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Free Market Solutions for Basic Needs

Fiscal conservatives and capitalist libertarians will often suggest that a free market is the correct approach to most problems, rather than having an inefficient government managed approach. That claim of a free market solution is always based on a uniform middle class economy, one that rarely exists at a state level ('state' as in Wisconsin), certainly never at a national level. These claims have been made for many of the basic human needs, like housing, education, health care, and minimum wage (pay for labor).

Here are several of the positions of the Libertarian Party, to serve as examples (all excerpts were copied in November 2014, in case the text changes later):

Welfare:

We should eliminate the entire social welfare system. This includes eliminating food stamps, subsidized housing, and all the rest. Individuals who are unable to fully support themselves and their families through the job market must, once again, learn to rely on supportive family, church, community, or private charity to bridge the gap.

Charity:

To help facilitate this transfer of responsibility from government welfare to private charity, the federal government should offer a dollar-for-dollar tax credit for contributions to private charities that provide social-welfare services. That is to say, if an individual gives a dollar to charity, he should be able to reduce his tax liability by a dollar.

Education:

America's schools are becoming increasingly segregated, not on the basis of race, but on income. Wealthy and middle class parents are able to send their children to private schools, or at least move to a district with better public schools. Poor families are trapped -- forced to send their children to a public school system that fails to educate. It is time to break up the public education monopoly and give all parents the right to decide what school their children will attend. It is essential to restore choice and the discipline of the marketplace to education. Only a free market in education will provide the improvement in education necessary to enable millions of Americans to escape poverty.

Health Care:

The Libertarian Party knows the only healthcare reforms that will make a real difference are those that draw on the strength of the free market. Under this [Libertarian Party] program, you could deposit tax-free money into a Medical Savings Account (MSA). Whenever you need the money to pay medical bills, you will be able to withdraw it. For individuals without an MSA, the Libertarian Party will work to make all healthcare expenditures 100 percent tax deductible. We should repeal all government policies that increase health costs and decrease the availability of medical services. By making insurance more expensive, mandated benefits increase the number of uninsured American workers.

Taxes:

But the fact is, every service supplied by the government can be provided better and cheaper by private business. Private charities and groups do a better and more efficient job of helping the truly needy get back on their feet.

The America Tea Party has similar policy positions. The Republican party is also similar is some respects, with that discussed in another essay, though the Republican Party platform also highlights American Exceptionalism, which is nothing less than fostering our leaders' ambition for a global empire.

I certainly agree with some of the Libertarian Party issues, like making severe cutbacks in our military spending that supports the push for our global empire, stopping the many government handouts to large companies (corporate welfare), and adopting the Swiss model of defense. I take exception to their approach for social problems.

The position recommending private solutions are available to solve the various problems of the poor is apparently based on the economy of 1954 not 2014. In the 1950's there was a vibrant middle class, with many unions leading to many well paid jobs, and with high tax rates keeping the wealth distribution more effective as the spending at the bottom and middle classed is the main driver of our consumer driven economy. Today's economy is marked by many low paid jobs.

Here is a recent list of the largest employers in the US (2013):

1. Walmart - most employees are low paid (at the top of a list of low paying employers)
2. Yum Brands (KFC, Taco Bell, Pizza Hut) most are low paid (near the top of that list of low payers)
3. McDonald's - most are low paid (also near the top of that list of low payers)
4. IBM - high tech, but this company could be in for a fall after its executives played with the company stock and loaded up the balance sheet on debt
5. United Parcel Service - almost half are part time but many are above the minimum wage
6. Target - most are low paid (near the top of that list of low payers)
7. Kroger - such service jobs are not well paid (even in a union)
8. Home Depot - nearly all are hourly and probably not well paid
9. Hewlett-Packard - high tech, but this company was in the middle of big job cuts at the time of the story
10. General Electric - a big company but less that half its employee count actually work in the US; this push of so many jobs out of the US was big news about 5 years ago when the head of GE was on Obama's 'job council'

Only 3 out of the top 10 are not in the service sector of the economy, which is typically very low wage (to minimize the consumer prices while maximizing the profit). Many of those value added manufacturing jobs (where higher wages are paid for by the cost of the product, especially those not purchased so often like appliances and vehicles) that were so prominent in the middle class economy of the 1950's are gone, having been moved to other countries having so many poor very willing to work for so much less.

When the bottom of the economic class structure is relatively small, then I suppose one could recommend private charity might be capable of handling that smaller demand for support. I suspect someone looking back at the vibrant economy of the 1950's could expect it was possible back then. However in our current economy, the bottom of the economy has become much larger. That recommendation is no longer valid. Taxes are required for the community (or the state or the country) to manage the resources for the social structures providing better opportunities for everyone, like universal health care or public education, because the free market driven by profits to benefit only the few cannot address the basic needs of the many; the free market assumption of trickle down benefits, where the rich will bestow a portion of their wealth on the lower classes, has been demonstrated most certainly as invalid.

The current health care situation is a 'free market' approach; it is somewhat based on the 'free market' automobile insurance model. Each person pays for the amount of insurance on his vehicle based on his/her budget and on the value of the vehicle. This is a 'free market' solution because each person makes the decision on how much risk (like a car accident) will be covered by insurance and so the person shops for an insurance company with the best rate for that particular risk coverage. When a car is cheap, it makes no sense to pay a lot for its insurance; if the car eventually crashes, it makes more sense financially to just replace the vehicle rather than paying so much per month (to cover the risk) on the small chance of that crash. If you pay more for your insurance, then you are covering that remote chance of a crash; someone buying an expensive car typically pays more for the corresponding insurance because the vehicle replacement is so more than covering that risk. If your car crashes and you covered it with insurance then you have covered your risk. If you car crashes and you did not cover it with insurance then it is your fault you did not cover your risk, and so you are not entitled to be reimbursed for the unusable car.

Similarly, with health insurance you decide how much risk to your health you will cover with health insurance. If you wish to cover more risk you purchase more insurance, perhaps with a lower deductible to also cover more costs of health care. If you wish to cover less risk, perhaps on the assumption certain diseases are more likely for much older people so that risk coverage can be deferred until the person is older, then less is spent on the health insurance, to cover less risk.

The big problem with this car insurance model for health insurance is each person is not an inanimate object, where the owner can just buy another one. Those who are wealthy are able to cover the cost to cover all their health risks, while those who are poor are unable to cover the same amount of risk. In practice, this means those who are poor are unable to pay for many health care costs, so therefore they must avoid incurring those expenses - to the detriment of their health. A poor person cannot manage their health insurance costs just like car insurance costs because, unlike a car, they cannot purchase another replacement vehicle if the one having little insurance suddenly requires expensive maintenance; no one can purchase a replacement body. Remember the current economy of America is dominated by the wealth inequality, with more at the bottom and very few at the top, where the bottom are unable to afford more than the base necessities of life - and paying for expensive health insurance just to cover risk must be a lower priority than day to day survival.

Health care coverage must be universal. The alternative is the system we have now, where the wealthy have their health care costs covered by their expensive health insurance while the health of the bottom economic classes will inevitably suffer because of reduced access to health care. Most of the world's developed countries offer a universal health care system. America is one of the few that does not.

The recommendation for welfare and government subsidies to be replaced by private charity, and for public schools to be replaced by private groups, is somewhat an analogy of the professional baseball model. This is a 'free market' where the best players make it to the big leagues while the less capable players remain in the minor leagues. If any players do not try hard enough to improve their skills then it is their fault they do not make it to the top. There are certainly enough examples of very good players who advance up the layers and become rich at the top, on a team in the National or American league.

In this free market model of our economy, just as in this baseball model, the reason more people do not advance up to a higher income class is because they just do not try hard enough. Those willing to spend the time and resources will succeed, such as for more time in college or more time in training for a profession. Its proponents can always find some exceptional individual who overcome adversity and became rich, either as an athlete, a celebrity, or an entrepreneur. The observation that 'someone' can succeed in this system is given as proof the system works and so the system can be justified as being fair - an individual succeeds only as far as he/she is willing to try.

In the baseball system, I suspect there are probably many other very good players who did not advance, perhaps due to a coach or scout not realizing their skills, or perhaps a team in a higher league not needing that position player at an opportune moment, so the player just must wait in a lower league until such an opportunity arises. These decisions are being made by people and therefore human judgments are always involved, so prejudices and feelings (like intuition) can interfere with the results. If a coach does not like a specific player, that player's future in the game is probably hindered.

The baseball system is a small subsystem in the larger, national economy. If any players feel their dream of reaching the top will not be realized, for whatever reason(s), they always have the choice of leaving and getting a job for an employer other than a baseball team. No one can willing leave the real economy (I suppose one impractical option is by suicide).

Human empathy is at the heart of our society; each person relates to other individuals based on their understanding of, or lack thereof, relative skills, backgrounds, class, race, religion, and so on. Unfortunately, when someone is in a position of privilege, whether earned or by birth, their perspective often becomes skewed to the point where those in the lower social classes are perceived as being less worthy of respect. Several studies have shown that the privileged are more likely to lie, cheat, and steal more than any other class, because apparently they feel they are more above the social laws that everyone else follows. Just being in the highest class is felt as reward for being better than everyone else. This lack of empathy can be internally justified in several ways. Those in the lower classes can be considered as inherently inferior, especially when high privilege is given by birth (just like the caste system in India). Alternately, those in the lower classes are claimed to just not try hard enough so that is why they are in that class. This is an often used tactic of blaming the victim, where rather than blaming the economic or social system has debilitating the chances for those at the bottom, it is easier just to put the fault on people.

The popularity of the 'free market' solution to economic problems by limiting government driven social support is a result of the successful marketing of the upper class values (or lack of) to the  middle class (the heart of a consumer driven economy and so also influential in political decisions). The middle class members are striving to achieve higher income, with the goal of better financial security. As their opportunities are limited by the rules of this economic class system (the rich help the rich; they have no incentive to dilute their earnings), they are susceptible to the claims their lack of advancement is due to the drag induced by support of the bottom economic class. They are reluctant to believe their relative success has been gained in an economic structure that inherently maintains that lowest class. A surplus of labor and the availability of people willing to take a job at a lower wage (just to get a job to alleviate financial driven misery) will result in a downward pressure on everyone's wages - as is observed in our current economy.

The claim that charity can solve the problems among the poor is ludicrous. As the rich have gotten wealthier, those excess funds have been moving to offshore accounts, out of the economy, not to help those less fortunate. The rich have been given the opportunity to help the poor and less privileged with their excess in the past decades and they have consistently demonstrated their inability to behave in a more humane manner. Literally trillions of dollars are now out of the American economy; that enormous level of resources could have alleviated many problems in our public school system, in the health care system, even in building the economic infrastructure for much higher levels of employment - and so there would be fewer without jobs, fewer requiring charity from the government or hospitals, etc. If someone claims more charity will result if the rich get richer, that is just simply crazy. Repeating the same action but expecting a different result is one often repeated definition of insanity.

The most equitable economic system will arise when everyone is working together, rather than most working for the benefit for only a few. People can work to get the most for their own families - that incentive drives the entrepenurial spirit at the heart of a consumer driven economy. However people can see both themselves and their neighbors benefit when they are working together to meet their common goals, whether at work, in raising children, in public schools, or in public health care. The most effective political strategy involves 'divide and conquer' because it limits the effectiveness of any opposition to inhumane policies so it is readily apparent the middle class is told their problems are caused by the poor, the white majority is told their problems are caused by the racial minorities, the minorities are told their problems are caused by the prejudice in whites, the Christian majority is told their problems are caused by those who are not Christian or are not behaving as an exemplary Christian.

The use of tax funds to help alleviate poverty, or to provide public education, or to provide universal health care is not communism. This practice is not necessarily big government because the privately owned companies should still provide the goods and services required by society. A central government, lacking that critical entrepreneurial spirit, is unlikely to satisfy the needs of a changing consumer market, as was demonstrated by a number of countries following the model of Russian communism. A mix of social programs with private industry should be possible. The current social structure of America, with its rich ruling class, is determined to avoid such social programs as it deters their own accumulation of wealth. Unfortunately, this social class conflict has been demonstrated here in America as well as in many third world countries (like the Banana Republics of Central America), many times in recent decades.

I find it quite disheartening to observe how popular the 'free market' approach is as the preferred solution to our society's problems, which are inherently rooted in our severely unequal social class structure. Our Judeo-Christian cultural foundation emphasizes the individual over the group, making it easier for so many to believe in individual destiny or in a misplaced assignment of individual fault. It is harder for the many to realize our tribal heritage of working together consistently demonstrated we can achieve as a team or group that which cannot be achieved individually. As a result, the literary 1984 world is being realized, with an Inner Party (the ruling class) ruling the world, helped along by a subservient Outer Party (those who believe in this free market illusion), and with the huge bottom class of the Proles (the lower economic and social classes).


created - Nov. 2014
last change - 10/23/2014
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