Sunday, October 11, 2009


I had a problem with your last post on health care. Reading it, I was reminded a little of what started our occasional debates almost a year ago now. This was the video circulated by the RNC at that time which tried to blame the current recession on the Community Reinvestment Act. Interestingly, this same line of attack kicked off a foul smelling lump of propaganda masquerading unconvincingly as journalism on Faux News the other night: "The Truth About Acorn", hosted by Faux's resident glamouroso, Megyn Kelly. Oh and by the way, after watching (most of) the program, I immediately sent a donation to ACORN. No kidding.

What originally struck me then about this profoundly implausible claim was how it seems to have been constructed from the top down. Someone, somewhere looked things over and decided what would resonate among conservative apologists, then pieced together this remarkably lame counter-intuition, and the game was on. Conservatives, not any more than liberals, don't want to believe the policies they accept as gospel could possibly contribute to a financial crisis of this magnitude. I said almost a year ago, and I'll say so today, that the mortgage meltdown was an economic phenomenon which transcends any attempt to define it as the product of a political philosophy. If there ever was a runaway train which left government in its tracks it was this. Liberals and Conservatives just need to man up and stop pointing fingers.

Anyway, back to your post. I get a sense that you've subconsciously taken the same top down approach while trying to determine why supply and demand doesn't work in health care. Since you are in the habit of believing government is always the problem, it wouldn't occur to you that in some industries at least, private enterprise exercises all sorts of strategies to limit supply, and therefore increase profit. Health care is clearly one of those industries. You say:

with the operation of the marketplace. These outside manipulations take many forms: regulatory requirements, limiting growth of supply (restrictions on accepting applicants at medical school and certification of graduates), etc., etc., etc. Attempts to manipulate aspects of the marketplace is a significant contributor in WHY "it doesn't work". And, sadly, a huge portion of that interference has, at its root cause, government action(s). Doesn't matter if the intentions were good, or even necessary, its still interference in the marketplace." (emphasis added).

Actually, government's contribution to "limiting growth of supply" in this case is secondary. The real culprit here is medical licensing, which in this country is directed by the American Medical Association - a private institution. Go here to read a thorough report on the issue: "Medical Licensing, Do Economists Agree?". The Report is more or less a series of excerpts from the works of other economists. Here are a few:

"Restrictive licensing can . . . result in declines in the quality of received services in that there may be (1) self-substitution of inferior products and/or services . . . ; (2) decreases in the average per capita service time rendered; for example, short, hurried, delayed office visits with a harried physicians; (3) differential geographic availability as numbers are reduced and the remaining members of the profession can choose their locations with more discretion, such as doctor shortages in rural areas; and (4) increased waiting time for provision of a service where delay in service entails expense for the buyers. (Carroll and Gaston 1979, 2)"

"...a clear consequence of licensure is to inhibit the production of information concerning the comparative performance of practitioners and hospitals. This in turn reduces the incentive to introduce innovations that would facilitate comparative evaluations and improve quality control. (Benham 1991, 89-90)"


"Economists see state licensing as a source of cartel power among physician groups. Kessel (1958 and 1970) pointed out that licensing requirements increase returns for existing practitioners at consumers’ expense. He was especially concerned that graduation from an American Medical Association-approved medical school was a condition for admission to state licensing exams—allowing organized medicine to control entry to the very market it served (1958, 283)" (emphasis added).


"Economists have, for some time, suspected that occupational licensure operates as a legally sanctioned cartelization device, restricting entry . . . and restraining competition. . . . Excessive limits . . . can result in monopoly rents for members of the profession and higher prices and fewer services for consumers. (Martin 1980, 143-144)"

Now I want to keep this post at least a little shorter than "War and Peace", so I'll just try to summarize to give you something to chew on. While reading through this report, I was reminded of your earlier argument that doctors, indeed, all medical professionals, have every right to charge whatever they want for a skill which they acquired through a large investment in time and money. Well, I couldn't agree more.

But what if the same medical professionals band together in private institutions like the AMA and convince government to undertake regulatory practices which restrict supply and therefore artificially inflate prices? Now it may be government's fault for abetting this undertaking, but significantly, it wasn't government's idea in the first place. To my mind, if government is to be blamed for anything, it is a failure to act in a manner which you yourself apparently dislike: that is, to regulate medical licensing, scope of practice and education for the greater good of all.

This article is a lot shorter, and (to my intense annoyance) something of an unjustified hit piece against Barak Obama and the direction he is taking towards health care reform. But it does nicely sum up the reasons why I am pointing to a dysfunctional market as the root cause of high prices in health care. Have a gander.

I started this post by referencing an earlier exchange we had on the mortgage industry meltdown and my own observation that it was and always has been a phenomenon organic to the general evolution of basic economics in this country and not the consequence of one political misstep or another. I feel the same way about health care.

My view is that the general direction of reform currently being taken in Congress is helpful, necessary and well intentioned. But we aren't going to make any real progress until government wakes up and starts patiently addressing the problem of supply.


1 comment:

  1. I'll make a quick note here (more later, separately, to be sure)...

    My point about INTERFERENCE is that it doesn't matter *who* had the idea - but DOING IT is the problem. If government sticks to its legitimate purpose (as I see it) - protecting individual rights and keeping the playing field level for ALL: isn't THAT what "The Rule of Law" is all about? - it would summarily reject any and all attempts to regulate (interfere) with the market or society as a whole, regardless of WHO started it or whether or not someone (anyone) thinks 'it's a Good Idea'.

    I dislike the AMA and other Health care Industry groups, almost as I dislike 'political action committees' and lobbyists of all stripes. All are attempting to usurp the power and force of government to institute via the power of law, an advantage (usually an unfair one) for THEIR GROUP in the marketplace.

    Whether it is manipulating the tax code, restricting the market, imposing regulations, doing X for 'the public good', etc., it's still inherently Wrong.