More Profit Bias

There’s quite a fuss surrounding those disincentives to work within Obamacare that the Congressional Budget Office mentioned last week. If you recall it was spun by right wingers as a loss of jobs, when, in fact, it was a reduction in the supply of labor because workers decided not to work. It was a good thing. Not a bad thing.

Still it riles mainstream economists.

This is because when a worker exercises a choice and decides to retire, quit, or otherwise stop working it imposes a cost on society. In raw form: they stop paying taxes and yet keep on receiving benefits like Obamacare. The rest of have to make up the loss. This choice on the part of some workers – the CBO suggests it may be as many as 2.5 million by 2024 – to prefer leisure over work is a result of an adverse incentive in the health care law. So say orthodox economists who look at the world entirely through their incentive tinted glasses.

They do not comment, however, on the equally adverse incentive that currently distorts our labor markets: that is the absence of health care insurance forcing some people to work when they might otherwise have retired. It is, apparently, just fine that some people are forced to work beyond retirement age just so they can get health care coverage, but it is not fine that they retire when they can get coverage without working. Hmm. A little anti-worker. No?

Let’s apply this logic to business.

Our tax code is littered with tax deductions that reduce the amount of taxes a business pays. This is thus a burden on society. We have to make up the lost tax revenue from other sources. Tax gurus call these losses of revenue ‘tax expenditures’: they are ways in which we decide to spend our tax revenues. In this case we ‘spend’ by deciding to forgo collecting the tax in the first place.

Now, our orthodox economist friends will say that the corporate decision to take those tax deductions is entirely reasonable because [a] they are legal, and [b] they allow the business to maximize profits, which is what businesses are supposed to do.

So. A worker maximizing leisure and imposing costs on society is a bad thing. But a business maximizing profits and also imposing costs on society is a good thing.

Profits good. Leisure bad.

Yet the entire structure of the marginal theory underpinning the supply of labor into the economy hinges on the individual decisions of workers balancing the rewards they get from working and leisure respectively. It’s just that if they choose leisure that’s naughty because it imposes social costs. The fact that the worker is supposed to have made a rational choice and thus enhanced their welfare – and, presumably, society’s total welfare – is neither here nor there.

Meanwhile the, likewise rational, decision by the business to maximize its profits is greeted with applause. Despite the social costs.

And these folk try to persuade us that economics is ‘positive’ or ‘scientific’ and untainted by any traces of ideological bias.

Which it is, if you don’t mind the anti-worker pro-profit bias.