As mayor of Chattanooga, Bob Corker was widely recognized as a success, lauded by Republicans and Democrats. After narrowly winning his Senate seat in 2006, he’s quietly made a mark as one of more innovative thinkers in the Republican caucus. His sharp criticisms of the auto bailout won him the admiration of grassroots conservatives, who’ve tended to be skeptical of Corker in light of his moderate social views. I wonder if he’ll emerge as a more prominent voice over the next few years.

Corker has recently stated that he favors a “cap-and-dividend” approach to carbon emissions. After opposing Waxman-Markey, as Kate Sheppard of Grist noted, 

His office put out a press release shortly thereafter, noting, “Corker has worked to ensure that whatever Congress implements, be it a cap-and-trade system that acts as a tax or a transparent carbon tax, that 100 percent of the tax revenue is returned to the American people and is not used to increase the size of government.”

It’s not clear that such a program would be as effective as, say, directing the revenue towards the deployment of technologies designed to reduce the carbon intensity of the U.S. economy. But it’s worthy of consideration, and it certainly has advantages over the Waxman-Markey approach.

Washington Post columnist Steven Pearlstein writes:

The recent attacks by Republican leaders and their ideological fellow-travelers on the effort to reform the health-care system have been so misleading, so disingenuous, that they could only spring from a cynical effort to gain partisan political advantage. By poisoning the political well, they’ve given up any pretense of being the loyal opposition. They’ve become political terrorists, willing to say or do anything to prevent the country from reaching a consensus on one of its most serious domestic problems.

My own view is that Democrats and Republicans have been misleading and disingenuous throughout the course of the healthcare debate. As James Capretta and Yuval Levin have explained, the premium subsidies that the House Democrats recommend will create an unstable equilibrium. Low-income amilies insured through the health insurance exchange will receive far more generous subsidies than those insured through their employers, and so there will be a rapid shift to the exchanges. That’s not necessarily a bad thing in itself; it will, however, mean that the CBO has in fact underestimated the cost of the proposal.

Does pointing this out make someone a “political terrorist”? Pearlstein continues in this vein.

There are lots of valid criticisms that can be made against the health reform plans moving through Congress — I’ve made a few myself. But there is no credible way to look at what has been proposed by the president or any congressional committee and conclude that these will result in a government takeover of the health-care system. That is a flat-out lie whose only purpose is to scare the public and stop political conversation.

Scaring the public: the Obama administration has made a concerted effort to convince the public that today’s healthcare arrangements are unraveling at a fast clip and that we face a crisis situation that must be resolved through rapid legislative action. I think that this is a reasonable view. But it does involve scaring the public. As for stopping political conversation, my sense is that opponents of the Obama effort are seeking to engage in the political conversation. This isn’t true of everyone: there is a minority that is determined to disrupt political conversation, just as there was in 2005. But to describe Republican leaders and conservative critics as political terrorists seems rather inapt.

Many on the left accused conservatives of seeking to scare the public about the threat of mass-casualty terrorism on domestic soil. Conservatives accuse liberals of seeking to scare the public about the threat posed by climate change. This strikes me as inescapable: democratic politics engenders strong feelings. Naturally, Pearlstein believes that his efforts to scare the public into taking action on a pressing healthcare crisis are profoundly admirable. Conservatives want to avoid, belatedly some will surely argue, a crippling federal debt burden. Hasn’t Sonia Sotomayor reminded us of the value of empathy?

Incredibly, Pearlstein goes on to suggest that CBO cost estimates amount to “a lie.” Or rather he claims that Republicans are responsible for the fact that “most people” believe that the $1 trillion over 10 years will in fact cost $1 trillion every year. This is an interesting view. And he also outlines offsetting savings from the reform plan:

Other parts of the reform plan would result in offsetting savings for Medicare: reductions in unnecessary subsidies to private insurers, in annual increases in payments rates for doctors and in payments to hospitals for providing free care to the uninsured. The net increase in government spending for health care would likely be about $100 billion a year, a one-time increase equal to less than 1 percent of a national income that grows at an average rate of 2.5 percent every year.

Is Pearlstein a liar if these notional savings don’t materialize? Is this not a probabilistic question? He talks about “likely” savings, yet he accuses those who have a different view concerning what is likely and what is not to be liars. While serving in the White House, Lawrence Lindsey predicted that the Iraq War would cost $100 to $200 billion, an estimate that was far higher than numbers then touted by the Bush White House. Suffice it to say, Lindsey’s number turned out to be gross underestimate. To be sure, the range of estimates is presumably somewhat narrower for the health reform effort than for the invasion and occupation of a rogue state. But we’re all flying blind to some degree, and the CBO is trying to play the role of an honest broker. That conservatives will raise tough questions seems reasonable given the scale of the endeavor. We’d all have been better off had conservatives been more forthright about raising these questions during the Bush years. 

Moreover, Pearlstein discounts plausible scenarios in which expanded coverage increases cost growth, which Keith Hennessey considers in this post.  

I’m in favor of healthcare reform. I think we need to move away from job-based coverage. I think the IMAC proposal can indeed bend the cost-curve downwards. But I also don’t think Steven Pearlstein should be the final arbiter of what can and cannot be said on the question of healthcare reform. I get the impression that Pearlstein believes that considering downside risk amounts to treason.

My guess is that Steven Pearlstein is comfortable with the idea of a political opposition. At the start of the column, he argues that conservatives no longer constitute a loyal opposition. The loyalty involved in being a loyal opposition, however, is to constitutional norms and political procedures and to the integrity of the state, not loyalty to the agenda promoted by the party in power.

My guess is that Keith Hennessey is not a fan of the Wyden-Bennett healthcare plan, but like Wyden and Bennett, he favors scrapping the tax exclusion for employer provided health insurance and replacing it with a standard deduction. This strikes me as an excellent idea.

Over the longer term, however, I think we should move in the direction of an earmarked VAT that would finance vouchers for the purchase of private coverage, an approach modeled on the Emanuel-Fuchs plan. But while the Emanuel-Fuchs proposal calls for a comprehensive benefits package, my view is that an earmarked VAT should fund a barebones safety net that provides for preventive medicine and income protection. For anything beyond the basics, individuals and families would have to pay for supplemental private coverage, as in the French system. This, alas, is a pipedream. In the real world, a Hennessey-style standard deduction is probably the best way to go.   

A. Make it really, really hard to hire and fire people.

Because Paul Krugman is one of our most admired public intellectuals, you’ll forgive me for dwelling on his work. After noting that the small business sector represents a smaller share of the American workforce than in other advanced market democracies, Krugman offers two explanations:

A couple of possible explanations. One is our lack of national health insurance; I personally know a number of people who gave up jobs at small firms in order to get health coverage. Another possibility, more favorable to the United States, is that in some European countries (Italy comes to mind) firms stay small to escape onerous regulations.

Note that the House Democrats have proposed an employer mandate that exempts small businesses, i.e., businesses with a payroll of $250,000 or less. This might “help” matters by moving the U.S. economy toward Italian levels of dysfunction. Italy does, however, have the world’s second best health care system according to the United Nations, behind France and ahead of tiny San Marino. I have to say, I’d rather have a job than a marginal improvement in my healthcare, but that may be an eccentric view. And in fairness, the real economic benefit comes in the form of the reduced cost of health care.

The report Krugman cites, from the Center for Economic Policy Research, cites very high rates of self-employment in continental Europe.

The United States has the second lowest share of self-employed workers (7.2 percent) – only Luxembourg has a lower share (6.1 percent). France (9.0 percent), Sweden (10.6 percent), Germany (12.0 percent) the United Kingdom (13.8 percent), Italy (26.4 percent) and 14 other rich countries all have higher proportions of self-employment.

Let’s think about this for a moment. If full-time employees receive generous — and expensive — social protections, wouldn’t it make sense to hire more contract laborers, i.e., self-employed independent contractors? It’s certainly true that some benefits are disconnected from one’s employer (e.g., healthcare coverage), yet a variety of other regulations make it exceedingly difficult to hire and fire employers, hence the advent of “Génération Précaire.”

In tart fashion, Krugman ends his post with a classic attack on what he sees as American myth-making and self-regard:

Either way, though, one more American myth bites the dust. We’re not independent free spirits; on the contrary, we’re more likely than Europeans to be cubicle rats working for big employers.

Ah yes, cubicle rats. You have to wonder: what if the high self-employment numbers are just an example of regulatory arbitrage?

I have to say, I find Krugman’s Europhilia … interesting. But I worry that we’re seeing myth-making of another variety.

Krugman has also been strikingly ungenerous to economist Casey Mulligan, who fires back convincingly in this post.

Keith Hennessey explains why the Obama health reform effort can’t happen on a piecemeal basis. The message has changed, but the endgame is the same. 

One thing I find depressing about the debate: unlike Hennessey, I do think we need a fairly serious overhaul of the way we finance healthcare. (More on this to come.) My core view is that we need to accept that job-based coverage doesn’t work. The real substantive vulnerability of the Obama approach is that it is in a sense too cautious in unraveling a broken system and fostering a healthcare marketplace that delivers lower costs and higher quality. The political vulnerability, in contrast, is that the Obama approach might accelerate the unraveling of job-based coverage. Political goals and policy goals are at odds.

I realize that this is blindingly obvious to many of you.  

I’m consistently impressed by Joe Romm’s extreme partisanship. I read Climate Progress because it’s often a valuable source of information on policy interventions designed to mitigate climate change. But I’m sorry to say that it often reads like propaganda for the Democratic Party. Brad Plumer is an excellent left-of-center journalist who advocates aggressive action against climate change. Naturally, I often disagree him. Yet he offered a characteristically smart and balanced take on cash-for-clunkers, one that comes out very mildly in favor of the program. His colleague at TNR Jesse Zwick followed up with a similarly cautious take.

The fact that this money is coming from a program meant to bolster renewable energy only exacerbates the concern that—from an environmental perspective—cash-for-clunkers has been marginally useful at best. At least some members of the Senate, however, appear hip to this fact: Diane Feinstein and Susan Collins released a statement insisting that any extension approved by the Senate must require newly purchased vehicles to achieve at least two miles per gallon greater fuel efficiency than is currently required under the program.

To be sure, Romm had new information: it turns out that, as Transportation Secretary Ray LaHood has announced, consumers have been purchasing cars with significantly better gas mileage than their clunkers. But note the following:

A 9 mpg gain translates into annual savings of 3.8 million barrels of oil per year and nearly $1,000 for consumers at the pump -– not to mention that it will reduce carbon dioxide emissions by 660,000 metric tons a year.  Okay, not a cost-effective emission reducer, but still, given the multiple benefits of the program, pretty darn good.

Let’s reflect on that last sentence for a moment. Last month, I met a friend in London who left New Labour to work with the Conservative Party. After leaving university, he worked in the Treasury as a civil servant. While he was there, he was appalled by what he saw as the indifference of his fellow civil servants to the waste of taxpayer dollars. As a middle class kid from Yorkshire, he was keenly aware of the heavy tax burden that British families face, and though he had — and has — strongly egalitarian convictions that incline him to support generous social welfare programs, he couldn’t stand the thought that so much hard-earned money would be wasted with nary a thought. The fact that cash-for-clunkers happens not to be a cost-effective emission reducer strikes me as pretty important. If we lived in a world of massive budget surpluses, I might disagree. We don’t.

It should go without saying that Republicans have lost a lot of credibility on spending by not being as mindful as they should be with taxpayer dollars, which is why, on a tangential note, Republicans should be far friendlier to President Obama’s proposal for an Independent Medicare Advisory Commission. That doesn’t mean that opposition to cash-for-clunkers isn’t the right stance to take. 

Back to the point at hand. Romm touts the economic impact of cash-for-clunkers before engaging in more tendentious conservative-bashing. Yet as Plumer noted, this is a double-edged sword in environmental terms.

And if the upgrades are, in fact, all meager, they could end up being dwarfed by the energy required to manufacture new vehicles (particularly since dealers have to scrap the “clunkers” that get traded in—many of which are perfectly good, albeit inefficient, cars).

Plumer’s view is not terribly political; after all, maximizing employment in the automotive sector clearly matters more to voters and members of Congress than reducing American energy consumption. Of course, Plumer is primarily interested in improving the quality of environmental policy.

P.S. In light of the new news on gas mileage, Plumer has a follow-up post.

Overall, the evidence suggests that the clunkers program could’ve been designed more intelligently, that Congress probably could’ve found better uses for that stimulus money (so there are big opportunity costs), but that, on balance, the program is at least doing slightly more good than harm. Not exactly a ringing endorsement, but what were you expecting?

I continue to think we can do better. And in light of scarce resources, I’d rather zero out cash-for-clunkers than, say, a program that benefits the very poor or that is more cost-effective.  

Julian Sanchez has written an outstanding post on “symbolic belief.” 

As my colleague at Democracy in America notes, comparable numbers of Democrats during the Bush Administration told pollsters that they thought Bush had foreknowledge of 9/11—or at any rate were uncertain about whether he did. 

Despite that, as he goes on to explain, there was no serious and sustained effort to overthrow the president.

It’s obviously too stringent to make it a condition of ascribing belief that people act on all the logical and practical implications of holding it, but when the disconnect is too profound, I think we’re justified in characterizing some of these as pseudobeliefs, one subset of which is what I want to call “symbolic beliefs.”

Consider the large number of Muslims in the Middle East and South Asia who both denied that Al Qaeda was responsible for the 9/11 attacks yet who also wore Bin Laden T-shirts to celebrate his fight against the West. What we’re dealing with is what Sanchez calls a pseudobelief.

Pseudobeliefs may serve any number of functions; I’m using the phrase “symbolic belief” for the ones that either work as a public expression of some associated attitude, or play some role in defining the holder’s self-conception.

To question whether Obama was really born on American soil is to associate oneself with the view that Obama is somehow un-American. I recall a spate of articles raising questions about the fact that John McCain was born in the Panama Canal Zone — could his eligibility for the White House thus be questioned? The argument never gained traction, perhaps because it didn’t resonate with an existing narrative about McCain’s foreignness. McCain’s harshest critics saw him as a warmonger, but they never questioned his American credentials; rather, they felt that his politics reflected the worst excesses of the American character. Obama’s critics, in contrast, really do see him as alien to America’s political traditions, though he in fact embodies a strain of American left-liberalism that’s been around for a long time.

While Birtherism is clearly disturbing, not unlike the 9/11 Trutherism that for various reasons never attracted the same level of sustained media attention, it is important to understand the limits of the phenomenon. Julian Sanchez concludes his post with the following.

We’re accustomed to hyperbolic claims in political rhetoric when they’re manifestly at least partly normative—”Bush is a fascist!” or “Obama is a Stalinist!”—but still tend to take comparable assertions that seem more strictly factual at face value. Things don’t look quite as worrying if,  at least when they’re coming from ordinary folks answering pollsters queries, we treat them as one more species of exaggeration in political rhetoric.

That sounds right to me.

This’ll be quick.

New Hampshire has a child poverty rate of 10 percent, a rate that is both appallingly high and, I’m sorry to report, the lowest in the United States. New Hampshire is also a low-tax state: according to the Tax Foundation, it has the 46th-lowest tax burden. Is child poverty in New Hampshire low because of its low taxes? Of course not. Or rather, the low tax burden contributes in a very small way: it attracts affluent families from neighboring states, which tend to be intact. The real driver of New Hampshire’s low child poverty rate is demographic. Rates of family disruption are very low by American standards.

Texas, in contrast, has one of the worst child poverty rates in the country: 24 percent. Texas has the 43rd lowest tax burden in the United States, slightly heavier than New Hampshire’s. So what’s the difference between these two states? Again, its all about family disruption. You might not be aware of this, particularly if you believe that “high-roads” and “low-roads” explain the universe, but America has a history of slavery and segregation and enduring racial discrimination. Unlike New Hampshire, a large number of Texan are just a few generations removed from extreme economic and more importantly social deprivation. This is far more true of Texas than of California, though its more true of both of these states than New Hampshire.

There are few ways we can approach this fact: we can blame Texas for its poverty, which … doesn’t make a lot of sense to me. Or we can evaluate whether or not Texas is succeeding in advancing the cause of social inclusion. Residential segregation is one straightforward way of measuring social inclusion, and on that metric Texas does poorly. But inclusion in the formal economy is another way of measuring it — an arguably more important way. On that front, Texas does pretty well.

To really make a dent in child poverty, Texas needs to encourage family stability, which is hard for any state policymakers to do. Absent that, encouraging better educational outcomes and stable workforce attachment are the best we can do.

Much-maligned Alabama, by the way, has been an education innovator in recent years. The state’s ACCESS long-distance education program has greatly expanded course offerings to kids in rural and inner-city areas, and it is already bearing fruit. It turns out that policy innovation and a relaxed regulatory climate offer a way for poor (and browner) states to leapfrog over rich (and whiter) states. Surely it is wrongheaded for states like Alabama to copy states like California, that have allowed their advantages to wither over time as a punishing business climate has made it hard to sustain what had been a world-class educational system? 

Or not. Repeating the high-road mantra that seeks to transform all of America into Walter Reuther’s Detroit through legislative fiat might be more effective than carefully tailoring educational programs to meet the needs of impoverished African Americans and Mexican Americans.

Now I’m being unfair. Sorry guys.

Paul Krugman is brilliant. There’s no denying it. So why did he make a scatterplot that maps state and local revenue against unemployment and call it a scatterplot of state and local taxes against unemployment? Simple question: do you really believe that state and local taxes in Alaska are twice as high as California’s? I’ve made this point before, but had to make it again.

Ed Kilgore, also an impressive guy in his own way, offers a data-free post attacking Ross Douthat’s column for … lacking data. He uses a number of progressive buzzwords, including “low-road” economic strategy — as opposed to the “high-road” approach of using tax-and-spend policies to create high-wage green jobs, etc. The premise is that northern Europe follows the high-road and the southern U.S. follows the low-road. It’s a breezy view that requires ignorance of the reality of Europe’s “high-road” economies: in Sweden, women are overconcentrated in low-wage, low-status work; youth unemployment rates are extremely high throughout continental Europe; there is a tier of workers with generous social protections and a “precarious generation” that lacks them. There is much to admire in the northern European social models, e.g., relatively high rates of labor force participation, low rates of incarceration, family stability than translates in good educational outcomes and low rates of child poverty. But “high-road” vs. “low-road” tells us very little.

Kilgore also seems to be unaware of or indifferent to Texas’s success in educating K-12 students, which you’d think would be deemed a fairly important component of a state’s long-term economic strategy. Given that Texas children suffer from extremely high rates of family disruption and poverty, this is pretty impressive, not least because Texas spends far less than California, where Proposition 13 hasn’t prevented a raft of other initiatives that, as Joe Matthews has long argued, make the California teachers’ unions effectively a fourth branch of government. I’m greatly amused by how Proposition 13 — which I oppose — gets all of the abuse while equally consequential initiatives that involve massive transfers of wealth to public sector workers are consistently ignored. Amused, but not surprised.

I worry that the size of these transfers, and the need to defend these transfers, is having a corrosive effect on the analytical skills of a number of distinguished commentators.

Then there is the small fact that no-regulation Texas has strong banking regulations. “But that proves my point!,” I can imagine my interlocutors saying. But does it? Heavy regulation is appropriatein some areas, like consumer banking, and inappropriate in others. It happens that Texas has struck a pretty decent balance.

Kilgore writes:

The truth is that state policies have little or no effect on short-term economic trends affecting their populations. Texas and California exist in national and global economies. Unemployment rates in Fresno or El Paso are largely controlled by forces affecting manufacturing exports and imports; prices for housing, oil and gas; and credit availability that have almost nothing to do with the policies of Arnold Schwarzenneger or Rick Perry. Republican-governed Florida is getting hammered, and Democratic-governed Iowa is doing well.

The same can be said of the federal government, of course. But Douthat was pointing to long-term trends. In the long-term, California’s approach has been wrongheaded. It is absolutely true that California is starved of revenue relative to expenditures. In a similar vein, the explosion is debt-financed spending at the federal level is definitely a partial product of the Bush tax cuts.* But the projected Obama deficits dwarf the Bush deficits because spending will increase and taxes will, as the White House reminded us yesterday, only increase on those making $250,000 or more a year. Note that this has been California’s approach. That, of course, was the point — the perhaps too-subtle point, for some — of Douthat’s column. Who thinks that this will end well?

Meanwhile, Texas’s long-term economic strategy has involved sharply improving educational outcomes for the African American and Mexican American Texans who will, in a few years time, constitute a majority of the state’s workforce. Another component of its long-term strategy could have lifted from William Julius Wilson — who, by the way, would undoubtedly object to this characterization given his political commitments: the best social program is a job, including a low-wage job. Policies that make job creation less likely are socially destructive.

This doesn’t strike me as an extremely difficult idea to understand. The Dutch get it. The French are getting it, as Edmund Phelps has explained. For whatever reason at least some American progressives are lagging well behind their role models.

*I’ll discuss my favorite tax reform this week.

A recent McKinsey Institute study on racial achievement gaps includes the following:

Important performance gaps exist at every level in American education: among states, among districts within states, among schools within districts, and among classrooms within schools. This confirms what intuition would suggest and research has indicated: differences in public policies, systemwide strategies, school site leadership, teaching practice, and perhaps other systemic investments can fundamentally influence student achievement. California and Texas, for example, are two large states with similar demographics. Yet as shown in Exhibit 7, Texas students are, on average, one to two years of learning ahead of California students of the same age, even though Texas has less income per capita and spends less per pupil than California.

This struck me as worthy of note. In addition, California has a far worse dropout rate than Texas. 

The Center for American Progress has a useful chart comparing the number of uninsured residents by state and how quickly the proportion of uninsured residents is growing. In Texas, 28 percent of the population is uninsured, a number that is troublingly high. And between 2007 and 2009 the number of uninsured has grown by 10 percent a year. In California, 23 percent of the population is uninsured — but the number grew by 13 percent a year over the same period. 

One could, of course, compare Texas to Vermont or New Hampshire or Utah, states with vastly different demographics and far more children raised in two-parent families. But the comparison between California and Texas is basically apples to apples, though California has a number of big advantages in terms of a higher number of affluent college-educated residents, many of them migrants from other parts of the country and the world. And I must say, Texas seems to be doing pretty well. 

Some critics seem to believe that California would improve its performance by raising taxes and increasing social spending. This is an interesting view that deserves a respectful hearing. It is by no means clear to me, however, that this strategy has proved very effective in the past.

The general election in Japan is almost certain to end in a blowout win for the opposition Democratic Party of Japan, a ragtag collection of centrist and center-left opponents of the long-ruling LDP, many of whom have been strongly critical of the evolution of Japan’s security partnership with the United States. Among other things, the DPJ has criticized the use of Japanese naval vessels to refuel American ships en route to the Persian Gulf on grounds that it goes beyond narrow self-defense, thus violating the spirit of Japan’s postwar constitution. 

Sensing that anti-Americanism might turn out to be a political loser, particularly since the Japanese want reassurance that the DPJ is a safe pair of hands, the party is now embracing a variety of positions that Americans can appreciate, including a call for a US-Japan free trade area. As Tobias Harris explains, an agreement that opened Japan’s agricultural market would transform the Japanese economy in deep and lasting ways. One can imagine the lower cost of living that would result having a salutary effect on Japanese birthrates. The transition, however, would be extremely painful, which is why the LDP is campaigning hard against the proposal. 

My friend and co-author Ross Douthat has written an excellent column on how Texas and California have weathered the recession. But consider this paragraph:

The Lone Star kept growing well after the country had dipped into recession. Its unemployment rate and foreclosure rate are both well below the national average. It’s one of only six states that didn’t run budget deficits in 2009.

One of the reasons Texas has a below-average foreclosure rate is because the state has a tough regulatory regime, as Anil Kumar of the Federal Reserve of Dallas explained late last year.

Due to the state’s strong predatory lending laws and restrictions on mortgage equity withdrawals, a smaller share of Texas’ subprime loans involve cash-out refinancing, which reduces homeowner equity and makes default more likely when mortgage payments become unaffordable.

As reader Dale Madren notes, Texas suffered a Florida-scale housing meltdown in the 1980s, which could account for the stringent regulations.

Paul Krugman wrote a tart blog post on Ross’s column in which he notes the following:

Some have pointed out that California, despite its liberal reputation, doesn’t have especially high taxes; others have pointed out that Texas, where almost a quarter of the population lacks health insurance, is hardly a model.

Krugman links to a chart from the Federation of Tax Administrators that places California’s tax burden, as measured by state and local revenue as a percentage of personal income, at 18th of the 50 states plus the District. This doesn’t strike me as a sound measure of the actual tax burden, however. In Alaska, state and local revenue is 35.5 percent of personal income, almost twice California’s 17.6 percent. But of course much of that revenue comes in the form of royalty payments from oil and other natural resources. According to the Tax Foundation, California has the 6th heaviest tax burden in the country, i.e., California does have especially high taxes.

Moreover, as Dan Walters of the Sacramento Bee notes, 

We do know that about half of the state’s general fund revenues come from the personal income tax and that half of those income taxes come from the top 1 percent of taxpayers, a couple of hundred thousand families. It means that a quarter of the state’s income is dependent on how well a handful of wealthy people are doing in the stock market, which makes the revenue stream very unpredictable.

This isn’t to say that Texas is perfect: the state has a very high poverty rate, as reflected in the fact that Texas has far more food stamp recipients than California, a state with a far larger population. Yet what is the best answer to high rates of poverty: a high employment economy that socializes women and men from disadvantaged backgrounds into the world of work? Or a low employment economy in which high rates of unemployment and nonemployment undermine self-reliance? In an ideal world, you’d have a high employment economy in which the working poor are provided with work supports like those championed by Ron Haskins and Isabel Sawhill. This is a matter of striking the balance between raising revenue and fostering employment-generating, wealth-creating entrepreneurship. One gets the impressiont that California hasn’t struck the right balance, and that Texas is somewhat closer to doing so.  

At The New Ledger, Ben Domenech has written a very insightful post on markets and state-funded innovation.

The truth, as anyone knowledgeable within the system will tell you, is that private companies just don’t do basic research. They do productization research, and only for well-known medical conditions that have a lot of commercial value to solve. The government funds nearly everything else, whether it’s done by government scientists or by academic scientists whose work is funded overwhelmingly by government grants.

It’s just simple math: if you have a condition that has a relatively small number of patients, there’s just no market incentive to sink a great deal of time and money into researching it. This is why you’ll usually find that 100% — not a majority, the entirety — of the research into a cure is done either via taxpayer-funded grants to academic researchers or, more frequently, it’s entirely found on the NIH campus.

But Domenech goes on to make another important point.

While I consider myself a pro-market and pro-consumer conservative, specialized medical research is one area where government funding is still needed. And to be honest, I see no inconsistency between holding that view and also holding the view that a government takeover of our health insurance system is a bad idea. 

Michael Shellenberger and Ted Nordhaus have called for a new environmental politics that emphasizes innovation over regulation. One wonders if the same argument can be made with regards to healthcare. In 2006, S. Jay Olshansky, Daniel Perry, Richard A. Miller, and Robert N. Butler wrote an essay on “The Longevity Divided” for The Scientist. In it, they describe the costs of age-related illnesses in lost productivity and health spending.

Take, for instance, the impact of just one age-related disorder, Alzheimer disease (AD). For no other reason than the inevitable shifting demographics, the number of Americans stricken with AD will rise from 4 million today to as many as 16 million by midcentury. This means that more people in the United States will have AD by 2050 than the entire current population of the Netherlands. Globally, AD prevalence is expected to rise to 45 million by 2050, with three of every four patients with AD living in a developing nation. The US economic toll is currently $80-$100 billion, but by 2050 more than $1 trillion will be spent annually on AD and related dementias. The impact of this single disease will be catastrophic, and this is just one example.

Cardiovascular disease, diabetes, cancer, and other age-related problems account for billions of dollars siphoned away for “sick care.”

To sharply reduce these costs, they propose “a modest deceleration in the rate of aging sufficient to delay all aging-related diseases and disorders by about seven years.” This delay would yield greater gains than eliminating cancer or heart disease, and it can be purchased at relatively modest cost: a $3 billion annual investment in biogerontological research funding. As conservatives frame alternatives to Obamacare, this should be part of the agenda. 

Megan McArdle has been writing about the wisdom of the anti-obesity crusade. A number of anti-obesity activists blame television advertising, and suggest that we ban it. My sense is that firms would welcome an advertising ban, as it would amount of multilateral disarmament. A study by Massimo Motta suggests that an advertising ban might actually increase total consumption.

This paper shows that an advertising ban is more likely to increase – rather than decrease – total consumption when advertising does not bring about a large expansion of market demand at given prices and when it increases product differentiation (thus allowing firms to command higher prices). In this case, the main impact of a ban on advertising is to reduce equilibrium prices and thus increase demand. It is argued that this is more likely to happen in mature industries where consumer goods are ex-ante (i.e. without advertising) similar and advertising is of the ‘persuasive’ type. The ban is more likely to increase firms’ profits the weaker the ability of advertising to expand total demand and the less advertising serves to induce product differentiation.

It’s worth wondering whether advertising has really driven a large expansion of market demand. One could argue that the market for fast food is saturated, and that, as McArdle suggests, advertising is used to create new product awareness and to encourage brand switching.  

Randall Parker, better known as FuturePundit, recently wrote a characteristically provocative and smart post on a new book by Christopher Steiner on the transformative effects expensive gasoline might have on our economy. After reading the post, I ordered Steiner’s $20 Per Gallon and I read it over the course of a day. I enjoyed it so much that I actually brought it with me to a friend’s party, where I finished it in lieu of socializing like a normal human being. Given my love of interacting with people, this is a strong recommendation. The book isn’t flawless: Steiner shares some of my own writing tics, including an overuse of parentheticals. But you can get polished prose anywhere: this book is a delight, particularly for those of you who, like me, have a futurist bent. This is despite the fact that like Parker, I disagree with many aspects of Steiner’s analysis. I’m happy to report that Ryan Avent, a liberal blogger who is very interested in questions surrounding transportation and housing, has also weighed in on Parker’s post. There is much to discuss.

What will the next American economy look like? More specifically, where will the jobs come from? Most of the answers we’ve seen so far, e.g., green-collar jobs, strike me as disconcertingly thin.

Those are the really deep public policy questions, the ones that underlie all of the others. Steiner’s book is essentially an answer to this question: as the title suggests, he takes as a given that we are at the start of a long process that will see the cheap oil that fuels industrial civilization become prohibitively expensive. Plenty of smart people, including Mark Mills, believe that this premise is incorrect. Mills writes:

We know one thing for sure about the impact of a mere $150-a-barrel oil, never mind $800 a barrel. Engineers, entrepreneurs, hustlers and big staid energy companies have found myriad ways to produce more oil in forbidding places and forms, use oil more efficiently and make oil-like liquids out of everything from sands and rocks (shale oil) to algae and left-over French fry cooking oil.

The techno-optimist Amory Lovins, in contrast, argues that demand for oil will simply fizzle out as attractive, low-cost alternatives emerge. All the same, Steiner’s thought experiment is a valuable one.

Each chapter is organized by price (Chapter $6, Chapter $8, etc.) and focuses on an oil-dependent sector of the economy and how it might evolve in response to steadily increasing prices. A few sections leapt out at me as particularly interesting:

(1) Long before we reach $20 per gallon, most major airlines will go bust. Boeing’s breakthrough 787 won’t be nearly enough to save airlines with crippling labor and fuel costs. The airlines that survive, like Southwest and JetBlue, will charge far more than they do today for a smaller number of flights. This won’t just transform business travel and tourism — it will make it more difficult to stay in touch with far-flung siblings and grandparents and friends. Air travel has done a tremendous amount to facilitate labor mobility. A world with much less of it would work very differently.

(2) Steiner suggests that rising energy prices might spark a domestic manufacturing revival. An important thing to keep in mind, however, is that a big driver of declining employment in manufacturing, in the United States and in China, has been rising productivity. As labor costs dwindle as a share of the cost of sophisticated manufactured goods and energy costs rise, domestic production becomes more appealing; and yet this might not mean big increases in the share of the labor force devoted to manufacturing, as much of this domestic production will be mechanized. Moreover, one wonders if we might see, as Parker suggests, nuclear-powered cargo ships.

(3) As a rail enthusiast, I was particularly pleased by Steiner’s sense that we’re about to see a rail revival. I actually think that this might happen in the absence of a huge price spike in gasoline, as long-distance freight rail already has massive advantages over trucking. My New America colleague Phil Longman has written a great deal about the benefits of investing in rail infrastructure.

(4) Given that large swathes of the interior are capable of generating huge amounts of wind power, many, including T. Boone Pickens, have called for high-transmission lines from these regions to cities. The downside is that a great deal of power is lost to resistance as it travels over long distances. Steiner spoke to an entrepreneur in Iowa who hopes to use wind power to make ammonia fertilizer. The idea of sparking an industrial renaissance in the interior has an obvious appeal.  

Steiner also discusses the prospects for industrial agriculture and dense urban living among many other things. As Parker suggests, Steiner doesn’t seem to fully appreciate the appeal of low-density living, and he seems convinced that organic and local approaches to food are going to prove more common in a post-oil world than more aggressive genetic modification of crops. I can easily imagine a world in which we eat more in-vitro meat and we grow crops in high-tech hydroponic vertical farms. But regardless, $20 Per Gallon is brimming with ideas. 

Ezra Klein has taken Bill Kristol to task for saying the following:

“One reason the price of health care is going up so fast is because of government programs,” says Kristol. “The price of Medicare and Medicaid have gone up faster than private insurance. That’s well-documented.”

Klein correctly notes that in fact the price of Medicare has increased at a slower pace than private insurance. Yet the first part of Kristol’s statement is true: “one reason the price of health care is going up so fast is because of government programs.” 

Most Medicare beneficiaries are enrolled a fee-for-service insurance arrangement. Co-payments are high, but so-called Medigap policies insulate beneficiaries from real cost-shoring. As James Capretta has observed, the FFS insurance model thus does an extremely poor job of containing costs. Pretty much everyone in the healthcare debate, on the right and the left, wants to encourage integrated care, in which efficient provider networks would be focused on delivering good outcomes rather than maximizing the cost of treatment by ordering more tests and procedures, many of them useless, many of them positively harmful. 

If it were up to employers, physicians would organize themselves in these networks, the better to lower costs. But physicians have very weak incentives to do so — after all, Medicare will keep reimbursing them without compelling them to organize more effectively. That’s one of the reasons I think IMAC is an excellent idea: it might change that.

Keith Hennessey is skeptical about the power of the president’s proposed Independent Medicare Advisory Commission (IMAC) to reduce costs. He notes that the CBO has predicted only very modest savings.

What happened to bending the long-term cost curve down?  Director Orszag’s letter weakens the test to “We won’t increase the deficit.”  This means that if a bill “raises the health cost curve,” as Director Elmendorf  says about the pending legislation, the Administration is OK, as long as they increase taxes so that the net does not increase the long-term budget deficit.  The Administration’s legislative proposal matches this rhetoric.  They are lowering the bar.

I will guess that there is a struggle both within the Administration and among Capitol Hill Democrats between the small deficit reduction crowd and the much larger “don’t cut health care providers” crowd, and that this weakened language represents a new balance point in that struggle.  It’s odd, because it’s in an Orszag letter, and it’s inconsistent with the President’s and his consistent message that we need long-term deficit reduction, aka “health care reform is entitlement reform.”

My sense is that Orszag is being cautious. I also sense that he’s right about IMAC having a big effect over the long term.

The point of the proposal, however, was never to generate savings over the next decade.  (Indeed, under the Administration’s approach, the IMAC system would not even begin to make recommendations until 2015.)  Instead, the goal is to provide a mechanism for improving quality of care for beneficiaries and reducing costs over the long term.  In other words, in the terminology of our belt-and-suspenders approach to a fiscally responsible health reform, the IMAC is a game changer not a scoreable offset.

Why am I more optimistic about IMAC? As Hennessy explains, it gives the executive branch tremendous power to remake Medicare.

The proposal creates a fast-track process in which the President has to send the council’s recommendations to Congress with a binary yes-or-no recommendation.  If the President approves the recommendations, he would have the authority to implement them unless both Houses of Congress voted to stop him within 30 days.  The details of the Congressional disapproval procedure mean that you would effectively need at least one more vote than 2/3 of the House and 2/3 of the Senate to overrule recommendations made by the IMAC and approved by the President.

And at some point, a conservative president will be able to use IMAC to great effect. This, by the way, is why Congress will probably gut the proposal.

In the latest Weekly Standard, James Capretta and Yuval Levin have written a devastating critique of the White House’s favored approach to premium subsidies.

At twice the poverty level, a family of four today makes $44,000. Such a family insured through an exchange would pay no more than $2,200 for a policy that could cost $12,000, so it would receive a federal subsidy totaling nearly $10,000. The family next door, meanwhile, with the same income but with health insurance provided through the workplace, would receive an implicit tax break for the $12,000 in employer paid premiums worth only $3,600. That’s a bonus of more than $6,000 for being in the exchange–or a penalty of $6,000 for having employer coverage. This disparate treatment would be widespread. The Census Bureau counts 102 million people under age 65 in households with incomes between 150 and 400 percent of the poverty level, but the Congressional Budget Office (CBO) estimates that only 20 million of them would receive insurance through the exchanges in 2014.

Such disparate treatment of lower income workers would create a powerful incentive to flee employer coverage for the exchanges. And there would at the same time be pressure to extend the subsidy to workers generally satisfied with the plans provided at work but displeased about paying so much more for them than other similarly situated people. This would vastly increase the cost of the plan, since Congress is not known for resisting constituent pressure.

Moreover, the House health bill includes an employer mandate that would impose stiff penalties on all firms with payrolls above $250,000 that don’t provide insurance. Suffice it to say, that will discourage at least some firms from expanding their hiring at a time when we’re introducing a wide range of powerful work disincentives. There’s something very unsound about this. 

Politically, the Democrats have emphasized that their approach won’t endanger employer-provided coverage. As a number of conservatives and liberals have tried to explain, however, the existing employer-based system is beyond saving. A new report issued by the center-left Center for American Progress describes the relentless upward trajectory of private health insurance premiums. The author, highly-regarded Harvard health economist David Cutler, sees this as a case for the Democrats’ health reform. He co-authored another CAP report on how to shave cost growth. Yet the cost savings are speculative while the costs of premium subsidies are predictably enormous, as Capretta and Levin ably explain.

The authors conclude the article with the following:

The Democrats have some serious political muscle to flex, and they may still be able to force their plans through. Conservatives should not grow confident or careless at the sight of public opposition to liberal health care reform. Instead, they must use the August recess to clarify the problems with Obamacare to voters, and to make the case that America must not be rushed into a terrible mistake. There is time to find the right way to reform American health care, and there are good ideas out there for doing so–ideas that use competition and consumer choice to put downward pressure on prices rather than rationing care, displacing the currently happily insured, and bankrupting the government.

It is important to keep in mind that when Republicans defeated Clintoncare, they failed to then effectively advance an alternative agenda. Conservatives can’t afford to make that mistake again.

The Daily Beast (I write a column for them, incidentally) has published an interview with the great Edmund Phelps, and I’m sorry to say that Phelps is convincingly pessimistic.

It would be a pipe dream to think we could get back to 4.5 percent unemployment such as we had in the middle years of the present decade. For some time, I thought of the middle 1990s as a kind of benchmark year that was normal for its time, when the unemployment rate was about 5.5 percent, but now we’ve got two fundamental reasons why we can’t even get back there. The first is that the financial sector and particularly the banking industry is in very bad shape. The balance sheets are very weak. They appear to be making a lot of profits these days, but it still is going to take years for them to build a strong equity position that will make them feel like taking on a lot of risk. The second problem is that households have lost a tremendous amount of housing wealth and the drop in housing prices is not going to be reversed. That was a bubble and I presume that the bubble won’t regrow, so consumer demand is going to be weak.

So will this decline in consumption lead to greater investment that will then fuel a rapid recovery? Well, no.

That’s what we always wanted a few years ago when we thought consumers were spending beyond their means and investors were being starved and growth was threatened. People were saying, “Look at China where they save so much,” etc., etc. But there are reasons why investment won’t rush in fully to crowd in and take the place of consumer demand. For one thing, it’s not a closed economy. Interest rates can fall only so much in the U.S. economy because we’re operating in the global economy and in much of the world, not only China and India, but maybe Latin America to some extent, things are not as bad. This means that the weakness of consumer demand to some extent is going to create a weakness, causing a net decline of employment that will weigh down total employment.

As far as policy responses, Phelps is skeptical about the wisdom of a third stimulus. He does, however, favor low-wage employment subsidies, an idea he brilliantly advanced in Rewarding Work: How to Restore Participation and Self-Help to Free Enterprise, easily one of the most convincing books I’ve ever read.

Some countries like France, Singapore, have instituted programs that pay employers for hanging on to employees, especially low-wage employees, so as to make employment higher than it otherwise would be. Singapore is having pretty good success with that program right now—output looks like it will fall by 9 percent but so far employment has held up. Why don’t we do that in the U.S.?

Note that this approach is exactly the opposite of raising the minimum wage in the middle of a catastrophic recession: rather than punishing employers for hiring workers with a marginal attachment to the overground laborforce, it rewards them for doing so.

James Surowiecki has written an essay on the downsides of fiscal federalism, a subject we’ve discussed at The Agenda. He concludes with the following:

The tension between state and national interests isn’t new: it dates back to clashes in the early Republic over programs for “internal improvements.” Of course, the federal government is far bigger than it once was, and yet in the past two decades we’ve delegated more authority, not less, to the states. The logic of this was clear: people who are closer to a problem often know better how to deal with it. But matters of a truly interstate nature, like the power grid, can’t be dealt with on a state-by-state basis. And fiscal policy is undermined if the federal government is doing one thing and the states are doing another. It’s a global economy. It would be helpful to have a genuinely national government.

Though Surowiecki starts with a sound premise, I think his conclusion is seriously overdrawn. There are, as he surely understands, downsides to excessive centralization. A “genuinely national government” isn’t the solution — but a rebalancing of responsibilities between the states and the federal government might be.

A number of policy analysts on the left have proposed federalizing Medicaid, including Greg Anrig of the Century Foundation (via Ezra Klein). But the idea of federalizing Medicaid actually has a solid conservative pedigree, as Steve Teles has pointed out to me.

Timothy Conlan’s From New Federalism to Devolution containsan extensive discussion of Reagan’s views on federalism, including his belief that AFDC — now known as TANF — should be the responsibility of the states. In 1982, the Reagan White House launched its federalism initiative.

In his State of the Union address, Reagan proposed to nationalize health care financing for the poor, terminate the federal role in welfare, and return to the states forty-three major federal grant programs along with $28 billion federal dollars in excise taxes to pay for them.

Most proposals for rebalancing federal responsibilities actually handed the federal government responsibility for income maintenance programs, yet Reagan believed, rightly in my view, that an AFDC block grant would be preferable, to give states the flexibility to pursue more effective anti-poverty approaches tailored to local economies. This, of course, is what later enabled welfare reform. Going further, they also envisioned transferring all responsibility for welfare to the states as part of a broader “swap.”

First, they proposed a $20 billion program “swap”: the federal government would return to states full responsibility for funding AFDC and food stamps in return for federal assumption of state contributions to Medicaid. Second, the plan included a temporary $28 billion trust fund or “super revenue sharing” program to replace approximately forty-three federal aid programs for education, health, social services, and community development, and transportation. … After four years the trust fund and the federal taxes supporting it would be phased out, leaving the states the option of replacing federal taxes with their own and continuing the terminated programs or allowing both to cease altogether.

There are cleaner ways of doing this. For example, if the federal government financed a $50,000 income tax exemption ($100,000 four married couples) with a 10-14 percent VAT, as in Michael Graetz’s Competitive Tax Plan, the states could piggyback on the federal tax collection system by adding points to the VAT for sales made in their states, eliminating the need for separate state retail sales taxes. But the basic idea is very attractive.

It does not, however, address the countercyclical concern that Surowiecki highlights: if social welfare spending in the states depends on state revenues and states have balanced budget requirements, surely this will deepen economic contractions. The solution is to move away from ad hoc stimulus efforts to federal transfers that kick in under certain economic conditions: a state is in recession, its unemployment rate reaches X amount, etc.   

What is the appeal of federalizing Medicaid? Simply put, it will lead to greater accountability: now the federal government spends the bulk of the money, but the states determine eligibility rules, etc. Washington depends on the states to control costs, yet the states don’t bear the full burden of their spending decisions. The consequence is a ballooning program. By the same logic, all programs that are jointly-funded and jointly-operated deserve close scrutiny.