Progressives Are Not Cynical Enough About Business

One thing my study of economics has taught me is that businesses will tend to act in whatever way they think will bring them the most profit. There may be rare exceptions, and of course businessmen often have mixed motives. But the overall tendency in this direction is very strong.

My guess is that if you surveyed people, many more self-described progressives would say that they agreed with the statement than self-described conservatives. Indeed, progressives often criticize conservatives and libertarians for being insufficiently attuned to the rapacious self-interest motivating businessmen.

Yet oddly enough, it seems to me that one of the main problems with progressive thought is that they don’t take the idea that businesses act to maximize profit seriously enough. For a group that claims to have a low opinion of businessmen, progressives have a strange habit of advocating policies that will only work on the supposition that businesses won’t act to maximize profit, and then react with shock when they proceed to do so.

For example, during an appearance on the Tonight Show during her 2008 presidential bid, Hillary Clinton told the following story about an encounter she had on the campaign trail:

I was in Indianapolis the other day and I was shaking hands after I spoke. And there was this young boy about eleven years old and he’s trying to tell me something—you know the crowd was yelling—so I leaned over and he said, “You know, my mom makes minimum wage and even though it went up, her hours were cut. So we’re not making any more money. Can you help her?”

Senator Clinton expressed shock at the heartlessness of business. But if one really believes that businesses act to maximize profits, then this is precisely the sort of behavior that one ought to expect from businesses when you raise the minimum wage. Not only should this reaction not be surprising, it ought to have been anticipated, and to the extent that actions like the above cancel out the benefit of increasing the minimum wage, this ought to have made progressives like eager to pass the wage hike in the first place. Instead, progressives advocate a policy on the ground that business rapacious, and then expects it not to react in a rapacious way.

The minimum wage is hardly the only case of this. Here, for example, is a story about the effect last year’s credit card reform bill was having on fees and interest rates:

As consumers look forward to new credit card rules intended to make their lives easier, many are also finding that the cost of using their cards is rising.

Efforts to compensate for the losses expected from the new federal credit card rules — some of which take effect Thursday — are part of what’s driving card companies to raise interest rates and fees, some say.

And here is another about insurance companies reacting to the recently passed health care bill:

Internal documents recently reviewed by Fortune, originally requested by Congress, show what the bill’s critics predicted, and what its champions dreaded: many large companies are examining a course that was heretofore unthinkable, dumping the health care coverage they provide to their workers in exchange for paying penalty fees to the government.

That would dismantle the employer-based system that has reigned since World War II. It would also seem to contradict President Obama’s statements that Americans who like their current plans could keep them. And as we’ll see, it would hugely magnify the projected costs for the bill, which controls deficits only by assuming that America’s employers would remain the backbone of the nation’s health care system.

In each case businesses behaved exactly as you would expect profit-maximizing entities to behave. Yet in each case progressives responded to the news like Peter Pan responding to Captain Hook’s underhandedness. No matter how often it happens, progressives are always dumbfounded when businesses do what progressives claim to believe they do: act in their own self-interest. If progressives would only be more consistent in their cynicism, their policy prescriptions might improve.

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Black Adder

Monty rules!