Good Intentions, A Scandal, and An Economics Free Zone

WASHINGTON, D.C. – This week, the House Budget Committee held the fourth in a series of hearings focused on the Committee’s Restoring the Trust for All Generations initiative – an effort to raise awareness about the fiscal and policy challenges facing our nation’s health, retirement, and economic security programs. On Wednesday, the topic was Restoring the Trust for Families and Working-Age Americans – specifically how many of these automatic spending programs can have an adverse impact on families and working-age Americans by contributing to less economic opportunity and market distortions in areas like education, health care, and housing.

According to witness testimony, the undue influence and interference from certain government programs are proving that good intentions do not necessarily equal good policy. As Dr. Thomas Lindsay, Director of the Center for Higher Education at the Texas Public Policy Foundation, noted in his testimony on the impact of federal education grants and student-loan programs on the rising cost of tuition across the country:

“As you mentioned earlier, the Federal Reserve Bank has found that federally-subsidized student loans are a big part of the driver of tuition hyperinflation. Every time this body increases Pell Grants by a dollar, universities charge 55 more cents in tuition. Every time this body increases federally-subsidized student loans by a dollar, universities raise tuition 65 cents. So, again, the problem is we have very good intentions, but we need to inject some economic reality into what we are doing.”

So, government subsidies meant to make college more affordable are, in fact, making it increasingly more expensive.

But surely these programs have helped those who truly need assistance even if they have increased the tuition burden on others, right? Not so much…

“Think about the fact that today a smaller percentage of college graduates come from the bottom 25 percent of income than in 1970 when these programs started. So no one here is talking about whether we should invest or not invest in the American people. It’s let’s do it in a way that actually helps. Because when 68 percent of students either don’t graduate or graduate not having obtained the learning that a college degree is meant to signify, that constitutes a scandal.”

A scandal.

Unfortunately, the enormous growth in spending on education costs (a 334% increase over the past 30 years) is but one of the substantial bites that misguided Washington policies have taken out of the wallets and savings of hard-working Americans. The consistent rise in health care costs (a 314% growth in three decades) is a real strain on families all across the country. The culprit? In part, too much government interference in markets. The solution? For starters, some rational thinking. As Dr. Keith Smith, Managing Partner and Co-Founder of the Surgery Center of Oklahoma, explained:

“I also am a firm believer in that rational pricing emerges from competitive activity. The idea that prices can be dictated from on high, it’s just wrong. The prices are either too high or too low. They’re always wrong. If they’re too low, then there’s rationing – either soft or hard rationing results. And if the prices are too high, then you wind up with a bunch of stuff going on that perhaps is unnecessary.”

The failure of government’s “good intentions” rings true as well for Americans who rent, own a home, or are hoping to own. As Edward Pinto, Resident Fellow and Codirector of the International Center on Housing Risk at the American Enterprise Institute, described in his opening statement, a supply and demand imbalance is having a “host of unintended consequences”:

“In most cases these policies increase housing demand but do little or nothing about supply. When supply is increased, it drives up prices; layers of subsidies are used; and a host of unintended consequences results. First and foremost, it yields higher prices and higher rents, particularly for low-income and minority households – the very ones these programs are designed to assist. Today’s subsidy laden, government-centric housing finance system is something I call an ‘economics free zone’. I call it that because it is indifferent to supply and demand. As a result, housing has become less, not more affordable and less, not more accessible.”

An “economics free zone” – not particularly helpful when what’s needed right now is a faster growing economy and more opportunity for Americans.

The House Budget Committee is committed to highlighting these concerns and building a consensus toward real solutions to improve the nation’s health, retirement, and economic security programs so they actually help their intended beneficiaries and stop driving up the costs for everyone else.

To learn more, go to Restore-Budget.House.Gov.