Shunning Free Market, Obama's Economic Vision Ultimately Means Tepid Growth, Higher Prices


Shunning Free Market, Obama's Economic Vision Ultimately Means Tepid Growth, Higher Prices

Mar 13, 2009 2 min read

Senior Associate Fellow

The new buzz-word in Washington is "pivot," used to describe a fundamental change in public policy.

Team Obama has done a lot of pivoting -- on issues both foreign and domestic. Nowhere has it pivoted more, though, than on the economic front.

Clearly, it has turned away from free-market. And while it's not always clear exactly where they are turning to -- leading some pundits to suggest they are simply "making it up as they go along" -- the general approach is one more commonly seen in Europe.

It assumes that only government can solve key social and economic problems. And it has few qualms about manipulating markets, by-passing institutions of civil society and shouldering aside the private sector to get where it wants to go.

There's a downside to this approach. It directly increases dependency on government and slows economic activity.

Take healthcare, for example. A non-governmental solution to our messed up healthcare system would use competition to keep insurance prices down and empower consumers to own the private health coverage that suits them best. Charitable organizations and government would step in as healthcare providers of last resort for those who cannot afford private care.

President Obama's healthcare vision takes a different approach. Improvements in healthcare and health insurance are driven by the federal government, not by consumer choice and market forces.

The president's recent legislation on SCHIP -- a joint federal-state program providing healthcare to children -- uses the guiding hand of the state to expand coverage. His initiatives to expand wellness and prevention programs, to alter payments to physicians, to increase use of computer-based medical records keeping -- all expand the reach and power of government in the system. They leave doctors and patients more dependent on government for healthcare answers and make the healthcare industry more reliant on guidance -- and dictates -- from the state.

The president's energy proposals also exemplify a state-oriented approach to problem solving. A non-government solution would let energy markets respond fully to the public's demand for low-cost, environmentally sound energy. That sounds a lot like nuclear power or energy from clean coal technologies, which need no taxpayer subsidies.

But the president starts from a far different place. Compulsory, expensive reductions in CO2 levels, followed by numerous government-directed programs to create green jobs, develop renewable energy sources and conserve energy. The mission: to transform the economy through government actions.

These policy moves carry a high price. To pay for his health reforms, the president wants to reduce tax deductions for wealthy taxpayers' charitable giving. Since the wealthiest nine percent of taxpayers provide more than half of all charitable giving, reducing their donations may leave low-income Americans with slightly better healthcare and slightly less food.

The president's energy proposals call on consumers to pay higher prices for electricity generated by coal-fired plants. Those higher costs will be compounded by fewer jobs and slower income growth -- the result of a general economic slump caused by these price hikes

Better health care and greener, more affordable energy are laudable goals. But when they are pursued by policies that aggrandize the power of the state, the social cost is tremendous. The Heritage Foundation's annual Index of Government Dependency demonstrates that growing dependency on government undermines the richer social and economic fabric of civil society.

It is in the families, neighborhoods, and small units of community that human needs are best met. It is Main Street entrepreneurship rather than Washington, DC, bureaucracy that drives progressive economic transformation.

The president's approach pivots away from problem solving powered by millions of social and economic actors. It pivots toward a nanny state of queuing for a doctor and the dictates of energy boards. That is not the way to go.

William W. Beach is director of the Center for Data Analysis at the Heritage Foundation

First Appeared in Canada Free Press