Archive for August, 2010
Partnership, ObamaCare-Style: Jump, or Be Pushed
Financial Times writes:
The federal government will step in to ensure that the Obama administration’s health care reforms are implemented in every state, Kathleen Sebelius, the health secretary, said, amid growing resistance to the changes in some parts of the US and an inability to act in others.
The article quotes Health and Human Services Secretary Kathleen Sebelius:
The way the bill is written, it really is a state-based programme with the federal government providing the back-up. So if a state opts not to set up a risk pool, we do it here at the department. If the state opts not to regulate their insurance market, we do it…
It is not a federal takeover, it’s really a partnership.
Yes, a partnership not unlike that between the Soviet Union and, say, Czechoslovakia.
The Obama administration has good reason to emphasize its conception of this “partnership:”
[S]ome big states, including California and Florida, said they did not have the legal authority to enforce the new consumer protection standards, while others face such severe budget crises that they will struggle to pay for provisions, such as the expanded Medicaid services for lower-income groups, required under the law….
Separately, more than 20 states are challenging a mandate that requires almost all Americans to have some form of insurance by 2014 as unconstitutional. A judge in Virginia has said a challenge brought by the state’s attorney-general can proceed, while Arizona, Florida and Oklahoma will soon follow in Missouri’s footsteps by holding yes-or-no referendums on the mandate….
“Federal/state relations is one of the biggest challenges to implementing healthcare reform,” said Diane Rowland, executive vice-president of the Kaiser Family Foundation, a non-partisan health policy group. “Many of the states are facing fiscal crises and they have real capacity issues.”
Sebelius is undeterred:
The legal challenges will work their way through…. It doesn’t slow anything down. This is the law of the land.
Maybe, but then again, maybe not.
Filed under: Cato Publications; General; Government and Politics; Health Care
GM IPO ASAP, SVP
GM announced yesterday its intention to go sell shares on the New York Stock Exchange, thus officially beginning the process of re-privatizing the company.
A GM initial public offering is the right move, and cannot happen soon enough. Let’s get the government out of the car business now.
But successfully reprivatizing GM should not be seen as a sign that the intervention itself was successful. The intervention was akin to theft — from Ford, Honda, Toyota, the other automakers and taxpayers — and was highly damaging to crucial longstanding institutions in the United States, like property rights and the rule of law.
The costs of GM’s ”turnaround,” if it is to happen, will never be fully appreciated. The other auto companies were denied the spoils of competition. Had they been able to pick up the market share that the nationalized GM has maintained, then more resources would have flowed to the companies that are best at making the products that people want to buy. These are huge implicit costs–the costs that are not seen–that are happily swept under the rug by Obama administration officials.
It is also highly likely that the timing of the IPO talk is politically motivated. Democrats want to have a business success to tout for their campaigns this fall. But there is the real prospect that that the IPO won’t raise anywhere near the amount of cash to make taxpayers whole, which could generate a lot of bad press before the election. With economic growth and auto sales prospects apparently in doubt and the $41,000 Chevy Volt about to be unveiled when gas prices are relatively low, investors may not be ready to own GM stock.
Unserious Cost Cutters Only
In a new Governing column entitled “Serious Cost Cutters Only, Please,” William Eggers and John O’Leary offer advice “for those public leaders who are looking to make structural changes that will bend the cost curve of government down.”
The target audiences are state officials who presently find themselves in the politically unrewarding position of not being able to spend as much as they’d like to because the recession has constrained revenues. Eggers and O’Leary correctly warn that policymakers shouldn’t “kick the can” down the road by pursuing short-term strategies that could prove costly in the long-run.
Unfortunately, their recommendations are of the pie-in-the-sky “good government” variety.
The piece caught my eye because I have first-hand state government experience with some of their suggestions:
The first lesson is that it is virtually impossible for the secretaries and department heads charged with running operations to come up with sufficient savings themselves to deliver the necessary cost savings. The best approach by far is to establish a dedicated team, located physically and philosophically close to the chief executive, and charge them with developing a set of recommendations that the mayor or governor can then direct her lieutenants to execute.
I spent two years working for such a dedicated team within Indiana Gov. Mitch Daniels’ Office of Management and Budget. The group, “Government Efficiency and Financial Planning,” was originally tasked with conducting a “long-overdue inventory of the state’s operations.” We produced two reports with hundreds of recommendations for making state government more “efficient” and “effective.”
The governor never directed his “lieutenants to execute” very many – if any – of the recommendations. In fact, the lieutenants were so worried about the potential political fallout from the issue of the second report that it was intentionally released when nobody was looking. They needn’t have worried because those interests who might have had cause for concern already saw that the first report was basically inconsequential.
That Which is Seen and That Which is Not Heard
Cato adjunct scholar David Post writes on the Volokh Conspiracy blog about the sticky copyright wicket facing some impressive jazz recordings from the 30s and 40s.
I get pretty excited . . . when I read that the collection also contains live performances of a Goodman-Wilson duet on “Lady Be Good” (with Wilson playing harpsichord!), Lester Young and Herschel Evans on “Tea for Two,” Charlie Christian playing electric guitar with the Goodman sextet in a 1939 performance of “Shivers,” the Count Basie and Duke Elllington bands’ performances at the 1938 “Carnival of Swing” on Randalls Island, . . . all previously unreleased. Oh, lordy — you’ve got to be kidding me! And listening to the excerpts from the recordings here, if anything, makes me even more delirious — this is truly great stuff by some of the greatest musicians that ever lived.
But:
[T]he potential copyright liability that could attach to redistribution of these recordings is so large — and, more importantly, so uncertain — that there may never be a public distribution of the recordings. Tracking down all the parties who may have a copyright interest in these performances, and therefore an entitlement to royalty payments (or to enjoining their distribution), is a monumental, and quite possibly an impossible, task, and it may well be that nobody steps forward with the resources to (a) undertake the efforts required and (b) take on the risk of liability.
Some of Post’s observations on copyright policy:
[I]f you give people a property interest in their creations, they’ll be able to work out market arrangements to receive compensation for them; knowing that in advance, they’ll create more works of art than they otherwise would absent that protection, and we’re all better off as a result. That’s easy enough to see. What’s harder to see is why that principle should ever be limited. . .
This case makes seen some costs of overbroad copyright protection through the medium of what we may not hear.
Net Neutrality and Unintended Consequences
Google and Verizon’s proposed framework for net neutrality regulation has provoked cries of protest from advocates of aggressive regulation at places like Free Press and Public Knowledge. Some of the loudest objections have concerned the distinction between the “public Internet,” which (at least for wireline broadband) would be subject to neutrality requirements, and vaguely defined “differentiated” or “managed” services—presumably things like IPTV or digital telephone service—which would not. This, according to the pro-regulation camp, would amount to a massive loophole that defeats the purpose of imposing neutrality rules. As Public Knowledge writes in their press release:
Thus, it is conceivable under the agreement that a network provider could devote 90% of its broadband capacity to these priority services and 10% to the best efforts Internet. If managed services are allowed to cannibalize the best efforts Internet, whatever protections are agreed to for the latter become, for all intents and purposes, meaningless.
This may be right. But if so, it sounds like a reason to be chary of the whole regulatory project. Neutrality or no neutrality, after all, there are a variety of ways to get digital content from producers to subscribers. Traditionally, the cable running to your home comprised separate dedicated channels for cable TV and broadband Internet traffic—though the trend now is toward a more efficient model where the TV content is also delivered as packet-switched data. If you’d rather watch Jersey Shore from the Jersey Shore, you can stream your video to a mobile device like a tablet or smartphone via Internet, but that’s hardly the only way to get your Snooki fix: There’s also, for instance, Digitial Video Broadcasting Satellite to Handheld (DVB-SH) or Qualcomm’s MediaFLO operating on their own dedicated frequencies. Imposing neutrality rules on wireless broadband (as the Google/Verizon proposal would not — again, to the dismay of regulation fans) shouldn’t affect these services.
My concern, then, is that if neutrality rules foreclose the possibility of cross-subsidy from the providers of subscription-based video streaming or VoIP services, these alternatives become more attractive. Maybe Netflix or Hulu Plus want to be able to offer a deal where your subscription price includes priority delivery of their packets to your smartphone or tablet, making non-WiFi video streaming feasible even if you haven’t sprung for that kind of top-shelf bandwidth for all your wireless data. If neutrality regulation forbids that kind of deal, even with respect to these kinds of “managed services,” one possible effect is to skew investment away from building out next-gen IP networks and toward these kinds of niche services, which strikes me as inefficient. Indeed, it’s precisely the effect Public Knowledge seems to fear, and there’s no obvious reason to suppose that it’s going to be a big problem within IP-based broadband services, but not affect the choice between alternative modes of digital content delivery.
I should close with the caveat that I haven’t looked very closely at the economics here, so while I think the effect I’ve just sketched is theoretically plausible enough, I couldn’t say with any confidence how significant it’s going to be in practice. That said, given that the case for neutrality regulation seems to rest on a smattering of genuine cases of bad behavior by providers and a whole lot of dire speculation about consumer-unfriendly practices that might emerge, I’ll permit myself a little extra latitude to deal in hypotheticals.
More Censorship in Venezuela
More than 16,000 murders occurred in Venezuela in 2009. That compares with 4,550 homicides reported in 1998, the year Hugo Chavez was elected president. The fact that Venezuela now has one of the world’s highest violent crime rates underscores the Chavez revolution’s utter neglect of the basic and proper functions of government.
Yet the problem is downplayed by the government, which inexplicably blames capitalism and poverty even though official figures show a fall in poverty rates. As if to highlight the government’s insensitivity, the president of state-run TeleSUR TV station recently laughed off the problem in a widely-seen CNN interview.
Last week, El Nacional newspaper published this graphic front-page photo of crime victims in a morgue. The official response from a government-controlled court has been to ban media from publishing violent images for one month. Thus, today El Nacional ran the front-page photo below, which reads “Censored” in the space where photos should be. The way the Bolivarian Revolution is going, Venezuelans can expect the government to continue resolving social problems in the same way.
What’s the Ideal Point on the Laffer Curve?
There’s been a bit of chatter in the blogosphere about a recent post on Ezra Klein’s blog, featuring estimates from various economists about the revenue-maximizing tax rate. It won’t come as a surprise that people on the right tended to give lower estimates and folks on the left had higher guesses. Donald Luskin of National Review estimated 19 percent, for instance, while Emmanuel Saez, Dean Baker, Bruce Bartlett, and Brad DeLong all gave answers around 70 percent.
There are two things that are worth noting.
First, every single answer is to the right of the Joint Committee on Taxation. The revenue-estimators on Capitol Hill assume that taxes have no impact on overall economic performance. As such, even confiscatory tax rates have very little impact on taxable income. The JCT operates in a totally non-transparent fashion, so it is difficult to know whether they would say the revenue-maximizing tax rate is 90 percent, 95 percent, or 100 percent, but it is remarkable that a mini-bureaucracy with so much power is so far out of the mainstream (it’s even more remarkable that Republicans controlled Congress for 12 years, yet never fixed this problem, but that’s a separate story).
Second, very few of the respondents made the critically important observation that it should not be the goal of tax policy to maximize revenue. After all, the revenue-maximizing point is where the damage to the overall economy is so great that taxable income falls enough to offset the impact of the higher tax rates. Greg Mankiw of Harvard and Steve Moore of the Wall Street Journal indicated they understood this point since they both explained that the long-run revenue-maximizing rate was lower than the short-run revenue-maximizing rate. But Martin Feldstein of Harvard explicitly addressed this issue and hit the nail on the head.
Why look for the rate that maximizes revenue? As the tax rate rises, the “deadweight loss” (real loss to the economy) rises. So as the rate gets close to maximizing revenue the loss to the economy exceeds the gain in revenue…. I dislike budget deficits as much as anyone else. But would I really want to give up say $1 billion of GDP in order to reduce the deficit by $100 million? No. National income is a goal in itself. That is what drives consumption and our standard of living.
For more information, I think my three-part video series on the Laffer Curve is a good summary of the key issues. I posted them in May 2009, but Cato-at-Liberty has been growing rapidly and many people have not seen them. Part I addresses the theory, and explicitly notes that policy makers should target the growth-maximizing tax rate rather than the revenue-maximizing tax rate. Part II reviews some of the evidence, including analysis of the huge increase in taxable income and tax revenue from upper-income taxpayers following the Reagan tax-rate reductions. Part III looks at the Joint Committee on Taxation’s dismal performance.
Reflections on a Mortgage Summit
Yesterday the Treasury and HUD hosted a “Conference on the Future of Mortgage Finance.” It was an invite-only of Washington insiders. Somehow I found myself on the invite list, which was almost enough to make me believe that the Administration was finally serious about reforming Fannie and Freddie.
After getting over the nausea of being in a room full of people who I personally knew bore some responsibility for the mess we are in, I was then shocked that, compared to the rest of the room, Treasury Secretary Geithner came across as the radical. On one hand Geithner was very clear that the Administration was going to push for some sort of government guarantee, but also that the current structure, particularly Fannie and Freddie, were broken. He also went as far as admitting that Fannie and Freddie were a cause of the crisis.
Such statements only became radical in contrast to the rest of the room. Maybe about 80 percent of the attendees were blindly and violently attached to the status quo. Most offensive to those us who fight for free markets was that the industry representatives were the most vocal advocates for the status quo. To even suggest that lenders should bear the risk of loans they make was crazy to this group. It was a clear reminder that being pro-market and pro-business are generally two very different things. In fairness, not all lenders were busy plotting to find ways to profit while dumping their risk onto the taxpayer; some, such as Wells Fargo, were far more supportive of the private sector actually bearing the risk.
Most of those who were not industry insiders were housing and community advocates. While this group did seem a little less self-interested, they appear to have learned little about the risks of over-expanding homeownership. Repeatedly, access to homeownership, as if it could solve every social ill, was pushed as the primary goal. A few dissenters reminded us that rental is a viable option too, although they were mainly looking to continue/expand Fannie and Freddie’s support of the multifamily rental market.
If the Administration was hoping that this group was going to come up with answers, then they must have been sorely disappointed. If Obama is serious about taking the taxpayer off the hook for risk in the mortgage market, then he is going to have to take on the special interests. My fear is that the event was just the beginning of how health care reform played out: cut a deal with the industry, pay off the Democratic base, and screw the taxpayer. Let’s hope we actually see some change on this one.
Korb and Thompson on Military Spending
Today’s Los Angeles Times features an op-ed by Lawrence Korb of the Center for American Progress, and Loren Thompson of the Lexington Institute, that is worthy of attention. The theme, cutting military spending, isn’t particularly original. It has grown into a regular topic of conversation across the media spectrum, with the New York Times featuring an editorial this past Sunday making the case for real cuts in Pentagon spending, not the half-hearted cost-shifting that Defense Secretary Gates is busy selling these days. Ben Friedman and I wrote about cutting military spending in the LA Times a few months ago, and I collaborated with Larry Korb on this same subject at The National Interest Online. Nothing particularly newsworthy there.
Loren Thompson’s contribution is significant, however. Building on his entry at the National Journal‘s National Security Experts blog earlier this month,he signals a willingness on the part of an established Washington insider to reconsider some fundamental propositions that have guided his work — and inside-the-Beltway thinking — for years.
One of Lexington’s bread-and-butter issues has been finding ways to grow the military budget. I don’t expect that to change entirely. Perhaps now, however, the focus will be on steering a finite and shrinking military budget to particularly worthwhile projects, and jettisoning the force structure that serves decidedly unnecessary or unwise missions (e.g. invading and occupying medium-sized countries in Southwest and Central Asia).
A related goal is to give U.S. taxpayers a break, and get others to spend more for their own defense. In this vein, I don’t agree with all of their predictions. I doubt that the Littoral Combat Ship will have much of a foreign market with a price tag exceeding $600 million a piece (when one includes the mission modules that each LCS will carry). I likewise am skeptical that the Joint Strike Fighter will attract a lot of buyers if the price continues on its current path — approaching $150 million a piece. Some countries that had previously committed to the JSF program, including Denmark and the Netherlands, are now getting cold feet.
That said, the bottom line in the Korb-Thompson collaboration is spot on, and worth repeating:
The big question for policymakers is not whether defense spending will be cut — that is inevitable — but how global security will be maintained as the U.S. role diminishes….
It appears the only way this can be accomplished without encouraging aggression is to expect more of allies and friends. In other words, countries such as Germany, Japan and India must help fill the strategic vacuum created by America’s retreat.
[...]
The White House has already embarked on a series of initiatives to engage allies in more robust security roles while loosening the export restrictions that impeded arming them. These steps may have trade benefits for America, but their real significance is that America’s eroding economic might makes unilateralism too costly to be feasible. Washington needs to help overseas friends play a bigger security role so it can concentrate on rebuilding its economy.
Congrats and kudos to them both for setting forth such a clear and convincing argument for a dramatic change of course.
Beyond Toleration: George Washington’s View of Liberty
Participants in various current controversies would do well to settle into a comfortable chair and ponder these words of George Washington, sent to the Hebrew Congregation of Newport, R.I., 220 years ago today:
While I receive, with much satisfaction, your Address replete with expressions of affection and esteem; I rejoice in the opportunity of assuring you, that I shall always retain a grateful remembrance of the cordial welcome I experienced in my visit to Newport, from all classes of Citizens.
The reflection on the days of difficulty and danger which are past is rendered the more sweet, from a consciousness that they are succeeded by days of uncommon prosperity and security. If we have wisdom to make the best use of the advantages with which we are now favored, we cannot fail, under the just administration of a good Government, to become a great and a happy people.
The Citizens of the United States of America have a right to applaud themselves for having given to mankind examples of an enlarged and liberal policy: a policy worthy of imitation. All possess alike liberty of conscience and immunities of citizenship. It is now no more that toleration is spoken of, as if it was by the indulgence of one class of people, that another enjoyed the exercise of their inherent natural rights. For happily the Government of the United States, which gives to bigotry no sanction, to persecution no assistance requires only that they who live under its protection should demean themselves as good citizens, in giving it on all occasions their effectual support.
It would be inconsistent with the frankness of my character not to avow that I am pleased with your favorable opinion of my Administration, and fervent wishes for my felicity. May the Children of the Stock of Abraham, who dwell in this land, continue to merit and enjoy the good will of the other Inhabitants; while every one shall sit in safety under his own vine and figtree, and there shall be none to make him afraid. May the father of all mercies scatter light and not darkness in our paths, and make us all in our several vocations useful here, and in his own due time and way everlastingly happy.
I am particularly struck by the third paragraph, which proclaims that the government of the United States “gives to bigotry no sanction, to persecution no assistance” — thoughts that both reflected and shaped the character of the new nation. Those words actually echo the congregation’s address to President Washington. But the preceding line is even more impressive:
It is now no more that toleration is spoken of, as if it was by the indulgence of one class of people, that another enjoyed the exercise of their inherent natural rights.
That is, equal freedom under the law is not something extended by some as “toleration” of others. Rather, all people who “demean themselves as good citizens” are allowed the free “exercise of their inherent natural rights.” It took almost two centuries to fulfill that promise to Jews, to women, and especially to African Americans. And even today Muslim and gay Americans may wonder if they are still regarded as objects of toleration “by the indulgence of one class of people” rather than as full citizens entitled to “the exercise of their inherent natural rights.” Let us continue to work toward George Washington’s dream of a world in which “every one shall sit in safety under his own vine and figtree, and there shall be none to make him afraid.”
Weakonomics
An anonymous contributor to the NY Times Freakonomics blog asks “How much does school choice matter?” And answers in much the way you might expect:
Probably less than you think, as [economist Stephen] Levitt has previously argued. Now, in an analysis of seven years of test-score data from 6,000 Los Angeles teachers, the L.A. Times and the Rand Corp. have found teacher effectiveness to be three times more influential than [choice of] school… on student performance.
The author of this posting makes no effort to differentiate between “public school choice” and actual free education markets, and in the process grossly misrepresents what is known and has been repeatedly shown: that the freest and most market-like education systems overwhelmingly outperform monopolisitic school systems such as we have in the United States.
To his credit, Stephen Levitt did make this distinction in the 2007 posting linked in the blockquote above. But even Levitt refered to the evidence on this subject as “hard to find.” Should anyone else be experiencing difficulty in finding this evidence, they are encouraged to click on the link immediately above, where they will find a peer-reviewed paper digesting the results of 65 studies on this subject.
Prominent Economists Debate Trade Deficits
Following Dan’s and David’s recent posts on the trade deficit and its (ir)relevance, allow me to draw readers’ attention to the Economist’s “By Invitation” blog, where invited prominent economists debate topical economic issues.
One of their current questions is: Should governments take any steps to boost exports? That’s an important topic, and an especially timely one given the Obama administration’s ‘National Export Initiative,’ a five-year plan to double U.S. exports. All of us here at Cato’s trade center have previously expressed skepticism about the feasiblity and/or wisdom of that plan, and Dan Ikenson blogged earlier today about the administration’s apparent incoherence in pursuit of that goal.
The Economist‘s debate talks about industrial policy and export promotion in the abstract, rather than the NEI per se, but I recommend checking it out. Scott Sumner and Laurence Kotlikoff make especially good sense.
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