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Centralized Control Should Work. But It Doesn’t.
I started my medical practice in a medium-sized city in east Tennessee 20 years ago. I walked into a bank, asked to meet the guy in charge, and told him that I intended to start a solo practice from scratch. This was very unusual, even then. He asked if I had any money, if I had ever run a business before, and if I knew anyone who might help me start this up. I said nope, nope, and nope.
We had lunch. Twice, I think. We had dinner. We went to see his nephew play in a little league game. I thought he was trying to understand my unorthodox business model, but in retrospect, he was trying to understand me. So eventually he offered me a loan, my business did well, and I used him for everything after that.
I bought a brand new Ford F-250, and when the salesman asked how I wanted to pay, I just told him to call Mark at First Bank, and I drove away. Mark called me a couple of days later, told me how I should finance it, and I dropped by later in the week to sign the papers. I bought a house the same way. I made Mark a lot of money over the next 20 years. I made money too. We’re buddies, as you might expect. Adam Smith would understand.
A friend of mine in that town, who is a doctor in a competing practice and is a son of one of the wealthiest families in the area, went to a neighboring bank to refinance his house when the interest rates dropped a few years ago. The banker told him that he could not loan him money. My friend pointed out that he had more than the amount of the mortgage in various accounts in that very bank, but the banker explained that his hands were tied. Dodd-Frank and other laws regulated banks to the extent that they were told who they could loan money to. This is a huge change. My local banker, Mark, decided that even if my ideas were unorthodox, I was a guy who would probably make money most of the time, so he bet on me. Figuring out who those people were in our town was his job. And the better he did his job, the more money he made. My friend’s banker could no longer do his job – he just followed the rules. So he was essentially prohibited from making money. This is why centralized control never works.
We have an opioid crisis. Drug overdoses are at an all-time high. So the federal government, naturally, wants to do something. First, to get re-elected, but also because congress-humans are people too and they naturally want to help. But how? All they can do is establish rules that govern the behavior of doctors who are supposed to know who they are prescribing medicine for. But Medicare has forced the formation of huge vertically integrated multi-specialty medical groups in which patients are run through in a more efficient manner, and in which they don’t always see the same doctor. Other staff, like nurses, are rotated efficiently too, so they don’t necessarily know the patients either. So the personal relationship between the doctor and the patient is minimized and the regulatory oversight is emphasized. This simply cannot work. It will be expensive and unsuccessful, of course. It is doomed to fail from day one.
The behavior of individuals was once governed in large part by local churches. You didn’t want to go to church on Sunday (and face your neighbors and your pastor) after you’d done something stupid. Government can govern behavior as well, through police and courts, but it just doesn’t work as well. Charities are the same way. Suppose you lose your job. You tell your pastor that you need help to feed your family for a couple months. That works ok because you are by God going to find something so you can look your congregation in the eye again. But when government provides the charity, it just doesn’t work as well, for various reasons. Who do you want to manage your utility co-op? Some guy in Washington, or your wife’s cousin’s co-worker from down the street?
The further the decision-making gets from the impact of those decisions, the worse things get. Our federal government really does want to help, but it generally does harm instead, because it simply has to. That’s just the way things turn out. Centralized control should work. But it doesn’t. So there you go.
But then, something goes wrong in your life. The way things always do. And who do we want to help us? Well, the most powerful organization around, of course: the federal government. And it can’t help. It will try, of course. But whatever it does will likely be harmful. Not because of malice. Simply because that’s the way things turn out. So the problem is multiplied, it gets worse and worse, and we look for more help. From the most powerful organization around.
This dichotomy is problematic. I don’t see a solution. Do you?
Published in General
Sad to say, no.
Good banking relations are extremely important to a business. I treated my bankers more like a customer than the other way around.When I sold my business I had a 10 million credit line with no restrictions. The most important thing is never lie or deceive your banker and keep him in the loop.
Banking allows business to happen. Regulations that restrict the actions of bankers restrict business. It can be no other way.
If someone wanted to inhibit the growth of American business, they would impose something very much like Dodd-Frank on our economy.
Christopher Dodd and Barney Frank should have been put in jail! Not authoring legislation!
Fifty years ago most bankers were probably adept at character evaluation and themselves members of local communities that provided better intel than Equifax or Experian. The idea that a corporate/government bureaucrat with an algorithm was ever a fully viable replacement was always a dumb idea.
On the eve of the 2008 crash, local lenders had mostly been pushed out of the mortgage market by the big feeders for Fannie and Freddie. Faking the paperwork to qualify loans for mortgage acquisition programs was epidemic. Local banks who once kept loans in their own portfolio would never have issued that garbage.
“Programs” will “save” the inner cities, solve the drug crisis and make families and communities unnecessary. “It takes a village”, right? A bogus national village whose only common bond is dependency on and submission to the benevolent state, a state whose main objective appears to be the dissolution of the personal ties that used to sustain its people.
I worked really hard on my post, and you expressed my thoughts more clearly in 8 sentences that you probably wrote in 45 seconds. Nobody appreciates true artistry anymore. Thanks a lot.
Hmph.
😒
I wish there were many more of your type of doctor. If I tried to tell you what to have for dinner for your own good tonight, you’d think I was nuts. I wouldn’t have enough information to know what you like, etc. But that is what central planning is. Michelle Obama’s lunch program tried to decide what children could have for lunch for their own good of course.
It bothers me that people make bad choices in their lives that cause them harm. I’ve made a lot myself. But I respect their right to make them and suffer or learn from them. Central planners strip freedom and accountability from citizens and makes them subjects.
I think this is Obamacare more than Medicare but it may be unique to your area. The local docs started an IPA about 1992, mostly to deal with HMOs. When I retired in 1993, my surgery practice had 276 contracts with various entities. I don’t think any were with Medicare. The hospital administrators were enthusiastic about Obamacare because it would finally put them in charge of those G–D— doctors. The hospital went around buying up the medical groups. Younger doctors don’t care that much about freedom and independence. They made an offer for my old surgical group which was headed by my former partner’s son. They said no and the hospital then came back, cancelled the trauma contract that the group had run for 25 years, told the ER docs, who now work as gauliters for all admissions, not to call that surgical group. Then the hospital brought in another group that no one had ever heard of, all women, and I would not be hospitalized there now. The JCAHO yanked their accreditation for 6 months two years ago.
I heard about this in 2006, I think. I was astonished. I had never heard of less than 20% down. My ex-wife was working on the mortgage business and told me about it. As long as the buyer made the first two payments, the broker got his/her commission
It makes me wonder if they care about excellence and competence, or people. Maybe it is just a good job.
I recently read Robert Capon’s “Bed and Board”, an old book (1960s) basically about marriage. (I was disappointed to learn he got divorced and lost his church, but still found it a good book). Anyway, he talks about the importance of caring:
“The society is moving toward the dangerous situation in which only a few will be able to care enough to bother about excellence. At that point we will be sitting ducks for anybody’s hunt……there are points in every subject beyond which you can’t go without care. It is at those places that the careless man makes his big mistake and blows the whole thing.”
The best way to reduce the federal government’s power in business, higher education, and medicine is to strengthen the states.
Sure, but just because something has a consistent record of never working and causes considerable harm whenever used is no reason not to try it again.
Sure, but local gov’t also sucks & always has, or else the Constitution would never have appeared in the first place.
Tocqueville distinguished administration from politics & insists only the latter should be centralized in America, so that people can deal with their problems most of the time themselves, as you suggest.
But industrialization, of course, changed that, as did modern transportation, communications, &c. Technology tested American love of their neighbors & love of the common concerns. Do you want to guess how that test turned out?
Probably, some tech-powered form of administrative decentralization is the best America can hope for, but it means people should start busying about their locales. Who wants that, though?
I’d say it was the stupid ideas of Woodrow Wilson and the progressives. Income tax, 17th amendment, central bank that started mucking with the economy form day one, etc.
He didn’t start those amendments. America did. He just finished them.
Here’s your free lesson in American history: A16, 17 were ratified in 1913, the first in February, so Taft was still in office–he had wanted the income tax, by the way. Ratification was by three quarters of the states, 36 at that point.
& Progress was the invention of the GOP.
Wilson wasn’t against any of this stuff; but he didn’t invent, champion, or legislate it, or amend the Constitution.
It’s America’s freely elected bipartisan consensus that did it, but the party of Lincoln was in charge of the country those twenty years before WW…
Fair enough, but I still think that stuff was the most important factor.
I had missed this article. Saw it this morning. Outstanding. There is not a corner of the economy or human relations that we could not tell the same story about. Centralization cannot work and government cannot self correct.
Well, Republicans moved to form central administration by way of regulating industry, for the most part.
This has to get promoted.
I am against Bull Moose-ism whenever possible.
Well, who’s for restoring local politics? That’s the alternative to Progress.
Nope. I believe we, as a nation, passed the tipping point some time back (Obama’s re-election). More of us prefer a big centralized government over local control.
Love your post, btw. I met such a banker (in Waco, TX) when I was young, and my wife was pregnant with out first child. I had little to no credit, was barely out of college, and scraping by as a self-employed musician. We needed to borrow a few hundred dollars to pay the doctor and the hospital for our soon-to-arrive child. (Let that sink in – a few hundred dollars to deliver a baby. It was 1978.) I guess I looked honest, or the man took pity on me – but he gave us the loan, and we paid it all back. I can’t imagine that happening today.
How do you define Progress here?
You can see the discussion above–we were talking about how the GOP created Progress at the turn of the century &c.
This, and the Fed is papering it over until they can’t anymore. Great system we have.
Death to the Patriarchal Mooses!
I got that from a great podcast done by a guy named Shaun Thompson. “The Liberty Hour.” He is literally the only Trump-hater that makes any comprehensive sense, if you ask me. He’s a guest host for regional The Joe Walsh Show. Shaun Thompson would get Ricochet oriented to reality, fast.
“Mooses” can’t be right.
Meese? Moosi?
Singular: Moose.
Plural: Moose.
Things you learn growing up in Maine.
Great post. I only have one complaint. You say, “Centralized control should work.” Why should it work?