Market Failures and Government Failures

Discussions about whether government should interfere with the workings of an otherwise free market tend to take on a dogmatic flavor; frequently, assertion meets counter-assertion with nary an empirical fact in sight.  In part, this is because such discussions are forward-looking, and the future is by definition data-free at any present moment.  To make matters worse, historical experience is often of limited usefulness in macroeconomic matters, either because there are simply too many economic variables to account for (and no way to control for irrelevant factors), or because some party to the discussion claims that “this time is different.”

Nonetheless, there are times when the balance of empirical evidence is so overwhelming that some conclusions are inescapable.  For example, anyone who claims that government can fix the prices of goods and services without courting calamity is rightly dismissed as ill-informed (unless he’s talking about the price of money, in which case he’s appointed to the Fed).

As a further contribution to the list of Topics on Which We Have Very One-Sided Evidence, I offer this link to an interesting study by Clifford Winston

Tax Complexity Marches On

The gist of this post is so obvious, it’s hardly worth writing.  But I sometimes find myself unable to remember specific examples of April income tax silliness when I’m discussing the need for fundamental tax reform at election time.  So here are some of my favorites from this year’s Maryland return.

How to Call a Bluff

It’s hard to imagine any long-term improvement in the public schools that does not involve some combination of encouraging good teachers to teach and encouraging bad teachers to do something else. This is all the more important in light of the difficulty of predicting someone’s teaching ability before he or she is hired.

Fortunately, once we get a look at them in the classroom and we can distinguish the good from the bad, there is no mystery about how to retain the former and eliminate the latter.  If we pay good teachers more, we’ll attract and retain at least some good teachers who would otherwise do something else.  If we pay bad teachers less (all the way down to zero in the cases of teachers who should be fired), we’ll induce them to pursue other opportunities.

A New Gold Standard?

This occurred to me last year, but I didn’t write anything about it because it’s the sort of thing about which I don’t know enough to have an intelligent opinion.  The question is this:  If people around the world buy and sell gold and quote its price in paper currency, how different is this from a de facto gold standard?  Now along comes Dr. Marc Faber and says,

“I think we already have now a gold standard . . . created by the market place.”

A thought for the day, or maybe the decade

The following is from a copyrighted newsletter by Bill Bonner.  I find it so insightful that I have to pass it on.  I sure hope it’s “fair use” under the copyright laws:

Neither limits nor adversity are what ruin men. Under pressure, they handle themselves pretty well. It’s the lack of limits they can’t handle. That’s when they run amok. So, if you really want to see what a man is made of let him think he can get away with something.

How true!  And how much of our recent past this explains.  Perhaps such reflections will make it easier to embrace the coming adversity.

Fear the Boom and Bust

À propos of the upcoming vote on whether to confirm Ben Bernanke for another term as Chairman of the Federal Reserve, I pass along the following video.  Proving once again the capacious bounds of human imagination, it presents some of the basic differences between Keynesian and Austrian economic perspectives by casting Keynes and Hayek as . . . well, you’d better just watch it yourself.  (Bernanke and Geithner make an appearance (in character at least) at 4:28.)

One of the creators, Russ Roberts of George Mason University, has a weekly podcast called Econtalk that’s terrific.

No Such Thing as a Free Colonoscopy (Continued)

Ezra Klein’s  “analysis” piece in the Sunday Washington Post doesn’t go into a lot of detail, but it’s worth a read if you’re puzzled by the fact that so many people are clamoring for health care reform while insisting that nothing change.  Klein hits the nail on the head when he makes the point we’ve discussed here:  “The surest way to cut health-care spending would be to make people shoulder more of the burden directly, as opposed to hiding it in taxes and lost wages.”  If Congress passes anything that resembles the “plan” the President released last week, that’s exactly what won’t happen.

One More Thing that Won’t End Well

I don’t have time for a long discussion of President Obama’s speech on health care; I suspect many of you are grateful for that.  But enough people have e-mailed me for a reaction that I thought I might as well respond briefly here.

Fresh Air for Health Care (Third in a Series)

At the risk of wildly oversimplifying, my last two posts have argued that private health insurance stinks but it’s mostly the government’s fault. Because I hold these two opinions together, I am at odds both with those who favor a strong government intervention (including both “single payer” models and other highly prescriptive approaches to insurance regulation like “pay or play”) and with those who oppose government intervention on the dubious ground that our current health care system represents some sort of triumph of free enterprise. The truth is that our current health care system is dumb, but government can almost certainly make it dumber.

But what if Congress and the President cared more about promoting a sustainable long-term approach to health care expenditures than they care about the next election? If they really wanted to do something to help, could they? Maybe.

How Could the Private Sector Do This to Us? (More Observations on Why Health Insurance Stinks)

In my last post, I nominated my candidate for the Biggest Problem with Health Insurance, which is that in most cases it’s not insurance at all but rather a pre-paid medical services plan. This has had at least four extremely unfortunate consequences.

1. Because most plans now cover not just catastrophic expenses but also routine and even elective expenses, almost all health care transactions are marked up 30 to 50 percent to cover the “insurance” company’s administrative expenses.
2. Because health care services are almost entirely pre-paid, people have a tendency to think of them as cost-free and use them far more often than they would if price mattered to the patient.
3. Because we persist in calling this arrangement “insurance,” we delude ourselves into thinking that drawing the uninsured into the risk pool will somehow lower per capita costs.
4. Because the whole system runs almost entirely on the principle of cost-shifting rather than risk-spreading, people are now basically addicted to Other People’s Money.

In addition, another very serious problem arises from the fact that so many people receive their health care as a condition of employment.  This causes people to worry that losing their job will cause them to lose their access to health care.  And the worry is most acute for those who already have a chronic disease or other health condition that may be uninsurable under a new plan sponsored by a new employer.

Partisans on both sides of the current health care “reform” debate agree that the status quo is unacceptable.  Partisans on both sides also tend to agree that the status quo is more or less the result of private enterprise.  The debate is about the extent to which today’s free-market failures can or should be corrected by more government intervention.  The history of private health insurance, however, seems to me to cast serious doubt on the premise of free-market failure.