Straw Men Arguments On The Economy

In a column yesterday Glenn Reynolds managed to bring up some of the most common straw men arguments used against liberals, and more recently against health care reform. I’ve dealt with these issues in the past, but this provides an opportunity to  review these points.

It is very common for conservatives to attack liberals based upon straw men arguments–attributing beliefs to liberals not commonly held by liberals and then attacking these beliefs as opposed to actual liberal beliefs. Reynolds devotes a considerable amount of time attacking “command economies.” Many of his points are true, but irrelevant as few (if any) liberals support a command economy. While at times in the past the liberal/conservative divide might have been partially based upon such economic views, this has no relevance to current liberal views.

This leads to a second straw man argument I frequently hear, claiming that liberals believe that government regulators are more intelligent than businessmen and more capable of making business decisions for them. Again this has no relevance to what most liberals believe. Liberals, going all the way back to Adam Smith, understood that the “invisible hand” does not always work correctly and that a certain amount of regulation is needed for markets to work. We do not want the regulators to take over running the companies. We do not believe that the regulators are any more intelligent, but we do understand, as conservatives do not, the perils of allowing the fox to guard the hen house.

It is true that government regulations will often result in undesirable consequences. Government regulators are human and both make mistakes and sometimes act improperly. Despite this, we often need regulations to prevent abuses by  business. It is not necessary for the regulators to be smarter than the businessmen to intervene when businesses act in abusive manners. The system is far from perfect, but also far better than going without necessary regulations.

One example of how the “invisible hand” has failed has been in the individual insurance market. Insurance companies developed a business model based upon denying coverage to increase profits. Government action was needed to preserve the individual market and enable more people to purchase insurance coverage.

Conservatives claim that health care reform was some type of radical government take over of health care. Actually it is a fairly conservative effort primarily aimed at placing necessary regulations on insurance companies. While Reynolds claims this to be an example of the “command economy” supported by liberals, the ideas in the legislation are actually based upon ideas from the Heritage Foundation and promoted by the Republican Party in 1993 as the opposition proposal to the Clinton plan.

Reynolds also repeated one of the bogus arguments used since passage, citing companies which claim health care reform is “hurting companies and killing jobs.” What the health care reform legislation actually does is plug loopholes provided during the Bush years which lower their taxes. For example, the Bush administration gave these companies subsidies to cover their employees who are eligible for Medicare. In addition these companies are allowed to write off the money spent on their taxes despite the fact that the money came from the government. It will cost them money if they are no longer able to receive subsidies and then write this off as a business expense, but they never should have received this break. They managed to stay in business and provide jobs before receiving this break, and they will manage to do so in the future.

Boeing, among other companies, is complaining about the cost of health care reform but they pay a trivial amount in federal taxes due to tax breaks such as this. Boeing’s tax rate was just 3.2 percent on average over the last 4 years and just 0.7 percent averaged from 2002 to 2007. Boeing’s three-year effective tax rate from 2001-2003 was negative 18.8 percent. They paid no federal income tax in 2009 and received $132 million back from the IRS. In 2008, Boeing paid just $44 million in federal income taxes while having earnings of $2.7 billion.

Health insurance reform will create jobs, not kill jobs. It will make American companies more competitive with foreign companies. It will also reduce the burden on small companies of providing health care coverage allowing them to hire more people. It will enable entrepreneurs to leave large corporations and form their own companies when their health care coverage is no longer tied to their jobs. It is our former health care system, not the reformed system, which stifled business and killed jobs.

These complaints show that businessmen are smart–smart enough to protest losing tax breaks they never should have received. This also shows why we need people who understand the need for regulation in government as opposed to Republicans who see the role of government as enabling their corporate friends to avoid taxes and regulations.

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  1. 1
    James Chase says:

    I agree except that I think the tax loophole was intended to keep companies from dropping their retirees prescription drug programs entirely and then sticking Medicare with the whole tab instead of just the subsidies and the tax loss (I think the government pays something like 35%?).
    It could be that companies who are not forced to provide these drug prescription programs via unions will just drop the prescription drug programs entirely for their retirees and then we’ll have an even larger Medicare draw. Seems like a plausible concern but I hope it doesn’t work out that way.
    Agree with your concluding sentence 100% though and good point about enabling more entrepreneurs to jump corporate ship without worrying about being tied to health insurance. The MA subsidized health program was an enormous boon to me as a self employed consultant. I think many entrepreneurs nation wide are really going to feel like they just took a huge breath of fresh air when the exchanges open up.

  2. 2
    Ron Chusid says:

    Bush did want to use the incentives to have people covered by their employer as opposed to the government program. His original Medicare proposals were designed to kill off the government program, but even Senate Republicans like Chuck Grassley were unwilling to go along with this. There is no problem with people moving from private plans to the government plan if the government is already paying subsidies for their private coverage.

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