Hayek and Obamacare: Some Context

My colleague Will Wilkinson deflects the claim that because Friedrich Hayek supported some form of a state-run health insurance system, Obamacare should be just fine even to market purists:

Obamacare builds upon and consolidates some of the worst features of the American health care system from a Hayekian perspective, such as (a) It is more or less illegal to sell actual insurance, and (b) There is at best a grievously hobbled price mechanism in the health care market, if you can call it market.

If Hayek stood for anything, he stood for the importance of the informational function of freely moving prices for both individual planning and effective social coordination. (a) and (b) screw it up bad.

The exact set of regulations governing the sale of health “insurance” varies from state the state, but mostly it’s illegal to price insurance policies according to actuarial risk. At the limit, you have states where it is illegal to charge different people different prices and also illegal to refuse to offer coverage to anyone who applies for it. Hayek has a lot to say about price controls and none of it is good.

It’s important to remember in reading Hayek that he wrote a lot of what he did, particularly The Road to Serfdom, at a time when either communism or fascism seemed inevitable. We were going to get one or the other, many people assumed, so we’d better choose wisely between them. Conventional wisdom at the time held that production had just gotten too complicated and too dangerous to leave to the free market. An orderly, rational system of planning was only the way forward under advanced industrialism. Even defenders of the free market, like Joseph Schumpeter, speculated that socialism was inevitable, even if it would certainly leave us worse off.

This wasn’t Hayek’s position, but in his public policy recommendations he did make some desperate compromises all the same. This compromising element is totally lacking in his theoretical apparatus and pretty much impossible to derive therefrom.

If Hayek seems inconsistent, it’s because he really is inconsistent, and the reason for it is a tactical maneuver that expired a few decades ago. Today, the consensus is that at least some parts of the economy must be left unplanned, and the real fighting is about which ones we leave alone. For this we partly have Hayek to thank, but his tactical concessions aren’t doing the free-market cause any favors, if they ever did.

People who only read Hayek for specific policy advice will likely come to grief, because his policy recommendations sometimes do little to illustrate his theoretical insights. People who study Hayek’s theories in the abstract will wonder why on earth he supported national health care in any form — or conscription, or housing subsidies. I’d say he did it so people at the time would listen. Alas.

There’s also a lesson to be taken here for people who support the free market: The moment you make a concession of any sort whatsoever, said concession will promptly be chiseled in granite, and it will endure forever. How many people are there who have only read that little bit of Hayek where he calls for national health insurance? And how many people have heard of the interview he gave late in life, in which he admitted that if he had to do it all over again, he might very well be a market anarchist?

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58 thoughts on “Hayek and Obamacare: Some Context

  1. So many people think that the “do you use public roads?” question is a show-stopper.

    In for a penny, in for a pound… but they don’t see how that also leads to such things as Buck v. Bell and OWH’s opinion that: We have seen more than once that the public welfare may call upon the best citizens for their lives. It would be strange if it could not call upon those who already sap the strength of the State for these lesser sacrifices, often not felt to be such by those concerned, to prevent our being swamped with incompetence. It is better for all the world, if instead of waiting to execute degenerate offspring for crime, or to let them starve for their imbecility, society can prevent those who are manifestly unfit from continuing their kind. The principle that sustains compulsory vaccination is broad enough to cover cutting the Fallopian tubes.

    And, of course, bringing up excesses of The State acting as parent to The Children/Citizens gets waved away as things that just can’t happen anymore. As if such is unthinkable.

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  2. I think that this is very instructive, because this is the essential problem with Hayek: libertarians are utterly inconsistent in how they want to invoke Hayek. The classic here is where people point out that the European social democracies didn’t actually devolve into some communist nightmare. To this, libertarians say, well, Hayek wasn’t really talking about just social democracies but real socialist states. But surely, if it’s true that his warnings don’t apply to European social states, they don’t apply to the far less socialist US. But that doesn’t stop people from invoking Hayek all the time.

    Now, I think it isn’t a particularly uncharitable reading of this post to say that it’s essential message is “Hayek should be invoked when it’s convenient and not when it isn’t.” Well, okay. But maybe the lesson then is just that Hayek shouldn’t be invoked.

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    • @Come Back Zinc!,

      Well, no. I’m saying that I find Hayek to be inconsistent. To the degree that others insist I acknowledge his more statist side, I’d ask that they reciprocate, and acknowledge his more free-market side. And then we can talk about which side makes more sense. But this they will probably never do.

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      • @Jason Kuznicki,

        I think part of the problem is that different people mean different things by the term free market. The other problem is that as far as I am concerned there are some things and some services you have a right too, regardless of your financial situation.

        So when you use the term what exactly are you referring to?

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      • @Jason Kuznicki,

        Yeah, they probably won’t. But that might be explicable by an annoying tendency (on both sides) to cite their experts when their experts say things they like, and wave their hands when their experts say things they don’t like.

        If Hayek is inconsistent to the point that his true beliefs on something of this nature are arguable, then his usability as a credible source is highly debatable. If you’re going to insist on using Hayek, you better have a fairly ironclad system of buttressing Hayek.

        Aside to Will: a definition of “actual insurance” is probably a good idea here. You’ve got one big stinky Scotsman in there.

        Insurance is the amortization of risk across a population. It’s pretty much impossible to be an insurance company if you’re assigning actual true risk to one individual and making him/her pay the true cost. You’re a bookie. If you can’t lay off your bets, you’re going to go broke.

        Free market principles are great when pricing goods and services, although their actual applicability has a tendency to be inversely useful to the necessity of the good/service.

        Insurance isn’t a good or a service, and the whole “market vs. not” argument for insurance pretty much completely ignores this fact. You’re not giving me anything, and you’re not doing anything for me. You’re giving me a writ that says that you *might* do something for me, in the future, if something else happens to me. It’s an entirely different taxonomic class of thing.

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        • @Pat Cahalan,

          If Hayek is inconsistent to the point that his true beliefs on something of this nature are arguable, then his usability as a credible source is highly debatable. If you’re going to insist on using Hayek, you better have a fairly ironclad system of buttressing Hayek.

          Tell that to the fellow who brought up Hayek in the first place, and who deployed him in support of Obamacare.

          Personally, this isn’t one of the areas where I think Hayek is at his strongest, and I would not have brought him up myself, except that I’ve probably read more Hayek than most, and I recognize that he is — as I said — difficult to follow on just this point.

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    • @Will Wilkinson,

      Chapter nineteen of The Constitution of Liberty discusses social insurance, but two things strike me on re-examining it just now: First, by social insurance, I believe he intends something like what you mean by “real insurance” — Hayek writes that we need “some provision for those threatened by the extremes of indigence or starvation due to circumstances beyond their control.” It’s really a stretch to read this as agitating for universal health care for all health-related expenses, which indeed he explicitly rejects.

      Second, he makes it clear in that chapter that he does not favor a system in which people are “compelled to obtain this protection through a unitary organization run by the government.” In our mixed economy, there is increasing room to debate whether health insurance providers are anything other than post-industrial fiefdoms, particularly after Obamacare. We can have that debate, and it’s an interesting one, but it’s not one Hayek is easily brought into.

      It’s a difficult chapter, full of hedging and qualifying, but in all, I’d say that Hayek here seems to be modestly walking back the interventionism in that passage from the Road to Serfdom.

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  3. If market anarchist means a total separation of State and economy/market, but a minimal government (or some workable protection agency) to protect property and individual rights, then count me in with Hayek’s late life admission.

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      • @JosephFM,
        Why would they create a coercive hierarchy with de-facto state functions. You mean protection against someone killing you and taking your property? But this isn’t a State that interferes in the economy or your personal life — you simply can’t violate anyone’s rights — what’s difficult to understand? Please expain.

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        • @Mike Farmer,
          To me it seems obvious that anyone who can protect you against someone else killing and taking your property, can also kill you and take your property. Or, extort you into giving them your property. (This begs the question of how you got property in the first case, as well.)
          And that if you can trust each other enough to not have to worry about this, then why do you even need private property?

          I was also going off of the concept of innovation and failure. Markets require some people to fail, no?

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          • @JosephFM,
            Oh, and also – if you have a large enough organization, won’t rules and hierarchies start to evolve naturally from human interaction, which can then be manipulated by those clever enough to trick people? Actual force isn’t the only kind of coercion, after all, there is also just plan deceit.

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            • @JosephFM,

              Well, then Joeseph, we’re simply screwed, aren’t we. Nothing we do matters if this is the case. Let’s just give up our property, and follow the leaders.

              Actually the second amendment addresses part of your concern — we have a right to take up arms against murderous tyrants.

              You seem to be determined to be a slave, unless you think they have a position for you in the ruling order.

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            • @JosephFM,

              Also, the Second Amendment is irrelevant – I thought we were discussing a theoretically functional anarchist society, not the United States of America.

              As for your last remark – you are the one defending the mechanism for excluding people and making them subservient, not I.

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  4. Uh, aren’t we only even talking about Hayek because the free market folks treat him as a super-duper economics authority? I find it hard to believe that anyone is citing Hayek for any reason besides this.

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    • @JosephFM,

      He was brought up in the current discussion by some left-liberals, who argued that because even Hayek supported some form of social insurance, libertarians didn’t have a leg to stand on.

      The above is one suggestion of why this isn’t necessarily so. Hayek appears both pretty confused on this particular issue and also clearly not endorsing anything like the recently passed law.

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      • @Jason Kuznicki, I think it came about after people kept poo pooing the idea of any HCR because the bible…oops in mean Hayek did not approve. So some people found that Hayek may actually have been okay with it. It didn’t actually advance the debate, but then again, neither did just throwing out Hayek or Rand as the truth.

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    • This is a very good point. Hayek is a very profound authority on the economic structure (and information structure) underlying modern industrial societies.

      But that doesn’t mean he’s an infallible one. If you read The Road to Serfdom, you would get the impression that the social democratic welfare states should collapse much sooner than they have.

      But it’s pretty clear, for me at least, that the current economic crisis is Hayek-style failure of governments to respect private property.

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  5. If after thinking it all over some more he got to thinking he might as well have been an anarchist, then where does that leave us in terms of trying to figure out the practicability (and limits? oh wait, no. no limits allowed) of the normative implications of his theories?

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    • @Michael Drew,

      Probably there aren’t too many lessons to be learned, because we do not know what his reasons were for the comment. They might have been good or bad, and often people say things in interviews that aren’t as rigorous or well-considered as they might be in a published work. Still, it does give at least a rough idea of the trajectory of Hayek’s thinking.

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  6. Would somebody on this site please explain to me the exact definition of “free market”? As a poor southern blue collar boy, probably the only one here, free market to me means being able to exploit the worker without having to worry about the consequences. It means paying your favorite senator a campaign bribe so your company gets a tax break for moving over six million production jobs overseas. It means the Walmart rush to the bottom that allows multi-billionaires to pay their help so poorly that thousands of them are eligible for welfare. So, I would appreciate it somebody here would tell me why I should be for free markets. One final thought on free markets, according to a blog whose name eludes me, the average Chinese worker makes 85 cents an hour. Not free, but really close.

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  7. “The moment you make a concession of any sort whatsoever, said concession will promptly be chiseled in granite, and it will endure forever…”

    I knew there was a reason we needed to let the poor sicken and starve… It’s to maintain the bulwark against mid-20th century fascism!

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  8. Okay, Jason, I will admit that I am one of the ones that Mr. Long calls bomb throwing leftest that conflate free markets with the corporate nightmare that I now reside in, but the question I now have is what exactly do you want to do about it? I can see how tax breaks for the megamoney hurts the small start ups, but how do you keep the money from moving to the cheapest markets? How does one stop that? Mr. Farmer, You can rest assured that my political thoughts predate oberman and, since all you do is call me names I would appreciate it if you would ignore me unless you have something to say other than that I am bat shit crazy.

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  9. “There’s also a lesson to be taken here for people who support the free market: The moment you make a concession of any sort whatsoever, said concession will promptly be chiseled in granite, and it will endure forever.”

    Why does this sentiment have me picturing two groups separated by a divide frozen motionless for all time?

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      • @Mike Farmer, because if this lesson is taken to heart, then anyone who holds to any ideology would never concede even the slightest vulnerability in said ideology for fear that concession would be exploited by people with opposing views. Those with opposing views would then, of course, follow suit.

        In the end, both camps would remain intransigent, holding unwaveringly to the purity of their preferred worldview as the status quo remained to infinity.

        Voltaire had it right with “the perfect is the enemy of the good.”

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        • @62across,
          Let’s take the free market “ideology” — it basically calls for non-intervention from the government. Once free from government intervention who knows what will develope in the market of goods, services and ideas? It wouldn’t be frozen in time. The same with statism, if it gains dominance, things will change, just not a change I want to see. It depends in which direction we want to go, and which changes will be best.

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        • @62across,

          My observation was intended only for free-marketers. Interventionists can always favor the free market, or say that they do, seemingly without consequence. I find the positions decidedly asymmetrical in practice. Of course, you’re free to see things differently, but this wasn’t a consequence I’d envisioned.

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  10. Mr. Farmer, I remember a reply from somebody on this site a few days ago saying that anybody who thinks that President Obama hasn’t gone far enough to the left was bat shit crazy, if that was not you, then I wish to apologize. Besides, I have been called worse names other sites. Just the other day, somebody on another site called me a ditto head because I wanted the immigration laws to be enforced. I hang around this site because the threads vary and the writing is better than most sites. I would rather read good writers that I don’t agree with than bad writers that I do agree with. While I am far from being a libertarian, there are a couple of things that I think we agree on. I am totally against our defense budget and I think the war on drugs is a large waste of money. The difference is what we would do with the savings if we slashed those programs. I would transfer the DEA to enforcing the immigration laws. I would take the savings from the milatary and put half paying back the Chinese and the other half building wind mills in the Gulf.

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    • @dexter45,
      You had me up to windmills.

      I did write that about anyone who thinks Obama…so on —
      but I was being part humorous and not aiming it at you — sorry if it seemed that way — I was just being expressive. Most of the people here don’t know me well enough to know when I’m jabbing friendly, so I’ll tone it down. Once you get to know me, you’ll understand my style better — I let it all hang out too much at times.

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  11. Jason, I can be convinced, but I need more data. Could you please give some examples of the “true costs of enforcement”? What I see is a great reduction in pay for the people who make things other than piles of paper while the rich get richer.

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    • @dexter45,

      The true costs of enforcement would start with billions of dollars for a really secure border fence, for guard towers, for surveillance cameras, for police enforcement, and the like. Depending on how secure we mean to make this fence, these costs would also include detaining many people incorrectly, deterring legal visitors from crossing the border, and possibly shooting people who didn’t obey the border guards’ commands. I’d prefer to avoid becoming like East Berlin, as I’ve often said. Anything that keeps us unlike them is probably a good idea.

      Further costs would include the loss of immigrant labor that right now is crucial for agriculture, construction, and a variety of other sectors.

      This lost labor would include losses to American businesses, and in turn, to Americans’ jobs. Yes, we’d definitely lose American jobs — because without the immigrant labor, American businesses would fail.

      I am unsure, admittedly, of the net effect, but excluding immigrants is certainly not all benefit on the jobs front. Add in the others, and I think the case is clear enough — we need some way of allowing guest workers here through a legal and relatively easy channel. Current law entails decades of waiting for unskilled laborers wanting to enter the country, and no one is ever going to go through that. The law here either never made any sense or it has become nonsensical, and it’s time to change it.

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      • “Further costs would include the loss of immigrant labor that right now is crucial for agriculture, construction, and a variety of other sectors.”

        Don’t you consider it plausible that those industries could employ citizen labor instead (especially considering that’s how those industries have moved forward historically)?

        On a larger subject, at what point do you consider yourself bound to the judgment of the American people to wrt immigration policy? It seems especially topical to me in this case because immigration policy is by any measure a legitimate function of government. (Or do you not believe that to be the case?)

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        • @Koz,
          Those industries could employ citizen labor, but the prices for the goods they produce would go up by at least a factor of 2 (and probably more than that).

          I can afford to double my food bill, but I actually make a healthy salary.

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      • @Jason Kuznicki,

        An economic analysis of security implications for “border defense” rapidly scales outside of the realm of fantasy in money.

        It’s also largely a patently idiotic waste of money, since it ignores the fact that those who wish to explore security vulnerabilities are like water: they just follow the easiest path. Even supposing you could completely and utterly lock down the U.S. Mexico border, you’re ignoring the U.S. Canada border, the coastline…

        In order to secure the border, you have to raise the barrier to entry until it is high enough to prevent some set of the people we don’t want to come here (who has a major set of incentives to come here) from coming here anyway. It is essentially impossible to do this without simultaneously raising the barrier to entry on the remaining set of people who want to come here (the people we *do* want to come here). This doesn’t just include immigrants we may want to have come here, but businessmen who want to do business, tourists who will go to Disneyland, etc. Most of those people want to come here, but they have *less* incentive to come here than someone who is willing to break the law.

        It’s sort of hard to build a decent security system when you want to pass through people who have significantly *less* incentive to come in while simultaneously keeping out people who have *more* incentive to come in. There’s tons of security literature on this topic, the results aren’t good unless you’re the military, and even there the results are a decidedly mixed bag.

        > Don’t you consider it plausible that
        > those industries could employ citizen
        > labor instead

        Certainly. Lots of theories are plausible. Spending hundreds of billions of dollars to test a plausible theory seems like a very bad cost/benefit decision.

        Microcosm studies, economic models, etc. don’t definitively come down either side on what the results would be if you actually *did* seal the border. The limited macro tests we have (Israel/Berlin/North Korea) IMO generally point to the converse results: walls are really only good for keeping people in, not out.

        Regardless, you can’t “seal” the border unless you’re willing to keep everybody out, because any design that keeps out your undesirables is inevitably going to keep out the desirables as well.

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  12. Hey, Dexter, I’ll just tell you my story.

    My wife is a Canadian citizen. She moved to the US via Fiance Visa in the late 90’s. She and I are, we like to flatter ourselves, fairly intelligent people. We are college educated, fluent in English, and fairly immersed in North American culture.

    The immigration process was absolutely byzantine. It had us floored. Calling the INS was a phone tree maze of hellish proportion and if you can’t talk to a human being… who in the hell *CAN* you call? Well, I was lucky enough to stumble across the fact that a lot of Congresscritters have INS liaisons… so I called my Congresscritter and she explained the process to me, explained to me what forms I would need and what forms I would *NOT* need and what to include to speed stuff up (pictures, plane ticket receipts). We, college educated English-speakers, needed help from my congressman to get through this maze.

    I will now point out that it’s pretty much agreed upon that the fiance visa is the *EASIEST* way to get to the US and get one’s Green Card. (And this was *BEFORE* 9/11!)

    If I were a skilled immigrant thinking about coming to the US for a reason other than “love”, I can easily see the process as being alienating to the point where I’d say “you know what, I can make comparable money in a country that doesn’t treat me like this”… and if I were an unskilled worker in a country that bordered this country, I can see saying “hell, I can walk over and make enough money to pay for an apartment *AND* send back money to my family!”

    Now imagine you’ve got a group of people screaming that “SOMETHING SHOULD BE DONE!”

    Will this result in more paperwork or less?

    Will that result in more skilled immigrants coming over or fewer?
    Will that result in more unskilled immigrants just walking over or fewer?

    As such, I suspect that the costs of enforcement ought to include alienating skilled immigrants and making it easier to just say “hell with it, I’ll walk”… and the screaming that more needs to be done to just “enforce the laws we have” will make things even worse.

    (And that’s not even touching on whether the immigration process, including the H1-B visas, had a direct hand in the outsourcing craze of the late 90s… which, if you agree that it did, ought also be included in the true costs of enforcement.)

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    • @Jaybird, I’ll add:

      The biggest cost when it comes to human beings is at this extreme end of their life and that extreme end of it. The first 15ish years or so are pretty much nothing but investment and, after they hit (oh, pick an oldish age) their body breaks down and they’re nothing but a food and health care sink.

      On a purely economic level, the best thing would be for us to get 20ish year olds that already had specialized training. Those costs would already have been paid by someone else. We’d be able to take those folks and immediately install them in the workforce and make them productive members of society for, effectively, free!!! (Compare to the cost of a baby!)

      Additionally, since they came to you instead of you going to them, you know that they have more than a mediocre level of ambition (which can be assumed to translate into an ability to shower and show up on time).

      Good, solid, ambitious workers who can shower and show up on time are a positive good without much of a marginal utility issue. Every single one of them is a tremendous asset that measurably makes our country a better place to live.

      We ought to be falling over backwards getting them here.

      Failing that, we at least ought be going out of our way to not make it a pain in the butt for them to come here.

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      • @Jaybird, There are plenty of us who can’t shower and show up to work on time, but at the moment there are still three or four who can for every job opening. We can’t change our immigration laws with the speed of our GDP growth, but we definitely should expect existing American workers’ attitudes toward immigration to do so.

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