Archive for October, 2010
A Hidden Cost of ObamaCare
Today at the Cato Institute, Duke University Prof. Chris Conover presented his estimates of the economic losses that will be created by the taxes necessary to fund ObamaCare. This chart is taken from his presentation:
The Excess Burden of ObamaCare
Here’s Conover’s full presentation (with comments by former Congressional Budget Office director Douglas Holtz-Eakin), as well as his Cato Policy Analysis, and his op-ed.
Merry Christmas, Ivory Tower!
If you ever want to see how federal student aid is used for political gain, look no further than the report on the American Opportunity Tax Credit released today by the U.S. Treasury Department. The accolade-begging for the President begins right on the cover page:
The President created the American Opportunity Tax Credit (AOTC) as part of the American Recovery and Reinvestment Act, which he signed into law in February 2009. For tax years 2009 and 2010, the new law allows families with tuition expenses to receive a tax credit of up to $2,500 per student, and up to $1,000 per year of this amount is refundable. If the AOTC is made permanent, as proposed in the President’s FY 2011 Budget, a student could receive a credit up to $10,000 over four years.
The President, of course, doesn’t create these things, the legislative branch does. But the Prez, apparently, wants the credit for the credits. A White House event scheduled for today suggests why: It appears that the President will be using the report, as well as his proposal to extend the AOTC, to curry favor with college students, a potentially large voting bloc.
The content of the report, unfortunately, is just as bad as its PR use, going on and on about how much free money the credit offers for college, and breaking down the benefits so every type of filer can see how he or she might benefit. Meanwhile, there’s hardly amention of the AOTC’s cost — something in which you’d think the Treasury Department would be at least a little interested. But, to be fair, I’m not just talking about the obvious cost to taxpayers who will sooner or later have to foot the bill for this Santa Claus program. Arguably the even bigger cost is that expanding federal aid like this ultimately just enables colleges to raise their prices and capture the money, making it a major, self-defeating source of fuel for rampant tuition inflation.
So the AOTC will do little or nothing to make college more affordable in the long-run. It will, though, make colleges and their employeesbetter off, and create the powerful illusion that Washington politicians — especially, in this case, the President — are doing their best to make college affordable for all. And that, as pure-PR reports like this one strongly suggest, is likely the primary goal.
Hiding the Cost of Government Leads to Bigger Government
At the Daily Caller, Duke University Prof. Chris Conover writes:
There you are, about to sign the papers, when the car salesman offers to throw in a $1,000 options package. He knows those options will cost you a further $440 by reducing the performance of your new car’s engine, but he doesn’t tell you that.
Sounds sleazy, right? Congress does it every day.
Politicians love to rail against car dealers and mortgage lenders who surprise consumers with hidden costs. Yet Congress hides from voters a huge part of the cost of government: the hidden costs of taxes, which include lost income and jobs. Failing to account for these costs creates a bias in favor of bigger government and a less efficient tax code.
Read the rest of Conover’s oped here, and his Cato study here.
Fear and Stasis
The Obama administration’s attacks on the U.S. Chamber of Commerce look a lot like a three-day story on its final day. The national media had its doubts, and even Democratic operatives decried the gambit.
Why did the administration go after the Chamber? The politics are not hard to figure out. Earlier actions of the Obama administration mobilized the Republican base. At the same time, the President and his party have been losing the support of independents for a year or so. Their only hope of limiting the electoral damage was to rally the Democratic base, who are discouraged and divided.
The Democratic base might agree about what they don’t like and fear: business, money in politics, and foreigners — or at least, foreigners spending money on politics. The attack on the Chamber of Commerce appealed to all three. The administration hoped that fear would engender hatred and hatred would bring people to the polls to vote against business and the GOP.
The most surprising part of the attack was the rather naked appeal to anti-foreign bias (see Bryan Caplan’s discussion of this concept here). Most people think of Democrats as friendly to undocumented foreign workers. But Democrats are first of all egalitarians; for them, the whole point of politics is to help the oppressed and harm the oppressor. They do not favor undocumented foreigners because they believe people have a right to free exchange, borders notwithstanding. Instead, Democrats see undocumented foreigners as victims of oppression by American businesses. Foreigners who have enough money to spend on elections are oppressors in the egalitarian mind.
Obama promised hope and change. He and his party now want to maintain — so far as possible — the political status quo (that is, their control of Congress). To do that they are trying to prompt fear and hatred among their most loyal voters. The new motto of the administration appears to be: fear and stasis.
Of course, the administration had no evidence the charges were true and argued that the Chamber should be seen as guilty until proven innocent. All in all, the whole affair suggests desperation and a complete loss of constraint in pursuing a political end. It suggests, I think, conduct that used to be covered by the word “Nixonian.”
Higher Education Subsidies Wasted
A study from the American Institutes of Research finds that federal and state governments have wasted billions of dollars on subsidies for students who didn’t make it past their first year in college. The federal total for first-year college drop outs was $1.5 billion from 2003 to 2008.
Due to data limitations, the figures are only for first year, full-time students at four-year colleges and universities. Community colleges have even higher drop-out rates, and part-time students or students returning to college are more likely to drop out. Therefore, the numbers in the report are “only a fraction of the total costs of first-year attrition the nation and the states face.” Moreover, it doesn’t include the cost for students who drop out some time after their sophomore year.
Federal policymakers from both parties are fond of lavishing subsidies on college students. Proponents argue that without federal subsidies, an insufficient number of future workers will possess the skills necessary to compete in a global economy.
However, a Cato essay on federal higher education subsidies argues that students wishing to attend college already have plenty of incentive to save or borrow from private sources:
Supporters of student aid subsidies argue that higher education is a “public good” that would be underprovided in a free market. However, that is probably not the case. People have a strong incentive to invest in their own education because it will lead to higher earnings. Those with a college degree will earn, on average, 75 percent more during their lifetime than those with just high-school degrees. That is a big incentive for people to save or borrow in private markets to pay for their own college costs. There is no “market failure” here.
In fact, higher education subsidies drive up tuition prices:
It is matter of supply and demand. More and more Americans have sought a college education, which has pushed prices higher. Ordinarily, such upward pressure would be restrained by consumers’ willingness and ability to pay, but as government subsidies have helped absorb tuition increases, the public’s budget constraint has been lifted. Peter Wood, a professor at Boston University noted that federal subsidies “are seen by colleges and universities as money that is there for the taking . . . tuition is set high enough to capture those funds and whatever else we think can be extracted from parents.”
But isn’t it great that Uncle Sam is helping put more young folks in college? Not necessarily:
Many of those additional students may not have been ready, or suited, for college. As evidenced by the rising shares of college students who require remedial work. Further evidence of the problem is that institutions have lowered their standards to adapt to the rise in second-rate students. The American Academy of Arts and Sciences reported that from the mid-1960s to the mid-1990s, college grade point averages grew steadily but Scholastic Aptitude Test scores declined. The share of entering college students who complete degrees has also fallen over the decades. In addition, while college attendance is up, overall adult literacy has barely budged over the last 15 years.
The essay also notes that college students devote 3.2 hours to education on an average weekday, versus 3.9 hours to “leisure and sports,” and that the six-year graduation rate for bachelor’s students is only about 56 percent, indicating that many students are not very serious about education.
Just as housing subsidies incentivized people to purchase homes that they otherwise shouldn’t have, higher education subsidies have incentivized people to go to college who weren’t ready or suited for it. In both cases, the cost to taxpayers has been substantial while the alleged benefits have proven illusory.
Time to End the Campaign Finance ‘Reform’ Ruse
Today POLITICO Arena asks:
Looking at the repeated failures of campaign finance reforms, is it time to end the restrictions?
My response:
Funny, we didn’t hear the primal scream about campaign finance from liberal Democrats during the 2008 campaigns, when money was pouring into their coffers from everywhere. Do we need any better evidence of the hypocrisy surrounding their screams this year? If so, turn to the lead editorial in this morning’s Wall Street Journal. It’ll tell you all you need to know about the campaign finance “reform” ruse that has been going on for years.
Cato Study: ObamaCare’s Hidden $550 Billion Cost
In a study released today by the Cato Institute, Duke University professor Chris Conover estimates how much ObamaCare and related provisions will reduce economic output:
The Congressional Budget Office has projected the 10-year, on-budget cost of [The Patient Protection and Affordable Care Act, a.k.a. ObamaCare] will be just over $1 trillion. This paper estimates PPACA will impose an additional, hidden cost of $157 billion to $494 billion in the form of reduced economic output. Related provisions (such as the so-called “doc fix”) could drive the economic losses to $550 billion, or more than half of the bill’s official cost estimates.
Least Shocking Education News of the Year . . .
The Washington Post reports that Michelle Rhee is on her way out of the DC Public School system:
D.C. Schools Chancellor Michelle A. Rhee will announce Wednesday that she is resigning at the end of this month, bringing an abrupt end to a tenure that drew national acclaim but that also became a central issue in an election that sent her patron, Mayor Adrian M. Fenty, to defeat. Rhee survived three contentious years that made her a superstar of the education reform movement and one of the longest-serving school leaders in the city in two decades. Student test scores rose, and the teachers union accepted a contract that gave the chancellor sweeping powers to fire the lowest-performing among them.
No man or woman, mayor, chancellor or superintendent can significantly and permanently reform the government education monopoly. It is unreformable. Rhee’s tenure and modest success underscores this fact. Entrenched interests regroup, respond, bide their time, and reformers move on or are shoved along.
We’re all still waiting for Superman in DC and across the nation, and it reminds me a whole lot of waiting for Godot. Rhee, Geoffrey Canada, and all the rest of the celebrated reformers clearly aren’t Superman, and the whole reform conversation is far past absurd.
Only systemic reform that creates a market in education will bring sustained, continual improvement. Try looking a this for a sustainable bite out of the system.
The New York Times Undermines its Narrative
The New York Times has an odd story today on campaign finance on its front page. The story argues that organizations which do not have to identify their donors are sponsoring ads that criticize candidates for office. Complaints about secrecy notwithstanding, the third paragraph of the story discloses one of the major contributors to a group and reveals his putative interests in becoming involved. It also goes into great detail about the donor, his political associates, and even meetings his associates attended and what decisions were made therein. Later parts of the story recount the already disclosed names of supporters of Karl Rove’s efforts in this cycle. True, the story does not reveal everything the reporters believe should be disclosed about donors. But the groups and their donors are hardly secret given what is revealed in the story itself.
The story also cannot get its story straight. The Times‘ reporters evidently wanted to fit what they have found into a standard, “special interest” template: the organization in question – the American Future Fund – as a front for energy interests. The story also says the group has sponsored ads on general themes like too much spending, Obamacare, and another stimulus. But the reporters are determined to see “suggestions of an energy-related agenda,” their own reporting notwithstanding. This forcing of facts into a template comes along with a recognition that the politics of energy and ethanol have become more complicated making it difficult to say what interests are actually being advanced in the American Future Fund effort.
So the story discloses, while decrying secrecy, and both asserts and denies the domination of special interests. In the end, the story holds fast to a simple, conventional theme which is then undermined by its reporting. We should admire, I guess, that the Times‘ reporters were willing to undermine their own narrative. But why not just embrace complexity? They are writing the first, not the final, draft of history.
The story also reports that donors desire anonymity because they wish to avoid taking sides in political disputes in public. The story does not say why they desire to avoid taking sides. Perhaps a quick call to the Koch family or George Soros might have provided an answer to that question.
Meltzer on Looming Inflation
Allan H. Meltzer, a frequent participant in Cato’s annual monetary conferences, warns in the Wall Street Journal that the Federal Reserve may be about to lay the groundwork for another Great Inflation like we saw in the 1970s:
The Federal Reserve seems determined to make mistakes. First it started rumors that it would resume Treasury bond purchases, with the amount as high as $1 trillion. It seems all but certain this will happen once the midterm election passes.
Then the press reported rumors about plans to raise the inflation target to 4% or higher, from 2%. This is a major change from the Fed’s quick rejection of a higher target when the International Monetary Fund suggested it a few months ago.
Anyone can make a mistake, but wise people don’t repeat the same one. Increasing inflation to reduce unemployment initiated the Great Inflation of the 1960s and 1970s. Milton Friedman pointed out in 1968 why any gain in employment would be temporary: It would last only so long as people underestimated the rate of inflation. Friedman’s analysis is now a standard teaching of economics. Surely Fed economists understand this….
Yes, a sustained deflation would be a big problem, but it is unlikely in today’s circumstances. Countries with a depreciating exchange rate, an unsustainable budget deficit, and more than $1 trillion of excess monetary reserves are more likely to inflate. That’s our problem today, and it’s another reason the Fed should give up this nonsense about more stimulus and offer a credible long-term program to prevent the next inflation.
Register for Cato’s upcoming monetary conference here. More on inflation risks here and here.
Cut (Really Cut) Military Spending
Today ForeignPolicy.com has a feature article examining possible “Plan B’s for Obama,” with contributions coming from numerous experts. My contribution to the feature is titled “Cut (Really Cut) Military Spending.”
It is time for President Obama and the administration to finally notice the increasing calls—from across the political spectrum—that the Pentagon’s budget should not be off limits when reducing the deficit. From the Foreign Policy article:
Despite all the hype about Defense Secretary Robert Gates and his cuts of big-ticket military projects, the Pentagon’s $680 billion budget is actually slated to increase in coming years. This is unconscionable at a time when taxpayers are under enormous stress and when the U.S. government must reduce spending across the board. Barack Obama can save big bucks without undermining U.S. security — but only if he refocuses the military on a few, core missions.
…
The hawks will scream, but America will be just fine. Obama can capitalize on the country’s unique advantages — wide oceans to the east and west, friendly neighbors to the north and south, a dearth of powerful enemies globally, and the wealth to adapt to dangers as they arise — by adopting a grand strategy of restraint. The United States could shed the burden of defending other countries that are able to defend themselves, abandon futile efforts to fix failed states, and focus on those security challenges that pose the greatest threat to America. A strategic shift of this magnitude will not only reduce conflict and make the United States safer, but it will enable Obama to reshape the military to suit this more modest set of objectives, at a price that’s far easier for taxpayers to swallow.
Click here to read the full article
Johan Norberg: The Left and Vargas Llosa
The award of the Nobel Prize in Literature to liberal writer Mario Vargas Llosa engendered much praise from libertarians and very little criticism that I’ve noticed. But I wasn’t reading the Swedish newspapers, where, according to Cato senior fellow Johan Norberg, lefties went ballistic at the awarding of the prize to a non-leftist:
In Sweden’s biggest newspaper, Aftonbladet, three writers ripped him to pieces on the first day after the announcement of the Nobel Prize. One wrote that the prize was a victory for the Swedish right; one said it was a victory for the Latin American authoritarian right; one accused him of being not just ‘neo-liberal’ but also ‘macho’ (what Vargas Llosa did not know is that it is only acceptable for female authors to write about sex nowadays; when men do it, apparently, it is chauvinist and distasteful).
Aftonbladet’s Martin Ezpeleta even claimed that the prize was a victory for racists, because Vargas Llosa once wrote an essay attacking the ideology of multiculturalism. That the same essay also called for a more open immigration policy meant nothing to Ezpeleta – until others called his bluff and he quietly omitted the charge of ‘racism’ from his article and pretended that it had never been there….
The attempts to portray Vargas Llosa as a supporter of the authoritarian, conservative right in Latin America are just embarrassing. The only piece of evidence in the Aftonbladetarticle was that he supported Sebastián Piñera in Chile’s last presidential election – which doesn’t make sense in any way since Piñera is a moderate, democratic politician who has attacked the authoritarian tradition of Chile’s right and voted against Pinochet in the referendum on his rule in 1988.
Vargas Llosa’s attempt to hold all rulers to the same standards is what makes the claim that he betrayed the left so revealing. A lot of intellectuals have condemned rightist dictatorships in Peru and Chile, and a lot of intellectuals have condemned leftist dictatorships in Cuba and Nicaragua, but few have, like Vargas Llosa, condemned them both….
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