Once upon a time, a simple, law-abiding man named Bob operated a produce stand. Of all his produce, Bob was most proud of his fresh green beans, which he sells for $1 per bag. At that price, he makes a profit of about 3 cents. In a typical week, Bob sells 100 bags of fresh green beans and has a steady stream of customers. His customers like his fresh green beans. They smile when they buy his fresh green beans. Life is good.
One day the Fair Constable of Fair City, that beautiful town in which Bob operates, stops by to notify Bob that the Fair City fathers have enacted an ordinance to help make fresh green beans more affordable for all:
“Affordable Beans Ordinance (hereinafter the “ABO”): All customers over 65 (aged) or of low income (poor) are entitled to obtain beans from all venders thereof, without making personal payment therefore. Under ABO the Fair City will pay vendors for same. Since Fair City does not expend more funds than it has, and must tax our citizens to raise funds, for each bag of beans given to the aged or poor Fair City will reimburse the vendor 60 cents, the ABO Reimbursement (ABOR). Any vender of beans who refuses to deliver to the aged or poor and accept said ABOR from Fair City shall cease vending beans.”
Bob, being a simple and law-abiding man who wants to do what is right, complies with the ABO. Over the next few weeks Bob, being a prudent man who tracks his income and expenses, finds that about 50 of his customers are either aged or poor. Where he used to bring in $100 and make $3, he is now bringing in $30 from Fair City ABOR, and $50 from the rest of his customers, or $80. His costs of fresh green beans have not changed, so he is losing $17 a week. Life for Bob is no longer good.
Bob calculates that in order to stay in business and make $3 profit, he must raise his “normal” price from $1/bag to $1.40 per bag. He can see that if his 100 customers continue to buy one bag per week, he will receive $70 from the 50 private-pay customers, and $30 in ABOR, for a total of $100 per week. Bob is happy with his plan, as his $3 profit is to be restored. Bob feels good. He is a law-abiding man and he enjoys the smiles on the faces of his aged and poor customers, who get to take fresh green beans without paying. He is troubled by the frowns and complaints he gets from the private-pay customers who now must pay $1.40. But all in all, life is almost as good as before.
However, over a period of time Bob notices a new trend in business. Half of his customers’ personal cost of beans went to $0. For them, fresh green beans are an absolute steal! Bob sees that these customers are ‘buying’ more beans. As a matter of fact, he finds over time that they are buying an average of 1.5 bags per week.
About this same time, the Fair City fathers are shocked to notice an alarming trend in their budget. Before they enacted the ABO, they had carefully calculated the costs. They studied bean buyers’ behavior and bean buying statistics. They knew how many people were over the age of 65 and how many people fit their definition of ‘low income.’ They knew and budgeted for the 50 citizens buying their 50 bags at the ABOR of $30. Food is a basic human need. Everyone had to have it, whether the Fair City paid for it or not. Surely no one would buy more beans than they needed, surely at the earlier price of $1 those citizens were buying all the beans they needed. This sudden spike in aged and poor buying habits was simply unimaginable. The ABOR to Fair City had skyrocketed beyond their budget expectation: instead of 50 bags for $30, Fair City is buying 75 bags for $45.
Since this is 50% higher than budgeted ABORs, vendors like Bob will just have to understand and accept ABOR payments a bit late, as Fair City attempts to solve this budget crisis.
Meanwhile, while Bob was waiting for late ABOR payments and the Fair City fathers appoint a “Super Beans Committee” to which they delegate the task of selecting which voters will be least offended by a tax increase of $15, something else was happening around Fair City. In each home of Bob’s 50 private-pay customers conversations were occurring over the 40% price increase for fresh green beans. Many of those families decide to purchase some other, cheaper food, like peas or broccoli. Over a period of a few weeks, average purchases by the private-pay customers drops to ½ a bag per week.
Poor Bob! He was making fresh green beans available to all, and now he finds himself selling each week an average of 75 bags at 60 cents ABOR and 25 bags at $1.40. Amazingly, his total revenue is down to $80 again! His costs have not changed. He still supplies 100 bags of fresh green beans, and he’s losing $17/week. Bob is a simple and law-abiding man who faces a choice. He has worked all his life to be the best produce vender he can be. Bob simply must (1) raise prices again on private-payers, or (2) cut quality of his product, or (3) implore Fair City to limit the beans bought by their 50 customers.
At the same time, Fair City is concerned! Their budget called for $30/week to help the aged and poor get the basic necessity of fresh green beans. Their Super Beans Committee refuses to point the finger at any group of not-yet-Taxed-Enough-Already taxpayers, and the decision falls back on the Fair City fathers. They must decide among various options:
(1) Do they cut the ABOR rate from 60 cents to something less, say to 40 cents? That would bring them back on budget, but Bob would be forced to sell 75 bags of beans at an even greater loss. They have to wonder, what might Bob do? Give up and just quit? Then no-one will have access to fresh green beans. Might Bob raise his private-pay customer rate again? Some of those customers might blame the Fair City fathers in next election.
(2) Fair City could simply raise the ABO budget and increase taxes to bring in the $45 instead of the $30. But, whomever that tax falls on will be angry and that won’t sit well come next election.
(3) Fair City could place a limit on the number of bags of beans the elderly and needy can buy each week. But limit their access to a basic necessity? That might make the aged and poor a bit disgruntled. But they’d still get some green beans for ‘free’…and maybe an Affordable Babysitting Ordinance would help secure their votes in the next election.
After much deliberation, the Fair City fathers compromise: Bob doesn’t need to make $3 profit! After all, beans are a basic necessity. They amend the ABO: they forbid bean-sellers charging more than $1.40, the ABOR rate is reduced to 50 cents per bag, and they limit aged and poor to not more than 1.3 bags per week. There, that solves it!
Bob, being a simple and law-abiding man, closes his produce stand, joins the needy and takes his place in the line at the only remaining produce stand in town, to get his allotment of stale green beans when they become available. The End
Every Fable has a Moral
If only that really were the end. But it isn’t. Everyone is entitled to beans. The remaining stand, with no competition, has no incentive to provide quality. It will exist only to provide ‘beans’—regardless of freshness—in exchange for unlimited ABOR of fifty cents per bag. As more people demand their ‘free’ beans, Fair City will have to raise taxes to pay the ABOR. The Fair City that promised everyone an allotment of beans will, by increasing regulation or direct take-over, control all production and dissemination.
Oh, sorry…you say you don’t know beans from health care? Food is an even more fundamental ‘need’ than health care. The real forces of rational human behavior apply to both.
When government—an amoral organization of self-interested humans—has attempted to make things like health care more affordable (Medicare and Medicaid are the equivalents for this fable), there are at least two certain consequences. The actual costs are shifted or the services are rationed. Or both. Furthermore, when costs are shifted, those who escape the real cost of their services tend to over-consume. More costs are thus incurred, and the burden is increased on those who are forced to pay, making both taker and payer willing to accept ‘compromise’ in their liberty.
Benjamin Franklin said that those who would trade liberty for security will end up with neither. Don’t believe for a second that you can trade your liberty for fresh green beans.
[“Is there no answer then?” you ask. Three simple reforms would reduce health care costs: (1) tort reform, (2) tax deductibility on individual policies for all, and (3) freedom to shop across state lines. Where truly needy situations exist, charities have been and will continue to be there, to take up the slack. I’ve witnessed that very close-up. ]
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