How to fix American healthcare

The following is shamelessly copied from The Ultimate Pro-WalMart Article, by Paul Kirklin, at The Ludwig von Mises Institute. Google says I've accessed this article from search results five times since August 14th. :) Today makes the sixth.

We're dealing with insurance problems right now. Our employer-provided insurance doesn't want to pay claims they are obligated by agreement to pay. I'm spending way too much unproductive time researching what they've done and calling them back.

I know that the reason insurance companies can be like this is because of government intervention. YES, insurance companies seek profit, as do all people, including people who complain about "evil, greedy" insurance companies. The difference is that with government help, you can often make profit by exploiting people, but without the mighty sword of government, in a free market, the only way to make sustainable profits is to serve people. If all civil laws related to medical care were repealed, including all laws related to medical insurance, the behavior of insurance companies would improve more than one thousand fold. Of course, a completely different class of more honorable people might be attracted to the industry as the change occurred. :)

Here's the excerpt. Below this paragraph, nothing is my own words:
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Healthcare Benefits

Wal-Mart improves access to healthcare by raising the real incomes of all the millions of people who are its customers or the customers of its competitors, whose prices are lower because of its powerful competition. This allows people to be able to afford healthcare more easily than they otherwise could.

In spite of this fact, another one of the Wal-Mart critics' favorite complaints is that Wal-Mart "reduces access to healthcare." The Wal-Mart critics believe this because Wal-Mart does not offer substantial healthcare benefits to all its employees. Employees who don't have substantial healthcare benefits are often unable to afford healthcare on their own, and thus they are left with little or no access to healthcare. Wal-Mart is blamed for their plight since the company is allegedly capable of offering more healthcare benefits but chooses not to. In part the critics are right; access to healthcare is becoming more problematic, but this is not caused by Wal-Mart or by "corporate greed." It is the result of an irrational healthcare system that causes us all to suffer, including Wal-Mart.
"Wal-Mart has made the system ingenious so its employees don't have to be."

This is not an article on the problems in our healthcare system. So I can only deal with that subject very briefly here. Many people are under the false impression that employers are responsible for the healthcare costs of their employees. The reason that so many people have this misconception is due to government intervention. For several decades, the government has put pressures — mainly powerful tax incentives — on companies to offer healthcare as a fringe-benefit. It has artificially created a system in which it is cheaper for an employer to purchase healthcare for an employee than for that employee to buy healthcare for himself with take-home wages. This has caused healthcare fringe-benefits to become so widespread for so long that most people have forgotten that they are fringe-benefits (i.e., an alternate way to pay wages.) Instead, many people incorrectly believe that healthcare benefits for employees are a moral duty of employers in addition to wages. But healthcare costs are not the responsibility of employers any more than the costs of food or clothing or anything else are.

The disastrous byproduct of healthcare fringe-benefits being offered on such a widespread basis is that healthcare costs have become collectivized. Employers cannot directly pay unlimited amounts for all the healthcare any employee would ever desire, so instead they routinely contribute amounts into employee health "insurance" policies. Employees spend money for healthcare out of giant pools of these contributions. If employees bought healthcare with take-home wages, they would have no reason to collectivize all their healthcare costs in health insurance policies. Many employees would get health insurance for catastrophic events, but not for routine health expenses.

Unfortunately, collectivization turns economic progress on its head. Healthcare is a product of human labor. Just as we can improve our ability to produce all other products through increases in productivity, we can improve our ability to produce healthcare. The same market mechanisms that caused television sets to become increasingly better and more affordable can cause all healthcare to become increasingly better and more affordable. But instead of becoming more and more inexpensive as time goes by, healthcare in our country is becoming more and more expensive, a typical result of collectivization. Since money for healthcare is spent out of giant pools of contributions, for the most part, people don't feel any direct financial effects from their healthcare expenditures. Therefore, an individual has little reason to show any restraint in his healthcare spending, and few people do when they know "insurance is paying for it." Furthermore, there is no limiting force on prices of healthcare. Healthcare providers want prices going up higher and higher without limit, and healthcare buyers who don't feel the direct financial effects of buying healthcare have no reason to exert pressure on providers to keep prices down. Mainly for these reasons, healthcare costs are sharply rising.
"Many people are under the false impression that employers are responsible for the healthcare costs of their employees."

The fundamental problem with access to healthcare in this country has nothing to do with employers who may or may not choose to offer healthcare fringe-benefits in the face of sharply rising healthcare costs. The fundamental problem is: healthcare costs are sharply rising.

As healthcare costs rise, it will become increasingly difficult for companies and individuals to afford, and paying for it will become more of a drag on the rest of the economic system. The sensible solution is not to pressure companies like Wal-Mart to attempt to clean up the government's mess by dumping more and more money into the bottomless pit of healthcare collectivization as it gets more expensive. The sensible solution is to eliminate healthcare collectivization altogether, the cause of sharply rising healthcare costs. We must get the government out of healthcare, and we must expose as false the idea that employers have a moral duty to provide for their employees' healthcare costs. In the absence of government pressure, healthcare collectivization would end. Healthcare fringe-benefits would be dramatically reduced, take-home wages would increase, health insurance would be used primarily for catastrophic events, and most people would buy healthcare with take-home wages just as they buy almost everything else with take-home wages. Most importantly, the healthcare industry would get back on a path of economic progress, and healthcare would become increasingly better and more affordable for everyone as time went by.

Misimpressions about pollution

Problem: "people wrongly believe that the world is dirtier and less healthy today than in the past."
Problem: "they blame capitalism."

Reality: "the free market is the greatest cleanser and disinfectant of the environment — the most successful pollution fighter that the world has ever known."

Free exchange: why capitalism works

Most people have the idea that when you buy something, you pay (or should pay) an amount of "money" that is "worth" the same as the value of the item purchased. Actually, this is not true.

When somebody buys something, they are giving an amount of money that is, to them, worth less than the item they are buying. However, from the seller's viewpoint, the situation is reversed: he is accepting an amount of money that is worth more (to him) than the item sold.

If this were not true, nobody would ever sell anything. People sell things to earn wealth. Therefore, people sell things for prices that are higher than the worth, to them, of the product they are selling.

Value is actually a subjective thing. An evening watching Monday night football with the guys might be worth a lot to most American fathers and husbands, but it's worth zilch to me because I hate football. (Actually, if there were wings and pizza involved, it wouldn't be worth zilch to me, but it would still be worth less than an evening watching Star Wars with my wife and kids. Or my in-laws, for that matter. With pizza.) The worth of a particular item, service, or experience to you is a very unique thing, because God made you a unique individual. It's not worth the same to you as it is to anyone else in the world, although with prices we get an idea of the average worth of something to society. Tickets to that said Monday night football game might be pretty expensive, because it is worth a lot to most people, even though it is worth nothing to me.

So, if you purchase a pencil for, say, 10 cents, it may be that the pencil is actually worth 12 cents to you, while it's worth only, say, 5 cents to the seller. (He doesn't need a pencil as badly as you. He has plenty.) The price of that pencil is going to be set by supply and demand, which is the accumulation of literally millions of buying and selling decisions across society. If a pencil is worth 12 cents to you, but is worth 50 cents to the seller (suppose it costs 40 cents to make and he needs to make 10 cents per pencil sold or else he could be making more money flipping burgers, in which case he'll give up his pencil selling career and go flip burgers) then no sale of the pencil will take place, to you. (Of course, if the rest of society feels that pencils are worth 90 cents, they are going to flock to this guy and he is going to sell a lot of pencils. This is how football teams continue to earn money despite the extreme drawback that I am not interested in football.)

But in the situation where you and the seller agreed on the price of 10 cents, something wondrous has occurred: you have parted with 10 cents, and gained something worth 12 cents. Your wealth has just gone up by two cents. (Yes, that's not very significant, but it might be if we were talking about beachfront property in Florida instead of pencils.) Meanwhile, the seller has parted with something worth 5 cents, and gained 10 cents. Therefore, his wealth has just gone up by 5 cents. Together, the two of you have 7 cents more of wealth to use. And use it you will. You're going to use that pencil to write something that has some value to you (maybe a grocery list, or maybe a bestseller novel). The seller's going to use those cents to buy something of value to him (maybe groceries). The fact is that, as a result of what the two of you just did, society on the whole has gained seven cents of wealth.

Every time people voluntarily exchange goods, services, and/or money, it is because both of them are gaining in wealth (value). And therefore, every time such free exchanges happen, society gains in total wealth. Civilization advances. When such free exchanges are going on at a rapid pace, we are all blessed. We have what we describe as a "healthy economy."

But suppose a gangster comes through and threatens to shoot anybody who sells pencils for more than 5 cents. Hopefully that doesn't happen in your neighborhood, so let's use a more realistic example: suppose people realize that pencils are worth only 5 cents to the seller, and they get mad about the seller who is "exploiting" people by selling his pencils for "jacked up" prices. They vote and pass a law that pencils may not be sold for more than 5 cents, on the principle that a higher price is "unfair."

Interestingly enough, though the motivations are completely different, the economic effects are the same: if the seller can't get more than 5 cents for his pencils, he has no point in selling them. He has to support his family (or even just himself), so he quits selling pencils and starts doing something else like flipping burgers or painting houses. Suddenly there are less sellers of pencils and less pencils available. This maximum price has caused a shortage. In fact, maximum prices always cause a shortage. This is true whether or not the people who imposed the maximum price are gangsters, kings, or voters with pure motives. (There's really not much of a difference, and all three are disobeying God, and society suffers because of their disobedience.)

Suppose people get mad about the shortage and pass a law that pencil sellers may not go out of business. Now the pencil seller has become a slave of society (which is wrong) because he has lost his freedom. Moreover, every time he sells a pencil, he is taking a loss. Why? Because in selling that pencil, he's not just giving up the 5 cent pencil, he's also spending time, money, and effort to sell it. That time, money, and effort has a value, which means he's giving up more than 5 cents of value with every sale. Instead of gaining wealth, he is losing wealth. And instead of gaining wealth, society is now losing it, and instead of advancing, civilization is now running backward. Thanks to the helpful king who imposed the minimum price. Or the voters who think that voting entitles them to do anything a king could, and still call it freedom.

Free exchange results in wealth creation and advancement for all of society. Forced exchange, exchange that has been interfered with in some way, whether through making somebody buy or sell something at gunpoint, or through setting maximum or minimum prices, or anything else that interferes with private property rights, results in a loss to one or both parties in the exchange, as well as society.

(This has interesting consequences if you think about labor as a service and wages as the price paid for that service and think through what happens when people set maximum or minimum prices for it. Remember, people may have good intentions but still cause bad consequences.)

God said "thou shalt not steal." That means other people own their property, and it's not yours. You don't have a say in it. You're not even supposed to covet it. If God told you not to steal, why are you ever telling people what they can and cannot do with their property (including what they can and cannot sell it for) as if you owned it? God dictated this about ownership: "While it remained unsold, did it not remain your own? And after it was sold, was [the purchase price] not under your control?" (Acts 5:4)

God commanded "You shall do no wrong in judgment, in measurement of weight, or capacity. You shall have just balances, just weights, a just ephah, and a just hin: I am the Lord your God, who brought you out from the land of Egypt. You shall thus observe all My statutes, and all My ordinances, and do them: I am the Lord." (Leviticus 19:35-37) When we let the free market function (which God ordained by instituting private property), we all collectively function as a giant distributed supercomputer, which computes appropriate prices to maximize society's wealth. When people start setting rules for other people about what prices they can and cannot set for their property, however, this computation is frustrated. The measurement cannot occur. We set the balances off. And amazingly, God has so written His Law into the fabric of the universe that, if we try to do this as a society, we as a society suffer. How just of the Just One!

If we would have faith enough to follow God's law instead of trusting our own poor judgment, we wouldn't try to exert this kind of power of other people, and we would all be blessed.

Prices

In an earlier post, I explained how God commands us to respect the principle of private property and forbids us to make laws that take away from some people to give to other people. In short, God commands us not to covet. Covetousness, however, is now all the rage in trying to set policy and judge disputes. Considering that God condemned this as far back as the Old Testament (Exodus 23:2-3), it seems to have been all the rage for a very long time.

When we respect private property and free trade, we human beings in the free market function as a gigantic distributed supercomputer which calculates the relative worth of items to society as a whole. When the free market is interfered with, this calculation cannot be performed, and no central authority can calculate it on their own. This is why socialism/communism can never work. (Contrary to myth, socialism does not work on paper. Ludwig von Mises proved in the early twentieth century that socialism simply cannot compute.)

Thus, if we respect God's free market, this marvelous creation, prices will be automatically set where they are most needed. But some people complain that the free market results in some people making unfair profits. They paint these people as wicked and greedy "profiteers." What they are really doing is appealing to covetousness, but they would never admit that. Since we Christians are supposed to be eradicating covetousness in our flesh (Colossians 3:5), we should be less and less susceptible to this kind of manipulation.

In a free market, profits are made by serving felt needs. The better you serve the needs of society, the better your profits will be. Capitalism is the only system that rewards man proportionately for serving his fellow man -- and this should not surprise us, since it is God's system. (Of course, if you have somebody stealing or competing unfairly, you do not have a free market. But 99% of the time, people accomplish this stealing or unfair competition through collusion with the government. For example, American sugar producers are competing unfairly against international sugar producers by colluding with the government, which cooperates by passing an import tariff on sugar. As a result, I can't buy a Dr Pepper made from cane sugar instead of high fructose corn syrup without paying through the nose. Meanwhile, the sugar producers and the corn syrup producers are both reaping the great profits that come from having mafia-like protection of their business and "territory." When you have this going on in a market, the proper name is "mercantilism," but unfortunately many people think that this cooperation between government and business is what is meant by "capitalism," leading to a bad name for capitalism.)

In a free market, if a seller tries to set prices too high (which means beyond what the product or service is worth), the market will reject the prices. The seller will punish only himself; there will be no need to pass a law against him or fine him. Consumers will go elsewhere: to a competing seller of the product or service, or to a substitute for the product or service. If there is no other seller, and the market is actually willing to pay the high price asked, the "outrageous" profits available in this one industry will function as an economic signal that results in additional entrepreneurs being attracted to the industry. Additional sellers in an industry mean the prices will quickly fall to where the free market actually values them. In this way, the free market and entrepreneurs serve all of us, and the entrepreneurs are rewarded for detecting and fixing an instance of overpricing. Of course, the biggest barrier to new entrepreneurs entering a market is government.

In times of emergencies, it is imperative that prices rise. Certain items are going to suddenly be in very, very high demand. If prices rise, the market will allocate these items accordingly. If somebody tries to hold the prices down, however, shortages will always result. The market correctly calculates that in an emergency, gasoline, first-aid kits, and generators are suddenly much much more valuable, while speedboats, video games, and Christmas trees are worth relatively less than they were before. God set it up this way. If we try to interfere with it, we will cause problems.

Many people were angry at "price gougers" selling gasoline at "unfair prices" after disasters such as the September 11 attacks and the Katrina hurricane. At root, this is covetousness: wanting something which is not yours and being mad that the owner will not give it to you for less than it is worth. It should be condemned from the pulpit as such. Economically, these people are gravely mistaken, because in these disasters the value of gasoline momentarily rose sky high. It is simply not possible that a gas station can provide all the gasoline people want in an emergency. The rising prices result in people rationing their gasoline: rather than buying enough to travel to their preferred destination, they travel to a closer evacuation point instead and leave some gasoline for everybody else to escape as well. This means less gasoline is wasted and more people are saved in the emergency. No government rationing scheme can come close to the performance of the God-ordained free market in this regard. As Walter Williams says, "Rising prices get people to voluntarily economize on goods and services rendered scarcer by the disaster." And "not allowing the market mechanism to allocate suddenly scarce resources produces the inferior outcome." (Please go read those two articles. They are spectacular.)

Rising prices in this kind of a situation also function as an economic signal to entrepreneurs and investors to bring more of the item affected by the shortage into the market as soon as possible (and definitely faster than your government will do it). By interfering with such rising prices, we kill the potential reward that exists for the people who might be able to do something about the shortages.

And again, in such a situation, if a seller overprices, he will punish only himself, because people will buy elsewhere. As it is, if the market is free (not interfered with by the criminal activity of violating private property, which may be performed by government or others), the seller will be rewarded for doing the best thing to serve the people: raising his prices. And this is good, because if the seller is a Godly man, he needs to be obeying commands of God like "if anyone does not provide for his own, and especially for those of his household, he has denied the faith, and is worse than an unbeliever" (I Timothy 5:8). In a disaster, the gas station owner may not know when he will next receive a shipment of gasoline, and therefore he may not know how he is going to provide for his family tomorrow. He has an obligation laid upon him by the Lord God to do the best he can on that presumed last day of gasoline to earn as much as he can in order to provide for his family. Don't covet his gasoline, and don't begrudge him doing the right thing for all of us.