“Without a way to perceive every need at every level of society in every market segment, it is impossible to launch a publicly funded product (or project) that will comprehensively satisfy those needs…”
The road to hell is paved with good intentions.
In the context of the federal government, that phrase is usually a foregone conclusion. Just about everyone can tell at least one anecdote involving someone they know who has insider information on why and how the government mismanages money, works only for its own good, and confounds progress.
After all, isn’t Congress the opposite of progress?
Unfortunately, it’s very rare to hear stories that clearly explain the underlying, fundamental concepts that lead to this chronic ineptitude. But some get close.
Enter the Foundation for Economic Education and one of its contributing authors, Jeffrey Tucker. His article in the December 2013 publication of The Freeman discusses some of the catastrophic economic impacts of the Affordable Care Act. Tucker claims that the federal government “can’t and won’t fix healthcare.” He says that the best medicine for our ailing healthcare system can only come from the private sector.
But what Tucker doesn’t really address in his article are the reasons that Obamacare is not the fix our healthcare system needs. Sure, Tucker describes how the law has negatively impacted existing coverage plans. Sure, he touches on the millions of people, previously insured, who have been dropped by insurance companies due to the law’s requirements. And yes, he highlights the large markups in individual plan prices.
What Tucker’s article lacks, however, is clear articulation of the fundamental drivers responsible for the law’s list of negative impacts.
It all boils down to two things:
- Economic calculation
- Price mechanism
Economic calculation (or more accurately for this discussion, the “economic calculation problem”) was presented by Ludwig von Mises in his 1920 work, Economic Calculation in the Socialist Commonwealth. Without getting into all the historical details of what led Mises to write and publish Economic Calculation, let’s break the concept down.
Economic calculation is an attempt to identify the economic value of something and determine how best to put that value to work in an economy. It’s conceptually simplistic, yet difficult to execute, especially for bureaucratic central planners.
The greatest obstacle to decent economic calculation by governments is the inherent inability of bureaucracies to adequately judge what good or service is wanted at a given time by the public (or the myriad different goods and services wanted by different demographics across different geographies and how those details change over time).
Put simply, bureaucracies are not nimble enough to clearly see what thing is wanted and what price people are willing to pay for that thing.
And forget about expecting a bureaucracy (like our federal government) to produce and deliver that thing in a timely and cost-effective manner.
The government cannot conduct sensible, actionable, and effective economic calculation.
There’s an interesting article in an old edition of The Quarterly Journal of Austrian Economics that describes how both public choice theorists and Austrian economists identified the same bureaucratic inability to properly identify need, determine the need’s value, and appropriately allocate resources to match that need.
Without a way to perceive every need at every level of society in every market segment, it is impossible to launch a publicly funded product (or project) that will comprehensively satisfy those needs. Thus, Obamacare is not the salve for our ailing healthcare system because it was created through bureaucratic attempts at economic calculation.
I know what you’re thinking:
“But what if the federal government notices that their initial attempts at economic calculation have failed and then takes steps to adjust toward greater success?”
It’s a smart question. And it leads us to the second fundamental driver responsible for Obamacare’s insufficiency: price. More accurately, I mean the lack of an adequate price mechanism within the bureaucratic processes of Congress and the Executive branch.
The government’s process for establishing and funding programs creates layers of filtering between citizen (consumer) and program manager or lawmaker (planner/producer). The process impedes direct communication between the consumer and the producer, which means that signals that would normally indicate perceived value and acceptable levels of price don’t reach the bureaucratic decision-maker in a way that facilitates quick reactions to market shifts.
Such data-driven insights may eventually squirm their way through the layers of bureaucracy but will most likely arrive much later than the moment at which a decision to adjust was needed.
It makes sense, then, that the federal government’s inflexible processes (that can’t respond to shifting, dynamic conditions) yielded a program that does not provide exactly what citizens desire or need, at the time they desire it, for the price they are willing to pay for it.
Thus, Obamacare is not the fix for our healthcare system because of its inflexibility and unresponsiveness due to its lack of an adequate price mechanism.
The object lesson? The best solutions for the provision of quality healthcare and healthcare insurance at the lowest cost to citizens can only come from organizations or individuals that are capable of the following:
- Fast and accurate perceptions of market shifts (through price mechanism);
- Equally fast and accurate adjustments to market shifts (through economic calculation);
- Effective resource allocation driven by (a) and (b).
For now, our government is incapable of leveraging all three of the above. And since resource allocation is the output of economic calculation informed by market signals, we’re left with this:
Obamacare (and Ryancare) can’t and won’t fix healthcare because they were created through failed economic calculation, and because there is no adequate price mechanism through which the policies can intelligently evolve.
So, we can’t really blame Obama (as many have wanted to). And let’s not be too quick to cast stones at the GOP for what their version of Obamacare promises to do.
The greatest blame should be reserved for ourselves for not creating a better solution already.
Jeremiah D. McCloud is an OpsLens Contributor and former U.S. Marine Corps intelligence officer. McCloud spent nearly four years as an enlisted Marine, then attended the U.S. Naval Academy where he earned a BS in International Relations. McCloud deployed to Afghanistan, and has since acquired an MBA from the University of Virginia in International Business and Communications.
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