Sunday, January 02, 2005

Health Care, Tax Policy, and Misleading the Public

Never try to solve a problem using an indirect method, when a direct method will do the job.  That is one of those maxims that sounds obvious, so obvious as to no need saying.  But sometimes we go astray, with the best of intentions.  And sometimes people pose indirect methods of solving problems when their intentions are not good.  The indirectness serves to obfuscate the true agenda. 

I am not an economist.  I read about the subject in my spare time in high school, but not since.  That makes me a perpetual sophomore in the subject. 

Sometimes, though, despite my sophomoric "wisdom," I read economic policy and get bewildered.  It is like trying to figure out a Rube Goldberg device.  Tax policy tends to affect me like that. 

Today, I encountered a post at Brad DeLong's site: Jon Gruber Thinks About Tax Policy for Health Insurance.
Despite a $140 billion existing tax break for employer-provided health insurance, tax policy remains the tool of choice for many policy-makers in addressing the problem of the uninsured.
This is a good example of how to not follow the advice in the beginning of this post.  Now, it would seem to me, that if you want to provide health care for the uninsured, the default policy would be to set up a program to do exactly that.  The idea is that the simplest, most direct approach probably is going to turn out to be the best solution. 

Of course, it is possible that a more complex solution could turn out to be better, or more efficient.  After all, automobile engines these days are much better that those of 50 years ago.  Yes, they are more expensive, and vastly more complex.  But they are much more reliable, and much more efficient.   I haven't seen figures on this, but I imagine that the total cost of ownership is much lower for a new engine that an old one.  So it is possible for complex solutions to be better, but those cases are the exceptions.

The idea behind changing tax policy to affect changes in the health care system is this: the government changes policy, to change incentives.  People respond to those incentives by doing what someone predicts they will do.  What they do then, will have other effects, which, with luck, will at some point, downstream, produce the desired outcome.  It seems pretty obvious that the success of such a method depends upon the accuracy with which one is able to predict human behavior in complex systems.  That always is a suspect proposition.  And the longer the chain of events becomes, the less reliable the predictions become. 

Also, it seems that the people who come up with these ideas always seem to assume that nobody is going to try to subvert the system.  They expect everyone to act in good faith.  Of course, by that logic, Communism would be the perfect system. 

As I said, I am not an economist, so I will not get into the specifics about the health care tax proposals.  Instead, I will use the tax scheme to illustrate a few points of interest to me. 

How is it that the Government could propose an indirect solution to a problem, and have it seem, superficially, to be a good idea?  Is it not obvious that indirect solutions generally are inferior to direct ones?  The answer is: usually, but not always.  It is possible, through the deft use of propaganda, to make an indirect solution appear to be a direct solution. 

First you have to set up a propaganda machine.  Then you start repeating certain phrases over and over again.  "Smaller government."  "Tax cuts work." etc.

Once these maxims are established firmly enough in enough minds, the people who believe them stop seeing what is going on.  If you believe that people always do what tax policy appears to provide incentive for them to do, you no longer see that as a iffy proposition.  The fact that it is based upon a string of tenuous suppositions simply does not register.  So the idea that:
if you do X (and expected outcome A occurs, and expected consequence B ensues, and nobody does C, D, E, or F) then Y happens
Looks like:
if you do X, then Y happens.
As a result, it looks like a direct solution, when in fact it is not. 

The human brain is wired to look for shortcuts, and to use them.  Professional magicians know this; that is how sleight of hand works.   Professional politicians know this too.   That is how they get the general public to act in ways that are contrary to their best interests.  They feed them maxims, pretend they are truisms, then lead them merrily down the garden path. 


Update Slate Magazine has an easier-to-read summary of Gruber's findings regarding the cost-effectiveness of various tax schemes, compared to the straightforward approach of simply giving insurance to poor people. The simple approach is cheaper and covers more people.