Hicks
In my line of work, it is helpful to look back from time to time and assess one’s mistakes.
So, I spent a couple hours perusing my old columns to see what I might wish to rewrite considering what I now know.
It is important to be forthright about analytical errors so that we can draw lessons from them. Three issues really stuck out to me.
First, I thought the 2009 American Recovery Act was about right with its nearly $900 billion price tag.
Still, I was worried about inflation and thought that tighter monetary policy would control the effects of excess spending. I said as much in columns and in interviews.
However, viewed from the years of now available information, it seems clear that the stimulus in the American Recovery Act was far too small. The economic recovery from 2009 to 2020 could’ve been much better had we more aggressively coped with the deep demand shocks of 2008.
This matters because much of the long economic expansion from 2009 to 2020 was weak.
Job creation, infrastructure investment and, most especially, growth in educational attainment all lagged.
The retrospective consensus of economic historians will be that the Great Recession stimulus was too small.
In the decades to come they will also view the effectiveness of monetary policy was oversold.
I think these assessments will be empirically correct, which means that I was wrong about it in 2009 and 2010.
Second, I criticized the Affordable Care Act, better known as Obamacare.
I was deeply concerned that the expansion of government would do little to improve healthcare outcomes. I also felt that government intrusion into these markets would reduce the efficiency of providers and divert resources from the private sector to the public sector.
I was right to oppose the ACA, but the problem wasn’t what it seemed.
As it turns out, the Affordable Care Act did almost nothing to improve healthcare outcomes in the USA.
In fact, life expectancy, particularly among poorer Americans, is now reversing course. We are arguably in the worse setback of health among any people in recent centuries.
This cannot be laid wholly at the feet of this legislation, but certainly didn’t change the course of increasing mortality.
I supported the decision of both Govs. Daniels and Pence in expanding Medicaid as part of the Affordable Care Act. I stand by that call.
Today it is clear that the extension of Medicaid was among the very few good outcomes of Obamacare, and Indiana’s market-based approach was as good a model as anywhere in the nation.
But, fears about the effects of the ACA caused most states to ignore broad abuses by hospital systems around the country.
Indiana was ground zero for this problem.
Prior to 2010, Hoosier businesses and consumers paid about the right share of their incomes on healthcare. In other words, our spending could be explained by demographics, primarily age.
Since 2010, the cost of healthcare in Indiana skyrocketed, but only in a couple areas.
Hospital costs especially ballooned as large systems bought out competitors. Then, the cost of physician services began to explode as hospitals bought out private practices to eliminate competition.
Today, Hoosier consumers and businesses pay among the very steepest prices for healthcare in the nation.
From 2009 to 2021, the share of the average American family budget spent on healthcare declined by 0.3%. But, here in Indiana it grew by 1.1%, or more than an additional $1,000 per year for the typical family.
Prices here outpace almost all the rest of the nation, and they continue to worsen.
At the same time, the most profitable industry in Indiana remains not-for-profit hospitals. It remains a difficult, if not intractable, policy challenge.
I was right to oppose Obamacare, but for the wrong reasons.
I thought the legislation would cause such a large increase in the size of government that it would push us closer and closer to a single-payer (socialized) medical system.
Ironically, that is not at all what happened.
Today, the real risk of pushing us into a socialized medical isn’t an overreaching federal government, it is the breathtaking monopolization of healthcare markets led primarily by not-for-profit hospitals.
So, if the American public becomes frustrated enough to implement a single-payer system, the blame won’t fall upon an expansive federal government, but on the boards and CEOs of not-for-profit hospital systems.
My third big mistake was supporting the Tax Cut and Jobs Act (TCJA).
The large tax reforms of the Trump Administration were predicated on the belief that reducing the corporate tax rate would bring large capital stocks back into the United States from overseas tax havens. These were in excess of a trillion dollars. At the same time, the TCJA simplified tax filings for most American families. For these reasons, I supported the bill.
The TCJA was always an inflationary risk because it would add to the federal budget deficit. At the time, I thought this was a reasonable risk because the economic recovery was so poor (see above, mistake N0. 1).
However, the repatriation of funds was not enough to accelerate growth. To be fair, the Trump Administration’s choice to place tariffs on China, a few months after the TCJA took effect, also slowed the economy. A coherent, pro-growth economic policy might have rescued the TCJA and boosted economic growth.
But, coherence is not a word one easily associates with the Trump Administration.
I was not alone in making these mistakes, but there’s no comfort in being wrong with a crowd.
I wish we would have had a bigger stimulus in 2009. Had we done so, the need for a TCJA would’ve been lessened. More importantly, the TCJA effect on the federal deficit would have been more modest if the economy grew faster after the Great Recession.
The lesson that a generation of economists will take from this is to pursue fiscal policy more aggressively during a recession. This will bring its own risks, but no one wants to revisit the slow growth and political turbulence of the last decade.
The expansive monopolization of hospitals following Obamacare is a more familiar warning. Every government action carries with it risk of unanticipated effects. So many of us were worried about the growing federal bureaucracy that we completely missed the exploding monopolization of hospitals.
In the years ahead, I, along with the many other economists who made these specific mistakes, will need to carefully learn lessons about fiscal policy, the business cycle and the unintended consequences of regulation.
These all are familiar topics.
Michael J. Hicks is the director of the Center for Business and Economic Research and the George and Frances Ball Distinguished Professor of Economics in the Miller College of Business at Ball State University. Send comments to [email protected].
