Bryan Caplan  

Visualize Laissez-Faire: What Would a Libertarian Recalculation Look Like?

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Hook-onomics... What I've Been Reading...
I doubt that Arnold's Recalculation story is more than a smidge of the current world recession.  But I can certainly imagine shocks where he'd be dead on - and there are few shocks I enjoy imagining more than the triumph of radical libertarianism.  What would this actually look like?

Needless to say, there'd be a massive decline in government employment.  During the current recession, public sector employment actually increased in the U.S. as private sector employment plummeted.  In the great libertarian Recalculation, we'd see the opposite pattern.

Of course, much of the private sector also depends on government support.  It too would drastically shrink, though not as much as the public sector itself.  For starters, health care and education would both sharply fall in employment and as a percentage of GDP.

What would take up the slack?  While there's no doubt that something would come along, that's a hard question to answer even for the comparatively minor shocks we see today.  I predict a big expansion of gated, all-inclusive communities to take over many of the government functions that people are actually willing to buy with their own money.  As long as the radical libertarian reform were limited to the U.S, I'd also predict a large increase in resource extraction and real estate development - both long hindered by regulation.  And needless to say, if radical libertarian reform included open borders, there'd be a huge need for new housing - and probably lots of old-fashioned semi-skilled manufacturing jobs for the new arrivals.  (There'd also be a big increase in employment of personal servants).

If you find this scenario horrifying, it's tempting just to predict total collapse.  But that's a cheap shot.  If you're going to denounce Libertopia, at least denounce it for the changes it could be expected to bring if it "works."  This ground rule set, please tell me: What would a libertarian Recalculation bring? 

Please show your work.


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COMMENTS (52 to date)
Stan writes:

I was going to say 'peace of mind,' but I wonder about increased aversion to risk, especially when it comes to investing -- wouldn't Libertopia expand the limits on success and failure? Or do the benefits of greater discipline cancel this out?

student writes:

sounds like an awful, awful place to live

JPIrving writes:

In the medium to long run I imagine we would have a big expansion in starbucks-Borders type retailing. With no minimum wage, the vast cohort of newly unemployed sociologists and paper pushers would drive down retail wages whilst wages for their skilled customers rise.

Remember because of free immigration, these un-usefully-skilled folks would be unable to find work in the booming construction or resource extraction sectors.

Lets see how an out of shape television studies professor compares to a Chinese peasant when it comes to working a jackhammer!

eric mcfadden writes:

1. Increased investment in Crack-Mart after legalization.

2. Great demand for pimp related education courses at local community colleges

3. Seat belts replaced with licorice in youth themed brand of government motors vehicles.

4. Greater demand for carpenters as former employees of the DMV find they actually have no capacity for productive employment and are forced to move back into parents basements.

5. Micheal Vick reopens dog fighting business but expands to include rare and exotic animals from around the world. Peta is totally pissed that it actually increases the number of good fighting(not just cute) animals.

6. Apartment prices in New York actually drop because Central Park is used for productive value by people willing to pay, and buildings are built where once citizens were mugged.

7. National debt is paid off by selling the crazy amount of non-military land the government owns to productive foreigners. Economics students everywhere are delighted to know they no longer have to answer that question about how the fed "creates money" without a printing press.

8. Mexicans stop dying in street battles in border towns. Bullet and Arms factories shrink production

9. Tony Soprano gets a real job because crime stops paying so well. Strip joints don't make as much money because of the deregulation

10. New type of boats are produced that transport ideas to other countries that can still be loaded up with cars and Russian brides to be brought back to America.

2999 writes:

1. All the things Bryan says.
2. Employers would start hiring based on IQ tests and job knowledge tests, since they will no longer have to fear "disparate impact" laws. Having a 4 year degree stops being so important. Instead there is a growth industry in nootropics, stimulants, practice tests, etc.
3. Since people in densely packed urban areas can no longer control each other via laws, more people move to suburbs and isolated, highly discriminatory all-inclusive high-rise buildings. These are segregated based on values, beliefs, and even subcultures and fetishes.
4. A golden age for small time entrepreneurs and the newly unregulated field of biotech. Other groups that do well are conservative religious groups (as mutual aid providers)and anyone who owns capital (due to cheap immigrant/former "public servant" labor).

US writes:

I'd have to give up my education and join the job market immediately. I'd have no health insurance, and would be unable to ever pay for one. In the end, sooner probably rather than later, I'd die - or at the very least become homeless.

I suffer from type 1 diabetes. I'd never be able to make enough money to pay for both medicine, food and rent on my own without government support - I find that hard enough as it is. I don't have a rich family and I don't have any social network worth mentioning.

If your libertarian reform had taken place when I was a child, my parents would probably have killed me off when I was two, which was when I got diagnosed. If not, I'm pretty sure my little brother (I'm #2 out of 3) would never have been born.

It depends on how radical a libertarian reform you'd like of course. I have libertarian leanings myself and I'd like things to go in a more libertarian direction, but there are some very real and relevant limits to how far I'd like to go and I get really uncomfortable when people start talking about going quite a bit further than that. In my experience a lot of libertarians just have little to no clue at all when it comes to the complex area of optimal health care policy. I like to point out in those kinds of discussions that if your responses to my questions about this policy area includes nothing but 'let the market sort it out', then your policy ideas will kill me if implemented. Maybe on some greater level ('total societal utility') that's the preferable outcome, but it'll never be the preferable outcome to me.

Eric H writes:

Is a private sector dependent on government really a private sector in the first place?

RL writes:

US: Do you think diabetes as a disease only came into being with the large increase in third-party payments since the late 1940s? Or do you think history records daily sweeping up of the diabetic dead dropping on the streets of America in the earlier part of the century?

Diabetes was actually discovered and diagnosed in ancient Greece. Insulin was mass manufactured in the early 1920s. Do you think it was available only to the rich initially?

E. Barandiaran writes:

Bryan,
Unfortunately you frame your question in such a way that encourages a futile discussion. It reminds me of those Econ 101 teachers asking students to solve comparative static exercises. If you want to follow this line at least take into account the large amount of work done on trade policy reform in the past 40 years, in which the application of GE analysis has given some ideas about the effects of a reform on a country's resource allocation.

I suggest, however, that you change your approach to understand libertarian reforms and their economic consequences. For example, rather than focusing on some vague initial situation, you could invite your readers to discuss the extent to which changes in the political systems of California and Cuba may bring liberal reforms of their economies. Instead of looking for the new equilibrium, I'm sure your readers will be more interested in assessing how the initial conditions may determine the dynamics of the polity and the economy. To discuss the end state amounts to look for they key where there is light rather than where it was lost.

I've done a lot a comparative static analysis in my academic life, but I was lucky to have learnt a lot about dynamics from my professional involvement in large political and economic reforms.

Snorri Godhi writes:

WRT health care and education: the decrease in government spending will be compensated to some extent by the increase in private spending. Whether the end result would be decreased total spending, is a question that can only be settled with hindsight imho.

WRT open borders: the long-term consequence will be a huge increase in government spending in the race-relations industry, like it or not. That, in turn, will lead to further loss of freedom of speech.

US writes:

@RL

a) I don't even live in America, so your comments about the third-party payments system are irrelevant. I live in Denmark. Maybe I should have stated this from the start, but if you'd clicked the link on my name you'd have known.

b) I don't like to come off as arrogant, but I dare say that unless you're an endocrinologist, I probably know a hell of a lot more about the disease than you do.

c) Today, the government pays more than 9/10 of the total costs of my treatment regime, and more than 4/5 of my medicine expenditures. I'd never be able to afford my current treatment regime on my own. Yes, like most other diabetics I could change my treatment plan - stop going to my regular control visits, stop with the regular kidney tests, stop the regular screenings for eye-damage; the point is that most of these changes would not reduce the costs of the disease much, as they would likely greatly increase my risk of early cardiac death, neuropathy, retinopathy, nephropathy, amputations ect. Of course death is cheap, but treatment before I'd die wouldn't be, and not all costs are monetary.

In my specific situation though, these are actually minor problems compared to the main problem I'd have. My current treatment regime includes a relatively new and experimental drug called Levemir, which is way more expensive than generic alternatives. Before I was put on this drug, I had several nightly life-threatening cases of hypoglucemia - I have once had a brain scan to figure out if my 24+ hour hypoglucemic coma had caused permanent brain damage (it hadn't). If I had to give up Levemir, which I would have to do in Libertopia because there's no way I could afford that drug, I'd either get bankrupted by medical bills due to hypoglucemia-related incidents, I'd die or I'd go blind within a decade (I already have nonproliferative retinopathy) in case I overcompensated to avoid any kind of hypoglucemic episodes.

d) People who got diabetes in 1920 were lucky if they survived two decades. People who get the disease and are living in countries with a poor public health system still are; if you think this disease doesn't cost thousands of lives in Africa each year, making it very clear that a lot of poor people can't afford treatment, you've no idea what you're talking about. If I'd been born in, say, Congo, I'd never have been able to write this sentence as I'd most likely been dead before I could ever have celebrated my own 5 year birthday.

My main point is that I care a lot less on how you compensate me in your Libertopia _as long as you do_, and that unless your Libertopian model does include some way of compensating people like me for having gotten the short end of the stick almost from birth, i) most people will consider your Libertopian society blatantly unfair, ii) my best option in a society like that would probably be something along the lines of 'signing a life insurance policy and jump out in front of a bus'. Even if kidneys would be a lot cheaper in Libertopia so I could theoretically get a new one when nephropathy had finally killed of the old one.

e) A more general comment: My situation is not unique. Unless libertarians think long and hard about how to deal with specific perceived problems related to their policy ideals, a lot of people just won't listen to them.

David R. Henderson writes:

Bryan asks, "what would a libertarian recalculation bring?"
The answers are too numerous to list, but here are two:
I could take my wife to the airport and walk her to the gate and no one would stop us.
I could cut down a rotting tree in my yard that threatens my house without getting government permission.
Best,
David

Steve writes:

@US

If a vast majority of your treatment is paid for by the government, then the third party payer system absolutely is relevant. The government is the third party.

Also, it is not fair for you to claim that in Libertopia your parents would have killed you as a child. You're confusing Libertopia with Anarchy.

Generally, trying to solve unique cases is how government works today. Each time, there seem to be unintended consequences that when combined with the solution have a net decrease on societal welfare. As we liberals dream up our perfect world, if we start to change the rules for unique cases we will wind up exactly where we started: a modern "Progressive" regime.

US writes:

@Steve:

1) I see your point. I made that remark just so that we wouldn't be talking past each other, by you guys assuming we would both base our arguments on the current _American third party payment system_. Our context is very different, as the two health care systems are very different.

2) "Also, it is not fair for you to claim that in Libertopia your parents would have killed you as a child. You're confusing Libertopia with Anarchy."

There's a lot of people who don't seem to know the difference, and unless BC spells out his own views, I have no idea if he's one of them. If a child is the property of the parents and have but the rights the parents allot to them until they reach adulthood, which is one way of imagining a Libertopia, my parents would be well within their rights to kill me. I'm not even sure I'd blaim them all that much given their incentives.

3) "As we liberals dream up our perfect world, if we start to change the rules for unique cases we will wind up exactly where we started: a modern "Progressive" regime."

Sacrificing a few humans for the greater good is the way to go then? I'm one of them that are to be sacrificed on the alter of liberty then? Can't make an omelet..?

These questions aren't retorical. I have met
libertarians online stating that they thought 'the market should decide' everything when it comes to health care. They'll always talk about how costs will go down and I'll be better off in the long run. That's a bunch of crap and they should have the guts to say so.

I'd be just as dead if I were to die because of a lack of medical treatment than I'd be if I were to die by getting shot by the communists. If your system doesn't have room for me, you're no better than them in my mind. And make no mistake: Without government aid, I'd die a lot sooner than I otherwise would.

There is no 'perfect world', there never will be. Caplan should read Popper, or reread him if he has already. I'd advice you to do the same.

Bill N writes:

A large number of low wage immigrants who vote for safety net, social services,and progressive taxation, leading to an electoral realignment, thus rolling back libertopia.

Josh Weil writes:

A liberitarian society would consist of all voluntarily institutions, much like the one David Friedman posited in his book The Machinery of Freedom.

@bc

I don't think ourculture would dramatically change. Most people don't want servants even if they can afford them.

@us

Children aren't the property of theirparents. Each individual owns himself. What parents do own are the parental rights of their children until they can be independant. Anarchy is not synonymous with chaos.

"let the market decide" means let uncoerced individuals decide where to allocate their resources and contract with others.

US writes:

"let the market decide" means let uncoerced individuals decide where to allocate their resources and contract with others."

@Josh Weil: Yes, I know, nothing new there. I also know that a change from current policy to that specific policy would destroy my life, and likely kill me. I try to be very open about that to people with your kind of policy views, so as to make it harder for you to escape responsibility, should those policy views be implemented politically; because if I keep telling you, at least then you will not be quite as likely to get away with stating that you didn't know this would happen.

If you state openly that you don't want pay for my medical treatment and are quite fine with me dying after your reform has been implemented, because pretty much nobody else would be willing to pay anything (/or able to pay much/enough) either, then fine - I'm just a parasite on society and it'd be no great loss anyway. That's what I hear you and others like you with similar policy views say, even if I don't ever expect any one of you to ever say it out openly. Maybe we could improve on that discussion by also talking about how if transaction costs could somehow be eliminated, maybe I'd still be able to make it through voluntary donations; but then we'd come right back to why they can't and probably also back to why both our countries - and pretty much any other modern society I can think of - have the systems they do today when it comes to treatment of type 1 diabetics.

But yeah, I'm privileged and privileged people don't like when other people talk about taking away their privileges. Especially not when the privilege in question is 'being alive'.

Josh Weil writes:

I understand this is a sensitive issue, but I think your rhetoric is misplaced.

No one is saying anything to the effect of "parasite on society."

I am no more "responsible" under a system of voluntary charity for potential deaths than you are "responsible" for the deaths of thousands in Africa unserved by your policy.

My position is that humanitarian concerns don't justify government coercion. There is no fair line to be drawn because the needs in this world are vague and infinite.

David C writes:

Re: US

Situations like yours are the reason very few people support complete anarchy. In fact, Levemir probably wouldn't exist without patent protection, an excellent government regulation that works with the market rather than against it. However, the vast majority of government is merely a tool for one group of people to take something from another group of people. Or, in the case of the military, an extremely expensive defense against an increasingly rare problem.

In your case, many people want government to take profits from the drug companies because they believe the drug companies have too much money. If those drug companies don't have that money, many people won't go into that business, and drugs similar to yours might never be created.

Finally, insurance is merely a different kind of collective action. In many ways, insurance companies are like a government where people decide as individuals how much they want to pay for the government's services. When the market naturally chooses collective action, government action is less problematic since many of the negatives of government are negated. In the absence of insurance and a government safety net, many of the costs you pay would be substantially reduced as consumers would spend more time considering whether or not they need a particular treatment although information asymmetry would limit these cost reductions to an unknown extent.

agnostic writes:

Open borders = more spending on industries that help smart, responsible people of any race flee from and insulate themselves from stupid, irresponsible people of any race. And therefore, more spending on industries that help the losers chase the winners in order to enjoy the benefits of living around smart, responsible people.

Plus, less provision of public goods and lower trust at the state and national level. See the recent book *Coethnicity*, reviewed at Andrew Gelman's blog. Those are two things that the state can (but doesn't have to) actually do -- public goods and inspire a sense of belonging. If the state doesn't do that, it will have to emerge from Elinor Ostrom type solutions -- but as she and the lit reviewed in Coethnicity emphasize, that's pretty tough in an ethnically heterogeneous community.

chipotle writes:

WRT Bryan's original question:

I guess we'd have to immediately abolish all the state universities, such as GMU. Since Caplan has said that he thinks that much of education is just signaling, there would almost certainly be less overall demand for his "product" if we went to libertopia. Whatever professors remained would doubtless have to work not under tenure, since competitive markets would never create such absurdly cushy privileges.

In short, Caplan would have to get a real job. And if he continued to talk his nonsense, an employer could fire him without worrying about any sort of pesky lawsuit.

So I guess there is an upside to all of this.

More seriously, does Caplan realize how absurd this sounds to a normal human being? Why not try pushing solutions to "low-hanging fruit" first? If economic activity would skyrocket under a low, flat tax, do that. If traffic jams would ease under congestion pricing, do that.

But acting like you're a unaware of the normal concerns of everyday human beings is stupid.

It turns serious discussion of political reform into an uninteresting form of intellectual masturbation.

agnostic writes:

The diabetes example is an excellent illustration of how "free" health care makes people live more imprudent lives because no attention is paid to costs.

In fact there's a remarkably cheap way to treat diabetes, perhaps not perfectly, but it gets you a long way there -- clamp down on how much carbohydrates you eat. Glucose doesn't fall out of the sky. A big part comes from your diet, which you have control over. Most of this diet-derived glucose comes from digestible carbs.

(It can also be synthesized by the liver from the amino acids in the protein you eat, but unless you're eating a really high-protein diet, it won't amount to much.)

In a world where cost is no issue, the government, the health care industry, and the various Diabetes Associations tell diabetics to eat up to 70% of their calories as carbs! The Canadian one even recommends that diabetics include *table sugar* in their diet! But that's OK, we'll just pay boatloads of money for insulin, other drugs, etc., to counteract the effects of diabetics eating a diet that is mostly carbs.

In a world without such silliness, there would be far less malinvestment in those treatments for diabetes. Cost-cutting and personal responsibility would force diabetics to eat a healthy diet -- one with very low carbs -- rather than one that will imperil their lives. A lot, though not all, of the so-called need for such drugs would vanish because diabetics would not be dumping so much glucose into their bloodstream in the first place.

Josh Weil writes:

@chipotle

If we did away with state universities there would be private universities that would fill most of the gap.

Why are you assuming that just because caplan thinks most of higher education is signaling that in a libertarian society everyone would agree and no one would go to the university? True the education system may deflate, but it doesn't follow that people will stop wanting to learn economics.

This whole thing may sound absurd to you, but to a lot of people, including myself, it's what we envision. So just because you don't value this discussion doesn't mean that it's worthless.

US writes:

@David C:

I'm not new to American health care policy debates, so of course I'm aware that...

"In your case, many people want government to take profits from the drug companies because they believe the drug companies have too much money. If those drug companies don't have that money, many people won't go into that business, and drugs similar to yours might never be created."

Absent any kind of government regulation drugs, needles, test-strips and medical services would all be cheaper than they are now, but I'd have to pay all of it myself instead of having most of it paid by the government. The two points I keep pushing to people who like to tell me what the long run consequenses of government non-involvement would likely be is: 1) I study economics, you're not telling me anything I don't already know; 2) even if I'd be much better off in the long run than in the short run after such a reform, there's no way in hell a switch in that direction would not make me much worse off in the short run and worse off in the long run (if I live long enough to experience the long run).

Two other things that'd happen in the long run is that my risk exposure would go up dramatically and that some (economically inefficient) treatment options would become unavailable, because the government would no longer support them. Even if the latter could/should be considered a societal gain, there's no arguing it'd make me worse off.

Steve writes:

@US:

You basically said earlier that liberal thinkers ought to be prepared to address unique situations such as yours WRT diabetes if we are to convince people of our policy preferences. I posit the following unique situation to you:

If the government of Denmark could take the money it spends annually on the treatment of your diabetes (granted that this money is spent to keep you alive) and redirect it in some way that would save more people's lives, should it do so? For example, if the annual cost of insulin could instead be used to feed X starving people who would not otherwise be fed and X is greater than 1, should those people be fed in lieu of your medical treatment?

a) How would you answer this as a central planner?

b) How do you think a market would answer this?

Plamus writes:

US:

I am sure you realize that your situation, tragic as it is, is also not sustainable in the long run. The Danish government pays for your medical expenses by taking 67% of every DDK earned in Denmark (source), and on top of that taxing things like non-electric vehicles at 200%. It's not such a long way to 100% tax rate. As a result - what a shock! - young Danes are leaving in droves.

This can continue on the same trajectory for a decade, or two, or three, and then...

Maybe what you should be asking yourself is: when the current system fails, is there a better option for me than Libertopia? I'd be curious to hear how you envision a post-welfare-State society, or, if you don't believe the Welfare State is not viable, explain how it will adapt? Or is it "après moi le déluge" - you think the current system is preferable because it will survive long enough for your purposes?

Best of luck!

chipotle writes:

@ Josh Weil

If you subsidize something, you'll get more of it.

In today's United States, we significantly subsidize higher education. Thus, we can infer that we have a larger higher education sector today, due to subsidies, than we would have otherwise. (Actually, I think in a radically deregulated environment, it's probably impossible to predict the size and shape of purely privately-allocated education spending. But, both common sense and the logic of economics say that the immediate effect of cutting off higher education subsidies would be to shrink the overall market for academic economists. Do you disagree?)

As a faculty member at GMU, Bryan Caplan is actually a state employee. He could very easily get a job at a private institution. He doesn't even have to wait for libertopia. He could do it today! Maybe the work wouldn't be as pleasant as his gig at GMU. But I guess Caplan prefers the government job.

Nick writes:

@David C


In your case, many people want government to take profits from the drug companies because they believe the drug companies have too much money. If those drug companies don't have that money, many people won't go into that business, and drugs similar to yours might never be created.

I would say the argument for that isn't that they are too profitable, but that they are free riders. The government subsidizes most of the basic research and often times clinical trials as well. Are the tax revenues being paid in by these companies in equitable proportion to the gov monies being paid out to subsidize their operation? Probably not.

In addition to enormous profit margins these companies also spend most of their revenue on advertising not R&D.

If a drug company was legally bound to spend the largest share of their revenue into R&D you might see less populist rage at their profit margins.

Unfortunately as the system is now, its just another form of welfare for the rich.

US writes:

@Steve

You tried and that's good. However you're framing the question to get the answer you want. There's no central planner anywhere, instead what you have is a lot of different people working in different areas of government doing different things. There's no central planner. As I've pointed out, I won't allow you to frame the question so that I come out ahead in a system without government involvement, because that's not how it's going to play out, and unless we can at least agree on that, there's no point discussing this subject at all.

One of my main points during this whole discussion has exactly been that I already have a pretty good idea how 'the market' would answer your question: 'The market' would leave me untreated, perhaps let me die, and instead save a lot of poor people. I know a lot of people would prefer that outcome, after all that's why it'd happen in the first place, but I don't particularly like it much better for that reason, and you don't get to make me feel guilty about that. I've done nothing wrong, I never asked for this disease and it's not caused by anything I did. No, the poor guy probably didn't do anything wrong either, but I still value my life higher than his, just as he values his life higher than mine.

In a lot of areas I have no problem with much freer markets in health care. I wouldn't have any problem with implementing a closer link between risky behaviour and higher individual health care costs, it would make the system more fair. I consider it crazy that organ-donors are not allowed to be financially compensated for what they do. Ect. There are a lot of good ideas waiting to be implemented. I just wanted to point out to people reading a post such as the one that started this discussion that sometimes a) government programs actually work reasonably well and b) the dismantling of such programs could have devastating effects on the people involved.

Steve writes:

@US

You're both condescending toward me and simultaneously giving me too much credit. I wasn't trying to get you to come to any particular conclusion; rather, I was curious what line of reasoning you would follow. I give you a lot of credit for coming onto a blog that you disagree with and reading through Caplan's line of thinking on issues; I'd like to give you a chance to provide your line of reasoning to us.

You answered my second question about what markets would do but offered no explanation of how that might happen. How do you think a market would result in dispersing resources to the feed the many starving instead of treat the few diabetics? I'm not sure this is as trivial as it seems at first.

Also, if you were a single central planner, how would you allocate said resources? I don't think anyone would dispute your assertion that in the US there is not one person (not even a health czar!) who makes all decisions regarding regulation or especially resource allocation. I also think we all agree with your tacit argument that economic liberalism is not better for every person in every case at all times (most people would say there is no such system, so bringing this point up is an attempt to talk away the problem). However, if there was that one person in charge of the health sector of the economy and it was you, what choices would you make? This could be in the US or Denmark or the made up land of Econostan. If you believe that the market would not optimally allocate resources, how would you tinker/overhaul the market's allocation if given complete control over the economy's resources? Is your reasoning any deeper or more interesting than the fact that your choice would be optimal to people in your unique case without regard to the rest of the populace?

Josh Weil writes:

@chipotle

I don't disagree with your subsidy reasoning. I don't discount Bryan may have to seek alternative emloyment.

In terms of leaving now to go to a private institution...

I can't speak for Bryan's choices in life but I am a libertarian enjoying the benefits of a public education. I do what's in my best interest, and I'm not ashamed of that. I don't think I have to bow out because I disagree with the way institutions are funded. Considering I suffer from this system, I don't exclude myself from receiving from it. If not me, someone else will take my spot at the Uni and society will be just as ripped off.

Bob Murphy writes:

@US:

I have a comment and a question:

Comment: I think average real wages would, within one year, be at least 5x what they are right now, and within 5 years they would probably be a good 20x what they are right now. If you think I'm nuts, OK, but I'm taking into account things like (a) the government takes about half the GDP of economies and that's half of the pie being created *with all the tax disincentives in place*, (b) the drug war causing all kinds of dislocations, and (c) the ridiculous prison and educational systems which keep large percentages of the population cooped up rather than working. I don't know how things are in your country but I imagine they are in the same ballpark.

So, if you and everybody else were making at least 5x as much as you do right now, are you still so sure you would die immediately?


Question: Let's stipulate that you couldn't pay for your care in libertarian land. So that means you need other people to contribute money to your cause. Are you further saying that you are sure no charities would expand their operations, even with cases like yours, with no government around? And if so, can you say explicitly to make sure we understand your position, that the government should be forced to take money from people who don't want to give it to you?

In case my point isn't clear, you seem to be relying on all of our commonsense value system that you shouldn't die in a wealthy society like ours. I agree; you shouldn't. And that's why I do and would contribute a lot to charities / churches, especially if I knew that was the only thing to help people.

So in other words, you seem to trust your fellow man to do the right thing and vote for politicians who will send you checks paid out of tax revenue, but you don't trust your fellow man to donate enough to charities if there were no state. Is that your position or am I misunderstanding?

Steve writes:

Prof. Murphy,

Even if the trend of wage growth quintupled immediately, do you think wages would catch up to that trend in just one year? Don't you think that a Kling-esque recalculation recession would happen first as resources were shifted into productive use? I thought this was part of what Caplan was trying to get at. People make long term, illiquid investments in their own human capital. How could these be cashed in so quickly?

David R. Henderson writes:

Bob Murphy,
You think average real wages would be 5 times what they are now? Wow! I can see 30 or 40% higher. But 400% higher? I would love to believe that. Please lay out, here or on your blog, the calculations and thinking that get you there.
No snarkiness intended. I'm dying to be convinced. I'm just not.
Best,
David

US writes:

@Bob:

I think you're 'nuts' when talking about that kind of income gains. Not gonna happen. But let's say I could be convinced of an effect like a doubling of the average wage. If average wages would go up that much in a completely free market system, the variance would increase greatly too. Some wages at the bottom of the scale would probably go down. The change would not result in a doubling of my expected wage, my expected wage would most likely go down. If you cut off any chance I might have of getting a decent education, a chance I have now and wouldn't have in a completely free market system, and the country at the same time starts importing a lot of low-wage immigrants for me to compete with, I won't gain anything on net by the changes. Nobody in their right mind who'd know anything about this disease would help a diabetic debt-finance an education, unless they were to know that individual very well and like him a lot (this would be part of those transaction costs I've been talking about); I have Aspergers besides my diabetes, I don't have a social network to speak of and I have no rich friends or family members. Maybe some rich person completely unknown to me would just hand me a lot of cash to pay for an education, but I don't think I can count on that to happen; let's just say it's not the most likely scenario. The likely scenario is that I'd be employed as a shoe-salesman instead of as an economist, and I'd be competing with Pablo and Escobar.

I'm sure some charities would expand their operations in order to try to help people like me. I'm also sure that those expansions would far from cover my increased costs of my disease and I'm sure donations to such charities would be a lot more volatile than donations to the government, putting me in a much riskier position than I am now in ie. a recession. That's the thing with diabetes you see, if I miss a weeks supply of insulin for one reason or another, that'd absent medical intervention probably be enough to kill me. Doesn't matter at all if I've taken good care of my disease for 20 years before that. That's also another reason why I probably wouldn't be using the limited savings I might conjure up in the shoe-salesman business to pay for an education; that money would be held as buffer savings or go to medical procedures I'd otherwise forego. Nobody needs a blind economist anyway.

"can you say explicitly to make sure we understand your position, that the government should be forced to take money from people who don't want to give it to you?"

I think that's what happening now. I think that is the preferable regime to me because it keeps me alive and let me live a reasonable life. Would you rather I was dishonest and made up some story about why I would of course also be considered equally (/...if not more?) deserving in a free market system by the people around me? That'd be a bunch of crap and even I'm not stupid enough to buy into that; the number of people who'd miss me if I was dead right now can be counted on a hand or two, no more than that, and none of those people are wealthy. I think if left to the market, a lot of other people would be considered more deserving than me and I think some of the money that could have saved my life would instead go to the cute little child with cancer (or whatever).

"you seem to trust your fellow man to do the right thing and vote for politicians who will send you checks paid out of tax revenue, but you don't trust your fellow man to donate enough to charities if there were no state. Is that your position or am I misunderstanding?"

I think if people had more say in how politicians spent people's money, I'd get a lot less. I'd consider that unfair, even if most people most certainly wouldn't. I don't trust neither politicians nor voters to do anything, but I know the current system and most of the alternatives I can think of would be a lot worse for me. I'm a selfish bastard but you don't ever get to make me feel guilty about that.

@Plamus:

If you're taking me for a defender of the 'Danish welfare state' in general, you've got literally no idea how far off the mark you are; I'm probably one of the sharpest and most outspoken critics of the Danish welfare state you'll ever meet online, even if this thread has taken a turn that's been obscuring this fact quite a bit. In Denmark I'm considered a libertarian (I'm also a libertarian according to the libertarian purity test, a more international measure of these things) and I've read quite a bit of Milton Friedman's works. The Danish system needs to be reformed, a lot, taxes need to go down a lot, liberty needs to be increased a lot. I'd like for these things to happen in a way that won't kill me, or many other people like me, in the process, which is why I also mentioned Popper earlier. Some Danish libertarians have little sympathy for the very idea about any sort of 'collateral damage' related to their policy ideas, but apparently that goes for a lot of Americans too.

US writes:

@Steve:

I'm sorry about the tone of my previous comment to you, it was late and I was tired but that's irrelevant, I should have been more courteous. The same apology applies to other commenters I might have been less than gracious towards too.

"If you believe that the market would not optimally allocate resources, how would you tinker/overhaul the market's allocation if given complete control over the economy's resources? Is your reasoning any deeper or more interesting than the fact that your choice would be optimal to people in your unique case without regard to the rest of the populace?"

I'm sure the market would allocate ressources efficiently. I'm also quite sure 'the market processes' would consider it inefficient to keep me alive in the medium to long run. As to the last part: If you don't consider the fairness argument valid or interesting, I don't have much - as I've stated before, I've done nothing wrong, why should I die just because I got dealt a bad deck of cards to begin with through no fault of my own?

Before you all just pass judgement on me (too late...), ask yourself this: What would you do in my situation? Would you favor a completely free market system in health care as much as you do now if you were a type 1 diabetic?

Josh Weil writes:

"Before you all just pass judgement on me (too late...), ask yourself this: Would you favor a completely free market system in health care as much as you do now if you were a type 1 diabetic?"

Policy makers must consider the consequences of policy on everyone, weighing the seen and the unseen effects. If I was constructing or debating policy the completely free maket seems like it has the strongest arguments in its favor.

I would use the government service as much as possible. I don't judge you for doing so. I wouldn't accuse people of supporting my death if they prefered a completely free market.

US writes:

Josh, as I stated in a comment above, "the same apology applies to other commenters I might have been less than gracious towards too."

But nothing you say in your comment changes the fact that the policy changes you support would likely cost me my life if implemented. That's the whole point, I don't really give a damn why you hold the policy views you do, I care about the fact that I'd die if those views got implemented.

Incidentally, and this goes to other 'no-government-involvement-in-health-care proponents' as well: For how long do you think you would willingly participate in a debate with a communist openly arguing in favour of policies which, if implemented, you'd know would cost you your life?

Even if I've said a few words in this debate that I regret now, on a more general level I think I'm being quite gracious by not just yelling something very ugly in your general direction and leave the debate - most diabetics would probably have done just this. This is a temporary(?) 'over-and-out' for me, I don't have the time or energy to continue this debate right now.

eccdogg writes:

My cousin (here in the US)is a type 1 diabetic in her 30's. Does not have health insurance and does not have a college degree. She is married to a carpenter.

With a combination of family help (our family is not rich) and her husbands salary she is able to get good treatment (including getting the insulin pump and having a child). I am not sure what help if any she gets from the state, she is not on medicaid. I do know that she paid for her pregnancy out of pocket by saving money.

This seems to indicate that being a diabetic without a third party would not be a death sentance. Particularly when you take into account that

1) Take home pay would be much larger. I don't buy Bob Murphy's 5 times, but 30-50% is probably reasonable just taxes alone would represent a big portion of that when you include state/local/federal.

2) Medicine would be much cheaper without heavy regulation of doctors, drugs etc.

That does not mean that there would not be cases where folks would not be able to take care of themselves and it is an open question how much charities would pick up the slack. But I think the Type 1 diabetic/low income= dead is a bit of a stretch.

Doc Merlin writes:

Ah, "US" is danish... that explains a lot. When the government takes 60+% of the income from your country (as is the case with Denmark) there isn't much left. Makes people with chronic conditions very reliant on government aid.

US writes:

Ok, just a last remark not letting 'eccdogg' comment remain unaswered:

I had more than one hospitalization a month, in the last months significantly more than that, due to hypoglycemia in the period (late puberty, early adulthood) before I got started on Levemir. I have had one hospitalization since then, in a period spanning more than 7 years. Leaving the levemir treatment is not an option for me, and currently neither is paying for it. Yeah, one could just use magic pixie dust and claim that prices of that drug will plummet or my income will be 10 times what it is now, and all the problems just conveniently go away, I know. And it is very convenient.

Some diabetics with low incomes would be able to scrape by. Some wouldn't. I consider it likely that I wouldn't, thus my comments. Very few poor diabetics with complications would be able to pay for the treatment of both the primary disease and the complications, and if you're a poor diabetic living in Fantasyworld, you'll get complications quite a lot faster than you will if you live in the real world. All diabetics get complications. Untreated complications lead to much earlier deaths, we're talking decades here, so in terms of expected longevity it wouldn't be all that different from just shooting a few 50 year olds.

Ok, that's it. I'm done here.

fundamentalist writes:

"Visualize Laissez-Faire: What Would a Libertarian Recalculation Look Like?"

That's a nonsense statement on par with the sound of one hand clapping. Is Brian Buddhist?

In a laissez-faire economy, business cycles would be severely dampened and the recalculation necessary would be insignificant.

David C writes:

US, you're actually substantially more conservative than I had originally thought you were based on your earlier comments. I had originally thought you were opposed to the concept of significant government reduction, and it seems like you're simply opposed to the complete absence of a welfare state. In fact, just to make you feel better, Hayek agrees with you.

"It can hardly be denied that, as we grow richer, that minimum of sustenance which the community has always provided for those not able to look after themselves, and which can be provided outside the market, will gradually rise, or that government may, usefully and without doing any harm, assist or even lead in such endeavors. There is little reason why the government should not also play some role, or even take the initiative, in such areas as social insurance and education, or temporarily subsidize certain experimental developments." - Friedrich Hayek

michael writes:

Two good things would happen in my opinion:

1) DC would burn. It would look like Back to the Future II when Biff was calling the shots. Without the mass influx of stolen money and incredibly expensive to maintain infrastructure everything would crumble. Given the large amount of unproductive scum that lives there and the fact that no one would choose to live in that swamp without all the government money I see three major industries taking over: crime, gambling and extreme tourism.

2) The Southern California coast would have an extreme housing boom. Without the incredibly strict rules on building height, population density and lot size there would be a ton of money to be made on beachfront or nearly beachfront high density developments. Depending on whether the military still exists in this utopia (whose vision is it, Rothbard's or Hayek's?) the Camp Pendleton area would be interesting to see. The military base takes up 20 miles of pristine beachfront property. It is the only thing that stops Los Angeles from connecting to San Diego along the coast.

Wilmot of Rochester writes:

Bryan,

Why is Arnold's theory just a smidge of the current recession?

Mark Bahner writes:

"My current treatment regime includes a relatively new and experimental drug called Levemir, which is way more expensive than generic alternatives."

I'm confused. This site discusses the cost of Levemir (insulin detemir):

Levemir (insulin detemir)

"Insulin detemir is available in a 10-mL vial for a retail price of $77.99."

A 10-mL vial contains 1000 units. At 0.2 units per kg, a 100 kg person would use 20 units per day. That’s 50 days per 10 mL (1000-unit) vial. The cost for Levemir in 10-mL vials is therefore approximately $1.60 per day.

This does not seem like an extraordinary burden, nor substantially higher in cost than conventional medications.

Here is a website that discusses costs of conventional medications:

Costs of diabetes medications

"Current Medication Use by Diabetic Patients
We surveyed medication use and cost of 128 patients (75 women, 53 men) seen in our program. The average patient took between 4 and 5 medications per day. Of these, 3–4 of the medications were for the treatment of diabetes, hypertension, or hyperlipidemia. The monthly cost of these drugs ranged from $80 to $115. These estimates did not include the cost of syringes or home glucose monitoring supplies. These two items increased monthly drug costs by at least $55. Thus, the total estimated monthly drug cost for these patients ranged between $115 and $170."

Again, the costs mentioned in the article above don't seem extreme for a first-world resident, though obviously $2000 a year isn't peanuts.

US writes:

Mark Bahner

I thought I'd left this debate, but I couldn't help coming back anyway...

Ok, I tried to make it all a little simpler than I should have, to make a point. The point stands, but let me explain:

I know the levemir is about $1600 a year at going prices in Denmark, the list price is 663 kroners for a month's supply, about 8000/year which in US dollars is about $1600. On top of that, you need to spend another $800-1000 on needles, $800 or so for the other insulin type I take during the day. The combination of the cheapest glucose test strips and the cheapest lancets (both used to measure blood glucose regularly) currently nets $3000 a year at the going rates. There are none of these costs I can cut away without ending up in a hospital ward and that's not $2000, that's $6.500 a year combined with no possibility of getting insurance ever to a price I can afford. It's also about the same amount as I pay in rent every year where I live now. That's for a diabetic who never goes to the doctor, don't get his feet checked, never get's his Hba-1c measured, don't know his own kidney status and have no treatment-required complications. All that stuff is extra, and when you start getting complications it starts to get very nasty really fast.

I wrote about these things in a Danish post a while ago on my blog, I've done the math before. I thought it'd be simpler to boil it down to one expensive drug I wouldn't be able to afford in this discussion. I don't consider this dishonest because I know some people will be in exactly the situation I describes and I would to a large degree be in that situation too; even if I could probably theoretically pay for the levemir and just save money by reusing my needles and end up dead after a rupture of a subcutaneous insulin-deposit instead, making some people probably claim that the levemir-costs were not the primary issue after all, the costs aren't going anywhere.

US writes:

In case you were wondering, you can't really compare the type 1 and type 2 diabetics' costs of blood glucose test materials. Some type 2 diabetics can manage with as little as one blood glucose test every week. My absolute minimum is 5 or 6 a day, corresponding to the times of the day where I take insulin. If I take insulin without measuring my blood glucose, I have no idea how much insulin I'll need and the risk of taking too little or too much is a near-certainty. Insulin-dependent type 2 diabetics also on average take much less insulin than type 1 diabetics. I state these things because I'm fairly sure the study you link to was conducted on type 2 diabetics. The treatment regimes of the two diseases are very different; currently the most recent post on my blog, which you can get to by clicking my name, contains a lecture explaining a lot of these things.

Mark Bahner writes:

"I know the levemir is about $1600 a year at going prices in Denmark, the list price is 663 kroners for a month's supply, about 8000/year which in US dollars is about $1600."

I'd be very careful about whether the "list price" in Denmark represents the cost that would exist in a libertarian society.

The site I quoted gives a U.S. "retail" price of $78 for a 10-mL vial. As I noted, that's a 50-day supply at 20 units per day. So the site I quoted gives a cost of "only" $570 per year for Levemir.

Again, this is not to claim that Type I would not be a significant financial burden in a libertarian society.

You have stated that you probably would have to quit school and go to work full time in a libertarian society. I think that's very probably true. But as others have noted, I doubt you and the majority of other Type I diabetics would simply die before 40 in a completely libertarian society.

Mark Bahner writes:

To get back more closely to the subject of the post: I recommend thinking about what a radically libertarian country would be like by looking at the top countries in the world in each aspect of libertarianism, and thinking how it would be if all those aspects were combined.

For example, Switzerland is probably one of top libertarian countries in terms of their military getting involved in unnecessary foreign wars (they don't).

And Hong Kong, Singapore, and Ireland are always near the top in the Index of Economic Freedom. So the economic freedom would be like those countries (only freer).

Just continue down the list of possible subjects: Belgium, Germany, the Netherlands are probably near the top with regards to libertarianism regarding marijuana. (I have no clue on this subject, so pick more libertarian countries in this regard, if they exist.)

If you picked the most libertarian country or countries in every aspect of life, and combined them all together, I think you'd end up with a pretty amazingly nice country in which to live.

US writes:

Mark

No type 1 diabetic could do with 20 units/day. I take ~50 units/day, making it $1425/year. Not far from my $1600.

The numbers match reasonably well, both regarding medicine and regarding other materials.

I assume the administrator has withheld the other comment I wrote earlier in response to your response. I thus shall not repeat what I said there, even if I find part of that comment relevant once again by illustrating the depth of your ignorance.

I'll make it short: Most of you people have no clue what you're talking about. And I don't blame you for that. Who I do blame are those of you who keep thinking that your estimates of what is going to happen with (someone like) me after a reform are more informed or correct in expected terms than my own estimate is. I can tell from your comments that you know next to nothing about my disease and I know for a fact that you know nothing about me and how the disease affects me. It's exactly like hearing some random socialist tell a factory owner that he just knows better which cars will be popular 5 years down the line than the factory owner does. I don't get how you can't see that.

Loof writes:

Please explain what is meant by a “a big expansion of gated, all-inclusive communities” that’s the main prediction to actualize Libertopia. As it sits, this loofs like it could be a communal party for communists or capitalists; or a groupie for communist collectives, collective corporations, encorporated combines, if you get the gist –and an apposal thumbing of the the invisible hand of every personal individual freely going about their daily entrepreneural business working their self-interest.

According to the Internet Encylopedia of Philosophy: “Libertarians are committed to the belief that individuals, and not states or groups of any other kind, are both ontologically and normatively primary…” Taking this definition at face value (which Loof values loofing through the loofing glass) doesn’t it mean the public goverances of the state would be minimized as well as the private goverances of any collective (commnnist, corporatist, combinist)? Mini-states and mini-collectives would be the best option for moving towards Libertopia, L believes. A committed movement to mini-states and mini-groups of any other kind would unleash the entrepeneurial spirit and power of personal individuals to move towards a Libertopia, would it not? But then Loof is probably naïve, much like Adam Smith was with his naïve self-interest theory.

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