Feeds:
Posts
Comments

I shared last year a matrix to illustrate Milton Friedman’s great insight about the superior results achieved by markets compared to government.

Incentives explain why markets work best. When you spend your own money on yourself (box 1), you try to maximize quality while minimizing cost. And that drives the businesses that are competing for your money to constantly seek more efficient ways of producing better products at better prices.

This system generates creative destruction, which sometimes can be painful, but the long-term result is that we are vastly richer.

Governments, by contrast, don’t worry about efficiency or cost (box 4).

Today, though, let’s  use Friedman’s matrix to understand the shortcomings of the US healthcare system. Way back in 2009, I opined that the most important chart in healthcare was the one showing that American consumers directly paid for less than 12 percent of health expenditures.

For all intents and purposes, instead of buying healthcare with their own money, they use other people’s money (box 2), a phenomenon known as third-party payer. And because most of their health expenses are financed by either government (thanks to Medicare, Medicaid, Obamacare, etc) or insurance companies (thanks to the tax code’s healthcare exclusion), consumers focus only on quality and don’t care much about cost.

That 2009 column was written before Obamacare’s enactment, so let’s see if anything has changed.

Well, we know healthcare has become more expensive. But do we know why?

The answer, at least in part, is that consumers are directly financing an even smaller percentage of their healthcare expenses. In other words, the distortions caused by third-party payer have become worse.

Here’s the most-recent data from the federal government’s Centers for Medicare and Medicaid Services (specifically the National Health Expenditures by type of service and source of funds, CY 1960-2015). Consumers are now paying only 10.5 percent of healthcare costs.

Now let’s consider the issue of efficiency.

Are we getting better healthcare for all the money that’s being spent?

That doesn’t seem to be the case. Here’s another chart from the archives. It compares per-capita health spending in various nations with average life expectancy.

As you can see, the United States is not getting more bang for the buck. And I very much doubt an updated version of those numbers would show anything different.

Heck, we even have more government spending on healthcare, per capita, than many nations with fully nationalized systems.

So if we’re not buying better health outcomes with all this money, what are we getting?

The blunt answer is bureaucracy and inefficiency. Here are some excerpts I shared years ago from a column by Robert Samuelson.

There are 9 times more clerical workers in health care than there are physicians, and twice as many clerical workers as registered nurses. This investment has not paid off in superior outcomes or better customer service, however. …Every analysis of medical care that has been done highlights the significant waste of resources in providing care. Consider a few examples: one study found that physicians spent on average of 142 hours annually interacting with health plans, at an estimated cost to practices of $68,274 per physician (Casalino et al., 2009). Another study found that 35 percent of nurses’ time in medical/surgical units of hospitals was spent on documentation (Hendrich et al., 2008).

Let’s close with a chart from a left-wing group that wants a single-payer system.

And this chart clearly makes a compelling case that the current approach in the United States is very wasteful.

For what it’s worth, I’m slightly skeptical about the veracity of the numbers. Why, for instance, would there be a sudden explosion of administrators starting about 1990?

But even if the data is overstated, I’m sure the numbers are still bad. We see the same thing in other areas of our economy where government-instigated third-party payer enables waste and featherbedding. Higher education is an especially shocking example.

The real issue is how to solve the problem. Our leftist friends think a single-payer healthcare system would solve the problem, but that would be akin to nationalizing grocery stores to deal with the inefficiencies created by food stamps and agriculture subsidies.

The real answer, as Julie Borowski explains in this video, is unraveling all the government interventions that caused the problem in the first place.

And if you want another video on the topic, here’s a Dutch expert making similar points. I also recommend this clever cartoon video that explains third-party payer. And this Reason video on how costs are lower when actual markets operate.

And if aren’t already numbed by lots of data, Mark Perry and Devon Herrick have more evidence of lower costs when third-party payer is reduced.

We have reached the 50th full day of the Trump Presidency.

In that span of time, we’ve had lots of political wrangling between Trump and the media. We’ve been introduced to the concept of the “Deep State” (yes, there is a permanent bureaucracy that acts to protect its own interests, but it’s silly to call it a conspiracy). There have been some controversial executive orders. And Trump made his big speech to Congress.

Lots of noise, though, does not mean lots of action. The President hasn’t signed any big legislation to repeal Obamacare, or even any legislation to tinker with Obamacare. There haven’t been any big changes on fiscal policy, either with regards to spending or taxes.

Heck, Trump hasn’t even told us what he really thinks on some of these issues.

In other words, the biggest takeaway after 50 days is that we still don’t know whether Trump is going to make government bigger or smaller.

I address some of these issues in two recent interviews. We’ll start with this discussion on the day of Trump’s Joint Address. I mostly focus on the need for entitlement reform and explain how Trump could do the right thing for America…if he wants to.

You’ll also notice, right at the end of the interview, that I made sure to sneak in a reference to fiscal policy’s Golden Rule. Gotta stay on message!

In this second interview, which occurred a couple of days later, I start the conversation by fretting about how the border-adjustable tax could kill the chances of getting good tax policy.

In the latter part of the interview, the discussion shifts to infrastructure and I make the rare point that we should copy Europe and get the private sector more involved (it’s generally a good idea to do the opposite of Europe, to be sure, but there are a small handful of other areas – including corporate tax rates, Social Security, and privatized postal services – where various European countries are ahead of us).

The bottom line is that we didn’t know before the election whether Trump wants to limit the burden of government, and we still don’t know today. My guess last year was that we’ll get the wrong answer, though I confess that the jury is still out.

A couple of years ago, filled with disgust at the sleazy corruption of the federal Leviathan, I put forth a simple explanation for what happens in Washington, DC.

I call it the “First Theorem of Government,” and I think it accurately reflects the real purpose and operation of government. Except I probably should have added lobbyists and contractors. And it goes without saying (though I probably should have said it anyhow) that politicians are the main beneficiaries of this odious racket.

I think this theorem has stood the test of time. It works just as well when Republicans are in charge as it does when Democrats are in charge.

But it doesn’t describe everything.

For instance, Republicans have won landslide elections in recent years by promising that they will repeal Obamacare the moment they’re in charge. Well, now they control both Congress and the White House and their muscular rhetoric has magically transformed into anemic legislation.

This is very disappointing and perhaps I’ll share some of Michael Cannon’s work in future columns about the policy details, but today I want to focus on why GOP toughness has turned into mush.

In part, this is simply a reflection of the fact the rhetoric of politicians is always bolder than their legislation (I didn’t agree with 98 percent of what was said by Mario Cuomo, the former Governor of New York, but he was correct that “You campaign in poetry. You govern in prose.”)

But that’s just a small part of the problem. The real issue is that it’s relatively easy for GOP politicians to battle against proposed handouts and it’s very difficult to battle against existing handouts. That’s because government goodies are like a drug. Recipients quickly get hooked and they will fight much harder to preserve handouts than they will to get them in the first place.

And that’s the basic insight of the “Second Theorem of Government.”

Here’s a recent interview on FBN. The topic is the Republican reluctance to fully repeal Obamacare. I only got two soundbites, and they both occur in the first half of the discussion, but you can see why I was motivated to put forth the new theorem.

Simply stated, I’m disappointed, but I’m more resigned than agitated because this development was so sadly predictable.

And here are a couple of follow-up observations. I guess we’ll call them corollaries to the theorem.

  1. You break it, you buy it – Government intervention had screwed up the system well before Obamacare was enacted, but people now blame the 2010 law (and the Democrats who voted for it) for everything that goes wrong with healthcare. Republicans fear that all the blame will shift to them if their “Repeal and Replace” legislation is adopted.
  2. Follow the money – What’s partly driving GOP timidity is their desire not to anger many of the interest groups – such as state governments, hospitals, doctors, insurance companies, etc – who benefit from various Obamacare handouts. That’s what is motivating criticism for politicians such as Ohio’s John Kasich and Alaska’s Lisa Murkowski.
  3. Don’t throw the baby out with the bathwater – The “Cadillac Tax” is the one part of Obamacare that’s worth preserving because it will slowly cut back on the distorting tax preferences that lead to over-insurance and third-party payer. For what it’s worth, the GOP plan retains that provision, albeit postponed until 2025.
  4. The switch in time that saved…Obamacare – I’m still upset that Chief Justice John Roberts (aka, the reincarnation of the 1930s version of Justice Roberts) put politics above the Constitution by providing the decisive vote in the Supreme Court decision that upheld Obamacare. If the law had been blocked before the handouts began, we wouldn’t be in the current mess.

For these reasons (as well as other corollaries to my theorem), I’m not brimming with optimism that we’ll get real Obamacare repeal this year. Or even substantive Obamacare reform.

P.S. Now you know what I speculated many years ago that Obamacare would be a long-run victory for the left even though Democrats lost many elections because of it. I sometimes hate when I’m right.

What’s the right way to define good tax policy? There are several possible answers to that question, including the all-important observation that the goal should be to only collect the amount of revenue needed to finance the legitimate functions of government, and not one penny above that amount.

But what if we want a more targeted definition? A simple principle to shape our understanding of tax policy?

I’m partial to what I wrote last year.

the essential insight of supply-side economics…when you tax something, you get less of it.

I’m not claiming this is my idea, by the way. It’s been around for a long time.

Indeed, it’s rumored that Reagan shared a version of this wisdom.

I don’t know if the Gipper actually said those exact words, but his grasp of tax policy was very impressive. And the changes he made led to very good results, even if folks on the left still refuse to believe the IRS data showing that Reagan’s lower tax rates on the rich generated more revenue.

In any event, our friends on the nanny-state left actually understand this principle when it suits their purposes. They propose sugar taxes, soda taxes, carbon taxes, housing taxes, tanning taxes, tobacco taxes, and even “adult entertainment” taxes with the explicit goal of using the tax code to reduce the consumption of things they don’t like.

I don’t like the idea of government trying to dictate people do with their own money, but these so-called sin taxes generally are successful because supply-siders are right about taxes impacting incentives.

But that doesn’t mean it’s always popular when statist governments impose such policies. At least not in Belarus, according to a story from RFERL.

Protests over a new tax aimed at reducing social welfare spread beyond the Belarusian capital, as thousands took to the streets in Homel and other towns. Along with similar protests two days earlier in Minsk, the February 19 demonstrations were some of the largest in the country in years. In Homel, near the border with Russia, at least 1,000 people marched and chanted slogans against the measure, known as the “Law Against Social Parasites.”

But what are “social parasites” and what does the law do?

…the law…requires people who were employed fewer than 183 days in a calendar year to pay a tax of about $200. …The measure is aimed at combating what President Alyaksandr Lukashenka has called “social parasitism.”

For what it’s worth, the Washington Post reports that the government had to back down.

The protesters won. On Thursday, Lukashenko announced that he won’t enforce the measure this year, though he’s not scrapping it. “We will not collect this money for 2016 from those who were meant to pay it,” he told the state news agency Belta. Those who have already paid will get a rebate if they get a job this year. The law, signed into effect in 2015, is reminiscent of Soviet-era crackdowns against the jobless, who undermined the state’s portrayal of a “workers’ paradise.”

That’s good news.

If people can somehow survive without working (assuming they’re not mooching off taxpayers, which is something that should be discouraged), more power to them. It’s not the life I would want, but it’s not the role of government to tax them if they don’t work. Or if they simply choose to work 182 days per year.

Mr. Lukashenko should concentrate instead on taking the heavy foot of government off the neck of his people. According to the most-recent Index of Economic Freedom, Belarus is only ranked #104, with especially weak scores for “rule of law” and “open markets.”

If he turns his country into a Slavic version of Hong Kong, based on free markets and small government, people will be clamoring to work. But I’m not holding my breath expecting that to happen.

P.S. While government shouldn’t tax people for not working, it’s also a bad idea to subsidize them for not working. Indeed, there’s even a version of the Laffer Curve for poverty and redistribution.

P.P.S. Given the low freedom ranking for Belarus, I suspect the real parasites in that country (just like in the U.S.) are the various interest groups that are feeding from the government trough.

P.P.P.S. On an amusing note, here’s the satirical British video on killing the poor instead of taxing them.

The centerpiece of President Trump’s tax plan is a 15 percent corporate tax rate.

Republicans in Congress aren’t quite as aggressive. The House GOP plan envisions a 20 percent corporate tax rate, while Senate Republicans have yet to coalesce around a specific plan.

Notwithstanding the absence of a unified approach, you would think that the stage is set for a big reduction in America’s anti-competitive corporate tax rate, which is the highest in the developed world (if not the entire world) and creates big disadvantages for American workers and companies.

If only.

While I am hopeful something will happen, there are lots of potential pitfalls, including the “border-adjustable tax” in the House plan. This risky revenue-raiser has created needless opposition from major segments of the business community and could sabotage the entire process. And I also worry that momentum for tax cuts and tax reform will erode if Trump doesn’t get serious about spending restraint.

What makes this especially frustrating is that so many other nations have successfully slashed their corporate tax rates and the results are uniformly positive.

My colleague Chris Edwards recently shared the findings from an illuminating study published by the London-based Centre for Policy Studies. It examines what’s happened in the United Kingdom as the corporate tax rates has dropped from 35 percent to 20 percent over the past 30 years. Here’s some of what Chris wrote about this report.

New evidence comes from Britain… It shows the tax rate falling from 35 percent to 20 percent since the late 1980s and corporate tax revenues as a percentage of gross domestic product (GDP) trending upwards. As the rate has fallen, the tax base has grown more than enough to keep money pouring into the Treasury. …the CPS study says, “In 1982-83 when the rate was 52%, corporation tax receipts yielded revenues equivalent to 2% of GDP. Corporation tax now raises over 2.3% of GDP when the headline rate is at just 20%.”

And keep in mind that GDP today is significantly greater in part because of a better corporate tax system.

Here’s the chart from the CPS study, showing the results over the past three decades.

 

The results from the most-recent round of corporate rate cuts are especially strong.

In 2010-11, the government collected £36.2 billion from a 28 percent corporate tax. The government expected its corporate tax package—including a rate cut to 20 percent—to lose £7.9 billion a year by 2015-16 on a static basis. …But that analysis was apparently too pessimistic: actual revenues in 2015-16 had risen to £43.9 billion. So in five years, the statutory tax rate fell 29 percent (28 percent to 20 percent) but revenues increased 21 percent (£36.2 billion to £43.9 billion). That is dynamic!

None of this should be a surprise.

Big reductions in the Irish corporate tax rate also led to an uptick in corporate receipts as a share of economic output. And remember that the economy has boomed, so the Irish government is collecting a bigger slice of a much bigger pie.

And Canadian corporate tax cuts generated the same effect, with no drop in revenues even though (or perhaps because) the federal tax rate on business has plummeted to 15 percent.

Would we get similar results in the United States?

According to experts, the answer is yes. Scholars at the American Enterprise Institute estimate that the revenue-maximizing corporate tax rate for the United States is about 25 percent. And Tax Foundation experts calculate that the revenue-maximizing rate even lower, down around 15 percent.

I’d be satisfied (temporarily) if we split the difference between those two estimates and cut the rate to 20 percent.

Let’s close with some dare-to-hope speculation from Joseph Sternberg of the Wall Street Journal about what might happen in Europe if Trump significantly drops the U.S. corporate tax rate.

Donald Trump says many things that alarm Europeans, but one of the bigger fright lines may have come in last week’s address to Congress: “Right now, American companies are taxed at one of the highest rates anywhere in the world. My economic team is developing historic tax reform that will reduce the tax rate on our companies so they can compete and thrive anywhere and with anyone.” What’s scary here to European ears is…the idea that tax policy is now fair game when it comes to global competitiveness. …One of the biggest political gifts Barack Obama gave European leaders was support for their notion that low tax rates are unfair and that taxpayers who benefit from them are somehow crooked. Europeans pushed that line among themselves for years, complaining about low Irish corporate rates, for instance. The taboo on tax competition is central to the political economy of Europe’s welfare states… Mr. Obama…backed global efforts against “base erosion and profit shifting,” meaning legal and efficient corporate tax planning. The goal was to obstruct competition among governments… The question now is how much longer Europe could resist widespread tax reform if Mr. Trump brings in a 20% corporate rate alongside rapid deregulation—or what the consequences will be in terms of social-spending trade-offs to a new round of tax cutting. Dare to dream that Mr. Trump manages to trigger a new debate about competitiveness in Europe.

Amen. I’m a huge fan of tax competition because it pressures politicians to do the right thing even though they would prefer bad policy. And I also like the dig at the OECD’s anti-growth “BEPS” initiative.

P.S. I want government to collect less revenue and spend less money, so the fact that a lower corporate tax rate might boost revenue is not a selling point. Instead, it simply tells us that the rate should be further reduced. Remember, it’s a bad idea to be at the revenue-maximizing point on the Laffer Curve (though that’s better than being on the downward-sloping side of the Curve, which is insanely self-destructive).

The story of the private sector is that competition generates ever-more output in ways that bring ever-higher living standards to ever-greater numbers of people.

By contrast, the story of the government is inefficiency and waste as interest groups figure out how to grab ever-larger amounts of unmerited goodies, often while doing less and less.

In some cases, where government is doing bad things (stealing property, subsidizing big corporations, fleecing poor people, etc), I actually favor inefficiency.

Sadly, the government seems to be most inefficient in areas where we all hope for good results. Education is a powerful (and sad) example.

A story in the LA Weekly is a perfect illustration of this phenomenon.

A little more than a decade ago, something unexpected happened. The district’s enrollment, which peaked in 2004 at just under 750,000, began to drop. …Today, LAUSD’s enrollment is around 514,000, a number that the district estimates will fall below half a million by 2018.

Anyone want to guess whether this means less spending?

Of course not.

L.A. Unified’s costs have not gone down. They’ve gone up. This year’s $7.59 billion budget is half a billion dollars more than last year’s. …Today, the district has more than 60,000 employees, fewer than half of whom are teachers. …LAUSD’s administrative staff had grown 22 percent over the previous five years. Over that same period of time, the number of teachers had dropped by 9 percent.

If these trends continue, maybe we’ll get an example of “peak bureaucracy,” with a giant workforce that does absolutely nothing!

Based on his famous chart, the late Andrew Coulson probably wouldn’t be too surprised by that outcome.

There’s also lots of waste and inefficiency when Uncle Sam gets involved. With great fanfare, President Obama spent buckets of money to supposedly boost government schools. The results were predictably bad.

It was such a failure than even a story in the Washington Post admitted the money was wasted (in other words, there wasn’t enough lipstick to make the pig look attractive).

One of the Obama administration’s signature efforts in education, which pumped billions of federal dollars into overhauling the nation’s worst schools, failed to produce meaningful results, according to a federal analysis. Test scores, graduation rates and college enrollment were no different in schools that received money through the School Improvement Grants program — the largest federal investment ever targeted to failing schools — than in schools that did not. …The School Improvement Grants program…received an enormous boost under Obama. The administration funneled $7 billion into the program between 2010 and 2015… Arne Duncan, Obama’s education secretary from 2009 to 2016, said his aim was to turn around 1,000 schools every year for five years. ..The school turnaround effort, he told The Washington Post days before he left office in 2016, was arguably the administration’s “biggest bet.”

It was a “bet,” but he used our money. And he lost. Or, to be more accurate, taxpayers lost. And children lost.

Some education experts say that the administration closed its eyes to mounting evidence about the program’s problems in its own interim evaluations, which were released in the years after the first big infusion of cash. …Smarick said he had never seen such a huge investment produce zero results. …Results from the School Improvement Grants have shored up previous research showing that pouring money into dysfunctional schools and systems does not work.

Indeed, I’ve seen this movie before. Many times. Bush’s no-bureaucrat-left-behind initiative flopped. Obama’s latest initiative flopped. Common Core also failed. Various schemes at the state level to dump more money into government schools also lead to failure. Local initiative to spend more don’t lead to good results, either.

Gee, it’s almost as if a social scientist (or anybody with a greater-than-room-temperature IQ) could draw a logical conclusion from these repeated failures.

And, to be fair, some folks on the left have begun to wake up. Consider this recent study by Jonathan Rothwell, published by Brookings, which has some very sobering findings.

…the productivity of the education sector depends on the relationship between how much it generates in value—learning, in this case—relative to its costs. Unfortunately, productivity is way down. …This weak performance is even more disturbing given that the U.S. spends more on education, on a per student basis, than almost any other country. So what’s going wrong? …In primary and secondary public education, where price increases have been less dramatic, there has been a decline in bureaucratic efficiency. The number of students for every district-level administrator fell from 519 in 1980 to 365 in 2012. Principals and assistant principals managed 382 students in 1980 but only 294 in 2012.

The conclusion is stark.

Declining education productivity disproportionately harms the poor. …unlike their affluent peers, low-income parents lack the resources to overcome weak quality by home-schooling their children or hiring private tutors. Over the last 30 to 40 years, the United States has invested heavily in education, with little to show for it. The result is a society with more inequality and less economic growth; a high price.

Incidentally, even private money is largely wasted when it goes into government schools. Facebook’s founder famously donated $100 million to Newark’s schools back in 2010.

So how did that work out? As a Washington Post columnist explained, the funds that went to government schools was basically money down the toilet.

It is a story of the earnest young billionaire whose conviction that the key to fixing schools is paying the best teachers well collided with the reality of seniority protections not only written into teacher contracts but also embedded in state law.

But there is a bit of good news. Some of the money helped enable charter schools.

there is a more optimistic way to interpret the Newark experience, much of which has to do with the success of the city’s fast-growing charter schools. …The reasons are obvious. Unencumbered by bureaucracy and legacy labor costs, charters can devote far more resources to students, providing the kind of wraparound services that students like Beyah need. An analysis by Advocates for Children of New Jersey noted “a substantial and persistent achievement gap” between students at charter and traditional public schools: “For example, while 71 percent of charter school students in Newark passed third-grade language arts tests in 2013-14 — higher than the state average of 66 percent — only 41 percent of students in Newark traditional public schools passed those tests.”

The Wall Street Journal also opined about this topic.

‘What happened with the $100 million that Newark’s schools got from Facebook’s Mark Zuckerberg?” asks a recent headline. “Not much” is the short answer. …The Facebook founder negotiated his gift with New Jersey Gov. Chris Christie and then-Mayor Cory Booker in 2010, and it flowed into Newark’s public-school system shortly thereafter. The bulk of the funds supported consultants and the salaries and pensions of teachers and administrators, so the donation only reinforced the bureaucratic and political ills that have long plagued public education in the Garden State.

The editorial explains that this isn’t the first time a wealthy philanthropist squandered money on government schools.

In 1993, philanthropist Walter Annenberg sought to improve education by awarding $500 million to America’s public schools. …But the $1.1 billion in spending that resulted, thanks to matching grants, accomplished little. An assessment by the Consortium on Chicago School Research on the schools that received funds reached a dismal conclusion: “Findings from large-scale survey analyses, longitudinal field research, and student achievement test score analyses reveal that . . . there is little evidence of an overall Annenberg school improvement effect.” The report did not explain why the campaign failed, but the reason is fairly obvious: The funds wound up in the hands of the unions, administrators and political figures who created the problems in the first place.

Fortunately, not all rich people believe in wasting money. Some of them actually want to help kids succeed.

In 1998, John Walton and Ted Forstmann each gave $50 million to fund scholarships for low-income children to attend private schools. More than 140,000 students have attended schools with graduation and college matriculation rates that exceed 90% instead of going to the failing schools in their neighborhoods. Earlier this summer, hedge-fund manager John Paulson pledged $8.5 million to the Success Academy charter-school network, where 93% of students are proficient in math, compared with 35% of their traditional public-school peers. His gift will allow more such schools to open. The financier Stephen Schwarzman and his wife, Christine, a former attorney, donated $40 million to help endow the Inner-City Scholarship Fund, which provides financial aid to needy children attending Catholic schools in the Archdiocese of New York.

Which is a good segue into the real lesson for today about the type of reforms that actually could boost education.

I’ve shared in the past very strong evidence about how school choice delivers better education results.

Which is what everyone should expect since competition is superior to monopoly.

Well, as explained in another Wall street Journal editorial, it also generates superior results at lower cost. Especially when you factor in the long-run benefits.

…a study shows that Milwaukee’s landmark voucher program will save taxpayers hundreds of millions of dollars. …the Wisconsin Institute for Law and Liberty, a nonprofit that advocates for limited government and education reform, decided to look at the relative cost and benefits of choice schools. And, what do you know, it found that students participating in Milwaukee’s voucher program will provide the city, state and students nearly $500 million in economic benefits through 2035 thanks to higher graduation and lower crime rates. …More education translates into higher incomes, more tax revenue and a lower likelihood of reliance on government welfare or other payments. Meanwhile, greater economic opportunity also prevents young adults from turning to crime.

Wow. It’s not just that it costs less to educate children in private schools. There’s also a big long-run payoff from having more productive (and law-abiding) citizens.

That’s a real multiplier effect, unlike the nonsense we get from Keynesian stimulus schemes.

P.S. School choice doesn’t automatically mean every child will be an educational success, but evidence from SwedenChile, and the Netherlands shows good results after breaking up state-run education monopolies.

And there’s growing evidence that it also works in the limited cases where it exists in the United States.

P.P.S. Or we can just stick with the status quo, which involves spending more money, per student, than any other nation while getting dismal results.

P.P.P.S. This is a depressing post, so let’s close with a bit of humor showing the evolution of math lessons in government schools.

P.P.P.P.S. If you want some unintentional humor, the New York Times thinks that education spending has been reduced.

Once of the reasons that tax increases in Washington are such a bad idea (and one of the reasons why a value-added tax is an especially bad idea) is that the prospect of additional tax revenue kills any possibility of genuine entitlement reform. Simply stated, politicians won’t do the heavy lifting of fixing those programs if they think can use a tax hike to prop up the current system for a few more years.

However, if we don’t fix the entitlements, the United States faces a very grim fiscal future regardless of new revenue because the burden of government spending will be expanding faster than the growth of the private economy.

Indeed, tax hikes presumably will accelerate the problems by weakening economic performance, creating an even bigger gap between the growth of government spending and the growth of productive output. Sort of a double violation of my Golden Rule.

Well, the same thing is happening in Illinois.

That state is a fiscal disaster. Taxes already are high, government spending already is excessive, and promises of lavish future benefits for government bureaucrats have created a mountain of unfunded liabilities. To make matters worse, there’s a never-ending trickle of taxpayers fleeing to other states, thus making the long-run outlook even worse.

A column in today’s Wall Street Journal discusses this unfolding disaster.

…what about the state’s fiscal apocalypse, which is not only happening right now but has plunged Illinois into a bona fide financial disaster? …the state has amassed $11 billion in unpaid bills—predicted to climb to more than $27 billion by the end of 2019. Illinois is facing the worst pension crisis of any U.S. state, with unfunded obligations totaling $130 billion, according to the state’s Commission on Government Forecasting and Accountability. That amounts to about $10,000 in debt for each resident. …Illinois also had the lowest credit rating among the 50 states as of October, when Moody’s Investors Service downgraded it again… Given all this, it’s no surprise that people are leaving. In 2016 Illinois lost more residents than any other state—for the third consecutive year. A total of 37,508 people fled, leaving the state’s population at its lowest level in nearly a decade.

By the way, the net payers of tax are the ones leaving, not the net consumers of tax. And every time one of the geese with golden eggs decides to fly away, Illinois falls deeper into a hole.

I discussed this phenomenon in a column for The Hill.

…there are some very uncompetitive, high-tax states, such as Illinois, that are in deep trouble due to internal migration.Most people have focused on the overall population loss of 37,508 in Illinois, but the number that should worry state politicians is, on net, a staggering 114,144 people left for other states. Only New York (another high-tax state with a grim future) lost more people to internal migration.Of course, what really matters, at least from a fiscal perspective, is the type of person who leaves. Data from the internal revenue service shows that states like Illinois are losing people with above-average incomes. In other words, the net taxpayers are escaping.

And don’t forget that Illinois is increasingly uncompetitive compared to neighboring states.

Here’s a blurb from a Wall Street Journal editorial in January,

Nearby Kentucky passed a right-to-work law last week and Missouri is expected to take up similar legislation in coming weeks. …this would leave Illinois, a non-right-to-work state, as an island with undesirable labor laws surrounded by states including Michigan, Indiana and Wisconsin that provide more worker choice and business flexibility.

I have some theoretical problems with right-to-work laws, but the WSJ is correct that private employers tend to avoid states where unions wield a lot of power.

Also, we can’t forget that the main city in Illinois has its own set of problems.

As discussed in an article for the American Thinker, Chicago adds crime and corruption to the mix.

Chicago has become the icon of bloody violence on its streets, but corruption also is part of its misery… Chicago’s city government is known for much more than just its one-sidedness.  From Mayor Richard J. Daley’s well known rackets of yesteryear to former U.S House representative Jesse Jackson, Jr. (who just last year completed his prison sentence after having pleaded guilty to multiple federal charges including fraud, conspiracy, wire fraud, criminal forfeiture, and more), the list of Democrats committing and getting caught committing fraud, taking bribes, running scams, and other malfeasance while in office is very long. …As reported by Gazette.com, “according to Illinois corruption researchers Dick Simpson and Thomas Gradel, more than 30 Chicago aldermen have been convicted of crimes since 1973, most of them on bribery and extortion charges. “More than 1,000 public officials and businessmen in Illinois have been convicted of public corruption since 1970, including imprisoned former Gov. Rod Blagojevich. But corruption among politicians on Chicago’s premier lawmaking body has been ‘particularly persistent’, the researchers wrote in an anti-corruption report.”

Gee, what a surprise. Politicians create big government in part so they have lots of goodies to distribute, and they then use those goodies to extort money from people.

Hmmm…, where have I seen that message before?

But let’s not get distracted. We’ve now established that Illinois is a giant mess. We also know that the state can only be saved if there is both short-run spending restraint and long-run spending restraint (to deal with unaffordable benefits promised to the state’s massive bureaucracy). Though we also know that the chances of getting those necessary reforms will evaporate if tax hikes are an option.

So is anybody surprised that the state’s supposedly anti-tax governor is getting seduced/pressured into throwing taxpayers under the bus?

The Wall Street Journal opines on this development.

Illinois Governor Bruce Rauner has been trying to pull the Land of Lincoln out of economic decline…, and it’s a losing battle. After two years without a state budget, Mr. Rauner is now bending as Democrats promise to hold the budget hostage if he doesn’t sign a tax increase. In his State of the State address last week, Mr. Rauner said he was open to “consider revenue increases” in conjunction with “job-creating changes” in pursuit of a budget deal. He endorsed negotiations underway with state lawmakers to craft a “grand bargain”…the speech was greeted with derision by the state’s Springfield mafia that assumes it now has the Governor where it wants him. …The deal now being crafted in the state Senate would increase the state’s flat income-tax rate to somewhere around 5% from the current 3.75%. …Democrats are still peddling that they can tax their way out of Illinois’s economic decline, while taxpayers are picking up and heading to neighboring states.

Incidentally, there was a temporary hike in the tax to 5 percent a few years ago. How did that work out?

…the years of an elevated income tax produced one of the country’s weakest state economic recoveries, with bond-rating declines in Chicago and staggering deficits statewide. …Senate President John Cullerton said the point of the temporary hike was to pay pensions, “pay off our debt [and] to have enough money to pay the interest on that debt.” But the roughly $31 billion it generated made hardly a dent. Since 2011 the unfunded pension liability in Illinois has grown by $47 billion, even as the tax hike was mostly spent on pensions.

Here’s the bottom line. Governor Rauner made a huge mistake by stating that he would “consider revenue increases.”

Illinois, after all, is not suffering from inadequate tax collections.

Moreover, now that Rauner has waved the white flag, there’s a near-zero chance that he’ll be able to get something in exchange such as a Colorado-style spending cap or much-need constitutional reform to control pension expenditures.

Instead, higher revenues will trigger even more wasteful outlays (as leftists in the state sometimes accidentally admit).

I guess there’s still a chance he’ll do what’s best for the state and reject tax hikes, but as of now it looks like Rauner will be the next winner of the Charlie Brown Award.

Oh, and he’ll also jeopardize his own political career. Which helps to explain why the GOP is known as the “stupid party.”

P.S. I don’t think it beats my examples from Greece and Japan, but Illinois at least can compete in the dumbest-regulation contest.

P.P.S. Illinois is a terrible state for gun rights, and it even persecutes people who use guns to fight crime. The only silver lining to that dark cloud is this amusing example of left-wing social science.

%d bloggers like this: