Saturday, February 2, 2013

The Fallacy of Causation and Solution

This post from Kevin Drum is a good example of one of the fallacies that seems to be making the rounds these days.  In the body of a typical argument about why Republicans are unserious on the deficit (true for most in my view), Kevin makes the following argument.

It's all healthcare, baby. If all of the pressure on the deficit were being applied to serious proposals for reining in healthcare spending, in an effort to get U.S. spending levels down to those prevailing in socialist Europe, I'd probably applaud. 

So the solution to the deficit is all about healthcare.  You can see similar arguments popping up all over the left blogosphere.  Mostly, as in this case, these are arguments for universal health care but leave that aside.  The point is that they represent a fallacy, the fallacy that if A is the cause of a problem then a change in A must be the solution.  Certainly we can look at changing A (health care) but there's no particular reason that changes in A must be the answer.

To make the point, let's take a look at taxes and spending relative to 2000 (the last time the budget was balanced).  I'm going to look at this in two ways.  First, I'm going to look at effective tax rates across the income distribution (similar to my previous post comparing to 1979).  Using the same TPC and CBO assessments, one gets the following picture.

So, relative to the last time we had a surplus, effective federal tax rates in 2013 are projected to be lower for every income group except for the top 1% where rates are projected to be 3.4 percentage points higher than they were in 2000.

By the Kevin Drum logic, I should therefore cut the tax rates of the top 1% and increase the tax rates of everyone else since that would be the way to correct the problem by addressing the changes that led to the problem in the first place.  I rather doubt that Mr. Drum or his intellectual comrades would be in favor of this approach.

We can of course extend this thinking by looking at the spending side of the equation.  In 2000, spending on domestic discretionary programs was 3.0 percent of GDP.  In 2011 (2012 is not yet available), these same programs consumed 4.3% of GDP.  Should we therefore cut these programs by 30% in nominal dollars?  I rather doubt this is the plan that would be embraced by Mr. Drum.  Indeed we know this is not the case since "It's all healthcare, baby."

The point here is not to argue that addressing healthcare isn't an important part of our long term deficit picture but rather to argue the fact that healthcare spending has increased and will continue to do so does not imply that the only (or primary) solution is to reduce or slow the rate of growth of health care spending.  The prescription may or may not be right, the logic is not.


  1. Good post.

    This reminds me of a subset of the fallacy you've identified.

    In discussions of the healthcare cost "problem" the issue of medical malpractice reform often comes up. Many, usually those who identify themselves politically as "progressives", object to such reform (or merely waive the issue away as a form of objection) simply because the savings to be had would not serve, in and of itself, to bring spending down to an acceptable level (however one might define that).

    It strikes me that if we identify "the problem" as the too-large deficits and the resulting debt (which seems appropriate as a starting point), then everything needs to be on the table as a possible contributor to the solution. That means re-assessing all spending priorities and the means to finance those priorities. Merely identifying "the problem" when, absent more persuasive argument, it is, in reality, only "a problem" as a subset of the larger problem normally indicates a strong political bias.

    I've taken this opportunity to review some of your earlier posts, most of which are well-written and reasoned; however, your earlier post on applying Medicare tax to capital income suffers from the same defect as my malpractice example. There are likely good economic arguments against such a tax; but, I'm unpersuaded by an argument that seems to suggest that if some measure is only a partial solution, it's not worth considering at all.

  2. Thanks for the thoughts. On the Medicare tax point, let me just say that I'm not opposed to it on the notion that it's a partial solution. If I gave that impression in the post, my mistake.

    My argument was that those arguing this will make a difference in the long term health of entitlements are wrong. To your point, that doesn't mean it's a bad idea, it's just not a terribly effective one.