Petty Socialism Compells Governments to Introduce the "Fat Tax"

Oct 13, 2010 – 05:35 PM

By: J_M_Finegold_Catalan

Rising healthcare costs and continuing recession-related fiscal problems have impelled numerous world governments to introduce a “fat tax.”[1] Support for a similar policy is growing in the United States, which according to leading intellectuals suffers from a collective “weight problem.”[2]

Fast-rising weights and a general deterioration of health have increased the volume of weight-related medical issues. The implications for countries burdened with socialized medicine (including the United States, which suffers from a government-restricted insurance market that provides limited federal healthcare in the form of Medicare and monetary aid to the poor) consist in an increased monetary burden for society as a whole.

Fixed low costs to the consumer, whether free (universal healthcare ) or relatively cheap (limited welfare, like that of the United States), have caused a predictable increase in quantity demanded.[3] While the consumer directly pays a below-market price for the service, the true cost is hidden since the rest of it is subsidized by the government. Therefore, the rising costs that come with a rise in quantity demanded are simply deferred to taxpayers. David Leonhardt, writing for the New York Times, puts it simply,

This extra weight has caused a sharp increase in chronic diseases, like diabetes, that are unusually costly. Other public-health scourges, like lung cancer, have tended to kill their victims quickly, which (in the most tragic possible way) holds down their long-term cost. Obesity is different. A recent article in Health Affairs estimated its annual cost to be $147 billion and growing. That translates into $1,250 per household, mostly in taxes and insurance premiums.[4]

The solution to the problem is a tax on selected foods,[5] based on the idea that a price floor on certain foods will lead to a fall in quantity demanded.[6] However, this solution can be likened to building a barrier to regulate the height of the waterline in a swimming pool, yet leaving the hose on. In other words, a fat tax — of any and all variety — does not address the root problem.

“The root of our current medical problem lies in the collectivization of the consequences of an individual’s irresponsible choices.”

The root of our current medical problem lies in the collectivization of the consequences of an individual’s irresponsible choices. The issue is that the costs of one person’s decisions are spread equally throughout society, to the point that that individual hardly feels the penalties of his value judgments — short of illness and death. Indeed, this socialization of responsibility effectively rids the individual from all incentive to reconsider his or her values and desires. The erosion of responsibility, operating with the understanding that the consequences of poor decisions will be mitigated by what is benignly called a “social safety net,” is where the viability of socialized medicine falls apart.

Despite all the money and legislation thrown at fixing socialized medicine — including the current crusade to replace the bloated Medicare and Medicaid programs with a universal healthcare system in the United States — the fact is that temporary mends are just that, temporary. The system is bound to collapse given the nature of the problem. Worst of all, while the system is artificially maintained, the consequences — including corroding standards of living — must be borne by society as a whole.

The only solution is the one provided by the free market, where the consequences of one individual’s actions are internalized lest he provoke some form of reaction from another individual.[7] We can therefore derive that in a free market the costs of irresponsible choices related to one’s health would be shouldered by the individual only.

Negative Externalities of Medicinal Socialism

An economic externality is a cost or benefit of an action that affects an individual unrelated to that action. A common example of a negative, or cost-related, externality is pollution. If a firm dumps its waste into a river, and the current manages to transport the waste onto another individual’s property, the cost of the waste is said to be externalized to, or borne by, an individual who had not agreed to the action in the first place. Similarly, the cost of theft is not suffered by the thief but by the victim, and as such the cost of the act of theft has been externalized to the victim.

Socialism causes both benefits and costs to be externalized to the whole community. Much like benefits are distributed to society as a whole, so are costs. Theoretically, of course, socialists aim at limiting costs to just those “justified” — for example, the cost of universal healthcare to taxpayers is justified by the fact that this is the “only” method to extend healthcare to the less wealthy. Socialism falters when it becomes a victim to economic laws, or when it becomes apparent that goods and services cannot be distributed throughout a complex system of division of labor by merely the good intentions of the state.

This is the fate that has befallen socialized medicine. The costs of health-related irresponsibility have been externalized to society through the mechanism of public subsidization of medical costs. The costs of an unhealthy lifestyle, manifested in the free market in the form of expensive hospital bills or rising insurance prices, are borne by the government and distributed among the population as a whole. Therefore, it follows that in a completely socialized market in medicine — a true universal healthcare system — all monetary costs are externalized to those coerced into paying for a system they never agreed upon.

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