TGIF: What Free Market in Health Care?

Federal Health-Care Industry Lobbying Leads the Pack

Contrary to a popular article of faith, America has no free market in health care—far from it. Consider this: the largest lobby in Washington, D.C., is—wait for it—the health care and health insurance industries. Last year, they spent 5.8 times the amount the "defense" contractors spent on lobbying: $800 million versus less than $200 million.

This may have many explanations, but the fact remains: a free market in health care would not see massive lobbying. Based on what Congress and regulatory agencies do, we can be sure that the health care and insurance industries are not by and large lobbying for less government. If so, they are doing a rotten job.

Michael F. Cannon, the Cato Institute's director of health policy studies, wrote a book last year showing just how much of a free market in health America does not have. To call our system a free market is a bad joke, not to mention cruelly dishonest. The details—in addition to the lobbying data—are eye-opening. It's like calling Sweden a socialist country. Wrong again, Bernie Sanders.

Cannon writes (PDF here):

In the United States ... countless state and federal laws block innovations that would improve health care access and quality. Without exception, lawmakers enact these laws in the hope of reducing costs and improving quality. Without exception, they do extraordinary and irreversible harm to patients.

This book explains how state governments prevent medical professionals and entrepreneurs from offering higher-quality, lower-cost care. It explains how Congress denies consumers both control of trillions of dollars of their own earnings and the right to make their own medical decisions. It explains how Congress makes health care increasingly less affordable, jeopardizes patient health by promoting low-quality care, and makes health insurance work against the sick.

Cannon’s work is more than a diagnosis of the sickly U.S. health care system. It's a regimen for moving America toward a "healthy" free market. The sooner we get started the better. For ages health care has been strangled by politicians, bureaucrats, regulators, and private-sector rent-seekers. They all need to be sent packing. We badly need entrepreneurship; free, flexible, private enterprise; and the profit motive—yes, the profit motive, the despised thing that has bestowed incredible wealth on so many people worldwide.

"In corners of the U.S. health sector where market forces have had room to breathe," Cannon writes, the American system has achieved astounding innovations in diagnostics, service delivery, drugs, treatments, devices, and even insurance. But it fails on many counts thanks to government preemption of private market-based efforts. A good part of the reason Americans pay more for health care than anyone else in the world is government intervention. No surprise there if you understand how governments and markets work.

Cannon writes:

Among advanced nations, the United States ranks near the top in terms of government control of health spending. The Organisation for Economic Cooperation and Development (OECD) collects data on 38 economically advanced nations. The OECD reports that in the average member country, 76 percent of health spending is compulsory. That is, rather than allow consumer preferences to allocate those funds, government requires residents to allocate those funds according to the government's preferences or face penalties. In the United States, government controls a significantly larger share of health spending than the OECD average: 85 percent of U.S. health spending is compulsory.

The OECD country with the highest percentage of compulsory spending, the Czech Republic, beats the United States by only three points.

Government controls a larger share of health spending in the United States than in 30 other advanced nations, including Canada (75 percent) and the United Kingdom (83 percent), which have explicitly socialized health systems.

Some free market! Government dictates how 85 cents of every health care dollar is spent.

"Control over health spending and government-imposed barriers to accessing medication," he goes on, "are just two ways government blocks the market forces of individual choice, innovation, and competition that would otherwise make health care better, more affordable, and more secure."

Not all action is at the national level, of course. State governments heavily regulate health care and insurance. All these regulations, including licensing and the tax exclusion for employer-sponsored medical insurance, must go if Americans are to have a world-class free market in health care. Patients must be placed at the center so they can exercise what Ludwig von Mises called "consumer sovereignty."

"Day after day," Cannon concludes, "U.S. patients suffer the consequences of a century of mounting government failures. American health care is worse, more dangerous, more expensive, and less secure than what a market system would deliver." People have to rethink their moral and aesthetic biases against profit-motivated, mutually beneficial market relations. It really is a matter of life and death.

It's a Crazy World

What's to be said about people who grieve over the deaths of Palestinian children in Gaza at the hands of the U.S.-backed Israeli military while simultaneously cheering the Mengele-style wrecking of children's lives in America and elsewhere at the hands of "transgender" fanatics? And vice versa.

TGIF: "We Have Met the Enemy and He Is Us"

The famous line "We have met the enemy and he is us" is from Walt Kelly's comic strip, Pogo. Kelly adapted the line from a U.S. naval commandant who, during the War of 1812 against Great Britain, reported to his superior, “We have met the enemy and they are ours.” Kelly did the parody for the first Earth Day in 1970, a pro-state, antimarket, antihuman occasion.

More constructively, we can apply Kelly's slogan to a bigger matter, namely, who's to blame for the bad policies that representative democracy turns out? Is the culprit an elite group of politicians, bureaucrats, and Big Business/Big Labor cronies, that is, a ruling class that conspires against the public interest? Or is the culprit " us," or, more precisely, the voters?

Most libertarians, like most progressives, would reply "ruling class," although David D. Friedman, a leading libertarian free-market anarchist, has been a major exception. (See The Machinery of Freedom: Guide to Radical Capitalism, 3rd ed., ch. 38, free online.) So too is economist and anarcho-capitalist Bryan Caplan.

Two important libertarian thinkers, Frédéric Bastiat (1801-1850) and Ludwig von Mises (1881-1973), also dissented from the common view that democracy is routinely hijacked. "One striking feature of the Bastiat-Mises view," Caplan writes, "is that politicians are actually tightly constrained by public opinion. On their account, democratic competition keeps elected officials in line; if they deviate from majority preferences, they lose elections and their jobs."

In his classic work The Law, Bastiat, the fantastic French classical-liberal political-economic essayist, pointed out that in a democracy with universal suffrage, the main potential threat to liberty and property would come not from a ruling elite but from the voters, who previously had no voice in the government. If voters know nothing about economics and are antimarket to boot, watch out! They will want the politicians to interfere with market relations, not realizing that intervention is harmful because it has significant opportunity costs: all the good things that would have been produced had the government not engaged in "legal plunder." The benefits of free markets are counterintuitive, and understanding requires knowledge, which the voters lack. So they favor import restrictions, business and farm subsidies, regulations, heavy spending, and other apparently free benefits.

Since the politicians want to be elected and reelected, they will cater to the voters' preferences, even if the politicians know that those preferences are harmful. Democracy supplies poison because voters demand poison. The voters' will is not substantially throttled by special interests.

Bastiat wrote:

Up to now, legal plunder has been exercised by the minority over the majority as can be seen in those nations in which the right to pass laws is concentrated in just a few hands. However, it has now become universal and equilibrium is being sought in universal plunder. Instead of the injustice existing in society being rooted out, it has become generalized.

In another place (Selected Essays on Political Economy, chap. 9), he wrote that "public opinion, whether enlightened or misguided, is nonetheless mistress of the world."

And again (Economic Harmonies, chap. 4): “Political power, the law-making ability, the enforcement of the law, have all passed, virtually, if not yet completely in fact, into the hands of the people, along with universal suffrage.”

H. L. Mencken, that keen observer of America in the first half of the 20th century, might have read Bastiat: "Democracy is the theory that the common people know what they want, and deserve to get it good and hard."

Caplan confirms Bastiat's view. In various writings he explains that while most social scientists, including public-choice economists, believe that special interests do thwart the voters, it is untrue. 

The "point is not that no unpopular policies exist," Caplan and Edward Stringham write after scouring the data (citation below). "But bona fide examples are hard to come by, and quantitatively significant ones are scarcer still." Time delays and "frictions" may put the politicians and voters out of sync—but only temporarily.

Voters can afford to be, in Caplan's words, "rationally irrational." In any election, each person can costlessly vote according to his antimarket biases since no single vote is decisive and the total cost of a candidate's bad policies will be shared by all.  (See The Myth of the Rational Voter: Why Democracies Choose Bad Policies and the articles linked below.)

Caplan points out that Ludwig von Mises took a position similar to Bastiat's. In Theory and History, Mises wrote:

A statesman can succeed only insofar as his plans are adjusted to the climate of opinion of his time, that is to the ideas that have got hold of his fellows’ minds. He can become a leader only if he is prepared to guide people along the paths they want to walk and toward the goal they want to attain. A statesman who antagonizes public opinion is doomed to failure… [T]he politician must give the people what they wish to get, very much as a businessman must supply the customers with the things they wish to acquire.

I found that quote, like the Bastiat quotes above, in the first of two Caplan blog posts: Mises and Bastiat on How Democracy Goes Wrong, Part I, and Part II. (For more, see Caplan and Edward Stringham's "Mises, Bastiat, Public Opinion, and Public Choice.")

We might resist the claim that the people, not a ruling class, are to blame. But if we have a ruling class, it must be damned incompetent. The United States has the most progressive income tax in the West. The bottom half of income taxpayers pays only a tiny fraction (2.3 percent) of the national government's revenue from the tax. The top 1 percent pays over 45 percent. Big businesses face myriad regulations, often with exemptions for small firms. New restrictions are proposed almost every day. Antitrust prosecution always looms for the successful. Businesses and farmers get subsidies and other favors, but most people support them as socially beneficial.

Moreover, privileges granted to one industry impose higher costs on others. Tariffs for U.S. steelmakers burden steel-using companies, making them less competitive in the global market. If this ruling class is so fragmented and ineffective, maybe the concept is so imprecise that it is misleading.

When well-connected interests (who include not only business people) influence policy, Caplan writes, it's at the margin and, if anything, waters down what the majority wants. Caplans notes that more-educated people tend to understand economics better than less-educated people. Without "elite" influence, tariffs and minimum wages might be more destructive than they are.

Well, if the state is not "the executive committee of the ruling class," as Marx claimed, what is it? It's a bazaar where candidates offer goodies to blocs of economically illiterate citizens. The currency is the vote. To gain power, politicians need to win a majority—repeatedly. Yes, the people are propagandized, but just as businesses fail when enough consumers exercise skepticism about a product, regardless of advertising, so voters can exercise skepticism about the politicians' claims. People are not robots, and they encounter competing sources of propaganda/information. The joint that connects official propaganda to popular opinion is, to say the least, loose. If people are gullible, who's to blame?

What's the bottom line? No one can triumph in a struggle without first identifying the adversary. If the adversary is a shady, manipulative, nearly omnipotent ruling class, that would require one strategy. But if the adversary is the public's economic illiteracy and, as Mises repeatedly put it, its failure to grasp its "rightly understood (i.e., long-run) interest" in the free market, that's another matter entirely. Since that is indeed the case, freedom advocates should act accordingly.

The battleground is human understanding and nothing else, not even institutions, Mises says. As he wrote in Human Action, using 1930s monetary policy as an example (emphasis added):

"Whatever the constitutional state of affairs may be, no government could embark upon 'raising the price of gold' if public opinion were opposed to such a manipulation. If, on the other hand, public opinion favors such a step, no legal technicalities could check it altogether or even delay it for a short time."

David Boaz, an Anecdote

When my second daughter, Emily, was born some years ago, a friend of the family gave her a gift: a stuffed blue bear. That's it up there. That friend was David Boaz, the pivotal libertarian author, editor, and administrator who died yesterday well before his time. A few months ago, when I heard that David was seriously ill, I messaged Emily to ask if she remembered the stuffed blue bear. I wasn't sure she did. Who remembers their toys from that age? She immediately responded: "Yes. From David Boaz." She had not seen him in years, and she was just a little kid then. How could she know that? Moments later she texted me the picture you see. She had just take it with her phone. The bear was right at hand! Emily then told me that her niece and nephew, my grandchildren, Cruz and Cass, often play with "blue bear"! So David's gift was being enjoyed by the next generation! I email him about it. I hope it brought a smile to his face. I know it brought tears to my eyes.

David Boaz (1953-2024)

With great sadness I note the passing of David Boaz today, June 7, 2024, at age 70. He had been ill for some time.

He was a good man and a giant of the libertarian movement. Very much because of David's influence and example, libertarian organizations not only embraced a rigorous dedication to individual liberty, private property, free markets, and peace, but also a commitment to professionalism. He is one big reason libertarianism moved from amateur status to the big league. The value of his multifaceted work, predominantly for the Cato Institute for over 40 years, can not be overstated. Whether they know it or not, libertarians owe much to David Boaz.

I knew David as both a friend and a colleague all that time. For better or worse, I turned pro as a libertarian in part, maybe even principally,  because of him. I had been a newspaper reporter in the Philadelphia area in the 1970s and then a writing teacher for a corporate consulting firm. I had left reporting because I wanted to be a full-time liberty advocate. On a trip to San Francisco in 1978, I briefly met David while visiting the barely-year-old Cato Institute. I had no idea it would be so consequential a meeting.

In the spring of 1979 I received a phone call from a very wealthy libertarian businessman, who asked if I'd be the research director of a brand-new libertarian business organization in Washington, D.C., the Council for a Competitive Economy. Its executive director was David Boaz. I can't help but believe he recommended me for the job. At that point David was the sole staff member. A president would be hired later. (That would be Richard Wilcke, a good friend who died last year.) I proposed testing out the job in the summer (when I would be off work) before deciding whether to move permanently from my home in Delaware. My suggestion was accepted, and I moved to D.C. I loved the work. In the fall my job became permanent. For more than a year I worked day in and day out with David Boaz. Thanks to him, I learned a lot about organizations, publications, etc. We were also part of the same libertarian social circle. What a great time! We were living liberty!

And we were on a mission—promoting individual liberty and capitalism. We had fun despite our lack of success in swaying opinion in our direction. These were heady days for libertarians. Milton Friedman's PBS television series, Free to Choose, was being broadcast. Other good signs had been evident since F. A. Hayek and Milton Friedman won the Nobel Prize in economics in 1974 and 1976 respectively. Things were happening. We knew our task wouldn't be easy, but we were energized and optimistic. David personified much of the libertarian movement.

When Cato moved to D.C. in 1981, David became the vice president for public policy. I eventually went on to several other movement organizations. (CCE closed shop long ago.) Now David could add foreign policy and civil liberties to his portfolio.

We became co-workers again in 1991 when I joined the Cato Institute as its senior editor. In that job I also produced Cato's first cable-TV series, The Cato Forum, which David often hosted. I recall long conversations in his office about political philosophy, economics, day-to-day politics, and how Cato could address the most important issues of the time. In those early days we had lunch together regularly, during which our libertarian conversation continued uninterrupted. I'll never forget those days.

I can attest that David was involved in every aspect of Cato's work. Content and appearance had to be of the highest quality. He saw to it. This ethic was instilled in the staff and countless interns. It was obvious in Cato's product. 

The libertarian movement was much richer for his presence. It will be much poorer without it.

David's final speech from a few months ago is here.

TGIF: Freedom or Power

Eugen von Böhm-Bawerk, the Austrian-school economist who learned from Carl Menger and taught Ludwig von Mises, speaks to the ages. We ignore his lessons to our peril. One hundred ten years ago, in a journal article titled "Control or Economic Law," he wrote:

[J]ust as natural phenomena are governed by immutable eternal laws, quite independent of human will and human laws, so in the sphere of economics there exist certain laws against which the will of man, and even the powerful will of the state, remain impotent; and that the flow of economic forces cannot, by artificial interference of societal control, be driven out of certain channels into which it is inevitably pressed by the force of economic laws.

In other words, contrary to what politicians say, we as a society cannot do anything "if only we have the will." Böhm-Bawerk went on:

Such a law, among others, was considered to be that of supply and demand, which again and again had been observed to triumph over the attempts of powerful governments to render bread cheap in lean years by means of “unnatural” price regulations, or to confer upon bad money the purchasing power of good money. And inasmuch as in the last analysis, the remuneration of the great factors of production—land, labor, and capital—in other words, the distribution of wealth among the various classes of society, represents merely one case, although the most important practical case of the general laws of price, the entire all-important problem of distribution of wealth became dependent upon the question of whether it was regulated and dominated by natural economic laws, or by the arbitrary influence of social control.

Böhm-Bawerk was not saying that economic laws were invulnerable to political and social interference or institutions—far from it. The government distorts the market all the time. That's why his lesson is so important. We'd hardly need to be taught about the importance of economic laws if intervention bounced off market participants like bullets off of Superman.

Price controls bring forth not an abundance of low-priced goods to help the poor but shortages of wanted products. Today many people suffer the hardship of government suppression of the building of new houses and apartments. (See Bryan Caplan's Build, Baby, Build: The Science and Ethics of Housing Regulation.)

In any given case, how much influence market forces and nonmarket control have is not an easy question. It takes study rather than dogmatism. However, even political intervention must operate within the law of price. Repeated efforts to abolish interest on loans (usury) have failed because lenders and borrowers eagerly found ways around the prohibition. Markets—bargaining based on subjective marginal utility—will operate despite the formidable obstacles rulers place in their way. That's true for all prices. Thank goodness for that. But consumers will be harmed, and the state's ostensible objectives won't be achieved. 

Böhm-Bawerk notes that the most "selfish" single-seller in the market (assuming no government protection) must contend with the economic laws: "Generally speaking, the fear of outside competition forms perhaps the greatest safeguard against too unscrupulous a use of monopolies preying on the general public." Nothing invites competition like abnormally high prices and profits. That's why would-be monopolists turn to the government for help. Their dreams of power are doomed without it. (Antitrust law is a fraud. It protects inferior companies, not consumers.)

The same is true in a labor market where only one buyer of labor services (employer) is active. If he pays too much or too little under market conditions, economic forces will let him know -- if the government stays out. Profit or loss, success or bankruptcy? That is the question. 

Böhm-Bawerk would understand what's happening with fast-food restaurants in California, where the government has mandated a large increase in the minimum wage:

If an entrepreneur is induced, through the motive of self-interest, to select the “minor evil,” and permits a wage increase exacted from him, then an analogous motive of self-interest will urge him to reorganize the various factors of production by means of which he produces his goods. If the factor of production called “labor” has become more expensive than before, in comparison with the other factors of production, through an extorted wage increase, then it is almost unthinkable that the same relative apportionment of the various factors of production would remain the most rational in an economic sense....

California fast-food joints are closing, substituting machines for human beings, or raising prices. It's happened many times all over the country.

[T]he most imposing dictate of power ... can never effect anything in
contradiction to the economic laws of value, price, and distribution; it must always be in conformity with these; it cannot invalidate them; it can merely confirm and fulfill them.

Mises picked up his teacher's theme. As Israel Kizner writes in his book Ludwig von Mises: The Man and His Economics, quoting from his teacher's Epistemological Problems of Economics,

Mises saw the emergence of economic understanding in the eighteenth and early-nineteenth centuries as introducing a genuinely revolutionary insight into man's understanding of the conditions within which society exists.... With the advent of economic science, [Mises wrote,] "Now it was learned that in the social realm too there is something operative which power and force are unable to alter and to which they must adjust themselves if they hope to achieve success, in precisely the same  way as they must take into account the laws of nature."

Society does not face a choice between control and economic law. Rather, the choice is between unhampered consumer-enhancing economic law and economic law twisted against consumers by bureaucrats. That is because, as Mises wrote in Omnipotent Government: The Rise of the Total State and Total War, "economic laws are inexorable, and ... government interference with business cannot attain its ends but must result in a state of affairs which—from the point of view of the government and the supporters of its policy—is even less desirable than the conditions which it was designed to alter."

What Inequality?

According to research conducted by Phil Gramm, the late Robert Ekelund, and John Early, documented in The Myth of American Inequality: How Government Biases Policy Debate and summarized in this video:

• The bottom 20 percent of households have an average annual income of $13,000, according to the Census Bureau. However, according to the Bureau of Labor Statistics, those households consume an average of $26,000 worth of goods each year. How can that be?
• In the standard computations of inequality that are used to justify more government spending, the incomes of the rich include taxes paid while the incomes of the poor exclude two-thirds of government benefits, including the Earned Income Tax Credit, food stamps, and Medicaid. (There are more than a hundred transfer programs.) The rich artificially appear richer, and the poor artificially appear poorer. It's a statistical illusion.
• When inequality is adjusted to count taxes paid by the rich and cash and noncash benefits received by the poor (net of government admin costs), measured income inequality between the top and bottom quintiles drops from 16.7:1 to 4:1. Real income inequality is a quarter of what it is said to be.
• Compared to 1967 and using inflation-adjusted dollars, two-thirds of Americans are in the top income quintile.
• People in the middle quintile have about the same income as the people in the bottom quintile, though only about a third in the bottom work.

That shines a different light on things, doesn't it?

Immigration Talk

I talk about immigration with Michael Liebowitz of The Rational Egoist.

Language, Race, and Man

"Man belongs neither to his language nor to his race; he belongs to himself." --Ernest Renan

Democracy and Free Stuff

Democracy: the matching up of people who want free stuff with politicians who promise free stuff. Problem: free stuff as they all imagine it does not exist. 

However, it does exist in the market, as explained by Frédéric Bastiat in Economic Harmonies, chapter 8, "Private Property and Common Wealth." See my discussion of that chapter.

Nation, Race, and Individual

"Nation and race do not coincide; there is no nation of pure blood. All peoples have arisen from a mixture of races....

"[T]he concept of race, in the sense in which the advocates of race policy use it, is new, even considerably newer than that of nation. It was introduced into politics in deliberate opposition to the concept of nation. The individualistic idea of the national community was to be displaced by the collectivist idea of the racial community."

--Ludwig von Mises, Nation, State, and Economy, 1919

History and Peace

 "[E]very person must take his life and every nation must take its history as it comes; nothing is more useless than complaining over errors that can no longer be rectified, nothing more vain than regret. Neither as judges allotting praise and blame nor as avengers seeking out the guilty should we face the past. We seek truth, not guilt; we want to know how things came about to understand them, not to issue condemnations. Whoever approaches history the way a prosecutor approaches the documents of a criminal case—to find material for indictments—had better stay away from it. It is not the task of history to gratify the need of the masses for heroes and scapegoats.

"That is the position a nation should take toward its history. It is not the task of history to project the hatred and disagreements of the present back into the past and to draw from battles fought long ago weapons for the disputes of one’s own time. History should teach us to recognize causes and to understand driving forces; and when we understand everything, we will forgive everything."

--Ludwig von Mises, Nation, State, and Economy, 1919

History and Conflict

"We cannot eradicate the past from our memories. But it is not the task of history to kindle new conflicts by reviving hatreds long since dead and by searching the archives for pretexts for new conflicts. We do not have to revenge crimes committed centuries ago by kings and conquerors; we have to build a new and better world order [i.e., the liberal market economy rooted in private property]."

--Ludwig von Mises, Omnipotent Government, 1944