Opinion: Medicare needs market magic

The only real solution for health care is to separate it entirely from government mismanagement

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As CBC national news viewers recently learned, there is a severe shortage of doctors on Fogo Island, off the east coast of Newfoundland and Labrador. In fact, for the first time in 200 years, it seems, not a single solitary doctor is serving the approximately 2,200 people who live on the island, and transport, mainly by ferry to the mainland, is sporadic and not always reliable, especially in winter. At best, it’s a six-hour drive to the nearest health facility.

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Commentators such as the CBC blame everything but the kitchen sink: there are few amenities on the island; it’s too small; the cod fishery collapsed; there are other regions in Canada that are much more attractive, and so on.

Tricks and nonsense. The real underlying cause of the situation is government mismanagement. Namely, thanks to socialized medicine, doctors are paid about the same for their efforts, no matter where they are. (For general practice in Newfoundland, their salaries range from $125,211 to $150,252, amounts that are modified by a complicated formula).

How is this reckless policy responsible for a tragedy in the making?

Let’s take an analogy. How is it that neither Fogo Island nor the whole of Newfoundland suffers from a similar shortage of plumbers, carpenters, accountants, musicians, mechanics, electricians, chefs, farmers, or countless other professions and trades? The answer is a flexible pricing system and the “magic of the market”, in the happy phraseology of Ronald Reagan.

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Suppose the shortage of supply spills over to plumbers, for example, with too few in this part of the country and, at least relatively, too many elsewhere. Market forces would kick in. The wages of plumbers would increase in Fogo and therefore decrease, relatively, everywhere else. Adam Smith’s “invisible hand” is said to urge the people who take care of our plumbing needs to “go east, young man” and head for Fogo Island.

But this market force is not working for doctors since they cannot be paid enough extra to locate where they are needed most. It is true that some provinces, including Newfoundland and Labrador, offer what amounts to an isolation allowance for physicians. But salary formulas don’t necessarily do the job. Sometimes to get where you want to go you have to pay what you have to pay.

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The price system works as described throughout the warp and weft of the economy. Suppose that the ideal ratio between peas and carrots, from the point of view of consumers, is 50-50. But right now, for some mysterious reason, the economy is suffering from a misallocation of resources from these two commodities: we now have 90% peas and only 10% carrots. What’s going to happen ? If you’ve studied Econ 101, you know that the price of peas will go down and the price of carrots will go up. Profits will be sucked from the peas and transferred to the carrots. Farmers will move from one to the other. Any deviation from equal parts will immediately cause such reactions. This 90% to 10% split, if it ever happened, would be due to some kind of government interference in free enterprise.

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This is why the distribution of resources between shoes and cars, between shirts and computers, between all goods and services under laissez-faire capitalism, never strays too far from the optimum.

How, then, could the shortage of doctors be solved? One way is for the authorities to adopt what is called “market socialism”: trying to imitate what the market would have done. They could keep raising doctors’ salaries in places like Fogo and lowering them elsewhere, to at least a rough approximation of their the ideal geographic dispersion has been achieved. (Note the word “their”: the end result would not necessarily be what consumers want).

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If you think it’s a good idea, you channel the work of 20th century socialist economists Oskar Lange, Abba Lerner and Fredrick Taylor. You will appreciate the economies of Cuba, China, Venezuela and North Korea in this century and, historically, the new economic plan of Lenin in the USSR, Dubcek in Czechoslovakia and Tito in Yugoslavia.

A government that runs the economy while trying to ape the free market is like trying to change the course of a big ship in thick fog without radar: it takes a long, long time, and too often, people at the helm take the wrong direction. . And before they can fix it, yet other changes call for a different policy. Friedrich Hayek showed that information flows are stupefied and Ludwig von Mises that the whole system is irrational. The proof of this pudding is that with the best will, presumably, even narrow bureaucratic leadership of the system has so far proved a miserable failure for Fogo Island.

The only real solution for health care or anything else that is important in supply is to separate it entirely from government mismanagement.

Walter Block teaches economics at Loyola University in New Orleans.



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