David R. Henderson on CBO and ObamaCare
The opening paragraphs from my new Mises Canada post:
The good thing about the Internet is that there is a Hayekian safety net: When a bunch of free-market economists are idiots and overlook an obvious point, eventually somebody comes along to rescue them. For today’s example, we have the arguments over the CBO’s estimate that the Affordable Care Act (ACA aka “ObamaCare”) will cause a reduction of the equivalent of 2.5 million full-time jobs in the U.S. labor market.
In previous posts (here, here, and here), I walked through the attempts of Paul Krugman and other ACA apologists to spin this finding as a good thing. Yet there was something incredibly obvious that I (and everybody else I have been reading) missed, until David R. Henderson pointed it outin a piece for the Hoover Institution. David writes:
Can’t stand the suspense? You’ll have to click the link.
That is pretty abstruse. Can you say it in one sentence? I’ll try: if you fine or tax people into making one of two choices you can’t really claim they are voluntarily better of solely because they choose.
The point of the article is that the healthy family that is working less to qualify for the subsidy is not necessarily better off because the policy is still overpriced even with a subsidy.
Obamacare’s clever gimmick is that it taxes you for being healthy. The tax is not paid to the govt. It’s paid to the insurance company.
Without Obamacare the policy would cost healthy 3500. With Obamacare and the subsidy, the policy costs the healthy family 4000 and on top of that they are working less to qualify for the subsidy.
The upside is that the unhealthy family is now covered.
Being an ACA apologist means helping the Obama administration conceal the costs. Obamacare is all about hidden costs. Discovering the hidden costs is like peeling an Onion (tears included).
“The upside is that the unhealthy family is now covered. ”
I don’t even agree with this. Insurance is for healthy people.
You all are so silly. If someone doesn’t value Obamacare at $4000, it’s because they are _dumb_. They don’t know what’s good for them! Which is why we have to force them to buy insurance, since they’re too dumb to value it properly on their own.
/sarc
Oh you must be one of those usual suspects Krugman talked about who just wants to force people to work for their own good ignoring people’s revealed preference through their actions:
“Why, then, are the usual suspects so incensed? Partly because they don’t understand any of this. Beyond that, there’s a moralistic streak: people should be forced to work, for their own good, you see (are there no poorhouses?).”
“For those who choose to work less, this is a clear gain – otherwise they wouldn’t do it!”
http://krugman.blogs.nytimes.com/2014/02/10/why-do-you-care-how-much-other-people-work/
You are obviously just a hater of the poor and unlucky who just cannot accept when people make a voluntary choice (And no, people becoming unemployed because of a fall in AD who refuse to accept pay cuts has nothing to do subjective values or a voluntary choice; quite the opposite, this is just caused by rigid wages and is involuntary). Of course subsidies are paid voluntary. You see if people would not want to pay for them, they would just quit their job and become beneficiaries of those subsidies themselves.
/sarc
“Why do you care how much other people work?”
Because if people CHOOSE to work LESS or NOT AT ALL but still feel entitled to the money and resources EARNED from those of us CHOOSING to work as much as we can, then we’ve got a big problem on our hands as this is just the first step towards a full-scale societal breakdown….more and more people will continue to drop out of the labor force but still partake in the fruits of others’ labor….and the parasite will just keep growing until it destroys the host.
This level of idiocy would almost be funny if the people who peddled it weren’t so serious and authoritarian and if the consequences weren’t so scary.
Krugman: “For those who choose to work less, this is a clear gain—otherwise they wouldn’t do it!”
The audacity of that man. Actually, we need to run endless scientific tests to see if that really is the case.
Heh, that’s just what I was thinking. That statement needs many more regression equations and greek-letter variables…
I think 3 issues totally separate issues are being talked about interchangeably.
1. If you are mandated to buy a good and you get a subsidy toward the cost of that good then you will be worse off if the utility you get from the good is less than price – subsidy.
2. Being forced to buy this good may affect your supply of labor. If you gain from it you will probably work less. if you lose (like the families in Henderson’s example) you will probably work more.
3. If the subsidy is means-tested then this will affect the labor-supply. Means testing may affect marginal real wage rates and cause people to supply less labor than if the subsidy is not means tested.
All 3 effects seems like basic economics to me. Just something about ACA is causing them to be highly politicized.
The subsidy only applies if you have 25 employees or less and the average annual wage is 50K or less.
So credit is means tested, kind of.
What a mess.
IT would be much simpler to allow everybody to claim health care cost as a tax deduction on their 1040. OR better yet, increase the standard deduction.
I love it when bureaucrats and politicians trick themselves into believing they are running a business.
Oops, I just realized everything I said is related to small business owners, form 8941.
I followed Bobs link to Hoover and see that there is an another mess of puppet strings for individual policy holders.
If there is no subsidy and people are just forced to purchase a good they would not otherwise buy , then
1. they are clearly worse of as a result
2. they will likely work longer hours as a result.
Oh no, you aren’t considering aggregate demand!
If we force people to buy things they don’t want, they will be poorer as a result, which might push them into collecting welfare and other benefits, which we all know increase aggregate demand, which greatly benefits the economy as a whole!
That’s the problem with Austrians. We just aren’t smart enough to follow the long chains of Keynesian logic.
Krugman is fond of the fallacy of composition. Is an economy “Better off” if labor participation goes down? Nearly by definition the answer is no.
I would argue that those people will tend to work less hours as a result. If you reduce the real utility of working you (comparatively) increase the real utility of leisure.
That might be the objective… if overall productivity has increased and government is looking for ways to discourage people from competing with one another too strongly. Somehow I feel that productivity has increased a lot more in other parts of the world than it has in the USA, but that’s just gut estimate.
I was thinking about it as like a lump sum tax.
If you previously worked 20 hours for $1000 and someone makes you pay a poll tax of $500 then you’d be forced to work 10 hours just to pay the tax. And while you might not work enough hours to make your disposable income as high as before you would probably still work longer as a result.
This does seem to be a boring way to communicate what should be a powerful insight: Krugman et al are confusing “this person chooses the best of their options” with “the options people have are better than the ones they had before”.
It’s like if I mugged someone and said “this person had the option of giving me money or being shot. They chose to give me the money. Therefore, the Affordable Mugging Act made them better off.”
– Yes, the victim will “re-optimize” within the new “mugging regime”.
– No, they are not better off as a result of having been moved to that regime.
(Well, except that anyone on the other side who reads that analogy is going to jump on the mugging/taxation comparison and miss the broader point.)
Silas I tried to come up with a really good analogy, in which the person did less of an activity that we normally we want them to do (like working in this context), but it was tricky.
“This prof had the option of teaching the law of opportunity costs and having to listen to Krugman’s bull sessions, or not teaching and gauging out his right eye out with a rusty spoon. He chose the spoon.”