I am not an economist. I consider myself a student of the school of economics sometimes referred to as the “Austrian” school. Having said this, it is with some uncertainty that I write the following piece. Oh well. Here goes.
Everyone wants to be part of a “win-win” deal, don’t they? Mutually beneficial exchange is the hallmark of a free market and is absent in a coerced (“win-lose” deal) arrangement like government-provided services. In a free market, parties enter the arena of exchange in anticipation of which they hope to better their current circumstances. If no perceived future benefit is anticipated due to a proposed exchange, the exchange simply doesn’t occur in a voluntary and free market. Some folks are happy to be in a win-lose arrangement as long as they are on the “win” end. That is a subject for a future blog.
The “seller” wants the exchange to occur for something he values more than the goods with which he is willing to part. The value to the seller of the money or goods for which he is trading is greater to him than that which he already possesses, otherwise, no trade/exchange will occur. The buyer values the seller’s goods more than the money in his pocket, otherwise no exchange will occur. The job of the salesman is to highlight value and perhaps even introduce the concept of the scarcity of the buyer’s opportunity, an attempt at increasing the buyer’s time preference, a common strategy in many “sales” arenas.
One of the most miraculous things about this entire dance is that both parties are better off/improved having undergone this exchange. This is the basis for the formation of capital and the market activity that improves the standard of living of all people involved. This capital formation doesn’t occur in a government-coerced exchange as one of the parties is necessarily a loser, negating the other “winning” party’s gain.
One of the radical “Austrian” contributions to the field of economics is the idea of the “subjective theory of value.” Quite simply, a potential buyer’s assessment of the value of targeted goods is different from any other buyer. The goods don’t have an arbitrary value, only that assigned to them by a potential buyer and a function of a comparison to the next best alternative use of the buyer’s money. “It’s worth what someone will pay for it,” partially captures the meaning of the subjective value theory. This radical concept makes the whole concept of economic forecasting suspect, as the prediction of the actions of individuals based on changes in pricing or other variables, is different for each individual, making any assumption about future mass behavior difficult at best.
Since rocking chairs, Steinway pianos and French Bordeaux’s are valued differently by different buyers, the sellers have an incredible challenge. They must take into account their production costs, factor in a reasonable profit and find the “market clearing price” (that price that results in neither surpluses or shortages). If they get it wrong on the high end, little product is sold. If they shoot low, they can’t fill all of their orders.
The appearance of competitors keeps the sellers in a position of constantly re-evaluating various efficiencies and production costs in order to present a value to the marketplace and potential buyers.
What does any of this have to do with healthcare? I think that even a basic understanding of the above (and I confess to only a basic understanding) illustrates the futility of the role in which the central planners have placed themselves, engaging in price fixing, completely discounting the notion of subjective value. Some people have chosen a higher priority alternative to the purchase of healthcare, that choice now removed from them, however.
Also keep in mind that the lack of transparency in healthcare pricing is the equivalent of walking into a store of some kind that has turned its lights off such that none of the merchandise can actually be seen. The information necessary to determine value is not there, so there is no way to know if an exchange is mutually beneficial and hence no way to know if such an exchange is to the buyer’s advantage and whether such an exchange should even occur. Mises clearly showed that the absence of a rational pricing system spelled the doom for any socialist enterprise or government due to the lack of feedback this pricing information provided the producer and buyer, shortages or surpluses being the obvious result.
Inevitable shortages and surpluses result from central economic planning, the shortages in the healthcare arena meaning neglect or death. This is not my opinion. This is evident in every country where central planning has been introduced into the medical marketplace. The presence of government in any arena of exchange means that one or both parties want no part of the exchange on their own. If the parties saw an exchange as mutually beneficial, there would be no reason for the GUNverment (bureaucrat with a gun) to “enforce” the exchange….it would occur quite simply on its own if seen as mutually beneficial.
That GUNvernment has an even greater presence in the health care marketplace than ever before, with even more to be expected, the parties with a gun in their ribs will act differently, just as you would expect. Robbery victims don’t typically part with their property or service with a smile on their face, wishing their mugger a nice day. Surly, sullen and cursory. Neglectful, dismissive and dangerous. These are the words I’ve seen describe many physician encounters in medically socialized countries. I believe that we will see more and more of it here in this “country.” The idea that the behavior and actions of physicians will not change when a gun in at their head is yet another miscalculation and the predictable result of the arrogance of the central planners, those who relish in “making” people do things, rather than mind their own business.
G. Keith Smith, M.D.