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The Income Effects of Substitution Effects

Here’s a letter that I sent today, in response to Paul Krugman’s current column, to the New York Times:

Paul Krugman argues that Blue Dog Democratic concerns about Obamacare are incoherent (“An Incoherent Truth,” July 27).  Far be it from me to defend any politicians from charges of incoherence or duplicity, but Mr. Krugman’s own arguments for universal health-care are weak.

For example, he wants “all but the smallest businesses [to] be required either to provide their employees with insurance, or to pay fees that help cover the cost of subsidies – subsidies that would make insurance affordable for lower-income American families.”

In the name of Hippocrates, that’s far from clear.  Employers forced to pay employees higher non-wage benefits will reduce employees’ wages.  With smaller paychecks, it’s quite possible that lower-income Americans will find even subsidized insurance to be no more affordable than is today’s unsubsidized coverage.

Donald J. Boudreaux
Chairman, Department of Economics
George Mason University
Fairfax, VA 22030