Path to Labor Market Freedom and Job Growth

Reagan said the more you tax something, the less you have of it. If you tax labor and the products of labor, you'll have fewer jobs. If you tax sales contracts, you'll have fewer goods and services for sale - and therefore fewer jobs. If you tax business contracts of all kinds, you'll have fewer business transactions. We know what fewer business transactions implies for jobs.

We know how to increase the number of jobs. Everyone knows: we have to remove government from the labor market. Yes, we'll always have taxes, but we can fashion tax policy so as to minimize the impact taxes have on business contracts. Labor and sales contracts are the key types of business contracts at issue here. If we reduce taxes on labor and sales contracts, we increase the number of contracts and therefore the number of people engaged in those contracts. If we reduce government interference with labor and sales contracts, we increase the number of contracts and therefore - I don't really need to say it again - the number of jobs.

Here is a baker's dozen of things we can do to reduce taxes on business contracts and eliminate government impediments:

1. Decouple health care and employment.
2. Decouple tax collection and employment.
3. End the social security tax.
4. End the tax for Medicare and Medicaid.
5. Tax all employment at the same low rate.
6. Give employers, contractors, and independent consultants complete freedom to form business contracts. Eliminate the tax distinctions and restrictions that govern contract employment.
7. Tax all sales transactions at the same low rate. Eliminate the multitude of largely invisible taxes on sales contracts in favor of a single sales tax.
8. End the minimum wage.
9. End the permits, tax requirements, and other legal restrictions that make it difficult for entrepreneurs to start and grow a new business.
10. For any new business contract, eliminate all taxes for six months. Let any two people or parties form a legitimate business contract without regard for tax or other legal requirements.
11. End the requirement that employers pay for unemployment insurance.
12. End the requirement that employers pay for workers' compensation.
13. End all government subsidies in the form of direct payments, tax breaks, and other allowances. Reduce government payments and special considerations to zero.

Naturally we don't plan to do any of these things. Instead we will pass another stimulus bill, which reduces our ability to sustain job growth over the long term. We'll continue our unhappy discussions about how to create jobs, our sense of pessimism about how to accomplish it. But we know how to accomplish it. The path to labor market freedom lies right in front of us.

Freedom, Security, and Cost in Our Health Care Dilemma

Recently I ran across an article by Cynthia Tucker that quoted from Ronald Reagan's 1961 speech against Medicare. In the speech, Reagan accurately predicted what would happen if Medicare were enacted. She also cited Nicholas Kristof's article, where he mocks critics of Social Security and Medicare. Referring to the critics of the current health care bill before Congress, he suggests we've heard all of this before. All the predictions about socialization, higher costs, and loss of freedom were wrong then, Kristoff says, and they're wrong now. These programs proved to be hugely popular, so much so that Reagan stopped criticizing them when he ran for president.

The popularity of Social Security and Medicare doesn't mean their critics were wrong, though. Their predictions about cost, freedom of choice, and socialization came about. Their description of how our society would evolve with these programs in place was remarkably accurate. We expect and accept the high taxes, and constraints on individual freedom that these programs entail. The program's popularity doesn't mean the critics were mistaken. It means people have wanted to trade freedom for security in two key areas: retirement income and health care. Many accept the higher costs and loss of choice that public programs impose, if in return the government can ease their fears about poverty and ill-health during old age.

So defenders of the current efforts to improve our health care system can look back and say accurately that Medicare has more supporters than critics. What's popular does matter in a democracy, but truth and popularity aren't always on the same side. In this case, Reagan's warnings about Medicare have proven altogether accurate. In fact, the need to change our health care system now would not be so urgent if Medicare did not place such a strain on our government's resources. We could live with our system's faults if the bill for Medicare weren't so high. As it is, Medicare payments seem out of control, going up faster and faster as our population becomes older. Thus the urgent need, expressed so often by Washington's budget analysts, to contain costs.

Interestingly, a key element of our current cost-cutting plan is to increase the government's role in health care! If you aim to reduce costs without rationing, reduce government's role. Don't increase it. We have other goals, however: clearly universal participation in the nation's health care system precedes cost cutting as the reformers' primary goal. The outlay of public funds required to cover every person, under current proposals, won't be small. We have only two ways to limit costs: individuals who make purchasing decisions in an unregulated market, and some form of public rationing. We are a long way from the free market option, and no one speaks favorably of the R word. Consequently we are headed toward an expansion of public funding for health care, with no support for rationing. Of course the government's costs will go up. We've tried - not so successfully - to pretend they won't.

Let's return to Kristoff's confident, dismissive remark: “We've heard all of this before.” The critics were wrong then, Kristoff implies, and they're equally wrong now. Critics in the 1960s said we would look to governnent for our benefits and well-being, and we do. Critics said the costs of social health care in old age would become insupportable, and they have. Critics argued that each enhancement of the government's authority would result in a diminution of our freedom. We have seen exactly that outcome. Reagan and all the wise people who joined him spoke truthfully. We enacted public funding for old age health care, and we  have seen the results. For the most part, the intended social bargain since 1964 has worked: in return for high taxes and a substantial degree of government involvement in old age health care, Medicare participants have received the care they want.

Whatever judgments we make about Medicare's tradeoffs, though, we should recognize why Reagan and others objected to it. If we want to change the system in a way that forces everyone to participate, we certainly have to recognize what's true in the critics' warnings. The truth is that security of the type we're talking about here does come at the price of freedom. As we move to carry out health care reform, we ought to heed Reagan's warning: once we sacrifice our freedom to some other end, we're not going to get it back. We can easily relinquish our freedoms incrementally, in return for benefits we're eager to acquire. We'll have the security we crave, but will we have the life we want?