The brief, contrived controversy over whether “Obamacare will kill 2.5 million jobs” is, thankfully, receding from the public’s memory. In my most recent column here on Justia’s Verdict, I discussed how the recent Congressional Budget Office (CBO) report that sparked that controversy had been misrepresented, and I argued that the CBO had actually delivered some very good news for American workers.
Specifically, the CBO had shown that the Affordable Care Act (ACA) enhances freedom of choice in how to live one’s life. Rather than being forced by the fear of losing their health insurance to stay in jobs that they would like to leave (either to work at a different job, or to take care of their home and family, or to retire), people will now be able to take control of their working lives.
I have been especially surprised to see the response from conservatives to this news. In response to the claim that the ACA would reduce such “job lock,” one conservative blogger was reduced to the snarky comment that this is all about people pursuing “stardom in interpretive dance.” That conservatives would mock the very idea of freedom of choice seemed especially surprising, given how much time they spend talking about freedom and liberty.
Political opportunism (particularly on the right) is, however, hardly news. What was most interesting to me about the whole affair was how it exposed the central weakness in the theory that underlies conservative economic policies. It laid bare the otherwise-hidden reliance by conservative economists on an arbitrary notion of “efficiency” that cannot withstand scrutiny.
Here, I will discuss how the imbroglio over the CBO’s report exposed the arbitrariness of conservative economics. Once we confront that arbitrariness, it turns out that one can “prove”—using otherwise standard economic reasoning—that no one should ever retire, or perhaps that only rich people should ever have the choice to have a dignified retirement. The analysis, moreover, exposes the inherent confusion underlying the economic theory on which modern conservatives rely.
The Strange Case of “Efficiency”: Dealing With a Hidden Logical Problem in Economic Theory
When economists refer to a policy as “inefficient,” what does that mean? They claim to be saying that such a policy would create more minuses than pluses, such that adopting the policy would impose a net cost to society. Careful economists will often say that such a conclusion does not prove that the policy is bad, but only that the net costs of the policy should be weighed against “non-economic” factors, such as fairness, in determining whether any such benefits are worth the cost to efficiency.
As it turns out, however, the conversation is usually not so careful, and the standard conservative move is to loudly announce that a policy is inefficient and therefore should not be adopted. Even in the more nuanced conversations, however, what is missed is that the assessment of benefits and costs is arbitrary, because those benefits and costs can only be measured against a baseline. What does that baseline look like? It turns out that it looks like anything that the economist wants it to look like.
As Robert Solow, an elite economist with a strong skeptical streak about standard economic theory, described the “macro” (aggregate) version of that theory a few years ago: “The theory is neat, learnable, not terribly difficult, but just technical enough to feel like ‘science’. Moreover it is practically guaranteed to give laissez-faire-type advice, which happens to fit nicely with the general turn to the political right that began in the 1970s and may or may not be coming to an end.” His description aptly captures the “micro,” or efficiency-obsessed version of economic theory, as well.
By “laissez-faire-type advice,” Solow meant advice that opposes using the government to improve people’s lives, such as the ACA. If the “free market” without the ACA were presumptively efficient, after all, then the only possible effect of enacting the ACA would be to introduce inefficiency into this best of all possible worlds.
The problem for those of us who want to explain the conservative bias in current economic theory is that it is, again in Solow’s words, “technical enough to feel like a ‘science,’” which makes the underlying arbitrariness difficult to explain.
The deep problem is that the very idea of an economy without government intervention is logically impossible. A government makes it possible for markets to exist in the first place, by creating and enforcing laws regarding property, contracts, corporations, and so on, and then by enforcing those laws with both civil and criminal sanctions.
Therefore, trying to compare, say, the ACA to a no-government alternative is nonsense. That is why the usual comparison is not to a no-government world, but to our current world. But taking as given the government’s policies in the current version of reality—which, despite their virtues, have also helped to create or enable growing inequality, environmental degradation, and so on—privileges what is over what might be, for no defensible reason.
The problem, again, is that all of this is more than a bit abstract. For example, I can point out that a different set of property laws—with different rules for “adverse possession,” different lifespans for patents, and so on—would lead to different economic results for different people. And because that is true, I can then say that condemning a proposed policy as “inefficient” because it disturbs the supposedly-efficient baseline makes no sense, because there are many possible baselines.
All of that, however, is rather bloodless and hard to conceptualize. An alternative is to be provocative, using one of the most freighted examples available: slavery. I can point out that, from the standpoint of a world in which slavery is legal, a policy to abolish slavery is inefficient in exactly the way that standard economics defines inefficiency. I can then note that, from the alternative standpoint of a world in which slavery is currently illegal, then a policy to introduce slavery would also be inefficient.
That example is powerful, of course, and it makes the point clearly. How, after all, can we say that a policy is both efficient and inefficient, depending entirely on whether that policy itself is the baseline against which to measure efficiency? Even so, because slavery is such an emotional and overused example, a very good legal scholar once told me that he thought that it must be a special case in economic theory as well. Maybe, he thought, we can still use economic theory in a consistent and logical way, once we set the slavery question aside.
How, then, can one explain this “baseline problem” in a way that is concrete, but that is not so extreme as to distract from the main point? Strangely enough, the claims that “Obamacare will kill 2.5 million jobs” give us a useful, concrete way to understand why claims that any particular policy is inefficient are so empty.
How the Conservative Response to the CBO’s Report Exposed the Illogic of Economic Efficiency Claims
In my most recent Verdict column (noted above), and in a related post on the Dorf on Law blog, I discussed the angry response to the recent CBO controversy by a top conservative economist, who was upset that liberals were dismissing the possible reduction in labor supply that might accompany the ACA over the next ten years. What, he asked? How can it be that liberals would call it a good thing for fewer people to be working, because of a government program?
His anger was obviously driven by his belief that his own empirical work has proven that the ACA contains work disincentives, and that those disincentives will have large effects on people’s work choices. But the CBO’s report, although dutifully including those estimates in the list of estimates by other economists (none of which are nearly as large as this economist’s claims) does not identify the source of the labor-supply reductions.
The reduction in hours worked might be because a person decides that working another hour is not worth it, or it might be because he is finally able to retire early from a backbreaking job without losing his access to health care. Or, in fact, it might actually be that he wants to (as the conservative blogger noted above would have it) pursue a career in interpretive dance.
What matters here is that the claims that there is something inefficient about the ACA must be based on the assumption that the world without the ACA was the correct baseline against which to measure the effects of any policy. If the ACA reduces labor supply (compared to that baseline), the conservative argument goes, then that is inefficient. As always, conservative economists can cover themselves by saying that they are not making a value judgment, but only a “scientific” assessment. In fact, however, their value judgments are all packed into their reliance on the assumption that the non-ACA world is the baseline against which to measure all things.
In other words, conservatives are claiming that the ACA is bad—er, I’m sorry, inefficient—because it did not exist before it existed. Of course, that should actually mean that, now that some parts of the ACA have been adopted, then repealing them would be inefficient, too. We do not, however, hear that argument coming from conservative quarters.
My goal here, however, is not actually to say that the ACA is efficient. Instead, we need to understand that claims of efficiency and inefficiency are contingent upon choices about baselines that change what it even means to be efficient.
The Retirement Question: If We Pull on the String of “Government Intervention,” How Much of the Case for Retirement Unravels?
To make the point more sharply, consider the people who are likely, according to the CBO’s report, to retire earlier than otherwise, because of the ACA’s unlocking them from their current jobs. If the conservative response is that they should not have been allowed to retire early—or, to put it “scientifically,” that their decision to retire early is inefficient, because it deviates from the arbitrary baseline—then we need to ask what other policies affect people’s ability to retire.
Conservative politicians have lately made a big deal about the “dignity of work,” suggesting that the CBO’s report shows that people will be discouraged from engaging in productive activity, which is needed to make each of them feel like a contributing member of society. But where does the duty to pursue the dignity of work end, and the right to pursue a dignified retirement begin?
All of the current social expectations about retirement are, in fact, direct artifacts of government policies. Thinking of age 65 as the target date is based on the legal standards written into the Social Security and Medicare laws. Indeed, before the Social Security Act was enacted in 1935, the only people who could retire with dignity were the independently wealthy or people with private pensions.
But private pensions are merely contractual obligations, and when a private company tries to breach its duties under a pension contract, former workers (who have no further leverage in the marketplace, because they have already supplied the labor for which they are being paid, partly after the fact) turn to the government to protect their retirement incomes.
For that matter, being independently wealthy enough to retire presumes the existence of financial institutions that will honor legal requirements to allow depositors to withdraw funds during their golden years. In our nation’s history, we have had plenty of examples of what can happen when the government is not there to make sure that banks honor their obligations.
Moreover, being able to retire to one’s estate is based on the ability to know that the estate truly belongs to the retiree, which requires a government to define and enforce the retirees’ claims to ownership of their homes, their financial assets, and so on.
On the health care front, people need to be able to continue to have access to health care in their retirement, in increasing amounts. The proposal to privatize Medicare that was offered in 2012 by Congressman Paul Ryan (a loud proponent of the “dignity of work” line discussed above) offered vouchers for people to buy private health insurance. Importantly, Ryan’s plan would see those vouchers shrink in value over time, so that the plan would ultimately say to retirees, “You’re on your own.”
Even with that time bomb built into the plan, however, Ryan assumes that people would be able to rely on the promises of health insurance companies. Those promises, however, are enforceable by the government. The prodigious amount of legal work that is based on litigating ERISA (the Employee Retirement Income Security Act) shows that every aspect of the contractual promises between insurers and insureds can be subject to multiple interpretations, none of which are the “right” standard to use as a baseline.
The changes in retirement patterns that might be caused by the adoption of the ACA over the next ten years will be caused by changes in the law that existed before. But if our baseline is to be “what the world would look like without government intervention,” then we start to peel back the onion and reveal that there can be no retirement without government. Paradoxically, this is true for the same reason that there can be no jobs without a government—that is, without a government to set up and enforce the economic rules under which jobs can be created.
Does this mean that retirement itself is economically inefficient? Yes and no. The conservative economists who wail that their ability to “prove” that the ACA will reduce work effort has been ignored either presume that the correct baseline is the world without the ACA, or that the correct baseline is the world with an arbitrary collection of laws taken off the books (and with a different arbitrary collection of new laws on the books).
One of the major achievements of the modern mixed capitalist economy of the United States has been the ability of the vast majority of people to retire with dignity. There is no efficient or inefficient retirement age, nor is there a way to say that a certain number of people should be working at any given moment.
What we can say is that conservatives’ claims about the ACA’s effects on retirement expose not merely their hypocrisy regarding freedom of choice, but—if taken to their logical conclusion—suggest that no one should be allowed to retire at all. That stark conclusion speaks volumes about conservative economists’ claims of being disinterested scientists.