Paul Krugman: Mythmaker extraordinaire

Sigh. Paul Krugman has once again trotted out a mountainful of myths in his Sunday column:[1]

It's hard to think of a proposition that has been more thoroughly refuted by history than the notion that social  insurance undermines a free society. Almost 70 years have passed since Friedrich Hayek predicted (or at any rate was understood by his admirers to predict) that Britain's welfare state would put the nation on the slippery slope to Stalinism; 46 years have passed since Medicare went into effect; as far as most of us can tell, freedom hasn't died on either side of the Atlantic.

Let's start with what Hayek actually said:

Nor is there any reason why the state should not assist the individuals in providing for those common hazards of life against which,  because of their uncertainty, few individuals can make adequate provision. Where, as in the case of sickness and accident, neither the desire to avoid such calamities nor efforts to overcome their consequences are as a rule weakened by the provision of assistance-where, in short, we deal with genuinely insurable risks-the case the for the state's helping to organize a comprehensive system of social insurance is very strong....there is no incompatibility in principle between the state's providing greater security in this way and the preservation of individual freedom" (emphasis added).[2]

Do these sound like the words of someone who believed that social insurance undermines freedom? Hayek strongly defended the idea of a safety net, just as do many of today's conservatives such as Arthur Brooks, president of the American Enterprise Institute.

But there's a rather sizable gulf between providing a safety net and providing a universal entitlement. As Hayek puts it, there are two kinds of security: "first, security against severe physical privation, the certainty of a given minimum of sustenance for all; and, second, the security of a given standard of life...or, as we put it briefly, the security of a minimum income and the security of the particular income a person is thought to deserve."

Hayek assures us "there is no reason why in a society that has reached the general level of wealth which ours has attained the first kind of security should not be guaranteed to all without endangering general freedom (emphasis added).  Most conservatives are not (contrary to the scolding tenor of Mr. Krugman's rant) questioning the validity of providing a safety net. But they have very legitimate questions about whether the safety net-Medicaid in particular-serves the poor well. Indeed an important part of their argument is that a reformed Medicaid system would be better for the poor, not just taxpayers. Conservatives ought to be able to bring such arguments into the public square without Mr. Krugman accusing them of "comforting the comfortable while afflicting the afflicted."  Instead of addressing conservative arguments on their merits, Mr. Krugman seems to prefer cheap debating tactic of the ad hominem attack, characterizing conservatives as "big meanies."

Moreover, Mr. Krugman appears to have missed Hayek's central point. It is the universal entitlements-not the safety net-that threaten to put us on the road to serfdom.  For such entitlements are not possible without significantly encroaching on liberty. In Mr. Krugman's view "the real, lived experience of Obamacare is likely to be one of significantly increased individual freedom."  Tell that to Social Security recipients who literally are not allowed by their government to forego Medicare (and its more than 130,000 pages of rules so convoluted that it takes legal publisher Commerce Clearing House 459 pages to explain) without also forego their lifetime Social Security benefits (and repay all benefits already received!). In the terse words of a federal district court judge:

Plaintiffs are trapped in a government program intended for their benefit. They disagree and wish to escape. The Court can find no loophole or requirement that the Secretary provide such a pathway.

You would think that in a free country, being "entitled" to Medicare would mean being able to refuse it, but that's not the way Medicare actually works.[3] This has real practical consequences. If you have Medicare and your doctor does not accept Medicare, s/he is liable for fraud if you elect to simply pay your own bill out of pocket.[4]  Think about that: if you have private auto insurance, you can easily elect to pay a minor repair bill out of your own pocket and not bill the insurer. The 800-lb. gorilla named Medicare does not permit the equivalent behavior. Which speaks volumes about what happens when government gets involved in health care. And suggests why so many are concerned that Obamacare represents much more of a "takeover" of health care than proponents are willing to acknowledge.

But we don't have to speculate on how Obamacare possibly might infringe on liberty. The proof is there for anyone with an open mind to see:

  1. Since September 2010, millions of Americans have been forced to pay higher premiums to allow adult children to be covered as dependents on their parents' insurance plans and to eliminate lifetime limits on coverage.
  2. Starting next January, the vast majority of Americans covered by employer or non-group health plans are being forced to pay higher premiums for "essential health benefits" (the more comprehensive coverage dictated by government experts).
  3. Starting next January, young people will be forced to pay substantially higher premiums so that premiums for older people can be lower.
  4. All employers with 50 or more employees will be forced to either provide coverage or pay a penalty of $2,000 per full-time employee; even employers that provide health coverage will be forced to pay $3,000 for every employee who elects to instead purchase coverage on the state insurance exchange.

 

Since there was nothing stopping these individuals from voluntarily purchasing such "improvements" in coverage prior to Obamacare, it should be clear that the power of the state is being used to make them purchase such coverage against their will. Think of it this way. Suppose the government insisted that everyone drive a car with the same minimum features and safety specifications as found in a Chevrolet Malibu sedan. Yugo owners could still drive Yugos, but they'd have to be upgraded (at owner's expense) to meet the Malibu specifications. They'd end up with roomier and safer cars, but they also would pay extra for this "privilege." Do you think that just maybe Yugo owners were feel their liberty had been infringed by having government experts substitute their idea of what represents good value for the money for their own judgment?

Sure, Sandra Fluke may be better off if we all chip in to buy her contraceptives, but socializing this expense will in no way lower its cost.[5] On the contrary, running such claims through a health insurer simply will add a predictable claims processing cost on top of the provider's price for every service. Do you think gas prices would go down if you submitted all your gas receipts to a third party payer to handle?

And finally, as employers predictably respond to these mandates, not only will premiums go up to some extent for nearly every American, but at least 1 million will end up losing their jobs and many millions more will be forced into working less than 30 hours a week to avoid the Obamacare mandates.  True, Obamacare did not force these employers to take any of these actions, but to the employees who involuntarily bear the brunt of such business decisions, that is a distinction without a difference.

As for Mr. Krugman's insistence that freedom not dying on either side of the Atlantic, even that is a questionable claim. According to the 2013 Index of Economic Freedom, "registering a loss of economic freedom for the fifth consecutive year, the U.S. has recorded its lowest Index score since 2000."  The adverse effects of Obamacare on the size of government, business freedom and labor freedom are likely to accelerate-not reverse-this disappointing trend. That a single-payer country such as Canada #6 ranks ahead of the U.S. #10 is in spite of its liberty-limiting health care system, not because of it.[6] 

And to return to Britain (the exemplar used by Mr. Krugman), a) its #14 ranking is lower than the U.S.; b) its absolute ranking has declined since 2009; c) its ranking is much higher than it otherwise would be thanks only to economic reforms beginning with Margaret Thatcher; and d) as with Canada, its relatively high ranking is despite the National Health System, not because of it.

Does Mr. Krugman really favor us being on the same road as Britain (where prices are 9% higher and real GDP per hour worked is 23% lower than here) or even Canada (where prices are 25% higher and real GDP per hour worked also is 23% lower)?[7] And can he really honestly claim that their cradle-to-grave health entitlements have nothing at all to do with these rather sizable differences in economic performance vis-à-vis the U.S.?

Unlike Mr. Krugman, I'm no Nobel-carrying economist. But I invite all readers to use their own judgment and common sense. In light of the evidence I've assembled, what does your Truth-o-Meter say about the accuracy of Mr. Krugman's claims?

 

Footnotes

[1] I'm not alone in taking note of Mr. Krugman's truth-twisting, and it is by no means limited to health policy matters as shown time and again. Indeed, an entire blog site is now devoted to exposing his untruths. So I suffer under no illusions that Mr. Krugman will change his behavior on my account. But I believe the general public is better served by having his claims critically analyzed. As fellow Forbes contributor Laurence Kotlikoff has pointed out, Mr. Krugman's myth propagation is not merely annoying: it is positively dangerous.

[2] I have the original hardcover version of The Road to Serfdom, published in 1944. In that edition, the quote is on pp. 120-121.

[3] Without belaboring the point further (interested readers should read the whole opinion if they're interested in educating themselves about what happens when well-intentioned policymakers start mucking around in health care), the opinion reads: Plaintiffs argue that "entitled" to Social Security Retirement benefits does not mean "required to accept" so that "entitled" to Medicare Part A benefits does not mean "required to accept." While the Plaintiffs' plain-English reading of the word "entitled" has its attractions, in context the Medicare "entitled" does not actually mean "capable of being rejected" (p. 11).

[4] Medicare private contracting is explained briefly here and more extensively here, but health care lawyer John Hoff has written an entire book about this sad state of affairs.

[5] Obamacare enthusiasts have long argued that prevention saves money, ignoring mountains of evidence to the contrary, including peer-reviewed articles that appeared in the prestigious and widely-read New England Journal of Medicine and Health Affairs before candidate Obama was even nominated. Indeed, Louise Russell made this argument decades ago in her 1986 Brookings Institution book Is Prevention Better Than Cure?  But for those who forgot or ignored all this evidence that prevention is not self-financing, the CBO explained it Congress in early August 2009-many months before the House or Senate passed a health reform bill. Even Politifact.com's Truth-o-Meter labels as False the claim that "preventive care ... saves money, for families, for businesses, for government, for everybody."

[6] The Supreme Court of Canada recently ruled that the Quebec Health Insurance Act and the Hospital Insurance Act prohibiting private medical insurance in the face of long wait times violated the Quebec Charter of Human Rights and Freedoms. While only three of the seven justices also concluded that this was a violation of the Canadian constitution, to date the ruling remains binding only on residents of Quebec.

[7] I've calculated all these figures from the latest available data (2011) reported in some fascinating tables released by the Bureau of Labor Statistics last November. Table 3a gives real GDP per hour worked, which according to the BLS is a general measure of labor productivity for the entire economy. Table 9 provides relative prices, which are a measure of how expensive goods and services are in a country relative to the United States. Because American workers are so productive, they not only earn more relative to the counterparts in the UK and Canada, but they also enjoy lower prices. I'm betting that the average American would not feel their liberty had been enhanced by being given cradle-to-grave health benefits in exchange for a dramatic reduction in their standard of living (measured apples-to-apples across each economy). I'm not claiming that Obamacare will instantly shrink American worker productivity by 23%. But in terms of work incentives, it ought to be clear to everyone that providing a universal health entitlement is not likely to make the average worker more productive-especially when one factors in all the very predictable (and increasingly visible) adverse effects of Obamacare on employment and work hours.

 

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Christopher J.
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