Tag: free lunch

Yes, Florida Voters Oppose ObamaCare’s Medicaid Expansion

Bloomberg’s Josh Barro criticizes the James Madison Institute’s poll showing that 65 percent of Florida voters oppose implementing ObamaCare’s Medicaid expansion. Barro is mostly wrong. But even when he’s right, he’s still wrong. Disclosure: I helped JMI formulate their poll questions.

Barro complains that JMI conducted a “push poll.” His first complaint is:

It starts by priming respondents with questions about the national debt and the size of Florida’s existing Medicaid budget.

Then it gives an inaccurate description of the terms of the expansion. Poll respondents were told that Medicaid currently covers people earning up to 100 percent of the federal poverty line. That’s not true: In Florida, the limit for adults is 56 percent of FPL, and you must have dependent children to qualify.

Though Barro slightly mischaracterizes the poll question, he is basically correct, and the inaccuracy is my fault.

The folks who originally drafted JMI’s poll questions aren’t health care wonks, so they ran their questions by me. This question was originally worded the way Barro claims the final question was: “Medicaid coverage is currently available for those with incomes up to 100% of the poverty line.” I hurriedly emailed the JMI folks, “Florida does not offer Medicaid coverage to everyone below 100 percent of poverty. See page 2 and table 3 of this report. You might replace ‘currently’ with ‘generally.’” So that’s what JMI did. In retrospect, Barro is right. “Generally” gives the impression that Medicaid is available to more Floridians below the poverty line than is actually the case, and I should have offered a better edit. Mea culpa.

His next complaint is not accurate:

Respondents also heard that after three years, the state would be on the hook for “more than 10 percent” of the cost of newly eligible adults. That’s not true, either: The state’s share would be exactly 10 percent.

Under current law, for the first three years the feds pay for 100 percent of the cost of claims for newly eligible adults. They do not pay 100 percent of the administrative costs of covering those adults. States have to pick up much of that cost (as well as other costs related to other parts of the expansion). So the question is accurate and Barro is wrong. He’s not a health care wonk, though, so he can be forgiven for this one.

But Barro’s third complaint is the real doozy:

This Would Raise the Price of Cell Phone Service

You’d think consumers didn’t care about price.

This HuffPo piece makes the wireless industry’s resistance to regulation requiring backup power at cell sites sound all “corporate-y.”

“The biggest issue is they have not wanted to invest the money in hardening their networks sufficiently against a catastrophic event,” says Harold Feld, senior vice president at Public Knowledge.

Industry group CTIA says the proposed requirements “would unnecessarily burden wireless carriers and potentially undermine the investments and network planning that have made their networks so successful.”

What about the fact that the cost of backup power requirements would be passed on to consumers in the form of higher prices?

The case for a backup power regulatory mandate sounds weak. During the biggest storm in who-knows-when, in the most populous regions of the country, “thousands” were left without cell phone service. What percentage of the New York-New Jersey metropolitan area’s population is that?

“As power returned to many areas over the weekend, wireless carriers reported that more than 95 percent of their cell towers in areas affected by the storm were working.”

Lost service is a real thing that happened, but other dimensions of preparedness and response seem to have gone much worse.

To the extent lost service had a proximate relationship to someone not getting the help they needed, Superstorm Sandy makes clear the consequences of large weather events, and it will educate consumers and cell phone providers both about the risk of lost communications during natural disasters. Both will respond as they see fit.

But raise everybody’s cell phone bill permanently to secure against outlier events? Let’s put our thinking caps on:

Given the increased cost, marginal cell phone consumers would drop their service and they wouldn’t have access to communications when they were in emergency situations.

It seems to me that getting a cheaper cell phone plan to people who may often have occasion to report muggings-in-progress is a greater protection for the public than insuring the wealthier consumer against lost service during extremely rare weather events.

Another Log for the Government Spending Multiplier Fire

At the center of the debate over efforts by policymakers to “stimulate” the economy with government spending is the issue of fiscal multipliers. Some economists argue that government spending can be a free lunch: an additional dollar of government spending increases GDP by more than one dollar. Other economists say that government spending is not so free: an additional dollar of government spending increases GDP by less than one dollar or even reduces it.

My non-empirically based view is that the mainstream media tends to treat the free lunch position as gospel. Why that appears to be the case I’ll leave to others to speculate, but it is decidedly irritating. Back in 2010, my colleague Alan Reynolds noted that a survey conducted by an economist at the Federal Reserve Bank of San Francisco counted several studies that concluded that the multiplier effect of government spending is less than one.

We can now add to the list another study that found a multiplier of less than one.

From a National Bureau of Economic Research working paper by economist Valerie Ramey:

For the most part, it appears that a rise in government spending does not stimulate private spending; most estimates suggest that it significantly lowers private spending. These results imply that the government spending multiplier is below unity. Adjusting the implied multiplier for increases in tax rates has only a small effect. The results imply a multiplier on total GDP of around 0.5.

Note: For readers who are interested in real world examples of how government spending hinders economic growth, check out DownsizingGovernment.org.

‘Gang of Six’ Plan Is Lousy

My colleague Dan Mitchell discussed the good, the bad, and the ugly in the deficit reduction plan released by the bipartisan group of senators known as the “Gang of Six.”  As Dan noted, the plan is more of an outline and a complete assessment isn’t possible until more details emerge. However, the fact that President Obama immediately embraced the plan ought to tell proponents of limited government all they need to know.

Here are some random thoughts on the plan:

  • There’s nothing impressive about the “immediate” $500 billion in deficit reduction. That figure includes revenue increases, so it’s not even $500 billion in spending cuts. And I’m not sure why they say “immediate” when they probably mean that the reductions would occur over the next several fiscal years. The deficit alone for next year will probably be at least $1 trillion.
  • The plan promises about $2.5 trillion in spending reductions over 10 years. As I’ve been pointing out, $2 trillion in spending cuts isn’t a lot when compared to the $46 trillion the government is projected to spend over the next decade. See this Cato video for more.
  • Tax reform is fine; more revenue for the government is not. Transferring more resources from the private sector to the government is a loser for both economic and individual liberty. In addition, the plan’s requirement that tax reform “maintain or improve the progressivity of the tax code” would result in more Americans viewing the federal government’s spending programs as a “free lunch.”
  • My anti-tax credentials are beyond question: I equate taxation with theft. But I don’t like debt-financed spending any more than I like tax-financed spending. Had anti-tax advocates and Republicans put the same amount of effort into restraining spending during the Bush/Republican Congress years as they did in cutting taxes, we might not be facing the prospect of a large tax increase today. Unfortunately, I see little evidence that that lesson has been learned.
  • The plan does almost nothing to rein in the scope of federal government’s activities. It doesn’t seem to matter which party or ideological faction on Capitol Hill releases a plan – conservatives, moderates, and liberals all apparently assume that the federal government should continue doing everything that it currently does. Generally speaking, Democrats want more tax revenue to maintain an expansive government. Republicans talk about smaller government, but only a handful can articulate exactly what programs or functions they’d eliminate. It’s more common to hear Republicans blubber on about “reducing waste, fraud, and abuse” in government programs and “saving” the pillars of the welfare state (Social Security and Medicare) for “future generations.”
  • Our global military presence would make a Roman emperor blush and our Founding Fathers roll over in their graves, but there’s nothing in this plan to suggest that the military-industrial complex faces any threat.

In sum, if you’re hoping that debt reduction will be brought about through a reduction in the federal warfare/welfare state, you’re going to have to wait for a different plan. And the sad truth is that no such plan is going to materialize anytime soon – at least not one that will get through Congress and signed by the president. But look on the bright side – we’re not Greece! Not yet.

Do Earmarks Crowd Out Local Private Investment?

The extent to which government spending either complements or crowds out private investment has long been one of the most heated debates in economics (and politics).  Generally economic theorists posit that an increase in government spending drives up interest rates, which increases the cost of private investment, accordingly reducing such investment.  Most macroeconomic models are build on this relationship. 

In an interesting new working paper, a trio of economists attack the question from a different angle.  They measure the impact of increased earmarks on the local economy receiving those earmarks, and compare the impact to areas not receiving the increased earmarks, which allows them to control for the overall macroeconomic environment.  Their finding: even in a setting where government spending is “free” to the recipients (but not free to the rest of us), such spending reduces private investment. 

More specifically, the authors examine what happens to a state when one of its senators becomes a chair of a powerful committee.  First, the obvious, upon taking a power chairmanship, the value of earmarks increase almost 50%.  This results in roughly a $200 million annual increase to the state.  But the authors find this is not simply a transfer from the rest of the country to the state, it also depresses private capital investment and R&D spending in the state.  On average, once a state has a senator obtain a powerful chairmanship, state level private investment in capital expenditures decreases $39 million annually and state private R&D decreases $34 million annually. 

For states seeking to get your senator into a powerful chairmanship:  be careful of what you wish for.  There’s no free lunch, even when someone else is paying.