Topic: General

Yes, Aid Fuels Tuition Inflation

At this point, I think I’ve said all I need to about the doubling of interest rates on subsidized federal student loans. Basically, the doubling won’t have a big impact one way or another, but putting a little more payment burden on the students consuming higher education is probably a good thing. Why? Because cheap aid encourages students to demand stuff they otherwise wouldn’t, and enables colleges to raise their prices at excessive rates.

That said, since the nation will likely be talking about student aid for a while longer, now is probably a good time to reprint – and expand – the list of empirical studies that have, in one way or another, found that schools in large part capture aid money rather than becoming more affordable. The list probably isn’t exhaustive, and there are many limitations that make it impossible to prove that aid fuels inflation, but combined with the logic that you’ll willingly pay more if you have someone else’s money, these studies show that there is very good reason to conclude that aid is counterproductive:

John D. Singell, Jr., and Joe A. Stone, “For Whom the Pell Tolls: The Response of University Tuition to Federal Grants-in-Aid,” Economics of Education Review 26, no. 3 (2006): 285-95.

Bridget Terry Long, “How Do Financial Aid Policies Affect Colleges? The Institutional Impact of Georgia Hope Scholarships,” Journal of Human Resources 30, no. 4 (2004): 1045-66.

Bradley A. Curs and Luciana Dar, “Do Institutions Respond Assymetrically to Changes in State Need- and Merit-Based Aid? ” Working Paper, November 1, 2010.

Rebecca J. Acosta, “How Do Colleges Respond to Changes in Federal Student Aid,” Working Paper, October 2001.

Michael Rizzo and Ronald G. Ehrenberg, “Resident and Nonresident Tuition and Enrollment at Flagship State Universities,” in College Choices: The Economics of Where to Go, When to Go, and How to Pay for It, edited by Caroline M. Hoxby, (Chicago, IL: University of Chicago Press, 2004).

Nicholas Turner, “Who Benefits from Student Aid? The Economic Incidence of Tax-Based Federal Student Aid,Economics of Education Review 31, no. 4 (2012): 463-81.

Stephanie Riegg Cellini and Claudia Goldin, “Does Federal Student Aid Raise Tuition? New Evidence on For-Profit Colleges,” NBER Working Paper No. 17827, February 2012.

Lesley J. Turner, “The Incidence of Student Financial Aid: Evidence from the Pell Grant Program,” Columbia University, April 2012.

 

 

You’ve Come a Long Way, Baby: Barack Obama on Health Care Fraud

Last week, President Obama approved a one-year, unilateral (and thus illegalrepeal of ObamaCare’s requirements that the federal government verify the incomes and insurance options of people applying for the law’s new subsidies—a move that eviscerated the law’s anti-fraud protections. Rescinding anti-fraud protections is nothing new (or defensible). There is a very powerful fraud lobby in Washington, D.C. Normally, such steps just mean an increase in fraudulent and improper payments from the federal treasury, and a few more ignored reports from the Government Accountability Office and HHS Inspector General. Obama’s move, however, is so sweeping that he effectively expanded the eligibility criteria for ObamaCare’s new entitlements without so much as consulting Congress. Indeed, the law Obama is implementing did not and could not have passed Congress.

Barack Obama wasn’t always part of the health-care fraud lobby. Oh, no: time was, he railed against health care fraud. When he pleaded for his health care plan before a joint session of Congress in 2009, he promised that with his plan:

We will root out the waste and fraud and abuse in our Medicare program that doesn’t make our seniors any healthier…I’ve appointed a proven and aggressive inspector general to ferret out any and all cases of waste and fraud.

Any and all cases! So inspiring. And in his final push for ObamaCare’s passage, he promised the law would reduce fraud and improper payments. Here are excerpts from a strident speech he gave in Missouri on March 10, 2010:

I believe that in everything government does, we’ve got a special responsibility to be wise stewards about how Americans’ hard-earned tax dollars are spent. And I know you agree with that, too. Doesn’t matter whether you’re a Democrat or a Republican, you don’t like seeing your money wasted — or an independent, don’t like seeing your money wasted.

That’s a responsibility my administration is seeking to fulfill every single day…

Washington is a place where tax dollars are often treated like Monopoly money — they’re bartered and traded, and they’re divvied up among lobbyists and special interests, and where waste — even billions of dollars of waste — is accepted as the price of doing business…

The health care system has billions of dollars that should go to patient care and they’re lost each and every year to fraud, to abuse, to massive subsidies that line the pockets of the insurance industry.

Let me just give you one example — this is a long recognized but long tolerated problem called “improper payments.” That’s what they call them. Washington always has a name for these things. “Improper payments.” And as is often the case in Washington, the more innocuous the name, the more worried you should be. So these are payments mostly made through Medicare and Medicaid that are sent to the wrong person, sent for the wrong reason, sent in the wrong amount. Sometimes they’re innocent errors. Sometimes they’re because nobody is bothering to check to see where the money is going and they’re abused by scam artists and fly-by-night operations…

If we created a “Department of Improper Payments” it would be one of the largest agencies in our government…

Now, for the past few years, there has actually been a pilot program that uses a system of tough audits to recover some of this lost money. And even though these audits, they were just operating mainly in three states, they already found a billion dollars in improper payments. So these results were both disturbing and encouraging. They’re disturbing because it shows you how much waste there is out there in the health care system. But it’s encouraging because we can do something about it.

So earlier today, with [U.S. Sen.] Claire [McCaskill, D-Mo.] looking over my shoulder — one of our auditors-in-chief — I signed an order calling on all federal agencies to launch these kinds of audits all across the country. All across the country. (Applause.) So agencies would hire auditors to scour the books, go through things line by line. Auditors are paid based on how many abuses or errors they uncover. So it’s a win-win. The auditor, if they do a good job they get a small percentage as a reward. And the taxpayer wins by getting huge sums of money that would otherwise be lost that we can then spend to provide care to people who really need it, or we can use to reduce the deficit.

Now, through this effort, we expect to more than double the amounts we would’ve otherwise recovered — a couple of billion dollars over the next few years. And I’m announcing my support for the Improper Payments Elimination and Recovery Act — that’s a mouthful — but this is a bipartisan bill — (applause) — is a bipartisan bill to expand our ability to do these audits, so we can prevent even more fraud and abuse and waste.

Now, the reason I’m bringing all this stuff up is because there’s been a lot of talk about health care lately. And look, I’ll be honest, a lot of people, they’re confused, they’re saying, well, how can you help people get insurance who don’t have it without it adding to our deficit? It’s a legitimate question.

Well, the reason is, is because so much of the money currently in our health care system is being misspent.

Barack Obama used to oppose health care fraud—up until the moment that opposing fraud conflicted with his goal of preserving ObamaCare.

And why not? It’s just other people’s money.

Mirror, Mirror, on the Wall, Which Nation Is in the Deepest Fiscal Doo-Doo of All?

According to the Bank for International Settlements, the United States has a terrible long-run fiscal outlook. Assuming we don’t implement genuine entitlement reform, the only countries in worse shape are the United Kingdom and Japan.

The Organization for Economic Cooperation and Development, meanwhile, also has a grim fiscal outlook for America. According to their numbers, the only nations in worse shape are New Zealand and Japan.

But I’ve never been happy with these BIS and OECD numbers because they focus on deficits, debt, and fiscal balance. Those are important indicators, of course, but they’re best viewed as symptoms.

The underlying problem is that the burden of government spending is too high. And what the BIS and OECD numbers are really showing is that the public sector is going to get even bigger in coming decades, largely because of aging populations. Unfortunately, you have to read between the lines to understand what’s really happening.

But now I’ve stumbled across some IMF data that presents the long-run fiscal outlook in a more logical fashion. As you can see from this graph (taken from this publication), they show the expected rise in age-related spending on the vertical axis and the amount of needed fiscal adjustment on the horizontal axis.

In other words, you don’t want your nation to be in the upper-right quadrant, but that’s exactly where you can find the United States.

IMF Future Spending-Adjustment Needs

Yes, Japan needs more fiscal adjustment. Yes, the burden of government spending will expand by a larger amount in Belgium. But America combines the worst of both worlds in a depressingly impressive fashion.

So thanks to FDR, LBJ, Nixon, Bush, Obama and others for helping to create and expand the welfare state. They’ve managed to put the United States in a worse long-run position than Greece, Italy, Spain, Portugal, France, and other failing welfare states.

Immigration Illusions Part Two: Rector and Richwine Rediscover Budget Deficits

A recent paper by Robert Rector and Jason Richwine  (“The Fiscal Cost of Unlawful Immigrants and Amnesty to the U.S. Taxpayer”) went to a lot of unnecessary trouble to estimate that governments at all levels spent $54.5 billion more on services and benefits to households headed by unlawful immigrants (which includes children and spouses who are citizens) than was collected in taxes from them in 2010.  

It is hardly shocking to learn that federal, state, and local governments spent more on unlawful immigrants than they received in taxes, since governments spent more on nearly everyone than they received in taxes. That is what happens when governments run big budget deficits.  

Spending by federal state and local governments exceeded revenues by $1,342.6 billion in 2010—a conspicuously grander figure than the mere $54.5 billion Rector and Richwine attribute to unlawful immigration.  

For researchers to discover that unlawful immigrants, like most of us, did not pay enough taxes in 2010 to cover government spending was remarkably unenlightening. The paper is even less informative about the future, because (1) it ignores the fact that the Senate bill’s reduced restrictions on legal immigration would reduce the incentive for future illegal immigration, and (2) it ignores economic effects of a larger labor force in raising long-run economic growth

A Great Year for Cato at the Supreme Court

The Supreme Court’s term is over, with 75 cases having been argued and decided. It’s safe to say that the most significant ones were those decided this week, on the politically fraught subjects of affirmative action, the Voting Rights Act and gay marriage. I’m extremely proud that Cato was on the winning side of each of these issues. In fact, we were the only organization to file briefs supporting the challengers on each one (Fisher v. UT-AustinShelby County v. Holder, Windsor v. United States Perry v. Hollingsworth).

That says a lot. Not that the Supreme Court always takes its guidance from us – would that it were so! – but that we’re consistent in embracing the Constitution’s structural and rights-based protections for individual freedom and self-governance. It’s gratifying that the Supreme Court saw it our way in those “big” cases, even if Fisher was an extremely narrow decision and the others were all 5-4.

But that’s not all. After finishing my commentary on Windsor and Perry last night, I was curious to see how we did overall, beyond the high-profile cases. It turns out that we went 15-3 on the year. That is, looking purely at briefs we filed on the merits – you can see our record on briefs supporting cert petitions here – the Supreme Court ruled our way 15 times and against us three (and I can assure you that we don’t pick cases strategically to inflate our winning percentage. (I don’t count Perry in either column, by the way. While we ended up with a favorable result, Prop 8 struck down, the Court decided the case on standing grounds, incorrectly in my view).

Again, I’m not claiming that the Court was heavily influenced by briefs with Cato’s (or my) name on them – there’s just no way to know, and even briefs that are cited may be less influential than others – but many, many of these decisions track our thinking. That’s also gratifying, regardless of how the justices reached their conclusions.  

For the record, here’s the list of cases in which we filed this term (in order of argument):

Winning side (15): Kiobel v. Royal Dutch PetroleumArkansas Game & Fish Commission v. United States, Fisher v. UT-Austin, Florida v. Jardines, Bailey v. United States, Comcast v. Behrend, The Standard Fire Insurance Co. v. Knowles, Gabelli v. SEC, Koontz v. St. Johns River Water Management DistrictPPL Corp. v. IRSShelby County v. Holder, Horne v. U.S. Dept. of Agriculture, Windsor v. United StatesAID v. AOSISekhar v. United States

Losing side (3): City of Arlington v. FCCSalinas v. TexasUnited States v. Kebodeaux

My colleague Walter Olson has already compared our record to the greatest sports teams of all time, as well as what I consider to be the most dominate year by a baseball player, Sandy Koufax in 1963 (who went 25-5 and was the regular season and World Series MVP). I just wish that The Man With the Golden Arm could have had as long a career as Cato’s amicus brief program.

Ed Sec to Media: Get Those Common Core Critics!

In a bid to prove that Washington never tried to strong-arm states into adopting the Common Core, yesterday U.S. Secretary of Education Arne Duncan told the American Society of News Editors that the media had better start attacking “fringe,” “misinformed,” Core opponents and their arguments.

Think about that for a moment.

Yup, seems like a self-defeating tactic to me, too. But it’s not the first time the secretary has launched into attack mode to show that Washington would never – ever! – get pushy on education.

Now, despite my fatigue with constantly debunking Core supporters on federal coercion, I was prepared to do a huge dismantling of Duncan’s speech. Thankfully, both for the public and my workload, one of those media types whom Duncan implied hasn’t been doing her job – Michele McNeil of Education Week – was, indeed, inspired to do some fact-checking by Duncan. Too bad for the secretary, it was on his claims. Among McNeil’s offerings:

  • “On a grading scale of 500 points, Duncan said adopting common standards and assessments was worth relatively little. ‘Did the points, and the dollars, matter to the states? Undoubtedly. But it’s not the only reason or even the most important reason why states adopted the Common Core,’ he said. In fact, adopting and implementing common standards and assessments was worth 50 points, or 10 percent. That’s the same amount of points allotted to a state’s plan for turning around low-performing schools. In a contest in which only a few points separated winners from losers, those points mattered—a lot. And it likely spurred states to actually adopt the standards; the first state adopted them in February 2010.”

Time to End the Farmers’ Dole

Last week Washington enjoyed a miracle. Legislators failed in a high profile attempt to mulct the public.

Legislators were debating the Farm Bill, which mixes Food Stamps and agricultural price supports. Even though Washington is drowning in red ink, Republicans and Democrats wanted to approve a measure to spend nearly a trillion dollars over the next decade. 

The Democrats and Republicans disagreed only over details. The Democratic Senate approved $955 billion. The House Republican leadership wanted $940 billion. The president took no position other than to support more spending. 

However, last Thursday the House leadership miscalculated and lost support from Democrats as well as conservative Republicans, leading to the bill’s surprise defeat.

Of course, Washington was filled with recriminations. But the collapse of the legislation is very good news. As I pointed out in my latest Forbes column, the politicians’ failure creates a rare opportunity for real change. 

Indeed, both parts of the Farm Bill require transformation.

As I wrote:

The first step would be to separate Food Stamps from price supports. Debate the former in the context of the scores of overlapping and expensive welfare programs. Indeed, the Carleson Center for Public Policy recently counted an astounding 157 means-tested federal programs. Total government spending on general welfare runs about $1 trillion a year. It’s time Congress rethought and revamped the entire welfare industry.

As for the farmers’ dole, abolition is the only sensible policy. New Zealand successfully took this approach in 1984. 

Farmers are practiced businessmen who employ sophisticated scientific techniques to produce food and sophisticated financial tools to manage risk. Farmers are enjoying boom economic times. Wealthier on average than other Americans, farmer don’t need their own special welfare program.  Indeed, many operators already make a profit with little or no federal support. 

It is rare to stop the two major parties when they combine for a raid on the taxpayers. The task now is to make their defeat permanent. In recent years Americans have deregulated communications, finance, and transportation. Agriculture should be next.

Read the rest here.