We’re Not Talking about Socialized Medicine — I Swear

According to an unnamed “top White House official”:

It’s hard to talk about socialized medicine when the hospitals, doctors, insurers, the private sector players are working with us at the White House.

Let me get this straight.  A president who is ideologically committed to socialized medicine is negotiating with an industry that’s committed to making as much money as possible off of socialized medicine.

But don’t worry.  If there’s one thing they’re not discussing, it’s socialized medicine.

McChrystal and Direct Action

Fred Kaplan and the New York Times say that the decision to replace General David McKiernan with Lt. General Stan McChrystal as the principle US commander in Afghanistan is another step in the COINification of the Pentagon under Robert Gates. They say we’ve replaced a conventional warfare guy with an unconventional warfare guy.

That’s too simple. McChrystal is known for his mastery of the sharp or kinetic end of the counterinsurgency mission. The command he headed from 2003 to 2008 – Joint Special Operations Command – is essentially the operational component of Special Operations Command, which has really become a fifth service. JSOC organizes special operations missions in war zones.  According to many officers, JSOC has also become enraptured with direct action. That means using intelligence from various sources to plan raids, often kicking down doors in the dead of night, interrogating people to generate more intelligence, doing it again immediately, and eventually capturing or killing insurgent leaders with the intelligence gleaned. 

Bob Woodward’s latest book argues that JSOC’s role in employing these tactics in Iraq was crucial to the supposed success of the surge. But some informed observers beg to differ, arguing that standard counterinsurgency tactics and the contributions of Iraqis themselves mattered far more.  Some complain that JSOC’s aggressive tactics and limited coordination with those in the regular chain of command undermined pacification efforts in Iraq and Afghanistan.

In the (recently released!) book on the post Cold War evolution of the US military that I co-edited, Colin Jackson and Austin Long have a chapter discussing the politics of special operations command. They argue that the direct action theory of victory in counterinsurgency is a close relative to the air force’s theory of decapitation, which says you can defeat a nation by attacking its leaders from the air.  They explain that direct action has long been the favored tactic of secret or “black” SOF organizations like Delta Force, but that the wars made it the dominant mission in SOCOM as a whole, crowding traditional “white” counterinsurgency missions like population protection, force training, and civil affairs. To them, that is a problem, because the direct action theory of victory is badly flawed.  You can’t kill your way to victory in these sorts of wars, they argue. That’s particularly true in Afghanistan, I’d add, where distance and poor roads make the exploitation of intelligence far more time-consuming.

I don’t know to what extent McChrystal shares the black SOF worldview. He would probably say that direct action is just part of the toolkit.  It is possible, however, that his appointment reflects a decision to downplay nation-building in Afghanistan and focus more on killing raids and training Afghan soldiers.

It is also interesting to speculate about what Michael Vickers (the Assistant Secretary of Defense for Special Operations, Low Intensity Conflict and Interdependent Capabilities) had to say about this. Vickers – a key advisor to Gates and a carry-over from the Bush administration – is said to be skeptical about troop surges in counterinsurgency, preferring to train local forces.

According to Greg Grant of DoD Buzz:

In a speech before a defense industry gathering last month, Vickers said he foresees a shift over time from the manpower intensive counterinsurgency campaigns in Iraq and Afghanistan to more “distributed operations across the world,” relying on close to 100 small teams of special operations forces to hunt down terrorist networks, part of a “global radical Islamist insurgency.”

I don’t like the across the world part, but if this appointment means more limited objectives in Afghanistan, it’s good news.

A final note on McChrystal: he reportedly runs many miles a day, sleeps only a few hours, and avoids eating until evening to avoid sluggishness. Apparently the iron-man thing goes over well with Rangers, but I think commanders, whose job is mostly thinking, should get a good night’s sleep and three square.

Shocking News: Fannie Mae Is Losing More Money

Yes, I know.  It’s hard to believe.  Fannie Mae continues to lose money and, even more surprisingly, isn’t likely to ever pay taxpayers back for all of the billions that it already has squandered.  Rather, it says it will need more bail-out funds – probably another $110 billion this year alone.

Reports the Washington Post:

Fannie Mae reported yesterday that it lost $23.2 billion in the first three months of the year as mortgage defaults increasingly spread from risky loans to the far-larger portfolio of loans to borrowers who have been considered safe.

The massive loss prompts a $19 billion investment from the government to keep the firm solvent, on top of a $15 billion investment of taxpayer money earlier this year.

The sobering earnings report was a reminder of the far-reaching implications of the government’s takeover in September of Fannie Mae and the smaller Freddie Mac. Losses have proved unrelenting; the firms’ appetite for tens of billions of dollars in taxpayer aid hasn’t subsided; and taxpayer money invested in the companies, analysts said, is probably lost forever because the prospects for repayment are slim.

But the government remains committed to keeping the companies afloat, because it is relying on them to help reverse the continuing slide in the housing market and keep mortgage rates low.

Even as the government bailout of banks appears to be leveling off, the federal rescue of Fannie and Freddie is rapidly growing more expensive. Fannie Mae said that the losses will continue through at least much of the year and that it “therefore will be required to obtain additional funding from the Treasury.” Analysts are estimating that the company could need at least $110 billion.

Freddie Mac, which has been in worse financial shape than Fannie Mae and has obtained $45 billion in taxpayer funding, will report earnings in coming days.

The response of policymakers in the administration and Congress to this fiscal debacle?  Silence.  No surprise there, since many of them helped create the very programs that continue to bleed taxpayers dry.

Alas, this isn’t the first time that the federal government has promoted a housing boom and bust.  Instead, writes Steven Malanga in Investor’s Business Daily:

This cycle goes back nearly 100 years. In 1922, Commerce Secretary Herbert Hoover launched the “Own Your Own Home” campaign, hailed as unique in the nation’s history.

Responding to a small dip in homeownership rates, Hoover urged “the great lending institutions, the construction industry, the great real estate men … to counteract the growing menace” of tenancy.

He pressed builders to turn to residential construction. He called for new rules that would let nationally chartered banks devote a greater share of their lending to residential properties.

Congress responded in 1927, and the freed-up banks dived into the market, despite signs that it was overheating.

The great national effort seemed to pay off. From mid-1927 to mid-1929, national banks’ mortgage lending increased 45%. The country was becoming “a nation of homeowners,” the Times exulted.

But as homeownership grew, so did the rate of foreclosures, from just 2% of commercial bank mortgages in 1922 to 11% in 1927.

This happened just as the stock market bubble of the late ’20s was inflating dangerously. Soon after the October 1929 Wall Street crash, the housing market began to collapse. Defaults exploded; by 1933, some 1,000 homes were foreclosing every day.

The “Own Your Own Home” campaign had trapped many Americans in mortgages beyond their reach.

Financial institutions were exposed as well. Their mortgage loans outstanding more than doubled from the early 1920s to 1930 — $9.2 billion to $22.6 billion — one reason that about 750 financial institutions failed in 1930 alone.

The only serious option is to close down all of the money-wasting federal programs  and laws designed to subsidize home ownership.  A stake through the hearts of Fannie Mae, Freddie Mac, Federal Housing Administration, and Community Reinvestment Act, to start.  Otherwise the cycle is bound to be repeated, again to great cost for the ever-suffering  taxpayers.

The Social Security Trustees Report

Editors’ Note: The post below is an expanded version of Tanner’s initial post at this URL.

The Social Security system’s trustees have released their annual report on the system’s finances and announced that – surprise – the program’s looming financial crisis hasn’t gone away.

Social Security will begin running a deficit by 2016, meaning that just seven years from now the program will begin spending more money on benefits than it takes in through taxes. That’s a year sooner than last year’s report.

Of course, in theory, the Social Security Trust Fund will pay benefits until 2037. But even that figure is misleading, because the Trust Fund contains no actual assets. Instead, it contains government bonds that are simply IOUs, a measure of how much money the government owes the system.

Even if Congress can find a way to redeem the bonds, the Trust Fund surplus will be completely exhausted by 2037. At that point, Social Security will have to rely solely on revenue from the payroll tax – and that revenue will not be sufficient to pay all promised benefits. Overall, the system’s unfunded liabilities – the amount it has promised beyond what it can actually pay – now total $17.5 trillion. Yes, that’s trillion with a ‘T.’ That’s $1.7 trillion worse than last year.

Critics of personal accounts for Social Security have pointed to the decline in the stock market over the last few years as an argument against allowing younger workers to privately invest a portion of their Social Security taxes. Yet studies [more here and here] have shown that long-term investment remains remarkably safe. If workers retiring today had been allowed to start privately investing their taxes 40 years ago, they would obviously have less money than those who retired a couple of years ago.But they would still have more than Social Security promises. And, as the Trustee’s Report shows, a poor economy hurts Social Security’s ability to pay benefits just as it hurts the stock market.

In the end, there are only three possible solutions to Social Security’s problems: raise taxes (and the Social Security payroll tax would have to be nearly doubled to keep the program afloat), cut benefits, or allow younger workers to invest privately.

We can have an honest debate about which of those options is the best choice. But, as the Trustee’s Report makes clear, Congress and the Obama administration cannot continue to duck the issue.

Topics:

AEI Tax Forum

Chris Edwards, Photo by Peter Holden for AEI   Photo by Peter Holden Photography for AEI

I was a panelist at an American Enterprise Institute forum today discussing the proliferation of federal tax credits, particularly for low-income families.

AEI scholars Kevin Hassett, Larry Lindsey, and Aparna Mathur have a draft paper that looks at the idea of consolidating current individual credits into one supercredit. The idea would be to simplify the system and reduce the economic distortions created by these credits, which are valued at about $170 billion in 2009.

My observations included:

  • Obama’s Make Work Pay credit is valued at about $60 billion per year, much of which is “refundable.” (That means it is partly a spending increase not a tax cut). Coincidentally, Obama’s proposed tax hikes for higher-income individuals are also about $60 billion per year. So Obama is damaging the economy with “Make Work Not Pay” tax increases at the top in order to fund dubious work incentives at the bottom. It makes no economic sense.
  •  The AEI scholars provide interesting calculations about how we could make the $170 billion of redistribution in these credits simpler. That’s fine as far as it goes, but I’d like to end the redistribution altogether. Let’s provide a large basic exemption in the tax code for folks at the bottom, but we don’t need any complex credits. Instead, let’s repeal federal policies that damage the budgets of struggling families at the bottom, such as import barriers that raise the price of clothing and federal milk cartels that raise the price of  dairy products.
  • Here’s my compromise redistribution plan. Let’s chop the $170 billion in tax credits in half and use the extra funds to cut the corporate income tax rate. With a purely static calculation, that would allow cutting the corporate rate  from 35% to 25%. Assuming some behaviorial feedbacks, the $85 billion in credit savings would easily allow us to reduce the corporate rate to 20% or so.
  • What do corporate taxes have to do with the workers who currently get all these tax credits? As Hassett and Mathur explained in a 2006 paper, corporate tax cuts would increase investment, improve productivity, and that in turn would raise wages of average American workers. We don’t need President Obama’s fancy new Make Work Pay credits. Instead, we need to cut the corporate tax rate to make the economy boom and raise worker’s wages and incomes in the private marketplace.

What’s Government Good For?

Those of us who are critical of government usually admit that there are a few tasks that government must perform.  Run the roads, for instance.  Yes, toll roads can work well, but it’s hard to figure out a truly private system of , say, city streets.  I realize that some people might view me as being a hopelessly antiquated “policy libertarian” unable to see the possibilities of creative and entrepreneurial people.  But that’s just the way I am.

Still, I’m starting to wonder.  At least, it looks like maybe anarchy on the roads might be better than strict government regulation.  Reports the Times of London:

What would happen if traffic lights were suddenly switched off? Would there be gridlock or would the queues of frustrated drivers miraculously disappear?

People in London are about to find out the answer in Britain’s first test of the theory that removing lights will cure congestion.

For six months, lights at up to seven junctions in Ealing will be concealed by bags and drivers will be left to negotiate their way across by establishing eye contact with pedestrians and other motorists.

Ealing Council believes that, far from improving the flow of traffic, lights cause delays and may even increase road danger. Drivers race towards green lights to make it across before they turn red. Confidence that they have right of way lulls them into a false sense of security, meaning that they fail to anticipate hazards coming from the side. The council hopes that drivers will learn to co-operate, crossing junctions on a first-come first-served basis rather than obeying robotic signals that have no sense of where people are waiting.

Westminster City Council is also considering a trial but has yet to identify likely junctions.

Ealing found evidence to support its theory when the lights failed one day at a busy junction and traffic flowed better than before. Councillors have approved a report which recommended that they “experimentally remove signals since experience of signal failure showed that junction worked well”.

The Conservative-controlled council has won the support of Boris Johnson, the Mayor of London, who is responsible for all 5,000 sets of lights in the capital through Transport for London.

One shouldn’t take Ealing’s lesson too far.  However, the experience suggests that one should never assume that the way things are done are the way they must be done.  We should always be willing to take a fresh look and rethink the status quo, even if we end up deciding that the status quo really is the best approach.