Progressive supply could be the solution to rising costs

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From housing to childcare to energy, the United States is beset by rising costs for the goods and services most needed – and part of that is because there is no not enough for everyone.

Why is this important: Economists and other experts fear that subsidizing these costs will make matters worse. They argue that a better, fairer, and more abundant future is one where politics focus on increasing supply, not just socializing demand.

Driving the news: President Biden’s top national priority – the $ 1.75 trillion Build Back Better plan – hit another roadblock on Thursday as it became clear the legislation was stuck in the Senate and would not be passed until after the end of the year.

Yes, but: For some experts, however, the bill is emblematic of deeper issues in policymaking, and instead of cutting the rising costs of essential services like child care – as the Biden administration has asserted. – it could actually make them worse.

  • In a November New York Times column, Samuel Hammond, Daniel Takash and Steven Teles of the center-left Niskanen Center argued for the proposed child care bill – which would impose higher wages and better referrals for workers then would offset the higher costs with heavy subsidies – “will not reduce price increases instead of obscuring them”.
  • They wrote that this is an example of “cost disease socialism” – tackling the rising costs of supply-constrained goods and services by dividing the price among American taxpayers while leaving the underlying cost cause unanswered. ”

The big picture: Over the past few decades, American consumers have generally enjoyed falling costs for things like clothing, appliances, and consumer electronics – which is why a large flat-screen TV costs much less than it does. ten years ago.

  • But the cost of vital services like health care, housing, and education has gone the other way, eating into American incomes and making a middle-class lifestyle even harder to achieve.
  • What these industries have in common is that, unlike the fields that manufacture most consumer goods, they have experienced low productivity growth, resulting in increased costs over time – a phenomenon that economists call “Baumol’s cost disease”.

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

  • There is justice in this tactic – redistributing part of the wealth of the rich in the form of subsidies, allowing the less well-off to keep pace with the rising costs of basic necessities.
  • But analysts at the Niskanen Center and other experts argue that the approach – which focuses on demand rather than supply – backfires, worsening inflation in sectors such as education and care. health.
  • “If we try to solve the problem of expensive health care, child care and higher education by spending more money on it,” 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 policy-making on increasing the supply of these expensive but vital goods and services, in what has been called “supply-side progressivism.”

  • That means working to reduce many of the regulations that make it expensive and difficult to build needed housing in desirable cities, or that limit the number of doctors in the United States.
  • This means investing heavily in scientific research and development that can ensure that zero-carbon energy not only replaces existing fossil fuels, but surpasses them, providing an energy supply that is not only cleaner but cheaper.
  • It means embracing a future where a greater abundance of all things – not just high quality televisions, but high quality education – is a primary goal of politics, where instead of arguing over who deserves what, it there is more than enough for everyone.

To note : Some aspects of the Build Back Better plan call for increased investment in research and infrastructure to make energy and transport cheaper overall.

The bottom line: An abundant future may seem utopian, but the alternative may be a game of chance of continually shifting costs, even as society is at the mercy of an increasingly expensive future.

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