The Independent Institute


Children Are Not Creatures of the State: New Hampshire Edition

Kids In Class_200Politicians across the country like to claim that they’re all in favor of local control of education—until parents and their locally elected officials actually start trying to exercise it.

The small New Hampshire town of Croydon is a case in point.

Like many small towns in New Hampshire, Croydon does not have public schools to serve all grade levels so it contracts with education providers in neighboring towns. At issue now is the Croydon School Board’s decision to allow five elementary students to attend the neighboring Newport Montessori School. As’s Steve Mac Donald explains:

State law allows towns to pursue these agreements, sending taxpayer education dollars to any accredited school, public, charter, or private, even in neighboring states, with the exception of religious schools. The local board, at the behest of voters, negotiates contracts and approves taxpayer-funded tuition payments to those schools. The money follows the student.

This plan has been in place for high school students for more than 25 years. Back in 2007 the Croydon school board began investigating ways to expand similar options for elementary school students. When it unveiled its choice plan for this school year, the state board cried foul and has threatened to withhold some $39,000 in state funding.

Canada’s Turn Left

CanadaVote_200It is not yet clear if the political sea change that has taken place in Canada will also be ideological. Under the leadership of Justin Trudeau, the 43-year old neophyte who has never held an executive post, the left-of-center Liberals have unseated Stephen Harper’s Conservatives with an overwhelming parliamentary majority that no poll or commentator had predicted. They will have virtually a free hand to govern.

But there are two problems. One: the Canadians have not necessarily voted in these elections, dominated by character and personal issues, for a lot more government intervention. Two: Trudeau—who has promised to preserve a big chunk of Harper’s legacy, including tax cuts, free-trade agreements and support for major oil-related projects, including the Keystone XL pipeline that has met with such resistance across the border—wants to have it both ways. His otherwise interventionist agenda is incompatible with Harper’s legacy on fiscal policy, taxes and resource-related free enterprise.

Not that Harper was a free-market champion. His rhetoric was often much bolder than his actions, hampered by the fact that he had to govern with a minority in Parliament during the first half of his tenure—and that, in the wake of the financial crisis in 2008, they were temporarily influenced by Keynesian fiscal ideas.

Milton Friedman’s Solution for Social Security Would Work for Government Pensions, Too

Milton Friedman

Milton Friedman

Milton Friedman, the 1976 Nobel Laureate in economics, was interviewed on the television program Uncommon Knowledge in 1999, and he offered a solution to Social Security’s financial problems: shut it down.

But Friedman didn’t advocate that the federal government walk away from its promises.

Social Security participants are owed a stream of payments during their retirement years based on a set of factors, including lifetime earnings, number of years worked, and age at retirement. This stream of Social Security payments has an expected present value.

Friedman advocated that each Social Security recipient, or future recipient, receive a bond equal to the current expected value of the benefit stream they have been promised under current law. The bond would be due at age 65 for future recipients and due today for current recipients.

Peak Obamacare? We’re There

ObamacareWeb_200The Obama administration has released a report estimating that enrollment in Obamacare will reach only 9.4 million to 11.4 million at the end of 2016. Back in 2010, when the Affordable Care Act was passed, the Congressional Budget Office estimated that exchange coverage would reach 21 million next year (Table 4).

Why the come down? Obamacare has a miserable take-up rate: Few who do not get significant subsidies sign up. Even worse, many of those who sign up at open enrollment cannot afford the premiums and drop out. Indeed, 15 percent of Obamacare beneficiaries who signed in 2015’s open season (which ended in February) were gone by the end of June. (The New York Times has just published interviews with some struggling to pay their premiums and maintain coverage.)

One year ago, I coined the term “Peak Obamacare” to describe this phenomenon. Although the administration’s cheerleaders have celebrated very high Obamacare enrollment during open season, the administration has finally decided to accept reality: We are on the verge of Peak Obamacare.

Vindication for Obamacare’s critics? Well, not yet, I am afraid. The failure of the exchanges does not necessarily create enough pressure to repeal and replace the healthcare “law”. Obamacare exchange beneficiaries are not a politically powerful constituency. They currently amount to only about ten million people, scattered around the country; and given their age and household incomes I would bet they do not have a high propensity to vote.

Also, much of the criticism against Obamacare was that it would crush employer-based benefits. That 2010 CBO analysis figured a small reduction of three million covered by employer-based plans in 2016, versus a future without Obamacare. However, it looks like employer-based coverage is holding up much better than most had anticipated.

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For the pivotal alternative to Obamacare, please see the Independent Institute’s book, A Better Choice: Healthcare Solutions for America, by John C. Goodman.


Data Show Deflation Except in Health Care (Again)

I admit this is getting a little repetitive, but it is not my fault the Bureau of Labor Statistics releases the Consumer Price Index one day after the Producer Price Index. The CPI confirms (once again) the price behavior indicated by yesterday’s PPI.

While consumer prices were down 0.2 percent, month on month, and flat year on year, medical prices increased 0.2 percent and 2.5 percent (Table I). However, prescription drugs experienced quite moderate price increases last month. This means that while prices of medical goods and services overall increased, month on month, there was no sticker shock versus the CPI. Unfortunately, yesterday’s PPI suggests that price increases are flowing through the system again, and we can expect to see a pick-up in health prices versus overall inflation, in future CPIs.

20151015 CPI

Data Show Deflation Except in Health Care

September’s Producer Price Index declined 0.5 percent, month on month, and dropped 1.1 percent, year on year. A mild deflation appears to be taking hold in the general economy. However, it is not so in health care. Of the 14 sub-indices for health-related goods and services, only five declined month on month. Only three declined year on year (see Table I).

Outside health care, producer prices for both final and intermediate demand goods have declined precipitously since September 2014. This makes the increases in producer prices of health-related goods especially disturbing. Pharmaceutical preparations increased in price by 8.9 percent year on year, versus a 5.1 percent decline in prices of final demand goods. That is, using final demand goods as a baseline, prices for pharmaceutical preparations increased 14 percent! Price increases for other health-related goods have not been so dramatic.

Producer prices for health services are broadly moving in line with prices for other services. As I noted last month, what is interesting is the difference in the rate of inflation for hospital inpatient versus outpatient services. Outpatient prices are declining, while inpatient prices are rising, resulting in a gap.

I’d like to believe the outpatient prices are under pressure from ambulatory clinics. As for inpatient prices – well, this data gibes well with the Quarterly Services Survey, which showed an increase in hospital profits.

20151014 PPI

STD Dating Sites: Helpful or Harmful?, one of the world’s largest online dating websites, launched on April 21, 1995. At the time, only 14 percent of U.S. adults used the internet. Dating someone you met online was far from common.

Fast forward twenty years later and the world has certainly changed, the dating scene included. About 60 percent of people think that online dating is a good way to meet people. One-in-five adults ages 25-34 have used online dating, though it’s gained popularity among older singles as well.

Chances are you’ve heard of the largest dating sites. Sites like, eHarmony, Zoosk, and okcupid all advertise on daytime and evening television. But the internet has opened up a world where people with all kinds of preferences can find love and companionship online. ChristianMingle provides a platform for Christians. Jewish? Check out JDate. For those with a penchant for pot, 420Singles could help you find the Cheech to your Chong. Look like you should be ringing bells in Notre Dame? Ugly Schmucks might just be for you! Want a partner who loves horses as much as you do? Saddle up and head over to Equestrian Singles. Gluten free? Yes, there is actually a dating site for that. Gluten Free Singles may help you find the man or woman of your dreams.

Debate: Hillary Clinton’s Judgment, as Secretary of State

Gaddafi_230The most outrageous statement on foreign policy in the Democratic debate was that Hillary Clinton defended the overthrow of Libyan Muammar Gaddafi by saying that it involved no U.S. ground troops and led to the first democratic election ever in Libya.

She forgot to mention that because of a vacuum of leadership after the dictator was toppled, the country is now experiencing chaos, tribal civil war, and the creation of terrorist enclaves and bases. Not only that, fighters and weapons from Gaddafi’s sizable storehouses are flowing into neighboring countries, destabilizing them too.

Although it is true that Republicans focusing on the Benghazi incident is political and nonsensical, the real issue is Hillary Clinton’s judgment, as Secretary of State, in pushing for such a disastrous military intervention in Libya in the first place. It seems analogous to George W. Bush’s equally catastrophic invasion of Iraq. Oops, Hillary supported that fiasco too!

Actuary Hands Gift to Pension Reformers

10752656_MThe actuarial firm Cheiron recently projected the future yearly pension costs for San Jose’s police and firefighter pension plan. Cheiron wrote:

In the worst scenarios, the City’s aggregate contribution rate can exceed 110 percent of payroll. In the best scenarios, the City’s Tier 1 rate can drop to 0 percent, leaving a relatively small Tier 2 rate for the City. The volatility of the asset allocation combined with the asset leverage ratio results in a very wide range of results. For the fiscal year ending 2021 (based on the 2019 valuation), the range from the 5th to 95th percentile for City’s aggregate contribution rate is from 2.5 percent of pay to 96.9 percent of pay. The Board may want to assess whether such a wide range of projected contribution rates that could develop over a relatively short period is affordable.

To put this in plain English, the city’s hand-picked actuary has no idea how much the city’s future pension costs will be: anywhere from 0 percent of payroll per year to 110 percent of payroll per year. At least San Jose got this colorful picture for its money.

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Smith on Jones

ShippingOne defining characteristic of early economists was their antipathy toward protectionism, because they realized that high tariffs and import restrictions harm a nation’s citizens by eliminating mutual benefits that voluntary exchange would have created. Adam Smith, history’s most famous economist, was among their number. However, there was the one case of protectionism he endorsed, a misrepresentation of which is still reflected in U.S. policy.

Smith’s “exception” involved England’s 1660 navigation law. All shipping between British ports was restricted to British-built and -owned ships, and at least three-quarters of the crew had to be British. While England’s mercantilist burdens stoked America’s revolution, the U.S. Congress’s inaugural session enacted similar restrictions on coastal shipping, later codified by the Jones Act of 1920, which still governs maritime commerce in U.S. waters.

In Wealth of Nations, Adam Smith argued that “The defense of Great Britain depends very much upon the number of its sailors and shipping.” Consequently, “The act of navigation, therefore, very properly endeavors to give the sailors and shipping of Great Britain the monopoly of the trade of their own country.” Smith saw that it would restrict trade and destroy wealth, but “As of much more importance than opulence, the act of navigation is, perhaps, the wisest of all the commercial regulations of England.”