Monday, April 18, 2011

Markets and Rationing

I just can't accept Andrew Sullivan's argument concerning rationing: "At some point, then, we have to ration." Rationing is something done by an arbitrator of some kind. This means the arbitrator himself apportions the resources; the amount you get depends finally on the arbitrator.

Markets simply don't ration. To speak that way is nothing other than a modern form of animism, attributing personality to something which is impersonal and abstract. Metaphors like "hidden death panels" are particularly insidious, since they to make equivalent two things which are decidedly opposite one another: markets governed by the rule of law and rationing governed by a bureaucracy. Perhaps Hayek was right when, particularly in The Fatal Conceit, he argued that the human tendency toward animism is an ever-present obstacle to perfecting the free society. This tendency, it seems, is as vibrant among the intelligentsia as it is among the average person.

As rationalists we tend to act as if the choice is between smart, benevolent people doing their best to give everyone a fair share and a cold, impersonal system which amounts to nothing more than "survival of the fittest." This dichotomy is built on the presumption that our reason is sufficient to solve the economic problem of scarcity. Completely ignored is the problem of information. We tend to think that all the knowledge needed to run things is theoretical. In the health care debate, people talk as if the only thing we need to do is more research in laboratories to try to make health care technology even better. This is not the case. The health care problem is the same as any other economic problem: trying to match the needs of consumers with the resources available. This problem is what I call a higher-order problem, in that no one human mind or even team of minds can solve it (not even in theory, I would argue). This is a consequence of the fact that there does not exist a complete list of values by which to match resources to individuals.

Thus we would like to have a mechanism by which to allow some spontaneous order, which tends to match consumers to their needs while overcoming the problem of information. This is what a free market does. It is a decentralized solution; no arbitrator need make any decisions about who gets what. The only need for government is to make sure everyone follows the rules of the game (which is certainly not always the case today!) and perhaps to provide a uniform base level of insurance to all participants (provided the resources exist). A base level insurance, in the case of health care, could be some sort of catastrophe insurance, or perhaps a certain dollar amount which may be spent on medical treatment. Nothing like the plan which exists today, which gives the government ever more increasing power over which kinds of health insurance options we have, could possibly be called a free market solution.

I don't know whether free markets are the best at solving problems the way we wish them to be solved. However, I also understand that the way we wish a certain problem to be solved now is necessarily based on the knowledge which we currently possess, and there is no reason to suppose that this knowledge is really sufficient to make long-term decisions about how the economic problem of health care will be solved. What we need, rather, is a solution which is itself dynamic, which can grow and adjust to coming changes, which will naturally adapt itself to changing and perhaps unknown needs. This is something only free markets can do.

It isn't a matter of "trusting" free markets, to return to my original theme. It is a matter of understanding them. Any talk about "market rationing" is simply a philosophical and/or scientific misunderstanding, and it obscures right thinking about economics. True, we may prefer to trust governments to ration rather than allowing markets to provide spontaneous order. And true, we may after all believe that governments have enough information to properly distribute health care to individuals. But that is a choice based on a remarkable amount of faith, of which I for one am skeptical.

1 comment:

  1. The essential problem we have in thinking about how markets and governments work is theological, isn't it? The market is a god or a collection of spirits who must be placated, served by a specialist or clergy of some sort who can apportion its gifts appropriately and communicate with it on behalf of the laity, and who better than the state?


I love to hear feedback!