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The Genealogy of Obamacare

Harking back to the worst of the New Deal.

Jan 13, 2014, Vol. 19, No. 17 • By JAY COST
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The National Industrial Recovery Act (NIRA) of 1933 sought a grand bargain among all the major industrial players including big and small businesses, organized labor, and consumer groups. It suspended the antitrust laws in exchange for cooperation from businesses in writing codes of “responsible” industrial conduct that protected unions and consumers. Yet big businesses mostly wrote the codes and took charge of their enforcement, using the NIRA as a vehicle for cartelization. Consumer prices went up, organized labor gained nothing at all, and small businesses took it on the chin. Jacob Maged, a dry cleaner from Jersey City, spent 30 days in jail for charging an extra nickel to press a suit, while General Motors was free to squash incipient unionism.

The disastrous experience of the NIRA pushed FDR into the second New Deal. Instead of grand bargains, he would supply targeted groups (read: prospective FDR voters) with benefit streams from Uncle Sam. Organized labor received explicit guarantees, senior citizens received Social Security, laborers won a new minimum wage, and so on.

This became liberalism’s template for generations to follow, in no small part because it was electoral dynamite. It was so irresistible that the Republican party came to mimic it, expanding programs like Social Security and Medicare. From 1935 until 2009, “clientele liberalism” was triumphant and “programmatic liberalism” was largely abandoned. 

To a surprising extent, Obamacare stands apart from the string of social welfare programs that stretches from Social Security, enacted in 1935, to the Medicare prescription drug program of 2003. Instead, it harks back to the first New Deal. To be sure, it provides a new benefit—subsidized health insurance—to a certain group, and thus is similar to classic liberal efforts. But unlike Medicare and Social Security—programs created out of whole cloth, with income streams in the form of withholding taxes dedicated to funding specific benefits—Obamacare accomplishes a clientelistic goal by programmatic means. It rearranges and cobbles together a wide swath of “stakeholders” (a favorite Obama administration buzzword) in a grand bargain reminiscent of the NIRA and AAA: In exchange for cooperation in administering subsidies and providing the uninsured with government-approved health insurance, Obamacare essentially guarantees the stakeholders a permanent place in the nation’s health care architecture. To bring this promise to fruition, Obamacare must then regulate the minutest details of health care provision.  

And so it seems that the “central planning” wing of the American left, dormant for generations, has sprung back to life. It is hard to account for this. Perhaps contemporary liberals do not understand their own history, in particular what has worked and what has not. Or perhaps they do, but believed a straightforward benefit program akin to Medicare simply could not pass. Or perhaps they were itching all along to give the NIRA/AAA approach another shot, but simply lacked the votes until 2009. 

Whatever the explanation, the odds are high that history will deem Obamacare to have been based on false assumptions. Our system’s pluralistic nature does not lend itself to top-down programmatic efforts like the first New Deal and Obamacare. The Constitution exacerbates what F.A. Hayek called “the fatal conceit,” the illusion that central authorities are equipped to control the details of complex human affairs. Again and again, the same story plays itself out: The planners, unable to coerce behavior outright, try to woo disparate interests through governmental incentives; they are convinced they have set up the incentive structures correctly but have miscalculated just a bit somewhere along the line; affected interests whose assent is required for the program to work respond to these miscalculations by pursuing goals that undermine the program’s stated purposes, producing effects that cause other assumptions to become false; and the ensuing vicious cycle produces perverse results. That is how the AAA came to support the established powers of the segregationist South and the NIRA reinforced the wealthiest industrialists even as unemployment topped 25 percent. 

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