At one point a few years ago I had noticed a link to a book Dale has written called Slackernomics: Basic Economics for People Who Think Economics is Boring. Given that I’m not the type who thinks economics is boring, but had enjoyed his blogging, I wanted to get a chance to read it. At that time, the book was only available in print at a price above $20. It took a spot on my “buy when I get around to it list”, and sat there for quite some time, but I never pulled the trigger. Then, more recently, it became avaiable for the Kindle at only $2.99 — I no longer had an excuse not to buy it. So onto the Kindle it went, and after several long months of sitting there taking up space, I’ve finally gotten around to reading it.

Slackernomics is a primer on basic economic theory that, as the title suggests, is written for people who think economics is boring. It’s written in a convivial tone, and the illustrative examples that Dale uses reminds one more of Freakonomics than of Adam Smith. Don’t let that fool you, though — the book is not a “sideshow” like Freakonomics — it gets to the heart of the matter. I liken it to be similar to Henry Hazlitt’s “Economics in one Lesson”, but written for people who may not be interested in the more formal writing style of Hazlitt. In addition, having been written many decades after Hazlitt’s book, it’s obviously much more up to date.

The book covers everything from price theory, minimum wage & rent control to monetary theory and the business cycle, Keynesianism, taxes / deficit spending, savings & investment, and economic statistics. He continues with a great defense of free trade and a bit of entrance into politics (touching a tad on public choice theory). In all, for being a relatively short book, he hits all the major notes that anyone looking for an introduction to economic thought would need to learn.

But the big question, for readers of this blog, is whether it’s worth it to buy. “Am I going to learn anything new?” And I can honestly say that despite the fact that I read economic books & blogs for leisure, and that I’ve blogged a fair bit about economics myself, I learned some new things from Slackernomics. Dale’s fourth chapter, unwinding the mess of the myriad of economic reports and statistics he’s constantly posting on Twitter, Google+, and at QandO, was wonderful. I’ve looked at many of these reports merely reading analysts *reaction* to the numbers (Higher jobless claims? How unexpected!), but rarely understood which group (public or private) was putting out certain reports nor how they all fit together. For me, a layman who is conversant on a lot of economic theory but not as perhaps on the technical reports, I have never seen an explanation of the reports that come out each week and each month as simple and readable as that chapter. That was more than worth it for my $2.99.

So my recommendation is simple: at $2.99, if you have a Kindle (or a device with a Kindle app), it’s hard to pass it up. You’re almost assured to get your money’s worth from the book. Even further, if you know someone in high school or college that may not have received good schooling in economics (which is, unfortunately, most of them), and who isn’t exactly about to tackle The Wealth of Nations, find a way to get them a copy of Slackernomics. Dale’s writing style will keep them interested.

All in all, it’s a book that lives up to its title, and goes well beyond.

Quite a few commenters suggested that if we don’t have municipal trash collection, we’ll look like third-world countries where people just bury, burn, or leave their trash out on their property to rot. Strangely, I hadn’t heard a single report of uncollected trash in Fountain Hills leading to this change. Even more fun, one commenter proved the old adage that everything that’s not compulsory shall be prohibited:

Actually, oddly I agree that cities shouldn’t have uniform trash pickup, if only because I think we should move towards having zero waste as individuals. (Reusable bags for food, no consumer goods, and composting.)

I couldn’t have drawn up a caricature this flat if I’d had a projector to trace it with on my wall.

So why am I wading into this morass? Because I’ve actually lived this. One of the features of competitive services is that if they don’t live up to my guidelines, they don’t get my business.

When I first moved to Georgia, I lived in unincorporated Cobb County, where there was no monopoly muni provider of trash pickup*. There were about 3 or 4 competing services. I ended up choosing one, and despite repeatedly saying they’d deliver a trash can, they neither did so nor did they haul away my trash. Now, I don’t think they’re a bad company. I think they just had a few repeated screwups. As we all know, occasionally government has screwups, like raiding the wrong address for drugs, or putting 8-year-olds on TSA no-fly lists. Unlike government poor service, though, I had, and took advantage of, the right to fire them. When my needs weren’t being met, I had an alternative.

The problems didn’t quite end there, of course. I then received a bill for “set-up fees” for the account, despite the fact that they’d never provided services. Rather than face collections, I paid the bill up front, and then sent an email to their customer service demanding it be refunded. They quickly and cordially acceded to my request, with no hassle whatsoever.

You can just ask the same Radley Balko how easy it is to get money he’s owed from the government, even when he’s done everything right and hounded them repeatedly for an explanation.

Municipal trash service isn’t really the hill to die on for a libertarian. It’s one of those services that straddles the line of public good vs. private market. Our HOA actually debated whether to consolidate to a single provider, as some of the families in the neighborhood were concerned about large trucks coming through on multiple days rather than a single day. It didn’t happen (at least during the 2 years I’d lived there), but I understand the argument and even as a libertarian I wouldn’t have moved out of the neighborhood over such a small issue. The best-run competitively-bid single-provider service can probably achieve economies of scale and efficiency that a competitive market (in this case) cannot — which of course isn’t to say that local governments always provide the best-run single-provider system. But it’s ridiculous for those opposing a competitive system to suggest that it doesn’t work, or that there aren’t actual benefits to customer service in a competitive system.

* PS – No, we didn’t have a problem in the neighborhood with people refusing to have their trash picked up at all, burning it, or letting it just pile up on their property. It seems that comparisons to third-world countries don’t really apply in this case.

It’s absurd that powerful Americans consider it normal that they must move their residence or manipulate politicians to get their kids into a good school No one has do that to buy an iphone, or a good restaurant meal In every business besides education, successful producers expand. When more people started liking McDonalds – there were no lines around the block, because McDonalds expanded to meet demand.

What exactly is Stossel talking about? Yet another corrupt Obama administration official.

While many Chicago parents took formal routes to land their children in the best schools, the well-connected also sought help through a shadowy appeals system created in recent years under former schools chief Arne Duncan.

Whispers have long swirled that some children get spots in the city’s premier schools based on whom their parents know. But a list maintained over several years in Duncan’s office and obtained by the Tribune lends further evidence to those charges. Duncan is now secretary of education under President Barack Obama.

The log is a compilation of politicians and influential business people who interceded on behalf of children during Duncan’s tenure. It includes 25 aldermen, Mayor Richard Daley’s office, House Speaker Michael Madigan, his daughter Illinois Attorney General Lisa Madigan, former White House social secretary Desiree Rogers and former U.S. Sen. Carol Moseley Braun.

Non-connected parents, such as those who sought spots for their special-needs child or who were new to the city, also appear on the log. But the politically connected make up about three-quarters of those making requests in the documents obtained by the Tribune.

The American education system can be best described as “all children are equal but some are more equal than others”. This is because of the way we have structured government schools. While most of these special requests were rejected by Duncan, the fact that Chicago’s ruling elite could even make these special requests is troubling. Expect Chicago-style school admission policies to spread nationwide as Obama completes what his predecessor started when he likely nationalizes the education system this year. America’s health care system will be heading on this track soon.

If we had school choice via vouchers, parents could decide where their children are educated, not government bureaucrats. Good schools will expand to take in more children while bad schools will improve in order to stay in business.

Until your state gets a real school choice program, if you are able to, get your children out of government schools. Put them in a private school or better yet, homeschool them yourself. Ever since government involvement increased in education, students have been dumbed down and our nation has become less free. Teacher’s unions continue to demand pay raises and obscene benefits without being held accountable for student performance.

If our country is to regain its freedom, the government education monopoly must be broken.

Well, by that measure, Kommander is a damn genius (from a thread discussing Obamas abandonment of manned space flight):

The problem with exploring and colonizing space, as opposed to exploring and colonizing the “New World”; is that there is, right now, little commercial benefit for doing so.

Remember that the first colonists to the Americas were not doing it “For Science!” but “For Money!” Until there is money to be made in space it will continue to be dominated by various governmental agencies.

Spaceship One and the space tourism are a good start, be we need more. The future of the space program does not lie with governments, but with commercial interests who will be willing to take risks where governments are not.

Indeed. I’ll take Branson and Rutan over Bolden and Garver in a split second.

Just let me know when I can sign up for the trip to freehold… or anywhere… or nowhere and back for that matter (when it costs less than a nice used car anyway).

For those keeping score, with Brill and Ramirez the FTC will now consist of two law firm partners specializing in antitrust, one former state assistant attorney general for antitrust, a law professor who specialized in antitrust, and a former staff lawyer for the Senate’s antitrust subcommittee. If that’s not diversity, I don’t know what is.

I wonder what the FTC will place their focus on under this administration?

Here he is pointing out that while Fedex is required by law to charge higher prices than the Post Office for equivalent services, it is the Post Office which struggles and requires constant taxpayer bailout.

Like Amtrak, USPS, Fannie Mae and Freddie Mac, any publicly funded insurance company will struggle to contain costs as it encourages overconsumption.

I’ve long argued that the real reason that medical care is so expensive is that the government limits supply and subsidizes demand.

The Obama administration, in choosing to ignore the limits on supply placed by government, is embarking on a program that is doomed to fail to meet any of the publicly stated goals.

It’s too bad that Mr Obama is unwilling to follow the evidence to its inevitable, logical conclusion.

Well, this happened at a public high school in the SF Bay Area:

A freshman at Clayton Valley High School in Concord, California says that’s just what she had to endure in algebra as her classmates went wild.

“People smoking marijuana in the classroom. They smoke cigarettes.” Arielle said. “There was one kid who peed in a bottle and threw it across the room.”

Clayton Valley High School is a public high school, and I have no doubt that it will open with just as many students next year as it did this year. When parents pay for an education, they absolutely will not tolerate a school run like Clayton Valley HS. When the state provides an education for free, a vast majority of parents will generally take what they can get and call it good enough. They might picket and protest for improvement, but they won’t take their kids out of the school.

What does this have to do with health care? The public option being created as part of “ObamaCare” is rather similar to public schools, in that it is designed to undercut private health insurance on the basis of price:

The Lewin Group crunched the numbers through their health care model and found that premiums for the public option plan would be 30 to 40 percent lower than private plans.

A price difference of that magnitude would lead employers to throw their employees into the ObamaCare option:

Overall, the Lewin Group estimates that if Medicare reimbursement rates are imposed, the number of Americans with private health insurance would decline by almost 120 million, leaving only 50 million Americans in the private insurance market.

That would leave approximately 15% of the population in non-government health care, just slightly more than the percentage of students that go to private school. At that point, ObamaCare will have similar monopoly power to the public schools. I expect abuses and incompetence similar to that captured by Arielle Moore at Clayton Valley High when the public option achieves its monopoly power. The scary difference is that instead of not learning algebra, the people who have to suffer that abuse and incompetence will be missing out on life-saving medical treatments.

A human life is too important to waste on government health care.

Update: John Calfee compares ObamaCare to Fannie Mae and Freddie Mac in the WSJ. Yet another sterling example of how we don’t want our health care managed.

In a nutshell, this story explains pretty well why I like charter schools [snip] So I say: fine. If there are some parents who want their kids to go to schools like this, let ‘em.

…

It makes sense to try out different kinds of schools for different kinds of kids and different kinds of neighborhoods. With a few obvious caveats, I’m all for it. But let’s not pretend that any particular one of these charters is necessarily the model for everyone else on the basis of 18 cherry-picked graduates. It ain’t so.

Well, given that he was marginally quoting someone else’s strawman, I’ll let his aside about pretending that any one of these is “necessarily the model for everyone else”. As far as I can tell, most libertarians and most advocates of vouchers don’t think that there’s a one-size-fits-all model.

And Kevin Drum, from these comments, doesn’t seem to think that there’s a one-size-fits-all model.

But the education bureaucracy seems to want to put everyone into a one-size-fits-all model.

Most reasonable collectivists I know are honestly more concerned with making education work than making it uniform. To some extent, they view things as charter schools as laboratories to test new educational methods, which can then be integrated into “regular” public schools. But they forget that there’s an enormous entrenched bureaucracy that is adamantly opposed to doing anything outside of what is best for the unions.

I agree with Kevin Drum that it makes sense to try out different kinds of schools for different kinds of kids and different kinds of neighborhoods. But where I suspect we disagree is in the assumption that the educational bureaucracy will EVER allow charter schools to do this in any meaningful way. They have too much stake in controlling the debate, and charter schools allow the debate to slip out of their grasp.

The only way to fix education is to offer real choice. Allow parents the ability to make the choice where to send their kids on a real widespread basis, not limited by geography or a tiny number of charter schools with far too many applicants for slots. And the only realistic way that I can see to achieve real choice, given the landscape as it currently sits, is through vouchers.

Education is not one-size-fits-all. We need to stop pretending that we can make it so*.

* The same goes for healthcare.

WASHINGTON – The Obama administration promised Tuesday to help Mexico fight its drug war by cutting off the cartels’ supply of guns and profits, while resisting the Texas governor’s call for a troop surge at the border to ward off spillover violence.

Let’s assume for a moment that Obama’s policy to prevent Mexico bound firearms from leaving the U.S. 100% successful. Given the fact that the drug cartels can acquire firearms from other sources (such as corrupt Mexican government agents with access to firearms among other sources) the only difference would be that the firearms are no longer coming from the U.S.

The Obama administration correctly identifies that the drug cartels are so powerful because of the profitability of the illicit drug trade. It’s this ability to make enormous profits, particularly in an impoverished country as Mexico, that attracts players into the business and makes corruption on the part of government officials almost irresistible. Unfortunately, though the Obama administration has identified the profitability of the drug trade as the source of the drug cartels’ power, there is clearly a profound misunderstanding of the way basic economics work (as if the bailouts, handouts, and myriad of other government programs were not proof enough).

The steps announced by Homeland Security Secretary Janet Napolitano – 450 federal agents shifted to border duty, supplied with dogs trained to detect both drugs and cash, and scanners to check vehicles and railcars heading into Mexico – amount to a subtle but important shift:

The blockade of contraband will now be a two-way effort. The fence begun under the Bush administration will be completed, to deter smugglers of drugs and workers. But the new emphasis will be on disrupting the southbound flow of profits and weapons that fuel the cartels.

At his televised news conference Tuesday, President Barack Obama said that for now, it’s more important to disrupt the cartels’ access to profits and weapons than to fortify the border with soldiers.

“That’s what makes them so dangerous,” he said. “The steps that we’ve taken are designed to make sure that the border communities in the United States are protected and you’re not seeing a spillover of violence. … If the steps that we’ve taken do not get the job done, then we will do more.”

So what’s wrong with this approach? The basic economic law of supply and demand tells us that whenever a product is in high demand (drugs in this case) and the supply is lower (in this case by successful drug interdiction by the U.S. governemnt), those who supply the given demand stand to profit more NOT LESS! Whether Obama’s policy results in a decrease in the supply of drugs of 1% or 99%, those drugs which do make it to the end customer will pay even more to get them.

I would even go as far as to say that the Mexican drug cartels would cheer this policy. Sure, the cartels might have more difficulty moving their product into the U.S. and their profit and firearms out of the U.S. but for the most clever smugglers, these enhanced drug interdiction efforts would filter out the competition! (And we know how black market operators hate competition).

On some level, I do believe that even the political class understand this but somewhere, there is a disconnect. Just yesterday in her visit to Mexico, Secretary of State Hillary Clinton admitted that the war on (some) drugs over the past 30+ years “has not worked.”

“Our insatiable demand for illegal drugs fuels the drug trade.”

And now the disconnect:

“Our inability to prevent weapons from being illegally smuggled across the border to arm these criminals causes the deaths of police officers, soldiers and civilians…”

Mrs. Clinton apparently recognizes how the war on (some) drugs has been an abject failure fails to realize that the Chosen One’s policies will do little to reverse this trend. If she truly wants to do something productive, something has to be done about what she (correctly) describes as this “insatiable demand” for these drugs. She seems to understand that the “Just say No” campaign didn’t work but does she and others within the Obama administration really believe that more drug hysteria PSA’s will do anything to curb this demand?

Given how the Obama administration has decided to deal with the drug war related violence along the border, I’m not optimistic. If spending billions of dollars annually on this insane war on (some) drugs which has contributed to leading the world in the number of people in prison (imprisoning 1 out of every 100 adults; more than half of the U.S. prison population is there because of drug related offenses) has failed to curb the demand, then perhaps it’s time to try a different approach.

Nothing short of legalizing the drug trade will stop the violence, so why does the politicos, law enforcement, and government bureaucrats at almost every level continue the same “get tough” policy which clearly has not worked? The only conclusion I can come to: they must be high.

I understand the complaint. If a mid-major team like Utah can have the season they’ve had, beat the teams they beat, and still fall behind a one-loss school from a “major” conference, then no mid-major will ever be crowned Champion. Granted, Florida may have been the best team in college football (as the Patriots were the best team in the NFL in ’07-8 despite not winning Super Bowl XLII), but I don’t think the system for determining a Champion is very fair.

It’s not a system I like. It’s also not a system that Orrin Hatch likes, but he’s sticking the full power of the federal government into the debate:

Sen. Orrin Hatch, R-Utah, may be a skinny guy with a high voice. But he’s angrily setting out to tackle the biggest powers in college football, vowing to pound them until they reform the Bowl Championship Series.

He called them out Wednesday, as he and Sen. Herb Kohl, D-Wisc. — respectively the top Republican and Democrat on a Judiciary subcommittee on antitrust — released a list of topics that panel plans to consider this year.

A bit buried on Page 4 of an eight-page list, amid somewhat sleep-inducing reading on oil and railroad antitrust, is a nifty paragraph about the BCS.

“The BCS system leaves nearly half of all the teams in college football at a competitive disadvantage when it comes to qualifying for the millions of dollars paid out every year,” their joint statement says.

Then it drops its first unexpected bomb: “The subcommittee will hold hearings to investigate these issues.”

That is followed by a second: “Sen. Hatch will introduce legislation to rectify this situation.”

I realize that Congress believes it has purview over everything that occurs within our borders, but if their “fixes” for other problems are anywhere near as effective as this one will be, I’m not sure anyone will want to watch college football afterwards. I really wish they’d waste their time ruining something else, because I quite enjoy spending fall Saturdays watching one of the few worthwhile sports left.

Walter Block, restating an argument made famous by Frederic Bastiat, points out that nothing could be farther from the truth.

The purpose of an economy is to align production of goods with demand, so that people have their desires to consume goods satisfied.  Dr Block points out that if we lived in a society where 30% of the population dug holes that were filled in by the other 30%, with the remaining 40% laboring to supply food, clothing, shelter and tools for the hole-diggers and hole-fillers, we would be far poorer than if that 60% were redirected to other forms of labor that produced things useful to the other 40%.

This becomes obvious when you consider a thought experiment.  If you ask people to choose between having a job, and having the enough food, clothing, shelter etc, they will choose the latter in a heart-beat.  People work primarily so that they can produce what they need in order to be comfortable, either by making the stuff they want to use directly, or making stuff that they intend to trade to other people for the stuff they want to use themselves.

Much of the proposed stimulus project is makework that is little better than hole-digging and hole-filling in.  Absent the stimulus spending, the people who will be employed under the stimulus project would have to find tasks to busy themselves with that produced goods and services that people were willing to pay for.  Instead of working to identify what unmet needs were most urgent and in the greatest demand, now they will coast, “earning” a paycheck, while working on either less profitable tasks, or even unprofitable ones, where the resources they consume are greater than the product they produce.

No doubt that some people would read the above paragraph and say, “Aha! But what if they can’t find anything to do?  What if they can’t find anyone willing to hire them, don’t know how to subsistence farm, etc!  What, Mr Free-Market Anarchist, should they just hurry up and die – making sure that they starve to death out of sight?”

At first, this seems like a powerful argument, until one considers what percentage of the population is actually unemployable?  I would expect that they number no more than 5% of adults, perhaps 25 % of the entire population adding in the elderly and young children.  And, these people are probably unemployable even under a government make-work project.  Even if there was a massive shortage of workers, they would be unemployed and dependent on charity.  Rather, most of the people employed under any job-generation scheme will be able-bodied.

Nor will the able-bodied be unable to find work.  We humans live in a universe of scarcity.  We always have unmet needs, we want more shelter, better food, better cars, better streets, better entertainment etc.  Many of these needs are not met not because humanity lacks the raw materials or the land needed to realize these needs, but because there aren’t enough people around to satisfy them.

The only way to find out which of these unmet needs are th emost urgent is via the price system.  People will pay more for labor that is needed to satisfy more urgent demands and less for labor that satisfies less urgent demands.  The higher wages will act as a signal to the unemployed who can do the job to start doing the job.

The temporary unemployment that accompanies recessions occurs becasue the price system requires the passage of time to reach an approximate equilibrium.  Essentially, in a recession, people who were producing things that were not in heavy demand stop that undesired production and spend some finite period of time looking for othe rthings to do.  Simmilarly prospective employers need time to figure out where the shortages are, or to identify opportunities to start expanding production again.

By attempting to sabotage this feedback system, the proponents of the stimulus plan are setting the stage for long-term stagflation at best, and a future crash at worst.  Not only are they shifting the problem of what to do with the unemployed into the future, they are encouraging, though false price signals, people to abandon productive pursuits in favor of the make-work projects being promoted by the state.  If, for example, the state promotes the construction of dams, then people who otherwise would have chosen to become farmers or mechanical engineers or home builders will instead gravitate to civil engineering.  They will then form a political group which strives to keep the emergency programs going indefinitely, much as farmers continue to agitate for the price supports borne from the “emergency” of the Great Depression, of the California Prison Guards’ Union agitates against the repeal of anti-drug laws.  This would be bad enough if government official were to attempt, in good faith, to guess what the unmet needs in greatest demand were.  When one considers the inevitable corruption and rent-seeking that accompany the establishment of such emergency programs, the true scope of the danger to the economy presented by the stimulus project becomes clear.

Barack Obama has been in office less than a month.  The early signs are that he will prove to be a bigger disaster than George Bush.

European antitrust regulators have told Microsoft Corp. that the company’s practice of including its Internet browser with its popular Windows operating system violates European competition law, Microsoft said Friday.

The Redmond, Wash.-based software giant (MSFT) said that it’s been presented with a statement of objections informing it that related remedies put in place by U.S. courts when Microsoft settled an antitrust case in this country in 2002 are not adequate for Europe, though a “final determination” hasn’t been made on the matter.

I’ve never really used Apple’s computers much, but I’m pretty sure you can’t buy an Apple PC without Safari pre-installed. I’ve installed a number of Linux distributions (Red Hat, Debian, ubuntu, and even a 50MB distro called DamnSmallLinux), and every single one of them has been bundled with a browser. Microsoft has argued that a browser is a critical part of an operating system, and thus — even though it sucks — it makes perfect sense for them to distribute IE with Windows.

In fact, it’s so pervasive, that I’ve never seen an OS that comes without a browser pre-installed. Is the EU going to go after each of OS distributors next? I didn’t think so.

Hat Tip: QandO

This is incorrect. Rather, the progressives who support nationalization are being very short-sighted and are threatening to return society back to feudalism and are threatening to destroy the development of new technologies, technologies that will be vital to improving our standard of living while reducing the amount of pollution and natural resources needed to maintain such comfort. This not hyperbole but rather simple fact.

The problem, which has plagued all fascist and socialist economies throughout history, is that nationalization destroys the ability of the economy to rationally allocate capital goods and invest in the future. It is this incapability that is behind the phenomenon where communist countries seem to become mired in the past with stagnant technology, bare shelves in shops and factories that routinely fail to meet production quotas.

If asked, a manager of a factory in a communist country will explain that his inability to meet quotas arises from some combination of three factors:

1) Lack of tools or equipment that is in poor shape.

2) Insufficient labor.

3) Lack of inputs such as raw materials or semi-finished goods.

4) Sabotage.

We can set aside aside sabotage, which should equally affect capitalist economies (since according to socialists, they should have a larger share of disgruntled or exploited workers).

It is safe to concluded that any failure of centrally planned economies to meet consumer demand should be primarily due to the impact of the first three reasons. As we shall see, like electricity and magnetism, these three factors are really the manifestation of a fundamental failing of centrally planned economies, one which progressives ignore at their peril.

Under central planning, rational economic calculation becomes nearly impossible. It is impossible for a manager to calculate whether one process or another is ‘better’. Complex processes become unwieldy, and slowly, as capital equipment deteriorates, the economy grinds to a halt.

Economic Calculation: Chapter 2

The explanation as to why this occurs may be found in a paper written by the economist Ludwig von Mises in 1920 titled, Economic Calculation in the Socialist Commonwealth.  In this post, I will summarize some of his arguments.  I highly recommend that everyone who is curious read the original paper.  For a more in-depth analysis of how prices are used in economic production, I strongly recommend Chapters 4 – 7 of Murray Rothbard’s Man Economy and State.

In a free market, most economic activity consists of a cycle of a person or firm acquiring the inputs for some form of production, using them to make something or provide some service, and consuming or exchaning the result of the production to others.  In acquiring the inputs, and disposing of the produced goods or services, the producers typically engage in indirect exchange, trading money for the inputs, and selling their product for money.  The use of money trades for inputs and outputs gives rise to prices.  These prices play a critical role in allocating resources and promoting investment.

Everything economic activity that people perform is intended by the actor to satisfy some need.  The higher the value that individuals assign a particular need, the higher the price they are willing to pay for the goods they must consume to satisfy the need.  This attracts producers who wish to manufacture these consumption goods  and sell them.  These producers must acquire the inputs from which these consumption goods will be manufactured.  The prices that these 1st order producers are willing to pay for the inputs they desire will be impacted by the prices that they expect for their product. The producers who intend to produce consumption goods that are in high demand will be willing to bid higher prices for the inputs they desire.  There may be producers who wish to produce goods that are not as highly demanded.  This latter good cannot profitably employ the inputs whose prices were bid up by the former group of producers.  They will look for substitute inputs. If continued indefinitely in the absence of technological change, this process will lead to a sort of equilibrium where the inputs available to producers are being used to support the satisfaction of the highest priority needs as expressed by individuals.  And this process is repeated for higher order goods: the inputs needed to produce the goods that are inputs to lower order processes.  When one considers that the same good can be simultaneously useful in processes that are lower order or even intended for consumption and higher order processes.  For example, stainless steel can be desired by a man who wants to make cutlery, a person who intends to use it to make reactors for a pharmaceutical plant, who wants to produce artworks etc.

The production matrix required to produce three consumer goods. Note that the same high order good (green) is required to produce the three goods. In the absence of a price system, the planner has to guess when and how much of various goods he must produce - an impossible task for an economy consisting of millions of goods and people.

The existence of prices mediates between the wide range of uses the goods can be put to.  The prices also inform investors, advising them of weaknesses or shortages in the matrix of production.  It informs them of whether a proposed new business or factory will be socially useful or a waste of resources.  In a free market, shortages are signaled by high prices, and activities that will satisfy the most urgent of needs are rewarded by high profits.  Moreover, while no individual or group of people can simultaneously hold in their heads all the information needed to rationally allocate a complex basket of goods to their optimal uses, the price system allows a single individual to rationally allocate the goods that he or she controls trading them.

When an industry is nationalized, these price signals are at a minimum distorted, and – in extreme cases – can even be lost entirely.

A nationalized industry no longer needs to worry about prices.  The state commandeers resources and awards them to the nationalized industry.  It decrees the prices at which suppliers must sell goods to the industry and issues quotas as to how much they will have to supply.  It decrees the quantities and price of the produced goods.  It makes production decisions politically, ignoring the unmet needs in greater demand to satisfy lower priority needs.  If only one industry is nationalized, but the rest of the economy remains free, the managers of the nationalized firm may still have access to prices as set by the economic activity of the free sectors with which they deal.  However, the more thorough the nationalization, the less dependable the prices are, and the less information managers of the nationalized industry have available to them when deciding how to allocate production.

This is the reason why shortages appear.  A shortage in a free market leads temporarily to higher prices, which encourages other producers to enter into the market and spurs existing producers to increase production in an attempt to capitalize on those prices. When a shortage does not result in a higher price, it takes the instructions of a central planning board to order the producers to increase production.  In the absence of such orders, there will be no meaningful attempt to increase production to mitigate the shortage.

Even if the planners do give the orders, it is much less likely that the orders will be obeyed.  All actions come at a price to the actor.  A factory manager who decides to extend the factory’s hours of operation by four hours a day must spend time making arrangements for this change.  He must monitor the extra hours of work.  In order to do this, he sacrifices leisure time.  The laborer who works harder to increase production must sacrifice something to achieve that extra burst of effort (a person will not limit their work voluntarily if they would value harder work more).  This phenomenon is called the disutility of labor. The disutility of labor acts as a brake on economic activity.  In the absence of a reward for extra effort, people will not forego other uses for their time.

Immediately after nationalization, the workers and managers can continue executing the activities they did prior to the nationalization.  However, the world is not static.  Peoples’ needs change. New sources of raw materials are discovered and old sources dry up.  In a free market, these changes would result in price changes that would signal to producers and consumers which goods were more available and which were more scarce, pointing the way to more efficient allocation of the available resources to their current needs.

In the absence of prices, these changes would be manifest themselves with shortages and gluts.  One would see factories producing unwanted goods that filled up warehouses, while goods that were desired would go unproduced.  We would see workers assigned not to the factories that would make the most profitable use of them, but to factories that used them less profitably.   The result would be shortages in labor in some industries, while other industries were so well staffed that they were assigning people make work.

This misallocation of labor and production does not explain the fact that heavily nationalized economies seem to have very few gluts and a great deal of shortages.  Under the above model we should be seeing the shelves of markets with too much milk and too little meat, instead of bare store shelves.  Why should nationalization, in practice, be associated with shortages and not surpluses?

In the absence of a price system, there is no way to rigorously determine if a new venture will be usefully productive or not.  There is no way to rational way to calculate whether or not a new idea for producing existing goods is a good idea.  Nor is there any way to identify whether a new class of goods is worth producing.  There is no way to rationally decide when to pause production to replace or upgrade equipment.  There is little incentive to invent or make improvements.  People who do come up with good ideas have little incentive to put them into practice.  In many cases they lack the means to do it – they lack access the the planners who decide what it to be done.

This is why a nationalized industry typically will stagnate, with necessary improvements not being made and innovations being largely absent.  Without the information conveyed by present prices, it becomes impossible for managers to invest wisely in preparation for the future.  A nationalized industry will typically struggle to maintain production – using factories that are aging and using methods that are not evolving with time – to produce goods that are often of no better quality than those produced when the industry was nationalized.

What innovation that does take place is the innovation recommended by the central planners.  The central planners typically have only a rudimentary sense of the impact of the innovation they want to see made.  they have trouble judging how much effort to allocate to R&D, and how much to maintain their capital stock.  The central planners can foster innovation or make improvements – as has happened with the U.S. and Russian space programs.  But they will neglect vast areas under their purview.   The lack of incentives to preserve the value of capital goods such as land is also the reason why in nationalized economies there is a high degree of environmental degradation.

And, being human, the central planners will make their decisions based on what profits them personally.  A manager who identifies a method to manufacture the same number of cars with one quarter the employees would in a free market profit hansdomely by so cutting his manfuacturing costs.  A manager who would lose status and take a pay cut for supervising fewer people would not make adopt such a plan.  In fact, he might torpedo attempts to adopt such a plan in order to preserve his empire.

Thus we see why central planning is associated with stagnation, inefficiency and privation.  The lack of innovation and declines in production inevitably lead to poverty.

If we apply this to the auto industry, it would not be surprising to see car companies producing first generation hybrid vehicles that require massive subsidies while not making any effort to produce second or third generation cars that would be more environmentally sound and easier to maintain.  Rather than trying to attract customers with improvements in the product, they will attempt to placate the oversight boards appointed by the U.S. congress.  Consumers will choose to purchase vehicles from competing companies who are making decisions independently of the planning board.  Naturally the planners will call for and be granted legislation that handicaps these competitors or forces people to purchase vehicles from the car companies that are under oversight.

The result is inevitable,  a smaller selection of more shoddily built and undesirable vehicles that only meet the most basic of needs.

Unlike the debates we have already seen in this cycle, the candidates in this debate actually debated the issues!

*The candidates who could theoretically receive the requisite electoral vote to win the presidency

“You libertarians don’t care if people die from lack of medicine, or if someone can’t afford a doctor.  Libertarianism is the freedom to die from a cold while the doctor who could treat you is doing a checkup for a rich guy who has nothing wrong with him.
You guys are so wrapped up in hating the government that you don’t see the good it can do.”

This is a frequent charge leveled against those who oppose some government intervention.  The assumption contained within the accusation is that if someone opposes the state performing some task, then one is in effect opposing anybody performing that task. There are two possible ways that this accusation could be correct:

1) The task can only be done by the state.  Regardless of our desires to see the task done, it won’t happen without state action. Therefore by opposing state action we are opposing any action that could attain that goal.

2) The task could be done by others, but we believe that it shouldn’t be done at all.

While I am sure one could find the occasional libertarian who is opposed to the broad mass of the people having access to good medical care, this is not true of the vast majority of libertarians.  Unsurprisingly like non-libertarians, most libertarians are fans of good health.  So clearly the second statement is not correct and we are left with the first one as the accusation.

But, is this correct?  Is the state the only entity capable of accomplishing this goal?  It’s actually trivial to demonstrate that the state can’t assure people the highest quality of medical care.  But can it do a better job than other organizations?  The answer is that it can do a “better” job, but at a cost that will wreck the economy.

Why Involve the State?

The notion that the state is required to ensure that people have access to medical care is, itself, predicated on several assumptions:

1) It is bad when someone is allowed to die or goes unhealed when the means to save his or her life or health is available.

2) People who cannot afford to hire a doctor or purchase medicines will go untreated.

3) People are unwilling to voluntarily support others who are unable to pay for their own care.

4) Only the state can amass the funds needed to ensure that all are treated, since it can extract more money than people are willing to give up.

Can the state do it all?

Unfortunately, while these assumptions at first seem reasonable, item number 4 is problematic in ways that supporters of state provisioning ignore at their own peril.  The first is that while state action can alleviate scarcity of medical care, it cannot eliminate it entirely.  Consider Paul Newman.  Paul Newman was a wealthy man.  He had a personal doctor who was well paid.  This doctor probably had no more than 50 patients under his care.  Can state action provide a doctor for every 50 people?  In the United States alone, this would require training 1,000 doctors for every doctor practicing today.  There would be more doctors than the combined population of plumbers, farmers, factory workers and shopkeepers.  Such an action, would take millions of workers out of working in other trades, trades where they paid taxes and put them in the position of consuming taxes.

Clearly this is untenable, at some point, the administrators of any system of providing medical care have to say “no more” and to stop providing additional care that may be technically possible, but economically unfeasible.

Thus we see that even a government-administered program will have to accommodate scarce resources, permitting people to suffer who otherwise could be treated.

Is the state the one who does a better job?

Even if the state can’t treat everyone, can it still do a better job than every other conceivable organization?  To answer this question, we need to examine how medical care is provided on a free market.

Free market provisioning – simple

The simplest way that a person gets medical care in a free market is by waiting until he or she gets sick.  The sick person then goes to a store and purchases the medicines he or she needs or visits a doctor, paying for these services out of their cash balance.  Of course, if the person lacks the money to pay the doctor or the medicine owner, the illness won’t be treated.

The prices under such a scenario are set as follows.  Doctors and medicine makers charge whatever the market will bear.  If they set their prices too high, they won’t be paid at all.  Furthermore if their profits are sufficiently high, they will attract competition, more people choosing to become doctors.  These additional providers will compete for customers, charging whatever the market will bear for their services as well.  Eventually, an equilibrium will be reached where the supply of doctors is sufficient to supply all the patients who are willing to pay them sufficiently well for treatment.

Free market provisioning – Insurance

Illness is a stochastic process that visits people randomly.  The rates of illness in a large population are, however, predictable to a reasonable degree of accuracy.  This makes it quite possible for insurance companies to provide health insurance; people pay a monthly or annual fee for coverage, and the insurance company pays for their illnesses.  People who get very sick benefit because the cost of care exceeds the premiums they pay to the insurance company.  The insurance company profits because the premiums they charge exceed the costs of the treatments they pay for.  The people who don’t get sick may lose money, but should they get sick in the future, they are in a position to become benefactors.

The introduction of medical insurance, of course, results in higher prices in the short term as people who previously could not afford treatment are now able to afford treatment.  However, as in the previous simple scenario, the rise in prices would attract even more people to become providers.

Free market provisioning – Charity

Under the previous two methods, there is still a class of people who seek treatment who don’t get it: people who cannot afford insurance.  The plight of this group will not go unnoticed; some segment of their neighbors will be moved by their plight, and will want to help.  These neighbors make a gift of money, their services, or their non-money property to the needy, either by paying for services directly, giving gifts to the needy, or by giving gifts to organizations, known as charities, that distribute the gifts to the needy.

The supply of charitable gifts is dictated by how much the gift givers are willing to give in return for the psychic benefit they get for giving gifts.  These people choose how much they will give, and to whom based on what they are a) able to spend, b) how ‘deserving’ they feel the benefactor to be, c) the predicted effect of the gift.

These benefactors are thus examining the need of the beneficiaries, the resources available to donate to the problem and how effectively those resources will solve the problem in choosing how much money to give.  Again, initially the action of charities will increase the demand for medical services and bid up prices.  Again, these higher prices will attract more providers to provide services, until once again prices have stabilized at a level where the number of providers is constant.

Deviation from Free Market – Medical Licensing

The free market provisioning of medical care assumes that anyone who wishes can hang a shingle form their door and go into business as a doctor.  It provides severe downward pressure on prices: any time doctors in a particular branch of medicine start making sufficient amounts of money to make the training profitable, it attracts more people to take up the profession.

The medical industry has reacted to this downward pressure by calling for the state to restrict the pool of practicing doctors.  This eliminates downward pressure on prices. If the number of doctors is restricted, then the bidding war as patients fight for the few available slots will result in prices rising dramatically.  The more entry is restricted by these laws the more dramatic this phenomenon is.

Deviation from the Free Market – Subsidies

Earlier, we showed how charitable contributions tend to push prices higher.  This phenomenon becomes more dramatic once medical licensing is in place.  To understand this phenomenon, we must examine how prices are set at a free market.  Imagine an economy where A, B, C and D are interested in visiting a doctor.  This doctor can see 2 patients per day.

The prices they are willing to pay to see a doctor are:

To maximize his profits, the doctor must fill up his schedule.  If he posts a price of less than or equal to $80.00 per visit, he can fill his schedule with paying patients.  Thus, we can expect that the doctor will charge $80.00.

Now let us examine what happens if some entity offers a $50.00 subsidy for patients wanting to visit the doctor but can’t afford it.  Now the demand schedule looks like this:

At this point the doctor finds himself deluged with patients.  Eventually, he finds himself wanting new equipment, or to hire more staff, and so he experiments with raising his price.  He raises his prices to $90.00, then to $100.00 or more.  When his prices reach $110.00, once again he is maximizing his income.  Any higher, and he will have empty slots in his schedule and lose business.  The effect of the subsidy, in the presence of significant barriers to entry for new providers is to increase prices.  The higher the subsidy, the more people it is offered to, the more dramatic this effect is.

If one looks at all the asset bubbles in recent history, all the sectors of the economy where prices are climbing faster than the rate of inflation, one finds generous government subsidies coupled with significant barriers to entry for new providers.

Of course, patient B, having been able to afford a doctor in previous days now finds himself out in the cold.  He is not offered a subsidy, but cannot afford to see a doctor.  Unless he is very aware of economics, he will ask the subsidizer to include him in the subsidy as well.  This expansion in subsidy will result in still higher prices, creating another wave of people who no longer can hire a doctor.  The people in this wave then lobby for the expansion of the subsidy to include them.  If the cycle continues long enough, nobody will be able to afford the subsidy.

Deviation from the Free Market – Monopoly Customer

Another option is to establish a monopoly that takes over all payment to doctors.  This monopoly can avoid the phenomenon of competing consumers bidding up prices by taking over all payment decisions.  It sets a price, and a doctor who attempts to charge above the price is simply not paid.  This authority then sets prices according to its whim.   The entity can offer doctors below market wages, resulting in patients flooding the system.  Or, it can establish above market prices, leading to it having to outlay huge amounts of money.

The latter becomes a significant problem.  The monopoly must somehow acquire (or create) the money needed to pay for all these treatments.

However, unless this entity can increase the supply of doctors, it cannot expand medical care.  Unless more doctors are permitted to go into practice, the number of patients that can be treated remains the same as under the Free Market + Medical Licensing.

This problem can be easily solved, by having the monopoly guarantee all doctors above market wages, as follows:

In the scenario above, every day four patients sought medical treatment.  The single doctor was only able to treat two.  So the monopoly arranges to pay two doctors $80.00 per visit, resulting in a greater capacity than exists under Free Market + Medical Licensing.  At this point, the monopoly is obligated to pay $320.00 per day to treat all four patients.  The total number of dollars people were prepared to part with for medical care was $110 + $80 + $60 + $50 or $300.00 total.   Thus, the monopoly has to extract $20.00 from someone to pay for the extra medical care, diverting that money from other, more highly desired ends from some actor somewhere in the economy.

The State

The state is well positioned to act as such a monopoly.  It can, though taxes, extract as many resources as the economy can supply in order to maintain the monopoly payments. Just as the state could, if its officers desire, land men on the moon, something that no organization depending on making a profit or voluntary donations will be able to do in the foreseeable future, the state could ensure that everyone gets reasonably good medical care.  However, this will come at significant cost.  The resources commandeered to pay these above market wages will necessarily impoverish the public.  In our scenario above, we had the state demanding that one or more people be forced to give $20.00 more than they would have liked to to cover the medical care of all actors.  This is money that would otherwise go to satisfying other consumer demands, such as food, better housing, beer or factories.

Additionally, the use of taxation to acquire the money needed generally means that patients pay $0.00 out of pocket.  This means that there is no cost (other than the lost time and inconvenience) for visiting the doctor.  This results in a massive spike in demand as people rush to visit the doctor more often.  Again, absent the lifting of the restriction on the number of practicing doctors, such a system will be plagued by long wait times and rationing via queues.

This power is also the state’s Achilles heel.  Unlike a charity that depends on voluntary donations, the state does not have to do a good job to get money.  Even if the state spends the money in a lousy, inefficient manner, the money will continue to flow into its coffers; people are denied the choice to withhold their money from the state.  Furthermore, for a government official, challenging inefficiency or generating efficient ideas requires effort.  The worse the problem being confronted the more effort the official must exert. Such efforts are often psychically unpleasant.  Thus a significant number of officials will find the disutility associated with the effort to do better will far outweigh any possible personal benefit they accrue.  Again, we see this phenomenon demonstrated in countless government offices.  for example a significant portion of Medicare funding is consumed by fraudulent charges.  Government officials turn a blind eye to the fraud since they run no risk of being bankrupt by excessive claims.  As an aside, the proponents of state provisioning of medical services love to cite the low administrative costs of Medicare as a good thing, whereas it is precisely the skimping on administrative oversight which causes the overbillers to be able to perpetrate their fraud with impunity indefinitely.

It is not surprising that numerous studies analyzing private (dependent on payments or voluntary donations) ventures with public ones (funded by force) performing similar tasks found that, on average, the private ventures delivered the same service at only 75% of the cost.

The importance of innovation

Having found that government provisioning of medical care is no panacea in the present, we should look at what is really required to make health care better for more people.

What is the engine driving improvements in medical care?  In the end, it is the desire of doctors to do a better job, whether from professional pride or from a desire for more revenue.  In a free market, an innovation requires only a doctor and a patient agreeing to try it out.  In an environment where the state pays for medical care, the doctor or patient must convince the state to permit the test being tried.  For very innovative ideas, especially ones that are likely to trigger an episode of creative destruction, where whole branches of the field will be rendered obsolete or redundant, it is possible that the state will refuse to permit the innovation to take place.

Medical treatments that are available to the poorest among us today were not available to kings two centuries ago.  Two centuries ago no economy could have afforded to extend even the pitiful medical care that kings received to the entire population.  It is only through innovation, the discovery of new and cheaper ways of doing thing, that the care afforded by the wealthy can become available to the basic population.

Let us see how this works in a free market.  Let us consider some case where a doctor invents a new procedure that allows him to treat a condition at one-tenth the cost of the current treatment in vogue.  Of course, he starts providing this treatment, and pocketing the massive profits that accrue to him as a result.  The news of his procedure gets out.  Other doctors also adopt the practice.  Initially all who adopt the practice make unusually high profits.  These high profits attract additional providers to try to treat people with this procedure.

As the number of providers treating patients increase, the market-clearing price starts to fall.  New providers offer lower and lower prices in an attempt to fill their schedules.  This process continues until the profits to be earned by treating patients with the new treatment is too low to attract additional providers.  The result is that many more people are having their condition treated than were before.

Any regimen that slows or short circuits this process of innovation has the effect of denying the poor access to future medical care.

The important thing is that state regulation does hamper innovation.  It can do no other.  The result, present state regulation is harmful to future patients, and past regulation is harmful to patients in the present.

Must We Lean on the State?

From the above analysis we can come to several conclusions:

1) It is impossible to make high quality medical care available to the most number of people while restrictive medical licensure laws make it difficult for new people to enter the medical profession.
2) While government action can expand the amount of care available today, it does so at an expense of less medical care in the future.
3) The government will either have to ration care, or heavily tax people to accomplish the goal of expanding medical care to more people in the short term.
4) The function performed by the state can be done more cost effectively by charities funded by donations.

Thus we see that the earlier assumption 4, that only the state can amass the needed resources, is not correct.

Additionally, we can question the applicability of assumption 3, given that most governments that provide medical care or subsidize it are representative ones, where the population picks the lawmakers.  Obviously, since government provisioning on health care is voted into law by representatives selected in popular elections, it is safe to say that a sizeable portion of the population are willing to donate money to care for those who are unable to afford care.

We can clearly see that the state is neither the only organization that can provide medical care, nor is it very efficient in doing so.

Conclusions

We can see that far from being heartless, the supporter of free markets is really attempting to make medical care cheaper and more widely available, and that the advocate of government involvement is inevitably arguing for a system that is inefficient,  not innovative and that in the long term will do a poor job of extending quality care to the poor who cannot afford it today.  While in the short term, the state can commandeer impressive resources and make massive strides towards acheiving some goal, in the long term such actions can be very detrimental.