Archive for January, 2009
Can You Say Oxymoron?
The House is expected to vote today on an expansion of the State Childrens Health Insurance Program (SCHIP). My colleague, Michael Cannon, has frequently written on the problems of this poorly targeted program that moves six children from private to public coverage for every four uninsured children that it covers. However, it is interesting to note that the $33 billion expansion is supposedly paid for primarily through a 61-cent-per-pack increase in the federal cigarette tax. Yet, at the same time, President-elect Obama announced that his choice for Deputy Secretary of Health and Human Services is William Corr, an anti-tobacco lobbyist and executive director of the Campaign for Tobacco-Free Kids. So we can shortly expect the Obama administration to step up efforts to stop people from smoking, thereby reducing the taxes they are counting on to pay for their SCHIP expansion. One hardly knows whether to wish them success.
How to Cut Taxes, Balance Budgets, and Help Kids
Thanks to the economic crisis and its impact on state revenues, most states are faced with a tough and unpopular set of choices: which and how many services to cut; how much to raise taxes? Wouldn’t it be great if there were a way to cut taxes while expanding the services available to citizens? As it happens, there is.
I’m in Las Vegas this morning to present a new study showing how broad-based education tax credits would impact Nevada’s finances. Over the first 10 years, I estimate the program would save nearly a billion dollars, and that by its fifteenth year in operation it would be saving $426 million annually. Not only that, per pupil spending in the state’s public schools would actually rise over time under this program.
One of the most interesting things about this study was how easy it was to complete, and how easily it could be reproduced in other states. Last year, economist Anca Cotet and I published a Cato Institute paper presenting a generalized Excel spreadsheet tool for calculating the fiscal impact of education tax credits on any state’s finances, based on some state-specific data input by the user. Using that tool (and in fact refining its model a little) I was able to run the numbers for Nevada quite easily. The only new math in this paper is the calculation of the marginal cost of public schooling in Nevada (the amount district spending rises in response to the enrollment of one additional student, and the amount it falls when enrollment declines by one student).
So if there are any legislators out there fretting over how to balance their state budgets in these difficult economic times, consider education tax credits: they cut taxes while dramatically expanding the range of educational options available to families. And they’re an increasingly bipartisan idea.
What Overreaction to Terrorism Delivers
In a new Cato Daily Podcast, Director of Information Policy Studies Jim Harper discusses overreaction to terrorism and what is required to avoid it.
Carping about TARP
In its story yesterday about Obama pushing for release of the second half of the TARP boodle, the New York Times reported that
Lawmakers are angry about many aspects of the bailout, which they intended for the government purchase of troubled assets, particularly mortgage-backed securities, but instead has been used to recapitalize banks and even prop up failing Detroit automakers.
Initially, I had a lot of sympathy for this critique. I had a little burst of outrage myself right before Christmas when I read the following quote from White House spokesman Tony Fratto, explaining why the White House was going to use the TARP authority to bail out GM and Chrysler–despite Congress’s having just voted down the auto bailout:
“Congress lost its opportunity to be a partner because they couldn’t get their job done,” Fratto said. “This is not the way we wanted to deal with this issue. We wanted to deal with it in partnership. What Congress said is . . . ‘We can’t get it done, so it’s up to the White House to get it done.’ “
So by not giving the president the power to bail out the automakers, Congress has “lost its opportunity to be a partner,” and the president’s going to do it anyway? By what authority? The TARP statute gives the Secretary of the Treasury the power to buy “troubled assets” from “financial institutions.” Yet in the past three months TARP’s morphed from a plan to buy toxic mortgage-backed securities, to one that involves buying shares in banks (like Wells Fargo ) that aren’t themselves troubled, to a program giving loans to car companies, which surely can’t qualify as “financial institutions.”
More Bush administration lawlessness, I thought. We already knew they didn’t care about the Constitution. Now they’re showing they can’t be restrained by plain statutory language.
And then I looked at the statute. And it turns out the definitions of “troubled asset” and “financial institution” are so gobsmackingly, irresponsibly broad, that the administration has at least a colorable argument that it can legally reshape the bailout in the ways it has. ”Troubled assets” include:
any… financial instrument that the Secretary, after consultation with the Chairman of the Board of Governors of the Federal Reserve System, determines the purchase of which is necessary to promote financial market stability
And “financial institution”:
means any institution, including, but not limited to, any bank, savings association, credit union, security broker or dealer, or insurance company, established and regulated under the laws of the United States or any State, territory, or possession of the United States [emphasis added]
That’s why, as the University of Chicago’s Randy Picker argues, you can probably “fit cars under the TARP.” (For a contrary argument, see here ).
Given how far the administration has pushed loose legislative language in the past, can Congress credibly claim to be surprised here? Lawmakers may, as the Times reports, be “angry” about the scope of the bailout, but when they write language that broad, their outrage is more than a day late and $700 billion short.
Who’s Blogging about Cato
- Writing for Independent Advocate, a political blog devoted to “independently minded news analysis,” Wes Kimbell quotes Senior Fellow Richard W. Rhan’s December op-ed about Obama’s proposed stimulus plan.
- The Hill’s Congress Blog posts analysis from Senior Fellow Michael D. Tanner on Barack Obama’s proposals for Social Security and Medicare.
- The International Law and Policy Blog links to Cato Trade Policy Analyst Sallie James’s appearance on Reason TV, discussing presidential trade policies.
- Blogging for the Weekly Standard, Brian Faughnan cites Director of Health Policy Studies Michael F. Cannon’s recent post on Obama’s proposal to eliminate Medicare Advantage, which would oust nine million seniors from their health plans.
- Baltimore Sun financial columnist and blogger Jay Hancock plugs an upcoming forum at Stanford University on the similarities and differences between liberals and libertarians, featuring Cato Research Fellow Will Wilkinson and Vice President for Research Brink Lindsey.
- Writing for the Peace Freedom & Prosperity Movement Web site, Michael Shanklin discusses Cato’s video on the auto bailout.
Coordinated Care Requires Free Markets
In their zeal to achieve universal health insurance coverage, President-elect Barack Obama and congressional Democrats are likely to exacerbate a real crisis in America’s health-care sector.
Americans generally receive medical care from a fragmented collection of doctors, hospitals, pharmacists, and other health care providers. All too often, those providers don’t communicate and collaborate. The result is too many unnecessary services and too many medical errors. The problem is particularly acute when it comes to complex patients with multiple conditions.
In a paper released today by the Cato Institute titled, “Does the Doctor Need a Boss?“, Arnold Kling and I explain that government prevents coordination of care, and that improving coordination requires reducing government’s role:
Medical care typically lacks coordination, in part because payment systems such as Medicare have not kept pace with technology and patients’ changing needs, and because many doctors are unwilling to cede authority to a boss. Medicare and other payers continue to pay doctors according to the independent-craftsman model. For example, Medicare’s payment system generally does not reward coordination. Instead, Medicare and other fee-for-service payers tend to favor technologically intensive specialist services over those of general practitioners who might be best suited to play the role of project manager…
In the home-building analogy, it is as if the concrete contractor, the drywall contractor, the electrician, and the plumber all refuse to work under a general contractor. Instead, they each try to do their jobs independently, regardless of the impact on the rest of the project.
The culprit is not market forces, but government interventions that protect physicians from competition from better-coordinated providers.
Licensing of medical professionals, state health insurance regulations, corporate-practice-of-medicine laws, and policies that encourage fee-for-service payment (i.e., Medicare, Medicaid, and the federal tax code) hold at bay the market forces that would improve coordination of care…
Improving coordination of care requires two consumer-empowering reforms:
First…consumers should control the money that purchases their health insurance, and should be free to choose their insurer and health care providers.
Second, state licensing regulations make it difficult for corporations to design optimal work flows for health care delivery. Under institutional licensing, regulators would instead evaluate how well a corporation treats its patients, not the credentials of the corporation’s employees. Alternatively, states could recognize clinician licenses issued by other states. That would let corporations operate in multiple states under a single set of rules and put pressure on states to eliminate unnecessarily restrictive regulations.
By centralizing control in Washington, the ruling Democratic left will give new strength to the protectionist forces that have blocked quality improvements in health care.
Exposing the Keynesian Fallacy: The Condensed Version
Many of you have seen the video I narrated explaining why big-government “stimulus” schemes do not make sense. That mini-documentary discussed the theoretical shortcomings of Keynesianism and also reviewed the dismal results of real-world Keynesian episodes.
While the video has been very successful, both measured by the number of “views” and positive feedback, some have suggested that it would be good to produce shorter videos. The hypothesis is that most people have only a limited interest in economics, so a brief video is more likely to attract viewership. My personal bias is that longer videos are sometimes necessary to allow an appropriate level of analysis and explanation, but I do believe in letting the market decide. As such, I invite you to watch this condensed, four-minute video debunking Keynesian fiscal policy.
Please feel free to provide feedback. For purposes of comparison, the original video can be seen here.
Questions for Mrs. Clinton
Hillary Clinton is expected to have a smooth confirmation hearing today. Bizarre. If we had more citizen-legislators instead of professional politicians, some of the following questions would be asked at today’s hearing:
Did you request, or see, any of the hundreds of FBI files that were improperly acquired by the Clinton White House? Who hired Craig Livingstone anyway?
Why did you fire Billy Dale?
What is your view of the war power? Can (Should) the President attack another country without a declaration of war from the Congress?
What is your view of the Tenth Amendment? Is there any subject beyond the purview of a federal law or spending program?
Exactly what did you and your Husband take from the White House when you left?
Did you or your husband make any arrangements to get money to Susan McDougal since Bill left the White House? Do you know why she was pardoned?
Do you plan to hire Sandy Berger?
To revisit Clintonian policies and practices, go here and here.
Of Course That Implies He Had Principles…
President Bush says that he “chucked aside my free-market principles” when faced with the current financial crisis. Well, duh!
The president said that he had no choice because he was “concerned that the credit freeze would cause us to be headed toward a depression greater than the Great Depression.” Even if one accepts that rather contestable premise, one is tempted to ask what caused him to chuck aside conservative and free market principles when he:
- Increased federal domestic discretionary spending (even before the bailout) faster than any president since Lyndon Johnson.
- Enacted the largest new entitlement program since the creation of Medicare and Medicaid, an unfunded Medicare prescription drug benefit that could add as much as $11.2 trillion to the program’s unfunded liabilities;
- Dramatically increased federal control over local schools while increasing federal education spending by nearly 61 percent;
- Signed a campaign finance bill that greatly restricts freedom of speech, despite saying he believed it was unconstitutional;
- Authorized warrantless wiretapping and given vast new powers to law enforcement;
- Federalized airport security and created a new cabinet-level Department of Homeland Security;
- Added roughly 7,000 pages of new federal regulations, bringing the cost of federal regulations to the economy to more than $1.1 trillion;
- Enacted a $1.5 billion program to promote marriage;
- Proposed a $1.7 billion initiative to develop a hydrogen-powered car;
- Abandoned traditional conservative support for free trade by imposing tariffs and other import restrictions on steel and lumber;
- Expanded President Clinton’s national service program;
- Increased farm subsidies;
- Launched an array of new regulations on corporate governance and accounting; and
- Generally did more to centralize government power in the executive branch than any administration since Richard Nixon.
One begins to detect a trend.
Educator Droning
As I’ve noted before, an incessant, plaintive drone comes from educators at both the k-12 and college levels about chronic underfunding of education and ever-falling financial skies. It’s a drone the media, all too often, is happy to amplify, repeating it constantly and almost never muting it with contradictory evidence.
In k-12 education, the most discomfiting part of this din is the mantra that public school teachers are woefully compensated. In a report released last month I present considerable evidence that this just isn’t true. On their teaching salaries alone – in other words, not including extra money they can and often do earn with their significant time off – first-year teachers in sixteen diverse districts could afford everything they need to lead comfortable lives…and then some. And salary is just a part of teacher compensation. As RiShawn Biddle lays out in a new American Spectator piece, the non-salary compensation that public school teachers get might be the real prize, including generous – and massively taxpayer-subsidized – health and retirement benefits. Check out Biddle’s story and my analysis, and you’ll get a good sense for the reality of k-12 educators’ compensation.
In higher education, there is no bigger myth than that government support for the ivory tower has been gutted, especially when in comes to public colleges and universities. (Just yesterday, a San Antonio Express-Times article stated that public colleges and universities have had to get “used to starvation.”) If you look at inflation-adjusted state and local funding per-pupil – as I have highlighted before – the trend is essentially flat; there has been no “starvation.” Indeed, digging deeper reveals significant evidence that far from starving, higher education is actually suffering from obesity.
So what is the obesity evidence? Unfortunately, as with the mention of my teacher salary report, I am writing this post as much to plug as to inform, so I’m not going to lay out all of the evidence right now. (Though, honestly, it’s not that hard to find.) To get all the fatty details, you’ll either have to come to Cato this Wednesday for our forum “Does Public Higher Ed Funding Drive Economic Growth?” or watch the proceedings via streaming video. In other words, if you want to cut through the tedious droning of public higher educators, you’ll have to put up with some quick and insightful presentations by forum panelists. It should be worth the effort.
Government the Environmental Despoiler
The Washington Post editorialized today on an egregious environmental foul-up by the Tennessee Valley Authority:
“As bad as this disaster was, what made it worse was the revelation that such pools of pollutants aren’t federally regulated.” Efforts to regulate the problem have been “beaten back by industry” in the past, the Post says.
But, wait — the TVA is owned by the federal government. It’s a government entity, not part of private “industry.” So much for the notion that government organizations are good environmental stewards because they don’t have to grub for profits.
Certainly, the environmental problem described by the Post is a serious one. But let’s not frame this as Green Government vs. Dirty Private Industry. Indeed, the federal Department of Energy, for example, has had an atrocious environmental record over the decades.
Obama Proposes Eliminating Medicare Advantage, Ousting 9 Million Seniors from Their Health Plans
On This Week with George Stephanopolous, president-elect Barack Obama proposed eliminating the ENTIRE Medicare Advantage program:
We’ve got to eliminate programs that don’t work, and I’ll give you an example in the health care area. We are spending a lot of money subsidizing the insurance companies around something called Medicare Advantage, a program that gives them subsidies to accept Medicare recipients but doesn’t necessarily make people on Medicare healthier.
And if we eliminate that and other programs, we can potentially save $200 billion out of the health care system that we’re currently spending, and take that money and use it in ways that are actually going to make people healthier and improve quality. So what our challenge is going to be is identifying what works and putting more money into that, eliminating things that don’t work, and making things that we have more efficient.
Medicare Advantage allows seniors to choose a private health plan rather than get their health coverage from the traditional Medicare program. The Left has complained Medicare Advantage costs taxpayers more than if those seniors remained in the traditional Medicare program. (I agree, though the reason is not because government is more efficient than private insurance.) The Left has long dreamt of eliminating Medicare Advantage, in part because it poses a threat to their plans for a completely government-run, single-payer health care system. Yet the Left has had to settle for attacking and attempting to eliminate the “overpayments” that Medicare Advantage plans receive. Of course, one can eliminate Medicare Advantage stealthily by reducing payments to private plans until none will participate.
For Obama to suggest eliminating Medicare Advantage outright, however, is extraordinary. First, Obama made a campaign promise that he will let Americans keep their current health insurance. Eliminating Medicare Advantage would force 9 million seniors out of their current health plans and back into traditional Medicare. Second, a man who wants to reform America’s health care sector ought not begin the effort by proposing to take something away from seniors, America’s largest and most politically active voting block. Maybe the Obama folks haven’t learned the lessons of the Clinton health care battle.
Eliminating Medicare Advantage would be bad for non-seniors, too, because it would block innovations that make medicine better, cheaper, and safer. The main reason that the U.S. health care sector fails to coordinate care, fails to provide patients with electronic medical records, and fails to prevent medical errors is that whenever providers try to do those things, the traditional Medicare program’s change-resistant payment system punishes them for doing so. (Universal coverage kills.) Medicare Advantage plans use different financial incentives that actually encourage coordination, EMRs, and error reduction. What a novel thought…
I thought Obama’s remarks were a misprint when I first read them. But then I saw the video.
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