SEIZE OPPORTUNITY:

Our Coming Ideological Battles (Arnold Kling, 07/20/2004, Tech Central Station)

"What then is the virtue of increasing spending on retirement and health rather than on goods? It is the virtue of providing consumers in rich countries with what they want the most...The point is that leisure-time activities (including lifelong learning) - volwork - and health care are the growth industries of the twenty-first century."
-- Robert Fogel, The Escape from Hunger and Premature Death, 1700-2100, p. 73

Economic historian and Nobel Laureate Robert Fogel foresees a 21st-century economy in which consumers will be focused primarily on leisure, lifelong learning, and health care. To me, this suggests that there will be major ideological battles over the size of government.

While most of the Left has conceded that the goods-producing sector is better governed by free markets than by central planning, that sector's relative importance in the economy is on the decline. It is precisely those sectors where Fogel sees growth -- education, health care, and longer retirement -- where the Left insists that the government must remain in charge. But if we "limit" government control to just education, health care, and Social Security, then in fact we will have brought socialism in through the back door. In this essay, I want to focus on how to avoid such an outcome for health care. [...]

Limited paternalism has the following components:

* Direct provision of health care services to the poor. For example, government-subsidized clinics in poor neighborhoods with nominal charges (say, $10 per visit).

* Aim to switch from a system of employer-provided health insurance to consumer-purchased health insurance, by ending the tax deductibility of insurance for corporations and eliminating requirements that companies provide health insurance.

* Mandatory catastrophic health insurance for all families not eligible for Medicaid. Rather than expand Medicaid and other government programs upward to the middle class, as some Democrats propose, tighten eligibility for these programs and require co-payments for all but the poorest participants. Eventually, phase out Medicaid and replace it with health care vouchers.

* Phase Out Medicare, and instead mandate health care savings accounts. This would change the medical portion of retirement security from a defined-benefit plan, which Congress will tend to pack with benefits that it cannot pay for, to a defined-contribution plan, which is much sounder financially and much fairer generationally.

* Institute government-provided "catastrophic reinsurance" for very high medical expenses. The Kerry campaign has proposed this for expenses of over $50,000 per year. The purpose of catastrophic re-insurance is to enable private insurance companies to compete for business without having to screen out high-cost individuals. Of all the mechanisms for spreading the cost of break-the-bank illnesses among the general public, catastrophic reinsurance would involve the government in the least number of individuals and the least number of medical decisions. While the rest of the Kerry health care plan tends to be the opposite of what I would like to see, this proposal strikes me as a good plank in any health care reform platform.

"Limited paternalism" may not be everyone's ideal. However, the most likely alternative will be creeping socialism -- or perhaps galloping socialism.

Economic conservatives/libertarians can argue 'til they're blue in the face that a system of complete laissez-faire is the most effective and freest solution to all our problems, but it is not the ideal system if the people have rejected it utterly, which they did in the 20th Century. So conservatives can either use their period in control of all facets of government to create a compromise that maximizes market forces but within the context of a safety-netted and universal structure or they'll end up with far worse alternatives. Of course, their principles will be unsullied....

Posted by Orrin Judd at July 22, 2004 8:03 AM