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Posted at 3:02 PM ET, 01/20/2011

Greg Mankiw's thinking cap

By Ezra Klein

There's an interesting mixture of callousness and accidental truth lurking within Greg Mankiw's satirical proposal to reduce the budget deficit:

The essence of the plan is the federal government writing me a check for $1 billion. The plan will be financed by $3 billion of tax increases. According to my back-of-the envelope calculations, giving me that $1 billion will reduce the budget deficit by $2 billion.

Now, you may be tempted to say that giving me that $1 billion will not really reduce the budget deficit. Rather, you might say, it is the tax increases, which have nothing to do with my handout, that are reducing the budget deficit. But if you are tempted by that kind of sloppy thinking, you have not been following the debate over healthcare reform.

Like health-care reform, Greg Mankiw's plan really would reduce the budget deficit. That's been contested, so I'm glad to see Mankiw admit it. But Mankiw's broader point is that giving Greg Mankiw a billion dollars to write misleading political commentary would be a poor use of resources. And I agree. But he is analogizing giving Greg Mankiw a billion-dollar check to giving health-care insurance to 32 million people who, in the vast majority of cases, can't get it themselves.

That's easy for him to say, I think, given that Harvard University offers insurance to its employees. They do that because their employees, like Professor Mankiw, would be quite angry if they didn't. They don't think of insurance as an absurd extravagance or a billion-dollar check from the sky. They think of it as something much more like a necessity, something that their workers wouldn't be willing to go without. Something that I'd bet Mankiw himself doesn't go without. Maybe I'm wrong. If not, there's a real callousness to this post.

Now for the accidental truth: Mankiw's analytical claim is that it's somehow peculiar to believe a bill reduces the deficit because it raises more money than it spends. After all, the spending doesn't reduce the deficit. His apparent belief that the "revenues and spending cuts" side of legislation has nothing to do with the "new spending or tax cuts" side helps explain why he joined the Bush administration's Council of Economic Advisers in May 2003, the same month that the Bush administration's second set of unpaid-for tax cuts was passing through Congress, and a few months before the Bush administration's completely unpaid-for Medicare Prescription Drug Benefit was signed into law.

That record -- and Mankiw's apparent belief that the subsidizing insurance is akin to an extravagant giveaway to the rich -- offers a telling contrast to the policy thinking Mankiw is criticizing here, which as he admits, actually reduces the deficit, and though he doesn't mention this, does so while mostly ending the days when Americans would find themselves involuntarily uninsured. It's another example of the tendency that the Affordable Care Act's critics have to omit the uninsured from the discussion and develop a new and inconsistent definition of fiscal responsibility when doing so would aid an attack on the bill.

By Ezra Klein  | January 20, 2011; 3:02 PM ET
Categories:  Health Economics  
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Comments

Okay, let's say all those of you who oppose changing our system this way are right. Then what? We spend almost 40 percent more on our health care costs per capita compared to countries we would consider like us (GB, Norway,Japan, France, Germany, etc.) 7k to average of about 4k.

It would seem that the simplest thing would be to reduce the pay of everyone involved in the health care industry by 40 percent- docs, nurses, ins. cos., hospitals, etc.. Then we could use the savings to insure the rest of America. But you never hear anyone say cut the pay of these entities- why? Cut pensions of workers-yes, cut their pay- yes, cut my taxes...blah...blah... Oh noes, can't cut doc pay.. but we can cut the pension of some truck driver to 'save' us.

Maybe we can tax the health care benefits that people receive as they really are wages in disguise. And eliminate Medicare and its offshoots; too expensive. No more mobility scooters....

Simplistic? You betcha. But simple minded thinking seems to be the norm for tea partyers and their brethren; so keep it simple. Of course, the simplest thing would be to bar any employer funded health insurance and make the gov't keep out of the health insurance market at all. A REAL free market for all- wherein the capitalist goal of maximizing profit over all else is revered. Yes, that would mean that over half of the USA would not get health insurance as no company in its right mind would insure the morbidly obese, obese, and way over weight that comprise well over half of this fine country. Preexisting condition? HAHA. And, a true free market would allow ins. cos. to use dna screening to eliminate risk. By the time the ins. co. eliminates those in current bad health, those with pre-existing conditions, and those with damaged dna, there may be 5-10 percent of the population eligible for insurance. Everybody else pays cash or, as most of the right wingers would hope, simply die.

Insurance problem solved. Run and invest in funeral homes. Now, refudiate that with your hopey, changey ideas.

Posted by: bokun59 | January 20, 2011 3:32 PM | Report abuse

Well said, Ezra!

Posted by: tomveiltomveil | January 20, 2011 3:43 PM | Report abuse

Nice post - very harsh by Ezra's standards - did you take the "blindspot" critique to heart?
http://lhote.blogspot.com/2011/01/blindspot.html

Posted by: adamsmith5 | January 20, 2011 3:50 PM | Report abuse

"Now for the accidental truth: Mankiw's analytical claim is that it's somehow peculiar to believe a bill reduces the deficit because it raises more money than it spends."

People like Mankiw appear to be tripped-up by the disconnect between what they ask for and what they actually want. Let's say someone has a budget of $100 and revenues of $50, and they really, really want to cut spending. One way of pressing for the desired spending cuts would be to insist that the budget be balanced. However, when someone comes back and says, "We did what you demanded. Revenues have been increased to $100", they feel like a fast one has been pulled on them, because the end result is nothing like what they envisioned.

I'm reminded of the old surgeon's operating room joke when they request the wrong instrument: "Don't give me what I ask for; give me what I want."

Many people whose primary objective is to cut taxes naturally think that cutting spending is a good start toward achieving their goals. However, in arguing for reduced spending they tend to talk in terms of balancing the budget, perhaps because it makes them appear to be less callous and motivated by self-interest. They should not act so surprised, then, when people find creative ways of giving them what they asked for.

Posted by: Fishpeddler | January 20, 2011 4:08 PM | Report abuse

Let us not forget the graph you posted Ezra: http://voices.washingtonpost.com/ezra-klein/wherehealthspendsmoney.jpg

If you take away the biggest tax hikes ("New HI tax on high earners" and "tax on health insurers") you are still left with net positive revenue. A lot of which comes from reduced government spending in Medicare - "reduced provider payment rates" and "reduced premiums for private plans." Should we have stopped subsidizing employer provided health insurance instead of taxing health insurers? Perhaps (Pretty sure Mankiw believes corporate taxes are passed on to consumers and workers anyway). However, wouldn’t Minkiw’s argument still hold even though we are now getting funding from things he likes - government cuts and reduced subsidies. Granted he might truly believe those cuts should go back to tax payers instead of paying for something else, yet, as you pointed out, if he does hold that position then he did a really bad job of showing it during his tenure.

Posted by: chrisgaun | January 20, 2011 4:11 PM | Report abuse

The interesting thing about this commentary is that it highlights the fact that nobody is really attacking the specific tax increases in the bill.

The hard part of paying for new spending, is finding places to cut spending and raise revenues. Once you find those areas, you risk being attacked for those specific changes.

People attack the medicare cuts, the 1099 change, and accuse the CBO of being wrong about the deficit calculations, but nobody is really talking about the tax increases on high income or on the healthcare industry.

I think this proves the Democrats put in a lot of effort and intelligence to calculate where they could increase revenue without being attacked very much.

It also proves Republicans dont believe they can defend opposition to tax increases for high income and corporations alone. That is why they had to make sure the bush tax cuts were not separated between middle class and the wealthy.

Posted by: DeanofProgress | January 20, 2011 4:19 PM | Report abuse

This is a classic example of Mankiw intellectual dishonesty.

He is obviously smart enough that we can assume he is able to anticipate arguments like Ezra's that point out problems with the assumptions in the stuff he posts on his blog. But instead of dealing with it, he turns off the comments and pretends like they don't exist.

*What's PAYGO? What's a budget deficit? I will not let these concerns diminish my smug...*

And yeah, this was a bit sharp of a post from Ezra, but IMO it is deserved. I would argue that the country has been too quick to come out of Bush Derangement Syndrome, given how much they lied about and screwed up ... nearly everything.

Posted by: sanjait | January 20, 2011 4:34 PM | Report abuse

It's all been said in these comments. let me just add how nice it is to read an entire set of comments and see nothing but intelligent dialogue. Way to go people (and I hope I didn't just curse us all)!

Posted by: rcd2 | January 20, 2011 5:00 PM | Report abuse

Let's not forget that the tax increases were only accepted because of the extra spending on the uninsured. If the $3 billion in taxes could ONLY be passed if Greg Mankiw received $1 billion, then he might be on to something. The callousness argument would still hold though.

Posted by: briande33 | January 20, 2011 5:23 PM | Report abuse

Oh, boo hoo, he is being so callous... Wittle Ewza Klein is thinking about poor black people in DC while he swirls chardonnay at some queer restaurant in Georgetown.. A real man of the people without a callous bone in his bowdy. Those mean Repuwlicans. Ewza is still bitter about those wedgies from Repuwlicans in the OC during high school... We are so fowtunate you have channeled this bitterness into compassion for those ignorant poor peowple.. where would they be without your generosity... giving away all your pre-tax income above the powerity line; so glad you rewcognized it would be hypocritical not to.

Posted by: cdosquared5 | January 20, 2011 7:30 PM | Report abuse

Wow, cdosquared5, what a brilliant rebuttal. I'm sure Mr. Klein is just devastated.

Posted by: mmharris | January 20, 2011 8:04 PM | Report abuse

Maquire at Just One Minute throws Klein's cheap mawk back at him:

http://justoneminute.typepad.com/main/2011/01/why-oh-why-cant-we-have-better-bleeding-heart-wonks.html

Posted by: msoja | January 20, 2011 9:17 PM | Report abuse

Glad to see you coming around to recognizing that Alan Grayson was not so off base when he explained that the Republican health care plan was "die quickly." Now why was it so outrageous for him to say that, when that's what they are all saying now with their repeal with no replacement effort?

Posted by: janinsanfran | January 20, 2011 9:53 PM | Report abuse

Thanks Ezra

I couldn't read the ridiculous analogy by supposed economist Mankiw. The first two sentences, dripping in sarcasm, and aimed at the terminally stupid, told me all I needed to know anyway.

Fortunately, I was reading the Economist view excerpt and saw that you were tearing him a new one, so I clicked the link to enjoy your article.

This man writes textbooks! ...on Economics!! Can you believe that? No wonder you end up talking to so many seemingly intelligent young people these days who come up with economic ideas that one day in an introductory economics survey course would make them realize are just silly. Supply and demand. Check it out sometime kids.

Whwn you make a law saying Many emergency rooms must care for anyone (documented or not)regardless of ability to pay, and slip in unaccounted for billions for free and reduced rate clinics in every state of the union, you get crappy care at exorbitant cost that is not controlled in the least.

Hello tax dollars, hello cost shifting at 1,000- 1,300 per private insurance policy. You pay the difference!!!

Posted by: jiji1 | January 20, 2011 10:04 PM | Report abuse

And you are another example of a writer of misleading commentary! The point he is making is that people claim the health reform is reducing the deficit- it's not! It's just bundled with other stuff that has a small chance of reducing the deficit. The point is very simple.

Of course, what was never analyzed is how much the ACA is going to cause the actual cost of health care to rise, which is going to blow away any deficit neutral potential the bill had.

The best way to get care to more people is to provide it more cheaply, then we don't have to take as much money from people to pay for others care. The best way to provide it to people is to use consumer driven care, where the consumer is incentivized to seek value care.

Posted by: staticvars | January 20, 2011 11:03 PM | Report abuse

Pretty much everything about this post is completely wrong. Mankiw simply meant that the logic of tacking on irrelevant taxes would make even indefensible plans (way more than Healthcare reform) fiscally responsible, not to draw some moral equivalency.

Better to point out that things like the excise tax are probably economically beneficial regardless of the revenue they raise and that the politics of getting those deficit reducing measures required the deficit increasing ones.

Or even better, point out that the amount of Treasury bills (size of the nominal deficit) is irrelevant and that the bill shifts the allocation of resources from some things we know are economically efficient to things you think are socially valuable.

-AFG
http://www.afoolsgame.com/?p=43

Posted by: AFoolsGame | January 21, 2011 1:10 AM | Report abuse

What jiji1 and Ezra (and several others)wrote is utterly laughable. Greg uses a rhetorical device to illustrate the fallacy of deficit reduction via Obamacare and you throw a fit. Somebody call the Waaaaambulance.

Posted by: novalifter | January 21, 2011 10:19 AM | Report abuse

Ezra,

As other commenters have already said, you've completely missed the point of Mankiw's analogy.

His point is that Obamacare advocates want people to accept the idea that any kind of legislation Congress enacts (Healthcare reform, a "give money to Greg Manliw" bill, etc.) could be called financially sound because as a part of passing the law, lawmakers would raise money via taxation above the cost of the "thing they enacted" and apply it to the deficit. It is not the "thing" (Healthcare reform, a "give money to Greg Manliw", etc.) that is lowering the deficit through improving efficiency, lowering overall costs, what-have-you, it is the tax increases mandated by the legislation that is doing so, and to say or imply otherwise is disingenious.

And, yes, Obamacare suppoters ARE implying otherwise when they repeat over and over that repealing PPACA would "raise the federal deficit" or that giving 30 million people free healthcare will not raise overall healthcare costs. The "healthcare part" of PPACA certainly does not have a trivial cost, and by repealing the entire law Americans will be saved from having to spend that money. Afterwards, a debate can be waged on whether or not it is prudent to allow Congress to raise taxes like Obamacare would have and apply that money to the deficit.

Posted by: getjiggly2 | January 21, 2011 9:09 PM | Report abuse

@Fishpeddler

"People like Mankiw appear to be tripped-up by the disconnect between what they ask for and what they actually want. Let's say someone has a budget of $100 and revenues of $50, and they really, really want to cut spending. One way of pressing for the desired spending cuts would be to insist that the budget be balanced. However, when someone comes back and says, "We did what you demanded. Revenues have been increased to $100", they feel like a fast one has been pulled on them, because the end result is nothing like what they envisioned."

There are three primary reasons conservatives and most Republicans push primarily for spending cuts rather than raising "revenue" (taxes) as a way to balance our federal budget and eliminate the deficit:

1) By cutting federal spending instead of raising taxes to reduce the deficit, all Americans get to keep more of the money they've earned. This is important to us because we believe Americans spend their own money in much more productive and beneficial ways (to themselves and to the overall American economy) than the government does.

2) By cutting federal spending instead of raising taxes to reduce the deficit, it will force the government to slim down by cutting wasteful programs, trimming over-sized departments and making more efficient its activities in general. This is important to us because we believe that as the government grows, inevitably American freedoms are reduced in all kinds of ways.

3) Finally, we realize that it is not realistic to think that our government can keep spending like it has (and more in the future!) and raise taxes indefinitely to pay for it. At some point the American economy will not be able to pay for all this spending, regardless of how well-intentioned it is. A lot of us think we are already at this point. Therefore, tackling the spending problem that continues to rise unimpeded seems to be the most prudent course.

Posted by: getjiggly2 | January 21, 2011 9:44 PM | Report abuse

"People like Mankiw appear to be tripped-up by the disconnect between what they ask for and what they actually want."

Good point. I think something similar happened with the idea of allowing health insurance to be purchased across state lines, but which is a short-hand way of saying that states shouldn't have the power to regulate health insurance sold to people within the state. So when the Affordable Care Act allows insurance companies to sell insurance across state lines, but only by going through the exchanges, which are likely to impose regulations as tough as any imposed by the states, conservatives are not happy.

Posted by: KennethAlmquist | January 22, 2011 12:38 PM | Report abuse

"Glad to see you coming around to recognizing that Alan Grayson was not so off base when he explained that the Republican health care plan was "die quickly." Now why was it so outrageous for him to say that, when that's what they are all saying now with their repeal with no replacement effort?"

Right--because the stench of death was everywhere in those dark, dark days before Obamacare passed. Now it's peace and light and unicorns everywhere, and the death rate has dropped to zero. Why, it's almost as though resources are unlimited!

Who would want to go back to the bad old days?

Posted by: asdf2 | January 23, 2011 3:52 PM | Report abuse

Mankiw completely ignores political economy.
His policy would be a great one, if payments to Mankiw could form the basis for a political compromise on deficit reduction. Unfortunately for him, healthcare expansion makes a much better foundation for compromise.

Posted by: zosima | January 23, 2011 5:26 PM | Report abuse

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