Sunday, October 12, 2008


Libertarians have a lot of faith in competition. Why? Whether we like it or not, in Nature, competition is about variable degrees of winning and losing. Winners get a “prize” (survival) and losers do not (extinction). Humans decide when to compete based on our assessment of the value of the prize and the cost of competing. Some prizes are worth the expenditure of time, energy, and resources required and other less so. Assessment implies a clear understanding of the rules. Rational players enter competition, if and only if, they understand the rules. Once we understand the rules, we decide whether it’s worth playing the game. This requires assessing costs and benefits. Competition is ruled by “Supply and Demand,” therefore, accurate information concerning number of competitors is always useful. The number of competitors is largely contingent upon the desirability of the prize(s) offered and the costs associated with entering and playing the game. As a general rule, the more competitors there are the more difficult it is to win. Even though you probably will not win the lottery, you might decide to risk $5.00 to win $1,000,000. Other entry decisions are more complicated. Lotteries are based on a random selection process while other more complex games are based on human judgment. If you are deciding whether or not to compete, it helps to know something about the rules that the judges will apply in the selection of winners. Sometimes winners are decided based on an objective set of rules: in poker a full-house always beats a pair of aces. But sometimes winners are decided based on subjective rules that depend more on the personal, wants, desires, and/or taste of the game-keepers. Most games are played under variable degrees of subjectivity, which is why good looking persons with outgoing personalities tend to win many competitions. If you can enter a competition with an abundance of time, energy, and or resources, one sure-fire way to increase your odds of winning is to manipulate the entry requirements in your favor: that is, convince the game-keepers to raise the cost of entry. For example, if the game-keepers raise the entry fee (increase the time, energy, and resources required to compete) and if you have more time, energy, and resources than the other competitors, your odds of winning will be increased. A more indirect way is to convince the game-keepers to raise entry qualifications. “You can enter this competition, if and only if, you meet certain preconditions.” These preconditions usually involve requiring an advanced college degree, professional certification, a license, or union membership. How does a well-situated competitor go about influencing the game-keepers? Bribes and/or threats have always been very reliable. Bribery involves offering the game-keepers an enticement in exchange for skewing the rules in your favor. Money is the universal enticement. But bribery thrives in secrecy. If word gets out that the winners will be decided based on bribery, non-bribing competitors tend to not enter (or exit) the competition. Then the winners are decided based on who offers the most enticing bribe. Another way to skew competition is to threaten either the game-keepers or the other competitors. Groups engaged in organized crime routinely bribe and threaten both game-keepers and competitors with loss of resources (theft) or physical harm (aggression). “If you try to enter this competition I’ll steal your car, beat you up, and kill your wife!” However, as the value of the prize increases, more competitors willingly take those risks. What will these new risk-taking competitors be like? Well, they’ll probably not have a car or a wife, and they probably they'll probably be powerful enough to thwart or match threats. One way to increase the incidence of illegal bribes and threats is to create a “Black Market” by making the prize illegal: drugs, gambling, prostitution etc. Government skews competition by not only creating Black Markets, but through legalized bribery and legalized threats. Competitors can always get a leg-up on competitors via legalized bribery: that is, by lobbying Congress to alter the rules of the game in their favor. Governmentally enforced licensure requirements reduce competition by threatening non-licensed competitors with fines and prison. Hence, if you want to open a liquor store or drive a taxi, you must pay for a very expensive license. Who originally lobbied for these licensure laws? You guessed it! Liquor stores and taxi cab companies that can afford to pay the costs of those licenses.

Saturday, October 4, 2008

Health Care Reform

In the United States, there is a growing consensus that our health care system is in dire need of reform. How should we proceed? Well, most critics agree that reform must address three key issues: access (Who can access the products and services they want or need?), quality (How good are the products and services that can be accessed?), and cost (What is the cost of providing these products and services, who pays that cost, and how?). As in the case of education, the provision health care in the United States involves both public and private payment systems. “Public systems” (Medicare, Medicaid, Veteran’s Administration, and Social Security) are financed by tax revenue and private systems are financed by non-governmental payers (patients, insurance companies, charitable organizations). Where does this money go? Well, it goes directly or indirectly into the pockets of a staggering number of health care providers. Hence, these “providers” are really “sellers” of health care products and services. They include: doctors, nurses, allied health professionals, research scientists, malpractice lawyers, hospitals, research laboratories, medical schools, private health insurance companies, financial institutions (banks), credit card companies (Visa and MasterCard), public and private research laboratories, technology corporations (General Electric), drug companies, and the lobbying firms that represent all of the above. For a libertarian, the first step to health care reform is to openly acknowledge and embrace the obvious, inescapable reality that health care is about buying and selling. Because the frontline sellers (doctors, nurses, allied health professionals, researchers, etc.) are highly educated and therefore have substantial college loans to pay back, they expect to earn a substantial return on their investment of time, energy, and resources. If you are a retiree, you probably hold stock investments in corporations that sell health care products and/or services. If so, you certainly expect a healthy return on your investment. Traditionally, pharmaceutical stocks have been a staple of the most lucrative mutual funds. If you own stock in a corporation that provides health insurance to its employees you are probably concerned with the rising cost of providing that benefit. If you are an employee of a corporation that provides your health insurance you are probably dissatisfied with the access, quality, and cost of the health care you receive. So as we explore access, quality, and cost of health care, the basic problem is that it will be prohibitively costly to provide Americans with universal access to high quality health care. Therefore, in the real world, there are three possible rationing strategies: 1.) provide less-than-universal access, 2.) provide less-than-high quality products and services, or 3.) reduce unnecessary costs by increasing the efficiency of the system and/or shell out a lot more money. When health care reformers suggest any combination of these strategies, they invariably alienate stakeholder groups, which contributes to high-stakes lobbying activity. Therefore, given the current political structure in the United States, health care reform will be shaped by access, quality, and cost of hiring lobbying firms that can persuade (or bribe) government officials to ration health care in their favor. Now, what does all of this suggest about the prospects of meaningful health care reform?