Are you upset about inequality? According to the logic in a Washington Post column by Brookings economist Ron Haskins, we can help remedy the situation by doubling the pay of neurosurgeons to roughly $1 million a year and doubling what we pay to the pharmaceutical industry for drugs each year to $600 billion.
If you don’t understand how increasing the income of rich doctors and highly profitable drug companies helps those at bottom, then you obviously don’t understand economics. It’s all very simple.
Haskins argues that those of us who are concerned about inequality have ignored the value of government benefits. These include benefits like Medicare and Medicaid, that disproportionately benefit low and middle income people. If we add in the value of these benefits, then Haskins tells us that there has actually been very strong income growth at the middle and bottom of the income ladder over the last three decades.
However the problem in this story is that the value of these benefits is measured by their cost. If, for example, we measured the value of these benefits by imputing the per person costs of health care in Canada, Germany, Denmark or any other wealthy country, then including the value of government benefits would not change the income inequality story at all.
The reason for the difference in health care costs between the U.S. and these other countries is not due to the fact that we get better care. In fact, low and moderate income people get far better care in all of these other countries than in the United States. The reason is simply that we pay providers far more than these other countries do. But, if our measure of the income of the poor includes the payments the government makes to doctors and drug companies on their behalf, the more we pay them, the more rapid the growth of the income of the poor.
So if we want to help the poor, we should just increase Medicare and Medicaid reimbursement rates for doctors and drug companies. Got it?
Haskins also has another neat trick. He tells readers:
“Brookings Institution calculations of census data for 2009, a deep recession year, show that adults who graduated from at least high school, had a job, and were both at least age 21 and married before having children had about a 2 percent chance of living in poverty and a better than 70 percent chance of making the middle class — defined as $65,000 or more in household income. People who did not meet any of these factors had a 77 percent chance of living in poverty and a 4 percent chance of making the middle class (or higher). Unless young Americans begin making better decisions, the nation’s problems with poverty and inequality will continue to grow.”
While Haskins sees this as a lesson about good choices and morality, there is a real problem of causation here. Suppose that we discovered that adults with just high school degrees who read at least one book a week had an 80 percent likelihood of being middle class. (I have no idea if this is true.) Would it follow that if we got all high school grads to read at least one book a week that 80 percent would be middle class?
This is likely the story that underlies Haskin’s data. Workers with just high school degrees who manage to achieve modest degrees of comfort are likely to adopt middle class norms on marriage and children. It does not follow that if all people from poor and moderate income families adopted these norms that they would be middle class.
Economist Dean Baker is co-founder of Center for Economic Policy and Research and writes regularly on CEPR’s Beat the Press blog, where this post first appeared.