Opinion: Medicare needs market magic

The only real solution to healthcare is to separate it completely from government mismanagement

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As viewers of CBC’s national news recently learned, there is an acute shortage of doctors on Fogo Island, off the east coast of Newfoundland and Labrador. In fact, for the first time in 200 years, there seems to be no single doctor serving the nearly 2,200 people living on the island, and transportation, mainly by ferry to the mainland, is intermittent and not always reliable, especially in winter. At the best of times, it takes six hours to get to the nearest healthcare facility.

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Commentators like CBC blame the ordeal on everything but the kitchen sink: There are few island amenities; It’s too small a cod fishery collapsed. There are other regions in Canada that are much more attractive, etc.

Nonsense and empty talk has no meaning. The real reason behind the impasse is government mismanagement. Smart, thanks to social medicine, doctors get paid roughly the same for their efforts no matter where they are. (For general Newfoundland practice, their salaries range from $125,211 to $150,252, amounts adjusted by a complex formula.)

How is this unwise policy responsible for a tragedy in the making?

Consider the measurement. Why should neither the island of Fogo, nor all of Newfoundland suffer from any similar shortage of plumbers, carpenters, accountants, musicians, mechanics, electricians, cooks, and farmers, nor any other myriad professions and calls? The answer is a flexible price system and “the magic of the market,” in Ronald Reagan’s fine phrases.

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Suppose a lack of supply relayed to, say, plumbers with very few in this neck of the woods and, at least relatively speaking, very many elsewhere. Market forces will come into play. The wages of plumbers will rise in Fogo, and therefore fall relatively everywhere else. Adam Smith’s “Invisible Hand” will tempt people who take care of our plumbing needs to “go Young East” and head to Fogo Island.

But that market power doesn’t work with doctors because they can’t get enough overtime to locate where they need it most. It is true that some provinces, including Newfoundland and Labrador, are offering what amounts to an isolation fee for doctors. But salary equations don’t necessarily get the job done. Sometimes to get where you want to go you have to pay what you have to pay.

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The price system operates in the manner described throughout the twisting economy. Suppose, from the point of view of consumers, the ideal ratio between peas and carrots is 50-50. But at present, for some mysterious reason, the economy operates under the misallocation of the resources of these two goods: we now have 90 percent of the peas and only 10 percent of the carrots. What will happen? If you’ve studied at Econ 101, you know that the price of peas will go down and the price of carrots will go up. The profits from the peas will be absorbed and transferred to carrots. Cultivators will switch from one to the other. Any deviation from equal arrows will prompt these reactions immediately. This 90 percent to 10 percent distribution, if ever occurs, can be traced back to some kind of government intervention in free enterprise.

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This is why the allocation of resources between shoes and cars, between T-shirts and computers, and between all goods and services under laissez-faire capitalism, is not far from optimal.

How can the shortage of doctors be resolved? One way is for the authorities to adopt what is called “market socialism”: to try to imitate what the market would have done. They can keep increasing doctors’ salaries in places like Fogo and decreasing them in others, until at least a rough approximation they Perfect geographic dispersal has been achieved. (Note the word “they”: the end result will not necessarily be in line with consumers’ desires.)

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If you think that’s a good idea, you’re directing the work of 20th-century socialist economists Oscar Lange, Apa Lerner, and Frederick Taylor. The economies of Cuba, China, Venezuela and North Korea in this century will, historically, appreciate Lenin’s New Economic Plan in the Soviet Union, Dubcek in Czechoslovakia and Tito in Yugoslavia.

A government that runs the economy while trying to imitate the free market is like trying to change the course of a large ship in thick fog without radar: it takes a long time, and people often get it wrong. . And before they can rectify that, other changes require a different policy. Friedrich Hayek showed that the flow of information faltered, and Ludwig von Mises said that the whole system was irrational. The proof of this pudding is that with the best will in the world, supposedly the near bureaucratic guidance of the system has so far proven a fiasco for Fogo Island.

The only real solution to health care or anything else that is important to provide is to separate it completely from government mismanagement.

Walter Block teaches economics at Loyola University in New Orleans.



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