A colleague recently told me that the reason that US healthcare is so expensive is because of market forces. Putting aside the fact that the US Government spends more as a proportion of GDP on its Medicare and Medicaid programs than the UK does on the NHS, I found this claim utterly preposterous and self defeating.

Free markets work to reduce the price of commodities – just look at many of the items we take for granted everyday; cars, smart phones, laptops etc. All these goods were at one time unaffordable to the poorest in society but a flourishing market in these goods increased competition, reduced costs and passed on the benefits to consumers.

Now look at areas where the state has a monopoly on a service. Education, healthcare, defence – these are all things which continue to escalate in their cost. As I touched on in my previous post, you don’t have a choice when the state comes to collect its dues for these things. You cough up or go to jail.

To those who would cite the argument that prices have a tendency to rise I would counter that this, in its broadest measurable form, is due to inflation caused by government and central bank debauching the currency. In a true gold standard a government has no ability to manipulate the currency. History shows that periods where a gold standard has existed have tended towards mild deflation, reducing the costs of goods and increasing the purchasing power of the monetary unit.

It’s hard to put a price on a persons health, even harder to put a price on life. But the medical means to keep you healthy and extend your life DO cost something. These resources have to come somewhere. Here in the UK I’m sure that most people when asked would support the NHS. However, this question does not highlight how much people would be prepared to pay for it. Would they pay 50% of their income? 75%? 100%? It may sound ridiculous but there is a point at where it no longer becomes service that represents real value to the individual. The free market is the only system capable of assessing where this tipping point is.

Truly free markets are just that – free, and do not suffer the interventions of the state. The state has always looked on jealously at the innovation and wealth creation made possible by markets, like a burglar peeking through someone’s front window.  The tendency of the state is always to grow larger, a self replicating monolithic bureaucracy that breeds its own army of foot soldiers on a staple diet of dependency and empty promises. This ever expanding monster needs money to sustain its growth. The private sector is easy prey for a state with a big appetite as the state can always rely upon its monopoly on the legal use of force to extract revenue from private individuals and businesses.

The more the state encroaches on the private sector, the more life it sucks out of the economy. Eventually it becomes trapped in a circle of ever diminishing returns. Every malinvested penny spent by the state  is penny that could have been used by the private sector. Sure, not all money spent by the state is wasted. Likewise, not all money spent by the private sector is invested wisely. But the private sector has a key advantage – prices.

Prices are amazing. They convey information between participants in a market. This allows the private sector to efficiently allocate resources based upon people’s real demands. Of course, markets are never perfect and mistakes are often made. But free markets have the ability to assess this misallocation of resources and adjust accordingly because prices will guide the market to correction. For instance, if a rubber duck costs more to make than people are willing to pay for it  then companies producing rubber ducks will lose money. This signals to entrepreneurs that resources are not being used efficiently and should be redirected towards other activities, such as producing yo-yos. The entrepreneurs could also work out more efficient and productive techniques to produce  the ducks. By doing this they may be able to lower the cost of production to a level which allows  the duck to be sold a price acceptable to the consumer and  also create a profit.  This profit tells the entrepreneur to keep doing what he is doing. It rewards the producer for enriching the lives of his customers. It encourages him to do it more. If profits are big it encourages others into the market, thereby increasing supply to satisfy demand and thus normalize profits. This increased level of competition also makes producers work harder to maintain their market share and profit margins (or in other words, their signal that they are using resources efficiently) by coming up with more efficient and productive processes. This competition drives down the cost of the product and society benefits from cheaper goods.

The public sector has no equivalent to prices. For instance, if a entrepreneur in a company hires a new worker to increase productivity and generate more profits he will be able to use the price system as a way of assessing the success of his investment. If he makes more money as a result then the worker keeps his job, maybe even more people get hired. If he loses money then the price system will tell him that he is not utilizing resources efficiently, the likely result being in the worker losing his job.  The same process can not occur in the public sector. The government can not assess demand like the free market can. Society can not accurately inform the government how much it is prepared to pay for bridges, local council art, flower beds or whatever else the state aims to provide. The government tells you how much you pay for it. Think about that. In every private business individuals co-operate to increase their own wealth by trading for things which they value more than the thing they trade the other way. It’s a two way gain. The shop keeper values your 50pence more than he values his one newspaper. You value the newspaper more than the 50pence or else why would you give the 50 pence up for it? A trade is completed and both parties benefit. Both parties will likely thank each other, which neatly symbolizes the mutual benefit of this arrangement. Now try and remember the last time you thanked the government for taking your taxes. Sure, you get things in return. But you don’t necessarily value them more than the money the state took from you by force.  The cost to you in taxes may be clear, but the cost to your liberty is more subtle.

Is that a price worth paying?

Last weekend I had the pleasure of meeting Kevin Dowd at Liberty League Freedom Forum 2012.  

 

Kevin’s message is chillingly clear. The shit has yet to hit the fan. All the economic stimulus, money printing and bailouts haven’t solved any of the underlying problems in the economy – they have simply made the problem worse and deferred  it to a later date. 

 

I found Kevin’s explanation about why we have not experienced higher levels of inflation yet particularly interesting (and frightening). Using the government’s own figures he showed how the monetary base of the economy has been expanded several times over since the crisis in 2008 and how this extra money has been ‘trapped’ in the banking sector. The Bank of England bought the government’s debt with the freshly printed (or ‘clicked’, if you prefer) money. This depressed the interest rate that the government borrows at but also swamped the commercial banks with huge amounts of the new money. In a business environment severely lacking  confidence the banks are holding on to this money  rather than lend it out. After all, why would they go to the bother of lending this to small and medium businesses when they run the risk of going bust in the prevailing business conditions. The problem is that this money can’t stay there forever. Kevin used the example of a huge lake hemmed in by a glacier. Just like when the Ice Age ended, the glaciers melted and released a torrent of water across the land, leading to widespread destruction. The same thing will happen once this money is released into the wider economy. And once the inflation takes hold (and it will) it will be impossible to stop. According to Kevin, even Mervin King acknowledges that there is no exit strategy for this huge experiment in monetary policy. 

 

Other things to feel optimistic about include: 

 

  • Record low interest rates can NOT stay at these levels forever and the banks are in no fit shape to survive the consequences of higher interest rates. Another banking crisis, even bigger than the last time, is just around the corner. 

  • Inter-governmental interference in the world economy has exacerbated the problems (see Basel 1 &2 which created the regulatory framework which left banks hopelessly exposed to first the subprime and then sovereign debt crises)   

  • The next crisis will be bigger. The same  policy prescriptions, having been shown to fail at every previous attempt, will be implemented again. The potential for rioting and societal breakdown is huge and Kevin is surprised it hasn’t happened already. 

 

Gloomy stuff. Apologies if I’ve got any of it wrong on here, I wasn’t taking notes during his talk so this is all just from memory. Kevin seemed like a genuinely nice guy and we should all hope and pray he is wrong with all his predictions. Unfortunately I happen to think he’s bang on the money (so to speak) and would recommend people to look at his book “Alchemists of Loss”.

 

Child Benefit Cut in Popular with Public Shock – from http://www.bbc.co.uk/news/uk-politics-17255753

Apparently people earning more than £42,475 having their Child Benefit removed is a popular with about 77% of voters. Perhaps the most shocking thing about this statistic is that only 77% of taxpayers polled backed the scheme. You’ve gotta wonder about the other 23%. Note that isn’t families earning £42,475 but individuals. So in the future if both parents have respective salaries of £42,475 they will still qualify for child benefit. That’s a combined salary of £84,950 – and they will still receive this tax free subsidy. I could wax lyrical about the inherent ludicrousness of such a scheme but I think I’ll restrain my argument to a few salient points. First off, I simply can not believe that almost every family (regardless of income) currently qualifies for Child Benefit under current legislation. Secondly, it would seem to me that these changes plainly do not go far enough. People who do not need this hand out will still qualify to receive it.

What irks me most about this type of government spending however, is the patronizing molly coddling of the welfare state. Not capable of planning for the costs of parenthood themselves, individuals are deemed too incompetent to provide a basic standard of living for their own children. Anybody who earns anything like £42,475 but requires a government hand out to support their children is clearly lacking more than just the £20 a week they will get under the scheme (for the first child). And under the present system there are people earning FAR more than this and still qualifying. Of course, there will be many families with much lower incomes to whom such a benefit has become essential. The fact that such a benefit has become essential to any family raising a child is in some ways the crux of the problem. That a family could only afford to raise a child with a leg up from the state is a truly depressing state of affairs. This is not to say that raising children on low income is in any way an easy task. Far from it. Rising prices and stagnant wages must surely be an intolerable strain on any family struggling to make ends meet. But there are much  better ways of supporting these families (such as raisng the personal allowance on income tax to £12,000) that wouldn’t encourage the same level of dependency.

I think the main point is that people should try to plan for raising a family. Sure, accidents will happen. Some form of limited government assistance may be deemed necessary, charity should also help. But part of the reason why people can afford to be so reckless in these affairs is the knowledge that the government will bear some of the strain. Anyone considering the most important decision of all – to bring a child into the world – would do well to remember that it is their responsibility to plan for, provide for and protect the welfare of this new life.

A Healthy Attitude Towards Rights?

What is it about people and free health care? More specifically, what is it which leads people to believe they are entitled to free health care? This may seem a stupid question – people naturally prefer to be healthy as opposed to ill. People also prefer things to be free rather than have to pay for them. But this does not explain the sense of entitlement. Naturally, there is a lot of emotional rhetoric that accompanies this subject as most people will know someone who has or is struggling with an ailment. We tend to empathize with the plight of people who are struggling with serious health issues as it brings home the true reality of our own mortality.  But for some reason we seem to have reached a stage where many people believe that access to healthcare is a divine right and that it would be far too callous to leave such an important function to the speculative whims of a free market. To put it differently, healthcare has become synonymous with government intervention.

How did we get here?

Thanks to modern medicine the human race has never before been is so privileged a position as to be able to tackle many of the bacterial, viral and genetic blights that have afflicted every single previous generation. Life expectancy today is at a level which would of been unthinkable only 100 years ago. Diseases whose names used to be whispered in fear are know dispatched by treatments that are, for the most part, widely available to all of society. Even in preventative terms we now know more about the causes of disease than ever, allowing us to tailor our lifestyles in such a way that common ailments are thus avoided.  It may seem strange to say this but we have never had it so good. Of course, people still get ill and suffer from terrible, debilitating disease but that is part of human nature. No foreseeable advance in medical science or technology promises us life eternal – people will continue to get ill and people will continue to die. The real problem is that alongside the development of new medical science has grown the unerring belief in government intervention and statism. This is part of a wider trend that began in the 20th century that goes in hand in hand with the development of the modern welfare state. Many things that were previously considered as commodities obtained through productive endeavor have now been re-classified as entitlements, rights or handouts. Don’t want to work and be a productive member of society? Simples, sit on your derriere all day and let the state pick up the bill. Not interested in working and saving for your future? Easy, just allow the state to use it’s monopoly on the use of force to obtain the necessary funds from your fellow citizens to allow you to have a cosy retirement. Of all the things the state is now obligated to provide, healthcare is surely the most sacred cow of all. If you don’t want consider to consider the fact that, yes, you are human and your body will break? No problem, let the state pay for the inevitable consequences of your poor diet, addictions and mortality. The modern state has quite simply destroyed the link between actions and consequences.

It is true that disease, illness and disability are quite often not the fault of a person’s own actions (putting aside foolish lifestyle choices – the consequences of which should be borne by the individual). But this is no more a reason to consider that healthcare (or  any other commodity for that matter) is in any way a right. This misinterpretation of rights is a dangerous phenomenon, and was made possible only through the relentless creep of the collective mindset and it’s ultimate proxy – the state.

The belief that things such as food, shelter, healthcare and internet access (if the UN gets it’s way)  is a basic  human right has led to a horrible corruption. The corruption of the true definition of rights, the defilement of liberty and the castration of individual freedom.  Let me make this clear. NOBODY has any right to the product of any one else’s labour. Similarly, NOBODY has any right to the fruits of your own productive labour. Food, shelter, healthcare, internet access, coffee, haircuts, literature and yo-yos are all products of a person’s personal creativity, intellect and physical effort. To say you have a “right” to these products is to say that you have a right to the very things which created them. In effect, you are claiming dominion over your fellow man, enslaving those who would produce them and denying them the opportunity to better their own position using the products of their own mind and hands.

Let us imagine a simplified situation. Imagine that a small number of people are stranded on a desert island. For a short while the sun shines, the coconuts and fresh fish are bountiful and life is generally peachy. One person may be especially good at climbing trees to get coconuts, one may be an expert fisher and another may make a cracking grass skirt. When this is established it will be obvious to the group that rather than each person spend all of their time collecting their own coconuts, catching his own fish and making his own grass garments that it would make far more sense to trade with each other, each person focusing on his own area of expertise. The first stage in the division of labour is therefore accomplished. Each individual is still able to obtain the goods he desires by trading his own produce with that of others.  When these trades between the islanders occur WEALTH IS CREATED. Each person who voluntarily trades with another values the thing he attains more than the goods he sacrificed in order to attain it. This works both ways. Tom has 20 coconuts and is willing to trade 3 of these for one fresh fish which Dave has caught. Tom therefore values the one fish MORE highly than the 3 coconuts he has collected. Likewise, if Dave agrees to the trade then he values 3 coconuts more highly than the one fish he would trade to attain them. By this process both parties benefit, wealth is created and this small society’s resources are efficiently allocated based on people’s real desires. Notice that this whole process can only occur if it is clear who owns each resource (property rights) and if each party agrees not to attain goods by using force or coercion (rule of law). Property rights are especially important – they recognize that an individual’s own ability to perform his specialist task gives him the right to the produce of that task. For example, Dave’s keen eyesight, patience and reactions allow him to catch more fish. These skills are Dave’s and the produce he gains from employing them is therefore his also.  Another important aspect of this scenario is that because each trade is voluntary the value of goods is easily defined by the price each person is willing to pay for each good.  This may sound obvious, but in a society where with no property rights it would be impossible to distinguish how highly goods are desired (and therefore valued). Prices convey important information as to the preferences and desires of individuals. In this way they help ensure that resources are utilized efficiently in line with society’s wants. When someone is entitled to take the product of another’s labour by force then this information is  not apparent and the provision of goods and services will become out of kilter with real consumer preferences.

So, the islanders attain their food by a free market interaction (a voluntary trade between two property owners). They also attain their clothing in the same manner. Let us also presume that their need for shelter is also provided in this way. By doing this each islander recognizes that they have no right to take the produce of others and must voluntarily trade with one another in order to attain the objects they desire. But what of health care? Surely, everybody has a right to be healthy. After all, it won’t be anybody’s fault if they contract a tropical illness. It’s surely bad luck if Tom slips from the coconut tree and breaks his leg. And Dave certainly never asked for the shark to give him a nasty bight on the arm. Surely it is for the benefit of all parties that they remain healthy and able to keep on producing the goods that they themselves and others need. Well, no. At least I don’t think it is as simple as that.

Not many people would think that they have any right that entitles them to be fed, clothed and sheltered by others. That is not to say that charity shouldn’t provide these things to people in need but only on a voluntary basis. But a right to be fed? Try citing this right the next time you walk out of a supermarket with a  trolley full of food without paying. Demand your entitlement to shelter by forcing your way in to the nearest mansion and making yourself at home. We just don’t do things like this because we instinctively recognize that they are morally wrong. We know that the food in the shop belongs to the supermarket until we agree to pay for it. We know that it is wrong to take or use another person’s property via the use of force.

This is the central point. Nobody has the right to take by force (using their own power or the state as their proxy)  anything that has been produced by the productive endeavor of another. The tragedy is that because of the emotional connotations that surround healthcare the debate has become misinformed, distorted and politicized. Until people understand this a rational debate on the future of the NHS and the welfare state in general will be impossible. One thing however is for certain. The need for debate is urgent. There simply aren’t enough coconuts, fish and grass skirts left to pay for it all.