Or, In Which I Agree with Ben Studebaker in a Qualified Way
This gets to Ben Studebaker and I significantly agreeing, though we have to meander through a pretty big disagreement first.
Ben puts forward that to get the health care results of Denmark, we just have to scale Denmark’s bureaucracy up. This argument, I will show, is economically naive. But he leaves himself an escape hatch: if we substantially change Sanders’ plan, the many states can probably do what Europe has done. This raises questions about what exactly that would look like, but I am genuinely all ears. This may be the “missing ingredient” in Sanders’ run.
Ben raises the issue of scale this way:
Why would the size of the United States be a meaningful obstacle to the adoption of any social program? I have yet to read a convincing account of why a program that can work for 5 million people cannot work for 50 million or 500 million. The size of the bureaucracy needs to be scaled up, but if we live in a more populous society we have more people available to work in such a bureaucracy.
The answer can be found in any introductory economics textbook. The concept that he forgets is diminishing returns, and there is very little that it does not effect. Now, diminishing returns are often poorly explained in introductory texts and this is because we do not have a foundational model of diminishing returns in the literature. (Wikipedia has a serviceable introduction.) Indeed, most models—from the standard cubic cost equations to the macroeconomic assumptions in the Solow Model—are chosen for mathematical rather than economic reasons.
At any rate, the idea is intuitive enough. As an operation (private or public) grows larger, it must spend more energy and resources managing itself. The difference between providing insurance to 6 million people and to providing insurance to 300 million people is not just 50 fold. As the operation scales, one must hire more managers to coordinate different departments, more specialists to make decisions, and devote more time to lateral coordination.
There are significant advantages to this scaling. Division of labor, specialization, and the resources to make very precise decisions are all major benefits to economies of scale. There is a constant balancing act between accessing the benefits while trying to stave off the inefficiencies. Grow too large, and you pay for it in management costs. Stay too small, and you cannot access the benefits of specialization.
Health Care in the United States
Where health care sits in the USA is not easily discerned. The evidence Ben puts forward is, at face, against his proposition. Medicare is smaller than the major insurance companies, both in scope and number of patients. The expectation has long been that you will have private insurance to chip in for the numerous things Medicare does not cover. This sort of passing the buck is not what I think Sanders has in mind when he proposes socializing health insurance. (I am much more sure it is not what his supporters largely think he means.) Further, Medicare is smaller than the leading firms in the market, who are driving national costs.
It is a bit exuberant to reason from there that Medicare will be past the point of diminishing returns if we extend it up past the levels of those national firms. This evidence is only so much innuendo. My point is much more that Medicare’s effectiveness plausibly lies in its lack of ambition. Diminishing returns offer a good reason to proceed with caution, though not an airtight argument against Sanders’ proposal.
I offer a last piece of innuendo against Ben’s interpretation, but again stress it is little more than that. If economies of scale existed to the magnitude Ben hopes, the market would tend towards monopoly. The largest firm serves, round figures, about one in five people in the United States, or about 13 Denmarks. This is not insignificant, but the has no shortage of competition and is known to have efficiency problems. That gets us to about a fifth of what we need—and diminishing returns implies that the last four-fifths will be even steeper.
A quick word about the Federal exchanges: they are not insurance. They are a marketplace for buying and selling insurance contracts. It is a bit like trying to make an argument about socializing corn farming by talking about supermarket regulation. While changes in how insurance is sold can (and evidently did!) change the insurance market, that is different in virtually every way from having the government run the insurance being sold on those exchanges. It is proof that regulated capitalism can be effective and not an example of any kind of socialism.
Much of the remainder of the evidence in the piece concerns itself with showing that the status quo is stable and is predicated on the idea that there are no diminishing returns. If there are diminishing returns, this too is the argument for the kind of regulated capitalism we have expanded under Obama. It deeply undercuts Sanders’ argument.
Where Ben and I agree emphatically is that this may well be something the many states should handle. The irony that two liberals would agree on a Federal solution tickles me, but here we are. Europe has arrived at a de facto Federal solution that has worked quite well. I am game for trying it in the States.
But that too undercuts Sanders’ wider project. Pay attention to semantics as I’m about to split a hair: Europe has never tried Democratic Socialism. The many states of Europe certainly have, and it has worked reasonably well. But Federal-level Democratic Socialism has never been attempted, never mind succeeded. (Shots fired: the only European attempt at socialism on the scale Sanders proposes was the USSR.) We have arrived at the case for Sanders to run for Governor of Vermont, preferably with 49 other candidates in other states.
For the sake of space, I must give short shrift to the argument of President Sanders and a favorable Congress creating a mandate for the many states. To deal with it only briefly, to go down that road is to concede that Sanders’ Federal-level approach is flawed. We are then dealing in shades of Federal involvement, which opens up a host of legal, constitutional, and political questions that I do not think get us any closer to dealing with the problems of diminishing returns at the Federal level.
Ben is onto Something
To review, there is a convincing argument for giving diminishing returns a wide berth. In the particular case of health care, the preliminary evidence suggests Medicare’s strength may be in its limited scope, though the issue is far from settled either way. The experience from Europe suggests Sanders’ plan is out of line with the evidence and suggests a state-level plan instead.
And yet, Democratic Socialism survives the diminishing returns critique on the very argument Ben put forward. I throw the ball back in his court in a very different way than I usually do. I am genuinely excited that we may be on the cusp of agreeing on a sort of Federal socialism. Long experience tells me that we may not agree—but we will see.
The obvious question that presents itself is this: What does a Sanders revolution look like if we accept diminishing returns effect some of his proposals? (Also: what are Ben’s thoughts on diminishing returns?)
I have some thoughts, but I’d genuinely like to hear from Ben. He has changed my mind already to think the states are much more capable of socialism than I thought prior to reading his piece, and I would like to see where he traces the thoughts that changed my mind.