Topic: General

Uncle Sam Wants to Sell You a Latte

In a college town like Madison, Wisconsin, I suspect you can’t throw a copy of Das Kapital without hitting a coffee shop or a drum circle.  But the federal government insists upon subsidizing that city’s grandé mocha makers.  (It hasn’t found a way to subsidize the drum circles … yet.)

First, some background:  Every year, the federal government socks taxpayer money into the Community Development Block Grant program.  According to the program’s website, the goal is to encourage “viable urban communities” and expand “economic opportunities” across the nation and, in particular, within “entitled communities.”   

This is done by funneling loan guarantees and direct grants to local businesses.  It’s considered a form of “economic development.”  Or, to translate from bureaucratese into plain English, it’s a form of grass-roots corporate welfare.   

In 2004 the CDBG program funded loan guarantees for projects such as the Tempe Market Place project in Arizona (described as “a retail facility anchored by six nationally known retailers”) to the tune of $7 million.  It gave guarantees in the amount of $1.9 million to the Noah Hotel project in Kingston, New York, to build a 50-room “boutique hotel,” with a 16,500-square foot ballroom, a restaurant, meeting rooms, and commercial retail space.  $2.5 million went to a downtown parking garage in Watsonville, California, and $2.2 million to the redevelopment of the 427-acre Colorado Industrial Park in Lorain, Ohio.

Now back to Madison, Wisconsin.  As the Mercatus Center’s Eileen Norcross explained today in testimony to Congress, last year the feds spent roughly $1.5 million on loan guarantees to help underwrite two coffee shops, a bakery, and a restaurant in that city, just to name a few. 

How do the HUD managers justify this sort of thing?  They claim the money helps “create” jobs for low- and middle-income residents.  And who do those residents happen to be?  As Norcross notes, they are college students who are classified as below the poverty line because the money they receive from their parents while attending school in Madison doesn’t count as income. 

So, if you’re a local business owner it sounds like a pretty good deal, eh?  Now you can open your doors in a college town and get loan guarantees from the government to hire the kind of employee (read: college students) you would have probably hired anyway.

Many members of Congress will ask, “How can we fix this program?”  Only a handful – including Sen. Tom Coburn of Oklahoma, the head of the subcommittee that held the hearing on CDBG this afternoon – ever ask, “Why do we even fund this stuff in the first place?” 

Are We Reading the Same Report?

I have to disagree with Arnold Kling’s surprisingly upbeat assessment of the draft report from the Secretary of Education’s higher education commission. While some of the recommendations he likes may be tolerable in an ideal world, it’s critical to remember that we’re talking about politics here.

First, Arnold applauds the report’s call for colleges to improve data collection on student persistence in order to help inform prospective students and parents. That’s fine, and I would encourage consumers to avoid schools that wouldn’t furnish such information. Unfortunately, it’s not supply and demand that the report says should make schools publish the data. It’s government:

Federal and state policy should focus on improving persistence and sealing the leaks in the educational pipeline at all levels: K-12, post-secondary and workforce education. Colleges should be held accountable for the success of the students they admit. Improved collection of data on student persistence will allow consumers of higher education to evaluate institutional success and identify best practices.

What a terrific tool for government control! Once they collect persistence data, opportunistic politicians can declare that schools must graduate very large percentages of their students in order to receive government funds. If grade inflation seems bad now…

Next, Arnold blesses the report’s recommendation that states and schools “review and revise” their credit transfer policies. Again, this is a fine thing for consumers to require, but if government mandates it, credit transfer policies will end up being based on political calculations, not academic merits.

The same problem applies to Arnold’s next point, in which he supports reorienting student aid from “broad-based” to “need-based.” That sounds good at first, but the reality is that in order to build enough political support to give more aid to the “needy,” politicians will define “needy” to include almost everyone. Just look at the current system, which directs oodles of cash to aid programs in the name of the poor, yet somehow always ends up putting a bunch of it in the hands of upper-middle-class kids.

Finally, Arnold approves of the recommendation that all 50 states encourage “the collection of data allowing meaningful interstate comparison of student learning.”

Now, I’m not so sure I want state governments encouraging colleges to implement standards and testing regimes, which is what this would ultimately require. I’m positive, though, that I don’t want the feds doing it, because federal “encouragement” invariably leads to federal “control.” Just look at elementary and secondary education, where the No Child Left Behind Act has given Washington unprecedented control over local schools.

Harvard, Princeton, and Yale, say hello to NCLB:

The federal government should provide incentives for states, higher education associations, systems, and institutions to develop outcomes-focused accountability systems designed to be accessible and useful for students, policy makers, and the public….

In the end, like Arnold, I encourage people to read the Commission’s draft report for themselves and reach their own conclusions. As far as I’m concerned, though, one recommendation alone completely sums up the report’s frightening, command-economy thrust:

The Secretary of Education should take the lead in developing a national strategy to keep the U.S. at the forefront of the knowledge revolution, creating a system that encourages knowledge and skills to be obtained and continuously updated on a regular basis through a lifetime of learning.

I don’t know about anyone else, but that sounds like a bad thing to me.

If It Tastes Good, It’s Evil

This Washington Post op-ed from career Nanny Statists Joe Califano and Louis Sullivan reads like your standard public health talking points:  Unless adult-oriented products taste nasty, bitter, and disgusting, the companies who manufacture them will forever be accused of “marketing to children.”

Here’s my favorite part:

Buoyed by its success in pushing candy-flavored cigarettes, Reynolds has now introduced alcohol-flavored smokes. To make them appealing to our kids, Reynolds has marketed them with names based on gambling lingo as well: ScrewDriver Slots, BlackJack Gin, Snake Eyes Scotch and Back Alley Blend (a bourbon-flavored cigarette).

Color me befuddled.  So R.J. Reynolds is guilty of preying on kids because it’s marketing cigarettes (which can only be purchased by people over 18) that taste like alcohol (which can only be purchased by people over 21) with gambling-themed names (only people over 18–and 21, in some states–are permitted to gamble)?

Everything about these products is adult-oriented!  Yet for Califano and Sullivan, this is evidence that R.J. Reynolds is targeting youngsters.

Topics:

Medicare Part D: Who Is the Main Constituency?

Watson Wyatt Worldwide has just released a survey showing – again – that Medicare Part D’s employer subsidies and the availability of the new stand-alone drug plans are bailing out employers who can no longer deliver on their promises to retirees:

Despite widespread use of the Medicare federal subsidy, a vast majority of employers are planning to curtail their retiree medical plans for current and future retirees in the next five years…

Fourteen percent of employers plan to eliminate the benefit entirely for future post-65 retirees and 6 percent plan to eliminate it for their current post-65 retirees…

The lesson from the Pension Benefits Guarantee Corporation and other corporate bailouts could not be more clear: if government lets corporations escape the costs of making promises they can’t keep, we’ll get more corporations making promises they can’t keep.

FCC Fading into Irrelevancy

A fun news item for free-marketers who enjoy watching technology make government regulation (and justification for regulation) obsolete: Today’s Washington Post reports that the Internet has so altered media conglomerates’ business models as to make the Federal Communications Commission’s broadcast media ownership limits irrelevant.

Few people know that the FCC has strict rules limiting broadcast media firms’ ownership of various outlets in both local and national markets. A firm that owns TV stations is barred from owning enough stations to broadcast to a majority of the U.S. population, and a firm that owns the largest newspaper in a local market cannot also own the most-watched TV station in that market.

Michael Powell’s FCC tried to relax those rules in 2003, and with good reason. But the courts and Congress stamped out that effort. As the WP explains, media firms have subsequently taken a second look at Internet communications, shaking off Time Warner’s bad experience with AOL and Disney’s with the go.com network.

The result? According to the WP, media firms are finding so many profitable outlets on the Internet that they’re hardly interested in Congress’s and the FCC’s new receptiveness to the idea of relaxing the ownership rules.

Another Look at the Higher Ed Blueprint

I was prepared to share Neal McCluskey’s outrage at the Secretary of Education’s Commission on the Future of Higher Education preliminary draft report, but then I followed the link, and I have a different take.  I’d give the report at least a B+. Of course, this sort of report this late in a President’s term is almost sure to be nothing but a dust collector regardless of what it says. But let me point out some of the good points.

Colleges should be held accountable for the success of the students they admit. Improved collection of data on student persistence will allow consumers of higher education to evaluate institutional success and identify best practices.

Good idea. Before you send your kid to a college, know whether the kid is likely to graduate.

States and institutions should review and revise standards for transfer of credit among higher education institutions to improve quality and reduce time-to-goal.

Another good idea. When the University of Maryland balked at giving my daughter credit for calculus she took at the University of Rochester, I was flabbergasted.

The present financial aid system should be replaced with a strategically oriented, results-driven consolidation of programs to serve students who need aid in order to attend college.

Again, a good idea. Need-based aid instead of broad-based aid.

At the state level, one promising approach that should be encouraged is placing increased emphasis on empowering consumers by redirecting assistance to individual students instead of institutions. The same effect could occur with a well designed expansion of the Pell Grant program.

This is a very powerful idea. Give the money to the education consumers instead of the rent-seekers.

The collection of data allowing meaningful interstate comparison of student learning should be encouraged and expanded to all 50 states. By using assessments of adult literacy, tests that many students already take for licensure and for graduate and professional school admission, and specially administered tests of general intellectual skills such as the Collegiate Learning Assessment, state policymakers can make valid interstate comparisons of student learning and identify shortcomings as well as best practices.

As a parent about to help a third child choose a college, I really resent the lack of hard data on college effectiveness. It is tempting to shop on the basis of price, because we have no objective measure of quality.

Overall, this report says government should do more things that are relatively good, such as gather useful data, direct funds to needy consumers, and examine ways to encourage more entry and competition (which is why the issue of accreditation needs to be opened up–it’s a strong cartel-enforcement tool). It also says, if perhaps more implicitly than one might like, that government should do fewer things that are relatively bad, such as throw money at institutions.

I guess the bottom line is, don’t take my opinion or Neal’s opinion as gospel. If you think that the report matters (and again, I have my doubts), then read the draft yourself.

Do Student Debtors Need to Grow Up?

With the deadline nearing to consolidate federal student loans before their interest rates rise to reflect overall lending rates, media sob stories about student debt keep on coming….and getting harder to take.

A CBS News report last night that profiled two engaged medical school students was all too typical.

“Jason DeBonis and Katrina Lust can use any breaks they can find,” reporter Randall Pinkston intoned at the outset of the story. “The two medical students are young and in love. They plan to marry in May. Their wedding gift to each other: a combined total of nearly $500,000 in student loans.”

Ouch! $500,000 – that certainly seems like a terrible wedding present. That is, until you see what the doctors-to-be will be getting for that $500,000, which, of course, CBS News didn’t report.

According to the federal Bureau of Labor Statistics (BLS), in 2004 the average family practice doctor with less than two years experience in that specialty – the lowest paid doctor on the BLS list – made $137,119. The average doctor with the same experience in the highest paid specialty, anesthesiology, made $259,948.

Now, assume that both students in the CBS News report become family practice doctors, and for thirty years make the lowest yearly income listed by the BLS. That’s unrealistic, of course, but let’s be conservative. All told, they would make $8,227,140, a profit of more than $7.7 million after debt!

So what’s the problem? According to one of the medical students, this is:

“It makes me upset that I have to maybe not do what I want to do because I won’t be able to pay my bills at the end of the month.”

How sad. Apparently, in order to become a doctor and make her multi-million dollar profit, this medical student might actually have to give up some other things she would like to do. Reality bites: She has to make trade-offs between different things she wants just like everyone else!

An even more galling complaint about student debt in the story was offered by Anya Kamenetz, perhaps the foremost spokesperson for young people who feel unfairly put-upon because they’ve been asked to pay for part of their own education. “When you’re not standing on your own two feet, when you’re still accepting help from mom and dad, when you still can’t pay the bills, when you’re still struggling to stay out from under debt, you don’t feel like an adult,” she complained.

So this is what it comes down to: No matter how big its payoff, student debt is unfair because it keeps students from getting everything they want, and makes it harder for them to feel grown up.

What two more childish reasons could there be for crying about student loans?