On the Birth Control Mandate

The US Department of Health and Human Services issued new rules regarding an Obamacare birth control mandate.

According to CNN:

The rules would let a broad range of employers — including nonprofits, private firms and publicly traded companies — stop offering contraceptives through their health insurance plans if they have a “sincerely held religious or moral objection,” senior agency officials said on a call about the implementation and enforcement of the new rules.

Republicans want to make this about religious freedom while Democrats want to make this a women’s issue. Naturally, both parties miss the mark. I want to make this an issue of economics and property rights, two things both parties tend to ignore.

Again, from CNN:

The ACLU filed a lawsuit Friday. The organization’s senior staff attorney Brigitte Amiri called the administration’s rules “blatantly unconstitutional.”

I’m not so sure the Obamacare mandates were constitutional in the first place! How can it be constitutional to force employers to cover their employee’s health insurance? This is a blatant violation of property rights. Just as I can’t force my neighbor to pay for my health care, neither should the government be able to force people to pay for other’s health care.

Of course, these new rules alarmed many women who have been getting birth control paid for by their employer through insurance. They would have been better off paying out of pocket for their own birth control all along. When a good or service is provided through insurance rather than paying out of pocket, the consumer is less worried about the cost of that good or service. Because insurance companies are covering the costs instead of individuals themselves, drug companies and other health care providers can increase prices. I would expect that the cost of birth control has increased since the mandate took effect. The increase in demand due to the mandate would surely continue to increase prices as more and more women gained access to insurance-covered birth control. So, any women who lose their insurance coverage for birth control will likely pay more out of pocket than if the mandate was never implemented.

The Trump administration is doing a good thing by changing the rules to accommodate for religious freedom. However, the mandate should be completely repealed and everyone should be exempt from being forced to provide insurance for anyone. This would be a start toward dismantling the regulatory monstrosity that is the US health care system.

More liberty is a good thing. If women wish to be free to choose, then they should respect their employer’s right to choose what insurance plan, if any, to provide as a benefit. I mean, nothing says independence and equality like using the state to force your employer to pay for birth control, right?

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Episode 2

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Family Economics: a Lesson in Diversity and the Division of Labor

Let’s consider how a family would sustain itself if trapped on a deserted island. I call this “family economics,” as opposed to “Crusoe Economics” where an individual is trapped on a deserted island. I’ll do this to show the importance of the division of labor, from a miniscule “family economy,” to a large-scale industrial economy.

The point of this exercise is to demonstrate the importance of the division of labor and the hierarchy of skills, so to speak, that exist in industrialized, market economies. It’s not uncommon for libertarians and others who oppose the state to also oppose all hierarchy, authority, and sometimes as far as opposing all inequality. Some romanticize the idea of worker-owned economies where businesses are run democratically by the workers. They fail to understand the importance of the division of labor and inequality by merit throughout an economy.

Imagine a family of 4 was shipwrecked on a small island with no inhabitants, but a good amount of natural resources for its size. Let’s call the father (age 30), Murray. The mother (age 30), JoAnn. The son (age 12), Hans. The daughter (age 8), Ayn.

Upon shipwreck, the family realizes they won’t be saved immediately. They will have to sustain themselves for an unknown length of time, if they wish to survive and be rescued or escape the island. In an environment of scarcity such as on the island (so is the whole world, of course), it is necessary for individuals to use available means to achieve a desired end, namely survival of the family. The family’s goal of survival must be achieved by using the available means to achieve ends that are conducive to their ultimate goal of survival.

Time, labor, and land are all scarce resources. Misallocating time, labor, and land would be a death sentence for the family in this condition of ultra-scarcity. They must prioritize their needs and wants that will contribute to their ultimate goal. For example, instead of consuming time and resources to make a hairbrush, JoAnn’s time and labor as well as the available resources would be better allocated by making a water collection and filtration system.

This is where division of labor and inequality of skills or abilities is so valuable. While Murray and JoAnn may have the intelligence or know-how to design and create something like a water collection and filtration device, neither Hans nor Ayn do. For Hans and Ayn to be delegated the responsibility of designing and creating a water filtration system while Murray and JoAnn be delegated the responsibility of collecting kindling and firewood, for example, would be a misallocation of resources and contrary to the family’s ultimate goal. It is important that each family member provide the greatest utility based on their abilities. This may require for Murray or JoAnn to act as a manager of the family’s activities and production.

Why should Murray or JoAnn manage the family’s production rather than Hans or Ayn? Because, based on their skills, abilities, and merit, Murray or JoAnn would be better suited to manage the family’s production rather than Hans or Ayn. Thus, it is better for the family that those with greater skills be responsible for the things requiring greater skills, and it is better for the family that those with lesser skills be responsible for things requiring lesser skills.

So, while Murray and JoAnn work on the water supply, it is economical for Ayn to gather firewood. Gathering firewood requires little skills. Ayn, being 8 years old, is more productive gathering firewood than she would be trying to help with the water filtration system. While Hans, Murray, and JoAnn might be more efficient at collecting firewood than Ayn, they are far more productive by doing other things that require greater skill. Hans may be able to gather firewood more quickly than Ayn, but perhaps his unique tree-climbing abilities make him more productive to the family by climbing trees to gather coconuts or other things.

In this scenario, the family’s survival depends on the ability of the leader, whether Murray or JoAnn, to effectively divide the labor and organize the family’s production so as to meet their ultimate goal. If production were carried out by the family democratically, that is by voting on how labor should be divided and resources allocated, there is much greater opportunity for misallocations of labor and resources.

This is why diversity of intelligence and skills are so important to utilize. Some people are more capable than others at various activities and thus, are better suited to carry out those activities. Division of labor by meritocracy rather than democracy ends up being better for all as resources like labor are allocated more efficiently and rationally.

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Video: Without the State, we would have Child Labor

Would we still have child labor in the US if it wasn’t illegal?

 

Video Notes
  • A common objection to free markets is something like this, “don’t you know history?!? We had a free market during the industrial revolution and all those kids were forced to work dangerous jobs for long hours! Thank goodness the government came along with some sense and made child labor illegal!”
  • Let’s consider this idea that government ended child labor with legislation.
  • Child labor still exists in the world outside of the US. Now, does it still exist abroad because factory owners or parents are evil and want to force children to work? Or is there something else going on that isn’t being considered?
  • We must ask, why were children working in the first place? Of course, child labor has existed historically as a way of supporting a family. Before the industrial revolution, children were likely to be working with their parents on the farm or whatever. Why? Out of necessity. Because the alternative to the child working and helping out the family, is that the family suffers. Before the industrial revolution skyrocketed human productivity, child labor was often necessary for families to survive.
  • So, as the industrial revolution increased human productivity, it became less and less necessary for children to work, as their parents were able to be more productive and earn more income. It was the increase in productivity from the industrial revolution that allowed families to put children in school rather than working.
  • Had the government outlawed child labor before production got to the point where children didn’t have to work to help their families, children would likely have been forced into crime or prostitution or some other way to provide for the family under the radar, because, the fact remains that something must give if a family isn’t able to provide sufficiently for itself. The family will have to get resources from somewhere to maintain its survival and this tends to be with means much worse than child labor.
  • This means that we cannot end child labor around the world by legislating it away. Rather, undeveloped countries need free markets where people can start businesses, hire one another, and become more productive so as to maintain a higher standard of living.

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Video: Hoppe on the Persistence of Socialist Ideology

Mises ended “The Socialist Calculation Debate” in 1920, yet socialism persists as an ideology. Hoppe offers insight as to why this is in a talk (in video: 7:25-12:10) he gave to the Property and Freedom Society in 2016 on his ethics of argumentation theory. The resistance to Mises’s theory is very similar to the resistance to Hoppe’s theory.

Video Notes:
  • “In short, what Mises had argued was that the purpose of all production is the transformation of something, an input, that is less valuable into something, an output, that is more valuable. That is, efficient and economic, instead of wasteful, production. That, in an economy based on the division of labor, recourse must be taken to monetary calculation in order to determine if production was efficient or not. That, input prices must be compared with output prices to determine profit or loss. And yet, that no input prices exist under socialism, and hence, no possibility for economic calculation. Because under socialism, all production factors are by definition owned by a single agency, thus precluding the formation of any and all factor prices.”

  • “The reaction to Mises’s impossibility proof was also instructive, especially given that Mises’s proof concerned a problem that at the time of his writing in the immediate aftermath of World War One, had taken on enormous importance with the Bolshevik Revolution of 1917 in Russia. But, by and large, there was no reaction at all. Mises was simply ignored and the continued existence of the Soviet Union and, after World War Two, of the entire Soviet Empire, was taken by most of the economics profession, and large parts of the lay-public as well, as empirical proof that Mises was wrong or, in any case, irrelevant.”

  • “…A few prominent socialists… tried to refute Mises’s argument. But, in my judgement, even Mises’s early fans watered-down, misconstrued, or distorted, and so, in any case, weakened Mises’s original argument. And for the socialist foes, they did not even seem to comprehend the problem. Indeed, even after Mises had systematically restated and further elaborated his arguments, two decades after its original presentation in his Human Action, and even after the implosion of socialism in the late 1980s and early 1990s when some socialists… felt compelled to concede that Mises had been right, they still showed no sign of having grasped the fundamental reason why.”

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Episode 1

 
Listen to an informative and interesting discussion on price gouging, universal basic income, and more on this episode of the Lessons in Liberty Podcast!


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“I, Pencil” by Leonard E. Read: A Lesson in Liberty

 
“Now, in the absence of faith in free people — in the unawareness that millions of tiny know-hows would naturally and miraculously form and cooperate to satisfy this necessity — the individual cannot help but reach the erroneous conclusion that mail can be delivered only by governmental ‘masterminding.'” – Leonard E. Read

Leonard E. Read’s short but profound work, “I, Pencil” was originally published in, “Anything That’s Peaceful: The Case for the Free Market” by Read in 1964. “I, Pencil” is the ultimate introduction to the idea of spontaneous order and to the truly awe-inspiring processes that manifest into markets. It is written in the point of view of a pencil who boldly suggests,

…I am seemingly so simple… Yet, not a single person on the face of this earth knows how to make me.

Of course, we can research and find out how pencils are produced in factories and how the production of pencils works. But, the pencil has a broader point:

Just as you cannot trace your family tree back very far, so is it impossible for me to name and explain all my antecedents.

So, while we can look up the production process for a pencil, no one person can name and explain every single action, event, process, human interaction, etc., that takes place in the creation of something so simple and common as a pencil. The pencil explains the enormous array of processes that culminate in the production of a pencil:

My family tree begins with what in fact is a tree, a cedar of straight grain that grows in Northern California and Oregon. Now contemplate all the saws and trucks and rope and the countless other gear used in harvesting and carting the cedar logs to the railroad siding. Think of all the persons and the numberless skills that went into their fabrication: the mining of ore, the making of steel and its refinement into saws, axes, motors; the growing of hemp and bringing it through all the stages to heavy and strong rope; the logging camps with their beds and mess halls, the cookery and the raising of all the foods. Why, untold thousands of persons had a hand in every cup of coffee the loggers drink! The logs are shipped to a mill in San Leandro, California. Can you imagine the individuals who make flat cars and rails and railroad engines and who construct and install the communication systems incidental thereto? …Consider the millwork in San Leandro. …How many skills went into the making of the tint and the kilns, into supplying the heat, the light and power, the belts, motors, and all the other things a mill requires? …Yes, and included are the men who poured the concrete for the dam of a Pacific Gas & Electric Company hydroplant, which supplies the mill’s power! …Don’t overlook the ancestors present and distant who have a hand in transporting 60 carloads of slats across the nation.

All these processes and we are now just arriving at the start of the factory production process. The pencil continues:

Once in the pencil factory – $4,000,000 in machinery and building, all capital accumulated by thrifty and saving parents of mine – …seven brothers and I are mechanically carved…

Now, what about the lead that goes in the pencil?

My “lead” itself – it contains no lead at all – is complex. The graphite is mined in Ceylon. Consider these miners and those who make their many tools and the makers of the paper sacks in which the graphite is shipped and those who make the string that ties the sacks and those who put them aboard ships and those who make the ships. Even the lighthouse keepers along the way assisted in my birth – and the harbor pilots.

The graphite requires:

…clay from Mississippi…

and

…candelilla wax from Mexico.

The pencil continues:

My cedar receives six coats of lacquer. Do you know all the ingredients of lacquer? Who would think that the growers of castor beans and the refiners of castor oil are a part of it? They are. Why, even the processes by which the lacquer is made a beautiful yellow involve the skills of more persons than one can enumerate!

Much is involved in creating the metal on the end of the pencil. As for the eraser:

It is a rubberlike product made by reacting rapeseed oil from the Dutch East Indies with sulfur chloride. Rubber, contrary to the common notion, is only for binding purposes. Then, too, there are numerous vulcanizing and accelerating agents. The pumice comes from Italy; and the pigment that gives “the plug” its color is cadmium sulfide.

Now the reader should have an understanding of the enormity of processes across the globe that go into the creation of a simple pencil. The pencil explains the significance of this:

I shall stand by my claim. There isn’t a single person in all these millions, including the president of the pencil company, who contributes more than a tiny, infinitesimal bit of know-how… …each of these millions sees that he can thus exchange his tiny know-how for the goods and services he needs or wants. I may or may not be among these items.

So, millions of people with little skill are able to benefit by contributing to the production of a pencil they may or may not desire. Yet, without each individual’s little skill or know-how, the production of pencils couldn’t take place to satisfy the wants of the masses of people who do desire pencils. This is a great lesson on how the division of labor across the globe is so important for the production of all kinds of goods.



All of these various processes in the creation of a pencil, from the picking of coffee beans that loggers will drink to the transportation of wooden slats to a factory, all occur without a master mind or central authority. The process where all these independent processes come together without a central authority is known as spontaneous order. This is a bottom-up system of organization that occurs naturally, rather than a top-down system of organization that is a government or central authority.

No trace of such a person can be found. Instead, we find the Invisible Hand at work. …I, Pencil, am a complex combination of miracles: a tree, zinc, copper, graphite, and so on. But to these miracles that manifest themselves in nature an even-more-extraordinary miracle has been added: the configuration of creative human energies — millions of tiny know-hows configurating naturally and spontaneously in response to human necessity and desire and in the absence of any human masterminding! …For, if one is aware that these know-hows will naturally, yes, automatically, arrange themselves into creative and productive patterns in response to human necessity and demand — that is, in the absence of governmental or any other coercive masterminding — then one will possess an absolutely essential ingredient for freedom: a faith in free people. Freedom is impossible without this faith. Once government has had a monopoly of a creative activity such, for instance, as the delivery of the mails, most individuals will believe that the mails could not be efficiently delivered by men acting freely. And here is the reason: each one acknowledges that he himself doesn’t know how to do all the things incident to mail delivery. He also recognizes that no other individual could do it. …No individual possesses enough know-how to perform a nation’s mail delivery any more than any individual possesses enough know-how to make a pencil. Now, in the absence of faith in free people — in the unawareness that millions of tiny know-hows would naturally and miraculously form and cooperate to satisfy this necessity — the individual cannot help but reach the erroneous conclusion that mail can be delivered only by governmental “masterminding.”

The pencil admits that its existence itself isn’t quite sufficient evidence to advocate for a free market in all goods and services. However, the pencil explains how something that government is responsible for, such as delivering mail, pales in comparison to the feats private industry is responsible for. These testimonies are all around us. The pencil points to:

…making of an automobile… calculating machine… grain combine… milling machine… …they deliver the human voice around the world in less than one second; they deliver an event visually and in motion to any person’s home when it is happening; they deliver 150 passengers from Seattle to Baltimore in less than four hours…

So, is it not perfectly logical to say that private industry can provide any good or service that government is able to? We must heed the pencil’s important lesson:

Leave all creative energies uninhibited. Merely organize society to act in harmony with this lesson. Let society’s legal apparatus remove all obstacles the best it can. Permit these creative know-hows freely to flow. Have faith that free men and women will respond to the Invisible Hand. This faith will be confirmed. I, Pencil, seemingly simple though I am, offer the miracle of my creation as testimony that this is a practical faith, as practical as the sun, the rain, a cedar tree, the good earth.

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Video: Who Created Money?

The Austrian School of economics offers us great insight to the question: who or what created money?

Video Notes
  • Carl Menger, founder of the Austrian School of economics, theorized how money came to be in his work, “On the Origins of Money,” published in 1892.
  • Most people tend to assume money was invented or created by some king or some government at some point in history.
  • Menger debunked this idea. For one, he figured that an event so historic as the creation of money would surely have been documented and celebrated. We can see ancient monuments dedicated to the institution of laws or language, but we don’t see ancient monuments dedicated to the institution of money.

  • Menger’s subjective value theory gave him insight into why money wasn’t created by a king or government, but was a result of spontaneous order among people.
  • Money is useful as a medium of exchange because it has purchasing power. So, if a government tried to introduce a medium of exchange to a barter system, they would have to set the exchange rate for various goods and arbitrarily set the purchasing power of the money. It is unlikely that a medium of exchange would become universally accepted and become money, if its purchasing power were arbitrarily set by a government.
  • Menger understood that for something to become money, it must have some preexisting purchasing power. In a barter system, media of exchange would be introduced spontaneously by people over time to facilitate transactions.
  • In a barter system, exchanges can only take place when there is a double coincidence of wants. That is, 2 people want exactly what the other has and an exchange can take place.
  • The introduction of media of exchange is what brought civilization beyond a barter system and led to the creation of money. Over time, the less marketable goods being used as media of exchange would be used less and less until there was one universally acceptable medium of exchange which is money.
  • Historically, this has been gold and silver. These 2 metals have long been demanded as money because of their physical properties that make them very useful as media of exchange.

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Video: The Broken Window Fallacy

The broken window fallacy, introduced by Bastiat in 1850, can still be heard among some mainstream media.

Video Notes

  • However, the broken window fallacy is alive and well as we can see from headlines claiming the destruction from recent hurricanes is a good thing and will stimulate the economy.
  • Of course, breaking a window will create a need for more spending or consumption, just like a natural disaster will create a need for more spending or consumption. The fallacy lies in the belief that destruction can create prosperity.
  • While the broken window creates a job for a window maker who will now be that much better off, it does so at the expense of the barber who must pay to replace the window.
  • Let’s say it costs $100 to replace the window. While the window maker is $100 richer, the barber is $100 poorer because of the broken window. Had the window not been broken by the kids, the barber may not have had to replace that window for years down the road.
  • That means the barber must make an investment that he otherwise wouldn’t have made. Instead of the barber’s $100 being spent on the barber’s business or spent on shoes, for example, that the barber needs, the $100 is misallocated by going to pay for replacing a window that otherwise wouldn’t have been replaced if it hadn’t been broken.
  • So, not only is the barber $100 poorer from the window breaking, but the shoemaker is affected as well because now the barber can’t afford to buy the shoes he wanted before the window incident.
  • The only way this scenario could possibly considered “good” is if the window happened to be broken precisely when the barber was planning on replacing the window. Otherwise, the spending that results from destruction of capital cannot be considered a good thing. Had the destruction not taken place, there would be no need for spending. This does not mean destruction that results in more spending is a good thing. To the contrary, destruction of capital is never a good thing.

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On Health Care and Insurance

 
This excerpt on health care and insurance was originally published in, “Teaching Economics to Bernie Sanders.”

Many Americans conflate health care and insurance, which are in fact two very different things. In this tweet,

Bernie is referring to the GOP’s health care plan that would stop subsidizing insurance for an estimated 23 million people. Of course, taking away insurance is not the same thing as preventing medical care. Historically, routine visits were paid out-of-pocket by patients and were relatively cheap compared to today’s health care costs. Insurance wasn’t as necessary in the past.

Health care includes goods and services provided to prevent illness, treat/cure illness, or maintain health. Such goods and services include doctor check-ups, emergency stitches, casting a broken arm, MRIs, drugs, etc. Procedures, tests, check-ups, prescriptions, and any other goods and services can vary dramatically in price. A prescription for a common medication may cost a few dollars or even less (small costs for average consumer), whereas a risky procedure could cost hundreds or even thousands of dollars (large costs for average consumers). While it is easy to save
smaller amounts of money in case of small accidents, doctor visits, prescription costs, etc., it is much more difficult for the average consumer to realistically keep enough money on-hand to cover the costs of a catastrophic incident, such as one requiring a very expensive operation.

This is where health insurance comes into the picture. Rather than trying to save up money for a possible catastrophic incident, insurance offers the insured to regularly pay a premium and in exchange the insurance company will cover agreed upon health care costs in the future. Insurance companies use the premiums they receive and pool them together to pay for the insured when they need it. Insurance plans can vary immensely which gives consumers a variety of choices in planning their lives. If one can afford routine doctor visits, small procedures, tests, etc. (as most people would
be able to in a free market), then it doesn’t make sense to pay a higher premium for a plan that covers those routine expenses. Rather, it would make sense to have catastrophic insurance to cover unforeseen and expensive illnesses such as cancer. If one is paying out-of-pocket for regular medical care they are incentivized to live healthier, to avoid frequent doctor visits whose costs will add up over time if utilized too often.



For-profit insurance companies are a business like any other. They must maintain profit to stay in business. This means rationing their services, just like any business must. Insurance companies ration their services (which is the accumulating of money to insure customers’ expenses) by discriminating based on risk. It may be unfortunate, but it does not make economic sense for an insurance company to provide insurance to someone with a preexisting condition such as cancer. To make such an arrangement possible for the insurance company to break even or profit, the insurance company would have to charge outrageous premiums to the cancer patient (much more than a
healthy person’s premiums) to cover the cost of cancer treatment (assuming cancer treatment is more expensive than what the average consumer can afford).

Over time the state has intervened more and more in the health care industry, with disastrous effects for consumers. Health care and insurance are regularly conflated in popular media. Many Americans use insurance to cover routine doctor visits as prices have increased due to government intervention. The Affordable Care Act, or, Obamacare has been a disaster. Some people less sympathetic to my reasoning demand a full takeover of the health care system by the state. Contrary to politicians like Bernie Sanders, I realize the way for Americans to have access to affordable health care is to roll-back government’s involvement in the health care and insurance industries. Do these politicians and citizens who demand more government involvement in health care ever ask themselves why the costs of health care are so high?


Tom Woods has a great FREE e-book on health care, “Your Facebook Friends are Wrong about Health Care“.

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