The Politics of Scarcity

If you want to know why I’ve been harping on supply whenever the subject of healthcare reform comes up, you need look no further than Martin Feldstein’s op-ed in the Wall Street Journal:

Although administration officials are eager to deny it, rationing health care is central to President Barack Obama’s health plan. The Obama strategy is to reduce health costs by rationing the services that we and future generations of patients will receive.

The White House Council of Economic Advisers issued a report in June explaining the Obama administration’s goal of reducing projected health spending by 30% over the next two decades. That reduction would be achieved by eliminating “high cost, low-value treatments,” by “implementing a set of performance measures that all providers would adopt,” and by “directly targeting individual providers . . . (and other) high-end outliers.”

The president has emphasized the importance of limiting services to “health care that works.” To identify such care, he provided more than $1 billion in the fiscal stimulus package to jump-start Comparative Effectiveness Research (CER) and to finance a federal CER advisory council to implement that idea. That could morph over time into a cost-control mechanism of the sort proposed by former Sen. Tom Daschle, Mr. Obama’s original choice for White House health czar. Comparative effectiveness could become the vehicle for deciding whether each method of treatment provides enough of an improvement in health care to justify its cost.

I really need to write that post on comparative effectiveness research some time. The notion is still in its infancy and may have some serious methodological flaws. Note that comparative effectiveness research and evidence-based medicine are not synonymous.

The pessimistic politics of scarcity has never been effective in the United States and it’s foolish since there are alternatives which include reducing excessive demand (largely through the tax code), increasing the supply (through a host of measures and, importantly, greater use of technology), and economic growth.

12 comments… add one
  • steve Link

    There is a difference between rationing and not subsidizing ineffective care. Looking at Medicare studies, areas that spend more usually do not have better outcomes, even controlling for patient traits. A lot of what is done in practice now follows neither evidence based principles nor (the non-existent) cost effectiveness research. I think we could generate large savings from CER, but it would take a lot of political will as those who are making money, especially Pharma, some physicians and the device makers would generate an easily executed scare campaign. Polling consistently shows that rationing is an important buzz word.

    This very article supports my assertion about the importance of using rationing as a scare tactic. I am willing to be I would not have to go back through a lot of WSJ issues to find someone ranting about fraud and abuse in the Medicare system. A lot of that falls under the area of “high cost, low-value treatments,” as noted above. Lots of laminectomies, imaging studies and total joints are being done with marginal or no indications. But, instead of opposing that kind of waste, the WSJ invokes rationing.


  • Steve, my main point here is political rather than scientific or even economic. Emphasizing restrictions and scarcity over choices and abundance is a strategic approach that I think is almost certain to fail.

  • Dave,

    I think you are making an error when you dismiss the politics of scarcity and then point to supply. Supply curves (more accurately functions) are the result scarcity just as are demand curves. Suppose you are supplying stethoscopes, behind that supply curve in that industry are demand curves for the inputs which themselves are scarce.

    Yes, we can try to increase supply, but that entails a reduction somewhere else at any given point in time. While trade is not zero-sum in total, when looking at inputs and outputs it is largely zero-sum when looking at the isuse over a suitably short time horizion. The human population is (effectivley) fixed over that period. As such there is a hard upper-bound on the possible number of doctors. If you increase the number of doctors at that time, you have to necessarily decrease the number of other people in other jobs.

    Yes over time we can have more health care than at previous points in time, but scarcity in economics doesn’t address this, it is a relative concept. How much of X can you have vs. Y.

  • I’m looking at economic growth and increasing supply as two components of the same phenomenon rather than two unrelated things.

  • steve Link

    Dave- Thanks, see what you mean now. I am less interested in playing politics so I miss those points a lot.

    One point I keep meaning to research but never do, do docs cost more because of their salaries or what they order? If the latter, increasing the number of providers may lower their salaries, but lead to increased system costs. Sumner had a very entertaining post on supply and demand btw.


  • I’m looking at economic growth and increasing supply as two components of the same phenomenon rather than two unrelated things.

    I don’t think you are.

    Increasing supply and economic growth can happen, but that does not mean there isn’t scarcity or that scarce items are no more abundant. And the thing to remember is scarcity is a relative concept even with economic growth. Sure in 10 years we might have more stethoscopes and surf boards, but there are still relative trade offs. That is, suppose we could have 10 stethoscopes and 12 surfboards in 10 years on path X. If you think switching to path Y is bigger you might have 11, and 11. You have in effect given up one future surfboard for 1 future stethoscope. Scarcity is everywhere, it is why the supply curve slopes up, it is why demand decreases as price increases. Saying you can side-step scarcity by increasing supply or economic growth isn’t really true.

  • I think we may be talking apples and oranges. 200 years ago communication and information were labor intensive and very expensive. It took months to send a message from New York to Saint Louis–so expensive it was rarely done. Now it’s so inexpensive we scarcely keep track of the cost. Communication and information are abundant.

    Healthcare has deliberately stayed at the labor intensive expensive stage. It doesn’t have to be that way.

  • I see you talking about technology as a price-reducer, Mr. Schuler , but I’m not seeing what you’re getting at.

    Could I, say, bypass a doctor, by providing a urine sample directly to a lab, where if all is hunky dory, I don’t see a doctor at all? Mind, I’m not objecting to the notion. I’m just not seeing the mechanisms you might be thinking of.

  • That would be one example, Janis. I can imagine walking directly into a pharmacy, taking a blood test, and having my prescription issued.

    Then there’s telemedicine. Remote surgery. Many other possibilities.

  • steve Link

    “Healthcare has deliberately stayed at the labor intensive expensive stage. It doesn’t have to be that way.”

    OK, I am working on the nlabor floor tonight, very labor intensive. Do you have a previous post explaining what you think these labor saving items might be? Remote surgery is a long way off from being practical and it is very expensive. We have a robot. It takes much longer to use and requires more staff. The safety factor is not high enough yet to not have a surgeon present. Telemedicine? Maybe, especially for a few practices like Radiology and Dermatology. However, the same amount of work mostly still needs to be done. You would mostly be saving with some efficiencies. More could also be done by shifting care to some advanced practice nurses. This will save some, but not as much as one might hope as nurses with advanced degrees expect a lot of money also.


  • Surgery is intrinsically labor-intensive. There are developments in nanotechnology that could alter that somewhat but IMO they are far in the future.

  • Dave,

    Right and over that 200 years decisions were made that allocated resources to make communication cheaper and cheaper to the point where we are at now. In short sacrifices were made to get to the point we are at now. All along the way, there was the issue of scarcity. It never goes away.

    If we want to be able to walk into a pharmacy, take a blood test and get the right medication, then we’ll likely have to make decisions allocating resources today that will move us towards that goal. Since resources are allocated towards achieving that goal they cannot be used elsewhere.

    That we move away from labor intensive health care maybe be the right policy, but the idea that there is no issue of scarcity/sacrifice is not really accurate. It is basically the NFL (No Free Lunch) problem. All policy is about scarcity it is just that politicians lie and pretend it isn’t. Look at Obama and his claims of increasing and improving care and making it cheaper. You know the deal: faster, better and cheaper–pick two.

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