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InsiderOnline Blog: March 2010

Does the Obama Administration Care about U.S. Sovereignty?

In the inaugural Jesse Helms lecture at The Heritage Foundation, American Enterprise Institute fellow and former U.N. Ambassador John Bolton assesses the Obama administration’s commitment to defending U.S. sovereignty. The signals so far are not promising for those who believe that the U.S. government should answer to the American people.

Posted on 03/31/10 05:33 PM by Alex Adrianson

A Note to Our Subscribers

We apologize for the bad links in our last e-mail. Our e-mail vendor has provided an explanation for what happened, and, as best we can understand, the problem was a malfunctioning retro encabulator.

Anyway, last week’s issue is available online (with links that work!), but here’s a quick rundown of some of the knowledge you might have missed:

• The Tax Foundation’s 2010 Facts & Figures handbook provides a helpful guide to the state of every state’s finances. Some are better than others.

• Jim Agresti at the Just Facts Foundation, meanwhile, looks at the feds books and finds that the government’s financial position deteriorated by $4.3 trillion last year. Our financial hole, in other words, really grew by an amount that’s three times as big as the budget deficit.

• Donald Marron, writing at National Affairs, agrees that the federal government’s financial outlook is bleak. He notes that for the first time, the country’s structural debt problem has moved within the 10-year budget window. (The long run has arrived!) For those doubting that debts and deficits actually matter, Marron identifies six reasons why the country needs to act now and lays out some basic principles of budgeting and deficit reduction that should guide the effort.

• One way of getting the country’s books in order would be to take heed of what actually works and what doesn’t. To that end, Elizabeth Cascio, writing at Education Next, examines the history of kindergarten expansion in the 1960s and 1970s to assess the prospects of success for universal government-funded pre-school. The evidence there suggests that targeting everyone with a universal program does little good for the disadvantaged.

• And speaking of things that have failed, the war on poverty continues: Under President Obama’s FY 2011 budget, spending on means-tested programs will be 42 percent higher than under President Bush’s last budget. Of the 70 welfare programs currently run by the federal government, only one has work requirements for recipients. See Kiki Bradley’s latest Heritage Foundation WebMemo for more on the continuing expansion of the welfare state.

Posted on 03/30/10 07:01 PM by Alex Adrianson

April 9 is Tax Freedom Day …

says The Tax Foundation. That means it takes the average American 99 days out of the year to earn enough money to pay his taxes (federal state and local). Tax Freedom Day arrives one day later this year than last year. But here’s the scary part of the Tax Foundation’s report: If the government had balanced its books this year, Tax Freedom Day would have fallen on May 17, instead. But don’t think you’re getting a bargain, dear taxpayer: That May 17 figure represents the real burden of government, whether we pay it with taxes or debt.

Posted on 03/30/10 05:33 PM by Alex Adrianson

The Next Battle Over Health Care

At the Weekly Standard, Yuval Levin’s preview of Obamacare’s future explains nicely why fighting for repeal isn’t a war of choice for conservatives. It’s either repeal and then work for real reforms, or we’ll end up with a public option: 

… the Democrats were forced to give up on that public insurer, while leaving the other components of their scheme in place. The result is not even a liberal approach to escalating costs but a ticking time bomb: a scheme that will build up pressure in our private insurance system while offering no escape. Rather than reform a system that everyone agrees is unsustainable, it will subsidize that system and compel participation in it—requiring all Americans to pay ever-growing premiums to insurance companies while doing essentially nothing about the underlying causes of those rising costs. …

… [The law] is designed to push people into a system that will not exist—a health care bridge to nowhere—and so will cause premiums to rise and encourage significant dislocation and then will initiate a program of subsidies whose only real answer to the mounting costs of coverage will be to pay them with public dollars and so increase them further. It aims to spend a trillion dollars on subsidies to large insurance companies and the expansion of Medicaid, to micromanage the insurance industry in ways likely only to raise premiums further, to cut Medicare benefits without using the money to shore up the program or reduce the deficit, and to raise taxes on employment, investment, and medical research. 

The case for averting all of that could hardly be stronger. And the nature of the new law means that it must be undone—not trimmed at the edges. Once implemented fully, it would fairly quickly force a crisis that would require another significant reform. Liberals would seek to use that crisis, or the prospect of it, to move the system toward the approach they wanted in the first place: arguing that the only solution to the rising costs they have created is a public insurer they imagine could outlaw the economics of health care. A look at the fiscal collapse of the Medicare system should rid us of the notion that any such approach would work, but it remains the left’s preferred solution, …  

But, as Levin notes, Obamacare’s new entitlements don’t begin flowing for another four years, during which time there will be significant tax increases, Medicare cuts, and regulatory reforms that can only push health insurance premiums higher. Those four years would thus seem to be a prime opportunity to continue making the case for incremental, targeted reforms that use market incentives to address real problems.

Posted on 03/29/10 04:08 PM by Alex Adrianson

Acceleration or Turning Point?

If Obamacare was a turning point, then what turned? asks Bill Flax at Real Clear Markets:

Surely it can’t be the attitude of entitlement. It can’t be wealth redistribution achieved through confiscatory taxation. It’s not the overhaul of our Constitution from a protector of natural rights to an enforcer of positive rights. It wasn’t the hypocrisy of mimicking the Selma March complete with apparently false accusations of racial harassment. It can’t be that lobbyists from Big Business, unions and other power brokers authored much of it. Nor can it be the particularly egregious abuses of power embodied in the legislation’s passage.

These betrayals of the precious freedom bequeathed to us by our forbearers have been frequent. This culmination of progressive arrogance may be extreme, but it certainly isn’t unique. The Welfare State is not new. Neither is the Nanny State.

The proportion of families paying little or no income tax has been rising for decades while those receiving handouts, subsidies or working in the public sector has risen commensurately. Any hardship, any pain, any negative consequences will be mollified by the taxpayer no matter how irresponsible or negligent was the recipient.

Taxpayers already finance approximately half of all medical expenses. …

Obamacare merely reflects another milestone in our descent. Last weekend’s political machinations were only a turning point if they motivate Americans to defend their rights against government encroachment. We’ve been falling off this cliff for decades and will continue falling until we either re-establish the rule of law over the imminently corruptible rule of men or we hit bottom. The logical endpoint is totalitarian oppression.

Obamacare wasn’t a turning point, but let’s hope it triggers one.

Posted on 03/26/10 12:29 PM by Alex Adrianson

Government Holds Back Hiring

A lack of job creation, not excessive layoffs, is the primary reason unemployment remains high, says Heritage fellow James Sherk. Examining data from the Bureau of Labor Statistics, Business Employment Dynamics series, Sherk finds:

 … employers created 7.7 mil­lion jobs and shed 7.4 million jobs in the last quarter of 2007—enough net new jobs to keep unemployment steady as new workers entered the labor force. If job creation and job losses had remained at those levels through Q2 2009, employers would have created 5.8 million more jobs and eliminated 4 million fewer jobs than they actually did. Lower job creation accounts for 59 percent of the reces­sion’s decreased employment.

In Q2 2009, gross job losses were 8.7 percent (699,000 jobs) above pre-recession levels, while gross job gains were 16.3 percent (1.4 million jobs) below them. The number of people laid off by companies going out of business rose by 3.8 percent (48,000 jobs), and the number of people hired at newly formed busi­nesses fell by 10.4 percent (235,000 jobs). …

Employers shed 2.6 million more jobs at this point of the 2001 recession than in the current recession. Job losses were worse then than now. Net employ­ment has fallen more during the current recession because employers have created 7.3 million fewer new jobs than during the 2001 recession. [Internal citations omitted.]

What’s holding back hiring? Sherk:

Many items on the congressional agenda—the gargantuan health care legislation that passed on March 21, cap-and-trade regulations of CO2 emis­sions, and abolishing private ballots for union orga­nizing—would significantly raise taxes and business costs. In addition, enormous increases in federal spending raise the prospects of yet higher taxes and rapidly rising inflation.

In the face of such a threatening environment it is not surprising that many companies are making only the most critical investments. They are choos­ing to wait and see what Congress passes into law, and whether their business projects will still be via­ble, before investing their capital in risky projects. This caution, however, means less investment and fewer new jobs.

Posted on 03/26/10 11:50 AM by Alex Adrianson

Markets Now Asking Which Firms Will Sink with the Ship

In an earlier post, we noted that a number of firms are now able to offer bonds with lower yields than U.S. Treasuries. Lenders think the maker of Tampax is now a safer bet to pay its debts than the U.S. government—surely a strange time to add trillions of dollars of entitlement obligations over the next decade. At NRO’s The Corner, Nicole Gelinas points out that this development is “an invigorating example of how markets, against all odds, can fight government to fix the imbalances that government has created in its rescues of financial firms.”

A too-big-to-fail financial company such as Citigroup, AIG, or even Goldman Sachs could never, ever pierce the sovereign ceiling. Why not? Potential bondholders in such companies know that these firms ultimately depend on the ability and willingness of the American government to bail them out in the next financial crisis.

These financial companies are only as strong as the U.S. government. Perversely, though, a permanent “too big to fail” policy weakens the U.S. government — since the feds can only borrow and implicitly guarantee so much — and weakens, too, the financial companies that depend on it. 

As this fact has become painfully apparent, non-financial firms have a distinct new advantage in the debt markets … Being “too big to fail” may be a liability now in global debt markets.

Posted on 03/26/10 10:54 AM by Alex Adrianson

Some Constitutional Arguments Against Obamacare Are Better Than Others

Law professor Randy Barnett, writing in the Washington Post, provides an overview of the possible legal challenges to Obamacare. Barnett thinks attempts by various states to exempt their residents from the mandate to purchase health insurance have little hope of succeeding, because

Under the 10th Amendment, if Congress enacts a law pursuant to one of the “powers . . . delegated to the United States by the Constitution,” then that law is supreme, and nothing a state can do changes this. Any state power to “nullify” unconstitutional federal laws has long been rejected.

A better argument would seem to be that the Constitution simply doesn’t give Congress the power to require anybody to purchase a particular good or service. Yes, Congress can regulate interstate commerce, but are people engaged in interstate commerce when they refrain from buying health insurance? Says Barnett:

Regulating the auto industry or paying “cash for clunkers” is one thing; making everyone buy a Chevy is quite another. Even during World War II, the federal government did not mandate that individual citizens purchase war bonds.

However, as Ryan Lirette points out at the Enterprise Blog, a party challenging the constitutionality of a federal law has to show that the law has or will soon cause some harm. It is unlikely, therefore, that anybody will be able to establish standing to challenge an invidual mandate until 2014, when the law takes effect. In the meantime, if the states really want to put pressure on Congress, they can exercise their Article V power to demand a constitutional amendment to bar federal regulation of health insurance or an individual mandate. If two-thirds of the states called for such an amendment, Congress would be required to hold a constitutional convention for that purpose.

Posted on 03/26/10 10:36 AM by Alex Adrianson

New Issue of The Insider Is Out

Here is the editors note running down the articles:

So it turns out that redesigning one-sixth of the economy is a messy process. Enacting the President’s health care proposals has become such an intractable political challenge that the plan’s supporters have resorted to dubious legislative procedures. In one sense, however, this story is old news: The liberal playbook has featured end-runs around democracy for nearly a century. What we are witnessing, as Matthew Spalding explains in our cover feature, is the return of progressive reformism. The key idea of progressive thinking has been that enlightened elites should be empowered to decide the important issues facing society. Democracy gets in progressives’ way when it gives the rubes too much say.

 The Founders authored the Constitution in order to limit government and, thus, protect a broad sphere of liberty. The progressives and their ideological heirs, today’s liberals, see the Constitution’s checks and balances as fussy impediments to the rule of experts running others’ lives according to their lofty visions. The Founders, too, have ideological heirs, though. Recently, a broad coalition of conservative leaders reaffirmed the wisdom of the Constitution and the Declaration of Independence. You can read The Mount Vernon Statement in full here.

What serves democracy can also serve the cause of sound science. We refer to transparency in methods and openness with data, which allow scientists to check the validity of results reported by their peers. But here, too, we find a willingness to take procedural shortcuts in furtherance of political ends, as both George Avery and Brett Schaefer report in their articles.

In other articles in this issue, Daniel Rothschild and Emily Washington explain why stimulus funding can’t fix state budget problems, Benjamin Barr reminds us why states have debt limits, we talk health care with Sally Pipes and Jeffrey Anderson of the Benjamin Rush Society, and Emily Kayrish gives tips for planning a big event.

Posted on 03/25/10 05:53 PM by Alex Adrianson

Deficit Reduction? Really?

How can it be that creating new health care entitlements will reduce federal deficits, as the CBO predicts? The answer, says Doug Holtz-Eakin, is via a number of Congressional budgeting gimmicks, which include: (1) delaying new subsidies “so that the first 10 years of revenue would be used to pay for only 6 years of spending”; (2) paying for $114 billion in operating costs with annual appropriations, which removes those expenses from the CBO tabulation; (3) double counting a $53 billion increase in revenues from Social Security taxes—paid by some workers who would no longer receive health insurance from their employer but would receive higher wages instead—as reducing the deficit, even though those revenues will eventually have to be used to pay higher Social Security benefits; and, (4) tacking onto the bill a federal takeover of the student loan business, which is expected to generate $19 billion in deficit reduction.

According to Holtz-Eakin, when these and other gimmicks are stripped away from the estimate, the real 10-year impact of the health care legislation on federal deficits is more like a $562 billion increase.

Posted on 03/23/10 04:04 PM by Alex Adrianson

But How Are the Government’s Creditors Voting?

The United States government is now a bigger credit risk than Berkshire Hathaway, Procter & Gamble, Lowe’s, and Johnson & Johnson. That’s the judgment of the bond market, anyway: According to a Reuters report yesterday, the yields on those and a number of other corporate bonds have fallen below that of Treasuries.

Debt held by the public is projected to rise to 66.7 percent of GDP by 2020. That calculation, by the way, accepts the fiction that Fannie Mae and Freddie Mac’s $5 trillion in liabilities don’t count as public debt. Debt held by the public was only 36.7 percent of GDP as recently as 2007. Last Tuesday—even before Congress sent to the President a bill creating new health care entitlements that cost $2.5 trillion over their first ten years of operation—Moody’s said about the government’s credit-worthiness: “Growth alone will not resolve an increasingly complicated debt equation. Preserving debt affordability at levels consistent with AAA ratings will invariably require fiscal adjustments of a magnitude that, in some cases, will test social cohesion.”

Kevin Williamson, noting these and other pertinent facts in his latest column at National Review, concludes:

Obamacare is not going to happen, regardless of the fact that the president is going to sign it into law today, regardless of what happens in the 2010 and 2012 elections, and regardless of any speech given anywhere in Washington. The government’s ability to simply say “Make it so!” and ignore economic reality is coming up against its limit. If Nancy Pelosi thinks the Republicans are obstructionists, wait until she wants to borrow money from people who don’t want to lend it to her and don’t have to run for reelection.

Posted on 03/23/10 02:23 PM by Alex Adrianson

An Intolerable Act

With House passage of the Senate’s health care bill, the next phase in the health care battle is about to begin, something Charles Kesler anticipated a few months back when he wrote in the Claremont Review of Books:

To acquiesce in the new program in hopes of improving it later on would be a pipedream. If entitlement programs could be easily fixed, the U.S. would not after decades of warnings be facing the impending bankruptcy of Social Security, Medicare, and Medicaid. If government bureaucracies could handily be streamlined, the Post Office would not be … the Post Office.

That leaves refusing to accept the new measure as legitimate, or in other words, beginning to work as soon as it is passed for its repeal. There is nothing un-American or undemocratic or even unrealistic about this. The same legislature that enacts a bill has the right and power to repeal it. It happens all the time. More generally, battles to reverse public policy considered unfair, unwise, and unconstitutional are a storied part of American history, ranging from Thomas Jefferson’s denunciations of the Alien and Sedition Acts, to Andrew Jackson’s war against the Second Bank of the United States, to the repeal of the 18th Amendment, when a thirsty country changed its mind about banning sales of alcoholic beverages. More recently, the Medicare Catastrophic Coverage Act of 1988 lasted until 1989, when Congress, under pressure from senior citizens, removed it from the books.

In the present case, it’s been so hard for Democrats to find a politically palatable way to pay for their reforms that they want to institute their plan’s new taxes at once but delay its benefits until 2013. The gimmick would yield several years of revenues without expenditures, contributing to the illusion that their bill will not bust the budget. Happily, three years of pain but no gain would also provide the perfect opportunity to pursue the politics of repeal.

Today, Heritage Foundation President Edwin Feulner also notes some historical precedents in calling on liberty-loving Americans to fight for repeal:

Americans are strongly opposed to this bill not because they have been hoodwinked but because they understand this bill both in its particulars and at an instinctive, gut level.

They understand this health care bill forces individuals and employers to buy insurance policies designed by government bureaucrats. This intrusion is intended to follow us from cradle to grave.

Instead of empowering families and individuals to make their own choices, Obamacare empowers the bureaucracy to make those decisions for them. It is this unelected bureaucracy, unanswerable to the electorate, that will determine the content of health benefits packages, including medical treatment and procedures, and how much will be paid for those services. Yesterday’s legislation brings us one step closer to fully government-run medicine, with expanded government power over the financing and delivery of medical services that is sure to ration care in the name of cost control.

You will hear the left say this new entitlement will be popular with the American people. Do not believe them for a second. Yes, 32 million people will gain the theoretical right to health insurance. But over half of that coverage comes from placing at least 16 million more Americans into Medicaid, an unpopular and overextended welfare program that already rations care.

Americans will not stand for it. The American love for liberty prevailed in our founding, and will prevail once again.

In December of 1773, to protest unjust taxation, a group of American colonists dumped tea in Boston Harbor. The punishment for that first Tea Party was a series of intrusive laws passed by Parliament that were so oppressive that they could only be described as the “Intolerable Acts.”

Obamacare is today’s Intolerable Act. And just as the colonists banded together to enact change after those acts were passed, so should America respond to Obamacare. This law must be repealed.

And, by the way, today is also the 245th anniversary of the passage of another act that so infuriated Americans that the offending legislature eventually had to repeal the law: The Stamp Act, passed by the British parliament on March 22, 1765, imposed a tax on every single piece of paper used in the colonies. The protest was so vigorous—and the clash so damaging to British business interests—that Parliament repealed the law within a year. It was during this clash that the colonists learned to act in concert to assert their rights as Englishmen—lessons that would come in handy nine years later when the Intolerable Acts were passed.

Posted on 03/22/10 02:19 PM by Alex Adrianson

Worth Checking Out: Share Ideas at Resource Bank and the Atlas Experience in Miami

• Every year, Resource Bank provides an opportunity to meet with and learn from others working to expand liberty. Over 600 of the best and brightest think tankers, activists, public interest lawyers, filmmakers, and journalists will be at this year’s Resource Bank, which will be held April 22 - 23 at the Fairmont Turnberry Isle in Miami Florida. Some highlights from the agenda include a tech lab for learning, a session on using investigative journalism to advance reforms, and a look at what real health care reform would be.

• The Atlas Experience brings together people from all over the world who want to share ideas for building freer societies. The conference will be held April 21 – 22 at the Fairmont Turnberry Isle in Miami Florida (immediately preceding Resource Bank). During the conference, the Atlas Economic Research Foundation will announce the winners of its annual Sir Antony Fisher International Memorial Awards, which recognize independent public policy institutes for outstanding publications.

• The Hockey Stick Illusion, by A.W. Montford, reveals the important story that preceded the “climategate” e-mail release: how a scientific detective named Steve McIntyre and an economist named Ross McKitrick spent a decade sifting through mounds of data to uncover the shabby science behind the infamous hockey-stick graph.

• has figured out how to save Cleveland and tells about it in a new series of videos featuring Drew Carey.

Posted on 03/19/10 02:55 PM by Alex Adrianson

Arthur Laffer’s Plan for Prosperity

Laffer’s plan includes: low, flat rate taxes; government spending restraint; sound and stable money; free trade; and minimal regulation:

Posted on 03/19/10 02:20 PM by Alex Adrianson

Remember the Senate Bill?

The Senate’s health care bill, via a constitutionally dubious procedure in the House of Representatives, may soon be presented to the President for his signature. An effort to amend that law proceeds simultaneously in the House; but once the Senate bill is law, there is no guarantee that either the Senate or the President will assent to any changes. Here’s a few key points about the Senate health care bill:

• The bill restricts consumer choice by mandating that individuals must purchase health insurance and defines what must be included in a health insurance plan in order to satisfy that mandate. Individuals who fail to comply with the mandate face a fine of $750.

The Congressional Budget Office estimates that the requirements on what must be included in a health insurance plan will raise premiums in the market for individual health insurance by between 27 percent and 30 percent by 2016. The CBO also estimates that these rises in premiums will be partly offset by the individual mandate, which it expects will bring healthier people into the insurance pool. However, as some analysts point out, the Senate bill requires insurers to accept anybody regardless of their health. Facing a penalty of only $750 for failing to purchase insurance, it may make sense for many healthy people to forgo insurance entirely until they get sick. If that were the case, then average premiums for individual coverage would rise by more than CBO’s estimate of 10 percent to 13 percent.

The bill creates new entitlements at a time when federal liabilities already exceed $56 trillion—and most of that is for health care programs. Some analysts say that without spending discipline, tax rates would have to double in order to close our current fiscal gap. Yet, the Senate health care bill increases federal health care spending by $210 billion over the next ten years, according to estimates by the Congressional Budget Office. And, by the way, the programs created by the bill don’t start until four years into these estimating windows. A true ten-year estimate would show even higher spending.

The bill increases taxes. It includes, for example, a 40 percent excise tax on health insurance premiums exceeding $8,500 per year for individuals and $23,000 per year for families. Analyzing a similar proposal late last year (slightly lower thresholds) the Joint Committee on Taxation estimated that more than half of the burden of this tax would fall on those making less than $100,000 per year.

The bill creates perverse incentives for employers to avoid hiring, and possibly for firing, low-income workers. The bill provides subsidies for low-income workers to purchase health insurance through a health insurance exchange. Firms would have to pay a $3,000 penalty for each of their workers who qualifies for and accepts those subsidies. The penalty is $750 per worker for companies with more than 25 percent of their employees getting subsidies from the exchange. Companies with a high proportion of high-income workers to low-income workers would be better off avoiding hiring lower income workers in order to avoid having to pay the penalty. Health care expert John Goodman predicts that these provisions will induce a restructuring of the entire labor market, in which the services provided by low-income workers will increasingly be outsourced to firms specializing in selling those services. The burden of adjusting to these dislocations will fall on low-income workers.

For more about the Senate health care bill, see “What House Passage of the Senate Health Bill Means for America,” by Kathryn Nix and Robert Moffit, The Heritage Foundation, March 16, 2010.

Posted on 03/19/10 02:10 PM by Alex Adrianson

Just How Big Are the Federal Government’s Budget Deficits?

One way of getting a sense of how big federal budget deficits are is to ask the hypothetical question: How high would taxes have to be in order to close projected budget gaps entirely with increases in personal income taxes? The Tax Foundation has run those numbers and the results should be a wake up call for all taxpayers. Remember: Budget deficits are a promise of tax increases in the future.

Assuming proportional increases in all tax brackets, Tax Foundation scholar William Ahern finds that everybody’s federal personal income tax rate would have to be about 143 percent—or nearly two and a half times—higher than current rates to erase the 2010 budget deficit. For 2011 and beyond, the needed tax increases would not be quite so high, but would still be daunting: 98 percent higher than current rates in 2011; 58 percent higher in 2012, 47 percent higher in 2013, 45 percent higher in both 2014 and 2015. At no point do the needed tax rates drop below a level of 40 percent higher than current rates.

If you think that’s bad, consider: Ahern notes that these calculations unrealistically assume that there are no changes in taxpayer behavior in response to higher rates. But the magnitude of the increases needed would push some taxpayers’ marginal tax rates close to 100 percent when combined with state and local income taxes and payroll taxes. In other words, these taxpayers would face strong incentives to avoid wealth creating behavior. Ahern concludes: “[E]ven when the deficit is projected to be as ‘low’ as it is in 2012 and 2013, it is probably not possible to close the deficit with personal income tax hikes.” That means federal spending needs to be cut.

Posted on 03/18/10 06:30 PM by Alex Adrianson

The Bureaucratic Weed

The British government now consumes a bigger portion of the British economy than it did in 1979, when the government still ran vast swathes of industry. Government expenditures are projected to eat up 47.5 percent of the British economy this year. Back when the government was still mining coal and making steel, it spent only 45 percent of the nation’s income. This factoid is provided by Ross Clark who, writing in the Spectator, describes the UK’s public sector as “a vast country house run by bumbling old retainers.” (H/t: Tom Clougherty at The Adam Smith Institute.) It seems that while the privatizations started by Margaret Thatcher have improved the efficiency of many sectors of the British economy, the inefficiency of the public sector only grows apace. According to Clark, the major part of the problem is the proliferation of employment laws that hamstring management:

Employers must go through a five-point procedure of verbal warnings, written warnings and meetings with trade union representatives before they can dismiss chronically underperforming staff. The Gershon report found that it cost the Department for Work and Pensions an average of £34,000 to sack staff and the Foreign Office an astonishing £160,000. But hiring staff is no better. The Prison Service has a 39-point protocol for recruiting new staff, including a duty to ensure the diversity of the selection panel.

In the United States, it’s really difficult to fire a teacher for incompetence. A few years back, Reason magazine produced a flow chart describing how teachers are fired in New York City public schools. The chart ran onto two pages and contained about 90 boxes with small type. Last fall, the New Yorker featured a story on the city’s “rubber rooms,” where about 600 teachers punch a time clock but do nothing at all. They’re assigned to the rubber room because they have been accused of misconduct or incompetence. Teachers in the rubber room are there for an average of three years while due process runs its course.

Posted on 03/18/10 03:00 PM by Alex Adrianson

Eye on the Ball

We interrupt your reading about the latest procedural outrage to bring you this note on health care from Cato fellow Doug Bandow:

“Reformers” start with the assumption that “we” spend too much on health care. Nowhere else in the economy do we act as if there is a proper proportion of the economy that should be expended on an activity. Do we spend “too much” on automobiles? What is the “right” percentage of GDP to devote to beer? Should society reduce or increase outlays on art?

These are stupid questions. Bad incentives as a result of third party payment mean we buy medical care inefficiently, we spend more than we should for what we receive in return. But it makes no sense to total up expenditures on health care and let the government decide whether they are appropriate.

Amen. You may now return to reading about how awful the House Rules Committee is.

Posted on 03/18/10 12:42 PM by Alex Adrianson

Myths of Obamacare

The President’s case for his health care reforms, says columnist Robert Samuelson, rests on a few myths:

• Too much insurance company profit? “In 2009, the largest 14 insurers had profits of roughly $9 billion; that approached 0.4 percent of total health spending of $2.472 trillion.”

Cover the uninsured to reduce the costs of emergency room use?

A study by the Robert Wood Johnson Foundation found that the insured accounted for 83 percent of emergency-room visits, reflecting their share of the population. After Massachusetts adopted universal insurance, emergency-room use remained higher than the national average, an Urban Institute study found. More than two-fifths of visits represented non-emergencies. Of those, a majority of adult respondents to a survey said it was “more convenient” to go to the emergency room or they couldn’t “get [a doctor’s] appointment as soon as needed.” If universal coverage makes appointments harder to get, emergency-room use may increase.

More insurance improves health? There’s little evidence that’s actually true, and the reason may well be that “the uninsured already receive 50 to 70 percent of the care of the insured from hospitals, clinics and doctors,” according to the Congressional Budget Office. See Megan McArdle’s “Myth Diagnosis,” in The Atlantic for a review of the evidence on health insurance’s impact on health.

Posted on 03/16/10 01:19 PM by Alex Adrianson

Now They’re Just Making Stuff Up

Have you heard of the “Slaughter rule”? It’s the latest twist to the twisty business of health care reform. If the reconciliation strategy amounts to an end-run around normal legislative process, the “Slaughter rule” amounts to redefining the side line as the goal line.

The reconciliation route, you may remember, was pulled out of the playbook by a White House that wants to avoid asking the Senate—where getting 60 votes again has become even less likely—to revise the bill it passed in December. Instead, the White House wants the House to pass the Senate bill as is and then fix its issues with the Senate bill through a separate measure called a reconciliation bill. The reconciliation process dispenses with the normal requirement for 60 votes to end debate in the Senate. The process was set up that way to help ensure that Congress can pass any policy changes needed to meet spending targets already agreed to.

The first step in the process, however, would be for the House to pass a bill that it doesn’t want and for that bill to become law. The House would have to trust that reconciliation will then produce a satisfactory amending of that law. That trust part, however, is proving quite a hurdle. So Rep. Louise Slaughter (D-N.Y.), chair of the House Rules Committee, has conjured up yet another layer of procedural hocus pocus: Instead of actually passing the Senate bill, the House would pass a rule that says the Senate bill will have been deemed to have passed if the House approves the reconciliation bill.

Writing in the Wall Street Journal (gated story), Michael McConnell, director of the Constitutional Law Center at Stanford Law School, explains why such a procedure would violate the Constitution:

To become law—hence eligible for amendment via reconciliation—the Senate health-care bill must actually be signed into law. The Constitution speaks directly to how that is done. According to Article I, Section 7, in order for a “Bill” to “become a Law,” it “shall have passed the House of Representatives and the Senate” and be “presented to the President of the United States” for signature or veto. Unless a bill actually has “passed” both Houses, it cannot be presented to the president and cannot become a law. … Under Article I, Section 7, passage of one bill cannot be deemed to be enactment of another. The Slaughter solution attempts to allow the House to pass the Senate bill, plus a bill amending it, with a single vote. The senators would then vote only on the amendatory bill. But this means that no single bill will have passed both houses in the same form. As the Supreme Court wrote in Clinton v. City of New York (1998), a bill containing the “exact text” must be approved by one house; the other house must approve “precisely the same text.” These constitutional rules set forth in Article I are not mere exercises in formalism. They ensure the democratic accountability of our representatives.

Posted on 03/15/10 03:08 PM by Alex Adrianson

Tipping Point Ahead for the Republic

Here are two data trends that should concern all Americans. First, from The Heritage Foundation’s recent Index of Dependence on Government, we see the long-term rise in dependency on government programs. Note that the data used by the Index runs only through 2008 (and thus does not measure the impact of the federal government’s 2009 spending binge on dependency). The Index reached its highpoint in 2006, but the long-term upward trend is clear.

Meanwhile, the Tax Foundation reports that in 2008 more Americans than ever earned an income without paying any income taxes at all: 51.6 million—36 percent of all filers.

If these trends continue, it won’t be too long before the better part of the population can simply vote itself more and more benefits at the expense of a wealth-creating minority. That is not a formula for self-government that can last.

Posted on 03/12/10 01:08 PM by Alex Adrianson

Worth Checking Out: Thinking Beyond ObamaCare, Who Gets an A for Transparency?

• What comes after ObamaCare? What needs to be done to reverse the slow walk toward socialized medicine and put the consumer back in charge? Find out at a discussion at The Heritage Foundation with Rep. John Shadegg, the Galen Institute’s Grace-Marie Turner, and Heritage’s Robert Moffit. The event will be held at 10 a.m. on Thursday, March 18.

• The premise of most health care reform proposals has been that more health insurance will produce better health. But is that actually true? What is the evidence for that view? A panel at the Cato Institute will discuss at 4 p.m. on Thursday, March 25, 2010.

• Thirty-nine out of 5,000 government Web sites have received an A in transparency from the Sunshine Review. Check the Sunshine Review’s Sunny Awards list to see if your local government is among the top performers on transparency.

• Want to make pro-liberty films? Check out the Institute for Humane Studies Production Internship Program, which gives aspiring writers, directors, and producers the opportunity to work at film production companies. The deadline for Fall 2010 applications is July 1.

• Have a business idea and a video camera? Make a three-minute video of your idea and you could win $50,000 from the Chamber of Commerce’s I Am Free Enterprise Contest.

Posted on 03/12/10 11:58 AM by Alex Adrianson

What the NCAA Tournament Can Teach Us about Government

Jordan Ballor of the Acton Institute:

[T]he best games are typically the ones in which you do not notice the referees. Yes, the referees are there, making calls when appropriate. But they do not become the center of attention. They are not the ones putting the ball in the hoop. They are not making a spectacle of themselves. They go about their duties and are at their best when they are not noticed. The referees are not the center of attention; instead, the focus is on the players and the game.

Good government is like that. It protects liberty as its highest end, but it is a liberty that is used in pursuit of other ends, what Acton calls “the highest objects of civil society, and of private life.” Foremost among these is religion, and they are ultimately oriented to and subsumed under what the Westminster divines identified as man’s chief end: “to glorify God, and enjoy him forever.”

In this analogy, good government is like the referee that calls a fair game and does so in a way that does not produce a slanted playing field, or favor one team over the other. Good government is at its best when it is not the focus and is not grandstanding for attention.

Posted on 03/12/10 08:27 AM by Alex Adrianson

Accountability Is Such a Nuisance!

A school district in Arizona is suing four taxpayers for being too dogged in pursuit of information about school operations and spending. Making too many requests for documents and then complaining to the state ombudsman about the district’s slow response to those requests constitutes harassment, according to attorneys for the Congress Elementary School District. The school district wants the court to block the defendants from filing any more public records requests, to rule that the district does not have to comply with previous requests, and to restrict the rights of defendants to complain to outside agencies.

This is a school district that twice since 2002 was found to have violated state open meeting laws. Last year, the state ombudsman’s office agreed with the four defendants that the school district had been too slow to respond to public records requests.  

Mark Flatten, investigative reporter for the Goldwater Institute, has more details on this case in a recent report. He notes that for the most part the records requested by the defendants were agendas and minutes of school board meetings, school spending reports, and documents relating to the defendants’ own children. In other words, they were requesting information that should routinely be made public anyway, or that they otherwise had a right to access. The Goldwater Institute, by the way, is representing the defendants.

Posted on 03/11/10 05:40 PM by Alex Adrianson

Myths of the Ivory Tower

From Jay Schalin at the John William Pope Center, the ten biggest misconceptions in academia:

1. There is no liberal bias in academia.
2. Everybody should go to college.
3. Academia is more noble than the business community.
4. Diversity makes everything better.
5. All faculty research is necessary and/or important.
6. Academic freedom means anything goes.
7. Higher Education drives the economy.
8. Natural aptitude doesn’t matter.
9. Morality is relative.
10. All cultures are equally good.

Posted on 03/11/10 10:39 AM by Alex Adrianson

How Much Schools Really Spend

Public schools are keeping the public in the dark about how much money they really spend, says Adam Schaeffer in a new Cato Institute report. Schaeffer examined the budgets for 18 school districts around the country, including those in the five largest metropolitan areas. He found that per-pupil spending in those districts was an average of 44 percent higher than officially reported. In Los Angeles, real per-pupil spending was 90 percent higher than officially reported.

Schools underreport their spending because when calculating per-pupil expenditures they typically exclude things like capital costs, debt service, and employee benefits. Getting the true figures, says Schaeffer, requires looking at budget documents that cannot always be obtained easily and that often require a specialized knowledge to decode. According to Schaeffer, when all school spending is counted, public schools spend about 93 percent more per-pupil than do private schools.

Posted on 03/10/10 11:21 AM by Alex Adrianson

Why Unemployment Remains High

“[C]onstant political meddling in labor markets,” says Richard Epstein, “makes it hard for individual firms to figure out the risk of hiring new employees.”:

Yet on this issue [New York Times columnist Paul] Krugman and the Democrats adopted a weirdly partial analysis. Transfer payments are in, but any kind of serious structural reform is out. Thus constant succession of short-term fixes drains resources from the private sector, while postponing any long-term rationalization of labor markets that might get some unemployed people back to work.

These ad hoc interventions are justified on the some macroeconomic hunch confidence that any dollars paid out in transfer payments will be used to boost up current demand. But even Keynesians aren’t microeconomic seers. No one knows how much money will go in that direction: Some recipients of unemployment benefits will use their checks to pay off past bills or save for future major expenses. The Bush administration used a similar model to promote its one-time $500 stimulus plan, which turned into one of 2008’s many spectacular busts.

The larger lesson here is that there is enough uncertainty in the world already. What the country needs now is stability of expectations, not erratic government behavior. Constant stop/go traffic may put a short-term band-aid for the unemployed, but the overall Democratic game plan only prolongs the agony. Try a different approach—open markets, low flat taxes and freedom from Krugmaneseque envy and resentment.

Posted on 03/09/10 02:44 PM by Alex Adrianson

Taxpayers Pay for Political Fundraising Venue

The Sewall-Belmont House is a small museum in Washington, D.C., that celebrates the history of women’s struggles for political equality. But for many of the capital’s politicos, the house is primarily a venue for hob-knobbing with supporters willing to pay $1,000 a plate. No wonder, then, that legislators have been happy to give the museum $3.4 million in earmarked taxpayer funds over the past decade. The latest episode of dubs the museum the “Pork Party House,”— a perfect symbol of how little things have changed in Washington, D.C.:

Posted on 03/09/10 01:59 PM by Alex Adrianson

Are Anti-terrorist Voices Gaining Influence Among Muslims?

One hopeful sign was the issuance last week of a 600-page fatwa against terrorism by a leading Muslim scholar. The Jerusalem Post described the fatwa as the “most comprehensive theological refutation of Islamist terrorism.” The author of the fatwa, Tahir ul-Qadri, said: “Terrorism is terrorism, violence is violence and it has no place in Islamic teaching and no justification can be provided for it, or any kind of excuses of ifs and buts. The world needs an absolute, unconditional, unqualified and total condemnation of terrorism.”

He also said that suicide bombers are unbelievers headed for hell. A hopeful sign indeed.

Posted on 03/09/10 12:58 PM by Alex Adrianson

CBO Sees Debt Reaching an Ominous Threshold

Debt held by the public will reach 90 percent of U.S. gross domestic product by 2020, according to the latest CBO projections. That’s a higher level of debt than projected by the White House when it released its 2011 budget last month.

These projections are significant for another reason: Economists Carmen Reinhart and Kenneth Rogoff have found that “median growth rates for countries with public debt over 90 percent of GDP are roughly one percent lower than otherwise; average (mean) growth rates are several percent lower.” The explanation, speculate Reinhart and Rogoff, is that “as debt levels rise towards historical limits, risk premia begin to rise sharply, facing highly indebted governments with difficult tradeoffs. Even countries that are committed to fully repaying their debts are forced to dramatically tighten fiscal policy in order to appear credible to investors and thereby reduce risk premia.”

Posted on 03/08/10 05:57 PM by Alex Adrianson

They’re Probably Good at Teaching Jargon

Smelling politics in the inclusion of Ohio and New York on the list of finalists for Race to the Top funds, Frederick Hess takes a peak at New York’s application:

New York’s 908-page application … guarantees, “an intense focus on curriculum and meaningful professional development based on student performance; data-driven instruction where teams develop individual student action plans based on data from formative and interim assessments; differentiated professional development and coaching based on data.” It pledges “clear, content-rich, sequenced, spiraled, detailed curricular frameworks” for new assessments. And it promises “to support differentiated professional development closely linked to student growth data, identify coaches and mentors using effectiveness ratings closely tied to student growth data, and build data-driven feedback loops between professional development, coaching/mentoring activities, and teacher effectiveness.” All that “professional development” talk portends sops to the teachers’ unions, of course.

Posted on 03/08/10 04:12 PM by Alex Adrianson

Looking Under the Hood

The arcana of legislative process is usually enough to make our eyes glaze over, but there’s some possible intrigue that’s worth noting regarding plans to use reconciliation for health care. The Wall Street Journal reports this morning that some House Democrats now worry that the White House is gaming them into supporting a bill they don’t want.

Speaker Pelosi says she can’t get the votes in the House to pass the Senate health care bill, but getting the Senate to pass another bill would require clearing the 60-vote hurdle again. To avoid that, the White House has asked the House to hold its nose, pass the Senate bill, and then address any issues with the Senate bill in a separate reconciliation bill. Reconciliation, a process normally reserved for ensuring passage of any policy changes needed to satisfy budget resolutions, does not require 60 votes in the Senate. But, notes the Journal,

… the White House would much prefer the Senate bill, because by its lights the cost-control programs are tougher than what the House prefers. And from a political perspective, a bill that can be signed immediately and that the press will portray as an historic achievement is far better than the drawn-out and gory battle that would be reconciliation. Republican Senators will have many procedural knives at their disposal, and the process will force Democrats to cast further votes and spend more months debating a deeply unpopular bill.

In other words, perhaps Mr. Obama has embraced this reconciliation two-step only to renege as soon as the House gives him what he wants. While some House Democrats would be furious, they’d soon be defending the Senate bill by necessity against the GOP. The moderates who vote for it might be collateral damage, but the White House has already concluded that this is the price of building its cradle-to-grave entitlement citadel. … Spooked Democrats shouldn’t be surprised if they wind up being double-crossed for the ostensibly greater good of Mr. Obama’s legacy.

It’s certainly not a process that speaks well of the product.

Posted on 03/08/10 02:36 PM by Alex Adrianson

Worth Checking Out: Learn from the Electoral College, Welcome the Macdonald-Laurier Institute

• There’s an effort underway to undermine the Electoral College through an interstate compact in which participating states agree to appoint Electors based on the national popular vote. The project, in fact, is called the National Popular Vote. But, as the Evergreen Freedom Foundation, points out, the Electoral College is one of the essential moderating institutions in the U.S. political system. To learn why the Electoral College is worth preserving, visit the Evergreen Freedom Foundation’s Web site,

• Want to know which leaders will shape the world for decades to come? Check out the World Economic Forum’s list of Young Global Leaders 2010. We are happy to note that Frankin Cudjoe has made the list. We are fans of his work advancing liberty and free markets as the Director of the IMANI Center for Policy and Education in Ghana.

The Macdonald-Laurier Institute is now online—which means it is officially up and running. Brian Lee Crowley started the Canadian think tank as an effort to “make poor quality public policy in Ottawa unacceptable to Canadians.” Crowley, by the way, is the author of much discussed Fearful Symmetry: The Fall and Rise of Canada’s Founding Values, which debunks the myth that Canadians have a natural preference for the welfare state. (If you are in the neighborhood of Ottawa on March 15, you can help the institute celebrate its start by attending a launch party.)

• Liberty Fund has published a new, definitive edition of Democracy in America, Alexis De Tocqueville’s classic survey of American political culture. This edition, produced by a team of Tocqueville scholars, is a new and accurate translation based on primary source material, and includes extensive marginalia, critical comments from Tocqueville’s contemporaries, four little-know essays intended as original appendices, and text notes—all of which allow the reader to trace the development of Tocqueville’s thinking.

• An upcoming event at the Mercatus Center will offer an assessment of how the economic downturn is affecting freedom at the state level. The event, to be held on Thursday, March 11, 2010, from noon to 1:30 p.m., will feature the authors of Mercatus’ annual “Freedom in the 50 States” survey.

Posted on 03/05/10 02:17 PM by Alex Adrianson

Standing Up for State Sovereignty and Liberty

At The Heritage Foundation this week, Texas Attorney General Greg Abbott reviewed some of the ways the federal government is trying to turn states into mere agencies of the federal government—and of the ways Texas is resisting this drift:

Posted on 03/05/10 11:07 AM by Alex Adrianson

Health Savings Accounts Work in Indiana

Letting state employees take charge of their own health care dollars has turned them into much better shoppers for health care and saved the government of Indiana money, says Mitch Daniels, Governor of Indiana. For the past five years, the state has given its employees the option of enrolling in high-deductible plans that come with a Health Savings Account. The state puts $2,750 per year into each employee’s HSA account and the employee uses those funds to cover his medical expenses up to the deductible amount. Since the funds belong to the employee permanently, he has an incentive to be a smart consumer. Writing in the Wall Street Journal, Daniels notes how well the reforms have worked:

In 2009, for example, state workers with the HSA visited emergency rooms and physicians 67% less frequently than co-workers with traditional health care. They were much more likely to use generic drugs than those enrolled in the conventional plan, resulting in an average lower cost per prescription of $18. They were admitted to hospitals less than half as frequently as their colleagues. Differences in health status between the groups account for part of this disparity, but consumer decision-making is, we've found, also a major factor.

Overall, participants in our new plan ran up only $65 in cost for every $100 incurred by their associates under the old coverage. Are HSA participants denying themselves needed care in order to save money? The answer, as far as the state of Indiana and Mercer Consulting can find, is no. There is no evidence HSA members are more likely to defer needed care or common-sense preventive measures such as routine physicals or mammograms.

The plans are so popular, says Daniels, that 70 percent of state employees choose them, and only 3 percent of those who have enrolled HSA plans have switched back to traditional insurance.

Federalism lets some states try reforms while allowing other states to see whether those reforms work and then adopt or adapt them as they like. At least, that’s how the system works up until Congress decides it has all the answers. Under various health care reform proposals in Congress in recent months, HSA plans would be regulated out of existence because they would not qualify as insurance under a mandate that all individuals must purchase health insurance.

Posted on 03/05/10 10:14 AM by Alex Adrianson

An Explosion in State Consumer Protection Litigation

Consumer protection litigation under state law has more than doubled since 2000, according to a report by the Searle Center on Law Regulation and Economic Growth. That report also estimates that 78 percent of those cases do not involve any conduct that would be illegal under Federal Trade Commission consumer protection regulations.  You can find out more about what is driving consumer protection litigation by watching an upcoming “Webinar” on the Searle Center report, hosted by the American Bar Association. The Webinar takes place Monday, March 8, from noon to 1:30 p.m.

Posted on 03/05/10 07:43 AM by Alex Adrianson

Can’t Be Said Often Enough …

The control of wealth is the control over human life. So if a centrally planned economy decides how wealth is to be created and how it is to be distributed, then they really have a control over human life.

That’s Arnold Beichman, interviewed by Columbia College Today in 2005. Beichman, who died February 17 at 96, knew whereof he spoke, having spent a lifetime—first as a journalist and then as a scholar—exposing the crimes of totalitarian movements around the world.

Posted on 03/04/10 03:58 PM by Alex Adrianson

Study: Biofuels Don’t Reduce Carbon Dioxide

Using crops for motor fuel was supposed to reduce carbon dioxide emissions, but a new study has found it has exactly the opposite effect. Burning biofuels may release less carbon dioxide than burning fossil fuels, but the rising demand for biofuel—driven by government mandates and subsidies—has induced farmers to clear land to grow the crops needed for biofuel. These land-use changes increase carbon dioxide emissions by an amount that far outweighs the reduction in emissions from burning biofuels instead of fossil fuels, according to a new study commissioned by the British government and leaked to the Times. The study finds that using palm oil for fuel actually increases carbon dioxide emissions by 31 percent compared to using fossil fuels. The Times reports:

It takes up to 840 years for a palm oil plantation to soak up the carbon emitted when the rainforest it replaced was burnt. The expansion of the palm oil industry in Indonesia has turned it into the third-largest CO2 emitter, after China and the US. Indonesia loses an area of forest the size of Wales every year and the orang-utan is on the brink of extinction in Sumatra.

Biofuel from rapeseed and soy also increases carbon emissions compared to fossil fuels, according to the study, which was performed by the consultancy E4tech.

You’d think the British government might have looked at this question before requiring that 3.25 percent of all fuel sold come from crops—a requirement set to rise to 13 percent by 2020. The U.S. government, by the way, has similar biofuel mandates, and Europe as a whole gives  £3 billion in subsidies to the biofuel industry.

Posted on 03/03/10 03:01 PM by Alex Adrianson

Failing Upward, Federal Reserve Edition

Reports that the Federal Reserve is winning the political battle to gain new regulatory powers over financial firms prompts American Enterprise Institute scholar Alex Pollock to ask:

Isn’t this the same Fed which helped inflate the great housing and mortgage bubble, denied that bubbles could be identified or stopped, promoted the unfortunate Basel II capital regulations, was very late to recognize the seriousness of the mortgage collapse, and then had to take extraordinary measures in the ensuing panic? Yes, of course it is. But coming out of economic and financial messes with enhanced power is part of the Fed’s mystique.

Why does the Fed always win? Pollock: “… it may simply be the extreme usefulness to politicians of being able to print money.”

Posted on 03/02/10 03:39 PM by Alex Adrianson

Banning Left-Hand Turns Could Probably Save Some Lives, Too

What high regard regulators must have for citizens these days! Now, they want to take the tube out of the tube steak because they don’t trust parents to feed their children safely. As the Washington Times reports: “Bureaucrats at the Food and Drug Administration, the Department of Agriculture and the Consumer Product Safety Commission are studying how to change the shape of hot dogs to prevent youngsters from choking. … Of the 66 to 77 choking deaths for children younger than 10 in 2006, hot dogs reportedly accounted for about 11 to 13 deaths.”

But, says the Times: “American kids younger than 10 eat approximately 1.8 billion hot dogs per year, which works out to an average of about 45 hot dogs per child per annum. That pegs the death rate per hot dog from choking at 0.0000007 percent.” Meanwhile: “More than 90 children younger than 5 died from drowning in bathtubs in 2006. Forty-three children younger than 10 died riding bicycles. Even in extremely regulated areas, there are many more deaths. In that age group, more than 1,100 died as a result of motor-vehicle accidents that year.”

Posted on 03/01/10 01:56 PM by Alex Adrianson

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