Re: Economics and "the Public Option"

A friend of a friend suggested he might be interested in reading a summary of my reasons against the Obama healthcare plan (numinous tho' it be at this point) -- I'll focus on the "public option" point, which seems to be the centerpiece.

I hope it won't be perceived as a fancy/sneaky/insincere rhetorical gesture if I start with a concession: universal healthcare is the most moral thing to do. That's an important point to make, because I gather from my friend-of-a-friend that he wishes to see morality brought to the forefront in this public debate. So, with one minor hesitation--[having to do with our granting moral agency to the state]--I concede as explicitly as possible that it would be a morally superior state that could supply all of its citizens with healthcare.

One more prefatory point: I don't really expect this short blog post to be convincing, in part because of the moral issue... people on either side are deeply entrenched, and are unlikely to be persuaded by reading a lowly blog post.

Interlude: if this were a semester-long course, I'd start with 8 weeks of this kind of thing.

However. My argument rests on positioning what I will call "economic reality" against morality -- if you go away from this post feeling that tension (even if you go away still disagreeing with me) -- I'll be very satisfied. I define economic reality as a situation in which resources are limited, or scarce. So, I mean to show that healthcare is a scarce resource (like air conditioning or hot dogs or almost anything else) and that the scarcity limits the state's moral agency.

Tonight I went to see District 9 at the movie theater. A large popcorn was $7.00. I declined to purchase.

Now, it's true that buttery popcorn is a scarce resource, but it feels like it's not that scarce. But I'm guessing that most people supporting a public option in healthcare would not support a public option at movie theaters... (right?)... because: those who support the public option deem healthcare far more important than popcorn. Same principle, but moral valuation creates a different policy outlook.

Is there a downside to legislating these kinds of moral valuations? For example, I think it's very important for people to feed their children healthy foods in moderate amounts: to what extent should the government be involved in what we feed our children?--more or less than what the FDA does? To me, these are murky decisions. I have plenty of friends who are 27-years old and single and who would certainly prefer to have healthcare to having no healthcare, but they might prefer to have a Lexus to healthcare.

This is a summary of a pretty typical conservative objection. But I think I have a better one:

Imagine two healthcare providers: one public (A) and one private (B). Both providers have certain costs (drugs, employees, electricity bills, etc.). To meet those costs, Company B, the private company, must charge certain amounts of money to turn a profit--if they don't, they go out of business. This means there's a sort of "natural" price for many of the services provided by the private company. On the other hand, the public provider need not turn a real profit: it can always draw from the tax collector's pocket (or "raise revenues" as the Obama administration's best rhetoricians like to say). But this leads to an important point: the public company need not really compete with the private company: it can simply set prices at whatever level it wants. Indeed, some "health czar" will eventually have to decide just how competitive they want this public provider to be: if they it to provide the same services as the private provider for half the costs to the consumer, they can do that. If they want the public provider to offer the same services as the private provider at one tenth of the costs to the consumer, they can do that. There is no limit (other than tax-payer resentment, which I expect will become very real if the public option becomes law) to the ability of the public provider to meet consumer needs. In other words: it's not really competing, it's undercutting.

One more point: there's a very very deep-set "liberal" myth -- a myth set so deep that most progressives genuinely don't believe they're speaking myth when they describe it. The myth is that the Bush administration produced policies that would've pleased the most dog-eat-dog amoral capitalist of the late 19th century. So you hear things like this: "The economy collapsed because the Bush administration undid some important government protections... we need Obama to put those protections back in to fix the economy."

In reality, Bush's government was all-kinds-of interventionist. To say that healthcare was a field existing in a laissez-faire market at any time in the past forty years is fundamentally either uninformed or disingenuous. In economic reality, "big healthcare" companies have been lobbying congress and have been rewarded in kind for decades. As a result, there is very little competition -- the barriers to entering the market are such that no private company that is not already a "big dog" could ever make a dent in the sector.

Picture the Leaning Tower of Pisa. That was healthcare in 1950. Now picture a long wooden beam supporting Pisa on one side. Now picture a rope tied to the other side. Now picture an "add-on" giving it extra height... height that throws the balance out of whack again, requiring further wooden support beams and more ropes... picture the Leaning Tower of Pisa turning into a tower of Babylon by this repeated process: each adjustment the government makes is, in its way, "necessary" -- and each makes the whole structure more unstable.

So these are some basic parables that try to describe some basic laws of economic reality: a prose essay on supply and demand might be more or less convincing. My favorite books on the topic include Ludwig Von Mises' Human Action, Joseph Schumpeter's Principles of Economics, and F.A. Hayek's Individualism and Economic order.

But back to my starting point--morality. Two thoughts to conclude: 1) it would certainly be more moral for the government to provide all of its citizens with Toyota Priuses and solar panels for rooftops and 5-bedroom houses, but (obviously) the cost is prohibitive. It's possible that we're not in that situation with healthcare... maybe we can afford it. But I'm waiting to be convinced.

And 2) -- a point I've saved for last because its doomed to be least convincing: liberals love to talk about their government being moral on their behalf. Should you get moral points for paying tax-dollars which go on to fund public healthcare and aid programs in Africa? It is my view that a moral perspective must precede a political order, rather than being embedded in it. The difference between the collapse of the soviet union and the hypothetical collapse of the United States will not be a matter of economic policy, but rather, will be a reflection of a lack of genuine interpersonal sympathies that had previously formed the basis for the social contract. To put it romantically: if the union does not exist in our hearts, it cannot be made to exist by political methods.

Sorry about the length -- I'll be very happy to read counterpoints, though I imagine this is (as I suggested at the outset) one of those issues where people are relatively entrenched in their ideologies.


Monica said...

Thanks for posting, Casey--very informative. But, let's face it--you, employing slippery slope logic, are just worried that one day the government will attempt to mediate your consumption of bread and cheese. ;)

fenhopper said...

i think i see where you've gone here. but i just don't follow with the arguments regarding morality. at several points. just like i didn't follow al gores argument that climate change is a moral -- not a political -- issue. that's bullshit. they're both political because each is an issue that some people think must be taken up by political machinery because of their moral leaning on it.

my stance -- and you would probably have predicted this because you seem to understand how we liberals are bound and wound -- is in favor of the public option. but not because it's moral. it's not. the country doesn't do moral things. it does effective things.

[and before you jump on the seeming incongruity with my stance on torture let me just say that the effect of being a country that is ok with torture is really what i object to. not the immorality. a) i don't accept that torture works b) whatever it accomplishes, it will doubly reap horrible reactions when the u.s. is no longer powerful enough to bomb its critics.]

my reasons for supporting a public option are
1) i believe a more affordable plan will help some people and perhaps some day, me (if i don't end up working for a school), get a service that would otherwise be out of reach.
2) i have faith in the govt's ability to provide this form of support.
3) i believe insurance companies as they stand can get sick and wither to a husk of what they were. if they want to survive (not compete) the worst of them will have to provide better service with less profit. and i don't care if the gov't doesn't protect profits.

just as the gov't has provided funds for priuses and solar panels through programs going back to the carter administration, in the form of rebates and tax credits, this is not a moral move. it's a strategic one.

i don't value the services as currently provided. i think the public option is a fine way to disrupt and get the private providers to try something new. something less indifferent to the consumer.

if it only hurts allstate and bluecross/blueshield, what do i care?

fenhopper said...

(n.b. not that allstate is a health ins provider. it's just... big.)

Casey said...


I really appreciate that you understand that moral-government must be balanced against a pragmatic viewpoint. As I said in my post: once I can get you to understand that point, I don't push much harder (because frankly, it really is beyond my expertise to know whether our gov't can afford program X or not).

So as I said in the post, it may be true that we can afford this, and not only afford it, but that it'll work better. If it does, obviously, I'm for it. It's just that my understanding of history and theory lead me to expect that it won't "work," at least not without creating gigantic burdens on the middle-class via taxes. [And maybe this is the key: every gov't program "works," because there is no limit to its revenue -- EUREKA -- here's a better way of making my point: if the public option was a good plan, why wouldn't a private investor do the project? That is: it needs to be public because we don't expect it to be profitable.]

Monica. Monica.

Mark said...

I would suggest that it only makes things more confused to identify the issue here as whether the gov't should involve itself in moral questions of how we make choices.

Most every public policy choice we enact involves intervention into private choices. For example, the water pollution laws I work with involve private choices. It is illegal to dump raw sewage into a stream. To me, obviously, this is a proper role of state government -- regulating behavior and the environment for the common benefit of all -- and the government can do this fairly well.

Another "intervention" is for the federal government to get into the medical insurance business. I would join you in predicting that it will struggle to pull this off well. But its not because it is attempting to intervene in our private lives or make moral choices. Rather, as you later point out, it is because this particular type of intervention attempts to get involved in a market activity without having to play by market rules. Thus, its the nature of the intervention in private affairs that counts, not intervention per se. The government is better at regulating activity we don't approve of than it is at providing products and services.

I recall the economic maxim -- prices regulate production. Take out market prices, production becomes chaotic. Even if we feel convinced that everyone has a right to free health care, its hard to get around that basic economic reality. What I don't understand is if We the People are willing to pay for the cost of universal care, why can't we direct that money to charity-based institutions who can then administer it to the uninsured. That way people who need care can get it, and the market for health care services isn't thrown out of whack.

I noticed that the comment above mentions the government support of solar energy. As I understand it, that was a massive failure. Back in the 70s, The feds decided that we should support green tech in the form of solar. So we subsidized it for many years to help develop it. But once the subsidizes were pulled, we found that it was not economically viable. And now many of these early green energy projects have been abandoned in a huge waste of money. These days, the folks in green tech have gotten wise to what is going on. Now they're saying, “don't have the government pick the winners and losers.” Rather, let us environmental engineers and green companies in the market develop these things and everyone wins. We can get clean and profitable (i.e. sustainable) energy sources that don't require the crutch of tax support. Moreover, when the government picks the winners, the hidden effect is to suppress the development of other more economically viable forms of green technology.

fenhopper said...

it does depend on what you mean by failure. it has not changed the behavior of homeowners/builders to move towards solar energy. that's more complicated than a simple "gov't incentive doesn't work." consumer faith in the technology, ability to invest up front for the technology rather than over a period of time for a service, and even the stigma of doing something that carter supported all affect the behavior. but the subsidies are still there. the stimulus package includes them and the tax cuts are available.

the gov't can't really be blamed for consumers choices. and i assume that's kinda been casey's point all his life.

Casey said...

Except for a period from about '05 through the election of Obama, when I momentarily lost my bearings. ;)

But as I initially said back on the Facebook page that started all of this, I don't expect anyone to change their mind anymore... we're all too old for that.

Next post: on the underlying motivation of those who self-identify as Rhetoricians.