Archives: 12/2007

Talk About a Friday News Dump

The Senate passed the Farm Bill this afternoon by a margin of 79 to a brave 14 (roll call vote here). Readers of this blog will be sufficiently familiar with our views on U.S. farm policy so I won’t reiterate them here. Suffice it to say that it will be interesting to see if President Bush makes good with his veto threat.

Happy Holidays to the American taxpayer/consumer/trade partner from the U.S. Senate!

One of the Better Statements of the Current Health Care Debate

From today’s Los Angeles Times:

Though many Americans may not realize it, government is already the dominant player in healthcare, with federal and state expenditures accounting for 47% of the projected $2.3 trillion the nation will spend this year. Indeed, many private insurers follow the lead of the biggest government program, Medicare, in setting coverage policies.

Even if nothing changes, government will pick up more than half the nation’s healthcare tab by 2017. Universal coverage proposals from the leading Democratic presidential candidates would advance that tipping point to 2011, according to a recent analysis by the consulting firm PricewaterhouseCoopers.

Leading Republican healthcare experts acknowledge the trend toward a greater role for government — indeed, Bush himself accelerated it when he signed the Medicare prescription drug benefit….

“The debacle is not a partisan war between Democrats and Republicans over how to cover children, it’s a civil war within the Republican Party over the role of government and health policy in general,” said economist Len Nichols, director of the healthcare program at the New America Foundation.

Gotta hand it to Nichols on that one. In fact, Nichols is so sharp that maybe he can explain to Sen. Ron Wyden that universal coverage would not “rein in costs.”

California Speaker Confuses Taxation with Wealth Creation

California is facing a budget shortfall, and one of its most powerful lawmakers thinks the state legislature can meet that shortfall by creating wealth. According to the Los Angeles Times:

Assembly Speaker Fabian Nuñez (D-Los Angeles) said lawmakers would have to consider raising a host of taxes, including those on Internet purchases and on foreign companies that do business in California.

“We’ve got to close those tax loopholes,” Nuñez told reporters at a news conference. “We can generate billions by doing that.”

According to Dictionary.com, the first three definitions of “generate” are:

  1. to bring into existence; cause to be; produce.
  2. to create by a vital or natural process.
  3. to create and distribute vitally and profusely.

No doubt the speaker wants to distribute those billions vitally and profusely. But raising taxes won’t create billions of dollars. 

Taxes find wealth that others have already created and take it. As in pilfer.  Lift.  Ransack.  Plunder.  Loot.  Steal.  Jack.  Nab.  Grab.  Purloin.  Swipe.  Snag.  Extract.  Nick.  Confiscate.  Seize.  Pinch.  Usurp.  Arrogate.  Dispossess.  Expropriate.  (Yoink.)

Medical Guild Busts Doc for Attempted Quality Competition

According to The Austin-American Statesman:

[A]n Austin doctor [is] among the 64 doctors the Texas Medical Board recently disciplined….

Dr. Marci Roy, an Austin neurologist, must pay a $1,000 fine because of Web site advertising that suggests she has a superior ability to treat carpal tunnel syndrome at her clinic than other doctors who provide similar services, according to the board.

When confronted about the wording, Roy said that it was not a violation of the board’s advertising rules but that she changed the language after a complaint was filed, the order says.

Roy said Friday that the problem was “a typographical error that was corrected immediately.”

“It was certainly inadvertent on my part,” she said.

And we wonder why patients can’t judge physician quality.

Hat tip: MKS.

This Post Won’t Treat Bob Frank Like a Piñata

The New York Times’ Sunday column “Economic View” is a must-read for anyone who cares about economic issues. Four academics (one of whom is Cato adjunct scholar Tyler Cowen) take turns writing the column, and they often use the academic literature to shed light on current issues.

But readers of this blog probably won’t like last weekend’s column, penned by Cornell economist Robert Frank. Frank argues that “realistic proposals for solving our budget problems must include higher revenue,” i.e., new taxes or tax increases. Those proposals, he says, are being blocked by “powerful anti-tax rhetoric [that] has made legislators at every level of government afraid to talk publicly about a need to raise taxes.” 

(I’m not sure how big that phobia is, given the numerous tax increases on the state level in recent years.  But let’s put that aside.)

Frank has spent much of his academic career arguing for raising taxes on wealthier people so as to create greater income equality (some of his work can be found here, here, and here). It would thus be expected that a Cato analyst would bash Frank’s column like a piñata. But I believe there’s merit to what he writes.

Whatever the political power of anti-tax rhetoric, it’s clear from the last seven years that it doesn’t have much effect on government spending. Despite the tax cuts of 2001–2003, Congress and the White House have found all sorts of hyper-expensive programs and actions on which to spend money, from the Iraq War and expanded overall defense spending to the new Medicare Part D, the proposed farm bill, the latest round of energy subsidies, more and more corporate welfareNo Child Left Behind, and a whole new, giant federal agency — (forget the relative spare change of all those wacky transportation earmarks). Whatever criticisms can be lobbed against the 2001–2003 tax cuts (and lower taxes in general), it can’t be said that they’ve hamstrung the government’s ability to spend

Why have the tax cuts not slowed government growth? Because Uncle Sam is quite happy to borrow money. Frank points out that the national debt has increased $3 trillion since 2002, and it will likely rise an additional $5 trillion over the next decade. As NYU law professor Dan Shaviro notes in this 2004 Regulation cover story, that debt is future taxes.

This borrow-and-spend spree means that America has been getting bigger government while (so far) paying the price of smaller government. As Cato chairman Bill Niskanen points out, this dynamic drives the growth of even-bigger government. The First Law of Demand postulates that, ceteris paribus, if the price of a product declines, demand for the product will rise. The apparent price of government has declined — and we’re getting more and more government all the time.

This leads to the core problem of borrow-and-spend public finance: Because today’s taxpayers receive government services without paying the full cost, they (and their political leaders) are not forced to consider:

  • Is this service worth its cost?
  • Would we be better off if government spent its money differently?
  • Would we be better off if government did not tax that money away from us, but we instead spent it privately?

Instead, borrow-and-spend lets both the Big Government crowd and the Anti-Taxes crowd get what they want: the Big Government folks can keep expanding government and the Anti-Taxes folks pay lower taxes — for now.

That’s why there’s merit to Frank’s column — if we were to pay, today, the full cost of government, we’d give much more thought to the opportunity cost of government spending. I strongly suspect there’d be much less demand for government services and much stronger outcry against current spending and spending proposals.

Frank, in the column, appears not to consider that possibility. Instead, he seems to assume that government activity would continue at its current pace, or even expand, under the justification that government must “provide a variety of public goods and services that would be impractical for private citizens to provide for themselves.” But let’s be real here: government spending  is far, far, far beyond anything that could be justified by a public goods problem.

Much public spending — and most all new public spending — is nothing more than government-mandated consumption. Because people don’t value a good or service enough to spend a lot of money on it privately, government forces them to buy the good publicly. That type of public finance is neither welfare-enhancing nor financially responsible — but it certainly earns the love of special interests. That’s how we end up with (pardon the cut-n-paste) Medicare Part D, the proposed farm bill, the latest round of energy subsidies, more and more corporate welfareNo Child Left Behind, and all those wacky transportation earmarks.

So, Prof. Frank, I say bully for you! If we follow your proposal, I think we’ll move several steps closer to limited government.

Fareed Zakaria Is Making Sense (Again)

Another bang-up column from Fareed Zakaria in Newsweek:

To recover its place in the world, the United States should first recover its confidence. It remains the world’s only superpower, the only big country with a total portfolio of military, economic and political dominance. Most major states are either well disposed toward it or, at worst, neutral. The challenges America confronts come from small, faceless terrorist organizations and a few rogue nations. This is not to minimize the challenges. Today’s asymmetries of power mean that small groups can do big damage. But it is to put things in perspective. When President Bush speaks of Iran’s nuclear program as the road to World War III, one wonders if he has noticed that Iran’s total GDP is just one sixty-eighth that of the United States, or that its military spending is less than 1 percent of the Pentagon’s.

The real challenges that the United States faces come not from globalization’s losers but from its winners, not from yesterday’s bombs but from tomorrow’s factories. The crucial project for the next president will be to change the basic focus of U.S. foreign policy, away from the Middle East and toward the Far East. When the history of these times is written, surely the great trend that will dominate the accounts, far larger than the war in Lebanon or the tensions over Iran, will be the rise of China and India and how they reshaped the world.

Chicago Police Scandal

The Chicago Tribune shines a light on the Chicago Police Department and how it handles police shootings: 

 Law enforcement officials at all levels, from the detectives who investigate cases to the superintendent, as well as the state’s attorney’s office, have failed to properly police the police.

Promises to improve the system also haven’t touched another fundamental flaw: the hasty meetings, known as roundtables, led by police commanders in the charged hours after a Chicago officer shoots a civilian. Witnesses are not sworn. The discussions are not recorded. When the sessions conclude, officials nearly always decide the officer was justified in pulling the trigger.

And if evidence eventually contradicts the officers’ versions of events, the Tribune found that cases aren’t reopened and the officers escape serious punishment.

Chicago police shoot a civilian on average once every 10 days. More than 100 people have been killed in the last decade; 250 others have been injured. But only a tiny fraction of shootings are ruled unjustified — less than 1 percent, police records and court testimony indicate.

I strongly suspect that similar findings would be found in many other cities. Kudos to the Tribune for this reporting.

Hat tip: Radley Balko.