Sunday, March 14, 2010

A One Handed Economic Argument

Harry Truman famously said that he wanted a one handed economist. The economists he had were always saying things like, "on the other hand..." However, not having a one handed economist doesn't stop an advocacy group from making the one handed argument. Case in point:

An Arizona State University study estimates that cuts to the Arizona Health Care Cost Containment System would result in the elimination of about 42,000 jobs in 2011, cutting more than $1.7 billion in disposable income among all Arizonans.

The actual study was done for the Arizona Hospital and Healthcare Association by Dr. Matt Croucher and Dr. Tim James at the L. William Seidman Research Institute, W. P. Carey School of Business at ASU. As best I can tell, what they did was run a model of the Arizona regional economy with and without the AHCCCS spending cuts. They then reported the differences which the AzHHA then highlights in their media release.

...the proposed budget cuts will result in a loss of 42,000 jobs, dramatically increasing an already soaring 9.1 percent state unemployment rate. This significant reduction in employment would spread across all sectors, resulting in a reduced level of economic activity throughout the state.

What all of this leaves out is where does the money come from to provide the additional funds for AHCCCS? If it come from taxes or borrowing or another part of the state budget, then someone else is left with less money to do something with. That reduces their economic activity and hence jobs. So it's not clear that this funding would be a net gain or a net loss for the Arizona economy.

In the appendix (A.3) to the report, Croucher and James make it clear that this analysis was left out.

It was assumed that no other change in public policy would occur. Thus, no account of the economic impact associated with reductions in expenditure and/or increases in revenue collection, elsewhere in the economy to solve the state's budget problem instead of reducing AHCCCS funding were included. Thus, we do not include in the discussion any measures of the benefits that invariably would accrue to other government sectors or to Arizona taxpayers of not spending approximately $1 billion in general fund money on healthcare.

Note that doing this sort of analysis would be next to impossible since there are far too many alternatives to contemplate. So AzHHA used two handed economists, but they made the one handed argument.

For a copy of the actual report, go to the AzHHA web page and hit the click here link under Proposed Fiscal Year 2011 Budget: Healthcare Cuts Hurt State's Economy. It will download a zip file that includes the study and the media release among other things.

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