Is George Will Right That Candidate Romney Understood Economics?

Consider Romneycare.

Columnist George Will recently wrote that: “Many voters who thought… [Romney] lacked… chemistry [with them]… did not trust him to employ on their behalf what he does not lack, economic understanding.”

But does Romney have “economic understanding.”We would say no. We have repeatedly mentioned his naming as his chief economic advisors former chairs of Bush’s Council of Economic Advisors, both noted Keynesians, both admirers of Ben Bernanke, Fed chairman appointed both by Bush and Obama. It is hard to see how Romney’s “economic understanding” would have diverged from Obama’s except in degree, not in fundamental principle.

There is another point worth making. Nobody crafting Romneycare in Massachusetts can be said to have “economic understanding.” That program increased demand for medical services without increasing supply, so that finding a doctor or getting a timely appointment in the state is increasingly difficult, especially for low income families. Many of them find that their insurance coverage doesn’t get them any medical care. More demand without more supply is also driving prices higher and higher.

On August 6 of this year, Governor Deval Patrick signed into law a medical price control system. It sets up an 11 member board with powers to manage medicine and change contracts. A “medical provider” must get commission approval for “any material change to its operations or governance structure.” So in addition to freezing prices, the practice of medicine will be frozen without government approval. It will be interesting to see how the regulations define the term “material change.” Hint: it can’t be defined and gives the government complete subjective discretion over everything.

Obamacare also provides for this kind of price control if other cost containment measures fail, which they will. The trouble with price controls is that they don’t work. The classic example was when the King of France in the 18th century chose to help peasants who could not afford the price of bread by price controlling wheat prices. As you may recall, that was when his wife said, on learning that the peasants didn’t have enough bread: “Well let them eat cake.” What actually happened was that the farmers stopped planting wheat, the peasants starved, and the king and queen lost their heads. This has been repeated throughout history. The only reliable way to bring prices down is to increase the supply of the commodity, something that sellers will do on their own if left alone and not organized into a government backed monopoly.

Economics isn’t that complicated. A few basic principles go far toward ensuring prosperity. These include clear laws that apply to everyone, safety of property so that investments can be made without being stolen, truthful prices, lack of government inference with truthful prices, all of which guards against crony capitalism. None of our recent presidents or presidential candidates have understood any of this.

Click here for Will’s piece.