May 08, 2017
The NYT had a piece discussing some of the potential economic ramifications of the repeal of the Affordable Care Act (ACA). The article points out that the health care sector has been a major source of job growth in recent decades. If we cut back spending on health care, then presumable employment growth in the sector would slow.
There are few points to be made here. First, job growth in health care is only desirable insofar as it is improving people’s health. More people who directly provide care, doctors, nurses, physical therapists, fit this bill. People working in providers’ office dealing with insurance forms do not. So if the repeal were to lead to more of the former and less of the latter (unlikely) that would be a positive development.
But beyond providing health care, the sector has been an important source of jobs, as the piece notes. Suppose that the job growth in the sector slows due to less money going to pay for people’s health care. The question is then what happens to the money saved?
Most immediately, the money saved will go the country’s richest people in the form of tax cuts. The question is then whether they will save or spend it? One of the economy’s major economic problems, at least since the collapse of the housing bubble, has been not enough spending. If we give Bill Gates and Jeff Bezos another hundred million a year or so, do we think they will increase their consumption? My guess is no, which means we are reducing demand in the economy.
However, we have to pay attention to the what the Federal Reserve Board does in this story. The Fed has been raising interest rates for the last year-and-a-half with the idea that the economy was growing too rapidly and creating too many jobs. Its concern was that we would see an overly tight labor market, which would lead to rising inflation.
From this perspective, if the repeal of the ACA leads to less overall job creation because it slows employment growth in the health care sector, it is no big deal. The Fed would just slow its path of rate hikes. This means that we would see more jobs in interest sensitive sectors of the economy, like construction, than would otherwise be the case. In this story, the issue is not the number of jobs, but the composition.
Of course, some of us think the Fed is moving too quickly and we would do well to allow for further tightening of the labor market. From this perspective, the loss of health care jobs is not good, insofar as it reduces the number of people actually providing health care, but it doesn’t necessarily affect the total employment picture. If the Fed would have choked off job growth anyhow, then we really aren’t losing jobs in aggregate, just seeing a different mix.
The key issue here is whether the Fed is right and we have pretty much all the jobs the economy can support. I don’t mean this literally, they are looking at a growth path, so the question is whether more rapid job growth, or even the current rate, is too fast. Some of us don’t think so, but the folks controlling interest rates do.