The Agenda

NRO’s domestic-policy blog, by Reihan Salam.

Compassion and Respect


Ross Douthat and Ramesh Ponnuru both addressed the notion that the recent conservative enthusiasm for reforming government in the name of facilitating upward mobility is best understood as the return of compassionate conservatism. Ponnuru argues that while today’s GOP reformers are interested in bettering the lot of the poor, their chief argument within the conservative coalition is that the party has devoted too little attention to the well-being of middle-income families, and in particular to their financial fragility and the extent to which they find themselves burdened by the rising cost of medical care and higher education, among other things. Douthat offers further thoughts on why this appeal to middle-class economic interests is likely to prove more potent in intraparty battles, and why the right be in a somewhat more advantageous position after two terms of Barack Obama than it was after two terms of Bill Clinton. 

Because I agree with Douthat and Ponnuru, I’ll add only that “compassion” has always struck me as the wrong framing device for understanding how we should think about the welfare state. In “A Reciprocal Welfare Program,” Amy Wax lays out the logic of what she calls “conditional reciprocity”:

Most people accept collective responsibility for the poor but adhere to a moralistic distinction between deserving and undeserving recipients of public aid. They view entitlement to group resources as conditional on each person’s reasonable effort, consistent with ability, to support himself and his family. It was speculated that the widespread antipathy to “freeloaders” – that is, persons who depend unnecessarily on others – expresses attitudes that evolved over centuries to stabilize cooperative arrangements for mutual support that enhanced group survival. The popular expectation of a reasonable effort towards self-help defines the principle of conditional reciprocity. This principle continues to enjoy widespread assent in many societies.

Bringing the American welfare state in line with this reciprocity principle would require a number of changes, including making employment-conditional earnings subsidies more generous than they are at present. But were we to succeed in doing so, I don’t think we’d be moving towards a society that is more “compassionate” as such. Rather, we’d be moving to a society in which assistance to those who make a reasonable effort towards self-help is treated more as a sign of respect than of charity or pity. Consider the following passage from David Graeber’s Debt, which a friend was kind enough to share with me recently:

[I]t’s notoriously difficult—often downright impossible—to shift relations based on an assumption of communistic sharing to relations of equal exchange. We observe this all the time with friends: if someone is seen as taking advantage of your generosity, it’s often much easier to break off relations entirely than to demand that they somehow pay you back. One extreme example is the Maori story about a notorious glutton who used to irritate fishermen up and down the coast near where he lived by constantly asking for the best portions of their catch. Since to refuse a direct request for food was effectively impossible, they would dutifully turn it over; until one day, people decided enough was enough and killed him.

Modern America’s sensibilities are thankfully far removed from those illustrated in this grisly tale. By moving away from the reciprocity principle, however, we risk engendering resentment towards the most vulnerable, and to those who are too socially isolated to meaningfully participate in the world of work. Last year, Tino Sanandaji reflected on the fact that Sweden had surpassed the United States in hours worked per working-age adult. While only half of immigrants of non-western origin work, a notably high 85 percent of Swedes work and pay taxes, a rate far above the 70 percent European average. It is not a coincidence, I would suggest, that far fewer Swedes want to increase immigration levels than Canadians, where the gap in labor force participation between immigrants and the native-born is the lowest among the affluent market democracies of the OECD. It seems at least possible that a similar dynamic might apply to low-income aid recipients generally: if the wider public believes that aid flows to those who make a reasonable effort towards self-help, including those for whom a reasonable effort is quite minimal in light of the medical and other challenges they face, voters might be more inclined to back more generous employment-conditional earnings subsidies and other measures designed to better the lives of the poor. 

Another view, which I associate with the socialist egalitarian philosopher G.A. Cohen, is that it is the moral intuition behind the expectation for reciprocity that is suspect. For Cohen, what we should strive for is to stamp out the distrust of those who don’t carry their weight that Wax invokes, and to build an ethic of “from each according to his ability, to each according to his needs.” It’s not clear to me that a society that succeeded in living up to Cohen’s ideal would survive, let alone flourish. But there is plenty of room for disagreement.

Today’s Policy Agenda: Mitch Daniels Is Fighting College Inflation


Mitch Daniels showing the way on higher-ed reform.

Former Indiana governor and now Purdue University president Mitch Daniels is providing a model for fighting college-tuition inflation and reforming the higher-education landscape, as Douglas Belkin reports in the Wall Street Journal:

A year and a half into his tenure, Mr. Daniels has frozen tuition (for the first time in 36 years), cut the cost of student food by 10% and introduced volume purchasing to take advantage of economies of scale.

In May, he rolled out the first results from a Gallup poll of 30,000 college graduates from hundreds of schools aimed at discerning what value a university education adds to a person’s success and well-being. The results have shed new light on a question that has moved to center stage in higher education: What is the real return on investment for a college degree?

With the poll, the former two-term Republican governor of Indiana is drawing a line in the sand against which U.S. higher education can be measured. And by freezing tuition, he is forcing his own school to modernize its 19th-century business model with a combination of systemic cuts, organizational realignments and cash incentives . . .

Mr. Daniels says he is consolidating administrative jobs where prudent and leaving jobs unfilled where the duplication of effort makes that possible. He has jettisoned 10 university cars, consolidated hundreds of thousands of feet of off-campus rental storage and introduced a higher-deductible health-care plan.

He has also created two, half-million-dollar prizes for the first department that devises a three-year degree or a degree based on what a student already knows, not the number of hours he or she sits in a class. This summer, the school offered 200 more classes than last year in an effort to speed time to degree and generate more income for the school.

Daniels’s reforms at Purdue closely hew to the underlying ideas Andrew Kelly recommends in his Room to Grow chapter. Kelly’s proposals, including reforming student loans and making the return on investment at each school more transparent, would make schools sensitive to the cost increases of their product, would encourage them to design a program that more consistently delivers positive outcomes, and push the creation of innovative business models that could change college as we know it.

Capturing working class voters is the key to winning elections.

In The Atlantic, Molly Ball identifies a metric that often predicts the outcome of elections and comes with implications for Republicans hoping to win again:

Republicans consistently win voters making $50,000 or more, approximately the U.S. median income. The margin doesn’t vary too much: In 2012, Mitt Romney got 53 percent of this group’s vote; in 2010, Republican House candidates got 55 percent. And Democrats consistently win voters making less than the median—but the margin varies widely. In fact, whether Democrats win these voters by a 10-point or a 20-point margin tells you who won every national election for the past decade

In 2004, Democrats won the working-class vote by 11 points; George W. Bush was reelected. In 2006, Democrats won the working-class vote by 22 points and took the House and Senate. In 2008, Democrats won by 22 points again, and President Obama was elected. In 2010, the margin narrowed to 11 points, and Republicans took the House back. In 2012, Obama was reelected—on the strength of another 22-point margin among voters making under $50,000.

‘It doesn’t often get reported, but the key indicator that has been decisive for the last several elections is how people making below the median income vote,’ Podhorzer said this week. Black or white, Asian or Hispanic, male or female, young or old, it’s that simple. To reach these voters, Podhorzer believes, candidates need to focus on the economic issues of the working class. ‘Economic populism decides who wins elections in America,’ he said.

The moral case for centering the Republican agenda on middle and lower-class voters should be clear enough, but the evidence above makes clear that from a self-interested, political perspective, Republicans need a domestic agenda that better appeals to the interests and needs of the working class. Luckily, whether it’s Paul Ryan’s new poverty plan or Mike Lee’s family-centered tax proposal or any of the other reform conservative ideas gaining traction, conservatives appear to be well on their way to developing such an agenda, and as Ross Douthat explains this weekend, such an agenda is finally taking shape.

Rand Paul continues his work on criminal-justice reform.

Last week, Paul introduced the FAIR Act which he described in a press release:

Sen. Rand Paul yesterday introduced S. 2644, the FAIR (Fifth Amendment Integrity Restoration) Act, which would protect the rights of citizens and restore the Fifth Amendment’s role in seizing property without due process of law. Under current law, law enforcement agencies may take property suspected of involvement in crime without ever charging, let alone convicting, the property owner. In addition, state agencies routinely use federal asset forfeiture laws; ignoring state regulations to confiscate and receive financial proceeds from forfeited property. 
The FAIR Act would change federal law and protect the rights of property owners by requiring that the government prove its case with clear and convincing evidence before forfeiting seized property. State law enforcement agencies will have to abide by state law when forfeiting seized property. Finally, the legislation would remove the profit incentive for forfeiture by redirecting forfeitures assets from the Attorney General’s Asset Forfeiture Fund to the Treasury’s General Fund.

The FAIR Act seeks to address civil asset forfeiture, a legitimate policy power often unjustly exerted by the government — some of the most absurd abuses were profiled by The New Yorker last year. This is just another positive step for Paul, who also made a speech at the National Urban League conference that earned praise last week. In a large sense, it’s interesting to see the Republican party beginning to take the fiscal and human costs of some elements of our criminal justice system seriously. In his major antipoverty plan proposal, Paul Ryan emphasized the importance of sentencing reform, and Republicans should continue to consider these issues going forward.


Rand Paul’s Popular Constitutionalism


Radley Balko of the Washington Post praises Kentucky Sen. Rand Paul for introducing the FAIR (Fifth Amendment Integrity Restoration) Act, legislation designed to protect citizens against abuses of civil asset forfeiture. Like Andrew Stuttaford, I’m also inclined to support Paul’s effort, though I can’t say I’ve thought very deeply about the issue. What is interesting is that Paul is interested in defending the spirit of the Fifth Amendment, and he’s not willing to leave its defense to the courts. This brings to mind Ramesh Ponnuru’s Room to Grow essay arguing that the work of recovering the wisdom of the Constitution is as much about political arguments made by candidates and elected officials as it is about the decisions made by federal judges:

Conservatives have invested a lot of hope in the courts: in the idea that appointing the right justices and making the right legal arguments will reset our constitutional trajectory. They are right, to a point: The federal courts have an important role in defending constitutional norms. The Supreme Court was right, for example, to set an outer limit to federal power by holding that Congress cannot simply make it illegal to refuse to purchase health insurance.

The task of recovery is too large to be plausibly entrusted in its entirety to the courts. They cannot set right all that is awry with contemporary government. They cannot do that for reasons of politics, of prudence, of institutional capacity, and of judicial restraint. The courts, for example, rightly treat the balance of power between the executive and legislative branches on matters of war and peace as a political question. Because our political culture thinks of the courts as the arbiters of all things constitutional, unfortunately, it tends to treat any governmental practice that the courts have left in place as constitutionally legitimate.

The rise of the Tea Party movement has in recent years begun to counteract this tendency. That movement is in part a revival of popular interest in constitutionalism. Instead of treating the Constitution as the property of lawyers and judges, it proposes that legislators, and even citizen-activists, have an independent duty to evaluate the constitutionality of legislation. Moved by this sentiment, the U.S. House of Representatives now requires legislation to identify its constitutional basis.

Though I often disagree with Paul, he has done much to advance the cause of a political and not just legal constitutionalism, and for that he deserves praise. The subject that I would benefit the most from a robust political constitutionalism is the nature of our federal system of government, a subject that Richard Epstein and Mario Loyola ably address in the new National Affairs.

The Opportunity Grant Is About Flexibility


Since Paul Ryan released his new anti-poverty proposal, much attention has focused on his call for allowing a number of states to experiment with Opportunity Grants, which would consolidate several different federal anti-poverty programs into a single funding stream. Much of the criticism, and praise, for the proposal has centered on one of the Opportunity Grant scenarios described therein, namely one in which caseworkers craft individual responsibility agreements or life plans with beneficiaries. I’ve had positive things to say about this concept of customized life plans, yet it is very important to emphasize that the Ryan proposal does not mandate this case management approach on states experimenting with Opportunity Grants. Rather, there would be a few broad rules: the goal of the state Opportunity Grant effort would have to be helping people with low incomes achieve greater economic self-reliance over time, it would have to require those who are capable of working to either work or engage in work-related activities, and it would have to give a chance to a few different competing service providers, to give recipients some measure of choice. Within these parameters, states would free to pursue a variety of different approaches, provided they test them. The federal government and participating states would have to settle on measures of success, and the state’s performance would be evaluated by some third party.

What are some of the other strategies states might pursue? Perhaps they could devote a substantial chunk of their Opportunity Grant to expanding an existing state earned-income tax credit or creating one. Or they could focus on programs like Georgia Works, which connects job seekers collecting benefits with employers willing to train them as temporary unpaid volunteers, or Texas’s Back to Work Program, which provides employers with a cash payment to defray the cost of training a new employee. There are many possibilities that place little emphasis on case management as such, provided they emphasize work for those capable of doing it. One of the reasons I find case management appealing is that it allows an experienced professional to ascertain the kind of services an individual needs to become work-ready, but it’s entirely possible that some other approach would prove superior.


The Case for Casework


When we survey low-income households in the United States, we find that many of them fall into for relatively brief periods of time. Jamelle Bouie of Slate observes that almost one-third of U.S. households were poor for two or more months from 2009 to 2011, and 44 percent of these episodes of poverty lasted for four months or less. Only 15.2 percent lasted for more than two years. All told, only 3.5 percent of U.S. households were poor for this entire three-year period.

In Bouie’s view, it is this 3.5 percent of households that require casework, which he describes as “mandatory life coaching.” First, let me say that I’m glad to hear that Bouie agrees that at least some number of low-income households could benefit from casework. There are many others who believe that an unconditional basic income on its own is solution enough, so I welcome this common ground.

Yet Bouie is skeptical of my larger view that casework — which I’ve elsewhere characterized as a Danish-style combination of help (targeted assistance) and hassle (accountability) — should play a central role in anti-poverty policy for virtually all households seeking public assistance, not just this kernel of the persistently poor.

And Bouie does raise an important point. Given the episodic nature of poverty for many Americans, is it reasonable to expect that families seeking public assistance ought to, as a general rule, work with a social services professional to devise life plans designed to lead to economic independence, which is to say to reduce their underlying demand for public assistance over the long haul? For Bouie, the fluid nature of poverty in America is a case against this approach. The fact that almost 44 percent of episodes of poverty are relatively brief suggests to him that most low-income households are quite capable of escaping poverty on their own, and that more generous unconditional assistance is what these families need, not life coaching.

My view is different. Though poverty for many Americans is episodic, it is not uncommon for households to experience more than one episode of poverty in a lifetime. Moreover, the households that do experience episodic poverty tend not to earn incomes substantially higher than the poverty level even when times are flush. These households are often one minor disaster or two — one car accident, a few missed rental payments, etc. — from falling back into poverty. While I’m sure it is true that there are many households for whom episodes of poverty really don’t speak to larger problems, and that wouldn’t at all benefit from an effort on the part of a caseworker to understand the root of these larger problems, the solution strikes me as fairly simple: the process of meeting with a caseworker would be pro forma, and the life plan would be quite simple. As I suggested in a recent column, it could entail a really simple intervention. One example that comes to mind is the Homebase program initiated by the Bloomberg administration in New York city.

Homebase, as described by Nicole Gelinas of the Manhattan Institute, offered assistance to New York city families that had fallen behind on their rent and were facing eviction. Recognizing the enormous disruption that an eviction can cause, and the extent to which search and moving costs can deplete a family’s resources, the Bloomberg administration determined, plausibly enough, that helping these families cover their rent in the short-term would save taxpayers a considerable amount over the long-term. Furthermore, it would help ensure that adult beneficiaries of the program wouldn’t experience major interruptions in paid employment, as finding a new job could mean having to miss work, which in turn could mean a decrease in earned income.

According to Gelinas, Homebase aided 10,800 families families in the last year of the Bloomberg administration. She suggests that as many as 650 families might have wound in homeless shelters had it not been for Homebase. One assumes that many of the other families would have found themselves more economically vulnerable in the program’s absence. Homebase is a paradigmatic example of a program that requires some measure of casework, to determine eligibility at the most basic level but also to help families develop a plan — perhaps a very modest plan — to help guarantee that the problems that led them to fall behind on the rent in the first place don’t quickly re-emerge. In effect, Homebase could serve as a substitute for Section 8 housing vouchers for the subset of families that generally earn enough income to afford their rent, yet which experienced a temporary setback. Caseworkers might determine eligibility not just by taking into account family income, but also whether the family in question is likely to keep earning enough to stay in the home. If not, a dedicated caseworker might help the family find a more affordable home or, more ambitiously, craft a plan to boost its earned income over time.

Again, there is no need to assume that a family that finds itself in need of something like the Homebase program is crippled or incapable of making its own decisions. If anything, these are families that have demonstrated a great deal of resourcefulness, as living on a modest income requires a great deal of effort and discipline. Yet these exertions tend to make it difficult to engage in long-term planning. Caseworkers can help such families identify other resources, public and private, that can help families earn their way out of poverty in a more lasting way.

Some will object that forcing the large number of families that experience situational as opposed to generational poverty represents an indignity. This is a powerful charge, well-captured by the phrase “pity-charity liberalism.” When we rely on conditional assistance, so the argument goes, we are in effect demanding that those who seek help come to social services bureaucrats as supplicants, as though they are not entitled to assistance.

Concerns about pity-charity liberalism rest on a commitment to individual freedom, albeit a different kind of individual freedom than the one associated with thinkers on the libertarian right. The basic idea, as I understand it, is that the redistributive state ought to serve as the ally of the individual against other social forces: the depredations of private employers, the expectations of extended family members or religious organizations that might seek to impose rigorous conditions on those who expect help. Employers and extended family and community members might seek to enforce adherence to certain norms, including norms of reciprocity, that at least some individuals find oppressive, and critics of pity-charity liberalism believe that it would be a miserable fate indeed to be subject to such petty tyrannies. This is a view that deserves to be taken seriously, and it reflects a not always unjustified suspicion of how those closest to us can abuse their leverage over us, particularly when we are most vulnerable. The life coach, to use Bouie’s term, is seen as just another petty tyrant, who will impose her views on your life, serving as a stand-in for some other oppressor.

There is, however, another way of looking at the caseworker, and the role she or he might play in the lives of those seeking public assistance. To seek public assistance, in this view, is to have exhausted all other options. The very fact that one is seeking public assistance gives us useful information. What kind of information? One shouldn’t generalize — indeed, the fact that one shouldn’t generalize is precisely why I believe that casework is important. But we can think of a few examples: the decision to seek public assistance most likely means that you don’t have other people from whom you can seek assistance. This could mean that while you have family members with whom you are close, or close and reliable friends, these people are themselves hovering on the edge of poverty, and so they don’t have resources to spare. Or it’s possible that you are socially isolated, and so you don’t have people you can ask for help. Or you could have family members and friends with means, yet your relationship with them is toxic. Or perhaps you find the idea of seeking help from those you love more uncomfortable than that of seeking help from the state. (In Singapore, interestingly, means-tested public assistance programs determine eligibility not just by considering your income, but by considering that of, e.g., your parents as well. This has proven a powerful deterrent to seeking public assistance. The fact that such an approach is all but unimaginable in the United States is telling.) All of this information is useful because it speaks to one’s resilience in the face of crisis.

For example, if you’re socially isolated, you’re by definition disconnected from social networks that can serve as sources of employment opportunities, or as vehicles for the implicit learning that allows people to increase their store of human, social, and cultural capital over time. Connecting or reconnecting such individuals to supportive communities could be crucial to helping them flourish. If you’re instead part of a rich and vibrant community that is nevertheless poor in economic resources, your decision to seek public assistance could actually benefit your wider community — valuable knowledge will be transmitted through the network.

Most families, nonpoor or poor, are embedded in communities. The difference, in my limited experience, is that members of nonpoor communities tend to use their fellow community members as resources in their efforts to achieve upward mobility while members of poor communities are often reluctant to use their fellow community members in the same instrumental way. Culturally isolated and otherwise marginalized communities that don’t have access to public assistance often have little choice but to rely on various forms of mutual self-help, like those that existed among African Americans in the Jim Crow South and in segregated urban centers and that those that have formed among various immigrant communities. Mutual self-help still exists, yet its institutional manifestations seem to have decayed as U.S. culture has grown more individualistic and as the state has grown more inclusive. Civil society cannot, in my view, replace a robust safety net. There are some things, however, that mutual self-help networks can do better than the state, e.g., impart implicit learning or facilitate the transmission of beneficial social practices that must first be validated by in-group members, etc. And so the fact that mutual self-help networks, including invisible mutual self-help networks, are stronger among the nonpoor than the poor is a serious problem, albeit one that is hard to capture through anything other than ethnography.

What does any of this have to do with casework? Essentially, I see casework as a substitute, albeit a decidedly inadequate one, for mutual self-help networks. In an ideal world, casework might even contribute to their revival. For now, at least, casework strikes me as the best tool we have to see to it that the right help goes to the right people at the right time.


Paternalism and the Ideal of Self-Support


Because I found Paul Ryan’s new anti-poverty plan interesting and important, I wrote about in two separate columns, the first of which tried to place the plan in a larger political context and the second of which more specifically addressed the emerging critique that Ryan’s plan is far too paternalistic. Annie Lowrey of New York offers one distillation of the paternalism charge that is clear and concise. 

First, what exactly do we mean by “paternalism”? The idea is that some authority, like a schoolteacher, limits the rights and responsibilities of some subordinate, like a pupil, in their own best interest. Not all social programs are paternalistic. Social Security, which Lowrey addresses, is not. But why is it not paternalistic? One obvious reason is that a Social Security beneficiary is a contributory, i.e., one pays into the system over the course of a working life, and one receives benefits after a set period of time in exchange for said contributions. Unemployment insurance is broadly similar.

Yet there are other programs that are better understood as public assistance — the assistance that we seek out when we’ve fallen on hard times that goes beyond what contributory programs will offer us, perhaps due to a patchy work history, or when we lack the skills and the networks we need to find employment or family support in the first place. We could give people who seek public assistance money on demand. And for some people, particularly those who already have the skills and the networks they need to flourish, but who are temporarily suffering from a shortage of cash, this could work very well. For those who lack the skills and the networks they need to thrive, and for those suffering from substance abuse or the lingering effects of a chaotic upbringing, however, cash alone is unlikely to yield much improvement in the capacity for self-support. One question is whether we should value “self-support” as such at all. There are many who believe that self-support is a myth, as we live in an interconnected society, and that the ideal of self-support is itself noxious and reactionary. The truth is that I have little to say to such people. Brink Lindsey has done an able job of walking through some of the reasons why we might value self-support through paid employment as valuable, but my sense is that the extent to which we value self-support depends to a large degree on our underlying moral sensibilities.

What is worth mentioning, however, is that the paternalism of Ryan’s anti-poverty plan is certainly not without precedent. The 1996 welfare reform law required that TANF beneficiaries develop “individual responsibility plans.” States have met this requirement in a number of different ways. The basic idea is that beneficiaries make commitments and develop individualized plans with goals and metrics in concert with a caseworker. What’s new about Ryan’s proposal is that it envisions treating far more of the anti-poverty spending pie in the same way. This would mean that more resources would be at the disposal of caseworkers working in concert with individuals in need of assistance, and also that more of the anti-poverty spending pie would be treating as a bridge to self-support rather than permanent assistance. 

The Revenge of the Badly Drafted Statute


I’ll say right now that I’m not a Halbig guy. That is, I’m more interested in building the substantive case for rolling back and replacing Obamacare than on teasing apart the statute. I have enormous respect for Jonathan Adler and Michael Cannon, both of whom are exceptionally intelligent and public-spirited. But like the University of Chicago’s Will Baude, my guru on all things legal and constitutional, I am (at best) agnostic on whether Halbig is correct. 

What I do find interesting is the possibility that one of the recurring themes of opposition to the health law from the Tea Party right might have hit the mark: lawmakers really don’t seem to have understood what they were voting on. Daniel Fisher of Forbes shares thoughts from Chris Condeluci, a former Senate Finance Committee staffer:

“Congress always intended for the federal exchanges to do everything the state exchanges do, one of those things being the federal subsidy,” said Chris Condeluci, an employment lawyer with Venable in Washington who was tax counsel to the Senate Finance Committee from 2007 to 2010. “I can say, even as a Republican, Congress always intended this, we just didn’t indicate it through legislative history because the process was so screwed up.”

Yale Law School Professor Abbe Gluck does an excellent job of explaining how the process was screwed up in this post from last December. After Sen. Ted Kennedy died and was replaced by Republican Scott Brown, the Democrats lost their filibuster-proof majority and fell back on the blunt tool of reconciliation to smash together the House and Senate versions of the healthcare bill. That left “a very badly drafted statute,” in Gluck’s estimation, with three Section 1563s and the seemingly ironclad instruction to the Internal Revenue Service that it can only issue healthcare subsidies to people who buy insurance on state-operated exchanges.

This doesn’t suddenly mean that I’m cheering the outcome in Halbig. But there is a neat symmetry. If you believe, as I do, that one of the virtues of bicameralism, and the “gridlock” that flows from it, is that it serves as a restraint on partisan majorities when they attempt to advance legislation that does not in fact have deep and durable public support, then Halbig looks something like a tissue rejection. The political chaos that followed Kennedy’s death was a sign to some in Democratic circles that the time had come for Democrats to cut their losses, in light of the apparent lack of deep and durable public support. Yet the president, bucked up by Speaker Pelosi and others seeking a legacy achievement, chose to forge ahead with “a very badly drafted statute,” and here we are, several legal challenges deep with no end in sight.

The reason I don’t seek Halbig as something to celebrate is that, as I argued earlier this week, the challenges facing the Affordable Care Act are challenges that conservatives will also have to face as they seek to reform the health system and other large, lumbering, failing American institutions. And the greatest challenge of all is to build a deep and durable consensus, which reaches out beyond self-identified conservatives to include most moderates and perhaps even some liberals. Conservatives tend to neglect the importance of building a deep and durable consensus to implementing reforms that last, and that’s a problem. I happen to think that as the left falls back into 1979 mode — we’re literally having an argument over whether it is wrong to expect able-bodied adults to work or to seek work in exchange for public assistance — conservatives have an opportunity to win over a broader swathe of the population, including a broader swathe of the young. But realizing this opportunity will will require a greater focus on the demand side of government: conservative neglect of the need for health-system reform gave liberals an opening to pass sweeping health legislation. If conservatives don’t implement conservative reforms that address real problems to the satisfaction of voters, the right will keep finding itself fighting rearguard actions.

How Paul Ryan Has Changed the Debate Over Poverty and the Minimum Wage


Paul Ryan’s new anti-poverty proposal is sprawling and ambitious, and it will take some time to unpack the many ideas contained within it. Callie Gable has written an able summary, I’ve offered some preliminary thoughts on how it fits in the context of Ryan’s role in the Obama era, and Ross Douthat has discussed how the proposal fits in the larger conversation over reforming the Republican Party. Recent months have surpassed my expectations. Utah Sen. Mike Lee’s willingness to embrace family-friendly tax reform was an early indication that something was afoot, but Lee is a junior senator from Utah who, for all his intellect and ideological rigor, is not the GOP establishment — quite the opposite. The warm reception of the YG Network’s superb Room to Grow was another sign that there was a real appetite on the right for a more substantive conservative domestic policy agenda focused on the barriers to upward mobility. And a series of speeches and initiatives from Florida Sen. Marco Rubio stimulated discussion and debate on the right while demonstrating that at least one ambitious conservative was unafraid to embrace the cause of policy innovation, with an explicit focus on the need to reform federal programs to make them more work-friendly. Rich Lowry and I argued several months ago that the GOP should be “the party of work.” We weren’t writing as voices in the wilderness. We were anticipating what looks to be an emerging consensus, or so we hope.

Enter Ryan and his anti-poverty proposal. Briefly, I just want to remind everyone that the great Republican failure of the past year has been the frankly pathetic inability of the party’s standard-bearers to counter calls for a steep increase in the one-size-fits-all federal minimum wage. We have often discussed why a federal minimum wage increase is an unwise idea, and many others, including Andrew Biggs and Mark Perry, have done the same. I’ve often argued that if we care about increasing the disposable income of poor families and giving them the ability to accumulate savings, we really ought to focus on the cost of living by, for example, tackling local land-use regulations, which raise the cost of housing while effectively denying poor people access to remunerative employment opportunities. Suffice it to say, this is not an issue for the federal government to take on. The better known and more widely embraced alternative to an increase in the federal wage, an increase in federal wage subsidies, actually is in Congress’s hands. Rubio has advanced the idea that wage subsidies should increase for childless workers. We at National Review have published a number of articles to that effect, and it’s long been a hobbyhorse of mine. And Michael R. Strain of the American Enterprise Institute has done yeoman-like on what a wage subsidy increase should look like, as has friend of The Agenda Oren Cass.

But there’s been one small problem, which is that actually existing Republican lawmakers have been reluctant to raise the actually existing earned-income tax credit (EITC). Ezra Klein wrote a stinging post at Vox on this subject back in May, riffing on a typically excellent Ramesh Ponnuru column:

“The typical pattern for Republicans on minimum-wage increases is to hold out for a while, sometimes even a few years, then acquiesce,” writes Ramesh Ponnuru at Bloomberg View. But he thinks there’s a better way. In particular, he thinks there are better policies Republicans could propose that would help the same people.

One, he says, would be expanding the Earned Income Tax Credit, “an earnings subsidy that targets poor households much better than the minimum wage does and poses no threat of destroying jobs.”

There’s only one problem: Republicans oppose expanding the Earned Income Tax Credit. In fact, they’re trying to cut it.

Indeed, Klein singles out Paul Ryan and the Ryan budget for trimming the part of the budget (“the income security budget function”) of which the program is a part. Now, however, Ryan has not only embraced expanding the EITC for childless workers — he has largely embraced President Obama’s proposal for doing so, the difference being that he favors funding it via different means, the details of which will (of course) have to be fleshed out in the future. 

The EITC is not a perfect program, and there is an ongoing debate over how exactly it impacts the labor market. There is room to reform the EITC. Yet it is hard to deny that for workers with modest skills who’ve found that the market value of their labor has been under severe pressure, it has been a lifeline. Ryan has, in this discussion draft at least, chosen to accept the EITC’s flaws for now and to expand it. When asked to put up or shut up on raising the returns to work for low-wage workers, he has decided to put up. That strikes me as a pretty big deal. Where Ryan leads, let’s hope other GOP lawmakers will follow. 

Further thoughts: In the past, Ryan has expressed an interest in Britain’s Universal Credit, a concept devised by Iain Duncan Smith, who currently serves as the secretary of state for work and pensions. Yet the Universal Credit, which aims to consolidate a wide array of anti-poverty benefits, has suffered from severe implementation difficulties, as Nigel Morris of The Independent reports:

One wonders if this is part of why Ryan has decided to stick with the EITC in roughly its current form rather than embrace a radically new structure, at least in the near term. 

The new credit, which combines six working-age benefits and credits into a single payment, has been championed by Iain Duncan Smith, the Work and Pensions Secretary, as a way of ensuring the unemployed always have an incentive to find a job.

Under his original timetable, 1 million people would be receiving the payment by April, rising to 1.7 million a year later.

But the DWP admitted that only 3,200 had been enrolled for Universal Credit by the end of November, nearly all of them as part of a pilot scheme in four job centres in the North-West of England. The vast majority are young single jobseekers, the least complicated category of claimant.

The British left has been more scathing still, as the implementation has proven enormously expensive. The Universal Credit may well be a good idea that has nevertheless proven premature. In light of the problems still plaguing the new insurance exchanges, it is easy to see why Ryan might have shied away from a potentially very complicated overhaul of the EITC. 

Guest Post by Oren Cass: Paul Ryan and the Transformation of Anti-Poverty Policy


Editor’s note: In the following post, Oren Cass, Governor Mitt Romney’s Domestic Policy Director in the 2012 presidential campaign and author of “The Height of the Net,” a call for a new conservative approach to fighting poverty, addresses two central aspects of Congressman Paul Ryan’s new anti-poverty proposal. 

Congressman Paul Ryan is out today with a series of anti-poverty proposals. (See Callie Gable’s summary.) Here I focus on the first two – the creation of “Opportunity Grants” and reform of the Earned Income Tax Credit (EITC).

Underlying Ryan’s approach are four principles that are quickly becoming central to the conservative approach to anti-poverty policy. (I wrote about these principles and offered a set of proposals in National Review last fall and Senator Marco Rubio has built his own platform around similar proposals that advance these principles as well.)

1. Anti-poverty policy is not budget policy. Until recently, the conservative approach to anti-poverty programs has been to target them for budget cuts while asserting that such cuts would actually make the programs more effective. (See, e.g., Medicaid block-granting.) Spending reductions in such programs may indeed be necessary as a component of broader budget reforms, but they do not amount to an affirmative approach to the challenges faced by America’s poor. Ryan’s new proposal is deficit-neutral, which allows him to focus on the question of how to most effectively structure assistance to the poor independent of the question of how much we can afford to spend on those efforts.

2. Direct assistance is necessary. The free-market, supply-side impulses of conservative policymakers have often led them to emphasize anti-poverty solutions that directly strengthen the economy and only by implication provide increase opportunities for the poor (i.e., “You know what would really help the poor? Deregulation.”). Such reforms are necessary, but they are not sufficient. The Ryan proposals, by contrast, embrace the centrality of direct government assistance as a critical weapon in the War on Poverty and one where fresh conservative ideas are needed.

3. The safety net must be untangled. Accepting that direct assistance is necessary, the first reaction is often to propose some new form of direct assistance, or to choose an existing program to improve. But it is the endless tangle of federal programs working at cross purposes with inconsistent rules and goals that have made the safety net so ineffective in the first place. Thus, Ryan rightly focuses his reform up a level, at changing the structure of assistance altogether. His proposed “Opportunity Grants” would allow states to receive all of their federal anti-poverty spending as a lump sum rather than through a multitude of narrow programs. The flexibility created by such grants will give states the room to pursue more specific reforms with the potential to deliver results.

4. Cash is king. Conservatives have long paid lip-service to the merits of the EITC as a poverty-fighting approach. While most assistance actually discourages self-sufficiency by providing support that declines as the recipient earns increasing wages, the EITC is tied directly to those wages and amplifies the incentive to work. And because the EITC is a direct tax credit it puts cash into the pockets of those in need, rather than passing it through a network of poorly designed bureaucracies. But the EITC is expensive and so actually expanding it is rarely contemplated. Ryan explicitly calls for an expansion of the EITC, with the specific and important objective of increasing its support for childless workers (whereas the EITC today goes almost entirely to those with children).

Comparing the various proposals that work from these principles also highlights some of the debates that will be critical going forward – for instance, I see a few areas where his proposal could be improved upon:

1. What about healthcare? Ryan excludes Medicaid from his Opportunity Grants. But truly untangling the safety net requires disassembling Medicaid and allowing that funding to be reallocated, either to new healthcare programs or in some instances to different ends entirely. Our current allocation of spending across healthcare, housing, nutrition, training, etc. is an arbitrary artifact of separate legislative authorizations and bureaucracies evolving over decades. We should not be segmenting healthcare (which is as large as all the other buckets combined) as somehow untouchable, especially when it is not where someone in poverty would likely want to spend a marginal dollar. Ryan may have other plans for Medicaid, but there are plenty of policymakers with other ideas for housing, and nutrition, and training, too. If states are to have a chance at succeeding with alternative approaches, they need to be given the full range of tools and resources.

2. How much federal oversight? Ryan’s Opportunity Grants come with a number of requirements and reviews attached, to ensure that states use their newfound flexibility effectively. But this presumes a default that the federal government should be in charge, with states receiving permission to chart a different course only at the pleasure of an HHS bureaucrat. Nothing in the federal government’s track record provides a basis for such a presumption. To the contrary, such strings impose not-necessarily-correct policy preferences on states while inviting politicization and manipulation by an Administration.

3. What form and size of wage subsidy? Ryan proposes reforms to the EITC that bring it closer to a wage subsidy (e.g., tying it directly to each paycheck), but for reasons unclear does not go the final step of simply replacing one with the other. More problematic, the expansion he proposes is small in both scope and scale – the result of funding it only through the cancellation of a potpourri of small programs. For a work-incentives-led approach to be effective, funding to a wage subsidy needs to expand far more dramatically – ideally by reallocating it from existing anti-poverty programs that already go to those who work.

But any of the proposals working from these principles is a major improvement both on what conservatives have offered in the recent past and on the never-changing more-programs-more-spending approach from the other side. As more policymakers work from these principles toward innovative reforms the proposals will only get stronger.

Here’s What’s in Paul Ryan’s Anti-Poverty Plan


Representative Paul Ryan, chairman of the House Budget Committee, is releasing a major document this morning laying out a conservative approach to reforming federal anti-poverty programs (he’s speaking on it this morning at the American Enterprise Institute). Not all of his proposals are specific legislation and some endorse existing legislation. Roughly speaking, here’s what in it:

Offer states the option of a big block grant to replace existing federal welfare programs

Ryan proposes a pilot program called the “Opportunity Grant,” which offers states the ability to use the funds they currently get for a range of programs to run individually focused programs specifically intended to help needy individuals achieve upward mobility and stay out of poverty long term. (If states want, they can stick with running the existing federal welfare programs, which offer very little flexibility in the way of implementation.)

The Opportunity Grant would consolidate several existing aid programs into one funding stream to states, which states would then be required to offer to recipients of means-tested welfare benefits as part of a consolidated recovery and mobility plan. Disadvantaged Americans would each be pared with an individual case worker, with whom they would agree on personalized short and long-term goals (e.g., apply for child support or begin drug counseling) set out in “contracts.” Most important, Ryan is building on the success of the 1990s welfare-reform laws here: A key element of the contracts would be encouraging work, which, currently, only cash welfare requires. Food stamps, federal housing aid, utilities assistance, and more don’t have work requirements — this would essentially mandate that states opting for the Opportunity Grant implement work requirements.

States would have flexibility to choose whether private contractors or state agencies provide case management: however, the providers and approaches states choose would be subject to third-party review, based on success measures agreed upon by state and federal government. A portion of OG funding would be earmarked for exploring new programs, providers, and approaches to replace ones shown to be ineffective.

Expand the EITC and make it work better

Ryan, citing evidence that the Earned Income Tax Credit is a proven way to reduce poverty and encourage work, wants to make the EITC more accessible to families, and expand it for childless adults, who aren’t currently eligible. For one, this means simplifying the EITC application, which currently includes 39 pages of instructions and up to 12 separate forms. He also suggests that the Treasury Department should look into ways of including the tax credit in each paycheck, rather than offering it as a one-time grant in one’s tax refund.

Ryan’s plan would double the size of the EITC for childless adults (see below) and reduce the age for that group from 25 to 21.

To finance this expansion, Ryan proposes eliminating other programs shown to be ineffective and reduce corporate welfare such as subsidies for energy and agriculture.  

These reforms would expand the credit in ways which better incentivize work and attract young adults to the workforce than the status quo or other some other popular proposals. Workers are likely to benefit more from EITC reform than from a minimum-wage increase, Ryan argues. President Obama’s 2015 budget also proposed expanding the EITC for childless adults, and Ryan notes that there are other proposals to do so in Congress — but he doesn’t want to fund it with tax increases.

Fix federal education funding, partly with block grants

As shown below, America is spending more than ever on education, but outcomes have largely been at a standstill since the 1970s.  

To improve outcomes, Ryan wants to adjust the way the federal government spends the billions of dollars it does every year on supporting education at all levels:

Begin with Head Start: Ryan’s plan would convert Head Start funding into a block grant to states, so each state can experiment with different models for early education while spending the bulk of funding to implement the means-tested programs that best fit their state’s needs; states and providers will be held accountable for outcomes. The existing federal Child Care Development Fund program, which finances child care for low income families, would be incorporated into the OG program so case managers could work with parents to seek out quality care options that best coordinate with their schedules.

To improve primary and secondary education, Ryan proposes converting Title 1-A funding into a block grant that is connected to each child to encourage parents to move their children into schools that offer the programs that best fit their needs. All other programs funded by the Elementary and Secondary Education Act — which run to dozens of different federal programs, all with their own rules and mandates — would be consolidated, and the funds would be sent to states in the form of a flexible block grant.

Ryan wants to fix federal higher-ed financing: simplify the federal application for financial aid (“FAFSA”) and expedite the process of finding out how much they’re getting in aid — way ahead of time, in fact, as early as the eighth grade. He also wants to reform the Pell Grant program to increase financial flexibility, and cap the size of federal loans available to grad students (which make up a huge share of the federal student-loan program).

Break the accreditation cartel: Americans would have more options for earning degrees under Ryan’s plan. His proposal would reform the accreditation process to allow accreditation not for just institutions but for specific courses, including Massive Open Online Courses, and base accreditation decisions more heavily on student outcomes. Accreditation is important because students can only receive federal aid if they institution they attend is accredited. The cost of gaining accreditation, which is prohibitively high for some new institutions, would also be lower, further expanding educational opportunities for Americans.

Consolidate federal jobs programs: As has been a matter of bipartisan consensus for a while, Ryan wants to consolidate the dozens of federal jobs-training programs and coordinate better with what employers want, but also open up more financing options for technical education:

This streamlined approach would give workers more options and taxpayers more accountability . . . States could also expand access to technical education, like Career Academies, which educate high school students and have shown to increase earnings for participants…#Coupled with accreditation reform, this reform would allow states to develop training programs that could receive national certification. In short, we could help close the skills gap by expanding the range of options.

Acknowledge that mass incarceration is a huge impediment to mobility and progress, and start addressing it

Noting that prison sentences have negative long-term economic consequences not only for inmates, but also for their families, Ryan proposes two major measures:

He supports an effort in Congress, sponsored in the Senate by Senators Mike Lee and Dick Durbin, to give federal judges more discretion in sentencing non-violent offenders, who can be subject to substantial mandatory minimum sentences.

And he wants to make rehabilitation easier for inmates currently in federal prison: Programs intended to reduce recidivism exist, but most inmates don’t enroll in them — in fact, enrollment in some has dropped over the years: 


These programs would be more effective, Ryan argues, if judges and prison administrators could target them toward individuals at the highest risk for committing another crime and heading back to prison. He endorses a bill in Congress now that proposes to do that, sponsored by Representatives Jason Chaffetz (R., Utah) and Bobby Scott (D., Va.).

(The document also endorses and promises cooperation with a number of reforms like this on the state and local levels — which have been especially popular in red states.)

Get rid of regressive regulations

Ryan proposes a three-part congressional review and approval process for regulations that would place special consideration on a rule’s negative impacts on low-wage jobs and low-income families. The general justification for a regulation’s being in the public interest would have to be both immediate and compelling to get a regressive regulation improved.

The plan also points out that expensive occupational licensing requirements — a state and local issue, not a federal one – are particularly detrimental to low-income individuals, and suggests that state, local, and federal governments work to eliminate needless licensing regulations.

Emphasize evidence-based policy-making

Throughout Ryan’s plan, there’s a premium placed on ending programs that we have no evidence to suggest they work (or evidence that they don’t work, in fact), while expanding programs that do work and are proven to have important spillover effects (the EITC, for instance). But many federal programs are just never assessed, period, or the assessment information isn’t disseminated, so Ryan proposes creating a Commission on Evidence Based Policy Making, which would look into the possibility of creating a National Clearinghouse for Program and Survey Data — in theory, such an institution should be able to consolidate data on federal programs and assess their effectiveness in a useful way that protects privacy.

Stop Talking about Teacher Pay without Even Mentioning Pensions


Vox has a piece today discussing how little we supposedly pay teachers, noting that teachers’ salaries can often be lower than those of, say, auto-repair workers. In fairness, they’re working from a report from the Center for American Progress, which should know better and have more scholarly integrity than this.

But it just makes no sense to compare teachers’ cash salaries with those paid by private-sector professions.

Most obviously, teachers are earning pension wealth as they work, represented by future cash flows guaranteed to them by most states and municipalities. Almost no private-sector jobs offer programs like this — they do offer certain retirement benefits, but they’re on average vastly less generous. This isn’t the easiest thing to take into account, but it’s ridiculous to compare salaries so much as mentioning the fact that most teachers will keep getting paid a significant chunk of their salaries after they retire. How big that chunk is varies, of course, but it’s equivalent to having hundreds of thousands of dollars in savings. Do most auto mechanics in South Dakota have that in the bank?

This isn’t the first time Vox has pulled this same trick, though last time, the problems were even more significant: Matt Yglesias compared the salaries of lawyers and financial managers to teachers, when it’s fairly obvious that the two groups of people doing those jobs, and the jobs themselves, differ dramatically. And that’s before we fairly compare compensation: Besides pensions, teachers on average get extremely generous health-care benefits while working, and often in retirement; extreme job security is also a form of compensation. The fact that these are, as I’ve argued, inefficient forms of compensation doesn’t make them less valuable to the people they attract.

One final issue with Vox’s piece: The reporter notes that U.S. teachers are “not as well when compared to other American college graduates.” This may, again, bother some people, but it makes a lot more sense when you consider that majoring in education is one of the least rigorous ways to get through college.

CAP’s work is also odd, and they’re held, as far as I know, to higher editorial standards than what Vox’s foibles have suggested. Their main point is that middle- and late-career teachers don’t see their incomes rise as much as people in other professions do. Leaving out pensions here is especially misleading, and basically is the only way they end up having a point: Teachers see the compensation they’re earning in terms of future pension wealth accelerate dramatically in the latter half of their careers, which would largely erase the lack of salary raises.

And it may seem like a nice idea to reward long-serving teachers, but in a world of scarce resources, this isn’t a good policy priority at all: Teachers don’t get any better in the middle and latter parts of their careers. (It’s a fairly well accepted finding that they get better in the first few years, maybe the first five or so, and then don’t get any better.) If teachers got more step raises, as CAP points out they do in other countries, this would actually worsen a bias toward paying older teachers more than younger ones, and directing compensation dollars where they aren’t best used.

Now, this isn’t to say that there isn’t a case for paying teachers more in certain ways – there is a great case for doing so, because great teachers are very valuable. I’m not sure it really requires higher education spending overall, because so much compensation is inefficiently distributed and because, with better teachers on average, we could probably stand larger class sizes. And at the end of its report, CAP alludes to a couple good and a couple not-so-good ways school districts have increased compensation with the intent of paying good teachers more, not paying all teachers more. (A not-so-good model is where teachers are paid more for accumulating training or education, which, as such programs stand, doesn’t seem to make them any better at teaching.)

That’s how we should be reassessing teacher compensation: figuring out how to attract and motivate highly effective teachers, rather than considering some vague sense of social justice about what teachers are owed based on how much we care about them, which is what the Vox piece and much of CAP’s report get at.

The Death of Australia’s Carbon Tax


Speaking of robust and not-so-robust reforms, Australia has repealed its unpopular carbon tax. Though domestic carbon pricing mechanisms are popular among environmentally-minded economists, the case for it is much weaker than is commonly understood in wonk circles, as Oren Cass and Samuel Thernstrom have made clear in this space. And if anything, the case has grown weaker as the European Union has struggled with its Emissions Trading Scheme (ETS) while the U.S. has experienced a notably high level of decarbonization associated with rising reliance on natural gas. Australia’s carbon tax has been something of a crusade for the country’s center-left, which pursued the policy despite its unpopularity, and it has been resisted not only by voters buffeted by rising energy prices (which, in fairness, are rising for a number of reasons), but also by many of Australia’s principal industries, including, of course, the mining industry. Rob Taylor and Rhiannon Hoyle of the Wall Street Journal report on the potential international implications of the decision, spearheaded by Australia’s still-newish center-right government:

The Brookings Institution has previously described Australia as an “important laboratory and learning opportunity” for U.S. thinking about climate change and energy policy, as it was one of the first major countries outside Europe to adopt a carbon price. The country was also comparable in many ways to the U.S., with similarly energy-intensive lifestyles, industries and per capita greenhouse gas emissions.

One obvious implication is that the profound unpopularity of Australia’s carbon tax and its rapid reversal is a lesson that Americans should heed. 

Emissions programs are already in place in Europe and parts of the U.S. and Canada, as well as Japan and Australia’s trans-Tasman neighbor New Zealand. South Korea is expected to begin emissions trading next year, while China is proceeding with pilot schemes in seven locations. Europe’s emissions market covers 31 countries and 40% of total greenhouse gas output inside the bloc.

What Taylor and Hoyle neglect to mention is that in 2007, Canada’s center-left Liberal Party ran on a domestic agenda centered on a “green tax shift,” and the Liberals were decisively defeated by the Conservatives, who explicitly opposed a carbon tax. And it’s not obvious that South Korea’s emissions trading scheme will prove durable. 

Britain in 2008 also committed to slashing emissions by at least 80% by 2050 when measured against 1990 levels, while the U.S. Environmental Protection Agency has finalized regulations that aim to deliver carbon pollution cuts of 30% from power plants by 2030 when compared with 2005 levels, giving teeth to U.S. President Barack Obama’s promise to tackle climate shift through mechanisms putting a price on carbon.

The consensus around Britain’s Climate Change Act has, however, been deteriorating since 2008, and George Osborne, Britain’s Chancellor of the Exchequer, often touts the benefits of fracking, which can be understood as a proxy for a technology-first approach to energy and climate policy.

But there have been backward moves as well. Japan last year retreated on pledges to cut greenhouse emissions, blaming the shutdown of its nuclear plants in the wake of the 2011 Fukushima nuclear disaster for a decision to release 3% more greenhouse emissions by 2020 instead of a 25% cut on 1990 levels previously promised. Closing down nuclear power forced the world’s fifth-biggest emitter to rely on fossil fuels for electricity generation.

“There is no question there is fragile trust and ambition around the world,” said John Connor, chief executive of Australia’s Climate Institute think tank. “At international climate talks last year in Warsaw Japan, Canada and Australia were standouts in going backward, and so steps like this do matter.”

Taylor, Hoyle, and Connor characterize these “backward” moves as outliers, yet they can also be seen as part of a larger trend — one that includes ongoing revisions to Europe’s ETS: a recognition that a pricing- or regulation-first strategy might not be the best way to approach carbon emissions. Cass explains the underlying dynamic well:

If carbon emissions actually had a quantifiable, linear, ton-by-ton cost then the Sophisticated Objection would make no sense because the value of action at home could be measured independent of what action was or was not taken abroad. If we gain the same benefit every time we reduce emissions by another ton, why would we care what China does? But of course, as [Cass] Sunstein acknowledges by taking the Objection seriously in the first place, this is not how climate change works.

Because we do care what China does, and because the notion that they will cripple their ability to grow by raising energy prices because, well, we’ve done so first, is not credible, the key to reducing carbon emissions is encouraging fundamental breakthroughs in low- and zero-carbon energy that will give rise to attractive business models that don’t require artificial subsidies, and that thus can spread rapidly across borders, and in particular to the developing world. Instead of moving backward, Australia, Canada, the U.S., and other countries can move forward by deepening their scientific collaboration and recognizing the importance of what Thernstrom call’s energy innovation reform. But it’s not inevitable that these countries will pursue better innovation policies. This is a domain where conservatives can and should play a role.

Today’s Policy Agenda: Birth Rates Are Down Because Couples Can’t Afford Parenthood


Paul Ryan is about to release a comprehensive, deficit-neutral anti-poverty proposal.

Paul Ryan is set to unveil a new plan for fighting poverty at the American Enterprise Institute on Thursday, and Zachary Goldfarb of the Washington Post has a sneak peak:

Ryan will announce the new proposal Thursday amid a battery of ideas aimed at reshaping the GOP as a party seeking to boost the fortunes of the poor and working class. He will endorse an expansion of a tax-credit for the working poor similar to one that President Obama has also proposed and other measures to overhaul education and criminal justice programs . . .

Ryan is not proposing any spending cuts, and he will pledge that the resources given to the state will equal what it would have received under the current law. “It is important to note that this is not a budget-cutting exercise—this is a reform proposal,” according to a Ryan document obtained by The Post. The new state grant will be called an “Opportunity Grant.” The document says state initiatives would be subject to accountability standards.

It will be exciting to see what Ryan puts forward after over a year of fleshing out the issue, and expanding the EITC seems like a great idea. But the most important part of the story is the quote from his aide that Ryan’s approach to the issue doesn’t emphasize finding net budgetary savings. Especially when the drivers of our long-term fiscal imbalance are health and old-age entitlement programs, conservatives don’t need to fight for cuts to our safety net. But by applying conservative principles to the problems facing the poor, policymakers could certainly use the same amount of resources to achieve much better results.

Technological change is terminating some jobs.

For the Upshot, Claire Cain Miller reviews a new study of the effects of technological change on the labor market.

The American work force has been growing polarized for decades. On one end, there are highly skilled jobs like writing software or performing surgery, and on the other are service jobs like child care and cutting hair. The jobs in the middle, meanwhile, such as factory work, sales and bookkeeping, are shrinking – one of the reasons for the economy’s slow climb out of the recession.

Where did those jobs go? Part of the answer lies in Silicon Valley. It is no coincidence that many of those jobs entail the same repetitive tasks that computers, robots and other machines are uniquely suited to perform, from robots loading conveyor belts in factories to selling airline tickets.

A new working paper from the National Bureau of Economic Research shows how the recession accelerated the displacement of these midwage jobs. As technology now encroaches on jobs that people assumed would always belong- to humans, it is useful to consider those most affected by the job displacement so far: the young, the less educated and men.

This is a trend at the heart of the explicitly pro-work reform conservative agenda. In the long-run, technological change may create as many new jobs as it destroys and will certainly make us wealthier, but for now, it seems to be making it more difficult for young, unskilled men to find jobs and get access to the plethora of benefits work can bring to their lives. Reform conservatives argue that because work’s decline can wreck the economic lives of so many, society needs to push back against this trend, and they have a number of proposals intended to do so.

Inflation is not rising.

In the Wall Street Journal, Ben Leubsdorf sums up the latest Consumer Price Index numbers.

Consumer prices continued to rise in June but decelerated outside a spike in gasoline costs, a sign of firming—but not runaway—inflationary pressures that could ease pressure on Federal Reserve officials as they debate when to raise interest rates…

The CPI was up 2.1% in June from a year earlier, unchanged from May’s annual rise. The index excluding food and energy rose 1.9% in June from a year earlier, slipping from May’s 2% annual increase.

‘The June CPI report won’t be of much use to those pushing stories of rapidly accelerating inflation,’ Regions FinancialCorp. economist Richard Moody said in a note to clients. He said inflation ‘seems more likely to settle in at around’ the 2% mark ‘than it does to break out to the upside.’…

The Fed has set an annual inflation goal of 2%. But it prefers to look at a different gauge, the Commerce Department’s personal consumption expenditures price index, which typically runs below the CPI’s level. In May, the PCE price index was up 1.8% from a year earlier and rose 1.5% excluding food and energy.

As the economist quoted in the WSJ piece says, this is hardly the trend line of an economy headed towards rampant inflation. And like we’ve discussed before, this economy and labor market might well benefit from some inflation above the 2 percent target to encourage more investment and hiring. While the latest jobs numbers are encouraging, a labor market with such a large drop-off in labor-force participation (that appears to be half caused by factors other than demographics) and such weak GDP numbers can likely still benefit from relatively loose monetary policy.

Birth rates are down because couples can’t afford parenthood.

For the Washington Post’s new venture linking policy and storytelling, Storyline, Todd Frankel tells the story of a couple wanting to start a family but being unable to afford it.

The decision to have a child is not coolly rational, yet clinical calculations often play a role. Kids are expensive. Diapers. Doctor’s visits. Childcare. Food. Clothes. Maybe college down the road. Assuming that kind of responsibility is an act of optimism, the belief that tomorrow will be better than today.

So when the economy plunged into recession in 2008, shedding jobs and expectations, the U.S. birth rate followed, reversing the upward trend seen when times were good. And the birth rate has continued to fall, a sign of just how many Americans continue to struggle in this recovery, five years after the recession ended officially.

Last year, the nation’s fertility rate hit a historic low — 62.9 births per 1,000 women ages 15 to 44, according to the Centers for Disease Control and Prevention. Some of that decline comes from a long-term shift toward smaller families. But finances also play a pivotal role. A Gallup poll last year found the main reason Americans were delaying parenthood was worries about money and the economy.

For so many potential parents, the massive cost of having a child is enough to deter them from having children they’d otherwise like to have — and that our future economy will want them to have had. Efforts to increase the child tax credit or other family-friendly policies aren’t “social engineering,” they’re a way to correct for the compensate parents for the investment they make in society by raising children — and it’s an increasingly expensive investment.

Guess Which Ethnicity Knows the Most about Bitcoin? (And What It Says about the Future of Finance)


A poll from Morning Consult earlier this month is one of the first I’ve seen that’s asked a large sample of people about their knowledge of and attitudes toward Bitcoin — and a couple of its findings point toward a theme I’ve mentioned before on the Agenda, the potential for Bitcoin and its imitators to succeed and become important financial technologies as cheap, deregulated payments systems more than actual currencies.

One really expensive place to make payments right now is the international remittances market — the average price is 8 cents on the dollar — and a number of startups are hoping to crack into this market by using Bitcoin’s secure technology as a low-cost way to help people send relatively small amounts of money around the world.

Which is why it’s interesting which ethnicity the poll found most likely to have heard of Bitcoin: Hispanic Americans.

The differences among ethnic groups are striking: Just 8 percent of whites and 7 percent of African Americans said they’ve heard “a lot” about Bitcoin, while 21 percent of Hispanics have. Hispanics were the ethnic group most likely to say that Bitcoin should be allowed by the government as a means to purchase goods and services, and 23 percent of Hispanics — again, about three times as many as any other group — said they were “very likely” to use Bitcoin themselves.

One confounding variable is that Hispanics are disproportionately younger than other groups, but that doesn’t look like enough to explain the disparity (and this is just one poll, though the sample size is quite large).

An obvious inference here is that some Hispanic Americans who are either immigrants themselves or have relatives back home are already starting to warm to the idea that Bitcoin might be a way to send money back to poorer countries without paying exorbitant fees. The percentage of people listing themselves as “other” ethnicity — many of whom are presumably Asian — are also much more likely to know about and want to use Bitcoin. And . . . most U.S. remittances go to Asia and Latin America.

Unsurprisingly given their average socioeconomic status, the Morning Consult poll found that Hispanics are less likely to have checking accounts than other ethnicities. This all could be getting ahead of things, but it seem quite possible that Bitcoin-like financial technologies can help both people who want to send remittances and those Americans who generally struggle to find affordable financial-services options. (One of our interns, Andrew Smith, the other day touched on how technology could help replace pay-day lenders.)

Obviously, there are some potential problems here: One huge advantage Bitcoin and other systems have over traditional payments systems is that they operate in a mostly unregulated space. That’s great, and sensible, from a conservative perspective, but international finance can obviously have a nasty side to it, and it does have to be regulated, some. How much that will erode the advantage of these new technologies isn’t clear.

What is clear is that in countries that lack formal banking systems, new forms of payments and banking — using mobile devices, especially — have developed incredibly quickly. Sub-Saharan Africa, for instances, lacks for all kinds of infrastructure and fundamental government-provided security that you need to run other businesses, but mobile banking is definitely not one of them. It’s developed in leaps and bounds — literally, as Joe Biden would say, in the sense that they are skipping over a lot of old-fashioned bank and telecom infrastructure.

On a related note, the Federal Reserve has actually decided that the U.S. needs payments-system innovation. As Iain Murray wrote about for NRO this week, it’s considering creating a whole new payments system, introduced over the next ten years, that would be faster than the existing options (or encouraging the creation of such a new system). Murray thinks this is an instance of the Fed’s trying to worm its way into running its own business in yet another part of the financial sector, and I really have no idea.

But two things about the proposal are notable: The U.S. doesn’t have a particularly impressive set of payments systems already, and it especially struggles in its international connections. Yet, as Iain notes, the public investments other countries have made in their systems aren’t necessarily worth it, and the people the Fed has asked to weigh in on its idea think the private sector will find an answer much faster than the government will — that the Fed just needs to provide reasonable rules.

I particularly enjoyed this answer, from a credit-union representative, when asked whether he would appreciate the features the Fed described for the payments system it could have running in a decade:

Yes. However, the ten year timeline seems sluggish and far too conservative. In ten years, the innovators and public will have run this drawn out Fed vision over to the curb.


Today’s Policy Agenda: Whatever Happened to IPAB?


Americans are confused about the relationship between cost and quality in health care.

When the Associated Press-NORC Center for Public Affairs Research asked Americans about the relationship between the cost and quality of health care, it found that nearly half of Americans think that higher-quality care comes at a higher cost:

Intuitively, this makes since, but there is actually little evidence that more expensive care produces better patient outcomes.

This perception is problematic because some Americans may be likely to elect the most expensive providers or overpay for care because they believe they are getting a better product, playing a role in the rapid growth of health care spending. Normally we wouldn’t worry if people want to pay more for something of dubiously higher quality, this isn’t normal consumption: Health resources are limited, and, most important, most health costs are highly subsidized by third parties, especially taxpayers.

Universal free breakfast in schools doesn’t improve nutrition.

A new NBER working paper looks at a federal program to offer free breakfast to students of all incomes in public schools, and finds it doesn’t achieve much compared with normal school-breakfast programs:

Despite the increase in breakfast consumption under BIC, we find no positive impact on most other outcomes. In contrast to the earlier, quasi-experimental literature, we find no positive impact on test scores and some evidence of negative impacts. Similarly, there appears to be no overall positive impact on attendance rates or child health. There is suggestive evidence that BIC may improve behavior and health in some highly disadvantaged subgroups, though.

More kids participated in the free-breakfast program, but most students either replaced breakfast at home with breakfast at school or ate two breakfasts, resulting in a neutral (or sometimes even negative) impact on their overall nutrition and caloric intake, and on other indicators like grades, attendance, and behavior.

Does this mean we should get rid of free breakfast in schools? Probably not. The study didn’t examine what would happen if free breakfast were eliminated, but rather the impact of expanding it to all students regardless of income with the intent of trying to boost participation — this doesn’t appear to have worked.

What happened to Obamacare’s “death panels”?

In Morning Consult, Jonathon Easley explains that the Independent Payment Advisory Board, the bureaucratic ”death panel” that’s supposed to make certain decisions in the future about Medicare spending, isn’t going away even though it currently has no appointees and no immediate purpose. The controversial board was created in the ACA to adjust Medicare spending if it rises above a certain threshold, which it was projected to do within the decade.

But now, CBO projections indicate that Medicare spending will be 35 percent lower 20 years from now than previously predicted:

Since the trigger for IPAB was based on 2009-era projections, Medicare spending isn’t going to get there nearly as quickly as expected. So what will IPAB’s role be going forward? For one, it’s possible spending will pick up again quickly and IPAB comes into play.

But assuming it doesn’t, IPAB could still matter: The White House budget includes a proposal to lower the spending threshold that will trigger IPAB intervention in order to restrain spending. But, even if this would mean savings, the administration should be wary of further empowering a panel to make decisions that should be left to Congress. Medicare spending growth will still need to be restrained because of the surge of enrollees over the next couple decades, but we’re lucky it may not have to come from IPAB.

Competitive Federalism and Broadband Federalism


Support for federalism is not best understood as reflexive support for granting state governments the right to legislate in every domain. Competitive federalism, as Michael Greve argues in The Upside-Down Constitution, is first and foremost about protecting the interests of citizens by allow for competition among state governments to restrain, if only at the margin, the tendency of governments to collude against citizens. According to Greve, a “one problem, one sovereign” approach, in which some domains should be left to solely to the federal government while others will be left solely to state governments, is an important part of America’s constitutional designSince the New Deal years, however, the United States has moved from competitive federalism towards cooperative or cartel federalism, in which intergovernmental cooperation has limited the ability of state political majorities to (among other things) pursue independent policies on the minimum drinking age, K-12 education, and insurance coverage for low-income households, among many other things. Sometimes the method through which the federal government enforces governmental cartels is more straightforwardly coercive than others. Yes, it is possible for state governments to surrender federal transportation funds and set their own drinking laws, but it’s much easier said than done. The chief effect of cooperative federalism is to increase spending in various domains through the use of matching funds that appear to reduce the cost of joint federal-state programs, yet which in doing so tempt state governments into rigid formulas that limit the potential for experimentation. Even when the federal contribution is relatively small, as in K-12 education, state officials are so wary of losing the funds that they devote considerable resources to complying with federal rules and regulations, and this compliance apparatus further limits the scope for innovation in service delivery. Similarly, the federal government will often grant states “autonomy” in implementing federal policies if they adhere to a rigid script, an approach known as “conditional preemption.” 

Some see value in the frictions and chaos caused by overlapping zones of authority. In “Saving Federalism,” Richard Epstein and Mario Loyola describe the new “National Federalist” school as follows:

For decades, proponents of state sovereignty — and of the principle of limited and enumerated powers — have argued that modern theories of “cooperative federalism” are just a veil for a vast expansion of federal power over state governments. Progressives have traditionally fought back by arguing that state autonomy is protected in a variety of ways without judicial review, making fears of a federal takeover overblown. The Supreme Court has generally agreed with them.

But progressive legal thinkers are increasingly apt to champion the view conservatives have long warned of. A symposium published in the Yale Law Journal this past spring lifted the curtain on “cooperative federalism.” Led by Yale law professor Heather Gerken, these scholars of “National Federalism” now insist that the conservatives were right — the federal government has, in fact, already taken substantial control of many state activities and possesses ample powers to extend its dominion further. As champions of centralized government, they believe that this transformation is all to the good. In the course of several hundred pages, they argue that federalism has become an indispensable tool of nationalism, improving national politics and national policymaking, integrating the national polity, and entrenching national power. Their theories offer no clear limit to the further aggrandizement of federal power.

This all comes to mind because I’ve just read Tim Lee’s recent Vox article on how a number of House Republicans are trying to prevent the Federal Communications Commission from removing state-level restrictions on the creation of municipal broadband networks. Let’s leave aside the wisdom of municipal broadband networks. Is it appropriate for the federal government to preempt state action in this domain? I think that the answer is that yes, it is appropriate. But I can also understand the case that municipalities are creatures of state government. My intuition is that we’d be better off if telecommunications policy were treated as (to the extent practicable) an exclusively federal domain. When viewed through this lens, preserving the possibility of municipal broadband networks can, as Lee explains, do some good:

As a practical matter, publicly-owned broadband is already a pretty rare phenomenon. The Chattanooga network, which is the largest publicly-owned fiber optic broadband network in the country, only serves around 160,000 households. So most of us will continue to be limited to the same two options we’ve always had: the local phone company and the local cable company.

But the efforts in Chattanooga, Lafayette, and elsewhere are valuable experiments. They’re teaching us a lot about how cities can best promote high-speed broadband networks. It’s possible that we’ll simply learn that publicly-owned broadband is a bad idea. But if one or more of these projects work out well, it could provide a model for a lot of other cities to emulate. (Of course, that’s why incumbents are so opposed to them.)

Also, the threat of possible competition from municipal networks gives cable and telephone incumbents an incentive to be on their best behavior. So even people in areas that don’t have municipal networks might benefit from having other cities build them.

I’d be curious to hear other perspectives on how the Blackburn legislation fits in our ongoing debates over federalism.

Why Reforms Need to Be Robust


In light of Callie Gable’s (excellent) post on the Halbig decision, I want to add one very minor thought: the battle over Obamacare reflects the scope of its ambition and the failure of the Obama administration to secure the support of a meaningful number of Republican lawmakers. Leaving aside the merits of the Halbig lawsuit, which I am ill-equipped to judge, it’s fair to say that it gained traction in part because Obamacare is unpopular, particularly on the right, and it is unpopular in part because it offered relatively little to conservative constituencies. I realize that not everyone will accept this view, but bear with me. Consider what might have happened had Obamacare placed most of the Medicaid population on the exchanges, thus federalizing much of the Medicaid burden. This would have been a far more ambitious reform, yet it would have made health-system reform far more attractive to the states, and this in turn would have created an interesting wedge within the GOP. Naturally, those who support the law are inclined to think that Republican intransigence was a given, or that it reflects structural realities about partisan competition in a polarized age. That may well be true. I don’t raise this point to scold the president and his allies for how they went about passing the law. Rather, I raise it because I believe the Obamacare experience should serve as a cautionary tale for conservatives hoping to reform the health system and entrenched public institutions more broadly, particularly at the federal level. 

In “The Phenomenology of Gridlock,” Josh Chafetz offered a really useful framework for understanding legislative politics. The basic gist is that legislative gridlock is less a thing than the absence of a thing, namely legislative action, and that what we should be thinking about are the conditions that are sufficient to motivate legislative action. The challenge with pursuing ambitious reforms in the United States is that legislative action requires a broad public consensus. House members are elected every two years, and they speak to local as well as national interests; Senators are elected to six-year-terms in staggered batches, and so any given Senator is spared the need to face the electorate two out of every three congressional elections. Presidents, meanwhile, are elected every four years. So the conditions that gave rise to the extraordinarily “productive” first two years of the Obama administration, in terms of legislation and policy change, are very hard to replicate: Democrats needed the twin debacles of Iraq and the 2008 financial crisis to build quite large legislative majorities in two successive elections in what remains a fairly evenly-divided country. Yet it is not unreasonable to suggest that Democrats stretched the bounds of the public consensus they had built, perhaps because this consensus rested on things like, say, reducing the U.S. footprint in Iraq rather than overhauling the health system, revamping the student loan program, or introducing a cap-and-trade system (the last of which was a measure that passed the House and failed in the Senate). Political success in our system leads to expansive, unwieldy coalitions that include groups with disparate and at times clashing interests, and this dynamic proved vexing for Democrats in 2009 and 2010 (and still does). 

So what does this mean for conservatives? A few things:

(a) Realistically, you can’t pass sweeping, ambitious, transformative reforms of entrenched institutions, like health entitlements or the tax code, until you have a 2009 moment, i.e., until you have large partisan or ideological majorities in both houses of Congress and an effective, determined president. This is a tall order. There are legislative goals you can accomplish even if you fail to clear this bar, but these goals will, as a general rule, have to be more modest and incremental.

(b) In the event that you’re lucky enough to have a 2009 moment, it is vitally important that the legislative policy change you pursue is robust. Those who disagree with you will try to reverse or undermine your reforms, and in the first few years, at least, your reforms will be vulnerable to challenge, particularly if they give rise to a sizable and vocal class of net losers. The goal should be to devise policies that do an effective job of addressing a persistent problem, as this will create a constituency of net beneficiaries that will tenaciously defend the reform. Obamacare’s robustness is in doubt. But the program definitely has large numbers of net beneficiaries, and this has already made the politics of repeal more challenging than its conservative critics would like. 

If conservatives use a 2009 to simply repeal Obamacare, it is unlikely that repeal alone will prove robust, as the underlying problems plaguing the health system will continue to do so. Any replacement agenda needs to be evaluated through this lens of robustness. Medicare Part D is derided by many conservatives. Yet it is a reform that has proven impressively robust: it addressed a problem (inadequate prescription drug coverage for seniors) that had grown politically relevant, it did so in a tolerably cost-effective manner, and while the program has been contested to some limited degree, its popularity has insulated it from the threat of repeal or retrenchment. No, it’s not an ideal model, for many reasons. It does, however, pass the robustness test. Can the same be said of various Obamacare replacement proposals? This is more true of some of them, particularly those that get the closest to an Obamacare-level of coverage expansion, than others. 

Social Security strikes me as a good test case for this idea of robust reform. The genius of Andrew Biggs’ approach to Social Security reform is that he doesn’t simply address the (important) question of the fiscal sustainability of the program, as it is easy enough (intellectually if not politically) to simply cut benefits. The harder challenge, which Biggs takes up, is to make the program better at achieving its fundamental goal (ensuring that no older Americans live in poverty) while also making it more fiscally sustainable. He aims to achieve this goal by, among other things, sharply reducing or eliminating the Social Security payroll tax for workers over the age of 62, as the return to labor income past that age in terms of Social Security benefits is meager at best; his thesis is that reducing the payroll tax for these workers will encourage delayed retirement, which in turn will help improve Social Security’s finances. This idea, at least, is attractively robust, and it is an example of how conservative reformers need to think if their reform efforts are to survive the inevitable challenges from liberal critics. 

Conservatives are drawn to abstract criticisms of government, most of which are well placed. However, he challenge of crafting robust reforms requires that we do more than act in accordance with our principles: it demands that we forge incompletely theorized agreements with the majority of voters who don’t think of themselves as ideological conservatives or libertarians, and who will embrace conservative policies if they make a palpable positive difference in their lives. When we’re in the terrain of reforming entrenched government programs, this is extremely difficult, as people almost always prefer the devil they know. 

If Halbig Stands, What Happens to Obamacare?


With the D.C. Circuit Court’s decision today that Obamacare, as written, doesn’t authorize the provision of subsidies on federal health-care exchanges — it just does so for those established by states — residents of 36 states may stop receiving insurance subsidies under the law.

President Obama could well ignore the decision, which he asserts is perfectly legal, but he’ll also certainly appeal it — either to an en banc hearing of the D.C. Circuit Court (more judges than the three that just heard it) or to the Supreme Court. If the president chooses to ignore the ruling, we can bet a messy legal battle — and maybe even an impeachment attempt — will ensue.

The decision has been stayed and the appeals process could take years, so there’s a long way to go until courts actually order the state subsidies to stop. But if the ruling stands, what will health care in America and the future of Obamacare look like? It’s a complicated question with a lot of potential answers, but here are some possibilities.

For some Americans, not much will change. In the 14 states (plus D.C.) with state-based exchanges, the federal subsidies will continue, and health insurance will be more or less business as usual. With a few recent adjustments, states in dark and royal blue here are the ones that are going to be affected:

According to consulting firm Avalere Health, of the 8 million or so exchange enrollees, 5 million people receive subsidies and live in one of the states above, that haven’t set up a state-based exchange. Across those states, subsidized enrollees’ premiums would increase 76 percent, and even more in poorer states. Here’s a map of how much they would spike, Avalere thinks:

That sounds disastrous — will subsidies be cut off in every one of the 36 states with federally facilitated exchanges? Probably not. For one, it’s likely that there will be an increase in state-based exchanges. Don Taylor, a health-policy expert from Duke University, has estimated that as many as 20 states would pass laws saying their state will use the federal system as a state exchange, sort of like subcontracting with the federal government. Practically speaking, this probably won’t be a problem — but state governments’ will have to decide to do it.

Taylor’s number may be high because of many states’ staunch opposition to Obamacare. Some states, like Ohio, have passed laws or constitutional amendments that would make setting up exchanges illegal in their state. These could quickly be undone if state legislatures want to, but they’re an indication of just how staunch opposition to Obamacare is. And as Michael Cannon, a Cato Institute health-care scholar who provided much of the intellectual firepower for this lawsuit, pointed out on a conference call today, establishing an exchange would also mean implementing the employer mandate — it’s a little complicated why, but if Halbig stands, the IRS can’t collect the taxes associated with the employer mandate. States who decide to set up exchanges will be imposing this new tax on businesses by choice – a politically problematic decision that some state legislatures may not be willing to make and that the business community will likely oppose.

But there are also plenty of reasons why setting up state exchanges will be tempting: Unlike the Medicaid expansion, the federal government is planning to pay for all of the exchange subsidies in perpetuity. Beneficiaries of the subsidies on the health exchange are also, on average, wealthier and therefore endowed with more political clout than Medicaid beneficiaries (and the sense that they had had something taken away from them, rather than just missing out on a new benefit like Medicaid, will be powerful too). 

Moreover, Taylor argues, reluctance to set up exchanges hasn’t entirely been about opposition to the law. It’s also because so much uncertainty has surrounded the implementation of the law that many states took a “wait and see” approach to building their own policies. However, given the choice between losing federal subsidies and setting up their own exchanges, a good number of them will do the latter. This clearly won’t be the case in all states, and it’s hard to imagine it happening in deep-red states like, say, Texas.

The chart below, from Advisory Board Company, lists the states that would have to decide whether or not to establish an exchange if Halbig stands, along with the party of the states’ sitting governor. The party of these governors (and the majority party in the states’ legislatures) may be strong predictors of whether or not the state would establish an exchange - at least for states who will likely still have the same governor in office when the final ruling comes down.


So what will health care look like in a state where federal subsidies are likely to stop flowing?  It’s hard to say exactly what the impact will be, but it’s fairly certain that the individual insurance market will contract significantly, and possibly even disappear completely.

Individual-market premiums will become unaffordably high for many Americans in the states that lack Obamacare’s generous subsidies (which average thousands of dollars per enrollee per year). So then insurers will have to decide if it’s a good investment to continue offering policies on the individual market, a large proportion of which is the subsidized exchanges. Only 13 percent of exchange customers bought their policy without help from a subsidy in 2014 — plenty of people will be priced out of the market as soon as subsidies disappear.

Moreover, higher prices will make purchasing insurance less attractive to young, healthy people, meaning they’ll be the ones more likely to drop out of the market. Conversely, people with preexisting conditions and older people are likely to try to afford the more-expensive coverage.

At the same time, the individual mandate will apply to a shrinking number of people because those whose health costs exceed 8 percent of their annual income are exempt. In an amicus brief on behalf of the IRS, Jonathon Gruber and other top academics reported that 99% of individuals currently receiving subsidies would be exempt from the mandate for this reason.

That’s one way we get a real death spiral: Prices will rise until either overage is unaffordable or insurers simply stop offering it because they aren’t likely to profit. Obamacare does have measures, such as its risk corridors, to prevent such a cycle, but they would only be able to limit insurers’ losses to some extent. Moreover, the exchanges aren’t the entire individual market: There are unsubsidized consumers, millions of them, in all states who’ve bought Obamacare-compliant insurance without using the exchange’s subsidies. But even with them remaining in the market for the short term, the loss of all the subsidized customers from the exchanges would wreak havoc on insurance risk pools (which combine the non-exchange enrollees and the exchange enrollees).

Even in the states without exchanges, those with employer coverage, Medicare, or Medicaid aren’t likely to be affected. But if a large number of people who are currently getting subsidies become uninsured, that’s a lot of people.

We don’t know what Congress will look like when or if a ruling finally comes down in Halbig’s favor, but timing could be important. Even if the November midterm elections bring a Republican majority in both houses, Obama would almost certainly veto any bill that majorly alters the law, though it’s possible he could agree to some modifications that could make life easier for noncooperative states — allowing them to deregulate their exchanges, for instance. On the other hand, there will also be pressure for Congress to pass a law authorizing Obamacare subsidies to the federal-exchange states — but the Republican House’s commitment to repealing and replacing Obamacare makes this look extremely unlikely.

And if the legal process takes more than two years, it’s hard to say how a President Christie or Clinton and the future Congress would handle the matter. 

Overincarceration and Underincarceration


Emily Badger of Wonkblog reports on new findings from the Sentencing Project, a prison reform advocacy group, on crime trends in states that have seen substantial decreases in their prison population:

It’s important to note that crime has been falling all over the country over this same time, for reasons that are not entirely understood (and, no, not entirely explained by the rise of incarceration). But the Sentencing Project points out that declining violent crime rates in New York and New Jersey have actually outpaced the national trend, even as these states have reduced their prison populations through changing law enforcement and sentencing policies.

We certainly can’t take these three charts and conclude that reducing prison populations reduces crime. But these trends do make it harder to argue the opposite — particularly in the most heavily incarcerated country in the world. As the Sentencing Project puts it, “in the era of mass incarceration, there is a growing consensus that current levels of incarceration place the nation well past the point of diminishing returns in crime control.”

I am inclined to agree with Badger and the Sentencing Project. The United States is an outlier among market democracies when it comes to incarceration. A subtler view, advanced by Mark A. R. Kleiman, a professor of public policy at UCLA, is that in the United States, the criminal justice system both underpunishes certain violent crimes, particularly against African Americans, while also relying too heavily on incarceration over deterrence. How can we both have underpunishment and overincarceration? Several mechanism are at play. Mandatory minimum sentences all but guarantee that prison sentences for some offenders are longer than is strictly necessary to incapacitate potential offenders or to deter future crime. Other perpetrators, meanwhile, get away with their crimes because crime-fighting resources are stretched thin and the residents of violence-plagued communities often fail to cooperate with the police out of fear of reprisals or the belief that doing so is futile, an attitude that contributes to underpunishment. 

The consequences of underpunishment are serious. Growing up in a violent neighborhood tends to lower cognitive outcomes and impulse control, and it makes it more likely that one will become criminally active. It reduces the upside associated with lawful behavior, as the wealth you accumulate is more likely to be taken from you, while also reducing the downside associated with unlawful behavior, as the stigma associated with being a perpetrator isn’t as great as it is in law-abiding communities, and a prison term is seen as (very nearly) a routine life event. In The Collapse of American Criminal JusticeWilliam Stuntz argued that a relatively modest incremental investment in policing could greatly reduce the level of violent crime while also reducing the prevalence of incarceration. Interestingly, Stuntz attributes underinvestment in policing to a structural flaw in how the U.S. finances crime control efforts: while police are largely financed at the local level, long-term incarceration is financed at the state level; it is thus predictable that local governments will underinvest in policing. (Indeed, the U.S. has far fewer police per capita than many other countries with much lower homicide rates.

Yet while the United States is on the wrong side of the curve, one wonders if some other countries are on the right side of it. For example, while the prison per population rate (per 100,000) of the U.S. as of the end of 2012 was 707, it was 72 in Norway, 60 in Sweden, 58 in Finland, 73 in Denmark, and 78 in Germany: all roughly in the neighborhood of one-tenth the U.S. prison per population rate. Unfortunately, while violent crime is generally less prevalent in these countries (particularly intentional homicide — the U.S. has a homicide rate five times that of Sweden), it’s by no means nonexistent. Police recorded rapes in Sweden, for example, are twice as high as they are in the United States, though we might attribute this to better reporting. But Sweden’s robbery rate (103 cases of robbery per 100,000 people) is fairly close to that of the U.S. (133). And its police recorded assault rate (927 cases per 100,000 people) far exceeds that of the U.S. (262). Broadly similar patterns obtain in a number of other affluent European countries. None of this is to definitively establish that, say, Sweden’s criminal justice system is too lenient, but it certainly points in that direction. So while it seems fair to say that the pendulum has swung too far towards reliance on incarceration as a crime control strategy in the U.S., the pendulum appears to have swung too far in the other direction in much of northern Europe. 


The Social Capital Gap


Zachary Goldfarb of the Washington Post reports on an extremely encouraging development. Drawing on the work of Janet Currie, an economist at Princeton, and her collaborators, Goldfarb observes that across the United States, poor women are giving birth to healthier babies:

In a recent study on birth weights, a leading indicator of infant health, Currie and a co-author compared black, unmarried, high school dropouts with white, married, college graduates — two groups statistically on opposite sides of the income scale.

They found a large disparity, but a shrinking one. The study found that in 1989, one in six babies born to the economically challenged group weighed less than the 51 / 2 pounds doctors consider healthy — compared with one in 32 babies born to the more advantaged group.

Over the following 20 years, the study found improvements for the less advantaged group, with the odds of having an unhealthy baby falling close to 1 in 8. The rate was essentially unchanged for more advantaged women. Currie also found that even if race is taken out of the equation, birth weights follow the same pattern.

What I find peculiar about Goldfarb’s article, however, is that he frames it around wealth inequality. Researchers track race, marital status, and education as proxies for income, and they find that wealthy people, or rather people they assume to be wealthy (for perfectly good reasons), fare better along a number of dimensions than poor people, e.g., the poor are more likely to suffer from diabetes, obesity, and high blood pressure, and they tend to have shorter lifespans. Of course, marital status and educational attainment have a complicated relationship to income and wealth. Social and human capital are transmitted from one generation to the next, yet not everyone chooses to maximize their earning potential. That is, it’s not obvious that income and wealth inequality are what is at issue. It seems just as plausible that, say, people raised in chaotic households are consistently worse off than those who aren’t, or that social isolation is a major driver of poor health outcomes. Goldfarb notes that women earning less than $25,000 are 2.5 times as likely to be victims of domestic violence as better-off women. But low-income women are also likely to face deficits in social and cultural capital, and it is very difficult to determine where one factor ends and another begins. (To Goldfarb’s credit, he notes that Medicaid “has a surprisingly modest impact on babies’ health.”)

I raise this issue because Goldfarb neglects to address the so-called “Hispanic paradox,” which Nicholas Eberstadt, a political economist at the American Enterprise Institute, summarized as follows in testimony to the Senate HELP Committee last fall:

Consider the situation for the Hispanic population in America today. By a number of measures, it would appear to be the most socio-economically disadvantaged major ethnic group in America today. Nearly 40 percent of Hispanic American adults, for example, have no high school degree (2009); over 30 percent of all have no health insurance (2010); and nearly 30 percent of Hispanic adults did not report even a single visit to get health care over the previous year (2010). Even so: the age-standardized mortality level for Hispanic Americans is estimated to be fully 25 percent lower than the average for the nation as a whole!

Thus the striking paradox of health in modern America is this: minority groups reporting higher incidences of poverty and income inequality, lower educational attainment, less health insurance coverage, and greater likelihood of no treatment by medical professionals than our Anglo majority also report significantly lower mortality (and thus longer life expectancy) than our Anglos—indeed, significantly better mortality levels than for America as a whole. And this paradox is not new: as Figures 3 and 4 attest, for males and females alike, mortality rates for our Asian and Hispanic minorities have been superior to those of non-Hispanic Whites for many decades—in fact, for as long as such numbers have been compiled. Non-Hispanic Blacks or African-Americans are the only ethnic minority whose health profile appears to be poorer nowadays than our Anglos.

Some believe that there could be a very simple explanation for the “ethnic health advantage” — Laura Blue and her co-author Andrew Fenelon attribute it to smoking, which they claim accounts for as much roughly 75 percent of the difference in life expectancy between Hispanics and non-Hispanic whites. But smoking is not best understood a wealth gap phenomenon. 

So why would Goldfarb highlight the wealth gap in his article? The key strategy for improving infant health he identifies is the use of home visits during which trained personnel teach poor women how to care for their children. What is striking about this strategy is that it replicates the transmission of knowledge from one generation to the next that is a commonplace not just in affluent households, but in poor immigrant households where family bonds tend to be stronger. There is an interesting and important gap that is driving differences in health outcomes in the United States. But I don’t think it’s the wealth gap. Rather, the wealth gap and the longevity gap might both be driven by this more problematic inequality of social capital.


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