AEI » Latest Content http://www.aei.org American Enterprise Institute: Freedom, Opportunity, Enterprise Sun, 01 Feb 2015 17:27:14 +0000 en-US hourly 1 The President’s damaging budget strategyhttp://www.aei.org/publication/presidents-damaging-budget-strategy/ http://www.aei.org/publication/presidents-damaging-budget-strategy/#comments Sun, 01 Feb 2015 17:27:14 +0000 http://www.aei.org/?post_type=publication&p=829967 ...]]]> The President’s budget is ridiculously out of sync with reality. It seeks to undo the sequester and raise tax rates on the rich – who shall become ever-more-broadly defined to include households making $250,000 and upward. Both measures are bad for the economy. It is no surprise that the President’s budget is a defiantly anti-growth document.

Of course, neither the House nor the Senate will entertain such ideas. They will instead seek to reduce income tax rates for the middle class, and low income households – those who don’t pay income taxes – might get reduced payroll tax rates, as was done in 2011-2012. This measure ­– targeted tax relief for the poor – could get substantial bipartisan support (again), but unions don’t like it. They view it as a threat to unemployment benefits – which it is not.

There does remain hope for a constructive 2016 budget passage during the first half of 2015. Republicans and Democrats need to remember that the current deficit, at well below 3 percent of GDP (implying a stable ratio of debt-to-GDP below 75 percent), makes for unnecessary hand wringing about “unsustainable and looming” deficits. They should instead focus on the constructive common ground, and must do so with sufficient vigor to overcome otherwise-damaging Presidential veto threats.

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US in the Asia-Pacific: Towards a more effective Asia strategyhttp://www.aei.org/publication/u-s-asia-pacific-towards-effective-asia-strategy/ http://www.aei.org/publication/u-s-asia-pacific-towards-effective-asia-strategy/#comments Fri, 30 Jan 2015 19:27:45 +0000 http://www.aei.org/?post_type=publication&p=829877 Now in its fourth year, the Obama administration’s pivot to Asia remains beset by a problem of perception. Those countries in the region that the pivot, or rebalance, was intended to reassure remain unconvinced of American commitment to the region’s stability and of American staying power. China, which the pivot should have put on notice, has been angered by American rhetoric and actions without being deterred from its aggressive course.

In large part, this problem of perception is one of America’s own making. Whether the administration prefers the term “pivot” or “rebalance,” both are suggestive of the limitations of American foreign policy and an inability of the United States to focus its attentions on multiple regions at once. With ongoing instability in the Middle East and, indeed, with the United States at war there again—this time with the Islamic State—it is no wonder that Asians are wondering whether Washington has already pivoted back to the Eastern Mediterranean and Persian Gulf.

The Obama administration has also failed to match its actions to its rhetoric. Efforts to enhance alliances with Japan and Australia have been broadly welcomed by U.S. partners, as have new deployments of Marines to Darwin and promises to base a greater portion of the Navy in the Pacific. But at the same time, Asian allies have looked on with unease as sequestration of the defense budget resulted in the cancellation of multilateral military exercises, the grounding of fighter wings, reductions in procurement, and decreased readiness. As far as many Asian countries can see, America’s ability to project power to the region at will is increasingly at risk.

To more effectively reassure allies and deter potential foes, the United States should alter both its rhetoric and its regional defense strategy. First, it is time to be direct with China. The administration should make clear that it welcomes and even encourages China’s peaceful rise, that it sees China as an important economic partner, and that a China that binds itself to the rules and norms of the presiding international order can be a force for peace and prosperity in the world.

But Washington should also be clear in explaining that it views China’s military modernization with great concern. That China would seek to upgrade the People’s Liberation Army as the country grows richer and its interests expand is neither unnatural nor inappropriate. But the nature of the buildup, the Obama administration should note, makes it a central national security concern for the United States, which assesses that the modernization effort is largely focused on enabling the PLA to defeat the U.S. military in battle, to subjugate China’s democratic neighbors (including Taiwan), and to deny the United States free access to the Western Pacific and Asian littoral waters. In this way, Chinese military modernization threatens to undermine an Asian order that has been key to prosperity and security in both Asia and the United States.

The United States, moreover, should convey that China’s regional posture leaves Washington increasingly convinced that Beijing is itself no longer wedded to the idea of a peaceful rise. Chinese attempts to bully neighbors and change facts on the “ground” in the South China Sea are contrary to the spirit and letter of the 2002 Declaration on the Conduct of Parties in the South China Sea, to which Beijing is a signatory. Additionally, and given China’s unique interpretation of freedom of the seas, such efforts threaten the security of sea lines of communication through the South China Sea, on which American economic and security interests depend.

Perhaps even more concerning, Washington should explain, are Chinese actions in the East China Sea, which suggest a reckless disregard for the maintenance of peace in Asia and mark a direct challenge to the United States’ most important regional alliance.

In short, the Obama administration should assert that it welcomes China’s peaceful rise but that Washington is increasingly convinced Beijing is interested only in peace on its own terms and, to a growing extent, prepared to abandon the peaceful pursuit of its own interests. As such, the United States will continue to engage with China in an attempt to bring both countries’ interests into greater alignment, but will also be better prepared to defend the peace in Asia.

To defend that peace, the United States must adopt a more robust regional posture and work to further enhance its alliance network. The United States and its allies should be able to contain the PLA within the first island chain and deter aggression within that area. Doing so will minimize the Chinese military’s ability to pose a direct threat to the United States and to effectively threaten America’s allies in Asia.

In essence, a more effective Asia strategy would see the United States finally moving beyond its hub-and-spoke alliance model. An “Asian NATO” is not in the offing; rather than work to bind allies together in a grand mutual defense treaty, the United States should pursue multilateral cooperation in a few discrete areas to enhance regional security. Two efforts in particular are worth pursuing.

First, with U.S. partners South Korean, Japan, Taiwan, Australia, and India all upgrading their submarine fleets, American strategists should consider the value of an allied submarine “picket line,” stretching from the Soya Strait (also known as the La Pérouse Strait) between Hokkaido and Sakhalin in the north, to the Bashi Channel and other waterways connecting the South China Sea and Philippine Sea, through the Southeast Asian archipelagos, and into the eastern Indian Ocean and Andaman Sea. A picket line would allow for enhanced tracking of Chinese subs exiting and reentering the South China Sea and position the allies to more easily close strategic chokepoints in the event of a conflict.

Partner nations could divide geographic responsibilities, with Taiwan taking primary responsibility for patrolling waters in and around the Taiwan Strait and the United States doing so in the South China Sea itself. To encourage greater interoperability, the United States should voice support for Japan’s efforts to sell its submarines abroad and should lobby for American industrial participation in indigenous submarine programs. Washington should make Taiwan’s submarine program a priority for the bilateral security relationship, either by assisting Taipei with its indigenous production plans or, better yet, by pushing Tokyo to sell to Taiwan Soryu-class submarines equipped with American communications and weapons systems.

Second, the United States should work to initiate a regional maritime domain awareness (MDA) network, which would include not only traditional U.S. partners but also Indonesia, Malaysia, and Vietnam. Participating countries would contribute their own intelligence, surveillance, and reconnaissance (ISR) capabilities to the network, and all participants would have access to a common operating picture. The United States could assist currently less capable partners in the development of their ISR assets, thus enhancing its own ISR reach.

Such a network would serve to deter Chinese aggression in the China seas, as Beijing would know it was always under observation. It might also discourage China from provocative activities—such as military construction—on disputed islands under its control. An allied MDA network would have the added benefit of tamping down tensions among participant nations as well, many of which are engaged in territorial disputes and tend to competition with one another.

There are, of course, political challenges in building both an allied submarine picket line and a shared MDA network. Seoul and Tokyo frequently do not get along, Southeast Asian states are fiercely protective of their sovereignty, and India has long insisted on pursuing an independent foreign policy. All are tentative in their dealings with Taiwan and all wish to maintain positive economic relations with China.

But Chinese behavior is already pushing these states towards each other. The United States should take advantage of this trend to play the role of convener. The central American role in each project, moreover, should be to reassure partner states that are traditionally suspicious of one another, such as South Korea and Japan. In cases where direct cooperation may be too sensitive—between the Southeast Asians and Taiwan, for example—the United States can abet implicit coordination.

Since its inception in late 2011, the pivot to Asia has failed to live up to its promise. Confusing rhetoric and a mismatch between words and deeds left Asian partners wondering about what the pivot was intended to be and whether it marked a lasting change in American policy in the region. But the rebalance is not beyond resuscitation. If the United States begins to speak more clearly and ensure that, together, it and its allies carry a bigger stick, peace in Asia can be preserved.

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Mr. President: If you believe in fairness, why did you make Medicaid expansion so unfair?http://www.aei.org/publication/mr-president-believe-fairness-make-medicaid-expansion-unfair/ http://www.aei.org/publication/mr-president-believe-fairness-make-medicaid-expansion-unfair/#comments Fri, 30 Jan 2015 18:11:51 +0000 http://www.aei.org/?post_type=publication&p=829871 In his State of the Union message, President Obama gave a full-throated defense of what he called “middle class economics”: That’s what middle-class economics is — the idea that this country does best when everyone gets their fair shot, everyone does their fair share, and everyone plays by the same set of rules.”  Despite this president’s obsession with fairness, his signaturehealth law is riddled with provisions that arguably make matters considerably less fair. Moreover, even as the president continues to brag about how much his health law has expanded coverage, we’ve now learned that fully 89 percent of the increase in coverage in 2014 was due to Medicaid. Therefore, in this post I want to focus just on the Medicaid expansion. Under Medicaid expansion, it is flagrantly false that everyone gets a “fair” shot or plays by the same set of rules. For Obamacare’s designers have heavily tilted the playing field to get an outcome more to their liking.  Specifically:

  • Obamacare favors able-bodied adults over the pregnant women, infants, children, and those tho are elderly or disabled
  • Obamacare favors States that put self-interest ahead of the national interest
  • Obamacare gives the most vulnerable the lousiest coverage

If this is the best we can do, then we should be sprinting as quickly as we can to divest federal policymakers of wielding so much power over such a critical part of the U.S. economy.  If it is not, then there’s no good reason not to begin the process of transforming Obamacare in 2015 rather than waiting around until a more visionary president arrives on the scene in 2017.

Obamacare Favors Able-Bodied Adults Over the Pregnant Women, Infants, Children,  and Those Who are Elderly or Disabled

Historically, U.S. welfare policy has given highest priority to its most vulnerable citizens–those with low incomes incapable of caring for themselves due to disability, old age, being a dependent child, single parent or pregnant woman. These are characteristics that typically have served to identify the “deserving poor.”  Progressives, I realize, find this notion of dividing the poor into “deserving” and less deserving buckets antiquated and indefensible.  However, rather than simply level the playing field for able-bodied adults with low incomes, Obamacare insteads tilts the playing field strongly in their direction.

Prior to Obamacare, the share of Medicaid expenses that is covered by federal taxpayers (the so-called Federal Medicaid Assistance Percentage or FMAP) ranged from a federal floor of 50% in the wealthiest states (NY, CA) to 73.4% in the poorest state (Mississippi).  On average, the FMAP averaged 57% across all states.  Obamacare offered states the following deal: if you expand Medicaid eligibility to 138% of poverty, Uncle Sam will cover 100% of the cost of that expansion in the first few years, gradually ratcheting down such assistance to a level of 90% by the year 2020 and for every subsequent year thereafter.[1]

Now it clearly makes good policy sense to give relatively more federal assistance to states based on ability to pay.[2]  But if we accept the premise that it’s legitimate for the federal government to provide a health care safety net for those with low incomes, how could it possibly be fair to hand out 100% discount coupons to cover one category of citizens while only giving away 50% discount coupons to others living in the same state?  (57% represents  under “old” Medicaid eligibility rules, with the balance being covered by states; the actual share varies by state, but is designed to give the biggest help to the poorest states90 to 100% represents the share of Medicaid expensesIf Uncle Sam is taking from Peter to pay for Paul’s medical care, isn’t it unseemly that the discount Uncle Sam is will to states to encourage them to cover able-bodied Pauls is up to twice as high if Paul is elderly or disabled?

Of course, one could quite legitimately argue that some categories of the poor are more deserving or relatively more in need of help than others. Indeed, that’s exactly where how the idea of the “deserving poor” arose in the first place. But if “deservingness” undergirds the rationale for massive differences in subsidies across various eligibility categories, how could one possibly justify putting able-bodied adults at the head of the line?

study by Jonathan Ingram at the Foundation for Government Accountability found that 82.4 percent of the Medicaid expansion population is comprised of able-bodied, working-age adults with no children.  In a nation where 83% support work requirements for welfare it ought to be flagrantly obvious (to any politician able and willing to actually listen to the public) that such a perverse prioritizing of able-bodied adults over the truly vulnerable cannot possibly command majority support.  But given that Democrats in Congress were only too happy to stubbornly ignore persistent public opposition to the law in the six months prior to the law’s passage, it should not be that surprising that they took advantage of a very rare and fleeting supermajority in Congress to cram through a law that they had deluded themselves into believing was on the “right side of history.

Obamacare Favors States That Put Self-Interest Ahead of the National Interest

But the perversity of Obamacare’s Medicaid funding formula goes much farther. It greatly amplifies the “beggar-thy-neighbor” incentive that is inherent in any open-ended federal matching grant program. Such programs greatly erode fiscal discipline since they encourage states to expand their own Medicaid programs at the expense of all other taxpayers. If North Carolina takes the bait and expands Medicaid, it’s own citizens will bear only 2.4% of the cost of that expansion since they contribute only that small share to federal tax coffers.  This essentially is the argument of progressives who in essence say state policymakers would be stupid to turn down free money.

But the logic is even far more perverse than that. Uncle Sam has the power to tax North Carolina citizens. So if other states proceed with expansion and we do not, it makes us look like suckers left holding the bag while everyone else snags the goodies tossed around by Uncle Sam. This is terrible politics and terrible fiscal policy. Encouraging the citizenry to pick each other’s pockets certainly is not going to enhance the odds of more civil discourse. Quite the contrary: it’s going to result in a race to the bottom as every state is incentivized to make very certain they get their “fair” share of the spoils.  Thus, whether you characterize the offer as a bribe (to do Uncle Sam’s bidding) or ransom (Uncle Sam has your money, so come get it or lose it), this movie is not going to have a happy ending.

The beauty of fiscal federalism is that it makes states accountable for their taxing and spending choices. People can vote with their feet if they decide that their state and local taxes have gotten too high relative to the benefits provided by government.  That kind of political market test encourages state policymakers to at least take a stab at trying to balance the interests of their citizens across generations so that short-term interests don’t automatically trump long-term considerations. This system does not work perfectly. If it did, we would not have more than one half trillion in unfunded retiree healthcare obligations for state employees.  But the evidence suggests that at least some states are taking such obligations seriously and taking responsible action to set aside funding now to cover them rather than kicking the can down the road for future generations. And one half trillion pales in comparison to the $205 trillion fiscal gap created by federal policymakers (over half of which relates to federal health entitlements).

To close a fiscal gap of $205 trillion would require a 57% increase in all federal taxes. Perhaps I live in a bubble, but I know no one who would be in favor of raising federal taxes by such a jaw-dropping amount. But if we’re not willing to raise taxes to live within our means, it’s pretty obvious that we will need to drastically cut spending if we’re not to hand off to our children and grandchildren an unconscionable fiscal burden. But the design of Obamacare’s Medicaid expansion short-circuits such thinking entirely. It strongly encourages states to party now and leave future generations to pay the tab. This is fiscally reckless and grossly unfair to future generations.

Obamacare Gives the Most Vulnerable the Lousiest Coverage

Another perverse feature of Obamacare is how it tries to herd the poor and near poor into the worst coverage available instead of giving them access to private health insurance.  Avik Roy has done yeoman’s work to explain just why Medicaid is far inferior to private coverage in terms of both access to care and health outcomes, so I won’t regurgitate that here. I will simply suggest that skeptics on this point do the following thought experiment. If Medicaid is so wonderful, would you support legislation requiring that all federal and state employees be required to enroll in Medicaid instead of being given private health insurance coverage? If not, why not?  Given Medicaid’s abysmal payment rates, that certainly would save taxpayers a boatload of money. But I think anyone grounded in reality also would recognize the firestorm of protest that would arise if federal and state employees were routinely subjected to the indignities that attend being a Medicaid recipient. Moreover, given that ER usage is at least 50% higher among those on Medicaid compared to equivalently situated individuals who have private insurance, it’s not at all clear that the nation’s emergency rooms could handle the extra load from adding 22 million employees (and many more dependents) to the Medicaid rolls.

Under Obamacare, people below poverty are entirely denied the option of purchasing subsidized coverage through the Exchanges: their only choice is Medicaid. The near poor (with incomes between 100-138% of federal poverty guidelines) are likewise denied Exchange coverage if they live in states that have taken the bribe to accept the Medicaid but are fortunate enough to qualify for Exchange coverage in states that don’t expand Medicaid. In short, Obamacare’s half-baked design simultaneously spins out a dizzying array of inequities:

  • Poor and near-poor people in Medicaid expansion states get worse subsidized coverage (Medicaid) than their counterparts between 138-400% of poverty (private coverage on the Exchanges).
  • Poor people in non-expansion states get no subsidized coverage even as their counterparts at 100-400% people are given heavily subsidized private coverage on the Exchanges.
  • Near poor people in Medicaid expansion states get worse subsidized coverage than their counterparts in states that don’t pursue Medicaid expansion.

Does this sound even remotely like a level playing field to you? Does this sound like everyone is getting a fair shot or gets to play by the same set of rules? Time and again we either treat demonstrably more vulnerable citizens worse than their less vulnerable counterparts or we treat the same category of eligibles differently depending on where they live.

Is There A Better Way?

It’s pretty clear that in the mad dash to secure the his legacy for future generations, the president signed a poorly crafted law that has produced a river of unintended consequences and fallen far short of his own self-professed standards of fairness.  Ironically, even the NY Times has reported that:

The Affordable Care Act was supposed to simplify Medicaid’s myriad programs across the country to provide a more uniform medical safety net for poor Americans in every state. It hasn’t worked out that way. In fact, Medicaid programs now vary more widely state to state and even within states than they did before.

If the president truly were interested in fairness, perhaps he should have considered either of the following paths to reform:

    • Eliminate Medicaid Entirely. Switzerland is living proof that it is possible to actually achieve universal coverage (as opposed to Obamacare, which gets us less than halfway there) without any reliance on public insurance plans such as Medicare and Medicaid. It is a model of “horizontal equity”–that is, treating like individuals alike regardless of any other characteristics or geographic location. Everyone gets an income-related subsidy to purchase private health insurance coverage so that it is affordable and accessible to all without any of the stigma or access problems associated with Medicaid coverage in this country.
    • Put Medicaid on a Level Playing Field.  Admittedly, scrapping Medicaid entirely may have been far too bold a stroke to be politically feasible in 2010 (although there is certainly a Nixon-goes-to-China argument for why Barack Obama would have been uniquely positioned to champion and achieve such a consequential, history-making and radically disruptive innovation in American health policy).  An alternative is the “do-no-harm” plan proposed by John Goodman, which is to retain Medicaid but not try and tilt the playing field by either forcing people onto the program or privileging it with higher subsidies.  After all, if taxpayers are willing to spend $6,275 to provide acute care for each disabled adult on Medicaid, there’s no good reason not to make available the identical amount of dollars for such individuals to buy private coverage, especially if they are allowed to supplement any such taxpayer-provided subsidies with family resources to purchase whatever style of coverage suits their pocketbook and preferences.

While the Swiss style has the most appeal to me personally, I could certainly live in a “do-no-harm” world in which Medicaid at least competes fairly with private health insurance on a level playing field. It’s the health policy equivalent of school choice programs in that it does not completely eradicate public schools but at least gives every family–not just those with means–the opportunity to let their children attend private schools.  This design has a great deal of appeal from a political point of view since in such a deeply divided country, it may be politically impossible to get progressives to abandon Medicaid entirely. But fair head-to-head competition between Medicaid and private health insurance would offer the same advantages as a competitive bidding approach to Medicare reform. Those who trust government may find more comfort in simply enrolling in Medicaid rather than worrying either that they may have made a wrong choice or cannot trust a private health insurance plan. Conversely, this arrangement prevents those willing to shop around among private plans a way of not getting trapped in Medicaid.One of Medicaid’s worst features is its tendency to crowd out private health insurance coverage. Consider the findings from a recent paper on how Obamacare will play out: “We find high rates of crowd-out for Medicaid expansions aimed at working adults (82%), suggesting that the Medicaid expansion provisions of PPACA will shift workers and their families from private to public insurance without reducing the number of uninsured very much.”  What a staggering waste of federal tax dollars!  Instead of using federal tax dollars to replace what families are able and willing to put towards health insurance, we ought to be allowing families to combine their own resources with Medicaid to buy the level and type of coverage best suited to them. After all, the original poverty guidelines implicitly assumed that poor families spent 6% of their income on health care. Since 1965, Medicaid has foolishly rested on the premise that poor families can only afford to spend minuscule amounts for health care. But if that really were true, then it’s quite hard to explain how 18%of the nation’s non-elderly poor managed to secure private health insurance coverage.  John Goodman’s plan avoids this flaw entirely, by giving people identical tax credits and letting them supplement such credits by whatever amount they wish.

Nearly three years ago, the Supreme Court upended the overconfident (arguably arrogant) predictions of progressives that Obamacare’s approach of essentially forcing all states to adopt the Medicaid expansion was constitutionally permitted. Instead the Court ruled that threatening to take away all of a state’s federal Medicaid funding if it failed to expand Medicaid was unconstitutionally coercive. There’s no question that at least some of the inequities I’ve described have arisen due to the unanticipated consequence of the Court’s making Medicaid expansion optional rather than mandatory.  Sadly, rather than fix the myriad of flaws in his law, the president has instead simply doubled down, insisting that the law is working well and that any efforts to reverse course should be vetoed.

If we are fortunate, in June the Supreme Court will hand the president yet another opportunity to reconsider his stubborn and unyielding posture with respect to fundamentally overhauling Obamacare.  Should the Court rule that subsidies on federal Exchanges are illegal according to the letter of Obamacare, it will give the president the chance to show what kind of leader he is.  Will he again double down on his “my way or the highway” approach to Congress using his bully pulpit to try and bend Republicans in Congress to pass a “fix” that preserves the basic structure of his misguided law?  Or will he instead take the kind of bold action we expect of transformative presidents such as Ronald Reagan to reach out to the other side and work with them to craft a compromise that will not only fix the immediate problem but also replace its central elements with more sensible patient-centered reforms? If the president really aspires to be a transformational president, then John Goodman’s “do-n0-harm” health reform plan surely is not a bad place to start .

 

Footnotes

[1] Phil Kerpen has explained that this misguided provision has its roots in the Cornhusker Kickback, “a sweetheart deal for Nebraska alone to get 100 percent federal funding for Medicaid expansion that was used to get then-Senator Ben Nelson’s vote.” Rather than strip this egregious provision from the bill once it was brought into the spotlight, Democrats in Congress decided that the best “compromise” was to give the same deal to every state!

[2] For purposes of discussion, I’m accepting that federal grant-in-aid programs make sense. In reality, such programs are just one more aspect of the federal budget that has gotten out of control. A 2012 Congressional Research Service report codified 2,179 congressionally authorized federal domestic assistance programs administered by 26 federal agencies amounting to more than one half trillion a year in federal spending. The challenge of efficiently and effectively managing such a disparate jungle of programs grows with each passing year. In the words of one critic “the aid system encourages excessive spending and bureaucratic waste, creates a lack of political accountability, and stifles policy diversity and innovation in the states.” Of equal importance, such programs have substantially eroded the sensible framework of federalism that was designed to safeguard American citizens against a central government that has grown dangerously large. Indeed, a careful Mercatus Center study has found that such grant programs create a “ratchet” effect that results in future state and local tax increases of roughly 40 cents for every dollar in grant money received in prior years. Consequently, they are significant contributors to the unsustainable fiscal path facing federal and state governments. Thus, I personally favor a system in which we radically reform such grant-in-aid programs (e.g., converting them to block grants to give back state and local control and eliminating the perverse “beggar-thy-neighbor” incentive that is contained in open-ended funding formulas such as Medicaid’s) or get rid of them altogether. My point is that so long as such programs exists, trying to improve their target efficiency by steering relatively more help to states that need it the most has merit.

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How government-run health care happenshttp://www.aei.org/publication/government-run-health-care-happens/ http://www.aei.org/publication/government-run-health-care-happens/#comments Fri, 30 Jan 2015 18:03:56 +0000 http://www.aei.org/?post_type=publication&p=829869 ...]]]> Acting on the assumption that the Department of Health and Human Services has the power to remake the American health-care industry, Secretary SylviaBurwell this week announced goals for moving the Medicare program away from its fee-for-service roots. By 2016, she wants 30 percent of Medicare’s fee-for-service payments to be made through “alternative payment models.” Further, she plans to tie 85 percent of all traditional fee-for-service payments to measures of “quality” or “value.”

The announcement was greeted by many as an important milestone. Peter Orszaghailed it as the crucial next step in the long struggle to slow the pace of rising health-care costs, arguing, correctly, that Medicare is so big that it can influence how the entire system is organized and does business.

But the announcement is likely to be less important as a policy roadmap than it might first appear. The terms “alternative payment models,” “value,” and “quality” are so elastic that HHS could place any number of relatively minor payment adjustments under those umbrellas and claim victory.

What’s more important about the announcement is what it says about the cast of mind of those who are implementing the Affordable Care Act (ACA). From Secretary Burwell’s article in the New England Journal of Medicine explaining the initiative, it is evident that she and her colleagues see HHS as having the power and the responsibility to embark on a complete makeover of American health care. The first sentence of the piece says it all:

Now that the Affordable Care Act (ACA) has expanded health care coverage and made it affordable to many more Americans, we have the opportunity to shape the way care is delivered and improve the quality of care systemwide, while helping to reduce the growth of health care costs.

The “we” in that sentence is Burwell and the people who work for her at HHS. Burwell explains how the department will use “incentives” to push doctors and hospitals to form the organizational structures the government believes are best for delivering care: HHS will develop “quality” and “value” metrics to reward or penalize medical-service providers, in addition to using taxpayer funds to train physicians and others to provide services consistent with what the federal government believes to be best practices.

Burwell is reflecting an attitude that permeates health policymaking among those who supported the ACA. Their view, contrary to all evidence, is that the federal government has the capacity to lead an effective makeover of the nation’s complex and vast network of hospitals, physician practices, outpatient facilities, and related services. It seems not to have occurred to Burwell or her likeminded colleagues that perhaps the federal government is not in a position to do this well and that in fact asserting more federal control over the manner in which health services are delivered to patients might be a prescription for worse, not better, health care.

The federal government’s half-century record of running the Medicare program is a reason for caution not boldness in this regard. Medicare is the largest purchaser of services in most markets,and so has substantial influence over the organization of care delivery. Unfortunately, that influence has pushed health care in this country toward more fragmentation, disorganization, cost-shifting, and inefficiency in how services are delivered to patients.

Medicare’s dominant fee-for-service program fuels cost pressures. In fee-for-service, the providers of services get paid more when more procedures and tests are ordered for patients, and the Medicare program pays claims submitted by licensed and qualified medical providers, no questions asked. The only check against unlimited use of services is the cost-sharing requirement for patients, which is substantial in Medicare. But most Medicare beneficiaries pay almost nothing at the point of service because they have Medigap insurance or retiree health coverage that pays for whatever is not covered by Medicare. The result has been a relentless rise in the volume and intensity of services used by Medicare patients.

Congress and Medicare’s bureaucracy have responded to the cost crisis, which has been ongoing since the 1970s, with a steady stream of massive and complex payment regulations. Their purpose is to cut costs by lowering what the government pays for each service rendered to a patient, but they are blunt instruments, with many unintended consequences. For example, in the case of physicians, a new payment system instituted in 1989 was supposed to reward primary care over specialization but for more than two decades has had the opposite effect.

These payment systems also stifle innovation. Incumbent providers hire lawyers and lobbyists to protect their interests as they navigate the regulations. New entrants with new ways of doing business, on the other hand, have a difficult time getting the bureaucracy to approve their approaches. The result is inertia and risk aversion, which slows the pace of progress.

What Burwell and her co-workers are promising is that HHS is going to break out of this decades-old model with new payment systems that are calibrated to reward value and not the providers with the best lawyers and most political clout. But what evidence is there to believe this will work? To begin with, nobody really trusts that HHS has the right data to measure quality fairly. And without consensus on how to measure quality in health services, none of what HHS says it plans to do will be possible.

But there’s an even more fundamental problem with Burwell’s thinking on this subject. Medicare-payment regulations are budgetary devices more than anything else. Whenever Congress or the administration wants to cut spending, they look to squeeze some additional dollars from the massive provider-payment systems in Medicare. That dynamic will not change with new, supposedly better payment rules. When budget pressures build, rates of payment to providers will be cut indiscriminately again, regardless of the consequences for the quality of the health system.

The Obama administration balks when its opponents charge it with supporting “government-run health care.” But Secretary Burwell’s announcement is clear. HHS is eagerly moving ahead with plans to “shape the way care is delivered” and therefore to control costs across the industry and not just in government-administered health programs.

In the health system envisioned by the administration, HHS will call all of the important shots and direct how hospitals and doctors are to care for patients. If that’s not government-run health care, what is?

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Hey, why didn’t the 2013 ‘austerity recession’ happen?http://www.aei.org/publication/hey-didnt-2013-austerity-recession-happen/ http://www.aei.org/publication/hey-didnt-2013-austerity-recession-happen/#comments Fri, 30 Jan 2015 17:20:58 +0000 http://www.aei.org/?post_type=publication&p=829853 Scott Sumner points out the CBO’s 2013 forecast, one assuming tax hikes and sequester budget cuts, that said such “fiscal tightening will lead to economic conditions in 2013 that will probably be considered a recession, with real GDP declining by 0.5 percent between the fourth quarter of 2012 and the fourth quarter of 2013 and the unemployment rate rising to about 9 percent in the second half of calendar year 2013.”

And CBO offered an alternative scenario that assumed away the austerity: “The economy would be stronger in 2013: Real GDP would grow by 1.7 percent between the fourth quarter of 2012 and the fourth quarter of 2013, and the unemployment rate would be about 8 percent by the end of 2013, CBO projects.”

Well, what actually happened during 2013 when the budget deficit fell by $400 billion as spending fell and tax revenue increased? Sumner:

Obviously the economy did much better than the negative 0.5% RGDP growth and 9% unemployment in late 2013 that were expected by the (Keynesian) CBO. But even more strikingly it did far better than the 1.7% RGDP growth and 8% unemployment at yearend in the alternative scenario. In fact, RGDP grew 3.12%, and unemployment fell to 6.7%. Here we have not only the economy reacting to the Great Austerity Experiment better than predicted by the CBO, but even far better than predicted if there were no austerity.

Does this ring a bell? Do you remember the Great Stimulus Experiment of 2009? The time that the unemployment rate didn’t just rise much more than expected in response to the stimulus, it rose far more than expected under the alternative scenario of no stimulus! In that case the Keynesians said something to the effect that the crisis turned out to be far worse than expected. I’m actually not sure that’s true; we pretty much knew the size of the financial crisis when the forecasts were made. But I’ll cut them some slack; the severity of the GDP decline in late 2008 was not fully understood.

But that excuse hardly applies to 2013, which was a run of the mill recovery year much like all the others of the past 5 years—with no notable shocks. Except of course for the Fed’s stimulus, which the market monetarists predicted would offset the effects of austerity, and did so. Two grand Keynesian experiments and two abject failures. Followed by two times where the Keynesians started crowing about how they’d been right about everything. You can’t make this stuff up.

This result is actually even more interesting that Sumner lets on. Research from economist Alberto Alesina finds that austerity measures “based upon cuts in spending are much less costly, in terms of output losses, than those based upon tax increases.” So if you are looking to cut debt, spending cuts hurt GDP less than tax hikes. But in 2013 most – maybe 90% — of the austerity came from tax hikes. So the Fed was able to offset a particularly harmful policy mix.  Just what kind of models are they running over there at CBO? Bad Keynesian ones, it seems.

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Replace if repeal: A response to some criticshttp://www.aei.org/publication/replace-repeal-response-critics/ http://www.aei.org/publication/replace-repeal-response-critics/#comments Fri, 30 Jan 2015 16:57:05 +0000 http://www.aei.org/?post_type=publication&p=829844 I published an essay last weekend on Obamacare that made the following points: The ACA is in danger, both from the Supreme Court and the possibility of a Republican in the White House in 2017; a common liberal argument in the face of such danger is that the repeal of Obamacare “equals death;” and “repeal equals death” is not the argument ender that many liberals pretend it to be.

I back up that last point by arguing that public policy makes choices all the time that result in higher rather than lower mortality rates; that in a world of scarce resources such choices are inevitable; and that it is not necessarily immoral to support a policy change even if that policy change will increase the mortality rate. If you disagree in principle, then you should favor a 10 mph speed limit.

Furthermore, liberals aren’t advocating that the goal of health policy should be ensuring “that every person with a treatable disease or injury avoids death,” so they too understand this, and so should stop using the “repeal equals death” argument as if it were an argument ender. I also argue in the essay that conservatives have been guilty in the past of injecting too much talk of death into the health-care debate, and point to Governor Palin’s “death panels” rhetoric as an example.

Having established that, I go on to argue that “if Obamacare perishes — and I hope it does — conservatives should be ready to coalesce around a concrete replacement plan.” I outline such a plan in the essay, explicitly calling for universal coverage as a policy goal, and conceding that “on this point, the president is correct.” I describe what universal coverage should look like, and point out that a Republican plan that would move the health-care system closer to that goal exists in the U.S. Senate. I argue that “repealing Obamacare and replacing it along these lines may result in more people dying — or fewer. That’s a pretty tough forecast to make.”

You can read the whole thing here.

Many liberals have taken issue with the essay. I think my friend and colleague Ramesh Ponnuru is correct that some of them don’t seem to have understood what I was arguing. But there are at least two criticisms worth addressing.

The first criticism is that I would be personally pleased if policy changes resulted in a significant increase in the mortality rate. Some people seem to be responding to the headline — which, following the standard practice in journalism, I didn’t write— described by Jonathan Chait as baldly callous and by Steve Benen as “jarringly callous.”

Ramesh gets it, responding to Mr. Chait:

When Strain writes that it “clearly would not be immoral” to repeal Obamacare, it seems to me in context obvious that he is not saying that repealing Obamacare would be morally okay whatever the replacement. (He’s not saying it would be alright to replace it with a system where it was illegal for poor people to buy health insurance.) He’s saying that the argument that repeal would kill people should not dissuade advocates of repeal, both because that effect is unlikely and because mortality rates aren’t the only criterion for evaluating a health system, although they are of course a very important one.

The second criticism that should be addressed was summarized nicely by Mr. Benen, writing on the Rachel Maddow blog:

There’s no denying the need for trade-offs in any system, and I’d love to compare the trade-offs in the Affordable Care Act to those in the Republican alternative, but at present, the GOP plan does not exist — despite more than five years of meaningless promises from party officials.

This relates to Strain’s thesis, of course, because he seems to believe the destruction of the ACA — leading to “a slightly higher mortality rate” — would be acceptable in part because of a Republican solution that could help take its place. If Strain has seen this elusive, mysterious alternative, here’s hoping he’ll share it with the rest of us.

I have two responses to this second criticism.

First, in the essay I explicitly argue that universal coverage should be a goal of any conservative alternative.

A better discussion, both then and today, is about appropriate social goals and the resources required to meet them. Among the many needed reforms to our health-care system, one should be that we move closer to universal insurance coverage — on this point, the president is correct. But what should universal coverage look like? It requires a nuanced answer.

Even if these liberal writers are correct, it is odd to criticize me for the absence of an alternative, since I am strongly advocating for one.

Second, I think it’s very likely that the congressional GOP would enact some sort of replacement if the Supreme Court strikes down Obamacare (and I think it’s very unlikely that a potential Republican president would repeal it without replacement in 2017). They would very likely take measures to address the needs of those who lost their subsidies as a result of the Court’s action. These liberal writers are not giving the congressional GOP the credit it’s due. From an article in the Hill this week:

Senate Republicans are preparing a legislative plan of action in case the Supreme Court strikes a major blow against ObamaCare and rules subsidies provided to people on the federal exchange are illegal.

GOP senators are confident the justices will rule in their favor, and they want to be ready to act if millions of people lose their subsidies to buy insurance through the healthcare law.

“If the Supreme Court were to say the law says what the law says, we would like to be ready with a response to that that makes practical sense for the 5 or 6 million Americans who would be affected,” said Sen. Lamar Alexander (R-Tenn.), who is heading the effort along with Finance Committee Chairman Orrin Hatch (R-Utah) and Republican Policy Committee Chairman John Barrasso (R-Wyo.).

Senate Budget Committee Chairman Mike Enzi (R-Wyo.) and Sen. Richard Burr (R-N.C.) are also participating.

From Politico, on January 3:

But Barrasso said several groups of lawmakers — members of the Republican Policy Committee and the two Senate committees with jurisdiction over health care — have begun talking about how to build consensus on a replacement plan.

And Brit Hume reported the following on Twitter.

Which brings me back to my original argument: Obamacare should be repealed; it should be replaced with a different plan, a goal of which should be universal coverage against catastrophic expenses so that no one who falls seriously ill or is seriously injured goes without the medical care they need, regardless of ability to pay; and preferring this outcome to the Obamacare status quo is not immoral.

— Michael R. Strain is deputy director of economic policy studies and resident scholar at the American Enterprise Institute. You can follow him on Twitter attwitter.com/MichaelRStrain.

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Why Obama and the Saudis like low gas priceshttp://www.aei.org/publication/obama-saudis-like-low-gas-prices/ http://www.aei.org/publication/obama-saudis-like-low-gas-prices/#comments Fri, 30 Jan 2015 16:08:27 +0000 http://www.aei.org/?post_type=publication&p=829814

Have you heard about the secret conspiracy between the Saudis and the White House? I haven’t either, probably because there isn’t one. But events are playing out exactly as one would expect if such a conspiracy existed.

With no help from Barack Obama, the U.S. has launched an energy revolution, becoming the world’s leading oil and natural-gas producer. This has dismayed environmentalists and donors in and out of the Obama administration. After all, Obama bet big — really big — on green energy. The oil and gas boom is not the energy revolution Obama was looking for.

Saudi Arabia and other petro-monarchies aren’t happy about it either (which is one reason the United Arab Emirates and other OPEC states bankroll anti-fracking propaganda in the West). Until recently, Saudi Arabia was the world’s biggest oil producer, and it is still arguably the most important one in global markets because its oil is so easy to get out of the ground. The cheaper it is to extract, the easier it is to maintain profits when prices go down. That means the Saudis have an outsized ability to affect the global price of oil.

And that’s exactly what they’re doing. “Saudi Arabia,” writes Nathan Vardi of Forbes, “is making a massive $750 billion bet in 2015 that the oil kingdom can endure lower oil prices longer than other major oil producing countries both within and outside OPEC, even including American shale.”

If the Saudis can keep oil at or below $50 a barrel, many American fracking and offshore operations will either have to close up shop — which is already happening — or never launch in the first place, because the profit just isn’t there.

This is typical behavior for the Saudis and for OPEC, which, after all, is an international price-fixing cartel that would be illegal under our antitrust laws if it were an American outfit.

The White House, meanwhile, is only too happy to take credit for low gas prices and our decreased dependence on foreign oil. It’s also happy to take advantage of them. Not only does the president boast — as he did in his State of the Union address — about low gas prices, despite having done next to nothing to make them possible (nearly all new oil and gas production has been on state or private lands), he’s taking a bow for the economic benefits as if he deserves the credit.

One small example: Obama is constantly touting a newly low unemployment rate as if it were the result of his policies. The odd thing is that, as American Enterprise Institute economist Mark Perry notes, literally all of the job gains of the past seven years were generated by one state: oil-rich Texas.

From December 2007 to December 2014, according to Perry, Texas has added 1.25 million payroll jobs and 190,000 non-payroll jobs. Meanwhile, the other 49 states and D.C. combined have 275,000 fewer jobs than they did at the start of the recession. One wonders: If Obama is responsible for all these job gains, why did he put them all in George W. Bush’s home state?

Anyway, back to the non-conspiracy. By artificially keeping oil prices low, the Saudis get to deal a powerful blow to the energy revolution in the U.S. (They also get to deliver a severe economic blow to their enemies the Iranians, which is nice.) In exchange, Obama gets an unearned political windfall and can claim vindication for his ineffectual economic policies.

Obama is paying back the Saudis by permanently taking the Arctic National Wildlife Reserve’s billions of barrels of oil off the table for all time. By doing so, he also puts the entire Trans-Alaskan Pipeline System (TAPS) on a starvation diet. North Slope oil production is half of what it once was, and if it falls below 350,000 barrels per day, the TAPS itself will start to become economically and technically unfeasible. In other words, Saudi Arabia’s short-term economic hit is an investment in future dependence on Saudi oil.

Of course, there need not be a conspiracy, just a convergence of economic and political interests. But the fact remains that Obama could never have gotten away with restricting energy development in ANWR before an election or when gas prices were high. This is Obama’s window, and it appears the Saudis are holding it open for him for as long as he needs.

— Jonah Goldberg is a senior editor of National Review and a fellow at the American Enterprise Institute. You can write to him by e-mail at goldbergcolumn@gmail.com or via Twitter @JonahNRO. © 2015 Tribune Content Agency, LLC

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Export-Import Bank fuels fight between pro-business and free-enterprise GOPhttp://www.aei.org/publication/export-import-bank-fuels-fight-pro-business-free-enterprise-gop/ http://www.aei.org/publication/export-import-bank-fuels-fight-pro-business-free-enterprise-gop/#comments Fri, 30 Jan 2015 15:50:09 +0000 http://www.aei.org/?post_type=publication&p=829807 Stephen Fincher’s timing was perfect.

The Republican Congressman on Wednesday introduced his first piece of legislation for the 114th Congress: a bill to renew the charter of the Export-Import Bank. On the same day, Boeing — easily the biggest beneficiary the agency’s taxpayer-backed financing — announced $1.47 billion in fourth-quarter profits, 19 percent higher than last year, along with a record backlog of airplane orders that stretches eight years.

Fincher got 57 co-sponsors for his Ex-Im bill, all of them Republicans.

In this way, Fincher neatly laid out the mindset of half of the Republican Party: The GOP is the pro-business party.

You see, all that talk of lower taxes, less regulation, and less federal spending could fit sensibly in a framework of free enterprise and limited government. But support for Ex-Im — a federal agency that uses taxpayer dollars to subsidize American exporters and their banks — doesn’t fit in such a free-enterprise frame. The mindset that can simultaneously advocate deregulation and export subsidies is the one that simply says, “listen to the business lobby.”

The mindset of the other half of the GOP is different: Republicans are the party of free-enterprise, not because it serves the big and wealthy, but because it puts competitive pressure on the big guys, creates opportunity for little guys, and empowers consumers.

Financial Services Committee Jeb Hensarling, R-Texas, articulates that view often. His committee has control over Ex-Im, whose charter expires this summer. Hensarling sees Ex-Im’s activity as cronyism and corporate welfare, and he would just as soon let it die.

Hensarling’s Senate counterpart, Banking Committee Chairman Richard Shelby, R-Ala. also has a free-market populist streak to him. Shelby opposed the 2008 Wall Street bailout, and he’s the only current GOP Senator who voted in 2010 to break up the big banks. But Shelby voted to renew Ex-Im’s charter in 2012. On the other hand, he also supported a failed measure by Sen. Pat Toomey to try to curb the agency and wind it down.

On Thursday, Shelby had mixed remarks on Ex-Im: “I have some real problems with the way the Export-Import Bank has been administered,” CQ Roll Call quoted Shelby. “It’s corporate welfare, and we’ll address that at the proper time.”

Senate Majority Leader Mitch McConnell voted against Ex-Im in 2012, and in recent months has reaffirmed his opposition to renewing the agency.

And so resistance to Ex-Im has momentum, even as Fincher and the industry lobby behind him ramp up their push for renewal. But the numbers, frankly, are grim for conservatives.

While the GOP is divided in half on the matter, the Democratic Party (you know, the one that inveighs against big business and corporate lobbyists) is nearly uniform in its support for Ex-Im. After all, the more government funds big business, the more government controls industry.

Add the two parties together, and you’ve got two-thirds to three-fourths of both chambers likely to support the agency. So, what can the free-enterprise half of the party hope for?

First: Republican leaders could use the party’s majority status to simply kill the agency. The free-market populists don’t need a floor vote to kill Ex-Im, they just need to prevent a vote to save it. Conservatives are hoping that Republicans can vote as a caucus whether or not to extend Ex-Im. If a majority of the GOP majority says no, then House Speaker could simply refuse to bring the bill to the floor.

This would involve GOP leadership going to war with their close allies on K Street and Wall Street — wishful thinking, perhaps.

The second option is to reform Ex-Im. Fincher’s bill demands all sorts of studies and reports from the agency, but these are empty gestures. The Heritage Foundation’s Diane Katz, after reading Fincher’s bill, laughs at the notion that there are any true reforms in there.

If Shelby wants a real reform, he’d have to start from scratch. He could begin by shrinking the agency dramatically — bringing the maximum amount of authorizations down from about $25 billion in 2014 to half that in 2015, with further cuts the following year.

Next, a reform bill would prohibit loans and guarantees to state-owned businesses and banks. The Export-Import Bank of China, for example, has received Ex-Im guarantees, as has Saudi Arabia’s state-owned airline.

Finally, a real reform bill might limit the larger loan guarantees to those cases where a U.S. manufacturer faces competition from a foreign manufacturer receiving export subsidies, with real punishments if Ex-Im breaks this rule.

Majority Leader McConnell could make sure these rules are enforced, because he gets to name two new appointees to Ex-Im’s board. If he picks conservatives who are sticklers, he can make sure Ex-Im is truly chastened and its sails are truly trimmed.

Alternatively, the GOP could opt to be the party of business, as usual.

Timothy P. Carney, The Washington Examiner’s senior political columnist, can be contacted at tcarney@washingtonexaminer.com. His column appears Sunday and Wednesday on washingtonexaminer.com.

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5 quick thoughts on today’s US GDP reporthttp://www.aei.org/publication/5-quick-thoughts-todays-us-gdp-report/ http://www.aei.org/publication/5-quick-thoughts-todays-us-gdp-report/#comments Fri, 30 Jan 2015 15:46:33 +0000 http://www.aei.org/?post_type=publication&p=829802 From Bloomberg:

The economy in the U.S. expanded at a slower pace than forecast in the fourth quarter as cooling business investment, a slump in government outlays and a widening trade gap took some of the luster off the biggest gain in consumer spending in almost nine years. Gross domestic product grew at a 2.6 percent annualized rate after a 5 percent gain in the third quarter that was the fastest since 2003, Commerce Department figures showed Thursday in Washington. The median forecast of 85 economists surveyed by Bloomberg called for a 3 percent advance. Consumer spending, which accounts for almost 70 percent of the economy, climbed 4.3 percent, more than projected.

1.)  Good news if you think the economy’s big problem is a lack of consumer demand. Help from gas prices now and going forward, too. Barclays: “The US consumer is receiving a windfall from lower energy prices while a stronger dollar and weak global growth is weighing on net exports.”

2.) If you are worried about a chronic lack of business investment, not so good. “The strong pace of consumer spending in the fourth quarter, however, was overshadowed by a drop in capital expenditure. Business spending on equipment fell at a 1.9 percent rate. It was the largest contraction since the second quarter of 2009,” Reuters explains. Maybe just a dip after two stronger quarters. We’ll see. But don’t blame falling oil prices shutting down the shale revolution. Capital Economics: “This weakness does not, however, reflect a pull back by oil producers. Mining structures investment increased by 9% annualised and mining equipment investment was broadly unchanged.”

Update: Here is a good catch from JP Morgan: “Outlays for capital equipment actually contracted at a 1.9% pace last quarter, the worst quarter of the expansion, and the business investment figure would have been even worse were it not for the estimated 9.4% rate of increase in spending on software.”

3.)  The 2.4% annualized rise in the fourth-quarter employment cost index suggests plenty of slack in the labor market. Where is the wage growth? Well, at least it didn’t show wages declining like the last jobs report did.

4.)  How badly is GDP missing the digital economy? A great point here from a new analysis by Michael Mandel: “The rise of the data-driven economy means government economic statistics may significantly understate US GDP growth and productivity growth. Official numbers are afflicted by huge and growing blind spots that increasingly distort the published figures.  To summarize, we are building a mammoth data-driven economy that, perversely, is only partly visible in the economic data.”

5.) If the previous point is true, they maybe it is less likely the economy is suffering from secular stagnation. After all, many thought this would be a year of accelerating growth. And in some ways it was. The past three quarters combined were the strongest of the recovery. Yet year over year, growth was up 0.2% over last year. (It was actually down on 4q-to-4q basis.) Many on Wall Street are expecting a 3-3.5% GDP year this year. Another 2% year, I think, makes the stagnation case stronger.

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AAAS scientists: Consensus on GMO safety firmer than for human-induced climate changehttp://www.aei.org/publication/aaas-scientists-consensus-gmo-safety-firmer-human-induced-climate-change/ http://www.aei.org/publication/aaas-scientists-consensus-gmo-safety-firmer-human-induced-climate-change/#comments Fri, 30 Jan 2015 15:34:18 +0000 http://www.aei.org/?post_type=publication&p=829801 In sharp contrast to public views about GMOs, 89% of scientists believe genetically modified foods are safe.

That’s the most eye-opening finding in a Pew Research Center study on science literacy, undertaken in cooperation with the American Association for the Advancement of Science (AAAS), and released on January 29.

The overwhelming scientific consensus exceeds the percentage of scientists, 88%, who think humans are mostly responsible for climate change. However, the public appears far more suspicious of scientific claims about GMO safety than they do about the consensus on global warming.

Some 57% of Americans say GM foods are unsafe and a startling 67% do not trust scientists, believing they don’t understand the science behind GMOs. AAAS researchers blame poor reporting by mainstream scientists for the trust and literacy gaps.

The survey also contrasts sharply with a statement published earlier this week in a pay-for-play European journal by a group of anti-GMO scientists and activists, including Michael Hansen of the Center for Food Safety, and philosopher Vandana Shiva, claiming, “no scientific consensus on GMO safety.”

A huge literacy gap between scientists and the public on biotechnology is one of the many disturbing nuggets that emerged from the Pew Research Center survey, which was conducted in cooperation with the AAAS, the world’s largest independent general scientific society. The full study, released on January 29, is available here.

The first of several reports to be released in coming months, this study compares the views of scientists and the general public on the role of science in the United States and globally.

The eye opening take-away: The American population in general borders on scientific illiteracy. The gap between what scientists believe, grounded on empirical evidence, often sharply differs from what the general public thinks is true. The differences are sharpest over biomedical research, including GMOs.

88% of AAAS scientists think eating GM food is safe, while 37% of the public believes that it’s not–a 51-percentage point gap
68% of scientists say it is safe to eat food grown with pesticides, compared with 28% of citizens–a 40% gap.
A 42-percentage point gap over the issue of using animals in research–89% of scientists favor it, while only 47% of the public backs the idea.

2015-01-29-widedifferencs.png

The scientist/public perception gap is less pronounced over climate, energy and space issues.

  • 37-percentage point gap over whether humans are the primary cause of climate change–87% of AAAS scientists say it is, while 50% of the public does.
  • 33-percentage point gap on the question about whether humans have evolved over time–98% of scientists say we have, compared with 65% of the public.
  • By a 20-percentage point margin, citizens are more likely than scientists to favor offshore oil drilling.
  • By a 12-point margin, the public is more likely to say that astronauts are essential for the future of the U.S. space program.

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The survey represents a sample of 2,002 adult citizens and 3,748 scientists who are all members of the AAAS.

“As scientists size up the culture and their place in it,” Pew said in a statement. “Scientists are notably less upbeat than they were five years ago and express serious concerns about public knowledge of science and the way scientific findings are covered by journalists.”

The scientists believe that media hype is one possible reason for large gaps in opinion between their views and that of the public, particularly in the debate over GMOs. Seventy-nine percent of scientists said that the media doesn’t distinguish between “well-founded” and “not well-founded” scientific research. Additionally, 52 percent agreed that the media oversimplifies the science.

Three years ago, the AAAS released an unequivocal statement on the safety of GM foods and why a consensus of its members oppose mandatory labelling:

There are several current efforts to require labeling of foods containing products derived from genetically modified crop plants, commonly known as GM crops or GMOs. These efforts are not driven by evidence that GM foods are actually dangerous. Indeed, the science is quite clear: crop improvement by the modern molecular techniques of biotechnology is safe. Rather, these initiatives are driven by a variety of factors, ranging from the persistent perception that such foods are somehow “unnatural” and potentially dangerous to the desire to gain competitive advantage by legislating attachment of a label meant to alarm. Another misconception used as a rationale for labeling is that GM crops are untested.
The AAAS also has addressed claims by anti-GMO advocacy groups, frequently echoed in the media and on activist websites, that GM foods are less tested or nutritionally deficient when compared to organic or other conventional foods.

… contrary to popular misconceptions, GM crops are the most extensively tested crops ever added to our food supply. There are occasional claims that feeding GM foods to animals causes aberrations ranging from digestive disorders, to sterility, tumors and premature death. Although such claims are often sensationalized and receive a great deal of media attention, none have stood up to rigorous scientific scrutiny. Indeed, a recent review of a dozen well-designed long-term animal feeding studies comparing GM and non-GM potatoes, soy, rice, corn and triticale found that the GM and their non-GM counterparts are nutritionally equivalent.
Looking further at the demographics of respondents, the survey finds that those with a college degree are split on GMO safety: 49% say it’s generally safe while 47% say it’s generally unsafe. Women are more wary than men: only 28% of women think eating GM foods are safe compared to 47% of men. Race also divides the issue with blacks (24% say its safe) and Hispanics (32%) being more cautious than whites (41%).

The demographics of respondents on pesticide are quite similar to the responses on GMOs. More men say foods with pesticides are safe than women do. Those with more education are more likely to say food grown with pesticides are safe.

2015-01-29-seekinggmolabels.png

When it comes to GM labeling, exactly half of respondents said they “always” or “sometimes” check for a non-GMO label when they are shopping. Of course, those who check labels correlate higher with those who think genetically modified foods are unsafe to eat.

So why are citizens so out of step with scientists on GMO safety?

“One possible reason for the gap: when it comes to GM crops, two-thirds of the public say scientists do not have a clear understanding about the health effects,” surmised the researchers.

Yet, oddly enough for a society that doesn’t trust scientists on the GMO debate, science itself still holds an esteemed position in the minds of adults. Seventy-nine percent of respondents believe that science has contributed positively to society with 62% saying it has been beneficial for the quality of food. However, the percent of people who believe that science has contributed negatively to food is up 10 points from 2009: 34 percent of respondents say that science has had a negative affect on food.

The public also highly values government investment in science research: 71% support government-funded basic science research and 61% said government funding is essential for scientific progress.

Pew also asked scientists another question: How good is the general state of science is today? Scientists were more negative this year than they were in 2009. Only 52% say that it is a good time for science today while 74% said it was good in 2009.

2015-01-29-scientistsperpsective.png

And due to the public perception of GMOs at least, scientists’ more sober assessment might make sense.

Who’s to blame? Scientists (75%) say lack of STEM education in grades K-12 is the biggest culprit. The release of the next report is expected in mid-February.

How can scientists and the government bridge the disturbing literacy gap between the mainstream scientific community and a skeptical public? asks Alan Leshner, CEO of the AAAS, in an editorial accompanying the survey release?

Speaking up for the importance of science to society is our only hope, and scientists must not shy away from engaging with the public, even on the most polarizing science-based topics. Scientists need to speak clearly with journalists who provide a great vehicle for translating the nature and implications of their work. Scientists should also meet with members of the public and discuss what makes each side uncomfortable. In these situations, scientists must respond forthrightly to public concerns. In other words, there needs to be a conversation, not a lecture. The public’s perceptions of scientists’ expertise and trustworthiness are very important but they are not enough. Acceptance of scientific facts is not based solely on comprehension levels. It can be compromised anytime information confronts people’s personal, religious, or political views, and whenever scientific facts provoke fear or make people feel that they have no control over a situation. The only recourse is to have genuine, respectful dialogues with people.

Jon Entine, executive director of the Genetic Literacy Project, is a Senior Fellow at the World Food Center Institute for Food and Agricultural Literacy, University of California-Davis. Follow @JonEntine on Twitter.

 

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