Month: November 2022

After the passage of Medicare and Medicaid, universal health insurance seemed to be on its way. In 1971, the New York Times observed that “Americans from all strata of society … are swinging over to the idea that good health care, like good education, ought to be a fundamental right of citizenship.” That same year, Ted Kennedy introduced a bill providing universal coverage with no payments at the point of service, on the grounds that “health care for all our people must now be recognized as a right.” The bill didn’t pass, but it laid down a marker for future health care reform.

But when Democratic presidents and congresses took up health care in later years they chose a different path. Rather than pitching health care as a right of citizenship, the goal was better-functioning markets for health care as a commodity. From the “consumer choice health plan” proposed by Alain Enthoven in the Carter administration, though the 1993 Clinton plan down to Obama’s ACA, the goal of reform was no longer the universal provision of health care, but addressing certain specific failures in the market for health insurance.

The intellectual roots of this shift are the subject of Beth Popp Berman’s new book Thinking Like an Economist: How Efficiency Replaced Equity in U.S. Public Policy. A distinct style of thinking, she argues, reshaped ideas how about how government should work and what it could achieve. This “economic style” of thinking, originating among Democrats rather than on the Right, “centered efficiency and cost-effectiveness, choice and incentives, and competition and the market mechanism… Its implicit theory of politics imagined that disinterested technocrats could make reasonably neutral, apolitical policy decisions.” Rather than see particular domains of public life, like health care or the environment, as embodying their own distinct goals and logics, they were imagined in terms of an idealized market, where the question was what specific market failure, if any, the government should correct.

The book traces this evolution in various policy domains, focusing on the microeconomic questions of regulation, social provision and market governance rather than the higher-profile debates among macroeconomists. Covering mainly the period of the Kennedy through Reagan administrations, with brief discussions of more recent developments, the book documents how the economic style of reasoning displaced alternative ways of thinking about policy questions. The first generation of environmental regulation, for example, favored high, inflexible standards such as simply forbidding emission of certain substances. Workplace and consumer safety laws similarly favored categorical prohibitions and requirements.

But to regulators trained in economics, this made no sense. To an economist, “the optimal level of air pollution, worker illness, or car accidents might be lower than its current level, but it was probably not zero.” As economist Marc Roberts wrote with frustration of the Clean Water Act, “There is no be no case-by-case balancing of costs and benefits, no attempt at ‘fine-tuning’ the process of resource allocation.’”

The book has aroused hostility from economists, who insist that this is an unfairly one-sided portrayal of their profession. I think Berman has the better of the argument here. As anyone who has taken an economics course in college can confirm, there really is such a thing as “thinking like an economist,” even if not every economist thinks that way. Framing every question as a problem of optimization under constraints is a very particular style of reasoning. And, as Berman observes, the most important site of this thinking is not the work of professional economists with their “frontier research,” but undergraduate classes and in schools of public policy where those in government, non-profits, and the press acquire this perspective.

Berman also is right to link this distinctive economic style of reasoning to a narrowing of American political horizons. At the same time, she is appropriately cautious about attributing too much independent influence to it — ideas matter, she suggests, but as tools of power rather than sources of it.

The problem with the book is not that she is unfair to economists; it’s that she concedes too much ground to them. Thinking Like an Economist is attentive to the shifting backgrounds of leaders and staff in federal agencies — if you’re wondering who was the first economics PhD to head the Justice Department’s Antitrust Division, this is the book for you. But this institutional history, while important, sometimes crowds out critical engagement with the ideas being discussed.

Take the term efficiency, which seems to occur on almost every page of the book, starting with the cover. The essence of the economic style, says Berman, is that government should make decisions “to promote efficiency.” But what does that mean?

We know what “efficient” means as applied to, say, a refrigerator. It means comparing a measurable input (electricity, in this case) to a well-defined outcome (a given volume maintained at a given temperature). There is nothing distinct to economics in preferring a more energy-efficient to a less energy-efficient appliance. Unions planning organizing campaigns, socialists running in elections, or public housing administrators all similarly face the problem of getting the most out of their scarce resources.

But what if the question is whether you should have a refrigerator in the first place, or if refrigerators ought to be privately owned? What could “efficient” mean here?

To an economist, the answer is the one that maximizes “utility” or “welfare.” These things, of course, are unobservable. So the measurement of inputs and output that defines efficiency in the every day sense is impossible.

Instead, what we do is start with an abstract model in which all choices involve using or trading property claims, and people know and care about only their own private interests. Then we show that in this model, exchange at market prices will satisfy a particular definition of efficiency — either Pareto, where no one can get a better outcome without someone else getting a worse one, or Kaldor-Hicks, where improvements to one person’s situation at the expense of another’s are allowed as long as the winners could, in principle, make the losers whole. Finally, in a sort of argument by homonym, this specialized and near-tautological meaning of “efficiency” is imported back into real-world settings, where it is used interchangeably with the everyday doing-more-with-less one.

When someone steeped in the economic style of thinking says “efficiency,” they mean something quite different from what normal people would. Rather than a favorable ratio of measurable out- puts to inputs, they mean a desirable outcome in terms of unmeasurable welfare or utility, which is simply assumed to be reached via markets. A great part of the power of economics in policy debates comes through the conflation of these two meanings. A common-sensical wish to get better outcomes with less resources gets turned into a universal rule that economic life should be organized around private property and private exchange.

Berman is well aware of the ambiguities of her key term, and the book contains some good discussions of these different meanings. But that understanding seldom makes it into the primary narrative of the book, where economists are allowed to pose as advocates of an undifferentiated “efficiency,” as opposed to non-economic social and political values. This forces Berman into the position of arguing that making government programs work well is in conflict with making them fair, when in reality an ideological preference for markets is often in conflict with both.

To be sure, there are cases where Berman’s frame works. Health care as a right is fundamentally different from a good that should be delivered efficiently, by whatever meaning. But in other cases, it leads her seriously astray. There are many things to criticize in the United States’ thread- bare welfare state. But is one of them really that it focuses too much on raising recipients’ in- comes, as opposed to relieving their “feelings of anomie and alienation”? Or again, there are many reasons to prefer 1960s and ‘70s style environmental regulation, with simple categorical rules, to the more recent focus on incentives and flexibility. But I am not sure that “the sacredness of Mother Earth” is the most convincing one.

That last phrase is Berman’s, from the introduction. It’s noteworthy that in her long and informative chapter on environmental regulation, we never hear the case for strong, inflexible standards being made in such terms. Rather, the first generation of regulators “built ambitious and relatively rigid rules … because they saw inflexibility as a tool for preventing capture” by industry, and because they believed that “setting high, even seemingly unrealistic standards … could drive rapid improvements” in technology. Meanwhile, their economics-influenced opponents like Charles Schultze (a leading economist in the Johnson and Carter administrations, and a central figure in the book) and Carter EPA appointee Bill Drayton, seem to have been motivated less by measurable policy outcomes than by objections on principle to “command and control” regulation. As one colleague described Drayton’s belief that companies should be allowed to offset emissions at one plant with reductions elsewhere, “What was driving Bill was pure intellectual conviction that this was a truly elegant approach — The Right Approach, with a capital ’T’ and ‘R’.” This does not look like a conflict between the values of equity and efficiency. It looks like a conflict between the goal of making regulation effective on one side, versus a preference for markets as such on the other.

On anti-trust regulation, the subject of another chapter in the book, the efficiency-versus-equity frame also obscures more than it reveals. The fundamental shift here was, as Berman says, away from a concern with size or market share, toward a narrower focus on horizontal agreements between competitors. And it is true that this shift was sometimes justified in terms of the supposed greater efficiency of dominant firms. But we shouldn’t take this justification at face value. As critical anti-trust scholars like Sanjukta Paul have shown, courts were not really interested in evidence for (or against) such efficiency. Rather, the guiding principle was a preference for top-down coordination by owners over other forms of economic coordination. This is why centralized price-setting by Amazon is acceptable, but an effort to bargain jointly with it by publishers was unacceptable; or why manufacturers’ prohibitions on resale of their products were accept- able but the American Medical Association’s limits on advertising by physicians was unacceptable. The issue here is not efficiency versus equity, or even centralized versus decentralized economic decision making. It’s about what kind of authority can be exercised in the economic sphere.

Berman ends the book with the suggestion that rebuilding the public sector calls for rethinking the language in which policies are understood and evaluated. On this, I fully agree. Readers who were politically active in the 2000s may recall the enormous mobilizations against George W. Bush’s proposals for Social Security privatization — and the failure, after those were abandoned, to translate this defensive program into a positive case for expanding social insurance. More recently, we’ve seen heroic labor actions by public teachers across the country. But while these have sometimes succeeded in their immediate goals, they haven’t translated into a broader argument for the value of public services and civil service protections.

As Berman says, it’s not enough to make the case for particular public programs; what we need is better language to make the positive case for the public sector in general.