We tend to identify political candidates by their party affiliation: Democrat, Republican, Libertarian, Green, and so forth. We might also label candidates liberal, moderate, or conservative. John Hood, president of the John Locke Foundation, suggests a more meaningful distinction. Hood says we can separate candidates into those who support welfare politics versus investor politics. He discussed the issue recently with Donna Martinez for Carolina Journal Radio. (Click here to find a station near you or to learn about the weekly CJ Radio podcast.)
Martinez: I find this subject really fascinating. I know it is certainly not new to you. In fact you wrote about it in your 2001 book called Investor Politics. But I think it might be new to others. In broad terms, help us understand: What is welfare politics, and what is investor politics?
Hood: Well, the distinction really has to do with thinking about what the term ‘investment’ means. When people talk about investing or investors or investment, they think about stocks and bonds or people with green eye shades in libraries thumbing through books of interest rates and so on. But investment is really just a concept that refers to, what do we do today with the resources we have available.
For example, imagine you were back in primitive times and you had a choice between gathering fruits and vegetables for lunch today, or working out in the field to plant seeds that are going to yield corn, yield maize three months from now. The first will be an example of work that really leads to immediate consumption. The other is an investment activity. You are denying yourself gratification. It is really hard work, it is hot, you have to dig in the ground, you know.
Martinez: We don’t like that.
Hood: So it is hard work in the short run, but it pays off big in the long run. Well really, all economic progress is based on this balance between consumption and investment. You don’t want people to never consume, to deny themselves forever. That would be impossible and unpleasant. But denying immediate gratification in order to gain some larger benefit in the future is a big part of what makes any kind of progress possible.
Well, when you get into the political debate about what should government do, you have a similar kind of a choice. Should the government’s job be to take the resources that are currently available and just redistribute them – you know, this person has too much, this person has too little, let’s switch it around – or should the government focus on activities, on functions that it can do well that actually sort of act like planting those seeds in the ground. They pay off in the future.
You could, for example, tax people’s money and then give other people that money. Or, you could tax the money and you could build a road or build a port. Now we might debate how that should be done, or whether the private sector could be a partner in that or something, but if you think about it in sort of broad terms, unless you work for a construction company, you don’t get any immediate benefit when the taxes go to the road. But once the road is completed some years later, months or years later, then you have more opportunities to travel to work or shop or to get around the traffic jam that you used to get stuck in every day. So it pays off. That is in fact a form of public investment.
Well, lots of public policies that have been adopted in recent decades vitiate against the idea of investing as the goal. They really just redistribute income, often squander the money, or on the tax side, we have a variety of policies that actually discourage people from saving and investing and encourages them to just go out and shop and spend, as if that is the best thing for the economy.
Martinez: So is it fair to say, John, that we are talking, then, about approaches that on the one hand, one says, let’s do things for short-term benefit, short-term gain, and the other approach says, well, we need to think about the long-term.
Hood: Yes, that is certainly a part of it – what economists would call your time horizon. You know, teenagers have a very short time horizon; it might extend to what is happening on Friday night. As you mature and get more responsibilities and more foresight, more vision, you understand that maybe you ought to be thinking about a one-year or five-year or 10-year or 30-year time horizon when making decisions. That is kind of a sign of maturity, isn’t it? Well, our politics is often a teenage, adolescent sort of politics – what feels good today, what makes people stop yelling at me today, or whatever, what gets me votes – as opposed to what kinds of effects will these policies have off into the future.
Martinez: Let’s talk about how these two different approaches would apply to some of the big issues that we’re hearing debated, particularly at the presidential level today. We hear a lot of people saying, well Mr. Candidate, what is your plan to fix the economy? How would these two approaches look at the economy?
Hood: Well, look at what politicians of both parties have talked about recently when faced with evidence of an economic slowdown. They say, oh well, let’s issue tax rebates. Let’s get money in the hands of people so they’ll spend it. That is welfare politics. That is the assumption that the economy is like an engine, it is like an engine that has to be fed constantly so it will operate. You have to tweak the dials to make sure it is operating efficiently. It is a very mechanistic view, and it assumes that spending is the answer – you know, if we have an economic slowdown it is because we are not spending enough. Consumers aren’t spending enough.
Well, this is a very old and rather silly idea, and yet people still believe it. It dates back to John Maynard Keynes, one of the most famous economists of the 20th century, who used to complain in the 1930s that people were saving too much. We’ve got to get the money out of their hands and into the hands of poorer people who would just go out and spend it. Now if you say that explicitly today, it sounds kind of absurd. But that is essentially what politicians argue – that they should tax money out of the hands of investors who have it parked in these accounts not accomplishing anything, and then distribute that money to poorer people so they’ll go out and buy stuff. And then the economy will be better.
It is preposterous. People don’t save money by stuffing it in a mattress or hiding it in a bank vault. They save money by putting it in the bank vault, they save money by putting it in the bank or putting it in stocks and bonds or real estate or other kinds of investments. In other words, that money still gets spent on stuff and people are employed to make it, to make new machinery, to build new companies. So the money is not lost when it is saved, it is just used for something that generates a higher return in the future. So when politicians talk in those terms, as I said, the analogy would be sort of like they are teenagers and you shouldn’t give them the keys to your car.
Martinez: John, what about health care? Lots of talk these days about people saying well, maybe we should go to the so-called universal health care system that is prevalent in other countries. How would these two approaches view health care?
Hood: Once again, a lot of the debate about universal health care just ultimately comes down to income redistribution. This group has too much money, this group has not enough money to go to the doctor, so we’re going to redistribute the income. Except they don’t do it directly in the form of taxes and welfare payments; they do it by making everybody be a part of the same health insurance – government-run health insurance scheme – which accomplishes the same thing. It redistributes income.
It doesn’t have to do with investing in people’s knowledge, investing in people’s decision-making ability – do they really need to go to the doctor in this particular case? Do they really need that particular technology, that particular medical intervention? How much will it benefit them? It is still all about this sort of welfare mentality – that there is a pie and it is already baked and the whole goal is just to decide how to slice it. Investor politicians need to think about, how do we bake new pies, including new medical pies, new innovations, new devices, new pharmaceuticals that save money and boost outcomes.
Martinez: John, education. How would they view education, these two different approaches?
Hood: Well again, what you want to do is give people the ability to invest in their own education and to make good investment decisions. People, all the time, say public education is an investment, but they don’t want it to be competitive. I mean, if I said go out and make money investing and you have one choice, it is unlikely to be successful. So in order for investment to work, you need to be able to choose among alternative investments. That is why school choice makes sense in investor politics terms.