Posts Tagged ‘Welfare’

Quick thoughts on a Monday. Springtime is the best season. By far. The first day of sundress season should be a national holiday.

Ahhhhh Sweet Spring

Anyone care to argue any of these claims?

1. The American health system has been broken for a long time.

2. This bill won’t improve quality of service.

3. It won’t decrease prices to patients.

4. It won’t decrease costs to doctors and hospitals.

5. It won’t reduce the deficit. It will follow ignominious history.

6. It isn’t constitutional.

7. The six-month enactment period will give lawyers for all conceivable parties AMPLE time to scout for plaintiffs, jurisdiction shop, and draft briefs and motions. This will lead to a period of litigation, lasting anywhere from three years to a decade.

8. If the Republicans do win control of either the House or the Senate, a bill will be introduced to repeal this law within the first two months of the new Congress.

9. Reihan Salam will be right: “Coming soon: the Democratic Dolchstoss strategy: “Of course it didn’t work. It was a moderate Republican bill! What we really need is …”

On Intrade, the prop bet that Republicans control the House after November has gained about 43% in just over a year. Given that, it’s bizarre that liberals are still haunted by the specter of libertarianism.

I watched the Maryland – Michigan State game in Baltimore in a bar full of Maryland fans, and it was heartbreaking. On State’s last possession, the clock didn’t start for about a half second. The buzzer beater went up with .4 on the clock. Brutal.

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There’s a reason a big-ass lie is called a “whopper”.  Someone’s going to try to convince you this is a good deal.

The CBO reported late today, in a letter to Senator Bauccus, the CBO spelled out the news.

That net cost itself reflects a gross total of $829 billion in credits and subsidies provided through the exchanges, increased net outlays for Medicaid and the Children’s Health Insurance Program (CHIP), and tax credits for small employers; those costs are partly offset by $201 billion in revenues from the excise tax on high-premium insurance plans and $110 billion in net savings from other sources. The net cost of the coverage expansions would be more than offset by the
combination of other spending changes that CBO estimates would save $404 billion over the 10 years and other provisions that JCT and CBO
estimate would increase federal revenues by $196 billion over the same period.1 In subsequent years, the collective effect of those provisions would
probably be continued reductions in federal budget deficits. Those estimates are all subject to substantial uncertainty.

But let’s run with that substantial uncertainty, all the way to the bank.  Obama’s “this is not a tax” rhetoric is busted, as if there were any doubt.  And even judging by a liberals’ analysis, this doesn’t really change the costs at all.  In fact, the mandate penalties are reduced by $16 Billion.  To my mind, that makes it less likely that people will join, meaning the other numbers will skew.

Anyway, those are my initial impressions.  Would you trust $196 Billion in ‘savings’ marked “other”?  I don’t, and won’t, and some very smart people think you shouldn’t either.  From The Tax Foundation’s Joe Henchman:

Other $196 billion


As the non-economist, I should note that when Medicare was passed in 1965, it was estimated to to cost $3 billion in 1990, the equivalent of $12 billion after adjusting for inflation. The actual cost in 1990 was $98 billion. And my earlier blog post on the argument that entitlement programs paying for themselves is worth relinking to.

Give me a hamburger today, and I shall gladly pay you $196 Billion on Friday.

UPDATE: Now that a day or so has gone by, here’s some excellent number crunching and deeper analysis from someone who knows what they’re talking about.  Upshot: Total cost is closer to 2 trillion.  Remember when a billion seemed like a big number?

UPDATE II: via Marginal Revolution

Jim Capretta looks at the Baucus healthcare bill and concludes that, because the subsidies phase out as income rises, it imposes an effective marginal tax rate on income of about 30 percent for many families. Add that figure to the income tax, the payroll tax, and the phase-out of the EITC and “the effective, implicit tax rate for workers between 100 and 200 percent of the federal poverty line would quickly approach 70 percent — not even counting food stamps and housing vouchers.”

Link here.  I await further updates on these estimates…

So much for a ‘sock-the-rich’ mentality most lefties I know where hoping for.

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California is collapsing.  The Guardian has an outsider’s perspective on the downfall of the world’s eighth largest economy.  The Golden State is fading.

California has a special place in the American psyche. It is the Golden State: a playground of the rich and famous with perfect weather. It symbolises a lifestyle of sunshine, swimming pools and the Hollywood dream factory.

But the state that was once held up as the epitome of the boundless opportunities of America has collapsed. From its politics to its economy to its environment and way of life, California is like a patient on life support. At the start of summer the state government was so deeply in debt that it began to issue IOUs instead of wages. Its unemployment rate has soared to more than 12%, the highest figure in 70 years. Desperate to pay off a crippling budget deficit, California is slashing spending in education and healthcare, laying off vast numbers of workers and forcing others to take unpaid leave. In a state made up of sprawling suburbs the collapse of the housing bubble has impoverished millions and kicked tens of thousands of families out of their homes. Its political system is locked in paralysis and the two-term rule of former movie star Arnold Schwarzenegger is seen as a disaster – his approval ratings having sunk to levels that would make George W Bush blush. The crisis is so deep that Professor Kevin Starr, who has written an acclaimed history of the state, recently declared: “California is on the verge of becoming the first failed state in America.”

California is screwed.  It’s a disaster, and it’s easy to point to a few reasons why.  The legislature has been staunchly Democratic since 1970, with one brief interlude of Republican control.  The state is the absolute paragon of liberalism, the fullest flower of the public-service/welfare state apparatus.  Republicans are a minority in every single voting district in the entire state, at all levels of government.

But you wouldn’t know that if you read some of the left’s critical analysis of California’s plight.


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It seems to me that most justifications for government welfare programs are moral arguments that claim the right and obligation of government to take money from the rich and give to the poor.  My intuition is that this argument is misguided, but I won’t address that here.  Instead, I’m interested in another argument, an actual economic one.  It’s one that isn’t often made, but it’s quite provocative.  The claim is that charity produces positive externalities, and because of this, it should be provided as a public good.

Now, it’s important to note that when economists talk about a public good, they mean a good that is non-rivalrous and non-excludable.  This means that one person’s consumption of the good does not detract from another person’s consumption of it, and that it is difficult or prohibitively expensive to exclude people from using it so that they could be charged for their use.  There are varying degrees of these two dimensions for different goods, but the purest example of a public good cited is national defense.

Lots of activists and politicians clamor for the government to provide things as public goods, but saying so doesn’t make it so.  A private good, which is excludable and rivalrous, is usually best provided on a market, where it is efficient.  You can prevent me from eating an ice cream cone, and your consumption of an ice cream cone diminishes my ability to enjoy it.  The justification for government provision of public goods is much more solid.

Is charity is a public good?  The first premise of the argument is that people care about one another.  They get utility from helping other people, even strangers.  I see this intuitively, but evolutionary psychology proves this.  To illustrate, suppose that you encounter a desperate stranger who informs you if he does not acquire $10.00 in the next ten minutes to buy medicine, he will die.  No one else around has $10.00.  Suppose you believe all this to be true.  You will probably give him $10.00 if you have it.

The second premise of the argument is that when individuals donate to charity, non-donors also get utility from knowing that people are being helped.  The claim is that there is a positive external effect, so there is an incentive to be a free rider.  If people get utility from the actions of others, they will not donate as much as they otherwise would if they only got utility from making the donations themselves.

You can see that the conclusion is for government to tax people and provision charity because private charity does not provide enough.  It is claimed that charity is a public good.  One person’s donation does not diminish utility for another, and it is difficult to exclude a person from feeling good when they know that the poorest in society are cared for by the people who donate.

I take issue with the second premise and therefore the conclusion.  The two premises together constitute a fallacious equivocation.

Yes, people get utility from making a donation, but they do not, in any meaningful amount, get utility from knowing that other donors exist.  My problem is that there is an obvious limit on how much utility people get from knowing about some social problem.  The knowledge must be local for a person to get utility; people can only get utility from helping people that they know about.  It would be silly to ask even a bleeding heart who regularly gives money to beggars how much they’d be willing to donate to a beggar across town that they have never encountered.  The natural capacity to help people, as evidenced by revealed preferences, is certainly not the same thing as utility from the knowledge that people are being helped by others.

These supposed external effects of charity do not really exist in any meaningful way.  People aren’t doing a mental calculation of how much they forgo in donations because other donors cover them.  I concede that this is actually a problem for many, if not most, public goods.  People don’t really know what they might pay for a public good that wouldn’t exist if it were not provided collectively.  Still, regarding charity, people get utility from being involved in giving, not nebulously understanding that donations have been made by other people.

It’s incoherent to suggest that because of positive externalities the government should arbitrarily provision some higher amount of money in a welfare program than what private charities already provide.  Such externalities do not exist.

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