Monday, June 29, 2009

The Arbiter of Ignorance

In a brief blog post on healthcare, Paul Krugman says that George Will and I are "either remarkably ignorant or simply disingenuous." I cannot speak for George, but I can attest that I am completely ingenuous. So I suppose I must be remarkably ignorant.

There is a lot of that going around lately. In an earlier post on the state of macroeconomics, Paul says, "Brad DeLong and I have been sort of tag-teaming the Great Ignorance which seems to have overtaken much of the economics profession."

What is going through Paul's head as he writes these posts? I suspect three things:

1. On the issue of macroeconomics, I think I understand Paul's point of view. He accepts the 1970-vintage Keynesian economics he first learned from, say, Jim Tobin when Paul was an undergraduate at Yale. Like Tobin and Bob Solow, one of his teachers at MIT, Paul thinks a lot of modern macroeconomics was an unfortunate turn in the wrong direction. In this old paper (published version), I tell the story of modern macro and describe how many old Keynesians were more likely to denigrate modern macroeconomics than to engage it intellectually. Paul is following in that tradition.

2. On the issue of health care, I also think I understand Paul's point of view. He would like a single-payer system, and he views a public option as a Trojan horse to achieve that goal. In my column, I wrote, "for those who see single-payer as the ideal, a public option that uses taxpayer funds to tilt the playing field may be an attractive second best. If the subsidies are big enough, over time more and more consumers will be induced to switch." Paul was one of the people I had in mind (see this old post of his).

In his latest post, Paul writes, "the standard competitive market model just doesn’t work for health care: adverse selection and moral hazard are so central to the enterprise that nobody, nobody expects free-market principles to be enough."

In my view, these comments are just off point. The Obama administration says it wants a public insurance plan that will compete on a level playing field with private plans (that is, without taxpayer subsidies). Is there any cogent economic analysis that suggests that such a policy addresses problems of adverse selection and moral hazard? None that I know. If it has to stand on its own financially, the public plan has no special advantage in addressing these issues.

In any event, it is not like the only alternatives available to us are a government-run health insurance plan or unregulated laissez faire. The most intriguing proposal in the current policy debate is the Wyden-Bennett bill (see this David Brooks column or this letter from CBO on the proposed legislation). That seems to be the best hope for truly bipartisan healthcare reform. At this point, given the legislative strategy of Congressional leadership, the hope is slim at best.

3. On the issue of tone, I again think I understand Paul's point of view. He likely believes that civility is overrated. He seems to think that in the blogosphere, and perhaps in the public debate more generally, you score points simply by insulting your intellectual adversaries. Sadly, I am afraid he may be right.