It’s not Obama’s fault…

We’ve heard it before. The road to hell is paved with good intentions.

And when referring to the federal government, the concept so eloquently framed by the phrase is usually a foregone conclusion. It is that way because every man and woman has at least one anecdote involving someone they know who has insider information on why and how the government mismanages money, works only for its own good, and confounds progress.

After all, isn’t congress the opposite of progress?

Unfortunately much rarer are the stories which clearly explain the underlying, fundamental concepts that lead to the ineptitude the stories describe.  But some get close.

Enter the Foundation for Economic Education, and one of its contributing authors, Jeffrey Tucker.  His article in the December 2013 publication of The Freeman, (linked here) discusses some of the catastrophic economic impacts of the Patient Protection and Affordable Care Act (aka “Obamacare”).  Tucker claims that the federal government “can’t and won’t fix healthcare.” He believes that the best medicine for our ailing healthcare system can only come from the private sector.

But what Tucker’s article could do a little better is to draw into sharp focus the reasons that Obamacare is not the fix our healthcare system needs.  Yes, Tucker describes how the law has so negatively impacted existing coverage plans; and he notes the millions of previously insured people who have been dropped by insurance companies due to the law’s requirements; and he mentions the insane markups in individual plan prices. What the article lacks, however, is clarity regarding the fundamental drivers responsible for the law’s litany of negative impacts.

It all boils down to two things:

1. Economic calculation.  2. Price mechanism.

Let’s take them one at a time.

Economic calculation (or more accurately for this discussion, the “economic calculation problem”) was presented by Ludwig von Mises in his 1920 work, Economic Calculation in the Socialist Commonwealth.  Without getting into all the historical details of what led Mises to write and publish Economic Calculation, let me break the concept down for you.  Economic calculation is an attempt to identify the economic value of different things, and to determine how best to put those values to work.  It’s conceptually simplistic, yet difficult to execute; especially for bureaucratic central planners.  I refer specifically to the inherent inability of bureaucracies to adequately judge what good or service is wanted at a given time by the public (or the myriad different goods and services wanted by different demographics across different geographic locations), and to produce, market, and deliver that good or service in a timely and cost-effective manner.  Or in other words, the government cannot conduct sensible, actionable, and effective economic calculation.  In fact, there was an interesting article I came across in an old edition of The Quarterly Journal of Austrian Economics (find it here), which described how both Public Choice and Austrian economists identified the same bureaucratic inability to properly identify need/want, determine value, and appropriately allocate resources.  Without a way to perceive every need at every level of society in every market segment, it is impossible to launch a publicly funded product (or project) which will comprehensively satisfy those needs.  Let’s call that market ignorance.  Thus…Obamacare is not the fix for our healthcare system because it was born out of failed bureaucratic attempts at economic calculation.

I know what you’re thinking:

“But what if the federal government, or any agency or committee thereof, notices that their initial attempts at economic calculation have failed and then takes steps to adjust towards success?”

Great question.  And that leads us to the second fundamental driver responsible for Obamacare’s insufficiency: price.

Or, again more accurately for this discussion, the lack of an adequate price mechanism within the bureaucratic process.  The government’s process for establishing and funding programs creates layers of filtering between citizen (consumer) and program manager or lawmaker (producer).  The process thus impedes direct communication between the consumer and the producer (the citizen and the lawmaker, respectively), which means that signals which would indicate perceived value and acceptable levels of price don’t reach the bureaucratic decision maker in a way which facilitates quick reactions to market shifts.  The information communicated by such signals may eventually squirm their way through the layers of bureaucracy, but will most likely arrive much later than the moment at which a decision to adjust was needed.  Let’s call that inflexibility and unresponsiveness.  Taking that reasoning further, inflexible processes that can’t respond to shifting, dynamic conditions yield a program that does not provide exactly what citizens desire or need, at the time they desire it, for the price they are willing to pay for it.  Thus…Obamacare is not the fix for our healthcare system because of its inflexibility and unresponsiveness due to its lack of an adequate price mechanism.

The object lesson?  The best solutions for the provision of quality healthcare and healthcare insurance at the lowest cost to citizens can only come from organizations or individuals that are capable of the following:

a) Fast and accurate perceptions of market shifts (through price mechanism);

b) Equally fast and accurate adjustments to market shifts (through economic calculation);

c) Effective resource allocation driven by (a) and (b).

For now, the United States Government is incapable of leveraging all three of the above.  And since resource allocation is the output of economic calculation informed by market signals, we’re left with this: Obamacare can’t and won’t fix healthcare because it was created through failed economic calculation, and because it has no adequate price mechanism through which to evolve.

So we can’t blame the President.

But we can blame the government.