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8 Goofs in Jonathan Gruber’s Health Care Reform Book

This Obamacare architect’s propaganda piece is a comic of errors by MATT PALUMBO:

In one of life’s bitter ironies, I recently found a book by Jonathan Gruber in the bin of a bookstore’s going-out-of-business sale. It’s called Health Care Reform: What It Is, Why It’s Necessary, How It Works. Interestingly, the book is a comic, which made it a quick read. It’s just the sort of thing that omniscient academics write to persuade ordinary people that their big plans are worth pursuing.

Health Care Reform: What It Is, Why It’s Necessary, How It Works

In case you’ve forgotten — and to compound the irony — Gruber is the Obamacare architect who received negative media attention recently for some controversial comments about the stupidity of the average American voter. In Health Care Reform, Gruber focuses mainly on two topics: an attempted diagnosis of the American health care system, and how the Affordable Care Act (the ACA, or Obamacare) will solve them. I could write a PhD thesis on the myriad fallacies, half-truths, and myths propounded throughout the book. But instead, let’s explore eight of Gruber’s major errors.

Error 1: The mandate forcing individuals to buy health insurance is just like forcing people to buy car insurance, which nobody questions.

This is a disanalogy — and an important one. A person has to purchase car insurance only if he or she gets a car. The individual health insurance mandate forces one to purchase health insurance no matter what. Moreover, what all states but three require for cars is liability insurance, which covers accidents that cause property damage and/or bodily injury. Technically speaking, you’re only required to have insurance to cover damages you might impose on others. If an accident is my fault, liability insurance covers the other individual’s expenses, not my own, and vice versa.

By contrast, if the other driver and I each had collision insurance, we would both be covered for vehicle damage regardless of who was at fault. If collision insurance were mandated, the comparison to health insurance might be apt, because, as with health insurance, collision covers damage to oneself. But no states require collision insurance.

Gruber wants to compare health insurance to car insurance primarily because (1) he wants you to find the mandate unobjectionable, and (2) he wants you to think of the young uninsured (those out of the risk pool) as being sort of like uninsured drivers — people who impose costs on others due to accidents.

But not only is the comparison inapt, Gruber’s real goal is to transfer resources from those least likely to need care (younger, poorer people) to those most likely to need care (older, richer people). The only way mandating health insurance could be like mandating liability car insurance is in preventing the uninsured from shifting the costs of emergent care thanks to federal law. We’ll discuss that as a separate error, next.

Error 2: The emergency room loophole is responsible for increases in health insurance premiums.

In 1986, Reagan passed the Emergency Medical Treatment and Active Labor Act, one provision of which was that hospitals couldn’t reject emergency care to anyone regardless of their ability to pay. This act created the “emergency room loophole,” which allows many uninsured individuals to receive care without paying.

The emergency room loophole does, indeed, increase premiums. There is no free lunch. The uninsured who use emergency rooms can’t pay the bills, and the costs are thus passed on to the insured. So why do I consider this point an error? Because Gruber overstates its role in increasing premiums. “Ever wonder why your insurance premiums keep going up?” he asks rhetorically, as if this loophole is among the primary reasons for premium inflation.

The reality is, spending on emergency rooms (for both the uninsured and the insured) only accounts forroughly 2 percent of all health care spending. Claiming that health insurance premiums keep rising due to something that accounts for 2 percent of health care expenses is like attributing the high price of Starbucks drinks to the cost of their paper cups.

Error 3: Medical bills are the No.1 cause of individual bankruptcies.

Gruber doesn’t include a single reference in the book, so it’s hard to know where he’s getting his information. Those lamenting the problem of medical bankruptcy almost always rely on a 2007 studyconducted by David Himmelstein, Elizabeth Warren, and two other researchers. The authors offered the shocking conclusion that 62 percent of all bankruptcies are due to medical costs.

But in the same study, the authors also claimed that 78 percent of those who went bankrupt actually had insurance, so it would be strange for Gruber to claim the ACA would solve this problem. While it would be unfair to conclude definitively that Gruber relied on this study for his uncited claims, it is one of the only studies I am aware of that could support his claim.

More troublingly, perhaps, a bankruptcy study by the Department of Justice — which had a sample size five times larger than Himmelstein and Warren’s study — found that 54 percent of bankruptcies have no medical debt, and 90 percent have debt under $5,000. A handful of studies that contradict Himmelstein and Warren’s findings include studies by Aparna Mathur at the American Enterprise Institute; David Dranove and Michael Millenson of Northwestern University; Scott Fay, Erik Hurst, and Michelle White (at the universities of Florida, Chicago, and San Diego, respectively); and David Gross of Compass Lexecon and Nicholas Souleles of the University of Pennsylvania.

Why are Himmelstein and Warren’s findings so radically different? Aside from the fact that their study was funded by an organization called Physicians for a National Health Program, the study was incredibly liberal about what it defined as a medical bankruptcy. The study considered any bankruptcy with any amount of medical debt as a medical bankruptcy. Declare bankruptcy with $100,000 in credit card debt and $5 in medical debt? That’s a medical bankruptcy, of course. In fact, only 27 percent of those surveyed in the study had unreimbursed medical debt exceeding $1,000 in the two years prior to declaring bankruptcy.

David Dranove and Michael L. Millenson at the Kellogg School of Management reexamined the Himmelstein and Warren study and could only find a causal relationship between medical bills and bankruptcy in 17 percent of the cases surveyed. By contrast, in Canada’s socialized medical system, the percentage of bankruptcies due to medical expenses is estimated at between 7.1 percent and 14.3 percent. One wonders if the Himmelstein and Warren study was designed to generate a narrative that self-insurance (going uninsured) causes widespread bankruptcy.

Error 4: 20,000 people die each year because they don’t have the insurance to pay for treatment.

If the study this estimate was based on were a person, it could legally buy a beer at a bar. Twenty-one years ago, the American Medical Association released a study estimating the mortality rate of the uninsured to be 25 percent higher than that of the insured. Thus, calculating how many die each year due to a lack of insurance is determined by the number of insured and extrapolating from there how many would die in a given year with the knowledge that they’re 25 percent more likely to die than an insured person.

Even assuming that the 25 percent statistic holds true today, not all insurance is equal. As Gruber notes on page 74 of his book, the ACA is the biggest expansion of public insurance since the creation of Medicare and Medicaid in 1965, as 11 million Americans will be added to Medicaid because of the ACA. So how does the health of the uninsured compare with those on Medicaid? Quite similarly. As indicated by the results from a two-year study in Oregon that looked at the health outcomes of previously uninsured individuals who gained access to Medicaid, Medicaid “generated no significant improvement in measured physical health outcomes.” Medicaid is more of a financial cushion than anything else.

So with our faith in the AMA study intact, all that would happen is a shift in deaths from the “uninsured” to the “publicly insured.” But the figure is still dubious at best. Those who are uninsured could also suffer from various mortality-increasing traits that the insured lack. As Megan McArdle elaborates on these lurking third variables,

Some of the differences we know about: the uninsured are poorer, more likely to be unemployed or marginally employed, and to be single, and to be immigrants, and so forth. And being poor, and unemployed, and from another country, are all themselves correlated with dying sooner.

Error 5: The largest uninsured group is the working poor.

Before Obamacare, had you ever heard that there are 45 million uninsured Americans? It’s baloney. In 2006, 17 million of the uninsured had incomes above $50,000 a year, and eight million of those earned more than $75,000 a year. According to one estimate from 2009, between 12 million and 14 million were eligible for government assistance but simply hadn’t signed up. Another estimate from the same source notes that between 9 million and 10 million of the uninsured are not American citizens. According to the Centers for Disease Control and Prevention, slightly fewer than 8 million of the uninsured are aged 18–24, the group that requires the least amount of medical care and has an average annual income of slightly more than $30,000.

Thus, the largest group of uninsured is not the working poor. It’s the middle class, upper middle class, illegal immigrants, and the young. The working poor who are uninsured are often eligible for assistance but don’t take advantage of it. I recognize that some of these numbers may seem somewhat outdated (the sources for all of them can be found here), but remember: we’re taking account of the erroneous ways Gruber and Obamacare advocates sold the ACA to “stupid” Americans.

Error 6: The ACA will have no impact on premiums in the short term, according to the CBO.

Interesting that there’s no mention of what will happen in the long run. Regardless, not only have there already been premium increases, one widely reported consequence of the ACA has been increases in deductibles. If I told you that I could offer you an insurance plan for a dollar a year, it would seem like a great deal. If I offered you a plan for a dollar a year with a $1 million deductible, you might not think it’s such a great deal.

A report from PricewaterhouseCoopers’ Health Research Institute found that the average cost of a plan sold on the ACA’s exchanges was 4 percent less than the average for an employer-provided plan with similar benefits ($5,844 vs. $6,119), but the deductibles for the ACA plans were 42 percent higher ($5,081 vs. $3,589). The ACA is thus able to swap one form of sticker shock (high premiums) for another (high deductibles). Let us not forget that the ACA exchanges receive federal subsidies. Someone has to pay for those, too.

Error 7: A pay-for-performance model in health care would increase quality and reduce costs.

This proposal seems like common sense in theory, but it’s questionable in reality. Many conservatives and libertarians want a similar model for education, so some might be sympathetic to this aspect of Gruber’s proposal. But there is enormous difficulty in determining how we are to rank doctors.

People respond to incentives, but sometimes these incentives are perverse. Take the example of New York, which introduced a system of “scorecards” to rank cardiologists by the mortality rates of their patients who received coronary angioplasty, a procedure to treat heart disease. Doctors paid attention to their scorecards, and they obviously could increase their ratings by performing more effective surgeries. But as Charles Wheelan noted in his book Naked Statistics, there was another way to improve your scorecard: refuse surgeries on the sickest patients, or in other words, those most likely to die even with care. Wheelan cites a survey of cardiologists regarding the scorecards, where 83 percent stated that due to public mortality statistics, “some patients who might benefit from angioplasty might not receive the procedure.”

Error 8: The ACA “allows you to keep your current policy if you like it… even if it doesn’t meet minimum standards.”

What, does this guy think we’re stupid or something?

The Force That Liberated Women

The innovations and opportunities of modern markets freed women more than men by STEPHEN DAVIES:

Everyone in the world today has cause to be thankful that they live in a world and a time shaped by modern capitalism. However, women have particular cause to be thankful above and beyond the gains in material well-being that they share with men.

The contrast between the great majority of human history and the world that has grown up since the mid-18th century, most notably the enormous and unprecedented increase in wealth and physical comfort that has taken place since then, even for those who count as poor today, means that everyone alive today is very fortunate compared to their ancestors.

This huge and measurable increase in well-being is mainly due to modern capitalism and its central feature, sustained innovation, along with the crucial supporting institutions that make that possible: the rule of law, free exchange and inquiry, and individual liberty.

The condition and prospects of women have changed profoundly for the better in the modern world, and this is due centrally to capitalism as an economic and social system. Ideas and thinking have also played an enormous part, but this is one of those cases where the material circumstances and relations of human beings are fundamental. Women have gained a capacity of self-direction and a range of opportunities and options that were denied to their predecessors.

We may truly say that capitalism has liberated women.

Liberated from what, exactly?

The short answer is that capitalism liberated women from material constraints arising from the reality of living in a world of little innovation, slow or nonexistent growth, and chronic material deprivation. This was also true for men of course, but for reasons both natural and social, the conditions of premodern life affected women much more severely and stringently than they did men.

Physical strength

In traditional society, hard physical labor was the lot of everyone except a very small and privileged minority; the alternative was to starve. At the same time, the threat of violence played a much larger part. Innovation of any kind was seen as dangerous at best, blasphemous at worst.

Given the natural contrasts in physical strength between men and women, this was a world with a very clear sexual division of labor. Women did all kinds of productive work, but many tasks — including many that were more highly rewarded — were monopolized by men. Even more significantly, institutions that wielded power were dominated by men because of their ultimate basis in physical force, which men could exercise more readily. Individual women might enjoy power and influence, but women in general did not.

Fertility

Most importantly, women had little control over their fertility. Unless they chose a life of chastity, they were almost certain to have children.

This huge biological fact had extensive social consequences. On the one hand, it gave women great social influence by virtue of their maternal role. This influence was outweighed by the way that their maternal role led to stringent regulation of their behavior and options. Men faced many restrictions as well, but nothing so severe.

Women had even less in the way of choices about what to do in their lives than the majority of men did. Even women from the elite had a much more constrained set of possible roles than their male counterparts. This arrangement was rationalized and supported by an ideology of female subordination, a sexual double standard, and an array of ideas about women’s ultimately inferior and limited function.

New economic opportunities

The advent and development of capitalist modernity steadily undermined the constrained and limited world of women. A range of new economic opportunities arose for them, even before the advent of machinery and the factory but massively accelerated by them. Increasingly, women could earn an independent income and support themselves, something that was practically (as well as legally) difficult in traditional society. This meant that not being married, but rather being independent, was no longer an utter disaster nor tantamount to a death sentence.

Technology

Later on, modern capitalism produced a suite of devices and innovations that physically freed women from the demands and limitations of domestic labor. To take one example, the modern washing machine freed women from the need to spend one or often two entire days of each week doing laundry. Other domestic appliances had similar effects.

The automobile gave women personal mobility and freedom of movement in a way that they had not often had before. The advent of cheap books, newspapers, and magazines created opportunities for many more women to become writers and to communicate their ideas and experiences. It also brought about a level of contact with the wider world and with other women than had ever been feasible.

Eventually, the innovation at the heart of modern capitalism brought about cheap, reliable, and effective contraception and liberated women from the constraints of a central aspect of their biology. None of this would or could have happened without modern capitalism.

The steady decline in the importance of physical strength meant that the variety of life paths open to women expanded even more than it did for men. All of these material changes were matched by intellectual ones that again would not have amounted to more than a jeu d’esprit in the absence of the material conditions created by modern capitalism.

Starting with early figures such as Mary Wollstonecraft and Olympe de Gouges, a succession of women attacked traditional ideas of the nature and role of women and made the case for women’s autonomy and independence.

The ladies of laissez-faire

One thing that is little known but should be pointed out is that almost all of these pioneer feminists were ardent laissez-faire liberals and supporters of capitalist industry. They were well aware of the connection between the autonomy and freedom of choice that they advocated for women and the economic transformations that had made freedom possible as a lived reality.

All women today should reflect on how the scope of their agency and self-determination has increased far more than that of their fathers, husbands, and brothers in the last 200 years.

Modern capitalism and its innovations have disproportionately benefited women and changed the material conditions of humanity. To be a woman is no longer to be in a state of natural and inevitable disadvantage in the course of life.

ABOUT STEPHEN DAVIES

Stephen Davies is a program officer at the Institute for Humane Studies and the education director at the Institute for Economics Affairs in London.

Bitcoin Technology: A Festival of the Commons

Open-source currencies create new property paradigms by ANDREAS ANTONOPOULOS:

Open-source technologies such as bitcoin are a combination of open-source software, common technology standards, and a participatory decentralized network. These layers create a three-tiered commons where innovation contributed by users adds to the common platform, which makes it better for everyone.

But for the last few hundred years, we have generally thought of goods as best belonging to the private domain. Consider that, in economic terms, the “tragedy of the commons” is a market-failure scenario where a shared public good is overexploited. In this scenario, each user has an incentive to maximize his or her own use until the good is depleted.

The example used to illustrate this economic theory is a grassland (a “village commons” in British English) that is unregulated and overgrazed by cattle until it deteriorates to a muddy field. The tragedy of the commons occurs when individual self-interest combined with a large economic externality (the cost to the commons) create a market failure for all.

The opposite of the tragedy of the commons is called a “comedy of the commons,” but I prefer to use the term “festival of the commons,” which conjures a better visual example: a grassland used to hold a community festival that benefits everyone. The comedy of the commons was first stipulated as an economic theory governing public goods such as knowledge, where individual use of the common good does not deplete the good but instead adds to it.

The sharing economy, which consists of open-source software (for example, Linux), participatory publishing (Wikipedia), and participatory networks (BitTorrent), creates conditions where increased participation adds to the good’s underlying value and benefits all participants. In such cases, the underlying good is knowledge, software, or a network, and its availability is not depleted by individual use.

Software applications are themselves open-sourced and add to the commons, offering new capabilities for all subsequent innovators. Enhancements to the protocol bring new features across the entire network, allowing the ecosystem to build new services around them. Finally, as more users adopt the technology and add their resources to the P2P network, the scalability and security of the entire network increases.

Open-source currencies have another layer that multiplies these underlying effects: the currency itself. Not only is the investment in infrastructure and innovation shared by all, but the shared benefit may also manifest in increased value for the common currency. Currency is the quintessential shared good, because its value correlates strongly to the economic activity that it enables. In simple terms, a currency is valuable because many people use it, and the more who use it, the more valuable it becomes. Unlike national currencies, which are generally restricted to use within a country’s borders, digital currencies like bitcoin are global and can therefore be readily adopted and used by almost any user who is part of the networked global society.

The underlying festival-of-the-commons effect created by open-source software, shared protocols, and P2P networks feeds into the value of the overlaid shared currency. While this effect may be obscured in the early stages of adoption by speculation and high volatility, in the long run, it may create a virtuous cycle of adoption and value that become a true festival of the commons.

The festival is now open. Who will join it?

ABOUT ANDREAS ANTONOPOULOS

Andreas M. Antonopoulos is a technologist and serial entrepreneur who advises companies on the use of technology and decentralized digital currencies such as bitcoin.

CLICHES OF PROGRESSIVISM #19 – “Big Government Is a Check on Big Business”

A myth runs through most of America today, and it goes like this: Big business hates government and yearns for an unregulated market. But the reality is the opposite: Big government can be highly profitable for big business.

Many regulations restrict competition that would otherwise challenge existing firms. At the same time, government institutions—many created during the New Deal—funnel money to the largest corporations.

When government regulates X industry, it imposes high costs that hurt smaller firms and reduce competition. Imagine that the Department of Energy imposes a new rule that dishwashers must be more energy efficient. Coming up with designs, retrofitting factories to produce these energy-efficient models, and navigating the forms and licenses around this rule might cost a dishwasher-producing firm thousands of dollars. An industry giant, with more revenue and sizeable profit margins, can absorb this cost. A small dishwasher factory that’s only a year or two old, with little revenue and less profit, cannot. The latter would have to shut down. That means less competition for the industry giant, enabling it to grow even bigger and seize even more market share.

Barriers to entry, such as expensive licenses, also cripple start-ups and reduce competition. The Progressive New Republic speaks favorably of how Dwolla, an Iowa-based start-up that processes payments and competes with credit card agencies, had to pay $200,000 for a license to operate. Rather than hire employees or build a better product to compete with its entrenched competition, Dwolla was forced to spend its first $200,000 on a permission slip. Dwolla could afford it; but how many less-well-funded competitors were forced from the market? How many were deterred from even starting a payment-processing business by this six-figure barrier to entry?

For big businesses, which often sacrifice agility for size, smaller competitors are a major threat. By limiting smaller competition, government helps the industry giants at the expense of everyone else. Barriers to entry can kill the next innovative firm before it can become a threat to its giant competition. When this happens, we don’t even know it: The killed-before-it-can-live company is a classic example of the “unseen” costs of regulation.

While regulations minimize competition, government entities subsidize big business. The Export-Import Bank, established in 1934 as part of the New Deal, exists to subsidize exports by U.S.-based firms. The primary beneficiaries? Large corporations. From 2009 to 2014, for instance, the Ex-Im Bank financed over one-quarter of Boeing’s planes. Farm bills, a key element of the New Deal that still exists today, subsidize huge farms at the expense of smaller ones. The program uses a variety of methods, from crop insurance to direct payments, to subsidize farmers. The program is ostensibly designed to protect small farmers. But 75 percent of total subsidies—$126 billion from 2004 to 2013—go to the biggest 10 percent of farming companies. The program taxes consumers to funnel money to large farms.

Nor are these programs unique. National Journalism Center graduate Tim Carney argues, “The history of big business is one of cooperation with big government.” In the time of Teddy Roosevelt, big meat packers lobbied for federal meat inspection, knowing that the costs around compliance would crush their smaller competitors. New Deal legislation was only passed with help from the national Chamber of Commerce and the American Bankers Association. The Marshall Plan, which subsidized the sale of billions of dollars of goods to Europe, was implemented by a committee of businessmen. President Johnson created the Transportation Department in 1966, overcoming resistance from shipping interests by agreeing to exempt them from the new rules. Costly regulations for thee, but not for me.

If Progressives want to see what free enterprise looks like, they need only look at the Internet. For the past 20 years, it’s been largely unregulated. The result? Start-ups erupt and die every year. New competitors like Facebook bring down existing giants like MySpace and are in turn challenged by a wealth of social media competitors. Yahoo was the Internet search king until two college kids founded Google. Google has been recently accused of monopoly status, but competitors like DuckDuckGo spring up every day.

Let’s imagine if the Internet—a playground of creative destruction—had been as subject to big government as brick and mortar businesses have been. Yahoo would have been subsidized. Facebook would have had to pay six figures to get a licensing fee, crushing college-kid Zuckerberg before he got started and preserving MySpace’s market dominance. Businesses that learned to play the lobbying game would have been allowed to write regulations to crush their competitors.

For those who doubt, the proof of business’s collusion with big government is in the pudding. In 2014, a surprising number of libertarian-leaning men and women are in Congress. How has big business responded? K Street has spent millions of dollars working to replace laissez-faire advocates with those who are establishment-friendly. Sadly, cronyist businesses are fighting to keep free market advocates out of power.

A final note: I have criticized Progressives here, but the institution of big government, which enables businesses to hire lobbyists to write regulations or give themselves a subsidy, is the primary problem. The bigger government grows, the more powerful a tool it becomes for businesses prone to use it for private advantage. That’s not capitalism; it’s what one economist properly labeled “crapitalism.”

Julian Adorney
Economic Historian, Entrepreneur, Fiction Writer

Summary

  • Big Government and Big Business often play well together, at the expense of start-ups, little guys, and consumers.
  • Artificial, politically instigated barriers to entry make markets less competitive and dynamic, and make established firms more monopolistic.
  • A free market (true capitalism, not its adulterated “crapitalism” version) maximizes competition and, therefore, service to the consumer.

For further information, see:

“Of Meat and Myth” by Lawrence W. Reed
“Atlas Shrugged and the Corporate State” by Sheldon Richman
“Ending Corporate Welfare As We Know It” by Lawrence W. Reed
“The Rise of Big Business and the Growth of Government” by Robert Higgs
“Theodore Roosevelt: Big Government Man” by Jim Powell

ABOUT JULIAN ADORNEY

Julian Adorney is an economic historian, entrepreneur, and fiction writer. He writes for the Ludwig von Mises Institute and other websites. You can find his collected work at adorney.liberty.me.

EDITORS NOTE: The featured image is courtesy of FEE and Shutterstock.

Cliches of Progressivism: Rich People Have an Obligation to Give Back by Lawrence W. Reed

For a society that has fed, clothed, housed, cared for, informed, entertained, and otherwise enriched more people at higher levels than any in the history of the planet, there sure is a lot of groundless guilt in America.

Manifestations of that guilt abound. The example that peeves me the most is the one we often hear from well-meaning philanthropists who adorn their charitable giving with this little chestnut: “I want to give something back.” It always sounds as though they’re apologizing for having been successful.

Translated, that statement means something like this: “I’ve accumulated some wealth over the years. Never mind how I did it, I just feel guilty for having done it. There’s something wrong with my having more than somebody else, but don’t ask me to explain how or why because it’s just a fuzzy, uneasy feeling on my part. Because I have something, I feel obligated to have less of it. It makes me feel good to give it away because doing so expunges me of the sin of having it in the first place. Now I’m a good guy, am I not?”

It was apparent to me how deeply ingrained this mindset has become when I visited the gravesite of John D. Rockefeller at Lakeview Cemetery in Cleveland a couple years ago. The wording on a nearby plaque commemorating the life of this remarkable entrepreneur implied that giving much of his fortune away was as worthy an achievement as building the great international enterprise, Standard Oil, that produced it in the first place. The history books most kids learn from these days go a step further. They routinely criticize people like Rockefeller for the wealth they created and for the profit motive, or self-interest, that played a part in their creating it, while lauding them for relieving themselves of the money.

More than once, philanthropists have bestowed contributions on my organization and explained they were “giving something back.” They meant that by giving to us, they were paying some debt to society at large. It turns out that, with few exceptions, these philanthropists really had not done anything wrong.

They made money in their lives, to be sure, but they didn’t steal it. They took risks they didn’t have to. They invested their own funds, or what they first borrowed and later paid back with interest. They created jobs, paid market wages to willing workers, and thereby generated livelihoods for thousands of families. They invented things that didn’t exist before, some of which saved lives and made us healthier. They manufactured products and provided services, for which they asked and received market prices.

They had willing and eager customers who came back for more again and again. They had stockholders to whom they had to offer favorable returns. They also had competitors and had to stay on top of things or lose out to them. They didn’t use force to get where they got; they relied on free exchange and voluntary contract. They paid their bills and debts in full. And every year they donated some of their profits to lots of community charities that no law required them to support. Not a one of them that I know ever did any jail time for anything.

So how is it that anybody can add all that up and still feel guilty? I suspect that if they are genuinely guilty of anything, it’s allowing themselves to be intimidated by the losers and the envious of the world, the people who are in the redistribution business either because they don’t know how to create anything or because they simply choose the easy way out. They just take what they want or hire politicians to take it for them.

Or like a few in the clergy who think that wealth is not made but simply “collected,” the redistributionists lay a guilt trip on people until they disgorge their lucre—notwithstanding the Tenth Commandment against coveting. Certainly, people of faith have an obligation to support their church, mosque, or synagogue, but that’s another matter and not at issue here.

A person who breaches a contract owes something, but it’s to the specific party on the other side of the deal. Steal someone else’s property and you owe it to the person you stole it from, not society, to give it back. Those obligations are real and they stem from a voluntary agreement in the first instance or from an immoral act of theft in the second. This business of “giving something back” simply because you earned it amounts to manufacturing mystical obligations where none exist. It turns the whole concept of “debt” on its head. To give it “back” means it wasn’t yours in the first place, but the creation of wealth through private initiative and voluntary exchange does not involve the expropriation of anyone’s rightful property.

How can it possibly be otherwise? By what rational measure does a successful person in a free market, who has made good on all his debts and obligations in the traditional sense, owe something further to a nebulous entity called “society”? If Entrepreneur X earns $1 billion and Entrepreneur Y earns $2 billion, would it make sense to say that Y should “give back” twice as much as X? And if so, who should decide to whom he owes it? Clearly, the whole notion of “giving something back” just because you have it is built on intellectual quicksand.

Successful people who earn their wealth through free and peaceful exchange may choose to give some of it away, but they’d be no less moral and no less debt-free if they gave away nothing. It cheapens the powerful charitable impulse that all but a few people possess to suggest that charity is equivalent to debt service or that it should be motivated by any degree of guilt or self-flagellation.

A partial list of those who honestly do have an obligation to give something back would include bank robbers, shoplifters, scam artists, deadbeats, and politicians who “bring home the bacon.” They have good reason to feel guilt, because they’re guilty.

But if you are an exemplar of the free and entrepreneurial society, one who has truly earned and husbanded what you have and one who has done nothing to injure the lives, property, or rights of others, you are a different breed altogether. When you give, you should do so because of the personal satisfaction you derive from supporting worthy causes, not because you need to salve a guilty conscience.

Lawrence W. Reed
President
Foundation for Economic Education

Summary

  • The innocent-sounding phrase, “I want to give back,” far too often implies guilt for having been productive or successful.
  • If you earned your wealth through free and voluntary exchange, don’t let others get away with making you feel guilty just because you have it.
  • The people who really should “give it back” are those to whom it doesn’t belong or who took it from others in the first place.
  • For further information, see:

“On Giving Back” by George C. Leef: http://tinyurl.com/lqd3lo6

“Give Up on Giving Back?” by Sandy Ikeda: http://tinyurl.com/or7jhh3

“Giving Back” by Steven Horwitz: http://tinyurl.com/pwqjqzw

20130918_larryreedauthorABOUT LAWRENCE W. REED

Lawrence W. (“Larry”) Reed became president of FEE in 2008 after serving as chairman of its board of trustees in the 1990s and both writing and speaking for FEE since the late 1970s. Prior to becoming FEE’s president, he served for 20 years as president of the Mackinac Center for Public Policy in Midland, Michigan. He also taught economics full-time from 1977 to 1984 at Northwood University in Michigan and chaired its department of economics from 1982 to 1984.

EDITORS NOTE: Versions of this essay have previously appeared in FEE’s journal, The Freeman, under the title, “Who Owes What to Whom?”

The Foundation for Economic Education (FEE) is proud to partner with Young America’s Foundation (YAF) to produce “Clichés of Progressivism,” a series of insightful commentaries covering topics of free enterprise, income inequality, and limited government.

Our society is inundated with half-truths and misconceptions about the economy in general and free enterprise in particular. The “Clichés of Progressivism” series is meant to equip students with the arguments necessary to inform debate and correct the record where bias and errors abound.

The antecedents to this collection are two classic FEE publications that YAF helped distribute in the past: Clichés of Politics, published in 1994, and the more influential Clichés of Socialism, which made its first appearance in 1962. Indeed, this new collection will contain a number of essays from those two earlier works, updated for the present day where necessary. Other entries first appeared in some version in FEE’s journal, The Freeman. Still others are brand new, never having appeared in print anywhere. They will be published weekly on the websites of both YAF and FEE: www.yaf.org and www.FEE.org until the series runs its course. A book will then be released in 2015 featuring the best of the essays, and will be widely distributed in schools and on college campuses.

See the index of the published chapters here.

Actor Ashton Kutcher speaks out on Free Markets and “Heavy-Handed” Regulations

Ashton Kutcher (L) greets 2nd Security Forces Squadron Airmen. The Airmen provided security support on the set of “The Guardian” while it filmed on base.

Ashton Kutcher is an entrepreneur and popular actor. He denounced heavy-handed regulation in a recent interview on Jimmy Kimmel Live.

[youtube]http://youtu.be/EoQo0HM9D3k[/youtube]

Scott Blakeman from The Foundry reports:

Kutcher is a managing partner of the investment fund A-Grade Investments. One company his fund has invested in is Uber, the app-based service that connects drivers with passengers. Uber is rapidly expanding to cities across the U.S. and is in over 24 countries worldwide. But Kutcher is experiencing firsthand some of the roadblocks many businesses have endured.

Kutcher noted that “old-school monopolies and incumbents and old-school governments” are interfering with the transportation market, picking the winners and losers, and barring innovation.

For instance, Kutcher mentioned that Uber isn’t allowed to operate in Miami “because of some dumb regulation that says it can’t exist there.”

Miami’s cab industry is heavily regulated, such that “local laws have protected taxi-medallion holders for so long that any attempt to tinker with the rules is met with stiff political resistance.”

Audrey Edmonson, a member on the Board of County Commissioners for Miami-Dade County, proposed legislation deregulating the county’s transportation market so Uber and other companies could compete with traditional transportation services. But Dennis Moss, a fellow board member who is also the chairman of Miami’s Transportation and Aviation Committee, helped craft the existing restrictive regulations and is opposed to letting Uber enter the Miami transportation market:

If you want to pay for a luxury ride, then you should basically have to pay for a luxury ride.… That way we make sure that cab companies can also continue to make a living.

Read more.