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Saturday, November 15, 2014

The Jonathan Gruber Controversy and Washington’s Dirty Little Secret -

The Jonathan Gruber Controversy and Washington’s Dirty Little Secret -

Excerpts; Straight to the point 

Suppose that Congress decides that everyone in America should have an iPhone. There are two ways it can do this:
1) The government could allocate money to buy all Americans iPhones.
2) The government could require that everybody buy an iPhone but create a tax credit equivalent to the price of the phone.
To an economist, these things are pretty much identical. To a politician, they are very different. The first is a big-spending government giveaway. The second is a tax cut. And in that distinction lies the heart of the firestorm around comments by one of the intellectual godfathers of President Obama’s health reform law.
… This kind of gamesmanship is very much a bipartisan affair. President George W. Bush’s expansion of Medicare in 2003 was carefully designed so that its costs were backloaded, rising sharply just after its 10-year mark.
… To economists, it doesn't matter whether our hypothetical iPhones are bought directly by the government or “bought” through tax cuts. It doesn’t matter whether Obamacare’s subsidies happen through a tax credit or a check in the mail. It doesn't matter whether the costs of Bush’s Medicare expansion were projected over a 10-year time horizon or 15.
In business school, they teach that there are two types of accounting. Financial accounting must follow the strict, and frequently arbitrary, rules of generally accepted accounting principles in preparing the financial statements released to investors. But a different approach, cost accounting, is for managers trying to understand the true economics of their business, such as whether a given business line is profitable. In cost accounting, the goal is less about following some set of rules to report to outsiders and more about understanding what is really in the company’s best interest.
Essentially, Congress is obsessed with the government equivalent of financial accounting standards (with the C.B.O. as the rule maker) instead of cost accounting. It structures the laws in ways that might not be very efficient but sound good on the stump. Mr. Gruber was, in an infelicitous way, expressing frustration with that state of affairs.

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