Category Archives: Jack Heidel

A Much Better Republican Strategy for Obama Care

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On the eve of its implementation, the Affordable Care Act (aka Obama Care) is more unpopular than ever amongst the general public.  But the House Republican strategy of trying to defund the ACA as part of a continuing resolution to fund the government for the new fiscal year is a very poor idea.  It will never pass both houses of Congress and be signed by the President.  All it can possibly do is lead to a temporary shutdown of the government and therefore cause mass confusion.
The Wall Street Journal recently suggested a much more effective way for the House Republicans to proceed in “Carve-0uts for Congress”.  The legislation establishing the ACA contains a provision requiring all members of Congress and their staffs (11,000 people in all) to purchase their own health insurance on the new exchanges which are being set up to enroll uninsured Americans.  The idea behind this provision is to insure that members of Congress and their staffs and their families will obtain their insurance just like everyone else so that they will fully experience how healthcare reform actually works in practice.
But just a month ago the Administration personnel team issued a regulation exempting all Members and aides from the requirement to use the exchanges.  A recent poll taken by Independent Women’s Voice shows that 92% of likely voters, regardless of their views of the ACA, think that this exemption is unfair.
The implication is clear.  Republicans should show their dissatisfaction with the ACA by attaching the repeal of this exemption, which is contrary to law, as well as highly unpopular, to the continuing resolution to fund the government for the next fiscal year.  Let the Democratic Senate defend this exemption if it wants too.  It’s an opportunity for the House Republicans to do the right thing and also to stand with the “little guy” against the Washington elite.

The Link between Education and Prosperity

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In Thursday’s Wall Street Journal, two education experts, Paul Peterson and Eric Hanushek, write about “The Vital Link of Education and Prosperity”.  They point out, for example, that only 32% of U.S. high school students are proficient in mathematics based on the National Assessment of Educational Progress test.  Comparable scores for other countries are 45% in Germany and 49% in Canada.
The authors demonstrate a close correlation between academic achievement and economic growth of many countries around the world.  The highest academic achievers, such as South Korea, Taiwan, Singapore and Hong Kong, also have the highest growth rates.
Over the past 50 years, from 1960 – 2009, the U.S. economy has grown 2/3 of a percent faster than would be predicted by our mediocre test scores.  But our relative economic advantages, such as open markets, secure property rights, universal K-12 education and favorable immigration policy, are now declining as other countries adopt these same successful social and economic practices.  In other words, we need to do better if we want to remain on top.
The authors make a good case that America’s GDP growth rate would be boosted by ¾ of a percent per year if we were able to match the educational attainment level of Canadian students (49% math proficiency vs 32%).
In their recent book, “Endangering Prosperity, a Global View of the American School,” the authors break down the overall math proficiency score by racial group:  the white proficiency rate is 41.8%, the African American rate is 11.0% and the Hispanic rate is 15.4%.  In other words, almost 2/3 of the American-Canadian math proficiency gap can be explained by the poor performance of American minority groups.
Conclusion: let’s definitely try to improve American K-12 education overall.  But in working on this difficult problem, we should concentrate on measures which will have the most impact on minority groups where the problem is greatest.  For example, providing early childhood education for all low income families will do more to raise academic achievement overall than adopting the Common Core curriculum (which will mostly benefit already high achieving students).

The Best Way to Help Working People

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The lead story in today’s Omaha World Herald, “Demand for skilled labor rising”, along with an accompanying editorial, point out that “Ours is a place where opportunity exists, to the tune of 35,000 advertised job openings counted by the Nebraska Department of Labor.”
Terry Moore, President of the Omaha Federation of Labor, predicts that demand for construction workers will only increase in the near future.
Gary Kelly, Business Manager for Local 22 of the International Brotherhood of Electrical Workers, said “It’s times of full employment that allow us to go out and organize the unorganized.”
Kirk Ahrends, Dean of Applied Technology at Metropolitan Community College, said that instructors who teach 16 different trade professions get many requests for job candidates.  “They’re knocking on the door.  Not only the students, but the industries.  They’re saying ‘Get us some graduates.’”
Nebraska is fortunate to have such a good job market, much better than the U.S. as a whole which is suffering from an unemployment rate of 7.4% and an anemic growth rate of just 2% a year.
By far the best thing the government can do to help workers is to adopt policies which will speed up economic growth.  This can be accomplished by giving entrepreneurs and investors greater incentives to take more risks.  Lowering tax rates (offset by closing loopholes) and easing burdensome regulations are the tried and true methods of getting this done.
There are twenty million unemployed and underemployed Americans who would benefit from national leaders more attuned to their need for work.

What Is the Best Way to Advance Martin Luther King’s Dream?

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In Wednesday’s Wall Street Journal John McWhorter, an African-American professor at Columbia University, describes “A Better Way to Honor Dr. King’s Dream”. Mr. McWhorter writes that a new conversation about race, “one in which whites submit to a lesson from blacks about so-called institutional racism” is not what America needs.  “Today’s struggle should focus on three priorities.  First, the war on drugs, a policy that unnecessarily tears apart black families and neighborhoods.  Second, community colleges and vocational education, which are invaluable in helping black Americans get ahead.  And third, the AIDS and obesity epidemics, which are ravaging black communities.”
Such sentiments represent a huge dose of common sense.  The African-American community needs help and cooperation from the wider society to address fundamental issues like juvenile delinquency, poor educational outcomes and unhealthy environments.  But these things, as much as they’re needed, are not enough by themselves for further progress towards racial equality.
The route out of poverty for all low income people, including blacks, is to raise themselves up by their bootstraps through educational attainment and hard work.  Society can and should make sure that the appropriate institutions, such as community colleges, are readily available to provide training for jobs which are out there in the private sector.
But most of all we need a vibrant economy to give lower income Americans more opportunities to work their way up the economic ladder.  We have not yet recovered in a satisfactory manner from the Great Recession which ended in June 2009.  This makes it all the more important for our national leaders to focus on the pro-growth policies which will get our economy humming again.

How Can We Boost Stagnant Wages?

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Today’s Wall Street Journal has a column by Neil Shah, “Stagnant Wages Crimping Economic Growth”, pointing out that the average hourly pay for non-supervisory workers, adjusted for inflation, has declined to $8.77 last month from $8.86 in June 2009, when the recession ended.  It has also been reported recently, e.g. in the New York Times, that U.S. medium household income, now at $52,100, has not nearly recovered from its prerecession peak of $55,500 and is even below its $54,500 level in June 2009, at the end of the recession.
Lower income for workers and households mean lower consumer spending.  This is a major reason for our economy’s low annual growth rate of only 2% of GDP since the end of the recession.  Of course, the high unemployment rate, currently 7.4%, as well as increasing global competition, contribute to downward pressure on wages.  But there is another factor, directly under government control, which is a major contributor to stagnant and declining wages.
Washington Post columnist, Robert Samuelson, in a recent column reprinted in the Omaha World Herald, reported that, from 1999 to 2013, wages and salaries rose 50% (adjusted for inflation) while health insurance premiums increased 182%.
Most health insurance is provided and largely paid for by employers and is therefore an indirect form of compensation.  The huge disparity between wage gains and health insurance premium increases in recent years means that wages are being held back by the rapidly increasing cost of health care.  The U.S. spends 18% of GDP on healthcare, twice as much as any other country and this is clearly out of line.
The best single thing we can do to slow down healthcare inflation is to remove the tax exemption for employer provided healthcare (and offset it with lower overall tax rates).  Employees would then pay taxes on their health insurance benefits as part of their pay. This would have the beneficial effect of making consumers far more conscious of the true cost of healthcare and therefore consumers a strong incentive to hold down these costs.
It is up to Congress to change this provision of the tax code.  Let’s insist that they get this done!

Are Welfare Benefits Too High?

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The CATO Institute has just released a new study “The Work Versus Welfare
Trade-Off: 2013”, which analyzes the total level of welfare benefits on a state by state basis.  The authors, Michael Tanner and Charles Hughes, show that welfare pays more than a minimum-wage job in 35 states and, moreover, in 13 states, it pays more than $15 per hour. The authors recommend that Congress and state legislatures strengthen welfare work requirements, remove exemptions from working and narrow the definition of work.  Also many states should consider shrinking the large gap between the value of welfare and work by reducing current benefit levels and tightening eligibility requirements.
Clearly welfare benefits as well as disability payments, through the Supplemental Security Income (SSI) program of Social Security, have grown too large and have become a disincentive for many people to find a job.  Getting something for nothing is a moral hazard which induces an attitude of entitlement and helplessness.  It also causes the labor force participation rate to shrink and therefore hurts the economy.
Tightening up welfare payments and disability income are among the many actions
which Congress could take to speed up economic growth and lower government
spending.  We need more representatives in Washington who understand that change is needed and who can advocate effectively for policies which will get this done!

Can We Solve Our Fiscal Problems Without Raising Taxes?

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Scott Lilly, a Senior Fellow at the Center for American Progress, has an Op Ed column in yesterday’s Fiscal Times, “The Choice Congress Won’t Face Up To”.  Mr. Lilly admits that we have at least a long-term deficit problem, namely exploding entitlement spending driven by the aging of the U.S. population.  The Congressional Budget Office predicts that federal outlays, including entitlements, will be 22.8% of GDP in 2023 while revenues will equal only about 19.3% of GDP, a huge gap.  And outlays will continue to rise,  because of entitlement spending, reaching 25% of GDP by 2040.  This means that the public debt, on which we pay interest, would rise from 73% of GDP today, to 99% of GDP by 2040.  As interest rates inevitably return to their historical average of 5%, interest payments on this massive debt will become an increasing burden on the economy.
Mr. Lilly asks the question:  How are we going to cut back on entitlement spending when the average Social Security monthly check is $1268 out of which about $350 goes to out-of-pocket medical expenses not covered by Medicare?  Congressman Ryan has proposed limiting the growth of Medicare to the increase of inflation + 1%.  But the cost of healthcare is increasing much faster than this.  And many seniors are living close to the edge.
Thus we reach “the choice which Congress won’t face up to.”  According to Mr. Lilly, either we have to make big cuts in entitlement spending or else raise taxes dramatically so that federal revenue increases to about 24% of GDP by 2040.  Mr. Lilly makes the far-fetched claim, based on flimsy evidence, that such a large tax increase will not retard economic growth.  But let’s set this issue aside for now.
Is there any alternative to increasing taxes so dramatically in order to avoid making big cuts in entitlements?  The answer is yes.  The above discussion assumes that the cost of healthcare in general will keep on increasing at the current rapid rate, much faster than the increase in inflation.  This is the main driver of entitlement costs.  The U.S. currently spends 18% of GDP on healthcare which is double the amount spent by any other country.  This is what must change.  We should abolish, not just postpone, the employer mandate in Obama Care.  But even more fundamentally, the tax exemption for employer provided healthcare should be removed (and offset with a rate reduction).  This would make consumers far more aware of the cost of healthcare and therefore drive down these costs.
Only after serious attempts are made, such as above, to control costs should any consideration be given to raising taxes.

Federal Cutbacks Suggest State and Local Expansion

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A front page article in yesterday’s Wall Street Journal, “An Ohio Prescription for the GOP:  Lower Taxes, More Aid for Poor”, describes how Ohio’s Republican Governor, John Kasich, a former congressional spending hawk, has expanded Medicaid coverage in Ohio and steered millions more dollars into local food banks.  Mr. Kasich says, “When you die and go to heaven, St Peter is probably not going to ask you much about what you did about keeping government small.  But he is going to ask you what you did for the poor.”
There are good reasons why we should shift programs and responsibilities from the federal government back to states and localities.  At the federal level there is little fiscal restraint and therefore little incentive for making sure that governmental programs operate efficiently and effectively.  Study after study by the Government Accounting Office, as well as by private think tanks, demonstrate enormous waste and duplication in virtually all areas of federal government.  This long lasting fiscal irresponsibility at the federal level has now led to a massive national debt which will have a perverse effect on our nation’s prosperity for many years to come.
At the same time, all state and local governments are required to balance their budgets.  This means that they have to pay attention to the costs of all programs and set spending priorities.  They have to make sure that all functions of government are effective and be prepared to cut back or eliminate any program which is performing poorly.  States such as Illinois and California, and cities such as Detroit, Chicago and Philadelphia, which have huge operating deficits year after year, will eventually be forced to declare bankruptcy (such as Detroit has just done) in order to reorganize their finances and make a fresh start.
It has long been a practical axiom that government should be as close as possible to the people.  But now it is a fiscal necessity as well to shift as much as possible from federal control back to state and local control.

Keep Squeezing the Budget!

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Monday’s Wall Street Journal has an Op Ed column by Stephen Moore, “The Budget Sequester Is a Success”, which points out that federal spending has actually shrunk from a high of $3.598 trillion in 2011 to $3.537 trillion in 2012 to a projected $3.45 trillion for 2013.  These spending declines are due to the Budget Control Act of 2011 which accompanied the 2011 increase in the debt limit.  The $100 billion per year budget sequester is a part of that agreement.  The current budget standoff between the Senate and the House is simply an attempt by the Democratic majority in the Senate to renegotiate the spending limits agreed to in 2011.
The sequester will continue to constrain discretionary spending but the two thirds of the federal budget devoted to entitlements is growing at a much faster rate than the overall growth of the economy.  The way out of this dilemma should be obvious to any rational, impartial observer.  We need to slow down the growth of entitlements and speed up the growth of the economy.  But this is much easier said than done!
Democrats will apparently not agree to do either of these two things.  Reining in entitlements takes political courage and the Democrats would rather be able to accuse Republicans of cruelty to the poor and the elderly than to actually address this problem in a serious manner.  Growing the economy faster will require appealing to investors and risk takers, with lower tax rates, for example, as well as loosening anti-business regulations.  Measures like these go against liberal ideology.
While we’re waiting for common sense to prevail in Washington, what more can be done to shrink still very large deficit spending?  There are all sorts of wasteful, duplicative and ineffective federal programs out there.  Fiscal conservatives should just keep going after them, one-by-one, and whittling them down.  Millions of voters and taxpayers will be thankful for this.

One Way to Solve the National Debt Problem

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In today’s New York Times, the economists Glenn Hubbard and Tim Kane write that “Republicans and Democrats Both Miscalculated”.  They say that “when the Congressional Budget Office recently lowered its forecast of future deficits, many voices on the left claimed that the problem had been overblown by ‘austerity scaremongers’” and that “some voices on the right have renewed calls to ‘starve the beast’ now that deficits are under control.”  But they point out that just because the deficit is likely to shrink for the next couple of years, CBO also projects that it will soon be back up to a trillion dollars per year indefinitely into the future.  And this is all optimistically assuming full employment, robust growth and moderate interest rates.
The Hubbard/Kane solution is to amend the Constitution with a flexible Balanced Budget Amendment.  Its features would include: 1) a provision that spending in a given year would not exceed income averaged over the previous seven years, 2) no restriction on tax rates which would have to be hashed out by Congress and 3) an exception to spending restraint for national emergencies.
There are, of course, valid objections to a Balanced Budget Amendment to the Constitution.  It reduces the flexibility of Congress and the President to act as needed.  It would be much better for Congress to act in a fiscally responsible manner on its own initiative.  But we all know that this doesn’t happen.  The pressure is always to adopt new spending programs and never to cut existing programs, no matter how ineffective they are.
Debt is the “single biggest threat to our national security” declared Admiral Mike Mullen, the former Chairman of the Joint Chiefs of Staff.  Many other prominent citizens express similar thoughts on a regular basis.  It is really just basic common sense that no governmental unit can flagrantly ignore this fundamental economic principle year after year without very serious repercussions.  It is (well past) time to force our national leaders to bite the bullet and do what almost every sane person knows what must be done.