Free Lunches & Charity

Trust health care reform and Christmas to come at the same time.  It has been 24 hours of deep thinking in front of the fireplace.

Free lunches.  We all want them, but the old addage that there is no such thing is still true today.  The desire to get something for nothing is extremely enticing.  It drives the economy of city about 2 hours south of where I currently reside (Las Vegas).  However, we must all pay the piper eventually.  Consequences always follow actions, even if they are oft times delayed.

Charity.  It is the purest form of love and never fails.  It warms hearts and inspires the love and loyalty of giver and recipient alike.

I have been on both sides of free lunches and charity.  I am convinced that understanding the difference is the key to life and economics.

Free lunches are usually “sold” to us.  Free lunches come in the form of teaser interest rates, a free sample, or no payments for a full year.  They are never truly free.  Charity on the other hand, often comes unexpected, sometimes anonymously and without strings attached.

Business is about using human ingenuity to create something of more value than its component parts.  The excess value accumulates to those whose inputs contributed to the enterprise, be they capital, inputs or labor.  The desire to accumulate wealth is a powerful incentive for innovation and hard work. 

Charity is using your own means to help another.  It assumes that no material benefit will be derived from the exchange.  True charity expects nothing in return.  Charity is about forgiveness.

Sometimes well meaning individuals try to mix the two.  It always ends badly.  It leaves the giver jaded and the receiver bitter.  Cynicism and anger displace good feelings.  Examples of this misguided thought process include inflated grades where teachers end up complaining about entitlement mentality and students complain about lousy educations.  Artificially low mortgage rates eventually result house prices out of reach of the working class, banks too big to fail, housing markets plagued in high foreclosure rates, and displaced families.  High salaries and the inability to fire or lay off employees dictated by government mandate results in destroyed shareholder value, frustratingly incompetent leaders, and jobs being moved overseas.  Market truths are obfuscated and opportunities to take corrective actions are missed.

In my opinion, politics has become about mixing charity and business and providing free lunches.  Well meaning individuals are destroying business by trying to making them act like charities.  Their proposed rules dictate irrational prices and encourage wasteful behavior.  Logic dictates that we will see its devastating consequences in the coming years as reality cannot be bent and illusions cannot be maintained.  Bubbles always pop- Tulips, Internet Stocks, Real Estate- and people left holding the bag suffer.  We should not seek to prolong bubbles, but strive to get back to solid ground where truth and transparency mean that real value is created, bought and sold.

Mises said, “The flowering of human society depends on two factors; the intellectual power of outstanding men to conceive sound, social and economic theories AND the ability of these or other men to make these ideologies palatable to the majority.”  (emphasis mine) The ideology of welfare and socialism is easier to sell since it is based on the majority getting something for free.  It was successfully used by Pol Pot, Stalin, and Mao to gain their power.  Nationalism, blind faith and the pursuit of short terms profits can also be easier sells than reason.  One only needs to look to the Nazis, Al Queada and Enron for powerful examples.

I recognize my limits in the salesmanship department.  The masses prefer titles like Rush Limbaugh is a Big Fat Idiot and Arguing with Idiots to titles like The Innovator’s Prescription and Human Action.  However, libertarians need to borrow some pages from popular media without abandoning the truth or they risk losing their country to groups competing to use our tax dollars for their own self interest or misguided economic policy.  Do any libertarians out there have suggestions?  Please let me know.

Rearranging Deck Chairs on the Titanic

I’ve been reading HR3590 and analysis of its impact.  It is a disaster.

We all agree America needs healthcare reform.  We as a country are the Titanic heading towards the iceberg that will bankrupt many of us individually and the country as a whole unless we can decrease the cost of care.  The lucky thing is that we can see the iceberg ahead.  Innovations are emerging that could significantly reduce the cost of care.  Unfortunately, microeconomics and the effect of regulation on prices are classes that the 60 Senators who voted it for have either not taken, or don’t care.

Analysis by the CBO place the cost of the proposal to taxpayers in trillions.  (Yes, with a “T”)  It suggests that, “Average premiums per policy in the nongroup market in 2016 would be roughly $5,800 for single policies and $15,200 for family policies under the proposal, compared with roughly $5,500 for single policies and $13,100 for family policies under current law.”  It would incent employers to drop coverage of their employees resulting in 10 million new uninsured workers.  Now that is progress! With decreases in reimbursements to doctors, we are sure to have fewer Primary Care Physicians than today’s already  dangerously low numbers.  Costs are expected to escalate.  Get used to expensive coverage without care.  The “right” to be put on a waiting list is not better healthcare.  Even the New York Times agrees.

It was such great legislation that bribes were required to get it passed.  Certain states will get federal funding or get boondoggle projects.  Preferred companies in those states will be exempt from certain provisions.  It is a real look at what politics is about- special interests.

While we can take evasive manuevers to avoid hitting the iceberg, this bill will only increase the speed of the boat and determine the order that passengers will get into life boats.

It is Christmas Eve…so family comes first, but time permitting, I’ll show why if you thought you might get a free lunch from this piece of legislation, you will be sadly disappointed.