Supply-Side Shouldn’t Be a Dirty Word in Liberal Politics

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“Supply-side economics” has come to be identified in liberal circles with a single idea: the contention that regressive income tax cuts for rich guys will trickle down through the rest of the economy.

And to be sure, that’s a bullshit enterprise. But that doesn’t mean there’s nothing of interest for liberals on the supply side of economic policy. The term simply refers to the regulations and taxes that impact how much stuff we can produce, and it’s an area of economic policy thinking we ignore at our peril.

The liberal interest on the supply side of the economy is in eliminating fake scarcities. Sometimes we see real scarcities arise because we actually just can’t produce more of a good or service, or people can’t profitably produce more without a government subsidy.

But it is often the case that people would produce more goods and services naturally on their own if not for government regulations creating fake scarcities.

Sometimes these regulations are well-meaning, but more often they come into being because vested interests lobby for regulations that raise barriers to entry for competing businesses and business models, in order to keep prices and profits high.

The first thing you always want to ask whenever you see a shortage of something (and curiously high prices are usually the giveaway) is whether there aren’t some policy choices handcuffing our ability to make more at a lower price.

Too often politicians, activists, and journalists do not ask this question.

For example, Scott Kraus at the Morning Call has a long piece this morning on the specter of a doctor shortage, where he talks to a number of health care providers about how all the new Obamacare enrollees could overwhelm health care provider networks.

But nowhere in the piece does Scott grapple with whether this shortage is fake, or exacerbated by government regulations that artificially reduce the supply of doctors. Certainly we could import more doctors from abroad or reduce barriers to “medical tourism” or pay to train more doctors at the federal level.

And at the state level, we can liberalize “scope of practice” laws to allow nurse practitioners and dental hygienists to do more procedures without having to kick some money upstairs to an M.D. Random occupational licensing requirements also constrain how many professionals exist in professions like physical and occupational therapy, with training requirements varying wildly between the states.

Scott’s piece might as well have been prewritten by the hospital networks for how thoroughly it ignores all of the ways that federal and state laws actively constrain the supply of doctors.

Health care isn’t the only sector where these kinds of shenanigans drive up prices for families and individuals.

The supply of affordable housing is sharply constrained by zoning restrictions on density, regulations requiring massive amounts of free parking, and low taxes on land speculation. Better transit service is stymied by land use restrictions around stations, work rules, Buy America provisions, and arbitrary FRA train specifications that prevent US transit agencies from getting cheaper off-the-shelf products from Europe and Japan. Cheaper prescription drugs are out of reach because of patent monopolies and rules preventing cheap imports from Canada and other countries.

Before we look to spend more money on fixing these problems, liberals first need to ask whether they can’t be solved by unwinding some of the bad rules creating fake scarcities. These solutions are free to the public. It does not cost the public anything to let nurses do more common procedures unsupervised by doctors, or to allow more prescription drug imports, or to stop requiring developers to bundle parking with housing. But in many cases politicians prefer new spending to supply-side solutions because the free solutions are politically difficult.

This entry was posted in Economy, Issues, Labor and Unions, Transportation.

18 Responses to Supply-Side Shouldn’t Be a Dirty Word in Liberal Politics

  1. Gloria says:

    “And at the state level, we can liberalize “scope of practice” laws to allow nurse practitioners and dental hygienists to do more procedures without having to kick some money upstairs to an M.D.” Please add physical therapists to this list! Having to go through an orthopedist, then wait for the obligatory hospital-enriching MRI, then a return visit BEFORE they’ll write a PT scrip is highway robbery!

    • Jon Geeting says:

      Never heard about this, which is weird because my mom was a physical therapist assistant. That’s crazy.

      • Gloria says:

        For me, the delay allowed my neck and shoulders (whiplash injury) to tighten up even more, requiring longer treatment to undo the TWO MONTHS I had to wait to begin PT!

    • “And at the state level, we can liberalize “scope of practice” laws to allow nurse practitioners and dental hygienists to do more procedures without having to kick some money upstairs to an M.D.”

      How are you going to pass that over the M.D. lobby’s objections? It’s what people don’t get about those kinds of regulations. They were passed because doctors wanted them past.

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  3. John says:

    I think we just need to spread the benefits of protectionism more broadly. Currently, high income professionals are protected by government policies from foreign competition, but lower income workers face globalized competition. We need stronger Buy America provisions not weaker. Protectionism is necessary to maintain a manufacturing base in this country. Protectionism is what built our manufacturing base in the first place.

    • Jon Geeting says:

      Completely disagree. The high income professionals need to face globalized competition too, to reduce the cost of the services (health care, legal representation, entertainment) that lower income workers need to buy.

      • Why shouldn’t everyone have a high income?

        • Jon Geeting says:

          Everyone should have a high “real” income – nominal income minus the cost of living. To get economic growth without a lot of inflation, incomes or cost of production in specific sectors need to go down in order for the cost of services for everyone else to go down too.

          • John says:

            So the outsourcing of our manufacturing capacity is ok with you then? If collective bargaining succeeds in raising manufacturing wages here you’re good with corporations off-shoring those jobs to cheap labor countries?

          • Jon Geeting says:

            Companies have been on-shoring manufacturing operations, since manufacturing with robots here is often cheaper than doing it in other countries now. Not that there’s much of an employment future in manufacturing, but I’m for using a low dollar policy to compete for manufacturing jobs with other countries, not tariffs and protectionist policies like that.

          • Jon Geeting:
            You do realize that the day is coming soon when very few people will be employed because of robots and technological advance, right? What will you do then?

          • Jon Geeting says:

            I don’t think that’s right. We’ll still have humans in lots of service jobs, providing personal services to each other like making food and drinks, teaching yoga and gym classes, being primary care doctors and cleaning people’s teeth, doing people’s laundry, climbing up on roofs and installing solar panels, and plenty of other non-tradable services that we cannot or do not want to automate.

            A world where most work is automated is a world where most goods and services are really cheap, so we don’t have to work as much to afford a good standard of living. And it’s in a post-scarcity world like that where supply-side reforms become even more important, because otherwise you’ll just have larger and larger rents accruing to people living off arbitrary ownership of things, like taxi medallions or copyrights. A lot of the economic gains would accrue to land in that scenario, so as usual I’m going to want to tax the hell out of land values, and ideally have those taxes in place before we starting seeing large scale automation.

  4. John says:

    I think there also has to be a reform, if not abolishment, of the protections provided by government to capital in general ie the limited liability corporate form that we utilize here in the US.

    • Jon Geeting says:

      Don’t know much about the political case against LLCs, but I think patent monopolies, long copyrights, Too Big to Fail insurance, and lax tax treatment of land speculation are all unseemly government protections for capital.

      • John says:

        I agree with you. However, the service economy you described a couple of posts back appears to be the type of economy we have now — a low wage economy with massive concentrations of wealth in the hands of the top 10% of the population. Your supply side reforms will help alleviate that situation a bit, but I see corporations dominating our society even more in your scenario, which is un-democratic and un-Democratic. It seems to me that once a corporation passes a certain level of capitalization there need to be reforms to make such an entity, which has been helped from its creation by government protections (from being granted limited liability for its investors to being granted free speech rights and the ability to participate in politics), accountable to the public. Anti-trust enforcement is probably part of that scenario.

  5. Peter Javsicas says:

    Thoughtful, trenchant article and comments by Jon Geeting. Government policy at its best reins in the abusive impulses of capitalism and at the same time enhances economic development and the general welfare. Once in a while good policy breaks through the tangle of special interests, cronyism and ideological hyperbole.