Economic policy

Reviews | The Build Back Better Plan and American economic policy

Limited supply ultimately occurs when suppliers use their political power to insulate themselves from market forces that drive innovation and long-term cost reductions. A family doctor can only see one patient at a time, for example, but for every doctor there are many nurse practitioners, physician assistants and other practitioners who are trained to perform procedures , perform tests and make diagnoses – but too often they can’t because regulations limit their field of practice.

What is true of a tight labor supply is also true of a tight housing supply. Incumbent landlords love restrictive zoning and land use regulations because they drive up property values ​​and move development into someone else’s backyard, or even keep it out of the way. all. But when virtually all local jurisdictions enforce similar restrictions, the result is a housing affordability crisis, urban sprawl, segregation, excessive energy consumption and moats around centers of growth and opportunity. from the country.

Or consider student loan subsidies, which research findings pay higher tuition fees. In turn, American universities are heavily overcapitalized, with expansive administrations and amenities designed to appeal to upper-middle-class children. Curbing tuition inflation will require strong institutional experimentation, whether it’s facilitating the downfall of the long tail of poorly performing American private colleges or imposing the discipline necessary for universities to give up building this additional football stadium.

Greater choice on the part of purchasers can also improve resource utilization, as in the case of childcare services. Free or heavily subsidized child care would lock the United States into a particular model that would not satisfy two-thirds of the parents who say they prefer home, church and family arrangements. Offering parents a flexible child benefit, as the Democrats have done with their expanded child tax credit, is both a better way to respect the diversity of American family life and a way that allows parents to choose childcare options based on actual market prices.

This should not be confused with a suggestion of deregulation and quitting smoking. A sufficiently generous and friendly welfare state is a key complement to any modern and dynamic economy. But that is an entirely separate issue from whether the funds should go to families and individuals or to intermediate producers who have their own interests. When the good or service in question suffers from cost sickness – skyrocketing prices – these subsidies will not be viable anyway.

In the years to come, inflation and debt will play a role in our public debate that they have not had for years. The last time these twin threats were so central, they produced a policy of austerity and mass unemployment, which then provided the raw material for populism. A policy focused exclusively on the socialization of costs or the reduction of budgets leads nowhere.

In contrast, a genuine supply-side program of liberalizing regressive regulations would drive down the costs of basic goods, unlock economic innovation, and tackle a fundamental driver of inequality by depriving professionals and wealthy homeowners of their protections granted by the government.