The Agenda

Stray Links for 3 June 2010

Allow me to kill several birds with one blog-stone. I promise to kill them gently and humanely.

(1) Carl Schramm, Robert, Litan, and Dane Stengler have written an excellent piece on economic growth and national security. The authors emphasize the need to strengthen entrepreneurial environments in Afghanistan and Iraq. But they don’t raise the obvious point that large-scale armed interventions create large-scale opportunity costs for the U.S. economy.

(2) Rick Hess has written a sobering post on the new contract the Washington Teachers’ Union has negotiated in D.C. Hess remains convinced that the good outweighs the bad in the contract. Despite the hefty salary increases, Schools Chancellor Michelle Rhee has secured major concessions that will make it easier to fire incompetent teachers, and to offer more generous compensation on the basis of high performance. The tragedy here, as Hess observes, is that many school districts gave enormous salary increases to public school teachers over the last decade without getting any reforms in return. 

One reason big district investments in contracts in the past haven’t deliver a lot of reform leverage is that teachers and their unions felt entitled to steady, substantial raises. There was no sense that they had to sacrifice for their extra dollars. One of the potential silver linings in the ongoing financial crunch, as Rhee has demonstrated, is that teachers and their unions are suddenly more amenable to some horse-trading. It’s no coincidence that a negotiation that stretched over nearly three years finally got done when districts across the land are dialing back raises and cutting jobs.

This is why it is vitally important for reformers to highlight trade-offs. Fiscal discipline begets organizational discipline. Funding higher salaries will mean higher taxes or less money for road maintenance or libraries or EMS or neonatal intensive care facilities. I’d love to see public officials present these trade-offs as transparently as possible.

(3) Jason Shafrin of Healthcare Economist points to an illuminating new study by economists Richard Burkhauser and Kosali Simon.

In this paper we take estimates of the value of different types of health insurance received by households and add them to usual pre tax post transfer measures of income from the Current Population Survey’s March Annual Demographic Supplement for income years 1995-2008 to investigate their impact on levels and trends in measured inequality. We show that ignoring the value of health insurance coverage will substantially understate the level of economic well being of Americans and its upward trend and overstate the level of inequality and its upward trend.

This analysis raises the question of how existing levels of health insurance coverage contributes to economy well being. One gets the strong impression that subsidies that encourage overinsurance have greatly contributed to stagnation in raw wages. Suffice it to say, PPACA won’t mitigate this phenomenon. Rather, we have reason to believe that it will exacerbate it.

It’s interesting to consider the wider implications of these findings, e.g., if inequality of total compensation has been flat or even declining over this period, it suggests that the basic workings of the U.S. labor market aren’t to blame for the increase in wage dispersion over the last decade. I find this extraordinary — despite an enormous influx of less-skilled labor and skill-biased technical change, etc., wage dispersion might have proven a non-issue in a world with a less dysfunctional health system. 

(4) Gleckman highlights a new Tax Policy Center paper on the home interest deduction, a hobbyhorse of mine.   

Sadly, the study also explains why the deduction is likely to stay right where it is. The big winners under the current system are upper-middle-class suburbanites who disproportionately own homes, itemize deductions, and spend a relatively large share of their income on mortgage interest. And nobody wants to get them mad, either by cutting their housing subsidies or feeding them tofu.  

Laugh or cry? I choose both. TPC also has a useful post on different ways to think about taxing the financial sector.

(5) Misery loves company.

(6) Ezra Klein has written a terrific, astute, somewhat pessimistic post on the future trajectory of the Chinese economy.

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