Author Archives: Nuetzel

Health Reform and Pre-Existing Confusion

24 Wednesday Apr 2019

Posted by in Health Care, Health Insurance

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Several Democrats vying for the party’s presidential nomination are pushing Medicare For All (MFA) as a propitious avenue for health care reform. They make the dubious claim that universal government health insurance would broaden real access to health care. As we know from experience with Medicaid, Medicare, and Obamacare, broader coverage does not necessarily imply better access. Even more dubious is the claim that MFA would reduce the costs of insurance and health care.

Single-Payer Perils

MFA appeals to the Democrats’ extreme leftist flank, a segment likely to have an out-sized influence in the early stages of the nomination process. Their fixation on MFA is borne of leftist romanticism more than analytics. Democrats have long-championed less ambitious plans, such as a public option, but those are stalling in “blue” states precisely due to their costs.

MFA would demand a massive transfer of resources to the public sector and would completely decimate the private health insurance industry, upon which 90% of Americans rely. As John C. Goodman explains, MFA would lead to less choice, misallocated health resources, long waiting times to obtain care for serious illnesses, and even greater inequalities in access to care because those who can afford private alternatives will find them.

Goodman also discusses a new health plan proposed by House Democrats that is more of an effort to save Obamacare. It won’t, he says, because among other issues, it fails to address the narrowing in-network choices faced by people with chronic conditions, and it would aggravate cost pressures for those who do not qualify for subsidies.

Outlining A Plan

There are many obstacles to a health care deal. Democrats are bitter after the effective repeal of the individual mandate, but despite their assertions, subsidized coverage of pre-existing conditions is not a principle about which most Republicans disagree. Really, the question is how to get it done. MFA is pretty much dead-on-arrival, despite all the bluster. But those who wish to protect choice and the efficient allocation of risk prefer to leverage a combination private insurance and targeted subsidies to achieve broad coverage.

Capitation: Goodman suggests an approach to high-risk patients that has proven successful in private Medicare Advantage (MA) coverage. These plans are structured around “capitated” payments to the insurer from the Centers for Medicare and Medicaid Services (CMS): per patient fees that cover in-network costs above the patient’s out-of-pocket limit. The insurer bears the risk of a shortfall. Assuming that the capitated payment makes coverage of high-risk patients a fair risk, insurers will compete for those buyers. That competition is what makes MA so appealing. Patients with pre-existing conditions under an MA-like system, which I’ll call “Mediprex Advantage”, or just Mediprex for short, would be pooled in “special needs” plans with relatively large capitations.

Risk-Shifting: The other major issue addressed by Goodman is the need to eliminate incentives for risk-shifting from the employer-paid, group insurance market to the individual market. The population of employed individuals in the group market is less costly, on average, and the sickest individuals often have to stop working. Goodman recommends state-level premium taxes on group policies, dedicating the proceeds to subsidies for individuals who must migrate from the group to the individual market. Employers could avoid the tax by offering full portability.

Tax Treatment: The bifurcation of health insurance coverage between employer and individual markets might not have lasted were it not for the favorable tax treatment afforded to employer plans. Deductibility of premiums on employer plans has inflated both premiums and health care costs, much to the detriment of those in the individual market. I would be happy to see deductibility repealed. An obvious alternative to.repeal, extending deductibility to the individual market, would balance incentives, but it would also tend to inflate costs somewhat. Still, the status quo is probably inferior to either repeal or deductibility for all.

Future Insurability: The concept of insuring future insurability is highly attractive. That is precisely what employer guaranteed-portability does, and the actuarial cost could be funded at employer/employee initiative, by a premium tax, or simply mandated. Voluntary action is preferred, but there are reasons why it is not a natural progression in the group market. First, renewability is usually guaranteed for the duration of employment, though job tenures have declined substantially since the early years of employer-based coverage. Nevertheless, health coverage is a retention tool that full portability would nullify. Second, employer coverage is itself a creature of government intervention, a result of the wage controls put into place during World War II. Since then, the features of health coverage have partly been driven by the tax-deductibility of premiums, which makes the cost of coverage cheaper after-tax. That, in turn, has encouraged the extension of coverage into areas of health maintenance and preventative care, but that increases the burden of paying for portability.

Plan Migration: If you’re not already covered under a group plan, another mechanism is needed to insure your future insurability. For example, Obamacare requires guaranteed issue and renewability in the individual market with a few exceptions related to non-payment, fraud, and product availability. Lower-income premium payers are eligible for subsidies. The suggestion here is that a guaranteed issue, renewable contract must remain available in the individual market with subsidized premiums for some individuals. This might also apply when an individual’s employment terminates. An individual who has fallen ill might be placed into a different risk class via the sort of “Mediprex Advantage” program outlined above, perhaps with subsidies to fully cover the premium and capitation.

Catastrophic Plans: Affordable catastrophic policies with guaranteed renewability should be available in both the individual and group markets. But what becomes of an individual seeking a change to broader coverage? They’ll pay a higher premium to cover the actuarial cost as well as the greater level of future insurability they choose to insure. But if they are not eligible for broader coverage, then it’s on to Mediprex.

Belated Signups: Finally, under guaranteed-issue Mediprex, individuals who refuse coverage but then get sick might or might not be entitled to the same panoply of services available to other insureds. It is reasonable to expect that late-comers would pay a penalty premium and higher out-of-pocket costs, assuming they have the income or resources to do so, or they might face a curtailed set of benefits.

Conclusion

The ability to “insure future insurability” should be a key component of any health insurance reform plan. That means portability of group insurance, which requires funding. And it means premiums in the individual market reflecting the actuarial cost associated with future insurability. A healthy individual entering the individual market should have competitive insurance options from which to choose. A sick individual new to the individual market might have access to the portable coverage provided by their former employer, other risk-rated private plans, or they might need access to an individual plan that covers pre-existing conditions: what I have called Mediprex Advantage. A certain percentage of these individuals will have to be subsidized, but the cost will be supported, at least in part, by the premiums paid by healthy individuals to insure their future insurability. Finally, individuals should be free to opt-out of traditional insurance coverage, choosing concierge providers for various aspects of their health care.

 

April 22: Happy Human Achievement Day!

21 Sunday Apr 2019

Posted by in Free markets, Free Trade, Human Welfare, Uncategorized

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By way of celebrating human ingenuity, I’ll be driving 600 miles on Monday in a beautiful sedan powered by high-octane fuel. I’ll be clothed in incredibly comfortable fibers and have access to a great variety of listening amusements via satellite. The celebration will continue when I arrive home. I’ll enjoy the comfort of climate-control, electric power, modern plumbing, a refrigerator and pantry full of agricultural bounty, delicious wine, and even more incredible access to entertainment and intellectual pursuits. But it’s not just the goods and technology I’ll celebrate. I’ll also raise a glass to the fabulous, free-market institutions that have made all this possible, effectively allowing us to trade with specialized producers all around the world at low cost, and at prices that signal the true scarcities of resources… ill-considered tariffs aside.

In honor of mankind’s great achievements, I bring you additional testimony from Don Boudreaux, who provides some juicy tidbits to mark our progress. Here is more from Marion Tupy at humanprogess.org. And one more link is from Paul Driessen, who last Thanksgiving wrote of the the many developments since 1800 that have drastically improved human well being, including the ability to exploit fossil fuels that are extremely clean-burning and efficient relative to primitive energy sources.

What riches we enjoy today! Contrary to the claims of doomsayers, busybodies, and self-appointed enforcers of an austere existence, our prospects for continued improvement in human standards of living are excellent. The long arc of technological progress has made the effective abundance of resources greater and more sustainable than ever. As the many charts in Tupy’s article demonstrate, long-term trends in real incomes, poverty, literacy, longevity and the incidence of disease are quite favorable. We owe all that to the spread of human ingenuity, freedom, and voluntary exchange. That’s truly progressive!

Progs Give New Meaning To “Tax Distortions”

16 Tuesday Apr 2019

Posted by in Taxes

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Tax day has come and gone, but I’m struck by 1) the incredible misconceptions people express about the change in their tax liabilities caused by the 2018 income tax legislation; and 2) the confusion about how our progressive income tax system actually works! Some of these misapprehensions are encouraged by progressives who would rather misinform the public than evaluate policy on its own terms. I am not a fan of our income tax system, nor all aspects of the 2018 tax law, but let’s at least discuss it honestly.

First, a substantial majority of taxpayers paid lower taxes on their 2018 income than they would have under prior tax rules (also see here). However, as I’ve observed before, many people conflate the change in the amount of their tax refund with the change in their taxes paid. And again, the progressive media hasn’t helped to allay this misconception, as noted by Vox cofounder Matthew Yglesias when he tweeted this:

“Nobody likes to give themselves credit for this kind of messaging success, but progressive groups did a really good job of convincing people that Trump raised their taxes when the facts say a clear majority got a tax cut.”

Even worse, members of Congress misrepresent the facts with little media backlash. For example, Andrew Wilford of the National Taxpayers Union Foundation reports the following:

“… the tax cut actually made the tax code more progressive, not less.  … Of course, none of this stopped Democrats such as Sen. Kamala Harris (D-Calif.) from claiming that the TCJA was a “middle-class tax hike.” Nor did it prevent three separate Democratic senators from claiming that the average family making up to $86,000 would see a tax hike of $794, despite the fact that the source for this claim clarified that this tax hike would apply to only 6.5 percent of households in this income bracket.”

It’s amazing just how drastically our income tax system is misunderstood or often misrepresented by the media. Apparently, it’s considered politically advantageous to do so. Chris Edwards offers the following quote from Christine Elba in the Washington Post:

“Meanwhile, the wealthier among us (remember: corporations are people, too!) are able to hire tax lawyers, consultants and accountants to clue them in on lightly advertised but heavily lobbied for loopholes that allow them to pay a lower tax rate or even no taxes at all.”

That is simply not a fair characterization of our income tax system. Edwards goes on to demonstrate the progressive nature of U.S. income taxes based on information from the Tax Policy Center. Not only do statutory federal income tax rates rise with income, but so do average effective tax rates, which account for the effects of deductions, credits and exclusions. In fact, average effective rates are negative in the lowest income groups and are zero on balance for the lowest 50% of earners. And average effective rates keep rising in the top quintile, moving up through the top 10%, 5%, 1% and 0.1%. Ms. Elba is clearly confused. And if she is aware of the pernicious double-taxation of corporate income, she probably would never admit it.

Apparently the current state of income tax progressivity is not enough to satisfy statists and redistributionists, who take license to lie about it in order to make their case for higher taxes on the rich, and even the not-so-rich. But here’s some advice for Bernie Sanders, Kamala Harris, and others who insist that, while they are rich, they desperately want to pay more taxes: you are free to do so without penalty. Better yet, give it to a good charity instead!

The EU Chokes the Free Flow of Information

14 Sunday Apr 2019

Posted by in Censorship, Free Speech

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The European Union wants to force me to pay “news sites” for links with “snippets” of content I might quote on this blog, and it wants the WordPress platform to flag and censor anything that might qualify as copyright infringement. The EU also wants search engines like Google and platforms like Facebook to pay for links and “snippets” or else censor them. Most members in the EU Parliament apparently think the best way to regulate information services is to choke off the flow of information. As Warren Meyer says, if you weren’t for Brexit, this single EU action might well convert you (though British statists have their own designs on censorship, Brexit or not). And if you think government involvement won’t ruin the internet, think again.

These restrictive demands are the essence of two controversial provisions of the so-called European Copyright Directive (ECD) passed by the EU Parliament on March 26th. My summary here leaves out lots of detail, but be assured that administering the Directive will require a massive regulatory apparatus:

The Link Tax: If you link to a source and quote a “snippet” of text from that source, you will have to obtain a license from the source, or else the link you use may be blocked. Keep in mind the rule applies despite full attribution to the original source! It remains to be seen how these licenses will be negotiated, but it will almost certainly impose costs on users.

Censorship Machines: Platforms will be required to monitor and assess everything posted for possible copyright infringement. That will require the development of automated “filters” to flag and remove material that might be in violation. That’s a stark change in the treatment of speech on platforms that, heretofore, have not been required to police their users. The responsibility was on those holding copyrights to go after unauthorized use with takedown notices.

Cory Doctorow of the Electronic Frontier Foundation (EFF) wrote an informative position paper on the ECD a week before the vote. He has been an active and articulate opponent of the legislation. Here are some of his comments (his emphasis):

“… text that contains more than a ‘snippet’ from an article are covered by a new form of copyright, and must be licensed and paid by whoever quotes the text …[the ECD] has a very vague definition of ‘news site’ and leaves the definition of ‘snippet’ up to each EU country’s legislature. … no exceptions to protect small and noncommercial services, including Wikipedia but also your personal blog. The draft doesn’t just give news companies the right to charge for links to their articles—it also gives them the right to ban linking to those articles altogether, (where such a link includes a quote from the article) so sites can threaten critics writing about their articles.”

The ECD seems intended as a gift to large news organizations, but it will discourage the free exposure now given to those news sites on the internet. It’s therefore not clear that the ECD will generate much incremental cash flow for news sites or other content providers. However, collecting the new license revenue will come at some expense, so it won’t be of much help to smaller “rights holders”. Therefore, the rule is likely to benefit large platforms and news outlets disproportionately, as they are in a better position to negotiate licenses for the use of material.

As for censorship machines, perhaps rights holders prefer a shift in the burden of policing the use of copyrighted material away from themselves and to the platforms. Some might suggest that it will achieve efficiencies, but that seems unlikely. These filters are costly and are likely to suffer from an excess of false positives. Moreover, the ECD creates risks that demand conservatism on the part of the platforms, so their censorship machines will systematically side against users. There is also a reasonable possibility that filters will be used to control political speech.

All of this is contrary to the doctrine of fair use, as codified and practiced in the U.S. This involves four conditions giving fairly broad latitude to users, described at the last link by Stan Adams:

“The relevant statutory provision (17 U.S.C. § 107) describes four factors to consider when determining whether a particular use of a work is “fair”: the purpose and character of the use; the nature of the copyrighted work; the amount and substantiality of the portion used in relation to the work as a whole; and the effect of the use on the potential market for, or value of, the original work.”

Copyright protection has never been absolute nor intended to guarantee perfect exclusivity. Ever lend a book to a friend? Ever heard a cover band perform pop hits? Ever offered a quote to forward a written argument? All of this falls broadly under fair use, and much of it serves to promote the economic interests of rights holders, as opposed to infringing on the market for their original work. The EU, however, has no provisions for fair use in its copyright laws (though EU countries may have limitations and exclusions to copyright protection).

It’s bad enough that Europeans will suffer the consequences of this ill-considered piece of legislation, but can the platforms be counted upon to apply their censorship machines only to select geographies? Adams encapsulates the difficulties the ECD presents to users elsewhere:

“… the rest of the world must rely on private companies to ensure that the EU’s misguided copyright policies do not restrict freedoms enjoyed elsewhere in the world.”

Internet regulations in Europe and the U.S. seem to be following different cronyist disease vectors. The ECD favors large news organizations at the expense of social media platforms, and ultimately consumers and the cause of free speech. The large tech platforms are of course equipped to survive, but perhaps not small ones. In the U.S., we have Mark Zuckerberg begging for regulation of Facebook, including the regulation of speech. That’s a spectacularly bad idea for public policy. It too would disadvantage smaller competitors in the social media space. Ultimately, in Europe and the U.S, these steps will come at the expense of consumers, possibly in higher monetary costs, but definitely in restrained trade in online services and in the marketplace of ideas. So goes the cause of free speech when government has the power to regulate the flow of information.

For further reading on the ECF, see Catarina Midoes: “Is this blog post legal (under new EU copyright law)?” She discusses how different factions view the ECD, gives additional perspective on the controversial provisions, and discusses some potential unintended consequences. Also see Scott Shackford’s “Hide Those Meme’s Folks…”

 

State Compact Aims To Subvert Electoral College

09 Tuesday Apr 2019

Posted by in Constitution, Voting Rights

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The map shows the number of electoral votes by state, one vote per square. The states colored green are participants in a gambit that would, if successful, vitiate the Electoral College (EC). They hope to execute an end-run around Article V of the Constitution, which otherwise would require an amendment to replace the EC with the national popular vote. Such an amendment is highly unlikely to win approval, as I noted last week. The green states are members of the so-called National Popular Vote Interstate Compact (NPVC). This group of 13 states plus the District of Columbia would pledge their electors to the winner of the national popular vote, but only if and when enough states join the Compact to enable it to carry an election.

The big question is whether an electoral action by the NPVC would be constitutional. Article I, Section 10 of the Constitution prohibits states from entering treaties or compacts with other states without the approval of Congress. However, supporters of the NPV such as Justin Yang focus on an 1893 Supreme Court decision (Virginia v. Tennessee) that found congressional approval is unnecessary as long as a compact does not infringe on federal powers. NPVC advocates go on to assert that elsewhere, in Article II, Section 1, state legislatures are empowered to allocate electoral votes “in any way they want“, as Yang puts it.

There are strong reasons to doubt the NPVC’s interpretation, however. Carroll Andrew Morse raises a basic constitutional issue: the NPVC amounts to a denial of voting rights to the citizens of a Compact member-state. It is obviously true that a member-state’s voters would contribute to the national vote totals. Nevertheless, awarding state electors to the winner of the national vote, regardless of the in-state outcome, certainly could deprive state residents of their preference. The Fourteenth Amendment provides that a state’s denial of voting rights to any citizen or group of citizens would require the state to relinquish its representation in the legislature by a proportionate amount. That is a harsh remedy that the voters of any state should consider when weighing the benefits of membership in the NPVC.

This BYU Law Review article by Norman R. Williams covers some other areas of contention. It provides a review of some constitutional provisions bearing on the legality of interstate compacts as well as excellent background on the EC and its history. Some brief thoughts on the issue from Williams also appear in the Harvard Law Review here. According to Williams:

“… the states’ power to regulate the manner of presidential elections is far more limited than the proponents of the NPVC contend. In fact, just as the U.S. Supreme Court has narrowly interpreted the states’ power to regulate congressional elections to prevent states from destabilizing the constitutional structure, so too should it deny states the power to undermine the stability of the presidential election process.”

Williams cites a 1995 Supreme Court decision (U.S. Term Limits, Inc. v. Thornton) limiting state power over questions such as congressional term limits. The ruling stated that state-regulated limits create additional qualifications for holding office that are not authorized under the Elections Clause in Article I, Section 4. Williams contends that the process of choosing electors is analogous to other provisions regarding state powers, so it should be subject to the same limitations. He also says that if the Court followed the same method of reasoning as in Thornton, which focused on the founders intent as well as subsequent developments, it would reject the actions of the NPVC as unconstitutional.

Williams also argues that the NPVC may interfere with the rights of voters in other, non-Compact states. He says the history of Article II is inconsistent with an interpretation that the founders would have intended to allow states to exercise such broad, extra-state powers in electing a president:

“If a group of states can agree to pledge their presidential electors on the basis of the national vote, then they must likewise be able to agree to pledge their electors to a candidate only from those states, only from one political party, or only in accordance with the wishes of a designated committee of ‘presidential experts.’ In short, any interstate compact regarding the manner in which presidential electors are selected threatens to exclude the wishes of voters in nonsignatory states, and, therefore, it seems inconceivable that a Constitution that specifies how the President is to be elected and that lays out a process for amending its requirements would permit a group of states to alter so fundamental a part of our constitutional structure.”

Williams concludes with a quote from the Court’s decision in the Thornton case:

“As the Court admonished in Thornton, change, if it is to be undertaken, ‘must come not by legislation adopted either by Congress or by an individual State, but rather—as have other important changes in the electoral process—through the amendment procedures set forth in Article V.'”

Any legal challenge to the NPVC will have to wait until it is effective, that is, when and if it ever exercises 270 electoral votes. It now has a total of 189 electoral votes. The most recent addition was New Mexico, and a proposed ballot measure in Ohio could bring total Compact electors to 207. Fans of the NPVC hope that Michigan, Minnesota, and Wisconsin might join as well, though none of those is imminent. But if they did it would bring another 46 electoral votes to the Compact. Apparently Pennsylvania has rejected membership for now.

Almost all of the states already in the NPVC are solidly “blue”, having voted for the Democrat in presidential elections, at least over recent cycles. Of course, that means the Compact might quickly disintegrate if a Republican is expected to win the popular vote. Right now, however, Colorado and New Mexico are the only states that might qualify as swing states, and even those are a stretch. Some of the other states in which the NPVC is under debate are legitimate swing states, and legislation enabling the change will be risky for many lawmakers in those states. Ballot measures might be more preferable to the NPVC due to the possibility of limited turnout. We’ll see how it goes.

If states with 270 or more electors vote as a block, it diminishes the importance of each state’s voters, who might well disagree with the national popular vote in the future if not already. For example, members of the NPVC, including California, would have had to cast their electoral votes for George W. Bush in 2004, despite the desires expressed by their citizens at the polls. Voters at-large in any non-Compact state have more leverage over the outcome of a presidential election than if they follow the national popular vote. Alexander Hamilton would not have approved of the NPVC; he wrote that a state’s electors should not be influenced by parties outside the state. That was the intent of the founders.

Court challenges would undoubtedly follow any exercise of votes through the NPVC. Presumably that would occur only in the event of another conflict between the national popular vote and the EC, as constituted prior to the adoption of the NPVC. That would occur only if at least one Compact state had an in-state popular vote conflicting with the national vote. There is almost no doubt that such a dispute would make its way to the Supreme Court. Thus, a presidential election might someday be undecided until a final ruling is passed down by the high court. I strongly suspect that the NPVC would be found unconstitutional.

 

The Excellent Electoral College

05 Friday Apr 2019

Posted by in Constitution, Democracy

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So lacking is the average American’s knowledge of civics that they often react in shock to the suggestion that the United States was never intended to be a pure democracy. But unchecked democracy is not a system that can be counted upon to maintain stability, something the founders knew when they fashioned the country as a constitutional republic. This point bears emphasis given the recent calls to abolish the Electoral College (EC) by such Democrat luminaries as Elizabeth Warren and Beto O’Rourke. Others, like Socialist-cum-Democrat Bernie Sanders, say they want to “assess” the EC.

Jon Gabriel describes the EC as one of a series of stabilizing checks and balances embedded in our system of government. It served the purpose of balancing interests across diverse regional economies and sub-cultures:

“By distributing our presidential choice among 51 individual elections, nominees must appeal to a wide variety of voters with a wide variety of interests. Farmers in Wisconsin are important, as are retirees in Florida, factory workers in Pennsylvania, and shopkeepers in Arizona. White Evangelicals need to be courted in Charlotte, as do Latino Catholics in Mesa.

If the Electoral College were abandoned, party frontrunners would camp out exclusively in urban areas. The pancake breakfasts in Des Moines and Denver would be replaced with mammoth rallies in Los Angeles and New York City.”

So diverse were these interests in the late 1700s that it’s reasonable to assume that the Constitutional Convention would have failed without the creation of the EC. Today, no less, our country would be unlikely to survive the EC’s elimination. Why, for example, would voters in Missouri wish to allow the preferences of east and west coast voters to dominate federal policy-making?

Gabriel provides some interesting history giving emphasis to the notion of a tyranny of the majority under pure democracy:

“The world’s first democracy was ancient Athens, which allowed around 30,000 free adult male citizens to choose their leaders. They made up less than 15 percent of the population, but it was the most egalitarian political innovation to date.

Athen’s unbridled democracy, however, led to the very extremes that sowed its decline and defeat at the hands of enemies. This note from Edward Conway on Quora is instructive (his is the third commentary at the link; most of the others are helpful, but his is most succinct):

“… ancient Athenian democracy was purely a matter of votes: if you wanted to win a court case, or pass a law, or tax a group, or go to war, or massacre a large number of people, the only check was whether you could convince a majority of the citizens to vote in your favor. While there were means of checking individual people (see: Ostracon), this did nothing to check the power of the crowds, as it only removed one focus of this power.

Thus Athenian democracy never moved beyond the initial ‘UNLIMITED POWER!’ stage. Anyone who could convince the crowd to follow them had unchecked authority until they lost control of the crowd.

This led, predictably, to excesses: ‘Let’s attack Sparta!’, ‘Let’s invade Sicily!’, ‘Let’s ostracize our best general!’, etc.“

It’s interesting that the Athenian military was staffed by plebeians who found imperialistic actions to be profitable. Naturally, they voted to devote more resources to military incursions… until they were defeated. Allowing a large faction to vote on their own pay, and the taxes on others necessary to pay for it, can be a glaring defect of democracy. We see manifestations of the same phenomenon today in congressional pay raises and expansion of federal benefits for large segments of the population who pay no taxes.

Back to Gabriel:

As the saying goes, democracy is four wolves and a lamb voting on what to have for lunch. The Founders looked to Athens less as a political model than an object lesson in what not to do.

James Madison said that democracies are ‘incompatible with personal security or the rights of property; and have in general been as short in their lives as they have been violent in their deaths.’

The EC was a stroke of political genius: It allowed the delegates at the Constitutional Convention to reach a consensus, something that would probably be just as difficult to accomplish today as it was then. The EC transforms one federal election into 51 local elections, reducing the feasibility of tampering by the party in power at the federal level. It also reduces the incentive for electoral fraud in a national race because a greater margin of victory within a state cannot gain the votes of additional electors.

The noise regarding the EC is coming from just one side of the political aisle: Donald Trump’s electoral victory in 2016, and his reasonably good prospects for reelection in 2020, have inflamed the passions of Democrats, who are now grasping at any and all ways in which they might tilt the playing field their way. Relative to electoral votes, popular votes are heavily concentrated in the coastal “blue” states. Such a change in the rules of the game would certainly stand to benefit Democrats. Therefore, the debate looks suspiciously like it has nothing to do with “good governance” and electoral integrity, and everything to do with raw politics.

It’s useful to remember that the EC was an essential incentive for gaining the buy-in of smaller states to join the Union. It remains vitally important to states whose interests would likely be neglected if presidential politics was dominated by the coastal states. Fortunately, the founders invested the EC with durability: rescinding it would require a constitutional amendment. That could happen if two-thirds of the state legislatures agree to convene a constitutional convention. Or, it could be proposed by a two-thirds majority in both houses of Congress, then ratified by three-fourths of the state legislatures. Ain’t gonna happen.

 

The Special Olympics and Tax-Funded Philanthropy

30 Saturday Mar 2019

Posted by in Big Government, Education, Federal Budget

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The federal government’s contribution to funding the Special Olympics (SO) illustrates the widespread view of government as a limitless font of subsidies for appealing causes. People were up in arms over the elimination of $17.6 million dollars in federal grants for the SO in President Trump’s budget proposal. Granted, that’s a pittance as budget items go. Later, Trump promised to restore the funding. That is, of course, in addition to the millions in federal tax subsidies already granted on private gifts to the SO.  As Nick Gillespie explains, SO funding is like so many other things people want from government that government has no business doing. Why, exactly, should the federal government, or any level of government, fund the SO? It is a wonderful program, but it simply does not have the character of a public good, nor is it a safety net issue.

The SO certainly benefits the athletes and families that take part, but those benefits are strictly private. Perhaps the larger population of disabled individuals takes inspiration from watching the SO, along with good-hearted people everywhere. Most everyone is happy to know that the SO happen, but those are no more public benefits than the good vibes you get from viewing an inspirational film or theatrical production. For that matter, sports fans and patriots are inspired by great efforts on the part of the U.S. Olympic team, but the federal government does not fund the U.S. Olympic Committee. It’s therefore absurd to assert that the public bears an obligation to pay for the most athletic of disabled individuals to have opportunities to compete and win medals just like Olympic athletes.

Gillespie explains a little about the history and funding of the SO:

“Founded in 1968 by Eunice Kennedy Shriver, the Special Olympics is a 501(c)3 nonprofit, meaning that deductions to it are tax deductible. According to its 2017 financials (the most-recent available on the web), the organization had total revenues of about $149 million, including $15.5 million in federal grants. It’s not a stretch to assume that if federal funding disappears, the resulting outcry would lead to record donations.”

And again, let’s not forget that corporate gifts to the SO are tax deductible up to certain limits. Gillespie also quotes Secretary of Education Betsy DeVos:

“There are dozens of worthy nonprofits that support students and adults with disabilities that don’t get a dime of federal grant money. But given our current budget realities, the federal government cannot fund every worthy program, particularly ones that enjoy robust support from private donations.”

Families with disabled children have extraordinary needs. It’s probably better to think of federal support for those needs as a safety net issue, a form of social insurance. There are several federal programs that provide funds to support low-income families with disabled kids. And while the cut to SO funding was in the budget originally submitted by Secretary DeVos, Gillespie notes that the DOE’s budget “allocates over $32 billion for ‘high-need students,’ which includes intellectually disabled students.” 

DeVos was widely criticized for her budget, but as Gillespie says, she sets a fine example for anyone in a position to help rein in the growth of federal spending and ultimately the federal budget deficit. Given the DOE’s track record of poor programmatic guidance (Common Core), counter-productive school disciplinary mandates, and it’s complete lack of impact on educational outcomes after 40 years of existence and many billions of dollars spent, the continued existence of the DOE is difficult to rationalize.

Once a program appears in the federal budget, no matter how inappropriate as a public priority, and no matter how ineffective, its constituency will always defend its funding with rabid enthusiasm. That defense is multiplied by a chorus of statists in the media and elsewhere who, in their benevolent intentions for the taxes paid by others, can be counted upon to call out the “cruelty” of any proposed cuts, or even mere cuts in a program’s projected growth. The Special Olympics episode, and the DOE, are cases in point.

The Push for Extreme Suffrage

29 Friday Mar 2019

Posted by in Voting Rights

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People aren’t required to know anything about issues or candidates to vote. While that might create challenges to the rationality of electoral outcomes, in the U.S. we’ve at least agreed that competent adults holding citizenship should have the opportunity to vote (with state-by-state exceptions for felons). Thus, over time, the nation has gravitated toward fairly broad suffrage rights, despite setbacks along the way created by Jim Crow laws in the South. Today, the voting rights debate centers around screening issues like voter identification laws, whether to allow undocumented immigrants to vote, and the voting age. The Left tends to oppose voter screening of almost any kind, prompting allegations that their motives are less than pure, and similar allegations are leveled at the Right for its resistance to expanded suffrage. What, then, are the merits of some of these screening mechanisms?

Require Identification?

There are at least two sources of opposition to voter ID laws. One is a Libertarian argument: the very idea of government-issued IDs is anathema to some privacy rights activists. I sympathize with this view, but I’ve always been troubled by the resistance it represents to the establishment and maintenance of trust in a modern society. It might or might not be any consolation that these laws would almost certainly be administered at the state or local level. It’s also not clear that voter ID laws would lead to an increment in the various forms of government-issued identification. On its face, these laws would simply require the voter to produce a valid ID at their polling place confirming that they do, in fact, appear on the roll of registered voters, and that they are not attempting to vote under a fraudulent identity or acting as someone’s stooge.

The second and more common objection to voter ID laws comes from the Left: almost any limit on voting rights can and will be construed as unfairly exclusionary. The argument usually relies on the existence of a disparate impact of the kind described in civil rights legislation. Voter ID laws do not overtly discriminate against minorities, but they are said to place a burden on the disadvantaged and therefore on racial minorities. Presumably, it is considered too burdensome to obtain, carry, or be asked to present some form of identification, even one issued free-of-charge by the government. There is evidence, however, that voter ID laws do not suppress minority voting. And let’s be blunt: individuals excluded by this so-called burden are self-excluded, they are unlikely to be well-informed voters, and they might be vulnerable to opportunists who would pay for their vote. But instead, the public is asked to accept the proposition that obtaining an ID is just too difficult for some people, and to accept the risk that those arriving to vote on election day might not be registered, might have voted already, and might not be the persons they purport to be. These things happen. (Also see here and here.)

Reduce the Voting Age?

It’s impossible to define a measurable threshold above which people can be trusted to cast well-considered votes. Recently, there have been calls from the Left to reduce the voting age to 16 from 18 years. Then why not 14? Or even 12? Well, they’d say, because 12 or even 14 year-olds are not sufficiently mature.

So we all agree that a line must be drawn somewhere. Voting rights were extended to those aged 18-20 in 1971 in response to charges that it was unfair to deny the right to vote to young adults who were eligible for conscription to fight in Vietnam. The age-18 threshold aligns with the legal age of majority in most states. We know that the vast bulk of teenagers of 16 or 17 years are not well-prepared to fight in foreign wars, or to fend for themselves in the world for that matter. Right or wrong, at 18 you can volunteer for military service, get married, you are legally eligible as a sex partner, you can buy alcohol in many states, and you no longer qualify for child support.

Most adults would agree that there are substantial differences in the maturity of 16 and 18 year-olds. The latter are better-educated and will tend to have many times the job experience of 16 year-olds (which is often zero). Will 16 year-old children have a sufficient grasp of the issues they will confront in the voting booth? Most of these kids are still essentially hungry mouths, and it is unlikely that they can make well-informed judgements about the costs of pleasant-sounding public benefits versus the attendant costs. Some will vote exactly the way their parents and teachers tell them, but that sort of vote replication is hardly the desired outcome.

One can also view the voting-age debate through the lens of disparate impact: minority populations tend to have younger demographic profiles with more children per household. Therefore, keeping children out of the voting booth could have a larger impact on votes cast by minorities. But this effect is incidental to the choice of any line one might draw. It does not provide an adequate rationale for giving weight to the preferences held by a class of children.

Suffrage for Illegals?

Another proposal offered by the Left is to allow illegal immigrants to vote. It goes without saying that along with illegals, other resident aliens would get to vote. They are all subject to public policy, so the argument goes, and many of them actually pay taxes. Yes, well, many of them draw on public benefits as well. The statist bet is that suffrage for illegals will undergird support for expansion of the welfare state. That’s bad enough, but the risks are not limited to a fiscal imbalance between taxes paid and public aid. More important is to avoid policies that create rewards and incentives for additional illegal entry. Suffrage for illegals would heighten those incentives. It would also devalue U.S. citizenship and reward those who have already entered illegally, many of whom have little knowledge of our system of government

Conclusions

Eligibility to vote should not be a matter of political gamesmanship. Voter ID laws serve to thwart efforts intended to subvert democratic outcomes, which are common enough to be of concern. And voting is a privilege that should be reserved for citizens, not offered to mere visitors or anyone who has disregarded U.S. sovereignty by entering the country illegally, possibly seeking economic rents from our generous public aid programs.

Voter eligibility should also relate to the individual’s ability to evaluate public policy choices based on some degree of experience and knowledge of the world. As a rule of thumb, high school sophomores and juniors fail that test. If you think “the children are leading the conversation”, then you’re probably having the wrong conversation. But no matter what voting age we choose, there will always be voters having a tenuous grasp of issues. Fortunately, most of those lacking relevant knowledge of ballot issues tend not to care and choose not to vote. They are free to vote should they develop an interest, and so much the better. 

 

In Defense of College Admission for Pay

20 Wednesday Mar 2019

Posted by in competition, Education, Markets, School Choice, Uncategorized

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The college admissions scandal revealed by the FBI last week exposed the willingness of some very wealthy people to lie and cheat to enhance the status of their children. It also resulted in charges against several employees of testing services and prestigious universities, who sold-out their institutions for pure financial gain. These actions may have harmed more deserving applicants to the defrauded academic institutions. Perhaps as sad, the children whose parents cheated are bound to suffer life-long consequences.

Strong prosecution of these crimes will deter other parents entertaining similarly crooked avenues in pursuit of ambitions for their kids. The schools and testing organizations should be motivated to tighten their internal governance processes. My hope, however, is that legislative bodies will refrain from passing new laws in an effort to regulate college admissions. Many schools accept a small percentage of students, legacy or otherwise, who do not meet their academic standards but whose wealthy families make substantial, above-board donations that benefit other students. Putting an abrupt end to these transactions might not be helpful to anyone.

With certain conditions, I do not object to wealthy parents wishing to pay an above-board premium to get their kids into the college of their choice, nor do I object to schools that are free to name their price. First, the school should always receive consideration in an amount adequate to benefit other students or deserving applicants. Second, the acceptance of a privileged but academically inferior student should represent an increment to the school’s freshman class, never taking a coveted slot otherwise filled by a better student. Third, an institution should never guarantee successful completion of a degree program in exchange for such an offer. Fourth, I’d like to see schools make public the number of students falling short of academic qualification whom they accept in exchange for such offers, as well as the aggregate remuneration they receive in all those cases. Fifth and finally, I see no reason why these practices should be limited to private schools. However, a public school’s remuneration must be more than sufficient to make unnecessary any taxpayer subsidies attributable to a new matriculant.

I don’t believe any of these conditions should be a matter of law. Private and public educational institutions are market participants, even if they do engage in non-price rationing. Market incentives should guide institutions to protect the integrity of their brands by awarding degrees only for real academic achievement. This bears on my third and fourth conditions above: no school can guarantee to parents that a degree will be awarded to their child without compromising its integrity. Also, a school’s academic reputation should reflect the extent to which it accepts applicants lacking the school’s minimum standards.

One of the thorniest problems with my conditions has to do with the poor academic standards that actually exist in certain degree programs. These make it possible for bad students to earn diplomas. Grade inflation is all too pervasive, and grade-point averages are notoriously high in some fields, such as education. It may be exceptionally difficult to monitor and prevent instructors from allowing poor students to skate through classes with decent grades. And too obviously and sadly, it’s often the diploma itself that matters to people as a status symbol, rather than real educational achievement. If employers are content to rely on mere signals of that kind, so much the worse.

There’s nothing to be done if that’s all that is demanded of a college education. I think that, more than anything else, is what inflames the passions of Bryan Caplan, who calls the entire system of higher education wasteful. More demanding disciplines have some immunity to this form of decay. Competitive markets might punish schools and employers having weak standards. But wherever the importance of real merit is discounted due to classist loyalties, legal impediments, professions lacking in academic rigor, or any other form of compromise, the diploma signal is paramount, and that is lamentable.

The admissions scandal has prompted howls of indignation directed not only at the cheaters ensnared by the FBI’s “Varsity Blues” operation, but more broadly at the perceived injustices of college admissions in general. The process is said to be unfair because it tolerates admissions for scions of wealthy families and even those who can pay for multiple rounds of standardized tests, multiple application fees, interview “coaches” and the like. These advantages are not unlike those endemic to any market in which ability-to-pay impinges on demand. Yet generally markets do an excellent job of facilitating the development of affordable substitutes. College education is no different, and longstanding mechanisms are in place offering means of payment for academically-qualified applicants who lack adequate resources. The conditions I listed above would enhance that support.

Nevertheless, critics say that the disadvantaged do not get adequate preparation in primary and secondary education to be competitive in college admissions. They are largely correct, but the solutions have more to do with fixing public K-12 education than the college admissions process. Primary and secondary education are almost devoid of competition and real parental choice in disadvantaged communities. There are many other social problems that aggravate the poor performance of public education in preparing students who might otherwise be candidates for higher learning. Realistically, however, the college admissions process cannot be blamed for those problems.

Space, Property Rights and Scarcity

14 Thursday Mar 2019

Posted by in Property Rights, Scarcity, Space Travel

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Rights in outer space are an area of unsettled international law, particularly the topic of exploiting resources in outer space. Today there is some consensus that assignment of mineral extraction rights to private firms will enhance the promise of these resources for mankind and expedite future space exploration. However, I happened upon two strikingly misinformed comments from otherwise learned individuals who might have known better had they ever taken a basic course in economics, or had they applied a little basic logic to the subject matter. Both comments were made in defense of a strict interpretation of the “global commons” theory embodied in the 1967 Outer Space Treaty. Under that dubious interpretation, the establishment of private property rights on celestial bodies would be prohibited.

I first stumbled across the following from Roy Balleste, a law professor at St. Thomas University, in “Interstellar Travel and the Mission for Outer Space: A Human Rights Perspective“:

“Any policy designed to explore future possibilities in outer space should avoid the plundering of resources through excessive claims of property rights, which causes scarcity and all its failings. If the focus of space exploration is on resource acquisition, i.e., property rights, then resource management will become as important as the exploration itself. The scarcity of resources is also known as the ‘tragedy of the commons.’” [my emphasis]

This poor guy is mixed up! He footnotes Susan J. Buck as a source for these ideas, but I won’t even bother to research Ms. Buck’s work. Belleste did quite enough to raise my pique. Before I say anything else, I’ll first note that the tragedy of the commons occurs only in the absence of defined property rights to scarce resources. “The commons” means that a resource is owned in common. When use of that resource is at all rivalrous and unpriced, common ownership leads to competition for use and ultimately to overuse. Contrary to Balleste’s implication, assignment of property- or use-rights helps to resolve this difficulty.

As a first approximation, it’s probably fair to say that Belleste, in his gut, thinks of scarcity as want of things belonging to others, or perhaps things that are beyond the reach of the state. Surely he knows that scarcity is fundamental to the nature of mankind’s existence. That’s the reality that gives rise to “the economic problem”: how can society allocate scarce resources to best meet the needs and unbounded wants of its people.

Individual property rights establish the basis for voluntary trade, pricing, and incentives for production and conservation, providing for a decentralized and efficient solution to the economic problem. The prices established under such a regime are an accurate reflection of the true scarcity of resources because they balance demands and available supplies. When valuable resources are difficult or risky to exploit, it is secure property rights that provide the incentives for entrepreneurs to go to work, unlocking the benefits of those resources only to the extent that they are “economic”. Risks are taken in exchange for the possibility of future profit that might be earned through trade with willing buyers. This is true whether the raw resources exist deep in the ground, in outer space, or in the fertile minds of entrepreneurs. Far from causing scarcity, property rights are actually necessary to manage efficiently in a world of scarcity. As already noted, a further implication is that property rights encourage conservation: only those quantities are extracted as needed to satisfy demands and minimize waste, and through market prices, those demands are themselves tempered by the physical limits and costs of extraction.

Attempts to solve the economic problem in the absence of individual property rights require a central decision-making authority. How can such an authority hope to know or keep abreast of changes in individual needs and wants? And how can that authority maintain adequate information on the requirements of productive endeavors? Without individual agency, incentives become inoperative and prices don’t correctly signal the degree of scarcity across innumerable resources, including each individual’s time. Thus, these centrally-made decisions take on an arbitrary and coercive nature. It’s no wonder that central economic planning meets with such consistent failure.

Belleste undoubtedly resents inequality, and whether you believe that redistribution of wealth is just or an unjust violation of property rights, the real damage is how it erodes prospective returns to talent, hard work, and risk-taking. Indeed, the exercise of confiscatory power creates risk, for then the rewards of any productive endeavor are subject to the winds of politics and the whims of politicians.

The second quote that caught my attention was this doozy, courtesy of William Hartmann of the Planetary Science Institute:

“The capitalist system works as advertised only when the resources are effectively infinite…”

Um… no. There can be no question of what “works best” in the absence of scarcity, for then there is absolutely no economic problem to solve. Why bother? Infinite resources imply that prices are zero, and that talent, effort, and risk-taking are unnecessary. As we know already, conditions of scarcity are what gives rise to the economic problem for which capitalism provides a benchmark solution: an efficient allocation of resources that does not rely on coercion by the state.

I still plan to address the topic of rights in outer space in a future post. For now, suffice it to say that exploiting resources that can be extracted from asteroids, the moon, or other planets for the benefit of mankind is likely to require private incentives. In fact, President Obama signed a bill authorizing rights to resources extracted in outer space, yet there is still some debate as to whether that is permissible under the Outer Space Treaty. Even stronger incentives, however, would be established by granting permanent rights to mine or terraform particular tracts on celestial bodies, presumably as an incentive to those who reach them first.