Bryan Caplan  

The Long Run Is Nigh: Drum, Krugman, Disemployment and Obamacare

PRINT
Ed Leamer on "Pure" Economics... The Indian Economies...
Back in 2009, before Obamacare became the law of the land, I pointed out its disemployment effects, and criticized Krugman for failing to consider them during a serious recession.  Me:
The Krugman we've got is sold on the House health bill.  But the Krugman we had, the thoughtful economist who wrote The Accidental Theorist, would have responded differently.  Krugman Past, unlike Krugman Present, would have pointed out that when the unemployment rate is 9.7%, it's a bad idea to legislate an 8% payroll increase on businesses that fail to offer health insurance.   Employers are reluctant to hire workers at today's wages; how are they going to feel once the marginal worker gets 8% pricier?

It's not just Krugman who should be against such legislation at a time like this; so should any sensible Keynesian.
Kevin Drum faulted me for failing to consider the timing of the legislation:
"At a time like this."  I think I've read critiques similar to this about a thousand times now.  I guess it sounds mighty clever, hoisting Keynesians by their own petard or something.  But it's nonsense.  The "pay-or-play" payroll tax increase doesn't go into effect until 2013 -- and if the recession isn't over by then we've got way bigger things to worry about than a minor increase in payroll tax receipts.
Krugman piled on:
Kevin Drum does a righteous smackdown of Bryan Caplan for arguing that we should oppose the House health reform bill because it would raise taxes in the midst of a recession. As Kevin points out, the provisions wouldn't take effect for several years; it takes real chutzpah, given that obvious point, for Caplan to accuse me of being disingenuous.
I replied:
[I]t's facile for Kevin to remark, "if the recession isn't over by then we've got way bigger things to worry about than a minor increase in payroll tax receipts."  Recoveries take years, and some employers have been known to look ahead a year or two when they decide whether it's worth hiring someone today.
Fortunately, the original version of Obamacare didn't pass.  Instead of an 8% tax on payrolls starting in 2013, we get to wait until 2014, when the law:
Requires employers with 50 or more employees who do not offer coverage to their employees to pay $2,000 annually for each full-time employee over the first 30 as long as one of their employees receives a tax credit. Precludes waiting periods over 90 days. Requires employers who offer coverage but whose employees receive tax credits to pay $3,000 for each worker receiving a tax credit up to an aggregate cap of $2000 per full-time employee.
Do Drum and Krugman now want to assure us that by 2014 the labor market will be back to normal?  Even if you think two years plenty of time to recover, you should be worried that employers might foresee this $2000 or $3000 surcharge on every worker they hire - and decline to create another job before the law kicks in.  Think the surcharge is no big deal?  Consider this: two or three grand easily adds 10% to the cost of hiring high school drop-outs - whose unemployment rate still exceeds 13%

Friends of Obamacare, the long run is nigh.


Comments and Sharing





COMMENTS (11 to date)
Nick Bormann writes:

Given the red tape and potential for a lawsuit from firing an employee, I think the disemployment effects from a future cost increase as a result of federal policy might even be understated in this post.

Chris Koresko writes:

Nick Bormann: Given the red tape and potential for a lawsuit from firing an employee, I think the disemployment effects from a future cost increase as a result of federal policy might even be understated in this post.

Definitely. Over the past few years we've also seen a large (tens of percent) minimum wage increase, a pile of new regulation on capital (Dodd-Frank), another pile on manufacturing (EPA rules, CAFE), and if memory serves, new rules to make it easier for an employee to sue his employer. I'm pretty sure that's only a fraction of it.

Bryan Caplan: Even if you think two years plenty of time to recover, you should be worried that employers might foresee this $2000 or $3000 surcharge on every worker they hire - and decline to create another job before the law kicks in.

Isn't it funny how the people who write and advocate these rules assume that they can see the future clearly, but the people they're regulating can't?

Joe writes:

So are you saying that if the economy were humming along then Obamacare would be OK? Or is this one of those "Now more than ever" arguments?

If it's the former then I would point out that it seems reasonable that a Keynesian who is strongly in favor of the long term goals of Obamacare would support it in spite of the poor timing of the disemployment effects. He might prefer a better timing for it, but you take what you can get.

If it's the latter, then this seems to be a needless distraction from a more important argument.

Floccina writes:
Requires employers with 50 or more employees

I am against any law that exempts employers of few then x employee. If it is important enough to force larger employers to do it, it should be important enough for small employers.

Floccina writes:

Addendum:
I also do not like exemptions for part time workers.

I would hope that not exempting anyone would keep regulations to a minimum rather than forcing small employers to comply with more.

I see no reason that Gov should favor small employers or part time work over big companies and full time work. The politicians just fear the repercussions of their actions if everyone is covered by their laws. To me this shows that they understand that the laws they pass are not a great idea.

Charlie writes:

It's interesting. Is there a time when there was considerable uncertainty about whether the original Obama care would pass, which was then resolved? If Caplan is right we should see effect on unemployment. Maybe unemployment is too noisy, but what about the stock market or some measure of NGDP?

Maybe the noise is too great and the treatment too small. Yet, if Republicans are elected, there is a much better chance the law will be repealed. Is there some measure to see, if Republican chances or certain Republican chances effect unemployment or NGDP?

If the effects are large, we should be able to come up with some clever way to measure them, right?

Gavin Findlay writes:

Speaking from one of the ten countries left that have a Triple A credit rating (and which all have socialised medicine), please get over it.

Making your health system more equitable is a hugely important step for the future of your country. How "free-marketeers" or "libertarians" can in conscience argue that the nightmare of a health system you have now is better than Obamacare, is totally beyond me. But then you lot think guns are good, too.

Thelonious_Nick writes:

Gavin,

You may have a good point in there, but you have loaded your statement in such a way that no one you're trying to convince will take any note of it.

Perhaps try it without "guns" or "libertarians" and see if it reads better.

Tom writes:

It's hard to see how Gavin could possibly have a good point, given that this is the century of biotechnology. Personal automobiles were not created by "socialized transportation," personal computers and the internet did not sweep the world by the ministrations of "socialized information technology," and the advances in personal life extension to come will not spring from turgid socialized medicine bureaucracies.

I'll pay for my own health care and demand innovation in anti-aging technologies, and also keep a gun for self-defense. You more enlightened souls can do whatever the hell you want.

Colby writes:

Gavin, how in good conscience can you say that the current US healthcare system is based on the free market? Crony capitalism and socialism is what we have now, and very few, if anyone, is defending the current system. But to assume that the only alternative is a purely socialist system is ridiculous.

Ralph D. Lynch writes:

The bad economics of Obamacare aside, with respect to the Thirteenth Amendment, what part of "involuntary servitude" does not apply to the fascist mandate?

Comments for this entry have been closed
Return to top