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Cato Dispatch for August 13, 2009

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(Links to outside sources were active as of the date of this dispatch; however, not all news sources maintain links to current stories indefinitely. Some links also may require registration.)

Health Care Debate Continues

Health care legislation is in limbo, at least until the next session of Congress, but the health care debate is alive and well, continuing in earnest at town-hall meetings and on editorial pages across the country.

Cato scholars continue to be at the forefront of this debate. Quoted in a CNN.com article on health care, director of health policy studies Michael Cannon attempts to explain the emotion expressed in town halls: "The reason that we see these protests and people asking tough questions at town hall meetings is because they feel like the president is going to take something away from them. That motivates people. That gets them out."

Writing recently in the Atlanta Journal-Constitution, Cannon argues that the true cost of the health-care bill is much higher than stated:

Senate Finance Committee Chairman Max Baucus (D-Mont.) recently told reporters that the bipartisan health reform bill he's negotiating would cost just $900 billion over 10 years. Don't bet on it. Democrats are using smoke and mirrors to hide the impact of their health plans. Existing estimates, therefore, reflect only a fraction of the total cost.

In an op-ed for the New York Post, senior fellow Michael Tanner points out that the health care model the Obama administration seems to support would actually inhibit competition and choice in the health care system:

President Obama has repeatedly said that one of his "reform" goals is to increase "competition and choice" in the US health-care system — but the policies he's pursuing would actually reduce competition and give consumers fewer choices. Meanwhile, he's ignoring reforms that would bring more choices and competition.

Continue to follow this debate at Cato's website devoted exclusively to health care: http://healthcare.cato.org/.

SAFRA is Bad Policy

"Odds are you haven't heard of it," writes Cato's Neil McCluskey at Forbes.com, "but [the Student Aid and Fiscal Responsibility Act] would do something pretty big."

SAFRA, as the bill is abbreviated, "would eliminate an entire category of student loans issued by private lenders and subsidized by the federal government, vastly expanding direct lending by the government starting next July," reports the Washington Post.

McCluskey, the associate director of the Cato Institute's Center for Educational Freedom, argues in his Forbes piece that the bill "would destroy what little chance there was of student loans being constrained at all by economic realities."

Recently passed by a largely party-line vote — Democrats supported it, while most Republicans opposed it — in a House committee, SAFRA would crowd out private lenders, giving the government a near-monopoly on student lending.

McCluskey also argues that the bill would not benefit the low-income students it purports to help:

SAFRA would direct $47 billion to Pell grants and require that grant amounts rise annually at the rate of inflation-plus-one-point. That would assist low-income students better than federal loans, but also set an ever-rising floor under which schools would never lower tuition prices, negating its value.

The Case for Immigration Legalization

President Obama recently announced that immigration reform will have to wait until next year. When that time comes, Congress and the President would do well to heed the lessons set forth in a new Cato study. In "Restriction or Legalization? Measuring the Economic Benefits of Immigration Reform," Peter Dixon and Maureen T. Rimmer examine the economic impact of both legalizing and restricting immigration into the United States.

The results are striking:

A major finding of the study is that the program of tighter border enforcement … strongly reduces the welfare of U.S. households. A principal effect is that it raises the wage rate of the illegal immigrants who remain in the United States, in effect transferring income from legal residents of the United States to illegal immigrants. Even more importantly, restricting the inflow of illegal immigrants biases the occupational mix of employment for U.S. workers toward low-paying, low-skilled jobs as those jobs become relatively more attractive and available compared with higher-paying occupations. This eventually reduces the overall productivity of U.S. workers and consequently their average real wage rate.

The authors conclude:

The major ingredient in good policy is legalization. This would eliminate smugglers' fees and other costs associated with illegal entry and allow immigrants (now guest workers rather than illegals) to have higher productivity. Elimination of illegal entry costs would lower the wage required to attract immigrants, while increases in their productivity would raise the value of immigrant labor relative to this wage. Both these effects of legalization raise the value of immigrant labor relative to the cost of employing it.

Chris Moody, editor, cmoody@cato.org