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Politicizing proliferation policy - AEI - American Enterprise Institute: Freedom, Opportunity, Enterprise

Sun, 01/14/2018 - 01:45

North Korea’s apparently rapid progress last year in both its nuclear-weapons and ballistic-missile programs raises entirely legitimate concerns about U.S. intelligence capabilities. The New York Times recently reported that, as the Obama administration ended, intelligence-community analysts estimated that Pyongyang was over four years away from mastering the complex science and technology necessary to deliver thermonuclear weapons on targets within the continental United States.

Then, seemingly overnight, North Korea was igniting thermonuclear weapons and testing missiles that could hit the lower 48. The Times calls this an intelligence failure, certainly a serious matter. But the real reason was actually much worse.

A view of the newly developed intercontinental ballistic rocket Hwasong-15’s test that was successfully launched is seen in this undated photo released by North Korea’s Korean Central News Agency (KCNA) in Pyongyang November 30, 2017. Reuters

Evidence in The Times report indicates that President Obama’s team dangerously politicized intelligence gathering and analysis, as senior officials strove to support their preconceived notions of the North’s true progress.

Throughout his presidency, Obama pursued a North Korea policy called “strategic patience,” which was in fact a synonym for doing nothing. As long as intelligence agencies assessed that Pyongyang’s threat was remote, conveniently fitting Obama’s predilection to do nothing, he could contend there was no basis for more robust measures against the North’s nuclear program.

Obama-era intelligence also conveniently painted a very similar picture about Iran as Obama desperately sought a nuclear agreement later characterized as an achievement comparable to ObamaCare in his first term. As with North Korea, if Iran’s program were not increasingly threatening, there was no danger, supposedly, from lengthy negotiations and an imperfect final agreement.

In both cases, however, the truth was much more malign, as North Korea is now demonstrating graphically. During the presidential transition, Obama blithely advised President-elect Trump that Pyongyang would be his most serious foreign challenge. How convenient that reality “changed” for the worst just after Obama departed the White House. Indeed, this “coincidence” is simply further evidence of how deeply his administration had politicized intelligence collection and analysis.

Government insiders recognize that politicization does not emerge via written directives from high-ranking authorities demanding particular outcomes. It arises instead when the intelligence community’s bureaucratic culture intuits what policymakers want to hear — and gives it to them. Highly ideological intelligence-community decision-makers, like Obama’s CIA director, themselves sharing the same benign view of North Korea, create a self-reinforcing feedback loop, rewarding “good” intelligence while shunting aside and disregarding contrary information and analysis.

Before and after the second Iraq war, critics of President George W. Bush and Vice President Dick Cheney leveled charges of politicization simply because Cheney and others asked hard questions of front-line intelligence analysts. But such questioning is something that first-rate analysts, proud of their work product, relish, providing analysts with key insights into policymakers’ thinking.

What happened under Obama was far different, an insidious ideological fixing of intelligence results.

Post-Obama, Trump’s White House has a full workload to repair and improve American national security, from significantly increasing military budgets to building a more assertive diplomatic corps. Importantly, however, eliminating the corrosive effects of politicized intelligence also needs to rank at the top of his agenda.

John Bolton, a senior fellow at the American Enterprise Institute, was the U.S. permanent representative to the United Nations and, previously, the undersecretary of State for arms control and international security.

In one key meeting, Trump destroyed his critics’ credibility - AEI - American Enterprise Institute: Freedom, Opportunity, Enterprise

Sat, 01/13/2018 - 13:50

This week, two incredible events unfolded before our eyes: American television viewers were invited into the White House Cabinet Room, where for nearly an hour they watched as President Trump effectively led a bipartisan meeting in which he and congressional Democrats made real progress on immigration reform.

And it snowed in the Sahara Desert.

The reason for the Saharan snow was a rare blast of arctic air sweeping across Algeria. The reason for the rare public display of presidential leadership was the release of a new book by New York media gossip columnist Michael Wolff that portrays Trump as mentally unfit to be president. Wolff describes Trump as being like a child who “could not really converse . . . not in the sense of sharing information, or of a balanced back-and-forth conversation.” In just 55 minutes, Trump completely discredited Wolff’s thesis.

In true reality-TV fashion, Trump let the American people watch as he conversed, shared information and held a “balanced back-and-forth conversation” with his most vehement critics. He was charming, evoking laughter when he asked Democratic leaders, “When was the last time you took a Republican out? Why don’t you guys go and have dinner together?” He was substantive, explaining the problem with chain migration, the value of a merit-based system such as those in Canada and Australia and the value of his wall. And he challenged both sides to think bigger — “You’re not so far from comprehensive immigration reform” — and even offered to take on his own base to get it done. “If you want to take it that further step, I’ll take the heat,” he said. “I’ll take the heat off both the Democrats and the Republicans.”

If a picture is worth a thousand words, then an hour-long video of the president at work is worth more than 50,000 words of gossip and innuendo. Trump effectively asked the American people, “Who are you going to believe: Michael Wolff or your own lyin’ eyes?”

The video was devastating for Wolff’s credibility. Yet it also showed why, despite Trump’s outrage, Wolff’s book may be the best thing that ever happened to his presidency.

First, the book has prompted Trump to show Americans a side of himself they had not previously seen. Where has the White House been hiding this guy? Watching Trump being this presidential should not be as rare as snow in the Sahara. If Americans saw more of this Trump, he’d be rising in the polls. Trump needs to realize that it was this meeting, not his barrage of tweets, that finally destroyed Wolff’s account. The lesson is that being presidential is far more powerful than the tactics that got him to the White House.

Second, the Wolff book has discredited Trump’s media critics who embraced Wolff’s conclusions that Trump did not have the mental capacity to be president. NBC’s Peter Alexander asked during a White House news briefing, “Should Americans be concerned about the president’s mental fitness?” CNN ran a story declaring, “Doctors call Trump’s mental health ‘danger to nation.’ ” Politico reported that talk of the 25th Amendment, which allows for the removal of the president from office, is “Washington’s growing obsession.” The New York Times ran an editorial asking, “Is Mr. Trump Nuts?

Any sentient American who watched Trump in serious discussions with members of Congress could tell this “president with a drool cup” caricature is absurd. The fact that the media gave so much print and airtime to this caricature did more to harm their credibility than all of Trump’s incessant “fake news” tweeting over the past year.

Third, the book has brought about the end of Stephen K. Bannon. Not only has Bannon lost his White House job, he’s now lost the support of the Mercer family, his position at Breitbart and his credibility on the national stage. And he has earned a presidential nickname – “Sloppy Steve.” His demise is a blow to the ethno-nationalists of the alt-right and a chance for Trump to remove an albatross around the neck of his presidency.

The president is now at a crossroads. It was he who let the media stay in the room for the meeting, and it worked. So, what does he do next? Does he build on this success by delivering a substantive bipartisan State of the Union address, and use the power and trappings of the presidency to expand his base of support? Or does he go back to the tactics that made those questioning his fitness for office seem even remotely credible?

His opponents have overreached and given him an opening. The question is: Will he seize it or squander it?

Did It make a difference that Donald Trump voiced public support for the protests in Iran? - AEI - American Enterprise Institute: Freedom, Opportunity, Enterprise

Fri, 01/12/2018 - 20:36

President Donald Trump’s tweets in support of the protests in Iran marked a rhetorical departure from President Barack Obama, but arguably an even sharper break from previous administrations. There is a longstanding history of U.S. presidents using the bully pulpit as a critical component of American leadership in the world. President George W. Bush’s “freedom agenda” became a central feature of his foreign policy legacy. His actions gave credibility to those who sought freedom, while authoritarian leaders were forced to listen. From his many successes, such as the color revolutions along Russia’s borders, to his shortcomings in the Middle East, America unapologetically promoted its values.

Trump has approached the bully pulpit as a vehicle to settle personal scores, with his support for the Iranian protesters standing as an outlier. His dark inaugural address avoided any trappings of Bush’s expansive second inaugural address and unveiled an America more focused on its interests than influencing the world with its values.

Given the tendency for the president’s tweets to be improvisational, it is less sure that his use of the bully pulpit will elicit a positive response from those in Iran who are seeking a better future. The real impact will come from the decisions regarding the nuclear deal with Iran in the coming weeks, beyond the bully pulpit of Twitter. One possibility is that Trump will settle for containment of the Islamic Republic, disappointing those who are demanding change in the streets and allowing Iran’s clerics to write off the U.S. president’s tweets.

You can find more reactions to this question over at the Carnegie Endowment’s Diwan blog here

Yes, North Korea could drive a wedge between the US and South Korea - AEI - American Enterprise Institute: Freedom, Opportunity, Enterprise

Fri, 01/12/2018 - 18:30

On Jan. 9, North and South Korea met for their first direct talks in two years. The talks focused on issues that aren’t especially contentious, including North Korea’s participation in the upcoming Winter Olympics in South Korea. But talking at all has its risks.

In particular, critics warn that North Korean leader Kim Jong Un may be reaching out to Seoul to drive a wedge in the US-South Korea alliance. Is that realistic? How robust is the US-South Korea alliance?

We have looked into that question. Last month, in a visit to Seoul organized by the National Bureau of Asian Research and sponsored by the Korea Foundation, we spoke with scholars, journalists and officials from a number of Korean ministries. We found that military cooperation between South Korea and the United States is strong. But the politics of cooperation could be shaken up by unresolved differences or shocks.

US and South Korean forces are deeply integrated

The US-South Korea alliance has been formalized since the Korean War ended in 1953 in an armistice. The cornerstone of the military alliance is the Combined Forces Command (CFC), comprising equal numbers of US and South Korean officers, designed to organize and plan the combined military effort against the North.

The CFC was founded in 1978. Before that, the U.S.-led United Nations Command (UNC) was responsible for defending South Korea. The bilateral CFC was created once South Korean forces recovered from the earlier conflict. As its capabilities continue to evolve, South Korea will eventually assume wartime operational control, called OPCON — although it will be years before South Korea meets the agreed-upon conditions for that transfer.

Head of the North Korean delegation, Ri Son Gwon shakes hands with South Korean counterpart Cho Myoung-gyon as they exchange documents after their meeting at the truce village of Panmunjom in the demilitarised zone separating the two Koreas, South Korea, January 9, 2018. REUTERS/Korea Pool

UNC still exists, primarily to monitor the armistice. So does US Forces Korea, the U.S. military command that administers and supports US forces on the Korean Peninsula. All three organizations are led by the same US officer, currently Gen. Vincent Brooks.

The CFC’s structures and processes have built strong operational integration, enabling military decision-making that is faster and more efficient than if the United States and South Korea had two separate commands. Over decades of routine contact and work, this united operation has built habits and norms of cooperation.

In peacetime, the CFC plans, trains and otherwise prepares to defend South Korea. Operational planning teams are combined. US and South Korean forces conduct several command post and field training exercises together each year to test and strengthen their ability to fight together. If conflict did erupt, the presidents of the United States and South Korea would assign control of their respective designated forces to the CFC. Individual combat units would remain separate US or South Korean units, with a few exceptions. But they would be controlled by this deeply integrated command headquarters, under the command of a US general.

There are some weak points. For instance, the United States plans to consolidate its forces by building two super-bases, one of which — the new Camp Humphreys base south of Seoul — will eventually contain the US headquarters. That will separate some US command and staff positions from their Korean counterparts still in Seoul — and may fray some of the cooperation nurtured over decades of being in proximity.

But political coordination fluctuates — a lot

Since President Trump’s inauguration, military structures have stayed just as closely integrated as before. That’s not true on the political front. Regular bilateral forums oversee the military alliance. Those include the annual Security Consultative Meeting between the US defense secretary and the South Korean counterpart; the annual Military Committee Meeting between the US and South Korean chairmen of the Joint Chiefs of Staff; and the semiannual Korean Integrated Defense Dialog between senior officials of the US Defense Department and the South Korean Defense Ministry. These meetings collectively seek to coordinate defense policies and are regular and reliable. But the two sides’ policy approaches may not be.

The United States and South Korea nominally agree on a policy of “maximum pressure and engagement” — but clearly differ on the matter of emphasis. Trump asserts that Kim will respond only to pressure and has pressed with incendiary rhetoric and shows of military force. Last week at Camp David, Trump credited that pressure with bringing Kim to the table, claiming that “if I was not involved, they would not be talking Olympics right now.”

President Moon Jae-in of South Korea, on the other hand, believes Kim is primarily motivated by insecurity, and Moon argues that threats of force must be accompanied by diplomatic engagement. From 1998 to 2008, South Korean presidents followed a “Sunshine Policy,” which prioritized economic and diplomatic cooperation with the North, rather than threats of force. Similarly, Moon has consistently pledged to make diplomatic and development overtures to Pyongyang to bring the two countries closer — and has started doing so with the recent invitation to the Olympics. This is a departure from the approach of his immediate predecessor, Park Geun-hye, who, like Trump, preferred pressure to overtures.

Unsurprisingly, Seoul is much more reluctant to consider military force — and is especially wary of the prospect of unilateral US military action. Moon has bluntly declared that no military strikes against the North — which Trump has repeatedly threatened — should take place until and unless South Korea agrees.

What does this all mean for the US-South Korean alliance going forward?

In the second half of 2017, these different attitudes and policies caused trouble in the US-South Korea alliance. South Korean observers we met were furious at the idea that the United States believes that South Korean deaths and casualties may be necessary to neutralize North Korea, as when, in August, Sen. Lindsey O. Graham (R-SC) said that Trump told him, “If there’s going to be a war to stop [Kim Jong Un], it will be over there. If thousands die, they’re going to die over there. They’re not going to die here. And he has told me that to my face.”

In other words, the military alliance is deeply integrated and reliable, which would make it highly effective in wartime. But there are few structures or standard operating procedures holding the two countries together politically. North Korea could indeed create a wedge between the United States and South Korea, reducing the alliance’s effectiveness in facing the North Korean nuclear threat.

New CMS Medicaid work requirement guidance offers states an opportunity - AEI - American Enterprise Institute: Freedom, Opportunity, Enterprise

Fri, 01/12/2018 - 18:06

This week, the Centers for Medicare and Medicaid Services (CMS) formalized what Administrator Seema Verma had suggested was coming last fall. In a letter to State Medicaid Directors, CMS announced a new policy designed to “improve Medicaid enrollee health and well-being through incentivizing work and community engagement among non-elderly, non-pregnant adult Medicaid beneficiaries who are eligible for Medicaid on a basis other than disability.” In brief, CMS will now consider state requests to implement work-related requirements for their workable Medicaid enrollees.

US Administrator of the Centers for Medicare and Medicaid Services (CMS) Seema Verma (C). REUTERS/Jonathan Ernst

This policy is not the Trump administration implementing a Medicaid work requirement, as some have characterized it. Instead, it notifies states that CMS is willing to consider demonstration projects that implement work requirements or community engagement requirements for able-bodied Medicaid recipients. Section 1115 of the Social Security Act allows the Secretary of Health and Human Services to do this as long as it furthers an objective of the Act. CMS indicated they will approve appropriate waiver requests under the objective that it “improves the health and well-being of participants.”

See also:

Much debate surrounds work requirements in Medicaid, mostly centered on whether requirements will have positive effects (such as increased employment and better health) or negative ones (such as loss of Medicaid without employment). The truth is we do not know. Work requirements have not been tried in Medicaid, and existing research that helps us guess what might happen is mixed.

The closest existing policy to Medicaid work requirements is the requirement that non-disabled adults without caregiving responsibilities who receive SNAP (our country’s food assistance program) must meet a work requirement or face a time limit on benefits. Only a few studies have explored the impact of SNAP work requirements, with one finding no employment effects and another finding some positive effects — and both acknowledge that data problems limit their ability to study this question.

Research suggests that work-inducing public policies can have health benefits for adults, with the EITC as one example, suggesting that the Medicaid policy could improve health. But the only way to know with some level of certainty is to study it. CMS’s new policy provides this opportunity, as long as states have the capacity to follow it.

CMS’s guidance specifies that any state request for a demonstration project must include an independent program evaluation and implies they will only approve robust evaluations:

Evaluation designs will be expected to include analysis of how this requirement affects beneficiaries’ ability to obtain sustainable employment, the extent to which individuals who transition from Medicaid obtain employer sponsored or other health insurance coverage, and how such transitions affect health and well-being.

CMS goes even further by stating that the evaluation needs “to identify comparison groups and appropriate statistical analyses to evaluate the impact of the demonstration.” This means that states can’t simply track what happens to their Medicaid enrollees after implementing a work requirement. They must compare them to enrollees who were not subject to the work requirement and measure whether it led to better health or not.

This is a tall order for states, but also an opportunity to build evidence (one way or the other) for work requirements in Medicaid and other public programs. CMS has committed to a transparent process as they consider state waiver requests. For those interested in improving the health and well-being of low-income Americans, paying attention to how states propose to evaluate their demonstration projects will prove critically important.

Learn more:

Income inequality isn’t as bad as you may think - AEI - American Enterprise Institute: Freedom, Opportunity, Enterprise

Fri, 01/12/2018 - 15:59

There are as many narratives about income inequality as there are papers. Over the last few days, two reports have appeared in stark contrast with one another. An 80-page note by Deutsche Bank sheds light on dramatically increasing income inequality in the U.S. and other Organization for Economic Cooperation and Development (OECD) economies.

In line with several earlier academic studies, it shows that the share of income going to the top 10 percent in the United States now exceeds 50 percent, and the top 1 percent receives about 23 percent of all income.

While all income groups have seen an increase in average real (after-tax) incomes, the largest increases have been at the top of the income distribution, where incomes have grown by more than 200 percent since 1979. In contrast, for low- and middle-income households, incomes have increased by less than 50 percent.

However, a more in-depth academic research paper by economists Gerald Auten and David Splinter finds little evidence of widening income inequality and questions the methodology used in earlier papers that find the opposite. So what narrative do we believe?

On the face of it, it is easy to accept the story that those with high incomes are doing much better than before, more so than middle- and low-income households. There is no denying that globalization and automation have hit low-skill, low-wage work more than they have affected better educated, skilled and high-wage workers.

Workers at the lower end struggle to keep up with changes in the labor market that they are less equipped to handle, as some specialized skills become obsolete and workers lack the skills to transition to new sectors.

Credit: Twenty20

But the reality is not that simple. A growing literature in economics has identified problems with measuring income accurately and completely in various datasets. If income is under-reported, particularly for low-income workers, then we may overstate the rise in inequality.

Moreover, income does not fully capture a household’s standard of living. Among other issues, at very young or very old ages, individuals may borrow or rely on lifetime savings to maintain their standard of living. Income may not perfectly capture how well off people are at different points in the life cycle.

Let’s begin with the measurement issues. Research in economics has shown that when households are surveyed, individuals don’t always accurately report benefits and transfer payments such as Medicare, Medicaid and Food Stamps.

However, such programs have grown in importance over the last several decades precisely to supplement incomes at the bottom of the distribution. Economists Bruce Meyer and James Sullivan show that when comparing data from the Current Population Survey to administrative data aggregates (the most accurate data), the ratio of reported benefits to actual benefits is 0.6 for Food Stamps and 0.5 for TANF.

In other words, receipts reported on household surveys are more than 40- to 50-percent lower than those in administrative data. Hence, measurement issues explain much of why trends in income inequality vary widely across different studies.

Using tax return data, Piketty and Saez show that between 1960 and 2015, the income share of those at the top increased by 11 percentage points. However, the recent paper by Auten and Splinter finds serious flaws with this analysis because tax return data similarly misses government transfer payments and non-taxable employer-provided benefits.

To overcome this challenge, Auten and Splinter use a broader measure of income, which they term “consistent market income,” that includes employer-paid payroll taxes and insurance. After adjusting for differential marriage rates between high- and low-income households and under-reported incomes, this paper finds that the income share of the top 1 percent increased by less than 4 percentage points over the same period.

The after-tax income share for the top 1 percent has grown even less, from 8.5 percent in 1960 to 10.2 percent in 2015. Hence, measurement issues can significantly complicate our understanding of trends in income inequality.

A second reason not to rely exclusively on income data is that income is not a great measure of welfare for most households. For one, it underrepresents the ability of households to rely on assets or savings in times of low income and the ability to save when incomes are high.

In other words, people may be better off than their incomes would suggest because their standard of living is propped up and smoothed over time by their assets and savings. More importantly, in light of the fact that income data often miss households’ ability to access the government safety net, consumption may better reflect households’ overall access to cash and benefits.

Meyer and Sullivan show that while overall income inequality has risen 29 percent over the past five decades, the increase in consumption inequality has been far more modest at 7 percent. Since 2005, the two inequality measures have moved in opposite directions, with income inequality rising and consumption inequality falling.

An earlier paper that I co-authored with Kevin Hassett also finds that consumption inequality showed little change through the entire period between 1984 and 2010, even though income inequality rose significantly over the same time frame.

In addition, using data from the Residential Energy Consumption Survey, we show that since the 1980s, many more low-income households now have access to air-conditioning and heating within their homes, internet, computers and printing facilities, microwaves, dishwashers and other household appliances.

In other words, access to material goods has increased significantly for the lowest income households, and the gap in access to these goods between high and low income households has narrowed over time.

While some may have already hit the panic button on widening income inequality narratives, serious research has yet to credibly confirm this view. Instead, the increasingly more prevalent view is that measuring household incomes accurately, and studying income inequality trends, is fraught with problems. Perhaps, if we truly care about capturing household well-being, consumption may be a better measure of standards of living.

But I think the narrative needs to move beyond the static concept of income and consumption inequality to the more dynamic concept of economic mobility. Are low-income people today able to access opportunities to move up the income ladder?

Can they access good schools for their children and good jobs for themselves? How do we make single-parent families more upwardly mobile? Our energies should be focused not, as they too often are, on why incomes are growing rapidly at the top and ways to constrain that growth, but on improving wage growth and mobility at the bottom of the distribution.

If we are successful at that, we may remain an unequal society, but inequality may not be as much of a dilemma as it appears today.

The individual insurance market in 2018: Business as usual? - AEI - American Enterprise Institute: Freedom, Opportunity, Enterprise

Fri, 01/12/2018 - 15:49

Editor’s Note: This post is part of a series stemming from the Sixth Annual Health Law Year in P/Review event held at Harvard Law School on December 12, 2016. The conference brought together leading experts to review major developments in health law over the previous year, and preview what is to come.

Congress has enacted a tax bill that repeals the Affordable Care Act (ACA) penalties for individuals who fail to enroll in health insurance. Open enrollment for the 2018 plan year may stay roughly even with 2017 exchange enrollment—lackluster performance that some blame on what they call “Trump sabotage”. Some Republicans are urging Congress to appropriate funds for cost sharing reduction (CSR) payments and a national reinsurance pool, presumably to promote enrollment and moderate premium increases. Will Democrats vote to resolve the CSR problem and reinstitute reinsurance—policies many say they support? Or will it be business as usual on Capitol Hill with strict party-line votes (and the inevitable failure of ACA fixes)? Would that change anything about the way the nongroup insurance market operates next year?

The short answers are no, yes, and no. Here are some thoughts about why the status quo is likely to remain largely undisturbed by political speech-making and over-reaction from the editorial pages. My comments are based loosely on my presentation at the Petrie-Flom Health Law Year in P/Review conference held at Harvard University on December 12, 2017.

Exchange Enrollment For 2018

Early reports showed a more rapid pace of exchange enrollment this year than last.  As of December 15, 2017, 8.8 million people in the 39 states using the federal exchange had selected plans. That is less than last year’s total of 9.2 million enrollments through Healthcare.gov, but not the dramatic reduction that advocates may have expected.

One cannot simply compare last year’s enrollment pace with this year’s. The open enrollment period is shorter, but nine states and the District of Columbia gave people more time to enroll. California, for example, moved the end date from December 15, 2017 (the federal standard) to January 31, 2018. Whether that extension results in more enrollment or merely allows people to put off making a decision will be the subject of debate.

Other factors also play into the enrollment process. The Obama administration actively promoted exchange plans; the Trump administration did less to encourage people to enroll. Premiums increased by double digits for the second year in a row, due primarily to the Trump administration’s decision to stop paying insurers for CSRs. A 40-year-old individual purchasing the lowest cost silver plan would face a premium increase averaging 32 percent.

In many states, only silver plan premiums were increased to account for the loss of CSR payments. That strategy drove up the premium tax credit, which is tied to the silver premium in each market. As a result, most people receiving the subsidy are no worse off—and in many cases better off since gold plans became more affordable net of the subsidy. Indeed, the two groups left disadvantaged by the decision to halt CSR payments to insurers are people with incomes over 400 percent of poverty (and ineligible for the premium subsidy) and taxpayers (who will foot the bill for the higher premium subsidies).

A sign advertising Covered California health care is shown on an insurance store in San Ysidro, San Diego, California, U.S., October 26, 2017. REUTERS/Mike Blake

Once the dust settles and all open enrollment periods are completed, we are likely to see little change in the number of subsidized enrollees, and perhaps a slight increase. Some subsidy-eligible individuals who had not previously enrolled in exchange coverage may have feared that further procrastination might jeopardize their chances for coverage in the future.

If there is a decline, it will be in the unsubsidized population. Many middle-class families buying their own coverage before the ACA were priced out of the market by the new law, and the 2018 premium increase will hit hard. Assuming that 80 percent of the 10.3 million people in 2017 who “effectuated” their coverage (by selecting a plan and paying the first premium) received a premium subsidy, then about two million would be subject to the full increase in premiums for 2018. It would not be surprising if half of those dropped out.

Mandate Repeal

What about the impact of dropping the mandate penalty? Debate has typically fallen along ideological, rather than logical, lines. The Congressional Budget Office (CBO) assumed that the mandate would be highly effective, that it would be effective essentially immediately, and that it would strengthen somewhat over time as the financial penalties increased. If you support the ACA, that is an appealing assumption (although note that CBO has begun to back off on their faith in the mandate). If not, then you reject it.

Analysts should try to avoid getting caught up in this debate and instead take a broad view of what motivates consumers to buy health insurance—or, for that matter, any product. The mandate probably caused many to look at an exchange website or seek out other information, but the mandate could not sell a product that younger, healthier people do not consider to be worth the money.

The point is that the mandate was one fairly small factor in enrollment decisions. If exchange coverage could be sold with premiums and deductibles in the hundreds rather than the thousands of dollars, enrollment would have been much greater than we have seen—but that would not be because of the mandate.

The penalty is now universally regarded as too weak to be much of a threat. The penalty does not take effect until at least a year after a person decides not to buy insurance, and the Obama administration offered to exempt people from the penalty for hardship reasons that were loosely defined. In 2015, more individuals claimed an exemption than enrolled in exchange coverage.

Another fact of human behavior was also overlooked. Low-income people do not value health insurance as highly as those with high incomes. A recent study of low-income adults in Massachusetts shows that insurance take-up drops 25 percent for every $40 increase in monthly enrollee premiums. Even with a subsidy covering 90 percent of the premium, 20 percent would remain uninsured. Failure to take into account the differing circumstances, preferences, and understanding of people at various income levels faced with health insurance decisions led to the assumption that the mandate is the key element in making the ACA work.

Outlook For Further Policy Changes In 2018

Despite Senator Susan Collins’ (R-ME) claims that legislation will be enacted to pay insurers for CSRs and establish a national risk pool, those proposals are unlikely to make it to President Donald Trump’s desk. There is the usual problem of getting enough votes, which in the Senate means at least nine votes from Democrats to achieve the 60 vote majority. But even if there were enough votes, the proposals are too little and too late.

Restoring CSR payments through 2019, as proposed by Senators Lamar Alexander (R-TN) and Patty Murray (D-WA), does little to resolve the uncertain business climate facing insurers in the nongroup market. Passage of that bill would not lower premiums in 2018 and would do little to keep insurers in the market in 2019. The reinsurance program proposed by Senators Collins and Bill Nelson (D-FL) provides $10 billion over two years for states to set up high-risk pools. Whether that sum is adequate for a couple years is debatable, but high-cost patients will remain in the system once federal dollars are spent.

Such repairs to ACA design and implementation flaws are not popular with Republicans, who promised to repeal and replace. At best, they are meant to buy time for Republicans to agree on a comprehensive reform package that might get some Democrat support. But further action on bigger-picture proposals, such as that advanced by Senators Lindsay Graham (R-SC) and Bill Cassidy (R-LA), is highly unlikely in 2018 given the painful legislative failures of 2017.

Regulation is more likely to be the vehicle for policy changes next year since there is no need to gain approval from Democrats—or even some Republicans. President Trump’s October 12, 2017 executive order directs executive branch agencies to develop federal regulations that could allow new and less expensive health insurance options for employers and consumers.  Allowing new kinds of association health plans, loosening restrictions on short-term limited duration Insurance, and expanding the availability and use of health reimbursement arrangements could advancepart of the Republican agenda, although not in time to affect the nongroup market in 2018.

Conclusion

Claims that the exchange market is unstable are greatly exaggerated. Absent significant changes in policy, we are likely to see enrollment dropping somewhat, with the vast majority of exchange customers receiving generous federal subsidies. Premium increases will moderate after several years of double-digit growth, which reflects necessary market corrections to early misjudgments on cost by insurers and shifting payment policies by the government.

A stable market does not necessarily yield optimal social or fiscal outcomes. Instead of achieving the ACA’s goal of (near-) universal coverage, middle-class families who do not have access to employer coverage will continue to be squeezed out of the market. Those who have coverage will continue to see their costs rise as a result of an inefficient delivery system. These serious problems are not new.  Neither is the reluctance of either political party to take them on.

When Trump tweets, Pakistan’s generals may listen - AEI - American Enterprise Institute: Freedom, Opportunity, Enterprise

Fri, 01/12/2018 - 15:37

Can Donald Trump do what his two immediate predecessors failed to achieve—wean Pakistan off its habit of supporting terrorist groups that kill American troops in Afghanistan and destabilize the region?

U.S. Secretary of State Rex Tillerson chats with Pakistani foreign office official Sajid Bilal upon his arrival at Pakistan’s Nur Khan military airbase in Islamabad, Pakistan October 24, 2017. REUTERS/Aamir Qureshi/Pool

The president’s first tweet of 2018 summed up the problem: “The United States has foolishly given Pakistan more than 33 billion dollars in aid over the last 15 years, and they have given us nothing but lies & deceit, thinking of our leaders as fools. They give safe haven to the terrorists we hunt in Afghanistan, with little help. No more!”

Since then the administration has suspended security assistance to Pakistan, including coalition-support funding, the term for reimbursements for counterterrorism operations that account for nearly half of U.S. aid disbursed to the country since 2002.

You can read the rest of the article here, at the Wall Street Journal. 

Good news from Catholic charities - AEI - American Enterprise Institute: Freedom, Opportunity, Enterprise

Fri, 01/12/2018 - 15:23

Community colleges have long been considered a good tool to help low-income Americans get an education that will boost future earnings, but they have been plagued by a persistence problem: 42% of first-time community college students drop out. But a new study by researchers from Notre Dame and University of Maryland brings us some very good news about how community colleges can more effectively help their students complete their degrees, and might even hold some lessons for how to approach poverty-fighting more broadly.

Stay the Course, a program designed to help students complete their associate’s degree, demonstrates how a a combination of both human and financial support can effectively help people make their way out of poverty. Via Twenty20.

Catholic Charities of Fort Worth — the enterprising nonprofit under the direction of the tireless Heather Reynolds — designed a program called “Stay the Course,” which aims to address the stresses that might interfere with someone pursuing an associate’s degree. By providing case managers to help deal with the personal and academic obstacles that might cause students to drop out, and offering emergency financial assistance should the need arise, Stay the Course banks on a combination of human and financial support to help people earn degrees and make their way out of poverty.

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This model has been tried before, with some success: A similar program called ASAP at City University of New York has demonstrated promising results after providing a host of financial and personal resources for CUNY students; but at a cost of about $6,600 per student per year, it could be prohibitively expensive.

The recent results out of Stay the Course are encouraging. After six semesters of Stay the Course implementation, students who were randomly selected to be part of the Stay the Course trial group were about 15% more likely to earn their associate’s degree than those not in the program. Stay the Course participants also remained active in their education at twice the rate of those receiving none of the program’s benefits. All this at a cost of about $1,880 per student, per year.

What’s more interesting still is that a third group, which received emergency financial assistance but no meetings with case managers, performed no better than the group that received neither financial nor personal assistance. The human element of support — another person encouraging and supporting discouraged students — proved far more important than support through financial means.

That is the difference between transactional and transformational support. Though much of our approach toward fighting poverty involves providing money, it is important to realize that human capital can play a bigger role than financial capital. Money helps people when they also have hope in their path forward, a sense of support from other people who care, and a sense of encouraged purpose in pursuing their goals. This all speaks to the role that civil society must play in fighting poverty — a reminder that our families, communities, and houses of worship are spheres for mutual support and encouragement, forms of welfare that government payment cannot provide.

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Is bitcoin an energy hog? - AEI - American Enterprise Institute: Freedom, Opportunity, Enterprise

Fri, 01/12/2018 - 11:00

Almost since bitcoin’s inception, there has been much hand-wringing over what some see as the cryptocurrency’s excessive consumption of electricity. According to the detractors, mining bitcoin consumes too much electricity, is bad for the environment, and raises electricity costs for everyone else. Newsweek even went so far as to claim in a headline that bitcoin is on track to consume all the world’s energy by 2020!

Via REUTERS

Will bitcoin cause an energy crisis? Will electricity consumption be its Achilles’ heel?

No. As has happened many times before, alarmists are missing how markets avert such disasters.

Does bitcoin consume lots of electricity?

Yes, but there is more to the story. Bitcoin is a cryptocurrency that uses a technology called blockchain to validate transactions (i.e., to ensure that when person A commits to sending bitcoins to person B, person A actually has the bitcoins to spend). Bitcoin’s blockchain works by having computers called miners solve complex mathematical puzzles about every 10 minutes. Each puzzle includes information on a block of transactions that have occurred since the last puzzle. So when a miner solves a puzzle, and at least 51 percent of the other miners agree that the first computer really did solve the puzzle first, the miner is rewarded with new bitcoins, and the new block is added to a chain that includes all the bitcoin transactions that have occurred since the beginning. Thus the name blockchain.

The puzzles get harder as the total computing power of miners increases, so solving the puzzles requires even more computing power — which means more and more electricity.

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How much electricity? Estimates vary, but the numbers are impressive. Digiconomist estimates that miners consume about as much electricity as the country of Qatar and require several thousands of times more electricity per transaction than do traditional electronic payment systems, such as Visa. Power Compare believes that miners consume more electricity on an annual basis than do 12 US states (Alaska, Hawaii, Idaho, Maine, Montana, New Hampshire, New Mexico, North Dakota, Rhode Island, South Dakota, Vermont, and Wyoming).

Is there cause for alarm?

No. The worriers are following a tradition of predicting catastrophes that never happen because markets adapt to changed circumstances.

One famous example of a fear being overhyped is the 1970s and ’80s fear of overpopulation. The hype led to a 1980 bet between biologist Paul Ehrlich (author of “The Population Bomb”) and economist Julian Simon on whether overpopulation would result in overconsumption, scarcity, and famine. Their wager was on the future prices of five metals whose prices would escalate if Ehrlich was right. He was not. Ehrlich’s fundamental error was that he failed to recognize that flexible markets, technological change, and human ingenuity resolve challenges.

The predictions about bitcoin’s energy problems include that same error and more. There are less energy intensive ways to validate transactions, which the bitcoin community could adopt if energy costs get too high. Miners have already found less energy-intensive computing technologies and could find more. And if bitcoin gets too costly to mine, it will be replaced by another cryptocurrency or other means for transactions.

Economists at the University of California at Berkeley worry that utility regulators misprice electricity, which creates subsidies for bitcoin. They are right that regulated electricity prices do not follow best practice in regulatory economics, but it is unclear that this constitutes inefficient subsidies to bitcoin given that the traditional financial system against which bitcoin competes is replete with its own subsidies and inefficiencies.

And then there is the problem of zeroing in on one aspect of a system and missing the bigger picture: If bitcoin is such an inefficient user of resources, why are its overall costs so much lower than many of those of the traditional financial system?

So when considering the forecasts of doom, it is important to remember that people respond to incentives to solve problems and that flexible markets empower innovations.

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Why have we let actors become our moral guides? - AEI - American Enterprise Institute: Freedom, Opportunity, Enterprise

Fri, 01/12/2018 - 05:00

There’s a great scene in the wonderful 1982 movie “My Favorite Year,” which is set in 1954. Peter O’Toole plays a semi-washed-up actor named Alan Swann, famous for swashbuckling roles. For reasons too complicated to explain here, Swann tries to shimmy down the side of a building using a fire hose. He ends up dangling just below a cocktail party on a balcony. Two stockbrokers are chatting when one of them notices Swann swinging below them. “I think Alan Swann is beneath us!” he exclaims.

The second stockbroker replies: “Of course he’s beneath us. He’s an actor.”

It may be hard for some people to get the joke these days, but for most of human history, actors were considered low-class. They were akin to carnies, grifters, hookers, and other riffraff.

In ancient Rome, actors were often slaves. In feudal Japan, Kabuki actors were sometimes available to the theatergoers as prostitutes — a practice not uncommon among theater troupes in the American Wild West. In 17th century England, France, and America, theaters were widely considered dens of iniquity, turpitude, and crapulence. Under Oliver Cromwell’s Puritan dictatorship, the theaters were forced to close to improve moral hygiene. The Puritans of New England did likewise. A ban on theaters in Connecticut imposed in 1800 stayed on the books until 1952.

Partly out of a desire to develop a wartime economy, partly out of disdain for the grubbiness of the stage, the first Continental Congress in 1774 proclaimed, “We will, in our several stations, . . . discountenance and discourage every species of extravagance and dissipation, especially all horse-racing, and all kinds of gaming, cock-fighting, exhibitions of shews [sic], plays, and other expensive diversions and entertainments.”

Oprah Winfrey poses backstage with her Cecil B. DeMille Award. REUTERS/Lucy Nicholson

Needless to say, times have changed. And I suppose I have to say they’ve changed for the better. But that’s a pretty low bar. I don’t think acting is a dishonorable profession, and I’m steadfastly opposed to banning plays, musicals, movies, and TV shows.

But in our collective effort to correct the social stigmas of the past, can anyone deny that we’ve overshot the mark?

Watch the TV series “Inside the Actors Studio” sometime. It’s an almost religious spectacle of ecstatic obsequiousness and shameless sycophancy. Host James Lipton acts like some ancient Greek priest given an audience with Zeus, coming up just shy of washing the feet of actors with tears of orgiastic joy. I mean, I like Tom Hanks, too. But I’m not sure starring in “Turner & Hooch” (one of my favorite movies) bestows oracular moral authority.

Similarly, to watch the endless stream of award shows for Hollywood titans is to subject yourself to a narcissistic spectacle of collective self-worship. In 2006, George Clooney gave an (undeserved) Oscar acceptance speech in which he said, “We are a little bit out of touch in Hollywood every once in a while, I think. It’s probably a good thing.” He went on to deliver a semi-fictional, though no doubt sincere, account of how actors are like a secular priesthood prodding America to do better.

The most recent Golden Globes ceremony has already been excoriated for being a veritable geyser of hypocritical effluvia, as the same crowd that not long ago bowed and scraped to serial harasser and accused rapist Harvey Weinstein, admitted child rapist Roman Polanski, and that modern Caligula, Bill Clinton, congratulated itself for its own moral superiority.

The interesting question is: Why have movie stars and other celebrities become an aristocracy of secular demigods? It seems to me an objective fact that virtually any other group of professionals plucked at random from the Statistical Abstract of the United States — nuclear engineers, plumbers, grocers, etc. — are more likely to model decent moral behavior in their everyday lives. Indeed, it is a bizarre inconsistency in the cartoonishly liberal ideology of Hollywood that the only super-rich people in America reflexively assumed to be morally superior are people who pretend to be other people for a living.

I think part of the answer has to do with the receding of religion from public life. As a culture, we’ve elevated “authenticity” to a new form of moral authority. We look to our feelings for guidance. Actors, as a class, are feelings merchants. While they may indeed be “out of touch” with the rest of America from time to time, actors are adept at being in touch with their feelings. And for some unfathomably stupid reason, we now think that puts us beneath them.

Avoiding recidivism in prisons and saving money - AEI - American Enterprise Institute: Freedom, Opportunity, Enterprise

Thu, 01/11/2018 - 17:00

As state corrections budgets have shrunk in the wake of the Great Recession, so have their prison populations. Because U.S. prison systems have been bloated, inefficient and wasteful, the decline in the imprisonment rate — more than 10 percent over the last decade — is a step in the right direction. But while limiting the use of prison may cost less money, it will not magically lead to less crime. There’s a better way to downsize prisons, retain the cost reductions and still improve recidivism outcomes.

Increased participation by prisoners in effective programs can reduce recidivism. A large body of research, known as the “what works” literature, has shown that recidivism outcomes for prisoners are much better when they participate in interventions that target known risk factors for reoffending. Effective interventions include substance abuse treatment, cognitive-behavioral therapy, sex offender treatment, and education and employment programs.

But with five-year rearrest rates for released prisoners near 80 percent, recidivism outcomes have not been very good. A big reason is that many prisoners are idle in prison, due to their own choice or a lack of programming resources. When prisoners are “warehoused,” it diminishes their chances for success in landing a job and desisting from crime after they get released. A recent study found that warehousing increased the likelihood of recidivism by 13 percent.

But given that programming costs money, and a lack of money in state corrections budgets has been a key reason for downsizing, how can more programming be provided without increasing costs? The answer lies in further reducing the use of prison, which would yield decarceration “savings” that could then be reinvested to ramp up the delivery of effective programming. Decreasing the size of prison populations is necessary to not only reduce costs but also to free up the physical space needed within prisons — many of which are overcrowded — to provide more interventions.

There are two main ways in which prison populations can be reduced:

(1) Decreasing the number of people re-entering prison and (2) shortening the lengths of stay for those admitted to prison. To ensure that downsizing also produces better recidivism outcomes, determining what the length of stay should be is a key consideration. When individuals enter prison, it should be long enough to participate in effective programming, which usually lasts between three and nine months.

The best way to reduce prison admissions safely would be to restrict probation and parole violators (about two-thirds of all prison admissions) to the more serious offenders who are, as it is, more likely to get longer revocations. The less serious violators, who are more likely to get warehoused due to their relatively brief sentences, should remain in the community.

A reduction in probation and parole violator admissions will result in decreased imprisonment costs. These “savings” should then be reallocated to provide more programming resources for all probation and parole violators — those revoked to prison as well as those who stay in the community.

But if it is necessary to extend the minimum length of stay in prison to at least five months for rehabilitation purposes, the same holds true for limiting how long most inmates should be imprisoned. The average sentence length for prisoners is five years, which is ample time to participate in multiple effective interventions.

While lengthy periods of imprisonment may prompt some prisoners to reflect on their crimes and find remorse, the truth is that inmates with long sentences are likely to be warehoused for much of their confinement. For inmates with longer sentences who have participated in multiple effective interventions, trimming their confinement periods would generate decarceration “savings” that, once again, should be reinvested to increase the delivery of prison programming.

The elimination of the costly and, ultimately, ineffective practice of warehousing prisoners would constitute a big change in both our ideology and practice. After all, one enduring school of thought has been that if prison is so horrible, it will assuredly motivate inmates to quit crime. Increasing the misery of the prison experience may satisfy the impulse for retribution, but it doesn’t lead to an efficient use of taxpayer dollars. If we want prisons to be leaner, cost-effective and successful in reducing recidivism, we need reform based on what’s been shown to work.

Private Data, Not Private Firms: The Real Issues in Chinese Investment - AEI - American Enterprise Institute: Freedom, Opportunity, Enterprise

Thu, 01/11/2018 - 16:59

Compiled by AEI economist Derek Scissors, who studies Chinese and Asian economies and the ensuing economic trends, the China Global Investment Tracker (CGIT) is the only public record of China’s outward investment and construction. In this latest CGIT update, Scissors — who is the originator, chief researcher, analyst, and developer of the CGIT — analyzes China’s worldwide investment during the second half of 2017.

Among his key points:

  • The main development in 2017 for China’s investment around the world was the curbing of private Chinese investment in the US and the expansion of state-owned enterprises’ investment in Europe. There were signs late in the year that Beijing could allow more private spending in 2018.
  • The United States, at least, may not be interested. American skepticism grew first due to a wave of attempted Chinese technology acquisitions and most recently with the possibility of Americans’ personal data being held by Chinese companies. Formal US restrictions are pending.
  • The Belt and Road Initiative consists primarily of Chinese construction projects rather than investment. These continue to be substantial, but there was no sign of intensified activity in 2017, and the extreme dollar figures some associate with Belt and Road are currently unreasonable.

 

Read the full report here.

In addition to this report, Scissors testified on Tuesday, January 9th before the House Committee on Financial Services. His testimony, “Evaluating Chinese Foreign Investment in the US: Challenges Posed by a Changing Global Economy,” can be found here.

To arrange an interview with Derek Scissors, please contact AEI media services at mediaservices@aei.org or 202-862-5829.

Banter #298: Robert Doar on fighting poverty - AEI - American Enterprise Institute: Freedom, Opportunity, Enterprise

Thu, 01/11/2018 - 16:29

This week on Banter we’re joined by AEI Morgridge Fellow in Poverty Studies Robert Doar. Robert contributed to a new publication titled “This Way Up: New Thinking About Poverty and Economic Mobility.” The  booklet of short essays, published by Opportunity America in conjunction with AEI, showcases some of the best new thinking on issues such as welfare reform, wage subsidies, workforce training, school choice, and family formation. Contributors include Speaker Paul Ryan, AEI President Arthur Brooks, Charles Murray, Robert Doar, Tamar Jacoby, and a number of other prominent researchers on the right. More information on the report can be found at the links below. If you’d like a complimentary copy of the report please send your name and email to banter@aei.org.

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This way up: New thinking about poverty and economic mobility (AEI Event Page)

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The GOP needs a down payment on deficit reduction - AEI - American Enterprise Institute: Freedom, Opportunity, Enterprise

Thu, 01/11/2018 - 15:42

The recently enacted tax bill is an important component of the Republican effort to boost economic growth and wages. The Joint Committee on Taxation has confirmed that the legislation will increase GDP by about 0.7 percent over the coming decade. The legislation would expand employment by the equivalent of 900,000 new full-time jobs.

But Republicans could squander this success if they do not couple the tax bill with a plan to address the mounting fiscal challenges of the federal government. At some point, rising federal deficits and debt will become a drag on long-term economic growth, thus undermining the pro-growth aspects of the tax legislation.

JCT estimates that the added growth from the tax bill will reduce the revenue loss from the legislation from $1.5 trillion over 10 years to about $1.1 trillion. But $1.1 trillion is still a lot of money — especially since the government was already expected to run large deficits in coming years even without a tax cut.

Thomas Barthold, Chief of Staff of the Joint Committee on Taxation, speaks during a markup on the “Tax Cuts and Jobs Act” on Capitol Hill in Washington, U.S. REUTERS/Aaron P. Bernstein

The Congressional Budget Office (CBO) projects on a static basis that, with the tax bill now included in its forecast, the federal government will run a cumulative deficit of $11.9 trillion over the period 2018 to 2027; with stronger growth, the projected cumulative deficit falls modestly to $11.5 trillion. CBO expects the budget to exceed $1 trillion in 2019 and equal 4.7 percent of GDP. The federal government ran an average deficit of 2.3 percent of GDP over the period 1967 to 2008. And CBO forecasts a deficit of 5.3 percent of GDP at the end of 10 years, in 2027. The deficit will keep widening thereafter as the population ages and health-care spending continues to increase at a rapid rate. By 2047, CBO projects federal debt will reach 150 percent of GDP — even without the tax cut — up from 39 percent of GDP in 2008.

While these projections are alarming enough, they are probably overly optimistic because they do not include the budgetary effects of other policy changes that are widely supported in Congress and by the Trump administration. CBO’s current baseline projections assume appropriations for defense and non-defense accounts will decline from a total of 6.3 percent of GDP in 2017 to an average annual level of 5.5 percent of GDP from 2023 to 2027. Total discretionary spending has never been that low as a percentage of GDP in the post-war era.

Moreover, Republicans are determined to increase defense spending well above the baseline projections, and Democrats are pushing to do the same for non-defense accounts. CBO estimates the Trump administration’s plans for expanded military spending would exceed the caps assumed in current law for defense appropriations by $295 billion from 2018 to 2022. Given current pressures, it is reasonable to expect that the total of defense and nondefense spending will be at least 1 percentage point of GDP higher in 2027 than the 5.5 percent of GDP projected in CBO’s current forecast.

Furthermore, the Trump administration is readying a plan to expand federal spending on infrastructure projects as part of its 2019 budget submission to Congress. The plan will likely be paired with savings elsewhere in the budget. But there is no guarantee that congressional Democrats will agree to the offsets. The only certainty is that there is strong bipartisan support for higher spending on roads, bridges, and other projects.

The pressures for more spending would be less worrisome if there was evidence of a politically realistic plan for restraint in other parts of the federal budget. In particular, it is long past time for leaders from both parties to embark on a concerted effort to lower the costs of the major entitlement programs, which have been the primary sources of spending growth in recent decades. Unfortunately, the prospects for getting any kind of far-reaching entitlement reforms through Congress are very remote. President Trump campaigned against changing Social Security and Medicare. And Democrats successfully demonized GOP efforts to scale back Medicaid in 2017.

With these obstacles standing in their way, Trump administration officials may be tempted to once again include in the president’s budget plan implausible cuts in domestic accounts as a way of creating the perception of fiscal sobriety. In its 2018 budget, for instance, the administration assumed non-defense accounts would cost just $429 billion in 2027, down from $619 billion in 2017. But instead of cutting these programs, Congress is poised to add billions of dollars to them as part of a bipartisan deal to keep the government open. There is little prospect of Congress enacting any cuts in this slice of the budget anytime soon, much less the massive downsizing projected in the president’s 2018 plan.

Republicans would be better off trying to put together a down payment on deficit reduction in 2018 based on mid-size changes in entitlement programs. While this would fall short of major entitlement reform, it would still constitute progress. The legislation should include spending increases for things like infrastructure to improve its political appeal. The overall net effect should be a level of deficit reduction — perhaps $300 or $400 billion over a decade — that would be substantively meaningful and politically impressive.

Where to cut? The president says he does not want to reform Medicare. But there are many ways to reduce Medicare’s projected costs that would not constitute a major reform of the program. Among other things, the Medicare Payment Advisory Commission has produced scores of ideas for payment adjustments that would improve the program’s efficiency and reduce federal spending. Similar cost-cutting ideas could be pursued in Medicaid, farm programs, and federal civilian pension and health benefits. It also may be possible to find cost-reductions in federal programs for student loans and housing support.

Over the past 30 years, many budget agreements were enacted in Congress using the reconciliation process — which meant that these deals could not be filibustered in the Senate — even though most of them passed with far more than 60 votes because they were the product of bipartisan compromise. It will be difficult to replicate that model in today’s polarized Congress. Even so, Republicans should set in motion a deficit-cutting reconciliation bill in 2018 even as they reach out to Democrats to enlist their support in the effort. The inclusion of some additional infrastructure spending in such legislation could prove important to making a bipartisan deal on deficit-cutting a realistic possibility.

In 2017, Republicans were able to pass a tax plan that many of them had been seeking for decades. It was a major political victory, one that will boost economic growth. But that victory could be short-lived if Republicans do not follow it up with steps to get the nation’s rapidly deteriorating fiscal situation under better control.

From the archives: Washington’s history of political scandals - AEI - American Enterprise Institute: Freedom, Opportunity, Enterprise

Thu, 01/11/2018 - 15:41

Washington has become the center of a scandal-industrial complex, a multimillion dollar enterprise employing a variety of professionals including congressional investigators, White House lawyers, private lawyers, private investigators, self-styled ethics watchdogs, and journalists. . . .

While many will read these words and immediately think they were written about the current Trump administration, they are actually from a news story published two decades ago. The New York Times story in 1998 covered the Clinton White House and the many scandals during that period. The word “scandal” seems to stick to both Trump and Clinton.

The Times article quoted Suzanne Garment, then a scholar at AEI, saying that Washington had developed a “distinctive competence in investigating and publicizing scandalous allegations of various sorts.” In 1991 while at AEI, Garment wrote what is considered to be the definitive history of political scandals in the US. Titled “Scandal: The Culture of Mistrust in American Politics,” the book examined the paralyzing effect scandals were having on governing.

A piece by British-Canadian political scientist Anthony King in 1985 added an additional perspective to this sorry state by comparing US and British scandals. British scandals, King said, were usually about sex, while American ones are about money and power. King, an AEI adjunct scholar who died a year ago this January, was a familiar face for decades on election night as the BBC’s chief political analyst and numbers cruncher.

King also wrote one of AEI’s best sellers: “Both Ends of the Avenue,” which looked at changes in congressional-White House relations. He also wrote the AEI book “Britain Says Yes” covering Britain’s entry into the European Common Market in 1975.

Interested in additional archive content from AEI? Check out our latest discoveries here.

Turkey: Ally or adversary? | In 60 Seconds - AEI - American Enterprise Institute: Freedom, Opportunity, Enterprise

Thu, 01/11/2018 - 15:17

 

Over 14 years of rule by Recep Tayyip Erdoğan, Turkey has flipped sides from ally to adversary. What does this mean for the United States? AEI’s Michael Rubin explains. 

The great smartphone panic of 2018 - AEI - American Enterprise Institute: Freedom, Opportunity, Enterprise

Thu, 01/11/2018 - 14:46

What’s the appropriate social media response to the burgeoning panic about smartphones and social media? Maybe it’s #FirstWorldProblems or perhaps #ThisIsWhyWeCantHaveNiceThings? I will admit a soft spot for a good GIF based on the classic Battlestar Galactica catchphrase, “All of this has happened before. All of this will happen again.” Seems appropriate given how that TV show was about a technology backlash that keeps happening over and over again.

@eddieespinal via Twenty20

And so it is with concerns about the social consequences of media tech. The 17th-century French scholar Adrien Baillet fretted that “the multitude of books which grows every day in prodigious fashion” would destroy civilization just like the “fall of the Roman Empire.” The early days of radio spawned fears that the “compelling excitement of the loudspeaker” would distract children from their homework. In 1961, FCC Chairman Newton Minow famously complained that television was a “vast wasteland,” often little more than “a procession of game shows, formula comedies about totally unbelievable families, blood and thunder, mayhem, violence, sadism, murder, Western bad men, Western good men, private eyes, gangsters, more violence, and cartoons.” (Of course to modern sensibilities, that all probably sounds pretty good. Especially a show called Blood and Thunder.) Just recently I wrote about spurious claims that Halo 3 and Call of Duty 4: Modern Warfare explain why young men don’t work more.

Now, a decade after the iPhone made its debut, people are discovering smartphones and apps aren’t immune to the notion of trade-offs. Yes, the mobile technology revolution is a transformative event that gives billions easy access to humanity’s stock of knowledge through a small pane of glass in their pockets. The data being generated will help fight crime, epidemics, and traffic. In developing nations, more mobile phones mean more connectedness and economic growth.

Sounds pretty good. But, unsurprisingly, all that enhanced power of access and collaboration has downsides. After some former Facebook executives expressed guilt for building a platform dependent on “dopamine-driven feedback loops” and designed to foster dependence, the company acknowledged that some types of social-media use could harm users’ mental health.

And activists are now complaining that Apple doesn’t do enough to give parents sufficient control over their children’s iPhones. They want the company to take more seriously the potential mental-health impact of kids spending so much time on their devices. Or as a clickbait headline in a viral Atlantic piece recently put it, “Have Smartphones Destroyed a Generation?” The story presents some data suggesting smartphones have made the cohort between 1995 and 2012 — iGen, as the author calls them — more psychologically “vulnerable” and “seriously unhappy.”

But ultimately that headline conforms to Betteridge’s law: “Any headline that ends in a question mark can be answered by the word no.” iGen is not yet a generation destroyed. Yes, the data show teens today are more likely to say they feel lonely than in 2007, when the iPhone was introduced. But in so many other ways they seem healthier, reporting lower rates of drug use, less violence, and safer sexual behavior. Millennials overall are also pretty optimistic about the future.

The government isn’t going to ban smartphones for the under-18 crowd. The end result of this upturn in concern will probably be more intuitive phone controls and better apps for parents, as well as for those adults who have trouble staying off Twitter. And then we can return to wondering if AI-infused robots or AI-enhanced humans will gobble up all of society’s jobs and wealth. That is a best-case scenario.

A less-welcome, though lower probability outcome is if the burgeoning anti-tech movement successfully weaponizes these mild health and safety concerns in its effort to dismantle or heavily regulate the mega-platforms and other large, successful tech firms, which suffered a PR annus horribilis in 2017. Big Tech’s strong counterargument has until now been that they are providing customers with valued products. It’s why Jeff Bezos is now a centibillionaire. But what if that product is widely thought to be bad for consumers? All that economic value suddenly looks a bit less valuable, and Big Tech just begins to resemble Big Tobacco.

The new tax law expands the bizarre world of targeted tax breaks - AEI - American Enterprise Institute: Freedom, Opportunity, Enterprise

Thu, 01/11/2018 - 14:30

In a May 2017 post about the bizarre world of targeted tax breaks, I described the absurd rules governing the small business stock exclusion. Unfortunately, the tax law enacted on December 22 maintains and extends those rules.

Speaker of the House Paul Ryan (R-WI) speaks after the House of Representatives passed tax reform legislation on Capitol Hill in Washington, US, December 19, 2017. REUTERS/Joshua Roberts

Congress has adopted a number of arbitrary rules for the small business stock exclusion, which is a tax break for shareholders who sell a small company’s stock. For example, Congress denied the exclusion to shareholders of any company that provides services in the fields of engineering, architecture, health, accounting, actuarial science, performing arts, consulting, and athletics, and any company whose principal asset is the skill or reputation of one or more employees.

The absurdity of these distinctions was vividly illustrated when the IRS explained why shareholders of a company that performed lab tests for physicians qualified for the exclusion. According to the IRS, the company did not provide health services because its lab reports did not discuss diagnosis or treatment and were provided to physicians rather than patients, and because most of the company’s lab personnel were not licensed health care professionals. The IRS also found that the company’s principal asset was not its employees’ skills and reputations because the skills that new employees brought to the company were “almost useless” in performing the tests, and the skills they acquired at the company would not be useful to other employers.

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So, the company’s shareholders received the exclusion, although they might not have if the company had sent lab reports to patients, hired doctors, or imparted skills that its employees could use in future jobs.

These bizarre distinctions are exactly the type of provisions that should have been eliminated by tax reform. Unfortunately, the new tax law not only leaves these arbitrary rules in place for the small business stock exclusion, but applies many of the rules to a newly created tax break.

The new law allows some owners of non-corporate businesses to exempt up to 20% of their business income from taxes. In an apparent effort to ensure that the exemption will suffer from the same inefficiencies and complications that plague the small business stock exclusion, Congress disqualified owners of businesses that provide services in the fields of health, accounting, actuarial science, performing arts, consulting, and athletics, and businesses whose principal asset is the skill or reputation of one or more employees. To shake things up a bit, though, Congress granted a dispensation for businesses that provide engineering and architectural services.

By slashing the corporate tax rate to 21%, the new law will provide a powerful boost to investment. But it missed an opportunity to shrink the bizarre world of targeted tax breaks.

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Trump’s nuclear-button tweet was a stroke of ‘stable genius’ - AEI - American Enterprise Institute: Freedom, Opportunity, Enterprise

Thu, 01/11/2018 - 14:00

When the president suggested that he could envision a limited nuclear war with our communist adversary, critics were “horrified” and “appalled” while the regime called his remarks “dangerous madness.”

The president in question was not Donald Trump. It was Ronald Reagan, who in his first year in office raised the possibility that the United States and the Soviet Union could survive an exchange of tactical nuclear weapons. That same year Richard Pipes, Reagan’s director of East European and Soviet affairs on the National Security Council, told The Post he thought the probability of nuclear war was about 40 percent. These remarks sent a signal to Moscow that Reagan was not like those who came before him. He did not want war, but he would not shy from one if provoked.

Credit: Twitter

That message was received. In 1981, then-KGB chief and future Soviet leader Yuri Andropov declared at a major KGB conference that Reagan “was actively preparing for war and that a nuclear first strike was possible.” Two years later, Margaret Thatcher shared intelligence from KGB Colonel Oleg Gordievsky (who was working for the British) that Russian officials were increasingly convinced Reagan was getting ready for a nuclear first strike and was running drills to prepare for it. Indeed, NATO did carry out an exercise for a nuclear exchange — “Able Archer 83” — which included planes taxiing onto runways with realistic dummy nuclear warheads. Again, Reagan did not disabuse the Soviets of the notion. Quite the opposite: The next year he joked when testing his microphone before his weekly radio address “We begin bombing in five minutes.” The belief of Soviet leaders that Reagan might just be crazy enough to push the nuclear button constrained Soviet behavior and helped make possible a peaceful end to the Cold War.

Now Trump is trying to send a similar message to the North Korean regime. His recent tweet telling Pyongyang that his nuclear button is “much bigger & more powerful” than Kim Jong Un’s was neither unstable nor stupid. To the contrary, it was part of an intentional campaign designed to get North Korea to understand that Trump, unlike his predecessors, is willing to use force to stop Pyongyang from threatening American cities.

For decades, the North Koreans have believed that they are untouchable because they can incinerate Seoul with conventional weapons. Now, they are on a crash course to develop and deploy the capability to incinerate U.S. cities with nuclear weapons. They think the pursuit of these weapons is making them even safer. Trump is trying to convince them that the opposite is true. The best chance to prevent such a use of force is if North Korea receives and believes this message. So we’d all better hope that Trump succeeds.

On “Fox News Sunday,” CIA Director Mike Pompeo underscored Trump’s message, declaring that “We want the regime to understand that, unlike before, we are intent on resolving this and it is our firm conviction that resolving this diplomatically is the correct answer but that this administration is prepared to do what it takes to assure that people in Los Angeles, in Denver, in New York are not held at risk from Kim Jong Un having a nuclear weapon.”

All those in the perpetual outrage machine who are calling Trump a “madman” for his tweet are also inadvertently helping him send that message to Pyongyang — just as Reagan’s critics helped convince Moscow that he was a madman.

Are Trump’s threats of military action a bluff? No. As national security adviser H.R. McMaster recently explained, Trump is “not going to allow this murderous, rogue regime to threaten the United States with the most destructive weapons on the planet.” Trump tweeted in August that “Military solutions are now fully in place, locked and loaded, should North Korea act unwisely. Hopefully Kim Jong Un will find another path!”

This does not mean nuclear war. If North Korea persists in testing, it could involve a targeted military strike taking out Pyongyang’s ballistic missile and nuclear facilities. Furthermore, as my American Enterprise Institute colleague Oriana Skylar Mastro recently pointed out, “Kim understands that a second Korean War would end with his demise, and therefore he has incentives to avoid such escalation. Assuming Kim is rational then, it is possible that the United States could conduct a limited surgical strike and North Korea’s response would be minimal.”

Trump’s tweets are intended to prevent us from getting to that point. They are not only entirely rational but also strategically smart. Let’s hope his critics keep questioning his sanity, because it can only help convince Kim that Trump is serious.

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