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Healthcare Is Not Immune to the Laws of Economics

By: Jonathan Newman

One of the great things about economics is that it is devoid of all mysticism. Every person, good, service, and dollar is treated equally — nothing is special or above the rules. There’s nothing about the supply of or demand for apples that is categorically different from that of oranges. Since every good or service demanded by anybody is scarce, economics treats apples, oranges, computers, haircuts, education, and health care in the same way.

There is not a special branch of economic theory that only applies to health care. Economists may focus on health issues, but they use the same basic set of tools as economists who focus on energy, or any other area for that matter.

Does Health Care get a Pass on the Laws of Economics?

This was the root of the disagreement between Ted Cruz and Bernie Sanders in this week’s CNN debate on Obamacare. Cruz (for all his faults) defended the view that health care is not special when it comes to economics. Sanders seemed to think that if he could just proclaim that health care is a right proudly enough, new doctors, hospitals, drugs, and medical equipment would fall from the sky, equally portioned out across the population of the United States.

At one point, Sanders asked Cruz, “Is every American entitled, and I underline that word, to health care as a right of being an American? Yes or no?” The implication was that the only thing holding Cruz back from agreeing with him was Cruz’s own misanthropy or cowardliness.

Cruz held his ground and espoused a view of rights that says “you have a right for government not to mess with you” and cited the first two amendments in the Bill of Rights as examples.

Notably, economic theory as a wertfrei science has nothing to say about rights. Economics cannot answer the question, “Who ought to have this doctor?” or “What should insurance companies charge various people?”

Voluntary Exchange and Giving Provides for the Best Result

What economics can say, however, is that voluntary exchange is the only way scarce goods find their highest valued use.

Sometimes the highest valued use of a good or service is charitable giving. According to the OECD, the United States is ranked #1 for voluntary private giving (11.1% of GDP), which far exceeds that of the next highest countries: the UK (5.0%) and the Netherlands (7.1%). One can only guess what these figures would be without a giant government crowding out effect.

Sanders’s emotional argument hinges on what happens to people who cannot afford health insurance. But his answer is one that can only yield worse outcomes for people who cannot afford health insurance.

Amy and Bob Want To Help Charlie

Consider an economy of three people: Amy, Bob, and Charlie. Amy has $100 to her name, Bob has $50, and Charlie only has $5. Amy and Bob don’t like how Charlie isn’t able to pay for some items they consider necessary to live a decent life. Amy would like to give $25 to help Charlie, and Bob would like to give $10. Charlie, of course, is happy to receive any help.

Now consider two ways of distributing the funds to help Charlie: one democratic method and one voluntary method. A democratic method would involve the three voting on a standardized distribution scheme, meaning one person may end up having to give more than they desire or less than they desire. Of course, any difference in the latter case can be made up with voluntary, private giving which is still legal. The three must also pay for the ballot box and the forms for income reporting, among other bureaucratic fees. Amy, who is put in charge of the process, is also paid to manage the whole ordeal.

In the end, the actual amount that ends up in Charlie’s hands is less than what Amy and Bob originally wanted Charlie to receive, and, adding insult to injury, someone may have been forced to give more than they wanted, meaning they are worse off. The best case scenario for this democratic method would involve a law that forces people to give exactly as much as they would give voluntarily. But even in this unlikely case (especially once expanding it to a population of 300+ million people), extra funds are still required to go through the voting and redistribution process.

In the voluntary giving method, Charlie directly receives exactly as much as each individual cares to give. Even if Amy decides to set up a charity organization that specializes in getting funds to Charlie, Bob can decide whether or not it is effective in helping Charlie and decide how to give his $10 accordingly.

What this means is that we do not need political “solutions” to any problem involving resource allocation. Nobody likes starvation, illiteracy, or untreated medical ailments. To the extent that we dislike these, we give out of our own abundance, and the especially generous can go even further.

The government can only disrupt this process by crowding out charitable giving and serving as an inefficient middleman. The best-case scenario for Sanders’s plan is one that is worse than what would exist without a single government intervention in health care.

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