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Inequality by the Regulator’s Hand

That the government picks winners and losers is no breaking story. But how might people react upon learning that most of the things government does actually gives an advantage to those who are already winning? Back to that in a moment.

In an op-ed at Forbes, Michael Cannon points out a perverse incentive caused by the Affordable Care Act, arguing simply that “by making it easier to obtain health insurance when you need it, Obamacare reduces the risk of not buying health insurance when you don’t.” That may sound convenient prima facie, but it turns the entire premise of health insurance on its head.

The business of insuring is fundamentally an act of balancing risks. It exists only because of insecurity and imperfect knowledge about the future. If health is certain, there is no need for insurance, and if illness is certain, no company with a sensible business model will provide coverage. This explains the federal mandate that young, healthy individuals buy coverage despite the unlikelihood of needing care—a wealth transfer by another name.

Yet, the notion of risk has been oddly absent in the years-long debate over health insurance, and the result is painfully laughable. As Amy Otto tweeted: “a financially savvy person could buy an ACA policy for just 1 month and get all their ‘preventative care’ and cancel the next month.”

[pq]If we want a society of equal opportunity we should start by eliminating political obstacles and favoritism.[/pq]

As bad as this convoluted system is for the actual improvement of real healthcare outcomes, Otto’s comment highlights a more worrisome phenomenon that pervades our entire modern regulatory state: it is the savvy and most-educated individuals who will be the first to figure out how to game the system.

When getting ahead requires the careful navigation of a maze of tax codes, regulations, forms, and entitlements—all designed ostensibly to help the underprivileged, who benefits most? This is quite a rugged uphill climb for the challenged children of divorced, blue-collar parents with limited education. More likely, it will be those who sat in the front of the class and did the extra credit work even when they didn’t need it—partially because their parents knew that getting into an Ivy League college is a ten year process, and partially because they have the wits, ego, and determination to excel. It is those who have access to both sound advice and the resources to act.

People do not respond the same way when faced with a challenge or opportunity. In effect, a large and complicated regulatory state only deepens the opportunity gap between those who naturally excel and those who struggle.

This is not just about the poor vs. the wealthy. It is also about the middle-class dad who is trying to figure out the best investment plan for his family. It is about the young entrepreneur who has her dreams smashed because she cannot keep up with the cost of compliance and taxes. It is about one company beating out its competitors not on market principles or improved customer service, but through lobbyists and loopholes. It is about the creation of income inequalities among low-skilled workers that has more to do with who finds the cheese than who can get out of the trap.

One may suppose this is merely a type of merit-based reward, which is precisely what champions of such policies claim to despise about free markets. The essential difference here is that this is an artificial and politically imposed system that erects barriers to opportunity that disproportionately burden those least equipped to overcome them. If free markets create a sink-or-swim scenario, the regulatory state is a weight tied to the ankles of millions of suffocating middle- and low-income workers.

If we want a society of equal opportunity we should start by eliminating political obstacles and favoritism. If we cannot draw the line of just government there, then we have given up the project of the founders and answered Hamilton’s question—whether societies of men are capable or not of establishing good government from reflection and choice—in the negative.

Second, we should recognize that inequality is a fact of the human community that demands some alteration in how we view equal opportunity. Diversity should be celebrated. Equal opportunity does not mean we all have the same things to offer the world, or that we should all earn the same monetary rewards; it simply means that we all have the opportunity to use what we do have to the fullest extent we can—or want to.

Here’s the truth we like to ignore: half of the population unfortunately has “below average” intelligence. That is not a research statistic; it is a logical reality. The same is true for determination, ability, education and other factors that relate to success. There is no question that some are more prepared than others to face complex problems and figure out what it takes to win—it’s their comparative advantage. Those who have to try a little harder to get ahead would be much better served by a government that didn’t force them to navigate an obstacle course of federal, state, and local regulations.