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I have invented an amazing device! It is a tremendous healing ray that instantly and costlessly cures all chronic ailments! Huzzah! A great boon for humanity!

"But wait!" says the inner economist. "What happens to labor markets?"

Sigh. Good question.

First, assume the demand for health services is unchanged (for whatever reason, just assume it, damn it, this is economics. The health sector is it’s own damn mess).

Now – what happens?

Presumably most persons suffering from some kind of ailment or disability recieve a zapping. Obviously there are communities of interest and affiliation surrounding certain kinds of disability and for many people there are questions of identity involved, but even though we don’t presume a 100% participation rate in "being bathed in the healing light of my white magic phaser" it would probably be something close.

I think, first and foremost, that we can agree that those who have been so blasted with blessing would both be more productive and experience higher wages. They would be capable of doing certain kinds of work they were previously incapable of, capable of doing their existing work better, and capable of returning to the workforce if they had been so substantially disabled that they could no longer work.

Secondly, Social Security Disability would go from spending $183 billion annually (including Medicare payments for beneficiaries) to paying something a lot closer to $0. Some of that would now be offset by things like the EITC, Medicaid and exchange subsidies (let’s assume this happens next year because why not keep assuming?), and unemployment benefits (temporarily expanded to help smooth the income of the suddenly rapidly expanded workforce), but overall this probably is a net boon to the state’s coffers.

Here is a key question – what happens to existing workers? Clearly, overall potential productivity in the economy has gone way up – many more individuals are capable of producing more, and nobody has suffered any absolute degredation in ability or capacity. But still, many workers would be close substitues to the sudden army of the newly-able, all across the board, from the previously-parapalegic who are now would-be waiters and construction workers to the previously blind and deaf who are now would-be lawyers and consultants. So…what happens?

Well…it depends, doesn’t it? There’s no good reason we would expect a substantial increase in per-capita productive capacity to result in tremendous unemplyoment, is there? We might expect some short term…well, let’s not call it chaos, but perhaps friction? But within a year or so, given the correct response from governing institutions (especially monetary institutions) we would expect aggregate demand would "catch up" with potential aggregate supply and find an equilibrium at a higher absolute level of production and employment. This all assumes, of course, that a USA whose absolute net labor force increased sharply and substantially wouldn’t hit some global supply constraint, like, say, a finite amount of flamable black goo that was for some reason very important. But let’s assume that too! Because, as my mother always told me, assuming makes a mensch out of you and me! That’s totally what she said.

Anyway, the short version is, assuming proper response from key institutions and a lack of economy-wide medium-term supply constraints, there is no reason to think that waving a magic wand that increased the potential productivity of the labor force would inevitably induce net harm on any specific group. This could be, not just a weak Pareto improvement, but a strong one.

Now, what if the disability wasn’t physical, but legal? What if it were, say, some sort of legal status somewhat-arbitrarily assigned to a large group of workers that rendered them less productive then they could be otherwise? And then we waved our magic wand of law and removed that restriction? Who would that hurt?


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