[ExI] More on US Health Care Costs

[Dan]

--- On Fri, 5/22/09, BillK <pharos at gmail.com> wrote:
> On 5/22/09, Dan wrote:
>> Aside from the monopolies, though, the whole system is
>> highly regulated
>> and the government pumps money into it.  These
>> two other factors drive
>> up prices.  And the solution should be: remove
>> the monopolies, the
>> regulations, and the subsidies.*  Instead, it
>> looks like the solution the
>> elites want is: increase monopolization, increase
>> regulation, and increase the subsidies.
> 
> My suggestion of two types of opposing market forces was
> referring to
> 'ideal' systems that can never exist for long in the real
> world.

And my comment was meant to disagree with your analysis.  I think the main driver of price increase in this area is state intervention -- not "rich people or companies able to pay the top prices."  Even rich people and rich companies can and will often enough economize.  Rich people can afford bigger, more expensive TVs, but we generally see a progression in the TV market of sets coming down in price, especially when inflation-adjusted but even nomimally.

Also, the monopolies are not creations of the market; they're attempts to abrogate the market via state granted privilege.  A key monopoly in this area is the AMA, but a host of other interventions lower competition, including almost all regulations which tend to at the very least create a cost barrier to entry into the medical markets.  (Think of, e.g., how the FDA drug approval process increases the costs of new drug development, lowering the number of entrants into that market and, thereby, reducing the overall supply of competing drugs.  And if supply is lowered, all else being equal, one expects price to not fall -- and usually to rise.)

> Humans *always* try to game the system for their own
> benefit.

I agree, but this applies in spades to a regulated system where the costs tend to be distributed while the rewards of gaming are highly concentrated.

> The
> present US health system has been 'gamed' for years for the
> benefit of
> big pharma and health insurance companies and the medical
> profession.

I don't disagree, but the nature of that gaming relies on what?  A free market in healthcare?  No, but a highly regulated one where competitors are kept out by cost barriers, licensing requirements, and host of other regulations.  Without these, all else being equal, there'd be more competition and prices would likely be a lot lower.

> It is now beginning to collapse under the pressure from the
> uninsured.

I'm not so sure that's where the pressure for change is coming from.  In fact, my guess is, based on other historical examples, that the pressure for change -- and all the hyped proposals are for change in the direction of ever more state intervention NOT less -- is coming from the big players in this market.  Yes, it's a nice fantasy and helpful myth to believe the uninsured are organizing for reforms, but that's merely how elites use agit-prop to get their policies justified.

> Similarly reverting to a regulation free system would be
> gamed in
> different ways. Just ask the billionaire Wall Street
> financiers.

Where was this "regulation free system" with regard to Wall Street?  How is the US financial system -- one that is heavily regulated from the Federal Reserve System, the SEC, etc. on the federal level to a host of state and local laws -- "regulation free system" in your view?  (And was it ever so?)  What of the Sarbanes-Oxley Act of 2002, the Community Reinvestment Act, Freddie Mac, Fannie Mae, and the myriad other interventions in the financial markets?  I might agree that there are times of more or less regulation -- often just times where one or more regulations is less enforced but the whole system of regulations remains in place -- but none in US history where it was regulation free.  (Maybe the closest to the time was during the so called "free banking" period -- roughly 1837 to 1860 -- but even then the banks were still regulated at the state and local level.)

Now don't take this to mean that an actual free market would never be gamed or that people wouldn't try.  I think they would, though I think the opportunities and feedback loops would, on the whole, make it harder to game and easier to spot or limit gaming.  Increasing the number of state interventions, on the other hand, will increase the opportunities for gaming and make them far less self-limiting.  (The latter is partly because the nature of such intervention is to redistribute costs and benefits and to decouple these -- thus making people who pursue the benefits care even less about the costs -- and partly because such interventions lead to further interventions -- usually because as one group benefits, other groups start to organize to either resist the costs or to obtain their own benefits.  Think of how one person or group successfully gaming the system, in a fashion, is an object lesson for other people or groups to do much the same.  This is
 the kind of moral erosion that increasing intervention leads to: more people become pre-occupied with pursuing wealth transfers (gaming, parasitism) over actual wealth production: taking becomes more prevalent, while making is always shifted to the less powerful.)

Regards,

Dan 

"Among the constant facts and tendencies that are to be found in all political organisms, one is so obvious that it is apparent to the most casual eye.  In all societies -- from societies that are very meagerly developed and have barely attained the dawnings of civilization, down to the most advanced and powerful societies -- two classes of people appear -- a class that rules and a class that is ruled.  The first class, always the less numerous, peforms all political functions, monopolizes power and enjoys the advantages that power brings, whereas the second class, the more numerous, is directed and controlled by the first, in a manner that is more or less legal, now more or less arbitrary and violent." —- Gaetano Mosca _The Ruling Class_