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Wednesday, December 16, 2009

Can We Afford to Avoid the Truth?


I planned to write on a different subject, but after reading an editorial in Saturday’s New York Times, I decided to continue the subject of my last column on medical costs. The editorial not only contains more nonsense from the “Newspaper of Record,” but also demonstrates how the mainstream print media actively participates in something akin to releasing a dispatch from Orwell’s “Ministry of Truth.”

In urging Congress to pass medical “reform,” the Times claims that this country can “afford” this multitrillion-dollar monstrosity because it ultimately will “cut costs,” lower the federal deficit, and make “affordable medical care available to all:

Over the next two decades, the pending bills would actually reduce deficits by a small amount and reforms in how medical care is delivered and paid for — begun now on a small scale — could significantly reduce future deficits.

My response is simple: How do we know this legislation will accomplish these things? From what I can tell, the Times says we know it because, well, the legislation declares it to be so. In other words, we are supposed to take Congress and the White House at their word because, after all, they allegedly have our best interests at heart, just as Congress and the White House claimed that the Iraq war would be done on the cheap (paid mostly through oil exports from Iraq, something that did not exactly work as planned).

However, the editorial claims that there are real-live portions of the bill that should result in the supposed federal budget savings:

Electronic medical records could eliminate redundant tests; standardized forms and automated claims processing could save hundreds of billions of dollars; “effectiveness” research would help doctors avoid costly treatments that don’t work; various pilot projects devised to foster better coordination of care and a shift away from fee-for-service toward fixed payments for a year’s worth of a patient’s care all show some promise.

In the next paragraph the editorialist admits:

These reforms are mostly untested. And the C.B.O. is properly cautious when it says that it does not see much if any savings for the government during the next decade, in part because of upfront costs and in part because no one knows what will work.

Let me get this straight. The Times is urging us in the name of “cost reduction” to accept a huge new government expense that will affect us all in ways we cannot imagine because the regime in power declares that it will cut costs. It must be so because, well, it must be so.

The mind boggles at this logic. According to those who want government-run medical care (actually, most of medical care today already is run by the government one way or another), profit-seeking medical-insurance, drug, and private-care firms deliberately are driving up their costs in order to become more profitable. If that were true it would be the first time that profitability in a market system was positively related to firms’ artificially raising their own costs.

Indeed, as economists such as Ludwig von Mises and Murray Rothbard clearly demonstrated, firms earn profits by cutting costs, being resourceful, and creating goods and services that consumers want to purchase. The notion that companies become profitable through high production costs turns economic logic on its head.

For example, we have seen prices fall in the production and sale of computers and personal electronics in some of the freest markets on the planet. However, if these firms had adopted a production plan akin to what the Times demands for medical care, we would be paying a fortune for inferior electronic goods and there would be a “cost crisis” in that industry.

Sheldon Richman recently wrote about the “perverse incentives” that government has created in modern medical care, and he said that free markets in health care would better serve people than what we have now. Granted, he is using real economic logic, something that the political classes and their media allies have rejected as politically unsuitable. The rest of us will pay dearly for that arrogance.


  • Dr. William Anderson is Professor of Economics at Frostburg State University. He holds a Ph.D in Economics from Auburn University. He is a member of the FEE Faculty Network.