2015 Recess Reading Guide

Dive deeper into research you may have missed on today’s policy debates

Every August, Washington experiences an exodus from Capitol Hill as policymakers head back to their home states and staffers take much-needed vacations. August isn’t just a great time to get some R&R; it’s also an optimal time to dive deeper into economic policy research you may have missed in the hustle and bustle of the session.

Need more information on the upcoming SSDI debate? Data on the cost of regulatory accumulation? Health care? Mercatus scholars have you covered. Here are ten Mercatus research pieces that provide economic analysis useful in tackling upcoming policy debates.

1. Time Is Running Out to Fix Social Security and Medicare

Charles Blahous analyzes the recent Medicare and Social Security trustees’ reports in his recent columns at e21. Blahous is a senior research fellow at the Mercatus Center and has served as a public trustee for Medicare and Social Security.

As Blahous points out, the Medicare trustees’ report shows that the program is on an unsustainable path. The cost of Medicare is forecasted to grow dramatically in the years ahead, placing financial burdens on the federal budget and Medicare participants. The program’s current cost growth rate is unsustainable because it exceeds the rate of national economic growth. There remains a substantial risk that costs will be even greater than projected.

Likewise, Blahous discusses how the Social Security annual report shows that the program’s finances are on an unsustainable trajectory, which requires corrective legislative action. The insolvency date for the Social Security Disability Insurance (SSDI) trust fund remains unchanged at 2016. While the outlook for the program as a whole remains materially unchanged, another year has been lost to inaction.


2. Fortress and Frontier in American Health Care

Despite what looks like a fierce debate over health care policy, people on opposing sides are more alike than they realize. The US government has spent decades pursuing policies that obstruct health care’s capacity to save lives, ease suffering, and cut costs.

In a new study and video, Mercatus senior research fellow Robert Graboyes explains how we can refocus America’s health care debate to accomplish what should be the real goal of health care reform: better health for more people at lower costs year after year. The secret ingredient is simple: unleash innovation.

To replicate the kinds of revolutionary innovation seen in other fields such as information technology, health care policymakers need to discard the Fortress mentality that has constrained medical advancement and adopt a Frontier attitude, which tolerates calculated risks and welcomes competition from diverse practitioners and disciplines. The Frontier approach welcomes developments we can’t even imagine and will allow health care to become as dynamic as IT has been in our lifetime. That means accepting some risks and allowing genius to arise from unexpected places.


3. Political Incentives and Transportation Funding

With Congress focusing on passing a highway funding bill, a new study from economist Robert Krol finds that we need to change our approach to transportation spending.

According to Krol, government officials often overstate the benefits of large transportation projects while understating or ignoring the costs altogether. He offers two solutions: First, compare projected costs and benefits to the results of similar, completed projects. Second, give greater control to state and local governments who can better assess their own costs and benefits.

He provides further detail in an e21 op-ed, explaining that raising the federal gasoline tax or using corporate tax revenues will not solve our highway congestion problems.


4. The Code of Federal Regulations Is the Ultimate Longread

Regulations have piled up to the point where no one individual can make sense of them all.

The online tool RegData was created by Mercatus senior research fellow Patrick McLaughlin and Omar Al-Ubaydli to help us understand the size and scope of federal regulation and to enable researchers to learn more about the causes and consequences of regulatory accumulation. But why did we build computer programs to parse federal regulatory code instead of reading it ourselves? Because it would have been impossible to read the entire Code of Federal Regulations and make any sense of it.

The average adult reads prose text at a rate of 250 to 300 words per minute. If you read the Code of Federal Regulations at 300 words per minute on a full-time basis, it would take you nearly three years to get through just the version of the CFR published in 2012. That’s about 58 times longer than it would take to read through the five volumes currently published in George R. R. Martin’s fantasy saga, A Song of Ice and Fire. Or 220 times longer than it would take to read through The Lord of the Rings from the original R. R. of
fantasy, J. R. R. Tolkien.


5. First Principles of Congressional Budgeting

In his testimony before the House Budget Committee, Mercatus affiliated senior scholar David Primo discusses the need for a fundamental overhaul of the federal budget process.

Read more on ten principles of budget rule design in “Making Budget Rules Work” by David Primo, January 2014

First, he argues that Congress should treat the budget process as a means, not an end, and enact reforms accordingly. Second, given the fiscal challenges facing the country, now is not the time for minor fixes. Instead, it is time to think big and craft a process that drives legislators to produce credible and sustainable fiscal policy by constraining federal spending both today and tomorrow. Finally, any reform should include effective enforcement mechanisms, preferably constitutional in nature, to prevent the new process from suffering the same fate as the current one.


6. Ranking the States by Fiscal Condition

A new, expanded edition of the Mercatus Center’s “Ranking the States by Fiscal Condition” sheds light on states’ short-term and long-term finances. The project uses states’ own audited fiscal reports to create the most comprehensive state financial health rankings to date.

“These rankings are an early warning system for policymakers, journalists, and the public,” says Eileen Norcross, author of the study and Mercatus senior research fellow. “While no ranking can capture all of a state’s fiscal dynamics, these can serve as a tool to guard against short-term and long-term risks or economic shocks.”

Even states that appear fiscally healthy face substantial challenges concerning pension and health care benefits systems. Regardless of its fiscal health ranking, each state must take stock of its own strengths and weaknesses before making future public policy decisions.


7. Operation and Certification of Small Unmanned Aircraft Systems

Until now, the vast majority of innovation in unmanned aircraft systems (UAS) has occurred overseas. UASs — sometimes referred to as drones — could be one of the first emerging technologies in decades in which the United States does not possess a global competitive advantage in innovation and deployment. In many other countries around the world, including France, Germany, Australia, and Japan, blanket permission is granted to small drones weighing less than five pounds. These countries are already reaping the economic benefits of commercial drones.

In a public interest comment, Eli Dourado, Ryan Hagemann, and Adam Thierer argue that the Federal Aviation Administration (FAA) must carefully consider the potential effect of UASs on the US economy. If it does not, innovation and technological advancement in the commercial UAS space will find a home elsewhere in the world. Many of the most innovative UAS advances are already happening abroad, not in the United States. If the United States is to be a leader in the development of UAS technologies, the FAA must open the American skies to innovation.


8. How the Internet, the Sharing Economy, and Reputational Feedback Mechanisms Solve the “Lemons Problem”

Research from Adam Thierer and Christopher Koopman offers in-depth analysis examining how reputational feedback mechanisms in the sharing economy help to overcome the “lemons problem” and other market failures.

For decades, regulators have attempted to solve “the lemons problem,” which occurs when customers are less willing to pay for used cars because they lack information to help them distinguish between high-quality cars and “lemons.” Sellers then have less reason to sell high-quality cars, leaving the market flooded with lemons. According to the theory, this prevents many productive sales from ever taking place.

Reputational feedback mechanisms — buyers’ and sellers’ abilities to rate one another and share information about their interactions — can help correct these information deficiencies better than traditional regulatory approaches. The Internet and the expansion of the “sharing economy” have provided a solution to the information deficiency problem where regulations have been ineffective. The continued use of outdated regulatory approaches may be detrimental to consumers.


9. Should the US Export-Import Bank Be Reauthorized?

An increasing body of evidence shows that the Ex-Im Bank provides subsidized financing to big businesses at the expense of smaller businesses and taxpayers while doing little to promote exports, create jobs, or improve competitiveness of US firms. Mercatus senior research fellow Veronique de Rugy’s extensive research suggests that removing this source of government-granted privilege could help US exporters and the economy.

In this chart, Veronique de Rugy shows that Boeing remains the primary beneficiary of the bank’s taxpayer-backed financing.

The Ex-Im Bank fails to promote exports, create jobs, or support small businesses. Rather, the Ex-Im Bank privileges subsidized firms over their unsubsidized competitors, draws capital away from other unsubsidized borrowers, and puts taxpayer money at risk, all while making US businesses less dynamic and less efficient.


10. The Dodd-Frank Wall Street Reform and Consumer Protection Act May Be the Biggest Law Ever

This summer marked the fifth anniversary of Dodd-Frank, the law that has regulated the financial industry since 2010. At 848 pages long, the Dodd-Frank Wall Street Reform and Consumer Protection Act is the longest and most complex piece of financial legislation in American history and has resulted in hundreds of new rules.

This chart series by Patrick McLaughlin and Oliver Sherouse demonstrates the dramatic increase in regulatory restrictions unleashed by Dodd-Frank. The chart below shows the number of new restrictions for all laws passed during the Obama administration through 2014.

Using RegData to connect specific regulatory restrictions to the laws that authorized them, Mercatus researchers show that Dodd-Frank outpaces every other major law passed in this administration.

For more analysis on Dodd-Frank, read Dodd-Frank: What It Does and Why It’s Flawed, edited by Hester Peirce and James Broughel.