Picking on Paul Krugman: Conservatives Have No Problem With Big Government

I don't often disagree with Paul Krugman these days but I do have to take him to task for buying into the "conservatives don't like government" line. In a blogpost he notes that a Republican health care bill in the House would take away funding for the Agency for Healthcare Research and Quality and any economic research funded by the National Institutes of Health. He then concludes by commenting:

"You sometimes hear conservatives saying that the role of government should be limited to the provision of public goods; obviously I don’t agree. But it turns out that they hate providing public goods, like research, too."

Okay, there is a consistent pattern in the behavior of conservatives and it has nothing to do with a dislike of public goods or even a dislike of government intervention in the economy.

What is the quintessential public good? That's right, the military. Do we see conservatives like Mitt Romney and Paul Ryan yelling about waste in the military and the need to pare it back? I surely haven't.

So why are they willing to spend so much money on one set of public goods, the military, but hate the thought of spending relatively trivial sums on the Agency for Healthcare Research and Quality or the economic research funded by the National Institutes of Health?

Let's think for a moment about who benefits. Yes, defense contractors make lots of money selling overpriced and often useless hardware and services to the military. While private contractors may get some nickels and dimes out of the Agency for Healthcare Research and Quality or economic research funded by the National Institutes of Health, you won't find the big bucks there. In fact, one result of the research funded by these two agencies might be that insurers, drug companies, medical equipment suppliers and other big corporate interests may find the usefulness or cost of their products called into question. That could lead to lower profits.

In other words, the most obvious story here is not that conservatives are opposed to public goods. Rather they are opposed to public goods that could have the effect of less income being redistributed upward.

The desire to use the government to redistribute income upward is a theme that pervades conservative politics more generally. They don't object to big government, they object to government programs that help poor and middle class people.

To take my favorite example, government-granted patent monopolies raise the cost of prescription drugs by close to $270 billion a year (1.8 percent of GDP) compared to what we would pay in a free market. A government that enforces this monopoly is every bit as big as a government that taxed people $270 billion and sent checks of this amount to the drug companies. Yet, we let the conservatives get away with this huge transfer and pretend this is just the free market.

Such interventions can be found almost everywhere. Copyright laws are similar in raising prices and now require third parties to play an active role in enforcement. The Stop On-Line Piracy Act, supported by most leading conservatives, would have carried this much further.

Too big to fail insurance, provided by the government to large banks, is a subsidy that runs as large as $60 billion a year by some estimates. This subsidy is not qualitatively different from taxing people $60 billion a year in order to send big checks to Lloyd Blankfein, Jamie Dimon and the rest of the gang.

And, a central bank that raises interest rates with the idea of throwing workers out of their jobs, in order to put downward pressure on wages to keep inflation under 2.0 percent, is also big government. In this case, the government is forcing workers to sacrifice paychecks in order to reduce the risk of inflation.

We could say that these and other interventions that favor the rich are just rules of the game, but that is playing into the right's hands. Yes, they are rules of the game, but they are rules that could easily be set differently.

If we let the right rig the rules in ways that redistribute income upward and then are forced to argue for government interventions to partially reverse the bad effects, then we have lost. At least in the United States, arguing the case for big government is like arguing the case for killing puppies. (Don't anyone dare try it on my blog!)

It makes much more sense, as both politics and policy, to argue against rules that are rigged to redistribute income upward. In addition to being regressive, these rules are often horribly inefficient, as anyone reading the constant stream of stories about drug company scandals would know.

This is the whole point of my book, The End of Loser Liberalism: Making Markets Progressive. You don't have to agree with the whole story to agree with the basic point. We are not fighting over big or little government. We are fighting over whether government should serve the interests of the one percent or the broader population. We are doing the right's work for them when we allow them to pretend that the debate is over the principle of limited government.

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written by JSeydl, July 21, 2012 4:05

I hope Krugman responds and acknowledges this point. He has a much bigger readership than does Dean, and so it would really help to get this fundamentally important distinction across...

Semantic Differences
written by jbrown981, July 21, 2012 4:41

"the most obvious story here is not that conservatives are opposed to public goods. Rather they are opposed to public goods that could have the effect of less income being redistributed upward."

Replace "conservatives" with "most Republican candidates and members of Congress" and I agree completely. People like Mitt Romney and Paul Ryan are not necessarily conservatives. They are Republicans.

Question about Drug Patents and Innovation
written by John, July 21, 2012 4:45

Recent follower of your blog, after your thoughts were shared on Planet Money. I've seen you post about government granted patent monopolies for prescription drugs and how they essentially raise the cost of prescription drugs. My question is should we expect less medical innovation if these patents were removed? Does this promise of more profits, lead to more investment by drug companies in R&D and likely lead to more effective RX drugs being offered, though at an inflated cost due to the patent protection? Your thesis makes sense and I think the patent madness in the technology business especially software, seems bad for consumers and competition, but I'm curious if we're likely to see a tradeoff of less medical innovation as a cost of lower prices? Thanks

What gets measured gets done.
written by perplexed, July 21, 2012 5:27

Why is there no push from the economics "profession" to measure and report on these hidden subsidies? The entire motivation for "tax expenditures" and reductions on the revenue side is concealment. It only works because we voluntarily go along with it. If economists started with the whole pie, including monopoly give-a-ways, and then showed the distributions of all government largesse, the chafe would disappear and we could then have a real discussion about who pays, who benefits, and by how much. Apparently economists benefit too much from the existing reporting system or they would participate in the clarification instead of the obfuscation of where the "government welfare" really goes.

To John
written by Mark Jamison, July 21, 2012 5:45

The drug companies spend far more on marketing, and for that matter senior executive salary and bonuses than they do on R&D - much of the basic science is done through NIH or other public entities.
Also,I think sometimes the drug companies conflate the costs they expend to get approval with actual R&D costs and often it those costs that are used to justify extended patent protections.
Approval studies could be publicly funded and probably standardized in a way that makes them much cheaper which would remove at least one argument for the patent monopoly as it now stands.
Dr. Baker has suggested other means that are less expensive and less distorting in providing rewards for innovation, invention, and creation.
I would really suggest the book he sites in the piece. It's a quick read and can be loaded for free.

Answer about Drug Patents and Innovation
written by David, July 21, 2012 5:52

John:

Go to the issues page on this site (link at top of this page). Also, check out the publications page.

Also, browse this blog for previous suggestions by Dean. In particular, google "Stiglitz reward system" for a decent alternative to the patent system.

And, Dean, I am sold. I'm introducing these ideas into my community. The common sense of it is of course most appealing. John's puzzlement is common. Keep giving us clear responses to it!

Puppies?
written by Frank Moraes, July 21, 2012 6:24

I had wanted to respond to John, but Mark and David did such an excellent job, I have little to add. Except: all that drug company R&D goes mostly to finding new ED drugs, not fighting malaria. Government centered research would doubtless be better focused.

I do have a question, though: if puppies are out, can I argue for killing kittens?

Republicans are the party of really, really Big Government
written by Robert Salzberg, July 21, 2012 6:32

Dear Dr. Dean Baker,

You left out the giant subsidy of the FED loaning money for close to zero to all banks that guarantees a few percentage points profit margin.

Subsidies for the oil and gas industries, tax breaks for carried interest, IRA's, vacation homes, multimillion dollar mansions and on and on.

2/3 of Americans don't itemize so basically the whole individual tax code is geared towards subsidizing the habits of the wealthy.

But the real Big Government is in social issues. Here's a partial list.

Abortion rights.
Right to contraception.
Right to vote.
Right to marry for same sex couples.
Right to unreasonable search and seizure.
Equal rights for women.
Equal rights for GLBT Americans.
Right to access to health care.

Biggest Big Government policy of them all
written by Robert Salzberg, July 21, 2012 6:56

I left out the right to not be executed for a crime you didn't commit.

For Most Conservatives, No Market Failure is Worse than Government Failure
written by Last Mover, July 21, 2012 8:19

That there's no real difference between those believing in substantial government spending and control over private markets, just for whom, also explains why the difference between market failure and government failure is hopelessly confused in most public discourse.

Market failure occurs when the market in question cannot function on its own and requires government regulation or replacement by government to work.

Government failure means the regulation or replacement for failed markets fails itself. For example regulatory capture by the market regulated is an example of government failure, implying all parties would be better off with no regulation despite the corresponding market failure.

Rent seeking can be a market failure, a government failure or both. If the original market or government function is not a failure, government or market function replacement respectively can introduce rent seeking on the false pretense of claiming to correct a failure. Examples are criminalization of marijuana but not alchohol for a private market and unnecessary wasteful privatization of the military on a huge scale for what should be a public good.

Since most market failure is generally denied by most conservatives, that's consistent with claiming government is too big and correspondingly a failure itself.

This allows conservatives to proclaim hatred for the very hand that feeds them while embracing it at the same time. Never admit directly the failure in question that's the source of unearned income and wealth, just keep claiming that free markets could do better whatever is involved.

Of course should a real working competitive market actually emerge, including the kind they routinely claim will with deregulation, the same "conservatives" will be the first to cry foul and request government intervention, subsidies and other measures for rescue.

...
written by bmz, July 21, 2012 9:57

http://99percentmanifesto.blog...festo.html

Krugman responds
written by BT, July 22, 2012 2:40

http://krugman.blogs.nytimes.c...D543225708

Conservatives and DOD
written by bakho, July 23, 2012 6:31

Conservatives don't really like the military either. What they like is the private, often no-bid contracts that the military lets, usually to people who donated money to Conservatives. Conservatives want to "Drown Government in a Bathtub". They want to privatize EVERYTHING from the military, to security, to education, &c. Conservatives don't care about the services government provides, other than they would be voted out if BigG provided nothing. Conservatives are only in it for the money (there is a lot of that) and directing it to the people who enrich the politicians.

The corruption is breath-taking and puts the Russian corruption to shame.

On your point about patent monopolies on pharmaceuticals
written by Max Pyziur, July 23, 2012 10:36

Uwe Reinhardt makes the following point about drug prices in the article:
U.S. Health Care Spending In An International Context
by Uwe E. Reinhardt et al.
http://content.healthaffairs.org/content/23/3/10.full

"Although health care has not traditionally been a focus of U.S. foreign and trade policy, the relatively high concentration of market power on the demand side of foreign health systems appears to have become a major irritant to U.S. officials, at least with respect to pharmaceutical prices. These officials acknowledge that U.S. prices for pharmaceuticals are high by international standards; however, they accuse foreign governments of keeping those prices artificially and unduly low within their own health systems, thereby beggaring U.S. patients, who now fund the bulk of U.S. pharmaceutical R&D. "

I would be interested in reading your comments/reaction to that.

Much thanks,

Max Pyziur

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written by andrew, July 23, 2012 1:37

well things may soon get better with upward redistribution in pharm. patents since 11th circuit just said pay for delay agreements between brands and generics are violation of antitrust law.

@John:Pharma Innovation
written by Patrick, July 23, 2012 8:45

There are always tradeoffs for subsidies. Whenever people bring up the costs of pharma monopolies we hear about the costs in less innovation. But things like holding down worker wages through various policies have similar sorts of costs. In particular, lower worker wages reduces the return on labor investment, and thus their incentive. This includes things like education and skill training; just as important to a dynamic and innovative economy as good investment. And the irony here is that we continuously hear very serious people complaining about the structural labor problems in our economy because workers are insufficiently skilled. If they want better skilled workers, they should pay them more. The fact that we continuously hear about the incentives of elites and systematically ignore the incentives of workers is further evidence of the way the right wing sets the agenda when discussing government policy.

patent monopolies
written by Ross Boylan, July 24, 2012 1:35

I'd also like you to provide a longer discussion of patent monopolies. First, when you say they raise the price of drugs by nearly $270 billion, that's compared to what? A system with shorter patents? A system with no patents? The costs in other countries--which operate under what rules?

Second, patents are often seen as providing a fair return for innovation and an incentive for innovation. What is your argument about the fairness of patents and the social efficacy? In some other posts you have hinted that creative work in general needs to move to a different model--perhaps direct government payments to "creators"?

I realize that much of the innovation is drugs is not particularly socially useful, related instead in a high level of "innovation" that is actually a search for the minimum patentable variation from existing drugs.

Picking on Paul Krugman: Conservatives Have No Problem With Big Government

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