Wednesday, July 15, 2009

All scarce goods get rationed somehow 

From my favorite textbook, but in the Canadian edition, thinking about how we deal with scarcity.
The idea of rationing according to need appeals instinctively to many people but will appeal less to anyone ... who has thought about how vague, subjective, arbitrary, relative, uncertain, and subject to abuse this criterion would become in any society that tried to employ it on a large scale. Another system is "first come, first served." Whenever you see people standing in line to purchase something, you are observing the operation of a rationing system that employs this criterion, usually as a supplement to the willingness to pay money. Another system for rationing scarce goods is a lottery. That strikes many of us as a fair way to ration a scarce good when none of those who want it seems to have a better claim than anyone else. Sometimes we ration using the criterion of equal shares for all. ... Animals interested in feeding on a carcass regularly employ the criterion "might makes right" as their way of rationing a scarce good, as do human beings on some occasions. Humans also employ the criterion of merit in some contexts: Scarce goods go to those who deserve them for whatever reason.

Each of these rationing systems has advantages. But each has some serious disadvantages when considered as a general system for allocating scarce goods. People would spend a great deal of time standing in line if most goods were rationed by the criterion of "first come, first served." While a lottery commends itself to us on fairness grounds when no one has any special claim to the scarce goods, allocating by chance pays no attention to diversity of desire and condition. Equal shares for all makes little sense when goods cannot easily be divided into equal shares or when shares cut up into equal parts would be too small to be of much value to any user. ...

Rationing by any of the criteria just mentioned also ignores the problem of supply. Because very few goods fall from heaven like manna, how much will be available is rarely independent of the system used to ration. Most goods are produced by people who want to be rewarded for their efforts. A system of rationing scarce goods that does not produce appropriate rewards for those whose decisions create the goods will eventually collapse. (pp. 35-36)
All scarce goods are rationed. The goal for those who oppose Obamacare is not to call it rationing. The goal is to show that the rationing system currently in use in the USA allocates health care more efficiently than the proposed system. A rule to use could be one of Pareto efficiency: How do I make one person healthier without making anyone else less healthy? That;s a very conservative rule, of course (the alternative rule is Kaldor-Hicks efficiency) but scratch most single-payer proponents and you'll find someone who's perfectly fine with changes that harm someone's health without any means of compensation. "You don't deserve the system you have because we decided someone else wasn't being served well enough. So you have to take less." Crowder points this out very well in the video, that as long as there's a private plan around somewhere, at whatever cost, some people with high income will be able to opt out of the Canadian plan.

The last paragraph points out, though, that the impact of the choice of rationing system on the distribution of current production is only part of the story. Gary Gross gets one thinking about a counterfactual: Had we developed a Canadian or British system after World War II, would the Mayo Clinic exist?
Would the Mayo Clinic have gotten built if we�d had a system whose key principles would�ve been cost controls and universal coverage? I can�t see how that would�ve happened with a system centered on price controls. Frankly, any system that puts a higher priority on price controls and universal coverage than on quality couldn�t attract the capital for building something like the Mayo Clinic.
Heyne and Palmer provide us with a useful way of thinking about this.
Consider the case of a post-secondary education. What does it cost? The answer is that "it" cannot have a cost. We must first distinguish the cost of obtaining a post-secondary education from the cost of providing one. As soon as we make that distinction, we should also notice something that has been implicit in everything we have said so far about costs ...: Costs are always costs to someone. The cost of obtaining an education usually means the cost to the student. But it could mean the cost to the student's parents, which is not hte same. Or, if that student's admission entailed the rejection of some other applicant, it could even mean the cost to Julian (who was refused admission) of Marsha's obtaining entrance to the first-year class. Those costs will all be different. A great deal of fruitless argument about the "true cost" of things stems from a failure to recognize that only actions have costs, and that actions can entail different costs for different people. (p. 68)
So if you ask me "what does the Mayo Clinic cost?" or "what does St. Cloud Hospital cost?" I have to first ask you "whose cost is it, and for what action?" If you say "cost to Mayo of providing a clinic," we can then provide an answer. But if we ask "cost to the government (or its public option health plan) of putting Jane Doe in Mayo for a heart transplant", it's entirely different. They have different goals. And the reasons Mayo or St. Cloud Hospital want to build world class facilities are not just due to cost minimization; for example, SCH has a board of directors that have religious and community goals. It builds necessarily a different institution than Mayo.

Government-run health care means government goals. It usurps the goals of those institutions by changing the rationing mechanism. The price system, in contrast, allows those institutions to pursue their own goals. For those who would like to keep the American health care system in its current form (without saying it's perfect, with the possibility of reform but not transformation), this supply argument is very powerful, and we need to hear it more. That point will make us less likely to borrow much from the Canadian or British systems.

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