The middle class is shrinking. Those in power have run up enormous debts on public credit while shoveling most of the money into private pockets. The corporations that have benefitted from this borrowing binge, meanwhile, leverage the global trade system to transfer their profits beyond the reach of national governments.

Meanwhile, we have been told lies by Democrats and by Republicans, divided into artificial camps and led into debates that are either irrelevant or so dramatically scripted that we fail to realize every choice leads to the same result: the dismantling of the social framework that defined and sustained the opportunity of the last century. National mobilization of resources has given way to radical individualism under a narrative that, in the wealthiest nation in the world, we must always expect less.

In this tumultuous time, we search for a way forward - a new Square Deal for the American people.

Tuesday, July 19, 2011

In Defense of Markets

Several weeks ago, participating in what many of us still like to call a "conversation" on a discussion forum (though if we were more honest with ourselves, we would accept that these forums consist of people mostly talking past one another, interspersed with random posts by people who aren't even aware of the topic), I posted a reply to someone's comment in which I congratulated him for the stance he was taking. The topic was health care, and the comment in question had been offered as a reply to repeated assertions that health care was a right, that we should impose taxes to pay for national health insurance, and other statements in support of a social-justice model of care.

What caught my attention about the particular respondent was his adamant stance that he should not be asked, expected, or forced to pay anything to help anyone else get health insurance. He wanted to see no tax increases, no mandates -- nothing. He was very clear that people needed to find ways to pay for their own health care and not expect handouts.

This position is an excellent perspective on what is called market justice, the position opposite the social-justice model that says people should be afforded the ability to get what they need essentially regardless of their ability to pay. Social justice is a morality-based system. Market justice is, in fact, also a morality-based system (something generally overlooked in modern debate) but concerns itself with morals that are very different from those that feature in the social-justice argument. Specifically, market justice is concerned about individual choice, efficient allocation of scarce resources, and the avoidance of what economists call moral hazard, a distortion of behavior that occurs when people do not face the logical consequences for their actions.

In writing The Wealth of Nations, Adam Smith -- who, we might forgive most people for not knowing, was primarily a moral philosopher, as all economists of the time were; the simple study of money for its own sake was for financiers and not worthy of academia -- laid the foundations of market justice insofar as he defined markets. The true advocate for market justice, however, is Friedrich August von Hayek (also a moral philosopher), who wrote The Road to Serfdom and is regarded among the most influential of advocates for so-called Austrian economics.

Both Smith and Hayek were advocates of what Smith termed "the invisible hand," the notion that large numbers of people free to behave in ways that make the most sense to them will, in pursuit of their own self-interest, work out a system that is more equitable to them as a whole than would be the case for any central authority seeking to impose equity by decree or policy. Market justice does require some degree of central authority, because there must be a means by which the framework for interaction is maintained; for instance, a unit of money must be established (though it should be relatively hard to co-opt, hence the preference among early capitalists for a gold-based economy even though Smith's system was intended as a step away from the mercantile concept that simple possession of gold was a measure of wealth).

Competition lies at the heart of a functioning market, because it is when providers compete that customers are free to exercise choice. The danger posed by an absence of competition was not immediately apparent to Smith but rose to prominence in the 1800s as industry allowed for ever-greater businesses and mergers spawned the first monopolies. Market justice requires competition; if people cannot allocate their money based on actual preference and instead are forced to buy from only one provider, they cannot "vote with their dollars" and reward those providers who are best meeting their needs.

A private monopoly may differ from a public agency, but the difference is only whether the entity is operated for profit. Claims that enormous private businesses do not place burdens on taxpayers are false -- first, because when only one source exists for a particular service, and that service is more or less required to lead a fulfilling life, the price of that service is a de facto tax; and second, as we have recently seen, because very-large private companies prove to exert so much influence over the government and hold on their shoulders so much of a national infrastructure that taxpayer money is frequently used to "bail out" these companies when they fail to avert a national crisis that would ruin the lives of the entire population.

Monopolies, therefore, are "bad" and should be prevented. Here, a democratic government finds a second role within the market-justice model: because it is exists by, of, and for the people as a whole, the government is (in theory) impartial within the market and does not distort competition by giving advantage to one provider over another. (As it has often been observed, the government should not "pick winners and losers.")

Market justice has to varying degrees been responsible for the rise of the United States in the twentieth century and is to some extent the underpinning of what we consider to be American capitalism. As a reading of Hayek will inform anyone interested, however, much of our current system is not based on market justice. Instead, we have embraced the sham of crony capitalism -- that is, a system wherein private companies provide services on a for-profit basis but are through alignment with government regulators and legislators spared from both the broadest powers of competition and the primary consequences of their actions. So-called "pre-packaged bankruptcies," government bailouts, permissive monopolies like those wielded by the cable networks, and "deregulation" that does little more than transform public monopoly utilities into private monopoly utilities are all examples of crony capitalism.

Crony capitalism helps no one. It neither brings to bear the power of competition nor ensures accountability to the public. It distorts the power of democracy. Worse from the capitalist's perspective, it generally results in inefficient allocation of resources; today, for instance, conservatives cheer Chief Executive Officers (CEOs) who pay themselves millions of dollars in bonuses as being heroes, even though these are merely agents of the actual capitalists (shareholders). We pretend that the ability to fire people en masse is a representation of bold leadership and fail to notice that the actual earnings and performance of companies generally declines after they undergo these purges -- usually just after the CEO has picked up his or her latest bonus but in time for that same executive to collect a seven- or eight-figure severance package approved in advance by a Board of Directors he or she hand-picked to rubber-stamp such deals.

Market advocates, the disciples of Hayek, do not cheer these people. They are no different from the bureaucrats who might head bloated public agencies; they deliver no benefit to the population, and their path is a dead end. That matters, because the entire reason that we have economic systems is precisely to make people's lives better overall. This was even true in the aggregate under systems of feudalism and monarchy; it is the stated goal of socialism and capitalism alike. The methods differ, the theories diverge, but a system that does not aim to deliver results to the people of a country cannot claim a mandate.

Market advocates do not reject socialism because socialism claims to deliver benefits to the masses; they reject socialism because they believe that it fails to live up to its claims.

All of this brings me back to the forum where I responded to a post that was, by all appearances, defending market justice. Everyone else who was opposed to the Patient Protection and Affordable Care Act was making absurd claims that we could provide health care to everyone at all times if only we followed a handful of Republican talking points, he was taking a stand: if someone can't afford health care, absent voluntary charity on the part of friends or family or the public, that person should and must be left to die rather than distort the system. It was market justice at its finest.

Market competition has made Singapore's health system that most successful in the developed world. The care is top-notch. All care is paid in cash up to a certain level, beyond which government-mandated health savings accounts funded from every paycheck may be tapped. Only the most expensive care allows for application of a cost-sharing insurance program. Those who cannot pay may be covered by the government -- but that coverage is explicitly dependent on the government having surplus money to pay for it. Where the great welfare states and their national health services and insurance programs are struggling (though not nearly so much as our own tottering "system," which is easily the least effective model in the developed world), Singapore is the only developed nation operating at a net surplus for health care.

I replied to the author and congratulated him on his honesty in support of markets and accepting the trade-offs inherent in that system.

He wrote back a scathing diatribe in which he insulted me for questioning his morals and suggesting that he wanted to let sick people die, then spouted a series of Republican talking points about how we could cover everyone if we just repealed "Obamacare."

I sighed. He didn't get it after all. So few do.

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