Why I am not a Libertarian - Part III

Idolatry of Mammon

Finally, I am not a libertarian because I do not belief in the inherent “magic” of the market. Now, I would describe myself as a capitalist in the sense that I believe that the capitalist system is the most efficient economic system available. Yet, economic efficiency is not always the most desirable thing, especially when it comes at the expense of other important aspects of society. To this extent, I believe the “free market” should be chastened by two things; morality and law. For morality, I naturally believe that the Christian religion is most useful here. I believe that the libertarian faith that the market is inherently self-correcting and will, by itself, create a just social and economic situation is unfounded. Capitalism, by itself, is not perfect. The problem is that too many people (economists especially) have a “Cold War framework” where they polarize all economic theories into two opposing camps; the free and the centrally planned or, in more abstract terms, the “socialist” and the “capitalist.” It leads to a sort of fatalism among libertarians who admit that capitalism is perfect yet resort to say that its “the best we got.” Yet I believe that there is another option, one that has pure capitalism chastened by faith and justice.

In the late nineteenth and early twentieth centuries Christian groups worked very hard to alleviate poverty and Christians today to keep up with that tradition. Unfortunately, it seems that many Christians today have the attitude that the poor, especially those on welfare, are lazy and immoral and therefore do not deserve our charity. Libertarianism, at times, almost takes on a Social Darwinian aspect where inefficient businesses or workers must wither and die for the betterment of society. Yet, charity, by its very definition, is something that is not deserved. In all Christian economic thought, as in all Christian thought, the model of Christ should be at the fore. For Christ did not come to those who deserved him but to those that did not and he came to them (us) give grace. Perhaps the poor do deserve their poverty (though I think we must be very careful about generalizing) but those who have been successful, who have accumulated “merit” as Christ did, ought to give to economically poor just as Christ gave to the spiritually poor. Perhaps through this ministry of grace those who are poor because of their lifestyle may become overwhelmed by charity and may be transformed. I do not mean this simply in the sense of soup kitchens. It is true that during the early industrial revolution that the workers were receiving “fair” wages in that based on the supply of labor and the productivity of the worker they were fair. Yet there were far from ideal. The Victorian factory owner that prided himself in his faith ought to have given parts of his income to improve the income of his workers. This would have been the Christ-like thing to do. Instead, they held to Social Darwinian ideas and the “Iron Law of Wages” that helped to perpetuate Marxism and socialism after mid century. Marx became so popular because, while his theories about improving society were off the mark, his sympathy with the worker and the indictment of bourgeois society was spot on. The Christian must always chose charity in his disposable income instead of luxury to feed his prideful greed. Always bear in mind the proverb: “give me neither poverty nor riches; feed me with the food that is needful for me.”

Also, I personally reject the mysticism that the far left and the far right have attributed to business and economics. To the left, business is the greedy and all-corrupting facet of society that poisons the government and exploits the worker. Business is therefore controlled by the state or the "vanguard of the proletariat." To the far right (or libertarians) the market and business is a pure and perfect institution that, magically, transforms greed and vice into virtue. So holy is it that the sinful hands of government bureaucracy cannot even touch it. I do not see the realm of business as any different from any of the other areas of society and government involvement in it should be the same as in any other facet of society; enough to secure justice. In the wake of the recent economic collapse, caused in part by the scams of corporate executives, I believe that tougher regulation is definitely needed to ensure that there more oversight to catch fraudulent businessmen and harsher penalties to discourage fraud to begin with. It is true that people who do business with banks and other financial institutions do so voluntarily but they do so under the assumption that the law will force these institutions to act honestly and responsibly. Moreover, the actions of these institutions affect more people than those who voluntarily do business therefore they need to especially be watched to ensure that they are conducting business honorably and responsibly. I also, unlike some libertarians, believe that certain reforms from the Progressive era (the FDA, laws regulating working conditions, safety regulations, environmental regulation, etc.) are very necessary because they are concerned with justice. Again, this all builds on my first principle that justice is the primary function of governments and not “securing rights.” As a final remark, I want to distinguish between regulation and control. I do not believe that government should control businesses. Their involvement in regulating business should be on the same level that governments regulate aspects in society to ensure justice is upheld. The economy is a complex system and cannot be run by any central planning committee or jobs czar.

ObamaCare: The Chief Problems

This is an update on my previous blog post about so-called healthcare reform, “Health Care for All?” Now that Obama and his fellow Democrats in Congress have revealed a little more about their vague plan to supposedly “make healthcare more affordable” I am able to better accurately point out the flaws in what they are proposing – as well as how astoundingly little the Obama administration knows about basic economics. Much of the plan is similar to the plan that Clinton proposed back in 1994, greater regulations in the insurance and health care industry, with the addition of a government option which people who are unhappy with their current healthcare can choose. Basically, under this plan the government will either subsidize part or all of the medical expenses of people under the government plan or force health care providers or insurers to provide their services to people at a reduced charge. How exactly the government will provide cheaper healthcare for those under the government plan I am not exactly sure. Either way the government plan will actually increase, rather than reduce, the cost of health care for most Americans. Greater “regulation” of the health care and insurance industry will certainly increase the price tag on health care.

First, we must remember the basic message of my last blog on this subject; government may reduce the price of health care for a certain individual or group but cannot reduce the cost of providing healthcare services. The cost of healthcare is determined by supply and demand. If the government mandates a price ceiling on healthcare for those under the government plan, this will mean that the healthcare companies will have reduced profits. They will either have to reduce capital investment from reduced profits or they will have to charge the middle class who are not under the price ceiling more. In the first case the quality of our healthcare will be reduced because the company will have fewer profits to put toward increasing the quality of their insurance or healthcare services, whether this means less coverage, less doctors hired, or less new technology and medical advances. In the latter case it will mean that the hard-working middle class will not save money on health care reform but will end up paying more. If Obama does not create a price ceiling, but only subsidizes healthcare for those under the government plan, this will mean a ballooning deficit for the federal government, which will mean increased taxes for the middle class.

I believe that the current proposals for the cost of this health care plan are grossly underestimated. What democrats fail to understand is that whatever measures they use to make health care “affordable” for those under the government plan, the result will be an increase in demand. With the price of healthcare reduced for those under the plan they will visit the doctor more often than usual. In addition, when they are not footing the cost of the bill, the incentive for people to engage in less risky health behaviors, such as smoking, excessive drinking, and overeating, is reduced. Remember, the biggest health problem among America’s poor is obesity and heart disease. Many of these people also smoke. The public will not become healthier from this plan but less and the bill will be footed by those hard working Americans who actually have to pay for their healthcare. For my solution to reduce healthcare costs, see “A Healthcare Solution” below. For more about the contradictions in ObamaCare see this Time article: http://www.time.com/time/magazine/article/0,9171,1914973,00.html

There is also the question about whether or not abortions and euthanasia will be funded under this healthcare bill. While Democrats claim that nothing in the bill supports such an assertion, others point that the working, like most of the proposal, is ambiguous enough that it may include these ethically questionable procedures. Even those who believe that abortion and euthanasia should be left up to the conscience of the one receiving and performing the procedures should be upset that people who find these things ethically immoral are being forced to fun them.
Ultimately this plan will not help reduce the cost of healthcare or increase the health of Americans. All it will do is make health care more inefficient, costly, and stagnant and entangle the government in more controversial ethical questions.

A Healthcare Solution

I put this modest proposal before our mad government who appears ready to spend us into oblivion with Obamacare. Save the $1 trillion plus (remember, Social Security and Medicare weren't suppose to cost too much either!) and instead implement this plan which probably won't cost the US government even $1 billion dollars. If you read my post "Healthcare for All?" you should understand that the government cannot lower the cost of anything, only the price. You also should understand that prices are brought about not by greedy CEOs, for competition among healthcare providers and the elasticity in demand mean that the price is only that amount where the minimum amount the healthcare provider is willing to charge for their services and the maximum amount the consumer is willing to pay for that service meet. Prices are determined by the market. They are controlled by supply and demand. When the demand for medical services increases, the price for that service increases. This is basic economics. Any economist, regardless of his or her political persuasion will tell you this. Thus rising healthcare prices are the result not of greed and price-gauging but high demand. I put forward that the reason American healthcare costs so much is that it costs a lot to keep Americans healthy! We are McDonaldnation. When the majority of American adults are obese and unhealthy they are going to require more medical attention for for things like lung cancer, skin cancer, and heart disease. Therefore, what I propose is that the government starts to offer incentives for American citizens to remain healthy. Every year Americans can go to their physcian and have a physical. There will be rankings from excellent health to average health to poor health. For every health level average and above, tax-payers can claim a deductable that correlates to their level of health for each member of the family. Thus, the government will give you incentive to keep healthy during the year. By eating healthier, eating less, excercising more, and refraining for smoking due to proper incentive, Americans will need to go doctors less (an apple a day keeps the doctors away!) and the demand for health with decrease and with it healthcare prices.

With Healthcare for All? Part II

4. There is no such thing as a Free Lunch. It is also very misleading to call government-funded healthcare "free." As already noted, government can reduce the price of a good or service with price controls but never their cost. Whenever the government plans on doing anything that involves the public treasury, it is good to remember that the treasury is supplied by the public. The government does not generate its own wealth but must levy taxes in order to pay for its expenses. This includes healthcare. In reality, free healthcare is not free but is paid for by citizens who are supposedly receiving hand-out! Initial estimates are that the healthcare bill will cost 1.6 trillion over 10 years, or $5,333 a person! This means (if the price was spread evenly)that if you pay less than $5,333 a year in medical expenses, the cost of your healthcare will actually go up. Of course the price is not spread evenly. Some will get this healthcare for nothing while others will pay very little. Yet still the healthcare is not free, those people who save money with government healthcare are only forcing their fellow citizens to pay for it. Government-funded healthcare is a misnomer. It should be called fellow citizen-funded healthcare. Of course, most will reply that it is the rich with "disposable income" who will be funding the majority of the healthcare. Yet, why is it fair that the wealthy should pay a greater percentage of their income than the poor? What evil have those wealthy who have earned their money by honest means done to society? Often the evil rich are the doctors who keep us healthy, the surgeons who save lives on the operating table, the entrepreneur who makes our lives easier by finding a more efficient way to bring us goods and services, the inventor who improves the quality of life, the scientist who cures a disease, the businessman who employs us, etc. One of America's most basic principles is the equality of all people. We violate this equality when we force on one group a greater proportion of income tax. Going back to incentives, when we tax the doctors, inventors, and businessmen too heavily, we reduce the incentive of doing their jobs. The high incomes paid to doctors compensates them for all the medical school they went through and in the same manner the businessman is compensated for climbing his way up the corporate ladder, spending less time with family and friends, and working late hours. If we tax these people and their businesses too heavily, it shouldn't suprise us if we wake up the next day to find less of them. Therefore, free healthcare is not free but comes at the expense of fellow citizens and other sectors of the economy. With a population of 300 million and price tag of $1.6 trillion, a government funded healthcare system is more weight than our economy can bear.

6. Worst, worse, better, and best. The greatest problem we have is when we make comparisons we make them as black and white. In reality, we are oftne comparing apples to oranges. While other countries are not sent into abominable poverty and poor coverage by their haelthcare systems, we must remember that this does not imply the success of the system. Healthcare and the economy may have improved, but if there was no government healthcare system, it may be improved even more. Also take into mind the very poor health of Americans. Obesity is higher in this country than in Europe. Some speculate that the growing obesity in this country is the reason why the price of healthcare is soaring. Therefore, if American's health is failing, don't always blame the healthcare companies. The best way to improve American healthcare is not with government intervention but with a more healthy lifestyle by Americans.

With Healthcare for All? Part I

President Obama hopes to succeed where President Clinton failed: securing universal healthcare benefits for all Americans. For most Americans without a basic understanding of basic economics, the lure of universal healthcare is overwhelming. The public is flooded with heartbreaking stories where Americans cannot afford health treatment or medical bills put so-called "working Americans" in massive debt (the Obama administration is especially empathetic about the latter). Now, don't get me wrong; my heart goes out to all hard-working Americans who find it hard to make ends meet when healthcare becomes expensive. But we must understand that the world is not perfect. Unfortunately no government has the power to create a utopia and thus we must always settle for the best possible outcome, which is never the perfect one. We must always ask ourselves what are the hidden consequences of our actions and will it lead to a positive gain or a loss? Few Americans are capable of weighing the various consequences because basic economic knowledge precludes them. Below is a list of reasons why socialized healthcare does not lead to a positive gain.

1. Government can reduce the price of something but never its cost. Part of Obama's pledge is to make healthcare affordable for the average American. Unfortunately, government cannot wave a magic wand and reduce the cost of anything. True government can force healthcare providers to sell their services for a limited amount but this does not mean that the costs required to provide those services will decrease in the slightest. This means that health care companies will start to lose money when a price ceiling is placed on a good or service.

2. Price Gouging is Impossible "But!" the average American will cry, "who cares if the health care companies revenues are less? Aren't they all a bunch of greedy price gougers anyway?" Yet the health care providers are not capable of price gouging. Why? Because health care companies do not set prices. What!? Yes that is right, producers do not set prices. Prices result in the interactions between buyers and sellers. Publilius Syrus once said: "Everything is worth what its purchaser will pay for it." The price of something is maximum price a seller will sell his goods or services considering the minimum amount the buyer is willing to pay for them. A seller may put the price tag for his goods or services extremely high, but all this will do is cause customers to stop buying those goods and services. Patients will choose other health care providers who do set their prices so high and thus the price-gouging health care provider will lose customers and money. Companies have an incentive to sell for the least amount possible rather than the maximum amount.

3. It's about capital. Hight profits are not a bad thing either. People often think its scandalous when companies make huge profits, especially the health care industry which is in the business of people's health. Yet what few people realize is that the profits that businesses make are not horded in a vault somewhere, where the CEO can mimic Scrooge McDuck and go swimming in a sea of money. Few healthcare companies are privately owned, which means that essentially the company is owned by the public and the high profits stay within the company and not in an owner's wallet. Most of the high-ups in large corporation are salaried so high profits do not mean that their personal incomes will increase. Most of the time the CEO is hired and paid by a board of executives so price-gouging by no means will make him any richer. Instead all those profits, which is called capital, are re-invested back into the company to produce a better business, whether by improving the quality of the good or service or hiring better workers. Thus when you restrict the amount of revenue a health care company receives, you are reducing its ability to improve. That meants less money is spent on cancer research, workers won't receive raises, coverage isn't expanded, etc. Socialized healthcare, by restricting the amount of profits, will stagnate the quality of healthcare.

4. It's also about incentives. Socialized healthcare also reduces incentives, both by healthcare providers and American citizens. First, when health care is "free" an artificially high demand is generated. If McDonalds started to hand out free cheeseburgers, imagine how many people would come to McDonalnds to buy cheeseburgers! Most likely the line for burgers would be out the door and around the corner. On the other hand, when cheeseburgers are sold for the regular amount there is no line out the door and around the corner. The reason is that the price of a burger means that only those who really want a cheeseburger will come into McDonalds to get one. When they are free anyone who passes buy will come in and get one and eventually demand will be so high that McDonalds will run out of burgers! The long lines at the registers also means that those who really wanted the cheesburgers, say a kid and his dad who just finished up a soccer game, will have to wait in the same long lines with all those people who may not really want a cheeseburger all that much. The same is true with universal, "free" healthcare. Once healthcare is cheap for anyone, people will start to visit the doctor more than they did when they had to pay at the very least a co-pay. When healthcare actually cost a person for using it, they are more likely to consider whether or not they really need medical attention. It will also means that doctor's offices and hospitals will have large lines as more people use healthcare now that it is free or very cheap than when it cost money. People who truly need medical attention will have to wait in very long lines along with those who show up with the common cold. As demand for healthcare increases it will also mean that the cost of health care (though not the price) will increase and the quality of healthcare will decrease as a company's profits decrease. Workers wage's won't increase and so talented workers will go where they will be paid better. This could create a shortage of doctors and nurses if their wages do not rise with the rest of the workforce. This means less doctors will go to medical school and less nurses will go to nursing school. In this way just as the demand for these jobs increases, their supply decreases because the health care companies can't pay them enough. The would-be doctor will become a lawyer or an engineer instead. When this happens, our health care system's quality will decrease dramatically.

Part II will be up tomorrow.

The Fallacy of the Rich/Poor Gap

For some time now it has been fashionable to speak of the increasing gap between rich and poor and that this is a serious problem for our economy. It is no doubt that adherents to this theory that have come out to support Mr. Obama's plans for redistribution. However I would caution that this theory of a widening gap between rich and poor be more closely examined before canonize its merit and conduct economic policy based on it. I, like many others, am concerned with the economic progress of my fellow Americans, especially as we are being hit with hard economic times. I have always emphasized by belief that businessmen should give liberally in terms of wages and that employees should always earn fair wages for their production. However, I also believe it is the right of the entrepreneur or businessman to enjoy the fruits of his garden. The company is his and has been built with his capital. Give the unreliability of business ventures he has taken great risks to found his company. Or, if he is a CEO, his skills have demanded that his pay be a certain level. Whatever his salary the board clearly thought it was worth what skills and knowledge he brings to the corporation. But I do condemn this vain consumerism and the accumulation of wealth for the sake of pride, those who have been entrusted with great wealth out to use it for the benefit of their fellow men in addition to their personal pleasures. However, such is between him and God and not him and the government.

That being said, let us explore a major flaw in the rich/poor gap theory. Let us say that the average person in the lower 80% of society (in terms of wealth) makes $50,000 a year. Let us also say that the average person in the remaining upper 20% makes $200,000 a year. Then let us look twenty five years in the future (no inflation is assumed). The average person in the bottom 80% is earning $100,000 annually and the average person in the top 20% is earning $300,000 annually. The average middle class person has seen his wage double
over that twenty-five year period while the average rich person has seen his wage increase only by 50%. The growth of the middle class income is far greater than that of the rich income. However, the rich/poor gap has increased. Where there was previously only a difference
of $150,000 between the two, there is now a $200,000 difference. The gap has increased by 25%. Yet, who's income has experienced more dynamic growth in the period of 25 years? Is it not the middle class person's income? This is why the gap between rich and poor is an inadequate measurement of economic progress. What ought to be considered is the increase in income per individual over the time period being assessed as a marker of economic growth. This you will find has increased over the last twenty-five years despite all the cries of an increasing gap between rich and poor.