The Long Run Is Nigh: Drum, Krugman, Disemployment and Obamacare
Back in 2009, before Obamacare became the law of the land, I pointed out its disemployment effects, and criticized Krugman for failing to consider them during a serious recession. Me:
The Krugman we’ve got is sold on the House health bill. But the Krugman we had, the thoughtful economist who wrote The Accidental Theorist,
would have responded differently. Krugman Past, unlike Krugman
Present, would have pointed out that when the unemployment rate is
9.7%, it’s a bad idea to legislate an 8% payroll increase
on businesses that fail to offer health insurance. Employers are
reluctant to hire workers at today’s wages; how are they going to feel
once the marginal worker gets 8% pricier?
It’s not just Krugman who should be against such legislation at a time like this; so should any sensible Keynesian.
Kevin Drum faulted me for failing to consider the timing of the legislation:
“At a time like this.” I think I’ve read critiques similar to this
about a thousand times now. I guess it sounds mighty clever, hoisting
Keynesians by their own petard or something. But it’s nonsense. The
“pay-or-play” payroll tax increase doesn’t go into effect until 2013 —
and if the recession isn’t over by then we’ve got way bigger things to
worry about than a minor increase in payroll tax receipts.
Krugman piled on:
Kevin Drum does a righteous smackdown
of Bryan Caplan for arguing that we should oppose the House health
reform bill because it would raise taxes in the midst of a recession.
As Kevin points out, the provisions wouldn’t take effect for several
years; it takes real chutzpah, given that obvious point, for Caplan to
accuse me of being disingenuous.
[I]t’s facile for Kevin to remark, “if the recession isn’t over by then
we’ve got way bigger things to worry about than a minor increase in
payroll tax receipts.” Recoveries take years, and some employers have
been known to look ahead a year or two when they decide whether it’s
worth hiring someone today.
Fortunately, the original version of Obamacare didn’t pass. Instead of an 8% tax on payrolls starting in 2013, we get to wait until 2014, when the law:
Requires employers with 50 or more employees who do not offer coverage to their employees to pay $2,000 annually for each full-time employee over the first 30 as long as one of their employees receives a tax credit. Precludes waiting periods over 90 days. Requires employers who offer coverage but whose employees receive tax credits to pay $3,000 for each worker receiving a tax credit up to an aggregate cap of $2000 per full-time employee.
Do Drum and Krugman now want to assure us that by 2014 the labor market will be back to normal? Even if you think two years plenty of time to recover, you should be worried that employers might foresee this $2000 or $3000 surcharge on every worker they hire – and decline to create another job before the law kicks in. Think the surcharge is no big deal? Consider this: two or three grand easily adds 10% to the cost of hiring high school drop-outs – whose unemployment rate still exceeds 13%.
Friends of Obamacare, the long run is nigh.