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Why U.S. health care policy is especially egalitarian
The "poorest" people are not those with low incomes but rather those with low human capital endowments. That includes the elderly because, even if they are very talented, on average they will die sooner. A typical 23-year-old lower-middle-class immigrant has a higher real endowment than does Warren Buffett.
Through Medicare, the U.S. government subsidizes the health care of the elderly. Given the embedded incentives in the system, the subsidy is especially large for people in the last year of life or so, namely the very poorest.
Western European welfare states may be more efficient, because they do more to expand routine health care access for the relatively young and this may have a higher rate of return. But those same systems are in critical regards less egalitarian. Bravo to them.
Many people do not look at the contrast this way. They wish to think they believe in egalitarianism, they wish to be skeptical of the United States, they wish to condemn the U.S. for its inequality, and they wish to raise the relative status of people who are not very successful under capitalism. When you put all those wishes together, those people will be deeply allergic to my argument.
A few of these people also confuse "high social status" with "well off." Since old, high-bank-account white males have lots of social status and power, these onlookers cannot bring themselves to regard those males as holding very poor overall endowments. They substitute in assessments of social status for assessments of absolute endowments (another sign of the claim that "politics is not about policy" but rather it is about whom we should admire and condemn).
I am amazed (but not surprised) by how frequently people think of egalitarianism in terms of social markers of status rather than actual forward-looking endowments.
It is common for more egalitarian policies to be less efficient.
From the comments: "Let us say you are a twenty three year old immigrant living in New York. Would you want to trade places with Warren Buffett?
My answer is this- you couldn't pay me enough to make the trade."
Posted by Tyler Cowen on June 6, 2009 at 07:53 AM in Philosophy | Permalink
Comments
Wow. Good wow.
Posted by: Andrew at Jun 6, 2009 8:06:28 AM
Do you know who's "poor"? Sick people. Hence my radical egalitarian proposal: health care for the ill.
Posted by: Dan at Jun 6, 2009 8:14:00 AM
From a life-time well-being perspective, that seems like a silly definition of poverty, and a consequently silly definition of egalitarianism.
Posted by: conchis at Jun 6, 2009 8:14:50 AM
a transaction in the market is efficient not because it maximizes value, but because the transactions parties agree to the transaction and thus reveal it as mutually beneficient.
What happens when one transfers this original meaning of efficiency to the political realm is that a social arrangement such as medicare is efficient when informed people agree to it, not when it maximizes total market-value.
to be sure, the extent to which a social arrangement induces "market-inefficiency" and thus lowers the possible achievable level of wealth is a relevant aspect when people think about whether they should, in their own interest, agree to a social arrangement. However, it is but one aspect of the package, and has to be balanced in the indivual calculus with other positive and negative aspects of the institution in question. other positive aspects, for which individuals might be willing to pay the price of lower wealth, might be the insurance against extreme individual hardships, or the sense of "fairness" of the "social game".
So an egalitarian policy, when one considers all of its relevant effects, might well be more and not lesss efficient in the sense above mentioned.
Posted by: bbb at Jun 6, 2009 8:17:09 AM
Wow, but not in a good way. This sounds like an opening salvo in the argument for euthanasia. It is a short step from elderly people have lower endowments and should not get heath care to since they have low endowments and consume resources the only "right" thing to do it off them.
Posted by: Tim at Jun 6, 2009 8:19:18 AM
You can't always borrow against human capital, so defining poverty in terms of lifetime earning potential is misleading. Current income and bank balance is a better measure of how much cash you can raise in a medical emergency, so the folk wisdom seems to me to be more correct than your analysis.
Posted by: jyotirmoy at Jun 6, 2009 8:27:39 AM
In other words, when "poor" is redefined, things that didn't look egalitarian before suddenly do. That's not a very impressive trick in my book.
Posted by: LemmusLemmus at Jun 6, 2009 8:29:32 AM
So, you are poor if you are old, but not if you are young. Even if you don't have money? So therefore it is more egalitarian to only help with health care for old, than for everyone?
Is this first of april? Nope. :-)
Posted by: Lennart Regebro at Jun 6, 2009 8:37:49 AM
And just like the last time you were talking about individuals, you simply seem to completely disregard the idea of something larger than the individual.
Or to put it differently - those 'old, high-bank-account white males' not only have 'lots of social status and power,' it is difficult to imagine that their children were ever on an equal footing with the children of old, no bank account black females.
Posted by: not_scottbot at Jun 6, 2009 8:41:12 AM
The only case that can be made for redistribution is when "poorness" is not someone's own doing or not evenly distributed. I don't make this case, but that is the only case. Tyler points out, not in so many words, the left's disingenuous focus on paychecks. In the mind of the leftist, the union workers who are healthy and well-off deserve redistribution. They are really just political whores, and not even honest whores who earn their money. I'm going much farther here, but Tyler is right on.
Posted by: Andrew at Jun 6, 2009 8:47:00 AM
and now i have intellectual *** all over my face.
Posted by: yoyo at Jun 6, 2009 8:49:21 AM
Some of you are not arguing at a very high level on this point and my hypothesis itself predicts that outcome. For a look at the relevant philosophic issues, google "Dennis McKerlie equality time", referring to his 1989 piece in *Ethics*, etc.
Posted by: Tyler Cowen at Jun 6, 2009 8:53:32 AM
Perhaps at least some of the reason for this confusion of "social markers of status" vs. forward thinking endowments is the placement of the "Social bases of self-respect" among the goods to be distributed in Rawls' theory of Justice as Fairness? That would certainly suggest to the mind of the egalitarian the need for status to become flatter between groups and individuals if it were to satisfy the maximin principle.
Also, there is the time-slice aspect of these sorts of social justice theories that by necessity see life as a series of times, any one of which could be examined for justice merely by observing it. If the past and future state of the system does not matter to equality now, naturally current stocks of human capital goods will matter much more than possible flows.
Posted by: Solomon at Jun 6, 2009 9:04:04 AM
Tyler, I can accept there are arguments against the complete lives view (though I personally think McKerlie's arguments against the view are unconvincing). But your post didn't even consider the possibility that people might base their "egalitarian" judgments on such a view, and itself provides no argument against it. Instead you chose to accuse those who disagree with you of something else entirely.
With respect, I suggest that YOU are not arguing at a particularly high level on this point.
Posted by: conchis at Jun 6, 2009 9:20:25 AM
If I read you correctly, you're not necessarily endorsing the US view but making an observation.
One that's actually pretty simple: US healthcare policy (or more accurately Medicare, which is a proxy of it) looks at people who are most likely to be sick and least likely to be able to afford it (because of their low human capital endowments - not by looking at their balance sheet). This policy ends up covering many people who are actually quite wealthy, but it is nonetheless egalitarian because of its lack of bias against wealth. There is equal treatment for those with similar capital endowments. Medicare, of course, does have a mechanism for recouping money from relatively wealthy estates, but this recoupment is easy to avoid.
This point becomes a bit clearer when you consider the non-elderly covered by Medicare, including the disabled and those who suffer kidney disease and must undergo dialysis three times a week. These people, regardless of their wealth, have suffered amendments to their capital endowments. Earning power may be greatly diminished or lost altogether.
Let me know if I'm misunderstanding, because I'm confused about this point (and perhaps ignorant about how the European systems work). Wouldn't a system focused on "absolute" endowments assess the endowment at the beginning of life? Rather than at particular points in time?
So that a perfectly egalitarian system would cover everyone who needs care, regardless of adjustments in wealth OR adjustments to human capital. My understanding is that European systems attempt this, but you seem to suggest they don't achieve it. For sure the US doesn't (not for everyone).
But if we accept the notion that Healthcare is too expensive to cover everyone in a perfectly egalitarian manner, because it must inevitably be rationed. The US Medicare system is more egalitarian because it largely avoids rationing and the inevitable discretion involved, and instead focuses on those with the least human capital endowments.
That's something to think about. It seems more difficult to talk about the US Healthcare System meeting that characterization, because it forgets Medicaid, the program for the poor, and SCHIP (for children). But Medicare is unquestionably the largest piece of the pie.
I don't know if I agree or fully understand, but then you didn't give us much to work with.
Posted by: mrshl at Jun 6, 2009 9:22:08 AM
I very rarely think you post silly things, but this is one of those times. You can do better than this!
"The "poorest" people are not those with low incomes but rather those with low human capital endowments."
You can say this, but it does not make it so. In fact, it's a silly statement. Is Warren Buffett poorer than a 6-year-old from the projects? Not in any sensible meaning of the word "poor".
Posted by: tom s. at Jun 6, 2009 9:23:11 AM
Since old, high-bank-account white males have lots of social status and power, these onlookers cannot bring themselves to regard those males as holding very poor overall endowments.
I daresay that there are young, low-bank-account individuals of assorted minorities who would love to trade places with such old rich white men, low endowment or not. What's the relative value of money and lifetime at a given social status? Unfortunately, since such a trade is not presently physically possible, we don't know. It does seem arbitrary to say that human capital endowment is welfare-superior over social status and power. One still has to work to make use of all that capital.
Tyler, do you happen to have a link to an ungated version of McKerlie's "Equality and Time"?
Posted by: david at Jun 6, 2009 9:32:36 AM
Someone has too much time on his hands...this post appears to project a "I'm really smart...smarter than you and I'll prove it by writing this...."
What bunch of "intellectual" pablum.
In fact, I've lost interest in this blog for that same reason. In my opinion, this blog has lost it's importance - posts on this blog have become like midnight bull sessions after drinking or smoking too much by doctoral students who don't need to work.
After threes years of daily reading, adios and delete!
Posted by: Mike at Jun 6, 2009 9:39:21 AM
Here is an easy way to show how Tyler's post is perfectly sensible: Stop judging impoverishment at highly individuated time slices. Most of you are judging whether someone is poor by their current income or capital endowment, or perhaps their income or capital endowment within a certain short time-span, like, say, three months. But Tyler (probably in part because of his extremely unusual view of social discount rates) wants to individuate time slices less narrowly.
Instead, to grasp Tyler's view, consider someone's income or capital endowments over a life, where younger people face a wider probability distribution because their futures are less determinate - and assume that this distribution is built into their lifetime income/utility expectations.
Tyler, unlike many in the comments, also wants to individuate time slices over a life from the present forward, whereas many of you seem to want to individuate time slices from birth to the present. I think Tyler's view is more plausible, but I'd like to submit an addendum to Tyler: we should probably include at least some aspects of past factors when we estimate forward-looking endowments. They can give us evidence of whether the person will develop their endowments and inform our expectations about their incomes as a result. But you don't disagree with this, do you? So it's not merely forward-looking endowments, right?
Tyler is really making a Nozickian point - egalitarians tend to have a time-slice theory of justice; they're only interested in a distribution at a particularly small time slice. But this is perfectly arbitrary. And that, I think, is Tyler's point. He is precisely correct on this matter.
Posted by: Selfreferencing at Jun 6, 2009 9:49:05 AM
Sorry, was there an actual argument anywhere in that post?
Posted by: King Cynic at Jun 6, 2009 9:57:56 AM
--or, as Flannery O'Connor put it: "You Can't Be Any Poorer Than Dead".
Posted by: Edward Burke at Jun 6, 2009 9:58:47 AM
Selfreferencing, I cannot speak for others, but you have my view *entirely* backwards. To the extent that I want equality,* I want it over complete lives, not time-slices thereof. The point is that people who survive to the point where medicare becomes an issue are mostly already doing better than those who I consider "poorest", even if they have worse prospects going forward.
I agree with Tyler that massive spending on the elderly is inefficient, and if he had merely said so I would have agreed. But I disagree with the view that how well off people have been in the past should be irrelevant to egalitarians. To the extent that Tyler's view depends on that (undefended) claim, and instead seeks to attribute disagreement to ulterior motives, I object to it too.
* Actually I want priority, which is only indirectly egalitarian, but that's tangential to the point at issue.
Posted by: conchis at Jun 6, 2009 10:07:03 AM
I think there are two holes in Tyler's argument.
The first is that when it comes to medical payments we are not comparing Warren Buffett with a typical 23-year-old immigrant, but with one who needs medical care and can't afford it. That diminishes the value of the real endowment considerably. My initial thought was that I'd be willing to pay a lot to be 20 years younger, but that was based on being myself 20 years ago. If the choice were a poor, ill-educated, and unhealthy younger self, I'd have serious second thoughts.
It also overlooks utility. The money we spend on the old wealthy individual has much less utility to him than the same amount spent on the immigrant has to the immigrant. Buffett could do without Medicare just fine.
Also, I agree with those who question the use of the real endowment as the best measure of how egalitarian a policy is. It sounds silly to me, too.
Posted by: Bernard Yomtov at Jun 6, 2009 10:09:54 AM
Medicare spends a good portion (perhaps 20% and more) of its annual
budget on the care of individuals in the last 18 months or so
of their lives. Some will look at this question in the perspective
of economics, others not.
Posted by: Candadai Tirumalai at Jun 6, 2009 10:22:13 AM
Somebody once defined wealth as the number of days you could avoid work before you run out of money. I think this definition covers why Tyler is right and also why he's wrong. For Warren Buffet the figure is obviously the rest of his life (long may he reign), but for the 23 year old immigrant the answer might be less than a week. This definition is also independent of social status. If you have a simple lifestyle you can afford to work less.
Posted by: David at Jun 6, 2009 10:30:48 AM
