(This is cross-posted from ProgressiveFix.com, the new online face of the Progressive Policy Institute, where I will be posting regularly.  Give 'em a look.)

To read the first part of this post, click here.

Defining the Center

Let’s examine Hacker and Pierson’s definition of “the center.” When they compare activists to independents, changes in the distance from independents may be due to growing extremism among activists. However, the distance may grow without activists changing their views at all if independents change their views. So saying Republican activists drifted further away from the center than Democratic activists may misstate what occurred; independents may simply have drifted toward Democratic activists over time without activists drifting anywhere. It’s also possible that Republican activists have grown more extreme, which has pushed independents closer to Democratic activists’ (unchanged) views.

Furthermore, secular changes in ideology over time can move people from the independent category into Democratic and Republican camps and vice versa, making it difficult to say whether the changes identified indicate that activists (or independents) are changing their views, or that it’s just flows into or out of the parties that is changing. If one of the parties looks more or less extreme, it could simply be that people who would have called themselves independent in the past are now identifying with one of the parties, making the leftover independents look somewhat more extreme in the opposite direction.

Rather than compare activists to independents, why not simply measure how far they are from the midpoint of the ideology scale? When one does so, one obtains the graph below.

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By this measure, which avoids all of the problems with using independents as a reference point, the change in extremism among Democratic activists looks exactly the same as the trend for Republican activists. Once again, Republican activists look more extreme in any year, and this time (not shown) this remains the case when one looks at the unsmoothed data points.

A Better Way to Measure Ideology

There is also a problem with Hacker and Pierson’s measure of ideology. If we want to know whether party activists have become ideologically more extreme over time, we should use as pure a measure of ideology as possible. The measure Hacker and Pierson use, however, conflates ideology with tolerance and empathy because it is based on questions asking how warm or cold one feels toward liberals and conservatives. It could be that Democratic activists are simply more tolerant of their opponents than Republican activists rather than being more centrist. One can feel warmly toward a group without identifying oneself with it.

A better measure of changing ideology among party activists would be to look directly at changes in self-identified ideology. The NES asks respondents to place themselves on a 7-point scale ranging from extremely liberal to extremely conservative. Here, then, is a final chart showing trends for activists in each party, with ideology measured as the distance of activists from “4” – the midpoint of the seven-point scale. The actual data points are connected and the smoothed trends are shown as black dashed lines. It should be noted that this chart is based on even smaller sample sizes than Hacker and Pierson’s, so I show the margin of error for the data points as dashed vertical lines. I also omit off-year elections to make the chart less noisy.

Picture
This chart confirms that Republican activists more often than not have been more extreme than Democratic activists, though the two groups were statistically tied in 1972, 1976, 1992, and 2004. There is a clear trend toward greater extremism among Republican activists. Among Democratic activists, there was little consistency between 1972 and 1998, but they appear to have moved to the center in 2000 and 2002 before jumping up to the level of Republican extremism in 2004.

Finally, there is the claim by Hacker and Pierson that Democratic activists are more centrist than other Democrats. In my results, this was not true in 2004 whether one used the thermometer index or the self-identified seven-point ideology measure and was not true in 2002 unless one used the seven-point measure (which Hacker and Pierson did not). Regardless, none of the differences between the two groups – in my results or theirs – are statistically significant due to the small sample sizes.

In sum, Republican activists have generally been at least as extreme as Democratic activists and often more so, though not in 2004, which makes the Republican pattern seem less worrisome. Furthermore, while in 2002 it looked like Republican extremism had increased and Democrats had become more moderate, by 2004 Democrats had completely caught up to Republicans. Republican and Democratic activists were equally far from the center in 1972 and in 2004, so the shift was of the same magnitude for both. And there’s no reliable evidence that Democratic activists are more moderate than other Democrats.

The Bush administration and the Republican Congress may have used various tactics in order to pass an agenda that lacked strong support. But they were not “off center” if that phrase is taken to mean that their agenda was outside the bounds of what the public supported. Or more specifically, where Republicans succeeded, their agenda was not out of bounds. Hacker and Pierson downplayed the extent to which Republicans had to reach out to the center in what they did or did not favor. Education spending, for instance, increased more under Bush than under Clinton, in a nod to “compassionate conservatism.” Furthermore, where Republicans truly moved off center, they failed, as with Social Security privatization. And of course, 2006 and 2008 happened.

 
 
(This is cross-posted from ProgressiveFix.com, the new online face of the Progressive Policy Institute, where I will be posting regularly.  Give 'em a look.)

OK, to review the debate so far: I wrote a post suggesting progressives might want to think twice before jettisoning the filibuster. Ed thought twice and said, yup, still want to get rid of it.  Ezra did the same. I wrote another post saying, oh well whatever nevermind and tried to shift the subject to polarization being the real problem. I said I’d follow up about whether increasing polarization has been a one-sided affair. Crickets chirped. All hell broke loose on the health care reform front. And here we are.

So….one-sided polarization….Ever since Jacob Hacker and Paul Pierson’s Off Center, all good progressives know that the growing political polarization has been one-sided, with Republicans pulling public policy “off center” through various nefarious means. Right?

Well….yes and no. Hacker and Pierson argued that, as of 2005, Republican activists and legislators had grown more conservative, but Democratic activists and legislators had not grown more liberal (and had even moved to the right themselves in some regards). Along with this shift, Republicans had developed effective strategies to move public policy further rightward than the typical voter preferred.

Since the rightward shift of Republicans occurred during a period in which Hacker and Pierson showed the distribution of self-identified ideology had not changed, the implication was that the electorate was being deprived of the more progressive policies that it desired. But a closer look at their data and analyses shows that while the increase in polarization among legislators has occurred disproportionately among Republicans, the evidence hints that this is because it proceeded from a Nixon-era Democratic Congress that was well to the left of the electorate.

Rather than refuting the idea that policy reflects the preferences of voters in the middle (the “median voter theorem”), as Hacker and Pierson claimed, the evidence actually bolsters this view. Correcting their claims is important if progressives are to govern effectively. Republicans did not simply pull public policy to the right of where Americans preferred, and now that Democrats are back in control of Congress, progressives should not assume that the median voter is leftier than she really is.

Why Off Center Is Off

To argue their case, Hacker and Pierson turned to scores created by Keith Poole and Howard Rosenthal that put members of Congress past and present on a common scale measuring ideological position. Hacker and Pierson report that the polarization of Congress between the early 1970s and the early 2000s was almost entirely due to growing extremism among Republicans. Democratic legislators had not moved nearly as far from the center. Because of the increasing conservatism of Republicans, Congress was, in the early 2000s, far to the right of the median voter, who had not grown more conservative over time. But Hacker and Pierson’s account is flawed.

Consider the Senate.* Poole and Rosenthal’s scores, using every vote by every member of every Congress through the 108th Congress (which ran from 2003 to 2004), indicate that the “center” as of 2003-04 was typified by northeastern Republicans such as Lincoln Chafee, then-Independent Jim Jeffords, and William Cohen; Arlen Specter (now, of course, a Democrat); and by red-state Democrats such as Ben Nelson and John Breaux. In 1971-72, the median senator had a score of -0.056, equivalent to Ben Nelson’s score in 2003-04. By 2003-04, the median senator had a score of 0.061, equivalent to Arlen Specter in 2003-04.

This small change in the median of the Senate as a whole only hints at the fact that, as Hacker and Pierson claim, Republican senators did move farther ideologically than Democratic senators. The evidence that Hacker and Pierson presented describes how the median in one year compared with then-recent senators’ scores. In the early 1970s, according to Hacker and Pierson, the median Republican senator lay “significantly to the left of current GOP maverick John McCain of Arizona—around where conservative Democrat Zell Miller of Georgia stood” [where the references to McCain and Miller are to their 2003-04 scores, italics in the original]. The median Republican senator’s score then “doubled” by the early 2000s so that it sat “just shy of the ultraconservative position of Senator Rick Santorum.”

These descriptions do not quite reflect what the Poole-Rosenthal scores show. The median Republican senator’s score in 1971-72 was equidistant between McCain in 2003-04 and Miller in 2003-04, not closer to Miller, and it was just as close to McCain as the median Republican senator’s score in 2003-04 was to Santorum.

This claim also raises a technical issue. The Poole-Rosenthal scores are not ratio scales with a meaningful zero point. The distance between 0.2 and 0.4 is supposed to be the same as that between 1.2 and 1.4, but 1.2 is not “six times as conservative” as 0.2, because a score of 0 does not indicate the complete absence of conservatism. The zero point is completely arbitrary. The doubling from 0.2 to 0.4 would become an increase of just 50 percent if we added 0.2 to all of the scores (from 0.4 to 0.6). We cannot know whether Republican senators grew twice as conservative between the early 1970s and the early 2000s. Indeed, the phrase “twice as conservative” has no obvious meaning.

More to the point, Hacker and Pierson’s interpretation of these results is an even bigger problem. Rather than the Republican Party drifting ever rightward (the whole time increasingly “off center”), if the Democratic Party was “off center” in the early 1970s, then the movement among Republicans could be interpreted as a restoration of an equilibrium reflecting voter preferences. This is exactly what appears to have happened.

First of all, the medians for the 2003-04 Senate were 0.379 and -0.381 for Republicans and Democrats – essentially identical. That means that after this great rightward shift by Republicans, the parties were equally “extreme” by historical standards. Furthermore, the median Democratic senator in 1971-72 wasn’t much less extreme than the median senator from either party in 2003-04.

Second, at least in terms of self-identification, the ideological distribution of Americans was unchanged over this period, with roughly twice as many people calling themselves conservative as calling themselves liberal.**

Taking these facts together – a rightward shift by Republican legislators, an end state where Democrats and Republicans are equally “extreme”, and an ideological distribution among voters that was static over the period (and right-leaning) – the conclusion that best fits is that the Democratic Congress of 1971-72 was off center rather than the Republican Congress of 2003-04. The median Republican became more extreme over time, but that was because Congress became more representative of the electorate, not less. The story on the House side is much the same, except that the median Republican was a bit more “extreme” than the median Democrat by 2003-04 (although no more extreme than the median Democrat was in 1971-72).

Comparing the Activists

Hacker and Pierson also argue that Republican activists grew more extreme while Democratic activists became less so (becoming even less extreme than Democrats in general), but these claims are also problematic. Hacker and Pierson began by defining an activist as someone who self-identifies as a Democrat or a Republican and who participated in three out of five election-related activities asked about in the American National Election Studies. They measured ideology using a combination of two “thermometer” items – one of which asks respondents how warm or cold they feel toward liberals and one inquiring about conservatives. These scales range from 0 (cold) to 97 (hot). (The scale ends at 97 rather than 100 because in some years, the NES used codes 98 and 99 as missing value codes.) The liberal score is subtracted from 97 (so that high numbers then signify cold feelings) and then added to the conservative score. This number is divided by two, 0.5 is added to it, and the decimal is dropped. The resulting measure ranges from 0 (extremely warm toward liberals and extremely cold toward conservatives) to 97 (extremely cold toward liberals and extremely warm toward conservatives).

To determine how far activists drift from the center, they compared the activist scores on this index to the scores for independent voters. The distance from independents is expressed in percentage terms (e.g., 10 percent more conservative or liberal). Hacker and Pierson plotted the average distance from independents for Republican and Democratic activists and then “smoothed” the trends by imposing curves to describe them. The result is a graph that I replicated, more or less:
Picture
The graph shows that Republican activists were more extreme than Democratic activists to begin with, that they became more conservative over time, and that after becoming more liberal, Democratic activists tacked back toward the center. The first important thing to note about this graph is how much the nice, smooth lines depend on fitting the data points to a quadratic equation. The original data – without the smoothing – looks much messier:
Picture
The upward trend among Republican activists is still readily apparent, but the trend for Democratic activists no longer points toward moderation. The bouncing around is partly due to different turnout patterns in off-year elections, but also a result of statistical noise, as the sample sizes for each group are less than 70 – and as low as 18 – in each year. Furthermore, Republican and Democratic activists are statistically the same distance from the center for much of the period between 1968 and 1992. To illustrate further how deceptive the smoothed trend lines can be, look what happens to them when 2004 data – which was not available when Hacker and Pierson created the graph – is added:
Picture
The Republican line hardly changes, but now Democratic activists appear to grow steadily more liberal. It still appears as though Republican activists drifted from the center more than Democratic activists did, and Republican activists look more extreme in all years.

OK, take a breather. Tomorrow I’ll wrap up with some revealing evidence about how Hacker and Pierson’s definition of “the center” affects these analyses of political activists.

To read the second part of this post, click here.

                                                          ——————————————

* Following their recent book, Polarized America (McCarty, Poole, and Rosenthal, 2006), I use scores on Poole and Rosenthal’s first DW-NOMINATE dimension (for details, see  http://polarizedamerica.com/ and http://www.voteview.com). Hacker and Pierson report using “d nominate” scores, but these are only constructed through the 99th Congress, so I am inclined to believe that they too used the first DW-NOMINATE dimension scores.

** Hacker and Pierson (2004), page 38. Hacker and Pierson cite ANES data. According to Gallup data showing self-identified ideology, the breakdown among Americans as a whole in 2004 was roughly 20 percent liberal, 40 percent moderate, and 40 percent conservative (Wave 2 of the June Poll, Question D10). In 1972, it was 25 percent, 34 percent, and 37 percent (Poll 851, Question 14).
 
 
(This is cross-posted from ProgressiveFix.com, the new online face of the Progressive Policy Institute, where I will be posting regularly.  Give 'em a look.)

If you’ll forgive me for egregiously mixed metaphors, I want to draw attention to an implicit assumption among many health care reform advocates related to controlling healthcare spending: that if not for the politics involved, it would be fairly easy to rein in costs.

That’s because, the argument goes, there is easily identifiable inefficiency in the way we currently spend health care dollars. There are enormous regional disparities in, for instance, per capita Medicare spending. What is more, these differences are apparently unrelated to differences in the health of the underlying populations, and they don’t produce better outcomes. Rather, the differences reflect the ways that health care providers diagnose and treat patients in different parts of the country. So say the much-revered Dartmouth College health researchers, whose findings have been fairly uncritically embraced by many on the left.

Politics aside (the difficulty is that one person’s wasteful diagnostic test is another’s life-saving intervention), I always was suspicious of this argument. If there are excess profits to be made, then why is it that providers in only some parts of the country go after them or successfully extract them? Then a fascinating study came out that was mostly ignored but that should have raised questions about the Dartmouth research.

A potential problem with the Dartmouth research is that if there are unmeasured differences in health between patients who go to different providers, then the finding that greater spending is unrelated to outcomes could simply derive from people in worse health being very expensive to treat. The Dartmouth researchers use relatively crude measures to statistically control for these differences (because they are the only ones available).

MIT economist Joseph Doyle got around this problem by looking at patients who needed emergency care while they were visiting Florida. Because there is no reason to expect that unhealthy tourists are more likely to end up in higher-spending ERs, any differences in outcomes between those who went to high-spending hospitals and those who went to low-spending ones should reflect only the spending difference. Doyle found that higher spending did produce better outcomes.

Disparities in Data

Now MedPAC, the panel that monitors how Medicare reimburses providers and makes recommendations to Congress, has released a study that shows that disparities in Medicare spending are quite a bit smaller when other important factors — such as regional differences in wages and extra reimbursement related to medical education — are taken into account (hat tip to Mickey Kaus). If one looks only at per capita Medicare spending, high-spending areas of the country have costs that are 55 percent higher than low-spending areas of the country (I’m talking about the 90th and 10th percentiles, for those of you statistically inclined). After making MedPAC’s adjustments, however, that difference shrinks to 30 percent.

Thirty percent might still be considered a big number — in a perfect world adjusted spending shouldn’t differ at all — but other evidence in the MedPAC data gives reason to question the precision of any of these kinds of comparisons. I put the figures for all 404 geographic areas into a spreadsheet (which you can get from me if you’re interested — data wants to be free!) and looked at the top and bottom quarter of adjusted spending.

High-spending areas are dominated by the South, particularly the states stretching from Florida across to Texas and Oklahoma. They also include 15 of the 30 biggest metropolitan areas, including all of the biggest southern and midwestern metros, save Atlanta and Minneapolis, and none of the biggest northeastern or western metros, save Los Angeles, Las Vegas, Phoenix, Denver, and Pittsburgh.

On the other hand, low-spending areas are dominated by the West, particularly Alaska, Hawaii, Washington, Oregon, Idaho, and most of California (with the exception of Los Angeles and San Diego). Also overrepresented are small metropolitan areas in the upper Midwest and Dakotas, in New York, Maine, Virginia, and Georgia. None of the biggest ten metropolitan areas are represented in the bottom quarter, and only four of the biggest thirty are (San Francisco, Seattle, Portland, and Sacramento).

Compare these findings to those of the Dartmouth folks (Map 1). While many of the same conclusions show up in their map, there are some notable differences. Most importantly, California and the Boston-Washington corridor look like they spend a lot more in the Dartmouth map than they do in the MedPAC data (and the Mountain West states look like they spend a lot less).

Fixing Inefficiencies Not a Silver Bullet

If different sets of rankings differ as notably as these two do, then that says to me that there is a lot of noise in these rankings and that perfectly adjusted spending figures would potentially produce a distribution of areas that would look different from either set. In particular, I suspect that it would show that the vast majority of spending variation could be explained by factors that had nothing to do with inefficiencies.

The point is that even discounting the political difficulties of enacting policies that rely on comparative effectiveness research to weed out inefficiencies in healthcare spending, it’s not at all clear that regional variation in healthcare spending is proof that such inefficiencies exist. That’s not to say that there are no inefficiencies, but weeding them out won’t be as simple as making Florida providers act like Minnesota ones.

The views expressed in this piece do not necessarily reflect those of the Progressive Policy Institute.
 
 
(This is cross-posted from ProgressiveFix.com, the new online face of the Progressive Policy Institute, where I will be posting regularly.  Give 'em a look.)

I was going to title this post, “Ed Kilgore, You are Dead to Me,” but then again, I like Ed a lot, and he’s far more knowledgeable about politics than I am, and I don’t disagree with much of what he’s said about the filibuster.

Just as Ed isn’t “hell-bent on eliminating the filibuster,” neither would I shed many tears if it were to go away. I, too, object to how routine filibuster threats have become. That said, I do think that its elimination would have the potential to hurt progressive aims. Saying that the Senate “has a built-in red-state bias” makes the point — get rid of the filibuster and that bias means that red-state priorities are more likely to benefit from its elimination.

What I’d like to do here is start the first of a couple of posts on political polarization to defend my position that the filibuster wouldn’t be such a problem if we could make the Congress more representative of the nation. I think this point is actually implicit (almost explicit!) in commentary from Mark Schmitt and Ezra Klein that notes how the routinization of the filibuster is a recent phenomenon that owes its timing to the completion of what Bill Galston and Elaine Kamarck have called “The Great Sorting-Out.” Over the past 40 years, liberal Republicans and conservative Democrats have gone the way of the dodo bird, making the parties more polarized along ideological lines.

LBJ could count on Medicare passing in 1965 because the existence of liberal and moderate Republicans made the successful deployment of the filibuster unlikely. On the GOP side, conservatives would have had to court a sizeable number of right-leaning Democrats to make a filibuster threat credible. The difficulty of doing so (particularly with a southern Democrat as intimidating as LBJ applying countervailing pressure) gave Republican moderates little incentive to go along with such a threat. On the Democratic side, the opportunity for a single senator to engage in grandstanding or deal-making in exchange for his vote was limited by the same dynamics — the ability to get moderate GOP votes would have allowed the leadership to ignore such threats. Unless the issue was one as momentous and controversial as civil rights, southern Democrats and conservative Republicans would not collaborate across the aisle.

Fast-forward to 1994, when there were far fewer conservative Democrats and far fewer moderate Republicans. In such an environment, the filibuster became an obvious strategy — because it could work. The filibuster was not a problem until the completion of The Great Sorting-Out. (And yes, Republicans have deployed filibuster threats far more often than Democrats have, largely because the Democrats are more dependent on their moderates than the Republicans are on theirs — a point to which I’ll return in the next post.)

Now, Ed is right that the power that party primaries give the least-moderate voters is not solely to blame for this (though let’s not discount the likelihood that the primary reforms between 1968 and 1972 accelerated the ideological sorting between the parties). But a solution to political polarization need not address its causes.

The key questions, it seems to me, are (1) whether one thinks that the parties are ideologically representative of their supporters or members and (2) whether one thinks that that is true on both sides. Kicking (2) to my next post, I’ll just say that Morris Fiorina’s research definitively shows that the obvious political polarization among elites, political junkies, and elected officials is not reflected among Americans as a whole. The reason that we have more political polarization — even between presidential candidates — is because the candidates on offer have been chosen by less-moderate primary voters and activists. Because relatively moderate voters still have to choose between two options, the growing polarization of party activists and primary voters translates into growing polarization among elected officials — even as the electorate has remained relatively moderate.

Whether you think the electorate is, in its heart of hearts, moderate is irrelevant in some sense, but what is fairly clear is that at least by the measures available, it has not become more polarized. And to circle back to my original contention that progressives should think twice before wanting to throw out the filibuster, political polarization makes the filibuster more important as a check against small majorities. The less moderate the two caucuses are, the more unrepresentative of popular preferences will be the legislation that can pass with narrow margins.

The views expressed in this piece do not necessarily reflect those of the Progressive Policy Institute.
 
 
(This is cross-posted from ProgressiveFix.com, the new online face of the Progressive Policy Institute, where I will be posting regularly.  Give 'em a look.)

A CNN poll out this week must have been a disappointment to some progressives. According to the poll, a majority of the public – 56 percent – supports the use of the filibuster in the Senate, versus 39 percent who oppose it. I wouldn’t bet the farm that this majority would hold up against any number of equivalent questions worded differently, but the results should at least prompt us to stop and think about the growing end-the-filibuster strain on the left.

Ezra Klein and Matt Yglesias, among other progressives, have grown increasingly frustrated with the Senate as the imperative of winning 60 senators’ votes for a health care reform bill has driven the debate on the Hill this year. But hold up! Are progressives really willing to take their chances with a future GOP-controlled Senate empowered to pass whatever they have 51 votes for? With the Supreme Court nominees who could be seated (to say nothing of other judgeships)? With the restrictions on abortion and LGBQT rights? With welfare reforms?

These culture-war issues call to mind one of the benefits of the filibuster — it protects unpopular groups and rights from the tyranny of the majority. Indeed, as Klein and Yglesias have also argued, the Senate’s structure already gives outsized influence to small states with relatively conservative electorates. “Majority rule” isn’t quite as enlightened a principle when the majority is a majority of senators rather than a majority of the national electorate.

Of course, the filibuster also prevents the will of the majority of voters from being implemented in some instances. But there is something to be said for requiring that the most consequential policies have more support than a simple 50.1 percent majority. Large tax changes, changes to major programs, and the creation of new ones are often hard to undo. In some ways it makes sense to subject such legislation to a higher bar.

Klein has argued that the filibuster makes entitlement reform and governing itself practically impossible, but I think this is a misreading of the problem. The reason that prospects for major reforms are so dim is not that such reforms require 60 votes — it is that the Senate has become so polarized that there are too few swing votes available to get to 60.

One can imagine a Senate in which legislators could be arranged in a continuum from most liberal to most conservative such that there were as many moderates as liberals as conservatives. Or there might be a lot of moderates bunched up in the middle with few Senators at the extremes. In such a Senate, it would not be particularly difficult to get to 60 votes — there would often be compromises to be found to get over the bar.

However, the Senate that we have looks like this:
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Those are Poole-Rosenthal scores for the 110th Senate (the previous one), with liberals to the left and conservatives to the right. You probably can name most of those “centrist” dots that bridge the clumps to the left and right (from left to right, the six closest to the center are Ben Nelson, Olympia Snowe, Susan Collins, Arlen Specter, Gordon Smith, and Norm Coleman).

If the “Senate problem” is really about polarization, then the most obvious practical solution that presents itself is one that many progressives may not be too excited about – reform of primary elections so that senators are not chosen from the most ideological parts of their constituencies. But ironically, it’s possible that that would be the best way to achieve more progressive victories while at the same time avoiding tyrannical majorities.

The views expressed in this piece do not necessarily reflect those of the Progressive Policy Institute.*

*Note: The original version of this post omitted the disclaimer.
 
 
(This is cross-posted from ProgressiveFix.com, the new online face of the Progressive Policy Institute, where I will be posting regularly.  Give 'em a look.)

In my last post, I noted that progressives need to turn their attention toward the medium- and long-term fiscal crisis the country faces. How massive is the challenge we face? The following chart, from Keith Hennessey, an ex-Bush policy advisor, says it all:
Picture
Obviously the first thing to jump out is the escalating divergence between federal spending and revenues in the decades ahead. And the spending projection in the chart is from 2007, so it doesn’t include the stimulus or spending on the financial crisis (or the projected cost of health care reform). That’s scary enough. But the scariest part may not be evident at first glance.

The red line shows federal taxes as a percent of GDP going back to 1945 and projected outward to 2080 by Hennessey based on its historic growth. The yellow line shows federal spending as a percent of GDP. The chart makes clear that the level of federal taxation has actually varied little since World War II (which says nothing about how marginal tax rates faced by different groups have changed). You can see the last build-up of deficits that occurred from the 1970s through the mid-1990s. You can also see the build-up of the Bush years.

Historic Shortfalls The kind of budget shortfalls we are looking at in the future dwarfs anything we’ve ever seen. There are two ways to close the fiscal gap – cut spending or increase revenues. What Hennessey’s chart makes clear is that the level of taxation it would require to meet projected spending needs is far higher than anything the country has ever seen-slash-tolerated. Indeed, even closing half the gap through higher taxes would necessitate historically unprecedented taxation levels.

Progressives, in short, are going to be caught between a rock and a hard place: we will either have to find a way to convince the electorate to go along with massive tax hikes, with all of the electoral risk that entails, or we will have to come up with a plan to make equally massive cuts to entitlements that are likely to also be unpopular and that may do significant harm if not thought through carefully.

It’s true that the right will also be caught in this dilemma, but its situation is not quite as severe for two reasons. First, as the chart implies, their preferred path to fiscal sanity (spending cuts) starts off a much easier sell than tax hikes, given historical patterns. And second, the right has little programmatic interest in permanent spending hikes. The Reagan and Bush years showed that there is a constituency on the right for greater defense spending, but unless we really end up permanently at war with radical Islam, it can be expected that the Pentagon’s budget will rise and fall as global circumstances dictate. Progressive goals, on the other hand, such as greater federal education spending, expansion of child care assistance, more generous safety nets, and broader social insurance constitute costly and (ideally) permanent spending increases that will exacerbate the fiscal gap in the above chart.

The Upshot for Progressives What does this mean for the progressive agenda? First, it is vital that we prioritize our goals, a process that is going to require us to drop many of them, as difficult as that may be. Second, we need to come to terms with what “higher taxes” is going to mean in practice. U.S. taxation is actually as progressive as in Europe because we have taken so many families off of the income tax rolls. The added boost to raising taxes on “the rich” is much smaller than the revenue that could be raised by broadening the tax base so that we were not so reliant on upper-income families to pay for the benefits of government that everyone enjoys.

Third, we need to look for ways to achieve progressive aims that do not cost the federal government so much. That could include certain types of regulation, but it could also include a shift toward progressive cost-sharing in social insurance programs. Rather than trying to raise taxes to give people the benefits they say they want, we could move toward a paradigm where people gradually incur increasing costs of these benefits privately, forcing them to directly confront the trade-offs and efficiency concerns that social insurance tends to hide. Those with limited incomes could receive federal assistance but would still be incentivized to use benefits efficiently. (I will suggest what such programs might look like in future pieces here.)

Some progressives may object to the idea of progressive cost-sharing because it shifts costs and risk onto individuals. But they are going to incur the costs one way or another, whether through higher taxes or greater out-of-pocket spending. And given the impracticality of paying for future benefits solely out of taxes, risk is also likely to be privatized either way — whether by a thoughtful policy framework or through massive cuts in existing programs.

But let there be no doubt — the long-term prospects for significantly expanded progressive government are dim, and in fact, a retrenchment in coming decades is inevitable. President Clinton was wrong — the Era of Big Government is not over. But it will be soon. As progressives we must lead the process of winding it down in a responsible and fair way.
 
 
(This is cross-posted from ProgressiveFix.com, the new online face of the Progressive Policy Institute, where I will be posting regularly.  Give 'em a look.)

Regardless of whether health care reform is ultimately signed into law — and momentum makes it increasingly likely, if far from certain — the historic passage of the House bill constitutes a remarkable legislative accomplishment. More than that, however, the bill would give millions of Americans health security. Under the status quo, the Congressional Budget Office estimates that 19 percent of Americans will be uninsured in 2019. The House bill would reduce that figure to six percent (see Table 3). It’s an achievement progressives should cheer.

That said, I’ve heard and read a number of critiques of the House and Senate bills that give reason for concern as well. Tellingly, these critiques have almost all come from outside the progressive community. The intra-progressive health care reform debate — make that the absence of a debate — has revealed a depressing with-us-or-against-us mindset that we like to think is only a conservative malady. But if health care reform is enacted in the coming months, progressives will need to focus sincerely on a problem to which they have paid only lip service over the last few months, one that reform is sure to exacerbate: the perilous fiscal health of the federal government.

The Grim Deficit Outlook I know — it’s soooo 1995 to worry about such things. But we face a serious problem, and despite the promises of reform advocates, the legislation being considered is not going to make it less severe. CBO projects the 2009 deficit to be 11.2 percent of GDP, which will put the federal debt held by the public at 53.8 percent of GDP (see Tables 1-2 and 1-6). Not since 1945 has the deficit been this big (see Table 1.2). Not since 1955 has the federal debt been so large (see Table 7.1). And all that understates the magnitude of the problem. If you take into account the net liabilities incurred in the federal government’s takeover of Fannie Mae, Freddie Mac, GM, and Chrysler, and the bank assets purchased as part of TARP, things look far worse — we could potentially be understating deficits over the next 10 years by as much as 80 percent.

Assume for the moment that health care reform does not pass. Deficits actually won’t look quite so bad in two or three years, but they will increase steadily thereafter (see Figure 1-2). Under realistic assumptions, the national debt will continue growing as a share of GDP — to roughly 100 percent by 2022 (assuming no losses on those recently purchased financial assets). That is worth restating: our current path will cause the federal debt to be as large as the entire annual output of the U.S. economy within a dozen years (see Figure 1-3). That hasn’t happened since World War II (Table 7.1). And while the national debt was roughly cut in half over the dozen years following the war, after 2022 the national debt would increase at an accelerating rate.

Now the first person to say that health care reform is deficit reduction gets a smack to the head. Yes, the growth in deficits and the debt over the long run anticipated by these projections will be due to rising health costs (see Figure 4-1). And yes, in addition to expanding insurance coverage, cost control has been widely cited as an objective for health care reform. The problem is, the bills under consideration have ended up not taking cost control seriously.

And for good reason, since real cost control under the delivery and insurance systems favored by reform advocates would have proved either too expensive or too intrusive to pass. Alternative systems, such as those envisioned by Sen. Ron Wyden (D-OR), might have been able to control expenditures through progressive cost sharing. (Under Wyden’s proposal, individuals would be subsidized on a sliding scale for the purchase of insurance from among plans that compete on price, with incentives for them to choose more cost-efficient coverage.) But the supposed savings in the House and Senate bills are fictions that reform supporters have been complicit in spreading.

The Illusion of Cost Control Consider the House bill. The CBO has to take the provisions in the bill at face value, even if they are highly unlikely to ever be implemented. Revenue to pay for the $1.052 trillion dollar gross cost of the insurance expansions comes from a number of sources. Roughly $460 billion would come from raising taxes on those with an adjusted gross income of $500,000 (individual) or $1 million (joint). At least $240 billion would be raised from Medicare cuts to providers (perhaps closer to $300 billion), about $170 billion would come from penalties assessed on individuals and employers for not complying with mandates, and $170 billion would come from reducing payments to managed care plans under Medicare. These and other changes would reduce the deficit over 10 years by $109 billion and could reduce the deficit slightly over the following 10 years.

Now, here’s where advocates — columnists, bloggers, even think tank researchers and economists — have drifted imperceptibly from pontificating to shilling. Put aside the strong likelihood that the Medicare provider cuts are dialed way back (if they are not, the administration’s own Centers for Medicare and Medicaid Services predicts that many providers will stop accepting Medicare patients). Put aside the fact that the “doc fix” to reverse most of the provider cuts that were already legislated for coming years will add $210 billion over this same 10-year period when it is passed. The bill’s purported deficit reduction of $109 billion is about two percent of the accumulated deficits from 2010 to 2019 (see Table 1-2). In other words, the House bill would barely make a dent in future deficits under the rosiest of interpretations — and is actually likely to increase rather than decrease them taking into account the anticipated adjustments.

What about the Senate bill? Harry Reid’s mash-up awaits CBO’s final word, but the Baucus bill would cover fewer people and therefore be slightly cheaper than the House bill. The bill’s insurance provisions have a gross cost of $829 billion over 10 years, paid for by a tax on high-premium private health plans (about $200 billion), Medicare provider cuts (about $160 billion), and Medicare managed-care cuts (about $120 billion).

Here, it’s worth noting the sloppiness of some reform proponents’ arguments over the wisdom of pursuing such an ambitious program despite yawning deficits. In a recession, they have argued, we cannot worry about deficits — greater spending is just what is needed to stimulate the economy. With the return of growth, we will have little problem dealing with deficits later.

But the Baucus bill’s 10-year deficit reduction of $81 billion would be achieved by spending essentially nothing in the first four years (from 2010 to 2013). Needless to say, if we still need federal economic stimulus in 2013, we will have bigger problems than deficits.

The effect on deficits is basically neutral for the following six years (see Table 1). Nevertheless, CBO does estimate that the Baucus bill would continue to produce small savings in the second 10 years. Of course, if the Senate follows the path the House is taking, it will include a “doc fix” that will wipe out even these dubious savings.

Why Progressives Should Care About Costs Meanwhile, all of the magic bullets (the “game changers”) that progressives trumpeted, from the public option to comparative effectiveness research, to IT improvements, to a Medicare Commission that would propose cuts would produce negligible savings in the foreseeable future, according to CBO.

There were “strong” versions of several of these proposals that could have produced cost savings, but they proved too strong for legislators to risk their jobs for. What progressives will get out of health care reform instead is what most really wanted: near-universal coverage.

A worthy goal, no doubt. But if progressives fail to get serious about fiscal responsibility, the consequences — whether in the form of another financial crisis, slow or stalled economic growth, or political abandonment by the sons and daughters of the Perot voters — could undo much of the good that may yet come out of health care reform. Think it has been hard to pass reform? Try raising taxes dramatically to protect it down the road.
 
 
If there's one thing we know about the American economy, it's that inequality has sky-rocketed, right?  If there was ever any question, it appears to have been laid to rest by the widely-cited research of Thomas Piketty and Emmanuel Saez.  Piketty and Saez used IRS data to do what surveys cannot—measure the incomes of the richest of the rich.  Their finding that the share of income captured by the richest Americans has increased sharply since 1980 is cited all over the blogosphere (see, for instance, Paul Krugman's inaugural blog post) and throughout academia and the media.  The richest ten percent of taxpayers, for instance, received 33 percent of income in 1980 but 46 percent in 2007, and the share of the richest one percent grew from 8 to 18 percent.

But these figures exaggerate the rise in inequality.  How do I know?  Because Piketty and Saez, to their credit, have made their figures easily accessible for other researchers to examine, and several have used these figures to qualify the claims that Krugman and others make about rising inequality.  The problem is that these lines of inquiry have failed to be connected or put in the context of the latest inequality research.

Let's start by pointing out that the sharp apparent rise in income inequality that Piketty and Saez find is confined to households (tax returns, actually) in the top one-half of one percent.  The following chart, based on their spreadsheets, shows that the income share of the richest half-of-a-percent increased from 5.5 percent to 14.4 percent from 1980 to 2007.  In contrast, the income share of the second-richest half-of-a-percent increased only from 2.7 to 3.9 percent, and the income share of the next richest 4 percent increased from 13 percent to 15 percent.  The share of the next richest 5 percent was actually steady at 12 percent over the period.
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This fact deserves restating: even by the raw Piketty and Saez numbers, only the richest 5 percent of the richest ten percent of Americans saw disproportionately large income growth on a scale that is significant—folks who had the equivalent of $300,000 or more in today's dollars back in 1980 but who had over $600,000 in 2007.

Putting aside for another day the decline in inequality that occurred through the early 1970s, what is of interest here is the rise in inequality that accelerated after 1980.  The first thing to note about the post-1980 increase is the large jump from 1986 to 1988.  Piketty and Saez's IRS estimates are based on individual income tax returns, and they are therefore sensitive to tax law changes that affect what gets reported on these returns and when.  A long line of research notes that the Tax Reform Act of 1986, by lowering top marginal income tax rates below corporate tax rates caused a decline in income reported by "taxable corporations" (on corporate tax returns) and a corresponding rise in income reported by "Subchapter S" corporations (on individual income tax returns).  This represents pure and simple shifting of where large incomes are reported, from one type of tax form to another, but it shows up in the Piketty and Saez data as an increase in income concentration. 

This shift to S-Corporation income actually began in the early 1980s as a result of the Economic Recovery Tax Act of 1981, and it continued after 1988, a point made most cogently by Cato Institute senior fellow Alan Reynolds.  Reynolds, whose arguments on the nation's op-ed pages sometimes have the flavor of buckshot being fired out of a cannon, nonetheless has been unfairly dismissed by the left in his critique of inequality research.  In the following chart, I use Piketty and Saez's figures to illustrate a point Reynolds makes: that growth in the share of income reported by top filers has disproportionately consisted of growth in S-Corporation income (see the "entrepreneurial income" trend).
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Entrepreneurial income includes not only S-Corporation income but income from sole proprietorships and partnerships, however S-Corporation and partnership income were a negligible share of top incomes prior to 1982.  In order to obtain a consistent trend in inequality, these two sources of income (which shifted from being reported on corporate tax returns to individual income tax returns over time) must be removed after 1981.  I do so below using other spreadsheets from Saez.

The tax changes in the 1980s and 1990s probably had other important effects on how taxpayers reported income—and when.  Lowered income tax rates make it more likely that the very rich will take their compensation as taxable income rather than nontaxable fringe benefits and that they will take "nonqualified" stock options (reported on individual income tax returns) rather than incentive stock options (reported as capital gains and not included in the above figures).

It is unclear how much changing tax rates distort the trends shown in the figures above.  Several adjustments seem defensible.  Most importantly, the 1986 to 1988 increase likely represents a shift in the trend line due to greater reporting of income on individual tax returns that has no basis in actual inequality trends.  The United Kingdom, for instance, showed no such break, even though inequality was steadily rising.  In that case the pre-1988 trend line should be shifted upward, which I do using the 1987 to 1988 change in the Census Bureau's Current Population Survey (CPS), as reported by Richard Burkhauser and his colleagues.  As I will show below, the Burkhauser estimates track the IRS estimates quite well.  The only other adjustment I make concerns the spikes in 1990 and 1992.  These spikes are responses to tax changes in 1986 (the end of the three-year vesting period for nonqualified stock options taken in 1987 occurred in 1990) and anticipated changes in 1993 (the Clinton tax increase, fear of which led to more income reported in 1992 ahead of the hike).  I adjust those points downward based on what happened in Canada over the period, using additional data from Saez's website.

Doing so largely erases a discrepancy between the figures based on IRS data and those based on the CPS.  Burkhauser and his colleagues, using the CPS and correcting for the censoring of high incomes that the Census Bureau implements out of concern for survey respondents' privacy, recently tried to replicate Piketty and Saez's results.  They were able to closely match the trends from 1967 to 2006 for the four percent of households just below the richest one percent.  The same was true for the next richest five percent of households.  Only among the richest one percent were they unable to produce the same trend as Piketty and Saez.

My adjusted estimates, however, match up fairly well with Burkhauser's figures:
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When these same adjustments are made to the trend for the income share of the top one-half of one percent, the increase from 1980 to 2007 is from 6.1 to 10.9 percent—a 4.8-point increase over 27 years rather than the 8.9-point increase in the unadjusted data.  Finally, note that the post-1994 trend closely follows the ups and downs of the stock market.  That implies that in 2008 the income share of the top half-of-a-percent likely fell along with the stock market to around 9 percent—just a three-point increase since 1980.

The figures presented thus far do not include realized capital gains, public cash and in-kind transfers, employee health and retirement benefits, employee contributions to retirement plans, or taxes.  The Congressional Budget Office has their own income-share estimates based on IRS data and other sources that include all of these items.  The figure below adds the CBO trend to the previous chart.
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The share of the top one percent rises 8.6 points, from 7.7 to 16.3 percent.  The trend line follows the others reasonably closely with several exceptions.  The spike in 1986 reflects investors taking capital gains ahead of the tax increase on gains that went into effect in 1987 (which also depresses the 1987 data point).  The other notable departure from the other trend lines is that the rise and fall of the top share with the stock market after 1994 is even more dramatic due to the inclusion of capital gains.  The S&P 500 stood at its 2002 level at the end of 2008, implying that in 2008 the top 1 percent received about 11 to 12 percent of income.  Thus, its share grew about 4 points over 28 years.

What about other estimates of inequality?  The CPS indicates that the Gini coefficient—a continuous measure that is higher when top shares of income are larger—for household income increased by about 16 percent from 1980 to 2008.  Is that increase big or small?  For context, it is about the same as the rise in median household income over the period (14 percent).

Another way to measure inequality is to look at the ratio of income at one point in the distribution to income at another point in the distribution.  For example, the 90/10 ratio compares the income of the household at the 90th percentile—the one with income larger than 90 percent of all households—to the income of the household at the 10th percentile.  This ratio increased from about 9 to about 11 from 1980 to 2008.  The 80/50 ratio rose from 1.8 to 2.0, while the 50/20 ratio was 2.4 in both years.  In other words, the increase in inequality was about the rich getting richer and not about the poor getting poorer.  Indeed, consistent with the income share results, it was about the very rich getting richer—the 95/50 ratio rose from 2.9 to 3.6, a much bigger increase than for the 80/50 ratio.  If it were possible to construct a 99.5/50 ratio, the point would likely be even clearer.

There is one more final piece of evidence that implies that even the apparent increases in the 80/50 and 90/10 ratios is illusory and that incomes became significantly concentrated among the richest of the rich.  The CPS trends in the Gini coefficient and in the various ratios assume that the purchasing power of households has increased at the same rate for rich, middle-income, and poor households.  That is, they assume that all households experience the same cost-of-living changes.  A recent study, by Christian Broda and John Romalis, however, casts doubt on the validity of this assumption. 

Broda and Romalis used a massive private database of purchases involving bar-coded products to construct separate cost-of-living indexes for the poor, the middle class, and the rich.  They then adjusted incomes for inflation for these groups using the distinct indexes, rather than assuming that inflation has grown equally across income groups.  The result?  The cost of living has grown less for the poor than for the rich, and when this difference is taken into account, the 90/10, 90/50, and 50/10 ratios appear not to have grown in recent years (see Table 14A of their paper).  The data used in this study only go back to 1996 and only cover bar-coded purchases, but the authors provide reasons to think that the patterns they find extend to earlier years and other goods and services.  If they are right, then it would reinforce the income-share results finding that the growth in inequality has been confined to the richest of the rich.

Discussion of income inequality trends generally proceeds as if some sizable fraction of the population were getting richer (the top 10 percent, or the top 1 percent) while everyone else is getting poorer.  In reality, the "poorest" 90 percent of the top 10 percent—and even the "poorest" half of the top 1 percent—have not seen outsized income gains over the past 30 years.  It is only the top one-half-of-one-percent that has received a rapidly increasing share of income.  Furthermore, the increase in concentration at the very top has been smaller than the most-cited figures have implied.  For example, using a comprehensive measure of income, the top one percent probably received about 8 percent of income in 1980 and about 12 percent in 2008. 

Nor have the poor fallen behind the typical household.  Indeed, they may not even have fallen behind the 90th percentile.  If this finding holds up, then it would seem that resentment toward the top one-half-of-one-percent should have grown equally among households with contemporary incomes as high as half a million dollars and households below the poverty line.  Put another way, if rising inequality is unfair, then it may be that it has been as unfair for the 90th or 95th percentile as it has for the 10th percentile.

It is not immediately clear what to think about income concentration being confined to the very top.  Would it be worse if income were becoming increasingly concentrated in the top half of the distribution at the expense of the bottom half or if it were becoming increasingly concentrated in Bill and Melinda Gates's household at the expense of everyone else?  Does the answer change depending on whether the "losers" are experiencing strong income growth or not?  On some level, as long as incomes are rising for everyone, it matters little how much more the Gates's income is rising.  They cannot price others out of markets for goods and services by themselves.  On the other hand, if the top fifth of the income distribution is pulling away from the bottom 80 percent, then the consequences for those falling behind could be profound.  The top fifth might be able to sort themselves into the best neighborhoods with the best schools, and they might bid up the cost of higher education to the point where the best schools become unaffordable to most families.

The evidence indicates that patterns of inequality more closely resemble the Gates scenario than the bifurcation scenario.  It is unlikely that the rise in inequality, then, has had much practical impact on the quality of life of middle-income or poor Americans.  The exception would be if rising inequality had spawned competitive spending patterns to maintain relative standing in such a way that families end up worse off as a consequence of trying to keep up with the Joneses.  For now, however, this possibility remains largely untested.

Finally, the magnitude of the increase in inequality and its nature might be of little practical importance even as the level of inequality has deleterious effects.  In other words, what may be relevant is that the top ten percent has received at least a third of all income in every year since 1980, not that it increased from a third to nearly half by 2007.  But if that were the case, it would have different implications for American society, politics, and economics than if growing inequality is a trend to be viewed with alarm.  Indeed, we would be in worse trouble if the levels of inequality prior to the run-up of recent decades were as consequential as the level we have today, for we are unlikely to ever see inequality levels so low in the foreseeable future.
 
 

In Washington this time of year, thoughts turn to getting the hell out of Dodge for climates not shaped by former swampland.  The coming weeks will be decisive for the fate of healthcare reform, as members of Congress go home to hear from constituents, interest groups dig in for the coming battle royale, and the press looks for something to cover other than kidnappings and hurricanes.  Healthcare reform is now as close to passing as it has ever been in modern America.  But I'm going out on a limb and predicting it will fall short again.

From the beginning, reformers have been most interested in expanding coverage to the uninsured and only secondarily interested in bending the cost curve.  But adding coverage costs lots of money.  Even absent coverage expansions, as current Office of Management and Budget director Peter Orszag made clear while director of the Congressional Budget Office, healthcare costs threaten to explode the federal budget.  Trying to expand coverage without addressing this explosion—indeed, making it much bigger—was never going to be an option politically.  (You think the Blue Dogs and Senate Finance Committee Republicans are dissatisfied now?)

The problem is that the evidence on how to reduce health spending either doesn't exist or involves policies such as greater cost-sharing that are unattractive to progressives.  Instead, reformers lashed themselves to evidence from Dartmouth researchers that much of what Americans spend on healthcare is wasteful.  From this conclusion, the solution that suggested itself to reformers was that to control costs, the delivery of care should be rationalized in some way that at the very least will require federal incentives.  And here the reformers pinned their hopes to a number of policies that came to be known as "game-changers": health IT and medical records, comparative effectiveness research, and a public plan with strong bargaining power against providers.

But they were unduly hopeful.  CBO crushed their strategy by declaring these first-wave game-changers not very game-changing at all.  This blow led to a scramble to find other game-changers.  Suddenly "IMAC"--an independent commission that would make decisions about Medicare reimbursement--and taxing overly generous health plans became the ideas for savings that would allow healthcare reform to succeed.  But then CBO last week poured cold water on IMAC, saying that it had a high probability of not saving much at all.  (At any rate, it was always unlikely that Congress was going to cede authority over Medicare spending policy.  Plus, all the factors that prevent Congress from cost-cutting in Medicare today would work toward pressuring them to overturn IMAC decisions, making cuts unlikely.  Plus the whole IMAC idea raises the threat among skeptical voters of rationing by a body that is relatively unaccountable to the public.)  

Progressive Democrats balked at taxing workers for generous health plans because many of those workers are union members.  This fall, look for John Kerry's proposal to tax insurance companies when they offer too-generous plans to get a boomlet of discussion—but then look for it to fail for the same reason that taxing workers failed.  The idea that insurers will absorb the cost of the tax rather than pass it on to workers is a fantasy, and unions will see this.

Ultimately, the reformers' game-changer strategy suffered from two additional problems.  First, the inefficiencies in American health care are not the driver of cost increases – they just make levels higher.  If we could somehow root out all inefficiency, that would be a one-time cost savings but would still leave the cost-curve unbent.

Second, insured Americans prefer maximal choice with inefficiency rather than ceding power to the federal government to limit their choices (even if the result is more efficiency).  To be sure, they don't like that anyone limits their choices, whether it's the government, their employer, or their insurance company.  When insurers tried to move toward more managed care in the 1990s, workers rebelled and insurers gave up.  As for employers, they knew better than to push their workers in this direction.  And despite the myth that employers have resorted to more and more cost-shifting to workers, what has actually happened is that employers pay as great a share of their employees' insurance as they did 20 years ago, but at the expense of wages and salaries (see page 8 of the linked chapter).

Reformers appealed to the insecurity of insured Americans that they might lose their coverage.  They also appealed to dissatisfaction with the status quo.  The problem is that anxiety about losing coverage is relatively modest—with not many more people concerned about it than are worried about crime or even dangerous errors while flying (page 20).  And polls show that the majority of the insured is happy with everything about its care except for rising costs.

Ultimately, progressive healthcare reform offered the insured highly uncertain promises that their costs would go down and that their current coverage would not otherwise be affected.  The latter claim was disingenuous—regulating insurers is sure to shift costs between the healthy and the unhealthy, the young and the old, the rich and the poor.  In New York, younger workers saw huge increases in premiums when community rating was instituted.  And those whose benefits would be taxed would either pay more or lose that coverage for cheaper plans.  Meanwhile, for those uninsured by choice, progressives offered to increase their taxes on April 15 though a fine unless they spent their limited dollars on health insurance.  

Progressives bemoan the fact that the healthcare system today rations by ability to pay, but rationing by willingness to pay is likely to be the only way that we will control health spending.  Federal limits on healthcare choices will never command enough popular support to ensure that 60 Senators enact game-changing reform.  Employers will continue choosing to invisibly make their workers pay for costly coverage by limiting wage growth rather than explicitly make their workers pay for it.  Insurers will never have the bargaining power to bid down reimbursement to providers enough to matter.

If progressives want to get serious about universal coverage, they will need to get serious about cost control.  And that is likely to require that we stop the unequal treatment of health benefits versus wage and salary compensation and unequal treatment of health insurance when provided by employers or unions versus purchased individually or through other means (page 33).  Changing the tax status of employer-provided health insurance should not be a source of revenue for healthcare reform; it should be coupled with offsetting tax cuts.  The federal government can make it easier for individuals to band together in insurance pools and can even sponsor such pools.  It can subsidize the poor and sick.  But then we should let markets work, and individuals will need to choose between more generous coverage and cost-reducing rationing of care.  If we choose more generous coverage, then who cares about bending the cost curve?  But then we will have no one to blame for rising costs.  If we choose less generous coverage, then we will have rationed our own care by choice.

In the end, reformers may get an expansion of Medicaid or SCHIP for their efforts--though probably not unless the feds subsidize states at an enhanced rate, given the governors' opposition to taking on more costs when their budgets are in such a mess.  But I'm betting that come 2010, we will have lost another opportunity to do a lot of good by not facing up to hard political and economic realities.

 
 

Welcome Daily Dish  and Marginal Revolution readers!

For your first blog posts, you want to pick subjects that are snappy, topical, concise.  Something sexy.  That's why I've chosen to write today about....causal inference.  (I'll return to the question I raised at the end of my first post later on.  When I have an actual readership, I'll try to stick to my word better.)

More often than not, this blog will be about fact-checking arguments and reviewing the right way to measure things.  But other posts will assess various claims made in think tank and academic studies about how X affects Y.  How does family structure affect child outcomes? How does ideology affect voting?  How does discrimination affect the wage gap between men and women?  You ought to know up front how much of a grinch I am when it comes to establishing causality, and why.

There are academic treatises on the proper way to infer causal relationships, but I want to lay it out in a way that will be accessible to all y'all, whether you currently own a graphing calculator or not.  So with the left-brained in mind, I'm going to initially frame the discussion using a dramatic depiction of a debate between an influential Harvard statistician named Don Rubin and a dead physicist named Sir Isaac Newton:

(Scene: Rubin and Newton shooting pool.  ZZ Top's "Tush" plays on jukebox.)

Newton: Did you catch the Real Housewives of New Jersey reunion the other night?

Rubin: (looks up, eyeing Newton suspiciously)  Two ball in the side pocket.

Newton: Nice shot.  (profane word muttered under breath)

Rubin: So to pick up where we left off the other day, I still say that we can only talk about cause and effect if things turn out differently than they would have absent the cause.  For instance, saying that my incredible talent in pool is the "effect" of my mother making me watch all those billiards tournaments on ESPN is saying that if she had not made me watch all those tournaments, I would be stinking up the pool hall.  If, however, the counterfactual—what would have happened absent my mother making me watch billiards—would have been that my father would have made me watch the tournaments anyway, then we can't really say that my mother caused me to be the pool player I am today.  Even if she had not made me watch pool, I would still be just as good as I am.  My mother's efforts would have had no "effect" on my pool talent—they would not have "caused" it.

Newton: Bullstein!  Look, you just sank the two ball, right?  Your brain sent a signal that led your muscles to apply force to the cue stick, that force was transferred to the ball, and the ball went into the pocket—your actions caused the effect.  If the counterfactual would have been that I would have knocked the ball in myself, that doesn't change the fact that what actually happened was that you caused the two ball to go into the corner pocket!

Rubin: Six ball in the corner pocket. (misses)  OK, let me try from another angle (the argument, not the shot).  Let's think in terms of a pressing social policy question—whether divorce is harmful to children.  I say that it all depends on the counterfactual.  A child experiencing a divorce may end up worse off than where she was before the divorce, but if the counterfactual would have been that her parents would have been miserable, combative, and disruptive then she might not have turned out any better.  In that case, divorce would have had no effect on her.  A policy that had prevented her parents from divorcing would not have helped her!

Newton: That may be, but that doesn't mean the divorce didn't actually cause the child do turn out worse.  It just means that unhappy parents would have caused the child to do worse in the absence of divorce causing it. (scratches, yells unprintable word)

Rubin (sighs in exasperation): OK, let me try one more time with a medical example.  You run a clinical trial.  You give half the participants a little blue pill and everyone else gets a placebo.  The people who get the little blue pill all lose their hair.  We know that the blue pill caused the hair loss because we know that if they had taken the placebo instead, they'd have their hair just like the people who really did take the placebo.  That's the counterfactual.

Newton (cracks pool stick over knee): Dammit Rubin!  Run another trial!  Give half the people the little blue pill and give half of them an otherwise identical red one!  Everyone loses their hair!  Do you then say that the blue pill did not cause hair loss?  Of course not!  Both the red pill and the blue pill cause hair loss!

Rubin: but—

Newton: I am NOT DONE.  Sure, the logic of experiments—getting assigned to a treatment or control group randomly—helps to establish causality, but the causality either operates or it does not—independently of how we identify it.  The girl who is harmed by divorce does not give a flying (censored) that she would have been harmed by fighting parents if the divorce hadn't happened.  (pacing the pool hall now) Counterfactual-shmounterfactual!

(Chorus line enters stage left.  ZZ Top enters stage right.  All sing):  Counterfactual!  Shmounterfactual!  What the girl cares about is the Actual!....

And....scene!

After intermission (which may last a couple of days—again, day job...), I'll come back around to the point.  The gist is that social science has over-corrected in addressing its previous inattention to counterfactual logic (which is crucial for policy questions and powerful in certain applications) and is now uncritically adopting the views I put in Rubin's mouth above (which I'm caricaturing somewhat).  On the other hand, at least Rubin's acolytes are able to convincingly establish causality in a limited number of contexts.  Most of those suspicious of him have no idea where to begin in establishing causality outside those contexts.

And for the record, I am not high on poppers.