It's not hard to understand why economists may now be among the loneliest professionals. All too often, we suggest that a beneficial, economically-appropriate solution for some public problem (e.g., environmental degradation, decaying infrastructure, budget deficit) is to increase the price of some good, or to remove nasty subsidies or tax credits that the government provides some industry or consumer group (that when purged would have the same effect – increasing goods or services prices). Like virtually all economies, the US government has long provided a multitude of direct and indirect subsidies to a broad array of producers and consumers. Economists, imbued with theory that places a premium on attaining economic efficiency[1] and societal welfare maximization, argue that such subsidies and too-low prices are inapt because society's economic optimum won't be achieved. Economists of varying political persuasions have offered such policy prescriptions for decades.
Unsurprisingly, few consumers are willing to consider paying higher prices a preferred outcome for themselves. After all, who among us personally wants to have our gasoline, food or electricity cost more, or our mortgage or health-care payments rise? The status quo of continued subsidized, low prices rules. In other words, culture trumps economics.
In this regard, a principal difference between economists on the left and right is which prices need to be raised. For example, neocon economists seem far less troubled by government-subsidized fossil energy prices; liberal economists often can rationalize subsidized food stamp programs and Pell grants.
For a long time consumers and producers have been coddled into thinking that not only prices for "necessities" (an ever-expanding term of reference) should remain low, but that they're entitled to them staying low, come hell or high deficits. In a sense, this is the flip side of the Far Right's obsession (one of many) with lowering or eliminating taxes. Logic and economics really don't enter into the argument, only judgment that taxes are bad since they fund government programs that don't work or, worse, are "collectivist" (to use Paul Ryan's description of Social Security). More specifically, conservatives object to such government programs because they don't really help me. This attitude is particularly frustrating when we hear statements from Tea Partiers and their ilk that they would be better off if only the government would get out of Medicare and Social Security – or other government benefit/subsidy programs they participate in.
Mitten's purloined remarks given at a fundraiser stating that 47% of citizens don't pay taxes and are freeloaders receiving government largesse prompted a wave of critical discussion and response. The New York Times posted a blog asking readers to identify which of 21 listed Federal government support programs (e.g., Head Start, unemployment insurance, Pell grants, Medicare, veterans' benefits, employer-subsidized health insurance) they have benefited from. The blog states that 96% of Americans have taken part in and benefited from such programs at one time or another, including folks like Mittens' and Ryan's family members.
No matter who wins the presidential election next week, our economy is likely to continue slowly gaining strength over the coming year. Our GDP growth – measured last week at 2% for the 3rd quarter of 2012 – is still not high enough to quickly reduce our stubbornly-high unemployment, but it's higher than before.
What's less certain is what Democrats and Republicans will do about the "fiscal cliff" that overhangs the government in December. I am quite certain their economic advisors will ultimately feel fairly lonely and ignored.
Suggestions from economists to public decision-makers to increase tax revenues and/or reduce subsidy and entitlement expenditures will once again fall on politicians' deaf ears. Well-founded economic suggestions that include increasing tax revenues, decreasing tax expenditures, making Medicare, Medicaid and Social Security benefits means-based (the higher one's income or wealth, the lower your benefits) and increasing the qualifying age for receiving benefits (make it higher than 65) – changes that other nations with structural deficits have already done – will fall to the storms of protest by well-financed interest groups. The so-called "grand compromise" to resolve our unsustainable structural deficit will be thrown in a ditch far from the path of economic progress for all citizens in favor of some partial political "solution" that once again temporizes with a kick of the can down the road.
Perhaps we economists are always to be relegated to the lonely crowd. So it goes…
[1] Economic efficiency describes a market or economy that is producing what people want at least possible cost – or in plainer English, performing a task (like providing some good) right. By contrast, effectiveness is doing the right thing.
