Archive for October, 2009
The Problem Is Spending, not Deficits
Speaking recently a Steamboat Institute conference, I explain that big government is America’s fiscal challenge, not whether the spending is financed with taxes or borrowing.
This issue is important because the statists are trying to create the conditions for a big tax hike. We got huge spending increases under Bush, and now Obama has picked up the baton and is racing in the same direction. Needless to say, the politicians don’t care about deficits when they are spending money. But when it is time to discuss tax policy, deficits suddenly become a giant threat to the economy and turning more of our money over to the political class is the only solution.
The Q&A session also is interesting, as I pontificate about the financial crisis, Keynesian economics, the rule of law, and tax competition(both videos courtesy of the Center for Freedom and Prosperity).
Baucus Bill Would Cost More than $2 Trillion
Sen. Max Baucus’s (D-MT) health care overhaul would cost more than $2 trillion. It would expand the deficit. But he has carefully and methodically hidden those facts – so well that he has completely hoodwinked nearly all the major media.
The media are reporting that the Baucus bill would reduce the deficit by $81 billion over 10 years. Wrong.
The Baucus bill assumes that Congress will allow the “sustainable growth rate” cuts in Medicare’s physician payments to occur beginning in 2012. Yet Congress has routinely and repeatedly blocked those cuts, making Baucus’s assumption preposterous. The CBO handled the issue delicately, but essentially said, “Sure, provided that the sun rises in the west in 2012, then yes, this bill would reduce the deficit.”
That means Baucus will come up at least $200 billion short on the revenue side, making his bill a budget-buster.
The media are reporting that the Baucus bill would cost just $829 billion over 10 years. Wrong.
As Donald Marron observes, that number omits as much as $75 billion in new federal spending. It also omits a $33 billion unfunded mandate on state governments.
But the worst part is that the Congressional Budget Office’s preliminary cost estimate omits the cost of the private sector mandates in the Baucus bill. In Massachusetts, those costs accounted for 60 percent of the total cost of reform. That suggests the actual cost of the Baucus bill – $829 billion plus $75 billion plus $33 billion, times 2.5 – is well over $2 trillion.
Yet the CBO score pretends those costs aren’t even there. It’s like a mystery novel that’s missing the last 50 pages. And the media aren’t even curious.
In the words of Brad DeLong, why, oh why, can’t we have a better press corps?
Cross-posted at Politico’s Health Care Arena.
Wednesday Links – Health Care Costs
The Congressional Budget Office released a report this week that revealed that the proposed health care bill would not increase the deficit. But is it that simple? Cato health care policy experts have examined the bill and added up the costs. Here are a few things they have found:
- Congress has been cooking the books: “When it comes to the health care reform debate…honest budgeting is nowhere to be seen.”
- Costs will only decrease if we give market forces room to breathe.
- How some in Congress are hiding the true costs of the health care overhaul.
- Healthy Competition: What’s Holding Back Health Care and How to Free It
New Paper: Would a Stricter Fed Policy and Financial Regulation Have Averted the Financial Crisis?
Many commentators have argued that if the Federal Reserve had followed a stricter monetary policy earlier this decade when the housing bubble was forming, and if Congress had not deregulated banking but had imposed tighter financial standards, the housing boom and bust—and the subsequent financial crisis and recession—would have been averted.
In a new study, Cato scholars Jagadeesh Gokhale and Peter Van Doren investigate those claims and dispute them.
Why the Obama Administration Is All Over the Map on Afghanistan
Hey Rajiv Chandrasekaran, what the heck happened back in March when Obama decided to send 17,000 more troops into Afghanistan and started telling everyone we needed a more expansive approach there?
Everyone, save Vice President Biden’s national security adviser, agreed that the United States needed to mount a comprehensive counterinsurgency mission to defeat the Taliban…
[...]
To senior military commanders, the [implications were] unambiguous: U.S. and NATO forces would have to change the way they operated in Afghanistan. Instead of focusing on hunting and killing insurgents, the troops would have to concentrate on protecting the good Afghans from the bad ones.
And to carry out such a counterinsurgency effort the way its doctrine prescribes, the military would almost certainly need more boots on the ground.
To some civilians who participated in the strategic review, that conclusion was much less clear. Some took it as inevitable that more troops would be needed, but others thought the thrust of the new approach was to send over scores more diplomats and reconstruction experts. They figured a counterinsurgency mission could be accomplished with the forces already in the country, plus the 17,000 new troops Obama had authorized in February.
“It was easy to say, ‘Hey, I support COIN,’ because nobody had done the assessment of what it would really take, and nobody had thought through whether we want to do what it takes,” said one senior civilian administration official who participated in the review, using the shorthand for counterinsurgency. (emphasis mine)
This sort of thing is almost enough to make you feel for the COIN clique. Barack Obama fancies himself a foreign-policy thinker, and his national-security staff no doubt think highly of their strategic vision and would like to advance the idea that Democratic administrations make better foreign-policy decisions than Republican administrations. But when Obama and his administration come out in March and say “yes, we’d like a counterinsurgency campaign in Afghanistan,” and then send McChrystal over to do an assessment of what a COIN mission would need in terms of resources, it’s just absurd for them flutter six months later that “well, we didn’t know what we were getting into! They didn’t tell us it was going to be long and hard and costly!”
We’ve been having a discussion on counterinsurgency — indeed we’ve been doing counterinsurgency — for the last few years. There are lots of us who think that COIN in Afghanistan is a fool’s errand. My view is that COIN more generally is an intellectually insular doctrine purveyed by a cadre of scholar-practitioners who’ve either situated the doctrine in an absurd strategic context [.pdf] or else failed even to attempt to situate the approach inside any larger strategy.
But to be fair to them, they’ve been pretty candid about how hard counterinsurgency is. It’s just ridiculous for the administration to protest that they didn’t know it was going to be so expensive. The policy outcome the Obama administration produced was simply to throw more resources at the problem without bothering to think carefully about the connections between strategy, doctrine, and resources. Not encouraging.
What They Aren’t Telling You About the CBO Score
The CBO report that said the health care bill won’t raise deficits makes it clear that the Baucus bill’s reduction in future budget deficits comes not from controlling government spending or reducing health care costs, but because of a rapid escalation in tax revenues.
The bill imposes a 40 percent excise tax on health-insurance plans that offer benefits in excess of $8,000 for an individual plan and $21,000 for a family plan. Insurers would almost certainly pass this tax on to consumers via higher premiums. As inflation pushes insurance premiums higher in coming years, more and more middle-class families would find themselves caught up in the tax.
In fact, overall, the tax increases in the bill are more than double the amount of deficit reduction. This isn’t a health care efficiency bill or a cost containment bill. It is a tax and spend bill, pure and simple.
Intemper, Intemper!
Yesterday, in conjunction with the Pope Center for Higher Education Policy, Cato held a debate on how to control spiraling college costs. It was a terrific discussion, and I encourage everyone to check it out. It also got some coverage in the Chronicle of Higher Education, though nothing beats taking in the whole thing for yourself!
Concerning the latter point, I’d like to respectfully suggest that at least one person who saw only the Chronicle‘s piece imbibe the whole event, as well as what follows in this blog entry. Unfortunately, it appears that the Chronicle article got her a tad apoplectic, and I think she might have written some things she didn’t really mean.
On her blog, Sara Goldrick-Rab calls me an “ideologue,” accuses me of being totally ignorant of empirical research on aid and college prices, and even calls me “unoriginal” because in 1987 then-U.S. Secretary of Education William Bennett asserted what I did yesterday: that government aid to students enables colleges to keep raising prices. Oh, and she matter-of-factly declares that “after more than 20 years of this nonsense it’s time to call the idea what it is– just plain stupid– and stop giving ink to the people who repeat it.”
Hey, wait! I need that ink…
Now, I might very well be an ideologue (if by that you mean someone who doesn’t pretend to approach every issue as if I’ve never given it, or anything else, any previous thought), and I might even be a pretty ignorant guy – nobody’s perfect, right? – but that doesn’t change several, glaring problems with Goldrick-Rab’s assault on my character and on the Bennett Hypothesis.
Hurting the Sick Is Not Good Politics
I was glad to see James Pinkerton engage my criticism of Louisiana Gov. Bobby Jindal’s (R) endorsement of federal price controls for health insurance. I was even more pleased to see that Pinkerton has his own blog devoted to developing a Serious Medicine Strategy.
If I understand Pinkerton, his argument is essentially: it’s all well and good for some unelectable wonk in the “citadel of libertarian thinking” to “uphold ivory-tower free-market purity” by opposing price controls. But Republicans need “art-of-the-possible solutions” to win elections, and 90 percent of the public support those price controls. “Everyone has a right to his or her principled position,” Pinkerton writes, “but the majority has rights, too.”
Two problems.
First, Pinkerton suggests that libertarians oppose price controls for reasons that only matter to libertarians, and therefore may be safely ignored. Problem is, price controls hurt people. Were Pinkerton to explore the merits of Jindal’s proposal, he would soon conclude that imposing price controls on health insurance taxes the healthy, reduces everyone’s health insurance choices, and creates even greater incentives for insurers to shortchange the sick. (Turns out that what Larry Summers said about price controls applies to health insurance, too.) As John Cochrane explains, those price controls also block innovative products that would provide more financial security and better medical care to the sick.
But Pinkerton’s advice for Republicans is, essentially: “Do what’s popular now, even if it hurts people and voters end up blaming Republicans for it later.” How is that a good strategy?
Second is this idea that “the majority has rights.” Majorities don’t have rights. Individuals have rights. For example, you have the right to negotiate the terms of your health insurance contract with the individuals at this or that insurance company. Majorities may attain power, but that’s the opposite of rights. (See the Bill of Rights.)
Finally, a couple of important odds and ends. Pinkerton suggests it is “un-libertarian” to be “pro-life,” or to “support the police, the military, and other upholders of public order,” or to “support government restrictions on…euthanasia.” Writing from the “citadel of libertarian thinking,” I can assure him he is wrong. Might I suggest Pinkerton read the relevant chapters from The Encyclopedia of Libertarianism? (The health care chapter is a page-turner!) Also, I did not “denounce Jindal” any more than Pinkerton denounced me. I criticized his ideas, and I respect the man.
(Cross-posted at Politico‘s Health Care Arena.)
New Video: Eight Years in Afghanistan
The United States has been in Afghanistan for eight years and the end of our engagement there is not in sight. In this new video, Cato foreign policy experts tackle myths associated with the war in Afghanistan and offer solutions to American involvement there.
Ted Galen Carpenter and Malou Innocent are authors of a new paper, Escaping the Graveyard of Empires: A Strategy to Exit Afghanistan.
Wednesday Links – Afghanistan Edition
Today marks the eighth anniversary of the U.S. war in Afghanistan. Cato foreign policy experts have been following and analyzing the war since the beginning. Here’s a round up of their assessment thus far:
- Why we must narrow objectives in Afghanistan. Before implementing a new strategy, we must first define victory.
- Why the Afghanistan strategy does not require more troops.
- Once we have defined our objectives, we need to follow an exit strategy.
- In today’s podcast, foreign policy analyst Malou Innocent discusses the future of policy in the region.
New Paper: Why Sustainability Standards for Biofuel Production Make Little Economic Sense
The U.S. sustainability standard currently requires ethanol production to emit at least 20% less CO2 than the gasoline it is assumed to replace. In a new study, authors Harry de Gorter and David R. Just argue that sustainability standards for ethanol are, by definition, illogical and ineffective. Moreover, say de Gorter and Just, those standards divert attention from the contradictions and inefficiencies of ethanol import tariffs, tax credits, mandates, and subsidies, all of which exist whether ethanol is sustainable or not.
Eyewitness to Government’s Robbery of Chrysler Creditors
Further to Ilya Shapiro’s post this morning, let me also point you to a concise chronology of events culminating in the government’s robbery of Chrysler creditors.
The story is that of Richard Mourdock, Treasurer of the State of Indiana and the man responsible for stewardship of the state’s pension funds, some of which were victimized by the Obama administration’s pre-packaged and then forced-fed bankruptcy deal for Chrysler. I strongly urge you to read Mr. Mourdock’s testimony, which is at once revealing, sobering, compelling and, regrettably, a frightening sign of the times.
Mourdock will be speaking on this very topic at Cato, along with bankruptcy law expert David Skeel, on Thursday, October 15 at noon. Reserve your seat now.
Cato on Facebook
Cato on Twitter
Cato on Google+
Cato on YouTube
