Every four years or so, American voters go to the polls to choose political leaders who enact public policies that shape and direct our nation’s economy. Yet, the vast majority of Americans lack an analytical framework required to adequately evaluate the true impact that these policy decisions will have. While Americans may understand how much money they will get up front from tax relief or government assistance, the broader impact of the policies comes from the way they influence certain types of economic behavior in the future.
These secondary effects will have a much more fundamental impact on jobs, income and wealth creation than the immediate impact of the policies promised by politicians. To clarify things, perhaps we should look at a few of these proposed policies from the prospective of a student in Economics 101:
n Taxing the rich is a free ride for middle-class taxpayers: Sen. Barack Obama has promised voters that the government can raise money for social programs by increasing taxes on the rich. He defines rich as anyone making over $250,000 per year. While a person earning that amount does make more than 95 percent of other income earners, taxing them disproportionately might not necessarily create a larger government pot. Consider, for example, that most of the people in the top income class own businesses and derive their income from the sale of goods and services at a profit. If the government decides to tax their profits at a higher rate, they will earn less income and there will be less incentive for them to go into business.
Creating disincentives for business means that fewer businesses will hire employees, making jobs scarcer and reducing income among those who are able to find work. Fewer people working means people will spend less money, resulting in a decrease in taxes collected on the consumption of goods and services. Furthermore, people who earn less will save less, meaning less money available to financial institutions to fund middle-class investments like home purchases and business investments in capital used to expand companies and create more jobs.
n Universal health care should be a government responsibility: No matter what kind of health care program we have, “universal coverage” won’t really happen. Universal coverage actually means in practice that the government rations health care. Under this system, those who need it most often can’t get enough of it, and those who need it least get too much.
Currently, health care constitutes 15 percent of our GDP, and its’ growth outpaces income. Other developed economies with so-called universal health coverage spend far less. Health-care costs amount to about 10 percent of GDP in Canada and Germany and 8 percent in the United Kingdom. What is it that these countries consistently do that we don’t? Simply put, they ration health care. They do not call it rationing; but patients experience long waiting times in order to receive certain medical treatments, and some are declared ineligible for certain medical procedures.
That may not sound attractive, but we all face this reality in one way or another. That means your 80-year-old father with a heart condition will not receive life-saving bypass surgery in the U.K. unless he can pay the full cost out of pocket. He would receive it in the United States under most insurance plans currently in place. This begs the question of whether having marginal health insurance for everyone is worth signing over to the government the right to say who lives and who dies. In other words who gets to play God almighty with an individual’s life-or-death crisis? Furthermore, and perhaps more compellingly, creating a “single-payer” system such as a government-administered health-care system may create, in effect, a regulated monopoly, much like, for example, the old AT&T telephone monopoly.
Under the old AT&T system, the government permitted AT&T to maintain its monopoly control over the telephone system. Anyone over 35 can remember a time when it took almost a month to get phone service installed, and long-distance calls cost a fortune. Now that the monopoly system has been dismantled, long-distance phone calls are practically free, and your phone gets turned on the minute you purchase the service. What a difference competition made in terms of fostering innovation and consumer choice. Without competition in the telecommunications industry, we would not have the single greatest driver of global wealth in the world today - the Internet.
These are only examples of the possible results of some of the policies that have been proposed by Mr. Obama viewed through the lens of economics. Of course, you will find economists who disagree with this analysis, and you may even consider the results of these policies as described to be a positive. But just the same, it’s important to consider the lasting effects of the choice you’re making before checking the ballot box next month.
Armstrong Williams’ column for The Washington Times appears on Mondays.