I had been thinking recently of writing a comprehensive post making all of my arguments about the origins of our medical "crisis", showing how whatever problems did exist were either the result of government intervention, or simply part of the nature of the universe. However, as ObamaCare appears to have become law (well, has passed, but with fixes lingering in the senate), I have thought perhaps it would be fruitless.

But I then thought about the second category I listed above. Yes, I have written a lot about the ways the government created their own crisis (See "The Absurdity of Mandatory Insurance", "Preexisting Conditions", "Public Funding is Government Control ", "Private and Public Coexisting", " Who Will Decide", "Shameless Self-Promotion", "The Devil is in the Definitions (And Assumptions)", "Redefining Insurance... To Actually BE Insurance", "The Insurance Sham", "Government Efficiency", "High Cost of Medical Care", "Medical Reform, An Overview", "My Health Care Plan", "True Insurance Reform", "A Different Look at "Health Care Reform"", "Of Wheat and Doctors", "Bad Economics Part 10", "You Gotta Have Faith", "Why We Lose", "Our Suicide Bombers" and "Withholding Comment"), but I wrote very little about the ways in which the supposed "crisis" is simply part of the nature of reality. I did write in "High Cost of Medical Care" that some part of the reason our medicine costs more than other nations is because our care is just better, but other than that, I have largely ignored the way in which politicians often turn the simple facts of reality into a "crisis". And so, rather than write about the government creation of the medical "crisis" I am going to look at the simple fact that some shrotages, some scarcity, some lack of coverage is part of the nature of reality, and that the cure is not to pool all our scarce resources and dole them out, but rather to allow the market to work.

Let us start with a very simple point that most people seem to forget when it comes to government. Items are economic, that is they are worth something, because there is a shortage. Economists make this point by saying that items are only economic if they are scarce resources. And this makes sense. If you can have as much of an item as you want without effort, then you would never think of paying for it, nor ever be able to sell it. For example, air is free and available in abundance, and so we never think of air as a commodity. Yes, air packed into SCUBA tanks is worth something because of the packaging, or "clean" air at "air bars" is worth something because the buyer thinks it is somehow superior and has been treated in some way, but air itself is non-economic.

I make this point because often politicians act as if sellers are the only reason an item is scarce, when in reality there are sellers because it is scarce. If an item is not scarce, no one would sell it, as no one would buy it. And medicine is no exception. We pay for medicine because it is scarce. There are only so many doctors and nurses, only so many people capable of becoming doctors and nurses, and of those, even fewer willing to do so. There is only so much equipment, so much medicine. And often forgotten, only so many who can do the research to create those drugs and services, and only a few willing to risk their fortunes on funding such research. There is at every point a scarcity of resources, and, as a result, medicine is expensive.

However, politicians often seem to forget this simple fact. They act as if it were only the greed of doctors and hospitals and insurers which make medicine scarce. That if only insurers just gave away coverage, we would have more than enough care for all. And that simply is not true. Scarcity is an innate feature of reality. If an item were not scarce, then we would not need to worry about it, but if it is scarce, there is, by definition, not enough to satisfy all wants, and thus there will be a shortage no matter what the government does.

Faced with this, many will continue to push for redistribution or intervention by arguing that if a good is scarce, we should make sure that everyone gets "their fair share" by seizing it all and distributing it equally, or at least by establishing a government agency which makes sure everyone gets "the minimum" with the rest being sold. However, there are four problems with this.

First, there is no way to imagine what "the minimum" is. Services only exist because someone provides them, in nature man has nothing, so what is the "minimum" and what is "extra"? Second, by pooling services and removing competition for resources, we lose the pressures which lead to expansion. Third, if we redirect resources to this service, or even just fiddle with pricing, we remove the tools which tell us how much people really want, and end up not only producing the wrong amount of this good or service, but distort the rest of the market as well. Fourth, by removing competition for services, and by effectively eliminating "high end" services, we remove the forces that drive innovation, and also those that bring "high end" services within grasp of the common man over time.

Let us look at each.

First, the most simple point. Medicine is not something that exists in nature, the "right to medicine" is a human fiction. In nature, there is no medicine, and as it does not exist, one does not have an innate "need" for medicine. One may be able to make a semi-plausible argument for an innate need for food, water and air with some objective minimum, but beyond that, all other "needs" are human constructs, need snot recognized until someone began providing the service. And so there is no objective "minimum necessary" level. Someone could create one, but it would be an arbitrary creation. There is no way to say "all people need medical services X, Y and Z", as there is no definition of "need". At least with food or air one can say "you will die without X calories per day" or "without X cc of air per minute, you will die", but how do we do that with medicine? Any definition of "necessary" is arbitrary, and so anyone trying to enact some medical leveling scheme needs to either provide equal services to all, or at least admit it is an arbitrary "minimum" above which services may then be competitive. But there is no way to establish an objective necessary minimum.

Second, it is the willingness to pay extra for a service, to go beyond the norm that makes services expand. If we provide the minimum gratis, we will never know if we are providing too much or too little. In addition, by flattening the demand to make sure everyone has at least the minimum, we make many more expensive services unavailable. However, many of those services may be in high demand, but we will not know, as they will no longer be available.

Actually, the argument is even easier, and I made it quite clearly in "Who Will Decide". Someone will always decide how to allocate scarce resources. Under a government regime, they will take the resources, or the time of the providers*, and dole them out as they see fit. Under a free market,t he owners of those resources will dole them out. So far, there is little difference.

But it is much different when it comes to expansion, or even providing adequate services.

The government will generally try to provide either the bare minimum, to leave resources to allocate elsewhere, or as much as the budget allows, as they need to spend up the budget. What they will never provide is what the users desire, as they have no way to measure that. Should there be a shortage it will likely eventually be corrected, but only by a bare minimum. Nor will the government recognize the shortage, as failure to provide enough is a political scandal. So, any shortage is likely to be covered up, rather than driving action.

On the other hand, driven by the price mechanism, the free market will see where need is developing even before there is a shortage. As prices rise, profits also rise, and that draws investment, which leads to expansion. The price mechanism creates its own self-correcting mechanism. It is far from perfect, it does not always anticipate shortages, but it is much better than the absolute lack of such a mechanism under government control.

In other words, government distribution of scarce resources leaves no mechanism to anticipate needs, to prevent shortages, and otherwise to adapt to the changing needs or desires of the consumers**. Only be allowing the price emchanism to work can we anticipate consumer needs and adapt to them. ("The Limits of "Scientific" Management", "Greed Versus Evil", "Planning For Imperfection")

Third, it is not a solution to argue that our problems arise from "poor allocation" or resources, "waste", or "a need for more resources". All resources are scarce. Our current allocation is the ideal, as the market makes inevitable. (A Very Simple Truth) If we try to make more resources available, we will create a shortage elsewhere, and in another area that, judging by the current prices and allocations, is more urgently desired than more medical care. Worse still, the more we shift to medicine, the more urgent the needs we leave unsatisfied.

As I said, everything economic is scarce, and we must use our current pool of assets to fulfill all those needs. Of course, we will never fulfill all our needs, or else there would be no economy. If we could satisfy all needs, there would be no desires left, and we would have no need for trade. ("Bad Economics Part 16") That there is still trade means we will have less than perfect satisfaction, and it also means trying to shift resources forcibly to another area will result in even less satisfaction. Nor is eliminating "waste" a viable alternative. I have discussed this several times, from "Two Examples of "Inefficiency" in Capitalism" to "Bad Economics Part 10", so I won't go into it again. Let us just say that the supposed "waste" is more in the nature of support systems, and their elimination, far from increasing efficiency will just destroy the free market.

Which brings me to the fourth problem. Obviously, a fully government controlled medical system will eliminate the "high end" expensive and unusual procedures, but even under a system which simply provides "necessities" for the poor, while allowing something of a market to remain, many of the more expensive services will no longer be possible, due to the forcible reallocation of resources. Not to mention that the forced losses suffered by doctors, hospitals and insurers under most government schemes, which will leave few profits for research which leads to such experimental procedures.

And that will be quite bad for all of us. All procedures start out as expensive, experimental services, available only to the richest, or those willing to sacrifice a lot to get them. But the same is true of goods, everything from the automobile to the computer to the DVD started out as a "rich man's toy". But, over time, the high profits drew investment, and drew researchers, who made the goods cheaper to produce, or the services easier to provide. Over time, these services and goods went form rich man's toy, to a luxury of the middle class, to common to the middle class, to universal***.

But if we lack such services, then we have no place for new procedures to evolve. Without the rich to fund such procedures with their high payments, we lack the funds to interest investors or attract researchers who will make the process cheaper. And so, what would normally be a leveling process, making rare, new procedures become universally available, we will have a few expensive procedures which will simply be out of reach of everyone, forever.

And that brings me to my conclusion. Just as I argued about leveling incomes in "The Irrationality of Government Redistribution", scarcity is natural, as are inequalities. However, trying to eliminate those inequalities through artificial intervention lead to worse outcomes than doing nothing. Over time, the system itself tends to both increase the size of the overall pool of wealth and to flatten out the differences between individuals. Not that there are no inequalities, but as the amount of capital invested per worker becomes greater, individual differences begin to matter less, and so wages, at least on the lower segment of the scale, tend to flatten out. There is still a slope on the high end, but the differences between "poor" and "lower middle class" get smaller, and even "middle class" begins to look within reach of the poor.

And that is my argument. We live in a universe where scarcity is a fact of life, no humans cause scarcity. We can try to eliminate scarcity in two ways, by confiscation and redistribution, or by allowing the market to work. Neither will eliminate scarcity, but the latter will make it as small a factor as possible. When we try to enact redistribution, we end up freezing our assets at the point in time we enact the law. On the other hand, when we allow the market to work on its own, yes there may be greater inequalities for a time, but as the pool of wealth grows, even the poorest eventually have more than the rich do now, and, over time, the inequalities become ever smaller. Not to mention that with a free market, procedures now unavailable to almost all become commonplace, and costs consistently decline.

It may not be glamorous, and it may fit poorly with those who want to "save the world" and "do it now", but simply allowing the market to work, exercising patience, and taking our time, things can be made better than they ever could under government intervention. It is slow, and it does not make everyone absolutely equal, but if you still have more than you would have under redistribution, what is the difference****?

----------------------------------------------------

* That is one thing that is often glossed over in this debate, by forcing doctors to work for the salary defined by the state, they give doctors two choices, give up their profession, or lose the control over their own labor. Though no one ever bring sup the term, this amounts to a form of involuntary servitude. If you want to be a doctor, you have to provide services at this price or go to jail. Then again, we have become so used to government enforcing labor laws, basically forcing some degree of involuntary servitude on all of us, that such arguments usually fall on deaf ears.

** The classic example has to be the cliched Soviet department store which has 1000 pairs of boots and nothing else. Nor is that far from  the truth. Government factories produce what the administrators say, without consumer input. In addition, as political prestige is tied to funding, many times the best connected factories produce the most, regardless of need. And so it is very easy for government enterprises to manufacture things completely without demand, or to fail to produce items desperately needed. ("The Inherent Disappointment of Authoritarianism", "The Inevitability of Bureaucratic Management in Government Enterprises", "Bureaucracy Revisited")

*** The best example may be plastic surgery, which was, even in the 1980's, a luxury, if not out of reach, for many people. However, by the 1990's, it had become common for the middle class to pay for plastic surgery, and even the poor were saving for procedures. Now, plastic surgery is almost universally available. I am not saying whether that is good or bad, but it does show how expensive, rare procedures spread throughout society.

**** Would you rather have $5 or $10? How about, would you rather have $5 and a neighbor with $5, or $10 and a neighbor with $100? Sadly, many seem to think the former is better than the latter, which is why I often argue that the left relies on envy more than anything else. ("Envy Kills", "Envy And Analogy", "He's Bad So He Must Be Wrong")

-----------------------------------------------------------------------

POSTSCRIPT

Here is a list of all previous installments of the "Bad Economics" series:

Bad Economics Part 1 - A discussion of how prices disprove theories of resource depletion
Bad Economics Part 2 - A debunking of the many theories based on "defective" or "damaging" competition
Bad Economics Part 3 - An examination of the many absurd claims about deregulation
Bad Economics Part 4 - An examination of problems with economic studies and empirical evidence
Bad Economics Part 5 - An examination of consumer protection and the harm it does to consumers and others
Bad Economics Part 6 - A rebuttal of claims offered in support of various types of farm price supports and other aid
Bad Economics Part 7 - A discussion of what inflation is and is not
Bad Economics Part 8 - A discussion what our money really is and is not
Bad Economics Part 9 - A refutation of the common belief that "thinking outside the box" is inherently valuable
Bad Economics Part 10 - A refutation of the theory that there is "waste" which can be eliminated from the free market
Bad Economics Part 11 - Bankruptcies, Bruises, Fevers and Extinctions - Examining how perspective makes events good or bad
Bad Economics Part 12 - An examination of the futility of using regulation to protect consumers and employees
Bad Economics Part 13 - (Also called "The Sky's Not Falling Part 2") - An examination of the transition from mostly manufacturing to a mix of manufacture and service and the reasons not to fear this change
Bad Economics Part 14 - An examination of the causes of unemployment and whether long term, involuntary unemployment is possible in a free economy
Bad Economics Part 15 - A response to a user comment, examining many of the most common mistaken beliefs about the free market and capitalism
Bad Economics Part 16 - The myth of "economic man" and mistaken beliefs about the theory underlying the free market
Bad Economics Part 17 - An examination of our tendency to confuse interventionism and the free market, as well as to confuse free market business with companies seeking government favors

You can also read them in reverse order, starting with Bad Economics Part 17, as each post contains links to the previous chapters.