Saturday, August 30, 2003
A NEW IOWA BLOG
I received an email yesterday from Jeff Cordts about a relatively new blog that he and his buddies maintain called Tusk and Talon. He has a ripping post on Rekha Basu’s recent column (also note how she “cancelled” her scheduled appearance on the Mikelson in the Morning show. Bak, bak, bak, bak.) Here is a great quote from it: Putting the U.N. “in charge of the rebuilding effort is like telling a drunken Ted Kennedy that you trust him to drive your teenage daughter home.” I love it!
You know, it’s good that someone is keeping watch over Basu, since I no longer take her seriously.
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Friday, August 29, 2003
13.4%, 10%, 8.4%, AND WHEN A COST ISN’T A COST
A bit of a brouhaha has erupted between Don Luskin, Bobby (who maintains the unofficial Paul Krugman website), and Calpundit over Krugman’s column on California. Since it was something that I wrote that is at issue, and, thus, I am responsible for it, it is incumbent upon me to enter the fray. Here is what I originally wrote:
According to the press release at the CBP, General Fund spending [in California] per resident increased by an annual average of 1.0 percent between 1989-90 and 2002-03, after adjusting for inflation (Figure 1). Per capita spending was $2,211 in 2002-03, as compared to $1,950 in 1989-90 (in 2002-03 dollars). State spending peaked in 1989-90, corresponding to the last economic peak prior to 2001, before falling during the recession of the early 1990s. Spending reached its next peak of $2,425 in 2000-01, before falling in both 2001-02 and 2002-03.
Apparently Krugman is having his math problems again. If spending increases an average of 1% during a 13 year span, then the increase is 13% over that period, not the 10% that Krugman claims. Indeed, if you do the math (( 2211 - 1950) / 1950 ) you come up with about 13.4%. On his website, Krugman claims he knows “how to use numbers”. Maybe so, but can he do simple addition?
Bobby’s claim is that Krugman’s point was that the increase in California spending (after controlling for population and inflation) was small; thus the “13.4% vs. 10%” issue is irrelevant. Further, he points to a post by Calpundit showing that the actual increase was only 8.4%. Calpundit arrived at this number after discovering in page 3 of the CBP press release that the state of California cut Vehicle License Fees in the early 1990s. (Krugman mentions it in his defense.) All VLFs collected by the state are sent to local governments. So when local governments received less money, the state government made up the difference with other revenue in the California General Fund budget. Calpundit counts the additional money the state sends to local governments as a tax cut, and then removes it from the total amount California spent to come up with the reduced number of 8.4%. Bobby uses this to reinforce his claim that Krugman is correct that the increase in spending is small, and then chides Luskin because he didn’t “read the entire CBP document carefully.”
Frankly, the critique of Luskin is the biggest amalgam of double standards I’ve seen in quite some time. First off, Bobby doesn’t understand the issue here: My main point (and Luskin’s, here, here, and here) in raising the 13.4% vs. 10% issue was not to argue that Krugman was understating spending, but that he was being careless with numbers again. If you don’t believe me, read the entire post; you’ll notice that I address the spending issue in the paragraphs following the one dealing with the 13.4% vs. 10% issue. As for Krugman, the best you can say is that he was being careless. It doesn’t take but a small bit of simple math to discover that what the initial few paragraphs of the CBP press release reveal is a 13.4% increase in state spending. Sure, anyone can make a mistake, but after Krugman’s embarrassing “divide by 10” fiasco, one would think that he would be more careful. And if we apply Bobby’s standard, then there is no excuse at all. Bobby criticizes Luskin for not carefully examining the CBP press release through to page 3; yet Krugman was careless starting with page numero uno!
Some Krugman defenders might try to claim that Krugman was being quite careful, that he had read page 3, done the math and come up with 8.4%, and was just using a round number like 10%. First, if Krugman had done that, he should have put the words “less than” in front of 10%, since 8.4% is less than 10%. The New York Times prints corrections of lesser errors every day (unless they originate on the op-ed page). But such a point is moot because it makes no sense. If Krugman had done the math, and his intent was to make the spending increase appear small, why would he use 10% as opposed to 8.4%?
Next, I guess I missed the memo letting us all know that liberals are no longer treating tax cuts as a “cost” to government. Every time President Bush has proposed tax cut, many on the left such as Calpundit and Paul Krugman have referred to it as a cost. But now, apparently, a tax cut is not a “cost” to the California state government. Think about it for a second. In the case of the Bush tax cut, the cost is simply money that the government will not receive in the future. In the case of California, the amount that Calpundit is omitting is actual taxes that the state government received and then used to reimburse local governments for revenue they lost from the cut in the VLF. In other words, revenue that government never receives is a “cost”, but actual revenue that it does receive and then transfers to another government entity to spend is not. You know, I’d really like to see that point of view, but I can’t get my head that far up my you-know-what.
Frankly, Bobby’s critique of Luskin relies on shifting the argument and cooking the numbers. So why the double standards? Simple: There is an beloved-Bush-hating New York Times columnist to defend.
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Thursday, August 28, 2003
REALITY CHECK ON THE REGISTER
The Des Moines Register bashed the idea of medical savings accounts in an editorial smarmily titled “Reality Check on MSAs,”:
It's appealing on the surface. Advocates argue the accounts are an incentive to "save money" by using less health care because people will think twice about "spending their own money." Participants might pass on unnecessary tests. It’s an opportunity to inject a free-market principle into health care by allowing individuals to select their own doctors and negotiate rates for services.
Now back to the real world:
Oh, how choice. The idea that, in general, people spend their own money more carefully than they do other people’s money must be right out of fantasyland. Contrariwise, it is hard-headed reality to think that keeping a system in which people perceive that someone else is paying the bill will hold down costs.
Medical spending accounts are another way to tax shelter money for the affluent. Low-income people will not have the extra dollars to stow away in a savings account. Yet higher-income people will be able to let this money build for years, investing it in stocks and bonds to grow tax free.
Actually, you could give low-income people MSAs via Medicaid. Or how about something like the earned-income tax credit? Surely the Register has heard about such a thing. In fact, I think they whined about it not too long ago.
Medical spending accounts will appeal to healthy people because they don't use many medical services and therefore would get to pocket the unspent balance in their accounts. However, the core concept of insurance is pooling the sick and healthy together to balance out the risk. Widespread use of spending accounts could leave a higher proportion of sick people in insurance pools and result in higher premiums for that group.
The best way to address this is to quote a piece by Merrill Matthews of the National Center for Policy Analysis:
Employers determine what type of health insurance their employees have. Most companies - 83 percent by one estimate - offer their employees only one policy. "Adverse selection" - in which the healthy move into one plan while the sick remain in another - is impossible because only one policy is available.
Many larger employers offer their employees a choice, usually between traditional health insurance and a health maintenance organization (HMO). However, they often price the options to encourage employees to choose one health insurance plan over the other. For example, an employer may make participation in an HMO free, but require employees who want traditional health insurance to pay a contribution, deductible and/or copayment.
No employer is required to offer an MSA option. Those who do are free to structure and price their plan as they choose and to drop the plan if they find it unworkable.
Next, I lump these two passages together to make it easier to impart my next point:
Currently insurance companies and the government leverage down doctors" fees. It's unlikely a single consumer, with no leveraging power, will be able to accomplish that. This is demonstrated over and over when the uninsured pay more than an insurance company does for the same service. People with these accounts could end up paying more.
Individuals skipping a checkup or opting not to go to the dentist a few times won't make even a small dent in the health-care spending of this country. The vast majority of spending on health care is done for the few sick and elderly individuals. MSAs won't change that.
First off, there are plenty of expenses that an MSA could cover for the sick and elderly, such as prescription drugs, routine visits to the doctor, or medical tests. Second, they could also be used to help pay for an insurance policy that covers catastrophic care.
Next, the Register editorialists are being a bit disingenuous here. In an editorial the very next day, they complain about how much administrative costs add to total health-care costs in the U.S. Assuming that is true, it’s very easy to see how MSAs could bring down doctors fees. Since an MSA allows a patient to pay a doctor directly, there are virtually no administrative expenses. The Register can’t have it both ways: either administrative costs are a problem or they are not. If they are, MSAs offer a solution.
That makes me think I should have titled this piece “Shooting the Foot, Part 3.”
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PEAS IN A POD?
For a minute there I thought I was reading the Des Moines Register. This editorial in the New York Times advocates another layer of FDA regulation for prescription drugs:
Ideally, all new drugs should be tested against their existing competitors before they are approved for marketing. That would let both patients and doctors know what advantages they offer, if any. Congress is making moves toward reform with legislation that would provide modest sums for federal health agencies to sponsor research on the comparative effectiveness of top-selling prescription drugs. The drug industry opposes the bills. But at a time when prescription drug costs are escalating and consumers are deluged with commercials touting one drug or another, it is vital to provide objective, reliable information on what works best.
Apparently the Times editorialists think that the regulatory process comes free of charge. But if government adds another layer of regulation, it will only increase the cost of bring a drug to market, which will, in turn, raise prices for consumers. Even if the FDA can figure out which drugs work better than others, no one drug works the same for everyone. If drug A and drug B treat the same condition, and tests show drug A to be more effective, it will only be generally more effective. For some patients, drug B will work better. Doctors and patients will still have to experiment much like they do now.
If the Times is really concerned about rising drug costs, it should be advocating deregulation. As the editorial notes, the FDA tests drugs to make sure they are “safe and effective.” Why not cut back on the “effectiveness” part? Sure, some drugs, like those for cancer, would still need to be tested for effectiveness. But drugs for heartburn, acne, or toenail fungus? It seems to me that once the safety is established, the effectiveness could be determined by doctor-patient trial and error. The savings in regulatory costs could then be passed on to the consumer.
Ultimately, the Times editorialists don’t seem to realize that the new regulations they call for will only add to costs of prescription drugs that it decries. Seems to be a lot of that going around liberal circles these days.
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GUESS WHO THINKS HIS S**T DOESN’T STINK?
Senator Robert Byrd criticized President Bush’s Iraq policy in the Washington Post on Tuesday. Among other things, he suggested that Bush had a “closed mind,” was given to “haughty statements,” and needed a dose of “humility.” Is it just me, or is the pot calling the kettle black?
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Wednesday, August 27, 2003
KRUGMAN TAKEDOWN
Since I didn't get to it, take a look at Luskin and Musil.
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PRAISING TAX RAISING GOP GOVERNORS
And I am not the one doing the praising.
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SHOOTING THE FOOT, PART 2
On August 2, the Des Moines Register ran an editorial on the rebate checks from the Bush tax cut:
Spend your check wisely, because eventually you (or your children) will have to return the borrowed money to Washington—with interest.
So we don’t have money for tax cuts. But apparently we have loads of new money for “government-created” jobs:
Building essential public improvements creates jobs and sends money rippling through the economy. The U.S. House Transportation and Infrastructure Committee says every $1 billion spent on federal highway and transit infrastructure create 47,500 jobs.
The United States is spending $1 billion a week on the occupation of Iraq. If the committee’s estimate is correct, a similar amount spent on highway construction along—not to mention all other needed public improvements—would generate enough new employment in less that a year to more than replace the 2.2 million new jobs.
So it takes about $1 billion in infrastructure spending to create 47,500 jobs. If we accept those numbers (and I’m not sure I do, but that’s another post for another day) that means it would cost about $46 billion to create 2.2 million jobs. But is that a one-time expenditure? In other words, what happens to the jobs next year when the funding runs out? Oh, well, we need to keep the funding going—because people need those jobs. After all, who wants to be the politician who puts 2.2 million people out of work? So that’s $460 billion over ten years, not counting inflation and wage increases, in which case it would be even more. And we probably won’t get rid of it after ten years, because most of those employees will join some union, of which the Democratic Party is a subsidiary. The pressure brought to bear by the unions will keep those programs going indefinitely, to the tune of untold trillions.
Nope, no money for tax cuts, but lots of money for government spending. I wonder how the Register editorialists get around. The second editorial appeared one day after the first. 24 hours is not enough time for one foot to heal before you shoot the other one.
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WHILE I’M VENTING…
Here is another ignorant line in the Register’s anti-tax cut editorial:
More than 6 million of the lowest-income families, the families most likely to spend the money and actually stimulate the economy, will get nothing. Congress left them out.
Congress left them out, because they don’t pay any income taxes! It is very hard to get anyone left of Olympia Snowe to understand that, but we’ll keep trying won’t we? Although I think the chances that the folks at the Register will ever get it are slimmer than your average super-model at an anorexia fest.
But let’s think about that for a minute. Assuming that the demand-side stimulates the economy (a big, and iffy, assumption), let’s say that we gave each of those 6 million families a $1,000 “tax cut.” That would be about $6 billion in new stimulus. In a $10 trillion economy, that’s about .06%. Here’s betting that the economy gets a lot more stimulation by just viewing the latest Britney Spears video.
I’ll also mention one more time that we are not in a consumption-drive recession; it’s an investment recession. As you can see from the BEA table on Gross Domestic Product, consumption had continued to rise, while private investment fell off a cliff. Furthermore, if government spending stimulates the economy, why has the economy been so sluggish? From the first quarter of 2001 when the recession began until the present, total government spending rose more than 9%. Our economy should be booming! (Ha! Take that Register!)
Alas, the Register is probably hopeless. But at least I can vent.
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Tuesday, August 26, 2003
GUESS WHO’S RAISING THE WHITE FLAG
My new column at the American Prowler.
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IF THE AMA SUPPORTS IT, IT MUST BE GOOD!
Last week the Des Moines Register ran an editorial praising a plan outlined in the Journal of the American Medical Association to nationalize health-care:
Nearly 8,000 doctors are calling for a government-financed, health-insurance plan for all Americans. The Journal of the American Medical Association published the plan last week in which prominent doctors detailed a health-care system that resembles Medicare, the government program for seniors. A former U.S. surgeon general is on board. So are family physicians. Psychiatrists. Neurosurgeons.
The Register, of course, portrays this as doctors who are fed up with the current system, expressing their frustration through a professional organization like the AMA (appeal to authority, anyone?)
However, the AMA has been trending left for a number of years. According to an article by Stephen F. Hayes for the Weekly Standard (sorry, you need to be a subscriber to see the article),
Much to the chagrin of Republicans, over the past five years, the AMA has drifted to the left. The animosity has grown this year [2002] in the battle over the patients’ bill of rights…
Some say the escalating battle between congressional Republicans and the AMA highlights the organization’s evolution from a simple association of physicians to just another liberal lobbying group. For decades one of the most intensely Republican interest groups on Capitol Hill, the AMA this year has given most of its political money to Democrats. Recently, it has involved itself in tobacco lawsuits, gun control, and even the battle over gay Boy Scout leaders. This, critics say, puts it out of step not only with Republican leaders, but with its own Republican-leaning constituency.
”I think you can say there’s a trend,” says Dr. Jerald Schenken, of the AMA’s recent political activity. “There’s no question about it.”
Like other organizations, the American Bar Association, the Parent-Teacher Association, the American Library Association, the AMA is slowly being taken over by the left. That is a better explanation of why JAMA printed an article supporting nationalized health care.
One other thing. Look at this passage:
Doctors deal with the red tape every day - including the labyrinth of paperwork insurance companies have them navigating. They work at the mercy of those companies in both payments and treatments. Their patients have many different insurance plans, each with its own intricacies.
After a while, an alternative system starts to look pretty good. Mike Abrams, Iowa Medical Society executive vice president, said, "I think you're seeing more and more doctors saying the government can't be worse than the insurance companies, so why not leave it up to the government, though there are problems with a government-run universal system as well."
Sure, there are problems, but at least with the government doctors know what they are getting.
If the Register editorialists sincerely believe that a government-run system will not result in “red tape” and a “labyrinth of paperwork”, then I’d like to know what they are smoking, and where can I get some?
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Monday, August 25, 2003
SHOOTING THE FOOT, PART 1
I sometimes wonder if the Des Moines Register editorialists don’t wake up in the morning having to decide which foot to shoot themselves in.
This editorial appeared July 14 (I didn’t have a chance to get to it then as I was in California). In it, the editorialists finally find an enemy of capitalism that they can criticize:
It's not a rival economic system or hostile government regulators that pose the greatest dangers. Rather, opined The Economist, the dangers are from excessive executive compensation and the too-cozy connections between business and government…
Cozy ties between business and government get in the way of economic freedom, too. When governments intervene on behalf of various businesses, give welfare to corporations or adopt supposedly business-friendly policies, it skews the market. Business and government must maintain an arm's-length relationship for both business and democracy to function correctly, argues The Economist. When business lobbyists dominate government, public policy is inevitably twisted into the service of private greed.
Now, I could remark on how the Register editorialists will only criticize the enemies of capitalism when they are capitalists, or that their credibility to defend the free-market system is laughable, but that’s not my point. Rather they bash the relationship between business and government, and then they run this editorial just three says later:
Trans Ova, known for cloning cattle to produce special proteins for use in human and animal drugs, has been waiting for months to find out if Iowa would offer it an economic-development package to help build a biotech campus in northwest Iowa, including a purification center. But Iowa dragged its feet.
The Iowa House of Representatives in March approved $33 million in state aid. The idea was to help Trans Ova grow, attract other biotech ventures and involve the state universities in research. The Senate, however, failed to follow through, supposedly because Gov. Tom Vilsack signaled he wouldn't sign the bill. Instead, after much haggling, the General Assembly in June passed a $503 million economic-development fund - the Iowa Values Fund -whose new board held its first meeting Wednesday…
But Vilsack's thinking also was right, that it's smarter to have a large economic-development fund with a big-picture strategy than to have individual companies lobbying the Legislature for the best deal each can get.
Even better is focusing more intently on improving the quality of life as a means of keeping and attracting businesses. Incentives to businesses, no matter how they are handed out, can only go so far. The state has only so much money for this purpose and, although Iowa probably has to play the game of bribing industries with incentives, the practice does not necessarily have a high return on investment.
Got that? Business and government are getting too cozy on the one hand, but on the other it’s a good idea to have a huge economic development fund so government can dole out taxpayer dollars to businesses. The Grow Iowa Values Fund? That’s not a cozy relationship—that’s, well, different! That’s a…umm…economic development plan!
Furthermore, they then shoot themselves in a second time by undermining the economic development fund with the remark “the practice does not necessarily have a high return on investment.” Yes, they were referring to a one-time government handout, but there is no difference between that and the economic development fund.
I tell you, what geniuses!
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Sunday, August 24, 2003
CALIFORNIA FICTION?
Paul Krugman contends that Arnold Schwarzenegger’s description of California is pura basura:
Even Mr. Schwarzenegger's description of the state economy is pure fantasy. He claims that the state is bleeding jobs because of its "hostile environment" toward business, and that California residents groan under an oppressive tax burden: "From the time they get up in the morning and flush the toilet, they're taxed."
One look at the numbers tells you that his story is fiction. Since the mid-1990's California has added jobs considerably faster than the nation as a whole. And while the state has been hit hard by the technology slump, it has done no worse than other parts of the country. A recent study found that California's tech sector had actually weathered the slump better than its counterpart in Texas.
On the matter of businesses, no one knows for certain. Take this piece from the San Jose Mercury news:
The most recent data from the state Employment Development Department showed that the number of businesses in the state actually increased from 2000 to 2001. Looking at individual positions rather than entire businesses, the state lost 0.2 percent of its jobs from July 2002 to July 2003.
So jobs appear to be leaving California. That does not necessarily mean businesses are leaving; they may just be shedding payroll. Thomas Sowell also notes this ominous trend:
The latest census data show -- for the first time -- that more Californians have been moving to other states than people in other states have been moving to California. Between 1995 and 2000, California had a net loss of more than 600,000 people to other states. People are voting with their feet.
Are Californians leaving for the heck of it, or because they can find employment elsewhere? We can’t be certain yet, but it does appear that California is in some trouble. Schwarzenegger may not be correct on the specific matter of businesses leaving, but it’s not “pure fiction” either.
Krugman aslo states:
Meanwhile, California isn't a high-tax state: through the 1990's, state and local taxes as a share of personal income more or less matched the national average, and with the recent plunge in revenue they're now probably below average.
Krugman’s right about that. Using Census data, from 1992-1999 the average percentage of taxes as a share of personal income in California was about was about .1051, ranking it 24th, and slightly below the U.S. total of .1053. However, it’s misleading because he’s looking at data from the last decade to describe the present. To more accurately describe the present, you need to look at more recent data. Here is a chart provided by my ideological opposite in the state of Iowa, the Iowa Policy Project. It shows that in 1999-2000, California had jumped to 15th in percentage of taxes as a share of personal income, getting into the high range. That’s because California’s tax burden had grown almost consistently throughout the 1990s (the one exception being 1997 when income tax rates were reduced back to their pre-1990 levels—but the growth continued thereafter).
He also overlooks another measure of tax burden, that of state and local taxes per-capita. On that California was definitely not near the average from 1992-1999; it ranked 13th, with a per capita average of $2,669. The U.S. average was $2,535. Going to another IPP chart, we can see that California growth trend was evident in that area too; by 1999-2000 it ranked 7th in per capita state and local taxes—definitely not in the average range. Finally, for even more recent data, see this chart that looks at only state taxes for 2001-2002. For per capita and percent of income, California ranks 8th and 14th, respectively. Those numbers put California at or near the high range on taxes. It is definitely not average.
I also suspect that Krugman’s wrong about the recent “plunge in revenue” dropping California ranking. That might be true if California was the only state or one of only a few states to see a drop in revenue. But all states have seen declines in revenue. Thus, while California tax burden has dropped, so has the national average. Thus, California’s position relative to other states is probably little changed.
For Krugman to charge Schwarzenegger with peddling a fiction, he needs to use data more recent data. When you look at more recent data though, the charge does not hold water. Small wonder.
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