Tuesday, March 31, 2009

Socialized Medicine and Wine

Here is a neat article on something I've been thinking about lately. Very old, famous, scarce and/or reputed wines can fetch staggering prices per bottle, in the 10's of thousands. Many of these wines attain their lofty prices by careful storage and studious refusal of their present owners to consume them over a period of many decades.

Prices, in the wine market, serve the function of rationing. By virtue of the higher future prices expected on certain wines, potential consumers and investors bid up the present price and squeeze out the more causal consumers who cannot or will not spend the requisite amount of money on such high-priced wines. The net result is that those who desire to consume such old or scarce wines are able to - with a hefty price tag.

Let us choose some other means of rationing wine consumption. We could issue coupons, or allocate certain bottles to be released for consumption at some future time, or we could establish first-come-first-serve queues or any of the myriad non-price rationing methods which people have invented. What all of these non-price rationing methods share in common is that the best wines will be consumed first because future gains cannot be realized by resale. This means that very old, famous, scarce or reputed wines simply would not exist or would only exist until the next opportunity their lucky owners had to pull the cork and enjoy them.

The missing element in non-price rationing is exchange, in particular, voluntary exchange. If we took every bottle of wine in existence today and assigned each of them to people via random lottery, many people would be holding what is to them nothing more than an obnoxious paperweight but to others is worth more than its weight in gold. As the old phrase goes, "One man's trash is another man's treasure." Those who desire to hold the very valuable bottles of wine will be willing to part with a great deal of their property in order to get hold of them. Those who are holding the valuable bottles of wine will, naturally, hold onto them waiting for the best offer they can get. By virtue of voluntary exchange, the random distribution of wine bottles is "corrected" until those who value the wine the most are holding it and those holding the most valuable wines are rewarded the most.

Now, a common objection to price-rationing is that the wealthy are more able to get what they desire than are the poor. This is undeniably true (why else do people desire to become wealthy?) On the face of it, this seems to be an injustice. Why should one man, by virtue of luck or inheritance, be rewarded with anything he desires, while another man, no matter how hard he works, is barely able to keep himself and his family alive?

I think there are several facts that have to be accounted for, in order to responsibly answer this objection:

- Justice pertains to human actions, not natural events. It is not "unjust" that the congenitally blind are born without one of the most useful senses. It is unfair, it is inequitable, but it is not unjust.

- In a free market, no human plans or controls who is wealthy. No one - not even Bill Gates himself - planned for Bill Gates to become the wealthiest man alive (for the time that he was). This means that fabulous wealth is more like a natural event than an act of human will.

- The alternatives can be expected to have worse outcomes by virtue of the fact that none of them alter human nature. The many solutions to the problem of economic inequality propose some system or other that still suffers from the limitation of existing within the framework of human nature. What's worse, the inequalities of planned or centrally-controlled economic systems are not the result of natural events but are - by design - inequitable by act of human will. In this sense, the inequities in centrally planned economies are unjust.

- In a free market, class mobility is the rule, not the exception. The wealthy investor who loses everything in a bad business bet becomes a pauper. The small businessman who finds just the right recipe can see his small-town company transformed into an international, multi-billion dollar corporate juggernaut. Thomas Sowell notes in his excellent book Basic Economics that the Old World conception of those who are born wealthy and die wealthy (the "upper class") and those who are born poor and die poor are tiny minorities (he gives the percentages in the book, I'm just going from memory). Most people start out below average wealth when they are young and attain above average wealth as they age. Static wealth inequalities simply don't exist.

What does this all have to do with socialized medicine? Well, the debate over how and to what extent we should socialize our health care is simply a debate over the extent to which health care products and services should be rationed by price or non-price means. I think there are two things the proponents of non-price rationing of health-care need to confront:

- Rationing still occurs because health products and services are still scarce resources.

- Inequalities in the system persist and these inequalities are unjust since they are the result of human choice, not the result of natural events.

- In particular, the wealthy still get what they want more than do the poor. What changes is the means by which the wealthy go about getting what they want: influential contacts, special favors and bribes.

So, to the extent we exchange price rationing in favor of non-price rationing, we are not changing the fact of inequality, we are not changing the fact that the wealthy get what they want more than do the poor, and we are changing the inequities in the system from impartial, natural events to partial, human choices - that is, we are introducing injustice into the system.

Just like fine wines would not exist in a world without exchange and price-rationing, so high quality medical products and services will also be devastated by non-price rationing. While only the very wealthy can afford the $10,000 bottles of wine, those of us with more modest means can still pay $100 to get that wine bottle the less ambitious wine aficionado (or casual wine-drinker who spends all his money on other things) would love to drink but can't consume, leaving the bottle for us as a reward for our productivity and foregone consumption of other things.

Health-care, like wine, varies significantly in type and quality. Some people prefer this or that doctor, some people prefer herbal methods and naturopathy while others prefer standard pharmacological medicine. The most highly reputed brain surgeons command the highest fees. It is the very fact of price-rationing and exchange that makes this possible. The more violence we do to voluntary exchange and price competition in the health-care industry, the more we detriment health-care itself.

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