M.I.T. economist Jonathan Gruber, whom his colleagues in the profession hold in very high esteem for his prowess in economic analysis, recently appeared before the House Committee on Oversight and Government Reform. Gruber was called to explain several caustic remarks he had offered on tortured language and provisions in the Affordable Care Act (the ACA) that allegedly were designed to fool American voters into accepting the ACA.
Many of these linguistic contortions, however, were designed not so much to fool voters, but to force the Congressional Budget Office into scoring taxes as something else. But Gruber did call the American public “stupid” enough to be misled by such linguistic tricks and by other measures in the ACA — for example, taxing health insurers knowing full well that insurers would pass the tax on to the insured.
During the hearing, Gruber apologized profusely and on multiple occasions for his remarks. Although at least some economists apparently see no warrant for such an apology, I believe it was appropriate, as in hindsight Gruber does as well. “Stupid” is entirely the wrong word in this context; Gruber should have said “ignorant” instead.
Stupid Versus Ignorant
“Stupid” means “unable to learn.” The American people, or for that matter any other people on earth, are not unable to learn. Just ask any military officer what youngsters with varied socio-economic backgrounds and without advanced formal education can learn if properly taught, as they are routinely when enrolled in the best educational institution in the United States, namely the armed forces.
“Ignorant” means “lacking knowledge.” It is altogether different from “stupid.” Can anyone seriously deny that large numbers of American voters are ignorant of the intricacies of many issues in public policy, especially when they involve economic analysis?
There are good reasons for this lack of knowledge.
Why American voters are often ignorant on policy questions. First, most public policies are highly complex and involve troublesome economic and ethical trade-offs among desirable goals. Mastering them takes careful study.
Second, Americans on average work substantially more hours per year than do citizens in most other developed nations. Voters in the U.S. simply do not have time to delve as deeply into these complexities as more narrowly focused experts can. I personally, for example, must confess complete ignorance on the intricacies of many policy issues outside my professional purview — for instance, global warming and climate control.
Third, hard as it is to be objectively and accurately informed on particular issues of public policy, there are large and well-financed industries on both sides of the political spectrum that bombard the public with judiciously biased information. And rather than enlightening the public on issues of public policy, the business model of the television media and some of the print media has gravitated more and more towards channeling preferred ideologies and carefully biased information. Thus the innocent idea to compensate physicians for helping their patients with composing living wills quickly became Third Reich“death-panels,” and the duly elected President of the United States found himself openly smeared as a Nazi.
Finally, and this must be said candidly as well, throughout the ages and to this day many members of the public have shown no interest in public policy at all, unless it hurts their own pocketbooks. Of that segment of the public, for example, the first century Roman poet Juvenal wrote in dismay, “Duas tantum res anxius optat, panem et circenses.” (Its anxious longing is confined to two things–bread and circus games.) These preoccupations can make people seek nourishment at the public trough all the while cursing government interference in their lives, as was so vividly reported in Benjamin Applebaum’s and Robert Gebeloff’s “Even Critics of Safety Net Increasingly Depend on It” in The New York Times(February 12, 2012). I am grappling with the search for an adjective to describe this peculiar posture. Is “ignorant” good enough?
The Ubiquity of Spinning
Would anyone deny that in debating issues of public policy and crafting legislation, politicians and those who advise them often exploit the ignorance of the public, sending out their pollsters to extract from focus groups the verbal constructs that could help market their ideas to voters? In Washington it is called “spin.” Does “spinning” not lie at the core of our political culture?
Consumer driven health care … aka rationing by income. How many politicians, for example, would forthrightly and bluntly proclaim on the campaign trail that, to control the growth of health spending, they favor the rationing of health care by income class, that is, by price and ability to pay?
Yet that is precisely what they and their advisors are advocating when they promote health-insurance policies with very high deductibles and coinsurance. As any well-trained economist knows and some good textbooks in economics are careful to point out, prices in a market economy are instruments to ration scarce resources among people. So a market economy in health care that relies on high deductibles and coinsurance is not an alternative to rationing. It is just one of several methods of rationing.
To illustrate, consider two American families, one with an annual disposable income below the median family income of $50,000, and the other with an annual disposable income of $250,000. Would anyone expect these families to respond identically in their health behavior if confronted with an annual deductible of, say, $5,000, and an even higher annual maximum out-of-pocket spending of, say, $8,000? A recent Gallup poll suggests that one in three Americans put off medical treatments over costs, a number evidently related to income class. Surveys conducted by the Commonwealth Fundshow the same.
So if not advocating rationing by income class openly, how then do the politicians and their advisors favoring high-deductible health insurance policies market that idea to their constituents? They market it by the mellow verbal construct “Consumer Driven Health Care” (CDHC) that will “empower consumers of health care to make their own health care decisions” — although the usual absence of reliable information on the quality and the prices of health care available to consumers (formerly patients) effectively converts them into blind-folded shoppers in a bewildering shopping mall.
FSAs and employer coverage … or taking from the poor to give to the rich. Next, how many politicians would openly profess on the campaign trail that they favor making health care cheaper for high-income persons than for low-income persons?
Yet that is precisely what they are doing when they make tax deductible an employee’s annual deposits into a so-called Flexible Spending Account (FSA) or an individual’s deposits into a Health Savings Account (HSA). If a high-income person in a high marginal tax bracket pays for, say, a root canal or a major diagnostic test with funds in such a tax-sheltered account, the after-tax cost of that root canal will be much lower than it would be for a low-income person in a low marginal tax bracket, which ideally every citizen should understand.
Although it might be less obvious to lay persons, a similar economic analysis applies to the huge tax preference accorded employment-based health insurance. Under that tax preference, contributions made by employers to the premiums for the employees’ health insurance — on average usually 80 percent or so of the premium — are a tax-deductible business expense to the employer but are excluded from the employees’ taxable compensation. The annual loss of federal tax revenue caused by this tax preference is larger than the annual government spending on subsidies towards health insurance of lower-income people under the ACA.
Unperturbed by the inherent contradiction in their posture, the same politicians or business leaders who may decry the added “social spending” triggered by the ACA — for Medicaid expansions or subsidies toward the purchase of private health insurance on the health-insurance exchanges — think nothing of annually granting even high-income employees an even larger (in dollar terms) government subsidy toward the purchase of their health insurance. Can politicians and business leaders not be fully aware of this? On what economic or ethical principle did they grant that regressive subsidy? And how do they defend it to the public?
Tax preferences … or would spending by any other name smell as bad? Consider tax preferences in general. Many economists from time to time are likely to mutter under their breath unflattering remarks on politicians and their constituents in connection with such special legislative favors.
Economists call these tax preferences “tax expenditures” that are quite similar in their economic characteristics to regular government expenditures: If Congress wishes to achieve a balanced federal budget, at least over the business cycle, then the granting of a tax preference to some citizens or institutions implies either that other tax payers must pay added taxes to keep the budget balanced, or that other citizens must give up federal benefits they had hitherto enjoyed, a sacrifice that is also in the nature of a tax. And if these tax favors are temporarily added to the federal deficit, then future generations of taxpayers must pay added taxes to pay off the debt. Either way, then, granting tax preferences is economically akin to raising taxes on some people to grant other people a subsidy.
Harvard economist N. Gregory Mankiw has sought to explain this analytic insight in simple layman’s language in The New York Times. I explain to my first-year economics class in somewhat more technical terms that granting tax exemption or tax deductibility for expenditures on favored activities, or expenditures by favored constituents, is akin to granting a tax-financed ad valorem subsidy. An inevitable feature of this disguised ad valorem subsidy is that, with progressive tax rates, it bestows much larger subsidies on high-income families than on low-income families. If that is Congress’ intent, as well it may be, its members should say so openly.
Ideally, tax expenditures of this sort should be accounted for explicitly as part of the annual federal budget. In fact, they are not. This can explain why members of Congress on both sides of the aisle have long been so enamored with them. It allows them to make what amounts to federal expenditures in the guise of what appears to constituents as a tax cut.
In 2013, for example, total federal spending explicitly accounted for in the federal budget amounted to $3.8 trillion. (Table 1.1). Total tax expenditures not included in the budget that year amounted to $1.3 trillion, amounting to a 34 percent increase over explicitly budgeted expenditures. Naturally, economists watch with dismay when tax preferences of this sort are marketed to the public as something quite different from tax-and-transfer policies, especially by politicians who have pledged allegiance to anti-tax guru Grover Norquist, who defends tax preferences as tax cuts.
A Continuing Lack Of Understanding Of The ACA
Finally, can anyone deny that, after so much discussion in the past few years of the Affordable Care Act (ACA) in the print media, in online blog posts, and in the television media, the American people still do not seem to understand the nature and contents of that act?
We need not rely here on comedian Jimmy Kimmel’s marvelously entertaining amateur survey of passersby on that issue. Professional surveys have consistently shown massive confusion on the ACA. Indeed, as Forbes columnist Bruce Japsen puts it, citing a number of reliable sources, “Americans Don’t Understand Insurance, Let Alone ObamaCare, Research Shows.” Tracking polls regularly fielded by the Kaiser Family Foundation find much the same.
So one may call it stupid for Jonathan Gruber to call the American people stupid, as Gruber himself admitted in his testimony before Congress. But as a fellow economist, I do have empathy for him in his assertion that the political process routinely exploits the general public’s lack of understanding of the economic implications of so many aspects of public policy, health policy among them. I would venture to guess that most economists share that view.
“Siffing” The Wheat From The Chaff … And Selling The Chaff
In fact, in my efforts to prepare Princeton undergraduates for life among seasoned adults, I present to them a lecture entitled “The Art of Siffing Among Seasoned Adults,” where “to sif” is an acronym of “Structuring Information Felicitously.” “Siffing” differs from lying outright in that siffing involves structuring facts in a way that makes listeners conjure up false images in their minds. As already noted, in Washington it is called “spinning.”
“Lying,” on the other hand, involves making statements that are not true or citing made-up data. Economists themselves are not invariably above siffing when thrust into the pressure cooker of the political arena. The same, of course, is true of business leaders and, as noted, of political leaders. It is part of the human condition.
I also, however, have empathy for politicians who feel obliged to profess horror when someone calls their constituents “ignorant,” let alone “stupid.” Admitting it would not be a way to win votes. Professing abhorrence is.
Let me conclude this post with a professor’s prerogative, the assignment of a homework exercise. In chapter XV of his Democracy in America, Alexis de Tocqueville remarked thus on the democratic process in our land:
They [politicians] are forever talking about the natural intelligence of the people whom they serve; they do not debate the question which of the virtues of their master [the people] is pre-eminently worthy of admiration, for they assure him that he possesses all the virtues without having acquired them, or without caring to acquire them… Moralists and philosophers in America are not obliged to conceal their opinions under the veil of allegory; but before they venture upon a harsh truth, they say: ‘We are aware that the people whom we are addressing are too superior to the weakness of human nature to lose the command of their temper for one instant. We should not hold this language if we were not speaking to men whom their virtues and their intelligence render more worthy of freedom than all the rest of the world.’ The sycophants of Louis XIV could not flatter more dexterously.
Your assignment: What on earth might have prompted de Tocqueville to offer this remark?
Uwe Reinhardt is an economist at Princeton University. Reprinted with the author’s permission. Originally published The Health Affairs Blog Dec. 29th 2014. Copyright ©2010Health Affairs by Project HOPE – The People-to-People Health Foundation, Inc.