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The Separation Of Services And Redistribution

By Matthew Yglesias  

"The Separation Of Services And Redistribution"

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PD writes:

Something I’ve noticed lately is that progressive pundits love to cite polls that show that entitlements are extremely popular. I can’t understand why we should consider any of these polls as constructive or relevant to the health care debate. If you look at the figures for the average benefit received vs taxes paid, a majority of Americans are net winners here. Is it surprising to anyone that people are strongly in favor of this?

This debate should be about the most economically efficient method of delivering health care to the greatest number of Americans. Part of that debate will involve determining a level of progressive taxation that is not economically distortive or morally reprehensible. While I personally think that the rich can absorb higher taxes without violating those concerns, surely even the most liberal among us would agree that at some point, higher marginal tax rates on the rich become “unfair”. People who focus on the fact that free shit is popular are not helping anyone.

Well, look, people cite polls in part because of disputes about political strategy. I also think it’s a mistake to think about Medicare primarily in terms of rich versus poor. The main redistributive issue with Medicare is from the past to the present, or from the present to the future.

But here’s where I think this guy is correct. There’s a very strong economic argument in favor of single payer health insurance—such insurance has a maximally efficient risk pool, evades adverse selection problems, and has very low administrative costs. There’s also a very strong argument (based on the declining marginal utility of money) in favor of redistribution of economic resources away from those who have a lot of it to those who have little. But these are logically separate issues. If you believe in single-payer health insurance as an efficient way of organizing insurance markets (as I do), then you should still think it’s a good deal for people even if financed through a broad regressive tax like a VAT (which I do). Then you have to think to yourself, “how generous should the single-payer program be” knowing that a more generous program means a higher VAT rate. And in general, if I were dictator this is how we’d pay for public services—with broad-based taxes so that it’s clear that the point of public services is to deliver good value for the money we pay.

Then as a separate matter you’d have a progressive tax whose purpose is to finance cash transfers to people in need of financial assistance.

The current system leads rich people to be irrationally hostile to public services since they see dismantling the state as the key to getting their taxes cut. Simultaneously, it encourages too many egalitarians to think of public services as redistributive programs whose purpose is to deliver high living standards to service providers rather than high-quality services to the public.

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