Archive for January, 2010
Reforming Previous Reforms, ad Infinitum
In the forthcoming issue of Cato Policy Report, Jeffrey Friedman describes the cumulative effects of regulations that led to the 2008 financial collapse:
So deposit insurance begat bank-capital regulations. Initially these were blunderbuss rules that required banks to spend the same levels of capital on all their investments and loans, regardless of risk. In 1988 the Basel accords took a more discriminating approach, distinguishing among different categories of asset according to their riskiness — riskiness as perceived by the regulators. The American regulators decided in 2001 that mortgage-backed bonds were among the least risky assets, so they required much lower levels of capital for these securities than for every alternative investment but Treasurys. And in 2006, Basel II applied that erroneous judgment to the capital regulations governing most of the rest of the world’s banks. The whole sequence leading to the financial crisis began, in 1933, with deposit insurance…
Deposit insurance, hence capital minima, hence the Basel rules, might all have been a mistake founded on the New Deal legislators’ and regulators’ ignorance of the fact that panics like the ones that had just gripped America were the unintended effects of previous regulations.
Friedman is talking about financial and housing regulation. But I was reminded of them when I heard President Obama tell congressional Democrats, “Today we are on the doorstep of accomplishing something that Washington has been talking about since Teddy Roosevelt was President, and that is reforming health care and health insurance here in America.” And his formal speech to Congress in September: “I am not the first President to take up this cause, but I am determined to be the last.”
But of course we’ve been “reforming” health care ever since Teddy Roosevelt, and those reforms have brought us to our present difficulties. The Flexner Report 100 years ago reduced the supply of doctors and drove up the price. Wage and price controls during another Roosevelt era led to the system of employer-provided insurance, again driving up costs. Medicare and Medicaid poured more third-party payments into the system and added layers of government bureaucracy. HMOs and other cost-containment measures were a response to a problem created by the absence of normal consumer pressure. Then we got HIPAA, Kennedy-Kassebaum, the Mental Health Parity Act, state mandated-coverage laws, and the Medicare Prescription Drug Benefit.
And here we are today, with a health care system that everyone agrees needs reform. Maybe it’s time to recognize that we’re just piling new regulations on top of old regulations, like some compulsory Rube Goldberg device, and to try instead free markets, in which consumers pay for what they want from providers, insurance companies, managed care organizations, and other entities that compete for their business by seeking to provide better care at lower prices. Otherwise, we can be sure that Barack Obama won’t be the last president to stand before Congress and declare that our health insurance system needs reform. Indeed, we can bet that if he signs the current bill, he himself will be back before Congress in a year or two asking for reforms to reform the reforms that were intended to reform the previous reforms.
This Week in Government Failure
Over at Downsizing Government, we focused on the following issues this week:
- It’s time to end the federal government’s bias toward homeownership.
- Federal agriculture subsidies make it difficult to find Pepsi or Coke with real sugar in it.
- Government job creation efforts are a loser for taxpayers, employers, and employees.
- The Department of Health and Human Services is not up to the task of handling the additional responsibilities pending health care legislation would give it.
- The latest on cost overrun incompetence at the Department of Energy.
Fairfax Schools to Get More Money, District Claims Penury
Washington Post ed columnist/reporter Jay Mathews had a great post the other day in response to some WaPo coverage of supposedly catastrophic cuts to the Fairfax County school budget. He rightly notes, “the end-of-the-world reactions from Fairfax County parents in my colleague Petula Dvorak’s latest column are so divorced from reality as to be comical.”
Oh, it is funny, but not ha-ha funny. It’s more a makes-you-want-to-cry kind of funny. Consider:
- Fairfax aims spend 1.4 percent more per-pupil in 2011 according to their Operating Fund total, which includes the vast majority of total spending and core services.*
- Total per-pupil spending increased 20 percent in constant dollars between 2000 and 2010.
- Using Washington Area Boards of Education (WABE) total expenditure figures, Fairfax spent over $15,300 per student in 2010. Per-pupil spending remains higher than in FY 2006.**
It is difficult to see how increasing the per-pupil budget in the midst of an economic crisis and no inflation can be construed by district officials as “dramatic spending reductions,” or “devastating.”
The Fairfax County school superintendent claims that nearly 600 positions will be cut. Why? Why do they need to cut hundreds of positions when their per-pupil budget is increasing? From what baseline is he measuring these cuts?
These facts and statements do not reconcile. I have emails and voicemails in to officials, and I am eager to hear how they explain all of this.
*Their proposed budget document does not seem to contain an identifiable total expenditure figure. The Fund totals cannot be summed because of unnoted double-counting — because, well, who cares how much we’re spending overall, right? A query has been sent to officials, who need additional time to determine if their budget document can be used to calculate total spending for the budget and to provide me with a total spending figure.
**The WABE listed per-pupil figure leaves out some k-12 spending and provides a number that is significantly less than that in more comprehensive state records or that can be compiled from the district budgets, so I’ve divide the total expenditures listed on p.23 by the enrollment to get the real total per-pupil spending.
America vs. Europe
The blogosphere has been buzzing with a debate on whether America or Europe is more prosperous. A partial list of contestants includes Jim Manzi, Paul Krugman, Matt Welch, Megan McArdle, Matthew Yglesias, and Tino (don’t know who he is, but his blog has lots of good info).
I’ve addressed this issue in the past, with detailed comparisons in my Cato study on the Nordic Model, as well as a paper for the Heritage Foundation looking at Fiscal Policy Lessons from Europe.
I’m frankly shocked when people claim Europe is as rich as the United States, for the simple reason that the data showing otherwise is so abundant. The following charts, both from presumably impeccable sources, should be more than enough to end the argument. The first one is from OECD data (see page 6), showing average individual consumption per capita. I compare America to the EU-15 (Western Europe), but then also add Norway and Switzerland to the mix to boost the European score.
Health Care Bill to be Online for 72 Hours Before Final House Vote — Pelosi Is the Transparency Leader?
The Sunlight Foundation cites this tweet, and newspapers confirm, that the House leadership has promised to put the final health care bill online for 72 hours before a final vote.
“The move came after Rep. Scott Murphy, D-N.Y., urged colleagues to join him in asking House Speaker Nancy Pelosi, D-Calif., and House Democratic Leader Steny Hoyer, D-Md., for a three-day time-out before any floor vote,” reports the St. Louis Post-Dispatch.
Kudos to Representative Murphy for bringing this up. Congratulations to the Sunlight Foundation for organizing the closely related Read the Bill campaign, which is pressuring Congress to post bills online for 72 hours before debate begins.
Meanwhile, the Obama administration’s unfulfilled transparency promises are beginning to draw derision not only from political partisans but from the mainstream media. For example, the L.A. Times “Top of the Ticket” blog mocked the administration yesterday in a post called, “Joe Biden Update: He Meets on Transparency Today. But the Meeting is Closed.”
[T]oday’s Biden schedule highlight is a meeting with the chief of transparency for economic recovery. But, unfortunately, the transparency meeting is non-transparent, closed to the press… Which makes it — what? — secret openness? Open secrecy?
That post cites this one at a site called Media-ite, where columnist Tommy Christopher bemoans the president’s failure to see through his promise to put health care negotiations on C-SPAN.
Secret negotiations like the one between the pharmaceutical lobby, the White House, and the Senate Finance Committee are the Obama pledge’s raison d’etre. Hours of debate and information are nice, but the real value of transparency is in keeping everyone honest. By meeting with insurance and pharmaceutical industry leaders in private, the administration has shielded the parties most in need of being kept honest, the ones most likely to poison the process.
If you had asked people a year ago whether President Obama or Speaker Pelosi would be the leader in legislative transparency, I don’t think many would have bet on the latter. This is not to say that the process has been transparent enough — the production of the health care bill has been quite opaque compared to what’s possible and desirable. But Pelosi is the current leader on transparency, if only by substantial default.
Cost Overrun Incompetence at Energy
OMB director Peter Orszag is blaming the inefficiencies of the federal government on outdated personal computers. That is hard to understand given that federal IT spending amounted to $200 million a day last year.
A new GAO report on cost overruns at the Department of Energy undercuts Orszag’s argument that the solution to government incompetence is new computers. DOE cost overruns are nothing new. As far back as 1982 the GAO was reporting that “DOE lacked sufficient guidance to provide to its contractors for developing cost estimates.” A 2007 GAO report found that eight of 12 DOE projects it examined had exceeded their initial cost estimate by almost $14 billion due to “ineffective DOE project oversight and poor contractor management.” In 2008, GAO reported that nine out of 10 environmental cleanup projects it examined had cost overruns that DOE estimated would require an additional $25 to $42 billion.
For the new report, the GAO looked at DOE’s contract management procedures and here are some of the highlights:
- “DOE has not had a policy that establishes standards for cost estimating in place for over a decade, and its guidance is outdated and incomplete, making it difficult for the department to oversee the development of high-quality cost estimates by its contractors.”
- “DOE’s only cost-estimating direction resides in its project management policy that does not indicate how cost estimates should be developed.” (This statement has to be read several times to actually be believed.)
- “DOE’s outdated cost-estimating guide assigns responsibilities to offices that no longer exist.”
- “DOE does not have appropriate internal controls in place that would allow its project managers to provide contractors a standard method for building high-quality cost estimates.”
- “DOE has drafted a new cost-estimating policy and guide but the department expects to miss its deadline for issuing them by more than a year.”
There’s nothing here that a supercomputer is going to change. Cost overruns in government programs will continue to occur for the simple reason that policymakers and administrators are playing with other people’s money. Moreover, the market forces that compel private firms to manage resources effectively or risk going out of business (unless they are in the auto or finance industries) are absent. DOE won’t be put of business for its cost overruns (although it should be); it’ll just go ask Congress for more taxpayer money.
See this Cato essay for more on cost overruns at the Department of Energy and other government agencies.
Is Justice Kennedy Libertarian?
Early last year, Cato hosted a book forum for Helen Knowles’s The Tie Goes to Freedom: Justice Anthony M. Kennedy on Liberty. This really is a remarkable book, with an ambitious goal: trying to make coherent sense of the oft-frustrating “swing justice.” And now I have a lengthy review of it that just came out in the latest issue of the Harvard Journal of Law & Public Politics (where Bob Levy also has an essay, on the aftermath of District of Columbia v. Heller).
Knowles makes the provocative argument that Justice Kennedy’s jurisprudence is “modestly libertarian.” I think that this argument, in the limited ways Knowles makes it — with respect to free speech, equal protection, and individual dignity — is probably sound. Still, that deduction is a small discovery considering the broad swath of Supreme Court jurisprudence. Moreover, it says little about whether Kennedy is faithful to the Constitution, which is a stronger measure of libertarianism (as Randy Barnett described at Cato’s 2008 Constitution Day Conference in his B. Kenneth Simon Lecture in Constitutional Thought, reprinted in the latest Cato Supreme Court Review).
Here’s how I conclude:
Good on speech and race, bad on government power, and ugly on abortion and the death penalty, Justice Kennedy is a sui generis enigma at the heart of the modern Supreme Court. However new Justice Sonia Sotomayor affects the Court’s dynamics, it is unlikely that Justice Kennedy will shift from his role as the deciding vote in most controversial cases. Helen Knowles has thus done us a great service in deconstructing Justice Kennedy’s faint-hearted libertarianism and helping us better understand the “sweet mystery” of his jurisprudence.
For details on how I reached this conclusion, read the full review (which you can also download from SSRN). I should add that Knowles’s book is more useful to us Court-watchers than Frank Colucci’s Justice Kennedy’s Jurisprudence: The Full and Necessary Meaning of Liberty — whose shortcomings I won’t detail but instead refer you to Eric Posner’s thoughtful critique.
The D.C. Bag Tax: Collusion against Consumers, Wrapped in Green
The bag tax recently instituted in the District of Columbia is a daily annoyance for District residents and a burden on the poor. It was sold as a way to fill the Anacostia River Cleanup and Protection Fund, and it will move some money to that project, but what’s interesting about it is how exquisitely designed it is to ensure that the incidence of the tax falls on consumers, not on businesses. Indeed, the bag tax may add to businesses’ profits.
Below I’ve copied the language in the D.C. code that establishes the tax. (It’s referred to as a “fee.” Nobody’s buying that.)
It’s not a simple five-cent tax on bags. It requires the consumer to hand over the five cents, and makes it illegal for retailers to absorb the tax. If a sandwich shop wanted to cover the tax and just give you a bag, doing that would break the law.
For every five cents it collects from customers, businesses get to keep a penny straight away. The cost of bagging products goes down for them by a penny as it goes up for you five cents.
If a store wants to set up a refund system for returned bags (paying five cents or more), it can keep another penny. Your “green friendly” store can offer bag refunding at a little less cost than it otherwise would — but keep in mind that the savings to the store come out of the Anacostia River Fund. Not quite as green a program as you may think.
And here’s an interesting tidbit: Considering that bags cost about four cents a piece, letting retailers keep that second penny might be the difference between their bag refund effort causing them small losses and letting them make a small profit on it. So much for the good feeling you get from your green-conscious store.
Finally, the part of the tax that the retailer keeps is not treated as income and is tax-exempt. That’s another little bonus to sweeten the deal under which retailers collect taxes from you.
When you get a look under the hood, you can see the greasy fingerprints of the log-rolling that it took to get this tax program established. The D.C. government was able to open up another revenue stream by bringing D.C. retailers in, structuring the tax so it had to be passed onto consumers, and giving D.C. businesses a cut of the action.
Anacostia river clean-up could be funded any number of ways, including a direct tax on D.C. residents if it’s a true priority. Requiring consumers to pay the five-cent tax on bags will negatively impact the District’s poorer residents, for whom small savings still matter. It will drive some shoppers to Virginia. And the shoppers who switch to reusable bags may just use them to carry home trash bags and dog waste bags that they buy to fill the void left by their forgone grocery bags. But at least they’ll feel good about it.
Next time you cross over the Anacostia River, be sure to think about how its clean-up project is funded. Rather than a direct increase in your tax bill, or raising funds from the people who really care about the river, the D.C. government and business community got together to tax you in a way that increases businesses’ revenues. Read the rest of this post »
Helping the Haitians
The tragedy unfolding in Haiti has elicited an outpouring of sympathy, and it is hardly surprising that governments and NGOs from all over the globe are mobilizing resources to aid in recovery. Help is flowing to the shattered island: teams trained in rescue operations, emergency medical services, security personnel, and financial aid. This type of assistance will likely continue for some time.
The U.S. military is also involved. Several Navy and Coast Guard vessels shipped out almost immediately. A few thousand Marines are helping to restore order, and more might soon be on the way. Such a ground presence makes sense, provided that the mission is carefully defined, and the long-term expectations are tempered by a dose of humility. The United States has, after all, intervened repeatedly in Haiti, and it remains the poorest country in the hemisphere. One might even conclude that our interventions have contributed to Haiti’s chronic problems, a consideration which should give pause to those calling for the United States to commit to a long-term project to fix the country.
One can make an argument against sending military assets to deal with such crises. A nation’s military is designed and built for one purpose — to defend the nation — and when it is deployed for missions that do not serve that narrow purpose there is a risk that the institutions will be rendered less capable of responding to genuine threats. I question the wisdom of humanitarian intervention on those grounds in my book, The Power Problem, stipulating, among other things, that the U.S. military should be sent abroad only when vital U.S. interests are at stake.
All that said, President Obama’s decision to swiftly deploy U.S. personnel to Haiti is appropriate on at least two grounds. First, sending troops into harm’s way — and usually into the middle of a civil conflict, as we did in the Balkans and in Iraq – is very different from mobilizing our formidable military assets to ameliorate suffering after a natural disaster. The latter types of interventions are less likely to engender the ire of the people on the losing end (and there always are losers). Humanitarian missions are also less likely to arouse the suspicion of neighbors who might question the intervener’s intentions. Indeed, there was a measurable outpouring of support and goodwill toward the United States after the Bush administration deployed U.S. military personnel in and around Indonesia following the horrific tsunami of late 2004. Genuine humanitarian missions, “armed philanthropy” as MIT’s Barry Posen calls it, are likely to be far less costly than armed regime change/nation-building missions that must contend with insurgents intent on taking their country back from the foreign occupier.
Another important consideration is a country’s interests in its respective region. Humanitarian crises, even those whose effects are confined within a particular country’s borders, often pose a national security threat to neighboring states. What has happened in Haiti over the past 48 hours might meet that criteria, but the White House’s immediate motivations seem purely altruistic. My frustration is that the U.S. policy since the end of the Cold War of actively discouraging other countries from defending themselves ensures that they will have little to offer when a similar natural disaster occurs in their own backyard, which means that the U.S. military is expected to act — even when our own interests are not at stake.
But that is a discussion for another time. The scale of the tragedy in nearby Haiti cries out for swift action, and I am pleased to see that many organizations — both public and private — have stepped forward to help. I wish these efforts well.
White House, Unions Reach Deal on Taxing Insurance Coverage
The Washington Post reports that the White House has reached a tentative agreement with labor leaders to tax high-cost health insurance policies.
What did you think of the negotiations? You did watch them on C-SPAN, didn’t you?
At the Sunlight Foundation blog, I’ve joined in some discussion about whether a president could really force process reforms on Congress like requiring negotiations to be televised. (Short answer: It’s possible, not probable.)
But here’s a case where the White House declined to put its own negotiations on television as the president promised.
‘A Career Where X-Ray Vision And Federal Benefits Come Standard’
That’s the slogan the Transportation Security Administration is apparently using to entice people to apply for jobs as airport screeners. Now that they’re preparing to expand the use of whole body imaging scanners, which can produce moderately detailed nude images of travelers, maybe they should consider a tagline that doesn’t sound like it’s designed to recruit voyeurs.
How the Media Are Covering ‘Head Start’s’ Failure
A day after it was released, here’s a roundup of how the mainstream media are covering the HHS study showing that America’s $100 billion plus investment in Head Start is a failure:
[...crickets...]
Nada. Zilch. Rien du tout, mes amis.
That’s based on a Google News search for ["Head Start" study]. The only media organs to touch on this topic so far have been blogs: Jay Greene’s, The Heritage Foundation’s, the Independent Women’s Forum, and the one you’re reading right now.
Okay. There was one exception. According to Google News, one non-blog — with a print version no less — covered this story so far. The NY Times? The Washington Post? Nope: The World, a Christian news magazine. And they actually did their homework, linking to this recent and highly relevant review of the research on pre-K program impacts.
And for those other publications in the MSM still standing at the edge of the pool: the water’s warm folks, c’mon in.
What’s really interesting, though, is that the HHS had the moral fibre to actually issue a press release about this damning study. That showed courage — and a certain panache. I particularly liked this, from HHS Secretary Kathleen Sebelius: “Research clearly shows that Head Start positively impacts the school readiness of low-income children.”
Umm, yes Ms. Secretary, but the same research shows those effects vanish by the end of first grade. I guess that information is on a need-to-not-know basis. The public needs to not know about it or the administration hasn’t got a snowball’s chance in Kauai of getting American tax payers to throw another $100 billion or so at government pre-K, as President Obama is so very keen to do.
Update:
In my original review of the coverage on this story I missed the blog that first broke the story: Early Ed Watch at the New America Foundation. One thing that distinguishes New America’s supporters of big government pre-k programs from those in the Obama administration is that the former have a good grasp of the implications of this study, writing that: “The next few weeks are probably going to be rocky ones for the Head Start community. Results released today from the Impact Study show that children’s gains from participating in Head Start, documented in a 2005 installment of the study, do not last through the end of 1st grade.”
But if the folks at the NAF recognize this reality, that begs an important question: will they now redirect their efforts to the support of programs whose benefits for disadvantaged children actually grow in magnitude the longer kids stay in school, or will they continue to push for programs like Head Start that have been proven costly failures?
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