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Brooks Wilson's Economics Blog: Shughart on Healthcare Reform

Friday, April 9, 2010

Shughart on Healthcare Reform

William Shughart of the Beacon has written a very good article titled "ObamaCare will Make Employees and Employers Worse Off" about the impact of recently enacted healthcare reform on low skilled workers and their employers.  The Beacon is the blog of the Independent Institute and students of economics, law should spend time at the site.  Shughart describes the reforms as a constraint on the wage and benefit negotiations between employer and employees.  This discussion should have a familiar ring to principles students who have studied price floors and ceilings; they too are constraints. 
The costs of the mandate will fall most heavily on employees now earning incomes at or near the minimum wage. Since their pay cannot be cut, some will be priced out of jobs altogether if their employer also is required to provide health insurance for them.

Employees – especially younger workers in good health – likewise will be prevented from choosing jobs that pay high wages but do not offer a health insurance benefit they often rationally do not value highly. And they will be forced to pay for coverages they do not need and for which they otherwise would not be willing to pay.

The compensation package heretofore determined in a competitive labor market has resulted from mutually agreeable bargains between employers and employees. Depending on worker preferences over wage and non-wage benefits, employers had incentive to offer mixes of the two that allowed them, at least cost, to attract and retain people in the numbers and skills of which maximized their profits.

At least one element of that package – health insurance – no longer will be subject to negotiation. Labor markets accordingly will be less able to match workers with jobs efficiently. Both therefore will be made worse off. We can thus expect permanently higher unemployment rates and an economy that is less able to adapt to the socialist policy initiatives that still loom on the Obama administration’s agenda.
I agree with his economic analysis but if I were to use a word to describe The Obama administration's healthcare policy it would be fascist rather than socialist.  Robert Higgs provides a useful definition of fascism in "Crisis and Leviathan."  I retain his italicization; the quotations in the paragraph are from Charlotte Twight, "America's Emerging Fascist Economy."
Alone among collectivist systems. fascism preserves private property, but "capitalism is turned inside out in this unlikely union."  Fascism recognizes people's desire to possess privated property and admires the strength of the profit motive, but it "uses these features of capitalism [only] insofar as they do not conflict with the national interest as formulated by fascism's political authorities."  Every part of economic life is ideologically, constitutionally, and legally vulnerable to governmental control.  Hence "fascism tolerates the form of private ownership at the government's pleasure, but it eliminates any meaningful right of private property."  It is "a bogus capitalism indeed, a sham deferral to individual economic rights readily nullified whenever political leaders deem it expedient."
Wether socialism or fascism best describe the policy, the policy is the abrogation of individual economic freedom in favor of state directed collectivist actions, and, in the words of Hayek, it is "The Road to Serfdom."


  1. I have no health care. I was paying 350.00 a month for my health care and when Obama took office the insurance companies started dropping their smaller businesses. There were only two of us on a group policy and both of us over 50. Scott and White grabbed up the opportunity to offer us our insurance for 750 a month, double what we were paying. There was no way I could take advantage of the opportunity cost they were offering me. It was impossible to give up 750.00 a month for insurance. I feel like small businesses are being raped already by the high taxes and then add this sort of insurance cost the number of small businesses is going to decline. Of course this is only my opinion.

  2. The ones that do have health care it amazes me they don't use it as they should. That health care that your job provides for you is part of your benefit package.If your employer is providing it at no cost to you then you should be using it. The insurance companies that are raising the rates to run off a number of the older generation should be ashamed of themselves. I paid for my health care for years then when I hit 50 they raised the rates so high I couldn't afford to keep it.If the shop owner had to have paid for everyone's insurance it would have amounted to around 3k a month and that is a small business with only 4 employees. He would have shut his doors. A lot of small businesses if forced to pay for health care will end up closing down they won't have a choice. Between the taxes and insurance the profit margin in most small businesses wouldn't cover the cost. Small businesses are what make up the United States. It isn't the big companies. When they shut down of course the unemployment will go up, as well as other welfare agencies in positions to help the unemployed. Instead of taxing these businesses to death they need to give them more incentives to open their doors and keep them open.

    Some big companies are offered a lot of incentives to move into an area including tax cuts, energy cuts and other offerings by the cities and in some cases the state. They need to offer more for the smaller businesses also.It makes up the heart of the United States and slowly they are being destroyed.