Capitalism, Special Interests, and Medicare

Bruce Barlett has a very interesting piece on how the prescription drug-bill is an example of cronyism over the free market. He explains:

In The Wealth of Nations, [Adam] Smith wrote that the interests of businessmen and the public were almost always in conflict. The former wants to limit competition, while the latter benefits from an increase in it. "To narrow competition," Smith said, "can only serve to enable the dealers, by raising their profits above what they naturally would be, to levy, for their own benefit, an absurd tax upon the rest of their fellow citizens."

Sometimes businessmen will try to limit competition by conspiring among themselves. "People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices," Smith observed.

However, such conspiracies were far less dangerous to the free market than government-sanctioned restraints on competition. Without government enforcement, private cartels naturally fall apart after a time. But when government imposes trade protection and other limitations on competition, it can go on indefinitely. For this reason, governments should be extremely wary of enacting such policies, especially when urged by businesses to do so.

Indeed, this is a critical distinction. What’s good for the free market may not be the same as what is good for individual businesses. The President’s policy on steel tariffs is a good example – it benefitted certain members of the US steel community at the expense of world trade and more competition. Protectionism does not help free enterprise, but harms it, which is why free market theory eschews government protectionism. However, Bartlett finds that the prescription drug benefit is more protectionism for certain drug companies:

A good example of how businesses manipulate government for their own benefit is the prescription drug subsidy bill now before Congress. Although marketed as a benefit for seniors, the true beneficiaries are big businesses that would be able to greatly reduce the cost of their retiree health programs. According to a July 2 report in The New York Times, Ford Motor Co. alone would save $50 million per year.

The Times notes that the biggest companies are mainly those that still offer drug benefits to their retired workers and would save the most. In the aggregate, they would save billions of dollars per year if the federal government takes over a big chunk of their retiree health expenses by paying for prescription drugs. That is why they are lobbying very heavily for passage of the legislation.

Again, rather than making a real free-market reform like enacting a larger-scale version of the Federal Employee’s Health Benefits Plan, Congress and the President are crafting legislation that adds an expensive new benefit on Medicare without concern as to how it will be paid for. Such legislation would be irresponsible at any time, but given that we are in wartime and are running significant deficits, it is illogical to create a program that has no chance of running on budget and will create a drag on economic growth.

In short, to increase their profits, many of our nation’s largest corporations are pushing a budget-busting government spending program that eventually will lead to higher taxes on all Americans. Sadly, the Bush administration often supports policies that benefit big businesses at the expense of average people, as it did with steel tariffs and agriculture subsidies.

This is why I argue for less government intervention. The less government can do by law, the less opportunity there is to use government as a shield for certain industries. The free market is based on the idea that business is entirely self-interested. It assumes that there will be people who want to use government to their advantage. It also realizes that government is no less self-interested, and possesses far more power than any corporation. The combination of the two is exceedingly dangerous, and only underscores the need for limited and responsible government to limit the kind of corruption that harms the free market in the name of political expediency.

5 thoughts on “Capitalism, Special Interests, and Medicare

  1. First, the argument that US steel is necessary for defense is pure crap. The US military only uses a small fraction of total US steel production. There’s no reason why there would be any impact on our national defense if we did not impose protectionist tariffs. Furthermore, Japan is the #2 producer of world steel and has an active interest in counterbalancing China economically. Steel tariffs only exist as a political giveaway, and they should have been reduced. World trade benefits all parties, and protectionism is unsound policy.

    As for pharmaceuticals, I’m against the idea of importing prescription drugs from other countries for the same reason I’m opposed to price caps domestically. The costs of manufacturing drugs are usually fixed, and if drug companies cannot recoup the investment they make on a drug, they have to cut costs somewhere. Usually that means that R&D for new drugs, being expensive, is the first to go.

    All of that means that drug companies will concentrate on drugs that make money like Viagra or Claritin. Drugs that have a limited audience, like drugs for Parkinsons, AIDS, or MS take a lot of money to develop, and if pharmaceutical companies can’t use the profits from more popular drugs to bankroll their development, they simply don’t get researched.

    Which means that if we have a system of free pharmaceutics from the government, you’d damn well better pray you don’t get a rare disease, or you’ll find that drugs that exist now to treat you will simply disappear.

  2. First of all, there’s a big reason why we can’t be "priced out of the market" on steel. It costs money to ship steel across the ocean. The Chinese can only cut their prices so much, and even if they do, it’s still going to be cheaper to ship steel from a domestic manufacturer rather than across the ocean. The steel market isn’t a globalized market because it’s heavily dependent on geography. Becuase of the simple logistics of hauling steel beams halfway across the world versus hauling them a vastly shorter difference with well-established rail links China isn’t going to dominate our steel industry unless they can someone move their whole country about 10,000 miles to the east.

    Furthermore, despite your ad hominem attacks, free trade is good for American workers as it ensures healthy competition. I’m sure you’re happy to be in the illustrious company of Pat Buchanan calling for closed borders and closed markets, but the rest of the country has realized that free trade agreements like NAFTA have encouraged economic growth and helped the country move in the right direction.

    As for prescription drugs, the only way of reducing health care costs overall is by significantly reforming Medicare to become more efficient. One of the primary reasons for the high cost of health care in the company is because Medicare patients are being subsidized by regular patients and insurance companies. This is an unavoidable problem with a system designed to give everyone health care, but it can be minimized by offering a Medicare plan modelled after the Federal Employees Health Benefits Plan which would cut administrative overhead and allow for increased freedom of choice for consumers.

    Directly effecting prescription drug prices are many unnnecessary regulatory controls not having to do with drug safety. These need to be cut, which will help keep drug costs at a manageable level.

  3. In the world of tariff-free global trade, steel from China and elsewhere in the third-world can be produced for pennies on the dollar compared to American steel. Shipping costs either is an issue or isn’t one. It can’t be “sort of an issue” as you seem to suggest. If Chinese steel is able to be produced and shipped at less cost than American steel as is currently the case, there’s no asterik next to that concept that would only apply in certain cases. Your large steel beam example is not likely to be a major obstacle for foreign markets eager to bust our steel industry. They will operate at a temporary loss manufacturing and shipping those beams if helps crush American competition.

    Free trade is the worst thing that has ever happened to American workers and the rest of the civilized world for that matter. Try telling the 2.6 million manufacturing workers who’ve lost their jobs since 2000 (most of which will never return within U.S. borders) how much free trade is “moving them in the right direction.” Even as the evidence of free trade’s destruction continue to become apparent, you will continue to insist black is white and up is down in blind allegiance to an ideology, but most Americans will see the error of their elected leaders ways by selling their labor out to the lowest bidders on the globe.

    In terms of me being in the company of Buchanan, I suppose you could say that insofar as I am opposed to free trade as its currently designed. HOwever, I support increased human and financial foreign aid to assist other countries in the globe in expanding their economic structure. I certainly have no problem with foreign aid or the availability of imports, but let it come from the fruits of their own countries development (with necessary assistance). Exporting my neighbor’s job to a foreign worker or importing the foreign worker to my neighbor’s job is not the way to expand, or even preserve, the benefits of civilized society or economic superpower status.

  4. According to the US Labor Department’s 1999 statistics there is a direct correlation (with a significance level of .89 for statistics geeks) between open trade as measured by the level of imports and US job growth.

    The fact remains that there are WTO antidumping rules that prevent China from dumping steel on the US market. However, that’s really not a concern as labor costs make only a fraction of the cost of steel. Most of the cost of steel is in raw materials, plant infrastructure, and transportation. Even with cheaper labor that does not equate to cheaper steel. The fact is, the threat of foreign steel is vastly overstated. Market forces ensure that steel prices can only go so low.

    If protectionism worked, countries with high tariffs would have strong economies. Yet every single survey finds a direct correlation between countries with minimal tariffs to higher unemployment and better standards of living. Protectionism harms US workers through higher prices and harms the development of foreign countries.

  5. I guess only time will tell who’s right, but as steel mills and iron ore mines are closing left and right in America, it seems as though my theory is off to a better start than yours.

Leave a Reply

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.