RtG on the Safety Net

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The chapter is by Scott Winship.

rather than instituting work-promoting reforms program-by-program, there is much to be said for consolidating them, thoughtfully modifying phase-out rates to transparently encourage people [to] move to work, and offering supports outside the confines of specific programs.

As part of SNEP, I have a somewhat specific proposal that attempts to do this. Winship refers a proposal by Oren Cass that sort of sounds like mine, but as I look closer the resemblance seems to go away. You can read Reihan Salam’s write-up from last year on the Cass proposal.

As an alternative, Winship writes,

Congressman Paul Ryan, who chairs the Budget Committee, has spoken favorably of the United Kingdom’s “universal credit.” Under this approach, various means-tested programs would again be consolidated, and benefits would be distributed to families as a single amount rather than through separate programs with their own applications procedures and bureaucracies. A universal credit may be designed with a single phase-out schedule as beneficiaries move into work

Yes. I need to find out more about the British experience, which I understand ran into a number of implementation snafus.

Again, I raise the issue of coherence. The big enchilada of means-tested programs is Medicaid. If you going to have a coherent policy document, then you need to decide whether or not Medicaid reform is going to consist of folding into a universal credit. Instead, the chapter on health care reform talks about a completely different approach to Medicaid.

I want to see a policy playbook, and that means that the ideas have to fit together. Relative to that expectation, RtG comes across to me like a bunch of vendors standing outside the ballpark, all shouting. “Tax credits!” Getcher health care reform here!” “Gotta have higher ed reform!”

RtG on Education

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1. The K-12 chapter is by Frederick M. Hess.

Conservatives should broaden the implications of their intuition in favor of choice and encourage more choices within school curricula. These choices would allow families to better meet the needs of their children–through more robust foreign-language instruction, for instance in math, or the ability of home-schooled students to participate in school sports or electives.

When I said at the rollout of Room to Grow that I found it timid and tentative, this is the sort of thing I had in mind. I would prefer a bolder approach that is more focused on making it possible for entrepreneurs to compete in the education field. I think you have to regard as harmful any Federal funding that supports public schools rather than enabling alternatives to gain a foothold.

I have not through what these bold reforms might look like. How about prizes for achieving results? Maybe for getting students from disadvantaged backgrounds up to grade level. Maybe for enabling high-caliber students to win contests in math, science, or writing? Maybe for getting decent educational outcomes at very low cost?

2. The higher-ed chapter is by Andrew P. Kelly.

Rather than trying to hammer an antiquated accreditation system into something well suited to innovative ideas, policymakers should instead develop a new, parallel pathway to the market. The could mean a new accreditation agency that is designed to certify innovative programs (as Senator Rubio, among others, has proposed), or it could mean devolving accreditation to a new set of actors (like state governments, as Senator Mike Lee has proposed).

I agree that this is the important problem to solve.

RtG on Tax Reform

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The essay is by Robert Stein.

tax cuts for the middle class should be designed to offset the greatest fiscal-policy distortion that affects middle-class Americans: the disincentive to raise children caused by Social Security and Medicare.

…A recent tax reform proposal by Senator Mike Lee (R., Utah) would take a large step in this direction. He would keep the current $1000 child credit and the personal exemption for children, and a new credit of $25000 available to all taxpayers with kids, with no phase-out of the sort that applies to the current credit. The new credit could be used to reduce income-tax and payroll-tax liabilities: it couldn’t be used to increase refunds for those who have already used other credits (like the earned income credit) to reduce their tax bill to zero.

To help pay for the news larger child credit, Senator Lee would greatly simplify the income tax code, getting rid of all itemized deductions except for the mortgage interest and charitable deductions. He would also limit the deduction for new mortgages to $300,000.

1. The assumption is that people are thinking, “My retirement is taken care of. So I don’t need my children to pay for my retirement. So I won’t have so many children.” I would like to see some estimates of this effect. How large is it? I’m not even sure that it has the right sign (having your retirement taken care of might make you more willing to have children, because your finances are less uncertain).

2. Getting rid of itemized deductions and capping the mortgage deduction sound like good ideas. But I would rather use the revenue from those to reduce payroll taxes and thereby improve the labor market.

3. Meanwhile, in another chapter, written by Michael Strain, we find

The EITC is much more generous to households with children than to those without; in 2014, the most a childless worker will get from the EITC is $496, while a worker with three or more children will get up to $6143….we could increase the maximum size of the credit for a childless worker by a factor of six and the maximum credit for a worker with one child would still be larger. So policymakers should double or triple the credit available to childless workers, and fund the expansion by reducing tax benefits (like the mortgage interest deduction and the state and local tax deduction) that now almost exclusively benefit higher-income households.

I don’t mind so much that one author thinks we don’t subsidize middle-class parents with children enough and the other thinks that we don’t subsidize childless workers enough. But I certainly mind that each of them wants to use the same revenue source to fund additional subsidies.

One of the reasons that I am reluctant to have SNEP be a large group project or to think in terms of political appeal is that I want it to be coherent. To me, that is the difference between politics and policy. Incoherence might be a feature in politics. In policy, I think of it as a bug.

Again, you have my idealism/cynicism, which separates politics from policy. Politics is what politicians do to win votes. Policy is what wonks propose in the hope that it will help the country. I think that one should propose good policy, taking into account obvious political constraints. However, I would not assume that voters, other than rent-seeking interest groups, choose candidates on the basis of specific policies.

RtG on Health Care

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The essay is by James Capretta. He says that there are four keys to health care reform.

First, the basic market orientation of this approach is in a sense its overarching characteristic…allow providers on the ground to try new ways to deliver quality care at a low cost

When during the question period I said that RtG sounded tentative and timid, without strong specifics, the moderator rebuked me, saying that I needed to read the sections on health care and education. But, honestly, I did not see anything specific in Capretta’s chapter that indicates a policy change that would contribute to the worthy objective given above.

His second idea is to

place an upper limit on the amount of employer-paid premiums that would enjoy tax-preferred status.

That is fine, although I thought that at one point some sort of penalty for “Cadillac health plans” was part of Obamacare. Of course, if it ever was part of Obamacare, it probably got waived.

Anyway, Capretta also proposes an age-graduated tax credit to people without employer-provided health insurance. So without being especially charitable, I can say that he is specific on his point two. However, I have to quibble and say that while such a tax credit may be good on horizontal equity grounds–putting different categories of consumers on the same footing–it tends to worsen the overall bias that consists of subsidizing health insurance through the tax code.

His third idea is continuous-coverage protection. The idea as I understand it is to outlaw making risk adjustments to anyone who already has insurance coverage. If you never had coverage and you walk in to an insurance company with a bad illness, too bad for you. But if you were covered before, you have to be given rates that do not penalize your bad illness. That strikes me as a reasonable approach, although I still think we will need high-risk insurance pools. There are going to be people who choose not to insure and then find out that they have an expensive illness, and we are not going to bankrupt them.

His fourth idea is to enable Medicaid recipients to take a cash-equivalent voucher to purchase health insurance. Again, that is a reasonable idea. But as he points out, we need to sort out the state-Federal mix in Medicaid, which right now creates perverse incentives for states to over-spend Federal money.

With SNEP, I am thinking in terms of integrating all means-tested programs, including Medicaid. There is another piece in RtG, by Scott Winship, which alludes to the Oren Cass Flex Fund. But Capretta’s Medicaid ideas and the Flex Fund are an example of two specifics in RtG that strike me as not fitting together.

So, of Capretta’s four keys, the first has no specifics (no reforms of the supply side of medical care), the second involves a new tax credit that may or may not be a net improvement, the third seems fine to me, and the fourth strikes me as incompatible with other specific proposals in the book.

RtG and the Conservative Vision

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Reading Room to Grow allows me to clarify my goals in Setting National Economic Priorities. In the opening essay, Peter Wehner writes,

Americans do not have a sense that conservatives offer them a better shot at success and security than liberals. For that to change, conservatives in American politics need to understand constituents’ concerns, speak to those aspirations and worries, and help people see how applying conservative principles and deploying conservative policies could help make their lives better.

I am at once more idealistic and more cynical than this. I am idealistic in that I would just spell out the policies I would most like to see given what I judge to be the political constraints, without worrying about how the policies come across to ordinary people. I am cynical in that I do not think that voters respond to policy proposals.

Yuval Levin writes,

Moral individualism mixed with economic collectivism feels like freedom only because it liberates people from responsibility in both arenas. But real freedom is possible only with real responsibility. And real responsibility is possible only when you depend upon, and are depended upon by, people you know. It is, in other words, possible only in precisely that space between the individual and the state that the Left has long sought to collapse.

…the conservative approach to public policy… involves three steps: experimentation (allowing service providers to try different ways of solving a problem), evaluation (enabling recipients or consumers of those services to decide which approaches work for them and which do not), and evolution (keeping those that work and dumping those that fail).

Levin sounds like a cross between Edmund Burke and, well, me. I consider it to be moral philosophy properly done. What passes for moral philosophy on the left, in contrast, comes across to me as a set of gestures and postures. Tom Lehrer summed it up years ago in The Folk Song Army.

We are the Folk Song Army.
Everyone of us cares.
We all hate poverty, war, and injustice,
Unlike the rest of you squares.

Reform Conservatism’s Playbook

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It is called Room to Grow, and I attended the rollout of it. Kevin Glass writes,

Conservatives are roundly seen by non-conservatives as partisans for the rich, it’s argued, and that perception must change to counter the ascendant progressive movement.

…Conservatives, Sen. McConnell said, “have often lost sight of the fact that the average voter is not John Galt.”

McConnell promoted three pieces of legislation that he said would fit in to the Republican reform agenda – the Family Friendly Workplace Flexibility Act, the Expanding Opportunity for Charter Schools Act, and the National Right to Work Act.

Actually, McConnell spent most of his time talking about Senate Majority Leader Harry Reid bringing bills to the floor without allowing for amendments. McConnell seemed really jazzed about having beaten back a primary challenge, so that he can become Majority Leader himself if the Republicans pick up enough seats. He predicted that the Democrats would still have at least 40 seats in the Senate next year, and he assured us that he will allow them to block legislation. Because he does not want to be like Harry Reid and achieve his goals undermine the comity that makes the Senate a terrific institution.

I’ll post more on the substance of RtG in the next few days. Compared with my idea for SNEP, I would say that it is more political, more fragmented, and less ready for implementation. Of course, since SNEP does not yet exist, RtG is way ahead on that score.

[UPDATE: Kevin Glass writes about McConnell’s theory of Senate mechanics and partisan relations. Glass gets into the merits of McConnell’s argument. Even I were to grant the merits, which I am not all that inclined to do, it was so off-topic at the RtG rollout that I found it painful.]

On Housing Finance Reform

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I write,

The dysfunctional and regressive nature of policy in housing reflects the political configuration in Washington. For several decades, policies combined the efforts of social engineers clumsily seeking to expand home ownership with well-heeled interest groups skillfully lobbying for profits. The social engineers put taxpayer subsidies up for grabs, and the interest groups do the grabbing.

Marc Andreessen on EconTalk

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Self-recommending. I was talking last night with Steve Teles about personality and executives. Think in terms of OCEAN. Which personalities are likely to like to take risks? I think of high O (openness) and high E (extraversion) as positive toward risk taking, with high N (neuroticism) and high A (agreeableness) negative toward risk taking. Teles and I agree that the market tends to select for CEO’s men with high O, high E, and low N and somewhat low A, thus creating a bias toward risk-taking among CEOs. I think that Andreessen exemplifies that. He is much more struck by the mistakes venture capitalists make in missing out on the big hits than the mistakes they make in backing losers.

I think that his attitudes toward risk are probably really a good fit for venture capital. I think they are a terrible fit for being a banker backed by deposit insurance. That is why I think that regulators should be concerned about the personalities of bank CEOs. Teles thinks I ought to write up my theories on that. I think I would have to do a lot of empirical research first.

Andreessen says that journalists are nostalgic for an era of oligopoly, and now they face an era of intense competition. I think that is correct. Even if he is correct that the market is big, that does not mean that there are easy profits in it. Think of a sort of California Gold Rush, with enough miners competing to drive profits near zero. You want to figure out how to be Levi’s.

More Contra Piketty.

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1. From a Francophone blogger.

comparing the mean wealth of the x% through time is an implicit selection process where you only select the winners and forget the losers.

In other words, there are two ways to explain why the mean wealth of the x% has grown faster than the mean wealth of the whole population. According to Piketty, it means that the richer you are in the first place, the faster your capital grows over time (hence, the dynastic wealth world he foresees). But it might also be the opposite: this phenomenon is exactly what we should expect to see in a world of high wealth turnover, a world where fortune rewards skills, hard work and risk taking. Quite symptomatically, Piketty and its numerous followers have completely dismissed that possibility.

Pointer from Tyler Cowen.

The phrase “the income of the top X percent grew by z percent” is always a mis-statement, because of turnover among the top x percent. The point made above is that such a figure is always an upward-biased estimate of the actual growth of the actual incomes of actual people in the top x percent.

2. From Martin Feldstein.

his thesis rests on a false theory of how wealth evolves in a market economy, a
flawed interpretation of U.S. income-tax data, and a misunderstanding of the current nature of household
wealth.

These two criticisms cast aspersions on Piketty’s empirical analysis, which Feldstein’s former student Larry Summers said deserves a Nobel Prize.

David Brooks Plays Fantasy Despot

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He writes,

The process of change would be unapologetically elitist. Gather small groups of the great and the good together to hammer out bipartisan reforms — on immigration, entitlement reform, a social mobility agenda, etc. — and then rally establishment opinion to browbeat the plans through. But the substance would be anything but elitist. Democracy’s great advantage over autocratic states is that information and change flow more freely from the bottom up. Those with local knowledge have more responsibility.

Pointer from Tyler Cowen. An example of what Brooks may have in mind is the Regulatory Improvement Commission suggested by the Progressive Policy Institute.

Originally conceived by PPI economists Michael Mandel and Diana Carew, the RIC is modeled after the highly successful military base-closing commission. It would consist of nine members appointed by Congressional leadership and the President to consider a single sector or area of regulations and report regulations in need or improvement, consolidation, or repeal.

The spirit of the proposal is fine, but I do not see why we need a commission appointed by Congressional leadership. Any Administration has the power to improve, consolidate, or repeal regulations, without requiring a special commission.

Modern democracy gives rise to what Kenneth Minogue called “fantasy despot syndrome.” You imagine that policies would be wise and benign if you became despot, and then you project this onto your favorite candidate. Each of these steps involves an error. It is unlikely that your policy ideas are so wonderfully wise and benevolent, and it is very unlikely that your favorite candidate is going to follow wise and benevolent policies. With Barack Obama, I believe that Brooks committed both of these errors.

Brooks can be very insightful, but he has a wet dream any time he contemplates “unapologetic elitism.” I don’t find it such a turn-on. Being somewhat older than Brooks, my visceral attirude toward elites in power is much more strongly influenced by the Vietnam war.

Both David Brooks and Tyler Cowen seem to have liked The Fourth Revolution. I am almost finished with the book, and apart from an anecdote here or a statistic there, I do not feel I profited from it. It felt dumbed down, either because they were trying (probably unsuccessfully) to appeal to non-libertarians or because that is how they roll.

Sorry if I seem off my meds today.