The Older Brother lets his inner econ nerd run wild (Part II)…

Okay, fellow Fat Heads, if you read Part I and came back anyway, thanks for your patience. I’m sure it was grueling for some of you, but I wanted to illustrate some fundamental economic concepts for a model that helps explain our current nutritional predicament, and the Business Cycle analysis covers a couple of those. Here’s a quick synopsis:

* Government “helping” in the economy — via government programs, money printing, subsidies, bailouts, regulations, tax breaks, etc. — distorts prices. This is an unstated but automatic goal.

* Price is the mechanism by which markets convey information, so government intervention = bad information.

* Whenever a company or industry or government program gets created or propped up, a constituency is created that has an existential interest in maintaining those subsidies.

* As this bad information gets diffused and incorporated throughout the economy, its source becomes rapidly unrecognizable, but the damage doesn’t lose potency.

We’ll hit a few other concepts as we go.

[ Finally, please note that this model and these concepts apply regardless of stated intentions, desired outcomes, or party affiliation, okay? I’m getting tired of being called a closet Republican. Thanks. –OB ]

Okay, let’s get back to my premise from Part I — real food seems to cost too much, but it’s really the right price. It looks high because Big Food costs too little.

First, let’s put our cool-looking Official Junior Economics Nerd beanies on and take a walk down to the farmer’s market.

We’ll note that — setting aside the burdens, barriers, and hoops local food providers have to jump through (which do increase costs) — there’s not a lot else in the price at our vendor’s booth that isn’t real. Real labor, real fertilizer, real sunshine, real seeds. Gas money for the 20 mile drive to market. That’s their costs. Not much place to hide anything. Hopefully, they’re adding enough of a markup to make a good living for themselves and their families, but they’re not flying to shareholder meetings on the corporate jet (not that there’s anything wrong with that).

If they get a little too proud of their produce, the folks in a booth a couple of doors down will probably be exerting a little “market discipline,” i.e., charge a lower price. Even if they all band together like OPEC to collude on prices, by the end of the day they’ve either got to sell at a price that literally “clears the market” or they’re hauling the result of all that time and sweat and seed money home to the compost pile.

That’s about as honest of a price as you’re going to get.

So the cost of that dozen eggs may be twice what they sell for at the store, but it’s real chickens raised on real ground, fed real chicken feed shipped over a reasonably short distance, along with some water, sunshine, and labor. Same with those tomatoes, or turnips, or grass-fed beef.

So if those are real prices, that means perhaps the mega-mart goods are under-priced. But how so? Grocery stores are pretty low profit margin operations (they make their money on volume), but surely they’re not selling food for half its cost.

Of course, “economies of scale” (meaning it’s usually more efficient to make, say 1,000 widgets in one place than it is to have 10 widget factories making 100 each) could certainly be a factor, but how are the Big Food boys so ungodly efficient that they can ship eggs 500 miles, or move fruit up from South America, and still undersell a family farm that lives in the same zip code by 50%?

Perhaps there’s some bad information? Let us count the ways.

Let’s start with outright subsidies.

Under the (proposed 2012) five year Farm Bill, our government will again tax or borrow $100 billion a year from somewhere and inject it into the food system. How’s that for bad information?

About $20 billion of that goes to things like commodities support. Said commodities consist 90% of corn, soybeans, wheat, cotton, and rice. These billions are spent to keep prices stable, meaning “up.” Okay, nerds, follow along:

By guaranteeing a minimum price level and income, we’ve now manipulated the profit and risk information farmers evaluate when making planting decisions, driving production away from other types of crops (green veggies, pastured operations, etc) and into the subsidized and insured (mostly grain) crops. That means supply is higher that it would’ve been otherwise, which reduces the market price. So, spending money to keep the prices ends up reducing the price. Hello, Cheerios.

[The government sometimes buys up these excess commodities to boost the price back up. Can’t give it out here, though, because that would just be silly, so we magnanimously bundle it up as foreign aid and ship it to other countries, where free food tends to wipe out any indigenous agricultural markets and make them dependent on handouts and just a wee bit resentful. Ingrates. (In case there’s an extra credit question on the quiz, kids, that would be a good example of the “Law of Unintended Consequences.”)]

Meanwhile, back in the States, the fact that there’s not enough farm state votes in Congress, means that in order to pass a Farm Bill to spend $20 billion to boost food prices, you’ll have to include another $80 billion for food stamps to help the “po folk” buy the food the urban politicians are voting to help jack the price up on.

Those food stamps, now being passed out to one in seven of your neighbors, apparently aren’t chasing fresh veggies around at the market. If they were, we wouldn’t keep hearing how obesity, diabetes, etc. disproportionately affect lower income folks. Think of it as a $80 billion transfer payment to the cereal, macaroni and cheese, fruit juice, soda, and junk food manufacturers.

Now for a couple of indirect subsidies or hidden costs.

It’s not always dollars getting shoveled around that distorts the true cost of our SAD foodstuffs. All of the government commodity programs incentivize high yields to maximize income because that means buying more chemicals and equipment from Big Ag,which higher income drives land prices and rents higher, but higher yields means prices go down (more supply = lower price, remember) which means increased reach for even higher yields to increase income, because there’s loans to pay for that equipment and land. Rinse. Lather. Repeat.

What’s getting lost in the equation is topsoil. Like the money we’re borrowing from our childrens’ futures, farmers are “spending” their kids’ topsoil at unsustainable rates in exchange for dollars to pay those loans and rents. The fact that we’re rapidly losing, through erosion and chemical sterilization, the very dirt that our agriculture depends on, is as much a ticking time bomb as the national debt.

Also not showing up on our SAD grocery receipt is all of transportation and fossil fuel infrastructure that gets subsidized by taxpayers generally, then benefits Big Food and Big Grain directly. Commodity corn doesn’t grow without fossil fuel based fertilizers and chemicals, and Big Meat doesn’t run without commodity grains. Or without taxpayer financed inspectors and regulators.

Related to the fossil fuel subsidies, let’s not ever forget that those are paid not just with treasure, but also blood. We can’t make “cheap” food without “cheap” oil, and for decades we’ve pursued policies and relationships around the world that say clearer than any speech that we’d rather have cheap oil, deal with despots, and pay with blood, than we would let the price of energy do what the market wants and adapt, adjust, and innovate our way around it.

(HA! NOW DO YOU BELIEVE I’M NOT A REPUBLICAN?)

I know I’ve gone really long, and if you’re still reading this your patience is probably getting really short, so I’ll just hit one final point of the economics of nutritional insanity:

Cost shifting. That’s where the actual cost of something gets paid somewhere else not related, making a good or product look cheaper than it really is. (You’ve probably noticed that many of these concepts overlap).

One of the commenters on Part I mentioned that they were spending somewhat more on food after going LCHF (and some folks report spending less money than on their former SAD grocery bill), but their medical spending had gone down and the savings more than offset the higher grocery bill.

That makes perfect sense, and this is exactly the kind of result we’d like to think a good system would produce. Spend an extra $100 a month on groceries, but end up with $200 less a month in medical costs — maybe less allergy attacks, avoid insulin or other diabetes drugs, all kinds of good things people here talk about. And feel better to boot. Beautiful. Doing smart things makes your checking balance bigger.

But, as I responded back, what if you didn’t have to pay any medical expenses out-of-pocket? In Illinois, 2.7 million people — more than one out of five — are on Medicaid (this occurs with anyone with subsidized health care, but Medicaid is generally “free”). So looking now, and dealing with people of limited means and options, what does it cost to make the same decision?

Let’s see, now you spend the extra $100, but in return, your savings are … zero. Yeah, feeling better, breathing easier, and not having your toes amputated would be nice, but the mashed potatoes and cola are cheaper than the argula and grass-fed beef (or store bought lettuce and hamburger), and coming up with another $100 a month isn’t a real option.

It’s going to shift costs to “society” potentially in the tens of thousands of dollars per person in future health claims, but that person on the bottom rung of the ladder is going to make the best rational decision they can. Based on really bad information.

All of this and more gets worked through our system, pushing prices up, pushing them down, pushing them sideways, to the point that you just have no idea what that carton of strawberries in the produce aisle is trying to tell you. All you can really know for sure is that whatever they’re saying, they’re lying their seedy little guts out, because they got bad information, too.

Okay, I guess you get the point. They don’t call economics “the dismal science” for nothing.

I’ll wrap up Thursday with a short (I swear) entry on why I wanted you to understand this, and what I think you should do with your new found fascination of all things economic — see you in the comments.

Cheers,

the Older Brother

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42 thoughts on “The Older Brother lets his inner econ nerd run wild (Part II)…

  1. Dragonmamma/Naomi

    That means supply is higher that it would’ve been otherwise, which reduces the market price. So, spending money to keep the prices ends up reducing the price. Hello, Cheerios.
    ******
    This is the only statement in your article I’d quibble with. I think that $4.00 for a 10-oz box of Cheerios (which only has maybe 25¢ of [(artificially low-priced] oats) is a pretty outrageous price. Heck, I can get a whole pound of grass-fed ground beef at my farmer’s market for $4!

    You’re right, bad example. A lot of the cheaper grains are really going into places like factory beef and chicken, which keeps them even cheaper than they were compared to your grass-fed burger.

    The real problem is once you get more than one step away from the check the government cuts to subsidize something, there’s no way of knowing exactly where it goes.

    Cheers

    Reply
  2. bigmyc

    Look, I’m all about the government and it’s limited role in the everyday life of citizens, but the notion of “free health care” shouldn’t be vilified by the cost shifting argument. It is in this particular instance regarding such an issue where we have to look no further than our mirrors for the ultimate epicenter for accountability. Sure, the USDA could do better than their current food pyramid model and that’s an understatement. But the ‘idea’ of free health care is a noble one to be sure. Now, how exactly that it becomes instituted is another matter entirely. But for instance, without the USDA “guiding” Americans toward such an unsustainable and unhealthy lifestyle, the proposed free health care wouldn’t be squarely in the cross hairs of the ultimately failing health of said Americans.

    The onus falls squarely on us. What kind of individual (and I understand that there are plenty) would really opt to load up on junk and toxic novelty foods as long as there is “free” health care to patch them up? It really comes down to those who are willing, able and prescient enough to take advantage of information where they find it and more specifically, those who recognize it’s value. Personally, to blame government any more than big business at large for the poor navigation of the market, social values and rampant consumerism is to exhibit partisan tendencies. Now, more than ever before, those two entities work in concert to affect the direction of this nation.

    The only real mitigating factor in this warped equation is the populace itself. Once we demonstrate that we actually care about any of this, the next step(s) will be to actually head in that acknowledged direction.


    If the idea of free health care is noble, why isn’t the idea of free food? Some people would die without health care, everyone would die without food. Pretty much the same for free housing. Maybe even free haircuts. Most people need those to hold down a job.

    There’s no such thing as free health care, and there’s nothing noble or generous about voting to force your neighbor or the gosh-damned one percent or only the rich or the white people or the brown people (tried that, remember?) to provide for someone else’s benefit at, ultimately, the point of a gun. Noble or generous would be people reaching into their own pockets and saying “I’ve got this.” There’s no such thing as charity in the absence of a free-will choice.

    How these get instituted isn’t another matter, it’s the only matter. You seem to recognize the failings of the USDA. How, when you move the bureaucrats from that office down the hall to the Department of Free Health Care will they suddenly become competent, unsusceptible to the industries that own them, and capable of making a decision that’s right for you and all 299,999,999 of your fellow citizens at the same time?

    The onus can’t fall squarely on us and government at the same time. You have to pick. Who is going to be in charge of your food, your kids, your health, your money, or your life. You? Or the government? Before you decide, remember The Golden Rule. I don’t mean the Jesus-y one, I mean the economics one, explained to me years ago by Tom’s and my dad — “Always remember the Golden Rule, son — ‘them that’s got the gold, makes the rules’.”

    As I’ve tried to illustrate over and over, blaming government — which can force me to participate or at least help finance various financial and societal calamities — instead of business, which can do no such thing without the complicity of the same government, is not a partisan tendency. It’s a philosophical, economic, and moral tendency. A tendency towards individual liberty. History, for those willing to look, shows it works remarkably well when people are given the option.

    One of the main points of my dissertation here was that you can’t take advantage of information and recognize it’s value if the information you’re receiving is a lie. In fact, the more attention you pay to that information, the more likely you’ll make exactly the wrong decision. And that’s how a bubble grows.

    Cheers!

    Reply
  3. johnny

    Great article OB. Keep them coming.

    I want to add that price distortion via government interference misallocates limited resources making society as a whole poorer.

    Nuts. It took me 3500 words to say that.

    Cheers!

    Reply
  4. Bernardo

    Free health care has nothing to do with charity. Charity is what a poor person does when he doesn’t kill you and take your possessions in order to guarantee his well-being. Gotta see the big picture. That’s a natural human right. Only the state prevents this from happening, I agree the state may be the problem, but as it screws up the natural flow of things (monopoly of violence) so it must try to fix it.


    Okay. I’m scared and amused at the same time.

    Cheers. I think?

    Reply
  5. Jennifer Snow

    @Bernardo HAHAHAHA. I love that argument. So this poor fellow is SIMULTANEOUSLY so helpless and useless (AND SICK!) that he CANNOT pay to keep himself alive . . . and yet STILL SOMEHOW A THREAT TO MY HEALTH AND WELLBEING.

    As Aristotle would say (paraphrase) a quality cannot both belong and not belong to the same thing at the same time and in the same respect . . . If he were well enough off to do for me, he’d automatically be well enough off to do for himself. And if he’s well enough to do for himself but REFUSES to because he, for some reason, thinks he’s entitled to a free ride at my, or anyone else’s expense, he can take his complaints to my assistant Mr. Mossberg.

    . . .

    The Older Brother wrote: “Related to the fossil fuel subsidies, let’s not ever forget that those are paid not just with treasure, but also blood. We can’t make “cheap” food without “cheap” oil, and for decades we’ve pursued policies and relationships around the world that say clearer than any speech that we’d rather have cheap oil, deal with despots, and pay with blood, than we would let the price of energy do what the market wants and adapt, adjust, and innovate our way around it.”

    It’s actually even worse than this (which you probably already know), because we could STILL have cheap oil and not send the best and the brightest off to die in order to empower brutal quasi-religious tyrants if the government would let oil companies develop the assets that already exist in this country. But nooooooo we can’t have that it might upset caribou migration patterns and cause horrible livestock-attacking pests (wolves) to go extinct! And fracking might make smaller rocks out of bigger ones and cause the Rocky Mountains to sink into the sea!

    P.S. “Mossberg” = popular shotgun manufacturer

    And of course there’s his good friends, Messrs Smith and Wesson.

    Energy is indeed another area where layers and layers of conflicting distortions throttle innovation and development while protecting incumbents.

    — The Older Brother

    Reply
  6. C.E.

    Hey OB, I’ve really enjoyed your posts so far and I read this blog pretty regularly. But this argument about people with “free” healthcare being happy to let their feet rot off because it’s cheaper is really not convincing. There’s no evidence coming out of Canada or the UK that supports this notion as far as I know. Frankly it sounds like more bad information.


    Not happy, just cheaper.

    I wasn’t interested in starting a debate on health care in this forum. I figure I’ve frosted enough people without running down that rabbit hole. All of our government programs related to food and nutrition distort the market in favor of grains, sugar, HFCS, etc. So the price of all the foods we should be avoiding has been subsidized down, which results in higher consumption. This higher consumption of cheapened bad food will occur disproportionately among those who are most price sensitive.

    If you’re a regular here, you realize how stacked the deck is against even motivated people with the desire and financial capacity to seek out good food and nutritional information. Even otherwise intelligent people say things like, “I’ll just eat whatever I want and take my insulin.”

    People in our existing free programs are low income with generally minimal options in many of life’s areas. They live on other government programs, like food stamps, and receive their health care based on government criteria. They experience more diabetes, cardiovascular, and other issues than the general population. They get counseled on the worst information — low fat!, healthy grains! — and receive treatment for the inevitable outcomes like diabetes at the taxpayers expense. There’s absolutely no signal telling them there are better choices, and if they wanted to make them, all of the economic incentives are upside down.

    There’s another generally accepted economics principle called “moral hazard.” That is, when you set up a program to mitigate the damage caused caused by some unwanted behavior (good intentions stipulated), you will get increases in the unwanted behavior. So, yes, free medical care will, for some portion of the population, lead to more unhealthy behavior. It won’t happen to everyone. Just more than it would in the absence of the crossed signals generated by government interventions. Damage always manifests at the margins. Of course, these folks generally have more of the other undesirable habits that affect health — like alcohol and drug abuse, smoking, etc. The food stamps are a de facto subsidy of those habits, as they free up money that otherwise would have to be used for food.

    The systems in the UK and Canada seem to work ok as long as you don’t get really sick. The UK is flat broke from its social welfare state (including health care). Some people in the UK die because they don’t have enough dialysis machines to meet the need. Many people in Canada, including the occasional well-publicized high-ranking government official, purchase insurance that covers sending them to the US if they need treatment for a real health issue, like cancer or heart surgery. Our health care system is severely handicapped, but the answer isn’t more government, it’s less.

    –The Older Brother

    Reply
  7. Darren

    You wrote:
    “If the idea of free health care is noble, why isn’t the idea of free food? Some people would die without health care, everyone would die without food. Pretty much the same for free housing. Maybe even free haircuts. Most people need those to hold down a job.

    There’s no such thing as free health care, and there’s nothing noble or generous about voting to force your neighbor or the gosh-damned one percent or only the rich or the white people or the brown people (tried that, remember?) to provide for someone else’s benefit at, ultimately, the point of a gun. Noble or generous would be people reaching into their own pockets and saying “I’ve got this.” There’s no such thing as charity in the absence of a free-will choice.”

    My response:

    I understand the thrust of your arguments here, however I must point out that as long as we have some kind of society, there will always need to be collective action of one kind or another. Generally when the government is involved, this collective work (whatever it is) is financed via non voluntary taxation “i.e. the barrel of a gun”. The same kind of argument against free health care you are making here can be applied to just about everything any government does in the world. From defense spending to education, police, to putting a man on the moon, all of these initiatives receive huge government money.

    I have a really tough time envisioning a large scale modern society where the only collective actions that can be done by the government are ones that can be fully funded on a strictly voluntarily basis by its citizens. Are there any modern countries that run this way that you are aware of? If so please let us all know where we should be planning our emigration LOL.

    I am with you on your arguments about how government interference creates and also exacerbates distortions in the economy and people’s lives and we should definitely seek to minimize those impacts, however I don’t see that this problem will ever go away in large complex societies. As I see it, what it really comes down to is a matter of choices within your society. Some counties use huge amounts of taxpayer money to subsidize defense spending, others use the money to pay for “free health care”, any way you slice it, distortions are created. Each society must decide what it can live with.

    It is really up to us as citizens of our various countries to try and change what is being supported via our consumer choices (very important), and also actual participation in the political process (time and money) to minimize the impact that other players on the political stage can have (e.g. Big corporations, Unions, etc).

    So, whether you want “free health care” or “more farm subsidies” or “more tanks and guns”?

    Then go get involved in the political process and make it happen people.

    Yes, the argument does apply to just about everything government does these days. Most libertarians other than the most anarchical see some legitimate function for government based on the following premises:

    First, government is always in the final analysis only one thing — force. It can’t “give” anyone anything, like food or health care or police protection, unless it first “takes.” That taking is not predicated on moral suasion or appeals to the payors’ perceived value or best interest; it is predicated on the proposition that refusal will result in the use of force up to imprisonment and death.

    Given that understanding, exercise of that power arrogated to the state can only remain moral when it is the only means available to obtain benefits that are both obvious and universally needed for a better and just society.

    That leaves government at the macro (federal) level pretty well constrained to a few functions, to wit:

    * Police forces with the mission of protecting people and property from others who would use fraud or force to deny other people’s rights to operate as free human beings.

    * A judicial system for administering the law in crimes against persons and property, adjudication of disputes under contract, and interpretation and protection of the rule of law from dictatorship by the majority.

    * A military to protect our borders.

    Everything else, trips to the moon, schools, care of the indigent, roads, etc. is none of the federal governments business, because any of those things it attempts to do violates our original premise, and results in people financing benefits they don’t need, desire, or will benefit from.

    As you move to the state, then county, then municipal, then neighborhood level, a bit more can be justifiably assigned to the government based somewhat on benefits (city roads?) but more on the fact that as the geographical area being governed decreases, the less onerous it is for me to “vote with my feet.” If I don’t like a city ordinance barring keeping goats in my yard, I can move 2 miles to the countryside. If I don’t like the US passing out billions of dollars to dictators, my options are drastic and severe.

    The last known instance of a society with this type of system of severely constrained government with maximum economic freedom was Hong Kong until it was turned over to the Chinese. It was one of the richest countries in the world and had one of the lowest poverty rate despite very few natural resources. No one could find a welfare office, but everyone could get a job. As it turns out, liberty is one of the most powerful resources ever discovered. They got the idea from a place that started before them called America, but it’s not really around anymore, either.

    Cheers!

    Reply
  8. anand srivastava

    The role of the government is in securing the present and building the future. Accordingly it should have only three functions.
    1) Security – That is anyway what government is, hired guns. Due to that hired problem, works better for the rich than the poor.

    2) Building infrastructure – This should be done only where there is no private enterprise. But it again creates those bad information situations. But if you look at Taiwan, it wouldn’t be the current electronic giant without government investment.

    3) Education – Only for poor, only basic education, and lots of good libraries. Later it could be subsidized for merit scholars. I think US became very powerful, because of the intense investment into libraries and education around the turn of the century.

    Healthcare may be put into securing the present, but it is a stretch. It creates more problems than it solves. I don’t see any country that did well because of a good health program.

    Even education will be a big money sink, but that I think is a required investment for the future.

    I’d be more than happy to roll back to that model, then debate on the roads and schools!

    –The Older Brother

    Reply
  9. anand srivastava

    I also believe that the best form of government is decentralized. Something like US had, but without the presidency. Something more like in Switzerland.
    You have multiple layers of government, community, district, Center.
    The community manages education and infrastructure. District manages collection and distribution of taxes, and coordination for infrastructure projects. Center only creates laws and standards, and foreign policy. External defense should also be distributed.
    People elect community managers. Community managers elect district managers, and district managers elect central managers. Power over individuals reduces as we move towards the center.
    Community taxes residents. District taxes the communities as a whole, not individuals. Center taxes districts as a whole.
    With complete openness (right to information), which cannot be abridged even during war. Except for actual mechanics of the war.
    Something like that :-). I guess it will be complex.

    One thing there should be no parties. Only individual representatives. I believe more in the power of the super organism, rather than master plan of a central planner.

    Switzerland’s system certainly seems to work pretty well for the Swiss. I’m not sure its direct democracy would scale up here — the entire country’s population is about 2/3 that of Illinois alone, and my understanding is it has historically been a relatively homogenous population.

    They also enjoy a very strong natural defensive position geographically. As the US has been the most recent to demonstrate in Afghanistan, it’s not easy trying to project a war in the mountains. We of course enjoy a pretty good natural defensive position geographically, what with a couple of oceans, but can’t seem to stay out of other continents’ business.

    One of the best decisions they made, probably as a result of their directed democracy system, was rejecting EU and the Euro. I can see how being successful without a strong central government would tend to make one loath to cede sovereignty to an incompetent, bloated, mega-national bureaucracy.

    My reading says the Swiss took their concept of a weak central government from the US. Seems they’ve kept theirs in check while ours metastasized.

    –The Older Brother

    Reply
  10. Elenor

    I wish folks would quit confusing health CARE with health INSURANCE! I don’t have health insurance (can’t afford it, don’t work for a company that offers it). *I* have to pay for my health care directly, when used. *I* go to the doctor and tell him what I want to try and/or want him to prescribe (and most times, because I’ve done the research, he does it — amazingly!) And, you betcha, he charges me for it! Getting someone ELSE to pay for my health INSURANCE certainly awakens my greedy genes — I’d LOVE that! Did y’all know that ‘they’ charge uninsured folks way, WAY more than insured folks for the exact same tests and treatments!?

    But *I* don’t want to pay for someone else’s healthy INSURANCE at (as Older Brother mentions) the point of a gun! (Or make them pay for mine!) IF I could afford a calamitous-health-incident insurance, I would love to buy it. Paid-for-by-others health *insurance* for major health problems is a good idea, not the nickel-and-diming of well-baby care and, “ooh I have a cold, let’s go see the doc” kind of insurance that is bankrupting and destroying the current health *insurance* system.

    You don’t want ‘death panels’ (even though we already have them, and have had them for years)? Then start requiring people to learn how to manage their own health CARE: if you can’t afford a well-baby appointment, then you can’t afford a baby! If you can’t learn that a cold is viral and can’t be affected by antibiotics, then start punishing (by making them pay for the antibiotics) doctors who mis-prescribe it (and then also protect the docs from idiot malpractice suits).

    Health CARE is separate from health INSURANCE! Careful use of the terms might actually help in figuring out the problem, eh?

    Which is exactly why interested parties expend considerable effort to keep the terms co-mingled.

    Cheers

    Reply
  11. Bernardo

    @Jennifer Snow. You should come to Brazil and see how miserable people can threaten your life, sometimes for very little. Those who have nothing to lose are much more dangerous than those who have. What I meant by my statement, which I admit sounded a bit scary is that once the state has monopoly over violence one can only play by the state’s rules in order to achieve well being. He’s got no choice, and if he sees he can’t win, he must do something or be eternally subdued by society. The very concept of ownership can only be guaranteed if there is a way of preventing property from being transferred by force. In countries where the social differences are too big, violence is really high. To the point it really takes your freedom away. Maybe for those in the US poor means something else. But the truth is, you don’t let your children die because you can’t pay for a doctor, you find a way. And that’s right, it’s fair, it’s human. Now you can say there’s is always a way within the system, without breaking it, maybe that’s the fundamental issue. I just think you need to see how people are born in these modern societies and what real choices they have, considering everything already has got an owner. Do you really believe everyone starts with the same chances or do you think people should be content with whatever position the system put you in. I just think Violence can’t be ignored in this equation, because it is the core of what we call state.

    Very interesting input, Bernardo. It illustrates how we tend to make perhaps unjustified assumptions about circumstances in other places without examining them.

    I know Brazil has gotten a lot of bad PR, but thought it was one of those economic miracles that was on the mend, and thought property rights were in place. Without those, along with personal liberty and stable money, it’s like trying to sit on a two-legged stool. It seems this was part of the continuing backward slide of Russia.

    Thanks for writing — may you be safe and prosperous.

    –The Older Brother

    Reply
  12. Ron

    My daughter’s work as a grocery store cashier has forever inoculated her against liberalism. Seeing customers buying baskets full of Little Debbie’s Snack Cakes and Mountain Dew with their EBT cards has really opened her eyes.

    I’ll bet. You’ve probably heard the saying “A Conservative is a Liberal that has been mugged by reality.”

    I didn’t find libertarian and Austrian Economics as defined systems until I was around 30, but Tom and I both had the advantage growing up of having an entrepreneur father, so we got to see how idiotic the state can be at an impressionable age (and that was when government was probably a third of its current size).

    — the Older Brother

    Reply
  13. anand srivastava

    Swiss is naturally a loose federation. It formed in 1291 with only 3 cantons. Slowly they added more, till 1815. They created a federal constitution in 1848. The federal govt has very little powers. When I went there, the visa was approved by the canton. If a person wants to get citizenship, it must be approved by the people of the community where he lives. Its a totally different government. I wouldn’t say it was formed based on American constitution, may be they took some concepts, when forming the federal constitution.

    At the time, we still had a very weak central government that was staying within the confines of our constitution.

    Cheers

    Reply
  14. Chrisnpiggies

    Liked your explanations. Mind if I print them out? I liked your response to bigmyc. I’m sure, with gubment healthcare, it will someday be a findable offense, if not a jailable, to not purchase and consume your healthywholegrains.

    Please feel free to distribute them as far and wide as you’d like.

    Cheers

    Reply
  15. ~H

    Hello “Older Brother” – I have been following the Fat Head blog for a while now. I regret that I don’t comment here more often, but I just had to write and say thank you for these two very excellent posts on economics, and the role it plays in our food supply. I have found that once you understand how the metabolism works (and how high carbohydrate consumption manipulates it), it is only a relatively short leap to then understand the business cycle, and where bubbles and busts come really from…. I wonder, do you also follow Thomas E Woods? I understand he follows a paleo diet too, and sometimes discusses that in his blog.

    I find the parallels between the nutritional and economic debates and the tension of conflicting visions — listen to the government and experts, or listen to the dissidents and you own body — fascinating.

    Wasn’t familiar with Mr. Woods. I’ll have to check him out. Thanks for the tip.

    — The Older Brother

    Reply
  16. SnowDog

    “Given that understanding, exercise of that power arrogated to the state can only remain moral when it is the only means available to obtain benefits that are both obvious and universally needed for a better and just society.”

    I can’t agree here. For morality to have any meaning, it must be universal and objective, meaning that it must treat everyone equally and not be derived from anyone’s personal preferences. So if it’s wrong for me to steal, to pursue my best interests, then it’s wrong for the government to steal, to pursue its interests.

    We need to stop violence and threats of violence when trying to solve our social problems. Once we make the decision that aggression will not be pursued as a means to an end, only then can we start to figure out how to do these things that society needs, without threats of violence.

    I understand your point, but my feeble imagination can’t envision a country this size providing a free-will police function or a very limited number of other services.

    Wouldn’t it be awesome if we got to the point where that was even worth debating, instead of whether the government can ban after hours school bake sales?

    Cheers

    Reply
  17. TheFatNurseRN

    One thing that should be mentioned about economics is how they derive their models and statistics. The Austrian school is nice to explore because they really challenge the validity behind how things like CPI, unemployment, inflation and etc are calculated and whether the variables used reflect reality.

    We can use this same philosophy for this week’s 42% obesity prediction by the CDC. This number was calculated based on variables like # of fast food restaurants, fast food prices and etc as if fast food will cause obesity. Government employees then see these variables being used and dictate policies against fast food and etc without asking whether this premise is correct. I wrote a little did bit about it if you’re interested:

    http://thefatnurse.wordpress.com/2012/05/08/42-of-americans-will-be-obese-by-2030-via-the-cdc/

    Nice analysis of today’s screaming headlines.

    The Austrian school is actually refreshingly devoid of math and statistics in most cases. There’s a couple of underlying themes:

    * People tend to overvalue that which can be measured, and overdiscount that which can’t.
    * The more precise a number that is projected by an economist, the more likely they will be wrong.

    As you infer, the problem with the stats you mention, originally devised to convey some information about the macro economy generally, have been co-opted and are now manipulated by the “wizards” behind the government curtain. So, unemployment, which used to measure the number of people not working who wanted to be, now is “adjusted” so that as people’s benefits expire, they are dropped from the count. Each one of those stats is now diddled to reflect what the government wants you to hear. If inflation is measured correctly, for example, even the anemic official 2.2 GDP growth rate would be negative, pointed to “recession.”

    The parallels in distortion, manipulation, and outright lies to stats and reports that the gatekeepers of the nutritional is breathtaking.

    — The Older Brother

    Reply
  18. dtc

    My original post didnt seem to work, so I just wanted to throw this out – a lot of the arguments against health insurance are premised on the need for health insurance being caused by the patient (‘self caused’ harm, i guess). So bad eating, smoking etc.

    However, I think you will find that a significant majority of health expenditure is not self caused. So the issues of ‘moral hazard’ or ‘don’t take my taxes to pay for someone else’s mistakes’ simply don’t apply to someone with brain cancer or who was in a car accident or has a genetic disease.

    Thus to argue against health insurance because some of that money goes to preventable diseases is taking one small consequence and extrapolating an whole argument thus ignoring the rest of the issues involved. A process this website rails against constantly.

    As a side note, while its easy and ‘fashionable’ to say ‘look at the European welfare states, clearly welfare does not work’, take a look at the flipside – those nations where the govt does not provide anything or has very minimal involvement. Take your pick from many African countries, for example. I’m pretty sure most people – even libertarians – would prefer to live in Greece than the Congo.

    Huh? I didn’t argue against health insurance. I just illustrated the concept and existence of moral hazard in the equation. The fact that it exists means it needs to be calculated into the policies and solutions we propose if we want the results to match our stated intentions.

    As for the cancer patient, accident victim, etc., that’s why people should buy insurance. If they don’t want to buy it, I support their right, assuming they’re cognizant adults. But I’m not interested in paying for it, either.

    First, let’s be clear what real insurance is:

    That’s when a (generally) large group of entities — policyholders — want to avoid having to take the entire financial risk of losses that are of frequency and cost that can be predicted with reasonable accuracy.

    Insurance companies, and specifically their actuaries, are uncannily good at predicted how many of any particular loss (deaths, house fire, car wreck, etc), and the total claims costs that will result over reasonable time frames. The only unknown in the equation with real insurance is — “to who?”

    So, 100,000 homeowners band together and form a captive insurance company to avoid the individual risk of their houses burning down. The actuaries study all of the databases — historical losses, construction methods in the region, multi-year weather patterns, yada, yada, yada, and come up with an answer:
    Over the next three years, on average 150 houses will burn down, and it will cost an average of $200,000 each to have them rebuilt.

    So, that works out to $30 million in annual losses. Divide that into our 100,000 homeowners who don’t want to lose a $200,000 bet that it won’t be their dog that knocks the turkey fryer over this year, and you get $300 per policyholder. Add 15% for administration, plus 5% for profit and you’ve got a $360 premium.

    There’s several key points here:

    It’s not insurance to let someone wait until their house is on fire, then decide they want insurance. At that point, we’re way beyond that “who will it happen to” part of the model. If someone does pick up the tab, it’s either charity or compulsion.

    My policy doesn’t cover getting my grass mowed, or my windows washed, or my garden weeded. Those aren’t financially debilitating — they’re routine costs of having a home. I also know who these events are going to happen to. Me. And just about everyone else, for that matter.

    But what would happen if some crusading politician, or zealous bureaucrat, decreed that henceforth, to avoid the costs of lawn care, window washing, etc., — all house fire policies would be required to cover routine maintenance costs? How affordable would that be? Now my policy has to cover the cost of lawn mowing, but the insurance company is still going to need to add the 20% on to stay in business. Much more actually, because it’s going to cost them more to process and pay claims for $200,000 of lawn mowing for all of those customers than it will one fire claim.

    And here comes ol’ Mr. Moral Hazard, too. Not that lawn mowing is a bad behavior, but where I was paying the neighbor kid once every week or ten days out of my own pocket, now it’s “free.” So why not have him mow it every five days, so it looks as good as the neighbors? Utilization and “abuse” shoots up. Maybe we have a co-pay, but even at $10 a pop it’s still cheaper to have the kid do it twice as often as when I was financing these little nuisances out of my own pocket. There’s also a flavor of the “crisis of the commons” effect here, in that you now have a system where people who overuse the resource are rewarded, and people who under utilize it lose out.

    The added administrative costs, processing, and increasing utilization create an upward premium spiral. Everyone is now unhappy, paying way more than they should, but still motivated towards over utilization. Congratulations, we’ve just tanked the fire insurance market. The solution is obvious…

    Have employers pay for it so it’s free.

    PSYCH!

    Sorry, couldn’t help myself.

    Finally, your Greece or African nation is a false choice because I wouldn’t live in either, and besides, most African nations provide plenty of government. They provide government to prevent markets from occurring, to prevent property rights from being recognized, to steal, to murder, to suck up foreign aid, all kinds of activities. So Greece may be the less dangerous, but only because it’s government, for the moment, is more constrained.

    Cheers!

    Reply
  19. SnowDog

    “I understand your point, but my feeble imagination can’t envision a country this size providing a free-will police function or a very limited number of other services.”

    Really? Is it so hard to believe that we can find ways to solve these problems without threats of violence? If a city of 100,000 can find ways to solve all the problems a modern city encounters, with the exception of roads, police, schools, and courts, can’t we envision that this same method could be used to provide these other services as well?

    http://www.freemanch.com/the-woodlands-a-city-without-government/

    What I find hard to believe is that it’s worth debating how to release the last .2% of what our current government does to the free market when the average citizen doesn’t see how we could get by without the other 99.8%.

    I’m think I’m interpreting you correctly to say we since we can do everything else, who not also police functions, etc?

    I’ll give you the roads and definitely the schools can be taken off the government’s plate, but as for police and courts, I don’t see having a society without some mechanism to objectively apply force for the protection of innocents.

    I’m all for using covenants and fines to enforce community-agreed objective, but how do we handle the thief, the fraudster, the thug, or even the person who refuses to comply with covenant enforcement, or to honor the terms of a contract?

    Like I said, would only that these were urgent questions for us due to a massive rollback in the leviathan state.

    Cheers!

    Reply
  20. Jesrad

    “real food seems to cost too much, but it’s really the right price. It looks high because Big Food costs too little.”

    I disagree. Real food would be cheaper if not for much of the heavy cost of staying up-to-regulation, most of which exists only to protect established business clout.

    True. But most of those added costs are easier to recognize than the costs that get disbursed and hidden throughout the Big Food system.

    Once our real food producer has jumped through the regulatory hoops, they tend to become “sunk costs” as opposed to ongoing and ever changing distortions.

    No telling how many products and innovations people like Joel Salatin have been prevented from bringing to the market and improving the quality and cost of our food, but the price of his grass fed beef is still much closer to a free market price that conveys real information than the chop you pick up at your regional mega-mart.

    Cheers

    Reply
  21. Pierce

    I love this blog and the lively comment section, which I always read and sometimes engage with, but I am troubled in a way by these posts.

    One of the reasons that the whole paleo/primal/anti-CW movement has been so successful is that it is able to refute conventional wisdom scientifically. Look at “Science for Smart People” here and Denise Minger’s stuff, as well as all of the “anomalous” trials produced by researchers that fail to prove the danger of saturated fat etc. It’s the antithesis of moral veganism, because it’s about what demonstrably works rather than what is morally or philosophically appealing.

    And for better or worse, this economic discussion is the polar opposite of that. Macroeconomics as a whole is basically pseudoscience, whichever school one supports, because double blind experiments are impossible and even “correlation” type studies, which are properly decried in most scientific fields, are hopeless confounded. So, ultimately, economic philosophy is just that, philosophy, a set of unprovable assertions about how the world should be based on one’s own moral feelings.

    Austrian school libertarianism is particularly difficult to defend honestly because there is not much one can point to showing its actual application in the real world, whether for a correlation analysis or even an N=1 anecdote. Hong Kong is not really a valid example for a variety of reasons. First, the assertion that it did not engage in “welfare” during the British era is false… Part of its ability to develop a powerful economy was due to low labor costs, which were partially attributable to the massive government housing program for the poor that allowed them to work for lower wages than they would need if housing were more expensive.

    Additionally, this libertarian paradise did not need to engage in one of the core functions of government, border defense, because while on its own China obviously would have swallowed it up, Hong Kong was able to avoid paying for its own defense by its patron in the UK, and the implicit promise that an invasion of Hong Kong would provoke a massive, if not nuclear, response from the UK, the USA, and the NATO nations, especially within the Cold War context.

    Further, even if my above points are invalid, pointing to Hong Kong is still the kind of cherry picking of data that this blog would decry in the nutritional context but apparently is acceptable in other ones. Hong Kong, of course, shared a common trajectory with the other “Asian Tigers,” Singapore, Taiwan and South Korea, all of which experienced massive growth partially as part of widespread government intervention in the form of subsidies, social services, protectionism, etc. Additionally, Hong Kong’s transfer to China cannot be singled out as the cause of its economic downtown as the other three “Tigers” and East Asia generally hit hard times during the same era.

    Pointing to Hong Kong is cherry picking additionally because, again even accepting my previous comments as untrue, there are numerous counter examples of nations taking the opposite course as proscribed by Austrian economics and reaping massive benefits. Argentina for example, weathered its financial meltdown by increasing tax collection and spending and by allowing its currency to float. Iceland partially nationalized its banks in response to crisis and brought actual criminal actions against financial miscreants. Sweden, likewise, nationalized its banks in response to crisis and is again one of the worlds strongest economies as well as happiest and most egalitarian (and most paleo!) nations.

    Finally, libertarianism and Austrian capitalism are like moral veganism in the sense that they ultimately amount to moral judgments… what the ethical role is of the state, what freedom means, which rights are fundamental. There is no more way to point to mathematics or science to prove that taxation or welfare are immoral than there is to say eating animals is immoral.

    I realize this is long, and I pondered several days posting it, but as someone who respects this blog and its scientific rigor very highly, it is upsetting to see what amount to opinion and moral judgment being pushed as objective fact. What tipped me over was the number of comments basically accepting it as face value, in part I believe because the posts are successfully trading on the blog’s history of scientific accuracy and opposition to pseudoscience when presenting this worldview as fact. It is not fact. Nor would it survive scrutiny under the standards of “Science for Smart People.”

    You don’t have to worry about going long here. After all, I started it.

    First, macroeconomics would be flattering itself to go by “pseudoscience.” Austrians argue strongly against the idea of macroeconomics. You need to understand what that word means.

    It’s not macroeconomics for a free market economist (or anyone) to say “if government increases regulation, that will create barriers to entry and increase compliance costs. That will lead to reduced competition and higher prices for customers.” That is an application of economic law, which is discovered by observation.

    Macroeconomics is when the government says “if we give out $8,000 each for people to junk a perfectly good running car so they’ll go buy a new car, it will increase demand for cars buy 1.37 million per year, create or save 564,600 jobs, and get the economy moving!”

    It’s the Keynesians and Quants and just about everyone who works for the government or its owners who think “the economy” is something that can be measured and massaged and manipulated to attain a predictable outcome like some monstrous machine with, in the US, over 300 million randomly moving parts.

    The reason Austrian Economics has a relative dearth of math and formulas is because it recognizes economics as a branch of its root — philosophy, which you note, but I think misinterpret. Philosophy seeks to understand the human condition. The Law of Supply and Demand is not science like the Law of Gravity, but it’s still “law” (also rooted in philosophy). Hayek emphasized that real law is not those things that a bunch of people get together and vote on or decree. Real law is discovered through observation and testing.

    The concept that if something costs more, or will cause more pain, or appears to have more risks; will result in less of that thing being purchased, or avoided more diligently, is not an unprovable assertion or based on feelings. It’s not hard science, but to say it isn’t true is not intellectual integrity, it’s willful ignorance.

    Most schools of economic thought do go to great lengths to devise ways of cramming these realities into predictable formulas so they can help government forecast and plan the economy, and have an equally impressive vocabulary for explaining their inevitable failure when the economy, like wounded game, suddenly doubles back and thrashes them. They are wrong, but very precise and always absolutely confident. Austrians know the Quants are wrong, but they also know that there’s no way of knowing by how much, or when, or even necessarily how the failure will manifest itself. So the Keynesians still get all of the jobs and the hot chicks.

    So, like the amazing Ms. Minger and the other lights of the paleo universe, Austrian (or free market or libertarian) economics makes no claim to have the “correct” answer, despite constant attempts by their opponents to strap them to that straw man. The power of both arguments, and the danger to the status quo, is their refutation of the contrived models of the entrenched credentialed or elected aristocracies.

    And their solutions are also similar — since we can never really know all we need to know, or even know what it is we don’t know, we should honestly present the best information we have to people and let them decide for themselves. Austrians don’t want to run health care any more than Ms. Minger wants to promulgate regulations for the USDA. We don’t think we can do it better, we realize it can’t be done.

    Which is also why, despite your strange assertions, if you were ever to spot an Austrian economist at a Vegan gathering, the most likely explanation would be that she wasn’t paying attention and walked into the wrong room. We do tend to be a wee bit absentminded.

    I would also predict various flavors of statists to be highly over-represented at said gathering as both share a vision of humans as being infinitely malleable into a “correct” form as long as they can be subjected to the right amount of “persuasion.” Ignorantly assuming that people can — and should be forced — to thrive on soy beans and green tea demonstrates no less grasp of reality than thinking we can spend our way into prosperity.

    I don’t recall stating that Hong Kong was a perfect example of a free market, and it’s simply another straw man to base an argument on it. Perfect is the provence of our Keynesian and Vegan friends. It was one of the last places with an extremely limited amount of government intervention in the market. Government provided housing for workers is obviously not a free market mechanism, but as bad as it sounds, let’s take it at face value and ask if the general population would be better or worse off in five years if the government instead said “hey, we’ll provide free housing whether you want to go to work or not. And some food stamps, and free child care for when the free birth control thing doesn’t work out.”? Go ahead and vote, but remember, “perfect” isn’t an available answer.

    As to the cherry-picking assertion, I do feel pretty comfortable with the idea of plotting countries with an economic rating on one axis — based on private property rights, personal liberty, right to move about freely, solid money, unambiguous tort and contract law, limited central government; and “happiness” — household wealth, crime, income mobility, optimism, savings, etc on the other axis. I don’t think it would take any Ancel Keyes magic to demonstrate a significant correlation between freedom and quality of life.

    I also find your analysis of the explosive growth of the Asian Tigers, which had always had oppressive governments — which coincided with the historic introduction of liberalized trade (relatively, of course) and markets — where you then assign cause of said growth to government intervention, oddly similar to the explanation of the explosion of diabetes and other diseases of metabolic derangement — which coincided with our national dietary shift towards processed carbs, HFCS, and mutant foods — as the result of eating saturated fat and not getting enough exercise and statins.

    Argentina has defaulted on its foreign debt five time in the past hundred years or so, and its inflation rate from the end of WWII to 2010 averaged 215% and no, I did not forget a decimal in there. If you want to buy a house, you’ll have to have the price in cash. Iceland is flat on its a$$ bankrupt, and I think Sweden’s egalitarianism is starting to wear a little thin around the edges as its population becomes “de-homogenized.”

    If by “weathering” you mean default, massive inflation, and economic chaos is the way to deal with a massive bubble economy, then by gosh, Pierce, welcome to the club — you’re an Austrian!!

    Thanks for making me think so hard. Hope everyone else hasn’t passed out at their monitor.

    Cheers

    Reply
  22. Bob Johnston

    Thirteen years ago I was 240 lbs (6’3″) and not nearly as healthy as I should be in my early 30’s. So I took the initiative to look for alternatives to the SAD and found low carb. Since then I’m back to my high school weight of 200 lbs and I’m healthy as a horse.

    I’ve been to the doctor 3 times in those 13 years – once for a cut requiring stitches, once for a physical and once for asthma-related symptoms during a time when I’d lapsed a bit on my low carb eating (asthma now gone entirely). For me the current health insurance setup is a complete and utter waste of money. How much less would health care cost if everyone shared my outlook of taking care of yourself and going to the doctor/hospital only when necessary?

    My outlook has always been that if something isn’t right in my life then it’s my fault entirely. I like the idea that I have control of the outcome of my life. And it’s because of this that it pisses me off to no end when I see people with no interest whatsoever in taking responsibility for their own lives be bailed out for their missteps and miscalculations by the people that are responsible. Something’s gotta give, the current system just isn’t right.

    I’m all for real insurance as I detailed in an earlier reply. If I get hit by a bus, I want top medical treatment, and I want the people providing that treatment paid.

    What is commonly called insurance is in most instances simply prepaid health care. Scratches, sore throats, bottle of pink stuff — and all sorts of routine, predictable and not financially taxing expenses of daily life — when administered through an insurance system add disproportionately to costs, encourage over-use, and displace resources that should be put to better use.

    The way to go is to get catastrophic (very high deductible) health insurance for that bus with your name on it (or cancer, or stroke, etc) and pay the rest out of pocket as a consumer.

    Cheers

    Reply
  23. Dave, RN

    Real Food cost no more than it did in 1940. I put some prices into an inflation calculator, and when comparing prices for range raised turkey, chicken and grass fed beef, I’m paying the same thing my grandparents did in 1940.

    So it’s not that those good foods cost so much more, because clearly they don’t, it’s that the industrialization of the crap food (grain fed CAFO beef, battery eggs and chicken and processed foods) makes them dirt cheap.

    We’ve been conditioned in this country to spend very little on food. And unfortunately it shows.

    Ha. Data to reinforce my point. Thanks.

    — The Older Brother

    Reply
  24. Stephanie

    Let us remember that healthcare is a “good” as well. We expect our doctors to be educated, vetted and licensed, which they are…at great expense. They expect a return on their investment through selling their “product,” quality healthcare. When the government steps in with promises of free healthcare, they will also eventually remove the economic incentive for quality minds to pursue a medical career. We will end up with poor healthcare for free. The right price for the product offered.

    Also, Libertarians don’t want to sit around smoking pot, as was suggested by another responder. They want to protect the liberties of the people to direct their own lives. After all, that was what Jefferson meant by “inalienable rights.”

    I’ve noticed (completely anecdotal) that people I went to school with whose had a parent that was a doctor tended to be doctors. Kids whose parents my kids went to school with, and kids of the several doctors I know, tend to go into law or engineering or professions other than medicine that still require brains and ambition. I think that’s something of a canary in the coal mine.

    Once someone counters a libertarian position with the old “they just want to do drugs” chestnut, they’ve pretty much ceded the argument, along with their credibility as an honest participant in the debate.

    Cheers

    Reply
  25. Jill

    In contrast to Pierce’s (admittedly, well-thought out and probably debate-worthy) objection, I say “Good stuff.” You showed what I believe you set out to show: that government interference in markets changes price (and other) information in sometimes unexpected and confusing ways, incentivizing individual behavior that adds up to collective harm.

    Thanks.

    It is well thought out and brings up some good points that deserve a well thought out answer, so I approved it through as food for thought until I can give it proper consideration and reply (busy day).

    –the Older Brother

    Reply
  26. Jennifer Snow

    @ Bernardo: I can’t even parse half of that, but let me lay it out for you:

    Millions for defense, but not ONE CENT for tribute. Once you pay the Danegeld, you NEVER get rid of the Dane.

    I don’t give a damn what excuses people come up with, I’m not buying them off, and I’m CERTAINLY not going to say “Oh, you poor miserable people, you DESERVE to have government-sanctioned thieves come and mug me on your behalf.” No.

    And as for their “misery”–I’ve slept on the floor in cockroach-infested tenements. I’ve walked miles to work in -10 weather and snow (which you DON’T HAVE in equatorial countries). I’ve done my laundry in the bathtub. I’ve lived through Ohio winters with no heat because I couldn’t afford it. I’ve lived for months at a time on a diet of 1000 calories or less a day because I had no money for food, while daily handling thousands of dollars of other people’s money that I would never touch. I’ve paid cash out-of-pocket to have my wisdom teeth pulled (which wasn’t that expensive, actually).

    So, tell me about all the wonderful OPPORTUNITIES I’ve enjoyed. LECTURE me about how I have so many GREAT CHOICES that everybody ELSE DOESN’T.

    And then roll up all that self-righteous bulls***************

    Had to edit the end of that one for gratuitous violence! Sorry if there were any kids in the room reading the blog before I edited it.

    I’m cutting Bernardo some slack, Jennifer. It’s hard to evaluate how the cards get played out in a system with no pretense of property or individual rights. Life and your options would be capricious on a good day.

    You’ve obviously endured and persevered through a lot, but imagine going through all of that and on top of it, if you got mugged, you wouldn’t call the police because they might be working for the mugger. Poverty and lawlessness.

    Just sayin’

    — the Older Brother

    Reply
  27. bigmyc

    Well, I would have thought it might be apparent that the information from which one takes advantage is the kind that is based upon an empirical and tested fact base. Once more, in theory, the idea of free health care is a noble pursuit as is free food. How could it be otherwise? Logistically, on the feasibility scale, free health care is so much more doable than free food simply for the reason that you cited…it’s daily requirement. The idea is that health care is aimed at being an occasional thing…if you’re lucky. It seems to be the “who’s gonna pay for it and how” that you associate with it’s negativity. I agree. But then again, how much outrage do we hear from the patriotic denizens of this country over issues like NASA expenditures and all that wasteful foreign crisis aide that the U.S. sweeps in with once a nation of lesser infastructure is decimated with it’s latest natural disaster?

    You speak in absolutes and most applicable theories should probably start there..problem is that the real world usually finds a way to interject and make it’s influence felt. I feel that health care is the type of political football that some love to kick around while the reality is that there are a myriad of issues the public could take up with the government’s allotment of “it’s” funds. Of this cornucopia of misappropriation, I can not get past the notion that universal health care is actually a worthwhile endeavor if only for the fact that at some point in most everyone’s life, health care will become an absolute essential need.

    There are a lot of us patriotic denizens of this country outraged over NASA expenditures and foreign aide. They’re called libertarians.

    We can’t get past the notion that free health care will be one of the worst possible misappropriations. Wee-weeing resources away on on a moonshot, in the final analysis, just destroys wealth. Having a massive government directing them at health care is destroying our health.

    Which would rather have the government do — make you pay for someone else’s space walk, or make you take statins?

    Cheers

    Reply
  28. Denny

    Fantastic post OB. Comments to comments are superb as well. Thanks for putting this up. I’ll see if I can get Thomas Woods to read it, I’m a huge fan of his and I think you will be too. He is hosting the Peter Schiff show this week and next, you should tune in. http://www.peterschiff.com If you have an iPhone you can get it with the Tune-In Radio app.

    Cheers and thanks again!

    Thank you. I’ll look for the radio show, but remain happily dumb-phone bound at this point.

    –The Older Brother

    Reply
  29. mark

    I live in Canada – there is no such thing as free health care. Screw free health-care!! I’m tired of paying for everyone else’s bull***t. If your sick and can’t afford it – ***-you. Its about time we bring back natures survival of the fittest – we are over populated anyways.

    Seems to generate strong feelings either way, no? Of course it’s not free. Health care is a scarce resource. If it weren’t, then it wouldn’t be an economic question.

    If we’re adult enough to accept the notion that resources are finite, then the question economics is meant to address is, how do those resources get allocated? By force (government), or by free will (market)? By queue (waiting, rationing), or by price (if you want it, pay for it)?

    “Free” is a completely dishonest subterfuge.

    Cheers

    Reply
  30. Pierce

    I appreciate the response and discussion. I think I need to respond that I by no means disagree with you in everything. I think that farm subsidies have become a travesty, although I don’t entirely agree how and why and what to do about it. For example, I think that they are attributable as much, if not more, to the Senate system where each state gets two Senators regardless of population (meaning the relatively large number of agricultural state with their relatively small populations renders them particularly easy to appease with subsidies) than to some sort of grand compromise between farm states and “food stamp” states (which aren’t mutually exclusive lists). I also think the farm policy, combined with “free trade” policies with other nations like Mexico has done damage comparable in scale to the health damage done by the farm subsidies.

    But I digress. My point there is you can come to similar conclusions from different trains of thought. I agree 100% that “real law” is derived through observation and testing, but I guess that’s where our agreements disagree. The idea of free markets or maximum liberty or efficient information or what have you are not laws in that sense. They’re a classic example of the ultimate challenge in philosophy, which I am not convinced that anyone has resolved: the means or possibility by which one can get from an observation of how the world is to how it should be or could be. As crisp and logical as some Austrian ideas sound, they do depend on some underlying and unprovable assumptions. The idea of rational consumers, for one, I argue is not grounded in reality nor provable. Perhaps if all consumers were perfectly rational given perfect information then the ideas would be appealing to me, but of course that’s an ideal world not a real world.

    I am not saying this is a flaw unique to this particular philosophy… it’s of course been the central philosophical struggle for centuries… the question of what truths are indisputable and thus can serve as the [Cartesian] points from which one can build a foundation of logic. I personally don’t think there has ever been a satisfactory answer to this question or ever will be… so I generally reject any philosophy that tries to build itself upon universal or unassailable truths and instead just take the world as I find it, roll up my sleeves, and dig into the details.

    That was my point as well about veganism. I don’t mean that the two are intellectually on the same level or that there’s any necessary overlap between the two sets of beliefs. I mean only that both of them are schools of thought based upon unprovable assumptions about the world, or perhaps more accurately assumptions about an ideal world. They’re hardly the only two like this… pretty much all “grand” philosophies are, which is why I reject the idea of trying to find some universal truth that will give way to useful principles, because I don’t think it’ll happen. Instead, I tried to explain only that they are more similar to each other than they are to a proposition like “white bread raises blood sugar more than does a candy bar.”

    Which brings me to my ultimate point. When it comes to value judgments about how the world should or could be, there is no definitive answer, and intelligent people can disagree. It’s not possible to come to conclusions in the same manner as one does with scientific measurements. So, I disagree with a lot of the assumptions and conclusions derived from Austrian school thought, I also agree with some. And I bet we both disagree with a lot of assumptions and conclusions derived from moral vegan thought. But, in an ideal world, we and the vegans could agree that white bread raises blood sugar higher than does a candy bar. So my whole original post was an attempt to object to the idea that libertarianism is The Answer or The Truth, because it’s at best a truth based on assumptions that rational people can accept or not.

    Thanks for the discussion.

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  31. Paul

    you should seriously get together with Younger Brother and put together a sequel to fat Head based on this stuff… great post!

    I’m flattered you think so. Tom has sworn that the only way he’d take on a sequel is if someone hands him a big honki’g check so he doesn’t have to go out on a limb with his family’s financial future again.

    Hopefully, he and Chareva will a chance to start moving on their book idea sooner rather than later.

    –the Older Brother

    Reply
  32. bigmyc

    Well, at the risk of belaboring this discussion, I have to remark that no one is going to make me take statins.

    No one is advocating a massive government that will pilfer our individual resources and squander it on ill advised ventures. The position that I am railing for is one of a smaller government but one whose prime directive would be to ensure domestic tranquility, provide for the common defense and also offer an equitable health care environment like a civilized nation might have the calling to do.

    You, as a libertarian, might recognize at least two of the aforementioned tenets as they emanate from the incipience of this nation. If a smaller form of government is the goal, then a welcome by product of that system would be a more efficient allocation of human resources to the task of governance. In other words, a greater concentration of competition for those jobs. In addition, wastefulness would be under consistent scrutiny and “worthwhile” government programs like health care initiatives would be streamlined in the process.

    This can’t (shouldn’t) be perceived as anything but civilized advancement. Keep in mind, at this point, entitlement programs would be all but dissolved. Where libertarians get the bum rap (including being grouped in with Republicans et al) is that so many are as pigheaded as any group in the political arena. They don’t set themselves apart in the PR department regarding their inability to make sense of any other conflicting ideals. Having ONE or a FEW social programs is not mutually exclusive to having MANY or a MULTITUDE of social programs. I’ve met a score of libertarians who couldn’t see the forest through the proverbial trees.

    Make you take statins? I know — that’s just silly. The government would never do something like that.

    Of course, your doctor will be required to “recommend” them to you and write the prescription if she wants to keep her license. Keeping our arteries from clogging up with cholesterol will be vitally important with government footing the bill, and they’re not about to let a bunch of quacks who’ve bought into some crazy alternative so-called “theory” run up the health care bill for everyone else by insisting that statins don’t help. After all, Pfizer has already done hundreds of evidence-based research proving they’re good for everyone.

    Your doctor will also be required to report non-compliance to the national health care database, so the experts can keep track. But they wouldn’t force you. They can fine you, but they can’t force you. Or maybe they meant to call it a tax. Depends on which argument they were making to the Supreme Court that day. You don’t have to send it in, your employer will just get a directive from the IRS to increase the withholding amount from your paycheck.

    Once health care is “free” for everyone, and demand therefore approaches infinity, some form of rationing will have to be implemented, just like everywhere else with free anything. So when you get a little older, and you show up at the hospital with a tough cancer, and the medicine is pretty hard to procure what with price controls and all, they’ll just do a quick cross-check in the health-care database and see that you’re something of a lifelong non-complier, aren’t you Mr. Myc? And then you’ll hear the words some people in the UK who need dialysis hear,

    “I’m sorry, there’s nothing we can do.”

    But at least they’d never force you.

    If you’re going to finish nationalizing the 15% of the economy being drained into health care, how does that make entitlements all but dissolved? National health care IS an entitlement program. By definition, it’s a massive government operation that will pilfer resources and sqwuander them.

    Those first two tenets did ring a bell. I must’ve been sleeping in class the day they discussed how Jefferson, Adams, et. al., also meant free heart surgery and medicine. I’d have guessed they rather meant their document to prevent that kind of reach into people’s personal lives.

    Cheers

    Reply
  33. cndnrose

    The articles bring me here, and I come back for the comments. This is why I love reading blogs, the best ones become a discussion, and this has become one of the best.

    Reply
  34. David

    A great overview of Austrian economics. Kudos.

    A bit more in response to the guy who claimed the macro-economics is a pseudo-science. It is, although not for the reasons he cited. Science does not require experiments or double-blinds. Science is about advancing hypotheses about the operation of the universe and then making predictions based on those theories to prove or disprove them. Gary Taubes talks about this a lot in GCBC. The Theory of Evolution, for example, is not based on experiments or studies. Neither is the Hertzsprung-Russell diagram and the Theory of Stellar Evolution. Both, however, make predictions which can be falsified and thus stand the test of true science.

    Austrian Economics is really more like math than either science or philosophy. Both math and economics are based on a few fundamental axioms about the nature of the universe and proceed to build up an entire system of thought through the application of logic to the axioms.

    To refute math, you either have to deny the axioms or to find an error in the chain of logic based on them. I don’t think that anyone would disagree with this, yet the same people who agree with this premise are perfectly happy to heap scorn on Austrian economics without even attempting to address either the axioms or the logic.

    The Austrian logic leads ineluctably to the conclusion that the state is incompetent at performing any task to which it is applied. Mises pointed out that the state has no mechanism with which to decide how to allocate scarce resources (the market uses the price system while the state basically relies on political infighting). Hayek upped the ante by showing that it can’t even have sufficient information to act. Both conclusions are based on logic, not experiment.

    The state is incompetent to perform even the simplest task. The Communists couldn’t even make decent cement, let alone make sure that there was food in grocery stores. Why, then, would anyone think that it is capable of performing far harder tasks like providing health care, policing, justice or defence?

    According to Austrian theory it can’t, and according to the practical outcomes in every state on the planet, it doesn’t. Earlier, you say “as for police and courts, I don’t see having a society without some mechanism to objectively apply force for the protection of innocents”. The whole point of the Austrian analysis is that all value, including the protection of innocents, is subjective. There is no such thing as a mechanism to objectively apply force. It cannot exist.

    As such, if you leave the police and the courts in the hands of the state, then these tools will be used to advance the case of the tax thieves and ensure their control over the rest of us. Unsurprisingly, that is exactly what happens. Always.

    If you cannot imagine a society based on voluntary justice then I submit that you haven’t looked hard enough, either at history or theory. The state hijacking of the Common Law is a thousand years old (largely a consequence of the Norman Conquest; there is a reason why most legal terms, such as crime, justice, and judge, have French origins) but the police are a much more recent phenomenon.

    The American Founding Fathers railed against what they called “standing armies”, which basically amount to police forces. The first modern force was instituted in London in 1829. London was a city of a million people at the time and they managed to live quite well without police until then. The first American force came to New York City in 1853. There were riots against them. The people understood quite well that their purpose was control, not protection.

    As for your “2%” argument, the main problem is that the world simply does not work like that. Once you have conceded the principle of taxation and state control over the law and its enforcement, you have conceded everything. The state will inevitably use these powers for its own aggrandizement. The American experiment is proof enough of that.

    Reply
  35. bigmyc

    Well, clearly you’ve miscontrued my point about the principles upon which the founding fathers established this nation. I wasn’t suggesting that health care was fought for along with “life, liberty and the pursuit of happiness.” That was my offering to what is already a substantial foundation…and in no way am I giving equal billing to all three of those tenets that I mentioned. I think better judgement will allow you to discern which of those three that I would rank lowest.

    Again, I think there’s a disconnect here between the willful adherence to one’s long established libertarian identity and that which could actually work in practice aside from theory. Essentially, “all but dissolved” to me, means “almost dissoved.” So, if virtually the only entitlement program that remains is a well thought out, flexible and equitable national health program, than so be it. Not everything has to be so black and white. Espcially in politics. In fact, the art of politics in general practice boils down to the art of compromise. Government doesn’t have to be terminally inept. It just has to be manageable. That’s the trick. I would think that a substantial “trimming of the fat” would attain this very goal.

    Another thing for the self affirmed libertarian soul to consider; when someone mentions a “health care initiative,” it does not necessarily mean “anything along the lines of Obamacare.” In fact, according to my outlook, it means, “virtually anything but.” The situation that you purport in Britain sounds very little like the flexible and equitable system that I am extolling. The comprehension firewalls that people will build in front of themselves are astounding. If you can pay for exempliary health care, then so be it. If not, well you’ll get the best that your nation can currently offer or at least, supplement.

    I don’t think that we should feel so violated by the attempt at national health care…at least in comparison to what currently goes on courtesy of your(our) tax dollars.

    Reply
  36. Rocky

    Elenor is spot-on in her observation. One of the greatest coups that the health insurance industry has ever pulled was ensuring that the debate has always been about “affording health care coverage,” not affordable health care.

    Rather than focus on the core problems of wildly inconsistent, manipulated, and skyrocketing costs of medical treatment (both necessary and unnecessary), it’s all about “coverage,” thus ensuring another layer of profit and control between the individual and the healthcare provider.

    Reply
  37. Leila

    Hello from Canada! Love, love, love this series, it’s been very educational – huge THANK YOU OB for presenting it!

    Just to weigh in on “free” health care – as I understand it, Americans pay much less in taxes but have to pay-as-you-go for health care; and Canadians pay much higher taxes but don’t normally pay any fees for medical care. I know, that’s vastly over-simplified. My point is, we pay for it somehow.

    I myself don’t get sick all that often, which is great because when I do visit the doc, I get the same old bad advice everyone everywhere seems to get – lose weight, eat hearthealthywholegrains & industrially-processed seed oils, avoid salt & sat fat & take your statins regardless of your cholesterol. But, I have a husband with congestive heart failure and a son who needed surgery at age 7 for a brain tumour known as a medullablastoma, so my family accesses the health care system fairly frequently. My son, now 27, has had two surgeries and a mild stroke in the past year, and no fees have ever been charged for his treatment. It’s an enormous relief to me to know that when we really need it, excellent medical care is available and we don’t have to worry about being able to pay for it.

    Having said that, I think the fact that I can walk into any doctor’s office, clinic or hospital & obtain medical care has serious drawbacks. When government takes over every aspect of their lives, people seem to want to depend on it to tell them how to live, rather than take personal responsibility for the state of their health (and finances). So they go see a doctor for every little ache & sniffle “just in case.” The result is that the health care system is overwhelmed, the wait lists are long & people can’t get the care they need unless they’re in desperate straits.

    I don’t what the solution is – charging a fee might discourage frivolous use of the system but it might also stop people from getting medical care that they truly need. I know there are people who don’t fill their prescriptions because they can’t afford them. Maybe the solution is less government involvement in all aspects of people’s lives to encourage rthe people to become more self-reliant. Hmmm, I think that makes me a libertarian!

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  38. Elenor

    Leila: “charging a fee might discourage frivolous use of the system but it might also stop people from getting medical care that they truly need.”

    Yeah, they do that here in America — they call it a “co-pay.” It doesn’t really work unless you make it onerous enough to discourage folks, and then, all too often, you end up discouraging the WRONG folks. It becomes just one more way to push more of the cost off the insurance companies and onto the allegedly covered.

    Reply
  39. Lisa

    Great post. This is a lot to think about. It’s a shame more people don’t know about how prices with food are influenced.

    Reply

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