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More Examples of Government Failure-by-Design

Let’s turn to one of the hallmarks of what passes for executive leadership in late empire: the bold announcement of voluntary programs. Every so often, across my desk comes a press release touting a bold new “crackdown” on some set of malfeasance, or the announcement of a policy that will “put hundreds of thousands back to work” or “provide relief for hundreds of thousands of Americans” or something or other. Then when you drill down to the substance, you realize that the policy is largely voluntary, predicated on businesses following through on a pledge, or the idea that a stern talking-to will deliver the policy preference, or whatever.

Months or years later, you get the one-off article about how said policy, announced to much fanfare, didn’t actually work. And we see that with increasing frequency these days. In the past 48 hours, I’ve taken note of the fact that Michelle Obama’s plan to eliminate “food deserts” has led to almost no additional retail stores selling fresh food in low-income communities. That was based on a “pledge” by businesses to put retail outlets in those communities, a pledge with no follow-through. I noted that efforts to crack down on international tax evasion have yielded almost no results. These again were based on hopes more than concrete policies.

Here are two additional examples from today. First, as part of the Affordable Care Act, the Department of Health and Human Services received “rate review authority” on insurance premiums. I put that in quotes because the authority merely means that HHS can criticize insurance companies for increasing their premiums to “unreasonable” levels year over year. There’s no formal authority granted to HHS at all. And unsurprisingly, this has not led insurance companies to back down and reduce their premiums:

Health insurers flagged by the department for “unreasonable” premium hikes are refusing to back down in the first year of HHS’s new rate review authority.

HHS can use its bully pulpit to publicly shame insurers whose rates don’t pass its sniff test – and HHS has done just that, holding four media calls since November to scold insurers each time it’s made a new “unreasonable” determination.

Faced with the choice of dealing with some negative press on the national stage or upending their business plan, the four insurers that have been dinged by HHS have all chosen to stick with the business plan.

Since the negative publicity is fleeting, but hard dollars for premium increases last forever, this is a totally unsurprising scenario.

Here’s another one. The government has announced a host of policies to encourage refinancing of mortgages for current borrowers, so they can take advantage of low interest rates. But all of the policies rely on the individual servicers to actually perform the refinancing. And they have dragged their feet.

Clogged mortgage pipelines have created headaches for hundreds of thousands of Americans trying to take advantage of low mortgage rates, which averaged 4.05% for the week ending April 27, according to the Mortgage Bankers Association […]

But considering how far mortgage rates have dropped, the refinancing burst has been lackluster by historical standards. A surge in demand has come at a time when fewer banks control a larger share of the mortgage market than they did before the financial crisis. Banks also are being more careful about whom they lend money to and how they process loans. It now takes the nation’s biggest mortgage lenders an average of more than 70 days to complete a refinance, according to Accenture Credit Services, up from 45 days a year ago.

There is another factor. Amid reduced competition, some large lenders have boosted their rates in a bid to hold down volumes while bolstering profits. That limits the savings for many applicants.

The entire point of the government’s refi plans, particularly in the second version of HARP, was to stimulate competition and get borrowers the lowest rates possible. The exact opposite has happened. Most large lenders have vowed to only refi their own loans and not poach the loans of anyone else. As a result, they charge higher rates and allow for longer delays. And the program doesn’t work.

This is a key factor to the perception of government incompetence. The incompetence can be accounted for by the faulty design of the programs themselves. In a bid to be reasonable, or something, Democrats, at least the current Administration, put forward half-measure policies that do not impose on the businesses that need to carry them out, instead merely trying to nudge those companies in the right direction. It turns out that multinational corporations do not respond to behavioral economics. If they can maximize profits by avoiding government dictates, they will. And all the nudging in the world won’t change that.

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David Dayen

David Dayen