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The Agenda

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

Vox-aggerating Climate Change



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Vox has an interesting take on a recent set of documents released by the Organization for Economic Cooperation and Development, a club of industrialized nations, projecting the performance of the world economy over the fifty years from 2010.

Their first takeaway: “Growth is going to slow down.” Yes, somewhat steadily after 2030:

Their second takeaway: “Climate change will pay a big part in dragging down growth.” Whoa now — that’s interesting, will it really? Here’s the OECD chart they cite:

Spoiler alert: This chart may look dramatic, but it doesn’t show climate change playing a big part in dragging down growth. It shows climate change being about 5 percent of the explanation for slower growth.

Here’s why: Vox is implicitly comparing one value — the size of the world economy — with a mathematical derivative of it — the rate at which the economy is growing at any given time. I can’t tell if the writer understands the problem here or not, but the climate-change chart explains almost none of the drop in the growth-rate chart — just about 5.2 percent of it, in fact.

What’s shown in the second chart is not the change in the growth rate of the economy over the next 50 years caused by climate change. Instead, it’s the change in the size of the world economy over that period of time caused by climate change.​

“By 2060, climate change will drag on GDP growth anywhere from 0.6 percent to nearly 2.5 percent,” Vox says. No, it will drag down GDP by that amount. “Ironically, the climate change brought about by economic growth is set to be a major drag on the global economy for decades to come,” the post says.

Just how wrong is this? Well, if you take out the effects of climate change, the OECD thinks that the global economy in 2060 will be 4.38 times the size it was in 2010. In other words, if the GDP of the world economy were 100 dollars in 2010, in 2060 it’d be 439 dollars.

But how much is that going to be dragged down when we take into account climate change? Let’s be pessimistic, and assume the OECD’s worst-case environmental scenario. If that holds true and we do nothing about climate change, in 2060 world GDP will be just . . . 428 dollars.

Yes, those 11 dollars we missed out on — or $6.58 under the most likely scenario — weren’t nothing.

But are they “a big part” of slowing growth? Nope. To be precise, what Vox says will play a “big part” in slower growth will account for 5 percent of said slower growth, according to the OECD’s central projection. (My detailed calculations are here.)

If growth rates remain until 2060 what they have been this decade, the world economy would be worth $126 dollars more than it would be under the OECD’s central projection for the world after climate change. Climate change accounts for just $6.58 of that.

(Of course, these projections are highly uncertain — climate change could be much more costly than the OECD thinks, growth could slow more, whatever. But their projections for now suggest that climate change is basically, for the world — even more so for the U.S., actually — just one economic problem in a much larger slowdown. If we think we can mitigate those relatively insignificant economic costs in a way that’s a net economic benefit, okay, something that produces a 1 or 2 percent bigger economy decades from now is a great policy. But that requires cost-benefit analyses — saying climate change is such a big part of slowing growth implies that it would be worth doing a great deal to stop it.)

UPDATE: The author has kindly amended her piece to reflect the points I’ve raised here. The wording now — “Climate change will play a part in dragging down growth” — is accurate. Like I said, climate change isn’t irrelevant; we consider policies, like fundamental tax reform, that may just result in a 1 or 2 percent bigger economy in the future well wiorth considering as a political matter. An intervention like fundamental tax reform, though, I’d note, is always assessed on its net economic benefits — policies to avert the 1 or 2 percent of GDP losses caused by climate change, if such policies are practically possible, will probably come with substantial economic costs that might well outweigh the benefits of avoiding the environmental costs the OECD projects.

The Problem with the ‘Neocon’ Case for the Export-Import Bank



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Reason’s Nick Gillespie points to an op-ed by Tom Donnelly of AEI arguing that there’s a justification for the Export-Import Bank you may not have heard of: its utility as a foreign-policy lever. He writes, noting that opponents argue that by fair-value accounting, Ex-Im costs taxpayers money:

This green eyeshade view of the bank misses a lot of [Ex-Im's] political and strategic value. Take the case of Dubai, which, as Lane notes, got an Ex-Im-underwritten loan for $117 million to buy some Boeing 737s. Dubai and the rest of the United Arab Emirates aren’t exactly hurting for cash – they have the second largest economy in the Persian Gulf and have used their oil wealth to become a regional tourist attraction – and could certainly get private financing for the plane purchases. Indeed, Emirates Airlines has been growing like a weed and is a major international carrier; it’s even got its name on the plush new stadium of the London soccer powerhouse, Arsenal.

At the same time, the UAE is a critical U.S. ally in the struggle with al Qaeda and, more generally, in security matters throughout the Muslim world; in part because Dubai has become a regional entrepot, it is a critical “node” for a host of reasons. Just this spring, an al Qaeda cell was rounded up in Abu Dhabi. At the same time – and particularly as the Obama administration’s Middle East policy continues to unravel – the UAE, like the royal family next door in Saudi Arabia, sometimes hedges its bets.

In sum, even if the Emiratis get a “sweetheart deal” from Uncle Sugar’s Ex-Im Bank, it’s a baksheesh well spent. And it’s pretty likely that the UAE will fulfill the terms of the loan. This ain’t capitalism, it’s strategy.

Let’s leave aside the problem of whether this kind of suasion appears to be working (the fact that al-Qaeda cells get rounded up in Dubai and routinely funnel baksheesh of their own through there suggests it may not). Is it, in theory, worth having Ex-Im to support deals like this, at relatively low cost to the U.S. taxpayer? Quite possibly. The problem is that this isn’t representative of the kind of deals Ex-Im supports, or what almost all of its defenders say it does, or what it’s chartered to do.

Here’s how the charter of the Export-Import Bank begins (emphasis mine):

The objects and purposes of the Bank shall be to aid in financing and to facilitate exports of goods and services, imports, and the exchange of commodities and services between the United States or any of its territories or insular possessions and any foreign country or the agencies or nationals of any such country, and in so doing to contribute to the employment of United States workers. The Bank’s objective in authorizing loans, guarantees, insurance, and credits shall be to contribute to maintaining or increasing employment of United States workers.

Not much there about national defense. Now, the charter, which sets the bank’s policies, does contain a number of foreign-policy-related restrictions and priorities: no sales to Marxist-Leninist countries, for instance (the Democratic Republic of Afghanistan is still listed as a no-no), though this can be waived when the president says it’s in the national interest, as President Obama did in 2012 to authorize a deal with a Vietnamese telecom. And no sales of any military equipment are permitted at all — as Donnelly has lamented.

He wants Ex-Im restored to its original role, where it appears to have had a de facto focus on certain foreign-policy aims. Specifically, Donnelly wants it to become a financier of arms exports again, replacing the apparently dysfunctional Pentagon program that does finance U.S. arms exports. I’ll do him one better: It might make good sense to have an export-finance institution that’s intended to help reach deals with allies, prospective allies, or whatever. The non-negligible but relatively small fiscal and economic costs of such loans might be the right price to pay for the diplomatic benefits. (Tim Carney argues it would make more sense to just use cash transfers instead — he’s right that using loans rather than direct transfers is usually just a way to mask a budgetary cost, but there are justifications for credit rather than cash in the foreign-policy and export realm.)

But what Donnelly suggests used to be Ex-Im’s job isn’t what Ex-Im does today — it’s become more or less solely an economic-policy tool, not a foreign-policy one. As such, it should produce measurable net benefits for the U.S. economy, taking into account the fiscal and economic costs of corruption, misallocation of resources and credit, etc. It’s not clear that it does so, which is why I’m not sure Ex-Im really deserves to survive.

Now, a credit agency focused on supporting U.S. foreign policy and national-security interests may not be able to accomplish those interests in the short term at a reasonable cost, either. But at least those interests are a key task of the federal government. Supporting an extremely thin slice of export transactions at highly uncertain costs to the rest of the economy is not. As Donnelly points out, for a couple reasons, the Pentagon’s attempts at such financing schemes have failed (development-focused ones like OPIC are not super successful either). But it’s certainly possible such policies could work, and I don’t want our diplomats or national-security staffs to lack for tools of American power (what do you think I am, a Reason reader?!). But this is an argument for something fundamentally different from Ex-Im, and Donnelly doesn’t explain why we should save Ex-Im rather than design an institution specifically for the purposes he envisions.

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Finally Some Repeated Good News: 288,000 Jobs Added



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The U.S. economy added an impressive 288,000 jobs in April, continuing a streak of what’s now six straight months of the economy’s adding more than 200,000 jobs. The past six months have in fact been essentially the fastest half-year since the recovery (such as it is) began: Job growth over the past three months, a reasonable smoothing of month to month variations, has been an impressive 272,000 jobs a month. April’s jobs report, in fact, was revised up from 282,000 to 304,000 — a very nice number.

In fact, if you (arbitrarily) look at half-years since the recovery began, this is the best January–June we’ve seen (chart via FiveThirtyEight’s Ben Casselman):

‎Wall Street had expected a strong report, but not this strong — something more on the order of 215 or 220,000 jobs.

The unemployment rate was cut to 6.1 percent, from 6.3 percent. The unemployment rate is being cut, thankfully, by jobs growth, not by a dropping labor-force-participation rate. The composition of the jobs created wasn’t bad, either: Some decent growth in manufacturing, well-above average growth in business services, which pay much better than the median wage. One soft spot: Earnings didn’t really rise, and haven’t been rising too much this year.

Skeptics — see that incorrigible pessimist Arthur Brooks — will always question why exactly we’re celebrating the labor-force-participation rate merely staying steady, at the lowest rate since the 1970s, and jobs growth at a rate at which it will take years to return to employment levels, as a share of the population, that we saw before the recession.

Two points: It’s all relative, and it is notable that we are seeing stronger growth now than we have seen in years. Second, the labor-force-participation rate isn’t just being pushed down by a bad economy — it’s in a secular demographic decline. I’d like it to rise, and to be higher than it is, but in a certain sense, it’s not ridiculous to celebrate its holding steady as a victory.

One worrying data point: Obamacare’s employer mandate goes into effect for businesses with more than 100 employees in January, and this time last year, we began seeing some weak job growth in full-time jobs and bizarrely strong growth in part-time jobs. These data are very noisy, but it could be happening again: In June, much of the employment growth was in part-time jobs. If that sticks, the next few months could be a lot less encouraging than the last few have been, but we’ll have to see. It’s too early to draw conclusions.

Another downside: While the overall labor-force-participation rate isn’t dropping, the long-term unemployed still don’t appear to be finding jobs — they are more likely to be dropping out of the labor force than finding a job. (Which, by the way, is incredibly difficult for them, which is why some conservative economists have proposed interventions specifically to correct this huge economic and human problem.)

Is There a Compelling Public-Health Case for the HHS Mandate? Not Really



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In this week’s Hobby Lobby decision, the Court decided that it didn’t need to question whether the HHS mandate serves a compelling government interest in order to rule against it. But if it had considered the question, it’s far from an open-and-shut case that HHS was justified in including contraception under its “preventive services” mandate — under the assumption that reducing the rate of unintended pregnancies is a compelling state interest, and that free contraception is the right way to get there.

The first assumption is easily defendable. From an economic standpoint, reducing unintended pregnancies is linked to more women in the workforce and significant savings for taxpayers. Further, allowing women to better control when or if they conceive leads to higher levels of educational attainment, happier mothers, and healthier children.

The second assumption is much more problematic. Contrary to what you might think, there is little evidence to suggest free contraceptives necessarily reduce the rate of unintended pregnancy.

In 2012, the widely publicized Contraceptive CHOICE Project study published in Obstetrics and Gynecology showed strong links between a free-contraception program and reductions in abortions and teen pregnancy. However, as NRO’s Michael New points out, the study is riddled problems: It has no control group, for instance: Participants opted into a program offering them free contraception. And the study included contraceptive counseling to participants when they signed up and then throughout the study — which might be worthwhile, but isn’t a realistic experiment.

In fact, a good amount of research indicates that the effect of contraceptives on the rate unintended pregnancy is more dependent on proper use than on cost and access.

Proper use is especially relevant in regard to oral contraceptives, the most commonly used type of contraceptive in the United States. A Guttmacher Institute study found that inconsistent or improper use caused 76 percent of unintended pregnancies among oral contraceptive (i.e., the pill) users. The majority of women who do not use contraceptives consistently cite ambivalence about becoming pregnant as the reason, while ethnicity, educational attainment, level of sexual activity, and relationship status were also significant factors. While one study suggests that copay-free contraception can increase use of methods more reliable than oral contraception, the fact that ambivalence about pregnancy is such a concern for many women suggests there are limits to how much that might help.

Socioeconomic status may have little impact on consistency of use. Women with private insurance and those using publicly funded clinics experienced the same rate of gaps and inconsistencies in contraceptive use, further indicating that inconsistent use may not be directly tied to costs. A 2011 University of Michigan study found that while price increases did reduce oral contraceptive use, particularly among financially constrained women, the rate of unintended pregnancy was not significantly changed. The study reported that women had fewer sexual partners and effectively used other forms of contraceptives to avoid pregnancy.

Moreover, the mandate will only address these financial barriers, while doing little about access. There’s an important distinction between the two: While the cost of contraception can sometimes be a barrier, it is not the cost of oral contraceptives themselves that is prohibitive; rather, it is often the cost of the doctor visit associated with accessing oral contraceptives that poses a problem. Additionally, the inconvenience or impossibility of setting aside the time for and getting to a doctor’s visit limits access for some women. That’s in part why the American College of Obstetricians and Gynecologists recommends making oral contraceptives available over-the-counter to improve access, an idea that’s gained fans on both the right and left.

Some of the problems with the effectiveness of oral contraceptives can be eliminated by long-acting reversible contraceptive (LARC) methods such as IUDs and dermal implants. LARC methods are more effective because they require no consistent user action to work and remain effective for several years. In the past, the relatively high upfront cost of implanting IUDs and dermal devices and doctor’s liability concerns have limited the use of these methods. The Affordable Care Act requires that health insurance plans cover IUDs and dermal implants, so cost is no longer a barrier to LARC methods. But doctors may remain reluctant to perform implants due liability concerns, making free contraception less effective at reducing unintended-pregnancy rates, and the methods simply remain unappealing to many women.

With oral contraceptives and other user-dependent methods, user consistency appears to be the primary barrier to reducing unintended pregnancy. And regardless of their affordability under the new health-care law, access to LARCs remains limited because of doctors’ liability concerns. Offering copay-free contraceptives will not address either of these issues.

Instead, perhaps public-health efforts to raise awareness about the importance of consistent contraceptive use, making contraceptives available over the counter, or restructuring malpractice laws to reduce liability concerns about LARCs would better meet the compelling public interest of reducing the rate of unintended pregnancy. Regardless of what approach, or combination of approaches, may be effective, it’s clear that simply providing free access to contraceptives is a merely a popular policy that fails to address key factors causing high rates of unintended pregnancy.

A Better Life for a While or Higher Earned Incomes?



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Christopher Blattman, a political scientist at Columbia University and a student of poverty in the development world, argues that the success of cash transfer programs in the developing world might offer lessons for fighting poverty in more affluent societies, including the United States. Specifically, he observes that in a recent experiment, he and his colleagues identified homeless men and criminals in Libya’s urban slums and provided them with cash transfers. They found that almost none of the beneficiaries wasted the money. Rather, they dressed, ate and lived better, yet they were “back where they started” after the transfers came to a close. Blattman writes that the program brought its beneficiaries “a better life for a while, which is the fundamental goal of any welfare program.” He then asks ”if homeless people and drug users in Liberia don’t misuse cash, why would we expect the homeless in New York to waste it?”

Leaving aside exactly how the homeless in New York city, where all individuals are entitled to a suite of labor-intensive services, yet where the coercion of those who refuse assistance and counseling is frowned upon, are different from the homeless in Libya’s urban slums, who are living in desperate conditions in a failed state with limited social service provision, Blattman is too quick to assume that the fundamental goal of any welfare program is to temporarily improve the quality of life of beneficiaries. Or perhaps we ought to differentiate between the fundamental goal of welfare programs and the fundamental goal of development, a distinction captured by the Campaign for Boring Development in its Boring Development Manifesto.

The CBD takes the stance that while many development interventions, like those devised and tested by Blattman, aim to make poverty easier to bear, the goal of development is, or ought to be, to actually make the poor less poor.  CBD maintains that the only way to fight poverty is to boost poor people’s incomes, or rather to boost their earned incomes. This is a goal that involves meaningful increases in labor productivity and in savings over time, and in short run it may well involve working harder and actually consuming less. This is what happens when poor people living in rural villages migrate to cities, a traumatic transition that generally involves making life harder and more unpleasant in many important respects (social isolation, cramped quarters), yet which also leads to a sharp immediate increase in productivity, thanks to economies of agglomeration (denser places are more productive than less-dense places), and a faster rate of productivity growth, due to knowledge spillovers (if you’re around large numbers of other people in the same line of work, you can acquire skills faster than you would if you were isolated). 

The contrast between Blattman’s approach and that of the CBD is clear: Blattman will offer cash transfers to the rural poor, some of whom might then use them to settle in productive cities; the CBD, in contrast, might emphasize devoting resources to improving connectivity, so that it is easier for people to increase their long-run productivity. The former strategy might do a better job of making poverty easier to bear, particularly for those reluctant to leave family connections behind, while the latter might ultimately do a better job of actually fighting poverty. I should stress that this isn’t necessarily true. But CBD’s emphasis is clearly quite different than Blattman’s.

Is CBD’s approach to development relevant to fighting poverty in affluent market democracies? I’d suggest that it is far more development than the strategy Blattman employed in Libya’s urban slums. I’ll elaborate on this theme tomorrow.

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Today’s Policy Agenda: Economic Segregation Is a Growing and Devastating Phenomenon



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The Highway Trust Fund is almost out of money. How should we keep funding it?

President Obama spoke yesterday about the need to resolve the looming transportation funding crisis, and Rebecca Kaplan of CBS had the details:

The Department of Transportation (DOT) predicts that the fund, which has traditionally drawn its revenue from the federal gas tax of 18.4 cents per gallon, will be depleted by late August. As a result, the funding that states get from the federal government for highway projects – about 45 percent – will start to shrink. Transportation Secretary Anthony Foxx warned reporters in May that letting the account expire could lead to 700,000 Americans losing jobs in road work, bridge-building and transit maintenance as 112,000 highway and 5,600 transit projects underway come to a halt…The administration recently put forward a four-year, $302 billion transportation plan that would be funded in part by the existing gas tax, and in part by vaguely-defined “pro-growth business tax reform.” The proposal actually increases both highway and transit funding, and allows states to charge tolls on interstate highways as a way to raise funds.

While the devil will likely be in the details on the president’s so-called “pro-growth tax reform,” allowing states to charge tolls is a step in the right direction toward a usage-based funding mechanism for roads. As pointed out by Rick Geddes and Brad Wassink, the problem with the gas tax is that improved fuel efficiency has reduced the revenue collected by a gas tax and has likely done so in a regressive manner (the wealthy are more likely to have new cars, Teslas, hybrids, etc.). Moving explicitly to taxing based on miles driven rather than gallons of fuel consumed would have a number of benefits including making the costs of infrastructure more noticeable to those who use it, and most important, allowing states and cities to set prices based on the traffic level. That would help fight what should be a major target of the pro-work, pro-family party: congestion.

The federal backstop for huge multi-employer pension plans could go very deep into the red, really soon.

John McKinnon reports in the Wall Street Journal on the apparent vulnerability of the Pension Benefit Guaranty Corporation program that covers multi-employer pensions:

The federal safety net for a type of private-sector pension plan common in the transportation, construction and other industries is at risk of collapse in coming years, according to a report released Monday. Such an outcome has the potential to affect more than a million people. . . . But the likely failure of several big plans means that the PBGC’s limited resources for helping retirees in failed multi-employer plans likely will be tapped out in coming years. This year’s report estimates that the $8.3 billion long-term deficit the federal backup plan for multi-employer plans faced in fiscal year 2013 will widen to $49.6 billion by fiscal year 2023. . . . The options for lawmakers are politically difficult. Bailouts of troubled plans or of the safety-net program itself could spark a backlash among voters, while forcing benefit cuts on beneficiaries—particularly current retirees—would be painful and unpopular.

The drumbeat of failing pension plans is getting louder, as it becomes obvious that from these private pensions to state and local pensions to federal entitlements, we’ve way overpromised and because of demographic shifts, can no longer hide it. There’s likely no pain-free fix for such poorly designed plans at this point, but a greater sense of urgency – even from Republican heroes – is needed for reforming these future liabilities before the debts become so large that either hugely hurtful cuts to seniors or big cuts to other public priorities are the only options.

After Hobby Lobby, what’s next for contraception? Making the pill over-the-counter?

For the Volokh Conspiracy at the Washington Post, Jonathan Adler looks at the possible ways  the federal government will try to address contraception coverage in the wake of the Hobby Lobby case.

The easiest and most rapid response would be for the Department of Health and Human Services (HHS) to provide objecting for-profit employers with the same accommodation offered to religious institutions.  Indeed, the very existence of this accommodation undermined the administration’s position before the Supreme Court, as it was hard to simultaneously argue that there was no less restrictive way to provide access to contraception while providing just such an alternative to religious institutions . . . 

A more direct way to enhance contraception coverage would be for the federal government to provide such coverage directly.  Yet while Congress could authorize such a program, it is not clear that HHS has the authority to take this step on its own . . . A final step the administration could take would be to enhance access to contraception by making all forms of oral contraception available over-the-counter without a prescription (and not just “Plan B”).  While this would not make contraception “free” it would reduce the cost, and help alleviate some of the non-monetary obstacles women face.

Making contraception available over the counter seems like an intuitive approach to move us past this issue that has become, as Megan McArdle explains, an emotional flashpoint far exceeding what any practical effects could merit. Phil Klein lays out the conservative case for allowing over-the-counter sale here.

Economic segregation is a growing and devastating phenomenon.

The Census Bureau came out Monday with a new report by Alemayehu Bishaw detailing how poverty has become more and more geographically concentrated over the past decade:

In 2010, approximately 14.9 percent of the total U.S. population lived in poverty. However, poverty is not distributed evenly across neighborhoods. The U.S. Census Bureau designates any census tract with a poverty rate of 20.0 percent or more as a “poverty area.” . . . Between 2000 and 2010, the percentage of people living in poverty areas grew from 18.1 percent to 25.7 percent. While the overall population grew by 10 percent over the decade, the number of people living in poverty areas grew by about 56 percent.

It’s worth going through the report to see the maps of where “poverty areas” claim more of the population, specifically the South. One of the major findings from the celebrated recent study by Raj Chetty and colleagues on economic mobility was that economic segregation is one of the four best predictors of upward mobility, and a host of academic studies confirm that concentrated poverty can be devastating for economic, educational, and health outcomes. How conservatives should address this through policy is obviously complicated, though Reihan has put forward thoughts on several occasions.

The first priority for conservative reformers should be getting rid of barriers upwardly mobile, poor Americans face in escaping “poverty areas.” Repealing land-use regulations designed to keep out the poor come to mind here, as do school choice and Michael Strain’s idea of buses going straight from poor neighborhoods to major job centers.

It’s also worth noting that a major force perpetuating segregation is that many poor individuals don’t feel comfortable leaving a social network of friends and loved ones behind. Furthermore, it’s harder to accumulate the capital needed to afford new housing when every month a member of that social network has, say, a car break down, needs your help, and drains your savings. This suggests forced savings programs — which is how the EITC effectively works — that deliver large lump sum payments could be helpful to low-income people in accumulating the wealth needed to leave in a way that doesn’t get dispersed throughout the social network.

Hobby Lobby Round-Up



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What should we make of the Hobby Lobby ruling? The following is a decidedly uncomprehensive guide to the conversation so far, with an emphasis on the arguments I find most interesting and convincing. I reserve the right to add to this list. 

Ramesh Ponnuru has been dispelling various misconception about the decision, pointing out that the contraception mandate at stake was not part of the legislative debate over Obamacare (and indeed that a number of pro-life Democrats would have opposed the legislation had it been a part of the statute) and that Congress can simply pass a law that explicitly exempts itself from the Religious Freedom Restoration Act (RFRA). He has also addressed the illogic of some aspects of Justice Ginsburg’s dissent, including her (bizarre) claim that “religious organizations exist to foster the interests of persons subscribing to the same religious faith,” which makes religious organizations sound rather a lot like labor unions. 

Joey Fishkin, a liberal law professor and author of the (very interesting) new book Bottlenecks, argues that while the substantive health policy implications of the decision are “miniscule,” and though it sets up an “an ambiguous, future-litigation-inviting test” (closely-held firms ought to be treated like sole proprietorships under the Religious Freedom Restoration Act, but can other private firms be treated as such as well?), the case is best understood not as a case about health policy, but rather as a case about “the politics of recognition,” a term drawn from the work of the Canadian philosopher Charles Taylor. 

Taylor’s thesis is that in modern societies, political conflicts increasingly revolve around a discourse of recognition, which is the result of two developments: the collapse of social hierarchies, which held that honor ought to be unequally distributed, has led to a world in which we at least pay lip-service to the notion that all citizens, or all human beings, are entitled to dignity; and a “subjective turn,” in which we’ve gone from the notion that the objective nature of things compels us to behave in certain ways to one in which authenticity, or living in accordance with our own ideals of what it means to be a human being, is an end in itself. Our debate over the definition and the status of marriage is a clear example of the subjective turn at work: those who believe that marriage is in its very essence about gender complementarity and reproduction, and that to suggest otherwise is to do violence to its place in society, are pitted against those who see it as an essentially expressive act.

Fishkin maintains that the Hobby Lobby decision aims to recognize the validity of several claims made by religious conservatives, e.g.:

(a) that contraception is meaningfully different from other forms of health care (but immunizations, say, are not, or not necessarily) and should be treated as such;

(b) the right of conscience, particularly when grounded in religious belief, deserves great deference and priority in the public sphere, and “a higher symbolic priority than women’s health”;

(c) and religion is not merely something you do in the privacy of your own home or house of worship, but rather it is a way of life that can inform how a for-profit firm conducts its affairs, among other things. And for-profit firms informed by a religious worldview deserve to be accommodated.

According to Fishkin, these claims are not so much legal claims as political claims, and they have deep long-term implications.

Interestingly, Yuval Levin agrees with Fishkin that while the health policy implications of Hobby Lobby are limited, it has larger and broader implications for the role of civil society. He observes that “the suggestion that corporations could effectively be bearers of rights,” the source of most of the liberal opprobrium directed at the decision, was opposed outright by only two of the justices, Ginsburg and Sotomayor, who argued that corporations can’t be understood as legal persons under the RFRA. The deeper dispute is over whether the rights of conscience extend to communities of people working together towards a common purpose — that groups, as well as individuals, “should whenever possible be protected from forms of coercion or restraint that violate their religious beliefs.” For Levin, the extension of this liberty of groups to corporations makes perfect sense.

The Obama administration, in contrast, is motivated by the progressive conviction that we ought to “clear out the space between the individual and the state and to confer rights only on individuals, rather than encouraging people to form complex layers of interacting institutions with diverse views of the good that each pursues with vigor and conviction.” The RFRA holds that government can only impose a burden on the free exercise of religion if there is a compelling government interest at stake and if the burden in question is the least burdensome way to achieve the ultimate goal. The Court concluded that the mandate was in fact more burdensome than necessary to achieve the government’s purpose. As Levin goes on to explain, the decision does not offer much clarity on whether the particular accommodation the Obama administration has made for religious organizations is adequate. But it does reaffirm that groups and institutions are as entitled to religious liberty as individuals.

Perhaps the most interesting critique of Hobby Lobby is Jacob Levy’s. Levy, a political philosopher at McGill University, argues that the decision mangles the idea of corporate personhood: 

Corporate personhood is ultimately justified in terms of the interests of natural persons– their interest in being able to pursue joint enterprises, their interest in being able to reduce transaction costs, their interest in being able to interact with stable long-term entities, their interest in the economic benefits of a system in which capital can be pooled and put to long-term use, and so on. But a particular claim of corporate rights shouldn’t require immediate recourse to natural persons to describe it and make sense of it. It makes more sense to say “The New York Times has freedom of the press and the right not to have its offices searched without a warrant” than it does to try to redescribe it in terms of the moral interests of the Sulzburger family, the various employees, the various investors, and so on. The same is true for the corporate religious liberty of the Catholic Church or the Little Sisters of the Poor or the Salvation Army.

But the entity that is Hobby Lobby, a for-profit corporation like IBM, can’t be described as itself having a religious belief. Making sense of that idea requires making the corporate person disappear from the description and talking about the Green family, treating the “closely held” corporation as if it were a partnership or sole proprietorship that doesn’t have a corporate-style separateness from the natural persons. Try as I might, I can’t persuade myself that that’s right. Corporations are persons, or corporations are made out of people– the two thoughts lead to very different conclusions, and I think protecting the former requires rejecting this kind of easy recourse to the latter.

While Levin sees the extension of the religious liberty of groups to corporations as seamless and natural, Levy believes that it collapses the (important) distinction between corporations as persons or corporations as collections of people. And if we embrace the latter view over the former view, the unintended consequences for the rights of corporate persons could be quite serious. 

Tags: Hobby Lobby

In Honor of Canada Day . . .



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In honor of Canada Day, Sarah Kliff of Vox has written a light-hearted post on various ways Canada is superior to the United States. Around the world, Canadians have a positive reputation, and a more positive reputation than Americans. They report somewhat higher levels of life satisfaction than Americans, though both countries fare well on this metric. Canada has a somewhat lower rate of assault than the U.S., and a substantially lower murder rate. Canada’s cities also have somewhat cleaner air than their U.S. counterparts.

Yet at least two of Kliff’s examples merit further discussion, e.g., that Canadian life expectancy is slightly higher than U.S. life expectancy (81 years vs. 78.7 years) and the average performance of Canadian 15-year-olds is significantly higher than that of U.S. 15-year-olds in the Programme of International Student Assessment. It is worth noting that the composition of the Canadian population is notably different from that of the United States, for historical (a large share of the U.S. population consists of the descendants of enslaved Africans) and policy reasons (Canadian immigration policy places a greater emphasis on English- and French-language proficiency and educational attainment than the U.S., where family reunification plays a larger role and immigration enforcement has been comparatively lax). 

One result of these differences is that while 2.9 percent of Canada’s population is of African origin, including immigrants of African and Afro-Caribbean descent and their children and a small number of descendants of black Americans who migrated to Canada to escape enslavement, while 13.1 percent of the U.S. population is of African origin, and nearly 1 in 10 of those in this slice of the U.S. population are foreign-born, a far smaller share than in Canada. Unfortunately, it is difficult to find comparable life expectancy data for U.S. and Canadian, in part because the two countries use different statistical designations to measure various outcomes. What we do know, however, is that while average U.S. life expectancy is 78.7 years, it is significantly lower for African Americans, and in particular for black men. Though the composition of the black populations of the U.S. and Canada are quite different, there are segments of Canada’s black population (particularly men of Somali and Jamaican origin) that face challenges not unlike those facing black Americans, including high incarceration rates and high levels of family disruption, which make it difficult for children raised in these environments to acquire human and social capital. Recently, Canada has placed tighter restrictions on less-skilled immigration and asylum-seekers, measures that will tend to limit the growth of foreign-born populations that are particularly dependent on labor-intensive services and transfers, which in turn will tend to reduce the size of second-generation populations that are similarly in need. We can expect that future growth in Canada’s population will be driven by skilled immigration and natural increase.  

Meanwhile, as of 2011, Canada’s population is 4.8 percent South Asian, 4.8 percent East Asian, 2.8 percent Southeast Asian, and 1.8 percent West Asian and Arab. Other estimates find that the total Asian Canadian population is now close in the neighborhood of 15 percent. In the U.S., people of Asian origin alone represent 5.1 percent of the population. This population has an average life expectancy of 85.8 years, and it tends to fare well on the PISA. When you have a group with higher-than-average life expectancy and educational outcomes and you triple its size, you will raise average outcomes. (The U.S. has seen a dramatic increase in its Latino population, which now stands at 15 percent – Canada’s Latin American population remains quite small – and this population has higher-than-average life expectancy, which matches Canada’s, and below-average educational outcomes.) Crafting an immigration policy that limits the influx of individuals and families belonging to communities with lower-than-average life expectancy and educational outcomes will tend to have a similar effect. This is not to say that one policy is better than another. One could coherently argue that the U.S. approach is superior to Canada’s because it is more inclusive, and that our lower levels of life expectancy and educational attainment should this be a point of pride, though that’s not a view I’d embrace. But if Kliff believes that Canada’s (modest) life expectancy advantage and its (immodest) educational advantage are signs of superiority, she is implicitly suggesting that Canada has a superior immigration policy to the U.S., and that is an implication that is worth exploring further. 

Today’s Policy Agenda: Was Kansas’s Big Small-Biz Tax Cut a Failure?



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The economy had an ugly first quarter. What should we do about it?

In complementary pieces, Mark Mills and economist John Makin weigh in on the shockingly weak economic growth numbers from last week, for Forbes and AEI respectively.

First, Mills:

There is no mystery as to what will restore growth.  The nation needs more, a lot more, new businesses. New, small businesses are where jobs come from, and then tax receipts follow to fund government programs. But the rate of creation of small businesses today is 30% lower than the booming 1980s. . . . How did we end up getting fewer small businesses?  We taxed and regulated them away.

This is touching on a distinction Republicans often miss when discussing this administration’s regulatory approach. “Anti-business” is probably a less accurate description than “corporatist,” as the new rules from energy regulations to the Walmart-endorsed minimum-wage hike offer something of a shield from competition for large incumbents. As venture capitalist Marc Andreessen explains of Sarbanes-Oxley, but also could be said of heavy regulation more generally, “The compliance and reporting requirements are extremely burdensome for a small company. It requires fleets of lawyers and accountants who come in and do years of work. . . . It’s biased enormously toward companies that are big enough to hire fleets of lawyers and accountants, biased against companies that are very young and for whom there’s still a lot of variability.” This is a problem because there’s pretty solid economic evidence that start-ups drive job growth and the kind of disruptive innovations that increase productivity and in turn GDP.

Mills also mentions the two keys to restoring previous levels of entrepreneurship. First, our corporate tax system is a mess and hurts workers as much as our firms. Luckily, there’s growing bipartisan consensus behind reforming the corporate code. We also need to create a regulatory environment more conducive to entrepreneurship; changing the tax treatment of corporate debt, moving from a too-big-to-fail financial framework to one that better serves the needs of start-ups, and removing barriers to our growing energy sector would be good starts.

And the Fed should stop just printing money before we get inflation, right? Not so much.

So says John Makin of AEI:  

The third estimate of the first-quarter 2014 US GDP rate was reported on June 25 to be -2.9 percent. Current dollar GDP also fell at a 1.7 percent pace. That is a Japan lost decade-style number. And prices rose at only a tepid 1.3 percent pace. These are awful growth numbers…This inflation fussing is nonsense for three reasons. First, it is not going to happen, especially in an economy that is barely growing. Second, there is nothing the Fed can or should do about the recent food-and-energy-driven rise in headline inflation. And third, an inflation rate that stabilizes in the 1.5 to 2.5 percent range would be optimal for a US economy struggling to sustain a subpar growth rate of barely 2 percent as real wages stagnate…Food prices have been driven up by drought conditions, and energy costs have been boosted by rising tensions in the Middle East. There is nothing the Fed can do about either factor…Core PCE inflation, the best guide to Fed policy, has stabilized at an average level well below the Fed’s 2 percent target. It currently stands at 1.5 percent.

Makin’s argument is pretty strong considering the weak growth numbers, an inflation rate well below target, and the example of the disastrous Whip Inflation Now program of the 1970s that responded just as today’s inflation hawks would to a negative supply shock and seriously damaged the economy before being abandoned. Furthermore, even if inflation crept above target, it could actually be helpful to the labor market by reducing real wages in the short term, allowing firms to hire or avoid firing employees and inducing what Scott Sumner dubbed “catch-up inflation” just to get our economy back on the trend line it was on before the recession.

Keep reading this post . . .

Today’s Policy Agenda: Do Consumers Pay Attention to Health-Care Choices?



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Do consumers even want more health-care choices?

At Wonkblog, Jason Millman considers the economic research on whether consumers actually seek out the best deals on health insurance.

Just 13 percent of seniors enrolled in Medicare’s prescription drug program changed plans during the annual enrollment period, according to an October 2013 Kaiser Family Foundation survey that reviewed the first five years of program enrollment… More than two-thirds of enrollees who faced the highest premium increases stuck with their plans… And less than 2.5 percent of people enrolled in employer-sponsored insurance in 2010 had changed health plans that year in search of a cheaper or better-quality option, according to a survey released last year by the Center for Studying Health System Change.

These studies get at the heart of the debate between a more static and prescriptive health system and one with some disruption but also more choices. At first glance, the data might suggest that consumers’ unwillingness to switch to cheaper plans would sink market-oriented health systems by not putting as much downward pressure on premiums as such a plan would need to be viable. Additionally, if deep down Americans aren’t interested in being active consumers and would rather the government just design a one-size fits all insurance product and pay whatever price, conservative health reform won’t get very far.

But . . . it’s impossible to gleam anything about the behavior of American consumers in a health care market because they’ve never experienced a true health-care market, or anything like one. The employer-sponsored insurance data come from an insanely distorted system that since World War II has operated under a third-party-payer system and with a tax deduction that gives you more of a subsidy the more expensive the plan you buy. But a market-based system isn’t a fantasy: Switzerland’s consumers have succeeded in utilizing market forces to lower premiums and reach universal coverage, Americans could too if in the right health-care structure.

Is the economy tanking?

At FiveThirtyEight, Ben Casselman sums up Wednesday’s appallingly bad revisions to first-quarter GDP:

U.S. gross domestic product, the broadest measure of goods and services produced in the economy, shrank at a 2.9 percent rate in the first three months of the year, the Bureau of Economic Analysis said Wednesday…The first quarter now stands as the worst since the middle of the recession… Economists have been mostly unfazed by the news. The weak start to the year was almost certainly due in part — possibly in large part — to the brutal winter in much of the country. Other indicators, such as hiring, didn’t drop off nearly as much, and the ones that did generally have looked much better since the snow melted. Most economists expect growth of 3 percent or more in the second quarter…But don’t be too quick to dismiss Wednesday’s rotten GDP number. Last month, I noted that negative quarters are rare outside of recessions. Quarters this bad are even rarer. There have been only two other non-recessionary quarters since World War II when the economy shrank at a rate over 2 percent. Both times, the economy entered a recession the following quarter.

While I’ll leave thorough analysis of the data to the economists, it goes without saying that a mini-recession now would becoming at the worst possible time: We still are trying to heal the labor market and allow the economy to rebuild wealth. There’s also not a better time than the present to promote pro-growth policies in the realms of regulation, energy, and the labor market that could help get us back on track.

The gaps between our richest and poorest counties are massive.

Today for the Upshot, Allan Flippen has an interesting post and interactive map that breaks the United States down at the county level by standard of living based on education (percentage of residents with at least a bachelor’s degree), median household income, unemployment rate, disability rate, life expectancy and obesity:

The 10 lowest counties in the country, by this ranking, include a cluster of six in the Appalachian Mountains of eastern Kentucky (Breathitt, Clay, Jackson, Lee, Leslie and Magoffin), along with four others in various parts of the rural South: Humphreys County, Miss.; East Carroll Parish, La.; Jefferson County, Ga.; and Lee County, Ark. . . . At the other end of the scale, the different variations on our formula consistently yielded the same result. Six of the top 10 counties in the United States are in the suburbs of Washington (especially on the Virginia side of the Potomac River), but the top ranking of all goes to Los Alamos County, N.M., home of Los Alamos National Laboratory.

For as much as we talk about concentrated poverty in urban areas, this exercise serves as a reminder of how poor some of our most rural, isolated counties are. Kevin Williamson has reported for National Review before on the suffering ubiquitous across rural Appalachia. Both the stories and data are brutal coming from these parts of the country.

The county data also nicely illustrates a recent point made by AEI president Arthur Brooks (in a recent talk soon to be posted online, check thepursuitofhappiness.com in coming days) that there are two Americas with two different growth rates. In Williamson County, Tenn., unemployment is at 5.4 percent and only 0.3 percent of the population is in the federal disability program, a notorious poverty trap. On the other hand, Humprheys County, Miss., faces an unemployment rate of 15.9, and 6.5 percent of the population are in the disability program. 

Marco Rubio and the Real Beginning of 2016



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I don’t know if Marco Rubio will be the next Republican president. But I strongly suspect that the next Republican president will sound a lot like Rubio did in the excellent speech he gave on Wednesday, in which, as Ramesh Ponnuru recounts, he described how a series of conservative reforms might better the lives of working and middle class Americans who are seeking to gain skills, accumulate savings, raise children, and keep themselves and their families healthy. What I found most appealing about Rubio’s address is that he didn’t argue that we need government to be more generous without explaing where the money will come from; rather, he touched on the structural forces that are putting low- and mid-skill workers under pressure, and how competition and innovation can drive down the cost and improve the quality of public services. Rubio gave the complexity of the challenges facing American workers their due, and he did it in an intelligent and accessible fashion. He called for modernizing America’s approach to retirement security by allowing all workers without access to employer-sponsored retirement plans to participate in the low-cost Thrift Savings Plan, and he explained how transparency and accreditation reform could give rise to new higher education institutions that can better meet the needs of working students, drawing on the experiences of several of his constituents.

Ponnuru notes the resemblance between the broad vision outlined by Rubio and that advanced by conservative reformers. What I’m looking forward to, however, is a robust contest of ideas, in which all GOP presidential aspirants are expected to offer policy proposals that (at a bare minimum) address the post-Obamacare future of America’s health system; the human capital deficits that have their roots in family breakdown, and which have in many cases been exacerbated by dysfunctional schools and colleges; and the sources of long-term unemployment and underemployment, from regulatory accumulation to a fragile, boom-and-bust financial system addicted to excessive debt. You’ll notice that I haven’t mentioned tax reform. Though I consider taxation very important, and it relates to all of the areas I’ve identified, Republican presidential contenders have in recent years tended to treat tax policy, and in particular tax rates, as the sum total of domestic policy. This represents a huge lost opportunity. The right now faces a liberal coalition that is intellectually exhausted. Having achieved the goal of near-universal coverage, the chief domestic priorities of the center-left are raising the federal minimum wage and expanding access to preschool, ideally in a way that will expand unionized public employment. There are center-left thinkers who are open to the idea that public services should be designed to benefit those who use them more than those who provide them, but they’ve been marginalized within the liberal coalition as left-liberalism has reasserted itself intellectually and politically. And so the right is where the action is — the only question is whether conservatives are up to the task. 

I’m sure that many conservatives will find much to disagree with in Rubio’s address. But we’ve entered a put-up-or-shut-up moment. Some conservatives, for example, reject the idea of an expanded child credit. Rather depressingly, virtually all of the critical reaction to Room to Grow has fixated on this particular question, an indication that many conservatives really do have a hard time talking about any domestic policy issues other than the top marginal tax rate. What I’d like to know is what tax reform you’d prefer in its place and how you expect to secure a durable majority in its favor. One theory is that conservative tax reformers can improve the tax treatment of savings and investment while using an expanded child credit to broaden the coalition for a more pro-growth tax code. The other theory is … what exactly? That we run on deep cuts in the top tax rate yet again and hope for the best? Don’t get me wrong — there are plenty of other ideas, some of which I quite like. Michael Graetz has called for exempting a large majority of U.S. households from the income tax and replacing the lost revenue with a very visible consumption tax. Alan Viard and Robert Carroll have made the case for progressive consumption taxation, a variation on a flat tax. The list goes on. But to attack Stein’s proposal without facing head on the failure of conservative tax reform proposals to resonate with the electorate since the 1990s, when Republican lawmakers championed the child tax credit, is to engage in (as much as I hate to say it) lazy carping.  There are exceptions. Ben Domenech of The Federalist, for example, has suggested that in lieu of an expanded child credit, conservatives ought to fight for replacing the payroll tax, an idea that really is responsive to the underlying political and economic questions Stein is trying to address. Other conservatives need to step up, including conservative lawmakers, governors, and other elected officials who want to shape the future of the right. 

Rand Paul, to his great credit, is talking about the surveillance state and mass incarceration — serious issues that deserve attention. He is the perfect person to start a debate about how coercive federalism has forced all states to raise their minimum drinking age, or how the Controlled Substances Act needs to change to allow states to truly go their own way on drug policy. We know that Paul opposes Obamacare. What does he intend to replace it with? Given John Kasich’s defense of Medicaid expansion, I’d love to hear what he has to say about this as well. Scott Walker made his name as a fiscal conservative, yet the fiscal challenges facing the federal government are profoundly different from those facing the states. What does Walker have to say about the old-age entitlement programs that threaten to crowd out all other federal spending, and what is his take on the future of federalism? This is the conversation we need to have. Marco Rubio has done an excellent job of getting it started. Let’s see who has the guts to follow him. 

Today’s Policy Agenda: Grit Fosters Upward Mobility



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Our savings rate needs to rise. Could a progressive consumption tax be the way to do it?

Over at Wonkblog, Jonnelle Marte discusses the latest research on savings — we may need more of it, soon. She writes:

It’s saving, not spending, that will solidify the recovery and make the country less vulnerable to another downturn, says a report released Tuesday morning by the consulting firm Oxford Economics . . . The thinking is that by boosting savings, specifically retirement savings, people will be less likely to fall into poverty in old age, making them less reliant on government-funded programs like Medicaid. They might also have more money to pass on to their children or to invest in the market, reducing the need for American companies to rely on foreign capital. Indeed, the writers argue that raising the savings rate could add $7 trillion to the U.S. economy over the next 25 years.

More savings provides the big long-term growth boost Marte describes by lowering interest rates and increasing investment, enabling a more productive economy down the line. While the proposals Marte notes — the president’s MyRA plan or requiring employers to offer tax-advantaged savings plans — may or may not significantly increase the savings rate, a more significant change to the tax code might be in order.

Instead of taxing income and employment (payroll tax), two things we want more of, taxing only spending on goods and services would discourage consumption in favor of savings. The so-called X-tax, in which total income minus savings and investment is taxed at progressive rates, could be made revenue-neutral and as progressive as our current code while raising revenue in a much more pro-growth manner by increasing our savings rate. Which, by the way, is at historically low levels:

The X-tax structure’s elegance stems from devising a way to tax consumption, usually done through regressive sales taxes, progressively, which is critical because standard consumption taxes hurt the poor because of their higher marginal propensity to consume and more pressing material needs.

There actually are some solutions to gridlock conservatives should like.

Olympia Snowe and Dan Glickman, both relatively centrist former members of Congress, argue in Politico for ten ideas to improve the functioning of our democracy. A few of them:

1. Increase Voter Participation in primaries
2. Balance Access and Integrity in Our Elections
4. Tackle Money in Politics
5. Reform the Filibuster and Senate Debate
6. Empower Congressional Committees

While hand-wringing over the filibuster and money in politics is tiresome for conservatives who have their doubts that either is the cancer some think they are, the other three items above have some promise. First, ending nominating conventions and closed primaries would make sure general-election candidates are selected by more than just the ends of the ideological spectrum, a helpful adjustment in this political environment. Using big data to both expand voter registration to underrepresented populations and to verify the voter rolls is a compromise that’s a bargain at twice the price for conservatives. Meanwhile, Rand Paul and others have recognized that the off-putting focus on voter ID is alienating voters when voter fraud doesn’t appear to be a major problem.

Finally, one trend in Congress in recent years has been the decline in importance of committee leadership. Unfortunately, committee chairmen are the very members who have the experience and relationships to foster cooperation and get things done. Think about some of the best true policymakers in the Republican party: Paul Ryan, Dave Camp, Bob Corker, John Thune — all committee chairmen or ranking members. Giving these leaders more authority would be a positive development on the Hill.

Character and Mindset Matter in Rising Out of Poverty

At Real Clear Policy, Michael Cipriano interviews Lanae Erickson Hatalsky, author of a new Third Way paper on mobility and the character traits that enable it. Hatalsky:

There has been a lot of research on the education front lately about what folks have called non-cognitive characteristics . . .Those that drive your behavior, things like perseverance and delayed gratification. Grit is defined as the ability to see a long-term goal and then take the steps and persevere to get to it…But we haven’t focused in the past on these important aspects of a mobility mentality. So I think what we need to do is look at all the ways government interacts with people in the lowest quintile, and in each of those programs reform them to be instilling and encouraging a growth mindset and grit…I think in order to increase mobility there are definitely economic things that we need to do to enable people to succeed. But we also need to focus on these social aspects, because simply providing the economic support we need isn’t enough to overcome the gravitational pull that poverty has.

The safety net is vitally important and alleviates suffering for many, but mobility requires traits that no transfer program can provide. However, there are ways that government can empower society to instill these values of grit, hard work, and a “growth mentality.” First, any reader of this blog understands that the workplace and responsible employers can teach grit and hard work, and that there are a slew of policies government could pursue that would help poor individuals gain these transformative experiences. Second, we expect parents to develop these traits in their children, but common sense and academic studies show that children from single families are less likely to have these character traits and to be upwardly mobile. Brad Wilcox’s chapter in Room to Grow – while his proposals may be more contentious – offers a number of ways government could strengthen American families and help their children thrive.

Today’s Policy Agenda: No-Fault Divorce Hurt the Poor



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Yes, the American health-care system isn’t that great. Conservatives shouldn’t have a problem admitting this.

Greg Scandlen argues in the Federalist that there are clear methodological problems with the recent Commonwealth Fund study that ranked the U.S. health-care system the worst among its peers. But that isn’t to say we should be happy with American health care: For one, it’s definitely incredibly expensive, regardless of outcomes.

One tendency on the right when talking about health care is to assume that before Obamacare wrecked everything, our system was fine. In reality, the system, as the Commonwealth Fund study or virtually any other metric shows, was excessively costly and locked out far too many individuals from insurance because our pre-Obamacare system lacked almost any market mechanisms.

One approach, in fact, to thinking about Obamacare is not that it’s so bad because it introduced “socialism” to American health care, but because it tried too hard to keep much of the old structure. Obamacare reinforced the inefficient and regressive employer-sponsored-insurance tax exclusion, expanded rather than reformed a Medicaid program that’s a clear failure, and continued the practice of offering consumers little in the way of choice. The job-killing employer mandate is a product of wanting to minimize disruption to those who already had employer-provided care.

This is a critical distinction going forward: Repealing Obamacare should not be the end goal of conservative health policy; the end goal should be a system much more market-oriented and equitable than either Obamacare or what preceded it, whether that comes by repealing and replacing Obamacare or by reforming it.

Unemployment in one’s teenage years can be a problem later in life.

Alina Tugend writes in the New York Times about teenage unemployment, how it leads to future employment and better wages, and some policy ideas to encourage it. Tugend:

Failing to find work doesn’t just mean a shortage of cash in the near term. A study released in March by the Brookings Institution’s Metropolitan Policy Program said finding a job when you’re older is harder if you haven’t worked during your teenage years. . . . Low-income and minority teenagers are particularly hard hit; only about 17 percent of African-American 16- to 19-year-olds were employed in 2013. . .

While job seekers can try innovative ways to attack the job shortage problem, the Brookings Institution study said high teenage unemployment also needed to be addressed through public policy. More programs in high schools and community colleges, for example, like work-based learning, where students learn technical, academic and employability skills in a real work environment, could help. More subsidized job programs are also needed, as well as classes that teach teenagers skills like interviewing and résumé writing, the report said.

The value of being exposed to the world of work early in life is obvious to many conservatives, and it informs many of their policy preferences. While it’s always encouraging to see left-of-center folks in the Times and at Brookings acknowledge this issue, the policy proposals mentioned are, even if interesting ideas, probably insufficient. A reduced or eliminated minimum wage for teenage workers, a broader payroll-tax cut, and wage subsidies seems like a framework that would do more to address the two obstacles to more teenage employment: teens’ costing too much to employ and the pay’s not being good enough to entice possible workers. It’s also worth noting that a hike in the federal minimum wage is perhaps the worst thing that could happen to teenage employment, as low-skilled teenagers are unlikely to be productive enough to warrant $10.10 an hour.

More evidence marriage should be part of our poverty discussions: No-fault divorce hurt lower-income men and women.

In a study that would seem to validate many of the arguments Ross Douthat has been advancing for a while, Raquel Fernandez and Joyce Cheng Wang have a new working paper out analyzing the way changed divorced laws impacted individuals across the income distribution. From the abstract:

During the 1970s the US underwent an important change in its divorce laws, switching from mutual consent to a unilateral divorce regime. Who benefitted and who lost from this change? . . . @e find that men in the top three quintiles of the initial productivity distribution are made better off by a unilateral system as are the top two quintiles of women; the rest prefer mutual consent.

Like the body of evidence that two-parent families are instrumental to children rising out of poverty, this study suggests that post-sexual-revolution lifestyles can be successfully adopted by upper-class individuals who have the resources and social networks to handle them, but that in poorer communities, the changing mores have wreaked havoc. It’s not clear to me that something like no-fault divorce can be put back into the toothpaste tube — or even that we would want to if we could — but the first step, one that the Left seems to have little interest in taking, is acknowledging the ways the changes to the institution of marriage have hurt much of America.

How Expanding the Child Credit Can Help Conservatives Achieve Their Goals



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What might the ongoing intra-conservative tax policy debate prompted by the release of Room to Grow tell us about the future of the conservative coalition? One thing it tells us is that conservatives are fixated on tax policy despite the fact that as Michael R. Strain of the American Enterprise Institute, a contributor to Room to Grow, reminds us, taxes aren’t the biggest policy challenge facing the right. The modest gains we might yield from even the most well-designed tax reform proposal are outweighed by, among other things, the benefits of labor market policies that get the long-term unemployed back to work and health entitlement reforms that put the federal government on the road to fiscal health. But like it or not, we’re in the middle of a serious tax policy debate that could have a huge impact on where the right goes next. The discussion so far has been very abstract. I’d like to focus on how an expanded child credit might shape the political terrain as the baby boomers continue to retire in large numbers, entitlement programs come under heavy strain, and liberals and conservatives jockey for position. 

It is actually a non-conservative, Matt Yglesias of Vox who sees the political potential of an expanded child credit most clearly. Shifting the tax policy debate between Democrats and Republicans from a debate over the merits of cutting the top marginal tax rate to the merits of expanding the child credit would, according to Yglesias, have a big impact on the partisan landscape:

Right now when Democrats propose a big new program for the poor and the middle class — whether it’s Obamacare or future universal preschool benefit or what have you — Republicans counter by complaining about excessive spending and government waste. But the GOP alternate to spending money is tax cuts for a small number of very rich people. That in many ways sets the bar for a liberal proposal very low. Democrats don’t need to convince voters that their programs are cost-effective, just that they are in some sense useful.

A reorientation of the tax cut debate around bigger tax credits for middle class parents rather than lower tax rates for hedge fund managers would change that. Republicans would be able to offer people more money in their pockets as the alternative to more public services — a potentially much more compelling offer.

I’ve made something like this case myself, so I’m inclined to agree with him. There are, to be sure, aspects of Yglesias’s analysis that I reject. Yglesias says that Robert Stein and Sen. Mike Lee (R-UT) want to “abandon supply-side tax policy.” That’s incorrect. He is right, however, to underline the fact that Stein and Lee aren’t putting all of their eggs in the basket of improving work incentives for the highest earners. Stein recognizes the importance of seeing to it that work incentives for the highest earners remain strong. Yet in light of the steady deterioration of the fiscal position of the federal government, he believes that tax relief should be focused elsewhere. While the political costs associated with a substantial cut to the top marginal tax rate are considerable, the economic benefits would be relatively modest, particularly when compared to Reagan’s 1981 tax cut, which cut the top rate from 70 percent to 50 percent. Thomas Piketty and François Hollande might welcome a return to pre-Reagan-era top tax rate in the U.S. Mainstream Democrats, who need to manage an economically diverse coalition, recognize that such stratospheric marginal tax rates are both economically destructive and politically unthinkable. This is a debate that conservatives have essentially won. The key supply-side issues now surround the tax treatment of capital income, where conservatives are more inclined to favor measures like progressive consumption taxes and sweeping corporate tax reform. These efforts are, for obvious reasons, less politically salient. Even if we accept that the corporate tax burden is borne not just by the owners of capital assets but also by wage-earners, its impact is largely invisible, and so calls for a consumption tax or for corporate tax reform aren’t likely to prove compelling on the campaign trail. Family-friendly tax reform is best understood as a complement to pro-growth tax reform focused on the encouraging savings and investment, as Pethokoukis has argued

Yglesias does recognize that family-friendly tax reform represents a departure from earlier conservative approaches that have failed to resonate, including the Romney campaign’s call for a revenue-neutral tax reform that would eliminate various tax expenditures to finance a reduction in marginal tax rates. There is a danger that such an approach would lead to higher tax on middle-income households, a charge that the Romney campaign had a difficult time fending off. What better way to address this danger than to expand the child credit for middle-income households? 

Moreover, an expanded child credit that concentrates its benefits on middle-income households offers another potential benefit to conservatives that Yglesias misses: as Ramesh Ponnuru ventured in the Weekly Standard in January of 2013, middle-class tax cuts are the most effective way to constrain the growth of federal spending, or “starve the beast.” The Bush-era tax cuts did little to restrain the growth of government, in part because (a) the highest earners are not as tax-sensitive as middle earners, at least when it comes to the difference between Bush-era and Clinton-era top tax rates (this is particularly true of those who choose to live in high-tax jurisdictions); (b) the highest earners aren’t a large electoral constituency, and they tend not to be swing voters; and (c) Clinton-era top tax rates were a non-scary counterfactual for the electorate as a whole. The result is that raising revenue by raising taxes on the highest earners has been fairly politically popular, as the left has demonstrated on more than one occasion. 

Of course, there are limits to hiking taxes on the rich as the sum total of your fiscal policy: the revenue that can be gained from sharply increasing taxes on affluent households won’t be enough to contain rising deficits, even if we assume that higher tax rates have no impact on work incentives, which seems unlikely. To finance future spending levels on a business-as-usual course, taxes on middle-income households would have to rise. The trouble for those who oppose large-scale entitlement reform, and indeed for those who favor expanding federal social programs, is that raising taxes on middle-income households is extremely unpopular, as middle earners are more tax-sensitive than the rich, they constitute a large swing constituency, and there are no recent precedents for a huge, painless middle-income tax hike. The threat of substantial tax increases on middle-income households would greatly improve the political prospects of reforms designed to contain the rising cost of (in particular) health entitlements. 

The politics of an expanded child credit look even more attractive when we consider how big an impact it would have an after-tax incomes for middle-income households in swing states and districts, and it might create an opportunity for conservatives to appeal to Latino and Asian households, which are far more likely to consist of married couples with children under the age of 18 than is the case among other U.S. households. The YG Network, where I serve as an advisor, recently conducted a survey of American women, which found overwhelming (78 percent) support for “expanding the child tax credit to allow parents to keep more of their own money.” I realize that many conservatives find the idea of an expanded child credit discomfiting. But its political potential is undeniable. If you want to ease the way for tax reforms that would encourage savings and investment, restrain the future growth of government, and broaden the conservative coalition, the child credit appears to be what you’ve been looking for.

Room to Grow, Parenting, and Human Capital Investment



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Room to Grow has sparked a constructive intra-conservative debate on a number of questions, but the most controversial essay in the collection has proven to be Robert Stein’s call for family-friendly tax reform, which has been the object of sustained criticism from Kim Strassel in the Wall Street Journal, Stephen Moore, also of the Wall Street Journal, here at National Review (see Ramesh Ponnuru’s reply to Moore), and Scott Lincicome and Ben Domenech of The Federalist. As an advisor to the YG Network, the group responsible for Room to Grow, it should come as no surprise that I’m on Stein’s side in the dispute, though I believe that some of his critics, particularly Domenech, have raised coherent, thoughtful objections that deserve to be taken seriously. So I’d like to think through the proposal one more time. 

Debating taxes is catnip for conservatives. Speaking for myself, there are few things I find more engaging, and more important, than debating the contours of the tax code, as it is the chief instrument through which we shape the economy. It serves as a synecdoche for the larger debate over the role of government in society. Those of us on the right favor tax policy that is less prescriptive and less discriminatory across different economic decisions made by individuals, households, and firms than the tax policy favored by champions of a more interventionist state. Departures from this ideal of a neutral code must pass a high bar to be deemed acceptable on the right. When Stein calls for an expanded child credit, he emphasizes the “parent tax penalty” that unfairly discriminates against the human capital investment parents make in their children. This notion that parenting represents an investment in the human capital of the next generation and that this investment ought to be reflected in the tax treatment of parents is not, suffice it to say, universally embraced. Many others believe that, from the perspective of the tax code, at least, the decision to have and to raise a child ought to be treated as akin to the decision to purchase and maintain any other consumer durable, as the late Gary Becker famously put it in his groundbreaking 1960 essay on fertility:

For most parents, children are a source of psychic income and satisfaction, and,in the economist’s terminology, children would be considered a consumption good. Children may sometimes provide money income and are then a production good as well. Moreover,neither the outlays on children or the income yielded by them are fixed but vary in amount with the child’s age, making children a durable consumption and production good. It may seem strained, artificial, and perhaps even immoral to classify children with cars, houses, and machinery. This classification does not imply, however, that the satisfactions or costs associated with children are morally the same as those associated with other durables. The satisfaction provided by housing, a “necessity,” is often distinguished from that provided by cars, a “luxury,” yet both are treated as consumer durables in demand analysis. Abstracting from the kind of satisfaction provided by children makes it possible to relate the “demand” for children to a well-developed body of economic theory.

Becker’s treatment of children as a consumption and production good was useful in many respects. Yet Becker was also keenly interested in the relationship between human capital investment and what we tend to understand as labor income, an idea that he explored in “The Upside of Income Inequality,” a 2007 essay for The American that he co-authored with Kevin Murphy. Becker and Murphy argue that just as higher rates of return on capital reflect greater productivity in the economy, the initial impact of higher returns to human capital is wider earnings inequality. The best way to redress this wider earnings inequality is, in their view, to foster greater investment in human capital across all families with children. The chief barrier to greater investment along these lines, in their view, is the breakdown of the American family: 

The answers to these and related questions lie partly in the breakdown of the American family, and the resulting low skill levels acquired by many children in elementary and secondary school—particularly individuals from broken households. Cognitive skills tend to get developed at very early ages while, as our colleague James Heckman has shown, noncognitive skills—such as study hab­its, getting to appointments on time, and attitudes toward work—get fixed at later, although still rel­atively young, ages. Most high school dropouts certainly appear to be seriously deficient in the noncognitive skills that would enable them to take advantage of the higher rates of return to education and other human capital.

So instead of lamenting the increased earnings gap caused by education, policymakers and the pub­lic should focus attention on how to raise the fraction of American youth who complete high school and then go on for a college education. Solutions are not cheap or easy. But it will be a disaster if the focus remains so much on the earnings inequality itself that Congress tries to interfere directly with this inequality rather than trying to raise the education levels of those who are now being left behind. [Emphasis added]

Becker and Murphy conclude their essay by calling for policymakers not to raise taxes on high-earners, but rather to encourage more human capital investment, as attempts to raise taxes on the higher earnings that flow from greater skills could dampen productivity growth in the U.S. “by dis­couraging investments in its most productive and precious form of capital—human capital.”

Suffice it to say, I doubt that Becker and Murphy would embrace Stein’s specific proposal. It is clear, however, that Stein’s logic adheres closely to that of Becker and Murphy. Stein’s proposal lowers, albeit slightly, the top marginal tax rate while also recognizing that the most important human capital investments are those that take place early in life, when parents are imparting noncognitive skills to their progeny. If you embrace the skills beget skills idea, i.e., that the skills we master as small children enable us to acquire greater skills as we reach maturity, it becomes clear that the incentives that matter are not just those we face as individuals entering the labor market, but also those facing parents as they make decisions about the early education of their children.

One strategy for fostering human capital investment in the young is to socialize early childhood education. That is, if parents aren’t doing an adequate job of providing their children with noncognitive skills, the public sector ought to take on this role. This is the premise behind calls for universal preschool. An alternative view is that while children raised in the poorest, most chaotic households might require state intervention of this kind, many other households would benefit more from a reduction in the payroll tax burden, which would allow them to either increase spending on their children (to purchase a higher-equality education, for example), to purchase or rent a home that entails a shorter commute (to increase the time spent with a child), or to reduce work hours (also to increase the time spent with a child). There is a suite of in-kind transfer programs that reduce the burdens of raising children for low-income parents, but these programs are ill-suited to the needs of lower-middle-income and middle-income households. In-kind transfers, like SNAP, Medicaid, and housing vouchers, reflect a belief that while adults with very low incomes deserve some measure of assistance, they should not receive no-strings-attached cash in lieu of these transfers, as a widespread conviction is that these adults might not purchase medical care and other essential services for themselves. There are, of course, many people who find this approach needlessly paternalistic. But when it comes to wage-earners earning somewhat higher incomes, the case for paternalism is weaker still, particularly in the case of two-parent families. These are households that earn enough and that have the human capital they need to provide their children with noncognitive skills, yet a relatively modest increase in after-tax income would make it somewhat easier for them to do so.

This argument obviously won’t satisfy those who believe that private property rights merit little respect, or who believe that middle-income two-parent families and low-income single-parent families are identical in every relevant sense, and that the same policy solutions apply to both. To those who agree with Becker and Murphy that the main challenge we as a society face is not income inequality but rather underinvestment in the human capital of the next generation, however, an expanded child credit holds considerable appeal. 

Today’s Policy Agenda, June 20



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Editor’s note: Andrew Smith is an undergraduate at Furman University; he’ll be contributing to the Agenda on a semi-regular basis in the coming months. This will be a regular feature recapping the big policy news and stories of a given day, and what they mean for a conservative audience.

The human costs of unemployment are huge. It’s why conservatives care so much about encouraging work.

Ben Casselman has a piece in FiveThirtyEight comparing the lives of the employed to the unemployed — how they spend their time, the degree of social isolation they experience, etc. The huge disparities are a good reminder why, on issues from the minimum wage to Obamacare, conservatives care about “inclusion” and often have labor-market outcomes at the front of their minds. Not only is having a job essential to staying out of poverty and to developing the skills needed to rise up the income ladder, work helps connect individuals to new social networks and provides an opportunity to gain what Arthur Brooks calls “earned success,” two building blocks of a fulfilling life. 

Casselman:

The unemployed have higher rates of depression, obesity and suicide. In interviews, they frequently report that the social and emotional impacts of joblessness — isolation from friends, the loss of a daily routine, feelings of uselessness — can be as hard as the financial toll. Overall, the unemployed spent more time sleeping, watching television and taking classes than the employed, and less time eating out and going to parties. . . . Other activities show the isolation of unemployment: Unemployed single moms talked to friends and family on the phone less often than those with jobs, and they spent 15 fewer minutes per day socializing and going to parties.

Cutting tax rates: good idea, not conservatives’ top priority.

Responding to Kimberly Strassel’s criticism of the Room to Grow agenda, Michael Strain of AEI argues in the Washington Post that Strassel’s emphasis on “pro-growth tax reform” may be misplaced because in 2014, unlike 1986, large cuts in the income tax’s top rate won’t necessarily mean a big boost to the economy. This shouldn’t be misinterpreted as Strain dismissing the value of tax cuts – in politics, you have to set priorities. The better use of the Right’s political capital and budget space, in Strain’s view, is to pursue growth-friendly, micro-type policies targeted at our most pressing problems: long-term unemployment and the struggles of low-skilled, single males in the labor force.

Both the human and moral costs described in the Casselman piece above and what we know about the economic costs of long-term unemployment compel policymakers to focus their attention on the labor market crisis for at least as long as the labor force participation rate graph looks like this:

Expanding the EITC, enacting relocation vouchers, reforming the disability program, cutting the payroll tax, and replacing Obamacare with a work-friendly alternative all seem like policy initiatives that could better address our immediate challenges than further reducing top tax rates that are about half the 70 percent they were when Reagan took office.

The geography of economic growth: Some parts of the country are booming.

Tom Gray and Robert Scardamalia of the Manhattan Institute have released an interesting study comparing the twenty best and worst-performing cities during this recovery. On one level, it was just fascinating to read which metropolitan areas, like San Jose and Nashville, had experienced tremendous growth after the recession and which industries and characteristics were key to their success. For example, the leading cities are home to more large companies and college graduates, while struggling cities were hit particularly hard by the housing crash and have economies that depend much more on government spending. It’s also worth emphasizing that different areas experience the economy in such widely different ways, which we often lose sight of in national debates like the federal minimum wage.

Further, Strain’s idea of relocation vouchers that help struggling workers move from high unemployment areas to low unemployment areas makes sense in the abstract, but when you see the huge gap between how an average worker experiences economic life in Las Vegas and in booming Houston, the case seems stronger on the grounds of both fairness and economic efficiency.

Why deregulating health care is a good idea, Voxsplained.

This video from Vox presents one of the few policy proposals that could unify Matt Yglesias and libertarian populists: ending restrictions that insulate doctors from the competition of nurse practitioners. These rules are the epitome of what’s wrong with a massive regulatory state. They drive up the costs of medical services for everyone in order to protect the interests of a politically powerful constituency. It’s generally accepted that one of our biggest challenges in the coming decades will be controlling health-care costs; we can’t afford to ignore the low-hanging fruit of supply-side reforms.

When Democrats Love Hedge Funds



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The Manhattan Institute’s Public Sector Inc. notes that the New York state legislature is likely going to lift the cap on the share of the state’s public pension funds that can be devoted to alternative asset classes — a fairly broad term but one that mostly comprises hedge funds and private-equity firms. The idea is pretty simple: Legislators don’t want to make the contributions they need to make to fund public-employee pensions and health care, so they boost their investments in alternative assets, which in theory have higher returns than other asset classes. Ambitious universities have done the same thing with their endowments.

Whether this is a prudent financial decision or not is kind of a complicated question: Such investments often do see higher returns than other asset classes and offer diversification (i.e., they don’t necessarily go down when the stock market does, etc.)  One problem with the temptations of alternative assets, the fact that they’re highly illiquid, isn’t that big a deal for public pension funds in the way it can be for, say, universities.

And legislatures micromanaging public-pension funds isn’t a great idea, so a higher cap may well make sense in that light. But the policy change reflects the constant efforts by legislators to game the system and reduce the contributions they have to make to public pension funds. In some instances, politicians have used a bigger allocation for alternative assets to justify raising their expected return rate — which is already way too high — reducing the contributions they have to make. ​That doesn’t appear to be part of the New York bill, so future contributions aren’t going to be automatically smaller. But lawmakers certainly hope that returns will increase, nearing the 7 percent or so they assume — whether that’s going to happen or not. And as the author of the piece about New York, Ilya Atanasov, points out, it’s often exceedingly difficult to value alternative assets, so this opens up another way to game contributions to the system and avoid paying the bills that are eventually going to come due. 

For these reasons, and because pension funds have tended not to hit their expected returns (since they’re too high — corporations are required by law to assume returns something like 4 percent, public funds get to use around 7 percent), more and more public funds are flocking to alternative assets. The share of public-pension dollars in alternative assets has gone from 11 percent in 2006 to 23 percent in 2012. Alternative assets have gotten bigger as a share of the whole investing world over that time, but not that much bigger.

The New York state senate, which is controlled by a coalition of Republicans and conservative Democrats, has already passed the bill, and the solidly Democratic house is expected to pass it too. New York’s pension situation isn’t quite as dire as many states: Government accounting is optimistic, but at least by that metric, the state’s pension funds are close to 100 percent covered. Expect other blue states, including those in more dire straits, to start making their fund management more Mitt Romney–friendly in the future.

What Jonathan Chait Gets Wrong about the Innovation Approach to Climate Change



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Editor’s note: Sam Thernstrom of the Energy Innovation Reform Project kindly agreed to write for us on how a better, more innovation-friendly energy policy would also represent a better approach to climate policy. 

Usually the best response to the name-calling that so often passes for public discourse over climate policy is to ignore it, but Jonathan Chait’s June 17 piece in New York deserves discussion because it unintentionally illustrates the most underappreciated source of climate gridlock today: the partisan groupthink that often prevents liberals from engaging in any kind of conversation about creative ways to finesse the barriers to progress.

Given the daily chorus of complaints from liberals that the only obstacle to climate solutions is conservative obstructionism, it’s ironic that conservatives who do offer constructive ideas about how to move forward are so often dismissed by defenders of the conventional climate wisdom. Nothing that conservatives offer is good enough; no alternative to traditional targets-and-timetables for emissions limits can be given any credence.

Chait is outraged by proponents of a so-called “technology-first” approach to climate — that is, one that emphasizes the need for further research, development, and demonstration of clean energy technologies before attempting to deploy them on a large scale. This approach, Chait acknowledges, may be a “genuine differentiation from the mindless scientific denialism and reflexive sneering at green energy that is the mainstream Republican position,” but he is quick to assure his readers that this is hardly a step in the right direction. The technology-firsters, Chait tells us, “don’t want to watch the world burn, but don’t want to do much to stop it from burning.”

Chait focuses his ire on Jim Manzi, who recently wrote an excellent essay on this concept for National Affairs. But it takes nothing away from Manzi’s accomplishment to note that he is hardly the only conservative who has taken this position — and it’s not only conservatives who have taken this position either. But Chait presents this idea as though it were the work of a lone lunatic, albeit one who has attracted a few foolish followers.

Chait argues the technology-first approach “remains well short of grappling with reality” because it assumes that the research offers “something close to a miracle cure” in thinking that it can avoid paying the full cost of emissions reductions. This is an absurd straw man. No innovation proponent thinks it’s a miracle cure — but there is every reason to believe that a technology push is indispensible to any pragmatic decarbonization effort.

The question of what sort of climate policy would be most effective in the long run is not nearly as simple as Chait and conventional environmentalists would have us believe. The value of an innovation-first approach depends in part on the question of what it is compared with: Without innovation, are we on track to solve the climate problem? No.

Keep reading this post . . .

No, There Really Isn’t a Case for Teacher Tenure



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Last week, a hard-fought legal case brought on behalf of nine California public-school students resulted in a stunning and, for many, exciting decision: A number of the state’s teacher-tenure violate the state constitution by depriving California students of the equal opportunity for a quality education. The decision, Vergara v. State of California, enjoined the statutes — meaning they can’t be enforced and are void — but pending an appeal, so this fight will continue.

There isn’t one specific provision in the California constitution that’s violated, exactly: Rather, the court identifies three “pertinent” clauses in the constitution: a guarantee of equal protection under the law, a provision ordering the legislature to encourage “intellectual [and] scientific improvement,” and a requirement that the legislature “provide for a system of common schools.” There is precedent, according to the Los Angeles County Superior Court judge Rolf Treu, that these three provisions combine to make the state constitution “the ultimate guarantor of a meaningful, basically equal educational opportunity” for the state’s students.

I’ll leave aside most of the debate of whether this was correctly decided as a legal matter. There are a few interesting policy questions here: Was the court right that the state’s teacher-employment policies are a significant impediment in students’ getting a quality education? And would education reformers of a conservative stripe be wise to try this strategy in other states, many of which have constitutional provisions that can be construed like California’s?

I think the answers are, roughly, (1) yes and (2) no. I’ll tackle the first question here, and the second in another post.

Three key aspects to the state’s teacher policies were challenged: the way tenure (“permanent employment”) is granted, the process for firing teachers, and the last-in-first-out method of laying off teachers when it’s financially necessary. (Technically these issues comprise five specific statute in the California teachers’ code.)

The problems with these policies are, on their face, relatively obvious: Tenure is granted after just two years, when there’s not going to be enough evidence to determine whether a teacher is effective (this is lower than the national standard — three to five years). The “due process” for firing teachers takes an incredibly long amount of time, dozens of individual steps, and can cost hundreds of thousands of dollars — such that the firing rate among California teachers with tenure is 0.002 percent in a given year. The LIFO method of layoffs, especially when teachers, after a certain point relatively early on in their careers, don’t really improve with experience, means that the layoff decisions schools do have to make have nothing to do with teacher quality and may scare away teachers who are considering starting the career.

But are there benefits to these laws that outweigh the fact that they protect some bad teachers? Teachers’ unions would certainly argue yes: Job security could improve the quality of education teachers provide, for instance. The L.A. judge doesn’t appear to confront this question in detail, which is probably a weakness in his legal reasoning, but there isn’t much reputable evidence that I know of finding that this effect is very useful.

Catherine Rampell of the Washington Post suggests there’s another defense of these policies: Yes, the protections afforded to teachers seem insensible, she argues, but giving school districts the ability to fire bad teachers won’t help much when we can’t afford to attract good teachers to replace them. And, in fact, the job security given to teachers is an appealing, cheap way we compensate them for the fact that their cash salaries aren’t terribly generous.

Keep reading this post . . .

Room to Grow on the Right



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The conversation about Room to Grow, the new essay collection from the YG Network, where I’m an advisor, continues to spark discussion. Yuval Levin and Ramesh Ponnuru have done an able job of addressing criticisms of the collection from all comers, most recently yesterday here at National Review. Because Room to Grow has been received so warmly on the right, I’ll focus on a few of the more trenchant criticisms.

Ben Domenech seems broadly sympathetic to Room to Grow, yet he sees Robert Stein’s call for an expanded child credit as a step in the wrong direction on substantive (it is better to lower the tax burden on everyone than on a discrete group) and political grounds (delayed marriage and child-rearing suggest a revealed preference against traditional family life, and the right needs to offer something more compelling to the young, the childless, and the unmarried). Rather than create a larger child credit, Domenech calls for eliminating the Social Security payroll tax. This brings to mind a 2007 proposal from Kenneth F. Scheve and Matthew J. Slaughter to eliminate the payroll tax for all workers earning below the national median, replacing the lost revenue by raising or lifting the cap on earnings subject to the payroll tax and making it as steeply progressive as the income tax. Others have proposed eliminating the payroll tax and funding Social Security through general revenues raised by an expanded income tax. Such an approach might be compatible with transitioning Social Security to a flat universal benefit. New Zealand is one example of a market democracy that has adopted a flat, non-contributory “universal pension” to eliminate poverty among retirees, and it appears to have been a success. This universal pension would serve as a foundation for retirement income while a second, earnings-related component would do the rest. As Levin and Ponnuru make clear, the political obstacles to such a dramatic reform would be considerable. Moreover, they believe, correctly in my view, that the political advantages of the child credit are greater than Domenech allows, not least because of its salience to lower-middle-income households with children, many of whom are skeptical about conservative intentions. But I think the reform effort would be well-served if thinkers like Domenech, and lawmakers who oppose child credit expansion, were to develop and champion detailed proposals for replacing the payroll tax. The goal of Room to Grow is not so much to offer a fully-formed manifesto as it is to spark discussion of the institutional barriers to upward mobility in America and how we might address them more constructively. Domenech is engaging Room to Grow in exactly the right spirit.

Kim Strassel, meanwhile, sees Room to Grow as “a capitulation to the left’s inequality and middle-class talking points,” which is curious insofar as the contributors to Room to Grow are united by the conviction that it is a low level of absolute upward mobility for young people raised in chaotic households, and not income or wealth inequality, that is the central challenge facing American society.

It is true that the contributors are somewhat more concerned about the fate of the 85 percent of Americans who identify as middle class and, she might have added, those who identify as poor than they are about those who feel as though they’ve managed to join or remain in the ranks of the upper class in recent years, despite the housing bust, the financial panic, and an economy stymied by excessive regulation, among other maladies. This doesn’t strike me as a sign of contempt for those who’ve proven successful, but rather as a recognition that we as a society would be better off if more Americans were on their way to the economic independence that comes with wealth. We wouldn’t need to worry quite so much about reforming our institutions if more Americans felt prosperous enough to identify as members of the upper class. In Singapore, for example, 15 percent of households have $1 million or more in non-housing assets, thanks in part to policies designed to facilitate wealth accumulation. The same is true of only 4.5 percent of U.S. households. One mark of the success of the reform project would be a dramatic expansion in the share of households with such substantial holdings, and the view of Room to Grow’s contributors is that the best way to achieve this goal is to increase productivity growth by fostering a more open, competitive economy in which incumbent firms are unable to build regulatory moats to defend themselves from entrepreneurs bearing new business models. James Pethokoukis describes this vision in detail in his essay on regulatory and financial reform.

That said, it is not obvious that this mass affluent class should ever be the chief focus of policymakers, if only because they (generally) reflect the institutions in society that are working well, and not that those that are in need of reform and renewal. There is a reason why Frederick Hess chooses to focus on expanding educational choices for low- and middle-income parents, and not for students attending selective independent schools with large endowments. The parents who are sending their children to selective independent schools with large endowments by and large have the resources and the social networks to provide their children with a high-quality education, or an education that is most suitable to their needs in the broadest sense. Similarly, Andrew P. Kelly does not focus on the overhauling elite research universities. Rather, his analysis centers on how we might foster more business model innovation in post-secondary education by attacking the higher education cartel, and how we might reduce the waste of taxpayer resources by low-quality higher education institutions that fail to meet the needs of their students.

Strassel, like Domenech, centers the substance of her critique on the Stein plan, to which the Wall Street Journal editorial page has taken exception on more than one occasion. One minor point of information is that while Strassel believes that Stein is calling on Republicans to “embrace redistribution and lard the tax code with special, conservative-approved handouts for said middle class,” Stein in fact calls for eliminating a wide array of tax expenditures. That is, he explicitly calls (on page 36) for a tax overhaul that will result in a much simpler tax code. It is true that other contributors offer tax tweaks of their own, not all of which strike me as well-advised, but I think it’s unfair to overlook Stein’s explicit emphasis on simplification. Regardless, Strassel’s critique is a welcome breath of fresh air. Though she seems to have misunderstood some of the larger goals of the Room to Grow effort, she clearly read the volume carefully and she has introduced version, albeit an at times hard to recognize version, of the ideas contained within to a wide audience, for which we should all be grateful. Spirited disagreement is a good thing.

And finally, David Brooks takes Room to Grow to task for neglecting some of the more vexing questions raised by a society that is denser, more diverse, and more tightly-integrated into the global economy:

We are moving from a world dominated by big cross-class organizations, like public bureaucracies, corporations and unions, toward a world dominated by clusters of networked power. These clusters — Wall Street, Washington, big agriculture, big energy, big universities — are dominated by interlocking elites who create self-serving arrangements for themselves. Society is split between those bred into these networks and those who are not. Moreover, the U.S. economy is increasingly competing against autocratic economies, which play by their own self-serving rules.

Sometimes government is going to have to be active to disrupt local oligarchies and global autocracies by fomenting creative destruction — by insisting on dynamic immigration policies, by pumping money into research, by creating urban environments that nurture innovation, by spending money to give those outside the clusters new paths to rise.

I don’t disagree with the general thrust of Brooks’ argument, though I imagine we would disagree on the particular steps we ought to take. My recent column on energy policy reflects this broad sensibility, and I see it as fully compatible with the Room to Grow framework as articulated by Yuval Levin.

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