Rationing and Health Care

Several people have posted responses to my blog on the Obama proposal for a Soviet-style health care rationing plan. As usual, the Democrats provide evidence that is comprised of assertions by Democratic Party print sources, such as the St. Petersburg Times, as "proof". In parroting the propaganda, they insult anyone who questions it. They claim that those who question it lack "intelligence"; assert that they have "gone nuts"; or say that they "lie". That is the chief line of argument that "progressives" of both parties have followed since the days of Theodore Roosevelt and the Republican Progressive movement.

The "progressives" advocate incompetence in the name of emergency. In the emergency phase they are certain of the accuracy of their own ideas, much as investors in Cisco Systems or Drugstore.com were certain of theirs. They become frantic and insulting when anyone disagrees. They take the printed word as gospel, and claim that they are "enlightened".

Frequently, their programs pass. Sometimes, the incompetence of their ideas does not become evident for several decades. The New York City subways were "nationalized" in the 1930s but the most extreme deterioration occurred in the 1960s; Social Security was established and has functioned for seven decades; and so on. Social Security has transferred wealth from later to earlier generations. In the end, to rephrase Keynes, we are all impoverished, as 15% annual contributions have been sucked out of productive workers' paychecks to subsidize earlier generations. More often, though, their ideas flop almost immediately. OSHA, the occupational safety and health law, is an example. In the failure phase, government control has become entrenched and thousands of failed programs remain in place even though they harm the economy. In the 19th century the real wage grew two percent per year. Following nine decades of "progressive" reform, real wages have grown two percent over the last 35 years.

The argument that rationing already occurs is half true. There are degrees in most economic phenomena. Insurance companies do ration. But if I dislike the decisions of one insurance company, I can move to another. Market competition places some restrictions on insurance companies' abilities to curtail new ideas. There is considerable waste in the current system because many physicians over-treat and insurance companies aren't as good at rationing as the federal government would be. That waste would be eliminated by a national health insurance plan.

However, there is a separate market problem that "progressives" have never grasped. A centralized rationing agency would be conservative and unable to overcome the biases of the professional cadre. As a result, innovation would be much slower than in the current system and may be largely inhibited.

Although the American system is more expensive than other countries', it is also true that the majority of medical innovation occurs in the United States. Much as the socialist economy stalled economic development wherever it has been adopted, giving greater control of rationing decisions to a centralized economic agency would slow innovation world wide.

The concept of centralized health care reform is outdated. If anything, states should be in charge of reform, if reform is necessary. Moreover, the advocates of reform need to clarify how dynamic market innovation can occur under any kind of reform proposal.

So far, I have not heard any advocate of health care reform describe how innovation will occur under a centralized system. In fact, to the extent that the American economy has become regulated and centralized, innovation in the health care field has been considerably slowed. Several years ago Fortune ran an article about how university research in the cancer field has become dominated by entrenched academic interests that have inhibited innovation. The government agencies that fund research have been captured by the entrenched interests. Likewise, non-traditional cures have been illegalized.

Countries with national health insurance plans have not been innovative in the health care field. It is primarily the United States, which still has some elements of free markets, that has innovated. Moreover, the most important innovations in health care, aspirin, penicillin and the polio vaccine, were created before government intervention and regulation was escalated in the 1960s. That was also when health costs began to rise.

Thus, while Democrats can call those who question or think for themselves "stupid" or "nuts" they may step back and ask themselves how well the government programs, such as Social Security, that they have already adopted, have functioned. Given the decline in Social Security Benefits that has occurred, and that worse will follow, one would think that the Democrats might re-consider the lynch mob approach to reform that they have overseen since the 1930s. But they will not re-consider, much as a zealot will not reconsider his faith.