William L. Anderson – October 2, 2021
A recent article on this page highlighted a stunning situation in which a surgery clinic in Oklahoma City was able to offer outpatient procedures at less than one-tenth of what local hospitals were charging to third-party payment systems such as insurance companies and Medicare. This was a significant article in many ways, in that it presented what truly is a shocking picture of what really happens in the medical care systems in this country.
At the same time, I was not surprised that Dr. G. Keith Smith’s clinic was able both to offer high-quality services at prices that are within the reach of most Americans and do it in an economical and convenient manner. After all, a free market economy has done the same with nearly all other privately offered goods and services for centuries and medical care should be no exception.
First, and most important, medical care is a scarce good, which means that it is subject to all of the immutable laws of economics. Second, when entrepreneurs are permitted the opportunities to improve goods and services in a free market setting, the results are predictable: better and less costly goods and services become the norm.
The facts that Dr. Smith presented seem to be indisputable. One can pull up the material online and see the prices, and it seems that everything else there is in order. Furthermore, they have pulled off what economists like Paul Krugman have claimed was impossible: lowering real medical care costs over time. To quote Krugman:
Why do health care costs keep on rising? It’s not because doctors and hospitals are greedy; it’s because of medical progress. More and more conditions that once lay beyond doctors’ reach can now be treated, adding years to the lives of patients and greatly increasing the quality of those years—but at ever greater expense. A triple coronary bypass does a lot more for you than a nice bedside manner, but it costs a lot more, too.
What this Oklahoma City clinic has done should be catching on everywhere and it should be celebrated in our body politic. Instead, as Dr. Smith points out, the medical establishment has done everything possible to shut it down and, if those in charge of other clinics and hospitals had their way, the Surgery Center of Oklahoma would meet the same fate as Tom Smith’s “Incredible Bread Machine.”
Some of the rejection certainly falls into the “capture theory” category of regulatory economics. Other medical entities don’t like the competition and they use the apparatus of government to hamstring competing firms—all while using the “we’re protecting the consumer” rhetoric, which is textbook theory. Likewise, we also can see the “Baptists and bootleggers” theory of regulation at work. (Both Baptists and bootleggers want the liquor stores closed, but for very different reasons. The Baptists provide the high-sounding, “public interest” rhetoric, while the bootleggers don’t want the competition from legal entities.)
No matter what theory we use to describe the opposition to free market medical care, we easily can characterize it by the following statement: medical care should not be inexpensive; it should be free. Anything less than “free” is morally and politically unacceptable. Whether one reads statements by Paul Krugman, Bernie Sanders, Elizabeth Warren, Alexandria Ocasio-Cortez, or anyone else in the current pantheon of American progressivism, “free” medical care is at the heart of all their demands.
I point out that no one—not even Krugman—believes that medical care is a “free” or nonscarce service. To state otherwise would be claiming that every single factor of production that goes into the development and delivery of medical care also would have to be nonscarce, from labor to every single component of every medical device used. Even people that claim that medical care is “different” from other goods and services and does not adhere to standard laws of economics are not going to claim that every input that goes into medical care also should be free.
Since progressives believe that “free” medical care actually is not free in the economic sense, we are left with their central doctrine: all medical care should be administered free of charge to recipients and all payments that go to providers of medical care and producers of goods used in medical services should come from sources other than the direct recipients of medical services. This is not so much an economic statement as it is a religious one. If there is one central religious belief that all progressives share it is the belief that no one who receives medical services should have to pay directly for them. The amount of the fee is irrelevant; anything more than zero is prima facie immoral.
This doctrine is so central to American progressive beliefs that progressives will go to extraordinary lengths to defend any political regime that offers free medical care. All one needs to do is to find progressive support for every single Communist regime from the twentieth century—and that includes the madly genocidal regime of Pol Pot in Cambodia in the mid-1970s—because they have free healthcare.
Even after the collapse of most Communist regimes thirty years ago, the lone holdouts like Cuba and North Korea have their amen corners. Nikole Hannah-Jones, before she came to the New York Times, wrote this for readers of her former employer, the Portland Oregonian, after a visit to Cuba in 2008:
While there, I found a Cuba you may not know. A Cuba with a 99.8 percent literacy rate, the lowest HIV infection rate in the Western Hemisphere, free college and health care.
Cuba’s universal health care system is seen by many as a world model. Neighborhood clinics and municipal hospitals provide free treatment, including laser vision correction and cosmetic surgery to fix deformities. HIV and AIDS drugs cost nothing. Most clinics make do with outdated equipment and a shortage of supplies. Yet the country has a higher ratio of doctors to patients than the U.S., and Cubans live longer than we do.
I recall reading the same worshipful language directed at Mao’s regime in China even during the disastrous Cultural Revolution and praise directed to the former USSR and its Eastern European satellites for their alleged “free” medical care for all. No matter how violent, how murderous, and how genocidal a political regime might be, if it offers “free” and universal medical care then nothing else matters. “Free” and universal medical care legitimizes all other excesses. The left-leaning Guardian provides a recent example of this principle.
Given that progressives are willing to excuse political mass murder if the regime in question claims to offer “free” medical care to everyone, then they hardly will be convinced that a medical model like that of the Surgery Center of Oklahoma (SCO) is morally legitimate even when it provides quality services at a fraction of the cost of medical care under third-party payments. For example, even after acknowledging the success of the SCO, a self-described “libertarian” recently challenged its legitimacy, employing Kenneth Arrow’s famous 1963 paper in American Economic Review that claimed medical care was “different” than other goods and services and needed to be removed from the market system.
For all of the praise heaped upon the paper, and for all of its positive acceptance by the elites of academic economics, the Arrow paper is a poster child for the informal fallacy of “begging the question.” Arrow begins with a conclusion and then “proves” his point—without proving anything at all. Likewise, progressives begin with the declaration that the only morally legitimate system of medical care is one in which no recipient of medical services pays directly, so even if the SCO were able to bring their prices down to a nickel per procedure, progressives still would object.
Briefly put, the Arrow theme is that because there is much uncertainty in the field of medical care, markets in that field cannot be competitive, which means that by definition they are not optimal. He writes: “[W]hen the market fails to reach an optimal state, society will, to some extent at least, recognize the gap and nonmarket social institutions will rise attempting to bridge it.” There is much to criticize here and not enough space to do it, but suffice it to say that Arrow’s analysis, as faulty as it may be, provides the fig leaf for economists like Krugman to make his antimarket claims:
There are, however, no examples of successful health care based on the principles of the free market, for one simple reason: in health care, the free market just doesn’t work. And people who say that the market is the answer are flying in the face of both theory and overwhelming evidence.
The fact that the SCO can profitably perform surgeries at less than a tenth of what nearby hospitals would charge insurers is irrelevant to economists like Krugman, who forcefully dismiss such information on its face. Not only clinics like the SCO but also outfits like Epiphany Health Direct Primary Care in North Port, Florida, are able to provide quality healthcare at affordable prices, but mainstream economists simply can deny their existence—and get away with it. In fact, there are more than fourteen hundred such cash-only practices across the country, giving lie to Krugman’s claim that free markets make healthcare more expensive and less available. (Remember, in Krugman’s world, only the wealthy have access to medical care in a free market system. That most patients taking part in the medical version of free markets are not wealthy people does not change Krugman’s narrative.)
In his 1963 paper, Arrow spoke for progressives when he conducted a flawed analysis meant to reach conclusions “proving” that the free market and healthcare were incompatible. He wrote: “It is the general consensus, clearly, that the laissez-faire solution for medicine is intolerable.” However, there is plenty of evidence today that laissez-faire medical care is not intolerable and that most medical procedures performed in a free market setting are well within the financial means of most people in this country.
Medical care that truly is affordable certainly is not given a fair and honest hearing in this country. For politicians, the media, such a situation is anathema. They would rather see a contrived, high-cost system that wastes trillions of dollars in misallocated resources but is subsidized on the back end to give the appearance of being “affordable” and, more important, “equitable.” High-cost “free” medical care is morally superior to low-cost free market medical care, because, well, because it is.
When such ground rules for debate exist, it is hard to be able to make a public argument. Economists like Krugman, who are able to martial media resources to shout down opposing arguments, will appear to carry the day, at least where the supposed debate is concerned, as will his allies in academe and in Congress and the legislatures.
But economics is not based upon rhetoric but rather the real world of resources, production, and consumption. Just because Paul Krugman claims that by definition free market medical clinics cannot exist does not mean that thousands of people are not receiving the kind of care that Krugman, Arrow, and most of the economics profession claim to be impossible. Free market care does exist, and it provides, frankly, a moral choice against the lies the established elites are telling us.
Originally published at Mises.org. William L. Anderson is a professor of economics at Frostburg State University in Frostburg, Maryland.
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