Dec 18, 2021 - Politics & Policy

The case for creating more of everything

Illustration of a pattern of upward-pointing arrows.

Illustration: Shoshana Gordon/Axios

From housing to child care to energy, the U.S. is beset by rising costs for the goods and services needed most — and part of the reason is there isn’t enough to go around.

Why it matters: Economists and other experts worry that subsidizing those costs could make things worse. They argue a better, fairer and more abundant future is one where policy focuses on increasing supply, not merely socializing demand.

Driving the news: President Biden's top domestic priority — the $1.75 trillion Build Back Better plan — hit another roadblock on Thursday, as it became clear the legislation was stalled in the Senate and wouldn't pass before the end of the year.

Yes, but: To some experts, however, the bill is emblematic of deeper problems in policymaking, and instead of reducing the rising costs of essential services like child care — as the Biden administration has claimed — it could actually make them worse.

  • In a November column in the New York Times, Samuel Hammond, Daniel Takash and Steven Teles of the center-left Niskanen Center argued the bill's child care proposal — which would mandate higher wages and greater credentials for workers, and then offset higher costs with hefty subsidies — "won't reduce rising prices so much as mask them."
  • They wrote that this is an example of "'Cost Disease Socialism' — addressing the increasing costs of supply-constrained goods and services by spreading the price among American taxpayers while leaving the cause of the underlying costs unaddressed."

The big picture: Over the past few decades, U.S. consumers have generally enjoyed plunging costs for things like clothing, appliances and consumer electronics — which is why a big flat-screen TV costs far less than it did a decade ago.

  • But the cost of vital services such as health care, housing and education has gone the other way, eating into American incomes and making a middle-class lifestyle ever harder to achieve.
  • What those industries have in common is that, unlike fields that make most consumer goods, they've experienced little productivity growth, which causes costs to rise over time — a phenomenon economists call "Baumol's cost disease."

Between the lines: The progressive response to this reality has generally been to subsidize these services in an attempt to offset those rising costs by socializing them as much as possible.

  • There's justice in this tack — redistribute some wealth from the rich in the form of subsidies, enabling the less well-off to keep pace with the rising costs of essentials.
  • But the Niskanen Center analysts and other experts argue the approach — which focuses on demand rather than supply — is backfiring, worsening inflation in sectors such as education and health care.
  • "If we try to deal with the problem of expensive health care, child care, and higher education by throwing more money at it," the economist Noah Smith wrote earlier this year, "the result will be that although consumers will pay less, society as a whole will pay more."

Instead, they say a better approach would be to focus policymaking on increasing the supply of those expensive but vital goods and services, in what's come to be called "supply-side progressivism."

  • It means working to reduce many of the regulations that make it expensive and difficult to build necessary housing in desirable cities, or that hold down the number of doctors in the U.S.
  • It means investing heavily in scientific research and development that can ensure zero-carbon energy doesn't merely replace existing fossil fuels but surpasses them, providing an energy supply that isn't just cleaner but cheaper.
  • It means embracing a future where greater abundance of all things — not just high-quality TVs, but high-quality education — is a main goal of policy, where instead of arguing over who deserves what, there's more than enough for all.

Of note: Aspects of the Build Back Better plan call for boosting research and infrastructure investment to make energy and transportation cheaper overall.

The bottom line: An abundant future might seem utopian, but the alternative may be a shell game of endlessly shifting costs around, even as society is on the hook for an ever more expensive future.

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