Government and Cost Disease, 6/1
a Niskanen Center paper
Steven M. Teles, Samuel Hammond, & Daniel Takash write,
Cost pressures in sectors like health care, housing, child care, and higher education are creating growing, irrepressible public demands to move such costs onto public budgets. Doing so would be a mistake, in our view, because the root cause of escalating costs is overwhelmingly regulatory, rather than budgetary, in nature. Shifting costs onto the public would not only fail to fix the underlying problem; it could also make cost disease substantially worse by shielding consumers from market prices while guaranteeing overregulated sectors a source of unconditional demand.
A commenter pointed me to this Niskanen Center paper, because it seems to relate to my Public Choice meme-phrase, “subsidize demand, restrict supply.” The paper makes many valid points about unnecessarily bloated costs, such as the proliferation of university administrators.
But when it comes to Public Choice, the paper misses the point. They write as if “cost disease” is a problem that just happens to appear by mistake.
The Public Choice point I make is that concentrated interests drive government policy. We have “cost disease” because concentrated interests champion policies that restrict competition. Restrictive regulations in medicine, housing, and education are not bugs waiting to be fixed by Niskanen scholars. They are features of political economy and government intervention in practice.
The authors write,
never-ending deficit financing of new programs thus risks enabling never-ending waves of rent-seeking by providers of cost-diseased goods and services.
In their model of the world, government is trying to do good by helping people get health care, education, and housing, but rent-seeking gets in the way. It is as if they think that subsidizing demand is necessary, but to get it to work government has to watch out for rent-seeking and head it off at the pass. In short, they think subsidizing demand good, restricting supply bad.
In the Public Choice model of the world, rent-seeking is the true basis for both subsidizing demand and restricting supply. Government will not do one without doing the other. “Subsidize demand, restrict supply” is how government works. College education and health “insurance” that goes way beyond coverage for catastrophic events are only merit goods thanks to the lobbying efforts of the providers. Subsidizing demand is as ill-advised as restricting supply.
The authors favor government involvement in health care, education, housing, child care, etc. They seek a middle ground between those who oppose government involvement in these areas and those who are willing to let government spending ratchet ever-upward. But Public Choice theory says that there is no middle ground.
Apparently, “supply-side progressivism” is a thing. Ezra Klein’s name gets mentioned in that context (not in the paper, but elsewhere). I think that Public Choice theory makes it bogus.
Public Choice theory says that government failure is not a problem of finding a more technocratically wise policy. It is a structural issue. If we want “state-capacity libertarianism,” then we need to come up with structural reforms that improve the incentive for better government, and for smaller government. Right now, when government fails, the incentive is to grab more power. When the CDC and FDA fail to use science, the “solution” that Washington comes up with is that they need bigger budgets and more authority.
The COO/CA model is a structural reform. It might not work, but it seems to me a better approach than just saying “policy X would work better,” without taking into account the overall context in which incentives operate.
Incidentally, the Niskanen Center just named Ted Gayer as its new President. I know him slightly. He strikes me as a very low-drama guy, which is good for them.
How does the COA/COO idea, or state capacity libertarianism in general, get around the Public Choice incentives of concentrated interests pushing for subsidizing demand and restricting supply? It is not obvious to me how their incentive structure helps them avoid that, either at the regulatory capture end or the generalized begging for subsidies end.
The Democrats understand how important language is. All who care about these problems should be calling them Government Choice problems, not "Public". It's government schools, building, parks, and government choices which are creating so many problems, not so much the choices of the normal folk, the public.
Allowing government schools to indoctrinate kids into believing how good and important are government benefit, so important that they become moral "rights", entitlements, has created a monster of gov't spending (more demand), gov't regulation (less supply), and far far less individual responsibility.
Freedom to act, adult freedom with responsibility, vs. freedom FROM responsibility, so others pay for any mistakes - with restriction on actions. The gov't spending goes to allow "more equal freedom". The regulations are to reduce, thru restriction, the ability of folks to make mistakes. But the regulations more often restrict good action, while allowing plenty of irresponsible mistakes to be made.
When high level gov't agents make mistakes, like the Fed on inflation, they seem to receive childish freedom from responsibility - so it's no surprise that everybody else wants that freedom, too.