Dear Health Care Protesters: I fully support your right to make your voices heard, but really, if you want to be taken seriously, you might want to make your demands a little more reasonable. Even Santa Claus inwardly mocks the little kids that ask for the PlayStation AND the pony AND the bicycle (actually, I am told that kids want electric scooters nowadays…). To see what I am talking about, scroll to about 2:00 in the following:
|The Daily Show With Jon Stewart||Mon – Thurs 11p / 10c|
|Highway to Health – Last Tea Party Protest of the Year|
“What we want is better health care, lower costs, not more government and more taxes.” Well, that’s nice. I would even go so far as to say that it’s good to want things- it builds character. That said, let me point you to Economic Principle #1: People face trade-offs, or possibly its corollary, “There’s no such thing as a free lunch.” But how, specifically, are the above demands unreasonable?
In general, creating a better product costs money, and at least some of this cost is passed on to consumers in the form of higher prices. In fact, even if creating a better product doesn’t result in higher production costs for the firm (but doesn’t substantially lower them either), the fact that the product is better will increase demand for the product and, at least in the short-term, result in higher prices. (I say in the short term because, in a competitive market, firms will eventually bid the price down to the minimum where they can still make a profit.) In those cases where it is possible to create a better product at a lower price point, it is competition among firms that usually creates the incentives for such innovation. (There do exist magical innovations that result in both lower prices for consumers and higher profits for the firm, but these usually come about without the arm twisting that seems necessary in the health care industry.) Therefore, either better health care* at lower cost (read, price) is fundamentally impossible or the free market lacks the competitive forces to make it happen.
Let’s think about the latter scenario- maybe it is possible to provide better health care at lower cost to citizens, but the market left to its own devices isn’t going go bother. (I feel comfortable saying this because the free market has had plenty of opportunity to get its act together.) I keep talking about this notion of perfect competition, where we have a bunch of small firms offering essentially identical products and competing with each other on price. This type of setup is optimal from a societal perspective, since it maximizes the value to society that the market creates. The health insurance industry, unfortunately, doesn’t have enough competing firms to create the perfect competition outcome. Instead, the health insurance industry has a smaller number of larger firms- this industry structure is referred to as oligopoly, and it results in higher profits for firms at the expense of consumers. In this sort of market setup, competition would have to be forced to a degree in order to get prices down for consumers. Too bad that’s not an option for the people above, since they were against “more government.” Hmm.
Don’t get me wrong- I do get the spirit of what (I think) these people are trying to say. They want a health care and health insurance system with more efficiency and less waste. This is a perfectly reasonable goal, but the fact of the matter is that these industries left to themselves are not heading in this direction. Therefore, there is going to have to be acceptance of government intervention on some level, since it’s the government that can actually mandate this sort of change. If I were one of these people and really wanted to keep the government out of my business, I would be rallying for change in front of Blue Cross/Blue Shield directly rather than marching on Washington.
As for the higher taxes point…yes, all else being equal, it’s going to cost money to provide affordable health insurance to households who cannot currently afford coverage. This development would be a form of subsidy, and subsidies are technically inefficient. However, we as a nation have the ability to decide whether some inefficiency is tolerable in order to achieve an outcome that is more equitable, or just, or whatever, and where the needle falls on that tradeoff is a question of values rather than one of economics. The best economists can do on that front is to organize the value judgments that need to be made, which I conveniently took a stab at doing here.
Can I have my pony now please? Actually, a miniature horse would be ideal:
* Note that I am using “health care” and “health insurance” somewhat interchangeably- I do this because on some level the health insurance and health case issues are fundamentally intertwined. Just bear with me on this one.