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CHAPTER 1 WHY STUDY PUBLIC FINANCE?

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Health Care
As noted earlier, there are currently 45 million Americans without any health
insurance, about 18% of the non-elderly U.S. population. A large body of evi-
dence suggests that their medical treatment and health outcomes are signifi-
cantly worse as a result of their being uninsured. Moreover, after almost a decade
of relatively moderate cost growth, the cost of health care is exploding again in
the United States, with premiums for employer-sponsored insurance rising four
times as fast as workers earnings since 1999.17 Projections suggest that health
care will consume almost half of our GDP within the next century.
These problems have prompted liberals to suggest major changes in the way
that health insurance is structured in the United States. Foremost among these
suggestions are major government interventions in health insurance coverage
to address the problem of the uninsured, either through mandating and/or
massively subsidizing the purchase of private health insurance, or through pro-
viding more health insurance through the public sector. Liberals would rely
on government regulations to control costs, for example, by limiting the prices
that medical providers can charge for their services.
Conservatives, on the other hand, believe these types of interventions are
much too expensive, and have recommended instead much more limited
interventions that would bolster the existing private market through tax subsi-
dies to purchase insurance. They argue that cost control through government
price setting would cause much more damage to the system than would intro-
ducing the powers of competition. Competition could keep prices down by
promoting individual choice across health plans and allowing the plans to
compete through lower prices.
 Is this conservative approach sufficient to overcome the failures in health

insurance markets and substantially increase health insurance coverage?


Can either groups approach put a halt to rapidly escalating medical costs?

Education
There is an enormous dissatisfaction with our current educational system,
highlighted by the dismal performance of U.S. students on international tests.
A 2007 study of eighth-grade math and science skills in 48 countries found
that U.S. students were only the 9th best at math skills and 11th best at sci-
ence skills, behind nations such as Hungary, Russia, and Lithuania.18 While
this dissatisfaction is widespread, there are once again great differences across
the political spectrum on how to address this problem. Liberals generally
believe that the problem is that we have not put enough resources into our
educational system. They argue that higher pay for teachers and more
resources to schools in disadvantaged areas are required to improve the per-
formance in the U.S. system.
Conservatives argue that our system is fundamentally broken and that more
resources will not solve the problem. The problem, they argue, is that the public

17 Kaiser Family Foundation (2009).


18 Gonzales et al. (2008).