Rogoff wrote a stellar op-ed a few weeks ago and it's been on my list for weekend posts. It will be one of the very few times we discuss healthcare reform on these pages, but given the debt context of his editorial, it fits our theme.
(Photo is a teenage Rogoff in a National Chess Event)
America Should Also Look to Its Future Health (It's the 1st link in the google results, click it and you can read it without a subscription to the FT):
America desperately needs a better framework for providing healthcare and Barack Obama’s administration is right to press on for change, even as the economy remains frail in (it is to be hoped) the aftermath of the financial crisis. Yet given the explosion of the federal debt, it is extremely important to craft a plan that will not excessively risk the government’s own fiscal health. The risks cannot easily be overstated.
The US government is already entering a prolonged period where it is extremely vulnerable to a loss in investor confidence from the Chinese and other main holders of its Treasury securities. Foreign investors are rightly concerned about the deeply ingrained reluctance of Americans to tax themselves. The last thing the US needs is to be viewed as one giant California, rich but unwilling to pay enough taxes to fund the services its citizens demand. A sharp rise in taxes to pay for healthcare initiatives could potentially weaken the credibility of the government’s promise to raise taxes as needed to pay off debtors.
It is true many people are claiming that a new healthcare package can be a big part of the cure for US budget problems. They argue that standard measures of national debt are far too narrow and do not take into account a country’s huge commitment to future expenditures such as old age pensions and, especially, healthcare programmes. Given generous benefits, increasing life expectancy and adverse demographics, old age benefit programmes have actuarial debts that are many times the conventionally measured national debt, even as conventional measures rise to levels last seen after the second world war.
According to this logic, finding a way to contain rising healthcare costs would help more than almost anything to reduce the broadly defined government budget debt. Lower healthcare costs would also help the private sector, presumably raising investment, growth and, of course, future tax revenues. It would also be helpful, of course, to have a healthier and happier workforce.
Unfortunately, the idea that healthcare reform will alleviate debt problems rather than exacerbate them is far-fetched. As the US Congressional Budget Office warned this week, many proposed healthcare reforms are more likely to worsen the government’s budgetary health than to improve it. This should hardly be surprising, given that a main purpose of reform is to help provide better care for Americans who cannot afford insurance.
Read the rest of it HERE.
The writer is professor of economics at Harvard University