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Column: How the Freedom Caucus misunderstands economics and endangers our freedom

The Freedom Caucus, a group of extreme right-wing Republican members of Congress who call themselves "conservative," seeks freedom from government solutions to social problems. They contend that when government interferes with free markets, it reduces individual freedoms — even for the individuals it is trying to help.

Accordingly, they oppose cash and in-kind transfers to poor people, government regulation of pollution and emission of greenhouse gases, any interference with labor markets such as minimum wages or safety regulations, and any progressivity in the income tax system since that would redistribute income and wealth. In all these cases, they argue that the unfettered free market will lead to optimum conditions, which means that government actions will only lead away from that optimum.

The free market concept that the Freedom Caucus invokes is derived from an elementary economic model taught in introductory economics courses in high schools and colleges. The model leads to conclusions about markets from idealized preconditions. It is a teaching model intended to explain how markets react under various conditions, much like the Ideal Gas Law in chemistry class or the frictionless inclined plane in physics class. Students are taught that markets that do not have these preconditions cannot be explained by the model.

As it turns out, the Freedom Caucus often ignores this instruction and uses this elementary model to reinforce their preconceptions; as a result, their decisions are often at odds with what sound economics recommends. For example, their position that individual freedom is increased when government regulations are reduced is contrary to the loss of freedom when de-regulation leads to more pollution or danger.

Real economic freedom is derived from greater command over resources, as when incomes rise, or prices fall, or recessions abate, or when innovation brings better products or working conditions. Such improvements allow people to spend time thinking or enjoying more leisure pursuits; they increase economic freedom whether they are brought about by market activity or by government intervention.

Government and markets are complements, not substitutes. For markets to exist, government must first restrict freedom by enacting and enforcing laws. Common law elements of contract law, accident law and property law are all essential prerequisites to the efficient functioning of markets. The most essential role that markets play — the facilitation of trade between willing buyers and sellers — would be impossible without these legal restraints on freedom.

Consider two important examples.

• CLIMATE CHANGE AND THE CARBON TAX. When businesses can pass costs on to society at large, they have an incentive to ignore those costs and to proceed to overproduce and underprice their products. That is, the market becomes inefficient. Climate scientists warn that this is happening in the fossil fuel industries, where refiners and end users emit pollution, leading to dangerous climate change.

Economists respond by recommending a carbon tax, a remedy that strengthens the market by forcing firms to treat the environment like a scarce resource rather than a free-disposal site. Recently, the Climate Leadership Council, led by conservative giants George Shultz and James A. Baker III, both former U.S. secretaries of state, backed a $40 per ton carbon tax to forestall the predicted severe weather calamities.

Note that their proposal would strengthen the market's power to serve society by requiring decisionmakers to regard the environment as a scarce resource to be economized. Because the Freedom Caucus reflexively denies a constructive role for government, they refuse to use powerful market forces to free society from the damaging health and climate impacts of pollution.

• THE AFFORDABLE CARE ACT. As the recently passed American Health Care Act was being negotiated in the House of Representatives, the Freedom Caucus opposed premium subsidies for those with pre-existing conditions.

They would deny the sickest people the power of pooled risks. Instead, they plan to assign these individuals to separate free markets (high-risk pools, where they will be required to pay premiums that are far more costly than the community rate approach of Obamacare.)

Although those with high-risk conditions would have "access" to health insurance, it is phony access since few would be able to afford it. The Freedom Caucus would deny the sick the freedom afforded by a market strengthened by risk pooling.

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."

Column: How the Freedom Caucus misunderstands economics and endangers our freedom 07/03/17 [Last modified: Monday, July 3, 2017 3:16pm]
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