Posted on 03/22/2010 9:10:53 AM PDT by SeekAndFind
When President Obama spoke to House Democrats the day before the House voted on his health care reform bill, he said, ” … ultimately the truth will out”:
I am convinced that when you go out there and you are standing tall and you are saying I believe that this is the right thing to do for my constituents and the right thing to do for America, that ultimately the truth will out.
Now that Congress has voted to approve his bill, the truth will out. We can only hope that it won’t be too late to repair all the damage that will have occurred by the time it finally does.
A topic noticeably absent from public discussions of bending the health care cost curve down has been the economics of health care supply and demand. The phrase “supply and demand” is often misunderstood. What supply and demand curves measure is the effect of price changes on quantity supplied and quantity demanded. Higher prices encourage greater quantity supplied, while lower prices encourage greater quantity demanded. A professor might illustrate this in an economics class by posing a couple of hypothetical situations.
He might say: “I want to buy a car. Right now. Is there anyone in this classroom willing to sell me theirs? I don’t care what it is.” Then the professor would make an offer. A lowball offer, maybe $100. No takers.
So the professor would start to up his bid. In the $1,000 to $5,000 range, a few hands might go up. When he gets to the $20,000 to $30,000 range, more hands go up. No surprises there. But if he continues increasing his offer there will come a point, maybe when he gets into the hundreds of thousands of dollars, where everybody in the class will have a hand in the air.
When you plot this phenomenon on the Cartesian plane, you get a line starting in the vicinity of the intersection of the X-axis, which represents quantity supplied, and the Y-axis, which represents price. The supply curve extends upward as you go from left to right — graphically illustrating that as price goes up, quantity supplied tends to go up.
The inverse is true on the demand side.
The professor might offer to sell his car to anyone in the class who is willing and able to buy it. For the sake of argument, the professor offers his 2010 Porsche Panamera which retails in the $89,800 – $132,600 range.
Offering a Porsche at anything under $10,000 is likely to have every hand in the class up in the air, since it would make wonderful sense to just buy it and flip it. As the price gets closer to $50,000, still well under the retail price, the entire class might still be willing buyers, but not all will be able buyers. Some, maybe most, won’t be able to swing it financially. And when the price gets into the suggested retail value range, if there are any takers left they will ask: “OK, so what’s in this car? Is it still a good deal at this price?” It’s not a good deal once the asking price gets above the suggested retail value, and when it gets significantly higher buying it makes no sense to even consider.
A graph of the demand curve starts in the upper left hand side where price is high and demand is low, extending downward as you go from left to right. This illustrates that as the price goes down quantity demanded goes up, since there are more people who are willing and able to buy.
The fun begins when we superimpose the supply curve over the demand curve and find an “equilibrium point” at their intersection. In a free market the price at the equilibrium point represents the value of whatever thing you’re tracking, as determined by buyers and sellers, often numbering in the millions, who have voted on it with the dollars they spend. The equilibrium point has another noteworthy characteristic: At equilibrium, quantity supplied and quantity demanded are roughly the same.
The equilibrium point tends to be a fairly accurate indication of both the value of a thing and how much of it sellers can expect to move. But that doesn’t necessarily mean everybody will by happy with that situation.
When OPEC members are unhappy with the low price of oil, they will occasionally try to influence it by agreeing to cut production. Fortunately, the oil market is competitive and OPEC members have a hard time staying in agreement. When OPEC members successfully maintain solidarity, they can be fairly effective at forcing a price change. At least in the short run, since it usually doesn’t take long for one of them to feel the pinch from reduced revenue and boost production.
In the discussion of supply and demand it is important to recognize that an OPEC production cut, which is a change in quantity supplied, does not represent movement along the quantity supplied curve. It is a shift of the entire curve. OPEC’s production cuts shift the supply curve to the left, creating a new supply curve, and along with the new supply curve we get a new equilibrium point with a higher equilibrium price and lower quantities demanded and supplied.
What we ought to be trying to achieve with health care reform is just the opposite of what OPEC does. For health care reform to have any hope of success at bending the cost curve down there must be something in it that encourages a greater supply of health care services. We need to shift the health care supply curves from left to right. Without some technological leap — which is not something that can be legislated — this means increasing the supply of doctors, nurses, medical technicians, and other providers.
It so happens, the health care reform bill just approved contains a provision for a fairly significant personnel increase. Unfortunately, it does not call for more trained medical talent.
This bill authorizes the IRS to hire 16,000 new agents to enforce the bill’s requirement for individuals and businesses to buy “government-approved” health insurance.
Instead of increasing health care capacity and moving the supply curve in a direction that will drive down costs, Democrats prefer to impose price controls. They favor a plan to give the federal government the power to reject proposed health insurance rate increases. They would also like to give the secretary of health and human services the power to order insurance companies to give back part of premiums if the government should decide that companies spent too much on salaries or advertising. Though Democrats couldn’t get it into the current bill, they will continue to push for federal authority to “prevent unfair rate hikes.”
But here is what government imposed price controls actually do and what problems they cause. Back in the 70s when OPEC was able to shift the supply curve, our federal government, in its infinite wisdom, maintained a price limit in the vicinity of the old equilibrium point.
Reminder: What supply and demand curves measure is the effect of price changes on quantity supplied and quantity demanded.
Maintaining an artificially low price provides a measurable disincentive for suppliers to supply.
Notice the point on the new supply curve where it intersects with the imposed price limit. The artificially low price also provides great incentive for buyers to demand more. Notice the point where the imposed price limit intersects with the demand curve. The difference between quantity demanded at the imposed price limit and quantity supplied at the imposed price limit represents a shortage.
Anyone old enough to remember life under Jimmy Carter may recall the summer of 1979 when a price control on gasoline caused a shortage that had cars lined up at gas stations across the nation. Rationing schemes were instituted, like using odd and even numbered license plates to say who was allowed to pull into a gas station on which days.
On the health care front there are additional complications. Democrats contemplate imposing price limits at several levels.
Besides the “unfair rate hikes” that they will no doubt seek to prevent by regulatory means, there are already controversial limits on physician reimbursement for services provided under Medicare. Doctors have been opting out of Medicare for years, and that trend can be expected to get much worse. Once our new health care reform bill has had time to take effect, we can expect fewer insurance options as price limits take their toll on that supply.
In an article describing the bill’s passage, this morning’s Washington Post put the spotlight on the factor that will do the most to drive medical costs through the roof.
House Democrats scored a historic victory in the century-long battle to reform the nation’s health care system late Sunday night, winning final approval of legislation that expands coverage to 32 million people and attempts to contain spiraling costs.
By suggesting that the bill attempts to contain costs, the Post is oblivious to the significance of expanding health insurance coverage to 32 million more people.
Adding that many to the insurance rolls will shift the health care demand curve to the right, creating an even higher equilibrium price for any care that is not subject to federal price controls. For medicine and medical services subject to price controls, shortages will be even more pronounced.
The health care takeover that House Democrats have approved will take us back to those days of shortages and malaise.
The fight over it is so much like the one we had back then when Democrats railed against oil company profiteering, and pretended to champion the “little guy” by promising to keep gasoline affordable.
They succeeded in making it painfully scarce.
Today’s Democrats rail against the evil insurance companies and their profits, and once again pretend to champion the little guy. This time it’s medical care, not gasoline, that will be in short supply. The new bill will have a significant impact on seniors, since cuts to Medicare and Medicare Advantage are a large part of the plan’s advertised savings, and that means more doctors will be opting out as the cost of everything medical skyrockets.
If there is a ray of hope in all this, it is that Washington finally woke up to the fact that gasoline price controls didn’t work, but it took a Republican president to get them lifted. It will take a Republican president and a Republican Congress to straighten this mess out as well, and there is no guarantee they will be successful.
I hate to break this to the author of the article, but this is exactly what one of the key points of the "health care reform" bill is all about . . . to start cutting back on the money being spent for health care for people who aren't paying their own way anymore.
The examples the author cited to illustrate the principles of supply, demand and pricing . . . involving the professor, his class, and the sale of a car . . . is appropriate for a discussion about general economic principles, but has no bearing on the discussion about health care. The reason for this is that health care services in this country rarely ever involve an interaction between a single buyer and a single seller. The presence of an intermediary (an insurance company or a government agency) throws everything out of kilter.
A more appropriate example would have involved a professor who offered to buy a car from his class . . . but would have the government or another third party pay for it instead of paying for it out of his own pocket. At that point, he really wouldn't care how much it cost but would be adamant that he had to get his hands on the best car anyone ever owned.
Lest anyone think I'm exaggerating, let us note that the hate campaign against anyone opposing health care "reform" has ramped up with its passage in the House instead of abating. Opposition to 0bama is now openly smeared as racism and that will continue until 2012. They're setting up critics as scapegoats for the inevitable shortages and failures, and it's going to get very much nastier before it's all over.
The Dems want the system to break. That is the fastest course for them to achieve a single payer system.
what the hell does “the truth will out” mean?
Which is when he chooses a single buyer and informs the rest of the class that he will extract an equal amount from each student's checking account to fund his purchase.
Good article.
But less than .000100% of America will read it and less than 3% understand it.
When the DemonRats next get on TV screaming about evil Fill in the blank here) companies or Parties or Voters
53% of America will sagely nod their heads and mutter
Dat Right! Go get ‘em ‘Rats.
What do we do in a situation like that???
RE: what the hell does “the truth will out” mean?
Meaning
The truth will become known eventually.
Origin
From Shakespeare’s The Merchant of Venice, 1596:
LAUNCELOT: Nay, indeed, if you had your eyes, you might fail of the knowing me: it is a wise father that knows his
own child. Well, old man, I will tell you news of
your son: give me your blessing: truth will come
to light; murder cannot be hid long; a man’s son
may, but at the length truth will out.
I predict a vast supply of private medical clinics, staffed by former US physicians, cropping up in Mexican border towns. Cuba offers opportunities too, once the old tyrant is out of the world’s misery.
Oh, naturally. So does everyone die in the end, when the truth will out?
Socialists and communists, when faced with the abject failure of their programs have two choices. One is to fall back and retrench admiting at some level they failed, the other is to apply limitless force as required.
Ask the Ukranians of the 1930’s about Stalin’s reconsidering the wisdom of collectivization.
They will drive the private insurers out of business,
implement government single payer,
put their bureaucrats in charge of it,
and use the denial of medical care as a political weapon.
In order to make any part of this bill work - THE GOVERNMENT HAS TO CONTROL PHYSICIANS, HOSPITALS AND PHARMACIES.
How do they propose doing that?
A rare boatload of bananas arrived in the Soviet Union.
Stalin’s son rushed to give some to his father.
Stalin peeled one. It was not yet ripe.
Stalin peeled another. It was not yet ripe.
Stalin peeled yet a third one. It was not yet ripe.
He began to shout.
Who did this?
Who is sabotaging the Soviet Union?
What is the name of the ship? Who is the captain?
Get me his name!!! Heads must roll! (over a few bananas)
And all the little flunkies began scurrying around the dacha looking for phones to call and investigate this wrecking of the Soviet Economy (from the book “Stalin”)
Well America,
this is what we now have.
BTW
did you know
that with the breakup of East Germany, there were people who for the first time in their lives could now see and eat a banana???
Reason?
The powers on top, the bureaucrats, had decided there was no need to import such a rarity. No need for the people don below to have them.
In the USA today, they cost about a dime or twenty cents each don’t they?
We now all live under a system, if it continues, where a government flunky will now decide EVERYTHING.
And the Dems in Congress, not knowing or understanding any of this, will smile and look around for something else to wreck. Er, I mean, reform.
We want our reform now!!!!!!!
i.e. you got it we want it let’s go get it.
BTW, the great Alexandr Solzhenitsyn went to Siberia for 12 years for a joke he wrote about Stalin, in a private letter, during WW II. While an artillery captain. Stalin hated joke writers more than he wanted soldiers while fighting for his country’s survival. Think about it
Keep well, stay safe everyone.
May God bless all my fellow FReepers cuz it is sure as hell that the Democrats won’t.
Bookmarking THAT description. Maybe that’s something my lib friends will understand.
“I predict a vast supply of private medical clinics, staffed by former US physicians, cropping up in Mexican border towns. Cuba offers opportunities too, once the old tyrant is out of the world’s misery.”
Already doing that: Dentists and plastic surgeons.
The poll from Friday showing that something like 46% of US physicians would quit rather than practice under CommieCare is a perfect example of supply being reduced as the amount offered for that supply is reduced.
Will Dumb0 do like France and start importing “doctors” from Africa in order to replace the American doctors who will quit (or who will decide not to enter in the first place?)
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