March 23, 2011
A Bad Day for LibertyBy J.D. Thorpe
Today is a sad anniversary, and yesterday was if anything even worse. On March 22, conservatives mourned ObamaCare‘s anniversary. In one quick 2,700 page bill, our healthcare system was stripped of its last vestiges of free market characteristics. But there is another reason to grieve on this somber day. On March 23, 1992, we lost one of the greatest free market champions to ever grace this earth: F.A. Hayek.
Hayek was a polymath who held dual Ph.D.s in Psychology and Economics from the University of Vienna. He belongs to the Austrian economics tradition and made one of the most important contributions to free market economics -- the concept of spontaneous order.
The idea that order within society and an economic system can be generated in the absence of human coordination is a critical finding to advocates of the free market. If spontaneously generated order did not exist -- we would have to concede that only man is capable of creating order in society and thus ensure ideological victory to the statists.
The core theory behind spontaneous order is that knowledge is diffused throughout society among many actors. Each person holds unique knowledge that no one else has access to. This includes consumer preferences, specific information related to their job, etc.
When you consider that consumer preferences change rapidly and that even the technical aspects of the daily functions of a person's employment are subject to change, the system becomes even more complex. Because of this complexity, collectivist style control over the economic system is virtually impossible. The system is coordinated and thus order is created through the price mechanism that adapts to changing conditions much more rapidly.
Lost in the healthcare debate were practical arguments in defense of these fundamental economic principles. Many people who ordinarily would reject socialism and collective control by bureaucrats and elites were very open to the idea of socialized medicine. Why did this happen?
This scenario is primarily attributed to the focus on emotionalism. For statists who supported the proposed legislation, a central argument focused on the supposed "right" to healthcare services.
But this line of reasoning was very disingenuous. Most Americans wouldn't argue that an individual has a right to a home or food -- yet these goods are considered necessary for survival. Why the inconsistency with healthcare?
True to their liberal traditions, the "right" they were vociferously fighting for could more accurately be described as a positive right. This form of right can only be provided for by infringing on the liberty of another individual -- i.e. forcing the more affluent members of society to subsidize the healthcare costs of those unable to afford it. It didn't matter that the debate was utterly lacking in substantive economic analysis. Demagoguery took center stage.
So what can we expect from our new socialized healthcare system? If we assume that the Patient Protection and Affordable Care Act (PPACA) will survive judicial challenges, the U.S. is heading towards disaster.
Ignoring the additional fiscal problems, the bill fails miserably from an economic theory standpoint. For example, let's examine the issue of pre-existing conditions. Tragically, many politicians and activists who consider themselves to be staunch conservatives took the position that insurance companies should not be able to deny coverage to individuals based on pre-existing conditions.
This view displays an inherent misunderstanding of insurance. What would happen if we approached car insurance or home insurance in the same way? Does it sound reasonable that a person should be able to purchase car insurance after they were in a wreck to cover the damages incurred? Should a person be able to take out an insurance policy on their house after it burned down?
The obvious answer is no. It is unreasonable to force a private company to insure a person, who by the nature of their pre-existing condition, will cost the company much more then they will pay into the communal pot. However, since companies are required by law to insure the pre-existing condition group at a reasonable premium -- the end result will be higher premiums across the board.
Insurance companies will be forced to charge higher premiums for everyone else in order to cover the loss from the people they have been mandated by law to cover. Don't believe me? It's already happening as insurance companies begin to comply with the law. Regence BlueCross Blueshield of Oregon and Celtic Insurance Company in Wisconsin are two examples of companies that already are reporting that part of the rise in premiums last year was associated with ObamaCare.
Sadly, there are people who are either uninsurable or can only be insured at exponentially high rates. Ignoring market principles doesn't change this reality -- it merely passes on costs to others in society.
Another core problem with ObamaCare is that like all collectivist legislation it mandates uniformity. In many cases, this approach harms the people it purports to protect - the poor. Companies like McDonalds offer their employees mini-med plans. These insurance plans are designed for low income earners and provide limited medical coverage for low premiums.
However, ObamaCare made these plans illegal because they cap medical coverage at a certain level. Employers like McDonalds cannot afford to give low-skill workers insurance plans that meet the standards of ObamaCare, so after threats that the company would drop coverage for over 30,000 workers, the Administration caved and Health and Human Services granted an exemption from this standard for this year. In fact, the Administration granted over 1,000 exemptions -- many of which went to labor unions.
The fact that ObamaCare granted so many exemptions is an implicit acknowledgement that uniformity doesn't work and that a system allowing for spontaneous order would be more efficient and provide better, diverse coverage that is more capable of meeting individual needs and preferences.
The American healthcare system was not without its own flaws prior to President Obama stepping into the Oval Office. The pricing mechanism has been distorted for many years due to excessive government intervention and an employer based healthcare system that resulted from World War II era wage ceilings placed on private companies (these wage ceilings forced private companies to cover health benefits as a means of competing with the government for employees).
The problem with ObamaCare is that it made a system with flaws much worse by eliminating more choice, and distorting the price mechanism further. Expensive, inefficient, rationed care that further exacerbates our fiscal outlook is the future of American health care.
So to the many conservatives that are despairing over what was lost one year ago today -- I ask that you remember the great life of F.A. Hayek. And as you go about your daily routine, ponder the following question: What would Hayek do?