26 April 2011

Assuming a Free Lunch exists, why haven't we eaten it already?

EconLog | Arnold Kling | Where is My Free Lunch?

Mark Thoma writes,
It seems to me that there is far too much discussion of cutting services, and not enough about how to control costs without affecting services (e.g., using the government's purchasing power to reduce the amount the government pays for drugs, reducing the cost of insurance companies fighting over who pays bills, etc.). Costs that can be cut without reducing services need to come first, then, when those efforts are exhausted, we can think about the services themselves. But that doesn't seem to be how we are proceeding.
In other words, let's find the free lunch first, before we have to pay for lunch. Here are my remarks:
Kling has seven points about why this sounds better than it really is, and they are all good points. I think there is a very important one he misses, however: why haven't we done these things already?

If there is so much fat in the system as to allow significant cuts in spending without affecting service, why have those cuts not been made already? What combination of mechanisms and institutions and incentives has led us to a situation in which such fat is allowed to continue existing? What are you going to change about those mechanisms/institutions/incentives to enable us to move away from this situation and make it likely that we will stay away? What will your reform change to make waste that was possible and tolerable up until now impossible and intolerable in the future?

I need a better answer to these questions than "this time we're serious about trimming down."

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