Tuesday, January 01, 2013

Bartlett and the welfare state

Following Bruce Bartlett's firing from the National Center for Policy Analysis for his criticisms of George W. Bush -- best summarized in his 2006 book Impostor -- Bartlett was able to plausibly claim that his dismissal was a result not of deviations from right-wing orthodoxy, but for holding Bush's feet to the conservative fire. Indeed, Impostor's Amazon.com book description highlights Barlett's criticism of Bush for, among other things, "expanding the size and scope of government, "allowing the federal budget to mushroom out of control" and the implementation of an "enormous new Medicare entitlement."

Since that time, however, Bartlett's rhetoric has drifted in a distinctly leftward direction, and by 2010 Tino Sanandaji labeled him a "European-style Social Democrat." Any lingering doubts of Bartlett's shift to the left should be completely erased by a recent missive for the Economix blog, in which he purports to make a conservative case for the welfare state. Yes, the same guy who wrote a book blasting Bush's expansion of the welfare state now makes a living penning blog posts explaining its virtues. It makes for interesting reading:
There are sound reasons why a conservative would support a welfare state. Historically, it has been conservatives like the 19th century chancellor of Germany, Otto von Bismarck, who established the welfare state in Europe. They did so because masses of poor people create social instability and become breeding grounds for radical movements.
This is bizarre. Otto von Bismarck as conservative? Beyond his key role in founding the modern welfare state, wikipedia notes that von Bismarck also opposed free trade, engaged in state persecution of both Catholics and Poles, and preferred rule by bureaucrats to democracy:
Elected officials did not have real control of the government. Bismarck distrusted democracy and ruled through a strong, well-trained bureaucracy with power in the hands of a Junker elite representing the landed aristocracy in the east.
How any of this is compatible with, or relates to, modern day conservatism or right-wing thought is not obvious. But then again, none of that likely matters when there is an agenda to be pursued. Bartlett also leaves out an important detail regarding von Bismarck's decision to establish a welfare state:
His paternalistic programs won the support of German industry because its goals were to win the support of the working classes for the Empire and reduce the outflow of emigrants to America, where wages were higher but welfare did not exist.
Indeed, this gets at what is perhaps the biggest flaw in Barlett's argument: if the lack of a welfare state holds such attraction for workers, why were so many Germans eager to emigrate to the welfare-less United States even after von Bismarck began implementation of the welfare state? Furthermore, if the welfare state helps thwart radical political movements, why has Europe typically proved a better breeding ground for such movements than the US? If anything, it seems that capitalism -- the purer the better -- is the real salve for unrest. 

A few paragraphs later Bartlett says this:
One problem with this conservative view is its lack of an empirical foundation. Research by Peter H. Lindert of the University of California, Davis, shows clearly that the welfare state is not incompatible with growth while providing a superior quality of life to many of those left to sink or swim in America. 
In a new paper for the New America Foundation, Professor Lindert summarizes his findings. He points out that there are huge efficiencies in providing pensions and health care publicly rather than privately. A main reason is that in a properly run welfare state, benefits are nearly universal, which eliminates vast amounts of administrative overhead necessary to decide who is entitled to benefits and who isn’t, as is the case in America, and eliminates the disincentives to work resulting from benefit phase-outs.
There are several problems here:
  • Few economists, if any, make the argument that welfare states are incompatible with growth. Rather, the argument is that welfare states, and their attendant tax burdens, serve as an economic drag. Welfare states don't mean zero growth, they just mean less growth than would otherwise be the case.
  • A superior quality of life is in the eye of the beholder, and it is also not obvious how much the quality of life is a product of public policy. While it is certainly greater than zero, other factors such as climate and culture play a determining role. 
  • Bartlett's reference to "sink or swim" in the US is strange and inaccurate. The US, in fact, is a welfare state, with 54% of the federal budget in 2011 going to health care, social security and safety net programs. Robert Samuelson has calculated that the percentage of Americans receiving some kind of public assistance "probably exceeds 50 percent."
  • Citing the reduction in administrative overhead as a key reason for adopting government-run health care programs is, at best, incomplete. One cannot properly assess efficiency without also knowing results. If one organization has higher overhead than another, but produces better results, the higher administrative costs may well be worth it. Also note that anti-fraud measures are an administrative costs, and that fraud is estimated to have cost Medicare well over $40 billion in 2010. Thus, it may well be the case that Medicare could profit from higher administrative costs. Further consider that if one's patients are elderly, and thus likely to have higher health care costs (as with Medicare) that administrative costs are likely to be lower as a percentage of expenditures.
Returning to the growth issue, in Lindert's paper for the New America Foundation he says the following:
Accepting economists’ preference for broad taxes and benefits, and seeing the administrative cost saving of universalism, will prepare one for a historic result that still surprises some Americans. The welfare states of Northern Europe, with their social spending as high as 30 percent of GDP in some cases, have not suffered any clear net loss of GDP from it. So say decades of data on GDP and economic growth, with or without the use of econometric regression analysis. This is what I have called the “free lunch puzzle”: large democratic welfare states, with universal entitlements, have not paid any net price in terms of economic growth or competitiveness, while following policies that delivered more equal incomes, less poverty, slightly higher life expectancy, and cleaner government relative to the United States or the average small-government economy.  
While some may try to cite the problems facing Europe, the fiscal troubles of Mediterranean Europe and Ireland are unrelated to the welfare state. Rather, the Mediterranean countries deliver relatively little aid to schools or the poor, while over-protecting senior workers in older industries. Meanwhile, both Spain and Ireland have suffered mainly from the bursting of huge market bubbles in real estate.
This is a neat trick: the superior economic performance of the relatively small and homogeneous Scandinavian countries is a validation of the welfare state but the poor economic performance of the larger Southern European countries tells us nothing. As Tino Sanandaji points out, when it comes to the welfare state it's little coincidence that the left prefers to talk about Northern Europe instead of what's taking place further south.

Lindert's claim that Northern Europe has not paid any net price in terms of GDP, meanwhile, is not obvious given higher per capita GDP in the US over Scandinavia by a margin of at least $7,000 (Norway is the lone exception, but also a special case given that it's oil wealth has spawned a sovereign wealth fund so huge that its value ($654 billion) exceeds the country's GDP ($486 billion)).

Bartlett continues:
A 2003 study in the New England Journal of Medicine found that Canada’s single-payer health system had less than a third of the per-capita administrative cost of the United States system, with its many private insurance companies and overlapping government programs – $307 per year in Canada versus $1,059 in the United States. And although American conservatives are fond of pointing to cases where Canadians come to the United States for treatment, a 2009 Harris poll found that 82 percent of Canadians favor their health system over the American one. 
Americans believe that their health system is the best in the world, but in fact it is not. According to the Commonwealth Fund, many countries achieve superior health quality at much lower cost than paid by Americans. A detailed study of the United States and England in the American Journal of Epidemiology in 2011 found that over a lifetime the English have better health than Americans at a fraction of the cost.
Again, the citing of administrative cost isn't hugely informative. By this thinking, the federal government could also wring new efficiencies if it chose to nationalize the movie theater business and eliminate overlaps between the various chains, but few people likely think this could produce a superior outcome. The citing of poll data, meanwhile, is pretty thin gruel given that the vast majority of Canadians have not received health care treatment in the US, and therefore have little basis for comparison outside of what they have read. 

With regard to the state of the US health care system, it is perfectly conceivable that it is inferior to that of others, but that's not surprising given the high level of government intervention in this sector. Indeed, in addition to regulation, it should be recalled that government spending on health care in the US has increased from 24 percent of healthcare expenses in 1960 to 48 percent in 2009. Indeed, note that government in the US spends more money per capita than any other country examined by the Commonwealth Fund report:

(click to enlarge)

Suffice to say, the US hardly represents some free market ideal in health care, and it does not follow that the solution to the country's health care ills lies in an even bigger role for government.

It is also unclear how much differences in health care systems explain health outcomes. It is worth keeping in mind, for example, that in the US -- where most states have similar health care systems --pronounced differences in outcomes are still found as demonstrated by this diabetes map or this list of death rates from various cancers by state (see page 8). It's perhaps with such considerations in mind that the AJE study referenced by Bartlett offers only speculative reasons for explaining differences between the US and England, and notes the possibility that factors other than the health care systems such as "cross-country differences in social or physical environmental conditions or lifestyle" play a role. 

After further discussion of US health care costs as well as US social spending via tax expenditures, Bartlett concludes with the following:
American conservatives routinely assert that the people of Europe live in virtual destitution because of their swollen welfare states. But according to a commonly accepted index of life satisfaction, many heavily taxed European countries rank well above the United States, including the Netherlands (where total taxes were 38.7 percent of G.D.P. in 2010 compared with 24.8 percent in the United States), Norway (42.9 percent), Sweden (45.5 percent) and Denmark (47.6 percent).
The first sentence is a strawman, as there is little literature making the case that Europeans live in "virtual destitution" (it's not even apparent this is the argument being made by the article he links to, whose chief argument appears to be that the welfare state cannot "provide eternal security and freedom from want"). There is, however, empirical support for the claim that Europeans are poorer than Americans. 

Conflation of the index of life satisfaction with tax burdens, meanwhile, is simply absurd. First of all, as Deirdre McCloskey argues, the science of "happyism" and its measurement is fairly problematic. Second, while Bartlett highlights the fact that the US trails high-tax countries such as the Netherlands and most of Scandinavia in happiness, he neglects to mention that this same index has the US leading other European countries with higher tax burdens such as France (44.6 percent as measured by the Heritage Foundation), Germany (40.6 percent), Spain (37.3 percent), Italy (42.6 percent), Iceland (40.4 percent) and the UK (39 percent). But why cite data that doesn't fit the narrative?

It's the lazy conclusion to a vacuous column.

Related: Further commentary on Bartlett's column from the Cato Institute's Alberto Mingardi

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