“Supply-side economics” has come to be identified in liberal circles with a single idea: the contention that regressive income tax cuts for rich guys will trickle down through the rest of the economy.
And to be sure, that’s a bullshit enterprise. But that doesn’t mean there’s nothing of interest for liberals on the supply side of economic policy. The term simply refers to the regulations and taxes that impact how much stuff we can produce, and it’s an area of economic policy thinking we ignore at our peril.
The liberal interest on the supply side of the economy is in eliminating fake scarcities. Sometimes we see real scarcities arise because we actually just can’t produce more of a good or service, or people can’t profitably produce more without a government subsidy.
But it is often the case that people would produce more goods and services naturally on their own if not for government regulations creating fake scarcities.
Sometimes these regulations are well-meaning, but more often they come into being because vested interests lobby for regulations that raise barriers to entry for competing businesses and business models, in order to keep prices and profits high.
The first thing you always want to ask whenever you see a shortage of something (and curiously high prices are usually the giveaway) is whether there aren’t some policy choices handcuffing our ability to make more at a lower price.
Too often politicians, activists, and journalists do not ask this question.
For example, Scott Kraus at the Morning Call has a long piece this morning on the specter of a doctor shortage, where he talks to a number of health care providers about how all the new Obamacare enrollees could overwhelm health care provider networks.
But nowhere in the piece does Scott grapple with whether this shortage is fake, or exacerbated by government regulations that artificially reduce the supply of doctors. Certainly we could import more doctors from abroad or reduce barriers to “medical tourism” or pay to train more doctors at the federal level.
And at the state level, we can liberalize “scope of practice” laws to allow nurse practitioners and dental hygienists to do more procedures without having to kick some money upstairs to an M.D. Random occupational licensing requirements also constrain how many professionals exist in professions like physical and occupational therapy, with training requirements varying wildly between the states.
Scott’s piece might as well have been prewritten by the hospital networks for how thoroughly it ignores all of the ways that federal and state laws actively constrain the supply of doctors.
Health care isn’t the only sector where these kinds of shenanigans drive up prices for families and individuals.
The supply of affordable housing is sharply constrained by zoning restrictions on density, regulations requiring massive amounts of free parking, and low taxes on land speculation. Better transit service is stymied by land use restrictions around stations, work rules, Buy America provisions, and arbitrary FRA train specifications that prevent US transit agencies from getting cheaper off-the-shelf products from Europe and Japan. Cheaper prescription drugs are out of reach because of patent monopolies and rules preventing cheap imports from Canada and other countries.
Before we look to spend more money on fixing these problems, liberals first need to ask whether they can’t be solved by unwinding some of the bad rules creating fake scarcities. These solutions are free to the public. It does not cost the public anything to let nurses do more common procedures unsupervised by doctors, or to allow more prescription drug imports, or to stop requiring developers to bundle parking with housing. But in many cases politicians prefer new spending to supply-side solutions because the free solutions are politically difficult.