Tuesday, November 16, 2010


This is an excellent follow-up, by a respected economist, on the interactive tool (available from my link on OK You Fix the Budget) that you can use to provide your solutions for fixing the budget. You cannot fix the problem without making value judgments. For example, you have to decide which group might have to pay higher or lower taxes. You have to decide whether to raise taxes, or cut spending (and what spending to cut). Economics cannot answer these strategic questions. It is essentially useful as a tactical tool to help us measure the economic impact of the decisions that are being considered.

A good example of the value issues can be deduced from reactions to Obama's health-care bill. I believe that he had three things that he wanted to accomplish with the bill. One was to expand coverage to the uninsured and another was to reform the insurance industry. A third goal was to reduce the cost of health care, in small steps, because he realizes that rising health care costs are the greatest threat to the national debt in the long term. Opponents to the bill used focus groups to determine how to use turn a decent, but not perfect bill, into Obamacare and produce strong negative reactions to the bill. In the South, it was portrayed as a bill that would extend health care to groups that are perceived negatively. That is, it was going to provide health care to blacks, illegal immigrants and other negatively perceived groups. It was also positioned as socialism and an unnecessary expansion of government, or an intrusion on states rights. Of course, people who are well covered by insurance had no vested interest in expanding coverage or in changing the system. Many in this category, saw no reason to support the bill, but reasons to attack the bill if they believed that it might increase their taxes. This group does not share the president's concern about the long term impact of increasing health care costs on the federal debt. Most don't understand it, and the administration did a poor job in explaining it. In any case, opponents did a better job of creating negative reactions to the bill than advocates did in justifying the bill. It was simply a matter of value judgments, and unfortunately, a very effective misinformation campaign.

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