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Kaus, Samuelson and Health Costs

April 14, 2009

Mickey Kaus takes Robert Samuelson to task for seeming “to argue that because health care is not "material" it isn’t a valuable service and can’t be the basis for capitalistic economic growth.”

I think that misreads Samuelson, but then Samuelson is not being very clear on this point. I suspect Samuelson would agree with Kaus’ broader (correct) point that a significant part of increased health spending is due to the fact that we are richer and other desires are more easily satisfied with a smaller portion of our income, leaving more to spend on the more labor intensive business of keeping us healthy.

Samuelson’s point is he believes Obama’s world in which everyone is insured doesn’t really make people as a whole better off because the moral hazard associated with health insurance encourages wasteful spending on things someone else is paying for. The cost of that wasteful spending is that resources have been used on healthcare rather than things people really want like bigger houses or leisure.

Taken to a higher level of abstraction, we will have succeeded in satisfying an aspirational preference (something about which we would say "gee wouldn’t it be nice if…") for everyone to be insured at the cost of satisfying the actual preferences of people revealed by how they spend their own money in the absence of compulsion by the government.

Samuelson is saying satisfying aspirational preferences for things like green energy, universal insurance or limiting greenhouse gasses as the expense of revealed preferences is not economic progress because we will not be better off. My sur-response to Mickey is here.

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