TGIF: My Most Excellent Election Day Experience

TGIF: My Most Excellent Election Day Experience

Last Tuesday, special day that it was, I awoke early and prepared to go out. By 7 a.m., I was where I always go on this special day, eager to do my duty and exercise my sacred right to choose. Entering the warm, brightly lit building, I was greeted by friendly folks who make me feel welcome. Not many others were there yet.

I got down business and made quick work of it. Systematically, I scanned my alternatives in the various categories, now and then consulting the list on my mobile phone that I had earlier drawn up so I wouldn’t forget my game plan. Everything was just as I expected it to be, and so I executed my plan flawlessly. I made my picks and bypassed those that I saw no need for.

My choices made, I left content, confident I had achieved everything I had set out to achieve.

To be more precise: in each case, my choices counted; no, better: they were decisive. In other words, I got everything I wanted — on the spot.

Obviously, I was not at the polling place on Tuesday, which I hear was election day. I was at the supermarket. But I didn’t lie. Tuesdays are special: it’s the day my supermarket discounts all items for those they call “seniors.” The discount more than offsets the sales tax. That makes it a special day, though, alas, the state still takes it illicit cut.

The tip-off that I had not been at the polling place should have been my statement, “I got everything I wanted — on the spot.” This cannot happen at the polling place. There, my choices would have been limited to two or three or possibly four candidates, but only two had any real chance of winning since one of the dogmas of our civic religion is that any “third party” is somehow suspect.

True, the supermarket must limit the selection; shelf space is limited. But I usually see more than four choices in most categories, and store owners have a continuing incentive to expand their stocks to please their customers, who, unlike taxpayers, can say, “No thank you.” And I can always go someplace else where the stock is more to my liking. Yet I can go to only one polling place, which doesn’t matter because every polling place has the same limited stock — like the stores in the old Soviet Union.

Also at the polling place, no one’s choice is decisive; for many people, that’s a feature, but it looks like a bug to me. Unlike at the supermarket, what you see isn’t necessarily what you get. At the supermarket, if I want bacon rather than sausage, I get bacon every time. But my preferring candidate Jones to candidate Smith for dog catcher does not mean I will get Jones. Sure, you make your “free” choice among the vetted candidates, but you don’t know what you’ll get until all the votes are counted. Despite that other constantly repeated dogma, your vote doesn’t really count. In nearly all cases, the chance of a tie is only insignificantly greater than zero. What matters is how a whole lot of other people voted, and what they do on election day has nothing to do with what I do. I have not lived through a single election the outcome of which would have differed had I done something other than what I actually did on that day. Last Tuesday was no different.

Imagine if supermarkets were run like elections.

Since my “votes” are decisive in the supermarket, I have a natural incentive to think carefully about what I want, although, within limits, if I make a mistake, I can exchange what I choose for something else or even get my money back. Try that in an election. Candidates may say they favor this rather than that, but they might only be saying what they think the voters want to hear. What the winners end up doing could markedly diverge from what they promised to do or undo, but even in the most flagrant instances, you can’t get your vote (or money) back. Even if we assume no lying, you rarely agree with everything a candidate believes, yet you have to accept or reject the entire package. That’s like having to choose between two pre-loaded shopping carts at the supermarket. 

Another thing that gives me an incentive to choose with great care what I buy is that, for the most part, I will not only reap the benefits but also bear the costs of my own choices. That has a way of concentrating the mind. In an election, even under the best of circumstances, only a sliver of the costs will fall on any particular individual, although the total costs could be immense. Worse, most individuals probably won’t realize that the costs are attributable to what the officeholders have done. Tracing the consequences of much of what officeholders do requires at least a basic understanding of how markets and the price system work. Few voters understand economics.

In light of this, most people do no serious research about candidates. Candidates know this and exploit it to the hilt. That’s why election campaigns look more like theater — bad theater — than markets. The candidates seek to create atmospheres in hopes of emotionally motivating enough people to go to the polls and vote for them. Top among the emotions aimed for is fear, which makes for a proliferation of bogeymen (such as immigrant invaders and foreign manufacturers).

Now I know that the standard response here is that what we buy at the supermarket or bookshop or even the insurance agency and doctor’s office is not like the things that elections are concerned with, that is, those things known as indivisible and nonexcludable public goods. Fair enough — except that 1) government does lots of things that bear no resemblance whatever to classic public goods and 2) a voluminous historical and theoretical literature exists documenting that public services, including security and conflict resolution (assuming they really are public goods), have at one time or another been provided in what look awfully like … marketplaces.

So maybe we’ve been sold a bill of goods in the state. Let’s check our premises, shall we? (Here are more titles in addition to the archive linked to above: Harold Berman’s Law and Revolution, Peter Leeson’s Anarchy Unbound, Gary Chartier’s Anarchy and Legal Order, Edward Stringham’s Private Governance, and Robert Ellickson’s Order without Law.)  

As for elections, I’d rather spend my time doing things that are likely to benefit myself and those I care about. Practicing rituals designed to make the predator state look like a saintly government of, by, and for the people is not among them.

TGIF — The Goal Is Freedom — appears Fridays.

IBM Announcement Proves the Blockchain Has Officially Gone Mainstream

IBM Announcement Proves the Blockchain Has Officially Gone Mainstream

This article originally appeared at Anti-Media. 


In January, tech giant IBM was able to happily report to investors that after 22 consecutive quarters — nearly six years — of declining revenue growth, the company saw gains in the last quarter of 2017.

In a news release, executives clearly identified the reason for the turnaround at IBM, a century-year-old institution that began as the Computing-Tabulating-Recording Company.

“During 2017, we strengthened our position as the leading enterprise cloud provider and established IBM as the blockchain leader for business,” IBM chairman and CEO Ginni Rometty was quoted as saying.

CFO James Kavanaugh also mentioned the blockchain while speaking of IBM’s future plans:

“2018 will be all about reinforcing IBM’s leadership position in key high-value segments of the IT industry, including cloud, AI, security and blockchain.”

Indeed, IBM has emerged as the world leader in blockchain technology. It very much appears that at some point in the recent past, company leaders saw the writing on the wall, shifted their focus toward innovation, and were then rewarded with a positive gain for their efforts.

Until now, the full extent of IBM’s foray into the growing blockchain industry has been unknown, but that picture got much clearer on Thursday when IBM made public a briefing it sent out to investors.

According to that document, IBM is currently involved in over 400 blockchain-related projects with at least 63 of its clients, and many of those clients are behemoths of the corporate world: Walmart, Visa, Dow, Nestle, DuPont, and megabank HSBC, to name a few.

While revealing, for those following the technology’s advance, the data shouldn’t be all that surprising. Even in these early days of blockchain exploration, the system framework has already proven beneficial to companies for things such as securing payments and tracking shipments and inventory.

And evidence suggests the future is wide open. In fact, some projections estimate the market for blockchain-related products and services will reach $7.7 billion by 2022, up from $242 million in 2016. That’s a compound annual growth rate of almost 80 percent.

And it all comes down to demand, as IBM’s Kavanaugh told financial news outlet The Street on Thursday — the day the briefing to investors was made public:

“Clients are very interested in blockchain. It’s not because of the Bitcoin hype. It’s because they see what blockchain can do to improve trust, transparency and speed in their most complex supply chains and markets.”

IBM Announcement Proves the Blockchain Has Officially Gone Mainstream

Why Good News Was Bad News for the Market

Over the last two trading days (2/2 and 2/5), the Dow Jones Industrial Average has lost more than 1,800 points, or about 7%.

Meanwhile, the S&P has lost 173 points, or more than 6%.

These sharp downward moves have many people looking for an explanation. No big companies failed. No wars were started. No new policies were enacted. So why did the market lose nearly 7% of its value in two days?

Part of the answer is this: a better-than-expected jobs report.

That is, the markets received positive news on the US labor market, indicating that the US economy appears to be in good health. In response, stocks sold off.

On the surface, this sequence of events appears absurd.

If the economy is doing well, that should be a positive indicator for US companies and US stocks. After all, a positive jobs report would suggest that companies are optimistic about the future and expanding their operations by hiring more people. In turn, we’d expect these new investments to eventually bear fruit in the form of higher profits. If anything, stocks should go up after a positive jobs report.

And in a truly free market, that’s probably how things would work.

However, in the markets we actually have, this intuition gets turned on its head.

Good News Is Bad News

Today’s stock market is influenced dramatically by the actions of the US central bank, the Federal Reserve.

While not technically part of the US government, the Federal Reserve is not a creature of the free market. Instead, it is a quasi-governmental body that is responsible for centrally planning interest rates–arguably the most important “price” in the economy.

All else equal, when the Fed raises interest rates, stocks tend to go down and vice versa.

This relationship, and the outsized influence of the Fed, is the key to understanding why the market behaved like it did.

The better-than-expected jobs report really was good news for the economy. The problem was that this good news made it even more likely than before that the Federal Reserve would continue on its current path of hiking interest rates and reducing its balance sheet. Indeed, it could even accelerate the interest rate hikes. This is a big part of what spooked the markets.

In other words, there are two questions we need to consider when we get new data on the economy:

  • What does this data say about the economy?
  • How will the Fed react to it?

Of the two, the second question is far more important.

Stocks have soared to record highs on the back of nearly a decade of ultra-low interest rates from the Fed. Now that the Fed appears committed to bringing interest rates back to more normal levels, investors are taking notice.

That’s why good news was bad news for stock prices.

IBM Announcement Proves the Blockchain Has Officially Gone Mainstream

How Welfare States Make Us Less Civilized

Throughout history, the state has justified itself on the grounds that it is necessary to protect us from others whose habits and beliefs — we are meant to believe — are dangerous. For millennia, this fiction was easy to maintain because most people interacted so little with people outside their nearly autarkic — and therefore impoverished — communities.

But, with the rise of industrialization and international trade in recent centuries, the state’s claim that it is necessary to keep us “safe” from outsiders has become increasingly undermined.

Much of this is thanks to the fact that in order to benefit from the market, one must engage in activities designed to serve others and anticipate their needs. As a result, trade increases our understanding for both members of our community and even the stranger; it also makes us realize that other people are much like us. Even if they speak strange languages or have odd customs and traditions.

The Market Order and Civilization

This is in essence Say’s Law, or the Law of Markets, which states that in the market we produce in order to trade with others so that we can thereby, indirectly, satisfy our own wants: our demand for goods in the market is constituted by our supply of goods to it. In order to effectively satisfy other people’s wants we need to not only communicate with them, but understand them. If we don’t, then we’re wasting our productive efforts for a random result. Obviously, we’d benefit personally from learning what other people want, both their present wants and anticipated future wants, and then produce it for them.

So far so good. Most people (except for Keynesians) grasp this very simple point about the market — and how it contributes to civilization and peaceful interaction. But all people aren’t saints, so good, hard-working people risk being taken advantage of as they have nothing to set against such actions. Without a central power such as the state, who will protect us from such people?

Answer: the web of voluntary transactions aligns people’s interests. In the market, “bad people” are not only defrauding, stealing from, or robbing a single person or family. They are, in effect, attacking the community of interdependent producers and network of traders.

Imagine a town with a baker who specializes in baking bread that people in the town like, but that he doesn’t necessarily fancy himself. Instead, he sells the bread in order to earn money that he uses to buy from others what he truly wants. Others similarly specialize their production to produce what others want, including the baker, so that they can use part of their income to buy bread. When a thief steals from this baker, he negatively affects the town’s bread supply — and thereby also makes the baker unable to effectively demand goods from others. This affects a lot of people, not only the baker: it affects all people who wanted to but now can’t buy bread and all those who expected to but no longer can sell their goods to the baker.

The network of exchanges and the specialized production for others thus creates a community of interdependent producers whose interests are generally aligned: they have all increased their productive effort by supplying a single good that is in high demand, and thereby made everybody better off. But it also means it is in their own interest that no one is unjustly treated and disadvantaged, whether the victim of a “bad person” is an existing or potential supplier of goods they desire or existing or potential customer of the goods they produce.

They all benefit from this order, since their productive efforts are used where they do most good. But they are also all in it together — they are all affected if things go wrong. It is not strange, then, to see how towns used to spontaneously organize to deal with crime. Robbing the baker involves not only a robber and his victim: an attack on one is an attack on the community. The robber has by his very actions chosen to not partake in community — to be an outcast.

Effect of the Welfare State

What’s happened over the course of the last century with the rise of the democratic welfare state is that these market-based bonds between people within a community have been severed. With the growing state, more and more people have found positions in the economy and society where they do not need to serve others. In other words, the state has made it possible to live off what other people produce rather than contribute to satisfying everybody’s wants.

As these bonds between people are severed, the threshold to engage in criminal behavior becomes lower. But more importantly, as people do not need to rely on their ability to satisfy the wants of others, they don’t understand other people: they have no incentive to learn about their needs and wants, and they have nothing to gain personally from satisfying them. In other words, there is no interdependence and therefore less of a reason to stay away from destructive behavior.

This is exactly what we’ve seen over the course of the past century when the very large state has replaced civil society with centralized systems and market with power. The problem is that when people stop learning about each other, it is easier to resort to conflict rather than cooperation — and it is much easier to see other people as obstructions to your own happiness. Getting rid of them thus increases your share of the (now diminishing) pie, and using and exploiting others for your own benefit appears a means toward satisfaction of one’s own wants.

We increasingly see examples of this type of thinking among entrepreneurs and those who want to be entrepreneurs. They start businesses not as a means to make a living — that is, to indirectly benefit themselves according to the Law of Markets — but in order to do “what they like.” It’s a lifestyle choice that many seem to think they have a “right” to make. Even worse, sometimes they even blame their entrepreneurial failure on “society” for not being supportive enough and not appreciating what they’re offering at the price they’re demanding.

This is exactly backward: to be able to do what you like for a living is a privilege that you can enjoy only if you, by doing so, satisfy others. If you create value for others, you gain value for yourself.

In this type of society where the bonds between people are weakening, it is not strange that people find the idea of a decentralized, spontaneous order outrageously naïve. Competition is here not the sound striving to better serve others by trying different and differentiated ways of satisfying wants, but rather a zero-sum game where there are winners and losers. In this situation, whoever is willing to cut corners, lie, and deceive is immediately better off. The incentives, in other words, are for destroying value and to prioritize short-term gains even if they come at high long-term costs — because those costs may be another’s burden. It’s the very opposite of civilization and an existence that will, if left unchecked and unchanged, eventually degenerate into a Lord of the Flies-type tribalism.

It is not strange that people have a hard time understanding the harmony argument for markets in a time when the state has alienated them from productive interdependence as explained by Say’s Law. The market’s informal, spontaneous cooperation for mutual benefit has been replaced by a statist mindset, which seeks guarantees — and finds it only in formal power.

But it should be obvious from the discussion above that this is not in any sense a guarantee — especially against bad behavior. It is the opposite. Yet it should be recognized that the market also offers no guarantee, strictly speaking. But do we need one when people’s interests are aligned? All we need to trust is that people do what is good for themselves. That’s hardly naïve.

Republished from the Mises Institute.

IBM Announcement Proves the Blockchain Has Officially Gone Mainstream

Only Markets Can Win the War on Poverty

“What about the poor?”

An interviewer just asked me the question following my usual call for markets in everything. It’s probably the 100th time this has happened. The question amazes me because the implication behind it implies that markets serve primarily the rich.

It’s hard to imagine a more profound confusion. The default state of the world is grueling poverty, universal insecurity, and short lives. When governments do come along, they nearly always serve themselves first.

The most earth-shattering change in this persistent trend of all recorded history came with the advent of capitalism. For the first time in history, the productive resources of society turned from serving mainly the elites toward serving the common person. This change alone began to flip the power narrative of social evolution.

And this revolution continued for two some two-hundred years, during which time the average life span expanded dramatically, infant mortality collapsed, incomes rose, and the great project of universal ennoblement achieved an unprecedented boost. And this trend continues today wherever markets are given freedom to function, property rights are secure, and people can associate and trade without molestation by the elites.

In short, capitalism made huge progress toward the conquest of poverty. This is the title of a great book by Henry Hazlitt, and the newest free epub release by the Foundation for Economic Education. It tells the story of wealth creation in modern times. It should be downloaded and read by anyone who cares about a society of flourishing lives.

The common presumption that markets serve the rich and governments serve the poor is belied by all evidence.

Think only of the early years of “progressive” reform of government during which time the administrative state came into its full glory, between 1900 and 1920 in the United States. The power of the state was used to exclude, segregate, sterilize, and even quietly exterminate the weakest among the population while bolstering the power of in-groups and the establishment.

Eugenics, a prevailing ideology in these years, required government to realize its aims. So many policies in those years answered the question “what about the poor?” in the following way: we will wipe them out.

In the second half of the century, the excuse for massive welfare, regulatory, and tax policies changed. We were now told that all of this would be good for the poor. This has not been the case. The more government tries to “help,” the more the poor are denied choice, mired in dependency, exploited by bureaucrats and politicians. You only need visit a courtroom in any major city in the US to discover that government is the leading threat and most dangerous menace to the just aspirations of the poor.

So, yes, we need a war on poverty. Only markets can wage it successfully.


This article was originally published on Read the original article.

TGIF: Things to Keep in Mind During the Health Care Debate

TGIF: Things to Keep in Mind During the Health Care Debate

As the debate proceeds over what should succeed the Affordable Care Act (Obamacare), here are a few basic ideas to keep in mind.

We live in a world of scarcity, which is to say that at any moment our ends surpass the available means to achieve them. We can’t have everything now. Thus we have to choose among alternatives. It is obvious that the human race has pushed back the limits of scarcity, but that is the result of human ingenuity sufficiently free to solve problems, or what Julian Simon called “the ultimate resource.” Nevertheless, right now we cannot have all we want, so we have to make choices. A quantity of a resource or a unit of labor services cannot be put to more than one purpose at a time. Making choices entails opportunity costs — the benefit we forgo by choosing alternative A over alternative B instead.

Despite the popular misconception, health care is not beyond economic law; it is not a free good that falls like manna from heaven. It has to be produced, which means people must mix their scarce labor with scarce resources to produce the things used to perform the medical services we want. It would be foolish to expect them to donate their labor and resources because other people need them. They have their own lives to live and livelihoods to earn. It would be wrong to compel them. They are not slaves.

In other words, no one can have a right to medical care or insurance, that is, to the labor services and resources of other people — including the taxpayers. We hear a great deal about the need to respect all people; well, respecting people must include respecting their liberty and justly acquired possessions. Without that, “respect” is hollow.

Politicians, of course, can declare a right to medical care, but those are mere words. What counts is what happens after the declaration. Since a system in which everyone could have, on demand, all the medical care they wanted at no cost would be unsustainable, the so-called right to medical care necessarily translates into the power of politicians and bureaucrats to set the terms under which medical services and products may be provided and received. This is crucial: a government-declared “right” (that does not reflect natural rights) is no right at all; it is rather a declared government power to allocate goods and services. Natural rights — which boil down to the single right not to be aggressed against — require only that one abstain from aggression. Thus all can exercise their rights at once without conflict. On the other hand, government-invented “rights” — such as the right to medical care — cannot be exercised at the same time; the potential for conflict is built in. For example, a person cannot use his own money as he wishes if the government health care system takes it by force through taxation to pay for other people’s services.

Since we live in a condition of scarcity we need a way to determine what gets produced in what quantities and how. We obviously want the most value (in the eyes of consumers) for the least cost. That way, we have resources left over for other things we want. How can we achieve that?

Two ways exist for determining how resources and labor are to be used; an apparent third way is simply a mixture of the other two. The first is for the government — fallible, corruptible politicians and bureaucrats operating a monopoly — to decide for everyone. The other way is the decentralized, competitive marketplace. The so-called third way is for politicians and bureaucrats to interfere with, but not completely incapacitate, the marketplace.

Only one is sure to produce the most of what people want for less, that is, to raise living standards as high as people wish.

Let’s talk about the other way first.

The government solution has a fatal practical flaw: politicians and bureaucrats will not be able to arrange resources and labor services in such a way as to best serve the welfare of everyone — assuming that’s what they sincerely want to do. (If they only want to serve themselves we have a different problem.) Why won’t they be able to do this? Because, as Ludwig von Mises and F. A. Hayek showed, the people running the system won’t know what they would need to know; the critical information about the supply of resources and the subjective preferences for goods and services is simply unavailable: it does not exist as data in any one place in complete form, and much of it is not articulable at all. The rulers would have to make guesses, and their errors would be society-wide and potentially catastrophic. Attempts at central economic planning have always ended in disaster and misery.

The market method of deciding what is produced solves this complex problem. How? Through the price system. When people are free to trade goods and services in the market, they unwittingly generate prices that inform others about the relative supply of and demand for things. Those prices then guide producers and consumers. While their objective is not to create a grand and complex process that encourages the coordination countless plans, economizes on resources and labor, and enables people to achieve their well-being in an unrivaled manner, that is in effect what they do. This is what Adam Smith meant with his “invisible hand” trope. Prices guide people to do “the right thing.”

While rulers have never restrained themselves from interfering with people’s peaceful transactions, history demonstrates rather clearly that to the extent they do so, the people without political power tend to prosper. The link between consensual market activity and general prosperity stands out starkly.

Note that for markets to work fully, all people must be free to control their lives, their labor, and their justly acquired possessions, that is, their property. This brings us to a key point in favor of markets: the moral advantage. Control of economic activity by bureaucrats necessarily treats people like property. Planning an economy means nothing less than planning other people’s lives. There is no “economy”; there are only people who exchange their money, goods, and labor with one another for mutual benefit. The economy is typically spoken of as though it were a machine that needs tending. It is not. We are the economy our rulers wish to regulate, regiment, and plan.

A keystone of markets, when politicians and bureaucrats leave them alone, is competition. Competition is much-lauded but regularly undermined by alliances of government officials and businesspeople seeking higher profits than purely voluntary transactions would bestow. Virtually all government interference with market activity has the effect of stifling competition. Big companies, for example, can more easily carry the burdens of high taxes and bureaucratic rules than can small or yet-to-be-founded businesses. Government is the source of the much-despised economic concentration.

Stifling competition by force harms society because through competition we learn things we would not otherwise learn. Hayek called it a “discovery procedure.” I think of it as the universal solvent because it dissolves problems by dispelling ignorance. At any time there are things we don’t know that we’d be better off knowing. We can’t hope to learn those things through the decision making of a small group of bureaucrats, even if they try in good faith to puzzle things out. But when people are free to buy and sell freely in the market — confronting real-world alternatives — they hit on solutions to their problems. It’s trial and error, but there is no better way because virtually all people participate and through their actions contribute their bits of knowledge, any one of which might lead to just the solution people are looking for. Competition and cooperation are two sides of the same coin, and the cooperative nature of markets ought to make them attractive to folks who are now hostile to them.

This is where the entrepreneur comes in. While in a real sense everyone is an entrepreneur (acting creatively in an uncertain, open-ended world), professional entrepreneurs earn their livelihoods by taking risks in offering novel goods and services to improve people’s lives. If their offerings are valued by others, they profit. If not, they lose. The quest for profit and the aversion to loss create unparalleled incentives to serve others effectively. Those who consistently misread consumer preferences and thereby waste resources (from the consumers’ viewpoint) will lose so often they will have to find other work, leaving the field to those who are more attuned to consumers’ subjective preferences. The only thing that can scuttle this process is the government (plus the privilege-seeking businesspeople it gives rise to), which is able to bail out producers who ill-serve consumers and waste resources.

Competition, it is important to realize, does not simply mean that several companies offer the same product or service. It is a creative function driven by entrepreneurs who take risks in an uncertain world to provide things we’ll find valuable. If we are to reap the benefits of market competition, people must be free to improvise without having to obtain permission from a bureaucracy. Note the application to the health care industry: contrary to what politicians and bureaucrats would have you believe, a few insurance companies selling identical policies designed by a government agency is not market competition.

This brings us to an important question in the health care context: what is insurance? Outside the medical sector most people understand that insurance is a way to grapple with uncertainty. Specifically, insurance allows the pooling of resources of many people in order to deal with the small risk of a large financial misfortune for any particular individual in the group. Think of life, homeowner, or auto insurance. For some reason health insurance is thought of differently. Most people expect health insurance to cover every medical expenditure no matter how small, predictable services (like annual physical exams), and illnesses contracted before the coverage began (“preexisting illnesses”). Much of the reason for this goes back to World War II, when the government imposed wage and price controls but let employers offer medical insurance as noncash compensation not subject to income taxation. One of the problems with American health care is that most people get their insurance through their employers, anesthetizing consumers to the true costs of coverage and services. Medical transactions are largely between large institutions (including the government), not cost-conscious buyers and customer-oriented practitioners.

Much of what we call health insurance is not really insurance. No one expects their auto policy to cover windshield-wiper blades, tires, and oil changes (such a policy wouldn’t be worth the price), and no one expects to be able to buy a homeowners policy to cover a house fire already in progress or a life-insurance policy for someone who is already dead. Logically, you cannot insure against a certainty. Someone who has a serious illness before obtaining health coverage represents medical expenses sure to be incurred. Call the coverage what you will, but it is not insurance. The government can force others — even insurance companies — to pay for those things, but that doesn’t make it insurance. It’s welfare, with the companies playing the role of tax collectors. In the process, the insurance market is distorted and the true costs of the implicit transfer of resources are hidden. (I explore this point here.)

Violating economic laws has consequences — even in the health care industry. If the government requires insurance companies to cover already-sick people, they must get the money somewhere. The natural place to look is to younger healthier people, that is, people who will pay more than they collect. But here come the problems. If insurers charge those people too much, they won’t buy policies (knowing that they can buy them when they get sick) and insurers will have to charge older sicker people enough to cover the costs of their medical care. (That would expose the fact that it is not insurance, but merely a pre-payment plan.) If politicians prohibit insurers from charging older sicker people more (or much more) than younger healthier people, the higher level of premiums would drive more of the latter out of the market, making things worse. The ACA attempted to solve this problem by forcing everyone to buy a policy — that is, by violating their liberty. However, many young people preferred to pay the tax penalty for not having coverage rather than buy a policy. That is one reason insurers are fleeing the market and the ACA is sinking.

The lesson is that tampering with the price system always comes to grief. Medical care and insurance are not exceptions. If prices are to do their job, they must be true — that is, undistorted by government controls and mandates. If the government passes rules to expand insurance in order to minimize or eliminate out-pocket-expenses for routine medical services, it makes those services to appear free or near-free to consumers; those misleading price signals then lead to problems that politicians will then act to solve. By overconsuming “free” services — say, by undergoing unnecessary elective tests because “my insurance covers it” — people quite innocently impose costs on insurers (that will have to be recouped from customers) and other people: premiums and waiting times for services will rise. It’s supply and demand.

Politicians may believe they can help by giving tax-financed subsidies to policyholders and insurers, but that policy brings its own problems. For one thing, regulations will follow to keep the subsidies (now an “entitlement”) from exploding out of control. People may not like the conditions, but as the Supreme Court said in the 1941 Wickard v. Filburn case, “It is hardly lack of due process for the Government to regulate that which it subsidizes.”

This raises an important matter: if the government assumes responsibility, directly and indirectly, for the cost of medical care to society, inevitably it will find it necessary to restrict or ration services. That is, it won’t allow us to make our own choices because it will have a political and fiscal stake in “bending the cost curve down.” As Mises noted long ago, intervention begets intervention. (In this article I debunk the proposition that markets are just another way to ration goods and services.)

Advocates of a government-directed medical system may have the best intentions, but intentions can’t override market forces, which are generated by purposeful human action. Moreover, we have no reason for confidence that politicians and bureaucrats will sufficiently distinguish the public’s interest (if that can be defined beyond peoples’ individual interests) from their own interests. Government officials are no less devoted to their careers and prestige than people outside the government; indeed, power is what may have attracted many to government “service.” We must not compare the real-world market to the idealized state, because in reality, state operatives lack both the information and incentives needed to deliver the goods.

Summing up: Health care is a collection of important services, but that does not mean the laws of economics can be flouted without bad consequences. We know that competition works, even in the health care industry: in recent years LASIK eye surgery and cosmetic surgery, which are typically elective procedures not covered by insurance, have gone down in price and up in quality. This demonstrates what happens with consumers are cost-conscious (even when competition is hampered). Governments at all levels have created the problems that politicians and their consultants tell us only they can solve by force. Intervention stimulates demand by distorting prices and restricts supply by, among other ways, limiting the number of insurers and practitioners through occupational licensing and permitting, capping the number of hospitals and medical schools through accreditation, and making drugs and devices more expensive through the FDA’s bureaucratic rules and, importantly, patents. The system is riddled with government-sponsored cartels. (For more on this see Kevin Carson’s “Health Care and Radical Monopoly.”)

Moreover, governments limit access to health care in the myriad ways it impedes people’s general pursuit of financial success: state intervention lowers incomes compared to a freed economy and raises the prices of many goods by increasing scarcity and distorting production — that is, it stymies growth in living standards.

If universal access to medical care is the goal, the government is the goalie. It should get out of the way.

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