From: jfh@reef.cis.ufl.edu (James F. Hranicky)
Newsgroups: talk.politics.theory
Subject: market stuff
Date: 15 Sep 92 01:34:24 GMT
Organization: Univ. of Florida CIS Dept.

In talk.politics.theory, Dennis G. Shea writes:

>No, Gary.  A free market does not operate well if there are any external
>costs or benefits.  Coase argues that if you can assign property rights
>to all externalities (both costs AND benefits) then the free market can
>perform its usual magic.  Assigning property rights, however, is a
>nontrivial societal problem.
>
>Monopoly occurs naturally without government for a number of reason
>Large economies of scale in proportion to the market can, in fact, create
>a monopoly without government intervention. 

Examples?

>In addition, as Arrow pointed
>out 3 decades ago, under conditions of uncertainty consumers may establish
>long-term relationships with physicians, which, in effect, gives the
>physician monopoly power.  In fact, the primary explanation for monopoly
>power in medical care these days, is consumer uncertainty about physician
>quality and the costs of search.  Several days ago I posted a paragraph
[deleted]

I admittedly am not an expert on health care, but I would not be suprised
if "monopoly" power in the health care system were due to government
intervention (licenses, etc.) I've heard (but have admittedly not
verified) that there are legal limits to the number of health care facilites
allowed in a given area. This would certainly lead to "monopoly" power.


>O.K., I 'll give you a more specific example.  Immunizations provide benefits
>not only to the person immunized, but also to those who have their risk of
>catching the disease lowered since one fewer carrier now exists.  As a
>result of this external benefit, which will not be accounted for in the
>decisions made by individuals, immunizations will be under-provided by the
>market.

Your fatal error here is assuming that the population is one big
lumbering unthinking "thing". If there is a breakout of some immunizable
disease, people will get vaccinated when they believe they are at risk.

>Another example:  Use of antibiotics encourages the development of resistant
>organisms.  The cost of this development, however, accrues to all members
>of society, not just to the person who might be thinking of using the
>antibiotics.  What is economically rational for an individual ignores the
>cost to society of the development of resistant organisms.  As such, if the
>free market were allowed to operate, it would result in over-use of
>antibiotics.

Cost to society?? In a free society you get what you decide to pay
for. Society is not a thing or a unit, but a collection of individuals,
each of whom decides which products to buy according to their mariginal
utility. So many people think they can legislate out market imperfections
arising from lack of human omniscience, without realizing they are just
as imperfect.

>>  BTW, why is the health care market different from the car market or the
>>  food market?
>
>Few other markets show the combination of externalities, uncertainty, and
>asymmetric knowledge that is found in health care.  These three are
>pervasive in this markets.  Proving that free markets work best under
>multiple market failures is not easy.  A vast literature on the
>"Theory of the Second-Best" shows this.

There is vast literature on many things. Free market literature is logically
consistent. Read some.

>>ds> The answer depends on whether or not a functioning free market for health
>>    care can work. IMO, the American free market gave it an admirable try and
>>    is now failing.
>>
>>  The free market never got a chance.
>
>In your opinion?

No, in reality. However, when economies have been freest, they have been
most productive. (e.g. The US and Britain while on the gold standard.)
Before Medicare and Medicaid were introduced, we didn't have this problem,
however.




>>ds> Rising levels of uninsurance and and underinsurance coupled with rising
>>    costs indicate the failing of the market.
>>
>>  And the government is going to contain these costs? Haha.
>>
>>  I'd be more afraid of a national health care system if the private insurers
>>  were in *favor* of it. Can you imagine, a guaranteed return on their dis-
>>  bursements, courtesy Dennis Shea, American taxpayer. Why, I'm surprised they
>>  haven't realized that there's plenty of room for them at the public trough.
>
>In the last 8 years, Medicare has constrained the costs of hospital inflation
>much better than private insurers.  Maybe if you weren't blinded by your
>ideology, you could examine the evidence more objectively


Well, I'm afraid you are blinded by your ideology. Before 1965 (when
Medicare and Medicaid were introduced) I believe health care costs were
about 4% GNP. Since then they have continued to skyrocket, precisely 
BECAUSE of the artificial demand created by these programs. This is the result
of any artificial stimulation of demand.

>Dennis G. Shea, Penn State
>"I believe that there is social and psychological justification
>for significant inequalities of incomes and wealth....But it
>is not necessary....that the game should be played for such
>high stakes as at present."  John Maynard Keynes

Oh great, a quote from Keynes. Do you know what Keynes proposed back in the
thirties? Strongly political unions and minimum wage laws. Now, even
Keynes knew that this would actually HURT production. What was his answer,
the answer he talked FDR into? Deficit spending and INFLATION. He knew
that unions would be against lowering nominal wage rates, so he proposed
debasing the currency to make up for it. Thanks to Keynes and his philosophy
of "we'll all be dead tomorrow," we are in this mess today.

Inequalities in incomes IS necessary in a free market. The only way
to make every one equal is to bring down the successful. This is nothing but
pure envy. Those who would bring down the wealthy seem to ignore the
fact that to the underdeveloped nations, $7000 a year seems a rich man's
salary - yet I don't see these people willing to create an international
governmental agency to redirect THEIR wealth to the masses of impoverished
people all over the world. This is also hypocracy.

The reason these nations are impoverished is the fact that they have no
market economy, no society based on the division of labor using stable
money as a medium of exchange. Unfortunately, our own system seems to be
imperiled, also.

The best thing for our health care system would be to phase out government
funded insurance, just as the best thing for our economy would be to
phase out government entitlements, which according to "This Week with David
Brinkley," take up 46% of the budget. There are only three ways to fund
this massive Welfare State:

1) Taxes, which hurt production.

2) Deficits, which are taxes on future generations.

3) Inflation, which impoverishes everyone eventually.

Jim Hranicky (jfh@reef.cis.ufl.edu)

"...and the trees were all kept equal"
"By hatchet, axe and saw."

---RUSH
Newsgroups: talk.politics.theory