Conservative Nanny State

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The Conservative Nanny State. How the Wealthy Use the Government to Stay Rich and Get Richer. Dean Baker. May 2006


Available for free as an e-book.

Short Summary

John Bennett:

" He begins by examining the richest man in the world, Bill Gates, and Microsoft, noting that it was not Gates hard work or brilliance, or the superiority of his software, but his government provided monopoly based on IP law that made him today's Croesus.

The heart of Baker's argument is that the same situation applies to patent protection in the pharmaceutical industry, and copyright protection in the entertainment industry. Vast segments of the economy are dependent on government-enforced monopolies for their profitability and survival. "In the case of prescription drugs, patent monopolies raise the average price of protected drugs by more than 200 percent, and in some cases by as much as 5,000 percent." "In the case of copyright protection, items like software and recorded music and movies that would otherwise be available at zero cost over the Internet, can instead be sold for hundreds of dollars. Clearly these forms of protection are substantial interventions in the economy."

He goes on, "The government is not obligated to award patent and copyright protection; it only makes sense if these are the best ways to promote innovation and creativity." "Copyright and patent protection support a $220 billion a year prescription drug industry, a $25 billion medical supply industry, a $12 billion recorded music industry, a $25 billion movie industry, and a $12 billion textbook industry. According to the International Intellectual Property Alliance, industries that rely heavily on copyright and patent protection accounted for $630 billion of value added in 2002, almost 6 percent of the size of the economy."

Baker's more original argument is that IP does provide an incentive for innovation as the constitution requires, but that there are less costly ways of doing so. He does so in a section titled "Efficient Mechanisms for Supporting Innovation and Creative Work".

He opens with an example, that "patent-protected brand drugs sell for more than three times the price of generic drugs that sell in a free market. This means that the country could save approximately $140 billion a year on its $220 billion annual bill for prescription drugs if the government did not provide patent protection and drugs were instead sold in a competitive market." The country could save much of that, if the research were carried on by the government, as in fact much of it already is (though to the gain of IP owner).

Baker next turns to copyright and singles out the textbook racket for close attention, arguing that revised texts are constantly being marketed with little real change in substance and at great cost. Again he would turn to the government to fund standard texts, but would allow copyrighted versions as well, which would have to find their place in a freely competitive market.

For the broader class of copyrighted material, Baker suggests a voucher system in which individuals would be given a set value of vouchers that he could credit to one or more artists. They in turn would put their creations on the internet, making them free to download. If the artist wants to copyright his work and sell it at whatever the market will bear, he could alternatively do that.

Baker ends by noting that these may not be the best alternatives to patents and copyrights, but that alternatives need to be explored.

The rest of Baker's book is ideological and will put off any who are not self identified progressives or liberals. But his basic argument is that conservatives have framed the issues in terms that they would keep the government out of much of the economy but that this is a lie. For Baker, the issue is that the government intervenes for the rich to the cost of for everyone else." (

Long Summary

By Kevin Carson at

"Chapter 1 – Doctors and Dishwashers: How the Nanny State Creates Good Jobs for Those at the Top

The first chapter deals with the most basic issue, how the nanny state ensures that doctors and other highly educated professionals are in short supply, and that the supply of less-skilled workers is relatively plentiful....

The conservative nanny state also involves itself in other ways to ensure that highly skilled workers are paid well, and the rest of us pay the taxes in the form of higher prices for the goods and services they produce. For example, licensing requirements, like admission to the bar for lawyers, often are designed more to restrict supply than to ensure quality for consumers.

On the other side, the conservative nanny state beats up on less skilled workers when they push too hard to restrict their supply in the same way. One way the nanny state hampers efforts by less-skilled workers to push up their wages is by outlawing many types of union activity. For example, secondary strikes are illegal. This means that one group of workers can’t stage a strike in support of a second group of workers (e.g. truck drivers can’t refuse to deliver food to a restaurant where the workers are on strike). In the case of a secondary strike, the conservative nanny state will fine or even imprison workers for being too aggressive in pushing for higher wages. Apparently, employers are too weak to be able to bargain with workers without help from the government.

Of course, this is all supposed to happen behind the scenes, no one is supposed to notice these forms of government intervention. The conservatives want the public to believe that the differences in pay between doctors and dishwashers result from nothing other than the natural workings of the market.

Chapter 2 – The Workers Are Getting Uppity, Call In the Fed!

The second chapter focuses on the Federal Reserve Board, a tremendously important, but little understood government institution. The Fed effectively controls the number of people who have jobs by adjusting its interest rate policy. While it is not always easy to boost the economy by lowering interest rates, the Fed can generally slow the economy and limit employment by raising interest rates.

Higher interest rates reduce home and car buying, and make it more expensive for firms to borrow money to finance new investment. When the Fed perceives inflation as being too great a problem, it raises interest rates to limit employment growth. If it raises interest rates far enough, then it can actually cause the economy to start losing jobs, thereby raising the unemployment rate. A higher unemployment rate puts downward pressure on wages. If wages start to drop, then there is less inflationary pressure in the economy and the Fed has accomplished its goal, although it comes at the cost of higher unemployment and lower wages....

Chapter 3 – The Secret of High CEO Pay and Other Mysteries of the Corporation

Pay for CEOs and other top corporate executives in the United States has soared in recent years, even as the wages of ordinary workers have stagnated. The conventional argument is that CEOs get multi-million dollar salaries because they are highly productive - firms are willing to pay these executives what their services are worth.

This argument is implausible for several reasons. First, today’s CEOs don’t seem in any obvious way more productive than the CEOs of 30 years ago, who were well compensated, but not nearly as well as today’s crop of top executives. Second, CEOs of foreign corporations don’t get anywhere near as much compensation. Even the most successful executives in Japan and Europe don’t get the ten and hundred million dollar pay packages that are the standard for top executives in the United States. Finally, many of the people who get these seven and eight figure salaries prove incompetent – even when the definition of success is defined narrowly as increasing corporate profits. When top executives walk away in failure they are often given bonuses in the millions of dollars – more than a full lifetime of earnings for a typical worker. In short, there seems little basis for the claim that the pay of top executives reflects their productivity.

The more obvious answer is that the pay of CEOs is determined by corporate boards, many of the members of which are appointed by, or serve at the whim of, the CEOs. Ostensibly, corporate boards are accountable to their shareholders. But with ownership increasingly concentrated among investment funds, whose managers have little time or interest in running individual companies (it is easier to sell the stock than change corporate managers), the CEOs often get free run to do what they want, including giving themselves high pay.

The conservative nanny state plays a big role in allowing high CEO pay, because the corporation is itself a creation of the government. While nanny state conservatives don’t like to call attention to this fact, in a free market corporations do not exist. In a free market, individuals can form partnerships and engage in whatever trade and commercial relations they please, but they cannot establish a new legal entity that exists independently of the individuals who own it. Only a government can create a corporation as a legal entity with its own rights and privileges, the most important of which is limited liability....

Chapter 4 – Bill Gates – Welfare Mom: How Government Patent and Copyright Monopolies Enrich the Rich and Distort the Economy

In policy discussions, patents and copyrights are usually treated as part of the natural order, their enforcement is viewed as being as basic as the right to free speech or the free exercise of religion. In fact, there is nothing natural about patents and copyrights, they are relics of the Medieval guild system. They are state-granted monopolies, the exact opposite of a freely competitive market. The nanny state will arrest an entrepreneur who sells a patent-protected product in competition with the person to whom it has granted a patent monopoly....

Chapter 5 – Mommy, Joey Owes Me Money: How Bankruptcy Laws are Bailing Out the Rich

True libertarians want to minimize the role of the government in people’s lives. If such people exist, they were staunchly opposed to the recent revisions of the bankruptcy laws that make it much more difficult for people to eliminate their debts by declaring bankruptcy.

Part of being a good businessperson is being able to assess a customer’s creditworthiness. If a business consistently extends credit to people who can’t pay it off, then it is obviously not a good judge of credit risk. In a market economy, such businesses should go out of business, they should not be allowed to run to the government to act as their debt collector. Making the government into a debt collector leads it to become involved far more extensively in people’s lives.

Historically, most loans were attached to physical property, such as houses or farms. This made the issue of debt collection relatively simple. If a debtor fell sufficiently behind in repaying a loan, then the creditor simply asked the court to turn over to them the deed for property that provided collateral (a house or a farm). This was a one-time transaction that ended the government’s involvement in the case.

However, the new bankruptcy statute gives the courts the responsibility of acting as a debt collector on a continuous basis.

The courts must continually monitor the earnings of a debtor who has declared bankruptcy to determine how much money should be turned over to creditors. It must assess factors like their requirements for necessary work-related expenditures (a car, for example), medical care, or for supporting children. Needless to say, this process will bring the government directly into the lives of millions of people. It will also provide a serious disincentive to work for people who have declared bankruptcy, since being forced to pay money to a creditor has the same disincentive effect as being required to pay taxes to the government. For these reasons, people who like to minimize the role of government should support bankruptcy rules that make one-time transfers, thus allowing people to get on with their lives. The International Monetary Fund (IMF) is the international counterpart to the domestic bankruptcy laws. Investors typically get a much higher rate of return on money they invest in developing countries, precisely because there is a higher risk associated with these investments. It is far more likely that the government of Argentina or Russia will default on their bonds than the United States or Germany.

However, the IMF has actively worked to reduce this risk. It regularly threatens countries that consider defaulting on debts or restructuring them in ways that are less favorable to creditors. It seeks to act as an agent of a credit cartel, for both public and private creditors, ensuring that debts in the developing world will be repaid to the greatest extent possible. Just as with domestic bankruptcy laws, those who favor a minimal government would like to see investors held responsible for their own bad investment decisions. If they invest in a country that subsequently defaults on its debt, then this should be the problem of the investor, not a public institution like the IMF.

Nanny state conservatives don’t think that businesses can be trusted to make smart lending decisions. They think that businesses need the nanny state to help them collect bad debts, whether from individuals in the United States, or from businesses and governments in other countries.

Chapter 6 – The Rigged Legal Deck: Takings and Torts (The Nanny State Only Gives)

In a market economy, people are supposed to be able to freely contract as they choose. This raises the question of why so many conservatives want the government to ban certain types of contracts. Specifically, “tort reform�? laws at both the state and national level limit the type of contingency fees that clients could arrange to pay their attorneys. These laws restrict the percentage of a legal settlement that can be paid to a lawyer and impose other restrictions on the type of contracts that people can sign with lawyers, if they want to sue a corporation.

These restrictions can make a difference in the public’s ability to sue large corporations, because many clients do not have money to pay a lawyer in advance. They instead must pay them following any settlement, if they win one. Since there is often a great deal of risk in legal suits (it is difficult to know how a judge or jury will rule), and corporations can make suits extremely costly by filing many motions, the contingent fee (which depends on winning the case) that a lawyer requests may be fairly large.

Libertarians would not object to large contingent fees – if clients don’t want to pay them, then they can look for another lawyer. However, the conservatives have promoted caps on contingency fees ostensibly as a way of protecting clients. In reality, such caps are an infringement on individuals’ right to freely contract. In a market economy, the government should not be determining which contracts are acceptable for people to sign. But conservatives want the nanny state to make it more difficult to collect damages from big corporations, so they have no problem with this form of governmental intervention in the market.... (


Chosen by Kevin Carson at

"Conservatives... want the nanny state to intervene through many different channels to make sure that income is distributed upward. For example, conservatives want the government to outlaw some types of contracts, such as restricting the sort of contingency-fee arrangements that lawyers make with clients when suing major corporations (conservatives call this “tort reform". This nanny state restriction would make it more difficult for people to get legal compensation from corporations that have damaged their health or property.

Conservatives also think that a wide variety of businesses, from makers of vaccines to operators of nuclear power plants, can’t afford the insurance they would have to buy in the private market to cover the damage they may cause to life and property. Instead, they want the nanny state to protect them from lawsuits resulting from this damage. Conservatives even think that the government should work as a bill collector for creditors who lack good judgment and make loans to people who are bad credit risks (conservatives call this “bankruptcy reform").

In these areas of public policy, and other areas discussed in this book, conservatives are enthusiastic promoters of big government. They are happy to have the government intervene into the inner workings of the economy to make sure that money flows in the direction they like – upward. It is accurate to say that conservatives don’t like big government social programs, but not because they don’t like big government. The problem with big government social programs is that they tend to distribute money downward, or provide benefits to large numbers of people. That is not the conservative agenda - the agenda is getting the money flowing upward, and for this, big government is just fine.

It is not surprising that conservatives would fashion their agenda in a way that makes it more palatable to the bulk of the population, most of whom are not wealthy and therefore do not benefit from policies that distribute income upward. However, it is surprising that so many liberals and progressives, who oppose conservative policies, eagerly accept the conservatives’ framing of the national debate over economic and social policy. This is comparable to playing a football game where one side gets to determine the defense that the other side will play. This would be a huge advantage in a football game, and it is a huge advantage in politics. As long as liberals allow conservatives to write the script from which liberals argue, they will be at a major disadvantage in policy debates and politics.

The conservative framing of issues is so deeply embedded that it has been widely accepted by ostensibly neutral actors, such as policy professionals or the news media that report on national politics. For example, news reports routinely refer to bilateral trade agreements, such as NAFTA or CAFTA, as “free trade" agreements. This is in spite of the fact that one of the main purposes of these agreements is to increase patent protection in developing countries, effectively increasing the length and force of government-imposed monopolies. Whether or not increasing patent protection is desirable policy, it clearly is not “free trade."

It is clever policy for proponents of these agreements to label them as “free trade" agreements (everyone likes freedom), but that is not an excuse for neutral commentators to accept this definition.... (In using this term, reporters disregard their normal concern about saving space, since “trade agreement" takes less space than “free-trade agreement."....

Unfortunately, the state of the current debate on economic policy is even worse from the standpoint of progressives. Not only have the conservatives been successful in getting the media and the experts to accept their framing and language, they have been largely successful in getting their liberal opponents to accept this framing and language, as well. In the case of trade policy, opponents of NAFTA-type trade deals usually have to explain how they would ordinarily support “free trade,"" but not this particular deal. Virtually no one in the public debate stands up and says that these trade deals have nothing to do with free trade....

Unless the debate is reframed in a way that more closely corresponds to reality, conservatives will continue to be successful in their agenda of using government intervention to distribute income upward. This book examines the areas in which the hand of the nanny state is most visible in pushing income to those at the top."