The Conservative Nanny State
For years, progressives have watched as both Democratic and Republican administrations have taken away what little remained of economic liberalism in this country. Bill Clinton, for example, took away what meager assistance the government paid to poor single mothers, signed NAFTA, and begun attempting to chip away at Social Security.
But even worse than these policy defeats are the conceptual defeats that underly them. As cognitive scientist George Lakoff has argued people think about politics through conceptual moral frames, and the conservatives have been masterful at creating frames for their policies. If the left wants to fight back, they’re going to have to create frames of their own.
Enter Dean Baker, co-director of the Center for Economic and Policy Research and one of the people instrumental in fighting back against the most recent attempt to privatize social security (as author Social Security: The Phony Crisis he had plenty of facts to demonstrate that the crisis was, in fact, phony). He has a new book out, The Conservative Nanny State: How the Wealthy Use the Government to Stay Rich and Get Richer, which takes decades of conservative frames and stands them on their head. (Disclosure: I liked the book so much I converted it to HTML for them and was sent a free paperback copy in return.)
His most fundamental point is that conservatives are not generally in favor of market outcomes. For far too long, he argues, the left has been content with the notion that conservatives want the market to do what it pleases while liberals want some government intervention to protect people from its excesses.
No way!, says Baker. Conservatives love big government — only they use it to give money to the rich instead of the poor. Thus the conservative nanny state of the title, always looking out for crybaby moneybags to help.
Take, for example, trade policy. The conservative nanny state is more than happy to sign free trade agreements that let manufacturing jobs in the United States flee offshore. And they’re happy to let immigrant workers come into the country to replace dishwashers and day laborers. But when it comes to the professional class, like doctors, lawyers, economists, journalists, and other professionals, oh no!, the conservative nanny state does everything it can (through licensing and immigration policy) to keep foreign workers out.
This doesn’t just help the doctors, it hurts all of us because it means we have to pay more for health care. NAFTA boosters estimate that the entire agreement saved us $8 billion dollars a year. Using competition to bring only doctor’s salaries down the levels seen in Europe would save us eighty billion dollars — nearly $700 per family per year, just from improved prices for doctor’s. You’d see similar amounts from other major professions.
Baker’s book is also one of the few to reveal the shocking secret behind the Federal Reserve Board you always hear messing with interest rates on the news. This unaccountable technocracy, most of whose members are appointed by banks, uses its power over interest rates to drive the economy into a recession so that wages won’t get too high. That’s right, the government tries to slow down the economy so that you get paid less. (Full details are in the book.)
Baker’s book is also chock-full of fascinating new policy ideas. He points out, for example, that corporations aren’t part of the free market, but instead a gift offered by the government. (A very popular one too, since companies voluntarily pay $278B each year for it.) And because of this, there’s absolutely no reason the government can’t tweak its terms to make us all better off. For example, Baker points out that currently, corporate rules count shareholders who don’t vote at all as voting in favor of whatever the director’s of the corporation prefer. Baker suggests requiring that all CEO pay packages get approved by a majority of those actually voting, instead of letting major CEOs pick how much to pay themselves as they do now.
Or what about copyright and patents? Again, this isn’t a law of nature, but a big government gift. People who really care about shrinking government would want to try to get rid of or shrink the laws that say the government gets to make rules about what songs and movies we can have on our personal computers.
Americans spend $220 billion on prescription drugs, largely because of government-granted patents. Instead of handing that money to big drug companies, the government could spend far less (only a couple hundred million) funding researchers itself and making the resulting drug discoveries free to the public. College students spend $12 billion. Again, the government could make free textbooks for one-thousandth that. And we spend $37 billion on music and movies. Why not create an “artistic freedom voucher” (vouchers — a conservative favorite!) that can only be spent on artists who place their work in the public domain?
None of these would require outlawing the existing system — they could work side-by-side, simply forcing the existing drug, textbook, and movie companies to compete with this alternate idea. If their version works better, then fine, they’ll get the money. But if not, there’ll be no conservative nanny state to protect them.
Similarly, the government could expand the social security program, allowing every to buy additional personal accounts from a system with amazingly low overhead (.5% versus the 20% of private funds) and a 70-year track record of success. Or it could try to improve our pitifully-bad health care system by letting people buy into the government’s Medicare program, which again has amazingly low administrative costs (did you know that, on a per person basis, we spend 80% of what Britain spends on health care altogether simply on administration?) and serious bargaining power to push down prices. Again, why not let the private companies try their best to compete?
The book itself also discusses bankruptcy laws, torts and takings, small businesses, and taxes. And it goes in to far more detail on each of these subjects. And it’s all available for free on the Internet, so there’s no excuse for not reading it. It’s an fun read, the kind of book that turns the way you think about the economy upside-down.
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May 22, 2006
Aaron,
Did you read this over before posting it? I love your blog, but this post is just plain muddled thinking.
“That’s right, the government tries to slow down the economy so that you get paid less.” - as you say, full details are in the book, but you’re going to have to back this one up if you want to repeat it. Economic recessions are generally accompanied by loses in the equity markets, so the claim that the capitalist class is making out like bandits by stalling the economy is highly suspect.
“He points out, for example, that corporations aren’t part of the free market, but instead a gift offered by the government. (A very popular one too, since companies voluntarily pay $278B each year for it.)” Surely you can see how ridiculous this statement is. If you pay for something, it isn’t a gift. Could I say that “Houses are gifts, and very popular ones, since people will voluntarily pay up to one million dollars (or more) for them!”
I’m no fan of big pharma, but the paragraph about patents is bunk. It isn’t simply a hand-out - companies are required to disclose inventions in order to receive patents, which means that they have to contribute to public knowledge. Without patent law, companies would keep their designs secret to avoid competition. Now, there’s no question that patent law can (and often is) abused, but its not a one-sided thing at all.
“Similarly, the government could expand the social security program, allowing every to buy additional personal accounts from a system with amazingly low overhead (.5% versus the 20% of private funds)” This is just plain bullshit. Only hedge funds routinely have expense ratios or costs of 20%. Typical mutual funds have expense ratios of between 1 and 2 percent, and anybody with a couple grand to invest can buy excellent index funds from vanguard with expense ratios way below 0.5%. I’m not contesting the point that the attempt to privatize social security was an attempt to move huge amounts of american paychecks into the hands of wall street investment banks, but the claim that the average private fund has 20% overhead is utterly ludicrous.
Again, I agree with the larger point, that corporate welfare is totally out of hand, but you should really do some fact-checking on this stuff.
posted by Mark
on May 22, 2006 #
- “That’s right, the government tries to slow down the economy so that you get paid less.” - as you say, full details are in the book, but you’re going to have to back this one up if you want to repeat it.
There’s a link to the book at the end of the post. The relevant chapter is the one titled “The Workers are Gettting Uppity: Call In the Fed!”. Further details are available in the book Wall Street (also available online) and a particularly interesting case study is in Christian Parenti’s Lockdown America. Robin Hahnel’s book The ABCs of Political Economy also discusses this, noting that it’s in general probably also harmful to the capitalist class, but apparently you have to put class warfare first sometimes.
- […] Surely you can see how ridiculous this statement is. If you pay for something, it isn’t a gift.
I agonized over rewording, but I decided to use the terms used in the book for consistency’s sake.
- I’m no fan of big pharma, but the paragraph about patents is bunk. It isn’t simply a hand-out
I never said it was. What I said was that we could get far more efficient outcomes using a different system.
- […] Only hedge funds routinely have expense ratios or costs of 20%.
Privatized social security in Britain and Chile have administrative costs of this amount (ch. 9, fn. 2), as do private insurers who issue annuities, which seems like the appropriate comparison to a system like social security (ch. 9, fn. 3).
posted by Aaron Swartz
on May 22, 2006 #
Aaron, you might make some distinctions here. “Conservatives” is a rather broad-brush label. I agree with you if you were to change this to “neo-Conservatives” (vs. paleos, i.e., Burkean or Kirkian conservatives).
This is a good read in the same vein as your article: http://www.lewrockwell.com/rockwell/conservative-hoax.html (though Rockwell, more of a libertarian than anything) also conflates the “Conservative” label with neo-Cons.
posted by Chris Ryland
on May 22, 2006 #
“Privatized social security in Britain and Chile have administrative costs of this amount (ch. 9, fn. 2), as do private insurers who issue annuities, which seems like the appropriate comparison to a system like social security (ch. 9, fn. 3).”
The fact that very inefficient systems exist is not a knock against the private investment sector in general. (Which, as I said, provides options that are more efficient than the social security system). You can’t criticize a category by picking on the worst exemplar(s) of that category.
posted by mark
on May 22, 2006 #
Look, social security is an annuity, that provides a guaranteed rate consistently until you die. It makes absolutely no sense to say that there’s something else sold by the private market that has lower administration costs. You have to compare annuities to annuities.
posted by Aaron Swartz
on May 22, 2006 #
Okay, that’s a fair point.
So, I spent 5 minutes looking for private, fixed-rate annuities, and found one (http://personal.fidelity.com/products/annuities/income/freedom.shtml.cvsr) that has 0.6% charges and roughly 0.85% overhead. Granted, that’s about 3x the overhead of SS, but it’s a hell of lot less than your FUD figure of 20%, and this is also the absolute first fixed-rate annuity I found. Presumably a bit of shopping around would get you a lower rate.
posted by Mark
on May 22, 2006 #
The 20% number is based on a 1999 study that took the results of a survey of annuity prices and averaged the costs of the lowest 10 rates.
posted by Aaron Swartz
on May 22, 2006 #
”.. to buy additional personal accounts from a system with amazingly low overhead (.5% versus the 20% of private funds) and a 70-year track record of success.”
Hmm, 70-year track record of success? Have you read the fairly widespread reports that the SSA is effectively bankrupt? Mostly because Congress can’t keep its hands out of the money set aside for SSA, but whatever the reason, it doesn’t look like much of a success in the near future.
I, for one (51 years old) expect not a penny from the SSA when I’m older.
posted by Chris Ryland
on May 22, 2006 #
I, for one (51 years old) expect not a penny from the SSA when I’m older.
Yeah, only because of a massive propaganda campaign designed to convince you of that. In reality, social security is doing just fine. Here’s an excerpt from Baker’s book on this.
posted by Aaron Swartz
on May 22, 2006 #
[infothought:/opt/blog/comments]% cat aa4
“.5% versus the 20% of private funds” is not reasonable.
I think somebody mixed-up two numbers with different bases. I suspect they were trying to say something like “SS has an amazingly low overhead, 0.5%, [while the higher overhead of private funds] leads to an overall 20% less return over the expected life.”
That is, if the return is 5%, and expenses are 1%, that’s 20% of the return.
Corporations are not laws of nature. They are indeed “a gift offered by the government”, in the sense that in modern form they are very recent legal constructs, and the rules under which they operate have diverged greatly from their original public interest conception.
I think the point about patents is that it’s a bit of inconsistency to be talking about the Nanny State, then wanting men with guns to enforce a country-wide prohibition on how to do a certain action based on someone claiming they own that knowledge. Ideologically, once you allow such drastic social engineering for the interests of, e.g. pharmaceuticals, well, why not for having a minimum wage? What distinguishes the social interest of the factory-owner from the social interest of the factory-worker? (obviously, there’s certain replies, but it does point out some problems with a slogan of “small government”).
Heck, right now, the Liberbabblers are trying to figure out if prohibitions on circumvention of access controls represent the good property-protecting government, or the bad intrusive-to-peoples-lives government. Amusingly, or not, the answers seem to be tracking who get big corporate money pretty closely.
posted by Seth Finkelstein
on May 22, 2006 #
Some of these seem half-plausible, but the accusations about the Fed are just plain silly. Inflation is far more harmful to an economy than a recession (or slow growth, as we usually see) and so it makes perfect sense for economic policy to err on the more conservative side. If you look at the rate of economic expansions and contractions compared to before the Fed had real teeth, you’ll see they’re actually doing an amazing job at guiding something which is inherently extremely difficult to influence.
posted by Matt
on May 23, 2006 #
Inflation is far more harmful to an economy than a recession
Harmful to who? For people in debt (most of the bottom half of the country, these days), inflation is a good thing.
posted by Aaron Swartz
on May 23, 2006 #
Aaron,
Perhaps you should talk to some middle-class folks about their experiences with inflation during the 70s. I wasn’t alive then either, but I have yet to hear anyone wax economically nostalgic for that period.
posted by Mark
on May 23, 2006 #
Economists generally agree inflation is bad, but for different reasons.
I personally think a little bit of inflation is historically healthy, but too much or mismatched expectations is deadly. (Otherwise every country in the world would just print more and more money to grow their economy.) Every creditor factors inflation into their lending, based on reasonable exceptations. If inflation outpaces that and creates financial incertainty about the future value of money banks, people, and companies are less likely to invest. Anybody who saves is punished, as are people on fixed incomes, and it encourages financial speculation. Real incomes of people fall. Things like wages, taxes, and menu prices are slower to adjust.
(I wish this comment box was bigger.)
posted by Matt
on May 23, 2006 #
I just skimmed the book and found it generally intellectually dishonest and misleading. The only parts that were somewhat on-target were the ones about how some well-off groups, like small businesses, have wrangled benefits from the government. You need to read more about some of these topics, Aaron, I don’t think you’ve thought critically enough about them. For example, suggesting that companies should compete against medicare or social security is such a bogus argument. Those government programs can compel people to pay whatever prices they want and then raise taxes further if they don’t have enough money. No private enterprise has that kind of power.
Also, one crucial argument that is ignored by these anti-privatization schemes is that innovation is spurred by letting people own their work and make whatever they can get from it. If you instituted the public domain music system you describe, I suspect that it would attract only the mediocre or young artists. As soon as one of the young ones hit it big, he would move to a record label that copyrighted his work. Your good friend Paul Graham makes a similar point in his essay Inequality and Risk (http://www.paulgraham.com/inequality.html).
posted by Ajay
on May 24, 2006 #
For people in debt (most of the bottom half of the country, these days), inflation is a good thing.
That’s only true for fixed-rate loans; for floating credit, like credit cards, it’s a disaster.
As Matt seemed to be about to say, the prospect of inflation makes credit less likely, which probably harms both the potential lender and the potential debtor.
posted by L
on May 29, 2006 #
Appreciate your blog,mental health consumers are the least capable of self advocacy,my doctors made me take zyprexa for 4 years which was ineffective for my symptoms.I now have a victims support page against Eli Lilly for it’s Zyprexa product causing my diabetes.—Daniel Haszard www.zyprexa-victims.com
posted by Daniel Haszard
on May 30, 2006 #
You can also send comments by email.
Comments
Aaron,
Did you read this over before posting it? I love your blog, but this post is just plain muddled thinking.
“That’s right, the government tries to slow down the economy so that you get paid less.” - as you say, full details are in the book, but you’re going to have to back this one up if you want to repeat it. Economic recessions are generally accompanied by loses in the equity markets, so the claim that the capitalist class is making out like bandits by stalling the economy is highly suspect.
“He points out, for example, that corporations aren’t part of the free market, but instead a gift offered by the government. (A very popular one too, since companies voluntarily pay $278B each year for it.)” Surely you can see how ridiculous this statement is. If you pay for something, it isn’t a gift. Could I say that “Houses are gifts, and very popular ones, since people will voluntarily pay up to one million dollars (or more) for them!”
I’m no fan of big pharma, but the paragraph about patents is bunk. It isn’t simply a hand-out - companies are required to disclose inventions in order to receive patents, which means that they have to contribute to public knowledge. Without patent law, companies would keep their designs secret to avoid competition. Now, there’s no question that patent law can (and often is) abused, but its not a one-sided thing at all.
“Similarly, the government could expand the social security program, allowing every to buy additional personal accounts from a system with amazingly low overhead (.5% versus the 20% of private funds)” This is just plain bullshit. Only hedge funds routinely have expense ratios or costs of 20%. Typical mutual funds have expense ratios of between 1 and 2 percent, and anybody with a couple grand to invest can buy excellent index funds from vanguard with expense ratios way below 0.5%. I’m not contesting the point that the attempt to privatize social security was an attempt to move huge amounts of american paychecks into the hands of wall street investment banks, but the claim that the average private fund has 20% overhead is utterly ludicrous.
Again, I agree with the larger point, that corporate welfare is totally out of hand, but you should really do some fact-checking on this stuff.
posted by Mark on May 22, 2006 #
There’s a link to the book at the end of the post. The relevant chapter is the one titled “The Workers are Gettting Uppity: Call In the Fed!”. Further details are available in the book Wall Street (also available online) and a particularly interesting case study is in Christian Parenti’s Lockdown America. Robin Hahnel’s book The ABCs of Political Economy also discusses this, noting that it’s in general probably also harmful to the capitalist class, but apparently you have to put class warfare first sometimes.
I agonized over rewording, but I decided to use the terms used in the book for consistency’s sake.
I never said it was. What I said was that we could get far more efficient outcomes using a different system.
Privatized social security in Britain and Chile have administrative costs of this amount (ch. 9, fn. 2), as do private insurers who issue annuities, which seems like the appropriate comparison to a system like social security (ch. 9, fn. 3).
posted by Aaron Swartz on May 22, 2006 #
Aaron, you might make some distinctions here. “Conservatives” is a rather broad-brush label. I agree with you if you were to change this to “neo-Conservatives” (vs. paleos, i.e., Burkean or Kirkian conservatives).
This is a good read in the same vein as your article: http://www.lewrockwell.com/rockwell/conservative-hoax.html (though Rockwell, more of a libertarian than anything) also conflates the “Conservative” label with neo-Cons.
posted by Chris Ryland on May 22, 2006 #
“Privatized social security in Britain and Chile have administrative costs of this amount (ch. 9, fn. 2), as do private insurers who issue annuities, which seems like the appropriate comparison to a system like social security (ch. 9, fn. 3).”
The fact that very inefficient systems exist is not a knock against the private investment sector in general. (Which, as I said, provides options that are more efficient than the social security system). You can’t criticize a category by picking on the worst exemplar(s) of that category.
posted by mark on May 22, 2006 #
Look, social security is an annuity, that provides a guaranteed rate consistently until you die. It makes absolutely no sense to say that there’s something else sold by the private market that has lower administration costs. You have to compare annuities to annuities.
posted by Aaron Swartz on May 22, 2006 #
Okay, that’s a fair point.
So, I spent 5 minutes looking for private, fixed-rate annuities, and found one (http://personal.fidelity.com/products/annuities/income/freedom.shtml.cvsr) that has 0.6% charges and roughly 0.85% overhead. Granted, that’s about 3x the overhead of SS, but it’s a hell of lot less than your FUD figure of 20%, and this is also the absolute first fixed-rate annuity I found. Presumably a bit of shopping around would get you a lower rate.
posted by Mark on May 22, 2006 #
The 20% number is based on a 1999 study that took the results of a survey of annuity prices and averaged the costs of the lowest 10 rates.
posted by Aaron Swartz on May 22, 2006 #
”.. to buy additional personal accounts from a system with amazingly low overhead (.5% versus the 20% of private funds) and a 70-year track record of success.”
Hmm, 70-year track record of success? Have you read the fairly widespread reports that the SSA is effectively bankrupt? Mostly because Congress can’t keep its hands out of the money set aside for SSA, but whatever the reason, it doesn’t look like much of a success in the near future.
I, for one (51 years old) expect not a penny from the SSA when I’m older.
posted by Chris Ryland on May 22, 2006 #
Yeah, only because of a massive propaganda campaign designed to convince you of that. In reality, social security is doing just fine. Here’s an excerpt from Baker’s book on this.
posted by Aaron Swartz on May 22, 2006 #
[infothought:/opt/blog/comments]% cat aa4 “.5% versus the 20% of private funds” is not reasonable.
I think somebody mixed-up two numbers with different bases. I suspect they were trying to say something like “SS has an amazingly low overhead, 0.5%, [while the higher overhead of private funds] leads to an overall 20% less return over the expected life.”
That is, if the return is 5%, and expenses are 1%, that’s 20% of the return.
Corporations are not laws of nature. They are indeed “a gift offered by the government”, in the sense that in modern form they are very recent legal constructs, and the rules under which they operate have diverged greatly from their original public interest conception.
I think the point about patents is that it’s a bit of inconsistency to be talking about the Nanny State, then wanting men with guns to enforce a country-wide prohibition on how to do a certain action based on someone claiming they own that knowledge. Ideologically, once you allow such drastic social engineering for the interests of, e.g. pharmaceuticals, well, why not for having a minimum wage? What distinguishes the social interest of the factory-owner from the social interest of the factory-worker? (obviously, there’s certain replies, but it does point out some problems with a slogan of “small government”).
Heck, right now, the Liberbabblers are trying to figure out if prohibitions on circumvention of access controls represent the good property-protecting government, or the bad intrusive-to-peoples-lives government. Amusingly, or not, the answers seem to be tracking who get big corporate money pretty closely.
posted by Seth Finkelstein on May 22, 2006 #
Some of these seem half-plausible, but the accusations about the Fed are just plain silly. Inflation is far more harmful to an economy than a recession (or slow growth, as we usually see) and so it makes perfect sense for economic policy to err on the more conservative side. If you look at the rate of economic expansions and contractions compared to before the Fed had real teeth, you’ll see they’re actually doing an amazing job at guiding something which is inherently extremely difficult to influence.
posted by Matt on May 23, 2006 #
Harmful to who? For people in debt (most of the bottom half of the country, these days), inflation is a good thing.
posted by Aaron Swartz on May 23, 2006 #
Aaron,
Perhaps you should talk to some middle-class folks about their experiences with inflation during the 70s. I wasn’t alive then either, but I have yet to hear anyone wax economically nostalgic for that period.
posted by Mark on May 23, 2006 #
Economists generally agree inflation is bad, but for different reasons.
I personally think a little bit of inflation is historically healthy, but too much or mismatched expectations is deadly. (Otherwise every country in the world would just print more and more money to grow their economy.) Every creditor factors inflation into their lending, based on reasonable exceptations. If inflation outpaces that and creates financial incertainty about the future value of money banks, people, and companies are less likely to invest. Anybody who saves is punished, as are people on fixed incomes, and it encourages financial speculation. Real incomes of people fall. Things like wages, taxes, and menu prices are slower to adjust.
(I wish this comment box was bigger.)
posted by Matt on May 23, 2006 #
I just skimmed the book and found it generally intellectually dishonest and misleading. The only parts that were somewhat on-target were the ones about how some well-off groups, like small businesses, have wrangled benefits from the government. You need to read more about some of these topics, Aaron, I don’t think you’ve thought critically enough about them. For example, suggesting that companies should compete against medicare or social security is such a bogus argument. Those government programs can compel people to pay whatever prices they want and then raise taxes further if they don’t have enough money. No private enterprise has that kind of power.
Also, one crucial argument that is ignored by these anti-privatization schemes is that innovation is spurred by letting people own their work and make whatever they can get from it. If you instituted the public domain music system you describe, I suspect that it would attract only the mediocre or young artists. As soon as one of the young ones hit it big, he would move to a record label that copyrighted his work. Your good friend Paul Graham makes a similar point in his essay Inequality and Risk (http://www.paulgraham.com/inequality.html).
posted by Ajay on May 24, 2006 #
For people in debt (most of the bottom half of the country, these days), inflation is a good thing.
That’s only true for fixed-rate loans; for floating credit, like credit cards, it’s a disaster. As Matt seemed to be about to say, the prospect of inflation makes credit less likely, which probably harms both the potential lender and the potential debtor.
posted by L on May 29, 2006 #
Appreciate your blog,mental health consumers are the least capable of self advocacy,my doctors made me take zyprexa for 4 years which was ineffective for my symptoms.I now have a victims support page against Eli Lilly for it’s Zyprexa product causing my diabetes.—Daniel Haszard www.zyprexa-victims.com
posted by Daniel Haszard on May 30, 2006 #
You can also send comments by email.