Beyond Economics

The End of Growth and Time for a New Era

Health Care, Markets, and Government

Bob Searles’s post got me thinking about health care and the underlying issues. This post is partly a response, but it turned into more of a rant against those who worship at the alter of the free market. In the process, I admit to using some hyperbole to illustrate my points. I do not mean to lump Bob in with these faux free marketeers entirely as his perspective is much more thoughtful and authentic. What I am reacting to is a free market ideology that seems to assume that more government necessarily means less individual liberty and that “government run” by definition is inefficient and inferior to the market.

The motivation to define things as goods vs. rights
Obviously, many things like hamburgers and haircuts are clearly goods (or services). More generally, if something is a right, then government may be needed to protect it (e.g. free speech) or provide it (e.g. national defense). If something can be defined as a good, then perhaps the market can take care of it. Therefore, the more things we can define as goods the less government we will have. If you believe that government is inherently bad, then you would like to define health care as a good, lest we turn it over to government (making it bigger) and lose fundamental political and economic liberties.

Rights are those things which are fundamental, but what’s fundamental?
Which is more important to most people (and to society), the right to carry a gun and spout off their opinions or having health care for their families? I guess you could argue that the right to bare arms and the right to free speech are fundamental to protecting us from the tyranny of government. Tyranny can be evil. I guess you could argue that you would rather be dead (from lack of health care) than imprisoned in a concentration camp. But let’s step back. You don’t have to give up these rights to have universal health care, even single payer. My point is that individual freedoms may not be the be all and end all. Even if we moved to a system of complete socialized medicine and government gets bigger, why does that threaten individual political liberty? That’s just an assumption.

The real motivation of the faux capitalists
Oh, but there’s economic liberty…the right to get paid hundred’s of millions of dollars  to run Home Depot’s stock price into the ground over 10 years (while Lowe’s skyrocketed) and then get paid hundreds of millions more to go away. Just knowing that’s a possibility is so motivating, it’s my reason for living and the idea that, if I were to make that kind of money, the government might take away an extra 10-20% is just more than I can bare. Why that would just kill the economy and anyone’s incentive to work or invest and create jobs. And nobody would want to invent anything any more.

Choosing to make health care a fundamental right
So is health care an inalienable human right? One could argue more so than anything else. But even if it is not, societies can choose to make it make it a fundamental right. I want to live in a society that does. Rights, whether to health care, free speech, or to carry a hand gun are what we, collectively, decide them to be. If you don’t want to be affected by anyone else, go find yourself an island.

Then move to Canada
Oh, but I might have to wait for certain medical procedures that I don’t have to now. Full disclosure: I  have great health insurance provided by my employer and my job is secure. Actually, I am tired of that straw man. Limitations in some areas of the Canadian and British health care systems are cherry picked and constantly cited as examples of why “government run” health care would be so terrible. Even then, those are only two out of many, most of which work quite well. And their citizens are often quite happy with the size of their government and have plenty of personal freedom. Oh, but I forgot, they will never have the ability to throw a $70,000,000 wedding anniversary party.

But how much health care would be a right?
So if health care is a right, the question becomes: How much? What is basic health care? Does it include drugs for chronic diseases? What if it was my fault that I got the disease? Do I have the right to cancer treatments if I am 20 years old? How about if I am 90 years old? Do I have the right to a liver transplant? What if I wasn’t an alcoholic? What if I am willing to pay for it? Do I have the right to plastic surgery if I think I’m not good looking and it’s causing me mental distress? Where do we draw the line? Oh, it’s so complicated, I guess only the market can sort this out. Or perhaps the churches. But what if I am an atheist?

We can figure this out, but not in less time than it takes to choose a puppy
There will need to be lines drawn. We can’t prolong everyone’s life indefinitely with artificial or transplanted organs even if we redistributed all the wealth in the world. We do need a national/societal debate about this. There has to be rationing and lines drawn at various points. While we don’t need to stall, it certainly is going to take a lot longer than selecting a White House dog.

Arguably, there’s a pragmatic reason for universal health care
One could argue that even if health care is not a right, we should, as a society, provide it anyway because it would cost us less to do so when externalities are considered. If the child of an unwed mother does not get proper prenatal and child health care, how much do you suppose that child might cost society if it becomes delinquent or violent. How much will it cost to incarcerate that child as an adult for 5, 10, or 25 years, let alone the damage that child might have caused along the way?

Time to redefine economic scarcity
But even if it did cost us more to have universal health care, in the 21st century, what we think of as scarcity is a myth. There are plenty of resources in the world for everyone to live well with a lot left over for some to benefit from incentive systems that reward them for hard work and responsible behavior. Yes, we do have to be careful about handouts creating dependency. We can figure this out. But I don’t lose sleep about some people intentionally or unintentionally mooching off the rest of us. I am far more outraged by how much the best and brightest were paid billions in bonuses to trash our economy while so many go without anything.

Utopian myth of the free market
The utopia of a free market is a myth. As soon as anyone gets ahead,  they will begin to work with others to protect and expand their position.  A ruling elite will develop and take over the government (as they have in the U.S.). The ruling elite will convince the ignorant masses that the government is their enemy. Because they control the government, but really despise it, they will only use it to their advantage and run the rest of it poorly, proving their point. There will be the illusion that there are two opposing political parties, one promising to protect you from the government, the other promising to protect you from big business. But government and big business are in bed together.

Beware the one-size-fits-all ideologies
Both governments and markets are needed to manage human affairs and resources. There will always be a natural tension between individualism and collectivism, between government and free markets. We have seen what happens when the government completely runs the show (Soviet Union, etc.). Now we have seen what happens when individual economic actors and markets are essentially unregulated. Oh, but that doesn’t really count because we didn’t really have free markets. Well, that’s about as close as you are ever going to get. The problem is that any system is subject to corruption and subversion. If too much power is given to either governments or markets, one will capture the other. A healthy balance is needed. If both political  and economic power are not limited, you will get a ruling elite. It’s complicated and messy and requires periodic corrections when the pendulum swings too far in one direction or the other.

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7 responses to “Health Care, Markets, and Government

  1. Tim July 29, 2009 at 3:23 am

    Please do me the favor of explaining:
    1. How the collective individual choice of many consumers is “simpler” than government mandate and planning.
    2. Where you’re going to find the people that can maximize social welfare from the top down.
    3. The economic system that has helped more escape from poverty and resulted in greater growth in standard of living despite never producing “utopia.”
    4. How any diversion from capitalism will, necessarily produce more efficient results.

    When you’re done, do yourself the favor of reading Capitalism and Freedom so that you can find the causal connection between the two.

    Thanks.

    • Rob Kaulfuss July 29, 2009 at 3:49 am

      Thanks for commenting. My post was admittedly a rant and meant to be provocative.

      To really understand capitalism, I like to go back to Adam Smith rather than Milton Friedman for a fuller appreciation. Smith’s Theory of Moral Sentiments is often overlooked and sheds further light. I also taught Macro and Micro out of Greg Mankiw’s book for two years so I am well aware of that perspective.

      Do you have any idea how close free market ideology brought the US and world economy to a total meltdown last fall? Please watch this:
      CNBC: House of Cards
      The Definitive Look At The Origins Of Today’s Global Economic Crisis
      February, 2009

      For books, I find these to provide the best explanation for what went wrong:

      Bad Money
      Reckless Finance, Failed Politics, and the Global Crisis of American Capitalism
      Kevin Phillips, April 2008 (Updated March 2009)

      Bailout Nation
      How Greed and Easy Money Corrupted Wall Street and Shook the World Economy
      Barry Ritholtz, May 2009

      As for health care, I did read your new post on health care:
      Problems with the “Public Option” and Fixing Health Care in America
      We are on the same page for most of what’s wrong and you nave nailed the essential issue concerning over consumption and the need to confront rationing. I think what you are missing however, is that health care involves externalities making it fundamentally different than purely private goods and services for which the markets often work very well. Take vaccines, for example, I may rationally calculate that the cost to me of going to get a flu shot (in time and/or money) is much more than the benefit (considering the very low probability of getting sick or seriously so at that). However, if I do get the flu, I might spread it to others or miss work, costing my employer a considerable amount. Therefore, it might make sense for either my employer or “government” to provide an incentive to me to get vaccinated. (This is a simple example for illustration only.) One’s physical and mental health can have significant impact on society.

      Oh, and the biggest problem with Medicare is not that it is government run, but that it has to deal with the final years of life when we are the sickest. Markets don’t want to deal with that. Even Bill Krystal admitted–on The Daily Show, 7/28–that the government runs a top notch health care program for the active military. (I know, that probably doesn’t count.)

      The other free market ideology flaw is the assumption of rationality and perfect information. Yes, if health care is basically free, I am like to consume a lot more of it. But I am also subject (not me personally, of course!) to media hysteria. So, if I feel terrible from a cold, I might think it something worse. If I have a pain in my abdomen, it might be cancer. If I have a rash, it might be flesh-eating bacteria.

      You sound like a very bright and thoughtful young man, I would encourage you not to get too trapped in any one cave of thinking…everyone in your cave will become experts at talking to one another while outsiders sound more and more like idiots so you will not venture out. See Plato’s Allegory of the Cave.

      • Tim July 30, 2009 at 5:00 pm

        After 90 minutes of watching “House of Cards,” I recognized that journalists are not economists. Spending much time showing the harms caused by an economic contraction might be good journalism because it appeals to viewers’ emotions, but it does nothing to explain cause and effect of economic phenomena.

        Completely neglecting that monetary policy, and not a bunch of individual bankers, represents the ultimate control over debt, both within a country and who it’s sold to, the entire program wasted much time showing how low interest rates and “easy money” result in stupid decisions when the cost of failure is much lower.

        The show calls indirectly for “regulation” when we have had regulation all along. It has called the “cost of capital,” which anyone with even a fundamental level understanding of finance like myself can clearly understand.

        Any person loaning money must decide, based on the NPV of a given loan, whether or not it is a good choice or not. Distorting the NPV analysis with interest rates that lack long-term sustainability is the fault of government, not the market.

        In the instance of market failures, an economist would be foolish to argue against some sort of regulation that would increase efficiency. Here, we have no “market failure.” What we have is a foreseeable, direct response to monetary policy that happens every single day in the financial industry–one that NO regulation can prevent.

        The regulation IS the cost of capital. And until we blame the people with the means to control that (government and ONLY government), we can never fully understand why we had such a terrible disaster of debt.

      • Rob Kaulfuss July 30, 2009 at 5:37 pm

        Yes, journalists are not economists (or accountants). I heard Maria Bartiromo, one of CNBC’s top anchors, confuse revenue with net income in discussing the impact of Obama’s proposal to increase the marginal income tax rate on small businesses…off by a factor of 10 or so.

        CNBC’s job is to cheerlead Wall Street. The point of House of Cards is to show how irrational behavior and politics will overwhelm everything else.

        I do agree about the Fed’s central role in the crisis…See Bailout Nation. Alan Greenspan, who espoused free markets contradicted himself by continually using interest rates to sooth the psychology of the markets. He was flawed, you will say. No, he was human.

      • Tim July 30, 2009 at 7:11 pm

        The real flaw is calling the behavior irrational. It wasn’t irrational. It was an entirely rational response to bad incentives. I would have done the same thing.

        Give me something for nothing, and I’ll figure out how to profit from it. Figure out a way for me to make MORE profit without going to jail, and I’ll do that, too.

        I won’t care so much about losses when money is cheap. But if the fed tightens its belt, I’ll start to be MUCH more careful about just who I lend that “more expensive” cash to.

        This isn’t a problem caused by irrationality or externalities. The costs are right there in front of your face. The problem is allowing Greenspan, one of the smartest Macroeconomists now living, to escape his responsibility for causing this crisis when he, more than anyone else in the world, had the means to stop it. Acting shocked at the numbers (and then still refusing to put the brakes on it after knowing) is reckless at the very least.

        I’m not Hayek, and I’m not saying abolish the Fed. But to absolve it of all responsibility when it was the one agency that had TOTAL control over the quantity of money is absolutely ridiculous.

      • Rob Kaulfuss July 31, 2009 at 12:01 am

        OK, I will definitely grant you that improper/flawed incentives will generate what will look like irrational behavior but may actually be quite rational. All I am saying is that human beings are motivated by a lot more than incentives. Someday, you can discuss this with your therapist!

        Let me use another analogy. This is what the argument about human behavior looks like to me. You and I are on opposite sides of a picket fence that has (the pickets are much wider than the spaces between them. Neither one of us has ever seen an animal before. Next, a cat walks between us, but on my side of the fence. Now, you are trying to convince me that heads come before tails (or that heads cause tails) and have made detailed measurements to prove it. I’m just trying to say, that while what you say is true, there is a lot more going here.

        Or, here is another one. You look at the world in Black and White and have, necessarily, developed the ability to distinguish many different shades of gray. The world is in color!

        Probably everyone things that about other points of view. I’m open to that, I hope.

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