Sauce For The Goose, And All That

by Pejman Yousefzadeh on November 15, 2009

I am in favor of means-testing for programs like Social Security and Medicare; which would constitute one of the better policy responses to the out-of-control entitlement spending we are seeing take place. Something has to be done to control spending for entitlement programs, and means-testing is one of the most effective somethings there is out there.

But given that every time a Republican has brought up the idea of means-testing, he/she is accused of wanting to throw poor people into the street to die, I would have no problem whatsoever with the GOP making political hay over the fact that the recently passed House health care reform bill would cut Medicare benefits. And it would do so without reducing overall costs.

More on this issue from Tyler Cowen, who reminds us that throwing Medicare recipients under the bus in favor of people “with better-paying private insurance,” and the near-impossibility of meeting the stated savings targets for health care, is going to affect the ballot-box behavior of “a high-voting group which is growing in numbers,” especially when that high-voting group finds out that “Medicare cuts contained in the health package approved by the House on Nov. 7 are likely to prove so costly to hospitals and nursing homes that they could stop taking Medicare altogether.” Last week, House Democrats were high on their leadership, believing that they had scored an important political victory that would pay huge electoral dividends in the long term. I wonder how they feel now.

UPDATE: A very helpful summary of the policy problem, courtesy of Greg Mankiw:

Here are some basic principles of supply and demand: If a government policy increases the demand for a service, the price of that service tends to rise. If the government prevents prices from rising, shortages develop. The quantity provided is then determined by supply and not demand. In the presence of such excess demand, the result could be a two-tier market structure. Consumers who can somehow pay more than the government-mandated price will be able to purchase the service, while those paying the controlled price may be unable to find a willing supplier.

All of these basic principles are being ignored by the Obama Administration, and by Democrats in Congress.

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