Monday, June 8, 2009

Krugman's Healthcare Fantasies

The more I read Paul Krugman's column in the New York Times, the more I realize the guy is not an economist. Yes, I know he is the current winner of the Nobel Memorial Prize for Economic Science (given by the Swedish central bank), which supposedly is bestowed upon real-live economists, but this time the committee gave its prize to someone who cannot even define something as simple as a cost.

Krugman's greatest political passion -- after demanding that the government go trillions into debt to finance his wild spending schemes -- is socialist medical care. In his Friday, June 5, column, Krugman lets himself go (again). The reason that medical costs are rising is ... private insurance.

Now, I agree that third-party payments in general are the main reason medical costs have gone up at unprecedented rates over the last three decades. Yet, study after study tells us that the big engine in medical cost increases has been government payments and mandates, and especially beginning with the implementation of the Medicare program in 1965.

At one level, it makes sense. If we could buy "grocery insurance," no doubt grocery prices would go through the roof. Third-party payments remove the consumer from the service provider and create an atmosphere in which someone else is spending someone else's money, a sure recipe for making sure that no one minds the store.

When you add the fact that medical professionals are forever being sued by the tort lobby, which pretty much owns the Democratic Party, Krugman somehow manages to leave out that part. Instead, he elsewhere has given a pretty stupid reason for explaining increasing medical costs: new technology.

Now, in every other industry involving a scarce good, the addition of new capital lowers costs. (Think fiber optics and the Internet.) However, in Krugmanworld, capital forces up costs. This makes no sense, but illogic is part-and-parcel to Krugman's analysis.

However, according to Krugman, if the government takes over medical care and the limits costs as they do in Canada and elsewhere -- by making people stand in line or deny care altogether -- then Americans are going to be in for a real shock. Granted, the Paul Krugmans and others who are politically-connected won't have to worry about being at the back of the line, but others who have thought that a government-run system will provide unlimited care at zero cost, well they are going to learn some painful lessons.


Marco2006 said...

Excellent commentary. No doubt we need reform, but Krugman's solution reminds me of this.

"It was a brilliant cure," Hemingway wrote sarcastically in the days after his electroshock and before shooting himself, "but we lost the patient."

km lqz said...

Not saying Canadians have it great or that things are the best they can be. However I really don't think you are in a position to be taking a dig at our system. Yes there are things we can and should do better. But when it comes to most day to day things, we do a better job than the U.S. for more people.

Which brings me to another point, what is your definition of "standing in line". Because it seems to me that even in a free market system not everything is going to become same day. There will always be a wait for services, the issue is how long that wait is.