Archives: 03/2018

Republicans’ St Augustine-like Fiscal Virtue-signalling

The Washington Post reports that “House Republicans are considering a vote on a ‘balanced-budget amendment’” (BBA) to the constitution, having just backed a $1.3 trillion omnibus spending bill which will worsen the deficit considerably.

With deficits now projected to rise as high as 5.3 percent of GDP by 2019, this move amounts to the worst kind of “fiscal virtue signaling” on behalf of the GOP leadership. The vote appears designed to tell voters that the GOP favors fiscal restraint, safe in the knowledge the amendment is near-certain to fail, given the hurdles in the Senate alone and despite all recent evidence to the contrary.

There will therefore be a lot of rightful mocking and dismissiveness from the commentariat on this move. But two points from the conclusions on my recent paper on fiscal rules should be borne in mind.

First, lots of people will use this hook to come out and say a BBA is bad economics, particularly given that overwhelmingly mainstream economists oppose a requirement at the federal level for the books to balance every year.

But countries around the world have developed much more sophisticated fiscal rules which in effect balance budgets over the economic cycle. Switzerland’s is even part of its constitution, and it appears to work pretty well. Fiscal rules really can really help to shape responsible budget outcomes, provided they smooth spending by capping it around trend revenues (rather than requiring balance every year), and avoid scope for overoptimistic assumptions or creative accounting by politicians.

Second and crucially, though, fiscal discipline – even to get to the stage of introducing and abiding by rules – requires political and public buy-in. At the moment, the equilibrium in Washington is instead for higher spending and more borrowing, and a continual reluctance to countenance reform of entitlement programs which drive the dreadful long-term debt projections.

Republicans had the opportunity, after the tax cuts, to explain to voters that if they liked their tax cuts, and wanted to keep their tax cuts, then fiscal restraint over a number of years was necessary. Now, even getting to a stage where a BBA could kick in would likely take years given the high deficit, and the political difficulties of cutting spending.

No doubt there are some Republicans who still care and worry about balancing the books. But with this proposed vote, the GOP instead is preaching like St Augustine: “Lord give me fiscal discipline, but not yet.” The best way of locking in fiscal responsibility is to practice it.

Read my full paper on fiscal rules and the experience of other countries here.

Poking the Panda: Hawks Push Stronger U.S. Support for Taiwan

Taiwan’s supporters in Congress and the Trump administration are pushing unprecedented measures to increase Washington’s backing for the island’s de facto independence from China. On March 1, the Senate passed the Taiwan Travel Act, which the House of Representatives had previously approved in January. The TTA states that it should be the policy of the United States to authorize officials at all levels to visit Taiwan to meet with their counterparts and allow high-level Taiwanese officials to enter the United States for meetings with U.S. officials. Notably, the TTA specifically encouraged interaction by “cabinet-level national security officials.”

As I note in a new article in China-U.S. Focus, although the measure does not compel the executive branch to change policy, it clearly underscores the congressional desire for closer U.S. ties, especially defense ties, with Taiwan’s government. Since the Senate passed the legislation with no dissenting votes, it reinforced the intensity of the congressional position. That President Trump signed the legislation instead of letting it go into effect without his signature signaled his agreement with the substance.

Although it was not a legal requirement, Washington’s policy since it switched official diplomatic relations from Taipei to Beijing in 1979 has been to authorize only low-level (usually economic) policymakers to interact with their Taiwanese counterparts. Prominent officials such as the President, Secretary of State, and Secretary of Defense, refrain from doing so. That situation is now likely to change.

Explaining the Bolton Appointment, and Why It’s Dangerous

Ever since President Trump appointed John Bolton to be the new national security advisor last week, a torrent of commentary has poured forth about the hawkish Fox News pundit and American Enterprise Institute senior fellow, who once served as United Nations Ambassador for 18 months in the George W. Bush administration. Two pieces published today, however, stand out for their precision and insight. 

The first is by The Atlantic’s Peter Beinart, whose central argument is that Bolton is not the learned foreign policy scholar many believe him to be. While Bolton certainly has years of experience, it hasn’t been of the right kind. Bolton’s “militancy,” his “incessant, almost casual, advocacy of war,” Beinart argues, is positively “Trumpian: The less evidence you have, the more certain you sound.”

The Highly Positive Impacts of Vouchers

It looks like we have another terrible case of cherry-picking the evidence. But this time it’s shockingly misleading. Instead of simply pretending that the evidence on school choice is “mixed,” the Center for American Progress took it a step further by saying that the voucher evidence is “highly negative.” They are absolutely wrong. Here’s why.

The Four Evaluations

Their review of the research relies on only four voucher studies – Indiana, Ohio, Louisiana, and D.C. Two of these studies – Indiana and Ohio – are non-experimental, meaning that the researchers could not establish definitive causal relationships. But let’s go ahead and entertain them anyway.

The Ohio study used an econometric technique called regression-discontinuity-design, which can only replicate experimental results when a large number of students are used right around a treatment cutoff point. The intuition behind the method is that it is essentially random chance that students fall just around either side of the cut point, and therefore the students are randomly assigned to the voucher treatment or not.

The Ohio program used a cutoff variable - the performance of the child’s public school – to determine program eligibility. However, the researchers used student observations that were not right around the cut point and even removed the observations that were closest to the discontinuity. In other words, the authors could not establish causality, and it is more likely that the children assigned to receive the voucher program were less advantaged than those who were ineligible. After all, students in lower-performing public schools were the ones that were eligible for the choice program.

Even then, the model with the largest sample size actually found that being eligible for the program led to positive test score impacts. But the authors at CAP never mentioned that.

The Indiana study was also non-experimental, as it compared voucher students to those remaining in traditional public schools. But let’s look at it anyway. While the authors did find small negative effects of the program on test scores initially, voucher students caught up to public school students in math and performed better in reading after four years. How in the world can a positive result like this be “highly negative?” Weird.

The Louisiana experiment did find large negative effects on test scores in the first two years. However, voucher students caught up to their public school peers in both math and reading after three years. The CAP authors argue that the main model – although clearly preferred by the Louisiana research team – is less “accurate” because of the “restricted sample size.” That is odd, as using more control variables (and a consistent sample) usually makes econometric models more accurate – not less. Another thing that is odd: the CAP authors chose not to report the positive Ohio results – which came from their larger sample of students – and instead chose to report the negative results – which came from a sample that was less than a tenth of the size. Why the change in criteria?

The CAP review heavily relies on the most recent experimental evaluation of the D.C. voucher program. It just so happens to be one of the only two voucher experiments in the world to find negative effects on student test scores.

The Founding Fathers Favored a Liberal Immigration System

Alex Nowrasteh had an excellent post yesterday on how the western tradition on immigration and naturalization formed the basis of the Founders’ views on those subjects and resulted in the most liberal policies in the world at the time. The debates at the Constitutional Convention highlight his point, showing just how liberal the Founders had become on immigration and naturalization.

At one point, Gouverneur Morris offered an amendment that would require 14 years of citizenship, rather than four, before a person could serve as a senator, “urging the danger of admitting strangers into our public Councils.” Charles Pinckney of South Carolina seconded the motion, recalling “the jealousy of the Athenians on this subject who made it death for any stranger to intrude his voice into their legislative proceedings.”

Yet as Alex notes, the Romans—rather than the Greeks—informed the views of most founders on naturalization, and most of the representatives at the convention opposed the Morris amendment for fear of, as future Chief Justice of the Supreme Court Oliver Ellsworth put it, “discouraging meritorious aliens from emigrating to this Country.” Alexander Hamilton argued that the “advantage of encouraging foreigners was obvious and admitted,” asserting that “persons in Europe of moderate fortunes will be fond of coming here where they will be on a level with the first Citizens.”

A New Approach To Poverty

A letter in the New York Times from Joel Berg, the chief executive of Hunger for America, caught my eye because it encapsulates the political debate about financial poverty and what to do about it.

Progressives believe that increasing the disposable incomes of the poor via minimum wage rises, expansions of tax credits and benefits (reform conservatives agree here), and government provision of services is the way to go. Plenty of conservatives want to reform existing welfare programs with work requirements or reforms to reduce disincentives  to encourage people to earn their way to higher incomes.

Let’s put aside debate about what the “correct” measure of poverty is. What links the two is that both consider financial poverty (understood commonly) as being about nominal incomes. In one view you alleviate it by transferring money or have government take on the funding of services to reduce out-of-pocket costs. On the other, you incentivize people to earn it.

Income, however obtained, is of course crucially important to individual well-being. Money matters, as do the debates about the efficiency and trade-offs of all these programs.

But focus by policy experts, politicians and the media on the “income-based” narrative of poverty alleviation has left a huge blind spot: that many government policies worsen the finances of the poor by raising the prices of important everyday goods and services. This means any level of income goes less far in satisfying needs - worsening the financial plight of the poor directly, but also driving the very demands for more redistribution and higher minimum wages we see.

Think about housing and the role of zoning and land-use planning laws in raising prices. Child care costs are likewise driven up by stringent staff-child ratios in certain states, without appearing to raise overall quality. Highly regressive tariffs are imposed on imported clothing. Sugar programs and milk marketing orders raise both sugar and dairy prices.

The poor spend the highest proportion, on average, on what we might consider “essential” goods and services. Shelter, food, transport, utilities and apparel together account for 68.3 percent of the $25,318 spent on average by the poorest fifth of households. And yet in all these areas, policies at the federal, state and local levels often structurally raise market prices by restricting supply, raising compliance costs, institutionalizing monopoly power and much else.

Of course all of these interventions are introduced for other reasons: to prevent urban sprawl, to raise the quality of child care, to deal with environmental externalities or to “protect” certain industries, and much else. But the fact is these policies cumulatively raise the cost of living significantly for the poor, and increase the demand for higher government spending and intervention to alleviate poverty. In fact, it most cases they are doubly damaging, as often they reduce economic efficiency too.

This presents an opportunity for libertarians to offer a different perspective on the poverty debate. We should highlight how existing government interventions drive up the cost of living for the poor, and propose a targeted assault on them as a significant “first do no harm” anti-poverty agenda. Serious analysis on how these policies are regressive has been done before, but they are rarely all pulled together into a single narrative that says governments should prioritize undoing these interventions as a nationwide poverty reduction effort.

There are theoretical reasons to think that such an argument – that freer markets are part of the solution to poverty, rather than its cause – could get a better hearing today.

Making the Case, Once Again, That the Opioid Crisis Is a Product of Drug Prohibition, Not Doctors Prescribing to Patients

Martha Bebinger reports for National Public Radio station WBUR about the rise in fentanyl-laced cocaine. She cites numerous accounts of college students using cocaine to stay awake while studying for exams, or while attending campus parties, and then falling into a deep sleep after the initial cocaine rush. Some don’t wake up. Others get revived by the opioid overdose antidote naloxone.

Massachusetts state police recorded a nearly three-fold increase in seizures of cocaine laced with fentanyl over the past year. And the Drug Enforcement Administration lists Massachusetts among the top three states in the US for seizures of cocaine/fentanyl combinations. The DEA says the mixture is popularly used for “speedballing.” The original recipe used heroin mixed with cocaine in order to minimize the negative effects of the “come-down” after the rush of cocaine. Cocaine mixed with heroin is very unpredictable and dangerous. When it is mixed with fentanyl—five times the potency of heroin—it is even more dangerous.

There is a debate among law enforcement as to whether the cocaine is accidentally laced with fentanyl by sloppy underground drug manufacturers, or whether the mixture is intentional. There have been several reports of cocaine users who were unaware that the cocaine they were snorting or smoking contained fentanyl.

Connecticut state health statisticians keep track of opioid overdoses that included cocaine. While the majority of the time the overdose is from the classic “speedball” combination of heroin and cocaine, they have noted a 420 percent increase in fentanyl/cocaine in the last 3 years. However, Massachusetts does not register drug combinations when it records “opioid overdoses,” so it is unknown just what percentage of the 1,977 estimated opioid overdose deaths in Massachusetts last year were in combination with cocaine or other drugs. New York City keeps detailed statistics. In 2016, cocaine was found in 46 percent of the city’s opioid deaths, heroin and fentanyl were involved in 72 percent of opioid overdose deaths, and 97 percent of all opioid overdose deaths involved multiple drugs.

Meanwhile, President Trump and most state and local policymakers remain stuck on the misguided notion that the way to stem the overdose rate is to clamp down on the number and dose of opioids that doctors can prescribe to their patients in pain, and to curtail opioid production by the nation’s pharmaceutical manufacturers. And while patients are made to suffer needlessly as doctors, fearing a visit from a DEA agent, are cutting them off from relief, the overdose rate continues to climb.

The overdose crisis has always primarily been a product of drug prohibition—not of doctors treating patients.

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