Tag Archives: economics

The Morality of Capitalism

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Why the stimulus failed

How I learned to stop worrying and love the bomb …in Obamacare

From the Forbes’s article which attempts to persuade us that Obamacare really is chock full of puppy dogs and sunshine just as Obama promised:

Failure on the part of insurers to meet this requirement will result in the insurers having to send their customers a rebate check representing the amount in which they underspend on actual medical care.

That sounds all well and good until you stop and think about it. Who decides what constitutes “underspending”? Ultimately, under Obamacare, prices will be driven up through inflation as outrageous hospital bills are presented as evidence along with insurance companies’s counter-proposals that they are “underspending”.

A concrete example of this would be my recent experience my fourth child’s birth.

By the fourth child you pretty much know what’s going on and, barring any complications, things generally tend to go like clockwork. Well thankfully that’s pretty much what happened in our case. Biologically the birth was seamless, labor for about 2 hours, 3 pushes, and we welcome our son into the world.

So what could I possibly say about an uninteresting birth to show how Obamacare is such a terrible idea?

Enter the nurses.

When we arrived at the hospital we were taken to the prep room where my wife was to change into a hospital gown, get checked, and wait for the room to be prepared for us. It took my wife about 5 minutes to get prepared and it was apparently somewhat of a slow day so rooms were available and already prepped. But it still took us about 30 minutes to get into one. Why? Apparently there are new regulations which call for the nurses to play 20 questions with the mother-to-be before she can be admitted into a room. This process took so long that the mid-wife, who is not considered a medical professional by the way, decided to cut in and actually check how far along my wife was. I’m glad she did, too, because my wife was basically ready to deliver right then.

We were quickly whisked into a delivery room where the nurse playing 20 questions was joined by a team of nurses whose primary focus was to give my wife an IV because she had tested positive for strep and according to their regulations the mother needed to have at least two doses of an antibiotic before giving birth, a process which they expected to take about 20 minutes. Keep in mind at this point my wife was completely ready, biologically, to give birth.

This IV was so important to the hospital staff that they called in at least 4 different nurses to try and find a vein. After the fourth my wife finally told them she couldn’t hold back anymore and would push whether they liked it or not. I passed the last nurse who had tried to give my wife the IV in the hall later and overheard her complaining to the head nurse about how she didn’t want to get written up because procedures hadn’t been followed to the letter. So all the nurses run out into the hall way to discuss the situation and how to reconcile what is happening in the delivery room to their procedures, leaving us alone with only the midwife in the room.

And that’s how we welcomed my 3rd son into the world. With the medical professionals debating their procedures in the hallway while the non-medical professionals, unencumbered by a sense of obligation to follow procedure or the threat of the loss of our jobs if we failed to follow that procedure, got the job done.

The following morning my wife was cleared to leave by her doctor about 12 hours after giving birth but the nurses wouldn’t let her go until she had been there a minimum of 24 hours because, once again, procedure had to be followed.

Two weeks later we received the bills from the hospital. All told the hospital is charging about $14,000 for about 12 hours worth of work and since its itemized we get to see that my wife was given an $11 aspirin (single pill) and my son was given a $6 passifier (we bought a two-pack of the same passifier from a store for less than $4). Thankfully we won’t have to pay the full $14,000+ bill. My employer has graciously provided me with an insurance plan I had no say in and that plan is supposed to help deflate the bill somewhat. By how much we don’t know yet, hopefully it won’t be more than what we budgeted.

And that brings be back to why the bomb the Forbes article tries to tell us is actually a good thing is not, in fact, a good thing.

You see, the insurance company is rightly going to counter the hospital’s outrageous bill with a statement of how much they think it should be and they will base their percentage of coverage on that. Under Obamacare it seems the insurance company will simply be forced to pay whatever magic numbers the bean counters at the hospital dream up. In other words, we will be moving from a badly damaged pseudo-market system to a completely centrally controlled one where the prices charged have absolutely no relation to the real world at all. The hospital can charge thousands of dollars for an aspirin and under Obamacare insurance companies will be forced to pay every cent either then or later after the customer has been stuck with the bill. Either way the result is the same, the cost of medical care will skyrocket because of their government-granted monopoly.

Of course that’s not the only change that will take place. The other part of Obamacare is, as the Forbes article rightly notes, the destruction of any “for-profit” insurance company. Meaning the only insurers who will be able to survive such lunacy are insurance companies that don’t have to operate according to the virtuous system of profit and loss. It is, as was noted before Obamacare passed, the perfect scenario for sneaking in through the backdoor a universal healthcare system.

Now you might be thinking at this point that free healthcare for everyone sounds like a great idea. But there are two catches to that notion.

One is the simple fact that nothing is free. Defenders of other socialized healthcare systems like to point to how their cost of medical care is cheaper than ours. But if the cost of medical care is fixed by the state then such a claim makes no sense since it cannot be objectively compared to anything else. Remember that $11 aspirin? We only know that such a price is outrageous because we have a much more free market outside the hospital which currently charges as little as .0001 cents per pill.1 If the prices were fixed, as they were during World War II for many goods, we simply have no way to know whether we are being over or under charged.2

The other is that the further you remove the good or service provider from the person paying for the good or service, the less of an incentive the provider has for making sure what they are providing is worthwhile to the consumer. The insistence of the nurses to follow procedure rather than attend to the actual medical need highlights this point.

As I said in a discussion on this topic on Facebook:

It would help to drive costs down if I were the one paying for my care, even if I leveraged an insurance company who is my client and not my employers’, and if I were the one who got to determine my care, instead of merely accepting whatever the doctors and nurses dictated to me.

The answer to our healthcare problem is not more intervention. Its freedom.

  1. A quick search yielded a deal on Amazon of .01 for 100-pills. []
  2. Consequently, this is also why its invalid for economists to claim that World War 2 brought us out of our recession []

Thomas Sowell on Intellectuals and Society – Or why central planning is intrinsically flawed

Thomas Sowell tells it like it is

To Occupy Wall Street protesters: Are you sure you’re fighting the right battle?

Many protesters in the Occupy Wall Street movement have roundly denounced any and all forms of capitalism as the source of all our present ills. That’s one of the reasons they chose Wall Street as the place to make their angst known.

But while they march and chant and propose lists of endless demands I can’t help but wonder, are those who are so outraged clear on who their enemy really is?

Its the wedding of a select few corporations to the government combined with a lack of accountability that is the problem. The father of capitalism, Adam Smith, was opposed to the notion of joint-stock companies which enjoy limited liability, enforced by the state  (ie. the East India Company) for many of the reasons the Occupy Wall Street protesters are now upset. He didn’t believe corporations should be considered legal entities in themselves (from which we get the modern view that corporations are persons). And he was opposed to the separation of ownership and management which he rightly predicted would end up harming both the owners and managers.

So who was for this joint-stock system which has blossomed into what we have today?

Many of the Occupy Wall Street movement are openly sympathetic to socialistic notions. What those protesters likely fail to understand is that the same movement which supported socialistic economic policies also supported joint-stock companies because they believed that by allowing the common man to own stock he would have a better chance to become wealthy but in order to encourage the common man to take such a risk his liability needed to be limited. And Smith, among others, accurately predicted the problems that limited liability would produce. Its really not fair to place all the blame on CEOs for accepting golden parachutes when the real problem is that such a disconnected ownership structure provides the perfect environment in which to draft such contracts.

So if the protestors want to be consistent they need to read their history to understand that 1. capitalism is not their enemy nor the cause of the corruption they are rightly upset over and that 2. the fault does not lie solely with corporations in general (not all companies that are listed on the NASDAQ or the Dow Jones Industrial Index are evil) or even corrupt corporations but with the toxic mix of a select few corporations which enjoy government favor and protection.

What essentially needs to happen is for the Tea Party to mix their hatred of the government with the  Occupy Wall Street’s hatred of corrupt businesses. I’m pretty sure the two would be pleasantly surprised at the result.

Here’s a funny video from 1949 on “What is a corporation?”

Letting poor people vote is un-American!

I came across a Facebook friend’s post which declared “Right-wing commentator: Poor people voting is ‘un-American'”

Since the liberals who were commenting on the story appeared to completely miss the point that the commentator was getting at, I decided to help them out:

Oppression should be opposed regardless of who the oppressors are or who they happen to want to oppress. This goes for rich oppressing the poor through the purchasing of government favors with their dollars just as much as it does the poor oppressing the rich through the purchasing of government favors with their votes.

Its not so much that the poor shouldn’t be allowed to vote, its that the poor shouldn’t be allowed to vote for the legalized plundering of others.

Liberals love to invoke class warfare and since they assume that terms like “rich” and “poor” are prescriptive of a static group of people and not descriptive of a temporal economic state, the notion that “the poor” could ever oppress “the rich” is simply unheard of. Simply put, they are operating from Karl Marx’s playbook where “the poor” are likely to rise up and overthrow their capitalistic masters any day now.

It may be apocryphal, but it still fits:

A democracy will continue to exist up until the time that the voters discover that they can vote themselves generous gifts from the public treasury. From that moment on they will vote for the candidates who promise the most benefits from the public treasury. -Alexander Tyler, University of Edinburgh history professor in 1887

So in a sense the liberal characterization of the conservative commentator is right. Letting poor people vote is, indeed, un-American if what they are voting for is to legally plunder the rich, or anyone else (like common taxpayers like myself) for that matter.

Exploding TV sets and government regulation

Many people today consider government regulation to be a necessary evil. Without government overseeing greedy corporations, the thinking goes, attention to quality, and especially safety, will degrade.

It is assumed that government is the only entity with the ability and motivation to look out for the interests of everyone.

To help illustrate how faulty the notion of government regulation being our saving grace is, let’s take a look at how the Soviet Union regulated the production of its most effective propaganda outlet, the common TV set. Keep in mind that the USSR had an interest in producing quality TVs in order to govern more effectively.

Soviet television sets tended to explode, because of faulty manufacturing. The surprising and alarming propensity of Russian receivers to blow up, and by extension the apprehension it causes in Soviet viewers, was one of the stranger features of Soviet life. By one estimate, sixty percent of all apartment fires in Moscow are caused by mass-produced Soviet television sets, which hada tendency to explode. Of the 715 apartment fires in Moscow in November 1987, 90 were blamed on exploding television sets, a statistic the Soviet press viewed as an alarming commentary on Soviet technology. Police said three television models notorious for defective wiring are being removed from the market, and millions of warning leaflets have been mailed to television owners.

Its true that markets aren’t efficient (in terms of the efficient market hypothesis ), but as inefficient as they are, governments are worse. It is a fallacy to think that a small subset of the market can do a better job than the whole market in ferreting out bad products.

The Myth of the Robber Barons with Burt Folsom

[HT Markets & Economy]

Pining for a perfect world

Everyone wants to live in a perfect world.

That’s not a really surprising statement. What separates us, however, is whether we think a perfect world is attainable given the current state of affairs and whether we think it is possible  to bring about a perfect world.

How we answer these crucial questions is what defines our political outlook.

Big government advocates, for instance, think a perfect world is obtainable through the right policies. In the past these policies were based purely on theory (a la Karl Marx) but in more recent times these policies are being based on statistical averages. Modern proponents of big government are fond of making the case based on scientific research and strong appeals to game theory as a solution to the tragedy of the commons. In short, a perfect world is possible if we limit the non-optimal decisions of others.

This view sells. Its a sound theory. It is possible to bring about the most optimal set of circumstances through the application of something like the Nash equilibrium. However it fails to account for one crucial fact. The fact that complete and flawless knowledge of all the relevant facts is required in order to make the calculations accurate. Big government proponents either fail to factor in the uniqueness of individuals or else they boldly assert that individuals are obligated to conform to the community’s desires. The recipe for a perfect plan calls for perfection.

This inconvenient truth is where big government advocates often find their lofty ideals being dashed on the shores of reality.

There are no individual humans or group of humans who have acquired the omniscience required in order to concoct such a perfect plan in order to bring about a perfect world.

And its this reality that leads people to advocate for a realistic system designed not to bring about a perfect world, but a just one.

Small government supporters rightly recognize the problem inherent in designing a perfect society. So rather than try they prefer to uphold the individuals right to chart their own course through the ocean of life. Small government advocates believe in the principle that more people come up with better solutions to problems than a small group of people do. Small government supporters also believe that it is wrong for others to try and force their view of what constitutes a perfect world on others.