Voice For Liberty

Tag: Economics

  • Drug Runaround: Solved by Universal Health Care?

    A letter writer in the July 12, 2008 Wichita Eagle has issues with his health insurance coverage, and wants us to discard our present system in favor of universal health care coverage.

    Mr. Ronald Voth of Halstead (a candidate for the Democratic party nomination for the U.S. House of Representatives for the fourth district of Kansas in 2006) criticizes the health insurance company he uses. He doesn’t say how he obtained this coverage, but if he’s like most Americans that don’t receive their health care from the government, he and his family probably have an insurance policy selected and paid for by his employer. While many employers let their employees choose from a few variations of coverage, for most employees, they have to take what their employer is willing to provide. There isn’t much of a market for individual health insurance policies in America.

    If there were a large market for private health insurance, customers would have the benefit of companies competing for your business in free markets. This means that if Mr. Voth doesn’t like the coverage he’s getting from his current provider, he can change. But for most people whose policies are provided and largely paid for by their employers, switching insurance carriers is not a realistic option. This employer-provided coverage, a relic from the circumvention of World War II price controls, results in less competition for customers.

    With market-based competition comes innovation. With universal health care provided by government comes the opposite. I wonder if Mr. Voth knows that Canadians come to places like Wichita to get the health care they can’t get under their universal system? See Wichita’s Galichia Provides What Government Health Care Doesn’t.

    Mr. Voth claims that universal care systems in other countries are cheaper than ours, and that’s true. But we should ask why. The article referenced below states: “… because the U.S. is so much wealthier than other countries, it isn’t unreasonable for it to spend more on health care. Take America’s high spending on research and development. M. D. Anderson in Texas, a prominent cancer center, spends more on research than Canada does.”

    (By the way, the high cost of health care can’t be blamed on high-paid CEO’s. If the CEO of a large insurance company that has 10 million customers is paid, say, $100 million a year, that’s only $10 per customer per year.)

    For more information about universal health care in other countries, the article The Ugly Truth About Canadian Health Care provides balanced criticism of the Canadian health care system.

  • Where’s Leadership on Oil Speculation?

    In the July 12, 2008 Wichita Eagle, Kenneth James Crist of Wichita blames oil speculators for ruining the U.S. Economy, writing that politicians should “do something positive to halt the rampant speculation in the stock market and oil futures that is really driving these runaway prices. All it really amounts to is tremendous greed on the part of a few, at the expense of the many.”

    I wish that Mr. Crist had read Futures Markets by the economist Walter E. Williams before writing this letter. In this article we learn this:

    The futures market, which takes into account both the present and the future availability of goods, is a vital part of a smoothly functioning economy. Unfortunately, that fact provides little comfort to people frustrated over the high prices of food and fuel. As such, it provides fodder for political demagogues, charlatans and quacks who rush in with blame and prepare “solutions” for the problems they themselves have created — the high prices for food and fuel are directly linked to the policies of the White House and Congress.

    That’s right. Futures markets — that’s where speculators buy and sell — provide a valuable service by assuming risk that others are not willing to take on, and by smoothing the price of commodities over time. Speculators assume risk. That is their essence. They may make huge profits in their leveraged trades, but they also bear the risk of, and the actual realization of, equally huge losses when their guesses are wrong.

    That illustrates an often overlooked property of futures markets. For one person — the “evil” speculator — to bet on the price of oil going up, someone has to take the opposite position, betting that the price will fall. Both can’t be right. One wins and the other loses. Is there sympathy for these speculators that lose in these trades?

    The action of a speculator taking a “long” position in markets is to buy low and sell high. This benefits consumers in the long run. By buying when prices are low, the speculator does cause prices to rise and be higher that they would be without the speculator’s buying. Then, selling when the price is higher, the speculator causes the prices to be lower than it would be if not for his selling. This is how the speculator smooths prices and assumes risk.

    Speculators can’t wait too long, either. From Greedy Speculators? published at the Cato Institute:

    The current political charge is, “the speculators are driving up the price of oil.” But think about it for a moment. If the price of oil is being driven above the market clearing price where supply equals demand, demand will fall and the speculators will be stuck holding huge, unintended stocks of oil. Holding oil in tanks and ships is costly, and speculators will not incur these costs for long, so the price will drop.

    We need to recognize the valuable role that speculators play in our economy. By focusing on an easy target, we fail to look elsewhere to find the true causes of our problems.

    For more information on the valuable role that speculators play in the economy, see chapter 22 of Walter Block’s book Defending the Undefendable.

  • The Threat of Social Progressives

    In the July 5, 2008 Wichita Eagle, a Mr. Chet Syres of Hutchinson contributes a letter promoting the virtues of liberalism, proponents of which he now wants us to call social progressives.

    I remind Mr. Syres that leftists stole the terms “liberal” and “progressive” from the classical liberals. From For A New Liberty by Murray N. Rothbard:

    One of the ways that the new statist intellectuals did their work was to change the meaning of old labels, and therefore to manipulate in the minds of the public the emotional connotations attached to such labels. For example, the laissez-faire libertarians had long been known as “liberals,” and the purest and most militant of them as “radicals”; they had also been known as “progressives” because they were the ones in tune with industrial progress, the spread of liberty, and the rise in living standards of consumers. The new breed of statist academics and intellectuals appropriated to themselves the words “liberal” and “progressive,” and successfully managed to tar their laissez-faire opponents with the charge of being old-fashioned, “Neanderthal,” and “reactionary.” Even the name “conservative” was pinned on the classical liberals. And, as we have seen, the new statists were able to appropriate the concept of “reason” as well.

    In recent years, it is liberals themselves that have given their mis-appropriated term a bad name by advocating the policies that Mr. Syres now sells under a new name: social progressivism. Who could be against progress? Only Neanderthals, of course.

    But look under the covers. Does raising the minimum wage help those who its proponents want to help? For those lucky enough to retain their jobs after an increase in the minimum wages, yes. For those who lose their jobs, no. For those who have made their way through the public schools (the grand achievement of social progressives) without graining much in the way of skills, and therefore can’t find a job at the new higher wages, no. See Problem of Low Wages Not Easily Solved.

    Then there is Mr. Syres’ desire to tax the rich at higher rates, for they are not paying their “fair share.” Trickle-down economics does not work, he says. But the problem is that government can’t create wealth. All it can do is to transfer money from one person to another. Instead, it is people who create wealth and a higher standard of living, most often by accumulating and investing capital. The less capital there is to invest — and taxes reduce that — the less economic progress can be made. With less capital, workers have to dig ditches with shovels instead of power machines. Which would you rather work with? Who earns a higher wage, the man with a shovel, or the man operating a power backhoe? But without someone accumulating wealth and capital, there can be no backhoes, only shovels, and even they require the accumulation of some capital.

    Mr. Syres says he wants to promote “social justice” through charity implemented through legislation. Is progress made when voluntary charity is replaced by government programs, fed by taxation? Is progress made when the voluntary cooperation of free people trading in free markets is replaced by the heavy hand of government coercion? Of course not, except for those who believe that they know better than everyone else how things should be, and seek to implement their ideas through expanded government. These are the social progressives, and they are a threat to liberty and prosperity.

  • Wichita Business Journal: Please Explain the Wichita School Bond Impact

    In an article in the June 27, 2008 Wichita Business Journal (Passage of 2000 school bond issue highlights Brooks’ legacy in Wichita), reporter Josh Funk makes another error. (The first error is explained in Wichita Business Journal: Where is the Increasing Enrollment in Wichita Schools?)

    In this case, Mr. Heck claims, in his tribute to departing USD 259 (Wichita public school district) superintendent Winston Brooks, that “He leaves Wichita before resolution of a $350 million bond issue, but his legacy as superintendent will be the passage of another bond issue — this one for $284.5 million — eight years ago that bailed out a city from a depressed post-9/11 economy while making necessary improvements to the school district.”

    Mr. Heck must be relying on reporting from his own newspaper, for a few months ago it printed the article “Brooks: Bond issue possible in spring” (December 28, 2007 Wichita Business Journal) in which Brooks and Joe Johnson, head of the school district’s architectural firm Schaefer Johnson Cox Frey Architecture say that the bond issue in 2000 did, indeed, save Wichita.

    This is nonsense of the highest order. Government spending cannot create prosperity. Borrowing against future tax revenue only compounds the problem. See Wichita School Bond Issue Economic Fallacy.

    The Wichita Eagle let its guest columnist make the same mistake when Wichita school board member Lynn Rogers tried to make the case that the 2000 bond issue was an economic benefit to Wichita. See Wichita School Bond Issue Impact Is an Illusion for discussion.

  • Price Controls Will Harm Iowa

    In the article Price Controls Create Man-Made Disasters we learn that although the Iowa attorney general has imposed Iowa’s anti-price-gouging rule (Price-gougers beware, Attorney General says), the likely effect will be “shortages of needed supplies, long lines, delayed repairs, and, perhaps, increased incivility.”

    The price system is very good at allocating scarce resources. That’s certainly the case after natural disasters, where things as necessary as drinking water may be in short supply. Allowing the price of even essential items rise to high levels means that hoarding is discouraged, leading to more widespread availability of goods as necessary as drinking water.

    Officials appear humanitarian when they impose anti-price-gouging measures, but this is just another example of the actual effect of something being very different from the intended effect.

  • Wichita’s Galichia provides what government health care doesn’t

    A recent editorial in The Wichita Eagle (Dr. Bill Roy: Universal care is most economic, efficient) contains several mistaken impressions. One may be disproved by recent developments in Wichita.

    The writer states “It has never been a secret that a single-payer system is the most economic, efficient and fair way of providing universal care.” Here’s something interesting that I’m sure the author of this opinion piece knows, but somehow disregards. In Canada, home to the type of health care system the writer favors, many people come to the United States for care. In fact, Wichita is now providing service to Canadians who, for one reason or another, are not satisfied with their own government-provided free care. “[Wichita’s] Galichia Heart Hospital treated its first out-of-country patient last month, a Canadian who needed a hip replacement and was willing to pay cash instead of waiting months — or even years — for what is considered elective surgery in Canada.” (Some U.S. hospitals try to draw foreigners with flat-rate care, May 29, 2008 Wichita Eagle.)

    Someone needing a hip replacement in the United States probably doesn’t consider their need for surgery to be “elective.”

    While we in the United States may complain about high drug costs and drug advertisements on television and in print, at least we have new drugs. We may complain about waiting a few weeks to see a specialist, but we usually get to see one. And some people complain that expensive advanced medical equipment has been installed in two of Wichita’s hospitals, when one should be sufficient. But we have these things. Countries with government health care often don’t: “All provinces continue to use rationing in an effort to contain the growth in government health spending. Governments ration health care with policies that reduce the effective supply of health professionals, reduce the availability of advanced medical equipment, and restrict the scope of coverage for new medicines under public drug insurance plans. Such rationing drives up waits for specialist medical care and inhibits access to new drugs.”

    This passage is from a report titled Paying More, Getting Less 2007 from Canada’s Fraser Institute. The report makes this conclusion: “Based on the data and analysis in this report, we conclude that public health insurance, as it is currently structured in Canada, tends to produce rates of growth in government spending on health care that are not financially sustainable through public means alone. This is occurring while governments are restricting and reducing the scope of benefits covered under publicly funded health insurance.”

  • Wichita School Bond Issue: Is Economic Impact Real?

    Recently USD 259, the Wichita, Kansas public school district, used a study prepared by the Center for Economic Development and Business Research at Wichita State University to illustrate the success of the bond issue from 2000, and, by inference, make the case for a bond issue in 2008. There are many defects in this study, and this Voice For Liberty in Wichita article explains some: Wichita School District Economic Impact.

    I wrote to Janet Harrah, the lead author of this report, with some questions. One of her responses, not to any particular question I asked but just by way of general explanation, was this: “These studies are designed to estimate the impact of expenditures for a particular activity. These studies are not designed to determine the ‘best and highest’ use of money.”

    This revelation makes this study useless as a guide as to whether spending by the Wichita school district is wise. Spending by government creates economic activity. If government paid one group of workers to dig holes in the ground, and paid another group to fill in those holes, that would be government spending creating economic activity. (And governments have done pretty much just this.) The workers, whether they were creating or destroying holes, would spend their pay just like any other workers would. But these workers — after the holes are filled in — have created no economic wealth.

    The fact that government spends money, therefore, does not mean it is spent wisely in ways that create wealth and makes people better off. The study the Wichita school district uses to prove its worth makes no attempt, according to its lead author, to judge the relative worth of its spending.

    In fact, governments, including school districts, are poor judges of how to best spend money. Bureaucrats and politicians who spend other peoples’ money face different incentives than regular people spending their own money. Who do you think spends most wisely?

  • A Believer in Good Government Programs

    An audio version of this post is available here.

    A Mr. Greg Abbott of Clearwater, Kansas makes the case in the June 13, 2008 Wichita Eagle that there are many good government programs: the interstate highway system, the post office, the air traffic control system, police and fire departments, etc.

    I believe the writer makes a huge error in logic by assuming that because these programs exist and have been provided by government, then they are good things to have, and that these things can only be provided through government. To make this conclusion requires a huge leap and a good measure of misplaced faith in the institution of government.

    Many of the programs the writer cites as examples of good government programs are frequently criticized. The interstate highways in our nation’s cities are often congested to the point where loss of time spent stuck in traffic is a serious problem. Then there is the problem of safety of the nation’s highways, on which some 40,000 people die each year, and many more are seriously injured. Walter Block writes “As far as I am concerned, [these deaths are] taking place in spite of, not so much because of, the actions of the National Highway Traffic Safety Administration, despite their tendency to take credit for anything positive that happens on their watch, as do all statist agencies.” I recommend his article Deaths by Government: Another Missing Chapter.

    The post office? Do many people rely on the post office for delivery of critical shipments when private alternatives such as FedEx and UPS are available?

    As for flood control, the federal government’s flood insurance program, by suppressing signals that would be expressed in the price system as insurance premiums, if there was indeed a free market for such insurance, has lead to numerous deaths. Ask the residents of New Orleans how they feel about government levees and government flood insurance. See How Government Insurance Destroyed New Orleans.

    Need I continue? Each government program Mr. Abbott mentions has severe problems, and most crowd out efforts by private enterprise to provide alternatives.

    There is a truth in the writer’s letter in this sentence: “We need to wake up and realize that we all depend on the government.” That this is true is profoundly sad. Government, Mr. Abbott, operates through force and coercion. Wouldn’t it be better if we could solve problems and provide services through the voluntary cooperation of people?

  • Tax Abatements in Wichita

    Remarks to Wichita City Council, June 3, 2008.

    A few months ago I spoke before this council asking that you not grant a tax abatement. At that time I was told that granting a property tax abatement doesn’t have any impact on City of Wichita spending.

    I found this quite remarkable, that new homes and buildings can be built but not consume any additional resources that the city and other local governments supply. If this is truly the case, why should a new development of any type at any location have to pay any property tax at all?

    There is a cost to the city and other local governments in granting tax abatements. Actually, the cost is born by the taxpayers who don’t achieve the favored status that these developers are seeking. These non-favored taxpayers — homeowners and businesses alike — have to pay for the services this development will consume but will not pay for because they seek to avoid paying their property tax.

    Mr. Mayor and Members of the Council, if there were no impact on city spending, no cost to the taxpayers of the City of Wichita when a TIF district is created or tax abatements given, why would we not grant these benefits to anyone building anything in any part of town?

    It is now apparent that TIF districts and tax abatements are entitlements that developers in politically-favored areas of town can count on receiving, while everyone else pays.

    The granting of these benefits to developers working in certain parts of Wichita amounts to central government planning. It is government, instead of people trading freely in markets, deciding to direct capital from one part of town to another for political, instead of economic, reasons. In effect, this council says to entrepreneurs who chose to invest their capital somewhere else in Wichita — somewhere that doesn’t qualify for tax abatements — that they made a mistake. And they will pay for that mistake, as they pay the property tax that these developers will escape paying.

    It may be that this project is not economically viable unless it receives the tax abatement. If so, we should ask why our taxes are so high that they discourage investment and economic activity.