Backwards

Another week, another link to Thomas Sowell. This time he wrote about the Fallacy of Redistribution and backs up what I wrote in my post, the iPad Tax. I greatly appreciate his ability to simplify things.

In theory, confiscating the wealth of the more successful people ought to make the rest of the society more prosperous. But when the Soviet Union confiscated the wealth of successful farmers, food became scarce. As many people died of starvation under Stalin in the 1930s as died in Hitler’s Holocaust in the 1940s.

How can that be? It is not complicated. You can only confiscate the wealth that exists at a given moment. You cannot confiscate future wealth — and that future wealth is less likely to be produced when people see that it is going to be confiscated. Farmers in the Soviet Union cut back on how much time and effort they invested in growing their crops, when they realized that the government was going to take a big part of the harvest. They slaughtered and ate young farm animals that they would normally keep tending and feeding while raising them to maturity.

Barack Obama can endlessly proclaim his slogan of “Forward,” but what he is proposing is going backwards to policies that have failed repeatedly in countries around the world.

Parallel

Government action -> Unintended consequence -> More government action

In this 2010 EconTalk podcast, I learned that Stalin set a ceiling on the price of agricultural products. He thought this would generate a surplus of agricultural products. But, his price was so low that farmers could not cover their cost of production, so they stopped selling their produce.

Then, Stalin sent the militia to take the grain by force.

I find this to be a striking parallel to the individual health insurance mandate.

First, government (federal and states) contribute to making the price of health insurance high over several decades through employer tax preferences, state mandates, guaranteed emergency room care, pre-existing condition requirements and so forth.

That is similar to Stalin’s price control, but it’s a supply control. That is, rather than setting a maximum price, government is setting supply requirements.

Both of the government interventions distort incentives. Stalin’s price ceiling reduces incentives for farmers to sell their produce. The government health insurance supply requirements reduce incentives for people to buy insurance by increasing the price of it and making it easier to get medical treatment without insurance.

Next, people predictably respond to those distorted incentives. The farmers in Russia sell less produce. People in the U.S. purchase less health insurance.

Finally, government uses more force to try to fix the problem they caused. Stalin, rather than address the source of the problem by eliminating his price control, sends the army to force farmers to give up their produce. In the U.S., rather than eliminating the source of the problem driven by the supply requirements that cause fewer people to buy insurance, government plans to force people to buy an approved plan or face a penalty.

This is how government grows. It does something to solve some problem, but causes more problems. Few people recognize that government caused those new problems and looks to government to solve them. So government does more things to solve those problems, causing even more problems.