Roger’s Rules

The Potemkin Presidency meets a moment of sanity in The New York Times (with an observation from Hilaire Belloc and an admonition from Friedrich Hayek)

Let me start with the observation from Hilaire Belloc. In his book The Servile State, Belloc writes that “The control of the production of wealth is the control of human life itself.”

I rather doubt that President Obama or any of his inner circle is a student of Hilaire Belloc. But they have demonstrated again and again their intuitive grasp of Belloc’s insight. If only, they reason, they can turn over enough of the productive capacity of the country to the government, then (so they think) they will be in a position to eradicate the age-old irrationalities and inequities that have beset our capitalist society from the beginning.

Belloc knew better, and a lot more could be said about the likely results of the Obama administration’s ambition to control the production of wealth. For the moment, however, I just want you to bear Belloc’s point in mind as you ponder an excellent piece about the Obama administration’s plans for health care by N. Gregory Mankiw. I hope you will put your prejudice to one side when you learn that 1) not only is Mankiw is a professor of economics but also he practices that discipline at Harvard and 2) his piece appeared in The New York Times. Notwithstanding Harvard, notwithstanding even The New York Times, “The Pitfalls of the Public Option” piece casts the cool light of sanity on what the Obama administration wishes to do to health care.

What is the public option option? It is one part rhetorical subterfuge combined with three parts government control. Professor Mankiw quotes from a letter President Obama sent to Senators Edward M. Kennedy of Massachusetts and Max Baucus of Montana: “I strongly believe,” Obama wrote, “that Americans should have the choice of a public health insurance option operating alongside private plans. This will give them a better range of choices, make the health care market more competitive, and keep insurance companies honest.”

OK. Let’s play “What’s wrong with this picture?” Let’s say we opt for the “public option.” What would it mean? If the government got more heavily involved in health care (beyond what it already does with the Veterans Administration, Medicare, and Medicaid), would that actually give Americans “a better range of choices,” where by “better” Obama might have meant “more choices,” “higher quality choices,” or both? What do you think? While you decide what is the best way of expressing the conclusion “no, absolutely not,” ask yourself whether an industry that had a “public option,” i.e., that was government controlled with the unlimited power of sanction that government control implies: ask yourself, I say, whether that would encourage or discourage competition? Imagine that the government got into the business of garbage removal. How would you feel about setting up shop with your own competing Acme Dispose-All Company? How would you fare against an entity that wrote all the rules and had at its disposal the resources of the public purse? As for the insurance companies, why should we think that the granddaddy of all insurance companies, i.e., the U.S. government, would be more honest when distributing scarce resources than the 1300 or so companies that now compete for your business are?

Professor Mankiw has this to say: “Even if one accepts the president’s broader goals of wider access to health care and cost containment” — and who doesn’t? — “his economic logic regarding the public option is hard to follow.” Professor Mankiw is a generous spirit. By “hard to follow,” he really means “completely bogus.” He goes on:

Consumer choice and honest competition are indeed the foundation of a successful market system, but they are usually achieved without a public provider. We don’t need government-run grocery stores or government-run gas stations to ensure that Americans can buy food and fuel at reasonable prices.

Indeed. And here is the $64,000 — I mean, the $1.85 trillion — question:

An important question about any public provider of health insurance is whether it would have access to taxpayer funds. If not, the public plan would have to stand on its own financially, as private plans do, covering all expenses with premiums from those who signed up for it.

But if such a plan were desirable and feasible, nothing would stop someone from setting it up right now. In essence, a public plan without taxpayer support would be yet another nonprofit company offering health insurance. The fundamental viability of the enterprise does not depend on whether the employees are called “nonprofit administrators” or “civil servants.”

Right you are, Professor. But leaving that hypothetical to one side, everyone knows that the whole point — at least, a large part of the point — of the “public option” is to achieve public, i.e., taxpayer, financing of health care. Professor Mankiw puts it as delicately as possible:

In practice, however, if a public option is available, it will probably enjoy taxpayer subsidies. Indeed, even if the initial legislation rejected them, such subsidies would be hard to avoid in the long run. Fannie Mae and Freddie Mac, the mortgage giants created by federal law, were once private companies. Yet many investors believed — correctly, as it turned out — that the federal government would stand behind Fannie’s and Freddie’s debts, and this perception gave these companies access to cheap credit. Similarly, a public health insurance plan would enjoy the presumption of a government backstop.

Fannie Mae and Freddy Mac. Remember them? (Barney Frank, please call home.)

And if keeping costs down is the goal, how would a “public option” do that? Professor Mankiw explains: “A dominant government insurer . . . could potentially keep costs down by squeezing the suppliers of health care. This cost control works not by fostering honest competition but by thwarting it.” How do you spell “rationing”?

It has become increasingly clear that the Obama administration is a Potemkin Presidency. It has an impressive façade, propped up by some high-gloss rhetoric and a formidable public relations machine. But at bottom, President Obama and his ideological confrères are totally out of their depth.

They came to the job with an aggressive left-wing agenda that set out (as Obama put it just before the election) “to fundamentally transform the United States of America.” He was going to remake the country top-to-bottom: health care, the environment, foreign policy, immigration policy, the redistribution of wealth and evening out of income (“spreading the wealth around”).

Like so many “community organizers” before him, Obama is a friend of humanity. He wants to make the world a “better place” — better, that is, according to his lights. The problem is, he knows almost nothing about the way the world actually works. The result is that his efforts at beneficence are a series of violations — violations of the law, for example (ask the secured bondholders of Chrysler’s debt about that), as well as violations of some basic principles of a free society (the integrity of private property, for example).

It is too early to say how it all will end. Obama has cast many balls in the air. His first few months in office really have been an example of what Governor Mitch Daniels called “shock and awe statism.” We have, of course, been down this road before. And that is what makes Obama’s drama so sad. Unchecked, his initiatives will ruin America. Ruin? I mean, they will make it poorer, less free, less secure. Writing in 1943 in The Road to Serfdom, Friedrich Hayek had this to say about one of the many earlier productions of this socialist drama:

The adjustments that will be needed if we are to recover and surpass our former standards will be greater than any similar adjustments we had to make in the past; and only if every one of us is ready individually to obey the necessities of this readjustment shall we be able to get through a difficult period as free men. Let a uniform minimum be secured to everybody by all means; but let us admit at the same time that with this assurance of a basic minimum all claims for a privileged security of particular classes must lapse, . . .

It may sound noble to say, “Damn economics, let us build up a decent world” — but it is, in fact, merely irresponsible.

It may sound noble to say, “Damn economics, let us build up a decent world” — but it is, in fact, merely irresponsible. That’s only 119 characters. Can’t someone Tweet that message to the President and his enablers?