September 07, 2004

Defending Bush Economics

I have a great deal of respect for Russ Nelson "The Angry Economist" but I can't really go along with him on his anti-Bush economics rant. I have two reasons, both sufficient by themselves.

The first is that security has an economics component. A US that is not secure, that has decided to allow an "acceptable" amount of casualties from terrorism because it can't be bothered to really fix the problem also ends up with a worse economy. There ends up being a security tax on everything and I'm sure that Russ would agree that a tax increase is no way to promote good economic times.

The second reason is a bit more directly economic (more specifically politico-economic). George W Bush is something that we haven't seen since before WW II, a conservative politician who is confident of a durable conservative majority. Ever since FDR broke the back of conservative confidence and political dominance in the US, whenever conservatives gain power, it's been in short spurts and progress is measured by how much you can get done in a rush before the inevitable reassertion of the liberal majority. Imagine it as hit and run raiding tactics.

But the Congress, absent self-interested party switchers, hasn't been in Democrat hands since January 1995. It's quite likely that we're entering another period of conservative dominance and it's about time we started to act like it because some of the big reforms just don't work well if done in one fell swoop.

Given the Bush administration's razor thin Congressional majorities, maintaining those majorities, and being able to use them to forward your agenda is a very ugly process, necessitating a lot of smiling and insisting you wanted it after taking it in the shorts.

The core of Bush's contribution to furthering free market economics in his first term is that he has insisted on measuring the results of policies. Over the long haul, what drives economies into the ground is not a mistake here or there in policy. What destroys national economies is when the law creates a system where the normal measurements and feedback loops are either wildly distorted or removed by government fiat. George Bush, while giving in on a variety of here and now issues, has consistently insisted on measuring the results of these systems, starting the process of bringing the 'drunk' (power drunk government in this case) to that crucial moment of clarity where all serious reform starts.

The political history of the modern free market movement in the US is littered with all sorts of failed projects which were tried without adequately preparing the political ground. In a highly challenging Congress, George Bush is steadily reestablishing broken feedback loops so that people can once again start seeing the maddening consequences of government intervention in the economy.

If you want to challenge George Bush's economic compromises, you have to ask whether you think the same compromises would have been made with 5 more conservative members of the Senate, 20 more conservative House members. If George W Bush is such a protectionist, why were the steel tariffs withdrawn?

With prescription drug funding, it is important to remember that surgery costs more than pills. The system prior to getting this bill passed subsidized elder care surgery while leaving pills unsubsidized. This made tremendous perverse incentives and was just one example of a hugely distorted market. The healthcare market is distorted to the breaking point and the forces of stasis, of keeping the dysfunctional system running just a few more years has been a powerful actor for decades in this market.

The current situation, like it or not, is going to see several more bills come out in the near to mid future correcting the problems in the prescription drug bill. We're going to see greater costs on pills but be surprised that surgery costs will drop. The unspoken truth is that dynamic effects in medical care aren't measured by the government any better than dynamic effects in tax policy. Where will we end up net? We don't know yet but a pernicious incentive towards more expensive surgery has been removed and some good measurement systems have been put in place so that the data will favor the free market reformers in the next round.

Health Savings Accounts (HSA) are a tremendous advance. In areas with significant HSA usage, doctors will be able to actually set up true free market practices where they set their prices via a market, bargain, watch their pennies, and even offer discounts and sales in ways that they are currently prohibited from doing by their insurance company provider contracts.

As free market medicine reappears on the american scene and shows that it's a superior alternative, the combination of measurements showing the failure of state alternatives and free market medicine's reappearance will create a long term majority in favor of unwinding our current healthcare policy mess. But the first step always was breaking the decades old logjam halting reform of any type. George W Bush accomplished that and he should be proud of it.

The free market often looks to be cruel, heartless, and just plain mean when a plant closes down, when real wages drop, when any of a hundred different unhappy economic events happen to good people. What sustains the belief in the free market is that these painful adjustments, freeing labor to be repurposed to other uses over the long haul creates a superior long term result. It's disappointing that some free market advocates aren't taking a properly long view on the Bush economic record.

Posted by TMLutas at September 7, 2004 10:34 PM