Topic: Cato Publications

Hear That? It’s the Sound of a Nation Constricting

Beginning today, citizens of the United States, Canada, Mexico, and Bermuda are required to present a passport to enter the United States when arriving by air from any part of the Western Hemisphere.

This new restriction on local international travel is part of the “Western Hemisphere Travel Initiative.” Tightening up on travel documentation was a recommendation of the 9/11 Commission that Congress passed into law in the Intelligence Reform and Terrorism Prevention Act of 2004.

To downplay the consequences of this new travel restriction, a Department of Homeland Security press release points out that over 90 percent of U.S. citizens, 97 percent of Canadians, and just about all Mexicans and Bermudans flying to the United States over the past week arrived with passports. But this means that fully 10 percent of Americans who currently travel overseas this way are going to be at least inconvenienced, and at most dissuaded, from doing so.

It’s hard to quantify what a marginal restriction on travel like this means, but let’s try:

As early as January 1, 2008, the new restriction may apply to citizens entering the U.S. from the Western Hemisphere by land or sea. Air travelers are probably more likely than land or border crossers to have passports so let’s assume that 10 percent of all American border crossers lack passports.

To get a rough idea of what this means, in 1999, there were approximately 300 million roundtrips between the United States and Mexico and the United States and Canada, the vast majority of them same-day trips. Let’s assume 250 million of them were U.S. citizens. If 1% of these trips don’t happen (10% of current non-passport holders) because of the new Western Hemisphere travel restrictions, that’s 2.5 million cross-border trips forgone each year, along with the commerce, goodwill, and freedom those trips would have entalied.

What price freedom? Well, let’s make it 10 bucks. At that price, using these strictly back-of-envelope estimates, WHTI costs $25 million per year (not counting the cost of administration). The net present value of a $25 million annual expenditure is $500 million (at a 5% interest rate). In other words, more than half-a-billion dollars (a low estimate) worth of freedom and commerce goes down the drain starting today.

It would be worth every penny if it improved our national security by a similar margin. Alas, it does not.

The reason why requiring passports at borders provides so very little security boils down to the fact that identity does not reveal intention.

In our daily lives, we use identity to assure ourselves of the bona fides of others - neighbors, coworkers, stores, and restaurants, for example. But terrorists and hardened criminals are not similarly constrained by the social and legal pressures we can bring to bear on our law-abiding neighbors.

You could have perfect knowledge of who everyone is - lock down everyone’s identity with a mandatory cradle-to-grave biometric tracking system - and you would still not prevent crime and terrorism. I have carefully analyzed the utility of identity for security in my book, Identity Crisis.

Terrorists can defeat an identity-based security system either physically or logically. They can enter the country someplace other than a border crossing for example - and the half-billion expendture on WHTI is 100% wasted. A logical evasion of identity-based border security is to enter the country legally, not having participated in terrorism planning or acts before. This was the technique used by al Qaeda with most of the 9/11 terrorists.

Checking passports at the border of the country is what security expert Bruce Schneier correctly calls “security theater.” It may make you feel safer, but it doesn’t make you safer. It does corral law-abiding citizens into the habit of showing ID as they go about their business, and it puts information about law-abiding travelers into government data stores for who-knows-what future use.

With the travel restrictions going into effect today, America does not get safer, just smaller.

Bush Health Care Proposal Mirrors Cato Scholars’ Proposal

I’ve returned from my first pre-State of the Union briefing of the day by the Bush administration.  (I’ve got another at 4:30).  What I heard about the president’s health care proposal has me even more heartened.

In part, that’s because the president’s proposal mirrors the proposal for “large HSAs” that I introduced here and here, and that Mike Tanner and I explain in Healthy Competition: What’s Holding Back Health Care and How to Free It.

Tonight, the president will propose setting a very high limit on existing distortionary tax breaks for health insurance.  The Large HSAs proposal would do the same.  He also will propose extending the revamped tax break to all individuals, ending the tax code’s discrimination against those who don’t have access to employer-sponsored insurance.  Ditto Large HSAs.

However, the president’s proposal does not incorporate an important third element of the Large HSAs idea: giving workers ownership of the part of their compensation that purchases their health benefits. 

Here’s why that’s important.  If your employer currently spends $10,000 on your health benefits, that part of your compensation is untaxed.  The president’s proposal would let you keep that tax break if you choose to purchase coverage someplace else.  But it does nothing to make sure that you get to keep the $10,000 that your employer spends on your health benefits.  That money is not a gift – it is part of your compensation.  But if you choose to leave your employer’s health plan, the employer is under no obligation to give you the money that he otherwise would spend on your health benefits.  In fact, your employer would face strong incentives not to “cash you out.”  Being free to choose where to purchase your health insurance means less if you have to take a pay cut to excerise that freedom.

Large HSAs would give workers ownership of that part of their compensation.  The proposal would convert the current tax break for employer-sponsored coverage into a tax break only on HSA contributions.  The contribution limits on HSAs would be raised, so that most workers could put all of their health benefits dollars into the account.  They could then use those funds to purchase coverage tax free from their employer, or any other source.  Importantly, with Large HSAs, the worker would control that $10,000 from day one.

Even though the president’s proposal doesn’t give workers ownership over that portion of their compensation, it is still a step in the right direction.

How Public Schools Cause Social Conflict

For many Americans, it is an article of faith that public schooling is the key the nation’s unity. However, in a new study, “Why We Fight: How Public Schools Cause Social Conflict,” Cato scholar Neal McCluskey demonstrates that far from uniting diverse peoples, public schooling forces them into constant conflict over schools for which they all must pay, but only the most politically powerful can control. “To end the fighting caused by state-run schooling, we should transform our system from one in which government establishes and controls schools, to one in which individual parents are empowered to select schools that share their moral values and educational goals for their children,” says McCluskey.

A Damn Fine Health Care Proposal

The White House is sending out teasers regarding a health care proposal that President Bush will unveil in his (penultimate!) State of the Union address on Tuesday.  By design, such teasers leave out important details.  Yet they give the outlines of what could be a damn fine health care proposal.

The president is proposing to limit the currently unlimited tax break for employer-sponsored health insurance.  He’d also extend that newly limited tax break to people who don’t get coverage from an employer – in fact, he’d completely break the link between the tax break and employment.

That tax break is behind much of the inefficiency and inequity in America’s health care sector.  It encourages almost 200 million Americans to behave irresponsibly, which increases the cost of health care for themselves and everyone else.  Economists on the left and right have argued for limiting or eliminating it for decades.  The last president to propose such a limit was named Reagan.

It’s going to be a tough sell, of course.  The administration estimates that 20 percent of covered workers would face a higher tax burden, and those workers probably will object that their taxes would increase.  The fact that reducing government influence over people’s decisions is effectively a tax cut is a much harder point for most people to grasp.  Other opponents will scream that the proposal would destroy employer-based health insurance.  What those opponents actually mean, however, is that they don’t think workers should be free to choose where they purchase their health insurance.

I have criticisms of the proposal, too.  For example, I think we should do more to give workers ownership over the money that employers currently spend on health benefits.  (Mike Tanner and I lay out one way to do so in Healthy Competition: What’s Holding Back Health Care and How to Free It.)  Unless workers own those dollars, they might have to take a pay cut to exercise their new freedom to choose, which doesn’t seem like freedom at all.

Important details are still missing – details that will determine how helpful, complicated, and politically feasible the proposal will be.  I’ll withhold final judgment until I see the final product.  But at this point, it appears that President Bush is the only prominent politician who is taking health care reform seriously.

Two Reasons Why an Individual Mandate Will Not Solve the Free-Rider Problem

The idea that government should compel people to purchase health insurance is gaining traction among Republicans and Democrats.  The idea is called an “individual mandate,” because it would require individuals to purchase coverage (as opposed to a mandate that requires employers to provide coverage to their workers).  Former Massachusetts Gov. Mitt Romney (R) put that idea into effect in the Bay State.  California Gov. Arnold Schwarzenegger proposes to do so in the Golden State.  A number of other states are considering it.

What makes the idea attractive is the fact that many people obtain health care but don’t pay for it.  Unless health care providers can (1) collect from, (2) avoid, or (3) deny care to those people (which in many cases is illegal), the costs must fall on someone else.  Thus, the reasoning goes, decreeing that everyone must obtain health insurance would solve that “free-rider” problem.

But there are two important reasons why it will not:

  1. There would still be people without health insurance.  Many will not obey the decree.  California mandates that all drivers must carry auto insurance, yet according to the Insurance Research Council, 25 percent of California motorists are uninsured.  In fact, the share of uninsured motorists is higher than the share of residents without health insurance (18 percent).  Even with a mandate, there will be uninsured people who free-ride at others’ expense.
  2. Free-riding by people with health insurance.  According to research by the Urban Institute’s Jack Hadley and John Holahan, people who have health coverage account for at least 30 percent of uncompensated care delivered to the non-elderly.  Since uncompensated care accounts for just 4 percent of health spending, a mandate could affect at most 2.8 percent of spending.

So an individual mandate could solve at most two-thirds of a very small problem, but chances are it would do even less good than that.

That small benefit must be balanced against the costs.  According to The New Republic’s Jonathan Cohn, who is generally sympathetic, “individual mandates … require substantial government intervention in the free market.”  Government must monitor yet one more aspect of the citizens’ lives.  It must define what qualifies as health insurance, which is an invitation to the sort of special-interest rent-seeking that has made health insurance unaffordable for so many.  It must tax some citizens to subsidize those who cannot afford coverage.  A final cost of such mandates is that rather than solve the much larger problem of moral hazard, they actually make that problem worse. 

An individual mandate would not fix our broken health care system.  It would simply pump more money into that system. 

What is interesting, then, is this.  Journalists and left-ish policy wonks explode when special interests try to line their own pockets by supporting, say, ineffective weapons systems.  But where is the outrage when this or that group seeks to do the same thing with ineffective health care proposals?

NEJM Reviews Medicare Meets Mephistopheles

This week’s issue of the New England Journal of Medicine carries a review of the Cato Institute’s latest health care book, Medicare Meets Mephistopheles by Cato adjunct scholar David A. Hyman. Reviewer Peter Jacobson of the University of Michigan School of Public Health writes:

Hyman’s bracing critique reflects the fact that neither Medicare’s problems nor the ascendancy of market-based approaches to solving them can be ignored any longer.

Medicare Meets Mephistopheles provides a good starting point for free-market advocates who are serious about preventing the federal government from imposing price controls on prescription drugs, or otherwise stealing from future generations.

Identity Crisis Book Forum Thursday at Cato

On Thursday, the Cato Institute is having a book forum on my book Identity Crisis: How Identification is Overused and Misunderstood.

Commenting on my presentation of the book will be James Lewis from the Center for Strategic and International Studies and Jay Stanley from the ACLU.

The REAL ID Act is under siege from state leaders who are bridling at this unfunded surveillance mandate, and legislation was introduced at the end of the 109th Congress to repeal REAL ID. But the immigration debate this year will surely fuel the push for a national ID with the demand for “internal enforcement” of immigration law. Identity Crisis lays the groundwork for all these discussions.

The event is streamed for those not in the area. To register, go here.