“Price controls cause shortages.”  Ever heard this?  This is actually not competely true.  Price controls can cause surpluses if the price is set too high.  Prices set too low will cause shortages. 

What should be the price of anything?  What determines the price?  It is the presence or absence of surpluses or shortages that determine pricing.  If products or services are flying off of the shelves, the message sent back to the vendor of this activity is that his price is probably too low.  He will run out of goods quicker than he can replace them.  If his goods are sitting, not selling, his prices may well be too high.  This is the beautiful dance of the free market that constantly adjusts the price to approach what is called the “market clearing price,” that price where there are neither surpluses or shortages. 

What is interesting about this “market clearing” price is that it isn’t the same on any given day or time.  A price that is just right today may be too low tomorrow.  If, for instance, the price of plywood has been found that the buyer and the seller are both happy with, then a hurricane threatens the area, the price will increase in an attempt to avoid a shortage.  You say,”NO!  That’s just price gouging by the lumber yard!”  Actually, the lumberyard owner has to be careful to not be perceived as a gouger or the local residents will never set foot in his lumberyard again after the disaster has passed.  What the residents will really hate him for is his empty shelves.  The higher price sends a message to the logging companies to pick up the pace in their production, either by increasing the workload of the current logging operations or by expanding.  The higher price will allow for this expansion and increased employment by Weyerhauser and others to increase their output. 

What’s the point of all of this?  Those who would annoint themselves “price setters” are on crack if they think they can achieve prices by decree that will not result in surpluses or shortages.  No one could possibly get it right.  The right price doesn’t even stay the same.  The current White House tyrant has proposed an Independent Payment Advisory Board for physician payments.  What arrogance.  There will be shortages.  They won’t get this right.  They can’t possibly get it right, when what’s “right” isn’t right from one day to the next.  The tyrant Jimmy Carter tried his hand at this with oil and created waiting lines at the gas pumps. 

There is only one way to get to the “right” price:  let the free market do it.  No bureaucrat or committee will get it right….ever.  I am anxious for health facilities other than ours to publish prices as a little competition will help me determine whether our prices posted at The Surgery Center of Oklahoma are “right” or not.  At 1/5 to 1/10 of the prices at our local hospitals who claim to make no profits, we are definitely closer to the “right” price than they are.  Austrian economists talk alot about “the next best alternative” when discussing human action.  While our prices are definitely lower than “the next best alternative” I would still like to see more price transparency.  This is the answer to the high price of medical care in this country.  Not some arrogant fool in D.C. armed with tables and sycophantic economists at his side.

G. Keith Smith, M.D.