David R. Henderson  

Jonathan Gruber and Me

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Questions about Jonathan Grube... Rand vs. Evolutionary Psycholo...

Jonathan Gruber has gotten some negative press for not revealing that he received substantial payments from the Obama Administration while also writing a Washington Post article favoring Obama's proposed government interventions in medical care. The main thing I would add to the discussion is that newspaper editors hate it when you write a piece for them and don't disclose a financial relationship. When I was consulting for Microsoft, I told each newspaper editor, when I proposed a pro-Microsoft piece, that I was being paid by Microsoft. I remember telling that to an editor of the San Jose Mercury News op/ed page; the Mercury News is in Silicon Valley, of course, which was a hotbed of Microsoft resentment. I'll never forget the editor's reply: "My interest just fell from a 9 to a 2." He decided not to run a piece.

Jonathan Gruber's case is somewhat different. I was paid directly for every piece I wrote and I disclosed that fact. Jonathan argues, probably correctly, that he was not paid for writing the pieces. But I think he's too good an economist not to know that you don't have to be paid directly for there to be a conflict of interest.

Speaking of his being a good economist, Jonathan and I both testified on employer-mandated health insurance before Senator Edward Kennedy's Senate Committee on Labor and Human Resources in 1994. I was able to draw on Jonathan's own work to make the point, which he also made in his testimony, that the cost of mandated benefits is borne almost entirely by the employee. I argued that, in part because of the minimum wage preventing wages from falling below a certain level, the mandated benefit would destroy jobs. What I found striking about his testimony is that while he minimized the job loss that would result, he never gave estimates. I did.

This part of his testimony is the closest he came to giving the relevant number:

As I have tried to emphasize, the cost of compensation will not rise overall, so there will be no reason for firms to lay off their workers. And when you take these studies and make that more realistic assumption, in fact, the job loss estimates are much less than one-quarter of the job loss estimates that have been thrown around.
Now mine:
A government mandate that employers pay for their employees' health insurance will have three main effects. First, workers' wages will fall, as my colleague [pointing to Jonathan] has just pointed out. Second, some workers will lose their jobs. And third, the volume of goods and services produced will fall, causing prices to rise.

The main people who pay for employer-provided mandates are employees. And if you notice, there is no difference between us [again, pointing to Jonathan] on that. They pay either by having their wages cut, or to the extent wages are not cut, by being thrown out of work.

This finding is not controversial. Economists, whether or not they believe in mandates, do not kid themselves that employers pay for them. David Cutler, who defended employer mandates at the annual meetings of the American Economic Association, and who at the time was the senior health economist with President Clinton's Council of Economic Advisers, agrees. He agrees that workers will have their pay cut.


Now to the numbers on job loss. I testified:

What about the overall impact on jobs? According to the O'Neill study, the Clinton plan, with subsidies totally $40 billion a vear to cushion the impact, would still destroy 500,000 to 900,000 jobs. The O'Neills estimate that without those subsidies, the Clinton plan would destroy over 2 million jobs.

One of the most optimistic studies, done by Krueger, finds that the Clinton mandate, with the cushioning subsidies, would still destroy 200,000 to 500.000 jobs. So the low end of the O'Neill estimate coincides with the high end of the Krueger estimate, and they are supposed to be on opposite sides of this. Not bad for an imperfect science.

Interestingly, the President's own chief economist, Laura Tyson, said last October that the Clnton health plan could destroy 600,000 jobs. Dr. Tyson dismissed the importance of these lost jobs by saying, "Plus or minus half a percentage point of total employ-
ment is basicallv a rounding error." It is small comfort to the potentially half million people thrown out of work to be told that they are a rounding error.


This was on C-SPAN, by the way.


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