Archive for February, 2010
How to Reform Health Care? ‘Let Them Have Choice’
This is big.
The federal tax code creates a large tax preference for employer-sponsored health insurance. As a result, 61 percent of non-elderly Americans obtain health insurance through an employer. That tax preference creates all sorts of problems. It encourages more comprehensive health insurance and wasteful health care spending. It deprives many workers of their health coverage at the moment they need it most: when they get sick and can no longer work. And it denies workers the benefits of being able to choose their health plan. Eighty percent of those who work for an employer that offers health benefits have at most two health-plan choices, which are typically both run by the same insurer.
To date, no one had really quantified the damage done by denying workers the ability to choose their own health insurance. The only guesstimate of which I had been aware was by Mark Pauly, Allison Percy, and Bradley Herring, who “infer[red] that the true value of the welfare loss may actually be in the neighborhood of 5–10 percent,” which was enough to negate any advantage that employer-sponsored insurance offers by virtue of its lower administrative costs.
A new working paper titled, “Let them Have Choice: Gains from Shifting Away from Employer-Sponsored Health Insurance and Toward an Individual Exchange,” by Leemore Dafny, Katherine Ho, and Mauricio Varela, offers a more precise estimate of how much workers suffer because the federal tax code denies them their choice of health plan — and how much they would gain if they had greater choice. (The authors have a shorter paper explaining their results here.) They write:
We estimate the median welfare gain from expanding choice amounts to roughly 20 percent of premiums. For the vast majority of employee groups and alternative model specifications, the gains from choice are likely to outweigh potential premium increases associated with a transition from large group to individual pricing.
Dafny, Ho, and Varela’s results provide a huge boost to free-market health care reforms.
Monday Links
- Another day, another IPCC-gate.
- Why remaining in Afghanistan and creating a stable government there is not a precondition to keeping America safe. For more, watch the debate on Bloggingheads.
- Jeffrey Miron: “Leave Mideast, end terrorism.”
- Could Iran’s nuclear program be a sacrificial pawn?
- Globalization: A curse or a cure?
- Podcast: “Liberate Bone Marrow Donors” featuring Jeff Rowes of the Institute for Justice.
Obama Can Blame Bush All He Wants, But His Budget Is Even Worse
In the defensive-sounding statement released with his budget this morning, President Obama repeatedly blames the previous administration for leaving him in a position where he had “no choice” but to send the nation deeper into debt. He blames “irresponsible risk-taking and debt-fueled speculation—unchecked by sound oversight” for a deep recession that he speciously claims his administration’s massive spending prevented from becoming a depression.
Not once does the president acknowledge the role the government played in fomenting the recession. Instead, the president promises to move away from “business as usual” even though more spending, deficits, and debt are precisely that: business as usual. In this regard, the Obama administration’s first term is looking more like George W. Bush’s third term. Bush left the president with a $1.4 trillion deficit in FY2009; the deficit under Obama’s first year is set to rise to $1.6 trillion and would still be $1.3 trillion in FY2011.
Just like Bush, the president proposes minuscule savings through a small number of program terminations and reductions. But overall spending continues to rise, and in a $3.8 trillion budget the president’s disingenuous attempt to “cut” anything amounts to little more than a rounding error. The president also proposes to freeze non-security discretionary spending for three years, which he falsely claims will “help put our country on fiscally sustainable path.” In reality, last year’s stimulus and appropriations spending binge will mean actual outlays for this tiny portion of the overall budget will still be higher than what Obama inherited.
The president says that “rising to these challenges is the responsibility we bear for the future of our children, our grandchildren, and our nation.” The truth is our children and grandchildren are going to pay a painful price for the Bush/Obama profligacy. Present and future generations would be better served by Washington putting on the spending brakes and bringing to an end the economic distortions caused by government interventions.
There Is Some Budget Good News, but It Is Actually Really Bad News
The Office of Management and Budget has released the President’s FY2011 budget and the Congressional Budget Office has released its semi-annual Budget and Economic Outlook. Much of the coverage of these documents has focused on deficit numbers. This is not a trivial concern, particularly since the Bush-Obama policies of bigger government have dramatically boosted red ink.
But the most important numbers in the budget documents are the estimates of what is happening to government spending. The good news is that burden of government spending is projected to decline over the next few years from about 25 percent of GDP to less than 23 percent of GDP.
That’s the good news. The bad news is that federal government outlays only consumed 18.2 percent of economic output when Bush took office. In other words, notwithstanding the good news cited above, the size and scope of government has increased dramatically since 2001. The worse news is that the long-run spending forecasts show a cataclysmic expansion in the burden of government. The “optimistic” estimate is that the federal government will consume more than 30 percent of GDP by 2050 and 40 percent of GDP by 2080.
Were You a Cato Intern?
After 33 years in business, and 33 years of Cato interns, we’re finally getting around to creating an intern alumni newsletter — and an intern reunion this May. So if you were ever an intern for Cato, and you’re not sure Director of Student Programs Joey Coon knows where you are, please let him know. And if you’re still in touch with other fellow interns, please tell them about our plans.
If you’d like to be on the alumni newsletter list, and/or get an invitation to the reunion, please contact Joey at jcoon@cato.org and give him your email address and the year/semester you interned at Cato. Throw in your mailing address if you like.
And by the way, if you valued your internship at Cato and the work that Cato continues to do, and you’re now a productive income-earning citizen, and you’re not already a Cato Sponsor, isn’t it time you were? The defense of freedom doesn’t grow on trees, you know. Make your commitment here.
Politicians Are SO Predictable!
The big vote-buy is on!
Today, the Obama administration will release its FY 2011 budget proposal, and while the administration would supposedly freeze discretionary spending in all areas except defense, homeland security, and veteran’s affairs, education is slated to get a huge boost in “investment.” (Politicians love the term “investment” when discussing education spending, by the way, because it suggests a big payoff to come. That we’ve never actually realized said payoff doesn’t seem to bother them.) The proposal is expected to include a $3 billion increase for No Child Left Behind-authorized programs; $1 billion for some sort of incentive to overhaul NCLB (it’s not clear how the president can offer Congress extra money to act, but I’m sure there are details to come); a $1.35 billion extension of the stimulus-funded Race to the Top fund; and a $17 billion increase in Pell Grant funding. In other words, education appears slated — as I feared it would — to be the administration’s post-Massachusetts, big vote bribe.
At the same time the budget proposal is coming out, the administration is also starting to release information about it’s plans for NCLB reauthorization. According to the New York Times, the basic idea will be to “change federal financing formulas so that a portion of the money is awarded based on academic progress, rather than by formulas that apportion money to districts according to their numbers of students, especially poor students.”
On the surface, it makes sense to reward high performance rather than just send money to states based on set formulas. But a little deeper digging reveals the pit below.
Forget the QDR
There is a lot not to like about the Quadrennial Defense Review, which comes out today (the National Journal posted a leaked copy Friday). Like past QDRs, this one uses vague, trendy ideas about international relations to inflate threats and justify our massive defense budget. As usual, we hear the evidence-free claims that non-state actors are getting more powerful and that the world is getting more complex and unpredictable (“change continues to accelerate”). I believe that states are hanging onto or even gaining power relative to other sorts of social organizations and that the world is no less predictable than it was in 1900 or 1950. The QDR also says that climate change is a national security problem. That’s a popular line, which as near as I can tell is a marketing gimmick. Then there the usual tripe about how great our alliances are, how strategic every country with a Marine in it is, how terrific interagency cooperation is, and so forth.
The good news is that it doesn’t really matter. Newspapers confuse the QDR with law, but it is closer to PR. It’s like a particularly important speech. It sells what Secretary of Defense is selling and justifies what the Department of Defense does. Because it comes in part from agencies it is supposed to guide, it rationalizes rather than leads. Because it is largely a consensus document, it says only what half of the Pentagon can agree on—various strains of mush. Can anyone explain what past QDR’s have accomplished? I think nothing. Sure, there are interesting tidbits about forces structure plans, but these are in the budget documents too. At best it causes DoD to justify itself, giving us analysts something to argue about.
The administration’s proposed defense budget, also being released today, matters much more to policy. It reveals more about the nation’s defense strategy than the vacuous documents that purport to do so.
Policy types love strategy documents because they are mostly technocratic idealists. They want government polices to be made by rational processes that reveal national interests, which are then laid out in plans like the QDR. They want policy to be like science. But democratic government is the push and pull of competing ideologies and interests. Public plans or strategies are part of that process. Congress should thank DoD for these mind-numbing 120 pages, throw them away, and focus on the budget.
Do Democratic Presidents Create More Jobs?
Politifact.com looked into a remark from Rep. Carolyn Maloney, D-N.Y., that “Democrats have been considerably more effective at creating private-sector jobs.”
The statement was rated true, as a purely statistical matter. Yet the poltifact researcher did a good job questioning the significance of his own figures. He noted, correctly, that the president usually “deserves less credit for the good times — and less blame for the bad times.” And he added that job figures can be driven by outside factors such as oil price shocks, demographic changes or soldiers coming home after World War Two. He wryly noted “how surprised we are that Eisenhower, who presided over the ‘happy’ 1950s, managed an anemic half-percent job growth per year, while Jimmy “Malaise” Carter finished second with 3.45 percent annual job growth.” Anyone who remembers the runaway inflation of the Carter era will realize that annual rates of job growth are not enough to describe the overall economic situation.
The author also quoted me making the point that “timing can be hugely important.” It is so important, in fact, that we may need to add another dimension to politifact’s true-false meter to deal with political comments that are simply meaningless.
For the record, what follows is the full text of my email on this topic:
The error involved with assigning rates of job growth to Presidential terms is that six recent Presidents took office within a few months of the start of a recession: Obama (recession began December 2007), H.W. Bush (July 1990), G.W. Bush (Mar 2001), Reagan (July 1981), Nixon (Dec. 1969) and Ike (July 1953). As it happens, four of the five were Republicans.
One might argue that recessions launched near the end of the previous administration helped get these men elected. But these recessions were clearly left over from events that began previous years. It didn’t help that the first Pres. Bush passed a tax increase three months after the 1990 recession began, but the start of that recession is more plausibly blamed on the earlier spike in oil prices when Iraq invaded Kuwait.
Since employment is a lagging indicator (one of the last things to improve), that means average job growth among Presidents who took office near the start of recessions is bound to look bad in comparison with Presidents who took office after an expansion was well underway. Bill Clinton took office in 1993, long after recession ended in March 1991. The same was true of Truman, LBJ and Carter. JFK took office a month before the 1960 recession ended.
Two-term Presidents also have more time to show good numbers, but only if they’re lucky enough to get out of office just before the next recession starts. Clinton squeaked by (despite falling stock prices and industrial production 2000), but Nixon, Eisenhower, Carter and G.W. Bush did not.
Since Bush 2nd began and ended office in recession, averages over 8 years outweigh 4 reasonably good years. This unprecedented bad timing is exaggerated by Paul Krugman’s comparison of “decades” [and President Obama’s recent reference to “the lost decade” of 1999-2009] which relies on starting and ending each decade in boomy 1959 rather than slumping 1960, ditto 1969 rather than 1970, 1979 rather than 1980, 1989 rather than 1990, and 1999 rather than 2000.
In short, statistics about employment growth over Presidential terms are dominated by the timing of the “business cycle” (including Federal Reserve policy), and have no apparent connection to economic policies attributed to the White House (as opposed to Congress).
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