Sunday, March 21, 2010

Light touch? Don't be silly!

Public choice economics has been around for a while, has earned James Buchanan a Nobel, but still has remarkably little traction even among economists. Most still see "market failures" almost everywhere and look to politics to make things right.

Don Boudreaux and Russ Roberts discuss the unexamined romance that most people have with democracy (ergo politics) in this podcast.

In this morning's NY Times, Douglas Holtz-Eakin describes "The Real Arithmentic of Health Care Reform ... With fantasy accounting, Democrats pretend to reduce the deficit." But it's not just Democrats. The Congressional Budget Office is required to judge the bill before it in terms of a 10-year window. So why not rig the bill so that the 10-year accounting looks good while the 11-year, 12-year, etc. accounting are less attractive. No one will notice.

Trouble is that the cheats are right. The gimmick works. Night after night, TV bubbleheads report that the CBO has discovered that money can be saved by actually spending more because the smart people in Washington have rolled up their sleeves and thought hard about how to fix health care.

The health care status quo has problems, of course, but light-touch incremental approaches (extend the tax exemption to non-employer insurance contracts, allow more insurance provider competition, make medical retailing simpler, etc.) have also never achieved any traction.

But even the smart people should know that light-touch incrementalism is the only way to go because the topic is much too complex for grand plans and grand planning. Social engineering is, indeed, impossible. The light touch is the only touch.


Here is the way Doug Elemndorf explains it:

That calculation reflects an assumption that the provisions of the legislation are enacted and remain unchanged throughout the next two decades, which is often not the case for major legislation. For example, the sustainable growth rate mechanism governing Medicare’s payments to physicians has frequently been modified to avoid reductions in those payments, and legislation to do so again is currently under consideration by the Congress. The current legislation would maintain and put into effect a number of policies that might be difficult to sustain over a long period of time.


Greg Mankiw's posts of March 19 and March 21 elaborate.