28.7.09

NOT A WELFARE IMPROVEMENT. Martin Feldstein identifies the fundamental failing of health policy.
For the 85 percent of Americans who already have health insurance, the Obama health plan is bad news. It means higher taxes, less health care and no protection if they lose their current insurance because of unemployment or early retirement.
It's difficult to conceive of any public policy that would be a Pareto improvement, leaving nobody worse off. If Professor Feldstein is correct, the policy change does not pass any of the compensation tests of welfare economics, in which the gainers (in principle, anyway) would be able to compensate the losers and come out ahead. It also doesn't pass the less well-defined test for a Marshallian improvement, in which the net effect of a change and its concomitant disruption (consider mechanical spinning or automobiles or desktop computers) is still positive.

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