Posted 2:31 PM by Robert

... and we now adopt an entirely new method!

There is an interesting interchange going among Glenn Reynolds, Mickey Kaus and Derek Lowe regarding whether “cutting edge” medical services will always be expensive, and, if so, what that means for Medicare and public finances generally. Many insightful and inciteful (it’s got to be a word somewhere) things have been written, and it is not my purpose to suggest that any of them is on the wrong track.

I would like to address a slightly different question: Are medical services bound to occupy an ever-larger portion of the economy and, if so, what does that means for Medicare and public finances generally? There is often in public discourse a casual near-equation of the expense of medical service with the portion of economy the medical sector occupies – but this is not necessarily correct. Consider LASIK, the often nearly miraculous “cure” for myopia. As that procedure has become more affordable and more reliable (at least in competent hands), the number of people having the procedure has soared. While I have not seen hard statistics on LASIK, it seems likely that the amount of money being spent on it now is much larger than when it was an “experimental” or “advanced” procedure.

Simply put, medical services generally will likely occupy an ever-larger portion of the economy and, contrary to much conventional wisdom and political demagoguery, that is not necessarily a bad thing or something that will probably benefit Democrats in the long run. Medical services are likely to occupy an ever-larger portion of the economy for the simple reason that most people would rather have their health than almost anything else, and medicine can increasingly deliver exactly that in more and more cases. That is, medical services will probably occupy an ever-larger portion of the economy because this is efficient. At the age of 75, is it likely Bill Gates would take a one-time offer to surrender his entire fortune to have again the body of a 20 year old? Of course it is.

Will this tendency of medical services to occupy an increasing portion of the economy, at least if the provision of such services is left in private hands, lead to greater State involvement? Probably yes to some extent, but mostly through the government “guaranteeing” down scale medical coverage. That is, the government will probably get more involved, but at the cost of sacrificing the rather bizarre principle that everyone should have equal access to the best medicine.

Recently – especially during the 1992 Presidential campaign and periodically since then - much has made of the already large and growing portion of the American economy occupied by the medical sector. After that election Hillary Clinton’s ersatz “task force” swung into action to provide cover for the Clintons' preconceived plan that they had concealed from the public during the election. Comparisons were made with European countries, where it was argued that medical services were a smaller portion of the economy and more “efficiently” delivered. The Clinton Administration and Democrats generally stood for the principle that something had to be done to provide the nearly sacramental benefits of top quality medical services to everyone while stopping the medical services sector from devouring America’s economy! Britain’s Nation Health Service was noted as an efficient and politically popular provider. Republicans were tempted to capitulate. The tone was of the Hussites, who protested the Church’s refusal to provide wine with transubstantiated bread to any but the 15th Century Clergy! In the rhetoric of a later religion, the Democrats called for the taking of commanding heights!

But then people realized that what the Clintons and the Democrats were proposing would seriously restrict consumer choice and have other vulgar, commercial, highly non-sacramental effects. Is the revolution simply in abeyance? If anything, the facts seem to suggest otherwise. Contrary to the Democrats main 1992 counterargument, recent studiessuggest that private American health care providers are actually substantially more efficient that the British NHS – and it is only an indication of the economic loonyness of the 1990’s that such a study may come as a surprise. In retrospect, the entire Clintonian health care fiasco of the early 1990’s can be seen as a kind of political/economic “bubble” in which the perceived value of a particular course of action becomes detached from basic economic experience, often on the basis of some asserted “new paradigm” which has supposedly come to prevail, only to come down to earth with a terrifying jolt as that long ignored economic reality violently reasserts itself. In the 1994 election the Democrats came out like later investors in another 1990’s bubble who held their dotcom stocks too long. In a sense the Democrats found themselves in the position of a famous Molière character who reminds a phony doctor (Ira Magaziner?) that, contrary to what he had just said, the heart was on the left and the liver on the right side of the body, "Yes," is the reply, "that was formerly so; but nous avons changé tout cela"--this is the origin of that phrase--"and we now adopt an entirely new method!"

The relevant basic economic experience seems to include the observation that the most efficient regulatory structure for almost any good or service requires a high level of private production and consumer choice (usually along a “property rights” model) and a low (but not negligible) level of direct government provision of such goods or services. The exact mix of private and public involvement varies. The most efficient system is, of course, not necessarily politically stable. But several large scale historical observations can be made: First, whatever the politically stable mix is in the United States, it will involve quite a bit more private action, and will be quite a bit more oriented towards economic efficiency, than the average stable European or Canadian mix. The Democrat’s failure to pay serious attention to this factor based on their readings of opinion polls, focus groups, media hype (this one largely a case of the Democrats reading their own press releases) and the 1992 Presidential and a few Senate elections, should have been a serious sign that they were tippling wood alcohol. Second, the fact that a good or service is ”basic” or “important” or “essential” in the minds of many people will not itself be a particularly strong force leading to greater government involvement. To choose but one example, American governments have never owned the telephone system and the drift is, if anything, towards less active government involvement in that area. Third, the politically stable mix will not deliver the same – or even roughly the same – quality of goods and services to all people.

It may be instructive to compare the development of the market for medicine with that of the market for education – or, more generally, knowledge and information services. Until fairly recently, medicine was like the butcher in the old joke who sold lamb chops for a mere ten cents a pound, but only when he was out of stock. Medical knowledge and the value of medical services have now skyrocketed, but attitudes towards medicine have not kept up. Our attitudes are still emerging from a past in which the lack of a product or service of any consistent, substantial value put a cap on the portion of the economy medicine could claim and was also consistent with a deeply ingrained – and still extant - sense that medicine should be provided to everyone as an act of charity. Education, too, was historically a kind of “sacramental” activity and for the most part lacked practical value for most people. Indeed, “instructing the ignorant” and “caring for the sick” are both traditional religious “Acts of Mercy” which help to “strengthen the soul.”

Today it can fairly be said that education, knowledge and information are the most basic goods. Cries for the State to guarantee “universal education” have long been with us – and the State is certainly involved in providing such things. But the State does not guaranty to everyone equal access to the best education, knowledge and information. Indeed, the trends seem to be going the other way. Public elementary and secondary schools are often of low quality – even once great State universities such as Berkeley have settled into distinct second-string positions in comparison to the best private universities. “Political correctness” threatens to degrade public education further in favor of other social priorities. Although private schools are by no means excepted from the ravages of “political correctness,” the effects seem to be less pervasive. There is constant political noise about that, but in the end the society sacrifices public educational quality for all kinds of other priorities – while the really good education is provided either by private schools or the de facto privatized public schools of exclusive neighborhoods or those operating under “charters.” “Vouchers” would likely increase the overall average quality of education while further increasing the gap between the best and worst providers in the market.

The “sacramental” aspect of education is still with us and is still being served, but the arguments for truly “equal education” have all but disappeared in favor of an understanding that much of education is just like any other service. The rich can simply buy more. Few argue today that the State has an obligation to provide unlimited knowledge and information services to everyone, or that the State has on obligation to take drastic steps to stop the knowledge and information services sector of the economy from expanding as a fraction of the nation’s overall economic output. Indeed, most people would be charmed to learn that the dissemination of education, knowledge and information occupied a growing slice of the overall economic effort. But with respect to medical services, both of these arguments were advanced and carried significant weight as recently as the 1992 Presidential election. Why?

I believe that the periodically revived sense that the State has an obligation to guaranty equal access to the best medicine is a remnant of medicine’s earlier history as a “sacramental” or “charitable” arena from which market forces were best excluded and in which doctors were graded on their comforting bedside manner. The future of the medical services market probably will resemble the current market for education, knowledge and information. Specifically, the society will eventually surrender the odd notion that everyone is entitled to the best healthcare, just the way the society allows a growing portion of the market for education, knowledge and information to be rationed by market forces. That will not exclude the State from a substantial role in the medical services market. But the threat to the public fisc posed by the constant creation of ever more expensive “cutting edge” medical technologies will be no more immediate that the threat posed by a possible public demand that public schools be as good as Andover or Yale.