Each unemployed person has a “reservation wage”–the minimum wage he or she insists on getting before accepting a job. Unemployment insurance and other social assistance programs increase that reservation wage, causing an unemployed person to remain unemployed longer.
Consider, for example, an unemployed person who is accustomed to making $15.00 an hour. On unemployment insurance this person receives about 55 percent of normal earnings, or $8.25 per lost work hour. If that person is in a 15 percent federal tax bracket and a 3 percent state tax bracket, he or she pays $1.49 in taxes per hour not worked and nets $6.76 per hour after taxes as compensation for not working. If that person took a job that paid $15.00 per hour, governments would take 18 percent for income taxes and 7.65 percent for Social Security taxes [DRH note: this should be Social Security plus Medicare], netting him or her $11.15 per hour of work. Comparing the two payments, this person may decide that an hour of leisure is worth more than the extra $4.39 the job would pay. If so, this means that the unemployment insurance raises the person’s reservation wage to above $15.00 per hour.
That was from Larry Summers, the Director of the White House’s National Economic Council for President Barack Obama. Full post here.
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One of the strongest argument against single payer is that government rationing is the worst kind. The British healthcare system is an example:
DAMNING reports on the state of the National Health Service, suppressed by the government, reveal how patients’ needs have been neglected.
They diagnose a blind pursuit of political and managerial targets as the root cause of a string of hospital scandals that have cost thousands of lives.
The harsh verdict on the state of the NHS, after a spending splurge under Labour between 2000 and 2008, raises worrying questions about the future quality of the health service as budgets are squeezed.
One report, based on the advice of almost 200 top managers and doctors, says hospitals ignored basic hygiene to cram in patients to meet waiting-time targets.
“Last week, I briefly discussed the geographic distribution of Recovery Act funds. The figure shows the relationship between per capita Recovery Act grants awarded and unemployment across states, which shows that stimulus aid was not particularly well matched with need…On average, for every extra percentage point of the labor force that is unemployed, a state got $25 less per capita.” — Edward L. Glaeser, economics professor at Harvard writing in the New York Times Economics blog
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Before we embark on universal preschool, we should look at the results from universal kindergarten. According to Elizabeth U. Cascio, assistant professor of economics at Dartmouth College, the gains were far short of expectations:
My results indicate that state funding of universal kindergarten had no discernible impact on many of the long-term outcomes desired by policymakers, including grade retention, public assistance receipt, employment, and earnings. White children were 2.5 percent less likely to be high school dropouts and 22 percent less likely to be incarcerated or otherwise institutionalized as adults following state funding initiatives, but no other effects could be discerned. Also, I find no positive effects for African Americans, despite comparable increases in their enrollment in public kindergartens after implementation of the initiatives. These findings suggest that even large investments in universal early-childhood education programs do not necessarily yield clear benefits, especially for more disadvantaged students.
What studies like this ignore is that it isn’t rigorous data politicians base their decisions on: its the next election. And programs like universal kindergarten and today’s universal preschool efforts, while they do little to actually improve education, do improve the wallets of a very powerful lobbyists group - the teachers union. And when it comes to policy, that is what matters most.
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“The news is now out that Government Motors is recalling 1.3 million compact cars in the US, Canada and Mexico to fix power steering motors that can fail. Does this sound familiar? Well the big difference with Toyota is that GM has not made the media headlines anywhere, and certainly is not attracting the attention of House and Senate oversight committees.” - Charles Rowley, Professor of Economics at George Mason University
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“I spent the morning writing about the Bush administration’s failure to anticipate the long-term costs of the Iraq occupation, which have reached $1 trillion and counting over the last eight years. With health care reform, there are no such illusions: We have good-faith estimates, sometimes downplayed but never hidden or dismissed, of how much this legislation will cost across the next two decades and beyond. And the Obama administration, to its credit, has done what the Bush administration never did, and proposed ways to offset every dollar (and then some) of new spending. But even acknowledged and potentially offset, the cost matters. The health care bills would lock us into trillions in required spending (private as well as public), required taxes, and necessary spending cuts at a time when our economy is stagnant, our fiscal situation parlous, and our need for flexibility immense. The supporters of this reform have convinced themselves that there’s no other way — that it’s go big, or go home. But I wish there weren’t quite so many dollars riding on their bet.” — Ross Douthat, writing in the NY Times in favor of a smaller healthcare bill
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As someone who both grew up in Compton and attends UCSD, I feel compelled to comment on the recent race relation issues UCSD is having. As most of you have probably already heard, the whole thing started when UCSD students, outside the campus, had a “Compton Cookout”, where participants were to wear “chains, rapper-style urban clothing by makers such as FUBU and speak very loudly.” Female participants were encouraged to be “ghetto chicks” with gold teeth, cheap clothes and “short, nappy hair.” Also, “The invitation said the party would serve watermelon, chicken, malt liquor, cheap beer and a purple sugar-water concoction called “dat Purple Drank.” It’s goal, apparently, was to mock Black History Month.
That was followed up a couple of days later by a Noose hung from the UCSD library. With just this information at hand, it paints a very dim picture of UCSD and the racial climate on campus. Especially when you see pictures of students crying and claiming to be ‘afraid to walk to their car’.
Since I have taken many undergraduate and graduate courses at UCSD, and my experience with the campus is the exact opposite - it is a welcoming campus and not in any way racist - I was suspicious about the news allegations and decided to dig in deeper.
The first thing I found that contradicted the image the media tried to portray was that the main organizers of the Compton Cookout were Black. This is how the main organizer defended his decision:
Right or wrong, he claims that the real reason of the Compton Cookout was “to bring the races together”, because “for one night everybody is on the same playing field”. Listen to the full interview. He even debates an ethnic studies UCSD professor on the appropriateness of the event.
Then comes the news story of the Noose. The student who hung the noose was a female minority. She explains how it happened here:
The student claims in her letter that she and her friends were playing with a rope when one of them tied it into a noose.
“I innocently marveled at his ability to tie a noose, without thinking of any of its connotations or the current racial climate at UCSD. I left soon after with one of my friends for Geisel to study, still carrying the rope,” she writes. “After a bit of studying I picked up the rope to play with, and ended up hanging it by my desk. It was a mindless act and stupid mistake. When I got up to leave, a couple hours later, I simply forgot about it.”
On Monday , the university outlined the actions it has taken to improve the school’s climate and cultural diversity. They include creating a task force to focus on recruiting minority faculty, forming a commission to address the campus climate, continuing to fund Faculty-Student Mentor Programs, ensuring ongoing funding for the Chancellor’s Diversity Office, identifying space for an African-American Resource Center on Campus and meeting with member of the Black Student Union at least once every academic quarter. (emphasis added)
So you see, it was all one big conspiracy to keep ethnic studies professors employed.
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The strongest argument against universal and single-payer healthcare, IMO, is the argument that they inevitably lead to price controls. And as any student of economics knows, price controls are detrimental to many things we like about healthcare. Things like technological innovation, pharmaceutical innovation, and quick access are all harmed when price controls are implemented.
Advocates of ObamaCare have assured us that nothing in his bill calls for, nor will lead to price controls. They promise that the United States is different and will not need price controls.
Last month, Democratic Governor Deval Patrick landed a neutron bomb, proposing hard price controls across almost all Massachusetts health care. State regulators already have the power to cap insurance premiums, which Mr. Patrick is activating. He also filed a bill that would give state regulators the power to review the rates of hospitals, physician groups and some specialty providers. Those that are deemed too high “shall be presumptively disapproved.”
Mr. Patrick ad-libbed that he had “a whole bunch of pals here who are in the health-care field, and I saw the color drain out of their faces.” Little wonder. The administered prices of Medicare and Medicaid already shift costs to private patients while below-cost reimbursement creates balance-sheet havoc among providers. Now the governor wants to import these distortions to save the state’s heavily subsidized insurance program as costs explode.
Remember, per capita Massachusetts is one of the richest states in the country. If they are already looking to price controls, with only 4 years after reform, how do you think ObamaCare bodes for the country?
Mr Obama has revoked some Bush-era executive orders that unions hate and issued a few they adore. He has appointed union insiders to top jobs, allowed Congress to add “buy American” provisions to the stimulus bill, risked a trade war with China to please tyre-workers, let other trade deals wither and brazenly favoured unions when bailing out car firms. But his biggest favour has been green, foldable and borrowed. For example, he encourages the use of “Project Labour Agreements” on big federal construction projects, whereby contractors must recruit through a union hiring hall. Such agreements inflate costs by 12-18%, according to David Tuerck of Suffolk University, and were banned under Mr Bush. Even where PLAs are not in force, federal contractors are obliged to pay “prevailing” wages. That actually means something close to the union rates, which is nice for the workers in question but means that taxpayers get fewer roads and schools for their money.
When Obama proposed his credit card regulations, economic theory predicted what would happen: harm those with less than perfect credit scores (primarily the poor). Bryan Caplan, professor of economics at George Mason University, explained it best when he wrote:
” When you make lending to high-risk people less attractive, the result is not worse terms for low-risk people who have been profitable all along. The result is that high-risk people get less credit. They used to be able to get credit despite their credit-unworthiness by paying extra; if the law forbids this, why lend to them?”
During the past nine months, credit card companies jacked up interest rates, created new fees and cut credit lines. They also closed down millions of accounts. So a law hailed as the most sweeping piece of consumer legislation in decades has helped make it more difficult for millions of Americans to get credit, and made that credit more expensive.
The only way this bill makes sense is in assuming that regulators, centered in Washington, know more about the cost/benefit analysis of the poor than the poor themselves do. An assumption that comes easy to politicians and technocrats in Washington.
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“Scientists now think that King Tut may have died of malaria….this is a good excuse to meditate on just how rich we are. King Tut was probably the wealthiest man in the world during his time. He died of something that wouldn’t kill the most abjectly immiserated welfare mother in the United States today, because of a combination of public health efforts, and cheap antimalarial drugs. You always need to factor in things like this when you talk about changes in living standards over time. All the positive changes in society mean that the absolute difference between the income of Bill Gates and the man who valets his car is larger than it has ever been in history. But the actual difference in comfort between the two of them is probably much smaller than the difference between JP Morgan and his stableboy. And both Gates and the valet are almost immeasurably better off than their predecessors.” — Megan McArdle
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I remember reading that Malcolm X, being the radical that he was, increased the support for Martin Luther King Jr. In a world without a Malcolm X, MLK would have been the radical one. But with Malcolm X in the picture, it pushes people to compromise on a more ‘moderate’ person - and MLK fit right in.
Today, vouchers do the same for charter schools. Because vouchers are considered the ‘radical’ alternative, they make charter schools look moderate.
For example, in a debate over vouchers in the Chicago Tribune, the voucher opponent - after giving what I believe is the real reason many oppose vouchers, religious intolerance - concludes with:
Is there a compromise approach? Sure. Let’s continue to expand charter school programs and try out the most innovative ideas from private schools. But let’s not give up on public education.
In a world with vouchers as an alternative, charter schools seem much more reasonable. Greg Forster has more here.
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Many Democrats, including Obama, have criticized Republicans for both opposing the Stimulus bill and helping to direct some of that stimulus money to their districts. They claim its hypocrisy. Greg Mankiw argues otherwise:
It seems perfectly reasonable to believe (1) that increasing government spending is not the best way to promote economic growth in a depressed economy, and (2) that if the government is going to spend gobs of money, those on whom it is spent will benefit. In this case, the right thing for a congressman to do is to oppose the spending plans, but once the spending is inevitable, to try to ensure that the constituents he represents get their share. So what exactly is the problem?
Let me offer an analogy. Many Democratic congressmen opposed the Bush tax cuts. That was based, I presume, on an honest assessment of the policy. But once these tax cuts were passed, I bet these congressmen paid lower taxes. I bet they did not offer to hand the Treasury the extra taxes they would have owed at the previous tax rates. Would it make sense for the GOP to suggest that these Democrats were disingenuous or hypocritical? I don’t think so. Many times, we as individuals benefit from policies we opposed. There is nothing wrong about that.
“If you did a simple cost-benefit comparison, the Obama plan vs. a simple extension of Medicaid, more R&D through the NIH, and some targeted public health expenditures, I believe the latter would win hands down. And the latter seems more politically feasible too. It avoids the mandate, the unworkable and ridiculously low penalties for those who don’t sign up for insurance, and the awkwardly high implicit marginal tax rates imposed by the subsidy scheme. It probably involves fewer corporate and “back room” deals….When it comes to the Obama plan, the easy targets are stupid or hypocritical Republicans. The hard target is why the plan should beat the alternative reforms I’ve outlined above or perhaps other ways of spending the money. I’d like to see more people take on the hard target rather than the easy.” — Tyler Cowen
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It’s looking increasingly like Fannie Mae and Freddie Mac are going to cost the US government much more than AIG. In its latest long-term budget outlook released in late January, the CBO projected that the AIG bailout would ultimately cost the Treasury $9 billion dollars. Indeed, the entire private financial industry bailout is ultimately expected to cost less than $30 billion; of the $99 billion that the CBO expects we will ultimately lose on TARP, half of the loss comes not from helping the “banksters”, but from the Obama administration’s decision to bail out the automakers. A further $20 billion will be spent on the Home Affordable Mortgage Program, aka the administration’s mortgage modification plan.
By contrast, the nationalization of the Government Sponsored Entities is expected to cost the Federal government $64 billion between 2011 and 2020, on top of the $110 billion we’ve already spent. Fannie and Freddie have long defended themselves on the grounds that their underwriting standards weren’t nearly as bad as those in the private sector. But they’ve certainly been better at socializing their losses; firms that controlled maybe half of the mortgage market will end up costing the taxpayer four times as much as the other troubled financial institutions.
The full article can be found here. Matthew Yglesias has more.
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Duke University professors Peter Arcidiacono and Jacob Vigdor have a forthcoming paper in Economic Inquiry “Does the River Spill Over? Estimating the Economic Returns to Attending a Racially Diverse College”, Mark Perry provides a summary:
“Do white and Asian students at elite schools benefit from the presence of Under- Represented Minority students on campus or in the college classroom? While not all the evidence in this article suggests that interracial exposure is uniformly negative, it strongly suggests that the predominant policy tool designed to increase the representation of minority groups, affirmative action, has a negative net impact on students not directly targeted by the program.
Using data on graduates of 30 selective universities, we find only weak evidence of any relationship between collegiate racial composition and the postgraduation outcomes of white or Asian students. Our empirical results cover a broad range of outcomes, including earnings, educational attainment, and satisfaction with both one’s life and one’s job. Across these varying specifications, we fail to find any significant evidence that white or Asian students who attend more diverse colleges do better later in life. Moreover, the strongest evidence we uncover suggests that increasing minority representation by lowering admission standards is unlikely to produce benefits and may in fact cause harm by reducing the representation of minority students on less selective campuses.
Further analysis suggests that affirmative action is actually counterproductive, if its goal is to improve the productivity of majority race students. Preferential admissions for certain groups may still have a role in higher education, but they should be understood for what they are: redistributive mechanisms that create benefits for the targeted racial groups but costs for others.”
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