26 November 2014
American People Don’t Know Basic Economics Because Economists Have Misled Them
Steve Landsburg
UPDATE: As Keshav and David pointed out in the comments, I made a bonehead mistake in the original draft of this post, which ironically strengthens my underlying point rather than hurting it. I've corrected the mistake below, and in a follow-up post I'll deal with this issue more directly.]
Steve Landsburg recently wrote a post entitled, “In Defense of Gruber.” Now Steve likes to write provocative things, so I was curious to see how he could possibly approach this seemingly impossible task. I think Steve failed–badly–but it’s because he is not really being fair with the average non-economist. Precisely because you’ve got ostensible giants in the field misleading Americans about the state of the economics literature, it’s not the average person’s fault for believing the deception that Gruber helped foster.
Below, I’ve excerpted the gist of Steve’s post. For the context, remember that Gruber (among other controversial things) told an audience that taxing insurance companies for high-premium employer-provided health plans (tax on “Cadillac plans”) was the same thing as eliminating the favorable tax treatment of those plans, which they currently enjoy because employer contributions to premiums are not considered taxable compensation to the employee. Gruber thought it was hilarious that the American people were too ignorant to see that these were the same policies, and his audience laughed along with him. Now Steve favors eliminating this special tax treatment that encourages employers to pay in the form of insurance premiums rather than salary, and so Steve agrees with Gruber that it’s a good part of ObamaCare to crack down on these Cadillac plans. So here’s how Steve justifies Gruber’s participation in this scheme to obfuscate what this “Cadillac tax” would actually do to average Americans:
- 7) So here we have two different policies with exactly the same
effects tax the consumer or tax the insurance company. Gruber et al.
believed that the voters would oppose one and support the other. It does
not seem to me, under those circumstances, that it’s especially dishonest
to choose the package that you think will sell. If voters have opinions
that are completely incoherent to begin with, then neither Gruber nor
anyone else can be accused of confusing them. They were, after all,
maximally confused in the first place.
- 8) I do think that those of us who are paid to teach economics have something of a moral obligation to, you know, teach economics. So it would have been better if Gruber, like so many of the rest of us, had made some effort to explain to the public that there is no difference between paying a tax and having a taxed passed on to you. On the other hand, the public is confused about enough different things that we can’t all be explaining all of those things all the time.
- 9) I want to say this again. If the voters favor a law that says all drivers must be licensed, but oppose a law that says nobody without a license is allowed to drive, then I don’t think it’s immoral to propose the first law instead of the second. That’s basically all Gruber did. I would prefer that he had tried to point out the inconsistency, but Gruber is under no obligation to live by my preferences.
- 10) Bottom line: The Cadillac tax is a good thing and Gruber found a way to make a good thing politically palatable, without telling any out-and-out lies (as far as I know, he never tried to claim that the tax would not be passed down). I see no sin in that.
- 8) I do think that those of us who are paid to teach economics have something of a moral obligation to, you know, teach economics. So it would have been better if Gruber, like so many of the rest of us, had made some effort to explain to the public that there is no difference between paying a tax and having a taxed passed on to you. On the other hand, the public is confused about enough different things that we can’t all be explaining all of those things all the time.
In order to believe these views to be contradictory, you have to subscribe to a particular economic theory of cause-and-effect. Namely, you have to think a tax levied on the insurance company will be fully “passed on” to the consumer market prices adjust in either case such that the consumer is equally affected by a tax levied on him versus the seller.
Rather than focusing on the narrow issue of tax incidence in the health insurance market, consider the following “facts” about the world that a reader of Nobel laureate Paul Krugman would understandably believe. And note carefully, I said “understandably believe,” which is not the same thing as “correctly interpret as the finely nuanced position that Krugman was actually stating.”
==> Imposing energy efficiency mandates that force businesses to buy new equipment and install insulation on their buildings would actually stimulate the economy, as well as help the environment. [Sorry I can't find link right now to Krugman saying this, but trust me he has--citing liquidity trap and obsolescence leading to forced investment.] Don’t let the right-wing think tanks tell you such mandates will stifle growth or job creation; they are lying.
==> More than doubling the minimum wage to $15 would have hardly any effect on employment in the fast food industry. The right-wingers warning of job losses are ignoring all of the best research.
==> There is “zero evidence” that marginal income tax rates have an effect on economic growth. In fact, if the government raised the top income tax rate to 70 percent or possibly even 91 percent, there’s no reason to expect it to have a big effect on how much rich people work, or the growth of the overall economy. Don’t believe those lying conservatives when they tell you we need low taxes on rich people in order to spur job creation. (In fact, to argue that rich people somehow contribute on net to the economy contradicts free-market economics; that’s how idiotic these right-wingers are.)
==> Strong measures to limit carbon dioxide emissions would be very cheap, possibly even free. Don’t listen to the right-wingers who keep warning about a carbon tax somehow hurting the economy. These people haven’t studied the literature, or they’re lying.
==> Advocates of fiscal austerity keep warning that the invisible bond vigilantes might suddenly attack the currency, and that’s why we need to get government debt under control. What these morons don’t realize is that a speculative attack on the USD or Japanese yen would actually help our countries. Man these right-wingers are cruel and stupid.
==> People keep lambasting government waste, saying we should only invest in smart, cost-effective public projects. No, that’s wrong. Compared to the status quo, it would be preferable if we erroneously believed aliens were about to invade, so we could all build up our militaries with–what turned out to be–useless equipment. That would stimulate the world economy and end this depression now. I don’t need to tell you–but I will–that the people arguing that wasteful government spending is wasteful, don’t understand that economics has advanced since 1936.
* * *
Now suppose you are a regular reader of Paul Krugman. He won the Nobel
Prize in economics, taught at Princeton for a long time, and has sold a
bunch of books, both popular books and texts that other professors adopt.
So Joe Sixpack would understandably think that this guy Krugman is no
slouch. If Krugman has led Joe Sixpack to believe all of the above, over
the years, and then
Jon Gruber comes along with his fancy computer models telling
everybody how much premiums will go down with ObamaCare…then Steve
Landsburg is going to come along and scold Joe Sixpack for holding
“incoherent” values if he simultaneously doesn’t want the government to
levy a new tax on him, but instead to put it on the rich insurance
companies?Couldn’t Krugman come up with some kind of liquidity trap argument, or cite the famous Kenneth Arrow paper that “proved” the free market doesn’t work when it comes to health care, or talk about cartels and market power among the health insurers…to argue that these two taxes aren’t equivalent as a matter of logic?
Sorry Steve, but if you want to write “In Defense of Gruber,” I think your only chance is to go like this:
(1) Gruber is the economist equivalent of Count Dooku–trained as a Jedi to protect the weak, yet instead serves the Sith lord.
(2) The one good thing about Gruber is that he was shockingly frank about how he and his clique had deceived everybody, and the contempt with which they hold average Americans.
(3) Therefore, Americans will now take people like me more seriously when I warn them about these nasty characters.
(4) I’ve even got a catchy title, Steve! “More Lying Is Safer Lying”
http://consultingbyrpm.com/blog/2014/11/american-people-dont-know-basic-economics-because-economists-have-misled-them.html --
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