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
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
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
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
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
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.