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Category: public policy

Published on Leave a comment on Public Education Reform in the Presence of Monopolies

Via Ezra Klein and Mark Thoma, I am directed to a very good post by Kevin Carey at The Quick and the Ed on the relevance of teacher's unions to fixing the problems in public schools. I'll first take issue with a theme that emerges in the commentary, expressed by Mark as:

Public schools in higher ranked socio-economic areas do very well, even with unions present, so I don't think unions are the major issue.

The statement is worded so loosely that I can't really falsify it. However, the issue is not whether a union is present but whether the union's presence is a binding constraint on improvements to the educational system. In higher socio-economic areas, there are far fewer underlying challenges to the educational system and thus fewer opportunities for the union's pursuit of its own interests to interfere with addressing those challenges. The appropriate counterfactual to consider is whether the public schools--whether in higher or lower ranked socio-economic areas--would do even better in the absence of unions. The answer can certainly be "yes" if the unions were using their monopoly power to constrain the behavior of other stakeholders in the system.

But the monopoly that's relevant is not primarily the teacher's union, it is the monopoly of the school board over the educational choices of the families in the area (which itself may facilitate the unionization of the labor force). Of the several elements that characterize the public schools in my town:

I do not object to the generally progressive manner in which educational funds are raised within the district. We have a local property tax. In this community, the value of the house is a pretty close analogue of permanent income. (I don't necessarily advocate property tax funding more generally given the disparities across districts, but that's a different matter.)

I do not object to the use of some of those monies to run our highly regarded public schools that my children could attend without additional payments from K-12.

However, I strongly object to the constraint that all of these monies go into just these three schools (covering K-5, 6-8, 9-12). I have no choice of provider if my views of the best educational program for my children are at odds with those of the school board, acting on behalf (hopefully) of the other members of my community. I don't begrudge them their views, but I simply may not share them. I don't see why I should have to forfeit all of the tax monies that would be spent on my children's behalf to put them in private schools.

The money that is allocated to my children's education--not the tax money I pay--should follow the children rather than being constrained to be spent only at the government-run schools. That's the key monopoly problem, whether in high-ranked socio-economic areas like mine where additional expenditures are a desirable luxury good or in more disadvantaged areas where the consigning of low-income students to poorly performing schools is catastrophic. If the money followed the children, then multiple providers would compete, and members of the community could be better served by that diversity.

I may post more on implementation of such a system at a later date.

Published on Leave a comment on Achieving Universal Health Insurance
If I had to come up with the basis of a plan to achieve universal health insurance coverage, here is what it would be:

1) All people under age 65 would be presumed to be enrolled in Medicaid unless they show on their tax return that they have coverage elsewhere. Premiums for Medicaid coverage would start out at zero for those with the lowest incomes and increase with income to some multiple of the poverty level, after which the premium is high enough so that there is no taxpayer subsidy. The premium is collected on the annual tax form. That's universal health insurance as a base.

2) On a state-by-state basis, all people under age 65 would have the opportunity to enroll in the plan that is offered to state employees. It is not clear whether this would increase or decrease per-participant costs in the plan. Higher per-participant costs would have to be made up by the taxpayers. The purpose of this buy-in option is to give middle class workers access to a more generous plan than Medicaid if they pay (most or all of) the additional costs.

3) Those nearing age 65 (say 55 - 64) would be able to buy into Medicare (Parts A, B, and D together). This is reminiscent of the Clinton Administration's plan. However, the premiums would be set so that there is no taxpayer subsidy (not even for Parts B & D).

4) As a matter of law, private insurance contracts would not be permitted to discriminate based on pre-existing conditions.

5) Employers who sponsor a health insurance plan would have to offer the plan to all workers.

6) Premiums paid to all of these options would have the same tax treatment (preferably modified as I have previously discussed).

I think that the virtues of this plan are that it achieves the objective of universal coverage with minimal external funding and without eliminating choice and thus the possiblity that competition could lead to better outcomes for consumers. I expect the private group and individual markets to shrink but not to disappear. It's also a bit simpler than other plans that have been proposed.

Published on Leave a comment on Getting There Was More than Half the …

For my second to last post about our trip to Hawaii, I wanted to point out something about energy consumption and CO2 emissions that I had not previously appreciated.

We flew from Boston to San Francisco (2704 miles) and then San Francisco to Honolulu (2398 miles), for a total of 5102 miles each way or 10204 miles total. How much fuel did we use (assigning us our per capita share for the plane as a whole)?

This page cites an FAA estimate of 48 miles-per-gallon-per-seat and notes that a gallon of jet fuel and a gallon of gasoline create about the same amount of CO2 emissions. This means that as a family, our share of the fuel used was about 4 x 10204 / 48 = 850 gallons. Let's compare that to two other fuel numbers around the Samwick household.

First, I estimate that we drive our cars no more than 1000 miles a month on average and get at least 20 miles per gallon on average, resulting in gasoline consumption of no more than (12 x 1000 / 20) = 600 gallons per year.

Second, we have used about 1100 gallons of #2 fuel oil to heat our home in each of the past few years. (What can I say, we like to be comfortable?) This page shows the CO2 emissions by fuel type, putting the fuel oil on a par with jet fuel, which are both a bit higher than gasoline.

One (glorious) trip to Hawaii used 75% of the fuel we use to heat our home or 140% of the fuel we use to power our cars, with corresponding amounts of CO2 emitted.

As it pertains to energy and environmental policy, this example shows how important it is to be comprehensive in our attempts to reduce oil demand. The most straightforward way to do that is to levy a tax on all fuel products derived from petroleum. It allows abatement to occur at every possible margin--by flying, driving, or heating less or by using technologies that are more fuel efficient.

Published on Leave a comment on Does the Senate Have Any Bite, or Is It All Bark?

As I posted a couple of weeks ago, Continental and American did an end run around compromises reached in the pension reform legislation last year. In his column yesterday, Jeffrey Birnbaum reports that the Senate Finance Committee is not happy about it:

The top brass at the Senate Finance Committee are incensed over a legislative end-around engineered by American and Continental airlines. The airlines used their contacts with the Democratic leadership in Congress to sneak into the Iraq war spending bill a provision that will reduce the payments they have to make to their workers' pension plans, a move that will save them millions.

The Finance Committee's senior members are not pleased. They have asked the airlines' chief executives to explain themselves and are warning that theirs may well have been a Pyrrhic victory.

"These two airlines flew around the Finance Committee to get this pension provision in the spending bill, but we will review, in the light of day, exactly what deal they got," Chairman Max Baucus (D-Mont.) said ominously.

"The committees of jurisdiction spent many months working on a pension bill that took each airline's status into account," added Sen. Charles E. Grassley of Iowa, the panel's ranking Republican. "These two airlines and their allies in Congress have undermined that work."

In other words, flyboys, you've made some powerful foes.

Really? I'll believe it when I see it. If the Senate Finance Committee is incensed, then there is nothing that prevents Baucus and Grassley from introducing new legislation to undo the end-around and building the support to pass it. There may yet be hope for the Senate if they do.

Published on Leave a comment on Quiet Discussions of Social Security Reform

An article posted yesterday to CNNMoney.com by Nina Easton reports on some quiet policy discussions about Social Security reform between two unlikely but well placed collaborators:

WASHINGTON (Fortune) -- Picture this: A rotund, theatrical politician from Harlem and a wiry, introverted policy-wonk from Shreveport sitting elbow to elbow on the House floor, shuffling between each other's offices, passing paper between staffs. Two men from opposite ends of the political spectrum, they are joined in secrecy on a project that just about everyone else in Washington considers doomed to failure. Charlie Rangel and Jim McCrery are on a mission to rescue Social Security from bankruptcy.

Conventional Washington wisdom long ago wrote the death notice on Social Security reform. What Republican would want to touch a project that blew up in George Bush's face just two years ago? What Democrat would risk frightening senior citizens when party leaders are hoping they'll be passing out tickets for Inaugural Day, 2009?

But McCrery, a conservative, and Rangel, a liberal, are willing to take the heat because they actually believe in the old-fashioned notion that if lawmakers offer serious solutions to serious problems, Congress' miserably low standing in public opinion doesn't have to be permanent. "I think it's important for the institution to reform Social Security," McCrery tells Fortune. "The public's opinion of the federal government right now is as low as it's ever been in my lifetime. And that's dangerous, because we have big problems to solve. And if we don't have political capital with the public, we can't solve those problems. We need public support to solve Social Security, Medicaid, Medicare, healthcare." "Social Security is the easiest one, so let's start there," he adds. "Let's build some capital and show we can work together, and get big things done."

The Rangel-McCrery conspiracy matters only because these two men are, respectively, the Democratic chairman and the ranking GOP member of the powerful House Ways and Means Committee, ground zero for matters ranging from tax and trade policy to entitlement reform. Quietly, and over the course of the past three months, the two men have been meeting alone and with staff to hammer out a compromise plan. "We're not there yet," says Rangel, even as he makes clear - as a self-described "old poker player from Harlem" - that he's betting on a breakthrough.

The article goes on to reference the demise of the immigration bill as a cautionary tale for this sort of left-right pairing of legislators on big issues. But because of their status on the Ways and Means Committee, this is the pair that would have to get the process started. Let's hope they get a good foundation for the bill, with the opportunity for the rest of the legislators to do their jobs as well.

Published on Leave a comment on If You Ever Wanted a Reason for a Line Item Veto …

... now you have it. From the Review and Outlook in today's WSJ:

Pension Crash Landing
May 29, 2007; Page A14

When Congress passed a broad pension reform last year prodding companies to get their retirement programs in order, it seemed too good to be true. Now we know it was.

That's the lesson of an amazing bit of corporate welfare the Senate tucked into the Iraq war supplemental last week. Last year's bill included a hard-fought political compromise: Carriers that agreed to a "hard freeze" of their pension plans would be allowed to use a higher interest rate in calculating their plans -- which would reduce their net liabilities. The idea was to discourage airlines from buying union peace by running up their pension tabs, which they might later dump on taxpayers. A few airlines, such as Northwest and Delta, took this medicine.

Their competitors, namely American and Continental, headed back to the Beltway and last week their lobbying blew apart last year's compromise. Under the Senate's backroom fix, the airlines can use a higher interest rate even if they promise higher pension benefits. The airlines claim this is about "leveling the playing field," which makes little sense because American and Continental could have accepted the same rules all along. This is about giving those two a competitive advantage over other airlines that have already agreed to play by the reform rules.

The taxpayer-backed Pension Benefit Guaranty Corp. is obliged to bail out any company that can't meet its pension obligations, so there is once again little reason for these airlines to practice any pension restraint. The PBGC conservatively estimates that this airline fixeroo will result in an additional $2 billion in underfunded pension obligations over the next 10 years.

No Senator is taking credit for this pension earmark, though we'd note that both Continental and American hail from the great state of Texas. Meanwhile, the architects of the provision were nothing if not clever; by including this in a war supplemental, they made it veto proof.

This is simply unbelievable. When even good legislation is undermined by backroom dealing, it shows a corrosive lack of seriousness on the part of the legislature itself. I think this bumper sticker sums it up pretty well.

Published on Leave a comment on Congestion Pricing in Manhattan

I applaud Mayor Bloomberg for proposing congestion pricing in Manhattan as part of his Earth Day initiatives, patterned after a similar system in London. From The New York Times on Sunday:

The proposal that is sure to attract the most attention, and possibly objections, is one to impose the $8 fee on car drivers, and $21 for truck operators, to drive in Manhattan south of 86th Street.

The mayor said congestion on the city’s streets is the source of many of the city’s health, environmental and economic problems.

“We can’t talk about reducing air pollution without talking about congestion,” he said.

“As our city continues to grow, the cost of congestion to our health, to our economy and to our environment are only going to get worse,” he said. “The question is not whether we want to pay, but how do we want to pay — with an increased asthma rate, with more greenhouse gases, with more wasted time, lost business and higher prices. Or do we charge a modest fee to encourage more people to take mass transit.”

The fee the mayor is proposing would only be imposed during the week, between 6 a.m. and 6 p.m.. And motorists driving the major highways along Manhattan’s east and west sides would not be fined, so it would be possible to go from Brooklyn to Harlem along Franklin D. Roosevelt Drive without entering the zone.

The article contains other information about the implementation that suggest that it has been reasonably well thought out. But this doesn't stop the critics from making a raft of self-serving claims. Let's take a look at a few:

State Assemblyman Richard Brodsky said he opposed the mayor’s proposal for a congestion fee because it is a regressive tax.

“The middle class and the poor will not be able to pay these fees and the rich will,” said Mr. Brodsky, who is chairman of a committee that oversees the Metropolitan Transportation Authority. “There are a lot of courageous things in the mayor’s package, but this one is not very well thought out.”

According to this logic, all prices for services not linked to income are regressive, since the rich can more easily pay them than the poor. It might technically be true, but it isn't particularly helpful. Besides, when I go to Manhattan, I see the middle class and the poor on the subways and buses, not their own cars.

Here's some more, of the more nakedly self-serving variety:

Clayton Boyce, a spokesman for the American Trucking Association, a national industry group, told The Associated Press, “It will be a real problem for operations for trucking companies and shippers, including all the retailers in Manhattan, which is substantial.”

“And all the people who get FedEx and UPS deliveries will have problems and will bear extra expense, so we definitely see problems with it,” he said.

It's time to give Mr. Boyce a refresher course in microeconomics. Start by considering what his answer might have been last week to the question, "What is the biggest problem your industry faces in providing excellent service to lower Manhattan?" Based on what I've seen on those streets, my answer would have been "congestion." So the mayor has proposed to tax the thing that has been encumbering the trucking industry, and its spokesman is complaining because his clients will need to pay the tax in proportion to the congestion they cause.

Think of it by the numbers. How many packages are on the typical FedEx truck in Manhattan? If it were 210, then the extra expense would be a dime per package. That's trivial. How does $21 compare to the total value of each truck's cargo in a given day? It has to be tiny. And look at what the FedEx truck drivers get in return--fewer passenger cars clogging up the city streets where they need to make pickups and deliveries. They waste less time and less gas. It doesn't take much abatement of that wasted time and gas to make back the $21 per truck. The trucking industry should be this proposal's biggest supporters.

Published on Leave a comment on Is Labor Now the Mobile Factor?

David Jackson reports in USA Today that President Bush is making a visit to Arizona to tout his proposal for a guest worker program. I get as far as the fourth paragraph before getting bent out of shape:

The president said measures must be taken to protect the border from immigrants who come over with impunity; but he said there also needs to be an organized system to accommodate workers who are doing jobs Americans refuse to perform.

There are no jobs that Americans refuse to perform. There may be jobs that Americans refuse to perform at the prevailing wage rates. This simply means that the wage rates should rise and the number of jobs should fall, until the number of jobs matches the number of people authorized to work in the country who are willing to perform them. If it turns out that with these higher prevailing wage rates, the employer can no longer operate at a profit, then the employer should cease operations--or relocate to a place where labor and other costs are sufficiently cheap as to allow a profitable business. The "organized system" that accommodates this is simply a free market and enforcement of the most basic immigration laws.

When I was first learning economics, we always spoke of capital, not labor, as the mobile factor of production. Maybe something has changed. In the current environment, I would expect to see capital going south across the border with Mexico, drawn by the high returns available due to the large amount of low-wage labor. But that's not what we are seeing. We are seeing the labor cross the border--at considerable personal cost--to take the low-wage jobs and then send remittances back to Mexico. (Even in agriculture, where the land is obviously not mobile, I would be surprised if much of the agriculture in the Southwestern U.S. couldn't also be produced in Mexico. But there is nothing in the argument that requires the unskilled labor to work in agriculture or any particular industry.)

How bad must the environment for business and investment be in Mexico for the capital to stay here and the labor to cross the border?

Published on Leave a comment on Anti-Illegal-Immigration, Not Anti-Immigration

If you said the over/under on how much of a New York Times editorial I could was two sentences, then "under" was the smart bet. In something called an "Editorial Observer," Lawrence Downes begins:

Everybody said that the nation’s anti-immigrant fever was going to spread to Texas this year.

I am as much for border security as the next much-maligned conservative, but I (along with many of the rest of them) have nothing against immigrants. Our gripe is with illegal immigrants and those in the United States--whether employers or activist groups--who facilitate their entrance and permanence in the country. Failing to distinguish between legal and illegal immigration is a disservice to the debate about immigration reform.

The editorial goes on to discuss the alliance that has formed between pro-business Republicans and the pro-illegal-immigrant (my word) groups in favor of reforms that Downes describes as "that blend of border toughness and pro-immigrant fairness that Republicans elsewhere deride as 'amnesty.'" Money quote:

The story dates to last year. It has to do, as Megan Headley wrote in The Texas Observer, with pro-business Republicans realizing that anti-immigrant fervor “threatened to purge Texas of the workers that pluck chickens, build houses, and make some people very rich.”

There is nothing so sacred about plucked chickens or new homes or the wealth of those who employ illegal aliens in pursuit of their own riches that should condone the flouting of immigration laws. For more on immigration reform, read here.

Published on Leave a comment on The Knowledge Deficit

I read with some dismay the article, "Failing Schools See a Solution in Longer Day," in today's New York Times. The opening paragraph:

States and school districts nationwide are moving to lengthen the day at struggling schools, spurred by grim test results suggesting that more than 10,000 schools are likely to be declared failing under federal law next year.

It was some consolation that the various states are paying some attention to areas in greatest need and evaluation of the initial efforts. It was also some relief that one of the reasons for lengthening the day was to restore some balance to the curriculum:

Pressed by the demands of the law [No Child Left Behind], school officials who support longer days say that much of the regular day must concentrate on test preparation. With extra hours, they say, they can devote more time to test readiness, if needed, and teach subjects that have increasingly been dropped from the curriculum, like history, art, drama.

I think that dropping subjects like history, art, and drama is the way to worsen, not improve, reading skills. I was very persuaded by the ideas set forth by E.D. Hirsch in The Knowledge Deficit. In the very earliest grades, reading skills consist primarily of decoding words. Our schools do a decent job of that. In later grades, though, reading skills consist primarily of comprehension--understanding the meaning of what is read--on a wide range of topics. Our schools don't do a particularly good job of that. The review of the book in Publishers Weekly summarizes Hirsch's thesis very well:

Education theorist Hirsch decries a dominant "Romantic" pedagogy that disparages factual knowledge and emphasizes reading comprehension "strategies"—summarizing, identifying themes, drawing inferences—that children can deploy on any text. Such formal skills, he argues, are easily acquired; what kids really need is a broad background knowledge of history, science and culture to help them assimilate new vocabulary and understand more advanced readings. "Process-oriented" methods that apply reading comprehension drills to "vapid" texts waste time and slow kids' progress, Hirsch contends, and should be replaced with a more traditional, "knowledge-oriented" academic approach with a rich factual content.

In one part of the book, Hirsch describes the reading comprehension problem as follows. Suppose that you are confronted with a new paragraph in which you know the meaning of 90 percent of the words. You can reasonably be expected to guess the meaning of the other 10 percent from the context, and then it is possible for you to evaluate what's being presented in the whole paragraph. Suppose now that you are confronted with a new paragraph in which you know the meaning of only 70 percent of the words. It is much less likely that you will be able to guess the meaning of a full 30 percent of the words in the paragraph well enough to understand the ideas being presented. So, according to this theory, you make kids better readers if you expand their vocabularies, so that they are more likely to be in the 90/10 position than the 70/30 position (or worse).

Doing process-oriented reading drills on third-rate fiction is a less effective tool for teaching reading than listening to a good piece of non-fiction. Where do kids get that good non-fiction? History class. Art class. Science class. Even music class and drama class. Schools are not lacking for time--they are lacking for content.