Monday, July 27, 2009

Supply and the Health Care Debate

Today's lesson in economics comes from Abe Lincoln. With the Civil War raging, and the Confederates approaching Washington, Lincoln received a report that J.E.B Stuart's cavalry had kidnapped a general and stolen 40 horses. The next day a messenger appeared saying, " There's good news Mr. President. We've found the general." Lincoln replied, "That's unfortunate. I can always make a new general, but I can't make more horses."

Any government can arbitrarily suppress prices, at least for a while. Adding 40-50 million new health care recipients arbitrarily increases demand. It is on the supply side of the equation where things are beyond government control. The government can't dictate that someone invent a new medicine, medical device or procedure. Supply is created by individuals making choices, and applying their talents, according to their own self interest.

If you were 20 years old right now, would entering the medical profession look like a good idea, or would you be thinking of doing something else? Knowing that doctors already spend a great deal of time filling out paperwork and arguing with insurance providers, bureaucrats, lawyers and accountants, would a smart kid still want to be a doctor? With malpractice insurance and other costs remaining the same, and the prospect of lowered fees and less time for the customers, is there still a point to becoming a doctor?

Given the news of the day, would a technically gifted kid want to manufacture heart valves or wind turbines?

As the Soviet Union learned, supply cannot be mandated, distribution from a central point is ineffective, and if there is nothing on the shelf to buy, the cost to the consumer doesn't matter. With fewer reasons to enter the medical field, fewer people will enter it. With increased demand, rising costs and falling prices, a decrease in supply (rationing) is an absolute certainty. Like Lincoln and the messenger, we are about to discover that even the President of the United States is limited by natural law.

1 comment:

Victor Joecks said...

You've nailed it with this post.

Rich businessmen, health care professionals and other "greedy" individuals aren't hiding a secret supply of health care somewhere. Sometimes I feel like that's what those on the other side think.

Health care is limited because everything in life is limited (scarcity). Destroying one the reasons people get into health care (to make money) is going to decrease the amount of health care for every one.

That's a great tidbit about Lincoln too.