March 23, 2010

Why this Obamacare thing won't work

Sometimes in the summer I drive out to the airport and watch the planes land. There's a Wendy's on one of the main streets that runs past the end of one of the runways, and when the wind is coming from the right direction many of the planes fly in over the gas station next to the restaurant. They're so low you would swear you could touch the landing gear. You can stand directly in the flight path and watch as a 747 flies perhaps 40 feet or so over head as it approaches the runway. On one such occasion, I recall marvelling how a bunch of moving and inert parts could work together in such harmony as to seemingly defy the laws of gravity. That same marvelling and sense of wonder is what so many seem to have invested in the health care bill to be signed into law today by the President.

The health care bill surely has as many moving parts as a 747, with a 2000+ page tome of legislation, the implications are mind boggling. But to expect something as fractious as this to work with the same sort of precision as ailerons rudders and Pratt & Whitney PW4000 engines is, charitably, idealization. The 747 does not defy the law of gravity, it works within its confines. Similarly, government intervention in any sort of commerce, does not bypass the laws of supply and demand, it operates within the confines of that framework. To believe otherwise is to believe in Fairy Tale economics.

Doctor Zero summarizes it quite well here;
Reducing costs and increasing quality, to earn profits in a competitive economy, is very difficult. Statists think it’s easy, which is why they believe an enlightened President and Congress can simply command it. Relieved of competitive pressure, the State’s bread-making decisions would be guided by political considerations, at the expense of variety and efficiency. Chances would not be taken on experimental flavors that could result in wasted production, if they don’t catch on with the public. The unhealthy decadence of white bread would likely be sacrificed in the name of reducing health-care costs.
The free market always leads to the best possible products because people demand it.  In order to be viable as a supplier, you have to compete with others who want to sell their product instead of having you sell yours.  In other words they are trying to do a better job than you.  If everyone is doing that, the offering can only be improved in two ways, cost and/or quality.  This is why free markets work.  This is what MoveOn doesn't getHealth care is no different from any other commodity.  And that's what it is - a commodity.  It does not matter that it is a compassionate commodity and socially different than claw hammers - it still operates within the confines of the economic laws of supply and demand.

What does that mean for health care?  If you want to cover more people - be it 7 million or the 46 41 42 30 32 million people they claim it will cover you are absolutely increasing demand for doctors' services (as well as nurses, hospitals, medical supplies etc.).  But without an equivalent increase in supply you will be faced with a shortage, which drives prices higher.  Oops.  Of course you could put price caps in place to stop that.  Then you would find that doctors opt out, like in the case of not accepting Medicaid or retiring, because the system isn't working for them.  In other words you are contracting the supply of doctors (and nurses etc.), thereby intensifying the shortage.  Access to care is hindered.  Oops.  All of this of course is based on the idea of insurance as opposed to medical service providers.  Why?  Well they are easy to vilify for one thing.  But more importantly Democrats seem to not understand that the insurance exists as a result of a free market determining that there are ways to mitigate catastrophic events and reacting to solve a need.  That it does not do so compassionately is beside the point. It's a service for a fee and it does that pretty efficiently.

So what about those people not covered?  isn't that what Medicare and Medicaid were created to solve? For decades though, they haven't - not for everybody, and certainly .  And they have generated a massive unfunded liability for the federal government.  The solution being imposed now, is to double down on that failing approach.  Clearly the Democrats are not open to levelling the playing field and opening up a bunch of competing experiments (see the 50 Experiments Theorem) to allow the free market to perform its magic via the invisible hand.  But to double down in the guise of doing something new and innovative is downright deceitful.  At least that's how I see it.

People have gotten all tangled up in the specifics of cost and the CBO and the kickbacks and bribes and parliamentary trickery.  These are important considerations to be sure, but they don't relate to the success or failure of this legislation.  What do relate to success or failure are the following; economics, another law - unintended consequences, and the track record of governments in doing anything more successfully than the private sector. That track record is pretty slim.

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