Arnold Kling  

We Need Less

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Robert J. Samuelson writes,


The central health-care problem is not improving coverage. It's controlling costs...Countless studies have shown that many tests, surgeries and medical devices are either ineffective or unneeded. Greater health-care spending forfeits any superior moral claim on our wealth by slowly crowding out other national needs. For government, higher health costs threaten other programs -- schools, roads, defense, scientific research -- and put upward pressure on taxes. For workers, increasingly expensive insurance depresses take-home pay as employers funnel more compensation dollars into coverage.

Recently, I made my campaign season pledge. If I were to put it into a slogan, it would be, "we need less." In health care, the need is to cut back health care spending. In education, the need is to reduce the number of students being unnecessarily or pointlessly shoved into college. In housing, the need is to reduce the inventory of unoccupied housing units and to reduce the extent of mortgage indebtedness.

The problem is that there are bootleggers and baptists coalitions pushing in the other direction. The bootleggers are the doctors, college administrators, home builders, and mortgage securities traders who want government to subsidize demand for their services. The baptists are the do-gooders whose causes are universal health care, more higher education, and affordable housing. When the baptists are able to get you to involuntarily part with your money to support their causes, the winners are the bootleggers. (Note: the original bootleggers and baptists model deals with regulation, not spending.)


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COMMENTS (11 to date)
Robin Hanson writes:

Great post, just like the pledge post you link to. In academia I see lots of baptists onmedicine and school, but few on housing - where are they hiding?

E. Barandiaran writes:

Arnold,
Among the bootleggers you should include the many professors, particularly professors of economics and law, that profit from selling their "public policy" services to governments, political parties, interest groups and the media.

Arnold Kling writes:

The affordable-housing crowd is not in academia. I think of the them as community organizers, but that is a loaded term these days. Today's Washington Post has a story that includes some of their voices, here:
link

Gary Rogers writes:

Somehow "We need less" doesn't have much more ring than John McCain's promise that times are tough and he will stand with us. A promise of free healthcare, affordable housing and educational assistance for everyone always sounds like a better deal.

My only hope is that the economic problems we are facing today are properly explained and we can gain from the experience. Your blog on the benefits of a fixed rate 20 percent down loan is an example. Too many people think that the sub-prime mess resulted entirely from too much securitized debt and complex financial instruments and never give the underlying value of the security a second thought. My worst scenario is that school children 20 years from now will be learning how the New Deal got us out of the great depression but then greedy capitalists duped everybody with their fancy securitized debt instruments and caused the crash of 2008. We need less is the right answer, but will never make it as a slogan. What we need is more economists who understand economics.

Brandon writes:

Arnold,

Great post but lumping doctors in with the bootleggers is not consistent with what most doctors want. A few of my close family memebers are doctors and they understand that they will never need government to sunbsidize their services. At 50-80 hours a week there is plenty of work to be done and doctors make much more money from insurance and health plans that are not government sunsidized.

Jim writes:
the winners are the bootleggers

And the people whose healthcare, education or housing is subsidised, obviously.

dearieme writes:

I suspect that "less" is precisely what many of us are going to get. Lots less.

RobbL writes:

Arnold,
Why do we need less? Let us make the mental experiment of a future where real anti-aging or anti-cancer treatments are available, but extremely expensive. What is wrong with spending say 50% of gdp on healthcare if it leads to a better, longer life? What else is there to spend it on? bigger houses, faster cars?

Mike writes:

The problem with our health care system (which Arnold has touched on in Crisis of Abundance) is that we can not simultaneously have unfettered access, insulation from the cost of health care, and affordability. At least one of these goals must be thrown under the bus!

As I see it, we are on a collision course between severe Baumol's cost disease in health care and the income elasticity of demand for health care greater than one, i.e., it is a luxury good. If we have government pick up most of the tab then we will not get the controlling factor of price elasticity of demand.

We have a case of moral hazard and time inconsistency giving rise to a tragedy of the commons. For those familiar with Prescott's work, all this will lead to what has been characterized as America taking a European vacation. Namely, the resulting rise in tax rates will induce the most productive segment of the labor force to cut back on work or to cash in their chips altogether and drop out of the labor force if they have amassed a sufficient permanent income. We will increasingly resemble Europe and loose our economic vitality resulting in increased tensions as the growth in the pie slows.

I will not elaborate on the above unless someone shows an interest in engaging in such a discussion.

I'm sympathetic to your general idea, but you seem to use ideologically skewed examples. Less war spending is a glaring example. I'm aware health care subsidization is one of the biggest economic drains, and maybe subsidized mortgages, but how does govt. subsidization of higher education stack up against war spending? I'd like to see this point made with less ideologically cherry picked examples, if that's what's going on here.

Paul Geddes writes:

I disagree.

Who are you to say that I am wrong to spend my money on that which I choose? If your post had been about overspending on video games or restaurants, you would have quickly seen the problem with your claim.

The two examples you give (overspending in education and health care) only seem to be overspending because these sectors of our economy have been greatly socialized. Why are you judging spending in these sectors differently from your usual rational and SUBJECTIVE economic way of thinking?

And the solution would not be for some government entity to reduce our spending in these areas. In British Columbia, a previous government was convinced by a smart UBC professor to "rationalize" health care spending, and we are still suffering.

You can't claim that we are overspending. All you can claim is that information has been taken from the consumer so that he can't make rational choices and that it is time that we returned responsiblity for spending decisions back to the consumers.

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