Tuesday, October 09, 2012

Great minds think alike, part 2

Matthew Yglesias criticizes David Brooks for loading the rhetorical dice in favor of the Romney-Ryan approach to slowing long-term Medicare growth, as distinct from the Obama Administration approach, via use of the term "market-based."  In particular:

"Brooks says Obama's plan to do this with price controls is doomed for political economy reasons. A politically powerful coalition of elderly people and health care providers will block it. That's certainly plausible. But what's the alternative?

"Brooks says the alternative is to insert an additional layer of rent-seekers into the dynamic by contracting Medicare services out to private health insurance companies ....

"If you read the column, I think that what you'll find is that basically all the analytical work is being done by a project of ideological labeling. Brooks describes this as a plan that works 'through a market system' featuring 'normal market incentives.' He twice calls it a 'market-based approach' and once refers to critics as scoffing at 'market-based strategies.' The idea of a market has positive emotional resonance with many people, so if you convince them that you have a 'market-based' alternative to price controls that will sound good. But a system of government-funded subcontractors is only market-based if you squint at it really funny. Or, rather, it's very much a market but it's a market for political influence."

Fair enough.  But one reason this particularly interested me is that I am currently writing an article about Social Security and Medicare financing and reform, called "Should Social Security and Medicare Be More Market-Based?"  I use the term neutrally rather than (like Brooks) to load the rhetorical dice, and indeed I am mainly skeptical about the family of reform proposals that are thus described.

Yglesias makes a valid point, albeit that (as he recognizes) the issue devolves into one of comparative political economy, with none of the alternatives being likely to inspire much optimism.  But another point about Social Security and Medicare design is the following: If "more market-based" is always better, based on the view that rational consumers are optimizing under conditions of robust competition and in the absence of serious market failure, you will see no need for Social Security and Medicare to begin with.  For example, why would we require people to save for retirement, and to have health insurance at that point, as Social Security and Medicare effectively do even under the more market-based plans?  Why, for that matter, does the most recent Ryan Social Security plan (from 2010) limit the investment options that people are granted to relatively safe and well-diversified ones?  For that matter, why does it forbid retirees to keep right on betting on stock and bond prices, as it does by saying that they cannot choose retirement annuities with payoffs that depend on asset performance?  These, too, are "non-market-based" approaches relative to the alternatives.  Indeed, if you wanted to be as "market-based" as it was possible to be, you would simply abolish the programs, perhaps with a cash payout for the value of whatever existing interests one chose to recognize.

As I note in the current (as yet unposted) draft, "In effect, proponents have conceded the principle that [pure market approaches] should be limited or even denied in some respects, and all that remains is 'haggling over the price.'  So the merits of [a more market-based approach] cannot simply be assumed here, even if we favor it in many other settings.  Rather, they need to be specifically demonstrated in relation to Social Security’s [and Medicare's] accepted purposes."


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