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I swear it isn’t “pick on Ezra Klein day” here at Modeled Behavior, but he has been covering fairly thoroughly the proposal in the Senate (?), signed by every GOP member, for a balanced budget amendment to the Constitution. Unfortunately, it is not just a balanced budget amendment — and end in and of itself, and one that I would consider if done properly — but an amendment to a) limit Federal spending to 18% of GDP and b) make raising future revenue extremely difficult.
I think “stupid” is the wrong word. “Dangerous” is more like it. And maybe “radical.” This isn’t just a Balanced Budget Amendment. It also includes a provision saying that tax increases would require a two-thirds majority in both houses of Congress — so, it includes a provision making it harder to balance the budget — and another saying that total spending couldn’t exceed 18 percent of GDP. No allowances are made for recessions, though allowances are made for wars. Not a single year of the Bush administration would qualify as constitutional under this amendment. Nor would a single year of the Reagan administration. The Clinton administration would’ve had exactly two years in which it wasn’t in violation.
I agree with most of what Ezra (and Bruce Bartlett) say about the proposal. I’m not a fan of large government, but I’m also not a fan of creating problems. This proposal seems to be all about creating problems under the auspice of “starve the beast”. Or rather, creating a big enough problem, and engineering your preferred solution from the front end, which is cuts (ostensibly to Medicare and discretionary spending). This is a poor way to govern, whether you like or dislike the welfare/warfare state.
However! Ezra has a follow-up post in which he ties California, taxation in the south, and the likely effects of the GOP’s amendment together, noting that by blocking the ability to directly raise revenue, the government would be forced into regulatory and budgetary tricks to fund itself. Tricks that would likely be more inefficient and economically damaging than simple direct taxation itself.
It’s fairly obvious why rules making it hard to pass new taxes would lead to more regressive taxation: If passing taxes is extremely difficult, then passing taxes plus overcoming the opposition of powerful interests becomes almost impossible. And so you focus on passing taxes that don’t arouse powerful interests. In practice, that means passing more regressive taxes, as the poor have less political power than the rich. It’s an amplified version of the reason it’s easier to cut spending on programs that benefit the poor, like Medicaid, than on programs that benefit the rich, like Social Security — which is, incidentally, exactly what Republicans appear to be proposing in their 2012 budget.
All of which is to say, the Republican Balanced Budget Amendment, which requires a two-thirds majority in both houses of Congress to raise taxes, would probably lead to much more regressive taxation. Our budget process would look like California’s and our tax code would look like the South’s. That’s winning the future!
Here is Ezra’s graph of the composition of revenue generation in four regions:
Low and behold, taxes in the south are much closer to my own vision for taxation! No, the taxes are not exactly the same, but I would welcome a shift toward consupmtion taxes and away from (capital/labor) income taxation. You can design a VAT or carbon tax to be as progressive as you would like. I also prefer a tax on the value of land, and not on the “improved value” of building (which, along with eliminating land use regulations would incentivize dense construction). The final piece of the puzzle is a progressive payroll tax. I think you could copy this model on both the state and Federal levels. It is almost the exact opposite of the “Northeastern” model of high income and property taxation. I think it’s a better model.
If we shifted our taxation toward consumption it would, in fact, be wining the future.
EK:You’ve also criticized the Federal Reserve for not doing more. What would you like to see them doing?
CR:I’m teaching a course this semester on macro policy from the Depression to today. One thing I had the class read was Ben Bernanke’s 2002 paper on self-induced paralysis in Japan and all the things they should’ve been doing. My reaction to it was, ‘I wish Ben would read this again.’ It was a shame to do a round of quantitative easing and put a number on it. Why not just do it until it helped the economy? That’s how you get the real expectations effect. So I would’ve made the quantitative easing bigger. If you look at the Fed futures market, people are expecting them to raise interest rates sooner than I think the Fed is likely to raise them. So I think something is going wrong with their communications policy. They could say we’re not going to raise the rate until X date. Those would be two concrete things that wouldn’t be difficult for them to do. More radically, they could go to a price-level target, which would allow inflation to be higher than the target for a few years in order to compensate for the past few years, when it’s been lower than the target.
All kidding aside, this is policy advice gold. I can broadly agree with all that Romer is saying in the whole thing. I’m not gung-ho about using fiscal policy and expecting it to “work” in the sense that it raises NGDP to a level which is consistent with returning to trend quickly (especially with a conservative central bank), however I don’t see anything wrong with smoothing the edges of recession by helping people through the tough time using fiscal policy (mostly simple transfers), and of course reducing employment during a recession. As prescribed here (not by Mark Thoma, but by a paper circulated by John Boehner), is asinine.
P.S. I think that the level of suffering an economy would have to deal with as the result of sharp deficit reduction is directly related to the willingness of a central bank to accommodate the policy.
Ezra Klein pinch hits for the med skeptics
File this one under "health care doesn’t work nearly as well as we’d like to believe." A group of researchers followed almost 15,000 initially healthy Canadians for more than 10 years to see whether universal access to health care meant that the rich and the poor were equally likely to stay healthy. The answer? Not even close.
. . .
The problem, the researchers say, is that the medical system just isn’t that good at keeping people from dying. "Health care services use by itself had little explanatory effect on the income-mortality association (4.3 percent) and no explanatory effect on the education-mortality association," they conclude.
Ezra seemed to backtrack a little in a later post but I can see he really wants to come over to the skeptical side. Don’t let Tim Carney’s abrasiveness scare you away. The skeptics really are a nice, internally consistent bunch.
I, for example, have never paid a dime of my own money for my own health insurance. I have always chosen the lowest quality health plan when rolled into my employment package and no health plan when not.
Really quickly I’d also just like to plant another seed. There are clear cases when medical care saves people’s lives. However, if access to more medical services isn’t associated with a longer life, then we have to take seriously the proposition that medical care is also causing a significant number of deaths. I’ll get into the life expectancy of Christian Scientists in another post.
All that having been said, what I really wanted to talk about the possibility of education improving health outcomes.
Ezra goes on
Rather, the best way to make people healthier would be to get health-care costs under control so there’s more money in the budget for things like early-childhood education and efforts to strip lead out of walls, both of which seem to have very large impacts on health even though we don’t think of them as health-care expenditures.
Arnold Kling cosigns on the general concept education for health
My guess is that if you want to improve health outcomes in the United States, ignore health insurance and focus on literacy. Even if it has nothing to do with whether or not they can follow a doctor’s written instructions, my guess is that better literacy has a positive impact on health outcomes.
I am skeptical about a fundamental link here. I suspect we have two things going on.
First, education confers status and status is related to health outcomes. For example Oscar winners live longer than those simply nominated. How this link occurs is not totally clear. It seems that the hormones associated with stress and disappointment – cortisol for example – reduce long run health. However, this may not be the mechanism. No one really knows at this point.
Second, for a long list of reasons there is correlation between education and physical attractiveness. Physical attractiveness is by evolutionary design a proxy for health. Which to say, healthier folks are more likely to become well educated.
This makes me doubt that power of health improvements from increasing education.
In general it is just damn hard to improve health outcomes. Our bodies are the product of about 4 billion years of evolution. Just making sense of how they work is hard enough. Making them work better is a herculean task.