Jonathan Gruber’s Big, Benevolent Fraud by D.W. MacKenzie

Obamacare, the noble lie, and cognitive dissonance at MIT.

It seems that critics of the so-called Affordable Care Act (ACA ) have a new ally in our efforts to expose the deficiencies of the legislation: Jonathan Gruber.

This development comes as a surprise, because Gruber was the ACA’s primary architect. He has made public remarks that expose problems with the ACA’s adoption and future operation. However, Gruber still supports the ACA and labors under the idea that it can be fixed.

Gruber admits that the ACA is a kind of fraud — that is, it was deliberately written in a misleading way. The ACA was presented as a way to increase the affordability and accessibility of health care. In reality, the ACA is a transfer scheme.

If the ACA benefits Americans, why did it need to be misrepresented? According to Gruber, transparent spending and transparent taxing are impossible: “You just can’t do it.… Lack of transparency is a huge political advantage.… Basically, call it the stupidity of the American voter.”

The ACA was written to hide the fact that it is designed as a transfer from healthier, younger people to less healthy, typically older people.

Why is a lack of transparency severely problematic? Because bureaucrats and politicians are supposed to serve the public in modern social-democratic welfare states. But why would we expect bureaucrats and politicians to actually serve the public?

Some scholars have suggested that competition in democratic elections can push politicians to serve the public, and elected politicians will therefore keep a watchful eye on bureaucrats. This is called the “median voter theorem.”

The problem is that political competition fails to discipline people in the public sector when governance is opaque. A well-informed electorate is a necessary condition for effective political competition.

Gruber is probably correct in saying that passing the ACA required misinforming the electorate. However, the opaque governance that Gruber lauds opens the door for large-scale waste and abuse by special interests. Opaque governance and a misinformed, or uniformed, electorate make it virtually certain that the ACA will be administered inefficiently, whatever one thinks of its merits.

Indeed, a lack of information causes adverse selection problems whereby the most corrupt people make the greatest efforts to rise in politics and within bureaucracies. Opaque governance thus guarantees abuse of the ACA by public officials and special interests.

What makes Gruber’s remarks particularly worthy of criticism is that he is employed as an economist — and at a top university. Worse still, he teaches public finance and policy at MIT: he really should understand the importance of transparency. And he does. Gruber is the author of Public Finance and Public Policy, chapter nine of which covers the median voter theorem. So, Gruber does understand the necessity of political openness and an informed electorate for efficiency in the public sector. Efficiency requires more than an informed electorate, but it is a necessary condition.

Anyone who understands even the basics of the median voter theorem knows full well that transparency is strictly required for efficiency. Anyone who simultaneously believes that transparency and opaqueness are both necessary for good public policy has cognitive dissonance. Jonathan Gruber has unwittingly helped reveal the incoherence of the case for the ACA.

Gruber is an economist who fancied himself able to reengineer dynamic markets through social policy. His conceit as a social engineer is matched by his disrespect for the American electorate. He thought that an opaque political process and obscure legal language could keep people in the dark. On top of that, Gruber fathered lies because he knew voters would reject the ACA if they were aware of the wrenching changes the legislation would bring. As his lies became obvious, he blamed poor legal phrasing for the federal government’s inability to hide the costly consequences of his transfer scheme behind the subsidies in the federal exchange.

It’s the conceit of the “nudger” — the classic case of an elite policymaker who thinks he is smart enough to design what’s best for you, even if you’re too stupid to understand why and too ignorant to check up on him.

Didn’t Gruber realize such monumental legislation would be under tremendous scrutiny? Didn’t he realize the painful economic effects would be felt by real voters with common sense? And didn’t he realize that it would only take pulling back one of the curtains to expose the totality of this Wizard-of-Oz-like scheme?

Fortunately, it has gotten much easier for people to become informed about the real facts concerning the ACA, as well as other social programs. Citizens will never be well-informed about all of the backroom politics and the internal operations of bureaucracies. But we can at least learn about their true nature in the abstract — and with regard to the ACA in particular.

Perhaps most importantly, we can be on the lookout for those claiming to be wizards in Washington.

ABOUT D.W. MACKENZIE

D. W. MacKenzie is an assistant professor of economics at Carroll College in Helena, Montana.