Spending on health could heal hurt economy

It’s about the economy, stupid.

No matter how much pundits pontificate about issues like health care and energy, race and religion, this year’s presidential election and the policies of the new administration will most likely be determined by the economy.

I’m not just talking about the way that macroeconomic indicators predict presidential elections with startling accuracy. I’m talking about the way that economics always takes precedence over virtually all other considerations in policy making. During an economic downturn like we’re having now, all other issues get put on hold.

Perhaps politicians are responding to the fact that public-opinion polls perennially rate the economy as the most important domestic issue on voter’s minds. As the economy worsens, support for economic interventions only strengthen. Last fall, for example, health care was cited as the most important domestic issue voters wanted candidates to talk about. But this spring, fears about the economy pushed health issues to a distant second. According to a February poll by the Kaiser Family Foundation, the percentage of voters citing the economy as a top domestic issue doubled since December to 45 percent while the percentage of voters citing health care dropped to 28 percent.

But what do these numbers mean? While politicians talk about economic fixes to raise the nation’s GDP, the real economic concerns faced by most Americans are day-to-day household expenses. When the Kaiser Family Foundation asked survey participants to list the reasons why they chose the economy as a policy concern, 69 percent said the cost of health care was a major reason, compared to only 42 percent who listed the stock market.

Unfortunately, when the macroeconomy is doing poorly, supporting social programs that address voters’ microeconomic fears is particularly difficult. Many states have laws requiring them to balance their budget each year, which means that when tax revenues are less then expected, politicians must either raise taxes (which is always unpopular) or they must cut social-service programs (which they often do). Unfortunately, these cuts come at a time when our social safety net is needed most.

Moreover, many of the proposals to cut healthcare costs require an initial payment from the government to support future savings. When the budget is tight, investing in these cost-saving measures gets deferred — and so do the hopes of Americans searching for financial security.

Meanwhile, the traditional economic quick-fixes to prop up the nation’s GDP often fail to address the underlying economic insecurities of Americans. Tax cuts and lower interest rates may allow families to take on more and more debt for housing and medical expenses, but they don’t address the fact that costs are rising at unsustainable levels and real wages are not.

Nevertheless, politicians have no qualms about pulling out the kitchen sink of economic-stimulus packages whenever the stock market begins to teeter. In February, Congress passed a new two-year $168 billion economic-stimulus plan in record time, and last week, the Federal Reserve loaned $30 billion to help bail out Bear Stearns and also opened about $400 billion in discount loans to back up other holdings at different financial institutions struggling from the sub-prime mortgage crisis. That’s a lot of money.

In comparison, the reauthorization of the State Children’s Health Insurance Program that President Bush vetoed cost an additional $7 billion a year, and Hillary’s proposal to provide universal health care to all costs $110 billion. If only these proposals were renamed economic-stimulus packages, perhaps they wouldn’t be so difficult to pass.

Health care and economic stimulus are not polar opposites. Indeed, health comprises over 16 percent of our nation’s economy, compared to only 8 percent for financial services. As much as we may bemoan rising healthcare costs, the fact is that spending in health, like spending in other publics works projects, boosts the overall economy.

In fact, there is growing evidence that spending on public-works may be a more effective economic stimulus than tax cuts. In yesterday’s New York Times, Bruce Bartlett wrote an op-ed about the limited effect of rebates in spurring economic growth, and recently, Gregory Mankiw, the former chair of Bush’s Council of Economic Advisers, calculated that the economic stimulus generated by Bush’s payroll and capital gains tax cuts was not sufficient to cover the loss in government revenue.

On the other hand, the real benefit of investment in public goods, like health care, is that it stimulates both the economy and society at the same time. Rather than treating economic and social policy as separate spheres, we can recognize that they are part of the same project to improve our nation’s well being.

FDR, who led the nation out of its greatest recession with a policy of empowering the neediest Americans, warns us of the perils of blindly following economic statistics: “While they prate of economic laws, men and women are starving. We must lay hold of the fact that economic laws are not made by nature. They are made by human beings.”

In other words, it’s about the people, stupid.

Robert Nelb is a senior in Timothy Dwight College. His column runs on alternate Tuesdays.

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