Some Clarification

I want to add some clarification to the posts I’ve made about inconsistencies in Matthew Yglesias and Ezra Klein’s views on the hypothetical effects of the health “reform” bill.

There are a lot of conservatives that are bashing the health insurance “reform” bill saying, “How are you going to save money and cover [insert number here] amount of people at the same time?! That’s not possible!” This sentiment — taken out of the context of the way the market market health insurance and health care is structured — is wrong.

Klein and Yglesias are on very firm economic footing in saying that it is possible to cover everyone and lower costs at the same time — in fact, it is that very principle that allows you to have all sorts of things, like cars, iPods, and fancy clothes. The fact is, in a perfectly competitive marketplace, as marginal cost falls in nominal dollars, marginal utility rises — thus more people can consume a given resource at a lower price.

Ask yourself a question: Why are the budget for action movies much larger than for comedies? Well, action movies translate into other languages more easily (the language of comedy in the US does not match up with the language of comedy elsewhere). Thus, action movies attract more capital (supply). Alternatively, it costs about the same to produce a new drug whether that drug treats 100 people or 1,000,000. Which drugs do you think get researched and produced?[1]…and it’s produced even though the revenue from each unit is lower.

Supply is equal to demand, and greater demand incentivizes capital to seek lower marginal cost (a supply side revolution!).

The only problem is, there is not a single health care bill (proposed or otherwise) that allows market incentives to operate in the health market in which they would provide immense benefit…routine care. This is the problem with their argument, not that the principle is incoherent.
[1]How Ideas Trump Crises, TED, Alex Tabarrok


3 thoughts on “Some Clarification

  1. Do you see the fallacy of your argument?

    Even if marginal cost does go down, the total cost is still going up. That’s why people ask: “How are you going to save money and cover [insert number here] amount of people at the same time?! That’s not possible!”

    Hello, Economics 101.

    1. @Watcher:

      Under your model assuming total factor costs increase, ceterus paribus, why are iPods and iPhones $100-$800, instead of $1,000,000-$8,000,000?

      Tons of people have them, I would imagine that total factor cost of production/marketing/sales/support would have had to increase at a some point…ironically, econ 101 teaches you that prices changes happen at the margin.

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