Despite the extreme increase in partisanship that has gripped the nation for the past four years, there are some questions on which many Democrats actually agree with Republicans. The problem is that some, and maybe even most, of these points of agreement are objectively incorrect, and they end up harming America and the world.
One obvious example, about which I have written frequently here on Verdict (for example, here) and on Dorf on Law, is the issue of government debt and deficits. Many Democrats join Republicans in saying that the “right” fiscal policy would have the federal government running a balanced budget every year. That belief is a bit awkward, because it is simply inconsistent with another widely held notion, that the accumulated national debt must be paid down to zero. At least rhetorically, however, many Democrats agree with Republicans that it is important to balance the budget in the most simplistic sense of that term.
There is certainly disagreement between (and within) the major parties about how to achieve balanced budgets, but a wide swath of national politicians worships at the altar of the zero annual deficit. They do so, unfortunately, against the overwhelming weight of economic knowledge. Even textbooks written by conservative economists acknowledge that there is a reason to run annual deficits in perpetuity, in order to finance useful public investments (also known as “national saving”). Those conservative economists might argue for political reasons that there are few such investments available, but that does not mean that the conventional wisdom is correct to call for balanced budgets every year, as soon as possible and then forevermore.
Similarly, there is a common view among Republicans and many Democrats that government regulations harm business. The idea is not merely that any particular business might chafe at being prevented from making money by (for example) refusing to pay for their own environmental damage, but that regulations in general are somehow more broadly “inefficient,” in a very particular sense of that word.
Like the consensus view about government deficits, however, that anti-regulatory view is wrong. It is wrong not (only) as a matter of politics, but as a fundamental analytical matter. In this column, I will explain why the idea that “regulation of businesses is inefficient” is inherently incoherent. Even so, that idea feeds into the general belief held by the public and politicians that government action is always harmful.
And this mistaken belief might have even worse consequences than one might have thought. Although the country has long been harmed in many ways by this general anti-government sentiment, frequently causing us to miss out on opportunities to improve the economy and society, to date we have not been faced with a situation in which a “non-governmental solution” simply does not exist. As I will argue at the end of this column, the Ebola crisis has exposed the ultimate danger of demonizing government, by leaving too many people with no trust in the government to do what needs to be done, yet with nowhere else to turn for solutions.
The False Idea That an Economy Could Be Unregulated
In a column that I wrote several years ago, I discussed how truly strange it is to listen to anti-government ideologues, who talk about “getting the government’s hands off the economy,” and similar extreme claims. My argument was not that government involvement is good and that no government involvement would be bad, but that there is simply no such thing as an economy with no government involvement.
I was making what is actually an old point, yet a point that is as pertinent as ever. Even a relatively primitive economy can function only if there are enforceable property laws, contracts, criminal laws protecting property and persons, tort laws, and the whole legal framework that makes it possible for people confidently to engage in economic transactions.
Even legal rules that are sometimes called “anti-business” are, in fact, part of the mosaic of laws that make business possible. Contract law doctrines that prevent parties from sneaking outrageous provisions into the fine print, for example, make both customers and businesses better off by reducing the expenses of self-protection in bargaining.
In a post-modern economy like ours in 2014, moreover, the protections of these laws are even more central to our ability to engage in transactions. Although “trust” might seem to be an emotional notion, rather than a hard-headed economic concept, nearly all of modern finance is premised on the ability of transacting parties to trust in the integrity of the payments system. Without laws telling us that, say, the new Apple iPhone-based payments system will be subject to various user protections, these non-cash payment systems could never be anything more than a Wild West of unprotected and arbitrarily enforced risky bets.
In that fundamental way, therefore, the idea that “regulation is bad” is simply incoherent. The government stands in the background of every transaction, and whether the parties to the transaction know it or not (and whether they like government or hate it), their wealth and prosperity could not exist were it not for a government providing a legal framework that allows capitalism to exist and function.
What Does It Mean to Call Something “Unregulated”?
In a very basic sense, therefore, it is meaningless to describe any capitalist economy as “unregulated.” Yet people have developed an intuition about what counts as “more regulated” and “less regulated,” in a way that drives political debate. What lies behind that common understanding?
Essentially, when the government enforces a set of laws that give advantages to business owners, rather than to their customers or employees, politicians and pundits say that the “market is unregulated.” Again, that does not mean that the government is not involved. It means only that the government sits in the business owners’ corner, enforcing laws in a way that allows businesses to extract additional profits from their counter-parties.
For example, when a customer complains that a company has sold an unsafe product, the government could say that the company that sold the product is liable for damages to the buyer. Or, the government could invoke an unforgiving “buyer beware” standard and say, in essence, that the victim is to blame for his own injuries. Either way, however, the government is very much part of the story, because in the supposedly unregulated scenario the selling company would be legally entitled to fight (and win) against any attempt to cancel payments on credit cards, or to demand a refund.
In extreme cases, the government might even enforce laws preventing angry customers from expressing publicly their dissatisfaction with the selling company’s tactics, with the government enforcing defamation laws to protect the business.
In short, the anti-government rhetoric that accompanies complaints against “government regulation” is simply a matter of expressing opposition to specific types of regulation of businesses. When the government says that it will allow the courts and police to be used to enforce, say, the eviction of a tenant from a rental property, the government is most definitely regulating that market. It is merely doing so in a way that pro-corporate ideologues prefer to think of as “natural,” even though it is no more natural than regulations favoring the tenant.
From the Rhetoric of Regulation to the Rhetoric of Efficiency: What Is Efficient Regulation?
The important questions, however, go beyond simply remembering that there is always government involvement in every economic interaction. The claim by pro-business commentators, after all, is not merely that “regulation is bad” (in the sense that they understand regulation), but that regulation is bad for a supposedly objective reason: “regulation is inefficient.”
As I noted at the beginning of this column, the belief that “regulation is inefficient” is shared by Republicans and a large number of Democrats as well. But efficiency in an economic sense is not the objective, neutral idea that many people take it to be. In fact, the only possible way to assess the relative economic efficiency or inefficiency of any set of laws or regulations is first to make judgment calls about what costs and benefits to measure. Two different people can call the same law efficient or inefficient, not because one person is being subjective while the other is being objective, but because they are using different subjective starting points. There is no objective, non-normative baseline.
Consider a provocative example. A recent news article in The New York Times described educational institutions that purport to train people for jobs in medical offices and hospitals, providing skills in relatively simple medical procedures like measuring blood pressure, along with administrative skills necessary in running the business side of a medical practice.
The problem is that these schools seem to exploit their students, taking money (from both the students and the government, through guaranteed student loans) on the basis of false promises and shady business practices that the Times article laid out in depressing detail. The reporter then made a surprising claim: “The medical-assistant education market is inefficient because the American higher education system is largely unregulated.”
The market is inefficient because it is unregulated? In the standard anti-government mindset, that is a nonsensical statement. Any government involvement must supposedly lead to inefficiency, so how could it be that the market for training people as medical assistants could be improved by “more regulation”?
Again, the answer is that the problems that exist in that market arise from allowing the seller of this “product” (training as a medical assistant) to face few or no consequences for deceptive practices. More to the point, the government is there to force students to pay their bills, because it currently enforces contract law doctrines in ways that favor the schools, not the students.
Obviously, therefore, one should not be neutral about the question of how the medical-assistant education market is regulated. The regulation of that market should be changed, and doing so would improve matters from the perspective of the preyed-upon students, as well as for society as a whole. But to reach that conclusion, we do not rely upon some idea that “regulation is good (or bad)” or that “regulation always makes things more efficient (or less efficient).” One can only make a reasonable assessment once one has decided which costs and benefits of these economic interactions matter, and which do not.
How Does Ebola Relate to All of This?
As I noted above, all of these economic arguments about regulation and government-induced inefficiency have a surprising connection to the Ebola crisis. The problem arises because Ebola is an extreme case where the alternative to a “government solution” is not a “free market solution,” because in fact there is no alternative at all.
In everything that I have described above, after all, the argument is not really about whether “government is good or bad,” but about how different kinds of government rules will lead to different economic outcomes, and then how to assess those outcomes.
When an anti-government ideologue says that “the government always screws things up,” that really means that the speaker believes that there is a way for the government to change its rules so that its involvement in the transaction might be less visible, and that the person making that claim believes that the resulting pro-business result is the best result as a normative matter.
Or, to put it differently, saying that “government is bad” in the usual economic discussions is simply a claim that the government can change its ways such that the world would supposedly be better. “Don’t let the government impose a minimum wage,” for example, really means that the government should enforce wage contracts, no matter how those contracts were reached, and no matter the personal and social consequences of allowing people to work for low wages.
The habit of saying that “the government can’t do anything right,” therefore, can most definitely have damaging policy consequences, if one believes (as I often do) that the “less regulation” type of government involvement in the economy is worse than the alternative.
But in all of those cases, we are talking about a set of choices that are not tantamount to lawlessness. For all the talk about “economic liberty” and all that, arguments against regulation leave us, at worst, with a regulatory framework that still allows the world to move forward, even if we can argue about the goodness or badness of the economic outcomes that ensue.
By contrast, the habit of mind that has caused many conservatives to denigrate the government’s response to the Ebola crisis in the same “government is always bad” terms leaves us with only chaos as an alternative. When, for example, the extreme pundits on cable news outlets complain about incompetent government bureaucrats, they are saying (among other absurd things) that we cannot believe the scientists who tell us that the Ebola crisis is manageable and should not lead to panic.
If it were really true that the government did everything incompetently, however, then what would the alternative be? Is there a private-sector solution? Hardly, because as I explained above, the supposed private-sector (nominally “unregulated”) solutions in the realms of economic transactions are actually public-sector solutions by another name.
With the possibility of an Ebola epidemic, by contrast, we are finally faced with a situation in which the reflexive desire to demonize government is not merely more harmful than helpful. Now, it is entirely harmful to claim that government is bad, when the public’s only alternative is to panic and assume the worst, overreacting to even the most minimal and manageable threat by calling for closing borders or expelling foreigners—solutions that, by the way, would themselves have to be carried out competently by government employees (or by angry mobs).
The larger point, therefore, is that it is one thing to be sloppy in our thinking and to take people seriously when they say that “government always screws up the economy.” That is false, but even when people believe it, we are left at worst with a bad outcome, but not utter disaster.
When anti-government rhetoric leads to unexamined assertions that everything the government says and does cannot be trusted, however, we risk true catastrophe. It is long since time for everyone to stop demonizing government.