Why We Need More, Not Less, Government
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Can Markets Substitute for Government?
Of course, even if we have serious social, economic, and environmental issues facing us, this may not necessarily require more government. There might be better, non-governmental ways to solve these problems. Conservatives have long maintained that we would be better off relying on the market or on individual efforts, rather than government. Let’s consider both of those claims.
First, can the market really solve most of these problems? There are several reasons to be skeptical of this claim. First, as was discussed in some detail in the article “Capitalism Requires Government,” many of our country’s current problems are in fact caused by our market-based economy. Free-market economies are incredibly productive, but they inevitably bring with them a whole host of social and economic troubles. Clearly issues like poverty and increasing economic inequality are directly traceable to how the market distributes income and wealth. Our looming retirement crisis is due in large part to the effort of businesses to increase profits by abandoning their traditional pension programs. And there is a good deal of evidence to indicate that our health care system is overly expensive in large part because we rely so much on the private sector for insurance. As these examples illustrate, the market is often the source of our problems, not the solution.
It is also clear that we cannot depend on markets to solve their own problems. Conservatives and libertarians are fond of arguing that markets are "self-correcting." If we would just leave them alone and not burden them with onerous regulations, they would correct their own problems. This is one of the core assumptions underlying the push for the deregulation of markets that has been a hallmark of the Republican Party. But in recent years, we have seen that this idea of self-correcting markets is often more myth than reality.
A good example of how markets do not fix their own problems is the food supply system. In the last decade, we have seen one food safety problem after another, including contaminated spinach, E. coli infected beef, and salmonella tainted peanut butter. These problems have sickened tens of thousands of Americans and in some cases have led to death. Many food businesses have little incentive to adopt costly safety standards, in part because they know that in many cases it is difficult to trace the sources of food-borne illnesses. The food industry has claimed that it can rely on private food inspectors, but these auditors are hired by the very companies they inspect and have often failed to point out problems in facilities. In the case of peanut butter, the offending plant had gaping holes in the roof and walls, was infested with rats and roaches, and had employees washing mops in the same sinks as peanut butter production equipment. And yet the private inspector reported that "The overall food safety level of this facility was considered to be: SUPERIOR." After the salmonella outbreak was made public, that inspector told a food safety expert: "I never thought that this bacteria would survive in the peanut butter type environment. What the heck is going on?"
Another classic example of markets failing to correct themselves is the mortgage loan fiasco and the resulting economic crisis. For years conservative had been working hard to de-regulate the financial industry. They asserted that regulations did more harm than good. In 2006, Bush Treasury Secretary Henry Paulson argued that "the solutions to our nation’s problems are not always found in Washington." And he maintained that one of the two main threats to financial markets was "excessive regulation."
Other conservatives argued that any regulation of financial markets should be "voluntary." As traditional financial regulations were being stripped away, right-wing analysts insisted that Wall Street could be relied on to police itself and thus protect the public interest. We now know that this was wishful thinking. Even Bush's head of the Securities and Exchange Commission, Christopher Cox, had to admit in the fall of 2008 that "The last six months have made it abundantly clear that voluntary regulation does not work."6
These are just two examples of why we can't rely on markets and business to solve society's problems. There are plenty more. Past experience has shown that corporations will not always provide safe working conditions or livable wages, that private schools cannot ensure that all our children get a decent education, that companies will not clean up their pollution on their own, and that “let the buyer beware” is not going to protect us from dangerous products. No – if we want to address these kinds of problems, there is really no alternative to public sector programs.
Can Individual Efforts Substitute for Government?
The other alternative that conservatives offer to more government is more effort on the part of individuals. They argue that we need to empower individuals to take responsibility for their own problems, and thus reduce their dependency on government. This was the principle behind a major set of Republican initiatives that they called the “ownership society.” Policies like 401(k) retirement plans, individual health savings accounts, privatized Social Security, and private education were seen as ways to allow people to take control of their own fates and solve their own problems. As a leading libertarian intellectual, David Boaz, has explained it:
An ownership society values responsibility, liberty, and property. Individuals are empowered by freeing them from dependence on government handouts and making them owners instead, in control of their own lives and destinies. In the ownership society, patients control their own health care, parents control their own children's education, and workers control their retirement savings.7
This may sound good to some people, but the record of these kinds of programs does not inspire much confidence. Consider, for example, how 401(k) plans have helped to solve the retirement crisis. The 401(k) option has been around for decades and so it is a good test for this approach to retirement security. Unfortunately, it is flunking that test. On the one hand, these plans have been a boon for businesses. They have been able to greatly reduce the money they spend on retirement for their employees. They no longer have to invest in fixed benefit pension plans. Moreover, most donations to these 401(k) accounts come from the workers themselves. Mutual funds firms have also benefited from these accounts as well. But most workers don’t seem to be getting much security from them. First, only half of the American workforce even has access to these accounts, and only 40% of those feel that they can afford to contribute to one. Also, the vast bulk of the money contributed to these plans comes from already well-off employees – not your average worker. The myth is that the average worker now has tens of thousands of dollars in these funds ready to provide for a comfortable retirement. But in reality, the median amount of funds for these account holders – what’s most typical – is a mere $13,000.8
As Jacob Hacker has explained, despite the growth in the total funds in these accounts – especially during the 1990s stock market boom – most workers are actually worse off in terms of their retirement prospects than they were before.
To be sure, defined-contribution accounts [401(k)s] grew handsomely during this period, especially in the 1990s. Yet, at the same time, median defined-benefit holdings [pensions] declined as employers stopped offering defined-benefit programs. So too did expected Social Security benefits, thanks to the cutbacks in Social Security passed in 1983. When all the gains and losses are added up, the median family approaching retirement – that is the family exactly in the middle of the retirement wealth distribution – ended the 1990s with 11 percent less in retirement wealth than the median family had in 1983.9
Today, of course, the situation for 401(k) accounts is even worse. In the stock market collapse that followed the mortgage loan crisis, workers lost billions of dollars in these accounts. Many people had to put off retirement. Those already retired were threatened with poverty and many were forced to try to find work again. And imagine how much more dire this situation would be if the Republicans had had their way and we had privatized Social Security and allowed people to invest this money in the stock market.
Clearly, as companies rapidly retreat from providing people with reliable retirement plans, individual efforts, like 401(k) accounts, are not going to be able to provide the kind of economic security that most people need as they grow old.
Health Savings Accounts (HSAs), another much vaunted approach being push by the Right, are also doing little to help with the ever growing problems of health care in the United States. In this approach, individuals buy health insurance plans with very high deductibles – such as $2,000 – and then make up the difference in money they save in their own HSAs. But despite a big push by Republican lawmakers and corporations, polls show that most people don’t like this approach and would rather have regular, low-deductible health insurance. These plans mostly appeal to the wealthy (who can afford high out of pocket expenses) or the young and healthy (who don’t need much care). However, draining these people out of the traditional health insurance programs means that premiums will have to go up for the less well-off and the less healthy people in this insurance pool. In addition, when average Americans are forced into these plans, they can often run into trouble. Studies have shown that HSA users are much more likely than those with traditional medical coverage to have trouble paying their medical bills. They are also much more likely to avoid or postpone treatment for serious medical problems because of the cost.10