Tuesday, November 11, 2008

National Free Market Socialism

Free markets. Socialism. VooDoo Economics. Demand Side Economics. Bailouts. Bankruptcy. Capitalism. Invisible Hands. Austrian School of Economics. John Maynard Keynes. It's a confusing mess. And I definitely don't claim to understand it all.

But I have learned a lot about some of these things over time, studying them in college, reading about them afterwards, and paying attention to the way people use these words. I think it's important to come to a better understanding of what these things mean so we can then form our opinions and debate our positions.

What kind of economic system do we have now? I think that's debatable. It's some form of free market capitalism with twists of subisidized capitalism and socialism. Already, I'm confused.

First, capitalism, as I understand it is a system that benefits from people putting their capital at risk by investing it, lending it, starting businesses, etc, and then recouping a reward for that risk. Essential to that notion is the concept of private property. This means just that you own stuff and the law is set up to help you protect it. This would contrast to Socialism, where private property does not exist. In other words, no one owns anything individually, everything is owned by the group or State.

Free markets might seem like a complex or magical thing, but really they are extremely simple and organic. Adam Smith thought, wrote and talked about free markets a lot. Obviously, free markets go hand and hand with private property, although I'm sure some could make obscure arguments that free markets could exist in a Socialist concept. A major dynamic (or result) in free markets was described by Mr. Smith as "the invisible hand." By letting prices rise and fall because of lots of unfettered transactions, they would come to reflect the actual economic value of something. Socialism, by contrast, fixes prices from the point of view of central planning. Yes, this means a lot more committee meetings, and we know how well committees work after they finish dealing with the thing that scared them into being.

The closest thing to a free market that we have in the USA might be the technologies associated with the internet or personal computing. I'm sure Noam Chomsky could tell me how naive I am to believe this, but I don't care (Noam, if you're reading, leave a comment). Wall Street should be a free market, purely driven by supply and demand, but it is not -- it is heavily regulated and implicitly insured. Wink wink.

Recently, though, with all the economic hardships in our country, a lot of nasty words are flying around. Obama's a Socialist. Free Trade caused all this. Don't bailout the rich guys, bailout the poor guys, etc. A coworker of mine who hails from Switzerland recently started chuckling about an article he was reading about McCain. I turned around and asked him what was funny? He said, Doesn't everyone know that they are picking between a small Socialist and a big one?

Wait a minute, McCain's a Socialist now?

Here are some of the elements, as I see it, that need to be in place for a free market to exist. First, consumers need to make decisions on their own behalf with their own money. A great example of where this isn't taking place is in the health insurance industry. The health insurance industry is in a pretty bad state right now, as is the healthcare industry in many ways. Rarely do consumers make the decision of which health insurance to buy. Such insurance is often "provided" by employers, although that is the wrong word. We are still providing it, it's just that our employers get to decide which is right for us. This causes a tremendous amount of inefficiency. I have at times used the auto-insurance industry as a contrast, not because buying auto insurance is anything like buying health insurance, but because almost all of us do make the decision with our own money to buy our own auto insurance.

Many states have laws that require you to buy auto insurance. This is a great example of how a free market could still exist underneath a regulation -- a good regulation. The main problem when consumers do not make their own decisions is that firms are shielded from competing for these consumers. Competition is the name of the game if we are concerned about lowering cost and increasing quality. Imagine what might happen to this industry if health insurance companies were forced to compete for customers (other than large, corporate customers) the same way restaurants are forced to compete for diners. We would all know where to go to buy the cheapest insurance, and we would all know where to go to get the best food. Mmmmmm, delicious insurance.

I saw a presentation by an economist who said "We are with Adam Smith for the trend, but then we jump to Keynes for the correction." This is probably the best one sentence description of our economy. The Austrian School of Economics is a school that is built upon the principles of free market economics. Of course, I paid a lot of money to learn about Keynesian economics as an undergrad -- this is what all the guys who run our economy (literally) now use to get elected and manage their legacies. Keynes economics is the use of mathematics to model and therefore predict and manage economies. This model is how I learned, in all seriousness, that because of the multiplier effect, a dollar taken out of the economy by taxation was worth 4 dollars, but a dollar spent by the government was worth 5 dollars. I asked my professor how it could be that a model would suggest we can tax and spend our way into wealth, and he said I needed to go to grad school to find out.

So there are two main problems with our current system that are causing the mess we're in today. One problem is the idea that the government is an agent for economic outcome justice (this attacks our personal responsibility for charity and local definitions of community). The other is that no politician wants to be in office when a free market goes through a downturn. The result is that generation after generation of elected official increases the complexity and the coercive brutality of the tax code to enact some noble cause of the day. And when the eventual collapse of these antiquated regulations happen (which we falsely scapegoat the free market with), no politician wants to be in office for the downturn, so they bail out the bad decision makers. What do you think is going to happen when the Baby Boomers start to retire and collect the $40-50 TRILLION in Social Security that our government does not have?

I'm really glad I'm clearing this up. But Social Security is often touted by Keynesian and Political Do-Gooders as a "success". Like any governmental agency that is a success, just give it time.

I will try to end this rather philosophical post with a specific example. In a capitalist system, when a business person lends out some money or risks their capital, they are the ones taking the risk. Clearly. They might lose their money if they guy they give it to flees the country or if there's an earthquake. The person accepting the loan does not accept the risk, although they do bear the brunt of the law if they default for some reason and they hurt their ability to borrow in the future.

This should make it clear that although as people, we often fault individuals for taking on too much debt (which they may have been told they could manage just to close the government-backed deal), it is the lender who is assuming the risk. Therefore, all of this bailout is going directly to the lenders. Even if we gave the money to the people, whom do they owe? Exactly, they would simply pay their mortgages rather than default (at least until the bailout dries up), the money would go to the banks, and the person would still eventually lose their house.

This is also why so many really rich people push towards Socialism. Socialism in practice needs really rich people to tax just enough in order to throw bones to the poor slaves who devour just enough to keep producing for the rich guys. Free markets devour rich guys.

And the bigger problem with economic outcome redistribution (socialism) "solutions" is that you then, over time, take the real risk out of the equation for the capitalists. You send them the clear signal -- as we have sent to Wall Street now for about 30 years -- that no matter what you do, we will pay you back with taxpayer money. That is how we wind up with the national free market socialism that we have today, where we privatize the gains and socialize the losses.

For the free market to work, greed drives profits and enables competition and risk taking; fear of losing one's hard earned money alone tempers that greed. If we continue to vote for people (like Mr. Obama or Mr. McCain) who remove fear from the markets, we continue to put our tax dollars back into the pockets of those capitlists who should be eating their own medicine and going out of business.

It's a complicated world America, try to keep it simple. Uhhhhhhhh, yeah.


alison said...

ryan - it's noam. consider me converted.

Austin said...

Thanks Mick. Keep these posts coming. Although I enjoyed reading all of the posts, I had a hard time jumping in last time - lots of topics at the same time.

I would like to comment on two small aspects of your post. One, I found your comment on car insurance as a good regulation as interesting. From your earlier posts, I assumed(apparently incorrectly), that you would allow free markets to regulate themselves in all aspects.

Secondly, I have strong feelings about your comment regarding the eventual failure of all government programs. I hope a universal belief is that the role of our government is to fulfill the needs of a society that cannot be accomplished by the private sector. I am also confident most would agree that the govenrment is a less efficient entity than a private company with competitors. But, I want to note that there have been some amazingly successful government programs that have benefitted all of our lives - the United States Armed Forces, the National Parks Service, the federal highway system, the US Postal Service(although it receives a lot of taunts and now can be replaced by private companies, that wasn't always the case). Even internationally, the WHO-Unicef vaccination initiatives have saved countless people and saved lots of unecessary health care costs.

I like free markets too.

Gene said...

Interesting thoughts, Ry. I'm learning quite a bit from these discussions.

I don't want to type words into Ryan's mouth, but perhaps "good" regulation is regulation that helps uphold the Bill of Rights. In this case, uninsured drivers potentially are risking my right to life and property, so in this case it could be argued it is "good" to have due process of law available. This argument could get slippery at times, but I suppose that’s why we have Judge Judy and all the others to help us out.

Our government should help preserve those rights we consider inherent to all citizens. In addition, the government should be a steering factor for progress and development, a rudder towards the future. Free markets can be an integral part of this, with the guidance of "good" regulation. Creation and implementation of biofriendly energy sources SHOULD be competitive, and certainly a free market will create more affordable and advanced technology than a bunch of governmental agencies. It just needs to be profitable. So what regulations or guidelines can or should be implemented in order to facilitate this? What governmental regulations should be discarded? How can we get G one of those flying cars?

As for healthcare, I'm just less confident that the free market you describe can provide adequately. Maybe it's simply because I can't visualize a truly free market system in this respect, but it's more difficult because the stakes are so high. This not not auto insurance or ipods we're dealing with. These are lives, and the question of whether someone has the inherent right to good medical care regardless of insurance. Matt and G already decribed the concerns rather eloquently. Ryan, I'm sure it's possible to create a highly successful model with free market values and the more distant guidance of our government. I'm just not smart enough to envision it at this time.

Thanks for keeping the discussions going.

Ryan said...

Great comments guys, Geno, Aus and you too Noam.

Aus, I agree completely with your sentiment, although if what you pointed out were the current level of debate, I would be less motivated. For example, we are obviously all very pro-security when it comes to a military, but if you remember in the early days of our country, the debate was over whether or not we should even *have* a standing military or not. Now, the debate, which is barely taking place, is over which countries we should invade and for how long. Eisenhower, a military man himself, wisely predicted this product of the "military-industrial complex".

Geno, you too, I agree and thanks for the balanced sentiment. I would ask you to continue to push and debate those ideas as to the proper level of government involvement as a "rudder" in our lives. It's not clear, is it?

For example, the gov't basically was responsible for the birth of the internet through some military bases and universities. HOwever, they did not *intend* for this to happen and they wisely stayed clear (at least so far) of getting involved with regulating (or taxing) the internet. The free market took over the technology, and the world has changed.

However, I cannot think of a single example of how the federal government has acted to impose and intended outcome (rather than providing seed sourcing to ideas) that has worked. Perhaps habitat for humanity is an exception, but as I've said, give it time.

When we enter into the energy policy debate, we all need to pay attention and get involved. Personally, I think energy should be completely deregulated as long as the government is willing to enforce private property rights (which would greatly curb pollution compared to today's standard). The only possible exception to this I can think of is nuclear power. Fission is basically a very hazardous way to boil water, and its waste products are extremely brutal. Storing this waste is a truly national concern.

I visited a private hospital this weekend on a job interview, and I can tell you I was shocked by what I saw and heard. I talked with a doc who had 20 years under his belt at Rush (which is a really one of the best in the country, but is still horribly constrained by bureacracy and insurance) and the differences only deepened my beliefs.

It's true that the free market in healthcare would not cure all of the problems. The amount of uninsured procedures (especially preventative) and people would probably go up. But the resulting efficiency would create an affordable atmosphere for charity to prosper and fill the gap for those less fortunate. Before these visions of great society, where the government provides healthcare, most healthcare institutions were religious based, and no one was turned away. Now the first question is, while your arms are falling off, "Who is your insurer?"

John Hanrahan said...

It has been a long time (14 years) since I read the communist manifesto but I firmly believe that we are still in the concept of primitive accumulation of capital. We have programs and issues that we collaborated on as a group but for the most part the US is a free market.

I realize that the banks (lenders) took risks and understand your theory but your practical application of the theory is where I have a problem. The banks took the risks with your money not the banks. It would be the same as me taking $1,000 bucks off of your dresser and lending it to Tito the Builder. Tito blows the money and hookers and blow so he can’t pay the money back. I don’t get the money back but I don’t really care because it wasn’t my money in the first place.

Not assisting the lending institutions would cause a collapse in the Global Economy that you could not imagine.

Ryan your guideline for government success is absolutely ludicrous.
Social Security was started in 1935and ended up helping thousands of elderly people out of gut wrenching poverty. Yes, the program needs to be fixed but I don’t know of any thing that has been around for more than 73 years that doesn’t need to be updated and corrected. Your theory allows you to be right without actually being right. That Sun sure is bright but one of these days it is going to break down.

Ryan said...

Johnny, glad to see you pop up for the first time. I didn't know you read the communist manifesto ever, so I will definitely keep an eye on you. A crooked eye.

Two things, and I know you work in finance so speak up if you have a way to convince me otherwise. but I think your Tito the builder example is off. The bailout wasn't to protect our money. Our money as deposits are already insured. This was to protect the bottom line of a lot of financial houses who made really bad decisions. And the fear-pushing line that if we didn't do it there would be a global catastrophy beyond comprehension just irks me. Why don't you try to explain it to me instead of just trying to scare me? Because it seems to me that the there already is a global catastrophy, that the bailout was rushed rather than debated and that it is going to Wall St elites rather than me... (my accounts are way down, I thought you said the bailout would help my accounts).

My "theory", which it's not, is certainly not ludicrous, it's much more practical. I believe I've made the distinction between helping some people and helping people in the wrong way. To go back to your Tito example, you seem to suggest that as long as you steal $1000 from me, blow $900 of it on yourself but give away $100 to a poor person, then you've done good.

SS is a failure in almost every sense of the word. Yes, some elderly have been helped, but they've been helped only because of the baby boomer earnings bubble working its way through time. That's a fluke, not a success. The fact that this false signal of success has been around for 73 years has led to the mistaken assumption by untold millions that SS will take care of them when they're old. Furhtermore, it's been advertised by our beloved gov't officials as a pay-in pay-out system, when it's not.

Again, it is a deeply flawed program, and the burden of proof falls on you to show why it is a "success" and should be "fixed" rather than tourniquetted.

We're in the hole already for $40-50 trillion of SS obligations, so if I were you, I would start there.

John Hanrahan said...

Ryan, I posted a little more on the bail out on the new prez link.

G said...

I've fallen asleep at the wheel here for a second - but I do like some of this discussion about economics. I think it's big step to recognize that some regulation of the private market is good, and I agree that it is we the government that needs to provide this rudder.

I also really like that Ryan was able to incorporate Phil Collins into his post, not easily done.

I have to say for reasons already stated, that the example of health care being better off unregulated is a bad one. If a side affect is that more people would become uninsured and unable to afford health care, and thus dependent on charities (more on that in a moment) then it seems to be a pretty bad solution. If history is any guide this would only increase inequality - not the direction most of us want to go.

I also want to take up the idea that charitable institutions need to be the ones to pick up those who fall through the free market cracks. As much as I'd like to think that the kindness of human nature would be sufficient to handle this burden, there are simple economic barriers. This is an especially dangerous idea during an economic downturn, when more people are in need of help, and fewer people feel they can donate money. Multi-million dollar foundations that fund a lot of good non-profits are dependent on a good stock market. Again, as the economy slows, there is less money available.

Social safety nets are important in the short term. This is why it's important for a country of our size, that our government maintains them. It seems to be against human nature to wait for the invisible hand to move people to start up charities to alleviate suffering.

And on Social Security - Ryan, your comment about just giving it more time (more than 73 years!) and it'll fail reminds me of Keynes arguement - in the long run, we're all dead.

John Hanrahan said...

Studies have found that without Social Security benefits, 47.6 percent of the 32 million elderly people in the United States would be living in poverty. For those of you keeping score at home that is 15,040,000 people that would be living in poverty without social security. I realize that the program could be better and that we need to make changes but I personally would not classify it as a failure

Ryan said...

Ooofta. A lot of what people are saying are being constrained by the current realities, rather than a total package picture. We can't do this small thing, because all these other things are in place.

I certainly meant that in order to deregulate the healthcare/hc insurance industry, we must destroy medicare/medicaid. In that event, adding together all those on care/caid and currently uninsured would be a large number. The free market would gobble up a huge number of these people (resulting in a net loss of uninsured), and our charities, funded by us, would do the rest, resulting in a system where not only the poor and elderly would be better taken care of but so would we. This would also involve a huge tax reform, eliminating the insane collage of taxes we pay today, putting more money into our pockets to spend as we see fit.

I can assure you that in times of economic downturn, human charity reaches all time highs. If you mistakenly equate the federal government inefficiently redistributing our money as "charity" then you will be quick to argue this point.

G, you need to do better than that with your SS comments. Study the history of SS. You will find out that is was insanely small for a long time, then as it expanded into the monster it is, it relied upon this earnings bubble, while racking up $40-50 trillion in future promises. That is not short term, is it. And the meek arguments that this program is merely in need of a fix offer no such simple solutions to what is claimed to be a minor flaw.

These mentalities are what allow each of these government programs to grow, because they are argued out of context in isolation. The net picture is that our country is broke because of these programs, and the people whom you try to argue need our money the most are the ones who will be hurt the most by our national poverty.

Johnny, every old person I know who relies on SS alone is in poverty, not kept from it. And far too many young people do not save because they honestly think SS will take care of them.

If we reduced the size of the federal government substantially and renewed our commitment to our families and friends, no old people we know would be in trouble. This is also a scalable solution, whereas bureaucracy is not.

John Hanrahan said...

I am not worried about people I know I am worried about Americans I don't know and American that don't have large families to help them. We come from huge Irish Catholic families that is not the case with most American families.

Ryan said...

How true, how true. But Johnny, there is a very good chance that every old person in our country plays bingo within six degrees of separation of our own old folks. Neither we, nor Kevin Bacon, should be worried about it.

Pay it forward... via bingo.

Also, if you win loser's bingo, do you really win?

Gene said...


You gave an anecdotal response to Johnny's SS numbers on poverty, so I will counter with my own personal account. Roughly 35% of my patients are on medicaid. With a huge overhaul of the healthcare system and elimination of medicare/medicaid, you are suggesting that an entirely free market with charity on hand would provide care for the vast majority of these patients? Sure, some may have working parents who could potentially afford some form of coverage, especially if your premise turns out to be true that increased competition would lower prices. What about the children of unemployed parents? What about the children of shit-pot parents? I'm failing to understand what happens to them. I may be missing something here, but it still comes back to unalienable rights. Do you believe that the 8 year old child with asthma only deserves whatever healthcare his parents are willing and/or able to provide? If so, that is precisely where we respectfully disagree.

A few asides:

(1) Regarding the "good" regulation discussion, I agree, G, that we are dealing with "We" the government. Goes back to your emphatic response to Sean's mass email a couple weeks back. Ryan voiced an interesting concern, though, in his bailout blogs that a relatively few number of individuals (e.g. the Federal Reserve Chairman) are responsible for decisions of economic impact. What is more, many are appointed.

(2) An editorial in The Economist urged caution on part of my rudder argument. A proposed answer to many of our current problems is governmental investment in green technology, thereby increasing demand, producing green jobs, reducing our dependence on the middle east and OPEC, and saving the world from our own carbon footprints. The editorial cries "Foul!" citing subsidies to solar panels in nearly sunless Germany and ethanol subsidies in the US as failed policies that, if anything, have contributed to world hunger and escalating silicon prices. Penalties, and not subsidies, are the way to go with this problem.

It's an interesting thought. More of a free market process with some regulation in place (e.g. emmission penalties, etc.) which would still theoretically produce jobs and save the world.

All in a day's work.

And Yes, I do know I'm arguing out of both sides of my mouth. Stupid rudder.

Ryan said...

Great points.

First, JOhnny, from the other thread, could you clear up what your doctor was saying? It seemed like on one hand he would retire if medicine became more socialized and the other hand he wanted it to become more socialized. Maybe he was sneaking purcocets?

Geno, don't worry about arguing both sides of the coin here. That is what is needed to find the right kind of compromise. As I've tried to say, no one philosophy can be applied to achieve some ultimate results. However, I have been arguing more for the free market approach simply because I think it is very misunderstood and scapegoated by the press. Basically, I believe that anything the federal government can do, the free market can do better.

However, that doesn't address poverty or dead-beat parents.

I have read the same stuff you found in the Economist in several other places as well. It has made me rethink my own good intentions when I feel like playing King. I also really hesitate to allow the guv to step in and do "charity".

Imagine if, along with tax cuts and cuts on federal spending, a free market created cheaper healthcare access. Mostly, focus on ideas of returning purchasing decisions to consumers and healthcare decisions to doctors and patients.

So if there were still people, let's say in that 35% medicaid group who lacked insurance, imagine if your office had a discretionary fund of like $50,000 to be spent as you and your partner see fit. YOu see an 8 year old with asthma who can't afford the meds, you could pay for it out of the fund.

Imagine if every wealthy parish in west county teamed up with a less wealthy parish east of them. 10% off the top of the collection basket goes to the other parish for healthcare vouchers.

I just received the annual report for Christian Childrens Fund, which I've been supporting for a long time now. They do a tremendous amount of good, and with this report, I could quickly and easily see where there efforts were geographically, what services they focused on providing, the economic scope of their contributions and even that 83 cents of every dollar goes directly to the kids I think I'm helping.

I have yet to receive my annual report from Medicare or Medicaid, yet I pay for these services.

The tremendous increase in non-profit charitable corporations over the past two decades is proof to me that this stuff works. The continued efforts of other charities too, all add together to create a collage of support for folks.

Now, there is an old saying, you can lead a horse to water but you can't make him drink. It is hard for me to know the proper level of state involvement in over ruling parental consent, but if it is a question of money, then I agree with you.

Finally, I do not think that people have a "right" to healthcare in our country. I just think that's a bad way to state what you and I both believe. I think we all have the moral obligation to help all those in need, and if healthcare is the main need, then so be it.

But the rights specified in the bill of rights and dec of independence are supposed to be sort of general and limited, afterall, they are intended to *constrain* the federal government so as to enable the individual and community. Every new "right" would just be an excuse for new taxation and would further divide us as a country.

Roller said...

Been a little busy and finally got time to read this. I thought of too many things to address as I read the great post and comments, but they've already skedaddled out of my brain.

I read that Economist article, too, and took away the same lesson, I think. Geno, it seemed as though you were suggesting that subsidizing was a more valid implementation of your "rudder" position than a cap-and-trade system? I might be misinterpreting, but it's seems that the gov't is a rudder in either case.

Here's a point on which I'd like to hear everyone's thoughts. I was in a discussion with a colleague last week and expressed how much I wished smoking within any institution would be banned by the government. He disagreed, suggesting that the free market should drive smoke-free buildings.

To me, I don't believe the free market would produce the same societal benefits that the government could in this situation. Smoking has individual and national costs that seem to cry out for regulation. Throw in the fact that almost all smokers couldn't quit if they wanted; it just seems like a logical place for the government to step in for the good of society.

But I understand that it's also a slippery slope to throw such a large blanket of regulation on the nation. What's next? Food? Alcohol? Heroin? No way. I need my smack. YOU CAN'T HAVE IT!!!!

Just wanted everyone's thoughts on this. Also, one thing I didn't understand from Ryan's post was the phrase Coercive Brutality. Hopefully Ryan will explain that in a future post.

Gene said...

Matt, I agree that the government is still a rudder in such a situation. I was alluding to a comment a made a ways back that included a "kick in the pants" and "incentives."

I also need to make an apology. Since my last comment, I've received a flood of complaints from families and friends of rudders, rudder sales and marketing department heads, and even from rudders themselves. No, I don't think you are stupid. Sensitive as all get out, but not stupid.

Ryan, am I correct that this $50,000 discretionary fund comes from the pocket of my business? If so, screw the kids! I'm taking my own family to Tahiti!

I jest, but my point is serious. I realize you picked an arbitrary number that could be easily changed to reflect the success of a business, so saying a company can't afford this has a fairly quick rebuttal (not to mention the $$ saves with tax cuts.) That is not my main argument, however. My fear is that people, while inherently good, are not as reliable as a whole as you make us out to be. I fear that there are people who would happily do their duty to see a certain percentage of medicaid patients, but would be much more stingy with their charity when it requires creating a discretionary fund and voluntary disbursement of their hard earned greenbacks.

As for the right to good healthcare, I think we agree more than we've stated. If we have a moral responsibility to provide this for those who can't provide for themselves, then one can further deduce that this is a fundamental good or right for every individual. Where we've diverged is how this right is to be provided. You do not want the government in charge of this, primarily because the government historically does a crappier job than the free market. My fear is that the free market, while composed of inherently good people, will inevitably leave that moral responsibility in the dust.

I was boarding an American Airlines plane over the weekend and they were short on overhead storage space. A flight attendant requested AT LEAST 9 times that no one place their coat or more than one bag overhead. 9 times? 9 times. After we landed, I saw two guys each pull down two decent sized bags and a coat, careful not to make eye contact with anybody while they were doing it. People do this shit. I'd hate for crap like that to happen when we're dealing with people's lives.

Coovo said...

Did someone say Tahiti? Shotgun!

John Hanrahan said...

Sorry Ryan, I had a lot I was trying to get in without posting too much. To be brutally honest I didn’t ask. What I took his comments to mean were that he would like to retire but doesn't because people need doctors and until medicine is more socialized he wants to make sure that people get the care they need. He could have also meant that he think medicine should be socialized but thinks it will be a total pain in the ass to be a doctor then so he would retire.

Kevin said...

rollo - there is nothing better than smoke free bars and other public places. but i say leave it up to the states. the dangers of second hand smoke seem pretty hyped up to me, so i'd be OK if bars were free to make their own rules.

i'm glad the conversation has heavily drifted towards health care, as that seems to be the meatiest part of the posts (although the addition of palin did push me left).

i usually prefer the free market and i respect its efficiencies. i like profit as a motivator. i think a truly free and unregulated health care system would be more effective than today's. However, that would never happen even if ron paul himself were sworn in.

i also think an overly regulated, top down health care system would work better than today's as well. it seems that that may be a much more likely outcome.

i think people have an easier time rationalizing inefficiency (which in the case of health care is a euphemism for people dying for avoidable reasons) caused by gov't programs than by profit driven free markets. i'm not sure why that is.

the fact that my insurance just paid $400 to the health clinic by my house for a strep throat test is crazy to me. a truly free market would eliminate that insanity - but so would price fixing by uncle sam.

right now, the whole thing is broken, and there are so many entrenched gears in the wheel that a small tweak here and there is silly.

if the unregulated option is unfeasible, (esp in this political climate), i hope obama does drastically overhaul our system.

good posts ry - i think it's pretty tough to organize your thoughts into complete paragraphs and into a cogent framework of larger concepts. even my thoughts above are not really convincingly spelled out or backed up (even though they are all spot on - trust me).

Eric said...

Hey Ryan, I hear you're gonna be gobblin some turkey over at my place! I had a couple quick thoughts, and I apologize if you've discussed these things in depth in the comments.

I think the definition of a good regulation is one that results in a more efficient outcome than the free market. I think this can happen in many situations where there are collective action problems or aggregations of individually irrational behavior. It also happens when unregulated entities can exert market power to artificially raise prices for consumers. The easiest example is a monopoly, where there is not enough competition (so regulations let the free market in).

However, there can also be good regulations in certain sectors where there is too much competition, most notably for energy and other utilities. How efficient is it for many companies to invest the astronomical fixed costs to build pipelines or power-lines to service every market? It is much more efficient from a total social welfare standpoint to allow a single entity to do so. Where there are high fixed costs and low marginal costs, it can be more efficient to regulate the industry and thwart competition while reducing the amount of wasted duplicative fixed costs.

I would argue that the consumer electronics market is not a perfect example of the free market. Consumer electronics involve an inordinate amount of standard-setting, where hundreds of patent owners come together to set license agreements to establish uniform product formats like BluRay or USB. We basically allow collusive price fixing for technological licensing in these markets because if we failed to, there would be too much wasted investment in competing standards, and transaction costs prohibit each patent owner from setting prices with every other owner in the free market.

Its always good to keep transaction costs in mind when discussing optimal levels of regulation. In a world without transaction costs, all laws or regulations would be unnecessary, as the free market would allow every person to contract for efficient outcomes with every other person (Ronald Coase won a Nobel prize for this seemingly obvious observation). In many situations, transaction costs impede efficient bargaining, so we need regulations to set imperfect (yet more efficient) defaults.

John Hanrahan said...

Ryan, where are you getting your information about charitable giving increasing when the economy gets worse? I am very interested in this.

I am a very big fan of the no smoking laws in the state of Florida. One of the things I hate about coming home (St. Louis) for Thanksgiving and Christmas is how bad I smell after I come home from a bar.

I have found a lot of information about second hand smoke some of it is listed below.

Exposure to secondhand smoke does cause cancer. The U.S. Environmental Protection Agency (EPA), the U.S. National Toxicology Program (NTP), the U.S. Surgeon General, and the International Agency for Research on Cancer (IARC) have classified secondhand smoke as a known human carcinogen (cancer-causing agent)
Inhaling secondhand smoke causes lung cancer in nonsmoking adults. Approximately 3,000 lung cancer deaths occur each year among adult nonsmokers in the United States as a result of exposure to secondhand smoke. The Surgeon General estimates that living with a smoker increases a nonsmoker’s chances of developing lung cancer by 20 to 30 percent.
Some research suggests that secondhand smoke may increase the risk of breast cancer, nasal sinus cavity cancer, and nasopharyngeal cancer in adults, and leukemia, lymphoma, and brain tumors in children. Additional research is needed to learn whether a link exists between secondhand smoke exposure and these cancers.

I am a very big fan of capitalism and free markets but free markets take a long time to correct themselves. The smoking industry is a good example of the market not correcting quickly.

Nicole said...

So I've been trying to make sense of your underlying philosophical bent here: is McCabe a true believer in libertarian political philosophy or more of a free-marketer? I must say that while the two views often coalesce they are not necessarily inseparable.

In other words, do you find yourself more interested in the ontology of it or in the economics of it?

I would rant and rant about the health care issue and the smoking ban, but instead I'd like to challenge a core assumption of libertarianism. Or really, I'm asking if you and the rest of the panel think this it is true.

So here is my question of the day: will individuals left largely unregulated act in their own short and long term best interest?

It is a descriptive question, not a normative one, since clearly we could probably all agree that individuals OUGHT to act in their own best interests.

But, descriptively: Do we act in our own best interests? Are we capable as reasoning creatures of really determining what is in our own short and long term interests? If we are then okay libertarians proceed with your argument. If we are either not capable of living lives as such sound reasoners (or simply not doing it for whatever reason), then what happens to a philosophical and economic theory that is based on the idea that we can and/or will?

Gene said...

Holy shitballs!

400 bones for a strep test? I'd have to look up what we charge, but I know it is less than half of that. Do you live in a really shieky part of LA, SF, or Manhattan where it might be cool to get such a bill? If not, fight that, my friend. If you weren't billed and your insurance simply paid for it, let Ryan know that our current system is working just fine, thank you.

Overpriced procedures, underserved individuals, and absolute lack of respect for physicians capable of deductive thought.

Room for improvement.

Gene said...

Sorry, I took too long with my last post, which is now unimportant. Nicole intervened, and I love it.

The shit just hit the fan. I'm again confussed, but certain to be smarter because of the philosiphicators amongst us. I have thoughts on Nicole's question, and previous posts will suggest I think we need to protect ourselves from ourselves at times, but I'll shut up. My main reason for reposting was to acknowledge Nic re-upping the discussion.

Ryan said...

Holly shitballs is right, as well as one of my favorite expressions. Lots of great points, I hope people continue to debate.

Some responses:
Kevin made a very subtle and interesting point I had not thought of but is fitting. Why do people seem to rationalize (or accept) the inefficiencies brought about by the gov't rather than the seek the efficienciess of the free market?

It may not be the efficiency they're after, but the idea of security or certainty that comes from the guv involvement. Tons of work has been done in economic pscyhology and economic neuroscience to show that people are "wired" to seek certainty to secure positive rewards and seek risks to avoid negative losses. I.E., When asked if you would take $50 now or a 60% chance to win $100, people overwhelmingly take the sure $50. The reverse is true as well. If you could save 50 people in a burning building or have a 40% chance of saving all 100, people overhwhelmingly try to save everyone. Ummm, the scientists were more careful than I to make sure not to compare human lives to dollars.

But I think this mindsight really has driven us away from free markets. Free markets don't offer certainties of outcomes.

Eric, yes, it will be very good to see you and eat turkey with you, I imagine, our armes interlocked nibbling on giant drumsticks.

You also raise some very subtle points I haven't heard in a long time. I would argue that int he case of the cell phone companies, they are simply agreeing to standardized their products so as to make more money for themselves. Microsoft and Apple have existed without being able to talk to each other, and the guv never stepped in, and they never agreed, but other companies did step in to provide solutions that married the strengths of microsoft (ubiquity) with apple (quality technology).

I guess the key thing to look for there is does it make more sense for the players in the market to form their own guidelines or for the government to "regulate" them exogenously. The Electronic Medical Record is going through similar growing pains.

Johnny, I didn't mean to imply that charitable financial contributions necessarily go up during hard economic times, but that personal, human acts of charity always rise to meet the needs of our neighbors.

Geno, you're totally right about the arbitrariness of the $50k. But I actually wasn't intending it to come from your firm, but from donations. The idea being, a free market creates greater efficiency, which not only drives down the cost of the goods produced by that market, but results in more money in the pockets of consumers. In this way, charity towards healthcare will become more affordable, and the type of program I support through the Christian Children's Fund for $24/month that literally changes the lives of whole villages could, say, be available through our own insurance companies, who could then distribute these funds or vouchers to the most impoverished areas where they work.

My main point there, though, was that the decision of healthcare has to be completely between a patient an doctor, with free market mechanisms determining prices of treatments and local individuals (such as doctors) being empowered to make the right kinds of charitable decisions. You would be in a perfect position to say -- this 8 year old kid has asthma and needs $200 of medicine that his parents can't or wont' buy him... I can step in. The price and benefit fits the case. No overhead, no ubiquitous standards.

Also, please post what you charge insurance companies for strep tests, I think that's interesting. If it's a labor-intensive test, then Seattle prices should reflect cost of living disparaties, otherwise, I think we're seeing the effects of non-free markets determining price goofinesses.

Nicole, I've always had trouble with the word "ontological". It is also used in computer science in terms of math. I'll try to address your points generally.

I'm not a libertarian or a pure laissez-faire economist. I think these philosophies are overly-simplistic and only rarely do what they think they'll do. What happens when a Wal-Mart moves into a small town and uses its profits from its other stores or from other products in its same store to lower the price of lumber below the local market price in order to put the local lumber yard out of business?

That's not free market economics, nor can a free market compete with that. There is something to be said for economies of scale. The consolidation of many of these huge companies is allowed by wall street because it makes them ungodly profits. But we then find ourselves in teh position today, where companies are deemed too big to fail in spite of poor performance.

So I believe in intervention or regulation to help keep healthy free markets and local markets in tact. But these are usually at the level of keeping out coercive forces, never of price fixing or of preventing failure, etc.

In computer science, there are certain types of problems, that if you can show they have certain characteristics, can be called greedy problems that can be solved optimally by greedy solutions.

Hill climbing is an example. If I plop you down randomly on a big smooth hill, blindfolded, and say, keep taking steps up the steepest path and you will get ot the top, you will. Some types of planning problems also work this way. But if I dropped you inot a mountain range and gave you teh same rule, you would most probably not reach the peak of the highest mountain but would stuck on some "local maxima".

That's why it's a fair debate to talk about rudders and kicks in the butt, etc, because as you said, people are not perfectly rational, do not have access to total information and make decisions for a huge variety of reasons, not just self-interest.

whew. I need to go to a bar and have a smoke now.

Wait. Nevermind.

Rolls and others, I like the smoking bans, but I think they need to provide wiggle room. The dangers of second hand smoke were extremely exaggerated and advertised with agenda in mind (when I say "coercion" you say "hoooo"). Yes, if you are around second hand smoke constantly, it is bad for you. But this is still a free country, and if there is only one bar in a town where everyone goes to hang out and be social, I think they should be able to say screw the gov, this is our bar and we can smoke! (cough)

P.S. bonus points if anyone can name the guy with the beard in the post.

Ryan said...

OK, to sum up my original point in writing this post.

I am against the government subsidizing capitalism (rich people) as well as socialism (poverty). You might think, the government doesn't subsidize (support) poverty, but it absolutely does, it guarantees it.

The result of this is our country is experiencing record highs in wealth disparity. The answer to this is not taxing the rich more to transfer to the poor! The rich will only shield their riches and the poor will only lose faith.

The government should step in when companies abuse power and act outside of the rules of fair competition (just like sports referees -- imagine if the referees changed their interpretation of the rules just because one team started losing). The government should also step in when foreign countries try to put sectors of our economy out of business with similar non-competitive tactics.

John Hanrahan said...

Karl Marx is the man in the picture.

Ryan is it ok if I shoot you? It is a free country and I would really like to shoot you in the stomach. I hear that a shot to the stomach might not kill you for a while and I would really like to feel the freedom of shooting you in the stomach.

I have also been thinking about drinking 14 beers and then seeing if my new car really can do 160 mph like the speedometer says. Is it ok if your nieces and nephews are in the car with me? Ah FREEDOM!

(Molly if you read this please know that I being sarcastic)

Gene said...

I'm going to redirect here. Johnny's close, but I believe it is actually Richard Marx, photographed a year or two before the debut of his sweet, airy 80's hit, "Hold on to the Night." You should all take a moment to relive it.

Richard Marx said...

Thanks for the shout out Gene. I have a new album dropping on December 1, 2008. I think it would be a great stocking stuffer.

Ryan said...

Johnny, don't aim for the stomach, please go for the shoulder. think Keaneu "Shoot the hostage." What do you do? What do you do?

And the man in the pic was Richard and Karl's long lost cousin, Lysander Spooner. Interesting American philsopher who turned me on to the concept of identifying and reducing "coercion".