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Politicized theory, assumptions negate report usefulness

Apparently, Louisiana’s Secretary of Health and Hospitals Bruce Greenstein doesn’t suffer fools gladly nor has much tolerance for knaves, judging by his reaction to a report extolling the virtues of Medicaid spending in Louisiana.

The leftist Louisiana Budget Project, anticipating the negative publicity surrounding the huge increase in Medicaid spending Louisiana will be put on the hook for courtesy of Democrats’ Patient Protection and Affordable Care Act (“Obamacare’), attempted an inoculation by claiming increased spending on the program that mainly serves the indigent constituted a positive economic stimulus, hence a cutback would cause economic contracture. In turn, Greenstein, whose department must grapple with the imposed additional costs and also is overseeing a dramatic reform of the system called “Bayou Health,” which promises to increase its efficiency, termed the conclusions “fallacy.”

Former newspaper political reporter Jan Moller, now heading the group, expressed disappointment that Greenstein did not directly address the report’s arguments. While the Secretary did so only obliquely, investigating the assumptions and selective use of information contained in it supports Greenstein’s statement.

Crippling its ability for use as a tool of policy analysis is that the report ignores basic laws of economics and the reality of Medicaid spending. It assumes that any kind of spending in any way produces a positive economic outcome relative to all other possible options. Thus, it facilely argues, decreases in Medicaid spending, caused by reductions in provider rates in response to greater demands for the services on a tight budget, have a negative economic impact compared to all alternative uses of the unspent funds (whether by government or retained by the people).

Any use of funds produces some economic activity; even flushing them down the toilet produces a tiny revenue boost for the water utility. But the study absurdly hangs its entire hat on use of funds rather than their best uses. And government-funded activity, because of the inherent and natural inefficiency in government operation, uses it poorly, which we can define both in terms of choices of use (as compared to alternative or leaving it in the hands of the people) and how it gets used. This is why government is best that governs the least, doing only those things that are so important and necessary that society can tolerate this very inefficient execution. For example, supporting armed forces is a very wasteful enterprise, but absolutely necessary as it otherwise would not be done and thereby threatens liberty.

While Medicaid may serve a purpose, as noted in the link above it is both in an absolute sense run very inefficiently and also likewise in a relative sense to privately-funded (by insurance or out of pocket) health care provision. One of Greenstein’s tasks is to make Louisiana Medicaid more like a privately-funded operation precisely to save money while providing as good or better provision. Simultaneously, cutting of provider rates previously, and perhaps even into the future although much less likely, has served to force more efficiency onto them. Significantly, these past rate cuts to date have had almost no negative impact on the supply or quality of services, validating the theory that there had been slack in the system already.

In the larger theoretical sense, the LBP’s position on government spending resembles a debate over the manufacture of buggy whips at the beginning of the 20th Century. LBP argues that government should continue to subsidize such an activity not only to continue to ensure there are plenty of them, but also that their manufacture should be done in a certain existing way (let’s say by hand rather than by machine) because it creates economic activity. Yet in that time period that item was becoming less and less useful, even if it could be done in a lower-cost way. Instead, funds could go to government activities that provide greater utility for society as a whole, and/or the necessity of taking more or not returning money to the citizenry becomes reduced. In the long run, the combination of those provides greater economic development than to throw money uncritically into a program.

In short, it’s stupidity writ large to disregard in a debate about the use of taxpayer resources whether the program in question is needed to the extent that it operates, whether that extent is as important as other activities or in allowing people to keep more of what they earn with both genuine needs and all forms of economic impact in mind, and whether superior alternatives to it should not supplement or supplant it, in favor of just trying to keep it sucking in as much money as possible. Stating the obvious without any context adds nothing to this debate, even as it may try to meet a political imperative of trying to justify an inferior policy decision (Obamacare). Thus, besides stating the obvious that any inputs relevant to an economic activity, no matter how inefficiently and how grossly they exceed any outputs, produces that economic activity, it is worthless as any guide for Louisiana policy-makers on fiscal issues.