Against Exploitation (of Theory and people)
Recently, Tim Worstall wrote for the Adam Smith Institute a short article titled ‘Privatise the NHS!’ He writes: ‘Our suggestion here would be that The Guardian undertake that difficult task of trying to employ that mythical beast - the journalist with a grasp of numbers.’ I would like to go further: a journalist with a grasp of sound economic reasoning may also do the trick, as simply dismissing price increases as ‘exploitation’ is a favourite trick of the Leftist’s playbook but doesn’t actually equate to much. Instead, this claim amounts to an implicit moral judgement smuggled into the chain of reasoning above and beyond what objective economic analysis can actually tell us.
To be sure, while there is nothing wrong with moralising, nor is there anything wrong with drawing inference from statistics (inferential statistics constitute an entire category of statistical theory), there is something disingenuous about implicitly moralising on data: it runs the risk of leading the reader well astray from the boundaries of what the data can actually tell us. In this example, the journalist, decrying private healthcare providers as ‘exploitative’, seems to be engaging in a sort of Brutus complex, yet in the process committing several errors, which I will explain shortly. It amounts to an exploitation of theory which, in turn, exploits the sentiments of the general public - a leviathan easily led at the best of times! At the same time, I will attempt to take on the monumental task (in such a short space) of explaining that market economies are not exploitative entities, but rather ones which provide the most likely apparatus of human liberty, based, as they are, on private property rights.
Although the article brilliantly mentions that price increases for certain procedures in the private sector have, in fact, taken place, when measured against the standard rate of inflation in the UK it is found that such price increases are not nearly so high. Going further, there are a few economic reasons behind the price increases which could be cursory explanations. To tackle this, I will stay within the boundaries of economic theory but begin from the simpler and diverge into the more complex.
The first is simply a demand increase. With long waiting lists, a shift in the demand towards more private care is bound to occur, and so there will be a necessary period of price re-adjustment to compensate for the currently-limited supply in the private sector. When the latter increases, the price will fall, ceteris paribus. Would the same journalist attempt to raise a moral outcry to the tune of ‘exploitation’ if the private healthcare market over-supplied, meaning that prices would sink ever-lower? Doubtful. Indeed such an event would probably trigger one of two reactions: either praise for the provider-producers for managing such low costs (as though the individual CEOs decide only of their own accord to price up their goods and services), or the demand for an investigation in such ‘wasteful’ pursuits by the private sector (as though the government has a reputation for carefully managing its spending) - both of which, paradoxically, are assumptions common to the modern Left.
The basis of the error here is in failing to recognise what the meaning of ‘price’ actually is. The price of a good when sent to market is no more than a simple expression of its market-clearing value in exchange, itself a function of aggregated individual producer-consumer wants. Price fluctuations occur, rather than stabilise, because individual producer-consumer options are themselves in constant flux, influenced as they are reciprocally by the environment around them and how that too is changing. The decisions ultimately begin at the individual level and aggregate outwards. At each point, the only purpose of a price is to provide an indicative signpost to both producers and consumers of the level at which the market will clear, even if it never actually does ‘clear’ in an absolute sense of the word. Attempting to short-circuit this process by allowing price-fixing agencies to cement the price below the market-clearing price (when allowed to shift freely) will only result in the unintended consequence of restricting supply increase and creating a crisis of demand for goods and services which would be in ever-shorter supply. In the long run, we may be ‘all dead’ - as Keynes’ cynical retort would have it - but in the meantime we would be subject to such rapid market collapse that the situation would quickly escalate to worse. In other words: if Leftists think temporarily higher costs are ‘exploitative’ now, I would love to see what grand narrative they would deploy when the market collapses as a logical conclusion to their much-coveted, government-solves-all approach.
Secondly, there is the issue of tax. While escalating taxes will always impact the supplier-producer eventually, they do prefigure cost increases - and the private healthcare sector is no exception. For example, by putting a tax on exchange, the price of the goods or service will shift from relatively-inelastic to relatively-elastic demand, meaning that the market-clearing price will shift upwards and, as a result, consumer purchases will shift downwards. How does this impact the supplier-producer? Eventually, in response to artificially-decreasing demand, supply will be decreased too, meaning that the growth potential of the company is not met, leading to fewer opportunities and options for a public who, as the journalist crying ‘exploitation’ established (correctly, I will add), are already suffering the consequences of much government interference and lack of opportunities to acquire the goods and services demanded. This is only one form of tax, let alone the many (and seemingly increasing) others coming into play at any given year!
What else happens? It is much the same with any socialised, or quasi-socialised, government project: non-producers, non-savers, non-investors, and so forth, acquire interests and political rights (at an official level) over the decision-making nexus of producers, savers, and investors. It is not just the increasing of tax rates to fuel collection, but the way in which, once collected, the tax-derived income is redistributed - a phenomenon which can work both upwards and downwards with respect to the social classes who derive benefit from it. By equalising the power dynamic between two disparate groups, the individual’s right over a thing and its deployment is obscured, and legitimate returns are precluded almost by default. Likewise, who made the decision that resource X should be purchased and distributed to Y? These are not decisions made in the same capacity of the private consumer, who has to bear the full-cost principle for their own decision-making traits. Should any normal business attempt to model itself on this behaviour - that combination of full cost bearing plus equalised and socialised interests - it would quickly find itself insolvent, asset-stripped, or busily attempting to salvage any equity it could. By raking in such (and increasingly) excessive tax revenues, the government arrogates to itself not only the peacocking of indirect price control (they can push up the price in such a way that demand becomes relatively elastic) but further the political impetus to make its own distributive decisions, often in ways other than that which would have been preferred by private persons acting in a market apparatus, on a blank-cheque basis.
Third, it is worth considering the role of insurance companies. The risk-pooling procedure of any standard (and sensible) insurance companies are likely to have an indicative role too, as a possible explanation for the price increases when aggregated could be connected to higher insurance premiums based on the pooling and perceived risk, both for the recipient of the procedure and the healthcare provider. For example, if one is genetically predisposed to certain conditions or ailments, then the insurance companies will respond accordingly, basing its risk-pooling assessment on that fact plus the probability that you too will succumb to the genetic predisposition. The same goes for those who habitually engage in a lifestyle known to have adverse effects on health - alcohol, drugs, and so on, where overconsumption makes one an insurance liability.
To be clear, in certain cases such as hysterectomies, I am not suggesting that the women-recipients of the procedure are remotely to blame. Of course, while this cannot be ruled out entirely, I believe that those who require it due to self-inflicted issues would be far fewer by a long shot than those who require it for non-self-inflicted issues. In this case, I point to the increasing prevalence of cancer and other, similar illnesses in the modern world. Not only will this drive certain demand curves (the impacts of which I have outlined above) for certain avenues of medical treatment, but similarly, the increasing probability of an individual developing cancer will, accordingly, increase the insurance premium required to cover any and all medical costs. Private healthcare providers, too, will have insurances to worry about, particularly for high-risk procedures. This pendulum swings both ways. The more significant question that this begs is how we can re-develop lifestyles which reduce our proneness to such conditions in the first place.
In either such case, I have demonstrated that there are likely alternative factors behind the rising price of certain procedures when undertaken privately, well beyond the simple and infantile claim of ‘exploitation’. To return to the journalist’s outcry, there are three fundamental errors made: 1. a position known as ‘arguing from price change’, 2. ignorance of the ‘third-variable problem’, and, therefore, as a result of both taken together, 3. a category error. The first is economic, the second statistical, and the third philosophical. One leads to two, and both, taken together, create three.
With respect to ‘arguing from price change’, this is one way in which one can smuggle a moral judgement from economic observation. If we take a stereotypical example of low prices = good and high prices = bad, it seems like an implicit hangover from the days of mob justice against hoarders and usurers. Prices, remember, are functions of market-clearing exchange values, and nothing else. It is one thing to speak against inflationary practices, such as fiat currency or money-tampering, and their economic consequences, but quite another to claim that price increases, ceteris paribus, are bad by default. In an organic market environment, prices, and the value-decisions that they signal, will fluctuate. This is entirely different from a monopolist deciding to tamper with money and erode the purchasing power transcendent to what it would have been had a market, with a hard currency such as a gold standard, been left. This, again, is still different to observing a price change in otherwise-normal conditions and deciding to cry wolf.
Why might this happen? The ‘third-variable problem’ takes us briefly into the domain of statistical theory. It is an issue insofar as if and only if there are two sets of data available one decides to conclude that set A is the direct cause of set B, or vice versa. So, for example, in the journalist’s outcry against ‘exploitative’ private healthcare firms, they have committed to this problem as they have concluded that A, the private healthcare consumer, is paying more because B, the private healthcare provider, has increased prices due to exploitative intent, given that initially there has been an ‘argument from price change’. Instead, the third-variable (I would argue for a plural - variables) problem challenges us to account for the fact that the actual, direct cause is likely excluded from the initial information we have on A and B, and is therefore in the background. In this case, B is not the direct cause of A, and ‘argument from price change’ can be ruled out for a second time. Instead, the n-variables would be to account for things such as supply-demand shift, tax, and insurance-based, risk-pooled premiums.
Lastly, how does this create a category error? Between the argument from price change and the third-variable problem, the category of direct causality between B and A, because the price has changed, is assigned: B is exploitative, therefore A pays more. The error is in drawing an axiological conclusion based on a category which does not correspond with the bigger, even if perhaps slightly more abstract, picture - and is therefore the wrong category. Instead, indirect causality occurs: A pays more indirectly because B is being subject to a host of other factors which influence and determine its price (market-clearing value) margins. This is not to say that there can never be a verifiable or sound category of direct causality, but simply to say that indirect causality and contiguity here account for a more reasoned, sound explanation, consulting and employing economic theory.
Although I have attempted to squeeze much into such few pages, I hope that my explanations have gone some way to serving the original intent of the title, Against exploitation (of theory and people). Theory can be exploited when it is left unanalysed, and people can be exploited by bad-faith or lazy thinking. In both cases, it is not the market that is exploitative, but arrogant government behaviours which attempt to ‘correct’, as though they were children, decisions on behalf of private property owners and responsible adults.