A desperate and angry Newt Gingrich has relinquished his remaining grip on smart primary campaigning and unleashed an all out assault on Mitt Romney's economic record – and, by association, capitalism. Gingrich's attacks on Romney's experience, however, only serve to undermine Gingrich's stance as a responsible, non-negative campaigner and isolate him from the sensible Republican voters whom he needs to court to have any chance at receiving the GOP nomination.
However, aside from the damage that such attacks seem to be having on Gingrich's campaign, this anti-capitalist line of campaigning is causing monumental damage to the very economic basis that the Republicans are supposed to defend. In his quest to take down his rival, Gingrich is relying on the same Occupy Wall Street-style rhetoric that dominates the left. (To be fair, Governor Rick Perry has resorted to similar tactics, as the WSJ reports.)
The pernicious results are, at least, twofold. First, these attacks greatly help the Obama campaign. These are the precise attacks that the anti-freedom, anti-capitalist forces of the left will unleash on Romney come the general election. There could not be a better way to bolster their argument than by dishing it out for them. As the presumptive nominee, Romney will have an uphill battle to convince those who succumb to the easy anti-capitalist rhetoric that bashes the free market system. Obama can only be gleeful to have help in his mission in the form of Newt Gingrich.
Secondly, and arguably more importantly, Gingrich's attacks solidify misconceptions and distortions about how the free market works. The underlying assumption in his argument is the same as those held by the worst populists in OWS and the anti-Wall Street fringes of the Tea Party. The central argument is that somehow those who have money must justify their possession based on some social, communal good. This is simply false. The freedoms of the American political system guarantee that individuals have the right to their property. Provided they do not engage in illegal activities, individuals have no obligation to justify their earnings to the state in any regards. In other words, the rich, the middle-class, or the poor, need not demonstrate a social purpose or benefit from their occupation in order for the state to deem it acceptable. A free market functions precisely because no government body determines these things.
However many populists and the left implicitly rely upon this assumption when attacking the "rich." Accordingly, they argue that financiers cannot justify a socially-beneficial purpose and thus their "unjustly" earned wealth should be, at least partially, relinquished to the state. Gingrich has gone on record stating that the likes of Bill Gates, Steve Jobs, and Sam Walton deserve their billions because they invented something real. By contrast, goes the argument, Wall Street is just a "handful of rich people [who] manipulate the lives of thousands of other people and walk off with the money...."
This is a gross distortion of the role that finance plays in a capitalist system. Finance is an essential service – it moves capital from those who possess it to those who can use it best. It allows entrepreneurs, who do not possess the needed resources, to obtain them fairly and efficiently. And like anything in business, sometimes it succeeds and sometimes it fails. Capitalism's success is not because it always creates jobs, but that it allows resources to be successfully and most efficiently allocated to the right places, something no one person or institution (government) could do alone. This inherently implies hiring and firing, buying and selling, and investing and divesting. Firing, for instance, moves labor from an area that does not need it and thus frees it up to be used in a more productive fashion.
But Gingrich's attack plays into the leftist and populist rhetoric that ignores the importance of finance. Not only does it confuse voters who are unfamiliar with finance, providing fodder for the left to continue the myth that finance and Wall Street are greedy robbers that need to be stopped by the government (Progressive blogs have jumped on this Gingrich quote.) but it does a great disservice to the purported Republican goal of changing the direction of this country.
Gingrich should be ashamed at such low-brow politics. As an academic and a genuinely smart guy, he must know that the quest to hold political office should not undermine the long-term goals of righting the direction of this country. Relying upon political expediency rather than education only reinforces the anti-free market myths that dominate the public sphere. Republicans have unfortunately excelled far too much at this game. They choose to battle on the Democrats' terrain, using leftist arguments and thus continuously fighting on the defensive. The GOP will only be able to transform this country if it starts to think for itself, if it directly targets these sort of implicit assumptions that underline much of the political dialogue and replaces them with truth. Gingrich's behavior flies in the opposite direction by not just failing to break down the "Wall Street" is bad assumption but strengthening it.
Showing posts with label free-market. Show all posts
Showing posts with label free-market. Show all posts
Wednesday, January 11, 2012
Monday, August 22, 2011
Why Warren Buffett is Wrong on Taxes
Former chairman and CEO of American Express, Harvey Golub, writes on why Warren Buffett and Obama are wrong when arguing for higher taxes on the rich.
But while Golub's argument is fair, there is a more fundamental issue in his essay. In refuting calls by some of America's wealthiest, including Buffett, for higher tax rates on the rich, he writes:
Income is naturally the property of the individual who earned it. The government only has the right to take from an individual in order to provide the appropriate services of the state. In other words, government should minimize its burdens on individuals and should tax only to meet its essential and proper functions (what these functions are is a separate discussion but would include many tasks that cannot be provided by the private market, for instance, defense, security, certain infrastructure, establishing rules and laws, and other pure social goods). Taxes are thus a pooling of individual property to provide for certain aspects of the common good. In this manner, taxes could be perceived as establishing or investing in an institution (the government) that provides needed services that would otherwise be unavailable. Accordingly, all should benefit from this system.
Buffett's and Obama's argument turn this conceptualization on its head, arguing that the appropriate level of taxes is rooted not in the need to pay for essential functions but in an arbitrary determination of what an individual should possess. Under this understanding, income (or wealth) is not the natural property of the individual, but is awarded to them based on their need. Any amount that surpasses this arbitrary definition of need does not rightly belong to the individual and must, to be fair, taken away. Taxes are thus used to 'level the playing field'. The individual, whether rich or poor, now lives at the goodwill of the state, allowed to possess only due to the graces of leviathan. In fact, taken to the extreme this argument does not even require the government to provide anything. If taxes are justified by taking 'excess' from those who have it, the government has achieved its goal of taxation (this is not to say the government does not have other goals) simply by taking the money.
Taxation is a tool needed for the government to achieve its proper functions. It is not a goal unto itself. To assume otherwise is to break down the very fabric of a capitalist, free-market, liberal society and sets dangerous precedents. It is certainly appropriate to debate how tax burdens should be carried by different segments of society, but it is far too dangerous to allow such discussions to distort the purpose of taxation. Taxes are a government's paycheck or its alms - not a tool for social engineering.
What gets me most upset is two other things about this argument: the unfair way taxes are collected, and the violation of the implicit social contract between me and my government that my taxes will be spent—effectively and efficiently—on purposes that support the general needs of the country. Before you call me greedy, make sure you operate fairly on both fronts.Golub highlights statistics that the top 3% of taxpayers pay nearly 50% of taxes. He also cites the inefficient collection of taxes - namely due to tax breaks and loopholes given to all sorts of special interests - and inefficient expenditure of taxes - on wasteful and unnecessary programs - to drive his message home. Golub concludes "Here's my message: Before you 'ask' for more tax money from me and others, raise the $2.2 trillion you already collect each year more fairly and spend it more wisely. Then you'll need less of my money."
But while Golub's argument is fair, there is a more fundamental issue in his essay. In refuting calls by some of America's wealthiest, including Buffett, for higher tax rates on the rich, he writes:
Others could pay higher taxes if they choose. They could voluntarily write a check or they could advocate that their gifts to foundations should be made with after-tax dollars and not be deductible. They could also pay higher taxes if they were not allowed to set up foundations to avoid capital gains and estate taxes.The issue here is one of coercion and choice. Buffett might be right when he calls for the closing of loopholes that give special treatment to certain forms of income or certain individuals, but that does not translate into justification for increased tax rates. If Buffett feels he owes something to the community, he is more than free to write a check to any institution he feels deserving - including the US Treasury. However, to argue that tax increases on certain individuals are necessary, because one feels like he is paying too little, distorts the relationship between government and the individual in a dangerous manner.
Income is naturally the property of the individual who earned it. The government only has the right to take from an individual in order to provide the appropriate services of the state. In other words, government should minimize its burdens on individuals and should tax only to meet its essential and proper functions (what these functions are is a separate discussion but would include many tasks that cannot be provided by the private market, for instance, defense, security, certain infrastructure, establishing rules and laws, and other pure social goods). Taxes are thus a pooling of individual property to provide for certain aspects of the common good. In this manner, taxes could be perceived as establishing or investing in an institution (the government) that provides needed services that would otherwise be unavailable. Accordingly, all should benefit from this system.
Buffett's and Obama's argument turn this conceptualization on its head, arguing that the appropriate level of taxes is rooted not in the need to pay for essential functions but in an arbitrary determination of what an individual should possess. Under this understanding, income (or wealth) is not the natural property of the individual, but is awarded to them based on their need. Any amount that surpasses this arbitrary definition of need does not rightly belong to the individual and must, to be fair, taken away. Taxes are thus used to 'level the playing field'. The individual, whether rich or poor, now lives at the goodwill of the state, allowed to possess only due to the graces of leviathan. In fact, taken to the extreme this argument does not even require the government to provide anything. If taxes are justified by taking 'excess' from those who have it, the government has achieved its goal of taxation (this is not to say the government does not have other goals) simply by taking the money.
Taxation is a tool needed for the government to achieve its proper functions. It is not a goal unto itself. To assume otherwise is to break down the very fabric of a capitalist, free-market, liberal society and sets dangerous precedents. It is certainly appropriate to debate how tax burdens should be carried by different segments of society, but it is far too dangerous to allow such discussions to distort the purpose of taxation. Taxes are a government's paycheck or its alms - not a tool for social engineering.
Tuesday, March 1, 2011
It is the Entitlements, Stupid!
Unsustainable public entitlements seem to be the most talked about secret in the nation. There does not appear to be a pundit out there who has not addressed the necessity for cuts in or fixes of the entitlement system. Europe has started facing down this monster while US states (who have to balance their budgets) have begun the reform process. Yet, strangely the federal government has done little to address the nation's budgetary mess.
In today's Wall Street Journal, Charles Koch wrote a poignant editorial about the need to fix America's fiscal situation. He called on the government to tackle the overwhelming burden of the nation's entitlement system.
In today's Wall Street Journal, Charles Koch wrote a poignant editorial about the need to fix America's fiscal situation. He called on the government to tackle the overwhelming burden of the nation's entitlement system.
In spite of looming bankruptcy, President Obama and many in Congress have tiptoed around the issue of overspending by suggesting relatively minor cuts in mostly discretionary items. There have been few serious proposals for necessary cuts in military and entitlement programs, even though these account for about three-fourths of all federal spending.His criticism is not solely reserved for the Democrats. The GOP is equally culpable in the mismanagement of the national finances. Koch attacks the concept of crony capitalism, which is seemingly endemic on both sides of the aisle. Democrats and Republicans alike operate under a system that has utterly failed to face reality. Koch argues that,
Crony capitalism is much easier than competing in an open market. But it erodes our overall standard of living and stifles entrepreneurs by rewarding the politically favored rather than those who provide what consumers want.Politicians, on both sides of the aisle, should heed these warnings. Koch makes a powerful - and true - argument. If American politicians, for fear of electoral retribution, fail to force tough choices on America, everyone will pay the price. The federal government needs a serious dose of reform. It needs to be smaller, more efficient, and supportive of free competitive markets. Time to get started before it is too late.
The purpose of business is to efficiently convert resources into products and services that make people's lives better. Businesses that fail to do so should be allowed to go bankrupt rather than be bailed out.
...
Our elected officials would do well to remember that the most prosperous countries are those that allow consumers—not governments—to direct the use of resources. Allowing the government to pick winners and losers hurts almost everyone, especially our poorest citizens.
Sunday, September 26, 2010
It's a Jungle Out There!
The left – environmentalists in particular – have long had an affinity for the jungle. The majesty and biodiversity of unmolested nature have inspired generations on the left to protect the jungle from man’s adulterous hands. In response, the right has often scorned such appreciation as the sentiment of mere hippies and tree-huggers. The jungle becomes a battleground between conservationists and capitalists.
But while the left claims the ‘righteous path’ of stewardship of the jungle, there is a lesson found in there that offers profound support to the beliefs of the right. If one spends a small quantum of time in a jungle, it becomes apparent that it is a prime metaphor for capitalism.
At first this may seem contradictory. After all, the common understanding the jungle is the epitome of nature, while the market is the embodiment of man’s conquest of nature. However, the fact often overlooked is that the market-system is nature. Men, in their hubris, often try to separate the world of mankind from the natural, forgetting that although humankind certainly has an inordinate power to alter his landscape, it still operates within the system of nature.
The beauty and biodiversity of the jungle arise from the same source that fosters the market-system – competition. Every actor in the jungle, whether plant or animal, is operating in its own self-interest, for its own survival. And while many environmentalists attempt to hang their hats on the concept of balance-of-nature, what is missed is that this balance comes spontaneously and is in no way planned. The panther is not a noble creature that consciously oversees the inner workings of jungle, but a selfish individual that takes what he can to provide for his own survival. If he fails, he dies; if he succeeds, someone else dies. There is no concept of justice, simply a self-correcting balance.
This leads to a high level of competition and subsequently specialization. This becomes abundantly clear if one looks at the profusion of wildlife and the niche roles that each species plays in the jungle system. Not only does competition develop this specialization, but it leads to a tangible wealth. The wealth of the jungle is a rich mosaic of life, of colors and of activity. In practice, the world of Charles Darwin is not that far from the market system of competition as elucidated by Adam Smith.
What is striking is that so many environmentalists stand against the notions of capitalism and never realize that they grow from the same source. This does not mean to disregard the natural competition in which environmentalists and capitalists engage over the use (or lack of use) of natural resources – which obviously puts them at odds. However, what is significant is that many can recognize the beauty of this natural, competitive process in the environment, while simultaneously dismissing it in the human environs of the world. In truth, those that appreciate this magnificence in nature should, at least in a philosophical sense, fall closer to the capitalists of the right, than the socialist planners of the left.
But while the left claims the ‘righteous path’ of stewardship of the jungle, there is a lesson found in there that offers profound support to the beliefs of the right. If one spends a small quantum of time in a jungle, it becomes apparent that it is a prime metaphor for capitalism.
At first this may seem contradictory. After all, the common understanding the jungle is the epitome of nature, while the market is the embodiment of man’s conquest of nature. However, the fact often overlooked is that the market-system is nature. Men, in their hubris, often try to separate the world of mankind from the natural, forgetting that although humankind certainly has an inordinate power to alter his landscape, it still operates within the system of nature.
The beauty and biodiversity of the jungle arise from the same source that fosters the market-system – competition. Every actor in the jungle, whether plant or animal, is operating in its own self-interest, for its own survival. And while many environmentalists attempt to hang their hats on the concept of balance-of-nature, what is missed is that this balance comes spontaneously and is in no way planned. The panther is not a noble creature that consciously oversees the inner workings of jungle, but a selfish individual that takes what he can to provide for his own survival. If he fails, he dies; if he succeeds, someone else dies. There is no concept of justice, simply a self-correcting balance.
This leads to a high level of competition and subsequently specialization. This becomes abundantly clear if one looks at the profusion of wildlife and the niche roles that each species plays in the jungle system. Not only does competition develop this specialization, but it leads to a tangible wealth. The wealth of the jungle is a rich mosaic of life, of colors and of activity. In practice, the world of Charles Darwin is not that far from the market system of competition as elucidated by Adam Smith.
What is striking is that so many environmentalists stand against the notions of capitalism and never realize that they grow from the same source. This does not mean to disregard the natural competition in which environmentalists and capitalists engage over the use (or lack of use) of natural resources – which obviously puts them at odds. However, what is significant is that many can recognize the beauty of this natural, competitive process in the environment, while simultaneously dismissing it in the human environs of the world. In truth, those that appreciate this magnificence in nature should, at least in a philosophical sense, fall closer to the capitalists of the right, than the socialist planners of the left.
Thursday, March 18, 2010
Pro-Market versus Pro-Business
Within political arenas, there is a distinction that is far too often overlooked: pro-market vs. pro-business. Republicans, at least the fiscal conservatives, tend to call themselves pro-market. They speak in terms of supporting the market, free-trade, competition, and business. Democrats, in turn, disparage the concept of being pro-market and criticize Republicans for really being bosom buddies with Big Business.
The difference between the two concepts is often muddled, but is in reality very simple. Being pro-market is expressing a commitment to the economic principles of a free-market and competition. It represents the support of an economic system that allows Adam Smith’s “invisible hand” to perform the majority (certainly more modern economics allow for greater government interaction) of economic production and distribution. The principles accept that truly free-markets operate best with minimal government interference and maximum individual liberty.
In contrast, being pro-business is an expression of support for one type of player with the market. The interests of these players sometimes coincide with the interests of the market and sometimes do not. Rather than supporting a principle or idea, those who are pro-business are indebted to partisan interests.
As most are aware, the majority of Democrats are neither pro-market nor pro-business. Instead, generally they correctly criticize the concept of pro-business and incorrectly, although quietly, eschew the concept of pro-market. Many Democrats chose to follow policies that fit a more socialist (in the ideological not the disparaging sense of the far right) economic model. In other words, they prefer active government management of parts of the economy in terms of both production and distribution of wealth.
In contrast, Republicans often claim to be pro-market. While often successful in this pursuit, unfortunately many Republicans devolve into the realm of pro-business. This is most clearly represented when Big Business or cronies of certain senators get market-distorting tax incentives or other perks of their position (E.g. antitrust exemptions).
In truth, it is difficult for a politician to be truly pro-market. Commitment to a principle is always complicated when faced with electoral constraints. Politicians need money and voter support and thus need to give incentives, whether in the form of providing money or perks, to their supporters. This causes elected officials, who are inclined to support an ideology, to compromise their beliefs when the electoral rewards are greatest. The most committed pro-market candidate can quickly devolve into a pro-business shill when he realizes the realities of Washington.
This is true because, aside from a few academics and bloggers, the market has no real constituency. Being pro-market means that and individual must sometimes support business, sometimes support labor, sometimes support consumers, and sometimes just sit back and do nothing. Pro-market leaders will inevitably be forced to make decisions that upset either their financial or electoral supporters – a politically unwise proposition.
Despite the obvious difficulties, the pro-market framework is truly what is best for America. Being pro-market reduces the role of government to one that simply ensures that markets operate efficiently and competitively. It means that when one player, be it government, union, or company, gains too much power it is prevented from abusing its position. In practice this means supporting policies that prevent consolidation of power (anti-union and anti-monopolization) and facilitating the free flow of information.
At the end of the day this not only minimizes the size and cost of government but allows each player within the market to pursue its self-interest in a fashion that maximizes its own and societies worth. In contrast, the pro-business mentality artificially distorts the market by giving special privileges to some members of society. While potentially difficult to implement, pro-market policies should be the foundation of the Republican platform.
The difference between the two concepts is often muddled, but is in reality very simple. Being pro-market is expressing a commitment to the economic principles of a free-market and competition. It represents the support of an economic system that allows Adam Smith’s “invisible hand” to perform the majority (certainly more modern economics allow for greater government interaction) of economic production and distribution. The principles accept that truly free-markets operate best with minimal government interference and maximum individual liberty.
In contrast, being pro-business is an expression of support for one type of player with the market. The interests of these players sometimes coincide with the interests of the market and sometimes do not. Rather than supporting a principle or idea, those who are pro-business are indebted to partisan interests.
As most are aware, the majority of Democrats are neither pro-market nor pro-business. Instead, generally they correctly criticize the concept of pro-business and incorrectly, although quietly, eschew the concept of pro-market. Many Democrats chose to follow policies that fit a more socialist (in the ideological not the disparaging sense of the far right) economic model. In other words, they prefer active government management of parts of the economy in terms of both production and distribution of wealth.
In contrast, Republicans often claim to be pro-market. While often successful in this pursuit, unfortunately many Republicans devolve into the realm of pro-business. This is most clearly represented when Big Business or cronies of certain senators get market-distorting tax incentives or other perks of their position (E.g. antitrust exemptions).
In truth, it is difficult for a politician to be truly pro-market. Commitment to a principle is always complicated when faced with electoral constraints. Politicians need money and voter support and thus need to give incentives, whether in the form of providing money or perks, to their supporters. This causes elected officials, who are inclined to support an ideology, to compromise their beliefs when the electoral rewards are greatest. The most committed pro-market candidate can quickly devolve into a pro-business shill when he realizes the realities of Washington.
This is true because, aside from a few academics and bloggers, the market has no real constituency. Being pro-market means that and individual must sometimes support business, sometimes support labor, sometimes support consumers, and sometimes just sit back and do nothing. Pro-market leaders will inevitably be forced to make decisions that upset either their financial or electoral supporters – a politically unwise proposition.
Despite the obvious difficulties, the pro-market framework is truly what is best for America. Being pro-market reduces the role of government to one that simply ensures that markets operate efficiently and competitively. It means that when one player, be it government, union, or company, gains too much power it is prevented from abusing its position. In practice this means supporting policies that prevent consolidation of power (anti-union and anti-monopolization) and facilitating the free flow of information.
At the end of the day this not only minimizes the size and cost of government but allows each player within the market to pursue its self-interest in a fashion that maximizes its own and societies worth. In contrast, the pro-business mentality artificially distorts the market by giving special privileges to some members of society. While potentially difficult to implement, pro-market policies should be the foundation of the Republican platform.
Saturday, December 5, 2009
The Right Medicine for Healthcare – Part II: A More Competitive Market
Any successful healthcare reform needs to formulate a more competitive health insurance market. A more competitive market will drastically alter the cost structure for health insurance. In order to remain in business, insurance companies in a competitive market will need to drive costs downward. A multitude of new insurance products will be offered which will provide consumers with an array of choices with varying levels of amenity and price. There are at least three ways in which the markets can be made more competitive.
The first, and easiest, step would be to allow insurance companies to compete across state lines. The current, useless restrictions only serve to drive costs upwards. By allowing cross-border competition, the number of insurance providers available to any one individual will immediately increase. Companies will then have to compete with more market participants in order to capture a sufficient segment of the now larger pool of potential clients. This will force insurance providers to develop new types of insurance products and cut their own costs to improve margins.
The second step would be to end the employer-based system of the provision of health insurance. Many Americans currently get their health insurance as a fringe benefit from their employer. However, there are a number of problems with this method of provision. First, those that cannot get insurance through their employer often have to pay exorbitant fees in the private market. Second, health insurance is contingent on employment. When an individual loses his or her job, it becomes a double hit with the elimination (or increased cost) of health insurance. Third, employer provision necessarily limits an individual’s options. Most companies only offer three or four options – all generally from the same insurance company. The individual has little say in terms of picking an option that suits his or her financial and medical needs. Insurance companies therefore only need to offer plans that appeal to a few Human Resource managers, and do not need to offer specialized coverage for unique requirements.
All of these issues can be resolved if individuals or families obtained health insurance on the free market. Like auto, homeowner, or other forms of insurance, health insurance should be an individual’s personal decision. If insurance companies competed for individual policyholders, rather than for corporate HR managers, they would be forced to diversify products to meet individual needs. Insurance policies that ran the gamut from expensive with maximum coverage to limited cost and coverage would be widely available for individual purchase. This would help lower costs as individuals would self-segregate into policies that better meet their needs and budgets [for instance why does a single man need health coverage for an OB/GYN?]. Likewise, entrepreneurial insurance providers will be able to successfully target niche markets that formerly went uncovered.
The end of the employer-based system can be easily achieved through simple legislation. A law that requires employers who provide health insurance to offer an employee opt-out clause would allow individual employees to select their form of compensation. If the individual chose not to receive his employer’s health insurance policy, he would receive the money which the employer would have spent on health insurance. The employee could then turn to the private market to purchase his own policy.
This coincides with the third step: ending tax exemptions for employers. This will further facilitate the transfer from an employer-based system to a free-market system. Not only will this end the incentives for employers to provide insurance, but it will also increase revenues (or allow tax cuts) for the government. Employees will naturally receive higher salaries as their compensation switches from a fringe benefit to direct pay.
All of these steps will facilitate a more competitive environment. Insurance companies will need to compete with a larger number of competitors and for a larger number of potential customers. This will help force costs downward, as only the most efficient and cost-effective insurance companies will be able to survive. Consumers will be offered a wider array of choices, with varying degrees of price and services. Customers will therefore be better able to afford, at least, minimal coverage. A increase in competitiveness would drastically alter the health insurance landscape and promote free-market reform.
The discussion continues with Part III: Lower the Costs.
The first, and easiest, step would be to allow insurance companies to compete across state lines. The current, useless restrictions only serve to drive costs upwards. By allowing cross-border competition, the number of insurance providers available to any one individual will immediately increase. Companies will then have to compete with more market participants in order to capture a sufficient segment of the now larger pool of potential clients. This will force insurance providers to develop new types of insurance products and cut their own costs to improve margins.
The second step would be to end the employer-based system of the provision of health insurance. Many Americans currently get their health insurance as a fringe benefit from their employer. However, there are a number of problems with this method of provision. First, those that cannot get insurance through their employer often have to pay exorbitant fees in the private market. Second, health insurance is contingent on employment. When an individual loses his or her job, it becomes a double hit with the elimination (or increased cost) of health insurance. Third, employer provision necessarily limits an individual’s options. Most companies only offer three or four options – all generally from the same insurance company. The individual has little say in terms of picking an option that suits his or her financial and medical needs. Insurance companies therefore only need to offer plans that appeal to a few Human Resource managers, and do not need to offer specialized coverage for unique requirements.
All of these issues can be resolved if individuals or families obtained health insurance on the free market. Like auto, homeowner, or other forms of insurance, health insurance should be an individual’s personal decision. If insurance companies competed for individual policyholders, rather than for corporate HR managers, they would be forced to diversify products to meet individual needs. Insurance policies that ran the gamut from expensive with maximum coverage to limited cost and coverage would be widely available for individual purchase. This would help lower costs as individuals would self-segregate into policies that better meet their needs and budgets [for instance why does a single man need health coverage for an OB/GYN?]. Likewise, entrepreneurial insurance providers will be able to successfully target niche markets that formerly went uncovered.
The end of the employer-based system can be easily achieved through simple legislation. A law that requires employers who provide health insurance to offer an employee opt-out clause would allow individual employees to select their form of compensation. If the individual chose not to receive his employer’s health insurance policy, he would receive the money which the employer would have spent on health insurance. The employee could then turn to the private market to purchase his own policy.
This coincides with the third step: ending tax exemptions for employers. This will further facilitate the transfer from an employer-based system to a free-market system. Not only will this end the incentives for employers to provide insurance, but it will also increase revenues (or allow tax cuts) for the government. Employees will naturally receive higher salaries as their compensation switches from a fringe benefit to direct pay.
All of these steps will facilitate a more competitive environment. Insurance companies will need to compete with a larger number of competitors and for a larger number of potential customers. This will help force costs downward, as only the most efficient and cost-effective insurance companies will be able to survive. Consumers will be offered a wider array of choices, with varying degrees of price and services. Customers will therefore be better able to afford, at least, minimal coverage. A increase in competitiveness would drastically alter the health insurance landscape and promote free-market reform.
The discussion continues with Part III: Lower the Costs.
Tuesday, June 2, 2009
Give Me Healthcare, Or Give Me Death?
The state of US healthcare system is atrocious. It is in need of desperate reform. Unfortunately, the Republican Party lacks any coherent proposals to fix the broken system. This leaves the American people with a choice between the current unwieldy system or the big government, nationalized, nearly Socialist plan of the Left.
For years, the Democrats have been proposing state control of the healthcare system. They want to offer universal healthcare to every American on the taxpayers’ dime. While seemingly noble in aim, this is absolutely foolish. Not only will a government system crowd out the private industry, but it will be vastly inferior. As most know, the government does a substandard job at providing services, particularly services that can be supplied by the private sector.
Unfortunately, this is where the discussion stops for most Republicans. The criticisms of the Democrats’ model of universal healthcare are solid and well thought out. However, the Republican’s offer little in terms of a solution to the obvious problems in the healthcare industry.
A relatively clear-cut answer is to fall back on the free-market principles that form the base of American conservatism. While unquestioning defense of the healthcare industry often comes hand-in-hand with criticism of universal healthcare, this need not be the case. One of the bases of free market capitalism is the notion of competition. However, the current structure of the health insurance industry limits competition.
Contrary to other, non-health, insurance industries, the health insurance system is an employer-based system. This severely reduces the number of buyers of health insurance. A health insurance company only needs to pitch its product to a few large companies in order to capture a substantial portion of the market. This forces the insurance company to structure products that will appeal to HR representatives, not the insurance consumer. This limits the diversity of the products offered and gives the insurance companies greater market control. Health insurance consumers can veto bad insurance plans only by leaving their jobs. Certainly, this puts some limits on the downward movement of insurance quality- as competition remains at the firm level. However, it drastically reduces the specialization that would occur if each consumer were responsible for his or her own insurance.
The easy solution is to end the employer based health insurance system. Individuals would be responsible for finding their own health insurance. Companies, since they no longer have to pay for insurance, would increase salaries accordingly. This would leave individuals with the same amount of money as they previously had to purchase health care on the free market. Naturally, many new, specialized products would develop. This would allow individuals to spend more or less based on the type of care and services they want. Insurance companies would have to compete rigorously with each other to capture new, separate segments of the market. All this would lead to greater competition, lower prices, and increased services. Insurance companies that fail to deliver would find a swift exit from the market, thereby creating a marketplace of higher quality companies.
Critics of such a proposal argue that health insurance is far too complicated for the average American to purchase on their own. This, however, unfairly diminishes Joe Six-Pack’s ability to obtain the appropriate information that he would need. The average American is capable of doing their own taxes and finding homeowner’s or car insurance. For those that cannot, or do not want to be bothered, there are a myriad of brokerage services available. It is quite likely that insurance brokers would expand in scope as they aided individuals in searching for the right health insurance plan.
The answer to the health insurance issue is not increased consolidation and government regulation, but a move towards greater free market competition. Government controlled, universal healthcare will only deepen the systemic problems that already exist. A greater number of differentiated healthcare providers will facilitate cheaper, more universal healthcare, without sacrificing the quality of healthcare in America.
For years, the Democrats have been proposing state control of the healthcare system. They want to offer universal healthcare to every American on the taxpayers’ dime. While seemingly noble in aim, this is absolutely foolish. Not only will a government system crowd out the private industry, but it will be vastly inferior. As most know, the government does a substandard job at providing services, particularly services that can be supplied by the private sector.
Unfortunately, this is where the discussion stops for most Republicans. The criticisms of the Democrats’ model of universal healthcare are solid and well thought out. However, the Republican’s offer little in terms of a solution to the obvious problems in the healthcare industry.
A relatively clear-cut answer is to fall back on the free-market principles that form the base of American conservatism. While unquestioning defense of the healthcare industry often comes hand-in-hand with criticism of universal healthcare, this need not be the case. One of the bases of free market capitalism is the notion of competition. However, the current structure of the health insurance industry limits competition.
Contrary to other, non-health, insurance industries, the health insurance system is an employer-based system. This severely reduces the number of buyers of health insurance. A health insurance company only needs to pitch its product to a few large companies in order to capture a substantial portion of the market. This forces the insurance company to structure products that will appeal to HR representatives, not the insurance consumer. This limits the diversity of the products offered and gives the insurance companies greater market control. Health insurance consumers can veto bad insurance plans only by leaving their jobs. Certainly, this puts some limits on the downward movement of insurance quality- as competition remains at the firm level. However, it drastically reduces the specialization that would occur if each consumer were responsible for his or her own insurance.
The easy solution is to end the employer based health insurance system. Individuals would be responsible for finding their own health insurance. Companies, since they no longer have to pay for insurance, would increase salaries accordingly. This would leave individuals with the same amount of money as they previously had to purchase health care on the free market. Naturally, many new, specialized products would develop. This would allow individuals to spend more or less based on the type of care and services they want. Insurance companies would have to compete rigorously with each other to capture new, separate segments of the market. All this would lead to greater competition, lower prices, and increased services. Insurance companies that fail to deliver would find a swift exit from the market, thereby creating a marketplace of higher quality companies.
Critics of such a proposal argue that health insurance is far too complicated for the average American to purchase on their own. This, however, unfairly diminishes Joe Six-Pack’s ability to obtain the appropriate information that he would need. The average American is capable of doing their own taxes and finding homeowner’s or car insurance. For those that cannot, or do not want to be bothered, there are a myriad of brokerage services available. It is quite likely that insurance brokers would expand in scope as they aided individuals in searching for the right health insurance plan.
The answer to the health insurance issue is not increased consolidation and government regulation, but a move towards greater free market competition. Government controlled, universal healthcare will only deepen the systemic problems that already exist. A greater number of differentiated healthcare providers will facilitate cheaper, more universal healthcare, without sacrificing the quality of healthcare in America.
Subscribe to:
Posts (Atom)