Terry Kinder: Getting HIP to Government and the PCE

One of the definitions of hip from the Merriam-Webster dictionary is:

 aware or appreciative of something —used with to <got hip to their plan>

 Using the above definition, it’s hard not to be hip to government. It seems omnipresent. So, while some might be appreciative of government (perhaps for higher taxes, endless war, Obamacare, the NSA, the IRS, War on Drugs, War on Terrorism, etc.), many are aware and wary of it like a gazelle

on the lookout for hyenas (jackals, IRS agents, TSA agents, Congressmen and other synonyms). But what else does being hip to government entail?

 How about being hip to the Hidden Intervention Price (HIP) of everything government does? For all of that stuff – from the Post Office, to subsidies to favored businesses, and from foreign aid to military spending and social programs – there is a hidden, or unseen, price. Sure, if you build a shiny new aircraft carrier and load it with missiles you have those high tech weapons of war, at least until they are used during the next war in Iraq, Iran, Syria, Libya, Iran, North Korea or fill in the blank. Yes, if you teach a man or woman to swipe an Electronic Benefit Transfer (EBT) card for their next meal, they don’t need to learn to fish, and you’ll keep government bureaucrats “gainfully” employed and their cronies who accept the EBT cards fat and happy. But, at what price?

 Let’s start with something simple. When government takes a dollar from you and gives it to someone else, that is one less dollar you have. Whether or not you want shiny warships, or a War on Drugs, you’re going to get them. There is no choice. It’s an all or nothing proposition. There is no a la carte menu to choose from. As a side note, I played a small role in creating anti-drug propaganda in Central America. Back then, the Columbian drug cartel could buy commercial jets, strip them down, fill them up with drugs, fly them into Mexico, unload them and abandon them. The jet plane was just a cost of doing business. I “fought” the drug cartel and the cartel won. But, I digress. The dollar taken from you and handed to someone else is taken by force. If you don’t believe it’s taken by force, stop paying your taxes. A friendly IRS agent will be dispatched to remind you that your taxes are overdue and that they will be paid one way or the other.

 The process of wealth transfer isn’t friction-less either. The path of that dollar from you to someone else is determined by a messy political process. There is lobbying of Congress. There are bureaucrats to be paid. A few years ago there were even ads on the radio practically urging people to file for food stamps – or SNAP (Supplemental Nutrition Assistance Program) as it is now called. SNAP sounds so chipper and easy. It pays to advertise, because there are now well over 40 million Americans on SNAP. That’s somewhere around 15% of the population. Administering that dollar and siphoning off money to political supporters costs money. So, what started out as a dollar when it left your pocket, is not a dollar when it arrives in the receiver’s pocket.

 Worse yet, what’s taken from you is choices. Every dollar taken from you by government limits your choices. Had the government not taken that dollar by force, you may have chosen to use it to help a family member, donate to a local charity, put new tires on your car, make repairs to your home, etc. Government grows not like Jack’s magic beans, but more like a parasite living off its host. The parasite (government) / host (populace) relationship merely benefits government and other parasites. As a parasite, government sucks up our time and resources leaving us less well-off than before.

 All of this government HIPness starts as a ripple, that becomes a wave, and ultimately transforms into a tsunami that destroys everything in its path. I call the process whereby government intervention slowly builds into a deadly destructive wave the Principle of Compound Errors (PCE). Unlike the Principle of Compound Interest, the Principle of Compound Errors is one of the greatest destroyers of wealth known to mankind. So what is PCE? PCE is HIPster government on steroids. Clarence Carson in “The Hidden Fallacies Behind Intervention” wrote:

 

Government intervention is a kind of self-fulfilling prophecy. It is premised on the notion that the market and economy are out of kilter and require the ministrations of a benevolent government. As soon as government begins to intervene, they do get out of kilter; it does introduce defects into whatever market or economy it intrudes. Each intervention sets the stage for an endless round of further interventions in the futile effort to bring the whole back into balance. Mises gives us an example of how this would work if government attempted to lower the price of milk for children. If the price is fixed below the market level, he says, there will be less milk available because many producers would lose money at that price. The government would then be faced with this alternative: either to refrain from any endeavours to control prices, or to add to its first measure a second one, i.e., to fix the prices of the factors of production necessary for the production of milk. Then the same story repeats itself on a remoter plane: the government has again to fix the prices of the factors of production necessary for the production of those factors of production which are needed for the production of milk. Thus the government has to go further and further, fixing the prices of all the factors of production—both human (labour) and material—and forcing every entrepreneur and every worker to continue work at these prices and wages.

 

Government intervention led us down the primrose path to Obamacare. During World War II the United States imposed wage and price controls. This laid the groundwork for Employer Sponsored Health Insurance:

 

…the link between employment and private health insurance was strengthened by three key government decisions in the 1940s and 1950s. First, during World War II the War Labor Board ruled that wage and price controls did not apply to fringe benefits such as health insurance, leading many employers to institute ESI. Second, in the late 1940s the National Labor Relations Board ruled that health insurance and other employee benefit plans were subject to collective bargaining. Third, in 1954 the Internal Revenue Service decreed that health insurance premiums paid by employers were exempt from income taxation.

 

Wage and price controls ended up radically changing our entire healthcare system in the United States. One error — wage and price controls — gave birth to a system of employer sponsored health insurance that has almost completely severed any connection between patients and the cost of their healthcare. Once people no longer directly paid the costs of their medical treatment or medicine, prices skyrocketed. From 1977 to 2007 healthcare costs in the United States have risen nearly 8% per year according to the OECD.

 So, what is the government’s “solution” for the healthcare inflation disaster it created? Obamacare. Why not? If at first you fail — fail, fail again. In the process of compounding its past errors, the government has accelerated and expanded them. The Healthcare.gov web site has been an unmitigated disaster. Many hoping to register and log in to the site have found it impossible. But, that’s just the visible manifestation of Obamacare’s failure. The ill effects began far ahead of the Healthcare.gov fiasco. For example. I know of an advertising agency that had just over 50 employees that ended up letting go of a few of them and putting off plans to move to a new location due to Obamacare. This story is being repeated all over the U.S. Many businesses are reducing full-time staff and replacing them with part-time staff in order to avoid having to provide insurance for them.

All of this almost certainly leads to a single payer healthcare system because government cannot admit failure. They can only break things and then offer to fix what they broke in the first place. HIP government will continue to intervene until the Principle of Compound Errors wipes out any trace of free markets and personal freedom. That’s what government HIPsters do.

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  • Rocco

    Terry, this is wonderful, dude. Properly wonderful. Welcome to Bogpaper.

    • The Austrian Way

      I agree entirely. Nice work Terry and welcome to the ‘stink tank’ as James Eadon calls it…

    • http://twitter.com/tkinder Terry Kinder (@tkinder)

      Thanks so much. I’m honored to be here.

  • silverminer

    The example of health care is a good one. If you pay directly for your care you have an extra incentive to look after your health and get it at the cheapest price. Remove that link and, at the margin, people will start to abuse their health more and more safe in the knowledge that someone will be there to put them right and it won’t directly cost them anything.

    This is exactly what has happened with the NHS. Throw any amount of money at it and the nation still gets sicker. We’ve created a perverse incentive to be unhealthy.

    Singapore spends half what we do as everyone has an individual health savings account, i.e. if they don’t get sick they don’t have to pay as much in and anything left when you die you can leave to your kids. Plus they care what their health care costs, just like we care what we pay for our groceries, because they are paying out of their own pocket.

  • Talwin

    Wise words, but ultimately depressing.