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Article Artículo

The Free College Battle

(This post originally appeared on my Patreon page.)

The prospect of free public college is shaping up as one of the major divides between the more progressive candidates (Bernie Sanders and Elizabeth Warren) and the more centrist candidates (Joe Biden and Pete Buttigieg). Buttigieg in particular has been especially vocal in his opposition to making college free for everyone.

He has argued that it would be regressive to tax middle class people to pay for the children of the wealthy to go to college. Buttigieg argues instead that he would make public colleges free for children of families earning less than $100,000. He would have a sliding scale for families with incomes between $100,000 and $150,000, and have families with incomes over $150,000 pay full tuition.

Sanders and Warren have argued that college should be seen as a right, comparable to attending a public grade school, and that we shouldn’t expect people to pay for it. They also point to the strong political support for universal programs, like Social Security and Medicare, as opposed to anti-poverty programs like Temporary Assistance for Needy Families (TANF) or food stamps.

While these are important arguments for universal free college, there is another side of this issue that has been largely neglected. Specifically, Buttigieg and other proponents of means-testing tuition seem to have not grappled with the administrative difficulties of their plan.

It is one thing to write down on paper how much we think families at various income levels should pay for their kids’ college. Implementing this payment schedule in practice is a very different story.

Economists tend to believe that people respond to incentives. The Buttigieg plan gives families enormous incentives to make their income appear smaller than it actually is.

CEPR / December 13, 2019

Article Artículo

United States

Workers

Modern Family Progressivism, Part Two: Reply to Kevin Drum

This is the second part in a series of posts. You can read the first post here.

Writing in the New York Times, family sociologist Christina Cross notes that “America has a long and troubled history of viewing racial inequality primarily through the lens of family structure.” She cites her own and others’ research in concluding that “what deserves policy attention is not black families’ deviation from the two-parent family model but rather structural barriers such as housing segregation and employment discrimination that produce and maintain racialized inequalities in family life.”

In a Mother Jones commentary posted shortly after Cross’ piece was published, Kevin Drum goes on the attack by 1) asserting that single-parent families are a “big deal” (by which he means a big problem); 2) accusing Cross of “special pleading” and “desperately try[ing] to make a case that really can’t be made;” and, 3) implying that “we liberals” are hypocrites who are afraid to “say anything that even remotely sounds like a criticism of black family lives.” 

This is quite the tirade for a senior blogger at a liberal publication to so quickly throw down in response to an op-ed by an up-and-coming scholar. (Cross is currently a Postdoctoral Fellow at Harvard University and starting as an Assistant Professor there next year.) So one might assume Drum is well-informed about the state of research on family structure, takes care to cite evidence, and is not just echoing social-conservative talking points and Twitter posts. 

CEPR and Shawn Fremstad / December 12, 2019

Article Artículo

Healthcare

Lessons from Charles Lane and German TV on Health Care Costs

Washington Post columnist Charles Lane took a story from a German TV show to lecture his readers about health care costs. According to Lane, the show featured a  German civil servant who had a daughter with a rare and fatal spinal condition. Her only hope was a $330,000 operation in a clinic in Colorado. Her German insurance company refused to pay for it, forcing the guy to try an on-line fundraiser, which also failed.

No reason to go any further with the TV show, but Lane's takeaway is that:

"neither Germany nor any other country on Earth, major or minor, does is 'guarantee' everyone health care, in the sense of assuring them all the care they want, at a price they can afford, no matter what.

"Trade-offs in health care are real and not merely the result of insurance company or drug company greed."

This is a warning against an expansive Medicare for All plan, such as the one being pushed by Bernie Sanders.

It's worth thinking about Lane's German TV show a bit more carefully. Let's ask why some medical treatments are very expensive, regardless of whether it is the government, private insurers, or the patient who pays.

A major reason that many treatments involving new drugs are expensive is that the government granted the companies patent monopolies. It is true that money had to be spent on the research, but at the point the drug is available to patients, that research was already done. In almost all cases the cost of manufacturing and distributing the drug would not require anyone to have an online fundraiser even in the absence of insurance.

We do have to pay for the research, but government-granted patent monopolies are an extremely inefficient mechanism. (See Rigged chapter 5, for a discussion of alternatives [it's free].) In addition to creating the horrible problem of making otherwise cheap drugs costly, patent monopolies also give companies an incentive to misrepresent the safety and effectiveness of their drugs in order to sell them as widely as possible. This is an important part of the story of the opioid epidemic.

There is a similar story with medical equipment. There are a whole range of treatments that are very costly, not because the equipment is expensive to manufacture, but because the manufacturer has a patent monopoly on it. If we didn't rely on patent monopolies to finance the development of this equipment, it would be cheap as well.

What about the poor German civil servant looking at a $330,000 bill for his daughter's operation. Well, Lane doesn't tell us much about the operation, so we don't know exactly what caused the high cost, but it is true that many specialists in the United States are very highly paid, earning $400k or $500k a year, or more. It is possible that this procedure involved a considerable amount of time from one or more of these highly paid specialists, which would make it expensive, although probably not get us to the $330,000 range. (Two full days of work from someone earning $500k a year would be just $4,000, assuming 250 workdays a year.)

But the fact that these specialists can get $500k a year is not an accident. We have rigged the market to ensure that they are in short supply and can set their own terms.

CEPR / December 10, 2019