Archives: 10/2008

Get Government Out of Housing

My final two installments in my Los Angeles Times debate are available. On Thursday, I explained why Fannie Mae and Freddie Mac should be shut down. On Friday, I broadened the argument to explain that eliminating government housing programs is the best way to protect against future bubbles.

I also provided some commentary to NPR on the issue of moral hazard. If you like the article, feel free to click “recommended” at the top of the screen so the bureaucrats at the government-financed radio network have an incentive to allow more free market analysis. Perhaps one day they’ll allow someone from Cato to explain why taxpayers subsidizing radio is not a legitimate function of the federal government.

Obama Sides with Big Business over the Little Guy

From an excellent column in The Examiner by Tim Carney:

McCain would end the special treatment of employer-based health insurance, and replace it with a broad tax benefit for all health insurance purchases, whether through your boss or on your own…

The New York Times reported that the U.S. Chamber of Commerce and the Business Roundtable didn’t like the idea of people breaking free from their employer for healthcare. “To some in the business community, this is very discomforting,” Chamber lobbyist Bruce Josten told the Times.

Of course it’s discomforting—it could spur entrepreneurship and boost employee independence. Currently, the tax code punishes you for finding health care outside of your employer, which makes you more likely to stay in your current job, which gives your employer more control over you. Rejected for a raise? You still can’t leave because you need health care. Want to strike out on your own? How will you afford health care for yourself and your employees?…

Small businesses would have a much easier time attracting employees if people owned and shopped for health insurance the same way they own and shop for their car insurance and life insurance—buying it on the market, and owning it regardless of your job.  Entrepreneurs would also strike out on their own more were it not for the difficulty in today’s market of finding insurance outside of your employer.

You see the battle lines here, and they are the same as always: Big businesses want things to stay the same and so they favor government barriers to markets; small businesses want a more level, open playing field, and so they want government to be out of the way—or at least more neutral.

News Flash for Ed Reporters: Yes, Vouchers Have Been Proven Effective

The Washington Post today reports on the presidential debate and the DC education reform connection, leading off with the biggest point of disagreement:

“I’ve got to tell you that vouchers, where they are requested and where they are agreed to, are a good and workable system. And it’s been proven,’ McCain said in an exchange with Sen. Barack Obama (D-Ill.), who opposes the idea.”

The WaPo reporters then claim, “But a U.S. Department of Education study released in June showed that students in the program generally scored no higher on reading and math tests after two years than public school peers.”

This is incorrect. The study found that students in the program did generally score higher. The reporters were confused by the fact that the findings for the whole group of students were not statistically significant at the prescribed cut-off. The researchers were only 91 percent certain (statistically) that the better performance of voucher-program students was due to the program rather than chance, and they had to be 95 percent certain. They did find statistically significant positive findings for some subgroups of students.

Compounding this error, the reporters then quote an education researcher saying, “We have no evidence that vouchers work.” This too is incorrect.

There have been ten analyses of random-assignment voucher program experiments (random-assignment being the gold-standard of testing treatment effects). All ten demonstrate positive voucher effects, 9 out of 10 find statistically significant effects for at least some subgroups, and 8 out of 10 find statistically significant effects for the whole voucher group.

And the parents involved are extremely happy with it and think their kids are safer. And the vouchers cost a third or less than what is spent in public schools. Oh, and these programs are all small and some highly regulated, which limits their effectiveness.

There is an embarrassment of solid evidence that vouchers are an effective, popular, and extremely efficient education reform.

The Future of the U.S. Military Presence in Iraq

After months of negotiation, the Bush administration may be nearing an agreement with the Iraqis that would cover the status of U.S. forces in the country after the UN mandate for the occupation expires at the end of the year. Defense Secretary Gates and Secretary of State Rice began briefing lawmakers yesterday.

The news of an impending deal comes as a surprise only because the negotiations have dragged on for so long, and because the most contentious issues seemed so intractable. The key breakthrough appears to be an artful compromise on the question of extraterritoriality. (If you think that is hard to read, try saying it three times.) The Iraqis were demanding that U.S. personnel suspected of crimes be subject to Iraqi justice; American negotiators insisted that they be covered by U.S. laws. The draft agreement, reported the New York Times, “would give Americans immunity from Iraqi law when they were on military operations but would not apply if they were off duty.”

Although Sen. Carl Levin (D-MI) complained that this might give away too much, and therefore expose U.S. personnel to unnecessary risks, the dual-track approach seems to me to represent a more significant concession on the part of the Iraqis. The compromise is generally consistent, meanwhile, with other SOFA agreements, such as those in South Korea and Japan, where U.S. personnel can be, and are, tried by South Korean or Japanese courts when offenses clearly occur while they are off duty, or when the crimes are perpetrated against local citizens, as opposed to other Americans. In terms of the legal protections, “on duty” vs. “off duty” disputes are usually sorted out easily between officials on both sides, but there have been some tough cases along the way. There is also the contentious question of pretrial detention, and where the person, if convicted, serves his or her sentence, or while the case is under appeal.

But, of course, the more serious risks to U.S. personnel, including members of the military, but also private contractors and diplomats working in Iraq, don’t have to do with who gets tried in what courts. For starters, political reconciliation, and the risk of civil war has not abated. If one erupts, say following a particularly horrible terrorist attack that prompts Shia reprisals against the minority Sunnis, then once again our troops would be caught in the middle, as they were in the spring and summer of 2006 following the attack on the Askariya shrine in Samarra in February of that year.

Then there is the ongoing risk that our very presence in Iraq is stirring up hatred and resentment that might ultimately spill over in the form of violence against all Americans, not simply those stationed in Iraq. This violence may not manifest itself for years, but the risks are real. On that question, I always go back to Paul Wolfowitz’s candid testimony in the weeks before the invasion of Iraq.

Anger at American pressure on Iraq, and resentment over the stationing of U.S. forces in Saudi Arabia, Wolfowitz conceded, had “been Osama bin Laden’s principal recruiting device.” Looking ahead to the post-Hussein period, Wolfowitz implied that the removal of Hussein would enable the United States to withdraw troops from the region. “I can’t imagine anyone here wanting to … be there for another 12 years to continue helping recruit terrorists.”

There are other sticking points contained within the draft agreement. The document reportedly calls for the removal of all U.S. forces by the end of 2011, and Iraqi Prime Minister Nouri al-Maliki has previously insisted that such a timeline would be binding. The Bush White House still hasn’t taken the hint; the president continues to refer to troop withdrawals as ”aspirational” goals. Nonetheless, Bush might be willing to seize upon the new SOFA as a signal that progress is being made. The legend of the surge, which President Bush sold as a vehicle for eventually reducing the U.S. presence, will grow still larger if it actually does what it intended. On the other hand, the defenders of the surge – chief among them Sen. McCain – seem never to have bought this argument in the first place.

Will the draft agreement be ratified? The early signs are mixed, at best.The Iraqi parliament has had difficulty passing far less-contentious legislation. And there are ample grounds for one or more groups to claim that Malikihas conceded too much to the Americans, and block the deal. Moqtada al-Sadr’s supporters have consistently demanded an immediate withdrawal, and the concessions with respect to jurisdiction might strike some Iraqis as a bridge to far. But while Iraqi politicians will debate the merits of the proposed agreement, the parliamentarians in a considerably more mature democracy will not: the Bush administration maintains that the U.S. Congress has no authority on this matter; Gates and Rice’s consultations with congressional leaders, we are told, are largely a courtesy.

Today at Cato

The Madness of King Rod

While Hawaii’s experiment with universal coverage is disrupting health coverage for thousands of children, a similar drama unfolds in Illinois:

Last year, the legislature twice turned down [Gov. Rod Blagojevich’s] plan to expand health care – first for universal coverage, then to expand income-eligibility requirements for state-subsidized care. But Blagojevich began enrolling families anyway, claiming he had sufficient authority…

[Cook County Circuit Judge James] Epstein issued a preliminary injunction in April banning state officials from spending money on the program. That decision was upheld last month by the Illinois Appellate Court.

[Epstein] said he sympathized with low-income families, some of whom have paid insurance premiums under Blagojevich’s expansion and would lose coverage. But he said they “do not have a right to continue to receive coverage under this improperly promulgated program.”

Patients are getting jerked around by their government?  You don’t say.  The Blagojevich administration’s response to this judicial smackdown was something short of penitent.

The Illinois Department of Healthcare and Family Services issued a statement following the judge’s action saying it was “currently reviewing the decision, but the governor is committed to making sure that these families continue to get the insurance they need.” 

Did King Rod miss that day in Civics class when they explained that the legislature writes the laws?

I’ve criticized supporters of universal coverage for practicing what amounts to an unacknowledged religion.  But this has to be the first time I’ve seen religious fervor tempt one of the faithful to assume the powers of a monarch.

Wonderful Study on School Competition, but…

I like a clever two-stage least squares instrumental variable regression as much as the next wonk, and the very clever Martin West and Ludger Woessman have just given us one. In “School Choice International” (an econometric study and not a motivational tune) they show that increased competition from private schools improves overall student achievement – including public school achievement – in 29 OECD countries, while lowering overall per pupil spending.

The design of this study seems intended to address the concern that however wonderful private sector education might be, children remaining in public schools might suffer if the private sector were allowed to expand. Those ideologically or financially attached to the existing public school monopoly often like to raise this concern in arguing against greater parental choice and competition in education. The West & Woessman result suggests that the monopolists need not be concerned, because even students remaining in the monopoly schools benefit from an expansion of the private education sector.

This is all well and good. It is also somewhat beside the point, because the concern itself presupposes behavior on the part of parents that is largely fictional. The monopolists’ presupposition is that, no matter how much worse the public sector is, no matter how easily accessible the private sector becomes, some large number of families will decide to languish in atrocious state schools. This is nonsense.

In what field do significant numbers of people cling to earlier services or technologies that are universally recognized as inferior, when those services or technologies compete on a level playing field (i.e., when neither receives preferential treatment from the state)? Do vast throngs of people still cling to vinyl LPs? Do you often see kids today trucking around portable CD players, now that .mp3 players can hold hundreds or thousands of times more music at a similar cost? Do you see a lot of horse-drawn vehicles in your neighborhood?

The only thing that keeps large numbers of families in bad government schools is the positively fantastic level of government funding discrimination that exists in virtually all nations. Most governments fund their own schools but not private schools. Or, if they fund private schools, they do so at noticeably lower levels than they do government schools. In the rare cases where that funding discrimination is eliminated or even substantially reduced, the government sector shrinks dramatically. And, not surprisingly, the public schools that do survive after many years of such shrinkage tend to be the better performers within that sector.

The Netherlands, which funds public and private schools more or less equally, is a case in point. Today, three quarters of Dutch high school students are enrolled in private schools. And while research does show that private Catholic schools in the Netherlands continue to outperform the public schools in that country, even though the Catholic school students have a weaker average socio-economic background, the remaining public schools really aren’t doing that much worse. If they were greatly inferior to the private schools, they would have already lost their students to the private sector.

My point is that the effect on public schools of easing access to the private sector in education is virtually irrelevant. If the public schools improve, great, they’ll survive. If they don’t, it’ll be because families have left them for private schools that do a better job of serving them. In either case, the public is benefiting. The idea that great masses of humanity will choose to linger in low quality government schools when higher quality schools become available at a comparable or lower cost shows a bizarre lack of understanding of human nature, and a gross detachment from reality.