Rubio, Cruz, and Lee are wrong to oppose the House reconciliation bill

After months of internal debate, the House passed a budget-reconciliation bill last Friday taking aim at Obamacare, but it is far from assured that the bill, or even an amended version of it, will ever emerge from the Senate.

Budget-reconciliation bills are powerful legislative vehicles because they cannot be filibustered in the Senate (it takes 60 votes to invoke cloture and close off debate on most bills). That means, in theory at least, that the Republican majority in the Senate should be able to pass a reconciliation bill and send it to the president for signature or veto without needing any Democratic support.

Successful passage of the House reconciliation bill, or something similar to it, might not be possible in the Senate, though, because, while there are 54 Republicans in the upper chamber, three of them — Senators Ted Cruz, Marco Rubio, and Mike Lee — already have announced that they oppose the House bill. The three dissenters argue that it does not go far enough toward repealing all of Obamacare’s provisions. Their position matches that of Heritage Action, which opposed passage of the bill in the House.

Other Republican senators might also oppose the House bill because, in addition to repealing some Obamacare provisions, it eliminates federal funding of Planned Parenthood for one year (Senators Susan Collins and Mark Kirk voted against defunding Planned Parenthood in September). If Cruz, Rubio, and Lee all vote no on reconciliation, the remaining 51 Republicans will have to vote yes to get the bill passed (unless there is a defection from the Democrats, which is unlikely).

The House-passed bill is flawed, but it is motivated by a tactical approach to Obamacare that makes sense in the current political environment. The same cannot be said for the preferred course of the three senators who have already announced their opposition to the House bill. They believe that Republicans in Congress should vote on a reconciliation bill that fully repeals Obamacare (or something that comes very close to full repeal), or they should do nothing. Their plan would lead either to a legislative and political dead end or, worse, a minor political fiasco.

The House-passed bill targets for repeal Obamacare’s individual and employer mandates, as well as other Obamacare elements: the medical-device tax, the 40 percent excise tax on “high-cost” employer-sponsored insurance (the so-called Cadillac tax), the open-ended $10 billion fund for “public health” efforts, and a provision allowing automatic enrollment of workers in job-based coverage. It’s not hard to see the strategy here. Republican leaders put together a bill targeting for repeal some of the law’s least popular, and therefore most vulnerable, provisions. Attacking the individual mandate is also a direct assault on the core of Obamacare; without it, many of the law’s other provisions become unstable and thus also vulnerable to repeal and replacement. The House bill sets up a fight over Obamacare in a way that is highly favorable to Republicans.

But the bill is not perfect. House leaders made a big mistake by including in it a proposal to repeal the Cadillac tax. The tax is poorly designed and was sold on false premises by the administration. But its effect is similar to what might come from an idea many Republicans have long favored: an upper limit on the tax preference for employer-paid insurance premiums. Today, employers can pay premiums on behalf of workers without limit. This has encouraged overly expansive insurance, at the expense of taxable cash compensation. Placing an upper limit on tax-preferred employer premiums would inject much-needed cost discipline into employer plans. An upper limit is an important feature of several replacement plans sponsored by Republicans — including plans introduced in Congress by Representative Tom Price and by Senators Burr and Hatch, and Representative Upton, and by Jeb Bush in the presidential campaign. It does not make sense for the GOP to target the Cadillac tax for repeal when the party will probably try to impose a cap on tax-preferred employer premiums in its replacement plan. It would be far better to take this issue on when the time is right to more comprehensively repeal and replace Obamacare.

Senators Cruz, Rubio, and Lee have a different complaint. They say the GOP has promised full repeal of Obamacare and is now delivering repeal of just a few provisions. This will supposedly outrage the base, because they will see it as the first step toward backing away from the goal of full repeal. The three senators also argue that Republicans in Congress could honor their repeal commitment by using reconciliation to pass a full-repeal bill, or something close to it, and send it to the president for a veto. That would supposedly set up the debate over the law in a way that is favorable to the GOP in the 2016 election.

There are some major flaws in this line of reasoning.

For starters, the GOP’s official position on Obamacare is “repeal and replace,” not “repeal.” Obamacare is unpopular because of its many flaws, but most Americans were not thrilled with the pre-Obamacare status quo, either. It is not possible now, and never will be possible in the future, to actually repeal Obamacare without replacing it at the same time. If Congress sent a full repeal to the president without attaching to it a sensible replacement plan, Obamacare’s defenders would easily attack the bill as a GOP effort to send everyone back to the old, flawed system that allowed discrimination against the sick. When push comes to shove, even the most conservative Republicans in Congress will not want to vote for repeal of Obamacare without putting in place a better approach to making insurance more secure and affordable.

Cruz, Rubio, and Lee would probably respond to this argument by noting that Republican House and Senate members have already voted several times for legislation that would repeal Obamacare without replacing it with something else. So what’s the problem with doing it once more?

First, it is one thing to vote, as an expression of general political sentiment, on a bill that everyone involved understands is going nowhere. It is another thing altogether to pass legislation that will make it to the president and become law if approved. The scrutiny will be higher, and the president’s ability to frame the argument also will be much enhanced because of press attention. In that context, a vote to repeal Obamacare while offering nothing by way of an alternative is going to be viewed by much of the electorate as an evasion of political responsibility. It will not play well.

But even if it were a good idea to send a repeal-only bill to the president, it is not possible, for practical and political reasons, to do so through the budget-reconciliation process without also including a replacement plan.

Full repeal could take one of two forms. The easiest route would be a one-sentence bill that simply repeals the entirety of Obamacare. Everything would get wiped away in one, all-inclusive repeal sentence. Even though much of Obamacare has budgetary effects, and thus could rightfully be targeted in a reconciliation measure, there are a lot of non-budgetary regulations in the law, too. For instance, there is the requirement that private insurance plans cover dependents up to age 26. Senate rules limit what can be included in a reconciliation bill to provisions that are primarily budgetary in nature; it is highly unlikely that a one-sentence bill repealing all of Obamacare would be seen as meeting that requirement. An attempt to bring it up is therefore likely to fail.

The other option for advancing full repeal in reconciliation is to write a longer repeal proposal with a large number of individual repeal provisions. Theoretically, lawmakers could write a bill that has a repeal provision for every section of Obamacare. Alternatively, a bill could target individual titles or subtitles. Either way, these more narrowly focused repeal provisions would probably be deemed appropriate for reconciliation because they would more precisely target the spending provisions of Obamacare.

The problem with this approach, however, is that it would leave Republicans in a vulnerable position politically. Republicans would be supporting repeal provisions that target Obamacare’s Medicaid expansion, expanded drug coverage for seniors under Medicare, and premium and cost-sharing subsidies in the exchanges for low-income families. Each of the provisions to target spending could themselves be targeted for removal from the reconciliation bill by Senate Democrats during floor debate.

Senate Republicans should stand firm in such a debate and oppose all this spending, especially if they also offer a credible alternative approach. But in a debate on a reconciliation bill that is all repeal and no replace, it would be impossible to hold the caucus together against a determined Democratic assault. The many Republican senators from states that have expanded Medicaid (Iowa, Indiana, Illinois, Ohio, and Pennsylvania, to name a few) would be in a very difficult position. In all likelihood, a Democratic amendment to save the Medicaid expansion would pass in the Senate, with a number of Republicans providing the margin of victory. That would be a political disaster. The same could also be true for some of the other major spending provisions in the law.

The more sensible tactical plan is the one the House settled on. Their intention was to pass something that put Obamacare’s advocates on the defensive. The bill they passed could be improved in the Senate by dropping the proposal to repeal the Cadillac tax and putting in its place other repeal provisions, such as terminating the $10 billion Center for Medicare and Medicaid Innovation or ending the restrictions on health savings accounts. This kind of repeal bill would have little chance of becoming law, but it would make it clear that the president and his supporters are so determined to protect what they passed in 2010 that they will defend even the parts of Obamacare that garner near-unanimous opposition among voters.

Republicans would be in a far better position today if they had agreed among themselves on a credible Obamacare-replacement plan. If they had done that, they could have advanced a very substantial repeal-and-replacement bill this year using the reconciliation process. That would certainly have put the Obama administration in a defensive posture, too. But it has been clear for years now that the GOP is not going to rally around a consensus replacement plan without strong presidential leadership. So the next best approach is the one the House set in motion. Instead of opposing it, Senate Republicans should improve it and pass it.

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Debate Debrief: Third GOP debate tackles economics

In the third installment of AEI’s Debate Debrief, AEI scholars offer their thoughts on last night’s GOP debate in Boulder, Colorado.

Robert Doar:
When it came to talking about what [the candidates] were going to do about these problems, too often the answer was only about cutting taxes. Yes, they mentioned “too many government regulations,” but the portfolio of ideas for getting our economy moving again should be broader than that and more specific. Maybe more policy depth and details is too much to ask for in a debate with 10 candidates…But as the campaign unfolds and real voters in real primary states begin to pay attention, the candidate who offers the most plausible and creative proposals for getting our economy going again is going to be one who has the best chance of beating Hillary Clinton.

Karlyn Bowman:
Many of the GOP candidates had good moments in tonight’s debate. I didn’t see a clear winner, though Cruz, Christie, and Rubio might have helped themselves…Jeb sounded solid and substantive, but he isn’t charismatic in these debates. His reserve might be attractive in other settings, but it makes him fade into the background with candidates with stronger personalities.

Aparna Mathur:
Personal tax reform is critical for revenue generation and redistribution. While raising taxes at the top is not the simple solution to increasing revenues that we expect it to be, we can adopt better policies to directly help people at the bottom. Marco Rubio mentioned his plan to expand the child tax credit, but I would also like to see some discussion of ways to provide paid family leave particularly for low income families and ways of expanding the EITC which would also help improve labor force participation.

Andrew Biggs:
On Social Security, the candidates waged a war between morality and math. Gov. Mike Huckabee argued that the government has a moral obligation to pay every penny of benefits it has promised, while Sen. Ted Cruz and Gov. Chris Christie pointed out that, mathematically, Social Security doesn’t have the money to do so. A real solution to the Social Security problem demands both morality and math: protecting Americans who need it most, but promote financial independence so future retirees won’t depend so heavily on a government that fails to keep its promises.

For the full Debate Debrief, click here.

To arrange an interview with an AEI scholar on last night’s debate, please contact AEI Media Services at mediaservices@aei.org or 202.862.5829.

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The 40th anniversary of Gerald Ford disciplining a profligate New York

We have seen the bankruptcy of the City of Detroit and now the insolvency of Puerto Rico. But municipal debt crises are hardly new. Consider the historic New York City financial crisis and what we may learn from it.

Library of Congress

Forty years ago today, the media, politicians, intellectuals and bankers of New York City were in despair. It looked like their city government, which was dead broke, wasn’t going to get the bailout from the taxpayers of the rest of the country that New York so fervently wished. President Gerald Ford correctly was not going, in then-Treasury Secretary William Simon’s words, to “tolerate the foisting of New York’s debt on the rest of the nation”-debt created by many years of running constant deficits, irresponsible financing, and cooking the books. The President’s rational position evoked this famous headline in the New York Daily News of October 30, 1975:

“FORD TO CITY: DROP DEAD”

At that point, New York City had not been able to borrow in its own name in the municipal debt market since March. A Municipal Assistance Corporation (“MAC”) had been set up, but its bonds in turn became dubious. So shouldn’t New York City get a federal bailout?

Many prominent New Yorkers thought of course it should. Their rhetoric pursuing other people’s money reached the hysterical. Financier Felix Rohatyn, who had come up with the MAC borrowing structure earlier in the year, but was now out of non-bailout ideas, said a New York City default would be an “inexcusable tragedy” and evidence of “the failure of capitalism.” An odd description for the failure of municipal politics. New York Governor Carey predicted without a bailout there would be riots and announced, “Federal funds or federal troops!” Diplomat George Ball thought a default would be “a victory for world communism.” David Rockefeller, chief executive of the Chase Manhattan Bank, whose bank just happened to hold very large amounts of New York City debt, “rushed about,” according to Simon, “frantically warning financial leaders all over the world that the entire international financial system would disintegrate if New York defaulted.” New York bankers testified to the Senate Banking Committee that lending to the city was a profit opportunity for the U.S. Treasury. One senator calmly asked, “Then why aren’t you making the loans?”

New York City did default. It did not pay as promised on $1.6 billion of its debt ($7 billion in 2015 dollars). This was called a “moratorium,” but by any other name it was a huge default. Capitalism did not fail. No federal troops arrived. Communism did not get a victory. The world financial system did not collapse.

The default was actually part of a deal worked out among the White House, the Treasury Department, and New York State and City officials, “under steady White House pressures,” as then-New York Senator James Buckley wrote. New York State enacted special legislation declaring the “moratorium.” President Ford agreed to lending federal funds to the New York City government, but only when the financial help was tied to correction of the problems, creation of strict financial controls, honest accounting, and working out a path back to municipal solvency. The controls included takeover of the financial management of the city by the Emergency Financial Control Board which New York State had established, which had veto power over the city’s budget and could issue orders to city officials.

With this deal in hand, in December Congress passed and the President signed legislation authorizing the Treasury to make short-term loans to meet seasonal cash needs of up to $2.3 billion ($10 billion in 2015 dollars) a year until 1978. The revenues of New York City and New York State were pledged for repayment. In Simon’s summation, “In return for the loan, the city and state were required to make decisions of a type they had heretofore refused to make.” That’s what happens to you when you run out of money and the music stops. Intensely needed reforms of the city’s spending and financial controls actually did follow.

Writing in 1977, by then former-Senator Buckley concluded, “In my judgment, the people of the City of New York owe Gerald Ford a great debt of gratitude. By maintaining a hard line, he kept the pressure on the city and state that assured the adoption of measures that I believe will place the city back on its feet.” As they did. “Gerald Ford had done New Yorkers a substantial favor.”

That, not the notorious Daily News headline, is the real lesson and what should be remembered.

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Alternative approaches to defense strategy and force structure

In a testimony today at 9:30am before the Senate Armed Services Committee, Codirector of the Marilyn Ware Center for Security Studies Thomas Donnelly will discuss what the Department of Defense must do in order to reassert American leadership and strengthen the US military. His four recommendations are as follows:

1. Adopt a “three-theater” force construct:  To remain a global power, the United States must preserve a favorable balance of power in Europe, the Middle East, and East Asia.
2. Increase military capacity: The reductions in the size of the US military of the past three decades have been the most pressing problem of national defense…Despite advances in technology that have improved the precision and tactical effectiveness of weaponry and combat units, numbers still matter in war.
3. Introduce new capabilities urgently: The failure to modernize across the force since the 1980s now leaves America’s armed forces without the kind of great technological advantages that allowed it to “shock and awe” its enemies and conduct decisive operations with very few casualties…In sum, near-term modernization and innovation must take precedence over longer-term transformation
4.  Increase and sustain defense budgets: A “two-target” investment strategy is required: First, return military budgets to the level set by former Defense Secretary Robert Gates in his original 2012 budget.  Second, defense budgets should gradually be built to an affordable floor of 4 percent of gross domestic product that would sustain the kind of military America needs.

Read the full testimony: Alternative Approaches to Defense Strategy and Force Structure.

To request an interview with Thomas Donnelly, or another AEI expert, please contact AEI Media Services at mediaservices@aei.org or 202.862.5829.

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Iran’s strategy to “entangle” Russia

This blog series analyzes the most important Iran news events of the past week and provides an outlook of the regime’s strategic calculus.

The recent Russian and Iranian escalation in Syria took many observers by surprise. Their coordinated campaign supporting President Bashar al Assad could represent a fundamental shift in Middle East geopolitics, or simply their exploitation of a tactical opportunity.

As dramatic as the Russian intervention on behalf of Iran’s closest ally is, it must be viewed in the context of a potentially larger shift in Tehran’s strategy towards Moscow.

As we have discussed previously, the Iranian-Russian alignment in Syria is not a seamless convergence of goals, yet Iranian officials have taken pains to portray themselves as equal and willing partners. Iran’s Parliament Speaker Ali Larijani emphasized that Russia had “consulted” with Iran prior to beginning air strikes, later praising Moscow’s “realistic vision” on Syria. On October 27, following repeated indications Iran was willing to intensify its military contribution, the Islamic Revolutionary Guard Corps announced an increase in the number of Iranian advisers deployed to Syria. Tehran will hope that Iranian trained ground forces—in combination with Russian air power—will be able to reverse recent opposition gains.

Russia’s President Vladimir Putin (R) shakes hands with Iran’s parliament speaker Ali Larijani as they meet after a session of the Valdai International Discussion Club in Sochi, Russia, October 22, 2015. REUTERS/Alexander Zemlianichenko.

The rise in Iran-Russia defense cooperation goes beyond operations in Syria, however. Iran’s Artesh Navy Commander Rear Admiral Habibollah Sayyari’s July announcement of a draft of the long delayed Caspian Sea Treaty, along with an Iranian naval flotilla visit to Astrakhan, Russia on October 21, are part of a longer and broader trajectory of increasing defense ties. (Astrakhan is the headquarters for Russia’s Caspian Flotilla, which fired cruise missiles into Syria on October 7.)

This coordination extends to domestic security issues, too. The Deputy Commander of the Tehran Law Enforcement Forces (a public security force sanctioned by the United States for human rights abuses during the regime’s June 2009 crackdown on protesters) visited Moscow this summer, and several defense and security deals have been concluded in recent months. In August, two Russia companies signed a MOU to establish a satellite observation system for Iran, and Russian firms are interested in importing Iranian drone technology (technology reportedly in use against opposition forces in Syria).

Beyond defense relations, the past decade of sanctions have many in Tehran looking to avoid the recurrence of economic isolation should the nuclear deal collapse. Iran’s Foreign Minister Mohammad Javad Zarif argues strong economic linkages with Iran’s neighbors can prevent the re-emergence of a cohesive international coalition capable of isolating Iran’s economy from the global marketplace. Zarif clearly articulated this position in a speech on October 20:

If we want to ensure that no country is able to strike our country with sanctions again, we must…bring about conditions of such a type that the world economy is so entangled with our economy that other countries do not have the power to sanction us.

“Entangling” the economy of Russia, given Russia’s military influence and role as a member of the P5, is a key element of Iran’s post-deal economic strategy. (It will be interesting to see who else Iran intends to entangle. Germany? China? Japan?)

Iran has announced plans for Russian companies to construct two nuclear power reactors along its southern coast, and Rouhani’s administration continues to push for increasing bilateral trade. This summer, Iran’s sanctioned shipping company, IRISL, launched a direct shipping line connecting Iranian and Russian ports in the Caspian Sea, and Iran’s Chamber of Commerce announced an agreement to begin direct flights between Mazandaran, Iran and Astrakhan. During Russian Energy Minister Alexander Novak’s recent trip to Iran, the Iranians pulled out all the stops in an effort to ensnare Russian capital. Iran reportedly pitched 121 projects to the Russian delegation, culminating in: $35 to $40 billion in long-term investment contracts, plans to establish an “Iran-Russia Cooperative Bank”, and Iranian membership in the Russian-founded Eurasian Development Bank. Iran’s Deputy Petroleum Minister Amir Hossein Zamaninia explained, “Russians know how to do business in Iran, and we hope the visit will bear positive results.”

Iran is also bringing Russia intimately into the implementation of the JCPOA. On October 20, Atomic Energy Organization of Iran Head Ali Akbar Salehi confirmed Iran will sell its stockpile of enriched uranium to Russia, and receive natural uranium in return. Russia is also expected to participate in providing nuclear fuel for existing reactors, and Salehi previously commented on plans for Russian cooperation to improve Iran’s existing centrifuge designs.

The United States should be working to prevent a new Moscow-Tehran axis from frustrating execution of the nuclear deal, or further challenging Western and allied interests in the Middle East. Washington should be smart about what is likely to be a fraught alliance though. Russian and Iranian mutual distrust runs deep, and their strategic goals do not mesh much beyond pushing American influence from the region.

This is a partnership of unequals, and Vladimir Putin is no fool. Ayatollah Khamenei should be asking who will end up entangling whom.

J. Matthew McInnis is a resident fellow at the American Enterprise Institute. Tara Beeny is a research assistant at the American Enterprise Institute. This report was produced in cooperation with the Iran Team of the Critical Threats Project. It analyzes the most important Iran news events of the past week and provides an outlook of the regime’s strategic calculus.

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GIS UPDATE: Barfield releases first working paper on digital trade

Digital technologies are rapidly changing the world economy. The central task of US policy makers must be to identify and overcome obstacles to advancement in cyber space to empower citizens and promote human flourishing. Today the Global Internet Strategy project is releasing its first working paper by AEI scholar Claude Barfield on the necessary considerations and steps that America must take to solidify their position as leaders in digital trade and technology. To read a full copy of his working paper, “When Trade and Tech Collide,” click here.

Former consultant for the Office of the US Trade Representative Claude Barfield explains:

• The President needs to take a firm stand against those in the EU who support the “right to be forgotten” which directly flouts principles of free trade in data. US TTIP negotiators need make sure it is known that any such forced delisting of information will not be tolerated.
• Requiring local data storage is detrimental to digital trade and improving data flow. Congress needs to take quick steps to reverse these restrictions.
• Encryption debates on the Hill need to involve stakeholders from private companies. The government needs to work closely with industry leaders to develop encryption strategies that balance privacy and national security.
• The President must make emphatically clear that any attempt at the destruction of private or public data by any foreign or domestic entity will be met with retaliation.
• The US needs to move beyond “business as usual” policies with regards to China’s flagrant misuse of cyber strategy. It should make clear that it will retaliate if China is to use its new security laws as a pretext to undercut US trade positions or to undermine US interests in anyway.

To arrange an interview with AEI scholars, please contact AEI Media Services at mediaservices@aei.org or 202.862.5829.

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Tough search for causes of falling NAEP scores

On Wednesday, the 2015 NAEP test scores, often known as the Nation’s Report Card, revealed national declines for the first time since the tests began in 1990.

Math scores dropped in 4^th and 8^th grades; reading scores dropped for eighth grade students, but were flat for fourth graders.  While there were a few bright spots in the district and state specific results, there were many more dark ones.  The declines are also evident across race groups, which takes away one previous source of comfort for analysts, including myself. Don’t let anyone sugarcoat it: whether these scores are a blip, a plateau or a decline, they are real cause for concern.

Unfortunately, there is no clear cause of the national declines, but most experts want to find causes in national education policies. Expect a flurry of claims that these results finally show the folly of standards based accountability, so either No Child Left Behind or the Common Core. However, such claims are no more justified than Arne Duncan’s use of prior NAEP gains to show those policies’ virtue. Most of the misuse of NAEP evidence is simply confirmation bias.

The real folly is to draw a straight line between these results and any single education policy.

In fact, policy governing public schools may not be the culprit at all. If it were, then we would not expect to see similar declines in NAEP scores in private schools.  The NAEP data release does not present separate scores for private schools, but it does have estimates for all schools (public and private together) and for public schools. The estimated decreases were larger for the combined public and private schools than for all public schools on 8^th grade math and 4^th and 8^th grade reading.

Even though these estimates can’t yet be tested for significance, they suggest that the declines in private schools’ scores were at least consistent with, if not larger than, the declines in public schools’ scores. This makes it very difficult to attribute the NAEP declines to public policy in general, much less to specific policies.

“Wait and see” is the last piece of advice we want to hear when confronted with troubling news like this NAEP release. However, until the dust settles and careful analyses can provide plausible reasons for these declines, patience is the most prudent and productive course.

 

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Minimum wage hikes and reductions in ‘non-wage job attributes’

I posted yesterday on CD about how minimum wage laws force employers to discriminate against unskilled workers in favor of skilled workers, which is a way for employers to reduce the amount of costly on-the-job training provided to workers with no skills. But without a job that will now be filled by a more skilled worker following a minimum wage hike to $15 an hour, for example, unskilled workers are unable to acquire valuable on-the-job training while unemployed. Therefore, minimum wage = minimum on-the-job training  = maximum misery for unskilled workers.

But Don Boudreaux points out on Cafe Hayek that on-the-job training is just one of many different “margins” on which employers can adjust following an increase in the minimum wage. Here’s a list of some of the “non-wage job attributes” that employers offer and which can be adjusted (reduced) when the minimum wage rises:

– the extent and strictness of work demands

– flexibility in scheduling [including the number of hours worked]

– kindness and amiability in the workplace

– consideration and respect in the workplace

– upward mobility

– health insurance

– on-the-job training

– lockers for workers

– food for workers

– transportation (or transportation allowances) for workers

– the quality of air conditioning and lighting

– the number, quality, and cleanliness of restrooms for use by workers

– workplace comfort

– workplace safety

I would add:

– employee discounts on merchandise

– free or reduced cost uniforms

– company-sponsored holiday parties, picnics, and outings to sporting events

In other words, the quality of the workplace can easily be reduced by employers following an increase in the minimum wage in the same way that the quality of rental housing declines significantly as a result of rent control laws. Let me adjust my formula from yesterday’s post as follows with a fourth term:

Total Compensation for an Unskilled Worker = 1) Money wages + 2) Fringe benefits + 3) On-the-job training provided by the employer + 4) Other Non-wage job attributes.

Bottom Line: It’s a matter of simple economics and “minimum wage math” that when the money wages for unskilled workers is artificially increased by government fiat, many employers will have no other choice, if they want to remain profitable and stay in business, but to reduce: a) fringe benefits, b) on-the-job training and c) other non-wage job attributes. In that case, empirical studies that claim to find no negative employment effects following minimum wage hikes are probably not capturing the many other, and more difficult-to-measure, negative effects experienced by unskilled and low-skilled workers from artificially high monetary wages.

That is, to the extent that minimum wage increases are completely offset by employers naturally reducing the non-wage attributes offered to their employees to remain profitable, even unskilled workers who remain employed will not necessarily be better off from a minimum wage hike. Their total compensation could stay the same, or maybe even be reduced if the reductions in non-wage attributes more than offset the artificial increase in monetary wages. In the same way that a tenant who is able to find a rent-controlled apartment in Manhattan will pay a below-market rent, but will also have to live in a necessarily reduced-quality housing unit, the unskilled worker who manages to keep or find a job following an above-market minimum wage hike will likely work in a reduced-quality work environment with significantly reduced non-wage attributes.

(I’m fairly certain that politicians and minimum wage proponents almost never consider these real-world complexities and economic realities when advocating for a $10.10 or $15 an hour minimum wage law. They only look at some of the obvious, immediate, and visible benefits of a wage dictated by government fiat, while ignoring the many, less obvious, less visible, unseen, delayed and secondary costs of such legislation.)

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More substandard medicines drive faster resistance

Poorly manufactured medicines kill indiscriminately. For infectious diseases like malaria and HIV, shoddy medicines also accelerate drug resistance. With few new drugs under development, recent progress against these major killers in the poorest countries is precarious.

Bad drugs have become a big problem for one major infectious disease in particular: tuberculosis. And this may explain why, according to new data from the World Health Organization, global TB cases are increasing and claimed 1.5 million lives last year— more than any other infectious disease.

Clinical lead Doctor Al Story points to an x-ray showing a pair of lungs infected with TB (tuberculosis) during an interview with Reuters in London January 27, 2014. REUTERS/Luke MacGregor.

Meanwhile, multidrug-resistant TB cases may be near a million  worldwide. Resistant TB is deadly and costs significantly more to treat. Treatment takes two years and the side effects are severe.

The rise in drug resistance is a complicated issue. One key driver is poor adherence to treatment and improper use of medicines. Patients with TB are typically put on a cocktail of drugs for six months, and completing this regimen is often a challenge. In some countries, most notably India, TB drugs are readily available through private providers, where they’re over-prescribed and improperly used.

Medicines that have too little of the active ingredient or are poorly formulated can also create resistance. My research team published a peer-reviewed analysis of over 700 TB drug samples report three years ago[1], which found high levels of substandard TB drugs across 17 emerging markets. Roughly one in ten TB pills sampled failed basic quality tests, with the majority being badly made but not fake. Across African countries, one in six pills failed quality tests.

We recently updated that analysis, with a further 350 samples finding similar results, which will be published soon.

If we’re going to win the global fight against TB, we need better oversight of TB medicine manufacturing and information on failing companies so physicians and patients can boycott certain manufacturers.

Not long ago a patient with an extremely difficult to treat airborne form of resistant TB was detained in the United States after traveling through more than a dozen countries. Unless we are prepared for this scenario to become increasingly common, we had better have better quality control over treatments for the disease—the costs of inaction are unaffordable.

 

Dr. Roger Bate is a visiting scholar at the American Enterprise Institute and author of Phake: The Deadly World of Falsified and Substandard Medicines.

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Work and family: The keys to reducing poverty

 

Chairman Price, Ranking Member Van Hollen, and other distinguished members of the committee, thank you for the opportunity to testify today on how to best help Americans living in poverty.

In my 18 years of experience in New York City and New York State administering many of our nation’s major safety net programs, I found that the best strategies for fighting poverty and increasing opportunity focus on the importance of work and family. In New York, we were most successful at fighting poverty when we maintained the proper balance of strong work requirements and government assistance that supported – but did not replace – work. We also were unafraid to talk honestly about both the consequences of raising children in single-parent households and the responsibilities for parents, including fathers, which come with raising a child.

My testimony today will be about how focusing on work and family can help poor Americans and reduce poverty, and on what Congress can do to improve our nation’s safety net programs to help more vulnerable Americans move up.

I will lead with my summation:

I. New statistics reveal that poverty rates remain elevated compared to the past 20 years.

II. These disappointing poverty numbers have been partially caused by a decline in work.

III. Another reason low-income families are struggling is the breakdown of the two-parent family.

IV. Improvements to some of our most vital safety net programs could help address these issues:

a. Supplemental Nutritional Assistance Program

b.Temporary Assistance for Needy Families

c. Child Support Enforcement

d. Supplemental Security Income

e. Earned Income Tax Credit

V. Conclusion

 

 

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                 I. Low-Income Americans are struggling to earn success and move up.

The Census Bureau report on poverty released last month was extremely disappointing for all who care about the well-being of low-income Americans. The economic recovery began back in 2009, yet this report showed that 46.7 million Americans still lived in poverty in 2014. The official poverty rate, now 14.8 percent, remains two full percentage points above what it was in 2007 and three and a half percentage points above rates seen in 2000. If the poverty rate in 2014 had been the same as in 2000, nearly 11 million fewer Americans would have been in poverty. Moreover, the poverty rate for black Americans is 26.2 percent – 3.7 percentage points higher than in 2000.[1]

The combination of the passage of the Personal Responsibility and Work Opportunity Reconciliation Act, or welfare reform, in 1996, the expansion of the earned income tax credit, and a strong economy led to dramatic reductions in poverty in the 1990s. Unfortunately, as Figure 1 shows, we have lost those gains. As I’ll argue in Section II, this unfortunate and disappointing reversal is, in part, the result of our safety net programs not encouraging work strongly enough.

Figure 1

While the recent trend shown in Figure 1 is disappointing, and suggests that the federal government’s approach in fighting poverty has become less effective since the late 1990s, I cannot say that our antipoverty programs do not do some good. More accurate measures of poverty that take into account all that government does to help poor Americans, such as the Supplemental Measure produced by scholars at Columbia University or the consumption poverty rate produced by Bruce Meyer and James Sullivan, indicate that government programs substantially improve material well-being, especially for those who work.[2] In 2013, the poverty rate for female-headed families with children would have been 47.6 percent if based on earned income alone, but by adding in government benefits, their poverty rate fell to 29.2 percent.[3]

While we should celebrate this material impact, Americans want a safety net that does more than just make poverty less painful. We want to help people move up and no longer have to depend on government assistance to provide for their families. We aspire for low-income Americans to be able to earn their success and experience upward mobility. In these areas, our antipoverty programs’ performance is not good enough. The official poverty measure in Figure 1, by leaving out much of what government does to help the poor, focuses on what low-income Americans are able to earn for themselves. By this measure, we have lost substantial ground compared to the recent past, and progress over the last few years has been minimal.

Data on upward mobility are also discouraging. All Americans should be disappointed that equal opportunity is not a reality. As documented by a Pew Charitable Trusts study in Figure 2, the children of poor kids are disproportionately likely to get stuck at the bottom of the income ladder. Children from middle quintile families wind up in the bottom quintile as adults 14 percent of the time, while kids from bottom quintile families remain stuck in at the bottom of the income distribution 43 percent of the time.[4] And a recent study from Raj Chetty found that someone born in 1971 in the bottom fifth of the income distribution had only an 8.4 percent chance of reaching the top quintile.[5]

Figure 2

The fact that poor Americans are struggling to such a great extent to support themselves with earnings and that we have yet to achieve our ideal of equal opportunity for all compels us to find ways to do better.

¹ Carmen DeNavas-Walt and Bernadette D. Proctor, “Income and Poverty in the United States: 2014,” US Census Bureau (September 2015), http://ift.tt/1JbUrl0. (Tables 3 & B-1).

² Christopher Wimer, Liana Fox, Irv Garfinkel, Neeraj Kaushal, Jane Waldfogel, “Trends in Poverty with an Anchored Supplemental Poverty Measure,” Columbia Population Research Center (2013), http://ift.tt/1gZTIbz; Bruce Meyer and James Sullivan, “The Material Well-Being of the Poor and the Middle Class Since 1980,” AEI Working Paper #2011-04 (2011), http://ift.tt/1KAXPGP.

³Thomas Gabe, “Welfare, Work, and Poverty Status of Female-Headed Families with Children: 1987-2013,” Congressional Research Service (2014), http://ift.tt/1MjpVux. (Table C-11).

[4]Pew Charitable Trusts, “Pursuing the American Dream: Economic Mobility Across Generations,” (2012), http://ift.tt/1WkW9YM. (Figure 3).

[5] Raj Chetty, Nathaniel Hendren, Patrick Kline, Emmanuel Saez, and Nicholas Turner, “Is the United States Still a Land of Opportunity? Recent Trends in Intergenerational Mobility,” National Bureau of Economic Research Working Paper (2014), http://ift.tt/1cv9k9u.

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