Health Care Costs....

Three fallacies from Professor Cowen:

#1

The health care costs budget fallacy

Today's report is this:

The financial outlook for Medicare and Social Security has significantly worsened, as the bad economy and mounting job losses have pushed both programs years closer to insolvency, according to a grim report issued Tuesday by the Obama administration.

Maybe you once argued that "Social Security is fine," but dollars are fungible and the budget must be judged as a whole. The consumption tax is coming, I am sorry to say.

I'm seeing nascent signs of a new (but actually old) fallacy, namely that since health care costs can (will?) crush the budget, we don't have to worry so much about other expenditures. The mental story runs something like this: "if we don't cure health care cost inflation, it doesn't matter; if we do cure health care cost inflation, we can afford it." That's exactly the kind of false mental framing that behavioral economics identifies as irrational in other settings.

Here is some stupid TV.

Elsewhere, Richard Posner makes many concessions. I do not disagree; it's a mistake to think that a political movement can be very smart, especially after extended years in power.

#2

More health care cost fallacies

This comes from Robert Reich but you will find it all over the place:

Social Security is a tiny problem. Medicare is a terrible one, but the problem is not really Medicare; it's quickly rising health-care costs.

You would think it is hard to resist the fiscal conservatives' core argument -- X is slated to grow a lot in cost, therefore we have at least one reason to spend less on X -- but such resistance is becoming a growth industry.

There are two simple points in response. First, it matters whether a given expenditure shows up on the balance sheet of the government or not. It matters for the incentives of our government, for its credit rating, for future marginal rates of taxation, and ultimately for the future of the health care (or other) sector.

Second, if Medicare were less generous, much less would be spent on health care. Now you might think that would be a bad result and that of course a debate worth having. But the mere fact that you favor some amount of Medicare does not lower the cost burden of the amount you favor. If your preferred policy induces say "40 percent more of health care costs," you can't put all the blame on the preexisting level or path of health care costs. You also have to accept responsibility for the 40 percent boost or whatever the increment is.

#3

The third health care cost fallacy

Tyler Cowen

Let's start with a correct claim:

The fiscal outlook is grimmer than before, therefore we should spend less on health care reform than I used to think.

I'm willing to make a comparable admission when it comes to tax cuts, so will you sign on to this claim about health care and revise your policy prescriptions accordingly? (Unless of course your previous estimate had forecast the current revenue situation; Nouriel Roubini could claim this.)

If you do not sign on to this claim, you are committing the third health care cost fallacy. Note also that your support for non-revenue-intensive means of health care reform might well go up, for related reasons.

You will find fallacies one and two here and here. Might there be TANSTAAFL deniers who commit all three?

Addendum: Megan McArdle offers some related sentences to ponder:

Conversely, if there is some political or institutional barrier which is preventing you from controlling Medicare cost inflation, than that barrier probably is not going away merely because the program covers more people. Indeed, to the extent that seniors themselves are the people blocking change (as they often are), adding more users makes it harder, not easier, to get things done.