Webster’s Dictionary defines a “conservative” as someone who adheres to established practices and who subjects new ideas to rigorous examination before replacing long-held views.
The word “conservative” connotes — or at least used to connote — a principled approach to thinking about public policy, particularly in the field of economics, in which the preference for efficiency led to a presumption that unregulated markets are superior to government allocations.
Conservatives used to have sufficient understanding of economics to know when it was necessary to regulate markets to improve their performance. However, for the “conservatives” who dominate today’s politics, this understanding seems to be missing.
Often citing Ayn Rand, they favor limiting the role of government to keeping the peace and protecting property rights. They trivialize public policy: “Let the market work free from government interference.” Even in those instances in which the preconditions for competitive market efficiency are not and cannot be present, they continue to chant this mantra.
Sole reliance on free-market solutions when they cannot achieve efficiency does not foster freedom; rather, it retards freedom. For example, public utilities (electricity, gas, cable, sewer and water) are typically the sole sellers in their market areas; regulation is required to limit their monopoly power to set unreasonable prices for these vital services. Other exceptions to the free-market paradigm are public goods and services that must be shared, such as national defense and law enforcement.
Public goods must be financed with taxes. Finally, there are services whose efficient provision requires coordination among market and government forces, such as disaster relief, pollution control and health insurance.
Health insurance provides an excellent example of a market that retards efficiency and freedom when unregulated. In the absence of regulation, competitive markets for health insurance will become incompatible with the goal of helping the sick gain access to care. Competitive forces compel insurers to charge premiums that reflect the risks presented by their policy-holders.
Such “experience-rating” (charging higher premiums to those who pose a higher probability of filing claims) may make sense for car insurance because accident-prone drivers should pay more. However, experience-rated premiums in health insurance result in charging higher premiums to the sick, a perverse outcome if the goal is to finance their means to better health.
To remedy the inherent defects in health insurance markets, the Heritage Foundation, a conservative think tank, designed the basis for Romneycare in Massachusetts and the Affordable Care Act (Obamacare). It proposed the creation of health insurance exchanges to regulate premiums and coverage, that is, to prevent “free-market” experience-rated health insurance premiums.
Other key elements of the Heritage plan include the mandate requiring individuals to carry approved insurance (with subsidies for those too poor to meet their mandate without help), as well as the requirement that sellers guarantee acceptance of those individuals. Thinking conservatives understand the pro-market roots of these plans and the need for these regulations; tea-partiers do not.
Only 10 states have fully implemented Obamacare. So-called “conservative” governors in the other states are blocking one or more aspects of the law, costing their taxpayers hundreds of millions of dollars, denying stabilizing financing to hospitals and health-care providers, and refusing to efficiently insure the poor. Meanwhile, the Commonwealth Fund reports that states such as California, New York, Minnesota and Kentucky, where the plan has been fully implemented as designed, are having great success with it.
Current-day tea party conservatives are caught in a dilemma: Freedom from government means abandoning the greater economic freedom available in regulated markets. They are not really “conservative” in any rigorous sense of the word; their antigovernment reflex merely reflects confusion.
Had conservatives in earlier times rejected a role for government, among the assets the United States would not have today are the interstate highway system and the Centers for Disease Control!
William L. Holahan is emeritus professor of economics at the University of Wisconsin at Milwaukee. Charles O. Kroncke, retired dean of the College of Business at UW-M, is also retired from USF. They are co-authors of “Economics for Voters.”MORE IN Perspective
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