I ran across this story yesterday but didn’t have a chance to post about it. I appreciate a great deal what newly installed Parliamentary Budget Officer Kevin Page is doing here by drawing attention to the gaps in funding that his office is receiving in trying to do what is arguably a vital job in regards to transparency and accountability in our Canadian democracy. Feeling confident in knowing how money is spent being by government in countries like the US and Canada given the economic challenges facing each can be a full time job in and of itself given the numbers and intricacy of legislation involved.

It’s no wonder whatsoever that the Congressional Budget Office (created in 1974, as opposed to our 2006!) in the US has played such a pivotal role in determining the viability of  important initiatives. Indeed, the independent analysis provided on matters budgetary by the CBO is, in many cases, sacrosanct precisely because of its impartiality. Within the context of a politics so obviously marked by partisan wrangling, this kind of analysis is irreplaceable for a whole host of reasons.

Which is why it rankles so that the CBO’s Canadian cousin is fighting just to get the budget it was promised by the Prime Minister’s office. That the PBO has had some differences of opinion with the numbers presented to Canadians by the Minister of Finance only makes me more ardent in my belief that this is money well spent and  that the PBO should be funded at the levels necessary to, you know, properly staff it. [Read more →]

Or at least it does in my hometown, which voted overwhelmingly against what would amount to an average of $11 more a year in property taxes to shore up a failing school budget.   [Read more →]

The New York Times – as is its wont – has a pretty good editorial on the need for higher taxes in the age of Obama:

But, sooner than he may prefer, Mr. Obama will have to face up to what he has so far avoided: the need to raise taxes broadly to rein in deficits.

The deficits are not of his making. Some two-thirds of the $9 trillion shortfall resulted from policies that predate his administration; most of the rest is the cost of policies that both parties consider necessary, like continued relief from the alternative minimum tax.

But when he inherited the burden of the budget mess, Mr. Obama also inherited the responsibility to clean it up. Neither economic growth nor spending cuts will be enough to fix the projected shortfalls. Nor is there enough to be gained by confining tax increases only to families making more than $250,000 a year, a campaign promise that Mr. Obama still says he will keep. [...]

The question then is not whether taxes must go up, but when, how and how much.

I’ve made this point several times here and on my own blog, but it’s worth reiterating: fiscally, our current path is completely unsustainable without either significant cuts in spending or significant increases in revenue.  Seeing as how the former isn’t particularly likely (and seeing as how I’m pretty much on board with an expanded welfare state and more comprehensive benefits), the only real option we have – at least in the short term – is to raise taxes.  And while I understand that a significant revision of the tax code is a near political impossibility (though there might be some hope for a progressive consumption tax), there is quite a bit of low-hanging fruit with regards to ways we can raise revenue.  Here are a few of the more obvious ones:

• “Infinite tax brackets”.  I kind of elaborated on this on my own blog a little while ago, but basically, the idea is that you can use computers to adjust the tax rate for every marginal dollar past a certain point.  So, for instance, if incomes of $500,000 are taxed at 45%, each additional dollar after $500,000 is taxed at 45.00001%, 45.00002%, etc. etc.  I don’t think it’s a stretch to say that you could raise enormous amounts of revenue this way, and rhetorically, it sounds much more palatable than a single 70% marginal tax rate for the super-wealthy. You’d have to change the name though.
• Standardizing alcohol taxes.  Here’s the National Journal: “In the same report, the CBO suggested that standardizing federal taxes on alcoholic beverages to 25 cents per ounce of alcohol would increase revenue by $60 billion over 10 years. Currently, different types of alcoholic beverages are taxed at different rates: 21 cents per ounce of alcohol in distilled spirits, 10 cents per ounce of alcohol in beer and 8 cents per ounce of alcohol in wine.”  What’s more, as Matt Zeitlin points out, a sin tax targeted at alcohol would significantly reduce consumption among heavy drinkers, which in turn, could reduce the assault rate by as much as 20%.
• “Soda taxes.” Broadly, these would simply be taxes on any beverage containing a certain amount of sugar per ounce, and could be expanded to include food as well.  Here’s the National Journal again: “According to a Congressional Budget Office report released in December, a national excise tax of 3 cents per 12 ounces of sugary beverage — that’s 3 cents for a can of Coke or 5 cents for a 20-ounce bottle — would yield $50 billion over 10 years, while potentially reducing overall health care costs because of the link between sugar intake and health conditions like diabetes and obesity.”

Even ignoring the first point, these minor changes in taxation would yield well over $100 billion over ten years, which would put a healthy dent into the cost of health care reform.  I know that most of you aren’t particularly amenable to tax increases, and would prefer to see smaller government.  But, to put it bluntly, that simply isn’t going to happen.  Conservatives as well as liberals have been fairly enthusiastic about expanding the scope of government, and I don’t expect that to change anytime soon.  The real question, in my view, is how do we make government work as effectively as possible?  Especially, as seems to be the case, if we’re going to have an expanded welfare state as well as a substantive presence on the international stage.  And the obvious first answer – I think – is that we need government to be fiscally responsible, and to have that, we simply need more revenue.

Also, I love Soul Train.

In the comments to Scott’s post last week, greginak (who was one of the few to hone in on Scott’s central point) asked for the “posters to offer criticisms of their own theories.”  This seemed like an interesting and worthwhile exercise, so I figured I’d give it a try, with some help from Monty Python.  I should note that for the most part, these critiques are going to be of libertarianism (excluding the pure anarchist variety, to which a lot of these critiques don’t apply) in general rather than my theories that deviate from run-of-the-mill libertarianism (if such a thing exists). 

• “All right, but apart from the sanitation, medicine, education, wine, public order, irrigation, roads, the fresh water system and public health, what have the Romans ever done for us?”  Government, both in terms of size and power, has grown to the point where it is possible to plausibly connect government intervention to almost any imaginable problem.  But although I believe this general libertarian inclination to point the finger at government for any given problem is correct more often than not, the converse of being able to link government to just about any problem is something that libertarians have a hard time recognizing.  Specifically, if government is now so large as to be able to take the blame for any problem, it is equally true that government is now large and powerful enough to take credit for any good. 
• “I dunno, must be a king….  He hasn’t got shit all over him.”  For all of our anti-government rhetoric and attempts to either blame poverty on government intervention or blame it on lack of personal responsibility or talent, libertarians do a poor job recognizing the inconsistency of their position to the extent we do not actually advocate anarchy.  Where libertarians blame poverty on government intervention, they they ignore that this logically means that as long as government exists (and again, this critique does not apply to anarchists), there will be people who benefit economically from the State and people who suffer because of it.  The only way to rectify this situation is going to be to take from those who benefit from the existence of the State and give to those who suffer from it.  Where libertarians (usually Randians) blame poverty purely on lack of individual responsibility or talent and credit individual responsibility and talent for success, they are ignoring the role of the State in defining the skill sets and activities that will make a person economically successful and are thus justifying the results of those actions.   The State (and by implication, the successful) thus may have a duty to in some significant way compensate those whose skills the State has deemed unworthy. 
• “I was hopping along, minding my own business, all of a sudden, up he comes, cures me! One minute I’m a leper with a trade, next minute my livelihood’s gone. Not so much as a by-your-leave! “You’re cured, mate.” Bloody do-gooder.”  One of the areas where the libertarian critique is strongest is in its warning against the unintended consequences of central planning and regulation.  The trouble is that we don’t do a very good job recognizing that de-regulation can likewise have its share of unintended consequences.  Often these unintended consequences can justifiably be overlooked on the grounds that the people hurt will be the people who were using a regulation for their own competitive advantage and thus are not really victims.  But other times, deregulation can mix with other still-extant regulations and laws to exacerbate the effects of those existing laws, hurting people who have not directly benefited financially from the previous regulation and who may even already be victims of the other regulation and thus see the effects of that other regulation increase even more.   Still other times, deregulation may only serve to strengthen the hand of businesses that already benefit from the protection of another regulation.  A good example of such a situation would be one where regulations severely restrict who can enter a given market while the deregulation gives those already in that market the ability to expand even more without a significantly increased threat of competition.
• “Listen, strange women lyin’ in ponds distributin’ swords is no basis for a system of government. Supreme executive power derives from a mandate from the masses, not from some farcical aquatic ceremony.”  If Libertopia were to emerge out of nowhere tomorrow, we’d have a situation where the most powerful people, the people who really did wind up controlling people’s lives the most, would be the people who already possess the most wealth – wealth that has hardly originated in anything resembling a free market.  And so without some theory of intermediate redistributive economic justice, Libertopia would quickly come to resemble the type of oligarchy that arose after the collapse of the Soviet Union.
• “Stan: It’s every man’s right to have babies if he wants them.  Reg: But you can’t have babies.  Stan: Don’t you oppress me.
  Reg: Where’s the fetus going to gestate? You going to keep it in a box?” Libertarians, with our focus on almost unimpeded rights, have a tendency to ignore the immediate problems right in front of our faces in order to focus on some relatively unimportant long-term ideal.  We’re too often tone deaf in this respect. 
• “Follow. But. Follow only if ye be men of valour, for the entrance to this cave is guarded by a creature so foul, so cruel that no man yet has fought with it and lived. Bones of full fifty men lie strewn about its lair. So, brave knights, if you do doubt your courage or your strength, come no further, for death awaits you all with nasty, big, pointy teeth.”  We don’t live in a Coasian world with no transaction costs and in which information-sharing is perfect.  Although the lack of access to adequate knowledge is a fundamental assumption of libertarian critiques of central planning, it is all too easily forgotten about when arguing for less-regulated markets and for the power of local knowledge.  To be sure, local knowledge is generally far superior to centralized planning, but there will be occasions where individuals encounter something foreign to them of which the dangers will be unclear.  Centralized government can act on aggregated knowledge to ensure that individuals are protected from things about which they are inherently unaware.

I think libertarianism still offers the moral vision that I find most appealing, and I think the Hayekian critique of central planning is almost certainly correct.  But libertarianism is an ideology/comprehensive political philosophy.  And just like any other ideology or political philosophy, its adherents are going to be subject to a lot of blind spots when it is confronted with reality.  This doesn’t make libertarianism “wrong” in any sense of the word – if we were starting society from scratch, I can easily imagine any variety of functioning governments that would be consistent with libertarian philosophy.  But we’re not starting society from scratch and instead are dealing with a highly complex and developed world that won’t always be amenable to libertarian ideals.  Libertarians would do well to be cognizant of these imperfections even if they do not think these imperfections warrant a deviation from standard libertarian theory in a given instance.

Reading the comments to E.D.’s link-fest yesterday, I noticed that there is a lot of resistance to the idea that universal health care will stifle innovation in the US.  This idea is generally taken as a given by libertarians and free market advocates, but opponents point out that Medicare Part D has not seemingly stifled innovation in the pharmaceutical industry.

Although I think it’s really too early to draw that conclusion for certain, given the lengthy approval process for new drugs, I’m actually starting to think that there’s some merit to the idea that universal care of some sort need not stifle innovation.  The trick, however, is in how that universal care is structured, I think.

If universal care is structured as a national health insurance plan or, God forbid, as a national health service, then I think you do wind up with stifled innovation.  The reason for this is pretty obvious – at that point, you do have government making decisions for the entire market as to what drugs can and cannot be covered or given.  Additionally, as Megan McArdle has so often pointed out, there is a strong case to be made (although admittedly I’m not entirely persuaded given the employer-based structure of our system) that the private nature of our system allows us to figure out what works and how much it should cost, information that is then used by the rest of the world in setting their own health care systems.

On the other hand, what if universal health care were instead structured as a voucher system rather than as a government run insurance or health care service?  Under this voucher system, everyone would receive a health care voucher (ideally taking the form of a credit card) for a certain sum every year depending on their income level.  This sum would be based on a pro rata share of what the federal government already spends on health care via Medicaid, Medicare, and – most importantly – employer health insurance tax credits.  The vouchers could be spent on just about anything reasonably related to health care, ranging from doctor visits to contact solution.  Anything left unspent in a given year would carry over to the next year (although I can see an argument made for it to be “use it or lose it”). 

This proposal would not stifle innovation because government’s sole involvement would be in determining the amount of the vouchers.  Individuals would entirely govern how and where their health care dollars were spent, and pharmaceutical companies and medical practitioners would adjust their practices to capture those dollars.  In other words, they’d have to meet the actual demands of health care consumers rather than the mandates of government or employer-based insurance companies.  This would encourage, rather than discourage, innovation.

To be sure, I see two (ultimately three) pretty clear objections to this sort of proposal.  The first objection would come from liberals, who I assume would argue that this proposal doesn’t do enough to cover catastrophic expenses.  But that’s where the individual insurance market would come into play – individual insurance is perfectly suited for such catastrophic expenses.  In fact, insurance from catastrophe is supposed to be the entire point of insurance.  But insurance from catastrophe, as opposed to insurance from mundane and anticipated expenses, is going to be quite affordable and inexpensive.  Additionally, a voucher recipient could choose to allocate some portion of their voucher to insurance (keeping in mind that under my proposal, anything unspent in a given year carries over to the next year).  If the program is appropriately means-tested, even the poorest of the poor should be able to afford a basic level of catastrophic health insurance from the private market.  I’m open to suggestions as to how to handle medical care for the poor that perhaps exceeds the voucher amount but does not amount to a catastrophic expense, but if the program is properly means-tested, there should never or almost never be such gaps.

The other objection would be from the pro-free market side of the equation.  This objection would be that my proposal leaves too much room for bureaucratic headaches – after all, who would evaluate whether an expense was reasonably related to health care?  This is a legitimate concern, but one that has an easy solution – accept that there may be a certain level of fraud in the system.  This level ultimately should be mitigated substantially by allowing unused funds to carry over from year to year.  I think you can have a skeleton force of auditors to spot-check expense reports, but for the most part, you just don’t worry about it. 

The only time fraud would become a significant concern would really be where someone has spent their entire voucher and is making a claim against their individual insurer or in the much rarer case where the voucher has been spent and there is a gap between the voucher and the amount of individual insurance coverage.  In the former case, the insurance company itself would be perfectly capable of conducting the audit and simply deducting the amount of the fraudulent charges from its coverage – where the fraud is significant and clear (say, more than 20% of the annual voucher amount), they could also forward the charges on to the federal prosecutor’s office.   If the vouchers take the form of a credit card, there will be a clear and easily audited paper trail.

The other, much rarer, instance would be where a claim is being made against the government for coverage of a gap between the voucher and the private insurance.  This is where your handful of federal auditors would come in.  Again, the clear paper trail would give a clear picture of whether or not the claim is legitimate or the result of fraudulent expenses.  If the fraud is such that the person cannot repay the government or pay for the required medical treatment on his own, then you can provide the person with the treatment but also prosecute them for the fraud. 

Moreover, the idea of having personal credit cards for health care benefits is one that has some precedent.  This is more or less how many employers already handle personal health savings accounts. 

Thoughts from the commentariat?

Dennis Sanders responds to my post on distrust of government and invokes Eisenhower by invoking Kelly Pipes: [Read more →]

So I was listening to NPR this morning and a Japanese economist was talking about their “lost decade” and chalked it up to what he termed “balance sheet recession.”   Basically, too many people had too much debt, and when all these bad assets appeared,  everyone scrambled to get their balance sheets in order rather than spending and borrowing.  The Japanese tried everything, including 0% interest rates, and in the end none of it worked.  Private capital was not flowing.  The only thing that did finally work was the temporary introduction of public capital into the system – government spending, essentially, to ride out the recession while all those private balance sheets were righted.

After commercial property value fell 87% in the nineties, Japan entered into a period of slow growth, but not quite recession.

Like Japan in the 1990s, the U.S. is suffering what Koo calls a “balance sheet recession.” When asset prices collapse, the people who bought those assets with borrowed money are left with balance sheets underwater, and all they want to do is pay down debt.

“People are no longer maximizing profits the way it’s assumed in economics. They’re minimizing debt. The invisible hand of [economist and philosopher] Adam Smith works in the opposite direction,” he says.

With private borrowing and spending frozen, the Japanese government stepped in, spending on highways, bridges and other infrastructure, and running up big deficits. Where the Japanese government erred, Koo says, was in worrying about those deficits. It cut back prematurely on the stimulus. The economy faltered, and the government had to resume spending.

Still, by 2005, companies had repaired their balance sheets and the Japanese economy was marching forward — until the latest crisis.

This does seem very similar to today’s recession, though we are obviously in the midst of a more globally widespread problem.  I’m curious as to what others think on this matter.  Can liquidity be restored through government spending?  Is it important to keep that spending restricted to short term projects?  Long term?  Is there a good middle-ground?  (What does short term or long term really mean, in any case?  Who determines the terms?)

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Yglesias highlights an interesting interview with Jeb Bush on Sweden’s education system, which in short utilizes all sorts of neat ideas like credit-based learning a la four year colleges, and voucher systems that allow for public and private cooperation.  Says Bush,

“The idea that somehow Sweden would be the land of innovation, where private involvement in what was considered a government activity, is quite shocking to us Americans,” Mr. Bush says. “But they’re way ahead of us. They have a totally voucherized system. The kids come from Baghdad, Somalia — this is in the tougher part of Stockholm — and they’re learning three languages by the time they finish. . . . there’s no reason we can’t have that except we’re stuck in the old way.”

To which Yglesias responds:

I think there’s something to that. Certainly, the US system of K-12 education has gotten pretty hidebound in ways that other countries have left behind. At the same time, conservatives who want us to learn from Nordic education systems need to understand that these schools are working in a Nordic context featuring, among other things, radically lower child poverty rates…

That’s not to say we can’t or shouldn’t do anything to change the schools until we radically reduce child poverty. But it is to say that the success of Nordic education comes in the context of a comprehensive commitment to children’s well-being, which means innovation not just in schools but in delivery of health care and nutrition services, in the provision of enriching early-childhood services, etc. Getting child poverty down to Swedish levels would be extremely difficult, but there’s a realistic agenda to cut poverty in half in just ten years that we could be pursuing if we cared enough.

This is true, and it leaves me with that nagging feeling that maybe the United States, ostensibly the richest nation on Earth, has taken individualism too far, and has worried too much about the creation of wealth, and not enough about the fostering of minds, and the care of our children and poor.  I’m not as idealistic as Yglesias, though, and so the focus of most of my policy suggestions is to bolster and expand the middle class, rather than directly targeting poverty, which is as much a symptom of a declining middle class demographic as anything.

I also wonder if there isn’t a question of cart and horse involved in this debate.  Which side is getting ahead of itself?  Conservatives push hard for privatization, and on some levels I can’t argue with the voucher system.  In my home state education budgets have been slashed so drastically that I’d have to be a fool to put my kid into public schools.  By the time my younger brother graduated from High School, we’d already lost almost all the “non-essential” subjects, like art and theatre and so forth.  And I’m left truly struggling with what the real heart of the problem is.  I’d really like to see major funding for education at the Federal level, but I worry about it, too.  When a new Government takes shape and cuts those funds, then what?  This is what happened in Arizona, basically overnight.  The State giveth, and the State taketh away.

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