TCS Daily


The Politics of Economic Nationalism

By Arnold Kling - February 16, 2006 12:00 AM

"To remain competitive in the global economy, the United States needs to improve the education and skills of its residents and prepare them for jobs that will be available in the future."
-- Economic Report of the President 2006, Chapter Two

The rhetoric of economic nationalism is scattered throughout this year's Economic Report of the President, and it pervades policy discussions among politicians and in the press. It comes so naturally that we hardly even notice it -- I'm sure I've slipped into it myself. So it's important to point out how unnatural it really is.

As I write this, the Winter Olympic Games are taking place. If you think about it, the nationalistic element of the Olympics is unnecessary. Why make a big deal about how many medals are won by "the United States" as a collective entity? Why not just focus on the achievements of the individual entrants?

Nationalistic rhetoric about economics is even worse than nationalistic rhetoric about the Olympics. Nationalism about the Olympics is a marketing tool for commercial exploitation, and the harm done is relatively minor. Nationalism about the economy is a marketing tool for politicians, and it leads to loss of freedom and responsibility, with enormous quantities of resources channeled through government.

Not "Our" Trade Deficit...

Recently on TCS, Don Boudreaux challenged the economic nationalism of those who worry that "our" trade deficit is causing "us" to become too burdened with foreign debt.

As Boudreaux points out, debts accumulated by our government are indeed collective debts. But if someone from the private sector borrows from overseas, that is his debt, not your debt or our debt. In and of itself, a trade deficit -- or a Capital Account Surplus, as the Economic Report refers to it -- would have no collective implications. With private transactions, those who borrow are in debt, and those who don't -- aren't.

Immoral Government Debt

What is immoral about government debt is the disconnect between the people receiving the benefits and the people who will bear the responsibility of repayment. When my credit card statement shows up, I know what I could have done differently to owe less money. My children won't have that same direct personal responsibility when they wind up having to pay taxes down the road to pay for government spending today.

In fact, it is not just the intergenerational-shifting component of government spending that creates a moral disconnect. Even with a balanced Budget, the people paying the taxes are not directly in control of how the money gets spent.

All that said, the nationality of the holders of our government debt is irrelevant. We are eventually going to be forced to pay taxes to cover the interest and the principal, whether the bondholders live in Tokyo or Peoria. If you want a useful measure of collective liabilities, look at the total future commitments of the government (including payments promised under Social Security and Medicare as well as outstanding debt). Those figures are much more important indicators of future problems than the statistics on the balance of trade or the amount of government debt held by foreigners.

Not Our Oil Dependence

The United States gets much of its oil from Canada and Mexico. Still, we are "dependent" on Middle Eastern oil, because oil is traded in a world market. Any time there is a shock to demand or supply, the price is affected.

"We" are not doing anything wrong by using oil instead of a more-expensive fuel. "We" are not funding terrorism. If you think that Saudi Arabia and Iran are doing bad things with the money they earn, then the place to go to get that fixed is the State Department or the Pentagon, not the Department of Energy. The Energy Department only affects our collective interests by increasing government indebtedness (see "Immoral Government Debt," above).

Not Our Lack of Skills

Individuals need education and skills. Employers need workers with education and skills. But there is no separate "national need" for education and skills.

We do not need a government-schooled population to have an educated population. Instead of No Child Left Behind, the slogan could be Every Family Left Alone. Instead of school districts where the most affluent families are also the ones with the most money to spend on public education, we could have a voucher system where the voucher starts at $15,000 a year per child for the poorest families and gradually declines to zero for families earning the median income.

It can be argued that there are spillover effects from education. I benefit from the fact that you are educated. There is some truth to this, but relative to the benefit that you get from being educated, my benefit from your education is small.

It used to be that our education system helped to promote understanding of our history and culture, and that is a legitimate benefit. Today, however, university education departments seem to turn out teachers who are folk Marxists, not folk Locke-ists.

Not Our Health Care Spending

If libertarians face an uphill battle in selling the notion that education is an individual responsibility, that is nothing compared to the battle we face in health care. Nearly all discussions of health care policy are framed in the rhetoric of economic nationalism. We spend too much on health care. Our system emphasizes acute care rather than preventive care. We have too many uninsured.

When we hear this litany, we should ask skeptical questions. Who spends too much on health care? If I choose to spend a lot on my health care, how does that hurt anyone else? How is the "system" stopping me from getting preventive care? Isn't prevention my personal responsibility? Why don't the uninsured buy catastrophic health insurance? Is it because health insurers won't take them, or is it because the individuals don't really want health insurance unless someone else gives it to them?

I have to concede that there may be a deep cultural impulse to collectivize health care. As the Left is fond of pointing out, every other advanced country has government pay for at least three-fourths of total health care spending. Even in the United States, 45 percent of health care spending is paid for by government, and another 40 percent is paid for by the prepaid health plans that we call health insurance. Less than 15 percent of health care spending is paid for out of pocket.

Still, it might be a useful exercise to take a moment to think about health care without any economic nationalist preconceptions. Suppose that we start with a presumption that consumers can make their own health care decisions, with advice from doctors and information available from third parties. Would it be unreasonable to have an individual factor in cost when making these decisions, rather than take it for granted that an insurance company will pick up the tab? If individuals were choosing health insurance to purchase themselves, rather than using employers as middle men, what sorts of policies would they want? If someone does not choose any health insurance policy, what consequences should they face? Should we continue to force working people to subsidize the elderly, or should people be expected to save enough to pay for the almost-inevitable expenses of health care in their retirement years, and to obtain insurance to cover any unusually expensive late-stage illness?

What I suggest is that instead of starting with the rhetoric of economic nationalism and working down, we start with a presumption of individual responsibility and work up. Maybe the solution for "our" health care system does not come from "us." Perhaps my health care needs and my family insurance needs are something that I appreciate better than anyone else, and perhaps I can choose solutions that are best for my situation.

I am happy to have my tax dollars go to assisting people who are in poverty or who have chronic illnesses. It is the leap from that to a system where everyone uses taxpayer-financed health care that has me confused.

Arnold Kling is author of Learning Economics.

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13 Comments

National socialism?
All excellent points, Arnold. Barry Goldwater used to call it the morass of collectivism. When great and small decisions are made by mass voting and executed by coercion, strife and grief result. If each were allowed to make and take responsibility for his own decisions, then we don't have to have a political battle over every decision.

You are willing for your tax money to go for charity, which is sort of commendable. However, the same rules above apply. If charity is warranted and/or desired individuals will contribute voluntarily. Collectivizing the decision and voting on it doesn't increase the propensity to help the less fortunate. But it does render it inefficient and grudging, bringing more of the strife and grief noted earlier.

Energy Nationalism and Consumer Choice
"We" are not doing anything wrong by using oil instead of a more-expensive fuel.

Some who can afford 500 dollar suits buy 100 dollar suits. Some who cannot afford 30 dollar shoes buy 200 dollar shoes. Choices such as these are improperly viewed in terms of “right” and “wrong”. The issue is “choices”…or in the instance of energy, few choices. As a consumer, I want energy choices. I currently have soap choices, TV choices, car choices, life insurance choices, bank choices, etc….why not fuel choices? Consumers are nearly 100% dependent on unreliable and non-sustainable gasoline fuel for our automobiles. The absence of choices leads to dependency, which is a threat to National Security and the Common Good. Misguided government policies have contributed to dependency. While the costs of these errors cannot be completely recaptured, support for diverse energy sourcing is a step in the right direction. If a soap factory in Peoria burns to the ground, I do not expect to be without soap or to have the price of soap increase appreciably. If the Persian Gulf is closed by war or a series of CAT-5 hurricanes strike the US Gulf Coast, I similarly should not expect to be without fuel or to see an appreciable price increase. If government supports competitive markets with the proper tax, regulatory and liability policies, I and other consumers will have the optimal choices possible. Give us a competitive energy market, and American consumers will make short work of oil dependency.

Aaaahhh, you do not go far enough...
How about: Not "our" history; not "our" culture?

No Subject
"If government supports competitive markets with the proper tax, regulatory and liability policies, I and other consumers will have the optimal choices possible. Give us a competitive energy market, and American consumers will make short work of oil dependency."

Government interference via policies such as you have outlined is the problem. Markets emerge to satisfy and when people are willing to pay the higher cost of alternative energy then those markets will grow. Your take lacks economic grounding.
"Proper tax,regulatory and liability policies" as you put are the antithesis of competitive markets--in fact those things kill compettive markets by coveying special favor to the current slate of pet industries. This leads to perverse allocation of scarce resources. A brief consideration of the farm policies, a keen example of this type of government favoratism, will show how this happens.
Americans could make "short work of oil dependancy" if they wanted too---but it's just too costly at this point. The short of it is that gasoline and other petroleum products are the cheapest alternatives. Inflation adjusted prices for gasoline show it to be a bargain.

What is immoral ---
"What is immoral about government debt is the disconnect between the people receiving the benefits and the people who will bear the responsibility of repayment."

This is EXACTLY what is "wrong" with Social Security. Those who receive the benefits are NOT the ones bearing the responsibiliy of payment. Even further, those that define the size of the benefits they will receive are not those who are paying for them or in control of the size of the benefits.

If a retiring generation is relatively more wealthy, then their benefits will be relatively higher and a relatively higher burden will be placed on those who pay for them - those that are yet to retire - those paying have no say in the size of the benefit of the retiring generation.

The only "moral" reform is to adjust the system so that those who obtain retirement benefits are the same as those who pay for them - i.e., private retirement accounts. This will require a one-time adjustment (payment from the Treasury to current retirees to break the intergenerational link) to get there, but ultimately it's the right decision.

ABD

Common Good
Too often the "common good" morphs into the collective good and we fall into the morass of collectivism.

Both concepts need to be junked.

ABD

Transitioning Social Security
"This will require a one-time adjustment (payment from the Treasury to current retirees to break the intergenerational link) to get there.."

A "one-time" PAPER adjustment may be doable and desirable. But a 50 year transition to fully pay for bridging the gap will be necessary.

funny thing
People who complain about gas prices being to high, demanding that we start using more expensive sources of energy.

If you really want to diversify sources of energy, you would support drilling in ANWR, off the CA coast, as well as other places where drilling is currently banned.

meaning
I'm guessing what taBonfils really means is that govt needs to be used to force the market to come to the conclusion that he figured out in advance is the correct one.

a better solution would be
once a person gets back what they paid into SS, the checks stop coming.
If this puts them into the category of poor, there are dozens, if not hundreds of welfare programs already on the books.

A better solution would NOT be
"once a person gets back what they paid into SS, the checks stop coming."

Sorry, but I've been paying into the system for over 30 years. I would take a lump sum payout deposited in something like an IRA, but only if it were calculated to include a reasonable interest rate on all that money I've paid in over the years. Unfortunately, I don't there would be enough money to do something like that without causing massive inflation.

You cannot subsidize the middle class but 2 problems with SS that make it impossible to reform.
The 2 problems with SS that make it impossible to reform.

1. Payments go to all elderly not just the poor.
2. The recipients are allowed to vote.

This creates too many recipient voters who will not allow even smallest reforms to occur.

Government and the people need to learn that it is nearly impossible to subsidize the middle class through government and you certainly should not try to because it creates a dangerous voting block and seldom worth while. Consider government schooling despite the state making me pay for education whether I us it or not I send my children to private schools. That means to me the education offered by the state at a cost of $7,000/year per child is worth $0 to me. Now take the people who send their children to the government schools and ask them if you had to pay $7,000/year per child to send your children there few would send their children there. Now at various price points certain people would drop out so it is safe to say the Government pays much, much more for schooling than it is worth. If people had the option of not paying for it and buying their own schooling most would pay less.



Cumpulsory charity is THEFT.
Nice article. But the last paragraph suggest that the author has not thought this through to the end:

"I am happy to have my tax dollars go to assisting people who are in poverty or who have chronic illnesses. It is the leap from that to a system where everyone uses taxpayer-financed health care that has me confused."

Yes, you are confused. I too am happy to have my dollars assisting people in poverty or illness. But I am NOT happy to have my TAX dollars doing it. This IS NOT a LEGITIMATE function of the government. Our government has only three branches for a reason - there is no Charity branch, nor should there be. Charity is not charity if it is not voluntary. Compulsory charity is THEFT. I gladly give money to non-governmental charities (faith based and secular) but the government should not be in the business of deciding for me how much of my money should be spent on charity, and who should be the recipient of that aid.

(Not only does such a system deprive the giver of the joy involved in giving, it also deprives the receiver of the gratitude of receiving. Instead of being grateful, they will naturally complain that they are not getting enough. How many people do you know who are grateful for Medicaid, instead of mad that it is insufficient? I've even seen welfare queens on the news complaining that having to buy foods with food stamps was an insult to their "dignity"; suggesting that they should be issued cash instead. Hello? Working (even at a minimum wage job) is dignified. Living off the work of others is not.)

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