Archive for 2007
The Laffer Curve Straw Man
I’ve already addressed this issue, but here we go again. Commenting on the “totemic appeal” of the Laffer Curve for conservatives, Kevin Drum of Washington Monthly asserts that the concept is no longer relevant because:
…the current top marginal rate in the United States is 35%, and no one in their right mind thinks that’s anywhere near high enough to have a serious Laffer effect. When top rates are that low, lowering them further just reduces tax revenue.
Mr. Drum may know how (fairly) to mock politicians who exaggerate, but his critique of the Laffer Curve is based on the straw-man proposition that tax cuts are self-financing. Notwithstanding some of the political rhetoric, the Laffer Curve does not imply — and never has implied — that all “tax cuts pay for themselves.” That only happens if rates become sufficiently punitive to put the taxing jurisdiction on the downward-sloping portion of the curve.
The real issue is whether certain changes in tax policy will have some impact on economic activity. If an increase (decrease) in tax rates changes behavior and causes a reduction (increase) in taxable income, then revenues will not rise (fall) as much as “static” revenue-estimating models would predict. This is hardly a radical concept, and evidence of Laffer-Curve effects is very well established in the academic literature.
The reason there is a debate is that the government’s revenue-estimating bodies (the Joint Committee on Taxation on the Hill and the Office of Tax Analysis at Treasury) assume that tax policy changes have zero impact on economic performance. That’s right, zero.
Eminent Domain Abuse Still Rampant in Missouri
I’ve written a new study for the Show-Me Institute examining the problem of eminent domain abuse in Missouri. In the wake of the 2005 Kelo decision, a few state legislatures took decisive action to protect property rights, but many failed to enact comprehensive reforms. Unfortunately, Missouri was in the latter category. The legislature here passed a very timid eminent domain bill in 2006 that made some minor procedural changes and increased compensation for some property owners. But as I document in the study, the legislation has had little or no impact on the frequency of eminent domain projects that primarily benefit politically-connected private developers.
I make two major points in the study that are relevant across the country. First, the moment cities start to threaten the use of eminent domain by designating an area “blighted,” it casts a shadow over the affected area that retards economic development. After all, what home or business owner is going to invest in property that is likely to be demolished in a few years? As a result, “blight” often becomes a self-fulfilling prophesy; properties deteriorate as politicians draw up a new “master plan” for the area.
Second, I point out that eminent domain is most harmful to small business owners and low-income residents who lack the political clout or the deep pockets required to fight the seizure of their properties. As I argue in a new article in The American, “redevelopment” projects punish small business owners who choose to open up shop in struggling neighborhoods. And in McRee Town, the redevelopment project I studied in the most detail, the city demolished apartments that had rents between $275 and $550/month, and replaced them with single-family homes costing more than $200,000. Obviously, the previous occupants were forced to move to other parts of the city, presumably into neighborhoods that are just as slum-like.
You Can Love Kids and Still Oppose SCHIP
Or so say I, in today’s Dallas Morning News.
Romania Joins the 31-Nation Private Retirement Account Revolution
An English-language story from the European press discusses the privatization of the retirement system in Romania. The system eventually will permit workers to put six percent of their income in personal accounts. This is good news, but there is a dark lining to this silver cloud. I challenged my colleague Jose Pinera earlier this year that the number of flat-tax nations would soon exceed the number of private-account nations. Unfortunately, Jose works too hard, and he keeps adding new nations to his list. Since there are now 21 jurisdictions with flat tax systems, this means I still have a long way to go:
Under a new system launched last month, more than 3 million Romanian workers under 35-years-old must opt for one of 14 competing private pension funds before January 17th, 2008. Those ages 35 to 45 can also decide to join one of the private funds. Starting in 2008, 2% of every worker’s general income will be redirected from the state budget to the chosen private fund. This contribution will gradually increase to 6% by 2015, and the current 9.5% social security contribution to the state system will diminish accordingly. “Several million Romanians will become investors, and the private pension system will educate them in the spirit of a free market economy,” says Romanian President Traian Basescu. …Romania cautiously now joins a club formed by 31 countries — Bulgaria, Macedonia and Croatia among them that have decided to address the demographic pressure on state budgets through privatisation.
Mitt: Educational Marxist?
According to MSNBC, yesterday GOP presidential candidate Mitt Romney called Hillary Clinton a Marxist, remarking that “she said we’ve always been an on-your-own society…we should be a we’re-all-in-it-together society, a shared responsibility society. So it’s out with Adam Smith and in with Karl Marx.”
Romney might be right about Hillary Clinton, but based on several things he’s said recently about education, one can’t help but wonder if there’s not a fair bit of Big Brother in him, too.
At the same event where Romney attacked collectivist Hillary, for instance, he lauded the intrusive, federal No Child Left Behind Act. He likes the testing, he said, apparently not caring that it’s mandated by the central government. Even scarier, he endorsed a national program requiring that “before a parent can send a child to school for the first time, they’ve got to go to a weekend where they learn about being prepared to support their child in school.”
To top all this off, yesterday the Associated Press reported that Romney has floated the idea of rewarding college aid based on what careers recipients choose. “I like the idea of linking the level of support that we’re able to provide to young people going to college to the contributions they’re going to make to our society.” So not only is Romney going to keep NCLB and force moms and dads into government parenting academies, he’s going to engineer who gets what based, apparently, on how much government decides different jobs contribute to society?
Maybe Hillary isn’t the only closet Marxist in the 2008 race.
Is Portland Light Rail a Success?
My recent Cato policy analysis, Debunking Portland, said Portland’s light rail is a failure. Paul Weyrich, the noted conservative and president of the Free Congress Foundation, responds that it is successful.
The question becomes, “How do you define success?” Weyrich claims that Portland’s light rail led to billions of dollars in economic development. But my paper shows that that development received billions of dollars in subsidies — and before the city started offering subsidies, not a single transit-oriented development was built along the light-rail line.
“Many (Portlanders) use their public transportation system,” says Weyrich. In fact, 9.8 percent of Portland-area commuters took transit to work before the region build light rail. Today it is just 7.6 percent. In a story repeated in numerous cities that have built rail lines, rail cost overruns forced the city to raise bus fares and reduce bus service. That’s a success?
To Weyrich, rail is successful if anyone at all rides it. My standard is somewhat higher. For a point-by-point response to Weyrich’s article, see my Antiplanner blog.
Annoying Questions re SCHIP
Here I am asking a few in the Orange County Register.
I Challenge Paul Krugman to a Debate on SCHIP
Democracy NOW! quotes New York Times columnist Paul Krugman on the State Children’s Health Insurance Program:
the reason that Bush and much of the Republican leadership is so hostile to S-CHIP is not because they think it’s a bad program, but because they think it’s a good program, and that terrifies them. What bothers them so much is the fact that it works.
Why does Krugman think that SCHIP “works”? There is no evidence that the program is a cost-effective way of improving child health. It makes health care more expensive for those outside the program. It does not address the systemic problems that lead to low-quality pediatric care. It reduces the benefits of education and work effort, trapping families in low-wage jobs. It covers four uninsured children for the price of ten . . .
Krugman is an economist. Has he thought about these issues? Has he read any of this literature? What about this program “works”?
It’s easy to dismiss right-wing hacks. These issues . . . not so easy to dismiss.
How to Argue against SCHIP
I like to open with this: “If your goal is to improve the health of low-income children, the State Children’s Health Insurance Program is a bad tool for achieving that goal.”
Then I make as many of the following points as possible.
- SCHIP does a bad job of targeting assistance. About 60 percent of children currently eligible for SCHIP already have private health insurance, while 77 percent of those targeted by this expansion (i.e., children between 200-300 percent of the federal poverty level) already have private health insurance.
- SCHIP covers four uninsured children for the price of ten. Economists Jonathan Gruber and Kosali Simon estimate that, in effect, 60 percent of children covered by SCHIP expansions already had private coverage.
- There is no evidence that SCHIP is the best way to improve the health of targeted children. Economists have found no evidence that SCHIP is a cost-effective way of improving health. Discrete health programs or policies that improve incomes or education could deliver as much or more health for the money.
- SCHIP discourages families from climbing the economic ladder. If a single mother of two earning minimum wage in New Mexico increases her annual earnings by $30,000, she pays an additional $4,000 in taxes and loses $26,000 in SCHIP and other government benefits. In other words, her net income would not change, therefore she has no financial incentive to climb the economic ladder. Expanding SCHIP would put downward pressure on even more families’ incomes, which could harm child health.
- Like Medicaid, SCHIP makes private coverage less affordable for people outside the program. Under Medicaid (and therefore SCHIP) rules, the government agrees to pay a percentage of what drug makers charge private payers. Economists have found that manufacturers respond by raising prices for private purchasers an estimated 15 percent.
- SCHIP would do nothing to address systemic quality problems. According to a recent study in the New England Journal of Medicine, “Expansion of access to care through insurance coverage, which is the focus of national health care policy related to children, will not, by itself, eliminate the deficits in the quality of care.”
- SCHIP’s self-interested advocates. Why do you suppose the physician, pharmaceutical, and health insurance lobbies are agitating for health care subsidies that lack any evidence of cost-effectiveness?
- This SCHIP expansion taxes the poor to benefit the middle class. Isn’t that just cruel?
- Eliminating SCHIP and letting people purchase coverage from out-of-state is a better alternative. The latter would enable families to avoid unnecessary regulatory costs, which the Congressional Budget Office puts at about 15 percent of health premiums. That would benefit SCHIP-targeted families most of all. And it would do so without raising anyone’s taxes, showering subsidies on non-needy families, pulling families into a low-wage trap, or increasing the cost of private insurance. As for eliminating SCHIP, when Congress cut non-citizen immigrants from the Medicaid rolls, contrary to all predictions the number of uninsured non-citizen immigrants actually fell. Why wouldn’t SCHIP families, who are more affluent, fare even better?
Then I like to close with this: “If you’re not interested in the best way to promote child health, not interested in targeting government assistance to the needy, and not concerned about trapping families in low-wage jobs…exactly what is it you are hoping to accomplish?”
Here [audio file] is what happened after I made just a few of these points to left-wing talk show hostess (and frequent Alan Colmes stand-in) Leslie Marshall.
Filed under: Cato Publications; General; Health Care; Trade and Immigration
Friendly Advice for Conservatives on Health Care
National Review Online‘s Health Care Week is in full swing. The site features a week’s worth of essays on how conservatives should approach health care.
My contribution offers friendly advice about how conservatives can avoid abetting the Left as well as the special interests who profit from the creeping socialization of American health care:
Health care is a tough issue for conservatives only because they have strayed from their free-market principles. When conservatives return to those principles, health care will again become a tough issue for the Left.
It was the most fun I’ve had with an oped in a while. Read the whole thing here.
Disaster Collectivism
Naomi Klein, darling of the loonie left, has a new book out called The Shock Doctrine: The Rise of Disaster Capitalism. The basic idea is that the insidious forces of neoliberalism take advantage of wars, economic crises, and natural disasters to impose their evil schemes on disoriented and distracted publics. The career of Milton Friedman, the occupation of Iraq, and the bungled response to Katrina are all supposedly cases in point.
Klein is not a serious person, and in this book she does not mount a serious argument. But she does raise an interesting issue: the political implications of crises. It is certainly true that the waves of liberal reform (political as well as economic) that swept the world in the ’80s and ’90s were often triggered by economic crises. Indeed, I wrote a book on the subject in which I interpreted the current episode of globalization as a response to the often cataclysmic breakdown of various state-dominated models of economic development.
There’s nothing terribly surprising about this. Inertia is a powerful force in politics: every status quo has vested interests that benefit from it, while advocates of change push in all different directions and frequently cancel each other out. A crisis, though, can discredit the status quo and demoralize its supporters, while galvanizing particular pro-reform camps and boosting their credibility. Politics suddenly becomes more fluid; rapid and sweeping changes that had no chance of being enacted beforehand now occur in rapid succession.
But it’s ridiculous to portray this dynamic as somehow uniquely favoring one side of the political spectrum. Recall the great triumphs historically associated with the left: the French Revolution was made possible by the financial distress of the ancien regime; the Paris Commune was founded after defeat at the hands of the Prussians; the Russian Revolution was catalyzed by military failures in World War I.
In our own country, it was a one-two punch of cataclysms – the Great Depression, followed by World War II — that brought Big Government to the United States and then consolidated its hold. The unprecedented economic collapse made traditional American attitudes of laissez faire and individual responsibility seem hopelessly outdated; by contrast, the frenetic activity of the New Deal, regardless of the decidedly mixed results, projected boldness and vigor and hope. The subsequent mass mobilization for total war reinforced the shift in political culture. If you watched any of the wonderful new Ken Burns documentary on “The War,” you saw that the “home front” wasn’t just an expression: the diversion of the country’s industrial might to war production, price controls and rationing, extremely high tax rates, war bond drives, and incessant propaganda combined to thoroughly collectivize American society. And it worked: the economy boomed, people reaped the psychological satisfactions of banding together against a common and abominably evil enemy, and in the end America triumphed.
Today people on the left are filled with nostalgia for the political economy of the early postwar decades. I don’t think many of them recognize, though, how heavily their Golden Age depended on the lingering economic and cultural effects of destruction on a mind-boggling scale. They call themselves progressives, yet they pine for the good old days of disaster collectivism.
[cross-posted from www.brinklindsey.com]
Catholics against SCHIP
The Rev. Robert A. Sirico is a Catholic priest, as well as president and co-founder of the Acton Institute for the Study of Religion and Liberty. In today’s Detroit News, he weighs in on the debate over the State Children’s Health Insurance Program:
The Catholic Health Association has blasted President Bush for vetoing a program called SCHIP, the State Children’s Health Insurance Program. How can anyone be against the health of children?
Well, public policy is more complicated than that. When the state gets involved in public health, there are unintended consequences. In fact, there is enough wrong with this program to make it possible to oppose SCHIP in good conscience…
There is not a living soul who would not wish that every person, especially every child, would have access to perfect medical care. But the essential condition for universal coverage is universal prosperity, and the only means available to create that is a flourishing and free economy — a condition that programs like SCHIP help to undermine…
It is folly to seek short-term gains at the expense of long-term economic development. Eliminating taxes and regulations that hinder private industry will make greater strides toward universal coverage than any state program can or will…
What I fear most is that politicians use legitimate issues to gather more power unto themselves and their friends in government. The population becomes more dependent on the public sector and less reliant on the sectors over which they exercise real control.
Amen to that. Now how do we get the Catholic hospitals to stop taking Caesar’s coin?
Filed under: Cato Publications; General; Health Care; Tax and Budget Policy
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