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Utopia and healthcare—2

from David Ruccio

The dystopia of the American healthcare system certainly invites a utopian response—a ruthless criticism as well as a vision of an alternative.

As I showed last week, the left-wing response involves a critique of the conditions and consequences of the capitalist organization of U.S. healthcare and the fashioning of a radical alternative. Single-payer, which uses tax revenues to finance the purchase of adequate healthcare services for everyone, is one possibility. On top of that, it is necessary to expand the diversity of healthcare providers, which would include more democratic, cooperative or worker-owned healthcare enterprises.

That’s how activists, educators, and policymakers informed by heterodox economics can begin to rethink the U.S. healthcare system. What about mainstream economics?

Given the persistent attacks on and attempts to replace Obamacare by Republican legislators—against a “government takeover” of healthcare in the name of “free markets”—one would expect mainstream economists to provide a theoretical justification based on their usual utopianism—of an efficient allocation of scarce resources in an economy characterized by private property and individual decisions in unregulated markets.

However, as it turns out, they can’t. And that’s all because of Kenneth Arrow.

Consider, for example, the 2017 New York Times column by Greg Mankiw

In Econ 101, students learn that market economies allocate scarce resources based on the forces of supply and demand. In most markets, producers decide how much to offer for sale as they try to maximize profit, and consumers decide how much to buy as they try to achieve the best standard of living they can. Prices adjust to bring supply and demand into balance. Things often work out well, with little role left for government. Hence, Adam Smith’s vaunted “invisible hand.”

Yet the magic of the free market sometimes fails us when it comes to health care.

Mankiw, who is known to celebrate free markets in everything, is forced to allow for an exception when it comes to healthcare. (Fellow mainstream economist John Cochrane, in a sharp riposte, argued that “For once, I think Greg got it wrong.”)

arrow

The reason is because, back in 1963, future Nobel Laureate Arrow published “Uncertainty and the Welfare Economics of Medical Care.” Mankiw’s column (and the longer treatment for his textbook [pdf]) is basically a restatement of the issues raised by Arrow over a half century ago.

According to Arrow, healthcare is characterized by a set of “special features,” all of which stem from the “prevalence of uncertainty.” These include the following:

  • an irregular, unpredictable demand for medical care
  • an element of trust in the relationship between patient and provider
  • considerable uncertainty as to the quality of the healthcare provided as well as asymmetry of knowledge concerning that quality
  • a restricted supply (e.g., because of licensing)
  • a combination of price discrimination (e.g., between the insured and uninsured) and price-fixing

In consequence, the healthcare industry cannot be expected to operate along the lines of, or to deliver the same results as, the canonical neoclassical model of perfect competition.

Thus, Arrow concludes,

It is the general social consensus, clearly, that the laissez-faire solution for medicine is intolerable. . .

The logic and limitations of ideal competitive behavior under uncertainty force us to recognize the incomplete description of reality supplied by the impersonal price system.

Neither Arrow nor Mankiw suggests what the alternative is. But it’s clear that, from the perspective of mainstream economics, healthcare cannot be shoehorned into the neoclassical model of perfect competition they use to analyze all other commodities and markets. What we can say is their theory of the economics of healthcare leaves open the possibility of considerable extra-market intervention and regulation.

Healthcare is where the utopianism of neoclassical economics fails.

But then we can ask, where does that utopianism not fail? Why should it hold any better when it comes to other capitalist commodities, such as labor power, money, and land? And, if it does not, then neither the modes of analysis nor the policy conclusions that are central to mainstream economics retain any validity.

In my opinion, that’s why the issue of utopia and healthcare is so important.

  1. Helen Sakho
    March 19, 2018 at 12:46 pm

    Must consider. HS

    Sent from my iPhone

    >

  2. March 19, 2018 at 3:41 pm

    It is best to avoid the term “single payer” and stick with medicare for all until that huge step is taken.

    Single payer is undefined and opens the door for health care insurance design by corrupt politicians representing corporations.

    Medicare for all takes care of everyone in the US with something defined. Yes, there are shortfalls in medicare coverage, and those shortfalls are important, dental and vision for example. Those shortfalls are nothing compared to the backroom design by corrupt elected officials representing capital instead of voters.

    • March 20, 2018 at 12:17 pm

      Ruccio’s link to a hardnosed critic of Mankiew produced a comment that losing money buying a dodgy second hand car is not the same as losing one’s life going to a second-rate quack. When one looks, Arrow hadn’t thought of that. But on compassion, how about this my wife saw on Facebook. A lady’s cat went missing and when she eventually found it, it was curled round an abandoned human baby keeping it warm. When the ambulance arrived and took the baby to hospital for a check-up, the cat ran after the ambulance to the hospital and remained agitated until it was shown the baby was okay. Which suggests to me compassion goes back much further even than Neanderthals, even it it is conspicuous by its absense in reptilian mainstream economics.

      • March 20, 2018 at 2:40 pm

        Thanks. There’s more to this than meets the eye.

  3. March 20, 2018 at 4:18 pm

    David Ruccio, “Neither Arrow nor Mankiw suggests what the alternative is. But it’s clear that, from the perspective of mainstream economics, healthcare cannot be shoehorned into the neoclassical model of perfect competition they use to analyze all other commodities and markets. What we can say is their theory of the economics of healthcare leaves open the possibility of considerable extra-market intervention and regulation.

    Healthcare is where the utopianism of neoclassical economics fails.

    But then we can ask, where does that utopianism not fail? Why should it hold any better when it comes to other capitalist commodities, such as labor power, money, and land? And, if it does not, then neither the modes of analysis nor the policy conclusions that are central to mainstream economics retain any validity.

    In my opinion, that’s why the issue of utopia and healthcare is so important.”
    Perhaps, maybe…”… utopianism of neoclassical economics fails.” Period.
    Neoclassical economics does not quantify “… promote the general Welfare, and secure the Blessings of Liberty to ourselves and our Posterity,…” in their model.
    Not healthcare, not inequality even ‘moral hazard’ may take a back seat to neoclassical economics utopianism.

  4. March 21, 2018 at 5:59 am

    Homo Sapiens is a complex species with complex evolutionary and cultural paths. Field experiments show Sapiens engage in both altruistic and spiteful actions. Anthropologists and other researchers, believe both characteristics are Homo-specific. And despite appearances, both work for the same result – protecting group cohesion and cooperation. Humans (all species we know about) are obviously altruistic. Humans today give blood, donate money to charity, and volunteer to help strangers. This kind of altruism has never been demonstrated in any other species except humans and many researchers believe it is one of the characteristics that makes us human. But researchers say spite is just as important. As a form of punishment, spite can encourage cooperative behavior by penalizing cheaters. According to Keith Jensen and colleagues from the Max Planck Institute for Evolutionary Anthropology in Leipzig, Germany, “Punishing others is usually costly to yourself, whether that’s the taxpayer or the lawmakers but punishment is still a normal part of modern society. We punish theft, murder, and countless other crimes to keep the fabric of society together. Perhaps human society is where it is today because spite exists and there is a mechanism to punish cheaters.” If altruism and spite are unique to humans, then it is likely that these
    structures have arisen in the last 6 million years since humans and chimpanzees shared a common ancestor. Humans’ intense regard for each other, either positive or negative, has made an important contribution to our ability to cooperate, our sense of fairness, and the morality that defines today’s society. Modern economics – a very late tag-along in studying human actions denies all this. And in so doing threatens human cooperation, comradery, and safety. As the adage goes, either we change the devil (economics) or the devil changes us. It’s past time to make these choices.

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