Monday, January 18, 2016

A comment on Dean Baker's comment on Paul Krugman's comment on Bernie Sander's Health Plan

Away for while, and back in full meta-post. I guess all posts are comment on another post, this one is just one more degree of separation. So Krugman sides with Hilary over Bernie. Let's extend Obamacare, rather than get Medicare for all. The reason is mainly political calculation. It would be impossible to get a single payer system covering everybody. The power of insurance companies, and pharmaceutical firms, combined with the insidious role of money in the political process, implies that Bernie's position is a non-starter. Also, Krugman cites the fact that the increase in taxes would be a problem with the middle class.

Dean Baker basically accepts Krugman's arguments (not sure if that means that he also thinks Hilary is right, but somehow I doubt it), but makes two caveats. On the political level, Dean says, correctly I believe, that you need Bernie, or others like him, to move us in the right direction, and perhaps at some point in the future the US will be like other advanced and civilized societies with health coverage for all. Second, Dean suggests that the government allows pharmaceutical firms to get away with exorbitant prices and that we should have an alternative for that, in his view, public financing of research and clinical trials.

Fair enough. I can live with both comments, but here are my caveats. Krugman suggests that higher taxes would be required, not only on the wealthy, but also on the middle class, and he correctly acknowledges the argument Bernie used to respond to Hilary in the debate. Namely, that the higher taxes would be more than compensated by the reduction or elimination of health care premiums charged by private insurance companies. But there is an important argument that was not raised by Bernie that also matters in this regard. More government spending on health (and Bernie wants that and more on  education, and more on infrastructure) does have, as far as the evidence suggests (at least most would agree that multipliers are positive, even if not huge), positive effects on the level of income, and, hence, on taxes. I haven't seen the dynamic scoring of such a health plan, but it seems reasonable to suggest that the increase in taxes wouldn't be confiscatory, and there should be no great middle class backlash against Medicare for all (in fact, the majority of the country still favors it).

On the same note, I might add, Krugman's argument that Medicare for all would be too disruptive is difficult to buy. One of the many arguments against Obamacare was that it was disruptive, particularly for small businesses, and that many people would prefer their previous plans. And even though Obamacare was badly launched, and created some disruptions, I think that Krugman would accept the notion that so far it is working, and that eventually (if we don't get Medicare for all) it's going to be particularly well regarded by the people that benefited from it (in the millions).

Dean is correct that pharmaceutical firms obtain incredible advantages in the US current system.* And I have nothing against public funding of research; quite the opposite. About one third, if private firms' numbers are correct, of research is already funded by the government, mostly by the National Institute of Health (NIH), the Department of Defense (DoD), and the National Science Foundation (NSF). But even if we maintain the system in which much of the research is funded by the private sector, there is no reason why we cannot regulate the pharmaceutical sector (btw, like the financial sector), control prices, and in cases of national health priority adopt generic medications.

That is why I would be for Bernie's solution, to strive for a single payer system, rather than accept that there is little that we can do about it. That was, as he reminded us, the plan of FDR and Truman. Remember also that if Hilary has moved to the left (and, arguably, she did) this is, in part, because she lost to Obama in 2008, and is getting heat from Bernie now. Bernie, even though he was not a Democrat (so what, Hilary was in high-school a Young Republican and "Goldwater Girl" in 1964, but she came to her senses later), is more representative of progressive Democratic values.

* On a different, and less relevant, note, I'm not sure I agree that the way firms get higher prices is from some sort of tariff like system that allows them to price above marginal costs. In his words:
"Ordinarily economists treat it as an absolute article of faith that we want all goods and services to sell at their marginal cost without interference from the government, like a trade tariff or quota. However in the case of prescription drugs, economists seem content to ignore the patent monopolies granted to the industry, which allow it to charge prices that are often ten or even a hundred times the free market price."
Note that the notion that firms price at marginal cost is a fantasy. From a practical point of view firms basically tend to add a mark up on full costs (and also, almost no firm has increasing costs; but that is another story). And what really allows for exorbitant prices above full costs is the barriers to entry, some of which are caused by regulation and patents (tariff like as Dean notes), but also from the advantages of incumbency and from increasing returns or economies of scale. More importantly, the argument for patents is that they generate more of an incentive for investment, since firms can keep the proceeds from their research, but the evidence for that is scant at best.

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