The Corner

Obamacare’s Failed Rollout and Public-Choice Economics

The last few weeks have been interesting. As it became clear that the rollout of Obamacare’s Healthcare.gov wasn’t going according to plan, we have seen liberal commentators go from enthusiasm to dismay. To their credit, many of them are actually condemning the failure in not uncertain terms. Ezra Klein of Wonkblog called it a “disaster”; in fact, he and his co-authors at Wonkblog have spent the last ten days explaining in detail all the different ways it turned into such a mess. 

The Republicans, as expected, have seized this opportunity to hammer the law, using this very visible and very embarrasing failure to make the case that the glitches and the failed rollout are more evidence that the law should be repealed. 

Yet the overall reaction from the supporters of the law remains that, while the website isn’t working properly and the rollout has been a disaster, that doesn’t mean the whole law is bad. They are obviously forgetting that this is not the first failure encountered by the law. In fact, many aspects of the law have had to be repealed and changed. It was written in such a hurry or passed with so little care that no one seems to have considered that the Medicaid expansion (one of the core features of the law) could be challenged the way it was, making it much less likely states will opt in, and that the statute technically doesn’t authorize subsidies to be distributed through the federal exchanges.

As Yuval Levin wrote last week in a very thoughtful piece about the problems faced by the exchanges, we shouldn’t forget that these glitches are not our main beef with the law:

For me, and for other critics of Obamacare, the problem with the law was never about these technical matters. I didn’t think the system wouldn’t work because the government couldn’t build a website, but because the basic health economics involved is deeply misguided and would take the (badly inadequate) American  health-financing system in the wrong direction. But Obamacare was also always going to be a test of the sheer capacity of the administrative state to actually do what it claims the authority and ability to do. At this point, it looks as though we may be witnessing a failure of the administrative state on a level unimagined even by its staunchest critics. We may be. But we’ll have to see.

I agree. I also believe that, contrary to what liberals are saying, these technical problems are actually a sign of deep problems with the law itself. And I would go further: I think it is the sign of a deeper problem with government intervention in general. This is yet another piece of evidence that no matter how good lawmakers’ intentions are, no matter how much money government spends, government solutions are very likely to fall short of solving most of our problems, and often turn into massive disasters. Government fails to address most problems it tackles because the incentives are arranged in such a way that it favors interest groups and doesn’t reward success or punish failures in the same way as the market does.

Let me explain: It seems liberals truly believed that as long as they had the right people, the more compassionate people, and the people who truly care about the poor in office, they could pull off this massive government program to address our health-care woes. To be fair, conservatives and Republicans in general suffer from something similar, except that they believe that if Republicans were in power, they could successfully shrink the size of the government, reform entitlements, and spread democracy around the world. 

Unfortunately, this comes from a serious failure to understand public-choice economics, the great work of Nobel Prize winner James Buchanan and many others. Let me sum it up for you: The problem isn’t that we have the wrong people in office; rather, it’s that the institutions of government themselves that are inherently incapable of performing certain tasks, prone to catering to interest groups, and inherently conducive to bad decision-making. This doesn’t mean that who holds power doesn’t have some influence on the outcome, just that it isn’t the most important factor. 

It’s too bad that more people don’t get public-choice economics, because it would help come up with better policies. Being willing to ackwoledge that government fails is important, but understanding why it does would go a long way to design better policies. As my colleague Matt Mitchell explains:

Consider a problem from normal economics: the tragedy of the commons. Armed with empirical and theoretical reasons to expect that fishermen will over-fish a common pool, we should plan accordingly. We should examine the incentives of fishermen and think of ways to improve or alter these incentives (e.g., assign property rights over the pool, or impose a Pigouvian tax). To my knowledge, few if any economists would [counsel] that we ought to spend our time begging fisherman to pretty please stop overfishing. That is likely to be a fool’s errand.

The idea is much the same with public choice. Armed with empirical and theoretical reasons to think that politicians might do bad things, we should plan accordingly by placing some things—such as the establishment of religion—beyond the reach of politicians. I suppose we could ask Congress to pretty please not establish a religion but in my view it is better to make it illegal for them to do so.

James Buchanan, Gordon Tullock, and the other founders of Public Choice and its close-cousin Constitutional Political Economy didn’t stop their analysis after they found that politicians sometimes behave badly. Like James Madison before them, they thought of constructive ways to make political actors behave better, sometimes by placing certain decisions beyond their reach.

On that point, it would be useful for lawmakers to understand why capitalism, with all its problems, actually works fairly well while centralization doesn’t. At the heart of the answer is of course that there are serious positive financial incentives for private companies to please their customers and serious negative ones in the case of failure.

For much more on this issue, you should read Pascal-Emmanuel Gobry’s post ”Of Course Healthcare.gov Calls The Liberal Project Into Question.”

Veronique de Rugy is a senior research fellow at the Mercatus Center at George Mason University.

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