SCHIP’s Bad Bargain

According to a cost estimate released by the Congressional Budget Office last Friday, the Senate-passed legislation expanding the State Children’s Health Insurance Program would enroll an additional 6.1 million children in SCHIP and Medicaid. However, 2.1 million would lose their private health insurance. So while the legislation would provide government-run health care to 6.1 million children, it would reduce the number of uninsured children by only 4 million.

That’s government efficiency for you: extending health insurance to two children for the price of three!

I’ll be discussing SCHIP at a Capitol Hill Briefing with Patrick Fleenor of the Tax Foundation on September 13 (register now) and in an upcoming Cato Briefing Paper to be released the same day.

Why Is the President Amplifying Enemy Propaganda?

The president’s speech yesterday was another surreal offering, but this time we got two shocking endorsements and amplifications of essential enemy propaganda points. According to George W. Bush, the reason we are in Iraq is ― in part ― to control its oil. Also, according to the president, there is a real danger that Osama bin Laden and his cohort could establish a caliphate over the swath of territory from Spain to the Phillipines. Here he is on oil, and what would happen to it if we left:

Extremists would control a key part of the world’s energy supply, could blackmail and sabotage the global economy. They could use billions of dollars of oil revenues to buy weapons and pursue their deadly ambitions.

Out of the 20-30,000 people we have in custody in Iraq, 130 of them are non-Iraqi. Can anyone imagine the gang of idiots currently slaughtering innocent Iraqis with car bombs trying to run the oil infrastructure of a country the size of Iraq? Monitoring extraction, handling the logistics of getting oil through southern Iraq out to port and then dealing with multinationals and the sophisticated financial instruments used to remunerate oil producers? Could anything be more ridiculous?

Then we went on to the other nightmare scenario: American defeat in Iraq will birth a caliphate!

These extremists hope to impose that same dark vision across the Middle East by raising up a violent and radical caliphate that spans from Spain to Indonesia… And that is why they plot to attack us again. And that is why we must stay in the fight until the fight is won.

Who is writing this stuff? Chris Preble and I have written why al Qaeda has no hope of taking over Iraq in the wake of a U.S. withdrawal, but their reestablishing the caliphate is an even more ridiculous notion. But don’t take it from me:

“I can see the whole Arab world falling into sectarian violence, so I can’t see this caliphate happening,” said London-based anthropologist Madawi al-Rasheed, referring to Sunni-Shi’ite tensions in Iraq and Lebanon.

“This is just part of (al Qaeda’s) war of slogans.”

[…]

Lebanese historian Kamal Salibi said the region had already failed to unite under the banner of Arab nationalism after World War Two.

“It didn’t work with Arab nationalism, and with pan-Islamism it is working less,” he said. “The likelihood that states would give up their sovereignty is now more remote than ever before.”

[…]

“For most of the mainstream and less mainstream political parties of political Islam, the borders of the contemporary state have been accepted,” said As’ad AbuKhalil from Lebanon, who teaches politics at the U.S. California State University.

“There is absolutely no credence to the notion that the quest for the caliphate is the overriding goal of the Islamist movement in the region.”

It’s disgraceful that the president is aping enemy propaganda, which no doubt gives people in the Islamic world the impression that we believe that al Qaeda is strong ― strong enough to have a shot at the caliphate that it gets mentioned in a presidential speech. The very idea is ridiculous. Al Qaeda is weak and should be destroyed, not revered as a world power.

Abolish the Federal Gasoline Tax!

Earlier this month, Peter Van Doren and I published a study calling for the total elimination of the federal gasoline tax. Well, the first wave of commentary is in and, thus far, we are greatly underwhelmed. Gas tax proponents are going to have to do a lot better than this to hold the intellectual fort.

Over at the Economist, we are accused of misrepresenting citations when we argue that a doubling of the gasoline tax would only reduce tailpipe pollution by about 6 percent over the long run; an accusation also levied by some commenters at Marginal Revolution. The Economist writes:

Consultation of the cited source seems to show not that an increase in efficiency leads to a 20 percent jump in vehicle miles traveled, but that roughly 20 percent of total energy savings from efficiency gains are lost to increased travel. That’s quite a different point, implying that efficiency gains could have a significant impact on emissions.

We happily accept the clarification. The Economist has crisply stated what we in fact meant to say. But clarifying the point does not undercut our argument.

The “rebound effect” discussed above is one reason why aggregate tailpipe emissions will not be reduced as much as gas tax proponent think. But the other – and more important – reason can be found in J. Daniel Khazzoom’s userID=d8b90bfe [at] cato [dot] org/01cce4405b00501c7188b&dpi=3&config=jstor">paper which we cited. To wit, current law regulates tailpipe emissions per mile traveled, not per gallon of fuel consumed. A gasoline tax will induce a consumer shift towards more fuel efficient vehicles, and that shift will lead to only modest reductions in vehicle miles traveled. The upshot is found on page 438 of Khazzoom’s paper: Just as we said, a doubling of the gasoline tax would only reduce tailpipe pollution by about 6 percent over the long run.

Now, a careful critic might point out that this problem could be remedied by regulating tailpipe emissions per unit of fuel consumed rather than by vehicles miles traveled. But we haven’t run into that careful critic as of yet. We do anticipate and acknowledge the point, however, in endnote 32 of our paper.

Another large batch of commenters score us for not conceding that gasoline taxes are an efficient means of addressing greenhouse gas emissions from cars. But it never occurred to us to state the obvious – that if society wants to reduce greenhouse gas emissions, the most efficient means of doing this isn’t with a gasoline tax. It’s with a carbon tax.

Greg Mankiw asks us: “If Congress were considering repeal of the gasoline tax together with an income tax increase to make up the lost revenue, would you favor this revenue-neutral change in the tax mix?” Answer – no. The best way to make up for the revenue loss associated with repeal of the federal gasoline tax would be to eliminate the federal spending associated with the tax. Transportation infrastructure should be a state or local undertaking – not a federal undertaking.

Lurking behind that question, however, is the belief that raising revenue via a gasoline tax imposes less efficiency losses on the economy than raising revenue via an income tax. We don’t think much of that argument, but we discuss it at length in our paper so we won’t go through it again here. Perhaps when Prof. Mankiw gets around to reading our paper, he’ll have something further to say on that score.

There is little else of substance for us to deal with after Round 1.

For instance, many commenters have argued that our paper does not properly take into consideration the underlying literature, which supposedly cuts strongly against our arguments. That literature, we are told, was most recently surveyed by Ian Parry et al. in the June issue of the Journal of Economic Literature.

But this simply tells us that most of the opinions being expressed on these blogs are uninformed by any actual reading. Even a casual look at our paper demonstrates that we review and discuss the same literature discussed in Parry et al and, in fact, we cite Parry’s work extensively throughout. Moreover, Parry et al.’s paper in the JEL makes the same point we make in our study – that a gasoline tax is a deeply problematic means of addressing the externalities associated with driving and that there are far better policy tools available to get the job done. Parry et al. suggest that federal gasoline taxes might be a reasonable “second-best” policy, but we anticipate and counter those arguments in our study, so I won’t go into them here.

Remarkably, no one has yet taken up the most radical challenge offered to the common wisdom in our paper: that even a perfectly efficient gasoline tax would do more harm than good because it would induce more mass transit use, and mass transit use imposes even more costs on society than passenger vehicle use. For this argument, we rely on work done by Mark Delucchi at the Institute for Transportation Studies at the University of California and Cliff Winston at Brookings. Is anyone up to the task?

A Poor Investment

The Census Bureau today released the latest figures on poverty in the U.S, showing that 12.3 percent of Americans (roughly 36.5 million people) live below the poverty line. Nothing could better illustrate the continued failure of the American welfare state. Despite spending more than $477 billion on some 50 different programs to fight poverty last year, the actual reduction in poverty was trivial. Indeed, since Lyndon Johnson declared war on poverty in 1965, the U.S. government has spent more than $11 trillion fighting poverty without success.

One definition of insanity is doing the same thing over and over and expecting different results. Perhaps its time to try something different.

Observers have known for a long time that the surest ways to stay out of poverty are to finish school; not get pregnant outside marriage; and get a job, any job, and stick with it. That means that if we wish to fight poverty, we must end those government policies—high taxes and regulatory excess—that inhibit growth and job creation. We must protect capital investment and give people the opportunity to start new businesses. We must reform our failed government school system to encourage competition and choice. We must encourage the poor to save and invest.

More importantly, the real work of fighting poverty must come not from the government, but from the engines of civil society. An enormous amount of evidence and experience shows that private charities are far more effective than government welfare programs. While welfare provides incentives for counterproductive behavior, private charities can use their aid to encourage self-sufficiency, self-improvement, and independence. Private charities can individualize their approaches and target the specific problems that are holding people in poverty.

The big question is how much more money–and how many more lives–will we waste until we realize that, as Ronald Reagan used to say, “government isn’t the solution; government is the problem.”

U.S. Manufacturing Sector Needs No Protection from Congress

Protectionist measures currently being considered on Capitol Hill would damage America’s manufacturing base and fail to take into account that the nation’s manufacturing sector is in fact booming. In “Thriving in a Global Economy: The Truth about U.S. Manufacturing and Trade,” Cato scholar Daniel J. Ikenson argues, “Justification for [protectionist] bills is predicated on the belief that manufacturing is in decline and that the failure of U.S. trade policy to address unfair competition is to blame. But those premises are wrong. The totality of evidence points to a robust manufacturing sector that has thrived on account of greater international trade.”

Gonzales and the Constitution

Attorney General Alberto Gonzales presumably resigned because he had lost support in Congress, especially over issues relating to the firing of U.S. attorneys. But Tim Lynch, director of Cato’s Project on Criminal Justice, has long insisted that the real problem with Gonzales was not incompetence, faulty memory, or his confusing explanations of how the U.S. attorneys came to be dismissed. Rather, he wrote in May:

In area after area – from habeas corpus to separation of powers to executive responsibility – he has sought to strip out the limits that the Constitution places on presidential power. His fiasco regarding the firing of federal prosecutors is a petty offense when compared to the legal advice that he has conveyed to the President. The real scandal is his disregard for constitutional principles.

That’s why you have to appreciate Gonzales’s decision to resign effective September 17, Constitution Day. Maybe he wants to send a subtle signal that the end of his tenure could be an occasion to recover our commitment to constitutional limits on federal power and on presidential power.

Constitution Day is also, of course, famous as the day that the Cato Supreme Court Review is released at an all-day symposium on the Supreme Court’s most recent term.

The Blue Dog Fraud

Many of the newly-elected Democrats in the House of Representatives campaigned as fiscally conservative independents, but the Wall Street Journal reveals that these so-called blue-dog Democrats generally have been supporters of higher taxes and bigger government. Too bad these fiscal frauds aren’t more like the “Boll Weevil” Democrats, members of Congress who provided the margin of victory for many reforms to limit the burden of government during the Reagan years:

So far this year the blue dogs have been almost all bark when it comes to fiscal restraint and debt reduction. Thirty of the 48 have voted for every one of the non-defense spending bills their committee chairman have sent them. …28 of the 48 blue dogs voted “no” on each of the 27 amendments that Republicans proposed to cut the costs of these bills. …Voting records from recent years confirm that the blue dogs are less than consistent spending hawks. The National Taxpayers Union did some checking and found that the blue dogs had an average fiscal score of 24 out of 100, earning them a grade of D as a group. It also found that last year the blue dogs sponsored $145 of new spending for every dollar of budget reductions, for a net spending increase per member of more than $140 billion. The blue dogs are consistent on one fiscal issue: stopping tax cuts. As a group they opposed the Bush tax cuts and the extension of those tax cuts, and a super-majority vote requirement to raise taxes–all in the name of easing the debt burden on future generations. But those concerns evaporated when all but nine in the blue dog coalition voted to expand the Schip health-care program to include many middle-class families, at a cost of $132.6 billion over the 2008-2017 period.