Monthly Archive for November, 2009

More On Tax Cuts Vs Fiscal Stimulus

From Harvard’s Alberto Alesina and Silvia Ardagna:

Large changes in fiscal policy: taxes versus spending

We examine the evidence on episodes of large stances in fiscal policy, both in cases of fiscal stimuli and in that of fiscal adjustments in OECD countries from 1970 to 2007. Fiscal stimuli based upon tax cuts are more likely to increase growth than those based upon spending increases. As for fiscal adjustments, those based upon spending cuts and no tax increases are more likely to reduce deficits and debt over GDP ratios than those based upon tax increases. In addition, adjustments on the spending side rather than on the tax side are less likely to create recessions.

Link via Greg Mankiw here.

CBO Director Against ObamaCare

This time were not just talking about Doug Holtz-Eakin, John McCain’s former chief economic advisor, this is June O’Neill, CBO director during the middle of the Clinton administration:


Quote Of The Day

“In discussions with dozens of health-care leaders and economists, I find near unanimity of opinion that, whatever its shape, the final legislation that will emerge from Congress will markedly accelerate national health-care spending rather than restrain it. Likewise, nearly all agree that the legislation would do little or nothing to improve quality or change health-care’s dysfunctional delivery system. The system we have now promotes fragmented care and makes it more difficult than it should be to assess outcomes and patient satisfaction. The true costs of health care are disguised, competition based on price and quality are almost impossible, and patients lose their ability to be the ultimate judges of value.” — JEFFREY S. FLIER, dean of the Harvard Medical School.

Quote Of The Day

“True, not everybody agrees that we need to use wartime measures against terrorists. But the Obama administration does. They’ve stepped up Predator strikes. They’re still allowing rendition. They’ve endorsed holding detainees near-indefinitely without putting them on trial. They’re treating Al Qaeda terrorists, in other words, as enemy combatants. And enemy combatants shouldn’t receive criminal trials. If we reserve the right to drop a hellfire missile on your head before we’ve captured you, then you don’t belong in civilian court after you’ve been apprehended. The fact that the Bush Administration made a hash of its military tribunal system means we need a better tribunal system; it doesn’t mean that we need to send people captured on the battlefield in Afghanistan to “a Federal court on Center Street in Lower Manhattan,” as Schumer put it. The trial may yield an acceptable outcome, yes — but I just can’t see the logic behind it.” — Ross Douthat, on trying KSM in federal court

Quote Of The Day

“I think it’s pretty clear at this point that no bill from our Congress is going to meaningfully “bend the cost curve”.  Every time I argue that cost control seems unlikely, I hear that no, the Senate bill is going to make some serious inroads into delivery system reform.  Well, according to the CBO, the savings achieved by Subtitle A, the main delivery system reform part of the bill, are trivial–not really distinguishable from zero, when you consider the uncertainties inherent in the estimates.” — Megan McArdle, on the recently released CBO report

Quote Of The Day

“What is frustrating to me is that many people would agree that the Massachusetts health experiment failed, and yet that is the experiment that is being used as the model for the current bill. The original promise in Massachusetts was that by eliminating the “free-riding” of the uninsured and by setting up an efficient government insurance exchange, insurance costs would go down. Instead, insurance costs there soared.” — Arnold Kling on the current healthcare bill

Quote Of The Day

“Remember how we had to bail out Chrysler and give the company to Fiat because they were going to save American jobs and the environment with their awesome new electric cars? The electric cars that were going to start hitting the streets in 2010?  Apparently, now that they’ve gotten the money, it’s festina lente; Fiat has apparently disbanded the team that was trying to rush these cars to market.” — Megan McArdle

The Anti-Charter School Movement

In LA gets ugly:

As Los Angeles Unified contemplates turning more schools into charters, parents in a heavily immigrant neighborhood received an anonymous flier written in Spanish:  “DO NOT SIGN ANY PETITIONS FOR A CHARTER SCHOOL BECAUSE YOU COULD BE DEPORTED.”

More here.

Gay Marriage And Civil Liberties

I’ve made the argument that gay marriage could in fact threaten religious liberties, Maggie Gallagher gives an example of how it could threaten civil liberties:

Case in point: Don Mendell, a school guidance counselor at Nokomis Regional High School in Maine, now faces ethics complaints for his decision to appear in a TV ad for the Yes on One campaign in the closing days of the contest. If substantiated, the ethics complaint could lead the government to yank his license as a social worker and, therefore, threaten his livelihood. What kind of movement spurs people to act like this? Meanwhile, a teacher of the year who campaigned for gay marriage faces no such threat to her livelihood. Is gay marriage really about love and tolerance for all?

Her full post, on the Maine election results denying gay marriage, can be found here.

Quote Of The Day

“The bill is framed in terms of Republican attacks on the Democratic bill, not in terms of its own aims or methods. Which is fine, and to be expected. If I were a Republican, I wouldn’t spend my time crafting a health-care reform plan, either. Republicans don’t have the votes to pass a bill, and they know it. As such, they’re not particularly interested in spending months crafting a precise and detailed health-care reform alternative, as it wastes time that could be spent fighting the Democratic bill, raising money for 2010, and generally working on projects that have an actual chance to succeed.” — Ezra Klein, on the Republican healthcare alternative

Want To Know What Is In The Healthcare Bill?

Here is a blog devoted to explaining it.

Dont Copy Europes Healthcare

So says a European:


A Healthcare Plan I Could Support

If Republicans were being responsible Republicans, this is the alternative they would argue for:

Here’s a better alternative. Let’s scrap the $220 billion annual health insurance tax subsidy, which is often used to buy the wrong kind of insurance, and use those budget dollars to provide insurance that protects American families from health costs that exceed 15 percent of their income.

Specifically, the government would give each individual or family a voucher that would permit taxpayers to buy a policy from a private insurer that would pay all allowable health costs in excess of 15 percent of the family’s income. A typical American family with income of $50,000 would be eligible for a voucher worth about $3,500, the actuarial cost of a policy that would pay all of that family’s health bills in excess of $7,500 a year.

The family could give this $3,500 voucher to any insurance company or health maintenance organization, including the provider of the individual’s current employer-based insurance plan. Some families would choose the simple option of paying out of pocket for the care up to that 15 percent threshold. Others would want to reduce the maximum potential out-of-pocket cost to less than 15 percent of income and would pay a premium to the insurance company to expand their coverage. Some families might want to use the voucher to pay for membership in a health maintenance organization. Each option would provide a discipline on demand that would help to limit the rise in health-care costs.

My calculations, based on the government’s Medical Expenditure Panel Survey, indicate that the budget cost of providing these insurance vouchers could be more than fully financed by ending the exclusion of employer health insurance payments from income and payroll taxes. The net budget savings could be used to subsidize critical types of preventive care. And unlike the proposals before Congress, this approach could leave Medicare and Medicaid as they are today.

Lower-income families would receive the most valuable vouchers because a higher fraction of their health spending would be above 15 percent of their income. The substitution of the voucher for employer-paid insurance would be reflected in higher wages for all.

Two related problems remain. First, how would families find the cash to pay for large medical and hospital bills that fall under the 15 percent limit? While it would be reasonable for a family that earns $50,000 a year to save to be prepared to pay a health bill of, say, $5,000, what if a family without savings is suddenly hit with such a large hospital bill? Second, how would doctors and hospitals be confident that patients with the new high deductibles will pay their bills?

The simplest solution would be for the government to issue a health-care credit card to every family along with the insurance voucher. The credit card would allow the family to charge any medical expenses below the deductible limit, or 15 percent of adjusted gross income. (With its information on card holders, the government is in a good position to be repaid or garnish wages if necessary.) No one would be required to use such a credit card. Individuals could pay cash at the time of care, could use a personal credit card or could arrange credit directly from the provider. But the government-issued credit card would be a back-up to reassure patients and providers that they would always be able to pay.

The combination of the 15 percent of income cap on out-of-pocket health spending and the credit card would solve the three basic problems of America’s health-care system. Today’s 45 million uninsured would all have coverage. The risk of bankruptcy triggered by large medical bills would be eliminated. And the structure of insurance would no longer be the source of rising health-care costs. All of this would happen without involving the government in the delivery or rationing of health care. It would not increase the national debt or require a rise in tax rates. Now isn’t that a better way?

That is by Harvard economist Martin Feldstein. The full article can be found here.

High Healthcare Spending Is Better Than Government Rationing

Harvard economist Martin Feldstein makes the case that high healthcare spending is better than government rationing:

The best solution to this problem of private overconsumption of health services would be to eliminate the tax rule that is causing the excessive insurance and the resulting rise in health spending. Alternatively, Congress could strengthen the incentives in the existing law for health savings accounts with high insurance copayments. Either way, the result would be more cost-conscious behavior that would lower health-care spending.

But unlike reductions in care achieved by government rationing, individuals with different preferences about health and about risk could buy the care that best suits their preferences. While we all want better health, the different choices that people make about such things as smoking, weight and exercise show that there are substantial differences in the priority that different people attach to health.

If changing the tax rule that leads to excessive health insurance is not going to happen, the relevant political choice is between government rationing and continued high levels of health-care spending. Rationing is bad policy. It forces individuals with different preferences to accept the same care. It also imposes an arbitrary cap on the future growth of spending instead of letting it evolve in response to changes in technology, tastes and income. In my judgment, rationing would be much worse than excessive care.

Those who worry about too much health care cite the Congressional Budget Office’s prediction that health-care spending could rise to 30% of GDP in 2035 from 16% now. But during that 25-year period, GDP will rise to about $24 trillion from $14 trillion, implying that the GDP not spent on health will rise to $17 billion in 2035 from $12 billion now. So even if nothing else comes along to slow the growth of health spending during the next 25 years, there would still be a nearly 50% rise in income to spend on other things.

Like virtually every economist I know, I believe the right approach to limiting health spending is by reforming the tax rules. But if that is not going to happen, let’s not destroy the high quality of the best of American health care by government rationing and misplaced egalitarianism.

The full article, published in the WSJ in August, can be found here.

Quote Of The Day

Here is the video where Obama uses the Post Office as an example of why the public option won’t hurt private competitors. His argument is that Fed Ex and UPS thrive even though there’s a Post Office. He forgets to mention that the Post Office has a legal monopoly on first class mail and still loses money. And he forgets that the struggles of the Post Office make it harder to claim that the public option will stand on its own without taxpayer support.” — Ross Roberts, economist at George Mason University, blogging at Cafe Hayek

The Confusing Case Of Bruce Bartlett

Sometimes I don’t understand Bruce Bartlett. I understand his critiques of Bush and the leftward drift of the Republican party under Bush. But when he makes comments like this, I am left with more questions than answers, he writes:

I have been saying for years, long before the recent economic crisis made matters much worse, that our looming fiscal problems, resulting mainly from the aging of society, were too great to be dealt with by the sorts of spending cuts that are even remotely realistic, politically.

I think those among my conservative and libertarian friends who think spending cuts of that magnitude — in the trillions of dollars per year going forward — are feasible are simply delusional, living in a dream world.
Therefore, higher taxes will be the default position when the crunch comes. But higher income tax rates necessary to stabilize our finances would be crippling, economically. Therefore, I have advocated a broad-based new consumption tax known as the value-added tax (VAT), which is how every other country finances its welfare state.

I get his point about the political difficulty of cutting spending. After all, any politician who wants to get reelected, remembered, and keep his party moving forward will not be able to cut spending in any substantial way – but wouldn’t that also be the case with tax increases?

If spending cuts are politically unfeasible, then why are tax increases not also politically unfeasible? In fact, in the United States, given our relatively conservative political inclinations, one can make an argument that spending cuts are slightly more politically feasible than tax increases.

So if both are politically disastrous, then why chose tax increases over spending cuts? How does that not make Bruce Bartlett a liberal, instead of the independent or even conservative he still claims to be. Only Bartlett knows, it seems.