Thursday, August 5, 2010

Libertarianism, Health, and a Brief Overview of Economic Calculation

Will companies actually pay workers more?

They will increase wages if they want to keep workers. To generate profits a company must invest in capital, therefore increasing profits as well as wages. When capital is increased, the need for better trained/certified/skilled workers becomes apparent. These workers are paid more for their greater skill (a doctor usually has a higher wage-rate than a nurse).

People won’t leave their jobs or strike for higher wages.

Well, people do anyway. They do strike, they do demand. In fact, the consumer demand controls the economy. Our voice (as consumers) have demanded that companies continuously produce better, high quality products for cheaper prices. It’s quite remarkable. Workers would be able to move about their labor market if allowed. The government (generously) has provided tax incentives to companies to offer benefits that often lock employees into their job location, when they’re unable to find the same benefits elsewhere they’re discouraged from relocating. This is the result of government intervention.

Why are Medications so expensive?

Medications are expensive because of many factors: the amount of capital necessary for the production of pharmaceutical drugs, the cost of testing/standard/general regulations provided by the Federal Drug Administration, and the lack of competition in the pharmaceutical industry. You are correct. Pharmaceutical companies can charge whatever they wish to sell their drugs, as they should. However, the pharmaceutical companies do not play on a fair field - a field that has been set by the government. If the pharmaceutical companies were on a free market, in which they were not subjected to any government intervention (including testing), they would be free to charge whatever they wish for their products. Again, supply and demand. Since this is not the scenario and the pharmaceutical industry is forced (mostly with welcoming arms) to play under certain regulations, this actually damages the competition in this particular market. For example, these companies are subjected to submitting a patent for their new drugs. This makes it very difficult for new drugs to be produced quickly, as well as researched. Tag this on with massive testing requirements - competition is easily melted away, leaving only a few players with little incentive to decrease their prices (most of their prices are fixed in the first place), this assures that the pharmaceutical companies receive a sort of “fixed profit.” They’re not subjected to risk, nor to the consumer demands of the market. This is the result of government regulation, not the free market.

This may help some:

Economic Calculation

A socialist economy is one in which the collective (or the state) owns all property; therefore, no one (individual) owns property (property of any kind, such as; money, their house, their desk, their own person, etc.). There are varying degrees of socialism--the only idea I have run across that addresses the direct distinction between a socialist and capitalist economy was formulated by Ludwig Von Mises. Basically, he stated that an economy that is no longer capitalist is one that does not have a private stock exchange, in which people (capitalists) can purchase ownership in companies. Anyway, when all property in an economy is owned by the state, there can be no exchange of property, obviously, since all property is collectively owned and there can not be a transaction or trade of property. If two individuals are in an economy (a socialist one) and if they both own the same coffee maker and pair of shoes, they will simply share each item--there is no need for an exchange since neither individual holds the item to his or her own individual belonging. Due to this fact, an economy without property exchange will be unable to set prices. Prices are reflected by each individual’s value over a certain piece of property. In a capitalist economy, our two fellows, with their coffee maker and pair of shoes, will be able to value each item accordingly and set a price for each--as well as influence the other’s individual prices (supply and demand). Since no one owns any property in a socialist economy, individual pieces of property can not be valued; and therefore, prices can not be set for these pieces of property. Without prices, our socialist economy can not determine profit and loss. If I sell my coffee maker for five dollars after building it for three dollars, then I’ve made a profit of two dollars (obviously). If I do not know the price to build the coffee maker, I will be unable to know the price in which I should sell the coffee maker, leading me to not have the ability to calculate my profit. So now we can settle that a socialist economy can not calculate profit and loss. If we can not calculate profit and loss we can not determine where to allocate resources in our economy (this is not true for a family-sized economy, in which you can allocate resources daily without the use of prices and profit & loss). We can not allocate resources properly (by properly I mean, those who want/need a coffee maker the most) because no one in our economy knows if taking this coffee maker is going to satisfy their want (we are unable to place values). Example: in the Soviet Union, the central government was not able to calculate that its population needed food over MIG-29’s. So the Soviet Union built hundreds of MIG-29’s rather growing or producing food. Their government guessed on what they should build and where they should build it. Where as, in the US, individual businesses can interact with consumers to determine the wants/needs of each individual person. This theory I have just presented was originated by the economists, Ludwig Von Mises and Frederich A. Hayek, it is called the theory of Economic Calculation and it was used to disprove the idea that a socialist economy could stably function and operate without the use of a market.

This, as for the ethical idea of private ownership of property, is the reason why Libertarians oppose socialism.

Photo thanks to this site.


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