Adam Smith Solves the Health Care Crisis- for Small Business

“Little else is requisite to carry a state to the highest degree of opulence from the lowest barbarism but peace, easy taxes, and a tolerable administration of justice: all the rest being brought about by the natural course of things.” – Adam Smith   18th Century economist Adam Smith created the concept of the “Invisble Hand” in his book, “An Inquiry into the Nature and Causes of the Wealth of Nations” or more commonly known simply as, “The Wealth of Nations”. The invisible hand basically said that the concept that people “should” act in their self-interest is wrong. It’s wrong because all people “do” act in their self-interest. He further elaborates that acting in your self-interest isn’t necessarily bad and is often good for the greater community.    On another level, though, the "invisible hand" refers to the ability of the market to correct for seemingly disastrous situations with no intervention on the part of government or other organizations. The most elementary way to explain this is when a product is in high demand a shortage of supply can result, which leads to its increased production and its increased cost. The later result leads to a diminishment of demand which solves the problem of there having been a shortage. All this is done without the aide or intervention of government or any other organization.   “Lassez-faire” economics means government should stay out of the economy as much as possible. The often repeated mistake of Adam Smith fans is claiming that government shouldn’t be involved in the economy at all. His seminal book was first published in 1776 and to this day serves as the primary source for capitalist economic theory. But in it he doesn’t state that government should have no hand in a society’s economics, but that it should have minimalist intervention.   A major champion of “lazzez-faire” economics was Herbert Hoover who receives way too much blame for “The Great Depression”. Yet this Adam Smith fan once said, “The worst thing about Capitalism is Capitalists. They are too greedy.”   A more modern example of what Hoover meant is illustrated by Nobel Prize winning economist Paul Krugman who points out that C-E-O pay has increased by a factor of 10 since 1970, while hourly wages over the same 38-year period have actually declined.   “But how can this be?” people ask. They say “Hasn’t the standard of living of most American’s improved tremendously in that time?” The answer is yes. But it’s not because their buying power has increased through wage increases. It’s because Mom went to work and the average family became a two income household for the first time. Then after Mom had been at work for 20-25 years and wages were still not keeping up a families buying power Americans in the 1990s started doing something that to that point in time in our history was almost unheard of…they started taking equity out of their homes. The end result is people ran out of equity and here we currently sit, in an economic morass in which President Obama and Congress are desperately trying to intervene and solve.   What is lost in their interventionist goal is how terribly the Government has intervened in our economy already. The Government subsidizes agriculture, college education, medicine and health care, home ownership, the auto industry; there is hardly an area of the economy that Government does not already move it’s already Not-so-invisible hand.   In today’s speech on the Economy and in past addresses President Obama repeats the need to fix the health care industry in order to fix the economy. In following the esteemed logic of Adam Smith it’s not hard to see why health care is so expensive. Health Care providers charge so very much because they can. They can because the deep pockets of Government will pay the freight whether you be rich or poor or illegal immigrant or whatever your status.   The same holds true of other things that are generally considered too expensive. Is college too expensive? Of course it is. The average student is faced with costs exceeding $10,000 a year at a public 4-year institution. When the median income in the U.S. is only $25,000 committing nearly half of ones income to a college education for your child becomes literally impossible. So how is it that colleges can charge so much? Pell Grants and Government backed low interest student loans make it possible. Imagine if you will, what would happen to all those costs for tuition, books, room and board and other associated charges if those Grants and Government backed loans didn’t exist; if they stopped forever with no hope of them returning. Clearly those costs would be reduced; not without extravagant programs first being cut along with excessive salaries. But the cost of college would definitely go down dramatically, until it reached a level where thrifty hard working Americans could pay for it themselves. Notice I didn’t say average-Americans. No, college is not for everyone. It should be little hard because in our society having a college degree is well rewarded.   Would the cost of health care respond the same way? Adam Smith thinks so. So do I. Start with health insurance. If health insurance were taken out of the hands of Government and Industry and instead were solely in the domain of the private individual two things would happen. First, American businesses would be able to more easily compete in the world economy where nearly every other country doesn’t burden its businesses with the need to pay for its employees health care coverage. And in making industry more efficient wages would go up, and the average American could more easily pay for their own health care coverage. Second, when health care insurance coverage is presented to individuals or individual families exclusively the insurance industry is freed up from all the government rules and regulations that contribute greatly to the cost of insurance coverage. For example, the average 40, 50, or 60 year old worker would no longer need to pay for pre-natal insurance coverage, which, in most states, they currently do as part of the required inclusions in an average company or government provided insurance plan. Likewise 20, and 30 somethings would not have to pay for coverage related to afflictions of the elderly.   Lastly, in order to sell their product (health insurance coverage) companies would have to make the premiums affordable to Joe-average-citizen. If they didn’t they would go out of business and cease to exist. Necessity being the mother of invention Insurance companies would do what they already do, negotiate with health care providers to keep prices down to levels of which they are willing to pay. Adam Smith speaking loudly again.   For those who would argue that college and health care would be unaffordable for the poor I would respond…how are things working right now? Are low income people able to pay for college or top notch health care? The answer is no. Those who make more go to better, more expensive colleges right now. Those who earn more money generally get better health care under current conditions.   Of course this is just a pipe dream. Too many have there hand out and Government keeps filling them. And why retrieve your hand when no one bothers to slap it.   But with Adam Smith’s invisible hand in control of the natural forces of the economic cycle affordability of college and health care would come back into the equation for average American’s. Hard work, ingenuity, and persistence would again be rewarded and industry could thrive where it properly worked to serve its clientele, the American people.   2009-04-14T23:55:00Z

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adam-smith-solves-the-health-care-crisis-for-small-business

2009-04-15T21:37:41Z

2009-04-15T21:38:15Z

The cost of health care and health care insurance coverage is oppressive to Americans and American business. But a Eighteenth Centur Scottish economist and philosopher has the answer.

Adam Smith Solves the Health Care Crisis- for Small Business

2009-04-15T21:38:15Z