There Never is a Shortage . . . ?
I once
served as Governor Quie's representative on the Minnesota Commission
on the Shortage of Nurses. In my very first appearance at a
Commission meeting, I stepped on a few toes by stating that there
was no shortage of nurses. "In fact," I said, with the annoying
finality of the academic researcher I was, "there never is a
shortage. There is only an inappropriate price."
This is
what some brilliant American economists had told me ever since I had
arrived in this country: The free market is an ingenious and
wondrous mechanism, working to clear every market, making supply
equal to demand through the function of an indispensable and just
price mechanism, fueled by competition.
Adam
Smith's invisible hand should be at work for the services of nurses
as well, I thought.
Maybe …
But the invisible hand only works where there is money. The French
Revolution was brought about because the price of bread was
relinquished to free market forces. The price of bread rose. Since
"eating cake" was not a feasible substitute for impoverished
Parisians, the outraged citizens of France stormed the Bastille —
and the glorious French kingdom fell.
Could something similar happen in
health? Could the health sector price itself out of reach?
Maybe…. Price would then serve as a
rationing device. The right to health care, if such a right exists,
would yield to the obligation of paying for it. As a result, many
would not be able to afford needed care. It remains to be seen if
that would topple the government.
The fact is that markets don't work
in health care. And it is not only because some people cannot
afford it. Here is why:
1.
Where there is demand for something for which there is no
supply, markets don't work.
The classic example is that of a
lighthouse. It cannot collect from those it serves, and would not
exist unless and until some entity were to finance the expense of
building it.
People living in a geographic area
that is under-served by health care are a bit like ships in need of
a lighthouse, aren't they?
2.
Where there is a supply of something for which there is no
demand, markets don't work.
The classic example here is that of
pollution. Pollution also directly affects our health and,
potentially, our survival as a species.
3.
Where there is a
monopoly, markets don't work.
The monopolist controls supply of a
good or a service and, hence, is free to set price, there being no
countervailing power. Examples abound in health: Patent protection
for drugs, the scarcity of certain medical sub-specialists, quotas
for students entering medical school. In a sense, every nearby
health care facility enjoys some monopoly power if no other facility
is available in an emergency.
4.
Where there is monopsony (one buyer and many sellers),
markets don't work.
A national health care system, where
a government agency has the sole right to buy drugs for its clients,
is an effective monopsony. In the U.S., the Veterans Administration
has the power to buy drugs for all veterans and can, thus, negotiate
effectively with pharmaceutical companies that have monopoly power.
Medicare does not yet have this right, but will likely receive it if
costs of drugs continue to rise at the same pace as in recent years.
