when the invisible hand messes things up

Clafabio's post about Blackwater got me noodling on a question that comes up a lot (well, at least when I'm hanging around with my libertarian buds) - that is, when is it a good idea to let the free market and private enterprise handle things and when is it better for the government to step in?

Now, if you're a hard-core libertarian your answer may be it's always better to keep big brother out, but for the rest of us I'm guessing there's a little more gray there.

The question came up reading Maggie Mahar's "Money Driven Medicine," in which - you could probably guess from the title - she explains that market driven health care can have some nasty side effects (like unnecessary by-pass surgeries, high costs, etc.). It also seems to be one of the key questions the candidates are trying finesse in their health care plans.

Clafabio's post made me think that the military might be another industry that's better run by non-bottom-line entities (and along those lines, the police and fire departments).

The question was begged: what is it about health care and the military that makes them better off in public hands?

First I thought - well, maybe they're both things where, if you mess up, people die. But that doesn't totally fit, 'cause you could say that for businesses that make cars, bridges or import toys from China.

Undismayed, a second thought blipped up - well maybe industries that require a lot of individual trust are also better left to civil servants. But that doesn't entirely work either - you need to trust your physical trainer and your child's 1st grade teacher, but private gyms and private schools seem to work just fine.

So my last thought - which was as far as my attention span would take me - was that maybe it's both: in industries that require a lot of individual trust - and where people can end up dead, you want to think that the guy with the gun or scalpel isn't in it just to make a buck.

Now, I know doctors aren't technically civil servants, but they kind of see themselves that way, don't they. I dunno - I'm beginning to see cracks in my burgeoning theory. Any help out there?

quakerfriend's picture

Why fire and police departments, but not health care?

TALKER asks why, if it makes sense for government to fund and manage the military, police, and fire departments, doesn't it also make sense for the government to fund and manage health care and other favorite liberal causes? As a CATO-supporting libertarian -- with progressive leanings -- let me try and explain.

We libertarians see the world as it really works. Private enterprise and market competition drive innovation and prosperity by providing a broader range of products and services at lower prices over time. Back in the 1800s, the private market brought us farming innovations (plow, reaper, etc) that helped us feed more people using less labor, growing our population, and allowing more Americans to move into cities where specialized merchant and blue-collar classes grew and prospered. Cities and labor specialization brought us all of the industrial and information age innovations that drive our economy today. Innovations in transportation (trains, cars, planes) help us move people and good faster and more cheaply every year. Innovations in communications (telegraph, telephone, TV, Internet) allow us to communicate with one another at almost no cost now. The list goes on and on.

In contrast to all of these market-based industries, which almost every American would now agree provide more public benefits (more goods at lower prices) under private/corporate control than they would under government control, the military, police, and fire departments, are unique enterprises whose chief purpose is to "ensure the safety and security of Americans" and "enforce the law". These are two critical areas where even libertarians agree that it is better to have one monopoly enterprise enforcing the law, or protecting public safety, than multiple competing enterprises.

When it comes to the use of force, a nation will be more safe and secure if it has one military than if it has five (or one police department as opposed to 5). In other words it is preferable to have less competition, and slower innovation, in military and police "industries", by having just one government-run monopoly "business" than the negative side-effects we would have if there were 5 American militaries running around and competing with each other. The same goes for police forces (which, since they are organized locally, actually number in the hundreds -- but each has a monopoly over a tightly defined geographic area).

So what about health care? Or what about other favorite liberal causes (ie. Social Security, K-12 education, etc)? Well, these "industries" do have some connection to "ensuring the safety and security of Americans", and that's why I would agree that there is *some* role for government to play in these industries. Personally, I believe that government is playing far too large a role -- and that we could benefit greatly from more innovation, more competition, and reduced costs in health care, K-12 education, etc... but many liberals seem to think that government monopolies would be better at all of these enterprises.

Why on earth would folks think that? Personally, I am not certain where this confidence comes from. Government monopolies have never been very good at doing anything. Amtrak does have its trains running more on time than they used to, but the system has been losing $1B per year for more than twenty straight years now, and their attempt to implement high-speed Acela trains in the 1990s had numerous problems that are still not fully solved. The US Postal Service does deliver mail better than they did in the 1960s, but all of the innovation in the "letter industry" have come from private enterprises (UPS, FedEx, etc). Even the military buys many of its products and services from private entities (Lockheed Martin, Boeing, Blackwater, etc), because private companies have incentives to drive innovation, make things more cheaply, and increase profits. Innovative military hardware like the Predator is not very often invented by government employees -- the invention occurs at private companies under government contract.

So why would a government run health care system be any better? Most liberals point to Sweden, England, or other countries that have state run health care systems. I will readily agree that these countries health care systems are better than our 50% private, 50% public health care system. However, all of these other countries benefit greatly from the innovative new procedures, drugs, and medical technology that are most often created by private and quasi-private companies that make up the 50% private portion of American medical care. I have read Maggie Mahar's book, and -- although she does a great job outlining the history of how we ended up with the terrible hybrid Health Care system that we have -- I think the way she leans her book towards recommending a fully-funded government-managed single-payer system would result in Americans having Amtrak-like health care 10-20 years down the road, and therefore isn't the best policy option for our country.

Instead, libertarians like myself believe we should tailor government intervention in the health care market very tightly and carefully at places where the market won't automatically "ensure the safety and security of Americans" or "enforce the law". Outlining those areas will require a completely new post, so please look forward to that in the coming weeks...

quakerfriend | October 13, 2007 - 6:43pm