Heritage Foundation Leadership for America

The Monitor looks into consumer-driven health care and publishes the best overview we've seen in a general-interest publication to date.

Their explanation of the incentives is especially well put:

As employees shoulder a bit more of the cost of their formerly "free" health services, they will demand more and better information about the quality and price of providers (hospitals and doctors). They'll become more interested in steps they can take to prevent illnesses and how they can better manage chronic conditions and avoid costly hospitalization. All of this will drive down costs as the principles of retail economics are finally applied to an industry that economists have seen as a black hole, a void in which simple information - like what medical services really cost and why - is missing.

"I think [consumer-driven healthcare] is going to catch on because there are tremendous market forces pushing us that way," says Glenn Melnick, an expert on health insurance at the University of Southern California in Los Angeles. Once consumers make more of their own decisions, they will demand better information.

"How do you know your doctor is any good? You can learn more about a Motel 6 on the Internet than you can about your doctor," he says. A consumer- driven system not only may hold down costs in the largest sector of the United States' economy - $1.4 trillion, or 14 percent - but it "has the potential to ignite a badly needed quality revolution in healthcare as well," he says.

But our favorite thought in the piece comes, perhaps not surprisingly, from Harvard's Regina Herzlinger. Critics of HSAs tick off a litany of faults with these plans, which are far from perfect. But they, says Hertzlinger, a major step forward, and critics must not ignore that the current health care system will soon be unworkable. With 45 million uninsured, it may be already.

She tells the Monitor, "Many people are uninsured because health insurance costs too much." So, "is it terrible for them to now have access to affordable health insurance?"

Hardly.

We are still in the early days of consumer-driven medicine, to be sure. But the results so far, as gauged by consumer interest and cost savings, are quite encouraging. Optimism, at this point, seems well-placed.

"This week the House will begin the process to protect marriage in America," said House Majority Leader Tom DeLay on Tuesday. The House is voting today on a measure that would protect traditional marriage by defining it as a union between a man and a woman. The amendment is likely to fail this time around, said Delay, but the vote will ?put House members on the record and raise public awareness of the issue.?

In a letter to Rep. Marilyn Musgrave, Edwin Meese defends the amendment against criticisms that it disrespects the founders? sense of federalism. ?In order to guard the States? liberty to determine marriage policy in accord with the principles of federalism,? Meese explains, ?society as a whole must prevent the institution itself from being judicially redefined out of existence.?

Matt Spaulding argues the need for an amendment above and beyond a legislative solution like the Defense of Marriage Act. ?It is risky,? he writes, ?to rely solely on the federal DOMA? that may be overturned at any time by activist judges. Thus, now is the time, he writes, ?for the sake of constitutional government and the sake of marriage, to amend the U.S. Constitution to preserve marriage as the legal union between one man and one woman.?

Arnold Schwarzenegger has proven quite adept at wielding his veto pen.

Via Out of Control, here is a bit of the Governor's veto message for a bill that would have allowed schools to teach personal finance and budgeting (which they are already allowed to do):

While teaching financial responsibility is important for our children, I would welcome future legislation that requires all members of the State Legislature to complete a course in financial management and responsibility.

Requiring legislators to take a refresher course on managing finances may be the wisest investment the State could ever make. California may never have found itself in the deep fiscal crisis that it has had to endure, if such a requirement were signed into law earlier.

One of the best lessons we can offer to our children, is to practice sound financial principles, and I believe the Legislature should begin teaching kids by example.

And in another smart move, Schwarzenegger also vetoed a bill that would block state contractors from outsourcing.

His explanation: "While this bill purports to be about saving jobs, it would actually be detrimental to our economy and the creation of new jobs in the state... The bill adds additional restrictions on state contractors, thereby resulting in less competition at the state and local levels and ultimately result in higher prices paid by governmental entities for goods and services."

We couldn't have put it better ourselves.

For ten years, the Milwaukee Parental Choice Program (MPCP) has awarded scholarships by lottery to students in the Milwaukee area. MPCP is the longest-running voucher program in the United States, and it has provided fertile soil for education researchers looking to perform random-assignment studies, the gold standard of social science research. Random-assignment studies compare students who were awarded vouchers though the lottery process with those who applied but did not receive them.

Unfortunately, the last random-assignment study of the MPCP was completed nearly a decade ago and has become dated. Worse, since this last study, the program expanded to include religious schools; no data exists on how this affected the program.
 
Until now, that is. Jay P. Greene, Ph.D., the Manhattan Institute's prolific and always insightful education researcher, has published "Graduate Rates for Choice and Public School Students in Milwaukee" (PDF link), a random-assignment study looking at high school graduation rates in the MPCP.

MPCP's achievement is impressive: According to Greene's study, 64 percent of voucher students who started 9th grade in 1999 graduated in 2003, compared to only 36 percent of public school students who graduated. Even students at Milwaukee's six selective public schools, who are likely to be more advantaged than randomly chosen voucher students, had a graduation rate of only 41 percent in 2003.

And in case you're not convinced, Greene also reports similar results using the Cumulative Promotion Index (CPI) technique, developed by the Harvard Civil Rights Project and the Urban Institute. Under the CPI method, 67 percent of voucher students graduated on time, compared to only 34 percent of non-selective public school students who graduated on time.

In a new paper, Paul Rosezweig and James Carafano argue that the Senate intelligence reform bill?s information sharing provision is a step in the right direction, but not a cure-all for our intelligence woes. But the Senate language is too specific. ?The NID should not be hamstrung with a legislative solution but should be allowed to fashion the best program to obtain the best results from government information systems.?

Rosenzweig and Carafano recommend that legislators proceed carefully, keeping information sharing in mind and remembering to ?give the NID authority to set policies across the community, review budget allocations and senior personnel appointments, and set priorities to direct efforts to national intelligence needs.?

The U.S. Armed Forces have met or surpassed recruiting and retention goals in nearly every area of the board in 2004. The Army, Navy, and the Marine Corps met their markers, while the Air Force exceeded authorized personnel strength by 20,000 troops. "There are people right now that want to join that we can't accommodate," said Air Force Recruit Services Spokesman Edgar Castillo. The National Guard is the only area that will fall short of recruitment goals, while both the Guard and Army reserves will fall shy of their retention rates by 1 and 3 percent respectively.

Despite months of haggling, there will likely be no compromise on ?a six-year surface transportation reauthorization bill? during the 109^th Congress, CQ Today reports. Conference leaders James Inhofe (R-OK) and Rep. Don Young (R-AL) have lent their support to a bill that will authorize spending at current levels for the next eight months, the sixth such extension in the last year. The House and Senate had finally agreed on a price tag of $299 billion, but ?negotiations snagged on a formula to guarantee states a certain amount of funding. Donor states, which get less from the Highway Trust Fund than they send to Washington in taxes, have demanded a minimum 95 percent guarantee,? well above both the current 91.5 percent and the proposed 92.2 percent. Perhaps the frustrated conferees should consult this advice from Ron Utt.

A New York federal judge has declared unconstitutional the issuance of National Security Letters, which allow ?the FBI to secretly obtain Internet and telephone records without a judge's warrant.? Judge Victor Marrero ruled in favor of an undisclosed internet service provider that refused to comply with such a letter, writing that ?judicial oversight was necessary because the potential for abuse of the search and seizure power was too great to allow FBI agents to police themselves. He also wrote that the permanent gag order? imposed by National Security Letters ?must be limited only to situations when an on-going investigation could still be harmed.?

Heritage legal analyst Paul Rosenzweig is ?skeptical of the reasoning, especially with respect to the gag order provision? and predicts the Justice Department will have ?a good chance of success? on appeal. While the ruling has been portrayed as striking down a provision of the Patriot Act, National Security Letters have existed since 1986. Indeed, much of the 2001 act simply ?gives investigators familiar tools to use against a new threat,? as this reader explains.

So baseball is coming back to D.C.

We have been skeptical for some time of the much-touted economic benefits of professional sports. Will Anacostia be revitalized by the Major Leagues? Baltimore's experience may provide some indication. As the Washington Post has noted, "economic spinoffs from Orioles Park have yet to reach blighted communities just a few blocks away." And as Ronald Utt chronicles exhaustively, "Baltimore's poor return on the public's investment in sports stadiums is typical of the lackluster job-generating experience of such entertainment facilities." Strong evidence indicates that the absence or presence of a professional sports team has no impact at all on local per capita income.

The costs, however, are apparent.  The D.C. council will soon be asked to approve a $440 million package to fund construction of a stadium. But "Folks, you have to invest money to make money," one council member exhorted his colleagues, several of whom are balking at the price tag. We, too, appreciate the prospect of profiting off of other's capital. The folks whose money is being spent might think otherwise, however.

The financing plan, says the mayor, won't cost taxpayers a dime. Except for businesses, of course, the biggest of which in the District will be forced to pony up a new receipts tax. But taking money from business is like collecting manna that's fallen from the sky, isn't it? It's not as if any of them will move out to the suburbs, right?

Anyway, the Post writes that "Washington is a major league city" and thus "Baseball belongs here." But wouldn't a real major league city have two baseball franchises? Damn the cost, full speed ahead, we say.

Update: See this, too.

The 9/11 Commission recommended strongly that Congress needs to fix its broken oversight of homeland security and intelligence operations. The problem is that responsibility for these two crucial functions is divided between dozens of committees and subcommittees in the House and the Senate. No single committee in each body exercises direct oversight, considering homeland security and intelligence as a coherent whole. Instead, there are turf battles, funding skirmishes, and a neverending schedule of hearings for top officials who ought to be back at the office.

James Carafano describes how bad things have become:

From January to June 2004, Department representatives testified before a staggering 126 hearings. That?s an average of one-and-a-half testimonies for every day of the legislative session. In addition, a typical day for the Department includes at least a dozen meetings or briefings to legislators and staff.
...
multiple committees, with multiple interests and multiple and sometimes conflicting priorities exacerbate the challenge of building a comprehensive, focused national security regime.

The fate of the Faster and Smarter Funding for First Responders Act (H.R. 3266) offers a case in point. The bill was introduced in the House Select Homeland Security Committee to bring strategic focus and discipline to the process of providing grants to state and local governments, but the Committee soon found itself in competition with the House Judiciary Committee and Transportation Committee, both of which felt compelled to offer their own bills, leaving the House Rules Committee to decide which version and which amendments will be considered by the full House. What may well get lost in the competition to protect committee turf is the need to craft legislation that will make the federal grant program a true national security instrument rather than a cash cow for state and local governments.

The Boston Globe reports Congress's response to this stunning state of affairs: indifference. One representative who would have to cede some authority were a permanent homeland security committee created, responded that he is "not overly enthusiastic about all the recommendations made by that commission."

Another Member with turf to lose promises, "We're not going to do something just to satisfy a political schedule or the 9/11 commission."

Rep. Chris Cox will announce today his recommendations for the fate of the House Select Committee on Homeland Security, which is due to expire at the end of the year. Cox should, and likely will, call for the Committee to be made permanent and for other committees to cede turf so that it can effectively oversee homeland security.

We can only imagine what the response to Cox's report will be. Resistance is certain. But will there be hostility, outrage, more digging in of heels?

The current state of oversight is untenable, and a permanent committee to oversee homeland security in the House would be a major step forward. We just hope the chairmen of other committees will be able to see past their parochial interests and recognize that what's at stake in this battle is bigger than turf. Congress has an opportunity to improve the nation's security operations. There's no convincing reason not to take it.

The ever interesting Dan Drezner has a spot on today's op-ed page in the Times. His topic? No surprise, it's outsourcing:

The Government Accountability Office has issued its first review of the data, and one undeniable conclusion to be drawn from it is that outsourcing is not quite the job-destroying tsunami it's been made out to be. Of the 1.5 million jobs lost last year in "mass layoffs'' - that is, when 50 or more workers are let go at once - less than 1 percent were attributed to overseas relocation; that was a decline from the previous year. In 2002, only about 4 percent of the money directly invested by American companies overseas went to the developing countries that are most likely to account for outsourced jobs - and most of that money was concentrated in manufacturing.

The data did show that from 1997 to 2002, annual imports of business, technical and professional services increased by $16.3 billion. However, during that same half-decade, exports of those services increased by $20.5 billion a year. In 2002 alone, the United States ran a $27 billion trade surplus in business services, the sector in which jobs are most likely to be outsourced. The G.A.O. correctly stressed that it is impossible to compute exactly how many jobs are lost because of outsourcing, but unless its figures are off by several orders of magnitude, there's no crisis here.

As we've written many times before, trade in services flows both ways. Even ignoring the direct benefits of outsourcing (lower costs, some job creation, efficiency gains, etc.), the gains to be had from trade in services are massive, and the United States is in a strong position to profit.

Disregard claims that the United States must develop an industrial policy because it ?lags well behind other countries in ?broadband? or new advanced telecommunications services,? writes former FCC Commissioner Harold Furchtgott-Roth. The off-quoted fact that ?America ranks 10th or lower in broadband deployment? among OECD countries ?does not capture the extent of broadband services because many individuals use broadband without subscribing.?

Looking beyond these misleading numbers reveals that ?[t]he United States accounts for a disproportionate share of Internet activity, electronic commerce, and practically every measure of economic activity related to the Internet.? Thus, the intervention variously proposed by the administration, regulatory agencies, Congress, and Senator Kerry would only disrupt the ?benign neglect? under which broadband has thus far prospered.

Debate begins today on provisions in the House version of the intelligence reform bill that would ?expand the ranks of border and immigration agents, expand the government's ability to track ?lone wolf? terrorists, [and] broaden the definition of what constitutes criminal support for terrorists,? the New York Times reports. While Judiciary Committee spokesman Jeff Lungren notes that the bill merely closes ?loopholes in the antiterrorism effort? exposed by the 9/11 commission, opponents have worked themselves into a tizzy over the provisions.

The Times feeds the frenzy by giving space to dubious and contradictory claims: alternately the bill is ?really an anti-immigrant wish list? House leaders want to pass and ?a ?poison pill? that would go down in defeat and doom efforts to create a national intelligence director.? The paper even cites ?accusations? that the bill is a ?backdoor? attempt to renew the Patriot Act, though making information-sharing authority permanent is exactly what Congress needs to do. 

Remember that 'slow patch' when the economy grew at a 2.8 percent annual rate and pundits gabbed that a dip below a 3.0 percent portended doom?

Well, there's no point in worrying any longer. The Commerce Department revised second quarter growth up to 3.3 percent today, leaving the economic doomsayers silent.  

"It appears as if the soft spot may not have been so soft after all," Drew Matus, an economist for Lehman Brothers, told AFP.

So what happened? Initial estimates of the GDP number inflated imports and undercounted exports. And business investment--which by earlier estimates was screaming along at a 12.1 percent pace--rocketed up to 12.5 percent. This is encouraging, as increased capital spending now will likely spur complementary hiring in the near future.

If Senator Bill Frist has his way, the intelligence reform package will be wrapped up by week?s end. In a statement yesterday, the President indicated that he supported the quick passage of the bill but ?opposes any attempt to weaken the full budget authority? of the National Intelligence Director. In a recent report, Heritage experts analyze all the proposals. And in this paper out today, James Carafano and Paul Rosenzweig stress the need for an information-sharing mandate that doesn?t unnecessarily restrict the NID.

If Congress doesn?t act soon, the DoD will be the only department with funding when the 2004 fiscal year ends on Thursday. The major $300 billion, six-year transportation bill as well as annual spending bills for most government departments will likely be delayed until after November?s elections. Continuing resolutions are all but inevitable.

In a letter to transportation bill conferees, Ronald Utt describes what a fiscally-responsible highway bill looks like and what to watch out for. As for the most recent disaster relief bill and $2.9 billion being sought for farmers, Keith Miller and Alison Fraser have a bit of stern advice: ?Budgets are about setting priorities; if disaster relief is to be a priority, Congress should find a way to pay for it in its budget.? Continuing to paint appropriations as ?emergencies? will only whittle away Congress?s little remaining fiscal credibility.

?The Pension Benefit Guaranty Corporation (PBGC), the federal agency that insures private-sector defined-benefit pension plans in the event of bankruptcy, is in bad shape financially and rapidly getting worse,? writes former PBGC chief economist Richard Ippolito.

PBGC is currently running a deficit of $11.2 billion and could be in the hole as much as $85.5 billion if all the plans with low bond ratings failed. Part of the problem is structural: the law allows both chronic underfunding and over-investing in stocks. Moreover, Congress has aggravated the crisis through politically-motivated intervention, as David John detailed here. In April, it ?reduced required contributions by an estimated $80 billion over two years and gave additional relief to steel and airline companies, the very sectors that pose the most immediate risk.?

Since the government cannot ?run an insurance function at anything like market premiums?Congress should?sever its ties to pension insurance? before the system collapses and taxpayers are forced to fund a bailout.

While many are calling for increased oversight in the wake of recent scandals at government mortgage companies Fannie Mae and Freddie Mac, AEI?s Peter Wallison writes that ?merely tightening the regulation of Fannie and Freddie will not be sufficient?if the managements of either company decide to ignore or evade the strictures of regulation.? Wallison notes that if ?Freddie's board had not discovered the truth? of financial improprieties occurring at Mac,? an audit would have never been conducted at Mae, and ?we?would still be unaware of what was happening at Fannie.?

Because Freddie and Fannie are so large, ?a financial failure of either would throw residential mortgage markets into chaos and the necessary and almost inevitable government bailout would ultimately cost taxpayers a bundle.? Thus, ?the only realistic and viable solution is privatization,? Wallison explains here.

Though current versions of this year?s ?appropriation bills seem to conform to their budgetary targets, closer examination reveals an array of gimmicks that the appropriations committees are using to disguise spending increases,? write Keith Miller and Alison Fraser.

Congress has designated $3 billion for ?emergency? spending on non-emergencies (e.g. ?Postal Service emergency?) and over $15 billion for supplemental disaster relief (including this). This, combined with $6 billion in other trickery, means Congress is exceeding its agreed-upon spending caps by some $25 billion despite the illusion of fiscal responsibility. No wonder discretionary spending has increased by 39 percent over the past three years.  

Unnecessary and excessive regulations cost Americans over $800 billion each year, and President Bush has a ?mixed? record on reducing this ?hidden tax,? writes Heritage fellow James Gattuso.

Bush ?has done much better than his recent predecessors at limiting the growth of regulations,? thanks in large part to a ?reinvigorated? Office of Information and Regulatory Affairs that ?returned more proposed rules to agencies for reconsideration? in its first year under Bush ?than during the entire Clinton Administration.? ?However, the current Bush Administration has a weaker record on eliminating existing rules,? and Gattuso?s analysis of different indicators shows that ?the burden of regulation on Americans is still increasing.?

The solution: more oversight, and, most importantly, declaring that, ?relief from regulatory taxes is a key goal of the Administration.? Read the whole thing here.

Risking the wrath of China, ?the United States plans to build eight diesel-electric submarines for Taiwan as part of an $18 billion arms package? promised in 2001, the Washington Times reports. Taiwan?s legislature has yet to approve the deal, and public displeasure with the arms spending may delay a vote until after December elections.

Heritage senior fellow and former diplomat Harvey Feldman believes ?a force of anti-submarine warfare helicopters?would be easier and faster to deploy? than the submarines, which require several years of training to operate correctly. He also warned that providing the subs to Taiwan would lead to claims from China ?that [the deal] threatens the entire foundation of Sino-American relations.?

Robert Moffit has predicted that, because of the rising cost of health care in America, ?We are either going to go to a single-payer health care system or do ?something else.?? With her new book, Miracle Cure: How to Solve America?s Health-Care Crisis and Why Canada Isn?t the Answer, Pacific Research Institute president Sally Pipes provides convincing evidence that, between those two choices, ?something else,? indeed, anything else, is preferable.

At a Heritage Foundation panel (click through for video) this afternoon, Pipes recounted the failures of Canada?s single-payer system. She noted that, according to data from the Fraser Institute, the average wait time to see a general practitioner has grown from 9.3 weeks in 1993 to 17.9 weeks last year (PDF link). Wait lists to see a specialist, meanwhile, are so long that co-panelist Richard Baker has made a business of helping Canadians pay for elective surgery out-of-pocket in the United States.

A testimonial from Baker?s website:

A client recently contacted us about his severe carpal tunnel syndrome. His hands were causing him pain and he had lost 90% of normal function in both. He was on a 2 month waiting list for a consultation, with no fixed time set for his surgery.  We received his telephone call at 10 am one morning.

By 4:30 pm that same day he was in surgery.

"My family doctor was dumfounded at the speed at which your company was able to get help for my condition", reports Peter O. "He had trouble believing me when I told him".

Find more fun on the FAQ page.

Among other horror stories (like this!), Baker read a letter from a man who has been waiting for four years for a consultation for knee surgery. Baker noted that some Canadian patients suffer such maladies as joint degradation from waiting so long for care. Baker?s clients have little option other than to come to the United States because Canada is one of only three countries?along with, get this, Cuba and North Korea?where it is illegal to pay for private medical care.

Billions in new government outlays will do little relieve Canada?s health care crisis and much to increase the tax burden. Because of fixed, global budgets, hospitals will continue to shun more expensive procedures in order to fill beds with ?the equivalent of nursing home patients,? said co-panelist and Heritage fellow Ed Haislmeier. Fixed expenditures also ?result in a severe under investment in high-tech equipment that, in turn, results in rationing of care,? said Pipes. In short, she said, ?Canada has the best 1970s health-care system money can buy.?

Consumers want Health Savings Accounts.

How do we know? Well, there is already early evidence from the private sector.

And now some evidence is flowing from the public sector, too.

Soon the Federal Employees Health Benefit Program will allow federal workers to purchase HSAs, which will be sold alongside the comprehensive plans that are in the FEHBP today. Last week, the Office of Personnel Management, which directs the FEHBP, opened its website on HSAs. Since then, over 25,000 people have visited the new website. Over 4,000 have signed up to receive more information via email. (Heritage offers a variety of email services; we know from experience that a 1/6 conversion rate is nothing short of amazing.)

This is a fantastic response to an introduction that, to many, seemed esoteric and that many members of Congress opposed (with specious arguments), for fear it would turn their dreams of increased government control of health care into nightmares.

Congratulations to OPM for putting the benefits of federal employees ahead of politics and pursuing HSAs and congratulations as well to those federal employees who will soon enjoy consumer-driven care.

The truth about poverty is better than recent numbers would suggest, comments Heritage senior fellow Robert Rector in today?s Washington Times. For one, poverty increased in 2003 because it is a ?lagging economic indicator.? The recession ended in November 2001, and the poverty rate will likely experience a subsequent decrease this year.

Moreover, the lives of those 35.9 million Americans who did experience poverty in the last year were ?far from the [dire] images?conveyed by the press, activists and politicians?: ?[o]verall, the typical American defined as poor by the government? owns a car, can afford food and health care, and has a couple color televisions to boot.

Finally, for those families that are truly destitute, increased rates of work and marriage would be, by the numbers, simple and effective solutions. ?To further reduce poverty, welfare should be overhauled? so that it no longer ?continues rewarding idleness and discouraging marriage.?

Rector has a complete analysis of the Census Bureau poverty numbers here; read this for a deeper analysis of why things are even better than you think.

?Keep government out of drug negotiations,? Ed Haislmeier tells Fox News. While some want to amend last year?s Medicare Modernization Act to allow the government to bargain for the prescription drugs that Medicare will cover beginning in 2006, Haislmeier explains that Uncle Sam lacks the market share and clout to be a successful negotiator. While there are possible ways to overcome this problem and provide low-price drugs?market solutions include drug substitution and restricted market access?price fixing and the exercise of government fiat are non-market answers that would compromise the quality of drugs available to seniors. If the law stands, however, and Medicare beneficiaries are allowed to ?get their drugs through private plans, they will have on their side big, experienced players who know how to negotiate drug prices and still ensure that patients have access to the drugs they need.? Also, be sure to check out the full Haislmeier treatment.

John Tierney debunks some major myths about sprawl in this past weekend's NY Times Magazine. Of course we love being cited, but this bit is most relevant to those crunching transportation policy:

Mass transit is the cure for highway congestion. Commuter trains and subways make sense in New York, Chicago and a few other cities, and there are other forms of transit, like express buses, that can make a difference elsewhere. (Vans offering door-to-door service are a boon to the elderly and people without cars.) But for most Americans, mass transit is impractical and irrelevant. Since 1970, transit systems have received more than $500 billion in subsidies (in today's dollars), but people have kept voting with their wheels. Transit has been losing market share to the car and now carries just 3 percent of urban commuters outside New York City. It's easy to see why from one statistic: the average commute by public transportation takes twice as long as the average commute by car.

Anthony Downs, an economist at the Brookings Institution who favors giving more aid to transit, says the subsidies have social benefits (like helping people without cars), but he warns it will make little difference in highway congestion. O'Toole and Wendell Cox, a transportation expert and visiting fellow at the Heritage Foundation, estimate that even if Congress miraculously tripled the annual subsidy for transit, the average driver's commute would be reduced by a grand total of 22 seconds.

Drivers are getting a free ride. Yes, the government spends a lot more money on highways than transit, but most of that money comes out of the drivers' pockets. If you add up the costs of driving -- the car owner's costs as well as the public cost of building and maintaining highways and local streets, the salaries of police patrolling the roads -- it works out to about 20 cents per passenger mile, and drivers pay more than 19 of those cents, according to Cox. A trip on a local bus or commuter train costs nearly four times as much, and taxpayers subsidize three-quarters of that cost.

Drivers do avoid paying some indirect costs of their cars, like the health consequences of the pollution from tailpipes. One of the most thorough attempts to measure these social costs was done by Mark Delucchi, a cost-benefit analyst at the University of California, Davis, who factored in everything from expenditures in the Persian Gulf to the cost of the real estate devoted to free parking lots. Autonomists complain that he overestimated the car's costs, but even so, his calculations show that when compared with the social costs of transit systems (like taxpayer subsidies and noise from buses), the car is at least twice as cheap per passenger mile as transit.

The O'Toole/Cox paper to which Tierney refers is here. Their bottom line:

Except in rare circumstances, transit has little chance of reducing congestion in U.S. urban areas. Attempts to spend large sums of money to get a few automobile drivers out of their cars risk losing sight of transit's main mission, which is to provide mobility for people who cannot drive. Genuine transit advocates would focus on that mission, while those concerned about congestion should find new tools, such as congestion tolls, that would both reduce congestion and fund needed improvements in the highway system.

Tierney talks a bit about toll roads, a simple economic approach that modern technology has made more practiceable than ever before. Opponents contend that drivers just won't pay, but what do drivers think? As Tierney notes, the AAA and some trucking groups have come out in favor of tolls on new lanes and roads. And Tierney quotes a driver who asks, "Isn't it worth a couple of dollars to spend an extra half-hour with your family?" The driver spends a couple bucks daily on market-calibrated tolls.

Peter Samuel of RPPI looks at the evidence on tolls in this 2003 Backgrounder. "If tolls are set flexibly, he concludes, "they indicate motorists' willingness to pay for the cost of the service, and variable tolls can be used to optimize traffic flow and prevent breakdown into inefficient stop-and-go driving."

Megan McArdle, spurred on by the Tierney piece, has a few words on those who bemoan sprawl and seek to legislate it out of existance with 'smart growth,' or urbanization by fiat:

Smart growth is great if you are an upscale professional, preferably without children, who can score a relatively large apartment fairly close to work. It's a lot less fun for the majority trying to cram your family into four or five rooms. Smart growth is great if you are savvy enough to manipulate an urban school system into keeping your children away from the poor kids; it is not so nice for the majority who must make do. Smart growth is great if you can afford to have everything you buy delivered, or are in excellent physical condition with a physically undemanding job; it is not so great if you have to come home from your shift at the nursing home to lug groceries a quarter-mile down the street, and then up three flights of stairs. Smart growth is great if you can afford to eat in the plethora of restaurants; it is not so enjoyable if you have to scrape up an extra 20% for the ingredients in tuna casserole. Smart growth is great if you have a nanny to take the kids to the park during the day; it is not so terrific if you have to choose between wasting several precious hours standing around the playground, or letting your kids languish inside. Smart growth is great if you can afford taxis when you need them; it is not so good if you are forced to take three busses to get somewhere you really need to be. Smart growth is great if your family members are all affluent enough to take care of themselves; it is not so fulfilling when you have to shove your ailing mother into the kids room when her resources fail.

Smart growth, in other words, is wonderful for those with the werewithal to smooth over its little rough spots. But ask the priced out secretaries commuting 2 hours a day from Yonkers how "liveable" New York is.

Sounds about right. Americans have voted with their dollars on 'smart growth.' In a national survey, only 17 percent of Americans chose an urban townhouse over a house in the suburbs, reports Tierney. We would also note that, since the 1950s, the top 'smart growth' cities "have suffered disproportionately from significant population, employment, and business declines, and none of them participated in the revival that many other cities--large and small--experienced during the 1990s."

So what's behind 'smart growth' if most Americans aren't buying it? CEI's Sam Kazman has a great answer: "Aristocratic attitudes toward mobility for the masses haven't really changed from the Duke of Wellington to the Dutchess of Huffington," Huffington being Arianna Huffington, who has been campaigning against cars of late.

So what do 'smart growth' advocates suggest for low-income commuters if not cars? Bikes and buses, explains Wendell Cox, who considers the benefits that sprawl provides the working poor.

?The health care system is broken,? declares today?s Washington Post, eliciting agreement from Heritage?s Robert Moffitt. Over the past four years, costs are up, ?bringing the price for a typical family of four to nearly $10,000;? meanwhile, coverage is down, as ?the proportion of workers receiving health coverage through an employer fell from 65 percent to 61 percent? and ?[t]he number of Americans without health insurance for all of 2003 hit a record 45 million.? The problem will only get worse: a survey of businesses ?projects a 9.6 percent increase in health care spending per employee in 2005,? a spike which will disproportionately affect the poor. But Stuart Butler offers an innovative fix, using tax credits and market incentives. And things aren?t all doom and gloom today: HSAs have made health insurance more affordable to individuals than ever before.

The House will stay in session until Oct. 8, Majority Leader Tom DeLay (R-TX) announced yesterday. The Hill reports ?Congressional leaders are hoping to enact intelligence reform legislation before they adjourn,? but  the House and Senate remain divided on which recommendations of the 9/11 commission to implement. Rep. Christopher Shays (R-CT) has introduced a bill similar to the Senate version but does not have the support of House leadership, which has signed onto a measure proposed Friday by Speaker of the House Denny Hastert (R-IL). While getting intelligence reform passed is essential, former U.S. Attorney General Edwin Meese, Larry Wortzel, and other Heritage experts warn that, ?Congress should not rush to pass legislation that overburdens a National Intelligence Director?misses other opportunities to improve the performance of intelligence collection?or neglects reforms that may strengthen and improve the capacity of individual agencies to do their jobs.? Meese et al. outline the risks and what any intelligence reform bill ought to contain.

The Federal Employees Health Benefits Program has long been a model of consumer choice, most recently with the inclusion (albeit contested) of Health Savings Accounts as a coverage option. As Nina Owcharenko writes, HSAs were established by Congress as part of the Medicare Modernization Act of 2003 and allow consumers who select high-deductible insurance coverage to pay for their health care spending out of tax-free accounts, thereby eliminating the bias towards employer-sponsored coverage and increasing individual choice.  

Now federal employees in Illinois will have the opportunity to prove right Robert Moffitt's prediction that HSAs not only allow consumers to make their own economic decisions about health care but also could lead to "a real diversity of plans and options, increasingly tailored to personal needs and values--including ethical, moral, or religious values." A new plan offered by the Franciscan-sponsored OSF Health for federal employees "specifically excludes payment for contraceptives, abortion, sterilization and artificial insemination," making it the first FEHBP plan to conform to Catholic tenets, or those of any specific religious or ethical orientation.

The New York Times reports:

The Bush administration has broken new ground in its "faith-based" initiative, this time by offering federal employees a Catholic health plan that specifically excludes payment for contraceptives, abortion, sterilization and artificial insemination.

The new plan, announced last week, combines two White House priorities. It is part of a $1 billion project seeking to involve religious organizations in all types of federal social programs. At the same time, the plan is a new form of coverage - a health savings account combined with high-deductible coverage - that is being promoted as a centerpiece of President Bush's health care policy.

The plan, which will begin enrolling federal workers in 31 Illinois counties in November, is sponsored by OSF Health, a unit of the Sisters of the Third Order of St. Francis, which runs the St. Francis Medical Center in Peoria and five Roman Catholic hospitals in Illinois and Michigan.

As expected, some closeminded critics are already up in arms. Frances Kissling, president of Catholics for a Free Choice, a pro-abortion group, criticizes the program as "substandard medical care" because it does not include "services [that] are generally covered within our society.'' But many insurance providers do not cover abortion or contraception. Moreover, those participating in the OSF plan could still purchase reproductive services using funds in their HSA. And finally, Kissling's contention is nonsensical: federal employees in Illinois can still choose from a wide variety of other health plans, including several offered by OSF Health. OSF's Franciscan plan simply gives federal employees another option in an already competitive market; any employees choosing the Franciscan plan will know well what they're entering into.

In many ways, faith-based plans are akin to 'ethical' mutual funds. These funds, which can be, among others, Catholic- or environmentalist-oriented, invest only in assets and debt that meet stringent ethical guidelines. Environmentalist funds, for example, avoid oil companies, paper producers, and fast food (to be honest, we're not sure what they invest in). The Ave Maria mutual funds, popular among Catholics, tout that their shareholders "don't have to sacrifice financial performance for their pro-life and pro-family beliefs." Given the cross-subsidies inherent in health insurance, we fail to see how ethically-oriented health insurance is much different.

Faith-based health care presents a workable solution to the crisis currently facing employer-based health care. Stuart Butler has emphasized that must ?create alternative pools for employees of small firms," and, much like fraternal organizations that in the late 19^th and early 20^th centuries, faith-based organizations, along with unions and community groups, would be ideal sponsors of such pools.

The new plan for federal employees in Illinois is a revolutionary first step towards merging individual choice, ethical understanding, and religious belief to provide quality health care. And what happens when these take off? Moffit has an answer:

We could have a natural marriage of...large pooling and personal freedom, and a commitment to quality care combined with adherence to traditional ethical, moral, and religious values. What could be better?

Preparing floor remarks for your boss our yourself? Have a quibble with the Gentleman from Wisconsin?

Either way, this should come in handy: The Adam Smith Institute's Book of Logical Fallacies is now available online in plain-jane HTML, for easy access.

Have at it!

David John?s takes on Professor Austan Goolsbee?s claim that personal retirement accounts in Social Security would ?result in an unprecedented ?windfall? for financial firms.? Goolsbee?s report not only grossly overestimates administrative fees that would go to the firms, but also ignores the benefits and improved retirement security that would come about. John also finds that Goolsbee?s claim ?that administrative expenses for personal accounts would amount to over 25 percent of Social Security?s anticipated deficit over the next 75 years? is simply not grounded in reality. Social Security personal retirement accounts are, writes John, ?the only way to resolve Social Security?s coming financial problems without massive tax increases or substantial benefit cuts.?

We discussed Goolsbee's findings previously.

?Over the past half century, Americans have spent a rising share of total economic resources on health and have enjoyed substantially longer lives as a result,? note Robert E. Hall and Charles I. Jones in a recent National Bureau of Economic Research working paper. The authors examine whether this trend will continue, and as a matter of public policy, how much we should spend on health care in the next half-century.

Hall and Jones explain the rising share of health spending as function of increased income. As Americans grow richer, consumption increases more slowly than income because its marginal utility declines. What to do with the additional discretionary money that results? ?The most valuable channel for our spending is to purchase additional years of life.?

Hall and Jones sensibly suggest that health spending should grow in proportion to the value we place on life, which will continue to increase as incomes rise. They estimate the optimal value for health spending as a share of total spending to be around 16 percent, currently; they predict this ideal amount will increase to around 27 percent by 2050, driven by expanding prosperity.

But Hall and Jones also predict that, following current trends, health spending will skyrocket to 34 percent by 2050, well above optimal levels.

The health share of spending will balloon beyond the value we place on life if it continues as projected. However, the good news is that the current share, 15.4 percent in 2000, is slightly below optimal levels. Thus, there?s still time to change our course.

Playing off of Johns Hopkins? 2003 Comparative Nonprofit Sector Project report, Robert Lawson finds a correlation between non-profit volunteer activity and economic freedom. In other words, ?a free (and rich) economy is a big boost? to civil society.

In case you missed it, a must-read column by David Brookes from Saturday's Times:

Confronted with the murder of 50,000 in Sudan, we eschewed all that nasty old unilateralism, all that hegemonic, imperialist, go-it-alone, neocon, empire, coalition-of-the-coerced stuff.
...
And so we Americans mustered our outrage at the massacres in Darfur and went to the United Nations. And calls were issued and exhortations were made and platitudes spread like béarnaise. The great hum of diplomacy signaled that the global community was whirring into action.

Meanwhile helicopter gunships were strafing children in Darfur.

Last week, the GAO released its first report on the impact of outsourcing. No surprise, Dan Drezner is on the case:

It's essentially a literature review of available government data on the magnitude and impact of offshore outsourcing. There are two themes that come out from this: 1) the government data on this phenomenon is incomplete and imperfect; 2) what data exists suggests that offshore outsourcing is not quite the tsunami it's been made out to be.
...
This is from the Results in Brief (p. 3):

Federal statistics provide limited information about the effects of offshoring IT and other services on the U.S. labor force and the economy overall. The Department of Labor?s Mass Layoff Survey (MLS) shows that layoffs attributable to overseas relocation have increased since 1999, but these layoffs represent a small fraction of workers laid off?of 1.5 million layoffs reported in the 2003 MLS, 13,000 (0.9 percent) were reportedly due to overseas relocation. The data also show that most of these layoffs were in the manufacturing sector.

And this is from p. 15:

U.S. government data provide some insight into the trends in offshoring of services by the private sector, but they do not provide a complete picture of the business transactions that the term offshoring can encompass. In particular, they do not identify U.S. imports of services previously produced by U.S. employees. Similarly, federal procurement data on purchases of IT and other services provide some insights, but it can be difficult to determine where such work is performed. The available data indicate that the trend in offshoring show little change over the past 5 years. (emphasis added)

A sort-of bottom line: "[B]etween 1997 and 2002, when offshore outsourcing is supposedly taking off, the balance of trade in the services likely to be offshored went from a $22.8 billion surplus to a.... $27.0 billion surplus."

?Dozens of former criminal justice officials and political leaders sent a letter to Congress supporting the USA Patriot Act, saying it played ?a vital role? in protecting the nation against terrorism by removing legal barriers to gathering information,? the Washington Times reports. While ?officials were prevented by legal and bureaucratic restrictions from sharing critical information with each other? prior to 9/11, the Patriot Act allows law enforcement personnel to ?connect?the dots to uncover terrorist plots before they are completed." The signers include former Reagan attorney general and Heritage fellow Ed Meese. Key provisions of the Patriot Act expire at the end of next year and must be made permanent. Find Heritage?s comprehensive Patriot Act Reader here.

AFP reports:

UNITED NATIONS: An official from the corruption probe into the UN's "oil-for-food" programme in Iraq resigned following reports she had compared US President George W Bush to Osama bin Laden.

Anna Di Lellio's resignation was accepted on Friday by Paul Volcker, the former head of the US Federal Reserve banking system appointed to head the independent commission investigating the now-defunct programme.

According to AFP, "The resignation came after the Heritage Foundation, a Washington think tank, issued a press release noting an article that Di Lellio had written in London's Guardian newspaper two years ago." That Heritage paper (not 'press release') by Nile Gardiner and James Phillips is here. Di Lellio's Guardian interview can be found here.

Additionally, find Di Lellio's letter of resignation here. She writes "with regret," as she feels the investigation was "beginning to make real progress in creating a public image." Yes, an image has been emerging, but we're not sure how flattering it is. See this or the paper linked above for more.

Find Paul Volcker's response to Di Lellio's resignation here.

Volcker also has a letter out to the chairs of the congressional committees and subcommittees investigating Oil for Food, available here.

The real question is whether Di Lellio's abrupt departure will spur the Volcker Commission towards greater openness and more substantial cooperation with other investigations into Oil for Food. So far, the Commission's record on both counts has been lackluster. Gardiner and Phillips have presented recommendations on how the Commission might bolster its credibility, as well as strengthen its investigation:

• Full access to all U.N. documents relating to Oil for Food.
  There should be no monopoly over documentation held by the U.N. The U.N. should also provide a full list of documents currently in its possession that relate to Oil for Food.
   
• Freedom to interview U.N. officials implicated in the scandal.
  Federal and Congressional investigators should be able to question U.N. officials under investigation by the Volcker Commission.
   
• A complete list of names of all staff working on the Volcker Commission.
  The Volcker Commission should be completely independent of the U.N., and there should be no conflicts of interest involving its staff.
   
• External oversight of the workings of the Volcker Commission.
  The Commission should be open to public scrutiny and should include third-party representatives seconded from bodies such as the FBI and Interpol.
   
• Monthly progress reports from the Volcker Commission to Security Council members.
  All members of the U.N. Security Council should be furnished with regular updates on the investigation.
   
• A firm date for publication of the Volcker Report.
  The final date of publication must not be open to political manipulation by the U.N. in an attempt to limit potential damage.

The Commission would do well to consider and implement these, especially given this recent blow to its external image. Without such steps, it is not clear that the Commission will be able to demonstrate its freedom from the U.N.'s entangling reins.

Farm subsidies are America?s ?largest and most wasteful corporate welfare program,? Brian Riedl has written. Riedl?s piece chided lawmakers for kowtowing to agriculture special interests while simultaneously under-spending on national security. Now, as if in self-parody, the Senate has appended $3 billion in drought assistance to the appropriations bill funding the Department of Homeland Security.

According to the National Journal, House leaders are ?digging in? against the measure, and fiscal conservatives argue that $190 billion in farm aid approved in 2002 should be sufficient. The publication quotes a leadership aide says ?[t]he drought amendment "doesn't have a head of steam.? And if it does, it probably needs to be paid for."

Kudos to those who frown on pork barrel spending being passed off as national security. Rep. Jeb Hensarling (R-TX) has it right: ?It's never a bad time to stand up for the American family's pocketbook."

?All the legislative proposals offered in response to the 9/11 Commission report have some merit, but none accurately hits the mark,? notes former U.S. Attorney General Edwin Meese, Larry M. Wortzel, Peter Brookes, and James Jay Carafano in a new report. An ideal proposal would assure that the National Intelligence Director is independent and able to ?oversee the allocation of resources?, meets 21^st century intelligence needs and threats, preserves civil liberties, and integrates intelligence at all levels. They see the immediate need for these changes, but do not recommend that we act too hastily: ?Congress should act with all deliberate speed, but also with wisdom and careful judgment,? and warn that ?The United States will need to deal with both its intelligence reform mistakes and successes for a very long time.?

The House and Senate are divided on intelligence reform, sources tell the New York Times. A House bill to be debuted today would give more power to the Defense Department and federal law enforcers fighting terrorism than a Senate version ?scheduled for floor debate next week.? "The Senate bill would place the intelligence director at the head of a new national intelligence authority that is to be separate from the CIA and other intelligence agencies,? a proposal that ?makes sense? (read on for our latest recommendations). Both houses are attempting to implement the recommendations of the 9/11 Commission before Congress adjourns in October, but it is important to avoid a ?rush to failure.? Find the latest recommendations and analysis from Heritage?s policy staff here.

USA Today reports that Congress has overwhelmingly renewed the 2003 middle-class tax cuts (an assessment here). As we noted yesterday, the measure includes a ?five-year extension of the $1,000 child tax credit; a four-year extension of tax breaks intended to reduce the so-called marriage penalty on two-income families; a six-year extension of a provision that allowed more people to qualify for the lowest tax rate of 10 percent; and a one-year extension of relief from the alternative minimum tax.? The cuts will save money for 94 million Americans next year and will ?spare a family of four earning $40,000 at least $915,? according to the Treasury Department. "This legislation?brings us one step closer to making the tax relief permanent," said President Bush, who is expected to sign the bill in short order. 

Doug Bandow of the Cato Institute considers drug reimportation and how it relates to free trade.

While advocates of reimportation, including some free-trade advocates, claim that instituting the practice would ?allow American consumers?to benefit from worldwide price competition,? Bandow argues that, ?reimportation would effectively impose foreign price controls on the U.S. market.?

By subsidizing part of the cost of prescription drugs, writes Bandow, ?foreign governments have created artificial markets to take advantage of U.S. patients by free-riding on American R&D.? Allowing these governments to resell American medicines in America would indeed reduce prices?artificially, with the only ?competition? being against ourselves.

With foreign price controls and reimportation, American drug makers would be forced to reduce drug prices to compete, essentially, against foreign governments' regulated prices, cutting profits, the ?incentive for drug makers to develop and market medicines that improve and save lives.? The bottom line? ?No profits, no products. No products, and we die earlier and suffer more painfully.?

The free trade of prescription drugs is all well and good. In fact, it?s already legal. As Bandow notes, ?Federal law does not ban foreign drug makers from selling their products in America.? However, drug reimportation as currently proposed is not free trade, not when government price-fixing is the impetus.

Nina Owcharenko has more on this and other reimportation myths here.

?Putin has opted for a massive re-centralization of power,? writes Ariel Cohen. ?He is taking the country back to a future reminiscent of the czarist era,?

But infringing upon Russian freedoms will not help in the fight against terror. Cohen argues that Russia faces a new enemy, an enemy that necessitates a modern anti-terror doctrine and a new intelligence structure. At this time, Russia needs to cooperate with the United States and other nations if it is to effectively combat the Islamist jihadi threat.

?Over the past 30 years, average per-pupil expenditures for public, elementary, and secondary schools have nearly doubled, rising from $3,931 in 1971-1972 to $7,524 in 2001-2002, in constant dollars,? according to this education FAQ by Krista Kafer (see #4). Technology spending is a key component of this increase. As Frederick Hess writes in the Fall 2004 issue of Education Next, ?[s]pending on technology in public schools increased from essentially zero in 1970 to $118 per student in 2002 and $89 per student in 2003.?

Hess continues that ?[i]n the past five years alone, the nation has spent more than $20 billion linking schools and classrooms to the Internet through the federal E-rate program with little to show for it in the way of instructional changes or improved outcomes.? In the same issue, Lowell Monke quotes Stanford professor Larry Cuban, who wrote in Oversold and Underused that ?[t]here have been no advances?over the past decade that can be confidently attributed to broader access to computers?

While ?competitive enterprise adopts new technologies when these enable workers to tackle new problems or to do the same thing as before, but in a cheaper and more efficient fashion,? Hess notes that ?[p]ublic schools, by contrast, have steadily added to the ranks of teachers and reduced class sizes even as they make ever-larger investments in new technologies.?

The good news: ?[U]sed wisely, information technology does have the capacity to help schools become dramatically more effective.? Hess cites a number of programs that could reduce the time teachers spend on data entry and other menial tasks. Indeed, proper application of technology could lead us ?to retool the teacher?s role in a way that used scarce resources more carefully?allowing [them] more time for preparation, instructions, and tutoring.?

While Hess stresses that technology is ?a tool, not a miracle cure,? Monke challenges the assumption that technology is only a tool and exhorts us to the examine the set of values it imposes, particularly through computers: ?Clinging to the belief that computers have no effect on us allows us to turn a blind eye to the sacrifices that schools have made to accommodate them.? These sacrifices include reduced funding for other programs; a decrease in hands-on, experiential learning; and most, importantly, a loss of human values. ?Trying to teach a student to use the power of computer technology appropriately without those moral and ethical traits is like trying to grow a tree without roots,? he writes.

Porter Goss will be the next Director of Central Intelligence and perhaps the last, the New York Times reports. The former chairman of the House Intelligence Committee and CIA field officer was ?overwhelmingly? approved by the Senate, 77-17. Goss will head the CIA, and, for the time being, will have ?nominal oversight of the broader network of 15 intelligence agencies.? ?[T]he President got it right,? said Sen. Bob Graham (D-FL). Now, it?s time to get it right on intelligence reform.

A conference report that would extend three of the President's expiring tax cuts will be on the House floor today and on the Senate floor as early as tomorrow. The cuts included in the report are the $1,000 child tax credit, the marriage penalty fix, and the expanded 10-percent tax bracket.  

We are disappointed, of course, that the package passed does not make any of these tax cuts permanent. But that fault aside, extension brings with it great benefits over letting these cuts expire. These benefits are discussed in several Heritage research papers, which are perhaps today of interest to legislators:

• When Would the President?s Tax Cuts Expire? - It is important to note which tax cuts are expiring, which would be exptended by the conference report, and which would not be.
• The 2003 Tax Cuts and the Economy: A One-Year Assessment - Must Read - This analysis of the effects of the President's 2003 tax cuts discusses the impact of all three tax cuts that would be extended by the conference report.
• Make the Temporary Tax Cuts Permanent Tax Reductions - Center for Data Analysis Director William Beach comments on the value of permanence and the importance of the tax cuts that would expire without legislative action.
• Jobs and Growth Tax Act of 2003: Highlights of the CDA?s Analysis of Chairman Thomas?s Tax Legislation and Economic Impact Analysis of the Jobs and Tax Relief Reconciliation Act of 2003 - Heritage's first analyses of the 2003 tax cuts.

Update: Rea Hederman jumps in with a fresh analysis of the tax cuts, including state by state data on the marriage penalty fix and district by district data on the child tax credit.

In the New Republic, Yossi Klein Halevi and Michael B. Oren describe how Israel successfully put down the Palestinian war of terror launched in 2000, what its success has cost it, predictably, in Europe, and what lessons the United States and Russia can take from its victory:

That means an ability to endure criticism from abroad and even to risk international isolation, a willingness to define the war on terrorism as a total war, and a commitment to focus one's political agenda on winning, not on divisive or extraneous concerns.

Belmont Club: "Social historians in the future, should we ever attain it, may endlessly wonder how it was possible for Western European and liberal American intellectuals to forget 5,000 years of military experience in favor of the slogans, some composed facetiously, of the Peace Movement of the 1960s."

From the Omaha World-Herald: "In a stark turnabout from its free-speech advocacy, the ACLU..."

(via Hit and Run)

The basic problem with health care ?does not lie with insurance companies, trial lawyers, hospitals or any of the usual suspects,? writes the Washington Post?s Robert Samuelson. ?It lies with public opinion. We Americans want the impossible.?

Specifically, writes Samuelson, our goals are incompatible. ?We want our health care system to provide everyone with good care covered by comprehensive insurance, prevent insurance companies or government bureaucrats from dictating our choice of doctors, hospitals or treatments, and hold down costs.? Choose any two, but not all three.

Samuelson cites managed care as an example. For some time, HMOs held down costs with bureaucratic restrictions. But when patients revolted and the HMOs loosened their reins, spending surged.

Waste and insurer profits aren?t to blame. The real causes, says Samuelson: ?We're an aging society; science creates new drugs, diagnostics and treatments; people want the latest and best?at someone else's expense.?

To this point, Samuelson is on-target. His criticisms of Health Savings Accounts, though, fall short of the mark. It is true that their cost incentives do not directly affect all spending, just non-catastrophic. But to the extent that HSAs reintroduce consumers to the true cost of health care and create incentives for them to make smart choices, the aggregate effects could be significant. Among economists, debate on this point is now raging, but initial results have been encouraging (more here).

And it is important to remember that HSAs are just an early success of the consumer-driven health care movement. The movement?s ultimate aim is to return control over health care to individuals so that they can weigh costs and benefits and make decisions based on value. This will necessarily be a gradual process. But there may come a time when market forces move the structure of the health care market beyond Samuelson?s three goals.

Samuelson is right to fault both presidential candidates for their ?unwillingness to challenge public opinion? but wrong to shortchange the transformative effects of consumer-driven care. Still, his analysis is otherwise sound and, in the end, points to the need for further market-based reforms, the only way we can see to move beyond today?s ?stalemate.?

More details are coming out--thus, this quick roundup. For more regular updates, we suggest the weblog ?Friends of Saddam.?

First off, Fox News reports that ?Saddam's standard scam was to underprice oil sales and overpay for relief supplies, thus generating fat profits for his business partners? and influence for himself. ?[A] Pentagon pricing study [of] 178 contracts for food? found that ?90% were overpriced by an average of about 22%,? as Claudia Rosett notes. Saddam supplemented this graft with outright misuse of funds that were supposedly restricted for ?humanitarian? purposes (such as baby food; see also here).

Thankfully, Saddam is long gone, and with him Oil-for-Food, but questions linger in at least two key areas:

I. Corruption in the United Nations

Rosett has written that Oil-for Food ?was designed by the U.N. and managed by Secretary-General Kofi Annan along lines?so inviting to corruption, that it could hardly have turned out otherwise.? Saddam was allowed to draw up his shopping list and negotiate with his suppliers, information which was concealed by the U.N.

Moreover, Oil-for-Food gave several key players a financial interest in the survival of Saddam?s tyrannical regime. The U.N. had an interest in seeing the program grow, as it received a 2.2 percent cut (a total of $1.8 billion) of every deal for administrative costs (more here). So did some conspicuous opponents of the U.S.-led coalition. Gardiner, Phillips, and Dean note that over fifty ?French and Russian oil companies possessed oil contracts with the Saddam Hussein regime that covered roughly 40 percent of the country's oil wealth.?

U.N. Secretary General Kofi Annan has launched a special investigation into the scandal, (though he hasn?t yet labeled it ?illegal?), but the ?Independent Inquiry Committee into the U.N. Oil-for-Food Program? chaired by former Federal Reserve Chairman Paul Volcker ?is strikingly opaque,? conclude Nile Gardiner and James Phillips. So far, Volcker has refused to cooperate with Congress by releasing 55 internal U.N. audits and other documents (see more on Congressional investigations here). According to Gardiner and Phillips, ?[t]he Commission bears all the hallmarks of a toothless paper tiger, with no subpoena power,? ?no enforcement authority,? no deadline, and no accountability.

II. Oil for Terror

As Rosett wrote back in April, ?[t]he issue is not simply how much Saddam pilfered?but whether?he availed himself of the huge opportunities to fund carnage under the cover of U.N. sanctions and humanitarian relief.?

That is, did some of those unaccounted-for billions go to fund terror against the United States and Saddam?s own people?  Marc Perelman unearthed at least two links in a June 2003 Forward piece. While journalists inexplicably failed to follow-up on his findings on Asat Trust and Delta Oil, Fox News released the results of a new investigation over the weekend. As the New York Post reports:

The network found that Hayel Saeed Anam, a director of a Yemeni company [HSA Group] that did $286 million worth of business with the program, is also the founder of a European-based firm called Malaysian Swiss Gulf and African Chamber ? abbreviated MIGA?[which] was designated by the U.S. Treasury Department as "belonging to or associated with" al Qaeda [Fox called MIGA a ?terrorist chamber of comer?]. Fox said that in 1984, Anam gave power of attorney to run MIGA to financier Ahmed Idris Nasreddin, a member of the radical Muslim Brotherhood, who also ran a bank designated by the Treasury Department as a financial backer of al Qaeda.

Fox also found that within Anam?s ?HSA empire, one company in particular stands out?: Malaysia-based Pacific Interlink, which was paid 15 percent above market price for palm oil, according to an audit by U.S. Defense Contract Management Agency. Extrapolating to Pacific Interlink?s other contracts, even at the more modest rate of 10 percent, leaves some $20 million in missing money. How many Hayel Saeed Anams are out there whose identities and suspicious activities remain hidden within the Oil-for-Food program?s still sealed records?

While the Anam case demonstrates that a ?mix of legitimate and sinister business? combined with U.N. obstructionism make it difficult to prove Iraq funneled Oil-for-Food money to al-Qaeda or other terrorist organizations, Rep. Christopher Shays believes ?it's not only possible that insurgents are using Oil-for-Food money?I think it's very likely.?

A new study by economist Austan Goolsbee of the University of Chicago concludes, in the Post's words, that Social Security reform with personal accounts "would hand financial services firms a windfall totaling $940 billion over 75 years."

Already political opponents have seized on the number as proof that the President, a leading backer of personal accounts, is in Wall Street's pocket and that, as one opponent put it, reform "hurts seniors by cutting benefits, and it hurts our economy by increasing the deficit."

But are those charges really true? (The substantial ones--we'll ignore the other.)

According to the Post, the study assumes management fees to financial services firms would total 0.8 percent annually of the money invested in private accounts that are larger than $5,000. In other words, for each of 75 years, the study calculates {(value of all accounts worth more than $5,000) X 0.008}, and then it adds together these intermediate terms to reach the total, $940 billion.

Well, isn't it obvious that the total value of all those personal accounts is going to have to be pretty big to come up with nearly $1 trillion in fees?

Let us suggest a better lead paragraph to the Post: "President Bush's push to create individual investment accounts in the Social Security system would result in Americans investing trillions of dollars more in retirement savings over 75 years, according to a University of Chicago study to be released today."

So it seems safe to say that reform to create personal accounts won't hurt seniors. And if you're still doubtful, read this report in which David John analyzes the impact of reform on a variety of low- and medium-income individuals and families. The bottom line: personal retirement accounts would allow workers of all income levels to create substantial 'nest eggs' (money in addition to monthly payments) that they could spend in retirement or pass on to future generations.

And what about increasing the deficit? Jagadeesh Gokhale argues that the costs of reform are usually mischaracterized. Yes, reform might cost around $2 trillion, he writes, but without reform "the government's commitment to pay future retirement benefits in excess of future payroll taxes amounts to $12 trillion."

To sum up: Reform with personal accounts would create trillions of dollars in individual savings (according to Austan Goolsbee of the University of Chicago!) and wipe out about $10 trillion in net debt at the same time. And the downside? Modest fees to financial services firms. Seems like a great deal to us.

Update: Cato's Michael Tanner has a response, as well. Cato's reform plan, which allows private financial managers of the sort Goolsbee assumes, estimates administrative costs of between 0.3 and 0.6 percent, rather less expensive than Goolsbee's 0.8 percent.

Other plans, however, are patterned after the federal government's Thift Savings Plan. A TSP-like structure would bring with it administrative costs of around 0.3 percent. Either way, Goolsbee's assumptions are definitely on the high side.

Sen. John Ensign spoke on the U.N. and the Oil-for-Food scandal on the Senate floor this morning:

It is extremely disturbing that a former United Nations official, Anna Di Lellio, has been named as the Director of Communications for the Volcker panel - a supposedly independent panel investigating the Oil-for-Food scandal. Why is this so disturbing?  Because Ms. Di Lellio has compared President George W. Bush and key U.S. ally Prime Minister Silvio Berlusconi to Osama bin Laden.  This shows again how the United Nations is failing in the essential tasks for which it is responsible.

For more on the Volcker Commission, Di Lellio, and unanswered questions, see this paper in which Nile Gardiner and Jim Phillips exposed De Lellio and outline the steps ahead in investigating Oil-for-Food.

We already know that the media are sometimes biased in reporting economic news, but now Slate?s Jack Shafer is on the case to set things straight. On Sept. 20, the Washington Post ran a story entitled ?As Income Gap Widens, Uncertainty Spreads: More U.S. Families Struggle to Stay on Track.? The article contends that, though earning more than ever before, ?the middle [class] has lost much ground?when compared with those at the top [a]nd many in the middle have dropped well behind their peers.?

Shafer was skeptical, and for good reason: take a look at this graph. In case you can?t spot the problem right away, economist Arnold Kling of Econ Log reproduces the same data in chart form (both use 2003 dollars):

And if you?re still unsure what's going on, here?s Shafer?s analysis:

Yes, the number of median-earning households in America fell from 22.3 percent to 15 percent between 1967 and 2003. But the two categories below the median declined, too, from 52.8 percent of households to 40.9 percent of households?if the median household is being squeezed out, it's being squeezed into the higher-income categories.

And as Kling notes, "the percentage of households with incomes over $50,000 has climbed from 24.9 percent in 1967 to 44.1 percent in 2003."

Shafer directs his readers to this paper by Robert Rector, which gives a good overview of poverty and income distributions. Those seeking even more detail may wish to read this study, which tries to get a better numerical handle on income inequality.

Anyway and finally, we think Shafer's totally right on how all this plays in the papers: "I generally assume that things are getting better everywhere?except for when my daily newspaper says otherwise, at which point I assume things are getting extremely better."

"Freedom is finding a way in Iraq and Afghanistan, and we must continue to show our commitment to democracies in those nations," said President Bush in his speech before the U.N. General Assembly yesterday. Bush urged U.N. members to offer assistance with the election and to the interim government, arguing that ?all civilized nations have a state in the survival of the...regime in Baghdad.? Find the full text of Bush?s address here. For more on the international breadth of the Coalition forces in Iraq, a key point of Bush?s speech, see this analysis by Nile Gardiner. Read about 'Kofi Annan's Iraq Blunder' here.

Heritage?s Brian Riedl gets into the nitty-gritty of John Kerry?s spending plans. ?Far from being a deficit reduction plan, Kerry's plan actually increases the 2008 budget deficit above the CBO baseline,? he concludes. Riedl estimates that Kerry?s ?proposed income and estate tax changes...would increase the budget deficit by $364 billion over 10 years? Add in the other campaign promises, and you wind up with a $443 billion deficit in 2008--$232 billion higher than the Kerry campaign's $211 billion target. And that?s the optimistic scenario! A more skeptical estimate come in at $525 billion for the 2008 deficit?$314 billion above Kerry's $211 billion deficit target.

Two senators have put forward a six-month extension of federal highways spending, indicating that the likelihood of a deal on highway spending in conference committee has faded. The extension the Highway Department operates under now expires on September 30; observers have been waiting to see what length of an extension would be proposed.

Ron Utt describes how fiscal responsibility applies to highway spending in this letter to the highway conferees, though he notes that neither bill ?would do much to alleviate the congestion and deteriorating road conditions that the motorists and truckers who fund the program with their fuel taxes confront each day.? With all this time on their hands now, highway conferees may wish to reread what Utt has to say.

The Senate's Homeland Security Select Committee has until September 30 to decide whether it should attempt to consolidate oversight of homeland security, reports the Hill. When the panel was created in 2002, it was to conduct a study of homeland security and submit its recommendations to the Rules Committee by the September deadline. Continuing past that date faces stiff opposition from other committees that are reluctant to give up their turf, but the 9/11 Commission?s recommendations have strengthened the case for consolidation.

Defying an from the International Atomic Energy Agency, Iran said yesterday that it plans to convert 37 tons of raw ?yellowcake? uranium into uranium hexafluoride using centrifuges, reports the Washington Times. That?s enough for five nuclear weapons and shows that Iran is a ?country that has not made the strategic decision to give up its nuclear-weapons program," according to a State Department official; President Mohammed Khatami insisted his nation only wants "to obtain peaceful atomic technology.? Iran?s announcement came at a meeting of the IAEA in Vienna and breaks a prior promise to halt enrichment. Heritage?s Peter Brookes has warns that America must remain firm on ?the world's most active state sponsor of terrorism.?

What?s the value of the abstinence programs? New research by Robert Rector, Kirk Johnson, and Jennifer Marshall using Data from the National Longitudinal Study of Adolescent Health shows that ?Teens Who Make Virginity Pledges Have Substantially Improved Life Outcomes.? Compared to teens who do not, ?adoles­cents who make a virginity pledge: are less likely to experience teen pregnancy (6.5 percent vs. 9.7 percent); be sexually active while in high school (39.2 percent vs. 63.2 percent); or give birth out of wedlock (13.1 percent vs. 20.6 percent)." Additionally, pledgers ?are less likely to engage in risky unpro­tected sex (22.3 percent vs. 28.2 percent); and will have fewer sexual partners (3.4 vs. 6.1). In all these categories, ?strong pledgers? have better outcomes than non-pledgers. ?In addition, making a virginity pledge is not associated with any long-term negative out­comes.?  Read the whole paper here.

Desperate for knee replacements, a British Columbian man has taken out a classified ad offering to pay an undisclosed amount for a higher spot on a waiting list. Penticton resident Bill Binfet waited four months to see a doctor and faces a two-and-a-half year wait for surgery, though "[m]edical studies have shown that once the disease has gone beyond six months, the patient's health starts to deteriorate.? Provincial Health Services Minister Colin Hansen thinks it ?would be unethical for a medical doctor to trade places on a surgical wait list for any exchange of money,? but Binfet questions why he must wait his turn when members of certain organizations such as the Royal Canadian Mounted Police are allowed to skip ahead.

Over the lunch hour today, the Mall hosted the grand opening ceremony for the Smithsonian Institution?s National Museum of the American Indian. The rhetoric was predictable?Peruvian President Alejandro Toledo Manrique used the occasion to push for an ?inclusive? global economy while Sen. Ben Nighthorse Campbell (R-CO) idealized life before the white man and credited natives with inventing democracy. Other speakers included museum director Richard West and Sen. Daniel Inouye (D-HI), who spearheaded legislation authorizing the museum along with Campbell in the 1980s.

Now that the museum is open after over a decade of planning and $214 million, what can we expect to find inside? In the words of deputy assistant director Gerald McMaster, ?Anthropology as a science is not practiced here." Continues the Washington Post in today?s lead article:

Science, McMaster suggests, tries to impose an objective truth upon things that might not always lend themselves to such a framework. Science is not going to be the final arbiter at the museum. Says McMaster, "We look to the communities" -- the natives themselves -- "as authorities about who they are."

While applauding the stunning architecture that makes ?[t]he exterior of the Indian museum deserves to rocket to the top of the list of Washington must-sees,? Marc Fisher chastises ?the trendy faux-selflessness of today's historians [who] let the Indians present themselves as they wish to be seen.? Fisher continues:

There's not nearly enough fact or narrative to give us the foundation we need to judge the Indians' version of their story?The museum feels like a trade show in which each group of Indians gets space to sell its founding myth and favorite anecdotes of survival?[As a result] the story [the museum tells] is an exercise in intellectual timidity and a sorry abrogation of the Smithsonian's obligation to explore America's history and culture.

Ouch.

Andrew Chamberlain of The Idea Shop, provides a charming primer on tax evolution. Unlike living beasts, though, inferior taxes don?t seem to die out.

From modest beginnings in 1864 where it raised a mere $8.6 million, the federal tobacco tax now takes in $8.2 billion annually?a ?948-fold increase.?

States have been counting pennies at the pump since 1919, levying one cent per gallon at the time. Today we pay more than 25 cents for each gallon to state governments, a 893-fold increase. With the revenue raised in Oregon alone, Chamberlain notes, ?that?s enough to buy the gas needed to drive a Honda Accord at 60...for twelve and a half years.?

And from an inauspicious start in 1901, license plate revenue has been rising steadily. From $1,082 in 1901, ?By 2001...registration fees raised $583 million, a stunning 539,000-fold increase. At $2 per mile, that?s enough for a one-mile NYC cab ride for every man, woman and child in the United States.?

That Americans are getting fatter is beyond dispute. ?Obesity and sedentary lifestyles accounted for approximately 400,000 deaths in 2000 compared to 435,000 from cigarette smoking, 100,000 from alcohol abuse, and 20,000 from illegal drug use,? write Inas Rashad and Michael Grossman in the current issue of Public Interest.

What economists and statisticians have long disagreed about is why this obesity boom in occurring. According to Rashad and Grossman, ?as much as two-thirds of the increase in adult obesity since 1980 can be explained by the rapid growth in the per capita number of fast-food restaurants and full-service restaurants.? This in turn, has been ?principal[ly] driven [by] increase in rates of labor force participation by women.?

But there?s a second culprit:

the crackdown on smoking via tax increases. Higher cigarette taxes and higher cigarette prices have caused more smokers to quit ? but these smokers seem to have begun eating more as a result. According to our research, each 10 percent increase in the real price of cigarettes produces a 2 percent increase in the number of obese people, other things being equal.

The point? Not that reduced smoking or increased female participation in the labor force are bad, but rather that ?social action can have unintended consequences.? Is it possible to consider all unintended effects of what seems a slam-dunk public policy? Definitely not.

?The success of the Indonesian democratic revolution dispels the long-held myth that democracy and Islam cannot thrive together,? writes Peter Brookes from his front row seat at the Indonesian election. Though plagued by radicalism and terrorism, Indonesia has not ?roll[ed] back political freedoms to the repressive Suharto days after the terrorist attacks,? instead Indonesia has illustrated ?what to do? (Russia take note.) Though a mere 11 Muslim nations have adopted electoral democracies (23 percent), the fact that the world?s largest Muslim country was able to hold its first free democratic election shows that things are heading down the right path.

Writing in the Washington Times, Alison Fraser challenges the argument that ?transition costs? make reforming Social Security too expensive (as she has done previously). While admitting that implementing a system of personal retirement accounts could cost up to $2 trillion over 10 years and $8 trillion total, this cost ?pales in comparison? to Social Security?s current unfunded obligation of $27 trillion, which reform would erase. The bottom line: ?[C]ritics of personal accounts stress the transition costs while ignoring the costs of not making the transition.? Read more here.

No, says Adam Thierer.

California Governor Arnold Schwarzenegger vetoed two bills on Saturday, reports Reuters.

One would have raised the state's minimum wage to $7.75. As we have noted, the consequences of high minimum wages can stay with workers for decades. And even so, the short-term effect isn't so hot, either.

The other bill would have made it more difficult for retailers to construct superstores. While usually forwarded by 'controlled growth' activists (what a boring basis for activism!), such legislation is usually bankrolled by, surprise, retailers that are already well established in a state and seek to preclude serious competition from, say, Wal-mart. In the end, these bills harm the low-income workers who would have sought employment at the stores, as well as the many people who would have been able to stretch their dollars a bit further thanks to price competition.

Wrote the Governor: "In recent years, the high cost of doing business in California has driven away jobs, businesses, and opportunity. Now is not the time to create barriers to our economic recovery or reverse the momentum we have generated."

It makes sense.

Cato Senior Fellow Jagadeesh Gokhale examines claims ?that President Bush's Social Security plan would involve a ?huge [transition] cost?up to $2 trillion.?? Gokhale questions the accuracy and the meaning of the $2 trillion figure, but accepts ?for the sake of argument? that it ?refers to the present discounted value of additional explicit annual deficits over the next 75 years that would arise from implementing Plan II,? one option proposed by the President?s Commission to Strengthen Social Security.

Complaints about such a transition cost have two major flaws. The first is that they often fail to take into account the positive benefits of fundamentally altering Social Security. As Gokhale writes:

[F]uture retirees who choose to remain under the current Social Security system can expect to be just as well off as today's retirees under this plan. Those who participate in Plan II's individual accounts are likely to be better off:?those who chose personal accounts could tailor their retirement finances to suit their needs-by exerting greater choice in purchasing guaranteed annuities or retaining their assets and leaving them to their children. These benefits of reform are rarely, if ever, included in cost estimates.

Secondly, complaints fail to accurately represent the costs of inaction. As Alison Fraser has written, ?[i]gnoring the costs of the current system is nothing if not disingenuous? because the current system creates a massive, unfunded obligation for future taxpayers. Gokhale clarifies:

The so-called "costs" of reform are already there?The full, official measure of the government's commitment to pay future retirement benefits in excess of future payroll taxes amounts to $12 trillion (in present value terms) [and will eventually cost $27 trillion]  under the current system?Under the current system of budget accounting, all of this cost remains hidden [in IOUs]?The correct interpretation is that Plan II goes a long way toward dealing with the current system's resource shortfall-it addresses about $10 trillion of the existing system's $12 trillion shortfall.

In July, U.S. Customs seized thousands of prescription drugs as they were routed from the Bahamas, through Miami.

The failed shipment represents a startling new trend. The drugs had not gone through Canada?s regulators, and had not been manufactured in either the United States or Canada. Distributor CanadaRx had set up operations in the Bahamas and received shipments of drugs from Europe.

Canada doesn?t guarantee the quality of its exported prescriptions, let alone exercise regulatory control over the European drugs that were being distributed by CanadaRx.

An estimated 1 percent of orders are seized in transit, but that proportion may be increasing as the FDA and Customs clamp down on illegal importation.

Despite what importation partisans say, safety of imported drugs is no slam dunk.

Congress is finally trying to follow the recommendation of the 9/11 commission and ?distribut[e] antiterrorism money on the basis of threat and risk, not pork-barrel politics.? James Carafano has warned against using homeland security money ?to put states on another federal dole,? which is what has happened thus far with the $2.2 billion annually authorized by the PATRIOT Act.

Under the current formula, each state is guaranteed at least 0.75 percent of the homeland security fund. This automatic spending constitutes some 40 percent of funds, and, as Carafano notes, the current formula  ?translates to $5.03 per capita in California and $37.94 per capita in Wyoming.? As an expose in Minneapolis Star-Tribune revealed, ?New York state was given $5.42 per person in federal homeland security grants, the third-lowest amount in the nation.?

According to the Star-Tribune, a report issued by the Select Committee on Homeland Security ?faulted Congress for failing to ensure that $7.8 billion in federal homeland security money over the past two years didn't go to projects of marginal benefit.? Grand Forks County Emergency Manager Jim Campbell claims,  "We have all the same hazards anyone on the East or West Coast has." True, perhaps, but does that justify Grand Forks?s ability to purchase ?more biochemical suits and gas masks than police officers to wear them??

Rep. Christopher Cox (R-CA), chair of the Select Committee, has proposed a bill that would reduce the minimum portion guaranteed each state from 0.75 percent to 0.25 percent. The measure that has garnered bi-partisan support. But why not get rid of minimum guarantees all together? This graph shows what it would look like if funds were distributed entirely on the basis of population. As common sense dictates, the biggest losers would be states with the fewest people, the biggest winners states with the most, including New York and California.

A 1999 study ?The Quality of Government? by La Porta, Lopez-de-Silanes, Shleifer, and Vishny found that, ?larger governments tend be better performing ones.? However, new work by USC economist Peter Gordon and Lanlan Wang in Econ Journal Watch challenges that conclusion.

Using a series of indicators from Heritage?s Index of Economic Freedom, Gordon and Wang found that the ?Size of Public Sector? for 47 countries in five time periods ?does not significantly affect? economic freedom or economic development. Nor do economic freedom and economic development cause big government. Thus, the data do not support claims that increasing the size of the public sector is a necessary precursor to an improving economy.

Gordon and Wang also determined ?economic freedom, as indicated by political institutions, is significantly positive in explaining economic development. Economic development, in turn, fosters in economic freedom.? The bottom line: economic freedom and economic growth go hand-in-hand.

Moreover, all three endogenous variables the authors examined?political institutions, economic development, and size of public sector?exhibited significant path-dependence. That is, an increase in any of the three in one year promotes an almost equal jump the next. 

Economist Arnold Kling looks into the Post's reporting on the 'squeezed middle class.' His conclusion:

The article emphasizes that the middle has shrunk, from 22.3 percent of households to 15.0 percent. What it does not point out is that the two categories below the middle also have shrunk, from 52.8 percent of households to 40.9 percent. Adjusting for inflation, the percentage of households with incomes over $50,000 has climbed from 24.9 percent in 1967 to 44.1 percent in 2003.

The article's claim that it has become harder to stay in the income range of $35,000 to $50,000 is correct, if what you mean by "harder to stay" is that it has become difficult to avoid being squeezed up into a higher category.

The horror.

Much more here in this paper from Robert Rector released last week.

Massachusetts Governor Mitt Romney vetoed $76 million of state spending last Thursday, to the consternation of state legislators.

Romney's reasoning, reported in the Globe, is great: "Romney said he could not tolerate paying retroactive pay raises to state employees while the Legislature refuses to honor a 2000 ballot initiative that called on lawmakers to reduce the income tax rate to 5 percent. It now stands at 5.3 percent."

We have an inkling what the taxpayers will think.

U.S. outsourcing has a negligible effect on the U.S. job market, according to a report from UBS Investment Research chief economist Mary Harris.

The Mercury News reports:

In the new UBS study, Harris says the U.S. economy adds new jobs in some areas even as it loses them in others. His study estimates that only about 400,000 job cuts annually are due to foreign outsourcing, out of a total of about 21 million unemployment claims each year.

Further, he finds that about 50 percent of displaced workers tend to find new jobs within five weeks, and most within six months, although many take substantial pay cuts. He said outsourcing can bring some positive broad effects to the overall economy by boosting global savings.

Another reason not to worry about foreign outsourcing is that some foreign countries, particularly China, are taking more jobs from other nations.

"Part of this is not at the expense of the United States, it's at the expense of other Asian countries,'' Harris said.

Dan Drezner looks into how the anti-outsourcing camp has been making use of Paul Samuelson's recent work. It isn't pretty:

The Journal cuts to the heart of Kofi's 'illegal' war and then formulates an interesting question:

The Secretary-General's latest posturing is far from harmless. The U.N. has been given the lead role in organizing the elections in Iraq scheduled for January. But Mr. Annan's "illegal" comments, which have been replayed across the Arab world, have given an added feeling of legitimacy to every jihadist hoping to disrupt the vote.

His comments also suggest that Mr. Annan belongs in the same category as France and Russia in never intending the "serious consequences" threatened by Resolution 1441. We wonder: Could the corrupt Oil for Food program and all the revenues it generated for the U.N. have anything to do with it?

No comment here. We will point to two recent papers, though:

• The Volcker Oil-for-Food Commission: Is It Credible? by Nile Gardiner, Ph.D., and James Phillips
• Kofi Annan's Iraq Blunder by James Phillips and Nile Gardiner, Ph.D.

Pressure from China led ?UNESCO to scrap plans to print a stamp containing [Taiwan?s] national flag in a painting done by a 13-year-old,? reports Agence France-Presse. Junior high student Yang Chih-yuan was one of six winners of a UNESCO contest marking International Peace Day. "We strongly denounce the Chinese communists' [decision] to bully Taiwan even though the painting was the brainchild of a high school student," Taiwan?s foreign ministry said. 

As the AFP explains, "China took over Taiwan's U.N. seat in 1971 and since then it has opposed the island's efforts to join any international organizations." Beijing?s actions have had wide-ranging consequences. For instance, this article from The New Atlantis details how China?s exclusion of Taiwan from the World Health Organization prevented the island from containing SARS in a timely fashion: ?The WHO directed Taiwanese officials to contact the central government in Beijing, which under the U.N.?s policy on China is said to represent Taiwan ?s health interests in the international body.?

?Who cares about your Taiwan?,? asked Chinese ambassador Sha Zukang after Taiwan?s bid for membership in the WHO was denied for the seventh straight time. Joseph Jaushieh Wu, chairman of Taiwan?s Mainland Affairs Council took a more diplomatic approach to ?Cross-Strait Relations? in a Wednesday speech at the Heritage Foundation.

?Secretary of State Colin L. Powell yesterday expressed strong disapproval of U.N. Secretary-General Kofi Annan's description of the U.S.-led war in Iraq as illegal, saying the comment was ?not a very useful statement to make at this point,?? reports the Washington Times. Powell was responding to comments Annan made over the weekend that ?startled and angered governments in the U.S.-led coalition.? Because of Saddam Hussein?s repeated violation of U.N. resolutions, the war in Iraq was not only justified under the U.S. constitution but was also ?totally consistent with international law,? Powell said in an extended interview with the Times. James Phillips and Nile Gardiner look into Annan's comments in this piece out today.

Congress is finally trying to ?distribut[e] antiterrorism money on the basis of threat and risk, not pork-barrel politics.? James Carafano has warned against using homeland security money ?to put states on another federal dole,? and a bill proposed by Christopher Cox (R-CA) would reduce the minimum portion of a $2.2 billion federal fund guaranteed each state from 0.75 percent to 0.25 percent. As Carafano notes, the current formula  ?translates to $5.03 per capita in California and $37.94 per capita in Wyoming?40 percent of funds are immediately tied up, leaving only 60 percent for discretionary allocations.? Problems in the distribution of the Urban Area Security Initiative grants remain to be addressed. Intended for ?high-risk areas,? the fund?s ?formula seriously undervalues actual intelligence and known targets? according to Carafano and its monies are scheduled to be disbursed (and dispersed) among some 80 cities rather than the original seven.

?We will deploy those numbers of troops that are required given the situation? of elections in Iraq, said British Defense Secretary Geoff Hoon on Friday. In the face of U.N. Security-General Kofi Annan?s misgivings about January election date, the British are determined that the elections take place according to schedule and plan to adjust troop numbers as the security situation in Iraq changes. Presently, 8,500 British troops are stationed in Iraq alongside the 138,000 American troops. Nile Gardiner discusses here the strength of the Coalition.

Yesterday, we discussed the (massive and previously overlooked) long-term negative effects of the minimum wage. There is also one short-term effect of minimum wage hikes that is often ignored.  Responding to recent proposals to increase the minimum wage to $7 an hour, Alan Reynolds explains ?that an increase in the minimum wage is not only likely to reduce the number of workers earning the minimum wage,? thereby increasing unemployment, ?but also to increase the number earning less than the minimum.?

Less than the minimum? That?s right. There are a slew of employers and workers to whom the minimum wage does not apply, such as businesses with annual incomes below $500,000 and seasonal amusement workers. In fact, of the 2.2 million Americans who work for the minimum wage or less?about 3 percent of the labor force in total?three-quarters make less.

The actual minimum wage applies to a small fraction (0.7 percent of U.S. workers. Moreover, ?[W]henever the minimum wage is pushed up faster than the market would have moved it, the effect is to greatly increase the proportion of jobs paying less than the minimum.? For example:

The minimum wage was increased to $4.75 in October 1996 and to the current $5.15 a year later. What happened? The percentage of workers earning less than the minimum wage jumped from 2.5 percent (1.7 million) in 1995 to 4.2 percent (3 million) by 1997. The percentage of teens working for less than the minimum rose from 7.2 percent to 19.8 percent. The increased minimum wage is the only plausible explanation, because the job market was unusually strong.

Yesterday afternoon we attended a special pre-screening of In the Face of Evil, a new movie written and directed by Stephen Bannon and based on Peter Schweizer?s book Reagan?s War. Tagged ?Evil is powerless if the good are unafraid,? the film chronicles the century-old battle against what it presents a single beast: the pursuit of power for it?s own sake.

While President Reagan?s triumph over Communism is a central part of the film, Bannon insists that the film is about today; he has appended a controversial coda that portrays the battle against what he calls ?Islamic fascism? as a continuation of Reagan?s struggle. Bannon hopes Senate candidates will take the ?Reagan challenge? and show his film side-by-side with Michael Moore?s Fahrenheit 9/11.

Bannon has dug up some amazing original footage of Reagan that spans some forty years. Additionally, clips of a 1964 Johnson for President ad and an exchange in which President Ford denies that Russia dominates Eastern Europe to an incredulous Max Frankel are worth the price of admission on their own.

Conventional wisdom, at least among economists, is that ?the minimum wage reduces employment, especially among low-skilled workers for whom the minimum wage is most binding,? in the words of George Mason Professor Tyler Cowen. This is particularly true for workers just entering the labor market. For instance, according to Heritage policy analyst Paul Kersey, ?[i]ncreases in the minimum wage in 1990 and ?91 led to a 12 percent decrease in employment opportunities for teens.?

But what has become of those teens and other low-skilled workers locked out of the labor market by the minimum wage? ?Adverse longer-run effects could arise because of decreased labor market experience and accumulation of tenure, lower current labor supply, [or] diminished training and skill formation,? according to a National Bureau of Economic Research paper by David Neumark and Olena Nizalova.

Neumark and Nizalova investigated these long-term consequences ?by using information on the minimum wage history that workers have faced since potentially entering the labor market? using Current Population Survey Outgoing Rotation Group data from 1979 to 2001. They compared the wages, hours, and incomes of workers who as teenagers have been exposed to state minimum wages that were higher than the federal minimum wage. They found that

[E]ven as individuals reach their late 20s, they earn less and may also work less the longer they were exposed to a higher minimum wage. In particular, exposure during one?s teenage years imposes longer-run costs, presumably because minimum wages are most likely to be binding during those years.

Specifically, each year of exposure to higher minimum wages between the ages of 16-19 had lasting effects from 25-29:

• 3.1 percent lower hourly wages;
• 0.5 percent fewer hours per week; and
• 1.9 percent less weekly income.

And these effects ?are stronger for blacks and those who do not complete high school, again presumably reflecting the greater extent to which minimum wages are binding for these groups.?

Neumark and Nizalova conclude, ?From a policy perspective, these longer-run effects of minimum wages are likely more significant than the contemporaneous effects of minimum wages on youths that are the focus of most research and policy debate.?

In other words, even if you already thought that the minimum wage was bad policy, its effects are probably even worse than you imagined.

It is an important day for what may be the Bush Administration?s most important health policy innovation. OMB announced yesterday that it let insurers offer Health Savings Account (HAS) plans to be offered to the over 3 million federal employees in the Federal Employees Health Benefit Program.

This is a controversial step. Unions and other groups that have an interest in maintaining centralized control of health care were (and are) strongly opposed to HSAs in FEHBP, going so far as to force a vote on a measure that would have kept FEHBP HSA-free. (It failed to pass on party lines.) These groups are worried that individuals will become attached to their HSAs and form a constituency that would block a major government takeover of the health care system (e.g., a single-payer approach).

HSAs are a major advance in the long march to ?consumer-driven? health care, which transfers responsibility for decision-making and most cost management to individuals. In the FEHBP, employees and the government will contribute to HSAs every year, which can be used, tax-free, to pay for medical expenses. Funds rollover at the end of the year. Additionally, HSAs are paired with inexpensive catastrophic insurance, to ensure that no one is left uncovered in extraordinary circumstances. Overall, government employees opting to go with HSAs will enjoy more in-plan flexibility than before and could well save money, too.

Aetna will offer HSAs to federal workers in 32 states and the District of Columbia, and seventeen other insurers will also offer HSA plans.

Allowing HSAs in the FEHBP will help better inform the public of their general availability and, by encouraging more insurers to offer the plans, could make the individual HSA market more competitive. At the very least, insurers will develop greater competencies in creating and administering this new type of plan.

Additionally, federal employees in Southern Illinois will have the option to choose a "faith-based" health savings plan administered by the Order of Saint Francis. This represents an early opportunity for consumers to structure their healthcare needs in accordance with their ethical beliefs and is a great example of the individual choice that consumer-driven healthcare allows.

How faith-based plans can help deal with the ?moral and economic crises in healthcare? is discussed in this Heritage Foundation lecture.

A day after his Secretary of State expressed his concern, ?President Bush said on Wednesday he was concerned that recent decisions by Russian President Vladimir Putin could undermine democracy in Russia,? Reuters reports. The President cautioned that, "As governments fight the enemies of democracy, they must uphold the principles of democracy.? Heritage?s Helle Dale agrees, calling Putin?s ?opportunistic? reforms ?the biggest rollback in Russia's democratization process in a decade.?

The Hill notes a new government study sure to make waves:

The government is about to release a study showing that the average American requires $3,834 per year on personal healthcare services and that Americans 65 and older need more than $11,000 in medical services annually, according to an administration memo obtained by The Hill.
...
The study found that working-age adults (ages 19-64) spent an average of $3,352 on personal healthcare services. Some employers have recently said that they are cutting back on hiring because they cannot afford to pay for healthcare benefits.

This does not come as any surprise, but hard numbers are good to have and it will likely be another peg for some to trot out their hopes of expanding government programs to help Americans.

Robert Moffit wrote earlier this week about one program that has actually had some success controlling costs, even moreso than private businesses:

Compared with private employment-based health insurance, the [Federal Employees Health Benefit Program] has historically achieved superior performance in cost control. According to staff at the Office of Personnel Management (OPM), the agency that runs it, FEHBP?s average cost increase is projected at 7.9 percent; employers in the private sector expect higher cost increases, with projections ranging from 10 to 16 percent for next year.

And what accounts for this? Choice, competition, and light regulation. These principles are, unfortunately, too often absent in today's health care market.

But HSAs are a step in the right direction. As would be any plan that encourages consumer-driven health plans, such as Stuart Butler's proposal for individual-plan tax deductibility.

While we are flattered to see that so many have adopted the rhetoric of consumer choice and even the imprimatur of the FEHBP, proposals that abandon the principles of choice, competition, and light regulation but still claim some tie to the FEHBP (e.g., tossing millions of the uninsured into a 'reformed' FEHBP) are sheep in wolves' clothing and may not be able to control costs in ways that are acceptable to most Americans. Don't be fooled.

A great analysis (per usual) by the Belmont Club of patterns of violence in Iraq.

Bottom line: "Based on the pattern of casualties, it is hard to reach the conclusion that Iraq is descending into anarchy or that the resistance is spreading uncontrollably. If that were true we would be seeing a different distribution of casualties."

Initial jobless claims rose last week by 16,000 to 333,000, still a historically low level reflecting a healthy labor market. Analysts had expected claims to come in closer to 340,000, mostly due to hurricane-related layoffs.

This brings the four-week moving average to 338,000.

Continuing jobless claims declined by 3,000.

In the past few days, it has become increasingly obvious that CBS used (badly) forged documents in a 60 Minutes hit piece on George Bush. Each day, its defenses seem to become weaker, and the attacks stronger. As John Stossel said in an interview last night, CBS has circled its wagons, only to find them on fire. Now comes word that Congress may join the fray: Rep. Chris Cox has asked the House Telecom Subcommittee to launch an investigation into CBS? reporting on this matter. As wrong as CBS was to run its story, it would be even more wrong for Congress to get involved. Simply put: the government should not be policing the media. No matter how sloppy, biased or irresponsible, Congress simply should not be telling the media what it can or can?t do. Or even ?investigating? what it has done. That is the road to censorship. Dan Rather and CBS will doubtless suffer tremendously for their outrageous conduct ? because of investigations by other private media outlets (including blogs), with likely sanctions being loss of reputation and credibility. A congressional investigation is neither necessary nor welcome.

Does ?job lock,? when employees are reluctant to switch jobs for fear of losing health coverage, exist? The media are enamored with it, ?public policy is devoted to reducing it,? and three in ten Americans claim to be afflicted by it, but economists ?have not arrived at a consensus.? However, a recent study by Scott J. Adams in Contemporary Economic Policy (abstract here) provides the best evidence yet ?that employer-provided health insurance lowers mobility.?

There is no easy way to measure job lock, but Adams has done yeoman?s work in overcoming the empirical challenges that have frustrated researchers for years. Using data from the annual Current Population Survey over thirteen years (1988-2000), Adams found ?there is an approximate 22 percent ?reduction in job mobility stemming from health insurance coverage.?

Specifically, while annual turnover was 9.70 percent among married men aged 25 to 55 with spouses, those without an alternative source of health coverage (i.e., the spouse had separate insurance) changed industries at a rate of 7.58 percent?a 22.47 percent difference.

Adams arrived at these figures using a serious of rigorous controls, which inclines his estimate to be conservative. ?Earlier studies [have] found job mobility was reduced by 26 percent to 31 percent due to the lack of portability of employer-provided health coverage,? notes that National Center for Policy Analysis?s Daily Policy Digest.

If it was not before, it is now apparent that ?job lock? is a real problem affecting perhaps millions of Americans. Heritage?s Stuart Butler suggests a solution: a refundable tax credit for workers in small firms to purchase their own health insurance. This would given employees the same tax advantage that employers have in purchasing coverage and result in policies that are transferable into and out of workplaces by default.

And CQ Today reports that House conferees for the corporate tax bill may be appointed soon.

Read Dan Mitchell's guide to the bill and thoughts for the conferees.

The Bureau of Labor Statistics, part of the Department of Labor, has issued a new report suggesting that Americans are anything but overworked. The Journal has more details; look here for an excerpt.

Here is a summary of the BLS report. Are you average?

On an "average day" in 2003, persons in the U.S. age 15 and over slept about 8.6 hours, spent 5.1 hours doing leisure and sports activities, worked for 3.7 hours, and spent 1.8 hours doing household activities.  The remaining 4.8 hours were spent in a variety of other activities, including eating and drinking, attending school, and shopping.  The average day measures for the entire population reflect the average distribution of time across all persons, whether or not each person engaged in that activity on their diary day.

Overworked? Hardly. But we still put in more hours than those in Western Europe.

The World Bank has released Doing Business in 2005, its second annual report on the ?regulatory costs of business? in over 150 economies. (See here for the intro to the new edition, here for the full text of the 2004 report, and here for a searchable database.) The study is like a business-focused version of Heritage?s Index of Economic Freedom and ?identif[ies] specific regulations that enhance or constrain business investment, productivity, and growth? in seven different categories.

New Zealand tops the Doing Business index, followed by the United States, Singapore, Hong Kong, and Australia. Western European countries hold nine of the next eleven spots (Canada is 8; Japan is 10), while Lithuania, Slovakia, Botswana, and Thailand round out the top 20. These results are remarkably similar to the overall rankings in the Index of Economic Freedom. 

Comparatively, the results of this year?s study are encouraging, as 58 of 154 countries have made it easier to do business. These are again consistent with the Index of Economic Freedom?s findings.

Europe improved the most in the Doing Business index, as the Economist reports (subscription req?d): ?Seven of the top ten reformers were either new EU members, which had to shape up to join the club, or old ones, which had to shape up to compete with the new entrants.? Likewise, five of the ten countries showing the greatest improvement in economic freedom since 1995 are in Eastern Europe.  

But less than a third of poor countries showed any improvement in the Doing Business index.

While sub-Saharan nations showed the greatest overall improvement in this year?s index (five numbered among the ten biggest gainers), ?African countries reformed the least? in making business easier. The changes did occur were largely ?spurred by the desire of governments and donors to quantify the impact of aid programs.?

As these data suggest, ?businesses in poor countries face much larger regulatory burdens than those in rich countries,? including  ?3 times the administrative costs? and ?twice as many bureaucratic procedures and delays.?

The results are large black and gray markets. According to the World Bank, ?a large informal sector is bad for the economy: it creates distortions, reduces tax revenues and excludes many people from basic protections.? Moreover, in a largely informal economy, ?Women, young and low-skilled workers are hurt the most.?

The bottom line? According to the World Bank, ?the payoffs from reform appear large. A hypothetical improvement to the top quartile of countries on the ease of doing business is associated with up to 2 percentage points more annual economic growth.?

Sustained over, say, a century, that little difference could more than account for the present difference in living standards between Mexico and the United States?in other words, economic freedom really does matter and even a small uptick in growth is nothing to sneeze at.

These findings lend weight to development policies that do more than lending and grantmaking. The Millenium Challenge Account, for example, could leverage American aid dollars many time over by encouraging economic reform and thereby boosting long-term growth.

Amtrak threatens that it will go bust with only $900 million in government subsidies next year.

Rep. Tom Tancredo responds by cutting its funding from transportation appropriations altogether. After all, why pay $900 million when $0 will get you the same result. "'Scamtrak' has been a train wreck for the American taxpayers," says Tancredo.

Rep. Ernest Istook takes a more moderate approach: Amtrak's funding will be reinstated, he promises, but "Amtrak reform has to be enacted before we start putting more money into that passenger rail service."

Sounds reasonable from our perch.

But what sort of reform is in order? Ron Utt advises Congress to look north for ideas.

Economist Thomas Sowell asks an intelligent question:

Our current unemployment rate ? 5.4 percent ? is one of the lowest in the world and one of the lowest in U.S. history. Why then the hysteria about jobs?

His answer is also worth reading.

After the corporate scandals of 2002, lawmakers pushed hard against white-collar crime. But they?ve gone too far, says Heritage legal analyst Trent England. England describes the case of John Cassese. After making an investment that later turned out to be forbidden, Cassese was charged with insider trading despite the absence of any criminal intent. Cassese paid $321,387.84 in restitutions and thought it was a ?done deal.? Apparently not, as prosecutors were convinced that Cassese should pay even larger fines and serve jail time. With increasing overcriminalization in the federal code, could we too be prosecuted for innocent mistakes?

The Middle East FTA progresses one step further with Bahrain signing on. As part of President Bush?s larger 10-year plan to expand economic opportunity in the Muslim world, Bahrain is the fourth Arab nation to sign a free-trade agreement with the United States. Undoubtedly, this is a step in the right direction. The agreement isn?t expected to go to Congress until after the election, where it will likely face little opposition.

Walter Williams worries that pushing so many Americans off the tax rolls entirely could be a bad thing:

Removing so many Americans from federal income tax liability contributes to the political problem we're witnessing this election: class warfare and the politics of envy.

When 122 million Americans are outside of the federal income tax system, it's like throwing chum to our political sharks. These Americans become a natural spending constituency for big-government politicians. After all, if you have no income tax liability, how much do you care about how much Congress spends and the level of taxation? Political calls for tax cuts fall upon deaf ears.... Tax cuts to many Americans mean just one thing: They threaten the handouts they receive.

We agree with Williams that most any tax cut, for any reason, is generally a good thing, but ideally tax cuts will be as broad as possible. This 1995 paper by Dan Mitchell outlines nine criteria by which changes to, or reforms of, the tax code can be evaluated.

A new report (PDF link) from the GAO concludes that electricity markets (in typical bureau-speak, the report calls them 'demand-response systems') can save customers a lot of money:

Demand-response programs benefit customers by improving the functioning of markets and enhancing the reliability of the electricity system. Some recent studies show that demand-response programs have saved customers millions of dollars and could save billions of dollars more. The [General Services Administration]?as only one example of federal involvement in these programs?has reported saving about $1.9 million through the participation of only a few of its buildings in demand-response programs during the past 5 years. However, GAO estimates that GSA could potentially save millions of dollars more with broader participation in these programs.

So why isn't this happening?

While benefits from demand-response are potentially large, three main barriers limit their introduction and expansion: (1) state regulations that shield consumers from price fluctuations, (2) a lack of equipment at customers? locations, and (3) customers? limited awareness about the programs and their benefits. Regarding prices, customers do not respond to price fluctuations because the retail prices they see do not reflect market conditions but are generally set by state regulations or laws.

In other words, consumer-protection regulations are actually costing consumers billions of dollars in energy costs.

?Secretary of State Colin L. Powell warned Russia yesterday that broad new anti-terrorism moves announced by?President Vladimir Putin could harm the country's still-struggling democracy,? reports the Washington Times. The measures proposed by Putin in the wake of last week?s Beslan massacre include not only the creation of an anti-terrorism agency but also wide-ranging electoral modifications. ?How changing the country's electoral process can fortify Russia against more terrorist attacks is a head-scratching mystery? to the Christian Science Monitor (to us, as well). ?The only reasonable explanation for President Putin's plans to deprive voters of their right to directly elect regional governors and representatives in the national parliament lies in his pattern of power consolidation.? Yevgeny Volk argued last week that freedoms and democracy could be among the casualties of the Beslan attack.

Small-business workers account for approximately sixty percent of the nation?s uninsured, according to a new survey from the National Federation of Independent Businesses. Only 63 percent of small businesses currently offer health insurance, as compared to 68 percent in 2001 and 99 percent of large firms today. "There's a strong suggestion in some of the data ... that many small employers have done just about all the cost-shifting that they can do," says Drew Altman, president and CEO of the Kaiser Family Foundation, which has also surveyed uninsurance among small businesses. Heritage?s Stuart Butler maps out a comprehensive, market-based solution to uninsurance among small-business employees here. 

Environmental researcher Holly Fretwell is concerned that designating too much land as ?wilderness? can lead to overcrowded camping areas in national forests. First passed in the 1964, the Wilderness Act now covers 105 millions acres of land that must remain ?untrammeled by man.? 58.5 million more acres are now in legal limbo: courts have blocked implementation of an order by President Clinton because it was not approved by congress.

So, what to do with this land? Fretwell supports the President?s recent proposal ?to give each governor a voice in how the roadless areas in their state could be used.? She continues:

The level of activity would be considered on a case-by-case basis. Bush was right to do this. Citizens living closest to the lands are the most greatly affected by them. They bear the biggest burden of any environmental harms and dangers such as wildfire, the sight of massive clearcuts, or sediment-filled creeks. And they reap the most immediate benefits, whether from clean water, developed campsites or harvest or recreation use.

Makes sense.

In August, we discussed the flaws several Harvard researchers found with an American Federation of Teachers study that impugned charter schools.

Harvard economics professor Caroline Hoxby has more to say:

[The AFT study] attempted to draw conclusions about states? charter school policies based on a sample of 3 percent of students. That sample represents about 4 fourth graders in Connecticut charter schools, 14 in District of Columbia charter schools, 32 in New York charter schools, and 38 in New Jersey charter schools. Even in the charter-friendly state of Arizona, the number is only 108. Charter schools in an entire state cannot be evaluated based on one or two classrooms of students. Meaningful comparisons require larger numbers of students.

Thankfully, Hoxby herself has the goods. Her ?Straightforward Comparison of Charter Schools and Regular Public Schools in the United States? uses the same data as the AFT survey: the National Assessment of Educational Progress, an achievement test taken by all fourth-graders (third- and fifth- graders, in some states). Hoxby?s study is the most comprehensive of its kind to date, as she measured the performance of a full 99 percent of charter school students nationwide in 36 states and the District of Columbia.

Hoxby?s study is not only thorough but also comparative, correcting a major hole in the AFT study, from which, as we noted, it was ?impossible to tell?whether this learning [in charter schools] is an improvement over what could have been learned in public schools.?  Hoxby compared the math and reading proficiency of charter school students with that of students in the nearest public school, that is, the school students enrolled at a charter institution would most likely have attended otherwise. In constrast, the AFT study relied upon more aggregate measures of performance that don?t take into account significant variation between and within districts.

The results are straightforward. Overall, ?charter students are 4 percent more likely to be proficient in reading and 2 percent more likely to be proficient in math.? Moreover, charter students do even better where charter schools are ?more-established;? after all, nearly one-third of charters were under two years old when the NAEP data was collected. In some locales, charters particularly excel: ?In the District of Columbia, where 11.3 percent of students are enrolled in charter schools (by far the highest percentage of any state)?fourth grade charter students? advantage is 35 percent or more in both reading and math.? All in all, charter schools students were more proficient readers in thirteen of the fifteen states for which there was statistically significant data; the tally was nine of thirteen in math.

Hoxby also corrected for the fact that the closest public school to a given charter school may not be the most comparable. She analyzed racial composition to correct for this potential error, sometimes substituting another nearby school as a better basis of comparison. Using this method (applied 7.6 percent of the time), Hoxby found that ?charter students are 5 percent more likely to be proficient in reading and 3 percent more likely to be proficient in math? compared to students in the nearest regular public school with a similar racial composition.?

We would note, as we did before, that this study does not take into account the fact that many charter schools cater to the most troubled students. Thus charter school students should, as a group, perform worse, all else being equal, than their public school peers. In other words, Hoxby?s study may still underestimate the performance benefits of charter schools.

Still, Hoxby is able to conclude that, ?on the whole, the results suggest that the average charter school student in the United States benefits from having a charter school alternative.?

The purpose of education is to teach children the skills and knowledge they need to lead fulfilling lives. So shouldn't everyone involved in education--teachers, principals, school board members, and even policymakers--make the welfare of children their first order of business?

Well, we think so, but apparently a good number of unionized public school teachers disagree.

In June, Mayor Richard Daley unveiled a plan to covert many of the city's worst performing schools into charters, with the understanding that the schools will lose their charters if they cannot demonstrate results.

And what was the response of the Chicago Teacher's Union to this news that was so warmly welcomed by many of the city's neediest? It was decidedly cool.

In a Chicago Sun-Times article, a union member hinted at the union's plan: "What you would do is get on [councils that decide the type of new schools] and sabotage the new school from being a charter or contract." Does it matter what is best for children and their education? Is the union interested in how Daley's plan might be made to work best? Sadly, no. Instead, the union plans to 'sabotage' the whole process.

Remember that earlier this year the Secretary of Education referred to some teachers union members as "terrorists" in discussing their opposition to school choice. The Secretary was quickly pounced upon from all sides by union members and the media: how dare he insult those who selflessly devote their very lives to education. The Secretary's word choice wasn't exactly right, but we're beginning to see what he was getting at.

A new survey  from the American Enterprise Institute concludes that John Kerry's plan to help the uninsured gain health coverage would increase federal spending by $1.5 trillion through 2015. In all, about 27.3 million people would be newly insured under the Kerry proposal, at a cost of nearly $55,000 apiece in terms of total spending. According to the same study, George W. Bush's plan to extend tax credits for individuals to purchase coverage would help 6.7 million people gain coverage. The Bush plan would cost $129 billion through 2105, or less than $20,000 apiece in terms of total spending.

Secretary of State Colin Powell and Homeland Security Secretary Tom Ridge lent their support for the creation of the position of National intelligence director in testimony before the Senate Governmental Affairs Committee. While Powell said he would leave the details of implementing the 9/11 Commission?s recommendation to the President, he warned that the ?new intelligence chief [must be] divorced from any of the 15 agencies in the community.? This fits with the earlier testimony of Reagan Attorney General Ed Meese, who has warned that the NID must not be too closely tied with counterterrorism efforts if he is to provide effective, government-wide intelligence oversight. Heritage?s James Carafano agrees that the President and Congress must be careful in structuring the NID position.

A near deal on the transportation bill that would fund highways for the next six years has fallen apart, reports Congress Daily. As we noted yesterday, Republicans in the House and Senate had apparently agreed on a $299 billion figure. However, Senator John McCain (R-AZ) has said this number is ?too high? and will not support the compromise. This foils the attempt by Conference Committee Chairman John Inhofe (R-OK) ?to try to push the bill through conference without support from any Senate Democratic conferees? with a one-vote majority after abandoning a series of bipartisan deals. Democrats believe the compromise figure is too low and ?continue to support the $318 billion in contract authority and $301 billion in guaranteed funding approved by the Senate earlier this year.? Read Alison Fraser and Jonathan Swanson on high federal highway spending has ?jumped the shark.?  Also see Ron Utt's note to conferees.

John R. Lott, Jr., and Kevin A. Hassett of the American Enterprise Institute tackle the controversial issue of media bias. Unlike the many others who have studied media bias, their approach is econometric?that is, statistically based. The authors choose a narrow scope, ?systematically examin[ing] how newspapers cover the economy to test whether Republican and Democratic administrations are covered differently.?

The results of this econometric study ?suggest that American newspapers tend to give more positive news coverage to the same economic news when Democrats are in the Presidency than for Republicans?:

When all types of news are pooled into a single analysis, our results are highly significant [For all the newspapers, Republicans receive between 9.6 and 14.7 percentage points less positive coverage than Democrats?That is about 20 to 30 percent less positive coverage than was provided on average during the Clinton administration.] However, the results vary greatly depending upon which economic numbers are being reported. When GDP growth is reported, Republicans received between 16 and 24 percentage point fewer positive stories for the same economic numbers than Democrats. For durable goods for all newspapers, Republicans received between 15 and 25 percentage points fewer positive news stories than Democrats. For unemployment, the difference was between zero and 21 percentage points. Retail sales showed no difference.

Examining specific publications, the authors found a bias at the top:

All but one of the top 10 papers and the AP tend to be overly negative during Republican administrations?The Associated Press, Los Angeles Times, Washington Post, and Chicago Tribune had significantly more negative headlines during Republican administrations?The Associated Press provides 42 percentage points less positive coverage? The Houston Chronicle is the only newspaper that implied any bias towards Republicans, but the effect wasn?t statistically significant.

While Lott and Hassett?s statistical analysis is appropriately rigorous, they primarily examined data from 1991 to 2004, meaning that their results could be as much a function of the media?s attitude towards Clinton and the Bushes as it is illustrative of their views on the Democratic and Republican parties.

We already know where members of Congress send their kids (the bottom line: ?every piece of parental choice legislation would have passed if those who exercised choice in their own families had voted with supporters of school choice?) but what about public school teachers?

United, their opposition to vouchers is well known. But individually, as a new study (PDF link) from the Thomas B. Fordham Institute shows, ?urban public school teachers are?more likely to send their children to private school than are urban families in general (21.5 vs. 17.5 percent).? This is against a rate of 12.2 percent for all families, according to the Fordham Institute?s analysis of census data.

This conclusion is not a function of household wealth. In fact, controlling for income yields the exact opposite result. More teachers send their kids to private schools in households where the total family income is $42000 or less (14.9 percent to 10.3 percent for all households), while fewer do so in households where the total annual income is $84000 or more (26.7 percent as compared to 35.6 percent for all households). Public school teachers demonstrate by their actions that school choice is especially important for low-income families.

So why does this matter? As the authors of the study explain, ?We can assume that no one knows the condition and quality of public schools better than teachers who work in them every day.? Where teachers place their own children is one of the best barometers of the quality and value of our public schools.

Consider, for instance, some of the more subtle data from the Fordham Institute study:

In the 21 cities where public school teachers lag behind all urban families in private school usage, the average spread is only ?3.6 percent?in the 29 cities where public school teachers? use of private school outpaces the rate among all urban families?the average spread?is 9.1 points.

In June, Tim Kane wrote,

After years of trumpeting a ?jobless recovery,? the skeptics are admitting that America is in the midst of a jobs boom, with 1.4 million new jobs over nine straight months of payroll growth. Now the pessimists insist that the new jobs are no good.

Kane disagreed, concluding that ?new jobs are quality jobs? based upon data showing that ?most future growth will be in the health, education, retail, and technology subsectors?[and] [t]here will be zero growth in ?burger-flipper jobs? relative to the overall labor force? Moreover, ?[a]verage real earnings for ?production and nonsupervisory? workers are 2.4 percent higher?than in January 2001.?

New data from the Chicago Federal Reserve supports Kane?s analysis. In the September Chicago Fed Letter, economist conclude (see here for summary) that ?[j]ob growth seems to be occurring?in a fairly typical way given where the economy is in the employment cycle.? The chief indicator used by the Fed?s economists is the difference in monthly employment growth between high-wage and low-wage jobs. ?A positive number indicates employment growth is stronger among industries that pay above-average wages. A negative number implies employment growth is stronger in below-average wage sectors.? As the study explains, ?there is a fairly cyclical pattern to this measure; it falls when labor markets are struggling and rises as employment recovers.?

A system of personal retirement accounts would help Americans of all income levels build family nest eggs, concludes a major new report from Heritage (see this summary). Using data from twelve case studies, the report concludes shows how workers of all income levels could build wealth with PRAs. For example, a married couple with two average-income earners could leave a nest egg of over $115,000 to their children and grandchildren. Such a system would also ?[h]elp equalize assets between upper-income and lower-income families and [c]hange the way that lower-income families view themselves and their connection to society.? How big would your nest egg be? Ask the Social Security Calculator.

The federal assault-weapons ban, which forbade the sale of 19 military-style weapons, expires today after ten years. Despite protests from the Brady Campaign to Prevent Gun Violence and various police groups, ?there is not a single published academic study showing that the ban has reduced any type of violent crime [because]? there is nothing unique about the guns that are banned under the law,? according to a summary by the American Enterprise Institute. USA Today reports that, other than a possible increase in the sale of high-capacity magazines, ?gun shop owners said the expiration of the ban will have little effect on the types of guns and accessories that are typically sold and traded across their counters every day.?

?North Korea has said a large mushroom cloud seen over the nation in satellite images was the result of a deliberate demolition of a mountain for a power plant,? reports CNN. This announcement comes after days of speculation over the source of the cloud, which was first spotted by a South Korean news agency on September 9, the anniversary of North Korea?s founding. ?American and South Korean officials immediately played down the possibility the cloud was evidence of a nuclear weapons test?[but] top Bush advisers concede there is intelligence the communist state may be preparing a nuclear test.? Some speculate that the cloud may be the result of a failed missile test scheduled. A British official will investigate the site of the blast early this week.

Bickering continues over federal highway spending, though Republicans in the House and Senate are said to be ?coalescing? around a figure of $299 billion to pay for ?highway and mass transit construction and safety programs? for the next six years.  This amount bridges the gap between the $318 billion proposed by the Senate and the $284 billion suggested by the House, though both figures are higher than the $256 billion ceiling preferred by President Bush. The highway bill will be extremely wasteful in any case, as Alison Fraser and Jonathan Swanson have documented and will remain so no matter how much is spent unless major alterations to the funding bill are made. The bottom line, says Ronald Utt, is that ?federal highway program is more about spending than about transportation.?

European Union enlargement commissioner Guenter Verheugen has warned that Turkey?s attempt to make adultery a punishable crime may jeopardize its chances of admission to the EU. "If Turkey tries to include crimes that are not in other countries' laws in its penal code, European Union countries could interpret this as Islamic law entering Turkish law," Verheugen told a Turkish newspaper. Verheugen has been touring the country ahead of an October report on Turkey?s progress towards EU membership.

The anti-adultery law is one element of ?a package of sweeping changes to the penal code? including ?the abolition of torture and the expansion of individual liberties? that have been initiated as ?an effort to bring Turkey's legal code into line with European human rights legislation.? While ?women's groups and liberal commentators have condemned the bill,? it would treat men and women equally, unlike an anti-adultery law that was struck down by the Constitutional Court in 1996. In fact, Prime Minister Recep Tayyip Erdogan has declared that the bill will ?protect women from deception,? and the main opposition party has pronounced its support.

So what will keep a country out of the EU?

• Propping up brutal regimes? No.
• Selling regional strongmen advanced weapons? No.
• Fiscal irresponsibility? It's almost a prerequisite!
• Incentive-crushing taxation? Nope.
• Pervasive anti-Semitism? Nope.
• Enacting a penalty against adultery? Well, yes, probably.

Conservative politician Temel Karamollaoglu had this to say: "We think that Turkey should join the EU, but not really accepting every detail in the moral value, not every aspect of European society at present?I accept European Union as a multi-cultural, multi-religious society."  Perhaps the EU should return the favor.

A piece in the New York Times previews an article by famed economist and 1970 Nobel Laureate Paul A. Samuelson that he says ?sets the record straight? on outsourcing. He claims that, "the mainstream defenses of globalization were much too simple a statement of the problem."

According to Mr. Samuelson, a low-wage nation that is rapidly improving its technology, like India or China, has the potential to change the terms of trade with America in fields like call-center services or computer programming in ways that reduce per-capita income in the United States. "The new labor-market-clearing real wage has been lowered by this version of dynamic fair free trade," Mr. Samuelson writes.

But doesn't purchasing cheaper call-center or programming services from abroad reduce input costs for various industries, delivering a net benefit to the economy? Not necessarily, Mr. Samuelson replied. To put things in simplified terms, he explained in the interview, "being able to purchase groceries 20 percent cheaper at Wal-Mart does not necessarily make up for the wage losses."

The global spread of lower-cost computing and Internet communications breaks down the old geographic boundaries between labor markets, he noted, and could accelerate the pressure on wages across large swaths of the service economy. "If you don't believe that changes the average wages in America, then you believe in the tooth fairy," Mr. Samuelson said.

Unfortunately, this article, written for the Journal of Economic Perspectives, will not be published until later this month. The best we can do is infer Samuelson?s arguments from a response that has been submitted to the JEP by Jagdish Bhagwati, Arvind Panagariya, and T.N. Srinivasan and posted (PDF link) on Panagriya?s website.

Economist Arnold Kling at EconLog summarizes:

The authors point out that some of the concern is not about trade per se but about the accumulation of capital and know-how in China and India. They suggest that this could harm the U.S. if it reduces trade by eliminating the division of labor. That is, suppose that the U.S. stays stagnant, but China and India learn how to do everything that we know how to do. Then they will no longer export cheap goods to us, and we will lose. This, they claim, is what Samuelson's theoretical paper describes. If so, then it does not really describe outsourcing.

It sounds as though Bhagwati and company think that Samuelson's article is a bait-and-switch. The bait is outsourcing, but he then switches to a model of relative stagnation, in which the U.S. stops doing things that increase productivity while other countries rapidly increase theirs, leading to less comparative advantage and trade. If Bhagwati and company are correct, then Samuelson has done the public a disservice.

Even if it?s not a bait-and-switch, the scenario Samuelson apparently describes seems extremely unlikely. That is, the probability that China and India will learn to do virtually everything better than us seems extremely low, relegating Samuelson?s scenario to the realm of the theoretical. As Bhagwati, et al. write:

[G]rowth in China and India in the near future is likely to remain concentrated in the low-end information-technology services that they are already exporting to us. The often-repeated notion that India and China will quickly educate 300 million of their citizens to acquire sophisticated and complex skills at stake almost borders on the ludicrous. The educational sectors in these countries face enormous difficulties. Adding 300 million to the pool of the skilled will take some decades.

But even if we were to grant the possibility of substantial expansion of complex skills in China and India, we must recognize that?it is the ?intra-industry? trade model describing two-way trade in similar products between high-income countries with similar factor endowments that becomes more relevant. As China and India acquire more skills and become technologically more sophisticated, we will observe them increasingly trading in services that are of ?intra-industry? variety?Increased skills in such a setting lead to newer varieties of services and need not spillover into adverse terms of trade effects.

Daniel Drezner condenses the Samuelson-Bhagwati debate ?to a few empirical questions?:

1) Just how many well-educated workers are there in China and India?

2) Will U.S. firms have an incentive to offshore sophisticated value-added work in areas where the United States currently has a comparative advantage?

3) Will the United States continue to be a locus for value-added innovations?

4) To what extent are wages and employment in the affected industries declining because of outsourcing as compared to technological innovation standardizing and commodifying what used to be highly complex (and highly paid) tasks?

In the past, my answers to these questions have been a) not as many as you think; b) no, c) yes, and d) not a lot?Which is why I side with Bhagwati on the outsourcing question.

Samuelson is not the only Nobel laureate economist to challenge the conventional wisdom on outsourcing. In a May article in The Straits Times Interactive (available here though the original has been archived), Joseph Stiglitz contends that ?Putting one's head in the sand and pretending everyone will benefit from globalisation is foolish.? Bhagwati, et al. beg to differ: ?Since outsourcing is a ?trade phenomenon,? it follows that its effects are not qualitatively different from those of conventional trade in goods?exactly as with trade in goods, the results [of outsourcing] are invariably to improve economic welfare.?

• Outsourcing has not caused a decrease in the total number of jobs--?the United States economy has added 30 million workers to its payrolls since 1985.?
• Outsourcing has not caused a decrease in the number of high-value jobs??outsourcing from the U.S. economy is generally for low-value jobs?the technology driver that dominates the US economy and it?s growth is also one that continually economizes on unskilled labor and creates new jobs for skilled labor.?
• While outsourcing does ?lead to displacement of workers from certain sectors?the rate of reemployment and wage changes for workers [who are] trade-displaced are quite similar to those for other workers.?

Would rolling back a part of the Bush tax cuts create jobs, as some allege? Economist Glenn Hubbard says no:

Using data on U.S. households, William Gentry and I found that the "success tax" has a potent negative effect on entry into entrepreneurship. We estimated that President Clinton's 1993 tax increase, which raised substantially the top individual income-tax rate, reduced the probability of entry for upper-middle-income households by as much as 20%. Should Mr. Kerry reverse the president's tax cuts, that estimate suggests an important hit to new entrepreneurial activity.
...
How many new jobs do entrepreneurs create for others? Because, again, the individual income tax applies to many starting business owners, changes in tax rates affect the cost of hiring additional employees. In an important paper, [a gaggle of economists] found that higher taxes on business owners lower the probability that their firms will hire workers. Tax increases also cause those entrepreneurs to decrease their wage payments to workers.

Heritage's Bill Beach found similar results when he modeled the future effects of the Kerry tax plan:

Raising taxes on high-income taxpayers to cover budget shortfalls may make political sense, but it is not the right move to encourage economic growth. Senator Kerry?s new tax revenues divert capital from better economic uses, which slows the growth in productivity that usually stems from new investment. Job and income growth suffer as a consequence.

Economist Russell Roberts has an op-ed in USA Today in which he asserts that deficit spending is not inherently bad and spending while in surplus is not inherently good:

It can be prudent to live beyond your means. You and I do it all of the time when we borrow money to buy a house. True, the mortgage payments may end up burdening our children. But paying cash is also costly. Imagine a would-be homeowner, allergic to debt, who insists on paying cash. That, too, means less money for the health and education of his children while he builds up his nest egg to buy the house.
?
So it is with government spending. Funding for crucial infrastructure that is financed by debt is money well spent. Government subsidies to farmers are wasteful even when they're financed out of current taxes.

Roberts continues the discussion over on his blog, where he argues that ?tax increases get spent, so that if we do want to reduce the deficit, the way to do so is through spending cuts.? 

This dovetails with the analysis of Daniel Mitchell, who has argued that the Bush tax cuts are not responsible for the current deficit:

During the 50 years from 1951 to 2000, federal tax revenues averaged 18.1 percent of gross domestic product (GDP). Opponents of tax relief frequently imply that tax cuts have emptied government coffers and created long-term fiscal chaos, but tax revenues for 2012-2014 will average 18.1 percent of GDP, according to Congressional Budget Office (CBO) data. And this assumes that the tax cuts are made permanent. Critics would correctly point out that tax revenues are currently below that level, but this is a short-term phenomenon resulting from the recent recession and the temporary stock market-driven collapse of tax revenues from capital gains. The CBO, for instance, estimates that tax revenues will soon be back at historical norms, averaging 18.1 percent of GDP over the 2007-2009 period.

This does not mean that tax revenues should always be 18.1 percent of GDP. It is just a coincidence that average revenue collections and future revenue projections are identical as a share of national economic output. It does mean that the Bush tax cuts will not cause future deficits.

Of course, Mitchell comes down hard on spending:

When politicians spend money, regardless of whether that spending is financed by taxes or borrowing, they are taking money from the productive sector of the economy and allocating that money on the basis of political rather than economic considerations. This inevitably weakens economic performance.

Government spending also undermines the nation's social fabric. When lawmakers increase government spending to address a problem that previously was handled by families, communities, and local governments (such as education, shelter, or health care for the indigent), people in local communities lose their initiative and incentive to address the needs of their neighbors. Moreover, the federal government generally does a poor job of addressing the problem since decision-making shifts to bureaucrats who frequently have no connection to the local problem. In other words, when the federal government increases outlays for social programs, it causes social damage in a way that is similar to the way it harms overall economic performance.

This is why lower spending would still be a good idea even if the United States had a giant surplus.

Also useful is a look at trends in taxation and expenditure, which Stuart Butler presents graphically here.

Senate Majority Leader Frist is holding his ground against a bill that would ?allow the reimportation of U.S.-made drugs from other countries,? reports Congress Daily. Frist cited safety concerns as well as ?a study showing that most savings from reimported drugs would not go to seniors, as advocates claim? as justification for blocking the bill, which has received bipartisan sponsorship. Frist had favored a more ?restrictive? bill authored by Sen. Judd Gregg. Heritage?s Nina Owarchenko discusses safety, seniors, and other myths surrounding drug importation here.

Human Rights Watch alleges that an ?an intimidation campaign is under way to undermine the pro-democracy opposition? in Hong Kong as Sunday?s election approaches. Up for grabs are half of the sixty seats in Special Administrative Region?s Legislative Council; the other thirty members are chosen by ?largely pro-Beijing professional groups.? While the charges are impossible to prove, HRW believes that ?the Chinese government, or people acting on its behalf, have sent threatening letters and phone calls, and carried out vandalism and arson against pro-democracy targets.? 

This is the only the latest in a series of an attempts by the Chinese government to stifle democracy in Hong Kong. Beijing ?branded ?unpatriotic? attempts by Hong Kong?s public to move toward direct election of its Chief Executive and Legislative Council? in January and attempted to ?pass draconian anti-treason legislation? that has ?chilled?political discourse? since last July.

The Wall Street Journal notes a new study that suggests the Carter Center may have been had in Venezuela:

The new study was released this week by economists Ricardo Hausmann of Harvard and Roberto Rigobon of MIT. They zeroed in on a key problem with the August 18 vote audit that was run by the government's electoral council (CNE): In choosing which polling stations would be audited, the CNE refused to use the random number generator recommended by the Carter Center. Instead, the CNE insisted on its own program, run on its own computer. Mr. Carter's team acquiesced, and Messrs. Hausmann and Rigobon conclude that, in controlling this software, the government had the means to cheat.

"This result opens the possibility that the fraud was committed only in a subset of the 4,580 automated centers, say 3,000, and that the audit was successful because it directed the search to the 1,580 unaltered centers. That is why it was so important not to use the Carter Center number generator. If this was the case, Carter could never have figured it out."

Mr. Hausmann told us that he and Mr. Rigoban also "found very clear trails of fraud in the statistical record" and a probability of less than 1% that the anomalies observed could be pure chance.

Stephen Johnson wrote about this sort of possibility well before the election.

Update: Stephen Johnson has more here.

John Tkacik outlines ?the power struggle in Beijing between China's military strongman, Jiang Zemin, and the country's two reformist government leaders, President Hu Jintao and Premier Wen Jiabao.? The article notes that the ?Hu-Wen line on national security and foreign policy is moderate, peaceful and progressive.? By contrast, ?the Jiang line?stresses a rapid military buildup, stamping out democracy in Hong Kong and the use of force against Taiwan.? While Tkacik believes ?Jiang has won the debate over China's ?peaceful rise?? over the past year after hints of reform in 2003, recent developments indicate he might step aside as head of the Central Military Commission. This provides a potential opportunity for Hu to become China?s undisputed leader. The Chinese Communist Party?s Fourth Plenum is schedule for September 15; stay tuned for details.

Researchers have completed a study of Colombia?s secondary-school voucher program, PACES, which ?awarded nearly 125,000 vouchers to low-income high school students?between 1991 and 1997.? The vouchers covered approximately half of the average private-school tuition for selected students, provided they continued to make ?adequate academic progress.?

Produced by the National Bureau of Economic Report, this report is one of the first to measure the long-term impact of vouchers. By comparing winners and losers of Colombia?s voucher lottery (a perfect control experiment), the study finds

• A 15-20 percent increase in secondary school graduation rates for voucher recipients;
• A .2 standard deviation bump in standardized test scores for voucher recipients;
• A closing of the performance gap between boys and girls among voucher recipients; and
• The greatest improvement for voucher recipients among the lowest-performing students.

So there you have it: vouchers led to higher graduation rates and test scores. Moreover, these benefits were greatest for students struggling the most, suggesting that support for school choice is hardly the ?elitist strategy? some voucher opponents, such as the NEA, make it out to be.

We wrote earlier on New Zealand?s voucher experience, which lifted up the country?s public schools. (Perhaps this is what so worries the NEA?)

Jennifer Harper of the Washington Times criticizes the reticence of major news organizations to label the Chechans who killed over 300 people at a Russian school last week as ?terrorists.? She notes that outlets used the terms ?militants,? ?guerrillas,? ?rebels,? ?separatists,? ?insurgents,? and ?hostage takers,? but that only CNN unabashedly used ?terrorists.?

The President ?supports giving a new national intelligence director budgetary control over much of the nation's intelligence community,? reports the Washington Times. This is the Bush?s first concrete step towards establishing the position National Intelligence Director, as recommended by the 9/11 Commission. It?s a good first step, but, as Ed Meese warns, the 9/11 Commission?s NID proposal looks a little too much like the current CIA Director position for comfort.

President Bush has threatened to veto a $142.5 appropriations bill in the latest clash over the Labor Department?s final rule on overtime. A proposed amendment would block implementation of the rule, and leadership fears it may pass in a vote today. The new rule is the first update of overtime provisions in nearly a half-century and clarifies which white-collar workers are eligible for overtime. Some charge the rule will cost millions of workers overtime protection, but economist Kirk Johnson?s study of who would be affected concludes otherwise.

Why isn't there something like a "Congressional Educational Equity Act?"

We just made up that name, but the idea is straightforward: provide extra funding to members of Congress for education because it's clear that many are lagging behind the general population.

Why this ire? The House passed yesterday, by voice vote, an amendment that adds in $3 million to fund the "Women's Educational Equity Act" to the Labor-HHS appropriations bill. 

As Krista Kafer explained yesterday, the purpose of the Act  was "to promote 'equity' in educational policies, programs, activities, and initiatives." Its basis, thirty years ago, was the premise that "teaching and learning practices in the United States are frequently inequitable as such practices relate to women and girls."

It makes sense to assess the need for a program before appropriating taxpayers' money. In this case, the program's premise is easily testable. Look at the data (see the Kafer paper for sources) and it's apparent that there is no need for the Women's Educational Equity Act:

This is encouraging, no doubt, but we sincerely wonder how widespread such outrage is in the Arab states.

There has long been a need for the majority of moderate Muslims to draw a bright line between their practices and beliefs and those of the extremists. We are hopeful, if not entirely optimistic, that this is now beginning to happen.

Those seeking more background on the doctrinal basis of militant Islam and how it coexists with moderate practice would do well to watch this video (requires Realplayer) of Mary Habeck, Associate Professor of History at Yale, speaking to Heritage on the 'Method of Mohammad' and the war on terror.

"The speed with which President Clinton received quadruple bypass surgery provides an important lesson in health care reform," writes Cato's Michael Cannon.

Specifically, would it have been possible under the sort of single-payer system proposed by the Clintons in 1993?

Cannon's comparison to the Canadian single-payer system is particularly apt: 

Instead of waiting overnight for an appointment with a cardiologist, he might have had to wait the 3.4 weeks Canadians do.

Instead of waiting three days for quadruple bypass surgery, he might have had to wait over two weeks.

To be fair, as Cannon notes, the Canadians have addressed some queuing problems, though in an especially interesting way:

The government of British Columbia contracted Washington State hospitals to perform some 200 operations in 1989 following public dismay over the 6-month waiting list for cardiac bypass surgery in the province

It is unfortunate that in similar single-payer straights, we wouldn't have Canada to fall back on.

?[T]he 2003 tax reform has induced a significant number of firms to initiate or raise regular dividend payments,? conclude Raj Chetty and Emmanuel Saez in a new working paper from the National Bureau of Economic Research. This finding contradicts the so-called ?new view? on dividend taxation proffered by opponents of the tax cut, who contend that a dividend tax cut does not promote ?expansion of investment and business activity.?

Proposed in January 2003 and signed into law in May, the Jobs and Growth Tax Relief Reconciliation Act of 2003 reduced the maximum income tax on dividends from 35 percent to 15 percent. Starting in the first quarter of 2003, ?the fraction of publicly traded firms paying regular dividends began to increase [to 25 percent as of the first quarter of 2004]?after having declined continuously for more than two decades [to a low of 20 percent in the fourth quarter of 2002.]? Moreover, not only are more companies now paying dividends, but also companies that were already paying dividends are paying more. Finally, Chetty and Saez found that ?special (i.e. one time, non-recurring) dividends also increased following the 2003 tax reform.?

All in all, ?nearly 150 firms have initiated dividend payments after the tax cut, adding more than $1.5 billion to aggregate quarterly dividends.? This increase ?is unprecedented in the record of publicly traded U.S. corporations in the last three decades,? even when compared to the increase in dividend payments after the Tax Reform Act of 1986.

These results, say the researchers, constitute ?perhaps the clearest evidence thus far in the literature that tax policy does matter for dividend payments by corporations.?

The tax cut on dividends will expire on January 1, 2009, unless Congress extends it. We can?t see how Chetty and Saez?s findings wouldn?t apply equally in the opposite direction if taxes are effectively raised by this expiration, to the detriment of investors and the economy.

US News delves into the murky matter of congressional oversight of intelligence. Required reading.

The article is pessimistic that reform is possible, citing the experience of homeland security oversight (about which James Carafano has commented at length):

Overcoming turf battles in Congress seems to many like a nearly insurmountable task. Take homeland security, for example, where some 88 committees and subcommittees claim a role in oversight. The 9/11 commission has recommended strengthening the intelligence committees by giving them the power to both approve the budget and appropriate the money, as well as creating new subcommittees to tackle crucial tasks. And there are some signs of movement on reform. The Senate has formed a working group to address possible changes in oversight. But in a sign of just how much turf is at stake, the group has some 22 members--nearly a quarter of the Senate.

The New York Times continues its coverage of horrors of public school accountability by reporting on how Now Child Left Behind's school ratings are are leaving parents 'baffled':

Students are returning to classes across the nation amid a cacophony of contradictory messages about the quality of their education, as thousands of schools with vaunted reputations have been rated in recent weeks as low-performing under a federal law.

School ratings issued under the terms of the president's No Child Left Behind law have clashed with school report card systems administered by some states, leaving parents unsure which level of government to believe or whether to transfer their children, an option offered by the law.

In North Carolina, which pioneered one of the nation's most sophisticated accountability systems, more than 32 schools ranked as excellent by the state failed to meet Washington's criteria for academic progress. In California, 317 schools showed tremendous academic growth on the state's performance index, yet the federal law labeled them low-performing.

All that cacophony must make it hard to learn!

But the Times misses the point: NCLB's accountability requirements, while not perfect, do give parents information that they didn't have before and allow parents to go beyond blanket single-score ratings (for example, here are detailed ratings for a school in St. Michaels, MD, and here are 'quick facts' on that school). In the end, the final rating is used to determine whether students will be able to take advantage of school choice; if parents are convinced, however, that their child's current school meets his or her needs, then regardless of the fed's rating, they can make it their choice not to switch schools. Either way, the detailed ratings are informative whatever the final rating turns out to be.

(And consider as well that parents of the students in whichever groups caused a school to fail will find the detailed ratings and 'failure' designation to be especially useful, even though parents of other students in non-failing groups may be unconcerned.)

Indeed, the ratings system used by NCLB makes it likely that in some cases a school's failure will be based on the performance of a small group of students rather than the student body taken as a whole. But wasn't that the whole point of the 'No Child' thing? After all, the law wasn't named 'No Student Body Evaluated in Aggregate Left Behind."

Anyway, regarding the title of this post, we must highlight this quote from a parent who objects to her school being labeled a 'failure' because of "low test scores by a handful of disabled students" (in other contexts, wouldn't the Times consider so marginalizing the disabled to be, well, unconscionable marginalization? But in education it doesn't count?):

"Yeah, did Congress consider what labeling a school would do to property values?" Mrs. Bolos asked.

Wow.

Intelligence reform is paramount, but the opportunity to reform is rare. Congress should proceed carefully, write Ed Meese and James Carafano, as any mistakes it makes could be operational for decades.

Congress, they say, should evaluate all proposals by four measures to ensure that actual progress is being made: 1) Do the reforms preserve civil liberties? 2) Do the reforms address modern threats? 3) Do the reforms assure the independence of the National Intelligence Director? and 4) Do the reforms help integrate intelligence operations at all levels?

The proposals of the 9/11 Commission were a great start to this debate, and many are consistent with these measures. But that doesn't mean they should be adopted wholesale.

Congress, concludes Meese and Carafano, must instead "take the time to do it right." Read Carafano on the recommendations here and here, and Ed Meese here.

"People talk about (outsourcing) a lot," says Secretary of Labor Elaine Chao, but "The anxiety belies the numbers."

What numbers? That relatively few jobs are being outsourced, while millions of jobs in the United States--somewhere between 6 and 9 million jobs, depending upon methodology--are created directly through insourcing, when foreign companies hire U.S. workers.

Chao notes that these jobs are at risk if the United States curtails trade in services. "[W]e live and work in a worldwide economy... If we isolate ourselves from this worldwide economy, we will put in jeopardy the 9 million jobs that Americans currently hold" at foreign-owned companies.

For more facts on insourcing, visit the Organization for International Investment's "Facts and Figures" page.

According to this AP dispatch from Minneapolis, Minnesota:

• Twenty-eight percent of Minnesota firms outsource overseas.
• One-third of firms expect to outsource by 2008
• Thirty-six percent of firms import components from overseas.

Some might expect Minnesotans to be driving the anti-outsourcing bandwagon, which has led many states to consider legislation to ban or restrict the practice.

But not in Minnesota.

According to Global Insight, outsourcing created 1,854 jobs in Minnesota in 2003. The firm predicts 6,700 by 2006.

How is that? The efficiency gains from outsourcing actually bolster State-side employment:

[Donaldson Co.] now has twice as many workers in China - 2,500 - as the 1,100 it has in Bloomington. The Chinese operation not only has allowed Donaldson to keep making a product it no longer could make profitably in the United States, it also has helped boost the company's Minnesota employment, up by 400 people since 1990.

"If we didn't [outsource], we'd be out of business," a manager at Donaldson told the AP.

Integrated Decisions and Systems, inc., faced a similar choice. "I think it's almost a certainty we would have had to close the company, had we not had the ability to move these jobs offshore when we did, in response to [9/11]," said CFO Mark Robinow. "The company would not be here and the 50 jobs that we now have in the United States wouldn't exist."

And there's more: OFII notes that foreign firms 'insource' 108,400 jobs to Minnesota, accounting for about 5 percent of the state's workforce. And the number of insourced jobs in the state is growing, too.

Wall Street economist Brian Wesbury jumps (PDF link) into the job survey debate:

Last Friday, the Bureau of Labor Statistics reported that non-farm payrolls grew by 144,000 in August. It also revised the previous two months upwardly, by a total of 59,000. In other words, total payroll jobs in August were 203,000 above the original July estimate. In the past year, payroll jobs have increased by 1.7 million ? not a bad showing at all. Nonetheless, payrolls are still 1.0 million below their all-time peak in March 2001, leading some to compare the current environment to that of the Great Depression and Herbert Hoover.

The Household Survey reported 21,000 new jobs in August (following a 629,000 surge in July). By this measure, civilian employment has climbed 2.4 million in the past year and unemployment has fallen to 5.4%. This measure also shows a net gain of 1.8 million jobs since March 2001. No Great Depression here.
...
The answer to this riddle is not difficult to understand or accept. The payroll survey is not designed to capture all employment. It was designed to capture traditional payroll jobs ? a job registered with one of the 50 state unemployment insurance systems.

Wesbury argues that many new jobs simply aren't being captured by payrolls for a variety of reasons.

The bottom line: "From a statistical point-of view the payroll survey may be more accurate, but what good is accuracy if you are shooting at the wrong target? Understanding how these two surveys are put together leads to only one conclusion ? the household survey is the best measure of jobs."

For more on shifts in the labor market and the quality of new jobs, see this paper by Tim Kane. Look here for Tim's original critique of the payroll survey.

The New York Times journeys to Ritzville, Washington:

This patch of trees and modest homes is a destination point for grain from the surrounding farms, but little else. Thousands of people pass by each day on Interstate 90, less than a half-mile from town, and few pay Ritzville, population 1,700, much attention. "We're perceived pretty much as a speed trap and a potty stop," Mayor Craig Ulleland said.

The grain harvested by the town's farmers is soft white winter wheat, and it is loaded onto freight trains here and shipped to Portland, Ore., then on to Asian markets, where it is used in noodles. Passenger trains once arrived along the same tracks that now take the wheat away, but the passenger service was cancelled in the late 1960's and now the trains blow by without stopping. There has never been a Ritzville airport.

Until this summer, Ritzville could be reached by Greyhound bus. No longer--the company cancelled the route, along with about 269 other stops. About half of these, according to Greyhound, had no outbound ticket sales in all of 2003.

Greyhound lost nearly $140 million in 2002 and 2003 and plans to focus more on urban routes.

Six senators and other officials have asked Greyhound to reconsider its decision. The company, which already receives some federal subsidies for rural service, declined, asking that the subsidy be increased. "Since that program only covers 50 percent of net operating costs, it alone cannot provide a long-term solution to declining rural revenues," wrote Greyhound's president in response. "What is needed is either a federal program that fully covers losses or a state match that makes up the difference."

As always, subsidizing proft-seeking firms is a difficult business. Capital costs can be shifted around and other fixed costs are similarly hard to pin down. Firms have great incentives to overstate costs in the hopes of a bigger payoff.

And what do the locals think of subsidies? Little, apparently. Ms. Elva Link, an elderly woman effectively "stranded" in Ritzville and the touchstone of the article, takes a more pragmatic tack: "I'm considering moving," she told the Times.

Legislation to reform America's intelligence operations is expected on the floors of the House and the Senate early this week, reports the NY Times. Some lawmakers are eager to adopt all of the 9/11 Commission's recommendations wholesale, while others favor a more measured approach. Still, gridlock is not inevitable. "You have to move quickly on the things that will make us safer immediately," said a spokesman for House majorityleader Tom DeLay. Former Attorney General Edwin Meese has named several shortcomings in the Commission's proposals, and James Carafano thinks that some revision is due.

The idea is to put the consumer in charge of most routine and everyday spending decisions, returning insurance to its proper role as protection against unpredictable, "catastrophic" expenses. The aim here, at long last, is to tackle the perverse tax incentive at the heart of our health-care woes -- the massive tax handout to employer-provided health insurance. ...the tax code was the problem in the first place. Notice that the typical family policy doled out by companies to their employees represents a total price-tag of about $9,086 a year. If you're in the top tax bracket, the effective after-tax cost to you is about $5,500. If you're in the working-poor bracket (i.e. pay no federal income tax), it's $9,086. In fact, it's doubtful that such an insurance product would even exist in the marketplace in the absence of a massive tax subsidy, given the built-in incentives that naturally drive costs out of sight. Certainly you wouldn't buy gold-plated, first-dollar health insurance if you faced the full tab alone. ...No serious person doubts that our overreliance on third-party payment is the problem that will be solved -- or will lead to a government-run, single-payer system that controls costs by denying care. In our information-rich economy, the medical industry doesn't even publish price lists. Is this not downright weird and a sign change is desperately needed? (The exception is cosmetic surgery, where, as health economist John Goodman points out, consumers pay out-of-pocket and competition has meant prices are flat or falling).

Stuart Butler has a plan that would give small-business employees tax credits to purchase their own insurance. At once, this would take a big chunk out of the uninsured numbers, give lower-income workers the same benefit that wealthier workers enjoy via the health care tax credit to businesses, and align costs with incentives. This is consumer-driven health care at its best.

And it sounded last night like the President himself understands that. Noting that "More than half of the uninsured are small business employees and their families," he proposed two solutions: 1) Association Health Plans, which, while not a bad idea, are no panacea, either; and 2) "a tax credit to encourage small businesses and their employees to set up health savings accounts." This latter sounds suspiciously close to what we've been suggesting for some time.

(via the Market Center Weblog)

Payrolls are back strong.

The economy added 144,000 payroll jobs in August, according to the Department of Labor's Employment Situation report (PDF link). This is a real win coming after July's lower-than-expected numbers. This result is further evidence that paying attention to the Household Survey, which has been ahead in jobs for some time, pays off in spades. Moreover, the July payroll numbers themselves were revised upwards from 32,000 to 73,000--to think that last month's doom and gloom could be undone by a statistical revision!

A dip in unemployment coupled with a gain of 21,000 jobs in the household survey brought the unemployment rate down to 5.4 percent, its lowest level since October 2001.

All in all, the numbers came in slightly ahead of expectations. Analysts had forecasted 150,000 payroll jobs, which the August number and July revision easily surpassed, and the unemployment rate to remain unchanged at 5.5 percent.

For the year, the economy has added 1.4 million payroll jobs.

Leading industries:

• Manufacturing added 22,000 jobs in July, its sixth gain over the past seven months.
• Service-producing industries, such as education and business services, posted large gains, adding 108,000 jobs in August, on the heels of 58,000 in July. Retailing jobs actually decreased slightly, by 11,000.
• Health care added 42,000 jobs, bringing its total gain for the year to 307,000 jobs.
• Computer systems design, rental and leasing, securities and commodities brokerages, and construction all posted notable gains.

Bottom line: Make no mistake, today's numbers show the end of whatever small summer lull there might have been. Job growth was broad-based in August, reflecting an economy that's firing on all cylinders.

Workers at the Department of Energy's Sandia labs are once again allowed to work with CREMs ('controlled removable electronic media,' bureau-babble for computer disks). CREM use had been curtailed following several security breaches at the Los Alamos lab facility, only the latest in a seemingly never-ending string of incidents.

We've written about lax security at the DOE's labs before. See here for thoughts on the most recent breach and here for the whole sordid history of security at the labs.

Yesterday we wondered why Iran was so intent on capturing spies peeking into its allegedly civilian nuclear program.

Today we read that Iran's nuclear program may not be so benign as previously claimed.

Imagine that!

The New York Times describes an "Economic Squeeze Plaguing Middle-Class Families."

There is a squeeze, writes economist Bruce Bartlett, but there's no plague to be found. Despite the Times's rhetoric, "This is actually good news," says Bartlett.

More than 1,000 District students have escaped the city?s under-performing public schools and will begin class this fall at private schools thanks to the country's first federally-funded voucher program, reports the Washington Times. The students will attend parochial and other non-public schools.

?When we saw this opportunity, we took it,? Raj Rathor told the Times. His son and daughter will be attending Rock Creek International School using the vouchers. ?We are really happy to have this available to our children,? he said.

Out of the 8,500 students whose families inquired about the program, only 1,800 met income requirements.

But because the program was designed to fund over 16,000 vouchers at $7,500, the maximum amount, some voucher opponents are already calling it a failure. Sally Sachar, head of the nonprofit group administering the program, disagrees. ?The fact of the matter is there was more demand than supply? While we could have filled the program with eligible students in private schools, we made a decision to keep in mind the priority of seeing to public school students.?

Sachar expects demand for the program to swell next year, as the program becomes better known and has a more time to reach out to families.

Read Secretary of Education Rod Piage's remarks to Heritage on the D.C. voucher program here. And look here for Krista Kafer's take on how to make the D.C. voucher program even better.

The Slashdot crowd has a laugh over this piece from the Ludwig von Mises Institute.

The World Trade Organization has ruled that other governments can impose additional taxes on U.S. exports to compensate for America's protectionist use of an "anti-dumping" law. As the Wall Street Journal opines, the so-called Byrd Amendment results in higher prices for many American producers and all American consumers -- and also creates a perverse incentive for American companies to file complaints against foreign competitors. Special interests in the United States argue that foreign companies often are subsidized by their governments. But if this is true, the best response is to drag them before the WTO, not to adopt equally misguided protectionist policies:

American consumers of everything from shrimp and pasta to candles, ball bearings and steel already bear the high price of anti-dumping tariffs slapped by Washington on hundreds of imports. Now Americans are about to pay again for an anti-dumping policy that is akin to letting the inmates run the asylum. The World Trade Organization ruled this week that the U.S. could be hit with retaliatory duties if it doesn't do away with the Byrd Amendment. This nasty little rule rewards domestic producers that support dumping petitions with the proceeds of anti-dumping duties. Talk about perverse incentives. ...To their credit the Europeans don't seem eager to retaliate. "The legal victory has been won and the preference would be that the U.S. would simply...withdraw the law," an unnamed diplomatic source in Brussels told Reuters. He might have added -- for the sake of Americans as much as for their global trading partners.

More on the Byrd Amendment here and here.

(via The Market Center weblog)

"Consumerism is the most important trend in the health insurance industry since the 1970s," says Aetna president Ron Williams. Williams is talking about the consumer-driven health care revolution.

A key piece of the revolution is the Health Savings Account, or HSA, which are tax advantaged accounts that allow patients to save for health care expenses. Combined with an inexpensive high-deductible insurance plan, HSAs pull most common procedures out of the strange incentives of HMOs and other plans and put them in the market, where the consumer faces quite familiar incentives: to maximize quality and minimize costs.

But what gets insurers like Williams excited are the results. About 95 percent of Whole Foods Market's employees, of which there are 30,000, are enrolled (WSJ link; subscription required) in HSA plans:

...Whole Foods contributes between $300 and $1,800 each year for employees, depending upon length of service. 

Most workers do not pay an insurance premium under the plan, and they can rollover any unspent money in their health account at the end of the year. In 2003, only 10% of Whole Foods employees spent all of the money in their savings accounts. A total of $14 million rolled over to 2004, or about $560 per account. And while national health insurance premiums increased an average of 13.9% from 2002 to 2003, Whole Foods? overall medical-claims costs fell 13% from the year before and hospital admissions per 1,000 employees fell 22%.

Nothing short of amazing.

For more on HSAs, see this NCPA report and this paper on HSAs in the individual market.

(WSJ via the Insider)

Potable water is in short supply in much of the world. Everybody, of course, needs it. In many regions in which shortages are most acute, water is seen as a right, not property. The result are shortages. As Roger Bate explains, "There is plenty of water, it's just used stupidly."

Water markets have shown great promise, he writes. "In countries that have adopted water markets, efficiency has increased and, somewhat unexpectedly, both equity and the environment have improved. Water markets occur where those with water quotas, notably farmers, trade them. Simply allowing water rights to be traded between those holding quotas has a remarkable effect on flexibility and hence productivity." This outcome is sensible: with market pricing, the most marginal uses are no longer cost-effective.

In terms of water markets, Chile and South Africa lead the way. Will China and India, where demand on limited supplies is bulging, follow?