A while ago I had a conversation with a guy at work, whom I consider to be pretty open minded and intelligent. We started off talking about the World Cup and ended up talking about the free market and should the government interfere with it. I claimed that the free market is definitely a better model than a totalitarian centrally controlled market, as in the Soviet Union, but it is not necessarily the
best way to run an economy. I used several examples.
The first one was the health care industry, which in most countries in the world is centrally run by the government with a much greater success than the free market American model - the one that successfully leads both the people and the US to bankruptcy while being mediocre at best (
ranked 37 in the world!). He wasn't convinced that this was indeed the case, although he agreed with me that the money people pay for health insurance can be considered as part of "non-tax" - money missing from your available funds, but is not taxed by the government.
The second one I used was the availability of broadband internet - both wired and wireless. As Israelis, we are accustomed to think of the US as the epitome of technological achievements. Living here we have quickly learned that the case is far from being so. In fact, even after two years here in Cincinnati, I still wonder whether or not there is a reliable and widespread 3G cellular network in this city. I know there is none in the nation. Cincinnati Bell, a local provider that doesn't have coverage beyond the greater Cincinnati-Dayton area, claims to have the best regional network. That says a lot about how the national providers (AT&T, Verizon, Sprint, T-Mobile) see the importance of a national network. Don't misunderstand me, all of them claim to have a perfectly good data network in the Cincinnati area. So far, none of them convinced me that it is really so. And it could have been pretty easy to convince me - just give me what I had been used to by Israel's Orange network in 2008. The main reason not to implement a fast data infrastructure is simple - the economic gain is directly proportional to the population density. The more dense the area is, the higher revenue the network will generate, and Cincinnati is not populated densely enough.
On the other hand, the free market should be able to rectify this situation by offering an incentive in the form of higher margins in places where there is a lack of competition. Free market enthusiasts tell us that the
invisible hand is supposed to draw people into such places to increase the supply and meet the demand. However, in some cases this doesn't work. In some places, probably the less populated or poorer areas, market forces do not accumulate enough to produce this invisible hand.
The FCC has recently come up with a report that claims exactly that. About 24 million Americans have no access to broadband internet. That's roughly 8% of the population. Before the health care reform by President Obama, it was estimated that 50 million Americans do not have access to any health insurance. That's on top of the other millions that are covered through government plans like Medicare and Medicaid. In other words, only 2 out of every 3 Americans got their service from the "free market".
As in any problem, the first step to solving it is recognizing that it exists and that it is indeed a problem.
If you ask Glenn Beck for example, he will tell you that America has the best health care system in the world. One can only hope that the current administration sees through this smoke screen and will at least be able to convince some Americans that not everything in this great country is indeed the greatest in the world. Media will certainly play a major role in this - both for the good and for the bad. Here is another example from an
NPR (hardly a conservative right-wing station) host being taken by surprise when hearing the fact that Americans pay more for less broadband (skip to 21:15 and on).
However, even if the problem is recognized, the solution may not be clear immediately. This is especially true when people mix solution strategies with political views, i.e. when the political views cloud the thinking process and prevent it from going in the direction of central intervention in the market. In Israel I was known to be the most libertarian anti-socialist person in any room I walked into. I believe I have not changed my views at all and that I still believe in the power of the market in controlling complex systems. If I didn't believe it, I wouldn't choose the PHD topic I have chosen.
Central intervention can come in all sorts of ways, ranging from creating incentives for companies to invest in not-so-lucrative investments to playing a major role or even being the sole participant in the market. The level of central intervention should depend on how badly the market produces what we want it to produce. If the market works relatively well, as most do, government should facilitate the existence of the market, e.g. by creating a currency to be used in deals, but otherwise step aside and let the market work its way. But what if the market is left alone and does not yield the desired results? Well, that depends on how big the gap is.
If the market leaves a few people behind, as in the broadband market, the government should create the incentives for companies to go back and pick these people up. The fact that a child was born in North Dakota does not mean they should not be able to bridge the
digital divide and be left behind for the rest of the 21st century.
A recent study showed that a child born to poverty is likely to stay poor for the rest of his childhood and we know that a poor child left behind is a grown up and family we will have to support for the rest of his life. So even from the libertarian-reduce-my-taxes point of view I would rather spend small dimes on getting these kids connected than spend many more dollars for supporting them during the rest of their lives. That, of course, assuming that we're not going to leave them to die of starvation.
If the situation is even worse, as in the health care market, then simply using incentives cannot and will not rectify it. This has already been established because we see that even greater government interventions do not help the health care industry change its ways. A complete overhaul is in dire need. In fact, the main criticism I have about the Obama Administration in this case is that they "chickened out" and that the new overhaul is nothing compared to what should have been done. In fact, in the health care business I believe that the basics should be given by the government for the people and not the private sector. The reason is simple: the private sector, as it should be, tries to maximize revenue to their share holders. The only way to maximize revenue is by generating more income and reducing costs. In the health care industry generating more income means taking more money from the insured people and reducing costs come mainly from cutting the coverage they get. In other words, from the company point of view, the best revenue would be generated if from every dollar a person spends, 100 cents of it go to revenue and the rest is spent on coverage. The only reason why this is not a complete scam is that the companies - at least theoretically - must make the coverage sound good enough for one to spend one's dollar on a certain insurance and not the other. So, the coverage offerings are designed to lure one in, but once in - who cares? Leave the market to run wild long enough and you'll get exactly to where the market is right now in the US - people spend more and more money and get less and less while
companies' revenues are in the billions. These billions of dollars can come from only one source and on exactly one expense -coverage. There is only one solution that will prevent these companies from reaching even deeper into our pockets - a government run national plan. This way the market is ruined, but everyone gets covered and pay roughly the same amount that they will take by the end of their lives. This is obviously the other side of the government - private sector spectrum.
One may argue that this will make the US a socialist country (God forbid!) and will consequently lead to its demise. My response is - yes, some things are better run in a central (maybe socialist) way. This doesn't mean that
everything becomes socialist or that the
country as a whole will become socialist. Why is the military run by the government and not private companies? Why is the police controlled by governments (on federal, state and city level)? Why was the
Interstate Highway System initiated and has been funded since by the government and not the private sector? The reasons behind all the above examples are - because the public needs it, because their services have to be accessible to all people and companies without bias, and because it is too important for the people as a whole to become a revenue generator. Can you consider a police run by its share holders? They will not go into poor neighborhoods, deal with major crimes, or investigate corporates because it's either too dangerous or counter-productive for the share holders. So why do we still allow health insurance companies to do exactly these things - not to be available for poor people and not deal with major illnesses (on the grounds of "preexisting conditions" or other nonsense)? As Forest Gump's momma used to say -
"stupid is as stupid does".
