Stethoscope On Baby

Choice and Competition for Health Care—Ideas We Should Finally Try

by Nina Owcharenko and Robert E. Moffit

CONSERVATIVES, IF THEY PREPARE NOW, have a golden opportunity to fix America’s health care system with the free market ideas they have been developing for decades. The Affordable Care Act (ObamaCare) is coming apart at the seams, and the real world experience of the Left’s health policy agenda brings unfriendly headlines almost every day. Polling confirms the increasing unpopularity of the law.

President Barack Obama and his allies have spent over four years and hundreds of millions of taxpayer dollars working furiously to implement their massive law, rewriting, junking, or delaying key provisions, while trying to overhaul almost one-fifth of the American economy. The President’s broken health care promises multiply, while millions of Americans struggle with soaring health care costs and cancelled coverage. Meanwhile, businesses find their health care decisions blocked, checked, or smothered in an avalanche of arbitrary and impenetrable rules and regulations.

Surveying the wreckage, Franklin Foer, writing in the November 24, 2013, edition of the liberal New Republic observed:

Liberalism has spent the better part of the past century attempting to prove that it could competently and responsibly extend the state into new reaches of American life. With the roll out of the Affordable Care Act, the administration has badly injured that cause, confirming the worst slurs against the federal government. It has stifled bad news and fudged promises; it has failed to translate complex mechanisms of policy into plain English; it can’t even launch a damn website. What’s more, nobody responsible for the debacle has lost a job or suffered a demotion. Over time, the Affordable Care Act’s technical difficulties can be repaired. Reversing the initial impressions of government ineptitude won’t be so easy.

Of course, American health care was already broken long before ObamaCare made things worse. Going back to the 1960s the nation suffered the consequences of a malfunctioning health care market: the absence of a level playing field for health insurance, perverse incentives and inflation, lack of personal control over health plans and benefits, and various structural obstacles to free market competition that would have controlled costs. The result has been excessive growth in health care costs, the inability of individuals to buy and keep affordable health plans, and gaps in coverage and quality.

The key differences between liberals and conservatives have not been over the identification of persistent problems, but rather workable solutions to those problems.

Government policy was often responsible for creating—or worsening—these problems. So, the direction of government policy has been the focus of the continuous health care battles between liberals and conservatives, especially in the 1980s and the 1990s. The key differences between liberals and conservatives have not been over the identification of persistent problems, but rather workable solutions to those problems. For the Left, the answer is, and always was, more direct government control over health care decisions, either in the form of a government monopoly (i.e., a “single payer” system) or through a detailed regulation of all of health care financing and delivery (e.g., ObamaCare). At the same time, the Left always was plagued with a public relations problem: Government-run or single-payer health care is not particularly appealing. Rather than explicitly using those terms, which scared many Americans, the Left emphasized individual security and borrowed the language of free markets: choice and competition. So, the Left’s legislative titles have been appealing: The Health Care Security Act, the Patient’s Bill of Rights, the Patient Protection and Affordable Care Act, to name just a few. Yet all of those bills were rooted in government making decisions instead of patients.

For conservatives, the answer has been that key decisions in health care should be left in the hands of patients and their doctors. For decades, conservatives, particularly in the think tanks, developed detailed and comprehensive reform proposals, often vetted with sophisticated econometric analyses, and offered in the form of technical assistance to members of Congress and their staffs. The American Enterprise Institute, the Cato Institute, the Galen Institute, The Heritage Foundation, and the National Center for Policy Analysis, among many others, participated in these efforts. While the plans differed in details, they all advanced common themes and focused on moving America towards a patient-centered, market-based health care system.

The Epic Battle over ClintonCare

Before the battle over ObamaCare, the biggest national health care debate was over the Clinton Health Plan (ClintonCare). In substance, the Clinton Plan, with centralized bureaucratic control and detailed micromanagement of health plans and benefits, was strikingly similar to what is now ObamaCare, but its development and presentation were very different. Right after President Clinton’s inauguration, the White House, under the leadership of Hillary Clinton, spent nine months developing and writing a massive and detailed 1,300-page health care bill, “The Health Security Act,” and unveiled it on October 22, 1993.

On Capitol Hill, the initial and profoundly disappointing Republican reaction was that ClintonCare was inevitable. But conservatives launched a full court press against the bill, and forced debate over the proposal all over the country. Conservative think tanks came together to form the Washington-based Consensus Group under the leadership of Grace-Marie Turner of the Galen Institute. That group outlined a common set of policy prescriptions as an alternative to the Left’s health care agenda as embodied in the Clinton Plan. Those ideas would have advanced a patient-centered, market-based health care system for the country. Key elements of the conservative alternative included:

● Individual tax relief for all Americans, in the form of tax credits or direct assistance for low income persons, would enable them to get access to affordable private health insurance of their choice. The tax changes would ensure equity in the tax treatment of health insurance, personal ownership and portability of coverage, and guarantee personal choice and robust competition among health plans and providers.

● Insurance market reforms would allow insurers to offer consumer-directed products, such as Medical Savings Accounts; as well as given consumers the right to renew coverage and secure lower premiums by pursuing healthy lifestyles.

● Defined-contribution financing (premium support) and choice and competition would spur innovation and greater productivity within Medicare and Medicaid as well as throughout the entire health care sector. Defined-contribution financing would empower patients and force plans and providers to compete directly for consumers’ dollars. The Medicaid changes would allow low-income persons to be mainstreamed into the private health insurance markets, intensify competition, and maximize cost control.

These key conservative reforms, promoted by virtually all major conservative think tanks, were at the heart of House and Senate proposals that countered and eventually thwarted the massive ClintonCare bill. Indeed, these key elements, in one form or another, are still at the heart of various legislative proposals offered today by leading conservatives in the House and Senate. They also remain at the core of many conservative think tanks’ health care proposals.

In the fall of 1994, the Clinton Plan collapsed and died on the Senate floor when Senate Majority Leader George Mitchell (D-Maine) withdrew the bill from Senate consideration. Public opinion had decisively turned against the White House on health policy. Republicans captured the House of Representatives for the first time in 40 years. Polling showed that the GOP enjoyed greater trust than the Democrats on health care.

The Left Regroups and Resumes the Offense

Even though they had just won a major political victory on health policy, opponents of the Clinton plan, in Congress and elsewhere, failed to seize the offensive and press for conservative health care reform. They largely moved on to other issues. The one exception was Medicare reform, but congressional Republicans were stymied by demagoguery that frightened seniors and they failed to gain traction on significant reforms throughout the 1990s.

For the Left, however, the liberal health policy agenda was only delayed, and its response to the 1994 Clinton defeat was to pursue incremental steps to advance the principles of the Clinton plan and a government-centered health care system. States like Kentucky, Washington, and Minnesota enacted their own versions of the Clinton health plan. Not surprising, these plans also failed and were rolled back or repealed, as state health care costs soared and insurance competition shrank and public opinion soured.

At the federal level, the Clinton administration and its allies in Congress focused their attention on enacting key parts of ClintonCare as stand-alone proposals. Congressional Democrats, most notably Sen. Edward M. Kennedy (D-Mass.), secured Republican support by incorporating elements of the Clinton plan in larger bipartisan bills. The two best examples were the Health Insurance Portability and Accountability Act (HIPAA), enacted in 1996, and the State Children’s Health Insurance Program (SCHIP), enacted in 1997.

Perhaps the only bone thrown to conservatives in the Balanced Budget Act of 1997 was some measure of state flexibility in the administration of SCHIP. Regrettably, Republican governors showed little interest in taking advantage of it as by design the easiest path for the states was simply to expand Medicaid.

HIPAA accomplished the worthy goal of providing portability of insurance for some persons moving from one group plan to another; elements of the failed Clinton health plan were incorporated into the bill, including, word for word, the “administrative simplification” provisions of the Health Security Act.

SCHIP was an entirely new federal-state children’s health insurance program that was incorporated into the larger but temporarily successful bipartisan effort to balance the federal budget, the Balanced Budget Amendment (BBA) of 1997. President Clinton’s allies in Congress, particularly Sen. Kennedy, saw the opportunity to cover children as both emotionally and politically irresistible, and thus expected and got Republican acquiescence in their incremental agenda. SCHIP was thus adopted as part of the larger budget package, and champions of greater government control scored yet another victory and continued the incremental erosion of private health insurance.

The Balanced Budget Act of 1997 reflected conservative and especially Republican priorities on balancing the budget; health policy was, as it so often was, a secondary consideration. The BBA restrained Medicare spending growth primarily by tightening up the program’s rigid system of price controls, a strategy that was particularly damaging to home health agencies which exited the program by the thousands. Under Section 4507 of the Act, Congress enacted a statutory restriction on the right of seniors to go outside of Medicare and privately contract with physicians, mirroring a similar provision of the discredited Clinton plan.

Perhaps the only bone thrown to conservatives in the Balanced Budget Act of 1997 was some measure of state flexibility in the administration of SCHIP. Regrettably, Republican governors showed little interest in taking advantage of it as by design the easiest path for the states was simply to expand Medicaid. Therefore, the legacy of the Balanced Budget Act of 1997, so roundly applauded by Republicans at the time, was not a balanced budget but a new government entitlement.

If consumers were in charge of health care dollars and decisions, they argued, managed care executives would be accountable to consumers. There was no need to sue an insurance executive if one could simply fire him.

The liberals next opportunity came in 1999 with the reported abuses in the managed care industry, specifically the delay and denial of patient access to specialty care by “gate keepers” in Health Maintenance Organizations. President Clinton launched a new campaign to create the so-called Patient’s Bill of Rights. The bill would have given patients the right to sue managed-care companies. It was politically ingenious to tap into the widespread backlash against the managed-care industry as a means of securing more government mandates and regulations. Ironically, the Clinton plan would have mandated a managed-care system, including “gatekeepers.” During the Senate debate on the Patient’s Bill of Rights, Sen. Don Nickles (R-Okla.) advanced a powerful argument: If Americans had a right to sue private insurance plans for denying and delaying care, then Americans should also have the right to sue Medicare and Medicaid for the same reasons. It was a show stopper. Congressional liberals were aghast at the idea of government bureaucrats being forced to go into the courts to defend Medicare and Medicaid claims denials. Meanwhile, throughout the debate conservatives insisted on the importance of relocating the power over health care dollars and decisions. If consumers were in charge of health care dollars and decisions, they argued, managed care executives would be accountable to consumers. There was no need to sue an insurance executive if one could simply fire him. In the end, the Patient’s Bill of Rights legislation died a quiet death. Undeterred, however, the Clinton administration launched a campaign to add a prescription drug benefit to the Medicare entitlement. It stalled—temporarily.

The Bush Era

The first major crisis in the Bush administration was, of course, the terrorist attacks of September 11, 2001. Following those attacks, the American economy suffered a shock and millions of workers lost their jobs and thus also lost their job-based health insurance. Congressional liberals responded to this crisis as an opportunity to radically expand Medicaid, a welfare program, up the income scale, in some cases to as high as 400 percent of the federal poverty level ($46,000 per person in today’s dollars). Under that plan, private coverage would contract while government coverage—and control—would expand.

Rather than advancing a Medicaid expansion, conservatives in Congress, supported by the free market think tanks, quickly responded with their own solution—extending tax credits to individuals to maintain or purchase coverage outside the place of work. In 2001, Rep. Bill Thomas (R-Calif.), chair of the House Ways and Means Committee, brought a tax credit bill to the House floor and passed it over objections of congressional liberals favoring Medicaid expansion. In the Senate, however, Majority Leader Tom Daschle (D-S.D.) blocked the tax credit bill twice. Nonetheless, as a political matter, conservatives were playing offense on health care policy for the first time in memory. While small, the proposal was a psychological victory for those who wanted to fix health care with more free markets.

In 2003, the Bush administration correctly diagnosed that drug access among some seniors was a problem and proposed a targeted assistance program to help the minority of low-income seniors who could not afford prescription drugs. The Bush administration also favored reform that would transform Medicare into a patient-centered, market-based, premium-support system. The Bush administration’s limited Medicare drug proposal was overcome by a bipartisan insistence on creating a universal entitlement for prescription drugs. Both big business and the pharmaceutical industry supported the entitlement expansion. It was a bitter battle, with The Heritage Foundation and other conservatives leading the fight and at odds with the Bush administration, the Republican congressional leadership, the business community and the pharmaceutical industry. In November 2003, after an epic battle, the Bush administration and its allies secured a narrow victory in Congress and created a universal drug entitlement with the passage of the Medicare Modernization Act of 2003. As a new, unfunded entitlement expansion, the bill was a serious defeat for conservatives. As The Heritage Foundation had predicted, the drug entitlement added trillions to the unfunded liability of the Medicare program. And the promising Medicare premium support initiative was reduced to a mere demonstration program that was later abolished with the passage of ObamaCare in 2010.

There were also a couple of silver linings, however. First, the Medicare prescription drug bill incorporated Health Savings Accounts (HSA) in conjunction with high-deductible health insurance. This was a genuine improvement over the limited medical savings account program. HSA plans have since multiplied and have become a powerful force for consumer choice in health care. Second, the Medicare drug benefit was to be delivered through a system of competing private plans (Medicare Part D), resulting in an intensity of competition and choice unprecedented in America’s health care economy. Competition not only stabilized premiums, but also drove down program costs from original estimates.

The last big battle of the Bush administration was the reauthorization of the State Children’s Health Insurance Program. Conservatives in Congress and elsewhere seized upon the SCHIP reauthorization as another opportunity to articulate patient-centered, market-based policies for children and their families. For liberals, the debate was the occasion to press for a $60 billion expansion of the program. In 2007, the battle ended in a draw. Conservatives were not successful in transforming the program into a competitive model, nor were liberals able to secure the expansion they wanted. For the liberals, however, the setback was only temporary.

ObamaCare and Beyond

The debate over health care in the 2008 presidential campaign reflected the long history of health care  reform. Republican presidential candidate John McCain authored a comprehensive, conservative health care reform plan, firmly grounded in patient choice, that would have greatly increased health insurance coverage, ended the distortions in the tax code and the health insurance markets, and employed the power of competition to control costs. Democratic presidential candidate Barack Obama authored a comprehensive health care reform plan firmly grounded in government control and decision making.

After defeating Sen. John McCain (R-Ariz.) for the nation’s highest office, one of President Obama’s first initiatives was an expansion of SCHIP, which was vetoed twice before by President George W. Bush. Then, with overwhelming Democratic majorities in the House and Senate, he concentrated his efforts on the main event: the bitter, dramatic, and divisive debate over national health care reform. Republicans launched an aggressive agenda offering dozens of amendments at committee mark-ups but were rejected by Democratic majorities, in most cases on straight party line votes. On the eve of the special election of Sen. Scott Brown (R-Mass.), the Democratic leaders pushed through a hastily written version of ObamaCare which ended the debate. On March 23, 2010, President Obama signed the Patient Protection and Affordable Care Act (ObamaCare) into law.

Government promises more than it can deliver and delivers it less effectively than the private sector. Therefore, efforts for reform should embrace the market while giving consumers control of health care dollars so that they can hold providers and insurers accountable.

The debate over health care took place against a background of unprecedented federal spending and soaring deficits, and the administration suffered a serious political defeat in the 2010 mid-term congressional elections. And while the President secured re-election in the 2012 presidential campaign, his victory did not translate into an endorsement of ObamaCare.

The next phase of the national health care debate is already well underway, with alternative health reform bills offered by Senators Tom Coburn (R-Okla.), Richard Burr (R-N.C.), and Orrin Hatch (R-Utah), as well as Representatives Tom Price (R-Mich.), Steve Scalise (R-La.), and Phil Roe (R-Tenn.), to name just a few.

The failures of ObamaCare, superficial and substantive, are reminders of a few primary lessons:

● First, the fundamentals of ObamaCare are the problem and therefore full repeal is the clearest option.

● Second, overhauling nearly one-fifth of the economy on one proposal does have consequences and is disruptive. Congress would be wise to advance solutions in an incremental fashion with the ability to adapt along the way.

● Third, government promises more than it can deliver and delivers it less effectively than the private sector. Therefore, efforts for reform should embrace the market while giving consumers control of health care dollars so that they can hold providers and insurers accountable.

Conservative Opportunity

Conservatives have long argued that choice and competition are the path to health care reform. Now we have the opportunity—and the duty—to lead.

Conservatives have long argued that choice and competition are the path to health care reform. Now we have the opportunity—and the duty—to lead. When the time arrives, as it surely will, we will need to have coalesced around these core ideas that have been developed over decades. We should be ready and able to present the American people with health reform legislation that is competently crafted, meaning it will be free of the glitches and technical deficiencies that often undercut health reform proposals. It must also be consequential, meaning that its enactment will materially improve the lives of millions of Americans by broadening access to health insurance and quality care while controlling costs through the power of the free market. And most importantly, it must be principled, meaning that it is crafted to expand personal liberty and revitalize civil society, giving individuals and families direct control over their health care dollars and decisions. The opportunity is here for conservatives to usher in a renaissance in American health care.


Ms. Owcharenko is the Director of the Center for Health Policy Studies and the Preston A. Wells, Jr. Fellow at The Heritage Foundation. Dr. Moffit is a Senior Fellow in the Center for Health Policy Studies at The Heritage Foundation.

Vegetables sprout of Collard.

Lower Taxes, Higher Growth

by John Hood

DURING THE GREAT RECESSION and its aftermath, few issues in state politics have been as contentious as fiscal policy. Here in North Carolina, where I direct the work of the John Locke Foundation, lawmakers have gone back and forth on taxes. When the recession opened up a massive hole in the state budget in 2009, then-Gov. Bev Perdue (D) proposed “temporary” increases in sales, income, and other taxes to protect some state spending programs. After Republicans captured the General Assembly in the 2010 midterms, they rejected Perdue’s proposal to extend those tax hikes for another two years, prompting a gubernatorial veto and legislative override. In 2013, Perdue’s successor, Gov. Pat McCrory (R), worked with legislators to craft a reform and reduction of state taxes that gives North Carolina a simpler, flat-rate income tax, lower taxes on business investment and job creation, and a somewhat-broadened sales tax.

As governors and lawmakers have debated these decisions, they have revealed substantial disagreements about how fiscal policy affects economic growth. Fiscal liberals argue that higher taxes aren’t harmful because they fund public services that boost economic performance, including education, infrastructure, and even public assistance programs such as Medicaid. Fiscal conservatives, on the other hand, argue that by discouraging work, savings, investment, and other economic activity in the state, higher taxes harm growth more than the programs they fund aid growth.

Obviously, this disagreement reflects a fundamental difference in political philosophy that may make each side impervious to persuasion by the other. But the claims made by the two sides are, in fact, empirically testable. That is, they can be explored by gathering data on a collection of states or localities, holding other factors constant, and then determining whether higher-taxed, higher-spending jurisdictions tend to experience more economic growth than lower-taxed, lower-spending jurisdictions.

I have recently completed a review of the scholarly studies on the topic. Many details follow, but here is the bottom line: The policy preferences of fiscal conservatives have strong empirical support. As the chart below demonstrates, most studies find that lower levels of taxes and spending, less-intrusive regulation, and lower energy prices (which often reflect fiscal and regulatory policies) correlate with stronger economic performance. Most studies also find that the quantity and quality of infrastructure (such as roads and bridges) and the level of educational attainment (such as the share of the workforce with high school diplomas or college degrees) are linked to economic performance. However, that doesn’t necessarily mean that raising taxes to fund more spending on infrastructure and education will prove to be a good investment, since the relationship between government spending and outcomes is not particularly strong.

insider chart 1

Findings on Taxes

State and local tax policy is far from the most important factor influencing economic growth. Market factors such as technological change, business innovation, and proximity to suppliers or consumers explain most of the differences in economic performance among states and localities. But when it comes to factors over which policymakers can exercise direct control, taxes clearly matter. They have a significant effect on business and household decisions. Anyone who claims that overall tax burdens and specific tax policies have little effect on state and local economies has simply not read the relevant research.

insider chart 2

I was able to find 115 studies published in peer-reviewed journals since 1990 that examined overall state or local tax burdens, measured as either total tax revenue per capita or total tax revenue as a share of income. In 63 percent of the studies, tax burdens were negatively associated with economic performance. In only three of the 115 studies were taxes positively associated with economic performance, all other things being held equal.

The findings for specific tax policies were revealing. Property taxes were negatively associated with economic performance 61 percent of the time. The rate rose to 65 percent for sales taxes, 67 percent for corporate income taxes or other business levies, 67 percent for personal income taxes, and 70 percent for the subset of income-tax studies that examined marginal rates rather than just average taxes paid. On the other hand, recent scholarship is not friendly to the notion that states and localities can promote economic growth by offering tax credits or other targeted tax incentives. More than two-thirds of the studies found no link between tax incentives and economic performance.

Findings on Government Spending

In response to empirical evidence linking tax burdens or tax rates with economic growth, fiscal liberals often argue that cutting taxes means cutting spending on public services that also have the potential to promote economic growth. The argument is reasonable. Unless you are an anarchist who believes that a stateless society would be the most economically prosperous, you must agree that levying some taxes to fund valuable public services must result in better economic performance.

So the real questions are these: First, which public services are the most valuable to state and local economies? And second, at what point do the economic costs of higher taxes exceed the economic benefits of higher government spending?

insider chart 3

According to the preponderance of academic research published over the past quarter century, most states and localities have exceeded the point at which additional government spending would deliver more economic benefits than costs. In the 61 studies that examined overall spending levels, measured either as expenditures per capita or expenditures as a share of income, higher spending was associated with higher economic growth in only 15 percent of the cases. (See chart above.)

A plurality of studies found no relationship between spending and economic performance, while more than a third found a negative relationship.

These results for overall spending levels mask important differences in spending efficacy by category, however. Public assistance programs, for example, are strongly and negatively associated with economic performance. Those who argue that using Medicaid, welfare, or other transfer programs to redistribute income can serve as an effective economic stimulus are clearly incorrect (at least when transfers are funded with state or local revenue). Public assistance programs may be justified on other grounds, but they do not fit the definition of “public investment.” On the other hand, there is one expenditure category—public safety, which includes spending on police protection, fire protection, corrections, and the court system—in which most studies find a positive correlation with economic performance. In most other categories, the relationship between government spending and economic growth is muddled. In a plurality of cases, studies find mixed or statistically insignificant effects.

Still, in the cases of spending on infrastructure (primarily transportation) and economic development (which includes business marketing, assistance, and recruitment programs), the share of studies finding a positive link to economic performance is at least somewhat close to half. And there is compelling evidence for the idea that the intended results of government spending—such as infrastructure quality and educational attainment—do help economies prosper.

What are we to make of these findings? There are several potential explanations. One is that states and localities often struggle to translate higher funding levels into better outcomes. Some high-spending states have high-achieving schools, for example. Other high-spending states have low-achieving schools. Differences in program design and implementation could explain the variation, as could factors outside the control of educators, such as parental background.

Another potential explanation is that, as with most other goods and services in the economy, government expenditures have diminishing returns. When states and localities first built roads and opened schools, the investment may have generated strong economic benefits that far exceeded the economic costs of the required taxes. But as governments added more dollars to existing programs, the resulting economic boosts weren’t as large. At some point, the marginal benefit of spending will fall below the marginal cost of the required taxes. Because this review focuses only on peer-reviewed research published since 1990, it could well be that most state and local budgets have in recent decades simply grown beyond the point of diminishing returns. In several papers in this literature survey, authors described the phenomenon as a “non-linear relationship” or a “growth hill.”

Findings on Regulation and Economic Freedom

In addition to fiscal policy, many scholars have studied the effects of state and local regulation on economic performance. Some studies examine overall regulatory activity, measured by rules issued, the budgets of regulatory agencies, or rankings of regulatory stringency. Other studies consider specific regulatory policies such as state minimum wages, licensing laws, product bans, or emission caps.

In more than two-thirds of the 160 peer-reviewed studies I located on the subject, higher levels of regulation were associated with lower levels of economic performance. Still, there were some cases in which regulation appeared to boost rather than retard growth. As with fiscal policy, these findings suggest a non-linear relationship between regulation and growth—that many states and localities have imposed so many rules that the ones that do confer net benefits are now outnumbered by the ones that cause net economic losses.

Several public policy organizations combine fiscal and regulatory measures to produce indexes of economic freedom. Two of them, the Economic Freedom of North America index by the Canada-based Fraser Institute (www. freetheworld.com/efna.html) and the Freedom in the 50 States index by the Virginia-based Mercatus Center (freedominthe50states.org), have been the subjects of scholarly research. In the 33 peer-reviewed studies published since 1990, 76 percent found a positive, statistically significant association between state economic freedom and state economic performance. These findings are strongly suggestive, although additional research would be welcome.

Implications

For state and local officials, the past quarter-century of academic scholarship about the relationship of public policy and economic performance suggests the following strategy for promoting economic growth in both the short term and the long term:

Keep overall tax and regulatory burdens as low as possible. In particular, avoid high marginal tax rates on personal and corporate income and use regulatory budgeting, cost-benefit requirements, and rule-sunset provisions to focus regulatory efforts on the greatest threats to public health and safety. Set a goal of making your state one of the nation’s highest-ranked states in economic freedom

Consider spending more tax dollars on public safety, where the potential gains in economic performance appear to be the greatest. This may reflect the importance of lower crime rates in bringing economic growth to distressed communities or the high value that entrepreneurs and business executives place on fair and speedy resolutions of legal disputes in state courts.

Increase the productivity of current taxpayer spending on infrastructure and education programs. Reform these programs to slash overhead, employ competitive bidding and consumer choice, and generate higher output for every dollar invested. If higher levels of taxpayer spending on infrastructure and education are desirable, fund them by reducing government expenditures elsewhere in the budget, not by raising taxes.

As it happens, these implications of academic research on economic growth closely track with recent public policies adopted in North Carolina. State lawmakers and the McCrory administration have adopted a flat tax, reduced the overall tax burden for most households and businesses, adopted regulatory reforms, and instituted changes in highway funding and school management that promise to increase the productivity of public spending. Judging from the available empirical evidence, North Carolina’s new policy mix is likely to result in stronger economic growth in the coming years.

Methodology

This review tabulates the findings of 681 journal articles published since 1990 that explore relationships between state or local policy and measures of economic performance such as employment, job creation, income growth, population growth, business starts, or investment flows.

In some cases, the articles focused directly on an issue of interest to state and local policymakers, such as the effects of tax incentives on job creation or the relationship between income growth and education attainment. In other cases, the authors were exploring other issues—such as the economics of industrial concentration—and used fiscal, regulatory, or other factors as control variables in their equations. For each variable of interest, I coded the study’s findings as 1) negative and statistically significant, 2) positive and statistically significant, or 3) mixed or statistically insignificant.

As nearly all of the 681 studies examined more than one variable, there are actually 1,389 separate findings in the database. Of the total, state or local tax policy (433) and state or local expenditures (431) account for nearly a third each, with educational attainment (203), infrastructure quantity and quality (84), state or local regulation (160), the related issue of energy costs (45), and economic freedom rankings (33) accounting for the rest of the findings.


Mr. Hood is President of the John Locke Foundation, a free market think tank in North Carolina. A version of this article was originally published by the John Locke Foundation.

Using smart phone

It’s a New Media World—and Liberals Don’t Like It

by Mike Gonzalez

BEHIND PRESIDENT BARACK OBAMA’S gripe to Bill O’Reilly that FOX News is always unfair to him stands a deeper resentment that has poisoned the soul of progressives for some time: Hollywood and academia might still be firmly in the grip of the orthodox Left, but part of the media has managed to wriggle free. Liberals still can’t get over this fact, and their rearguard actions to regain control come in different forms: Some, like our President’s objections, are innocuously transparent and amusing; others are more circuitous and perhaps more worrying.

In a joint paper, two of the Brookings Institution’s heavy hitters lay out a plan that would reverse some key media trends of the past few years, such as the growth of partisan commentary, citizen journalism, and Americans’ new-found ability to readily find opinions they like. The paper was authored by Darrel West, the Vice President for Governance and founding director of the Center for Technology Innovation;  and Beth Stone, Web Content and Digital Media Coordinator. They write in the most academic and detached of tones and if you weren’t careful, you wouldn’t notice how some of their recommendations would silence the new diversity of views. They make clear from the start that what motivates them is primarily the impact that the revolution in media has had on policymaking, which is one reason we should all care.

Changing Hands

While talk radio and FOX grab much of the attention, what really broke the Left’s control over media was the Internet. Before its advent, one needed a large investment in a printing press or a broadcast tower to engage a mass audience; afterward, all one needed was a few hundred dollars for a basic computer and Internet service. The web shattered barriers to entry, and, suddenly, pent up demand for information free of non-progressive bias met an onrush of supply.

The liberalization has been vast. Advances in mobile telephone technology now make it possible for an ever growing portion of humanity to do what only a few cameramen and photographers working for premier outlets were able to do just 15 years ago: record the news as it happens and send it around the world seconds later. One tragic, very well-known example is that of the citizen journalists in Tehran who recorded the murder of the young female demonstrator named Neda at the hands of state security agents, a crime that revealed to many the brutal nature of the Iranian government. Citizen journalists, of all political hues, can now connect with the world.

Social media platforms like Twitter, meanwhile, have taken the place of wire services like The Associated Press or Reuters, at least in the segment of the market devoted to the delivery of raw news—the transmission of events without comment, context, or background. Twitter beat the wires with both the killing of Osama bin Laden and Whitney Houston’s overdose. In the latter case, the niece of the person who found Houston’s body quickly tweeted out the news. Because every niece or nephew of witnesses to history will henceforth have access to social media, AP and Reuters will find it increasingly impossible to succeed at one of the things at which we wire service squirrels used to compete and excel—being the first with the news. To be sure, it is now incumbent on the consumer of news to be the filter and buyer beware is the order of the day. But the rapid dissemination of news is no longer the sole province of wire service journalists. Everybody, no matter his or her views, can now be a wire service hand.

These trends have commoditized raw news, the end of the business that is as undifferentiated as copper traded on the New York Mercantile Exchange. This part of the business now sells at a price that is set by the market, with low margins. The business that now commands a premium is commentary, the differentiated part. When CBO chief Douglas Elmendorf says that Obamacare will “disincentivize work” that is undifferentiated news transmission; when Avik Roy writes on Forbes.com, “Bored with your job? No worries—now you can quit, thanks to the generosity of other taxpayers,” that is differentiated commentary; Roy has added value by interpreting the news event. Straight news is nearly free while commentary is rising. This is one of the reasons why FOX and MSNBC are succeeding and CNN is not.

The use of infographics and videos, meanwhile, has further democratized information absorption, making it easier now to connect with people who are more visual than verbal but who nonetheless vote. This transition has been especially rough for old-style journalists. Ezra Klein’s Wonkblog, for example, brought this new style of journalism to the Washington Post. In a recent New Yorker profile of Klein—who has now left the Post to start Vox.com—the Post’s former managing editor explained the initial skepticism of Klein’s work in the newsroom: “A lot of people at the Washington Post in traditional reporting roles lacked an appreciation that story telling on the web can be a lot more engaging if you don’t rely just on words.”

Much of the liberalization has been a function of the very nature of digital journalism. The emphasis on straight news and words was tied to the constraints of a time when, as web guru Clay Shirky likes to describe it, we imported wood from Canada, pulped it, spread ink all over it and had neighborhood children on bikes throw the final product under our cars in the driveway. As Klein told The New Yorker, “The web explodes that constraint.”

Looking back, it is hard to even think that a mere 25 years ago, a handful of liberal anchormen and a dozen or so newspaper columnists pretty much controlled how the nation saw or read the national news. Walter Cronkite, John Chancellor, Harry Reasoner, and the others, all good Americans to be sure but liberal to the core, talked to us every night and gave us the news that they had selected to be the news. They were pretty authoritative and had the power to be.

We have always had news with a point of view. The only difference is that today the pretense is on its way out and what’s hot is the openly opinionated.

Cronkite even used to close his broadcasts by intoning, “and that’s the way it is, today” followed by that day’s date. They insisted that they were just giving us news and that they were impartial, and they did sound dispassionate, but reality was otherwise. By choosing what was news, what they prioritized, the tone they used and whom to interview, the old set of journalists were able to bias the news. Comment, context, and background in the transmission of news massage the message. It wasn’t just news we were getting. When Cronkite turned against the Vietnam War the gig was up, and President Johnson knew it, famously saying: “If I’ve lost Cronkite I’ve lost the nation.” The nation really did pay attention to what Uncle Walter said.

What we had, then, was a liberal version of the news sold as homespun common sense, pretty much the same way Pete Seeger surreptitiously worked socialist lyrics into banjo music. So, in other words, we have always had news with a point of view. The only difference is that today the pretense is on its way out and what’s hot is the openly opinionated.

What We Know

Because explicit commentary is winning the day with the ratings, journalists are being forced to drop the façade of impartiality. Now we know for sure what we always suspected: that Chris Matthews, Andrea Mitchell, and Nina Totenberg are very liberal. We know this because they’ve outed themselves. We know that FOX leans right and MSNBC leans left, and the consumer of news is able to use this knowledge to filter the information these outlets provide. Sure, NBC, ABC and CBS insist on maintaining the old pretense of neutrality as does—of all outlets in the world—The New York Times, but we are much better off now that many outlets have explicit points of view. In a way, we have gone back to the future. Pamphlets and newspapers in the 18th century and for most of the 19th century were out front with their political predispositions and many were in fact outright party organs. Only when the source of revenue shifted from party coffers to ads from companies selling detergent or breakfast cereal did newspapers adopt the affectation that they were impartial.

Politically, the result of media’s liberation from the liberal monopoly has been the beginning of the end of the era of compromise, during which both parties colluded on ever rising government spending. The Left began its stranglehold over the knowledge industry with patronage under the New Deal, and from that time to the present we have seen government spending balloon from around 10 percent to 40 percent of gross domestic product, and the amount the government spends on transfer payments has gone from 30 percent to around 66 percent of the budget. Richard Nixon, Bob Dole, Bob Michel, and the other Republican politicians of the second half of the 20th century merely managed the growth of government but never mounted much of an opposition to it let alone tried to reverse it. The Internet has fractured all that bipartisan coziness and fueled the rise of the Tea Party. Ted Cruz is no Bob Dole.

It must bother the President no end that he has to contend with the likes of FOX News, Rush Limbaugh, Mark Levin, Breitbart News, Glenn Beck’s The Blaze, Tucker Carlson’s Daily Caller, The Weekly Standard, National Review Online, James O’Keefe, and thousands of independent bloggers too numerous to name, plus a network of millions of conservatives sharing the content they create on social media. Questions on the Internal Revenue Service’s oppressive tactics against conservative groups (there’s no other way to describe it); the killing of an American ambassador in Benghazi, Libya; and the tragicomedy that ObamaCare has become will now keep surfacing. Thus the President’s evident petulance. And it just kills his supporters that the most progressive President since Woodrow Wilson—or perhaps ever—is being blocked from implementing what is to them a beautiful vision of government-led bliss that will finally transform the country into another industrial social democracy. The President’s backers look down on Sen. Ted Cruz (R-Texas), and tellingly their biggest complaint is not that he’s conservative but that he refuses to play along like many Republicans did before him.

Thus the Brookings paper, which starts innocuously enough. Who, for example, could object to a paper that opens with something as reasonable as this?

At a time of extraordinary domestic and international policy challenges, Americans need high-quality news. Readers and viewers must decipher the policy options that the country faces and the manner in which various decisions affect them personally. It often is not readily apparent how to assess complicated policy choices and what the best steps are for moving forward.

You know you are wading into difficult waters, however, when in the very next paragraph West and Stone quote warnings about the perils of the present political polarization from Brookings’ Thomas Mann and the American Enterprise Institute’s Norm Ornstein. AEI is indeed a conservative think tank, and a jewel of one at that, but any idea that coupling these two scholars from AEI and Brookings produces a balanced analysis should go out the window. Ornstein is AEI’s resident liberal and about as representative of the scholarship at AEI as I am of the Harlem Globetrotters. Mann and Ornstein are themselves very partisan players who would like nothing better than to go back to the old days when Tip O’Neill got the better of Bob Michel in the House of Representatives; they blame all of Congress’s dysfunctions on the Republicans, especially the Tea Party branch. So when West and Stone blame the role the news media are currently playing in the polarization that Mann and Ornstein decry there is more than just the sound of academic “tsk, tsking”—there’s also a slight whiff of “here’s hoping that we could set this darn clock back.”

In fact, attempts to do just that permeate the entire paper and its recommendations. West and Stone even chide the practice of pairing conservatives and liberals on television to comment on issues, which they say results in “polarization of discourse and ‘false equivalence’ in reporting.” Getting both views means there is a lack of “nuanced analysis,” which “confuses viewers,” they write. As with all liberal grousing, there is also throughout the paper the suspicion that the average American is not capable of filtering the news by himself. Another passage reads: “[T]he average reader’s ability to critically judge this new presentation of digital data is still developing and is lagging behind the ubiquity of interactives and infographics on the web.”

So journalists should lead the average American reader out of his torpor by linking to thoughtful commentary that gives the context the reader needs, just like in the old days. And who might be good examples of such much-needed context givers? West and Stone observe that “Platforms such as the Washington Post’s Wonkblog and Andrew Sullivan’s The Dish provide daily developments in policy news for those seeking to understand the intricacies of complex issues.” And, no it doesn’t end there. They also recommend Democracy Now!, which they describe as “a daily, independent program operated by journalists Amy Goodman and Juan Gonzalez.” West and Stone continue:

It runs stories that have “people and perspectives rarely heard in the U.S. corporate-sponsored media.” Among the individuals it features include grassroots leaders, peace activists, academics, and independent analysts. The program regularly hosts substantive debates designed to improve public understanding of major issues.

Both Sullivan and Klein are uniformly liberal in all issues and supportive of Barack Obama’s agenda. They are also, however, deep-thinking innovators who explain things thoroughly on their respective sites, even if from their perspectives. Not so for Goodman and Gonzalez, who can only be described as neo-Marxist apologists for Chavez, Castro, and the Sandinistas.

We can only be thankful that West and Stone revealed their weakness for Goodman and Gonzalez for it alerts the discriminating reader to be on the lookout for danger to come, and it doesn’t take long to materialize. Buried beneath moderate-sounding verbiage there is nothing less than a call for neutering the citizen journalist through mass editing (crowd sourcing) and for making it harder for average web searchers to find ideas that do not conform to the accepted wisdom. “Citizens without journalistic training may be more likely to report inaccuracies or file misreports,” they write. “Because they are reporting of their own volition, it is possible that they might have a specific agenda or bias. They may repeat false ideas reported elsewhere and help bad ideas go viral.” Combining the mass editing of crowdsourcing (“the virtues of collective reasoning,” as the authors put it) with citizen journalism, however, would be a way to hold these untrained journalists accountable.

Perhaps even more troubling is their proposal for dealing with diversity of views on the web. West and Stone quote former New York Times managing editor Jill Abramson as opining that there is “a human craving for trustworthy information about the world we live in—information that is tested, investigated, sorted, checked again, analyzed, and presented in a cogent form. …. They seek judgment from someone they can trust, who can ferret out information, dig behind it, and make sense of it.” I think we all know what the former managing editor of the Times thinks when she talks about sorting and analyzing news. So here’s what West and Stone propose:

Search engines employ many criteria in their algorithms, but many of them are based on the popularity of particular information sources. Yet these algorithms lack the embedded ethics of human gatekeepers and editors. Articles or sources that generate a lot of eyeballs are thought to be more helpful than others which do not. This biases information prioritizing towards popularity as opposed to thoughtfulness, reasonableness, or diversity of perspectives.

Digital firms should be encouraged to add criteria to their search engines that highlight information quality as opposed to mere popularity. They could do this by adding weight to sites that are known for high-quality coverage or providing diverse points of view. This would allow those information sources to be ranked higher in search results and therefore help news consumers find those materials.

In other words, Google, Facebook, et al., should bump up the search rankings of the “high quality coverage” practiced by Abramson, Klein, Sullivan, Gonzalez, and Goodman which would produce once again the type of politics that Ornstein and Mann find acceptable. Much lower down would be the muck-raking journalism of James O’Keefe and Breitbart, the opinions of Sean Hannity and Hugh Hewitt or pieces run by National Affairs or National Review Online. Sen. Cruz’s refusal to go along with higher spending, or Sen. Lee’s analysis of how our current welfare system keeps the poor poor would be about 20 clicks away, if anywhere at all.

The old days when an (overwhelmingly liberal) elite “tested, investigated, sorted” the news for the rest of us did not result in a better-informed citizenry; there is more information available to the common man today than at any other time in human history, and more variety of views.

There is nothing wrong with Brookings’ West and Stone making their case, though it would have been better if they had been up front about it rather than letting their readers decipher their intent by the leanings of the people they cite. There are arguments to be made for the civility that most news outlets observed during most of the 20th century. Lamentably, many people use the Internet today to savage their opponents. And, yes, hoaxes are pervasive. After one of the Olympic rings failed to open in Sochi, Russia, a “story” made the rounds on the web about how the man responsible had been found stabbed to death in his hotel room. It was utterly untrue.

But, no, the old days when an (overwhelmingly liberal) elite “tested, investigated, sorted” the news for the rest of us did not result in a better-informed citizenry; there is more information available to the common man today than at any other time in human history, and more variety of views. And for all its comity, the era of media monopoly also produced sub-par governance. Citizens armed with facts they can now unearth can now question the direction of our government, and so we finally have a real debate about its future growth.

No Going Back

At The Heritage Foundation, another well-known and influential public policy organization and purveyor of content that may not please the old elites, we have a dog in this fight. We are transforming The Foundry from a blog to a full-service media outlet; its editor in chief, Rob Bluey, tells me:

The need for honest, thorough, responsible reporting has never been more critical. It’s troubling that liberals would want to suppress anyone they disagree with from doing this important work—whether it’s a citizen journalist or large news organization. That’s why we need more voices, not fewer, as Andrew Breitbart often said.

It would be dangerous if Google, Facebook, or the other major players were to follow West and Stone’s advice, which would effectively mean giving undue weight to liberal opinion. Google assures us that its search algorithms are computer generated exactly to remove human bias from the process. Clicks determine what rises to the top. While the “legitimacy” of a site is one of the criteria that influences how high a link rises in a search, over time legitimacy is determined by popularity, also. “It’s pure democracy; the public votes what’s the best source,” a Google official told me. Both Facebook’s CEO Mark Zuckerberg and Google Chairman Eric Schmidt are well-known liberals who support President Obama’s key policy initiatives. If they were to let their political proclivities dictate what’s promoted on their platforms we could start slipping back into the age of Uncle Walter.

More likely, however, we will see an erosion of the Left’s grip on another industry of the knowledge-class liberal triumvirate: academia. For-profit schools represent the biggest threat the higher education establishment has faced for years. There, the battle for holding the for-profit upstarts will be fierce, and much of it will be fought in the halls (or rather, the lobbies) of Congress. But there are signs that universities may be in for the type of technology-induced creative destruction that has been roiling media for the past 15 years. If that happens, expect rearguard battles that will make the present play in media pale by comparison.


Mr. Gonzalez is the Vice President of Communications at The Heritage Foundation and a former newswire and newspaper reporter and editorial writer. His book on Hispanics is due out this September. A version of this article was previously published at The Federalist.

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How to Build a Culture of Optimization for Your Online Communications

by Tim McGovern and Nathaniel Ward

THERE’S NO QUESTION THAT the Left has dominated conservatives online in recent years.

The best example is the 2012 Obama campaign, which ran circles around Mitt Romney’s digital operation. The Obama campaign signed up millions of Americans for e-mails, coordinated get-out-the-vote efforts online, and raised a whopping $525 million via the web.

Some of this success doubtless results from the campaign’s investments in personnel and infrastructure. For example, Obama’s data and technology team had 300 members, while Romney’s had 120.

Yet while Obama’s campaign hired dozens of experienced marketers, its success had less to do with experience than a willingness to ignore “expert opinions” and let testing tell them which marketing worked and which didn’t. In them learning that their expert guesses couldn’t tell them which e-mail was going to generate the most gifts or revenue. “We basically found our guts were worthless,” a senior campaign staffer said.

There is a lesson here for conservatives.

How Heritage Adopted a Strategy of Testing

We have made our share of bad marketing choices at Heritage.org. Not all those choices led to bad results, but they were often made for the wrong reasons. Historically, we made decisions about Heritage.org in three ways:

1. By HIPPO—the highest-paid person’s opinion. We acted based on the gut instincts, experience, or aesthetic preferences of our higher-ups.

2. By committee—a standing committee of stakeholders holding lengthy meetings that led to making some decisions and deferring others. Office politics were a recurring factor in decisions.

3. By expert. We found someone with real or claimed expertise to make decisions for us or to validate decisions we’d already made. Often their solutions involved us buying software for which they received a commission.

Without question, the most painful decisions were those for which we used a combination of approaches, which meant no clear authority for the decision was established.

The death of the old way of making marketing decisions began on a fall day in 2012, when one of our policy analysts appeared on the eighth floor of the foundation’s headquarters in Washington, D.C. That’s normally where you find the President, then Ed Feulner; the Vice President, Phil Truluck; and the members of the development team. This analyst was, as many Heritage employees are, also a Heritage Foundation member, and he wanted to know how he could renew his membership online. He was a bit flustered because he couldn’t figure out where to find the “renew membership” button at Heritage.org.

At first we couldn’t believe that one of our members didn’t realize that you renew your membership by hitting the “donate” button. After all, that’s what you do to become a member in the first place. Our colleague told us that it wasn’t obvious that you renew just by hitting “donate” again. And if it wasn’t obvious to our own colleague, then maybe we were failing to see the problem as our members were seeing it.

So we in the development team began discussing the idea of adding a “renew membership” button that would sit next to the existing “donate” button at the top of Heritage.org. However, the request triggered concerns about the delicate political balance struck on the existing version of the Heritage.org header. Additionally, such a button would clutter up the navigation bar, and best practices say not to do that. We prevailed by framing it as an experiment that would either show results or end in having the button removed.

In order to assess the question properly—and also with an eye toward setting a precedent for future testing—we made sure our experiment was a true test: We had a hypothesis about how user behavior would be different in the new version (the treatment) from the old version (the control); in order to control for confounding factors, we randomly selected visitors to see either the treatment version or the control version; and we committed to letting the results guide the final decision regardless of other factors.

Our hypothesis—that making it easier to renew would generate more and more timely renewals—was confirmed. Our treatment with the renewal button outperformed the control to the tune of $200,000 per year. The “renew membership” button is still part of the top banner at Heritage.org. We gained, however, not just a “renew” button, but also an appreciation of the value of testing our online communications.

Today, many more decisions—from the design of event registration e-mails to the layout of our policy reports—are made based on data rather than our gut instincts or aesthetic preferences.

How You Can Adopt the Testing Strategy

The easiest way to start building a culture of online optimization is to start testing. This framework guides every test Heritage runs:

1. Choose what element of your program you want to improve. For example, you might want to strengthen your e-mail newsletter or your donation page.

2. Identify how you measure success. You don’t run a test just to see what happens. You’re trying to improve something. What is that something?

So if you’re optimizing your newsletter, what’s the goal of the newsletter? To drive someone to your website, perhaps? Or what’s the goal of your donation form? To capture the most gifts or to capture the most revenue?

You will then measure your test results based on this goal.

3. Develop a hypothesis about how you will improve that measure. This step is critical. With a clear hypothesis—“more links in my newsletter will drive more traffic to the site,” for example, or “less clutter on the donation page will lead to more gifts”—you have a testable proposition. Your test will either confirm or reject your hypothesis, and you can apply that lesson in the future.

Not every test you run will yield a clear improvement. Most of the tests we run at Heritage are inconclusive. And more than we’d like to admit, the new version we develop has worse results than the status quo. But this is exactly the point: Every time we run a test, we learn something. We learn what works, what makes no difference, and—probably most importantly—what doesn’t work at all.

Testing, of course, is not unique to online marketing—or even to marketing. However, digital marketing offers three unique characteristics that make it easier to avoid the pitfalls of gut-instinct decision-making: faster turnaround times; more granular measurements; and lower marginal costs for additional tests. Conservative organizations should take advantage of these characteristics of the online world by continually testing what they do.

Winning the war of ideas ultimately requires us to win the hearts and minds of the American people. Only with knowledge about what communications are effective and what communications are not can conservatives hope to win the war of ideas. The strategy of testing is what gives us that knowledge.

Resources You Can Use to Get Started with Testing

● In “Inside the Cave,” (enga.ge/projects/inside-the-cave/) Patrick Ruffini explains how the Obama campaign built its online operation.

● You can use tools like Google’s (free) Content Experiments or the (paid) Optimizely (optimizely.com) to run A/B tests on your website. Most commercial e-mail programs allow you to run tests out of the box.

● The blog at ConversationXL.com offers more advanced tips and pointers for how to use A/B testing.


Mr. Ward is Associate Director of Online Membership Programs at The Heritage Foundation, and Mr. McGovern is Director of Marketing Technology at The Heritage Foundation.

 
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