Social Security Is Running a Surplus…Oops

For years, opponents of Social Security reform have told us that there is no need to rush into changing the program because, after all, Social Security is running a surplus today. Well, according to a new report by the Congressional Budget Office, not so much.

CBO reports that the Social Security surplus, originally expected to be $80-90 billion this year and next will shrink to $16 billion this year and just $3 billion next year (essentially a rounding error) as a result of the recession and rising unemployment. And those estimates may be far too optimistic. In February of this year, for example, Social Security actually ran a deficit—spending more than it took in through taxes and interest combined.

And, while CBO expects a return to modest surpluses after 2010, as the recession ends and unemployment falls, that is betting on the success of the unproven Obama economic program. If unemployment stays at current levels, Social Security will begin running permanent cash flow deficits in 2011 (eight years earlier than previously predicted).

Opponents of personal accounts have pointed out recent declines in the stock market as a reason why private investment should no longer be considered an option for Social Security reform. The evidence suggests that, even with recent market declines, private investment would still produce higher returns than Social Security. The new surplus numbers provide yet another lesson: if the economy is in such a mess that it hurts private investment, traditional Social Security isn’t going to be in any better shape.

The case for personal accounts remains as strong as ever.

Topics:

Conservatives, Public Schools, and Pedagogy

I’ve received a fair bit of e-mail in response to my commentary yesterday on the recent defunding of the Bush administration’s Reading First program. Several people questioned my assertion that the program failed to yield a significant nationwide improvement in literacy. I cited a 2008 federal government report in support of that assertion, but questions were raised as to the validity of that study and other research seeming to contradict it was presented.

Taking the latter point first, it was pointed out that an EDS study of California found a positive impact to the program, as did an NWREL study of 5 other Western states. Note that there is not necessarily any contradiction between the federal study and the California and Western states studies. It’s possible that, nationwide, Reading First was associated with academic improvements in some schools, no effect in others, and lower performance in still others, resulting in the overall lack of impact reported by the federal government study. If so, it could be that schools in which Reading First proved effective are unevenly distributed around the country, and happen to be concentrated in the West.

Another possibility is that the federal study was so flawed that it failed to find a significant positive effect to Reading First when there actually was one. For the sake of argument, let’s say that this is true and that Reading First is actually working, overall, at improving student literacy nationwide. If so, what confidence should we have that it would continue to be effectively implemented in the long term, and not displaced by something else, or altered so as to become ineffective?

The answer is: not much. As I’ve noted in the case of the Follow Through experiment of the 60s and 70s, which is typical, even when a proven method is adopted in public school classrooms and yields great success it tends to be discarded for one reason or another. Since nothing fundamental has changed in the incentive structure of public schooling since the 1970s, there is no reason to believe that Reading First would buck the trend and somehow survive in perpetutity.

But all of this is of course academic, because Congress has already defunded the program. Democrats were not interested in continuing to evaluate the program to make absolutely sure of its impact. They killed it almost immediately because it is a traditionalist pedgaogical program that appeals to conservatives rather than “progressives.”

And that was the second point of my commentary: even when effective methods are implemented in public schools they remain subject to the inconstant winds of politics. If you want to find fields where better methods roiutinely displace worse ones rather than vice versa, you have to look to the free enterprise sector of the economy. Without the freedoms and incentives of the marketplace, stagnation and declining productivity are the norm. Education is no different in this regard from any other field.

And just to be clear, I am convinced by the earlier research that the pedagogical ideas behind Reading First are sound, and that when properly implemented its systematic use of phonics is superior to most of what it would have displaced. I’m simply pointing out that there was never good reason to expect a government-protected monopoly consistently implement it effecitvely, and that even if it did for some period of time Reading First would eventually have fallen victim to shifting political winds. While some may choose to disagree on the first point, the second has already come to pass.

If we want schools around the country to continually adopt and refine the best methods available, we must create the freedoms and incentives that will cause that to happen… or get used to disappointment.

So Much for the Promise of Financial Transparency

President Barack Obama promised transparency and accountability for how the federal government spends the trillions – or is it quadrillions (I’ve lost count)? – in bail-out money, stimulus outlays, and expanded government programs.  Alas, his administration doesn’t seem interested in living up to his promises.

Reports ABC News:

The watchdog for the Troubled Asset Relief Program, the government’s financial rescue plan, said today that the Treasury Department has not been cooperating with oversight efforts up to this point.

“We do not seem to be a priority for the Treasury Department,” the Congressional Oversight Panel’s Elizabeth Warren told a Senate Finance Committee hearing today.

“We have sent letters. We have requested that there be someone named so that we can get technical information. And so far, we have not been a first priority,” Warren said. “We use what you give us, and we will exercise the leverage given to us by Congress. In part, that’s why I’m here today. I’m here to talk to you about what’s happened so far, what we have discovered so far, the inquiries that we have in mid-stream and for which we continue to await responses.”

Warren, visibly frustrated with a lack of cooperation from the administration, emphasized, “This problem starts with Treasury.”

Obviously, this isn’t the first time that a presidential commitment has gone aglimmering.  But given the extraordinary opportunity for pervasive waste, fraud, and abuse in the tsunami of new federal spending, few presidential commitments have been as important.

New York’s ‘Not Austere’ Budget

“Not Austere” is how the New York Times is describing the state’s $131.8 billion budget for 2009-2010.  As a colleague pointed out to me, “how bad does a budget have to be for the New York Times to call it ‘not austere’?”  Apparently, pretty bad.

In addition to an estimated $7 billion in tax and fee increases, total state spending would increase almost 9% when federal “stimulus” money is included.  Supporters dismiss the inclusion of bailout money in the totals, but for those who think the “temporary” federal bailout money won’t foster otherwise higher state spending going forward, I’ve got a lot for sale in Poughkeepsie.

The Albany Times-Union reported that Gov. Paterson cited public employee labor contracts as a reason for the budget increase.  Once again, the needs of the productive class (i.e., taxpayers) take a back seat to the bureaucratic class living at their expense.  Of course, New York’s policymakers were also able to find money for critical expenditures on “gun clubs, churches, a yoga foundation and the Wantagh American Legion Pipe Band, among thousands of other projects.”

The biggest tax increase is a surcharge on personal income taxes paid by “the wealthy” that is supposed to net state coffers $4 billion.  (Note to New York personal income tax payers: New Hampshire doesn’t have one.)  But other tax increases will hit all walks of New York life including an increased assessment on utilities, a motor vehicle registration fee increase of 25 percent, an increase in driver’s license fees of 25 percent, increased taxes on beer and wine, a tax increase on auto rentals of 1 percent, and possibly the most insulting – a new $100 fee on tax preparers (guess who’s going to ultimately pay that one?).

‘Health Status Insurance’ Provides Real Alternative to Universal Care

So screams the headline of John Cochrane’s oped in today’s Investor’s Business Daily.  An excerpt:

Markets can provide long-term, secure health insurance while enhancing choice and competition. Given the chance, they will…

This is not pie in the sky. The market for individual health insurance is already innovating to provide better long-term insurance. Well before it was required by law, insurance companies started offering “guaranteed renewable” policies.

Once you buy in, you have the right to continue coverage even if you get sick, and your premiums do not rise if you get sick.

UnitedHealth Group recently announced a product that gives customers the right to buy medical insurance in the future, at a premium that depends only on their current health status.

For a small premium, you can protect yourself against the risk that your health premiums will escalate. This is only a small step away from full health-status insurance.

The oped is based on Cochrane’s recent Cato policy analysis, “Health-Status Insurance: How Markets Can Provide Health Security.”

You can also hear Cochrane and Johns Hopkins University health economist Brad Herring discussing health-status insurance at this Cato policy forum, held today.

Shuffle, Shuffle, Shuffle…

This morning I attended a federal student aid event at the New America Foundation. The big topic? Not the effect of aid on out-of-control college prices, by far the most important concern from the contexts of economic growth, affordability, fairness to taxpayers, etc. No, it was the Obama Administration’s “bold” (NAF’s word) proposal to kill the federal guaranteed student loan program and do all lending directly from Washington. It was just the kind of debate folks in DC love, one that sounds really important but leaves the government-created problem almost totally untouched.

Here’s the critical reality that was completely ignored: taxpayer-furnished financial aid – whether coming directly from DC or delivered by “private” institutions completely backed by DC – appears to be a very big enabler of rampant tuition inflation. Quite simply, as I lay out in the most recent Cato Handbook for Policy, when government ensures that customers can pay more, students demand more and colleges raise prices.

Of course, the argument that aid drives prices is not without its critics, but they’ve got a tough case to make both in terms of economic theory and college cost reality. In Washington, however, this isn’t even being discussed. In DC, it’s all about the deck chairs and nothing about the sinking ship. But then, as we’ve learned oh-so-clearly over the last several months, politicians gain little from averting disasters they’ve helped cause, and lots from handing out life jackets.

Fortunately, Cato is here to remind politicians about the important stuff, not just to bicker over which special interest gets the biggest tax-dollar windfall. On April 7 we will address the fundamental problems with student aid, hosting a Capitol Hill Briefing on the effects not just of switching from guaranteed lending to direct lending, but of all federal student aid. It’ll be just the kind of discussion Washington so desperately needs but so rarely has.

Register here to attend, or watch online the day of the event.

Court Embraces the Spirit of Aloha

Today the Supreme Court unanimously ruled that the resolution Congress passed in 1993 to apologize for U.S. involvement in the overthrow of the Hawaiian monarchy—a determination that remains controversial among historians—did not affect Hawaii’s sovereign authority to sell or transfer the lands that the United States had granted to the State at the time of its admission to the Union.  In an opinion by Justice Alito, the Court correctly explained that the words of the Apology Resolution were conciliatory and hortatory, creating no substantive rights—and indeed the resolution’s operative clauses differ starkly from those which provided compensation to, for example, the Japanese-Americans interned during World War II.

Importantly, the Court also noted that it would “raise grave constitutional concerns” if any act of Congress purported to cloud Hawaii’s title to sovereign lands so long after its admission to the Union.  This last point is perhaps most important to the ongoing debate over the “Akaka Bill,” which would create a race-based entity to extract political and economic concessions from the state and federal governments on behalf of ill-defined “native Hawaiians.”  It is delicious irony that Hawaii’s attorney general, Mark Bennett, an Akaka Bill supporter, secured this victory.

Just as Hawaii is now allowed to develop state lands for the benefit of all its citizens, hopefully Congress will in future refrain from inflaming racial divisions and instead treat all Hawaiians, regardless of race, with the legal equality to which they are entitled.

Further Cato materials on the above: Here’s our brief in the case, Hawaii v. Office of Hawaiian Affairs.  Here are articles I wrote on the case and on the on the Akaka Bill.  Here is a write-up of a debate I had at the University of Hawaii last month.  Finally, here is a podcast I did for the Grassroot Institute (Hawaii’s free-market think tank) – where, among other things, I correctly predicted the Court’s vote today and the scope of its opinion.