Gettin' Edu-mah-cated: Health Care Economics

Sara B: Thanks for responding. You're officially the first to reply to my first post. Now to the business at hand. This is the crux of Sara's response to my previous post:

"I like to think of the universal health care plan as one way we look out for each other. I think of my community as a collective being; everyone contributes towards a better good. It can't always be 'me, me, me.' One must be altruistic and caring."

That's a nice idea. You're restating the idea of "From each according to his abilities, to each according to his needs". This maxim was first espoused by Karl Marx and Friedrich Engels in Das Kapital. I'm not pointing this out to make a silly name-calling, straw-man argument. I'm simply pointing out the fact that you're talking about Marxist socialism in another name.

The idea behind this is pure nirvana: everyone works as hard as they possibly can, no matter what they get for it. Natural differences between people will always arise, and the best and brightest will produce more than the rest of us, and everyone is better off from all this additional production. Additionally, in this utopia, everyone simply takes as much as they "need" to get by.

There are a number of issues with this idealization, however, and it all centers around one simple concept: scarcity. There is never any rational end to each person's "needs". Some people may "need" to eat and drink more than others. Some families require larger houses and larger, less fuel-efficient cars. Some people value open spaces and parks. Others love urbanization and crowds. The Marxist ideal makes no room for this difference in needs (no matter how subjective they are), tastes and new technologies. It simply assumes that everyone has the same basic requirements and that is all enough. So, without a finite restriction on demands for various goods and services (remember, there are hundred of thousands of services and products available), then only a limitless supply of those goods and services will suffice.

However, there are limited resources in the world. There are only so many able-bodied people, so much time, and so much natural resource to go around. That means there is a shortage of production to fulfill the limitless needs and desires of people. That necessitates us having to choose how to use our limited resources the best way possible. We can organize our usage in several ways, but they tend towards one of two extremes: a central planning body can dictate the production and consumption of goods, or a perfectly competitive free market can allocate our supplies and demands for us.

The primary problem with a central planning body is that due to constantly changing market conditions (prices and quantities of goods and incomes of consumers), it is simply too grandiose a task for any group of people, no matter how sophisticated a computer model they might have to efficiently allocate these resources. That means that no matter how hard they try, they cannot make sure that the right amounts of the right goods and services are provided to the right consumers at the right time. At least, no more so than a market can.

I don't mean to belabor an economics lesson here. This same logic applies to health care. There is a limited supply of health services out there for our consumption. Doctors, nurses, hospitals, and medical equipment are not simply limitless. Additionally, production of all these resources is very time-consuming and expensive. For example, it takes 4 years of college, 4 years of medical school and four more years of internship and residency to "produce" a doctor. And it costs about $1,000,000,000 on average to produce a new pharmaceutical drug. So somewhere, we must pay to incentivize doctors to go into the medical field, and we must pay for drugs to be created.

In the places where a central planning body has taken over the payment part of allocating health care resources (Great Britain, Canada, Australia), the result is a functional catastrophe. In spite of the altruistic intentions of their creators, these systems have failed miserably at providing even the most basic care for most citizens. The result has been more scarcity of health care resources, not less. The people who allocate resources for these countries have no ill intentions. They want everyone to get health care when they need it. But for the aforementioned reasoning, they cannot allocate resources effectively. Too many resources are wasted in one area, and not enough are delivered in another. They simply can not handle the task at hand because the conditions within the market are changing too quickly for them to catch up.

Rather, in a (pardon the pun) healthy marketplace, if there exists a demand for a product or service, that demand pulls the necessary resources from the market and moves them to the proper channels so that they are delivered to the person asking for them in the proper way at the desired time. This demand is evidenced to the marketplace when individuals show willingness to spend their own money on health care, signaling to health care providers that a profit opportunity is available. Thus, those doctors, nurses, pharmaceutical companies and medical equipment makers can step in and provide a necessary good or service.

I'm not advocating that the current system is just perfect and ought to be left alone. I'm sayign that the kind of changes that Nancy Pelosi, Harry Reid and Barack Obama are advocating are exactly the wrong kind of change. Any number of focused legislative changes could be enacted to spur the kind of changes in the market that you and I both want to happen. We both agree that everyone who needs health care deserves it and should have access to it. We simply disagree on the best way to make that happen. I'll post again with some of my own ideas on how to get the improvements in the health care market we seek.