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A Few More Arguments Against Obamacare

Megan McArdle is a Bloomberg View columnist. She wrote for the Daily Beast, Newsweek, the Atlantic and the Economist and founded the blog Asymmetrical Information. She is the author of "“The Up Side of Down: Why Failing Well Is the Key to Success.”
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Austin Frakt of the Incidental Economist writes (and tweets!) to ask if I have ever written anything on the externality argument for the Affordable Care Act's individual mandate. Good question, and the answer is that I don't think I have, though the archives from my first six years of blogging are shot, and the rest are now scattered across three different sites that don't always turn up on Google searches. 

But there's nothing stopping me from doing so now, and hey, here I am, doing it.

For those who might not know the term, "externality" is economist-speak, and it means about what it sounds like: an effect that your action has on others. An externality can be positive or negative, and obviously, we as a society would like to have as many as possible of the former and as few as possible of the latter. In other words, "Your right to swing your fist stops at the end of my nose."

I'm a libertarian, and libertarians love talking about externalities. They give us a (relatively) clear way to define what are and are not legitimate scopes of public action. Whatever you're doing in the privacy of your own bedroom with another consenting adult is really none of my business, even if I think you oughtn't to be doing it. On the other hand, if you're breeding rats and cockroaches in there, and they're coming through the shared wall of our respective row houses, then I have the right to get the law involved.

Framing things as "externalities" is therefore a good way to get a libertarian, or someone who leans that way, on your side. And such frames have come up over and over in the debate over Obamacare, which has been variously justified by the cost to the state of emergency room care; the cost to society of free-riding young folks who don't buy insurance until they get sick; the public health cost of people who don't go to the doctor and get really, expensively sick; an unhealthy workforce that is less productive; and the cost to friends and relatives who have to chip in to cover uninsured medical expenses.

I didn't find any of those arguments particularly convincing. The third can just be dispensed with on the grounds of accuracy: In general, preventive medicine does not save money. Oh, it may save money in the particular case of someone whose diabetes or cancer went long undiagnosed. The problem is, you can't just look at the cost of sick folks who would have been a lot cheaper to treat if their conditions had been caught earlier. You also have to include the cost of all the healthy people you had to screen in order to catch that one case of disease. And with limited exceptions, the cost of screening the healthy generally outweighs the cost of treating the chronically ill. Now, you can certainly argue for preventive care on other grounds -- for example, that it makes people healthier (though even then you have to add the cost of unnecessary medical procedures, such as biopsies following a false positive on a blood test, which is why we do not, say, give annual mammograms to every American woman). But it's not generally a money saver, so this particular externality doesn't exist.

The rest of the arguments have some weight, but in the end, I don't think they're weighty enough. Let me explain.

On closer examination, arguments about externalities turn out to be not quite as neat as libertarians, or economists, would like. If you frame it right, almost anything can be an externality, which is useful as a way to tack a thin veneer of economic rationalism onto your political argument but useless as a way to make policy in a pluralistic society. What if knowing that you and your partner are doing naughty things a few feet from my bed causes me severe mental anguish? That's surely an externality, so why don't we take notice of it?

The answer is that we don't simply say "OMG, negative externality! Quick, government, kill it with fire!" Because in that way lies madness. As it's easy to see, reducing this negative externality itself has a negative externality, which falls on the folks who enjoy doing naughty things a few feet from your head.

So too with the individual mandate. Make people buy insurance because their lack of insurance has negative externalities. But getting cheaper insurance for some now has negative externalities on folks who have to buy pricey insurance that costs them far more than the benefit they get out of it. It's like sitting between two mirrors: negative externalities stretching away to infinity on both sides.

How do we decide? Not in any very clean way, of course, this being a society filled with imperfectly rational humans rather than a blackboard in an economics class. But society has generally settled on some rough intuitive rules, which I'll try to make explicit:

1. We don't force people to do things in order to produce positive externalities. My neighbors probably got some modest enhancement in their property values when we replaced our horrid old falling-apart chain-link fence with nice new wrought iron. It's possible that society would be better off if everyone had to replace their fences with wrought iron. But we cannot mandate everything that produces a positive externality. My neighbors would also be better off if I made personal war with the rats on the alley, paid for Yo-Yo Ma to do a solo performance in my front yard, and made breakfast in bed for everyone on the block. It's possible that the benefit to the neighbors is greater than the cost to me, but the government still won't force me to do it.

In general, we are much quicker to pass laws to stop people from doing things that have negative impacts on others than we are to make them do things that confer benefits upon others. Obviously, there is some wiggle room in how we frame the problem -- is forcing a landlord to fix a dangerously dilapidated cornice stopping the negative externality of an injury or creating the positive externality of public safety? And obviously, we don't always abide by this rule ... hello, Selective Service. But we usually abide by this rule, and it's a good thing, too. It's what keeps us from turning ourselves into a slave state.

2. Basic rights can't be violated because they upset someone else. There's a lot of speech out there that causes far more harm than it generates in open public discourse. You still have the right to say it. Promiscuous sexual activity spreads diseases, some of which are very hard to treat. The public health police still can't stop you from getting your groove on. The most exquisite cost-benefit analysis showing that slavery was a net positive in terms of economic activity and utility still wouldn't change the fact that it is evil and wrong. You may append your own list of basic human rights where talking about externalities simply isn't very relevant.

3. You can't have created the situation that you are now trying to fix. Say I have a farm in the middle of nowhere. You come out and build a bunch of new McMansions with granite countertops and recessed lighting and all the modern conveniences. Suddenly, the pungent smell of cow manure is a negative externality for all the folks in the development, who complain to their local government. Most of us would not say that you have the right to force me to stop farming because it's ruining the ambience of the development that you decided to build.

So now let's talk about the individual mandate, which fails on at least two of three points. Start with No. 3: Many of the complaints about externalities rely on a massive amount of public spending on health care or laws such as the Emergency Medical Treatment & Labor Act (which forces emergency rooms to treat people even if they can't pay). It's extremely dangerous to allow the government to say, "Well, we passed this law, and as a result you're costing people a bunch of money, so we're now entitled to pass this other law to dictate your behavior." It's far too easy to build a pyramid of laws that entitle the government to do anything at all, because earlier laws have made your various liberties rather costly.

It also fails on No. 1: We are not trying to stop people from doing something that harms others so much as to force them to do something that would make others better off by enabling them to buy cheaper health insurance. (It's irrelevant to this point whether you think I would also be better off, because Professor Frakt asked specifically about externalities.) I am in general extremely skeptical of those sorts of arguments for anything short of World War II.

I also think it fails on No. 2, by the way; I think people have a right to determine where their own money goes and what products they spend it on -- even if that means they can choose to forgo a very beneficial product that would make everyone better off. Now, I do not think this right is entirely unlimited -- parents can be forced to support their children, for example, and I think that's entirely just. Even free speech can be curtailed in very extreme situations; it does not cover libel, or the proverbial nuthatch who falsely cries "fire" in a crowded theater. But there are very good reasons for requiring extraordinary circumstances to invoke such restrictions, and I do not think that Obamacare meets that bar. I am well aware that Obamacare's supporters will disagree, and I doubt that either of us will convince the other, so I'll leave it at that.

This is not a tedious rehash of my reasons for opposing Obamacare, though two years in, perhaps such a rehash is due. If it is, I will provide it in a different post. This is just a post on why I don't think that the argument for Obamacare can rest very securely on the argument that we are simply cleaning up some ugly negative externalities, in much the same way that we do with noise ordinance and anti-pollution laws. That is not what we are doing, and if it were, we wouldn't be doing it.

  1. If you are even now planning your tweet or Facebook post stating that "Megan McArdle thinks the Obamacare mandate means we are living in a slave state," you should go back to your middle school teachers and roundly castigate them for their failures in your reading comprehension instruction.

  2. No, I am not arguing this, because it is not true, and also, it is evil. I am offering an extreme example of something we would not sanction even if the repulsive Southern apologists had been correct that everyone -- even the slaves! -- were happier, healthier and richer under slavery.

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To contact the author on this story:
Megan McArdle at mmcardle3@bloomberg.net

To contact the editor on this story:
Brooke Sample at bsample1@bloomberg.net