Economically Illiterate Policies May Be Popular, but They’re Still Economically Illiterate

The Wall Street Journal has a new national poll out, finding that many populist economic interventions, such as price controls and restrictions on unlikeable market actors, are very popular with voters. The most popular proposals — ranging from 74 percent to 90 percent support — include capping the costs of childcare, prescription drugs, and credit card interest, requiring health insurers to cover prescribed medical services and surprise bills, and restricting institutional homebuyers. Voters also overwhelmingly favor limiting rent increases, a $20 minimum wage, pausing AI and data center development, and raising taxes on the wealthy and high earners.

What the Journal takes away is that populist interventionism, long shunned by conservatives and other free-market types, may be the political future of both parties. If so, that’s to the American public’s shame. Virtually all the proposals that respondents support would be economically damaging at best and are economically illiterate at worst. Unfortunately, the most fashionable policies are the downright brainless ones.

The American tax system is already highly progressive. Raising taxes on the highest earners would diminish their incentives to work and invest in new projects that grow the productivity and income of everyone else. One such project is artificial intelligence. Halting its development would crush a nascent industry that’s sure to produce outsized productivity gains and may be essential to national security. These are bad ideas, but at least they’re debated by serious people.

Price controls, meanwhile, are roundly discredited by centuries of empirical evidence and simple logic. Prices for goods and services, from hourly labor to prescription drugs, do not rain down from the heavens. They reflect the intersection of millions of different supply and demand forces, unknowable to any centralized authority.

Econ 101 teaches that prices in a free market rise only as high as necessary for consumption to align with production. When an arbitrary price floor is imposed, more people seek to provide the service than others want to buy. That’s what happens with a minimum wage: Demand for affected labor goes down as employers want to hire fewer workers for fewer hours.

The opposite occurs with a price ceiling: Producers want to provide less of a good or service than consumers are willing to buy, resulting in a shortage. For example, capping the price of childcare would lead to fewer childcare providers. Likewise, capping drug prices is projected to reduce pharmaceutical development and innovation. Rent control leads to fewer apartments on the market, and limiting credit card interest rates would mean that a whole lot of people lose their credit cards.

The health-care proposals that the Journal polled are economically illiterate in another way. They assume that, if a patient isn’t paying for a medical service directly, no one is paying for it. But there’s no such thing as a free lunch. Providers will be compensated for every medical service they render, or they won’t provide it at all. When a patient isn’t paying directly, insurance picks up the bill, and enrollees pay indirectly through their premiums. (Even if you get insurance through your employer, every dollar of premiums would otherwise be paid in higher wages.)

Congress already restricted surprise medical billing — the practice of out-of-network doctors at in-network hospitals charging patients outside their insurance. While it has reduced out-of-pocket debt, the law has also inflated insurers’ spending now that they must generally cover whatever a physician bills. Those added costs are ultimately socialized among policyholders.

Requiring insurers to cover any medical service or medicine that doctors prescribe would dial up this phenomenon a thousandfold. If insurance must pay for everything, no questions asked, why would doctors not prescribe everything they possibly can, regardless of necessity? Imagine coming in for a checkup and, just to be safe, your physician has you undergo X-rays and a CT scan. “Let me get you into a brand-new MRI machine today.” Again, all that new spending would be borne by regular Americans through drastically higher insurance premiums.

Given the public’s lack of basic economic knowledge, we should suspect that illiterate proposals like these would be popular — right up to the moment they go into effect. Price controls on energy might have been popular in the 1970s, but gas lines weren’t. Excessive health coverage looks good on paper, but the resulting insurance costs sure don’t.

The law of unintended consequences in a complex economy forever stands. Republicans who are enticed by high marks for interventionism should remember that voters judge politicians mostly on results, not promises. And no opinion poll can make a fundamentally unsound economic policy into a sound one.