Thursday, January 22, 2009

Crowd Them Out!

President Obama and his administration is currently working on a new stimulus package that includes large amounts of spending on public goods, such as infrastructure, health care and the environment. Traditionally, a public good is something that is available to all citizens of a country at little or no cost, to the benefit of everyone. However, in The United States, goods that are considered “public” in most other countries, are considered “private”. For example, health care is considered a right (by extension a public good) in the EU, whereas it is considered a privilege (a private good) in The United States. Such thinking is the reason why a lot of commentators are voicing opposition to Obama’s stimulus package at the moment.

The free market philosophy is deeply ingrained in American culture, and stretches back hundreds of years. A lot of Republicans and other free market proponents are now criticizing Obama’s plan, saying that it would “crowd out” the private sector from the provision of certain goods and services. “Crowding out” is a phrase that is used to describe a situation where the government provides a service that could have been provided by the private sector. For instance: if the government were to provide free health care for U.S. citizens that was as good as private health care, why would anyone pay for health care? As a result, private health care companies would be “crowded out”.

It is important to remember that Obama’s stimulus plan is concerned almost exclusively with public goods, or at least what the administration considers to be public goods. Obama is not suggesting that the government should start producing toaster ovens to sell for a profit. He is proposing to use public money for public goods. Very few people would argue that the government would be better at producing toaster ovens than the private sector. They tried this in the Soviet Union, but wound up with toaster ovens that could barely toast one piece of bread, as well as a mountain of them that was never sold. As I eluded to earlier, the Republicans don’t consider health care to be a right. The current debate is hence a highly ideological one. The real question here is: can the private sector provide the goods in Obama’s plan 1. affordably and 2. reliably?

Let’s go through a few examples. The most important sectors that this plan is concerned with are electricity, roads and health care.

Electricity - does anyone remember the Enron scandal? If not, this company pioneered a new approach to the provision of electricity and natural gas. Before Enron, electricity was considered as something that should be provided to citizens at the lowest cost possible. There was literally a direct link between the government’s not-for-profit production and distribution of electricity and the citizen’s outlet. Unbeknownst to citizens, Enron convinced politicians that that should no longer be so.

By introducing itself as an intermediary between the energy source and the electrical outlet, Enron was able to charge customers vast sums of money, while making electricity much more expensive. Enron bought up power grids (which were built up with taxpayer money) and charged more. It bought power plants, and charged more. It intentionally choked the supply of energy, and charged more. In the ground zero of free market philosophy, Texas, electricity prices rose by 800%, and are still at that level today even though Enron is gone. California experienced countless blackouts when Enron was in charge of electricity provision in that state. These blackouts were partly intentional to choke the supply, and partly due to incompetence. So, the result was blackouts and price increases of 800%... - guilty on both counts.

Roads - Americans are always screaming about high gas prices, but I never hear anyone screaming about road tolls. In the New York area, a trip to the shopping mall can easily wind up costing $40 in tolls. It’s important to remember that almost all roads in the country have been built with taxpayer money at some point in the past. As such, they are the property of taxpayers, as much as the White House itself is. Local governments all over the country have been selling roads to private companies since the 1980:s, in the same way that electricity grids were sold to Enron. Road tolls inhibit citizens from driving on roads that they themselves paid for, and in many cases, the money goes to private companies. These private companies have no incentive to make the roads as good as possible, their only incentive is, and should be as a corporation, profit. Hence, it makes no sense to sell a road to a private company to run it for profit, when the government can run it without a profit motive. It’s a question of good governance.

The very reason that the country’s roads are crumbling is the outsourcing of roads to private companies. By doing this, The United States now has a more expensive, and lower quality transportation system. Guilty on both counts.

Health care - need I even mention the 50 million Americans who do not have access to health care? That number is growing as the economic crisis gets worse. The United States ranks very low on measures of population health, far behind all other Western countries, and even behind Cuba. Also, I never understood why employers should be saddled with health care costs. The duty of an employer is first and foremost to pay a salary and adhere to labor laws.

A little known fact is that The United States spends around twice as much tax money per capita on health care compared to the countries in the EU that provide the most comprehensive free health coverage, such as Germany, France and Sweden. In The U.S. you are covered for nothing, and in the EU you are covered for everything, at half the cost! What does that tell you about the efficiency of the market in the provision of health care for citizens?

So, what we have is truly second-rate health of the population and non-existent coverage at astronomical prices. Guilty on both counts.

The private sector absolutely cannot provide these things affordably or reliably. In an economy, there are certain things that are suited to be provided by the market, and others that are definitely not. The motive of a health care organization should be to keep citizens healthy at the lowest cost possible. Anything other than that reflects a medieval state of mind. Profit cannot be a part of the equation, because dead patients are more profitable than surviving ones. The motive of an electricity infrastructure is to keep citizens warm and able to feed themselves. Anything other than that severely threatens the security of citizens. The motive behind a national infrastructure is for citizens to be able to move around and for goods to be able to travel. Anything other than that amounts to a country giving up sovereignty over its land.

Selling out public goods to private companies is highly detrimental to a country, and indeed immoral. Obama’s plan would crowd these companies out. The plan will not bring the short-term boost that Wall Street is praying for, and will actually do the opposite of what Wall Street wants in terms of the policy on public goods. However, people on Wall Street are too stupid to figure that out.

The selling of America’s resources must be stopped and reversed. Therefore I say: crowd them out!

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