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The Unbearable Lightness of Greg Mankiw

A friend e-mails:

Hey man. So my soon-to-be professor Greg Mankiw writes this:

http://gregmankiw.blogspot.com/2009/07/is-deficit-neutrality-too-easy-test.html

and I'm curious: How would you respond? Is it just that we should be willing to spend more of a deficit for health care? Or is there something Greg is missing?

I would respond by saying that there's a weird tendency among people to think that very banal comments are very important insights when they come from Greg Mankiw. And this is worse than a very banal comment: It's disengaged with the debate.

Mankiw's basic argument is that health-care reform should be better than deficit-neutral. It should be deficit-improving. That is to say, it should bend the curve in the long term. And it should! But what evidence does Mankiw have that it won't?

There are at least four ideas in the health-care reform debate that have the potential to deliver on long-term savings. Mankiw does not make mention, or even reference an awareness, of any of them.

There's the theory that comparative effectiveness review -- particularly when combined with a new IT infrastructure that could eventually help guide physician decisions -- will cut down on unnecessary treatments and allow us to bring high-spending regions of the country into sync with their low-spending brethren.

There's the idea that the Independent Medicare Advisory Council will be the locus for a continual process of Medicare reform that will begin to bring down costs in the Medicare program, and also create a sort of "best practices" laboratory where experiments can be attempted and the best efforts can be further developed.

There's the argument for the public plan, and in particular the public plan with Medicare powers, that implies that a large purchaser in the center of the system could bargain better discounts with providers.

There's the argument that the health insurance exchange will grow to become the primary insurance market and that as insurers begin competing on grounds of cost and quality -- as opposed to risk selection -- that efficiencies will emerge and spending will drift downward, and over time, the employer-based market, which is responsible for many of the costly problems in the system, will begin to migrate toward the exchange.

All of these are speculative. But that's true for any cost-saving measures that aren't either single-payer or some radical turn toward the free market that rips away subsidies for the poor and benefits for the elderly. Mankiw, however, doesn't engage with any of them. Not even glancingly. They don't exist anywhere in his post. Nor do the political difficulties facing not only these approaches, but anything stronger.

These are pretty fundamental concepts in the health-care reform debate as it's currently progressing. I don't know if Mankiw is missing them or just ignoring them. But if you're concerned enough to write about the need for long-term cost control, you should be concerned enough to learn about some of the ideas for controlling costs. But Mankiw's coverage of health-care reform thus far has been disappointing, even in contrast to people who largely agree with him, like Tyler Cowen. It's been the Econ 101 of health-care reform: Some familiarity with the basic concepts, but not much engagement with the complexities or realities of the process.

Elsewhere on Mankiw's blog, I wonder if the top post on the site will be updated with this information?

By Ezra Klein  |  July 20, 2009; 5:52 PM ET
Categories:  Health Reform  
Save & Share:  Send E-mail   Facebook   Twitter   Digg   Yahoo Buzz   Del.icio.us   StumbleUpon   Technorati   Google Buzz   Previous: One Way to Lower Medical Malpractice Costs
Next: Barack Obama on Health-Care Reform: Trust Us.

Comments

Ezra, all of the stuff you mentioned may decrease costs somewhat. But it's all speculative. And do even the most optimistic advocates of IT, or the Medicare Commission, or whatever, really think that they will cut spending so much as to bend the curve in the long run (when you count in the increased costs of expanding coverage)? Are there any studies to back up such a claim? As far as I know, the advocates of these reforms in combination with coverage expansion are all playing defense-none of them really can prove that they'll DECREASE the budget deficit.

Posted by: jfcarro | July 20, 2009 6:25 PM | Report abuse

Well, there's Britain, France, Japan, Germany...

Posted by: bonyfingers | July 20, 2009 6:38 PM | Report abuse

I wish people would stop conflating the federal budget with the GDP. As I understand it, the savings will be to our *total* health care expenditure, not just what the federal gov't spends on it. Mankiw seems to be referring solely to the gov't and ignoring the total, where the efficiencies will probably be greatest.

Posted by: bonyfingers | July 20, 2009 6:47 PM | Report abuse

Hey Ezra

Rather than updating the top post on Mankiw's blog he simply took it down.

Cheers

Posted by: rpj1 | July 20, 2009 7:17 PM | Report abuse

Regarding the "delayed" mid-session budget report, it was also late as recently as 2005. In fact, going back through the Reagan years, its been late 61% of the time. Reagan turn his in late 7 out of his 8 years.

Obama turning this in late is hardly rare or unprecedented.

All this information is available here:

http://www.rules.house.gov/Archives/RL32509.pdf

Posted by: nylund | July 20, 2009 7:23 PM | Report abuse

Ezra, I took ec10 (introductory economics) with Mankiw freshman year at Harvard, and I've talked with him during office hours. He's incredibly bright, but he goes to great lengths to resist coming to the conclusion that there exist markets that are imperfect for reasons other than externalities or ill thought out government intervention. He hates the idea of any market that government can improve with any sort of regulation other than Pigovian taxes, because it ruins the welfare theorems that some microeconomists love so much. So, as you can imagine, health care economics are ill suited to his world view.

I don't want to be totally unfair to Mankiw. I enjoyed his class, he's a spectacularly bright guy, and he has a great textbook. But he has certain ideological hangups. I even found those ideological hangups extremely appealing until taking a few more balanced classes in the following couple of years.

Best part of that class was that I had a French section leader, and Mankiw would constantly take pot shots at Europe in lecture and my section leader would take pot shots at America in section.

Posted by: snaxattack | July 20, 2009 7:39 PM | Report abuse

The only substantive complaint in this post is that Mankiw supposes that health care reform will not reduce the long-term deficit, without engaging the particular arguments to the contrary that Ezra finds compelling. A quick glance at Mankiw's post reveals that he does not address those arguments because he is basing his claim upon the CBO's analysis. Presumably, the CBO's analysis, which pundits of both the left and right pay attention to only when it suits them, engages such arguments, and goes beyond Ezra's qualitative commentary to put real numbers behind them, because they are relevant to forecasting the long-term deficit effects of the bill in circulation. Mankiw's claim is based upon a non-controversial reading of the CBO analysis -- why, then, doesn't Ezra engage that analysis, rather than taking potshots at Mankiw, who raises reasonable concerns in light of the CBO analysis?

Posted by: RVangala | July 20, 2009 9:12 PM | Report abuse

Mr. Klein, Please stop treating us as idiots. The current plan is going to add to the deficit according to the CBO analysis. We need healthcare savings now, before we can begin to expand coverage. This is really going to start putting pressure on bond sales as foreign stock markets continue to improve. Until this expansion in prepaid care, where the government pays for profit providers for whatever treatment the patient want, the bulk of my funds will be outside the borders.

Posted by: staticvars | July 20, 2009 11:35 PM | Report abuse

What about increased prevention?

What about decreased use of emergency rooms?

What about increased early treatment, preventing problems from becomming very large, serious, and expensive before treating them?

Posted by: Richard722 | July 21, 2009 1:44 AM | Report abuse

Your argument is basically, "But he didn't even address the salient impact of unicorn dust and pixie wings".

I've heard all about the promise of technlogy and computerization saving money in health care not for years but for decades. The problem is that any savings on individual procedures immediately gets subsumed by additional demand. Nobody says, "Wow, fewer C-Sections, let's pocket the savings and lower the cost of care." Instead it gets turned into meeting improved access or broader services.

I'm delighted that Mankiw is taking you on as a student. Maybe you'll learn something.

Posted by: DaMav | July 21, 2009 2:08 AM | Report abuse

I would add:
- Adding 30-40 million people to the insurance roles is a pretty big cost, and a one-time event (it won't be repeated in year 11, for instance).
- If you can offset that with lower trends, that's a huge win.
- If you can continue to achieve lower trends in years 10+, then we are looking at some of the best legislation in my lifetime.

Finally, I'd like to say some people are just complainers.

Posted by: rat-raceparent | July 21, 2009 9:00 AM | Report abuse

I completely agree with rat-raceparent, but I just want to emphasize something that is implicit in his/her post. The CBO estimates are for the next ten years. "Bending the curve" is a much longer-term goal.

Maybe Professor Mankiw will turn out to be right that the current legislation that's being created in Congress will make things worse in the long term. Maybe he's wrong. But by ignoring the difference between the medium term and the long term, Professor Mankiw takes the easy, and intellectually dishonest, way out. Unfortunately, this has become Professor Mankiw's m.o. over the last few years, which has made him completely uninteresting to read.

Posted by: geolinpot | July 21, 2009 9:56 AM | Report abuse

I believe to fit within the 10 year budget window that Congress uses to determine deficit neutrality, they are using costs for 7-8 years of a fully operational program while taxes are increased for 10 years. The obvious problem will be that the program is not "fully financed."

The fact is that responsible budgeting means having a revenue stream that at least matches the cost and growth of your expenditure. The revenues that will be raised by this revenue will not match the expenditure growth, in fact they don't even match the yearly cost, which is why they are phasing in the programmatic expenditures after they are uploading the revenues.

This plan is a long-term budget buster for the federal government. I have not even mentioned what it will do to state government budgets as it increases the state-share of Medicaid expansion.

Posted by: lancediverson | July 21, 2009 10:43 AM | Report abuse

"There's the argument for the public plan, and in particular the public plan with Medicare powers, that implies that a large purchaser in the center of the system could bargain better discounts with providers."

Isn't this the thing you're always ranting about with Wal-Mart? It's so big that suppliers have no choice but to deal with it, it drives down the costs of suppliers, suppliers respond by firing employees and cutting their wages and blah blah blah?

Posted by: ostap666 | July 21, 2009 10:53 AM | Report abuse

Isn't it a whole lot more logical to say that the things that would save money are the same things that democrats are worried will be terribly unpopular? I am fascinated by the dilemma where things that people would get upset about if an HMO did them are the gold standard for what single payer healthcare should be.

Posted by: spotatl | July 21, 2009 11:28 AM | Report abuse

Mankiw doesn't actually believe in bending the long term cost curve of health care because he believes the market is doing a really good job at pricing health care and health care in the US costs so much because it's actually that good. Instead, in order to deal with long term deficits, he proposes slashing the number of people who qualify for Medicare. To make matters worse, his plan doesn't even work, because he wants us to reduce Medicare eligibility to a fixed percentage of the population, which addresses only the demographic shift, which is a much much smaller contributor to Medicare cost growth than per capita cost growth. Basically, Mankiw has no knowledge of health care economics and anyone here who takes Mankiw's commentary on health care reform as sharp criticisms by an expert probably hasn't really learned much about health care economics either. He makes very basic errors that anybody who has taken one class on health care economics or health care policy can identify immediately.

Mankiw is an expert on the microeconomic construction of new keynesianism, not on controlling health care costs.

Posted by: snaxattack | July 21, 2009 12:06 PM | Report abuse

Mankiw's post is discussing the change in the standard used to measure the efficacy and acceptability of the bill. He is not attempting to analyze whether the bill will satisfy the chosen standard, although he notes that others have found it will not. Despite the "lightness" of Mankiw's post, it appears that you misunderstood it. And, as I am sure you know, every blog post on a topic cannot be an in depth analysis of that issue or collateral issues.

Additionally, even if Mankiw were arguing that the bill will not satisfy the standard, he was under no duty to refute the speculative claims. Proponents of changes have the burden of proving that they will reduce costs. Opponents have no duty to show otherwise until you that the speculative savings will actually occur.

Posted by: TomB6 | July 21, 2009 12:27 PM | Report abuse

Does the above mean Ezra is going back to school to learn something?

Posted by: WalterSobchak1 | July 21, 2009 12:52 PM | Report abuse

I don't quite get why people read this blog (I was sent here from Mankiw's blog). Klein's knowledge of Economics and Policy is superficial. Say what you will, but Mankiw has done top economic research and has made policy without losing face. I don't think that even Krugman would include Mankiw in the "incompetent and crazy" set of the previous administration. On his blog, Mankiw has consistently exposed the hypocrisy or inconsistency in policy statements made by the Presidents and his advisers, of which there are plenty. On the other side, Klein is just gossiping about Economics. He's a pretty face shilling for the administration.

I can take almost any bet with Klein or readers of his blog that health care costs will increase over the short and long terms.

Posted by: snap1 | July 21, 2009 2:06 PM | Report abuse

EZRA overlooks a few facts. Like the massive increase in illegal immigration should we go ahead with the Obama plan. How many are we going to pay for now? 15 Million? In 5 years you can bet on 30 Million because of freebies.
Anyone who has dealt with the Government knows they do nothing more cost effective.

Posted by: dencal26 | July 21, 2009 3:04 PM | Report abuse

We were told that Obamacare would insure everyone by using savings from technology enhancements. So why does Obama need a TRILLION DOLLARS? We were told that the US already spends more nation as a percent of GDP that any other nation. SO why does Obama need 1 Trillion Dollars?

Posted by: dencal26 | July 21, 2009 3:08 PM | Report abuse

How can we prove it won't? Based on the Obama track record.
Unemployment did not cap at 8% as he claimed
Caterpillar did not rehire anyone as Obama claimed
His plan to stem the tide of foreclosures has failed
And basically the entire stimulus has failed.

The burden of proof is on Ezra. Not Mankiw.

Posted by: dencal26 | July 21, 2009 3:24 PM | Report abuse

You cannot insure 47 Million people for free and in order to do so without increases costs you must ration care. This is very easy to see. Remember the old saying " If its too good to be true it probably is" and the other " Nothing worthwhile is free".

Posted by: dencal26 | July 21, 2009 3:27 PM | Report abuse

dencal26: You cannot insure 47 Million people for free and in order to do so without increases costs you must ration care.

That's not necessarily true. It depends on the situation. It's like saying a restaurant that serves 30 people can't serve 10 more without cutting portions. Well, if the restaurant is throwing away 50% of the food it orders, then there would be enough for 10 more people if it just used its resources more efficiently.

Over the sort term, insuring everyone will cost more because it will take time for efficiency measures to kick in. But the fact that many of our peer nations get just about the same health results as we do while we spend nearly twice as much should provide ample proof that our system is tremendously wasteful.

Moreover, it's important to note that we ration care right now. We just do it by income rather than by health outcomes. Any system with demands on finite resources will ration. The question is not whether to ration; it's whether to ration wisely or poorly.

Posted by: dasimon | July 21, 2009 3:46 PM | Report abuse

"The question is not whether to ration; it's whether to ration wisely or poorly."

The real question is who do you trust to ration your care; you or someone who works for the government? The nine most terrifying words in the English language are, “I'm from the government and I'm here to help.”

Unless you have been to a Medicaid clinic in the inner city, you should be barred from even discussing the issue of government healthcare. I have been to a Medicaid clinic and please God don’t make me go back.

Posted by: kingstu01 | July 21, 2009 7:25 PM | Report abuse

Wow... you kind've got punked by the Glittering Eye.

On the bright side, looks like this post has delivered more robust commentary than what we've been seeing since you moved to WaPo, so good on you.

Posted by: BeatKing11 | July 21, 2009 9:48 PM | Report abuse

kingstu01: "The real question is who do you trust to ration your care; you or someone who works for the government?"

No, the question is whether you want someone with a profit motive rationing your care (the insurance company) or the government.

Another question is whether you want to be rationed out of insurance entirely because you developed a condition while you had your job and then lost your job, and so lost your insurance because no one will provide it at anything near an affordable rate.

And if you want more care than a government plan would offer, then you could, you know, buy supplemental insurance even if a public plan forced out all the traditional insurance plans. Of course that's rationing by income, but that's what we do now anyway. So the problem seems a bit of a phantom to me.

Posted by: dasimon | July 22, 2009 12:42 AM | Report abuse

Ironically, Klein accuses Mankiw of making a point without a supporting argument, then proceeds to do exactly that himself.

He presents a “rock soup” argument in his rhetorical packaging of healthcare “reform”. The supposed cost-control measures of which he speaks, such as medical IT and comparative effectiveness research and dissemination, that will supposedly produce substantial net savings (despite the upfront investment) could be implemented without expansion of coverage, as could the offsets in the budget that the Obama Administration is proposing. And given the our enormous, unsustainable long-term fiscal imbalance we already face, if one advocates such means of cost-containment at all, he should advocate them independent of whether or not we expand coverage, unless their effectiveness is largely dependent on expansion of coverage for some reason.

What is the “rock soup” analogy? A story I was told a long time ago of a traveler who arrives in a village with nothing but a pot. He sets himself down in the center of the village, gathers some rocks, fills his pot with water, and builds a small fire. As the water boils, villagers approach him and ask what he is cooking. He tells them “Rock soup, the most delicious soup in the world. I’ll be glad to share some with you. It’s made with these rocks I’ve gathered, although for it to be really good, I should add some high quality beef, fresh vegetables and the finest spices.” The villagers readily offer to provide these other ingredients, anticipating the delicious “rock soup”.

If I bend over backwards to give Klein as much benefit of the doubt as possible, I could assume that he assumes that, although all the cost-control mechanisms could indeed be implemented without expansion of coverage, there would be a great difference in effectiveness (i.e., degree of cost reduction) without expanded/universal coverage. That is quite debatable, even before we get to netting it out vs. the increased cost of the expanded coverage itself. Moreover, it's an argument that Klein does not even try to make, even though it would make all the difference between a sensible argument and a "rock soup" sales pitch.

Posted by: purchandregist | July 22, 2009 1:25 PM | Report abuse

So, what are we to make of the inexplicable tendency of some people to think that very banal comments are very important insights when they come from Ezra Klein?

I haven't found evidence of Mr. Klein possessing experience in anything other than commentary. So, what makes him qualified to judge other commentary, especially if the commenter being judged has actually, you know, done something?

Posted by: dmlpearl | July 22, 2009 2:09 PM | Report abuse

Apparently, Mankiw does have standards. He took down the "No news is bad news" post. It is now a dead link.

I assume this is because Greg realized that he was just parroting a Republican talking point.

Don't feel bad, Greg. These things happen when grasping at straws.

Posted by: zosima | July 22, 2009 2:26 PM | Report abuse

Agreed the fact the OMB report is being delayed doesn't necessarily mean the delay is intended to hide worse-than-expected news damaging to the prospects of health-care "reform".

But the fact that reports in similar situations have also been delayed does not prove the Obama administration is NOT hiding bad news for political reasons either.

As for the rest, enough with the snark already.

Posted by: novaculus | July 22, 2009 4:16 PM | Report abuse

Krugman makes a good point. That the $1 trillion cost will only represent like 4% of the costs over the 10 year period and you should be able to find the savings to offset this in the other 96%.

Posted by: parmstrong001 | July 23, 2009 2:26 PM | Report abuse

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