The Angry Economist

Here's a letter that I sent to North Country Now. If it gets published, it will come out next Tuesday.

One of the sound-offs points out that the US doesn't have universal healthcare (except that it does -- nobody gets turned away from an emergency room), and that we should be leaders. I agree. We should lead the rest of the world away from a system of government-rationed health care to a system of free-market health care.

Before anybody tries to suggest that we already have a free-market health care system, let's compare socialized medicine vs. our current corporate-insurance medicine vs. free-market health care.

socialized: out-of-pocket expenses are minimal, so everybody loves it, but nobody has any reason to economize. Nobody gets bankrupted by catastrophic health care, but on the other hand, some people are denied care at any price (good thing Canadians have the US to fall back on). You pay the full cost because it comes out of your taxes.

corporate-insurance: if you have a good job, you have health care, with a low deductible and small co-payment. If you switch jobs, you lose your health care, and maybe the new job's insurance company will cover your pre-existing condition. If you have no health care, you go to an emergency room. The corporation pays the insurance company which then rations out payments to doctors. Patient is not consulted. Technology is expensive. You pay the full cost because it comes out of your salary.

free-market: cooperation is maximized by multiple competing plans. The doctor's union (the AMA) has no power to restrict entry, so doctors' pay is competitive and bad doctors aren't protected. Technology reduces costs just like everywhere else in the economy. Genetic testing and preventative care keeps the worst illnesses at bay. Doctor's charity (or government, if necessary) covers losers of the genetic lottery. Non-patenting of drugs (and no FDA) reduces costs of drugs to level affordable by all. You pay the full cost because it comes out of your pocket.

Make no mistake about it -- health care is a hard problem to solve. There are no good solutions, only least-bad solutions. It will require all of us, competing and cooperating freely, to devise a solution we can accept. A single government solution imposed on us by the exigencies of politics will likely be controlled by politically powerful groups: drug companies, insurance companies, and doctors. You'd be correct to notice that patients aren't listed among the politically powerful, so when politics controls medicine, patients lose out.

Let's put the patient in control of the purse so they can choose the solution that's best for them. Free markets -- they're not just for breakfast anymore.

Folks, I have bad news for you. The Barack Obama Health Care Reform (shepherded through by Nancy Pelosi) will be, as written, an utter and unmitigated disaster. It attempts to do two things which are, in combination, impossible. First, it makes health insurance much more widely available through the mind-boggling deal it made with the insurance companies. To wit: the health insurance companies agree to insure everyone, and the federal government forces everyone to buy health insurance. While that's a huge give-away to health insurance companies of your personal tax dollars, that's not impossible.

No, the impossibility comes when you combine that with: Second, Barack is going to pay for this new plan by reducing costs. There's two problems with this idea. A) if costs could be reduced, insurance companies would have already done it, and pocketed the money. B) when you pay less for something, you get less of it. This is one of the iron laws of economics, which is just as inviolable as the laws of thermodynamics, or the laws of mutual attraction (things fall at 32ft/sec/sec absent wind resistance).

So Obamacare will attempt to 1) increase the amount of medical care needed because you have all these newly insured people, AND 2) decrease the amount of medical care available by paying less for it.

No, really.

Stop laughing.

This is our PRESIDENT, and he deserves the same respect due to any other politician who is ignorant of economics yet tries to regulate markets: zero.

There can be only two results: either we'll have less medical care (think you're having a hard time finding a doctor now??), or we'll pay a lot more for it (think your doctor's visits are expensive now??).

But there is a different way: free market health care. Reduce every possible barrier to health care. First, stop protecting the doctor's union. Let anybody practice medicine, but give the doctor's union a super-trademark on the term "physician", just like the 4-H shamrock and Olympic rings are protected. If you want a graduate of a medical school, you can have one; just go looking for a physician. Second, stop treating us like children, and let anybody buy any medicine they want. Abolish the FDA. Pharmacies will compete to provide the safest and most effective medicines. Abolish the patent system. Drugs are only expensive to develop because of the FDA and don't need patent protection. Testing can be provided by pharmacies. Stop expecting doctors to be medical deities. Greatly reduce the available torts to only those things that doctors have control over, like leaving sponges inside patients after surgery. I'm sure there is more government hampering that I'm just not thinking of right now. Oh, yes, stop the war on (some) drugs. Abolish the ONDCP.

Well, I listened to Larry talking about how Obama failed to change anything. And I heard about Larry's plan to change this: Citizen Funded Elections. It's astounding how someone so smart can miss the mark by so much. The problem is not that special interests are buying congressmen. The problem is that congressmen have power to sell to them. As long as they have the power, they will be able to demand a price.

So, first things first: If we want to be able to trust Congress again, first we have to take away their power. How do we do that? Well, for one, people could vote Libertarian, but I don't think that's likely. More likely would be to demand that state legislators take back the power that rightfully belongs to them, according to the design of our country.

I had an interesting conversation at OSCON last week over a couple of beers. Since this conversation was alcohol-involved, I decline to name the person who said the following. I can only assume that he wasn't at his logical best.

"Freedom of speech is just libertarian bullshit. If people have the right to say anything they want, then you can't punish fraud."

I was nonplussed. How do you respond to a statement like that? Of course, you always realize the right thing to say hours or days later. The right thing to say is simply this:

"We trust people to vote for anyone they want; we trust anyone to run for office; we should trust them all to say anything they want."

Progressive taxation is not logical. It assume that not only should we tax the rich at the same rate as the poor and middle class, we should tax them at a HIGHER rate. And yet if they didn't the money, why did they bother to earn it? Taxing them at a higher rate can only give them a lower incentive for the most productive people in our society, who employ the most people.

And what do they do with their money? They INVEST it, usually back into their own business, but into the general economy as well.

Progressive taxation is taxation of capital. If you ask any economist, they will explain that taxing capital is eating your seed corn.

If you want to understand that progressive taxation is unfair, then give four pennies to one boy, and eight pennies to another. Then charge the first boy a penny for some candy, and the other boy three pennies. When he objects, and surely he will, tell him "but you have twice as much money." If he can do simple math and then says "But that's no fair! I should only be paying twice as much." You can then try explaining how under the theory of progressive taxation, it's no hardship for him to pay three times as much.