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InsiderOnline Blog: September 2010

The Grades Are in …

… on all 50 governors and their fiscal records for the past two years: The Cato Institute’s latest Fiscal Policy Report Card reveals which governors have done the best job of holding taxes and spending down and which have done the worst:

Four governors were awarded an “A” in this report card—Mark Sanford of South Carolina, Bobby Jindal of Louisiana, Tim Pawlenty of Minnesota, and Joe Manchin of West Virginia. Seven governors were awarded an “F”—Ted Kulongoski of Oregon, David Paterson of New York, Jodi Rell of Connecticut, Pat Quinn of Illinois, Jim Doyle of Wisconsin, Bill Ritter of Colorado, and Chris Gregoire of Washington.

Posted on 09/30/10 04:05 PM by Alex Adrianson

Keeping Score on the Bailouts

This Sunday the government’s authority to dispense money hither and yon via the Troubled Asset Relief Program expires. Karen Weise of Propublica has a rundown of the highlights and (mostly) lowlights of the past two and a half years of bailouts. Weise notes:

By our count, the Treasury has doled out more than $548 billion. Almost half of that – $238 billion – has been repaid to the government via interest, dividends, fees or repurchased stock warrants. …

The costs of TARP will likely be dwarfed by the expense of bailing out the two government-sponsored enterprises that guarantee mortgages, according to the Congressional Budget Office. … Technically the government’s investment in the GSEs has no funding cap. The CBO estimates the expense will reach $389 billion over 10 years. …

The government spent nearly $50 billion to bail out General Motors, primarily to help the auto company restructure under bankruptcy protection. The government now owns 61 percent of the new, post-bankruptcy GM. The company has repaid $7 billion, but to recoup the remaining $43 billion, the government would have to sell GM stock at an average of $133.78 a share, according to the special inspector general for TARP. That’s almost $40 a share more than the “old” GM’s high, The Wall Street Journal reported. …

No company has received more direct support than the insurance giant AIG, which had vast exposure to the problems in the housing market. By the end of 2009, AIG’s outstanding balance was $47 billion from the Treasury Department and $81 billion from the New York Fed, according to the CBO.

AIG has not repaid any of the investment nor has it doled out any dividends, but an end may be in sight. Today’s news confirmed other recent reports: that AIG has reached an agreement with the government … . [Internal citations omitted.]

If you want to dig into the data, check out Propublica’s Bailout Tracker.

Posted on 09/30/10 02:40 PM by Alex Adrianson

Obamacare Makes Taxes More Complicated

Will you qualify for Obamacare’s new tax credits to purchase health insurance? You’ll have to guess what your income will be, but if you’re wrong you’ll have to pay the government back. As David Hogberg explains in Investor’s Business Daily:

The health exchange’s open enrollment for 2014 will begin in late 2013. ObamaCare requires a person to present his or her tax return at that time to qualify for the tax credit. In effect, the size of the insurance subsidy will be tentatively set by how much an individual or family earned two years earlier.

“In the meantime, your income may have risen or fallen,” said Devon Herrick, senior fellow and health economist at the conservative National Center for Policy Analysis. “If it’s risen, then you may have gotten more of subsidy than you deserve and you’ll owe money on your next tax return. If your income has fallen, you could apply for a tax rebate on your return.” …

The law does limit what is owed to the IRS to no more than $250 for an individual and $400 for a family if the tax credit received is too large. … However, the cap only applies to those with incomes between 100% to 400% of the poverty line. If an individual’s or family’s income ends up exceeding that in a year they received a tax credit, the person or family will owe the entire tax credit to the IRS on the next tax return.

Supposedly, Obamacare will cost the federal government less than $1 trillion for the first 10 years. There’s been a lot written about why the Congressional Budget Office’s figures are probably not right. (Heritage’s new Obamacare Impact Calculator provides a good overview of how easily the CBO’s figures could be off.) But one thing that hasn’t received much attention is the sort of hassle Hogberg identifies here. April 15 just got more complicated for a lot of people.

Posted on 09/30/10 11:41 AM by Alex Adrianson

Predicting the Effects of Obamacare

Wondering how Obamacare will affect health care spending? Taxes? The national debt? Your health insurance premiums?

Experts at the Congressional Budget Office have produced some estimates, but those estimates depend on some assumptions that could turn out to be wrong. For example, the CBO thinks only 8 million to 9 million workers will end up shifting from the employer-provided insurance system to the new exchanges that Obamacare will create. However, Doug Holtz-Eakin and Cameron Smith have shown that there are probably about 35 million workers who would be better off having their employer drop their coverage, use some of the savings to give them a raise, and take advantage of the generous subsidies in the exchange system. If Holtz-Eakin and Smith’s estimates are closer to the mark, then the tax burden imposed by Obamacare will go up by nearly $1,696 per household, and the annual deficit will climb by $711 billion.

You can see the impact of changing a few key assumptions with the Obamacare Impact Calculator. If you run through various scenarios here, you quickly get a sense that CBO’s projections of lower federal deficits could easily turn out to be wrong.

Posted on 09/29/10 03:12 PM by Alex Adrianson

New Film Shows What’s at Stake in Fight for School Choice

Here’s a movie we’re looking forward to seeing. It takes the teachers’ unions to task for standing in the way of education reform.

National Review’s Matthew Shaffer attended a screening in New York and reports that the film’s emotional portrayal of families searching for a way out of failing public schools is helping galvanize an alliance for school choice that transcends ideological boundaries. Indeed, the director of the film, David Guggenheim, previously directed Al Gore’s movie, An Inconvenient Truth.

Posted on 09/28/10 04:37 PM by Alex Adrianson

A Political Race to the Top

Did Obama’s Department of Education dispense Race to the Top funds with an eye toward helping Democrats get elected this November? Billions of dollars of taxpayer money were at stake in Obama’s signature education initiative. Daniel Bowen of the American Enterprise Institute has performed a regression analysis to see how much political considerations may have influenced the scoring of states’ first round applications. His results:

[A] state with a seat that the Democrats could lose or take away from the Republicans, based on the CQ Politics handicapping of election races, scored up to seventy-seven extra points on its first-round application. This would have been enough to vault Washington, D.C., from last place among the round-one finalists to first place, given the right political context—allowing it to pocket a cool couple hundred million courtesy of the secretary of education.

The reason politics can matter is that the some of the scoring criteria are ambiguous. According to Bowen, seven of the 37 criteria used to score applications are not quantifiable at all, and these criteria accounted for 18 percent of the points available on the first round applications. Further, as Bowen notes, even some of the quantifiable criteria gave the scorer substantial discretion on how many total points to award.

Delaware and Tennessee won round one. However, Bowen applied the Race to the Top weighting to data from independent evaluations and found that those two states should have finished eighth and fourth, respectively. South Carolina and Florida, according to Bowen recalculations, should have finished first and second.

Posted on 09/28/10 01:52 PM by Alex Adrianson

Use Your iPhone to Hold Government Accountable

The Prometheus Institute has built an iPhone app that makes it a lot easer for you to keep government in check and defend your liberties. The app, called DIY Democracy, provides you with a customized menu of action items based on where you live. You can protest your taxes, complain about  potholes, file a freedom of information act request, start a recall petition, and lots of other things, too. The app gives you all the contact information that used to be hard to track down.

And Prometheus has just released its 2.0 version of the app. With the updated app, every action you take becomes a project that can be shared with others so that they can get involved in the project, too. Check out the Prometheus video explaining all the features.

Posted on 09/27/10 05:37 PM by Alex Adrianson

What Kind of Nation Do We Wish to Be?

If you want to get involved in the battle to restore constitutional government in the United States, an excellent step is to organize a reading group for the book We Still Hold These Truths. Written by Heritage fellow Matthew Spalding, the book is a great primer on the core principles of America’s Founding. And be sure to pick up a copy of the just published leader’s guide to We Still Hold These Truths, a companion volume that provides a chapter-by-chapter outline for a reading a group.

Posted on 09/27/10 02:14 PM by Alex Adrianson

October 9 Should Be a Day to Remember Che Guevara’s Victims

The anniversary of Che Guevara’s death is coming up. It’s October 9, a day that many celebrate the guerrilla fighter who helped Fidel Castro come to power and crusaded to bring communism to the other nations of Latin America. They forget that along the way Che Guevara murdered thousands of people. You can help remind them by celebrating October 9 as “No More Che Day,” a concept that the Young America’s Foundation is promoting to students on campus around the country. YAF has downloadable posters that will help remind people of Che’s victims.

Posted on 09/24/10 01:01 PM by Alex Adrianson

Up the Anglosphere!

Next week, former Australian Prime Minister John Howard will give an important talk at The Heritage Foundation on why the advance of liberty in the world depends more on cooperation among the English-speaking nations and less on multilateral institutions. This seventh Margaret Thatcher Freedom Lecture, titled The Anglosphere and the Advance of Freedom, will begin at 4 p.m. on Tuesday, September 28.

Posted on 09/24/10 12:48 PM by Alex Adrianson

Coming Up: Virginia Tea Party Convention

The first ever Virginia Tea Party Convention, coming up on October 8 and 9, will bring together citizens and activists from all over the country who believe we need to revive the Constitution to check the growth of government in our lives. The event will feature speakers such as John Fund, Herman Cain, Jenny Beth Martin, and Ginni Thomas. There will be more than 40 educational breakout seminars focused on the Constitution, and public policy and grassroots activist training. Of particular interest will be a panel on how to restore federalism, featuring Rep. Ron Paul (R-Texas), Rep. Steve King (R-Iowa), Virginia Attorney General Ken Cuccinelli, and former Virginia Governor and Senator George Allen. Get your tickets today!

Posted on 09/24/10 12:14 PM by Alex Adrianson

Obamacare at Six Months

Today marks six months since the passage of Obamacare. Here’s a quick review of what’s happened since then and what we have learned about the law:

1. Almost immediately after passage of the law, a number of major corporations had to take large write-downs against expectations of higher health care costs in the future. AT&T took a charge of $1 billion. Higher costs for companies mean fewer jobs.

2. The law will not lower national health care expenditures. The latest estimates by the government’s own actuaries now say annual per capita spending will actually rise by $265 when the law’s provisions are fully in effect. But those estimates assume draconian cuts in doctor reimbursement will take place; elsewhere, Medicare’s actuaries say those cuts can never happen without jeopardizing access to care—which is to say Congress will never let them happen.

3. The law makes it a relatively good deal for most employees to have their employers drop their coverage so they can get insurance from the new health insurance exchanges that will be created. Doug Holtz-Eakin estimates that the number of workers who choose that option will be much higher than government anticipates—possibly three times as high. That means that, in addition to creating turmoil in labor markets, the costs to the taxpayer over just the first 10 years will be about $1.4 trillion higher than estimated.

4. Twenty states are suing the federal government over Obamacare, claiming that Congress has overstepped its constitutional authority in requiring all adults to purchase health insurance. Defenders of the law claim that Congress’s authority to regulate interstate commerce—found in the Commerce Clause—allows Congress to pass an individual mandate. The problem with this position is that people who haven’t purchased health insurance are not engaged in interstate commerce. If Congress can regulate inactivity, then how can there be any constitutional limits on what government may do? Unfortunately, there is a previous case where the court has already ruled that the Commerce Clause allows Congress to regulate people who are not engaged in interstate commerce. In order to understand how we’ve gotten to this point, you need to know about the case of Wickard v. Filburn, and has a good segment on that case. Defenders of the law have alternatively argued that the mandate is just a tax, and therefore the Commerce Clause doesn’t even apply. But, as the segment explains, there’s a problem there, too: The Constitution requires that if a tax is not based on income, then it must be apportioned by population. Clearly, that’s not what the individual mandate does.

5. Experts now believe that the law’s requirements on medical loss ratios (MLRs) (the proportion of premium dollars spent on medical care) will be an accounting nightmare as well as a detriment to consumer choice. John Graham of the Pacific Research Institute explains how these requirements spell the end of health savings accounts:

Let’s assume a scenario where a consumer-directed health policy incurs exactly the same costs as a traditional policy. In fact, this is unlikely because total costs of consumer-directed plans are significantly lower than for traditional ones, as patients have better incentives to control costs. The traditional policy costs $4,000 and spends $3,400 on patient care, for an MLR of 85.00. With the consumer-directed policy, the patient controls $800 more of the medical spending than with the traditional policy (through a higher deductible), and his premium goes down by $800. In this case the MLR goes down to 81.25 ($2,600/$3,200). There is no real difference, but the accounting looks worse. [Internal citations omitted.]

6. Despite the law’s passage, Congress has not succeeded in repealing the laws of supply and demand. Taking effect today (September 23) are mandates requiring insurers to provide additional benefits, including preventive care, allowing children to stay on their parents plans until the age of 26, and prohibiting pre-existing condition exclusions for children. Last week, a number of insurers filed requests with state regulators asking for rate increases of between 1 percent and 9 percent. The insurers cited the new mandates as the reason for the increases. If people can wait until they are sick to sign up for insurance, then of course premiums must go up. And if, because of the new mandates, insurers cannot price their product accurately, they will stop selling it. Indeed, some insurers have stopped selling child-only plans.

7. Only about half of the 14 million seniors covered by the Medicare Advantage program will be able to continue in the program, says Medicare’s actuary. That’s because Obamacare cuts $500 billion from the program in order to finance the creations of its new entitlements. As Robert Book and James Capretta point out, these cuts cannot but lead to a real decline in benefits for the population covered. That’s too bad, because Medicare Advantage was the one area of the program that had some element of private competition working, and the program’s beneficiaries received better benefits. And the cuts don’t even help fix Medicare’s long-term solvency problems, because they were used to finance the new entitlement created by Obamacare!

8. A little noticed reporting provision in the law now has businesses worried they will be swamped with paperwork. In search of revenue to finance the new health care entitlements, Congress decided to require the reporting of all transactions between businesses of over $600. As a result, businesses will have to fill out additional paperwork for the most routine of transactions. Small businesses that don’t have a specialized accounting department will be hit especially hard by the burden, which will hurt job creation.

Here are some other good reads on Obamacare and its future:

The Truth About Obamacare, by Sally Pipes, Regnery
Obama Health Law: What It Says and How to Overturn It, by Betsy McCaughey, Encounter Books
Bad Medicine: A Guide to the Real Costs and Consequences of the New Health Care Law,” by Michael D. Tanner, The Cato Institute
If Obamacare Is So Great …,” by Bob Vineyard, Insureblog
Toward Read Health Care Reform,” by Paul Howard and Stephen Parente, National Affairs
Implementing Obamacare: A New Exercise in Old-Fashioned Central Planning,” by John S. Hoff, The Heritage Foundation.

Posted on 09/23/10 03:58 PM by Alex Adrianson

Better Wages for People Demanding Better Wages!

Unions say everybody deserves union representation. But one Nevada union on strike against Walmart hired temporary workers to do its protesting—and paid them minimum wage with no benefits. That prompted the Daily Show’s Aasif Madvi to wonder if it was time for a union for people who are protesting on behalf of unions.

Posted on 09/22/10 02:36 PM by Alex Adrianson

Creating Government Jobs Destroys Private Jobs

There’s plenty of evidence that Europe’s austerity measures will help those economies, not hurt, as Paul Krugman, et al., worry. Veronique de Rugy rounds up the evidence, including this:

A 2002 paper in the Economic Policy Journal, written by the French economists Yann Algan, Pierre Cahuc, and Andre Zylberberg, looked at the impact of public employment on overall labor market performance. Using data for a sample of OECD countries from 1960 to 2000, they found that, on average, the creation of 100 public jobs eliminated about 150 private-sector jobs, decreased by a slight margin overall labor market participation, and increased by about 33 the number of unemployed workers. Their explanation was that public employment crowds out private employment and increases overall unemployment by offering comparatively attractive working conditions. Basically, public jobs, especially ones that also exist in the private sector in fields such as transportation and education, offer higher wages and benefits, require low effort, and therefore crowd out many private jobs. When these new employees are paid with taxes it negatively impacts the economy.

The data released by the Bureau of Labor Statistics in June, then, were bad news. … They showed that since the passage of the stimulus bill, the private sector has lost 2.55 million jobs while the federal government gained 416,000. 

For more on why stimulus programs fail, see “Austerity Agonistes: Why Left-Wing Economists’ Warnings Against Austerity Programs Are Wrong,” by Veronique de Rugy, Reason, September 21, 2010.

Posted on 09/21/10 04:12 PM by Alex Adrianson

OMG, Unintended Consequences!

“Some of the country’s most prominent health insurance companies have decided to stop offering new child-only plans, rather than comply with rules in the new health-care law that will require such plans to start accepting children with preexisting medical conditions after Sept. 23,” reports the Washington Post.

The Post quotes one Ethan Rome, executive director of the liberal advocacy group Health Care for America Now: “We’re just days away from a new era when insurance companies must stop denying coverage to kids just because they are sick, and now some of the biggest changed their minds. … [It] is immoral, and to blame their appalling behavior on the new law is patently dishonest.”

This type of posturing is the pat move of liberals every time their designs for society are frustrated by the reality that other people pursue their self interests. The only way for the social engineers among us to get around that little problem of human nature would be to write laws that compel exactly the sort of behavior they want—e.g., this particular company must sell this particular product at this particular price to these particular customers. But such a law would raise exactly the same problem raised by Obamacare’s mandate that individuals must purchase health insurance: Such a law would not be a regulation of commerce; it would be forcing people to engage in commerce that they would otherwise not engage in. And if the Constitution allows Congress to compel people to engage in commerce, then there are no constitutional limits to what Congress may do.

Note, by the way, that Mr. Rome engages in exactly the sort of behavior he describes as immoral, for as best we can tell, he doesn’t sell insurance to anybody at any price.

Posted on 09/21/10 11:59 AM by Alex Adrianson

How Will the Obama Tax Hikes Affect States and Congressional Districts?

As noted in the previous post, there’s lots of bad economic news to expect from tax hikes that President Obama and the congressional leadership are considering. To find out what the macroeconomic effects will be in each state, go to the page for the Heritage report “Obama Tax Hikes: The Economic and Fiscal Effects,” and then scroll down to find a list of links for each state in the right-hand column. You can also view a map showing job losses by congressional district.

Posted on 09/20/10 05:50 PM by Alex Adrianson

Obama’s Tax Hikes: Bad News for the Economy

If President Obama and the leadership in Congress have their way, a variety of taxes will go up on January 1, 2011. Defenders of the proposals claim that only the highest-earning Americans will be hurt by the higher rates. A new report from The Heritage Foundation’s Center for Data Analysis shows those claims are just not true.

While the higher rates may be targeted at the wealthy, they cannot but reduce overall economic activity through discouraging work and investment. Less economic activity means fewer new jobs and fewer new products and services available for American consumers. Higher rates will thus adversely affect everybody. Heritage’s new report quantifies these macroeconomic impacts by comparing the proposals with the alternative of keeping the 2010 rates as they are indefinitely.

In particular, Heritage finds that gross domestic product will be $110 billion less annually for the period 2011 to 2020, while total employment will be 693,000 fewer jobs per year for the same period. The average family of four will lose $8,917 in income over the 10-year period.

Creating higher tax brackets for single filers earning over $200,000 and joint filers earning over $250,000 (approximately what both the President and Congress are proposing) will hurt small businesses, because “65 percent of joint filers with income above $250,000 and 50 percent of single filers above $200,000 earn business income.” The Heritage report continues: “The numbers are not too different if only businesses reporting wage costs are counted: They are 55 percent and 42 percent, respectively. In other words, about half of those subject to the Obama tax increases are small businesses with employees.”

The proposals to increase taxes on dividends and capital gain will similarly hurt capital formation. Surprisingly, the poor will be hit by these higher rates, too: “Even in [the bottom fifth of income-earners], 16 percent of tax filers have dividend income, and these filers would see an average tax increase of $267 [on their dividends].”

Raising taxes will be bad news for the economy; and it won’t even be particularly good news for the federal budget. According to Heritage analysts, when you take into account the fact that higher rates will reduce the tax base by discouraging economic growth, the revenue increase that can be expected from the proposals is only 34 percent of what the static analysis used by the Congressional Budget Office would suggest.

For the full set of macro-economic projections, see “Obama Tax Hikes: The Economic and Fiscal Effects,” by William W. Beach, et al., September 20, 2010.

Posted on 09/20/10 05:41 PM by Alex Adrianson

Marriage Is the Most Effective Weapon Against Childhood Poverty

Yet, according to the latest census numbers, the percentage of children born out-of-wedlock continues to increase, reaching 40.6 percent in 2008. Robert Rector explains why the problem continues:

Critically, almost none of the lower-income women who have a child out of wedlock feel that it is important to be married before having children. Although roughly half of non-married mothers were cohabiting with the father at the time of birth (nearly 75 percent were in some sort of romantic relationship with the father), these relationships are usually of short duration and unstable. Mutual understanding and commitment are lacking, and although the couples usually think and speak favorably about marriage, most tend to drift apart after the child is born.

However, low-income non-married parents are not hostile to marriage as an institution or a life goal. Ironically, most highly esteem marriage and, in fact, tend to overidealize it. Most low-income young women have traditional family goals; they hope to have a husband, children, a minivan, and a house in the suburbs “with a white picket fence.” Tragically, few have a life plan that will enable them to realize their goals.

A major obstacle is that most low-income women plan to marry after having children, not before. Their life plan is the exact opposite of the normal sequence in the upper middle class. [Internal citations omitted.]

If the government can conduct public education campaigns on the benefits of staying in school or of the health hazards of smoking, then why not a public education campaign on the costs and consequences of non-marital child bearing. Indeed, that’s exactly what Rector recommends: “While the costs of such an effort would be small, its impact could be considerable.”

Posted on 09/17/10 01:09 PM by Alex Adrianson

How Much Do You Really Know About the Constitution?

Since it’s Constitution Day, you should find out how much you really know about our nation’s founding document by taking the Intercollegiate Studies Institute’s quiz.

Posted on 09/17/10 01:00 PM by Alex Adrianson

How Will the Obama Tax Hikes Affect You?

You can find out how much more in taxes you will owe if Congress and President Obama allow taxes to go up rather than extending current rates by checking out the Tax Foundation’s new 2011 Income Tax Calculator.

Posted on 09/17/10 12:28 PM by Alex Adrianson

Happy Constitution Day!

Today is the 233rd anniversary of the signing of the Constitution of the United States. Isn’t it time to restore the original notion of that great document: that we have a government of limited and enumerated powers? A good first step is for people to learn what the Constitution actually says. To that end, the organizations Let Freedom Ring and Constituting America have come together to promote public readings of the Constitution all across the country tomorrow, September 18. You can find a public reading by visiting

Posted on 09/17/10 11:18 AM by Alex Adrianson

We’re Not Saying He Doesn’t Have a Case, but …

A Las Vegas man recently filed a lawsuit asking for $38 quadrillion in a property dispute. There is only $24 trillion in circulation worldwide. So, if you do the math, this guy is asking for compensation in the amount of 1,583 times the entire supply of money in the world. Right. Good luck with that.

This story is one of the nominees for most ridiculous lawsuit of the month at

Posted on 09/16/10 05:30 PM by Alex Adrianson

Does Palm Beach State College Need More Diversity?

Conservative literature appears to be unwelcome at Palm Beach State College. Last week, Palm Beach student Christina Beattie, attempting to form a chapter of Young Americans for Freedom, was told to take down her table at a college rush event. Included in her display were recent Heritage Foundation papers Obama’s Second Stimulus,” “The Unsustainable Welfare State,” “The Obama Tax Hikes” and “Obamacare: Hurting Those Who Need Health Care the Most.”

As the video below shows, Palm Beach State’s student activities director Olivia Morris-Ford told Beattie she had to remove her materials because she didn’t have a permit. However, Tina Korbe of the Heritage Foundation reports: Morris-Ford’s “assertion stands in conflict with evidence YAF state chairman Daniel Diaz shared with Heritage. Diaz presented both a June 21 e-mail from student Christina Beattie to Morris-Ford requesting permission to be at the event and Beattie’s phone log from June 23, which shows a call from Morris-Ford. Beattie said Morris-Ford approved the request on that call.”

Posted on 09/16/10 04:59 PM by Alex Adrianson

License to Describe

In the District of Columbia, it is illegal to give a tour describing the history of our nation’s capital without first getting permission from the city government. But the First Amendment is supposed to protect the right of citizens to say what they want, including describing things to other people. On Thursday, the Institute for Justice filed suit against the District of Columbia on behalf of tour guides Tonia Edwards and Bill Main. Edward and Main are the proprietors of Segs in the City, which provides guided Segway tours of the nation’s capital. The case is Edwards v. District of Columbia. Here is a short video describing the case:

Posted on 09/16/10 03:25 PM by Alex Adrianson

Spending Cuts Are Good for the Economy

Reducing budget deficits by cutting government spending has a stronger record of economic stimulus than either reducing the deficit with tax increases or increasing government spending. That’s what Harvard economists Albert Alesina and Silvia Ardagna have found in their recent research. They examined 107 instances of large reductions (at least 1.5 percent in one year) in budget deficits as well as 91 instances of large increases (over 1.5 percent in one year) in budget deficits over the past 40 years.

They found that when an economy expands following deficit reduction, spending cuts were the largest part of the adjustment. At the same time, when recessions followed deficit reduction, tax increases were the predominant policy. The authors also found that when budget deficits increased, tax cuts had a more expansionary impact on the economy than spending increases.

Writing in the Wall Street Journal, Alesina points to the reason for these findings: Spending cuts “signal that tax increases will not occur in the future, or that if they do they will be smaller. A credible plan to reduce government outlays significantly changes expectations of future tax liabilities. This, in turn, shifts people’s behavior. Consumers and especially investors are more willing to spend if they expect that spending and taxes will remain limited over a sustained period of time.”

Posted on 09/15/10 03:12 PM by Alex Adrianson

Are You Really More Likely to Have a Gun Accident than to Face an Intruder in Your Home?

You may have heard the argument that you are more likely to have a gun-related accident than to need a gun to defend yourself. It was, after all, an argument that the liberal wing of the Supreme Court accepted in its dissent in the case that struck down the District of Columbia’s gun control laws two years ago. But, from the Just Facts Foundation, here are the facts:

A 1994 survey conducted by the U.S. Centers for Disease Control and Prevention (CDC) found that Americans use guns to frighten away intruders who are breaking into their homes about 498,000 times per year.

According to the CDC, there were about 18,498 gun-related accidents that resulted in death or an emergency room visit during 2001 (the earliest year such data is available from the CDC). This is roughly 27 times lower than the CDC's 1994 estimate for the number of times Americans use guns to frighten away intruders who are breaking into their homes. [Internal citations omitted. Links added to original text.]

Posted on 09/14/10 04:13 PM by Alex Adrianson

The Role of Fiat Money

To really understand our economic woes, says Acton Institute scholar Samuel Gregg, we need to better appreciate how the system of fiat money (money issued by the state that has no intrinsic value) has allowed governments to use monetary policy to pursue political goals. Here’s one key point from Gregg’s essay, published at the Web site Public Discourse:

Moral hazard describes those situations whereby people are encouraged to take excessive risks because of the implied assurance that someone (usually the state) will bail them out if the enterprise or investment fails. From this standpoint, fiat money’s very existence arguably encourages the development of moral hazard throughout every sector of the economy. The high level of the U.S. federal government’s public deficit, for example, is at least partly premised on the unspoken supposition that the Fed (which is, after all, a government institution that operates within legal parameters set by Congress and whose members are nominated by the President) can simply print more money in paper or electronic form if creditors become worried that the U.S. government’s borrowings cannot be covered by anticipated taxation revenues, foreign borrowings, and its existing resources. This in turn encourages more people and governments to buy U.S. government debt in the form of bonds, which permits more deficit-spending, thereby encouraging a cycle of ever-spiraling public debt.

Thus, prior to the delinking of the American dollar from gold in 1971, the money supply between 1960 and 1970 grew by 47%, while the public debt grew by approximately 34%. In the decade after the dollar’s delinking from gold, however, a rapid acceleration occurred with the money supply growing by approximately 87% while the public debt increased by almost 139%. Between 1980 and 2005, the pace further accelerated at the respective ratios of 254% and 753%. The absence of some form of “golden brake” (even the pseudo-gold standard that existed between 1946 and 1971) is surely part of the reason for the accelerating increase in public debt.

Posted on 09/14/10 03:04 PM by Alex Adrianson

If Government Spending Stimulates, Then Why Doesn’t Foreign Aid Work?

Some folks don’t buy the “stimulus can’t work because it’s not free money” argument. They reason that when unemployment is high, any policy that puts people to work who would otherwise be unemployed must be good for the economy. Those folks then, argues Russ Roberts, should consider foreign aid the perfect natural test of Keynesian policies:

The Western world has sent trillions of dollars to poor countries. Unlike domestic stimulus, this kind is insulated from the criticism that the resources have to come from somewhere. In the case of foreign aid, the resources come from outside the system. So this should be the ideal test of Keynesian stimulus. Most of the recipients of foreign aid have high unemployment rates. So there’s plenty of extra resources lying around waiting to be put into action.

Think of all the dams and bridges and roads and other forms of infrastructure that have been funded by international aid money.

But has foreign aid spending created prosperity in those countries? Usually not. Or maybe never. The money gets spent and then it’s over. The multiplier never materializes. And that’s because these economies are broken. They have lousy government. They have corrupt practices. They have stagnant labor markets. So the influx of money doesn’t create prosperity. It simply creates rent-seeking for the politically favored.

People will argue forever whether the Obama stimulus package was a waste of money, saved the economy from an even bigger downturn, or delayed the natural rebound of the economy. There is no evidence that it saved the economy from a bigger downturn. It could be true, but there is no evidence. The evidence that we do have on massive injections of money into broken economies is that they have little effect on the economy as a whole. They benefit the people who receive the money but do not repair what is broken.

Posted on 09/13/10 04:51 PM by Alex Adrianson

Watch SPN Sessions from Your Computer is streaming video for a number of the sessions at the State Policy Network’s K-12 Education Reform Summit and 18th Annual Meeting. This yearly event, going on right now in Cleveland, always provides great information, ideas, and networking for think tanks trying to roll back big government at the state level. The schedule is subject to change, but slated for airing this week are Ted Cruz, at 9:15 Tuesday morning, talking about the importance of federalism; Jeb Bush, former Florida Governor and chairman of the Foundation on Excellence in Education, at 12:25 on Tuesday; Herman Cain, President and CEO of the New Voice, Inc., at 8:15 Wednesday morning; and J.C. Watts, at 12::35 on Wednesday, talking about the need for spending restraint. Other parts of the conference may also be streamed, as well.

Posted on 09/13/10 11:44 AM by Alex Adrianson

Time for a National Grid?

On Monday, September 20, the Manhattan Institute will host an important conference on the prospects for a national energy grid. In particular, the event will focus on two questions: Should the government or the private sector build the grid? And: What are regulatory barriers to building interstate transmission lines?

Posted on 09/10/10 12:36 PM by Alex Adrianson

Social Networking Site for Classical Liberal Students

The Institute for Humane Studies has launched a new social networking site for classical liberal graduate students and academics: Kosmos. The site allows users to search for people by university or research interests, provides a calendar of events and conferences around the globe, allows users to post their own content in any Kosmos group or create their own forum, and lists job opportunities and calls for papers. Also on the site are interviews with leading classical liberal academics, advice for graduate students, and live chats with Institute for Humane Studies officers.

Posted on 09/10/10 12:24 PM by Alex Adrianson

Liberating Learning—the Web Site

This month, the most expensive public school ever built will open in Los Angeles, California. The Robert F. Kennedy School comes with a price tag of $528 million. As Heritage Foundation analyst Lindsey Burke writes, the school “features a high-tech swimming pool, a chic auditorium, vaulted ceilings, luxury amenities and a design aesthetic worthy of a spread in Architectural Digest.”

Of course, none of those features are going to improve student performance in a school district where less than half of the students graduate and only 15 percent of eighth graders are proficient in reading. But might there come a day when we won’t even need bricks and mortar for schools? In their book, Liberating Learning, Terry Moe and John Chubb argue that information technology has the potential to produce a radical decentralization of the learning environment. They envision a system of virtual learning, where teachers provide instruction long-distance to students who won’t even need to leave their homes. This set-up will allow greater choice in curricula, and foster more parental involvement. Further, by breaking the geographic link between schools and students, virtual learning can undermine the power of teachers unions to control education policies.

Now Moe and Chubb have started a Web site to track developments about K-12 virtual education. The Web site,, will offer a roundup of news and opinion, articles from regular contributors in every state, and a wiki section that lets users provide updates from their own communities.

Posted on 09/10/10 11:56 AM by Alex Adrianson

What Have We Learned About Obamacare So Far?

The new health care entitlements created by the Patient Protection and Affordable Care Act (Obamacare) are funded in part by reducing compensation for the private plans offering benefits for seniors in the Medicare Advantage program. But the bill does more than just shift benefits around: Medicare Advantage was at least a step in the direction of introducing private competition into the Medicare program, and Obamacare is expected to eviscerate the program. The lower payment levels have been cast as a “savings” for the program, but a new paper coming out soon from Robert Book and James Capretta will show that in fact the changes to the program will result in a real loss of welfare for the 14.8 million people who receive benefits from Medicare Advantage. Medicare’s own actuary has estimated that as a result of the changes approximately half of those currently in the program will end up shifting back to traditional bureaucratically managed fee-for-service Medicare.

To find out more about how Obamacare will affect Medicare Advantage beneficiaries, check out an event being held on Tuesday, September 14, 2010 by Book and Capretta will present their paper, then there will be a panel discussion. Sen. Mike Johanns (R-Neb.) will also give a talk about the current state of Obamacare.

Posted on 09/09/10 07:34 PM by Alex Adrianson

Creating Your Path to a Policy Career

The Institute for Humane Studies has just published a collection of several dozen essays called “Creating Your Path to a Policy Career.” Topics covered include: how to be a specialist, how to be a generalist, how to write well, how think tanks achieve change, public speaking, the different kinds of jobs people do at think tanks, how to network to find your job, and many other topics. If you are a young professional or a recent college graduate trying to get into the public policy field, do check it out.

Posted on 09/08/10 05:13 PM by Alex Adrianson

More Federal Grants Equals Higher State Taxes

Last year, when Congress was getting ready to pass a stimulus bill that included $144 billion to help spendthrift states facing huge budget gaps, critics argued that states would be better off in the long run without the money. The temporary funding boost from the feds, they said, would simply lead to higher levels of state spending that would eventually have to be funded by even more debt or state tax increases. Indeed, South Carolina Gov. Mark Sanford attempted to turn down part of his state’s stimulus funding because he feared it would lead legislators to make choices now that the state could not afford in the future. There is already an extensive literature finding that indeed each dollar’s worth of federal grants induces states to increase spending by between 30 and 70 cents. But, in a new paper for the Mercatus Center, Russell Sobel and George Crowley have quantified the impact of federal grants to states on state taxes. After looking at data from all 50 states between 1995 and 2008, they conclude that “each dollar of federal grants … subsequently results in states raising taxes by between 0.33 and 0.42 [dollars] … which is precisely the amount required to permanently continue all of the state programs created through the initial federal grants.”

Sobel and Crowley’s paper is “Do Intergovernmental Grants Create Ratchets in State and Local Taxes?” published by the Mercatus Center, August 2010.

Posted on 09/08/10 11:50 AM by Alex Adrianson

But What Kind of Infrastructure?

The federal record on transportation spending does not lend support to the idea of spurring the economy with another $50 billion over six years, explains Wendell Cox:

Obama and the Congress operate from a presumption that people “choose” to travel by automobile and that if only given the choice they would travel by transit. There are a multitude of problems with this naivety. The most important is that transit generally takes about twice as long as travel by car. Any serious diversion of travel from cars to slower transit would retard economic productivity, because it would reduce the number of jobs that could be accessed by people in a specific period of time. Further, it is not possible to replicate the speed of the automobile by expanding transit at a cost that can be remotely afforded. Our own research indicates that such a transit system would require more funding than the gross personal income of an urban area every year. The plain, undeniable fact is that automobiles and roads carry nearly all urban travel (even in the New York metropolitan area, automobiles represent nearly 90 percent of road and transit travel). The problem is that, constrained by anti-automobile ideology, the nation has ignored the highway expansions that are necessary to promote job creation and economic growth.

Ted Balaker’s “Why Mobility Matters to Personal Life,” from the Summer 2007 issue of The Insider, details the human and economic costs of traffic congestion.

Posted on 09/07/10 04:46 PM by Alex Adrianson

Because the First $300 Billion Worked So Well …

President Obama thinks another $50 billion in government spending on infrastructure (over six years) will get the economy rolling. But the government has already spent nearly $300 billion on stimulus over the past 18 months with zero impact on the employment picture:

This chart was produced by Veronique de Rugy at the Mercatus Center.

Posted on 09/07/10 02:40 PM by Alex Adrianson

Liberty Calendar for College Students

A new resource for college students: The group Students for Liberty now features on its Web site a calendar of pro-liberty events for students. LibertyCal includes all sorts of events of interest to students, including movie screening, lectures, conferences, and social events, and can be sorted easily by region.

Posted on 09/07/10 11:19 AM by Alex Adrianson

Can an Academic Bill of Rights Fix Higher Education?

Or at least make it better? David Horowitz makes the case:

Posted on 09/03/10 10:16 AM by Alex Adrianson

Events that Have Already Happened Are Not Insurable

Health insurance premiums are going to spike in the next year because of a particular provision of Obamacare, predicts John Goodman of the National Center for Policy Analysis. Specifically he cites “the rule that health plans must offer coverage on a guaranteed issue basis, without excluding any pre-existing conditions, to dependents up to 19 years old, regardless of whether they have had continuous coverage before joining a new group.” Goodman continues:

This strikes fear into every health plan and employer, because it means that parents do not have to sign up for coverage for their dependents until after their kids have fallen ill. Most kids between the ages of two and 19 are very healthy. Then, when a kid gets diagnosed with leukemia or taken to the ER after a motorcycle crash, his parents’ health plan must issue coverage without taking the illness or accident into account.

If insurers expect people to behave this way, then they will have to raise their premiums in anticipation of having to pay for medical care for people for whom they are not currently receiving premiums.

Posted on 09/03/10 10:10 AM by Alex Adrianson

Does the New Yorker Even Know What Free Market Think Tanks Do?

Last week, a New Yorker article described David and Charles Koch’s generous philanthropy toward free-market think tanks as a product of pro-corporate economic self-interest. But if that were really true, as Tim Carney points out, then they would not fund organizations that regularly host writers who speak out against corporate welfare—writers like Tim Carney. Carney, who often speaks at the Koch-funded Institute for Human Studies, is the author of Obamanomics: How Barack Obama Is Bankrupting You and Enriching His Wall Street Friends, Corporate Lobbyists, and Union Bosses.

Posted on 09/02/10 03:37 PM by Alex Adrianson

That’s Not a Human Right!

“Asian-American men suffer from stomach cancer 114 percent more often than non-Hispanic white men.”

That’s one piece of evidence supposedly demonstrating that the United States comes up short on securing human rights. That’s the State Department’s story anyway, as told to the United Nations in its recent review of U.S. human rights conditions.

In case you need to know more about the State Department’s weird views of what constitutes a human right, see Roger Pilon’s column in the Philadelphia Inquirer. As Pilon points out, the United Nations recognizes two sets of human rights: one set based on equality before the law, and the other based on equality of economic and social results. Recognizing the latter set of rights as fundamental has given the regimes that kill their own citizens a political club to wield against governments that do not kill their own citizens.

Posted on 09/01/10 01:54 PM by Alex Adrianson

Obamacare Squeezes Students

Could college students not covered by their parents’ insurance plans be forced into more expensive plans by Obamacare? Colleges and universities typically offer their students low-cost health plans designed to take advantage of a university’s own health care system. And because the plans are rated for healthier college students, they are cheaper than insurance in the individual market.

But Obamacare requires all adults to purchase health insurance that meets certain standards or pay a tax penalty. The plans colleges and universities offer their students wouldn’t seem to meet those standards, and that has them scrambling to obtain a clarification from the Department of Health and Human Services. The American Council on Education sent Secretary of HHS Kathleen Sebelius a letter about the problem earlier this month. The letter points out that the law does instruct that it should not be construed as prohibiting universities from offering student health plans. But the letter also goes on to point out that the only real guarantee that student health plans won’t be affected by Obamacare would be for the Secretary to use her discretion under the law to designate student health plans as meeting “minimum essential coverage.”

There are probably lots of people who would like the option of buying less comprehensive and cheaper insurance. And not all of those people are students at institutions of higher education. Will the secretary look out for their interests, too, by making similar designations of other plans? Or perhaps it would just be easier to repeal Obamacare.

Posted on 09/01/10 12:20 PM by Alex Adrianson

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