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Obamacare Delay: Good Politics, Bad Economics

February 24, 2014

Tags HealthInterventionism

The Congressional Budget Office has reported that ACA subsidies will lower the labor force participation rate in coming years. The Obama administration has also decided to delay the small business mandate part of the ACA until 2016.

Officials of the Obama administration insisted that lower participation rates in the labor force are beneficial. Lower income Americans can now decide to work less, to supply less labor, to work part time or retire earlier. By working less Americans can take care of family members or enjoy more leisure time.

The Obama administration has in the same week admitted that the burdens that the ACA places on small businesses are onerous. The costs of the ACA will therefore cause smaller employers to demand fewer workers.

Economically speaking, there is not a real difference between workers supplying fewer hours of labor and employers demanding fewer hours of labor. In terms of the production of real wealth fewer hours of labor used in industry translates into reduced overall production. Politically, however, there is a very real difference between workers wishing to supply more hours, and employers demanding more hours.

A reduction in hiring by small businesses this year would affect official unemployment statistics adversely. Many senators and all congressmen are up for reelection this year. If the ACA were directly linked to an elevated official unemployment rate, Democrats would most likely lose additional seats in the upcoming election. In other words, the costs that Obama and people in his party want delayed are high profile, regularly reported in the media, obvious to the voting public.

The underlying economic costs of lower participation rates in the labor force are less wealth production compared to what would have otherwise occurred. The opportunity costs of wealth that is not produced go unnoticed by most people. Furthermore, a gradual reduction in labor force participation would actually reduce the official U-3 unemployment rate in coming years.

The labor force participation rate has received more attention in the media in recent years. Yet statistical evidence shows that most people have very superficial knowledge of statistics on the economy. Most people are too busy with their private lives, with work and familial duties, to delve into the details of economic statistics. Additionally, the assertion that people can take advantage of the ACA to work less and focus on other priorities does have an appeal to those who want a “free ride” at taxpayer expense.

The decision to delay small employer mandates, but embrace reduced future labor supply is an example of bad economics, but good politics, or what Thomas Sowell has referred to as politics versus reality. To quote Sowell “ What matters in politics is what you can get the voters to believe, whether it bears any resemblance to reality or not.”


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