Sunday, November 30, 2008

A Case for Employer Mandates

The consensus on the political left seems to be that a single payer health care system is the best approach if you are designing a system from scratch. The alternative, building on the existing system to provide universal coverage, is generally seen as somewhat inferior from a policy point of view, but much more politically feasible because you can transition to it without forcing people to give up their existing coverage.

I was therefore interested to see a 1989 paper by Lawrence Summers, who is slated to head Obama's White House National Economic Council, that takes a somewhat different point of view. The paper discusses mandated benefits in general (it is not limited to health care), and makes the case that mandating benefits is more efficient than having the government provide the same benefits out of tax dollars. It also lists some downsides to the use of mandates. Summers' basic concern is to argue that economists should pay more attention to the differences between mandated benefits and benefits provided directly by the government, and therefore he doesn't deal with the question of when the benefits of mandates outweigh the drawbacks. It is interesting to see that there are arguments for mandates (as opposed to single payer) that don't depend on political considerations or transition costs. The complete paper (in PDF format) can be found here.

I suppose I should give a hat tip to Pjeman Yousefzadeh at, although his posting is stupid on many levels, one being that he misreads Summers' paper so badly that I suspect he didn't actually read it at all.

Monday, November 03, 2008

Big Government Ahead?

David Brooks is about eight years too late with his column titled Big Government Ahead. Government spending has grown faster under Bush than anything we've seen in recent memory. For some reason Brooks counts tax cuts as spending, which would make Bush's record look even worse.

So what will happen to government spending going forward? If McCain is elected, he has talked about controlling spending, but I don't know how serious he is about that. McCain is willing to tell blatant lies in order to win this election, so it's not clear we can believe him when he talks about what he will do if he is elected. His talk about cutting earmarks is not a serious approach to controlling the budget, because earmarks are generally for small amounts of money. More recently, McCain has proposed freezing most of the budget for one year. That is a more serious suggestion, but it would face strong opposition in Congress. Freezing spending on programs such as unemployment insurance, which normally cost more during a recession, is both bad economics and bad politics.

Now let's suppose that Obama wins. When Obama states that he has explained how he will pay for all his proposals, he is describing something similar to "pay-go", the Congressional budgetting discipline which requires spending and tax cut proposals to include matching tax increases or spending cuts. Obama compares his spending proposals to a baseline which assumes that the Bush tax cuts are permanent. In contrast, the pay-go rules use a baseline in which the tax cuts expire. (That's because the expiration is current law, passed by a Republican congress and signed into law by Bush.)

What that means is that deficits will continue under an Obama presidency at something like the current level. It's fairly easy for a politician to run up the deficit; it is politically difficult to bring it down. My sense is that, after seeing how quickly Bush was able to wipe out Clinton's legacy of fiscal prudence, Obama isn't interested in spending a lot of political capital to bring down the deficit. On the other hand, Obama is indicating that he doesn't plan large increases, either. That means that the growth in government spending should be significantly slower under Obama than under Bush.

Obama's proposals don't take the current economic downturn into consideration. Depending on how the economy plays out, Obama may see a need for government spending to stimulate the economy. But doing that would involve a one time increase. I feel fairly safe in predicting that if Obama is elected, federal spending will grow more slowly during Obama's first term than it did during Bush's first term.