Debunking Krugman’s lies about Paul Ryan’s “lies”

| August 31 2012
Christopher Cook

Paul Krugman is the pot and the kettle.

In his Thursday column, The Medicare Killers, published in the ever-fading pages of the Gray Lady, Paul Krugman accuses Paul Ryan of a series of lies. The only problem is, Krugman is not really arguing with Paul Ryan, he’s arguing with himself. Or, rather, he’s arguing with a series of men made of straw, with crude drawings of Paul Ryan’s face taped to them.

Let’s take these one at a time.

#1
Some of his fibs were trivial but telling, like his suggestion that President Obama is responsible for a closed auto plant in his hometown, even though the plant closed before Mr. Obama took office.

With whom is Krugman arguing here? Here is what Ryan actually said:

A lot of guys I went to high school with worked at that GM plant. Right there at that plant, candidate Obama said: “I believe that if our government is there to support you … this plant will be here for another hundred years.”  That’s what he said in 2008.

Well, as it turned out, that plant didn’t last another year.  It is locked up and empty to this day.  And that’s how it is in so many towns today, where the recovery that was promised is nowhere in sight.

Nowhere does Ryan blame Obama for the closure of the Janesville plant. Nowhere does he say that the plant closed under Obama. Krugman is arguing with shadows.

Redstate’s Jeff Emmanuel does a thorough job debunking this particular charge, so we won’t reinvent that wheel here. Bottom line: Ryan stated a series of facts, all of which are accurate.  In the speech to which Ryan refers, Obama said that with government support, plants like the one in Janesville would stay open for another hundred years, and closed factories would reopen. Unfortunately, the plant in Janesville closed, as did numerous others, both before and during Obama’s tenure. Moreover, the story of the last four years is hardly one of formerly shuttered factories (in any industry) coming back online in some sort of government-driven economic renaissance. Quite the reverse, in fact. Krugman—and numerous others in the media—are inventing something that Ryan didn’t say, and covering for something that Obama did say.

#2
Others were infuriating, like his sanctimonious declaration that “the truest measure of any society is how it treats those who cannot defend or care for themselves.”

You’ll forgive me if I do not pay sufficient deference to Mr. Krugman’s state of infuriation, but this is not a “fib,” this is a statement of belief. There is no fact to vet here, no claim to debunk. It is the kind of thing that statesmen and candidates say. The fact that Paul Krugman believes that Paul Ryan does not have a right to say such a thing because his policies somehow fail to live up to the rhetoric is, as it happens, also a matter of opinion. Nice try, Mr. Krugman.

#3
And Mr. Ryan — who has proposed $4.3 trillion in tax cuts over the next decade, versus only about $1.7 trillion in specific spending cuts — is still posing as a deficit hawk.        

Here, Krugman appears to make the classic static analysis error. Entities like the Congressional Budget Office are required to do static analysis, meaning that they have to deal with the numbers that are put in front of them: If a certain set of taxes are bringing in X dollars in revenue and those taxes are discontinued, the treasury will suffer X dollars in lost revenue. They are not allowed to do what is called dynamic analysis, which takes into account changes in taxpayer behavior as a result of changes in tax laws and rates. Tax cuts do not always produce an equivalent amount of lost revenue. In fact, they often produce increased revenue, due to businesses and people using the money they save to invest or make purchases, altering their tax avoidance behavior, and numerous other factors. Thus, proposed tax cuts do not represent, as statist and Keynesian economists like Krugman assert, a guaranteed producer of deficits.

Given our rates of spending, and given the size of our deficits and debt, $1.7 trillion, stretched out over multiple years, is really not that much. Indeed, Ryan’s plan—though it may be the most radical thing that can get past the electorate as it is currently constituted—is hardly draconian. So what is Krugman doing here? As a Keynesian, Krugman has never met a deficit too large. He is surely not fond of “deficit hawks,” so presumably, if Ryan is posing as one but isn’t, then Krugman should be pleased. Is he just lashing out wildly, looking for anything to call a “lie”?

Finally, as a Keynesian, Krugman believes in demand-side economics. He believes that drops in aggregate demand require government spending to “prime the pump” and get the economy moving again. But if drops in aggregate demand are a problem, then wouldn’t lower taxes help? Think of it this way: The federal government takes in more than a trillion dollars in income taxes. That money is removed directly from the private sector. Imagine that income tax rates were cut such that revenue fell by half. That other 500 billion dollars doesn’t vanish, it remains in the private economy. It is spent and invested . . . thus increasing aggregate demand! Krugman and the rest of the Keynesians only have one retort: we can spend your money better than you can. A claim they continue to assert even in the absence of any evidence.

#4
But Mr. Ryan’s big lie — and, yes, it deserves that designation — was his claim that “a Romney-Ryan administration will protect and strengthen Medicare.” Actually, it would kill the program.         

You can’t kill something that’s already dead, Mr. Krugman.

Medicare, while not actually dead, is a dead man walking. According to the Medicare Trustees Report, Medicare will go bankrupt by 2024, if not sooner. There is a simple reason for this: When the cost of running something exceeds the money it takes in, it runs a deficit. If this continues over time, the entity becomes unsustainable. This simple idea escapes those who believe that borrowing money has no consequences, but it is an economically inescapable truth. Eventually, you run out of other people’s money. Eventually, your creditors close the spigot. This is the trajectory of Medicare as is currently stands.

Ryan’s plan seeks to make Medicare solvent. Right now, Medicare is plagued with fraud, waste, and perverse incentives. Ryan’s plan removes these perverse incentives and allows market forces to do what they do best: reduce prices and increase quality.

Of course, Krugman hates market forces, to wit . . .

#5
Still, wouldn’t private insurers reduce costs through the magic of the marketplace? No. All, and I mean all, the evidence says that public systems like Medicare and Medicaid, which have less bureaucracy than private insurers (if you can’t believe this, you’ve never had to deal with an insurance company) and greater bargaining power, are better than the private sector at controlling costs.        

First, let’s take a page out of Milton Friedman’s “Free to Choose,” in which he asks a question, the answer to which should be obvious. When we look at government entities like the Post Office and the Department of Motor vehicles and compare their performance with entities that provide private goods such as consumer electronics, in which are we seeing examples of great products and service delivered at low prices? The market has been finding ways to lower prices and improve quality for as long as it has been allowed to operate freely. The Post Office is nearing bankruptcy. All the evidence of history flies in the face of Krugman’s basic claim.

But beyond the obvious facts of history, there are also specifics that rebut Krugman’s claim. Per Peter Suderman at Reason, “a 2009 metastudy of high-quality research consumer driven health plans (CDHPs) by the American Academy of Actuaries found that private, consumer driven plans pairing high-deductible insurance with health savings accounts found substantial first-year savings and the potential for additional savings in successive years. This is spending that actually dropped, which is a huge departure from most health plans where the only question is how much spending increases. By engaging people as health care consumers, the private, market-driven CDHP plans helped keep costs down.”

The truth of this is obvious and, as an owner of such a plan, something to which I can personally attest. More and more, consumers are doing something they haven’t done in the medical field for years: demanding to know the price of services. This has the effect of slowly mitigating the distortion caused by government involvement:

But under the “universal coverage” plan that Krugman admits to aspiring to (with Medicare being universal coverage for America’s elderly), since prices aren’t part of the buyer/seller transaction calculus, medical boards and panels must decide instead, especially in light of the “cost the nation can afford” constraint.   And it must be this way, because absent a system of prices, end-user demand approaches infinity: every “want” becomes a “need”.

The result of this are schedules for what Medicare will cover and what they will pay.   Under these schedules, many doctors are finding that their costs aren’t fully covered.   So with increasing frequency, doctors are limiting these losing transactions by limiting their exposure to Medicare patients.  One wonders when Krugman will call for making that illegal, although he’ll then have to address the issue of slavery.

To make up some of the losses, doctors get into a negotiating game with their other major payer: private insurance companies.   Again because of the lack of a free market in health care, most people don’t see the true costs, or directly pay for the health care services they consume, unlike nearly any other product they consume. This perverse situation leads doctors to submit huge bills to the private insurance companies knowing that after the “negotiated rates” are reached, their costs, including their losses from their Medicare patients, are covered.   This is how they stay in business, period.

Suderman also takes on Krugman’s claim about bureaucracy: “A study by consultants at Millman for the Council on Affordable Health Insurance, an industry group, looked at all the ways that Medicare hides its administrative costs, for example by shifting many expenses to other parts of the federal budget. The study found that private insurance administrative costs are actually a lot more competitive than is commonly thought. And taken on a strict per-person basis, rather than as a percentage of the total budget, Medicare’s administrative costs are actually higher than private sector counterparts.”

Still, Krugman hates the free market with a hot, hot hate . . .

#6
I know this flies in the face of free-market dogma, but it’s just a fact. You can see this fact in the history of Medicare Advantage, which is run through private insurers and has consistently had higher costs than traditional Medicare.  

While it is delightful to have Mr. Krugman tell us all what is and is not “fact,” here is Suderman once again with actual data points: ” . . . recently a study in the Journal of the American Medical Association reported that private plans operating in Medicare Advantage actually provide equal benefits to the government-run, fee-for-service Medicare alternative — and for about 9 percent less. Yes, the plans cost more overall, but when you compare the cost of equivalent services, they’re cheaper.” Moreover, “As a 2009 Lewin group metastudy for the insurance industry pointed out, nearly all of the 24 studies reviewed showed savings in states that pursued managed care, a system in which states contract with private insurers to run state Medicaid programs. A 2011 article in the health policy journal Health Affairs agreed with the basic premise. Although the Health Affairs piece noted that although managed care’s effect on health outcomes was unknown, it also agreed that ‘the evidence suggests that states are in fact likely to achieve billions of dollars in savings through these arrangements.’” Krugman is asserting things the opposite of which appear to be true.

He then goes further, ascribing things to the Ryan plan that simply do not exist:

#6
So Vouchercare would mean higher costs and lower benefits for seniors. Over time, the Republican plan wouldn’t just end Medicare as we know it, it would kill the thing Medicare is supposed to provide: universal access to essential care. Seniors who couldn’t afford to top up their vouchers with a lot of additional money would just be out of luck.    

There are so many problems with this, it’s hard to know where to start.

First, nothing that involves “universal access” is ever limited to “essential care.” Entitlements that start out limited in scope always grow. Self-interested politicians who want to get reelected agree to extend coverage to more and more people . . . in exchange for their support, naturally. Interest groups insist that more and more services be covered, and the politicians—again, eager for votes—dutifully comply. Eventually, the whole system becomes unsustainable, whereupon the government swoops in with a grand new program to fix the problem (a problem that government created in the first place, even as its proponents mount the hustings to blame “market failure”). As is the case with Obamacare, this turns out to be nothing more than a giant tube of government lipstick to put on a morbidly obese pig. “Universal access to essential care” inevitably grows until the the supply of care becomes constrained. When prices are kept stable but supply is constrained, government must come in and ration the supply. That’s when we get death panels the Independent Payments Advisory Board. The basic laws of economics are immutable.

That said, this gets us even further into the weeds than we need to be, because Krugman’s claim is simply false, to wit:

Paul Ryan and Mitt Romney are proposing an alternative to protect Medicare patients from this government-run future, and nothing in the GOP Mediscare counterattack is remotely as misleading as the attacks that Mr. Obama has been making against their reform. The Romney-Ryan plan doesn’t “end Medicare as we know it,” doesn’t include vouchers, and doesn’t force seniors to shoulder the $6,400 in higher health costs that Mr. Obama mentions at every campaign stop.

Their “premium support” reform explicitly preserves traditional fee-for-service Medicare. Starting in 2023, seniors could either pick traditional Medicare or choose from a menu of regulated private plans. The reform is modeled after the health program that already covers all federal workers, including Members of Congress. The subsidies increase with health costs, so seniors wouldn’t bear more risk.

The plan wouldn’t kick in for a decade, shielding everyone who is in or near retirement.

Krugman’s claims aren’t just false, they’re unhinged. He’s in his office, sitting on piles of Pinch Sulzberger’s money like a dragon on a pile of gold, swatting at flies that do not exist. “Vouchercare” does not exist. No one will be “out of luck” under Ryan’s plan. By contrast, everyone will be out of luck when Medicare goes bankrupt, an eventuality that Ryan’s plan is carefully crafted to avoid.

Krugman is one of many writers opining at the intersection of politics and economics, and the ranks of the field include many brilliant and accomplished economists. After reading The Medicare Killers, more than one of them has to be asking, “Hey, if I use lousy argumentation and shout at shadows for a few more years, can I get a seven-figure salary and a Nobel Prize too?”

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