Obamacare Still Hasn't Delivered On Its Promises: Quelle Surprise!

While President-Elect Trump's stance on tariffs and immigration remain unambiguous, Trump's viewpoint on the Affordable Care Act (ACA), colloquially known as Obamacare, is more tenuous. In November 2023, Trump wrote on his social platform Truth Social that "we should not give up" on repealing Obamacare. In the 2023 presidential debate last September, he said that he has concepts of an idea to replace Obamacare, but "until then, I'd run it as good as it can be run." This is in contrast to his first term where he tried to repeal it but failed. Repealing Obamacare did not even make its way into the official 2024 Republican platform. 

Given that healthcare accounted for 17.3 percent of the U.S. GDP, I think Obamacare is absolutely something worth considering. As this October 2024 report from the Paragon Health Institute illustrates, at least a dozen significant Obamacare-related promises were broken. Here are a few broken promises to make the point more salient:

The ACA would create savings of $2,500 per family. This ended up being such a large faux pas of Obama's that FactCheck.org called this promise one of "Obama's Whoppers." It turns out that average premiums increased from $232 in 2013 to $476 in 2017, according to HHS' Office of the Assistance Secretary for Planning and Evaluation (ASPE). This ASPE finding is similar to that of a March 2021 Heritage Foundation report that found that the average premium increased by 129 percent from 2013 to 2019. 

It should not be a surprise that a demand-side subsidy would drive up healthcare costs: it's Econ 101. Obamacare made healthcare costly when it first started. Even now, about half of Americans have difficulty paying for healthcare (KFF). Not exactly what I would call affordable. 

The ACA would save lives. Obama promised that it would reduce injuries in addition to saving lives. Democrats touting ACA were citing a Harvard study (Wilper et al., 2009) saying that 45,000 excess deaths were caused by lack of insurance. Given that there were 2.6 million annual deaths at the time, a reduction of 45,000 excess deaths would have resulted in an increased average lifespan of 0.4 years. 

The life expectancy decreased by 0.3 years from 2014 to 2017, which is a net difference of 0.7 years of what it would have been had the Harvard study been accurate. Average life expectancy increased slightly in 2019, only to drop again due to the pandemic. Average life expectancy went from 78.3 years to 77.4 years in 2023 (World Bank). This promise became so obviously and patently false I wrote a separate piece on this myth in July 2017. And if that were not enough, life expectancy worsened for the states that adopted the ACA Medicaid expansion versus those that did not (Blase and Balat, 2020). 

 

The ACA would increase economic growth. Obama's chairman of the Council of Economic Advisors, Jason Furman, promised that the ACA would create "healthier, more productive workers," "reduced 'job lock'", and "better macroeconomic performance." A research paper from the Journal of Human Resources found that the ACA "increased low-hours, involuntary part-time employment by 500,000-700,000 workers in retail, accommodations, and food services (Dillinder et al., 2020). The authors contributed this trend to the ACA's penalty to large employers who did not want to provide insurance being incentivized to reduce employment and shift full-time workers to part-time workers. The Congressional Budget Office recognized this disincentive in its 2014 report.

The employer mandate would collect a ton of revenue for the government. The Congressional Budget Office and Internal Revenue Service was predicting all this revenue. The White House's Council of Economic Advisors concluded that 11 years after the ACA passed, only 1 percent of what was projected was actually collected. 

If you like your plan, you can keep it. This was a promise made by Obama in 2009 since he believed that the ACA would not take away anyone's plan. This one ended up being such a bold-faced lie that Politifact called it the Lie of the Year in 2013 since at least 7 million consumers saw their plans disappear.

The ACA would decrease emergency room use. Obama's logic on this promise was that taxpayers were subsidizing the uninsured because a lack of insurance was incentivizing them to seek healthcare only when the situation became dire enough to use an emergency room. 

I will look at this from the angle of Medicaid expansion since the ACA expanded Medicaid enrollment by 16 million more than the Congressional Budget Office initially calculated (Butler, 2016). The Brookings Institution concluded that the ACA's Medicaid expansion increased emergency room visits by 20 percent, primarily due to emergency room visits that could have been treated outside the emergency department (Garthwaite et al., 2020). Scholars from the University of Iowa similarly found that Medicaid expansion in California as a result of ACA increased emergency room use and cost (Ellis and Esson, 2018).

Postscript. Not much good has changed about the ACA since I wrote my scathing piece in 2017 on 15 reasons why we should dislike Obamacare. If anything, repealing the main cost-containing provisions, the Cadillac tax and the health insurance tax, since the creation of the ACA made matters worse. The false promises of Obamacare resulted in higher healthcare costs, increased deficit spending, and significant disruptions to insurance coverage and healthcare access. 

The ACA did little, if anything, to improve healthcare in this country, as is illustrated by this September 2024 report from the Paragon Health Institute on how the ACA reduced healthcare quality. Meanwhile, the ACA guaranteed that health insurance companies are guaranteed profits. We do need something to reform healthcare in the United States. Building an extra room on an already rickety house does not help anyone. It simply means reforming healthcare becomes that much more difficult when policy decision-makers reach that painful fork in the road, much like they eventually will with Social Security. Whether the Trump 47 administration is up for the task remains to be seen. But if the first Trump term is indicative of anything, we are likely to see more of a preservation of the status quo than we are reforms of any significance. 

DACA's Net Benefits and Why Congress Needs to Save DACA

When it comes to the United States' history on immigration, it is fraught with tension. On the one hand, the United States has been a land of opportunity where an immigrant could become a citizen and make something of their life. On the other hand, there have been times in the United States' history where we see more restrictive immigrations policies, such as immediately after World War One or in the mid-1960s. This tension between lax and restrictive immigration policy plays out with the debate on the Deferred Action for Childhood Arrivals (DACA). President Obama signed an executive order in 2012 allowing minors who illegally entered the country to receive a two-year period of deferred action on their deportation combined with the ability to be eligible for a work permit. As of this year, 790,000 individuals, more colloquially referred to as Dreamers, are covered under DACA. While DACA provides Dreamers with temporary legal reprieve, it does not provide legal status or amnesty. In either case, last week, Attorney General Jeff Sessions made the announcement that President Trump rescinded Obama's executive order. Trump has allowed for a six-month delay for Congress to work on a legislative version to get passed so the Dreamers can stay in the United States. Was Trump's move a wise decision or not?

Much of Jeff Sessions' remarks last Tuesday on announcing the desistance of DACA had to do with constitutionality, which is highly contested. Article I, Section 8, Clause 4 provides Congress with the power to naturalize citizens. Keep in mind that naturalization is not the same as immigration. But even if this constitutional clause gives Congress the right to control immigration, it is hypocritical that Trump was fine using an executive order to instate his dubious travel ban, but he suddenly has an issue when it comes to DACA. Also, the executive branch has granted "deferrals of removal" or "deferred action" for at least a half century, so it is not as if Obama's actions are unprecedented. If anything would be unprecedented in American history, it would taking a group of people that were raised and rooted in the United States and stripping them of their legal recognition and shoving them into a state of unauthorized immigrant life.

After mentioning constitutionality, Sessions then says how eliminating DACA is important because "enforcing the law saves lives, protects communities and taxpayers, and prevents human suffering. Failure to enforce laws in the past has put our nation at risk of crime, violence, and even terrorism." He then proceeds to talk about how it will further economically the lives of millions who are struggling." Let's examine these claims and continue with looking at ramifications of rescinding DACA.

Higher Risk of Crime - Sessions implies that by removing DACA, we will have a lower rate of crime. On the macro level, we have seen a bit of an increase in violent crimes in 2015 and 2016 (FBI Statistics). Nevertheless, there has been a general decline in violent crime since the 1990s. Aside from that, we should ask whether the Dreamers' demographic, young adults who are undocumented workers, are increasing the crime rates. The "crime reduction" argument is the same one used for justifying Trump's border wall, and as I pointed out earlier this year, it does not have merit. As a matter of fact, the Cato Institute found that undocumented workers/illegal immigrants (whichever term you prefer to use) are 1.8 times less likely to commit crimes. Plus, Dreamers have to go through a background check prior to participating in DACA. Only 2,139 Dreamers (or 0.25 percent of the Dreamer population) lost DACA protection because of criminal behavior, which means that Dreamers are even less likely to be convicted of a crime or go to prison (Landgrave and Nowrasteh, 2017).

Prevent Human Suffering - Sessions' comments make even less sense when accounting for the crime rate of the Dreamers' demographic. DACA does come with a human cost, but it comes at a cost for the Dreamers, not native-born citizens. To be eligible under DACA, Dreamers had to register with the Department of Homeland Security (DHS). If Congress cannot come up with a bill to replace the executive order, the DHS can take that list, target the Dreamers, deport them, and split up families in the process. These Dreamers have been here, on average, since they were six years old, so deporting them to a country they to a Third World country that they do not really know is a form of human suffering. The only "crime" that the Dreamers committed was accompanying their parents, who entered the country illegally.

Protecting Taxpayers - By claiming that eliminating DACA would protect taxpayers, Sessions implies that immigrants do not pay taxes. The problem with that implication is that it is false. Immigrants, regardless of their legal status, pay taxes. As for being a "drain on society," that is also false: immigrants not only have a fiscal impact that is near net-zero, but also positively contribute to the economy. The Dreamers covered under DACA are no exception. 90 percent of Dreamers are employed, which is a higher labor force participation rate than native-born workers. Also, Dreamers are responsible for $2 billion in tax revenue. Dreamers are more likely to make a net fiscal contribution because they do not qualify for federal means-tested welfare. Plus, Dreamers are better educated than the overall immigration population, which means that they can better contribute to the economy and tax base. How deporting hard-working, tax-paying individuals protects taxpayers is beyond me.

Improve the Economy - Sessions also postulates that ending DACA would improve the economy. When discussing the issue of deportation a couple of years ago, I concluded that deportation would be costly with little to no economic benefit. Limiting the deportation to Dreamers would still be costly.

• Budgetary Cost of Deporting Dreamers: According to the Brookings Institution, the average cost of deporting an individual from arrest to removal is $12,500. That would mean that it would cost $9.9 billion to deport the Dreamers. The Right-leaning American Action Forum estimates that the costs deporting the undocumented workers covered under DACA could be as high as $21 billion. The libertarian Cato Institute calculates that it would cost $280 billion in reduced growth and $60 billion for the government (also see here). To put this cost into perspective, the Immigration and Customs Enforcement (ICE) budget for FY2017 was only $5.8 billion, and it's not difficult to realize that this is something the United States government can ill-afford.
• Economic Cost to Employers: Ending DACA would be the equivalent of 31 regulations, and would end up costing employers $6.3 billion to fire, replace, and train. 
• Economic Benefit of Immigrants and Dreamers:  The Trump administration is under the impression that less immigrants is better for the country. This was something I explored only last month when asking whether Trump's support for a bill that would cut legal immigration in half would help the nation. Cutting immigration does not increase native-born workers' wages, it does not boost the GDP, and immigrants are less likely to be on welfare. Immigrants in general provide a modest, but net positive gain to the economy. Specific to DACA, ending DACA would lead to an estimated loss of $460 billion in GDP over the next decade, according the Left-leaning think tank Center for American Progress.  The American Action Forum estimates that between now and 2020, it would be a loss of $72 billion and 740,000 workers. 

The economic and moral case to create legislation to keep the Dreamers here in the United States is as overwhelming as it is damning. It is already clear that reducing immigration doesn't do the American people any favors, and given the demographic features of the Dreamers, it becomes all the more perplexing as to why Trump feels the need to go after the Dreamers. At the same time, I understand that DACA was never meant to be a permanent solution since the President can only defer deportation and does not provide a path to citizenship. Even if you want to argue that DACA is "good policy but bad law," the solution has been and continues to be Congress. At this point, it is up to Congress to create legislation to help the Dreamers and preserve the American dream.

How the Department of Labor's Fiduciary Rule Will Impact Retirees and Financial Institutions

Saving for retirement can be a challenge. Depending on what you invest in, it can yield a high or low rate of return. It also doesn't help if the financial advisor helping you manage your retirement account is not acting in your best interest. As John Oliver illustrates in his episode on retirement saving last year, you could get screwed over in paying hidden and not-so-hidden fees while financial advisors could be profiting off of it. In 2015, the Council of Economic Advisors attempted to put a price tag on the bad advice from financial advisory $17 billion a year. Granted, this CEA figure has been criticized (see here and here), but it does provide a form of problem-framing. In attempts to help those saving for retirement, the Department of Labor (DOL) passed the "fiduciary rule" (see full text here). The fiduciary rule was supposed to take into effect back in April. However, Trump ordered a delay for 180 days in February, which means that the fiduciary rule is to come into effect this week.

Some of you might be asking yourself what a fiduciary even is. A fiduciary is someone who holds a legal or ethical relationship of trust, which in this context is someone entrusted to take care of money or assets for another individual. What the DOL's new fiduciary rule does is that it elevates certain financial professional working with retirement plans or providing retirement advice (e.g., investment advisory, insurance brokers) to the level of a fiduciary. What this means is that any of these financial professionals would be held up to the legal and ethical standards of a fiduciary. Financial professionals covered under this law would have to reveal potential conflicts of interest, and that all fees charged need to be clearly stated. We already have fiduciary standards under the Employment Retirement Income Security Act of 1974 (ERISA).

However, the standards are now higher with the new fiduciary rule because it means that the advice meets the client's needs and objectives. The fiduciary law has not made some financial services providers happy, which is why BlackRock and Vanguard were pushing Trump for an even longer delay. What I have to wonder is whether the DOL's fiduciary rule is more of a case of stopping financial advisors from screwing over their clients, a case of excessive regulation that will do nothing to help clients of financial services, or something in between.

At first glance, the law seems very intuitive and common-sense. The fiduciary rule was created with the intent of ensuring that investors receive quality financial advice so they can have enough to save for retirement. Why would anyone be against advisors acting in their investors' best interest? Shouldn't they be acting in a professional and ethical manner? Isn't that just good business practice? There is a difference between expecting that financial professional act professionally and adding on a litany of regulations for them to follow, and as we know, regulations come with costs.

The Right-leaning American Action Forum (AAF) released its April 2017 study on the fiduciary rule. As the graphic below shows, it is not flattering. The AAF estimates that it will cost those with an IRA an extra $813 per account per year, as well as paying $1,500 in duplicative fees. Consulting firm A.T. Kearney found in its detailed findings that through 2020, the financial services industry is expected to lose $20 billion as a result of the fiduciary rule.

The DOL puts the costs at a lower rate than the AAF does, and the Left-leaning Economic Policy Institute concurs in detail with the DOL's analysis. In its regulatory analysis of the fiduciary rule, the DOL estimates that the fiduciary rule could cost anywhere between $10 billion and $31.5 billion over the next decade (DOL, p. 10). The DOL also estimates that investors would stand to make $33 billion to $36 billion in gains over the next decade (ibid.), although interestingly enough, the centrist Brookings Institution puts it at $108 billion.

The fiduciary rule has the potential to limit investment advice for those with lower retirement accounts. The Cass Business School found that when the British government passed a comparable version of the DOL's fiduciary rule, it resulted in advisors largely abandoning those with savings below $220,000. As a result of Britain's equivalent of the fiduciary rule, the U.K. Financial Conduct Authority found that the number of firms asking for a £100,000 minimum more than doubled [from 13 percent to 32 percent] (FCA, p. 19). To bring the accessibility issue back to the United States, consulting firm Oliver Wyman estimates that 7 million IRA accounts would fail to qualify for an advisory account under the new fiduciary rule because the balance will be too low.

Even for those who view the DOL fiduciary rule as a positive step, such as those over at the Brookings Institution (Bailey and Holmes, 2015), there is still concern that the rise in compliance costs could mean abandoning clients with small-scale savings. There are technically alternative ways of paying for financial advice that do not create obvious conflict of interest. However, brokers will not be able to find a way to provide cost-effective advice to less wealthy investors. How so? Brokers who use the commission structure will find it too expensive under the new DOL rule (not to mention that a commission structure would be rendered inherently conflicted under the new law), and a flat fee is inefficient for smaller investors, which account for up to 76 percent of IRA investors. A study from McKinsey shows that advisors earn 0.54 percent on commission-based accounts while earning 1.18 percent on fee-based accounts. What the McKinsey finding means is that the average account would be hit with an extra $800 cost year, which would be unaffordable for many.

Another cost that is up for debate is that of litigation costs. If the fiduciary inadvertently provides bad advice or the client selects safer portfolio options (thereby yielding a smaller rate of return), it could open up lawsuits. The DOL estimates that it would increase premiums by 10 percent, or $300 a year. However, an independent analysis from Oxford Economics begs to differ. The issue with putting a number on the litigation costs is that the unknown nature of the effects the fiduciary status will have. Oxford Economics not only believes that the DOL is wildly underestimating, but that the fiduciary rule would complicate compliance and litigation risks (Oxford, p. 11, 19-20). In 2016, there were 4,000 arbitration cases alleging wrongdoing by a broker. With elevating brokers to the legal status of fiduciary, it is not unfeasible to think that litigation costs would skyrocket.

Even in spite of the fees, I think another important question we should ask ourselves is whether enough Americans are able to save for retirement with the status quo. This is not to justify the morality of the financial professionals that do take advantage of others, but to ask whether the American people are left with nothing to save as a result of swindlers. I took a look at 401(k) retirement accounts earlier this year, which can provide some insight. To summarize, we're not in a retirement crisis. We've had more people save for retirement as a result of the 401(k). 75 to 85 percent of those who save with a 401(k) have enough for retirement. What is more is that since 1989, retirement savings have been exceeding inflation. The 401(k) is not perfect, and financial professionals could perhaps give better advice to help their clients. However, the situation is not so dire where financial advisors are robbing their clients blind while leaving them with nothing to live off: far from it.

Financial services companies have already reacted to the fiduciary rule. MetLife and AIG have already left the brokerage market all together. Merrill Lynch replaced its commission-based retirement accounts with a fee-based model, which could end up costing more. State Farm and Morgan Stanley have already drawn back on its brokerage business in anticipation of the fiduciary rule. And to think that these are the big firms. Much like Dodd-Frank disproportionately affects smaller banks because it was more difficult to gather the resources to fully comply with all the regulations (see GAO report), I would expect smaller financial advisors to have a similar issues, especially a similar trend in smaller firms leaving and the subsequent market consolidation that we observed in the banking sector with the enactment of Dodd-Frank (see Fed data here).

In many ways, the fiduciary rule is "Obamacare for your IRA," especially that bit of "if you like your plan, you can keep it." If the 401(k) provides for more-than-adequate retirement savings, then a fiduciary rule that forces many advisors towards fee-based could make it more difficult to invest in retirement, thereby exacerbating income inequality. Costing both the financial advisors and investors is not protecting people, but pricing many out of saving for retirement. If more tax-advantaged vehicles are abandoned, especially those for lower-income individuals, it would probably mean greater reliance on Social Security, which would be deleterious given how strained Social Security already is. A simple disclosure rule explaining the compensation structure to their advisees could very well do the trick. What will not do the trick is the fiduciary rule. Once it goes into effect, it will not be at all surprising if or when we see saving for retirement become all the more elusive and unreachable for the average American because some bureaucratic entity that doesn't have much experience in financial regulation unleashed feel-good policy with bad results.

Why Trump Should Reverse Obama-Era E-Cigarette Regulations

I need a break from critiquing Trump's latest barrage of executive orders and policy recommendations. Instead, I would like to take a look at the previous Obama administration's bad policies and see what Trump could do. The policy that is of interest today is that of electronic cigarettes, more colloquially known as e-cigarettes. At the end of his second term, the Obama administration's Food and Drug Administration (FDA) created additional regulations on e-cigarettes by extending the regulations of the Family Smoking Prevention and Tobacco Control Act of 2009 to e-cigarettes. The FDA's mentality was "if it looks like a cigarette and acts like a cigarette, it must be a cigarette." That assumption defies common sense because e-cigarettes don't contain tobacco (even though some of the nicotine for e-cigarettes can be extracted from tobacco), they don't create the problems of second-hand smoke that regular tobacco products do, and the carcinogens tars and gases in regular tobacco products are absent from e-cigarettes. Those differences right there make me wonder what the FDA was thinking or even why we need as much regulatory oversight as regular tobacco products. However, we have to contend with the reality that the regulations exist. The question is whether they should still be in play.

Let's forget for a moment that the regulatory barrier of costing $1 million for each FDA application to approve a given product, which would de facto put the 90 to 99 percent of e-cigarette producers out of business. The primary concern about e-cigarettes is the health concern, mainly that they are comparably bad for one's health as regular tobacco products. I looked at the topic of e-cigarettes about three years ago. At the time, e-cigarettes were a new phenomenon, and research on the topic was still preliminary. Even with preliminary evidence, the academic literature at the time was showing that e-cigarettes are less harmful than regular cigarettes. What more recent academic literature can we add to the list?

• Cancer Research UK released a study earlier this month about e-cigarettes. This study is significant because it is the first one to adequately measure the long-term effects of e-cigarettes. They were not about to say that e-cigarettes are completely harmless because let's be honest: any activity comes with at least some risk, no matter how small. However, using a comparison group of those who go through nicotine replacement therapy (NRT), e-cigarettes are about as safe as NRT, which means that e-cigarettes are much safer than regular tobacco products.  
• A 2015 study from Public Health England, which is the United Kingdom's equivalent of the U.S.' Department of Health and Human Services (HHS), shows that e-cigarettes are 95 percent safer than regular cigarettes. 
• The University of Victoria made public its study on vaping in January 2017. Not only is there no gateway effect in terms of bringing people over to regular tobacco products, but it is as effective as other NRT devices used to quit smoking. Also, the vapor from e-cigarettes is less harmful than cigarette or cigar smoke. 
• The Royal College of Physicians stated in its 2016 findings that "the public can be reassured that e-cigarettes are much safer than smoking."
• A 2017 study from the Irish government shows that e-cigarettes provide smokers a better chance to quit smoking. 
• In April 2016, seven top international tobacco experts urged the FDA to keep an open mind on e-cigarettes. They illustrated their point by synthesizing current data to show the potential harm reduction in using e-cigarettes (Levy et al., 2016). 
• Here are a list of studies showing how e-cigarettes can assist smokers in quitting smoking: Delnevo et al., 2016; Levy et al., 2016; O'Brien et al., 2015; Polosa et al., 2015; Rahman et al., 2015; Adriaens et al., 2014; Polosa et al., 2014.
• Looking at CDC data on youth tobacco use for 2011-2015, we see that e-cigarette use increased. The plus side is that e-cigarettes were substituted for cigarettes and cigars (see below), both of which have higher risk to consumers. Furthermore, cigarette consumption for youths has been on the decline since 2008, which is around when e-cigarettes started to trend in the market.

Am I here to say that e-cigarettes are harmless? No. If you haven't started smoking e-cigarettes or conventional cigarettes, I wouldn't recommend it. At the very least, nicotine has addictive qualities. However, given that current academic literature shows benefits of e-cigarettes, it seems foolhardy for the FDA to take on an abstinence-only approach with such an important health issue. The government over-emphasizes potential risk to children while ignoring the harm-reduction benefits. Even if we want to see whether a small subset of teenagers or adults are harmed in the long-run (although current evidence shows that e-cigarettes are about as safe as NRT), we would have to wait for another 40 years to be absolutely certain. In the meantime, 36.5 million smokers in the United States do not have access to a low-risk alternative to smoking, which is the leading cause of preventable death in the United States. These 36.5 million individuals risk the potential of losing an average of 20 years of their life (Holford et al., 2014). It is not realistic to prevent every smoking-related death, but rather to prevent as much as possible. That is where tobacco harm reduction comes into play (see R Street policy brief here for policy alternatives). If it remains law, Obama's e-cigarette policy has the potential to hasten the deaths of thousands of Americans. Trump said that he wanted to cut the red tape for FDA pharmaceutical approval in order to save lives. Let's hope he applies that same thought process to current e-cigarette regulations.


10-14-2017 Addendum: Here is another study (Levy et al., 2017) modeling how vaping could save 6.6 million lives over the next ten years.

7-31-2019 Addendum: A recently released study from the National Bureau of Economic Research researched the effects on pre-pregnancy and pre-natal smoking. The findings were two-fold. One, an e-cigarette tax creates a substitution effect, i.e., it incentivizes pregnant women to smoke traditional cigarettes instead of the intended outcome of no smoking. Two, e-cigarettes reduce overall pre-natal smoking.

11-16-2021 Addendum: We continue to see the substitution effect of e-cigarettes. In response to the Democrats' proposed nicotine tax, Professor Michael Pesko has detailed his NIH-funded research on the topic. He found that if we increase e-tax cigarettes, we will actually increase the number of teen and adult smokers of traditional tobacco products. 

Was Congress Right to Repeal Obama's "Stream Protection Rule" for Coal Companies?

With his flurry of executive orders, the focus of what has happened since the latest presidential administration has been on President Trump. I would like to take a break from that, however brief it might be, and focus on Congress. You think when you hear the word "Repeal" these days, it is referring to Obamacare. Based on what Congress did last week, their focus was on repeal an obscure environmental law from the Obama administration called referred to as the "stream protection rule."

The steam protection rule (SPR) was created with the intention of stopping the coal industry from dumping coal mining waste into streams and rivers near coal mines. A pertinent facet of coal mining is mountaintop removal mining. There are times where the only way to get at coal buried underground is blow up the tops of mountains. This creates debris, which is then dumped into valleys below and can affect waterways. The 1977 Surface Mining Control and Reclamation Act was created to remedy the situation of this sort of pollution. The issue is that the rules surrounding "stream buffer rules" had not been updated since 1983. While the Bush administration made an attempt to update the rule (it was later struck down in court), the rule had not been officially updated until December 2016 under President Obama. The rule under the Obama administration would have required streams and mining areas to their previous pristine state prior to the mining operations, as well as maintain a buffer zone that blocks coal mining within 100 feet from streams.

However, Congress was able to find a way to repeal the bill shortly after its enactment. What makes Congress' move interesting is that they are using the Congressional Review Act (CRA) to repeal the SPR. While Congress can repeal whatever distasteful piece of Obama-era legislation with the CRA, the major catch is that only applies to legislation approved within the past 60 legislative days, which means it does not apply to earlier Obama-era legislation. There is at least some symbolism going after this obscure coal-mining law because it shows a more proactive Republican government that is willing to make changes that it deems positive. It was also an easy reach in comparison to the difficulty repealing regulations under the EPA's rule-making process. This begs the question: what sort of impact does it have on the environment, as well as the coal industry? Environmentalist groups such as the Sierra Group aren't happy about the repeal, while the coal industry was lambasting Obama back in 2016 because they claimed that Obama's bill would do nothing to protect streams while at the same time kill the coal industry.

The Surface Mining Reclamation and Enforcement Office (SMREO) published the SPR in the Federal Register back in December 2016. The details published in the Federal Register include the costs and benefits as a result of passing the SPR, which have been modified since the July 2015 draft Regulatory Impact Analysis. Since we live in a reality in which the SPR has been repealed, when covering costs and benefits, I will cite the SMREO in context of effects of a repeal instead of an enacted SPR.

Environmental Impact of SPR Repeal
As a result of the repeal, the SMREO points out that there will be a number of environmental protections that will no longer be afforded between now 2020 and 2040, including:

• Restoration of 22 miles of intermittent and perennial streams per year (total of 440 miles)
• Improved water quality of 263 miles of intermittent and perennial streams per year downstream of mine sites, or a total of 5,260 miles. While 5,260 miles sounds like a lot, there are still 3.5 million miles of stream in the United States, which means that the SPR would have only affected 0.15 percent of streams in the United States.
• Improved reforestation of 2,486 acres of land per year, which is total of 49,720 acres. We also have to keep this acreage in the context of the overall forest average size of the U.S. As of 2012, the United States has 766 million acres. Assuming improved reforestation means that we now lose 49,720 acres of forest, this would mean that the repeal would reduce American forests by a mere 0.0065 percent.
• The carbon reduction in 2020 as a result on the SPR would have been 2.6 million short tons. Since the U.S. coal industry accounted for 1,364 million metric tons (1,504 million short tons), or 71 percent of carbon dioxide emissions associated with electricity generation, the SPR would have meant a 0.17 percent carbon emission reduction from the U.S. coal industry in 2020.

Economic Impact of SPR Repeal

• If passed, the coal industry would have had to pay an estimated $80 million annually in compliance costs, which would have been 0.1 percent of annual revenues (SMREO). Between 2020 and 2040, that would have meant $1.6 billion lost.
• The SPR would have also reduced coal production by 700,000 tons annually (SMREO). In 2015, the U.S. produced 896,941,000 tons. The SPR would have meant a 0.78 percent reduction in coal production in comparison to 2015 production numbers. However, since coal production has been experiencing a decline in production ever since its peak in 2007, which means it will have bigger impact on production in terms of percentage.
• Ironically enough, the SPR would have increased employment by 124 full-time equivalent (FTE) in the coal industry (SMREO). However, the reason for the increased employment would not have had to do with actual production, but hiring employees in relation to implementing the SPR. 
• Between 2020 and 2040, there would have been an annual loss of 156 FTE (3,120 total jobs) in coal production, but a gain of 250 FTE for jobs (or 5,000 total jobs) related to SPR implementation. 
• The National Mining Association unsurprisingly disagrees with these estimations, and estimated in its October 2015 report on SPR that between 112,757 and 280,809 jobs would be lost.

This obscure law brings up two motifs in the greater public policy arena. First, do we always have to pit environmental concerns over economic concerns, or can we take into account both? I believe that ideally, we should have policy that accounts for both, but there will be occasions where either the environment or economy take precedence. Second, we need to find a way to distinguish between necessary regulation and heavy-handed regulation such as the Clean Power Plan. Granted, I think that most regulations are burdensome, but there are times in which we do find ourselves needing some government regulation. This last statement will probably make some libertarians and other proponents of smaller government shriek. At the same time, I am proponent for limited government, not a non-existing government. Even for someone such as myself who believes that the best government is the one that governs least, proponents of limited government need to be able to state when government regulation is necessary without steering from general principles of smaller government, less regulations, and greater economic freedom. The Stream Protection Rule is one of those cases.

As you saw with the environmental and economic impacts, the net impacts of either are not that big in the grand scheme of things. This means neither that the economy would have fallen far apart, and nor would have the environment as a result of the SPR. While the effects are modest, the SPR still acts as a microcosm of the greater debate surrounding cleaner energy. With that being said, in spite of my strong belief in limited government, I find this to be a case for the government to step in for two reasons.

One is that water scarcity has been an issue for a while, and has not gotten better. Granted, government policy has contributed to the problem by underpricing water and thereby creating a shortage (see Economist articles on water management here and here), but we are going to need all the access to clean water we can get. I'm not saying that we should preserve water above all else. But given how essential water is to human life, I would like it if we didn't add to the list of conflicts over water that have already taken place.

The second reason I have less of an issue with the SPR is because in spite of whatever the cumulative effects of regulation are on the coal industry, they are not the coal industry's biggest concern. The Energy Information Administration's latest projections show that coal is on the decline (see below). Even without the SPR, the coal industry was projected to lose 15,000 jobs by 2040. Coal will remain relevant, but it will not have the clout in the American energy sector that it once had.

What is the reason for this decline? By and large, it is market forces. For one, as the Institute for Energy Economics and Financial Analysis (IEEFA) puts it in its analysis of the 2017 coal market, "The industry [is] saddled with a fundamental problem it has failed to address after being riddled with bankruptcies: too many companies are mining too much coal for too few customers."

Production is expected to decline by up to 40 million tons in 2017, according to the IEEFA. The IEEFA also brings up how coal prices aren't increasing enough to stimulate new investment or benefiting shareholders, which might something to do with the fact that coal is not as cost-effective as it used to be. Coal's main competitor is natural gas, and hydraulic fracturing has made natural gas cost-effective, has brought energy prices down, and natural gas emits significantly less carbon than coal does. Plus, President Trump wants to "unleash $50 trillion in untapped shale, oil, and natural gas reserves," which will not do any favors for the coal industry. Additionally, renewable energy is becoming and will continue to become more cost-efficient, which will further displace coal mining. More cost-efficient and cleaner alternative energy sources will cut into coal's long-term market share. U.S. coal exports have been dropping since 2012, which also cuts into coal's demand. The Brookings Institution found that automation has been increasing in the coal industry, which puts a damper on coal mining employment (see below). And if that wasn't enough, the demand for electricity has been slightly declining over the past few years, according to the EIA.

Perhaps the Right-leaning Heritage Foundation is right in that the regional differences are distinct enough where the state government should handle the regulations instead of the federal government. However, I don't think making that distinction in legislation would save the coal industry. I'm sure that President Trump and the Republican Congress will do with they can to repeal or modify previously enacted legislation in order to try to bolster the coal industry's position in the energy market, but the IEEFA acknowledges that regulatory relief would not likely increase coal production. I understand that the coal industry is trying to stop the hemorrhaging, but the coal industry is going off a cliff. As much as regulations can and do play a role in the coal industry, the truth is that the coal industry is less relevant than it once was, and repealing the Stream Protection Rule is not going to ultimately change the coal industry's projected path.


4-6-2017 Addendum: The Right-leaning American Action Forum explains why the decline in coal is mostly due to markets, and not due to regulations. 

How Much Do Background Checks Help With Preventing Mass Shootings?

Last week, President Obama gave a speech on gun control in response to dealing with the gun violence that takes place in the United States of America. Let's forget for a moment that the prevalence of mass shootings depends on how you define "mass shooting" or that the Congressional Research Service published a report last year showing that there historically has been no epidemic in mass shootings. Per the most recent CDC data on leading causes of death, gun-related deaths account for 1.2 percent deaths in the United States (32,383 out of 2.59 million deaths). Out of gun-related deaths, only about a third are gun homicides. Mass shootings account for about 1.5 percent of overall gun-related homicides. Mass shootings account for 0.018 percent of overall deaths in the United States, yet it is somehow politically expedient for President Obama to pass an executive order to increase gun control to stop something that causes 0.018 percent of deaths in the country. Part of this executive order included more stringent background checks.

Background checks have particularly been prevalent in American society since the Brady Handgun Violence Prevention Act of 1994. The idea behind such legislation is that it would screen out would-be murderers from perpetrating such heinous acts. However, this is not enough for gun control advocates since they would like to close the "gun show loophole," which is supposed to decrease the rate of illicit firearm transactions. Background checks are so intuitive, even for libertarians. How intuitive? It is the type of "common-sense gun legislation" that even 79 percent of Republicans are on board with expansive background checks. I do have apprehensions of such databases because collecting names, addresses, criminal records, and mental history can be misused or abused. Conversely, there is a negative externality argument to be made in the sense that if we can prevent deaths with a minimal loss of freedom or privacy, then I, much like a majority of Americans, support expansive background checks....at least in theory. Before officially supporting greater expansion of background checks, I have to ask whether expansive background checks would help decrease the gun homicide rate, specifically with regards to mass shootings.

The studies showing the effectiveness of background checks have generally had ambivalent findings. There was a study from the Johns Hopkins Center for Gun Policy Research (Rudolph et al., 2015) showing that background checks in Connecticut decreased gun violence by 40 percent, although it seems to have its fair share of methodological flaws. Johns Hopkins also released another study (Webster et al., 2013) showing that background checks have a positive effect, even though there was a "stand your ground" law that passed in 2007 that is getting in the way of distinguishing between correlation and causation. The Left-leaning Center for American Progress (Gerney et al., 2013) also tries to show a link between gun violence and weak gun laws. The academic consensus on the matter is hardly there. A 2000 study (Ludwig and Cook, 2000) shows that the background checks from the Brady Law of 1994 didn't have a statistically significant effect. The same goes with a 2003 review from the CDC.

Even with the aforementioned research, there has not been any research about the link between background checks that include private transfers of guns and mass shootings....that is, until earlier this month. The Crime Prevention Research Center (Lott, 2016) published research asking if there is a link between the two. Lott found that not only is there no evidence that background checks reduced the risk of mass shootings, but that not a single mass shooting would have been prevented by background checks. Some might take issue with this study not simply because of the findings, but because of the definition of "mass shooting" that Lott uses. The definition of "mass shooting" can be quite contentious because the definition determines how many or few incidents are included in the count. If you do something like define a mass shooting as a incident in which four or more are killed or injured by gunfire, you are going to calculate a jaw-dropping figure in which there were more mass shootings than days of the year in 2015. However, such a figure is broad because it doesn't even bother to take in the context of the incident. This is why Lott opted for the narrower definition, which, by the way, is the one that the FBI uses. The FBI defines a mass shooting as one in which four people are murdered (note that it excludes those who are injured) either simultaneously or over a short period of time. The FBI also removes gang and drug violence from the numbers (which is important considering that over 90 percent of gun homicides are committed by gangs and/or while a felony is being perpetrated), as well as gun-related shootings in which it appears that others are not put into peril (e.g., an individual who decides to publicly commit suicide in a parking lot). The FBI definition reduces the number of 2000-2015 mass shootings to 47 mass shootings.

Whether or not we like the narrow definition of mass shooting that Lott uses, this should give us some time to pause about just how effective background checks can be. Since the Brady Act of 1994, 2.1 million background checks were denied. Does this mean that 2.1 million crimes were prevented? Not really. Being denied an application to buy a gun through licit channels simply means one can buy a gun through illicit means. It would be nice to think that background checks choke off the supply of firearms in the underground firearms market. However, a recent Duke University study points out that most criminals purchase their firearms through social networks, not through gun shows or federally licensed dealers, which reaffirms the notion that criminals will simply find ways to bypass background checks. It would be nice to have better data to affirm the effectiveness of background checks, but at least with what we have, maybe Obama should stop and think twice before increasing background checks.

The Clean Power Plan: Just Another EPA Power Grab?

Earlier this week, Obama passed the Clean Power Plan (CPP), which some are calling his most ambitious climate change plan yet. In simplest terms, here is what the plan entails. The Environmental Protection Agency (EPA) has set carbon emissions goals for each state to reach by 2030. States have to submit their plans by 2018 and start implementing by 2022. If a state does not submit their own plan, the EPA will step in and implement one of their own. One of the nice, touted features about the plan is that it provides the states with flexibility: more efficient technology, coal plant upgrades, increasing the amount of renewable energy in one's portfolio, and more, provided that they meet the EPA's carbon reduction goals by 2030. While the EPA's default is that the states emit a certain amount on a "rate-based" limit (i.e., how much carbon is emitted per megawatt hour), there is also the option to convert that goal into the carbon tonnage equivalent. The EPA estimates that it will lead to climate and health benefits with a social benefit of $55-93 billion by 2030. Flexibility to create net social benefit while addressing a global problem, what's there not to like?

For one, it's a gross violation of constitutional bounds, including the Tax and Spend Clause (Article I, Section 8), as well the Tenth Amendment. Lawrence Tribe, one of the original environmental law professors, agrees on its unconstitutionality. But let's say that constitutional jurisprudence doesn't matter. As the centrist Brookings Institution points out, the CPP has major equity issues since some states are expected to cut back at significantly higher levels than others (see below). Most state environmental agencies, some of which are from blue states, think that the goals are too unfeasible. The unfeasibility is not just on a domestic level, but also the international level. The EPA is doing this under the tenuous assumption that the United States will lead by example and inspire others to cut back on carbon. I'm very skeptical about that claim. China's not going to cut back. Nor are India and Japan. For the United States to justify its actions, it would have to considerably outweigh the carbon increases of other major emitters.

A study from NERA Economic Consulting shows that the CPP could increase energy prices up to 17 percent. Keep in mind that the study was commissioned by organizations that oppose the CPP, which is why I want to draw your attention to the Energy Information Administration May 2015 report, that shows a 4 percent increase in energy prices. Even better, the EIA estimates compliance costs to be $1.3T in lost GDP between 2020 and 2030. The Heritage Foundation puts those costs as high as $2.5T, along with increased electricity costs and unemployment.

This doesn't even get into what I think about the social cost of carbon. I have discussed it before, not to mention that the Reason Foundation released a study on the social cost of emission earlier today. I have an even more fundamental question: why doesn't the EPA provide an estimate of the amount by which the CPP will reduce the global climate? It's a crucial fact upon which one can begin to tout benefits of the CPP. Without it, the estimates are pure guesswork, so why the omission? The EPA has made such estimates before, so it's reasonable to assume the EPA is capable of making estimates. Since the EPA neglected to provide such vital information, the Cato Institute gave it a go. Using MAGICC, a climate modeling system developed in part with EPA support, Cato found that it would only decrease global temperatures 0.02ºC. The International Energy Administration (p. 37) projects that temperatures will increase to 4.2ºC by 2100. The IEA also warns that in order to avoid climate change catastrophe, we would need to reduce the temperature increase to 2ºC, which would be a 2.2ºC difference. Since the CPP would only reduce the global temperature by 0.02ºC, that would only be 0.9 percent of what is required to avert this catastrophe (i.e., 0.02/2.2=0.9%). Even EPA Administration McCarthy agrees that the impact itself will be minimal (see below; entire testimony is here).

Even if you assume that the need to fight climate change is 100 percent justified, even if you use the EPA's social cost of carbon, and even if you use a climate change model used by the EPA itself, what you get is a set of regulations that do next to nothing to stop climate change while imposing all sorts of costs on the American economy and the American people. The costs are clear, the benefits are negligible at best. Meanwhile, I hope the states end up fighting with the EPA and taking it to court in the upcoming years.

Obama's Overtime Pay Edict Is Over the Top

The Obama administration is patting itself on the back once again, this time for extending overtime pay. The Fair Labor Standards Act of 1938 (FLSA) guarantees, amongst other things, that most employees are paid time-and-a-half for overtime if they work an excess of 40 hours a week. Anyone who makes above the threshold is not guaranteed overtime under the FLSA. Under current law, there is a salary threshold of $23,660, which means that anyone who makes more than that is not guaranteed overtime. Raising the threshold to $50,400 would provide more workers with overtime protections, which is why the Department of Labor (DoL) is calling the new proposed law a "fair day's pay for fair day's work." The DoL claims the bill can affect up to five million workers and increase the take-home pay for the middle class, which is good for middle class workers because of what the Left-leaning Economic Policy Institute (EPI) calls stagnant wages. The EPI would also point out that increasing overtime pay would mitigate "wage theft." Passing legislation with the intent to help workers earn more sounds great, but much like with minimum wage and other labor laws, I have to ask myself whether such intervention is as simply, clear-cut, or pristine as proponents make it out to be.

The National Association of Manufacturers (NAM) came out with a press release in response, in which it called this proposal a 1930s-era regulation that has caused the "demolition of five million Americans." For the NAM, this proposal is a "another [regulation] in a long list of regulatory roadblocks to healthy and robust economic growth and job creation." The National Retail Federation  (NRF) also does not like the proposal, saying that this proposal will "add to employers' costs, undermine customer service, hinder productivity, generate more litigation opportunities for trial lawyers and ultimately harm job creation." These blunt, damning statements seem to cover the issues of expanded overtime well enough, but I still feel like elucidating a bit more.

Let's start with some research on the topic. The NRF study, based off of findings from economic forecasting firm Oxford Economics, found that it could cost employers up to $874 million in additional costs, not to mention additional compliance burdens. The American Action Forum found that it would only impact 3 million workers, 69 percent of whom are making household income three times above the federal poverty line. Another unintended consequence I didn't initially think of is how it would make flexible scheduling more difficult because flex time involve monitoring worked hours. The Heritage Foundation also provides a good list of empirical research that shows the adverse effects of mandate overtime pay.

While it might seem noble to want to help the working middle class, proponents might not want to celebrate quite yet. Why? They will have to run into the reality that if you make hiring a class of workers more expensive, the employer will try to do something to adjust for that loss in profits. How can the employer possibly respond to this overtime mandate?

One way is to cut base wages of current employees [or reduce the base wage when hiring someone] in order to offset the higher costs of overtime. One study shows that many employers opted for that change when the 2004 overtime regulation changes took place (Barkume, 2010). Another option is to cut work hours while hiring new workers who will work less hours (thereby creating more part-time workers), which is what happened when the FLSA was initially implemented (Costa, 1998). Even the EPI conceded this point back in 2014. For those who make a salary at the upper end of the threshold, boosting the wage just above the threshold is another way of avoiding overtime. Depending on the level of automation of the job, the employer might find a way to find a robot or automated machine to do the work. Passing on the cost to the customer is a possibility. Simply bearing the brunt of the cost of overtime pay is also a possibility, but given how profit plays as an important incentive in business decisions, we should not be at all surprised if or when businesses find ways to circumvent the overtime pay, much like they have in the past.

You want to confront corporations whose profits have increased while wages have reportedly stayed stagnant, this is not the way to go about it. We don't need a policy that increases the cost of hiring labor while creating little to no benefit. What America needs is a broader jobs agenda in which we encourage more job growth and economic growth, but making labor more expensive is not one of those ways.


November 14, 2016 Addendum: On December 1, the overtime laws are supposed to take effect. The Congressional Budget Office recently released a paper on what economic effects would take place if the overtime laws were cancelled prior to. The CBO found a decrease in payroll and compliance costs, as well as an increase in profit. While the salaries would somewhat decrease, real family income would increase because an increase in profit and decrease in prices would offset the salary decrease.

Mandatory Voting: What's Obama Thinking?

America: land of the free and home of a slim majority that bothers to vote. A country with a two-party system and an increasingly large amount of people who can hardly see a significant difference between the two parties, is it at all a surprise that voter turnout in 2014 hasn't been this low since WWII? Not quite two weeks ago, Obama had a brilliant idea to counter voter apathy: mandatory voting. With mandatory voting, we could have a composition of politicians that are more representative of the peoples' interests, thereby creating a "consent of the people." Is this really the case? Would it ultimately matter if voting were compulsory or not?

We live in a world in which 22 countries currently have mandatory voting laws, which is to say that you either vote or face a penalty. Most of the countries, including Egypt, the Congo, and Greece, are hardly countries whose public policy I would hardly want to emulate. (As a side note, the participation rate between countries with such laws and without is not as big as one would think) A right to vote has an implicit right to not vote. If you changed "right to vote" to "freedom of religion," and mandated that everyone have a religion, wouldn't that create issues, especially in a free society that bases its more on lower-case-"d" democratic values? If soldiers fought for our freedoms, then imbedded within that is the right to choose whether to vote or not. A true sense of civic participation is based on voluntarism, not conscription. This is equally valid when we consider that some might abstain from voting not simply out of apathy, but because work, health, or the costs of traveling to the polling booth might legitimately get in the way.

But let's sidestep the philosophical issues of mandatory voting for a second. Is it a good idea for better governance? I would have to contend in the negative. One of the main issues is that of voter ignorance. Political scientists have found that those who do not vote are more likely to be ignorant of the most basic facts about politics, such as the name of the current president, vice president, or Congressman. It's not just an issue of who the players are or what they have accomplished (or in many cases, not accomplished). It's about people who don't have a basic grasp of economics, sociology, or public policy to even make informed decisions. How does their forced input, along with the donkey votes, random votes, protest votes, and abstentions, improve the political system? And do we really think that mandatory voting is going to get voters to become more informed, especially since the statistical likelihood of their vote actually making a difference is next to nil?

This brings me to an alternative theory about the impact of mandatory voting. In spite of what impact that mandatory voting could theoretically have on the influence of money in elections (although I would argue the contrary since political campaigning is more important in terms of easily swaying the ignorant since they are now forced to vote), there is a more-than-distinct possibility that mandatory voting would do very little to nothing to change the outcome in the aggregate. By simulating mandatory voting scenarios, political scientists like John Sides have found that very the outcome of very few elections would actually be changed. If this theory about mandatory voting is true and it would do essentially nothing to change outcomes or even mitigate that vote ignorance I had mentioned earlier, then why take on the enforcement costs, administrative costs, or the social cost of creating a less free society?

Mandatory voting is bad policy, an insult to voters, and an idea that goes against the ideas of freedom and liberty upon which this country was founded. Low political turnout is representative of the political will in this country. If you want people to be more engaged in the political process, civic education and voter registration modernization, along with government transparency and accountability would go a long way in making the populace less cynical about the political process. I am glad that Obama's idea was merely a hypothetical and not one that he would actualize with executive order.

Obama's Cockamamy Community College Concoction

No president has been perfect, but it is times like these where I think Obama takes the cake on some of the crazier policy ideas. What did he propose last week? To make community college a free service. Granted, the students have to maintain a 2.5 GPA, but if Obama's plan goes into action, the federal government will foot the bill for three-quarters of a community college education, whereas the remaining quarter will be funded by the respective state government. Considering that the recession has caused states to divest because of budgetary cuts, good luck with the latter portion.

But that set aside, why would Obama offer such a proposal? I can see the appeal of subsidizing community college. Community college is a cheaper alternative for a four-year degree. What's more is that not everyone should have the societal expectation of a four-year degree thrusted upon them. There are high-paying jobs out there that only require an Associate's Degree, and even more interestingly, most of the occupations with the highest amount of projected growth don't even require post-secondary education. Obama points out that by 2020, 30 percent of jobs will require some college or an Associate's degree. By funding college, not only would it provide young adults with the education they need, but it would save the 9 million students who would benefit from having to pay $3,800 in tuition per annum. Although $3,800 doesn't sound like much, when you aggregate those figures, it comes out to about $32.4B per annum. I could make the gripe about how the federal government alone is $18 trillion in debt, but that argument unto itself might not work because it's possible that the program can end up paying for itself.

I'm personally skeptical of that argument, and a lot of it has to do with how the federal government presently handles the four-year college education system. The federal government already subsidizes those going to a four-year college, and is I had explained back in 2013, such a policy increases the cost of going to college. This is all the more plausible since tuition is only a small portion of the overall costs for a two-year college program.

Let's say that talking about supply and demand is economic mumbo jumbo to you. It still doesn't address completion rates. Having access to a service is a required first step, but what good does it do when you cannot complete college? Looking at the Chronicle of Higher Education's completion statistics, it's comparatively difficult for someone aiming for a four-year degree to complete their coursework as it is for someone aiming for a two-year degree. Even with the four-year system being subsidized by the federal government, not only do we still have a 41 percent dropout rate, but a quarter of those who do manage to graduate have the same median salary as someone who only graduates high school. Throwing money and grant aid does not have the impact that proponents would like to think, which is why the way the current subsidy system is a textbook definition of over-investment. Federal subsidies towards the four-year college system have caused tuitions to skyrocket while saturating the labor market with people with Bachelor's degrees. It would be lamentable if the community college system ended up with a similar mess.

Another point is that this policy would not be a subsidy for the students; it would be one for the community colleges. As previously mentioned, tuition is only a small portion of overall costs for a two-year education, so much like we have experienced with four-year colleges, we would most likely see costs skyrocket. What's more is that since this is a subsidy for the colleges, there is a major incentive for grade inflation. While a 2.5 GPA average might not seem like much since it's below a B average, it will incentivize community colleges to keep students' grades above a certain level so they don't lose money. Grade inflation is an issue because it erodes the value of a college degree. A GPA is supposed to signal to a potential employer that a certain candidate is competent. What good is the GPA if it ends up distorted?

As Milton Friedman had to remind people enough times, there's no such thing as a free lunch. This "free lunch" would most probably be funded by increasing taxes, assuming you can get the states on board to commit to the remaining fourth of the subsidy. Subsidizing community college will simply boost demand in the same distorting, artificial manner that the federal government already has done with the four-year college system. Subsidizing another market in attempts to offset the other failed subsidy is unacceptable policy. We've seen what happens when the government gets its hands on education, whether it's with four-year colleges, Common Core, or universal preschool. Students should go to post-secondary educational institutions that best suit their skills and actually provides a skills-based education instead of providing what the government thinks is best for them. By discontinuing its subsidies, the government can create a freer marketplace in education, but I see that as improbable of an occurrence as Congress actually voting on this proposal.


10-6-2015 Addendum: The Manhattan Institute published a report on a series of community college reforms that transcend Obama's simplistic approach of "throw money at the problem."