Volume 18, Issue 8: February 23, 2016
- Lessons from Flints Water Crisis
- Free College and a Better Alternative
- The Wealth Gap of Nations
- Congresss Spending Problem
- Scott Sumners Ask Me Anything on Reddit
- New Blog Posts
- Selected News Alerts
1) Lessons from Flints Water Crisis
Flint, Michigan, was bound to suffer some kind of disaster. The beleaguered city had fallen on hard times and cut back on infrastructure upkeep. City officials hoped that switching its water source from the Detroit system to the Flint River would save $5 million. Water managers, however, failed to treat the rivers notoriously corrosive water, which would have cost only $100. Thats a proximate cause of Flints tap-water fiasco. But driving the citys cutbacks was another man-made error, according to Independent Institute Senior Fellow Lawrence J. McQuillan.
Costly retirement benefits have squeezed spending on other services, resulting in penny-pinching on water, McQuillan writes. How costly? Pension and retiree health benefits constitute one-third of the citys general fund expenditures. Flint promised workers more benefits than it could afford after the recession took its toll on tax revenues, but its problems are far from over. It will cost an estimated $60 million or more to replace its lead-lined pipes.
Beyond botched financial decisions and incompetence, Flint also teaches a lesson in liability, McQuillan writes. The sovereign-immunity shield makes it nearly impossible to sue successfully any government water official or water agency for wrong doing. In contrast, a privatized water system would be held accountable and financially responsible. About 73 million Americans rely on private water utilities, McQuillan adds. And all are more satisfied with their water service right now than Flint residents.
Lessons from Flints Water TragedyAnd a Better Way Forward, by Lawrence J. McQuillan (Inside Sources, 2/16/16)
Aquanomics: Water Markets and the Environment, edited by B. Delworth Gardner and Randy T Simmons
California Dreaming: Lessons on How to Resolve Americas Public Pension Crisis, by Lawrence J. McQuillan
2) Free College and a Better Alternative
Should America provide tuition-free college to every high-school grad? President Obama and Sen. Bernie Sanders are campaigning for it, but whether this would be a good investment for the nation is an entirely different matter. One reason to raise doubts, according to Independent Institute Research Fellow Vicki E. Alger, is that while high-school graduation rates may be at all-time highs, many grads are woefully unprepared for the rigors of higher education.
Citing the National Assessment of Educational Progressthe nations report cardAlger writes, just one-quarter of students score proficient or better in math and only slightly more than one-third (36 percent) are proficient in reading. The promise of a free college education would only push those academic deficiencies into the nations colleges, particularly community colleges, where, Alger writes, barely one in five students earns a degree in five years.
Rather than offering free college (a misnomer, because taxpayers would get stuck with a larger tab), Alger advocates an alternative that would better align the incentives of students, taxpayers, and schools: replacing all government student loans with performance grants (and only for needy students). If the recipient doesnt perform well academically, the grant would convert to a loan. With this reform, she writes, schools, two- and four-year alike, would have to compete for students and their associated grant funding, which would exert powerful pressure on schools to control costs, keep program quality high, and offer more generous institutional aidor risk losing students to other institutions.
We Cant Afford Free College, by Vicki E. Alger (Washington Examiner, 2/8/16)
Forthcoming book: Failure: The Federal Misedukation of Americas Children, by Vicki E. Alger
3) The Wealth Gap of Nations
Economic inequality has been a fashionable topic of late: bestselling book authors, presidential candidates, even scientific journals have been talking about it. Yet almost everything youve heard about it is wrong, according to Independent Institute Senior Fellow John C. Goodman. In a recent column at Forbes, Goodman exposes the most common major mistakes in empirical research about inequality in Americaand calls attention to a new study that helps set the record straight.
Too many inequality researchers compare apples to oranges instead of apples to apples, Goodman argues. In contrast, a new study by economists Alan J. Auberbach, Laurence J. Kotlikoff, and Darryl Koehler avoids that problem and identifies other pitfalls of most studies: They ignore the huge impact of age on ones economic resources. (This mistake could be corrected by making sure studies focus on wealth differences within the same age group.) Researchers tend to focus on peoples wealth at one point in time. (They would paint a clearer picture by looking at wealth over the course of an individuals lifetime.) They also make the mistake of using a measure of personal consumption that overlooks sources from transfer payments. (A more accurate estimate of consumption would factor in Social Security, Medicare, Medicaid, and other government benefits.)
Once such omissions are accounted for, according to Auberbach, Kotlikoff, and Koehler, economic inequality in America is much less than often claimed. For example, by adding transfer payments into the analysis, the wealth difference between the richest and poorest 20 percent of 70-year-olds drops from a ratio of 70 to 1, to 8.6 to 1. Thus, the American fiscal system is more progressive than its often made out to be. But this doesnt imply that wealth redistribution per se is beneficial overallfar from it. There is a price to be paid for this progressivity, Goodman writes. The more redistribution that takes place, the smaller the reward for working, saving, and investing, and the larger the rewards for not working, not saving, and not investing. That has to be bad for economic growth.
Almost Everything Youve Been Told About Inequality Is Wrong, by John C. Goodman (Forbes, 2/1/16)
Priceless: Curing the Healthcare Crisis, by John C. Goodman
A Better Choice: Healthcare Solutions for America, by John C. Goodman
4) Congresss Spending Problem
Last week we reported on President Obamas profligate spending and its implications for the American people: The budget to serfdom, by Barack Obama, we called it, because of its effect on increasing government dependency. This week we report on Congresss contribution to the nations fiscal woes.
In August the cumulative deficit through 2025 was estimated to be $7 trillion. In the six months since that assessment, however, that projection has grown to $8.5 trillion. In other words, this is the work of the 114th Congress, in which Republicans hold the majority in both chambers for the first time in the Obama presidency, writes Independent Institute Senior Fellow John R. Graham.
While that increase is mostly due to decreased revenues rather than increased spending, Congress nevertheless shares the blame for the nations debt overhang. Even if the president had signed a bill to kill Obamacare, this would not have come close to doing the necessary job, fiscally speaking. The Republican majority in Congress has shown it can cut taxes, Graham writes. Whether it can cut spending in line with its promises will have to wait until the next president takes office.
GOP Congress Budget Hits Reality Hard, by John R. Graham (Real Clear Policy, 2/4/16)
What will federal spending cost you? Find out at MyGovCost.org.
5) Scott Sumners Ask Me Anything on Reddit
Want to know more about the economy, monetary policy, the gold standard, or the Great Recession? Join Independent Institute Research Fellow Scott Sumner, author of The Midas Paradox: Financial Markets, Government Policy Shocks, and the Great Depression, at Reddit.com.
Sumners Ask Me Anything session will take place live on Tuesday, February 23, 1:00 p.m. Eastern Time.
If you cant make it, please check afterward to view the archived Q&A discussion.
6) New Blog Posts
From The Beacon:
The Hot-Air Barrier: A Major Reason for the Infeasibility of Representative Government
Robert Higgs (2/22/16)
Increasing Medicaid Dependency Does Not Reduce Uncompensated Care
John R. Graham (2/18/16)
Obamas Supreme Court Appointment
Randall Holcombe (2/17/16)
The Bern Unit
Abigail R. Hall Blanco (2/17/16)
CBOs Big Mistakes Highlight Need to Privatize Economic Data Series
Lawrence J. McQuillan (2/16/16)
From MyGovCost News & Blog:
Government Rail Switches Tracks on Taxpayers
K. Lloyd Billingsley (2/22/16)
Does Fannie Mae Need Another Bailout?
Craig Eyermann (2/22/16)
The Federal Governments PR Budget
Craig Eyermann (2/19/16)
K. Lloyd Billingsley (2/18/16)
Double Standards on Firing Government Bosses
K. Lloyd Billingsley (2/16/16)