What do you know?

The next assumption on our list, on which the theory of the (non-existent) Free Market™ depends, is the assumption of perfect information. Okay, it doesn't have to be absolutely perfect, but it has to at least be pretty good. In order for a transaction to really benefit both parties, they both have to know what they're getting and what they're giving for it. Once we're off the island of Bob and Alice, of course, what's normally happening is that one person is exchanging money for a good or service, so the transaction is asymmetrical pretty much by definition -- there's a seller and a buyer.

Most people don't actually know what money is, in fact it might be fair to say that nobody does since the question is debated at even the highest levels of big-brained argumentation. However it's fair to say that people generally want more of it, don't think it can hurt them, and experience a knowable amount of pain when parting with it. The seller wants money and that's what they get; and the seller also normally has very good knowledge about what it is they are selling. The exceptions, such as people who don't know their yard sale geegaw is actually a valuable antique, are isolated incidents which are not representative of commerce.

However, buyers generally have much more difficulty knowing what they're getting. You pretty much have to trust the seller that their representations about the product are truthful, but if you weren't born yesterday you know that isn't always the case. That's why there are laws against fraud, but if you are in favor of them you've already conceded that the market isn't entirely "free," that it requires government intervention to make it work at even the most basic level. And once we get to that point, it follows a fortiori that exactly how the laws against fraud are written and enforced affects market participants differentially. If the standards are very narrow, or difficult and expensive to enforce, that gives sellers an advantage.

In fact, advertising consistently tries to convince potential consumers that products are better, more effective, more beautiful, more desirable, than they really are. Advertisers try to make you think that they're product will make you cool, sexy, happy, admired, envied, healthy, wealthy and wise through tricks that can't strictly be called fraud. When people do sell defective or misrepresented products they generally get away with it. True, you probably won't buy from the same people again but they're only in it for the short term score.

When it comes to medicine, the information asymmetry is pretty close to 100%. After all, what are you buying from your doctor? You are buying expertise. The reason you go to the doctor in the first place is because doctors know stuff that you don't. They tell you what you need. The instant you concede that, you concede that nothing like a Free Market™ for health care could possibly work. 

 

I mean, it does exist in a sense -- people who don't have M.D.s and don't claim to be providing licensed medical services can sell you snake oil, and unfortunately it's perfectly legal within certain limits. But you're getting ripped off, and if you go to them for your acute appendicitis, you won't be going back for a second visit or for that matter waking up the next morning.

Next we'll deal with the willing buyers problem (which I carelessly listed twice) and I think you can already see where this is going.