I started writing this entry because of a post I read about Canadian health care....
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Let's strip away all
the political rhetoric and look at the facts. For goods and services
whose demand can be affected by external factors such as cost (i.e. elastic demand), markets are the best way to
allocate resources. Health care (a product with inelastic demands) does not behave this way, as no one
bleeding to death will ask how much does it cost for a doctor to fix me?
For goods and services like health care, other, more efficient methods
have to be devised to best allocate resources.
Let's take away from our argument the idea of
charity hospitals and doctors practicing without regard to money. The
number of these people and organizations is shrinking, as states have
allowed medical organizations to be profit making organizations. This has led to markets being used to allocate resources where markets are
not the best way to allocate resources.
In a
society that values human life more than ours, people's lives are
maintained without regard to market forces. The individual receiving
health care is not part of the market. So, how is care allocated? In
the US, we used to have organizations called HMO's. But even they were
affected by markets, and limited care when care was needed.
Many developed nations, such as Canada provide health care services with a
fixed amount of money allocated for care in each province's budget. People get to see their doctors by appointment
(usually more often than in America). Care provided has been vetted
against "best practices" and drugs/procedures which provide the most
bang per buck are usually chosen to reduce costs. In areas where there
might be inflexible demands, such as needing heart transplants, they
prioritize recipients of care to those who would get the greatest
statistical benefit from that care. This means that a 40 y/o man might
be selected for a transplant over a 90 y/o man. This takes market
forces out of the decision, and allows care to be provided without
regard to a person's wealth or lack of it.
America
has distorted the use of markets so much, that many of us fear what
might happen if we move some goods and services out of market place
allocation of these goods and services. The experiences we've seen in
foreign lands shows us that costs can be reduced by taking things out of
markets. In fact, we're now seeing medical "tourism" where many
Americans are flying to Europe and Asia for non-emergency procedures.
There are many procedures that cost half as much when done in Europe
than when done in the States. In Asia, the costs are even lower. And,
quality is similar (or better) than what one finds in the States.
The
drawback - no one likes being a gate keeper. No one likes having gate
keepers. And non-market systems require gate keepers. Who wants to
hear that a $500,000 procedure won't be performed that could add another year to your 90 year old grandma's life, because society has chosen to fund a
rural clinic that provides 10,000 people with essential health care?
Being a decent human being means making choices. Canada and most of the developed world have made good choices. America doesn't yet make that many good ones....
It's hard to believe that the New York Stock Exchange once looked like this. The stock market was less regulated then, but never a place for a timid person to risk his/her money.
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One of the things I've said for years is that I believe in open, fair, and transparent markets. In an ideal world, these markets would be self regulating. However, powerful players love to distort markets via the use of rules, and via a lack of transparency. In the case of the stock market, most disputes are settled via arbitration - which is often rigged in favor of the large firm by the nature of familiarity. Precedents from one settlement are not applicable in the next case, so the large firms have an edge which is almost impossible overcome.
However, the lack of transparency affects more markets, and has an even greater effect. For example, the current practice of "Non-Standard" sizing makes it much harder for a person to "compare apples to apples" when determining the price of goods. In the case of a carton of Orange Juice, the standard 64 oz. size was shrunk by all players to 59.5 oz. - making it much harder for people to determine what the real price was. Also, the shrunken size went less far, so the customer had to buy more containers to sate their needs for Orange Juice. Something similar happened in the size of Tuna cans - a few years ago, the standard size was 6 oz. - now it's 5 oz.! No one asked the consumer (in these terms) whether we wanted to pay the same money for smaller size packages, or more money for the same size packages. If they did, the marketplace would have chastised the sellers of these goods - something they avoided by obfuscating their price hikes with package size changes.
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Right now, people are starting to see a crisis with student loans. This is another example of marketplace interference creating disastrous effects. A little over 150 years ago, it was "easy" for a person to attend some of the nation's most prestigious universities. All they had to do was learn the "basics" - which included Latin, and other skills no longer needed in the real world - and then pay the bills for school - which weren't that expensive. However, after World War 2, the GI Bill made it easier for students to afford college - and a college education was seen as the ticket to middle class success. Years later, our nation's policies changed to provide poor people with grants to go to college, trying to create a more diverse student base in these schools. And then came the age of college loans - which I see as a total disaster. Instead of increasing the supply of college seats (which would have reduced prices and increased availability), policy simply increased demand for college seats by making student loans cheap, easy to get, and with no demand that a student comes out with a salable skill. The only effect here was to raise the price for seats in a good school.
What happened to the students? Many got saddled by debt, studying in majors that would not prepare them for jobs in the outside world. When a student owes money on a student loan, it is almost impossible for it to be discharged in bankruptcy. As a result, the interest on the debt makes the student loan virtually impossible to pay off.
But what would happen if we eliminated the Federal guarantee of payment? What if these loans could be discharged in bankruptcy? Well, many of the private lenders would cease lending money, marginal students would stop going to college, and colleges might be forced to lower their prices for study. The powers that be don't want that. The banks making a lot of these student loans would cease making loans - and making guaranteed profits.
I posed a question to a couple of people and got the same negative response - therefore I know I'm on to something.... What if (1) there were no guarantees of student loan repayment by any level of government, and (2) a student loan lender could insist that a student loan borrower major in a field likely to result in a job? Both people said that this would be wrong - the student has a right to study what he/she wants to study. But at whose expense? The student is usually way too immature to make many decisions which will impact the rest of his/her life. Part of college's function in society should be more than that of a trade school - it should teach a person how to think, and how to look at life with a long term perspective. One of these people said that if he were to take out a bank loan for a car, that the bank has no right to tell him what car to buy. Yet, one could counter - that if a car manufacturer's finance arm offers you the loan on the car, it should have the right to tie you into buying one of their cars.
In short, the lack of a efficient market (with rules for proper debt discharging) for funding higher education has caused a crisis in higher education that also affects non-students. If a former student is saddled with too much student debt, that same person may not be able to afford getting married and having children. And if this person has children, he/she may not be able to pay enough in school taxes to educate the children - a long term risk for society.
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Not all problems in society can be resolved by market forces. Other methods must be used to limit consumption of resources. Great Britain spends about 35% of what America does on health care, and has a roughly equivalent standard of national health. Canada spends about 50% of what America spends. And other developed nations are in the same league. What is different? They all recognize that health care doesn't work with a marketplace model. So, instead, they ration care in ways that Americans would consider unacceptable. Britain uses results based medicine, and when in doubt, chooses the cheapest alternative. There is a waiting line for almost everything except acute emergency care - and even then, there are rules and regulations that apply - as if one were part of a giant HMO.
I do not advocate the British or Canadian models, because they err in ways Americans would not accept. But the German and French models have a lot to offer - if only we would examine them more closely.
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Americans like the idea of free express roads that take them from town to town, and city to city. There is one big problem - the price - FREE. This has encouraged the growth of the trucking industry over that of the railroads who pay for the upkeep of their track. One might say that truckers pay gas taxes that should maintain the roads. But in many states, especially in the South, these gas taxes have not been raised in years, nor have they been indexed to inflation. As a result, we're seeing part of our transportation infrastructure neglected by lack of proper funding, and now at great risk - as many structures are at the end of their life spans.
What happens when people have to pay to use a road? People actually think - do they need to make this trip? And this is an important question, as it reflects a market helping to shape a behavior. There is a discipline that takes place in a well functioning market. The trick is to design a market well, regulate that market well (but minimally), and make sure that only the right things are governed by that market.... This, as I see it, is the big challenge of the 21st century.
