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Conservative Argument for Healthcare Reform, Part 2: What Is the Size Glove of Adam Smith's Invisible Hand?

09/28/2009 05:12 am ET | Updated May 25, 2011

Domestic protection is one area where the marketplace can work really well.  It used to be called the mafia.  (A protected neighborhood can be one of the safest places on the planet.)  When the providers of these goods and services started competing, watch out.  You could make a bunch of movies about it.  

But we needed some checks and balances since the legal remedies provided by the mafia weren’t always appealable or appealing.  So we beefed up our court system and allowed local police forces do that sort of work.  Government steps in…

In many peoples’ minds capitalism and conservativism are the same thing.  I won’t quibble too much here unless you want to have some fun in the comments.

The basic idea for this stuff is Adam Smith, the guy with the Invisible Hand (he was a lousy third baseman) setting market prices everywhere.  How many times do we hear ‘let the market decide everything’?  What is failed to be noted in general discourse is the roles of government in this system.  The government needs to pick up the slack where the markets can’t cut it.  In other words, the government has to do the things that are not otherwise profitable (glaring exception – mafia.).  Things like the roads work, infrastructure, and national defense should fall into this category.  

The government needs to create an environment where everybody can make a buck.  

What about healthcare?

The insurance actuaries know that sick people or old people are not profitable.  Cut ‘em loose and we compete in the marketplace.  Get the invisible hand lifting our profits!

This is one spot where the government already steps in.  Medicaid and Medicare are part of the safety net here.  This is a proper use of the government creating an environment for the rest of society to make a buck.

The insurance actuaries also know they make money using the economy of scale.  We get a large enough bunch of people, take enough money from each, stick it in a bucket, and pay for the health needs from that.  As long as everybody doesn’t get sick at once, we can reinvest and make a nice profit. Everybody is happy.  This only works if the group covered is of a large enough size.  Kind of like a ponzi scheme.

Nice neat groups to cover people are naturally formed at the workplace.  If you work for a company of a large enough size, you are golden.  We don’t need government here.

What we have seen over the last couple decades is a hole in the capitalism game.  It is not profitable for an insurance company to offer a small employer any products.  The ponzi scheme won’t work because you can’t get a big enough wad of cash to stick in the bucket.  So, no company offers it at a workable price.  It isn’t worth the hassle.

The government has not stepped in here.  It is an area where the marketplace cannot get the invisible hand down low enough to for the consumer to grab the product.  Kind of like Shaq holding a ball over Ben Stein’s head and making him jump up and down for it.

To keep an environment for business to make money the government needs to step in and cover this hole.  Small businesses have a tough enough time getting off the ground on a good day.  Keeping a small businessperson’s family insured is a 4 ton weight on their ankle.

Every conservative hawks the capitalist system and cries that they are for the small business guy.  The government needs to step in and get Medicaid for small business.  We need the government to create the environment where small business can make a buck. 

Just like Adam Smith would have wanted it.

See Conservative Argument for Healthcare Reform:  Part 1 Get Rid of Unsightly Unfunded Mandates