In the debate over health care reform, advocates of expanded government health insurance suggest we can pay for this by making Medicare and Medicaid more efficient.
In Paul Krugman’s most recent column, he makes a similar claim about reducing greenhouse gas emissions:
The evidence suggests that we’re wasting a lot of energy right now. That is, we’re burning large amounts of coal, oil and gas in ways that don’t actually enhance our standard of living — a phenomenon known in the research literature as the “energy-efficiency gap.” The existence of this gap suggests that policies promoting energy conservation could, up to a point, actually make consumers richer.
Both claims of a “free lunch” are heroic, at best.
In the case of health insurance, Medicare and Medicaid are inefficient, but to make them more efficient we have to reduce government subsidy for health insurance, not expand it.
In the case of energy efficiency, more energy-efficient practices exist (e.g., replacing incandescent light bulbs with CFLs), but they are expensive: if they actually made consumers richer, most would be using them already.
Now the fact that expanded government health insurance and increased energy efficiency would cost more, not less, does not prove they are bad ideas (that’s a separate discussion). But it means society must evaluate a tradeoff, not just assert we can have something for nothing.