Archive for February, 2010
Obama: CEO of America, Inc.
Today Politico Arena asks:
Will President Obama’s proposal to block excessive rate increases by insurers help get a health care package through Congress?
My response:
Just where does President Obama think Congress finds the power to authorize the HHS secretary “to review, and to block, premium increases by private insurers, potentially superseding state insurance regulators”? My colleague David Boaz addresses the politics of this unseemly proposal just below. And elsewhere our colleague Michael Cannon offers a devastating economic critique of the proposal, citing White House economic advisor Larry Summers, no less, on the folly of it all. But the constitutional question is what concerns me.
No doubt Obama, a former lecturer in constitutional law, believes that the power of Congress to regulate interstate commerce suffices to allow it to set private heath insurance premiums. After all, once delegated to him, that same power allowed him, he believes, to take over auto companies, to fire corporate executives, to set their salaries, and to do, well, pretty much what he wanted in so many other areas. That’s the modern executive state — the president as CEO of America, Inc. The irony, however, is that the commerce power was given to Congress for precisely the opposite reason — to ensure economic liberty, not to restrict it.
Facing state impediments to free interstate commerce, which had arisen under the Articles of Confederation, the Framers empowered Congress to check such restraints and to do the few other things needed to ensure a free national market. In fact, early in our history a Hamiltonian proposal that Congress undertake a national industrial policy — ObamaCare is a stark example of such a policy — was rejected outright by the Congress as beyond its authority. Obama’s proposal speaks directly to how thoroughly we’ve turned the Constitution on its head. And as recent elections give evidence, the American people are coming increasingly to understand that. This proposal, I predict, will go nowhere.
New Lawsuit against DC Government
Yesterday the Washington Post ran a nice profile about Tom Palmer and other DC residents who are challenging the constitutionality of regulations that make it a crime for people to bring their firearm outside of their residence for purposes of self-defense. Most criminal attacks occur outside the home (around 87%) and the criminals are armed and always have the advantage of choosing when they’ll strike — and that’s usually when there are no cops around.
Monday Links
- Progressives are outraged that the Supreme Court overturned limits on corporate political advertising last month. Here’s why they should be rejoicing.
- Policy forum today at Cato: “Will the Senate Health Care Bill Keep the Poor Poor?” Click here to watch live from 12:00-1:30 PM EST.
- Idea of the day: Cut the Commerce Department to boost real business.
- Harvard economist Jeffrey Miron: “Economists find weak or contradictory evidence that higher government spending spurs the economy. Substantial research, however, does find that tax cuts stimulate the economy and that fiscal adjustments—attempts to reduce deficits by raising taxes or lowering expenditure—work better when they focus on tax cuts.”
- Cato’s Ilya Shapiro wrapping up daily dispatches from the Winter Olympics in Vancouver. More here.
- Podcast: “How Many Libertarians?” featuring David Boaz.
Filed under: Cato Publications; General; Government and Politics; Health Care
Instant Analysis of Implicit Tax Rates in New Obama Proposal
The Cato Institute had already scheduled a policy forum for noon today where the Urban Institute’s Gene Steuerle and I will discuss the implicit tax rates in the House and Senate health care bills.
We’ve already been able to calculate the implicit tax rates that President Obama’s new proposal would impose on low- and middle-income workers. We have also been able to calculate the incentives to drop coverage under the president’s proposal. Upshot:
- The president’s proposal would result in higher implicit tax rates on low-wage workers than the House and Senate bills.
- The president’s proposal would result in greater incentives for higher-income workers to drop coverage than under the House and Senate bills. That would cause insurance markets to unravel even faster.
Zip over to Cato right now to hear me present the results – or watch the forum streaming here.
Remember When National Standards Were Going to be “Voluntary”?
In a speech today to the National Governors’ Association, President Obama proposed that states do exactly as he tells them regarding national education standards, or his government will take their people’s money and not give it back. The applause was… light.
Under the president’s preferred reform to federal education law, states would have to bring their curriculum standards into line with his administration’s wishes or they would be denied their share of the $14.5 billion education program known as “Title 1.”
But of course taxpayers in every state must pay for Title 1, whether or not the administration deigns to allow their children to participate. So the president wants to take their money and only give it back if they do as he says. The closest word I can think of to describe this arrangement is… extortion.
I’m fairly sure that’s not a central value underlying American greatness, but there’s another political entity that it does evoke.
Meet the New Plan, Same as the Old Plan
Or it may even be worse.
This morning, President Obama released his latest health care blueprint, which he hopes will breathe life into his moribund effort to overhaul one-sixth of the U.S. economy. The new blueprint is almost exactly the same as the House and Senate health care bills that the public have opposed since July. It mostly just splits the difference between the two.
One new element, however, is the president’s proposal to impose a new type of government price control on health insurance premiums. I explain here how those price controls are a veiled form of government rationing that helped sink the Clinton health plan.
If anything, those price controls make the president’s new plan even more bureaucratic and government-heavy. The Senate bill would take an ill-advised stab at cost-control by imposing a tax on the highest-cost health plans. That president proposes to pare back that excise tax and instead have a panel of federal bureaucrats cap the growth in health insurance premiums for all health plans. Those new government powers could make it even harder for people to obtain the coverage and care that they need.
Arne Duncan Embraces False Friedman
In a shocking development, U.S. Secretary of Arne Duncan embraced the ideas of Milton Friedman today, championing the funding of students instead of schools! Unfortunately, it was in the context of higher education — Duncan and his boss have done all they can to destroy school choice elsewhere — and he completely misrepresented what Friedman said about higher ed, suggesting that the Nobel Laureate somehow endorsed the federal Direct Loan Program:
We will end the loans under the Federal Family Education Program and make them directly to students — just as economist Milton Friedman proposed 50 years ago, and just as the Department of Education has been doing since 1993 through the Direct Loan Program.
Were Milton Friedman still with us, I think he would be pretty miffed with Duncan. For one thing, 50 years ago there was no Federal Family Education Loan Program. Moreover, assuming Duncan is referring to Friedman’s “The Role of Government in Education,” Friedman was clearly stating that if there is going to be any higher education aid it should go to students, not schools. And then there’s this:
The resulting system would follow in its broad outlines the arrangements adopted in the United States after World War II for financing the education of veterans, except that the funds would presumably come from the States rather than the Federal government [italics added].
It’s bad enough that Duncan and his boss reject Friedman’s very wise and proven counsel when it comes to elementary and secondary education. It’s even worse that Duncan then has the gall to blatantly lie about what Friedman wrote in an effort to sell a rotten and costly piece of federal legislation, the laughably titled Student Aid and Fiscal Repsonsibility Act.
A Fiscal Train Wreck
That is the title of a 2003 New York Times column by economist Paul Krugman. The gist of his column was that the Bush tax cuts and future entitlement program liabilities would usher in calamitous deficits. Setting aside the tax cut and entitlements issue, Krugman’s comments on the dangers of deficits are interesting considering seven years later Krugman is one of the most prominent supporters of massive deficit spending to stimulate the economy.
Here are some selected Krugman quotes from the column:
With war looming, it’s time to be prepared. So last week I switched to a fixed-rate mortgage. It means higher monthly payments, but I’m terrified about what will happen to interest rates once financial markets wake up to the implications of skyrocketing budget deficits.
Two years ago the administration promised to run large surpluses. A year ago it said the deficit was only temporary. Now it says deficits don’t matter. But we’re looking at a fiscal crisis that will drive interest rates sky-high. A leading economist recently summed up one reason why: ‘When the government reduces saving by running a budget deficit, the interest rate rises.’ Yes, that’s from a textbook by the chief administration economist, Gregory Mankiw.
But my prediction is that politicians will eventually be tempted to resolve the crisis the way irresponsible governments usually do: by printing money, both to pay current bills and to inflate away debt. And as that temptation becomes obvious, interest rates will soar. It won’t happen right away. With the economy stalling and the stock market plunging, short-term rates are probably headed down, not up, in the next few months, and mortgage rates may not have hit bottom yet. But unless we slide into Japanese-style deflation, there are much higher interest rates in our future.
Although this shouldn’t be construed as an endorsement of George Bush’s fiscal policies, the deficit for fiscal year 2003 when Krugman wrote his column was $378 billion. The Congressional Budget Office just reported that the deficit for the first quarter of FY 2010 was $434 billion.
The following chart shows the annual deficits from fiscal years 2002 through 2010 (projected). For 2009 and 2010 the first quarter deficit is also shown. In short, the two most recent first quarter deficits have been about $100 billion higher than the average annual deficits run from 2002 to 2008.
In FY2003, the deficit was 3.4 percent of GDP – for FY2010 it’s projected to be 10.6 percent. According to the President’s optimistic FY2011 budget, annual deficits won’t fall below 3.6 percent of GDP at any point in the next ten years.
Yes, Krugman believes that large deficit spending is necessary to turn the economy around. But that doesn’t change the fact that his dire warnings about deficits in 2003 should apply to today’s even larger deficits, especially now that we’re even closer to an entitlement crisis. However, Krugman recently penned a column warning against “deficit hysteria” in which he makes comments that are more than just a little at odds with his 2003 column:
These days it’s hard to pick up a newspaper or turn on a news program without encountering stern warnings about the federal budget deficit. The deficit threatens economic recovery, we’re told; it puts American economic stability at risk; it will undermine our influence in the world. These claims generally aren’t stated as opinions, as views held by some analysts but disputed by others. Instead, they’re reported as if they were facts, plain and simple.
Yet they aren’t facts. Many economists take a much calmer view of budget deficits than anything you’ll see on TV. Nor do investors seem unduly concerned: U.S. government bonds continue to find ready buyers, even at historically low interest rates. The long-run budget outlook is problematic, but short-term deficits aren’t — and even the long-term outlook is much less frightening than the public is being led to believe.
Scratching your head? I am too.
Open Source and Auto Safety
Tim Lee points to “The Toyota Recall and the Case for Open, Auditable Source Code.”
Knowing how the technology in our cars work is not just a safety issue, but a privacy issue—and maybe even a tax issue.
The Return of Dan Coats
Former Indiana senator Dan Coats is running for his old seat again, 12 years after he left Congress and turned the seat over the now-retiring Evan Bayh. Coats says he’s very concerned that “our elected officials in Washington continue to run up massive deficits, recklessly borrowing and spending record amounts of taxpayer money with no regard for the future generations of Americans who will inherit this staggering and ever-increasing debt,” and he has the support of conservative congressional leader Mike Pence. But I remember a Senator Dan Coats who enthusiastically promoted big, paternalist government. In the Heritage Foundation’s Policy Review, I responded to a Coats essay on his “Project for American Renewal,” launched with Bill Bennett, this way:
Coats says that the Project for American Renewal “is not a government plan to rebuild civil society” and that he favors “a radical form of devolution [that] would redistribute power directly to families, grass-roots community organizations, and private and religious charities.” But in practice he apparently believes that the federal government should tax American citizens, bring their money to Washington, and then dole it out to sensible state and local programs and responsible private institutions. Surely we have learned that government grants do not create strong, creative, vibrant private organizations. Rather, organizations that depend on government funding will have to follow government rules, will be unable to respond effectively to changing needs, and will get caught up in games of grantsmanship and bureaucratic empire-building.
Moreover, nearly every one of his bills would further entangle the federal government in the institutions of civil society. Under the Role Model Academy Act, the federal government would “establish an innovative residential academy for at-risk youth.” Under the Mentor Schools Act, the feds would provide grants to school districts wanting to develop and operate “same gender” schools. The Character Development Act would give school districts demonstration grants to work with community groups to develop mentoring programs. The Family Reconciliation Act would “provide additional federal funding . . . to implement a waiting period and pre-divorce counseling” for couples with children.
Many of these bills are intended to address real problems, such as the effects of divorce on children and the terrible plight of children trapped in fatherless, crime-ridden, inner-city neighborhoods. But why is it appropriate or effective for the federal government to intrude into these problems? Surely local school districts should decide whether to build same-sex schools or residential academies for at-risk youth; and if the people of, say, Detroit decide that such options would make sense, any theory of responsible, accountable government would suggest that the local city council or school board both make that decision and raise the funds to carry it out.
Many of Coats’s bills deal with symptoms — they try to reform public housing by setting aside units for married couples or to provide mentors for children without fathers — rather than dealing with the real problem, a welfare system that guarantees every teenager her choice of an abortion or an apartment if she gets pregnant. Some of the bills accept the federal Leviathan as a given and tinker with it — for instance, by requiring that every federal dollar spent on family planning be matched by another dollar spent on abstinence education and adoption services. Others just follow the failed liberal policy of handing out federal dollars for whatever Congress thinks is a good idea — school choice, restitution to crime victims, maternity homes, community crime-watch programs.
Over the past 60 years, we’ve watched the federal government intrude more and more deeply into our lives. We’ve seen well-intentioned government programs become corrupted by the ideologues and bureaucrats placed in charge. We’ve seen schools and charities get hooked on federal dollars. The nature of government doesn’t change when it is charged with carrying out conservative social engineering rather than liberal social engineering.
Government-Mandated Spying on Bank Customers Undermines both Privacy and Law Enforcement
I recently publicized an interesting map showing that so-called tax havens are not hotbeds of dirty money. A more fundamental question is whether anti-money laundering laws are an effective way of fighting crime — particularly since they substantially undermine privacy.
In this new six-minute video, I ask whether it’s time to radically rethink a system that costs billions of dollars each year, forces banks to snoop on their customers, and misallocates law enforcement resources.
Obama’s ‘Best’ Idea? Rationing Care via Clinton-esque Price Controls
Hoping to revive his increasingly unpopular health care overhaul, President Obama has invited Republicans to a bipartisan summit this Thursday and plans to introduce a new reform blueprint in advance of the summit. On Sunday, the White House announced that a key feature of that blueprint will be premium caps, a form of government price control that helped kill the Clinton health plan when even New Democrats rejected it.
The New York Times reports on President Obama’s blueprint:
The president’s bill would grant the federal health and human services secretary new authority to review, and to block, premium increases by private insurers, potentially superseding state insurance regulators.
It bears repeating what Obama’s top economic advisor Larry Summers thinks about price controls:
Price and exchange controls inevitably create harmful economic distortions. Both the distortions and the economic damage get worse with time.
For example, as I have written elsewhere, artificially limiting premium growth allows the government to curtail spending while leaving the dirty work of withholding medical care to private insurers: “Premium caps, which Massachusetts governor Deval Patrick is currently threatening to impose, force private insurers to manage care more tightly — i.e., to deny coverage for more services.” No doubt the Obama administration would lay the blame for coverage denials on private insurers and claim that such denials demonstrate the need for a so-called “public option.”
As the Progressive Policy Institute’s David Kendall explained in a 1994 paper, the Clinton health plan contained similar price controls. Kendall explains why they would be a disaster:
In spite of the late hour in the health care debate, Congress has not yet decided how to restrain runaway health care costs. The essential choices are a top- down strategy of government limits on health care spending enforced by price controls or a bottom-up strategy of consumer choice and market competition. History clarifies that choice: Previous government efforts to regulate prices in peacetime have invariably failed. Moreover, government attempts to control prices in the health care sector would undermine concurrent efforts to restructure the marketplace…
The idea of controlling costs by government fiat is seductively simple. But it rests on a conceit as persistent as it is damaging: that government bureaucracies can allocate resources more wisely and efficiently than millions of consumers and providers pursuing their interests in the marketplace. The alternative — one rooted in America’s progressive tradition of individual responsibility and free enterprise — is to improve the market’s ground rules in order to decentralize decision-making, spur innovation, reward efficiency, and respect personal choice.
As centrally planned economies crumble around the world, many in the United States seem bent on erecting a command and control economy in health care. This policy briefing examines the reasons why government price regulation would fail to constrain health care costs and create many adverse side effects…
Ultimately, government price regulation will always fail because it does not change the underlying economic forces driving up prices. If we are serious about slowing the growth of health care costs, we have to change the ways we consume and provide medical care. Price controls evade the hard but essential work of structural reform in health care markets: They are a quintessentially political response to an economic problem. The alternative is to allow well-functioning markets to set prices and allocate resources, while ensuring that all Americans have access to affordable health care coverage. The market-oriented approach leaves decisions to cost-conscious consumers and health care providers rather than bureaucrats.
Any of that sound familiar? It’s worth reading the whole thing.
This is not hope. This is not change. (Much less a game-changer.) It is, to pinch a phrase, a return to “the failed theories that helped lead us into this crisis.”
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