Archive for January, 2011
Is the Administration Cooking the Books on Govt’s Share of Health Spending?
Something smells fishy here.
Today, the federal agency that runs Medicare and Medicaid released its estimates of national health expenditures in 2009. Interestingly, the U.S. Centers for Medicare & Medicaid Services re-categorized about 6 percent of national health expenditures — well over $100 billion — from “government” to “private,” at the very moment that the government share of NHE appeared set to hit 50 percent.
Last year, CMS projected that government health spending would “account for more than half of all U.S. health care spending by 2012.” But it looks like we were set to reach (have reached?) that milestone much sooner. See the below table, which I made using CMS’s estimates from 2008 and Exhibit 5 (p. 16) from today’s report.
Turns out, it was the private sector spending that $100 billion each year, not the government. Who knew?
This 6-percentage-point drop in government’s share of health spending was apparently due to “the renaming of some service and payer categories.” A footnote leads to a page on the CMS site that isn’t active yet, so we can’t see what was recategorized from government to private spending.
Exhibit 5 of today’s report also reveals that total health care spending grew by 4 percent in 2009, while government health spending grew by 9.9 percent and private spending shrank by 0.2 percent. Indeed, today’s report contains this money quote:
Federal health spending increased 17.9 percent between 2008 and 2009 …. In contrast, the shares of spending of households… private businesses… and state and local governments… fell by roughly one percentage point each between 2008 and 2009.
I can’t say for sure that there’s something fishy going on here. But this re-categorization comes at an awfully convenient time for an administration struggling with public dissatisfaction over its, ahem, government takeover of health care. My spidey sense is tingling.
The Fall of the House of Waxman
While others wish the new Congress well today on its swearing-in, I plan to light a 100-watt incandescent bulb and hoist a caffeinated alcoholic beverage in honor of a different milestone: starting today, the powerful House Energy and Commerce Committee will no longer be under the control of Henry Waxman (D-Calif.).
Some lawmakers can talk a decent game about lean ‘n’ smart regulation, but no one ever accused Waxman of having a light touch. (The 900-page Waxman-Markey environmental bill, mercifully killed by the Senate, included provisions letting Washington rewrite local building codes.) He’s known for aggressive micromanagement even of agencies run by putative allies: his staff has repeatedly twisted the ears of Obamanaut appointees to complain that their approach to regulation is too moderate and gradual. More than any other lawmaker on the Hill, he’s stood in the way of any meaningful reform of the 2008 CPSIA law, which piles impractical burdens on small makers of children’s products, thrift stores, bicycles and others.
Like his predecessor, Rep. John Dingell (D-Mich.), Waxman and his subcommittee chairs have famously used hearings as a club to discipline interest groups that don’t cooperate. Last spring he menaced large employers with hearings after several of them announced (contrary to some predictions) that ObamaCare was going to hurt their bottom lines. In September, subcommittee chair Rep. Anthony Weiner (D-N.Y.) announced hearings on regulating precious-metal companies, in a remarkable press release that devoted much attention to the firms’ role in sponsoring “several conservative pundits … including Glenn Beck, Mike Huckabee, Laura Ingraham, and Fred Thompson. By drumming up public fears during financially uncertain times, conservative pundits are able to drive a false narrative,” the release said. In other words, the committee was investigating private firms in part because it disapproved of their advertising on, and reinforcing the economic message of, conservative talk shows. Didn’t anyone on Weiner’s staff have a sudden overhead flash about the whole “First Amendment” idea? Or had that particular light bulb been banned too?
The committee was an unending source of ghastly new legislative proposals for regulatory manacles to be fastened on one or another sector of the economy , ideas that with any luck we may now be spared for the next two years. Thus it appears unlikely that the Republican-led committee will give its blessing to something called the Safe Cosmetics Act of 2010 (H.R. 5786), introduced by Reps. Ed Markey (D-Mass.), Jan Schakowsky (D-Ill.), and Tammy Baldwin (D-Wisc.), which — by mandating that all compounds found in personal-care items at any detectable level be expensively tested for and disclosed on labels — could have added tens of thousands of dollars of cost overhead to that little herbal-soap business your sister is trying to start in her garage. (Fragrance expert Robert Tisserand explains why most small personal-care product makers would not survive if the bill passed). Nor is it likely that the new leadership of chairman Fred Upton (R-Mich.) will be in a hurry to adopt Rep. Schakowsky’s H.R. 1408, the Inclusive Home Design Act, which would mandate handicap accessibility features in most new private homes.
I look forward to learning more about the plans of Rep. Upton and his new majority colleagues. For today, however, it’s enough just to know that they are Not Henry Waxman.
We Must Protect This Failing House! (And To Heck With the Kids In It)
The New York Times’ “Room for Debate” website is once again hosting a forum on education, to which I have contributed some thoughts. The topic: whether there should be federal tax credits for home schoolers.
I won’t rehash my contribution — obviously, you can read it right on the site — but I wanted to respond quickly to two other entries.
The first is from Chester Finn, president of our favorite conservative sparring partner in education, the Thomas B. Fordham Instititute. I just want to thank him for substantiating a warning I offer in my contribution: Create federal home-schooling credits and don’t be surprised if you also get requirements that home schoolers be judged on stultifying standardized tests. It’s exactly what Finn calls for:
In return for the financial help, however, home-schooled students should be required to take state tests, just as they would do in regular school, charter school or virtual schools. And if they don’t pass those tests, either the subsidy vanishes or the kids must enroll in some sort of school with a decent academic track record.
The second person I want to respond to is former Bush II official Susan Neuman, who generally offers the right advice by warning even more starkly than I did that home schoolers demanding tax credits are making a deal with the regulatory devil. That’s fine, as is her reporting that by what indications we have “children who have been home-schooled do remarkably well, attending well-respected colleges and universities and going on to successful careers.” Unfortunately, all that was preceded by the Reductio ad Hitlerum of education debates: Smearing any effort to even the playing field between public schools and other educational arrangements as an “attempt … to destroy public education.”
I know that this will never catch on with people determined to preserve public schools’ near-monopoly on tax dollars no matter how well other arrangements actually educate children (not to mention serve taxpayers and society overall), but it is time to stop treating public education as if it is synonymous with public schools! Indeed, you demonstrate more dedication to public education if you fight to get kids access to the best education wherever it is offered than if you make your ultimate goal preserving government schools. Yet the monopoly defenders insist on smearing choice advocates as being at war with public education.
Stop with this trashy tactic. Wanna say supporters of educational choice are at war with public schools? Fine. But with public education? Sorry — if anything, they’re the ones truly fighting to get the best possible education for all.
Five Lessons from Ireland
The news is going from bad to worse for Ireland. The Irish Independent is reporting that the Swiss Central Bank no longer will accept Irish government bonds as collateral. The story also notes that one of the world’s largest bond firms, PIMCO, is no longer purchasing debt issued by the Irish government.
And this is happening even though (or perhaps because?) Ireland received a big bailout from the European Union and the International Monetary Fund (and the IMF’s involvement means American taxpayers are picking up part of the tab).
I’ve already commented on Ireland’s woes, and opined about similar problems afflicting the rest of Europe, but the continuing deterioration of the Emerald Isle deserves further analysis so that American policy makers hopefully grasp the right lessons. Here are five things we should learn from the mess in Ireland.
Is Birthright Citizenship Challenge “Doomed”? Let’s Hope So
Yet another front has opened in the battle over illegal immigration, this one involving birthright citizenship. According to today’s New York Times and other news outlets, Republicans at the state and federal level are gearing up to re-open the question of whether children born in the United States to parents who are here illegally should be granted automatic citizenship under the 14th Amendment to the U.S. Constitution.
James Ho makes a strong case in this morning’s Wall Street Journal that the 14th Amendment as written after the Civil War was intended to include the children of resident aliens whatever their legal status. The former solicitor general of Texas, Ho describes a series of Supreme Court decisions since then that have consistently upheld the principle that birthright citizenship applies to the children of illegal immigrants. He offers this sobering advice to those who want to retest the case in court:
Opponents of birthright citizenship say that they want nothing more than a chance to relitigate the meaning of the 14th Amendment. But if that is so, state legislation is a poor strategy.
Determining U.S. citizenship is the unique province of the federal government. It does not take a constitutional expert to appreciate that we cannot have 50 different state laws governing who is a U.S. citizen. As a result, courts may very well strike down these state laws without even invoking the 14th Amendment. The entire enterprise appears doomed to failure.
At a Cato Hill Briefing event in October, I spelled out additional reasons why the principle of birthright citizenship has served our nation well since the Civil War amendments. Attorney Margaret Stock reviews the legal and constitutional arguments underpinning birthright citizenship, while I examine the practical policy arguments for not tampering with the established interpretation. (My segment starts at the 25:11 mark.)
Do Inflation Expectations Drive Consumption?
After proponents of the Federal Reserve’s second round of quantitative easing (QE2) abandoned the argument that QE2 would spur growth by bringing down interest rates (only after rates increased), the new defense became “we intended for rates to go up all along, as a result of increased inflation expectations.” Since few would argue for increased inflation, or expectations of such, as an end in itself, the claim was that increases in inflation expectations would drive households to consume more, which would in turn causes businesses to hire more, bringing down the unemployment rate. But does this chain of reasoning withstand empirical scrutiny?
It turns out looking at the historical data on inflation expectations, as collected at the University of Michigan, that inflation expectations and household savings rates (the inverse of consumption rates) are positively correlated. Now of course correlation doesn’t mean causality,but what the data suggest is that instead of consuming more when inflation expectations increase, households have actually saved more. This positive correlation also holds for the second half of the data series, so it’s not simply the result of a downward trend in either inflation or savings.
To review, the latest argument for QE2: increase inflation expectations, which is assumed to increase consumption, which is hoped to increase employment. The problem I’ve had all along with this position is that the only thing we know for certain is the first part, QE2 would increase inflation expectations. The hope that it would increase consumption and hence employment was just that: hope. Given the disconnect we’ve seen between consumption and unemployment over the past 18 months, the third link in that chain is also a weak one. So what do we have at the end of the day: certain costs with fairly speculative and uncertain benefits. And here I was thinking that reckless speculation was the sole province of the private sector.
Citing the Constitution
A few responses to my mention yesterday of the new House rule requiring each introduced bill to cite a specific constitutional provision for Congress’s authority to pass it asked me to elaborate on what this would mean in practice. Well, this is apparently a new thing so nobody knows exactly, but the Republican leadership has provided a fascinating memo providing guidance to all (not just GOP) lawmakers.
First of all, the Constitution has to be cited “as specifically as practicable.” For example: ”The constitutional authority on which this bill rests is the power of Congress to make rules for the government and regulation of the land and naval forces, as enumerated in Article I, Section 8, Clause 14 of the United States Constitution.” That’s pretty good and specific.
But try this one: ”The Congress enacts this bill pursuant to Clause 1 of Section 8 of Article I of the United States Constitution and Amendment XVI of the United States Constitution.” It looks specific — lots of numbers — but the first clause of Article I, Section 8 is a biggie: ”The Congress shall have Power To lay and collect Taxes, Duties, Imposts and Excises, to pay the Debts and provide for the common Defence and general Welfare of the United States; but all Duties, Imposts and Excises shall be uniform throughout the United States.” So let’s say you have a tax bill: do you just cite that? Well, that shouldn’t be enough because, as we’ve learned with the Obamacare litigation, even if something is a tax — highly questionable in the individual mandate context — it needs to be attached to an enumerated power because the general welfare is not infinitely elastic (instead limiting Congress’s exercise of its enumerated powers to ends that are truly for the national – as opposed to particular, or local – good).
And we haven’t even gotten to the Fourteenth Amendment, about whose meaning several libraries of books, law review articles, and judicial opinions have been written.
Congress Rediscovers the Constitution
If the new Congress to be sworn in on Wednesday is the Tea Party’s cardinal achievement so far, its most symbolic achievement will unfold the next day, when the first order of business in the House will be a reading, aloud, of the Constitution – by all accounts, for the first time in the nation’s history. I discuss this issue more fully in this morning’s Wall Street Journal. Let me add simply this:
Symbols are important. When the House votes next week to rescind ObamaCare, as it is expected to do, that vote will be symbolic, because no one expects the Senate to uphold the vote, nor the president, if it did, to do anything but veto it. But the new House, responding to the voters who sent them to Washington, will have thrown down the gauntlet, and the real work will then begin.
Restoring limited constitutional government is a tall order, to be sure, and it cannot happen in a day. But we didn’t get into this mess in a day, either. As we saw a generation ago in Eastern Europe, and are now starting to see in Western Europe, the road out of the ubiquitous state is difficult, with fits and starts along the way. But the alternative is simply unacceptable, because unconstitutional. We’re fortunate that we’re not in as deeply as many others, and fortunate too that we have a Constitution to serve as our touchstone. Wednesday, with the oath “to support and defend the Constitution,” will be a start. Thursday’s reading will dramatically set the stage for the debate that follows. The hard work then begins.
Supreme Court Should Uphold Incentives to Sue the Government
Private lawsuits challenging government violation of civil rights are notoriously difficult and expensive to bring and win. To address such impediments to the vindication of civil rights, Congress passed a law that, among other things, awards attorneys’ fees to the prevailing parties in certain cases. As noted by the House Judiciary Committee, this was necessary because “a vast majority of the victims of civil rights violations cannot afford legal counsel, they are unable to present their cases to the courts …. [the law at issue, 42 U.S.C. § 1988] is designed to give such persons effective access to the judicial process.” Congress thus harnessed market principles, creating an economic incentive for citizens to vindicate their civil rights directly rather than relying exclusively on enforcement actions by the federal government itself.
In the case of Fox v. Vice, however, the Fifth Circuit ruled that an unsuccessful result on a threshold or procedural matter relating to part of a lawsuit could justify a court order requiring the plaintiff to pay all of the defendants’ attorney’s fees — even those expended to address other, meritorious claims. Such a rule departs from the market-oriented legal structure Congress designed and, if allowed to stand, would significantly harm the ability of plaintiffs to bring private civil rights claims.
Cato, joining the Liberty Institute, the Independence Law Center, the Institute for Justice, and the James Madison Center for Free Speech, filed a brief supporting a request that the Supreme Court reverse the Fifth Circuit and making three points:
First, by awarding the defendant fees for the entire suit based on the dismissal of one claim, the Fifth Circuit’s decision imposes prohibitive costs on the enforcement of civil rights.
Second, the exceptional timing of the fee award in this case — before resolution of the plaintiff’s related state-law claims — creates a dangerous precedent that threatens to derail civil rights actions. By prematurely deeming a plaintiff’s suit frivolous and ordering the plaintiff to pay the defendant’s fees before the conclusion of the litigation, the Fifth Circuit’s rule imposes financial penalties that would shut down legitimate lawsuits midstream.
Third, the Court should not permit fee awards in situations where a plaintiff dismisses a federal claim in order to secure a remand of related state-law claims to state court. Otherwise, the threat of a fee award will improperly burden the plaintiff’s decision to bring a federal claim in state court at all — contrary to the law’s purpose here.
In addition to reversing the judgment below, the Court should reinforce that a mid-litigation fee award is improper when a plaintiff voluntarily drops a federal claim in order to return to state court. The Court will hear Fox v. Vice on March 22, with a decision expected in June.
2011: Year of the Constitution
Congress’s first public act after getting sworn in tomorrow will be a reading of the Constitution on the floor of the House — apparently the first time this has been done in the history of the Republic. This symbolic closely parallels a new rule the Republican House majority is implementing: members will now have to cite specific constitutional authority for any bill they introduce.
As Roger Pilon explains in this morning’s Wall Street Journal, this focus on the Constitution — while nowhere near a public policy panacea or even a return to limited government — is a terrific first step. One example of the challenges the new Congress faces is rampant encroachment into legislative authority of the vast administrative state, in cases ranging from the “death panels” — removed from Obamcare but to the EPA’s setting of caps on greenhouse gas emissions despite Congress’s rejection of cap-and-trade. Still, one of the reasons my colleagues and I make such a big fuss over the Constitution is that our founding document was designed to prevent pretty much all of the governmental abuses and excesses Cato complains about.
But not everybody gets that. Washington Post blogger Ezra Klein, for example, thinks that because the Constitution is so “old,” its text is “confusing” and so its meaning “differs from person to person.” Therefore, this antiquated relic really “has no binding power on anything.” As the humorist Dave Barry would say, I’m not making this up:
So that’s what we have to deal with.
But of course the Constitution, as opposed to what now passes for “constitutional law,” is not the exclusive purview of legal scholars and think tank pundits. Its wording is actually quite clear and understandable. I therefore urge all of you who read this blogpost to truly make 2011 the year of the Constitution. When the federal government does something — anything — think about where it gets its constitutional warrant for that action. If you can’t find it and none of my colleagues are saying anything about it, let us know!
And of course to brush up on exactly what the government can do, get your copy of the Cato pocket Constitution (actually a twofer because the Declaration of Independence is included). While you’re at it, you might also want to pick up David Mayer’s terrific new book on the constitutionally protected Liberty of Contract.
Death by Antidumping
A Wall Street Journal editorial today shines a long overdue spotlight on an antidumping case that is emblematic of the dissonance within U.S. trade policy. I, too, wrote about this case last year as an example of how the U.S. antidumping regime undermines U.S. manufacturing, penalizes U.S. exporters, and diminishes chances for achieving the administration’s goal of doubling exports in five years.
In 2005, U.S. Magnesium Corporation, the sole producer of magnesium in the United States, succeeded in convincing the U.S. International Trade Commission and U.S. Commerce Department to impose duties on imports of magnesium from competitors in Russia and China. Before toasting this outcome with some clichéd or specious utterance about how the antidumping law ensures fair trade and a level playing field for U.S. producers, it is important to understand that downstream, consuming industries (those U.S. producers that require for their own production the raw materials and intermediate goods subject to the antidumping measures) have no legal standing in these cases. Statute forbids the U.S. International Trade Commission from considering their arguments or projections about the likely consequences of prospective duties. Statute requires that the ITC consider only the conditions of the petitioning industry. In other words, the analysis is slanted. The antidumping law codifies these evidentiary asymmetries, which makes it easier for U.S. suppliers to cut-off their U.S. customers’ access to alternative sources of supply. In our increasingly globalized economy, this is a recipe for propping up old industries and discouraging and crippling new ones. It is a recipe for economic decline.
Bank Deregulation and Income Inequality
Since the financial crisis, “deregulation” has become a catch-all phrase for everything that went wrong in our financial markets. Unfortunately said deregulation is rarely ever explained, but is rather asserted. To truly inform policy debates, discussions must center on specific instances of deregulation. One such example of banking deregulation that did actually occur was the The Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 (imagine that, a Democrat Congress and a Democrat President deregulating the banking industry). The heart of Riegle-Neal was to remove barriers to interstate branching.
A recent article in the Journal of Finance looks at the impact of bank branching deregulation on the distribution of income across U.S. States. A working paper version can be found here. The researchers find that as bank deregulation increased competition and improved efficiency, “deregulation materially tightened the distribution of income by boosting incomes in the lower part of the income distribution while having little impact on incomes above the median. Bank deregulation tightened the distribution of income by increasing the relative wage rates and working hours of unskilled workers.” The bottom line is that the increased competition that resulted from deregulation disproportionately benefited those on the bottom of the income distribution. As Washington continues to pile additional new regulations upon the banking industry, we should bear in mind that much of the impact of increased regulation might be felt by those least able to bear it.
The extent to which regulatory barriers in banking benefits the rich at the expense of the poor is also illustrated in a forthcoming article, again in the Journal of Finance. In this article, the authors find in the early 20th century, counties where the elite had disproportionately large land holdings had fewer banks per capita, with costlier credit, and more limited access. The authors see this as suggestive that elites restrict financial development in order to limit access to finance, and hence maintain existing income inequalities.
One of the lessons I take away from these papers is that we need to examine banking regulation/deregulation as it actually occurs and is implemented, and not how we believe some all knowing, benevolent government would impose it. The odds seem to me that the more extensive is banking regulation, the more likely it is to be captured by economic elites and narrow interests.
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