The Amorality of Markets

03 Apr 2017 3:21 PM | Mike Lillich (Administrator)

By Oren Levin-Waldman

First published online in the Yonkers Tribune

The collapse of the Republican Healthcare reform bill illustrates a fundamental point that has been lost on many, which is that moral obligations cannot be met through competitive markets

In my last column, “The Only Viable Health Insurance Reform is a Single Payer SystemI noted that healthcare really is not a normal market. On the contrary, to ensure that all are covered requires the type of moral commitment that can only be met through non-market intervention.

In a traditional competitive market, individuals satisfy their preferences and healthcare, like all other markets, obtaining it would be like any other preference. Those who can afford it will get it and those who cannot will not. When politicians talk about free markets, they aren’t telling you that the market is really about preferences and wants, and that those preferences are allocated through a price system.

Healthcare is not a preference or a want, but a need. Preferences, after all, imply that they really aren’t needed. We all need healthcare at some point in our lives and at some point that care will be extremely costly. From a moral standpoint, a society that prizes life cannot allow people to get sick, suffer and ultimately die because they could not obtain healthcare by the rules of the traditional marketplace.

The language of markets also allows for the fiction that we have choices. If simply a preference, we would purchase health insurance as a matter of choice, and if enough individuals opted not to because the price was too high, then insurance companies would be required to reduce their prices in efforts to get more individuals to buy. Of course, if a need, and we all need it, then insurance companies don’t have to compete for customers and can raise their prices.

On one level there were those who voted against the bill because it was not pure market enough. Too many subsidies were still available. On another level, there were those who voted against it because too many people would be left without insurance because it would simply be unaffordable and subsidies through tax credits were going to be available to people based on their age rather than their income.

From an insurance standpoint this makes perfect sense. If the goal is to increase the insurance pool with young healthy individuals who otherwise might opt not to purchase, offering them subsidies might entice them to do so. But older people, who because they are most likely to have health problems, would not have received much and would see their costs rise. Again from an insurance perspective, it does not make sense to insure them at all. After all, the goal of insurance companies is to make money.

One way to look at the problem is that free markets are a convenient argument for maintaining a particular status quo. Moreover, it allows those with wealth and power to mask their selfish intentions, which is not to have to pay for others. Because we subscribe to a free marketplace, any policy that interferes with that marketplace is inefficient. There is no question that the Affordable Care Act is inefficient. But its replacement with the Ryan plan would not have made it any more so.

Another way to look at the problem is to look at markets for what they truly are: amoral arenas where we can purchase goods and services, and where those goods and services will be allocated on the basis of price. To say it is amoral is to say that it is neither moral nor immoral. To then say that the provision of access to healthcare is a matter of moral obligation is to recognize that the marketplace is ill-equipped to meet moral obligations.

The principal reason that we have public policies is because of market failure. We have unemployment insurance because the market often fails to ensure that there are enough jobs for everybody all the time. We have public assistance and other programs to help the working poor because the market fails to ensure that everybody has the opportunity to earn a living, or if people do work they earn enough to support themselves. When policy begins to cover social issues it is because market failure has become larger social failure.

The problem is that it isn’t just a matter of market failure. Take the labor market as an example. We might say wage floors are necessary because the market place fails to pay workers enough to live on. But this overlooks the power dynamic. Employers can pay their workers less because the labor market, like the healthcare market isn’t a normal market either.

Workers are needs traders while employers are wants traders. A worker needs to eat and therefore is forced to accept whatever job may be offered regardless of how little it pays in order to do so. The employer, however, with resources does not necessarily need to hire workers if their wage demands are too high. S/he has the luxury of holding off until workers are willing to accept less in exchange for work. The principal difference between the worker and the employer is that the latter has market power, while the former does not. Labor market institutions like unions and minimum wages give workers a degree of market power so that they can almost be on an even playing field.

Remember that the market place is amoral and cannot see the immorality of the power imbalance. Similarly, the marketplace cannot see the immorality of a competitive market that would allow people to go bankrupt in order to get essential medical care, or worse allow people to die because they cannot.

If anything, this past week’s debacle only demonstrates the amorality of the marketplace and why we cannot rely on it to solve problems which at root are moral obligations. Even if we acknowledge that a market approach could be found through employer vouchers going to their workers to purchase their own policies on the open market, there would still be a degree of moral hazard: people behaving in perverse ways. Even if in the short-term prices came down to attract customers, they will still rise in the long-term because more demanding insurance, especially when armed with vouchers to purchase it, will only shift the demand curve outward, thereby raising the equilibrium price.

At the end of the day it is a question of recognizing which set of consequences are less bad than others. But if we can recognize that the marketplace is not equipped to solve all of the nation’s problems, then we can move beyond the traditional theory of competitive markets. Perhaps this failure last week should be viewed as an opportunity by President Trump to endorse the single payer system and dare Democrats to oppose him.

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