The Market Knows Best
The economy is suffering under a great delusion, and a great burden. It has become fashionable to oppose economic freedom. The reasons for such opposition are given as follows: (1) the market is unfair to the poor; (2) the market unequally distributes goods and services; (3) the market enriches people who don’t deserve to be rich; (4) consumers need government to protect them against unscrupulous businessmen.
Opposition to the free market is fashionable indeed. Yet consider, if you will, the debacle which overwhelms society when the free market is successfully suppressed in the name of justice or on behalf of the poor. What then happens could hardly be called just or fair to the poor; neither does robbing from the rich bring long-term benefit to the poor; and we have before our very eyes a perfect example: the U.S. federal government’s recent attempts to interfere with the health insurance industry.
It is now being alleged that “tens of millions” are losing the coverage they previously had, and President Obama has been forced into a public apology. Some experts have estimated that between 34 million and 52 million Americans may find themselves losing coverage altogether. Many insurance plans can only be kept by raising deductibles and co-payments, or by dropping elements of coverage. According to Forbes Magazine, Obamacare will increase individual market premiums by an average of 41 percent. As the article says, the government’s Affordable Care Act “makes health insurance more expensive.” For those who understand economic science, this should come as no surprise. Many who opposed the Affordable Care Act did so not because they begrudge the poor better coverage. They did so because everyone in the country was going to be hurt in one way or another.
The more government interferes with the distribution of goods and services, the worse the economic problem becomes. If our situation as consumers was bad before, as many apparently believed, it is worse now. The government cannot make something affordable to everyone without increasing the costs either through taxes or by a shrinking of the supply. What has always been known from the experience of dozens of other countries is that socialized medicine signifies rationed healthcare. The method of rationing need not be the same in every country, but such is the end result of government interference in the market. We now read that “Under Obamacare People Pay More for Inferior Health Plans, Lose Health Insurance They Liked”. We also now learn that an “expert predicts 129 million people will lose [the previous quality of their] health coverage.”
Why it’s a bad idea to interfere with the market is brilliantly explained by Austrian economist Ludwig von Mises in a book titled Liberalism: In the Classic Tradition. In this book Mises says that the calculation of profitability is the key. When an activity becomes unprofitable it is no longer supported by the market. So if it’s unprofitable, government sponsorship cannot suddenly make it anything but a waste of public money. According to Mises, “The prosperity that has made it possible for many more people to inhabit the earth today … is due solely to the capitalist method of lengthy chains of production which necessarily requires monetary calculation.” If the government tries to end-run the market in order to make something affordable to everyone, the result in practice must be to make it more expensive for everyone.
It is no accident that the government has been clueless about the consequences of interfering in the health insurance market. Previously, when medicine was advancing and health care was increasingly available, individuals came together to freely exchange goods and services. This is far from utopia, of course, but men are not given a choice between utopia and poverty. They are given the choice between more effective or less effective economic practices. A government attempt to make something affordable is therefore doomed to failure.
If government continues to interfere with medicine by forcing a reduction in costs, the quality of healthcare is going to decline. Doctors will be fewer and hospitals will close. Fewer operations will be available, with more people waiting longer for surgeries. Whatever the government does, any attempt to control costs or extend taxpayer coverage will either drain the public treasury or end in rationing. The free market alone should determine what prices ought to be, and what is available. People must be allowed to choose freely, and that includes doctors as well. Here is the fundamental point of liberty where the enslavement of man by man is not permitted to occur. The free market is not perfect. It is merely the best system possible for the greatest number.
In the future, as the ever-constricted economy grows worse and worse, you will hear politicians calling for regulations and government action. Do not believe what the politicians say when they make promises in this regard. The government cannot make anything efficiently. For the government is not built on the basis of economic competition. It is unable to determine prices or allocate resources. Only the free market, with its pricing mechanism, can do this. Only the market may determine which investment is profitable and which investment is foolish. It does not matter what criticism you make about fairness or the plight of the poor. Using force against the market merely has the effect of discouraging economic activity altogether. In that case, nothing is produced.
About JR Nyquist
JR Nyquist Archive
|12/30/2013||A Financial Poem for the New Year||story|
|12/23/2013||The Free Market's Path to Peace||story|
|12/16/2013||Learning the Wrong Lessons From the Financial Crisis||story|
|12/09/2013||The Economy of the Future||story|
|12/02/2013||China Troubles and the Incapable Nitwits of 2014||story|
|11/25/2013||The Lost Context of the Economic Crisis||story|
|11/18/2013||Economic Science and the Underworld||story|
|11/04/2013||America, Saudi Arabia, and the Dollar||story|
|10/28/2013||The Economics of Disagreement||story|
|10/21/2013||High Debt, Low Integrity||story|