Monday, March 19, 2012

State-administered medical care: not exactly a low-cost panacea

I have a lot of arguments with Keynesians, the first being that they are not really speaking of economics, per se, but rather concentrate upon the administration of state power. To a Keynesian, there are no real costs, no real prices, and money simply is something to be manipulated by state authorities in order to facilitate wealth transfers.

Keynesians, from what I can tell, really have no idea how wealth is created, and in the advocating of the "euthanasia of the rentier," they really mean the doing away with entrepreneurship altogether and replacing it with a form of central planning. When Keynes wrote in the German edition to The General Theory that it would be easier to implement his ideas in a dictatorship than is a democratic state, he was not giving his stamp of approval to Hitler, but rather was saying that government economic planning would be easier when people did not get in the way.

Although much of the economy does not have the hardcore central planning that Keynes and his followers might have wanted, one area where socialism effectively has been implemented has been medical care. In fact, American medical care is one portion of the economy in which the staples of a free economy -- free prices and private property -- pretty much do not exist. Yes, there are things we call prices and there are some privately-owned portions of the medical system, but they are controlled or monitored by state authorities to a point where a market hardly is recognizable.

To Paul Krugman, this is a wonderful state of affairs, except that the government really should have even more control, all in the guise of reform. In his most recent column, he claims that Obamacare somehow is making the medical system better, controlling costs, and proving that socialism really does work in medical care.

I'm not going to get into a spitting match over the Republicans versus the Democrats or the latest numbers from the Congressional Budget Office. There is a larger issue here, one that Krugman and the rest of Washington, D.C., ignores, and that is the fact that state-sponsored medical care always will be more costly and less-effective than medical that is not state-run.

Now, I don't mean the present system with third-party payments, strict licensing requirements, price controls, allocation controls, and a horde of bureaucrats poring over every decision and second-guessing doctors. I am not speaking of a system that is full of government mandates, from certain kinds of screenings, mandatory injections of children with Lord-knows-what, government favortism, and requirements that taxpayers fund birth control so that college students can have a subsidized hookup culture.

Look at those industries which have been relatively free. Over time, quality and service improve, and prices to consumers go down. Now, Krugman will argue that medical care is DIFFERENT, and that it is not subject to the laws of economics. Hmmm, in other words, medical care is not an economic good, which only could mean that it is not scarce. Or, he might argue, government regulatory burdens and government price controls and mandates somehow can overcome or eliminate the reality of scarcity.

When Krugman writes of costs, he means administered numbers, not opportunity costs. When he calls for mandates, he means that consumers should not have free choice and that the state should choose, since a Progressive state is wise, as long as it is populated by people who "believe in government."

So, we will have the forever spitting matches in which people like Krugman will claim that things are getting better and that one day, we can be like Europe. That the state can magically do away with scarcity is just one more Keynesian fantasy.

39 comments:

American Patriot said...

The best way to summarize a Keynesian would be to liken them to the grasshopper: they believe there are no consequences to their actions. That precise irresponsibility is the underlying cause of their dismissal of opportunity cost. In short, they are like a young child (though my 7 year old is more responsible than the average Keynsian)

Andrew Cassell said...

Are there any countries that can be held up as good examples of a free market health care system? I haven't had much luck finding any.

The only instances of free market health care actually in practice that I have found are elective surgeries (Cosmetic surgery and eye Lasik). The couple of data points I have seen on these two examples doesn't look all that promising (Example :http://www.allaboutvision.com/visionsurgery/cost.htm).

I think it would be a much better argument to have actual data to point at that says "Free market works for Healthcare" other than pointing to other Industries to make the argument.

My personal thoughts on the matter: Are we appearing to be less "efficient" than the European models simply because we practice socialism less "efficiently" in the US?

JG said...

I like how you use opportunity costs as your excuse for eternal paralysis when it comes to government action in any form. In your view the state can do no right because any resources diverted to any public project could have been used for something else, and that something else must always be superior since the private sector is always better at resource deployment than the public sector.

American Patriot said...

Andrew:

I don't know where you are from but I am originally from Europe. Where are you getting that we are less efficient than Europeans? We get a lot more (and better quality) services, albeit at a higher cost. But then again, nothing is free. We could be more efficient and cheaper if the system was reformed. That means getting rid of stupid regulations that stop insurance from competing across state borders and meaningful litigation reform. Insurance is inherently expensive because of its third party nature.

Lord Keynes said...

"Although much of the economy does not have the hardcore central planning that Keynes and his followers might have wanted, one area where socialism effectively has been implemented has been medical care."

I'm coming more and more to read this blog for a good laugh than anything else - here we have Anderson so divorced from reality that Keynes and Keynesian are no different from communist central planners.

Anyone with half a brain knows this is the sign of a gross ignorance or just plain dishonesty.

A case in point: Keynes never supported the British Labour party, the UK's official democratic socialist party.

When the Labour government came to power in 1945, Keynes attacked their policy of nationalistion: he "he regarded [sc. it] as an unnecessary act of regimentation” (Skidelsky, R. J. A. 2000. John Maynard Keynes: Fighting for Britain 1937–1946 [vol. 3], Macmillan, London. p. 471).

As for Keynes's "socialisation of investment" idea, this means public works spending or state funding of such infrastructure by the private sector, when needed in recessions or downturns, almost the same thing Hayek eventually advocated in depressions (as I described here):

“By ‘socialisation of investment’ Keynes did not mean nationalisation. Socialisation of investment need not exclude ‘all manner of compromise and devices by which public authority will co-operate with private initiative’ ... This single throw-away line in the General Theory reflects Keynes’s thinking on ‘public-private partnerships’, which came out of his involvement in Liberal politics in the 1920s ... In essence, he sought to expand the public-utility component of investment to give greater stability to the investment function."
Robert Skidelsky, “The Relevance of Keynes,” January 17, 2011

http://www.skidelskyr.com/site/article/the-relevance-of-keynes/

Lord Keynes said...

Incidentally, if Keynes was an advocate of "hardcore central planning" by his socialization of investment idea, then so was Hayek when he wrote these words in 1936:

“Even though there are many concerns about organizing public works ad hoc during a depression, everything speaks in favour of having public agencies perform during a depression whatever investment activities need to be carried out in any case and can possibly be postposed until then. It is the timing of these expenses that presents a problem, since funds are often extremely hard to raise in the midst of a severe depression and the accumulation of reserves in good times generally faces the objections mentioned above. There is little question that in times of general unemployment the state must intervene to mitigate genuine hardship either by disbursing unemployment compensation or, as in earlier times, by legislation to help the poor.

(Hayek, F. A. von. 1999. “The Gold Problem” (trans. G. Heinz), in S. Kresge (ed.), The Collected Works of F. A. Hayek. Volume 5. Good Money, Part 1. The New World, Routledge, London. p. 184).

More here:

http://socialdemocracy21stcentury.blogspot.com.au/2011/09/did-hayek-advocate-public-works-in.html

Bob Roddis said...

LK is real excited about the new DVD of Hayek on "Firing Line" from 1977.

Hayek: "You see, another political element was that, of course, politicians just lapped the argument and Keynes taught them if you outspend your income and run a deficit, you are doing good to the people in general. The politicians didn’t want to hear anything more than that."

LK: Yeah, that's Hayek the bitter old idiot re-writing history.

http://tinyurl.com/83hr2l4

Bob Roddis said...

LK still does not understand the concept of economic calculation. Or else he just does not want to understand it.

http://tinyurl.com/6psgmuj

CG said...

The fact that there is no place on earth where there exists a "free market" health care system should be a clue...

Andersen's arguments are sounding just as futile as those of the late communists: "you haven't seen the worker's paradise anywhere because nobody is doing it right".

macroman said...

The fact that there is no place on earth where there exists a "free market" health care system should be a clue ...
not to mention that the medical profession considers itself a profession which doesn't act entirely according to the free market rules of non-professions.

Anonymous said...

I wonder if Dr. Anderson will ever compile this blog and publish it in a book. Just as Henry Hazlitt attempted a line-by-line refutation of Keynes'
s General Theory, this is as close as we get to a line-by-line refutation of the reigning Keynesian champion of our time.

William L. Anderson said...

I don't disagree with what Macroman has said above. The medical profession has used state power for many years to suppress competition and to keep up prices for their services.

The influence of the Flexnor Report of 1910 continues to reverberate. There also were racial implications in that report which ultimately led to fewer blacks becoming trained doctors and for blacks to receive less care.

The present system we have of "private" insurance and state payments is not anything close to free market. Furthermore, the way that the system has been organized has so distorted things that it would be quite a jolt to get back to anything resembling a free market.

However, ObamaCare is leading us down the road to even more socialist care that is going to result in the infamous "death panels" and other ways to withhold care. In the end, we will have the bifurcated system in which those with political connections will receive good care and those out of political favor will get the dregs. That is inevitable.

Krugman, by insisting that "costs" are paper entities, really has no concept of what a real cost might be. That is my argument in this post.

Anonymous said...

"I have a lot of arguments with Keynesians, the first being that they are not really speaking of economics, per se, but rather concentrate upon the administration of state power. To a Keynesian, there are no real costs, no real prices, and money simply is something to be manipulated by state authorities in order to facilitate wealth transfers."

If this is your idea of Keynesian economics, then you should do yourself a favor and shut down your website. No wonder you teach at some unheard of university in a unheard of place.

macroman said...

I find the "death panel" comment interesting. Suppose the State says procedure A is too expensive for person B because the benefits to that person are too small, given the costs, is there anything to stop that person buying the procedure privately?

If not, rich people live and poor people die or go bankrupt. Isn't this the outcome in a free-market, and won't the incidence of this bad result at least be reduced under the Affordable Care Act?

Anonymous said...

Andrew Cassell:
No, the USA does not do Socialism worse. It just has not had the time to build the same Fascist Institutions(Death Panels) that ration healthcare. The UK, Germany, France, etc have a big head start.

macroman said...

Anderson: In the end, we will have the bifurcated system in which those with political connections will receive good care and those out of political favor will get the dregs. That is inevitable.

If this is inevitable, I would assume there is lots of evidence of it in Britain, Canada and Australia (or Germany and France). So why not give some evidence?

macroman said...

Anderson: [Krugman thinks] medical care is not an economic good, which only could mean that it is not scarce. Emphasis added.

Not necessarily. It could mean that the ethics requires that this scare good be distributed not exactly according to free market principles.

William L. Anderson said...

By all means, I am sure that "ethics" requires that medical care be distributed politically. Whose ethics, by the way?

Zachriel said...

William L. Anderson: By all means, I am sure that "ethics" requires that medical care be distributed politically. Whose ethics, by the way?

It's pretty clear that macroman is referring to equitable distribution. For instance, most people believe that if someone is in an accident, that they should be provided medical care regardless of ability to pay. In addition, treatment of communicable diseases is important to everyone's health, not just those that are treated.

William L. Anderson said...

I had no idea that government was not political. Remember in "Sicko" where they went to Cuba to get the treatment that "regular" people get? Well, it turned out that this was the treatment that the politically-connected people received.

If you ever have seen what the "regular" Cubans receive, well, it is is quite primitive, to say the least. Something like medical care, when left to government distribution, will be divided up in ways that will ensure that those who are most politically prominent will get the best care.

One can say what governments "should" do, but what "should" be done and what actually is done are going to be different things.

macroman said...

Prof Anderson: Clearly I meant Krugman ethics. Put You miss my equally clear point: that you are wrong to say Krugman thinks medical is not scarce.

macroman said...

Prof Anderson: Remember in "Sicko" where they went to Cuba to get the treatment that "regular" people get? Well, it turned out that this was the treatment that the politically-connected people received.

I had never heard that, and I suppose it could be right. Can you point to reliable information about this?

William L. Anderson said...

Here are a couple of links. The first one is from Reuters, which tends to lean left, and while it has the usual canards for communism and health care, nonetheless, even it has to admit that Moore's visit was a dog-and-pony show.

http://www.reuters.com/article/2007/07/19/us-cuba-health-sicko-idUSN1936307620070719?feedType=RSS&rpc=22&sp=true

The second link has a number of footnotes, and while I am sure that Macroman will dismiss it as capitalist lies and propaganda, I remember seeing a video of Cuban "hospitals" and pharmacies for regular people, and it did not depict a nice place.

http://www.nationalcenter.org/NPA557_Cuban_Health_Care.html

At a recent conference, I spoke at length with an economist who had been part of Gorbachev's "Perestroika" team and at that conference, he gave a talk on Soviet healthcare, the myths and the realities. He told me that he had visited Cuba and was not exactly enamored with Moore's depiction of the island.

Again, I am sure that Macroman will tell me that the eyewitness won't know what he is talking about because "everyone knows" that "by definition," state-run healthcare is superior.

Tel said...

In the case of Australia, more and more people are going overseas to get their operations done. Sadly, our once decent health system is badly straining. Then again, we have an aging population so the number of people using the system is increasing while the number of people paying for it is decreasing (needless to say, most of the system is not user pays).

Doctors in Australia are complaining about "superbugs" coming from overseas, but what they don't tell you is how common the hospital-borne infections are in this country (and it's very hard to get stats, because no one is looking). Anecdotally, I'd say Australian hospitals are getting worse in this respect too.

It's old news now, but one example is Cynthia Ching (Canadian tourist in Australia) who was widely reported as having died from burns, but actually she died of infection that turned up weeks after she was admitted to hospital (reported only briefly, and only from a single news report). I'm not saying it's a good idea to get yourself burned, but many people do survive it... if they get good medical care.

Fearsome Tycoon said...

There are areas of the health care market that are relatively free. Plastic surgery and laser eye surgery are, in most states, subject to few mandates or price controls. The price and availability of both have been rapidly falling since their invention.

The price of medicine rapidly falls when either (a) the patent expires or (b) the FDA deregulates the drug and allows it to be sold OTC. If both happens, the price of the drug falls by orders of magnitude. Look at Claritin and Benadryl for two examples.

In third-world countries, there is often socialized medicine, but its availability is laughable (due to there being not much capital for the government to steal), leading to the rise of a parallel market in health care. In some of them, like Mexico, the government leaves the market alternative mostly alone, and we see exactly what we see in any other market--increasing availability and quality.

Bob Roddis said...

Prof. Anderon,

Are you referring to Yuri N. Maltsev?

http://mises.org/media/7463/Socialized-Health-Care-and-the-AntiCapitalistic-Mentality-International-Evidence

Zachriel said...

William L. Anderson: I had no idea that government was not political.

Not sure you answered the point. Healthcare doesn't necessarily represent a free market. For instance, most people believe that if someone is in an accident, that they should be provided medical care regardless of ability to pay. In addition, treatment of communicable diseases is important to everyone's health, not just those that are treated.

Major_Freedom said...

Zachriel:

It's pretty clear that macroman is referring to equitable distribution.

He asked WHOSE ethics, not WHAT ethics.

macroman said...

Prof Anderson: I am sure that Macroman will tell me that the eyewitness won't know what he is talking about because "everyone knows" that "by definition," state-run healthcare is superior.

The last thing I would say is state-run health care is superior "by definition", or that any question like that could be settled by definition. It makes we wonder what you think "by definition" means.

I will look at your links, and hope they make a distinction between bad health care because the country is poor, and health care distributed on a political basis, which is your plausible claim. But I will be thinking all the time, how does this reporter know what they say? Are they actually reporting what they know or is it what they have surmised - this is standard practice for critical thinking, as taught at Universities isn't it?

More important, I think your comparison of the health care systems in the Western democracies with those of the Soviet Union and Cuba is very silly, particularly your claim of how health care it is distributed. You seem to neglect that there could be a big difference between a one-party, election free zone, and multi-party state with elections.

So I ask again, what about some evidence from democratic countries. For example, is state-funded health care in Canada distributed according to one's party membership or rank?

macroman said...

TelIn the case of Australia, more and more people are going overseas to get their operations done.

Are you referring to people going to Thailand for dental work? Dental is not covered by Medicare so that would not be a good example.

Please supply some links to facts (but I think you may have already said there are no verifiable facts, just anecdotes?).

macroman said...

Prof Anderson

The Reuters link may be good ammunition against Michael Moore, but it doesn't give much or any support to your contention that those who are most politically prominent will get the best care.

It tells us that the best hospital in Cuba is much bigger and better equipped than the individual elements of a network of neighborhood health centers. It doesn't say who gets to use the best hospital (other than visiting Americans and a film crew). For all we know from Reuters, the Cubans who use the hospital are precisely those who need it the most - those suffering from conditions which cannot be treated in the local health center.

Reuters gives some data that at least suggests that health care in Cuba is not confined to a few: "Cuba's universal free health system has achieved low child mortality and high longevity rates on a par with rich nations" and "The number of children dying before their fifth birthday is seven per 1,000 live births in Cuba, versus eight per 1,000 in the United States, according to the World Health Organization."

7 vs 8 may not be statistically significant, but achieving equality with the US sounds like an efficient use of resources for a poor country.

macroman said...

Prof Anderson: Yes your second story on Cuba does sound like propaganda by some embittered Cuban exiles. However, I am prepared to accept most of what they say - that Cuba is a poor country with a resource-starved health system. I think communism is not a good wealth producing system. I think the exiles may underestimate how much the US embargo has adversely affected the Cuban economy - they give no indication of being in a position to make that sort of assessment.

If the W.H.O. is right that infant mortality is as low or slightly lower in Cuba than in the U.S.A. and the exiles are right that there is no medicine in Cuba, then the Cuban system seems remarkably efficient, producing good results with no resources.

But you offered this article in support of your claim that the Cuban health system is reserved for the few and that this is inevitable for the USA under Obamacare. The only relevant evidence was the claim of a woman who left Cuba many years ago, when she was seven years old. Hardly weighty evidence.

So I ask again, how about some evidence for your proposition from a western democracy?

William L. Anderson said...

I'm always amazed at how Progressives have an enduring faith that government is not political, and that regulators and bureaucrats operate only on the pillars of Great Wisdom and Pure Motives.

In the old U.S.S.R., very few people were members of the Communist Party, and that meant that the best medical care, the best goods, and the best apartments were only open to them. The proletariat had to make do with the poverty.

Cuba operates with the same system. Members of the Party get the best care and the best goods and the most privileges. This is a place where doctors have to moonlight as busboys and cabbies in order to make a decent living.

For years, Progressives have made the claim that while communism and socialism did not produce much wealth, hey, it had great healthcare systems. In the face of evidence to the contrary, Progressives continue their mantra.

As for infant mortality, remember that many countries like Cuba often don't count infants that die soon after birth as is done in this country. Again, none of that will matter to Progressives.

macroman said...

Anderson In the old U.S.S.R., very few people were members of the Communist Party, ..

I guess I will have to wait forever to get some evidence from you which is relevant to your claim about socialized health care in Western democracies.

macroman said...

Prof Anderson

By the way, I never said Cuba had a great health system or political system. You advanced Cuba as "evidence" for your data-free proposition that Obamacare would lead to health-care in the U.S.A. being reserved for the politically connected. I don't think you have yet shown this happens in Cuba (so your reverted to the U.S.S.R.) and no such thing occurs, as far as I know, in a relevant country, like the U.K. or any Western democracy which has a form of socialized medicine.

There are plenty of democracies to choose from and if the evidence existed I assume you would produce it. Just trying to keep you honest - to see if you have evidence for your assertions.

JG said...

I love how right-wingers invoke the Soviet Union or Cuba whenever they want to bash government. For some reason they never use Norway or Canada or Finland as points of reference when they're looking for something to compare their Randian fantasies to. I wonder why....

William L. Anderson said...

The thing to remember is that even in the western countries, there are real-live doctor and healthcare shortages, waiting lines, and the like. You assume that life expectancy is SOLELY the result of medical care when, in reality, things like lifestyle, genetics and other things play a role.

When I was in Latvia last summer, I saw a lot of Scandinavians and almost none of them were obese, and the scene contrasted with what one would see in the USA.

The reason I bring up the USSR and Cuba is that for years, people would say something like, "Yeah, they have political oppression, but their healthcare is free!" In other words, free healthcare (which really was and is not free) somehow trumps everything else.

JG said...

There may be waiting lines for non-emergency medical care (small price to pay of universal coverage) but I've never heard of a cancer patient or someone with a serious medical condition being subject to waiting lines to see a doctor in the other Western countries I listed. Contrast this with the U.S. model where millions have no health coverage for any level of medical care because we tie health coverage to employment.

American lifestyles and genes aren't significantly different than those of Canadians but they enjoy longer life expectancies and lower infant mortality rates than Americans. But they do have universal, single-payer health insurance....sometimes correlation coincides with causation.

When people talk about the free healthcare in Cuba they say that to point out that even a third-world dump like Cuba doesn't allow millions of its people to go without medical coverage. They say that to shame us into doing something about our own health system rather than to promote Communist oppression.

Calgacus said...

What a lot of nonsense, Professor Anderson. Government does health care better than the private sector. Period.

That is what the experience of the whole world shows. Doesn't accord with some half-baked economic theories? So much the worse for these silly, poorly argued, unscientific theories. Which people like Hayek were sane enough to realize did not apply to health care, and so supported "socialized medicine".

US healthcare is shit. Private sector healthcare is shit. Preposterously expensive shit. European & anywhere-else-in-the-developed-world is not-shit. And far more reasonably priced by any measure. And USAns have healthier lifestyles! What a bullshit argument! We smoke much, much less than Europeans, let alone the even longer lived Japanese. No matter how rich you are, there is a simple way to live a longer, healthier life. Leave the USA!

The private sector is much less innovative than the public sector. That's what we saw with the metastasis of the private sector taking over the previously more public US health care system - Less Innovation. Fewer New Drugs. Slower scientific & technological progress. That's what real experts like Marcia Angell say. But kindergarten astrological "economics" refutes what everyone else in the world sees as plain as day. "Austrian" logic - that many real Austrians saw the flaws in - has to be right about this, no matter what the facts say.