The Obama administration and many in Congress apparently believe that the U.S. health care system is “Pareto-inefficient.” That’s what economists call the most basic criterion for identifying resource waste, a situation where you can make some people better off without making anyone else worse off.
Health care reform proponents argue that measures like streamlining medical records and somehow making providers like those in McAllen, Texas, as efficient as their colleagues upriver in El Paso, we can provide better care to the 42 million uninsured Americans without anyone having to make any sacrifice.
They may be right. We spend a great deal of money on health care compared with other wealthy industrialized countries for outcomes that, on balance, are little if any better than theirs. And, considering our health care system as a whole, we spend much more on administration, largely in the private sector.
So money already spent, if only used more wisely, may be sufficient to provide better services to more people. From an economic point of view, we may meet the inefficiency standard that Italian economist Vilfredo Pareto defined a century ago.
From the point of view of applied political economy, however, it may be a mistake to rely too heavily on this argument.
In the real world, it is hard to make any substantive change without someone’s ox getting gored. Promising people that won’t happen in this case doesn’t help the public policy process in the long run.
We have had far too much promising of something for nothing in recent decades. We told ourselves we could cut taxes without cutting spending. We could have easier credit and lower interest rates without overextending ourselves. We could run federal deficits and finance them by borrowing abroad without end. We could create a major entitlement to pay for most retirees’ drugs without raising taxes. We could increase the money supply faster than the underlying economic growth year after year with no ill effects.
All of these seductive promises are turning out to be lies, and we don’t need yet another lie. If one-seventh of the population is going to get more health care than before, and if many in the other six-sevenths are to be freed of existing restrictions like those limiting coverage for pre-existing conditions, then someone, somewhere is going to have to pay something.
I don’t argue with the fact that reform is necessary, and I agree with the basic direction proposed legislation seems to be going. What I do argue is that its proponents need to be more honest with the American people. During presidential campaigns, one hears much soaring rhetoric about “shared sacrifice.” But, once elected, few public officials seem willing to risk asking for any substantive sacrifice by the citizenry as a whole.
Opponents of proposed legislation are no more honest or courageous. Republican leaders in Congress argue that their opponents’ proposals will result in rationing of health care.
I have news for them: The human condition is such that resources are scarce. All goods and services are rationed. Only the rationing mechanism varies. For many goods, including such necessities as food and shelter, we largely let private markets ration through prices. This uses resources efficiently, even if many of us think the outcomes are sometimes unjust.
Other goods, including health care and education, we ration with a mix of private market and government mechanisms. The current mix of private and public measures to allocate resources to health care is both highly inefficient and highly unjust. We need change, but we should not lie to ourselves about the effects change will have.
© 2009 Edward Lotterman
Chanarambie Consulting, Inc.