More on Work Requirements: A Response to AEI

An op-ed by Angela Rachidi and Robert Doar in Real Clear Policy, reprinted on the American Enterprise Institute’s blog, challenges some points I made about the effects of work requirements in my commentary on the topic last week. Rachidi and Doar’s critique focuses on the interpretation of data from the National Evaluation of Welfare to Work Strategies (NEWWS), which analyzed the results of 11 controlled experiments conducted around the country in the 1990s. Each experiment compared the experience of a group of welfare recipients who were subject to work requirements with a control group who did not face work requirements.

Rachidi and Doar point out that some of the programs were “jobs-first” programs that placed a primary emphasis on job placement, while others were “education-first” programs that emphasized human capital development before job placement. They claim that only the jobs-first variants are relevant to today’s debate over work requirements for noncash welfare such as SNAP, Medicaid, and housing assistance. Linking specifically to my commentary, they maintain that critics:

incorrectly cite the results from the education-focused programs, which were found to be largely ineffective compared to jobs-first programs, to suggest that work requirements would not be effective today in SNAP or Medicaid. The education-first programs are largely irrelevant to today’s discussion of extending work requirements to other safety-net programs — no one proposes that recipients be required to go to college in order to receive SNAP or Medicaid.

Does the Government That Governs Least Really Govern Best? A Quick Look at the Data.

Libertarians are fond of quoting Henry David Thoreau’s aphorism, “That government is best which governs least.” Thoreau was evidently paraphrasing his contemporary John O’Sullivan, but no matter who first said it, the quotation has become an axiom of those who love freedom. But is it true?

Let’s treat this aphorism as a hypothesis and test it against the data. To know what data we want, we first need to decide just what we mean by “best government” and “least government.”

“Best government” could mean one of three things: 

1. It could mean the government that produces the best results in terms of human prosperity –  not just high GDP, but good health; access to food, clean water, shelter and education; safe communities; clean environment; and so on. To measure those things, we will use the Legatum Prosperity Index (LPI). 
2. “Best government” could instead mean the government that allows the greatest degree of human freedom, including freedom of speech and religion, freedom in personal relationships, personal safety and security, security of property rights, freedom to trade, and so on. To measure those things, we will use the Human Freedom Index (HFI) from the Cato Institute. 
3. Rather than a results-based measure, we could define “best government” in a procedural sense – a government that adheres to rule of law, maintains fair and impartial criminal justice, and is free from corruption. We can compile such a measure by extracting and combining relevant indicators from the LPI and HFI to construct a Quality of Government Index (QGOV). 

Is the War on Poverty Really Over?

The Council of Economic Advisers recently released a report that began with the startling statement that the War on Poverty is over and has ended in victory. Properly measured, says the CEA, the poverty rate has fallen to just 3 percent.

Can such a low poverty rate, less than a quarter of the official measure (12.7 percent for 2017), be in any way credible? The answer turns out to be both “yes” and “no.”

There are, in fact, many different measures of the poverty rate. In addition to the official measure, the Census Bureau also publishes a modernized version called the Supplemental Poverty Measure, estimated at 13.97 percent for 2016. The Organization for Economic Cooperation and Development, a club of 36 middle- and high-income democratic countries, defines poverty as earning less than half of a country’s median income. By that definition, the U.S. poverty rate is 16.8 percent, the third highest in the OECD. Only Israel and Turkey have higher poverty rates.

Work Requirements Are the Newest Front in the War on the War on Poverty

On July 12, President Trump’s Council of Economic Advisers released a report titled “Expanding Work Requirements in Non-Cash Welfare Programs” in response to an April 2018 executive order on reducing poverty in America.

The CEA’s basic argument is simple: The war on poverty has been won — properly measured, the poverty rate is just 3 percent, a historic low. However, victory has left an ever-increasing number of able-bodied working-age adults dependent on in-kind welfare, especially on Medicaid, SNAP (formerly food stamps), and housing assistance. This problem can best be addressed by expanding work requirements for non-cash welfare programs. Work requirements will encourage self-sufficiency, strengthen the economy, and ultimately benefit the welfare recipients themselves.

The CEA is right, at least in part, in its critique of current in-kind public assistance programs. However, the picture it draws is misleading in a number of ways, and the case it makes for work requirements is unconvincing. There are better ways to address the weaknesses of the current welfare system. Here are some questions that need to be addressed before undertaking a wholesale expansion of work requirements.

Is Single-Payer the Right Way Forward for Health Care?

America’s progressives are right when they say we need a health care system that guarantees everyone affordable access to essential care, asks everyone to pay their fair share of the cost, but not more, and makes health care transparent, efficient, and consumer-friendly. But are the also right about the best way to get there?

They ask, why don’t we just adopt a single-payer health care system like every other rich democratic country has? Why can’t the government just pay everyone’s medical bills and be done with it?

These are understandable questions, but they oversimplify. If we look closely at the world’s top-rated health care systems – those in countries like the UK, Australia, and the Netherlands – we find that they are not true single-payer systems. Compared with proposals like Bernie Sanders’ Medicare for All, other countries’ health care systems are much more decentralized, and stop well short of paying for all care for everyone.

To get a health care system that is universal, affordable, fair, and efficient, the United States needs to learn from other countries’ experience and adapt it to specific American circumstances. Universal catastrophic coverage offers a more plausible model than an idealized single-payer system that exists nowhere else.

For a full discussion, check out the slideshow of my July 5^th presentation to the Cracker Barrel Society of Northport, Michigan.

High-Risk Pools, Reinsurance, and Universal Catastrophic Coverage

The most challenging problem in health care policy is how to deal with the very tip of the cost curve — the 10 percent of the population who account for two-thirds of all personal health care spending; or among them, the 5 percent of the population who account for half of all spending; or among them, costliest of all, the 1 percent who account for a fifth of all spending.



The challenge is made harder still by the fact that insurance — in the traditional meaning of the term — is not an option. A large percentage of cases at the upper end of the curve fail to meet two standards of insurability.

One is that an insurable risk must be the result of unpredictable chance. In reality, though, many individuals suffer from chronic conditions like diabetes that make them certain to require costly care for the rest of their lives. Others have genetic markers that make them medical time bombs from the point of view of private insurers.

A second standard of insurability is that the actuarially fair premium — one high enough to cover the expected value of claims — must be affordable. However, an actuarially fair premium for many people with costly chronic conditions would exceed their entire income.

There are several partial solutions to the noninsurability of high-end health care risks. Guaranteed renewal requires insurers to continue to issue policies to those who become ill, provided there is no break in coverage. Guaranteed issue, which requires insurers to accept any applicants, regardless of pre-existing health conditions, is an even stronger step in the same direction. Community rating requires insurers to charge the same premium, based on average claims, to everyone in a general category regardless of their health status.

The Affordable Care Act uses a combination of these requirements to ensure that people can buy health insurance at a standard price regardless of pre-existing conditions. However, doing so creates problems of its own. For one thing, these requirements make the system vulnerable to adverse selection since healthy people can remain uninsured and buy into the system only when they become ill. Also, even with community rating, spreading health care costs evenly over an entire population can mean unaffordably high premiums for people with low incomes.

That brings us to the subject of this commentary — policies that aim to cut off the top end of the cost curve in order to make health care more affordable and accessible for everyone else. High-risk pools and reinsurance are two ways of doing this. After reviewing the way these approaches work, we will explain how their benefits can be realized through a policy of universal catastrophic coverage (UCC).

How to Leave the Euro: A Practical Roadmap for Italy

The leaders of Italy’s new populist government say they do not want to leave the euro. Except, no one believes them.

They are on record as saying the euro was a bad idea. Until they were stopped by the President of the Italian Republic, they tried to appoint Paulo Savona, a well-known euroskeptic, as finance minister. Instead, they appointed him European Affairs Minister. In a recent book, Savona called the euro a “German cage” and wrote that “we need to prepare a plan B to get out of the euro if necessary ... the other alternative is to end up like Greece.” In short, it is not surprising that the new government’s commitment to the euro is in doubt.

When whenever the possibility that some country might leave the euro arises. Leaving abandoning one currency and introducing a new one just too difficult, they say. They point to the years of planning that went into launching the euro in the first place. They warn that a country facing currencies would face a host of problems, ranging from panicked runs on banks to the need to reprogram vending machines.

Ultimately, though, such technical difficulties are surmountable. If Italy decides to leave the euro, the key to success will be to learn from the experience of the many countries that have changed currencies in the past. Here is a practical roadmap, drawing on the imaginative, pragmatic, devices that other countries have used to ease the introduction of a new currency.