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University News

Mankiw discusses fiscal problems

The former Bush adviser and author of ‘Principles of Economics’ spoke on current economic policy

Staff Writer
Thursday, November 14, 2013

N. Gregory Mankiw P'17, professor of economics and department chair at Harvard, talked about reducing healthcare costs and raising taxes in his lecture Wednesday night.

“It ain’t what you don’t know that gets you into trouble. It’s what you know for sure that just ain’t so,” said N. Gregory Mankiw P’17, professor of economics and department chair at Harvard, quoting Mark Twain in a lecture to a full Salomon 001 Wednesday.

His talk focused on problematic economic assumptions made by politicians in debates over the nation’s fiscal problems.

Mankiw’s lecture, entitled “The Long-Term Fiscal Problem,” was hosted by Brown University Women in Business. Mankiw has written multiple economics textbooks used for courses at Brown, including the textbook used for ECON 0110: “Principles of Economics,” and he served on President George W. Bush’s Council of Economic Advisers.

In his talk, Mankiw — who also advised former Massachusetts Governor Mitt Romney’s 2012 presidential campaign — argued against the idea that the United States “can substantially reduce health care costs in this economy without significantly reducing the quality of care.”

The percentage of gross domestic product spent on health care has increased substantially to 17 percent and will continue to rise to about 30 percent over the next 30 years, Mankiw said. He attributed the growth in health care costs to technological advances that have improved the quality of care, adding that a key future challenge will be figuring out how to ensure that such advances benefit Americans of all income levels.

Mankiw countered the idea that the United States will be able to shoulder the costs of an expanding government while avoiding tax increases on the middle class. Policymakers will need to focus on “broadening the tax base” in order to pay for rising health care costs, he said.

Mankiw faulted both Democrats and Republicans for failing to address budgetary imbalances, highlighting Republicans’ opposition to higher taxes and Democrats’ insistence on only raising taxes on the top 1 percent of income earners.

Tax reform must include the elimination of certain deductions, such as the homeowner mortgage interest deduction, which disproportionately benefits high-income individuals because lower-income Americans are more likely to rent, Mankiw said.

Raising the gas tax could be beneficial, Mankiw said, as it would increase efficiency and reduce negative economic externalities, such as pollution.

Mankiw called an increase of gas taxes “smart” but “politically unpopular,” recalling Bush’s rejection of his recommendation to raise the gas tax while he served in the White House.

Mankiw also voiced support for the United States’ imposition of a carbon tax to stem global warming, but added that climate change will require global coordination.

“We have to get China on board,” Mankiw said.

Mankiw’s lecture was followed by a question-and-answer session, in which he fielded questions on international health care cost differences, federal defense spending and long-term debt.

One student asked why U.S. health care costs are much higher than those of Singapore, another developed nation. Mankiw partially attributed the United States’ higher costs to the fact that the federal government does not use price controls on pharmaceuticals.

Price controls on drugs disincentivize research and development by the pharmaceutical industry, Mankiw said, adding that other countries with price controls are “free riding” off of medical advancements from U.S. pharmaceutical research.

Tsvetomira Dumbalska ’16 said she attended the lecture because Mankiw’s textbooks caused her to pursue economics courses and because she was interested in hearing his perspective, which she said was more conservative than the views of some faculty members in the University’s economics department.

Mike Simmons ’14 said he enjoyed the talk but thought it was “hard to get an in-depth look” at each economic issue Mankiw addressed. He added that he wished Mankiw had discussed whether increasing the number of insured patients would help the nation reduce emergency hospital care costs.

Minji Cha ’14, president of Brown University Women in Business, said she was interested in the way Mankiw noted the difference between his own ideas and the policies of politicians for whom he had worked.

Though Mankiw served as an adviser to political figures, in his talk he showed that “he doesn’t necessarily have to agree with everything” that politicians implement, Cha said.

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