U.S. Senator Mark Warner (D-VA) penned an op-ed regarding the new economy of consulting and contract work, where more and more people seem to be doing specialized service work for two or three clients in what he terms the “sharing economy” and whether this is a positive good:
But many of the business models in this on-demand economy are built on the premise that workers are independent contractors, not employees. That means companies do not have to pay costs such as health insurance or retirement benefits. They also typically do not pay a share of unemployment or workers’ compensation coverage.
So these workers, even if they are doing very well, exist on a high wire, with no safety net beneath them. That may work for many of them — until the day that it doesn’t. That’s also the day that taxpayers could be handed the bill, which is why Washington needs to start asking some tough policy questions…
Among these questions is health care, whether it redefines the employer-employee relationship, and whether America’s economic scorecard is suppressed somewhat by this dark economy.
Of course, there are a few problems with Warner’s starting points, though in abstract I agree with the concerns.
First and foremost, we are talking about the free market reacting to a problem created by big government — namely the Affordable Care Act qua Obamacare. Employers unable to afford the impact of spiraling health care costs have to resort to other means. Employees unable to find work find themselves in the condition of approaching employers and cutting a deal: namely doing the work they might have inefficiently offered to a full time employee with benefits and offering to do it for 2/3 the cost at 1/2 the time.
Second, the problem many employers are facing with the rising cost of health care is that the federal government has effectively created a bubble with no constrained limits. Nature tending towards entropy, 15 million new health care users must be provided for somehow by a health care industry completely unprepared to absorb the new patients. Ergo, demand expands, supply remains limited, costs go up. Not quite a good deal for working families.
Third, many folks who are on the federal exchange are patiently waiting for the verdict in King v. Burwell, where should the Supreme Court to the logical thing and declare the federal exchange unconstitutional, will mean that those states who have not set up exchanges themselves (e.g. Virginia) will not face the hue and cry of a few hundred thousand families who now find themselves thrust upon the market rather than the government-subsidized exchanges.
Now the federal government is more than happy to extend these federal subsidies to the states, provided they accept the shackles and unforecasted costs that come along with the servitude. State governments, already cash strapped, are understandably hesitant to accept these chains much less dive in and fix problems created by Washington.
Which brings us to the last point and the pièce de résistance of the conversation — namely that the imposition of more government as Warner seems to imply in his op-ed — will simply exacerbate the problem.
Warner points towards Uber and Airbnb as interesting phenomena in the new economy, what are often described as intersecting economies. In short, you provide a service, but better, either by finding efficiencies or turning inventions into better inventions (i.e. Sony didn’t invent the cassette player, but they did craft the Walkman).
Notice the subtlety there.
In this exchange is a trade. Rather than creating the innovation economy we dreamed about in the 2000’s, we are substituting it for a relative perestroika; a mere restructuring that doesn’t create the additional gaps for efficiency that keeps economies growing and prosperous.
Warner’s proscriptions effectively take us down the road of restructuring, but they arrest the free market’s instinctive ability to create innovation. By allowing for the prescriptive workarounds such as Uber, Airbnb, or even the “sharing economy” we give the market the oxygen to innovate, thus creating more opportunities to take those innovations and apply them in conjunction with more start ups, more advances, better technologies, and higher aspirations.
In the desire to make markets moral, policy makers should respond to the new economy with solutions built to the task. The metamorphosis of the ACA into the NHS will cripple not only the health care industry, but a method of working completely suited to the needs of a generation built to take advantage of an innovation economy.
A wiser path? Creating alternatives to the ACA that would allow for the new economy to invest in health savings accounts (HSAs) for routine self-upkeep linked to high deductible insurance plans (HDIPs) in the event something catastrophic occurs, such as a car accident, stroke, or heart attack. If there are to be federal subsidies, then link them to a work incentive tax credit (WITC?) that brings working families up to the poverty line and deposits the credit directly into the HSA tax-free.
More importantly, state governments shouldn’t be leaned on by Washington to fix the problems Washington creates. Take the boot of the throat of free enterprise, and let the rising generation of employers and employees amaze you with the results.
