“Keep your government hands off my Medicare!” —

— This is the much-derided cry of the government-hating Tea Partier who doesn’t realize his beloved Medicare is a government program.

So much confused thinking: by those who demonize government (except insofar as it benefits them personally), and those who demonize the free market (oblivious to how it benefits them personally).

The confusion is understandable when we have two very different, in some ways parallel and complementary, in some ways competing and antagonistic, yet partially symbiotic systems of societal and economic organization: government and the market.

We need some government. It’s the social contract: I give up my right to steal from you, in exchange for a system of law that bars your stealing from me. This includes businesses – the law also protects against their stealing (or otherwise violating rights) too. (Thus “unfettered capitalism” is a bogus straw-man, which nobody actually advocates.)

Governments are in fact pretty good at fulfilling that basic role – mainly because most people (and, yes, businesses) voluntarily cooperate, because that’s actually in their true self-interest. The problem comes when this good system is expanded well beyond that remit, to other realms where it doesn’t work nearly so well.

Yet some want to expand government’s role to incorporate everything business does. (That’s “socialism.”) They believe government is motivated by public concern, which seems morally superior to a contrasting profit motivation. They fail to grasp that government is a human institution whose minions operate with the same human motivations as those in the private sector and hence are subject to equivalent lapses from virtue. They also fail to grasp that a system compensating people for doing things that other people want (via “profit”) is actually morally good, not bad.

We have seen that because government is (a) subject to moral corruptions just like business, but (b) lacks the equivalent profit motivation to satisfy customers, government tends to be less good than business at fulfilling people’s needs. Thus the observed failure of socialism.

Further, those who want a big role for government rarely realize where the money for it must come from. Ultimately, the only funding source for government programs, safety nets, social goodies, redistribution, etc., is productive effort. That is, the creation of goods and services for which buyers willingly pay. That is the only source of societal wealth.

Government can produce it but, as explained above, not nearly as well as a market system. So the paradox is that if you want a muscular government with lots of social programs (and also a high living standard) you’d better be careful to keep government within limits, to allow plenty of scope for the free market to function, in order to sustain the needed money flow.

This is the dilemma Europe is beginning to struggle with. It will be the key challenge of this century.

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3 Responses to ““Keep your government hands off my Medicare!” —”

  1. Lee Says:

    Yet some want to expand government’s role to incorporate everything business does. (That’s “socialism.”)

    I’d call that an extreme form of socialism. For instance, there are some people who want to expand the free market’s role to incorporate everything that government does but I don’t call that “capitalism”; rather I call it extreme capitalism. Fortunately the extremists from either side are relative minorities in our population. Mostly, we are a society of (moderate) capitalists and (moderate) socialists and everything in between; I think that we are a lot closer together on most issues than these (vocal) minorities would have us believe.

    Government can produce it but, as explained above, not nearly as well as a market system. So the paradox is that if you want a muscular government with lots of social programs (and also a high living standard) you’d better be careful to keep government within limits, to allow plenty of scope for the free market to function, in order to sustain the needed money flow.

    This is the dilemma Europe is beginning to struggle with.

    I’d like to hear more about this, because I am seeing it differently. I see the problem in Europe as two-fold: (1) the same mortgage crisis that is affecting us and (2) the shared currency. The former is mostly a failure of capitalism rather than a failure of socialism. The latter inhibits “monetary policy” for smoothing out business cycles (such as the caused by the mortgage crisis); but is in place to keep inflation at bay, which appeals to our capitalist sensibilities. So, I’d say that the problems in Europe are weaknesses in capitalism, rather than weaknesses in socialism.

    I’m not advocating that capitalism be tossed out because of these weaknesses. I’m just opining that it is primarily capitalism rather than socialism that needs a few patches, to get things better in Europe. (Not that socialism there is perfect, either, just that it’s not the primary source of the current crisis. In the general case, both our capitalist and socialist ideals need constant patching. “Eternal vigilance” and all that.)

    Also, while I agree that generally business is more efficient than government at producing goods and services; there are notable exceptions. For instance, I have been told that the administrative overhead of medicare is substantially lower than at corporate insurance companies (but that satisfaction ratings are comparable).

    FSR REPLY: Europe’s big problem does not derive from the mortgage mess, which affected Europe only tangentially via the general world credit difficulty. Nor is the Euro a problem for Europe as a whole (though maybe a problem for Greece, preventing it from inflating away its debts, which is actually good for the rest of Europe that owns those debts; which is indeed part of the Euro’s raison d’etre). The true big problem is the one for which Greece is the poster boy: unsustainably indulgent social welfare, labor, and pension policies, with aging populations and ever fewer productive workers to provide the cash flow to subsidize all the lavish entitlements. I would most definitely call that a “problem of socialism” insofar as the policies in question are a reflection of a socialist ethos. And most definitely not a “problem of capitalism” — rather, a problem of insufficient capitalism. Indeed, capitalism is the solution, because only through more robust capitalism can Europe generate the wealth it will need to sustain its ideas of government-supplied social benefits.

    The low overhead of medicare compared to private health care is a myth — a product of accounting chicanery, which actually omits a lot of the overheads (e.g., pension liabilities) that government bureaucracy entails. If there is actually a government scheme that — despite lacking discipline of competition and the need to turn a profit — is more efficient than a truly comparable business enterprise, I’d like to know it.

  2. Lee Says:

    The mortgage crisis / credit crunch was the immediate trigger (final straw?) of the debt crisis in Greece, yes? So, perhaps we agree that the short-term cause was capitalism related. But, perhaps, we also agree that the longer-term cause was the deficit spending in times of plenty; spending on socialism in the case of Greece. In the USA, we managed to have excessive deficit spending over the same time period, without the cause being socialism, and we find ourselves in a comparable stew. (For instance, is the worst Euro-based government (Greece) in worse shape than the worst dollar-based government (California)? About the same, I’d say.) So, I am having a little trouble pinning the primary blame on socialism. Perhaps we can agree on the more direct relationship, that deficit spending in times of plenty is bad government. (Instead we should be saving, for times like now, so that we can minimize the hurt that extreme capitalism would otherwise give us.)

    I owe myself to research the medicare overhead numbers; thanks for the heads up on that.

    In my opinion, we’ve done a fairly good job of allocating to business that which is better done by business, and allocating to government that which is better done by government. Although we do rebalance those allocations, the items that move one way or the other are those items where it is fairly ambiguous whether business or government would be the better fit. In short, I know no universally compelling instances where we have made the wrong allocation. For instance, as we have discussed at length before, I think a European-style medical care is better than the a USA-style system, but I acknowledge that reasonable people can disagree. (Both the European-style and USA-style may be better than what Joe Lieberman has arranged for us, but that’s another debate!)

    FSR COMMENT: We shouldn’t get hung up on these words “socialism” and “capitalism,” they are too clotted up with connotations and carry a lot of baggage.

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