Stormy Weather

Virginia Postrel from the May 1993 issue

(Page 2 of 2)

Consider the health-care mess. It derives, at least in part, from the steeply progressive tax rates and roaring inflation of the 1970s.

Inflation is about as unsettling a policy as there is. Combine it with bracket creep that gives the tax man a bigger chunk of every raise, and you turn wage-earning taxpayers into gerbils running on a wheel, struggling desperately to stay in the same place.

In the '70s, both unions bargaining collectively and individuals bargaining independently tried to beat bracket creep by taking more and more of their compensation in non-taxable benefits, notably greatly expanded health coverage and retirement benefits. From 1970 to 1980, the proportion of total compensation made up by fringe benefits increased by more than 50 percent.

Workers couldn't control their takehome pay–that was in the hands of the government–but they could bank on the security of their fringes. And now, of course, we find big companies unable to keep their pension and retiree health-insurance promises. And we're stuck with a health-care system in which patients have no incentive to watch costs.

The Clinton administration promises to fix all that with its own health-care plan, which will not include the critical reform of taxing health benefits as income. Unless Hillary Clinton and her team undergo a radical change of attitude, we can expect further turbulence ahead– the turbulence created as price controls ripple through the medical system.

"The world is interconnected in a lot of ways. Once you change prices in one area, it has effects that you can't foresee," Harvard economist Gregory Mankiw told The Washington Post in this context. "That is why central planning in the Soviet Union broke down. I don't think Clinton planners will be any better than planners were in the Nixon era or in the Soviet Union."

The Clinton administration loves planning; that is its uniting ideology, the one consistency in an otherwise inconsistent administration. Unfortunately, as Thomas Sowell has aptly noted, "What is politically defined as economic 'planning' is the forcible superseding of other people's plans by government officials." For the next four years at least, all our plans may be grounded in Washington.

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