Critical Condition

Palin on Health-Care Reform

Sarah Palin has a good piece in the Wall Street Journal this morning. One of my favorite parts:

Let’s talk about specifics. In his Times op-ed, the president argues that the Democrats’ proposals “will finally bring skyrocketing health-care costs under control” by “cutting . . . waste and inefficiency in federal health programs like Medicare and Medicaid and in unwarranted subsidies to insurance companies . . . .”

First, ask yourself whether the government that brought us such “waste and inefficiency” and “unwarranted subsidies” in the first place can be believed when it says that this time it will get things right.

I couldn’t agree more. But I would go further. Many years ago, Austrian economists Ludwig von Mises and Friedrich Hayek won the debate over the feasibility of socialism and central planning in particular. They argue that central planning wasn’t possible and that the free market is the only price mechanism. They argue that:

[W]ithout the information provided by market prices socialism lacks a method to rationally allocate resources. Those who agree with this criticism argue it is a refutation of socialism and that it shows that a socialist planned economy could never work. The debate raged in the 1920s and 1930s, and that specific period of the debate has come to be known by economic historians as the The Socialist Calculation Debate.

Mises wrote, for instance, “that the pricing systems in socialist economies were necessarily deficient because if government owned the means of production, then no prices could be obtained for capital goods as they were merely internal transfers of goods in a socialist system and not “objects of exchange,” unlike final goods. Therefore, they were unpriced and hence the system would be necessarily inefficient since the central planners would not know how to allocate the available resources efficiently.”

In spite of the end of true socialism, this truth still applies today. Because of poor feedback mechanisms, modern government just can’t calculate profit and losses in the way entrepreneurs do it. It limits the government’s ability to allocate resources rationally and therefore it will be bound to create wastes, fraud, and abuses. This inability also explains why the government often makes decisions based on politics rather than economics.

More importantly, this inability to calculate losses and profits makes the government unable to undertake health-care reform, in particular if the reform is meant to put in place a single-payer system. In fact, it explains why the government is likely to fail when trying to supply most goods and services.

Back to Palin:

We often hear such overblown promises from Washington. With first principles in mind and with the facts in hand, tell them that this time we’re not buying it.

Read her article here.

For more on the socialist calculation debate, you can read this very good piece here.