Archive for August, 2010
The U.S.S. Trade Policy?
This capsizing container ship in the Port of Mumbai strikes me as the perfect metaphor for U.S. trade policy, with Skipper Pelosi at the helm. Just imagine how many jobs we can create by sending imports to the bottom of the sea. Heck, think of all the jobs we could create by sinking our own exports and making them all over again.
Senator Schumer, I’m just kidding.
The Social Security and Medicare ‘Trust Funds’ Are a … What’s the Word?
Yesterday’s New York Times editorialized:
It’s the time of year when the trustees of Medicare and Social Security release their annual reports on the programs’ financial health. And that means Americans are likely to be bathed in a fog of political rhetoric that makes it hard to sort out fact from fiction.
Here’s the bottom line…
The Times then proceeded to bathe its readers in fog:
According to the reports, the date of insolvency for Medicare’s hospital fund was pushed back, from 2017 to 2029, because of cost-saving measures in health reform. As for Social Security, without any changes, it will be able to pay full benefits until 2037 and partial benefits after that, the same estimate as in last year’s report, despite temporary setbacks from the recession…
A lot of attention will be paid to the finding in the Social Security report that payouts will exceed revenues in 2010 and 2011…That doesn’t endanger benefits, because any shortfall can be covered by the trust fund.
No. It. Can’t. Because there are no funds in the Social Security “trust fund.” There are no funds in the Medicare “trust fund.” As Fortune magazine’s senior editor-at-large Allan Sloan explains in today’s Washington Post, those “trust funds” contain nothing but “funny money.”
In a 2006 blog post titled, “Sometimes, Governments Lie,” I offered the following proposition:
If the government knows that there are no assets in the Social Security and Medicare “trust funds,” and yet projects the interest earned on those non-assets and the date on which those non-assets will be exhausted, then the government is lying.
That still seems correct to me: the whole idea of the Social Security and Medicare “trust funds” is a lie. An institutionalized, ritualized lie that the U.S. government tells the American people. Perpetuated by both political parties, and others with an interest in hiding the reality of these programs’ unfunded liabilities from voters. One that many journalists uncritically repeat.
Bob Gates Against the World
Defense Secretary Robert Gates has again made headlines with a proposal to slow the growth of the Pentagon’s budget — already higher than at any point since World War II — by cutting overhead, waste and a top-heavy command structure.
The proposed shuttering of Joint Forces Command (Jif-Com) has elicited most of the press attention today, and prompted an impassioned plea from Virginia politicians, including Gov. Bob McDonnell, that the command remain open. Unhelpfully for Gov. McDonnell, outgoing Jif-Com head James Mattis (who will assume the title of CENTCOM), reportedly supports Gates’s decision.
But this isn’t the first time that opportunistic politicians have latched onto defense spending as a way to sprinkle economic benefits to their constituents, and at the expense of the rest of us. (In the same vein, Gates reportedly repeated his pledge to kill the entire DoD appropriation if it includes the unwanted C-17 and the alternate engine for the Joint Strike Fighter that some members of Congress continue to push.)
Leaving aside the predictable political wailings, the reforms that Gates proposed are neither revolutionary, nor particularly controversial to most objective observers. Politico‘s Gordon Lubold and Jen DiMascio in their ever-helpful Morning Defense newsletter point out that “The cuts seemed to take several pages out of the Defense Business Board task force led by [Arnold] Punaro that recently recommended many of the same trims.” (For more on that report, see here.)
Federal Employees Continue to Prosper
The Bureau of Economic Analysis has released its annual data on compensation levels by industry. The data show that the pay advantage enjoyed by federal civilian workers over private-sector workers continues to expand. This state of affairs is a thumb in the eye of the private sector, which continues to struggle with high unemployment. Many private sector employees have been forced to take pay and benefit cuts while continuing to fund generous federal employee compensation with their taxes.
Figure 1 looks at average wages. In 2009, the average wage for 1.95 million federal civilian workers was $81,258, which compared to an average $50,462 for the nation’s 101 million private sector workers (measured in full-time equivalents). The figure shows that the federal pay advantage (the gap between the lines) continued its steady increase over the past decade.
Figure 2 shows that the federal advantage is even more remarkable when worker benefits are included. In 2009, federal worker compensation averaged a whopping $123,049, which was more than double the private sector average of $61,051.
The disparity between average federal and private employee compensation has risen dramatically over the decade: from 66 percent in 2000 to 101 percent in 2009. Defenders of generous federal employee compensation point to the higher levels of education in the federal workforce. However, it’s doubtful that education accounts for the growing disparity between federal and private compensation.
Figure 3 shows that federal employees also enjoy much greater job security (data is from Table 18 here). In 2009, a private sector employee was more than three times more likely to be laid off or fired than a federal employee.
A good indicator of the adequacy of federal compensation is the quit rate. Figure 4 shows that in 2009, private sector employees quit at a rate that was more than eight times higher than federal employees (data is from Table 16 here). This indicates that federal employees recognize that the generous combination of wages, benefits, and job security is hard to match in the private sector, so they stay put.
Cato Unbound: The Digital Surveillance State
In the years since September 11, 2001, the secret digital surveillance state has grown enormously. Given heightened security measures, heightened anxiety, and cheaper-than-ever data collection and storage, such growth was perhaps inevitable.
But what are the proper limits on the secret collection of information? Where do our constitutionally guaranteed civil liberties stand in this new era? Do the federal government’s increased powers of surveillance even accomplish the security tasks at hand?
Constitutional lawyer and columnist Glenn Greenwald argues in this month’s Cato Unbound that the digital surveillance state is out of control. It’s also failed to deliver on its promises of greater security. Rather than helping to find the needle in the haystack, we have only made the haystack bigger.
Commenting on Greenwald’s essay will be Professor John Eastman, of Chapman University Law School; Paul Rosenzweig, now of the Heritage Foundation and formerly Deputy Assistant Secretary for Policy in the Department of Homeland Security; and the Cato Institute’s own Julian Sanchez, a prolific journalist on the interface of technology and civil liberties. Please stop by through the rest of this month for a discussion of one of our country’s most pressing issues in both civil liberties and national security.
Oh Shenandoah, I Long to See You…
…but I can’t because of Obama!
That takeoff of the lyrics from the famous folksong “Oh Shenandoah” are the impromptu creation of my wife, who this weekend was as appalled as I was when we packed the kids into the car, headed into the Shenandoah National Park, and were greeted by closed overlook after closed overlook accompanied by the sign pictured to the right. Apparently, one project funded by the so-called “stimulus” includes simultaneously renovating — or at least cordoning off — every overlook north of the park’s Thornton Gap entrance without posting any clear warning that that’s the case as visitors decide whether to head north or south.
Even more upsetting was being subjected to pure propaganda in the park’s visitor guide, which reports the following on the page “Shenandoah Looks to the Future”:
Some of the treasured resources in Shenandoah National Park are being enhanced through the American Recovery and Reinvestment Act. On February 17, 2009, President Obama signed into law this unprecedented act to jumpstart a failing United States economy. The goal is to put Americans to work while investing in infrastructure for the future.
It’s bad enough to have to see “Recovery.gov” after “Recovery.gov” sign informing you that the views you actually came to see — and for which you paid a $15 entrance fee, I might add — have been put off limits. But is it really too much to ask that people be able to visit national parks without being subjected to propaganda clearly designed to glorify the highly debatable policies of a sitting — and likely to run for reelection — president?
I sure hope not, because no matter which part of the political spectrum you occupy, wouldn’t it be nice to be able to get away from politics for a while?
Did ObamaCare Get Medicare’s Price Controls Right?
Congress uses price controls to pay Medicare-participating providers. Those providers invariably complain that Congress sets prices too low, but many are no doubt too high.
Congress chose to pay for ObamaCare‘s new entitlement spending in part by ratcheting down many of those prices. That suggests supporters either believe that Medicare’s controlled prices generally exceed the marginal value of the relevant services, or that those prices will begin to exceed marginal value as providers become more productive (i.e., as they learn to provide those services at a lower cost).
Neither assumption is necessarily wrong. Producers operating under price controls nevertheless have an incentive to improve productivity. When costs fall relative to prices, producers get to keep the difference. Ambulatory surgical centers saw a windfall because Medicare took two decades to update those price controls for productivity gains.
Medicare’s chief actuary and many others doubt that providers will realize the productivity gains assumed by Congress. If the assumed productivity gains do not occur, those price reductions would reduce Medicare enrollees’ access to care. Medicare providers and enrollees would likely persuade Congress to block the price reductions. Medicare spending and the federal debt would rise.
Yet even if those productivity gains do occur, ObamaCare’s price reductions would still reduce access compared to a world without them, therefore enrollees and providers may still persuade Congress to eliminate them. Regardless of what happens with productivity, as Tom Daschle notes, the patient-provider pincer movement usually carries the day.
This is an inherent defect of Medicare not found in markets. Competitive markets automatically translate productivity gains into lower prices for consumers. Medicare protects providers at the expense of enrollees and taxpayers.
(Cross-posted at National Journal‘s Health Care Expert Blog.)
What Do Prince and H.R. 1586 Have in Common?
Give up?
Both have adopted highly unconventional names in their lifetimes. In Prince’s case, it was the adoption of a symbol to protest Warner Brothers’ artistic and financial control of his output.
Following suit, H.R. 1586 has adopted the name, the “______Act of____,” apparently because of the haste with which the Senate wanted to pass the bill last week.
The Senate’s substitute amendment on this $26 billion spending bill had a placeholder bill name, and it could not take time to replace the placeholder. The House is expected to return this week and pass the Senate amendment, sending it to the president.
As reported on the WashingtonWatch.com blog and cnet news, this highly unconventional name may be what goes into law. With the Senate out of town until September, there is no chance to pass a correcting amendment in both houses. The constitution requires both to pass identical bills, so the House must take up the “______Act of____” and pass it as such.
If it does, the “law with no name” will stand as a lasting tribute to the inattention Congress gives its work. Spending billions of taxpayer dollars is a hurried and casual affair for our lawmakers.
Dear Bill: Why the Distinction Between College and K-12?
At the Techonomy conference last week, Bill Gates declared that going to school would soon be obsolete, and that ”five years from now, on the web, for free, you’ll be able to find the best lectures in the world.” What’s interesting is that Bill was quick to note that he was talking only of higher education. K-12 education should still be tied to physical schools, he is reported to have added.
Certainly there’s a custodial aspect to the education of young children, but there’s no reason that electronic learning options cannot be combined with custodial supervision — and much more affordably than traditional schooling. Homeschooling already consists of hybrids of parent lessons, lessons taught by paid tutors and guest lecturers, web classes, etc. This flexible format could be generalized to serve a much broader range of students. So why not encourage the exploration of these new possibilities at the k-12 level, just as at the higher education level?
What Part of “Nonrepresentative” Don’t Profit-Haters Get?
For the last few days, for-profit colleges and universities have been suffering an even worse hammering than usual, both in the media and their pocketbooks. The proximate cause: a GAO report released Wednesday that has been portrayed as revealing “systemic” and “pervasive” fraud — and otherwise just seamy behavior — by the for-profit sector.
No doubt there is some bad stuff going on in proprietary postsecondary education. But the assault on for-profits reeks of political bullying of the unpopular kid — the kid who’s just different — as well as the never-ending Washington demonization of anyone who honestly pursues a profit. The waving of the bloody GAO report is case-in-point, and one need look no further than the following statement contained on the report’s very first page:
Results of the undercover tests and tuition comparisons cannot be projected to all for-profit colleges.
You mean, GAO investigators went to 15 non-randomly selected schools in six states and Washington, DC, and the results cannot be construed to be representative of the whole sector? And the GAO also, apparently, meant it when it wrote on page two of the report that “we investigated a nonrepresentative selection” of schools? But, then, how could Tom Harkin (D-IA), chair of the Senate Health, Education, Labor and Pensions Committee, have stated in a show-trial hearing that “GAO’s findings make it disturbingly clear that abuses in for-profit recruiting are not limited to a few rogue recruiters or even a few schools with lax oversight”?
Oh, right: Truth doesn’t matter to Harkin — only scoring political points. That not only explains how Harkin could say such a thing, but why he has targeted for-profits rather than seeking truth and purity in all sectors of higher education, including the coolest of the cool kids, public colleges. With dismal program completion rates of their own, and their imposition of huge burdens on taxpayers, you’d think they’d be worth some investigating, too.
I encourage you to read the GAO report, and you’ll see that it in no way supports a blanket condemnation of for-profit higher ed. And it’s not just because its findings can in no reasonable way be extrapolated to the whole of proprietary schooling. It’s also because many of the supposedly terrible things it discovers, while perhaps distasteful, are hardly abhorent, such as telling prospective students that they ”can” — not “will” — earn a lot of money in a profession even if that amount is well above the average. And then there’s the report’s worthless comparisons of tuition at for-profit and nearby public instituions. Once again: public colleges are heavily subsidized by taxpayers, so of course their tuition is lower. And these comparisons were also not randomly selected.
After you’ve read the GAO report, you should take in a new paper from the Center for College Affordability and Productivity, For-Profit Higher Education: Growth, Innovation and Regulation. It might be a bit too fond of the for-profit sector, which like all of higher education lives far too much off the sweat of taxpayers, but it furnishes lots of terrific data and insights about proprietary higher ed to balance out the ongoing truth-eschewing assaults the sector keeps on suffering.
This Week in Government Failure
Over at Downsizing Government, we focused on the following issues this week:
- You know that California city that recently made national headlines because local government officials were collecting massive six-figure salaries? It turns out that the city has received millions of dollars in federal subsidies over the past five years.
- Money-losing Amtrak plans to purchase 130 rail cars for its money-losing trains. Ah, government rail.
- Voters who are expecting a new Republican congressional majority to downsize government might not want to hold their breath.
- Federal highway financing and control should be devolved to the states and, even better, the private sector.
- The latest federal bailout isn’t about “America’s children” as White House demagogues claim. Children shouldn’t trust strangers with candy — or Uncle Sam.
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School Bailout Is Intergenerational Warfare
Neal McCluskey’s latest post on the “Grigori Rasputin” public school employee bailout caught the attention of the Wall Street Journal this morning. As the House gets set to pass the legislation next week, here’s another under-appreciated angle: it is merciless intergenerational warfare.
Supporters of the bailout like to claim that it’s for the kids. In reality, it will only saddle the next generation with a bigger debt, without actually improving their education so that they are better-equipped to pay it off. After adding millions of extra public school employees and hundreds of billions in extra spending, achievement at the end of high school has remained flat (see the charts in Neal’s post).
So why perpetuate this litany of failure with another bailout?
The only possible reason is to curry favor with the public school employee unions, who are stalwart supporters of the Democratic Party. This bailout is meant to score political points on the backs of kids’ education and kids’ economic futures.
Anyone who really cared about the next generation would be enacting policies that actually improve educational outcomes and lower the debt. Policies like this, for instance….
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