Consulting by RPM || Free Advice Blog

Is There a Doc in the House? A Response to Krugman on ObamaCare

Today I am pleased to offer a response to Paul Krugman’s arguments that the free market can’t work in health care. The writer is Matthew DiPaola, who was in my high school class. More important, as his bio below indicates, Matthew is an actual MD and thus may actually know more than Krugman, me, and all the other economists put together on this issue. The below essay is a lightly edited version of a comment that originally ran on Jay Parkinson’s blog. Matthew is willing to write future essays on these matters, so put your requests in the comments. –RPM

I completely disagree with Krugman and again believe that his NY Times pulpit and Nobel prize in economics inappropriately legitimize a weakly argued, soundbite point.

Krugman claims that health care is distinctive for 2 reasons: 1) no one knows “when or whether” they may need care (health events can be unpredictable) and 2) health care is complicated. He is wrong on both points. In order for his point to ring true, he would have to prove that free markets are incapable of efficiently distributing unpredictable and/or complicated services. Yet free markets efficiently distribute both unpredictable and complicated services all of the time.

Point 1. Free markets operate extremely efficiently to protect against the unpredictable events of death (life insurance), car accidents (automobile insurance) and fires (homeowners insurance). In each case there is a disincentive for the insurance company to pay–not unlike the case of health care. Well managed insurance companies such as Geico, through excellent planning and policy pricing are able to offset claim payouts by prudent float investment and either break even or turn a profit. Such insurance firms provide a solid protective service to countless people daily. Without free markets (and we can argue about how truly “free” some of these markets are) these people would surely be worse off.

Point 2. Free markets efficiently allocate complicated goods and services all of the time. The computer industry is an excellent example. I don’t know how to create a microchip but I can certainly explain to a competent professional the types of activities for which I would use a computer. And in a free market, an honest, trained salesperson can help guide me to the appropriate computer, at a good price for my needs.

The same holds true for medicine. No patient needs to know the nitty gritty distinctions between various stents. They do, however need to be educated and guided appropriately regarding the qualities of that stent that most affect their decisions: “Doctor, how long does stent X last? What are the side effects? What are appropriate alternatives? What quality of life will this provide me?” The professional’s role is to guide the patient through this complicated decision process and is their “value added” to the market interaction.

Krugman fails to delineate why health care is truly distinctive. Health care is distinctive because its practitioners are obligated through professional ethical standards to provide the highest level of care to ALL patients/consumers regardless of age, disease status and ability to pay. Certainly this differs from the flat screen TV market: this would be the equivalent of every TV shopper DESERVING the $5000 48-inch flat screen TV (assuming that the 48-inch was considered the highest quality). And this ethic may indeed raise costs, to the extent that high quality equals high cost. One can argue ad infinitum about what constitutes the “highest level of care.” And I think Jay Parkinson makes good points in his writing that high cost does not ALWAYS equal high quality care.

Krugman’s last point about there being no successful free market systems in health care is utter nonsense. There has been no such thing as a free market in health care in the US since at least 1965 and he woefully ignores any examples prior to this. Government intervention has perverted the free market to the extent that any conclusion about its true workings is impossible to make. This would be like the commissioner of baseball, prior to Jackie Robinson entering Major League baseball, saying “there is no evidence that black players can be successful in the Major Leagues.” Rubbish.

Milton Friedman, a Nobel prize winning economist with a decisively different take on these issue is worth considering. For a look at why free markets in health care must be considered please read Friedman’s 2001 article “How to Cure Health Care.”

Matthew DiPaola holds an MD from Cornell University. His residency was in orthopedics at Thomas Jefferson University in Philadelphia. In September he will begin as Assistant Professor of Orthopedics at Wright State University in Dayton, Ohio. His views expressed here do not necessarily reflect the views of his employer.

Kudlow’s Cuckoo for Clunkers

I explain the unfortunate demise of Larry Kudlow in this Mises Daily.

Revealing Language in the Health Care Bill

Robert Wenzel has been doing a great job keeping his readers up to speed on just how awful the health care bill is. In particular, he has been repeating the remarks of some poor guy who actually read the whole thing. (!!)

Whenever I see “shocking” commentary like the one on EPJ, I like to go check up on the most outrageous thing. So in the list for the above post, I decided to go check out: “PG 844-845 OMG! This Home Visitation Prog. includes Govt coming in2 ur house & telling u how 2 parent”

In other words, that seemed like a claim that surely was being interpreted, rather than literally saying that.

You can decide for yourself, and actually you need to start on page 842 [.pdf] to get the full context. I don’t think Fleckstein is exaggerating too much. But what I want to focus on in this post, is the following line from page 844:

‘‘18 (VII) activities designed to help
19 parents become full partners in the
20 education of their children;

Whoa, do you see that? Does that give you chills? They are going to try to help parents to become full partners with the government in the education of their children.

I know you want to go check out the context; no, don’t do it just yet. If you do, you’ll get distracted. I think we all need to go re-read the three lines I just quoted above.

How can any true liberal think that this bill is a good idea? Do you really want to give the author(s) of the above quotation, power over your health care?

The Policeman Is Not Your Friend, Fake Abandoned Car Edition

William Grigg at LRC (sorry I lost the link) tips us off to this story. A couple in Austin saw a suspicious car (keys in ignition, windows rolled down, rope and bikini top in the back seat) parked on their street. They asked their neighbors, and nobody knew anything.

So they called the police, who showed up and left after seven minutes. The police told them not to worry about it because it wasn’t parked illegally.

Well the couple got more and more curious (there was also broken glass in the back seat and they were concocting stories of a serial killer and a stripper in the trunk) and finally decided to see if they could identify the owner of the car.

I think you know how this turns out, right? The police showed up and handcuffed them, but then let them go once they explained what happened. Oh OK, problem over? No, sixteen days later the police showed up at the guy’s house and arrested him, charging him with burglary (I think) which carried a year in prison and a $4,000 fine.

The car had been planted on their street by the police. Apparently this is a quite common tactic used by police nationwide to catch car thieves.

I am omitting some of the nuances; go read the story before repeating this. Some people commenting at the news site think the couple deserved arrest, since they were trying to open the trunk with a screwdriver.

And one commenter congratulated the 39-year-old guy for dating a 21-year-old. Ah the internet.

How Many Popes Can You Fit Into the Mises Institute?

Tom Woods argues that just one would be great. Here he caves in to peer pressure and writes a response to the Pope’s encyclical, Caritas in Veritate. Here’s Tom’s thesis:

Caritas in Veritate strikes me as at best a relatively unremarkable restatement of some familiar themes from previous social encyclicals. At worst, it is bewilderingly naïve, and its policy recommendations, while attracting no one to the Church, are certain to repel.

The response to the encyclical throughout the right-of-center Catholic world was drearily predictable: with few exceptions, it was a performance worthy of the Soviet Politburo, with unrestrained huzzahs everywhere.

It is one thing to receive a statement from the Pope with the respect that is due to the man and his office. It is quite another to treat his every missive as ipso facto brilliant, as if the Catholic faith depended on it. If his supporters are trying to live down to the Left’s portrayal of Catholicism as a billion-person cult, they could hardly do a better job.

And check out this fairly ominous quotation from the Pope, which Tom reproduces:

In the face of the unrelenting growth of global interdependence, there is a strongly felt need, even in the midst of a global recession, for a reform of the United Nations Organization, and likewise of economic institutions and international finance, so that the concept of the family of nations can acquire real teeth. One also senses the urgent need to find innovative ways of implementing the principle of the responsibility to protect and of giving poorer nations an effective voice in shared decision-making. This seems necessary in order to arrive at a political, juridical and economic order which can increase and give direction to international cooperation for the development of all peoples in solidarity. To manage the global economy; to revive economies hit by the crisis; to avoid any deterioration of the present crisis and the greater imbalances that would result; to bring about integral and timely disarmament, food security and peace; to guarantee the protection of the environment and to regulate migration: for all this, there is urgent need of a true world political authority, as my predecessor Blessed John XXIII indicated some years ago. Such an authority would need to be regulated by law, to observe consistently the principles of subsidiarity and solidarity, to seek to establish the common good, and to make a commitment to securing authentic integral human development inspired by the values of charity in truth. Furthermore, such an authority would need to be universally recognized and to be vested with the effective power to ensure security for all, regard for justice, and respect for rights. Obviously it would have to have the authority to ensure compliance with its decisions from all parties, and also with the coordinated measures adopted in various international forums. Without this, despite the great progress accomplished in various sectors, international law would risk being conditioned by the balance of power among the strongest nations. [Bold by RPM]

Anarchy and Iraq: Murphy Responds to Gonzalez

In a recent article on Free Advice, Iraq vet Edward Gonzalez explained how his experience with “anarchy” in Iraq made him doubt the armchair theorizing from people like Murray Rothbard and me. Obviously, I have been running Gonzalez’s articles because he is quite possibly the only human on Earth who:
(a) Saw combat in Iraq,
(b) Is conversant with Austrian and libertarian theory,
and
(c) Is willing to blog about it.

Below I give my quick response to Gonzalez. –RPM

When I talk about “market anarchy,” that is shorthand for a society in which most people respect each other’s property rights. There are still robberies, rapes, and homicides, of course, but they are relatively rare. Most Americans would say, “So we’re currently living in market anarchy?” No, we’re not, because the typical FBI crime statistics don’t include taxes as part of how much is stolen every year in America. I am also pretty sure a city’s homicide rate doesn’t include people who were killed by police officers. For example, imagine what Waco’s crime stats would look like, if a private gang had surrounded a building and burned everyone inside alive. I haven’t actually verified this, but I’m betting if you get your hands on the crime statistics for Texas, you won’t see a big spike in 1993.

So anyway, that’s why our society today is actually infested with crime, and the respect for property rights in America (and all other “civilized” countries) is actually paper thin and lukewarm. People tell their kids “Don’t steal,” but to avoid hypocrisy they need to add “…unless you’re at least 18 and you can convince 50% of those who turn out on election day to agree with you that stealing is OK under certain conditions.”

A society existing in market anarchy would be one in which people really meant it when they told their kids, “We live in a civilized society where there are rules. We don’t get to break those rules, even in an emergency. In fact, the rules are there precisely for those emergencies, when we otherwise might lose our heads and do something foolish.”

Now obviously, the academic proponents of market anarchy aren’t predicting that such a hypothetical society will spontaneously come into existence so long as people have brains. If that were our prediction, we would obviously be completely contradicted by almost all of recorded history.

No no, what I tried to do in this pamphlet [.pdf] was show that a society committed to true respect for property rights–if it were big enough–would be sustainable. And in fact, the requirements necessary for such a society to survive, would be much less than the comparable requirements for a group of people who were statists.

So yes, a group of 15 Rothbardians who declare themselves “free men” on a yacht are not going to repel the US Navy. But by the same token, 15 democrats on a yacht who vote in a president and a bicameral legislature, who then levy income taxes on the remaining 2 guys in the yacht’s private sector, will also not be able to repel the US Navy. Surely I have not just proved the impracticality of both market anarchism and democracy.

So what I’m saying is that as you make the contest fairer and fairer, then the free people (of comparable population, wealth, technology, etc.) will be able to repel the US military much earlier than their equivalent statist counterparts.

And as far as domestic affairs go, the same holds: It’s true that no matter the institutional arrangements, a society composed of cannibals, and imbued with a fear of machinery, is not going places. Even a society of Rothbardians would not do well by any objective measure, if those Rothbardians all just so happened to be cannibals and Luddites. But again, a group of Trotskyites who were similar in all other respects, would die off almost overnight.

Now as far as Iraq goes, it’s not clear to me that it has relevance to the claims I’m making above. What follows will be a very simplistic summary, and I hope Gonzalez will correct any misconceptions I have. But here is my understanding of what happened in Iraq:

First, there was a functioning government in the Nation-State sense of the term. The population grew up with government-provided legal and police services. The people would naturally think this was a government function, and obviously no one would have any experience in running a private competitor.

The US military comes in and literally destroys all government institutions. With US soldiers patrolling the streets, any Iraqi male walking around with a weapon could legitimately fear being shot on sight.

Once it was clear that Saddam’s rule was finished, and that the US forces were unstoppable, everyone with any lick of sense in the entire country knew that the Americans would install a friendly regime. That was the whole point of the invasion, after all. Had it even occurred to a single Iraqi in the entire country to try to start up a business selling defense services, he quickly would have scrapped the plan when he realized, “If nothing else, the American tanks would come up to my business office and demolish it.”

So I really don’t see why the lack of Rothbardian entrepreneurs constitutes even a challenge to the intellectual arguments for market anarchy.

People at libertarian events will say stuff like, “If you could press a button and eliminate government, would you do it?” The idea is to see how hardcore the other guy is. Like, only a wuss who drinks Bud Light would say, “Nah, I think we should first put in the Fair Tax and pay off holders of US Treasurys.”

But I think that’s a goofy question, like saying, “I’m not going to tell you what it does, but would you press a green button if I presented it to you–and you knew it was real?”

For example, if the button gets rid of the government by having Martians show up and disintegrate them, then no freaking way would I push it. The people running the political parties–who aren’t actually politicians, so presumably they’d be spared the zapping–would organize emergency elections, that were rigged to install the people they wanted running the country. They’d then use the aliens as an excuse to declare martial law and seize 50% of everyone’s wealth to fund the Giant Laser.

On the other hand, if the button somehow gets everyone to voluntarily agree that Rothbard was right, then heck yes I would press it. Except, I don’t think such a button is possible; I don’t know what it would mean to make someone truly agree with my case if I got the consent via pushing a button.

In closing, let me ask you to imagine “anarchy” breaking out because of a natural disaster. Let’s say for example that during a police parade there is an earthquake, and everyone in the city realizes the next day that 99% of the police got wiped out, and that the rockslides will prevent the National Guard from getting in for days.

Now if this happened in Austin, those people would be fine. If it happened in the Bronx, maybe not. I think people in Northern big cities can’t imagine market anarchy working, because their populations have been conditioned by the distortions from their interventionist governments. In the South, in contrast, people can definitely trust that their neighbors won’t suddenly pull up with shotguns just because the sheriff died.

Robert P. Murphy holds a Ph.D. in economics from New York University. He is the author of The Politically Incorrect Guide to the Great Depression and the New Deal (Regnery, 2009), and is the editor of the blog Free Advice.

Krugman vs. Murphy on the Economy: Two Men Enter, One Man Leaves

Back at the end of May, I was really excited when Paul Krugman wrote that inflation wasn’t going to be a problem anytime soon. Up until then, Krugman and my forecasts had been basically the same; I thought the huge deficits, power grabs, and monetary injections were going to wreck the economy, whereas Krugman had been saying the timid deficits, insufficient power grabs, and wussy monetary injections were not enough to save the economy from the reckless Bush policies. In other words, even if my predictions (prior to Krugman’s May 29th article) came true, Krugman could have justifiably claimed vindication as well. So that’s why his unambiguous “the people who are calling for inflation are liars or stupid” column was so pleasing to me.

In a similar vein, I am happy that yesterday Krugman came out and officially predicted that we are not in the beginning of the Great Depression II. Since I think we definitely are, this is yet another way to separate the economist from the ideological hack. (And oh oh oh I hope I end up being the economist. If I’m the sellout I’m not nearly as famous and rich as I should be.)

News Anchors Heart Big Government

I liked this line:

“The mainstream media talks about government like Patriots fans talk about Tom Brady or Colts fans talk about Peyton Manning.”