Recently I read a piece by Newt Gingrich about letting the market solve the healthcare problem. He said, “We must offer a positive alternative where healthcare becomes more accessible and of higher quality at lower cost. That is what normal markets produce. Think computers and cellphones, where government bureaucrats have zero involvement in design and pricing.” I’m no economist, but evidently I understand economics better than Newt and a lot of free-market advocates.
Price and Demand
The regular interaction of price and demand (demand should react inversely to price, and price should follow demand up and down) is invalid in the healthcare market. No matter how high prices go for healthcare, demand does not decrease. This is called “inelasticity of demand.” Why doesn’t demand react the way it’s supposed to? Because we aren’t dealing with “computers and cellphones”; we’re dealing with our health and our lives. People don’t say, “I’ll wait until next year for the the current chemo technology; the older it is, the cheaper it gets.” Or “I’m fine with my dialysis [landline]; I don’t think I need a kidney [cellphone] right now.” Or “Maybe my anatomy-savvy [computer-savvy] brother can reconnect my Achilles tendon [wireless router].” We are willing to pay hundreds of thousands of dollars to not only preserve our lives, but also to make our quality of life good. This invalidates the textbook relationship between price and demand. I think Newt knows this and is being disingenuous. If he doesn’t know it, no one should be listening to him anyway.
Slavery – the Ultimate in Economies of Scale
The Market has no conscience or soul. It does not shy away from evil, abuse, or exploitation. One of the most obvious cases for this is the concept of slavery. Why did our Founders guarantee the continuation, even the propagation of slavery in the Constitution? Because the South said they wouldn’t ratify it if slavery were not protected. Didn’t the North find this unacceptable? Well, the South made a very convincing point that Northern shippers (including the ship-building, merchant, seamen, and harbor industries, primarily from the North) would also be hurt if the agrarian economy of the South were stunted by prohibiting slavery. This was convincing enough to get our Founding generation to formally and officially condone a principle that the majority personally felt was immoral.
Slavery is ingenious, from the perspective of the market. Higher productivity with lower costs is the dream of every profit-oriented enterprise. This is what capitalists have been killing themselves to achieve since the beginning of time. And slavery is the perfect solution. The problem is that it’s despicable, immoral and inhuman. But the market doesn’t care. This is why I wince when people say, “Let the market decide.”
It’s June 1, 1941 – Where’s YOUR money?
Germany has conquered Czechoslovakia, Poland, Holland, Belgium, Norway, Vichy France, Yugoslavia, Greece, Hungary, and Romania. They have invaded Denmark, Luxembourg, the Netherlands and North Africa, and have begun bombing the UK. The USSR has conquered Finland, Lithuania, Latvia, and Estonia. Italy has invaded Egypt and British Solmaliland, and Japan, while maintaining a loose hold on China, is sweeping unhindered across the Pacific.
Where does the market go? Where are stock prices on British and Canadian investments? The market is betting on the Axis. From our hindsight, we can say what WE would have done, but the market doesn’t have a memory; it is a function of fear of or greed for the future. It does not know right from wrong or stand up for principles; it follows after money relentlessly and without deviation.
Importing the Autobahn
One of President Eisenhower’s great accomplishments was the interstate freeway system, an idea born from his observation of Hitler’s Autobahn. Could “the market” have produced this? I don’t think so. Not even Halliburton could have done this (and would we have wanted it? “[I]n April 2008, the Government Accountability Office issued a report after having looked into 95 major defense systems, concluding that the projects had surpassed their original budgets by a total of $295 billion and were delivered, on average almost two years late” (ABC News, March 4, 2009)?). How would the market have made revenue on this; toll booths? That kind of defeats the purpose of a FREEway, (meaning libre, not gratis) doesn’t it? What has been the ROI in the interstate freeway system? I think it has been worth my tax money, but it would have been hard to sell the business plan in 1952.
Competition from GM to Wal-Mart
Every market tends toward two to three major players with several smaller players exploiting niches. Think Delta, United, and American; or GM, Ford, and Toyota; Wal-Mart and Target; Nike and Adidas. Your argument will be that GM has been knocked off its pedestal by upstart Toyota. True, but will Wal-Mart make the same mistakes? Can anyone foresee Wal-Mart writing its own ruin by being too generous to its employees? Can we foresee Wal-Mart ignoring long-term trends (fuel efficiency) in favor of short-term gains (the SUV boom)? I can’t. And if someone comes along that can out-Wal-Mart Wal-Mart, doesn’t that seem extremely frightening?
This market tendency limits our affordable selection and ruins local economies. We can either get crappy jeans from Wal-Mart or Target, or get good ones from a specialty store that must pay more to compete, and therefore must charge more for its products. These businesses absorb local economies, then, when the local economy has collapsed because Wal-Mart has driven out all the local businesses, it closes its doors because there’s no longer volume to sustain the store.
The market is powerful, but it’s only good when we make it good. And that requires oversight, sometimes called regulation (gasp!).