Freedom slides as health care balloons big government (and obamacare will make things worse)

Article Highlights

  • Obamacare will greatly expand the extent of government regulation over one of the fastest-growing pieces of our economy

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  • Health care will continue to crowd out education funding even as our international peers continue to outpace us in educational performance

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  • In its first three years alone, Obamacare already has generated $31.3 billion in regulatory costs and liabilities

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The latest Economic Freedom of the World (EFW) report confirms what many of us feel in our gut: America—once the global beacon of liberty—has much less freedom now (we rank 17th) than in the year 2000 (when we ranked 2nd). With Obamacare being implemented full steam in 2014, it’s a safe bet our ranking will continue to erode in the years ahead. Why? Obamacare will amplify a decades-long trend of expanding the size of government relative to the economy. On a related point, it will greatly expand the extent of government regulation over one of the fastest-growing pieces of our economy. The most devastating effects of shrinking freedom and opportunity will be on young people. Rather than mitigate this effect, Obamacare will amplify it in various ways.

Government spending and freedom

Most readers understand intuitively that government spending reduces the economic freedom and opportunity of individuals: every dollar spent by Uncle Sam using taxes paid involuntarily is one less dollar available in the private sector to be freely spent in voluntary exchange. As government spending continues to increase, individual freedom inevitably shrinks accordingly.

Health care has been the single biggest driver of health spending for decades, as shown in this chart from the online version of my book The American Health Economy Illustrated:[1]

This chart essentially shows that between 1980 and 2012, for every dollar of increase in the size of the federal government, more than $2.50 was the result of higher health care spending. That is, health care not only accounted for every penny in the increase in the federal share of GDP, but it also crowded out an additional $1.50 in federal spending that used to be spent on something else, such as national defense (national defense is the component of government spending that shrank the most during this period).

The story is similar—though less extreme—at the state and local government level. Fully 100% of the growth in state and local government since 1970 was due to health care. Since 1990—due to the explosive growth in Medicaid, health care has been responsible for 175% of the growth. That is, like Uncle Sam, statehouses have seen health care account for every penny of the increase in state and local government while also crowding out roughly 75 cents in spending on things many taxpayers might view as much more important (or at least of equivalent importance), such as education or criminal justice.

But health care’s role in expanding the size of government since 2000 is smaller than it was in 1990. Surely that is good news? Not really, for two reasons. First, as a consequence of the attack on 9-11, Uncle Sam channeled a big chunk of resources into national defense and homeland security over the subsequent decade. In that context, it was mathematically impossible for health care to account for every penny of the increase in the size of government. Second, if we run these numbers out until 2021 instead of stopping at 2012, every single bar on the chart would grow bigger. Specifically, by 2021, health will have accounted for more than 75% of the growth in federal government since 2000 and 128% of the growth in state and local government during the same period. In short, health care will continue to crowd out education funding even as our international peers continue to outpace us in educational performance. That clearly does not bode well for future economic growth or our long-run ability to compete against such nations.

Government regulation gone amok

The annual EFW report issued by the Fraser Institute measures the degree to which the policies and institutions of countries are supportive of economic freedom. An important component of the freedom index used in this report relates to government regulations. Unfortunately, in its first three years alone, Obamacare already has generated $31.3 billion in regulatory costs and liabilities, as well as 71.5 million hours of paperwork, according to a study from the American Action Forum (AAF) released last March. AAF calculates “it would take more than 35,000 full-time employees working year round to fully comply with the monstrous Red Tape Tower the law has become.”

These regulations, including the employer mandate, already have had a negative impact on hiring:

Clouding the future for young Americans

Over the weekend, the Wall Street Journal put out a superlative piece on the “lost generation” of younger workers under age 25. It makes for sobering reading. In metric after metric, older workers are doing far better than younger workers.[2] Yet Obamacare is going to put a further crimp on the ability of young workers to get jobs and make a decent living by essentially taxing them to pay for the health costs of older workers![3]  Another cautionary tale in the WSJ analysis: “The still-malingering malaise has hit young Europeans even harder than young Americans.” Over 23% of workers in the EU are currently unemployed (with the youth jobless rate approaching 60% in the countries worst hit by the recession. So remind me again why anyone thinks it’s a good idea to emulate the European social welfare state model?

Freedom is waning in this great nation of ours. Obamacare assuredly will accelerate that dismal trend. And even NBC News is willing to concede that “A large number of Americans continue to adamantly oppose the nation’s new health-care law and believe it will produce damaging results.”  So what’s stopping policymakers from listening to the public and delaying the plan for at least a year until we can elect some leaders willing and able to adopt a replacement that makes more sense? What makes America exceptional is that it created a government of the people, by the people and for the people. In a nation that is free, government serves the people, not the other way around.  The persistent indifference of Beltway policymakers to public opinion regarding Obamacare is perhaps the best clue that we no longer are as free as we once were.


[1] I have spent the summer putting my book The American Health Economy Illustrated online (an initiative generously supported by the National Research Initiative). Health policy wonks can go here to see this module and download the data to see methods and sources and perform their own calculations if desired.

[2] For example, median earnings for workers age 20-24 declined by 6.9% between 2007 and 2012 while rising 0.9% for workers age 55-64 during the same period. But that only tells how people fortunate enough to be employed are faring. Since the start of the recession (late 2007), the share of those 55 and older who are employed has risen by 0.6% while the share of 16-24 year olds with jobs has declined by 5.6%. It’s true that an additional 1 million 20-24 year olds now are in school compared to December 2007, but the number not in school and not working has risen by nearly the same number during that period (and the number out of school and working is still a half million workers below its December 2007 level). Finally, those who do work are much more likely to be working part-time. The number of full-time workers in this age group is about 1.3 million lower than when the recession began while the number of part-time workers is about 800,000 higher.

[3] I won’t waste time rehashing this argument, which has been amply documented by me and Avik Roy in repeated blog posts here at The Apothecary. And Avik Roy has put a lie to claims that somehow the exchange subsidies will protect most young people from the higher premiums they’ll face. If you don’t find these arguments convincing, try Dean Clancy’s Top 10 Ways ObamaCare Sticks It to Young Adults.

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Christopher J.

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