Sunday, March 28, 2010

The fatal flaws in healthcare reform (6)

The Joint Committee on Taxation has just discovered another fatal flaw in the just-passed healthcare reform bill: the government has no ability to enforce the mandate that all must purchase a healthcare policy. You can find the full explanation here. (HT: Glenn Reynolds)

This discovery modifies the first of my list of four fatal flaws that I summarized last December. I indicated then that the penalty for not purchasing a policy was likely to be less than the cost of the policy for a great number of people. When coupled with the ability of anyone to buy a policy despite any pre-existing conditions, this would mean that large numbers of people would simply opt to pay the penalty, thus saving money, and buy a policy only after they got sick. Unless this error is fixed, it is now almost certain that vast numbers of people would choose to buy a policy only after they discovered they had a serious illness. Revenues from policy premiums would thus fail to match costs and eventually bankrupt the insurers, leaving the taxpayer to pick up the tab. This would hasten the arrival of the single payer system that Obama and leading Democrats have wanted all along. (Perhaps this fatal flaw was intentional?)

I suspect we'll find many more such errors, omissions, and oversights in the legislation passed. I can only begin to imagine the unintended consequences of this legislation that are likely to arise in the future. It's a great reminder that governments cannot run industries, much less economies. Even the smartest of bureaucrats and politicians have only a fraction of the intelligence of free markets.

I continue to believe that the defects of this legislation are so massive and pervasive that it will never see the light of day.

14 comments:

W.E. Heasley said...

Mr. Grannis:


“It's a great reminder that governments cannot run industries, much less economies. Even the smartest of bureaucrats and politicians have only a fraction of the intelligence of free markets.”



When you replace a free market with a “scheme” the incidence of unintended consequences goes up exponentially.

The several and many unintended consequences of this particular half-baked health-o-rama scheme will begin to interact with one another creating yet another series of unintended consequences. The constantly enlarging group of unintended consequences will then begin to cascade.

Next comes particular constituent groups screaming foul as they will be impacted by a particular unintended consequence. Then Big Brother will attempt to solve for the particular constituent groups problems creating patch work solution that then triggers another round of unintended consequences.

Always enjoyed Thomas Sowell’s example of the mighty forest. The forest is a very efficient system. However, this efficient system is generated by random items such as which acorn grows or rots, where a leaf will fall upon the forest floor, which blade of grass etc., etc.. Hence we have random items with the end product being a very efficient forest.

Markets are like the mighty forest. Zillions of random and seemingly chaotic decisions are made every day. However, these zillion individual decisions are made in most cases by a rational individuals acting in his/her self interest. That the decisions are to a great degree made trying to find the simplest least expensive solution that actually solves a perceived problem.

Those with “special knowledge” aka the anointed/intelligentsia think the random nature of a free market can be improved. Improved with their special knowledge which is based on notions and not empirical evidence. That the random nature needs controlled and the control they seek will result in improvement. However, with the control comes the destruction of the individual with the rise of the Big Brother. The final result is that the random system which produced an efficient outcome is so large that control is impossible and the control yields a highly inefficient outcome (Soviet Russia).

alstry said...

Scott,

You are absolutely right on this one. There is no chance this will ever get enacted.

The joke is even BEFORE this legislation is enacted, Federal and State government are running a $2 trillion dollar deficit and growing as tax receipts evaporate while expenses exploding.

That is $50,000 per year for the top 40,000,000 income earners in America.......do even think that many of the top 40,000,000 income earners even earn $50,000 per year?

Obama is running out of options as the deficits get larger and larger with the insane spending against declining receipts.....the war option is seems to be getting closer and closer....at that point, what we view as important today may not be very important tomorrow.

Benjamin said...

The feds have been running agriculture for decades--everyone seems to love it. There are 7,000 agricultural extension officers across America, while output and price are regulated or subsidized. There are many land grant colleges with subsidized ag departments. Water is usually subsidized, as are rural dams and power systems, roads, railroad stops.

I never hear peep about our ag sector being lazy, expensive or socialized. Most people think our ag sector is the best in the world. Of course, we have no domestic free-market experience to compare it against--the free market in agriculture disappeared 70 tears ago.

The feds also run our enormous defense complex. From what I read, it is really tops too.

So, now voters are supposed to believe that the feds can't run health care?

Israel, perhaps our closest ally, long ago nationalized its health care. Their economy is a beacon of light in the Mideast (admittedly, a dark place).

I am dubious about this plan of Obama's--but I can understand voters being perplexed. They hear our farmers are the best, they hear our military is super-competent--but then we hear that the feds can't run health care.

Well now.

W.E. Heasley said...

Benjamin said...



“The feds have been running agriculture for decades--everyone seems to love it. There are 7,000 agricultural extension officers across America, while output and price are regulated or subsidized. There are many land grant colleges with subsidized ag departments. Water is usually subsidized, as are rural dams and power systems, roads, railroad stops.”


Ben aka Captain Agriculture:

You might want to find out “why, how, when, where” regarding subsidized rural dams and “why, how, when where” regarding power systems existing as “public utilities” and not existing more as private utilities.

Along the way Ben, pick up a copy of The Forgotten Man by Amity Schales. You’ll find that the progressives and socialists in the FDR administration had a lot to do with subsidized rural dams. Pay attention to Norris, TN a planned city built in 1933 by the Tennessee Valley Authority (TVA). Note the politics regarding the TVA.

Regarding rural public utilities, you will find that FDR himself vilified private utilities and claimed that electricity was a public good. That each American had the right to electricity. That FDR made up parts or cast a blind eye at parts of the US Constitution as he saw fit. The “right to electricity” was one of those made up parts. Note the politics surrounding utilities that came out of the FDR administration (or FDR dictatorship if you like).

Benjamin said...

W.E-
Excellent post.
We actually agree.

It was LBJ, then a smart and tough Congressman, working with FDR, who pioneered the "Congressman as winner of federal subsidies and outlays for rural development" model. It has since been imitated by every rural Congressman and Senator, creating what I call the "Red State Socialist Empire."
The Red States (which used to be Democratic and Republican) are heavily subsidized by more urban regions. If you peruse Tax Foundation data, you will find a state like California sends $60 a billion a year net to DC, while a state like Alaska, Montana or Mississippi is subsidized to the tune of billion upon billions each.

This has created blocs of Red State Congressmen and Senators strictly devoted to boosting federal outlays--it comes home, baby. In spades. And every Congressman or Senator becomes a super-patriot when a defense plant or base is in their district or state.

This is one reason why no R-Party President has even proposed a balanced budget since Eisenhower, in 1960 (the 1960 fiscal year started in 1959, July 1). That would be 60 years ago.

We have Redi Ink Republicans and BS Republicans (Borrow and Spend). What we don't have is a wing of the R-Party, or the D-Party, talking seriously about balancing the budget.

LBJ (I guess even the devil can repent) proposed a balanced budget in 1968 (again, the fiscal year then started on July 1) and then President Clinton ran some surplus budgets.

It's tough to vote for anybody.

Paul said...

Oh how did I know Benji would chime in with his usual blather about ag subsidies? HEY BENJI, you had a chance to vote for the guy with a long career fighting Big Ag. Instead, you went with the possibly the biggest Big Ag hag in the Senate who often flew around on the private jets of Archer Daniels Midland.

"This is one reason why no R-Party President has even proposed a balanced budget since Eisenhower, in 1960 (the 1960 fiscal year started in 1959, July 1). That would be 60 years ago."

The largest budget deficit under a GOP Congress was $400 billion for one year under Bush. Since changing hands, the Democrat COngress has increased spending by nearly a trillion dollars and, augmented by your boyfriend, is runnning up yearly deficits of around $1.5 trillion for several years and projected $1 trillion deficits for as far as the eye can see.

Benjamin said...

Paul-


One reason we have such outsized deficits is the War of Terror.

Perhaps the $15 trillion we spend in the next 10 years on the GWOT will be worth it, perhaps not. That is a political calculation. I suspect it works out to about $1.5 billion per terrorist (assuming there are 10,000 terrorist in the world), but I will leave it to other to calculate the relative merits.

Milton Friedman advocated a progressive consumption tax to pay for war expenditures.

We are in a war. So, where is the progressive consumption tax?

We are not you beating the drums for such a tax to ba;ance the budget?

Why is the R-Party so mute on this key point?

Benjamin said...

W.E. Anyways, I am not sure about your forest analogy. Managed forests obtain much higher yields.
Ask Weyerhauser.

Paul said...

Way to dodge, Benji!

"One reason we have such outsized deficits is the War of Terror."

Another, far less legitimate reason is because of all the failed Liberal programs your boyfriend is currently expanding and adding.



"I suspect it works out to about $1.5 billion per terrorist (assuming there are 10,000 terrorist in the world), but I will leave it to other to calculate the relative merits."

Good idea, leave it to others, because you obviously haven't a clue what you're talking about based on your assumptions.

W.E. Heasley said...

Benjamin said...



“W.E. Anyways, I am not sure about your forest analogy. Managed forests obtain much higher yields. Ask Weyerhauser.”

Ben:

It’s the natural eco-system of the virgin forest. That natural eco-system was produced through random events that produced an end result of a highly efficient forest eco-system.

Weyerhauser does not produce an efficient eco-system it merely maximizes tree production which is a totally different concept.

The point is this Ben, a certain sub-section of ideologues think that “control” is necessary as randomness scares them. The inherent freedom of randomness scares them and hence the answer is to control by removing the freedom of randomness.

The freely occurring randomness of a free market produces efficient results just like the randomness of the forest eco-system. The free market is made up of millions upon millions of economic decision makers who as a group are making zillions of economic decisions per day. Yet each decision maker on the whole makes rational decisions in their best self interest. They also make those decisions on the basis of the simplest least expensive path that actually solves their problem. Hence the random nature of a free market is really the rational, simplest, and most cost effective economic organization that actually solves economic problems.

Conversely, a planned economy such as the former Soviet Union was an attempt by few to plan the zillion decisions made daily. The most glaring example of the control experiment by the Soviet Union was to set a hundred thousand prices every year. The price setters only had mundane knowledge to set a very few prices with the remaining prices set as a pure guess. Once they set prices then the random nature of economic decisions were constrained by price fixing and shortages occurred all over the place while surpluses occurred in other sectors. Hence the control produces a very, very inefficient system of allocation of scarce resources to competing ends.

Remember Ben, all economies (capitalistic, socialistic, monarchy, fascist, communist, etc.) all function under the axiom of the allocation of scarce resources to competing ends.

Ben, you need to understand “control” in the free market is the individual making rational economic decisions in their own self interest leading to the least expensive and simplest solutions that actually solve for an economic problem. When you remove the control from the individual and allow the state to control the result is irrational decisions leading to the most expensive and complicated solution that does not in fact solve the problem.

Ben, go buy some books by Thomas Sowell.

K Jeffrey said...

Your sound analysis of economic trends and optimistic outlook have been a constant source of comfort during the upheaval since 2008. As an entrepreneur and venture investor, I have been busy trying to deal with current consumer sentiment while trying to predict the effects of an administration which has no idea of how wealth is created. I've lived through Nixon's price controls and Carter's stupidity and started successful businesses in bad times so I tend to believe in American innovation and determination. There are times, however, when this tsunami of socialist thought seems like it will overtake us. The fact that such an obvious point regarding preexisting conditions is left unexamined by mainstream media and economists is disturbing. The definition of insurance is rating the liability of the pool of those a company insures. This mandate destroys the business model upon which insurance is based. As Will Ferrell's character in "Zoolander" said, "I think I'm taking crazy pills."

Thanks for your great work. I still believe that the the instinctual drive of Americans for self reliance and free thought will prevail. We are people driven to build something of value. The question is how deep a hole will we have to dig out of before a majority see where all the money for these social programs came from. When I was in college , Economics 101 class, first day, covered the fact that government did not create wealth, which was the role of the private sector, a basic concept which our leaders do not understand.

Scott Grannis said...

K Jeffrey: Thank you for the kind words, and for sharing my optimism even in the face of adversity.

Public Library said...

Your header should read "fatal flaws in our government" not just health care.

Maybe what we are witnessing is the collapse of 'all' the largess in the face of a capitalist/communist China with a better business model.

We outdid Russia using quasi democratic policy and now China seems to be doing a good job of watching us collapse using quasi capitalism.

Instead of streamlining our country, we continue to expand it using an outdated militaristic cold war model.

China need not worry because it has enough bodies to fight any style of American war yet we spend and spend and spend as if this was 1980.

Americans are treading water while shouting at the top of their lungs. Its almost comical if it wasn't my own country.

Benjamin said...

W.E.

We agree again. I was pulling your leg about Weyerhauser.

A free market system is best, encumbered to the least extent possible by taxes, regulations and military parasites.

There are flaws in the free market system--pollution comes to mind. Ther is a perverse incentive fro individuals and businesses to excrete at the least cost possible--even if it emans imposing costs on others.

That might be okay for a wolf in the forest, but in a city, and with toxic wastes or air pollution, it becomes another matter.