Mandated Health Insurance

The Goal is Freedom: The Mandated Health Insurance Outrage by Sheldon Richman

It’s a great read, here is some stuff I want to highlight:

• Ostensibly the bill exists because of “shared responsibility” to have insurance. This is just a nice way of saying you’re being made to do it by force.
• The ‘authority’ being used for this bill is the US Consitution’s Commerce Clause – which is typically used against barriers to free flow of trade amongst states. But in this case, that doesn’t apply because you actually aren’t allowed to shop interstate for insurance policies in the US! So supposedly, forcing everyone to buy insurance qualifies as regulating interstate commerce. Go figure.
• This policy cannot correctly be called insurance. Insurance involves concepts like risk and uncertainty. But in a world where insurance companies are not allowed to discriminate against people with pre-existing conditions, they are effectively subsidising health care for some at the expense of others. It is akin to waiting until your house gets burnt down and then going and getting home and contents insurance, and still expecting to get an insurance payout for it. Now sure, it’s true that bad things can happen to people through no fault of their own, but the point here is, it would be entirely dishonest and downright deceptive to call such a policy “insurance”. After the event has occurred, there is no longer any uncertainty.
• The system before this was nothing like an actual free market in health care. It was highly regulated and made people have strange incentives. One example of this is the way that consumers who got health care insurance didn’t really have to think about how much it costs to do certain things like visit the doctor. This in turn meant that they would use it more often rather than economising and only getting the things that they really needed. Also, the US government regulations would prohibit shopping interstate for insurance policies, which also hindered the ability of consumers to economise on their insurance and only insure the things they need. This pushed up the costs because consumers were forced to insure themselves for very obscure things that they would have chosen not to insure.

This current policy will lead to more and more government control over the system. They create the problem, and then pretend to solve it for you – while actually creating more problems in the process. Rinse and repeat. Don’t believe me? Wait and see.

Is Limited Government an Oxymoron?

Insider Trading should be legal

“But if insider trading is legal, then that would be unfair to all the regular people in the market who don’t have the same access to information that insiders do.”

This is a commonly held view, but it ignores the way the economy works. Some people have specialised knowledge in certain industries and they use this to be able to produce goods more efficiently than others. Would you say that this is unfair? Does it really make sense to say that someone who’s been in the mining industry for 10 years shouldn’t use their increased knowledge so that a mining newcomer may ‘fairly’ compete with them? If anything, people with increased knowledge or information should be encouraged to use that information, and I’ll elaborate on this.

Here are some (brief) arguments for Insider Trading being legal:

1. Equity prices would disclose relevant information more accurately/quickly

What does this mean? It means the share price for a stock should reflect the sum of information relating to that stock’s value. If there is good news for the company, we should expect the price of the stock to rise as people buy it.  If there’s bad news coming up, then we should expect the stock price to fall as people sell.

Why is this important? Equity prices function as a price signal to groups such as investors and shareholders. Investment decisions turn on these things, and it makes the difference whether or not somebody wants to go for a takeover or decide to undertake new investment etc. Insider trading prohibitions slow the flow of trading and information, which means that the equity price is not as accurate as it could be.

2. It reduces the need for corporate whistle blowers

It’s not easy to be a corporate whistle blower when a firm is committing accounting fraud, but it is easier to effectively achieve a similar result by selling/shortselling stocks based on this inside information – because if you know that something’s not right, then you’ll make money by doing this. As a person with knowledge of company fraud, your profit incentive to sell or short sell stocks helps everybody else because it functions to tip off the rest of the market to the problem. So this is why we actually want people to act on the improved information/knowledge that they have, rather than trying to live under this facade that nobody ever trades on information that is not publicly available.

3. Insider Trading prohibitions never catch people who refrain from taking an action because of inside information

Insider Trading laws are unbalanced in a sense. If you have access to inside information and trade based on this information, then you are in trouble with the law. But, if you have access to inside information and this information encourages you not to take any action (where you would have otherwise taken action), you are not in trouble with the law. To give you an example of this, let’s say you hold stocks in company Z, and you were going to sell them – until you learn (before everybody else does) that company Z has just invented a revolutionary new technology that would vastly increase its market value. Given this information, of course you would choose to not to sell the stocks in company Z and gain from the upcoming price rise. So this is the disparity between action and non-action with Insider Trading prohibition and it demonstrates an inconsistency with the Insider Trading prohibitions.

“What if you’re wrong about all this and Insider Trading is detrimental?”

At the end of the day, even if Insider Trading turns out to be detrimental, it wouldn’t be very costly – all that is required is for companies to put the restriction against insider trading in their employment contracts.  If this is truly what shareholders want, then corporations would do this. However, it’s more likely that things would function better with Insider Trading permitted because fundamentally as a shareholder you don’t want to lose your investment. So therefore you should favour measures that keep firms honest.

Defending the Undefendable by Walter Block

Defending the Undefendable by Walter Block (PDF)

Defending the Undefendable by Walter Block is an interesting book because it looks at professions that are typically reviled or scorned – and tries to show that they actually do have economic merit. By going to the extremes, it allows Block to demonstrate that the ideas behind libertarianism are able to be consistently applied – and don’t just apply to “respectable” industries. I’m not saying I agree with everything he says, but it is at least thought provoking.

Banks can read your bills under proposed changes to Privacy Act

According to this article in Herald Sun, there are proposed changes coming that will allow banks to view all your financial affairs going back 2 years, based on missing just one repayment. I’m annoyed because this is a huge impingement on our privacy rights.

Supposedly the government is doing this so that banks can be more “responsible lenders” and adhere to the new lending requirements also being introduced by Financial Services and Superannuation Minister Chris Bowen.

“The proposals would allow somebody who has been through a difficult financial period to demonstrate that they have recovered by meeting all of their repayments in a timely fashion,” Mr Russell Evans of Veda Advantage, the credit information agency.

Huh? If a person wants to demonstrate that they have recovered, why wouldn’t they just voluntarily show that they have met all their repayments by showing the prospective lender all their paid bills? Why does it have to be mandated? Russell Evans decision to use the words ‘would allow’,  is very deceptive. If the individual wants to show their statements, let them do that. Why give the banks power to look without permission?

Besides, if the government really wanted to ensure that financial institutions were being responsible about how they lend funds, there’s a much easier way to do that: Stop artificially dropping interest rates below what they would otherwise be – ie. stop the practice of fiat currency and fractional reserve banking. But they’d never do this because then the state would no longer be able to steal your value/money via inflation (printing money), and that’s no good to them.

Middle-of-the-Road Policy

Ok so you have probably heard of people who claim that they want to find the middle ground between capitalism and socialism. The idea is to ‘restrain the unbridled excesses of the market’ by regulating it and ensuring that some of the profits go to the working class as a half way between solution. This is referred to as Middle-of-the-Road Policy and it is also known as ‘the Third way’. There are many prominent politicians who broadly fit into this category, such as Kevin Rudd, Bill Clinton, Tony Blair and Gordon Brown. I can understand why this would appeal to people because they tend to think things like:

• “It’s not as ‘extreme’ as being entirely in support of either capitalism or socialism.”
• “It’s like a compromise between the two so it’s something that people will find it easier to agree with”
• “It takes the best of both worlds”

I think these ways of thinking are misguided. In Middle-of-the-Road Policy Leads to Socialism, Mises explains the problems with the Middle-of-the-Road approach:

The control is indivisible

The debate between capitalism and socialism is not about how to distribute the booty and to use the Middle-of-the-Road approach is to miss the point. The tension between these two is about which is better for society’s economic organisation or achieving economic ends, such as “the best possible supply of useful commodities and services”. Put simply, it’s not about distributing a fixed amount of goods, it is about the mode of production of goods/services.

As schemes for achieving economic ends, socialism and capitalism are irreconcilable. Either the market (via consumer preferences) determines how much of what is produced and how, and for what purpose, or the government does. To ‘intervene’ in this sense is to take control, and even though a business or asset may be privately owned, government regulation effectively means it is not a privately owned and operated business or asset. So it’s quite clear that it is one or the other, and no in between is possible.

It eventually leads to full blown socialism

Mises takes the example of price controls, demonstrating why they lead to more and more government interference. Say the government wants to fix the price of milk below the market rate, for the purpose of making milk more affordable and available to everybody.

The result is that the marginal producers of milk, those producing at the highest cost, now incur losses. As no individual farmer or businessman can go on producing at a loss, these marginal producers stop producing and selling milk on the market.

So rather than making milk more available, milk is now less available to everybody. So to try and fix this problem, the government would then have to try and fix the price of something that is used to produce milk. It has to fix the price of other factors of production, such as labour or materials. So the exercise gets repeated over and over, and the consumers have less and less say in what gets produced because the government is now making all the decisions.

At the end of the day, it’s really about deciding which system you prefer and being consistent with it all the way through. There is no third solution.

Is it ridiculous enough yet?

Just saw an interesting post on the Mises blog and felt like it deserved some linkage: Professors Claiming Copyright Over Their Lectures: or, The Increasingly Evident Injustice of IP by Stephan Kinsella

So there’s an argument going around that lecturers are the owners of the intellectual property over what they say in class. Apparently, one economics lecturer has told the class to hand in all their notes, so that future students may not benefit from them. What a stupid idea! I like the point this blog post makes at the end: If Plato never took notes, the works of Socrates would never be known to the world.

Because IP is all about, you know, the free exchange of knowledge and ideas for the betterment of all humans everywhere.

Pirate Economics

Here’s a short interview with Peter Leeson on Fox. He talks about some of the economics behind how pirates in the 18th Century conducted their activities. Peter also did an interview with reason.tv, which was also pretty interesting.

For more info on why pirates were rational economic actors, I’d recommend checking out his book, The Invisible Hook: The Hidden Economics of Pirates (The title plays on Adam Smith’s concept of the “invisible hand”). Lastly, I’d just like to add that he is not praising their criminal conduct, he is merely pointing out the structures they used for organisation and to create rules are based on rational self-interest. So the point is that they had to find ways to govern themselves, because as a criminal organisation, they couldn’t rely on the state to police their internal activities.

“Anarconomy”

Here’s a really interesting report by the Copenhagen Institute for Futures Studies, “Anarconomy“, which is a portmanteau of Anarchism + Economy.

It touches on a few different areas, but essentially it focuses on the way that certain business models are changing, particularly those involved with digital media. It refers to the recent popularisation of content and services such as Wikipedia, free software, internet search engines, books (such as the Gutenberg project + Google Books) and music that are freely available to all with an internet connection. It raises some interesting points such as:

Ideas work differently to physical property:

“If you have an apple and I have an apple and we exchange these apples then you and I will still each have one apple. But if you have an idea and I have an idea and we exchange these ideas, then each of us will have two ideas.” Irish playwright George Bernard Shaw (1856-1950)

The report suggests that the presence of freeware and free services tends to bring down the prices for the commercial versions of these goods – and that it could even mean that the prices eventually fall towards zero over time. The fact that some people end up doing the legwork, while many enjoy the benefits (eg. Wikipedia) doesn’t necessarily stop those people from doing the work. So even though there are ‘freeriders’ (in this example, people who use Wikipedia but don’t contribute by editing it themselves), this does not stop the service from being operated – this idea runs counter to what some people seem to think is a fatal flaw in the ‘free market’.  So the reality is that there are enough people who realise that a small contribution from many people makes light work for themselves and the end result is a great resource for everyone to enjoy, free of charge.

Free vs Commercial

The provision of goods/services by some people for free helps keep the commercial providers on their toes as far as providing value for money goes. The converse also holds true, in that the people providing the free product have to maintain a standard of quality high enough that their alternative remains viable.

Society’s changing attitudes towards intellectual property

The fact that many people download music and movies illegally leads other people to do it (regardless of whether this is right/wrong), because they feel like they are losing out otherwise. These attitudes are representative of a generation of people who feel like digital media such as music and movies should be free for their consumption online, and that manufacturers of this content should find other ways to fund it. We are now seeing different types of services come up, such as Spotify, a music service that allows people to listen to the music they like, funded by advertising rather than purchasing the songs. There are also other types of services where the consumer pays a flat fee every month to have access to a given library of music/media.

So have a look at this report, it’s fascinating. One last thing, make sure you check out the “Two Scenarios for 2025″ section. I think there’s a good chance the future will turn out closer to the second scenario rather than the first. The second scenario, The Age of Empowerment, has a big focus on open source software and free content. As evidence, I submit the existence of Linux competing with Windows, Google Docs + Open Office competing with MS Office, organisations like the Gutenberg project providing free ebooks and lastly, the fact that many private businesses already offer free wireless internet on the premises. It will be an interesting 16 years.

End the Fed is out

Ron Paul’s new book, End the Fed, is out. I hear it’s good at dispelling government myths and propaganda about how useful the Fed Reserve is. Too many people seem to think that this crisis was caused by lack of government regulation, when it was really caused by too much government. The Fed Reserve effectively has price control powers over the interest rate and so many industries are heavily regulated (particularly the financial services one). Ron Paul’s book correctly takes aim at the Federal Reserve as the central cause.

One of the people who reviewed the book on Amazon wrote this simplified explanation of what is wrong:

Economics 101: When you create more of something, the value decreases.

Economics 201: The Federal Reserve printing (Liquidity Injections) of Federal Reserve Notes (Dollars) has decreased their value.

Economics 301: The dramatic increase of Federal Reserve money printing in the last couple of decades has devalued our money and caused the current economic crisis.

Economics 401: The Fed is trying to solve the problem with more of the same thing that caused the problem.

The poll on this article, End the Fed Save the Dollar: Ron Paul is at 87% in favour of ending the fed (at time of writing) and I find this pretty interesting. Maybe public opinion is starting to turn against the Fed?