Projecting Power, Competing for Life, & Supply Side Math

Oct 12

Some issues I feel are being skirted in the debates:

1. How the Toughest Guy Projects his Power

The Republican position on national security is that the best way to achieve peace is by “projecting power,” and they are fond of saying that Democrats invite aggression by “projecting weakness.” The idea is that no one will start a fight he knows he won’t win, nor will he threaten to start a fight with someone he knows will call his bluff. This is why Republican presidents often suffer from Cowboy Syndrome.

In certain individual relationships, this type of dynamic actually does establish itself—or rather the dominant individual establishes this type of dynamic. But in the realm of national security we aren’t dealing with individuals. With national security, we’re basically broadcasting to the world the level of respect we have for them. If a George Bush or a Mitt Romney swaggers around projecting his strength by making threats and trying to push around intergovernmental organizations, some people will naturally be intimidated and back down. But those probably weren’t the people we needed to worry about in the first place.

The idea that shouting out to the world that the US is the toughest country around and we’re ready to prove it is somehow going to deter Al Qaeda militants and others like them is dangerously naïve. We can’t hope for all the nations of the world to fall into some analog of Battered Wife Syndrome. Think about it this way, everyone knows that the heavyweight champion MMA guy is the toughest fighter in the world. If you want to project power, there’s no better way to do it than by winning that belt. Now we have to ask ourselves: Do fewer people want to fight the champion? We might also ask: Does a country like Canada get attacked more because of its lame military?

The very reason organizations like Al Qaeda ever came into existence was that America was projecting its power too much. The strategy of projecting power may as well have been devised by teenage boys—and it continues to appeal to people with that mindset.

2. Supplying more Health and Demanding not to Die

Paul Ryan knows that his voucher system for Medicare is going to run into the problem that increasing healthcare costs will quickly surpass whatever amount is allotted to individuals in the vouchers—that’s the source of the savings the program achieves. But it’s not that he wants to shortchange seniors. Rather, he’s applying a principle from his economic ideology, the one that says the best way to control costs is to make providers compete. If people can shop around, the reasoning goes, they’ll flock toward the provider with the lowest prices—the same way we all do with consumer products. Over time, all the providers have to find ways to become more efficient so they can cut costs and stay in business.

Sounds good, right? But the problem is that healthcare services aren’t anything like consumer goods. Supply and demand doesn’t work in the realm of life and death. Maybe, before deciding which insurance company should get our voucher, we’ll do some research. But how do you know what types of services you’re going to need before you sign up? You’re not going to find out that your plan doesn’t cover the service you need until you need the service. And at that point the last thing you’re going to want to do is start shopping around again. Think about it, people shop around for private insurance now--are insurance companies paragons of efficiency?

Another problem is that you can’t shop around to find better services once industry standards have set in. For example—if you don’t like how impersonal your cell phone service is, can you just drop your current provider and go to another? If you do, you’re just going to run into the same problem again. What’s the lowest price you can pay for cable or internet services? The reason Comcast and Dish Network keep going back and forth with their commercials about whose service is better is that there is fundamentally very little difference.

Finally, insurance is so complicated that only people who can afford accountants or financial advisors, only people who are educated and have the time to research their options, basically only people with resources are going to be able to make prudent decisions. This is why the voucher system, over time, is just going to lead to further disadvantages for the poor and uneducated, bring about increased inequality, and exacerbate all the side effects of inequality, like increased violent crime.

3. Demand Side Never Shows up for the Debate

The reason Romney and Ryan aren’t specifying how they’re going to pay for their tax cuts, while at the same time increasing the budget for the military, while at the same time decreasing the deficit, is that they believe, again based on their economic ideology, that the tax cuts will automatically lead to economic growth. The reasoning is that if people have more money after taxes, they’ll be more likely to spend it. This includes business owners who will put the money toward expanding their businesses, which of course entails hiring new workers. All this cycles around to more money for everyone, more people paying that smaller percentage but on larger incomes, so more revenue comes in, and now we can sit back and watch the deficit go down. This is classic supply side economics.

Sounds good, right? The problem is that businesses only invest in expansion when there’s increasing demand for their products or services, and the tax cuts for lower earners won’t be enough to significantly increase that demand. If there's no demand, rich people don't invest and hire; they buy bigger houses and such. The supply side theory has been around for a long time—and it simply doesn’t work. The only reliable outcome of supply side policies is increasing wealth inequality.

What works is increasing demand—that’s demand side economics. You do this by investing in education, public resources, and infrastructure. Those construction workers building roads and bridges and maintaining parks and monuments get jobs when their companies are hired by the government—meaning they get paid with our tax money. Of course, they get taxed on it, thus helping to support more projects. Meanwhile, unemployment goes down by however many people are hired. These people have more income, and thus create more demand. The business owners expand their businesses—hire more people. As the economy grows, the government can scale back its investment.

Demand side economics can also focus on human capital - including healthcare because it's hard to work when you're sick or dying and you're not going to be creating any demand when you're bankrupt from hospital and insurance payments. Government can also help the economy by investing in people's education, because educated people tend to get better jobs, make more money, and—wait for it, create more demand. (Not to mention innovation.) Job training can work the same way.

Supply side versus demand side is at the heart of most policy debates. The supply side ideology has all kinds of popular advocates, from Ayn Rand to Rush Limbaugh. The demand siders seem more mum, but that might just be because I live in Indiana. In any case, the demand siders have much better evidence supporting their ideas, even though they lose in terms of rhetoric as the knee jerk response to their ideas is to (stupidly, inaccurately) label them socialist. As Bill Clinton pointed out and the fact checkers corroborated, Democrats do a better job creating jobs.