On Health Care

A friend on FB posted this link (Medical Bills Bankrupt Families of Mentally Ill Children) with no comments and of course, I had something to say about it. But, I restrained myself and decided to opine here instead.

The point of this story, of course, it to drum up anger and frustration. Surely, in a modern civilized society, families should not be losing their entire life savings over something as basic and fundamental as health care. They should get the care they need regardless of how much it costs. Don’t they have free health care in Europe and Canada? Why can’t we?

For a moment, let’s ignore the fact these so-called ‘progressive’ countries suffer from huge limitations on elective (and even some urgent) medical care because of rationing. There are two problems with this argument of ‘need’-based provision. 1) How do we determine which are the greatest needs? and 2) Can a centralized bureaucracy effectively administer (by force) the resources to meet those needs?

Until someone invents the Star Trek replicator converting energy into any kind matter we wish, scarcity will be the most basic truth of consumption. Since there’s only so much stuff available (whether it’s land, beef, gold, oil, time, Justin Bieber front-row seats, or Mickey Mantle rookie baseball cards), not everyone can have everything they want or even need. Further, not everyone values stuff the same way. I have absolutely no use or appreciation for the original 1960’s Batmobile but someone paid over $4 million for it.

Still not convinced? Let’s think about the question of how we determine greatest needs in a society. Whose needs should rank at the top of the list? The sick and dying? Women and Children? Health care is a commodity just like baseball cards and Batmobiles. It requires resources like materials, time, training, space, and energy to produce. Let’s just pick one of these resources – TIME.

Suppose we as a society used all available Time in the production of Health Care for all. Morning, noon and night, our Time was devoted to Health Care. Doesn’t take long to figure out that if this happened, we wouldn’t have anyone planting crops, raising animals, turning power and water on, building houses, etc.

Since we can’t devote all of society’s time to one cause or need, we have to use something less than ALL of our available resources. THUS, we will have scarcity which requires choices to be made by both producers and consumers. Producers have to choose what to make and how much. Consumers have to choose which products to purchase over another. In a free market, PRICE is where the two meet.

Some proponents of socialized medicine will argue that it is possible to provide the fundamental needs for free for all. In other words, take the Consumer’s choice dilemma above out of the equation. When you do that – guarantee unlimited supply to Consumers – you create infinite demand. What you’re left with, however, is the Producer’s choice. How will Producers of Health Care choose what to provide, how much of it, and for what price?

Stop and think about this point. If you are a Health Care Producer – whether you’re a doctor, pharmacists, EMT, dietician, drug maker, wheelchair manufacturer, prosthetics designer – you know that Consumers are guaranteed unlimited access to your goods or service. What would stop you from charging $1 million for a flu shot? Well, you’d say, who would pay that much for a flu shot? I would say, who’s paying for anything if it’s guaranteed? Without exception, unless the government sets a ceiling for prices and a maximum of procedures / services it can afford to guarantee, it will go bankrupt overnight. And once this rationing takes place, this question of whose needs get met first does not go away by simply guaranteeing the service. In fact, the guarantee for all creates an even worse situation than without it.

Why is it worse? Think of the Producers and their incentives. Invariably, the prices the government sets for goods and services will be well below the market rate – many times below actual cost to produce. So if I’m a drug manufacturer and know that all my R&D and manufacturing costs for Preventix will come to about $10 / pill plus $10 in profit I’d like to make, but the government is already setting my maximum price I can charge at $8 / pill, why would I stay in the drug manufacturing business? I wouldn’t even cover my costs. Let’s say they set the price at $12. I could still make a profit to cover my cost. But if I’m a business owner and know that I could take that $10 / pill investment and make more by instead just buying condos to rent or planting corn or even investing in bonds, again, WHY would I stay in the drug manufacturing industry? For altruism?

Let’s suppose Government takes over all the Production of Health Care. Just Health Care. Everything else is done “free market” style. Think of what the implications of this are. Education, Operations, Production, Manufacturing, Distribution. ALL under government control. And since it’s all owned by the Government and there is no longer any competition in the market, innovation and efficiency will disappear as well. No incentive for the best and brightest young students to someday create miracle drugs or procedures. No reason for college students to compete over getting into Harvard Medical School vs. Havana Medical Correspondence. For that matter, Harvard would probably get out of Medical School education and concentrate on producing more Economists and Lawyers.

Make no mistake about it. Socialists have a singular agenda – to remove all Choice from the world. They mask their agenda behind sob stories of families buried under costly care and union workers being out of jobs or teachers having to buy their own pencils for their classes. When they shove stories like these into mainstream media, what they neglect to tell you are the alternative that they’re suggesting. As Bastiat and Hazlitt have taught, the difference is not only recognizing that which can be seen, but also the things that are unseen.


4 thoughts on “On Health Care

  1. The idea of emphasizing the concepts of scarcity, prices and profit are, of course, central to economic understanding. An understanding that is far too limited in my experience. The more people point out the fallacy of health care for all (or any product or service for all) the better our understanding of how wealth is created and why. Tim, it is apparent that you have taken it upon yourself to become engaged, research and use your reason to better understand the concept of human action. In my view, we would all be better off if more did the same.
    On a separate note; last night you asked what my definition of “cheating” was relative to my discussion about monopolies. I won’t bore you with creating the context that I attempted to create on the show, however, I did use that term as I was short on time and used it as a short cut of what I had discussed earlier. That is “cheating” includes fraud and/or coercion. That includes using “legal” fraud and coercion. And that is the only way to create a monopoly (using the definition that I laid out last night). Otherwise, I would describe such a firm as dominant in the market place. In a free market such dominance is highly unlikely because of a variety of factors including a consumer demand that is highly varied. Other elements include competitors that continually innovate effecting the production side and these things can even change consumer tastes.
    Thanks for listening to the show. You caught me off guard with the comment about the Matrix. I just had to laugh! Thanks


  2. Tom – thanks for the comments. I think I understand your definition of cheating at a high level, but I’d still love to sit down with you over a cup of coffee and go over some different scenarios and examples. Of particular interest to me is the idea of Intellectual Property and for this, I always go back to drug manufactures.

    Pfizer and Merck spend billions of dollars in R&D to develop and test new drugs. The incentive to put that much investment into R&D is the patent they will be able to secure when something is invented. Take that IP protection away, and I don’t see anyone willing to invest in that much R&D into a new drug if anyone with a chemistry set can come along and knock off the secret formula the week after its release.

    Now, I’m not familiar with all of the inner workings of IP protection and how much coercion or fraud is involved. But it seems like should be a ‘right’ way to protect IP to reward innovation and incent new development.


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