Saturday, February 20, 2010

Krugman's Bad Prescription for Healthcare

by William L. Anderson

One of the fundamental tenets of economic logic is that the farther away one gets from the simple relationship of a consumer paying directly for a good, the more the economic calculation for such exchanges becomes muddled. Thus it is with health insurance.

Think of it; most of us receive insurance from our jobs. We pay a premium, our employer pays part of it, which goes to the insurer, and then the insurer pays the doctors, does the negotiations, sets the standards, etc. This is a recipe for permitting costs to get out of control.

One of the fundamental tenets of Austrian economic theory is that the factors of production gain their value from the value that consumers place upon the final product. (Carl Menger spends a lot of time on this point in the first two chapters of his ground-breaking 1871 classic, Principles of Economics.) It is not hard to see that the way health insurance today is structured, that it is a recipe for out-of-control costs.

Paul Krugman has been writing on health insurance and economics for many years, and from what I have been able to tell, his main points are as follows:
Health insurers are greedy and raise premiums because they are greedy;

Health insurers can only make money by denying coverage;

Medical costs rise because doctors and insurers are greedy;Only government price controls and regulation can ensure that medical costs will be low and medical care will be abundant for everyone.
Now, if one sees some internal contradictions in this whole scenario, well, that person is applying simple logic, something that is missing from most Krugman columns. However, instead of making accusations against Krugman, let him say things in his own words:

Read the rest here.

1 comment:

  1. Well done. Anderson is correct, no insurance business can exist unless it is based on sound actuarial principles and voluntary transactions.

    Krugman, like all politicians, wants a system based on force and coercion. Ultimately this means that only those with the legal authority to kill will benefit. Clearly this is not the way to promote an insurance business let alone health care.

    Stop voting, it only encourages them.