Not a “New Deal,” a “Fair Deal” or a “Square Deal,” but Supposedly a “Better Deal”William Shughart • Wednesday August 9, 2017 1:24 PM PDT •
Towards the end of July, eight months after losing the White House to Donald Trump, leading figures of the Democratic Party launched their crusade to regain control of the U.S. Congress in next year’s midterm elections. Announcing his party’s “Better Deal,” U.S. Senator Charles Schumer wrote that “Rather than having a government that benefits the special interests and very wealthy, Democrats believe that government should work on behalf of the middle class and those struggling to get there.”
A Better Deal? Better hold onto your wallet.
Clearly taking a few pages out of President Trump’s campaign playbook, the Democrats’ policy agenda contains three interrelated promises (“Better Jobs, Better Wages, Better Future”), almost none of which is a proper function of the federal government in the first place or is within its powers actually to fulfill in today’s hyper-partisan atmosphere. Full of action words like “fight back,” “crack down,” and “prioritize,” the Better Deal demonizes “unfair foreign trade;” “corporations and billionaires,” especially those who “outsource American jobs;” “monopolies;” “special interests;” “lobbyists” and “Wall Street.” It is vintage populism; it could have been written a century ago.
Meant to be a call to arms – a political manifesto – rallying the Democratic Party’s core constituencies, which either supported Vermont Senator Bernie Sanders or defected to Trump rather than vote for Hillary Clinton, the Better Deal is long on platitudes and short on details.
The first promise is to “raise the wages and incomes of American workers and create millions of good-paying [fulltime] jobs.” That goal ostensibly will be reached in a number of ways, including “investing in our crumbling infrastructure and prioritizing small business and entrepreneurs,” but the centerpieces of the proposal are to “ensure a living wage for all Americans” and to protect private pensions, “Social Security and Medicare, so that seniors can retire with dignity.”
While it has become commonplace for pundits to bemoan the conditions of the nation’s roads, dams and bridges, reality may not match the rhetoric, especially so at the state level. Even if it does, however, massive spending of the taxpayers’ hard-earned incomes to repair or replace existing infrastructure is not necessarily the best solution to the problem. That conclusion gains traction if one looks at the results of the Keynesian economic stimulus packages enacted under Presidents George W. Bush and Barack Obama. Remember all of the “shovel-ready” construction projects that, if funded, supposedly would get the U.S. economy quickly moving again? Plagued by inevitable waste, corruption and delays, the stimulus hardly had any long-term effects. It is important to remember, too, that to the extent that our infrastructure is “crumbling,” it is doing so because of governmental neglect of routine maintenance, which is less visible to voters and less rewarding to reelection-minded politicians than funding new construction projects.
Democrats generally think that spending more OPM (other people’s money) is the answer for every perceived social and political ill. The jobs “created” by pouring federal resources into infrastructure, like all construction projects, are temporary and will disappear as soon as the work is finished. A bolder option, suggested recently by Nobel laureate Vernon Smith, is to privatize the federal Interstate highway system, thereby allowing infrastructure “investment” decisions to be made by private sector actors who actually have incentives to evaluate financial rates of return to the various maintenance projects available and to then select the ones for which the benefits exceed the cost is rather than having them determined politically.
How, exactly, does a Better Deal propose to “raise the wages and incomes of American workers”? Is the Democratic Party contemplating a basic income guarantee (BIG), also known as a universal basic income? Such a program, which establishes a minimum annual income for everyone, would have some positive aspects, provided that it replaces all existing taxpayer-financed income transfers (food stamps, now called “SNAP” – supplemental nutrition assistance – housing assistance, taxpayer-financed unemployment benefits, Medicaid, Medicare, Social Security and too many other ornaments of the welfare state to mention). But, like all such transfers, BIG undermines incentives to participate in the labor force and to earn one’s own way in life. The worst of all possible worlds would materialize if BIG or something like it is added on top of existing income transfers.
Another option being bandied about is to more than double the federal minimum wage to $15 per hour. Some commentators and students of the effects of minimum wages find only small negative effects on total employment, but they are asking the wrong question. As shown by a recent study of Seattle, Washington’s, labor market, where the minimum hourly wage is being raised in steps to $15 – it’s not there, yet – employers can adjust to mandated increases in cash wages along many margins. One of those ways is to keep the same number of people on the payroll, but to shorten the hours they are allowed to work per day or per week. Other responses to higher minimum wages are to cut non-wage fringe benefits, such as on-the-job training, breaks during the workday, opportunities to eat meals at no charge or at reduced prices, help with buying uniforms, paid vacations, and employer-provided health insurance and pensions, if any. If an employee does not add more than $15 per hour in value to his or her employer, then requiring such a minimum hourly wage cannot make that person better off.
Social Security and Medicare are in deep financial trouble, with those programs’ unfunded liabilities now approaching $100 trillion – five times the accumulated federal debt. Ensuring that “seniors retire with dignity” requires drastic action within the next decade or so. Payroll tax rates that fund those programs must be increased, recipients’ benefits must be cut, the age at which people become eligible for full retirement benefits must be pushed back, or some combination of those reforms must be enacted. A Better Deal is silent on how these social safety programs will be “protected.” Certainly, no mention is made of the possibility of privatizing retirees’ public pension and healthcare benefits, putting them on sound actuarial footings to avoid the looming crisis.
A Better Deal’s second promise is to “lower the cost of living for families.” The manifesto focuses on “the crippling cost of prescription drugs and the cost of a college or technical education that leads to a good job.” It pledges to “fight for families struggling with high monthly bills like childcare, credit card fees, and cable bills” and to “crack down on monopolies and the concentration of economic power that has led to higher prices for consumers, workers, and small business – and make sure Wall Street never endangers Main Street again.”
Where is acknowledgement that government itself was the proximate cause of the consolidation of financial institutions both during and after the “crisis” that precipitated the so-called Great Recession? Or that it is public regulation of childcare services and the pharmaceutical industry, along with the creation of exclusive local franchise cable television monopolies denying consumers the benefits of vigorous competition, thus leading to higher credit card fees, prescription drug prices and cable bills than otherwise? The costs of a college or technical education are souring, faster even than healthcare costs in part because taxpayer-financed grants and loans to institutions of higher learning supply incentives for those institutions to raise tuition charges and fees to capture the subsidies for themselves and then spend them on administrators rather than faculty or students.
Extolling the benefits of more active enforcement of the antitrust laws ignores the substantial public choice literature arguing that antitrust simply is just another form of economic regulation and, hence, vulnerable to capture by special interests – often the rivals of companies contemplating merging or of large, cost-efficient corporations – trying, often successfully, to win in the courtroom what they are unable to win in a competitive marketplace.
Last, the manifesto promises “to build an economy that gives working Americans the tools to succeed in the 21st century.” Such an economy will be fostered by providing “new tax incentives to employers that invest in workforce training and education and make sure the rules of the economy support companies that focus on long-term growth, rather than short-term profits.” In addition, “we will make it a national priority to bring high-speed Internet to every corner of America and offer an apprenticeship to millions of new workers. We will encourage innovation, invest in advanced research and ensure start-ups and small business can compete and prosper.”
Government institutionally is not capable of identifying and selecting the next new thing and, thus, cannot know where to “encourage innovation” or what “advanced research” merits investment. “Workforce training and education” are signal failures of the U.S. public-school monopoly and direct consequences of the iron grip of teachers’ unions. And how would politicians and the bureaucrats employed by the administrative state even begin to know which companies “focus on long-term growth rather than short-term profits”? Such decisions are made far better in decentralized market settings than by central planners. What is the value-added of “bring[ing] high-speed internet [access] to every corner of America” over and above existing government subsidies to low-income households for landline and cellular telephone service?
“A Better Deal” proposes to put the same old progressive/populist wine in new bottles. Rather than continuing to engineer society through the tax code and the federal budget, an even better deal would be to cut personal and business income taxes across the board (without a border adjustment tax that penalizes imports and subsidizes exports) and downsize the public sector at all levels so that government has fewer favors to hand out to special interests and fewer penalties to impose on businesses, workers and consumers.
I am not optimistic about the future because the concept of liberty that animated the Revolutionary generation has been lost and it turns out that many businesspeople and special pleaders are liberty’s most implacable enemies. A social safety net and protection from the harsh gales of creative destruction, not freedom, are what large numbers of Americans apparently want from government nowadays and “A Better Deal” simply responds to that demand.
“Americans ... deserve for this country to work for everyone again” says Sen. Schumer. “A Better Deal” promises to enslave families even more firmly to the administrative state. It reverses completely President Kennedy’s “Ask not what your country can do for you....”