Mandates for Change

February 13, 2008 • Commentary
This article appeared in The Wall Street Journal on February 13, 2008.

In November, the United States may take its strongest lurch to the left since 1933. The Republicans easily could lose 10 seats in the Senate. The relative turnout numbers in the Democratic and Republican primaries are consistent with a landslide victory for either Hillary Clinton or Barack Obama.

Assume that this scenario plays out, and that the Democrats sweep into office behind either the nation’s most aggressive nanny or its most liberal senator (or both). What sort of consequences can we expect?

From a tax perspective, the Democrats will be constrained. All of their beloved “middle‐​class tax breaks” will be inoperative unless the alternative minimum tax is curtailed. The tax increases that they plan for high‐​income taxpayers will serve mostly to make up for lost revenue from reforming the AMT. There will be essentially nothing left over for new spending.

This means that from a spending perspective, the Democrats also will be tightly constrained. They will start with a fiscal deficit. After claiming for the last eight years that Social Security does not need to be fixed, they are going to find that in order to meet its obligations Social Security is going to absorb funds from other programs (or require tax increases).

How can the Democrats implement policy changes without large spending increases? The answer is regulation. The business sector is going to be increasingly told what to sell and how to sell it. Particularly in health care and energy, firms are going to be accountable to bureaucrats, not to customers. Products and services will be designed in Washington, not by competition.

Regulations and mandates are an alternative to budgetary spending. For example, if politicians do not want to spend money on recruiting a volunteer army, they can institute a draft. Similarly if politicians do not have the resources on budget to pay for universal health insurance, they can pass a law making the purchase of health insurance mandatory. If such a law is effective, then the uninsured will be “drafted” into the army of the insured.

Consider the Massachusetts health insurance plan. Under the plan, individuals are required by law to purchase health insurance. The type of health insurance that they must by is defined by government regulations. As reported by the Massachusetts Medical Society, “On March 8, the Commonwealth Connector Board approved seven insurance products for the Commonwealth Choice program, designed to cover uninsured residents who do not qualify for the Connector’s subsidized plans or Commonwealth Care. Below are links to spreadsheets containing the details about premiums, co‐​pays, and deductibles.”

If you live in Massachusetts and meet the eligibility parameters, you must purchase one of these seven policies. It is illegal for a health insurance company to compete for your business by offering a different policy, such as a policy with a higher deductible or a policy that excludes coverage for some medical procedures.

Private insurance companies still are allowed to conduct business and earn profits in Massachusetts. They are just not allowed to innovate or compete in terms of product offerings.

Health care is going to be a tar‐​baby for government. The more that government grabs, the more it is going to find itself stuck with problems.

With health insurance either provided or designed by government, the amount that you spend on health care services becomes a public policy issue. Reducing spending will become the next big priority for regulators.

Once health insurance becomes a regulated utility, the next step will be to go after pharmaceutical companies and hospitals. We can expect major government initiatives to control drug pricing and research and to require hospitals to limit treatments.

Businesses that affect the consumption of energy will also be managed by regulators. We can expect utility deregulation to be halted and reversed. Alternative fuel mandates and emission controls will be gleefully enacted.

New homes, automobiles, and appliances will have to meet design standards set by government. Specific technologies, such as compact fluorescent bulbs, will be required.

These regulations will tend to raise prices to consumers. Politicians will want to avoid blame for this, so they will look for ways to force companies to subsidize low‐ and middle‐​income consumers. Thus, during the next administration’s second term we can expect to see price control mechanisms enacted for many energy‐​related products and services.

Another objective of the left is to reduce income inequality. Again, a regulatory approach can be expected. Executive compensation is likely to be subject to new laws, perhaps even to a regulatory board.

At the other end of the spectrum, we can expect to see a raft of new requirements placed on businesses requiring them to offer employees subsidized day care, longer vacations, higher minimum wages, and so forth. This will lead to significant increases in unemployment, with poverty and inequality rising rather than falling. This will in turn lead to further regulation and stronger attempts by government to control compensation in the private sector.

Many Americans will welcome the regulatory state. Many others will accommodate it. Only a minority of us will oppose it. Somewhere down the road, as people see the indignity of the many intrusions and the adversity of the consequences, I hope that there will be a backlash. Otherwise, if the era of mandates emerges as I fear it will, then the engine of capitalism in America may run out of the fuel of competition.

About the Author
Arnold Kling

Senior Affiliated Scholar, Mercatus Center at George Mason University