Michael Novak Anticipated ObamaCare Thirty Years Ago

In his landmark 1982 book, The Spirit of Democratic Capitalism, Michael Novak identified why socialism was failing and capitalism was prevailing. This was before the policies of Ronald Reagan and Margaret Thatcher had really begun to have an impact on their economies and well before the collapse of the Soviet Union.

He noted that even dedicated Marxists had already begun to reinvent themselves in anticipation of the crushing change of fortunes. They were moving on to what they called democratic socialism, but Novak saw that as a contradiction in terms. You cannot have democracy without individual (not collective) rights, including the right of property, yet socialists continued to insist on collective ownership, or at least control over all property.

Novak cites a 1974 conference held in England to redefine what socialism means. One of the conference organizers, Stuart Hampshire said −

To me socialism is not so much a theory as a set of moral injunctions, which seem to me clearly right and rationally justifiable: first, that the elimination of poverty ought to be the first priority of government after defense; secondly, that as great inequalities in wealth between different social groups lead to inequalities in power and in freedom of action, they are generally unjust and need to be redressed by governmental action; thirdly, that democratically elected governments ought to ensure that primary and basic human needs are given priority within the economic system, even if this involves some loss in the aggregate of goods and services which would otherwise be available.

So, socialists had come to believe –

  1. That the reduction of poverty is government’s highest priority after defense.
  2. That wealth inequality must be remedied by the government.
  3. That ensuring basic needs for all is more important than economic growth.

Interestingly, this is precisely what President Obama and most of the American left believes as well. They may have abandoned the socialist label, but are still advocating the socialist agenda — as defined by socialists themselves.

Novak notes that socialists had retreated from both theory and program into the “safer ground of moral ideals.” Why? Because their theories and their programs have failed and continue to fail every time they are tried. It is easier, and a whole lot more fun, to talk about solving problems than to actually solve them.

We see this all the time in health care. People lay out what insurance companies should be doing. I usually wonder, if they are so certain of this, why don’t they start an insurance company? It could be just exactly what they think should be happening. But, no, they don’t want to actually do it, they just want to tell other people what to do. The same applies to physicians, drug companies, hospitals, and every other aspect of the health care system.

Shortly after ObamaCare was enacted a bunch of economists wrote essays for an annual journal, The Economists Voice, edited by Joseph Stiglitz and Aaron Edlin. A description of one of the essays went like this –

Now that we have covered the uninsured, it is time for us to put the priority on health, not health insurance, according to Darius Lakdawalla and Dana Goldman, both of the University of Southern California. The authors argue that benefits to population health are likely to be limited under the Affordable Care Act (ACA).

Never mind that none of the uninsured was in fact covered. All that had happened was a piece of paper was written and passed into law by Congress. But why worry about actually doing what was promised? It is enough to simply make the promise.

We see this throughout ObamaCare. It is easy enough for the planners to tell others what to do. Insurance companies are required cover adult “children” to age 26, pay for preventive care with no cost sharing, and so on, and they do it.

But everything — everything — the federal government itself was supposed to do has failed –

  • The CLASS Act could not be implemented and has been shelved.
  • Federal risk pools have already run out of money even though they enrolled a fraction of the people expected.
  • The subsidies for retiree health benefits ran out of money in about one-third of the time expected.
  • The SHOP program for small business exchanges has been delayed for a year and will probably never actually happen.
  • The rest of the exchanges are nearly invisible even though they are supposed to begin enrolling people in a mere six months.
  • The tax credits for small employers were so complicated that almost no one received them.
  • The insurance “CO-OPs” have been scrapped.

Michael Novak reflects on what turned him away from his early enchantment with socialism –

In the days when I thought socialism represented a moral ideal, socialism required of me no special moral heroism. I did not intend to become an economic activist. I had great ambitions, but not as an entrepreneur, business executive, inventor, or other economic agent. While I attributed high moral idealism to socialism, those who would bear the chief costs of my views were, above all, the wealthy and the economically active. Socialism took no skin off my nose. Moreover, if socialism did not actually work as predicted, the poor and the workers would pay a higher price for economic stagnation than I would. It was a moral position that levied no costs.

ObamaCare is simply the latest example of how regular folks suffer while the planners and the bureaucrats prosper. Washington D.C. is booming while small businesses, employees, and practicing physicians all pay the price for their fantasies.

Comments (28)

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  1. Desai says:

    “Washington D.C. is booming while small businesses, employees, and practicing physicians all pay the price for their fantasies.”

    This is a very powerful ending indeed.

  2. Patel says:

    The case you lay out in this post really highlights how we are increasingly becoming a socialist nation. This is very scary indeed.

  3. Kumar says:

    This is a scary post, hopefully, like everything in politics, we eventually cut back as the economy grows and people start taking the ever ballooning debt seriously.

  4. Jon Kessler says:

    Deep stuff Greg. The differences are that great between you and at least the middle of the left – think Bill Climton’s New Democrats, Tony Blair’s New Labour – are that great in most spheres of economic activity EXCEPT HEALTHCARE. That’s what you need to fix.

  5. Uwe Reinhardt says:

    A thoughtful and thought provoking essay, Greg.

    I like it that you do not just write off “socialists,” as you call them, as venal, flaming idiots. The ethical doctrines they espoused at the start, when NOvak wrote, still do espouse reflect a distinct idealism that can be traced to Judeo-Christian ethics as expressed, for example, in the Mater et Magistra of Pope John XXIII http://www.catholic-forum.com/saints/pope0261.htm.

    Now it is true that the ideals pursued by “socialists” envisage a major redistribution of wealth from the haves to the have-nots. To the WWII generation, which went through the Great Depression and then WWII, that did not seem to matter much. They had learned in their lifetime that sheer luck, including lineage or not getting hit by a bullet, plays a huge role in determining the position of people in the nation’s distribution of wealth, and they thought the spoils of luck should be shared. Social Security, Medicare, Medicaid and the idea of the Great Society sprang from the souls and minds of the WWII generation.

    We have learned in the meantime that programs of this sort embody incentives that trigger predicable behavioral effects, some of which most people would view untoward. Furthermore, with rising income inequality we have learned that these programs are expensive and involve rather sizeable transfer from the wealthy to the lower middle class. And, alas for the wealthy, our bankers and plaintiff lawyers and corporate executives have taught broad segments of the voting public that the relationship between wealth and contributions to society are much less tight than the champions of wealth would have us believe. There is much enormous wealth in the hands of people other than entrepreneurs or small business people.

    And so we are engaged in a vigorous debate on what adverse events faced by individuals should be faced by them alone and what risks should be shared collectively. The latter inevitably will draw government into the action.

    I have learned that many commenters on this blog would like to see us go back to a late 19th century social and economic arrangement, when most risks faced by individuals were borne by them alone. It is a view that must be respected, if not necessarily shared. We actually have been slouching that way in recent years; but it remains to be seen where voters in this democracy want to take the US in the future.

    The fact that our government often does not perform well is inherent in the nature of the government our Founding Fathers gave us. It was designed to be messy and inefficient. Medicare, for example, was consciously designed to be inefficient. It is prohibited by statute from doing many of the things a private insurer can do.

    The only reason why the Medicare Modernization Act of 2003 looks less messy than ObamaCare is because (a) it dealt with a relatively simple rump of the health system — the distribution of pure commodities that represents only a small fraction of total health spending and (b) it was not financed at all — its cost from here to eternity was just added to the federal deficit. ObamaCare would have been much easier and slicker if its cost could just all have been deficit financed.

    Finally, the “socialists” you describe bay come across as hypocrites; but hypocrisy is part of human nature. I tell my students that if they never want to be hypocritical in their life they probably will go insane.

    Sure, Democrats want to redistribute other people’s money. Amartya Sen explained in his “isolation paradox” why that is to be expected.

    Similarly, the neocons professed noble ideals in advocating the invasion and occupation of Iraq and may well have held these ideals sincerely — but they certainly did not want the pursuit of these ideals to come at the expense of their sons’ and daughters’ blood or even at the expense of their monetary wealth. So we deficit financed the wars and the neocons had it fought mainly by people other than their own sons and daughters. I judge it normal human behavior.

    And so it goes. It’s not Washington. It’s you and I.

    We live in a messy world. Get used to it, and continue to look for a better set up.

  6. Don says:

    Thought-provoking post, but exposes the same ideological divide that has existed for centuries since the inception of social policy when the Islamic Empire introduced welfare policies back in the 6th century.

  7. Don says:

    So, I don’t think we can make significant assertions about what may be true, viable and common since when societies have been dealing with these ideological differences for quite some time.

  8. Alex Cave says:

    Very insightful piece, Greg! It’s quite interesting to see how things have been building up for years to this very day.

  9. Wendy J. says:

    Regarding your comment on how everyone likes to tell others what to do instead of doing it themselves, I entirely agree with you. That has always been my argument when it comes to the way our health care system is run. However, who would want to “start” their own health insurance business with all these insane regulations and limitations to help your business grow? It just scares people away. I think.

  10. Jake Ruisdael says:

    I’m not sure that sending kids to war is specific to neocons. As I recall, Marxists have put up big numbers in the last century.

  11. Espy says:

    Post-WWI New Deal style economics was forced on people. Contributing to the cause became politically popular, marginalization of the individual was rampant and the reason we didn’t pull out of the depression was because we ignored Keynes’ push for deficit spending (ironically, Sweden pushed for deficit spending and was the first to recover). So, I’m not quite sure that it these ideas just sprung from the WWII generation, Dr. Reinhardt. It was an era of wartime polarization, socialist policies and then forty years of scare-mongering.

  12. Greg Scandlen says:

    Uwe,

    Thanks for a thoughtful response. Here are a couple of comments in no particular order.

    I find it curious that “progressives” (may I include you in that category?) keep hammering “conservatives” for being attached to the 19th Century, when the great icons of Progressivism – Marx, Freud, and Darwin — were themselves 19th Century thinkers. I can’t think of a comparable 19th Century thought leader for conservatives, can you? Conservatism, on the other hand, is rooted in the Enlightenment. I would say the quality of thought of the Enlightenment is far superior to the 19th Century progressives.

    I agree that the socialists of the late 20th Century were motivated by idealism. The problem is, as you say, those ideals do not translate very well into practical programs. Novak also has some interesting things to say about the Depression/WWII generation, namely that they weren’t well equipped to raise children in a time of unprecedented prosperity (the Baby Boom) and ended up being far too indulgent.

    Novak would also dispute your characterization of democratic capitalists wanting people to face adversity alone (rugged individualism). He argues quite the contrary – that they created a vast (voluntary) system of interdependence and support.

    But you are absolutely right that hypocrisy is hard-wired into all of us, as is envy, greed, egotism, and a whole bunch of other qualities that make efforts at Utopia futile. So, yes, I am quite accustomed to a “messy world.” That is what makes the Constitution so unique – it managed to counter envy with envy, greed with greed, by not allowing any one actor to have too much power.

  13. Bob Hertz says:

    Medicare is pure social insurance, and it is 90%funded progressively through broad based taxes. Virtually all Republican conservatives defend it, altnough the honey pot of senior voters may be more important than ideology.

    The same is true for Social Security.

    Fire and police departments across America are also pure socialism. They are funded by taxes, not user fees.

    American capitalism has been very comfortable with these ‘pockets’ of socialism. It might be gratuitous to point out that entire profit-making industries have formed to take advantage of what Prof Reinhardt omce called ‘the federal spigot.’

    I would also ask why it is received Republican wisdom to transfer income and services to poor older people, while it is ‘creeping socialism’ to design similar transfers to poor younger people of working age.
    (cf. Medicare vs Medicaid).

    This is not to acquit the many policy failures of the ACA, correctly noted by Greg. That is an important issue.

    Bob Hertz, The Health Care Crusade

  14. Uwe Reinhardt says:

    Greg:

    You write: “I find it curious that “progressives” (may I include you in that category?) keep hammering “conservatives” for being attached to the 19th Century, when the great icons of Progressivism – Marx, Freud, and Darwin — were themselves 19th Century thinkers. I can’t think of a comparable 19th Century thought leader for conservatives, can you?”

    First, I do not view myself in the camp of what is now called “progressives.” I do not share their instinctive mistrust and loathing of capitalism and for-profit enterprise, nor do I share their instinctive habit of excusing as environmentally determined reckless and irresponsible behavior on the part of individuals — e.g., high schoolers begetting children. And I believe that political correctness has become the enemy of academic freedom. These are more centrist views.

    As to the 19th century thinkers you label as “progressives” — Marx, Freud, Darwin — I think you miss my point. (For one, why are Freud and Darwin in that group?). Marx, for example, reacted critically to the socio-economic arrangement that prevailed in the 19th century and so did other thinkers and artists of that time. In my comment, I was alluding to the socio-economic arrangemtof the era, not its critics.

    You have to be careful, though, with the label “progressive.” I do not think it is fair to equate today’s progressives with people known as “progressives” in the 19th century. That tent accommodated a motley crew.

    The Anglo-American eugenics movement, which subsequently inspired Adolf Hitler, is sometimes linked to 19th century progressives http://www.discoverthenetworks.org/viewSubCategory.asp?id=1220. Their ideas would hardly be shared by modern progressives.

    As a general guide, I tell my students not to become intellectual slaves to labels, but instead focus on the ideas being proposed, regardless of who proposed them. It can avoid the silly spectacle of people, at once, supporting the VA health system and thundering against the evils of socialized medicine.

  15. Greg Scandlen says:

    Bob Herz,

    Here is one conservative who does not defend Medicare. I’ve been arguing for years that it is a very poor program. Granted it is politically popular because so many people are dependent on it and it is so heavily subsidized.

    I’ll stipulate that Social Security works pretty well. All it requires of the federal government is that it write checks — something they are good at. Not much “management” required.

    I’ll also stipulate that there is a vsst industry of private companies feeding at the federal trough, and protecting the ability of the Feds to keep feeding them. This, more than “the 47%,” is what will crash this nation. The ACA never would have passsed but for all of the corporate interest groups lusting over the potential revenue.

  16. Greg Scandlen says:

    Uwe, I stand corrected on pigeonholing you. Today’s “progressives” are really the same as yesterday’s “liberals” or the “socialists” of the day before. This switching labels is like a game of three-card monte. Of course, “liberalism” (or as John Goodman prefers — “classical liberalism”) more closely describes today’s “conservative/libertarians.” It’s all so confusing :-)

    I’m no longer even sure what I am, except perhaps a pragmatist . I prefer to do what might actually work. I guess I am also a Constitutionalist since I believe the Founders had a pretty good idea of how best to order political relations. Unfortunately, FDR’s Supreme Court went on a seven year rampage (1937 – 1944) to undo the Constitution.

    As for Freud and Darwin, both are essential to the modern progressive mindset that is far more than just economics. It seems to include a cultural/biological determinism and materialism. I could go on, but I’ll leave it at that.

  17. Al says:

    @Bob
    Fire and police are funded on a local level or as in the case of voluntary firemen and private police not funded at all by government agencies.

    As far as Medicare and social security take note how political these entitlements are instead of being based upon ideology. Take note how both benefit those that live the longest. That group is generally wealthier. Also take note how Medicare has become so bloated that much of it provides marginal benefits at best taking money away from areas that might otherwise be producing more jobs that could be translated into better life styles for those that are not affluent. That is the problem with the socialist one shoe fits all approach, waste and a degradation of one’s economy where the poor pay the biggest price.

  18. Al says:

    Uwe, you say about the Anglo-American eugenics movement… “Their ideas would hardly be shared by modern progressives.”

    I wouldn’t be so sure of that though I don’t accuse any individual progressive of having any of those ideas. However, there are many ways those ideas are transmitted into todays world, look at abortion statistics and take note of the demographics.

  19. Bob Hertz says:

    Al, on a small point, the fine men and women of rural fire departments are indeed volunteers, but much of their equipment and their fire stations often come from taxpayers.

    As for Medicare, you make some good points but I cannot accept them totally.

    It is true that wealthier seniors live longer and in that sense do derive more benefits from Medicare.

    But poor seniors receive some very expensive treatments that they would never get without Medicare.
    Check out the individuals at any dialysis center – many have been poor all their lives.

    So I think the evidence is mixed.

    As for Medicare costing us jobs, I cannot agree.
    Health care has been perhaps the major source of family wage jobs for the last 20 years (read Michael Spence or Michael Mandel). In many American cities, hospitals are now the largest employers.

    The oversall numbers are probably a wash. When I fork over the payroll tax and part of my income taxes for Medicare, this leaves me less money for a new lawn mower or a new TV. That does cost some jobs, without a doubt.

    But my tax money creates a lot of jobs in the health care industry.

    This is not a blissful process, of course. The persons laid off at John Deere do not step into good hospital jobs at all.

    But overall I think there is no affect on the total of jobs.

  20. Al says:

    @Bob
    “… on a small point …”

    Actually Bob it is two large points. The first is that government need not manage these things and the second is that the decision for doing so is a local decision, not a national one. Many of the things our government does should be done at the local level. One should not take the fallacious view that “the debate is over” (Gore) and simply accept government as the best solution. Federal government solutions for social problems is among the worst of solutions.

    What makes you believe that Medicare is the only solution for poor people? What we have created are ever more expensive solutions for poor people and they cannot afford their part of the costs even with Medicare. Medicare failed in that Medicare is unsustainable and has not solved the problems of healthcare for the aged.

    Jobs and Medicare: Yes, medicare has provided jobs and if we break all the windows we will create a lot of jobs by then repairing them. Capital has gone from the investment market to provide marginal care where the costs are unsustainable. I wonder how many companies like Apple the capital markets would have founded with all that money? Where does our wealth come from? Apple or broken windows?

  21. Bob Hertz says:

    1. If hospital care had been left to local governments, southern states would have kept separate and very unequal facilities based on race, LBJ faced huge opposition from Southern senators over Medicare because it ‘threatened’ to integrate hospitals.

    This may be a special circumstance, but still I am from Minnesota and we are wary of giving Southerners local control.

    2 The medical care of poor people is miles and miles better under Medicare than before Medicare. I can dig up the statistics if need be.

    3. Given the relentless outsourcing that Apple engages in, I am not sure how mayy jobs it is giving to Americans. But I do not have expertise in this area.

  22. Al says:

    @Bob ” I am from Minnesota and we are wary of giving Southerners local control.”

    1) It always seems to get back to race. You are a northerner that has problems giving southerners control yet when the textile union in another northern state found that the factories were being moved to a southern state where African Americans might work for less suddenly northern concern evaporated and a minimum wage was created to prevent that from happening. African Americans have been severely hurt by our elitist concerns. Likely integration of hospitals would have taken place with minimal or no government interference and if necessary there were other avenues to prevent such discrimination that didn’t require the federal government to control so much of our health care expenditures. Take note (as an example) that the large hospitals are interstate operations. Do you think those large northern companies would have given up the profits in the south and discriminated against a profit center?

    2) How can you prove what would be if Medicare never existed? You can’t. As an example, (not necessarily the best choice of many) let us say Americans could have bought the type of insurance they wanted and the government stepped in to target funding for those in need so that they could afford basic health insurance just like everyone else. Do you think Medicare would be better than that? Perhaps instead of looking for the most expensive way to solve problems we would have focused on less expensive ways with less duplication and less marginal care.

    3) As Steve Jobs said, if we could educate enough people in tech he could hire a lot more. The alternative is that we skip outsourcing and bankrupt the successful companies that employ people at high wages, not $3-$10 per day. Walk into an Apple store and take a look at the number of employees on the floor dealing with customers. Take a look at all the management jobs filled with Americans that are high paying and dealing with the outsourced work. Take a look at the innovation Apple has provided and the number of skilled hi tech people working at Apple that are of all races and sexes.

    Suddenly the market place that made America and built companies like Apple, Microsoft, GE etc. while rapidly advancing progress to the poor all over the world isn’t good enough for health care. Incomprehensible!

  23. Bob Hertz says:

    You raise good points, but let me comment on #2 above.
    You suggest that Americans be allowed to buy the insurance they want, and the government would step in to help those without funds buy a basic policy.

    Just looking at senior citizens, I believe that about 15 million have very low incomes even now, less than $20,000 a year.

    Even a senior citizen couple with a $35,000 annual income would have trouble affording a basic health policy that was priced to cover older persons.

    Therefore, even going with your concept of government aid just as needed, the federal cost would I think be in the hundreds of billions a year.

    It would be cheaper than Medicare….but not a lot.

    On point #3, there are some high tech firms that hire in China and India right now while educated American
    engineers and programmers are unemployed.

    A billion dollars spent on Medicare goes 99% to the hiring of American doctors or nurses or paramedics.
    A billion dollars in the private sector seems to go about 40% to hiring that takes place abroad.

  24. Al says:

    Bob, there is no question that the amount of waste and marginal care provided by Medicare is astronomical and the savings by using more market oriented approaches would amount to tremendous amounts of money, enough money to cover those falling through the cracks yet leaving large amounts to be returned to the taxpayer. You already admit to the fact that savings would occur. The only difference in our opinions is how much. It is much higher than you think. Take one small segment of cost, DME. Do you note how many advertisements there are telling seniors how they can get all sorts of things and not have to pay a dime? This type of nonsense extends throughout Medicare. We both worry about those in need, but let us not play the game that income is the same as assets. Many of our low income seniors die with estates that go to the children rather than the taxpayer even though it was the taxpayer that was paying for their needs, not the children.

    On point #3: So what that many hi tech jobs are formed in China and India through our efforts. That will naturally happen as those countries have a right to have engineers and programmers as well. However, the alternative is for a company like Apple to not exist which would end a lot of jobs in the US as well as China and India. Let those countries prosper for they buy our products as well. Marginal healthcare does not provide wealth. If what you said in your last sentence was true then we should double our expenditures on Medicare and you will have solved the unemployment problem, but we all know that is merely a fantasy scenario.

  25. Politics Debunked says:

    Food is even more important to health than medical care, you are guaranteed to die without it within a few weeks. Yet there is no push for “single payer food”, and no “employer food plans”. The existence of the poor doesn’t justify massive government intervention into healthcare, that is just an excuse. The poor are helped to eat via charity, or (leaving aside the question of whether it should do this or not) government monetary aid, or food stamps.. aka vouchers for food. The same approach can be used for healthcare, even if the government is involved it can limit its involvement to vouchers to minimize disruption.

    Most people have no clue how many times this claim of acting in the public’s interest is a scam to hide favors for special interest groups,more details on this new page which points out the details, even a couple of areas readers of this blog may not have seen:
    http://www.politicsdebunked.com/article-list/healthcare

  26. Bob Hertz says:

    I am totally in favor of “medicare food stamps”, which is another name for vouchers.

    This is a good approach for office visits and ambulatory, disretionary care. It would save many billions in Medicare and Medicaid.

    However it cannot be stretched to all surgeries and all hospital care. A $3000 voucher would not go very far for a heart attack or cancer, and then we would be back to our current chaos of padded bills and then forgiven bills and oost shifting.

    Avik Roy last year proposed a system where catastrophic hospital care was covered by social insurance, like a Medicare Part A, and the 70% of care that is not catastrophic was left to the free market.

  27. Ralph Weber @ MediBid says:

    Greg,
    Having lived in Canada, Germany, Thailand, Nepal and the US, each for 5+ years, what I see happening in the US today seems to me to be a lot closer to fascism. In fact it meets the classical definition. Relatively few “too big to fail” mega corporations do the govenment’s bidding and are rewarded with legislation which favors them, and screws the middle class and small business.
    But I’m an actuary, not an economist, so what do I know?!?!
    Am I missing something?

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