Archive for January, 2008
Market Prices ≈ Slavery ≈ Child Labor?
That’s how Len Nichols of the New America Foundation described market prices for health insurance 41 minutes into this this webcast:
“We stopped child labor. We stopped slavery. We ought to stop extreme risk selection, too.”
I imagine more than a few actuaries and twentysomethings would be offended by the comparison.
Thanks to alert viewer Terry Holman for catching what I missed as I sat there listening to Nichols.
Filed under: General; Health Care; Political Philosophy; Regulatory Studies
From the Ed Stats Truth Squad
Not long ago, Donald Luskin headed-up something called the “Paul Krugman Truth Squad,” a band of analysts devoted to keeping New York Times columnist Paul Krugman honest. Well, after years of seeing education stories in the media rife with misleading, incomplete, or just plain wrong “facts,” it seems that in the tradition of Luskin’s crusaders its time for a truth squad to get to work in education. Cato’s Center for Educational Freedom accepts that challenge, and will from here-on out work to debunk bad education data whenever and wherever in the media we find it (assuming we’re not working on other, bigger things, that is).
We begin with this today’s Washington Post, where a story about per-pupil funding in the nation’s capital—and the need to boost it—featured a very dubious statistic:
The recommendation to spend $8,770 a child when the school year begins in August came from State Superintendent Deborah A. Gist. Now, $8,322 is spent for each student [italics added].
Could it be true that only $8,322 is spent per child in the District of Columbia? Surely it is higher than that!
Indeed it is. According to the latest numbers from the federal Digest of Education Statistics, in the 2002-03 school year $14,419 was spent per-pupil in Washington, DC, a figure 73 percent larger than the one given by the Post and one that’s almost certainly even higher today.
The $6,097 question, of course, is how these different figures were arrived at. Unfortunately, the Post’s reporter didn’t give any details about how the $8,322 figure was determined, so we can’t explain the huge difference with absolute certainty. We can, though, probably make a good guess. Read the rest of this post »
Is an Individual Mandate the Way to Reform Health Care?
That’s what Sherry Glied (Columbia University’s Mailman School of Public Health), Len Nichols (New America Foundation) and I discuss with Larry Levitt in this Kaiser Family Foundation webcast.
The New Secretary of Agriculture Plays Lucy
My American friends tell me that there is a recurring scene in the Peanuts comics whereby Lucy says she will hold the football for Charlie Brown to kick before she whips it away.
I was reminded of that yesterday when the new boy in school, newly conferred Secretary of Agriculture Ed Schafer, dashed the hopes of all American consumers, Lucy-style, by implying [$] that the long-awaited open trade in sugar between the United States and Mexico (one of the last NAFTA provisions to come into effect) could be delayed.
Two weeks ago, the Sugar Alliance circulated a proposal to lawmakers that would effectively divide up the United States and Mexico’s (combined) market into a protected cartel. That would significantly impede what was planned to be free trade in sugar between the two countries and downward pressures on the U.S. price of sugar: currently the U.S. price is about double the world price, although it has been up to triple the world price in previous years because of trade barriers to cheaper sugar (see more here).
Sec. Schafer, at least according to the article, was willing to listen to the producers’ plan to manage the sugar trade and was quoted thusly:
If producers in two countries can agree on an approach, that’s better than two governments…trade is all about the producer and providing opportunities and opening markets…
No mention of us consumers paying for it all. And quite why Sec. Schafer believes the market needs managing (either by producers or government) is not made clear.
The Very Models of a Modern Market School System
In an exchange with Sol Stern over at City Journal last week, I pointed out that existing school choice programs should never have been expected to transform American education, because they bear little resemblance to real education markets.
In response, Stern implied that real education markets are not real all, being instead “such stuff as dreams are made on.” (Did I mention we were waxing Shakespearean?)
As it happens, though, the free education marketplace of classical Athens was the first school system in the world that spread learning beyond a tiny ruling elite, and there have been numerous times and places throughout history where schooling was organized more or less as a free market. There are still such places today. And since I can’t think of a suitable Shakespeare quote to illustrate them, how about a little riff on Gilbert and Sullivan:
They are the very models of a modern market school system.
It doesn’t matter how often the punditocracy’s dissed ‘em.
In the shanty towns of India, Kenya and Nigeria
Are schools known to the readers of Cato and Edutheria.
They are private, parent-funded, and they outperform the public schools,
After application of the best econometric tools.
And poor countries are not alone; ed. markets thrive in rich ones, too –
For instance businesses that tutor children in Japan (“juku”).
Just think of “Kumon” here at home or of the “Sylvan” chain.
They thrive and make a profit ‘cause the ed. monopoly’s inane.
For a more extensive, if less poetic, rundown of the evidence on market education (and US school choice programs), have a look here.
Flex-Fuel Nonsense
Over at National Review Online today, Clifford May asks:
What if lawmakers could guarantee that the price you pay to fill your car’s tank will go down, not up, in the years ahead? What if they could launch a new industry that creates more jobs for more Americans? What if this would produce environmental benefits, too? Would that not send a message to the markets? And would that not represent the kind of change so many politicians have been promising?
All of this would come true, Mr. May believes, if the federal government would force auto makers to ensure that every new car sold in the United States could run on gasoline OR high blends of ethanol OR methanol OR fill-in-the-blank. After all, it would only cost about $100 up-front during the manufacturing process to make such “flex-fueled” cars a reality, a modest investment that would give motorists a ready-made ability to run their cars on whatever strikes their fancy.
Well, to answer Mr. May’s questions in the order they are posed, they can’t, they won’t, it wouldn’t, it would, and it wouldn’t.
Congress can no more guarantee that fuel prices will go down from now until the end of time than it can guarantee a robust sex life for fat, balding, middle-aged men. Fuel prices are subject to supply and demand curves that do not answer to Congress — particularly in global energy markets.
The conceit that government can create jobs by creating industries out of whole cloth glosses over the fact that the money needed to create those industries and those jobs starves other industries of cash that will, in turn, eliminate other jobs. While it’s not inconceivable that government could on balance create more jobs than it destroys in this manner (that is, that the industry created is more labor-intensive than the industries harmed), that’s still not a good reason to go forward. After all, one might on balance increase employment in the United States by banning modern farm machinery and food imports, which would put a lot of people into the fields. But no sane person would endorse such a thing on economic grounds. Economic growth occurs when we increase productivity, and we don’t necessarily do that by biasing investment toward labor-intensive activities.
Promoting alternative fuels is not necessarily good for the environment. Ethanol, for instance, increases urban smog without any corresponding reduction in greenhouse gas emissions. It drains already depleting groundwater reserves and pollutes those that remain. It puts millions of additional acres of land under the plow, which in turn kills ecosystems and further pollutes navigable waterways. In short, gasoline looks positively “Green” compared to many of the fuels Mr. May hopes to champion.
Mr. May is correct, however, about the fact a mandate like this would send a message to the markets. The message would be “Congress is not a serious legislative body.” But to be fair, it’s not as if the market hasn’t heard that message before.
Mr. May is wrong, however, to think that a flex-fuel mandate would represent the kind of “change” that most politicians are promising. Congress has told Detroit how to build its cars for decades now. Nothing new there.
The main reason that this sales pitch is hollow, however, has to do with the fact that, at present, there is no cheap alternative to gasoline. The problem isn’t that cars can’t use the fuel. The problem is the cost of the fuel. For instance, on wholesale spot markets as of Jan. 24, 87 octane was selling at $2.32 per gallon. Compare that to the price for alternative fuels (in the same spot wholesale markets) once you adjust for the differences in energy content:
• E100 ethanol — $3.53 per gallon
• B100 biodiesel — $3.97 per gallon
• Methanol — $4.22 per gallon
In short, there’s a good reason why auto companies aren’t popping flex-fuel capabilities into every engine sold: consumers don’t seem willing to spend the $100 extra for that extra. Well, to be precise, most consumers don’t seem that interested. Some are in fact buying flex-fueled vehicles right now — 4 million such vehicles are thought to be on the road at present and dozens of models are on sale right now. But some of us aren’t willing to fork over the extra money for the option to use those fuels over the lifetime of our new car.
Should Congress override consumer preferences in that regard? No. Given the high cost of alternatives, consumers are not acting irrationally when they say “no thanks” to flex-fueled vehicles.
Would auto companies be advantaged by a flex-fuel mandate? Mr. May thinks so, but auto executives tend to disagree. My guess is that Mr. May knows less about their business than they do.
If and when alternative fuels are cheaper than gasoline, you can rest assured that consumers will increase their demand for flex-fueled vehicles and that auto makers will supply them out of simple interest in profit. Government mandates are not necessary.
Less Fuel for the Trade Fire
John Edwards has announced that he is withdrawing his candidacy for the Democratic nomination for president. As I wrote in an op-ed the other week, John Edwards had by far the worst trade policy proposals of the front-running Democrats. It says something good about America that Mr Edwards’ brand of populist nonsense has been rejected by the primary voters.
E-Verify: Slow and Unsteady in Arizona
I’ll soon have a paper out on “electronic employment eligibility verification.” This is the idea of requiring every employer in the country to check the immigration status of employees against Department of Homeland Security and Social Security Administration databases.
A nationwide EEV program, building on the current Basic Pilot/”E-Verify” program, was treated as a matter of near consensus at the beginning of this past summer’s immigration debate, and the Department of Homeland Security continues to promote it.
My paper goes into the practical and technical problems with a full-fledged EEV system, as well as the question whether such a thing is appropriate for a free country. But I’ve already become aware of problems I didn’t think of.
A law went in to effect in Arizona January 1st requiring all employers to use the E-Verify system. The Arizona Republic reports that just 17,000 of the state’s 150,000 businesses have signed up for E-Verify. (January is a slow month for hiring, but employers may be holding off on hiring too. And a lawsuit has been brought challenging the Arizona law.)
Among employers using E-Verify, the question has arisen what to do when an employee has worked for a few days, but then is deemed ineligible by the database. Should the employee who is either an illegal immigrant are a citizen with bad paperwork be paid? “[E]mployers could look for workers who are at risk of failing E-Verify, the online database that checks employment eligibility, and fire those workers without paying them for up to three days of labor,” says the report.
The simple idea of “internal enforcement” of immigration law using employers as Border Patrol agents turns out not to be so simple. E-Verify puts fair-minded employers between a rock and a hard place, while facilitating unscrupulous behavior by others.
The Myopia Behind the Protectionism
There appears to be something in the protectionist genome that triggers obsessive factual cherry-picking. Genetics may explain the protectionist propensity for Malthusian sensationalism, too. Some of the folks at the U.S. Business and Industry Council provide the latest example.
In an article that ran in yesterday’s Pittsburgh Post-Gazette, erstwhile doomsayer Alan Tonelson and a colleague present their view that the “fiscal stimulus” will have limited impact because consumers have few alternatives to spending their checks on imports. They provide statistics showing the rising import share in major consumable goods categories to support their argument that even if consumers wanted to buy American, it is becoming close to impossible. As a result, the stimulus “benefits will leak overseas,” and the “near-term economic performance will be modest at very best.”
And, as sure as all roads lead to Rome, “failed trade policies deserve much of the blame” for allowing the “import tide [to grow] large enough to sandbag Washington’s best –laid stimulus plans?” Let me review critical assertions from the article and suggest some genetic tweaks (i.e., the truth).
National Review on the FISA Overhaul
Yesterday, National Review Online ran a misleading and misguided editorial on the FISA debate. The editorial states that “Last year, a FISA-court decision required judicial authorization even in those cases where the government sought to monitor terrorists communicating with each other outside the United States.” This is doubly misleading.
On the one hand, the FISA ruling only held that a warrant was needed to install wiretaps on US soil to intercept foreign-to-foreign communications as they pass through US infrastructure. No one has ever claimed that FISA has jurisdiction over communications that occur entirely outside of the United States. Second, both sides of the FISA debate in Congress agree that the law should be changed to explicitly exempt foreign-to-foreign communications from FISA oversight. Every serious legislative proposal in Congress, including the one the House passed last November, changes this aspect of the FISA rules. So it’s extremely misleading to present this as if it’s the heart of the dispute.
In reality, the president has threatened to veto the House’s legislation for two reasons that have nothing to do with foreign-to-foreign communications: judicial oversight of calls that originate on US soil and the lack of amnesty for telecom companies. National Review‘s take on the latter issue is particularly wrongheaded:
Some Democrats oppose the legislation because they want the FISA court to have more authority. They laud it as a responsible manager of intelligence collection, even though tribunal is unaccountable and has a spotty record. (The most important part of the Patriot Act was its dismantling of the “wall” between agencies that obstructed intelligence gathering before 9/11. The FISA court tried to undo that part of the act, but was thankfully unsuccessful.) We have less confidence in the judiciary’s ability to manage wartime intelligence operations.
Other Democrats oppose the measure (Sen. Chris Dodd is threatening a filibuster) in no small part because of the telecom immunity provision. This objection is specious. The bill provides protection only for companies that acted on assurances from the administration that the program was lawful. If the companies cannot bank on such assurances, they have no incentive to cooperate in the intelligence collection that is a must if Americans are to be protected.
Rather than complaining about courts being “unaccountable,” most of us call this “judicial independence” and consider it a virtue of our system of government. And an important part of judicial independence is the principle that a warrant from an independent judge, not merely “assurances from the administration,” are required to permit searches of Americans on American soil. That’s the whole point of having a warrant process. AT&T and Verizon’s lawyers probably know this area of the law as well as anyone in the country. They can and should have done what Qwest did and told the NSA to come back when they had a warrant. Reports suggest that telecom companies that have chosen to cooperate with the government have made a healthy profit from doing so, while firms like Qwest have taken a financial hit for obeying the law.
If Congress lets the lawbreaking firms off the hook this time, they will have absolutely no incentive to obey the law (and protect their customers’ rights) in the future. National Review’s advocacy of amnesty for telecom companies is especially ironic because for the last year, they’ve been banging on about how amnesty for illegal immigrants “rewards lawbreaking” and breeds disrespect for the law. At least under the leading immigration reform proposals, immigrants would have been required to admit their lawbreaking and pay a fine. In contrast, NRO believes that lawbreaking telecom companies deserve immediate, blanket amnesty with no penalty or even admission of guilt. If we want to foster a culture of respect for the law, there’s no better place to start than with some of the largest, most powerful companies in America.
Common Sense, Free Enterprise Values in Virginia
The Richmond Times-Dispatch issues a stirring editorial call today for free-enterprise insurance reform. It’s worth quoting in full:
In a state that ostensibly is a bastion of capitalism, government intervention in the marketplace turns up surprisingly often. Two parties who are negotiating a contract for a good or service often find a third party — the commonwealth — sticking its nose in where it doesn’t belong.
For decades, Virginia law prevented insurance companies and policyholders from deciding who could receive health coverage. Not until three years ago did the General Assembly pass legislation allowing group accident and sickness policies to cover any class of persons mutually agreed upon by the insurance company and the policyholder.
Before then, health-insurance coverage was limited to spouses and dependent children. If a worker wanted to include someone else in his or her coverage, the law said he couldn’t — even if the worker’s employer and the insurance company both were happy to fulfill the request.
This year Del. Adam Ebbin is sponsoring legislation (HB 865) that would open up life-insurance coverage in much the same way: It would allow insurance companies to offer group coverage to anyone policyholders wished to cover — brother or sister, elderly parent, life partner, or third cousin twice removed — not just spouses and children.
Note well what this bill is not: a mandate. Insurance companies would not be required to cover anybody they did not wish to. They would remain free to reject coverage they did not care to offer. They simply would not be prohibited from covering persons they are willing to cover.
In a free market, that is precisely how insurance ought to work: The buyer and the seller of the policy work out the terms between themselves. The state’s job is merely to enforce the contract — not to write it. Ebbin’s bill deserves a resounding and unanimous aye.
The Times-Dispatch is well known as a conservative editorial page, so it’s gratifying to see them endorsing this pro-free enterprise, pro-business bill — even though some conservatives might object to it on the grounds that it will allow, though not compel, businesses to offer group life insurance to employees with same-sex partners. The Times-Dispatch commendably wants such issues worked out within companies, not by a state legislative ban.
Housing Slump Puts Schools in Danger . . . of Slipping Below $15K Per-Pupil!
It’s a sad day for America. The Washington Post brings us incisive reporting on the latest casualties of the housing slump:
The rapid cooling of the Washington area’s real estate market has hit school systems with force, abruptly ending years of plenty and compelling superintendents to ask their teachers, bus drivers and custodians to do more with less.
The summary news lede simply doesn’t do justice to this looming educational catastrophe . . . we need to turn to the numbers.
At Montgomery Blair High School in Silver Spring, parents fear cuts in Montgomery County’s proposed $2.1 billion budget will threaten the math-science magnet program.
The desperate schools of Montgomery County will need to find some way stretch the $15,246 they have to spend on each of the 137,745 students in their schools. The Post informs us that the $2.1 billion budget is “a year-to-year increase of $110 million. But it would be the smallest annual increase since 1997.” This 5 percent increase is the smallest in 10 years! Surely bake sales must be held.
But the devastation is not confined to the wealthier Districts . . .
The financial hard times are even more visible in jurisdictions with less money to draw on. In Prince George’s County, no money for teachers’ raises is available in the proposed $1.67 billion budget, and an ambitious program to create schools that run from pre-kindergarten through eighth grade is on hold.
Somehow, Prince George’s County must find a way to educate their 134,000 students with just $12,463 to spend per child.
And Virginia is perhaps the hardest hit of all. Fairfax County is staring down a $100 million shortfall that may force them to stop paying some students’ fees for taking Advanced Placement and International Baccalaureate tests.
With only a $2.1 billion budget and $15,246 per student, there is no room for such extravagances in Fairfax County.
I have saved the most touching story for last . . .
In Loudoun County, School Board members approved a budget 14 percent higher than last year’s to accommodate an expected 3,000 new students. The county faces a projected $250 million shortfall, and the 54,000 student system will probably have to look for new places for savings.
My heart goes out to the Loudoun County administrators. I can’t see how anyone can be expected to educate a child with just $15,000 or to cover a 6 percent enrollment increase with just a 14 percent increase in the budget.
Clearly, our schools have fallen on hard times. We must dig deep into our pockets and pull out just a little bit more to get them through these trying times. We owe it to our children.
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