When supply and demand can fail
Feb. 26th, 2010 08:13 pm![[personal profile]](https://www.dreamwidth.org/img/silk/identity/user.png){kind=small}
libertangoDavid Brooks writes in The New York Times about the just-finished health care summit, "The Republicans believe that the answer is to create a genuine market with clear price signals, empowered consumers and an evolving process."
The problem? It simply won't work.
Free markets are great. Supply and demand is a great framework.
But it doesn't -- and won't -- work for health care. The reason is one that rarely occurs, so the usual laissez-faire advocates aren't seeing it: Demand for health care is infinite. There is no price sensitivity or price elasticity when it comes to health care. The only event that makes people stop spending is when they run out of funds. That's why the American Journal of Medcine reports medical expenses are the leading cause of bankruptcy in the US in a peer-reviewed study.
If demand for medical services is infinite, then there is never an equilibrium point for a price determined solely by supply and demand.
This is why the US, the only industrialized country that hasn't hasn't put health care under some form of social control, also has the largest share of its GDP given over to the heath care industry. Prices are out of control because there is no equilibrium point, so health care has become a black hole, drawing ever increasing dollars and GDP share in on itself.
Absent some governmental control of the sector, there's no rational reason to think market forces alone will succeed in containing costs.
The problem? It simply won't work.
Free markets are great. Supply and demand is a great framework.
But it doesn't -- and won't -- work for health care. The reason is one that rarely occurs, so the usual laissez-faire advocates aren't seeing it: Demand for health care is infinite. There is no price sensitivity or price elasticity when it comes to health care. The only event that makes people stop spending is when they run out of funds. That's why the American Journal of Medcine reports medical expenses are the leading cause of bankruptcy in the US in a peer-reviewed study.
If demand for medical services is infinite, then there is never an equilibrium point for a price determined solely by supply and demand.
This is why the US, the only industrialized country that hasn't hasn't put health care under some form of social control, also has the largest share of its GDP given over to the heath care industry. Prices are out of control because there is no equilibrium point, so health care has become a black hole, drawing ever increasing dollars and GDP share in on itself.
Absent some governmental control of the sector, there's no rational reason to think market forces alone will succeed in containing costs.
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no subject
Date: 2010-02-27 06:45 am (UTC)no subject
Date: 2010-02-27 07:05 am (UTC)In the original Damon Runyon story that became the musical Guys and Dolls, Runyon says of the character Sky Masterson, "He was called 'The Sky' because he would always bet everything he had, and no one can bet more than that." I would say that when one's life is threatened by medical problems, people will generally spend everything they have for the hope of prolonging their life, no matter how much or how little. Thus, the other well-known trend of so much of lifelong total medical expenses being incurred at the end, no matter how one slices it (one year, one month, one day...).
What is a better word than "infinite" for that behavior?
no subject
Date: 2010-02-27 07:10 am (UTC)no subject
Date: 2010-02-27 07:19 am (UTC)Not necessarily.
* Note the condition I made: "when one's life is threatened by medical problems." At any given time, the number of people in that condition is a relatively small percentage of the population.
* Also, just because there's demand for something doesn't necessarily mean there's a seller to meet it, either through supply or inclination.
In other words, just because one is willing to give all of one's money for a health care solution to something terminal doesn't necessarily mean there has to be someone who'll take it.
no subject
Date: 2010-02-27 07:29 am (UTC)Turns out even Hayek thinks universal health care is a reasonable state responsibility!
no subject
Date: 2010-02-27 08:40 am (UTC)no subject
Date: 2010-02-28 12:22 am (UTC)