Posts Tagged ‘free market’

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 – themaestrosrep.org
Originally Published at Strike The Root

Alan Greenspan Isn’t a Libertarian, Complacency Isn’t Stability, and Debt Isn’t Wealth

Wednesday, October 15th, 2008

A recent New York Times article “Taking a Hard New Look at Alan Greenspan’s Legacy” (Peter S. Goodman), did an entertaining job of slamming former Federal Reserve Chairman Alan Greenspan, and for that, I’d gratefully subscribe (if I could afford it).

But there was a pigeon sized fly in the Timesian ointment– the article calls Greenspan a libertarian with a straight face, and blames the financial crisis, not on Chairman Greenspan’s monetary policy lead foot, but on his “faith” in “free markets”.

Anyone who spends his entire (much too long) career horsing interest rates up and down according to his own bad forecasts can’t possibly be a libertarian, no matter if he once knew Ayn Rand (who said she wasn’t a libertarian anyway), and no matter how many times he may have said the words “free market” (undoubtedly with his fingers crossed).

It doesn’t matter anyway what ideology Greenspan (or anyone else) may say that he has– he’s betrayed them all, or any combination of them all.  Alan Greenspan has always readily taken on or cast off whatever belief best suited his unquenchable narcissism.

Goodman’s Times article focuses on credit derivatives, and makes a convincing case that when they explode, they aren’t very helpful.

But if former Fed Chairman Greenspan et al weren’t continuously stuffing credit into every possible economic crevasse, there wouldn’t have been either a need or a mechanism for the derivatives market to come into existence in the first place.

The most entertaining part of the Times piece is the description of the confrontation of Fed Chairman Greenspan and Treasury allies Robert Rubin and Lawrence Summers with then CFTC Chairman Brooksley E. Born.  She wanted to review the derivatives market, while this triumvirate instead made the argument that even talking about derivatives regulation could trigger a financial crisis.

The Greenspan/Rubin/Summers argument appears appropriately ludicrous in current light, yet their viewpoint remains prevalent in government, Wall Street, and banking circles.  This mental map, which absurdly gets called “free market” is based on:

Assumption #1.  Markets are delicately balanced, and the upside down pyramid can get harpooned and yanked over randomly (like by a suddenly uppity CFTC Chairman).  This is true, but it’s manufactured truth– the pyramid could balance nicely on its base; we choose to stand it on its tip.

Assumption #2.  Once the economy stumbles then government, having in their view not infinite power, but infinite possibilities for power and the country’s sharpest minds to develop and use it, can always push the market upright and back to “stable growth”.  This isn’t true– they mistake the market’s strong organic self-correcting predisposition (often even against the head wind of their efforts), for their self-important wish fulfillment.  (Picture a pre-historic band of sun worshipping priests, who begin to think that their pre-dawn rituals bring up the sun.  If one day they sleep in and the sun comes up anyway, do they change their minds?  Of course not– they’d say, “We sure got lucky that time.  Tomorrow, let’s do two rituals.”  The human capacity to shoehorn powerless insignificance into self-aggrandizing puffery is stunning (and I’m no longer talking about the ancient sun priests, but the modern monetary priests, who should have every advantage to know better).)

So, I’ll repeat the question that one can imagine Ms. Born asking Mr. Greenspan (and apparently Mr. Summers and maybe Mr. Rubin).  “Just what kind of “stable”, “free market” system might it be, that will collapse if it’s even discussed?”

That would of course be ours, as we’re finding out ten years later.  However, instead of not discussing it, maybe we should consider a financial system that doesn’t balance (upside down) on a pyramid of debt?

By Les Lafave 

Abolish The Federal Reserve – themaestrosrep.org

Can’t Wait to Get My Piece of the Bailout Profits

Thursday, October 2nd, 2008

The hubris of assuming that all you need to do to make a profit is find a spread between borrowed and lent funds should sound familiar– that’s how Wall Street (with a little grease from the Fed) got us into apocalyptic trouble.

So… Congress is going to take over the financial industry’s disastrous investments, and their disastrous methods, and then, being the nation’s experts on profit, quickly turn a profit.  It’s only a matter of deciding how to divvy up the loot.

Mutual fund manager John Hussman points out that if the Paulson plan means buying the distressed assets at distressed prices, then balance sheet deterioration continues: “The only way that buying the questionable assets will increase capital on the liability side of the balance sheet is if the Treasury overpays for them.”

In other words, you can’t have it both ways– will it be a bailout, and lose money, or will it fail in its purported mission, and make a profit?  (This is politics– it’ll lose money.)

But after all, there’s no other choice right?  Without money and credit created out of nothing so that we have exponentially expanding debt as a stable base for the economy, and a congress to direct it all, there’d clearly be no economic activity at all.  We’d all sit on our butts, suffering C-Span withdrawals– building, creating and doing nothing.

The few lonely voices who predicted this credit collapse years ago, are now even more lonely.  Jim Rogers and Peter Schiff, for example, say that doing nothing is indeed an option– the best of a lot of bad options.  American T.V. bookings for them appear to have actually gone down.

Producers had booked them in the past to keep panel discussions lively.  It wasn’t possible that they could actually be right (they were saying bad things about Wall Street and government).  Now it’s either too embarrassing or too scary to invite them back.  The expanded crisis coverage is dominated instead by those analysts who, with stunning brain-deadness, were forecasting even two months ago that there wouldn’t be a recession.  By and large it’s these incorrect forecasters now demanding our attention again to tell us “there’s no other choice”.

The old saw that if you’re in a hole, the first thing is to stop digging, can’t be heard over the sound of turning shovels. Congress will manage to stagger into some sort of active crisis role.  A bad bailout package is unlikely to be their last effort to throw sand in the gears, but they can always unload their failures on “the free market” (which they badly and intensively regulate).

By Les Lafave

Abolish The Federal Reserve – themaestrosrep.org