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Recent Policy Studies
Health CareBy James C. Capretta, e21 – Economic Policies for the 21st CenturyCommentary, 09/23/2013
As the political back and forth over Obamacare intensified this summer, it largely went overlooked that the Medicare prescription drug benefit continues to outperform expectations. In July, the Department of Health and Human Services (HHS) announced that the average premium for the drug benefit in 2014 would be just $31. HHS also announced that the standard deductible would fall from $325 in 2013 to $310 in 2014. What accounts for this remarkable record? The Medicare drug benefit works because it is a market-driven program. Unlike the rest of Medicare, in the drug benefit the federal government does not set the prices. Instead, private plans compete with each other and submit bids to the government indicating the premium they will charge to provide insurance coverage for prescription drugs.
Natural Resources, Energy, Environment, & ScienceBy Nicolas Loris, The Heritage FoundationIssue Brief, 09/23/2013
The Environmental Protection Agency (EPA) proposed its new rule for regulating greenhouse gas (GHG) emissions for newly constructed power plants. If Congress is serious about job creation and economic growth, it should drive back the regulation of GHGs. The massive regulatory costs will either be passed on to American families and businesses or offset by cuts in operations and investment—or both. Whatever the result, it will be economically injurious with futile results in impacting climate change. Congress can contain the damage by limiting either the EPA’s authority or its budget to implement the regulations.
Natural Resources, Energy, Environment, & ScienceBy Patrick J. Michaels, Paul C. Knappenberger, Cato InstituteRegulation, 09/23/2013
The U.S. Global Change Research Program (USGCRP) is a 13-agency entity charged with producing a “national assessment” of climate change to provide the Environmental Protection Agency with information that it can use to regulate carbon dioxide. Unfortunately, none of the assessments provide complete and comprehensive summaries of the scientific literature, but instead highlight materials that tend to view climate change as a serious and emergent problem. In the 2000 assessment, the USGCRP examined nine different general circulation climate models (GCMs) to assess climate change impacts on the nation. They chose two GCMs to use for their projections of climate change. The salient feature of those models is that they achieved something very difficult in science: they generated “anti-information”—projections that were of less utility than no forecasts whatsoever.
Regulation & DeregulationBy M. Todd Henderson, Cato InstituteRegulation, 09/23/2013
Is there a better way to improve corporate governance than the reform proposals found in the 2002 Sarbanes-Oxley Act and the 2010 Dodd-Frank Act? By putting an unstated assumption about corporate boards to scrutiny, the answer is “yes.” Who says board members have to be “natural persons”? Corporations should be permitted to hire professional director services firms to be their boards. It could increase the transparency and competition for board services in a way that should increase confidence that firm choices about the role of the board are ones that are in the interests of shareholders and society in general, rather than based on a hidden agenda.
Health CareBy Thomas P. Miller, American Enterprise InstituteTestimony, 09/23/2013
Health care providers with market power enjoy more pricing freedom than monopolists in other markets. Traditional antitrust enforcement did little to halt extraordinary consolidation in local hospital markets over the last two decades. The Affordable Care Act (ACA) does little to address to address the monopoly problem and may even worsen it. The ACA will entrench dominant incumbents, chill innovative start-ups, and encourage consolidation to increase market share. We need better solutions to the chronic problem of too much concentration and too little competition in health care markets. An expanded tool kit of pro-competitive policies should include: closer monitoring of emerging accountable care organizations, curbing new abuses of “state action” immunity, challenging anticompetitive terms in insurer-provider contracts, promoting interregional competition in health care services, removing or limiting regulatory barriers to entry by new health sector competitors, and empowering consumers and private purchasers with better information tools.
Regulation & DeregulationBy Timothy D. Lytton, Cato InstituteRegulation, 09/23/2013
Frequent outbreaks of food-borne illness and an endless parade of new food labels that misrepresent processed foods high in fat and/or sugar as “natural,” “fresh,” and “healthy” highlight the shortcomings of government food regulation and the inadequacy of industry self-regulation. By contrast, kosher food certification by independent private firms is highly reliable, assuring compliance with religious standards of food production and preventing deceptive marketing. The success of kosher food certification offers a model of independent, private certification that could improve food safety and labeling and point the way toward regulatory reform in other areas such as finance and health care.
DHS Acqusition Practices: Improving Outcomes for Taxpayers Using Defense and Private-Sector Lessons LearnedBy William C. Greenwalt, American Enterprise InstituteTestimony, 09/23/2013
In the last five years, the Department of Defense and the rest of the federal government have been on an accelerated path to a return to the acquisition practices of the 1980s, which were a morass of unique government regulations and rules. This approach was not attractive to the most creative and innovative companies at the time and did not return value to the taxpayer. Acquisition policy should hew to two basic principles: government unique products are expensive, and we should be wary of one-size fits all solutions.
WelfareBy Jagadeesh Gokhale, Cato InstituteRegulation, 09/23/2013
The Social Security Disability Insurance (SSDI) program is rapidly approaching insolvency. Although SSDI keeps many people out of poverty, it continues to be beset with poor performance along many dimensions. Many commentators today believe that a significant number of SSDI beneficiaries have work capabilities, but beneficiaries are unwilling to participate in the work force because they face a steep “cash cliff”: the loss of benefits and valuable health care coverage if they work and earn above the Substantial Gainful Activity (SGA) level, currently $1,040 per month. In contrast, a Generalized Benefit Offset would trade off reductions in initial benefits against sufficiently generous benefit offsets including federal EIC-like wage subsidies, if necessary.
Natural Resources, Energy, Environment, & ScienceBy Sam Batkins, American Action ForumResearch, 09/23/2013
The Environmental Protection Agency (EPA) has released another round of greenhouse gas regulations (GHG) for power plants. Regulation, especially the control of greenhouse gases, has profound implications for small entities that don’t have shareholders or massive capital reserves to spend millions of dollars under a new regulatory regime. More than 50 small businesses and 9,000 employees directly affected by the new rules are hoping that EPA understands this economic reality. If history is any guide, regulators will likely give short shrift to the impact of greenhouse gas (GHG) regulation on small utilities.
Foreign Policy/International AffairsBy Lisa Curtis, The Heritage FoundationIssue Brief, 09/23/2013
Tomorrow, for the first time in 25 years, Sri Lanka will hold elections to its Northern Provincial Council, a step that could facilitate reconciliation between the country’s majority (mostly Buddhist) Sinhalese and minority (mostly Hindu) Tamil populations. The election, if deemed free and fair, will mark the most significant step the Sri Lankan government has taken since the end of the civil war four years ago to address grievances of the Tamil community. While there are still concerns about the government’s handling of the final days of the civil war and other steps it has taken to stifle democracy in the country, the U.S. should use the elections to increase engagement with the government of President Mahinda Rajapakse and put the U.S.–Sri Lanka relationship on more solid footing.
Budget & TaxationBy Ike Brannon, Cato InstituteRegulation, 09/20/2013
A pattern of municipal financing for sports franchises has repeated itself: teams that want a new or remodeled stadium turn to the government first and offer to cover some modest portion of the total bill by charging season ticket holders a relative pittance to hold onto their seats. Despite the occasional pushback from a legislature or city council, it has been a successful formula. What would it take to change the environment so that government money was no longer available for a National Football League stadium? Could an alternative form of financing in the form of personal seat licenses (PSL) convince Redskins owner Dan Snyder to start a revolution in how stadiums are funded?
Regulation & DeregulationBy Stephen G. Gilles, Nelson Lund, Cato InstituteRegulation, 09/20/2013
In response to the 2012 massacre at Sandy Hook Elementary School in Newtown, Connecticut, some legislatures have begun to consider new regulations requiring gun owners to purchase liability insurance. Such laws could easily be written in ways that would render them unconstitutional. This article explores some of the constitutional pitfalls, but concludes that a carefully drafted statute would probably be upheld under current constitutional doctrine. The benefits to public safety would be modest, but such a regulation would be preferable to many politically popular gun control proposals that would be ineffective, unconstitutional, or both.
Foreign Policy/International AffairsBy Richard Epstein, Hoover InstitutionDefining Ideas, 09/19/2013
In looking at Syria, it does not take much insight to realize that the Russians have played the United States for suckers. The President has put himself in an impossible position. By dithering, he has created a precipitous loss of American credibility. Right now, his Syrian policy has befuddled Congress; emboldened Russia, Syria, and Iran; weakened Israel; and thrown our European allies into disarray. Let us hope that the President can make things right. The Obama/Chamberlain comparisons over Syria and Iran are perhaps premature. But they soon won’t be unless the President stiffens his spine and exerts the leadership that is so desperately needed.
Foreign Policy/International AffairsBy Baker Spring, Brett D. Schaefer, The Heritage FoundationIssue Brief, 09/19/2013
The framework agreement for destroying Syria’s chemical weapons (CW) arsenal and its supporting infrastructure is imprecise, unrealistic, and unlikely to be fulfilled. On the basis of the requirements of the Chemical Weapons Convention (CWC), which Syria has now agreed to join, and historical experience in executing the CWC, even under ideal circumstances and assuming willing compliance, it will be years before Syria would likely eliminate all of its chemical weapons. However, there will be ample opportunity for Syrian duplicity and non-compliance. The means for verifying and ensuring Syrian compliance are expected to be addressed in a Security Council resolution. Russia has opposed previous resolutions on Syria. Nonetheless, there are certain things the Obama Administration could do to enhance verification and pressure Syria and Russia to comply.
EducationBy Frederick Hess, Max Eden, American Enterprise InstituteReport, 09/19/2013
For a decade or more, school reform has been an urban tale dominated by cities with high rates of poverty and troubling records of high-school completion and academic achievement. The urban communities in question tend to be lopsidedly liberal, making reform largely a Democratic family affair. Even notable reform Democrats have sought to temper their criticism of teachers unions by embracing “reform” unionism, denouncing Republican efforts to dramatically curtail collective bargaining, and insisting that unions must be essential partners in systemic reform. Douglas County, Colorado, one of the nation’s most affluent communities and a Republican bastion, provides a stark counterpoint to the conventional reform narrative. The result is that, in this unlikely setting, the superintendent and school board are pursuing perhaps the nation’s boldest attempt at suburban school reform.
National SecurityBy Bryan McGrath, American Enterprise InstituteNational Security Outlook, 09/19/2013
Despite the North Atlantic Treaty Organization (NATO) taking its name from the ocean that ties Canada and the United States to their European allies, for most of NATO’s history the alliance focused primarily on land power. However, with continental Europe at peace, the drawdown in Afghanistan, the rise of general unrest in North Africa and the Levant, and the American intent to pivot toward Asia, questions are increasingly arising about the capabilities of NATO’s European navies to project power and sustain operations around their eastern and southern maritime flanks. Given the significant reduction in each country’s overall defense budget, procuring new, sophisticated naval platforms has come at the cost of rapidly shrinking fleet sizes, leaving some to wonder whether what is driving the decision to sustain a broad but thin naval fleet capability is as much national pride as it is alliance strategy.
National SecurityBy Katherine Zimmerman, American Enterprise InstituteTestimony, 09/19/2013
The United States continues to face a threat from the al Qaeda network twelve years after declaring war against it. America’s failure to understand the complexities of the terrorist network as it has evolved over the years has led only to tactical successes on the battlefield. The strategy to disrupt the al Qaeda network by killing senior leadership in a “core group” is based on a faulty understanding that overemphasizes that group’s importance and the current intentions of affiliates to attack the United States. Targeting individuals or a specific group within the al Qaeda network will not be effective alone. The al Qaeda network is global and operates on a global level. Many al Qaeda groups operate solely on the local level, but they strengthen the broader network. The United States, therefore, needs a comprehensive global strategy to counter al Qaeda that is tailored down to the local level.
Budget & TaxationBy Mike Lee, American Enterprise InstituteSpeech, 09/19/2013
Up and down American society – which used to be defined and driven by what Tocqueville called our “yearning desire to rise” – we find a new and unnatural stagnancy. We find the underprivileged trapped in poverty, sometimes for generations. We find the middle class caught on a treadmill, running harder every year just to maintain the economic security and social cohesion that were once taken for granted. Meanwhile, at the top of our society, we find a political and economic elite that – having reached the highest rungs – has pulled up the ladder behind itself, denying others the chance even to climb. All of this points to what really is an inequality crisis in America today – a crisis not of unequal wealth of income, but unequal opportunity. This inequality crisis is the great social and economic challenge facing the United States today. It is also the great challenge facing the Republican Party.
The Constitution/Civil LibertiesBy Paul Larkin, The Heritage FoundationLegal Memorandum, 09/19/2013
The Fourth Amendment was not designed to serve as a static protection against government abuse. No provision of the Bill of Rights—particularly one outlawing “unreasonable” searches and seizures—could or should be cabined to the specific historical incidents that gave it birth. That construction would render the amendment a safeguard for the peculiar historical incidents that troubled late eighteenth century Americans rather than a guarantee that law enforcement officers act reasonably today and tomorrow. At the same time, the Framers would not have found unimaginable the need to make a trade-off between liberty and security, or to reassess that trade-off as times change. How will the Supreme Court make that trade-off with regard to technologies unheard of two decades ago, to say nothing of two centuries ago?
Budget & TaxationBy Curtis S. Dubay, The Heritage FoundationIssue Brief, 09/19/2013
House Ways and Means Committee chairman Dave Camp (R–MI) and Senate Finance Committee chairman Max Baucus (D–MT) will face many difficult decisions as they proceed on tax reform. Among them will be whether to retain certain deductions currently in the tax code, including the deduction for state and local taxes. Tax reform should eliminate the state and local tax deduction because it encourages state and local governments to raise their taxes higher than they would without it. If tax reform eliminated the deduction, state and local governments would face stronger pressure to keep their taxes low.
Monetary Policy/Financial RegulationBy Zhiwu Chen, Cato InstituteCato Journal, 09/18/2013
Since reforms started in 1978, China has made commendable progress in achieving capital freedom and individual liberty. China’s gradualist reform approach in which pragmatic economic reforms have been allowed and adopted without correcting the philosophical foundation of the country’s political, economic, and legal system. SOEs, government, and Marxist ideology still dominate the economy, politics, and business—although market forces and private ownership are a significant part of the Chinese society and still on the rise. The lack of a formal rejection of Marxist economics, as well as the lack of political reforms, has internalized forces and contradictions in the Chinese society that have the potential to reverse the many positive achievements of the last 35 years. At a minimum, such forces will continue to make it difficult for the rule of law and for justice and equity to progress further.
Monetary Policy/Financial RegulationBy Yukon Huang, Clare Lynch, Cato InstituteCato Journal, 09/18/2013
With China’s return to the position of largest global trader and second-largest economy in the world, it is not surprising that discussion of internationalizing China’s currency has resumed. While internationalization carries long-term benefits such as heightened prestige and influence, greater say in the international system, and improved trade efficiency, there are also increased risks—namely, more volatility, increased exposure to external shocks, and potential loss of control over domestic monetary policy. A critical examination of these objectives along with the necessary preconditions shows that internationalization is neither feasible nor necessarily beneficial in the short term. Overall, as China moves forward on financial liberalization, leaders should set aside the question of internationalization and consider whether these key reforms are beneficial for China’s economy in their own right.
Budget & TaxationBy Hans von Spakovsky, The Heritage FoundationIssue Brief, 09/18/2013
If President Barack Obama “shuts down” the government by vetoing a continuing resolution (CR) that funds all government operations with the exception of Obamacare, or the Senate fails to pass such a CR, crucial services will continue without interruption. That includes all services essential for national security and public safety—such as the military and law enforcement—as well as mandatory government payments such as Social Security and veterans’ benefits. The key fact, as the U.S. Department of Justice (DOJ) itself has said, is that when there is a short-term lapse in appropriations, “the federal Government will not be truly ‘shut down’…because Congress has itself provided that some activities of Government should continue.” Such a lapse in funding would be neither catastrophic nor unprecedented, but it would pare down government services to those most essential for “the safety of human life or the protection of property.”
Crime, Justice & the LawBy John Lott, Bascom Hill Publishing GroupBook, 09/18/2013
Judges have enormous power. They determine whom we can marry, whether we can own firearms, whether the government can mandate that we buy certain products, and how we define “personhood.” But who gets to occupy these powerful positions? In his rigorous yet readable style, John Lott analyzes both historical accounts and large amounts of data to see how the confirmation process has changed over time. Most importantly, Dumbing Down the Courts shows that intelligence has now become a liability for judicial nominees. With courts taking on an ever greater role in our lives, smarter judges are feared by the opposition. Although presidents want brilliant judges who support their positions, senators of the opposing party increasingly “Bork” those nominees who would be the most influential judges, subjecting them to humiliating and long confirmations. The conclusion? The brightest nominees will not end up on the bench.
Monetary Policy/Financial RegulationBy Eswar Prasad, Lei Ye, Cato InstituteCato Journal, 09/18/2013
Popular discussions about the prospects of China’s currency, the renminbi, range from the view that it is on the threshold of becoming the dominant global reserve currency to the concern that rapid capital account opening poses serious risks for China. This issue has broader ramifications, as the rise of China’s economy and its currency has implications for global macroeconomic and financial stability. The Chinese government has recently taken a number of steps to increase the international use of the renminbi. Given China’s rising shares of global GDP and trade, these steps are gaining traction and portend a rising role for the renminbi in global trade and finance.
National SecurityBy Kenneth L. Wainstein, The Heritage FoundationHeritage Lecture, 09/18/2013
In the aftermath of the Cold War, we let our guard down again and did not recognize the threat of international terrorism. Since 9/11, the U.S. has made strong efforts to bring its counterterrorism readiness more in line with fighting non-traditional adversaries. Yet, these adversaries have shifted their tactics from grand-scale attacks carried out by squads of operatives, toward the use of individuals to commit attacks without extended support networks. As a nation, we must continually gauge our readiness to meet the evolving threats to our national security.
Monetary Policy/Financial RegulationBy Jurgen Stark, Cato InstituteCato Journal, 09/18/2013
Have Europeans mastered or even resolved the currency crisis? There is evidence that the reform process at both the national and supranational level with positive results is under way. At the same time, it is a fact that more and more Eurozone countries (Cyprus and Slovenia) now require external financial assistance. It is also true that the costs of granting additional aid to fellow member states and of prolonging the timeline for economic reforms and fiscal consolidation is placing a growing strain on the donor economies.
Foreign Policy/International AffairsBy Brett D. Schaefer, Anthony B. Kim, The Heritage FoundationIssue Brief, 09/18/2013
Congress has been concerned for decades that countries receiving American foreign aid often oppose U.S. initiatives and priorities in the United Nations. A State Department annual report on the voting practices in the U.N. General Assembly (UNGA), mandated by Congress since 1983, shows that in the past 30 years voting coincidence with the U.S. surpassed 50 percent only twice. Moreover, the vast majority of recipients of U.S. foreign assistance routinely oppose U.S. diplomatic initiatives and vote against the U.S. The most recent report confirms yet again that most recipients of foreign aid voted against the U.S. in the UNGA in 2012. To address this issue, Congress should instruct State and the U.S. Agency for International Development (USAID) to take into account countries’ U.N. voting practices when allocating America’s development assistance.
Monetary Policy/Financial RegulationBy Wolfgang Munchau, Cato InstituteCato Journal, 09/17/2013
A monetary union is a hybrid between a fixed exchange rate system and a unitary state, one that is fully captured neither with closed-economy macro models nor classical international macro models of fixed exchange rates. The main general lesson from the Eurozone crisis is that a monetary union is viable only among similar countries with a willingness to integrate their economic systems—or at least among countries wishing to become similar over a clearly defined time-horizon. There would have been no euro crisis, for example, if the initial membership had been confined to Germany, France, Benelux, and Finland.
Monetary Policy/Financial RegulationBy Pedro Schwartz , Cato InstituteCato Journal, 09/17/2013
The great hopes that surrounded the euro at its birth have failed to come true. It is now reeling under the blows of a prolonged financial crisis and creating discord among the members of the European Union. Clearly, the design of the new money was defective. I will suggest that even if euro-members had kept by the rules of the game the euro could not have worked as intended. The urgency to find remedies for the present prolonged economic recession is tipping the choice toward more discretion and less independence, since the temptation to apply short-term monetary painkillers is strong even for those who would prefer a sound money constitution for Europe. Which of the two paths will the Eurozone take? The choice may turn out to be futile, given the impossibility of financing the welfare state in all European nations.
Natural Resources, Energy, Environment, & ScienceBy Emily Goff, The Heritage FoundationIssue Brief, 09/17/2013
H.R. 3080, the Water Resources Reform and Development Act of 2013, contains provisions aimed at eliminating bureaucratic red tape, reducing the project backlog of the U.S. Army Corps of Engineers, and increasing the role of local or private entities in authorized projects. However, it fails in other areas by, for example, failing to narrow the Corps’s sprawling mission. Notwithstanding the bill’s reform provisions, it should have included much bolder, fundamental reforms, including harbor maintenance tax issues, limiting the Corps’s activities, and increasing local cost share.
Monetary Policy/Financial RegulationBy Harris Dellas, George S. Tavlas, Cato InstituteCato Journal, 09/17/2013
The entry of Greece into the Eurozone in 2001 was widely expected to mark a transformation in the country’s economic destiny. Then, beginning in 2009, everything changed as Greece became the center of a major financial crisis. Between the end of 2008 and mid-2012, the economy contracted by a cumulative 20 percent (and it continues to contract), and the unemployment rate jumped from less than 8 percent to about 25 percent. What happened? And why did it happen? What are the lessons that can be drawn from a comparison between the gold standard and the Eurozone?
Monetary Policy/Financial RegulationBy Thomas M. Hoenig, Cato InstituteCato Journal, 09/17/2013
For the last 100 years, government officials and bank CEOs have insisted that new policies, rules, and laws would ensure that future financial crises, should they occur, would be more effectively handled. Incentives matter and the incentives toward risk taking among the largest financial firms remain basically unchanged from pre-crisis times. To change outcomes, you must change incentives. With the safety net, you alter the market’s incentives, create moral hazard, and drive toward leverage that creates its own set of adverse consequences. There are three steps that I suggest be taken to control these negative effects: limit the safety net’s protection, simplify and strengthen capital adequacy standards, and improve bank supervision.
Transportation/InfrastructureBy Robert W. Poole Jr., Reason FoundationPolicy Study, 09/17/2013
The Interstate highway system is America’s most important surface transportation system. The need for massive investment to transform the first-generation Interstate into what this report calls Interstate 2.0 occurs just as our 20th-century highway funding system—based on fuel taxes and state and federal highway trust funds—is running out of gas. This study seeks to address both problems: replacing the aging Interstate system with a 21st-century Interstate 2.0 and taking the first major step toward implementing mileage-based user fees. To make the transition attractive to highway users, the study proposes it be implemented on the principle of “value-added tolling.” That means tolls would only be introduced in a corridor once it was reconstructed and modernized, designed to operate at a higher “level of service” than today’s design standards call for. America needs a second-generation Interstate highway system. The one needed enabler is permission from Congress to begin this transition.
Monetary Policy/Financial RegulationBy Lawrence H. White, Cato InstituteCato Journal, 09/17/2013
“Fragility” is the well-known property of being easily breakable, of failing under moderate stress. The opposite property is “antifragility,” a term coined by Nassim Nicholas Taleb and defined as the property exhibited by “things that gain strength from stressors and get stronger from failure, like evolution.” Here I consider how we might achieve antifragile banking and monetary systems. There are reforms that can marginally reduce fragility, but I will argue that to achieve antifragility will require a serious turn away from “one-practice-fits-all” centralized regulation and toward a free market’s mixture of innovation and strict discipline. In banking it will require an end not only to “too big to fail” bailouts of uninsured creditors and counterparties, but also to other forms of taxpayer-backed depositor and creditor guarantees.
Budget & TaxationBy Ted Dabrowski, Ben VanMetre, Robert Chun, Illinois Policy InstituteSpecial Report, 09/17/2013
The city of Chicago has long been regarded as an economic engine of the Midwest. But decades of fiscal mismanagement by government agencies in Chicago have put the metropolis at a crossroads. In July 2013, the city of Chicago released a grim budget report that showed that the city owed billions of dollars in debt and unfunded pension and health insurance liabilities. But the city Chicago is not the only government agency that city residents pay taxes to – taxpayers also fund the operations Chicago Public Schools, the Chicago Transit Authority, the Chicago Park District and a large share of Cook County. All told, Chicago residents are officially on the hook for $63.2 billion in government pensions, health insurance and other debt. This staggering figure totals more than $23,000 per Chicago resident, or more than $61,000 per household.