Medicine is Scarce. Deal With It!

aoc medicare

Representative Alexandria Ocasio-Cortez thinks that government can make healthcare services appear with the flick of a pen.

In a fit of genius, economist Thomas Sowell (1994) once said, “The first lesson of economics is scarcity: There is never enough of anything to satisfy all those who want it. The first lesson of politics is to disregard the first lesson of economics.”

Perhaps it should be called the Politician’s Economic Fallacy, but in this widely shared clip, Representative Alexandria Ocasio-Cortez (AOC) demonstrates just how true this is, especially with regards to industries that concern the entire population such as medical care.

The Nature of Demand for Medical Care

To be fair, there is an element of truth to what AOC says.  Every person values their own life more than they value most of the goods and services that they exchange on a daily basis.  A new computer won’t do you any good if you aren’t alive to use it, and so if it came down to choosing whether to spend your money on a new computer, or to spend it on a surgery that will prevent an otherwise fatal ailment, all but the insane would choose to pay for the surgery.

But this is hardly a meaningful observation from an economic perspective.  All this says is that under circumstances where a person’s life is at stake, they have a greater demand for life-saving medical treatment.  Whether or not you want to call a person’s life a commodity doesn’t change the fact that medical services are a scarce resource.

Scarcity Applies to Medical Care

The real cost of any medical treatment is the amount of resources needed to provide it and what other things those resources could have been used to do.  There are the chemical compounds that are used in the manufacture of medication, the knowledge and expertise of the doctors and nurses who administer it, the administrative work required to keep a hospital functioning, and so on and so forth.

Those same chemical compounds could have been used to manufacture a different medication or something else not medically related.  The auto parts used to manufacture an ambulance could have been used to build a firetruck, police cruiser, or a pickup truck.  A doctor could have chosen to go to school to be an engineer or a lawyer.  Therefore, regardless of how urgent it may be to have specific amounts of specific medical treatments at specific locations, it does not change the fact that medical services are governed by the same laws of supply and demand that govern any other industry.

The “Need” for Medical Care

In addition, matters of life and death in the healthcare industry are not always so cut and dry.  With many health conditions, there may be treatments available that could be “life-saving” but without any guarantee that they will be life-saving (dangerous surgeries, cancer treatments, etc.).  Once expended, those resources are gone, but the patient may lose his life anyways.  Beyond that, the same treatment that may extend the life of an elderly person by two years, could potentially extend the life of a young person by sixty years.

What then is the best way to distribute these scarce resources that have multiple uses?

Higher Prices Signal Higher Demand and Encourage Innovation

The answer is that if individuals are allowed to seek their own medical care based on what they are willing to pay for it, even lifesaving medical care will become increasingly affordable.  To borrow AOC’s own example, the cellphone was once as thick as a brick, with low battery life, and costing nearly $4,000.  Thanks to supply and demand and competition among providers, more than 96% of Americans now own cellphones, some 81% of which are smartphones.  The same is true with the costs of elective healthcare procedures like lasik eye surgery and cosmetic surgery.

As author Julian Adorney (2017) has stated, “Putting patients in charge of their own healthcare encourages them to be price-conscious. When this happens, service providers have an incentive to compete on price, and competition produces downward price pressure.”  In other words, when you pay for your healthcare as opposed to government or some insurance company, you decide what costs and risks are worthwhile.  This ensures that scarce medical resources flow to their most valued uses overall. Meanwhile, prices seek equilibrium where the amount of a given healthcare service demanded matches the amount available.

Government Intervention Prevents Price Signals from Working

When government steps in and seeks to cover costs for all its citizens with stolen tax money, the costs and risks associated with healthcare cease to matter to consumers, and demand for healthcare services essentially becomes infinite. But this does not change the fact that there is still a limited supply of resources, and those resources have multiple uses.  Now government must decide who gets to have what healthcare services and when, and government can never do this as efficiently as consumers.

This is why universal healthcare systems like Britain’s National Healthcare Service (NHS) are characterized by long wait times and poor service.  Even if it is true that overall costs for particular treatments are cheaper in such a system, what good does that do if you can’t receive those treatments before it’s too late?

Politicians Know That Their Empty Promises Lead to Votes

Of course, as Thomas Sowell’s quote implies, the fact of the matter is that politicians like AOC don’t make a fuss about life saving medical care out of any genuine concern for the people.  They do it to secure votes and further their own interests.

No matter how many times the government fails to deliver on its promises, and no matter how much an honest analysis shows that it can’t even in principle do so, people continue to trade in their freedom for these empty promises. Never having to concern oneself with healthcare needs again sounds good to voters but never actually occurs following elections.

When will we learn?

And that is My 2 Cents. Take it for what it’s worth.

This article is available in video format here:

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References

Adorney, J. (2017, May 30). To lower healthcare costs, try freedom. Retrieved from https://mises.org/wire/lower-health-care-costs-try-freedom.

Demographics of mobile device ownership and adoption in the United States. (2019, June 12). Retrieved from https://www.pewresearch.org/internet/fact-sheet/mobile/.

Pipes, S. (2019, April 2). Britain’s Version Of ‘Medicare For All’ Is Struggling With Long Waits For Care. Retrieved from https://www.forbes.com/sites/sallypipes/2019/04/01/britains-version-of-medicare-for-all-is-collapsing/.

Sowell, T. (1994). Is reality optional?: And other essays. Stanford, CA: Hoover Press.

The first mobile phone call was placed 40 years ago today. (2014, December 20). Retrieved from https://www.foxnews.com/tech/the-first-mobile-phone-call-was-placed-40-years-ago-today.

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