Sebastian Mallaby is correct in explaining that Republicans have embraced economic stupidity surrounding globalization, as evidenced by its stance on immigration. Although the root cause appears to be more xenophobia than economic ignorance, the point is taken. However, Mr. Mallaby quickly loses any credibility when he switches to health care and Rudy Giuliani’s proposal to fix the system. His intro:
Giuliani is also spouting nonsense about health care — a challenge that the nation must address if it is to assuage middle-class anxiety about a turbulent globalized economy. As employers have stopped offering coverage, Americans have discovered that it’s almost impossible to buy decent insurance because the market for individual purchasers is plagued by a vicious cycle. At the start of this cycle, insurance premiums reflect the cost of covering the average person, so healthier-than-average people realize they are getting a bad deal and choose not to buy coverage. That leaves a sicklier group in the market, which forces premiums up, which drives more relatively healthy people to exit, which drives premiums up still more, and so on.
I’d like to see some statistics verifying that claim. I’m a healthy individual insurance purchaser, and I’ve found my premiums to be reasonable enough. That doesn’t mean I think my insurance shouldn’t and couldn’t be cheaper. I do. But I realize that the disincentive to switch to a robust insurance market devoid of a sole reliance on groups organized around individual employers is based on our flawed tax code, not Mr. Mallaby’s absurd theory:
This market failure is a basic fact of health-care economics. But Giuliani is oblivious to it. In an interview with the Wall Street Journal last week, he indicated that he wants to triple the number of people in the dysfunctional individual insurance market without taking the one step that might fix it, which is to force every American, healthy or not, to buy coverage. Depending on whether he understands how dumb this is, Hizzoner is either a coward or a lightweight.
There’s so much to challenge. Most obvious, he trips himself in the beginning. If “health care” economics (economics is a science, remember) states that society will see a race to the bottom where only sick people will have an incentive to minimize their risk through insurance, then how exactly is this adherence to economics a market “failure”? It sounds to me as if the market is behaving exactly as expected. Yes, we have to rely on Mr. Mallaby’s misunderstanding of economics, but in his worldview, market failure cannot happen according to “health care economics” unless insurance companies ignore profit incentives and offer health insurance at a loss. I don’t believe that’s happening, but maybe Mr. Mallaby has evidence to the contrary.
That could be our endpoint, as it’s enough to dismiss his argument. That wouldn’t be any fun. There’s so much more wrapped into one paragraph. Not getting the results we want? Blame the market without looking at all inputs in that market. Ideology over facts!
I don’t know enough about Guiliani’s plan to critique it fairly, but using what I have here, how would expanding the pool of candidates for individual health insurance, which would spread risk further across the client pool for the individual insurance companies, exacerbate the problem? If it would work with employers, what would be different?
The answer is obvious if you look not at intention (affordable health care) and look instead at intended action. Here Mr. Mallaby offers only force. He has no interest in incentives, only playing the role of central planner. His justification is obvious later in the essay:
Instead, the Democratic candidates are focusing on helping the economy’s losers without restricting trade, which is exactly what they should be doing.
Why does he show no concern for why there are economic “losers”? I assume he believes that our benevolent government can’t possibly create losers. That’s capitalism’s fault. Because capitalism is only “I win, you lose”. It’s a fascinating narrative, even though it’s 100% incorrect.
From the rest of that paragraph:
John Edwards, the contender who sounded most protectionist in 2004, seems to have turned over a new leaf. He has admitted that trade benefits poor countries and has declared that arguments over labor standards should not be an excuse to obstruct liberalization. Meanwhile, Edwards has proposed a thoughtful health-care reform that would require everyone to buy insurance. He supports market-minded social programs such as an expanded earned-income tax credit and housing vouchers.
Market-minded social programs is as informative as it is bone-headed. (Mr. Edwards shouldn’t get credit for proposing stupidity.) Mr. Mallaby wants a socialist solution with a few free market curtains to pretty up the proposal. It won’t work in the way he predicts. Incentives matter. You don’t fix a disincentive by encouraging the offending entity to create new misguided incentives.