Middle-Class Obamacare Anger Elected Trump

Obamacare lowered the every-day standard of living for millions of middle-class Americans. In their anger, they elected Donald Trump.

Make no mistake: Obamacare, otherwise known as the Affordable Care Act, expanded health insurance, and the statistics prove that, in the long run, health insurance will make individuals who did not have it healthier and happier. In the short-run, however, it cost middle-class Americans without health insurance money they did not have and threatened their survival.

Before Obamacare, many uninsured workers skated by on a wing and a prayer without health insurance.

Obamacare’s individual mandate required middle-class workers to internalize the risks of their health care costs—if they had no insurance through their jobs. In other words, it required them to pay for the expected value of their health care costs. Whether they got sick or not, it forced them to buy insurance and stopped them from risking their health.

Until Obamacare, many uninsured workers gambled with their health. Except for daredevils and adrenaline junkies, catastrophic health care costs strike like lightning: it rarely happens, but it devastates its targets. The rare, unlucky, uninsured Americans fell deep into debt or declared bankruptcy. The rest hoped they didn’t bust as the dealer continued dealing cards.

Insurance protects against those risks of an unexpected, costly, health-care emergency. Only middle-class, uninsured Americans could choose whether to purchase health insurance. Lower middle-class uninsured Americans could not afford to choose to buy health care. Upper middle-class uninsured Americans could absorb the costs of health care or the costs of a dire illness that struck them. Middle-class, uninsured Americans had to decide whether to risk that huge loss or to buy health care to take a smaller, guaranteed loss.

Uninsured, middle-class Americans floated by on a wing and a prayer. To be clear, those workers had no extra money with which to buy health insurance. In a capitalist economy, competition reduces price to marginal cost: the cost of one additional unit of production. One company is always undercutting the next company until no one can sell the commodity any cheaper. Competition reducing price works very well when producing corn or steel or bricks. Then, everyone can buy more corn or steel or bricks at a cheaper price. But that price-reduction works less well for workers’ salaries.

Before Obamacare, middle-class workers were living on survival wages.

When workers compete, they reduce their wages to marginal cost because someone next door is always willing to work for just a bit less. Among workers, “marginal cost” reflects survival wages. In 1821, David Ricardo developed a principle some call the “iron law of wages.” By definition, then, survival wages means having just enough money to survive and no more. Competition thus reduces wages to survival wages.

When Obamacare’s individual mandate compelled millions of Americans to buy health insurance, they were already working for survival wages. They did not have extra money to afford health insurance. Sure, when a worker applied for her next job, her next-door neighbor would have a harder time undercutting her wages because both of them would have to pay for health care.

And sure, survival wages increased simultaneously across the board, so, eventually, survival wages would rise to pay for that additional survival cost. No one would take a job that did not even pay survival wages. Post-Obamacare, those survival wages included money to pay for health insurance. But in the meantime, the individual mandate added a new survival cost. Because the cost of living increased as salaries remained constant, the individual mandate tipped millions of Americans’ salaries to below survival wages.

Obamacare threatened middle-class American’s survival.

Lower middle-class Americans already live paycheck-to-paycheck. They did not pay for health insurance before or after Obamacare because they went to the emergency room, or Obamacare heavily subsidized their health insurance so much that it did not affect them. Upper middle-class Americans may have paid some money for health insurance. Some of them even recognized the benefits from accessible insurance regardless of preconditions. But the individual mandate did not threaten their survival.

That left the middle-class Americans working below survival wages at the same jobs while wages continued to stagnate as they have since the Great Recession. Obamacare threatened their very survival. When you are working hard just to get by, and the government takes that away from you, how angry are you going to feel?

4 thoughts on “Middle-Class Obamacare Anger Elected Trump”

  1. Did you write this?…you are beginning to figure it out….and quickly. You should be more contemporary and more to the point…this is brilliant, informative and correct.

  2. While you make some good points regarding health care, I feel that your characterization of labor and wages is misguided. I have not formally studied economics, but the views you present seem oversimplified. The “iron law of wages” to which you refer might better be attributed to Lassalle. I believe Ricardo saw a tendency driving down wages but also recognized countervailing tendencies. To analogize to an airplane, if one only looks at the effect of gravity and drag, a dismal picture emerges, but if one factors in thrust and lift as well, a more accurate picture emerges.

    As an empirical claim, I believe it is not defensible to say that wages settle at the level of subsistence. You state, “When workers compete, they reduce their wages to marginal cost because someone next door is always willing to work for just a bit less.” This relies on a 19th Century idea of labor as an interchangeable cog in the machine. From an employer’s point of view, there is not an endless supply of labor willing and able to do a particular job. If your theory were correct, nearly every job would pay minimum wage. Employers usually choose to pay more in order to attract, retain, and motivate better workers. Employers who fail to do so must generally settle for lower quality or less reliable labor. The value of even the most unskilled labor can be distinguished (e.g. will the worker show up when the surf is up or there is fresh powder on the mountain?). Furthermore, wages clearly depend on the value of the work performed rather the particular cost of the worker’s survival. If that were not so, there would be no incentive for workers to get additional training and education. Why would a dishwasher spend time and money learning to be a CNA if the increase in wages was only sufficient to match the increase in his or her cost of living? In fact, CNAs make more than dishwashers because their labor is more valuable.

    A better theory of wages requires considering the value of the labor to the employer. There is not an infinite pool of labor willing and able to do a particular job, at a particular time, in a particular place. Therefore, competition cuts both ways. Employers who pay less than market wages risk losing access to valuable assets. It does not make sense to forgo valuable and profitable labor merely because less valuable and less profitable labor is available. This is like a grocer who buys cut-rate produce, only to discover that customers will only pay low prices for it. The grocer may easily lose money once one factors in other costs such as overhead.

    Finally, it is a particular peeve of mine to suggest that the American middle class is barely paid a survival wage. The vast majority of humans throughout history and today survive at a much lower material standard of living than that enjoyed by the American middle class. That kind of hyperbole is an insult to those whose struggles are vastly greater, and it does not contribute to our understanding of the American situation.

    Respectfully,
    Sam

    1. Hi Sam,

      Thank you for your very thoughtful and considered comments. You’re absolutely right that I assumed for the this post that laborers were interchangeable. As you point out, a more precise picture of all of the forces that impact wages would require a more sophisticated analysis, and this post did not handle all of those complexities. I also agree with your statement that employers will pay more for better workers. If an employer can choose between two more-reliable workers, however, the employer will still pick the worker who will work for less. That results from the assumption I made.

      On paying the middle class a survival wage, I bet we could come closer to agreeing if we more precisely defined “middle class” and “survival wage.” I certainly never intended to insult people with great difficulties in surviving. I sought to explain competition’s downward force on wages.

      Finally, as far as citations, in his book the Affluent Society, at 22, John Kenneth Galbraith attributed this to Adam Smith, David Ricardo, and Karl Marx.

      Adam Smith stated “A man must always live by his work, and his wages must at least be sufficient to maintain him. They must even upon most occasions be somewhat more; otherwise it would be impossible for him to bring up a family, and the race of such workmen could not last beyond the first generation.” Wealth of Nations Ch. VIII.

      David Ricardo wrote, “The power of the labourer to support himself, and the family which may be necessary to keep up the number of labourers, does not depend on the quantity of money which he may receive for wages, but on the quantity of food, necessaries, and conveniences become essential to him from habit, which that money will purchase. The natural price of labour, therefore, depends on the price of the food, necessaries, and conveniences required for the support of the labourer and his family. With a rise in the price of food and necessaries, the natural price of labour will rise; with the fall in their price, the natural price of labour will fall.” On the Principles of Political Economy and Taxation 93.

      Finally, Marx wrote in the Communist Manifesto that “the cost of production of a workman is restricted, almost entirely, to the means of subsistence that he requires for his maintenance, and for the propagation of his race.”

      I’ll work on a post to describe how education and work-ethic differentiates workers.

      Thank you for reading!

      Jared

      1. Of the three quotes you provide, only Marx actually claims that wages will be determined by the cost of subsistence for the laborer. Smith explicitly rejects that claim. I see Ricardo as defining the term “natural wages,” but I’m not convinced (certainly not from that quote) that he believed actual wages would necessarily be determined by what he called natural wages. Notice too, that Ricardo includes “conveniences” and things that have “become essential … from habit.” This sounds far more generous that Marx’s “means of subsistence.”

        Regardless of it’s intellectual pedigree, I still dispute the claim that wages generally fall to the lowest level that can sustain the worker. You state that your goal was to “explain competition’s downward force on wages.” In doing so, I believe you have neglected to also consider competition’s upward force on wages. I understand that a blog post can only allow so much nuance, but your analysis strikes me as one-sided. The clearest evidence against your claim is that most jobs pay more than minimum wage, and most working Americans live well above subsistence.

        Germany and Korea are perhaps the best examples contrasting a market economy with its primary competitor, Marxism. In both cases, the Marxists found it necessary to use force to keep people from fleeing to the more market economies. For all Marx’s concern about the conditions of the working class, his ideology has done more to impoverish them than any other in the last 100 years.

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