Good Politics, Bad Economics
In the midst of the presidential election season, politicians are showing once more that they know the supply and demand realities of their trade. They hope that their demand for votes will elicit an oversupply, and that their supply of promises to voters will be met with exuberant demand for their election.
When it comes to economics, however, politicians have a habit of creating demand for goods and services with little concern for ensuring adequate supply. But that doesn’t keep them from expressing amazement, holding hearings and naming scapegoats when the absolutely predictable consequences unfold.
Medical care is the obvious example. In 1965, Washington created Medicare, which was clearly destined to spike demand for medical services because patients paid little and, unlike other goods and services, medical care involves the very lives of its recipients.
Still, the Medicare creators did very little to increase the supply of medical services. There was no comparable program to expand medical schools and to train physicians, nurses and other medical practitioners. That’s why many MDs today are immigrants of questionable foreign training while others attended equally suspect medical schools in the Caribbean, including one that was “liberated” when we invaded Grenada in 1983.
And if you think there’s competition in medicine, recall your last visit to your doctor’s office. Does he worry about his patients leaving for a competitor when he overbooks office visits to insure that his time is fully occupied but leaves them waiting two hours for appointments? By extension, is there any chance that the new Medicare drug benefit will fall within the Administration’s cost estimates of $540 billion over 10 years when it resists cheap drugs from Canada?
Closely related to the medical care supply-demand imbalance is the politicians’ desire to let everyone have their day in court without counting the costs racked up by plaintiffs’ lawyers who take cases on a contingency basis with no up-front fees or fear they’ll pay the defendants’ cost if they lose. Then politicians are shocked – shocked! – that settlements and jury awards are so high that a number of physicians can’t afford malpractice insurance.
Subsidizing housing to insure that all can achieve the American dream is another political favorite. Federal programs have promoted 3% down payments for years, and now the Department of Housing and Urban Development is launching a new one with federally-insured loans to first time home buyers with no down payments. This increased demand artificially pushes up home prices throughout the spectrum.
Sure, homeowners enjoy the enhanced value of their assets, lenders like the increased activity and local governments relish higher property taxes. But who will be held responsible if this house of cards collapses? Similarly, politicians aren’t concerned that subsidies for public housing are often simply dissipated in higher land and building costs when they neglect supply.
Government subsidies for higher education, such as student loans, are sure political winners but there is no comparable help for the supply of educational facilities. That’s why colleges and universities, especially elite institutions, can raise tuitions and fees almost without limit, even more so since only wealthy families, which will pay almost anything to get their offspring into top colleges, pay the full tuition. The rest are subsidized as those fat cats’ money is redistributed through scholarships that allow Old Ivy to attract the student diversity it desires.
Politicians, then, often create demand without insuring a comparable increase in supply, but ultimately it isn’t their fault. They do what’s necessary to get re-elected. If voters realized that those government goodies involve costs they’ll ultimately have to pay, politicians would act otherwise.
