Deinonychus antirrhopus

Speaking of Austrian Economics

Here is something by Hans-Herman Hoppe on health care. It isn't all that great, but lets take a look anyways.

It's true that the U.S. health care system is a mess, but this demonstrates not market but government failure. To cure the problem requires not different or more government regulations and bureaucracies, as self-serving politicians want us to believe, but the elimination of all existing government controls.

It's time to get serious about health care reform. Tax credits, vouchers, and privatization will go a long way toward decentralizing the system and removmg unnecessary burdens from business.

What is kind of strange is to first call for an end of all government control and then to turn around and state that tax credits and vouchers can go a long way towards solving the problem. It is so strange I am going to make sure I read it correctly the first time. Yeah I did read it correctly.

The problem is that tax credits and vouchers are a form of government control, they are simply a subtle form of control. Direct control is where the government comes out and sets the price, the quantity allowed, how something is to be made. A tax credit is basically and incentive device to induce people to do things they otherwise would not do. What makes it even more strange for Mr. Hoppe to come out in favor of vouchers and tax credits is that latter in the article he writes,

Eliminate all subsidies to the sick or unhealthy. Subsidies create more of whatever is being subsidized. Subsidies for the ill and diseased breed illness and disease, and promote carelessness, indigence, and dependency. If we eliminate them, we would strengthen the will to live healthy lives and to work for a living. In the first instance, that means abolishing Medicare and Medicaid.

But vouchers and tax credits are a type of subsidy. Tax credits and vouchers are a type of payment to individuals so they can consume a specific commodity (vouchers), or they are designed to reduce the tax burden to induce people to consume a specific commodity. Soooo...which is it? Eliminate them or institute them?

Now there is some truth to what Mr. Hoppe wrote above. I have made a similar point here. However, there are things that people have no control over. You have no control over a diseases like Alzheimers, Parkinson's diesease, and others are often beyond the control of the individual. Further, the above quote fails to consider the institutional dimension of the problem that hospitals treat people with diseases/health care needs irrespective of the ability to pay. Unless Mr. Hoppe is advocating wheeling those patients out into the street who cannot pay and letting them die horribly there, the above conculsions are a bit hasty. Further, Mr. Hoppe ignores the human/humane dimension that individuals collectively (i.e., society, the public, what ever name you prefer) might decide that such a policy of letting the uninsured die horribly is not something that it wants.

Because a person's health, or lack of it, lies increasingly within his own control, many, if not most health risks, are actually uninsurable. "Insurance" against risks whose likelihood an individual can systematically influence falls within that person's own responsibility.

I'm not sure what to make of this passage. It suggests to me that Mr. Hoppe is unfamiliar with how insurance works. The problem where the outcome of the uncertain event is partly in the control of the person who is insured is not a new problem. This problem is basically the principal-agent problem and the two basic types of problem are moral hazard (hidden action) and adverse selection (hidden information). There are ways to deal with both types of problems with private insurance. If we proceed to the next paragraph, I think it becomes fairly obvious that Mr. Hoppe's grasp of insurance/the principal-agent problem is weak:

All insurance, moreover, involves the pooling of individual risks. It implies that insurers pay more to some and less to others. But no one knows in advance, and with certainty, who the "winners" and "losers" will be. "Winners" and "losers" are distributed randomly, and the resulting income redistribution is unsystematic.

Not true at all. First, the idea of pooling people is false. The pooling outcome can only happen when you have government forcing such and outcome. All pooling outcomes can be "broken" by a seperating outocme. The seperating outcome is where you seperate the customers into different risk groupings. For example, we know that somebody who smokes is definitely a higher risk for lung cancer than somebody who does not. The seperating outcome mentioned earlier is explained by Mr. Hoppe here,

If "winners" or "losers" could be systematically predicted, "losers" would not want to pool their risk with "winners," but with other "losers," because this would lower their insurance costs.

We don't need certainty though. All we need for this to occur is for their to be know differentials in risk. And the next quote suggests that Mr. Hoppe has not thought this through clearly or is over-simplifying too much,

I would not want to pool my personal accident risks with those of professional football players, for instance, but exclusively with those of people in circumstances similar to my own, at lower costs.

By excluding football players from the group Mr. Hoppe would want to self-select with, he is implicitly giving support to the notion of a seperating outcome (equilibrium). Note that there is no certainty here in Mr. Hoppe's example. Some of the football palyer's Mr. Hoppe will be excluding will not get sick. Or to put it differently, Mr. Hoppe could get need greater health care resources than some of the football players he wants to avoid.

Another eye popper for me was this paragraph,

Eliminate all government restrictions on the production and sale of pharmaceutical products and medical devices. This means no more Food and Drug Administration, which presently hinders innovation and increases costs.

Eliminate all government restricitions? Including patents, copyrights, and other forms of intellectual property protection? Some how I doubt it. But...shouldn't that indeed be the case in an anarcho-capitalist world?

Despite the problems with some of the reasoning here, I think there are some good ideas. We don't want to subsidize health care like we currently are. Getting rid of Medicare would probably be a good idea. The problem is that it is highly unlikely it will ever come about as politicians are all to willing to use any such proposal (no matter how sound the alternative is) as a scare topic in political ads.

Posted by Steve at May 28, 2004 11:48 PM