Net Net: Promoting innovation and managing change
Net Net: Promoting innovation and managing change

Why Niall Ferguson Is Right on Obamacare—Mostly

Author and historian Niall Ferguson
David Levenson | Getty Images

Niall Ferguson has been catching a lot of flak from the coolest kids on the Internet’s economic block for his Newsweek cover story arguing that we should fire Barack Obama. The DailyBeast, Newsweek’s online parent, commendably links to most of the critics.

The statement that has attracted the most criticism is this one:

The president pledged that health-care reform would not add a cent to the deficit. But the CBO and the Joint Committee on Taxation now estimate that the insurance-coverage provisions of the ACA will have a net cost of close to $1.2 trillion over the 2012–22 period.

Ferguson’s critics argue that this is an unfair criticism of Obamacare because it elides two different things: Obama’s projections of the overall effects of his health-care reforms and the cost of the insurance-coverage provisions.

“You cannot factor in the insurance costs while ignoring revenue anymore than you can argue that you lost money on a beer-run because you didn't include the fact that people paid you back,” Dylan Beers writes at Politico.

Joe Weisenthal at Business Insider has an even more detailed version of this critique, as well as an attack on Ferguson’s response—Weisenthal calls it an “embarrassing defense”—to his critics.

But Ferguson has a very good point that many of his critics are overlooking.

The ACA’s insurance coverage provisions do indeed add to the budget deficit. It then attempts to “pay for” these through a combination of new taxes, fees, spending cuts and cost-reductions. (Related: )

I think it is fair enough to argue that increased expenditures paid for by new taxes and fees are the equivalent of deficit increases. But to understand why that is the case, you have to understand the reason people worry about the deficit in the first place.

The primary critique of budget deficits is that they create debt obligations that will have to be paid for by tax increases on future generations. But the ACA creates new government obligations and pays for them (in part) with tax increases immediately. That is just debt in fast-forward. It inflicts immediately the very harm—higher taxes—that deficit-spending supposedly inflicts in the future.

In other words, the problem with deficit spending is not the “deficit” part but the “spending” part. When the government pays for its spending through taxes, the private sector’s loss is immediate. Government reduces the financial resources available to the private sector and directs them toward its goals. The goals of the private sector are left unmet so that the goals of the politicians can be accomplished. When the government pays for its programs through debt, the private sector’s loss is deferred until the government decides to collect higher taxes in the future to repay the debt (which, to be frank, may never, ever happen). (Related: Why Caution on Foreclosures May Cost Obama the Election)

When Obama promised that the ACA would not add to the deficit, many Americans likely thought this meant that future generations would not labor under a greater burden to pay for government programs under his plan. They believed that the “savings” in the plan—cost reductions through greater efficiencies in the delivery of health care—would “pay for” added expenditures. In short, they thought being “deficit neutral” meant not creating additional burdens on present and future generations. (Related: 5 Reasons Ayn Rand Is Bad for Business.)

Ferguson was pointing out that this isn’t true. Thanks to the ACA, the American people will pay substantially more in taxes to the government. It inflicts exactly what people fear about deficit spending—only it does it right away.

- by senior editor John Carney


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