Human civilizations have established a lot of institutions to serve economic, social, cultural, and religious needs. Very often though the institution and its workings become more important than the objectives they are supposed to meet. Thus, maintaining the purity of the rules of the institution takes precedent over how well it serves the people.
Take, for example, the institution of the market economy. Markets have preceded capitalism but they are at the heart of the capitalist system. The importance of markets in capitalism is so elevated that whole sectors (involving technology, law and regulation) are dedicated to designing new markets and making them more efficient in regards to speed and ease of execution and being capable of producing the best prices possible for buyers and sellers.
Today, an intricate web of markets covers the globe and makes it possible for everyone to participate in markets no matter how far away they are. However, behind the glitter and sophistication of the market-world, the fundamental prerequisite of the market economy is inescapable: to participate in a market you have to pay. Which means markets may not be affordable to all. Or put differently, not all goods are affordable to all. So what? Should we care that not everybody can buy a luxury car? Or a vacation in Riviera or Santorini? Not at all.
What about though of more basic needs? Like food, shelter and health care that sustain us? Like education that builds skills and knowledge and make us productive? Like child day care and parental leave that help us keep jobs or balance work and life? Until a century or so ago, societies did not seem to worry a lot if the market system failed to cover even the most basic needs of any number of people. This task was left to churches, community organizations, and philanthropists. Eventually, however, we invented the modern welfare state, with Scandinavian countries showing the way. In America, Roosevelt’s New Deal and Johnson’s Great Society introduced and expanded, respectively, welfare programs to address basic needs associated with retirement, elderly health care, disabilities, early education and poverty. These programs were not free of controversy. They were resisted as socialist and conditioning people toward laziness and free loading.
As I have written in previous posts, Americans are more likely than other peer societies to believe that success is the result of personal merit and effort. Safety nets are distrusted for fear they create disincentives to work. And strong feelings of ownership, that is, what is mine is for me alone to decide how to dispose of, establish strong sentiments against taxes and redistributive policies. Therefore, we should not be surprised why the current Biden plan to expand state support for various services, though popular in general, is opposed by die hard conservatives.
So, how do we reason about the opposite views on these issues? First, we should disabuse ourselves of the notion that people are innately lazy and inclined to take advantage of free services to work less. Economic research shows that extrinsic incentives or disincentives (like a less or more generous safety net) don’t necessarily affect the supply of work. Intrinsic incentives, like personal pride and concerns about one’s reputation, are often stronger motivators for doing the right thing. Second, merit and effort do not pay well in a lot of jobs. The unequal distribution of productivity gains and economic growth over the past fifty years has left many Americans behind no matter how hard they strive. Third, why do we have the highest rates of drug overdose deaths and suicides in the developed world? Why do we have higher morbidity rates and subpar health statistics, including life expectancy and infant mortality? Why do we have higher poverty rates than other advanced economies? Why don’t we excel in graduation rates and educational attainment?
There is a common thread that runs through all these ailments. The average American cannot afford to have the kind of healthcare, education, work fulfillment, and balance of work and life that make a society satisfied with itself. In other words, and despite the achievements of our aggregate economy, a large segment of the American population cannot afford the markets that buy good health, education, and quality of life. So, what does a good society do? Turn its back and accept the verdict of the market doctrine “you pay to play?” I would hope this is not the way we want to address these challenges.
In my view there are two solutions to our problem. One is to ensure that personal incomes rise to a level that enable people to afford the markets that buy a reasonable overall quality of life. Switzerland is such a country. It does not have the extensive welfare system of the Nordic countries so taxes are lower. But inequality is also lower and salaries are high enough for the Swiss to enjoy private markets for things that matter to their lives. Other countries, like Germany and Denmark, also recognize that markets should be affordable to people. In these and other advanced market economies the replacement of pre-unemployment income is significantly higher and lasts longer than in the US. Similarly, unemployment benefits are a much higher percentage of median disposable income than in the US. (OECD, 2020 data.)
The alternative solution is a system where state-funded programs help cover the basic needs of those who would otherwise be excluded from markets for essential services. In this approach, the state steps in to provide or subsidize the goods and services that make people healthier, better educated, more productive and give them more balanced lives. In short, to address the market affordability problem for essential needs, an economy should either generate high enough incomes across the board or dedicate higher tax revenues.
An often-heard exhortation, consistent with the market doctrine, is that worthy things are worth paying for. That leaves it up to the individual to decide what is worthy to have and, thus, worthy to pay for. It ignores, of course, that while something may be very worthy and essential, it is at the same time unaffordable. A more enlightened and beneficial view would argue that it is also in the interest of a society to find what is worthy to it and pay for it.
Good societies find ways to make certain critical markets affordable to their members. Good societies care less about the purity of the market doctrine and more about serving the people.
Let's Reason 