What Do These Six Areas of Federal Govt. Have in Common?

March 27, 2012

Tom Stark, Parkersburg, WV –  

Within these six segments of our economy (a large percentage of total GDP and all controlled by the federal government), two corollaries are at the root of many, if not all, of our economic failures and downturns.  They are:

RAPIDLY RISING COSTS/PRICES  and GOVERNMENT SUBSIDIES

Every one of the six areas is subsidized in one way or the other and every one of the six areas have prices and costs rising faster than the overall rate of inflation.

Let’s take them one at a time:

Health Care - This industry is almost continually attacked by the big government types for the rapid rise in prices being exhibited when, in fact, the low rate of reimbursement provided by the government forces health care providers to recover the balance of their costs through increased prices charged to those not being paid for by the government. 

Artificially manipulating the pricing rather than allowing the market to do so always distorts the picture and the costs related to those manipulations.  If the government were not providing such a large amount of the payments for health care services, the free market would impact the industry far more than is currently the case because health care providers know that the government will pay regardless of how many use the system and how much it costs. 

What has the government done to control the costs through its influence on the market? Nothing.  They simply tax more or print more money.  There is no incentive with the current system to be competitive. 

States have also been complicit in killing competition within the insurance industry through requirements placed on the companies as conditions to do business in a particular state such as mandatory coverages that some people don’t want but must pay for because some state bureaucrat thinks it should be required.

Government should be serving only one purpose in “regulating interstate commerce” – leveling the playing field so that all the rules are fair for all the players.  That’s all.  The same holds true for health care.  All should be required to maintain an acceptable level of competence, quality of facilities, adequate funds to make good on services needed (enough to pay the help, keep the power on, maintain equipment properly – financial solvency).

  Beyond these common denominators, government has no place.  Remove them from the equation and competition alone will cause hospitals and doctors to become more frugal, more cost-conscious, and more fearful of honest competition.  As long as it is easier to collect for services from Uncle Sam  and remain protected in “territories” within the community that prevent another hospital from competing where is the incentive to control costs.  In the case of pharmaceuticals, instead of reducing protections for brand name drugs, we just increased those protections for five years longer in some cases making it certain that the cost of the drugs covered by this newer protection will cost more for a longer period. Oh, and since government forces everyone into a one-size-fits-all formula, where is the role of personal responsibility placed in importance?  Dead last, by my calculation. 

College - Tuition & fees are constantly bemoaned for their rapidly rising spiral far in excess of the overall average cost of living (COL) index.  Very few students enrolled in college today do so without some subsidy from student loans, grants, or other government assistance.  What if there were no pell grants, student loans, or other government subsidies for college? 

At first glance – some would be precluded from attending because of costs.  Perhaps.  Maybe not.  Colleges are fully aware and tickled pink to encourage students to rack up a whole lot of debt in order to fill classrooms and make themselves appear successful so that private endowments accumulate to swell their coffers.  If they had to compete – head-to-head – with other colleges to attract that private money and students strictly on the basis of quality of education and end product, how quickly would  a) bloated professorial salaries, b) money spent on esoteric research that fills journal articles but serves little benefit to educating students, and c) fancy facilities give way to lower costs overall in order to remain in business?  Again, subsidies wind up putting college either out-of-reach for more people or within reach with a higher back-end cost through interest payments than would otherwise be the case.  So where is the benefit.  Given the tripe being taught at some schools, removing subsidies might resolve another problem at the same time.

Housing - Fannie and Freddie have not only been shown to be corrupted agencies, but their existence is nothing but a not-so-well disguised subsidy to housing sales. 

FHA is another source of subsidy for housing sales.  Housing cost, until the bubble burst, was lamented constantly because of the rapid run-up in prices.  In the same manner that college grants and loans distorts the market value of education, these housing loans are doing the same thing to housing.  Until the bursting of the bubble, it was simply too easy to purchase a home with little or no money of your own. 

In many cases, this has led to the collapse being more violent because so many of those pushed into home ownership were never capable of repaying their loans that the problem was exascerbated beyond what would otherwise be expected.  Again, interference in market activity resulted in distortions and catastrophes beyond the pale. 

FHA allocated nearly $200 Billion to loans for housing this year.  If the market were allowed to have free reign on the housing world (along with the other segments mentioned earlier), several things are likely.  The number of people who could not afford the actual cost of a market-priced home would probably decrease as the cost of wages, transportation, and health care, decreased along with it taking the cost of housing down, too. 

These sectors are all entwined; they are all balanced by the natural forces of the marketplace.  When any outside influence disturbs these natural forces of supply and demand, the market becomes unstable and will eventually correct itself – as it did a couple years ago when the housing market tanked because people could no longer sustain the prices at that level and continue to live their lives. 

The banks could not sustain the losses on the resulting defaults and we know all the rest.  The market could have corrected to a more realistic level had it not been for so many years of manipulation causing such a drastic bubble that to allow free reign as a cure all of a sudden would have been worse than the disease.

Wages - While not directly or openly subsidized by the government, minimum wage laws have the same impact because they force an artificial level of wages on the market even when the market conditions are such that there is an excess of labor available and it would be more widely available if wage rates were based on market forces rather than government edict. 

Yes, some will scream that without minimum wage laws employers would “exploit workers” and slave labor would return.  The reality is that labor markets are no different than any other commodity.  One of the chief competitive disadvantages we have against imports is the artificially high wages paid to American workers that, perhaps, might not be needed if all of the other influences on markets by our own government were not forcing wages in that direction. 

Wages, being the second leg of the economic stool that impacts all other segments, must be seen for what it is.  It must also be linked to market demand in order to keep other costs from rising faster than would be the case in a truly free market.  Conventional wisdom is that wages should never go down.  Why not? Because it is not politically pleasing and makes people unhappy? If all aspects of a free market economy are allowed to function without interference, wages would necessarily fluctuate – within a range – as work forces increase/decrease, sales vary, demands change, etc. 

All of these things, left alone, will allow a degree of stability that is not possible through artificial supports/subsidies such as minimum wage laws, prevailing wage laws, and other manipulations

Food Prices - Here, a combination of subsidies to farmers (most of which are large producers providing a large segment of the total food production inventory) and the combined effect of other segments of the economy on the final cost of food are responsible for this category’s continuing upward spiral.  Wages, fuel prices, oil/gas subsidies in the form of tax breaks, and resulting transportation costs have all contributed to food price increases.

Also, big- farm subsidies have taken their toll on small farmers and food prices.  What better way to control the food supply.  Having lots of little farmers makes it like herding cats.  A few big ones can be made to toe the line drawn by the government. 

Fuel/E Prices - Oil/gas subsidies as well as artificial restraints on production and refinery operations have all contributed to making us not only more dependent on imports, but subject to rapid and volitile fluctuation in costs for fuel, energy, transportation, etc. 

Remove the subsidies and tax breaks along with the artificial barriers to the development of available sources of energy and fuel and with increased supply will come falling prices not only within that sector but virtually all other sectors of the economy because this industry affects all the others.   Why is this not being done?  Follow the money.  Investigate the reasons it is beneficial to maintain high energy prices and keep us dependent on foreign imports.  No, not national security-related.  Subsidies keep campaign money flowing to incumbents.  All if these subsidies have a way of picking winners and lowers in the marketplace.

That last point is the common denominator in all of this, and the point of this article?  

Government – too much of it misdirected with the wrong motives.

One fact is indisputable. Subsidies are only necessary to do two things:  Artificially support a product or service that is not economically viable on its own in a free market, or artificially support a product or service that serves to influence behavior, either economic or social.  Neither of these functions are a legitimate function of government at any level.  Most would be unnecessary without the political motive of control.

So why is this so difficult to see?  Perhaps the reasons we have these price controls and subsidies unfairly and artificially distorting our allegedly free-market economy is because all of these segments of the economy impact economic and social behavior.  Controlling these six segments allows government to far more easily control or modify social and economic behavior.  It is all about power, control, and keeping tha control. Think about it!

 


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Tags: Commerce, control, Education, Energy, Food, Government, Health Care, Housing, Medical, power, socialism, Subsidies, Wages

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