Archive for January, 2012
Is Income Inequality Increasing? Only If You Don’t Count Health Benefits
Income inequality is not so much a problem as income opacity.
In the latest issue of Regulation magazine, editor Peter Van Doren reviews two recent studies that find income inequality is not increasing:
While it is true that the cash explicitly paid to employees has become more unequal over the last generation, the implication that labor markets are not working well and that government should alter labor market outcomes does not necessarily follow. A more benign explanation for the change in cash compensation over a generation is the dramatic increase in health insurance costs. Employers may be paying all their employees a more or less equivalent increase on a percentage basis, but for lower-paid workers much of that pay is not showing up in cash. Thus, if this view is correct, inequality in the cash component of compensation has increased while inequality in total compensation has not increased because the fixed costs of health insurance are a much larger percentage of the total compensation of lower-earnings workers…
If one analyzes data on only working-age individuals (age 25–61), inflation-adjusted real pre-tax, post-cash-transfer money income grew 1.9 percent and 10.5 percent respectively for the first (poorest) and 10th (richest) deciles from 1995 to 2008. But if one adds the value of health insurance, the first (poorest) decile grew 12.3 percent while the top decile grew 11.7 percent.
[T]he growth in compensation by earnings decile (from the 30th to the 99th) averages 35 percent [from 1999 to 2006], with 41 percent growth at the 30th percentile (workers earning $10–$14 an hour) and only 35.8 percent growth at the 99th percentile (workers earning $59–$80 an hour).
Because expenditures on health care are increasing so rapidly and because so much of the cost of health care is paid for by employers or government, discussions about rising inequality that only consider cash income provide a misleading view of trends in inequality. When health insurance expenditures are added to household cash income, the increases in inequality from 1995 to 2008 are completely offset.
In brief: government intervenes in labor and health care markets; advocates of those interventions use the resulting income opacity to argue that markets are defective.
Filed under: General; Health Care; Regulatory Studies; Tax and Budget Policy
‘The Moment It Produces Useful CER, PCORI Is Toast.’
An excerpt from a Politico Pro article (paywall) on the “Patient-Centered Outcomes Research Institute,” President Obama’s comparative-effectiveness research agency:
The point of comparative effectiveness research is to compare two or more different ways of treating the same condition to see which one works best. The idea is that if definitive best practices can be established, they will be widely adopted by providers and may be preferentially reimbursed by payers. Cheaper treatments that are effective would be favored.
It may sound harmless — like common sense, even, to the uninitiated — but it’s a menacing prospect to some pharmaceutical companies and medical device-makers who are concerned that their products may wind up on the wrong side of the ledger.
For this reason, Michael Cannon, director of health care studies at the Cato Institute, says good comparative effectiveness research is almost suicidal.
“The whole point of [comparative effectiveness research] is to find out what doesn’t work,” Cannon said in an email. “Every time the government has tried to do CER, the guys who provide the stuff found not to work successfully lobby to have the offending agency defunded. I see no reason to think this time will be any different. The moment it produces useful CER, PCORI is toast.”
And that’s just one source of opposition.
Other sources of opposition include patients who don’t like restrictions on their health care subsidies, thank you very much.
(The “suicidal” bit is confusing, and wasn’t my language. So to clear up any misunderstandings: comparative-effectiveness research is good. Markets both produce and employ it. Government is so incompetent that it cannot reliably produce CER, much less make use of it. Markets are smart. Government is stupid.)
Solyndra: A Political-Energy Company
Good reporting shouldn’t go unnoticed just because it appeared during the week after Christmas, so let me draw your attention to a comprehensive article on the front page of the December 26 Washington Post by Joe Stephens and Carol Leonnig:
Meant to create jobs and cut reliance on foreign oil, Obama’s green-technology program was infused with politics at every level, The Washington Post found in an analysis of thousands of memos, company records and internal e-mails. Political considerations were raised repeatedly by company investors, Energy Department bureaucrats and White House officials….
The documents reviewed by The Post . . . show that as Solyndra tottered, officials discussed the political fallout from its troubles, the “optics” in Washington and the impact that the company’s failure could have on the president’s prospects for a second term. Rarely, if ever, was there discussion of the impact that Solyndra’s collapse would have on laid-off workers or on the development of clean-energy technology.
Did you know that when the president visits a factory, his aides tell the workers what to wear? Keep digging in the documents:
Like most presidential appearances, Obama’s May 2010 stop at Solyndra’s headquarters was closely managed political theater.
Obama’s handlers had lengthy e-mail discussions about how solar panels should be displayed (from a robotic arm, it was decided). They cautioned the company’s chief executive against wearing a suit (he opted for an open-neck shirt and black slacks) and asked another executive to wear a hard hat and white smock. They instructed blue-collar employees to wear everyday work clothes, to preserve what they called “the construction-worker feel.”
This story has all the hallmarks of government decision making: officials spending other people’s money with little incentive to spend it prudently, political pressure to make decisions without proper vetting, the substitution of political judgment for the judgments of millions of investors, the enthusiastic embrace of fads like “green energy,” political officials ignoring warnings from civil servants, crony capitalism, close connections between politicians and the companies that benefit from government allocation of capital, the appearance—at least—of favors for political supporters, and the kind of promiscuous spending that has delivered us $15 trillion in national debt. It may end up being a case study in political economy. And if you want government to guide the economy, to pick winners, to override market investments, then this is what you want.
GOP the Loser in Primary Fight over Immigration
Over at National Review Online this morning, I ask how the Ronald Reagan of 1980 would have fared in today’s Iowa caucuses given his views on how to tackle illegal immigration (“GOP Candidates Betray the Spirit of Reagan on Immigration”). My conclusion, based on the current mood of many Republicans, is that Reagan would have been the target of a barrage of attack ads:
In April 1980, when Ronald Reagan was competing in the presidential primaries, he rejected the building of a wall between the United States and Mexico: “Rather than talking about putting up a fence, why don’t we work out some recognition of our mutual problems? Make it possible for them to come here legally with a work permit — and then while they’re working and earning here, they pay taxes here. And when they want to go back, they can go back. And open the border both ways by understanding their problems.”
If a Republican presidential candidate said such a thing today, he or she would suffer withering criticism for being soft on illegal immigration. Instead, we hear Reagan’s successors talk about implementing national ID cards, imposing intrusive regulations on the labor market, raiding farms, factories, and restaurants, and harassing small-business owners trying to survive in this tough economy, all in the name of chasing away hard-working immigrants.
The unhealthy competition among the current Republican candidates to sound tough on immigration also risks alienating millions of Hispanic voters who could otherwise be persuaded to support the party. If conservatives want to rediscover the more optimistic, inclusive, reform-minded spirit of Reagan, they should be talking about real immigration reform, not about spending more money and enacting more sweeping regulations to enforce a fundamentally flawed system.
A Do-It-Yourself Guide to Cutting the Military Budget
The New York Times has posted a handy tool for calculating savings from the Pentagon’s budget over the next ten years. I went through the exercise, and my plan resulted in cuts of $1.144 trillion over ten years. Had I checked all of the boxes in the Times’s calculator, it would have generated savings of up to $1.4 trillion.
Though I support reform of the the military retirement system, I think some of these proposals go too far (they would have saved up to $86.5 billion). We should continue to spend money recruiting the very best force, comprised of the most-qualified men and women ($5 billion), and we might find it hard to do that if/when the economy improves. Tuition assistance is a key factor driving recruitment, and I wouldn’t scale that back ($5 billion). (Full disclosure: I attended college on an NROTC scholarship.) We need the best possible services for families, and I could foresee problems with closing elementary and secondary schools on bases ($10 billion). And I have no particular quarrel with military bands ($0.2 billion). My ideal military will be smaller and more elite, but likely better compensated than today’s force. And retirees would continue to receive many benefits not enjoyed by their fellows who never served, but we should experiment with ways to control costs. The key take-away, and the one stressed in the accompanying story by Elisabeth Bumiller and Thom Shanker, is that it is possible to reduce military spending, and the resulting force will still be larger and more capable than any conceivable combination of rivals.
A few additional observations:
1) The Times’s calculator cites my and Ben Friedman’s contribution to the Sustainable Defense Task Force report, “Debts, Deficits, and Defense,” but the main part of the report was the work of the entire task force, and they deserve proper credit. I am particularly grateful to Carl Conetta and Charles Knight of the Project for Defense Alternatives.
2) Ben and I published a stand-alone report a few months later with some numbers drawn from the SDTF report, and with some additional detail surrounding our proposals that were not endorsed by all SDTF members. Our savings were calculated against the baseline from fiscal year 2010, and these numbers are now a bit dated.
3) When I hit the submit button comparing my choices with others who participated in the exercise, I discovered 80 percent of respondents supported the plan to reduce forces in Europe and Asia. That sort of systematic restructuring is necessary to ensure that we don’t impose undue burdens on what will necessarily be a smaller force. As I have said repeatedly, if we are going to spend less, we must expect our troops to do less, and expect other countries to do more.
Supreme Court Should Use Texas Redistricting Case to Reconsider Voting Rights Act
The decennial redrawing of electoral districts consistently produces extensive litigation. The most notable cases this cycle come, as they often have, from Texas.
A number of activist groups challenged the Texas legislature’s maps for state house, state senate, and congressional districts, alleging racial discrimination under Section 2 of the Voting Rights Act in a special three-judge federal district court in San Antonio. At the same time, Texas is seeking in another three-judge district court in D.C. the “preclearance” of its maps that it needs to implement them under the VRA’s Section 5.
Enacted in 1965 to combat pervasive discrimination against black voters in the South, the VRA has exceeded expectations in excising that shameful phenomenon. Its application now, however, stymies the orderly implementation of free and fair elections, particularly in jurisdictions subject not only to the general prohibition on race-based voter discrimination, but also the Section 5 preclearance requirement.
Originally conceived as a check on states where discrimination was prevalent in the 1960s, preclearance requires certain jurisdictions to obtain federal approval before changing any election laws. (The Section 5 list is bizarre: six of the eleven states of the Old Confederacy — and certain counties in three others — plus Alaska, Arizona, and some counties or townships in five other states as diverse as New Hampshire and South Dakota. Curiously, (only) three New York counties are covered, all boroughs in New York City. What is going on in the Bronx, Brooklyn, and Manhattan that is not in Queens or Staten Island?) To obtain preclearance, proposed changes may not result in “retrogression,” a reduction in minority voters’ ability to elect their “preferred” candidates.
Section 5 was originally a valuable tool in the fight against systemic disenfranchisement, but now facilitates the very discrimination it was designed to prevent. Indeed, the prohibition on retrogression effectively requires districting that assures that minority voters are the majority in a set number of districts — an inherently race-conscious mandate. The law, most recently renewed in 2006 for another 25 years, is based on deeply flawed assumptions and outdated statistical triggers, and flies in the face of the Fifteenth Amendment’s requirement that all voters be treated equally.
In any event, because the D.C. court here had not yet ruled on preclearance, the San Antonio court felt obligated to draw “interim” maps for use pending final adjudication of both the Section 2 and 5 cases. Texas filed an emergency appeal with the Supreme Court, arguing that the lower court insufficiently deferred to the Texas legislature’s maps. Now on an expedited briefing and argument schedule, Cato filed an amicus brief supporting neither side and arguing that this case demonstrates all that is wrong with the VRA as it currently exists — highlighting the tension between the VRA and the Constitution and the practical difficulties that conflict engenders for election administration.
Put simply, the VRA’s success has undermined its continuing viability; courts and legislatures struggle mightily and often fruitlessly to satisfy both the VRA’s race-based mandate and the Fifteenth Amendment’s equal treatment guarantee. We also point out that Section 5′s selective applicability precludes the establishment of nationwide districting standards, confounding lower courts and producing different, often contradictory, treatment of voting rights in different states — in large part because Sections 2 and 5 themselves conflict with each other. We note that regardless of the outcome of this litigation, it is unlikely that Texas will have fully legal electoral maps in time to administer the 2012 elections in a fair and efficient manner.
These difficulties — constitutional, statutory, and practical — disadvantage candidates, voters, legislatures, and courts, and undermine the VRA’s great legacy of vindicating the voting rights of all citizens. The Court should thus schedule this case for broader reargument on the constitutionality of the Voting Rights Act as presently conceived.
The Court will hear argument in Perry v. Perez on January 9. See SCOTUSblog’s coverage for more on the case.
Rick Santorum v. Limited Government
With former senator Rick Santorum suddenly attracting attention in Iowa, it’s time to dig up some of our previous reporting on Santorum.
In 2006, as Santorum campaigned his way to an 18-point loss in his Senate reelection race, the New York Times reported that he…
…distributed a brochure this week as he worked a sweltering round of town hall meetings and Fourth of July parades: “Fifty Things You May Not Know About Rick Santorum.” It is filled with what he called meat and potatoes, like his work to expand colon cancer screenings for Medicare beneficiaries (No. 3), or to secure money for “America’s first ever coal to ultra-clean fuel plant” (No. 2)….
He said he wanted Pennsylvanians to think of him as a political heir to Alfonse M. D’Amato of New York, who was known as Senator Pothole for being acutely attuned to constituent needs.
So . . . the third-ranking Republican leader in the Senate wanted to be known as a porker, an earmarker, and Senator Pothole.
Santorum had already dismissed limited government in theory. Promoting his book, he told NPR in 2006:
One of the criticisms I make is to what I refer to as more of a libertarianish right. You know, the left has gone so far left and the right in some respects has gone so far right that they touch each other. They come around in the circle. This whole idea of personal autonomy, well I don’t think most conservatives hold that point of view. Some do. They have this idea that people should be left alone, be able to do whatever they want to do, government should keep our taxes down and keep our regulations low, that we shouldn’t get involved in the bedroom, we shouldn’t get involved in cultural issues. You know, people should do whatever they want. Well, that is not how traditional conservatives view the world and I think most conservatives understand that individuals can’t go it alone. That there is no such society that I am aware of, where we’ve had radical individualism and that it succeeds as a culture.
He declared himself against individualism, against libertarianism, against “this whole idea of personal autonomy, . . . this idea that people should be left alone.” And in this 2005 TV interview, you can hear these classic hits: “This is the mantra of the left: I have a right to do what I want to do” and “We have a whole culture that is focused on immediate gratification and the pursuit of happiness . . . and it is harming America.”
No wonder Jonathan Rauch wrote in 2005 that “America’s Anti-Reagan Isn’t Hillary Clinton. It’s Rick Santorum.” Rauch noted:
In his book he comments, seemingly with a shrug, “Some will reject what I have to say as a kind of ‘Big Government’ conservatism.”
They sure will. A list of the government interventions that Santorum endorses includes national service, promotion of prison ministries, “individual development accounts,” publicly financed trust funds for children, community-investment incentives, strengthened obscenity enforcement, covenant marriage, assorted tax breaks, economic literacy programs in “every school in America” (his italics), and more. Lots more.
Rauch concluded,
With It Takes a Family, Rick Santorum has served notice. The bold new challenge to the Goldwater-Reagan tradition in American politics comes not from the Left, but from the Right.
At least Santorum is right about one thing: sometimes the left and the right meet in the center. In this case the big-spending, intrusive, mommy-AND-daddy-state center. But he’s wrong that we’ve never had a firmly individualist society where people are “left alone, able to do whatever they want to do.”
It’s called America.
The IRS Can’t Overrule the Supreme Court
Since the foundational administrative law case of Chevron v. Natural Resources Defense Council (1984), courts have given significant deference to executive agency interpretations of federal law. United States v. Home Concrete & Supply tests whether there are any meaningful limits on such deference.
The case involves a group of taxpayers who initiated a number of transactions designed to reduce their tax liability by allowing a financial entity they created, Home Concrete, to increase its tax basis and reduce its taxable gain from the sale of certain assets. In June 2003, the IRS ruled that the taxpayers’ use of Home Concrete in this way was improper and issued an adjustment to their tax return (requiring payment of back-taxes). Having missed the standard three-year limit for such actions, however, the IRS argued that the adjustment was timely under a tax-code provision that extends the statute of limitations to six years if the taxpayer “omits from gross income an amount properly includible therein which is in excess of 25 percent of the amount of gross income stated in the return.”
Despite the Supreme Court’s having long ago held otherwise, Colony v. Commissioner of Internal Revenue (1956), the IRS argues that an overstatement of basis qualifies as an omission under that tax provision. Further, during the course of this litigation, the Treasury Department issued a new regulation “clarifying” the provision in a way that supports the IRS’s argument. The IRS now argues that this new regulation is controlling and should be retroactively applied to Home Concrete’s 1999 returns.
After (mostly) winning at the district court, the IRS lost before the Fourth Circuit and asked the Supreme Court to review the case—which involves one of many similar applications of the relevant tax provisions. The Court took the case and now Cato has joined the National Federation of Independent Business on an amicus brief supporting the taxpayers, arguing that sanctioning this sort of ad hoc rule-making would undermine the rule of law and the separation of powers.
We note that “[t]he government’s position is that this regulation is due judicial deference” but the Supreme Court has “consistently held that where a statute has an unambiguous meaning, an agency’s contrary interpretation is not entitled to deference.” As Judge J. Harvie Wilkinson noted in his Fourth Circuit concurrence, “agencies are not a law unto themselves” and the government’s position in this case “seems to [be] something of an inversion of the universe and to pass the point where the beneficial application of agency expertise gives way to a lack of accountability and a risk of arbitrariness.”
In deciding Chevron, the Supreme Court surely never intended to undermine the very structure of the Republic and unleash an administrative state wholly a law unto itself.
The Supreme Court will hear United States v. Home Cincrete & Supply on January 17.
The Opportunity Costs of Bailing Out Fannie and Freddie
We’ve sunk $169 billion, and counting, into bailing out Fannie Mae and Freddie Mac.
Every economist understands the concept of opportunity costs—that is, alternatives uses for resources that we expended. Put simply, the Fannie and Freddie bailout is $169 billion that could have been used productively by the private sector to create jobs and/or wealth. Instead it has gone to continue a corrupt and broken system.
Unfortunately many non-economists, especially some of my friends on the left, behave as if there are no opportunity costs. Instead, when faced with the bill for such expenditures, they seem to think, ”Oh well, we’ll just tax the rich some more.”
In order to help those folks better understand the opportunity costs of the Fannie/Freddie bailout, here are some things they could have done with that money:
1. Ended poverty for a year. There are about 9 million U.S. families in poverty. The poverty line is approximately $14,000 a year. For the cost of the bailout, we could have ended poverty in the United States for a whole year, with some cash to spare.
2. Ended homelessness. Statistics for the homeless population are all over the map, with upper figures ranging to 1.5 million people. Using that upper bound, for the cost of the bailout we could have spent about $110,000 on each homeless person. That buys a decent condo in most U.S. cities.
PBS: Premium TV for Premium Viewers
The New York Times reports today:
Around the time the first season of “Downton Abbey” had its premiere on the “Masterpiece” anthology series last January, PBS began taking a more strategic approach to programming. It has branded nights with clusters of shows about one subject — for example, the arts, science or the literary imports from “Masterpiece.” The anthology introduced younger and more male-skewing shows like “Sherlock,” a mystery series set in modern-day London that had its premiere in 2010, and a continuation of the popular British series “Upstairs, Downstairs.”
This fall, PBS embarked on a marketing blitz to promote Ken Burns’s “Prohibition” documentary miniseries, including a joint round-table discussion with Mr. Burns and the creators of HBO’s drama “Boardwalk Empire,” which takes place during the Prohibition era.
An aggressive promotional campaign helped “Downton Abbey” win six Emmy Awards, including best mini-series or movie, away from competitors on HBO and Starz.
“The thinking was that they had to up their game,” said Kliff Kuehl, president and chief executive of KCPT, a public television station in Kansas City, Mo. “That’s what we’ve evolved to — trying to give people that pay-TV moment.”
So why not let people pay for it? Why are taxpayers paying for it? Let me say that I love “Downton Abbey” and would gladly pay $10 a month for a network that broadcast it — if I weren’t already paying for it on April 15.
But maybe PBS is bringing “Downton Abbey” to people who can’t afford premium channels. Surely that’s the public-interest rationale for public broadcasting. But maybe not. The Times goes on to say that “prime-time hits like “Downton” and “Sherlock” . . . appeal largely to better-off viewers.” And advertisers — oops, program sponsors — know it:
Viking River Cruises has signed on as “Masterpiece’s” corporate sponsor, filling a five-year void that began when Exxon Mobil withdrew its support in 2004. Viking will send mailers to customers pegged to the “Downton Abbey” Season 2 premier. A corporate message will come on right after the show’s host, Laura Linney, introduces the program. “Our demographic is affluent baby boomers, 55-plus,” said Richard Marnell, Viking’s senior vice president of marketing. “We’d been looking for a broadcast partner that reaches that group.”
PBS: your tax dollars at work, bringing upscale drama to upscale viewers.
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