Monday, November 30, 2009

Health Care - Part 2: More Rebuttals & Actual Solutions

In Part 1, I addressed some of the common - but highly fallacious - categories of reasons some people use to support various big government plans for health care reform. Essentially, I dealt with the 4 false arguments of appeals to classism, to authority, anti-capitalism and anecdotal speculation... While these are rather typical of my experience with most pro-"reform" folks, there are obviously a number of arguments that I didn't cover which are not necessarily logically flawed, but which are none-the-less incorrect as means to solving our current problems in health care.

As such, I now intend to address the real problems with health care in the United States and then attempt to offer real, economically viable solutions.

So first off, let me stipulate that most everyone agrees that the fundamental problem with health care in the United States is not the "care" itself, which remains among the best in the world by many measurable standards that actually count (hint: general life expectancy & infant mortality don't), such as medical innovation, treatment of serious illnesses like Cancer and our high rates of delivery for premature infants.
According to the NY Times:
“In the last 10 years, for instance, 12 Nobel Prizes in medicine have gone to American-born scientists working in the United States, 3 have gone to foreign-born scientists working in the United States, and just 7 have gone to researchers outside the country.”
And as you can see below, the US has the highest cancer survival rates of any other nation, and taken as an average US vs. Europe, the difference is truly striking. But rarely do we hear this kind of information from people who want to involve more government force in our health care choices.

So clearly, the main problem here isn't the quality, but the substantially higher cost compared with other industrialized nations, and thus limited access for certain less financially stable & poor members of our population.

There are a number of reasons for this that are far less shocking or diabolical than many would seem to believe, and I will cover many of those as I progress through this essay. Essentially, this will be formed as a series of responses to a debate I had with a (European) man named Mal who supports European-style socialized health care for the United States. As one might expect, his arguments were representative of the better, more knowledgeable and rational defenses of the system, but his point, in my estimation is still mostly incorrect... This was his main question:
"Why not use a socialized system in America just like they do in Europe? They provide health care to everyone and they are proven to be cheaper than the US system."
No doubt many people ask this question regularly, and are unable to come up with a satisfactory reason why not. I am not one of those.

There are many reasons why the USA and European nations shouldn’t be categorized the same way. But before I explain why in greater detail, I must first reject the two fundamental premises Mal presented.
  1. Socialized health care systems provide care to all: They most certainly do not. There are frequently shortages and rationing of goods & services as a necessary consequence of the system. What they are doing is providing payment for health-care assuming you are lucky enough to get it.
  2. European & Canadian systems are financially solvent: These systems are crumbling financially throughout the world. The British & Canadian systems are effectively bankrupt already and the French government keeps trying desperately to cut costs by excluding treatments or increasing eligibility requirements while being thwarted by riotous citizens.
Promise of payment for a good, and getting the good itself are two separate things which shouldn’t be conflated – and in the health care debate, are confused daily.

Insurance ≠ Health Care.

Government Payment for Insurance ≠ Health Care

Health care is doctors, nurses, medicines, hospital beds, splints, wheelchairs... The means of paying for those goods & services is something else entirely, and can be done in a myriad of alternative ways.

As a matter of fact, the tangible health care resources available in other nations are substantially less than those available in the United States. For instance, in a 2004 study on medical imaging in Canada, it was found that Canada had 4.6 MRI scanners per million population while the U.S. had 19.5 per million and Canadians have access to only 10.3 CT scanners per million vs. 29.5 per million in the United States. Because resources aren't priced, the only alternative is politically determined rationing, which is an enormous problem for individual consumers of health care, as it prevents crucial feedback information (related to supply & demand, profits & losses) from being transmitted throughout the market.

This calculation problem causes shortages, misallocation of resources, provides incentives for system abuse & other severe problems that are being entirely ignored by folks like Mal. So I reject both of his claims from the very start…

But apart from that, there are some truly major reasons why Europe & Canada have been able to do offer "universal" insurance schemes to begin with, and they have nothing to do with the intrinsic solvency of the ideas. While it's not talked about very often, Europe & Canada (and Japan, for that matter) have benefited immensely from American policy over the last 6 or 7 decades. In no particular order, here's why:
  • American military protection allows other nations security without having to pay for it:
Due to the Marshall Plan, WWII and our subsequent 60 years of hegemony, virtually all of Europe, Canada, Mexico, Puerto Rico & the Caribbean, Japan, S. Korea… and frankly, most “ally” nations fall under a massive umbrella of our (excessive) military spending. This means that European nations simply don’t need to spend that much on their own military protections. As a result, much of these nations’ taxed revenue can go towards all-encompassing social programs.

Frankly – if you are European, you really don’t want the US to cut military spending precisely because it allows your governments to pay for other services…

That said, honestly – It is always been my opinion that America shouldn’t be in the “world police” business. For one thing, I am sick of paying for the protection of dozens of other nations, especially since we have been borrowing & inflating our currency to pay for it. The United States has over 700 military bases in roughly 130 nations around the globe.

We were a nation which rejected the principles of empire-building, once upon a time... Do we really need one now?

I say no.

I also don't appreciate that our empire has enabled dozens of countries to free ride on our military protection and demand our services in times of need & crisis all the while insulting the very institutions which have made that possible. Nations of the world should be better prepared to sort out their own affairs, and the United States needs to stop meddling.
  • The US subsidizes much of the cost of health care for Europe, Canada & other nations:
Apart from free riding on our military protection, Europe keeps some of their Health Care costs at bay by imposing price controls on medical technology, drugs & other medicines (which are primarily innovated & produced by doctors & companies in the United States).

Of course, when the prices the EU sets are below the market clearing level – that is, below what the company could get in a free enterprise system – or even more problematically, when the prices set by the EU are lower than what the producers actually need to break even, these companies necessarily have to increase their prices on those of us who aren’t as tightly controlling their prices. Namely: The average U.S. consumer!
Europe's price controls push what would be their higher costs back onto (primarily) the American people. So why not impose price controls of our own here in the States?

Because soon enough, as has already happened with vaccine manufacturers – they ultimately put producers out of business by forcing them to operate at a loss. This isn’t sustainable and the real-world implications are massive shortages of everything we need to survive and be healthy.

Also, I should note that since we are the world leader in medical innovation & production of resources… Shortages here will mean massive shortages for everyone in Europe too!
  • Scaling Bureaucracy:
America is a vast nation, with a complex, multi-tiered governmental structure and a very large population - the 3rd highest in the world, and in fact, around 220 million more than the largest nation in Europe (Germany). The typical example of "successful" universal health care is Sweden, and that nation has under 10 million people living within its borders. America's 308+ million inhabitants cannot be as easily managed with any kind of top-down approach.

Assuming even that the pyramid-scheme economics of social programs like we’re discussing was functional and sustainable, which it most certainly is not, then a big factor in implementation and the ability of people to game the system has to do with the bureaucracy itself.

Bureaucracies don’t scale up well. Even if we took the European model as a functional one – which I fundamentally don’t – there’s plenty of reason to question its efficacy in the United States. And that's all without actually factoring in significant differences in cultures.
Additionally, Mal asks:
"Why not just raise taxes to cover the costs? Europe has much higher tax rates than the US and does ok economically."
Right now, America’s economy is on the ropes. We have massive amounts of debt (which many high tax European countries don't have). We have spent the last 100 years or so operating on deficit spending & inflationary policy - which has taken us from being the world's greatest creditor to the world's largest debtor. The only thing that is saving us right now is the productivity of our population and the (outside of recent events) comparatively high employment rates.

Raising taxes will increase unemployment, which will decrease America’s overall productivity and which will negatively effect all of us here and harm the world economy as well.
Spending cuts are already entirely necessary - without factoring in a massive new health-care regime. So, what do I suggest for spending cuts?
  1. Military (see above) - Time for everyone else to take care of their own national defense.
  2. Axe redundant or harmful Federal departments – I might suggest abolishing Dept. of Homeland Security & the Transportation Security Administration, consolidate FBI & CIA, and certainly the Dept. of Education (which has been a major cause of the decline in quality of American public schools for the last 50 years). Reduction to Constitutional levels of Federal bureaucracy would be preferred, but any significant reduction could help immensely.
  3. Reduce public employee salaries, pensions & benefits across the board – This may sound harsh, but on the whole they not only do much better than the average American, even within the tough economy, their benefits & wages are *increasing*. (Also, I think politicians salaries should be reduced for other reasons). We’re forced to pay for these people after all, we need to be getting our money’s worth and we’re not.
  4. Across the board Tax Cuts - Eliminate corporate taxes (which are simply reflected in higher prices to consumers and do very little to effect the corporations themselves) and decrease the regulatory burden on international investment - thus encouraging more people to move here, set up international headquarters here and invest in real production in the US again. More jobs, more revenue without raising tax rates, more production and thus increased standard of living. Reduce individual income taxes, allow citizens to keep more of their money.
There’s more… but this is long enough.

There are plenty of things that could make America a solvent nation again, I tend to recommend the policy ideas of Peter Schiff, Ron Paul, David Walker and others, but regardless of how it's done, it needs to be done immediately or we are heading for much more severe catastrophe than we've seen the past year or two. The idea of tacking on a massive new entitlement program onto our existing house-of-cards financial position is, as far as I'm concerned, insanity.

But Mal has more to say:
Thank you for your elaborate response. There are some points where I don’t agree with you though.

Providing healthcare. Plenty of European countries do provide all the necessary care quickly and of high quality. You are right that there are waiting lists for some procedures, and like in every system, screwups happen. If you have non-essential surgery, you might need to wait a bit, but for surgery which needs to be done quickly, I see no evidence that generally that is a problem. Of course there is anecdotal evidence where things go wrong, but overall, European healthcare systems are rated substantially higher than the US system...
Unfortunately, saying "I see no evidence", is precisely the kind of anecdote that doesn't suffice as real information. In reality, the data is pretty clear on this point, and waiting times in the US are significantly lower across the board than any of the nations with so-called "universal" health care.

A Commonwealth Fund study recently found that 42% of Canadians waited 2 hours or more in the emergency room, vs. 29% in the U.S.; 57% waited 4 weeks or more to see a specialist, vs. 23% in the U.S. - I cannot possibly go through each individual procedure, but this isn't uncommon. These aren't merely "anecdotes", but statistically significant and easily predictable consequences of these types of systems.

Note below Canada's wait times for different procedures and the discrepancy between wait times in Boston (Massachusetts being one of the only US States which has adopted "universal" health insurance paid for by the government) and other states.

Wait Times in Canada
Massachusetts vs. Other US Cities

Ironically, I recently found a Huffington Post article from 2007 by Deborah Burger, who is the President of the California Nurses Union, which is largely devoid of real evidence pointing out that the US waiting times are "three weeks" to see specialists. But... First off, that's significantly less than Canada - which literally makes her article 100% nonsense. But as you can see from the chart above, Massachusetts - whose "single-payer" system is failing miserably - is a massive outlier, and Boston brings the city average up 2 days. Excluding Boston, the average wait time is only 18.44 days for the listed procedures, and as cities experience the highest overall demand per available resources, that is likely to be the highest wait you'll experience under the current American system.

This obviously means the difference between life & death for a great number of people. Additionally, the American system is not actually as different as people would like to believe - both the United States & other developed nations' governments are heavily involved in health care. The United States is only a few degrees difference from these other systems, and those few remaining areas of liberty keep us in the lead as medical innovator. If we abandon those few remaining things that keep our system functional, I would fully expect some pretty grievous results - not only for Americans, but for everyone.

As for the various "Ratings" which show the US lagging behind other countries, they are highly misleading in several ways. Certainly, the cost measurement is an important factor, but the most common measurements cited are in life expectancy and infant mortality - neither of which are legitimate descriptions reflecting the quality of a nation's health care system.

For example, while its true many nations have a higher life-expectancy than the US, there is only a minimal and certainly not causal link to the health care system being employed. This factor is much more greatly effected by lifestyle, diet, exercise habits and race/ethnicity.

Certainly, no one is suggesting that Bosnia has a better health care system than the US, yet it exceeds us in average life expectancy according to international statistics. They score an average 78.5 years to the United State's 78.11.

Cubans' life expectancy is claimed to be higher than the United States as well... And as thrilled as Michael Moore might be about that, what didn't really make it into the movie "Sicko" were real images from Cuban hospitals.

Like this one:

Cuban Health Care at its Finest!
For the record, this image was taken from - The rest of the images in their health care section are far too tragic & horrific for me to post here. I encourage everyone to be aware of this site, as it is one of the best resources for truth about Cuba... Regardless of what Castro shows to bloated, socialist, propagandists like Michael Moore.

Another rating metric that’s commonly used is infant mortality rates, but this is even more misleading!

Different countries measure infant mortality by different standards. Many nations don’t count a baby as ever having been alive at all if it dies within the first few weeks. Some within the first 24 hours. The US counts all babies who were not stillborn – which is reason one our stats wind up inflated by comparison.

That said, that isn’t a complete explanation – the other half of this a sort of ironic statistical artifact of the US’ tendency to work harder than other nations to save premature babies. We have a much higher percentage of premature births than most other nations… Some look at this as a bad thing (including the NY Times), however, I have a number of friends who were born prematurely and who would have died at birth in many other nations.

In either case, it is what it is.

Premature babies are obviously at a much higher risk for dying within the first year than full-term babies. So put all together: We have a nation that is able to save babies’ lives that would have either been stillborn or died in the hospital in other nations, and unlike many other countries we count all of them. Some of those babies die within their first year, making our statistics look horrible.

It's easy enough to throw out statistics that make it sound like the US is in horrible shape, but the truth is much more complex.

Also, here's an even more comprehensive article: The Truth About Health Care & Infant Mortality

Additionally, the WTO rankings often fail to take into consideration other significant details very well. As I noted earlier, the US has the highest survival rate for cancer and other major diseases of anywhere in the world.

The reality is, we do a lot of the hard stuff vastly better than Europe. The only real problem, with the U.S. system is the extremely high cost of Medical Care – which also limits access for some people.
However... The high cost is a consequence of government intervention.

I have covered this numerous times throughout this blog, and as always, detailed history can be found here & also here.

But back to Mal:
Also, in my opinion, some rationing is good. Healthcare demand can essentially be infinite. Because of the insurance, few people bear the cost of healthcare themselves. And as with all systems where those who get something out of it without paying the costs, demand tends to be higher than needed. A bit of rationing brings some rationality back in the system IMO (probably not the most popular view I admit).
Or... People could actually pay for it themselves! Rationing fails miserably as a way to bring "rationality" into the system because it lacks all of the information-gathering abilities of prices, profits & losses

Mal also revises his suggestion of raising taxes to pay for the system, responding to my earlier point:
Raising taxes, it all depends on how you do it. You have a lot of loopholes that could be fixed. You could stop protecting people from the inheritence/estate tax/ Of course, simply raising tax rates, especially on lower paid workers will increase unemployment.
But an estate tax, if done properly and without being able to avoid it, would hardly influence unemployment, if at all. Or are you saying that you would work less now if you can’t give 80% to your children in 30 years time, but only 60%?
I can't really get bogged down by this, but I have to make a couple points about taxation as Mal suggests. First, any additional taxation is a further burden on the citizens, regardless of whether or not it happens today, in the form of income or sales taxes, or in 30 years in the form of wiping out a person's savings. Secondly, the estate taxes are ALWAYS avoidable. Instead of leaving one's children money, a person may spend more during his life time or find ways to gift his children large items like houses, cars, vacations, jewelry, etc. just prior to death. In either case, the tax wouldn't be paid, and the idea that you would tax someone's estate upon their death is morbid and morally repugnant to me anyway.

A person's death should not be one last opportunity for the government to take from them.

Finally, Mal questions whether or not the other "universal" health care schemes are "broken and crumbling" as I had claimed. It's quite true, I'm afraid.
The UK Times Online writes:
“A recent report from the King’s Fund and the Institute for Fiscal Studies (IFS) showed how the NHS cannot provide a comprehensive service on current assumptions after 2011. To freeze the budget again would require an extra £10.6 billion over the next spending review period. Some of the shortfall could, in principle, come from increased productivity, up to 7.7 per cent per annum, according to the IFS. This is an heroic assumption in a service in which, as the Office for National Statistics recently showed, productivity fell 4.3 per cent over the decade from 1997.”
The Wall Street Journal notes that in France:
“The problem is that Assurance Maladie has been in the red since 1989. This year the annual shortfall is expected to reach €9.4 billion ($13.5 billion), and €15 billion in 2010, or roughly 10% of its budget.”
And in Canada, the Vancouver Sun reports:
“Dix said a Vancouver Coastal Health Authority document shows it is considering chopping more than 6,000 surgeries in an effort to make up for a dramatic budgetary shortfall that could reach $200 million.”
I can go on about this (obviously) just about all day, but I hope I’ve generally made my point that the US still has some of the highest quality care in the world, and that increasing government involvement in the system is a criminally bad idea which will reduce that high quality, and exponentially exacerbate costs.

So what will reduce costs and encourage better service and quality? Glad you asked! A lot of things.
  1. Make ALL Health Care Tax Free: Regardless of whether or not it's your employer who's buying or you, yourself, the playing field needs to be even. The government's special exemption for businesses is what caused health insurance to be tied to employment - Doing away with all taxes on medical care would lower everyone's costs and remove the incentives against individual insurance policies. When people are once again in control of their own insurance, they will once again be the actual consumer.
  2. Repeal ALL Insurance Mandates: Insurance companies are currently extremely limited on the types of plans & different price-levels they are able to offer their consumers, because the government mandates base levels of coverage. They effectively eliminate legitimate competition and restrict individuals' freedom to balance price with coverage. These mandates also shift the entire insurance system from true "insurance" which protects against financially catastrophic risk to insurance-as-3rd-party payer, thus skewing economic incentives towards over consumption, raising costs by billions of dollars.
  3. Allow Insurance Companies to Compete Across State Lines: The full-faith & credit clause aside, there is no legal or moral reason that we should not be free to purchase health care insurance from anyone who is willing to provide it for us. This makes insurance "portable", and steps up competition in an as yet unprecedented way, which will reduce costs, provide more flexibility and help individuals find plans that are right for them.
  4. End the Cartels: Insurance Companies, the AMA, Pharmaceutical Companies, and virtually all aspects of the health care establishment enjoy special legal protections of their position. These need to be eliminated. The American Medical Association currently retains control over medical licenses, and the number of doctors available in the United States - this causes regular shortages in doctors. That, in turn, limits access and increases the cost to the consumer. Insurance companies, Blue Cross & Blue Shield enjoy special legal status which prevents any real competition in insurance markets, and allows them to dominate insurance markets in virtually every state - Aetna & other big insurers enjoy similar (though not as ensconced) protections through tax-breaks and limited licenses. These things need to be eliminated in order for the market for health care to function properly. Both companies who manufacture health care goods, and doctors, nurses & other professionals who produce medical services - must be allowed to succeed or fail based on how they meet consumer demand, not based on how politically well-connected they are.
  5. Tort Reform: "Ambulance Chasers" and other disreputable legal services have set up a cottage industry around medical malpractice lawsuits - This is why it costs many doctors between $50-100,000 a year simply to hold medical malpractice insurance. Tort reform can help eliminate the frivolous lawsuits, thus reducing the need for such high priced insurance lowering the total cost to consumers.
  6. Health Savings Accounts: True insurance is a risk pool designed to help people manage unforeseeable expenses, not a way to pass off predictable costs onto other people. Tax-free health savings accounts can help people manage regular maintenance costs such as doctors visits, flu-shots, and minor medical procedures while leaving insurance to cover legitimate catastrophic care only. This would drastically reduce abuse of insurance and lower costs across the board as individuals - rather than government officials or insurance companies - made more direct decisions about their medical care.
  7. Transparency in Costs: This is significantly more culture than policy, but people need to be in the habit of asking for cost break-downs of their doctor & hospital visits. HSA's, an actually competitive insurance industry, and paying for more care directly would go a long way to encourage this. Knowing price enables people to weigh cost vs. benefits, and reflects the relative scarcity of different goods & services. When a 3rd party pays, whether that's an insurer or a government, those issues are never considered - thus raising costs, causing shortages and rampant over-consumption.
  8. Begin Reducing Government as Health Care Payer: Medicare & Medicaid, and most other social welfare institutions in the United States function as pyramid schemes. These pay-as-you-go financing methods are entirely unsustainable, and contribute greatly to increased costs. Reducing the government's involvement not only keeps the US financially solvent, but also will reduce costs to consumers over time.
  9. Tax Reform for Charity: Provide greater incentives for people to contribute to medical charities and to help support treatment for poor & low-income individuals. With fewer taxes overall, more money to spend out of pocket and cheaper health care overall, this shouldn't be difficult. America is already far and away the most charitable nation on the planet...
  10. Freedom!: People should be free to determine who provides their health care, what type of care they want, who will be paying (insurance, HSA, generous benefactors, charities, credit cards, etc.), and what kinds of arrangements suit them the best. They should also be free to decide what arrangements to make regarding their bodies - if hospitals and other foundations wish to offer compensation for organs or bone marrow to increase the availability of transplants, they should be free to do so. This will free up financial arrangements so that instead of just one or two options, people can pick and choose from hundreds to find the one (or many) which suits them best. It also means that questions of medical ethics and religion are no longer an issue. If you smoke, or are overweight, if you want an abortion or if you want to try an experimental medication - a free system allows you to do these things if your insurer won't cover you, you have dozens of other options. But when the government pays, you lose these choices. When other people are forced to pay for your health, suddenly other people get some say in what you can and cannot do. Are abortions to be publicly financed? Stem cell research? Organ transplants? Drug rehabilitation? Sure... If you can get the votes. And if you can't... Tough luck.
In truth, No one knows what is the "correct" arrangement of health care resources, much less who will need which goods or services. Individuals and their physicians, are the best people to make these choices, as they have the incentive to balance the best possible care with the lowest, most affordable costs. Bureaucrats in both government & business do not share these incentives, so to the largest extent possible, the consumers of health care should be the patients, not 3rd parties. Real competition can bring costs down, and bring supply in line with demand until the market finds some equilibrium.

Central planning cannot accomplish this. Ever.

Pharmaceutical companies, insurance giants & unions don't deserve special protections or tax benefits - they don't deserve to have government protecting them from competitors. Let those successful companies win by providing individuals with what they want, and let profits and losses guide producers as to what that means.

If we do each of these things, as has happened in all industries with a modicum of freedom, costs will come down, choices will multiply and both producers & consumers will win. And that's the goal isn't it?

Indeed it is.

So there it is... Parts 1 & 2 of my health care points.

Strawmen have been debunked, intelligent arguments soundly refuted and solutions offered. And... I think that's all I have to say about that.

Saturday, November 28, 2009

Health Care - Part 1: The Four Strawmen of the Apocalypse

Recently I've been constantly embroiled in a never-ending series of discussions on a broad array of liberty oriented topics. One of the most prominent has been the massive debate over whether or not the government should increase its (already quite sizable) role in health care in the United States.

This essay will be the first of a two-part series. While I agree that there is a problem with the high cost of medical care in the United States, the bulk of the solutions currently being pedaled by agents of the Federal Government will - I believe - exacerbate, rather than alleviate, those problems.

So in the first part, I shall address the main arguments in favor of a government-run health care system and then in the second, I will be offering solutions to the problems facing us as individuals living in this nation.

Part 1

Not surprisingly, much of these discussions devolve into me repeatedly addressing some of the same arguments made by many of the supporters of whatever version of socialized, nationalized, government-run, (whatever-you-want-to-call it) imposed "reform" to the health care system. It seems to me that the bulk of these arguments fall into 4 specific categories:
  • Classism
  • Appeal to Authority
  • Anti-Capitalism
  • Anecdotes
I will attempt to discuss each of these in more depth over the course of this essay and explain why each of these four arguments are essentially straw-men. I fully intend to give each objection a fair hearing, and I do not wish to be engaging in arguments against straw-men. If a reader believes I have done this, please feel free to present a new argument or explain why I have failed to adequately address a topic. To that end, I will try to present as many arguments that have been directly posed to me verbatim.


  1. "You must be on the payroll of the insurance/pharmaceutical/hospital management/etc. companies!"
  2. "So you think it's ok for rich people to get health care but no one else!?"
  3. "You're putting profits over people!"
Appeals to Authority:
  1. "Obama promised that he would reduce costs & expand coverage, who are you to disagree?"
  2. "But Harry Reid/Nancy Pelosi/Henry Waxman/etc. said ___, they know what they're talking about."
  3. "The AMA/PhRMA/American Cancer Society/etc. endorses the new legislation!"

  1. "For profit health care is EVIL!!"
  2. "Health care should be free for everyone."
  3. "'Free market' health care naturally results in inequality."
  1. "My sister's insurance company dropped her because of ___, we shouldn't allow this to happen."
  2. "I have a pre-existing condition that prevents me from getting insurance, that's not fair!"
  3. "Insurance Execs are greedy!"

There are other arguments of course, but these are some that I hear most often and are most perpetually annoying to me because they are all asinine strawmen... Just so we're clear, let's briefly examine why.


Classism is one of the most rampant, and one of the most common across all humanity. It's a favored "argument" of populists in many areas as well, not just health care... Surely you've heard someone arguing against restrictive energy policy, or in favor of various types of deregulation, etc. get called a "corporate shill", or "on the payroll of Big Oil!". This is merely a variety of ad hominem, and doesn't actually qualify as an argument... What's worse is that it's almost never true, either!

Sure, insurance companies & pharmaceuticals give money to politicians & advocacy organizations - all major corporations do, because government & politicians have supreme power to effect their industries and they need to be sure to be on the "winning" side of all new laws. But generally, they give money to politicians across the political spectrum to hedge their bets, not just to one party or one organization. For all the populism & anti-business rhetoric surrounding Barack Obama, his second highest campaign contributor was Goldman Sachs. Funny how well they're doing now compared to the rest of Wall Street too, isn't it?

So yes, sure... Corporations pay people to advocate policies that would benefit them... So what? So does the AFL-CIO, Teacher's Unions, the AMA, the Auto-Worker's Union, and hundreds of other profit and non-profit organizations. When government has the authority to drastically alter the outcomes of people's lives, interested parties will always be there vying for control.

However... Companies & other organizations rarely, if ever, pay individual, unconnected people to advance their views!

I sure as hell have never been paid by an insurance company to argue against government run health care any more than I've ever been paid by an oil company to question the validity of exaggerated global warming hysteria. Furthermore, the vast majority of us aren't rich... So exactly why would people standing up against socialized medicine only want rich people to get health care??

More to the point, since increasingly liberalized markets have consistently proven to reduce costs and increase access to goods & services in all cultures and in all industries they've ever been allowed, it makes vastly more sense to ask why supporters so-called "health care reform" want to continue down a road which has been shown to be disastrous for the poor & middle class hundreds of times?

Regardless - the truth is, no one (or very few people) want to see anyone go without medical care - everyone wants "universal coverage". So attempting to discredit those of us who disagree that government is the best means of accomplishing those goals by attacking our motives is not only factually wrong, but is morally repugnant to boot.

Appeal to Authority

Unfortunately, this one is both incredibly common and also hard to combat. Most people are incapable - both in terms of skills & knowledge and simply as a matter of limited time - of parsing each new proposed piece of legislation and their impact on the economy. This is why we elect representatives after all... Though there are a few people out there who do, almost no one advocates "pure" democracy for this very reason. We all understand that we have to entrust other people with the task of learning these things for us, then reporting back so that we can make relatively informed decisions without having to spend our lives studying things we have no interest in and no aptitude for.

Problem is... There is a difference between using a legitimate authority to bolster an otherwise sound argument and replacing a sound argument with the assertion that someone authoritative said that the conclusion is correct. For instance, if I make an argument like "bonobos & humans share a remarkably high percentage of the same genetic code, therefore we are likely to be closely related species", I may need to support this argument by citing authorities. I may cite geneticists and enlist the help of primate researchers to give credence to my assumptions and facts. But this is patently different from skipping the argument entirely by suggesting that Dr. Scientist X said it was true, therefore it is true.

Yet that is what many within the health care debate consistently do.

Claiming that because President Obama promised a certain outcome, that is the outcome which will be delivered is not only a bad argument, it's also historically absurd. Even if it was acceptable to forgo making actual arguments by citing an authority, politicians & other government officials are tremendously bad sources! The incentive for politicians is to win popularity contests, not to tell the truth. Elections aren't won by telling people hard facts and explaining complex ideas... And they most certainly don't win them by telling people bad news. Obama, for instance, has repeatedly talked about "sacrifice", while promoting all manner of bailouts, "stimulus" packages, massive government spending and campaigns telling individuals to consume which does everything possible to prevent people from actually tightening their belts.

In the political world, promises & reality are almost always 180-degrees off of each other...

The worst aspect of this, perhaps, is budget projections. As Steven Hayward and Erik Peterson wrote in a 1993 Reason Magazine article:
"At its start, in 1966, Medicare cost $3 billion... The House Ways and Means Committee estimated that Medicare would cost only about $12 billion by 1990 (a figure that included an allowance for inflation). This was supposedly a 'conservative' estimate. But in 1990 Medicare actually cost $107 billion."
As of 2008, the US government spent $386 Billion... And the unfunded liabilities over the next several decades are currently estimated in the realm of $37 Trillion.

So let's not pretend that governments are any kind of authorities at all on anything but forcibly collecting money from their citizenry and yet still spending more than they take in.


At least this one doesn't necessarily rely on flawed logic - only its premises are wildly inaccurate... And thus, it's still one of the worst arguments of all time, especially within the realm of health care. We do not have a free market health care system, so demonizing markets as the cause of our health care woes makes absolutely no sense.

The health care system in the United States is one of the most highly regulated industries we have - and what isn't dominated by command & control legislation, mandates, subsidies & government granted monopolies is controlled outright by our government being involved in the payment of over 50% of the health care used by Americans. So crusading against "capitalism", and especially against the purer laissez-faire variety is a failure of initial premises. The thing with bad premises is that once one is accepted as true, all logical reasoning that flows from that premise will be flawed.

I've often referenced a comprehensive article on the history of health care in the United States by Terree P. Wasley entitled, "
Health care in the twentieth century: a history of government interference and protection" in the April 1993 volume of the journal, Business Economics on this topic, so I'll pull a quote or two here to make my point. First, a little background on insurance in the US:

"By 1930, the United States had as many or more medical, nursing, and dental schools and hospital beds per unit of population as it has today. The Great Depression, however, slowed the expansion of health care facilities and personnel. Many Americans had trouble paying for the medical care they needed. Doctors tried to make allowances for patients in financial straits, but hospitals, with higher fixed costs, had much less flexibility. Between 1929 and 1930, average hospital receipts plummeted from more than $200 per patient to less than $60. Hospitals then began to turn to insurance plans as a way to guarantee a steady cash flow by spreading the financial risk."
As the Great Depression wore on with FDR continuing more and more asinine & quite useless economic policies, price & wage controls were imposed. Contrary to what anti-capitalists would have you believe, uninhibited markets bid prices for qualified labor higher (up to market equilibrium, of course), not lower... Alas, fixing wages in the 1940s prohibited employers from finding direct ways of enticing quality employees to their businesses. But soon enough, employers found an alternative in offering health insurance "benefits":
"However, in 1942 the War Labor Board decided that fringe benefits up to 5 percent of wages would not be considered inflationary. Employers began to offer health benefits as a way of providing additional compensation. Total enrollment in group hospital plans grew from less than 7 million to about 26 million subscribers from 1942 to 1945.(4)

Concurrently, the Internal Revenue Service ruled that the purchase of health insurance for workers was a legitimate cost of doing business and could be deducted from taxable business income. The IRS also ruled that workers did not have to include the value of health insurance benefits in calculating their taxable income. These rulings amounted to a giant tax incentive for both employers and taxpayers and did much to institutionalize employer-provided health care into the system."
Then, of course, Labor Unions jumped on board and started demanding insurance benefits as part of their contract negotiations... When the Office of Price Administration & its wage controls were finally abandoned in 1947, the employer-provided health insurance system was firmly in place. Now, of course, as society has shifted away from the single-corporation style employment that dominated much of the mid 20th Century and people are starting to work for shorter amounts of time with any given company, having insurance tied to employers is an incredibly large problem for modern Americans. But as the above information details, it wasn't at all an outcome of the "market", but of government intervention into the market.

Now, it's tempting to think that simply changing the tax code to make all health care expenses tax deductible (rather than just for employer-provided care), we would see a large increase in options for health insurance consumers... But that ignores the rest of the interventions government has imposed on the market for health care over the last 60 years.
"Besides enacting tax incentives that skewed the insurance market, government intervention generated another problem in the industry -- "experience rating." Because the Blues were protected by government due to their exemption from taxes and reserve requirements, they had a competitive advantage over commercial insurers. Commercial insurers turned to "experience rating" their insurance plans as a way to compete against the Blues [Blue Cross & Blue Shield - ever wonder why they're often the only options in your city or state?]. They began to sell insurance to employers with relatively healthy, low-risk employees at cheaper rates than the Blues. Since the Blues often were required by law to use a "community rating" system, they responded to this competition by receiving permission to use a "modified" community rating to reflect experience.(7)"
Then we had the addition of Medicare & Medicaid... But because of the incentives in place making health care "free" and tax-exempt in the minds of consumers; doctors & patients were both expecting the government or the private insurers to pay for top coverage - with no sense of weighing opportunity costs.
"The third-party payment system now dominated the health care industry. Most Americans were covered either by private health insurance or a government program for their hospital and physician costs. But Medicare and Medicaid brought the same defects found in the private insurance industry to the health care landscape, accelerating the rate of medical price inflation already set in motion by cost-plus reimbursement, lack of patient incentive to control costs, and first-dollar coverage."
Thus the 3rd party payment system, combined with the various other interventions into the market have provided an environment tailor-made to see prices balloon, over-consumption of existing health care resources, and increasingly slowed production of new resources (like how we've gone from 26 producers of vaccines down to only a handful).

The full article is definitely worth reading, as are the dozens of others you can find on the history of medical care in the United States... There is nothing particularly controversial or disputed about the facts Wasley presents - nearly all of them are even found on Wikipedia if anyone cared to look, but few people bother to learn the history of government involvement in health care and thus are doomed to repeat the mistakes of the past.

And honestly, this isn't even scratching the surface. I've skipped mandates on insurance companies, special government protections for the big players, special Intellectual Property provisions guaranteed to major pharmaceutical companies, the government-granted authority given to the AMA on number of medical licenses given out... There are thousands upon thousands of ways in which well-meaning (and not-so-well-meaning) politicians have distorted and destroyed anything even remotely like a private "free market" in health care.

The real trouble for the anti-capitalists is that since the 1940s, the most crucial aspects of why free markets work have been destroyed by government. Freely shifting Prices, profits & losses are the most important part of a functioning market! They are what provide information to consumers & producers about the relative value of scarce goods... I've covered this ad nauseum lately, but it could not be more important to understand this. When prices & wages are controlled, they cause unnatural surpluses & shortages wasting valuable resources on products that the market isn't demanding. When the health care consumer no longer has to think about the price of health care, they quit making decisions about relative value and instead just start demanding everything...

Now, some people would say that people shouldn't have to make decisions about relative worth when it comes to their health - except that regardless of what system you employ, this is an unavoidable part of reality. Doctors, hospital beds, medicines, MRI machines - these things are all limited! So we have to have some method of answering questions about what those resources go to... Wishful, and incredibly childish, thinking about just pretending that they're all infinitely available and that everyone should just get everything for free doesn't change that fact.

Without fluid prices and the market feedback provided by profits & losses, accurate information on what health care consumers demand cannot be acquired and the market itself cannot function.

What anti-capitalists fail to recognize is that a market as distorted by government intervention as health care is not, in any meaningful way, "capitalism". So when they complain that health care is representative of reasons we shouldn't allow free markets, they are arguing against a strawman that doesn't exist!


we have the issue of anecdotes... Yes, they are sad. Yes, a few of them are true. And...?

And nothing. Anecdotes are not meaningful points of debate!

Plenty of people experience tragic events, and insurance companies aren't always going to be perfectly nice... But then, there are hundreds, maybe thousands, of cases of insurance fraud over the years as well and while it's really easy to villainize the insurance industry still 90% of Americans are insured and the vast majority of us navigate even the current, rather problematic, system successfully and relatively painlessly. So for all the anecdotes that you can find on people with pre-existing conditions, rescission and sob stories about people who went bankrupt due to some medical catastrophe or another - there are a far greater number of stories (perhaps 95%) which end extremely well.

My mother, and three of my aunts have had breast cancer. They each are healed, and not bankrupt. All four of my grandparents dealt with medical issues and effectively succeeded in overcoming them without massive, entirely unmanageable debt during their lives. I've had my own experiences... All generally good.

So what!?

Nancy Pelosi wouldn't accept my "good" stories as evidence that everything is A-Ok (and she shouldn't, nor is everything totally fine with US health care), because they are invalid as evidence one way or another.

* * * * *

I hope all this clears up a lot of the major complaints and "arguments" floating around about health care. There are other arguments, but these are a few that I have spent the majority of my time dealing with in discussions about this issue. I'm sure it will be too little, too late, but "Part 2", will be real - economically viable - solutions. Basically, I'll repeat everything John Mackey said a few months ago, but since I don't run a major company favored by the rich ex-hippie crowd I doubt I'll take too much flak for it.

In the meantime, don't let any of the above arguments sway your opinion on health care. They are each horrible additions to the "debate" on health care. I can only hope it's not too late for America.

Wednesday, November 25, 2009

Jonathan Kent: Worst Farmer EVER!

Ok... OK!

I promise, this will be my last Smallville related post for a while. And this one should be brief... But here goes.

On the show, Jonathan Kent (Clark Kent's adoptive father for those with no barometer for American culture) is constantly portrayed as being poor - often teetering on the brink of bankruptcy. As I noted in the previous blog, this serves as a lazy writing tool to build instant sympathy with him as the underdog character. But I don't get how Jonathan Kent could possibly be poor... And I'll tell you why. But first, here are some facts & my assumptions:
  1. The Average farmer makes approximately $76,000 a year according to USDA statistics. In rural Kansas, this is definitely a very good living.
  2. The average farmhand earns $44,000 according to SimplyHired. This may vary, and depending on whether or not the Kent family would employ illegal immigrants to work for a cheaper wage, perhaps this is an over-estimate, but for the sake of argument, let's use this figure.
  3. The Kent farm is average in most respects, and there are not significantly more overhead expenses for this farm than others (machinery, supplies, buildings, etc.) and so I am treating it as more or less equal to any of its competitors in this regard.
  4. Clark Kent (Superman) works for free.
  5. Clark Kent with his unique abilities - including superhuman strength, faster-than-sound speed, infinite sun-powered endurance, invulnerability and a host of other powers - can do the farm work equivalent to at least a dozen hired farm-hands.
So now... We do the math.

(Bo Duke as incurable complainer & superhuman loss-making farmer,
Jonathan Kent)

Because Clark works for Mr. Kent for free, and because his abilities are so extremely valuable, he saves the farm an immense amount of money. Given the above estimates, deducting the salaries of a dozen farmhands (which for the sake of simplicity - and because I've never actually seen any on the show - we'll assume is the number required for a farm of comparable size), Clark saves the farm $528,000 per year in labor costs.

I repeat: $528,000 per year!

Thus, since no one else presumably gets their labor for free, or have superhuman children to help out; Jonathan Kent has a greater-than half a million dollar advantage over any of his competitors. In theory, because the other operating costs are identical to other farms, the $528,000 per year is pure profit. Also in theory as a result of this bonus, Jonathan Kent could offer his goods at a far cheaper price than any of his competitors - thus conceivably making his farm the preferred choice for consumers.

Now, granted, this profit can go to any number of capital investments... Expanded operations, marketing, upgrades to facilities. But each of those options would be a way for the farm to make even more money... Regardless, it might be reasonable to assume that Mr. Kent wouldn't want to expand his operations and would prefer to stay a smaller farm simply to protect Clark's true identity. In such an event, that $528,000 in excess profit could go directly into his own salary.

So... If the Kent farm was average in all other respects, the Superman free labor bonus would produce annual earnings of $604,000 for Jonathan Kent.

No one in their right mind would consider earning $604,000 a year the salary of a poor man. So I will not insult anyone's intelligence by pretending that this is the salary that Mr. Kent is unceasingly whining about episode after episode. "Poor" in this instance (factoring in the poverty line for a given family size of 3 people) according to Health & Human Services would mean that Mr. Kent is only earning $18,310. Now, I'll be generous here and say that with college payments looming, and other ordinary middle class expenses, the HHS figure would be more "destitute" than "poor"; so let's assume that one might still complain when earning double that amount with a family of three.

So let's imagine that Jonathan Kent's financial woes & endless kvetching stem from earning $36,620 a year... That's less than I make with no family, so I could certainly see whining about it. But what does it mean...? It would mean that Mr. Kent, with all his amazing special advantages, is actually losing $567,380 a year!!!


How can a person make such poor economic decisions that his business could lose enough to not only negate over a half million dollars in essentially free money, but also to cause his personal earnings to be less than 50% of the national average for his field!??!?!??????????!??

ANSWER: Worst. Farmer. Ever.

S-S-Something from the Comments: Smallville Edition

Recently, I wrote a short blurb about a tremendously stupid speech on "advanced" economics given by the character Lionel Luthor on TV's "Smallville".

Last night a buddy of mine, Monte, commented on my post and I feel like his response is worth sharing, and responding to. What Monte said was this:
"Sean, I really don't think that anyone ever watched Smallville for Lex [sic] Luthor's speech on economics. Getting pissed about that is really kind of silly. People watch it to be entertained, not to learn about economic theory, which I agree, can be a problem. But I don't think that "think tanks" are any better for intelligent decisions. They are every bit as cut off from reality as you claim University professors are. They are every bit ensconced in echo chambers and same sided opinions and shut off from dissent as any other group. I like academic settings, but realize that there are egos and group think even there. All of my experience and contact with think tanks is much much more one sided and shut off from the rest of the world. that is part of where I get so annoyed with the majority of the links you site.

Yes, so Hollywood is filled with stupid people, but they make what sells, and capitalism says that what sells is best for humanity. How do you plan to fix it?"
Monte's right; people don't watch Smallville for lessons on economic theory, they watch to be entertained, but ultimately I think he's missing the point.

It's *precisely* because people watch Smallville to be entertained that it's such a concern.
  • Consider that most people will not actually take the time to learn any decent economics or read any books on the topic.
  • Consider also, that most people will never take a class on the subject outside of perhaps one semester in high school.
  • Consider as well that in total, most people will spend only a few hours of their lives thinking about these things critically - and in a setting that, let's face it, doesn't really hold any particularly high standards for even doing that.
Now realize that most people watch on average 5 hours of TV A DAY. And that 99% of the American populace owns at least 1 TV, with over 70% owning more than one.. People are influenced by those attitudes and ideas they are exposed to most often and most consistently.

This is why choosing the right friends is so important - the people you spend time with make a big difference in the kind of person you become.

If it was only Smallville that did this crap, I'd laugh at it - in fact, we all might just laugh at it - and not think anything of it. But it's not. It's virtually *ALL* of scripted television that fails like this. As a result, it is a subtle way in which the average person is constantly hearing a set of ideas - in a non-critical environment, no less - that are simply wrong. This doesn't just apply to economics either - it applies across the board; with shows on psychics, computers & internet issues, genetics (where do you think the whole "frankenfoods" concept really comes from?), and a dozen other fields.

I have struggled for many many years to convince people like Monte that it is a real problem, because most intelligent people write it off as just being "TV"... For a person like Monte, the TV isn't that big of an influence, because he does actually read books, papers, and study topics like this. But Monte is not in the majority...

As for Think Tanks - I agree wholeheartedly!

Many think tanks and academic settings do wind up being filled with group-think and turn into echo chambers. And I have commented on that innumerable times over the years. It's one of the biggest frustrations I have with the whole education establishment.

The difference, however, is that when people read an article from a think tank or from a political advocacy organization, they do so very critically. Especially if it doesn't fit their preexisting views on government or history (which tend to be the majority of papers I ever point to for most of my "audience").

This means that people are actually more likely, in general, to engage their brains when reading these kinds of things in ways that they simply do not do when watching television.

Granted, there's a lot of potential for confirmation bias as well, but speaking broadly, those kinds of papers tend to spark debate which can effectively counter bad reasoning - whereas the ignorance perpetuated by narrative television goes unnoticed. For a prime time show that's relatively successful, ratings of 12-15 million viewers per episode are common, compare that with 3-5 million viewers of news on any given night (and most TV news certainly isn't much better intellectually anyway).

My point is that a large percentage of people obtain their beliefs about business, economics, science and even many of their operating philosophies & moral values from years of uncritical television viewing. This has given the writers of television an immense amount of influence over the attitudes & views of the nation over the decades. And if you think I'm wrong about that, then ponder for a minute that Barack Obama has had vastly more TV time than any politician in US history and has done so deliberately.

Think also, way back to the 1960 presidential election with John F. Kennedy & Richard Nixon... Those who only heard their televised debate thought Nixon clearly won on the issues - but those who saw them on TV (roughly 80 million people!), preferred JFK and thought that he was the winner.

Politicians know that this stuff matters.

They try to use it to their advantage. This is why the smart ones hire people from my industry to do their promotional work. They don't hire political people, campaigners & speechwriters to produce their media, they hire entertainment people... Because they know that we are the experts in moving people emotionally and are the ones capable of actually influencing the hearts and minds of potential voters. Just ask Will.I.Am how that works.

It's also not true, in my opinion, that TV writers are just responding to market demand for dumb ideas. There is a market for being entertained. In the context of that Smallville episode, Lionel Luthor could have easily said something sane about economics - and the average viewer would have been just as happy, and the plot just as easily advanced. So while Monte is right that capitalism provides the people with what they want, he's not necessarily right that people's wants in television are so specific (or specifically known to television producers) as to demand to hear economic idiocy in throw-away scenes. What people want out of a show like Smallville is a teenage soap-opera about superheroes, messy relationships, mysteries & lies, and all with some decent special effects and explosions thrown in for fun. The underlying subtext is up to the writers and moral lessons being expressed is something typically left up to the writers.

(See? It's Soap-opera Superman!)

And what do you know, the writers tend to beat their views into their audience with all the subtlety of a sledgehammer...

Strangely, you only see the villains with their general purpose international conglomerate "LuthorCorp" and "LexCorp" businesses making deals, and earning those nasty "profits" by illegal means. Clark Kent's father, Jonathan, however is just your average salt-of-the-earth family farmer who is constantly broke because, as we all know, farmers never make any money. I mean, my god... The USDA estimates that the average farmer is going to be making a meager income of only $76,065 for 2009, how could anyone in rural America live on such a pittance!? And of course, unlike the billionaire crowd, farmers and the farming industry don't have any connection with the political elite - that's why the US political primaries don't begin with a farming heavy state like Iowa or anything like that! Naturally, being rich means you cheat, and being broke means you are honest. Only honest people are poor, and only thieves & murderers are rich... It's a false dichotomy that leads many people to supporting remarkably stupid ideas purely because they've been conditioned to emotionally respond to this type of paradigm.

The funny thing is, I'm not even going to just blame it on writers' ignorance of economics (which is no doubt a major aspect of this issue) so much as it is actually a product of writer laziness.

All stories need heroes & villains. Underdogs make for sympathetic heroes, and what better underdog are you going find than a poor, well-meaning farmer (David) vs. a billionaire corporate tycoon (Goliath) with all the resources in the world? So... I mean... I get it. It's easy, and when you only have a couple weeks to write an episode of a nationally broadcast television show, sometimes you have no better option than resorting to the basics. However, it's both obnoxious and intellectually damaging for such a poorly-constructed world-view to find its way into the homes of millions of people night after night after night.

Finally; responding to the "What are you going to do about it?" question: I'm going to do exactly what I've been doing the last two months!

I'm going to keep trying to explain what I've written above to organizations who promote better ideas to get them in the game - and consulting with them to help them step up their media presence and to actually recognize that they're losing the intellectual battle not because of bad ideas, but because of bad presentation. I'm also going to keep producing and working on that type of media production as I have done. And, lastly, I'm going to keep writing and exposing these ideas to whatever audience I might have. I can only hope that that's enough.

Note: "Capitalism" doesn't actually say anything at all about what sells being "best for humanity". Capitalists don't either. What we actually say is that the free enterprise, laissez-faire, version of capitalism provides people with what they want and need. Success in that system comes from effectively providing for your customers with the things that they place in highest value - and doing so more effectively than anyone else. I've explained this at length in previous blogs; i.e. The Profit "Motive", ObamaCare & Corporatism, A Tale of Two Burgers, People Actually Still Believe in the Labor Theory of Value!? and others... So I don't really need to do it again, but the term "best" is always and entirely dependent on one's values. Value is subjective and differs from individual to individual, and thus there is no "best" for the whole of humanity.

At any rate, the "market" is just the term we use to describe the exchange of goods within human populations, much like the way we use the term "society" to describe people living & communicating with each other under shared geography or culture. These are just concepts with no ability to have an independent consciousness or will of their own and which most certainly cannot make moral judgments or select levels of value for different things - only individual people can do that. It's just a morality-neutral platform for people to engage in mutually beneficial trade while peacefully respecting each others' right to property.

Tuesday, November 24, 2009

The Profit "Motive", ObamaCare & Corporatism

Reason TV asks; "Would ObamaCare kill medical innovation?"

At Reason.TV

I think the answer to their question is that, in fact, yes it will... But that, to me, is not necessarily the most interesting aspect of this discussion. I tend to think that it's really the root problems that need to be addressed in these situations, and in this case - as the above video makes quite clear - the root of this problem is the confusion so many people have with the concept of profits, and what their function actually is.

For so many out there, "Profit" has become some kind of a curse-word. This largely stems from the fact that far too few people actually understand what profits are, and what they actually do within the context of markets. I suppose that some people believe the word is synonymous with "greed", although in truth greed and profits are quite distinct from each other. To paraphrase something Thomas Sowell used to say;
"I'm one of the greediest people around, and yet my salary is no better for it!"
A person can be as greedy as he could possibly be, and yet that has no bearing on the profits (in Sowell's case: annual salary) that he might earn. This is because profits aren't a function of a person's motives or desires, but a function of a person's (or a company's) ability to serve the general consumer's wants & needs! If you do a good job of serving and providing for those needs - for example, by creating and offering a new cancer drug that is saving millions of people's lives - the market will reward you for this as people bid up the monetary price for each unit of your product in order to access it, thus raising your profits.

To quote one of my economist heroes, Walter E. Williams;
"One of the wonderful things about free markets is that the path to greater wealth comes not from looting, plundering and enslaving one's fellow man, as it has throughout most of human history, but by serving and pleasing him."
In turn, the higher profits being made encourage you as the producer to make more of your product, to expand your business, and thus to employ more people. Additionally, high prices & profits going to one person's business encourage savvy competitors to move into that part of the market and compete for some of those high profits (provided that they are allowed to by government - which unfortunately in the case of health care, as a result of protectionism & bad IP law, is often not the case). As a result, world prosperity improves; in this case because more and better cancer treatments are widely available to the mass public.

This is an incredibly good thing!!

However, if you produce something that the general consumer is not interested in... For example, if you decide to commit your resources towards producing a new line of Hitler Bobble-Head Dolls... The average consumer will not buy your product, and thus you will experience losses. If you make the wrong decisions consistently, then continued losses force your company out of business and you go bankrupt.

Profits and losses are the way individuals, dispersed across a very wide - even global - marketplace can tell whether or not they are doing things that serve the public's interests, and which things do not. To take a longer excerpt from another one of my favorite economists, Steve Horowitz (from his brilliant article in the Freeman; "Profit: Not Just A Motive" - Emphasis added):
"Suppose for a moment that we try to take the profit motive out of health care by going to a system in which government pays for and/or directly provides the services. Suppose further that we could, somehow, ensure that the political officials would not be self-interested. For many critics of the profit motive, the problem is solved because public-spirited politicians and bureaucrats have replaced profit-seeking firms.

Well, not so fast. By what method exactly will the officials know how to allocate resources? By what method will they know how much of what kind of health care people want? And more important, by what method will they know how to produce that health care without wasting resources? It’s one thing to say that every adult should, for example, have a checkup every year, but should it be provided by an MD, an LPN, or an RN? What kind of equipment should be used? How thorough should it be? And most crucially, how will political decision-makers know if they’ve answered these questions correctly?

In markets with good institutions, profit-seeking producers can get answers to these questions by observing prices and their own profits and losses in order to determine which uses of resources are more or less valuable to consumers. Rather than having one solution imposed on all producers, based on the best guesses of political officials, an industry populated by profit seekers can try out alternative solutions and learn which ones work most effectively. Competition for profit is a process of learning and discovery. For all the profit-critics’ concern—especially but not only in health care—that allocating resources by profits leads to waste, few if any understand how profits and prices signal the efficiency (or lack thereof) of resource use and allow producers to learn from those signals."
And this is the fundamental point here: Profit is not just a motive! It's one of the most important ways information can be acquired in a market economy. More to the point, the absence of this information makes economic calculation impossible for governments and other monopoly providers of service.

Misunderstanding this point can lead some people to confuse profits with "greed". Greed is a motive, profit is a data gathering method.

Now... If you are both greedy, and intelligent, you can use the data available by generating higher profits to obtain that higher salary. You can do this by being creative, savvy and recognizing the trends in consumer preference and then positioning yourself in such a way that you (as opposed to your potential competitors) are the person who is providing that thing that most people want. The thing is though, "greed" isn't really a prerequisite here! Sure, greed is one motivator - and it's a motivator for a lot of people, no doubt - but the question is always, "Greed for what, exactly??"

Greed for money is the typical evil most people point to - and is assuredly the one being vilified by the protesters in the Reason.TV video. But it's my suspicion that that particular type of greed is largely a myth. Money is a means to an end. As Ayn Rand put it:
"Money is only a tool. It will take you wherever you wish, but it will not replace you as the driver."
While there are certainly many people do not understand this point, I do think on some level the majority of us do. I also think that the majority of people who are wealthy absolutely understand this point... Especially if they built their own financial success. Inherited wealth is a different matter perhaps, but everyone from Napoleon Hill & Andrew Carnegie to Robert Kiyosaki & Donald Trump have constantly pointed out that increasing one's wealth isn't about the "money", but about the kind of life that money affords. It's about the dreams and goals that people can achieve which would have otherwise been outside their reach... Not simply about the amount of money being amassed or "hoarded".

In Robert Kiyosaki's (actually really fun!) financial literacy game, "Cash Flow 101", the objective of the game is not to be the first one with the most amount of property or money as it is in the Parker Bros. classic, "Monopoly". The objective in Cash Flow is to be the first player to get out of the "Rat Race" and fulfill a pre-defined "Dream". These dreams vary and can be anything from touring the world on a yacht or dinner with the President, to founding an educational organization for the 3rd world or establishing a large rain forest reserve in Ecuador.

And that, I believe, is much more reflective of real life. There is no meaningful division between "rich" and "poor"; we're all people. We all have goals and aspirations, and I suspect that only a rather small percentage of us want to roll around in big piles of money all day. What most of us really want is to achieve some meaningful dream. Sometimes these dreams are small, requiring modest means, like having a family or building your neighborhood's finest treehouse. But sometimes, the dreams are bigger, sometimes - like in the case of Richard Branson - the dream is to fly into space. And yes, sometimes the dreams are darker and more disturbing such as becoming a king or a President and ruling over other people.

The point is that people can be "greedy" for any number of things - mostly good, sometimes bad, and if they're savvy, they can obtain the means to their ends through properly reading the signals provided by profits & losses.

And in fact, most people do make their living based on their company's successful navigation of price signals as the result of voluntary, and mutually beneficial exchanges in a mostly free enterprise economy. In this system, companies compete for scarce resources by offering the best deals they can on products people support - and regular consumers win big. Profits & losses are crucial to this process, and it's high time everyone actually understood that!

So... That's the good news...

* * * * *
What is a problem, however, is that we do not actually have a mostly free enterprise economy with respect to many industries... Especially our most socially important ones - such as health care, finance, heavy manufacturing, housing, food production and many others. Instead, we live in an ever-increasingly corporatist economy where profits can be obtained by government favors, circumventing consumers entirely. In a nation where so many big companies use government to either stifle their competitors through onerous legislation, get government to force consumers to buy what they sell, or simply lobby for massive subsidies, funneling money into their coffers by force - we have no free market. As a result, for a few (and I really do need to stress that this reflects only a very small number) people with the right connections, profits and losses are meaningless and provide no information what-so-ever.

No matter the motivation - be it greed for money, lust for power, or merely the intellectual laziness that leads some people to think it's ok to simply take what they want - the problem is always one of government authority being used as a means of 3rd party theft to sidestep competing free enterprise and obtain profits without actually offering something that people would actually buy under their own volition.

There are far too many examples of this... For instance, a recent Citizens' Group Report from the National Taxpayers Union has revealed that each car General Motors has sold since the government purchased majority shares has cost the American taxpayer on average $12,200. GM's business model was not producing cars people wanted at a price they were willing to pay. There's plenty of blame to go around on that score - from bad management decisions to out of control unions forcing massively higher labor costs onto the company. No matter what the cause - the automobile consumer had spoken... GM lost, their competitors won.

But that wasn't the end of the story!

Instead of going bankrupt as their corporate decisions would have warranted, GM managed to cash in some favors with their friends in government to work around the voluntary choices of individual auto consumers. So now, regardless of what you, or I, or anyone else decides for ourselves, we have no choice but to support General Motors. The signal provided by the market (losses) was that GM didn't serve their fellow man in a way that they valued. The reality is that for a company with political connections in a corporatist environment, that signal doesn't always matter - thus allowing favored firms to continue operating in ways that waste resources on products too few people want to buy.

If this doesn't outrage you at your very core - it needs to.

But make sure you direct that outrage at the right place! It's not the corporation that has the power to demand your money and collect it upon threat of jail. The Government does. Business leaders like the GM management have every incentive in the world to protect their interests - and rightly so, since their success or failure can have a massive impact on thousands of their employee's lives! So it is, and should be, no surprise that they will use every means at their disposal to protect themselves - even at the expense of the general taxpayer.

So it makes no sense at all to complain about the corruption at General Motors in all of this. After all, they are ultimately doing the best job they can to enrich their employees & shareholders. The problem, is that government has the power to take the products of your labor redistribute them to their friends in big business... The way the entire economy of a corporatist (or socialist, fascist, or communist, or any other centrally controlled) system is set up is tailor-made to mitigate individual choice and funnel resources from the bulk of the population right into the hands of the favored few.

In other words, hate the game, not the player. People desperately need to realize that giving government even more authority over the economy only gives big business even more ability to rig said game in their favor. So far from vilifying corporate profits, or greed for that matter, people need to be vilifying the power that allows their money to be handed over to people who haven't earned it. It's definitely time for institutionalized theft to end.

So, sadly, that's the bad news - and right now, it's only getting worse. With the continued interventions into the market, and massive public confusion in economics - we're not likely to see any more freedom of enterprise in the near future. However... With some education, a bit of luck and better media, I still think we can turn it around.

Ok... Maybe it'll take more than just "a bit" of luck...