21 February 2012

Correcting Markets

And so began the downward trend in America's free market in medicine. With fewer medical schools — and thus fewer doctors — wages can be kept higher than would exist in a market dominated by free enterprise and the unobstructed entry into practice. Consumers, who ordinarily determine the success of producers, have lost out as they face higher costs on top of being deemed too ignorant to choose an adequate doctor without the aid of the state. Rent seeking becomes ingrained in an industry that must devote increasing amounts of financial resources to appease public officials.

At first, the problem was presumably that doctors weren’t getting paid as much as they truly deserved because they had to compete with hacks.  Therefore, the government had to step in to ensure that doctors got paid the proper amount of money.  This led, unsurprisingly, to increasing health care costs, and so the government was asked to step in again to reduce the costs of medical care, this time in the form of subsidy.  And so the government obliged.

The lesson to be learned from this is that once the government interferes in the market, it must continue and increase its interference in the market so as to preserve equity.  What’s interesting, though, is that governmental interference, when all is said and done, is only intended to produce a minor tweak.  That is, the result of governmental interference is only supposed to lead to a result that is only slightly different from the market result.  What actually happens is that the government’s result is different by an order of magnitude, which leads to more and increasing “corrections.”

At some point, though, it has to be asked of whether the slight market modification is worth the massive cost, for government interference has a tendency to spiral out of control and become very costly.  As the costs of modifying the market increase while the benefits for doing so remain small, it becomes increasingly reasonable to ask whether it is better to accept the market’s perceived imperfections so as to save money and scarce resources, especially since the market is self-adjusting and will likely solve the problem more equitably anyway.

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