Controlling Costs, “Lowering” Prices, and Naturally High Prices

By Christopher Espinal

It’s unfortunate that in general humans automatically associate a word with one idea or image. Why is that unfortunate? Rhetoricians and those gifted with illustrious and motivating words can abuse those humanly biased language patterns to paint a misleading image of the real world.

One of those misleading concepts is the idea of controlling costs. What do you think of when you hear the idea of controlling costs? You think of a lower price, a lower dollar sign – you think of having more money and more security – you think of living a life that’s a bit easier than before.

However, prices don’t have to be in the form of an invoice or dollar bills. Prices are simply measures of what you have to give up for something you desire. I have to walk a mile to get to class – that mile is a price. In matter of fact, It takes me 30 minutes to walk to class – that’s a price – in a different “currency.” Yet, the concept remains.

What if I had to walk that same mile to get to class but I must do so in 15 minutes? Are you so naïve as to accept the notion that the price of getting to class has been lowered? It may be true if I were given some form of transportation at little cost to me. What if I still had to use my body as transportation? That means I might have to run that mile to get to class – possibly arriving to class drained of energy that I could have used to pay attention.

Of course I wanted to illustrate an example of the final price of getting to class being the same or higher – despite a reduction in price by one type of currency - time. The implicit price of everything is not what it readily seems – for that is implied by the word implicit (clever huh?).

I brought up this concept for a reason: health care. There’s no point in me rewriting everything above to directly address the health care debate. I think you get the general point.

Regardless, what does it mean to lower costs so that life becomes a bit easier and more secure? Well that’s a question that has endless solutions – none of which can be guaranteed from this or any health care proposal.

To lower the cost of healthcare is to lower the costs of its inputs and/or to increase the level of competition. What can help lower the cost of the inputs? Several things can help achieve that goal: an improvement in technology, a sudden increase in the supply of inputs, a greater degree of efficiency in the means of production, etc.

Don’t be fooled into believing that only lowering the costs of inputs and productions will lead to a lower price of healthcare. Competition ultimately lowers the price unless a monopolistic firm can show benevolence to its consumers – a far stretching possibility.

That’s all boring stuff that everyone knows. Let me end this discussion with a provocative question. Do all prices have to be low? Is it always possible to lower prices at the discretion of the government? I wouldn’t say so.

Sometimes markets are bound to become centralized around one company. That’s because the initial costs to starting a business can be so high that only few firms to one can have access to such expensive resources. In other words it might be possible that it’s more efficient for few firms to produce a large quantity of a good than for many to produce few.

If we think about modern healthcare, people want to rid themselves of diseases and sicknesses using the best treatments – which may be equivalent to saying the most expensive forms of treatment. Those are high costs that medical centers – that wish to remain effective, open, and operational – must endure. It would be no surprise to me if the healthcare industry is one where centralization is natural – rather than a decree of government.

Christopher Espinal an economics student at the University of Chicago. He can be reached at espinalc@uchicago.edu