NOTE: This essay is cited in a number of my old posts, so I was surprised when I cited it in "Nonsensical Regulation" and found that I had never copied it from my defunct blog ("Random Notes") to the current blog.
I already covered this in "Shameless Self-Promotion" posted yesterday, but it is an important enough question I feel I should make a more explicit mention of the issues at hand.
All economic resources are scarce. If something does not have greater demand than supply, that is if there is more than enough to meet all wants, then it is not an economic good. For instance, air is not economic, as there is more than enough for all wants. So if something has a price, then it is scarce, that is, there is not enough to meet all desires.
So medical services are hardly unique in having a supply inadequate to demand.
And, whenever something is in short supply, the question arises, how will it be distributed? Traditionally, in the United States, almost all scarce goods have been distributed through the free market. Those who produce the goods have been entrusted with arranging the transfer of the goods or services they produce.
This is obviously not the only system. Historically many states have expropriated producers and then distributed the goods through various mechanisms. From the Roman corn1 dole to medieval serfdom to communism and fascism and Nazism, systems have tried various government centered schemes to distribute goods in a manner they found more pleasing.
Even in the US some goods are distributed through non-economic systems. On one extreme, nuclear fuel is distributed solely to authorized holders. On the other extreme, narcotics and firearms are distributed economically, but with some government restrictions on their possession2. Nor is the government the sole group deciding who can obtain such goods, for example, in the medical realm, organs are distributed by medical panels, based solely on criteria established by the medical community. The power to do so is based on government delegation of authority, but the criteria are established within the medical community.
And those, really, are the three ways in which scarce goods can be distributed. Goods can be distributed through the free market, with buyer and seller negotiating for transfer of goods on mutually agreeable terms3. The government can distribute the goods based on its own criteria. Or the government can delegate the authority to distribute goods to a third party which will establish criteria for distribution.
Which brings me to my point. When discussing medical care, any "solution" will have to be int he form of one of these three answers. The government, obviously, wants you to think that it can magically give you all you want in exchange for a trivial tax, either by "soaking the rich" or otherwise. But that is absurd. There is simply not enough money to supply every American with all the medical care he could want. Any solution will require some allocation of scarce resources. Someone will decide who gets and who does not.
The question is "who?"
There is not much difference between the second and third answers. Whether the government or some professional panel makes the decision, it will be out of the hand of consumers. No doubt you will be able to appeal, but at some point, parties outside your control will tell you whether you can or cannot have care and you will be stuck with that decision4.
The free market puts caps as well, but not int he same way. If you find yourself unable to afford the care you desire, you can always borrow, or work more, or economize in other areas, whatever you can do to increase the money available, to pay for the service. You may find yourself unable to afford all the care you want, but you do have the option of committing more or less money depending on how important the service is, unlike panels which decide for you how important the decision is.
But the biggest point is this: There will always be a decision about who will or will not get services, as long as goods are scarce some will do without. But under the free market, the influx of cash will encourage more people and resources to be committed to the provision of similar services, making them gradually cheaper. On the other hand, government allocation does nothing to encourage more investment in goods in short supply. In fact, without a price mechanism, they can't even tell which goods are in the most demand, so goods will not become cheaper.
And that is the one truth the government strives mightily to avoid. yes, medicine is expensive, especially the latest care. But the latest technology is always expensive, be it computers, VCRs, automobiles in the early 1900's or what have you. But thanks to the free market, they went form "rich man's toy" to "affordable by the modestly wealthy" to "middle class luxuries" to "universally available". For the outcome of government rationing, look at any consumer good in the former Soviet Union.
That is your final choice. an "unfair" system which eventually provides better for everyone, though the rich will have better still, or a "fair" system where everyone is equally miserable and it never really improves.
As I said before, it is sad, but many chose the second.
1. For those who don't read a lot of history, or older, especially European, authors, this term may seem anachronistic as what Americans call "corn" was unknown to the Romans. (No, no polenta in ancient Rome.) However, the term "corn" was used historically for all manner of grains, where the Indian word "maize" was used to specify what we are used to calling "corn". It sounds funny to modern American ears, but the term "corn dole" was used in so many of the works with which I am familiar that I can't think of it any other way. Thus this lengthy and off topic footnote.
2. It is arguable whether these qualify as non-economic distribution or not, as they are effectively economic systems with individuals excluded. However, as the criteria for inclusion or exclusion differ from the purely economic, I prefer to think of them as government distribution systems with some economic elements.
3. There is also the possibility of hybridizing the first and second solutions, creating a free market system with some government controls, such as price caps, barriers to entry, price floors, or similar restrictions. Such systems would have aspects of both solutions, though usually the government aspects would predominate, as it is unlikely the government would intervene if such intervention would have trivial impacts. It is doubtful price ceilings or floors would be established if the market already made them irrelevant, and barriers to entry almost always exclude someone, so any government intervention tends to overwhelm any remaining market aspects.
4. Some make a bad analogy and say "insurance rations care". But that ignores the fact that you can always buy other insurance, or pay out of pocket. And, even our present insurance services are in a way the product of government intervention. From tying insurance to employment to licensing to preventing out of state competition, the government has insulated insurers and kept them from facing competitive forces. With a free market in insurance, their provisions would probably be a lot more liberal, and would certainly be open to much more negotiation on the part of consumers. Just look at homeowners or renter's insurance as an example of a (mostly) free market insurance.
For those who think universal "insurance" is the answer, we need only look at the "retirement insurance" which is social security. Does anyone think the government will price their insurance competitively? If they do, then those who cannot afford insurance now will not be able to afford it under the government.
So government insurance will be below market in cost, subsidized with taxpayer funds. Does anyone think that might drive other insurers from the market? And, if that is the case, then is it not likely, as some on the left have effectively admitted (see here ) that universal insurance is just a "stealth single payer" plan?
Which means that there is no real difference, other than time, between government insurance and nationalization.
The left laughs at former Governor Palin and her mention of "death panels", but as I argue above there will be, of necessity, some mechanism to decide who will get what care and who won't. As has been mentioned by others, right now it is decided either in the free market, or by contract between individual and insurer, with the courts to keep both sides honest. When the government gets involved, they are both insurer and judge, so there is really nothing to stand in the way of a unilateral decision by the state. And, if, as I believe will happen, universal insurance mutates into single payer, we will be left with no one but the state making such decisions. That is pretty close to Palin's death panels in my book.
Unless the left really does think Obama is the messiah and he will repeat the fishes and loaves with liver transplants and interferon.
Originally posted in Random Notes on 2009/08/24.