Bryan Caplan  

Why Not Health Care Austerity?

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If Economists Designed Health ... Tiebout Question from My Gradu...
Like Arnold, I just read Kotlikoff's plan to reform American health care.  I realize that my first-best proposal - separation of health and state - has almost zero political support.  But I'd still like to know why Kotlikoff ignores a far simpler and more reliable reform: Austerity.  As I've argued before:
Instead of pushing for "constructive" free market reforms, libertarians should doggedly focus on austerity: opposing spending increases, and pushing spending cuts.  Instead of trying to "privatize" Social Security, for example, libertarians should push for lower benefits, a higher retirement age, and means testing.  Instead of pushing for school choice, libertarians should try to restrain/shrink education budgets and push user fees.  If libertarians have any political success, this will automatically expand the role of the market.  After all, the less government does for people, the more they will do for themselves.  Dissatisfied with government provision, people will save more for their own retirement and spend more on private education.  In the limit, once the flow of government money ceases, voluntary exchange is all that's left.

Austerity has two major advantages over more "constructive" free-market reforms:

1. If anything goes wrong, public opinion is less likely to blame the market.  Government decided to spend less on X; how is that the market's fault?  Logically, people could simply reframe their complaints.  But psychologically, it's easier to point fingers at markets directly sanctioned by government action than markets indirectly prompted by government inaction.

2. Congress is also less likely to use austerity as an excuse for new kilo-page legislation.  Officially expanding market options takes "sweeteners."  Mere budget cutting, not so much.
I originally addressed this argument to libertarians.  But most of my points are relevant for anyone concerned about the government's fiscal future.  It's easy to be constructive.  But the best way to cut trillions of dollars from the budget is probably just to fall in love with the words "less" and "no."


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COMMENTS (9 to date)
Shangwen writes:

I agree with this. Although I have my own preferences for policy development, which are severely libertarian, the realist in me concedes that, if government must pull the strings, at least let it show cojones (yes, coercive monopoly power). This is perhaps the sole advantage to the Canadian system...the constant ability of government to try to rein costs in by mendaciously pleading poverty and rationing services through central planning.

I am NOT saying that Canadian spending levels are low, rational, optimal, etc. But they are 10% of GDP, rather than 16%, and while growing too fast they are slower than US growth. The higher growth rate is not to be blamed on the free market, which is nowhere to be found in health care except perhaps in gym memberships, but on rent-seeking enabled by political interference.

Having said that, Bryan, I am not sure how austerity could be sustained politically.

rapscallion writes:

It’s probably not a good idea in general to base political strategies on what you imagine reasonable people might infer from different possible policy outcomes; political success often can only come by manipulating prejudice and unreasonableness so that it works for you rather than against you. This is why I’m not really convinced by the logic of the post; you might be right about what reasonable, rational people ought to infer from the perceived success or failure of austerity, but there are few reasonable, rational people in the world.

Complicated hybrid public-private schemes often have a lot of appeal because people espousing them can feel wise and enlightened. They can tell themselves that they see the weaknesses and strengths of both the private and public sectors and use their wisdom to craft the optimal policy. This probably explains much of the appeal of educational vouchers.

Yancey Ward writes:

Austerity also has another benefit- with it, the politicians and the executive agencies would have increased incentive to find more efficient ways to carry out their duties. One of the reasons you seldom see follow through on actual good ideas in government is that the savings are never banked, and with so much of the budgets on autopilot, those doing the deciding and implementing have little incentive to find ways to do as much/or more with less. Necessity is the mother of invention, and the father of initiative.

Lori writes:

Why not voluntary austerity?

Necessity may be the mother of invention, but simplicity is the mother of luxury, like the luxury of not having to grub so much money or race so many rats.

Thoreau: "...instead of studying how to make it worth men’s while to buy my baskets, I studied rather how to avoid the necessity of selling them."

Lori writes:

I've been hearing that, yes, they are attaching riders to spending cuts. Boehner even mentioned them explicitly. The politics of small government is politics, and is also a package deal.

John T. Kennedy writes:

Caplan writes:

"Instead of pushing for "constructive" free market reforms, libertarians should doggedly focus on austerity: opposing spending increases, and pushing spending cuts. Instead of trying to "privatize" Social Security, for example, libertarians should push for lower benefits, a higher retirement age, and means testing. .... If libertarians have any political success, this will automatically expand the role of the market. "

If they get one out of three - means testing - does that count as any success?

You're of course right right that robbing Peter to pay Peter is crazy but wrong to think that robbing Peter to pay Paul is an improvment.

stuhlmann writes:

"Dissatisfied with government provision, people will save more for their own retirement and spend more on private education. "

and

"1. If anything goes wrong, public opinion is less likely to blame the market. Government decided to spend less on X; how is that the market's fault? "


Is there any evidence that people would actually save more for their retirement if you did cut benefits? I mean you hear of all these surveys where younger workers already have serious doubts that they'll ever collect a dime in social security benefits. Do these people put aside more for retirement now? If not maybe your premise is wrong. Maybe people will hope for the best and start badgering Congress when they hit 55.

If the goal of all this is for people to blame the government instead of the market, I would say that success depends on how the market performs. Having watched the value of my retirement portfolio take serious hits two times in the last decade, I would be seriously concerned about having to rely solely on that portfolio for my old age sustenance. I would also say that if government is going to play less of a role in people's financial security, then it also needs to plays less of a role in corporate financial security. You can't bail out businesses and simultaneously tell people that they are on their own.

Lori writes:

Why do I get the sinking feeling that the Libertarian intelligentsia is hoping that many folks of modest means will not respond to the discontinuation of the safety net programs with personal savings? Somehow I imagine them hoping they fail to exercide foresight so they can gloat 'see, I told you poor people are unintelligent/unconscientious/etc.' Me, I'm all for reining in personal spending.

rpl writes:

Lori,

I have no desire to see people fail to save, nor any desire to gloat, and everything I've read from Bryan leads me to believe that he doesn't either. Thus, I think your sinking feeling says more about you than it does about us.

stuhlmann,

I think you place far too much weight on market crashes. If you just ignored the 2008 crash and kept funding your retirement plan at the same level and with the same asset allocation, you probably did all right. My 401(k) balance had recovered to its pre-crash levels within about 10 months, for example. For most people, by the time they are ready to draw on their retirement savings, the 2008 crash will be lost in the noise.

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