Tuesday, September 29, 2009

The Source of True Benevolence

"Absolute power corrupts even when exercised for humane purposes. The benevolent despot who sees himself as a shepherd of the people still demands from others the submissiveness of sheep. The taint inherent in absolute power is not its inhumanity but its anti-humanity."

-- Eric Hoffer (1902-1983) American author, philosopher, awarded Presidential Medal of Freedom Source: The Ordeal of Change (1963), Chapter 15 (HT Liberty Quotes)

What makes a despot a despot is the initiation of force used in place of persuasion. Despotism can be implemented by an individual (dictator, King, Imam, etc.) an elite minority (aristocracy, Politburo, etc.) or by unlimited majority rule (democracy, democratic socialism, etc.)

The despotism we face today, here in the United States, is that of insufficiently limited majority rule guided by political leaders who have no compunction about using force to achieve their goals. The use of force is justified by the fact they wield it for the sake of the poor, or the planet, or the uninsured, or the foolish investor or a failing business--but it is force none-the-less.

This is not the road to peace and prosperity. There is no compassion in denying a man the right and the ability to freely live his own life for his own sake. Compelling a man to sacrifice his life, or labor, or property for the lives or goals of others breeds resentment and hatred, or slavish submission. Other men become threats and/or burdens to one's own well-being. The use of such force reinforces the use of political power to gain special advantages at the sake of others less powerful.

The antidote is the absolute prohibition of the initiation of force, guided by a proper understanding of the individual rights of life, liberty and property, implemented through a constitutional republic whose sole purpose is the protection of those individual rights. It is only within such a system that true benevolence can be found. When the right of the individual to live for his own sake is jealously and consistently defended, the only permitted interactions are persuasion and voluntary trade. Contracts are upheld by law. Violence is prohibited. Fraud is carefully defined, outlawed and duly punished. Other men become values, potential assets and allies in the preservation and flourishing of one's own life.

Wealth is not the problem--neither its production nor consumption. Selfishly valuing and living one's own life is not the problem.

The problem stems from the failure to banish the initiation of force from the armamentarium of acceptable means for achieving one's goals--either as an individual, or as a community of any size. White-washing force through a political process of voting does not change the essential nature of the act.

The use of such force is an indispensable part of the legislation currently being debated or implemented: bills on energy, climate change, banking, business bailouts, economic "stimulus" programs and on and on. It is also integral to all welfare programs, which by their very nature involve forcibly taking from some to give to others: the new healthcare "reform" proposals, the old Medicare and Medicaid, Social Security, government-funded education, government unemployment benefits, and on and on. The desire for everyone to live a full, comfortable and healthy life is laudable, but the listed programs are not benevolent in their means, even if compassionate and well-meaning in their ends.

Kindness, compassion, charity, love---these all can only exist voluntarily. The only truly benevolent stance with regard to another human being is "Convince me, or leave me alone." All else entails force and is inhumane and anti-human, no matter how well intentioned.


Monday, September 28, 2009

Mandate = Tax

Michael Tanner makes an excellent point in an editorial printed in the Sept. 24 New York Post, "Sorry, O: It is a tax":

Think of it this way: If the government took money directly from you, then turned around and gave it to an insurance company, everyone would agree that you've been taxed. How is that any different from the government mandating that you pay the insurer directly?


Tuesday, September 22, 2009

Knowing what you stand for

At a pre-9/12 gathering, Dr. John David Lewis spoke on the importance of knowing what you are fighting for---not just what you are against. He encouraged all who are involved in the current protests to stay focused on the principle which explains exactly what is wrong with the recent explosive expansion of government into our private lives: the violation of the Rights of Man--rights which are rights to actions, not rights to things.

I have heard several political commentators, and the President himself, bemoan the coarsening of political discourse--those who disagree are no longer simply wrong but are denounced as immoral and evil. But what is at stake is not just which of several a strategies to choose in order to achieve a worthwhile goal. It is not a mere bickering over details. What is at stake is whether or not we abandon the principles upon which this country was founded: Individual Rights. This IS a moral battle. Those who promote collectivism, in any of its myriad of forms, are promoting STATISM at the direct expense of FREEDOM--and to do so IS evil because it is an an attack on the individual's right to live his life for his own sake.

This talk is an important reminder: the biggest problem with national health insurance, cap-and-trade, bank and auto company bailouts, etc. is not the immense financial cost. It is that each of these interventions are a direct and personal attack on our rights to life, liberty and property.

HT The Forgotten Man

Monday, September 21, 2009

Shame on Us

"Shame on the men who can court exemption from present trouble and expense

at the price of their own posterity's liberty!"

-- Samuel Adams (1722-1803), was known as the "Father of the American Revolution." Source: writing as "Candidus," February 3, 1776

HT Liberty Quotes

Sunday, September 20, 2009

You Can't Change Reality by Mandate

In a recent article in Forbes, senior analyst Shikha Dalmia examined the root intentions behind the President's healthcare reform proposals:

In his recent speech to Congress,

Obama promised Americans would get eternal health care "security and stability." To deliver that, he would of course ban insurance companies from denying coverage to those with pre-existing conditions--tantamount to forcing fire insurance companies to write coverage on a burning building. He would also prohibit insurers from putting any limits on the coverage they offer and cap what they can require patients to pay out-of-pocket.

In other words, Obama would encourage unlimited health care consumption by patients while eliminating the last vestige of price consciousness. But the reason America is facing unsustainable health care cost increases is precisely because its third-party system of insurance doesn't encourage prudent consumption by patients. [Emphasis mine]

The statement in bold bears repeating.

Obama would encourage unlimited health care consumption by patients while eliminating the last vestige of price consciousness.

This is the most fundamental reason that health care costs have soared. And what has caused consumption to be divorced from cost? Government policies in the form of tax laws, insurance mandates, regulations on hospitals, subsidies and preferential status of HMO's, and the entire set up of the medical welfare programs of Medicare, Medicaid, and the rest.

It is the Tragedy of the Commons applied to healthcare....except instead of land, what will be destroyed by these policies will be anyone involved in the provision of medical care: hospitals, medical supply companies, pharmaceutical companies, doctors, nurses, physical therapists, and on and on and on.

Just as private property is the remedy for the Tragedy of the Commons, so personal responsibility operating within a free market is the remedy for run-away health care costs.

And no presidential proclamation or government mandate can change that reality.


Wednesday, September 16, 2009

When Misinformation becomes Deception

An excellent IBD editorial, "Speaking of Misinformation," takes a point-by-point look at President Obama's health care speech. When the President's statements are so easily shown to be misleading, it no longer a matter of simple misrepresentation, but one of outright deception.

The Cato Institute provides a 5 minute video with another set of counterpoints.

Facts are important, but more important is the context within which the facts exist. It is this context that President Obama ignores: that this is a country of liberty based on individual rights and the very idea of government-controlled health care is in direct violation of all three of those rights: life, liberty and the pursuit of happiness-- a pursuit which occurs through the use of one's own honestly earned private property.


Sunday, September 13, 2009

Values Clarification

Sept. 12 March on Washington
Photo: Washington Times

The battle I am fighting is not Right vs. Left or Republican vs. Democrat. The principles I believe in are all variations of one essential battle:

for Individual Rights and against Statism.

I am for Equality before the Law instead of Egalitarianism.

I am for Property Rights instead of Legal Plunder.

I am for Constitutional Limits instead of Unlimited Majority Rule.

I am for Peace instead of the Initiation of Force.

I am for Wealth Production instead of Wealth Distribution.

I am for Compassion instead of Envy.

I am for Charity instead of involuntary, government welfare programs.

I am for Personal Responsibility instead of the Nanny State.

I am for Community, which to me means living together in freedom, and interacting voluntarily, not using the ballot box to force my neighbor into actions he would otherwise not choose to take.

I am for the Free Trade of value-for-value, not government control of my economics choices.

I am for the Pursuit of Happiness, and the right of each of us to live for our own sake--not laws which require me to live for the sake of others, or others to live for the sake of me.

Each person is an end in himself, not a means to the ends of others.

These are the values that I believe this country was founded on and which are embodied in the Declaration of Independence and the Constitution of the United States.
These are the values which if held and applied consistently will bring us a prosperous, peaceful and compassionate nation.
These are the values which are being obscured and trampled on by those currently in power in our government.

These are the values by which I live and for which I will fight--in hopes of ending the nightmare and getting back to the dream.


Legal Plunder and Going Green

Solar Economics: Would You Pull A Lever to Get $12,000 if Somewhere in Massachusetts a Person Lost $58,000?

Coyote Blog does the math and explains the economics of government rebates for installing solar panels.

Conclusion: We all loose.


Saturday, September 12, 2009

Altruism and Legal Plunder

"When plunder becomes a way of life for a group of men living together in society, they create for themselves in the course of time a legal system that authorizes it and a moral code that glorifies it."

-- French economist, statesman and author Frederic Bastiat (1801-1850)

(HT Walter Williams' Homepage)

Thursday, September 10, 2009

Actually, Mr. President--our health care is too cheap!!

President Obama spoke to the nation Wednesday night on health care. He gave an impassioned speech, projecting sincerity and concern. Sadly, all of that charisma and eloquence is devoted to leading us in the wrong direction. The President correctly pointed out that we can not tolerate the status quo, but he has tragically misdiagnosed the cause of our health care ailments. Based on an erroneous understanding of the problem, his recommendations will continue and augment the very policies which have caused them. His plan is a prescription which can only further undermine the quality and quantity of affordable medical care.

President Obama states:
Then there's the problem of rising costs. We spend one-and-a-half times more per person on health care than any other country, but we aren't any healthier for it. This is one of the reasons that insurance premiums have gone up three times faster than wages. --Pres. Obama, Joint Session 09/09/09

Yes, we are spending more. Yes, insurance premiums are going up. Yes, out of pocket expenses are increasing. Yes, more and more people and businesses are choosing to drop their health insurance plans because of the expense. Yes, the cost of Medicare and Medicaid is soaring. Yes, these are all serious problems--but NONE of this addresses the question of WHY.

The President and supporters of his plan offer a multitude of causes: too much expensive new technology--except there's not enough information technology; too much spent on administrative work--except not enough oversight into fraud and waste; higher prices from cost shifting because of the uninsured--but we must continue strict price control of Medicare/Medicaid reimbursements; too many insurance companies which duplicate services--but not enough competition, so we need a public option. On top of all that, we are told that doctors are overpaid and perform unnecessary treatments, and insurance company earn unnecessary profits. Some of these explanations simply miss the point, while others are flatly wrong.

The primary cause of the dysfunctions within our health care delivery system is that consumers of medical care pay too little, not too much!1 The system of third party payment for medical care, which has been in place and rapidly expanding since WWII, has disconnected the consumption of health care services from its cost. Prices no longer reflect the real balance between supply and demand. This prevents consumers of goods and services from making accurate evaluations as to how to best allocate scarce resources to alternative uses.

Prior to WWII, Americans paid for most of their health care out-of-pocket. Insurance2, when it existed, was true insurance,3 a way of financing risk to pay for large and unexpected health expenses, in the exact same way that homeowners, car and life insurance still operate. Because of the current misuse of the term "health insurance" to refer to 3rd party payers of health care, if we now desire to refer to true insurance for health care, we have to give it a special name: "catastrophic health insurance." Most of what is now called "insurance" is actually either 1) prepayment for the consumption of known and/or predictable medical expenses (thus removing it from the realm of what is actually insurable) or 2) entitlement programs (Medicare, Medicaid, SCHIP, etc.) --which are redistribution of taxpayer money posing as "insurance." (Calling things "insurance" does not make them so in any fundamental or relevant way. Just one more example of how the imprecise use of words prevents proper analysis.)

By the early 1990's, patients were paying only 5 cents out of every dollar spent on hospital services, 19 cents out of every dollar spent on physician fees, and over all, less than 24 cents out of every dollar spent on health care of all types(4, 5). The rest was being paid by someone else. This disconnect between the money being spent and the direct financial cost to the patient drives up demand, which drives up prices.6 This is simply the law of supply and demand and its effect on prices.

A report referenced by Pres. Obama bemoans the accelerated growth in the cost of premiums and co-pays for employees since 2000. However, this is simply the to-be-expected rebound following decades of health care financing in which patients have only paid a small fraction of the full cost of their health care. Any good which is made available at artificially low prices will be over-consumed and under-produced.

Some health care costs are large and unpredictable. For these rare events, it makes sense to pool risk and purchase insurance. Appropriately underwritten, this type of insurance can be profitably funded. Other expenditures, such as health maintenance, treatment of routine minor illnesses and the increased need of health care as we age, are predictable expenses, just as predictable as the need to save for retirement, the need to budget for food, shelter, clothing and education. These are all known costs of living for which we must make long term funding plans. They are simply part of the normal requirements for living a responsible, independent life.

As long as we love life and wish to avoid pain and disability, our desires for health care will exceed our ability to purchase treatment. The fact that all resources are limited requires us to set priorities and make choices, doing our best to allocate our personal (scarce) resources according to what we value most. Done voluntarily, resources are allocated via price discrimination; when mandated by government, it is called rationing.

Making treatments cost less to the user than the full cost of providing them (labor, materials, etc.) guarantees the demand for those goods and services will rise faster than the supply and thus drive up prices. As patients, we have had decades of insulation from the full cost of our medical care--and the plans currently before Congress will further increase that insulation, attempting to postpone the inevitable head-on collision with that basic truth of economics (and of reality): There is no such thing as a free lunch. That is why the current plans can only drive prices even higher, further aggravating the problems of affordability and access.

The solution?

John Mackey, CEO of Whole Foods, has a great start.

Another way of formulating those ideas are as follows:

Remove existing legal barriers to responsible consumer-driven health care, i.e. the government mandates, regulations and tax laws which interfere with free-market contracting for real insurance.

Allow competition, supply and demand (rather than political agenda) to set prices, and to award profits and losses commensurate with a provider's ability to meet patient needs with quality and efficiency.

Protect both patients and providers by enhancing the enforcement of contracts, and punishing fraud.

Reestablish equality before the law by eliminating discrepancies in how health insurance and health care expenditures are taxed.

Our economy is a mixture of free exchange and government interventions. Following the caveat "First do no harm," it is crucial to understand the harmful consequences that government mandates perpetrate on free-market price signals. Artificially lowering the price of a good or service below its real cost in scarce resources means that individuals will make purchase decisions based on faulty information. Insulating patients from experiencing the full costs of their choices, and providers from experiencing the profit and loss consequences theirs, disconnects everyone from the corrective forces we need to make better choices over time. We need to move closer to a system which is run by the laws of supply and demand, instead of bolstering a system run by special interests and political agenda.

Because they reflect real supply in relationship to real demand, free-market prices are more efficient. Because they are based on voluntary exchange, free-market prices are also more just.

Addendum: Check out a recent post which illustrates the problem of 3rd party payers, written by The Rational Capitalist while "Litterally Experiencing the Broken Window Fallacy".


1. I am grateful to John Goodman and Gerald Musgrave (see references) for reminding me of this insight which my dear friend Dr. Karen Tierney tried to get me to understand over 20 years ago.

2. Wikipedia has a brief outline of the Principles of Insurance obtained from Mehr and Camack “Principles of Insurance”, 6th edition, 1976, pp 34 – 37. These principles include a) A large number of homogeneous exposure units, b) definite, accidental, large calculable loss, c)Limited risk of catastrophically large losses and d) affordable premiums. See here for further elaboration.

3. Doug Reich explains:The whole purpose of insurance is to pool risk in such a way that most of the time, premiums from some members of the pool are sufficient to cover claims from other members in the unlikely event that they have a claim. The premiums are priced based on the probability of a claim in such a way that the pool is almost guaranteed to take in more than it pays out. That is why on a private market, people choose policies with deductibles and/or policies that only pay in the event of catastrophes. The less likely a payout, the less the premium and vice versa.

4. Goodman and Musgrave,
, 1992

5. Current estimates are that 86% of health care expenditures are paid by 3rd parties, leaving patient expenditures at 14 cents out of every dollar spent on health care. That's quite a discount! (pg 45 in Kling, Crisis of Abundance, 2006)

6. For more detailed accounts of the history of health care financing in the U.S. see Dattilo and Racer (2006) pg 83-136 and
Zinser, Lin and Hsieh, Paul, "Moral Health Care vs. "Universal Health Care'" in The
Objectivist Standard, Vol. 2 No. 4, 2008

Additional Resources:

Cannon, Michael and Tanner, Michael, Healthy Competition: What's Holding Back Health Care and How to Free It, Cato Institute, 2007

Dattilo, Gregory and Racer, David, Your Health Matters, Alethos Press LLC, 2006

Goodman, John C and Musgrave, Gerald L. Patient Power, Cato Institute, 1992

Gratzer, David, The Cure: How Capitalism Can Save American Health Care, Encounter Books, 2006

Kling, Arnold, Crisis of Abundance: Rethinking How We Pay for Health Care, Cato Institute, 2006

Wednesday, September 2, 2009

Interesting Quotes

Yesterday's installment from Liberty Quotes contained a particularly poignant set which I have reproduced below. The proper use of government force must be guided by moral principles, and it would be improper and incorrect discuss these issues without reference them. Thus, many activities which are good, right and benevolent when performed voluntarily become evil, wrong and cruel when attempted through the initiation of force.

"Every man is, no doubt, by nature, first and principally recommended to his own care; and as he is fitter to take care of himself than of any other person, it is fit and right that it should be so."

-- Adam Smith (1723-1790) Scottish philosopher and economist

"I cannot find any authority in the Constitution for public charity, ..[it] would be contrary to the letter and the spirit of the Constitution and subversive to the whole theory upon which the Union of these States is founded."

-- Franklin Pierce (1804-1869) U.S. President; source: 1854, he vetoed a bill to help the mentally ill

"I feel obliged to withhold my approval of the plan to indulge in benevolent and charitable sentiment through the appropriation of public funds... I find no warrant for such an appropriation in the Constitution."

-- Grover Cleveland (1837-1908) 22nd & 24th US President
Source: In 1887 when vetoing an appropriation to help drought-stricken counties in Texas