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Home Publications Blogs Beat the Press Why is Gregory Mankiw's Hypothetical President Such an Ardent Protectionist?

Why is Gregory Mankiw's Hypothetical President Such an Ardent Protectionist?

Saturday, 26 March 2011 14:15

This is what readers of his column presenting a hypothetical presidential address to the country in 2026 must be wondering. In this speech, Mr. Mankiw's president explains to the country how the rising cost of Social Security, Medicare and Medicaid let to unsustainable deficits. Of course Mr. Mankiw's president knows that the real story is the explosive growth of the costs of Medicare and Medicaid. These were in turn driven by the soaring cost of private sector health care. If per person costs in the United States were the same as in other wealthy countries then the United States would be looking at a budget surplus, not a deficit.

Given the basic facts, it is hard to understand why Mankiw's president did not propose a system that allowed the United States to take advantage of trade in medical services by letting Medicare beneficiaries buy into the more efficient health care systems in other countries. The tens of thousands of dollars in annual saving could be split between the beneficiaries, the host government and the U.S. government. The total savings to the U.S. government would reach hundreds of billions of dollars each year.

If Mankiw's president were not such a protectionist then surely she would have pushed for such a policy long before this speech. Opening to trade certainly seems preferable to cutting off health insurance to middle income beneficiaries, as Mankiw's president proposed.

Mankiw's president is also playing politics when she says:

"We have to cut Social Security immediately, especially for higher-income beneficiaries."

She knows that a very small share of Social Security benefits goes to higher income beneficiaries. If she intends to have any substantial savings in the Social Security program then she will have to cut benefits for people who are very much middle class.

It is also worth noting the benefits paid out by Social Security at that point will be fully covered by the annual flow of Social Security tax revenue and the bonds held by the trust fund. The program is not projected to first face a shortfall for another 11 years after the date of this presidential address.

In effect, Mr. Mankiw's president will be taking benefits from retirees that they have already paid for. Congress may insist that before going this route that the president consider the option of a partial default on the debt. It might make more sense to stiff foreign and domestic investors than our retired workers. Some countries, most notably Argentina, have quickly recovered from defaults and sustained rapid growth. Unless Congress is still controlled by the financial industry, it may demand that the president explore this option.

It is also reasonable to ask why the Federal Reserve Board did not hold on to debt purchased during its quantitative easing policy and raise reserve requirements in subsequent years, as an alternative to reselling its bonds, in order to keep inflation under control. If it held $3 trillion in debt, this would save $150 billion a year (@ 0.7 percent of GDP) in annual interest payments.

In short, Mankiw needs to tell us more about the peculiar situation that his president faces. A lot of facts just don't add up.

Comments (13)Add Comment
Mankiw is a Piece of Trash
written by Jeremy Bentham, March 26, 2011 3:03
That's why.
Cut the safety net...
written by Neildsmith, March 26, 2011 3:36
But not a word about our military misadventures. Curious.
Liberals Cannot Hide From the Truth - That's a Fact, Low-rated comment [Show]
izzatzo just tell me one thing...
written by stupi liberal, March 26, 2011 4:03
why is it that the government run healthcare systems in France, UK, etc. deliver more care for 1/2 the cost?
Mankiw's 2026 ...
written by BruceMcF, March 26, 2011 4:38
... seems no more likely to an accurate picture than his 2011 is at present.
Mankiw - Dogmatic, Delusional, Deceptive
written by Hugh Sansom, March 26, 2011 8:33
In a somewhat-notorious blog entry from a year-and-a-half ago, Mankiw asserted (and remember that Mankiw claims, one, to know something about economics and, two, to know something about statistics), "Smart parents make more money and pass those good genes on to their offspring.... It would be interesting to see the above graph reproduced for adopted children only. I bet that the curve would be a lot flatter." Graph and entire blog entry here: http://gregmankiw.blogspot.com...f-all.html

That is a statement of staggering ignorance, stupidity and dogmatism. It is one step shy of the express claims of eugenicists. But it fits with the right wing dogma of the Harvard economics cult, so no problem.
Too Kind
written by Benedict@Large, March 26, 2011 8:34
You were far too kind, Doctor Baker. In the MMT world, we would have been asking Mankiw whether he preferred a blindfold or not.
How would the Baker international health care system work?
written by JBG, March 27, 2011 9:33
"...it is hard to understand why Mankiw's president did not propose a system that allowed the United States to take advantage of trade in medical services by letting Medicare beneficiaries buy into the more efficient health care systems in other countries..."

Dean, if you have laid out somewhere just how people would get their health care under your proposed system, please say where it is. Going to Canada or Costa Rica for my everyday health care would seem to involve trouble and expense that would more than compensate for any conceivable savings.
Getting health care from other countries
written by Dean, March 27, 2011 10:27

there are two routes through which people would get their health care from other countries. One is that they would simply move there. The projected gap in costs is so huge that once we get out 30-40 years people could literally pocket tens of thousands of dollars (2011 dollars) a year by getting their health care in Spain or Denmark. Since many retirees already move overseas, this will give a substantial push to get more to make this decision.

The other option is that people may plan to get expensive car in Spain, the UK or wherever, and cover more day to day items, like check-ups from their savings. If the government gave you $15k a year to be covered by the Spanish health care system, you could pay for a lot of trips to the doctor here and still come out ahead.
written by AndrewDover, March 27, 2011 1:22

I support Dean on the idea of allowing freedom of choice in medical spending. Although most people probably won't themselves move, those that do will lower the demand for medical in the US leading to lower prices. But fundamentally, why grant a monopoly to U.S. based medical suppliers?

@Hugh Sansom, These things are complicated- See
written by Fred Brack, March 27, 2011 1:26
As an ardent admirer of yours, Mr. Baker, I must say that your barking up this tree of having Americans buy into another country's health-care system is pointless. It ain't gonna happen, and, practically speaking, it makes no sense. Grandpa and Grandma move to the UK, away from their families, and give up their Medicare in order to save out-of-the-pocket medical costs? Get real. If you're going to harp on changes to reduce the rate of U.S. health-care cost increases you should (a) continue pushing alternatives to our current patent system for drug development and (b) propose a method for the government to, in effect, set prices for health-care providers -- as other countries do.
Medical Tourism
written by Ron Force, March 27, 2011 6:53
Sure, give Grandma and Grandpa a Medicare voucher for those hip/knee replacements, spinal disc surgery, heart bypass. Let them recover on the Costa del Sol, Puerto Vallarta, or Goa beaches and it's a win-win for the old folks and the taxpayer (remember, Medicare only pays 80% of expenses). The only people put out is the US medical establishment, who'll get a taste of what's been happening to US labor the last 30 years.
Monopsony or reduced licensing
written by Floccina, March 29, 2011 1:02
Monopsony, price controls or reduced licensing are the 2 possibilities that I see to cheaper med care. We know that Monopsony works because other countries are doing it but I think that reduced licensing is worth a try. There are already many foreign trained Doctors in the USA who are not allowed to practice here.

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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.