Some Bad Arguments for the PPACA from Jonathan Gruber

Even though I disagree with much of its interpretation, I admire Jonathan Gruber’s pre-PPACA research on health insurance markets. He’s one of the most forthright and clear-headed advocates of government takeover of health insurance that I know. However, his recent defense of the law in The New Republic indulges some pretty blatant economic fallacies:

But what few realize is that, by expanding insurance coverage, the law will also increase economic activity. These newly insured individuals will demand more medical care than when they were uninsured. And while it takes many years to train a family physician or nurse practitioner, it doesn’t take much time to train the assistants and technicians (and related support staff) who can fill much of this need. In many cases, these are precisely the sort of medium-skill jobs that our economy desperately needs—and that the health care sector has already been providing, even during the recession.

Gruber surely knows better than to attribute economic growth over the long term to “demand.” All increase in wealth ultimately comes from growth in productivity and exchange, not “demand.” Whether increasing demand for health care will increase aggregate demand and short-run return to equilibrium — as opposed to redistributing spending from other sectors — is another question, but Gruber doesn’t even attempt to answer it. And the amount of jobs in the economy is a function of cyclical and structural factors. Redistributing jobs from other parts of the economy to health care does not mean more wealth or a higher standard of living for Americans. These are basic, 101-level errors.

When attacking critics of the PPACA, Gruber switches to supply-side arguments. Thus:

There is now a large body of literature examining the impact of tax changes on the highest income taxpayers. This literature finds that those taxpayers will avoid some of those taxes by re-categorizing their incomes in ways that minimize taxes. But there is no evidence that they will actually work less hard, invest less, or do anything which reduces their “real contribution” to the economy.

All of a sudden the fiscal contractionary effect of the tax increase doesn’t matter. Can we just call it even on the demand-side claims – as the PPACA will probably neither increase nor decrease the deficit very significantly – and focus on the supply side? The real justification for the PPACA, if there is one, is that it makes health insurance markets more efficient. There’s simply no denying that it imposes some distortions on the rest of the economy to achieve this goal, and Gruber himself seems to acknowledge this toward the end, although he insists the cost will be small.

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