Speaking recently a Steamboat Institute conference, I explain that big government is America’s fiscal challenge, not whether the spending is financed with taxes or borrowing.

This issue is important because the statists are trying to create the conditions for a big tax hike. We got huge spending increases under Bush, and now Obama has picked up the baton and is racing in the same direction. Needless to say, the politicians don’t care about deficits when they are spending money. But when it is time to discuss tax policy, deficits suddenly become a giant threat to the economy and turning more of our money over to the political class is the only solution.

The Q&A session also is interesting, as I pontificate about the financial crisis, Keynesian economics, the rule of law, and tax competition(both videos courtesy of the Center for Freedom and Prosperity).

Sen. Max Baucus’s (D‑MT) health care overhaul would cost more than $2 trillion. It would expand the deficit. But he has carefully and methodically hidden those facts – so well that he has completely hoodwinked nearly all the major media.

The media are reporting that the Baucus bill would reduce the deficit by $81 billion over 10 years. Wrong.

The Baucus bill assumes that Congress will allow the “sustainable growth rate” cuts in Medicare’s physician payments to occur beginning in 2012. Yet Congress has routinely and repeatedly blocked those cuts, making Baucus’s assumption preposterous. The CBO handled the issue delicately, but essentially said, “Sure, provided that the sun rises in the west in 2012, then yes, this bill would reduce the deficit.”

That means Baucus will come up at least $200 billion short on the revenue side, making his bill a budget-buster.

The media are reporting that the Baucus bill would cost just $829 billion over 10 years. Wrong.

As Donald Marron observes, that number omits as much as $75 billion in new federal spending. It also omits a $33 billion unfunded mandate on state governments.

But the worst part is that the Congressional Budget Office’s preliminary cost estimate omits the cost of the private sector mandates in the Baucus bill. In Massachusetts, those costs accounted for 60 percent of the total cost of reform. That suggests the actual cost of the Baucus bill – $829 billion plus $75 billion plus $33 billion, times 2.5 – is well over $2 trillion.

Yet the CBO score pretends those costs aren’t even there. It’s like a mystery novel that’s missing the last 50 pages. And the media aren’t even curious.

In the words of Brad DeLong, why, oh why, can’t we have a better press corps?

Cross-posted at Politico’s Health Care Arena.

The Congressional Budget Office released a report this week that revealed that the proposed health care bill would not increase the deficit. But is it that simple? Cato health care policy experts have examined the bill and added up the costs. Here are a few things they have found:

• Congress has been cooking the books: “When it comes to the health care reform debate…honest budgeting is nowhere to be seen.”

• Costs will only decrease if we give market forces room to breathe.

• How some in Congress are hiding the true costs of the health care overhaul.

• Healthy Competition: What’s Holding Back Health Care and How to Free It

• Podcast: Do You Smell the Books Congress is Cookin’?

Many commentators have argued that if the Federal Reserve had followed a stricter monetary policy earlier this decade when the housing bubble was forming, and if Congress had not deregulated banking but had imposed tighter financial standards, the housing boom and bust—and the subsequent financial crisis and recession—would have been averted.

In a new study, Cato scholars Jagadeesh Gokhale and Peter Van Doren investigate those claims and dispute them.

Hey Rajiv Chandrasekaran, what the heck happened back in March when Obama decided to send 17,000 more troops into Afghanistan and started telling everyone we needed a more expansive approach there?

Everyone, save Vice President Biden’s national security adviser, agreed that the United States needed to mount a comprehensive counterinsurgency mission to defeat the Taliban…

[…]

To senior military commanders, the [implications were] unambiguous: U.S. and NATO forces would have to change the way they operated in Afghanistan. Instead of focusing on hunting and killing insurgents, the troops would have to concentrate on protecting the good Afghans from the bad ones.

And to carry out such a counterinsurgency effort the way its doctrine prescribes, the military would almost certainly need more boots on the ground.

To some civilians who participated in the strategic review, that conclusion was much less clear. Some took it as inevitable that more troops would be needed, but others thought the thrust of the new approach was to send over scores more diplomats and reconstruction experts. They figured a counterinsurgency mission could be accomplished with the forces already in the country, plus the 17,000 new troops Obama had authorized in February.

“It was easy to say, ‘Hey, I support COIN,’ because nobody had done the assessment of what it would really take, and nobody had thought through whether we want to do what it takes,” said one senior civilian administration official who participated in the review, using the shorthand for counterinsurgency. (emphasis mine)

This sort of thing is almost enough to make you feel for the COIN clique. Barack Obama fancies himself a foreign-policy thinker, and his national-security staff no doubt think highly of their strategic vision and would like to advance the idea that Democratic administrations make better foreign-policy decisions than Republican administrations. But when Obama and his administration come out in March and say “yes, we’d like a counterinsurgency campaign in Afghanistan,” and then send McChrystal over to do an assessment of what a COIN mission would need in terms of resources, it’s just absurd for them flutter six months later that “well, we didn’t know what we were getting into! They didn’t tell us it was going to be long and hard and costly!”

We’ve been having a discussion on counterinsurgency — indeed we’ve been doing counterinsurgency — for the last few years. There are lots of us who think that COIN in Afghanistan is a fool’s errand. My view is that COIN more generally is an intellectually insular doctrine purveyed by a cadre of scholar-practitioners who’ve either situated the doctrine in an absurd strategic context [.pdf] or else failed even to attempt to situate the approach inside any larger strategy.

But to be fair to them, they’ve been pretty candid about how hard counterinsurgency is. It’s just ridiculous for the administration to protest that they didn’t know it was going to be so expensive. The policy outcome the Obama administration produced was simply to throw more resources at the problem without bothering to think carefully about the connections between strategy, doctrine, and resources. Not encouraging.

The CBO report that said the health care bill won’t raise deficits makes it clear that the Baucus bill’s reduction in future budget deficits comes not from controlling government spending or reducing health care costs, but because of a rapid escalation in tax revenues.

The bill imposes a 40 percent excise tax on health-insurance plans that offer benefits in excess of $8,000 for an individual plan and $21,000 for a family plan. Insurers would almost certainly pass this tax on to consumers via higher premiums. As inflation pushes insurance premiums higher in coming years, more and more middle-class families would find themselves caught up in the tax.

In fact, overall, the tax increases in the bill are more than double the amount of deficit reduction. This isn’t a health care efficiency bill or a cost containment bill. It is a tax and spend bill, pure and simple.

Yesterday, in conjunction with the Pope Center for Higher Education Policy, Cato held a debate on how to control spiraling college costs. It was a terrific discussion, and I encourage everyone to check it out. It also got some coverage in the Chronicle of Higher Education, though nothing beats taking in the whole thing for yourself!

Concerning the latter point, I’d like to respectfully suggest that at least one person who saw only the Chronicle’s piece imbibe the whole event, as well as what follows in this blog entry. Unfortunately, it appears that the Chronicle article got her a tad apoplectic, and I think she might have written some things she didn’t really mean.

On her blog, Sara Goldrick-Rab calls me an “ideologue,” accuses me of being totally ignorant of empirical research on aid and college prices, and even calls me “unoriginal” because in 1987 then‑U.S. Secretary of Education William Bennett asserted what I did yesterday: that government aid to students enables colleges to keep raising prices. Oh, and she matter-of-factly declares that “after more than 20 years of this nonsense it’s time to call the idea what it is– just plain stupid– and stop giving ink to the people who repeat it.”

Hey, wait! I need that ink…

Now, I might very well be an ideologue (if by that you mean someone who doesn’t pretend to approach every issue as if I’ve never given it, or anything else, any previous thought), and I might even be a pretty ignorant guy – nobody’s perfect, right? – but that doesn’t change several, glaring problems with Goldrick-Rab’s assault on my character and on the Bennett Hypothesis.

Let’s start with Godlrick-Rab’s understanding simply of what, exactly, was discussed at our event. She says that “faced with a thoughtful, responsive piece of federal legislation to reform the financial aid system, some ideologue had to come forward with a proposal to end federal student aid entirely.”

Presumably, the legislation to which she is referring is the Student Aid and Fiscal Responsibility Act, which is working its way through Congress. Of course, we ideologues might disagree with the utterly unsubstantiated description of the legislation as “thoughtful,” but I nonetheless think I know which bill she’s referring to.

Anyway, I have, indeed, been critical of SAFRA, but not primarily on the grounds that more aid will continue to fuel college-price inflation. I think it will, but what troubles me most about SAFRA is that it is likely to cost taxpayers tens-of-billions of new dollars, while its defenders claim it’s going to save us major dough. More to the point here, though, SAFRA never once came up in the debate, nor was the event in any way framed around it. Indeed, the debate stemmed from a paper by economist Robert Martin that examines numerous potential drivers of the college-cost problem – a very probing study – and says not a thing about SAFRA.

Now, on to the substance – such as it is – of Goldrick-Rab’s treatment of the Bennett Hypothesis.

First off, despite what Goldrick-Rab asserts, I am well aware of the Hypothesis. For proof of my not-total ignorance, check out a 2003 op-ed I wrote about aid fueling college-price increases. Moreover, I am quite familiar with the conflicting research on Bennett’s proposal, and what it enables us to definitively conclude: neither that the Hypothesis is right nor that it is wrong. Indeed, despite Goldrick-Rab’s pronouncement that Bennett’s suggestion is “nonsense,” the quote from Harvard professor Bridget Terry Long that Goldrick-Rab offers to defend her case-closer makes clear that the research doesn’t offer any definitive answers:

While several studies do find a college price response, their overall results are mixed and often contradictory. In summary, none of the numerous studies on the subject have found a “smoking gun” in terms of college pricing behavior.

Why no “smoking gun”? Because as Long explains in the article to which Goldrick-Rab links (apparently in an effort to prove me and Bennett wrong):

One possible reason for these conflicting results is that it is difficult to isolate the effect of government aid on tuition pricing from other factors. It is unclear whether changes in tuition are due to changes in the Pell or other general trends in higher education.

In other words, as is so often the case in social science, it is very hard to isolate specific variables to reveal only their effects on outcomes. In 2001, Cunningham, et al., were clear about the same thing, stating that the sort of statistical modeling they could do was incapable of providing definitive answers on the effect of aid on price. Indeed, they reported that:

Finally, even with future improvements in definitions and prospective data collection, the technique of cost analysis will always provide only partial answers to questions about the reasons for price increases at colleges and universities.

Perhaps illustrating how muddled the research is, in 2004, Long – to whom Goldrick-Rab points to attack the Bennett Hypothesis – looked at the effect of Georgia’s HOPE scholarships on college prices and found that schools both increased prices and decreased institutional aid in response to the new state scholarships. In other words, she found significant evidence that the Bennett Hypothesis is, in fact, accurate!

But there’s a flip side: Cunnigham, et al., found no clear correlation between aid and prices, but did report a strong correlation between decreasing state support for institutions and rising public-college tuition. This finding supports a popular ivory-tower explanation for price inflation: Increasingly tight-fisted states force schools to make up lost revenue through tuition.

But here we see another common problem in extant research: The researchers examined only a small span of time – from 1988 to 1997 – not a long enough period to see medium or long-term effects of aid. As the chart below (which uses State Higher Education Executive Officers data and I employed yesterday) shows, the period studied was a trough in state funding, and per-pupil revenue through tuition did rise. What the analysis missed were the periods before and after the one explored, when both tuition and government appropriations to schools increased.

Of course, there is more research than this (you can read about some of it here) and it is admittedly mixed. (In fact, I said in my presentation that aid is certainly not the only driver of colleges prices.) But as should now be clear, the Bennett Hypothesis is far from disproven, and statistical research may well be incapable of definitely settling the question. This has at least two major implications: (1) Calling on broad, long-term data – as I did at our forum – is highly relevant to the college-cost debate, and (2) if we want to get to the truth about the effect of aid on prices, it will be absolutely necessary to continue “giving ink” to the Bennett Hypothesis.