Ahnold’s Very, Very Bad Movie

Arnold Kling is far too kind in his description of Arnold Schwarzenegger’s new health care proposal.  While I suppose it is possible for the plan to have been worse (it could have endorsed Massachusetts-style managed competition, for instance), the plan gets almost everything wrong, from its tax on employment to its individual mandate, from increased welfare subsidies to increased insurance regulation.  The proposal will end up hurting workers, employers, health care providers, and health care consumers.  Consider just some of what the Governator is calling for:

  • More spending, more taxes.  According to the nonpartisan taxpayers foundation, California’s state/local tax burden is the 15th highest in the nation, and its business climate ranks 45th out of the 50 states.  Californians already pay $4,451 per-capita in state and local taxes.  Governor Schwarzenegger’s proposal is expected to cost at least $12 billion in additional state spending.  He would finance it through a variety of new taxes, including taxes on health care providers and businesses.
     
  •  An Employment Tax.  The governor came to office promising to improve the state’s struggling business climate.  Now he proposes a mandate that every business with 10 or more employees would be required to provide its workers with health insurance or pay a four percent payroll tax.  Such a mandate simply increases the cost of hiring workers.  Employers will inevitably hire fewer workers. (Imagine a nine-employee company trying to decide whether to hire that tenth worker).  Some may even be forced to lay off current employees and others will offset their costs by reducing wages or wage increases.  California’s business taxes are already the highest in the West.  Governor Schwarzenegger’s plan will only make this worse.
     
  • More Welfare.  Governor Schwarzenegger would offer subsidies for a family of four with incomes as high as $60,000 per year, extending dependence on government well into the middle class.   Those subsidies should be understood for what they are—welfare, with all the drawbacks and unintended consequences that go with welfare programs.  Compounding matters, Governor Schwarzenegger would extend these subsidies to illegal immigrants.  Immigrants traditionally come to this country to work, not for welfare.  Governor Schwarzenegger would be sending them a very different and very bad message.
     
  • An Individual Mandate.    Not only would an individual mandate represent an extraordinary infringement on individual liberty—every Californian would be required to purchase a specific government-defined product, simply because they live in California–it opens the door to widespread regulation of the health care industry and political interference in personal health care decisions.  The governor claims that a mandate is necessary to reduce the cost of uncompensated care from uninsured individuals seeking care from hospital emergency rooms.   But uncompensated care represents only 3-5 percent of health care spending, a problem but hardly a crisis large enough to justify such a radical response.
     
  • More regulation.  The biggest reason why people don’t buy health insurance today is that it is too expensive.  One reason for this is California blizzard of insurance mandates covering everything from dental anesthesia to in vitro fertilization.  Those mandates and other insurance regulations raise the cost of insurance, particularly for the young and healthy who often choose to go without insurance rather than pay excessive premiums.  But rather than take on the special interests by reducing mandates and cutting regulation, Governor Schwarzenegger proposes new regulations, including a requirement that insurers cover all applicants, regardless of whether they are in perfect health or on their deathbed.  These new regulations will only drive up the cost of insurance, requiring either more government subsidies or imposing a greater financial burden on business and individuals.

Governor Schwarzenegger seems to be under the impression that health care in California suffers from too little government regulation, control, and subsidies.  He’s just plain wrong.

The California Health Plan

A few things I find interesting the proposed California health plan.

1. Although it mandates health insurance, it envisions high-deductible health insurance policies as satisfying the mandate. Apparently, the thinking is in terms of a deductible of $5000 for an individual, as opposed to Massachusetts, where they think that “high-deductible” is about $1000.

2. It does not create an equivalent of the Massachusetts “connector.” The more one looks at it (see this description, for example), the “connector” is micro-managing individual and small-group health insurance in Massachusetts, leaving the private sector essentially no room to maneuver. The “connector” really ought to be re-named for what it is, a central planner.

3. Funding the plan with a tax on health care providers is interesting. In my new Cato Unbound essay, I write about today’s overly generous health insurance coverage:

For health care providers, insulation is a bonanza. Because consumers are not spending their own money, they accept doctors’ recommendations for services without questioning them and without concern for cost. Faced with an insured patient, a health care provider is like a restaurant catering to convention-goers with unlimited expense accounts. The customer will gladly take the most high-end recommendation and not worry about the price.

The Governator’s plan is to pay for a subsidy to health care consumers by putting a tax on health care producers. Thus, the push for health insurance becomes something other than a pure windfall for providers.

4. The plan explicitly envisions health insurance for illegal immigrants. If you think of that as a humanitarian issue, you may like it. But if you think about it in terms of the incentive it provides to illegally immigrate, it sounds problematic. Also, I am curious as to how the state is supposed to administer a program for illegal immigrants with one hand and enforce immigration laws with the other.

Of course, not all details have emerged, and the legislature has yet to put its imprint on any plan. So it may be premature to comment at any length.

The Power of the Purse

Hey, don’t look at us, we’re just Congress: that was Senator Joe Biden’s take on Meet the Press Sunday when asked about stopping the surge and winding down the war.  As Senator Biden put it: “There’s not much I can do about it.  Not much anybody can do about it.  He’s commander in chief.”  A little later, Tim Russert asked him, “Why not cut off funding for the war?” and Biden replied “I’ve been there, Tim.  You can’t do it.”

Actually, you can, as Walter Pincus noted in the in the Washington Post in November

In 1969, Congress’s ruling Democrats began to offer amendments to funding bills – often approved with Republican votes – to limit President Richard M. Nixon’s military alternatives in Southeast Asia. Although the Hatfield-McGovern amendment to cut off money for the war was defeated in August 1970, it accelerated Nixon’s steps toward Vietnamization of the fighting. And three years later, with withdrawal of U.S. forces having begun, Congress voted to cut off all funding for “offensive” military action, sealing the deal.

Some 20 years later, Congress used similar tactics to end our nation-building excursion in Somalia.  A month after the Black Hawk Down incident, in the Defense Appropriations Act for FY1994, Congress used the power of the purse [.pdf] to “cut off funding after March 31, 1994, except for a limited number of military personnel to protect American diplomatic personnel and American citizens, unless further authorized by Congress.”

Of course, Congress is not about to start cutting off funding for the Iraq war anytime soon.  To the extent that the new Congress invokes the power of the purse over Iraq, it’s likely to pursue an intermediate strategy of attaching appropriations riders to the funding it authorizes, passing the funding, but barring troop increases, for instance.  What seems likely to happen with that strategy is that the president will take the money and ignore the strings.  Consider the signing statement Bush issued while signing the Intelligence Authorization Act of 2005, summarized here by the Boston Globe :

Dec. 23, 2004: [Congress] Forbids US troops in Colombia from participating in any combat against rebels, except in cases of self-defense. Caps the number of US troops allowed in Colombia at 800.

Bush’s signing statement: Only the president, as commander in chief, can place restrictions on the use of US armed forces, so the executive branch will construe the law ”as advisory in nature.”

Thus, in the president’s view, Congress cannot prevent him from using American troops in a shooting war with Colombian drug traffickers, should he decide that’s a good idea.  His position is, in essence, shut up and pay, it’s my army and my call. 

Faced with that sort of intransigence, those members who want an end to the war in Iraq are probably going to have to demonstrate their willingness not to pay.  Of course, that strategy leaves one vulnerable to charges of undercutting the troops.  (“Supporting the troops” apparently entails extending their tours and sending more of them to die in an operation that just about no one thinks will work).  Clearly, sending the president a letter–as Speaker Pelosi and Majority Leader Reid just did–isn’t going to do it.  

Pressure on funding pushed Nixon out of Ahab mode on Vietnam.  It may be the only thing that can force this president to change direction in Iraq. 

Rock on, Canada

I realize I have already blogged about agriculture today, and normally I would spare you a second blog entry, but there has been an important development in agricultural trade circles. Canada has requested consultations (the first step in a full-blown trade dispute) with the United States over U.S. farm programs.

Specifically, the Canadians want to discuss the subsidies given to U.S. corn farmers, and the damage they did to other world corn producers because of price suppression effects. Enquiring minds in Canada also want to know more about the amount of trade-distorting support that the United States paid to its farmers overall in “certain years” (the press release doesn’t specify which).

It’s hard to say at this point what effect, if any, this development will have on the U.S. farm bill debate, or the WTO negotiations in the Doha round. But it would be a stupid brave Congress indeed that paid no heed to the WTO effects (in litigation or negotiation) of American farm subsidies when drafting a new farm policy. History has shown that the costs of farm welfare to consumers and taxpayers tend to get short-ish shrift when juxtaposed with the farm lobby, but firms facing possible retaliatory sanctions or failed market access ambitions as a result of an adverse ruling against the United States might carry more weight.

Don’t SPEAK

I’ve just been perusing the “Standards to Provide Educational Achievement for Kids” (SPEAK) Act. This is the bill, introduced by Senator Christopher Dodd (D-Connecticut) and Representative Vernon Ehlers (R-Michigan), that seeks to homogenize math and science education in America.

Dodd and Ehlers are to be commended for wanting to improve our schools, but SPEAK isn’t going to do that.

The bill’s preamble laments how the 50 curriculum standards laid down by our 50 centrally planned state school systems have fallen short of the mark. To fix this problem, it recommends central planning at the national level.

We have been inexorably centralizing control over the schools in this country for 150 years. We’ve gone from one-room schoolhouses overseen directly by the parents of the children who attended them to sprawling bureaucracies that consume half of the operating budgets of their respective states. We’ve gone from 127,000 school districts in 1932 to fewer than 15,000 today – despite a massive increase in the number of students.

Is anyone – ANYONE – arguing that this centralization of educational power has made schools better, more efficient, or more responsive to the needs and demands of families?

[crickets]

So how could anyone think that even more centralized planning – the most centralized planning we can possibly have in this country unless someone would like to turn the schools over to UN control – would be a good thing?

The most plausible explanation is that it is simply a triumph of wishful thinking over reason and evidence: “Maybe THIS time it’ll work!?!?”

There are, of course, a few more specific rationalizations embedded in the bill; some to help justify it, and others to make it seem less grossly incompatible with the liberal democracy we’re supposed to be.

On the justification front: SPEAK would ostensibly make it easier for students to transfer between states without finding themselves far behind or ahead of their classmates. This is like whacking your own hand with a hammer to distract yourself from a pounding headache. The only reason there is a problem with students transferring between states (or, for that matter, between schools within states) is that public schools started rigidly grouping students by age at the turn of the 20th century. It’s a pedagogically backward practice that was adopted for its bureaucratic simplicity, and competitive market schools often dispense with it, grouping students based on what they know and can do. Much easier to teach Calculus to a class full of people who all understand algebra, hmm?

On the rationalization front, the standards sought by SPEAK are referred to as “voluntary.” But voluntary for whom? Not for parents and students. It isn’t as though you’ll be able to walk into your local school and opt in or out. What the bill’s authors mean is that it would be voluntary for state school boards or state school superintendents. Once they decide, you, me, and Dupree don’t get a say.

America will start leading on the international education stage when it starts leveraging its strengths. We are an entrepreneurial nation that values individual liberty and recognizes the virtues of voluntary cooperation, competition between providers, specialization, and the division of labor. Instead of standardizing our schools and our kids, we should be energizing our education system with the same market freedoms and incentives that have made us a world economic power.

More on the recent interest in homogenizing American education here.

Has U.S. Income Inequality Really Increased?

There are frequent complaints that U.S. income inequality has increased in recent decades. Estimates of rising inequality that are widely cited in the media are often based on federal income tax return data. Those data appear to show that the share of U.S. income going to the top 1 percent has increased substantially since the 1970s. A new study by Cato scholar Alan Reynolds shows that these claims are wrong in both their premises and their conclusions. In “Has U.S. Income Inequality Really Increased?,” Reynolds concludes, “There is no clear evidence of a significant and sustained increase in the inequality of U.S. incomes, wages, consumption, or wealth since the late 1980s.” Cato will also host an event on income inequality on January 11.

Some Quick Links on Farm Policy Reform

Cato’s Center for Trade Policy Studies is putting together its ideas for a sensible farm policy (the current farm bill comes up for renewal later this year). Needless to say, the Cato plan will look substantially different from the anachronistic, interventionist pork-fest that was the 2002 Farm Bill.

In the meantime, those interested in U.S. farm policy might like to check out the following links: today’s editorial in the Washington Post and an article by Jonathan Rauch in Friday’s National Journal. Both contain plenty of arguments for what is wrong with U.S. agricultural policy today and are best read on an empty stomach. For a good overview of the farm bill debate, this article by Catherine Richert (Congressional Quarterly) is a pretty good bet.