Krugman's column very much reflects the consensus view of economists (including this one) on health care. Economists have learned a lot about when markets work and when they don't. Markets work well when there are many buyers and sellers, when the buyers and sellers all know exactly what's being transacted, and when it's possible to get the incentives right.
Health care is the perfect storm when it comes to free-market economics. There's the potential for market power and monopoly, there are big problems with asymmetric information, and the fact that everyone's insured means that buyers don't have a strong incentive to carefully weigh cost vs. benefit.
I've written about problems in health care markets before (actually a lot: here, here, here, and here). But this point bears repeating, given the current debate. The consensus of economists is that "trust the market to allocate health care" will not work very well. As Krugman points out, this doesn't mean that the only solution is single-payer, but it does mean that this is probably a setting where government will play a role.
And lest you think think that this is only some liberal, lefty, New-York-Times view, here's a link to a 2006 column from the Wall Street Journal's economics columnist David Wessel, which essentially makes exactly the same point. (Scroll down a few pages to see it.)
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5 comments:
Could you do things like separate diagnosis and repair? Rather than have Government take over the whole system?
I think that there are a lot of other far more innovative solutions to take rather than this all or nothing approach.
FYI
http://www.hoover.org/publications/digest/3459466.html
This guy was pretty well respected
sorry just one more
http://www.marginalrevolution.com/marginalrevolution/2009/07/examples-of-free-market-health-care.html
Why aren't you studying marketing???
I think we agree more than we disagree on this issue, but we're talking at cross-purposes. You're arguing against the current reform proposal, while I'm arguing against the notion that "free markets" are going to get is to a pareto optimum.
The reasons "free markets" can't get us to a pareto optimum are simple: How do you get efficient insurance without third-party payment? And how do you get efficient provision-of-care decisions without getting rid of third-party payment?
These decisions both need to be made well, and it's not clear how to organize to do this. Separating diagnosis and treatment alone won't do it, since then you'd need to worry about providing incentives for both activities.
I'm not saying that the current proposal is the best we can do. I think it's clear that there are political considerations --- namely that most Americans are happy with their insurance --- that mean reform has to be incremental rather than fundamental. But I stick by the statement that information and incentive problems mean that there's reason to think that a market outcome could be improved upon.
These information and incentive problems are simply not present (or at least not present to the same degree) in a lot of other markets. A market outcome in the soybean market, for example, probably couldn't be improved upon.
Oh, and the iPhone market is doing fine also.
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