Archives: June, 2009

MD Taxpayers Should Still Fear the Turtle

testudoI dread my morning commute, largely because of awful D.C. traffic, but also because I never know when I’m going to hear something on the radio that’s (1) going to anger me, and (2) force me to alter my day’s plans so I can lay the smack down on some education report that begs for clarification.

Today, (2) happened, with a reporter from the Washington Business Journal touting a new study on the University of Maryland, College Park – Maryland’s flagship public university – as cause for Marylanders to be ecstatic about the taxes they pay to support the school. According to the WBJ’s online article about the report, the Free State gets $8 back for every $1 taxpayers “invest” in UMCP – a clear winner!

Um, not so fast, WBJ! These kinds of too-good-to-be-true impact studies are usually just that – too good to be true. There are often many problems with them, but most important is that unless the analysts looked at opportunity costs – what would have been produced by the tax dollars had they been left with taxpayers – there is no way to say that Marylanders should be eternally grateful for having to fear the turtle. It is entirely possible, as economist Richard Vedder has demonstrated, that taxpayers would have gotten a better return had they kept their money rather than having to hand it over to  students and profs.

Of course, before I posted this objection, I had to check out the report to see if it is forthcoming about opportunity costs. Unfortunately, despite the university touting the findings yesterday and the WBJ reporting on them this morning, all I could find was the 2008 impact report, both looking on the site of the group that commissioned the study – the University of Maryland College Park Foundation – and the outfit that conducted the research. As a result, I can’t say with absolute certainty that the 2009 study doesn’t consider opportunity costs. If the 2009 report is like 2008’s, however, Marylanders have no cause for rejoicing. There’s zero reason to believe that they wouldn’t have been better off if they had just been able to keep their hard-earned ducats.

The Economic Case for Health Care Reform

There’s an old Yiddish saying that, “If my bubba had wheels she’d be a trolley.” So goes the logic of the Obama administration in their paper released yesterday, “The Economic Case for Health Care Reform.” Their claim is that reducing health care costs would help the economy. Yes, if health care costs were reduced it would likely help the economy, though we should remember that the health care industry is part of the economy.

There is nothing in Obamacare, however, that will reduce costs. In fact, expanding coverage may cause costs to rise. One study by MIT’s Amy Finkelstein suggests that the prevalence of insurance itself has roughly doubled the cost of health care. So, if Obama succeeds in expanding insurance coverage, it’s very likely to increase the cost of care.

Take Massachusetts for example. Three years ago, Massachusetts governor Mitt Romney signed into law one of the most far-reaching experiments in health care reform since President Bill Clinton’s ill-fated attempt at national health care. Proponents promised the reforms would reduce health care costs, suggesting the price of individual insurance policies would be reduced by 25-40 percent. In reality, however, insurance premiums rose by 7.4 percent in 2007, 8-12 percent in 2008, and are expected to rise 9 percent this year. This is compared to a nationwide average increase of 5.7 percent over the same three years. Nationally, on average, health insurance for a family of four costs $12,700; in Massachusetts, coverage for the same family costs an average of $16,897.

In fact, since the bill was signed, health care spending in the state has increased by 23 percent. Thus, despite individual and employer mandates, the creation of an insurance connector and other measures that increase insurance regulations, Massachusetts has failed to bring costs down.

President Obama and Congressional leaders have endorsed expanding coverage in similar ways to Massachusetts. The proposals would undoubtedly make it easier for some people to get coverage, but would also raise insurance costs for the young and healthy, making it more likely they would go without coverage. This leaves two choices: revert to the individual mandate (President Obama opposed the mandate as a candidate) or increase subsidies to try to cut costs to young and healthy individuals, thereby adding to the already substantial cost of the proposed plans.

Ultimately, controlling costs requires someone to say “no,” whether the government (as in single-payer systems with global budgets), insurers (managed care) or health care consumers themselves (by desire or ability to pay). In reality, any health care reform will have to confront the fact that the biggest single reason costs keep rising is that the American people keep buying more and more health care.

Obama’s Energy Reading

The Washington Post writes about how President Obama became obsessed with grabbing our complex energy systems by the scruff of the neck and shaking them into something more appealing to Ivy League planners. I was struck by this vignette:

But even before the late-night session in July, Obama had begun to educate himself about energy and climate and to use those issues to define himself as a politician, say people who have advised him. He read a three-part New Yorker series on climate change, for instance, and mentioned it in three speeches.

It’s great that he read a three-part series in the New Yorker. But has the president ever actually read anything by a climate change skeptic? Actually, a better term would be “a climate change moderate.” Leading “skeptic” Patrick J. Michaels, for instance, of Cato and the University of Virginia, isn’t skeptical about the reality of global warming. His summary article in the Cato Handbook for Policymakers begins:

Global warming is indeed real, and human activity has been a contributor since 1975.

But he also notes that climate change is complex, and its policy implications are at best unclear. “Although there are many different legislative proposals for substantial reductions in carbon dioxide emissions, there is no operational or tested suite of technologies that can accomplish the goals of such legislation.” The flawed computer models on which activists rely cannot reliably predict the future course of world temperatures. The apocalyptic visions that dominate the media are not based on sound science. The best guess is that over the next century there will be very slight warming, without serious implications for our environment our society. Michaels’s closing appeal to members of Congress would also apply to President Obama and his advisers:

Members of Congress need to ask difficult questions about global warming.

Does the most recent science and climate data argue for precipitous action? (No.) Is there a suite of technologies that can dramatically cut emissions by, say, 2050? (No.) Would such actions take away capital, in a futile attempt to stop warming, that would best be invested in the future? (Yes.) Finally, do we not have the responsibility to communicate this information to our citizens, despite disconnections between perceptions of climate change and climate reality? The answer is surely yes. If not the U.S. Congress, then whom? If not now, when? After we have committed to expensive policies that do not work in response to a misperception of global warming?

Please, President Obama – in addition to the lyrical magazine articles on the apocalyptic vision that you read, please read at least one article by a moderate and widely published climatologist before rushing into disastrously expensive policies.

FDA to Regulate Tobacco? Big Mistake

Handing tobacco regulation over to the FDA, as Congress is poised to do, is an epic public health mistake. It is tantamount to giving the keys of the regulatory store to the nation’s largest cigarette manufacturer, Philip Morris.

The legislation that will be voted on shortly in the Senate was cooked up out of public sight by Philip Morris, Sen. Ted Kennedy, Rep. Henry Waxman, and anti-tobacco lobbyists. Philip Morris staffers themselves even wrote large portions of the bill.

There are significant, and numerous, problems with the FDA regulating tobacco, and virtually no benefits to public health. Kennedy, Waxman, and the public health establishment present their legislation as a masterful regulatory stroke that will end tobacco marketing, prevent kids from starting to smoke, make cigarettes less enjoyable to smoke, and reduce adult smoking. But FDA regulation of tobacco will do none of these things.

The bill fails to correctly identify the reasons why young people begin to smoke, and concentrates almost exclusively on restricting tobacco marketing, while leaving the other risk factors for adolescent smoking unaddressed. There is nothing in the proposed legislation that shows the FDA understands the well-documented connections between education, poverty and smoking status, connections that provide the key to helping adults stop smoking.

Obama’s FCC Pick to Seek Internet Regulation

Politico reports that President Obama’s nominee to head the Federal Communications Commission, Julius Genachowski, is expected to pursue “ ‘net neutrality” regulation of broadband Internet service.

In his paper, The Durable Internet: Preserving Network Neutrality without Regulation, Tim Lee shows why regulation is not needed to preserve the good engineering principle he calls “end-to-end.” His paper also shows how regulation intended to serve consumer-friendly ends is often captured and used by regulated industries to suppress competition and artificially raise profits, denying consumers the benefits of free markets.

No Longer among the “Usual Left-Right Battles”

Christopher J. Christie just decisively won New Jersey’s Republican gubernatorial primary, but had to veer away from his middle-of-the-road plan and venture into some traditionally conservative territory to do it, according to news accounts. Will that be a problem for him in the general election? Not necessarily. As NorthJersey.com’s Charles Stile observes, Christie’s ardent support for private school choice is not the polarizing stance it once was: these programs “once championed by conservative ideologues, are being embraced by urban Democrats.”

As we’ve been saying at the Center for Educational Freedom for some time now, the post-partisan age of school choice is well within sight, and draws closer every day. The last politicos to see that will find themselves on the wrong side of history, and the wrong side of voters in both parties.

GM’s Nationalization and China’s Capitalists

GM’s restructuring under Chapter 11 includes plans to sell off the Hummer, Saab, and Saturn brands. Well, just one day after GM’s bankruptcy filing, a Chinese firm has come forward with a $500 million offer to purchase Hummer. The prospective buyer is Sichuan Tengzhong Heavy Industrial Machinery Co Ltd, a manufacturing company in western China, which hopes to become an automaker.

Not only is the Hummer offer the first bid for a GM asset in bankruptcy, but the bidder is foreign. Not only is the bidder foreign, but Chinese. And not only is the bidder Chinese, but the Hummer was first developed by the U.S. military. Thus, this is certain to be characterized as a national security matter, and the Committee on Foreign Investment in the United States (CFIUS) will have to review the proposal. There should be little doubt that the economic nationalists will be out in full force, warning CFIUS against transferring sensitive technologies to Red China.

Let me offer two quick points, as the bulging veins in my temples pulsate with disdain for official Washington.

First, if this deal is rejected (even if the bidder is scared away by detractors), any remaining credibility to the proposition that the United States will once again become that beacon on a hill, exemplifying for the world the virtues of free markets and limited government, will vanish into the ether. There has been too much U.S. hypocrisy on free trade and cross-border investment and too much double talk about the impropriety of government subsidizing national champions, that another indiscretion in a high profile case will blow open the already-bowing flood gates to economic nationalism worldwide. Considering that U.S. companies sell five times as much stuff to foreigners through their foreign subsidiaries than by exporting from the United States, investment protectionism is as advisable as nationalizing car companies.

Second, the willingness of this Chinese company to purchase Hummer serves as a stark reminder of what could have been. Had George W. Bush not allocated TARP money to GM last December, in circumvention of Congress’s rejection of a bailout, then GM likely would have filed for bankruptcy on January 1. At that point, there would likely have been plenty of offers from foreign and domestic concerns for individual assets to spin off or for equity stakes in the New GM. There would have been plant closures, dealership terminations, and jobs losses, as there is under the nationalization plan anyway. But taxpayers wouldn’t be on the hook for $50+ billion, a sum that is much more likely to grow larger than it is to be repaid. It is also a sum that will serve as the rationalization for further government interventions on GM’s behalf.