The in­sur­ance com­pul­sion

Fear of life’s un­cer­tain­ties drives so­ci­eties to­ward the mis­ery of so­cial­ism

The Washington Times Daily - - OPINION - By Richard W. Rahn Richard W. Rahn is chair­man of Im­prob­a­ble Suc­cess Pro­duc­tions and on the board of the Amer­i­can Coun­cil for Cap­i­tal For­ma­tion.

Venezuela is the lat­est global dis­as­ter caused by so­cial­ism. Over the last cou­ple of hun­dred years, vir­tu­ally every va­ri­ety of so­cial­ism has been tried — from com­mu­nism to na­tional so­cial­ism (Nazism) and fas­cism, to var­i­ous va­ri­eties of “demo­cratic so­cial­ism” — with one com­mon char­ac­ter­is­tic — they all failed. De­spite the eco­nomic fail­ures, loss of lib­erty and the tens of mil­lions of deaths re­sult­ing from the so­cial­ist ex­per­i­ments, it has an en­dur­ing ro­man­tic at­trac­tion. Bernie San­ders and mil­lions of his fol­low­ers call them­selves so­cial­ists, with­out em­bar­rass­ment, claim­ing that next time they will get it right. Many coun­tries still have so­cial­ist par­ties. How can so many be so ig­no­rant of the nev­erend­ing mis­ery so­cial­ism has brought?

Many of those who ad­vo­cate so­cial­ism not only suf­fer from real or stud­ied ig­no­rance, but a fear of not be­ing able to fend for them­selves. They fear that they can­not make a liv­ing on their own or pay their own med­i­cal bills. They fear com­pe­ti­tion. When some po­lit­i­cal type says, “The state will take care of you and give you food, shel­ter and med­i­cal care,” for many it be­comes easier to ac­cept the words as truth with­out think­ing through the his­tory, costs and con­se­quences of such prom­ises.

Life is scary and un­cer­tain. Chil­dren fear the loss of their par­ents to pro­tect and care for them. Part of be­com­ing an adult is tak­ing on the re­spon­si­bil­ity for tak­ing care of our­selves, which means in­sur­ing as much as pos­si­ble against life’s risks. Re­spon­si­ble adults take cer­tain ac­tions, such as in­sur­ing against unem­ploy­ment by de­fer­ring im­me­di­ate grat­i­fi­ca­tion and spend­ing time, ef­fort and money to ob­tain more ed­u­ca­tion and job skills. Re­spon­si­ble adults buy med­i­cal in­sur­ance, auto in­sur­ance and home­own­ers in­sur­ance to pro­tect them­selves, at least par­tially, against events they may not be able to con­trol.

In­sur­ance costs money, and it is hu­man na­ture to pre­fer that some­one else pay your bills. In essence, so­cial­ism is a sys­tem in which others are forced to pay your bills no mat­ter how ir­re­spon­si­ble you may be. Mar­garet Thatcher fa­mously pointed out that so­cial­ism works un­til so­cial­ist gov­ern­ments run out of other peo­ple’s money.

Rec­og­niz­ing that many will be ir­re­spon­si­ble and not buy ad­e­quate in­sur­ance, states re­quire peo­ple to buy auto in­sur­ance as a con­di­tion of driv­ing on pub­lic roads. Com­pa­nies that pro­vide mort­gages re­quire those who have a mort­gage to buy home­own­ers in­sur­ance.

The first duty of gov­ern­ment is to pro­tect the cit­i­zens and their prop­erty — which re­quires a mil­i­tary, po­lice and court sys­tem. This in­sur­ance has to be paid for — and cit­i­zens are re­quired to pay taxes for these func­tions. Most peo­ple, not in­clud­ing anar­chists, be­lieve these are nec­es­sary func­tions of gov­ern­ment. So most de­bate is about how much to spend on these func­tions, not whether or not it is de­sir­able to in­sure against these risks.

The real de­bate is about how much in­sur­ance any in­di­vid­ual should be re­quired to pay for ver­sus how much should be vol­un­tary. The so­cial­ists prom­ise to in­sure the in­di­vid­ual against al­most all of life’s risks, but to do so, they have to com­pel peo­ple to pro­vide what­ever share of their earn­ings nec­es­sary to pay for all of the ben­e­fits. The de­mand for more ben­e­fits is never-end­ing. The amount re­quired to pay for the ben­e­fits be­comes so high that most in­di­vid­ual ini­tia­tive, in­vest­ment and work in­cen­tives are de­stroyed. State mo­nop­oly agen­cies to pro­vide for all the ben­e­fits have lit­tle in­cen­tive for cost con­trol, nor do the peo­ple work­ing within the agen­cies have many in­cen­tives for good “cus­tomer” ser­vice. At some point, the sit­u­a­tion be­comes so bad that the peo­ple re­volt — which ex­plains why most coun­tries that tried so­cial­ism have re­jected it in all but name.

The Chi­nese Com­mu­nist Party still calls it­self so­cial­ist, de­spite hav­ing largely a free-mar­ket sys­tem. A few years back dur­ing one of my trips to China, I was in a dis­cus­sion about the econ­omy with a high-rank­ing Chi­nese gov­ern­ment of­fi­cial. He had been de­fend­ing the supremacy of the party. I noted that dur­ing the first 30 years of com­mu­nist rule, the econ­omy had been a dis­as­ter, but three decades ago, when they turned to a mar­ket econ­omy, with some prop­erty rights, work and in­vest­ment in­cen­tives, the econ­omy boomed. His re­ply: “We orig­i­nally thought that we could go di­rectly from a poor agrar­ian so­ci­ety to com­mu­nism, but then we re­al­ized that first we would need to build a rich cap­i­tal­is­tic so­ci­ety, which might take 100 years, be­fore go­ing to com­mu­nism.”

The cur­rent de­bate about the gov­ern­ment role in health care in­sur­ance il­lus­trates the mud­dled think­ing among the po­lit­i­cal class. Un­der Oba­macare, there is a re­quire­ment that peo­ple are com­pelled to buy in­sur­ance from se­lected providers or pay a fine. Many young peo­ple saw this cor­rectly as a bad deal for them, so they chose to pay the fine to a co­er­cive gov­ern­ment. Many Repub­li­cans said they would take away the pur­chase re­quire­ment as an un­just in­fringe­ment on per­sonal lib­erty — but then many quite ir­ra­tionally said they would cover pre-ex­ist­ing con­di­tions — which de­stroys any in­cen­tive to pur­chase in­sur­ance un­til one is ill. This is not in­sur­ance, but so­cial­ist in­come re­dis­tri­bu­tion, and will lead to a fis­cal dis­as­ter.

A rea­son to se­verely limit gov­ern­ment’s role in in­sur­ing against in­di­vid­ual risk is that his­tory shows free mar­kets can pro­vide in­sur­ance for most things more ef­fi­ciently and with­out com­pul­sion.

The so­cial­ists prom­ise to in­sure the in­di­vid­ual against al­most all of life’s risks, but to do so, they have to com­pel peo­ple to pro­vide what­ever share of their earn­ings nec­es­sary to pay for all of the ben­e­fits.

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