Archives: 03/2010

ObamaCare: Still a Bad Deal for Young Adults

The Associated Press reports that young adults will face higher premiums under ObamaCare:

Beginning in 2014, most Americans will be required to buy insurance or pay a tax penalty. That’s when premiums for young adults seeking coverage on the individual market would likely climb by 17 percent on average, or roughly $42 a month, according to an analysis of the plan conducted for The Associated Press. The analysis did not factor in tax credits to help offset the increase.

The higher costs will pinch many people in their 20s and early 30s who are struggling to start or advance their careers with the highest unemployment rate in 26 years.

The article cited additional studies estimating premiums increases young adults as high as 50 percent. That was essentially the message of my recent Cato briefing paper, “ObamaCare: A Bad Deal for Young Adults.”

Supporters claim the new law provides subsidies that would help people afford the higher premiums. As I write in my paper, however:

The money for those subsidies has to come from somewhere, though. Presumably, some of it would come from young adults themselves in the form of higher taxes or the tax penalties imposed on those who do not purchase insurance…So the presence of subsidies does not necessarily mean that young adults would come out winners. Ironically, all the complexity may actually help the legislation pass Congress precisely because it obscures whom the legislation would tax.

Supporters also claim that although the higher premiums might be actuarially unfair for people who are young and healthy today, those people will eventually be old and unhealthy. Over the course of a lifetime, they reason, such policies would be closer to actuarially fair.

The problem is that we’ve heard this line before. Inter-generational redistribution is fundamentally unfair to the young because it creates a situation where the old, who vote, have incentives to ratchet up benefits – and to ratchet up taxes on the young, who don’t vote. Social Security collects from the young and gives to the old, and is clearly a net tax on the young. As Jonathan Gruber reports, the young have very little confidence – deservedly so – in Social Security’s implicit promises. Experience shows that whatever new taxes ObamaCare imposes on the young will grow over time.

Regardless, most young uninsured people already obtain insurance as they get older. As I report in my paper, 30.4 percent of those age 20-29 were uninsured in 2008 (including 33.8 percent of 23-year-olds), but only 13.4 percent of those aged 50-64 years were uninsured. So a significant number of uninsured young adults naturally transition into insured older adults. The main effect of the new law will be to take young adults who think health insurance is a bad deal at today’s prices and force them to health insurance at even higher prices.

Topics:

Obama to Increase FHA Risk

The Federal Housing Administration is heading toward a taxpayer bailout, yet the president’s latest mortgage modification plan would further increase the agency’s exposure to risky mortgages. Mark Calabria calls it a “Backdoor Bank Bailout.”

The administration’s plan would encourage borrowers who owe more than their house is worth to refinance into FHA-insured mortgages. Therefore, the risk of a future foreclosure on these mortgages would fall to the government and taxpayers instead of private lenders.

A recent study from economists at New York University found that the FHA is underestimating its risk exposure. One of the problems is that the FHA isn’t properly accounting for the risk to underwater FHA mortgages that have been refinanced into new FHA mortgages. So it’s hard to see how the president’s plan to refinance private underwater mortgages into FHA mortgages won’t further exacerbate the situation.

To get these mortgages in better shape so the FHA can insure them, $14 billion in TARP money is going to be used to pay private lenders to reduce the amount borrowers owe on their mortgages. Some of this money will also be used to cover eventual losses on these loans. As a taxpayer whose mortgage is underwater, and who would rather go bankrupt than accept a government handout, I find it infuriating that my tax dollars are being used to bail out others in a similar situation.

But with government housing programs, it’s standard practice for officials to cannonball into the pool and worry about who gets splashed by the water later. On Sunday, CNN.com reported on “FHA’s Florida Fiasco,” where the collapse of the heavily FHA-insured condo market has contributed to the possibility of a FHA bailout. The FHA has now tightened its condo standards, but once again it’s a day late and possibly more than few bucks short.

The new FHA initiative is the latest in a series of efforts to “stabilize” the housing market with more subsidies. Policymakers seem oblivious that it was government interventions that helped instigate the housing meltdown to begin with. The housing market would stabilize itself if the supply of and demand for housing was allowed to be brought back into equilibrium. There would be pain in the short-term, but in the long-term we would have a smoother functioning housing market. Unfortunately, for politicians the long-term means the next election.

Why Do Libertarians Care about Federalism?

That’s the question NYU law professor Rick Hills asks over at PrawfsBlaws:

So why do American libertarians think that federalism is consistent with their commitment to individual liberty? Why not, instead, support a strong national government that can suppress subnational trade wars and protect a robust set of national liberties? What’s the payoff, in terms of individual liberty, from protecting subnational jurisdictions’ exclusive jurisdiction over certain topics?

In other words, if government is bad, why do we want a multiplicity of governments – federal, state, local – all presumably restricting individual liberty in some way?

Well, with all due respect to Prof. Hills – who also graciously commended Cato’s brief in Comstock, in which we argue that that Congress cannot enact a civil commitment statute for sexual predators because there is no such enumerated power and it cannot be inferred from the Necessary & Proper Clause – his analysis erroneously assumes that libertarians (he specifically mentions Cato, our senior fellow Randy Barnett, and our adjunct scholar Ilya Somin) are results-oriented in our approach to constitutional interpretation.  And we shouldn’t pursue federalism, he says, because it’s against our interests.

Both of these premises are flawed.  I won’t go into much detail because Randy and (the other) Ilya have already provided reactions at the Volokh Conspiracy here and here, with which I agree.  First , we like federalism because that’s the system the Constitution set up and luckily, the Constitution is, for the most part, a libertarian document.  Second, the Framers set up the Constitution that way because the different levels of government would exist not to multiply power-hungry bureaucrats’ opportunities for mischief but precisely to disallow dangerous aggregations of power.  So from the get-go there was no possibility of federal tyranny and, after the Fourteenth Amendment empowered Congress and federal courts to protect individual rights against state infringement, there was to be no state tyranny either.

And so, much as we like the strict limitations on Congress’s power – the express enumerations of Article I, section 8, the Commerce Clause, etc. – we also like the Due Process, Equal Protection, and Privileges or Immunities Clauses of the Fourteenth Amendment.  There is thus no conflict between federalism as a structural constitutional provision that promotes liberty and other, “anti-federalist” provisions that also promote liberty.  In practice that means there is no conflict between arguing that Obamacare exceeds the federal government’s authority while asking the Supreme Court to strike down Chicago’s handgun ban.  The original meaning of the relevant constitutional provisions support both arguments – and both arguments enhance liberty!

It really is a remarkable document, this Constitution.  Too bad its proper understanding has been lost

For related thoughts on this fascinating debate, Randy proposes a constitutional amendment that might get us back to the federalism we once knew while (the other) Ilya dispels another of Prof. Hills’s minor premises, that European libertarians diverge from Americans on the issue of federalism.

Are We Really Going to Leave Iraq? (part III)

I’ve been asking this question for a while now (see here and here).  Now the influential liberal foreign policy analyst Kenneth Pollack and coauthor worry that the United States is headed for “premature evacuation” [.pdf] in Iraq.  Pollack and coauthor argue that “if the United States turns away from Iraq prematurely, it would have dire consequences for Iraq, whose fragile government will be more likely to fail, and for the United States, because success in Iraq is vital to U.S. interests.”  Accordingly, the United States needs to aim at “securing a new agreement with the Iraqi government that would allow U.S. military forces to remain in the country beyond 2011.”

Oh, and it’s not just Iraq.  “Like Iraq, Afghanistan will require roughly 50,000 U.S. combat troops, probably rebadged as advisors, for many more years before it is able to stand on its feet.”

It seems cruelly ironic that Pollack, whose most recent book is titled A Path Out of the Desert, seems only to have a bottomless stack of plans to keep America stuck on the treadmill in the desert he urged us onto more than seven years ago.

I’ve only skimmed the piece, so maybe there’s more going on here, but this drip, drip, drip of Beltway elites urging the president to stick around for several more years is cause for alarm.  (And cause for me to start thinking about drawing up odds about whether we’re going to actually leave.)

Keep in mind, the president doesn’t have anybody who vocally opposed the Iraq war in the upper echelons of his administration, so there likely is nobody on hand to challenge the logic that “success in Iraq is vital to U.S. interests.”  It’s like it’s 2002 all over again.  With the economy in the front of the president’s brain, he seems much more likely to outsource foreign policy decisions to Hillary Clinton, Joe Biden, and the gaggle of “strategic class” foreign policy elites they brought into office with them.  And the American people seem less likely to punish him if he does so.

Thoughts on Five-Day Mail

The USPS has taken the first step toward reducing mail delivery to five days a week by sending a request to the Postal Regulatory Commission. However, it will be ultimately up to Congress whether or not Saturday delivery is eliminated.

The USPS, which is in a death spiral, views the elimination of Saturday mail delivery service as a step toward regaining its financial footing. Not surprisingly, the decision is proving controversial among some members of Congress.

Here’s a better idea: give Americans the freedom to choose the mail services they want by repealing the USPS monopoly. That way consumers and businesses could choose to provide and use mail services zero days a week or seven days a week.

Online movie rental services like Netflix offer a small example. A lot of folks time their Netflix rentals so that they have movies for Saturday night. Eliminating Saturday delivery will necessarily degrade the quality of online movie rental services that people are paying for. With competition, Netflix could offer Saturday (or even Sunday) delivery through a private alternative. Perhaps there would be a surcharge, but at least consumers would be allowed to make that choice.

Supporters of the government mail monopoly regularly cite their amazement that they can drop a letter in a mailbox and it will arrive unharmed in another mailbox clear across the country. As a $70 billion operation with the largest workforce in the country, I would hope the USPS can pull off such a feat.

I find it more impressive that I can go into a grocery store almost anywhere in the country and be met with an incalculable number of choices. Take Coke products for instance. I recently made a list of the various Coke products available to me at a local grocery store. The following is just a sample: regular Coke, Diet Coke, Caffeine-Free Coke, Diet Caffeine-free Coke, Coke Zero, Coke with Splenda, Coke with Lime, Coke with Lemon, and Diet Coke Plus. Don’t like Coke?  There’s a similar array of Pepsi products. Don’t like either? The grocery stores also offer pricier micro-brands with all sorts of unique flavors.

These choices reflect the awesome power of the market, which provides nearly all the goods and services people want without any direction from officials in Washington. It would interesting to see what sorts of innovations and products private mail deliverers would come up with if the government’s mail monopoly didn’t exist. Instead, Americans are stuck with a government operation whose floundering business model will require it to raise prices while simultaneously reducing its services. So much for freedom of choice.

First to the “Top”

Congratulations Delaware and Tennessee – you’ve won the Race to the Top beauty contest! Of course, the grading was subjective and will be disputed by lots of states that haven’t won. Well, haven’t won yet – there’s a second round to this, remember.

So what do the victories for Delaware and Tennessee mean? The edu-pundits will no doubt be reading deep into the results over the coming days, trying to determine what they portend for the future of RttT, federal education policy generally, and politicians across the country.  And there are some juicy political leads worth following, including the possibility that the winning states were chosen because they have Republican congress members who could be pivotal in getting bipartisan support for the administration’s No Child Left Behind reauthorization plans.  

All of this, though, will ultimately miss by far the biggest point about RttT: The most beautiful promises and laws mean nothing unless they are implemented, and history offers little reason to believe that even the finest parts of the RttT winners’ applications will be brought to bear.

Despite over forty years of federal education interventions, and nearly two decades of state-level standards-and-accountability reforms, academic achievement has stagnated. Long-term National Assessment of Educational Progress scores in mathematics and reading for our schools’ “final products” – high-school seniors – have been almost completely flat since the early 1970s, and fourth and eighth-grade “main NAEP” reading scores released just last week demonstrate the same awful trend since the early 1990s. This despite a 123-percent increase in real, per-pupil funding since 1970.  

Quite simply, no degree of legislative tinkering within the system has produced lasting improvements because those who would be held to high standards – teachers, administrators, and bureaucrats – have by far the most political clout in education, and they’ve hollowed out anything “tough” that’s been tried. The only thing that will move us powerfully forward – as extensive research on educational freedom demonstrates – is empowering parents to bypass education politics by freely choosing schools that have the autonomy needed to compete and innovate.

Unfortunately, that kind of reform wouldn’t gain a state so much as a point in the Race to the Top. And the limited choice – charter schools – that could get a state some points? According to the Center for Education Reform, Delaware only gets a B for its charter school law – a grade based generally on how free and competitive charter schools can be – while Tennessee gets an atrocious mark of D.

There’s nothing beautiful about that.