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Home Publications Blogs Beat the Press Evidence of Intelligent Life in a David Brooks Column: The Discovery of Kludgeocracy

Evidence of Intelligent Life in a David Brooks Column: The Discovery of Kludgeocracy

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Tuesday, 31 December 2013 16:06

To the amazement of millions David Brooks had an interesting observation in his column today. He picked up an article by my friend Steve Teles which outlines the story of kludgeocracy.

Steve's idea is that we often end up advancing policy goals in incredible indirect and inefficient ways because this is the only way to move forward. The Affordable Care Act could be the poster child for this point. We got an incredibly complicated and unnecessarily expensive system because the insurers, the drug companies, the medical equipment suppliers, and the doctors all pushed to ensure that they would get their cut of the pie on the way to getting closer to universal coverage.

Steve gives many other examples in this article. My personal favorite is flexible spending accounts, which allow people to squirrel away some amount of money on a pre-tax basis to pay for health care expenses, child care expenses, or work-related transportation expenses. The point is to have the federal government subsidize these activities.

The absurdity is that the payroll costs to employers for administering these accounts are often a substantial portion of the money being saved. A fee of $20 per employee would not be unusual. If that employee puts aside $1000 a year in an account and is in the 25 percent tax bracket, this implies the tax subsidy is a bit less than $400. (The money is also exempted from the payroll tax.) A $20 fee would imply that 5 percent of the savings are being eaten up in administrative costs.

In addition, the worker loses money not spent by the end of the year. This gives them an incentive to buy items not really needed (e.g. an extra pair of glasses) to avoid losing the money. Filling out the forms can also be very time-consuming for workers.

The shape of the subsidy is also awful from a distributional standpoint. Wealthier people stand to get the largest subsidies.

Of course the government could just subsidize health care directly, which would be far more efficient. But, all the people in the financial industry who make profits from managing flexible spending accounts would be very upset. Therefore we can expect these accounts to be around for some time. This is kludgeocracy.

Comments (9)Add Comment
spending accounts
written by bill, December 31, 2013 4:37
for small employers, the overhead on these accounts is even worse, so they can't do it. so only the people who work for big companies get to do this.
...
written by fledermaus, December 31, 2013 5:09
I've never seen the point of FSAs. Only people with regular and predictable medical costs can take advantage of the plan. Amazingly enough if you lose the money in the FSA at the end of the year you will be responsible for the taxes for the amount lost, a double whammy. The risk of losing even $100 in one of these accounts outweighs any tax advantage one may get.
...
written by urban legend, December 31, 2013 5:30
Health Savings Accounts (HSAs) do roll over from year-to-year. Shouldn't the analysis focus on that instead of the broader FSA which doesn't?
...
written by Last Mover, December 31, 2013 7:18

Kludgeocracy is when you call an 800 number about the problem with your lawn mower and give the world your name, phone number and address for life.
.
written by Sirius_TheStarDog, December 31, 2013 10:21
Baker wrote:
"The absurdity is...the payroll costs to employers for administering these accounts are often a substantial portion of the money being saved. A fee of $20 per employee would not be unusual."

$20?
LOLZ

The initial implentation of FSAFEDS at DoD asked *workers* to pay $12.50 / month for the chance/opportunity to save a little money on qualified medical expenses. DoD came around and relieved its employees of this onerous burden.

"In addition, the worker loses money not spent by the end of the year. This gives them an incentive to buy items not really needed (e.g. an extra pair of glasses) to avoid losing the money. Filling out the forms can also be very time-consuming for workers."

Two things:
1) More better would allow a set dollar amount to carry over into the subsequent benefit years.
2) Form filling is fraught with danger. Forget to dot an 'I' or cross a 'T' lands you smack dab in an infinite loop of the 'CLAIMED DENIED' underworld.
Kludgeocracy is a recasting of Mancur Olson's observations?
written by John Wright, January 01, 2014 9:41
The late economist Mancur Olson (died 1998) may have described Kludgeocracy well quite a while ago:

from wikipedia.org/wiki/Mancur_Olson

"In 1982, he expanded the scope of his earlier work in an attempt to explain The Rise and Decline of Nations. He argues that groups such as cotton-farmers, steel-producers, and labor unions have an incentives to form lobby groups and influence policies in their favor. These policies will tend to be protectionist, which will hurt economic growth; but because the benefits of such policies are concentrated, and their costs are diffused throughout the whole population, there will be little public resistance to them. As distributional coalitions accumulate, nations burdened by them will fall into economic decline."

The drug-insurance-medical industry could be cast as a "distributional coalition".
Replace Flex with Tax Deduction?
written by David Karger, January 01, 2014 2:05
I assume everyone agrees about the kludginess of FSAs. So what's stopping the obvious reform, of replacing them with a straightforward tax deduction? This seems like something both parties in congress could agree to?
How do FSA's impact future social security payments?
written by Tom, January 01, 2014 9:28
Lowering taxes saves money today but doesn't this also reduce social security contributions and future payments>

401ks can do the same but most come with matching funds that make it a great deal.
Direct Link to Teles article
written by Frankly Curious, January 01, 2014 10:21

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About Beat the Press

Dean Baker is co-director of the Center for Economic and Policy Research in Washington, D.C. He is the author of several books, his latest being The End of Loser Liberalism: Making Markets Progressive. Read more about Dean.

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