James Buchanan, the Distinction Between Politics and Economics, and the Passage of Obamacare

|Peter Boettke|

In one of Buchanan best known programatic statements --- What Should Economists Do? --- he argues that his purpose was to broaden the scope of economics wide enough to permit the analysis of collective, as well as private, choice and organization.  But in the process he doesn't want to collapse one to the other, or to blur the distinction between the different realms of human interaction.  He does insist on behavioral symmetry as a methodological principle, but that is because it permits the objective examination on institutional/contextual differences.

Buchanan explains the demarcation between politics and economics as follows:

"The distinction to be drawn between economics and politics, as disciplines, lies in the nature of the social relationships among individuals that is examined in each.  Insofar as individuals exchange, trade, as freely-contracting units, the predominant characteristic of their behavior is 'economic.'  And this, of course, extends our range far beyond the ordinary pre-money nexus.  Insofar as individuals meet one another in a relationship of superior-inferior, leader to follower, principal to agent, the predominant characteristic in their behavior is 'political,' stemming, of course, from our everyday usage of the word 'politician.'  Economics is the study of the whole system of exchange relationships. Politics is the study of the whole system of coercive or potentially coercive relationships.  In almost any particular social institution, there are elements of both types of behavior, and it is appropriate that both the economist and the political scientist study such institutions.  What I should stress is the potentiality of exchange in those socio-political institutions that we normally consider to embody primarily coercive or quasi-coercive elements.  To the extent that man has available to him alternatives of action, he meets his associates as, in some sense, an 'equal,' in other words, in a trading relationship.  Only in those situations where pure rent is the sole element in return is the economic relationship wholly replaced by the political." Buchanan CW, Vol. 1, p. 40.

Now given the special deals that were required to get the votes in order to pass the health care bill yesterday, I wonder if it is Buchanan's point about 'pure rent' and 'politics' is what has my pal Steve Horwitz upset in his critique of the process by which this bill was passed, or is it the bad policy point about incentives and consequences on the delivery of health care services, or some combination of both?

-------------------

P.S.: Horwitz has famously argued "Ought does not imply can." And the speech in which Steve makes that argument is among Horwitz's finest in my opinion (he has emerged in his career sort of like the Beatles (not Rush) though with a lot of hits to choose from --- Horwitz is one of the scholars who has really benefited from the web and the blogosphere, as the web gave us access to his teaching where he excels and the blogosphere gave him voice in economic commentary).  But I would argue that we can run the Horwitz sentence the other way as well --- Just because we can, doesn't mean we ought to (or should).  Obama and Pelosi, and crowd, showed that they could in fact pass a bill, that doesn't mean that they should have passed this bill.  I think working through both arguments --- that ought doesn't imply can, and that can doesn't imply ought -- is the stuff that makes for very good political economy.  And I think that is what political economists should do.

Comments

[Steve Horwitz]

Thanks for the kind words Pete. I will just note that I brazenly stole your reversal of the "ought implies can" and worked it into the Freeman version: http://www.thefreemanonline.org/featured/ought-implies-can/

[Steve Horwitz]

And to answer your question: I'm upset about both, but the the earlier post to my colleagues on the left was about process and the "political" in JMB's sense.

[Greg Ransom]

One special deal -- as part of the buyoff of the health insurance industry ObamaCare makes it illegal for "stand alone" companies (one's not offering health insurance) to be in the dental insurance industry.

i.e. it's now illegal for many of the biggest dental insurance businesses to do business.

Remember the crazy Congress Lady going on about the woman with dentures? .. well, ObamaCare just made it more likely that people can't afford dental insurance.

[Bill Stepp]

Quote of the day:

"Spreading the wealth since 1917: Lenin, Stalin, Kim Jong-Il, Obama."

Wall Street Journal, p. A5.

[Barkley Rosser]

Well, since the fascist-nazi-socialist-communist plot to to have the government take over health care in the US is about to succeed, obviously it is time for all red-blooded Americans to plan to move somewhere that has real laissez-faire health care.

One such place is Guatemala, where public spending on health care is barely above 1% of GDP. Rest assured, foreigners will get great care, as only 40% of the population has access to hospitals!

Oh, and another is Guinea, where there the free market part of health care dominates the system, with an excellent supply of witch doctors available for the incoming foreigners!

[James H]

Barkley, obviously the point here is not to capitulate and move to a foreign country, but to resist. Or do you recommend "voting harder" next time? Honestly, I'm mystified by your insistence on this site that the health care bill is no big deal, especially when you don't even know what's in it or what it leaves out (e.g. the "Doc Fix").

If you blanch at terms like fascist, nazi, socialist and communist, then how about "authoritarian"? It surely is that -- and yes, it is a "big deal" insofar as it provides a bureaucratic architecture (the comparative effectiveness boards, centralized computer records, etc.) for full-on, central govt control over health care. This is new, and in my view it's a big deal. Virtually the only thing that will remain "private" about health insurance hereafter will be the profits.

Some people fear rationing (it's in the bill, they just don't call it that), but there's no guarantee that there will be *enough* rationing. Rather than pulling the plug on grandma, we're likely to end up pulling the plug on the bond market. But then, Steve's South Park comparison is apt -- we have no idea which way we're going or how we get there. Pro-Obamacare folks believe that magic will happen. We can all be in agreement that it won't.

[Barkley Rosser]

James,

Obviously I am mocking some of the more public critics who seem to have convinced much of the population with their rhetoric, while recognizing in fact that most here are not walking around believing everything that Glenn Beck says. It is certainly true that I do not know what all is in the health bill with fixes, and hopefully if it turns out that there are some really awful things, they can get fixed sooner rather than later. There are things I would have preferred to see that I believe are not in there, such as tort reform or nationwide rather than statewide health insurance exchanges. It is also too bad if small dental health insurers are shafted, although if that proves to be the worst thing in it, well, that is not exactly the end of western civilization.

I have emphasized on numerous occasions here that this bill really does not alter the health care system of the US. We will not have universal coverage, there is no move to shift our for-profit health insurers to non-profits, there is no increase in state employment of health care workers. What we have is some extension of state intervention and some tweaking of the system, with many of those tweaks looking like good things (many of them designed to offset the awful incentives our unique system of for-profit health insurers generates when unregulated, such as dumping people from coverage when they file for a claim, or the notorious refusing to cover people with pre-existing conditions).

There is some increase in state control, and the element of forcing people to buy insurance is arguably authoritarian, but our system will still have far less state control than any other among the OECD countries. Indeed, the public outcry over this has amounted to wild hysteria.

[Greg Ransom]

Barkley, I need to go somewhere -- because my kids pediatrician is
going Galt .... And Obama is shutting down my wife's business.

[Barkley Rosser]

Greg,

Your wife owns a small dental insurance company? Oh dear. You have my sympathy.

[Greg Ransom]

Barkley -- my wife actually works for a very large firm, but the untold story is that this bill is a power / money struggle between different power players.

I don't know the details, but part of the story "might" be that my wife's firm didn't **** * **** *** ** the right people in what turned out to be the right legislative body.

Klepto-"capitalism"/socialism/fascism isn't pretty ..

I guess the ultimate revenge is to become a Congressman with an Air Force jet for car-pooling your kids -- and exclusive access to the best doctors and medical care taxpayer money can buy.

My apologies in advance for the snark.

[Bill Stepp]

Barkley,

You left out the "historic" change in the tax system. "Unearned" income is going to be taxed for the first time to pay for this. The IRS--It Really Steals--is also going to hire something like 16,000 "workers" thanks to this bit of Bismarkism.

[Greg Ransom]

I don't have a fix, but I'm staring at two canaries in a coal mine -- my kids excellent, experienced and relatively young pediatrician has decided to stop practicing medicine, and the government is deciding whether or not my wife's firm can participate in a business it has been doing for decades.

This is pathological and ultimately lawless -- and all I see is more pathology and lawlessness without end from the political class and its cheerleaders in the New Class.

[FC]

"The element of forcing [economics professors] to buy [lawn tractors] is arguably authoritarian. It is too bad if [economics professors] are shafted, although if that proves to be the worst thing in it, well, that is not exactly the end of western civilization."

Reified that for you.

[FC]

And if payout is certain, then whatever is happening is not insurance. (Hat tip to Arnold Kling.)

[Barkley Rosser]

Greg,

Sorry if your pediatrician is Galting. Is he doiong so because of this bill, which has yet to be finally passed or due to other matters? While a last minute poll had physicians opposing the bill, I have seen polls earlier showing support among them as high as 75%. Most of the ones I know, some of whom are libertarians and almost all of whom are Republicans, have been at least somewhat for it, if worried about particular aspects and details (which it is correct that we do not know fully of). They are not in general fans of our private for-profit health insurance companies, who create mountains of paperwork and hassles for them. Frankly, there is much less of this baloney in other countries, in case you all did not know this.

BTW, I do not know what your Galting pediatrician is upset about, but it will still be the case almost for sure that after tax and insurance income for US physicians will still be the highest in the world, even if it declines somewhat for whatever reason in this bill. I am not all that impressed by any physician quitting for financial reasons, unless he or she got their behinds sued off (and I have consistently supported tort reform). Not impressed.

[Greg Ransom]

Barkley, it's California and he quit a couple months ago -- I haven't yet heard all the details, my sense of it is standard disenchantment with paperwork, MediCal, insurance companies, liability insurance costs, and other costs of doing business in SoCal. My wife read the letter he sent out and told me about it -- and I didn't see it.

[Bill Stepp]

Barkley,

The reason that insurance companies "create mountains of paperwork and hassles for [fill in the blank]" is not because they like wasting shareholders' money on paper and ink, but because they have to do so to comply with a mountain of regulations imposed by each state in which they do business. That means if an insurer wants to offer insurance in each of the 50 states (plus the District of Columbia), it must file 51 mountains of paperwork with 51 regulatory bodies. A friend of mine is an actuary at an insurer and told me lots of gory details. I've also seen evidence with my own eyes housed in the College of Insurance library. Complying with these regs isn't cheap, by the way, and is a cost of doing business that is ultimately paid for by the customers.

And I've read and heard evidence that, although doctors make a decent living, they don't do nearly as well relatively speaking as they did a generation ago, compared to lawyers for example. Most doctors are one- or two-man bands with an office assistant and maybe a nurse practicioner. They run a business that has overhead and other costs just like any other. I'm guessing that on average their operating costs have gone up as a percentage of their revenues more than most other businesses, certainly more than the corner dry cleaner. I can't remember when the one two blocks from me last raised its price for laundering a shirt. My dentist raised her price for a simple teeth cleaning annually three years running. Ouch!

[Roger Koppl]

Isn't financial "reform" a much bigger deal? We're gonna get "reform" that puts unconstrained discretion into the hand of a "council" of state functionaries, who will decide the fate of large financial enterprises. See the discussion over at ThinkMarkets:
http://thinkmarkets.wordpress.com/2010/03/18/dodd-liquidation-panel/

It's all "rule of men" and no "rule of law." The financial system is like the neuronal circuitry of the economy and we are gonna let these guys practice brain surgery without a license. I'm pretty anxious about it.

[Barkley Rosser]

Greg,

Sorry about that. I have heard of physicians of various sorts giving up due to frustration with all the paper work. It is unclear if the new bill will make that better or worse. Suspect that it will probably do both.

Bill,

Median salaries of lawyers is $62,000. A lot do very poorly, while a small number make huge incomes, probably above most doctors. Median salaries for physicians vary from around $130,000 to about $190,000, depending on the specialty. But, they face high insurance costs that reduce the net on that, as well as having a longer time to get to practice than attorneys.

[Bill Stepp]

Barkley,

The figure for lawyers doesn't past the smell test. I found this (the first link I looked at):

In May 2008, the median annual wages of all wage-and-salaried lawyers were $110,590.

See:

http://www.bls.gov/oco/ocos053.htm

And yout statement that doctors practice longer than lawyers can't possibly be right. Law school is three years; medical school is four and that doesn't include a year or so of low-paid residency. Of course, if lawyers do have shorter careers on average, that would point to higher overall earnings and therefore the ability to retire after fewer years of practice.

[Greg Ransom]

In most of Orange County firemen with no college degree retire at age 50 at 100% of a final salary of $100,000-110,000, and sometimes much, much higher.

Why any bright kid in California is going to college instead of joining the fire department I have no idea.

Barkley wrote:

"Median salaries of lawyers is $62,000. A lot do very poorly, while a small number make huge incomes, probably above most doctors. Median salaries for physicians vary from around $130,000 to about $190,000, depending on the specialty. But, they face high insurance costs that reduce the net on that, as well as having a longer time to get to practice than attorneys."

[Barkley Rosser]

Bill,

I wrote it badly but meant to say that it took longer for physicians to get to practice before they could. Did not intend to mislead. Got my numbers from simple googling and am not going to go digging further. However, I would note that there have been articles recently to the effect that getting a law degree is not worth it for most people, with the sorts of numbers I cited being used. Fact is that a lot of lawyers do not do well at all, and the public image is driven by the 10% at the top who do super well.

Despite the longer time it takes to become a physician, I have yet to see any articles saying that it is not monetarily worth it, although there are certainly lots of hassles, which are increasing.

[Barkley Rosser]

BTW, the more serious comparison here is what do our physicians in the US make compared to those in other countries. No other country comes close to matching what ours make.

[Current]

Barkley,

Though it's true that Doctors in the US make a lot more than in other countries I don't think it is that simple.

In highly paid professions people are very reluctant to move around. A move for them and their families involves a great deal of disruption. They must trade off that inconvience against the potential pay-off. That pay-off must be great for it to be worth the bother. The same sort of thing is true for many managers I've met.

It may be that there are many Doctors in Europe who would like to move to the US but they can't because of immigration restrictions or because of occupational licensing problems. It may be that they can't move because they don't understand the administrative side of medicine in the US. This happens within Europe, a French Doctor who moves to Britain has to learn the NHS' methods.

I think it's rather difficult to say if Americans are being ripped-off by their Doctors or not.

[Barkley Rosser]

Current,

But you do not see them "Galting" over paperwork, do you? Now just why is that?

BTW, for the umpteenth time, physicians in France (and quite a few other countries) actually make house calls, which used to happen here in the US. My family had a pediatrician who did so back in the 50s. Not now. It is "efficient" to make lots of sick people drag their sorry asses out of bed to go sit around each other for inordinate amounts of time because the time of their physician is so "valuable." Excuse me while I go puke in a corner (and I have a daughter who is an MD).

[Bill Stepp]

Barkley,

Last year the WSJ had an article about docs who are making the old-time house calls. It actually brought tears to my eyes. "Sniff."
Does your daughter make house calls? I'd like to have her phone# on speed dial!

Seriously though, a point I forgot to mention is dat ol' debil rent seeking. Both docs and lawyers do it, but the latter do it a lot more. Both groups have higher incomes thanks to it, but I doubt more than a very small group of doctors (like so-called "public health" government bureaucrat-MDs) build their careers from it. Lots of lawyers, on the other hand, build careers from rent seeking (think of so-called "intellectual property" lawyers, tax-theft lawyers, estate lawyers, etc. Many legislators are lawyers (how much of a conflict of interest is that?).
I'm guessing more lawyers leave the legal profession for another occupation (like my next door neighbor, who calls himself a recovering lawyer) than doctors abandon the practice of medicine. Why? Maybe they tire of ripping off the public, which would be the legal equivalent of doctors' creating diseases and spreading them among the public.

And here's the quote of the day, from the Vice-President of the United States of America, Joe Biden:

"It's a big f-- deal." WSJ, p. 4.

I like Biden almost as much as I like the memory of Dick Milhous, my second favorite prexy, a classy criminal, and "one of us." You'll want him at your next barbecue.

[Current]

Barkley,

I don't understand exactly what you're saying.

I certainly agree that few doctors are likely to change their profession.

I don't understand your point about house calls.

[Barkley Rosser]

Bill,

I shall simply repeat that I have been and continue to support tort reform. As I said earlier, if the GOP had been willing to deal rather than to play off balconies to ignorant, screaming tea partiers, we might have gotten that, as well as some other elements that would have made this better than it is (and I agree with everyone that we do not know yet fully what is in it, and there may well be some stink bombs that will need serious fixing).

Current,

Maybe a bit off course, but we have had all this moaning and groaning about how doctors are going to quit their jobs. I say, not too likely, given how well paid they are, whatever the ultimate comparison with attorneys is.

A subtext here is that they deserve to be paid so much, and this is somehow efficient because it is somehow part of us having a great and wonderful medical care system. So, quite aside from the matter of backward-bending supply curves of labor (although in fact I think most doctors work pretty hard), there are these odd side effects that so many take for granted that are not in fact good for the public health, and which do not happen in other countries. Thus, one of the reasons the mixed system of France got the top rating from the WHO is that physicians there do make house calls on a regular basis. It is not something fantastic or out of line.

Indeed, I would support, although nobody talked about it in this bill, removing the restrictions on the immigration of physicians that were put into place in the mid-1990s. I do see excessive salaries of doctors as part of the cost problem, along with malpractice insurance, administrative costs of insurance companies deciding not to cover people, and a bunch of other things, some of them addressed in the bill, but, unfortunately, many of them not.

[Current]

Barkley,

I agree with you about the moaning and groaning about quiting jobs. I agree with you about immigration of doctors too.

I disagree about the rest though. Like the British system the French system still suffers from the socialist calculation problems, it will fall apart one day, we only have to wait.

Why is "administrative costs of insurance companies deciding not to cover people" a problem? Surely you don't think everyone should be covered?

[Barkley Rosser]

Current,

And is that not the problem? Why should people who have bad health be condemned to have to pay full cost for their ailments? Are you aware of the high rate of personal bankruptcies that are due to people facing exorbitant medical bills? I think it was for this exact reason that Hayek supported the general idea of social insurance, even if he did so in a fairly vague way and may have backed away from it somewhat in his later thought.

BTW, the French system, along with all those European and Japanese and so on systems, have been in place for a long time. I think the British and Canadian ones are having more serious financial problems, but the more mixed ones seem to be doing pretty well, and I have not seen any of them "fall apart" yet. Do not forget that all of the have much lower costs than does our questionably performing system. Our medical expenditures per year per capita are well in excess of $7,000, while there are no other countries above $5,000, and only three above $4,000: Norway, Luxembourg, and Switzerland. Whose system is (was) more likely to "fall apart"?

[Current]

"Why should people who have bad health be condemned to have to pay full cost for their ailments?"

Are you talking about people who are insured or people who aren't? I agree about people who are insured, the insurance companies should not be able to weedle out of their contracts.

I agree that there are many problems with the American system. However, as Steve and others have pointed out most of those are due to government interference.

Healthcare is no different from any other industry - it is not a "system". It's simply a matter of the Socialist Calculation arguments. Yes, I quite agree some countries have been doing it for a long time, I doubt they will manage it in the next century though.

Also, this spending argument is misunderstood. In Britain, for example, the spending on health was expanded substantially, buy there was very little improvement in services. So, there is little electoral support for future similar spending expansions.

It is also quite contrary to general progress. I know many people who do nothing to generate wealth even though they are quite able, but they are granted free healthcare by the state along with everyone else.

[Greg Ransom]

Friedman explain and showed why doctor salaries are so high in his dissertation ..

Doctors restrict supply of ... Doctors.

[James H]

"Healthcare is no different from any other industry - it is not a 'system'. It's simply a matter of the Socialist Calculation arguments."

Exactly.

All the talk about per-capita spending and so forth implies that "we" (or "they") know what that number should be. But when you spend just a minute or two thinking about all the variables involved, and then consider that people are *still* thinking this way, it's almost as if the calculation debates never happened. (Did they?)

For all of Team Obama's vaunted intelligence, pragmatism and openness to debate, we've seen very little on economic issues. I'm still appalled that Obama himself continues to claim that "no credible" economist believes the stimulus was a bad idea. The lack of intellectual curiosity on these points is reminiscent of the Bush-Cheney regime, only it's decked out in pseudo-intellectual drag.

[Current]

It's also worth mentioning that the percentage of GDP spent on a service probably isn't a very good way of comparing things. The US is quite a lot richer than the European countries. That affects the relative price of good and services. Now, we don't have to hold that the Balassa-Samuelson hypothesis is correct to think that the price of healthcare services need not converge.

[Barkley Rosser]

Greg,

As noted previously, I support loosening of immigration for physicians and medical care workers. This was tightened in the 90s, but was not remotely discussed as part of this reform, unfortunately.

Current and James H.,

Socialist calculation debate? Really, you two have to be kidding. Nothing here involves any nationalization of any part of the health care system, nor will there be any controlling of prices, nor will there be any planning or commanding of how much health care will be provided in any way shape or form. Maybe somewhere in that very long bill there is section mandating the establishment of a Medical Central Planning Board, but so far I have not heard of it. Sorry, but this is just fantasy.

Look, a lot of people here do not like to deal with the reality of the Nordic economies. In many areas of economic management, they are the most libertarian in the world, with very few regulations on property relations and contracts, little nationalization, no central planning, and so on. What they do have are extensive social safety nets and high taxes. But that sort of "socialism" is not central planning and is not subject to the socialist calculation debate and is one of the reasons those economies have not fallen apart, despite the decades-long predictions by many that they will, you know, any minute now.

Regarding the matter of the sources of the problems in the US medical care system, well, some are aggravated by or due to government interference, such as the restrictions on medical workers immigrating or a legal system allowing for huge malpractice awards, and some other items. However, some of the problems we have had have been due to our uniquely unregulated for-profit health insurers, who have had the ability to deny coverage and throw people off, and so on. Do not say they should not be able to do so because of contracts. Their contracts say they can (or could, before this bill). And their administrative costs to figure out to whom they could do this stuff to was most certainly not due to government. It is exactly to overcome such nonsense that at least portions of this bill were needed, even if some will prove to be onerous and unwise.

[Bill Stepp]

Barkley,
Bringing up the socialist calc. debate is quite apt, as it applies to more than just economic calc. in a socialist commonwealth, or whatever Hayek called it. As Rothbard correctly pointed out in _Power and Market: Government and the Economy_, economic calc. is a factor in all investment decisions, including government decisions in a mixed economy. He called economic decision making by government "calculation chaos." Indeed, it applies to a free market--when you make an investment decision, you might do a discounted cash flow analysis. What is that if not economic calculation?
There is a huge gulf between government planners and investors in a market. The former are play acting with other people's money. They are just thugs and criminals, not real investors.

[James H]

Barkley,

I know you mean well, but you pretty much admit you haven't read the bill(s), right? Just for starters, I earnestly suggest you read Title II, Subtitle A, Section 201 and Subtitle C, Sections 221-224 of the House version. See also, Subtitle D, Part I, Section 1301 of the Senate Bill. The Secretary of HHS has enormous power over the provision of insurance in EVERY state in the union, determining what counts as a Qualifying Health Benefits Plan, both in terms of services provided and the costs. The bill also arbitrarily determines that individual plans should not cost more than 5K and family plans should not cost more than 10K. UNLESS, of course, the Secretary determines otherwise. If the socialist calc debate isn't relevant here, then I plainly admit to understanding absolutely nothing about either socialism or economic planning.

And no, they don't call it the Medical Central Planning Board, they call it the Health Benefits Advisory Committee. the Committee is unelected, even, and is about as accountable as the FOMC.

I honestly don't know what you mean by "fantasy." Just because the MSM continues to report, for example, that the CBO has said the bill will reduce the deficit over ten years doesn't mean that it's true. The CBO freely admits that the bill will do so only so long as Congress cuts Medicare and other benefits in the future AND neglects to pass the "Doc Fix." Making such assumptions, of course, is the real "fantasy" here. What I'm saying is, that just because the MSM reports make the bill seem like no big deal, doesn't mean that this is based in reality.

The choices here are either significant rationing of medical services, or insufficient rationing, in which case the debt will balloon even more severely than we already know that it will. It all depends, I guess, on how good the Secretary and the Advisory Board, et al. are at economic calculation.

[Current]

> Socialist calculation debate? Really, you two have to be kidding.
> Nothing here involves any nationalization of any part of the
> health care system

I was talking about the situation in the European states that you are comparing to. The Socialist calculation debate is quite relevant there.

> nor will there be any controlling of prices

Yes there will be. Forcing insurers to give the same prices to people with pre-existing conditions is a price control.

> Look, a lot of people here do not like to deal with the reality
> of the Nordic economies. In many areas of economic management,
> they are the most libertarian in the world, with very few
> regulations on property relations and contracts, little
> nationalization, no central planning, and so on. What they do
> have are extensive social safety nets and high taxes. But that
> sort of "socialism" is not central planning and is not subject
> to the socialist calculation debate and is one of the reasons
> those economies have not fallen apart, despite the decades-long
> predictions by many that they will, you know, any minute now.

I agree that there are many praiseworthy things about the Nordic countries. But, central planning of healthcare remains central planning and suffers from the same problems. Social "safety nets" suffer from many problems as I'm sure you know, as do high taxes. I agree with some policies of the Nordic countries and disagree with others.

> However, some of the problems we have had have been due to our
> uniquely unregulated for-profit health insurers,

"Unregulated"!? I may not live in America, but even I know they are hardly unregulated.

> who have had the ability to deny coverage and throw people off,
> and so on. Do not say they should not be able to do so because
> of contracts. Their contracts say they can

Well if their contracts say they can do this then why are you complaining?

> And their administrative costs to figure out to whom they could
> do this stuff to was most certainly not due to government.

I don't understand what their administrative costs have to do with anything.

[James H]

" > who have had the ability to deny coverage and throw people off,
> and so on. Do not say they should not be able to do so because
> of contracts. Their contracts say they can

Well if their contracts say they can do this then why are you complaining?"

Current, here I differ with a lot of libertarians. How many people know that they can be dropped and exactly for what reasons? Sales reps don't mention everything in the contract, and probably don't know all of the details themselves (much like congressmen who don't know what's in their health care reform bills). If people were aware of the loopholes, they likely wouldn't have entered into the contract (at the same price) in the first place.

I also think we have to be careful here to differentiate between a contract, i.e. a binding written agreement between two consenting parties, and a "contract" in which, because of its excessive length and complexity, one party (the insured) is unwittingly being taken advantage of by another party (the insurer). Such an agreement may be a "contract" for legal purposes, but fraud is often granted legal protection. Elizabeth Warren has made similar arguments about credit card contracts. Caveat emptor, but systematic abuse should be corrected.

Of course, such abuse could easily be fixed outside of a comprehensive govt takeover of the insurance industry, but then, that's not really the motivating factor here, is it?

In a world of "second best," I think that a peremptory prohibition on certain types of fraud is OK, whether we're talking about insurance contracts or credit cards.

[Current]

James H,

I know what you mean about the complexity of medical insurance contracts. I live in Ireland where there is a comparatively poor nationalized health service. Like about half of irish residents I have private medical insurance too.

The contracts those private medical insurance companies produce are complicated. I read my current medical insurance contract and the one from the previous company. In both cases it took many hours and in both cases there were quite a lot of "loopholes".

However, I disagree with the implications you draw from this. Certainly many people will never read the contract from their health insurer. And certainly the health insurers rely on that to insert loopholes. But, that doesn't make the contracts invalid in any way. The customers knows that they haven't read the full contract and can't be familiar with all of its terms. The customer has taken that risk.

I don't think there can be a general principle that says "if one side doesn't fully know what they are agreeing too then the contract is invalid". I bought a flat on leasehold in Britain in 2005. I remember that I didn't send the full contract to the insurance company, because they didn't ask for it. Does this mean the insurance company should be able to claim that it didn't know what it was getting into and invalidate my insurance? Of course not, the insurance company took upon itself the risk of not finding the full facts about what it had agreed to.

I don't even think that it's possible to create a health insurance contract without loopholes. For example, what happens to a person who gets a previously unknown disease? What about new treatments for existing diseases? Even for existing treatment the health insurer can't gaurantee to reimburse any amount of money, they must set limits. I agree that contracts could be a lot clearer than they are and contain fewer deliberate loopholes, but the problem is a fundamental one.

The same problem affects nationalized healthcare too. In Britain the "National Institute for Health and Clinical Excellence" decides which expensive treatments are to be given and to whom. The Health Service Executive do the same in Ireland.

[James H]

Where in Ireland? (Agus an bhfuil an Ghaeilge agat?;-)) I'm there almost every year.

Anyhow, I agree on the general principle. I'm strictly speaking of "second best." In spite of transgressing general principles, it might be good to end abuses like denying coverage for pre-existing conditions like acne. (Did this ever even happen, btw, or is it a myth? I wonder.) Ultimately, I'd much prefer real free markets.

[Barkley Rosser]

Bill,

Given that no part of the medical sector is being nationalized by the federal government, and while James H. might be able to dig up something somewhere in the bill that does, I am not aware of anything in it that involves an increase in federal or state spending or control of investment by any part of the medical sector, it would seem that your remark is utterly irrelevant.

James H.,

You are correct that I have not read either the bill nor I have read the set of fixes to it now being voted on in the Senate. I have already said there may well be some stink bombs in it that will need fixing.

However, what you report amounts to an increase in regulation, not price or quantity setting. The reg here is a price ceiling well above what is being charged currently for the overwhelming majority of plans. Now, of course, if the market price of plans rises above that (which most are not expecting them to, but we do not know), then this would be "price setting." But it is not so far.

Also, it sounds like they are increasing regs to establish some sort of minimum standard for plans. We see this sort of thing done in many sectors of the economy, but this is not the setting of quantities or prices.

So, so far you have not established that this Health Benefits Advisory Committee, or whatever it will be called, has anything approaching the powers of the sorts of entities that were being argued about in the socialist calculation debate. Still irrelevant.

Current,

I do know little about the Irish system, so will not commment. I would say that as a system does become more socialistic, then the socialist calculation debate becomes more relevant. The British system is indeed socialist, with all (or most) health care workers employees of the state. Other systems are far from this, including most of the mixed systems.

Regarding making insurers charge everybody the same, that is extending existing laws againt price discrimination to the medical sector. We have many markets where price discrimination is outlawed, but prices are set by the free market. That still looks like what is going to happen, except for the apparently proposed price ceiling that may come in.

Again, what is coming in in the US is not "central planning" in the sense of setting prices or quantities. It does involve an increase in the level of regulation of the insurance companies, but they will still be less regulated than those in Switzerland, and elsewhere where there are private insurers, such as I gather is true in Ireland, there is a public option, which indeed may be available to everybody, even if it is flawed, as I gather the Irish one is.

Do keep in mind that it is not just that in the US we pay a lot more for health care than any other country for health care outcomes that are far from impressive, we actually pay a higher percentage of our GDP than any other country. If this is not a broken and dysfunctional system, I do not know what is, especially compared to some like the French and the Dutch that appear to function very well by most accounts.

Regarding contracts, well, I think that some things that appear in contracts are simply immoral and should be outlawed.

We have a cost crisis in the US, as I have noted above. Administrative costs of our relatively unregulated for=profit private insurance companies add to those costs. As there is no social need for them, get rid of them.

As it is doubtful that I shall post more on this thread, let me close by noting that there is an important externality aspect here. Probably the greatest restriction of freedom associated with this new bill is the mandate to buy insurance. But this is associated with a decision to spread the risks and costs, and the larger the pool spread upon, the better that is done. Also, to the extent that people get better care if they are insured and are healthier, that is better for everybody. We do not object to quarantines and mass inoculations, usually, and if you are healthier, I am likely to be healthier as well.

[Barkley Rosser]

Oh, here I am again. In that first paragraph I meant to say "increase in spending for investment" not "or."

Also, I note that for many are in effectively monopolistic situations with the insurer for their employment. The new system with the exchanges is supposed to increase choice and competition (might not, of course). One difference between the House and Senate bills was that the House wanted these exchanges to be national, thereby increasing choice and competition more, whereas the greater lobbying power of the insurance companies in the Senate got those to be only at the state level. I am not clear if changing them back to national level exchanges is part of the "fixes" the House did to the Senate bill or not, but I hope so.

[Bill Stepp]

Barkley,

My comment simply pointed out that your statement that socialist calculation is confined to investments that are nationalized is incorrect. You also seem blithely unaware that several firms have stated that the healthcare legislation will increase their costs. It will inevitably affect their investment decisions, which is at the heart of economic calculation.

[Barkley Rosser]

Bill,

And a lot of firms are going to get subsidies for this, especially smaller startups. Hard to say how all that will wash out. As for your first sentence, the incorrectness is on your part. The socialist calculation debate was over the functioning of a centrally planned economy that has nationalized the means of production. If you think otherwise, then you simply have not read the primary literature.

[Steve Horwitz]

Barkley,

Your claim about the SCD is true in a literal sense - that's what the *original* debate was about. But the question of whether the ideas raised in that debate are applicable beyond that context has certainly been part of the extended debate that has gone on since the 1940s. The exchange between Cottrell & Cockshott and myself in the 1990s was not just over nationalized industries but other proposals to use non-market forms of resource allocation. Pete's work on the Soviet Union and Dave P's work on worker-managed systems have all used the ideas from the SCD and then up through Lavoie to make their case.

The SCD did not stop in the 1940s. It has continued on since and what's made it so interesting and fruitful is that it has raised precisely the questions Bill has raised in this thread.

[Current]

James H,

> Where in Ireland?

Limerick. You wouldn't want to come here on holiday, unless you like drinking.

> Anyhow, I agree on the general principle. I'm strictly speaking
> of "second best." In spite of transgressing general principles,
> it might be good to end abuses like denying coverage for
> pre-existing conditions like acne.

I'm not convinced. I fact, I'm puzzled by the whole thing.

People seem to be saying that the only way to get insurers to cover pre-existing conditions is by legal fiat. If that is the case generally then why isn't it like that in Britain or Ireland? We have private health insurance here too and pre-existing conditions can be covered if you pay extra.

Barkley,

> Regarding making insurers charge everybody the same, that is
> extending existing laws againt price discrimination to the
> medical sector. We have many markets where price discrimination
> is outlawed, but prices are set by the free market.

Price discrimination is forcing a company to sell the same service or product at the same price to all customers. Health insurance for a healthy person is not the same service as health insurance for an unhealthy person, they aren't the same product. This law is a price control because it fixes the price of insurance in different cases relative to each other. It may be a relative price control, but it is still a price control.

> It does involve an increase in the level of regulation of the
> insurance companies, but they will still be less regulated than
> those in Switzerland, and elsewhere where there are private
> insurers

Why do you think that those extra regulations will lead to lower prices or better service?

> Do keep in mind that it is not just that in the US we pay a lot
> more for health care than any other country for health care
> outcomes that are far from impressive, we actually pay a higher
> percentage of our GDP than any other country. If this is not a
> broken and dysfunctional system, I do not know what is,
> especially compared to some like the French and the Dutch that
> appear to function very well by most accounts.

That doesn't change anything about economics. Economics tells us that free-markets are a better solution than government intervention. The temporary victories of government intervention (if that's what they are) are of no long-term significance.

The left-wing talking points you mentions don't demonstrate what you think they do. The percentage of GDP that health-care consumes doesn't have the relavance that you attach to it. It isn't a price, it's the outcome of a market process. You ignored that point which I made above. The US can't decide to spend the percentage of GDP that France spend on healthcare and expect to get services as good as those in France under *any* system because the US is richer per capita than France. Call it the Balassa-Samuelson effect or Baumol's cost disease, it comes to the same thing.

The comparison of many statistics for "health outcomes" are also wrong-headed. Those mainly depend on how much regard people have for healthly living, not on the quality of healthcare. Even if percentage of GDP were a price for medical services it's foolish to expect American's to pay the same as the French because of that difference.

> Regarding contracts, well, I think that some things that
> appear in contracts are simply immoral and should be outlawed.

Well, what do you think should be outlawed?

> Administrative costs of our relatively unregulated for=profit
> private insurance companies add to those costs. As there is
> no social need for them, get rid of them.

How are the administrative costs of a private health insurance firm any different from that of any other firm? Surely if they are a social cost then all similar administrative costs are also social costs?

What is the difference that makes the administrative costs of a car insurance company different from that of a health insurance company?

> Also, I note that for many are in effectively monopolistic
> situations with the insurer for their employment.

That's down to the law though. As I understand it in the US the tax situation on employer provided insurance is much better than for personal plans. This has made types of insurance that don't go through employers uneconomic. Note that there is no similar problem elsewhere. In Britain and Ireland the private health insurers generally only deal in personal plans, a company health scheme is a "rebrandings" of a personal plan.

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