November 22, 2014Gary Galles
Economic analysis is a powerful tool. But while powerful, it is also amoral; not inherently moral or immoral. Whatever you want to accomplish, applying accurate economic analysis to the issues can help you do it better. If the purpose is good, you can achieve more of it; however, if the purpose is to impose harm, you can achieve more of that as well.
“The Best Buyable Minds”
Those two points must be made or remembered in every economics course, from principles onward. In fact, I have taken to following up my discussion of these issues in my classes by telling students they must sign a “superhero oath” on their final exam — they must promise to only use their new skills to do good. In particular, they cannot use them to become part of the political process that Henry Hazlitt described in the first paragraph of Economics in One Lesson:
While certain public policies would in the long run benefit everybody, other policies would benefit one group only at the expense of all other groups. The group that would benefit by such policies, having such a direct interest in them, will argue for them plausibly and persistently. It will hire the best buyable minds to devote their whole time to presenting its case. And it will finally either convince the general public that its case is sound, or so befuddle it that clear thinking on the subject becomes next to impossible.
This prohibition on becoming one of “the best buyable minds” is particularly important in public finance, where the focus is on evaluating government policies. And benefit-cost analysis is where this issue comes to a head.
Benefit-cost analysis began as a systematic way to discipline decision-making. You started by incorporating all the effects that you believed to be true and relevant to a decision, did your best to determine or estimate the magnitudes involved, arrayed the good on the benefit side and the bad on the cost side, and then applied your values and judgments to determine if the marginal (added) benefits exceed the marginal (added) costs. Ben Franklin used such a process.
However, that process can be turned inside out. One can start from the goal of selling a program or project, and back out that set of alleged benefits or costs that make it appear worthwhile, whether it benefits society or not. And here, the problem is that economics training in how to use the benefit cost framework legitimately — to do it right — also trains people how to do it wrong in order to hoodwink the public which not only lacks such training, but is often rationally ignorant of political issues.
I learned this over three decades ago when I was assigned to teach a Masters of Public Administration course in benefit-cost analysis. Those students, preparing for careers in government, had absolutely no interest in learning how to do things correctly; only how to make errors in the correct direction if necessary to justify what they wanted to do. To get them to learn the underlying material of how to do things correctly, I had to teach them how to cheat. And I still feel guilty about that naïve motivational approach.
Those techniques include many tricks that are depressingly commonplace in bogus government justifications: counting government spending programs as creating jobs, rather than moving them from where voluntary and mutually beneficial market choices place them to where politicians dictate; counting multiplier effects, which creatively “produces” extra assumed benefits, while ignoring the symmetrical multiplied costs where the resources are extracted from citizens; counting the same benefit in different disguises, as if it was several different benefits; substantially understating the costs of government spending by treating each dollar spent as costing society only a dollar, when the distortions caused by taxation means it costs society far more; etc.
Jonathan Gruber and Obamacare
But now Jonathan Gruber, author of a leading public finance text (who cannot therefore blame ignorance for his malfeasance) and architect of Obamacare, has made himself the leading example of a super villain “buyable mind.” Videos have caught him bragging about several abuses of honesty and logic in Obamacare.
Gruber has admitted that the 40 percent tax on “Cadillac” company insurance coverage was really a hidden way to tax affected workers while ensuring that employers would receive the blame for expensive plans. Every economist knows that who the tax is legally imposed on does not change who actually bears the burden. Gruber and others used this knowledge to mislead Americans into thinking someone else would pay, and so many supported a policy they would have opposed had they not been deceived.
Gruber and the other designers of Obamacare also used their knowledge of the Congressional Budget Office’s methods to manipulate public perceptions. Obamacare’s design was tweaked to look as good as possible in the CBO’s eyes. This is the genesis of the program’s mandates. Gruber said “The bill was written in a tortured way to make sure the CBO did not score the mandate as taxes. If the CBO scored the mandate as taxes, the bill dies. OK, so it’s written to do that,” to take advantage of “the stupidity of the American voter.”
The manipulation of the CBO also extended to the timing of Obamacare’s implementation, as CBO rules specify that one must only go out ten years in estimating costs. That made the end date 2019. But Obamacare cost almost nothing until 2013, which allowed six years of costs to be presented as ten years. That is how a ten-year CBO cost estimate of $848 billion became $2 trillion once time erased the four-year cheat.
Similarly, Gruber admitted that Obamacare — through regulations designed to “limit premium variation based on age” — was intended to provide truly massive amounts of wealth redistribution disguised by making low-risk healthy people subsidize the costs of older unhealthy people. Gruber notes “if you had a law which said that healthy people are going to pay in — you made explicit that healthy people pay in and sick people get money — it would not have passed.”
Still further, Gruber said that the cost control pitch for Obamacare was unsupported — “all you ever hear people talk about is cost control. How it’s going to lower the cost of health care,” but “we don’t know how,” that “a politically feasible way right now to bend the cost curve … just doesn’t exist.”
I know that my threat to impose a superhero oath on my students is unenforceable. But it is my corny way to communicate to them that the powerful tools they have developed are incredibly valuable to a well-functioning, moral society when they defuse others’ efforts to lie, cheat, and steal (like the mythical politically-connected firm of Dewey, Cheatem and Howe). But for them to become perpetrators of those abuses is to indefensibly attack the rights and well-being of millions of individuals whose well-being is supposedly the purpose of our society. I have always wished to be more effective getting such ideas across. But, if I can just Photoshop Jonathan Gruber into a super villain costume, I think his example might give me a better chance from now on.