority

of the region were no longer sustainable. As the

1980s unfolded, economists dealing with Latin

America recommended with increasing insistence

a shift in the region's development strategy toward

free market-based policies.

The Chilean-born Edwards is becoming influential as both a practical and theoretical economist. A graduate of the Catholic University of Chile, he received an M.A. and Ph.D. in economics from Chicago. Now 40, he is at the World Bank on leave from his post as Henry Ford II Professor of International Business Economics at the Anderson Graduate School of Management at UCLA. A corporate consultant and prolific author, Edwards has published more than 80 articles in professional journals, most concerning the monetary, fiscal, and trade policy of the nations of Latin America.

Edwards demonstrates that Latin American countries that adopted the most protectionist stances--such as Argentina, Brazil, and Peru--had the lowest rates of growth. In The Macroeconomics of Populism in Latin America, which Edwards recently co-authored with Rudiger Dornbusch, economic protectionism, or "populism" is described as a recurrent, cyclical phenomena in most Latin American countries. "At the end of every populist experiment," note the authors, "real wages are lower than they were at the beginning of those experiences." Only politically connected individuals benefited from these experiments in economic interventionism.

Edwards also documents the emergence of market-oriented reforms. In his forthcoming book, From Despair to Hope: Crisis and Reform in Latin America, and in a recent paper, Edwards lays bare the source of current reform efforts:

Since 1987-88 there has been remarkable transformation

in economic thinking in Latin America.

Protectionism and interventionist views have given

way to openness, market orientation and competition

... This change in economic thinking resulted

in a new Latin American Consensus ... Some analysts

have referred to this process as the |Washington

Consensus', and have suggested that the new policies

were imposed on Latin America by the U.S.

Treasury, the IMF and the World Bank. This interpretation

is overly U.S.-centrist and clearly misses

the internal Latin American political dynamics.


Jim Poterba has become a general in the rational expectations revolution. Rational expectations is an economic theory that assumes people anticipate changes in the economy, and act in accordance with their predictions. A seemingly simple insight, the theory has been used by Robert Lucas of Chicago, among others, to show that, if consumers learn from experience, it is not within the government's power to stimulate the economy. Poterba concurs. "I believe very much that the economic behavior people engage in today is not affected just by today's system of taxation," said Poterba, "but also by what they expect tax policy to be in the future. If I buy a tax-exempt bond today, I'm taking into account future tax policy when I make that decision."

Poterba is chiefly concerned with public finance and tax policy. He is one of a number of public finance economists, including Harvard's Martin Feldstein, studying how people respond to changes in tax policy. But Poterba is uniquely situated to influence future research. At 36, he is the director of the NBER's public economics research program, which enables him to stimulate research into targeted areas. "I bring together large databases of information with an economic theory (rational expectations) that suggests where to look and what to look for," said Poterba.

Poterba graduated from Harvard in 1980, where he was influenced by Feldstein and Lawrence Summers. A Marshall Scholarship enabled him to attend Oxford, where he received his Ph.D. in 1983. He has been a member of the economics department at MIT ever since. In the broader economic world, he has been named a Fellow to the Econometric Society and to the Center for Advanced Study in Behavioral Sciences.

Poterba's most promising research analyzes spending by local governments. He is trying to understand why some states and localities are more spendthrift than others. Poterba has identified fiscal constitutions as an important factor. "If you compare states with strict balanced budget rules to those with loose ones, legislators tend to react much more quickly to monetary shortfalls and overruns when they are operating under a tight fiscal constitution," says Poterba. This means that tight fiscal guidelines can rein in big-spender legislators, while loose restrictions encourage profligate spending. Poterba also found that states with separate capital and operating budgets tend to spend more. This shows that budgetary institutions largely determine budgetary outcomes. It may appear commonsensical that spending guidelines affect actual expenditures, but there has been little hard evidence to prove it. Poterba plans to continue working on the impact of fiscal institutions on government behavior, as well as studying the effect of tax rules on personal savings.

Tax-and-spend dilemmas are at the heart of Poterba's research, which often addresses specific policy questions. For instance, his upcoming article in the Journal of Public Economics demonstrates that 401K plans have had a positive effect on the economy as a whole, by raising household savings throughout the country. Poterba's American Economic Review article on the distribution of the gas tax also merits attention. Others have argued that such taxes are regressive, because they hit Chevy Nova drivers as hard as BMW owners. Both pump gas. But Poterba focuses on drivers' lifetime earnings, not simply their current salary. His insight, then, is to point out that many college students currently driving Chevy Nova's will be driving BMW's a few years down the road. Thus the taxes are not as regressive as they initially appear.


A student who spent his free time in college volunteering for Ralph Nader's watchdog organization would appear an unlikely candidate to become a leading critic of federal regulatory measures. But Kip Viscusi's experience as a Naderite gave him a clear understanding of the havoc regulatory agencies can wreak. Viscusi, now 44, went on to become a key player in the Reagan-era regulatory reforms and has been the George G. Allen professor of economics at Duke University since 1988.

Anxious to involve himself in regulatory policy work, Viscusi spent two of his undergraduate summers away from Harvard working for Nader in Washington. He learned to apply cost-benefit analysis to regulatory programs. Cost-benefit analysis weighs the financial cost of protective regulations against the expected benefit in terms of reduced health hazards. As a student, Viscusi used cost-benefit as an advocate of increased federal regulation. He continues to use the approach today, although now a leading critic of many regulatory policies. "I've been consistent all along," he insists, "unlike the advocacy community, which uses cost-benefit analysis only when it suits their purposes, and abandons it when it doesn't."

Viscusi graduated in 1971, staying on at Harvard for his MA., M.P.A., and Ph.D., which he completed in 1976. He was then hired by the Occupational Safety and Health Administration (OHSA), which had been under fire from critics, to demonstrate its success. "They funded me to find a safety effect they had, but there wasn't any," says Viscusi. "That was the last big grant I've received from them." Viscusi said this experience taught him, "People have allegiances to their organizations and they're blind to adverse impacts their agencies might have."

Viscusi has had a considerable impact on public policy. During the Carter administration, he was deputy director of the Council on Wage and Price Stability. Viscusi said his work in regulatory oversight taught him how difficult it is to control prices. He attained his greatest influence during the Reagan administration. Viscusi helped popularize the notion that individuals' willingness to undergo risks should be taken into account by hazard regulators. This implies that someone who decides to become a construction worker willingly accepts a high on-the-job risk rate, and it is not up to the government to ensure he faces the same exact risk of occupational hazard as a lower-paid office worker. Adoption of Viscusi's argument by OSHA and other regulatory agencies prompted the Washington Post to call him, "the Reagan administration expert on the value of life."

Individuals' ability to assess personal risk is also the theme of Smoking: Making the Risky Decision. In this recent book, Viscusi proves that smokers--seen by regulators as ignorant prey of the tobacco industry--are well aware of health problems they may incur. Smokers actually overestimated the odds of dying from lung cancer and other smoking-related illnesses, in a survey Viscusi himself conducted in Durham. If they are aware of the risks, why do they continue to puff away? Smokers appear to be risk-takers, reasons Viscusi, citing another survey he conducted, in which workers in Oregon who smoked were more willing than their peers to accept various hazardous jobs.

Viscusi has published extensively in the areas of occupational safety, product-labeling, smoking, environmental hazards and federal regulations. He has written 15 books and over 100 professional articles. During the 1990s, his influence in academic circles has soared: Viscusi is now cited in academic journals nearly as often as Chicago's Sam Peltzman, the acknowledged leader in the field of risk and insurance.

His most recent work deals with Superfund's environmental regulation. Along with Duke colleague James Hamilton and 12 assistants, Viscusi is conducting an in-depth study of the health risks addressed by Superfund. "This will be the biggest thing I've ever done," he said. The Superfund program was created under the Comprehensive Environmental Response, Compensation and Liability Act of 1980, in response to disasters such as Love Canal. Under Superfund, the EPA has identified tens of thousands of hazardous waste sites and begun to supervise their cleanup. The costly clean-up strategies adopted under Superfund have been criticized, but Viscusi and his cohorts at Duke are asking a more fundamental question: Do the sites identified as "hazardous" actually pose a risk to local residents?

In examining the data collected by regional EPA offices, Viscusi and Hamilton found that 90 percent of the risk associated with the sites--according to the EPA's own data--is based on conjecture regarding future use of the areas. The actual risk of harm to local residents is very slim. Viscusi and Hamilton recommend avoiding health risks by curbing future use of the land, not engaging in massive clean up efforts. The only criticism of the study thus far, says Viscusi, has come from people that own waste disposal companies, "Because we may put them out of business if we say about a given site that all you have to do is put a fence around it and then forget it."


The field of health economics, which evolved in recent decades from the disciplines of labor economics, industrial organization, and public finance, appears to have come of age in light of the current debate over health reform. Health economists formed much of Ira Magaziner's health-care task force; others were invited to Washington to testify concerning health reform before congressional subcommittees. Michael Morrisey, the 42-year old Director of the Lister Hill Center for Health Policy at the University of Alabama Birmingham (UAB), has conducted an overview of the expanding field. A few years ago, Morrisey and Roger Feldman of the University of Minnesota conducted a study of 518 health economists. Theirs was the first study to investigate the views of these economists, many of whom are now firmly ensconced in government, business, and research firms, and whose views "may exert a disproportionate influence on health policy in this country." The results, published in the Journal of Health Policy, Politics and Law, demonstrated that health economists are particularly dependent on external grants and contracts, and less market-oriented in their views than other professional economists. A majority of those surveyed favored Canadian-style national health care over the current U.S. system. Interestingly, those trained at the very best economics programs, and younger health economists generally, reject nationalized health care.

Although he presides over a major academic health center, Morrisey is skeptical of such bodies, pointing out that, like similar organizations, they tend to work to serve their own institutional priorities--such as advancing research agendas and enlarging the role of health economists--not in pursuance of the "public good." For this reason, he has misgivings about the pronounced public policy role of academic health research. "Personally, I try to be honest and tell people that when I do research, I have a stake in fostering further investigation into the area I'm studying," he says. Despite these misgivings, Morrisey's star is rising. In 1991, he received the John D. Thompson Award for Outstanding Health Service Research by an individual under the age of 40. His recent articles on employer mandates and cost-shifting have made him an important voice in the public policy debate over health reform.

Morrisey is among those arguing that mandated health insurance coverage will be financed by the reduction of wages and other benefits. This reduction is the employers' way of gaining compensation for taking on the burden of health coverage, he argues in American Health Policy. The ironic result is that, "Mandated coverage will be predominately paid for by uninsured workers themselves." Morrisey also opposes mandates because they politicize health-care decisions at the expense of individual choice. "There are some strong reasons to believe that democratic control of health-care costs would be especially difficult. There is a strong temptation by politicians to over-provide some services," he writes in The American Enterprise. "I believe that the best approach is one that goes to great pains to make choices explicit. Thus, the |employer-payment' option should be avoided in favor of laying the obligation explicitly on households."


When the Clinton Health Plan was released last fall, it was judged a failure by at least one academic evaluator. In a Minneapolis Star and Tribune editorial, Professor Bryan Dowd of the University of Minnesota said the substance of the plan merited an "F." He reiterates the sentiment in an upcoming paper, "The Clinton Health Care Reform Proposal: Efficiency, Fairness and the Role of Government." Dowd writes, "The administration's proposal continues the federal government's policy of pouring billions of dollars of subsidies into the purchase of health insurance and health-care services and then trying to patch up the resulting problems." Dowd, who is 42, draws these conclusions based on the intensive studies of health-care markets that he and senior colleague Roger Feldman have been conducting for years at the Institute for Health Services Research at the University of Minnesota's School of Public Health.

Dowd and Feldman are nationally recognized for their studies of competition among employment-based health-care plans. The pair have estimated the cost of health-care "overinsurance," which occurs when individuals are steered into higher-priced health plans than necessary by their employers. Following up on a similar estimate done in 1973 by Martin Feldstein, they used updated data from the $80 million Rand Health Insurance Experiment to compute the results, published three years ago in the American Economic Review. They found that between $33.4 and $109.3 billion dollars was wasted due to overinsurance during a single year, 1984. Dowd said that the favorable tax treatment accorded to employer-sponsored plans is the major cause of overinsurance, since it encourages employers to channel employee compensation toward health benefits--and away from paychecks.

The research done by Dowd and his Minnesota colleagues has been drawn upon by market-oriented reformers. Senator David Durenberger's (R-MN) refers to Dowd's proposal for a competitive pricing system to replace the current administrative pricing system in Medicare as forming the intellectual foundation of his recently introduced bill, the "Medicare Choice Act of 1994." This bill seeks to make the Medicare system more cost-effective by putting decisions in the hands of its consumers, through competitive bidding. Durenberger borrowed the idea from a 1992 Milbank Quarterly article, co-authored by Dowd, which argues that the government should behave like a self-insured employer offering a choice of multiple health plans. Thus, contributions to premiums for Medicare beneficiaries should be equal to the lowest cost plan in a market area. Recipients can choose any plan, but have to pay the marginal cost of more expensive plans out of their own pocket.

Dowd's research on competition between plans has made him a critic of "Any Willing Provider" laws, which insist that no medical provider be excluded from joining an existing HMO or other provider group. "We've found evidence of how competition among health-care plans can trickle down into competition between providers who must contract with those plans," said Dowd. "Every health plan doesn't have to be open to every provider. Although no one likes to be told they must change their doctor, they should be given the opportunity to exchange an element of choice for a lower premium plan."
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Author:Warren, Peter N.
Publication:Policy Review
Date:Sep 22, 1994
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