Confessions of a Supply-Side Liberal

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God and Devil in the Marketplace

Jonathan Haidt, in The Righteous Mind: Why Good People Are Divided by Politics and Religion, pp. 303, 304:

The next time you go to the supermarket, look closely at a can of peas. Think about all the work that went into it—the farmers, truckers, and supermarket employees, the miners and metalworkers who made the can—and think how miraculous it is that you can buy this can for under a dollar. At every step of the way, competition among suppliers rewarded those whose innovations shaved a penny off the cost of getting that can to you. If God is commonly thought to have created the world and then arranged it for our benefit, then the free market (and its invisible hand) is a pretty good candidate for being a god. You can begin to understand why libertarians sometimes have a quasi-religious faith in free markets.

Now let’s do the devil’s work and spread chaos throughout the marketplace. Suppose that one day all prices are removed from all products in the supermarket.  All labels too, beyond a simple description of the contents, so you can’t compare products from different companies. You just take whatever you want, as much as you want, and bring it up to the register. The checkout clerk scans in your food insurance card and helps you fill out your itemized claim. You pay a flat fee of $10 and go home with your groceries. A month later you get a bill informing you that your food insurance company will pay the supermarket for most of the remaining cost, but you’ll have to send in a check for an additional $15. It might sound like a bargain to get a cartload of food for $25, but you’re really paying your grocery bill every month when you fork over $2000 for your food insurance premium. 

Under such a system, there is little incentive for anyone to find innovative ways to reduce the cost of food or increase its quality. The supermarkets get paid by the insurers, and the insurers get their premiums from you.  The cost of food insurance begins to rise as supermarkets stock only the foods that net them the highest insurance payments, not the foods that deliver value to you. 

As the cost of food insurance rises, many people can no longer afford it. Liberals (motivated by Care) push for a new government program to buy food insurance for the poor and the elderly. But once the government becomes the major purchaser of food, then success in the supermarket and food insurance industries depends primarily on maximizing yield from government payouts. Before you know it, that can of peas costs the government $30, and all of us are paying 25% of our paychecks in taxes just to cover the cost of buying groceries for each other at hugely inflated costs.

In 2009, [David] Goldhill published a provocative essay in the Atlantic titled "How American Health Care Killed My Father": One of his main points was the absurdity of using insurance to pay for routine purchases. Normally we buy insurance to cover the risk of a catastrophic loss. We enter an insurance pool with other people to spread the risk around, and we hope never to collect a penny. We handle routine expenses ourselves, seeking out the highest quality for the lowest price. We would never file a claim on our car insurance to pay for an oil change.   

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