Friday, February 26, 2010

Free Market Solution to Healthcare Problemsby Alex Merced

Free Market Solution to Healthcare Problemsby Alex Merced (

In order to understand how a Free Market can solve many of the problems in healthcare we must understand the cause of these problems. What are these problems?

1. Culture of Sugar: Due to the excessive amount of Sugar/Fructose Corn Syrup found is everything we consume from soda, cereal, etc. We have over time created a culture where eating excessively unhealthy foods is normal which increases the demand for costly healthcare services. How did this normalcy come to happen, a lot of it happen to lower than market prices in Corn caused by Corn Subsidies which has made Fructose Corn Syrup and the products that use it so cheap, making it easy to have these unhealthy foods become cheaper than healthier organic alternatives. This hurts poor families the most since they will be more than likely to buy these cheap high sugar foods.

Solution: Abolishing all subsidies would fix many pricing problems in society; this would make the cost of Fructose higher and help balance out the prices of unhealthy foods to those healthy foods. You can also abolish any tariffs or other trade rules that increase costs to import healthy fruits and foods. This will begin the process of repairing the cultural norms and healthy consumption.

Lesson Learned: Subsidies, Taxes, and Tariffs are “non-neutral” policies meaning they push the chosen values of those who enact them which can cause all sorts of market malfunctions since the market should be neutral, so the consumers have the full autonomy to be “non-neutral” in their individual decision and transactions. So a free market solution will never create subsidies, Taxes, or tariffs but instead will abolish these to make the market more neutral, which will let the market adjust to its participants and values, and let its participants values adjust to real costs.

2. Supply of Healthcare Providers: Since people live such unhealthy lives due to market intervention in the food supply, the demand for healthcare services has increased which then causes the price to go up. Several things that have reduced the supply of healthcare providers have increased the price due to the small supply to fulfill the large demand. Regulations limiting which doctors can provide which services, or what nurses and other healthcare practitioners can do, limits who can provide these services. This gives the benefit of increased wages to doctors, since there is less possible competition to perform the services that they can provide. These higher wages are deemed necessary cause of the high cost of education that must be paid off to become one of these high level healthcare providers. So the high cost of education justifies the high wages of doctors which in part justifies the high cost of healthcare.

Solution: We can reduce education costs in many ways, mainly by addressing the excess demand created by education subsidies like Sallie Mae. Addressing these subsidies would not only decrease the cost of education of doctors but of all education as high education facilities would have to compete more heavily on price. Also you can increase the supply of healthcare providers by deregulating some of the rules that prevent Nurses and other healthcare providers from providing the most basic of healthcare services which they are capable of. The increased supply would push down the wages of doctors making doctors more accessible and affordable for the highest level of healthcare services since nurses will free up many of the routine and basic tasks that can reduce the supply of available doctor time.

Lesson Learned: High Wage policies in the end make goods and services either scarce or overpriced, and many times both. Wage policies are tantamount to price fixing, and price fixing has always proven to cause problems in market behavior. If you manipulate the wage directly, you’ll see an adjustment in supply and if manipulate the supply you’ll see an adjustment to wages. Either way, this is bad policy and by removing policies that effect wages the market will be more free to price accordingly, for a world of high wages and low prices is a paradoxical goal of any government which will never work.

3. High Cost of Insurance: Due to the unhealthy culture demanding healthcare, and the shrinking supply of potential providers has increased costs to the point where people can’t afford to pay for the most basic of services out of pocket creating a dependency on insurance plans to foot the bill. The business model of insurance was never meant to serve this function, the insurance model is based on risks and was supposed to create policies to cover specific risks not pay you day to day expenses. Even though insurance has somehow become the day to day provider of basic healthcare, there are many barriers to it having the right incentives to provide relatively affordable plans. Most of the problems with insurance providers have to do with the state regulations on healthcare both prohibiting interstate competition, and mandating minimum or fixed level of coverage.

Prohibiting the interstate competition of insurance companies prevents one of the most fundamental price controlling mechanisms that is competition. This allows insurance companies to provide less service for more prices due to a lack of an alternative.

Regulating the different offerings of an insurance company create problems in how to provide services to a growing consumer base. If an insurance company is mandated to provide complete care in all their plans then it’s hard for them to offer insurance to someone with a pre-existing condition because it isn’t a policy based on risk, but on certainty of a loss to the company which could cause the company to fold meaning no insurance for anyone.

Solution: By removing the interstate trade prohibitions and allowing flexibility in the level and types of services provided the pressures and ability to lower costs will occur. Although, one must remember the function of insurance and lowering insurance cost is only a temporary solution until the real problem of high healthcare demand and low healthcare services supply is addressed which would eventually make the insurance issue a non-factor. Once real sane prices to basic healthcare services are back the consumer can pay for their basic healthcare out of pocket and buy policies to cover the RISK of the need of high level care.

Lesson Learned: While this country is a republic and the power to the states create and enforce laws is a pivotal and important part of our system, the freedom to trade and exchange unrestricted with other should be revisited as a human right in a possible amendment. Allowing government to restrict trade only hampers the standard of life of its people

Conclusion: This is only the tip of the iceberg of what has to be done to free the market to see real prices for healthcare services. Here are a few of the many other problems affecting the healthcare pricing system.

- Regulation by the FDA which makes the process of releasing to new drugs, and healthcare technology very expensive which gets passed onto the consumer
- Regulation prohibiting international drugs and healthcare services to be provided in the nation
- Intellectual Property laws and how they affect the ability to have competing alternatives to new drugs, and possibly hamper innovation.
- The ability for non-profits and Religious organizations to provide free or low-cost healthcare which has been reduced by regulations
- The liability structure of mal-practice suits, often referred to as Tort-Reform
- Abolishing the tax incentives that make consumers dependant on employers for healthcare which reduces competition in healthcare and in labor.

What we shouldn’t do: More regulation will just create more malfunctions of the market, and a public option provided by a government that can absorb losses better than the private sector will eliminate the private sector and then have to carry the entire nation which is a burden that will eventually catch up with itself and leave the next generation in a worse place just for a short term band aid.

Wednesday, February 24, 2010

What Makes Free Markets Work by Alex Merced Presents...
A Summary of what Makes a Free Market Work
by Alex Merced
Recommended Resources to Learn More About Economics:

1) Voluntary Price Systems
Resources are best allocated by a voluntary price system where prices are set by volutary exchanges by people in a free market. If the market is free from intervention prices will reflect the supply and demand of goods helping them be used more efficiently, and encourage individuals to invest in innovations that will address scarcity.
Let's say without subsidies and intervention the price of energy under current technology becomes high, since energy is a need it will encourage investors to invest in research in development of alternate energy sources. Since many market actors will invest in different types of alternatives, over time the most efficient one will survive since it will provide the lowest costs.
Problems that cause goods not to be priced efficiently are many, and are generally cause by the government intervening in the pricing system. Here's a list of some ways a government can manipulate a pricing system and cause economic inefficiencies.
Taxes: By taxing the people, it can create market incentives by giving tax deductions or credits which will increase the demand for a good increasing the price and lower the demand for other goods decreasing the price relative to where it's voluntary price should be. This will create false price indicators to innovators and investors of where innovations and capital are needed.
Price Fixing: By fixing prices the government can cause shortages or surpluses of goods. A government creates a central bank to in part fix the price of money (interest rates) although creating an artificially cheap money will cause overinvestment which will turn into malinvestment (cause of bad price indicators) which will create a shortage of capital later on when the malinvestment causes economic problems. Another price typically fixed is wages by putting controls on the minimum wage it makes low-skilled labor more expensive than it's supply, so then employers are able to attain less laborers meaning less jobs creating a surplus of labor(unemployment).

2) Competition
In a free market free from intervention, anyone with even little to no resources can make an attempt to compete with the biggest actors in the market. While dealing with one small competitor would not make a dent in a large established company, a plethora of competition can diminish enough of their business that if they don't innovate or improve their serivce/product they will be removed from the market. This competetive pressure improves products and services, and requires that no artificial barriers to entry be put such as regulations, licensing, and other controls that prevent competition.
If there is no intervention in competition there can be no monopoly pricing even if there are monopolies, cause if a monopoly changes his price or service it would trigger competition. Monopoloy pricing can only exist if government imposes rules and fees to prevent competition and reduce competitive pressures on established actors.

3) Innovation
At the End of the day the goal is to increase the standard of life which can only come from innovations that make life more efficient, make less labor neccessary to do chores, make leisure time more enjoyable, etc. Innovation is encouraged through competition. Innovation in the most valued products and services occur with a voluntary pricing system since it indicates to innovators where innovations are most desired. This is why a free market is important to maintaining an improving standard of living.

4) Money
Money, or the medium of exchange is just as prone to all benefits of a free market as any good or service. Allowing voluntary pricing and competition in money will allow for more stable money that will make pricing as an indicator more clear and efficient to innovators and investors. So government monopolies and regulation of money have all the same negative effects it would on any other good or service. Central Banks & Legal Tender Laws only give the government a mechanism to borrow money to infinetly expand at the cost of market and the price systems ability to work efficiently reducing the standard of life of governments people.


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