Subscribe to the Ledger
About the author
Yes, Greek has a ton of debt. Yes, it has a woefully uncompetitive economy. Yes, it continues to avoid supply-side and government reform. But consider the macrosituation, as outlined by AEI’s Desmond Lachman:
Over the past six years, Greece has experienced an economic depression on the scale of that experienced by the United States in the 1930s. Its economy has contracted by around 25 percent, its unemployment rate has exceeded 25 percent, and its youth unemployment has risen to over 50 percent. At the same time, despite five years of budget austerity and a major write-down of its privately owned sovereign debt, Greece’s public debt to GDP ratio has risen to 180 percent.At the heart of Greece’s economic collapse has been the application of draconian budget austerity within a Euro straitjacket. That straitjacket has precluded exchange rate depreciation or the use of an independent monetary policy as a policy offset to the adverse impact of budget belt-tightening on aggregate demand. To its credit, the IMF has conceded that in designing its economic program for Greece it had grossly underestimated the size of the Greek fiscal multipliers.
If you are looking a newsier explainer, this from Mashable’s Heidi Moore is a good one.
Links and Quotes for June 26, 2015: Gay marriage, Obamacare, charter schools, Social Security, and more
View related content: Pethokoukis
All worth reading:
Supreme Court Rules Gay Marriage Is a Nationwide Right – Wall Street Journal |
Q&A on the Supreme Court’s Health Care Ruling – Goldman Sachs |
— The US Supreme Court upheld the Obama administration’s interpretation of the Affordable Care Act (ACA). This resolves most of the uncertainty regarding the subsidies under the law, though a few less significant legal challenges continue to work their way through the system. Congress looks unlikely to make any significant changes to the ACA this year, though a few smaller changes, like repeal of the medical device tax, are possible.
— While there was some uncertainty regarding the outcome of today’s ruling, we do not expect it to lead to the same kind of rise in health employment that the resolution of uncertainty may have spurred in mid-2014. That said, continued strength in health employment and consumption seems likely.
Conservatives Should Be Happy About Losing King v. Burwell – Reihan Salam | “Should conservatives advance their own plan for achieving universal access to affordable health coverage, as some Republican reformers insist? Or should they focus first and foremost on shrinking the size of the federal government, even if it means reducing the number of Americans with affordable coverage? My own view is that there is no going back to the pre-Obamacare status quo and that if conservatives fail to address the anxieties of the uninsured, liberals will be more than happy to do so in their own government-expanding, command-and-control fashion. No Supreme Court decision will spare the right from actually having to duke it out over which approach is best. But the court did, on Thursday, give conservatives an opportunity to think hard about how badly we’ve botched the fight against Obamacare, and what we need to do next.”
The Affordable Care Act Lives On, But Still Looking for A Few Good Business Models – Spencer Nam | “Because disruptive innovations are the only type of innovations that make a product or service more affordable and accessible, it is safe to say that disruption may hold the key to health care’s most difficult questions.”
Reflections on an Extraordinary Decade of New Orleans School Reform – Rick Hess | “The lesson is not that the successes in New Orleans can’t be replicated. It is that the Crescent City’s success has been largely a product of circumstances, strengths, ingenuity, and persistence—and that simply declaring elsewhere that the goal is “to do what worked in Nola” misses just about all of that.”
Protecting Working-Age People with Disabilities: Experiences of Four Industrialized Nations – Richard Burkhauser, Mary Daly, Nicolas Ziebarth | “While it is always the case that tightening the criteria for disability benefits runs the risk of denying disability benefits to those who will not be able to find work, on balance the EU experience suggests that reasonable pro-work policies will both substantially reduce disability recipiency rates and increase the employment of those who would otherwise have been on the long-term disability rolls.”
Social Security Is the Titanic Headed For the Iceberg – Andew Biggs | “How hard is it to make Social Security solvent without cutting benefits? So hard that even Independent Sen. Bernie Sanders, who is now running for the Democratic Presidential nomination, can’t do it. Sanders’s reform proposal would eliminate the $118,500 cap on wages subject to payroll taxes, which would effectively raise the top federal income tax rate by 12 percentage points. Sanders also would, for the first time, apply Social Security taxes to investment income. But despite tax increases far larger than those President Obama was able to enact, Sanders’ plan still falls decades short of the traditional goal of making Social Security solvent for 75 years. Even if the Sanders plan passed, today’s young Americans would receive less than 90 percent of their promised Social Security benefits.”
View related content: Pethokoukis
Have a look, dear reader:
Roberts rules wrongly – National Review editors | “A ruling that the administration had exceeded its lawful authority would not necessarily have led to better health-care policy or a smaller government. It would not, by itself, have repealed Obamacare. That means that the contrary ruling is not a defeat for free-market health care or limited government. What it is a defeat for is the rule of law.”
Obamacare ruling may have just killed state-based exchanges – Margot Sanger-Katz | “Now, with the Supreme Court ensuring that every state’s consumers will have equal access to federal subsidies, it is becoming clear that more of those states will revert to a federal system for enrolling people in health insurance.”
Republicans need an Obamacare alternative now more than ever – Philip Klein | “If Republicans go back to hibernation mode on healthcare after this decision, it will guarantee that the next round of reform will once again wait until Democrats can reclaim power. No matter how much Republicans blame Obamacare for the nation’s healthcare problems, Democrats will argue that the problem was that Obamacare didn’t go far enough — that it allowed private insurers, drug companies, and medical providers to retain too much power — making further government intervention necessary. The only way for Republicans to avert this outcome — and to make sure that the next round of healthcare reform is fought on their terms — is to lay out a detailed vision for market-based system, and to spend the next election doggedly making their case.”
The wait-for-Google-to-do-it strategy – James Surowiecki | “If Google didn’t have such a dominant position in search and online advertising, giving it the resources to make big investments without any requirement of immediate return, Google Fiber wouldn’t have happened. And if Google’s leadership weren’t willing to make big long-term investments in projects outside the core business, or if the company didn’t have a dual-share structure that preserved its founders’ power and somewhat insulated its executives from Wall Street pressure, gigabit connections would more than likely be a fantasy in the United States today. As Levin puts it, “We got fortunate that a company with a real long-term view came into this market.” It might be good to design technology policy so that next time around, we don’t need to get so lucky.”
Innovating fast or slow – Izabella Kaminska | “But if there was one core takeaway from the evening’s discussion it was Bill Gates’ adamant stance on the pace of innovation, which he described as currently taking place at its fastest rate ever. All this, he suggested was leading to a ‘supply-side miracle’ with hugely deflationary consequences for the global economy as a whole.”
How Uber takes over a city – Karen Weise | “The success, says Justin Kintz, Uber’s head of public policy for North America, is “a tale as old as time—it’s the power of the people.” It’s also a tale about the power of backroom lobbying. Although Uber promotes itself as a great disrupter, it’s quickly mastered the old art of political influence. Over the past year, Uber built one of the largest and most successful lobbying forces in the country, with a presence in almost every statehouse. It has 250 lobbyists and 29 lobbying firms registered in capitols around the nation, at least a third more than Wal-Mart Stores. That doesn’t count municipal lobbyists. In Portland, the 28th-largest city in the U.S., 10 people would ultimately register to lobby on Uber’s behalf. They’d become a constant force in City Hall. City officials say they’d never seen anything on this scale.”
Too much finance, or statistical illusion? – Wiliam Cline | “The recent studies’ finding that “too much finance” reduces growth should be viewed with considerable caution. Th e reason
is that there is an inherent bias toward a negative quadratic term in a regression that incorporates financial depth, or any other variable that tends to rise with per capita income, along with the usual convergence variable (logarithm of per capita income) in explaining growth. That the results may well be unreliable is demonstrated here by finding a statistically significant negative
quadratic term in equations that “explain” growth by spurious influences: doctors per capita, R&D technicians per capita, and fixed telephone lines per capita. In some situations, finance can become excessive; the crises of Iceland and Ireland come to mind. But it is highly premature to adopt as a new stylized fact the recent studies’ supposed thresholds beyond which more
finance reduces growth.”
Since 2003 the Bureau of Labor Statistics has been measuring the time individuals allocate among different daily activities in a program called the American Time Use Survey (ATUS). Before the recession, individuals who worked at all worked an average of 7.56 hours a day (or about 37.8 hours per week). In the recession, the average workweek in the ATUS declined, as it did in other measures. However, since the recession, hours worked in the ATUS recovered and then surpassed their prior peak, to reach 7.73 hours a day last year (or about 38.7 hours a week, almost an hour per week above the pre-recession average). In contrast, average weekly hours measured in the establishment survey are basically unchanged from their pre-recession level (this is true whether looking at the all-worker or production worker series). …The discrepancy may be due to the usual statistical slippage that occurs when the same thing is measured twice, or it may be due to the new economy way of working: technology can tether one to the office every minute of the day and in every place, regardless of whether the employer pays for that degree of connectedness. This matters because productivity — which is output divided by hours worked — is essentially measured by using working hours from the employers’ perspective. If instead we measured hours worked from the employees’ perspective we would find a larger increase in hours worked recently, and consequently even lower growth in productivity.
View related content: Pethokoukis
Not a fan of “free college” or a “public option” for higher education. Changing who directly pays for college doesn’t change how education is delivered and at what cost. “Free college” might also crowd out innovation being generated by private colleges developing new models. Finally, the goal isn’t just college attendance, it’s college completion. Over at the Brookings social mobility blog, “free college” proponent Timothy Ready writes about the college completion issue for students benefiting from the Kalamazoo Promise, which guarantees scholarships to Michigan public colleges for public high school grads in Kalamazoo, Michigan. Ready:
A recent comparative analysis of social mobility found that Kalamazoo County has lower social mobility for poor children than more than four-fifths of all U.S. counties. While this analysis was based on data that predate the launch of the Promise, there is little evidence —yet — that the Promise has influenced rates of social mobility. Kalamazoo graduates from the class of 2012 are more likely than their counterparts statewide to have enrolled in college.
Remarkably, there is little difference in enrollment rates by race or economic status: This looks like good news: and it is. But the news is less good when it comes to completion rates and by comparison to general trends. Kalamazoo high school graduates were little, if any, more likely than their counterparts statewide to have earned 24 college credits within sixteen months of graduating from high school. White students were about twice as likely to have earned 24 credits than black students, as were middle class students compared to the economically disadvantaged. … Free college tuition is certainly a key component of any effort to reduce inequality of opportunity in Kalamazoo. But by itself, it is insufficient.
Supreme Court upholds Obamacare subsidies. Where do Republicans go from here, other than summer vacation?
The long-awaited decision is in.
The U.S. Supreme Court ruled the Obama administration can continue to subsidize health-insurance purchases by lower-income Americans across the country, a decision that preserves a centerpiece of the Affordable Care Act. The ruling marks the second time President Barack Obama’s signature domestic policy achievement has survived a near-death experience in the courts, and leaves the law on a firmer footing for the remainder of his time in office. The court ruled contested language in the 2010 health-care law allows the administration to offer subsidies in the form of tax credits to people in all states, including those who buy health coverage on the federal insurance site HealthCare.gov.
The Supreme Court ruled on Thursday that President Obama’s health care law may provide nationwide tax subsidies to help poor and middle-class people buy health insurance. Chief Justice John G. Roberts Jr. wrote the majority opinion in the 6-to-3 decision. The court’s three most conservative members — Justices Antonin Scalia, Clarence Thomas and Samuel A. Alito Jr. — dissented.
The U.S. Supreme Court upheld the nationwide tax subsidies that are a core component of President Barack Obama’s health-care law, rejecting a challenge that had threatened to gut the measure and undercut his legacy. The 6-3 ruling is the high court’s second in three years to preserve Obamacare in the face of Republican-backed legal attacks. It averts a collapse in state insurance markets and lets millions of Americans keep using federal tax credits designed to make policies affordable. Chief Justice John Roberts and Justice Anthony Kennedy joined the court’s four Democratic appointees in the majority. They said the 2010 Affordable Care Act allows tax credits in all 50 states, not just the 16 that have authorized their own online insurance exchanges.
The Supreme Court cemented President Barack Obama’s signature achievement on Thursday by affirming that the Affordable Care Act intended to help all Americans who need help paying for their insurance. In their 6-3 majority in King v. Burwell, the justices ruled that Americans are eligible for subsidies regardless of whether their state set up its own exchange. The result preserves premium assistance for 6.4 million customers in the 34 states that rely on the federal marketplace. On a practical level, it also preserves the mandate, at the center of the law and of its controversy, that every American buy health insurance.
If you were going to boil the decision down to two sentences, it would be this one from Roberts, writing for the majority: “Congress passed the Affordable Care Act to improve health insurance markets, not to destroy them.” And this one from Antonin Scalia: “We should start calling this law SCOTUScare.”
Looks like opponents won’t win in court, so they will have to win at the ballot box if they continue to seek total repeal or substantive change. But the odds of that happening just dropped. As Philip Klein wrote for Bloomberg:
The U.S. Supreme Court is expected to decide by late June whether millions of Americans in three dozen states are benefiting from illegal health insurance subsidies. If the justices invalidate those subsidies, Republicans must have a free-market alternative waiting in the wings. Otherwise, there will be tremendous pressure on Congress to pass a “fix” allowing existing benefits to continue. Obamacare will be entrenched before Republicans even get a chance to retake the White House.
The entrenching continues apace. But reform seems a more likely outcome and fruitful path forward and should be considered. One promising venue was highlighted on Twitter, moments after the ruling, by my pal Derek Khanna: “Since SCOTUS has upheld Obamacare again, GOP should respond w/: “How to use tech & innovation for cheaper, faster & better healthcare.”
But innovation can also improve Obamacare itself. Let me again refer to “Seize the ACA: The Innovator’s Guide to the Affordable Care Act“ by Ben Wanamaker and Devin Bean of the Clayton Christensen Institute as possible blueprint for reform: ” … where provisions of the ACA discourage disruptive innovation—namely, Insurance Exchanges, Essential Health Benefits, Cost-Sharing Requirements, Medical Loss Ratio, and Medicaid Expansion—we appeal to policymakers to focus their efforts on making the legislation more innovation-friendly.”
But there are other reform ideas out there that assume Obamacare will continue to exist in more or less its basic structure. Center-right policymakers must actively pursue and develop them. As Peter Suderman writes in Politico, “Obamacare, in other words, was ClintonCare’s second act—the culmination of more than 15 years of work and consensus building. To put it another way: Republicans never started working on health policy; Democrats never stopped.”
View related content: Pethokoukis
R Street’s Eli Lehrer in National Affairs explains the mechanics of tax swap involving a carbon tax:
For example, at $20 to $25 per ton, a carbon tax could raise enough money to eliminate the entire employee portion of the Medicare payroll tax or to reduce statutory corporate b income-tax rates to around the OECD average (America’s statutory corporate tax rates are currently the highest among wealthy OECD nations). This swap would work even while preserving most existing tax credits. As a political strategy, it is crucial that carbon-tax proponents on the right insist on pure revenue neutrality. Even agreeing to spend a few dollars on some genuinely worthy purpose like deficit reduction or a smart grid would open the floodgates to turning the carbon tax into a pork-filled mess similar to the unsuccessful Waxman-Markey bill pushed by the Obama administration.
A carbon tax isn’t perfect tax policy, and policymakers will have to pay careful attention to the specifics of its design. Most important, an effective carbon tax would have to replace almost all other mechanisms used to control CO2. Policymakers should start by revoking the Environmental Protection Agency’s authority to regulate CO2 emissions. The Supreme Court may have ruled that the Clean Air Act essentially requires the EPA to regulate CO2, but that doesn’t mean this regulation is a good idea. The pollutants that the authors of the Clean Air Act had in mind—things like sulfur dioxide and nitrogen dioxide—are intrinsically harmful to human health in a way that CO2 is not.
What’s more, those pollutants are emitted by a reasonably small number of facilities, have almost all of their effects in the local area where they are emitted, and tend not to stay in the atmosphere for long periods of time. The strategies needed to control them are thus quite different from those appropriate for controlling CO2. Even Waxman-Markey recognized this and suspended the EPA’s authority temporarily. A carbon-tax swap should do so permanently. A number of other regulations around energy efficiency, such as Corporate Average Fuel Economy (CAFE) standards for automobiles, might also be done away with as part of carbon-tax implementation. Many restrictions on extracting resources, likewise, could largely be done away with since the carbon price would also factor in many of their costs.
Indeed, some folks at AEI have also looked at the possible role of a carbon tax in tax reform. But the problem here is that plenty of folks on the right disagree with this statement by Lehrer at the end of the piece:
Climate change is real, human caused to a significant extent, and likely to pose some real problems. While near-apocalyptic nightmare scenarios do not seem likely, even they should not be completely ignored.
If you don’t think there is a problem or a potential problem — I do, by the way — then not much need to think up clever solutions.
Republican tax policy, as least when politically successful, has been a combo of (a) supply-side, top tax rate cuts to spur growth by changing incentives to work, save, and invest and (b) direct tax relief to immediately increase take-home pay.
Ronald Reagan didn’t cut just top marginal tax rates. Nor did George W. Bush.
So it is profoundly odd that Marco Rubio’s tax plan co-authored with Mike Lee is viewed by some as abandoning party orthodoxy or even Democrat-lite because it would expand the child tax credit (also strengthening families and helping parents invest in their kids), a point Ramesh Ponnuru makes in his new National Review piece. Lee-Rubio is, however, not a flat tax. Nor does it prioritize deeply cutting top personal income tax rates. In those two significant ways, what Rubio is offering is different than the plans being offered by some other GOP presidential candidates.
Still, the plan’s proposed top rate of 35% is six percentage points lower than the average top rate of 41% that existed during the 1983-2007 Long Boom. Oh, and it also completely eliminates investments taxes and radically transforms the corporate tax code. So pretty growthy. In the piece, Ponnuru offers a tax-policy reality check and some myth busting to those pushing really deep cuts to top personal rates:
Some supply-siders argue that Lee-Rubio should have proposed bringing the top tax rate still lower, which would do more to improve incentives to work, save, and invest, and thus encourage growth. The Wall Street Journal prefers Christie’s top rate of 28. But this lower rate would not be likely to have a large economic effect. First, we should expect diminishing returns. When Reagan cut the top rate from 70 to 50, the after-tax return on a dollar earned rose 67 percent. Cutting the top rate from 35 to 28 would raise it only 11 percent.Second, Republicans have repeatedly overestimated the growth effects of income-tax rates – predicting a bust when Clinton raised taxes and a boom when George W. Bush lowered them. Neither occurred, and in fact growth rates were better under the higher Clinton income-tax rates than under the lower Bush ones. Any positive effect of lower tax rates on growth are small enough that other factors can overwhelm them.Third, it’s not clear that getting the rate on high earners so far down is politically realistic. A tax package that combined some reduction in the top rate with tax cuts that directly benefited the middle class would almost certainly stand a better chance of enactment. That is, after all, how such tax-rate reductions have been achieved before.
Not that Lee-Rubio is perfect by any means. But it is trying to address the right issues: How to boost growth, and how to make sure the fruits of that growth are broadly experienced in the modern American economy. I would be fine with just dropping the top personal rate a point or two (if only to signal opposition to letting rates drift ever higher), reducing rather than eliminating capital gains taxes, doing deep corporate reform, expansions to the child tax and earned income tax credit to boost working class and lower-income paychecks … and then all the other things — education, regulation, entitlements, public investment, immigration — necessary for a diversified, total-return, economic growth portfolio. I guess I would like more boldness on that other stuff, and a bit less on taxes. And no red ink.
The U.S. is still regarded as the top economic power, even more so than last year, but most people around the world continue to believe that China either will eventually replace or already has replaced the U.S. as the world’s leading superpower. A median of half across the countries surveyed say that the U.S. is the world’s leading economic power, while only 27% say that of China. While a median of only 14% say China has already replaced the U.S. as the top superpower, majorities or pluralities in 27 of 40 countries say China will eventually become or has already replaced the U.S. as the top superpower.
The economic dynamism generated by democratic capitalism is a key element of the American Project’s persuasive power. But there are other models, such as China’s state-directed capitalism conjoined with an authoritarian state. Years of very fast Chinese growth and relative US stagnation have made China look like the strong horse to many — especially those not-so-interested in democracy. “I have seen the future, and it’s capitalism with Chinese characteristics!” The Beijing Consensus. As the Economist put it back in 2011:
Too many people—not just third-world dictators but Western business tycoons—have fallen for the Beijing consensus, the idea that state-directed capitalism and tight political control are the elixir of growth. In fact China has surged forward mainly where the state has stood back. “Capitalism with Chinese characteristics” works because of the capitalism, not the characteristics.
But now China is slowing, perhaps sharply. And while the US path to dynamism means rediscovering and returning to its strengths, China must do what it has never done before. AEI’s Derek Scissors on the challenge:
In 1978, China began to grant limited private property rights and to permit limited competition. These steps helped create an economic miracle, among other things lifting 850 million people out of poverty over a generation. But for more than a decade now, the Communist Party has chosen not to move forward on private property rights and competition, instead emphasizing an unprecedented amount of state-directed spending. The result is a severely damaged environment, an unbalanced economy, and a painful debt burden.
This is not hindsight. The stagnation path was visible six years ago, when China choose to massively expand credit in response to the financial crisis. Weaknesses in the economy can be traced back to policies initiated six years before that, in 2003. Because the fault lines have been developing for some time, they will require years of difficult reform to address. The current government has pledged such reform but largely lacked the nerve to initiate it, much less sustain it. The single most likely result is that China will share the fate of many other economies and fall far short of being wealthy.
So the good news about “bamboo capitalism” is that if it does transform China into a dynamic, innovative economy with a high degree of competitive intensity, it means China itself has probably adopted a lot more of the economic freedoms that American prosperity is built upon. We’ll see what those surveys say five or 10 years from now.
Glenn Hubbard and Kevin Warsh outline how the US economy might reach that 4% GDP growth goal Jeb Bush has been talking about (via the WSJ):
The average growth rate was 4% or higher 17 times in the rolling four-year periods since 1950. It can reach that goal again. But it won’t be easy, and it will require a fundamental change in the conduct of economic policy. …
Short-term policies such as temporary tax and spending changes that have characterized the recent years should be set aside in favor of longer-term tax reform and removal of other barriers to economic growth. This means policies that bring more people into the workforce. It means encouraging real capital investment to drive higher levels of productivity growth. It means resetting long-run expectations of potential for every individual, household and business. It means making the United States the best place in the world in which to invest and work.
Examples? Fundamental tax reform that is directed at increasing the incentives for work and driving investment in productive assets. Real regulatory reform that firmly and consistently recognizes, measures and balances economic benefits and costs—and no longer protects incumbent firms from disruptive new competitors. Tax and regulatory reform can make the United States the preferred destination for work and investment.
Trade policies must continue to break down non-tariff barriers to open global markets. Education policy must be geared toward empowering schools to put students and the skills they need above entrenched interests. And support for training can foster investment in skills over time. When the right policy choices are made, monetary policy could get out of the business of trying to bail out the economy from the failings of other macroeconomic policies.
As Hubbard and Warsh say, it won’t be easy. ( I discussed this in my recent The Week column.) And, again, this McKinsey chart suggests the scope of the challenge:
By the way, Jon Hartley has an interesting take on the 4% growth goal over at Forbes.