Why Government Doubles Down on Policy MistakesPosted: September 21, 2016
Lawmakers, press and the public need to understand the strength of this “doubling down” phenomenon of and guard against it when adopting policy positions.
In simplified form, the dynamic runs as follows:
1) Government, in response to a perceived need, takes action to meet that need in a manner that distorts economic behavior and produces predictable adverse effects.
2) The public consequently experiences problems and expresses concern.
3) The problems themselves become justification for additional government actions that worsen the distortions and the resultant problems.
4) As problems worsen, the public more urgently demands corrective actions.
5) Steps #3 and #4 are repeated ad infinitum.
We have seen and continue to see this dynamic operate in many areas of economic policy. To cite but a few:
Worker Health Benefits
With the best of intentions the federal government has long exempted worker compensation in the form of health benefits from income taxation. Lawmakers aren’t scaling back the flawed policy that fuels these problems.There is wide consensus among economists that the results of this policy have been highly deleterious. As I have written previously, this tax exclusion “depresses wages, it drives up health spending, it’s regressive, and it makes it harder for people with enduring health conditions to change jobs or enter the individual insurance market.” Lawmakers have reacted not by scaling back the flawed policy that fuels these problems, but rather by trying to shield Americans from the resulting health care cost increases. This has been done through the enactment of additional health programs and policies that further distort health markets and which themselves drive personal and government health spending still higher.
Federal Health Programs
The federal government has enacted programs such as Medicare and Medicaid to protect vulnerable seniors and poor Americans from ruinous health care costs.
The positive benefits of these programs co-exist with well-documented adverse effects. For example, it is firmly established that creating these programs pushed up national health spending, driving health costs higher for Americans as a whole. Consumer displeasure over these health cost increases subsequently became a rationale for still more government health spending, rather than reducing government’s contribution to the problem. Examples of this doubling down include the health exchange subsidies established under the Affordable Care Act (ACA), as well as its further expansion of Medicaid. As the problem of high health care costs remains, proposals have proliferated to expand government’s role still further; for example, some have proposed making Medicare available to the entire US population. Though intended to provide relief, such legislation inevitably adds to national health spending growth.
The cost of higher education has become an increasingly salient policy/political issue. In an effort to broaden access to education, government has subsidized its cost with a heavy emphasis on grants and loans to students and their families. It is now fairly well understood that these subsidies have had the predictable effect of increasing tuition costs. Students and their families regularly complain about having to choose between footing a massive education bill, or taking out student loans that create crushing levels of indebtedness. Many politicians have reacted to these trends not by reconsidering the policies that give rise to them, but by proposing dramatic further expansions of government education subsidies.
Social Security collects payroll taxes from workers and provides monetary benefits to retirees, surviving family members and the disabled. Savings rates among Americans of modest incomes are undesirably low.It operates as an income transfer program rather than by building retirement savings. Because of this, whenever its benefits and tax burdens are expanded, Americans’ abilities and incentives to save for retirement are reduced. This phenomenon is…(read more)
Charles Blahous is a senior research fellow for the Mercatus Center, a research fellow for the Hoover Institution, a public trustee for Social Security and Medicare, and a contributor to e21.
- Op-Ed: Health fee pinches taxpayers (bostonherald.com)