Seen and Unseen: Causes

As mentioned in an earlier article, we can see that some things are problematic: health care, the housing market, the environment, education, and of course the ever growing poverty problem.  These are true maladies: some may rightly call them crises.  But how well are the causes understood?  What are the true causes?  So often, the causes go unseen, just as the true effects of potential solutions would.

What’s wrong with health care?  For some, very little.  But for many, costs have risen significantly, and it looks as if they will continue to do so.  Quality has improved, of course, but so has cost.  Why is this so?  We can rewind a few decades, when things were cheaper.  Yes, the technology was not as good.  Procedures were not as developed.  And so many think that the improvements in medicine and technology are to blame for increasing costs.  But let’s compare another industry that also had technological improvements in the last few decades: the electronics industry.  The electronics industry has grown by leaps and bounds in the last few decades.  New products and new technologies are coming out all of the time.  And yet prices remain relatively low.  Any increase has surely not been as dramatic as in the medical industry.  How has this been done?  How have prices remained low while technological advancements expand?  One big difference is the involvement of government.

Regulation costs money.  For the government to regulate, an arbitrary price is set by bureaucrats.  This is because an arbitrary regulatory role is set by bureaucrats.  This arbitrary role obviously has some costs tied to it.  When the market regulates, prices are determined by market forces, which ultimately reflect the consumer’s wishes.  Competition drives prices down and quality up.  Monopolies tend to give inferior service at high prices.  There’s little incentive, much less necessity, to streamline unnecessary functions in favor of optimal ones.  The market has no such luxury.  Only the critical items and processes can be included.  Fluff must be left out for the company to remain competitive.  In many cases, even this is not enough.  The right processes done poorly leads to poor business performance.  This can only be solved through drastic measures (i.e. restructuring) if at all.

It is understandable why the medical industry has been so regulated in the last few decades.  After all, people’s health and lives are at stake.  But why should such decisions be left to distant bureaucrats?  Why are individuals so untrustworthy in this regard?

One can look at market-based certification methods (i.e. ASTM, Consumer Reports, J.D. Power, etc.) and find remarkable incentives to achieving a certain certification.  Aren’t market-based methods subjective and biased, you ask?  I would question the objectivity of government agencies.  What makes us think that monopolistic bureaucratic regulation is unbiased?  Wouldn’t there be at least the possibility of an agenda there, as well?

In fact, we can see industrial-governmental collusion in many areas (FDA, military-industrial complex, etc.).  These are far from the rare exception, and indicate a pattern of unhealthy collusion.  Why, for instance, are utilities companies monopolistic?  We can trace this back to government involvement.  Why are there so few telecom companies?  Again, we can trace this back to government involvement.

What about problems with the housing market?  Again, we see government involvement.  Not only do we see government involvement, but we see the problems increase as government involvement increases.  These are the same types of unseen problems that come from the proposed solutions to these problems.  To blame the problems on “greed” is disingenuous: has greed risen by 400% in the last few decades?  As I remember it, greed has been around for some time.

In the case of education, there has been comparatively little private involvement in recent years.  It is quite hard to blame “greed” here when the benevolent hand of government has been so involved.  Government has had their heavy hand involved for decades.  We can look at the ballooning Department of Education and wonder how many billions of taxpayer dollars are needed to bump the average performance on an arbitrarily determined test up a couple of percentage points?  How many more billions will we have to borrow from the Chinese to stop students from dropping out in record numbers?  How many billions will we have to print to narrow the ethnic achievement gap?  It must be frustrating for the educational bureaucratic establishment to see so much mediocrity and poor performance, and not have the usual suspect to blame it on: free enterprise.  Instead, the ineptitude all falls in government’s lap.  The cry goes out, “Mismanagement!  We need better management!”  I would ask what evidence do we have that the system works?  What evidence do we have that we will ever find a manager who will actually be able to achieve what they are paid to achieve?  I would suggest that in all reality, federal government involvement has done many things we hoped it would not do, and not done many we hoped it would.  Problems are getting worse, and until we realize that federal involvement is at least partially to blame, they will only keep getting worse.

And yet few see it this way.  The problems we see are to be solved by more government, not less.  The great irony of this situation is that we are continually turning to the source of the problem to solve the problems they have caused.  Time and again, the government is the (at least partial) cause of the problem, and paradoxically it becomes part (an objective part, of course) of the proposed solution.  It is like asking a vandal to paint your house.  Or a thief to protect it.  Or a demolition expert to build it.  Why are we continually surprised by the ineptitude of central government planning when we have been shown this time and again?

This is indeed an irony, and sad to say, a bipartisan one.  Few understand that we got ourselves into this mess with taxation, regulation, and government involvement.  And so it is few that truly understand how to get us out.

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5 Comments

Filed under Austrian Economics, fiscal policy, Libertarian, politics, role of government

5 responses to “Seen and Unseen: Causes

  1. Suzanne

    Your argument would be made stronger with more evidence and specific facts. What specific types of government regulation have caused health care costs to go up? Some would argue that insurance costs and lawsuits are greatly to blame for the increasing cost of healthcare. The article makes many sweeping generalizations about a variety of topics without citing any specific government interventions. Methinks you place too much faith in a completely free market system, especially since the free market has no incentive to cater to the poor, or to those who cannot pay and/or voice their preferences because of their social and economic position.

  2. Methinks you miss the point. The argument is more for a re-thinking of basic assumptions, and an invitation to understand the motivations, incentives, and processes behind our current corporate system rather than for a qualitative assessment of individual economic maladies.

    For a more qualitative approach, the reader is referred to several articles. For health care:
    http://www.mises.org/story/1133
    http://www.mises.org/freemarket_detail.aspx?control=458
    http://www.mises.org/freemarket_detail.aspx?control=279&sortorder=authorlast

    For education:
    http://www.mises.org/freemarket_detail.aspx?control=397&sortorder=articledate
    http://abcnews.go.com/2020/stossel/story?id=1500338
    http://www.wordspy.com/words/dropoutfactory.asp
    http://www.huffingtonpost.com/2007/10/29/1-in-10-us-schools-are-d_n_70319.html

    Again, the idea is to question whether government really works. Does it? What evidence do we have? Is there a conflict of interest in the studies that show a certain program is working? Why do we view government as an objective entity as opposed to a corporation? The purpose of the article is to get the intellectual juices flowing and question the fundamental, basic assumptions.

  3. plato04

    “Methinks you place too much faith in a completely free market system, especially since the free market has no incentive to cater to the poor, or to those who cannot pay and/or voice their preferences because of their social and economic position.”

    The free market does have incentives to “cater to the poor,” as you put it. Consider that Walmart, used car dealers, trailer parks and dollar theaters all “cater to the poor.” Further consider that U.S. government efforts to eradicate poverty have not been successful (i.e. New Deal, Great Society, etc.).

    That the free market cannot overcome oppression or racism is a very popular misconception; perhaps it should be addressed at some future time. Suffice it to say that if a company is racist or oppressive (say in hiring practices) in a true free market (not a protectionist environment), employees are less willing to work there, and more likely to work at a company which treats them better. In a true free market (not currently in existence today), employment opportunities abound, with businesses constantly clamoring for the best of the best. Businesses not willing to get the best (talent, work ethic, skills, etc.) due to discrimination are simply shutting themselves off from the market, and forcing production costs up and quality down.

  4. Suzanne

    I think, actually, Wal-mart has been the subject of class-action suits for purposely working their employees under the 40-hour fulltime limit so that they don’t have to provide them with health care, leaving many people working honest jobs but without health insurance. This is what I’m talking about by not catering to the poor, and a perfect example of how people with little money and little social capital to protest can be injured by a totally free-market system. I actually find it borderline offensive to say that “trailer parks, used car dealerships, and Walmart” cater to the poor. I think issues of poverty are much more serious than can be addressed by the above establishments, and are actually trivialized by that kind of statement.

    And regarding the earlier post, I said your argument would have been made stronger by either substantiating or removing some of the sweeping generalizations you made about health care, education, etc. Of course you’re trying to help people rethink assumptions about government, but making many unsubstantiated statements about a variety of specific things distracts from the strength of that argument. That was my point.

    Hooray for free discussion.

  5. plato04

    Suzanne,

    Hooray for free discussion, indeed. That’s one point we can easily agree on.

    For the record, I find the statement, “Cater to the poor” difficult. To me, it implies some inherent inferiority among low income individuals. My point was there are legitimate business opportunities that benefit those with low incomes. There are reasons why entrepreneurs can make a profit providing a good or service that benefits low income individuals. When regulation and taxation step in and increase business costs, it becomes much more difficult. Having low taxes and low regulation makes it easier for low-income individuals to become entrepreneurs themselves, starting their own businesses and generating wealth. Increasing business costs and creating entry hurdles cripples the ability of many (especially low-income individuals) to generate wealth in this manner. We do not see the true effects of taxation and regulation in this regard: we do not see what prosperity we are missing.

    I completely agree that the causes of poverty are more serious than can be addressed by the establishments I mentioned. But in spite of governmental effects which cripple the economy, the market still does its best to salvage it. What is the ultimate source of prosperity: the market or government action?

    We can consider what many low-income individuals have in this country: a home, one or two cars, almost always a television, frequently a computer, etc. How did low-income individuals get these items? How has the quality of life of a low-income individual improved in the last hundred years or so? How has it not improved? What areas has the federal government been most involved in? What has been the net effect of past policies? (For instance, we have huge problems with homelessness despite trillions of dollars invested over the years by government. Public housing projects are largely infested with crime and drugs to cite just one example of government failure, despite the best of efforts, to help the poor.) These questions are completely ignored or marginalized in the mainstream discussion about reducing or eliminating poverty. The free market is the ultimate champion of poverty, not government bureaucrats and not central planning. I thought the New Deal (many believe it postponed economic recovery from the Great Depression until after WWII) and the Great Society (remember the wonderful economic conditions in the 70s that followed this spending spree?) taught us this. This is the tragic truth: despite our best efforts to tax and regulate in the name of helping the poor, too often government action has negative consequences which end up hurting the poor more than ever.

    The question is whether we will follow what the economic history tells us or ignore it and move in the direction (as I fear we have for decades) of Soviet-style central planning, one of the great destroyers of freedom and prosperity. The “third way” many talk about leads to more problems, leading to more and more government action. This ultimately results (if followed to its conclusion) in central planning.

    Regarding class action lawsuits at Walmart, I do find it troubling. One solution is to make more jobs and business opportunities available, especially to low-income individuals. (Of course, Walmart does not compete in a free market. They compete in a heavily taxed and regulated market. This is not free. It is very difficult based on the information we see to understand how they would treat employees in a free market. We have to see what is unseen. This is key.) Again, this is through reduction in taxation and regulation. If there were as many jobs as there would be in a free market, businesses would be constantly competing for the best workers, raising their wages and benefits to draw the best. The inevitable result would be better benefits and wages for all employees without the quantum price increases that follow government mandates.

    We may consider that any government action which increases the cost of a good or service, especially those likely to be used by low income individuals, is a regressive tax. This could be direct, as in a sales tax, or indirect, as in the cost of regulation or corporate tax. If government could reduce the costs of goods and services intended for low income individuals simply by lowering taxes and spending (or avoiding unnecessary wars, perhaps another point of view we share), why don’t they?

    Inflation (a default method of government spending, when government budgets are greater than the tax revenue) is another significant factor: this leads to price increases for the low and middle income families while allowing the rich and wealthy and connected to pocket huge sums of money. The rich get richer, and the poor get poorer. It ought not to be this way. Understandably, many blame this problematic process on the free market.

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