Map of life expectancy at birth from Global Education Project.

Friday, December 18, 2009

Real World Economics

Listen up, ye Sons of Liberty!

Markets are not natural phenomena, or forces of nature. Markets are social constructions -- institutions created by humans, maintained by humans, shaped and controlled by humans.

All markets are regulated.

In complex societies, all markets depend on sustained, intrusive government intervention in order to function.

The only question is what form that intervention takes, and who benefits.

Markets are not separate from politics: their nature is controlled by the political institutions on which they depend for their existence.

The idealized market, even if it could exist, which it cannot, has no relationship to justice.

It is true of all markets that they do not resemble the fictitious entity presented in Economics 101, but this happens to be particularly easy to see in the case of health care. Let's start with that notion of externalities. Again, these are not the exception or a minor issue in the market for any good or service, but I don't want to get side tracked.

When a person receives health care, assuming it is effective, obviously that person benefits, and might be willing to pay something for it, assuming she or he had the money. But a whole lot of other benefits happen to other people as well. Here is just a partial accounting.

An obvious one is communicable disease control. If you cure or prevent an infection in one person, you can end up protecting a whole lot of people who have nothing to do with the medical encounter. Furthermore, the patient may be in the workforce, and his or her good health may contribute to the prosperity of all. Paid employment aside, people care for children and sick or disabled relatives, keep house, do volunteer work, help out friends – all sorts of good works that aren’t part of the money economy.

And, other people – family and friends -- might just care what happens to a sick person, and feel distress if they don’t get proper care, or can no longer be friends and companions. Furthermore some of us may feel bad about the sufferings of the unfortunate in general, and feel good about being part of a society that provides basic, compassionate care for everybody. And the last item I’m going to list is that it just isn’t very pleasant to have to step over sick and dying people all the time or pass mentally ill and disabled beggars on every corner. Actually if you live in the city you’ll find that you actually do a fair amount of that, right here in the Greatest Country on Earth.

So health care is in fact a mixed good (as are most goods, after all). If we had to depend on people to buy only as much of it as they could afford, or felt inclined to buy, it would be underproduced from a societal point of view – all of us would be losers.

Okay, let’s deal with a couple more assumptions. Obviously, as patients, we don’t have perfect information. That’s why we go to the doctor in the first place. The doctor has expertise we don’t have. Most of us have no way of knowing whether the doctor’s diagnosis and prescription are correct, because we don’t have a medical degree. Some of us are in a position to be better informed than others, but unfortunately, some of us also think we know more than we really do.

And obviously there is not and cannot be perfect competition among health care providers. In medically underserved areas, there is often none at all. Marcus Welby didn’t have any competition, he was the only doctor in his small town, and everybody figured that was beautiful. At the other extreme, many high tech services are available in very few places, and people outside of the major cities may have to travel hundreds of miles to get to them. That includes trauma care, by the way, which can come upon you in an instant, out of the blue. When you’re unconscious and bleeding to death from a car crash, you don’t have a discussion with the ambulance driver about which hospital you want to go to, let alone whether you want to go at all.

And, since medicine is all about expertise, and we can’t evaluate physicians’ expertise, it has to be done for us, by licensing and credentialing bodies. That means the supply of physicians is restricted – you can’t just have random people setting up physicians’ offices. Of course, many people do by claiming to be homeopaths or naturopaths or what not, but they’re probably just stealing.

So what about consumer sovereignty? Everybody has fairly similar basic needs for food, clothing, and shelter, which we satisfy if we can; and then we go on to allocate our remaining income according to our desires. But the need for health care differs radically among individuals, and it’s not something we generally get more of than we need because we want it. For sane people, getting medical interventions is generally unpleasant and to be avoided; we undergo them out of necessity.

Alright, that's a lot of verbiage for one day. Next time, I'll once again have pictures, and we'll talk about how the production and consumption of medical services are really allocated.


Anonymous said...

Thanks for these posts. The Econ classes I took in college never made sense to me for just the reasons you have cited. I look forward to your next posts.

thomas sabo said...

I feel pretty good, and support you.