Predictions

It’s the time of year for making predictions. I don’t happen to be good at that sort of thing. I don’t know who will be running for president. I don’t know what edict the president is going to make next, claiming such executive orders are within his constitutional authority. I don’t know how various judges are going to vote on redefining marriage.

So I’m going to do something easier: an if/then exercise. We know, based on principle, that anything the government takes on, for whatever “good intentions,” will cause harm—and most likely will create the exact opposite of the stated goal. I can safely predict that, if an idea is actually a good one but is outside the proper role of government, then government will make things worse rather than better. If an idea is worth doing, then the free market is much more likely to bring about the desired ends.

So here’s the list.

 

Families would benefit from giving dads (in addition to moms) parental leave upon the birth of a new baby.

Government Way: Makes a law requiring all employers to provide paid parental leave for at least one month for any dad whose wife/partner has just given birth.

Result: Businesses hesitate to hire married men whose wives are in child-bearing years. Businesses remove other benefits from employees, in order to pay for this new requirement without going in the red. Businesses will hesitate to promote or increase pay for any man who is likely to (or has taken) paid family leave. Businesses will reflect failure to reach goals during time off in performance reviews.

Many European countries do offer lengthy paid parental leave to fathers and mothers. It looks so civilized. But several things play out in those countries: high unemployment, lack of advancement for employees, and shockingly low birth rates.

Free Market Way: Businesses who want to attract and maintain the best employees consider whether offering parental leave would help. They will consider what works best for the employer and the employee. They may come up with a variety of alternatives, which might include varying lengths of parental leave, or combining work at home with work at the office during new baby times.

Result: The employer can actually offer caring for the individual employee, instead of simply being coerced to follow a one-size-fits-all government plan. The employer feels supported by the employer and is more likely to respond with hard effort to meet the employer’s goals. The employer and employee agree on the importance of family, and families are likely to be stronger—and larger. 

Employees Should Be Paid a Living Wage

Government Way: Makes a law requiring businesses to pay at least a minimum wage—for example, $10 an hour—for every employee, regardless of the value the worker brings to the business.

Result: Businesses will only hire employees who can and do contribute the minimum wage cost (which is actually high for the employer, with taxes, benefits such as health care, and management costs). Anyone who has too little experience or ability will remain unemployed. Young people who do not need a living wage, but need some income and experience, will lack previously available opportunities. Young, inexperienced, and part-time workers will be most hurt. Businesses will be less likely to risk starting businesses in areas where low-experience workers are plentiful—so unemployment will be particularly high in places where the most vulnerable live. The costs to produce goods are higher, so the cost to purchase is higher, nullifying the higher minimum wage being earned by the lowest skilled employees. So, if they have income, it doesn’t go as far.

Free Market Way: Businesses make individual agreements with individual workers, based on the work the employer wants done and the worker’s abilities. No employer is forced to pay more than the work is worth. No employee is forced to do work for less than he agrees to be paid.

Result: Businesses attract the best workers by willingly paying them what they’re worth. Less experienced workers start out working at a lower wage, but as they gain experience, their pay increases. Employers are willing to take a chance on less experienced workers, because the cost of employment is lower. Unemployment decreases—possibly down to near zero, which is prevented by current minimum wage laws. Inexperienced workers have a starting place from which they can move up. There is more flexibility for employers and employees. Costs to produce goods are more in line with what the market will bear, without artificially high costs, so money earned goes further. 

Everyone Ought to Receive Affordable Health Care

Government Way: Implements a complex and unworkable scheme to force all people to buy health insurance prescribed by government, regardless of what individuals want and need and can afford. Many unwanted details are hidden within the law—i.e., higher taxes on home sales, health clinics in schools that work against parental desires or permission, pressure to force states to set up exchanges to enable the boondoggle. It is insisted this is not a tax when being forced through Congress; it is held up as a tax, in order to pretend it is constitutional, when brought before the Supreme Court.

Result: While this is ineptly named the Affordable Care Act, it is more expensive for almost all Americans, essentially just as many remain uninsured as previously, and many who previously had health insurance and doctors they liked are deprived of those options. Health insurance is mistaken for care, and both health insurance and health care are made less affordable.

Free Market Way: It is recognized that separation from free market has led to higher prices. So free market alternatives begin to appear: health care savings accounts, health care cooperatives, lower prices for direct cash payments, major medical-only insurance, insurance across state lines and portable when changing employers. Low interest payment plans might be allowed, depending on credit histories and other factors. Hospitals coordinate with charities to help those with overwhelming costs.

Result: Individual needs are met with individual options. Competition and connection between patient and payment increase attention to cost, keeping costs naturally lower, and—as happens in free markets—innovation leads to greater services at lower costs

The list could go on. If you want a clean environment, keep government out of it, or you’ll get a dirtier environment. If you want a colorblind society, stop letting government favor certain races. If you want a good education for every child, get government out of the business of controlling education from afar.

There are specific roles for government, always related to protecting life, liberty, and property. Government has been so inept in so many things, we may not trust them even with the essentials, but there is a proper role for government. However, anything beyond that proper role and government will create negative consequences, regardless of possibly positive intentions.

So I predict greater freedom, prosperity, and civilization wherever government is limited to its proper role. I predict movement toward tyranny, poverty, and savagery whenever government steps in to “fix” some perceived problem. Every time.

Interference and Consequences

Last week’s Economics 101 lesson (week 6, through Hillsdale College, online for free) was on “Incentive and the ‘Information Problem.’” There were several points worth repeating.

Hillsdale Courses online

Early on, lecturer Gary Wolfram, asks the question, why can’t centrally planned systems provide wealth for the masses?

Market Capitalism, Wolfram tells us, solves a number of problems:

·        Information Problem—how can a central planner possibly know what all the Americans are going to want for breakfast tomorrow, or what they’ll want to read seven months from now? Market capitalism answers this through the price system.

·        Incentive Problem—innovation requires risk taking, and without an incentive to take risk, producers don’t innovate; they do the safe or easy thing.

One example he gives about the incentive problem, near the end of the lecture, is a caveman example—because economists like to demonstrate principles with simple societies. Suppose you’ve got a caveman, and he comes up with the idea of a stone axe. He has to form the axe head out of stone. He has to fashion some kind of handle, and figure out how to attach the axe head to the handle. All this is going to take time—time that he could have been spending grubbing for roots and berries. That’s his opportunity cost.

Suppose then, some other big ol’ caveman comes and takes it from him, because there are no property rights. It wasn’t worth the risk of time and effort, if he couldn’t guarantee that he could keep what he’d made for his use. Without property rights, there’s no incentive to innovate.

There are two types of systems that fail to protect property rights. I’ll give you a clue: on the Spherical Model, they are both southern hemisphere. There’s the anarchy side, like in the caveman example. And there’s the statist/government control side.

The pleasant alternative is the northern freedom zone. In economic terms, it’s where you find free markets. And, he agrees with the Spherical Model, that political freedom and free market systems go together.

Wolfram offers comparative examples between free market capital systems and centrally planned systems. Think about where you’d rather be planted, if you were destined to be poor. Always it’s better to be poor in a market-based economy, rather than an authoritarian ruled system. Think about, if you had to be poor, but could choose anywhere in the world to be born and live, where would it be.

As he points out, “Nobody says, ‘Send me to North Korea.’ They all say, ‘Send me somewhere that’s a market economy. Send me to Australia. Send me to the United States. Send me to Canada….’” We know centrally planned states cannot produce wealth for the poor. Only market capitalist states can do that. [31:30 into the video]

He referred to studies comparing economic freedom across the globe, done by the Fraser Institute and the Heritage Foundation—the Index of Economic Freedom, and compared countries in the to 25% of economic freedom—Hong Kong, Singapore, Australia, New Zealand, Switzerland, Canada, Chile, Mauritius, Denmark, and the United States—and the bottom 25% of countries, including Iran, Turkmenistan, Equatorial Guinea, Democratic Republic of Congo, Burma, Eritrea, Venezuela, Zimbabwe, Cuba, and North Korea.

The average per capita income of those in the top 25% countries is $36, 691. The per capita income of the bottom 25% countries is $5,188. If you’re in those top 25% countries—the ones most like market capitalism and least like authoritarian centrally planned—you’re seven times wealthier on average than those countries in the bottom 25%. [34:00]

It’s even clearer when you compare the poorest of one set of countries to the poorest in another. The poorest 10% in those freer countries make on average $11, 382 (per capita income). Or more than double the average per capita income of those in the centrally controlled countries. Worse, the poorest 10% in those controlled countries make on average $1,209. The poor in market system countries are nearly ten times wealthier than the poor in controlled economies.

Wolfram says, “It’s not a matter of theory; it’s a matter of fact. Governments that rely on central planning simply can’t produce wealth for the masses.” [35:00]

Why is that? Why are centrally controlled governments/economies such abysmal failures at providing wealth? One of the problems is the ever-increasing unintended consequences of interference. He referred to Ludwig von Mises, in his 1927 book Liberalism [a term that refers to freedom the way our founders thought of it, rather than the way the word has been co-opted by central controllers since then].

Once government begins to intervene in a system, intervenes in a market, it’s going to create these unintended consequences…. When it creates these unintended consequences, what happens is we get further government intervention, because there’s a political clamor. “Oh, now we need to deal with this problem.” So the government intervenes again. More political clamor as it creates more unintended consequences. With Mises arguing that eventually you end up with central planning. The government continually intervenes, creates more problems, intervenes again, creates more problems, intervenes again—until it’s intertwined with our economic system in such a way that markets aren’t allocating resources anymore; the political system is allocating resources. [35:30]

If we were to look at current events, and try to come up with some example of this happening, what could it possibly be? Oh yeah, Obamacare.

He gives us the  history, in more detail than I’ve done in the past. (The transcript of that section more than doubles this blog post length, so I’ll summarize, but, really, you should listen to the whole 40-minute speech, and especially this example, from about 36:00 to 44:00.)

·        There was a labor shortage during WWII, with labor resources going to the war effort.

·        Government didn’t want the price of labor to rise, so it set price controls on labor, which guaranteed greater shortages.

·        Someone who wanted to attract manufacturing labor came up with the idea of supplementing wages with employer-based health care insurance—as additional pay for labor that wouldn’t count as higher wages.

·        Employer-based health care insurance separated the receiver of care from the payment, thus causing a rise in demand for health care.

·        A rise in demand for health care increased costs of health care.

·        In 1954 the IRS ruled that employer-based health care insurance did not count as income, which was a way for employees to receive higher payment without paying the exorbitant (91% top margin) income tax.

·        This meant that employer-based health care insurance became more widely used, raising demand for health care from people who weren’t paying for it, and thus raising health care costs.

·        In 1965 government stepped in to help those who were retired or not employed, who could no longer afford to pay the artificially high health care costs without insurance, and government created Medicare and Medicaid.

·        So of course, with more people getting health care they weren’t paying for, health care costs rose further.

·        Eventually government intervenes with the Affordable Care Act, which forces employers to provide health care coverage, forces insurance companies to provide insurance for pre-existing conditions, and forces healthy young people to purchase health care insurance they wouldn’t otherwise purchase, and forces everyone to purchase a standard of plan the central planners decide, rather than the individuals making the purchases.

·        Results of the interference: higher health care costs, lower quality of service, bankruptcy for insurers, devastating costs and fines for people who can’t afford the new standards.

We have this system of health care insurance tied to employment. We don’t have that connection for car insurance, or homeowner’s insurance. The only reason health care is tied to employment is government intervention, followed by unintended consequences, followed by clamor to fix the new problems, followed by more government intervention, then more unintended consequences, and on and on.

It looks like it might be a good idea to just get rid of government. But that’s not the solution either; remember the caveman anarchy problem? What we need is just enough government to protect us—our lives, liberty, and property. In economic terms, government is there pretty much just to protect our property rights: with contract laws, police, armies, courts for settling disputes.

Wolfram gives this rule of thumb:

So when we look at a law, we ought to decide, does that law in making it easier for markets to work, or does it make it harder for markets to work? And fundamentally, is that law expanding our property rights? Is that law expanding our ability to act according to our own plan? If it is, it’s a good law. If it’s making it harder for markets to work—if it’s infringing on our property rights—if it’s making it harder for us to act according to our own plan, then that law ought not be there.

I think that’s pretty much what the writers of our Constitution had in mind when they delineated limited government.

Oral Arguments

On Monday evening I heard an interview with Ben Shapiro, at King Street Patriots. He was there to talk about his new book, Prime Time Propaganda, but he also happens to write about the Obamacare issue for Breitbart.com, so he spent a little time on that as well. He gave a good summary of what’s going on this week, sort of your armchair guide to the proceedings.

Shapiro said there are three main issues, one per day (there are also a couple of additional issues, if you read news elsewhere about it):

1.      Timing and ripeness—Monday

2.      Individual mandate

3.      Severability

One point Shapiro made was that oral arguments are pretty much a formality. Most of the justices have already researched and decided their positions—and have for the most part already written their opinions. It is expected that the four conservative members of the court will find the law unconstitutional, and the four most liberal members will find a way to claim it can stand. The unpredictable deciding vote is Anthony Kennedy. He tends to frame his opinions, however, based on his view of personal liberty. He decided Lawrence v. Texas, for example, on his opinion that a state couldn’t have an anti-sodomy law since a sexual act is a private decision (ignoring anti-prostitution laws, anti-bigamy laws, anti-child molestation laws, and a myriad other concerns in so opining). So maybe concerning Obamacare he will be hesitant to force individuals to buy a product.

Timing has to do with the question of whether the issue can be taken up now, even though the penalties don’t kick in for a couple more years. If there’s a tax injury question, the person suing can’t sue until after suffering injury from the tax. Thus the question couldn’t come up until after 2014. The Obama administration sold Obamacare as something other than a tax; it is a penalty forcing compliance, not a revenue source for the general fund. But now the lawyers are claiming it is a tax—so they can put off the question until after the election. But on Monday no one was buying that argument. It can’t be a tax and not a tax at the same time. Really the issue for the justices is whether or not they want to postpone a ruling or handle it now. They all seem ready to take it on, with the exception of Kennedy, who would probably be glad to procrastinate. But on that issue the vote would likely be 8-1.

Tuesday the big issue was the individual mandate. Questions asked by the justices reveal something of their opinions. And it looked very bad for the pro-Obamacare crowd. Government lawyers seemed surprisingly unprepared to answer the basic question at the heart of the issue: can government force a person to participate in commerce they would otherwise not choose so that government can regulate that commerce? The deer-in-the-headlights response made it look like they’d never considered the question, which isn’t possible. But it does reveal how unanswerable the question is for them. And the follow-up core question is, if government can force a person to buy a product they would not otherwise purchase simply because there is the power to regulate commerce, what can government not force a person to do? There were analogies galore: can government force a person to buy broccoli? Since everyone will die, can government force a person to purchase burial insurance? Since anyone might at some point need to make a 911 call, can everyone be forced to purchase a cell phone plan?

Near the end of the day, Kennedy gave a tiny spark of hope. The government argument was that young healthy people not participating in the health insurance market did possibly have an effect on the costs of the market. Actuarially that is true: if young healthy people don’t put themselves into the insurance pool, then the pool is made up of individuals more likely to make claims, and therefore the costs overall are higher. If those young healthy people who won’t be making many claims can be forced to pay for full coverage, the costs overall go down—because those young people are subsidizing the less healthy. Those young people without coverage, if they can afford it, would likely opt for catastrophic coverage only—and pay out of pocket for their fewer basic medical needs. But Obamacare prohibits them from having the option of buying catastrophic coverage; it forces them to buy full coverage. The mandate is intended to force healthy people to buy a product they do not want so that the government can say it is lowering costs for unhealthy people.

You might see it as enslaving the lower-earning youthful demographic to pay for the healthcare costs of those who have saved up enough to retire.

Anyway, Tuesday did appear to be disastrous for supporters of the individual mandate. I hope that proves true.

Wednesday is about severability—assuming the mandate is struck down, does that mean the whole bill is struck down, or can the mandate be removed with the rest left standing. This is probably the biggest question. Technically, there is no severability clause written into the bill as required; the bill was written intentionally to have the mandate be the means of making the rest of the bill possible. If the mandate falls, the whole bill falls. But, after arguing the other way to get the bill passed, the government is now arguing that even without the mandate, the rest of the bill should stand.

There are economic and plenty of other reasons this is wrong. But the Supreme Court as a whole isn’t about simply looking at the law and the Constitution; it’s about deciding what they and/or the people want and then crafting a slant toward that end. In this case the likely reason the mandate will be struck down is that a majority of the people are strongly against it and believe it is unconstitutional (this has been true since before passage and continues true even after two years, even before the pain of payment has kicked in). So I think it’s likely the mandate will be struck down. But then this severability question becomes the sticking point. The liberals on the court ask things like, shouldn’t we let Congress decide these things? (even though, clearly, that was a bad idea in the first place—particularly when it was totally partisan and required bribes and shenanigans even to get that single party to pass it).

Shapiro pointed out that deciding to leave the rest of the bill standing minus the mandate could be the worst possible outcome: insurance companies would be forced to insure the highest risk individuals (can’t turn anyone down) but have no way to force healthy individuals into the pool to mitigate their costs. Insurance companies would go bankrupt. And that would mean the only option left standing would be government healthcare—or socialized medicine. Costs would be higher. Care would be less. Choices would be limited. All our fears would be realized.

So let’s hope the court (particularly the unpredictable Justice Kennedy) can see the facts and rule justly.

And if for some reason that doesn’t happen, we must, absolutely must, vote Obama out of office before this catastrophe gets institutionalized.