How much does economic growth benefit the poor? When and why does growth fail to trickle down?

How can social policy help? Is more social spending better for the poor?

Can a country have a sizeable low-wage sector yet few poor households?

Are universal programs better than targeted ones?

What role can public services play in antipoverty efforts?

What is the best tax mix?

Does improvement in the living standards of the least well-off require a sacrifice of other desirable outcomes?

The following chart is sometimes viewed as evidence in favor of this hypothesis. The chart plots life expectancy at birth by per capita health expenditures as of 2007. Twenty affluent nations are included. Among these countries the U.S. spends by far the most money on health care and yet has the lowest life expectancy.

The inference is problematic, however, because America differs from the other countries in a number of ways that may affect health outcomes. It has a higher murder rate. It has more obesity. The U.S. population is more spatially dispersed than those of most other countries, so rural residents may live farther away from medical providers. Given these and other differences, how confident can we be that health spending is less effective in the U.S. than elsewhere?

Here’s a better way to compare. This chart shows trends in life expectancy by trends in health spending from 1970 to 2008.

The United States still stands out, and in a big way. Our gain in life expectancy per additional health spending is much smaller than in other countries, particularly after the early 1980s when we reached expenditures of about $2,500 per person (in 2005 dollars) and life expectancy of around 74-75 years.

The advantage of analyzing country differences in change is that it takes constant nation-specific factors out of play. It’s not a foolproof analytical strategy, but it reduces the likelihood of mistakenly inferring causation from correlation.

What we need to be wary of is life expectancy depressors that may have increased more or decreased less in the U.S. than in the other countries. Are there any? Not smoking: our rate of decline is in the middle of the pack. Not homicide: it’s decreased more here than elsewhere. Probably not spatial dispersion: Americans began moving back into cities in recent decades. One possibility, though, is obesity. Not only is it more prevalent here; it’s also increased more.

This kind of analysis is by no means conclusive. Life expectancy and total spending are highly aggregated indicators; it’s important to also examine more fine-grained measures of health-care effort and outcomes (see here, here, here).  But to the extent we treat the aggregate patterns as informative, a comparison of changes over time, rather than of levels, is likely to be our most valuable guide.

Update: Second chart now corrected, thanks to commenter Roger Chittum.

Pundits will have their say. Here, for instance, is David Brooks in today’s New York Times:

Obama is following the model of the 1983 Social Security deal. Be patient, the president argued at his press conference this week. If I lead from the front my proposal will get stymied in the partisan circus. Better to lead from the back and have negotiations in private with Republican leaders. Then when the time is ripe, we’ll cut a deal outside the glare of the scream machine.

The president and his aides may really believe in this strategy, but it is wrong. This is not like fixing Social Security in the early 1980s. The current debt problem is of an entirely different scale. It requires a rewrite of the social contract, a new way to think about how the government pays for social insurance.

The president has enormous faith in getting smart people around the table and initiating technocratic reform. But you can’t renegotiate the social contract in private. You have to have public buy-in. You have to spend years out in public educating voters about the size of the problem and what will be required. You have to show voters what a solution looks like.

The New Deal wasn’t passed by a president who led quietly from the back. Neither was the Great Society or the Reagan Revolution. President Obama’s softly, softly approach is a rationalization, not a coherent strategy.

It would be nice to have a more systematic assessment of the historical record.

My suggestion: Start in the 1970s, when the modern polarization in Congress begins. Code each attempt at major policy change as either “president leads” or “president encourages Congress to lead.” Code the outcomes as “policy passes,” “policy passes but so watered down as to make little or no progress toward achieving the goal,” or “policy doesn’t pass.”

After this it would be good to go back further in time, to replace the two-or-three category indicators with more nuanced ones, and to consider context. This last may be particularly important. Underlying the Obama administration’s hypothesis is a belief that the political climate is fundamentally different today, with congressional Republicans committed to categorically rejecting any concrete proposal a Democratic president offers. And some contend that a big budget deal occurs only when international financial markets demand one.

Even the simple version of this analysis would be, to my mind, more helpful than the reasoned reflections of a ream of pundits. Would someone with time and energy please take a crack at this (or if it’s already been done, alert me and others)?

These questions could and should be debated with thousands of pages.  But, in the meantime, may I offer my little squib/splat of doubt?

At what wealth level are these protections supposed to arrive?  Now?  One also wonders which risks are considered to be insurable at the individual and family level, either through insurance proper or through social norms, savings, and other voluntary institutions.  What will be the implicit marginal rate of taxation on earning additional income in this new arrangement?  Has it been estimated?  What will happen to the savings rate?  What coercions will accompany these protections?  What will the pressures be, legal or otherwise, to send your kid away at one year of age?  Will job creation for women go down if there is mandatory paid parental leave?  Probably so. Will women end up better off?  Quite possibly not.  How many people would count as falling under these disabilities?  Is this all to be financed by higher taxes on the rich?  We probably can’t even pay for our current bills in that manner.  If it is all done by VAT, how many people would prefer to have the government spend the money for them, as opposed to spending it themselves?  Just asking.  What is the likelihood that such benefits will, in the longer run, discourage our willingness to take in immigrants, the most effective form of aid we know?

Let me sidestep some of the specifics for the moment and say something about the big picture.

As people get richer, they tend to be willing to buy more insurance and more services. We observe this both among individuals and among countries. Some insurance and services are provided at good quality and price by private markets. Others less so. That’s the underlying reason why nations have tended to expand social policy as they grow wealthier.

It happens more rapidly where unions are stronger, where social democratic parties hold the government more often, where Christian democratic parties with a Catholic “social market” orientation are influential, and where the government has fewer veto points (separation of powers, filibuster, etc.). But it happens almost everywhere, including here in the U.S.

Because of our large budget deficit, it wouldn’t surprise me if there’s limited further safety net expansion over the next ten years or so, most of it piecemeal alteration of existing programs. But over the long run I suspect we’ll continue to move, in fits and starts, toward an enhanced government role in funding or provision of health care, early education, parental leave, sickness insurance, wage insurance, and services for the disabled.

Yes, this will require higher tax rates. No, it can’t be funded solely via higher taxes on the rich.

Yes, there are potential tradeoffs. But discussion too often ends once the question “Is there a tradeoff?” is answered. We also need to ask “Where is the tipping point?” and “How severe is the tradeoff?” Suppose our government spending were eventually to rise from 35% of GDP up to 40% or 45% — or even to 50%, roughly the level in Denmark, Finland, Sweden, Austria, Belgium, and France. There might be a cost in savings, investment, and economic growth. But maybe not. Or it might be a relatively small cost, one that many citizens in a rich society would feel worth paying in exchange for the added services and protections. One advantage of having a political system that leans toward incremental change is that we’re unlikely to go very far past the tipping point.

We have a safety net, but I wouldn’t call it “strong” by 21st-century standards. Some elements that are inadequate or altogether absent:

The 2010 health care reform, even if fully implemented, likely will leave millions of Americans uninsured.

Early education (preschool, child care), beginning at age one, is a very good idea. Not all states have full-day kindergarten; few have preschool for four-year-olds; none have much in the way of public funding of education for kids age one to three.

Paid parental leave is available in only a few states and covers a relatively short period.

Sickness insurance: ditto.

Unemployment insurance covers too few of us.

Unemployment insurance should be supplemented by or folded into a new wage insurance program.

Social assistance benefits have been decreasing steadily over the past generation.

If markets are now structured in such a way as to severely limit real earnings growth for those in the bottom half of the distribution, we may need to massively expand the EITC.

We ought to do more for children, working-age adults, and elderly persons with assorted physical, cognitive, emotional, and social disabilities.

The aim is not, let me emphasize, to expand government for its own sake. Government should play an integral role in providing these supports and protections because they are underprovided by private markets, and because in some instances government can do so more efficiently than private actors.

Nancy Hirschmann’s essay “Mothers Who Care Too Much” gestures at some desirable goals: societal appreciation of care work, good-quality care for children, gender equality (or less inequality) in childcare and housework, gender equality (or less inequality) in employment, adequate income for families with children, opportunity for parents to effectively balance employment and family (to spend a reasonable amount of time with their children). What policies and institutions would help achieve these?

Consider the following scenario: Parents of a newborn child get thirteen months of job-protected paid leave, with the benefit level set at approximately 80 percent of earnings. Two of those months are “use it or lose it” for the father; if he chooses not to take them, the couple gets eleven months instead of thirteen. Parents can put a pre-kindergarten child in high-quality public or cooperative early education (childcare and preschool) centers. Pre-K teachers are required to have training comparable to that of elementary school teachers, and their pay is similar. The cost to the parent increases with the household’s income, but it is capped at less than 10 percent of that income. During the child’s first eight years, employers must grant requests by either or both parents to reduce work hours by 25 percent (e.g., from 40 hours per week to 30), with no reduction in the hourly wage or loss of benefits. Parents can take as many as four months off per year to care for a sick child up to age twelve, paid at the same level as parental leave. Generous government-funded child allowances and social assistance benefits ensure that very few families with children have low income. Able, working-age social-assistance recipients are pressured to work, but they are provided with extensive supports, such as training, assistance with job search and placement, affordable childcare, and public-sector jobs if nothing suitable is available in the private sector.

This set of policies currently exists — in Sweden. (Denmark is similar.) Much of it has been in place since the 1970s. What has it achieved? There is virtually no poverty among Swedish families with children, because almost all such households have at least one employed adult and because government benefits substantially boost the incomes of the small number that do not. Relative to other affluent nations, the employment rate in Sweden among women is high and the gender pay gap is low. Care for children tends to be of high quality. Certainly there are some stay-at-home parents who don’t do a good job, and surely some early education centers are subpar. But high expectations and generous pay tend to make the centers quite good. They also encourage a high valuation of care work in society. The availability of affordable, high-quality childcare means that the parents who stay home tend to be ones who really want to; 75 percent of one-, two-, and three-year-olds and 97 percent of four- and five-year-olds are in childcare. Children from disadvantaged homes particularly seem to be helped by this set of policies; on international tests, those in the bottom part of the income distribution in Sweden do especially well.

What’s not to like? These programs aren’t free: their implementation in the United States would require higher taxes, though perhaps just an additional 1 or 2 percent of GDP. Sweden has not achieved gender equality in employment: far more women than men work part-time, which means their overall earnings are lower. This, though, may be a product of choice. Nor is there gender equality at home: women still do more of the childcare and housework than men. Yet the gap is smaller than in the United States, and the introduction of use-it-or-lose-it parental leave for fathers appears to have helped.

The goals listed above need not have equal priority. I believe good-quality care for children is more important than the others. Here I am sympathetic to what Hirschmann has to say about parenting. For too many children, parental care leaves much to be desired. This conclusion is not based solely on anecdote; according to Columbia University social work professor Jane Waldfogel, the best available evidence suggests that, on average, good-quality out-of-home care yields benefits for children after the first year of life.

But while Hirschmann focuses on middle- and upper-class parents who foster poor values and selfish behavior in their kids, inadequate parenting includes much more, from insufficient attention to instability caused by parents’ moving in and out of relationships, to emotional and physical abuse and beyond. Some of these parents behave selfishly; some are overwhelmed by circumstances; some simply don’t know any better.

Parents are by no means the only problem. Many American children are in out-of-home care prior to kindergarten, but much of that care is informal and unregulated and hence of questionable quality.

In my view, policy that encourages (but does not require) high-quality non-parental care and education after a child’s first year stands the best chance of achieving the kind of care we want.

The standard rebuttal is that the public school system in the United States is woeful, and we should expect no better from a public early-education system. This is wrong. Some American public schools fall short — perhaps well short — of what we would like. But most do better than parents would, particularly for children from the most disadvantaged homes and neighborhoods. Researchers have found that disparities in performance among well-off and disadvantaged students are exacerbated over the summer, when school is out. This indicates that school is an equalizer.

In any case, an effective child-care and early-education system need not rely mainly on public facilities. We could offer a voucher to help defray the cost of public or private care, with the value of the voucher shifting according to the quality of the center the parents choose.

Good early care and education isn’t a cure-all, but it would be a big improvement.

Has this been bad for the incomes of the poor?

In a relative sense, the answer is yes, at least in the United States. According to the best available U.S. data, from the Congressional Budget Office, the share of income going to households at the bottom has decreased.

What about in an absolute sense? Would the incomes of low-end households have grown more rapidly in the absence of the top-heavy rise in inequality? If we look across the rich nations, it turns out that there is no relationship between changes in income inequality and changes in the absolute incomes of low-end households. The reason is that income growth for poor households has come almost entirely via increases in net government transfers, and the degree to which governments have increased transfers seems to have been unaffected by changes in income inequality. (For more detail, see my piece in the November-December issue of Challenge.)

In some countries with little or no rise in income inequality, such as Sweden, government transfers increased and so did the incomes of poor households. In others, such as Germany, transfers and the incomes of low-end households did not increase.

Among nations with sharp increases in top-heavy inequality, we observe a similar disjunction. Here the U.S. and the U.K. offer an especially revealing contrast. The top 1%’s income share soared in both countries, and through the mid-1990s poor households made little progress, as the following chart shows. But over the next decade low-end American households advanced only slightly, whereas their British counterparts experienced sizable gains. The New Labour governments under Tony Blair and Gordon Brown increased benefits and/or reduced taxes for low earners, single parents, and pensioners. As Jane Waldfogel documents in her book Britain’s War on Poverty, these were big policy shifts, even if not always high-profile ones. They produced a significant rise in the real disposable incomes of poor households.

Rising income inequality has a number of potential consequences — some of them, perhaps many, undesirable. Its apparent lack of impact on the absolute incomes of the poor over the past generation ought not lead us to overlook this. Still, it is noteworthy that some affluent countries have managed to engineer income growth for low-end households despite a significant top-heavy rise in inequality. For American policy makers, that might serve as welcome inspiration.

One way to achieve that is rising redistribution: government steadily increases the share of the economy (the GDP) that it transfers to poor households. But there is a limit to this strategy. If the pie doesn’t increase in size, a country can redistribute until everyone has an equal slice but then no further improvement in incomes will be possible. For the absolute incomes of the poor to rise, we need economic growth.

We also need that growth to trickle down to the poor. Does it?

The following charts show what happened in the United States and Sweden from the late 1970s to the mid 2000s. On the vertical axes is the income of households at the tenth percentile of the distribution — near, though not quite at, the bottom. On the horizontal axes is GDP per capita. The data points are years for which there are cross-nationally comparable household income data.

Both countries enjoyed significant economic growth. But in the U.S. the incomes of low-end households didn’t improve much, apart from a brief period in the late 1990s. In Sweden growth was much more helpful to the poor.

In Austria, Belgium, Denmark, Finland, France, Ireland, the Netherlands, Norway, Spain, and the United Kingdom, the pattern during these years resembles Sweden’s. In Australia, Canada, Germany, Italy, and Switzerland it looks more like the American one. (More graphs here.)

What accounts for this difference in the degree to which economic growth has boosted the incomes of the poor? We usually think of trickle down as a process of rising earnings, via more work hours and higher wages. But in almost all of these countries (Ireland and the Netherlands are exceptions) the earnings of low-end households increased little, if at all, over time. Instead, as the next chart shows, it is increases in net government transfers — transfers received minus taxes paid — that tended to drive increases in incomes.

None of these countries significantly increased the share of GDP going to government transfers. What happened is that some nations did more than others to pass the fruits of economic growth on to the poor.

Trickle down via transfers occurs in various ways. In some countries pensions, unemployment compensation, and related benefits are indexed to average wages, so they tend to rise automatically as the economy grows. Increases in other transfers, such as social assistance, require periodic policy updates. The same is true of tax reductions for low-income households.

Should we bemoan the fact that employment and earnings aren’t the key trickle-down mechanism? No. At higher points in the income distribution they do play more of a role. But for the bottom ten percent there are limits to what employment can accomplish. Some people have psychological, cognitive, or physical conditions that limit their earnings capability. Others are constrained by family circumstances. At any given point in time some will be out of work due to structural or cyclical unemployment. And in all rich countries a large and growing number of households are headed by retirees.

Income isn’t a perfect measure of the material well-being of low-end households. We need to supplement it with information on actual living conditions, and researchers and governments now routinely collect such data. Unfortunately, they aren’t available far enough back in time to give us a reliable comparative picture of changes. For that, income remains our best guide. What the income data tell us is that the United States has done less well by its poor than many other affluent nations, because we have failed to keep government supports for the least well-off rising in sync with our GDP.

1. What is “the welfare state”? The book has chapters on the following government transfer and service programs: old-age pensions, work accident and sickness benefits, disability benefits, unemployment insurance, social assistance, health care, housing, family benefits and services, education, and labor market activation.

2. When and where did the welfare state originate? “The Elizabethan Act for the Relief for the Poor of 1601 established a national system — to be administered by parishes — for the relief of destitute children, the disabled and infirm, the unemployed and the work-shy. The Prussian Landrecht of 1794 gave the state a clear patriarchal responsibility for the poor, but it was delegated to local communities to provide social care.” Social insurance programs such as contributory pensions, work accident compensation, and sickness compensation originated in Germany under Bismarck in the 1880s. See chapter 5.

3. How large are welfare states? Government net social expenditures averaged 20% of GDP in twenty longstanding democratic countries as of the mid-2000s (this excludes education, which adds another 5%). France, Germany, Belgium, and Sweden led the way at 23-26%. At the low end were Ireland, New Zealand, Australia, Canada, and the United States at 15-17%. Note that how much governments spend on social policy depends not only on how generous the programs are but also on how many people are in need (elderly, sick, unemployed, etc.). See chapters 8, 23.

4. How generous are welfare states? Generosity consists of eligibility criteria, benefit levels, duration, and other elements. One partial but helpful measure is an average of the benefit replacement rates (the share of your former earnings that you receive) for pensions, unemployment insurance, and sick pay. As of 1995, the most recent year for which data are provided in the book, the average for eighteen countries was 60%, ranging from around 35% in the United States, United Kingdom, and Ireland to just shy of 80% in Sweden, Norway, and Austria.

5. What are the most expensive welfare state programs? Pensions, health care, and education, by far. See chapters 23-25, 34.

6. When did welfare states get large? Roughly 1910 to 1980, and particularly in the 1960s and 1970s. See chapter 6.

7. Have thirty years of heightened competition, globalization, and neoliberalism decimated welfare states? No, the share of GDP going to social policy expenditures hasn’t decreased on average. Some countries have reduced the generosity of certain programs, such as pensions, unemployment insurance, sickness/disability compensation, and social assistance. But these cuts have been offset by increases in need (more elderly households, higher unemployment), rising health care costs, and new programs such as child care and other family benefits. See chapters 22, 23, 35, 38.

8. Why did the welfare state come to vary so much across the rich countries? Largely due to differences in the organization of workers and employers, in the influence of left and Christian Democratic (Catholic center-right) political parties, and in the structure of political institutions. See chapters 13-15, 40-43.

9. Have welfare states converged? Yes in certain policy areas, such as labor market activation and long-term health services, but overall very little. See chapters 23-35, 39-43.

10. What do welfare states attempt to accomplish? The principal goals are economic security and redistribution. An increasingly-prominent third aim is labor market participation and success. It’s noteworthy that Denmark and Sweden, two countries with very generous cushions, also are the biggest spenders on education, active labor market programs, and child care. See chapters 23, 30, 32, 34, 40.

11. Have welfare states enhanced economic security? Yes. See chapters 6, 24-33.

12. Have welfare states reduced poverty? Yes. See chapter 36.

13. Have welfare states reduced income inequality? Yes. See chapter 36.

14. Have welfare states increased employment or reduced it? The evidence is mixed. See chapter 37.

15. Have welfare states impeded economic growth? Here too the evidence is mixed. See chapter 37.

How so? Government social transfers account for a much larger share of GDP in Sweden and Denmark. But the U.S. government distributes more benefits in the form of tax breaks rather than transfers than do the two Nordic countries; Denmark and Sweden tax back a larger portion of public transfers than the United States does; private social expenditures, such as those on employment-based health insurance and pensions, are greater in the U.S.; and America’s per capita GDP is larger.

The standard indicator of social policy effort is gross public social expenditures as a percentage of GDP. Denmark and Sweden are much higher than the United States on this measure.

Now shift to net (rather than gross) public and private (rather than public alone) expenditures per person (rather than as a percentage of GDP, with purchasing power parities used to convert Danish and Swedish kroner into U.S. dollars). According to the calculations by Adema and Ladaique (Fishback’s are similar), we get a very different picture. By this measure the U.S. is the biggest spender.

This looks like good news for the poor in the United States. Is it? Unfortunately, no. These adjustments change the story with respect to the aggregate quantity of resources spent on social protection in the three countries, but they have limited bearing on redistribution and on the living standards of the poor.

Begin with tax breaks. Researchers count as “social” those designed to provide support in circumstances that adversely affect people’s well-being. In the United States these disproportionately go to the affluent and the middle class. The chief ones are tax advantages for employer and employee contributions to private health insurance and private pensions. These do little to help people at the low end of the distribution, who often work for employers that don’t provide health or retirement benefits. One valuable tax benefit for low-income households is the Earned Income Tax Credit (EITC), but it is already included in the standard OECD data on government social expenditures. Another is the child tax credit, but it is non-refundable and so of limited value to low-income households, many of whom don’t owe any federal income tax.

Next consider tax “clawbacks” in the Nordic countries. Public transfer programs in Denmark and Sweden tend to be “universal” in design: a large share of the population is eligible for the benefit. This is thought to boost public support for such programs. But it renders them very expensive. To make them more affordable, the government claws back some of the benefit by taxing it as though it were regular income. All countries do this, including the United States, but the Nordic countries do it more extensively. Does that hurt their poor? Very little. The tax rates tend to increase with household income, so much of the tax clawback hits middle- and upper-income households.

What’s the impact of private social spending? In the U.S. this accounts for roughly two-fifths of all social expenditures. It consists mainly of employer contributions to health insurance and employment-based pension benefits. Here too the picture changes a great deal on average, but not much for the poor. Employer-based health insurance and pension plans reach few low-income households.

So how well-off are the poor in the United States, with its “hidden welfare state,” compared to social-democratic Denmark and Sweden? One measure is average posttransfer-posttax (“disposable”) income among households in the bottom decile of the income distribution. Here are my calculations using the best available comparative data, from the Luxembourg Income Study (LIS). (The numbers are adjusted for household size. They refer to a household with a single adult. For a family of four, multiply by two.)

This is a pretty big difference, not in America’s favor.

In his paper, Fishback cites similar numbers from the OECD. He cautions, though, that “One advantage the poor Americans would have had in spending their disposable income is that they face consumption tax rates in the 4 to 7 percent range, while consumption taxes in the Nordic countries are above 20 percent.” Actually, consumption tax rates are incorporated in the purchasing power parities (PPPs) used to convert incomes to a common currency, so these income figures already adjust for differences in consumption taxes.

What’s the source of this cross-country difference in the incomes of low-end households? It’s entirely a function of government transfers. Again using the LIS data, I’ve calculated mid-2000s averages for households in the bottom income decile for the three chief sources of household income: earnings, net government transfers (transfers received minus taxes paid), and “other” income (money from family or friends, alimony, etc.). Average earnings are virtually identical across the three countries, at about $2,500. The same is true for “other” income, which averages around $500 in each of the three. Where bottom-decile Danish and Swedish households fare much better than their American counterparts is in net government transfers:

Fishback rightly points to one other key difference between these countries: “Public services not counted in disposable income, like health care and education, likely are better for the very poor in the Nordic countries than in the United States.” It’s difficult to measure the impact of services on living standards with any precision. One indirect way to assess their effect is to switch from income to material deprivation. Two OECD researchers, Romina Boarini and Marco Mira d’Ercole, have compiled material deprivation data from surveys in various rich nations as of the mid-2000s. Each of the surveys asked identical or very similar questions about seven indicators of material hardship: inability to adequately heat one’s home, constrained food choices, overcrowding, poor environmental conditions (e.g., noise, pollution), arrears in payment of utility bills, arrears in mortgage or rent payment, and difficulty in making ends meet. Boarini and Mira d’Ercole create a summary measure of deprivation by averaging, for each country, the shares of the population reporting deprivation on questions in each of these seven areas.

Government services — medical care, child care, housing, transportation, and so on — reduce material hardship directly. They also free up income to be spent on other needs. The comparative data, though by no means perfect, are consistent with the hypothesis that public services help the poor more in the Nordic countries than in the United States. The gap between the countries in material deprivation is larger than in low-end incomes.

Helping the poor is not, of course, the only thing we want from social spending. But it surely is one thing. The United States spends more money on social protection than is often thought, yet that spending doesn’t do nearly as much to help America’s poor as we might like.

For those interested, I’m finishing up a book manuscript that looks at this issue and related ones in more detail.

__________

* Related research: Adema, Garfinkel-Rainwater-Smeeding, Hacker, Howard. Blog commentary: Fishback, Salam, Schulz, Wilkinson, Yglesias.

What is just?

What do Americans want?

Is there a tradeoff between social justice and a healthy economy?

What can government do?

How to pay for it

One is that the bill will require (most) people to have health insurance. This means some low-income Americans, those who don’t get health insurance from their employer or from the government (Medicaid or Medicare), will have to buy insurance from a private insurer. They’ll receive a subsidy to help offset the cost, but for most the subsidy will be only partial; a new insurance policy may cost a family as much as 8% of its income. These people, the argument goes, will therefore be worse off.

I don’t see the logic in this. Unless you’re a libertarian, I’m not sure why you’d believe forcing people to spend money on something that’s in their self-interest — and calculations show that it clearly is in the interest of those who need health-care services — makes them worse off. Think of the Social Security and Medicare tax. It amounts to forced savings of nearly 8% of earnings — perhaps twice that, since the portion employers contribute arguably comes out of pay. But there is a benefit that outweighs the cost: guaranteed income and health care during retirement years, plus the accompanying peace of mind.

A second argument against the health-care reform bill is that health insurance companies and pharmaceutical firms will benefit. But opposing the bill on the grounds that it will benefit the already-powerful amounts to prioritizing equality over the well-being of America’s poor and lower middle-class (and others too, since the reform will sharply limit insurers’ ability to refuse or restrict insurance to people with preexisting conditions or greater likelihood of illness).

Here I think progressives ought to turn to John Rawls, the most influential moral philosopher of the past century. Rawls’s full view of justice is complex, and I won’t attempt to explicate it here. (There’s a nice summary in chapter 6 of Michael Sandel’s new book Justice.) The key point is that we ought to care more about the absolute well-being of the poorest than about the gap between the rich and the poor or between the powerful and the powerless. Rawls didn’t feel inequality is irrelevant, but he argued that it is secondary. This, he suggested, is what we all would believe if we thought about it carefully enough. I think he’s right.

The third reason for opposing the bill is a belief that it can be replaced by a better one in the not-too-distant future. Unfortunately, as many commentators have pointed out (Hacker, Klein, Krugman, Skocpol, Starr), experience suggests that is very unlikely.

Suppose we think it would be good for countries to try to maintain or move toward relatively low levels of inequality, something akin to the levels in contemporary Denmark or Sweden. What is the best way to do that?

My attempt at an answer is in the September-October issue of Challenge.

That’s health economist Jon Gruber’s bottom line on health care reform. It’s my view too, and it’s the premise underlying the House and Senate bills. I hope it turns out to be right.