Minor Thoughts from me to you

I dislike Congressional earmarks, as I dislike all wasteful government spending. I've long viewed them as bribes that corrupt the political process, by inducing Congressmen to vote for legislation that they'd otherwise oppose.

I'm rethinking my opposition, after reading Tyler Cowen's essay at Bloomberg View.

In essence, earmarks give congressional leaders more control over individual members. Recalcitrant representatives can be swayed by the promise of a perk for their district. That eases gridlock and gives extreme members of Congress something to pursue other than just ideology.

But is more legislation always a good result? Advocates of smaller government should keep in mind that reforming spending and regulation requires some activism from Congress. Gridlock today is not the friend of fiscal responsibility, coherent policy, or a free, well-functioning capitalist economy.

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Most of all, I think of earmarks as recognizing that compromise and messiness are bound to remain essential features of American government, and that, whether we like it or not, there is something inherently transactional about being governed. Earmarks are a risk insurance policy against extreme outcomes, and like many other insurance policies, in any given year they may appear a pointless waste of resources. Still, we should keep in mind they may be protecting us against the very worst outcomes.

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The people of San Diego won by losing. Chargers owner Dean Spanos did the corporate equivalent of taking his ball and going home Thursday, bolting for Los Angeles because San Diego residents had balked at building his team a fancy new stadium. Imagine the nerve of those people! Refusing to spend millions for a stadium that, studies have shown, would likely end up costing taxpayers more than what is originally estimated while providing less in return.

For a team owned by a family whose net worth was $2.4 billion as of Thursday, according to Forbes, no less. Yes, billion. With a B.

Emphatically seconded. Sports owners need to fund their own opulent stadiums. And if they don't think it's a good investment, why should taxpayers be expected to pay?

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Progressives are fond of pointing out the excellent quality of life in Europe. America, they say, could enjoy the same quality of life if only we were willing to tax each other and spend the way Europe's democracies do. The problem, of course, as conservatives and libertarians are fond of pointing out, is that there are vast differences between Europe and America. Matt Yglesias, at Vox, explains.

According to transit blogger Alon Levy’s compendium of international subway projects, Berlin’s U55 line cost $250 million per kilometer, Paris’ Metro Line 14 cost $230 million per kilometer, and Copenhagen’s Circle Line cost $260 million per kilometer.

​Okay.

Today, New York City is celebrating the opening of the first phase of the Second Avenue subway, a project that’s been anticipated for nearly a century, and that’s sorely needed to relieve overcrowding on the Lexington Avenue lines and to extend access to some very densely populated neighborhoods. But exciting as the opening is, phase one is also a very modest-sized project encompassing just three stations. The plan is, eventually, to extend it up into East Harlem, and potentially then either go further south or else swing west to provide crosstown subway service across 125th Street.

Any of this would be extremely useful to the city, but it’s far from clear that any of it will ever happen. That’s because even with $1 billion currently allocated in the Metropolitan Transit Authority’s capital budget for phase two of the Second Avenue subway, they’re still badly short of the $6 billion that’s going to be needed.

That's a lot of money.​

The $6 billion price tag for phase two works out to $2.2 billion per kilometer. That would make it the world’s most expensive subway project on a per kilometer basis, narrowly surpassing phase one of the Second Avenue subway, which clocked in at “only” $1.7 billion per kilometer.

And there's your difference. NYC is spending 10x more per kilometer than Berlin, Paris, or Copenhagen is.​ And it's not that NYC is unwilling to spend money. It's just not it's not getting much for the money that it's spending.

But this kind of discussion too often elides the real practical difficulties in implementing big domestic policies like those, and the ways in which the US system is uniquely bad and inefficient about doing so. Between the Second Avenue subway, the $10.2 billion East Side Access tunnel for the LIRR, and the $4 billion World Trade Center PATH station, the New York City region is in fact spending a lot of money on upgrading its mass transit system. The money is simply not going to generate as much transit service as a comparable amount of spending would in Paris or Copenhagen, because New York’s institutions don’t seem up to the task of spending it as effectively. Improving is both possible and desirable, but it would take actual time and skill and effort.

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Until places like New York and California — the bluest jurisdictions that are most open to the idea of taxing and spending to improve public services — get better at actually delivering those services in a cost-effective way, it’s going to be difficult to persuade residents of more skeptical jurisdictions that it makes sense to take the same agenda national.

​American governments are good at spending money but bad at spending money well. I think it's perfectly reasonable for American citizens to look at the poor management of their governments and then ask why they should be giving those governments even more resources to mismanage.

I don't even think it's fair to claim that this problem would be fixed if only Republicans stopped obstructing good government and worked together with Democrats in a bipartisan alliance. ​​Taking a long view of the patronage machines that have dominated city governments throughout America's history, it's easy to conclude that American government is best at looting the private sector and handing it out to the ruling party's friends. This is a bipartisan problem and one that argues against giving American governments, of either party, too many resources.

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Jonathan M. Gitlin, writing for Ars Technica, criticized the President's dramatic call for a large program to end cancer.

So what's wrong with this idea, and why am I coming off like a cranky old man shouting at the clouds? For one thing, history has shown us that giving science a large slug of cash in a very short amount of time has horrible—some might say disastrous—consequences. This was plain to see after the NIH budget got doubled between 1998 and 2003 (something I and my colleagues wrote about extensively here at Ars). It was even more obvious once the two-year bolus of money from the American Recovery and Reinvestment Act (2009-2011) was spent.

Think about the way a sudden influx of nutrients causes algae to bloom and then die off in rivers and oceans, leaving dead zones behind. Rapid injections of cash into the research enterprise create intense periods where there's lots of money available for lots of new scientists to get hired. But once those initial grants run out, there is no more funding to support them.

As a result of the past booms in funding, you will find empty lab after empty lab in research institutes and universities all over the land. We've trained far more scientists than we have money to sustainably support.

​Instead of massive projects based around nebulous goals, he wants to see a sustained commitment to ongoing research.

Which brings me back to my initial point. The way to improve the health of our nation isn't another moonshot where we're not quite sure what we even mean by "Moon." Just find a way to deliver predictable, sustainable funding.

I promise you, the scientists will do the rest.

Predictable budget growth would allow scientists to build labs, do research over a long period of time, and provide opportunities for new scientists to enter the field and contribute their own research. It's an argument that seems sound to me. ​

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Imagine that there are two providers of the same service. Their quality and timeliness are comparable. However, one provider charges significantly more than the other. In a normally functioning market, you would expect that the more expensive provider would have to significantly change its cost structure to stay in business.

What if the more expensive provider argued that it had higher overhead, and therefore needed and deserved to be paid more? He would be laughed out of the marketplace. Yet, this is exactly what happens in Medicare. Because of different fee schedules, doctors in independent practice are paid less for the same procedure than hospital-based outpatient facilities. Unsurprisingly, this has resulted in hospitals buying up physician practices, in order to profit from this arbitrage:

For example, Medicare pays more than twice as much for a level II echocardiogram in an outpatient facility ($453) as it does in a freestanding physician office ($189). This payment difference creates a financial incentive for hospitals to purchase freestanding physicians’ offices and convert them to HOPDs without changing their location or patient mix. For example, from 2010 to 2012, echocardiograms provided in HOPDs increased 33 percent, while those in physician offices declined 10 percent. (Medicare Payment Advisory Commission, March 2014, p. 53)

The Medicare Payment Advisory Commission (MedPAC) has argued that the fees should be “site neutral” for many procedures. President Obama’s budget proposes to phase this in starting in 2017, and estimates savings of $29.5 billion over ten years (p. 65).

This is something I've seen a lot. A hospital buys a clinic. The clinic keeps the same doctors, seeing the same patients. Nothing about the building changes. But the cost of the medical care increases significantly just because the ownership changed. That's wrong and needs to stop. I support this piece of President Obama's budget.

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Twitter friend @joeld linked to an article about The Miracle of Minneapolis. The article was asking (and answering) the question of how "the city stayed so affordable despite its wealth and success".

In the 1960s, local districts and towns in the Twin Cities region offered competing tax breaks to lure in new businesses, diminishing their revenues and depleting their social services in an effort to steal jobs from elsewhere within the area. In 1971, the region came up with an ingenious plan that would help halt this race to the bottom, and also address widening inequality. The Minnesota state legislature passed a law requiring all of the region’s local governments—in Minneapolis and St. Paul and throughout their ring of suburbs—to contribute almost half of the growth in their commercial tax revenues to a regional pool, from which the money would be distributed to tax-poor areas. Today, business taxes are used to enrich some of the region’s poorest communities.

Never before had such a plan—known as “fiscal equalization”—been tried at the metropolitan level. “In a typical U.S. metro, the disparities between the poor and rich areas are dramatic, because well-off suburbs don’t share the wealth they build,” says Bruce Katz, the director of the Metropolitan Policy Program at the Brookings Institution. But for generations now, the Twin Cities’ downtown area, inner-ring neighborhoods, and tony suburbs have shared in the metro’s commercial success. By spreading the wealth to its poorest neighborhoods, the metro area provides more-equal services in low-income places, and keeps quality of life high just about everywhere.

... The Twin Cities’ housing and tax-sharing policies have resulted in lots of good neighborhoods with good schools that are affordable for young graduates and remain nice to live in even as their paychecks rise. This, in turn, has nurtured a deep bench of 30- and 40-something managers, who support the growth of large companies, and whose taxes flow to poorer neighborhoods, where families have relatively good odds of moving into the middle class.

My immediate reaction to this plan was negative. "I'm a libertarian! I don't believe in making people share the results of their hard work and effort!" Then I stopped to actually think about it. Local governments are, obviously, different from people.

A metropolitan area is more than the sum of its constituent parts. Good suburbs reinforce each other and the city's urban core. Businesses can be located in one suburb, but draw employees from all over the metropolitan area. In a very real sense, the success of each suburb—or city—depends both on its own decisions and on the decisions, and general health, of the surrounding suburbs.

I think it makes a lot of sense to have the city and its suburbs sharing tax revenue with each other. They each contribute to the local pool of welfare, with businesses and employees constantly crisscrossing boundaries as they live, work, and play each day. It seems to make good sense to make sure that the entire metropolitan area is economically healthy, rather than having some areas that are wealthy just because a business is headquartered there instead of five miles away, inside a different municipal boundary.

I'm now interested in having Wisconsin apply a local version of this Minnesotan law.

From Keith Hennessey:

Geographic politics distorts and often dominates government investment in physical infrastructure. Highway funds and airport funds especially are allocated in part based on which Members of Congress have maximum procedural leverage over the spending bill. Even if you could somehow get Congress to stop earmarking infrastructure spending (good luck), and even if you could rely on the Executive Branch not to allow their own political goals to influence how they allocate funds, local geographic politics would come into play at the state level, since much federal infrastructure spending flows through State governments. This is where reality most falls short of a valid theoretical starting point for increasing productivity and long-term growth.

Keith argues that infrastructure spending isn't useless but it does face a lot of problems that prevent it from quickly creating jobs. It's not a great "investment in America".

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Shikha Dalmia, at Reason.com:

In short, the ideal conservative welfare state would be a libertarian dystopia of even bigger proportions than the liberal welfare state. There is less welfare and more state in it.

A conservative welfare state is a horrifying idea.

Read the whole thing. If big government Republicans try to push the party in this direction, I don't see any future for the party.

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From Alex Tabarrok, at Marginal Revolution:

Australia farmers pay for water at market prices. Water rights are traded and government water suppliers have either been privatized or put on a more stand-alone basis so that subsidies are minimized or at least made transparent.

Australia has one of the largest private school sectors in the developed world with some 40% of students in privately-run schools.

Australia has a balanced-budget principle (balanced over the business cycle) which has been effective although perhaps more important has been a widely held aversion to deficits combined with an understanding of sustainability and intergenerational fairness (factors which also played a role in the decision to create private, pre-funded pensions).

If things go badly in the USA, I may have to head for Australia. (The scenery's nice too.)

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Lara Seligman, for The Hill:

55 percent of likely voters opted for a plan that would slash $5 trillion in government spending, provide for no additional tax revenue and balance the budget within 10 years — in essence, the path recommended by House Budget Committee Chairman Paul Ryan (R-Wis.) last week.

...

However, as soon as respondents heard the words “Republican” and “Democrat,” the picture changed drastically. A plurality of voters, 35 percent, said they trust the Democrats more on budgetary issues, while 30 percent said they trust the Republicans more. A full 34 percent said they trust neither party. 

These findings buttress the impression that the Republican label itself incites mistrust among many voters.  

Fiscal conservatives either need to figure out how to fix the GOP's image problem or else we need to figure out how to fight under another banner.

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Conn Carroll, writing for the Washington Examiner:

Huelskamp and his Republican colleagues changed all that. The 2011 Budget Control Act cut spending by $1.5 trillion, and the sequester cut it by an additional $1.2 trillion. At the same time, House Republicans were able to preserve nearly all of the expiring Bush tax cuts and cut the debt.

The CBO's Budget and Economic Outlook for fiscal years 2013 through 2023 shows just how much House Republicans have actually accomplished. The federal government is now on track to spend just $46.2 trillion through 2021. That is a $3.6 trillion spending cut. And instead of taxes eating up 21 percent of the U.S. economy in 2021, now the government is set to take in just 18.9 percent. The 2021 national debt is projected to be a bit lower, too, down from the earlier $18.25 trillion in 2011 to just $17.87 trillion today.

Despite all of this supposedly economy-killing "austerity," unemployment has steadily fallen, too. When Republicans took control of the House in 2011, the nation's unemployment rate was 9 percent. Today, it has fallen to 7.7 percent.

This is why I'm not entirely pessimistic about working in politics. Change is slow and hard. But that's a feature of the system, not a bug. If the American populace wants to get engaged and fight battles over the long term, they will be able to have success. The key is not just getting engaged but also staying engaged over a long period of time.

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George Will wrote about the sequester last week. I quite enjoyed it.

It is, however, inaccurate to accuse the Hysteric in Chief of crying “Wolf!” about spending cuts under the sequester. He is actually crying “Hamster!”

As in: Batten down the hatches — the sequester will cut $85 billion from this year’s $3.6 trillion budget! Or: Head for the storm cellar — spending will be cut 2.3 percent! Or: Washington chain-saw massacre — we must scrape by on 97.7 percent of current spending! Or: Chaos is coming because the sequester will cut a sum $25 billion larger than was just shoveled out the door (supposedly, but not actually) for victims of Hurricane Sandy! Or: Heaven forfend, the sequester will cut 47 percent as much as was spent on the AIG bailout! Or: Famine, pestilence and locusts will come when the sequester causes federal spending over 10 years to plummet from $46 trillion all the way down to $44.8 trillion! Or: Grass will grow in the streets of America’s cities if the domestic agencies whose budgets have increased 17 percent under President Obama must endure a 5 percent cut!

As government cuts go, this one is about on the level of a papercut. The White House is doing everything it can to pour lemon juice on it, but it still barely qualifies as a cut.

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President Obama has spent far more lavishly on White House state dinners than previous chief executives, including nearly $1 million on a 2010 dinner for Mexico's president, according to documents obtained by The Washington Examiner.

But current and former government officials said the documents obtained by The Examiner point to an unprecedented upsurge in White House spending on such events.

The Obama extravaganza two years ago for Mexican President Felipe Calderon, which included a performance by pop star Beyonce, cost $969,793, or more than $4,700 per attendee, the documents show.

The Calderon dinner was held on the South Lawn in a massive tent adorned with decorated walls, hanging chandeliers, carpeting and a stage for Beyonce's performance.

Guests rode private trolley cars from the White House to the tent. Celebrity guest chef Rick Bayless from Chicago’s Topolobampo restaurant was imported to prepare Oaxacan black mole, black bean tamalon and grilled green beans.

Of course, that much extravagence wouldn't be complete unless unseemly whiffs of crony capitalism were wafting about.

The documents also reveal that the Obama White House retained an outside planner for the dinners. Bryan Rafanelli, a Boston-based celebrity event planner who was retained last year, managed former first daughter Chelsea Clinton's 2010 nupitals. His firm's website boasts that he produced "State Dinners hosted by President Barack Obama and First Lady Michelle Obama."

Rafanelli's business partner, Mark Walsh, is deputy chief of the State Department's Office of Protocol, which reimburses the White House executive residence for the events.

But I'm sure that there was absolutely nothing wrong with a government official paying his business partner to plan lavish dinners.

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The Wall Street Journal reminds us of just how ineffectual and do-nothing the Senate has been, under Majority Leader Harry Reid. Do you really want Harry Reid to stay on as Majority Leader or should we give him the less taxing job of Minority Leader?

Even if Mitt Romney and Paul Ryan win on November 6, his agenda will be stymied if Republicans can't pick up at least three more seats than their current 47 and control the Senate. That's clear from the last two years, when Harry Reid's not-so-deliberative body became the graveyard for fiscal and other reform.

House Republicans won an historic midterm election in 2010, picking up 63 seats. They also gained six Senate seats, but a handful of weak GOP candidates (Sharron Angle, Ken Buck, Christine O'Donnell) cost them control of the upper body. Back in charge in 2011, Mr. Reid proceeded to stop nearly everything that House Republicans passed. President Obama hasn't even had to sweat a veto fight because nothing escapes Mr. Reid's lost world.

Consider the record. In 2011 and 2012 the House passed more than three-dozen economic or jobs-related bills and with only a few exceptions they died in the Senate without a vote. The bills dealt with regulatory relief, tax reduction, domestic drilling for energy, offshore drilling, a jobs bill for veterans, repeal of ObamaCare and many more. Many passed the House with significant Democratic support, as the nearby list shows.

Then there is the Democratic failure on their constitutional obligation of passing a budget. House Republicans passed their budgets in each of the past two years in the spring. The latest one, crafted by Vice Presidential nominee Paul Ryan, contained $4.5 trillion in deficit reduction—at least twice as much as Mr. Obama's budget proposal.

By contrast, the Senate failed to pass any budget in 2012. Or 2011. Or 2010. The Senate hasn't passed a budget in more than 1,200 days. Sorry, Harry, you can't blame that on a Republican filibuster, because it takes only 51 votes to pass a Senate budget resolution. In 2011 and 2012 the Senate Budget Committee never even drafted a budget, thus inspiring a House bill to dock the pay of Senate Budget Committee Members for not doing their job.

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The Friedman Foundation for Educational Choice points out that America's education struggles have nothing to do with not hiring enough teachers. Contra to President Obama and Mr. Romney, we do not need to hire more teachers.

Between fiscal year (FY) 1950 and FY 2009, the number of K-12 public school students in the United States increased by 96 percent while the number of full-time equivalent (FTE) school employees grew 386 percent. Public schools grew staffing at a rate four times faster than the increase in students over that time period. Of those personnel, teachers’ numbers increased 252 percent while administrators and other staff experienced growth of 702 percent, more than seven times the increase in students.

... Compared to other nations’ schools, U.S. public schools devote significantly higher fractions of their operating budgets to non-teaching personnel—and lower portions to teachers. Meanwhile, the U.S. is one of the highest spending nations in the Organisation for Economic Co-operation and Development (OECD) when it comes to K-12 education.

... There is no evidence in the aggregate that the increase in public school staffing caused student achievement to improve. In a shocking finding, economist and Nobel laureate James Heckman and his co-author, Paul LaFontaine, found that public high school graduation rates peaked around 1970. Thus, as staffing was rising dramatically in public schools, graduation rates were not.

In addition, scores on the National Assessment of Educational Progress (NAEP) Long-Term Trend exam for 17-year-old students in public schools have not increased during the time period studied. Between 1992 and 2008, public schools’ NAEP reading scores fell slightly while scores in mathematics were stagnant. After the sizeable increase in the teaching force and the dramatic upsurge in the hiring of non-teaching personnel, student achievement in American public schools has been roughly flat or modestly in decline.

As more adults gain employment in public schools, there is no evidence their numbers are leading to improved academic outcomes for students. And this increase in staffing has a significant opportunity cost. If non-teaching personnel had grown at the same rate as the growth in students and if the teaching force had grown “only” 1.5 times as fast as the growth in students, American public schools would have an additional $37.2 billion to spend per year. This $37.2 billion in annual recurring savings could be used:

• to raise every public school teacher’s salary by more than $11,700 per year;
• to more than double taxpayer funding for early childhood education;
• to provide property tax relief;
• to lessen fiscal stress on state and local governments;
• to give families of each child in poverty more than $2,600 in cash per child;
• to give each child in poverty a voucher worth more than $2,600 to attend the private school of his or her parents’ choice;
• or to support a combination of the above or for some other worthy purpose.

Schools absolutely need to stop hiring so many administrators. The growth in administrators, compared to the growth in students, is obscene. And, we probably need to focus more on what our teachers are teaching and how they're teaching and stop pretending that the solution is always more teachers.

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Things are getting very bad in Greece.

One of the best sources of news about the Greek social crisis has been the dispatches sent by the BBC correspondent Paul Mason. So we should pay attention when Mason decides to ring the alarm bell.

Last month, the Greek prime minister, Antonis Samaras, warned Europe that his country was on the edge of a Weimar Germany-style social collapse. What I have seen on the streets of Athens convinces me this is not rhetoric. There is a violent far-right party, its MPs committing and inciting violence with impunity; a police force that cannot or will not prevent Golden Dawn from projecting uniformed force on the streets. And a middle class that feels increasingly powerless to turn the situation round.

Is it really that bad? Yes.

How deep is the economic hole? The Greek statistics agency EL.STAT is reporting that the 2011 deficit stood at 9.4 percent of GDP and the public debt at a staggering 170.6 percent. Greece is begging the EU and IMF to release the latest tranche of aid—a staggering 31.2 billion euros ($39.7 billion). Forget trite talk of Greeks losing only their feather-bedded pensions and early retirement. The cuts are deep, the pain real, and the anger white-hot.

The neo-fascist party Golden Dawn won 6 to 7 percent of the vote in the Greek elections of May and June 2012 and is polling at twice that today, as anger rises against the economic austerity measures of the coalition government of Conservatives, Socialists and the Democratic Left.

Recently, the theater director Laertis Vassiliou saw Golden Dawn thugs shut down the play Corpus Christi, assaulting actors while the police—large numbers of whom openly support Golden Dawn—stood by and watched. Golden Dawn MP Christos Pappas was filmed “de-arresting” a demonstrator—removing him from police custody. Vassiliou caught the whiff of Weimar. “People went home with broken bones. Every day they phone me now, they phone the theatre, saying: your days are numbered,” Vassiliou said. “This was the Greek Kristallnacht.”

This is what happens when a nation spends money that it doesn't have for years on end. It's what happens when an increasingly large share of the population depends on that government money (whether through government contracts or through welfare) to survive.

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This is a pretty sad end, after all of the money that Greece spent on hosting the Summer Olympics.

[gallery]

What an absolutely criminal waste of money.

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It looks like Pell grants are subsidies for universities rather than being a true aid for needy students.

For private universities, though, increases in Pell grants appear to be matched nearly one for one by increases in list (and net) tuition. Results for out-of- state tuition for public universities are similar to those for private universities, suggesting that they behave more like private ones in setting out-of-state tuition.

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The Cato Institute recently released the 2012 version of their annual report card on the nation's governors. As a supporter of the Tea Party movement, it's gratifying to see that the Republican governors are actually improving and are growing more fiscally responsible.

Wisconsin's own Scott Walker earns a "C", for some very good reasons. I hope he can pull that up to an "A" over the next 2 years.

Are Republicans and Democrats Any Different?

Advocates of smaller government often lament that politicians of both major par- ties tax and spend too much. While that is certainly true, Cato report cards have found that Republican governors are a bit more fiscally conservative than Democratic governors, on average. In the 2008 report card, Republican and Democratic governors had average scores of 55 and 46, respectively. In the 2010 report card, they had average scores of 55 and 47, respectively.

This pattern is even more pronounced in the 2012 report card. This time around, Republican and Democratic governors had average scores of 57 and 43, respectively. And, as in prior report cards, the difference between the two parties is slightly more pronounced on taxes than on spending.

The fiscal differences between governors of the two parties have increased a bit. In this year’s results, there are fewer governors than in prior reports who are out of step with the typical policies of their parties. In both the 2008 and 2010 reports, for example, Democrat Joe Manchin earned an “A,” while Republican Jodi Rell earned an “F.” But in this year’s report, all four “A” governors are Republicans and all five “F” governors are Democrats.

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