Yes We Can
Posted by Chris Martin at 12/5/2008 9:06 PM 
Categories: Health policy, Economic Theory, The Crash of 2008
Categories: Health policy, Economic Theory, The Crash of 2008
When the pundisphere discusses Obama's major reform proposals lately we hear one constant refrain. "This is all very nice but with the recession and the deficit we will have to cut back." See for an example the discussion of Health Reform in The Caucus in today's NY Times.
Statements like these bring out the economics lecturer in Wonks Anonymous. He would like to point out some easily forgotten economic truths:
The amount of any good or service that we can have as a nation is not determined by the amount of money or money revenue that we command. Money does not, for example, produce health care. Trained people working with the proper equipment in buildings and offices designed or redesigned to house hospitals and clinics produce health care. When our incomes drop and our employers cut back on health care spending none of these resources vanish. They could still produce health care if someone would pay for it.
Unemployed resources lose their value rather quickly. Doctors retire early, nurses find other work, clinics become massage parlors and community hospitals go bankrupt. Buildings decay and become useless. The longer we tolerate the waste of unemployment the less we will be able to produce in the future. You can still walk down the streets of San Francisco and see people who lost their connection to the economy in the 1980's recession.
We do not sacrifice opportunities when we find uses for unemployed resources. For example, if the government were to replace the health insurance of laid off workers, if it were to cover the spending cuts that states are now making in health care for the poor, we would lose nothing. The same care would be produced by the same people in the same way that it always has been produced.
In fact we gain when we prevent unemployed resources from decaying and losing their value.
Sure, the deficit will go up, but this is not a problem right now. People are losing their jobs and anything that sustains demand and slows our descent into depression should be welcome.
Besides, where were all the pundits when Bush and his cronies were cutting taxes and building bridges in Alaska?
Statements like these bring out the economics lecturer in Wonks Anonymous. He would like to point out some easily forgotten economic truths:
The amount of any good or service that we can have as a nation is not determined by the amount of money or money revenue that we command. Money does not, for example, produce health care. Trained people working with the proper equipment in buildings and offices designed or redesigned to house hospitals and clinics produce health care. When our incomes drop and our employers cut back on health care spending none of these resources vanish. They could still produce health care if someone would pay for it.
Unemployed resources lose their value rather quickly. Doctors retire early, nurses find other work, clinics become massage parlors and community hospitals go bankrupt. Buildings decay and become useless. The longer we tolerate the waste of unemployment the less we will be able to produce in the future. You can still walk down the streets of San Francisco and see people who lost their connection to the economy in the 1980's recession.
We do not sacrifice opportunities when we find uses for unemployed resources. For example, if the government were to replace the health insurance of laid off workers, if it were to cover the spending cuts that states are now making in health care for the poor, we would lose nothing. The same care would be produced by the same people in the same way that it always has been produced.
In fact we gain when we prevent unemployed resources from decaying and losing their value.
Sure, the deficit will go up, but this is not a problem right now. People are losing their jobs and anything that sustains demand and slows our descent into depression should be welcome.
Besides, where were all the pundits when Bush and his cronies were cutting taxes and building bridges in Alaska?
What a crisis: according to the price system, we have more available labor and resources than we need to meet society's needs and wants! The horror. How exactly do we manage to turn surplus into poverty so well? (The reason of course is that the system is designed to efficiently allocate resources according to who has the most money to demand them but has no regard for whether a given allocation results in mass starvation or not.) Bless you, almighty price system.
Seriously though, in disinflationary times like this it would really help to not have minimum wage laws, and we also need more flexible wages in general (sorry unions). That obviously doesn't solve the whole problem of recession, since the damage is already done to enough companies, but it could make recovery come sooner as those still in the black may have a better chance of weathering the storm if they can cut costs on labor.
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