The Paradox of Thrift

There is an apparent weakness within free-market economics that is often referred to by Keynesians, socialists, and the occasional Chicago-schooler as the Paradox of Thrift. The paradox is as follows: during a recession consumers naturally tighten their belts and start saving more money. Because consumers are not spending as much, producers cannot sell as much and start losing money. Because supply then goes down, prices go up, and consumers spend even less, sending the economy into a steep downward spiral.

The paradox of thrift appears convincing, but it ignores one key fact: before something can be consumed, it must be produced, and before something can be produced, it must be invested in. Before a house can be bought, someone must cut the lumber, manufacture the nails and drywall and other materials, and finally put it all together. And even before that, because that house is a large project, someone--a banker, investor, or entrepeneur--must invest a large amount of capital into it. How is that capital accumulated? By saving, plain and simple.

This is because saving, contrary to those who believe in the paradox of thrift, is not the choice to not spend. Rather, it is the choice to spend later on something that's worth that spending instead of spending now on something that's not. When consumer spending is encouraged rather than saving, money is spent on thing that are not necessarily beneficial to the economy; things that don't dramatically help productivity or increase the standard of living.

And what is the best way to encourage saving? The free market.

As noted before, people and businesses alike naturally start saving more. If the government intervenes to increase consumer demand, the process is the reverse of what is necessary for a healthy economy. People will experience a short-term economic boom because they will simply be buying more things, but because there is no supply to feed the demand, the economy will run itself into the ground in short order and wind up in a state far worse than it was in originally.

Natural, market-driven saving is the only way for an economy to get on its feet. Once saving is up, production can increase again, and consumers will be able to both buy more and save even more, continually growing the economy. Attempts to shortcut this cycle can only lead to disaster.

A Libertarian Argument on Abortion

Libertarianism is based on the principle of non-aggression: no man or institution, including the government, may initiate force against another man or institution. This solid principle leads to a clear-cut set of positions for libertarians: no wars of aggression, no wealth redistribution, no substance control, and no trade restrictions, among other things.

This principle is applied to abortion by nearly every libertarian, but it is applied in different ways within the libertarian movement. One position believes that a fetus is either not alive or is committing an act of aggression against its mother, and thus that the mother is justified in using force against it. The other position believes that a fetus is alive and commits no aggression against the mother, and thus that the abortion of the fetus in the initiation of force against it. There are intermediate positions, mostly believing that abortion is largely immoral but allowing for it in extreme cases such as rape, incest, or medical emergency. However, for the purpose of this article, the two most extreme positions of allowing either for complete abortion rights (pro-choice) or the complete outlawing of abortion (pro-life) will be considered.

The pro-choice position commonly asserts that the fetus is not alive, and therefore its termination is not the same thing as killing. "Biology: Life on Earth, Sixth Edition", a high-school biology textbook from Prentice Hall, uses seven criteria to determine whether or not something is alive.

1. Living things have a complex, organized structure that consists largely of organic molecules.
2. Living things respond to stimuli from their environment.
3. Living things actively maintain their complex structure and their internal environment, a process called homeostasis.
4. Living things acquire and use materials and energy from their environment and convert them into different forms.
5. Living things grow.
6. Living things reproduce themselves, using a molecular blueprint called DNA.
7. Living things, as a whole, have the capacity to evolve.

These criteria will be addressed one-by-one to determine whether or not a fetus is alive.

1. The fetus is composed of the same cellular structure as an adult human. Even if the fetus is mere cells in size, those cells are complex enough and organized enough by themselves to meet the criteria of "organized and complex". Organic molecules make up the vast majority of the content of a fetus.
2. Fetuses are well-known to react to outside stimuli. Fetuses react to loud sounds played too near to the womb, to physical activity of the mother, and indeed from the saline solutions and cutting tools often used in abortion procedures.
3. As noted before, fetuses have the same cellular structure as adult humans and, if provided resources, will maintain that cellular structure without outside interference.
4. A fetus may not be able to actively take resources, but is most definitely able to acquire resources from its mother and use and adapt those resources.
5. The whole purpose of pregancy is to allow the fetus to grow.
6. The criterion of reproduction applies to the species as a whole, not to any one member of that species.
7. Once again, this criterion applies to the species as a whole. If one believes in evolution, then they will no doubt agree that humanity as a species evolves. In one does not believe in evolution, this criterion is irrelevant and can essentially be crossed off the list.

Clearly, the fetus is alive according to widespread scientific standards. But what if the fetus is not human? Then the killing of the fetus will have no greater significance than the killing of a plant or an animal. However, the question that must be asked is, "If the fetus is not human, what is it?" The fetus has human DNA, DNA that will allow it to reproduce later in life. The fetus is not a chimpanzee or a dog or any other animal, and it is most definitely not a plant.

So the question is settled then; a fetus is alive and human. But the fetus may simply be a piece of tissue in its mother's womb. This is not the case, however; a fetus has different genetic material than its mother and is only dependent on its mother for resources and protection, not for any other reason, showing that that the fetus is in fact an independent life form.

The fetus is therefore alive, human, and independent. Its termination would be the same as killing a human. What other defenses of abortion are there, then? The only other such defense is that the fetus somehow committed an act of aggression against its mother. But in no circumstance is this the case. Assuming consensual sex, the mother had sex with the full knowledge that pregnancy could result, sex being shorthand for sexual reproduction, after all. The principle of contract law, one of the foundations of libertarian justice, demands that because the mother has engaged in an act created, whether by nature or by God, she is obligated to follow through on the caretaking of a child.

Assuming non-consensual sex, the situation does become more confusing but not incomprehensible. Imagine a woman who becomes pregnant as a result of a rape. This woman is the victim of an unbelievably unjust, violent, and immoral act. Some would say that the woman has the right to abort the child because the pregnancy was created against her will, or the pregnancy will be a reminder of the terrible ordeal she has already endured. However, the baby has done nothing against the mother, the rapist has.

Consider this analogy: there are three countries: A, B, and C. A attacks B. B retaliates against A, but in the process must attack and completely destroy C. According to the principle of non-aggression, this is unjustifiable. C has done nothing against B, so B's treatment of C is the initiation of force and therefore immoral. Why, then, should a mother have the moral right to kill a child that has resulted from rape, especially since the act of abortion does nothing to punish or obtain payment from the criminal in the first place? At least in the analogy, B is able to say that the destruction of C is for the purpose of punishing A. But the pro-choice position has no such excuse. The fetus has committed no act of aggression against the mother, so the abortion is the initiation of force and therefore immoral.

Because the fetus is alive, human, independent, and innocent of any initiation of force, the use of abortion is tantamount to murder. This act of aggression should be immoral in the eyes of a libertarian, a member of a political ideology more driven by unshakable morals than any other.

So I have to ask: what's the holdup, libertarians?

Taxation or Spending?

Every day, thousands of conservatives think back on the man named Ronald Reagan, the one who brought back traditional values, toppled the evil empire, and above all, lowered taxes...and smile fondly at the memory. The first two points may be written on in later articles, but I have some serious issues with the third point. Let me explain.

Aside from the fact that Reagan didn't actually cut taxes, the main problem with this hero-worship is that it ignores Reagan's spending policies, a problem common among conservatives. Ronald Reagan left office having incurred the largest federal debt the United States had ever seen. Yet this clear clash with traditional "fiscal conservatism" is routinely ignored or downplayed by conservatives. Why?

The answer lies in the new breed of fiscal conservatism that has been growing for several decades. This new species of economic thought considers budget deficits trivial compared to tax levels. A government can, according to this philosophy, spend itself into debt as long as taxes are low and still consider itself a "small government", because the measure of a government's size is not what it gives out in the form of spending but what it takes in from taxation.

This view ignores one crucial fact, however. Every dollar a government spends must be paid for in some way, either in the present or in the future. If the government opts not to pay now through taxation, it must borrow the money and pay later. This debt can be handled in one of three ways: taxation, inflation, or inaction. If the government chooses to pay the debt through taxation, then the spending has consequences that included higher taxes anyway. What was the point of the deficit spending if not to simply push the payment for it back by several years? If the government chooses to pay the debt by inflation, no money is directly taken from any taxpayers, but the value of the money they possess is decreased, making inflation at least equivalent in cost to taxation for all practical purposes. If the government decides to not pay the debt at all, investors' willingness to invest in that country decreases, thereby leading to the same consequence as inflation: a devalued currency.

Add to these facts the issue of interest on the debt, and suddenly deficit spending does not appear so attractive. Every time a government attempt to spend without paying for it, the payment later on in the future will inevitably be greater. The simple solution is to either cut spending or raise taxes to meet that spending; the long-term economic pain will be much, much less.

P.S. Yes, I did use an article from Paul Krugman

Healthcare in the Constitution

Article I, Section 8 of the United States Constitution begins, "The Congress shall have power to lay and collect taxes, duties, imposts, and excises, to pay the debts and provide for the common defense and general welfare of the United States..." That small phrase "general welfare" is increasingly being used as a license to enact universal government-run healthcare. Because the provision of healthcare is ostensibly good for the general welfare, it falls under the authority of Congress to enact, at least according to those favoring it.

A closer look at the intentions of the founders shows that this is not the case at all. In a number of essays collectively known as "The Federalist" or "The Federalist Papers", Alexander Hamilton, James Madison, and John Jay explained their reasoning behind both the overall structure and purpose of the Constitution and numerous finer points within the document.

James Madison, commonly known as the Father of the Constitution, wrote on this exact topic of the general welfare in the Federalist No. 41, and he had no tolerance for those who would use the clause as authorization for greater government power. He wrote,

"But what color can the objection have, when a specification of the objects alluded to by these general terms immediately follows, and is not even separated by a longer pause than a semicolon? If the different parts of the same instrument ought to be so expounded, as to give meaning to every part which will bear it, shall one part of the same sentence be excluded altogether from a share in the meaning; and shall the more doubtful and indefinite terms be retained in their full extent, and the clear and precise expression be denied any signification whatsoever? For what purpose could the enumeration of particular powers be inserted, if these and all others were meant to be included in the preceding general power? Nothing is more natural nor common than first to use a general phrase, and then to explain and qualify it by a recital of particulars..."

"...But what would have been thought of that assembly, if, attaching themselves to these general expressions, and disregarding the specifications which ascertain and limit their import, they had exercised an unlimited power of providing for the common defense and general welfare?"

Madison's intent for the general welfare clause clearly did not exceed the powers already given to Congress by the remainder of Article 1, Section 8. The general welfare clause was merely a broad phrase describing shallowly the powers of Congress. Specific powers were detailed later; universal healthcare wasn't one of them.

The "Right" to Healthcare

Possibly the most common argument from those in favor of increased government intervention is that healthcare is a right for everyone. They see healthcare as a need just as necessary as food and water, reasoning, "If a person does not have healthcare, they will either die or have their quality of life severely diminished. Therefore it is necessary and must be provided." However, this view does not differentiate between rights and needs, two categories that may overlap but may also hold completely contradictory points.

Healthcare is a need. Everyone who has ever lived has needed medical care at some point in their life or will in the future. It is no different from air, shelter, or either of the other aforementioned needs, food and water. When healthcare is treated as a need and only a need, a person cannot be forced to give healthcare to someone who cannot or will not get it for themselves.

When healthcare is treated as more than a need, however, and is given the status of a right, matters change. If a person is not willing or able to exercise their right to healthcare independently, then, of course, someone must provide it for them, by force if necessary. This idea violates the rights of a person to be secure in their life, liberty, and property; if a person refuses to give their property against their will, they must give their liberty by going to jail, and if they refuse to give their liberty, their life is taken from them.

Thus the "right" to healthcare inherently conflicts with the idea of natural law-the right to life, liberty, and property. Life, liberty, and property are indeed needs, but they also go beyond that: they are rights. They are concepts so valuable that they are taken away, justice is inevitably violated. Defining healthcare as a right leads to a conflict of interest that can only result in theft, slavery, and murder: the violation of justice.

The Public "Option"

The idea of a "public option" is on the lips of millions of Americans. The thought of a government-run entity forcing competition out of business still scares the average man on the street, so we're no going to give the government an outright monopoly--just a piece of the pie.

Yeah, right.

President Obama states he is in favor of creating "a public option that will give people a broader range of choices and inject competition into the health care market so that [we can] force waste out of the system and keep the insurance companies honest."

When hell freezes over.

Don't get me wrong; insurance companies could definitely use a shot of competition, not to mention some to kick out the lobbyists in Washington. The problem is, there is nothing "optional" about taxation, the preferred method of payment for politicians everywhere: there is no choice to not pay taxes. An individual may choose whether or not to participate in the meager benefits of a public system, but no one -no one-can choose to not pay for it.

The government may not take a monopoly in the provision of a service, but that service will always take a monopoly in taxation.

Rationing and Universal Healthcare

If you read the title above and instantly thought to yourself, "There's no rationing in the healthcare bill right now. All you have to do is read it! Ha!", here is a rather important fact to keep in mind: rationing can and likely will take place regardless of whether or not it's mentioned in a bill. A government-run industry cannot function without either incurring rationing or extreme prices.

Confused? Flash back to Econ 101: supply and demand dictate price. When demand outweighs supply, prices rise. When supply outweighs demand, prices fall. Assuming a fixed demand, supply is inversely proportional to price (s=d/p). Now, assuming the number of sick people remains constant, apply these principles to healthcare. When there are too few doctors to provide care or too few pharmaceutical companies to provide medicine, prices rise. Because profits now rise, existing doctors and pharmas are able to provide better care and people may see these profits and enter the medical industry. If this creates the opposite problem of too many doctors and pharmas, increased competition results, prices are driven down, and quality is driven up.

Now flash forward to a government-run health system. Because prices are no longer a reliable indicator of supply and demand (they never are when funds are taken from and services are supplied to a collective; see the article "Healthcare: Understanding the Status Quo" for more), the correct supply to meet the demand is unknown. If supply is too high, exorbitant costs result and there is no price mechanism to show any way of lowering costs. Cuts will be taken across the board, and that means that some people will be unable to receive care. If supply is too low, well--you're already there.

"But we'll be able to calculate costs without prices. We'll just find that happy spot where supply is perfect to meet demand!" You mean just like the Post Office? Just like the public education system? Just like the government-run healthcare systems we already have, Medicare, Medicaid, and the VA? All of these entities give substandard service and are drowning in red ink. A national health care system will be no different.

Unemployment and Insurance

When healthcare debates began heating up in early June, President Obama said he was in favor of "making every American responsible for having health insurance coverage, and asking that employers share in the cost."

If this sounds good to you, ask yourself this: when you go to the candy store with ten dollars and the price of the candy you want has been raised from one dollar to two dollars, what do you do?

The principles of supply, demand, and pricing are no different in labor as they are in shopping. When something costs more but you have a fixed amount of money, you either buy less of it, buy something else, or save your money. Likewise, when an employer is required to pay his workers more, he will either hire fewer workers, hire part-time employees, or not hire anyone at all and decide the market isn't right. The Obama administration's plan to require employers to pay for their employee's health insurance is essentially raising the cost of labor and forcing the employer to hire fewer full-time workers as a result. Entrepeneurs who wish to start a business may now see that the cost of labor is too high for a specific industry and decide to save their money.

When unemployment rates are skyrocketing, the idea of letting employers and employees come to an independent agreement on wages and benefits should be everywhere.

Shouldn't it?

Healthcare: Understanding the Status Quo

The upcoming decision on healthcare reform is possibly the most important decision America has seen for decades. If "reform" as it is currently seen is continued, dramatic effects could be seen for all Americans. But is it the right reform? No one denies that the status quo in medical care is subpar; however, many believe the direction the Federal Government is taking in this issue will only make matters worse. In order to understand this direction of increased government control over healthcare, one must first understand the reasons why the industry is in its current state.

Two primary subjects are the focus of the modern healthcare debare: drugs and insurance. Both will be covered in short order.

The often enormous expenses of prescription and over-the-counter drugs means they are often out of reach for lower and middle-class individuals. There are three main reasons for these costs: first, the large investment necessary to research and manufacter those drugs; second, the overbearing regulations of the FDA; and thirdly, the groups of lobbyists pressuring public officials in Washington.

The first reason is simply a fact of the industry; no amount of reform, whether government-based or market-based, will be able to overcome it. Pharmaceutical companies invest millions or even billions, to research vaccines and medicines, then invest even more to manufacture them on a larger scale. When these companies are successful and make enormous profits, cries and complaint go out, claiming that the companies have extorted consumers. But why? Why shouldn't a company that has taken great risks to provide such a necessary product as medicine receive a hefty reward for its investment? The United States leads the world in pharmaceutical research; reducing the likelihood of high returns for investors and entrepeneurs would severely decrease research in the United States.

The second reason for high drug prices, on the other hand, is changeable and is not simply a reality that must be accepted. The Food and Drug Administration (hereafter the FDA) is the government agency responsible for the regulation and approval of drugs. To understand how this body restricts the availability of drugs, consider two examples. In the first example, imagine there is a drug fully tested by the pharmaceutical company that created it. However, the drug must undergo even more testing from the FDA, despite the fact that the company has already tested it under pressure from the fact that future sales will decrease sharply if the drug is ineffective or dangerous. This added testing means several more months or even years before the drug is available to the public. In the second example, imagine there is a new cancer treatment that is cheaper to use than chemotherapy or radiation and doesn't come with the common side effects of either. However, this treatment has a 1% chance that its use will result in fatal heart problems later on, and FDA bans it. Even if the drug had a mere 3% success rate it would have ultimately saved far more people than it killed. The FDA regulation saved one person, but killed three. In both cases government regulation kept effective drugs off the market for longer than necessary, if it even let them on the market at all, wasting time and effort and therefore increasing the cost of the drug.

The third reason for high drug prices is the presence of large groups of lobbyists from major pharmaceutical companies in Washington, D.C.. While the root of this problem may appear to be the enormous power and money possessed by corporations that allow them to influence policy decision, it is actually that there is too much power concentrated in Congress. The more power to regulate, tax, and subsidize vested in Congress, the more special interest groups are drawn to it so they can take advantage of it. As power is concentrated, so is corruption. If the power the government wields were severely diminished, the corruption that accompanies it would also subside.

So, in summary, three major reasons for the expense of drugs are large investments, overprotective regulations, and corrupted power.

The cost of insurance is the other main concern in the debate. While many lament lower coverage of health benefits, it seems as though the solution to higher costs and lower availability of insurance may actually be decreasing coverage.

John Stossel had an excellent analogy to the current American healthcare situation that may explain this apparent paradox. What if there was a company that offered grocery insurance? This grocery insurance program starts by simply providing coverage for rare, severe cases such as when there's a local famine of some sort (if shipping non-local food is not available) or the consumer loses their job. This works out fine because everyone is under almost-equal risk of having a famine or job loss (illness), and the system works by having those who are more fortunate pay for those who are less fortunate; everyone involved has decided to pay the moderate cost of insurance rather than risk paying a larger cost at some point or another.

But what if this grocery insurance policy expands so that all groceries are covered? The incentive to economize is lost. In the first situation, with limited coverage, people made do when they could, but let insurance take care of everything when they couldn't. In the second situation, with full coverage, people say, "Why should I buy chicken? I can buy filet mignon for dinner because my insurance takes care of it." The result of this is increased consumption on all fronts, and increased consumption must be accompanied by increased costs.

While one may say, "This is ludicrous! Why would anyone participate in this system?", this is the reality of modern health insurance. Because supply and demand are skewed, the value of any one treatment becomes unknown. When the collective is paying for a product or service, anyone can take advantage of that collective and those who do not abuse the system are left with the bill.

Now the reasons for the current healthcare situation in the U.S. should be clear. In the next few articles, the issues specifically accompanying universal government-run healthcare will hopefully be clarified as well.