Republicans Hate Government Programs that Work because they Prove them Wrong

Elderly-Pensioners-I’m always bemused by conversations with government-hating Republicans because the assumption is that the private sector always does it better and government programs aren’t–by definition–cost or service efficient.   As you know, I’m an economist by training.  This puts me in the category of people that look specifically for things that minimize costs and maximize output because economics is chiefly concerned with helping society allocate scarce resources to the most efficient use.  So, I examine each product or service and look at the various characteristics and look for signs of market vitality or market failure.

It becomes obvious fairly quickly that the government is actually best at doing some things and that in some markets, the government must interfere to guarantee an efficient outcome.  This totally goes against the ideological bent of those that just want to drown government in their golden bath tubs.  This is because they’re really not looking for the best outcomes for the market or for the society.  They’re looking to set up a zero-sum game where they get as much as possible because most of them have been set up into positions where they can do so through no attributes of their own.  This means that others get less by no fault of their own which goes without consideration. No one also discusses the aspect that it comes from “no fault of their own” because it goes against the “these people are weak and dependent” canard that the advantaged like to push.  Most so-called ‘free-market champions’ don’t like efficient, competitive markets because these markets produce efficient outcomes.  The advantaged really prefer markets that they can game so they get more than an efficient market would allocate.

I’ve spent some time in the past describing situations where it’s really impossible for the market to work without some government interference.  Usually, these markets are full of risks like  information asymmetry and moral hazard.  Actually, I think most of you recognize those terms because I use them so much.  Essentially, any market can be gamed if the demand or supply of that market exhibits pretty specific characteristics.  We’ve known these characteristics for a very long time.  They are no secret.  The markets that function the least efficiently when left alone are markets where the pricing mechanism doesn’t work because it’s for a good or service that is hard to price. Many times there’s the risk of unknown or hidden information where there are a lot of third parties that step in to provide expert information because the buyers can’t navigate the markets by themselves.

Any market where there are information brokers or ‘insurance’ or ‘maintenance’ plans usually indicates a good or a service where the buyers are in a weak position of knowing what’s going on and have to pay others to negotiate the risk for them. This also makes them vulnerable to scams. Financial markets are rife with that kind of situation.  So are markets where it’s hard to get the service or good because it’s so pricey, rare, or technical and not many people can afford it.  Some of the things that many countries offer through government provision are health insurance or service, education and scientific research, public safety, and old age and disability insurance.  We’ve found–through careful study–that government provision of many of these things is cheapest and most efficient because placing every one in one market eliminates these risks.  These programs have come under increasing attack in the US by the current nuts in the Republican Party and a bunch of sold-out Democrats. That’s because there are profits to be made from re-introducing the risk into the market.

The attacks on government provision are never based on the efficacy of the programs themselves.  Almost every one can see that programs like Soup_Kitchens_2Head Start and Social Security do exactly what they’re supposed to do.  In most places–including the states where I grew up–public education works so well that the demand for private education is fairly limited.  But, rather than look at what’s right with the public schools in Minnesota or Nebraska or North Dakota, Louisiana Governor Jindal turns to a private providers.  We’ve had that now for about 7 years and the school district in New Orleans filled with private charters has no better outcomes than it did before privatization.  The experiment is already shown to be failing but still, the push is on. Similarly, if you would turn retirement funds completely over to Wall Street, chances are you’d have the same kinds of miserable failures that characterize most 401K plans. One of the biggest problems is fee churning where people pay exorbitant fees that drain their returns and principle despite fund performance. Such is profit-driven third party provision.

So, I could spend some more virtual ink on the documented failures of  these many privatization schemes for goods and services where the academic studies document the failures and the press and the politicians ignore the stylized facts.  Instead, I want to share Josh Barro’s excellent article explaining why we should be expanding Social Security--one of these highly successful programs–rather than quietly watch the program be strangled by greedy ideologues. He’s provided wonky graphs and numbers.  I’m showing you photos of elderly poverty during the Great Depression.  Elder poverty was vast at that time.  Social Security changed that.  So, why strangle something that works so well?  Take a look at those pictures because if these folks get away with dismantling the program, those situations will return.  What kind of burden will that leave to our children or will they just gently step over all the sick and dying old people in the streets who haven’t been taken in by their still struggling relatives?

With everyone in Washington experiencing sea-bass-induced euphoria, we’re talking again about a “grand bargain” to replace the sequestration and shrink the federal budget deficit. And that means we’re talking about using the chained consumer-price index, a lower and more accurate inflation measure, to modestly raise taxes and cut Social Security benefits over time.

Back in December, I wrote that applying chained CPI to Social Security is the wrong solution to our budget problems: It’s just a way of dressingiYhcYKXlJ1gs up a cut to retirement benefits at a time when retirement insecurity is rising. Despite its problems, Social Security is the best-functioning component of the U.S.’s retirement-saving system. Instead of cutting, the federal government should be expanding its role in retirement saving.

I’m always struck when people talk about Social Security as “just” an insurance program, when it’s in fact the most important retirement-saving vehicle. The chart below, adapted from a 2012 paper by Boston College Professor Alicia Munnell, shows the financial situation of a “typical” pre-retirement household. These are the mean holdings of a household in the middle net worth decile among households headed by people age 55 to 64.

Okay, I had to give into my inner wonk and put in one graph.  As you can see, most older Americans are or will be highly reliant on their Social Security Savings.  I would also like to remind a few people that folks of my age were told if we went along and paid all of our working incomes into Ronald Reagan’s big FICA tax increase, our Social Security benefit would be safe. So, how does it feel to watch these folks ready and able to pull the rug out from under those folks especially after most of their investments and home prices have not really recovered since the Great Recession of 2007.

Keep in mind, that most folks nearing or at retirement rely on bonds which are paying nearly historically low rates of interest and will continue to do so for some time because of Fed policy to keep interest rates low.  You are told to shift your funds away from equities and into bonds as you close in on retirement.  Anyone that followed that advice for their 401ks or 403bs is probably looking at a pretty grim situation.  The same Fed Policy that is stimulating all those grand stock market surges and corporate profits is killing most older adults and retired folks’  retirement savings portfolios.  And, that implies some that they have them.  Large number of studies say that a lot of folks do not have any kind of retirement benefit or savings outside of their homes and social security.  So, you can see that I’m really not kidding when I envision kids either having to take their grandparents into their homes or endure stepping over them in the streets.  Social Security is the program that keeps the elderly independent, fed, and alive.  Or, as Barro puts it more succinctly:

Social Security is dominant: Forty-nine percent of this household’s wealth is in the form of the expectation of drawing government benefits in the future. The next largest slice, 23 percent, is accrued benefits in traditional pension plans. But that figure is skewed by a handful of workers who are lucky enough to participate in such plans; as of 2010, only 14 percent of U.S. workers were earning benefits in such a plan.

Private saving for retirement is woeful. This typical near-retirement household has just $42,000 in retirement accounts and $18,300 in other financial assets. For most Americans, Social Security isn’t augmenting private saving; private saving is (just barely) augmenting Social Security.

And as both home equity and stocks were battered over the last few years, retirement insecurity worsened. Munnell and her colleagues estimate that as of 2010, 53 percent of American households were on track to be more than 10 percent below the amount of assets they would need at age 65 to maintain their standard of living in retirement, up from 44 percent in 2007.

There are many ways to enhance Social Security.  Barrow mentions three of them.  But, as he points out, none of those are the default option of the Beltway crowd.

The default assumption in Washington is that Social Security needs to be cut to fix our long-term budget problems. But it’s really a question of priorities. Social Security is, by definition, an efficient program: About 98 percent of its costs go out in the form of benefit checks, which the beneficiaries spend on whatever they value most. If we raise taxes on the people who would gain from increased benefits and cut in areas like Medicare, where the government buys a lot of things we don’t really need, we can afford to augment the federal role in retirement saving and alleviate the problem of retirement insecurity.

See that?  We’re talking about an efficient government program.  But, again, that seems to just fly in the face of the current Republican party’s–and more than a few Democratic enablers–110912_great_depression_ap_328desire to recreate Mississippi in every possible place in America.  They don’t want any example of  government programs that work well because that doesn’t fit in with their 100% privatization schemes that increase their personal wealth and the wealth of their plutocrat overlords.  The most sad thing is that the most successful public programs are those that provide security to the most vulnerable populations; poor children and the elderly.  So, granny and baby-starving Republicans are literally hurting the least among us to do the bidding of their corporate plantation masters who seem to never, ever get enough.

It’s obviously not about what works and what doesn’t or what’s an efficient use of tax payer money and what’s not.  It’s about enriching the few at the cost of the many while using outright lies and distortions to confuse the issue.  We don’t need to socialize many things in order to achieve an efficient economy.  Indeed, there are many markets that would operate better without government interference to subsidize the suppliers.  But, you rarely hear any one talk about removing the many market-killing examples of corporate welfare.  Instead, you only hear about sinking the government programs that are efficient and provide a modicum of safety to the least among us.  I think a lot of it is because it outrages their sensibilities to see themselves be proved so hugely wrong time and time again.  Government subsidies to corporations are seen as enabling the free market even when they do the very opposite. But, political decision makers create or make programs inefficient to support their world views.  This makes the ridiculous attacks on Social Security and Head Start even more spurious. What really kills me is the number of pundits that would rather spout platitudes pushed in their mouths by their delusional overlords than find studies like Munnell’s that prove them so very wrong.  At least a few of them–like Josh Barro at Bloomberg who is also the son of one of the gods of economics–takes the time to do a little research. Now, if some of that research would only reach the President’s desk.