Free Markets, Free People

Cognative dissonance: If the private sector can’t afford it, how can the public sector?

E21 points out the innate ignorance, or if you prefer, cognative dissonance, in the belief that government is the answer when private sector outlays get smaller in the areas of health care and pensions.  Their example is a recent column by EJ Dionne:

In a recent essay in the Washington Post, EJ Dionne argued that we had no choice but to accept that government would grow larger in the future “because the private economy will not offer the same security it once did through employer-provided health and pension plans.” It’s a viewpoint that is often repeated by others on the left of the political spectrum, who complain about corporations curtailing the benefits on which households had come to rely. Without businesses financing health care and retirement, Dionne believes the choice is between a larger government to fill that role or widespread illness and poverty.

The interesting aspect of this theory – which is hardly unique to Dionne – is the view that the government is some entirely disconnected entity that is able to finance obligations too weighty for households. If one assumes that government’s budget capacity comes entirely from the taxes it imposes on households – Dionne’s framework is unintelligible. If outlays are too great for the household sector to bear, how could these outlays be any more affordable for an entity entirely financed by the same households? The cash flow out to support households’ pension and health care expenditures has to be matched with an equal and opposite cash flow in from household taxes (including corporate taxes, which reduce the cash flow of households that are shareholders, employees, and consumers).

Where does this belief come from that government has the means to finance what the private sector can’t and that it must step up and do so when it comes to health and financial security? 

Government revenue, as I noted once before, is about 14% of the national income.  Government spending is about 25% (and rising).  How is government the answer then?  And if it were to raise taxes the commensurate 11% to equal spending, wouldn’t it be impoverishing the very households it plans on helping?  All the money we’re talking about government spending comes from the same place.  The other alternative involving government is massive borrowing which, at some point, has to be repaid.  By whom?  Well the same entity borrowing the money.  And from where does that entity’s money come?  The same place it always does – from the taxes it collects from its citizens.

Let’s get specific:

The idea of government as an entity entirely separate from the households that fund it is not only silly, but also exceedingly harmful, because it distracts from the serious business of confronting trade-offs and establishing realistic expectations. President Obama’s health care reform initiative depends, in part, on this fallacy. It expects people to believe that the interposition of government will allow for the same quality of care to be provided to a much expanded universe of beneficiaries at lower average cost for households. The problem is that households will end up paying for health care irrespective of the intermediary; the only way the government could reduce costs is if it does a better job rationing households’ access to care than private insurers and their anemic profit margins (The Obama Administration actually takes this fallacy a step further by claiming that it would “shrink the deficit by providing the world’s most expensive health care to 31 million additional people”).

What you’re seeing in the public opposition to this monstrosity of a health care bill is a realization and rejection of the counter-intuitive claims made by politicians (and not just the Obama administration) that there is such a thing as a free lunch.  The public recognizes the fallacy being presented as fact and is rejecting it outright.  That’s because unlike EJ Dionne and his ilk, they recognize a basic truth:

If something is too expensive for American households, it is too expensive for the government whose budget is financed by those same households.

It’s not rocket science.  However it is “smoke and mirrors” the way the administration is presenting it, and the public recognizes it as such.  The relatively simple concept above contained in that single sentence is reality.  The public lives in that world.  It’s time the politicians joined us.



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22 Responses to Cognative dissonance: If the private sector can’t afford it, how can the public sector?

  • We have real world evidence that government can do it with less cost: the rest of the industrialized world have government backed health care systems (most not single payer), and they spend far less.   One reason is that so much money gets sucked into insurance ‘overhead’ costs and other middle men who parasitically feed off the health industry.    Also, markets serve whomever has money — that’s why many services that all need are public (police, fire, national defense, etc.)   Health care is like that.    The market assures the wealthy have excellent care, and the poor do not, or face bankruptcy.  The market is not magic, and sometimes it leads to immoral outcomes.

    • immoral outcomes ?
      Why is it that morality only becomes important when there is a “free lunch” involved ?

      • Erb’s “morality” is nothing but theft. He wants to steal wealth to push the outcomes he desires. But it is really just theft, and inherently immoral.

    • Your ignorance is just astonishing.

      Do you actually believe that government rationing care is better than market allocation of resources?

      We have the huge innovations in medical care that we do in the U.S. because what remains of price signals in what remains of a real market drive those innovations. The thing driving costs up in what’s left of the market is providers reallocating costs for Medicare into the prices for private health care. There are ways that this can be fixed, or at least helped, but none of them involve a federal bureaucratic takeover of the medical industry. That will make the situation far worse.

      One more time: Central planning falls behind the moment that it begins and continues to fall behind until it falls apart. There is no “third way.” There is only a continuous smoke and mirrors theft that slows and hides the deterioration. That’s the case in California and New York, the two great former engines of American prosperity. That’s the case in the UK and throughout much of the Eurozone. It’s the case in Japan, where a demographic crisis accelerates the bankruptcy of the social bureaucracy and has already caused ghastly stagnation.

      Stop with your ceaseless platitudes, Scott. It has become unseemly to the point where you’re startin’ to smell funny.

    • They spend far less by providing less service and lower quality.  Even in the USA, one of the largest (or is it the largest) budgetary items is Medicare.
      You are correct that the market is not magic.  It is critical to get this point across to anyone who considers government-controlled health care to be “free” as well as people who believe that government can deliver health care more efficiently to more people with fewer restrictions at a lower cost.  That would be magic.

      • The whole point of the “social justice” song and dance is to invoke conscience, but only the superficial element of conscience, not its reflective and prudential elements.

        The problem with “social justice” is that no central agency has sufficient knowledge of what that is. Meanwhile, entire populations are reduced to serfs on the government plantation. Markets produce and adapt spontaneously, they innovate in response to cost and price challenges and in order for firms to sustain themselves in competition. They engage in the creative destruction of worn out methods and whole industries.

        By contrast, central bureaucracies get knowledge that is no longer meaningful and act on it slowly or not at all. They move by their very nature in the wrong direction. And who is to blame? Always and everywhere the people are blamed, or some bugaboo stand-in, like the “insurance companies,” et al.

        Competition, de-regulation, flexibility are the characteristics of the market. Left alone they will find a way to sell a good insurance product to virtually anyone at an affordable price.

        That should be the aim in transforming Medicare, Medicaid, and Social Security back to private markets and getting the Federal and State governments back to being simple rule makers, not nannystate overlords thieving eternally and bankrupting everything and everyone in their path.

        That’s also America, doing things privately and limiting government, and that’s what needs to be gotten back. Let’s get rid of the implicit and explicit Marxism. Let’s run it out of America, and let’s do it by any means necessary, because it has locked itself into our guts like a vicious rampaging cancer.

    • The fundamental driver for costs is that there is no price competition for healthcare at point of service. This is the problem with our system and with the various socialist systems.

      It is true that the US system is even more expensive than the Euro socialist systems. Consider this: overall the US has lower life expectancies than Europe. But if you account for homicide and auto accident deaths, we have a LONGER life expectancy.

      The US has superior healthcare compared th Europe, with five year survival rates for major cancer care substantially higher. Euro health care is almost Third World by comparison.

      These factors help explain some of the reasons US health care costs more:

      1) We get in more auto accidents, they are more serious, and we shoot, stab, and beat each other more often than the Euros. Hence, we need more health care, hence our total costs are higher.

      2) The quality of our care is higher. Our doctors are better at treating cancer, and just about everything else, including the auto accidents and shootings previously mentioned. Higher quality means higher cost.

      There are two other key differences that I see driving our costs higher. Erb is wrong about insurance, which has low profits. The high costs are the doctor’s bill and the nurses (and other health workers paycheck). This is high due to the lack of price competition and lack of government price controls (i.e., rationing). The other difference is tort.

      The real key to lower costs is price competition at point of service, coupled with tort reform.

      For most purposes, the managed care system and the insurance companies are things that really should not be part of healthcare, and are only in the system, distorting outcomes, due to poorly thought out (or well thought out?) tax policy.

    • Scott, it is difficult to understand how you ever get anywhere, ever.  You claim money gets sucked into insurance overhead, but that makes no sense.  The profits of the largest insurance companies are less than the loss to Medicare by fraud, and we aren’t even talking about Medicaid.  Second, you and everyone else who is not on Medicare or Medicaid pays a “tax” when they use the health care system.  That is because insurance companies and private pay patients pay more for a service to make u for the loss coming out of Medicare and Medicaid.
      When you claim other countries pay less of GDP, that has to account for the drugs, devices, and procedures that are developed in the US and then exported below the cost of development to these other countries.  Costa Rico has government health insurance.  It turns out the employee pays 9% of his salary while the employer pays 18%.  So, 27% of an employees pay is siphoned off into the health care system.  That does not seem like much of a bargain.  Besides, Scott, how do you like rationing by delay.  It is probably OK until you need medical services and then the savings don’t look as good.

    • “middle men who parasitically feed off the health industry”
      Middle men often perform very important roles economically.
      Often they actually squeeze costs down and improve quality more than a government agency would.
      Listen to this podcast about middle men by a fellow Poly Sci professor and learn something.

    • From the London Daily Mail:

      “Treatments used widely in the U.S. and Europe have been rejected on grounds of cost-effectiveness, yet patients and their loved ones have seen the NHS waste astronomical sums. Last week it emerged that £21billion — a fifth of the entire annual budget — was spent on failed schemes to tackle inequality.

      And Americans think their insurance companies are heartless.

      • Tackle inequality?

        What’s that about, ensuring that the NHS is equally awful everyplace? Preventing the rich from leaving the country for quality care?

    • ” immoral outcomes” there are no immoral outcomes, there is no real morality, it’s all relative you know, just as it is with rights, such as the right to health care, morals are what we decide they are. There are no natural God created moral rights or wrongs….get it?

    • We have real world evidence that government can do it with less cost:

      Dude! Get back on your meds! NOW!

  • There is an additional point to consider that I did not touch on in my last post:

    If Erb can’t afford his healthcare, that sucks for him. The rest of us are not affected. He can work harder, do without, go into debt, or beg for hand outs. But the country remains strong.

    If the government can’t afford healthcare, you get Greece and worse. Patients will continue to demand “their” care up to the end and past it even. They still won’t price shop, but they might throw rocks in the street.

    Are there ANY socialist healthcare systems that are sustainable? Canada and UK seem to be threading the needle between “unaffordable” and “crap care”, and failing on both sides. Just like our domestic Medicare and Medicaid systems, which do ration (Note that the AZ Mayo clinic dropped Medicare) and yet remain too expensive.

    A “cheap” government system, even if it does save some money compared to private insurance, will still be unaffordable. Laffer Curve, and all that.

  • If one assumes that government’s budget capacity comes entirely from the taxes it imposes on households – Dionne’s framework is unintelligible. If outlays are too great for the household sector to bear, how could these outlays be any more affordable for an entity entirely financed by the same households?

    How to think like a liberal…

    Let’s assume that we’ve got two households.  Household #1 has an income of $30,000 per year.  Household #2 had an income of $300,000 per year.  Obviously, the total money available per household is $165,000 per year.  That’s more than enough for both households to afford all the medical care, food, oil, solar panels, hybrids, college educations, etc, that they need.  And if you throw in all the money made by XYC Corporation down the road… WELL!  Now you’re REALLY talking enough to make our little world into a paradise!

    O’ course, this assumes a totally static model in which Household #1 doesn’t decide that they don’t have to work any more since they’re getting a “free” $165,000 / year from Uncle Sugar; or that Household #2 doesn’t stop working so hard and earning so much because he’s losing nearly half his income to taxes that are being wasted by the deadbeats next door; or that XYZ Corp. doesn’t lay off employees and or move offshore to avoid the tax burden; and that the government that is redistributing the money doesn’t siphon off a huge chunk to pay the overhead costs of a bloated bureaucracy AND all the pet projects that various members of Congress want to fund with all that money.

    • Of course the problem is there’s a total of $330,000 if you took all the money and redistributed it – not the $600,000 the government is likely to spend instead.

    • Household #2 had an income of $300,000 per year.
      The real problem here is that Household #2 pays more taxes and gets almost no benefits.
      As for sending their kid to college … they make too much .. the best they can hope for is a Stratford loan of <$4,000 a year.

  • This argument against government spending is the same argument the left makes against tax cuts.  And the answer is the same – any political party making any deficit increasing policy change expects that the future growth resultant from the change will pay for the cost of the change. 

    In the case of healthcare the assumption is that providing more heathcare more widely will make the workforce healthier and therefore more productive. 

    “If one assumes that government’s budget capacity comes entirely from the taxes it imposes on households – Dionne’s framework is unintelligible.”

    Making this dubious assumption lets E21 draw its unreasonable conclusions, because that is not how any government defines its budget capacity.    

    “If outlays are too great for the household sector to bear, how could these outlays be any more affordable for an entity entirely financed by the same households?”

    Because the government isn’t limited to merely the current households.  The state can get by borrowing against future growth.  Its called deficit spending and has been common practice for some time now. 

    • The idea that health care will increase productivity is simply . . . stupid. For the most part, improved healthcare increases that last few years of life. Besides which, socialist healthcare reduces life.

      As far as deficiet spending, that’s fine. Except when you are way in debt and you are gonna crash like Greece. Which is what we will do here, if we don’t come up with a plan for social security and medicare, and increase medical coverage is not that plan.

    • unaha-closp – In the case of healthcare the assumption is that providing more heathcare more widely will make the workforce healthier and therefore more productive. 

      I think that this demonstrates one dimension of our current problem: what is it, exactly, that we are trying to do with health care “reform”?  If it is to make our workforce “healthier”, then I suggest that the measures currently under consideration are not going to do that*.  But the fact is that MUCH of the propaganda has been NOT about “making people healthier” but rather about reducing costs.  We are not, for example, talking about building more hospitals, training more doctors and nurses, investing in more medical research, or even paying for more health care education.  Instead, we’re talking about how to pay for health care for uninsured people and keep costs for the federal government under control (oh, and getting Uncle Sugar to loan more money for college, which has exactly jack sh*t to do with health care, but the dems never let an opportunity go by to grow the government and exert more control).

      But let’s assume for the sake of argument that we are trying to make the workforce healthier.  First of all, there needs to be data to show that our workforce is somehow unhealthy.  Second, to the extent that it is unhealthy, the causes need to be determined.  Finally, the remedies have to be developed and implemented.

      Natch, these things are NOT the subject of the debate and will not be addressed by the final bill, which is concerned with setting up a bureaucracy and giving the federal government more control of the health care system in the name of cutting costs.  Perhaps it’s just me, but I don’t generally equate “cutting costs” with “improving health”.

      unaha-closp[G]overnment isn’t limited to merely [taxing] the current households.  The state can get by borrowing against future growth.  Its called deficit spending and has been common practice for some time now. 

      Any individual or entity can “get by” with deficit spending for only so long.  When deficits become routine and increasingly large, debt piles up to the point where it is overwhelming.  We are on that track as a nation.  The sickening irony is that we’ve been lectured over the past year or so about living beyond our means as individuals AND the wickedness of credit card companies and banks for daring to charge interest when people borrow money that the banks have some reason to believe they may never get back.  Apparently, the people who wag their finger about individual people going into debt have no problem with putting the country into debt.

      I also say that, just because deficit spending has been a common practice for years, this does not mean that it is a wise policy.  Indeed, it is not only unwise, it is downright crooked: the debt accumulated will be paid by people who are not even born yet and very likely will enjoy none of the benefits that the money was borrowed to pay for in the first place.  We’re not talking about incurring a debt to build roads, dams, buildings, etc. that we can expect to be around for years after they are paid off and hence be used by future generations.  Rather, we’re talking about taking money from Peter – who hasn’t even been born – to pay to Paul so we can feel virtuous and generous and just gosh-darned nice.


      (*) I say “measures currently under consideration” with some reservations because nobody knows exactly what the hell the Congress will eventually send up to the White House for signature.

  • This post has been linked for the HOT5 Daily 3/18/2010, at The Unreligious Right