My wife and I were discussing the computer information system her hospital is implementing next month. It is interesting as, from talking to my wife and various doctors we know, the system does not really meet most of the needs of the hospital, fails to make it easy for nurses to extract the information they need, does not allow them to print out reports they need, and generally is worse than the patchwork of partial systems they had before. Yet they are still deploying it.

The reason, of course, is the government subsidy for computer information systems meeting certain requirements, as well as the government requirement that hospitals begin providing certain information to the government. It is all part of Obama's grand plan to establish some unified information system. However, it also serves as a perfect example of how government funding can as easily short circuit the free market as government edicts. (See "Public Funding is Government Control" for another discussion of this topic.)

You see, the problem here is akin to the ones discussed in "The Limits of "Scientific" Management" and  "The Inherent Disappointment of Authoritarianism ", there is no single "best" solution. Each hospital, and each department within a hospital, has individual needs. Even though hospitals all perform the same functions, they employ differing people, have differing customers, and have different institutional histories. In addition, they have developed different procedures over time, which require different ways of handling the same information. What may be perfect for one hospital, or one department within a hospital, may be a bad fit for another hospital, or even a different department within that hospital.

Under a free market, likely each hospital would evaluate a number of systems, picking the best fit for their needs. Hospitals with a more responsive management might even implement differing systems for different departments, cobbling together various parts into a hybrid system meeting various needs. Even if they did not do so explicitly, odds are very good that hospitals would eventually find the best fit as they purchased a system, found out it did not work well, and either paid to have it modified, or replaced part or all of it.

But now the government has short circuited that. By paying for a system, but only one of the few commercial systems which meet government reporting needs, the government has basically forced a "one size fits all" solution onto hospitals. Even were there not the threat that hospitals might be forced to adopt such a system for reporting, the hospitals would still likely adopt one of these commercial systems, just because the government subsidy makes it too costly not to. So, rather than adopting a solution which suits their needs, they will choose to buy a system which may be a much worse fit, but which suits the government needs.

Now, I know most people are asking "so what?" And in all honesty this is a small problem. It is a problem, as it will make hospitals and their workers somewhat less efficient, forcing them to use a system which suits them less well, but the impact will likely be small. But it helps to illustrate some bigger problems with government action in general.

You see, as I discussed in  "You Don't Drown in a Glass of Water - Vouchers Revisited", "Why Vouchers are not the Answer" and "Never Ascribe To Evil, A Discussion of Education", many people think that the problem with government programs is bureaucratic management. And it is a problem. (See "The Inevitability of Bureaucratic Management in Government Enterprises") But explicit government control is not the only way government can cause damage. As I discussed with vouchers, the government can interfere simply by funding actions. Because, when it offers funds, it also implicitly defines what is acceptable and unacceptable, and so, even though it is just "helping with cash", it is, in reality, very quietly imposing rules.

You see, when it offers to pay, the government simply cannot hand out a blank check. That only makes sense. But, as soon as it defines what is and is not an acceptable use of that money, the government limits the solutions available, and pushes recipients into a few preselected choices. Where the free market would have allowed a wider range of choices, the choices are now limited. And so, rather than trying all solutions and finding the optimal solution, people are now forced into the government's solutions.

"But" some will ask, "what's the harm? As long as it is the best solution, what's wrong with that?" But, as I discussed in "Reforming Education" and elsewhere, there is no "best" solution. There are as many economic preferences as there are souls, and since economic choices are all about valuations, there is really no "best" solution, nor even a set of "best" solutions. Each individual and each firm will need to find their own best fit. And the free market allows for that, in fact rewards those who work hardest to find the solution which best fits their circumstances. On the other hand, by implicitly assuming there is a "best" solution, the government normally forces many firms into solutions which they find less pleasing, thus reducing their efficiency or satisfaction.

And that is the final problem. Not only does the government solution end up leaving us less happy than the free market would, not only does it restrict choices, but it basically pays a lot of money to make us less efficient and less satisfied. In most cases, whatever the government subsidizes is an activity individuals would do on their own when they possessed adequate resources. By funding this choice, the government basically pays them to do what they would do anyway, but because it limits their choices, it pays them to do it in a way which leaves them, and the whole economy, less efficient and happy than it would have been. In other words, we are spending money to get a worse solution.

And that is something to remember when hearing about the death of the "public option". The government does not need to own an insurance company to meddle with health care. Nor does it need explicit nationalization. It doesn't even need to mandate coverage by statute or regulation. All the government needs to do to impose its will is to offer funding at the right point in the process. Through funding the government can exercise as much control as it can through legislation.

POSTSCRIPT

It does not relate to this directly, but it was interesting listening to my wife an my neurologist speak about how they spend more time writing reports than caring for patients. Some of this is the result of our insane tort system and defensive medicine, but a lot more is the result of medicare/medicaid, which spawned JCAHO, and in turn bred much more paperwork for private insurers as well. The liability lawyers really did have much less impact than government insurance and regulation did. And, with Obama's new push for "information" (think the lead-in to the original series "The Prisoner"), the amount of documentation and time spent on meaningless paperwork will definitely increase yet again.

Yet we are told again and again, this will not cause any decrease in the quality or availability of care, and will not discourage the best and brightest form practicing medicine. And I have a lovely bridge in New York I want to sell dirt cheap...