Entrepreneurial Innovation in Health Care Gets No Respect?

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Prof. Jonathan Gruber, age 48, is an MIT economist who has written on Obamacare (ACA, Affordable Care Act). In his conclusion, he makes remarks about costs, and they show us as clearly as anything I’ve ever read what is wrong with the thinking of experts like him. And he is an expert, having been a technical consultant on Obamacare and being a member of the Massachusetts health care apparatus that Romney installed. Here is the quote:

“The real question is how far the ACA will go in slowing cost growth. Here, there is great uncertainty—mostly because there is such uncertainty in general about how to control cost growth in health care. There is no shortage of good ideas for ways of doing so, ranging from reducing consumer demand for health care services, to reducing payments to health care providers, to reorganizing the payment for and delivery of care, to promoting cost-effectiveness standards in care delivery, to reducing pressure from the threat of medical malpractice claims.”

His ideas exclude the one path that we know, as much as we know anything in the science of economics, will reduce costs, and that is entreprenurial innovation in free health care markets. Free markets slow costs, control costs and reduce costs. Government controls do not. They raise costs. His list of “good ideas” to reduce costs is one government law or measure or regulation after another. Most of them are total economic nonsense, not to mention perverse.

The first one is to reduce consumer demand. By more price and product controls? Only a free market array of prices can bring demand and supply into equilibrium. Next is reducing payments to health care providers. In other words, continue price controls but reduce the maximum prices. Set below equilibrium prices, this policy can only assure shortages of supply relative to demand. That assures rationing. Next comes reorganization of the delivery and payments system. But how? Is the government or some agency going to do this? We know how that will turn out. The market will dynamically reorganize the system if freed and do it rapidly and efficiently. Next comes government standards that are “cost-effective”. But why should there be such standards? Why is it that profit-seeking entrepreneurs would not be seeking to supply consumers with the best possible care at the lowest possible cost? Why wouldn’t consumer demand and producer competition in a free market produce this outcome?

Why does Prof. Gruber entirely align himself with non-market solutions? Why instead are his solutions thoroughly those of government interventions? Why has he not a single good word for the market? Why does entrepreneurial innovation get no respect from Prof. Gruber? Evidently his degrees from MIT and Harvard failed to lead him to an understanding of the free market and instead led him to a misunderstanding of the government’s effects on economic matters. Prof. Gruber has no idea of either consumer sovereignty or entrepreneurial activity.

The one thing that he says that hits some sort of target is that there is “uncertainty in general about how to control cost growth in health care.” Yes, but this is true of all products and all markets, and that is exactly what entrepreneurs address, as they attempt to cater to the demands of consumers.

There is one more sentence in that paragraph of Gruber’s:

“There is, however, a shortage of evidence regarding which approaches will actually work—and therefore no consensus on which path is best to follow.”

This too shows an incredible disregard and ignorance of free markets. We do not need a consensus on which path is best to follow!! That is not how the market system works at all. No one knows any best path. Change is the rule and must be addressed under uncertainty. Consumer demands change, prices change, costs change, technologies change, and the entrepreneurs compete to cope with these in order to serve consumers. The social cooperation of the market is achieved in that way, not through consensus. There is no “we” that gathers evidence either and then decides on a course of action to control health care costs. Who is that “we” supposed to be, paid experts like Prof. Gruber? There is no “we” in a free market that organizes the industry or a set of industries.

Prof. Gruber has in mind an industry or set of industries that are constantly controlled and manipulated by government laws. He and others who think likewise are never going to deliver affordable health care in that manner. They are too ignorant of economics to understand this. Indeed, the term “affordable health care” is a total non-starter to begin with. It’s a relative of a “fair price” and a “just price”. You would have thought that these ancient and unworkable economic notions were dead and buried with the ages that spawned them, whether 100 years ago or 1,000 years ago. But they are not. They are alive and well in America and throughout the world.

10:11 am on December 3, 2013