Free to Choose?

Don Boudreaux over at Cafe Hayek has a great article comparing the thinking of Paul Krugman with GMU's own Nobel Prize Winner, Vernon Smith. He contrasts their views on health care and how much respect they give to the average individual.

Boudreaux quotes Krugman:

But the case of diabetes and other evidence suggest that a third problem with health savings accounts may be even more important: in practice, people who are forced to pay for medical care out of pocket don't have the ability to make good decisions about what care to purchase. ''Consumer driven'' is a nice slogan, but it turns out that buying health care isn't at all like buying clothing.

And then goes on to quote Smith:

Many will say that neither the patients nor the students are competent to make choices. If that is true today, it is mostly due to the fact that they cannot choose and have no reason to become competent! Service providers are oriented to whoever pays: physicians to the insurance companies and the government; universities to their legislatures. Both should pay more heed to their customers -- which they will if that is where they collect their fees.

Why this difference between the two economists? Who is to be believed? This issue strikes at a key issue studied in economics -- who has the best information to make choices for you? You or someone you don't even know? Someone you have never spoken to? Someone who doesn't know your name, age, weight, family history or anything else about you? Krugman in noticeably silent about who he proposes would do this choosing for you. Presumably, he would propose to put this power in the hand of politicians in DC who are perfect examples of people lacking knowledge about anything personal about you. Notice, I am not doubting the intentions of the politicians, only their ability to do the job many propose they do. Even the most benevolent among them would not be able to do an adequate job at this.

If we need more intelligent people making choices for us, why not trust them to tell us what cars to buy, what clothes to wear, who to marry, what items we're allowed to buy from the grocery store and where we can live? Surely many of these things matter just as much to our overall well-being as health care. (I can live longer without going to the doctor than I can without eating. Why no clamoring to stop the ignorant masses from shopping at the grocery store?)

These issues all highlight something Hayek called the knowledge problem. No one knows better than you how to spend your money, what priorities you have in life, the goals you want to accomplish or how much you value things like food, health and happiness. There is no exceptional level of intelligence needed to make decisions on these things. Hayek once observed that one of the problems with intelligent people is that they tend to overvalue intelligence. These words ring very true!

Ask yourself if you need some one else to choose for you an auto mechanic, optometrist, computer vendor, church or civic group to join? We are not autonoma with no individual preferences. We are all unique human beings with personal experiences and situations in our lives that differentiate us from others. That's what makes us the best choosers of our own destinies and what makes interacting with other unique individuals such an exciting and dynamic experience. The things that make you you are the things that make life worth living.

I highly recommend reading Milton Friedman's excellent book, "Free To Choose". (Also be sure to check out his accompaning website.) This is the premier primer on this kind of thinking. It was the third economics book I ever read and completely changed the way I look at the world.