Kinsley Gets It!

Kinsley is just a short step logical step away from endorsing the Will Wilkinson dualistic market rationing system.

Krugman and Wells note repeatedly that 20 percent of the population is responsible for 80 percent of health-care costs. But that doesn't explain why health insurance should be different from other kinds. The small fraction of people involved in auto accidents in any year is responsible for almost all the cost of auto insurance. You insure against the risk of being in that group.
What's different about health insurance is the opposite: Much of it isn't insurance at all but a subsidy. The value of the subsidy is the difference between what the individual pays and what the insurance would cost in the free market. If people were buying health care or insurance with their own money, they might or might not spend too much—whatever “too much” is—but no one else would need to care if they did.

Good show!
If you can afford real insurance on a real market, go ahead and overinsure. It's your money! If we had a real market in insurance, we'd also know who was uninsurable. Probably the 20% responsible for 80% of the costs! And if he had a real market, the absolute cash value of that 80% would be smaller, and the quality of the services the 20% falling under the care of the Federal Health Rationing Serive would be higher. (The percentage of total health expenditure due to that 20% would probably shrink, as they are pushed into less expensive services by the HRS. Indeed, in my plan, the percentage of total health expenditures due to those covered by the HRS will be the HRS budget over total annual expenditure. In my plan, legislators have to choose each year what amount is going to be, and the Rationing Service has to stretch it out to make it work the best they can.)
It is incredible to me how often this idea occurs to me, and how seldom it seems to occur to others: If there is a transfer from class A to class B, make it explicit. When you propose making an hidden transfer explicit, people often climb the wall with annoyance. Why? Because the whole point of many hidden transfers is that they are politically viable only because they are hidden. If you like the transfer, you'll want to keep hiding it.
Hey! Maybe that's my new favorite Constitutional amendment idea. The Explicit Transfer Amendment! Under the ETA, raising the minimum wage is unconstitutional. Levying extra taxes on business owners or consumers and transferring the money to low-income workers is not. The point is just that the transfer is obvious. If there is a political constituency that is hurt by it, they'll be able to see that, and speak up for themselves in the political process. I think this falls out of Rawlsian principles of public justification, for what that's worth. The Health Rationing Service is fine because the transfer from taxpayers to the poor “insurance exempt” is explicit. Our current insurance regs, on the other hand, hide the transfer. And that's bad!
Speaking of favorite constitutional amendments, from Samwick's commentary on the grisly miscarriage of legislative responsibility that is pension reform:

On top of those changes, companies also persuaded lawmakers to add dozens of specific measures, including a multibillion-dollar escape clause for the nation's airlines and a special exemption for the makers of Smithfield Farms hams.

Tell me again what's wrong with Buchanan's generality amendment? The generality amendment plus the explicit transfer amendment would eliminate almost everything that is terrible about politics.

Author: Will Wilkinson

Vice President for Research at the Niskanen Center

17 thoughts

  1. Manzi’s argument is interesting, but his evidence isn’t even anecdotal. It might be nice to have empirical studies of new businesses in various fields — also nice would be an analysis of why those new businesses weren’t simply created within existing companies.

    1. I didn’t argue that “we must have new start-ups” or that “this is the only way to get innovation” or whatever.
      I argued that if you lower the expected payoff fo an activity, then “all else held equal, you usually get less of it.”
      Are you really disputing that?

      1. Not to put this on you specifically Jim, but I think the failures placed upon economics of late, with respect to black swans and values at risk, revolve about “all else held equal” being rare on the ground.
        Things change, and it is very hard to pull one thread (like marginal rate) from the mix and say that it mattered at a particular point of time. That’s not to say that any marginal rate is as good as another … but certainly when we are talking about a percent or two in practice it is no big deal.

      2. Well, we sure agree on that. I’ve probably written a book’s worth of material on this point. It’s why I was so cautious about making a prediction other than “but for” this change, we would see less company formation, and didn;t even try to quantify this difference.
        I think we’re going to end up at way more than a percent or two of difference, btw.

  2. My intention was to dispute only (a) that the tradeoffs implied by your examples are necessarily typical (they may well be, but I can’t tell from what you wrote), and also (b) that the interests of the major corporations would be better served if there were no startups (which the attitude you allude to in your article implies, I thought).
    I also think Nicole Tedesco has a point, though I probably wouldn’t put it the same way she does.

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