Exploring Bush economics...

I’ve been chewing on something I read over at Flit(tm), where Lutas defends Bush’s economic policies on grounds I hadn’t fully considered. Specifically:

The core of Bush's contribution to furthering free market economics in his first term is that he has insisted on measuring the results of policies. Over the long haul, what drives economies into the ground is not a mistake here or there in policy. What destroys national economies is when the law creates a system where the normal measurements and feedback loops are either wildly distorted or removed by government fiat. George Bush, while giving in on a variety of here and now issues, has consistently insisted on measuring the results of these systems, starting the process of bringing the 'drunk' (power drunk government in this case) to that crucial moment of clarity where all serious reform starts.

The political history of the modern free market movement in the US is littered with all sorts of failed projects which were tried without adequately preparing the political ground. In a highly challenging Congress, George Bush is steadily reestablishing broken feedback loops so that people can once again start seeing the maddening consequences of government intervention in the economy.

This caught my attention because it resembles what I’ve been thinking and saying about Bush’s education policies but hadn’t generalized to his policies at large. It’s what I meant when I argued that No Child Left Behind (NCLB), while imperfect, was vital because it introduced accountability into a floundering education system.

Lutas uses the issue of health care to flesh out his point. I’ll try to shadow his arguments here using the issue of education. I hope the juxtaposition doesn't become too confusing.

With prescription drug funding, it is important to remember that surgery costs more than pills. The system prior to getting this bill passed subsidized elder care surgery while leaving pills unsubsidized. This made tremendous perverse incentives and was just one example of a hugely distorted market. The healthcare market is distorted to the breaking point and the forces of stasis, of keeping the dysfunctional system running just a few more years has been a powerful actor for decades in this market.

The “education market” has become similarly dysfunctional and distorted. Lacking both competition and accountability, our schools have drifted from their stated mission. With no reliable means of measuring student progress, the feedback loop is severely crippled. The inability to evaluate the end product (academic achievement) makes it impossible to distinguish between good and bad schools, administrators, and teachers. The result is a “business” without a product—one that exists simply to exist. By establishing more robust testing, and instituting consequences, NCLB takes an important step toward reestablishing the feedback loop.

The current situation, like it or not, is going to see several more bills come out in the near to mid future correcting the problems in the prescription drug bill. We're going to see greater costs on pills but be surprised that surgery costs will drop. The unspoken truth is that dynamic effects in medical care aren't measured by the government any better than dynamic effects in tax policy. Where will we end up net? We don't know yet but a pernicious incentive towards more expensive surgery has been removed and some good measurement systems have been put in place so that the data will favor the free market reformers in the next round.

The same is true of NCLB. The bill is complex and flawed. It will require a lot of tweaking, a process that is already underway. But as with health care, some good measurement systems have been put in place, and a “pernicious incentive” toward educational bloat has been removed.

Health Savings Accounts (HSA) are a tremendous advance. In areas with significant HSA usage, doctors will be able to actually set up true free market practices where they set their prices via a market, bargain, watch their pennies, and even offer discounts and sales in ways that they are currently prohibited from doing by their insurance company provider contracts.

The educational counterpart to HSAs is school choice. Bush lost the battle to include vouchers in NCLB, but charter schools are a solid foot in the door to “free market” education. The pilot program for vouchers in Washington D.C. opens the door a little wider. In addition to introducing competition into the educational marketplace, these programs will call attention to some of the insidious restrictions that have hampered progress for so long; charter schools generally have much greater freedom with respect to such things as hiring practices, scheduling, standards, and budgetary issues.

As free market medicine reappears on the american [sic] scene and shows that it's a superior alternative, the combination of measurements showing the failure of state alternatives and free market medicine's reappearance will create a long term majority in favor of unwinding our current healthcare policy mess.

Similarly, if “free market” education is given a chance, it can’t help but point the way to a more efficient educational system, one in which components self-align themselves toward the proper goal of student achievement.

But the first step always was breaking the decades old logjam halting reform of any type. George W Bush accomplished that and he should be proud of it.

If I'm reading Lutas correctly, he believes this is by design—that Bush not only has the vision to imagine the necessary reforms but the savvy to recognize that the political environment isn’t yet ripe for them. I don't know whether or not this is true, but if Bush has indeed given ground on these issues as a means of introducing evaluation mechanisms that will expose weaknesses and lay the groundwork for future reforms, it’s something of a masterstroke.

Update: My final read on Lutas' wasn't quite correct. Be sure to read his clarification in the comments section.