Saturday, February 15, 2014

"I need it" doesn't mean "is a basic human need"

Time for an economics post, as some slight attempted atonement for my neglect of my personal blog. (I have to some degree kept up posting during the same period at What's Wrong With the World, so be sure to check in there from time to time.)

Oh, digression before I even get started: If you love J.R.R. Tolkien and/or are skeptical of movie versions of great works of literature, or if you are interested in how to make a work of fantasy utterly stupid, do not miss John C. Wright's takedown of the most recent Peter Jackson hobbit movie. I had no intention of seeing the movie anyway, but reading Wright's review is worthwhile even if you never see the movie. In fact, it'll probably prevent you from ever wanting to, and reading it will be a better use of your time than going to the movie. Sometimes I have to admit that Wright is a little too wordy, but this time it was fine, just fine. He could go on at length with no complaint from me, because he was just so darned funny. Though "lol" has become an overused Internet pseudo-word, in this case I really did laugh out loud, repeatedly. Warning: Pictures of mostly unclad girl warriors included in the post. They are part of Wright's satiric comment on the movie's gratuitous inclusion of an inauthentic, not-in-the-book warrior elf chick. Not that John C. Wright needs much excuse, mind you, to include pictures of scantily clad girl warriors. He does it in other posts sometimes apparently just for its own sake. Anyway, tolle lege, and enjoy.

Now, moving on to my own post...

It makes sense to me to say that, if some society or country frequently faces famines in which large numbers of its citizens starve to death, there is probably something wrong with that country's economy. It doesn't absolutely have to be something morally wrong. It could be some vast failure of prudence caused by stupidity. It could be a well-intentioned ideology that actually creates shortages. We all know people whose economic sense appears to be nil but who aren't actually bad. Some country might be run by such people. On the other hand, there might be moral wrong behind the problem--graft, corruption, theft, anarchy. In general, if a country has the rule of law and a sensible economic system, especially in the 21st century, most people will be able to have the bare necessities of life in that country, either by means of working, by means of being supported by relatives, or by means of accepting charity or government aid.

But we must distinguish those extremely vague and harmless comments from the proposition that, if I need x, even if I genuinely do need x in order to survive, x should be fairly readily affordable for me. It depends entirely on what x is. If I have a rare disorder that means that I will die if I don't have weekly blood transfusions, then maybe my society isn't rich enough that I can get that without extraordinary economic help. Suppose that I need some expensive medication in order to survive. It doesn't follow from the fact that I need it that, if that medication is expensive and I may not be able to afford it, "something is wrong." I don't have a cause of grievance against society for not meeting my "basic needs" or making sure that I have what I "need to live" if there are difficulties with obtaining that medication. Someone in such a situation may have to accept charity. He may turn to government assistance. He may have to work at a job that he very much dislikes or take on extra hours.

All of this is just a concrete instance of the old TANSTAAFL--there ain't no such thing as a free lunch. But it's perhaps easy, especially for young people who don't seem to have been taught TANSTAAFL, to equate "Joe needs this" with "Joe is entitled to this" or "something must be terribly wrong if Joe might not be able to get this." In our highly technological and immensely rich Western society, we often expect a great deal of our healthcare system. Got psychological problems? There's an OCD medicine for that, and oh, by the way, insurance will pay for your therapist. Got digestive problems? "Somebody" should provide Prilosec or Nexium. At risk for blood clot? Your insurance will pay for Coumadin. And so on and so forth. Sometimes, as in the case of heart ailments or stroke risk, these really are life-saving medications. But nobody is entitled to the medicines just because they are life-saving. The fact that they are live-saving really has very little to do with the question of how much they "should" cost. Indeed, it is highly dubious that we have any good grip on the meaning of the question, "How much should this heart medication cost?" Does it even have a meaning? Is the meaning moral or economic? If economic, what reason do we have to believe that the current cost is skewed or distorted from some norm?

This last question actually does have an answer: Insurance and other third-party payments (e.g., Medicare) have a strong tendency to drive up costs and drive down competition. For decades our healthcare system has been moving to more and more third-party payers, and Obamacare is making matters even worse. Fee-for-service tends in general to keep costs down. (Ask yourself sometime why body work on your car is so expensive in contrast to mechanical work. I submit that part of the reason is that a lot of bodywork is paid for by auto insurance after accidents and that this has warped the market.) So we can guess that many medications would be cheaper if they had from the outset been paid for by people themselves (that means you and me, dear reader) out of their own pockets and if competition had been allowed to drive the price down.

But there are several problems with deriving from those facts any strong conclusions such as, "My Nexium ought to be less expensive. Someone is doing something wrong, or my society is badly messed up, if it's more expensive than I think it should be." First of all, there's the small matter of patenting. One of the few actually constitutional things our federal government does is to issue patents, a function given to it by the founding Fathers. If the first company that put in gazillions of dollars in research and development is going to recoup that huge investment, it needs to be able to have exclusive rights at least for a time to its intellectual property. After that time the generics come in like the Light Brigade, and prices generally come down. During the time that the initial company has exclusive distribution rights, there won't be any competition for the sale of that product, and the cost will be high so that the company can recoup its R & D costs. In other words, it has to be made worth the company's while to develop the medicine or the medicine just won't exist in the first place. People who look only to production costs when they make airy statements about how much medicine "should" cost neglect the research end. They neglect also the fact that the pharmaceutical companies may be helping to pay for their development of some other medication (which will save somebody else's life) by what they charge for your medication. Nor is there anything wrong with that.

Second, if we really did go to more of a fee-for-service model, there would be an extremely tough market correction, and it would take some time. Medical costs would not drop like a stone overnight, and in the meanwhile a lot more people, faced with paying out of pocket, would face a lot of difficult decisions and would have to forego a lot of things that they think they need. Many hospitals might just go out of business. Once the economy has become addicted to bad economic practices, the withdrawal can be unimaginably painful.

Third, to the extent that R & D and production costs have been covered by an inflationary economy and by third-party payments, some medications might simply go off the market altogether. It would be foolhardy to say that one knows that one's own medicine would continue to exist and would just fall to a more affordable price if "all were as it should be." The fact is that you simply don't know if the pharmaceutical company would continue to consider it worth its while to make the medicine, or what the natural, uninflated price would be if it did.

So even though we do have reason to believe that medical costs are artificially inflated, it doesn't follow that we know what the landscape would look like if those artificial price supports were removed. We should be especially cautious when it comes to predictions about specific products.

Notice in any event that none of this has anything whatsoever to do with the fact that some people need x medicine to survive. "Affordable" cost simply doesn't track necessity, especially not when the urgent demand comes from a relatively small percentage of the population. Everybody needs food to survive, so there's a booming and competitive market for food. A lot fewer people need Lovenox.

My more economically savvy readers may think that all of this is so obvious as not to need to be said, but listen around next time you hear some far less savvy young people talk about what people "should have" and what people "need" and what things "should cost." You might get a surprise. Nobody has, apparently, ever explained to these people that neither money nor pharmaceuticals nor fully-trained doctors grow on trees. It's just an astonishing thing, but the fairies don't distribute goods and services.

Be sure you discuss these things with your kids explicitly. Children are compassionate, and their compassionate natures can easily be manipulated by those who will tell them that things "should be different" without any clear idea of what that means. Moreover, children tend to be somewhat self-centered (so do human beings in general), and when a compassionate person is himself in need, if he has had no good economic training, he might well be tempted to say, "It shouldn't be so hard to get this. This is what I need. It shouldn't be so expensive. The whole world ought to be different!" Sound childish? Well, yes, I'm afraid it does sound childish, but then, economic liberalism is childish and all too easy to fall into.

Teach 'em TANSTAAFL young, and then teach them, in true bourgeois fashion, to apply it to themselves: "No, honey, we can't afford that." Even if they really do need something, it doesn't follow that it will be magically and painlessly provided, with no struggle, discomfort, or embarrassment to themselves. Indeed, it may not be provided at all. Sometimes, life's just tragic like that, and all men are mortal.

A conservative view of the world is a view that recognizes limitation. This applies, alas, even to some things that some people need.


Tony said...

Absolutely. The critical reality is that most goods need to be made in order to exist, and that means work, and nothing give me a right to someone else's work. "I need it" doesn't make their work my right.

Even for the (few, very few) goods that exist whole and complete in nature, virtually all of them has to be transported to us - work, again. About the only things that are commonly available to everyone without much effort and work are air and dirt (hence, "dirt cheap"). And even dirt requires some effort if you want more than a shovel-full.

Lydia McGrew said...

I find that there is some overlap between people who believe that other people's work is their right (the strongly liberal economic view, shared, alas, by some "third-wayers" and "distributists") and those who simply believe that something or other must be wrong with society if the item doesn't cost less than it does. The latter can take a form of a sort of generalized resentment: Society must be bad someway, somehow, because what I need costs so much, even if I can't tell you how it is bad. Or, perhaps, over-confidence in one's own ability to pinpoint the exact effects of market distortions: "In a true free market, I'm sure what I need would still be available but would just be cheaper." I suppose even a libertarian who doesn't believe that he has a right to another's work might fall into this latter trap.

In fact, one thing that has been good for me in thinking through all of this is realizing just how little I myself know about what *would* happen if things were done in a way I consider more natural. Overall, I think it would have been better if we had had less insurance payments from the outset, less Medicare, etc., and I do think that these have greatly driven up the cost of healthcare of all kinds. But what the alternative history would have looked like without them, I should admit, is something of a black box. As is the future if we went to less third-party payment. It's rather like inflation. I hate inflation with a flaming hatred, yet I also have to admit that a lot of useful stuff has been paid for with funny money. The chickens will come home to roost eventually, and that doesn't mean "it was worth it," but I shouldn't pretend that the economic transition to sounder practices would be at all easy, if indeed it would be possible at all.