What Is Seen…..

by Don Boudreaux on October 11, 2008

in Health, Myths and Fallacies, Work

Washington Post columnist E.J. Dionne, perhaps channeling Malcolm Gladwell, commits a truly bad economic mistake.  Like all such mistakes, it’s one that results when someone looks only at the surface, with no analytical penetration beyond what is most easily seen.

Here’s Dionne:

Few investments would help businesses more than offloading a share of
their health-care costs to the government. It’s social justice with an
economic kick.

Rather than explain in detail the flaws that saturate this idea, I content myself now only to ask: If Dionne is correct that the efficiency of American businesses would generally be improved if government paid for all workers’ health insurance – that is, if government paid part of firms’ costs of employing workers –  then is it also true that the efficiency of American businesses would be further improved if government paid firms’ full wages bill?

Put differently, if the U.S. economy would get "an economic kick" from government paying part of firms’ costs of employing workers, why would the economy not get an even bigger kick if government announces to all employers: ‘From now on, government will pay all of the expenses you incur in hiring and maintaining employees.  Government will pay not only one type of fringe benefit, as Mr. Dionne proposes, but all of your costs of employing workers.’

So no firm would any longer have to pay as much as a single cent to hire and maintain workers.  Wages, salaries, and fringe benefits – all benefits from health-insurance premiums to office holiday parties – would be fully covered by government.
Who thinks that it would be a good idea for government to pay all expenses that firms now incur in hiring and maintaining workers?  Who supposes that the American economy would thereby become super-efficient?  I’m pretty sure that E.J. Dionne would oppose any proposal to have government pay all such expenses now paid by individual employers.  But if so, what is his logic for supposing that it would be good for the economy for government to pay only part of these expenses?

(I might post later on other problems with Dionne’s proposal?)


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