The Price of Capture Arguments

Some bloggers (and commenters) appear a bit perturbed by a recent post on the proper scope of state intervention:

I don’t want to figure out how much coliform bacteria I can tolerate on my spinach, given my health. I don’t want to do that even if it saves me money. I don’t want to figure out what goes into paint in nephews’ toys. I don’t even want to handle my health care.

People talk about being rational health care consumers, but . . . [my] utility is optimized by going outside to play while someone who is interested in health care gets paid to balance my health care and money. I’ll pay a little extra to cover that person. I come out well ahead in that deal. . . . I can hear you already: “But you are FORCING me to take that deal too.” Yes. But right now our system FORCES me to comparison shop. Either way, someone gets FORCED to do something. . . .

I was hearing legal realist Robert Hale in that (here summarized in a perceptive note by Ilana Waxman, 57 Hastings L. J. 1009):

Hale’s most fundamental insight was that the coercive power exerted by private property owners is itself a creature of state power. . . . By protecting the owner’s property right . . . “the government’s function of protecting property serves to delegate power to the owners” over non-owners, so that “when the owners are in a position to require non-owners to accept conditions as the price of obtaining permission to use the property in question, it is the state that is enforcing compliance, by threatening to forbid the use of the property unless the owner’s terms are met.” . . . .[A]ll property essentially constitutes a delegation of state power to the property owner. . . .

Hale’s words have special force in areas like health care, where I struggle to even conceive of what a pure “market” would look like. Does the government stop licensing doctors, stop subsidizing medical education and research, stop protecting public health, stop requiring vaccinations, and stop requiring provision of emergency care? When a health care infrastructure that has been heavily subsidized gets privatized, is there any provision for assuring that the public that paid for it actually gets some public service in return? (For one example of the subsidy: it is estimated that $500,000 to one million of the costs of educating each physician are public funds.) If 90% of doctors decided to serve the 3% of Americans with $1 million in disposable assets, leaving 10% for the other 97%, would that uncoerced market distribution be legitimate?

Ilya Somin at Volokh has this response to the original post I quoted:

With a mandatory government solution, we will at best get the menu of choices that the majority of voters consider appropriate – a result that will be deeply unsatisfactory to many who have minority preferences. At worst, the menu will be dictated by narrow interest groups that manage to capture the regulatory process and use it for their own benefit.

I have two responses: 1) It is wrong to assume that anyone proposing universal coverage wants a nationalization of the health system. 2) If you’re going to make a “capture” argument, you can only do so in good faith if a) you’re in favor of some basic constraints to stop capture or b) you’re so thorough-goingly libertarian you’d also privatize just about everything else, including the military. A few more thoughts on 2) below. . . .

Somin’s points on capture remind me of this Krugman line on Hurricane Katrina:

There’s a powerful political faction in this country that’s determined to draw exactly the wrong lesson from the Katrina debacle — namely, that the government always fails when it attempts to help people in need, so it shouldn’t even try. “I don’t want the people who ran the Katrina cleanup to manage our health care system,” says Mitt Romney, as if the Bush administration’s practice of appointing incompetent cronies to key positions and refusing to hold them accountable no matter how badly they perform . . . were the way government always works.

I think capture is a big problem, as I’ve suggested here and here. But the answer is not to simply give up on government, but to develop the types of political arrangements that expose, shame, and punish capture–such as robust campaign finance regulation that I’m pretty sure Somin would like to see the Supreme Court eviscerate.

As for total libertarianism, my sense is that the same broad arguments now applied to health care may end up addressing much more than their advocates intend. Consider this vision of the future:

Suppose the national defense of the United States were relegated to the private sector. Instead of the publicly funded Army, Navy, Air Force, and Marines, the country would be defended by private militias funded mainly by insurance companies. In the event of foreign attack on U.S. soil, the militias would defend those citizens in the affected areas who’d paid defense insurance premiums through their places of work (or, if self-employed, as individuals).

The best-armed troops would defend the wealthiest and most hawkish segments of the population, who would have paid the highest premiums.

The less-wealthy and more dovish customers who’d chosen a less-generous policy would likewise be defended against attack, but they could expect to pay heavily out of pocket because their insurance would only cover costs for weapons and manpower above a fairly high deductible. The doves’ militias might or might not call in air support, knowing the insurance company would pay for it only in the most dire circumstances—difficult to calibrate as bombs are dropping all around you. Or perhaps these troops would belong to defense maintenance organizations (DMOs) that blended defense and insurance functions. If so, the soldiers would be required to follow strict protocols that would likely forbid not only air support but also the use of tanks.

Luckily, this is just a satire, and not a Blackwater response to a Pentagon RFP. But Somin’s channeling of Thatcher’s “there is no society” makes it a lot more plausible.

*By the way, word to book authors out there: when I wanted to talk about Hale, the first place my mind turned was, of course, Barbara Fried’s The Progressive Assault on Laissez Faire: Robert Hale and the First Law and Economics Movement. But it’s much easier for me to deal with SSRN or Westlaw if I need to do a quick post. I wonder if there is any way for more presses to broker deals like the one Yale worked with Yochai Benkler, which let a galley version exist on the web? Sadly, it appears the very property-right oriented legal schemes that Hale lamented now appear to be blocking full access to scholarship on his work.

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