Should we blame big government for the BP oil spill?

A friend recently e-mailed me this article by Dee Dee Myers on the BP oil spill. She argues that--despite the fact that big government appears to have done virtually nothing to prevent or clean up the oil spill--we have no other alternative but to rely on big government. She asks "What aspect of the endlessly unfolding disaster off the Louisiana coast would have been made better with less government?" The answer is that quite a few aspects might have been made considerably better.

Certainly, we need some government and some regulations. But how much government and what kinds of regulations would be most beneficial? In this case, having less government bureaucracy may not have done much to help clean up the spill. But since the huge bureaucracy we have appears to have been impotent to either prevent or solve the problem, it at least seems reasonable to raise the question of why we should be spending all of those tax-payers' dollars to pay the salaries of so many useless bureaucrats. Could we be making better use of that money? Perhaps we could be using it to reduce the national debt or to provide tax relief to help stimulate the economy.

What I'm primarily concerned with in this particular case, however, are the unintended adverse consequences of government regulations. For example, if environmental laws had been more lax, it may have actually been better for both the environment and the economy, as paradoxical as that may seem to big-government advocates. Perhaps BP and other oil companies would have been able to drill more wells on land and in shallower waters closer to shore. And maybe they would have drilled fewer expensive, risky deep-water wells, in which it's much harder to plug leaks. Another concern I have is that--due to the political fallout from this BP spill--the government may make it even harder to get drilling permits. An unintended consequence of that would be that we'd have to bring in more imported oil in tankers. But the safety record for transporting oil in tankers is significantly worse than for offshore drilling. So, besides increasing energy prices and the trade deficit, banning more drilling could actually increase the amount of oil that ends up being spilled.

Health-care inflation in the US

In some of my previous posts I mentioned this article by David Goldhill ("How American Health Care Killed My Father," Atlantic Magazine, September 2009). Although I have serious problems with his proposed solution, Goldhill provides an excellent description of what is wrong with health care in this country. On the second page of the article he makes the following point:

In designing Medicare and Medicaid in 1965, the government essentially adopted this comprehensive-insurance model for its own spending, and by the next year had enrolled nearly 12 percent of the population. And it is no coinci­dence that the great inflation in health-care costs began soon after.

In light of this statement, I thought it would be interesting to find out how much health-care cost inflation has actually occurred both before and after 1965. The Bureau of Labor Statistics maintains a website with a lot of data of this kind. By clicking on the Databases and Tables section of the site, you can find inflation data in various categories. Clicking on "Top Picks" under the section "All Urban Consumers (Current Series)" you'll find a series of boxes to check. Checking the box to the left of "U.S. Medical Care, 1982-84=100 - CUUR0000SAM" and then clicking "Retrieve Data" provides a table of medical-care price index data for different years. I set the date range to 1935 through 2009 to obtain the medical-care price index for those years. Similarly, checking the box to the left of "U.S. All items, 1982-84=100 - CUUR0000SA0" and then clicking "Retrieve Data," provides a table of the consumer-price index data for all items for different years. By plotting both of these time series, I obtained the following graph:

This graph shows how health-care costs in the US have increased from 1935 through 2009, in addition to showing overall inflation (i.e., the consumer price index, or CPI) for the same time period. Note that, just as Goldhill claims, health-care costs have increased continuously at a rate substantially greater than the CPI over a period beginning around 1965. For the thirty years prior to 1965, health-care inflation was comparable to overall inflation. Specifically, the annual health-care inflation rate averaged 3.06% between 1935 and 1965, while the average annual increase in the CPI was 2.81% for this same period. Thus, between 1935 and 1965, annual increases in prices for medical care were only 8.8% higher on average than the average annual increase in the CPI. Between 1965 and 2009, however, the average annual health-care inflation rate was 6.33%, compared with an average annual increase in the CPI of 4.46% for the same period. So, from 1965 through 2009, prices for medical care increased at an average annual rate that was 42.1% higher than the average annual rate of increase in the CPI.

The question is: What has caused health-care prices to increase at such an alarming rate for nearly half a century? Is Goldhill correct in his claim that Medicare and Medicaid had a lot to do with it? If so, how is it that these government programs produced such out-of-control price increases?

Health care in the US (debate with E), part 3

A continuation of the health-care debate I've been having with my friend, E:

JCB (previous statement):

Yes. Health care is ridiculously expensive in this country. The question is: Why is this the case?

E (previous statement):

Quite a few factors I'm sure.

JCB (previous statement):

Yes. I think it's due to a combination of factors, including extensive government interference in the market, an aging population, and lawsuit abuse in a legal environment that favors plaintiffs.

E (new statement):

Ah, the Conservative Mantra. If there's a problem that seems to have anything to do with private profit, the smokescreen of "It's all the government's fault!" is quickly heard.

E (previous):

One would seem to be to be clearly the unmitigated greed of the insurance industry and the drug industry (in other words, the free market going where it always goes for other than commodities).

JCB (previous):

The problem I have with this explanation is that the health-care sector doesn't have a monopoly on greed. Pretty much all of us are greedy.

E (new):

I'm not, and I don't think that most people are. Not for material things anyway. Most people just want to survive and live for the most part like those around them. Very few people are striving for great wealth, which is what greed would motivate one toward. That and criminality. Further, a very great many people go through life doing what they do largely without consideration of material wealth. Millions of people work for non-profits and lower wages than they might make in the private sector.

From a quick google search: http://www.bls.gov/opub/cwc/cm20081022ar01p1.htm

By 2007, nonprofits employed 8.7 million workers, or 5.9 percent of all workers.

Why?

There are several hypotheses as to why the wages of nonprofit workers could differ from their for-profit counterparts. According to the labor donation hypothesis, workers in the nonprofit sector are willing to donate a portion of their paid labor and receive lower wages because they obtain satisfaction from the fact that their efforts achieve altruistic goals.

The numbers show that professionals such as ourselves earn less in non-profits than in private industry.

And then there are the umpteen zillion volunteer workers, who do not seem to show signs of greed. I expect that few of them are so wealthy that their alleged greed is already satisfied.

In general, I think that most people want to maximize happiness, and that's only sometimes associated with significantly above-average wealth. I think that for most people, once a certain, relatively modest level of security and comfort are obtained (that's not greed) they aren't driven by greed to get "more stuff", and certainly not at the expense of hurting others. Most people would want a car. Few would be greedy to the point of claiming to need a Hummer or something equally expensive. For-profit businesses are a very different creature. Their profit objectives desires are without limits, and they are largely unhampered by ethical considerations unless they are forced to address such as a PR issue.

JCB (previous):

I'm a greedy optical engineer working for an unmitigatedly greedy multinational consulting corporation.

E (previous):

I'm sorry to hear that you're greedy. It goes without saying that your for-profit corporation is greedy.

JCB (previous):

Yet my salary and the rates my company charges its customers have risen at about the same rate as overall inflation.

E (new):

Those rates are already greatly inflated. My company's rates are too, charging the government 3x-4x what they pay me. Even after factoring in benefits, etc., I have to believe that companies such as ours are not richly satisfying the greed of their managers and shareholders (sadly, the former being more than willing to prey on the latter), at the expense of the public as a whole, who foots the bill.

JCB (previous):

Other than health care and higher education (another industry suffering from massive government interference),

E (new):

"Government interference" ... ha ha. Exactly what sort of hypothetical interference would this be? Mandating sterilization of surgical equipment? Mandating the rule of no needle re-use? Possibly (not sure) mandating work limits on surgeons (i.e. no surgery for 12 hours after pulling an all-nighter in the OR, though maybe no such rules exist)? Government regulation of health care is very definitely a Good Thing, and I expect that we need more of it, though hospital and other profit-motivated organizations and their lobbyists will no doubt prevent that.

I suppose you don't want the FDA mandating that your food and drugs not kill you either.

I don't see how higher education is suffering at the hands of the government at all. If anything, the government channels bazillions of dollars into schools of all sorts, from my local community college to Stanford. I think this has been the case forever in the US.

JCB (previous):

I can't think of a single example of an industry for which the average inflation rate has been consistently so much higher than the overall inflation rate.

E (new):

Which says exactly nothing about the cause of that state of affairs. An observation is not an explanation of anything.

JCB (previous):

There may be some of which I'm unaware. Let me know if you can think of any.

E (new):

The insurance industry. On my last health policy, a catastrophic one, after the first year they were going to raise my rates by 30%.

The oil industry (check pump prices). At one point, the beer hops industry.

Nevertheless, if I could think of any other industry with huge cost increases, you would simply say that it was because of "massive government interference" (a completely subjective term I might add) and dismiss the example.

E (previous):

Another would the fact that the relationship is so bizarre between customers (including companies trying to offer benefits), the insurance industry, and care providers.

JCB (previous):

That's an great point. But what is the source of this bizarreness?

E (new):

As I recall that article ["How American Health Care Killed my Father," by David Goldhill, Atlantic Magazine, September 2009] described the situation in some detail. I can't recall exactly, but it was interesting. I'll have to re-read the article.

JCB (previous):

Is it the free market and the unmitigated greed of the health-care industry?

E (new):

At least in part, I'd say yes. In this case, the "free" market is not really free. Consumers often have no choice when it comes to obtaining health care. When my brother had his appendix burst, it wasn't as if he could go shopping around or check Fat Wallet for best prices/deals. He had to go somewhere nearby and do it immediately. And thereafter, he had to pay whatever they chose to charge, and he did so. If you have very little money, you're forced to go to a place that will charge you little or to a free clinic, no matter how crappy it is. If you have an emergency or think you do, or sometimes even if you have a cold, without money you must get your health care at the emergency room. Health care is NOT a commodity in the current system in which it is provided. There's no "brain surgeon exchange" like there is a pork-bellies exchange.

JCB (previous):

If so, why haven't such bizarrely dysfunctional relationships evolved in other similarly-greedy yet less-heavily-regulated (i.e., more free-market) industries?

E (new):

How about banks and their credit cards? The credit-card industry, judging by its practices, is only about to become regulated in any consumer-meaningful way. And they fought that tooth and nail. And they tried to mitigate the effects of the upcoming legislation by jacking rates way, way up on cardholders who they did not otherwise terminate. Credit-card industry = dysfunctional (the relation to the consumer is to try to keep him/her in debt with large lines and low-monthly payments), very greedy as I've pointed out above, and apparently vastly-under-regulated, hence the need for this latest regulation.

I have no reason to believe that the health care industry is "heavily regulated" unless you mean the awful rules meant to keep people safe. I'd just as soon have more of that regulation.

And to your question, the answer is "because they can't get away with it". When any kind of for-profit organization can "get away with it" they inevitably do, no matter how evil the thing it might be. When they can't immediately get away with it, they try to lay the foundations of being able to get away with it. The credit-card industry, mentioned above, is one such example of organizations that get away with evil-for-profit and have been doing so for many, many years.

JCB (previous):

That's a great idea. If people would self-insure as much as possible, they'd be much more sensitive to costs and competition would drive prices down.

E (new):

That was one of the points of the article - that people are, with the current System, largely unaware of costs because they don't need to be. What do I care how much that MRI cost in total? But even a sensitivity to costs does not in any way lead to a state of affairs in which people can afford all the care that they need. It might well lead in that direction. But it also could, probably would I think, lead to a situation in which only the richest people would be able to get access to technologies and procedures that could improve their health. MRIs are one such example. I can't imagine someone like my archetypical neighbor, who is uninsured because his employers don't offer it, affording any of those MRIs without massively increasing his debt. And he has kids to feed.

So while perhaps more competition might make blood tests more affordable (maybe), it wouldn't mean that expensive things would become so. In fact, I could imagine a bidding war on tests/procedures for which there was not an broadly-available supply. There might well be a shortage of heart surgeons, and maybe, maybe, if rates for that procedure went up (which would be pocketed by hospitals and their shareholders) eventually more heart surgeons would come online, but in the meantime poorer people would die. "Too bad" says the Conservative. Because his insurance will cover it. If it didn't, you can sure he'd be on Fox news demanding his red-blooded-American rights to such coverage.

JCB (previous):

I'll have to read the article. I'm certainly no fan of the insurance industry as a whole. The sales pitches used by a lot of life-insurance salespeople, for example, are deceptive to the point that they border on fraud or may actually be fraudulent. Bank on Yourself is one such sales pitch I've encountered recently. Yet, rates for non-health-care-related insurance (i.e., life, homeowners, auto, etc.) have not risen faster than overall inflation, as far as I know.

E (new):

This http://docs.google.com/viewer?url=http://www.bls.gov/cpi/cpid1001.pdf if I read it correctly, shows an overall CPI increase of 2.6% from 1/2009 to 1/2010. In the same period, home/tenant insurance increased 3.3%, or 27% higher than the CPI.  In the same period, motor vehicle insurance increased 4.7%, or 80% more than the CPI did. And these types of insurance are very "free market" in 1) you're not required to carry them at all, you have to choose to, and 2) judging by the ads in the media, they're all clambering for your business, and are mostly trumpeting their low prices. Low maybe, but increasing rapidly it seems.

JCB (previous):

So I doubt that insurance-industry corruption could be an important root cause of the health-care-inflation problem.

E (new):

Judging by the above, I doubt that insurance industry corruption is not an important root cause the health-care-inflation problem.

JCB (previous):

However, it could be that a higher-than-normal level of corruption has resulted from the massive government interference in the health-care market.

E (new):

It could be that a higher-than-normal level of corruption has resulted from insufficient government regulation of provider operations and prices and service quality, as well as insufficient government regulation of safety, leading to malpractice and the resulting oft-lamented-by-conservatives expensive malpractice suits and settlements. With more/better regulation, corruption might be reduced and prices might go down.

Health-care debate with J.E. Hill, part 4

JCB's responses to previous statements made by J.E. Hill, a writer for The Skeptical Review:

JCB's previous statement:

There are no direct subsidies to the health-insurance companies, as far as I know. The subsidies I was referring to are the enormous sums of money paid to health-care providers by Medicare, Medicaid, and other similar programs. The reason for the huge cost and spending increases we're seeing in the health-care arena is the market distortions caused primarily by the government subsidies, as well as by various ill-advised regulations.

Hill's previous statement:

That's not what you said or "referred to". I'll remind you: "However, I would say that it is among the most heavily-regulated/subsidized."

As a matter of fact, the health-insurance industry doesn't receive one cent of subsidy from the government.

The "subsidies" you are referring to are not subsidies either. They are payment for services. There is a big difference. A subsidy is monetary assistance granted by the government to a person or private commercial enterprise, such as the Community Development Block Grant, or farm subsidies where the government gets nothing in return. In this case there are services rendered and that is what is being paid for.

So, the health-insurance industry is not subsidized contrary to your previously statement.

Correct?   Yes or no.

JCB's response:

No. Although it's true that (as far as I know) the private, for-profit portion of the health-insurance industry is not subsidized, an ever-increasing percentage of health-care costs in this country are being paid by the government, through programs such as Medicare and Medicaid. See the graph at top of page 10 in this Rand Corporation publication:

http://www.rand.org/pubs/corporate_pubs/2005/RAND_CP484.1.pdf

Medicare and Medicaid are government-run providers of health insurance. The premiums people pay the government for the health insurance they receive through these programs fall far short of covering the cost of the benefits received in the form of payments for medical services. This is what I was referring to as government subsidization of health insurance. If you wish, you may choose not to refer to this as government subsidization of health insurance. But it doesn't affect my argument. Whether or not you choose to call it a subsidization of health insurance or something else, the reality is that the government is paying a large portion of people's health-care-related expenses and that this is creating severe distortions of the health-care market. These market distortions are a major reason that health-care costs are rising so much faster than the overall inflation rate. And, of course, increases in health-care costs inevitably lead to increases in premiums for insurance provided by the private, for-profit sector of the health-insurance industry.

Portion of JCB's previous statement:

Your explanation, on the other hand, is that costs have increased due to unbridled greed on the part of the health-care industry, including, presumably, the health-insurance industry. (At least that's my understanding of your view. Please correct me if I've mischaracterized it in any way.) If that's the case, why aren't we seeing similarly skyrocketing costs in most non-health-care-related industries?

Hill's previous statement:

Oh, you mean like the financial sector?

JCB's response:

I'm not exactly sure what you're referring to here. I personally haven't noticed any significant cost increases in the financial sector. My checking accounts and savings accounts are still free. I believe that costs paid by consumers for products provided by the financial sector predominantly take the form of interest charges, and interest rates are currently at historically low levels. In fact, my wife and I are thinking of refinancing, even though we already have a really low-interest (5.5%) fixed-rate mortgage. One exception may be interest rates on credit cards, which I believe I've heard have gone up somewhat in the past year or so. But I don't know of any long-term inflationary trend in the financial sector that's even remotely comparable to the decades-long trend of health-care costs increasing at a rate higher than overall inflation. If you have data showing that such a long-term trend exists, I'd be interested in seeing it.

Hill's previous statement:

Greed is certainly a factor, but probably more so is the fact that people get sick more often than they buy cars. The biggest factor is that health insurance is its own worst enemy. By reducing their client pool by rejecting claims, they have to keep increasing premiums to keep the profits rolling in and Wall Street happy.

JCB's response:

I'm glad to see you're distancing yourself from the view that greed is the primary cause of our health-care woes. However, I'm not sure I fully understand your two new theories. The first of these theories is that the enormous cost increases we've experienced for decades in the health-care sector are due to "...the fact that people get sick more often than they buy cars." I agree that people get sick more often than they buy cars, at least if you count minor illnesses, such as colds and athlete's foot. But the cost of the resources (i.e., raw materials and labor) required to treat a typical cold or case of athlete's foot are far less than that required to build a car. So I'm not sure why the fact that we get sick more often than we buy cars is relevant. It's also true that, on average, we take showers more often than we get sick. So, by your theory, shouldn't we also be experiencing even more economically-unsustainable price increases for soap, shampoo, and conditioner than we're experiencing for health care?

Perhaps you're simply trying to say that the demand for health care has risen too fast for the health-care industry to keep up. If that's the point you're trying to make, I think you're correct. Due to the increase in both the size and the average age of the population, the demand for health care has risen fairly rapidly over the years. And our health-care system has not responded efficiently to this increase in demand. The crucial question is: Why hasn't it responded efficiently? Is it because we have too much of a free market in health care? If so, then how do you explain what has happened in other more-free-market industries in which demand has increased rapidly over the years? Take the personal-computer industry, for example. Due to it being a much newer industry, we've had a much greater increase in demand for PCs over the past few decades than for health care. When I was a child, no one had even heard of PCs. In those days computers were enormous, expensive machines that took up whole rooms and could only be afforded by large, wealthy organizations. And the capabilities of those machines were pathetically poor by current standards. Now it seems like almost everyone has at least one PC. Many people I know have three or four. And we have a much freer market for PCs than for health care. At the very least, I don't see how anyone could plausibly argue that the PC market is less free than the health-care market. Yet the long-term trend in the PC industry has been for prices to continue dropping dramatically, while the capabilities (e.g., disk size, amount of memory, speed, software sophistication, degree of miniaturization, etc.) have dramatically improved.

Your second theory is that the health-insurance industry has to increase premiums to make up for a reduction in its client pool due to a rejection of claims. Presumably, the clients who are being eliminated from the pool would mostly be the sickest clients. It would not make any economic sense for insurance companies to take actions that would cause them to lose their healthiest clients, since it is these clients that make them the most money. Since the sickest clients are the ones the insurance companies lose money on, one would think that eliminating them would increase profits, rather than reduce them. Thus it does not appear plausible to argue that elimination of clients through claim rejection would lead to higher premiums. If anything, the opposite would seem to be the case. Even if it were true, your theory would only explain increases in health-care premiums. It wouldn't explain the unsustainable increases we're experiencing in the cost of health care itself.

JCB's previous statement:

Are those industries simply less greedy? Why would they be? What is it about health care that attracts unusually greedy people? Also, why wouldn't cost increases be even worse in industries that are less heavily bridled (i.e., less regulated) than health care? Take veterinary care, for example. I think most people would agree that veterinary care is far less regulated than health care. Americans love their pets almost as much as they love their friends and relatives. Even more so, in many cases. So why aren't we seeing even more serious cost increases in veterinary care than we are in health care?

Hill's previous statement:

Not a real good example.

JCB's response:

I thought it was a pretty good example of an industry operating in a relatively free market that provides quality service while efficiently controlling costs. At any rate, it was better than the examples you've attempted to give of industries in relatively free markets that are as economically dysfunctional as health care. But that's really not your fault, since I don't believe there are any valid examples of such industries.

Hill's previous statement:

If you really want me to take the time to deconstruct this I will, but it's really a waste of time to do so.

JCB's response:

If you're willing to waste your time deconstructing it, I'm willing waste my time deconstructing your deconstruction.

JCB's previous statement:

Or, consider forms of insurance other than health insurance. If greed is causing the price increases we're seeing in health insurance, why is it that we aren't experiencing similarly mind-boggling increases in premiums for life, homeowner's, or auto insurance? Are the non-health-care-related insurance companies less greedy for some reason?

Hill's previous statement:

Oh, my homeowners insurance has been going up...about 10% a year and never a claim.

JCB's response:

Really?! That seems a bit anomalous. For how many years has it been increasing at that rate? Maybe you should shop around for a new policy. Our homeowner's insurance has gone up 10.9% in the past 5 years (11/2004 - 11/2009), which averages out to 2.1% per year. The consumer price index has gone up 13.3% during that same period, or 2.5% per year:

ftp://ftp.bls.gov/pub/special.requests/cpi/cpiai.txt

I tried to find some statistics on rates of increase in homeowner's insurance premiums, but wasn't able to. But it's hard to believe that homeowner's premiums have been increasing over the long term anywhere near as fast as health-care costs. If they had been, it would have been big news.

Hill's previous statement:

But the short answer is it's all actuarial and (this is very important) they all have to compete for my business and I can switch companies anytime I want.

JCB's response:

Right! In other words, there's a relatively free market in these other forms of insurance. This results in vigorous competition, which keeps costs under control. Unfortunately, we have much less of a free market for health care and health insurance. For example, due to the fact that health-insurance costs are deductible for employers but not for employees, the choice of health-care provider available to most people is--for all practical purposes--limited to the few options their employers happen to offer.

Hill's previous statement:

Competition is a wonderful thing. This is why the health-care industry don't want it from the government or other insurers. But if you have claims or are a bad risk, they'll still insure you but it'll cost an arm and a leg. With health-insurance, I don't have choices. If you were just asking this because you really didn't get this part, I am not so sure we need to continue. I don't mean to be abrupt, but this is really basic stuff.

JCB's response:

Yes! You're right that competition is a wonderful thing! You're probably also correct in your belief that many in the health-care industry like the fact that competition in their industry is severely limited. As great as competition is for the economy as a whole, it rarely seems quite so wonderful when it's directed against one's own efforts. A lack of competition is, of course, a well-known characteristic of a market that isn't very free. Thanks for helping me make my point.

Hill's previous statement:

It really seems like your big issue is with government regulations, since subsidies are now off the table.

JCB's response:

Despite your semantic gymnastics pertaining to this issue, the unavoidable fact remains that health care in this country is heavily subsidized by the government and has been for many years.

Health-care debate with J.E. Hill, part 3

J.E. Hill's responses to previous statements made by me:

JCB's previous statement:

There are no direct subsidies to the health-insurance companies, as far as I know. The subsidies I was referring to are the enormous sums of money paid to health-care providers by Medicare, Medicaid, and other similar programs. The reason for the huge cost and spending increases we're seeing in the health-care arena is the market distortions caused primarily by the government subsidies, as well as by various ill-advised regulations.

Hill's response:

That's not what you said or "referred to". I'll remind you: "However, I would say that it is among the most heavily-regulated/subsidized."

As a matter of fact, the health-insurance industry doesn't receive one cent of subsidy from the government.

The "subsidies" you are referring to are not subsidies either. They are payment for services. There is a big difference. A subsidy is monetary assistance granted by the government to person or private commercial enterprise, such as the Community Development Block Grant, or farm subsidies where the government gets nothing in return. In this case there are services rendered and that what is being paid for.

So, the health-insurance industry is not  subsidized contrary to your previously statement.

Correct?   Yes or no.

JCB's previous statement:

http://www.newsweek.com/id/202015/page/1

"A new report from Obama's own Council of Economic Advisers shows why controlling health costs is so important. Since 1975, annual health spending per person, adjusted for inflation, has grown 2.1 percentage points faster than overall economic growth per person. If this trend continues, the CEA projects that

* Health spending, which was 5 percent of the economy (gross domestic product) in 1960 and is reckoned at almost 18 percent today, would grow to 34 percent of GDP by 2040 -- a third of the economy.

* Medicare and Medicaid, the government insurance programs for the elderly and poor, would increase from 6 percent of GDP now to 15 percent in 2040 -- roughly equal to three-quarters of present federal spending.

* Employer-paid insurance premiums for family coverage, which grew 85 percent in inflation-adjusted terms from 1996 to $11,941 in 2006, would increase to $25,200 by 2025 and $45,000 in 2040 (all figures in "constant 2008 dollars"). The huge costs would force employers to reduce take-home pay."

The Goldhill article I mentioned in a previous e-mail (i.e., the one you said you didn't want to read) provides good explanations of the nature of these many of these distortions:

http://tinyurl.com/yendgv9

As Goldhill points out, "...it is no coincidence that the great inflation in health-care costs began soon after [Medicare and Medicaid were created in 1965]. "

Your explanation, on the other hand, is that costs have increased due to unbridled greed on the part of the health-care industry, including, presumably, the health-insurance industry. (At least that's my understanding of your view. Please correct me if I've mischaracterized it in any way.) If that's the case, why aren't we seeing similarly skyrocketing costs in most non-health-care-related industries?

Hill's response:

Oh, you mean like the financial sector? Greed is certainly a factor, but probably more so is the fact that people get sick more often than they buy cars. The biggest factor is that health insurance is it's own worst enemy. By reducing their client pool by rejecting claims, they have to keep increasing premiums to keep the profits rolling in and Wall Street happy.

JCB's previous statement:

Are those industries simply less greedy? Why would they be? What is it about health care that attracts unusually greedy people? Also, why wouldn't cost increases be even worse in industries that are less heavily bridled (i.e., less regulated) than health care? Take veterinary care, for example. I think most people would agree that veterinary care is far less regulated than health care. Americans love their pets almost as much as they love their friends and relatives. Even more so, in many cases. So why aren't we seeing even more serious cost increases in veterinary care than we are in health care?

Hill's response:

Not a real good example. If you really want me to take the time to deconstruct this I will, but it's really a waste of time to do so.

JCB's previous statement:

Or, consider forms of insurance other than health insurance. If greed is causing the price increases we're seeing in health insurance, why is it that we aren't experiencing similarly mind-boggling increases in premiums for life, homeowner's, or auto insurance? Are the non-health-care-related insurance companies less greedy for some reason?

Hill's response:

Oh, my homeowners insurance has been going up...about 10% a year and never a claim. But the short answer is it's all actuarial and (this is very important) they all have to compete for my business and I can switch companies anytime I want. Competition is a wonderful thing. This is why the health-care industry don't want it from the government or other insurers. But if you have claims or are a bad risk, they'll still insure you but it'll cost an arm and a leg. With health-insurance, I don't have choices. If you were just asking this because you really didn't get this part, I am not so sure we need to continue. I don't mean to be abrupt, but this is really basic stuff.

It really seems like your big issue is with government regulations, since subsidies are now off the table.

Health-care debate with J.E. Hill, part 2

Further debate between J.E. Hill of The Skeptical Review and myself:

Hill:

You wrote:

"However, that's not the fault of the free market. Is it merely a coincidence that our health-care industry is simultaneously the most heavily-regulated/subsidized, as well as the most dysfunctional? "

Are you asserting that the health-care insurance industry is the most heavily-regulated/subsidized of all industries?

JCB:

This is a thought-provoking question. Subsidization and regulation are not entirely quantifiable because comparing different types of subsidies and regulations across different industries amounts to an apples-to-oranges comparison. So I'll admit it was a bit rash of me to claim that health care is the most heavily-regulated/subsidized of all industries. Instead, I probably should have said something like "...among the most heavily-regulated/subsidized...." I would say that health care is currently the most dysfunctionally regulated/subsidized of industries in our country, in that the severe market distortions caused by those regulations/subsidies are rapidly bankrupting us, while destroying the quality of available care. We have a lot of problems of various kinds in many other industries, but these pale in comparison with the threat posed to our economic and physical well being by our current health-care system.

Hill:

I am not so sure you read the question carefully, so I'll ask this again:  Are you asserting that the health-care insurance industry is the most heavily-regulated/subsidized of all industries?

JCB:

You're correct that I inadvertently overlooked the word "insurance" in your question. As in the case of the health-care industry as a whole, I would not claim that the health-insurance portion of that industry is necessarily the single most heavily-regulated/subsidized of industries. However, I would say that it is among the most heavily-regulated/subsidized. Here's a link that provides an overview of health-insurance regulations by states and the federal government:

http://www.allhealth.org/briefingmaterials/HealthInsuranceReportKofmanandPollitz-95.pdf

In addition, the government has nationalized huge sectors of the health-insurance market through Medicare, Medicaid, and various other programs. In these sectors, health-insurance is not merely regulated, but is completely controlled (i.e., owned and operated) by the government and is massively subsidized in a manner that is completely unsustainable.

Hill:

You have yet to show the insurance industry is heavily subsidized by the federal government.

Please show the federal agency that provides these subsidies and the amount that is paid directly to the health insurance industry on a yearly basis.

Of course Medicare, Medicaid and other federal or state health programs exist. The reason Medicare, for example, exists is that seniors simply cannot afford what health insurance companies would charge them for health care. But that's not the question here.

We'll get to the regulations later.

JCB:

There are no direct subsidies to the health-insurance companies, as far as I know. The subsidies I was referring to are the enormous sums of money paid to health-care providers by Medicare, Medicaid, and other similar programs. The reason for the huge cost and spending increases we're seeing in the health-care arena is the market distortions caused primarily by the government subsidies, as well as by various ill-advised regulations:

http://www.newsweek.com/id/202015/page/1

"A new report from Obama's own Council of Economic Advisers shows why controlling health costs is so important. Since 1975, annual health spending per person, adjusted for inflation, has grown 2.1 percentage points faster than overall economic growth per person. If this trend continues, the CEA projects that

* Health spending, which was 5 percent of the economy (gross domestic product) in 1960 and is reckoned at almost 18 percent today, would grow to 34 percent of GDP by 2040 -- a third of the economy.

* Medicare and Medicaid, the government insurance programs for the elderly and poor, would increase from 6 percent of GDP now to 15 percent in 2040 -- roughly equal to three-quarters of present federal spending.

* Employer-paid insurance premiums for family coverage, which grew 85 percent in inflation-adjusted terms from 1996 to $11,941 in 2006, would increase to $25,200 by 2025 and $45,000 in 2040 (all figures in "constant 2008 dollars"). The huge costs would force employers to reduce take-home pay."

The Goldhill article I mentioned in a previous e-mail (i.e., the one you said you didn't want to read) provides good explanations of the nature of these many of these distortions:

http://tinyurl.com/yendgv9

As Goldhill points out, "...it is no coinci­dence that the great inflation in health-care costs began soon after [Medicare and Medicaid were created in 1965]. "

Your explanation, on the other hand, is that costs have increased due to unbridled greed on the part of the health-care industry, including, presumably, the health-insurance industry. (At least that's my understanding of your view. Please correct me if I've mischaracterized it in any way.) If that's the case, why aren't we seeing similarly skyrocketing costs in most non-health-care-related industries? Are those industries simply less greedy? Why would they be? What is it about health care that attracts unusually greedy people? Also, why wouldn't cost increases be even worse in industries that are less heavily bridled (i.e., less regulated) than health care? Take veterinary care, for example. I think most people would agree that veterinary care is far less regulated than health care. Americans love their pets almost as much as they love their friends and relatives. Even more so, in many cases. So why aren't we seeing even more serious cost increases in veterinary care than we are in health care? Or, consider forms of insurance other than health insurance. If greed is causing the price increases we're seeing in health insurance, why is it that we aren't experiencing similarly mind-boggling increases in premiums for life, homeowner's, or auto insurance? Are the non-health-care-related insurance companies less greedy for some reason?

Health care is not a right

Scott Holleran's blog has a link to this speech by Leonard Peikoff, written in 1993 during the attempt by President Clinton to massively increase government control over the health-care industry. It makes an excellent case that it is not only impractical for the government to take over health care, but also immoral.

Health-care debate with J.E. Hill, part 1

A few days ago I sent the following e-mail to several people:

I believe we have to do whatever we can to stop the threat posed by Obamacare to our health-care system, our economic well being, and our freedom. If you agree, here's something that's easy to do:

http://www.capitolconnect.com/freeourhealthcarenow/default.aspx

Just fill in the required information to send e-mails to members of Congress asking them to vote against Obamacare. It'll take you less than 5 minutes. You can simply send the text provided or edit it as desired. I hope you'll also forward this link to others who might be interested.

One of the people I sent it to was J.E. Hill, a writer for The Skeptical Review. He responded as follows:

Yeah, right. Let's keep having insurance companies come between us and our doctors, turn us down for insurance when we need it the most, and keep on making billions while thousands of Americans die each year from not having adequate health care.

My response:

Thanks for getting back to me on this important issue. You're right that we have extremely serious problems with health care in this country. However, that's not the fault of the free market. Is it merely a coincidence that our health-care industry is simultaneously the most heavily-regulated/subsidized, as well as the most dysfunctional? Can you think of any other US industries in which costs have been consistently increasing at a rate way beyond overall inflation, while the quality of the products delivered to consumers continues to decline? The only example I can think of is higher education, which also suffers from heavy government involvement and subsidization. A lot of people complain about gasoline prices, but corrected for the overall inflation rate, they've been relatively stable over the years:

http://www.randomuseless.info/gasprice/gasprice.html

Here's an Atlantic article that provides one of the best explanations I've seen of what's gone wrong with the health-care sector:

http://tinyurl.com/ya57hen

The only viable solution to these problems is massive deregulation and elimination of subsidies. Expansion of government regulation and subsidization will only serve to further increase costs and/or reduce the quality and quantity of available care. If you don't believe that, read a few of these articles about what's going on in Canada:

http://jcbweblog.blogspot.com/2010/03/canadian-health-care-articles.html

Hill's response:

I really don't care to read your "best explanations" as you would not want to read mine. This is a common sense issue. Except for Medicare, the government has maintained a hands-off attitude toward health care, and Medicare is one of the most successful programs ever...just ask any senior.

There is no "free market" in this country. There is no reputable economist that would assert that we have a "free market." This is a chimera used by the right to keep the ignorant thinking they are getting a really great deal all the while being taken to the cleaners.

You cannot have a free market with a central bank; you cannot have a free market when the government supports certain corporations through tax breaks or cash incentives (corporate welfare); you cannot have a free market by giving corporations subsidies. You cannot have a free market with anti-trust laws and government regulations.

Of course we all know what can happen without the last one.

Without a strong central bank, anti-trust laws, and regulations, unbridled capitalism would resemble the capitalism of the turn of the century. The Great Depression was not caused by the central bank, but lack of regulations and checks and balances in the "free-for-all" market economy created by speculators.  Sound familiar?

I don't mind capitalism. But capitalism without limits or ethics or a moral guidance spawns unbridled greed.

Healthcare in this country is unbridled greed. If there is one thing about the present proposal that bothers me it's that it does not go far enough for universal care or tax the wealthy enough to pay for it.

Oh, you wanted one more US industry in which costs have been consistently increasing at a rate way beyond overall inflation, while the quality of the products delivered to consumers continues to decline...exclusive of the defense contractors, how about the airline industry?

The issue here is quite simply private corporations have been entrusted to provide our healthcare and do a terrible job of it and make billions in profit doing it.

I think you complain too much about people trying to do something to improve our system and make it more competitive.

My response:

> I really don't care to read your "best explanations" as you would not want to read mine.

OK, how about this: I'll read yours if you'll read mine. Or, better yet, I'll read yours even if you don't read mine. Can you send me a link to it?

> This is a common sense issue.

I'm not the first to point out that common sense is not all that common.

> Except for Medicare, the government has maintained a hands-off attitude toward heath care, and Medicare is one of the most successful programs ever...just ask any senior.

The claim that Medicare is the only area of government involvement in health care is completely unsupportable. What about Medicaid? What about the FDA? What about the reams of regulations that must be adhered to by hospitals, doctors, and insurance companies? The government is heavily involved in regulating and/or subsidizing virtually all aspects of medicine, from drugs to insurance. As for Medicare, to say that it is "...one of the most successful programs ever..." is analogous to claiming that Bernie Madoff had one of the most successful investment strategies ever. The only difference between Medicare and what Madoff did is that Medicare is a Ponzi scheme of a size Madoff could only have dreamed of. As Goldhill points out in that Atlantic article:

"In 1966, Medicare and Medicaid made up 1 percent of total government spending; now that figure is 20 percent, and quickly rising."

"In designing Medicare and Medicaid in 1965, the government essentially adopted this comprehensive-insurance model for its own spending, and by the next year had enrolled nearly 12 percent of the population. And it is no coinci­dence that the great inflation in health-care costs began soon after."

> There is no "free market" in this country. There is no reputable economist that would assert that we have a "free market." This is a chimera used by the right to keep the ignorant thinking they are getting a really great deal all the while being taken to the cleaners.

It's true that there is no purely free market in this country (or anywhere else). However, it is also true that there are industries in which the market is relatively much freer of government interference than in other industries. And it is no coincidence that it is the industries in which the government interferes the most that are the most dysfunctional.

> You cannot have a free market with a central bank; you cannot have a free market when the government supports certain corporations through tax breaks or cash incentives (corporate welfare); you cannot have a free market by giving corporations subsidies. You cannot have a free market with anti-trust laws and government regulations.

I completely agree with you on those points. The question is, which works better: a freer market or a more regulated market? Another good question is: what kinds of regulations are beneficial and what kinds are harmful?

> Of course we all know what can happen without the last one.

Or think we know. Opinions vary widely on the effects, intended and otherwise, of various government regulations. I'm not against all regulations, BTW. A rational regulatory framework is necessary to provide a coherent structure within which a free-market system can operate efficiently.

> Without a strong central bank, anti-trust laws, and regulations, unbridled capitalism would resemble the capitalism of the turn of the century. The Great Depression was not caused by the central bank, but lack of regulations and checks and balances in the "free-for-all" market economy created by speculators.  Sound familiar?

Though I'm personally opposed to anti-trust laws, I don't have a problem with a central bank and a reasonable level of economic regulation. But health-care regulations have gone way beyond what is reasonable and common-sense. They're destroying the quality of our health care while rapidly bankrupting the country. Rather than being a helpful bridle to guide the horse of capitalism, our current regulatory environment is more like an injection of mind-and-DNA-altering drugs that has turned the horse into an uncontrollable raging monster.

As for the Great Depression, the government foolishly tried to regulate and spend its way back to prosperity. It didn't work any better than the Bush/Obama bail-outs and stimulus money have worked to end our current economic downturn.

> I don't mind capitalism. But capitalism without limits or ethics or a moral guidance spawns unbridled greed.

I agree with you. I suppose our disagreement is on which forms of regulation are beneficial and which are destructive.

> Healthcare in this country is unbridled greed. If there is one thing about the present proposal that bothers me it that it does not go far enough for universal care or tax the wealthy enough to pay for it.

The problem is not unbridled greed. The problem is that people's natural greed (i.e., rational self interest) is actually heavily bridled in such a manner as to cause severe and destructive distortions of the market. If our health-care problems were due to mere greed, then why is it that other less-regulated industries aren't experiencing analogous problems? Is the oil industry less greedy than the health care industry? What about the consumer electronics industry, the food industry, the automobile industry, or the veterinary-care industry? Why is greed only a destructive force in health care?

> Oh, you wanted one more US industry in which costs have been consistently increasing at a rate way beyond overall inflation, while the quality of the products delivered to consumers continues to decline...exclusive of the defense contractors, how about the airline industry?

Do you have any statistics to back up your claim about the airlines? It's true that quality has declined in the airline industry, but I don't think the cost of airline tickets has gone up on average at a rate beyond overall inflation. In fact, prices seem to be quite low if you shop around and plan your trip in advance. They certainly haven't gone up at the completely insane rates we've seen in the health-care sector. As for quality, that has declined in response to consumer demand. Most people would rather put up with less leg room and no food than pay extra airfare. They just want to get from point A to point B as quickly and cheaply as possible. And the airlines do a remarkably good job of providing what their consumers want. As for the defense industry, do you have evidence that costs have risen at a rate significantly beyond overall inflation or that product quality has deteriorated? I've actually worked for years for a company that does some defense-related consulting. The hourly rates we charge the government have not gone up at a rate significantly different than inflation. But our product is almost exclusively labor (for engineering and R&D). Perhaps the situation for defense contractors who produce hardware is different.

> The issue here is quite simply private corporations have been entrusted to provide our health care and do a terrible job of it and make billions in profit doing it.

They have done a terrible job. The question is why have those corporations done such a terrible job when corporations in virtually every other industry do such a great job? The answer has to do with the perverse incentives and other distortions of the market caused by excessive government interference in the health-care market.

> I think you complain too much about people trying to do something to improve our system and make it more competitive.

I only complain about people who are trying to change our system in ways that will make it worse. ;-)

I'm really enjoying this discussion! Thanks for your responses.

Further discussion of "How American Health Care Killed My Father," by David Goldhill (Atlantic Magazine, September 2009)

E: Ah, the art of cherry-picking.

JCB: Hard to believe you could say that with a straight face. But, since I can't see your face, maybe you didn't. ;^) There was no need to cherry pick. I simply selected a few examples that I liked. It wasn't difficult since I liked virtually everything, except certain aspects of his prescribed cure. Even his cure incorporates some sound ideas and would probably be significantly better than the metastasizing tumor that is our current system. But, since he so deftly shows that the problems we're experiencing are due to almost entirely to distortions of the free market produced by government interference, it amazes me that he fails to see that the optimal cure is to simply eliminate that interference as much as possible.

E: Watch out, you might find yourself a seasonal laborer and without health insurance at all.  I can practice this fine art as well but I don't have time this morning, I have to get to my wage-slave job, that...gives me virtually unlimited health care.  I'd prefer the government just pay me directly out of pocket as it would be cheaper for the taxpayer and other people could get their share.  I will try to get to the picking tonight.  I came away from re-reading the article excited about his proposals.

JCB: Not exciting to me, but certainly far superior to what Congress and the President are proposing.

E: The private insurance industry would be gone!

JCB: You act as though that would be a good thing. Insurance in every other area works well, since the free market is more-or-less allowed to operate as it should. There are no serious crises in life insurance (despite con-jobs like Bank on Yourself), auto insurance, home insurance, etc. As the author shows, our health-insurance crises are due to the heavy hand of government, not the invisible hand of the free market. So why not allow the free market to operate in health insurance as well? What is it about it that is so fundamentally different than other forms of insurance?

That said, his proposal actually might not be too bad, since it would only be for catastrophic insurance. It wouldn't be universal coverage for all health-care-related expenses. For non-catastrophic health-care expenses, the free market would be allowed to operate. At least that's what it sounds like he's proposing. I like that aspect of his plan. Still, I suspect there'd be serious negative unintended consequences involved with giving the government a monopoly on catastrophic health insurance and forcing people to buy it. Due to the complexity of the economy, it's hard to predict what they'd be. I suspect that in our political climate it'd probably turn into another enormous Ponzi scheme, such as Goldhill himself warns us against:

"We will need to reduce, rather than expand, the role of insurance; focus the government’s role exclusively on things that only government can do (protect the poor, cover us against true catastrophe, enforce safety standards, and ensure provider competition); overcome our addiction to Ponzi-scheme financing, hidden subsidies, manipulated prices, and undisclosed results..."

Also, from the standpoint of individual liberty, forcing people to buy health insurance would represent a major loss of individual rights and would set a very bad precedent.

I'll be interested to see if you can find any point in the article at which he blames our health-care woes on the free market, rather than on market distortions caused by government interference. I read the article fairly carefully and didn't find a single instance in which he does that. But I might have missed something. At any rate, I'm afraid you're the one who's going to have to do some intensive cherry picking. ;^)

My take on "How American Health Care Killed My Father," by David Goldhill (Atlantic Magazine, September 2009)

In one of his e-mails, E recommended this article. Here is my reaction:

An excellent article in many ways, though ultimately disappointing. He spends 5 pages explaining in considerable detail how government interference is preventing the free market from operating properly. But then on page 6 he proposes not a restoration of a free market but a different coercive government-controlled system. He's a smart guy; the system he proposes would probably be better than what we have now, but would be far worse than a truly free-market system. I like his idea of using catastrophic coverage coupled with personal savings. But he wants to force people into a single-payer catastrophic insurance program. I wouldn't trust this kind of single-payer, government-mandated program because there'd be no competition. It'd be far superior to allow private corporations to compete for that insurance market. In the previous pages he kept touting the advantages of a competitive marketplace, but then he proposes to do away with competition for the catastrophic insurance. He likes health savings accounts, as do I, but he wants to force people to have them, which is far too coercive for my tastes.

Still the first 5 pages really are excellent. I agree with 99% of what he says in those pages. He makes many insightful observations. For example:

"All of the actors in health care—from doctors to insurers to pharmaceutical companies—work in a heavily regulated, massively subsidized industry full of structural distortions. They all want to serve patients well. But they also all behave rationally in response to the economic incentives those distortions create. Accidentally, but relentlessly, America has built a health-care system with incentives that inexorably generate terrible and perverse results." [Emphasis mine.]

"To achieve maximum coverage at acceptable cost with acceptable quality, health care will need to become subject to the same forces that have boosted efficiency and value throughout the economy. We will need to reduce, rather than expand, the role of insurance; focus the government’s role exclusively on things that only government can do (protect the poor, cover us against true catastrophe, enforce safety standards, and ensure provider competition); overcome our addiction to Ponzi-scheme financing, hidden subsidies, manipulated prices, and undisclosed results; and rely more on ourselves, the consumers, as the ultimate guarantors of good service, reasonable prices, and sensible trade-offs between health-care spending and spending on all the other good things money can buy."
[I take exception with his belief that it's the government's role to protect the poor and to cover us against true catastrophe, but otherwise it's a great quote.]

"Yet spending on health care, by families and by the government, is crowding out spending on almost everything else. As a nation, we now spend almost 18 percent of our GDP on health care. In 1966, Medicare and Medicaid made up 1 percent of total government spending; now that figure is 20 percent, and quickly rising. Already, the federal government spends eight times as much on health care as it does on education, 12 times what it spends on food aid to children and families, 30 times what it spends on law enforcement, 78 times what it spends on land management and conservation, 87 times the spending on water supply, and 830 times the spending on energy conservation. Education, public safety, environment, infrastructure—all other public priorities are being slowly devoured by the health-care beast." [Great statistics. Incredibly scary.]

"The housing bubble offers some important lessons for health-care policy. The claim that something—whether housing or health care—is an undersupplied social good is commonly used to justify government intervention, and policy makers have long striven to make housing more affordable. But by making housing investments eligible for special tax benefits and subsidized borrowing rates, the government has stimulated not only the construction of more houses but also the willingness of people to borrow and spend more on houses than they otherwise would have. The result is now tragically clear." [Excellent analogy.]

"Society’s excess cost from health insurance’s administrative expense pales next to the damage caused by 'moral hazard'—the tendency we all have to change our behavior, becoming spendthrifts and otherwise taking less care with our decisions, when someone else is covering the costs." [That whole section on moral-hazard economy is brilliant.]

I could go on and on about how good those first 5 pages are! But I need to get some sleep. Anyway, I really appreciate your making me aware of that article. Thanks!

E's response to my take on the article: Ah, the art of cherry-picking. Watch out, you might find yourself a seasonal laborer and without health insurance at all. I can practice this fine art as well but I don't have time this morning, I have to get to my wage-slave job, that...gives me virtually unlimited health care. I'd prefer the government just pay me directly out of pocket as it would be cheaper for the taxpayer and other people could get their share. I will try to get to the picking tonight. I came away from re-reading the article excited about his proposals. The private insurance industry would be gone!

Articles on Canadian health care

We're often told by advocates of government-run health care that Canada's system is superior to ours. Last night it occurred to me to search for health-care-related articles on the websites of some Canadian newspapers. If you think a Canadian-style system would solve our health-care problems, take a look at a few of the articles I found:

1.  Globe and Mail (Toronto)   2.  Globe and Mail (Toronto)

3.  Globe and Mail (Toronto)   4.  Globe and Mail (Toronto)

5.  Globe and Mail (Toronto)   6.  Globe and Mail (Toronto)

7.  Globe and Mail (Toronto)   8.  Globe and Mail (Toronto)

9.  Globe and Mail (Toronto)  10. Gazette (Montreal)

11. Gazette (Montreal)   12. Gazette (Montreal)

13. Gazette (Montreal)   14. Gazette (Montreal)

15. Gazette (Montreal)   16. Gazette (Montreal)

17. Gazette (Montreal)   18. Gazette (Montreal)

19. Gazette (Montreal)   20. Province (Vancouver)

21. Province (Vancouver)   22. Province (Vancouver)

23. Province (Vancouver)   24. Province (Vancouver)

25. Province (Vancouver)   26. Province (Vancouver)

27. Herald (Calgary)   28. Herald (Calgary)

29. Inside Toronto

Socialism restricts individual freedom

A fundamental problem I have with socialism is the extent to which it restricts personal freedom of choice. Suppose a citizen of a country with a purely socialized health-care system becomes seriously ill. What treatment options does she have? If she happens to be wealthy enough to travel to a more free-market-oriented country for treatment, then she will have other options. But suppose she isn't wealthy. In that case she has no viable option other than to accept whatever treatment the government-imposed rationing bureaucracy is willing to provide. If the system provides her with inferior, outmoded care or puts her on a long waiting list for time-critical treatments or surgery, she simply has to accept that. She could support political reforms that would reduce the degree of rationing and/or implement a more free-market system. But as a seriously-ill person, she'd have little time or energy for that. Even assuming she were able to achieve such reforms, she could easily be dead long before they were implemented. Now suppose she lived in a country with a free-market health-care system. In that case, she'd have myriad treatment options. It's true that she'd have to pay out of pocket and/or rely on whatever insurance she happened to have. But in a truly free-market system, health-care-related prices would be dramatically lower than prices in our existing system, due to the proper functioning of competition. Even if she couldn't afford her treatments, she's still have many options. She could borrow money, ask for donations, and/or rely on non-profit, charitable medical organizations.

Now consider the freedom of choice available to someone who's career goal is to work in the health-care industry. In a purely socialized system, her only option would be to become an employee of the government. Suppose that--for whatever reason--the government wouldn't hire her, or the pay and/or working conditions didn't appeal to her. She'd be out of luck. In a free-market system, however, she'd have a vast array of choices. She could apply for a jobs with a large number of for-profit or non-profit medical organizations. Or, if she was an entrepreneurial person, she could start her own organization.

Some may believe that these kinds of restrictions on freedom are a small price to pay for achieving such goals as universal health care for everyone. Unfortunately, they are not, as anyone who's had direct experience with them can attest. The lack of personal freedom inherent in socialism constitutes an intolerable violation of our most basic individual rights. The free market is the only economic system capable of upholding our "unalienable Rights" to "Life, Liberty and the pursuit of Happiness."

Health care in the US (debate with E), part 2

A continuation of the health-care debate I've been having with my friend, E:

E: ...with regard to health care costs and your allegation that their cause is "massive" government "interference" with the providers of it:

It is hard to believe that these Godless Communist countries with "socialized" health care have LESS regulation than we do.  Since their governments control large sectors (or all) of their respective delivery systems, it would be fair to say that the systems in these countries are much, much more regulated by their governments than ours is.  Yet they spend far less per-capita than we do, despite all this "massive" government "interference".  This observation includes first-world countries with first-world health services.

Link to table

Despite our relative lack of health-care regulation, we still spend far more than the nearest country or any of the "socialized" medical-care countries.

At the very least this fact seems to destroy the "health care is expensive here because of massive government interference" argument.

JCB: The countries with completely socialized health care hold costs down by means of strict rationing. That's why I much prefer our current system to alternatives such as the Canadian system. Of course, our system is probably completely unsustainable in its current form. We're either going to have to radically deregulate and desocialize our system or transition to a completely socialized/rationed system. The former option would be far superior in every way. Unfortunately, the latter is much more likely to happen.

E: And we hold down costs by means of strict rationing too. But our rationing is based simply on how poor you are. Which of course works in our favor as well as in the favors of people yet higher up the wealth ladder. "Poor, too bad, you can't afford health care, too too bad for you loser. You should have had good genetics and good (i.e. wealthy) parents and grown up somewhere that encouraged the good sense that I have."  "Unlucky you. No MRI. Die." Rationing. Brutal, class-wide rationing.

JCB: People not buying what they can't afford is not what is normally referred to as rationing. But, no matter. Whatever we choose to call it, it's obviously a serious problem. The key point, however, is that it's not a problem that can be blamed on the free market, since--as Goldhill shows--our health-care market is highly distorted by government interference.

E: I much prefer the Canadian system to alternatives such as our system. We are going to have to radically regulate and socialize our system, in the sense of providing a safe and deep "safety blanket" (by that I mean, making modern technologies and treatments just as available to the poor as to the rich). You know, the sort of thing we do with roads and schools and above all, the military. This option is far superior in every way, unfortunately with powerful status quo seeking to maintain profits, that's unlikely to happen, as we're currently seeing.

JCB: Transitioning to a purely socialist system may actually be preferable to keeping our existing system, since it'd at least allow us to control spending. Our existing health-care system is almost certainly economically unsustainable. Unfortunately, the quality of medical care available under a socialist system would of necessity be far inferior to what could be achieved were we to adopt a free-market approach. Why? Because excellent health care requires a high degree of innovation and hard work by highly-skilled, dedicated workers. A free market is the only known economic system capable of providing the kinds of incentives required to consistently motivate people to achieve high levels of excellence in their work. Socialist government bureaucracies, conversely, are not generally renowned for their ability to inspire excellence.

You mentioned roads and the military. I'd be in favor of as much privatization of roads as is practical. The cleanest, best-maintained freeways I've ever driven on were privately-owned toll roads, such as those found in Orange County, CA. Many government-operated roads are notorious for being poorly maintained, with lots of trash, potholes, graffiti, etc. As for the military, that of necessity has to be controlled by the government. At least I don't see a practical way to avoid that. However, a system of private contractors operating in a competitive, free-market environment is the most efficient means of producing the highest-quality military equipment.

I just noticed that you also mentioned the issue of socialized schools. The record of government-run schools is spotty, at best. The dysfunctional nature of many of our public schools provides further evidence of the inherent inability of socialized systems to consistently provide high-quality services. I believe that a more free-market approach to schools would vastly improve the quality of education available in this country.

Health care in the US (debate with E), part 1

(This is a continuation of a thread that began as a discussion of drug patents with my friend E. However, I decided to change the title, since the original topic has morphed into a discussion of what's wrong with health care in the United States.)

JCB: Yes. Health care is ridiculously expensive in this country. The question is: Why is this the case?

E: Quite a few factors I'm sure.

JCB: Yes. I think it's due to a combination of factors, including extensive government interference in the market, an aging population, and lawsuit abuse in a legal environment that favors plaintiffs.

E: One would seem to be clearly the unmitigated greed of the insurance industry and the drug industry (in other words, the free market going where it always goes for other than commodities).

JCB: The problem I have with this explanation is that the health-care sector doesn't have a monopoly on greed. Pretty much all of us are greedy. I'm a greedy engineer working for an unmitigatedly greedy multinational consulting corporation. Yet my salary and the rates [my employer] charges its customers have risen at about the same rate as overall inflation. Other than health care and higher education (another industry suffering from massive government interference), I can't think of a single example of an industry for which the average inflation rate has been consistently so much higher than the overall inflation rate. There may be some of which I'm unaware. Let me know if you can think of any.

E: Another would the fact that the relationship is so bizarre between customers (including companies trying to offer benefits), the insurance industry, and care providers.

JCB: That's a great point. But what is the source of this bizarreness? Is it the free market and the unmitigated greed of the health-care industry? If so, why haven't such bizarrely dysfunctional relationships evolved in other similarly-greedy yet less-heavily-regulated (i.e., more free-market) industries?

E: It's more than I can understand but I'll try to find that really good article that I think I was telling you about.  The author thought that insurance should be just that - insurance against catastrophic events, rather than a product that paid for every little evaluation or treatment.

JCB: That's a great idea. If people would self-insure as much as possible, they'd be much more sensitive to costs and competition would drive prices down.

E: He made the analogy to car insurance, which doesn't pay for your oil changes and people don't expect it to.

JCB: Good analogy.

E: If I recall correctly he also thinks that private insurance companies are corrupt and part of the problem, not the solution.

JCB: I'll have to read the article. I'm certainly no fan of the insurance industry as a whole. The sales pitches used by a lot of life-insurance salespeople, for example, are deceptive to the point that they border on fraud or may actually be fraudulent. Bank on Yourself is one such sales pitch I've encountered recently. Yet, rates for non-health-care-related insurance (i.e., life, homeowners, auto, etc.) have not risen faster than overall inflation, as far as I know. So I doubt that insurance-industry corruption could be an important root cause of the health-care-inflation problem. However, it could be that a higher-than-normal level of corruption has resulted from the massive government interference in the health-care market.

Drug patents (debate with E), part 3

Additional dialog between E and myself on this topic:

From E's original e-mail: I think Canada is the place to get old in. I still haven't heard back from them on my Permanent Resident application. They must have quite a backlog of Americans.

JCB: Happened to see this [an article about Danny Williams, Premier of Newfoundland and Labrador, who defended his decision to travel to the US for heart surgery] today.

E: Good thing he had the $$$$$ for such treatment.

JCB: Yes. Health care is ridiculously expensive in this country. The question is: Why is this the case?

E: Quite a few factors I'm sure. One would seem to be clearly the unmitigated greed of the insurance industry and the drug industry (in other words, the free market going where it always goes for other than commodities). Another would the fact that the relationship is so bizarre between customers (including companies trying to offer benefits), the insurance industry, and care providers.

It's more than I can understand but I'll try to find that really good article that I think I was telling you about. The author thought that insurance should be just that - insurance against catastrophic events, rather than a product that paid for every little evaluation or treatment. He made the analogy to car insurance, which doesn't pay for your oil changes and people don't expect it to. If I recall correctly he also thinks that private insurance companies are corrupt and part of the problem, not the solution.

E: This is a good read [article on health care by David Goldhill, Atlantic Magazine, September 2009].