Cost and Choice

Cost and Choice
You aren't "free" if you don't know what anything costs.
by John Hayward
11/03/2011

Unless you’re prepared to break the law and take what you want by force, there are only three ways to fulfill your wants and needs. The first is to be entirely self-sufficient, a lifestyle that has limited appeal in a world full of marvelous goods that no single person could possibly create.

After you’ve ruled out banditry and a hardscrabble existence in the wilderness, you’re down to either earning what you want, or settling for what you are given. The former is the method most of us associate with freedom… although a distressing number of Americans are willing to abandon faith in their own judgment, and that of their neighbors, in favor of a wise central authority distributing wealth.

Settling for what you are given is very unsatisfying, once you’re done feeling relieved that you are no longer responsible for your own provenance. You may have noticed that “kept” populations tend to be very unruly. Even the laziest and most insecure people have ambitions. They sometimes make the mistake of believing they can abandon their ambitions, to accept their “fair share” from a higher authority without complaint. This never works indefinitely. It is natural to desire choice, control, and improvement. Everybody wants more. Under capitalism, the answer to ambition is “maybe,” which is occasionally frustrating, but infinitely preferable to “no.”

If you would prefer to be free, and make your own decisions about how to invest your time and money, it’s imperative that you know the true cost of everything you would purchase. How else could you make reasonable decisions? Unless you’re very rich, you wouldn’t want to go shopping in a department store without price tags, and learn only your total bill upon arriving at the register. You can’t make intelligent choices that way.

Freedom of choice does not exist in the absence of valid information. You aren’t “free” if your “choices” are all mysteries and frauds. Unfortunately, that’s a very common state of affairs in America these days. Nobody really knows what anything truly costs, after all the subsidies, penalties, and price controls are stripped away. Even the value of the dollars in your wallet is a variable the government constantly tweaks. Meanwhile, not one person in ten knows the true price his employer pays for his labor.

The confusion of cost is especially pronounced in medicine and education. Virtually no consumers of either product have the slightest idea what they cost.

The old and broken health-care system of third-party payments, price controls, and cost-shifting completely disabled the mechanisms of competition in the medical industry. Medicine was purchased with an arcane currency known as “insurance,” and the exchange rate was an inscrutable mystery. President Obama’s reforms made the situation worse, as every one of the factors listed above moved even further out of consumer control, and into the shadows of bureaucracy. American citizens are now separated from knowing the cost of medicine by impenetrable layers of government control and private insurance.

This has real consequences for both the cost and quality of medicine. For example, the Wall Street Journal recently noted the “growing shortages of lifesaving drugs, especially anticancer therapies” due to Bush-era price controls. These shortages have “more than tripled since 2005.” Their prices were capped, because it was felt Medicare was “overpaying.” With the last mooring lines to market forces cut, shortages were the inevitable result, because there is little profit to be found by increasing supply… and the real cost of these drugs is hidden beneath a layer of political controls that do nothing to alter their value.

President Obama used an executive order to address the situation, but it’s not likely to help much. In addition to adding some new FDA reporting requirements designed to provide early warning of production interruptions, the Journal explains, “The order also tells the Justice Department to crack down on the ‘grey markets’ that have sprung up to deliver supplies to doctors and hospitals, albeit with the inevitable markups. So rather than allow price signals to govern supply and demand, Mr. Obama wants to suppress them further.”

Education costs are much in the news lately, thanks to the President’s efforts to pander to the Occupy Wall Street crowd by promising some deliriously over-hyped student loan relief. The cost of education is as enigmatic as the cost of medicine, and its true value is even more obscure.

None of the people complaining about their student-loan balances actually paid the full price of their tuition. Universities have become sponges to absorb a sea of subsidy money. A great deal of their time is spent on “remedial” education, which amounts to cost-shifting that hides the low quality of middle and high schools. Part of the college tuition that kids pay a fraction of with their subsidized student loans is spent teaching them the stuff they should have learned in high school. In fact, the value of a college diploma to many employers has been reduced to a certification that the applicant knows most of the things his parents and grandparents learned in high school.

The Heritage Foundation and American Enterprise Institute recently published a study that addressed the perpetual article of faith that teachers are underpaid. On the contrary, the study found, “Workers who switch from non-teaching jobs to teaching jobs receive a wage increase of roughly 9 percent. Teachers who change to non-teaching jobs, on the other hand, see their wages decrease by roughly 3 percent. This is the opposite of what one would expect if teachers were underpaid.”

This didn’t sit well with those who maintain that good teachers are priceless. That’s the problem – we’ve come to accept that everything virtuous, necessary, or even highly desirable is “priceless,” and the attempt to affix a price tag is somehow immoral. We’re supposed to place out faith in the superior judgment of elected officials, who will work out all the grubby little details while we congratulate ourselves on escaping from the prison of materialism.

Instead, we should measure costs, benefits, and quality with steely eyes. Free people should have little patience for the assertion that any cost cannot - or should not - be calculated with icy precision. How else are we supposed to make the informed economic decisions that are capitalism’s indispensible contribution to liberty?
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To read another article by John Hayward, click here.