Lawrence Summers, who served as Secretary of the Treasury under President Clinton from 1999 to 2001 and as President Obama’s top economic adviser from 2009 to 2010, has been commonly understood to be a liberal voice. However, after the death of leading conservative economist Milton Friedman, Summers saluted Friedman in an op-ed piece in The New York Times, praising him for a life of politically powerful and beneficial research and policy work. Summers’ article was both bold and politically risky in such contentious times. More important, he revealed implicitly that economists — liberal and conservative — use accepted, if sometimes general, criteria when suggesting how and when a government should intervene in a market economy. Though they use the same analytic criteria, they do not always reach the same policy conclusions.
There are several reasons to keep taxes low and government intervention in the lives and businesses of citizens minimal. Higher taxes
negatively affect incentives to save, invest, or work to the extent that one would work in the absence of higher taxes. Economists are trained to be selective about government intervention. They can’t simply assert the need for collective action through government. When addressing the economic behavior of individuals or companies, economists will ask questions about whether there is significant “market failure” and, if there is, whether a specific intervention is sufficiently beneficial. This intellectual starting point may lead many economists to conclude that government intervention should be kept to a minimum, and that government should carefully consider the impact of any intervention. Regulation may be needed, but will a particular regulation — and the lobbying that will ensue around its specification and implementation — yield a better or a worse outcome than the imperfect market? The market can fail — and yet government may worsen the mess through intervention. One might infer that this selective approach, coupled with the distorting effects that taxes usually impose on economic behavior, inclines economists to support smaller rather than larger government.
For example, almost everyone will agree that the United States needs a military organized by the federal government, though its size and form can be debated. Once that debate is concluded, the question is whether to staff the military by a draft, by voluntary service, or by some combination of the two. In the early 1960s, Friedman promoted the idea of a volunteer army to replace the draft. He liked giving eligible people a choice as to whether to serve, and he saw the efficiencies involved: The economy would not be deprived of having people work at their most productive option. In 1973, the U.S. government suspended the draft and implemented a program of voluntary conscription. In this case, most people accepted the need for collective action and the method of paying for it: government using taxes, and people choosing to serve. This example illustrates that economists want a smaller government imprint on the economy, but in a very special way: Limit the role of government, even where government intervention is unavoidable.
With respect to health care, it appears that the public may be approaching a consensus that every American citizen should have access to health care, although the method of granting access remains hotly debated. Assume the consensus. Assume that this consensus is reached not on the basis of market failure alone but also on redistributive grounds — that is, not on the basis of free markets working imperfectly in producing things efficiently, but on the desire to bolster the income of those who emerge as needy from the efficiencies of the market economy. The poor and those with modest incomes should be given access, which they would otherwise not be able to afford, via some form of subsidy. The question, then, is how to offer the subsidy. Here again, we can consider how economists would limit the role of government, even as they join others in wanting to redistribute income. Thus, some begin to address the matter of method with an orientation — should a voucher be used? Similar to the thinking of Friedman, many economists want to give people the opportunity to choose their health care providers. They want consumers to choose, for example, between a health insurance policy that offers large deductibles and co-payments and one that does not, or, for example, between a policy that covers only traditional Western medicine and one that also covers alternative therapies.Notably, economists such as Martin Feldstein, a conservative, and Victor Fuchs, a liberal, both seem to favor vouchers, with the value of the voucher declining as family income rises, and with significant deductibles and co-payments. President Obama’s Affordable Health Care for America Act provides vouchers for those who will obtain their insurance on an insurance exchange; this allows families to choose their preferred plan with deductibles and co-payments being introduced, with the blessing of the Obama administration, into state Medicaid plans.
Perhaps a consensus will arise on the methods of providing Medicaid and Medicare, just as one has arisen on methods of staffing the military. And beyond the matter of method, we see emerging a shared view that the size of the government-financed health plan must be contained: People must be encouraged to reduce their consumption of health care; the nature of government action in health care should be minimally intrusive, and there should be a deft mix of regulation and deregulation; and insurers and providers should be forced to compete and set prices, openly, for consumers.
In sum, economists, as such, are not directly concerned with the size of the government. They are directly concerned with taxes. Taxes are to be raised only to finance necessary spending, and so the government must always keep spending as low as possible, subject to the country’s needs; taxing the people and their firms is costly, because taxes, depending on their form, stand a good chance of reducing savings, investment, or work — all socially undesirable outcomes.