Bryan Caplan  

Adverse Hazard, Moral Selection, Whatever

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As far as I can tell, economists are even more sympathetic to socialized medicine than laymen.  The question that sticks in my mind is: Why?  Economists are normally calm and analytical.  When it comes to government provision of health care, though, they rely almost exclusively on a simplistic, angry mantra: "Moral hazard and adverse selection."  When another economist points out that (a) government provision doesn't do anything about moral hazard, and (b) selection in insurance markets is usually advantageous, not adverse, the dialog usually (though not always) ends.

All this suggests that economists' arguments in favor of socialized medicine are largely rationalizations of a policy that they favored long before they studied economics.  Since most other economists favor the same policy, they can safely defend it with awfully sloppy economics.

If I cornered the typical economist who defends socialized medicine, I suspect he'd say something like, "It's not economists' job to question political ends.  Our job is to help people achieve their political ends as efficiently as possible.  If people want socialized medicine, we have to help make it work as well as possible."*  To which I'd reply, "You don't say that when you're criticizing rent control, or protectionism, or labor market regulation.   You criticize political ends all the time."  If they quibbled, I'd add: "Perhaps to be more precise, you recognize that most 'political ends' are themselves debatable means to more fundamental political ends.  So why not debate this one, too?"

OK, so why not?

* I once heard a health econ textbook author say, "Yes, universal coverage would have little effect on health.  But if most people wanted universal balloon ownership, I'd tried to figure out the cheapest way to give it to them." 


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COMMENTS (9 to date)
B.B. writes:

"To which I'd reply, "You don't say that when you're criticizing rent control, or protectionism, or labor market regulation. You criticize political ends all the time." "

I have a different perspective.

Well, we have international trade expert -- yes, Krugman -- supporting tariffs on countries that make different choices on energy supply and taxation (carbon tariffs). He endorsed them as soon as Pelosi did.

And Stiglitz has endorsed "card check" to promote unionization. Just how many "progressive" economists are willing to take on public sector unions, or labor cartels in the private sector? If a "right wing" economist advocated maximum wage laws to boost business profits, he would be laughed out of town. But "progressive" economists regularly defend minimum wage laws. Wait, progressive economists do support maximum wages laws: on business executives! Not on movie actors or rock and roll stars, who support the Democrats, but on CEOs.

And I am still waiting for an ad in the New York Times signed by Stiglitz, Krugman, Berstein, Sachs, and Galbraith advocating the end of rent controls in New York.

English Professor writes:

I have given up. A government program in healthcare seems to me inevitable, and economics has nothing to do with it. It is a matter inherent in democratic ideology (and I mean "democratic," not "Democratic.") This requires that all people have more-or-less equal access to health care. This may be achievable under a market system, but the anti-market prejudices of so many people mean that it won't get an honest trial. The economists Bryan mentions are a good example of what's at issue: their position simply suggests that they believe that the market, however wonderful it may be in other areas, simply can't be trusted in providing sufficient guarantees of equal treatment.

If that's the case, shouldn't we be looking at what has worked well and what has worked poorly in other nations with government-mandated programs? If the 50 states of the US are laboratories for social policy, and if we are going to be forced to adopt a state-run model, shouldn't we see what their laboratories have turned up? I've read that the various European programs differ from one another: I've seen claims that basic care is cheap and efficient in the Netherlands; we know that France has better outcomes than Britain; and so forth. I've also read somewhere that some countries use "private insurance" (whatever that means in a government-mandated universal system). Can we learn from these?

BTW--I've known people who were hospitalized in Norway and Italy. They all told the same tale--hospital care is far behind what it is in the US. That's depressing, but is there any real alternative?

Finally, rationing will be inevitable. Why has no one commented on Peter Singer's piece in the NY Times Magazine on rationing health care? As you'd expect from Singer, he deplores rationing by price. Arnold, Bryan, David--what do you say?

Phil writes:

I don't agree with the idea that the free market for medicine is "rationing by price". Rationing by price is an appropriate description when the supply is fixed -- it's how you allocate 18,000 arena tickets among 100,000 fans. But the supply of medicine is elastic. If more people are willing to pay to have an MRI -- even if the payment is actually made by the government -- more MRIs "miraculously" appear.

Here in Ontario, the waiting list for an MRI is months. This is truly rationing, because the supply is fixed. If, instead, the MRI procedures went to the highest bidder, it would be "rationing by price" for only the first day -- after that, the supply would increase very, very quickly.

The word "rationing" in the context of medical care applies virtually exclusively when the government somehow restricts the supply.

mark writes:

There is a huge difference between a market based allocation of resources and a government based allocation and that is the agency problem. In a purely market based allocation, if the good exists, and the consumer has sufficient funds, the consumer can acquire it and satisfy his or her demand. In a government-run rationing system, the interests of the agent, usually political, impose exogenous criteria that must be served before individuals' welfare is served. This is inherently inefficient.

One of the main reasons we don't have a robust market based system is the proliferation of regulations that require insurance to cover an ever expanding universe of treatments, such that only giant companies can compete.

Another is that we don't have a consumer centric insurance system but an employer centric system.

I do think an insurance exchange with a wide variety of insurance coverages would be a useful step in promoting a marketbased solution.

Dr. T writes:

Economists who support socialized medicine without having good reasons are engaging in magical thinking, just like most of the population. I hear it continually: the unsupported belief that government-run health care will fix all the access and cost problems. I find this ironic: over a century of veteran's health care and over 40 years of Medicaid and Medicare have proved that government-run health care simply creates new and bigger problems in place of the few private sector problems it fixed. But, as with all beliefs based on magical thinking, reasoning and argument cannot dissuade people from their incorrect beliefs.

Neal W. writes:

What % of economists support universal health care and what % of general polulation? I thought 70-75% of the general pop did.

gnat writes:

The confusion stems from the inherent conflict between competitive market standards and society’s normative goals. Competitive markets can be socially efficient under certain conditions (no market power, full knowledge, no externalities, costs/benefits borne by decision-maker) provided one accepts rationing based on ability to pay regardless of distribution of needs. Moral hazard, asymmetric information and adverse selection violate some of the conditions.

Society’s normative standards are embedded in its political institutions—e.g., labor and environmental laws—and constrain or shape private market institutions that constrain private market outcomes to normative standards. In healthcare, private insurance has strong incentives to cherry pick the healthy and wealthy. Once the public provides healthcare for the poor and chronically ill there are strong free rider incentives for private markets to break down on both the provider and buyer side. The conflict is particularly acute in global markets with conflicting national normative standards.

sourcreamus writes:

Economists favor universal health care because the system will be designed with the advice of economists. Plato advocated philosopher kings because he was a philosopher, if he had been a baker he would have been in favor of baker kings. Economists like systems that give economists more power.

Paul writes:

Saying that the economists' job is to deliver what people want in the most efficient manner is a cop out if it is a justification for supporting socialized medicine. What people want is quality medical care at an affordable cost, not socialized medicine. Those are two very different things. Sure, if sound economic analysis leads to the conclusion that socialized medicine is the best way to deliver what people want, then by all means go ahead and advocate it.

However, sound economic analysis shows no such thing. Quite the opposite in fact. So I call baloney.

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