Education and Health I

Education and health, are by definition the two pillars holding the foundations of the welfare State in place. When we talk about welfare, we may talk about reducing certain benefits such as unemployment compensation, but would anyone dare say that education and health shouldn’t be universal? That the State shouldn’t make sure that all citizens can access this service? These are tricky questions to answer. A simple No would leave you looking like some heartless monster. I think a better question is: What is the best way to provide health and education to the most people, at the best price, and at an adequate quality level? The answer, is of course, to create a competitive and free market environment.

There are many different systems in place around the world, but by far, the least present, is a free-market system. When it comes to any market there are two things the government can try to manipulate: Supply, demand, or both. Understanding how such manipulations affect the market is the key to understanding why a free system, will likely serve the purpose of universalization much more effectively. To better illustrate the workings of the State run systems of health, I will use two of the examples of the U.S. and European systems.

A lot of people make the mistake of thinking that the U.S. has a free-market system when it comes to health. This couldn’t be further from the truth. Since the 1960s, through programs such as Medicare or Medicaid, uncle Sam has been subsidizing demand. This is evident in the cost of healthcare in the U.S., which is considerably higher than in other places. A combination of subsidized demand and a relatively “free” supply, though heavily regulated and cartelized in many sectors, pave the way for high prices. When demand is subsidized, and most people don’t actually pay directly for visiting the doctor, over-consumption occurs, and with a free supply, the supply will simply adapt to the high demand. People always over-consume when the government is picking up the tab. Why wouldn’t they? This is not a problem of people, but rather a problem of incentives.

The model in the U.S., stands somewhat in contrast to that in Europe, where both demand and supply are determined by the government. The “good” thing about controlling the supply is that you put a lid on how much people can spend. Because in Europe health is effectively rationed, we don’t face the problem of overconsumption as much. But the incentives are still there, since demand is subsidized. There is also a few problems with supply being centrally planned. First of all, there is the issue of competition; the idea that under a free-market, health centers, through a better connection between consumers and suppliers, would offer a better service, and competition should ensure that prices reflect truly the value of the services. But an equally important factor is innovation: Without a market environment, innovation is not possible, not only because of the lack of inventiveness of politically appointed CEOs, but simply, because it would be incredibly chaotic to try to push innovation in a centralized way. What of it failed? How would they know when and it what measures to innovate? These answers can only be found in the market, and innovation will come at the hands of creative entrepreneurs. These may succeed or not, but such is the nature of competition.

In this way, Europeans are loosing out on many innovations ocuring around the world. And the fact that health is rationed has not stopped governments from engaging in enormous deficit spending on these programs, which at the end of the day, represent to them yet another ploy to gain electorate support.

In conclusion, as with any market, government interference will lead to inefficiencies. Is health any different? Not really. Will some people be unable to “purchase” as much health as they need? Probably, though certainly less so than now. As I always say, if the free-market can successfully supply us with food, why can’t it do the same for health?

It’s true, that equality is important, and I don’t oppose a system which allows for government financing for extreme cases. But these would have to be exceptions, or we would face the same problems as before.

 

 

 

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