Robert Blumen Archive

Why Health Insurance?

October 21, 2009 3:29 PM by Robert Blumen

What people need is health care. Yet on both (or every) side of the current health care debate the discussion centers on how people will obtain insurance, not how people will obtain health care. Why is it assumed by everyone that a third-party payer should be the primary way that people pay for health care? And that the obligation of the third party to pay should be secured not by the consumer but by a fourth party (their employer or government)? Even Dr. Robert Murphy on Mises.org devotes most of his space to analyzing the problems with insurance in his discussion of the current system.

For almost every other good or service in our lives, people pay cash out of current income, obtain credit, or save up cash reserves. Insurance plays a role in only a minority of our purchases. Off hand I can think of residential property destruction, car theft, and accidental death or permanent disability as the other common forms of insurance for consumers/property owners.

Even more troubling to me is that the meaning of the word insurance has become corrupted in public discourse. What most people mean when they talk about obtaining health insurance is "How can I find a third party who will provide me with unlimited consumption of health care at no or minimal cost to me?" The current health care debate seems to be about the search for a system where everyone can obtain unlimited care at no cost to anyone.

I believe that employer-provided plans are responsible for the illusion of no cost to the insured. Most employed workers do not understand that they pay for employer costs incurred on their behalf through reduced wages. The tax system is partially responsible for this -- by making the employer's but not the employee's premium payment tax deductible -- but that is not the whole story. The lack of economic reasoning by the general public is also partly to blame. Few realize that the opportunity cost to the employer of providing the plan is less money available to pay wages.

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Bail, or Fail?

October 7, 2009 7:15 PM by Robert Blumen

My friend Brent Mattis (Finance Professional and student of Austrian Economics) wrote:

From where I am standing, it seems like leading up to and during financial crises, some Austrians seemed to be making contradictory statements. On one hand, several Austrians predicted that an imminent disaster was near, that nothing could stop the coming crash, and that any attempt to do so would lead to dire consequences (hyperinflation, dollar crash, Japanese-style "lost decades", etc).

On the other hand, Austrians were against every action taken by the Fed and Treasury during the crisis. According to Austrians, all the Fed/Treasury predictions of calamity, cascading cross-defaults, and death spiral, were mostly scare-mongering to expand federal power.

Put another way, when the Fed and Treasury started saying "we need to take major action, because the end is nigh," the Austrians said, "No, just allow the insolvent entities to fail and let the chips fall where they may, capital will move from weak hands to strong hands and we'll be better off for it."

Take one specific example: last Fall, a Money Market fund broke the buck when Lehman collapsed. It started a run on supposedly safe investment vehicles like commercial paper. The Fed arrested the run by backstopping all MMF's. Suppose instead of bailing out AIG and backstopping all MMF's and short-term paper, they'd followed the Austrian prescription of letting insolvent entities fail. In the ensuing run, the consequences would be difficult to predict, but would have likely gone beyond the Austrian idea of the 'short but sharp recession.' One can try to trace the linkages. In sequential order, the CP markets fail, corporate bond markets go crazy, businesses dependent on rolling paper fail, and banks fail en masse. This would be pretty traumatic. Would America be better off in the long run if we'd watched the majority of the banking, shadow banking, insurance, and other levered entities collapse? I'm not being facetious. I'm legitimately curious on this one.

Austrians can differ about the severity of the consequences if one firm or another were not bailed out. But I don't think that the only good case for opposing a particular bailout would be to show that there would not be much pain involved if the bailout were averted. You might think that a serious downtown would occur without efforts to defuse it, and yet still be opposed to a bailout because the bailouts would only make things worse. If we're not going to make an argument against all bailouts on ideological grounds, then lets compare all of the costs of a particular bailout against the benefits.

Some advocates of bailing out financial institutions (not necessarily Austrians) think that the credit crisis is the problem, and that by preventing firms from failing we can solve/avoid/fix the problem. If it were that simple, then those Austrian ideologues who are against all bailouts look pretty mean-spirited and narrow-minded.

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What Keynes Said, and Meant

September 29, 2009 7:48 AM by Robert Blumen

Keynes is a famously difficult writer to understand. While his ideas have achieved tremendous influence, most people have been exposed to them only by reading macroeconomics textbooks (which provide a second- or third-generation graphical synthesis of The General Theory). FULL ARTICLE

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2009.09.21 | Comments (3)

UN: Global Currency Should Replace Dollar
2009.09.19 | Comments (26)

Mini-Review: Where Keynes Went Wrong
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Fed Gov: "We Are Awesome"
2009.09.02 | Comments (13)

New Book: Where Keynes Went Wrong
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Software Models and Austrian Economics
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Vacant Apartments in New York City
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Is China's Economic Growth Real?
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