Posted tagged ‘Incentives Matter’

Lets Look At Government Run Health Care

August 4, 2016

doctor with stethoscope isolated on white background

In this article from economicpolicyjournal titled, An Obamacare Designer Confesses: “How I Was Wrong About Obamacare”, we get to look into the mind of a bureaucratic central planner. Dr. Bob Kocher advised the President on Obamacare. In the article he said, “I was deeply committed to developing the best health-care reform we could to expand coverage, improve quality and bring down costs.

Central planners think they can ignore the laws of economics by simple decree. Economic forces don’t listen to planners. These forces are consistently working trying to correct the plans of planners. How could the Dr. think you could expand coverage, improve quality and bring down costs? Increasing demand without increasing supply makes it impossible to lower costs. It’s simple economics.

THE ANSWER IS MORE CENTRAL PLANNING

Excerpt from the article: “Dr. Kocher, admits that he and the other central planners did not understand the market correctly. Despite Obamacare doing everything possible to push medical care in the direction of mega-operations, the small operators have proven to be most efficient and with the best quality service.

So what is Dr. Kocher’s remedy to the problem? More central planning of the sector that is working. Excerpt from the article: “The man doesn’t get it. The hampered by regulation free market out did his planned medical care but instead of rejecting central planning of healthcare altogether and allow care to develop on its own on a free market, he wants to use a failed methodology, central planning, and apply it to the one sector that is succeeding because it has been free of such planning, with all sorts of new micromanaging of small providers.

The Doctor is essentially telling his patient, the remedy for your concussion is to allow yourself to get hit in the head harder.

ANOTHER ONE BITES THE DUST

Who would have thought that when health insurance companies started to sell a product that was not insurance they would go bust? Obamacare wasn’t meant to succeed, it was meant to fail. Politicians figured insurance companies would get blamed which would pave the way for a Government single payer healthcare system.

In this article, Aetna Latest Insurer To Question Obamacare’s Future, we see the consequences of calling something insurance when it isn’t. Aetna will show a $3oo million loss this year on its Obamacare business. Economics tells us losses are bad and profits are good. These sustained losses tell the business owner his business isn’t viable. He should cut his losses and move on to something else. Profits tell the business owner that people value his activity and it should be continued.

Health insurance companies loosing money in Obamacare means the activity should be discontinued in order to stop wasting of resources. It’s that simple.

LETS LOOK AT THE CENTRALLY PLANNED V.A. HEALTHCARE  SYSTEM

Two years ago Obama got rid of General Eric Shinseky as Secretary of Veterans Affairs. Bob McDonald replaced him. Problem solved, let’s move on to the next problem. Unfortunately they didn’t change the incentives the new Secretary had to make decisions under. If incentives didn’t change, the results won’t change.

Read this article titled, V.A. Spent Millions On Costly Art As Veterans Waited For Care. This headline doesn’t surprise us because we understand “incentives matter”. The underlying incentive for every government agency is to expand its power. Government agencies shouldn’t be judge by the goals they wish to achieve. They have to be judged by the results they produce.

When Senator Joni Ernst offered an amendment to the Military Construction and Veterans Affairs and Related Agencies Appropriations Act (this makes a terrible acronym MCAVARAAA) to specifically prohibit funding for art work (click on article here), it wasn’t even taken up, let alone adopted. This went down to defeat with a Republican controlled Senate!

The V.A. is an example of government run healthcare that has been around longer than Obamacare. If our Republican politicians won’t even change the incentives for something this obvious, what makes us think they will change or repeal Obamcare if they control the House, the Senate and the Presidency?

 

Related Article – Incentives Matter, at austrianaddict.com.

Related ArticleThe Economics of Healthcare vs. The Right to Healthcare, at austrianaddict.com.

Related ArticleThe Reality Of Obamacare, Socialism in Installments,  at austrianaddict.com.

Must Reads For The Week 7/30/16

July 30, 2016

The FBI Is Using Lousy Software To Derail FOIA Requests, Law Suit Claims, at wired.com. Government agencies are never happy to comply with Freedom Of Information Act requests. They use many tactics to slow down the process of turning over the information that is requested. The FBI is being charged with using outdated software system to slow down the search process. Does the FBI use outdated technology to find information about citizens? No chance. They only use the outdated technology to protect themselves. The incentive to protect their status quo position and/or make their agencies power grow is the most important incentive for individuals in government. Being a “public servant” doesn’t over ride this incentive.

The Arrogance Of One-Party Government In California, by Thomas Lifson, at americanthinker.com. From the article: “The California Senate voted 28-8 to exempt itself form gun-control laws that apply to the rest of the populace. They are worthy to pack heat for personal protection, and the masses must wait for the police.” Another example of “public servants” exempting themselves from the rules we serfs have to follow. These politicians have no incentive to act differently. Why? because there is no fear of loosing their elected position. The Democrat party wins every election in California. Republicans don’t gloat. If you had been in power as long as the Democrats have, you would be exempting yourself from your own laws. Incentives matter!

Democrats Are Really Worried That You Can’t Afford Pokemon Go, at thelibertarianrepublic.com. This is our fault! There would be no incentive for politicians to do things like this if ‘we the people’ wouldn’t accept property stolen from our fellow citizens. They want more power! Don’t be an enabler!

Hillary Clinton Complains About Being Held To A Higher Standard Than Everyone Else, at michellmalkin.com. This could be a headline from the Onion. Higher standard! She couldn’t dig a tunnel deep enough to get under the standard for her behavior.

Harry Reid: Trump Should Receive Fake Intelligence Briefings. He Can’t Be Trusted, at businessinsider.com. Hillary is the one that put classified information in danger of being hacked when she conducted State Department business on her private email server. This act alone would keep her form getting a top secret security clearance if she was one of us. But remember, she is held to a “higher” standard than everyone else.

Trump Just Got Hillary To Admit Her E-Mails Are A National Security Issue, by Sean Davis, at thefederalist.com. If the DNC emails were hacked, why would anyone think Hillary’s server wasn’t hacked? If Russia or some other country has Hillary’ emails, do you think they will use them to blackmail her if she becomes President? Or do you think they will use them to try to torpedo her candidacy? Does the answer to these last two questions depend on the RNC or Trumps electronic communications having been hacked by a foreign country? Remember when the people said Bill Clinton’s affairs put the country at risk because of the possibility he could be blackmailed were thought to be stupid? Why would we place any amount of trust in people who have power over us?

Is Wikileaks Dismantling Of DNC An Attack By Putin And Russia? by John Schindler, at observer.com. Does it matter if it was Russia? You Decide.

Guns: How The NY Times Manipulates Data, by Ryan McMaken, at mises.org. Is anyone shocked that data is manipulated or cherry picked to fit a certain vision?

Undercover Video: Hillary Delegate Explains Her Deceptive Propaganda To Ban Guns, at freedomoutpost.com. An article for my anti gun friends who think I’m crazy for thinking the left wants to ban guns. When they ask me why people, like me, don’t want “common sense” gun laws. I tell them for the same reason the left doesn’t want any “common sense” law restricting abortion. Once the camel gets its nose under the tent, there is no stopping it.

The Consequences Of Militarized Police Force, by Ryan McMaken, at mises.org. Could a free market policing system possible work in place of our present state-run police system? Interesting article which looks at where our current system is and where it could end up.

What Happens When Cops Start Getting Shot?, at zerohedge.com. This article will make you think. Don’t read it unless you are ready to invest some brain power.

CARTOONS

Solutions To California’s Drought: Government Fines, or Market Prices.

July 24, 2014

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California’s water shortage due to the drought is being dealt with in typical interventionist fashion. The Government wouldn’t even consider how the free market deals with scarcity. Murray Rothbard wrote about a water shortage that occurred in 1977 in northern California in this article titled, The Water Shortage, (at economicpolicyjournal.com). Time has passed since this was written but the economic principles are as true today as they were in 1977.

FREE MARKET vs. CENTRAL PLANNING

When Government is the supplier a good, whether it’s water, electricity, or healthcare, the first thing that happens when there is a shortage is they blame the consumer for using too much. When electrical use is high during the summer, suppliers always warn consumers to use less electricity because of the strain on the system. Rolling black outs may come into play if use outstrips the ability to supply enough electricity. I’ve always wondered why producers of electricity are always trying to get consumers to use less of their product, even to the point of giving them energy efficient light bulbs. In the free market, producers use advertising to try to increase demand for their product.

The first rule of economics is scarcity. What we desire is greater than the means available to fulfill this desire. These scarce goods have to be rationed one way or another. If there were no scarcity, there would be no need to economize on any good. Prices ration scarce resources in the free market. Bureaucrats and planning boards ration scarce resources in a centrally planned system.

ROTHBARD EXPLAINS SCARCITY, SHORTAGE, RATIONING

I’m going to let Rothbard take it from here because he is way better than me at explaining scarcity, shortages, rationing, prices, and supply and demand. Her are some excerpts from the 1977 article.

“….northern California, has been suffering from a year-long drought, ……. government must leap in to combat it—not, of course, by creating more water, but by mucking up the distribution of the greater scarcity.”

“…. on the free market, regardless of the stringency of supply, there is never any “shortage”, that is, there is never a condition where a purchaser cannot find supplies available at the market price. On the free market, there is always enough supply available to satisfy demand. The clearing mechanism is fluctuations in price. If, for example, there is an orange blight, and the supply of oranges declines, there is then an increasing scarcity of oranges, and the scarcity, is “rationed” voluntarily to the purchasers by the uncoerced rise in price, a rise sufficient to equalize supply and demand. If, on the other hand, there is an improvement in the orange crop, the supply increases, oranges are relatively less scarce, and the price of oranges falls consumers are induced to purchase the increased supply.”

“Note that all goods and services are scarce, and the progress of the economy consists in rendering them relatively less scarce, so that their prices decline. Of course, some goods can never increase in supply. The supply of Rembrandts, for example, is exceedingly scarce, and can never be increased—barring the arrival of a Perfect Forger. The price of Rembrandts is high, of course, but no one has ever complained about a “Rembrandt shortage.” They have not, because the price of Rembrandts is allowed to fluctuate freely without interference from the iron hand of government.”

“If the water industry were free and competitive, the response to a drought would be very simple: water would rise in price. There would be griping about the increase in water prices, no doubt, but there would be no “shortage”, and no need or call for the usual baggage of patriotic hoopla, calls for conservation, altruistic pleas for sacrifice to the common good, and all the rest. But, of course, the water industry is scarcely free; on the contrary, water is almost everywhere in the U.S. the product and service of a governmental monopoly.”

“When the drought hit northern California, raising the price of water to the full extent would have been unthinkable; accusations would have been hurled of oppressing the poor, of selfishness, and all the rest. The result has been a crazy-quilt patchwork of compulsory water rationing, accompanied by a rash of patrioteering ecological exhortation: “Conserve! Conserve! Don’t water your lawns! Shower with a friend! Don’t flush the toilet!”

“…. local ecologists and statists got into the act. They groused that the over-conservation had induced people not to water their lawns, which led to the “visual pollution” “unsightly” lawns…..”

“…. wouldn’t the poor be hurt by the water district raising its water prices? …No….the poor are not being hurt by the higher price because, being forced to cut their consumption, their total bill has not increased. Thus, a price rise by a private firm is always selfish and oppressive of poor people; but when a monopoly governmental agency increases its price, the poor do not suffer at all, since if they cut their purchases sufficiently in response to the higher price, their total dollar payments will not increase. It is this sort of nonsense that our statists and busybodies are now being reduced to.”

NOTHING HAS CHANGED

In the present drought situation, central planners are trying the same failed responses to the problem, while free market solutions siton the sideline waiting for their chance to prove they are better than these “first string solutions” of the central planners. Remember, there is no solution to scarcity, just a better or worse way of dealing with it.

This article, California City Will Fine Couple $500 For Not Watering Lawn, State Will Fine Them $500 If They Do, by Mary Beth Quirk, at consumerist.com, shows that central planners have not gotten any smarter in 35 years. They are true believers in their central planning religion, and no amount of conflicting incentives or failures will convert them.

The market is always trying to correct perverse incentives created by central planners. It will come up with alternatives to paying the fines, as shown in this article, Spray-Painting Your Grass Green Is One Way To Avoid “Brown Lawn Fees“, by Mary Beth Quick, at consumerist.com. The shame of it is there would have been no need for this lawn spray-painting business in a true free market. It only became viable because of Government planning. The labor, capital, and resources used to keep from getting fined, could have been used in more productive ways satisfying true free market demand. If the price would have been allowed to go up to ration water, each person could have decided how much to use at the higher price, allowing them to use their money for other things than complying with green lawn laws. This is a version of the broken window fallacy, read here, Hurricane Sandy And The Broken Window Fallacy.

Understanding some basic economic principles will give us enough knowledge to confidently argue against the political “solutions” bureaucratic central planners come up with in dealing with the first rule of economics; scarcity.

Related ArticleIncentives Matter, at austrianaddict.com.

Related ArticleThe Reality Of Obamacare, at austrianaddict.com.

Related ArticleMilton Friedman on Market Failure vs. Government Failure. Which Has a Higher Cost? at austrianaddict.com.

 

Incentives Matter

May 29, 2014

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The recent revelations about VA hospitals shouldn’t surprise anyone. This problem isn’t peculiar to the VA, it’s systemic in all bureaucracies. The track record of central planning is less than stellar, whether It’s government intervention in a  free market economy like the U.S., or central planning in a communist economy like the former Soviet Union. Both systems create bureaucracies that have their own incentives under which the individuals inside these bureaucracies make decisions. We can’t look at bureaucracies from the stand point of how a business operates in the free market, because the incentive structure is totally different. We might think that these bureaucrats are not acting the way we would act, if we were in their position Don’t be too quick to judge, these bureaucrats are acting exactly how they should act if you consider the incentives they operate under. In a free market, prices ration scarce goods and services, and also pass knowledge to individuals and businesses. The incentives and constraints transmitted through the market, are totally different from the incentives and constraints transmitted to bureaucracies by politicians and administrators. In the market the incentive is to provide what the consumer wants which means you first must give before you receive. A bureaucracy is a monopoly on a particular service, which means the person using the service is an annoyance rather than someone who has to be pleased. In a free market the consumer can go somewhere else if he is not satisfied. At the DMV the consumer has no other place to go to get the service. In the case of the U.S. Postal Service, consumers are choosing better options for communicating and shipping packages, and the U.S. Post Office doesn’t care because it’s getting propped up by yours and my tax dollars.

PROBLEM SOLVING

Firing Eric Shinseki and replacing him with a better “angel” won’t solve the problem, {if the problem is making sure the veterans are being taken care of}, because the incentive structure will remain the same. If the problem is trying to find political cover, than firing him will help in solve the “political” problem, at the expense of veterans lives. Watch and see if the administration fires Shinseki and then claims the problem is being take care of. Remember Guantanamo Bay detention center in Cuba is still open today even though the President said during and after the campaign in 08, that he was going to close it, so we know political talk and actions are responses to political incentives.

CREATING INCENTIVES

Here are a few examples of Governments creating incentives that individuals respond to.

I will quote from Thomas Sowell’s book Basic Ecomomics. “During the Stalin era in the Soviet Union, there was a severe shortage of mining equipment, but the manager of an enterprise producing such machines kept them in storage after they were produced, rather than sending them out to the mines. The reason was that the official orders called for these machines to be painted with red, oil-resistant paint and the producer had on hand only green, oil-resistant paint and red varnish that was not oil-resistant. Disobeying official orders in any respect was a serious offense and “I don’t want to get eight years,” the manager said. When the manager appealed to a higher official to use the green, oil-resistant paint, this official’s reaction was “Well, I don’t want to get eight years either.” ….None of these people were behaving irrationally. They were responding quite rationally to the incentives and constraints of the system in which they worked. “

Remember the Deepwater Horizen oil drilling rig that exploded and spilled oil into the Gulf of Mexico in 2010. Well here is what you need to know about the incentives that government created to push oil drilling farther out in the gulf. I will quote from this article Bashing BP at mises.org. “In 1995, President Bill Clinton signed into law the Deepwater Royalty Relief Act (DWRRA), which was “intended to encourage natural-gas and oil development in the Gulf of Mexico in waters at least 200 meters (656 feet) deep by offering royalty relief on qualifying natural gas and oil lease sales.” This act has since expired, but there remain continued incentives for drilling in deep water.”

“In other words, the government specifically passed laws that gave the oil companies incentives to drill far offshore — that is, in deeper water where risk is presumably higher. In addition to the higher risk of accidents, the cost of solving any problems are necessarily greater in five thousand feet of water than in, say, 250 feet of water…..Who could blame a company for trying to achieve a minimum relief volume, which would guarantee billions of dollars in royalty-free sales of petroleum and natural gas?”

“Additionally, a liability cap of $75 million for the oil companies was put in place by law. This is an incredible use of the control of the political means to make favorable dealings for oneself in the economy.[1] In fact, it is the very definition of corporatism: First, individuals within a company work to get laws passed to reward companies for taking risks previously deemed unworthy of the time, energy, and capital expenditures. Then, those same individuals within the company work to get other laws passed to limit liability when things go wrong.”

CONCLUSION

The VA is a totally Government run healthcare system. Considering it treats veterans, it is relatively small compared to the amount of people Obamacare will affect. Since Government can’t manage the VA’s small sample size; how is it going to handle the amount of people in Obamacare? The short answer is, it can’t, and here are the two main reasons why.

The first is you can’t legislate abundance into existence. The first rule of economics is scarcity. We live in a world governed by scarcity and health care is not immune from this rule, no matter how much politicians want to legislate it out of existence. Scarcity means that healthcare has to be rationed in one of three ways, by prices in a free market, by fighting each other for the scarce good in a lawless society, or by an administrator or a board in a government-run system. If healthcare existed in abundance, it would not be an economic good and therefore would not have to be economised.

This reality of scarcity leads to very different incentives and constraints being created in a free market, a hampered market, or in a centrally planned socialist economy. People are self-interested individuals and will respond to the incentives and constraints created by each economic system. The consumer is sovereign in a free market system, and bureaucrats and their rules are sovereign in a centrally planned system. Think of the 2500 pages of rules in the Obamacare bill, and the 300 plus million individual citizens it is supposed to cover and ask yourself; will it work? If the end sought is to provide quality healthcare the answer is no. If the end sought is to prop up and grow government. The answer is yes. Always look for the incentives and ask; how will a self interested person respond?

Related ArticleCentral Planners Don’t See The Consequences Of Their Actions. Or Do They? at austrianaddict.com

Related ArticleHuman Action Reveals The Reality About Political Decisions, by austrianaddict.com.

 

 

 

 

 

 

 

 

What Is Seen And What Is Not Seen.

May 15, 2014

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Frederic Bastiat was an economist in France during the mid 1800’s. His essay, That Which Is Seed and That Which Is Not Seen, starts like this: “In the economy, an act, a habit, an institution, a law, gives birth not only to an effect, but to a series of effects. Of these effects, the first only is immediate; it manifests itself simultaneously with its cause – it is seen. The others unfold in succession – they are not seen: it is well for us if they are foreseen. Between a good economist and a bad economist this constitutes the whole difference……the bad economist pursues a small present good, which will be followed by a great evil to come, while the true economist pursues a great good to come, at the risk of a small present evil.”

SEEN AND UNSEEN CONSEQUENCES OF FOOD STAMPS

I read this article titled, American Dependency (And The Third Day Of The Month Effect), by Rory of  The Daily Coin at zerohedge.com, about the growing number of people, {almost 50 million} on food stamps, and Bastiats essay immediately came to mind. What is seen is the supposed benevolence of politicians and bureaucrats helping hungry people get food for their survival. What is not seen is the abuse of the system by people who don’t need assistance but take it any way, and also what happens on the retail, whole sale, and administrative side of this equation.

Must See Video!

UNSEEN INCENTIVES FOR THE CONSUMER AND PRODUCER

Under this program people who qualify are able to use their debit card to purchase things other than food, like cigarettes, booze, and lottery tickets. They can also sell these cards for cash to fund other purchases. People who qualify for the food stamps, but don’t need them, can use the money they would have spent on food every month to purchase anything they want. The woman in the video paid $9,000 for breast implants while she was getting $700 a month in food stamps.

Grocery stores and convenient stores are benefiting because of the increase in sales brought about by the food stamp program. The Snack Food Association, and the American Beverage Association represent whole sale companies like Coke, Frito Lay, Pepsi, Sunny Delite, and Nestle to name a few. These associations lobby Government for the food stamp program to offer as many choices to the consumer as possible, which of course means these companies products. JP Morgan Chase makes millions being the administrator of the debit cards used for this program. I’m sure big agricultural companies lobby for this program just like they lobby for ethanol mandates.

This is what happens when “good” politicians {bad economists} pursue a small present good”. The unforeseen incentives that are created, unleash a chain of actions that increase the demand for the Government program. The consumers, the suppliers, and the Government administers of the program all have a similar incentive, which is to grow the program.  When there is a pile of tax payer dollars to be spent, the line of people who are trying cash in stretches for miles. The food stamp program is welfare for people and companies at every level.

CONSUMPTION PAID FOR WITH COUNTERFEIT MONEY

Food stamps are just another way our Government counterfeits money. The “dollars” on these debit cards are just numbers put into a person’s account by a key stroke on a computer. Since the Government borrows 40 cents of every dollar it spends, 40% of the numbers printed into these accounts don’t exist. The government will eventually borrow the money, the Fed will purchase the debt using electronically printed counterfeit money, the Fed will continually roll over the debt when it comes due, and you and I will pay for 60% of this consumption through direct taxation, and the other 40% through the hidden tax of inflation. When do we pass the point of no return, or have we already passed it?