Rising Cost of Health Care

In 1978, Milton Friedman addressed the rising cost of health care:

About 2:36 in Friedman says something in a way that I have not heard before and I think it’s worth considering.

The cost of hospital care has been going up for exactly the same reason that the amount of monies being spent on automobiles  went up during the nineteens, twenties and thirties – because in the main, the public at large has wanted to buy more medical care and the market has been responding to their demands.

The main reason for the rise in costs has been because there has been pressure to expand services and provide a different variety.

Now maybe…maybe customers have been silly.  Maybe they’ve been foolish in wasting their money…but I think one of the freedoms we ought to preserve in this country is the freedom for people to be foolish with their own money.

I found that interesting.  Medical care has been evolving and innovating rapidly and continues to do so to respond to voluntary demand.

In 1900, very little was spent as a percent of GDP on automobiles.  By 1940, the percent of GDP spent on automobiles was much higher, not because automobiles was a mismanaged industry for the privileged.  In fact, it had evolved away from that.

The reason spending on automobiles was much higher by 1940 was because the automobile industry had evolved to meet demand from consumers and created a product that people found valuable enough to buy and made it affordable for many more people to buy it.

While medicine has been practiced for a long time, modern medicine is a relatively new field and it stands to reason that we are going to spend more and more on it, if that’s what we decide to do.

Many studies compare how much the U.S. spends on medical care with other countries with socialized medical care and conclude that we spend much more and get about the same results.

Yet, there are two problems with that.  First, defining comparative results is difficult.  By the measures used by many of the studies, medical results in the U.S. are middle of the pack.

Yet, by truer measures the U.S. shines.  Those truer measures are where people go when they have a choice and the effectiveness of specific medical treatments and procedures.

The second problem with these comparisons is that it doesn’t consider that, in many respects, we still have the freedom to choose how much we want to spend on health care.

In the countries with socialized medicine that freedom has been removed from citizens.

We could deem bread a basic right for everyone and fund bread through taxes and create a central bureaucracy for the distribution of bread.

If we did this, we could probably show that our country, relative to other nations that have free bread markets spend less as a percent of GDP on bread with the same, if not better results, depending on how we chose to define results.  Maybe we could define results as the number of days people eat bread.

But, is it really that bad that we spend a great deal on bread?  We choose to do that.  And the free market has evolved many innovations that work to our advantage.  We have a wide array of bread to choose from.  White, wheat, honey wheat, cracked wheat, light bread, bagels, muffins, etc. etc.

But, the innovation doesn’t stop just at the choice we have available.  We also almost always have all this bread to choose from at just about any time at a wide variety of places – grocery stores, retailers like Wal-Mart and Target, convenience stores and bakeries.


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