Thursday, October 21, 2010
ObamaCare: governments fail too
Governments fail too
Many times you read articles or see news reports regarding "market failure". That some how the market has failed. What you intuitively know but is rairly reported is that "governments fail too". Both markets and governments fail basically because they are both made up of human beings that make errors. Some errors are unfortunately by design.
In a recent Kudlow Report segment Don Luskin, chief investment officer of Trend Macro made this instant- classic statement: "Government is the only enterprise in the world that when it fails, it does the exact same thing over again except bigger". (1)
Luskin is not alone. Milton Friedman also observed: "The government solution to a problem is usually as bad as the problem". (2)
Do we know of government failures?
We do in fact know governments fail. John and Jane Goodfellow have first hand experience from a simple trip to your local Department of Motor Vehicles that takes hours, to the out of body experience of trying to read and fill out you annual federal tax return. We also know government failure in a more complex proposition of unfunded future entitlements of Medicaid, Medicare, and Social Security that are now in excess of 100 trillion dollars.
Why are market failures reported yet government failures are under reported?
It boils down to the "painting" of the subject matter. What exactly is the difference between politicos through the mechanism of government creating a cheap money bubble while simultaneously promoting purchases of single family housing units by low income marginal buyers and a financial advisor promoting a novice, part-time retail stock investor, with very modest means, into making risky trades using a margin account? (3)
The point being that both are highly risky practices especially for the type/kind of participants involved. One risky practice is promoted by the government while the other risky practice is promoted by the private sector.
If the outcome for both situations end in disaster, the government promoted activity is painted as merely public policy failure experiment albeit in-your-best-interest, helping the little guy, and social justice didn't work in this particular isolated incident. The other disastrous outcome from the private sector is painted in exact opposite terms where "greed", getting over on the little guy, and the-system-is-rigged are the overarching themes of the incident as well as the incident not being isolated but portrayed wide spread within the entire economic system.
In the larger picture, cases of government promoted failure and private sector promoted failure, yield only one report: "markets fail". The "governments fail too" proposition plays second fiddle and is only pointed out by a handful of people. Hence the public at large are feed the "markets fail" concept and the "governments fail too" proposition remains widely under reported.
ObamaCare and governments fail too
F.A. Hayek wrote extensively that centralized command and control programs only worked in the hunter/gatherer stage of economic evolution. When small groups of forty or so controlled a hunting/gathering region, centralized authority might have worked. Harold Demsetz has also written extensively regarding the subject. (4) (5)
However, both Hayek and Demsetz point out that when economies evolved into millions of people, the market became based on the individual, individuals in number that are far removed from the forty or so hunter/gather stage. That millions of unique individuals, through no master centralized plan, began to base information on "price" through no particular grand design. That an economy based on price, price being reflective of scarce resources with alternative uses, allowed the unique millions of individuals, within a vast economy, to communicate, economically speaking, in the universal language of "price".
Hayek went further and postulated that the summation of mundane knowledge of individuals was greater than the knowledge of any centralized authority. In effect, no centralized authority could mimic the knowledge of millions of unique individuals with specific mundane knowledge of their unique abilities, needs, wants, and desires. Thomas Sowell has also dispelled the myth that the knowledge of a centralized authority can supplant the billions of mundane knowledge decisions made everyday by individuals with specific mundane knowledge particular to each and every price decision. (6)
History repeats itself but market failure receives a front page headline
A quote by Ronald Reagan has been widely disseminated within the United States over the past half century: "....government is not the solution to our problem, government is the problem". Actually Reagan went on in his statement to basically summarize Hayek's position of centralized authority being unable to organize an economy. You can hear those remarks in the link below:
When ObamaCare, the first major entitlement introduced since LBJ'S Great Society programs, and with Social Security, Medicaid, and Medicare all basically bankrupt, many, many individuals in US society immediately recalled Reagan's remarks. That yet another entitlement stacked atop a bundle of bankrupt entitlements smacked of "..government is the problem".
Upon review, ObamaCare is merely a centralized authority trying to mimic billions of mundane decisions by unique individuals. ObamaCare attempts to manipulate price which would simply cause individuals to receive the wrong price signals regarding the allocation of scarce resources with alternate uses. Moreover, ObamaCare is a price fixing scheme that ends, as do all price fixing schemes, with a qualitative and quantitative reduction in supply aka rationing. (7)
Oddly enough, "Governments fail too", regarding the introduction of yet another vast entitlement, was elevated, through the voices of millions, to the forefront. Millions upon millions of citizens want to investigate "government failure" before it becomes government failure. Upon further review and investigation, the failure of ObamaCare has become daily reports. That the plan is unravelling daily and possibly for the first time "governments fail" may be stopped before it happens.
(3) Getting Off Track, John B. Taylor
(4) Hayek: His Contributions to the Political and Economic Thought of out Time, Butler and Riggenbach
(5) From Economic Man to Economic System, Harold Demsetz
(6) Applied Economic, Thomas Sowell
(7) Basic Economics, Thomas Sowell