Why Market Solutions To Policy Problems Usually Don’t Work

Interesting piece from Governing magazine, which quotes the University of Michigan’s Barry Rabe, who looked at two market-based solutions to policy issues: the Affordable Care Act and cap-and-trade.

These, of course, were both solidly Republican ideas which Democrats signed on to. Once they did, however, these market-based solutions suddenly caught liberal cooties, and Republicans ran away from them screaming “socialism!” at the top of their lungs.

Rabe notes that by 2008, 23 states had signed on to cap-and-trade:

It seemed a perfect solution. New markets developed, and regional consortia planned to reduce greenhouse gases by 10 percent or more within a few years.

But that perfect solution didn’t last long. Rabe found that, within five years, more than half the states had walked away from their cap-and-trade commitment. The market-based alternative to command-and-control regulations evaporated as a state-based policy tool.

What happened between 2008 and 2013? Well, there was an economic meltdown. There was also a Republican meltdown. Any policy progress while a Democrat was in the White House ground to a halt. The Tea Party took over, state legislatures turned Red. Hyper-partisanship became the rule of the day.

Then there’s the Affordable Care Act, which was designed to dodge complaints of “big government” and encourage the states to create exchanges that would provide insurance policies to their uninsured.

State implementation proved wildly uneven. Federal policymakers found themselves without the results they sought. And everyone came away more convinced than ever that government couldn’t solve problems like this, even though many of the problems were rooted in private market failures.

By the end of 2015, 38 states had declined to set up health-care exchanges, leaving the federal government to step in and create them. Three states — Hawaii, Nevada and Oregon — tried the exchange approach and backed out when enrollment was lower and costs were higher than expected. Some states, like Maryland and Washington, enthusiastically embraced the exchanges but fumbled the launch. Pressed by angry Republicans, who criticized the states’ lack of accountability for federal funds, the Obama administration took back $200 million in grants it had made to states that had struggled to launch their exchanges.

Note: this wasn’t a failure of the policy. It was a failure of politics. Republicans love to talk about the need to “run government like a business,” but when a Democrat does it, they call it Socialism, Fascism, Big Government, etc. Hyper-partisanship has basically ruined our country’s ability to solve big problems, in my opinion. We’re seeing the predictable result of 30 years of “government isn’t the solution, it’s the problem” messaging.

The author notes:

The fundamental flaw lies in two assumptions: that markets always work better than governments and that markets will run themselves if government gets out of the way. The first assumption is the stuff of fierce ideological debate, but the second is really a settled question. Markets just don’t run themselves in delivering public goods, because most of the time they are being asked to do things they aren’t used to doing. And because policymakers tend to assume that the markets will take care of themselves, they often don’t build governmental capacity to steer the process. The reformers then end up running after problems as they develop down the line.

Indeed. Government exists for a reason. Government exists to do the things that the private sector can’t or won’t do.

I’m not going to agree that market-based solutions NEVER work. They can work — when accompanied by a strong government regulatory presence. What never works is all one or the other. You need both.

Truly no ideology has more consistently failed than the Libertarian one, or even worse, the Libertarian-lite “run government like a business,” “government needs to get out of the way,” “release the free hand of the market” one, which dominates today’s Republican Party. I really don’t understand why anyone who believes government is the problem would want to be in government. And I don’t understand why anyone votes for someone who believes government is the problem. It’s like going to a butcher shop run by PETA. You’re just asking for failure.

One thing Democrats have consistently failed at is defending their own positions. A Republican yells “BIG GOVERNMENT” and we wet our pants. Democrats need to learn how to defend their principles, instead of trying massage their positions into something Republicans will find palatable. As the past eight years show, Republicans will never find anything a Democrat does palatable. They will even turn on their own market-based policy solutions if a Democrat is the one selling it.

These are lessons we’ve learned during the Obama years. We’ve also seen markets fail the economy and the American people time and time again. We’ve seen bad actors like Turing Pharmaceuticals and Theranos, hell even Enron is still synonymous with “crooks.” The financial crisis of 2007-2008 ain’t exactly ancient history, not with movies like “The Big Short” reminding everyone about how the market failed the global economy.

We’ve seen deregulation in Texas end in an entire town exploding. And hello, Flint, Michigan, where Republican Gov. Snyder tried to “save money” because “government should be run like a business.” Meanwhile, an actual business — General Motors — refused to use Flint River water at its engine plant because chloride levels were too high.

As this article notes, “government requires governing.” Republicans don’t seem to know how to do it. Democrats don’t seem to know how to be advocates for it. And I believe we will never have effective policies until we fix our politics.