A friend of mine (I know, again) made the following claim about medicine and free markets:
The fact is that, on average, Americans spend far more money on health care and don't have a commensurate benefit in any measure of health. In fact, Health Care is a great example of an industry that likely confounds the free market. Consider: For thousands of years, health care operated with free market principles. Yet, there was very little relationship between the amount of money spent on a treatment and its efficacy. This is because health care providers have something I like to call a "Confuse-opoly". The product they are selling requires a lot of specialized knowledge to detect quality. As a result, customers have a very hard time making rational market decisions. The best treatments fail to work many times, and patients often recover without any medical care, so it is super-hard to separate out the value of the care being offered. It is very hard to imagine an effective free-market in health care.
Obviously, what he is saying is quite ridiculous both empirically and theoretically: a person will know a difference between health care in China and in US. But to a certain degree, his point may have something to it, because the doctors practiced treatments like bloodletting, which were paid for by the customers, yet, as we know today, were actually harmful to the patients.
So, what's the best way to show how he is wrong?
Well, the first, easiest, and best thing to do for someone like this is to simply ask him to back up anything he says. Ask him to provide any sort of evidence that supports what he's saying. Or hell, even just explain what he's saying. As in, define his terms, etc.
Thomas Sowell says it quite simply:
"There are three questions I think would destroy most of the arguments on the Left:"
Well, the poor pay for the medical care in countries that nationalize it. That is, their tax systems aren't as progressive as the U.S. They also have a less heterogeneous population.
You can't income tax the rich to pay for all the poor people. If spending were slashed in other areas and there was a VAT and a federal real estate tax, then it would be possible (at least for a few years), but still totally undesirable.
It would actually be less poisonous if people just got refundable tax credits so they could spend on whatever they wanted to. The Federal regulations don't help, however.
The regulated system we currently have will have to get even worse than it is for the health care sector to be fully nationalized.
Well, I think he might bring bloodletting as an example. When a person felt sick, he went to a doctor. The doctor looked into the current medicine books (which were based on pseudo-scientific Aristotelean view of the world) and opened up the patient’s veins to let some blood out. Obviously, this did not help the patient, but he still paid for the service, because the doctor said it was the best treatment.
If a patient was richer, he might have ordered more blood-letting services, like leeches. Or maybe some smelling salts. Or, if he was in China, he might have ordered accupuncture or tiger-bones soup, which were also not helpful.
So, why were these patients paying for crap treatment? Well, the same reason why they pay for predicting future or why they go to casinos or to chiropractors. If I get a cold and someone puts some leeches on me, I will get better in about a week. And I will associate getting better with leeches. (Also, when an educated gentleman does something that he says will help, that makes me feel like I got a treatment, whether or not I am actually feeling better.) But if I do nothing, I will also get better in two weeks, but I won’t have the same memorable experience of being leeched to associate my getting better with.
This is why people have been paying (and still pay) for different pseudo-treatments that "work" because they associate natural self-healing result with some mumbo-jumbo ritual. So, how does free market improve quality in this service?
On the other hand, oftentimes, people get chemotherapy and radiation treatment already when they are sick with a very aggressive and dangerous disease. Oftentimes, they still die despite the treatment. Oftentimes, they hear of someone who went to a hospital because he had some "back pain" or a "heartburn", then got a bunch of tests and treatment and promptly die. As a result, you can hear sometimes from uneducated people things like "hospitals give you tumors".
This is what he might mean when he says that "patients make irrational market decisions".
I personally see two answers to the above argument:
1. Yes, some treatments hoodwink people into paying for them and thinking that they got better (as a result of the treatment). But some treatments do make them feel better because they treated the symptoms. So, just because people sometimes get confused about the quality of the service they are receiving, doesn’t mean that they are always confused.
2. He is making a value judgement. It’s similar to saying: "Some people buy cars that have velvet seats and nice A/C and eye-pleasing color. Fools! A good car is a good engine, breaks, transmission, etc. How is the free market controlling for car quality?" Well, who says velvet seats and nice A/C are not products? So, going back to the medicine, maybe the doctors who did leeching and accupuncture provided the patients with a sort of psychotherapy or a comfort therapy. They did not cure the disease (because they didn’t know how), but they provided them with a peace of mind. It is not different from someone today doing pain management as opposed to curing the actual cause of the disease.
3. What’s the alternative? Ivory-tower sages deciding what is "really" the best treatment and what is "really" the best hospital? But it’s these ivory-tower sages that have historically told their patients that bloodletting is the way to go.
@FlyingAxe
Take a look at the history of the AMA. That cartel, along with its pharmaceutical cousin, was founded because physicians of the day were better at killing their patients than treating them and people were opting for alternative treatments.
http://mises.org/daily/1547
FlyingAxe:If I get a cold and someone puts some leeches on me, I will get better in about a week. And I will associate getting better with leeches.
No, the logic was you were feeling ill because of bad blood in your system (that got there for one of a number of reasons), and that letting your blood would allow the bad blood to get out. You felt better because obviously letting blood drops your blood pressure, so you do get a feeling of relief, initially.
(Also, when an educated gentleman does something that he says will help, that makes me feel like I got a treatment, whether or not I am actually feeling better.)
Yes, there is a placebo effect as well.
This is why people have been paying (and still pay) for different pseudo-treatments that "work" because they associate natural self-healing result with some mumbo-jumbo ritual.
Not necessarily. I would be willing to bet more people are drawn to alternative remedies through anecdotal evidence and tales of miraculous cancer cures and the like than any sort of "yeah man, I drank plenty of fluids, got plenty of rest, and downed my colloidal silver on a strict regimen, and in a mere 3 weeks, my cold was gone!".
So, how does free market improve quality in this service?
This is where question #1 comes in.
On the other hand, oftentimes, people get chemotherapy and radiation treatment already when they are sick with a very aggressive and dangerous disease. Oftentimes, they still die despite the treatment.
And oftentimes, they die because of the treatment. (As a sidebar on this subject, see here. Feel free to bump the thread. It's time more discover it.)
Oftentimes, they hear of someone who went to a hospital because he had some "back pain" or a "heartburn", then got a bunch of tests and treatment and promptly die. As a result, you can hear sometimes from uneducated people things like "hospitals give you tumors".
I've never heard anyone say that, but I wouldn't argue that it's ridiculous or unwise to be cautious about medical professionals, facilities, and treatments. (Again, see the link above).
Again, question #1.
2. He is making a value judgement. It’s similar to saying: "Some people buy cars that have velvet seats and nice A/C and eye-pleasing color. Fools! A good car is a good engine, breaks, transmission, etc. How is the free market controlling for car quality?" Well, who says velvet seats and nice A/C are not products?
Friedman made a similar argument here.
What’s the alternative?
Bingo. Question #1. What exactly is he suggesting? Again I yield to Sowell:
"Nothing is easier than to prove that something human has imperfections. I'm amazed how many people devote themselves to that task."
But why didn’t the free market itself control for the physicans of the day being "better at killing their patients than treating them"?
I guess you might say that the people were not stupid and realized that the doctors of the day were bad, but the homeopaths and chiropractors were not any better?
Excellent. I read one of Sowell's books (Economic Fact and Fallacies) and a few of YouTube videos featuring him (from Liberty Pen), but I haven't come across those three questions. The first is the best.
MDay1985:Excellent. I read one of Sowell's books (Economic Fact and Fallacies) and a few of YouTube videos featuring him (from Liberty Pen), but I haven't come across those three questions. The first is the best.
Definitely check these out. Sowell conversations are gold.
Thomas Sowell: Uncommon Knowledge interviews
Thomas Sowell - CSPAN interview (1990)
Thomas Sowell: In The Right Direction
Thomas Sowell: Q&A
Thomas Sowell with Russ Roberts
Thomas Sowell on Prager (2008)
Williams is great too
Good Intentions with Walter Williams
we have two cadillac insurance plans and medicare (because the federal govt required her to purchase medicare when her kidneys got bad enough to go on dialysis) and we cannot seem to get any kind of quality of service because, ironically, we have insurance. Because they have separated the patient from the purse, we have no leverage when it comes to dealing with the medical professionals and so we are at their mercy. And this is all perfectly legal because the law prevents people from practicing medicine without government approval.
The fact is that, on average, Americans spend far more money on health care and don't have a commensurate benefit in any measure of health.
In fact, Health Care is a great example of an industry that likely confounds the free market.
Consider: For thousands of years, health care operated with free market principles. Yet, there was very little relationship between the amount of money spent on a treatment and its efficacy. This is because health care providers have something I like to call a "Confuse-opoly".
The product they are selling requires a lot of specialized knowledge to detect quality. As a result, customers have a very hard time making rational market decisions. The best treatments fail to work many times, and patients often recover without any medical care, so it is super-hard to separate out the value of the care being offered.
if consumers of health care have a hard time making rational market decisions then how do you figure a bureaucrat in washington who literally does not care if any individual patient lives or dies (its pretty hard to care about someone YOU DONT KNOW) is able to make these decisions? Magical thinking. Everything your friend said is a mixture of magical thinking and misinformation and I am livid now.
I wonder how they ever managed to convince people it was a good idea to make it illegal to heal people without a license.
I'll just leave this here:
In a 1992 study published by the Hoover Institution, entitled "Input and Output in Health Care," Friedman noted that 56 percent of all hospitals in America were privately owned and for-profit in 1910. After 60 years of subsidies for government-run hospitals, the number had fallen to about 10 percent. It took decades, but by the early 1990s government had taken over almost the entire hospital industry.
http://mises.org/daily/3586/Socialized-Healthcare-vs-The-Laws-of-Economics
Excuse me, what free market?
This is my friend's response (I wrote a combination of my few points above and some of the points raised in the responses):
To be sure, most government regulation and licensing is there to cartelize the industries, and make sure that incumbents continue to earn their share of the profits. And, for the most part, there is nothing wrong with the government saying that people can choose their own sources of goods and services and only intervene when fraud or mischief occurs. However, there are certain factors that increase the need for governement regulation. Those factors are: 1) Informational assymetry. 2) Degree of consequence for a wrong choice. 3) The vulnerability of the chooser. 4) The amount of time that the chooser will have to make his choice. When it comes to health care choices, all four of these factors are skewed in the direction of government regulation and price control being needed.
Needless to say, he doesn't explains or provide evidence...
That's just bare assertion. Why does it have to be the government? Why doesn't he start a non-profit giving people advice? And price controls!? Are you kidding me!? *sigh*
FlyingAxe is right about science part. Alternative treatments most of the time do not work. But he is wrong about economics and morality.
(english is not my native language, sorry for grammar.)