Gessing: 'Free' money is killing New Mexico
Nothing seems to unite New Mexicans like the desire for “free” money.
Over the past few weeks, no fewer than three opinion pieces have run in various media outlets in support of Medicaid expansion. Two of these articles were from Democratic legislators.
While “compassion” and alleged health care improvements – unsupported by real-world data – were cited, a central argument involved “free” money that is flowing into the state from Washington.
Recently, I had the chance to testify before an interim committee of the New Mexico Legislature on the economic impact of Medicaid. The program for the poor was expanded under the federal health care law commonly known as “ObamaCare.” New Mexico was one of 24 states to expand the program in January 2014.
Initially, the expanded portion of the Medicaid program is being financed 100 percent by the federal government. Starting in 2017, that will go down to 95 percent and by 2020 federal support will drop to 90 percent. As 2017 approaches, New Mexico legislators have been quoted saying that the increased cost of Medicaid is a “runaway train” and “you can’t put the brakes on health care costs.”
New Mexico’s budgetary outlook is indeed bleak as total Medicaid expenditures are projected to rise to $5.5 billion with state taxpayers kicking in nearly $1 billion of that annual total. It has been the fastest growing item in the budget and with the state paying an increased share of the program’s expansion costs, that growth rate will rise rapidly in the years ahead. This at a time when New Mexico’s budget is expected to be stagnant as oil and gas prices remain depressed.
Unfortunately for New Mexico, the “stimulus” effects of having the federal government pay 100 percent of the cost of Medicaid expansion are nowhere to be found. The Rio Grande Foundation examined job growth in the expansion and non-expansion states and found that the 20 states that turned down the “free” money by not expanding Medicaid saw slightly faster overall job growth than the expansion states.
How could “free” money not stimulate New Mexico's economy? There are many explanations, but one is that welfare programs like Medicaid provide yet another reason for workers to drop out of the work force.
Another explanation is that much of the money doesn’t actually do anything to improve health care. It may result in additional hiring in the health care industry, but these are “paper-pushers” and relatively unproductive bureaucrats. Their productive labor is consumed by a wasteful bureaucracy rather than being put to work in the private sector economy.
Again, these are just two potential reasons why Medicaid expansion may not have “stimulated” New Mexico’s economy or the economy of other states that expanded Medicaid with temporarily “free” money.
New Mexico has long been reliant on federal dollars. As federal spending is increasingly consumed by entitlements (as opposed to research labs and military bases), we are seeing that this reliance has not been healthy.
A new Rio Grande Foundation report sheds some light on the negative side effects of federal dependency. The report shows that federal dollars increase state and local government spending by 99 cents for every federal dollar. Bloated state government makes it harder for businesses to operate in our state. In other words, those “free” dollars come with economically-harmful strings attached.
Rather than trying to jump-start New Mexico's economy by pilfering more money from Washington, New Mexico's leaders should embrace basic economic reforms. Taxes, occupational licensing,and labor reforms like “right to work” and repeal of the state's “prevailing wage” law can positively impact the economy right away.
Longer-term, policymakers must improve the education system (and thus the viability of our workforce) through dramatic expansion of educational choice.
There's no such thing as a “free” lunch and so-called “free” money is not the road to prosperity.
Paul Gessing is the president of New Mexico’s Rio Grande Foundation, an independent, tax-exempt research and educational organization dedicated to promoting prosperity for New Mexico based on principles of limited government, economic freedom and individual responsibility.