Tag Archives: jack heidel

Omaha: What Happens When There’s a Labor Shortage?

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The unemployment rate in Nebraska is now down to 2.9% and even in Omaha, a relatively large metropolitan area of 850,000, it is only 3.2%.  As reported by the Omaha World Herald today, such a low unemployment rate creates big problems for employers at all levels.
CaptureFor example:

  • In fast foods, beginning salaries are up to $10 or more per hour, well above Nebraska’s new minimum wage of $8 per hour, and raises for responsible employees are frequent. Manager’s salaries are increasing rapidly. Benefits are being expanded into such areas as tuition reimbursement.
  • For the predominantly minority residential area of North Omaha, with a traditional unemployment rate of up to 20%, local manufacturers are beginning to provide transportation vans to pick up and drop off workers.
  • The Omaha Chamber of Commerce is running an ad campaign in Seattle to appeal to soon-to-be-laid-off Microsoft workers, because there are lots of vacant tech positions in Omaha.
  • Both the Greater Omaha Chamber of Commerce and the Lincoln Chamber of Commerce have endorsed LB 586 in the Nebraska Legislature to ban discrimination in the workplace based on sexual orientation and gender identity. The purpose, as expressed by both chambers of commerce, is to create a more attractive work environment in order to attract more workers from other states. The neighboring states of Iowa and Colorado have passed such laws.

What more can be done?  The welcoming labor market should provide a bigger incentive for both high school and college students to finish their studies and graduate.  Jobs will be waiting for them!  The labor shortage should also help create more interest in immigration reform.  This would insure that Nebraska has an adequate number of legal guest workers to meet the needs of the agricultural and meatpacking industries.

The President’s Budget: Stabilization of the Debt Is Not Enough!

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President Obama has proposed a $3.99 trillion budget for next year, a $340 billion increase from the current 2015 budget year.  As shown in the charts below, it projects deficits of about 2.6% over the next ten years equal to its (optimistic in comparison to the CBO) growth projections for GDP.  This means that the debt would stabilize at about 73% of GDP.  And, of course, achieving his predicted stabilization of debt will require big tax increases over this ten year period.
CaptureHere are the major weaknesses in the budget:

  • Sequestration. The President declares that “I’m not going to accept a budget that locks in sequestration going forward.” Everyone deplores the mindlessness of sequestration but the only responsible alternative is to make targeted cuts throughout the budget. The President makes no attempt to do this. And he wants to add spending for various new education and research initiatives, as well as an expanded Earned Income Tax Credit for low-income workers.
  • Infrastructure. Spending over the next six years would increase by $238 billion to be raised from a 14% repatriation tax on the $2 trillion in foreign earnings held overseas by American multinational corporations. The problem is that any repatriation tax should be tied in with overall corporate and business tax reform, exchanging lower tax rates in return for closing loopholes and deductions, in order to make U.S. business taxes competitive with those of other countries. Fundamental tax reform is the key to getting our economy growing faster.
  • Entitlements. The President’s budget does not even mention the biggest threat to long-term fiscal sustainability, namely the rapidly increasing spending for Social Security, Medicare and Medicaid. It will be very difficult to make progress on this critical issue without presidential leadership.
  • Stabilization of the Debt. The President’s budget, with quite optimistic revenue and growth projections, stabilizes the debt over ten years. But this is not nearly good enough. To be satisfied with a public debt of 73% of GDP indefinitely into the future is simply too risky. What’s going to happen when we have another financial crisis, as we surely will? How are we going to cope with our growing rivalry with China with very little budget flexibility? And one can imagine any number of other possible emergencies which might occur. Putting the debt on a clear downward trajectory is the only prudent thing to do!

It’s Paul Krugman Who Is Being Irresponsible!

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The New York Times columnist, Paul Krugman, writes provocatively on fiscal and economic issues and is well-known as a liberal icon.  Usually I ignore his diatribes.  But his column yesterday, “The Long-Run Cop-Out” goes way overboard.
CaptureI will refute several of the statements from this column.

  • “Think about it: Faced with mass unemployment and the enormous waste it entails, for years the beltway elite devoted all most all its energy not to promoting recovery, but to Bowles-Simpsonism – to devising “grand bargains” that would address the supposedly urgent problem of how we’ll pay for Social Security and Medicare a couple of decades from now.” Worrying about our enormous and rapidly increasing national debt, does not mean ignoring our sluggish economy and the high unemployment it causes. The way to increase economic growth is to enact broad based tax reform by lowering tax rates, offset by closing loopholes and limiting deductions. This will further boost the economy in the same way that lower gasoline prices is already doing.
  • “Many projections suggest that our major social insurance programs will face financial difficulties in the future (although the dramatic slowing of increases in health costs makes even that proposition uncertain).” Healthcare costs dropped to 4.1% in 2014 but this is still more than double the inflation rate of 1.7%. This isn’t nearly good enough.
  • “Why, exactly, is it crucial that we deal with the threat of future benefit cuts by locking in plans to cut future benefits?” The point is to protect benefits, not curtail them. If we act now, to increase revenue and/or slow down the growth of entitlement spending, then we won’t have to cut future benefits.
  • “So why the urge to change the subject (from austerity) to structural reform? The answer, I’d suggest, is intellectual laziness and lack of moral courage.” $6 trillion added to our debt in the last six years is profligacy, not austerity. It is immoral to burden future generations with such massive new debt.
  • “In today’s economic and political environment, long-termism is a cop-out.” Preparing for the future is just plain common sense. Should we ignore festering problems like global warming, illegal immigration and increasing poverty until they get much worse? Of course not. We should address these problems now and get our debt under control at the same time.  

What Will True Healthcare Reform Look Like?

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My last post, “Progress on Medicaid Reform,” discusses innovations that several states have adopted to improve the delivery of Medicaid and to make it more cost efficient. But what we really need is a complete overhaul of American healthcare, including the Affordable Care Act, as I have also recently discussed, in order to eliminate perverse marketplace incentives as well as to achieve real cost control.
CaptureAn excellent discussion of what real healthcare reform would look like is given by John Goodman in, “Healthcare Solutions for Post-Obamacare America.” Mr. Goodman gives six principles for commonsense reform:

  • Choice. People should be free to choose a health plan that fits individual and family needs, rather than one designed by bureaucrats in Washington. This means no mandates, either for individuals or employers.
  • Fairness. Any subsidy should be in the form of a fixed sum tax deduction or credit and everyone should get it as long as they obtained credible private health insurance. The amount of the subsidy would be comparable to the cost of Medicaid enrollment.
  • Universal Coverage. Since some people will turn down the offer of a tax credit, unclaimed credits can be used to reimburse safety net healthcare institutions.
  • Portability. Portability insurance should be available to employees in case they change jobs or become self-employed.
  • Patient Power. Health Savings Accounts need to be made more available and also more flexible so that they can wrap around any third-party insurance plan, as indicated in the above chart.
  • Real Insurance. Under ACA millions of people are losing access to out-of-network providers. People should be allowed to purchase “change-of-health-status insurance” in case they develop expensive-to-treat conditions.

The ACA addresses the access problem for healthcare but has little effect on the cost problem.  American healthcare, both public and private, is way too expensive.  This is why fundamental change is still needed.

Progress on Medicaid Reform

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It is widely understood that the rapid increase in spending for entitlements (Social Security, Medicare and Medicaid) is the main driver of our debt problem.  Anything that can be done to get spending for these programs under control is of great value.
The problem with Medicaid is that a fixed percentage of each state’s costs is paid for by the federal government.  The more a state spends, the more that is contributed by the federal government which is a disincentive for states to control their own spending.  From 1989 to 2013, the share of state budgets devoted to Medicaid rose from 9% to 19%.  This upward trend is a problem for both state and federal government and is clearly unsustainable.
One way to change the spending incentive is to turn Medicaid into a block-grant program whereby the federal government contributes a specific amount of money to each state each year and gives states more leeway in designing their own programs.  States would then have a much bigger incentive to hold down costs and the flexibility to be able to do it.
CaptureProgress is being made in this direction with the use of waivers:

  • Rhode Island received a waiver in 2009 to try out various cost-saving measures such as wellness programs, co-payments, etc. It has been quite successful and very well received.
  • Last year Pennsylvania agreed to expand Medicaid to an additional 500,000 people along with a waiver allowing people above the poverty line to be charged premiums of up to 2% of their household income as well as being charged an $8 copayment for use of emergency rooms.
  • Now Indiana (http://www.wsj.com/articles/indiana-governor-to-expand-medicaid-coverage-1422371729) has agreed to an expansion with a waiver under which beneficiaries above the poverty level would be charged premiums of 2% of income and would be locked out of benefits for six months if they fall behind in their payments.
  • Additional states such as Idaho, Wyoming, Utah, Tennessee, Alabama and Florida are also considering Medicaid expansions and likely will be influenced by the possibility of receiving similar waivers.

Waivers are not as cost effective as block-grant funding but they are an improvement over the existing one-size-fits-all federal rules.  If more individual states are able to show that waivers really do work to reduce costs, this will increase the likelihood of implementing a block-grant system.

A Lull in the Storm

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The Congressional Budget Office has a sterling reputation for collecting accurate data and making credible predictions about basic economic and fiscal trends.  CBO analyses, which are based on current law, are generally accepted as valid by both liberals and conservatives.  Considering the degree of hyper-partisanship in most discussions of fundamental policy, it is reassuring to at least have an unimpeachable source of basic information.
CaptureCBO has just released its regular annual report, ”The Budget and Economic Outlook: 2015-2025.” There is good news for the near term.  As shown above, GDP is projected to grow by 2.9% in the (budget) years 2015 and 2016, and dropping to 2.5% growth in 2017, which is still better than 2014. This means that our national debt will not grow from its current level of 74% of GDP for the next few years and might even decrease slightly.
Capture1Growth will then hover around 2.2% for the remainder of the 2015 – 2025 decade, which is the average GDP since the end of the Great Recession in June 2009.  Likewise, unemployment will likely not fall much below its current value of 5.6% for the next ten years.  In short, under current policy, except for the next couple of years, we are stuck in the same slow-growth rut where we have been for the past five and one-half years.
It should be obvious that we need new policies to speed up growth, put more people back to work, and raise the stagnant wages endured by many middle- and lower-income workers.  How can this be accomplished?

  • Tax reform, both individual and corporate, is the primary route to faster growth. Lower tax rates across the board, paid for by closing loopholes and shrinking deductions. This will put extra income in the pockets of the 64% of taxpayers who do not itemize deductions, which they will likely spend. It will also make it easier for potential entrepreneurs to successfully launch a new business.
  • Immigration reform, expanded foreign trade and deregulation will also create more business opportunities which will in turn grow the economy and create more jobs.

Hopefully the new Congress will be able to move forward in this direction.  A better future depends on it!

 

Solving the Student Debt Problem?

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Today’s New York Times has an excellent article by Kevin Carey on the current status of federal student loans, “A Quiet Revolution is Helping Lift the Burden of Student Debt.” Our current system, called Income-Based Repayment, allows former students to repay their college loans, on a monthly basis, at a rate of 10% of net income, after deducting basic living expenses.  It forgives all loan balances after 20 years, reduced to only 10 years for people who work for government or non-profits.  As shown in the chart below, participation in the IBR program is increasing rapidly.
CaptureMr. Carey shows by example, that the IBR program is quite generous to low paid workers.  Take a teacher who borrows the national average of $29,000 for a bachelor’s degree and another $13,000 for a master’s degree and then takes a teaching job starting at $35,000 and paying $50,000 ten years later.  The teacher’s monthly payments will start at $117 and rise to about $200 in the tenth year.  The teacher will pay back a total of $18,360 and be forgiven the remainder of $48,840 of principal and interest after 10 years.
It makes sense to subsidize college education for teachers and others who work in low wage occupations.  The problem, of course, is that it is very expensive to do so.  The federal government is now committing over $100 billion each year to student loans.  There is over $1 trillion in outstanding federal student loan debt.
Many people have pointed out that our very generous student loan program is subsidizing the rapidly increasing cost of American higher education.  Here are two specific ways to address this problem:

  • Put limits on the amount of money an individual can borrow for college expenses. One such suggestion, from the political scientist, Peter Salins, would set the maximum value of a loan at 50% of the full prevailing average cost of educating undergraduates at U.S. public colleges.
  • Require all colleges to cover 20% of a defaulting student’s loan out of their own pockets. Sheila Bair makes this suggestion for for-profit colleges only but it should apply to all colleges, public and private as well as for-profit.

There are lots of low-cost and high quality educational institutions around the country, including the University of Nebraska at Omaha where I work!  Both students (and their families), as well as the colleges they attend, need to have higher stakes in limiting the explosive costs of higher education.

What Will It Take to ‘Fix the Debt’?

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I have recently become a volunteer for the national bipartisan organization, Fix the Debt. It is the outreach arm for the Washington think tank, Committee for a Responsible Federal Budget, which is an offshoot of the Simpson-Bowles Commission from several years ago.
As such, I give presentations to local civic organizations about our national debt and what needs to be done to get it under control. Typically the audience will readily appreciate the seriousness of our debt problem.  What they want to talk about are practical ways to address it.  They have their own ideas and want to know what I think as well.  My first message is that we don’t have to pay off the debt or even balance the budget going forward.  Realistically we need to shrink our annual deficits in order to put the debt on a downward course as a percent of our growing economy,  as shown in the chart just below.

Capture It will be a huge challenge to accomplish even this!  Here are my ideas, in very general outline, on how to get this done:

  • Entitlements (Social Security, Medicare and Medicaid) are the biggest single problem because our population is aging so fast. Furthermore, in order to control the growth of Medicare and Medicaid, we have to do a much better job of controlling the overall cost of healthcare in the U.S. For example, even though healthcare costs slowed down to an increase of only 4.1% in 2014, this is still more than twice the rate of inflation!
  • The second thing we need to do is to make our economy grow faster than the roughly 2.3% growth we have achieved since the end of the Great Recession. The main way to get this done is through broad-based (and revenue neutral) tax reform at both the individual and corporate levels, by reducing tax rates, paid for by closing loopholes and limiting deductions.
  • Finally, there is enormous waste and inefficiency in the federal budget, with huge redundancy and overlap of programs between different federal departments. Responsibility for such programs as education, community development, transportation and social welfare, for example, should be returned to the states with block-grant funding to replace rigid federal control.

I have discussed each of these major reform ideas in much detail in previous blog posts and will continue to do so.  As large as our fiscal problems are, I remain optimistic that they can and will be successfully addressed.

Honoring Martin Luther King’s Legacy

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Every year at this time, our nation is reminded of the progress our country has made in race relations as well as the work which remains to be done.  Here are three different approaches to concrete actions which can be taken to help black Americans improve their lot.
Not too long ago I quoted the black scholar, John McWhorter, as follows “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 for helping black Americans get ahead.  And third, the AIDS and obesity epidemics, which are ravaging black communities.”
An extensive report by the Hamilton Project (associated with the Brookings Institute), “Policies to Address Poverty in America,” focuses on four discrete areas where progress can be achieved:

  • Promoting Early Childhood Development
  • Supporting Disadvantaged Youth
  • Building Skills
  • Improving the Safety Net and Work Support

Capture Finally, the Budget Committee of the House of Representatives has recently released a new plan, “Expanding Opportunity in America,” proposing to redesign the American welfare system to help more people move off the bottom rung.  The idea is to let selected states experiment in consolidating separate means-tested programs such as SNAP, TANF, childcare and housing assistance programs, into a new holistic Opportunity Grant Program.  Here’s how it would work:

  • Each participating state will approve a list of certified providers who are held accountable for achieving results such as moving people to work, out of poverty and off of assistance.
  • Needy individuals will select a provider who will conduct a comprehensive assessment of that person’s needs, abilities and circumstances.
  • The provider and the recipient will develop a customized plan and contract both for immediate financial needs and also for long term goals towards self-sufficiency.
  • Successful completion of a contract will include able-bodied individuals obtaining a job and earning enough to live above the poverty line.

Here are three very distinct sources addressing the issue of black poverty in America. All three approaches are looking for practical solutions to a very difficult problem and they have a lot in common. This suggests that it should be possible for national leaders to come together and take effective action!

Why America Needs the Common Core

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It is well understood that American educational standards are falling behind those of many other developed nations.  I have recently discussed this issue from the point of view of giving more public support to community colleges, as recently proposed by President Obama.
Capture1But the problem is much broader than this. American college students in general score very poorly in basic critical thinking and communication skills.  As the above chart shows, even college seniors are only 60% proficient in these skills and college freshmen do much more poorly.
A new book, “The Smart Society: Strengthening America’s Greatest Resource, its People,” by the political scientist, Peter Salins, provides a good description of the basic problem.  It starts long before college!  America actually has two different K-12 academic achievement gaps.  One, the “Megagap” is the huge test score disparity between middle class students and low-income students, who are largely minorities.  This achievement gap is best addressed with expanded early childhood education, as we are beginning to do in Omaha NE where I live.
But as Mr. Salins points out there is also a Mainstream Achievement Gap between what most non-disadvantaged American youth are capable of learning and what is actually expected of them in the typical U.S. public school.  It is this learning gap which is primarily responsible for America’s mediocre standing on international achievement tests.
CaptureMr. Salins argues that the Mainstream gap is closable because there is such an enormous variation in achievement scores among the 50 states, as shown in the above chart.  In particular, in Massachusetts, a top state, the Education Reform Act of 1995 included the following reforms:

  • The requirement for all state school districts to adhere to rigorous curriculum specifications.
  • A new statewide diagnostic testing protocol.
  • More rigorous testing of new teacher candidates.
  • A statewide uniform high school graduation standard.

Reforms such as these are what make up the Common Core State Standards Initiative.  Such high standards are working well in the top performing states.  Other states need to seriously implement these same standards.  America’s competitive edge depends on it!