Friday, December 18, 2009

Econ 101

I have a simple economics question for those in the administration (and their supporters like Nobel Laureate™ Paul Krugman who believe government is the solution to all life's problems). They claim that Obamacare will reduce costs. Leaving aside Max's comments below that the government has no track record of ever bringing anything in under or even at budget (or indeed under 2-3x initial budget estimates), I have a more fundamental question. The purpose of all the plans (stated if not what will be delivered) is to bring healthcare to more people (i.e. increase the demand for healthcare). At the same time through price controls (explicit and implicit) the government plan will certainly discourage suppliers of healthcare; a large percentage of doctors have indicated they will retire early if the plan is enacted, fewer people will choose medicine and nursing as careers, pharmaceutical companies will cut back research efforts. The overall effect will be to reduce the supply of healthcare.

Now here is my Econ 101 question: what happens to price when you increase demand for a product and reduce supply? Maybe Nobel Laureate™ Paul Krugman can concoct a reason for some massive contortion of the supply and demand curves that will cause prices to fall, but since I can see no reason to assume that there will be any change in the shape of supply and demand curves the expected effect is to cause prices to rise or if prices are prevented from rising then causing shortages to occur. Evidence from everywhere with socialized medicine in place would conform that the basic laws of economics still work and shortages in the form of fewer drugs, longer wait times, restrictions on care are the norm.

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