The Center for American Project’s Ben Furnas responded to my post about the political Left’s misunderstanding of health insurance markets by . . . showcasing the political Left’s misunderstanding of health insurance markets. 

I claimed that the individual market provides reliable to lots of very sick people  — protection better than or equal to that provided by job-based health insurance.  Furnas responds:

The main reason (not mentioned by Cannon) that some people who develop health problems can renew their health insurance without seeing higher premiums is federal regulation through the Health Insurance Portability and Accountability Act (HIPAA). States have improved on these regulations, offering more protections to sick consumers of private health insurance, but John McCain, in his push for an unregulated national market, would undermine these additional protections.

Actually, 75 percent of policies sold in the individual health insurance market provided those protections before government required them.

Furnas has more to say about the dangers of freedom and the need for more government control of people’s health care decisions, but that suffices to make the point.

In his excellent blog, Roger Pielke, Jr., notes that “On NPR’s Fresh Air earlier this week, Al Gore suggests that Typhoon Nargis, which may have killed 100,000 people in Myanmar, is linked to greenhouse gas emissions, or does he? He said ‘we’re seeing consequences that scientists have long predicted might be associated with continued global warming.’”

So I checked the sea surface temperature (SST) “anomalies” (that is, differences in temperature from the long-term average) along the track of Cyclone Nargis to see if SST might have been unusually warm from April 28^th to May 3^rd (when it hit Burma) of this year compared to last year. Comparing the SST anomalies from NOAA for April 28, May 1, and May 5 of 2008 against April 28, May 1, May 3, and May 7 of 2007, SSTs along the track of Cyclone Nargis don’t look that much different from last year. And for April 30, May 3, and May 7 of 2005, the Bay of Bengal seems to have been noticeably warmer.

Granted, this is based on a cursory eye-ball view of the maps using a non-continuous data set. I await more detailed analysis with bated breath.

President Bush addressed the Council of the Americas yesterday, a business organization whose stated goal is to promote democracy and free markets in the Americas.  Among the different subjects he touched in his speech, Bush highlighted the work of the Millennium Challenge Account (MCA) in Latin America.

The MCA’s goal is to provide bilateral aid to countries whose policies promote good governance and economic freedom. In Latin America, some of the standard bearers of good governance and economic freedom according to the MCA are Honduras, Nicaragua and Paraguay.

Bush proudly said in his speech that “In Paraguay, we’re working… with local leaders to reduce the cost of starting new businesses.” It sounds quite good, but when you look at the MCA’s Threshold Quarterly Report for Paraguay, you find among the accomplishments of the program this:

The Finance Ministry conducted simulated purchases to detect firms not following local tax regulations, resulting in the suspensions of more than 70 businesses. The business suspensions received significant positive media coverage and have generated greater tax compliance overall.

It sounds like U.S. aid money is being spent to shut down businesses in Paraguay. That hardly fits my idea of encouraging economic freedom in Latin America.  

Nearly two years after its release, David Hyman’s satire Medicare Meets Mephistopheles is still generating reviews — and controversy. 

In the April 2008 issue of the Michigan Law Review, Michigan law professor Jill Horwitz raves:

Hyman is extraordinarily knowledgeable about health care regulation and his exposition is succinct. The book is filled with informative and accurate summaries of Medicare’s complicated program design and related laws. The summaries of fraud and abuse law, for example, make my heart sing. I’ve seldom seen such an accessible and accurate primer.

It would be a stretch, however, to claim that Horwitz and Hyman see eye-to-eye.  Horwitz concludes her 19-page review thus:

Medicare Meets Mephistopheles is a terrific overview of a troubled system, but a missed opportunity to help reform Medicare. Providing health care fairly and efficiently is a complicated process that necessarily involves a heavy dose of government. Libertarian railing against big government, regulation, and all lefty foolishness that market proponents despise doesn’t get one very far in determining how to get health care to 300 million people. In the end Hyman doesn’t offer any realistic alternative to this government-regulated muddle because, God knows, his plans are unacceptable anywhere but in hell.

Ay caramba!

Market-oriented health-care wonks have proposed various ways of reforming the tax treatment of health insurance that would level the playing field between job-based coverage and coverage that consumers purchase directly (i.e., on the “individual” market).  The key to those proposals is that they would let workers control money their employer now controls, and generally would allow workers to spend those earnings on the mix of medical care and health insurance that meets their needs. 

The political Left typically protests that if workers had the freedom to spend their earnings however they want, the multiplying villainies of the market would swarm upon the sick, leaving them with no insurance coverage.  For example, Elizabeth Edwards and others chide Sen. John McCain because, they claim, people with chronic conditions could not obtain health insurance in an unregulated individual market.  Edwards even wrote: “The insurance company makes money when it doesn’t have to pay for our health care. (I suspect that if they could, they would write obstetrical-only policies for nuns.)”

An economist at the University of Pennsylvania named Mark Pauly spends much of his time collecting evidence — I repeat, evidence — that this view does not reflect the reality of unregulated health insurance markets.  Pauly and his colleagues have found:

[A]ctual premiums paid for individual insurance are much less than proportional to risk, and risk levels have a small effect on obtaining coverage. States limiting risk rating in individual insurance display lower premiums for high risks than other states, but such rate regulation leads to an increase in the total number of uninsured people. The effect on risk pooling is small because of the large amount of risk pooling in unregulated individual insurance.

and

[T]here was substantial cross-subsidization of high-risk by low-risk persons in the individual insurance market in a period in which there was only minimal state regulation. Premiums do rise with risk, but the increase in premiums is only about 15 percent of the increase in risk. Premiums for individual insurance vary widely, but that variation is not very strongly related to the level of risk.

A new Health Affairs Web Exclusive by Pauly and colleague Robert Lieberthal offers further evidence that a freer market would provide high-cost patients more protection than today’s government-created employment-based system.  Pauly and Lieberthal write:

[A] young high-risk male who initially had small-group coverage faces a 44 percent chance of becoming uninsured in the next period—a risk nearly twice as great as it would be if he initially had individual insurance.  Somewhat ironically, the usual blame for such a person’s lacking coverage will be laid at the door of the medically underwriting individual insurer, which quotes a high premium, rather than being referred in part to the group insurance system that plunged this person into such a vulnerable situation in the first place.

Thus, it is not true that more freedom would mean no health insurance for people with costly medical conditions.  Provided consumers insure while they are still healthy, individual-market coverage offers as much or more protection to high-cost patients than they have now.

In the transition to a level playing field between employer-sponsored and individual-market coverage, there may be some people with high-cost conditions who lose their existing coverage, and cannot obtain subsequent coverage.  If that occurs, most Americans will want to offer some form of subsidy to those hard cases — a group that does not include wealthy people like Elizabeth Edwards, John McCain, or Jay Cutler.  

When fashioning those subsidies, policymakers should bear two things in mind.  First, as Pauly’s work suggests, this is likely to be a temporary problem; markets can and will cover tomorrow’s high-cost patients.  Second, policymakers should not try to force insurance markets to provide the desired subsidies; that would undo the substantial good that unregulated insurance markets can achieve.

Bill Eilberg, a Club for Growth member who attended Cato University last year, sent this review into the Club blog:

I’m not one who easily sits through lectures, but at Cato University, I can honestly tell you that my attention span was at its highest level, as I listened more intently than I ever had done in college or law school.

I note that Rob McDonald is on the faculty again this year. Rob is one of the most talented speakers one will ever hear. His discussions on American history are positively riveting. I will never forget listening to his poignant account of how George Washington quelled a potential revolt by his officers, taking out his reading glasses to quote from a text (it is a story you may have heard already, but Rob is a master at retelling it). If I had the opportunity, I could listen to him for hours.

Bill is certainly right. Cato University gets rave reviews every year. Once again this July, it will be held at the beautiful Rancho Bernardo Inn near San Diego. Speakers will include Tom Palmer, Peter Van Doren, Gene Healy, and Michael Cannon of Cato. Reporting from around the world will be former Putin adviser Andrei Illarionov, German economist Karen Horn, elcato.org editor Gabriela Calderon, and Zimbabwean opposition leader Rejoice Ngwenya. And reporting from 1776, the aforementioned Professor McDonald.

Sign up now.

Florida lawmakers struck a deal (.pdf) to raise the cap on the state’s scholarship donation tax credit program by $30 million dollars last Friday, the last day of the legislative session. Under the program, businesses that donate to nonprofit scholarship organizations for poor children can claim a tax credit for the value of the donation. For the past seven years, these scholarships have been bringing private schooling within reach of families that couldn’t otherwise afford it.

But while the legislature has raised the cap on donations, that doesn’t meant the program will expand automatically. In order for the program to grow, more low income parents have to ask for the scholarships, and more businesses have to choose to make donations. The program is completely voluntary. So far, the interest definitely seems to be there: the program doubled in size over the past three years, to nearly 20,000 children.

Scholarship tax credits are a tremendous boon to low income families, businesses, and taxpayers all over the state. They broaden educational options for poor kids, let businesses directly help their communities, and for every student who chooses a private instead of a public school, they save taxpayers thousands of dollars. The maximum scholarship size allowed under the program will now be $3,950 (up from $3,750) – less than one third of total per pupil spending in Florida public schools (which was $12,263 in 2006-07, according to Richard Harbin of the Florida Dept. of Ed. — hat tip to my research assistant, Elizabeth Li).

The fact that parents are clamoring for a $4,000 scholarship to help their children escape from public schools that spend over $12,000 per year says a lot about the need for expanded educational options. No single system of schools can ever serve all children well. In education, as in so many other things, one size does not fit all.

Let’s hope governor Crist signs the new bill into law.

Not content with a protected near monopoly of the domestic market, American sugar producers are demanding that Congress make their pot of subsidies and protection even sweeter.

Chairman of the House Agriculture Committee, Rep. Colin Peterson (D-Minn.), is pushing language in the latest proposed farm bill that would raise domestic price supports for sugar and mandate that sugar imports be used for ethanol production.

His proposals would virtually lock in an 85 percent share of the U.S. market for domestic sugar beet and cane growers, even though a number of foreign countries can grow sugar more cheaply than most American growers. And by the way, did I mention that Rep. Peterson’s district is among the nation’s top producers of sugar beets?

The Bush administration, to its credit, opposes Peterson’s changes in the farm bill. The sugar industry, of course, loves the idea. A spokesman for the pro-protection American Sugar Alliance told this morning’s Wall Street Journal, “We have an administration that seems more interested in supporting foreign producers, than producers right here in America.”

Notice the sugar industry doesn’t mention American consumers. U.S. agricultural policies should not be about favoring “our” producers over “theirs,” but about advancing such national interests as freedom, prosperity, and a more peaceful world. As we’ve explained in detail at the Center for Trade Policy Studies, the U.S. sugar program favors American sugar producers primarily at the expense of the rest of America. American families pay higher prices at the store, while U.S. producers that use sugar as an input — bakeries, food processors, restaurants, candy makers, etc. — incur higher costs because of our sugar program.

As we read daily in the newspaper about soaring food prices, this Congress is the verge of passing a farm bill designed explicitly to raise domestic food prices.

Faced with the prospect of years in prison, Deborah Jeane Palfrey, known as the “D.C. Madam,” committed suicide on Thursday. Her pursuers and prosecutors should be ashamed of themselves.

Running a house of prostitution is not a distinction most of us would wish for our daughters. But it’s a vice, not a crime. That’s a crucial distinction in a free society. So far as we know, she never murdered, raped, assaulted, robbed, or defrauded anyone. Like any broker, she brought together willing buyers and willing sellers. And for doing so, she was convicted–not actually of prostitution but of “racketeering” and money laundering — and faced up to 55 years in prison, though prosecutors estimated that her sentence would likely be “only” four to six years.

Palfrey was indicted after a three-year joint investigation by the Internal Revenue Service and the U.S. Postal Service. Apparently they couldn’t catch her cheating on her taxes, but her employees mailed her cut of the proceeds in money orders, which led to racketeering and money laundering charges. As with former New York governor Eliot Spitzer, apparently a fishing expedition into money matters turned up something far more headline-worthy.

But really — a three-year investigation of a prostitution service? Are there no real criminals? Are there no terrorists? Before, during, and after 9/11, the Justice Department ran a 13-month investigation of a brothel in New Orleans. At least 10 FBI agents were involved. As Jonathan Turley noted, “Only the FBI could go to the French Quarter and find only a dozen prostitutes after a year of investigation. Given the roughly one-to-one ratio between agents and prostitutes, the FBI could have produced a hundred times this number by simply having agents walk down Bourbon Street.” What a ridiculous waste of money and manpower.

But the waste is not the worst aspect of this outrage. Even if there were no criminals and no terrorists to hunt down, it would be wrong to harass, arrest, prosecute, imprison — and hound to death — people who are violating no one’s rights.

There’s a nightmarish intersection of old prostitution laws and modern financial regulations. Palfrey was investigated on suspicion of tax evasion and then convicted of “racketeering” and “money laundering.” But she was no racketeer; she was one woman with some employees or contract workers. Spitzer’s bank accounts were being monitored, as apparently all our bank accounts are, under post-9/11 laws allegedly designed to turn up evidence of terrorist financing or other nefarious activity. And boy, did they find something sinister — a married man having sex with prostitutes.

(more…)

Senator John McCain and other budget reformers are right to rail against the institutionized corruption of federal “earmarking.” Earmarks are, however, just a small part of the massive bloat in the federal budget. Earmark reform is needed, but presidential candidate McCain needs to propose more fundamental budget reforms in the coming months.

Representatives John Campbell (R-CA) and Jeb Hensarling (R-TX) have just introduced an idea that McCain could champion: A constitutional cap on the overall federal budget. You can read the proposed amendment here, but essentially these House budget experts propose that annual federal spending growth should not exceed the long-run average growth in the U.S. economy, except with a two-thirds vote or a declared war.

I’ve proposed a similar budget cap that would be statutory, not constitutional, and thus easier to implement. See here and here.

Either way, the point for Mr. McCain (or Mr. Obama, if he is so inclined) is to promote some sort of overall cap on the budget to drive home that the government’s budget should not grow any faster than the average family’s budget. 

In numerous unsigned editorials, The Wall Street Journal has argued that cutting the federal funds rate to 2% from 5 1/4% last September has been the main reason prices of crude oil and food commodities have soared in recent months. Such commodities are priced in dollars and the dollar was generally falling through February, though not in the past two months (even though the funds rate was reduced by one percentage point).

An April 28 editorial, “The Fed’s Bender,” notes that “since 2003 the dollar price of oil has climbed far more rapidly than the euro price — 273% in dollars, compared to 146% in euros.” It is not likely that the whole 2003-2008 picture reflects “the European Central Bank’s sounder monetary management,” as the editorial implies. The euro had dropped to below parity with dollar until late 2002. And the fed funds rate was repeatedly increased from 1% in 2003 to 5 ¼% in mid-2006 (well above the ECB’s equivalent 4% rate). The euro rose partly because it had first fallen, but also for reasons other than central bank interest rates (economists have no reliable model for forecasting floating exchange rates).

The editorial boldly concludes that “had the dollar merely retained the same purchasing power as the euro, today’s price of oil would be below $70 a barrel.” That is a counterfactual exercise that makes little sense.

Even if we accept the half-true premise that the dollar-euro exchange rate is sensitive to relative short-term interest rates, the dollar might have “retained the same purchasing power as the euro” by having the ECB lower interest rates to 3% and the Fed to keep ours at 3%. Or the Fed might have kept the funds rate at 5% and the ECB at 4%. Although either option might have stabilized that particular exchange rate, they would not have had the same effect on global economic growth and therefore on the world demand for oil.

If oil had been priced in dollars and the euro had not appreciated against the dollar, then the euro area would not have been as insulated as it was against the rising cost of oil. Because demand is responsive to price (particularly business demand), Europe would have bought less oil than it did. Or, to use the editorial version, if the U.S. still faced $70 oil then we would try to buy more. Either way, the price in dollars would not have remained the same.

(more…)

… that one day, corporate executives will tire of being bullied by demagogic politicians. I was reminded of that dream by a press release issued yesterday by Sen. Pete Domenici, ranking member of the Senate Energy and Natural Resources Committee and long-time Republican major-domo on energy policy. Sen. Domenici asked the heads of the five largest oil and gas companies in America (BP America, Chevron, ConocoPhillips, ExxonMobil, and Shell America) to promptly send reports to his office “explaining” their individual corporate investment strategies with particular attention to their work in the “clean energy” sector.

In my dream, Senator Domenici would get a reply like this:

Dear Sen. Domenici:

We appreciate your interest in our corporate operations, but we are too busy at the moment to expedite your request as outlined in your letter dated April 30. You write in that letter that you are interested in a compilation of all previously released, publicly available data on this matter. Accordingly, we suggest that you put some staffers on the job and compile those reports for yourself. To help you on your way, you will find enclosed our 2007 Annual Report.

That having been said, Senator, we answer to our stockholders, not to you. Our investment strategy is our business, not yours. While we are happy to discuss our perspective on the energy market and the merits of existing and proposed public policy, we are not interested in encouraging the idea that our investment strategy is a legitimate matter of interest to the United States Senate.

Cordially,
Big Oil CEO

Alas, it is only a dream.

By all accounts, U.S. spending on health care has been growing much more rapidly than national output. Health statistics–health spending as a share of national output or per person, compared across developed nations–routinely ranks the United States at the top of the list, and statistics on effective health care delivered per dollar spent routinely ranks the United States near the bottom. So news reporters could not miss the clear implication that Americans need to cut health care spending growth and make their health care sector more efficient. If we could reduce spending on unnecessary and low-value health care services, it would go a long way in achieving both objectives.

Now for the doublespeak: Many proponents of Health Savings Accounts (HSA) that can only be accessed under a high-deductible health plan tout the increased role of health care consumers. With larger out-of-pocket spending initially, consumers have greater incentives to eliminate unneeded and costly health services. But success on this count is routinely dismissed in the media as having undesirable side effects–as in today’s Wall Street Journal (HSA Users Find Hassles Amid Savings, May 1, 2008, Personal Journal, page D1):

…average health-insurance costs rose 3.6% in the past two years for employers who offered high-deductible plans, compared with a rise of 7% for employers without such plans.

That’s followed by

Some analysts say much of those employer savings come because many HSA participants tend to forgo care.

Excuse me, but isn’t this exactly how it’s supposed to work?! The language in all such instances usually hints (as does this WSJ report) that the forgone care is valuable and people with HSAs are therefore suffering unduly. Such implied criticism is unjustified unless accompanied with the qualification that the rejected health care services may not be valuable or cost effective.

Indeed, the article later cites a patient with an HSA “fighting” with a doctor about routine physicals and cardiac exams. The doctor wants these exams to be taken regularly, whereas the patient does not because the high-deductible HSA implies larger out-of-pocket payments. In my personal experience, both types of health checkups are most often a waste of time–all they do is separate the patients from their money, which goes to the doctors.

But if many more consumers were to obtain HSAs and economize their health care spending, it would clearly be a problem for the medical profession. And news reporters usually accept, without further questioning, analysts’ comments about unneeded patient suffering because of forgone care. Clearly, wider use of HSAs and better management of consumers’ health care dollars face tremendous hurdles–the medical profession’s self-interest being the biggest one of all. (And I hope my doctor doesn’t read this.)

Supporters of ethanol, stung by the backlash over its unintended but foreseeable consequences (see, e.g., here and here), namely, increasing hunger due to a run-up in global food prices and increased threats to biodiversity, now tell us that cellulosic ethanol will come to the rescue. The theory is that cellulosic ethanol, which is still in the research and development phase, would be produced from non-edible plant material, e.g., switchgrasses, crop residue and other biomass that is not currently grown or used as edible crops. Thus, it is implied, it would have no effect on food prices.

But this is wishful thinking.

If cellulosic ethanol is indeed proven to be viable (with or without subsidies), what do people think farmers will do?

Farmers will do what they’ve always done: they’ll produce the necessary biomass that would be converted to ethanol more efficiently. In fact, they’ll start cultivating the cellulose as a crop (or crops). They have had 10,000 years of practice perfecting their techniques. They’ll use their usual bag of tricks to enhance the yields of the biomass in question: they’ll divert land and water to grow these brand new crops. They’ll fertilize with nitrogen and use pesticides. The Monsantos of the world — or their competitors, the start-ups — will develop new and genetically modified but improved seeds that will increase the farmer’s productivity and profits. And if cellulosic ethanol proves to be as profitable as its backers hope, farmers will divert even more land and water to producing the cellulose instead of food. All this means we’ll be more or less back to where we were. Food will once again be competing with fuel. And land and water will be diverted from the rest of nature to meet the human demand for fuel.

Does this mean that biomass – and farmers — should play no role in helping us meet our energy needs? Not necessarily. If farmers can profitably grow fuel rather than food through their own efforts, so be it. But we shouldn’t favor growing one over the other either through subsidies or indirectly through government mandates for so-called renewable fuels. And if anything should be subsidized or mandated, it shouldn’t be growing fuels. That would inevitably compete with food.

Former U.S. Senate Majority/Minority Leader Tom Daschle (D-SD) says no way, Jose. 

In a recent interview about his new book, Daschle stressed:

Congress is just not capable of being the manager of a health care system and yet it’s largely Congress today that has that responsibility. It hasn’t worked for the last 50 years. It’ll work even less in the next 50.

Thus Daschle advocates creating a Federal Health Board to manage this $2 trillion chunk of the U.S. economy. 

Where does he look for a model of this type of centralized planning agency?  Quoth Daschle:

I believe that the connector idea is really the Massachusetts version of the Federal Health Board. I like a lot of what the connector is all about.

In The Wall Street Journal on April 15, Martin Feldstein of Harvard took a position between Makin and Chapman, saying the Fed should have left the federal funds rate at 2 1/4%, because a lower rate would cause “rising food and energy prices.” Feldstein told The Guardian the dollar had to fall further on April 11, so the link he envisions between Fed policy and commodity markets is not through exchange rates (I’ll discuss that in a later post), but just upside speculation alone:

Lower interest rates induce investors to add commodities to their portfolios. When rates are low, portfolio investors will bid up the prices of oil and other commodities to levels at which the expected future returns are in line with the lower rates.

But investors go short as well as long–betting the price will fall– and they can use credit for that too.

The only reason to make a leveraged bet that the price of oil, gold or corn will go higher is if you expect the prices to rise by enough (during the holding period) to exceed the interest expense.

Ignoring trading costs, if you can borrow at 5% to invest in something whose price is expected to rise by 8% that may look like easy money. Yet oil futures are cheaper than near-term spot prices, and gold has recently fallen by about 13%, so momentum trading is dangerous. It is properly called “greater fool investing” – just like paying too much for a Las Vegas condo on the assumption that some greater fool will later pay even more.

It seems unlikely that today’s quarter-point cut in the fed funds rate will result in lower margin rates for commodity traders. But even if it did that is not nearly enough to make a significant difference for more than a day or two.

U.S. politicians seem equally angry with upside “speculators” and downside “shorts,” but it is the contest between the two that constantly gropes for the right price.

I am shorting oil through an exchange-traded fund (DUG), and shorting precious metals through a mutual fund (SPPIX). I’m also slightly long the dollar (UUP). Don’t try this at home without a net. But if I win those bets, the world economy wins too.

At a recent health policy forum in Washington, D.C., noted health economist and wit Uwe Reinhardt shed some light on that question:

[T]he following can be said: the United States Congress has absolutely no interest in reducing . . . dubious Medicare expenditures. Let me repeat that. The United States Congress has no interest whatsoever in reducing dubious Medicare expenditures . . .

So the interesting and intriguing question for all, for journalists too, [is]: why is the Congress so disinterested in cost containment when it constantly whines about having to restructure Medicare? That is to me a huge mystery.

Obviously, Prof. Reinhardt hasn’t read this.

In The Wall Street Journal of April 25, Ronald McKinnon of Stanford proposed “raising the fed funds rate as much as necessary to strengthen the dollar.” McKinnon’s argument had little to do with inflation, so he could just as well have asked the European Central Bank to lower interest rates as much as necessary. Yet he just asked the U.S. to “cooperate with foreign governments to halt and reverse the appreciation of their currencies against the dollar.”

McKinnon’s main argument for raising the fed funds rate is because he imagines that “foreigners are disinvesting from private U.S. assets.”

Net foreign purchases of U.S. stocks in the fourth quarter were $55.6 billion. Net foreign purchases of U.S. corporate bonds were $39.1 billion. Foreign direct investment in the United States increased by $39.9 billion in the fourth quarter, following an increase of $101.3 billion in the third.

There will surely be a good argument for raising the fed funds rate, sooner or later, but an exodus of foreign investment is not it.

Writing in The Wall Street Journal, Arizona Gov. Janet Napolitano (D) recently complained that the Bush administration is abandoning federal spending commitments, “cost-shifting to the states,” and creating budget deficits in states like Arizona.

In companion letters to the editor of today’s The Wall Street Journal, the Goldwater Institute’s Darcy Olsen and I inquire as to the color of the sky on planet Napolitano.

Olsen writes, in part:

Like most of the southwest, Arizona has been rolling in cash thanks to historic economic expansion. Three of the past five years saw double-digit percentage budget growth. But instead of reducing the tax burden or saving for a rainy day, state government ballooned 40% in real terms. Arizona now finds its per capita state spending on a par with Massachusetts.

Only 21 states went into the red this year, and Arizona led the way with the largest budget deficit of any state on a per-capita basis.

States can unilaterally opt out of some federal programs, like No Child Left Behind. Most governors can also reduce agency spending through executive action. Arizona did none of these things.

Meanwhile, I tackle Napolitano’s argument that restraining federal Medicaid and SCHIP spending amounts to “cost-shifting”:

Medicaid and SCHIP allow Arizona politicians to subsidize Arizona residents (and Arizona health-care providers), while shifting most of the cost to taxpayers in other states.

Gov. Napolitano opposes the administration’s policy not because it would increase cost-shifting, but because it would reduce her ability to shift those costs to other states.

Medicaid and SCHIP: socialism for state politicians.

A new report by the Georgetown Public Policy Institute finds that DC public schools did not respond to rising competition from charter schools “as expected”?

Expected by whom?

No one who has studied the behavior of monopolies, or simply stood in line at the DMV, would expect the public school bureaucracy to react with vigor and dispatch to the loss of its customers. It gets paid anyway.

The Census Bureau recently reported (.xls) that DC public schools spent $1.079 billion for 59,616 students in 2005-2006. As I reported earlier this month in the Washington Post (and in greater detail in this blog), the District is spending $1.216 billion for 49,422 students during the current 2007-2008 school year. The District lost one fifth of its students but its budget grew by 13 percent.

Where is the incentive for it to improve?

And, even if it had a strong systemic incentive to improve, how on earth could it do so? Because of the system’s design, it must hire teachers who have pedagogically worthless degrees in education; the curriculum is centrally planned district-wide, denying teachers any real professional autonomy; students are rigidly grouped by their age instead of by what they know and can do, making it much harder to teach them, etc. Even if this system had all the incentives in the world, it likely could only muster modest improvements.

Want a system that is truly responsive, efficient, diverse and constantly seeking to better serve families? Look at what sorts of school systems – and more broadly, what sorts of economic systems — already behave that way: free markets. It wouldn’t be hard to give all families access to a free educational marketplace.

This Sunday, the department of Santa Cruz, the richest region of Bolivia, will hold a referendum on regional autonomy. Other departments in the eastern half of the country will likely follow suit in the upcoming months. The central government in La Paz opposes the project and calls it “separatist.” Despite that, polls show that an overwhelming majority of “cruceños” will vote in favor of autonomy.

As a consequence, the ruling party has threatened to use violence against the citizens of Santa Cruz who show up to vote on Sunday. It wouldn’t be the first time. Last December, the government forced the approval of a new constitution in a Constituent Assembly while a pro-government mob outside the building prevented opposition assemblymen from attending the session. This year, something similar happened when the national Congress declared these referenda on regional autonomy illegal in a rigged session while mobs outside Parliament prevented opposition Congressmen from entering the building.

This time around, the party of president, Evo Morales, has warned about the possibility of taking thousands of its supporters to Santa Cruz to prevent the vote from taking place. The only way to accomplish this is by force.

So it’s kind of surprising that the European Union is taking sides with those who, over and over again, have used violence to suppress democratic institutions. The French ambassador in Bolivia and representative of the EU in that country has stated that the leaders of Santa Cruz who are pushing for autonomy will have to “assume the consequences” if violence erupts on Sunday. That is, the EU will blame the victims if they get beaten up by government thugs for exercising their democratic rights.

Shame on the EU.

Last week, a Gallup poll was released revealing that about one-third of Americans worry “a great deal” about global warming, a number that hasn’t changed much since 1989. Less than half of the respondents believed that climate change would pose a serious threat to them in their lifetimes. The trade publication ClimateWire (subscription required) quotes a Gallup official as noting that “there has been no consistent upward trend on worry about global warming going back for decades.”

Today, ClimateWire reports that a new study from the Pew Research Center for the People & the Press has even worse news for environmentalists: climate change is at the absolute bottom of the public’s list of priorities for the federal government (oddly enough, there’s no trace of the report on Pew’s website). When given a list of issues and asked to state whether the issue should be a “top priority” for President Bush and the Congress, those surveyed responded as follows:

Strengthening the nation’s economy: 75%
Defending the country against terrorism: 74%
Reducing health care costs: 69%
Improving the educational system: 66%
Securing social security: 64%
Improving the job situation: 61%
Securing Medicare: 60%
Dealing with energy problems: 59%
Reducing the budget deficit: 58%
Protecting the environment: 56%
Reducing crime: 54%
Providing insurance to the uninsured: 54%
Dealing with the problems of the poor: 51%
Dealing with illegal immigration: 51%
Reducing middle class taxes: 49%
Dealing with moral breakdown: 43%
Strengthening the military: 42%
Reducing the influence of lobbyists: 39%
Dealing with global trade: 37%
Making tax cuts permanent: 35%
Dealing with global warming: 35%

Surprised? You shouldn’t be. The political strength of the environmental lobby is almost entirely based on the proposition that they represent a large number of well organized swing voters who will reward and/or punish politicians for their position on environmental issues in general and climate change in particular. Hence, a great deal of hard work and effort goes into the Green campaign to scare hell out of politicians regarding the political risks associated with saying no to things like a cap & trade program to reduce greenhouse gas emissions. To be fair, all special interest groups have the same incentive to talk-up their alleged public support. Regardless, this particular political Green emporer has no clothes.

In a piece by Jad Mouawad, Tuesday’s NY Times reports that Oil Price Rise Fails to Open Tap.

He identifies a number of reasons for the lack of responsiveness on the supply side:

1. OPEC countries’ “explicit goal is to regulate the supply of oil to keep prices up”. Iran and Iraq’s productive capacity has been crippled by war and civil unrest. In non-OPEC countries, problems are due to “sharply higher drilling costs and a rise of nationalistic policies that restrict foreign investment.”
2. Some regions are simply running out of reserves, e.g., Norway, Britain, Prudhoe Bay.
3. “In many other places, the problems are not below ground, as energy executives like to put it, but above ground. Higher petroleum taxes and more costly licensing agreements, a scarcity of workers and swelling costs, as well as political wrangling and violence, are making it harder to raise production…”
4. “Foreign investment could help Mexico produce oil from deeper waters, but that is a controversial proposition in a country where oil has long been seen as part of the national patrimony.”
5. “The Russian government has been muscling Western companies to gain more control over its energy resources. That rise in energy nationalism could freeze new investment and slow any meaningful growth in supplies there for years.”

Surprisingly, in an otherwise decent article, absent from this report is the credit that is due to the New York Times itself (and like-minded entities) in their long-standing efforts decrying the search for oil and gas within the US. A search of the Times site for the words “editorial drilling oil gas”(sans quotes) over the past few years reveals a constant stream of editorials in the Times decrying efforts to drill for oil and gas. Examples include:

Leave Bristol Bay Alone, December 6, 2006: “President Bush is thinking about rescinding a longstanding presidential order that specifically prohibits oil and gas drilling in Alaska’s pristine Bristol Bay… Mr. Bush has been speaking out lately about the importance of making America more energy independent. Few things are more important for the new Democratic Congress than developing an energy policy more heavily weighted toward conservation, efficiency and development of alternatives to traditional fossil fuels. This might be a rare area in which both sides can work together, but opening Bristol Bay to drilling would be exactly the wrong way to begin the conversation.”

Regulatory Games and the Polar Bear, January 15, 2008. Interior Secretary Dirk Kempthorne could do the polar bear … a favor by ordering a timeout and halting the [oil] lease sales for at least a year… There is no urgency to lease Alaskan waters. President Bush’s suggestion that new oil production will bring short-term relief at the pump is nonsense, since oil fields take years to develop. It is urgent to help the bears.

Losing Patience, August 21, 2007. Dirk Kempthorne’s arrival … raised hope among conservationists that he would moderate the Bush administration’s aggressive search for oil and gas in some of the country’s most environmentally sensitive lands. This has not happened.

Protecting a Monumental Sculpture, February 18, 2008. “There is every good reason to call this plan to a halt on aesthetic grounds. But there are other reasons too. This stretch of the lake is also a critical breeding ground for many species of shorebirds.”

Drain America First, July 25, 2006. “The Senate measure is narrower and less mischievous than the House bill. Yet it, too, is aimed exclusively at increasing production. … This is mind-boggling. The bill’s stated purpose is to reduce fuel prices. But while the gulf may hold enough natural gas to affect the price of that commodity, the same cannot be said of oil.”

And of course the NY Times has been in the forefront of opposition to any drilling in the Arctic National Wildlife Refuge based on the logic that it would supply only six months of US oil consumption while forever sullying the Wildlife Refuge (an arguable claim).

Using this logic we could shut down every farm in the U.S. — and the world — since no single farm provides more than a few hours’ worth of food, and food production is the single greatest threat to terrestrial and freshwater biodiversity worldwide.

This is not to say that drilling – or farming, for that matter — is acceptable everywhere, but reflexive opposition to energy production is not.

Scott Holleran at Box Office Mojo is all over the Atlas Shrugged movie project. A few days ago he talked to Michael Burns, vice chairman of Lionsgate, the studio that is planning to make the film. He confirmed that Angelina Jolie will star as Dagny Taggart. Burns says John Galt should not be played by a movie star but by an actor with “an incredibly remarkable face, a face that just pops out at you,” to which his Randian interviewer responds, “A face with no fear, no pain, no guilt?”

Burns, who attended Ayn Rand’s memorial service as a young Wall Streeter in 1982, describes the movie’s theme this way:

Think about it: the world’s great minds and great contributors to society—which really are the entrepreneurs—are being taken advantage of—and they are; if you make money, you’re giving up pretty close to half of your income, though the United States is still the greatest country in the world, and Ayn Rand would have said that as well—so, what would happen if these great minds went on strike? Would society move forward? It’s a great [dramatic] scenario, like that P.D. James novel, Children of Men, which is about [what would happen] if, all of sudden, everyone is sterile. Atlas Shrugged is as pertinent today as it’s ever been.

A week earlier Holleran had interviewed director Vadim Perelman, best known for The House of Sand and Fog. Perelman, who was born in the Soviet Union and left in 1977 at the age of 14 when the government was letting some Jewish people leave, said the novel’s emphasis on “individualism and [the] entrepreneurial spirit” resonates with him. He cited a favorite Ayn Rand quotation: “If there’s a more tragic fool than the businessman that does not realize he’s an extension of man’s highest creative spirit—it’s the artist who thinks that the businessman is his enemy.” But he brushes off the uber-Randian question, “In making Atlas Shrugged, do you want the approval of Miss Rand’s heir, philosopher Leonard Peikoff?”

Perelman told Holleran that the budget would be about $70 million, that they’re still working on the script and the casting, that he hopes to start shooting later this year, and that the look of the movie would be the Forties.

What do they have in common?

Apparently, buying and selling indulgences.

A piece in Slate, How To Spot a Persian Prostitute: Streetwalkers in chadors, by Juliet Lapidos, informs us:

The penalties for prostitution [in Iran] are severe—ranging from whipping to execution. But there’s a loophole in Islamic law called sigheh, or temporary marriage. According to Shiite interpretation, a man and a woman may enter an impermanent partnership with a preset expiration date. There’s no legally required minimum duration (a day, a week, anything goes) and no need for official witnesses—unless the woman is a virgin, in which case she needs the consent of her legal guardian. An Iranian who’s wary of arrest can simply escort a prostitute to a registry, obtain a temporary contract from a Muslim cleric, and then legally sa