Krugman's Policy Analysis Exposed

Professor Boudreaux is right on target.

In yesterday’s column, Krugman wrote:

How can medical experts who see obesity as a critical problem deal with an ideological landscape tilted in the direction of doing nothing?

One answer is to focus on the financial costs of obesity, and the fact that many of these costs fall on taxpayers and on the general insurance-buying public, rather than on the obese individuals themselves.

Krugman here reminds me of the 17-year-old kid who murders his parents and then pleads for the court’s mercy on grounds that he’s an orphan.

Krugman advocates government-provided, universal health care for all Americans. That is, Krugman advocates further turning issues that would otherwise be private in to ones that are, by policy design, public. (In econospeak, Krugman advocates creating an externality where one doesn’t naturally exist.) Championing existing levels of nationalized health-care in the U.S. (mainly Medicare and Medicaid), and calling for even more, Krugman then tosses his hands in the air rather cavalierly and cites these government policies as a justification for greater intrusion into people’s private lives (or, what should be people’s private lives – and would be people’s private lives exclusively – were it not for the very health-care policies that Krugman champions).

This sort of policy analysis happens often. A problem is asserted, which is then characterized as imposing costs on others. Reference (sometimes implicit, sometimes explicit) is then made to the economist's idea of a negative externality, and, of course, it is then asserted that the negative externality justifies government action to correct the asserted problem. But the problem is actually caused by other government action. An exteranlity is a market failure. When the problem results from government action (or inaction) we should not say we have an externality because we actually have a government failure with respect to achieving an efficient allocation of resources. The policy answer to government failure is not more government action that will add to inefficiency. The policy answer would seem to be to end the government action causing the asserted problem to begin with.

Krugman ends his commentary with

Above all, we need to put aside our anti-government prejudices and realize that the history of government interventions on behalf of public health, from the construction of sewer systems to the campaign against smoking, is one of consistent, life-enhancing success. Obesity is America's fastest-growing health problem; let's do something about it.

I think we see here another sort of common problem in policy analysis. I believe the history of successful public health actions involves policies with respect to infectious disease. Infectious disease has attributes that probably fit well the economist's models of market failure. The policy issues asserted with respect to smoking and obesity do not (perhaps environmental tobacco smoke fits the market failure idea, but it seems to me that once we consider private property rights what is left of this issue as a market failure is small in magnitude), because they involve impacts on the individual that result from the individual's own choices. It is a mistake in analysis to put obesity in the same set of policy concerns as infectious disease. The public health bureaucracies have often successfully dealt with the market failures inherent in infectious disease. These days these bureaucracies seem to have branched out far beyond infectious disease, and far beyond the set of issues involving market failures. I don't think we want to suggest that any thing a public health agency attempts to do today will be beneficial simply because in the past public health agencies did often deal with market failures. The incentives and logic of bureaus lead in the direction of expansion, and even though a government agency may have once, historically, pursued policy goals consistent with the economist's idea of market failure, it is likely the agency will want to tackle any issue that might allow the agency to expand regardless of whether the logic of government action to correct market failure fits or not.