It's in the Perks

EconTalk Extra
by Amy Willis
Mark Warshawsky on Compensatio... Robert Hall on Recession, Stag...

inequality4.jpg Mandating benefits- be it culturally or legislatively- is not a free lunch. So begins this week's EconTalk conversation, in which host Russ Roberts welcomes Mercatus Center economist Mark Warshawsky. In a new working paper, Warshawsky has taken data from the Bureau of Labor Statistics which he asserts shows that income inequality has been rather drastically overstated in the last several decades- IF you take total compensation, not just take-home pay, into account. The culprit, he argues, is the rapidly rising cost of health care, which has outpaced income growth significantly.

What do you think of Warshawsky's claim? How many non-monetary compensation "perks" do you receive through your employer, and do you value them all the same? When is an employment benefit not a value? If you're an employer, how do you balance your employees' productivity with the skyrocketing cost of health insurance?

1. Listening to Warshawsky's explanation, to what extent do you think we underestimate the well-being of workers relative to 10-20 years ago? What does Warshawsky mean when he claims that true inequality is getting smaller, and to what extent are you convinced?

2. Both Roberts and Warshawsky agree that the evidence in this data set seems incontrovertible. What do you think? What other interpretations might be posited, and how do they relate to the means by which we measure economic well-being?

3. It does seem incontrovertible that health care costs are rising. Are the benefits of these health care costs worth it? Explain.

4. What does Warshawsky mean when he says that we should focus our efforts on addressing the causes of inequality, not the symptoms. What would you suggest as a policy prescription to solve this dilemma?

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COMMENTS (6 to date)
John Kranz writes:

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SaveyourSelf writes:

3. In one sense, the rising cost of health care is worth what we are paying, otherwise we would not be paying it. In a relative sense, though, it is not. By that I mean, we could have the same healthcare for less or more healthcare for the same amount of money. Economics is helpful for understanding why. When voluntary-markets and monopoly-markets are placed on the extremes of a range of possibilities, there are predictable differences in market output as the market moves closer to or away from the extremes. More voluntary = greater quantity, higher quality, lower price, and incentives for innovation. More monopoly = lower quantity, lower quality, higher price, and absent or negative incentives for innovation. If you listen to the complaints about healthcare they include 1) high cost 2) rising cost 3) long lines 4) long wait times 5) can’t find a provider 6) can’t understand what they told me 7) poor customer service. It’s a textbook list of what you’d expect to see in a Monopoly-market. Look through the healthcare market for environmental factors that would allow for Monopoly and you’ll find them everywhere. Huge barriers to entry. Enormous government involvement. Licensing. Certificates of “need”. Quotas. Taxes. Subsides. Unions. And on and on. Reduce and eliminate those establishments that make the Monopoly possible and prices drop like stones in a lake…overnight.

4. I think Mark Warshawsky meant the best approach to poverty alleviation is removal of those institutions that keep people poor [obstacles to productivity growth] or the established practices that incentivize them to remain poor. As apposed to messing with the metric that measures poverty--the money. How to improve the poverty problem through policy is simple-->forbid policy as a means to address poverty. Policy = coercion. Coercion is the tool of Monopoly. Monopoly hurts everyone, even the monopolist, and the poor most of all.

Jared Szymanski writes:

Complaining about rising health care costs is a little like people 100 years ago complaining about the cost of an automobile. Would they rather go back to horse-drawn carriages? Health care today is vastly better than even 20 or 30 years ago. We shouldn't be surprised that it costs more. Nor should we expect that it wouldn't take a higher share of income considering the deflation we have seen in manufactured goods.

I don't mean to imply that health care delivery is good or that it can't be improved. I agree with SaveyourSelf's comments regarding health care monopoly. But given that we have an aging population as well as treatments and technology that didn't exist before, of course health care costs are going to rise relative to the "good old days" when doctors did little more than hold your hand while you died and then sent a nice affordable little bill for their services.

Gandydancer writes:

Complaining about rising health care costs is not remotely like people 100 years ago complaining about the cost of an automobile. In 1917 you could buy whatever automobile you could persuade an automobile manufacturer to produce and sell you. To the extent an automobile was expensive it was because it was expensive to give you what you wanted. It was a functioning market.

Health care today is not a functioning market.

Donald Carroll writes:

We don't seem to talk nearly enough about the real problem in healthcare, which is the massive unequal distribution of use of the system. As with seemingly everything else, the 80/20 rule applies. 80% of healthcare costs are generated by 20% of the population, and much of that cost is generated by personal lifestyle choices.

Insurance pools should be dictated by the relative health and fitness of the members of that pool. My insurance should cost next to nothing for all I use of it, so why should I be put in a pool with a 400 lb diabetic so I can help them pay for their treatment?

If that means that 400 lb diabetics can't afford insurance or care, that seems to me to be the cost of their life choices.

brianfromohio writes:

I would like to know?
What is the right mix of policy and market forces.
With the possibility of block chain technology as a new payment system and innovation towards personal medicine, disruption in healthcare is here!
We need to have a serious conversation if we want to have the Life, Liberty, and Pursuit of Happiness that we all desire.....

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