As a University of Texas undergraduate student in the 1960s, John Goodman was elected vice president of the student body, and served briefly as president. At the university, politics was serious business, serving as a training ground for such future governors as John Connelly and Allan Shivers.
Rather than go into politics, as many student government leaders did, Goodman went to Columbia University to study economics. While there, he combined his experience in politics with his training in economics to write a dissertation using economic tools to analyze political systems. The manuscript and subsequent journal articles based on it were part of a new emerging discipline called “public choice.”
Goodman is one of the very few public choice economists who brought a background in real world politics to a study of the discipline. And he is the only public choice economist who founded and built a think tank, the National Center for Policy Analysis, based on public choice principles.[1]
Where Economics and Politics Meet
In the early 1970s, the standard textbook explanation of the role of government was benign. Governments exist, students were told, in order to do essential things the private sector will not do (e.g., produce public goods) and to correct private sector failures (e.g., regulate pollution). Yet a casual look around the world finds myriad examples of government policies that not only fail to improve on private sector activities, but actually make things much worse.
Indeed, much of Adam Smith’s Wealth of Nations was devoted to ways in which misguided government policies impede economic progress. Are these examples atypical, or is there something fundamentally and structurally defective about decision-making in the political sphere?
There were two theories at the time. Nobel Laureate James Buchanan and his colleague Gordon Tullock, among others, showed that democratic voting in theory could lead to unpleasant outcomes. At the same time, Nobel Laureate George Stigler developed a theory in which special interests “captured” the agencies that regulated them. Although these theories were developed by economists, they lacked the principle of “marginalism,” an idea advanced by the British economist Alfred Marshall near the turn of the previous century and which marked the transition of economics from “classical” to “neoclassical.”
Theory of the State. Goodman set out to do for political science what Marshall had done for economics. To emphasize the point, he titled his Columbia University dissertation “The Market for Coercion: A Neoclassical Theory of the State.” The theory begins with the observation that every public spending decision pits those who want more spending against those who want less; every regulatory decision puts those who want more against those who want less, etc. People can influence these decisions by voting, making campaign contributions, giving speeches, etc. The amount of effort they make divided by the benefit they hope to receive can be thought of as the “price” they are willing to pay to obtain a dollar’s worth of benefit from the political system.
The problem is that once a policy change is made, everyone who favors it realizes a gain – whether or not he contributed to the effort to secure it. And everyone who opposes the change realizes a loss – whether or not he contributed to the effort to stop it. Since it is in everyone’s narrow self-interest to “free ride” to some degree on the efforts of others, in politics people will almost never spend a dollar to get a dollar. Instead, their efforts will understate (and usually greatly understate) their actual economic interests. (For example, although the amount of money spent trying to influence federal elections appears enormous; it is a tiny fraction of the amount of largesse that flows from the federal government every two years.)
Goodman showed that people’s understatement of their real preferences in politics is not by itself a bad thing. What is bad is that we do not all understate in the same proportion. In his model, the political effort per dollar of expected benefit must be the same for all opposing groups on all issues in order to get optimal government decisions. But this is a condition that is virtually impossible to satisfy.
These results hold for virtually all political systems. And they hold regardless of how economic costs and benefits are measured. Conclusion: collective decision-making is inherently defective.
Implications for Specific Policies. Goodman’s neoclassical theory of the state subsequently had an enormous influence on the development of public policy ideas at the National Center for Policy Analysis (see below). For example, a very strong case for privatization of most government activities immediately follows from it. The reason: in general, the fewer decisions there are for government to make and the narrower the range over which government can exercise discretion, the fewer the number of bad decisions that will be made.
Take the case of municipal garbage collection. If a city’s only political decision is to accept bids and manage contacts with private companies, wages, working conditions, fringe benefits, etc., will be determined in the marketplace even if the city does not always contract with the best company. Conversely, if a city manages its own garbage collection, wages, working conditions, fringe benefits, etc., will become political decisions – and the potential harm from bad decision-making will be greatly expanded.
Or consider taxation. If government sets a single flat rate tax on all income, the rate is likely to be the wrong rate. But the harm done from choosing the wrong rate is almost miniscule compared to the resulting harm if government is allowed to make thousands of decisions about different features of the tax system.
Social Security is another example. If politicians are able to require people to save a portion of their income for retirement, the savings rate they choose will almost certainly not be optimal. But the harm done will be small compared to the harm that will result if politicians are allowed to make many more decisions – including the ability to spend saved funds on other programs.
An important discovery of public choice economics is the principle of “rational ignorance.” People will not invest a great deal of time and energy learning about complicated regulations (even if the regulations are personally very harmful) if they believe that the investment will have very little personal payoff for them. Knowledge by itself doesn’t change laws. Another finding is the principle of concentrated costs and benefits. If the benefits and costs of regulatory changes are shared by a small number of entities, the incentives to get together and lobby as a group are much greater than if costs and benefits are dispersed over many people. These principles help explain why regulatory agencies tend to favor regulated industries rather than consumers.
Another principle concerns the ratchet effect of policies over time. Cash benefits (such as Social Security checks) are very visible – so the cost of information about the benefit is low. Groups such as AARP evolve and provide more information as well as a mechanism for expressing political will. Thus, political pressure for larger benefits grows over time.
The NCPA applied these same principles in developing its own proposals to empower individuals and reduce the size of government. Private Social Security retirement accounts, personal health savings accounts, worker-owned unemployment insurance and workers’ compensation accounts – all are based on the ideal of a ratchet effect. As more people acquire these accounts and as the balances grow over time, political support for them will grow exponentially.
Academic Entrepreneurship
Sir Anthony Fisher in many ways was the godfather of the think tank movement. After starting the Institute for Economic Affairs in London (Margaret Thatcher’s think tank), he went on to help set up as many as three dozen think tanks in countries around the world. Fisher knew about Goodman’s studies of the British health care and social security systems. The two first met at a Mont Pelerin Society Meeting at Stanford University in 1980. Shortly thereafter, Fisher encouraged Goodman to start the NCPA and he served as a founding board member.
Fisher called Goodman an “academic entrepreneur.” It was a judgment echoed a few years later when the Heritage Foundation profiled the budding new institute and called the NCPA “the new ideas think tank.”
The NCPA’s entrepreneurial approach to public policy has two roots: (1) insights developed from public choice theory and (2) the ability to find and recruit scholars with cutting edge ideas and develop and market their work.
Privatizing Government Services. In 1984, the NCPA did something that in retrospect seems quite remarkable. With the help of the Reason Foundation, this one-year-old new kid on the block introduced the concept of privatization into the U.S. public policy debate.
Goodman convinced Adam Smith Institute president Madsen Pirie to write a monograph on Margaret Thatcher’s ten techniques of privatization (e.g., if you can sell it, sell it; if you can’t sell the whole, sell a part; if you can’t sell any of it at least corporatize it, etc.); and the two institutes presented the results to the conservative public policy community at a conference in Washington, D.C. In attendance were Ed Feulner (President of the Heritage Foundation), Ed Crane (President and CEO of the Cato Institute) and Gordon Tullock, one of the founders of public choice economics.
Pirie’s book and the conference proceedings were widely distributed in the United States.[2] At the local level, a privatization revolution was soon underway and continues to this day. The NCPA publications were also widely used in privatization efforts elsewhere around the world.
Reforming the Public Schools. To our knowledge the NCPA was the first organization in the United States to publish a report card on public schools. The report covered all school districts in Texas and was based on scores on state achievement exams.[3] Today such reports are commonplace. But the NCPA’s first report created a firestorm and was condemned at the time by teachers’ unions and the State Commissioner of Education. In another first, the NCPA also ranked school districts in the state based on efficiency – how well they achieved, given the students and resources they inherited.[4] More recently, the NCPA teamed with the Dallas Federal Reserve Bank Economist Lori Taylor to rank schools on how well they teach different types of students.[5]
An NCPA Education Task Force presented the case for school vouchers[6], and it so impressed NCPA board member Pat Rooney (then CEO of Golden Rule Insurance Co.) that he made a major effort to convince politicians in of his home state of Indiana to adopt the reform. After failing in the public sphere, Rooney created his own private voucher program – a move which led to a nationwide effort by philanthropists around the country.
In 2001, Goodman was invited to present the case for school vouchers at Howard University Law School, a traditionally all-black institution associated with liberal causes. Goodman’s presentation was published in the school’s law journal.[7]
Privatizing Social Security. In 1981, Goodman produced the first published monograph on private alternatives to government-run Social Security. It was a study for the American Enterprise Institute of the British system of allowing employers to contract workers out of the public system by providing a minimum private pension benefit.[8]
This interest in foreign systems continued at the NCPA. Beginning in the 1980s, the NCPA published a series of studies on reform efforts in other countries, culminating with World Bank economist Estelle James’ study of private retirement accounts in 30 countries.[9] The NCPA also was the first think tank to measure the present value of taxes and benefits under Social Security and Medicare, culminating with the state-of-the-art study by Boston University economics professor and NCPA Senior Fellow Laurence Kotlikoff.[10]
In the late 1990s, the NCPA provided financial support to economist Tom Saving and his colleagues at Texas A&M University, to conduct state-of-the-art modeling of Social Security and Medicare. Subsequently, President Clinton appointed Saving and Syracuse University economist John Palmer as the two independent (private sector) Trustees of Social Security and Medicare; and President Bush recently reappointed them. Together, Saving and Palmer instituted a radical change: the government’s annual Trustees’ report now includes the total unfunded taxpayer liability under both programs. Each spring, the NCPA invites the two Trustees to brief Congress on these liabilities immediately following the formal release of their report.
During 2005 Saving made advance speeches in cities visited by President Bush, and Goodman made appearances with HHS Secretary Leavitt in an effort to educate the public about the need for reform. Saving, James, Kotlikoff, Goodman and other NCPA scholars frequently testify before Congress, participate in briefings, appear at conferences and give speeches in support of reform.
Perhaps of greatest value in this effort is the computer modeling capabilities developed by Saving as a result of the NCPA’s funding. The NCPA is the only think tank that can model all major reform plans.
Privatizing Medicare. The unfunded liability in Medicare is about six times the unfunded liability in Social Security. In fact, without Medicare we could probably muddle through with Social Security. But we cannot muddle through with both programs, to say nothing of Medicaid. In recognition of this fact, the NCPA in the 1980s became the first think tank to develop a plan for a fully funded private alternative to Medicare.[11] Saving and his colleague Andrew Rettenmaier, developed a more sophisticated version of the idea in 1996.[12]
Short-term reforms to Medicare may be just as important as long-term reforms. In two separate studies for the NCPA, Milliman & Robertson concluded that if Medicare and Medigap insurance could be combined, paying one premium to one plan, that plan could look very much like the insurance plans non-elderly Americans have.[13] In other words, we could have avoided a costly prescription drug benefit – and a new unfunded liability, twice that of Social Security with the right kind of reform! Clearly this issue will have to be revisited.
Empowering Patients with Health Savings Accounts. In 1994, John Goodman and Richard Rahn (then Chief Economist for the U.S. Chamber of Commerce) wrote a Wall Street Journal editorial on Medical IRAs. That same year, Singapore introduced a system of Medisave accounts; and a decade later, South Africa introduced Medical Savings Accounts. In all its versions, the central idea was the same: Instead of having third-party payers pay all medical bills, individuals should manage some of their own health care dollars and reap the benefits and bear the costs of decisions they make.
In 1990 the NCPA sponsored a task force report on health care reform, reflecting consensus views of representatives from more than 40 organizations (including the American Enterprise Institute, the Hoover Institution, the Cato Institute and others).[14] In 1992, John Goodman and Gerald Musgrave expanded on the task force report recommendations in Patient Power, a book published by the Cato Institute.[15] At the time, no one knew how important these ideas were to become.
In response to Hillary Clinton’s efforts to transform the health care system in the first Clinton administration, the Cato Institute printed an abridged version of Patient Power and distributed 300,000 copies. Senate Republications, drawing on input from Goodman and other NCPA health scholars, put together a health plan that garnered more than 40 sponsors. That marked the death knell for Hillary Clinton’s health care plan.
The single most important idea in the Task Force Report, in Patient Power and in the Senate Republican Health bill was Health Savings Accounts. (More on that idea below.)
Formulating a Pro-Growth Tax Policy. In 1991, NCPA, along with the U.S. Chamber of Commerce, produced a pro-growth policy agenda – focusing on five key tax cut ideas to lift the U.S. economy out of recession at the time.[16] The ideas were:
- Capital gains tax cut
- Depreciation indexing
- What is now called the Roth IRA
- Elimination of the Social Security earnings penalty for seniors who work, and
- Abolition of the Social Security benefit tax (which turns out to be a tax on investment income).
The five tax ideas were quickly incorporated into different pieces of legislation, including a DeLay-Wallop bill, a Gramm-Gingrich bill, a Kasten bill, and others. Eventually they became the core tax ideas in the Contract with America. Three of them are now law and two of them (Roth IRA and the earnings penalty repeal) would probably not be law today if not for the efforts of the NCPA.
What should be the goal of tax policy? In a number of NCPA studies since the early 1990s, economist and NCPA Senior Fellow Gerald Scully of the University of Texas at Dallas has argued that the aim of tax policy should be to maximize the rate of economic growth.[17] Building upon the insight behind the famous Laffer curve (that lower tax rates can yield higher revenues), Scully showed that lowering taxes can also raise the rate of economic growth. According to his calculations, the U.S. tax burden has exceeded the optimum since 1949. As a result the economy has grown more slowly, Americans are less wealthy and government has fewer resources.[18] The situation is even worse in developed countries with higher tax rates.
More recently, Goodman and Kotlikoff have investigated three ways of replacing the income tax with a consumption tax: (1) a flat tax, (2) a value-added tax, and (3) a national sales tax.[19] A criticism of the Armey/Forbes flat tax is that it favors the wealthy over the middle-class. To overcome that objection, the Goodman/Kotlikoff flat tax includes Social Security taxes and makes the marginal tax rate the same for all wage income. Goodman wrote a full page editorial for Forbes on the idea, under the heading “A Kinder, Gentler Flat Tax.”[20]
Under all versions of a consumption tax, a tax on estates would be abolished. In response to the argument that a death tax is needed to prevent the perpetuation of dynasties, first-of-its-kind NCPA research shows that few of the assets of wealthy people came from inheritance.[21]
Promoting Economic Freedom. Economic growth and economic freedom are closely linked; freer economies tend to grow faster. Economically free countries also tend to be democratic and have legal systems that protect individual rights.[22] In order to determine what economic policies will promote and preserve democratic institutions and human rights, it is essential to measure economic freedom. In the 1990s, the Fraser Institute in Canada developed assembled scholars from other think thanks around the world to develop an economic freedom index based on objective criteria. The report is published annually in conjunction with the Cato Institute. In recent years, the NCPA and Fraser Institute have jointly produced and published Economic Freedom of North America, a unique report that rates and ranks every U.S. state and Canadian province according to tax, spending, regulations and other public policies that affect economic growth and the vitality of democratic institutions.[23]
Protecting the Environment. In 1986, the NCPA published a study on all the ways in which misguided government policies were causing environmental degradation.[24] The conclusion: reining in government is as important as reining in private polluters. The author was John Baden, a leader in “new resource economics” and a founder of the nation’s two most important pro-free-enterprise environmental think tanks.
In another first, the NCPA gathered 76 representatives of think tanks and environmental organizations to produce a task force report on environmental issues. The theme of the report: too many people who claim to be environmentalists are economic reactionaries and hold many views that ordinary citizens reject. The task force report was entitled, “Progressive Environmentalism: A Pro-Human, Pro-Science, Pro-Free Enterprise Agenda for Change,”[25] the report had an immediate international impact; it was translated into Spanish and into Portuguese in time for the Earth Summit in Rio de Janeiro in 1992.
Subsequently, John Goodman worked with Reason Foundation Vice President Lynn Scarlett on several publications, including “A Consumer’s Guide to Myths and Realities,”[26] which was excerpted in Reader’s Digest. Many in the private sector credit this study as the turning point in the debate over solid waste public policy issues.
Beginning in the early 1990s, the NCPA became one of the very few organizations challenging exaggerated claims about global warming. One study, for example, surveyed every peer-reviewed study that had ever been done on the impact of global warming and concluded that no matter which result one accepts, the costs of trying to prevent global warming far outweigh the benefits.[27] In addition, the NCPA was the first think tank to hold a Capitol Hill briefing on the scientific debate and political controversy surrounding the issue of global warming. And in 2005, the NCPA published a first-of-its-kind study arguing that the appropriate response to the potential negative impacts posed by global warming is focused adaptation rather than attempts to constrain energy use.
In addition, the NCPA promoted and popularized groundbreaking work by Harvard professor John Graham and his colleague Tammy Tengs, putting a human face on the impact of environmental regulations and the relative damage that could be prevented if we focused regulations where they would do the most good in terms of human health.[28] Graham was founder and director of the Harvard Center for Risk Analysis and later became the administrator of the Office of Information and Regulatory Affairs in the Office of Management and Budget in the present Bush Administration.
Most recently, NCPA Senior Fellow H. Sterling Burnett produced a study which argued that extending President Bush’s ownership society ideal to a range of environmental policy matters would improve the environment while reducing the federal deficit.[29]
Welfare Reform and Privatization. A decade ago, welfare reform was highly controversial. Some left-leaning experts predicted children would be starving in the streets. The NCPA countered with a study by Robert B. Carleson, Commissioner of Welfare in the Nixon and Ford administrations and an adviser to President Reagan.[30] Carleson argued that the federal government should block-grant welfare funds to the states. Paul Weyrich, founder and president of the Free Congress Foundation, says Carleson’s contribution to the 1995-96 debate was the most important of his career.[31]
The 1996 welfare reform was a resounding success, as caseloads dropped by an average of 50 percent nationwide. But the most important accomplishment, as documented in an NCPA study by former Congressional Budget Office Director June O’Neill, is that families who left welfare were better off, both financially and by their own estimate. Single mothers who left welfare got jobs and raised their incomes.[32]
In the 1980s, John Goodman proposed two radical ideas for reforming the welfare system. Although neither has been adopted, the Bush Administration and members of Congress have made several proposals based on the first idea and both have had a profound impact on conservative thought.
The idea behind “taxpayer choice” is that taxpayers rather than politicians should decide how to spend welfare dollars. For example, in 1994 total welfare spending was equal to about 31 percent of federal income taxes. Accordingly, under this proposal, each taxpayer would be allowed to allocate up to 31 percent of his income taxes to qualified charities and receive dollar-for-dollar reduction in income tax liability. Furthermore, for each dollar allocated privately within a state, the federal government would reduce welfare grants to the state by an equal amount.[33]
The idea behind “Enterprise Programs” is that low-income families are all too often denied the benefits of a competitive, market economy because they are priced out of the market by special interest regulations. Under this proposal, suppliers of essential services (housing, medical care, transportation, education, etc.) would be exempt from most regulations if they serve low-income customers. Enterprise programs would have been by far the most efficient way of meeting the needs of families displaced by Katrina.[34]
Reforming Retirement Pensions. In 1984, the NCPA became the first national think tank to declare that the traditional defined-benefit pension system was broke. “Private Pensions in Crisis: The Case for Radical Reform” noted that many private pension promises were unfunded, just as Social Security promises are unfunded, and that socializing the private pension system through government insurance was no answer. A better solution is the TIAA-CREF system for employees of colleges and universities – a system of defined contributions, portable benefits and independent management. (Later, the NCPA would point to the system as a model for portable health insurance as well.)
Although the NCPA originated the idea of the Roth IRA and has been highly supportive of 401(k)s, the individualist approach to retirement savings is not working as well as it should. Participants in 401(k) plans, for example, tend to make one or all of these mistakes: (1) they do not join the plan (and thus miss the employer match); or if they join they tend to (2) invest in what they know (their employer’s stock), or (3) invest in what is safe (money market funds). The first investment choice is too risky and returns from the second are too low.
To improve on the performance of these plans, the NCPA and the Brookings Institution joined in a right/left coalition and proposed that employers automatically (1) enroll all employees, (2) invest in a diversified portfolio, (3) follow a life cycle investment strategy and (4) convert to an annuity at retirement. Employees would, of course, be allowed to opt out. Employers who do these things would receive safe harbor from lawsuits and be granted certain other regulatory relief.[35]
The NCPA and Brookings also conducted bipartisan Capitol Hill briefings for the House and the Senate. Elements of the proposal constitute the essence of 401(k) reform in the recently passed pension reform bill (they are by far the most important part of the bill).
Reforming Other Workplace Social Insurance. Just as the NCPA has been virtually alone in tackling problems of employer retirement programs, it has also been a lone pioneer in addressing other social insurance programs that are forced on employers.
In 1988, the NCPA became the first think tank to show how the nation’s unemployment insurance system encourages employers to layoff workers and encourages workers to remain unemployed after they have been laid off.[36] Subsequently, the NCPA proposed a system of private accounts.[37] A version of this idea has been implemented in Chile and a different version has been proposed by the Bush administration.
The NCPA will soon publish another first-of-its-kind report: an analysis of the workers’ compensation system.[38] As now structured, the system encourages workplaces to be less safe than they otherwise would be and causes health care and disability costs to be higher than they need to be. A system of private insurance, similar to what currently exists in Texas, would be a better solution.
Along with other organizations, the NCPA has published analyses of minimum wage laws. However, the NCPA has proposed a unique amendment: let health care costs count (along with wages) against the minimum requirement. Otherwise, employers will cut back on health care (and other non-wage benefits) in order to pay higher money wages.[39]
Issues that Affect Baby Boomers. Another one-of-a-kind NCPA publication is “Ten Steps to Baby Boomer Retirement.”[40] In addition to the retirement income problems discussed above, post-retirement health care costs will be a rude shock to the 80 percent of baby boomers who are likely to retire before they become eligible for Medicare. Among the solutions: give retirees tax relief when they pay their own premiums and let employers give retirees pretax dollars to purchase individually-owned insurance.
Reforming Criminal Justice Policies. The NCPA was the first think tank to apply economic principles to questions surrounding the criminal justice system, proposing ways to reduce crime and recidivism. In a series of original studies the NCPA showed that the surest way to reduce crime is to increase expected punishment. That is, as the probabilities of arrest, prosecution, conviction, imprisonment and length of sentences increase for any particular crime, the rate of that crime decreases. In addition, NCPA studies demonstrated that putting prisoners to work behind bars through either contract work with the private sector or by entirely privatizing a prison, lowers rates of recidivism by improving prospects for prisoners beyond their lives in prison. The NCPA also produced a study that argued that lawsuits filed by cities against firearm manufacturers to recover the costs of crime would actually increase crime rates and the costs of those crimes.[41]
Building the Country’s Most Entrepreneurial Think Tank
The NCPA is a nonprofit institution – but it is run as a business. It invests in new programs and judges its success by return on those investments. The organization follows many of the Sarbanes-Oxley guidelines, although not legally required to do so. There is a five-year plan. There is a succession plan, including key-man insurance. Other successful think tanks are also run like businesses, applying business techniques to the world of ideas. But perhaps because the NCPA is younger and smaller, it has been more innovative and entrepreneurial.
Filling a Market Niche. When the NCPA was formed in 1983, there were older, larger think tanks already in existence. The rule of the NCPA was to fill a market niche. Ronald Reagan was president and existing right-of-center think tanks tended to focus on the President’s agenda. The niche for the NCPA was all of the items that were not on Reagan’s agenda: reform of Social Security, health care, employee benefits and other social insurance issues. As it turns out, these are the hardest areas to reform, not only in our country but all over the world. However, by investing in these especially hard to solve issues, the NCPA built up expertise and institutional memory that could be brought to bear in later years when the body politic was ready to address them. And there are results: for example, Health Savings Accounts for health care, the push for Social Security reform, and growing interest in true Medicare reform.
Locating Outside of Washington, D.C. In recent years, there has been a tendency for all organizations interested in pubic policy to move to Washington, D.C. – if they were not already there in the first place. The problem is that there is enormous pressure on everyone within the Beltway to concentrate on what Congress and the administration are focused on. To fail to do so is to risk being characterized as irrelevant. It is in this way that the D.C. environment stifles creative thought.
In general, if you want to think about what Congress is not thinking about (and is unlikely to think about any time soon), you need to do your thinking away from Washington. That was the NCPA’s guiding strategy in the early years. The organization opened a Washington office only when it was clear that Congress was ready to focus on some of the key NCPA proposals. The year was 1994, and the core tax ideas in the Republican Contract with America came directly from a pro-growth proposal generated by the NCPA and the U.S. Chamber of Commerce.[42]
The NCPA continues to have an active Washington office, but its objective is narrow and focused: to provide Congress and the administration with research, testimony and advice from NCPA scholars and to conduct conferences and briefings on issues of direct interest on Capitol Hill.
Choosing the Right Organization Structure. In general, think tanks that were formed before the emergence of the Internet tend to follow the “one roof” model. The idea is to bring a diverse group of scholars together in one place, so they can interact face-to-face. One reason for this was communication. Forty or 50 years ago, costs of communication from campus to campus were quite high relative to what we experience today.
For think tanks formed in the classical liberal tradition, there was also another reason. In the early 1970s, the Reason Foundation attempted to compile a list of all of the liberal arts faculty in the entire country who believed in free markets and personal liberty. The actual criteria were quite loose. They basically included everyone who was not a socialist or a Hubert Humphrey liberal. Even so, the list was very short – only 15 or 20 names.
In those days, if you were a classical liberal teaching at a university, you were probably the only one on your campus. There was literally no one else to talk to who was like-minded. So places like the Hoover Institution served a valuable function. They brought people together who would otherwise be intellectually isolated.
Today, things are different. The academic world is teeming with scholars (especially economists) who believe that markets work and that they are powerful engines of social change. In addition, the Internet has made communication cheap, easy and immediate. As a result, almost all younger think tanks are based on a different model: they are organizations without walls. The NCPA’s tax specialist is in Boston; the Medicaid expert is in Cleveland; the scholars who model Social Security and Medicare are in College Station, Texas; the Center for European Studies is in Washington, D.C.; and the administrative personnel are in Dallas.
Think tanks without walls typically have no endowments and are less well-funded than older organizations that try to assemble everyone under one roof. To make smaller budgets stretch further, they economize by contracting with scholars at other institutions rather than employing them. This means that the university pays all the overhead and the think tank pays only the marginal cost of the research it wants.
Marketing Ideas. The notion that ideas can be marketed like products is a fairly new concept. When the NCPA was started in 1983, the typical think tank report did not make use of bolded headings, bullet points for emphasis, “call-out” sentences or visually pleasing graphics. Executive summaries were virtually nonexistent. Annual reports were in black and white and the photos were typically of amateur quality. No think tank had a promotional video at that time, either. The NCPA introduced all of these techniques and today they are commonplace. But the techniques were not original. The NCPA copied them from the world of business. What was original was the insight that ideas can be marketed like products and think tanks could market themselves like a business enterprise.
Innovative Product: Brief Analyses. An early NCPA innovation was the Brief Analysis. These are on one sheet of paper, front and back. They cover a well-defined issue and are easy to read – with graphics, bolded headings and bullet points. They are not editorials; they are factual summaries. This pioneering innovation has been copied by many other organizations through the years.
Innovative Activity: Capitol Hill Briefings. Most large, Washington-based think tanks have their own buildings with special rooms for conferences and briefings – including Cato, Heritage, AEI and even the Hudson Institute. Lacking such facilities, the NCPA chose a much cheaper alternative: conducting briefings right in the hearing rooms on Capitol Hill. The NCPA estimates that attendance at such briefings doubles when Congressional staffers do not have to travel off the Hill. Today, many organizations – both on the left and the right – follow this approach.
Innovative Activity: Capitol Hill Press Conferences. Very few think tank studies are released by members of Congress. A 1990 pro-growth tax cut study was one of the NCPA’s first exceptions, released on Capitol Hill by more than 50 members of the House of Representatives. This was the first of many such events for the NCPA.
Innovative Activity: National Press Club Briefings. Hard to believe, but when the NCPA was formed, think tanks rarely held events at the National Press Club, just as they rarely held events on Capitol Hill. The NCPA went to the Press Club for the same reason it went to Capitol Hill. It had no venue of its own. And as with Capitol Hill, the organization discovered that when think tanks go to reporters, more show up than when reporters are asked to go to the think tank. The NCPA’s first NPC briefing was in 1984 on the subject of privatization, with NCPA president John Goodman and Adam Smith Institute President Madsin Pirie. The event led to front page coverage in the Washington Times.
Innovative Activity: Grass Roots Education on Medicare. In 1989, a series of NCPA studies highlighted the higher taxes on the elderly in the Medicare Catastrophic Coverage Act. Nobel Laureate Milton Friedman, the editors of the Wall Street Journal and many others credited NCPA studies as the primary reason for the law’s repeal – the first repeal of a major federal welfare program in more than a hundred years. At this time, the NCPA’s budget was less than $1 million, and the organization had no Washington, D.C., office. In a widely distributed memo, “How to Change a Law,” Goodman identified many principles guiding the NCPA’s successful strategies.
Innovative Activity: Television Debates. Firing Line was a public television staple for many years, but it gained new life when the NCPA became the first think tank sponsor. Produced and directed by Warren Steibel, William Buckley’s Firing Line programs sponsored by the NCPA included several dozen 30-minute segments and a half dozen two hour debates on such topics as the flat tax, privatization of Social Security and Hillary Clinton’s health care plan. With NCPA sponsorship, Steibel also produced Debates, Debates, an hour-long weekly PBS series. Topics for these debates included such questions as: “Is Managed Care Killing Us?” “Should Prisoners Have the Right to Work?” And “Can Social Security Be Saved?” The NCPA’s partnership with Debates, Debates provided us with yet another unique opportunity to discuss our free-market ideas directly and without filters.
Innovative Activity: Radio Commentaries. The NCPA also became the first think tank to sponsor a radio program, Talking to America. During their morning drive each day, NCPA Board Chairman Pete du Pont’s Focus Point radio commentaries were heard on almost 400 stations nationwide, including eight of the top 10 markets and almost 60 of the top 100 during the 1990s.
Innovative Activity: A One-Stop-Shopping Web Sites. The NCPA’s main Web site is one of the most extensive public policy sites on the Internet. All of the Web sites are customer-focused, meeting visitors’ needs with the best material available regardless of who produces it. Britannica.com named the NCPA’s main Web site one of the best sites on the Internet when reviewed for quality, accuracy of content, presentation and usability.
Innovative Product: Online Social Security Calculator. The NCPA maintains an online Social Security calculator. The calculator incorporates Census Bureau data from almost 500 occupations to compare what an individual of any given age, sex, income and occupation can expect to receive in benefits from the status quo system versus a system based on investment in personal retirement accounts. Users can determine what their estimated Social Security benefit would be and compare it with other options. Other organizations now offer Social Security calculators, but the NCPA’s is one of the first and among the most accurate available to users on the Internet.
Innovative Product: High School Debate Web Site. Debate Central’s goal is to introduce America’s future leaders to a new way of thinking about public policies – looking at both sides in solving major public policy problems. Last year (2004-2005), the site was awarded a Templeton Freedom Prize for Excellence in Promoting Liberty Award for Student Outreach.
Debate is often a student’s first exposure to public policy issues, yet the structure and materials supplied by traditional debate organizations promote the concept that the federal government alone can solve policy problems. Debate Central has a special niche in this market, providing young minds with materials not available anywhere else. The activity of debate, in itself, has numerous positive benefits for students. It provides the opportunity for students to learn about both sides of issues – an education that can propel them upward toward roles as our next generation of leaders. In fact, surveys suggest that up to 80 percent of today’s legislators participated in high school or college debate.
Innovative Product: Computer Modeling of Elderly Entitlement Programs. The NCPA funds a team of Texas A&M economists who have developed a computer simulation model to evaluate the economic and demographic factors affecting elderly entitlements. The project leader, NCPA Senior Fellow Tom Saving, is a Trustee of the Social Security and Medicare Trust Funds. He also served on President Bush’s Commission on Social Security Reform. The NCPA has used the model to evaluate a number of Social Security reform proposals and to assist members of Congress and the Bush administration in developing reform options.
Innovative Product: Computer Models of the Tax System. From the early days, the NCPA sought out economists with computer models of the tax system. The result: NCPA studies relied on scholarly, numerical estimates of the effects of public policies rather than relying on vague generalizations and opinions – so common in the think tank world. Today, the organization relies heavily on the modeling capabilities of Boston University economist Laurence Kotlikoff and his colleagues. Kotlikoff is a name often seen in the New York Times, the Wall Street Journal and in the financial press.
Innovative Activity: Grass Roots Education on Social Security. To address Social Security reform, the NCPA launched a volunteer effort called Team NCPA – www.teamncpathinktank.org – with the overall objective of reaching the people most affected by Social Security reform. Team NCPA members monitor news and alert the NCPA when the local media discusses Social Security issues. NCPA staff members then rapidly respond to counter any misinformation, or even disinformation, about entitlements. Team NCPA also educates policy makers, opinion leaders and the general public about the economic problems facing Social Security and the benefits of personal investment-based reform.
Innovative Research: Helping Empowered Consumers Shop for Health Care. NCPA Center for Health Policy has performed innovative applied research on some of the ways patients can manage their own health care and shop for medical care and drugs. Some of the NCPA’s applied research includes studies such as “Managing Health Care with the Internet,” “Shopping for Drugs and Consumer Driven Health Care: The Changing Role of the Patient.” In the fall of 2006 the NCPA will publish a study on Web-based entrepreneurs who are promoting transparency by removing the veil of secrecy that surrounds the price and quality of health care. The NCPA will also publish updated research on the cosmetic surgery market, where patients pay out-of-pocket and compare service for price and quality.
Innovative Activity: Rapid Media Response. The Rapid Response Initiative operates as a public relations machine. The idea is: do not sit back while the opposition floods the airwaves and print media with incorrect facts or other dishonest statements. Rather, respond to these attacks by drawing attention to the latest studies, cold hard facts, and expert analysis. Also, we commend the good judgment of articles and editorials that reinforce sound ideas and suggest related issues for media outlets to discuss. This program started with Social Security and now extends to environment and energy, and healthcare.
Health Care Rapid Response. As Health Savings Accounts and consumer-driven health care draw unprecedented attention, consumers are bombarded daily through media fear tactics and misinformation. To counter this the NCPA operates a comprehensive health care media campaign. The health care Rapid Response team monitors media coverage on health policy to ensure it contains accurate, unbiased information, and trained experts rebut fallacies and reinforce facts to make sure consumers, health care writers and editors, health policy analysts, K Street health care lobbyists, and legislative aides who specialize in health care get the real story.
E-Team. Environmental issues affect all Americans and in 2003 the NCPA launched the E-Team (E for “energy and the environment”) project with the overall objective of highlighting and publicize the pervasive, often hidden harms imposed by misguided or failed environmental policies on individuals and the public at large. The E-Team consists of more than 20 scholars who produce cutting-edge research about how free-market, private sector solutions protect the environment and enhance energy security and independence. E-Team scholars also produce cutting-edge research focused on free-market, private-sector solutions to protect the environment and enhance energy security and independence. On a day to day basis the team is managed by Sean Tuffnell, who handles the media and marketing side of the project, and H. Sterling Burnett, who manages the project’s publications and the content portion of the Web page.
The E-Team project includes a rapid-response program, developed by the NCPA to counter any misinformation on environmental issues. The NCPA daily monitors national news on environmental issues – print and broadcast media, and online. The NCPA responds either by encouraging more such reports and providing additional information or by correcting errors and supplying factual information.
Informing policymakers, the media, and the general public about the benefits of consumer-driven health care and the environment remains vital to solving this country’s public policy problems. If properly informed, the American people will endorse our initiatives. Rapid Response ensures that our proposals get a fair hearing in the American marketplace of ideas.
A third major tool of the E-Team project is its online presence. The project’s Web site is a clearinghouse of news and research on a variety of energy and environmental issues. It includes links to more than 4,000 research and news articles, and nearly one million have already been registered in 2006. Indeed, the number of visits to the E-Team Web site has more than doubled in each year of its existence. The E-Team Web site provides the most comprehensive coverage of environmental issues and market oriented environmental solutions.
The Special Case of Health Care
Think of every argument you have ever heard for socialism. The one area of life where those arguments have the strongest appeal is health care. The liberal commentator Robert Kutner put it this way: “The hardest institution for liberals to defend is the Washington, D.C. public school system; the hardest institution for conservatives to defend is a free enterprise health care system.”
If health care represented only a small part of the economy, the problem might be manageable. But health care already consumes one of every six dollars spent in the economy. And it is on a course to crowd out everything else.
Government at all levels in the United States currently spends about 7.2 percent of GDP on health care mainly on Medicare and Medicaid. Yet Larry Kotlikoff and his colleagues have shown that if benefits expand at the rate of the past 30 years and if the population ages the way demographers predict, spending will equal one-third of national income by mid-century, when today’s college students reach retirement age.[43] If that is not immediately alarming, note that one-third of GDP is roughly equal to government spending for all purposes today. If private spending on health care keeps pace with public spending, the nation will devote about two-thirds of national income to health care by mid-century – an amount roughly equal to total consumption of all goods and services today.
So in the public sphere, health care is on a course to crowd out every other government program – from education and roads and bridges to Social Security and national defense. And for the economy as a whole, health care is on a course to crowd out every other form of consumption, including food, clothing, housing, etc.
The implications of these forecasts are ominous in more ways than one. No matter what area of public policy is of most interest to you – capital gains taxes, education, defense, environment, etc. – health care spending is emerging as the single most important obstacle to government doing whatever else you want it to do.
In that sense, health care is everyone’s issue.
Looking Forward
As the NCPA approaches its 25th anniversary, the organization will celebrate 25 years of innovative ideas and proven results. Much has been accomplished. There is much more to do.
[1] There are, however, a number of university-based public choice programs including the Public Choice Center at George Mason University.
[2] Madsen Pirie (Adam Smith Institute), Dismantling the State: The Theory and Practice of Privatization (Dallas, Texas: National Center for Policy Analysis, April 1985); and John C. Goodman, Privatization (Dallas, Texas: National Center for Policy Analysis, October 1985).
[3] NCPA staff, “Report Card on Texas Schools” National Center for Policy Analysis, NCPA Policy Report No. 144, Jnauary 1990.
[4] Michael L. Davis and Kathy J. Haynes, “Efficiency and Inefficiency in the Texas Public Schools,” National Center for Policy Analysis, Policy Report No. 150, March 1990.
[5] National Centerfor Policy Analysis Website feature, developed Spring 2003. Available online: mykidseducation.ncpathinktank.org.
[6] “National Choice In Education: Opportunities For Texas,” Education Task Force Report, Texas Public Policy Foundation and the National Center Foundation Analysis, March 1990.
[7] John C. Goodman, “School Choice vs. School Choice,” Howard Law Journal, Vol. 45, Issue 2, Winter 2002, p. 374-394.
[8] John C. Goodman, Social Security in the United Kingdom: Contracting Out of the System (Washington, D.C.: American Enterprise Institute, 1981).
[9] Estelle James, “Social Security Reform Around the World: Lessons from Other Countries,” National Center for Policy Analysis, Policy Report No. 253, August 2002.
[10] Laurence Kotlikoff, Hans Fehr and Sabine Jokisch, “Aging, the World Economy and the Coming Generational Storm,” National Center for Policy Analysis, Policy Report No. 273, February 2005.
[11] John C. Goodman, Peter Ferrara, Gerald Musgrave and Richard Rahn, “Solving the Problem of Medicare,” National Center for Policy Analysis, NCPA Policy Report No. 109, January 1984.
[12] Thomas B. Saving and Andrew J. Rettenmaier, “Privatizing Medicare: The Permanent Solution to the Crisis,” Private Enterprise Research Center, Texas A&M University, Fall 1996.
[13] Mark E. Litow, “Milliman & Robertson – Defined Contributions as an Option in Medicare,” National Center for Policy Analysis, February 4, 2000.
[14] National Center for Policy Analysis, “Health Task Force,” June 9, 1991.
[15] John C. Goodman and Gerald Musgrave, Patient Power: Solving America’s Health Care Crisis (Washington, D.C.: Cato Institute, 1992).
[16] “A Strategy for Growth,” National Center for Policy Analysis and U.S. Chamber of Commerce, January 1992.
[17] Gerald W. Scully, “Tax Rates, Tax Revenues and Economic Growth,” National Center for Policy Analysis, Policy Report No. 98, March 1991.
[18] Gerald W. Scully, “What Is the Optimal Size of Government in the United States?” National Center for Policy Analysis, Policy Report No. 188, November 1994.
[19] Hans Fehr, John. C. Goodman, Sabine Jokisch and Laurence J. Kotlikoff, “Tax and Social Security Reform: Thinking Outside the Box,” National Center for Policy Analysis, Policy Report No. 275, September 2005.
[20] John C. Goodman, “A Kinder, Gentler Flat Tax,” Forbes, September 29, 2005.
[21] Jagadeesh Gokhale and Pamela Villarreal, “Wealth, Inheritance and the Estate Tax,” National Center for Policy Analysis, forthcoming.
[22] James Gwartney and Robert Lawson, “Ten Consequences of Economic Freedom,” National Center for Policy Analysis, Policy Report No. 268, July 2004.
[23] Amela Karabegovic, Fred McMahon, Dexter Samida and Glenn Mitchell, “Economic Freedom of North America, 2005 Annual Report,” Fraser Institute and National Center for Policy Analysis, 2005.
[24] John Baden, “Destroying the Environment: Government Mismanagement of Our Natural Resources,” National Center for Policy Analysis, Policy Report No. 124, 1986.
[25] Task Force Report, “Progressive Environmentalism: A Pro-Human, Pro-Science, Pro-Free Enterprise Agenda for Change,” National Center for Policy Analysis, Policy Report No. 162, April 1991.
[26] Lynn Scarlett, “A Consumer’s Guide to Environmental Myths and Realities,” National Center for Policy Analysis, Policy Report No. 165, September 1991.
[27] Stephen P.A. Brown, “Global Warming Policy: Some Economic Implications,” National Center for Policy Analysis, Policy Report No. 224, March 1999.
[28] John D. Graham, “Comparing Opportunities to Reduce Health Risks: Toxin Contol, Medicine and Injury Prevention,” National Center for Policy Analysis, Policy Report No. 192, June 1995; and Tammy O. Tengs, “Dying Too Soon: How Cost-Effectiveness Analysis Can Save Lives,” National Center for Policy Analysis, Policy Report No. 204, May 1997.
[29] H. Sterling Burnett, “Protecting the Environment Through the Ownership Society – Part One,” National Center for Policy Analysis, Policy Report No. 282, January 25, 2006.
[30] Robert Carleson, “Welfare Reform: Should There Be Strings Attached?” National Center for Policy Analysis, Brief Analysis No. 169, July 11, 1995.
[31] Paul Weyrich, “The Late Robert B. Carleson,” Salem Web Network, May 23, 2006.
[32] June E. O’Neiill and M. Anne Hill, “Gaining Ground: Women, Welfare Reform and Work,” National Center for Policy Analysis, Policy Report No. 251, February 2002.
[33] John C. Goodman, “Taxpayer Choice,” National Center for Policy Analysis, Brief Analysis No. 206, June 5, 1996. http://www.ncpathinktank.org/pub/ba/pdf/ba206.pdf
[34] John C. Goodman, “Aid to Katrina Victims: A Right/Left Consensus,” National Center for Policy Analysis, Brief Analysis No. 529, September 23, 2005.
[35] John C. Goodman and Peter R. Orszag, “Retirement Savings Reforms on which the Left and the Right Can Agree,” National Center for Policy Analysis, Brief Analysis No. 495, December 1, 2004.
[36] Raymond P. Thorne, “Paying People Not to Work: The Unemployment Compensation System,” National Center for Policy Analysis, Policy Report No. 133, July 1988.
[37] William Conerly, “Chile Leads the Way with Individual Unemployment Accounts,” National Center for Policy Analysis, Brief Analysis No. 424, November 12, 2002.
[38] William B. Conerly, “Is Workers’ Compensation a Model for Unemployment Insurance?” National Center for Policy Analysis, NCPA Brief Analysis No. 435, April 11, 2003; and N. Michael Helvacian, “Workers’ Compensation: Rx for Policy Reform,” National Center for Policy Analysis, forthcoming.
[39] Richard McKenzie and John C. Goodman, “Health Insurance and Minimum Wage,” National Center for Policy Analysis, Brief Analysis No. 306, October 26, 1999.
[40] John C. Goodman, Devon Herrick and Matt Moore, “Ten Steps to Reforming Baby Boomer Retirement,” National Center for Policy Analysis, Policy Report No. 283, March 2006.
[41] H. Sterling Burnett, “Suing Gun Manufacturers: Hazardous to Our Health,” National Center for Policy Analysis, Policy Report No. 223, March 1999.
[42] “A Strategy for Growth,” National Center for Policy Analysis and U.S. Chamber of Commerce, January 1992.
[43] Christian Hagist and Laurence J. Kotlikoff, “Health Care Spending: What the Future Will Look Like,” National Center for Policy Analysis, Policy Report No. 286, June 2006.