Government Takeover: A Lesson in Free Markets

It’s true. An insider memo to Republicans, from a strategist who has been working with the party for years, encouraged party leaders to use the word “Government Takeover” when referring to the Democrat’s plan. His name is Frank Luntz, and he is an expert on the power of words in marketing. He understands that communicating is less about what is said, and much more about what is heard, so crafting language carefully is essential when building support (and Democrats understand this well). Even though from a technical standpoint the plan does not clearly state that the government will take control of the health care industry, it sets the deck for it, and Luntz has encouraged the use of the phrase in order to tune people in to what the plan ultimately means. Obviously, you may disagree… but that’s why we have parties.

 I’ve heard several Democrats, including the President, accuse Republicans of misleading the public – that the government takeover thing is nonsense, and that they just want “choice and competition” in the insurance industry, as if the free market does not already supply choice and competition. Interestingly, they are against the Republican plan of allowing people to use insurance companies from other states. 

The problem with the “competition” claim is that it’s bunk. The government doesn’t compete – it declares victory at will.

Think about it for a moment. How do businesses succeed? How do those fat-cat CEOs make sure that the company does well? To answer that you have to go to the source of profit – the consumer. So ask yourself, why do you shop at the grocery store you shop at, instead of the one down the street? How do you decide where to purchase gas? The clothes you are wearing, the cell phone provider you have a contract with, and the movie you’re going to see this weekend – why are you giving them your hard-earned money? 

The answer is very simple: You can, and you want to

But those two things are taken for granted too often in our society. The reason you can is because you have a job (someone pays you money in exchange for skill or labor). Also, you can because you are not prevented by the government or other factors. When jobs become more scarce people are willing to do harder work, and if the demand for work is high, wages drop. At this point that movie ticket, those new shoes and the cell phone are dropped from the budget in favor of food, shelter and clean water. Since jobs are created through the opportunity to produce and make a profit, free markets have the power to raise the standard living for all of us. I find it aggravating that the strongest advocates of the “Shared Prosperity” mantra (nice word-smithing, by the way) are fighting for policies that will eliminate half of that equation. “Shared Poverty” just didn’t have the same ring to it I suppose. 

So you can buy things because jobs are available and you have one. But you want to buy things because you perceive the value of the benefit as greater or equal to the value of the cost. You are presented with the choice of keeping your money or trading it for something else, and you will only do so if it is worth it. This means that in order for a company to get your business they have to provide what you are looking for, and maybe a little extra, but the price tag has to be reasonable, otherwise you’ll go elsewhere. The more competition there is the harder the companies have to work for your business. A cell phone provider that is twice as expensive as the rest and offers fewer incentives isn’t going to do well, and they’ll go under. Then the companies who are working hard to satisfy their customers will grow. The customers, resources and jobs will shift to the better players. 

Now that we’ve spelled out what is required for a company to be successful, we can look at what happens when the government runs a business. We can be sure than any government-run service will be 1) cheap, 2) inefficient, 3) low-quality, and 4) highly influenced by politicians. 

The cheap factor is the main selling point for the public. Middle and low-income citizens want it, and politicians want to promise it. But why is it cheap? Because it is subsidized by people with higher incomes, made possible via the progressive tax system. Since making other people pay is far better than having to pay yourself, the government gets a lot of customers. Other companies simply can’t compete with that. And as with all things that are paid for by someone else, money is spent frivolously and with little oversight. Since there’s no concern for profit, there isn’t much concern for operational efficiency or quality either. And by the time the millions of people who bought into the idea realize its true value, it’s usually too late to back out.

But you may be thinking that if private companies offer a better product then most people wouldn’t use the public option. But this assumption is mistaken on two points. First, the government is the government. It is the one entity in our lives which has the authority to dictate your behavior, with physical consequences for disobedience. What a nice perk! Companies that do not have that power are forced to rely on actually satisfying customers. But government can just tweak this and tweak that until results come out in their favor. For example, you can personally choose to buy a product or donate to a charity, but you had no part in choosing whether to pay taxes, how much, or where it goes. You can choose how much to spend in accessories for your car, but the inspection and registration sticker regulations are set by politicians and bureaucrats.

But even when you have a choice, there is a point at which the scales are so tipped that private businesses simply can’t get a fair competition. Fannie Mae and Freddie Mac were two government-backed mortgage loan companies. They were pressured by politicians to lower standards in order to get more people into homes. They could do so because they were backed by other people’s money. When they did lower their standards, other banks had to drop theirs. When people started defaulting on loans Fannie and Freddy had a way out (and we decided to bail out a few more as well), but many other banks had to close their doors. 

Look at public and private schools today. It is very difficult for anyone to send their children to the school of their choice. While I think government-run schools are necessary, the education system is plagued by the same things which I have pointed out here. Since education is primarily the responsibility of states, there is more accountability and less waste, but government tends to operate a certain way no matter how large or small. 

It should be clear then. Government-run business is not fair business because it is not interested in competition – it is purely interested in dominance. Government has a natural tendency to seek control (in the name of service, of course), and it can only acquire control when there are no opponents. But the government’s opponents are the private businesses that provide products, services jobs and opportunity that we want and need. Government and private businesses can work together for great things when their roles are appropriately separated – much like church and state. But allowing the government to have its own “public option” for everything we buy and sell will inevitably lead to a very real “Government Takeover,” where politicians determine what you can buy, and it’ll have very little to do with what you want.

 

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