Saturday, April 7, 2018

Healthcare Isn't Free Market. But What Does That Mean?

Oddly, the fact that today's healthcare isn't part of the free market, is still intellectual fodder in opposing ideological camps. Indeed, some of these arguments quickly jump from correlation to causation judgments. One apt example: Healthcare practitioners and policy makers who argue against government interference in healthcare as a "slippery slope" to socialism. Hence one might reasonably ask after a long slide (decades) of government meddling, "Are we there yet?" Meanwhile, others continue belittling free trade as a general concept, since healthcare costs continue to increase relative to other sectors. Hmm, great, let's just destroy free markets since healthcare doesn't work...

Reasoning such as this is unhelpful, for it only adds to confusion and divisiveness. Likewise, Scott Sumner recently pointed out a similar process of faulty logic re healthcare at Econlog. Despite the hope Republicans might remove regulations standing in the way of economic dynamism, removing cost controls on Medicare is just a deregulatory pretense for crony capitalism.

Also part of the problem: When well meaning would-be reformers address healthcare, they sometimes miss that similar policy attempts were already tried decades earlier, only to end up unsuccessful and - worse - years of concerted effort mostly forgotten. In a post last year I highlighted some of these efforts with historical examples from "The Social Transformation of American Medicine". Paradoxically, while many healthcare practitioners tend to publicly "favor" free markets, that doesn't mean that as a group they necessarily agree with free market efficiencies such as Adam Smith advocated, centuries earlier. How to respond to such a reality? The fact this circumstance has long been the case, is just one reason why I advocate the use of knowledge for long term prosperity, by completely different sets of means.

A major part of the confusion re knowledge use for time based product, is that when aggregate time value isn't possible as a formal economic consideration (alongside skill), no one can coordinate the use of time based skill or knowledge on truly competitive terms. Today's public and private designations for healthcare don't get to this problem, since they both compensate skills arbitrage in ways which of necessity rely on the revenue of wealth that already exists. We see this reality for private healthcare supply, as increasing supply for the traditional supply structure would unfortunately mean reducing individual income. The asymmetric compensation of today's institutions can redistribute wealth, but this form of monetary compensation can't build wealth for time product via direct means. When valuable time based product is sought on indirect terms, there will always be ideological struggle as to the outcome.

By treating time value as wealth potential, time based activities including healthcare, could function as free markets. Nevertheless, I don't advocate for a complete replacement of traditional healthcare with such activities, because there are good reasons for governments and special interests to compensate the skills arbitrage of extensive human capital investment, wherever it is possible to do so. I'm simply suggesting that skills compensation associated with costly human capital investment and its associated redistribution of wealth, are no longer enough, for long term knowledge use and economic prosperity.

We need a better understanding about all of these dynamics. For that matter, we could already be paying the price for too much knowledge use protectionism, given recent growing protectionism by nations against global markets which have operated freely. After all, it's easy to dismiss a post title such as "The American Healthcare System Shows Why We Can't Trust Free Market Ideologues", until we stop to consider the fact that Trump and friends have their own questionable allegiances in this regard.

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