Conservative Economic Theory Refuted by Economic Reality
Chernomas, Robert, Hudson, Ian, CCPA Monitor
THE MYTH OF CONSERVATIVE ECONOMICS:
"The government can't pick winners, but losers pick government."
-Former Canadian Deputy Industry Minister V. Peter Harder, cited in The New York Times, August 28, 2001.
This quote reflects an oft-repeated criticism of the role of the state in our society. It has become conventional wisdom as conservative economic policy dominates the public discourse. In the interests of restoring balance, we need to compare the promise of conservative economic theory-which belittles all government activities that do not increase immediate corporate profits-with its results, which fail abysmally to live up to the promises.
Conservatives argue, for example, that innovation is not created by government, but by competition between profit-maximizing firms. This myth neglects the fact that corporations will only undertake socially important research if the possibility of making a profit is high. Historically, many of the most important inventions, from the Internet to the jet engine to communication satellites, were developed by the state, not private industry.
Big Pharma provides another example of private industry erroneously getting credit for innovation. The long patent protection for new drugs, and resulting high prices, are almost exclusively justified by the research and development costs of developing new pharmaceuticals. But 97% of the new drugs on the market offer no improvement on existing medications. According to a U.S. Joint Economic Committee of Congress report, among the 21 drugs that had the most impact on therapeutic practice between 1965 and 1992, publicly-funded research was instrumental in the development of 16 of them (76%).
Conservative economic theory also claims that income redistribution by government, such as legislating a minimum wage, interferes with the fair and efficient working of the labour market. But evidence does not support this conclusion. Arguably the best study on the impacts of an increase in the minimum wage was done by David Card and Alan Kreuger, who found that "modest changes in the minimum wage have little systemic effect on employment." Increasing the minimum wage actually reduces poverty since the wage gains of those who remain employed outweigh the losses of those few who may become unemployed.
Conservatives also claim that government regulatory oversight is unnecessary because companies that have to safeguard their reputations will not knowingly make products that harm their workers or consumers. This "logic" has led to a decrease in regulatory activity even though economic history is filled with products-such as tobacco, lead, and the Ford Pinto-that demonstrate the necessity of government oversight. As long as their profits remained higher than their costs, companies knowingly killed their customers and lobbied governments to make it easier for them to do so. …