Vouching for healthcare, Part 3

We have already discussed the two benefits of markets – efficiency and liberty.  Win/win trades increase output, in terms of net happiness as measured at the level of the individual, by using the same inputs.  And they allow us to decide freely with whom we will trade and for what.

And we have talked about two of the three fundamental flaws of markets.  They overweight the individual over the group.  No matter how much we want to protect the sick, markets have no mechanism for responding to that group-level desire; they only respond to individualistic interests. And markets overweight the prevailing distribution of resources, meaning that who will trade with whom is a function of what we each have to begin with .  If you are stuck with the lead hat, no one will trade with you.  There is no mechanism within a market to allow the poor to trade their way to wealth.

Now we look at the third fundamental flaw of all markets.

Favoring the instrumental over the intrinsic

If you were my friend, and you had a car and I didn’t, would you drive me to the airport?  I think you probably would, if you had the time. 

And when we got to the airport, and I pulled out $40 to pay for your time, what would be your response?  If you were a struggling graduate student, you might say something like “Naw, just give me a couple of bucks for gas.”  But would you take the money I was offering to compensate you for your time and effort?

Some of you might, but my guess is that the vast majority of people would not take the money.  In fact, if I insisted, I would predict that most of you would feel somewhat insulted by the offer.  “I didn’t drive you to the airport to make money.  I did it because I was your friend, and you needed my help.”  The motive for your efforts was the intrinsic value of friendship, not the instrumental value of making money.  And, when I offered you the money, you felt badly by the reduction of that friendship into some kind of payback.

If you are an economist, you are probably thinking right now “Well, I would take you to the airport in exchange for the possibility that you might take me some place in the future.”  Seeing everything as a matter of an exchange is one of the downsides of spending too much time studying markets, where everything is a trade.

Is that why you drove me, in order to have an option on my future energy to call upon?  If so, then you would only pick friends with sufficient resources to make the friendship “worthwhile.”  Is that how you pick your friends?  I think not.

I remember sitting in a room filled with economists who were listening to a presentation by a budding economist who had discovered that women whose first child was a boy had gained 15 pounds more weight by the time they were forty than women whose first child was a girl.  The question on the table was “Why is this the case?”  The answer that most of the people in the room liked was that a women with a boy child had a stronger bargaining position vis-a-vis her husband, and so could “afford” to gain a bit more weight without threatening her position. 

Really? I said.  Is that how you all see marriage?  When I questioned this theory, I was told by the roomful of economists that there is plenty of scientific evidence that marriage is just such a bargaining process.

While I believe strongly in the give and take that is marriage and while there is no doubt a lot of financial aspects of being married, I am not fond of thinking of it like a marketplace bargain.  Isn’t something lost in the conversion of the intrinsic value of a marriage into the instrumental value of a financial bargain?

Yes.  So, I believe that you answered my need because you are my friend, and you acted out of friendship, not because it was a good investment strategy.

What if you were a taxi driver?

OK, now imagine that you are a taxi driver, and you drive me to the airport.  When we get there, I take your hand warmly and give you a big smile.  “That was a great time,” I say, “let’s do this again soon.  Maybe with the families next time?” 

Sorry, but you want your $40.  Not because you didn’t have a good time, and not because you don’t think I am a fine person, but because your motive was the instrumental value of “making a living.”  You didn’t drive me to the airport because I was your friend, but because I was your customer in an exchange relationship.

And the point is that “Motive counts!”  There is nothing wrong with being a taxi driver, but it is different from being a friend. 

The motive behind Medicare

This is what we miss when we thoughtlessly decide to “privatize” programs that were otherwise motivated by concern for “the other.”  In the middle part of the 20th Century, a large number of poor people in the US were the aged, struggling to meet their increased healthcare needs, and ruining their financial condition in the process.  We passed Medicare in 1965 in part because we cared about these people and wanted to provide them a way to avoid poverty caused by medical need.

How cynical do you want to be?  Because you can see the passage of Medicare as a step toward more governmental control over the economy, as a means of spending tax money to support hospitals and doctors, as a hand-out to the elderly by politicians who know that the elderly vote in disproportionate numbers, as a way for “forty-somethings” to avoid having to pay for Mom and Dad’s medical bills.  In other words, you can interpret this action as an instrumentality; we passed Medicare for the elderly so that the rest of us could realize some gain.

But you can also see it as a caring effort by the community, through its agent, the government, to lift our parents out of poverty.  And, at that level, Medicare has been a stunning success, as the elderly are no longer a large portion of the poor.  And we ought to feel Good about that, the creation of our intrinsic commitment to that population.

The third fundamental flaw

So, when we privatize Medicare, as the right wing are proposing, we are taking that intrinsic value and turning it into an instrumental exchange relationship. 

That’s the third fundamental flaw of all markets.  Because the basis of all markets is “voluntary exchange,” they have no mechanism for valuing things for themselves (“intrinsic”) but only for what they can get you in exchange (“instrumental”).

Yet, motive counts. 

Do you want to get your healthcare from a person or a hospital that you believe is motivated largely by the desire to care for you?  Or would you get the same or better care from a doctor who was a shrewd bargainer and saw you as a means to make more money?

I propose that there is a difference between “Making money in order to care for people” and “Taking care of people in order to make money.”   Sure, the caring doctor or hospital has to worry about the bottom line, but the making of money is the means to the end of caring.  While the for profit hospital is using the provision of healthcare as a means to the end of profit. 

Motive counts.  And if markets only respond to the instrumental, then they are probably a poor choice for allocating healthcare motivated by the intrinsic desire to be a more caring society.

Getting closer

OK, we are getting closer to being able to apply all of this to a proposal to convert Medicare from a universal, single payer system for our elderly into a market-like transaction through issuing vouchers for the purchase of private insurance. 

But first we need to spend some time talking about bicycles.  Because markets only work if there is “consumer sovereignty,” and, in the next part blog posting, we will look at a market for bicycles in order to illustrate that point.