August 13, 2012
Governor Romney’s decision to select Paul Ryan as his running mate has condemned the country to 90 days of ridiculous news stories and columns about a choice on the size and role of government. The debate is silly because its explicit assumption is that Paul Ryan wants a small role for government. There is no evidence to support this assertion.
The impact of the government on the economy goes far beyond the amount that it taxes and spends. The way in which structures markets has a far more important impact on the economy. For example, government granted patent monpolies for prescription drugs raise the price the country pays for its medicine by close to $270 billion a year (1.8 percent of GDP). This is every bit as much a big government intervention into the economy as if the government raised taxes by this amount. The total cost of all the monopolies that the government grants as “intellectual property” could run as high as $1 trillion year, or roughly a quarter of federal spending.
The government structures the economy in many other ways as well. The implicit “too big to fail” insurance that it gives to the largest banks is a transfer of more than $60 billion a year to their executives and shareholders by some estimates.
The selective protectionism in trade policy, which deliberately puts manufacturing workers in direct competition with low-paid workers in the developing world, while leaving highly paid professionals like doctors and lawyers largely protected, has the effect of redistributing an enormous amount of income upward. And the Federal Reserve Board’s policy of raising interest rates to increase unemployment among less-educated workers, and thereby depress their wages, as a way to keep inflation at its 2.0 percent target also has an enormous impact on the distribution of income and the economy.
It is incredibly misleading to restrict a discussion of the government’s role in the economy to its tax and spending policies. These policies are at least moderately redistributive, but they don’t come close to offsetting the impact of upwardly redistributional policies that the government imposes when it structures the market. (This is the topic of my non-copyright protected book, The End of Loser Liberalism: Making Markets Progressive.)
While Paul Ryan is a vocal opponent of the policies that the government has in place to protect low and middle income people, he has never indicated any opposition to the massive interventions, like patent monopolies for prescription drugs and the Fed’s policy of using unemployment to fight inflation, that redistribute income upward. For this reason, it is flatly wrong to describe Mr. Ryan as a supporter of small government. He is more accurately described as an opponent of government interventions that redistribute income downward and a supporter of government policies that redistribute income upward.
Needless to say, Robert Samuelson pushes this line in his column today. The headline of his piece touts the prospects of a “meaningful debate.”
Samuelson also gratuitously throws in a couple of false or misleading assertions. He tells readers:
“There would be huge deficits even had there been no Great Recession.”
Nope, that ain’t true, unless Samuelson has information that he hasn’t shared with the Congressional Budget Office (CBO). It’s projections in early 2008, before they recognized the downturn coming, showed very modest deficits for the decade ahead. This would have been the case even if the Bush tax cuts had been extended over the whole decade. (It’s Table 1-1, read it and you’ll know more about the federal budget than anyone at the Washington Post, since they apparently do not have access to CBO projections.)
Samuelson also tells readers:
“It’s impossible to close long-term budget deficits simply by taxing the rich and cutting defense (liberal dogma) or eliminating “waste” and “unneeded” spending (conservative dogma). The “conversation” conducted by Obama and Romney needs to conform to economic and budget realities. If it doesn’t, Americans will discover after the election that they’ve been had.”
Of course the reality is that the projected long-term budget problems are a story of a broken health care system. The United States pays more than twice as much per person for its health care as people in other wealthy countries. If its health care costs were remotely comparable to those in Canada, Germany, or any other country with comparable or better health care outcomes we would be looking at long-term surpluses not deficits. To use Samuelson’s phrase, the country will be had until the public realizes this simple fact.
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