Don Your Helmets

9 June 2004

Economics Lessons for Reporters
by Craig J. Cantoni
June 9, 2004

The June 8 edition of the Arizona Republic had a front-page story with this opening line: ”More than 45,000 seniors and disabled Arizonans have saved $3.2 million on prescription drugs in the year since Gov. Janet Napolitano launched her program to help deal with expensive but necessary medication.”

In keeping with the standard journalism formula, the story had the obligatory quotes from someone with AIDS and from a single mom of three kids. It also printed quotes from leftists who think the program isn’t rich enough, from a Retard (Republican embracing taxes and rampant dependency) and from a representative of AARP, which should change its name to Bunch of Avaricious Robbers and Fleecers, or BARF, in view of the fact that it engages in nauseating lobbying for the richest socioeconomic group in the nation.

The 108 column-inch story did not say anything about the economics of the program, but if we accept the story at face value, as most readers of the Republic will, then why should the state restrict itself to buying medicine?

If buying medicine results in lower prices at no cost to anyone else, as the story implied, then the state should buy all necessities of life, including food, shelter and clothing, for all citizens. It should become a gigantic buying cooperative and issue discount cards for food, shelter and clothing.

Note to staffers Karina and Jon: stop salivating over the prospect of your socialist utopia being realized. It’s been tried before and doesn’t work. The reality of economics doesn’t go away just because economic reality is ignored.

Here are some lessons on the economic reality of drugs and health care in general:

Lesson 1: The government fatally wounded a consumer market in health care 60 years ago when misguided government policies resulted in most Americans becoming dependent on their employers for health insurance, unlike the situation for food, shelter and clothing. The coup de grace was delivered 39 years ago with the enactment of Medicare, which now has over 100,000 pages of regulations and price controls. Those who say that the consumer market has failed in health care do not realize that there is not a consumer market in health care.

Lesson 2: A couple of predictable outcomes have resulted from the death of a consumer market: First, utilization and costs have increased, due to the users of medical services not paying directly for the services. It would be akin to grocery shoppers sending their supermarket bills to their employers or the government. Hamburger sales would decline and steak sales would increase. Then, to stop people from buying steak, a huge corporate and governmental bureaucracy would issue diktats and price controls. The second outcome is immoral cost-shifting. The self-employed, the unemployed and others pay more for health care than the members of corporate and government health plans, because of cost shifting to the least powerful consumers. Cost shifting also occurs through the tax code, due to the self-employed, unemployed and others not getting the same tax breaks for medical expenses as members of corporate and government health plans, due to those with the least political power getting the shaft from those with the most political power.

Lesson 3: If pharmaceutical companies don’t get a high enough return on investment, they can’t attract capital to invest in new drugs and production capacity. This lesson plays out in Europe, where the pharmaceutical industry has been in decline due to a low return on investment, due to government meddling in the market.

Lesson 4: If pharmaceutical companies give discounts to states, they have to make up the lower profit margins somewhere else or lose investment capital. See Lesson 2 about cost shifting.

So what is the answer for the poor? Private charity is one answer. But if the state is going to be involved in helping the poor buy medicine, a system should be developed that causes the least distortion in the market and doesn’t put the state between consumers and health care providers. Food stamps are an example of a system that causes the least market distortion.

It’s become a cliche to say that there is no free lunch in economics, although the mainstream media doesn’t seem to have heard the cliche. The newspaper coverage of health care and other economic issues has too much barf and too many retards.

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Mr. Cantoni is an author, columnist and founder of Honest Americans Against Legal Theft (HAALT). He has been active in health care reform for years and can be reached at ccan2@aol.com

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