From Reuters:

“There is reason to be very concerned about what’s going to happen with young people. If their (insurance) premiums shoot up, I can tell you, that is going to wash into the United States Senate in a hurry,” said Senator Ron Wyden, an Oregon Democrat…

“Why in late April can’t they show us any of what they’ve got planned? The rollout plan should already be in existence,” an exasperated Democratic Senate aide said separately…

Reform is facing challenges on several fronts. Big insurers appear wary of participating, raising questions about how competitive the exchanges will be. Businesses are mounting a new legal effort to stop the use of federal subsidies in exchanges run by Washington. And most states have balked at the exchanges and the Medicaid expansion…

“I don’t see how what they’re planning to do is going to be adequate. The resources are too limited, the (law’s) penalties are too weak and elite opposition in much of the country will undermine” enrollment, said Paul Starr, a Princeton professor and former health adviser to President Bill Clinton…

An April survey of 1,003 people by HealthPocket, an online company that helps consumers find insurance, also found that the law’s penalty for not buying coverage would not induce most 25-to-34-year-olds or 18-to-24-year-olds to purchase it…

 

We do not claim that the school funding system… is fundamentally flawed, only that there is no correlation at all between the level of per pupil funding and educational outcomes. —Deloitte

Hahahahaha! Ha! Haha! Haaaaaah. Okay. Now a little context.

Last November, the British government “published” a study of its state school system that it had commissioned from the accounting firm Deloitte. Maybe “published” is too strong a word, since there was apparently no press release, no news conference, no effort of any kind to make the public or the media aware of its existence. Perhaps that’s because the study found no correlation between spending and achievement in Britain’s state schools, and the current government’s policy is to increase spending on state schools in an effort to be seen to be doing something.

The sad thing is, the same fundamentally flawed funding systems and dysfunctional political incentives exist in the United States, too… and with much the same effect:

Hat tip: Joanne Jacobs.

In the Washington Post today, Jim DeMint and Robert Rector of the Heritage Foundation invoke the free-market pantheon in arguing their anti-immigration stance: “The economist Milton Friedman warned that the United States cannot have open borders and an extensive welfare state.”

They’re halfway right about that. What Friedman actually said was that immigration is “a good thing for the United States…so long as it’s illegal.” He meant that open immigration is highly beneficial to the economy, provided those productive but inexpensive laborers do not have access to welfare. Friedman later wrote that, “There is no doubt that free and open immigration is the right policy in a libertarian state.” Friedman’s problem was with the welfare state, not immigration. His remarks are fundamentally at odds with the position Heritage is trying to argue. 

It’s not the first time that I’ve questioned the free-market credentials of my friends at Heritage lately, and that’s making me sad.

On Monday, Heritage released a new study entitled “The Fiscal Cost of unlawful Immigrants and Amnesty to the U.S. Taxpayer” by Robert Rector and Jason Richwine, PhD. I criticized an earlier version of this report in 2007, arguing that their methodology was so flawed that one cannot take their report’s conclusions seriously. Unfortunately, their updated version differs little from their earlier one.

I’m joined in this view by a host of prominent free-marketeers. Jim Pethokoukis at AEI, Doug Holtz-Eakin at American Action Forum, Tim Kane at the Hudson Institute, and others have all denounced the fundamentals of the Heritage report.

The new Heritage report is still depressingly static, leading to a massive underestimation of the economic benefits of immigration and diminishing estimated tax revenue. It explicitly refuses to consider the GDP growth and economic productivity gains from immigration reform—factors that increase native-born American incomes. An overlooked flaw is that the study doesn’t even score the specific immigration reform proposal in the Senate. Its flawed methodology and lack of relevancy to the current immigration reform proposal relegate this study to irrelevancy. 

Even worse, the Heritage study recommends a “solution” to the fiscal problems it supposedly finds. It suggests:

Because the majority of unlawful immigrants come to the U.S. for jobs, serious enforcement of the ban on hiring unlawful labor would substantially reduce the employment of unlawful aliens and encourage many to leave the U.S. Reducing the number of unlawful immigrants in the nation and limiting the future flow of unlawful immigrants would also reduce future costs to the taxpayer.

Professor Raul Hinojosa-Ojeda of UCLA wrote a paper for Cato last year where he employed a dynamic model called the GMig2 to study comprehensive immigration reform’s impact on the U.S. economy. He found that immigration reform would increase U.S. GDP by $1.5 trillion in the ten years after enactment.

Professor Hinojosa-Ojeda then ran a simulation examining the economic impact of the policy favored by Heritage: the removal or exit of all unauthorized immigrants. The economic result would be a $2.6 trillion decrease in estimated GDP growth over the next decade. That confirms the common-sense observation that removing workers, consumers, investors, and entrepreneurs from America’s economy will make us poorer. 

Would decreasing economic growth by $2.6 trillion over the next ten years have a negative impact on the fiscal condition of the U.S.? You betcha. 

Do the authors consider the fiscal impact of their preferred immigration policy? Nope.

For those of us who “grew up” on the fine policy analysis long produced by Heritage, the immigration report is a supreme disappointment. No one has done more than Heritage to promote the importance of dynamic scoring, which is critical to understanding the true effects of government activity on the marketplace. For that organization to have seemingly abandoned its core principles for this important debate is a stinging blow to those of us who crave an honest, data-driven debate on the fiscal merits of policy.

Only a terrifically secure country could have as poor and astrategic a debate about war as the one we’re having about taking sides in Syria’s civil war. 

Actually, we’re not having a debate about taking sides in Syria’s civil war. That’s the problem. We’re debating Syria as though it’s an engineering question—an electrical outage, or a bit of erosion in the backyard. Doing so removes the most vexing aspects of the issue, leading us to the delusion that military action can easily make things better. 

Too much of the discussion has focused on moral arguments and too little of it on the very real political problems beneath the war. Take the advocacy of Shadi Hamid of the Brookings Institution. As Hamid wrote of his thinking on Syria in January 2012, he was pro-intervention “emotionally, and from a purely moral perspective,” but had some nagging non-emotional, non-moral concerns: “I cannot say whether military intervention would work.” By June, though, the emotional and the moral took over, with Hamid declaring that it was “not the job of civilian think tanks” to figure out how military intervention would produce the desired outcome. 

Princeton’s Anne-Marie Slaughter, who until recently occupied George Kennan’s old office at the State Department, has similarly assumed away Syrian politics, making the case for intervention much easier. As she tweeted Sunday, “Suppose US goal in #Syria were simply to STOP THE KILLING. Forget who might/​might not win down the line. What’s fastest/​best way to do that?” 

But forgetting who might win down the line waves off the central problem: the killing is happening for a political reason. Bashar al-Assad and his enemies are not engaged in wanton, nihilistic slaughter; they are struggling over political control of Syria. Any analysis that removes that basic fact from the discussion of how to “STOP THE KILLING” turns a complex political question into a technical, scientific project, creating the delusion that it can be readily fixed by the U.S. government. 

In fairness to Hamid and Slaughter, they are carrying the torch of a time-honored American tradition of foreign policy thinking. Historically, debates over foreign intervention in the United States have featured liberal analysts against realists and the military. In the 1950s, President Eisenhower reportedly had to admonish his activist Secretary of State John Foster Dulles to calm down: “Don’t do something, Foster, just stand there!” 

In the 1990s, apolitical liberal thinking on war reached its pinnacle. When Chairman of the Joint Chiefs of Staff Colin Powell expressed hesitation about the Clinton administration’s intervention ideas, Secretary of State Madeleine Albright lashed out: “What’s the point of having this superb military you’re always talking about if we can’t use it?” And President Clinton’s lack of understanding of war caused him to ruminate, accurately, to General Hugh Shelton that it would “scare the shit out of al Qaeda if suddenly a bunch of black ninjas rappelled out of helicopters into the middle of their camp.”

In the 1990s, realists like Richard Betts were warning Americans not to fall victim to the “delusion of impartial intervention.” Admonishing policymakers for their newfound enthusiasm for limited, ostensibly apolitical intervention, Betts reminded readers of a ground truth: “A war will not end until both sides agree who will control whatever is in dispute.” This is as true in Syria as it is anywhere. Alternatively, if analysts want to use the U.S. military to regime-change Assad, they have every obligation to explain how they intend to shepherd the country toward whatever political order they seek.

More honest hawkishness can be found at the Institute for the Study of War, whose recent paper advocating aiding the Syrian opposition admitted that politics matter: 

The goal behind U.S. support to the opposition should be to build a force on the ground that is committed to building a nonsectarian, stable Syria, with a government more likely to respect American interests. 

That outcome is presumably what all analysts urging intervention desire. The trick is to acknowledge the problems of connecting military means to our political desiderata. Anyone who doesn’t deal with the underlying political problems at stake is threatening to push the country into another ill-considered, potentially costly war.

One reason why Washington keeps getting bigger is that so many business people are willing to throw their competitors under the government bus. The Washington Post today describes how a major lobby group representing small banks cut a secret deal with Rep. Barney Frank to not oppose his big-government financial bill if it excluded small banks from regulations and shifted $1.5 billion in annual fees from them to the big banks.

We saw a similar jockeying of lobbyists with the Obamacare health bill, and we see it with legislation on the agenda right now. With the Internet tax bill before Congress (the Marketplace Fairness Act), giant Amazon has switched sides to support expanding online sales taxes, and thus throwing smaller retailers and consumers under the bus.

With corporate tax reform under discussion, all firms want a lower rate but some firms not targeted by base broadening seem willing to throw those that are under the bus. The problem is that some of the proposed base broadening is bad policy, so legislation could end up making road kill of economic growth.

What about the ethics of all this? It’s appalling to see how bad legislation like Dodd-Frank gets passed on the strength of special-interest payoffs. But lobbyists—such as the head of the small-bank association profiled by the Post—surely think that acting in the interests of their members is the ethical thing to do.

As for legislators, most of them probably think that you can’t make an omelette without cracking eggs. So while they may know that they are causing some damage, they also have warm feelings for the people they are helping—friends in the lobby groups they smooze with, other legislators they owe favors to, and businesses in their home districts. Furthermore, legislators can absolve any nagging ethical doubts they may have by demonizing the groups that the government is running over in legislation.

The problem is that when Washington acts to expand an already big government, it nearly always damages society overall. That’s because government legislation coerces people to take actions that they would not freely choose. Reducing freedom nearly always means reducing prosperity. So while Capitol Hill horse-trading may seem like a good sport, the end result is often more mandates and taxes enforced by police power. It is usually a zero-sum game, or much worse.

Private markets work on fundamentally different principles. The main one being that voluntary trade is mutually beneficial. If individuals and businesses are acting in an honest fashion and not trampling anyone’s rights, freedom of trade is a win-win for all involved. It generates value and leads to overall growth and prosperity in society.

So while the ethics of lobbyists is a concern, a more important problem in Washington is that too many legislators think they can solve society’s problems with mandates and taxes. Dirty Harry said “a man’s got to know his limitations.” And so do policymakers because their good intentions are not enough to overcome the inevitable damage caused by further expansions in government power. 

The Securities and Exchange Commission is investigating “political intelligence” firms that promise to give investors advance word of what Congress and regulators may do next. A continuing Washington Post investigation reports:

Antonia Ferrier, a spokeswoman for [Sen. Orrin] Hatch, said the senator is aware that his staff participates in such events [as an investor phone call on Medicare and private insurers, organized by a Washington consulting firm] and that communicating with these types of groups is not unusual given the technical nature of the issues the committee handles.

“Staff members meet with stakeholders on every side of an issue as a means of better crafting policy solutions,” Ferrier said. “What information they share is the same information that Senator Hatch shares in an open and transparent way with his constituents. Senator Hatch has a zero-tolerance policy for anyone who would take advantage of privileged information, and he’s confident that no one on his staff has done that.”

This is just one more inevitable facet of the system we live under. As long as the federal government spends trillions of dollars, and reallocates more trillions through taxes and regulation, and issues bans and mandates on everything from contraception to local speed limits, you’re going to see a lot of money spent to control how those decisions are made. Which includes spending money to find out what the decisions will be, in order to make appropriate investment choices. 

The most important, powerful, and relevant argument against the value-added tax in the short run is that we can balance the budget in just five years by capping spending so it grows at the rate of inflation, a very modest level of fiscal restraint.

The most important, powerful, and relevant argument against the value-added tax in the long run is that more than 100 percent of America’s long-term fiscal problem is too much spending.

So why even consider giving politicians a new source of revenue such as the VAT, particularly since this hidden form of national sales tax helped cause the European fiscal crisis by facilitating a bigger welfare state?*

And now Europeans are doubling down on that failed approach, thus confirming that politicians will rarely make necessary spending reforms if they think more revenue can be squeezed from taxpayers.

Here’s a chart taken from the recent European Commission report on taxation trends in the EU. As you can see, the average VAT rate in Europe has jumped by nearly 2 percentage points in just five years.

As I explained last week, European politicians also have been increasing income tax rates, so taxpayers are getting punished when they earn their income and they’re getting punished when they spend their income.

Which helps to explain why much of Europe is suffering from economic stagnation. Given the perverse incentives created by redistributionist fiscal policy, it makes more sense to climb in the wagon of government dependency.

For more information, here’s my video that describes the VAT and explains why it’s a bad idea.

*The same thing is now happening in Japan.

P.S. I don’t know if you’ll want to laugh or cry, but the tax-free bureaucrats at the Organization for Economic Cooperation and Development actually argue that the VAT is good for jobs and growth.