Thursday, February 10, 2011

Liberal voodoo economics

Repeatedly, I hear that repealing the health care law will cost hundreds of bilions of dollars. Whatever one's opinions of the law (I have mixed feelings),I find this claim nonsensical. My name for it is leftist voodoo economics. As many of you know, voodoo economics has usually come from conservatives --namely, the argument that tax cuts will pay for themselves and even increase revenue. This untenable dogma has been denounced by the entire economic establishment, including many conservative economists.

This claim about the health care law is on the same level of dishonesty. There is no reasonable argument that, for example, allowing "adult children" to stay on their parents' insurance until 26 is going to save money. The alleged savings come from increasing taxes and projected Medicare reductions that are unlikely to ever happen. It is a fraud, pure and simple. One of my favorite economists, Greg Mankiw of Harvard, makes a tongue-in-cheek argument against this nonsense at his blog:

Give me $1 billion to cut the budget deficit
I have a plan to reduce the budget deficit. The essence of the plan is the federal government writing me a check for $1 billion. The plan will be financed by $3 billion of tax increases. According to my back-of-the envelope calculations, giving me that $1 billion will reduce the budget deficit by $2 billion.

Now, you may be tempted to say that giving me that $1 billion will not really reduce the budget deficit. Rather, you might say, it is the tax increases, which have nothing to do with my handout, that are reducing the budget deficit. But if you are tempted by that kind of sloppy thinking, you have not been following the debate over healthcare reform.

Healthcare reform, its advocates tell us, is fiscal reform. The healthcare reform bill passed last year increased government spending to cover the uninsured, but it also reduced the budget deficit by increasing various taxes as well. Because of this bill, the advocates say, the federal government is on a sounder fiscal footing. Repealing it, they say, would make the budget deficit worse.

(Me again): every projection from the government for the cost of health care programs has been grossly understated. For example, Medicare has exceeded its initial projected costs at least tenfold. Disclaimer: this post does not mean I am against health care reform. I have been for national health insurance for the last 20years. I am simply arguing for intellectual honesty. The fact that an idea is good or even necessary does not mean it is without significant costs.

For liberal readers who think I am exaggerating my case against the law out of some right-wing bias, consider this fairly recent analogy. Remember what Iraq war supporters' cost projections as the war began. First, many argued the oil revenues would pay for the war. Then politicians admitted it might cost $50 billion. A conservative economist named Lawrence Lindsey got in trouble for being pessimistic enough to say it might cost $200 billion. Lindsey wasn't quite pessimistic enough: the cost has reached $1 trillion and counting. Lesson: government cost estimates are almost always on the low side, whether a Republican or Democratic administration is in power.

Irony: just after publishing this post, I saw an op-ed from Wall Street Journal from Arthur Laffer, a famous advocate of voodoo economics. Just an interesting coincidence, I think.