Posts Tagged ‘Market Failure’

A Rational, Self-Interested, Free Market Argument for Socialized Health Care

September 14, 2009

Private health insurance is worthless. Purchasing it does not benefit me.

Let’s say I purchase private insurance. So long as I don’t get very sick, it don’t actually get any benefit – as I could have just saved the money that goes into my insurance and paid for it out of my own pocket (and had the rest as, y’know, actual money).

So, the only way private health insurance could possibly benefit me is if I become so sick that the insurance company would necessarily lose money by paying for my sickness.

So all the people who actually need health insurance are people who are non-profitable for health insurers.

Which leads to a fascinating Catch-22: as any company whose objective is to make profit (all private health insurance) is encouraged to immediately cease to do business with me when it becomes apparent I need their service – because, as noted, I’m not profitable for them.

Even worse, the more sick I am, meaning the more I need their service, the greater their incentive becomes not to provide me with that service.

Furthermore, a free market can not solve this problem through the introduction of honest health insurance companies.

Any market in which an honest health insurance company must compete against a dishonest health insurance company, will have business flowing from the dishonest health insurance company to the honest health insurance company, as interested and informed individuals change their service. However, interested and informed individuals are the ones who need the service, and are thus by definition not profitable (as previously established). So honesty can only ever net a health insurance company reduced profits, ensuring their inability to compete in a free market.

Even a free market in which, somehow, only honest health insurance companies can resist this effect – as it is the nature of free markets to encourage innovation which increases profits, and there is no greater boost for the profits of a health insurance company than refusal to provide health insurance.

Ultimately, this means that I can not trust any health insurance company to actually provide health insurance – while there is a chance that I may receive health insurance if I need it, there is a chance I may not, and the very company which is supposed to provide me with health insurance would conspire that I do not get it.

Health insurance, like all forms of insurance, is a service in which I pay money in exchange for reducing my risk – in this case, my risk of not being able to pay for health care. However, private health insurance does not fulfill this function.

Instead, it shifts my risk – from the risk of being unable to pay for health care, to the risk that my private health insurance company will refuse to do so, leaving me without even the money I would have had if I’d never used private health insurance.

An insurance system that does not reduce risk is a nonfunctioning insurance system.

Furthermore, no amount of regulation can solve this.

Regulation is by its’ nature static and slow-to-adapt, while the market is quick to adapt towards the objective of increasing profits. The government can not be trusted to keep up with a dynamic and strongly motivated private system dedicated to refusing to provide me with service.

Furthermore, successive layers of regulation will increase the system’s complexity, ultimately making it easier for the highly-competitive private health insurance industry to scam me out of providing service, as I must not only contend with the health insurance industry itself but with the additional bureaucratic structures created by the government in an attempt to make public health insurance function.

So ultimately, all government can do to private health insurance is make it even more so a waste of my money.

So I gain nothing from private health insurance. The market can not fix this (and in fact enforces the worthlessness), and the government can not fix this. There is no way a private health insurance company can provide me with a service that I can trust and remain in business.

Ergo, private health insurance is worthless.

Meanwhile, the very problem that most plagues social service – a lack of profit motive which encourages unprofitable spending – is the only thing that can produce a trustworthy form of health insurance. If I need socialized health insurance, the government won’t care! They’ll happily pay the bills at my time of greatest need, not worried that I’m costing them money that they could conserve by simply letting me die.

The government does not need to make money – so they have no reason not to provide me with health insurance.

So I can trust them – socialized health insurance can function to reduce my risk of being faced with health care bills that I can not pay.

So, to reiterate:

Private health insurance: Absolutely, uncorrectably worthless for me.

Socialized health insurance: Accidentally perfectly functional for my needs.

As a self-interested, healthy member of America’s socioeconomic middle class, the only tenable option for me for health insurance is the government.

And I’m pretty sure that applies to everyone else too.

Now the question is: To flowchart this, or not to flowchart it?

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All Economies Are Doomed!

June 12, 2009

So,  it occurred to me today that I am a market failure fatalist.

The systemic and all-consuming flaws inherent to the structure of the free market itself seem impossible to me to overcome, short total economic failure* (that probably includes all the rich people dying violently to clear up the nepotism).

A quick look at some of the problems I see, above and beyond known inherent free market flaws:

  • Self-interested actors function without ethical boundaries whenever possible – constant consumer visibility and vigilance is required to enforce a semblance of correct behavior upon industry decision-makers.
    • It is thus in the interest of said industry decision-makers to stifle consumer visibility, be it through intentional or unintentional process obfuscation, deliberate spread of misinformation, generating conflicts of interest for ideally unbiased individuals (such as scientists), or just outright lying – all to keep consumers from being aware of corporate practices and policies. Essentially, access to information about the market is an extremely valuable thing, but its’ widespread proliferation is essential for proper market function, and that proliferation is a common good which the market can not be expected to provide (further complicating things, the estimated value of that good may well exceed the value of the goods the information actually concerns).
    • It’s also in the interest of market actors to stifle consumer vigilance. Public relations maneuvers to engender ‘trust’ in corporate interests without doubt have the function of reducing scrutiny of corporate practices and policies. Furthermore, it is in the interest of market actors to leave individuals without the very skills required to correctly understand and make decisions based off of market information. Essentially, it is in the interest of the market to avoid empowering consumers, economically and intellectually, to the greatest extent possible.
  • Markets expand and new industries are created through the commercialization of goods and services – a free market can be expected to make a marketplace of anything, provided only that there is money to be had as a result. And no potential industry in the world offers a greater incentive for commercialization than the industry of legislation.
    • Not only does the free market require extensive government intervention in order to function, but the more effective that intervention becomes, the greater the incentive to any given firm becomes to manipulate the laws to remove barriers which restrict profitability. Essentially, as the law takes steps to try to prevent illegal/unethical greed, unethically greedy individuals have more and more reason to manipulate the law such that not only can they not be stopped, but so that the law can be worked to their outright advantage.
  • Economies of scale promote the focusing of greater amounts of relative wealth into successively fewer hands. This ultimately leads to a “too big to fail” problem in which one individual or a small group of individuals gain enough clout to potentially destroy markets, turning them from economic assets to potentially catastrophic liabilities. Mind, also, that this problem is not new to humanity: “Too big to fail” is a problem that has plagued government, and continues to do so to this day (frankly, that makes this problem the most solvable, as we have centuries of experience trying to fix it).
  • The ability to benefit from assets in the short-term, then divest of potentially unstable assets, combined with the concept of limited liability for asset holders, provides an incentive to work to obtain short-term profit regardless of long-term ramifications. What would normally be a high-risk/high-return gamble of assets on exclusive short-term gains becomes a low-risk/high-return gamble when limited liability is introduced into the corporate environment, even without taking into account the ability to ‘cut and run’ from a company you no longer believe you can wring further high profits from. This leads to a scenario in which our economy is collectively encouraged to ‘bet the farm’ (or firm, as the case may be) repeatedly until, inevitably, the bet fails and the economy catastrophically collapses**.

These problems are in addition to the known, and very widely-impacting common good problem, in which nobody is incentivized to develop common goods and/or everyone is incentivized to deplete them. Among other problems, this:

  • Provides incentive towards the destruction of the environment and other unsustainable business strategies.
  • Provides incentive against development of workers, community, and other infrastructure.
  • Provides incentive towards overexploitation of the consumer for profit, a resource which the depression we are sliding into has shown is not an infinitely exploitable resource.

Also, there are all the very human market problems, such as discrimination, nepotism, monopolies, the list goes on.

All in all, well. Markets fail, and we can’t stop them. They are self-consuming machines which render 99% of humanity as engines of enrichment for the phenomenally wealthy and powerful 1%, and even then dysfunctional such that people can figure this fact out every so often and go on a ‘revolutionary’ killing spree of that 1% out of spite.

*-I hope to one day learn or develop a way to overcome these problems, but solutions to them quite evidently do not exist at present.

**-Envision the following theoretical game (Which I hereby dub “Indon’s Casino”):

Each player begins the game with 1 point and may bid any number of points each round. After each player has bid, each player must roll a die with 100 sides – if that die comes up as anything but a 1, the bid is doubled. However, if it comes up as a 1, each player who did not get a 1 must reroll for that bid once for each person who got a 1.