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The Dynamic Nature of Economic Decisions

And why progressives just don't get it.

by
Clayton E. Cramer

Bio

May 4, 2013 - 12:00 am
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One of the most astonishing aspects to progressive politics is how poorly its practitioners seem to understand the dynamic nature of economic decisions — that people change their behavior in response to incentives. The results are often tragic when they are not simply stupid.

I went to see my family physician recently for a sinus infection. In the course of that discussion, he told me that the medical group of which he is part-owner was wrestling with a serious problem: should the medical group abandon the health insurance plan that it provides for its employees? Yes, a bunch of doctors, people who should be seriously committed to seeing that everyone has access to quality medical care, were considering dropping coverage.

The reason was very simple: all of their employees (except the doctors who own the group) make less than $93,000 per year. Under Obamacare’s numbers for Idaho, all of them will be eligible for subsidized health insurance next year: a maximum of $2250 out of pocket per person. At the same time, the penalty that the medical group will pay for failing to provide health insurance was so minor that the doctors concluded that they could take the enormous savings of dropping coverage and give each owner a big bonus — enough that nearly all of them would be able to buy individual health insurance, and have gobs of money left over.

Brilliant: Obamacare provides an incentive for these doctors, who are already well-paid professionals, to move costs that they are currently paying onto the state and federal governments. Rich people get richer; middle class working people will now have to buy health insurance from the exchange.  Even with the government subsidies, for many of the employees, they are going to be worse off than before. What, exactly, was Obamacare supposed to do?

Another example: I work part-time for the College of Western Idaho. They recently announced to their employees what a lot of colleges around the country have announced: all adjunct faculty will be limited to nine units per semester. Otherwise, the College of Western Idaho will have to provide health insurance to these adjunct faculty next year.  Keep in mind that adjunct faculty are already paid incredibly poorly. The most that you are allowed to work now is 21 units per year, which is a gross pay of $15,750 per year. (Obviously, we do not teach because we want to get rich. And do you have any question why adjunct faculty lean left?)

Obamacare has created another powerful incentive that changes behavior: it means that adjunct faculty, many of whom are struggling to raise families because they have to buy their own health insurance (or hope that no one gets sick), will next year have even less income with which to buy health insurance.  Powerful incentive, that requirement to provide health insurance to employees above 30 hours a week: colleges are making sure that everyone that does not have coverage now will never work 30 hours a week again. I would like to think that my fellow adjuncts who do not have full-time jobs elsewhere with health insurance (like I do) will recognize that Obama duped them when he promised that he was going to make their lives better. But I am sure that NPR, PBS, and Mother Jones will persuade most of them that it is all George Bush’s fault.

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All Comments   (19)
All Comments   (19)
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"Brilliant: Obamacare provides an incentive for these doctors, who are already well-paid professionals, to move costs that they are currently paying onto the state and federal governments.

"But they aren't as ignorant as they seem -- at least not about this. Their true objective was single payer -- that requires that as many get onto the gov't rolls as possible. They see this as a "good." This is their way of succeeding in that goal.

And speaking of legalized prostitution in a "progressive" world -- In '08, there was an article about a young woman on unemployment in Germany who was sent by the gov't agency to apply for a job as a prostitute. If she refused the job -- she'd lose her benefits.
There was rather an outcry about this -- I hope they resolved it.

1 year ago
1 year ago Link To Comment
Great article. The problem with legalizing prostitution (or drugs) means you can market it and recruit for it hence.

When you regulate something there will be less of it -- sort of like health care now.
1 year ago
1 year ago Link To Comment
I have noticed this in all areas, not just economics (global warmist "theory" is a big one): they simply do not comprehend dynamics at all. Feedback loops are magic, actual control loops are impossible, and they only manage to grasp cause-and-effect if they are physically moving the thing — like hitting a golf ball with a club. I wish I knew why this was so, because I cannot figure out any way to break through that wall.
1 year ago
1 year ago Link To Comment
Socialism fails because the government cannot allocate capital in an effective manner. Goodness, they do not even want to allocate capital in an effective manner -- they want to allocate in such a way as to perpetuate their power. The economy is millions of people around the glove making decisions they feel will benefit their self interest. Elites making these decisions for us will only end in failure.
1 year ago
1 year ago Link To Comment
Do you suppose the doctors will provide medical care to their employees themselves?
1 year ago
1 year ago Link To Comment
It's a good thing that more and more employers are eliminating health care from their compensation packages. The major cause of our failing health care system is the disconnect between the consumer and the customer. It prevented normal market price signals from allowing consumers to modify their behavior. I'm becoming more convinced that Chief Justice Roberts was subtly, if possibly accidentally, brilliant in his Obamacare decision. By declaring the fine paid for not supplying health coverage constitutional only because it was too small to alter behavior, he ensured that Obama's legacy would be a return of private market forces to the health insurance industry.
1 year ago
1 year ago Link To Comment
'Prediction is difficult, particularly about the future.' - Niels Bohr

'As difficult as predicting an egg will break as it is falls to the floor.' - Heinlein

'When one can count the tiger's teeth, it is too late to run away.' - /me

We are already bankrupt. The revelation will come, probably this year,
almost certainly before the end of Obama's second term, some negative
economic indicator too large, widespread, and painful to ignore;
Hyperinflation, anyone ?
1 year ago
1 year ago Link To Comment
My co-workers, who are overwhelmingly on the left to far-left end of the political spectrum, simply cannot grasp the tsunami of pain about to wash away their benefits system. I try to explain what the man they chose has done and they are literally incapable of grasping the import of my words. The part-timers know that they are going to be screwed, but the full-timers refuse to believe that plans are already afoot to drastically increase the employee share of health insurance. God alone knows what they will think when, on January 1, 2014, their paycheck dwindles like summer rain on a hot sidewalk.
1 year ago
1 year ago Link To Comment
a curious question from a fellow adjunct:

when you say your school only allows 9 "units" per semester, and 21 "units" pays < 16K, is a "unit" what many schools call a "credit"? That would mean a typical humanities or social science course would give 3 "credits" or "units".

Ouch.
1 year ago
1 year ago Link To Comment
Yes. Next semester I will teach two 3 semester hour classes (6 units total). We recently were informed by the the upper echelons that they are aware that we are underpaid. Not that this will change anything.
1 year ago
1 year ago Link To Comment
The Dems lack a most important element in their stab at creating the utopia they want for our Nation: critical thinking. They always miss the mark--by a mile.
1 year ago
1 year ago Link To Comment
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