Commentary

‘Affordable’ Economics

This article appeared in the Washington Times, November 19, 2006.

Before the election, Nancy Pelosi put out a blathering pamphlet called “A New Direction for America.” It was full of promises to make things more affordable — including “lower gas prices” (thanks to “tough laws to prevent price gouging”), and “affordable access to health insurance,” and “affordable college,” and “affordable broadband access.”

Searching the paradoxical combination “affordable Democrats” brings up nearly 1.4 million hits. One of our major political parties seems to have been having a giant garage sale with other people’s property.

Everybody loves a bargain, so profligate promises of cheap gasoline, health insurance, student loans and fast Internet hook-ups were bound to appeal to everyone who relies on telephone marketing and Internet spam to find a bargain. But why stop there? Why don’t Democratic politicians promise to make many more things affordable?

My wife just paid $3 for a single artichoke. Can’t congressional Democrats do something about that? Can’t they make artichokes affordable for the middle class? And why not use their “tough laws to prevent price gouging” to slash the outrageous price of lifesaving red wine? Doesn’t the middle class deserve bargain Barolo and budget Bordeaux?

The Pelosi pamphlet rediscovered for the millionth time that “today’s middle-class families are struggling” to pay for this or that. But that has always been true. If it seems easy to pay for everything you want, then you aren’t middle-class. Yet to suggest nearly everyone struggles to pay for specific things — “exploding health care costs, rising college tuitions and higher gas prices” — is simply untrue.

Most people, including the old and the poor, are overinsured for health-care costs and therefore face trivial out-of-pocket expenses. Fewer than half of all households are married couples, and very few of those have college-age children in any particular year. Many people are retired, work at home or commute by mass transit and therefore devote very little of their budget to gasoline. In short, there is no typical budget for the entire “middle class,” nor is there any meaningful definition of such a monolithic class.

Whenever politicians promise to lower the cost of some specific product or service, they are really advocating extra subsidies for their favorite business interests — more special interest spending or more special interest tax breaks.

In a recent study from cato.org, Chris Edwards notes the number of direct subsidy programs has increased 44 percent since 1990, to 1,696. Nobody even knows how much the federal government spends on subsidies — which is simply scandalous.

In 1981, I suggested to Office of Management and Budget Director David Stockman that the annual Special Analysis to the Budget contain a chapter estimating the cost of subsidies. That never happened, but it would be a real eye-opener if it ever did. The Congressional Budget Office could do it, but they answer to Congress — and Congress does not want you to know.

Michael Kinsley, writing in The Washington Post, rightly described the “New Direction for America” as a cornucopia of “many specific and enormous new spending programs and tax cuts” — all in the name of fairness and “fiscal discipline,” of course. The pamphlet appears absolutely ecstatic about expanding what Robert Bryce at Slate aptly dubbed “the stupidest subsidy” — namely ethanol. There would be even more “tax benefits” for ethanol producers, some of whom are now burning coal to produce their moonshine.

The pamphlet’s main plan to “make college more affordable” is to “slash interest rates on college loans in half to 3.4 percent for students.” They might as well have offered 3.4 percent interest on mortgages and car loans, making those more affordable, too. But offering below-market interest rates on high-risk student loans obviously requires subsidies from taxpayers.

The GAO estimated student loans were already subsidized to the tune of nearly $10 billion a year in 2004, a figure that would be much higher if interest rates were cut in half. As Mike Kinsley asked, what is so fair about forcing less-educated taxpayers to subsidize someone else’s valuable college education?

Most recipients of federal subsidies are not students but corporations. Reporting on a visit to the White House by the chief executive officers of GM, Ford and Chrysler, Marketwatch said, “Democrats have indicated that they want to focus on making health care more affordable, and this would please automakers.” Indeed it would. Detroit’s CEOs would be delighted to have taxpayers pick up the bill for that portion of their labor costs, just as they would likewise be delighted to have taxpayers pick up the cost of salaries and executive perks if they could get away with it.

Subsidies only make something “more affordable” for Smith (or General Motors) by shifting the cost to Jones. That is, Jones will have to pay higher taxes to offset any special tax breaks or subsidies given as a political payoff to Smith.

In many cases, however, Smith turns out to be an influential business or farm lobby that gains because the government forces Jones to pay higher prices for something Smith produces. This is most obvious with federal farm policies explicitly designed to make certain foods less affordable — such as peanuts, sugar and dairy products. It is also the result of trade protection in all its guises, including efforts to debauch the dollar in the name of trade fairness.

The Republican Party has scarcely been the paragon of free trade, but many of the newly elected congressional Democrats are even more openly protectionist. They are particularly upset with China, whose businessmen have been guilty of providing many products Americans want to buy at prices they find remarkably affordable.

Make no mistake about this. Whenever some congressman complains that cars from Japan, televisions from Korea or clothing and furniture from China are priced “unfairly,” that means they are too affordable. The intent and effect of tariffs and import quotas is to raise prices, and thus make the protected products less affordable for middle-class consumers.

If you are looking for a bargain, try froogle.com, yahoo, Amazon or eBay.

The last place you should ever look for something affordable is the U.S. Congress.

Alan Reynolds is a senior fellow and a nationally syndicated columnist.