Posts Tagged ‘central planning’

Universal Health Care: A Near Death Experience for Innovation

Saturday, August 8th, 2009

If economies of scale and a government system to compete with the private system are effective price reducing mechanisms, shouldn’t we have a government restaurant system to drive the cost of a McDonald’s hamburger to twenty cents?  Surely we could squeeze a few billion out of these fat restaurant middle men who stand between us and our food– even from advertising budgets alone.  And if that’ll work, why not have two national restaurant plans, and force Mickey D’s to give us burgers for free?

The national health care government plan conceit isn’t much less silly than this.  It rests on a misapplied enterprise concept of economies of scale, given muddy transference to industries and nations where it has no realistic application (unless the application is the creation of a giant systemic trap).

In itself, additional health insurance doesn’t create any health care.  The added insurance plans will be chasing after the same pool of health goods and services, overwhelming any possible pressure on insurance margins to put upward pressure on health care prices– the opposite of what politicians claim.  Government is disguising a burden as a relief, and can’t possibly have any subsequent choice but to layer mandate after mandate on all parties to try and patch the leaks on the pressure cooker they’re creating.

Which is what economies of scale really are at a government level– they’re really “economies” of force and central planning.  In a single snap shot these may appear effective, but they amount to a one stage cupboard stripping, and the true price will eventually be paid.

The first time that a king may have undertaken a castle improvement project by conscripting five thousand peasants and commanding that carpenters and masons cough up half their stock of wood and stone, he must have felt clever and efficient.  Upon further royal edicts, every peasant who could limp fast and far enough would go into hiding, while tradesmen would retire to subsistence potato farming, or change their business to cut to order (and also hide).

Disguised conscription of health care resources in the deluded pursuit of economies of scale will create shortages and higher prices just on its own non-merits (a la king, so to speak), but even worse is the blocked and severed interaction of the macro mechanisms that actually are critical at that scale– substitution and innovation.

There is some substitution on the demand side in the current system, as for example when someone uses WebMD, or does nothing for a minor or undiagnosed issue because of their value judgements about the cost or convenience.  However, suppliers are forbidden to respond to this the way they would in a normal market.

 A nurse or technician can’t run a checkup kiosk in a high traffic area to substitute convenience for the state of the art.  Nor can an unconventional and driven physician supervise a staff of a hundred technicians and try to bring us a mega-department store model of delivery to offer more or cheaper or both.  (And in case you think that’s the opposite of the direction health care should go, rest easy, since the opposite opposite is also forbidden: recently a physician practice was cut down for using a payment by subscription method to offer more personal service oriented care.)

Since alternatives aren’t allowed (to “compete with nothing”, as Clayton Christensen might put it) the normal market interplay among and between substitutions and innovations is shut down, and health care forced into one single massive channel.  This is the real cause of the rising prices thus far.  Not because the “economies of scale” are missing, but because those methods that are proposed to rescue us have already been here, and already done some of their dirty work.

It would be as if we mandate that no jewelry could be sold unless it contains at least one large top quality precious stone, and at least an ounce of gold, and that it can be manufactured only by a craftsperson with twelve years of top level training in Italy, and distributed only through a licensed and regulated employer paid jewelry policy.  And then we became disquieted when prices went up and many Americans started to go without jewelry.  (One can picture the progression.  After a few years there’d be heart wrenching stories on T.V. about young couples forced to marry without access to wedding rings. Subsequently a universal national jewelry plan would be proposed, to set right the “failure of the private sector”.)

It’s not just about offering cheap low quality stuff.  A free market constantly rips goods and services apart and bundles them back up again from a practical infinity of angles, shapes and sizes, to add quality to the cheap stuff and volume to the expensive stuff (to make it cheap).  Economically, that’s what innovation is– without it, innovation is essentially gone.

This innovation freeze from a single option market means that tomorrow’s improvements will never happen.  Even if we contend (absurdly counter to any reasonable observation) that we’re going to freeze health care at the highest available level, once again we’d be stabbing the future in the back.  We got to have better health care than our grandparents, but are willing to cut off our grandchildren from a near certain repeat of that deal to take pressure off ourselves for a few years– pressure caused in the first place by previous misguided attempts to give our present selves more.

All the evidence from centuries of real economics out in the street is that when goods and services can break into new channels and methods, it soon benefits the consumers of those goods and services. The benefits for those (public and private) who deliver the goods and services are much more uneven.  These people will tend to “talk their books” with a bias to believe that “the issues are too important to leave to chance.”

The issues are important.  But it isn’t leaving it to chance, it’s leaving it to individual decision making.  A little corny sounding, perhaps, but we might even say that it’s leaving it to freedom.

I work in the insurance industry.  The opinions in this column are my own.


By Les Lafave
Monetary and Banking Reform –
Originally Published at Strike The Root

Good News for the Fed: Half-Baked is the New Guile

Monday, September 15th, 2008

Recently on CNBC Squawk Box I heard Richard LeFrak of The LeFrak Organization (real estate development), outline a plan to solve the housing crisis by allowing immigrants into the U.S. if they agree to buy a house.  LeFrak admitted that his plan isn’t likely to be embraced by either the left or the right.

I’d like to give kudos to the left and right. Mr. LeFrak’s idea is crazy– left, right or in a circle.  Unfortunately, his way of looking at economic and social policy decisions, far from being out of line, is what’s most common.  (Hey, we’ve got a couple of problems, so why not get them together and let them solve each other?  It worked when I was seven and helped my friend build a tree house…)

Economist Thomas Sowell calls it “one stage thinking”.  It’s not like not thinking at all.  Nor does one stage thinking necessarily lack volume and detail– the world’s most intensive, multi-billion dollar plans can (unfortunately) be one stage. It’s more about making a plan without ever understanding that your goal is a moving target, or perhaps doesn’t even fit the concept of “target” or “goal” at all.

(Try performing the following experiment.  Find the nearest time machine, and travel back in time even just three years. Walk up to any politician and say, “Housing crisis.”  The response you get will be something like, “Yes, I agree absolutely! And I promise we’ll do everything in our power to make housing more affordable.”  So really, given that, you’d have to say that everything’s gone according to plan– the goal was met.)

Mr. LeFrak’s plan now to make housing less affordable would probably work.  It’s also an invitation to unimaginable unintended consequences.  (An imaginable example of one unpredictable factor– some regions suddenly booming uncontrollably from new LeFrak plan demand and sucking out all the air, while others areas rather less suddenly extend their imitations of molding bread.)

What LeFrak has missed, is what so many economists have tried in vain for decades to tell us: Economic calculations have to be made in the economy.  Central planning must be prone to one stage thinking (even leaving aside the inevitable political side-tracking), because it must aggregate decision making above the point that the economy can still adjust organically.  It’s as if you were moving about your business, trying at the same time to consciously tell all your internal organs how, and how much, to operate.  Central planning in an economy must end up with as many errors as there are people whose decisions are stolen from them by the planners.  (Which needless to say, but I’ll say it anyway, is a lot of errors.)

To me, the Federal Reserve is the biggest decision thief of all.  A handful of appointees and executives with the power to adjust (or for that matter destroy) money and interest– the touchstone of the “free market”.  This is surely one of history’s greatest unchallenged oxymorons.  Congress and the Executive may have broad powers of befuddlement, but no one can twiddle a knob or pull a lever quicker than the Fed, and no one has a closer economic relationship with every person in the world.

People tend to confuse the Fed’s inability to achieve results with a lack of power.  (As in, “The Fed doesn’t really set interest rates, they just follow along behind the market and fine tune things.”)  But the Fed is a market decision subversion machine.  There’s a nano-Ben Bernanke in everyone’s wallet, and slipped into the invisible print of any contract.  We shouldn’t confuse the impossibility of the Fed’s mission with low impact.

Almost any decision making that could be kicked back out into the real world would help– especially if we could find some way to resist political pressure during the inevitable mixed economy conflagrations.

But society can never run like the tuned up super computer we could all make it, (and we can never avoid credit collapses like the one we’ve got now), until we get rid of the “mixed” in mixed economy– until we have real money, real banking, and no Federal Reserve Bank.

By Les Lafave

Abolish The Federal Reserve –