Reading is Fundamental; Congress Should Try It

As the US House of Representatives took up the Affordable Care Act, aka “ObamaCare,” in 2010, then Minority Leader Nancy Pelosi (D-CA) famously told her fellow members of Congress “we have to pass the bill so that you can find out what is in it.”

The 900-plus page bill (which eventually sprouted thousands of pages of implementing rules and regulations) had been posted to the web only days before, printing and distribution of hard copies was taking time, and some members felt that its content bore careful consideration and discussion before a vote.

They ended up passing it anyway, but they were right to worry. Since the ACA became law, its provisions have created considerable confusion and debate in the public square, among regulators, and in the courts.

Is it really too much to ask of US Representatives and US Senators that they know what they’re voting on before they vote? Apparently so, and it’s easy to see why.

Legislation that arrives before Congress these days isn’t even really written by members of Congress. It’s written by staffs of lawyers and “experts,” then its details are thrashed out between teams from those staffs.

By the time a bill actually comes to a vote, it’s often long, confusing, and full of devilish details that any given member might vote against if he or she noticed them. They count on their staffs (and lobbyists who influenced the legislation) to notice those details for them. Congress is effectively a 535-headed rubber stamp, albeit one of mixed “yeas” and “nays.”

It shouldn’t be that way. It doesn’t have to be that way. In 2006, Downsize DC proposed the Read The Bills Act. It’s about 3,000 words long, but  its core provision requires that “before final passage of any bill (other than a private bill) or resolution, the full verbatim reading of the text to each house of Congress.”

US Senator Rand Paul (R-KY) sponsored the Read The Bills Act in 2012. It didn’t pass. It should have.

Harvey Silverglate points out in his book Three Felonies a Day that “[e]ven the most intelligent and informed citizen (including lawyers and judges, for that matter) cannot predict with any reasonable assurance whether a wide range of seemingly ordinary activities might be regarded by federal prosecutors as felonies.”

We have way too many laws. Those laws are too long and at turns too vague and too detailed, depending on whether vagueness or detail better facilitate the arbitrary exercise of government power.

If Congress can’t be bothered to even know what’s in the laws it passes, why should the rest of us be bothered to understand and follow those laws?

It’s time to pass, and follow, the Read The Bills Act.

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Anatomy of a Tax Cut

Taxation is theft, I know, but the repeal of taxation, which would mean the repeal of the state, is not on the menu today. Sorry about that. So for now we must talk about the best available option. That’s life. You must begin any journey exactly where you are.

I’ve watched the debate over the vanilla Republican tax bill closely during these many months. It’s been fascinating at many levels, not least sociologically. People reveal much about themselves — and their views of personal autonomy — in how they discuss taxes. And many times did I see Murray Rothbard’s insight affirmed:

It is no crime to be ignorant of economics, which is, after all, a specialized discipline and one that most people consider to be a “dismal science.” But it is totally irresponsible to have a loud and vociferous opinion on economic subjects while remaining in this state of ignorance.

Needless to say, ignorance of economics kept few cable-news “reporters” and political analysts from confidently offering opinions about the economics of taxation. Their views were filtered through their political, moral, and cultural “priors,” among which was the view that no tax bill originating with Donald Trump and Republicans could have anything to recommend it. (They had a hard time assimilating the fact that Barack Obama also wanted to cut the corporate tax.)

Even when the media staged a debate between actual economists, rather than between political handicappers, those “priors” were on blinding display. CNN hosted Stephen Moore, a former Trump adviser who favored most of what’s in the tax bill, and Austin Goolsbee, a former economic adviser to Obama, who opposed the bill. Goolsbee asserted — without evidence — that it would immediately raise taxes on the middle class. Moore asked how it would do so? Goolsbee did not — or could not — answer but instead shifted ground to the expiration of the individual tax cuts in 2025, an entirely different point. If there are no immediate middle-class tax cuts, what will expire in 2025? (This reminds me of the joke about the person who complains that the food is at a restaurant is terrible and that the portions are small.)

Moore might have pressed Goolsbee on his claim that the middle class would face higher taxes next year, but he didn’t get a chance because host Poppy Harlow, rather than pressing Goolsbee herself, asked Moore another question. Didn’t she think viewers might want to know who was right on this point?

Regarding the sunsetting of the individual rate cuts: this feature, or bug, was not a Republican desideratum; rather, it was a necessity under the Senate’s budget and filibuster rules. Republicans promise not to let the cuts expire. Much of George W. Bush’s “temporary” tax reduction was made permanent under Barack Obama. (Of course, that has implications for the deficit; more on that later.)

The putative reporters and pundits never tired of claiming the tax bill is not a middle-class tax cut because it is a tax cut for the wealthy and corporations. But why couldn’t it be both? Trump’s bloviating bears some blame for this, but his administration hardly made a secret of the corporate-tax and upper-end cuts. Trump’s opening position was to cut the tax from high 35 to 15 percent. He settled for a more competitive 21 percent. (Obama wanted 28. The European average is 18.8.) Also, the corporate tax will become, as it is in other industrial nations, territorial, meaning the U.S. government will not tax companies on foreign-derived profits on which they have already paid taxes. (Why are the tax-everything politicians never called greedy?)

Trump also made no secret of his wish to have only three tax brackets with three lower rates, which would have meant tax reductions for almost all taxpayers, depending on what happened with tax deductions. The bill retained seven brackets, with slightly lower rates, ranging from 10 to 37 percent. So much for simplification and a flattening of the rate structure. And with the tax deductions made even more complicated, we can say with certainty that the death of the era of system-gaming has been greatly exaggerated.

Of course, Trump and the Republicans were not always forthcoming about their plan either. They touted the doubling of the standard deduction to $12,000 for single filers and $24,000 for joint filers — a good thing — but less far less emphasized was the elimination of the $4,050 personal exemption for every member of a household. Thus for a married couple without children, that’s 12 steps forward, eight steps back; for a single person, that’s six steps forward, four back. Not as good as advertised.

The commentators repeatedly said the wealthy would get “most of the benefits.” That phrase, of course, logically implies that the middle class would get some benefits. But is their claim even true? I never saw CNN bring on a knowledgeable person to rebut this. It could have invited Chris Edwards of the Cato Institute, who used Joint Committee on Taxation data to show that the largest percentage drop in tax dollars paid would be for middle-income earners. “I recalculated the JCT results, and found that middle-income groups would get by far the largest cuts as a percentage of current income taxes. For example, households earning between $50,000 and $75,000 would get a 24 percent cut in 2019, while those over $1 million would get just a 6 percent cut,” Edward wrote. He also pointed out that since more people will be dropped off the income-tax rolls, the rate structure in fact will be even more graduated than it is today. (The top 1 percent pays 39 percent of the income-tax take. The top 10 percent pays 79 percent. The top half pays 90 percent.)

The media tout the fact that according to polling, a majority of people doesn’t like the tax bill — no surprise considering the overwhelmingly negative coverage. Would the polling results have been different if CNN and MSNBC had hosted Edwards or someone else with that perspective? Most people will be able to keep more of their own money, at least for a while.

About that tax cut for corporations, I never heard anyone — including defenders of the bill(s) — point out that corporations don’t pay taxes, but only collect them. Most economists know there can be a vast difference between who is explicitly targeted by a tax and who actually pays it. The corporate tax is a notorious example of this. For some libertarians, corporations may have a dubious legal status, but contrary to the progressives, they are associations of people, including stockholders (among whom are middle-class workers with 401(k)s and retirees living off them), employees (whose wages depend on productivity-enhancing investment), and consumers (who prefer lower to higher prices). Economists have long debated exactly how the tax burden is distributed among these stakeholders, but they have no doubt that together these stakeholders — not “the corporations” — pay the tax. Recent studies indicate that workers pay most of the tax. Economist N. Gregory Mankiw writes:

In a 2006 study, the economist William C. Randolph of the Congressional Budget Office estimated who wins and who loses from this [corporate] tax. He concluded that “domestic labor bears slightly more than 70 percent of the burden….

A similar result was found in a recent Oxford University study by Wiji Arulampalam, Michael P. Devereux and Giorgia Maffini. After examining data on more than 50,000 companies in nine European countries, they concluded that “a substantial part of the corporation income tax is passed on to the labor force in the form of lower wages,” adding that “in the long-run a $1 increase in the tax bill tends to reduce real wages at the median by 92 cents.”

So why do the self-proclaimed champions of workers favor a higher corporate tax? One can be suspicious of the corporate form and enthusiastically support a corporate-tax cut — better yet, repeal. Business taxes impede economic activity, raise prices, impede productivity advances, and suppress wage increases. As Mankiw writes, “Populist critics deride this train of logic as ‘trickle-down economics.’ But it is more accurate to call it textbook economics.”

Another count against the corporate tax is that any taxation of investment income is double and even triple taxation. So even if you love the individual income tax (I don’t), you should oppose the corporate tax on grounds of fairness. (In 2008 Obama famously supported raising the capital-gains tax even if it would reduce revenue.)

The media sages also liked pointing out how the Republicans have abandoned their deficit hawkishness for this bill, which could increase the deficit by $1 trillion or more over 10 years even with some economic growth. It’s true that deficit hawks have become an endangered species, and the new deficit doves have resorted to assorted shams to hide this fact. It’s shameful that almost no one wants to talk about cutting spending, although it, not explicit taxation, is the real fiscal burden of government, which will get the money one way or another.

But the same sages did not also point out that Democrats have suddenly adopted the feathers of deficit hawks. Sincere conversion or talking point? I saw no discussion of that question on cable news.

As long as we’re speaking of deficits, let the record reflect that they indicate a spending problem, not a taxation problem. Raising taxes in an attempt to balance the budget would be a disaster. Thus the tax bill need not be the last word. Theoretically, spending could be cut. Let the newly converted deficit hawks go at it. Pundits always wonder how tax cuts are to be paid for. When will they learn that tax cuts don’t have to be paid for because they are not government outlays? What must be paid for — or, preferably, repealed — are government programs.

All this is not to say the tax bill is all good — not by a long shot. (On the positive side, the Obamacare insurance mandate is gone, in the name of exaggerated deficit reduction.) As I said, no spending cuts accompany it. In fact, it will increase spending in the form of cash subsidies called “refundable tax credits” to the tune of almost $100 billion. The resulting higher debt will fall on my generation’s children and grandchildren. But there is still hope: perhaps spending will be cut (I’m not holding my breath), and our descendants could always repudiate the debt.

Finally, after the bill passed the House and Senate, the question arose in the media and among Republicans whether the victors could sell the tax package to the public. That’s strange, considering the bill already passed. Isn’t the package supposed to sell itself through lower taxes and higher economic growth? Trump promises dramatic growth, but that’s not guaranteed because economic outcomes are determined by a complex combination of many factors. For example, if Trump follows through on his pledge to wage trade wars, we won’t see the growth he predicts and his tax reform will most likely take the blame.

Quick, someone tell him the tale of Smoot and Hawley.

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Assertions versus Facts

CNN is running a house commercial that on its face is a plea for respect for demonstrable facts. “This is an apple,” a voice says over an image of a bright red apple. “Some people might try to tell you that it’s a banana. They might scream, “Banana, banana, banana,” over and over and over again. They might put “BANANA” in all caps. You might even start to believe that this is a banana. But it’s not. This … is an apple.”

The commercial closes with the text “Facts First” and the CNN logo. CNN has aired several variations of this commercial, all with the theme that someone is trying to make you think an apple is not an apple. In one commercial we’re told that whether we view the apple from the right or left, it’s still an apple.

Well, sure: apples are apples; we should respect demonstrable facts and be wary of those who tell us to doubt our own eyes. We might point out, of course, that what CNN shows us on the television screen might or might not really an apple. I can’t pick it up, smell it, or cut into it. It could be a sculpture or a painting or a computer-generated image. But let’s leave that difficulty aside and take CNN’s word that it is a real apple.

So what?

If the commercial is alluding to Donald Trump’s prodigious capacity to evade demonstrable facts, like the size of inauguration crowds or electoral-college margins, it is on firm ground. Trump is remarkably unconstrained by reality. He lies even when the benefits seem small and the truth is easily ascertained. Trump is the consummate bullshit artist.

But the commercial is also deceptively self-serving because CNN, like other news outlets, doesn’t merely show or describe fruit to its audience. Most of what CNN talks about is more complicated. The commercial oversimplifies things to the point of being misleading (which is not to say, I hasten to add, that Trump isn’t the consummate bullshit artist).

So let’s imagine a different CNN commercial. On the screen we see a curtain the screen, and a voice says:

The 17 agencies of the U.S. intelligence community unanimously say there’s an apple behind this curtain. Some people might try to tell you that it’s a banana. They might scream, “Banana, banana, banana over,” and over and over again. They might put “BANANA” in all caps. You might even start to believe that a banana is behind the curtain. But there’s no banana behind it. There’s … an apple. The American intelligence community unanimously says so, and we believe what the government says. You should too. All good Americans do.

Facts First. CNN.

Would you be impressed? Probably not, but this imagined commercial more accurately captures the sort of “facts” the media routinely present as undeniable. They pretend they’re delivering hard facts when they’re actually delivering someone’s assertion with the assurance that evidence, which must be kept secret, exists. You and I are expected to take the truth of the assertion on faith. Its source, which is regarded as virtuously disinterested, is thought to be evidence enough. The media treat the assertion as unquestionable fact from that point onward. If others question it, they are accused of trafficking in conspiracy theories. They won’t be invited to present their cases or to debate their opponents. They will be marginalized and ridiculed. Or ignored.

The list of so-called facts which are really assertions that have been seriously challenged if not refuted is long and includes those regarding Russian hacking and other “threats to our democracy,” catastrophic man-made global warming, the necessity of national-security/surveillance state, the imperative of a U.S. global military, the benefits of the minimum wage, the sustainability of entitlement programs, the soundness of Obamacare, the effectiveness of gun control, the danger of trade deficits, the benign nature of budget deficits, the public interest in high taxes on business, and government officials’ unselfish commitment to the general welfare.

In all these cases the establishment media hold that since the assertions they report are facts (like apples), there is no controversy that merits acknowledgment, much less debate. To question the official narrative is to be branded a “denier,” a smear that is intended to make listeners lump all dissenters with Holocaust deniers.

CNN can show us an apple, but it can’t show us Russian election meddling or global warming or people being made safe by gun control. Unlike apples, these are complex things not amenable to depiction. Talking about them entails suppositions — usually unspoken and unacknowledged — that may themselves be controversial and in need of justification. To assert such “facts” is to assert many others things that typically do not get the attention they require.

Does this mean the truth is beyond our reach? Of course not. It means that discovering the truth about complicated matters is a continuing arduous process of discussion and debate. And that means dissenting views should not be lightly dismissed merely by declaring that a government agency or a “consensus” has decided the case. The news media ill-serve the public when they take government or so-called experts assertions on faith without having those assertions tested in public.

I imagine that journalists without exception would claim among their inspirations John Stuart Mill’s defense of open debate in On Liberty. Maybe it’s time they reread Mill’s great little book, where they would find these words:

If the cultivation of the understanding consists in one thing more than in another, it is surely in learning the grounds of one’s own opinions. Whatever people believe, on subjects on which it is of the first importance to believe rightly, they ought to be able to defend against at least the common objections…. [O]n every subject on which difference of opinion is possible, the truth depends on a balance to be struck between two sets of conflicting reasons. Even in natural philosophy, there is always some other explanation possible of the same facts… But when we turn to subjects infinitely more complicated, to morals, religion, politics, social relations, and the business of life, three-fourths of the arguments for every disputed opinion consist in dispelling the appearances which favor some opinion different from it. The greatest orator, save one, of antiquity, has left it on record that he always studied his adversary’s case with as great, if not with still greater, intensity than even his own. What Cicero practiced as the means of forensic success, requires to be imitated by all who study any subject in order to arrive at the truth. He who knows only his own side of the case, knows little of that. [Emphasis added.] His reasons may be good, and no one may have been able to refute them. But if he is equally unable to refute the reasons on the opposite side; if he does not so much as know what they are, he has no ground for preferring either opinion. The rational position for him would be suspension of judgment, and unless he contents himself with that, he is either led by authority, or adopts, like the generality of the world, the side to which he feels most inclination.

Mill goes on to give advice that should be taken to heart by all news producers and editors: don’t waste time tackling straw men.

Nor is it enough that he should hear the arguments of adversaries from his own teachers, presented as they state them, and accompanied by what they offer as refutations. That is not the way to do justice to the arguments, or bring them into real contact with his own mind. He must be able to hear them from persons who actually believe them; who defend them in earnest, and do their very utmost for them. He must know them in their most plausible and persuasive form; he must feel the whole force of the difficulty which the true view of the subject has to encounter and dispose of; else he will never really possess himself of the portion of truth which meets and removes that difficulty. Ninety-nine in a hundred of what are called educated men are in this condition; even of those who can argue fluently for their opinions. Their conclusion may be true, but it might be false for anything they know: they have never thrown themselves into the mental position of those who think differently from them, and considered what such persons may have to say; and consequently they do not, in any proper sense of the word, know the doctrine which they themselves profess…. So essential is this discipline to a real understanding of moral and human subjects, that if opponents of all important truths do not exist, it is indispensable to imagine them, and supply them with the strongest arguments which the most skillful devil’s advocate can conjure up.

I concede that my discussion has a premise of its own that may be controversial and in need of demonstration. I’ve assumed that the news media wish to fairly and competently inform their audiences about what’s going on. But I could be wrong about that. Their mission may be to act like the state’s ministry of information.

But I hope not. I hope that at least some news people really want to uncover important facts and share them with their audiences. If that’s what they want, they should rethink their uncritical willingness to let the state and its cronies determine what counts as a fact.

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Healthcare: A House Divided Cannot Stand

The latest healthcare initiative from the Trump administration and the Republican Party’s leaders in Congress seems set to sink just like the last version. Mitch McConnell can’t seem to round up the votes to push it through the Senate, if anything the House is more likely to tear apart than pass the Senate version, and the White House isn’t getting anywhere with its attempt to mobilize the nation’s governors behind attempts to modify the Affordable Care Act, aka “ObamaCare.”

Good. Even the most ambitious proposal up for serious consideration —  repealing ObamaCare and reverting to pre-2010 rules — is just nibbling around the edges of the problems of maximizing care availability and minimizing costs, as was ObamaCare itself. Sooner or later (and the sooner the better) one of two radical solutions will be adopted.

Note: “Radical” does not mean “extreme.” Per Oxford Dictionaries, it means “relating to or affecting the fundamental nature of something; far-reaching or thorough.”

Let me define the problem by mangling a famous Abraham Lincoln speech: A house divided against itself cannot stand. I believe this healthcare system cannot endure, permanently, half government-run and half kind-sorta private. I do not expect healthcare to disappear — but I do expect it will cease to be divided. It will become all one thing or all the other.

The two real alternatives before us are:

Adopting a “single-payer” system in which the state takes complete top-to-bottom charge of healthcare; or

Radically reducing — even eliminating — the state’s role in healthcare.

As a libertarian, I support the latter course. Every government involvement in healthcare, starting with guild socialism and occupational licensure in the late 19th century (at the urging of the American Medical Association, to prop up profits for doctors) and proceeding through socialized healthcare for veterans (the VA), socialized healthcare for the elderly (Medicare), socialized healthcare for the poor (Medicaid) and partially socialized healthcare for everyone (from the Health Maintenance Organization Act to ObamaCare) has impeded care and raised costs at the expense of patients. A constitutional amendment requiring separation of medicine and state would be the best possible outcome.

But that seems unlikely to happen, doesn’t it? The big business players in healthcare (pharmaceutical companies, hospitals, “insurance” companies, et al.) would rather use government to protect their monopolies and pass burgeoning administrative costs on to the rest of us than compete in a free market. And the customers (patients) themselves have good reason to distrust what’s been falsely advertised to them as a “private sector” system.

I predict that the US government will adopt a “single-payer” healthcare system no later than 2030, and probably sooner. And while I oppose that outcome and believe its results will be far worse than a real free-market system would produce, I also suspect that those results will be better than the current half-fish, half-fowl, largely socialized but with fake “private” players sucking it dry, system.

Ultimately, it must be free-market or “single-payer.” Either way, I mostly just wish the politicians would stop tinkering and make up their minds.

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What The Deep State Is

Buzzwords come and buzzwords go. Lately, a trending buzzword — or, I guess, buzz phrase — among the politically inclined is “Deep State.” Google News returns 127,000 recent media uses of the phrase.

Every time US president Donald Trump finds himself under attack or just stymied in one of his policy initiatives, his supporters blame the Deep State. The Deep State is behind the “Russiagate” probes. The Deep State doesn’t like his Muslim travel ban or his ObamaCare replacement bill. The Deep State keeps forcing him to break his campaign promises of a less misadventurous US foreign policy. I’m expecting reports, any day now, that the Deep State stole his limo keys and left the toilet seats up in the residence area of the White House.

So what, precisely, is the Deep State? There’s actually both more and less to it than you might think.

In a recent Bloomberg column, former Obama administration regulatory czar Cass Sunstein defines the Deep State as merely “the talented professionals who serve both Democratic and Republican administrations, and who are civil servants rather than political appointees.” While not incorrect as such, that definition is superficial and not especially informative.

Others identify the Deep State as residing completely or nearly completely in the US “intelligence community” specifically and the Military-Industrial Complex in general, or in Washington’s sprawling regulatory apparatus.

It’s in the intel/military definition that the idea tends to take on a more active, sinister connotations: Spies and generals conspiring to put over a coup of some sort, if necessary maybe even handing giving inconvenient political figures the JFK treatment. Without discounting that possibility, let me propose that while individuals acting in knowing concert might be a minor feature of the Deep State, they aren’t its essence.

In high school civics class theory, elections are meaningful and political government is a highly developed, well-oiled, deliberative decision-making machine in which ideas matter and the best ones win out, to the benefit of all.

In fact, it is in the nature of political government to put its own needs first, and its corps of unelected workers (greatly outnumbering the politicians who have to explain themselves to voters) closely identify its needs with their needs and vice versa.

The aggregate actions of long-term state functionaries will always tend to maximize the state’s growth and their own discretionary power.  Not because they are venal or corrupt (although some certainly are), nor because they necessarily subscribe to some particular ideology (although some certainly do), but because like their actions, they themselves are an aggregate whose parts will overwhelmingly respond to the same incentives in the same ways.

You’ll never walk into a hotel and see a sign in the lobby announcing “Welcome Deep State, Conference Room 3A.” The Deep State isn’t a conscious conspiracy, even if there are conscious conspirators within it. The Deep State is a large mass with no guiding intellect. Its inertia tends to hold it in one place and/or to carry most of its members in the same direction.

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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 generate prices that inform others (even if anyone is aware of this) 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 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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