© Josh Sager – April 2014

In debates over economic policy, American conservatives and libertarians tend to proclaim that their economic ideals are just “common sense solutions” backed up by “basic economic theories.” They point to complex and technocratic economic proposals by progressives with derision and argue that those proposals are just overly-complex and oppressive redistributive measures, created by “ivory tower egg-heads” who have no real understanding of the marketplace.

Conservatives live in a world where “the government is the problem” and the best thing that politicians can do is to leave the economy alone. Simple supply and demand can rule the market and ensure that everybody’s needs are met; government intervention always distorts the market and taxes just take money that would otherwise circulate through the economy and create jobs; welfare is redistribution of wealth at the tip of a gun, where the productive are forced to give money to the lazy; regulations and worker protections are unnecessary, if not harmful and oppressive. To these ideologues, the market will regulate itself and people will not buy good from polluters while workers will not seek employment under abusive employers.

Ironically, these conservatives are correct when they say that their economic platform is based on basic, common sense, economic theories—as in, the theories that you learn in the first few weeks of any university-level macroeconomics 101 course.

For the most part, the conservative economic ideology is built using basic supply and demand curves, the critiques of price floors/ ceilings, and the theoretically self-regulating nature of markets. They combine these simple concepts with the argument that the federal government is too inept and corrupt to implement any interventionist policies beyond preserving contract enforcement, and end up with an extremely simplistic “pro-business” platform.

Unfortunately for conservatives, the real economy is complex and any economic ideology based purely on such basic concepts is bound to fail in application. In effect, conservatives are using the economic equivalent to arithmetic while the real-life problems we are facing require the economic equivalent of calculus to solve.

Bumper-sticker economics (ex. always cut taxes and regulations to create a healthy economy) may be easy to sell to the uninformed, but they aren’t good policy and will almost always result in favorable results for those with entrenched power.

Those Republicans who realize this major flaw with their economic ideology–because they have actually studied economics–are silent on this issue because they are either ideologues who pursue economic principle over results (ex. Stefan Molyneux), or are intentionally promoting an economic ideology which will favor their wealthy donors, even if that policy platform will harm their constituents.

Here are a few examples of the right wing’s over-simplistic understanding of economics creating policy problems:

1) Conservatives promote the idea that the market can handle every segment of the economy, including public services and think that all markets function like consumer markets. They fail to realize that certain segments of the economy are unable to sustain a market because of massive free-rider issues, asymmetry of information, the offloading of externalities, or the inability to abstain from market participation.

For example: the right wing’s assertion that health care can be provided through the market fails to take into account the facts that consumers cannot rationally opt-out of market participation (if you are sick or hurt, you need treatment), rarely have enough information to make consumer choices (ex. you don’t know whether you need an MRI or not) and are forced to choose between very localized providers (there aren’t enough hospitals to create a marketplace of choices). Put simply, there is no market in health care, yet the right wing insists upon trying to apply their basic market principles to its structure.

2) Conservatives promote the privatization of education, infrastructure, incarceration, regulation, and virtually every other public service because they think that the market is the most efficient way to allocate resources and spur growth. In reality, this push to privatize results in private companies skimming the most profitable subsets of the market away from the public sector (ex. consolidating wealthy kids in charter schools or imprisoning healthy, non-violent offenders in private prisons) while leaving the most expensive liabilities for the public sector to deal with (ex. charter schools don’t accept special needs kids and private prisons try to avoid old, sickly, mentally ill, or violent prisoners). Additionally, these private interests bribe elected officials so that they can obtain favorable contracts which give them increased profits, while protecting them from oversight.

In short, this privatization promotes itself through the language of efficiency and innovation, but it is applied in a way which inevitably leads to cronyism, cherry-picking, and the extraction of private profits from public coffers.

3) Conservatives argue that the minimum wage and safety regulations kill jobs and increase prices because they set unnatural price floors that cause production costs to be higher—this is based off of the simple supply and demand graph.

While it is true that unnatural price floors and ceilings distort the market, they don’t necessarily cause harm when implemented responsibly. Wage floors increase the costs of production, but they also ensure that the population at large has sufficient buying power to participate in the economy. This buying power increases the demand for goods and allows employers to make up for the increased costs of production with increased sale volume.

Safety regulations may increase the costs of production, but they are necessary to ensure that private interests don’t render our country uninhabitable by shifting negative externalities onto the public (including other businesses). For example, if a coal company can deposit slurry from a mountaintop removal onto public land, they can eliminate the costs associated with safely disposing of waste by making the public have to pick up those expenses.

4) Conservatives push for a complete elimination of US government debt, if not the passage of a balanced budget amendment. While this sounds good to somebody who is used to balancing a family budget, such rapid cuts and deflationary measures would result in a complete economic meltdown of the United States, if not the world (as our currency is a reserve currency for so many nations).

Conclusion

At the end of the day, the American people need to realize that the simplest economic platform is not necessarily the one which will lead to the best results. There is a reason why economic theory goes far beyond the first few weeks of Macroeconomics 101, and we should be implementing policies which are based off of the most advanced and cutting edge ideas.

I understand the lure of the right wing’s simplistic view of economics—after all, it is far easier to step back and trust the market than to work hard in creating a comprehensive economic policy platform–but would caution anybody to look at the actual results of those policies before they sign over their support.