It’s Friday Morning; That Means It’s Time to Beat Up David Brooks

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Friday, 30 July 2010 11:14
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As we all know, there are two types of people in the world: those who say that there are two types of people in the world, and those who don’t. David Brooks tells us today that he is in the former category.

 

He etches out two fundamental positions in economic policy debates. On the one hand are the Obama liberals who believe in an expanded role for government in directing the economy. Brooks’ Obama liberals believe that the government has to rein in business and protect the citizenry.

 

His other pole is the Paul Ryan conservative. Paul Ryan conservatives believe in unleashing the power of individual entrepreneurs. They want to get the government out of the way by privatizing Social Security, Medicare, and other programs currently provided by the government.

 

The David Brooks categorization gives us a great fairy tale about the battle of big government liberals versus market-oriented conservatives. But, suppose we step back to the real world for a moment. Let’s imagine that we want to structure the government and market to provide services in the most efficient way and don’t particularly care about whether that means big or small government, which are not well-defined concepts in any case. Outside of David Brooksland, there are many people who hold this view.

 

When we consider a program like Social Security, we would ask how to carry through its purpose – ensuring workers a core retirement income— at the least possible cost. Any serious analysis would almost certainly show that some public Social Security type program fits the bill.

 

The administrative costs of the Social Security program are approximately 0.6 percent of what is paid out in benefits each year. By contrast, the administrative costs of privatized systems like the ones in Chile and the U.K. are on the order of 15-20 percent of the benefits paid out annually.

 

Furthermore, these privatized systems do not allow individuals to do what they want with their money. They threaten them with jail if they don’t turn over a fraction of their earnings to the financial industry each year. So the commitment to a privatized Social Security system seems more like a commitment to force people to give money to Merrill Lynch than a commitment to individual freedom.

 

The same applies to privatizing Medicare. We can hand people vouchers and tell them to buy the health care they want. However, this would require a massive array of laws and bureaucracy to ensure that the providers accepting these vouchers were not gaming the system and ripping off beneficiaries and the government. This approach can increase profits for insurers and providers but there is no evidence whatsoever to suggest that it would make it possible to provide the elderly with health care at a lower cost.

 

We can take steps to lower costs and reduce the role of government that will send David Brooks’ small government types fleeing in horror. Suppose that we got rid of government patent monopolies and allowed all prescription drugs to be sold at generic prices in a competitive market. Free market types should love this one. Instead of drugs selling for hundreds, or even thousands, of dollars per prescription, they could be bought at chain drug stores for five or ten bucks.

 

The research could be supported by government research grants awarded through competitive contracts. The government already spends $30 billion a year on biomedical research through the National Institutes of Health. If this sum was doubled, then it would probably be sufficient to replace the industry’s funding; especially if a requirement of getting grants was that all research findings would be posted on the Internet where they would be freely available to other researchers.

 

We could also try a variation of the Paul Ryan approach to Medicare vouchers. Instead of creating an incredibly burdensome task of policing a privatized system in the United States, we can allow beneficiaries the option to buy into the much more efficient systems in Europe, Canada and elsewhere. Free market types should love this win-win situation where giving beneficiaries a choice will allow taxpayers to save money on Medicare and put large sums of money (more than $10,000 a year in many cases) into the pockets of our retired workers. But, this voucher system means less money for the insurers, the drug companies and other providers, so Paul Ryan would not support it.

 

There are many other cases where smaller government can be used to accomplish the progressive goals of providing basic needs and limiting inequality[CSN]. But Paul Ryan and his friends are not likely to be interested in these policies. This might suggest that, in spite of what David Brooks tells us, Mr. Ryan’s concern is not reducing the size of government, but rather redistributing income upward.

 

Of course, upward redistribution of income is not a very good political platform since there are many more people who end up losers in this story than winners. And, in a democracy, politicians are unlikely to win elections if they promise to take money out of most voters’ pockets.

 

So, Mr. Ryan and David Brooks come up with stories about how conservatives want to limit government and unleash individual entrepreneurs. The story might have little basis in reality, but that doesn’t mean that you can’t get it in the NYT and persuade lots of people to take it seriously.