Controversy rages over the Obama administration’s mandate that all employers – including Catholic hospitals and universities — include free contraception in their employee health insurance policies. Catholic officials object that since their church forbids contraception, the decree violates the First Amendment’ s protection of religious freedom. Others have joined in the protest, prudently anticipating that this violation of freedom of conscience could spread to other matters and other faiths.

Those raising the objection have an unimpeachable case. The precedent apparently set in the more than two dozen states that already have similar mandates is irrelevant. What’s immoral does not become moral simply by precedent. The principle that no one should be forced to finance that which he or she finds abhorrent is sound. In fact, it should be generally applied.

Changing the Subject

Defenders of the decree are quite good at changing the subject. Of course they are — what else have they got? To hear them, you’d think someone has proposed that contraception be outlawed. (Well, Rick Santorum does seem to favor that; but he’s pretty much alone.) Obamacare champions would have us believe the controversy is about “access” to certain products and services. All the decree does, they say, is provide insurance coverage for, and therefore access, to free contraception (along with other preventive services) for women who want it. But that just raises another question:

What has this got to do with insurance?

Access does not depend on coverage. We have access to many important things not covered by insurance. Weirdly, some say the decree actually affirms religious freedom. How so? Sens. Barbara Boxer, Jeanne Shaheen, and Patty Murray explained in the Wall Street Journal: “[T]he millions of American women who choose to use contraception should not be forced to follow religious doctrine, whether Catholic or non-Catholic.”

In other words, lack of insurance coverage for contraception is equivalent to being forced not to use contraception. That is some strange argument, but it’s what we’ve come to expect from members of the “world’s greatest deliberative body.”

Well?

So the question remains: What has this got to do with insurance?

“Access to birth control is directly linked to declines in maternal and infant mortality, can reduce the risk of ovarian cancer, and is linked to overall good health outcomes,” Sens. Boxer, Shaheen, and Murray write.

Fine, but what’s it got to do with insurance?

“[B]roadening access to birth control will help reduce the number of unintended pregnancies and abortions, a goal we all should share.”

Fine, but what’s it got to do with insurance?

“Proper family planning through birth control results in healthier mothers and children, which benefits all of us.”

Fine, but what’s it got to do with insurance?

“It saves us money too….”

Fine, but what’s it got to do with insurance?

“It can cost $600 a year for prescription contraceptives.” (That’s a high-end estimate; there are lower cost options, including Planned Parenthood for low-income women.)

Fine, but what’s it got to do with insurance?

“Some 99% of women in the U.S. who are or have been sexually active at some point in their lives have used birth control, including 98% of Catholic women, according to the Guttmacher Institute.”

Fine, but what’s it got to do with — oh never mind. I’ll answer myself: It’s got nothing to do with insurance.

Pooling Risk

Insurance arose as a way for individuals to pool their risk of some low-probability/high-cost misfortune befalling them. It shouldn’t be necessary to point this out, but coming of child-bearing age and choosing to use contraception is not an insurable event. It’s a volitional act. It may have good consequences for the person taking the action and society at large, but it is still a volitional act. It makes no sense to talk about insuring against the eventuality that a particular person will use contraception. Strictly speaking, contraception has nothing to do with insurance.

Unfortunately, we don’t speak strictly about health insurance. One reason we don’t is the tax code. Since World War II compensation for labor in the form of employment-based health insurance does not count as taxable income. (Money spent independently on health insurance does count.) The tax code thus creates perverse incentives to 1) depend on one’s employer for medical insurance, 2) shift income from liquid cash to restricted insurance benefits, and 3) define uninsurable events as insurable. Would someone care to explain how well-baby care can be insurable?

So we have taxation to thank for yet another feature of the modern world: the corruption of language. In the medical realm insurance no long means insurance.

Instead it’s a game by which we get other people to pay for stuff. Well, that’s not quite accurate. It’s actually a game in which we pretend that other people pay for stuff. Look, contraception, mammograms, colonoscopies, and well-baby care are not free. (See my “There’s No Such Thing as a Free Mammogram.”) They require labor and resources for which the owners wish – not unreasonably — to be compensated. Someone has to pay. If employers are compelled nominally to pay for the coverage, does anyone seriously doubt that employees will actually pay through lower cash wages? Employers are not charities. So even without a copayment, we all know deep down that we as workers pay for the coverage. (Which by the way is likely to be more expensive than the services would be in a freed market, since insurance companies will charge overhead and more for their trouble. Also subsidized demand raises prices.) Nevertheless, the truth is so obscured that people can pretend they’re getting something for free.

So the government-generated system treats us like children, and alas most of us seem happy to be treated that way.

Update

Under pressure, the Obama administration was expected to announce a “compromise” under which exempt Catholic employers would not have to pay for contraception coverage. Instead, insurance companies would provide the coverage directly to employees. Since under Health and Human Services rules, this coverage must be free, the Obama administration is in effect directing insurers to eat the cost. But insurers are profit-making companies, not charities, so we may expect them to pass the cost to someone else. But to whom? There’s only one possibility: nonexempt employers, which means in fact employees of nonexempt companies. So the grand compromise shifts the cost from a small minority of employees to the vast majority — all in the name of religious freedom. All workers in nonexempt companies and institutions will take a pay cut.

Update II

Perhaps I stopped the movie too soon. The Wall Street Journal writes, yes, there will be cost-shifting at first. But that’s not the last of it. “The balloon may be squeezed differently over time, and insurers may amortize the cost differently over time, but eventually prices will find an equilibrium. Notre Dame will still pay for birth control, even if it is nominally carried by a third-party corporation.”

We’ll see.

FEE Timely Classic
“What’s Up with Inflation?” by Warren C. Gibson

The managerial state has assumed responsibility for looking after everything from the incomes of the middle class to the profitability of large corporations to industrial advancement. This system . . . is . . . an economic order that harks back to Bismarck in the late nineteenth century and Mussolini in the twentieth: corporatism.

Columbia University Professor Edmund S. Phelps, who won the 2006 Nobel Prize in economics, and his coauthor, Saifedean Ammous, assistant professor of economics at the Lebanese American University, write that the U.S. economy ceased to be a free market some time ago, yet the free market is blamed for the economic crisis. (The real question is whether the American economy was ever really free.)

Phelps and Ammous condemn corporatism unequivocally.

In various ways, corporatism chokes off the dynamism that makes for engaging work, faster economic growth, and greater opportunity and inclusiveness. It maintains lethargic, wasteful, unproductive, and well-connected firms at the expense of dynamic newcomers and outsiders, and favors declared goals such as industrialization, economic development, and national greatness over individuals’ economic freedom and responsibility. Today, airlines, auto manufacturers, agricultural companies, media, investment banks, hedge funds, and much more has [sic] at some point been deemed too important to weather the free market on its own, receiving a helping hand from government in the name of the “public good.”

State-Chosen Goals

It’s great that their list includes the corporate state’s declaration of goals. Too many people are willing to accept government-set goals (such as energy independence) so long as the “private sector” is induced to achieve them. Regardless of how the goals are achieved, if government sets them, that’s statism.

The cost of corporatism is high, and Phelps and Ammous provide a partial list:

dysfunctional corporations that survive despite their gross inability to serve their customers; sclerotic economies with slow output growth, a dearth of engaging work, scant opportunities for young people; governments bankrupted by their efforts to palliate these problems; and increasing concentration of wealth in the hands of those connected enough to be on the right side of the corporatist deal.

Again, kudos to them for noting the increasing concentration of wealth. The corporate state, after all, is a form of exploitation, the victims of which are workers and consumers, who would have been better off (absolutely and comparatively) without anticompetitive privileges for the well-connected and government-induced recessions.

The authors are optimistic that time will work against the corporate state. Young people coming of age in the Internet’s decentralized and wide-open market of ideas and merchandise can’t be expected to show enthusiasm for a system that protects entrenched corporations from the forces of competition. Moreover “the legitimacy of corporatism is eroding along with the fiscal health of governments that have relied on it. If politicians cannot repeal corporatism, it will bury itself in debt and default….”

Capitalism versus the Freed Market

My main beef with Phelps and Ammous’s essay is their use of capitalism to name the economic system that corporatism corrupted. Like many others, they believe that word “used to mean” the free market. To be sure, it was used that way beginning in the mid-twentieth century. But there was an older usage (of capitalist specifically), coined by free-market liberals like Thomas Hodgskin who predated Marx, associating it with government privileges for the capital-owning class. That undertone has never left. (Long-time Freeman writer and historian Clarence B. Carson expressed misgivings about the word here.)

It’s tempting to dismiss this as mere semantics. But we are trying to communicate, aren’t we? Libertarian theorist Roderick Long, however, shows that more than semantics is involved. For Long, capitalism is what Ayn Rand called an anti-concept, a term that confuses rather than enlightens. One kind of anti-concept is the package deal, “referring to any term whose meaning conceals an implicit presupposition that certain things go together that in actuality do not.”

As a thought experiment, Long asks us to consider his coinage of zaxlebax, which he defines as “a metallic sphere, like the Washington Monument.”  Obviously this is incoherent. Nevertheless,

some linguistic subgroup might start using the term “zaxlebax” as though it just meant “metallic sphere,” or as though it just meant “something of the same kind as the Washington Monument.” And that’s fine. But my definition incorporates both, and thus conceals the false assumption that the Washington Monument is a metallic sphere; any attempt to use the term “zaxlebax,” meaning what I mean by it, involves the user in this false assumption.

Long sees capitalism in its common usage as similar.

By “capitalism” most people mean neither the free market simpliciter nor the prevailing neomercantilist system simpliciter. Rather, what most people mean by “capitalism” is this free-market system that currently prevails in the western world. In short, the term “capitalism” as generally used conceals an assumption that the prevailing system is a free market. And since the prevailing system is in fact one of government favoritism toward business, the ordinary use of the term carries with it the assumption that the free market is government favoritism toward business.

Similarly for socialism, Long writes. He thinks most people mean nothing more specific than “the opposite of capitalism.”

Then if “capitalism” is a package-deal term, so is “socialism” — it conveys opposition to the free market, and opposition to neomercantilism, as though these were one and the same.

And that, I suggest, is the function of these terms: to blur the distinction between the free market and neomercantilism. Such confusion prevails because it works to the advantage of the statist establishment: those who want to defend the free market can more easily be seduced into defending neomercantilism, and those who want to combat neomercantilism can more easily be seduced into combating the free market. Either way, the state remains secure.

In sum, the system that most immediately threatens individual liberty is corporatism (with its militarist component) and the word capitalism is too closely associated with corporatism in people’s minds to be useful to advocates of the freed market.

[W]e need to change our tax code so that people like me, and an awful lot of Members of Congress, pay our fair share of taxes. Tax reform should follow the Buffett rule: If you make more than $1 million a year, you should not pay less than 30 percent in taxes. [Emphasis added.]

And:

When Americans talk about folks like me paying my fair share of taxes, it’s not because they envy the rich. It’s because they understand that when I get tax breaks I don’t need and the country can’t afford, it either adds to the deficit, or somebody else has to make up the difference. . . . [Emphasis added.]

There are lots of claims there that cry out for examination. For example, what’s need got to do with it? Does Obama really favor a tax system that leaves you only what you need — as determined by someone else? And look at that term “tax breaks.” If a burglar decides not to break into your house and take your things, have you gotten a break? Or have you simply kept what is yours? Is Obama really suggesting that how much of your income you retain should depend on what “the country” can afford? What does that even mean?

Buffett Rule

All that aside, I want to home in on Obama’s notion of fairness. “If you make more than $1 million a year,” he says, “you should not pay less than 30 percent in taxes.” How does he know that constitutes fairness? Obviously 30 percent is an arbitrary figure. If he’s concerned that income and payroll taxes take a smaller percentage of Warren Buffett’s income than the percentage they take from his secretary’s income, why not reduce his secretary’s tax rate? It’s certainly not obvious that Buffett should pay more. (For an interesting discussion of the secretary’s tax rate, see this and this.) Obama (like most other politicians) regards government spending growth as inexorable and virtually untouchable, but why? (Proposed “cuts” are merely reductions in the rate of growth.)

On this matter of tax fairness, no one tops Murray Rothbard’s discussion in his classic Power and Market: Government and the Economy (online in PDF format here). Rothbard starts by noting that for many years people thought products had a “just price.”

It is clear, even to those (like the present writer) who believe in the possibility of a rational ethics, that no possible ethical philosophy or science can yield a quantitative measure or criterion of justice. . . . Economics, by tracing the ordered pattern of the voluntary exchange process, has made it clear that the only possible objective criterion for the just price is the market price. For the market price is, at every moment, determined by the voluntary, mutually agreed-upon actions of all the participants in the market.”

Rothbard of course is talking about a market unblemished by government monopoly privilege and other interventions.

He goes on next to ask: “If the search for the just price has virtually ended in the pages of economic works, why does the quest for a ‘just tax’ continue with unabated vigor? Why do economists, severely scientific in their volumes, suddenly become ad hoc ethicists when the question of taxation is raised?”

We might also ask why a president makes ethical pronouncements about levels of taxation without first laying out his moral philosophy plainly for all to judge.

Canons of Justice in Taxation

Thus the “canons of justice” in taxation must not be taken for granted. Calling something just does not make it so. Rothbard writes:

The prime objection to these “canons” is that the writers have first to establish the justice of taxation itself. If this cannot be proven, and so far it has not been, then it is clearly idle to look for the “just tax.” If taxation itself is unjust, then it is clear that no allocation of its burdens, however ingenious, can be declared just.

A few pages earlier Rothbard defined taxation, uncontroversially, I hope, as “a coerced levy that the government extracts from the populace.” Pulling no punches, he quotes his mentor Frank Chodorov, once an editor of The Freeman:

A historical study of taxation leads inevitably to loot, tribute, ransom — the economic purpose of conquest. The barons who put up toll-gates along the Rhine were tax-gatherers. So were the gangs who “protected,” for a forced fee, the caravans going to market. The Danes who regularly invited themselves into England, and remained as unwanted guests until paid off, called it Dannegeld; for a long time that remained the basis of English property taxes. The conquering Romans introduced the idea that what they collected from subject peoples was merely just payment for maintaining law and order. For a long time the Norman conquerors collected catch-as-catch-can tribute from the English, but when by natural processes an amalgam of the two peoples resulted in a nation, the collections were regularized in custom and law and were called taxes.

“Why do not economists abandon the search for the ‘just tax’ as they abandoned the quest for the ‘just price’?” Rothbard asks.

One reason is that doing so may have unwelcome implications for them. The “just price” was abandoned in favor of the market price. Can the “just tax” be abandoned in favor of the market tax? Clearly not, for on the market there is no taxation, and therefore no tax can be established that will duplicate market patterns.

So let’s hear no more about tax fairness, unless it’s to point out that fairness is approached as tax rates move toward zero.

Tonight, I want to . . . lay out a blueprint for an economy that’s built to last. . . .

Considering that an economy (a free one, that is) is just people engaging in exchanges for mutual benefit, it defies blueprinting, which sounds ominously like central planning. The last thing an economy needs is an architect, especially one with the legal power to use aggressive force.

Right now, our most immediate priority is stopping a tax hike on 160 million working Americans while the recovery is still fragile. People cannot afford losing $40 out of each paycheck this year. There are plenty of ways to get this done. So let’s agree right here, right now: No side issues. No drama. Pass the payroll tax cut without delay.

I’m old enough to remember when politicians denied that the FICA deduction from our paychecks is a tax. “It’s a contribution to your future retirement income and medical care,” they’d say. Today they forthrightly call it a tax.

I’m beginning to suspect that politicians will say whatever they think will get them reelected.

As for the idea that cutting the payroll tax is costless, see my earlier post.