Why the U.S. Needs True Health Care Reform


The Affordable Care Act has improved access to healthcare by already enrolling over 7 million Americans who were previously uninsured.  It is estimated that there will be a total of 20 million new enrollees by the end of this decade.
CaptureBut as the above chart from a recent Gallup survey indicates, the cost of healthcare is now a big barrier for an increasing number of people with health insurance.
The University of Chicago economist, Casey Mulligan, discusses the cost issue in a recent Wall Street Journal article “The Myth of ObamaCare’s Affordability” as well as in a new book.  He makes the following points:

  • Although the ACA helps specific populations by giving them a bigger piece of the economic pie, the law diminishes the pie itself by reducing the amount that American’s work and making their work less productive.
  • 35 million men and women currently work for employers who don’t offer health insurance. These tend to be small and midsize businesses with lower paid employees. The result of penalizing businesses for hiring and expanding will be less hiring and expanding.
  • The “29er” phenomenon is a good example of how the law harms productivity. If a business has 50 or more employees who work over 30 hours a week, it is required to offer health insurance. Many employers have thus adopted 29-hour work schedules which lessens overall productivity.
  • Mr. Mulligan estimates that the ACA’s long-term impact will include about 3% less weekly employment, 2% less GDP and 2% less labor income. He also claims that these effects will be visible and obvious in just a few years by 2017!
  • The ACA is thus weakening the economy. For the large number of people who continue to pay for their own healthcare, healthcare is now less affordable.

Conclusion: we need true healthcare reform which addresses cost as well as access and this can be achieved by fixing Obamacare.  It is not necessary to repeal it.  The Manhattan Institute’s Avik Roy has developed a plan to do this: ”Transcending Obamacare.”  Mr. Roy’s Plan would keep the exchanges, end both the individual and employer mandates, and migrate both the Medicare and Medicaid programs onto the exchanges over time.  These features will greatly reduce the cost of American healthcare.  Check it out and see for yourself!

A Recovery Stymied by Government?


Why has the recovery from the Great Recession of 2007 – 2009 been so slow?  Many mainstream economists blame structural problems in the economy such as more global competition for business and technological progress which replaces people by machines.  Other economists blame greatly increased government regulation since 2009 such as the Affordable Care Act in healthcare, The Dodd-Frank Act for finance and many new regulations from the Environmental Protection Agency.
CaptureThe economist Casey Mulligan, writing in yesterday’s Wall Street Journal, “A Recovery Stymied by Redistribution”, makes a case that government programs designed to alleviate the effects of the recession have made it deeper and more prolonged.  Such actions include:

  • Long-term unemployment insurance
  • Looser restrictions on food stamps which do not require recipients to seek work
  • Mortgage assistance programs which set mortgage payments at “affordable” levels
  • New rules for consumer bankruptcy with special emphasis on current earnings

Mr. Mulligan’s point is that all of these new programs, like taxes, reduce incentives to work and earn.
But, by definition, structural effects are endemic and can’t be overturned.  Also, some government reaction to the financial crisis, in order to prevent recurrence, was inevitable.  And it is natural for the government to be responsive to the human misery caused by the recession.  All of these points of view help us understand what has happened but don’t provide much guidance for boosting economic growth going forward.
The Great Recession was fundamentally caused by the bursting of the housing bubble which destroyed trillions of dollars of wealth for tens of millions of Americans.  The recovery won’t speed up until many more millions of consumers feel comfortable in spending more money. We need to put more money in their pockets.
A very good way to accomplish this, as I have been saying over and over again, is through fundamental tax reform.  The idea would be to lower individual income tax rates for everyone, and pay for this by closing the loopholes and deductions which primarily benefit the wealthy.  This will put big bucks in the hands of the two-thirds of Americans who do not itemize their deductions. Since these are the middle and lower income wage earners whose wages have been stagnant for many years, they will spend this new income in their pockets thereby giving the economy a big boost.
Let’s do it!

The Economic Effect of ObamaCare

Last week’s report from the Congressional Budget Office “The Economic Outlook: 2014 – 2024” (which I discussed in my last post) caused a big stir with its prediction that ObamaCare will cause a loss of 2,000,000 mostly low wage jobs by 2017 and 2,500,000 such jobs by 2024.  The lost jobs aren’t necessarily from workers being fired or fewer workers being hired but rather the overall decreased incentive for individuals to find work.  The CBO analysis is based on the research of the economist Casey Mulligan featured in yesterday’s Wall Street Journal as “The Economist Who Exposed ObamaCare”.
CaptureThe above chart of Mr. Mulligan interprets several recent government subsidy programs as a new marginal tax rate, i.e. the “extra taxes paid and government benefits foregone as a result of earning an extra dollar of income.”  The 2009 stimulus, the Recovery and Reinvestment Act, had an effect like this but it was temporary.  The marginal tax increase of the Affordable Care Act will last as long as it remains in effect.
Capture1The above chart from the same CBO report, showing the steady decline in the Labor Force Participation Rate from the year 2000 onward, demonstrates the critical nature of this problem.  Lower labor force participation means lower growth in overall labor productivity which in turn means slower economic growth.  Since the Great Recession ended in June 2009, GDP growth has averaged only about 2% annually.
Slow GDP growth means, in addition to a higher unemployment rate, that America’s standard of living will not increase very rapidly if at all.  But the problem is really much worse than this.  We have an enormous debt problem which is only getting worse every year that we continue to have large deficits.  The CBO report predicts increasing growth in the size of our national debt.  By far the least painful way of shrinking our debt (relative to the size of the economy) is to grow the economy as fast as we reasonably can.  But our economy is actually slowing down, not speeding up!
This is a very serious problem which many of our national leaders are much too complacent about!