Friday, June 29, 2012

Socialized Healthcare vs. The Laws of Economics

By Thomas DiLorenzo

The government's initial step in attempting to create a government-run healthcare monopoly has been to propose a law that would eventually drive the private health insurance industry out of existence. Additional taxes and mandated costs are to be imposed on health insurance companies, while a government-run "health insurance" bureaucracy will be created, ostensibly to "compete" with the private companies. The hoped-for end result is one big government monopoly which, like all government monopolies, will operate with all the efficiency of the post office and all the charm and compassion of the IRS.

Of course, it would be difficult to compete with a rival who has all of his capital and operating costs paid out of tax dollars. Whenever government "competes" with the private sector, it makes sure that the competition is grossly unfair, piling costly regulation after regulation, and tax after tax on the private companies while exempting itself from all of them. This is why the "government-sponsored enterprises" Fannie Mae and Freddie Mac were so profitable for so many years. It is also why so many abysmally performing "public" schools remain in existence for decades despite their utter failure at educating children.

America's Healthcare Future?

Some years ago, the Nobel-laureate economist Milton Friedman studied the history of healthcare supply in America. In a 1992 study published by the Hoover Institution, entitled "Input and Output in Health Care," Friedman noted that 56 percent of all hospitals in America were privately owned and for-profit in 1910. After 60 years of subsidies for government-run hospitals, the number had fallen to about 10 percent. It took decades, but by the early 1990s government had taken over almost the entire hospital industry. That small portion of the industry that remains for-profit is regulated in an extraordinarily heavy way by federal, state and local governments so that many (perhaps most) of the decisions made by hospital administrators have to do with regulatory compliance as opposed to patient/customer service in pursuit of profit. It is profit, of course, that is necessary for private-sector hospitals to have the wherewithal to pay for healthcare.

Friedman's key conclusion was that, as with all governmental bureaucratic systems, government-owned or -controlled healthcare created a situation whereby increased "inputs," such as expenditures on equipment, infrastructure, and the salaries of medical professionals, actually led to decreased "outputs" in terms of the quantity of medical care. For example, while medical expenditures rose by 224 percent from 1965–1989, the number of hospital beds per 1,000 population fell by 44 percent and the number of beds occupied declined by 15 percent. Also during this time of almost complete governmental domination of the hospital industry (1944–1989), costs per patient-day rose almost 24-fold after inflation is taken into account.

The more money that has been spent on government-run healthcare, the less healthcare we have gotten. This kind of result is generally true of all government bureaucracies because of the absence of any market feedback mechanism. Since there are no profits in an accounting sense, by definition, in government, there is no mechanism for rewarding good performance and penalizing bad performance. In fact, in all government enterprises, exactly the opposite is true: bad performance (failure to achieve ostensible goals, or satisfy "customers") is typically rewarded with larger budgets. Failure to educate children leads to more money for government schools. Failure to reduce poverty leads to larger budgets for welfare state bureaucracies. This is guaranteed to happen with healthcare socialism as well.

Read the rest here.


  1. Today's U.S. healthcare system is more corporatist and fascist than socialist. In fact, from a policy perspective a socialist system would be superior to the current disaster. But do not misunderstand, for a system of FREEDOM would be best of all!

    1. Technically, a fully socialist system would be superior to the fascist one only in that its inevitable collapse would come far more quickly.

    2. JJ Butler: "Today's U.S. healthcare system is more corporatist and fascist than socialist."

      I'd say that this is a distinction without any real difference. Arguably corporatism and fascism are simply a different form and manifestation of socialism.

    3. I'd like to second Anonymous at 8:56. They're both totalitarian and anathema to liberty.

    4. According to Tom Rose, Grove City College,socialism is govt. control of the economy. Fascism is indirect control while communism is direct. But it's all socialism.

  2. The government has driven up the cost of becoming a health practitioner, confined supply and regulated against all innovation in diagnosis and prescription. How could cost do anything but go up?

    But the real structural long term issue with any socialized scheme is its Ponzi nature; there is no investment, or more importantly, no return on an investment. One can not hope to redistribute money from one activity and get rich or even stay viable in the long run.

    Arguably socialist countries could have more successfully argued their system if they had invested even half of their money instead of just redistributing it for generations.

    Which raises another fundamental issue which I have seen even 'free market' economists try to make; that government inflation of say, 2%, is OK because people can 'plan' for it. Besides the insidious mis-allocation and compounding theft of wealth effects of inflation, this argument may look good in theory, but ignores human psychology and culture.

    The next watershed event will be when the Bamboo economies reject the American dollar as a world currency, beginning with oil purchases. Several macro trends will hasten this decision.