The Agenda

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

Today’s Policy Agenda: Should Tax Dollars Go to Training Doctors?


Should tax dollars go to training doctors?

At the Upshot, prominent health-care academic Uwe E. Reinhardt argues that, as an economic matter, new doctors shouldn’t be trained at the expense of taxpayers. The rational for publicly funded medical degrees is that medical training, or individuals with medical training rather, are a public good — an economic concept referring to something everyone can use, without impeding on others’ ability to use it.

But as Reinhardt points out, since medical professionals decide if, when, and where they work, they aren’t equally accessible to everyone:

Medical education and training represents human capital that is fully owned by the trainees. They can deploy it as they wish — on patient care, or even in the financial markets, where quite a few physicians now work. In principle, therefore, the owners of that valuable, purely private human capital should pay themselves for its production.

But according to the American Association of Medical Colleges, the U.S. is already facing a serious doctor shortage that will only get worse:

Even taking the industry’s claims with a few grains of salt, the constrained supply of doctors does suggest that their training needs some form of public support. 

Millions will see their Obamacare subsidies reduced automatically. 

The Associated Press reports that millions of Americans who received subsidies to buy health insurance will receive a smaller amount than they planned on. Since subsidies are linked to income, if individuals make more money in 2014 than they anticipated, their subsidy will be automatically reduced. Subsidies are given as tax credits, so some individuals’ tax refunds will be less than they planned on, but for others, they may end up with an actual tax liability. “More than a third of tax credit recipients will owe some money back, and (that) can lead to some pretty hefty repayment liabilities,” one tax expert told the AP. 

Most affected individuals don’t know they will be receiving less at tax return time. There is a process to report unexpected income and to avoid owing extra at the end of the year, but few consumers have used it because it’s complicated and requires month-to-month income accounting. 

American corporations actually do pay their fair share.

In Forbes, Yevgeniy Feyman argues that, contrary to what President Obama has implied, inversion, when a company moves its headquarters to another country because of differences in tax systems, is not unpatriotic – it just makes sense:

“Restructuring to reduce tax burdens is no more than unpatriotic than corporations incorporating in Delaware to take advantage of the simple incorporation process. More importantly, the idea that companies aren’tt ’paying their fair share’ – at least relative to companies in other countries – is equally disingenuous,” he writes.

The U.S.’s high corporate tax rate and attempts to tax global income of U.S.-based firms, unlike most countries, means that more and more companies are making the move abroad:

Feyman concludes that U.S. companies’ efforts to relocate, a process that is both expensive and difficult, is an indication that something is very wrong with the American taxation system, not the firms themselves.   

Today’s Policy Agenda, August 26: Study Says Globalization Is Harming U.S. Employment


Work itself is crucial for happiness.

For Arthur Brooks’ new site The Pursuit of Happiness, Andy Quinn examines the literature on unemployment and happiness:

Cristobal Young, a Stanford sociologist, has studied the non-pecuniary effects — that is, effects that aren’t purely financial — that unemployment insurance has on the lives of recipients. Specifically, Young tracked the self-reported happiness (“subjective well-being”) of different groups of people caught up in different economic circumstances. What he found is seriously surprising.

In this graph, Young has calculated the happiness of impacts of losing your job and receiving no unemployment insurance (on the left) and losing your job but receiving the benefit (on the right):

The similarity is remarkable. To hear progressive commentators tell it, job loss in the absence of unemployment insurance is like stepping straight into Hell, and the benefits do a tremendous amount to lift up hard-luck Americans. But here, we see a different story: Unemployment benefits merely take a little bit of the edge off the happiness downdraft from being laid off. To be sure, the financial help cuts back on some stress at the margins. But just as clearly, involuntary idleness brings a massive psychological cost that mere money can hardly touch.

The policy implications of this study stretch far beyond the recent debate over extending emergency unemployment insurance. After all, even if one is convinced by this study of the overwhelming importance of employment, it’s possible that by keeping recipients actively working for jobs, the emergency UI benefits were helping, not hindering, the return to work.

The broader lesson from the study is that orienting social policy towards employment – through work requirements, wage subsidies, and the litany of proposals circulating the Right in recent months – is far from cold-hearted. In fact, given the well-documented benefits of employment ranging from staying healthy to building strong relationships, a push towards work if protected by a safety net, is in the best interests of Americans.

Study: Globalization does slow American employment growth.

Several economists, including David Autor, have a new NBER working paper out investigating the relationship between imports from China and employment:

BL Even before the Great Recession, U.S. employment growth was unimpressive. Between 2000 and 2007, the economy gave back the considerable gains in employment rates it had achieved during the 1990s, with major contractions in manufacturing employment being a prime contributor to the slump. The U.S. employment “sag” of the 2000s is widely recognized but poorly understood. . . . We find that the increase in U.S. imports from China, which accelerated after 2000, was a major force behind recent reductions in U.S. manufacturing employment and that, through input-output linkages and other general equilibrium effects, it appears to have significantly suppressed overall U.S. job growth. BL

While globalization and capitalism have radically reduced global inequality and made the world much better off as a whole, not everyone in the United States benefits uniformly from such transactions. This study suggests that workers in the tradable sector – jobs that can be moved around the world — face job losses and likely wage cuts or stagnation in the new economy. This is not to say that we need to restrict trade or engage in protectionism to insulate these workers from new economic realities — too many lives are being radically improved across the globe. It’s just important to remember that absent any intervention, a sizable portion of the American population (particularly in, say, North Carolina,
Michigan, and Alabama
) are going to struggle in this new reality, and we ought to bear it in mind policy-wise.

For the Storyline, Howard Schneider explains this trend from a personal point of view.

Is immigration why Scott Brown now has a race on his hands?

With a new poll from the University of New Hampshire showing Scott Brown pulling into a statistical tie after trailing significantly most of the race, could it be that the elevation of immigration in the national conversation has helped him?

From TV ads to op-eds, Brown has driven home his opposition to “comprehensive immigration reform.” We’ve talked recently about how elite consensus on that issue isn’t really in line with public opinion, and the fact that Brown is getting traction in a northeastern swing state by taking a strong stance on the against it is certainly interesting.

In a recent issue of National Review, Reihan and Yuval Levin outlined an alternative to the big-business driven proposals that have been circulating of late — they argue their alternative is superior on the political and policy merits.


The Politics of Respectability and the Future of the Democratic Coalition


Successful political parties are successful for only so long. As a coalition grows more expansive and diverse, it also grows more fractious. This raises the risk that some important segment of the coalition might defect and, in a political system dominated by two major parties, join the opposing team. The rise of Barack Obama was supposed to have cemented the Democratic Party’s majority status, yet as Sean Trende, author of The Lost Majority, and others have argued, dominant parties have never been as dominant as advertised in modern U.S. political history, and today’s Democrats and Republicans both suffer from vulnerabilities that make it unlikely that one will marginalize the other for any meaningful length of time.

But given recent Democratic successes in presidential elections — recall that George W. Bush won the presidency fairly narrowly in 2000 and 2004, and that he lost the popular vote in 2000 — the notion that Democrats really have struck on a successful political formula enjoys wide acceptance. The coalition of African Americans, Latinos, Asian Americans, and white college-educated liberal professionals that Ruy Teixeira and John Judis identified as the heart of the “emerging Democratic majority” does indeed represent a growing share of the electorate, a fact that has caused no small anxiety for Republican political strategists, many of whom have concluded that embracing comprehensive immigration reform or social liberalism is essential to future GOP success.

In June, Ross Douthat of the New York Times reminded his readers that the Democratic coalition is more vulnerable than it appears, briefly observing that “the liberal coalition’s extraordinary diversity also offers many potential lines of fracture.”

One of these lines of fracture has been growing more pronounced in recent weeks. In the ongoing conversation over the shooting death of 18-year-old Michael Brown at the hands of a local police officer in Ferguson, Missouri, there has been much talk of “respectability politics.” Some number of prominent African Americans have used Brown’s death, and the attention it has drawn to the use of force by police against young black men, as an opportunity to discuss some of the social maladies that are particularly prevalent in black communities, and which disproportionately impact the life prospects of young black men.

Byron York, columnist for the Washington Examiner, has just written a dispatch from Michael Brown’s funeral, where the erstwhile presidential candidate, activist, and television news personality Al Sharpton delivered the eulogy. In classic form, Sharpton started off his eulogy by condemning “the police, the government, and the American system, concluding that they all combined to end a promising 18-year-old life.” Yet Sharpton then addressed a different set of concerns:

After a demand for broad reforms in American policing, Sharpton changed course to address his black listeners directly. “We’ve got to be straight up in our community, too,” he said. “We have to be outraged at a 9-year-old girl killed in Chicago. We have got to be outraged by our disrespect for each other, our disregard for each other, our killing and shooting and running around gun-toting each other, so that they’re justified in trying to come at us because some of us act like the definition of blackness is how low you can go.”

“Blackness has never been about being a gangster or a thug,” Sharpton continued. “Blackness was, no matter how low we was pushed down, we rose up anyhow.”

Sharpton went on to describe blacks working to overcome discrimination, to build black colleges, to establish black churches, to succeed in life.

“We never surrendered,” Sharpton said. “We never gave up. And now we get to the 21st century, we get to where we’ve got some positions of power. And you decide it ain’t black no more to be successful. Now, you want to be a n—– and call your woman a ‘ho.’ You’ve lost where you’re coming from.”

The cameras cut to director Spike Lee, on his feet applauding enthusiastically. So were Martin Luther King III, radio host Tom Joyner, and, judging by video coverage, pretty much everyone else in the church. They kept applauding when Sharpton accused some blacks of having “ghetto pity parties.” And they applauded more when Sharpton finally declared: “We’ve got to clean up our community so we can clean up the United States of America!”

Not every observer was pleased by Sharpton’s address, of course. Some were appalled by the implication that Brown’s funeral should prompt a discussion of black personal responsibility, as York reports. Elsewhere, Julia Ioffe of The New Republic discusses the debate over the politics of respectability among African Americans:

It was a sentiment I heard again and again in Ferguson: Yes, the largely white police force acted egregiously. Yes, the system—in segregated St. Louis more than in most cities—is stacked against them. But there’s something rotten inside the black community, too. “I feel like the race needs to get the infection out of itself,” Dellena, the owner of the 911 Hair Salon, a block away from the burned-out QT, told me. “People are not educated. You need to think, what is the image that you’re giving off? You need to have all your business together if you know you’re ten times more likely to get pulled over.” Or as Mark L. Rose, a late-middle-age black man I met at a protest, put it, “When the cops see these boys walking around with their pants down, of course they have no respect for them.”

This self-criticism—or self-flagellation—is nothing new. It’s the return of a phenomenon that is referred to by African-American historians as the “politics of respectability.” “During times of unrest, black writers going back to the early 20th century have argued that the reason blacks are facing discrimination or police brutality is because they have not been acting properly in public—particularly young, poor people,” says Michael Dawson, a political scientist and director of the Center for the Study of Race, Politics, and Culture at the University of Chicago. “In the last 20 years, it’s been a criticism of baggy pants, rap music, hair styles. Back in my generation, it was Afros. I remember my grandparents telling me, ‘you should cut your hair.’”

Respectability, in essence, is about policing the behavior in your community to make sure people are behaving “properly,” so as to not attract unwelcome attention from whites—“with ‘properly’ being a normatively white middle class presentation,” says Dawson. In feminist discourse, a similar phenomenon among women is described as internalizing the patriarchal gaze. That is, women see themselves as the men in charge want to see them—feminine, sexy, pliant—and then behave and dress accordingly. Respectability is the same thing, but with blacks internalizing the white gaze.

Suffice it to say, Ioffe disapproves of this “self-flagellation.” And I don’t doubt that many younger liberals, including many younger African-American liberals, feel as she does. One wonders if Al Sharpton has lost the plot in his old age, and if other voices, who forcefully reject the politics of respectability, will soon come to the fore.

Josh Barro, writing for The Upshot, raises the intriguing possibility that at some point, a Democratic political entrepreneur will run a national campaign that “gives[s] voice to the anger we’re seeing in Ferguson.” Though Barro acknowledges the politic logic of downplaying sweeping critiques of the racism of the criminal justice system at the national level, as the African American electorate is monolithically Democratic while non-black voters who are skeptical of these critiques are not, he suggests that this neglect might soon come to an end:

[I]f the Tea Party has taught us anything, it’s that a base can force its party to take stances that won’t be popular in a general election. Black voters, and other Democratic voters who care about issues of policing and racial justice, don’t have to flex their political muscle by being willing to leave the party. If these issues are of importance to much of the electorate — and this month’s protests suggest they are — then a politician should be able to build a credible Democratic primary campaign by focusing on them.

I suspect that Barro is right, and that we will see a Democratic presidential campaign in the 2016 or 2020 primaries that offers a racially-infused critique of the American criminal justice system, which will look quite different from calls for criminal justice reform from social conservatives and libertarians.

Note, however, that not all African Americans will welcome this critique. Indeed, there may well be overlap between those who embrace the politics of respectability and those who are wary of an overtly racialized conversation about criminal justice reform. The now-famous Pew survey which found “stark racial divisions” [ in reaction to Michael Brown’s death reveals, yes, that blacks and whites have reacted differently. It also reveals that 18 percent of blacks agree with 47 percent of whites that “race is getting more attention than it deserves” while 80 percent of blacks agree with 37 percent of whites that “this case raises important issues about race.”

It is important not to extrapolate wildly from the existence of this contrarian slice of the African-American population. But one wonders if these voters might at some point be open to voting for a Republican Party that talks about criminal justice system more sensitively and intelligently without fully embracing a racialized critique and, most importantly, that places a much heavier emphasis on middle-class economic interests.

The Principle of Infrangibility and the White-on-White Murder Rate


Back in 1999, the Harvard sociologist Orlando Patterson made the case for what he called “the principle of infrangibility”:

Some problems, of course, are characteristic of certain groups, the result of their peculiar history, socioeconomic environment and cultural adaptation to life in this country. This is as true of urban Afro-Americans as it is of rural Anglo-Americans in Appalachia or Asians. Thus we might ask why mass murders seem exclusively the doing of young white men who often come from the middle class.

What is at issue here is the principle of infrangibility: our conception of normalcy and of what groups constitute our social body — those from whom we cannot be separated without losing our identity, so that their achievements become our own and their pathologies our failures.

We should speak not simply of black poverty but of the nation’s poverty; not the Italian-American Mafia problem but the nation’s organized crime problem; not the pathologies of privileged white teen-age boys but … of all our unloved, alienated young men.

When we compare, say, the white murder rate to the black murder rate as opposed to the black murder rate to the U.S. murder rate, the latter of which is a total that factors in the black population, we risk creating the impression that we are dealing with two separable populations.

Yet there are times when it can be useful to leave aside the principle of infrangibility, particularly when we recognize that we are not in fact dealing with separable populations, but rather to demonstrate the vulnerability of a particular population.

This brings to mind Matt Yglesias’s recent discussion of the white-on-white murder rate in the U.S., an effort to shed light on what some are calling the “fallacy” of talking about black-on-black crime. Yglesias warns that “white-on-white murder in America is out of control,” and to make his point he compares it to white-on-white homicide rates in a number of other countries:

This is not to say that white people are inherently prone to violence. Most whites, obviously, manage to get through life without murdering anyone. And there are many countries full of white people — Norway, Iceland, France, Denmark, New Zealand, and the United Kingdom — where white people murder each other at a much lower rate than you see here in the United States. On the other hand, although people often see criminal behavior as a symptom of poverty, the quantity of murder committed by white people specifically in the United States casts some doubt on this. Per capita GDP is considerably higher here than in France — and the white population in America is considerably richer than the national average — and yet we have more white murderers.

While one can debate what it means for a country to be “full of white people,” it is worth noting that the white share of New Zealand’s population (74 percent) is lower than that of the United States (77.7 percent), and the non-white populations of France and Britain are quite high. Moreover, non-white individuals in these countries are, like non-white individuals in the U.S., more likely to be killed than whites. It is not clear to me how Yglesias calculated the white-on-white murder rate in these societies, but I’m happy to accept that all of them have a lower white-on-white murder rate than the United States.

But if we instead compare the rate of intentional homicides of these countries to the rate for the white population of the U.S., the white U.S. does not in fact look like a dramatic outlier. (I want to stress that I could be getting something wrong here, so please let me know if I’ve gone astray and I will revise accordingly.)

According to statistics gathered by the UN Office on Drugs and Crime, the 2011 intentional homicide rates per 100,000 for the countries identified by Matt are as follows: Norway (2), Iceland (1), France (1), Denmark (1), New Zealand (1), and the UK (1). The rate for the U.S. as a whole is 5. As of 2011, there were 3,172 white murder victims in the U.S., according to the FBI. The white population as a whole is 245.5 million, including whites who identify as Latinos. This yields an intentional homicide rate of 1.29, a number almost indistinguishable from those of Iceland, France, Denmark, New Zealand, and the UK and lower than the intentional homicide rate of Norway, Canada (2), Belgium (2), Israel (2), and Finland (2). In contrast, there were 2,695 black murder victims in 2011 against a 2013 black population of 41.7 million, which yields an intentional homicide rate of approximately 6.5., a rate higher than that of Kenya (6) but lower than that of Lithuania (7).

[Well, I'm glad that I stressed that I could be getting something wrong here. I used Vox's link to the FBI's single victim/single offender murder statistics to make these calculations, and I was wrong to have done so for the purposes of constructing a synthetic intentional homicide rate for U.S. whites and blacks. A more complete picture of murders finds that there were 5,825 white murder victims in the U.S. and 6,329 black murder victims. The white U.S. population thus had an intentional homicide rate of 2.37. This is considerably higher than the 2011 Canadian murder rate of 1.73, which the UN source I cited earlier rounds up to 2. The black U.S. population, meanwhile, has a far higher intentional homicide rate when we don't limit ourselves to single victim/single offender murders: it is 15.18. This is shockingly high by the standards of the affluent market democracies -- it lies between Ecuador (15) and Guyana (16).]

Yglesias expresses deep concern in his post about white violence, and I don’t begrudge him that, as his concern is obviously sincere. (It is worth noting that the number of white offenders is substantially lower than the number of white murder victims, but we’ll leave that aside for the moment.) When viewed in comparative context, however, it is not obvious that white Americans are unusually violence-prone. What I find remarkable is that despite the widespread availability of firearms in the U.S., and despite a culture that is in many respects more violent than those of our European counterparts, white U.S. population appears to have had, in 2011 at least, a murder rate comparable to that of Norway and Canada. Yet it would be senseless to take comfort in this fact for the reason that Orlando Patterson identifies in his column: we shouldn’t focus on the white homicide rate so much as we should focus on the national homicide rate, which is alarmingly high, and not just by the standards of affluent market democracies. And the national homicide rate is extremely high in at least in part because we have failed to police predominantly black neighborhoods effectively.

The Evidence Behind Common Core Is Really Weak


The Common Core education standards are a massive effort intended to raise educational standards across the country. Untold hours and dollars have already been spent on their implementation, which is still proceeding in more than 40 states even as a few have dropped out. But what is the evidence that the new standards will improve learning?

As I noted a year ago, simple correlations of test scores with standards across states or nations are not definitive, given all of the intervening variables involved in those comparisons.

Now the Center for Education Policy at George Washington University has put together a compendium summarizing over 60 research papers related to Common Core design and implementation. If there is empirical evidence on the importance of strong standards, this is probably the place to find it. Unfortunately, only two papers in the entire compendium are devoted to measuring the impact of Common Core on test scores. Both papers employ the dubious correlation-across-states methodology, and both give mixed results at best.

The first paper, by two Michigan State professors, examines the relationship between states’ math scores in 2009 and the similarity of their math standards (pre–Common Core) to the Common Core math standards. The authors initially find no correlation in the 50-state universe. They are able to detect a positive relationship only with an ex post division of states into two separate groups, with the smaller group consisting of 13 states with low scores despite strong standards. The authors acknowledge that “these analyses should be viewed only as exploratory in nature, merely suggesting the possibility of a relationship.”

The second paper, published by Brookings, follows up on the Michigan State analysis. It finds that states’ test score gains between 2009 and 2012 show no relationship to the similarity of their standards to Common Core. There was no positive correlation even when using the favorable groupings from the Michigan State paper. The one encouraging finding in the Brookings paper is that states with stronger implementation of Common Core seem to show greater gains. But the author warns that, even if the correlation is genuine, the effect size is tiny.

And that’s it.

Much like the push for government preschool, the Common Core movement is suffused with much hope but little evidence. That’s clear from how the standards were developed in the first place. As an important article from last November’s American Journal of Education points out, most of the research evidence behind Common Core focuses on identifying problems — America’s poor international ranking, achievement gaps, high school graduates without basic skills, etc. But when it came to writing standards to address those problems, the Common Core developers had little to go on except the standards of high-performing nations and the “professional judgment” of various stakeholders.

So although the rise of national standards is one of the most significant education policy changes in a generation, and despite the passion of proponents, the data can tell us very little about Common Core’s future impact.

Of course, this isn’t usually the rationale articulated against Common Core — parents’ groups and anti-ed-reform groups have put forth more specific criticisms of the standards and the related testing regimes. But Common Core definitely is ailing: A new poll commissioned by Education Next finds that support for the standards has been slipping nationwide.


No, One Program Did Not Reduce Colorado’s Teen Pregnancy Rate by 40 Percent


This month, a study was released finding that a Colorado state-government program to provide free contraception of all kinds for low-income women had reduced teen pregnancies and abortions in the state by an incredible amount. The Washington Post reported that the program was “how Colorado’s teen birthrate dropped 40% in four years.” It turns out, though, that while those indicators are improving dramatically in Colorado, it’s hard to credit the program in question and a lot of liberal praise for the program is way overblown.

In 2009, the state began a program called the Colorado Family Planning Initiative (CPFI) that gave low-income women free or low-cost IUDs and subdermal contraceptive implants, both highly effective but relatively expensive long-acting reversible contraceptives (LARCs).

Said study on the program, published by the Guttmacher Institute, an influential think tank that studies abortion and reproductive health, reported that between 2008 and 2011, the birth rate for low-income teens in the state dropped by 29 percent, and the teen abortion rate dropped by 34 percent. A separate CDC report noted that Colorado’s teen birth rate has decreased by 39 percent over the past four years, while the state government found a 40 percent drop in teen births from 2009 to 2013. “The state attributes three-quarters of the overall decline in the Colorado teen birthrate to the program and said its success had a ripple effect,” the Washington Post reported.

Guttmacher summarized its findings as follows:

The Colorado Family Planning Initiative produced a radical game change in the state: The [long-acting contraceptive] methods it promoted and paid for appeared to contribute to a large decline in fertility among the young, low-income patient population and to a decline in the overall fertility rate among women younger than 25. At the same time, measurable declines occurred in abortion rates, births to young unmarried women with limited education and numbers of infants receiving WIC services. 

While that’s carefully worded, this all overstates the program’s success and influence and ignores the fact that much of these effects probably would have happened anyway.

There were big decreases in both teen abortions and births in the Colorado countries benefiting from the program during its duration — but to say the program directly caused the huge decreases is a simplification that overstates the complicated relationship between contraception, abortions, and births.

Why? The teen abortion rate had been falling dramatically for a significant period of time, and with CFPI, it just kept falling. The study compared 2008 and 2011 abortion rates in counties where CFPI was available — in that time period, abortion rates for 15–19 year olds in those counties decreased from 10.9 per 1,000 women to 7.2 per 1,000, which is indeed a 34 percent decrease.  

In that same time frame, abortion rates in counties without the program decreased from 14.4 to 10.2 per 1,000, a 29 percent decrease.

So how could one attribute the 34 percent decline in abortion rates to the CFPI? Almost the same reduction — about 85 percent of the reduction we saw in CFPI counties — still happened in places where the program wasn’t available.

This makes sense because abortion rates have been dropping steadily for years (including among younger women):

It’s more curious, that the abortion rate for women 20–24 rose slightly in the non-CFPI counties while that statistic dropped noticeably where the program was available. But with the very limited evidence the study presents, we have no idea if this is just due to random variation.

This study does not examine comparable women who happened to get LARCs through the program and those who didn’t, which would make for a rigorous study (of course, such things are often infeasible). Instead, it compares whole counties, where only a smaller subsection of women would have access to the program, and then attributes the changes in their overall abortion statistics to the program.

Moreover, the CFPI and non-CFPI counties aren’t remotely comparable: CFPI was in place in 37 of Colorado’s 64 counties, and those 37 counties contained 95 percent of the state’s population. The non-CFPI counties are quite rural, covering 37 percent of the state’s land mass but containing only 5 percent of the total population. This, in the chart above, is what stands in for a control group, essentially — it shouldn’t be considered any such thing.

Colorado’s teen abortion rate did drop more between 2008 and 2010 than the national teen abortion rate (unfortunately 2011 data isn’t available yet), but just barely — the rest of the country saw a big drop too. According to Guttmacher data, the national teen abortion rate dropped by 17.4 percent while Colorado saw a 25 percent decrease from 2008 to 2010.

The way the program was credited for a drop in teen birth rates is a little bit more complicated, but basically just as bad.

To arrive at the conclusion that the program reduced the teen birth rate for low-income teens by 29 percent, the Guttmacher authors projected rates of low-income teen pregnancy based on previous years, essentially drawing a straight line out into the future (“linear trend lines,” in statistics speak), and then counted any performance below that line as resulting from CFPI:

But these “linear trend lines” based on the three previous years of data aren’t really useful. The authors’ projection shows that births would actually increase a bit during the period CFPI was put in place, despite the fact that, like the abortion rate, the teen birth rate is declining nationally, noticeably and steadily:

So sure, the low-income teen birth rate did decrease relative to previous years, but without a control group, it’s impossible to know what percent of that decrease the contraception program is responsible for.

And it’s clear that Colorado’s program can’t responsible for most of the state’s drop in birth rates when you compare the size of the reported effects to CFPI’s scope. Overall, only 8,435 low-income women received a LARC during the duration of the program. Some back-of-the-envelope calculations given the fertility rates the authors reported for low-income teens show that a maximum of 700 or 800 out of 11,000 or so predicted births, in a given year, were likely to be prevented by the CFPI, which would translate into a maximum 6.8 percent reduction of births in CFPI counties. The birth rate in the counties with the program, remember, dropped by 29 percent — four times as much as the free LARCs could have accounted for.

In fact, Colorado’s overall teen birth rate dropped by 40 percent from 2009 to 2013, 11 percent more than the low-income teen birth rate did from 2009 to 2011, suggesting there are other factors at work here.

There is likely some combination of factors driving the low teen birth rate in Colorado. The state also ramped up training and technical assistance for family-planning clinics and helped them to expand outreach, in addition to the new free provision of LARCs (which was paid for with a $23 million anonymous private donation). It’s also possible that some of the factors decreasing birth rates nationally have had a larger impact in Colorado, though there’s really no way to tell. As Sarah Kliff discusses in Vox, the cause of the national decrease in the teen birth rate is still a mystery, with theories ranging from increased IUD uptake overall to the popularity of the MTV show 16 and Pregnant.

Of course, researchers have limitations: The authors tried to measure the impact of a pre-planned public-health initiative after the fact, not conduct a gold-standard statewide experiment. In that sense, they did a pretty good job, but the study does not justify the headlines it got – it seems likely that the CFPI must have had some positive effects on abortion and birth rates, but it’s far from the policy panacea the headlines depicted. For a study titled  “Game Change in Colorado,” it provided little evidence that the CFPI changed the teen-pregnancy-prevention game at all.

There also remain plenty of unanswered questions about CFPI as health policy: This study doesn’t cover data on discontinuance rates, reinsertion rates, changes in STI transmission, or on many other factors that are important. For instance, it’s possible that since LARCs are effective for a number of years, birth rates could increase again in a few years when the devices expire, especially if women forget to replace them or delay replacement due to cost. Another concern is that LARCs could increase STI transmission because they replace the need for traditional barrier methods to prevent pregnancy.

So when weighing the impact of the results, we should be careful to take the results for what they actually are: an indication that programs like the CFPI increases the uptake of LARCs, in the short term, to a limited degree, which might have positive effects on birth and abortion rates for some people, in some populations, in some places.

Cities, Suburbs, and Families with Children: Preliminary Thoughts


Recently, Lydia DePillis of the Washington Post contrasted two strategies for U.S. cities looking to grow their populations, drawing on a 2001 report from the Brooking Institution focused on the future of the District of Columbia:

The report set out two paths. The city could cater to the young adult and empty nester demographics, by zoning for large apartment buildings in the downtown core and fostering buzzy entertainment districts. Or it could attempt to retain middle-income families, by investing in schools and incentivizing larger housing units. The former strategy would be a fast way to bring in more people and rapidly expand the tax base. The latter could take a while — and potentially put the city back in fiscal peril.

The reason the latter path could “potentially put the city back in fiscal peril” relates to the concept of the “demographic dividend,” which David E. Bloom, David Canning, and Jaypee Sevilla explore at length in a 2003 Rand Corporation report

Because people’s economic behavior and needs vary at different stages of life, changes in a country’s age structure can have significant effects on its economic performance. Nations with a high proportion of children are likely to devote a high proportion of resources to their care, which tends to depress the pace of economic growth. By contrast, if most of a nation’s population falls within the working ages, the added productivity of this group can produce a “demographic dividend” of economic growth, assuming that policies to take advantage of this are in place. In fact, the combined effect of this large working-age population and health, family, labor, financial, and human capital policies can effect virtuous cycles of wealth creation. And if a large proportion of a nation’s population consists of the elderly, the effects can be similar to those of a very young population. A large share of resources is needed by a relatively less productive segment of the population, which likewise can inhibit economic growth.

You see where I’m going with this: something similar obtains for cities within a given country, and this raises thorny issues for a country like ours in which we have a relatively high degree of fiscal decentralization and free migration. Some cities have large working-age populations as a share of their total populations, and some really fortunate cities have large college-educated working-age populations as a share of their total populations, which makes it easier to finance infrastructure and social services. (Whether these resources will be deployed effectively is a separate matter. Many if not most “superstar cities” are attractive to productive workers not because of the quality of local public services but because of fixed amenities and economic agglomerations that are extremely sticky, thus allowing local public sector workers to extract rents from taxpayers, which helps explain why a city like Los Angeles is governed so poorly.)

One of the issues DePillis raises is that the rising housing prices associated with gentrification in urban cores tend to encourage outmigration from cities to suburbs. She identifies a problem of affluence, which is that when high-income families living in a city deem the local public schools acceptable, homes quickly appreciate in value. Low-income families find it difficult to afford homes in the catchment areas of the most well-regarded urban public schools, and so they will often leave the gentrifying urban core for low-cost housing options in the suburbs. DePillis concludes on the following uninspiring note:

The city’s best chance to keep its population in balance over the long term — bringing in and keeping the wealthy while allowing the poor to stick around — is to build as densely as possible in areas the childless enjoy, which frees up roomier row houses that families prefer. Those big condo buildings can also be constructed to allow for units to be combined, if parents-to-be want a second bedroom and are willing to sacrifice the backyard.

And then, all that tax revenue generated by childless millennials will be enough to keep up with demand for the services that low-income families need to hang on.

While I agree with the strategy DePillis identifies for cities, it’s worth thinking through the dilemmas facing suburban communities, the subject of my next column. For now, I’ll raise one minor issue, which is that low-density communities suffer from a financial productivity problem. Financial productivity, which Charles Marohn defines as the total value per acre, is much higher in dense, multi-use urban environments than in sprawling, single-use environments. When you have densely-packed retail establishments and multi-family housing along a road, you can rest assured both that the road will be used and that the revenues generated by the buildings on either side of it will be more than sufficient to finance its upkeep. When you instead have single-purpose neighborhoods dominated by single-family dwellings, financial productivity tends to fall. There are, of course, affluent suburban communities where densities are low yet where local tax revenues can meet the challenge of financing (limited) local infrastructure. As a general rule, however, these are towns which present high barriers to low- and middle-income households. Combining inclusiveness and financial productivity seems to require density. More on this to come. 

The Wrong Kind of Social Security Reform


Last week, Andrew Biggs of the American Enterprise Institute discussed the parlous state of Social Security’s finances (“CBO’s best guess is that the Social Security shortfall is roughly four times larger today than it was just six years ago”) and recent calls from left-of-center Democrats for expanding Social Security, and how these proposals are likely to exacerbate rather than improve Social Security’s fiscal health. Biggs acknowledges that President Obama has proposed reducing cost of living adjustments to improve Social Security’s finances before noting that he withdrew the proposal after encountering intense criticism from Democratic lawmakers, several of whom have instead backed an expansion of benefits. A New York blog post takes Biggs to task for not highlighting the role of Republicans in stymieing Social Security reform:

Obama suggested nothing to help Social Security apart from that one time he did exactly that, when he proposed reducing Social Security’s cost-of-living index. (Even this absurd formulation is wrong: Biggs is ignoring the fact that Obama also proposed similar measures behind closed doors in 2011 and 2012, and was rebuked by Republicans every time.)

It is worth noting that the proposal in question does more than reduce Social Security’s cost-of-living index, as Biggs has explained in great detail. The president’s call for adopting chained CPI to calculate Social Security’s annual cost-of-living adjustments (COLAs) was tied to using chained CPI to index income-tax brackets. This would accelerate “bracket creep,” the process through which households find themselves in higher tax brackets because average incomes generally rise faster than inflation. “While the Social Security cuts due to chained CPI would stabilize at around 4 percent of outlays (being limited by the average recipient’s lifetime),” Biggs writes in NRO, ”the income-tax increases would keep growing in perpetuity.” Why would Republicans oppose a cut to Social Security benefits tied to a tax increase that will disproportionately impact low- and middle-income households? 

And Biggs also argues that while there is indeed a case for restraining the growth of Social Security benefits for middle and high earners, applying chained CPI to COLAs is an unusually bad way to accomplish this goal. One of the points Biggs often emphasizes is that advocates of Social Security reform must focus on the central goals of the Social Security program and public pension policies more broadly, e.g., to eliminate poverty among older Americans. Social Security’s generous inflation adjustment is important in part because private pensions aren’t subject to a generous inflation adjustment. But rather than simply leave the Social Security program in its current form, Biggs has proposed reforms that would, among other things, strengthen the role of private savings while making Social Security more generous to beneficiaries with low lifetime earnings. That is, Biggs is not exclusively focused on making Social Security cheaper. His goal is to make it better.

New York continues:

With faux generosity (“It’s hard to blame the president alone for backtracking”), Biggs pivots from blaming Obama to blaming Democrats in Congress. He cites a plan to shore up Social Security by Representative John Larson. Biggs grudgingly concedes that Larson “at least attempts to balance the system’s tax revenues and benefit outlays,” which is Biggs’s way of saying that, according to an independent analysis by the Social Security Administration, Larson’s plan restores complete solvency to the Trust Fund over 75 years. He proceeds to complain that Larson’s plan raises taxes too much.

Of course, this doesn’t contradict Biggs in the slightest. Biggs describes Larson’s plan as “the most responsible bill” from a Democratic lawmaker, and his main objection is in fact that Larson “makes no attempt to hold down costs” — a pretty big point to miss. 

At no point anywhere in his op-ed does Biggs mention Congressional Republicans, not to mention their repeated refusal to accept Obama’s deal that would have cut Social Security spending in return for closing tax deductions for the affluent. He is, of course, correct that many liberals opposed such a deal. But this merely illustrates how self-defeating it was for Republicans to spurn Obama’s deal. Cutting Social Security is extremely unpopular — as unpopular as just about any mainstream policy option. It is also essential to the conservative goal of restraining the size of government. Having a Democrat who is prepared to sign, and provide public cover to, Social Security cuts is an unbelievably fortunate opportunity for the right.

Let’s review: is it in fact “self-defeating” of Republicans to spurn a proposal that accelerates bracket creep while also reducing Social Security outlays in a way that risks undermining one of the better aspects of the Social Security program?

I recommend reading Biggs and Sylvester Schieber’s work on the state of retirement incomes, a subject they’ve addressed in the Wall Street Journal and, at greater length, in National Affairs.

Today’s Policy Agenda: Regulation Explains a Lot of the Variation in Price of Housing


Obamacare’s growing costs to businesses is bad for some workers and consumers.

Rove and Co. has a report on the results of the 2014 Empire State Manufacturing Survey and the Business Leaders Survey, conducted by the Federal Reserve Bank of New York, which included a supplement on the effects of Obamacare on businesses.

About 80 percent of manufacturing leaders and 73 percent of business leaders surveyed said they expected the law to increase their costs in 2015, and the chart below shows how they expect to offset the new cost:

Some business and manufacturing employers will decrease the total amount of workers they employ, make more positions part time, and reduce wages. But the most popular choice: 36.4 and 25 percent of manufacturing leaders and business leaders respectively, said prices for consumers would rise. 

Is the skills gap a myth?

At FiveThirtyEight, Andrew Flowers reports on a National Bureau of Economic Research working paper arguing that the U.S. workforce doesn’t lack the skills employers need:

Overall, the available evidence does not support the idea that there are serious skill gaps or skill shortages in the US labor force. The prevailing situation in the US labor market, as in most developed economies, continues to be skill mismatches where the average worker and job candidate has more education than their current job requires.

There is a prevailing narrative that the U.S. labor market has a lot of open positions because workers lack the skills to fill them. But in the NBER paper, Penn professor Peter Cappelli argues that most people are actually over-qualified for their jobs, and suggests other reasons for why employers complain of a skills shortage when there isn’t one.

One of Cappell’s explanations: Employers are perpetuating this narrative to shift the responsibility of skills acquisition away from the on-the-job-training model and to individuals and the government.

The hidden housing construction cost: building regulations

In the Washington Post, Jeff Guo explains how building regulations further raise the cost of housing in some of America’s most expensive cities, citing a study by University of Michigan economists. 

The chart below suggests that much of the difference in housing prices has to do with regulations, not just, say, the price of land and materials:

The line represents the predicted cost of housing based on the land and construction costs in different cities, while the dots represent the actual costs — as you can see, cities like San Francisco are above that line, meaning regulation has raised their prices higher than you’d expect based on fundamentals.

These excessive regulations drive up the cost of housing for everyone: The regulations make new construction cost prohibitive, leading to housing shortages that keep prices high, while developers who need to sell new construction at high costs to compensate for the price of regulations focus on luxury housing.

Today’s Policy Agenda: Congestion Is a Serious Economic Problem


Obama’s trying to persuade the elite establishment to support executive action on immigration.

Anna Palmer and Carrie Budoff Brown reported in Politico on the Obama administration seeking advice from and courting business leaders for coming executive actions on immigration. They write:

Earlier this month, senior aides from the White House counsel’s office, office of public engagement and the office of science and technology policy, among others, huddled with more than a dozen business groups and company officials to discuss potential immigration policy changes they could make. Smaller meetings with the White House and Department of Homeland Security aides have continued throughout the month. Administration officials are expected to present Obama with recommendations by the end of August.

Representatives from Oracle, Cisco, Fwd.US, Microsoft, Accenture, Compete America and the U.S. Chamber of Commerce were among those present at a wide-ranging Aug. 1 session that went through a list of asks for the tech sector that would involve rulemaking. Executive orders were not specifically discussed in that meeting, according to one source familiar with the session.

The ideas under discussion for executive action include allowing spouses of workers with high-tech visas to work, recapturing green cards that go unused and making technical changes for dual-purpose visa applications. Agriculture industry representatives have also been included in the meetings, discussing tweaks in the existing agriculture worker program.

The administration is also considering provisions for low-skilled workers for industries, like construction, that would allow individuals with temporary work authorization to gain work permits.

While the administration is clearly working to shore up political support for likely unprecedented executive maneuvers, there’s already a consensus in the both parties on most legislative questions. In their new podcast, “​Getting it Right,” Reihan and Patrick observe that George W. Bush and President Obama’s comprehensive immigration reform proposals appear remarkably similar and that elite preferences are fairly uniform regarding legalization and future flows. Reihan and Patrick speculate that this stems from big business – including the firms brought in by the White House to help shape coming immigration law changes – supporting such proposals out of self-interest, while the interests of native low-skill workers or even the preferences of their own constituents have less influence on elites.

Congestion is a serious economic problem.

In Urban Studies, Matthias Sweet from McMaster University explored the economic effects of traffic congestion, and finds that it slows job growth. sweet:

Traffic congestion alleviation has long been a common core transport policy objective, but it remains unclear under which conditions this universal byproduct of urban life also impedes the economy. Using panel data for 88 US metropolitan statistical areas, this study estimates congestion’s drag on employment growth (1993 to 2008) and productivity growth per worker (2001 to 2007). Using instrumental variables, results suggest that congestion slows job growth above thresholds of approximately 4.5 minutes of delay per one-way auto commute and 11,000 average daily traffic (ADT) per lane on average across the regional freeway network. While higher ADT per freeway lane appears to slow productivity growth, there is no evidence of congestion-induced travel delay impeding productivity growth. Results suggest that the strict policy focus on travel time savings may be misplaced and, instead, better outlooks for managing congestion’s economic drag lie in prioritizing the economically most important trips (perhaps through road pricing) or in providing alternative travel capacity to enable access despite congestion.

Given conservatives’ emphasis on work and spending time with family, fighting traffic congestion is a natural fit in a policy agenda. Replacing the gas tax with mileage-based user fees varied by time of day, as explained by Brad Wassink and Rick Geddes, could raise more revenue in a progressive manner while incentivizing drivers to avoid creating congestion. It would also make the costs of government more visible to the taxpayer than excise taxes included in the price at the pump. And all of it, it seems, could give the economy a boost too.

The costs alcohol imposes on society are incredibly high.

For Wonkblog, University of Chicago professor Harold Pollack recalls memories of serving as a health researcher around those who had been drinking and looks at the data to show how deadly alcohol can be:

Surveys of people incarcerated for violent crimes indicate that about 40% had been drinking at the time they committed these offenses. Among those who had been drinking, average blood-alcohol levels were estimated to exceed three times the legal limit. Drinking is especially common among perpetrators of specific crimes, including murder, sexual assault, and intimate partner violence.

Correlation does not equal causation, of course. If offenders all stopped drinking, we wouldn’t see a 100-percent reduction in their crimes. Yet alcohol does play a distinctive role. It lowers inhibitions and, among some people, fosters aggressive behavior that ratchets up the risk that violence will somehow occur. In my own career as a public health researcher, I’ve come into close contact with many intoxicated heroin and marijuana users. In these moments, I’ve never had reason to feel that my safety was at risk. I have been present for some scary incidents. Almost every time, alcohol was in the mix, often as things were getting a little late in a tough neighborhood near a liquor store . .  .

Almost 40% of the homicide victims tested had some blood alcohol in their systems when they were killed. These data do not indicate actual blood-alcohol levels. Our previous work indicates that many homicide victims have alcohol in their systems above the legal limits for driving.

Reihan has advocated for a significant increase in the alcohol tax before, and the logic for it is clear in this context: Alcohol is extremely expensive to society – in lives lost, domestic abuse committed, health-care dollars and resources spent, and families torn apart. Raising the alcohol tax would put consumers of the drug in a position where they bear the costs alcohol imposes on the rest of society. The price is the mechanism that best transmits information to the consumer that this must be used in moderation.

The alcohol experience also provides important lessons for the more politically relevant drug of the day: marijuana. While prohibition of alcohol was a failure and a strong case can be made that the drug war has also been a failure, that’s not to say that following alcohol’s path of relatively light taxation and regulation is the right course for marijuana. The data in Pollack’s story is pretty clear on the ways a liberalized alcohol policy has been harmful, and the ideas of Mark Kleiman – legalize, but heavily tax and regulate to mitigate abuses of the drug – offer a different path that could have better results. 

A Monetary Policy for the 21st Century


Mark Blyth, a professor of international political economy at Brown and author of Austerity: The History of a Dangerous Idea, and Eric Lonergan, a hedge fund manager and author of Money, have a provocative article in the new Foreign Affairs that calls for the use of “helicopter drops” as a tool of monetary policy. As a fan of the London-based entrepreneur and writer Ashwin Parameswaran, a longtime proponent of helicopter drops, I was delighted to see the idea given such a prominent place in an influential magazine. What impresses me most about Blyth and Lonergan’s article is that unlike many other critics of austerity, they recognize that austerity isn’t just about spending cuts; it is also about tax increases. And they make a number of arguments that at least have the potential to appeal to right-of-center skeptics of quantitative easing and calls for debt-financed infrastructure investment as a recession-fighting tool.

First, the basic mechanism: 

Rather than trying to spur private-sector spending through asset purchases or interest-rate changes, central banks, such as the Fed, should hand consumers cash directly. In practice, this policy could take the form of giving central banks the ability to hand their countries’ tax-paying households a certain amount of money. The government could distribute cash equally to all households or, even better, aim for the bottom 80 percent of households in terms of income. Targeting those who earn the least would have two primary benefits. For one thing, lower-income households are more prone to consume, so they would provide a greater boost to spending. For another, the policy would offset rising income inequality.

Such an approach would represent the first significant innovation in monetary policy since the inception of central banking, yet it would not be a radical departure from the status quo. Most citizens already trust their central banks to manipulate interest rates. And rate changes are just as redistributive as cash transfers. When interest rates go down, for example, those borrowing at adjustable rates end up benefiting, whereas those who save — and thus depend more on interest income — lose out.

My own view is that given anxieties about the politicization of central banks, which Blyth and Lonergan acknowledge, it would be preferable to distribute cash equally to all households, on the grounds that such an approach is more “neutral,” and that it can safely ignore income fluctuations and disincentives (minor though they might be) at the margin. Those who are drawn to Blyth and Lonergan’s approach on egalitarian grounds might object to such a universal transfer, but they shouldn’t, as it is an alternative to the far more inegalitarian quantitative easing approach, the main effect of which is to prop up asset prices. As Parameswaran has argued, the chief benefit of helicopter drops is that instead of propping up asset prices (and bailing out big banks and business enterprises, a subject to which we will return), they “mitigate the consequences of macroeconomic volatility upon the people.” While quantitative easing and bailouts disproportionately benefit the asset-owning rich, helicopter drops leave the household income distribution untouched, leaving the question of redistribution to lawmakers. All that said, Blyth and Lonergan’s favored approach, in which households in the top fifth are excluded from the transfer, strikes me as preferable to the status quo. 

But wouldn’t helicopter drops create inflationary pressures? Blyth and Lonergan argue that inflation fears are overblown, as helicopter drops would be a flexible tool. Any inflationary pressures they generate could be mitigated by an increase in interest rates. And they make a compelling case that instead of fretting about inflation, there are good structural reasons for central banks to worry about the prospect of deflation:

[I]n recent years, low inflation rates have proved remarkably resilient, even following round after round of quantitative easing. Three trends explain why. First, technological innovation has driven down consumer prices and globalization has kept wages from rising. Second, the recurring financial panics of the past few decades have encouraged many lower-income economies to increase savings — in the form of currency reserves — as a form of insurance. That means they have been spending far less than they could, starving their economies of investments in such areas as infrastructure and defense, which would provide employment and drive up prices. Finally, throughout the developed world, increased life expectancies have led some private citizens to focus on saving for the longer term (think Japan). As a result, middle-aged adults and the elderly have started spending less on goods and services. These structural roots of today’s low inflation will only strengthen in the coming years, as global competition intensifies, fears of financial crises persist, and populations in Europe and the United States continue to age. If anything, policymakers should be more worried about deflation, which is already troubling the eurozone.

And Blyth and Lonergan appeal to legitimate concerns about the scale of asset purchases by noting that the cash transfers they envision would be modest in comparison:

There is no need, then, for central banks to abandon their traditional focus on keeping demand high and inflation on target. Cash transfers stand a better chance of achieving those goals than do interest-rate shifts and quantitative easing, and at a much lower cost. Because they are more efficient, helicopter drops would require the banks to print much less money. By depositing the funds directly into millions of individual accounts — spurring spending immediately — central bankers wouldn’t need to print quantities of money equivalent to 20 percent of GDP.

Later in their article, Blyth and Lonergan offer an intriguing scheme for debt-financed sovereign wealth funds (SWFs) as an alternative to the global wealth taxation envisioned by Thomas Piketty. Here is where Blyth and Lonergan repeatedly play against type by, for example, warning that “taxes on capital would discourage private investment and innovation” — a banal sentiment, you’d think, yet one that is far from universal among anti-austerians. They reference France’s recent budget problems to suggest that burdening upper-middle class households in the highest income tax brackets “would yield little financial benefit,” another provocative claim in some circles. And they explicitly contrast their call for new SWFs with talismanic, and often intellectually sloppy, calls for increased government-financed infrastructure spending. After noting that “infrastructure spending takes too long to revive an ailing economy,” they insist that infrastructure investments “shouldn’t be rushed” before noting the wastefulness of some infrastructure projects, an aside that came as music to at least my ears. The particulars of these debt-financed SWFs will give some critics pause, and I’d be eager to read a critical take:

[I]nstead of trying to drag down the top, governments could boost the bottom. Central banks could issue debt and use the proceeds to invest in a global equity index, a bundle of diverse investments with a value that rises and falls with the market, which they could hold in sovereign wealth funds. The Bank of England, the European Central Bank, and the Federal Reserve already own assets in excess of 20 percent of their countries’ GDPs, so there is no reason why they could not invest those assets in global equities on behalf of their citizens. After around 15 years, the funds could distribute their equity holdings to the lowest-earning 80 percent of taxpayers. The payments could be made to tax-exempt individual savings accounts, and governments could place simple constraints on how the capital could be used.

For example, beneficiaries could be required to retain the funds as savings or to use them to finance their education, pay off debts, start a business, or invest in a home. Such restrictions would encourage the recipients to think of the transfers as investments in the future rather than as lottery winnings. The goal, moreover, would be to increase wealth at the bottom end of the income distribution over the long run, which would do much to lower inequality.

Here Blyth and Lonergan anticipate the objection that public sector purchases of financial assets risks deepening state control over private firm, an objection that was often raised when politicians contemplated invested Social Security funds in equities, by noting that central banks already have enormous asset portfolios. But then I worry that they might be too sanguine about the long-term consequences:

Best of all, the system would be self-financing. Most governments can now issue debt at a real interest rate of close to zero. If they raised capital that way or liquidated the assets they currently possess, they could enjoy a five percent real rate of return — a conservative estimate, given historical returns and current valuations. Thanks to the effect of compound interest, the profits from these funds could amount to around a 100 percent capital gain after just 15 years. Say a government issued debt equivalent to 20 percent of GDP at a real interest rate of zero and then invested the capital in an index of global equities. After 15 years, it could repay the debt generated and also transfer the excess capital to households. This is not alchemy. It’s a policy that would make the so-called equity risk premium — the excess return that investors receive in exchange for putting their capital at risk — work for everyone.

As we contemplate the aging of developed world populations, technological advances that will continue to put pressure on market wages, and the growing temptation of elected officials to embrace rigid regulations as policy “solutions,” the effort to preserve free and open economies will require new strategies

My main criticism of Blyth and Lonergan is that they ought to have emphasized the role of helicopter drops as an alternative to bank bailouts, a point that Parameswaran emphasized in “A Simple Policy Program for Macroeconomic Resilience” (in which he also usefully differentiates between helicopter drops as tools for macroeconomic stabilization and basic income guarantees, which are conceptually distinct):

In order to promote system resilience and minimise moral hazard, any system of direct transfers must be directed only at individuals and it must be a discretionary policy tool utilised only to mitigate against the risk of systemic crises. The discretionary element is crucial as tail risk protection directed at individuals has minimal moral hazard implications if it is uncertain even to the slightest degree. Transfers must not be directed to corporate entities – even uncertain tail-risk protection provided to corporates will eventually be gamed. The critical difference between individuals and corporates in this regard is the ability of stockholders and creditors to spread their bets across corporate entities and ensure that failure of any one bet has only a limited impact on the individual investors’ finances. In an individual’s case, the risk of failure is by definition concentrated and the uncertain nature of the transfer will ensure that moral hazard implications are minimal. This conception of transfers as a macro-intervention tool is very different from ideas that assume constant, regular transfers or a steady safety net such as an income guarantee, job guarantee or a social credit.

The argument for bank bailouts is that they are necessary to prevent a catastrophic deflationary collapse. Yet direct transfers to individuals can do that just as well, if not better. And so banks can be allowed to fail, clearing the ground for new banks to emerge in their place.  If Blyth and Lonergan are seeking to build a broad coalition for their proposals, and I think they are, pressing the case against bank bailouts would be a good place to start. 

Should We ‘Tape Everything’?


Last week, I argued that on-duty police officers should be required to record their interactions with civilians with the aid of so-called “body cams” and, more controversially, that teachers should be recorded in the classroom. Though I lumped these two arguments together, they deserve to be teased apart.

First, I should note that I fell prey to technological triumphalism. The “hardware” of body cams can improve our criminal justice system. But what really matters is the cultural ”software” that undergirds the system. 

The case for police body cams is, for the reasons outlined in the column, fairly strong. Yet they’re certainly not a cure-all. As Radley Balko observes, it is not uncommon for police departments to have cameras and to not use them, or for cameras to malfunction at convenient moments:

So in addition to making these videos public record, accessible through public records requests, we also need to ensure that police agencies implement rules requiring officers to actually use the cameras, enforce those rules by disciplining officers when they don’t and ensure that the officers, the agencies that employ them, and prosecutors all take care to preserve footage, even if the footage reflects poorly on officers.

Assuming law enforcement agencies are using recording equipment properly, we then have to deal the problem of “cultural cognition,” which Dan M. Kahan, David A. Hoffman, Donald Braman, Danieli Evans, and Jeffrey J. Rachlinski address in an April 2012 Stanford Law Review article, which Josh Chafetz of Cornell Law School kindly sent my way:

“Cultural cognition” refers to the unconscious influence of individuals’ group commitments on their perceptions of legally consequential facts. We conducted an experiment to assess the impact of cultural cognition on perceptions of facts relevant to distinguishing constitutionally protected “speech” from unprotected “conduct.” Study subjects viewed a video of a political demonstration. Half the subjects believed that the demonstrators were protesting abortion outside of an abortion clinic, and the other half that the demonstrators were protesting the military’s “don’t ask, don’t tell” policy outside a military recruitment center. Subjects of opposing cultural outlooks who were assigned to the same experimental condition (and thus had the same belief about the nature of the protest) disagreed sharply on key “facts”—including whether the protestors obstructed and threatened pedestrians. Subjects also disagreed sharply with those who shared their cultural outlooks but who were assigned to the opposing experimental condition (and hence had a different belief about the nature of the protest). These results supported the study hypotheses about how cultural cognition would affect perceptions pertinent to the speech-conduct distinction. We discuss the significance of the results for constitutional law and liberal principles of self-governance generally.

In a similar vein, it is easy to imagine that jurors reviewing a body cam recording of a police confrontation with a civilian would bring their “cultural cognition” to bear. In a case involving, say, a white police officer and an African American civilian, much could depend (alas) on the racial composition of the jury pool. Alex Tabarrok summarizes the work of Shamena Anwar, Patrick Bayer, and Randi Hjalmarsson on the impact of race on the outcome of criminal trials:

What the authors discover is that all white juries are 16% more likely to convict black defendants than white defendants but the presence of just a single black person in the jury pool equalizes conviction rates by race. The effect is large and remarkably it occurs even when the black person is not picked for the jury. The latter may not seem possible but the authors develop an elegant model of voir dire that shows how using up a veto on a black member of the pool shifts the characteristics of remaining pool members from which the lawyers must pick; that is, a diverse jury pool can make for a more “ideologically” balanced jury even when the jury is not racially balanced.

The author’s results show not only that blacks and whites are treated differently depending on the composition of the jury pool but also that random variation in the jury pool adds to the variability of sentences holding race constant. Like is not treated as like. The results also suggest that we don’t need racial quotas to increase fairness. We can increase fairness and reduce variability in a racially neutrally way by expanding the size of juries. Six-person juries have become common because they are cheap(er) but a return to twelve person juries would reduce the variability of sentences and greatly equalize conviction rates across race. [Emphasis added]

These findings about jury trials reminded me of Russ Roberts’ recent conversation with Barry Weingast, in which Weingast, a student of legal history, described the juries of ancient Athens. These juries were absurdly large by modern standards, with 201 jurors for a trial. These jurors would simply vote on the outcome of a trial after hearing the arguments of the two litigants. The reason for these large juries, according to Weingast, is that the goal of the law was not just to establish rules of conduct, but to establish rules of conduct that allow for the coordination of people’s expectations. And so it is important to understand what are the shared expectations in our society. A small jury could include a handful of eccentrics who don’t have a good handle on societal expectations. A large one, however, would give you a much clearer picture of the expectations of your typical Athenian. Something similar should apply, I would argue, in our own society. Stephanos Bibas’s The Machinery of Criminal Justice reminds us that something similar did apply in colonial America:

Colonial Americans saw criminal justice as a morality play. Victims initiated and often prosecuted their own cases pro se (without lawyers), and defendants often defended themselves pro se. Laymen from the neighborhood sat in judgment as jurors, and even many judges lacked legal training. Trials were very quick, common-sense moral arguments, as victims told their stories and defendants responded without legalese. Communities were small, so gossip flew quickly, informing neighbors of what was going on. Even punishment was a public affair, with gallows and stocks in the town square. True, punishments could be brutal, procedural safeguards were absent, and race, sex, and class biases all clouded the picture. Nonetheless, the colonists had one important asset that we have lost: members of the local community actively participated and literally saw justice done.

The point of jury trials was to empower communities, and to respect their values. In a more diverse society, there is a logic to ensuring that juries reflect this diversity. Among other things, this will tend to strengthen the legitimacy of law enforcement in diverse communities, which, as recent surveys remind us, is at a dangerously low level. As you can probably tell, I’m very interested in this subject and I’d like to revisit it.

On an entirely different note, I oversimplified the issue of recording teachers in their classrooms, as an acquaintance reminded me over email. Such recordings could help establish the facts surrounding disciplinary actions, which does strike me as valuable in itself. Yet the existence of these recordings creates the danger that teachers will be reduced to automatons as they are forced to follow narrow prescriptions as to what they can say and do. I still believe that the recording of teachers could be used as a valuable pedagogical tool, particularly if the recordings are only available to teachers, their colleagues, and their supervisors. But the mere existence of these recordings raises the danger that, for example, litigious parents might demand access to them. 

Lane Kenworthy on Bettering the Lives of the Poor


Recently, I asked Lane Kenworthy, professor of sociology at the University of California, San Diego, and author of Progress for the Poor (2011) and Social Democratic America (2013), to answer a few quick questions about what the United States can learn from poverty-fighting efforts in other market democracies, and he was kind enough to agree. Kenworthy is an advocate of a larger, more generous U.S. social safety net, hence his recent call for a “social democratic America.” Yet he is also deeply interested in making U.S. public sector institutions more efficient and responsive, and I’ve long believed that conservatives can profit from his work. I reached out to Kenworthy in part because I believe that the Nordic model, and its reliance on “supports+incentives+pressures,” is misunderstood by at least some of its American admirers. 

Reihan Salam: Much of your work is based on the notion that the United States can learn from the efforts of other affluent market democracies to better the lives of the poor. Across these countries, have rising wages been the chief vehicle for raising incomes at the bottom or has it been rising transfers?

Lane Kenworthy: Since the late 1970s, it has been mainly rising transfers. In most of the rich countries for which there are comparable data, the earnings of low-end households increased little, if at all, during this period. (Ireland and the Netherlands are exceptions.) When incomes rose, it was because of increases in net government transfers — transfers received minus taxes paid.

This owes partly to the characteristics of individuals and households at the low end. Some people have psychological, cognitive, or physical conditions that limit their earnings capability. Some are elderly. Many of these households have just one adult, and family circumstances can impose a significant constraint.

It’s also a function of the economy, which is less conducive to wage increases for low-end workers than it was during the 1950s and 1960s. It’s more difficult to increase productivity in low-end service positions than in manufacturing. Firms now face more intense competition from more sources (foreign and domestic). Companies have more options for replacing workers, whether with machines or with low-cost laborers abroad. In nations like the US, shareholders now pressure management for constant cost-cutting and buoyant quarterly earnings growth rather than steady long-run improvement, and labor unions have weakened.

How do countries increase government transfers? For some programs,benefit levels rise automatically as the economy grows. This happens when, for instance, pensions or unemployment compensation are indexed to average wages. For other programs, such as social assistance, an increase in benefit generosity may require an explicit policy update by a government agency or by the legislature.

In the United States, only one of our main government transfer programs, Social Security, is structured in such a way that benefit levels automatically increase when the economy grows. Social Security retirement benefits are indexed to average wages, so they have tended to rise more or less in concert with GDP. Unemployment benefit levels are determined by state governments. In many instances, the benefit level is a “replacement rate,” which means the payment is a certain fraction of the unemployed person’s former wage or salary. Because real wages in the bottom half of the distribution have not increased in the past several decades, unemployment benefits for Americans in low-wage jobs have failed to keep up with growth in the economy. Other programs, such as the Earned Income Tax Credit, the Supplemental Nutritional Assistance Program (food stamps), Social Security Disability Insurance, and Supplemental Security Income, are indexed to prices. This means they keep up with inflation, but not with economic growth. Temporary Assistance for Needy Families payments are determined by state policymakers; there is no automatic increase, not even for prices. AFDC-TANF benefit levels have fallen steadily in inflation-adjusted terms over the past several decades. As a result, government transfers for low-end households have increased less in the US than in many other affluent countries.

RS: You often reference the distinction between employment-conditional earnings subsidies and unconditional transfers. Given the large numbers of low-income households with low or no earnings, why haven’t governments simply increased unconditional transfers to all low-income households, whether they include working adults or not?

LK: One reason is that most affluent countries face demographic pressure on the public budget. The generation entering retirement is large, so existing commitments to pensions and health care for retirees are going to increase government expenditures in coming decades. Increasing tax rates is a tough sell politically. A more attractive strategy is to increase taxable earnings, and one way to do that is by getting more people into employment. Providing generous unconditional transfers to able working-age adults reduces the incentive for such people to be employed.

A second reason has to do with perceptions of fairness. Many people — not just here in the US but in all rich nations — believe that everyone should pull their own weight to the extent they are able. So they want unconditional benefits to be reserved for the truly needy.

RS: Denmark and Sweden have employment rates that are among the world’s highest, and Sweden recently surpassed the United States in the number of hours worked per working-age adult. Americans tend to think of the Danish and Swedish welfare states as very generous. How do they manage to combine generosity to low-income households with high levels of labor force participation?

LK: The Danish and Swedish welfare states provide strong supports for employment. Most important, good-quality childcare and preschool (“early education”) is widely available at an affordable price. Here in the US, childcare is available, but care that’s affordable often is mediocre in quality. Among mothers whose youngest child is six to sixteen years old, and thus in K-12 schooling, the employment rate in Sweden is similar to that in the US, whereas among mothers with a child under six, it’s 15 percentage points higher in Sweden.

Another helpful support is “active labor market policy,” which is a bundle of programs that aid young people who are struggling to get into the labor market, mid-career or elderly workers who lose their job, and people with various types of constraints and disabilities. The supports include training and retraining, lifelong learning, job placement assistance, and more.

Though government benefits for non-employed Swedes do tend to be fairly generous, the de facto minimum wage (it’s set via collective bargaining rather than by government) is high, so people on the margins of the labor market don’t face strong work disincentives. In the past decade, two new policies have aimed to make the incentives even more favorable for employment. One is an employment-conditional earnings subsidy, similar to our Earned Income Tax Credit. The other is a payroll tax reduction for people employed in certain low-paying service positions.

Along with supports and incentives, Sweden and Denmark often pressure benefit recipients into employment. Because individual circumstances vary so much, this is best done by giving caseworkers considerable discretion to decide which people can be effectively pushed into paid work, when, and with what kind of help. Doing this well requires an investment — in well-trained caseworkers who remain in their jobs and thereby build expertise, in having a sufficient number of caseworkers so that they aren’t overwhelmed with clients, and in ensuring that caseworkers have access to sufficient resources to help their clients enter and remain in the paid workforce (retraining, transportation, temporary housing, treatment for addiction, etc).

I’m not suggesting these two countries have fully solved the problem of how to couple generous government benefits with high employment. I worry, for instance, that their high wage floors and (in Sweden) payroll taxes reduce employment somewhat among immigrants and the young. But overall I think their supports+incentives+pressures approach has proven comparatively effective.

The Case Against Crony Consumerism


The following is a guest post from Jay Weiser, associate professor of law at Baruch College’s Zicklin School of Business.

Even as critics on the right and left unite against crony capitalism, crony consumerism continues to enjoy widespread support. Two recent articles decrying predatory practices in the financing of consumer durables illustrate the point. “USA Discounters hooks some service members with credit before springing the debt trap,” by Paul Kiel of ProPublica, and “In a Subprime Bubble for Used Cars, Borrowers Pay Sky-High Rates, by Jessica Silver-Greenberg and Michael Corkery of Dealbook, both paint a picture of nefarious businesspeople (who make The Simpsons’ Mr. Burns look like a choirboy) pushing unaffordable credit on dewy-eyed, innocent consumers. This three-hankie narrative more closely resembles a three-card monte game that distracts viewers from what’s going on underneath. 

Wide availability of credit encourages some consumers to overextend, default, and go bankrupt. While Silver-Greenberg and Corkery‘s used car article asserts that fees and high interest rates on subprime used car loans have “generated rich profits for the lenders and those who buy the debt,” firms serving these consumers typically do not make extraordinarily high profits given the high default rates. In his Washington Post piece, ProPublica’s Paul Kiel claims that retailer USA Discounters loads up young servicemembers on overpriced computers and home appliances, hits them with high default interest rates, sues them in a Virginia court remote from where many are based, garnishes their wages, and leaves them at the edge of destitution.

Both articles minimize the consumer role. Silver-Greenberg and Corkery accept at face value borrowers’ claims that they didn’t collude with the loan originators to falsify their income — though one borrower noted that living in the suburbs, “I just can’t get around without my car,” even if he couldn’t afford one (a telling example of how U.S. low density land use policies entrench poverty). 

Kiel’s servicemember interviewees lacked good enough credit to buy from national retailers (even though firms such as Walmart and Amazon offer inexpensive credit to qualified buyers), a problem exacerbated by federal paternalism. Concerned with possible financial ruin for active-duty servicemembers with debt obligations stateside, Congress passed the Servicemembers Civil Relief Act, which is essentially an unfunded mandate on creditors. The SCRA limits interest on active-duty servicemember debts to 6 percent, below market for most consumer debt, and restricts enforcement actions. USA Discounters’ seemingly high prices are actually a finance charge and credit insurance in disguise, raising prices for all customers to cover the anticipated losses from active-duty customers. Similarly, while Kiel criticizes the company’s practice of requiring all litigation to take place in its Virginia home jurisdiction, regardless of the servicemember’s location, he produces no evidence that USA Discounters is collecting unowed debts.  He fails to credit USA Discounters’ argument that, by centralizing collection lawsuits, they can collect more cheaply and thus pass on the savings to their non-defaulting customers.

Both articles are consistent with crony consumerist ideology, which implies that lenders should make cheap credit available regardless of ability to repay. (The federal government, not content with its housing “affordability” push of the Clinton and George W. Bush years, has recently arm-twisted credit agencies to manipulate credit scores upward). If lenders don’t comply, they are sued for discrimination based on racially disparate impact. If they do, they will be attacked for predatory lending or unfair collection practices. Louis Hyman’s book Debtor Nation shows the same forces operating nearly a half-century ago, and post-2008, home mortgage documentation litigation has allowed many defaulted borrowers to remain in their homes free of charge. In crony consumerist ideology, debt is a euphemism for a cash advance with repayment optional — a gift, in layman’s terms. Unfortunately, there is no free lunch: if lenders can’t collect from deadbeats, they have to raise prices for everyone else to cover the losses.

Kiel identifies a real problem with youthful servicemembers, many in their first real jobs, who fail to understand the risks of installment debt. The work of leading financial literacy scholar Annamaria Lusardi provides little comfort: most people, particularly in the servicemembers’ demographic, don’t comprehend even the basics about interest, and studies suggest that financial literacy education has little long-term effect. Given that the military already offers free financial counseling, perhaps it should require mandatory just-in-time counseling before servicemembers enter into financing arrangements involving payroll deduction – and sharply limit the percentage of income subject to payroll deductions.

Incentives are best aligned when the market, rather than politics, allocates risks between borrowers and lenders. Paternalistic efforts to discourage imprudent borrowing will choke off some bad loans while redirecting part of the credit flow into higher-cost channels such as loan sharking. Honest policymaking chooses among the tradeoffs.

Today’s Policy Agenda: Medicare Advantage May Be Worth It


Even a small percentage of kids not getting vaccinated could resurrect infectious diseases.

At FiveThirtyEight, Emily Oster shows why vaccination rates of 95 percent may not be enough to protect communities against some diseases. Oster reviewed National Immunization Survey results to compare vaccination rates with instances of Pertussis (commonly known as whooping cough), a potentially deadly infection of the lungs common in infants. She found that lower vaccinations rates were correlated with higher infection rates, even when looking at vaccination rates in the 95 to 99 percent range:

But this doesn’t quite add up: Epidemiology suggests that having a 95 percent vaccination rate is enough to keep a disease extremely rare, thanks to something called “herd immunity.” So Oster hypothesizes that the issue is, understandably, that some places within states have worse-than-average vaccination rates, so states with 95 percent vaccination rates overall have, say, more local communities with below 95 percent rates than 99-percent-vaccinated states.

So Oster looked at Pertussis vaccination rates in counties across the state of California, and the differences in infection rates are stark: Infection rates in the counties with vaccination rates of between 77 and 86 percent are about three times higher than rates in counties with at least a 94 percent vaccination rate. And the fact that such places exist even when all U.S. states have objectively high state vaccination rates for Pertussis means that individual vaccinations are still important. Oster summarizes:

For parents, this information would seem to caution against reliance on herd immunity. Yes, if your county (or better, your neighborhood) has a 99 percent vaccination rate, you’re probably safe. But knowing that your state vaccination rate is 95 percent really isn’t enough. For the vast majority of people, there is absolutely no medical reason not to vaccinate, and the idea that there are no benefits is foolish.

The low near 6 percent unemployment rate masks a big problem: underemployment.

Bloomberg’s Jeff Kearnes and Jenna Smialek report that millions of part-time workers are looking for full time work, but can’t find it:

The high share of workers who are part time for economic reasons is one reason that the Labor Department’s broadest measure of unemployment remains far above its 8.8 percent pre-recession level. U6 unemployment, which includes involuntarily part time and discouraged job seekers in addition to the jobless, is 12.2 percent, or almost double the 6.2 percent level of the main unemployment rate. Both increased by 0.1 percentage point in July from five-year lows in June. 

About 7.5 million Americans are working part-time for economic reasons, which is down from a high of over 9 million in March 2010. But before the recession, fewer than 5 million part-time workers were looking for full-time work. The high involuntary unemployment rate indicates that, even with the total unemployment rate at just 6.2 percent, the labor market still has a long way to go in terms of recovery.

Federal Reserve Chief Janet Yellen has said that the Fed will take the involuntary part time employment rate into consideration when deciding when to raise interest rates. Economists currently predict rates will begin rising in the third quarter of next year, reaching 1.13 percent by the end of 2015, but it’s not clear if the underemployment problem will be much better by then.

Medicare Advantage costs more, but it could be a good investment.

At the Upshot, Austin Frakt discusses whether or not Medicare Advantage is a good use of taxpayer money. Medicare Advantage, a private managed-care alternative, costs 6 percent more than traditional Medicare, and the amount of seniors who choose Medicare Advantage plans has nearly tripled since 2005, more than doubling as a share of Medicare beneficiaries:

Studies show, Frakt points out, that Medicare Advantage out performs traditional Medicare on several measures: Patients are more likely to get important vaccinations and various screenings for health problems they’re predispositioned to experience. And, the HMOs that provide Medicare Advantage plans have an incentive to use high-quality providers and provide such services because keeping their enrollees healthy can save them money down the road — and Medicare advantage enrollees tend to stick with their plans.

Is the extra spending on Medicare Advantage actually a good investment? Frakt reports that, for now, some health economists who have researched the topic cautiously say that Medicare Advantage is probably worth it, noting that opposition to its slightly higher upfront costs may be short-sighted. (Moreover, Medicare Advantage, if payments were structured somewhat differently, could cost noticeably less than it does now – for a theoretical and delicious explanation of why that’s the case, Reihan has a cheeseburger analogy here, and James Capretta and Yuval Levin lay out how a Journal of American Medicine Study found such savings.)

Today’s Policy Agenda: School Autonomy Works


Why Republicans might need Avikcare.

For Politico, Jennifer Haberkorn looks at how changes on the ground are affecting the politics of Obamacare for Republicans. She writes:

Many House Republicans privately worry that unless they have the 218 votes needed to pass a [health care] bill this fall, it’s futile to put something on the floor only to see it fail and expose them to Democrats’ attacks before the November elections. They insist that full repeal remains a top priority and that they want to pursue a step-by-step replacement plan with such ACA provisions as ensuring coverage for pre-existing conditions and keeping dependents on a parent’s insurance policy until age 26.

Still, the longer it takes Republicans to draft and vote on a plan — if they do it at all — the more daunting their political and policy problems become.

More than 15 million Americans already have coverage under Obamacare — 8 million through the exchanges and more than 7.2 million in Medicaid, according to the Obama administration. While Republicans downplay those numbers, arguing that many of the “newly insured” previously had plans that were eliminated under the law, they admit some people are indeed benefiting . . .

Party leaders say they have to ensure that people who got Obamacare coverage stay covered under an alternative. “There’s no question — we have to,” [Tennessee Republican representative Phil] Roe said. “You have to have a bridge to cover these folks — have a place for them to go to buy insurance.”

Republicans have a challenge: The constituencies Haberkorn and Representative Roe are describing will fight losing their newfound insurance, and the cost of health care and health insurance is at the front of the minds of middle class voters more broadly. So if Republicans did manage to repeal Obamacare, it will have to come along with a replacement plan that addresses many of the concerns Obamacare did in a market-oriented way — something like Jim Capretta’s plan.

However, we’ve now witnessed how challenging it is to pass a sweeping reform of the health-care system. Democrats needed back-to-back landslide wins to take the House, Senate, and White House and still were barely able to ram Obamacare through. Repealing Obamacare without passing an adequate replacement would be a political and policy disaster for Republicans, and even if they did manage to pass something, it likely wouldn’t even touch Medicare.

Enter Avikcare, summarized by the Angeda’s Callie Gable here. The plan uses Obamacare to achieve all of the conservative health-care-policy goals while avoiding many of the political headaches described above — it could be the precursor to a new way to think about health policy on the right.

School autonomy works.

Via Marginal Revolution, Youjin Hahn and coauthors assembled a study comparing private and public schools in South Korea. Hahn et al:

We show that private high school students outperform public high school students in Seoul, South Korea, where secondary school students are randomly assigned into schools within school districts. Both private and public schools in Seoul must admit students randomly assigned to them, charge the same fees, and use the same curricula under the so-called ‘equalization policy’, but private schools enjoy greater autonomy in hiring and other staffing decisions and their principals and teachers face stronger incentives to deliver good students’ performance. Our findings suggest that providing schools greater autonomy in their personnel and resource allocation decisions while keeping school principals accountable can be effective in improving students’ outcomes.

We’ve discussed recently the evidence showing that raising teacher pay without changing the hiring procedures would fail to improve teacher quality. This study, which would seem to relate to the debates we often have over teacher tenure, charter schools, and school vouchers, makes use of a natural experiment with findings that corroborate the call for liberalizing hiring and firing of teachers and for more decentralization and competitive pressures in education.

Since the natural experiment prevents selection effects (e.g., smarter kids going to the better schools) through random assignment and holding costs and curricula equal, the authors feel confident asserting that private schooling causally improves educational outcomes through principals facing more accountability in the form of school boards along with giving them more flexibility in assembling their faculty.

Thom Tillis hits the right note on taxes.

In an interview with Byron York of the Washington Examiner, Thom Tillis discussed his thoughts on tax reform. York’s report:

Tillis supports tax reform, but he distanced himself from the GOP stereotype of prescribing tax cuts for all economic ills. “You can’t lead with the notion that everything gets fixed by just reducing taxes,” he said. “There are a lot of other structural things that we have to do if we’re going to try to create better-paying middle-class jobs, and I think you do that by leading with regulatory reform.” He cited the EPA, plus Dodd-Frank and other strictures on business, as measures he’d like to see loosened.

Tillis is right that, while it would be beneficial for our tax code to be more pro-growth, taxes aren’t stifling the economy like they were in the 1970s. A major tenet of reform conservatism is that conservatives need to respond to the challenges of today rather than just keep advocating for the same policy actions that solved the problems Ronald Reagan faced — Tillis appears, to some extent, to get that.

Is there still slack in the labor market?

Daniel Aaronson and Andrew Jordan of the Chicago Fed have released a new report looking at why the economy has been seeing slow wage growth. They write in their abstract:

The authors find that the share of the labor force that is medium-term unemployed (five to 26 weeks unemployed) and the share working part time (less than 35 hours per week) involuntarily are strongly correlated with real wage growth. Moreover, they estimate that average real wage growth would have been between one-half of a percentage point and a full percentage point higher in June 2014 if 2005–07 labor market conditions had been restored, indicating that the slack in the jobs market still weighs heavily on the real wage prospects of U.S. workers.

In other words, “slack” in the labor market — lots of workers underemployed and lots of people on the margins of the labor force — explains why lower unemployment isn’t pushing up wages. This is a key problem for advocates of further monetary easing: If indeed there’s still significant unused productivity in the economy, keeping interest rates low is probably a good thing that could help heal our labor market and enable those at the bottom of the income ladder to experience gains. But the concern, as expressed by an informal Wall Street Journal poll of economists, is that continued stimulus could lead to the economy overheating, because monetary policy can’t necessarily get marginal workers into the labor force.

For now, though, overheating doesn’t seem like a big risk: The producer price index only rose 0.1 percent in July, and even if we reached an annual rate of 2 percent, inflation wouldn’t be the worst thing for the economy right now.

Today’s Policy Agenda: The VA Is Doing a Lot More Private Referrals


The budget deficit is 24 percent lower, for now.

In the Wall Street Journal, Eric Morath reports on theTreasury Department’s monthly statement, which said that the total deficit incurred from October to July is 24 percent less that it was  2013 levels. Deficit spending for the month of July came in at around $94 billion, about $2 billion lower than economists expected and 3 percent lower than in July 2013.

The annual deficit peaked in 2009 at $1.4 trillion and has been trending down since — the year-to-date deficit in July was the smallest since the recession began in 2008. Economist think the deficit will shrink again in 2015, but it is expected to begin growing again in 2016:

According to the CBO, health-care spending, Medicare and Social Security benefits for the Baby Boomers, and rising interest rates will drive the deficit increases.

The VA is referring more patients to private providers.

The Associated Press’s Adrain Sainz reports that in the last two months, the Veterans Health Administration referred 25 percent more patients to private providers than during the same period in 2013. Robert McDonald, the new VA secretary, said the system will refer more veterans to private providers until their facilities are able to offer veterans timely care:

“Until we get systems up to capacity, we’re expanding our use of private care and other non-VA health care to improve access for veterans experiencing excessive wait times,” McDonald said. “And we’re monitoring non-VA care to ensure veterans receive the best that they deserve.”

This surge of private provider referrals comes after reports of life threatening wait times and poor quality of care at some VA facilities. Last Thursday, Obama signed a $16 billion dollar VA bill that appropriated specific funds to pay for some veterans to get care in non-VA facilities — there’s an existing Non-VA Care system that will essentially be formalized and expanded.

Obama launches new $250 million dollar pre-K initiative with competitive grants.

Alyson Klein discusses Obama’s new preschool development-grant competition in Education Week. Here’s what government preschool enrollment across the country looked like in 2014:

There will be two separate grant competitions — one to help states without pre-K programs build one and another for states who already have pre-K programs to expand them. Like the Obama administration’s earlier Race to the Top competition for elementary and secondary education, states will compete for funding using a points system based on indicators like levels of teacher training and number of low-income children served.

President Obama proposed a $75 billion dollar “Preschool for All” initiative in his Fiscal Year 2014 budget, which was almost unanimously rejected by both bodies of Congress. This small initiative is intended to spur states to expand pre-K coverage for poorer kids at a much lower cost to the federal government.

Today’s Policy Agenda: The Labor Market Is Getting Better, But Is It Still a Hireless Recovery?


The labor market keeps getting better — but is it still a hireless recovery?

Josh Mitchell reports in the Wall Street Journal on the newest jobs market indicator showing improvement: job openings. On Tuesday, the Bureau of Labor Statistics released their newest data on openings, and they continue to surge:

This number is yet another positive sign of labor-market recovery, as more firms are finding themselves able to hire. Sensing this shift in demand for labor, more workers believe that they’ll be able to find another good job, hence the rising quit rate. But, in addition to the problem of stagnant wages, one question that remains to be answered is on the supply side: Did bouts of long-term unemployment permanently scar former workers? Are the long-term unemployed returning to work? Ben Casselman explains why that is still an open question.

Immigration is at the front of voters’ minds.

In a new poll released by Gallup today, the border crisis appears to be moving public opinion: Immigration has overtaken the state of the economy as the second most important issue, behind only general dissatisfaction with our government.

While there seems to be public support for legalizing those already in America and the economic case for increasing high-skill immigration is an easy one to make, Reihan has pointed out that the public appears to oppose increasing higher immigration flows much beyond what they are today. With immigration now such an important issue to the voters, a political response is necessary that both recognizes voters’ preferences and can reform the system in a way that could be helpful to the economy and not so hurtful to native low-skill workers, as Reihan and Yuval Levin have laid out.  

Work requirements didn’t leave the poor behind during recessions.

Ron Haskins and others at the Brookings Institution have released three studies in one report focusing on how post-welfare reform programs responded to poor economic conditions. Haskins et al.:

The new report is based on three studies. First, the researchers compared changes in the TANF rolls to increases in Aid to Families with Dependent Children rolls (AFDC – the pre-1996 cash welfare program with weak work requirements) during previous recessions, as well as changes in TANF rolls in relation to state-by-state increases in unemployment. They found that TANF rolls increased more in the recession of 2001 and the Great Recession of 2007 than AFDC did on average during the pre-welfare reform recessions of 1980, 1981 and 1990. In addition, the increase in the TANF rolls was greater when examined during the unique period of rising unemployment in each state (12 and 30 percent respectively under two methods of measuring increases in state unemployment rates) than during the inclusive dates of the official national recession (7 percent), according to the research. . . .

Haskins, Albert, and Howard then used a nationally-representative longitudinal data set to examine how single mothers fared in the three most recent recessions (1990, 2001, 2007-2009), given the increase in the size of this demographic over the last few decades and their high poverty rates. Single mothers were less likely to receive benefits from the TANF program during the 2001 and 2007 recessions compared with the 1990 recession before welfare reform, but they were more likely to have a job and to get other government benefits, including unemployment benefits, Supplemental Nutrition Assistance Program (SNAP, previously known as food stamps), Supplemental Security Income, and tax credits based on work. Overall, a broad measure of income which includes many of these benefits showed that poverty among single mothers and their children was lower during the Great Recession than during the recession of 1990 before welfare reform…

Third, the researchers interviewed state TANF directors, finding that most states did not struggle to pay for growing TANF rolls during the Great Recession, in part because of the Stimulus bill passed by Congress in 2009, and that most directors considered their state’s response to the Great Recession as adequate or better… All in all, the American system of balancing work requirements and welfare benefits worked fairly well, even during the most severe recession since the Depression of the 1930s.

One of the major concerns with the work-requirement model embraced by the Right for welfare reform is that in economic downturns, many would be able to find work and then be left behind by our work-focused safety net. It’s an important consideration – even Ron Haskins himself has wondered, “The issue here is, can you create a strong work program, as we did, without creating a big problem at the bottom?”

But the data don’t seem to support it. In fact, the work of these Brookings scholars suggests that not only were single mothers not left on their own in recessions, but that they actually had significantly lower poverty rates than would be expected under the pre-1996 system. They also found that the new TANF proved to be a reliable safety net by increasing its rolls when times got tough, as we would hope.

Today’s Policy Agenda: Medicaid Is Expanding, Even in States That Didn’t Expand Medicaid


Medicaid is expanding, even in states that didn’t expand Medicaid.

At the Upshot, Margot Sanger-Katz reports that nearly 1 million residents of states not expanding Medicaid under the ACA have signed up for Medicaid this year (versus the sign-up rates that would be expected):

Medicaid enrollment has also increased this year in many states that chose not to accept federal funds. Data from Medicaid released Friday show that enrollment jumped in most states that did not expand their programs, including Georgia (16 percent), Montana (10 percent), Idaho (9 percent) and Florida (7 percent). Altogether, enrollment in Medicaid and the Children’s Health Insurance Program in the states that didn’t make any changes has gone up by 975,000.

Nearly all states that didn’t expand had some increase in Medicaid enrollment, and a few state’s programs grew significantly. Georgia and Montana both saw double-digit increases, with their enrollments increased by 16 percent and 10 percent, respectively.

This phenomenon is something policy makers call the woodwork effect, which is when people who were previously eligible finally decide to sign up. In this case, the campaigns to encourage people to enroll in Medicaid in expansion states and to enroll in exchange plans have likely raised awareness about Medicaid and caused people to seek benefits.

These new enrollees are present a financial concern for both opt-out and opt-in states. Even states that expanded Medicaid have had a wave of previously eligible people sign up, and states have to pay the same share of the expenses for already-eligible beneficiaries as they did before the expansion (around 40 percent of the cost, while the feds cover about 60 percent, generally, but it varies by state). In addition, states have to cover the administrative costs for all Medicaid enrollees, whether they’re eligible because of the ACA or not.

Jobs are being created, but the new jobs pay less than the ones that were created before the recession.

In Bloomberg Businessweek, Peter Coy discusses a document released Monday by the United State Conference of Mayors, which reported that the average job created during the recent recovery pays 23 percent less annually. 

From early 2010 through mid-2014, while the economy gained a little more than 9 million jobs, the fastest growth came in the low-paying accommodation and food sector; this year the average annual wages in the sector are just under $21,000. Only the fifth-fastest-growing sector since 2010 has been a high payer: professional, scientific, and technical employment, with average annual wages in today’s dollars of about $87,000. For job-gaining sectors as a whole, the weighted average of pay has been just $47,171 a year.

Nearly half of the jobs lost in the 2008 recession were in manufacturing or construction, which are relatively high-paying sectors. Conversely, the most growth during the recovery has come from lower-paying sectors like the food and accommodation industries. Of course, average wages have risen during the recovery, but slowly.

HHS is threatening to cut off Obamacare for thousands of people who haven’t verified their citizenship or immigration status.

In Vox, Sarah Kliff reports that CMS sent final notices requesting proof of legal residence to 310,000 individuals this week. If they do not provide proof of citizenship or legal immigration status by September 5, they will lose their health care coverage on September 30. This map shows the share of letters going to each state:

Floridians and Texans will receive the largest amount of letters, with each state receiving nearly 94,000 and 53,0000 respectively.

According to CMS, there were nearly 1 million cases of problematic immigration status for enrollees in May, and about half of them have been resolved; an additional 210,000 are in the process of being resolved.

Not one person has lost coverage because of his or her immigration status so far, Kliff notes.

Avikcare Explained


Avik Roy, a senior fellow at the Manhattan Institute and a friend of National Review, released a health-care-reform plan today that complements a range of options offered by conservatives so far to replace Obamacare. But Avik’s plan, as he explains in an NRO piece today, differs somewhat from other GOP proposals because it can leave in place some parts of Obamacare, and uses them to drive a comprehensive reform of the whole American health-care system. The American health-care system overall, he argues, was hardly a free market before Obamacare, but some aspects of the law’s exchanges, for instance, offer a way to transform the whole system into one that works for consumers and saves money.

Here’s how he proposes to do it:

Reform the exchanges to make health care consumer-driven and affordable.

Federal requirements for what plans must cover and at what cost would be significantly loosened, and a laundry list of Obamacare’s new taxes on insurance would be repealed. Roy’s plan changes the structure of Obamacare’s subsidies by benchmarking them to a high-deductible plan with a health-savings account — providing a powerful incentive for people to move into consumer-driven health plans. The HSA would be funded in part (depending on income level) by federal subsidies, which would roll over from year to year, giving consumers incentives to stay healthy and to make cost effective health-care decisions when they do need care. 

Consumer protections like guaranteed issue (people can’t be denied insurance) and lifetime and annual spending limits will remain intact. But insurers will be allowed to charge older individuals more than they do under Obamacare, and charge younger people less. Using a well-respected model from the University of Minnesota, Roy predicts this will ultimately lower the average exchange premium substantially relative to what it will be under Obamacare or the Senate GOP proposal:

Repeal the individual mandate and the employer mandate.

Because the plan should lower the cost of insurance and increase flexibility, it would make purchasing insurance attractive for healthy individuals. Thus, the individual mandate can be done away with (it’s partially replaced by a change to how open enrollment works — individuals will only have the chance to enroll in plans every two years, rather than once a year under Obamacare). Further, the proposal would eliminate the employer mandate, which will move some individuals away from employer coverage and into the exchanges in addition to freeing up the labor market. To push the health-care market further in that direction — away from employer-provided coverage toward consumer-driven options, a longtime conservative goal — Roy’s plan would also put the tax on high-cost plans (the “Cadillac tax”) into effect one year sooner.

Give most Medicaid beneficiaries private plans on the exchanges

The current Medicaid system, as Roy has long argued, produces poor outcomes relative to private insurance, so poor Americans can be helped out a lot by moving most Medicaid beneficiaries into the private insurance market. There are certain aspects of Medicaid that Roy would put entirely on the federally subsidized exchanges and parts of it (e.g., long-term care and policies for the disabled) that Roy would leave to the states. (The system is currently a mess of conflicting state and federal mandates and priorities.) 

Make Medicare a fiscally solvent and consumer-driven program.

Under the plan, the Medicare eligibility age would increase by four months every year until the program is totally phased out, to be replaced by putting seniors on the reformed exchanges. Of course, that means all current seniors can stay on Medicare, but it’s a more rapid, and actually more market-friendly, implementation of the Paul Ryan plan for Medicare.

Over 30 years, the model Roy uses estimates this change would save $5.1 trillion. The plan makes several further reforms to cut costs and to encourage seniors to seek care in the private market. Roy looks at the huge role played by Medicare as one of the fundamental problems of the American health-care system — it has tens of millions of Americans on inefficient single-payer health care already. Right now, seniors can’t even collect their Social Security benefits unless they sign up for Medicare — Avik would put them on the exchanges and encourage employers to offer consumer-driven coverage for them. This would effectively means-test Medicare, reducing spending on the entitlements that are driving the federal government bankrupt (Avik has specific ways to do this with the existing Medicare program too, making Medicare Part D less generous for prosperous seniors, for instance).

Break up hospital monopolies and increase competition among providers.

Hospitals have become increasingly consolidated over the last two decades, eliminating competition and driving up costs:

Roy’s plan would repeal rules and regulations that make building new hospitals difficult and excessively expensive. He also proposes expanding the division of the Federal Trade Commission, which litigates anti-trust suits, that deals with hospital mergers to thwart further anticompetitive activity. To encourage both local and regional competition, Roy proposes using reference pricing to make decisions more market driven and encourage medical tourism (patients seeking care in different localities, states, or countries where it may be less expensive).

Roy’s plan also calls for an end to the Veteran’s Heath Administration, a massive socialized system all its own. Roy proposes giving veterans a federal subsidy to buy care in the exchanges and opening VA hospitals to civilian patients, which would introduce much needed competition into nearby hospital systems.

Make malpractice and medical innovation laws more friendly.

Fear of malpractice suits encourages providers to perform unnecessary tests and procedures, driving up the cost of care. Roy suggests introducing caps on noneconomic and punitive damages and a “fair share” rule, which would ensure malpractice damages reflect the doctor’s share of responsibility.

The high cost of the FDA’s Phase III clinical trials keeps many new drugs, especially those to treat common ailments that will be less profitable, off the market. Roy recommends that some patients be allowed to use drugs that performed well in phases I and II while they undergo phase III testing.

With Avikcare, less is more.

Roy’s plan would significantly improve access to care for the Medicaid population and increases coverage by 12.1 million individuals by 2025 relative to Obamacare:

Even better, Roy’s model, which is similar to the ones the CBO runs, estimates that the plan will reduce the deficit by $8 trillion over the next 30 years – all while lowering private insurance premiums.


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