President Obama’s long, rambling speech today blended two messages many in Congress will find contradictory: Pass a budget that’s good for economic growth, and stop opposing my health-care law. He’s actually right that a government shutdown or a debt-ceiling showdown, one way to fight Obamacare, won’t be good for the economy per se, but he’s absolutely wrong to suggest that the Republican House’s opposition to Obamacare doesn’t have sound economic justifications.
“There’s no serious evidence that the [Affordable Care Act], which has kept the rise of health-care costs to their lowest level in 50 years, is harming economic growth,” the president said. This is not a serious statement.
Obamacare might be a great law, but it imposes serious costs to the U.S. economy: The law will levy $1 trillion in taxes over the next ten years — which, regardless of whether the transfers it funds are socially desirable, is undeniably a large drag on the economy; taxes are inherently inefficient. And the ACA’s taxes, which will increase double taxation of capital, impose excise taxes on an important industry (medical devices), and raise the costs of employment, are especially damaging. The law’s provisions will increase the implicit, marginal income tax on labor by about 5 percentage points, according to the University of Chicago’s Casey Mulligan. An NBER study found that the large expansion in means-tested free insurance the ACA will provide could cause almost a million Americans to drop out of the labor force — which makes the unemployment rate look better, but is undoubtedly a bad development for the economy overall. While we don’t know the full effects of Obamacare on working hours and full-time employment yet, it is an unequivocally bad thing for the efficiency of the labor market to force employers to provide health insurance once employees average 30 or more hours a week, and once a business hires its 51st employee. One could go on.
There are economic benefits to broader health-care coverage — to the extent that it improves health outcomes (Medicaid probably doesn’t, but private insurance should), we’ll have a healthier work force; there are upsides to ensuring people can leave their jobs without losing access to insurance, etc. — but Obamacare is going to present massive fiscal and regulatory costs (and already has) without getting that many more people covered (which it hasn’t yet). It would probably be fair to say that the economic effects of the law so far have been negative overall, and the jury is still out on the long-term balance — but many well-respected, mainstream economists predict it’ll be a net negative for the economy.
The president went on to contend that no independent (or serious, or whatever) economist would argue that getting rid of Obamacare should be the U.S.’s top economic priority — that is indeed a less well-supported contention than believing it will merely be a net economic negative. Even less mainstream a view is held by those who consider Obamacare so harmful it would be (as a question of economic growth alone) worth incurring the economic costs of a government shutdown or a debt-ceiling debate to have a slim chance at defunding it for a few months – that would indeed not be a view held by many economists. But denying that there’s any evidence at all the ACA is a bad economic policy is silly, and downright offensive to the president’s audience.
The president’s other citation of the consensus of “independent economists” in today’s address came when he criticized Republicans for supporting spending cuts, especially those that came in the sequester, with the president contending they had slowed economic growth. He’s right that the consensus of academic economists, generally relying on a Keynesian model, would probably agree with this assessment (it’s also sort of a truism in the short term, unless you hold a truly radical understanding of government spending and its effect on economic growth, since government spending is part of GDP). What he doesn’t mention is that the same “independent economists,” using the same models, would agree that the fiscal-cliff deal he insisted on (which increases taxes by tens of billions of dollars this year), the payroll-tax hike he allowed to happen, and the tax increases imposed by his health-care law are also all government policies that are dragging down economic growth. Lastly, I’d actually note that both sides of the fiscal drags this year — spending cuts and tax increases — have actually not been quite as bad as many of those experts predicted, though they’ve definitely shown up. Perhaps their predictions shouldn’t make up what looked like half the argument behind the president’s political program this fall.