November 12, 2015
Thomas Friedman, who once said that Germany would demand Greeks work like Germans as a condition of bailout funds (Greeks now work many more hours on average), allowed his column to stray into economics again today. Not surprisingly, he gets some of the big things wrong.
He starts by going after Donald Trump. While Trump has said many things on economic issues that bear little relationship to reality, Friedman attacks him on one that does. Friedman recounts an interview in which Trump said that he would provide universal health care insurance. Trump is then asked how he will pay for it. Friedman presents Trump’s answer along with his own comment:
“‘The government’s gonna pay for it. But we’re going to save so much money on the other side. But for the most [part] it’s going to be a private plan and people are going to be able to go out and negotiate great plans with lots of different competition with lots of competitors, with great companies — and they can have their doctors, they can have plans, they can have everything.’
“I just love that last line: ‘They can have their doctors, they can have plans, they can have everything!'”
The irony of Friedman’s comment is that Trump’s claim is not far from being true, if the United States were to adopt a more efficient health care system. The United States pays more than twice as much per person for its health care as other wealthy countries, with little obvious benefit in terms of outcomes.
The World Bank put U.S. annual per person spending at $9,150 in the years 2006–2010. By comparison, Canada spends $5,700, Germany spends $5,000, and the United Kingdom spends $3,600. This enormous gap suggests that the United States could cover the uninsured and pay for it by eliminating the waste in its system.
Of course, this likely means a health care plan that reduced administrative expenses by ending the role for private insurers and lowered payments to doctors and drug companies by around 50 percent, bringing them in line with payments in the rest of the world. It would also be necessary to find a mechanism through which employer payments for their workers health insurance instead went to the government. This is probably not the plan that Trump has in mind, but it is in fact totally feasible to envision a health care system in which people have universal coverage that costs considerably less than our current system.
This is not the only place in his column where Friedman strikes out. He also takes a swing at the Democratic presidential candidates:
“Not only do the tax-cutting plans offered by the leading Republican candidates create eye-popping deficits, but some Democratic tax hike proposals don’t quite add up, either. As the Washington Post economics columnist Robert Samuelson reported last week, a Brookings Institution study found that even if the top income tax rate were increased to 50 percent from 39.6 percent, it would cover less than a quarter of the deficit for the 2015 fiscal year, let alone generate funds for increased investment.”
The Brookings study found that we could raise about $100 billion a year by raising the top marginal tax rate to 50 percent. Since the current deficit is consistent with a constant debt to GDP ratio, we can maintain it forever. (This assumes the economy is near full employment, if it is not, then a larger deficit is essentially costless. It just increases output and increases employment.) That would finance a considerable amount of investment.
In addition, Senator Bernie Sanders has explicitly proposed a financial transactions tax. The Tax Policy Center estimated that this tax would raise more than $50 billion a year. It is possible a tax would raise even more revenue, if trading is less elastic than the Tax Policy Center assumed.
In short, while there is much to ridicule in promises being put forward by the presidential candidates, the items to which Friedman devoted his column don’t fit the bill.
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