Wednesday, August 14, 2013

Misunderstanding Profits: Dylan Ratigan Style

By, Chris Rossini

Dylan Ratigan has a problem with healthcare profits:
Now, in our government-distorted society, it's important to distinguish between free market profits, and crony-profits, where the government tilts the tables to favor their political buddies, and thus lining their pockets.

So I responded to Ratigan:
Ratigan disagreed with me:
Now isn't that strange?

If more people are getting sick, should they be left to fend for themselves? Should entrepreneurs, seeing an urgent need, say "Forget it...let's use our resources where they are needed less." 

Profits (and Losses) are signals! Civilization needs them desperately.

Wherever there is a lack that consumers want urgently removed, one should want to see profits being made. It means someone spotted an imbalance and is doing something about it!

In the free market, high profits will attract other entrepreneurs to invest their resources into satisfying the demand as well. As more resources (and competition) rush in, prices to the consumer are driven down, while quality shoots up.

It's immaterial (as Ratigan fails to see) whether profits come from servicing the sick or the healthy. Ludwig Von Mises pointed out:
The entrepreneur does not make greater profits in selling "bad" things than in selling "good" things. His profits are the greater the better he succeeds in providing the consumers with those things they ask for most intensely.
Ratigan should be celebrating that in both cases (sickness and health) entrepreneurs are there attempting to correct any imbalances by supplying what is needed most.

Again, it must be stressed that this is what would occur in the free market, not the warped government-ridden "health care system" that we have today. When the government and its crony corporate partners get together, the opposite effects occur: prices up, quality down, competition barred (or severely curtailed by legislation).

Ratigan targeting the profit motive is the wrong way to go, and he's doing a great disservice to the people he is purportedly trying to help.

Almost instinctively, people that buy Ratigan's argument will turn to government to help solve the "profit problem". Government will then do what it does best, which is create even bigger problems! It'll pass more crazy laws, that in turn keep twisting a vital industry into a bigger and bigger nightmare.

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  1. Your points are all well taken, Mr. Rossini, but I take it what Ratigan is referring to is the warped incentives that encourage the health industry to keep people sick so they repeat visits. They get consumers to believe they are doing their best to "supply what is needed most," but do a piss-poor job of it so they keep customers. This, I believe, is the source of conspiracy theories that doctors are keeping cancer cures from us.

    I agree that in so far as any of this is a problem, it is probably caused by cronyism, but I do not think you are correctly identifying nor responding to Ratigan's point. I know it is hard to analyze a 140-character point. Essentially, I think you and Ratigan may agree on the problem and even the solution, but Twitter was not an appropriate forum to work that out.

    1. Agreed. Reward health care professionals for prevention more than treatment. Fee for service does not promote this.

  2. If someone develops a mouthwash that cures gingivitis, and J&J buys the formula and then buries it so it can sell Listerine in perpetuity, are we better or worse off as a society?

    1. There is no society. That is a myth. There are individuals. The individual that invented the mouthwash has every right to sell it to whoever he sees fit and pays the best price. The company that buys it has the right to do whatever they want with it. That is the moral part of the argument. Now lets look at your absurd hypothetical. The inventor would not sell it to J&J if he thinks he can market it himself and steal J&Js profits. Or he will sell it to other companies that want to upstage J&J in the market as they will bid for the patent. Or J&J, after buying the patent for close to the market price (which is by the way the marginal value of that patent), would want to sell it and take the market share from their competitors in the mouthwash space instead of continuing to compete in the mature market for mouthwash with ever decreasing profits (this is how markets work, no monopolies last for ever) without stupidly burying it. Or a million other things that are infinitely more probable than your stupid assertion of what will happen. Or you can live in your socialist fantasyland and worry about the hypothetical harm caused by businesses to hypothetical society (as if one could calculate and quantitate societal good and bad).

    2. There is no J&J. That is a myth. There are individuals.

  3. There is an additional problem here in that the phrase "health care" profits that Ratigan uses does actually refer to what should more correctly be known as the sick care industry. There is a segment of the economy that profits from health care but those expenditures by individuals caring for their health are not calculated in any cumulative aggregate as far as I know. The majority of money that I personally spend on healthcare for me and my family isn't covered by "healthcare" insurance so I assume that those expenses are not considered "healthcare" profits even though many of my monthly purchases are to benefit the health of my family and directly reduce our exposure to the "healthcare" industry which further decreases our chances of sickness again increasing our overall health.