A recent New York Times article by David Leonhardt brings up an interesting proposal to pay for government health care:

The numbers show there is only one sure way out of the problem, and, after months of roundabout discussion, that solution has re-emerged: It’s a tax on health care.

If Congress taxes health care, the revenue has a chance of rising with health spending. A health tax will also create an incentive for workers and businesses to slow the growth of health spending — thus reducing the amount of taxes needed to pay the nation’s health bill.

In other words, politicians want to control the health care industry with a special government plan that will cost trillions of dollars in a several-year period. Government doesn’t have money, considering that the nation is broke and suffering a harsh recession. But with this brilliant new proposal, Congress can provide health care service and pay for it by taxing health care spending.

I honestly don’t know where to begin with this one. If cutting wasteful spending is as simple as slapping a tax on an item, why not throw a tax on the escalating government spending, where there is far more waste than any business or service in the marketplace?

More from the Times article:

Because health care — unlike food, clothing and most other things — isn’t taxed, it’s effectively on sale. And when something is on sale, people often buy more of it than they need.

In the case of health care, they buy — or their employer buys for them — insurance plans that don’t make much of an effort to control costs. Rather than putting pressure on hospitals to root out administrative waste, the plans cover the cost of that waste.

Taxing rising spending is not going to lower the price of health care without a cost. To compensate for the lost income businesses will either cut or limit their service or increase prices. If government really knew a method of lowering prices while increasing productivity, I highly doubt anyone would be against that type of plan. It’s funny, though, when I think of the yearning for lower prices and higher productivity, I can’t help but think of some other economic system that provides this exact service without the supposed wisdom of government officials: the free market.

Certainly there is a good deal of waste and over-use in the health care industry today. But the last thing that is causing this phenomena is the lack of a tax on health care spending. The direct problem for rising health care costs is the fact that today the individual carries little control over his or her’s medical plan. Through HMOs and other programs encouraged and forced by government, we have effectively put other people in charge of our health care.

The more that people rely on third-parties to manage and pay for their health care (whether it’s their employer, insurance businesses, or government), the less they will be financially attached to their medical plans. If they aren’t paying for their health care directly, they have little incentive to take cost into account. It isn’t because we haven’t slapped a tax on medical spending that we have the problem of rising spending, it’s because the individual is losing the direct control over medical spending and therefore the incentive to limit medical spending and costs as much as possible. When someone else is paying the bill, who is really going to hold back and not grab as much of a service as possible?

Another problem stems from the idea that health insurance needs to pay for every little medical cost. This again takes more of the incentive away to control spending and cost. If you buy flood insurance, you do not expect it to pay for covering the damage of a muddy lawn after a drizzle of rain. Insurance is a simple tool to measure and pay for risk, not common procedures.

Consider what caused the price of cell phones to drop quickly while the products continually improved. The first cell phone, the Motorola DynaTAC 8000x, released in 1984, weighed two pounds, had a half-hour battery life, and cost $3,995. Today, you can purchase a cell phone for twenty or thirty dollars with far more capabilities than the DynaTAC. Was it a tax on cell phone spending that encouraged businesses to increase efficiency, lower costs, and create cheaper and better products, or was it competition, a relatively unregulated market, and the power of the consumer?

Imagine if in 1984 the government forced employers to offer cell phones to their employees and placed “insurance” businesses in charge of paying the simple fees. When you take the power away from the individual and hand it to a third party, people greatly lose the incentive to find the best product at the cheapest price. They lose the incentive to find value, and the ability and options to find value become greatly limited because of the government intervention. This is why people will often overuse the medical system in Canada, which leads to rationed medical care, limited medical services, and long waiting periods for simple procedures.

The solution to our health care problem does not lie in a collective system such as socialism. We have had a sort of collective corporatism insurance and few people are pleased with it. It really does not matter which third party is paying for health care; so long as individuals don’t have the financial control over their medical care, inefficiency will abound. Employer-provided medical coverage, corporate insurance plans, and socialized medicine all have a basic flaw: they can’t fully serve the individual because it is not the individual who is in full control.

Individuals need more, not less, control over their medical care, and this is what many people and politicians fail to recognize today. More government involvement through subsidies, taxes, and programs will not solve a thing in the long run. To save health care, it must be the individual -  not the employer or the corporate workers or the government officials – who carries the power of choice and the incentive to reward value in the marketplace.

Judging from the media and political scene today, regulations to “help the environment” or “punish greed” sound too good to pass up. However good increased government regulation and control may sound, it is essential that people consider the regulatory harm that is not directly seen.

Today “Cap and Trade” and limiting carbon emissions is a top priority for Barack Obama and many politicians. To dismiss claims that this legislation would hurt the economy, corporate leaders are stepping up to the plate to support the legislation. In fact, quite a few major corporations have supported legislation of this sort over the past decade, such as Dupont, Dow Chemical, and Caterpillar. These corporations must be fighting for the noble cause, right? Not entirely.

What we hear is the supposed benefit of the government regulating carbon emissions in the name of the planet. What we don’t directly see is who pays for those regulations and how they pay for them. Regulations are not cheap to enforce or to comply with. What’s key to understand is that large corporations, who have more money and manpower than their competition, will not have a tough time working with the regulation.

But what about the smaller businesses in the marketplace? Clearly regulations that cost several million dollars per year will effect a $500 million company more than a $50 billion company. When you take this into account it is quite simple to see why many corporations are pushing for more regulation: it stifles the competition, who are forced to allocate more manpower and money to meet regulation. That money will come away from product development, wages, production, etc., and things of that sort, while forcing businesses to either raise prices or scale back on other areas of business that made them competitive in the first place.

When government pops a new regulation on the market, it requires money from the taxpayers to enforce and money from the businesses to comply with. Always take it as a danger sign if large corporations are supporting or actually encouraging government to pass new regulation. They see that more regulation means less effective competitors; history has not shown it any other way. If the corporations really felt that strongly about limiting emissions, absolutely nothing is stopping them from voluntarily doing it right now. At the heart of it, regulation often represents an indirect subsidy to corporations.

In the early part of the 20th century, hemp was a major competitor to many different industries: fuel, paper, clothing, among many others. William Randolph Hearst, a wealthy businessman who owned vast amounts of timberland used to create paper, saw hemp as a major threat to his position in the paper industry (given that hemp was a much more sustainable source for paper).  Similarly, Dupont would have had a tough time had hemp plastic been allowed to compete with its plastic made from oil and coal. Hearst, Dupont, and other corporate interests fought to criminalize hemp through government in 1937. Hemp was thrown in with the government’s scare campaign against marijuana and cannabis merely because very powerful interests were fighting for it. Because of this, one of the most remarkable and efficient plants is still illegal to grow in most states.

Regulation has this effect both at the state and federal level. Within the past year, my home state of California passed an act in the name of “animal rights.” I am a staunch believer in the humane treatment of animals, but this regulation will hurt smaller farms most (who usually treat animals better than the large-scale corporate farms) who do not have the resources to comply with complex laws. While the thought behind the regulation may have been good, it will simply give the corporate farms (who often treat animals far less humanely than smaller farms) a competitive advantage over smaller and more sustainable farms.

The problem with government regulation is that it actually takes power away from individuals, consumers, and the local level. This is precisely because it is the smaller businesses who suffer from government regulation the most, and that government regulation will increase the inefficiency of competition in favor of larger corporations. By indirectly shifting the advantage through regulation, government decreases choice, limits competition, thereby increasing prices and hurting consumers the most.

Quite simply, government regulation decreases the regulatory oomph of the individual. As more regulation and laws are constantly being proposed and passed by politicians, the fate of a business lies increasingly on pleasing government, not the individual. The power tilts to government force rather than voluntary exchange.

Unlike government regulation, in a true free market consumer regulation is indifferent to the size and power of a business. In a true free market, a business must serve the interests of the individual, not government, to survive. In a true free market, individuals searching for the best product or best service at the best price outweigh the regulatory ability of government bureaucrats.

Regulations do not fall out of the sky and suddenly make things better. They have a cost, both in the short-term and the long run. With government regulation, effective competition is decreased because of lack of resources to comply with the regulation. With a free market, competition is decreased because of nonproductive practices. Government regulation does not discriminate between productivity and wealth. In a true free market, productivity, not wealth, is rewarded regardless of size.

More cries for government regulation will often come from individuals, corporations, and politicians alike. What must be realized is that as the regulatory power of the government increases, especially so on the federal stage, the regulatory power of the people and the market decreases. Government regulation might be seen as the attractive option in the short-term, but it is only the individual’s regulatory power that can shift the economy and society in a sustainable direction over the long run. The demands of the people, not bureaucrats, pave the road of true security, freedom, and liberty.

New hubbub has arisen after the Obama administration announced plans to raise the national fuel mileage limit for vehicles to 35.5 MPG by 2016 . It is said that this is a major step forward to end dependence on foreign oil, promote “green” technologies, and somehow help consumers make better choices, despite the likelihood of it increasing production costs by $1,300 per vehicle. But there is a better way.

Let’s stop for a moment and consider what decreases cost and increases efficiency better than any government agency, regulation, or bureaucrat. Competition. Look at the technology industry over the past 15 or 20 years as a great example.

In the early 1990s cell phones and computers cost a bundle, were limited in their capabilities, and were largely a luxury item. These are some of the items that have escaped much of government’s grasp and intervention over the past couple decades, and look what happened. Competition flourished, prices decreased relatively quickly (and continue to decrease in many areas of the industry), and the features on cell phones and computers have reached incredible levels. This was not thanks to the government trying to manage the industry and set the standards for consumers. People choose for themselves, competition is free and open, and prices greatly decrease while the quality of the items reach new highs everyday.

The problems with inefficiency in Detroit will not be solved by more government intervention, bailouts, and special treatment. Nor will it solve our dependence on foreign oil. Competition in the market will solve these problems in a far more efficient, reliable, and less costly manner.

The first step is to let the Big 3 go bankrupt if necessary and reorganize into a viable business (or businesses). There is nothing with GM, Ford, or Chrysler that justifies preventing their bankruptcy by bailing them out with taxpayer dollars, and continuing the parenting treatment. They can grow up, accept the consequences of dumb mistakes, and readjust like everyone else. Yes, it would be painful for a year or two, but they would be required to come back with a smart business plan, efficient vehicles, and the ability to compete against the stronger Japanese automakers.

This would do much more good in the long run than the government’s endless involvement in the industry. Government limits consumer choice when it prevents an inefficient business from failing and subsequently readjusting to what consumers prefer.

If it is dependence on foreign oil you’re worried about, why not open up competition there as well? It makes little sense to ban nuclear power, heavily limit coal production, prevent a good deal of domestic oil drilling, and complain that we are too dependent on foreign oil. Why don’t consumers, communities, and states choose for themselves which energy sources are worthwhile, instead of the federal government? Give people the power of choice.

There is not one ideal energy source for every person, community, state, or country. Energy should not necessarily be treated as such a national issue, because at the heart of it energy needs start at the local level. Just look at some of the major problems caused by the federal government’s involvement in energy: a costly foreign policy partially built around the prospect of oil, the numerous subsidies to fund inefficient corn ethanol and E85, and even with the cries against CO2 we are prohibited from expanding the one major energy source that does not emit any CO2, nuclear power.

Choice of energy would tear down our need for foreign oil. It makes little sense to put the control of energy in the hands of the federal government, which can’t come close to taking into account local energy needs, preferences, and sensibility. Plus, it is the general governing, such as energy policy, that is constitutionally a state issue. The Rule of Law can’t simply be ignored when it is inconvenient for the government’s agenda.

A level playing field comes best with the free market. People should be free to make their own decisions (through their communities and state governments, if need be) with energy. Oil, nuclear power, coal, solar power, wind power, biofuels, and many other sources all have their ups and downs, and it is ridiculous to think that the federal government can effectively manage and distribute them. Give the market the ability to explore and innovate current energy sources as well as the new alternatives popping up.

The auto and energy industry will likely see increased intervention by the federal government in their affairs, while free and competitive choice slowly slides to the back of the room. People don’t have the influence they once had with their own decisions, because the federal government has apparently given itself the power to choose which businesses can fail, which products we can and can’t use, and even the power to take taxpayer dollars and hand it to private corporations.

More individual freedom and choice will hardly run our situation further into the ground. Rather, it is the choice and freedom of these industries that will further expand their sustainable development, efficiency, and promote the interests of the people over the long run.

The philosophy of competition has taken a backseat to government interference. In the recent cases of Bear Stearns, Lehman Brothers, and Fannie Mae, among others, it was the government, not the marketplace, that determined whether the companies were fit to fail or survive. Traditionally, businesses are required to adjust to the harshest of circumstances if they want to survive over the long run. Great businesses grow stronger, not weaker, in the worst of downturns and certainly don’t come crawling to the government for help.

During the middle 1920s, Ford sold roughly ten vehicles to every one sold by Chevrolet, a strong competitive cushion for any company. To reverse this trend, Chevrolet continually increased its advertising, starting in 1927, and in 1931 actually overtook Ford’s lead in automobile sales. You wouldn’t take vehicles to be a hot item in a very rough economy, especially with everything we see today with GM, Chrysler, and Ford. But with smart management and a stellar advertising strategy, Chevrolet kept its business healthy and took advantage of weaker competition. Similar strategies were used successfully by other businesses in the era.

Camel lost its number one spot in the tobacco industry to Lucky Strike in 1929 and Chesterfield in 1931, quickly putting it in the number three position. In response to this sudden fall in market share, Camel greatly increased its advertising budget and once again regained the top spot in 1935. Remember, this was happening in a time when unemployment was climbing as high as 25%, yet with smart advertising programs Chevrolet and Camel, two companies selling non-essential items, expanded their profits and market share.

Proctor & Gamble also performed impressively in this time period, essentially by starting the era of radio advertising and programming. The key to success for many companies remained in a well-managed advertising plan, especially through the new medium, radio, which happened to be one of the fastest growing industries during the Depression. “Print media” (newspapers, magazines, etc.) and billboards also picked up as advertising outlets.

Coca-Cola is another business that took advantage of advertising possibilities. In 1929 there were enough fears going around that the company worried sales were going to decline. Coca-Cola started a new advertising campaign in 1929, and per capita consumption of the drink doubled that year. Interestingly, the other popular drink business of the early 20th century, Moxie, decided to cut back on its advertising budget around the same time, which was the start of its ending days.

Obviously we can’t forget about the many businesses that did fail, but the progress that was made by the free market in the harshest of circumstances is often ignored. What strikes me about the above examples is the fact that because of their strong advertising, all of the companies became popular, household names largely in the Great Depression.

Today the competitive process has been incredibly limited by the government. It was the competition in the Great Depression that promoted the creativity and originality of businesses like Coca-Cola, Camel, and Proctor & Gamble, boosting them into the spotlight over the long run. In the 1930s the auto companies competed like everyone else, and the smart ones took the opportunity to open up to customers and expand their market share. The consumers made the final decision on the success of the businesses, leading to the success of Chevrolet. Today, it is the federal government deciding whether or not GM, Chrysler, and Ford can fail, how they will fail, and has even gone so far to reorganize the management at GM.

Competition created the healthiest areas of the economy in the Great Depression. It was when government got overly involved in areas like farming and international trade that consumers and individuals felt the pinch, businesses struggled, and employees were laid off. Companies who were prepared for a downturn used it as an opportunity to increase advertising, gain market share, and keep a steady base for employees.

When people have the choice to purchase a product, it motivates a business to improve their products to the liking of the most customers, and provides the incentive for other businesses to enter in the “race,” so to speak. It is only in a free, competitive market that the power and choice of the individual is upheld.

When the government starts handing out money to keep certain businesses and industries afloat, you know something is wrong with the process and system. We’re supposed to believe that the fate of the financial system rested on the success of Bear Stearns, Lehman Brothers, Fannie Mae, etc. If this were the case, is this even a system that we should consider keeping afloat? People realized they couldn’t afford the mortgages, the banks who had provided the mortgages expected this but didn’t do a thing to prepare for it. Instead of letting the businesses fail, restructure, and allow new competing businesses and ideas have a shot, the government prevented all of this by throwing taxpayer dollars at a system that is supposedly resting on the fate of several corporations.

Corrections outside the influence of the government, and central bank, are necessary and useful for the long-term strength of businesses and the economy. If a correction comes along like today and the government prevents the floundering businesses from failing, it does not send the message that risky and stupid practices come with potentially devastating consequences. If anything, it encourages more of the exact same practices that got us into this mess.

Common sense alone tells us that a strong economic system does not rest on the fate of a few corporations, the willing hand of government to throw taxpayer dollars at failed ideas, or the ability of the government to interfere at will in the affairs of the market. Clearly the events we have witnessed over the past year do not represent the actions of a free and consumer-controlled economy.

As hard as the federal government and Federal Reserve may try, no manipulated system will outrun the foundation or principles of freedom. The principles and practice of competition, risk and reward, and free choice – not government and central manipulation – will build the strongest, most sustainable, and freest economies.

We hear much chatter today about laying out the “blueprint for our future” through economics and politics. Many people have the idea that it is government’s responsibility to push forward anything that should change, but all of this is irrelevant if the central issue of economics is ignored: money. Freeing money in this country ranks at the top of the list of necessary action to bring long-term stability and sustainability to the economy.

The first essential step is to eliminate the secrecy of the Fed. It is mind boggling to allow such important policies of the economy be put in the hands of a central bank, and prohibit Congress from performing an audit of the agency. Allowing Congress and the American people to get the information they rightfully deserve is extremely important toward opening the many faults of the system to the public. Power itself is dangerous; but unchecked, secretive power is one of the most dangerous things known to mankind. Besides, it is Congress, not a central bank, who has the responsibility over money clearly laid out in Article 1, Section 8 of the Constitution.

The Congress shall have Power…

To coin Money, regulate the Value thereof, and of foreign Coin, and fix the Standard of Weights and Measures;

The second, and possibly most important step, is to the repeal the legal tender acts passed in the 1960s, which led the way for allowing only Federal Reserve Notes to be legally accepted currency in the U.S. Legal tender laws alone should be enough to make one question the quality and value of a currency. After all, if a currency is strong and preferred by the people, why would legal tender laws be necessary?

The U.S. was founded on the principles of individual freedom, which in a nutshell means the liberty to freely make individual choice. When it comes to economics, individual choice is starting to be thrown out in favor of government control. Monetary choice is vital for the long-term survival of any economy. Allowing choice means allowing competition, and as we have seen the free market demonstrate time and time again, competition strengthens a product. It is no different for money and currency.

Legalizing competing currencies does not mean requiring competing currencies. We have a system today along the lines of requiring everyone to shop at a national retailer like Wal-Mart, when we might find better deals and products with a local store or retail chain. Competition of a government-managed dollar would look a lot like competition to the Post Office. The inefficiencies of the Post Office led to the private creation of FedEx and UPS in the 20th century, giving choice to consumers but not taking away the option of the Post Office managed by the government.

What legal tender laws do is kill competition. It is then the government who decides what medium people use to buy goods, not the people. Except today, it isn’t even the government managing the money that we are required to use, but the Federal Reserve. History has shown us that when governments carry monopoly power over money, that power eventually leads to an overextended government unable to bring itself out of the hole it creates. This has caused or contributed to the collapse of great civilizations throughout history, including the Roman Empire.

The third step, and probably end objective, is to transfer the control of money from the Federal Reserve back to Congress and the U.S. Treasury, as we had with United States Notes as late as 1971. A currency backed only by gold and silver, as the Constitution outlines, is very important for keeping the monetary power in check. Since 1971, we have seen firsthand how a fiat monetary system lays out the road for growth and abuse in government at the expense of the people and economy. A great quote mentions how paper money always returns to its intrinsic value: zero.

We must realize that a backed currency alone will not keep government in check with monetary power. This is something that has been largely forgotten over the past half-century or so. Because, at the heart of it, monopoly power of money is no better off in the hands of the government than it is with a central bank. It would be pointless to get riled up over the failures of the Fed and simultaneously hand that power over to the federal government. This is why free, competing currencies play an important role in this whole equation.

A common argument against competing currencies is that it would supposedly lead to economic chaos because there would be so many different currencies. I would be highly surprised if this turned out to be the case. For one thing, the dollar managed by Congress and the U.S. Treasury (not the Fed) would still be provided, regulated, and available for use in transactions.

Competing currencies simply give people and businesses an option to opt out, so to speak, if Congress goes on a spending rampage and inflation destroys the purchasing power of the dollar, or any scenario of that sort. Rather than locking people into a currency with no questions asked like we have today, it is key that the potential choice to venture into other currencies and monetary systems, if necessary, not be put off the table.

One other item is taking away the Fed’s power over credit and interest rates. These are the last things a central bank or the government should be dealing with. Interest rates should be sorted out like anything else the free market manages: through the supply and demand of money. If people save more, interest rates go down. If people save less and the banks need more capital, interest rates adjust and go up to promote saving. In a free society, people can handle themselves with interest rates as well as credit. We don’t need a few central bankers or government bureaucrats deciding what the rate and supply of money ought to be.

By simply allowing the market to have more control over money, I am certain that a national currency provided by Congress would have to maintain stability in value and supply to not burn up in ashes. In the long run legal tender laws are helpful only to the government and not the people. If people were to decide which currency they use, the government would be much more accountable to the people, and as a result the currency would undoubtedly be managed in a more sensible and sustainable manner.

It is time that people embrace the ideas of monetary freedom, responsibility, and choice. When the power of money is denied from the people, no society or economy is truly free.