3 ms·

Price controls and price control problems follow. This is known.

sp332 15y ago
Exactly, which means that market forces are pretty much destroyed. When the government decides by fiat how much things should cost, there's no incentive to make a better product. It's just a race to the bottom. Not to mention regulatory capture etc.
- peteretep 15y ago
  Market forces can't be /destroyed/. Market forces just /are/. These forces don't always lead to market efficiency (which is called market failure), which I think is what you're thinking of. Most often, market intervention leads to unexpected consequences, as people have a great deal of trouble predicting the effects of market forces. The government deciding by fiat how much something should cost is more likely to lead to removal of consumer surplus, rather than a race to the bottom, if the government maintains competition amongst its suppliers. If you know you're competing on product quality at a certain price point - rather than on price - you'll likely be motivated to produce the best product possible at a price point that maintains normal profit. That's what I think anyway, but as I've already said, it's remarkably difficult to predict how market forces will play out. I do note, however, that most of the developed world gets significantly better health outcomes for significantly less outlay than the US. This suggests massive market failure in the US health market. This may be because while the US market is in theory a free market, in practice, it's anything but - it's an oligopoly with absolutely massive barriers to entry and no end of government interference. Hopefully something for you to consider!
- nl 15y ago
  That's not the case though. Universal healthcare is a safety-net, to make sure everyone gets a basic standard of care. It doesn't preclude premium offering which include "a better product". Here (Australia) we have a public health system, but you can also buy private health insurance which gets you into things like private hospitals (nicer rooms, etc).
- michaeldhopkins 15y ago
  I didn't really say that. The hard problem with price controls is difficulty producing the right amounts of goods to meet demands because of regulation needed to mandate supply of less profitable goods. It becomes very complex when so many different products are involved, and because of insufficient resources it's not possible mandate overproduction of every good.
wisty 15y ago
Yes, there are problems with socialized medicine. But there's problems with US style medicine too. Theorists can argue forever about this, but it's pretty empirically clear that the US system sucks, and costs a lot of money. The other systems suck less, and cost less. Which would you prefer?
- michaeldhopkins 15y ago
  I didn't say anything about US medicine, especially whether it has price problems and whether it could or does have price control problems. I only gave a specific answer to what happens when there is inelastic demand because of a government that can also regulate the suppliers. I see how "this is known" might be taken the wrong way, but all I meant by it was that the OP didn't need to wonder...it's found in any standard microecon textbook. I would like to think we could talk about cause and effect in isolation here without making everything a grand political statement.
Symmetry 15y ago
Unfortunatley we already have enough price control to be feeling the bite of price control problems. For instance, the ratio of what a general practitioner can charge in fees to what a surgical specialist can charge is set by the government. Its also set by a formula cooked up by a sociologist using the labor theory of value, for heaven's sake. And we do have production quotas for prescription drugs, issued by the FDA. Drug companies can set whatever prices they want but they can't change their production in response to market prices - producing more of drugs that have shown an unexpected demands. In many ways the current US healthcare system is the worst of both worlds.

sp332 15y ago

Exactly, which means that market forces are pretty much destroyed. When the government decides by fiat how much things should cost, there's no incentive to make a better product. It's just a race to the bottom. Not to mention regulatory capture etc.

peteretep 15y ago
Market forces can't be /destroyed/. Market forces just /are/. These forces don't always lead to market efficiency (which is called market failure), which I think is what you're thinking of. Most often, market intervention leads to unexpected consequences, as people have a great deal of trouble predicting the effects of market forces. The government deciding by fiat how much something should cost is more likely to lead to removal of consumer surplus, rather than a race to the bottom, if the government maintains competition amongst its suppliers. If you know you're competing on product quality at a certain price point - rather than on price - you'll likely be motivated to produce the best product possible at a price point that maintains normal profit. That's what I think anyway, but as I've already said, it's remarkably difficult to predict how market forces will play out. I do note, however, that most of the developed world gets significantly better health outcomes for significantly less outlay than the US. This suggests massive market failure in the US health market. This may be because while the US market is in theory a free market, in practice, it's anything but - it's an oligopoly with absolutely massive barriers to entry and no end of government interference. Hopefully something for you to consider!
nl 15y ago
That's not the case though. Universal healthcare is a safety-net, to make sure everyone gets a basic standard of care. It doesn't preclude premium offering which include "a better product". Here (Australia) we have a public health system, but you can also buy private health insurance which gets you into things like private hospitals (nicer rooms, etc).
michaeldhopkins 15y ago
I didn't really say that. The hard problem with price controls is difficulty producing the right amounts of goods to meet demands because of regulation needed to mandate supply of less profitable goods. It becomes very complex when so many different products are involved, and because of insufficient resources it's not possible mandate overproduction of every good.

wisty 15y ago

Yes, there are problems with socialized medicine. But there's problems with US style medicine too. Theorists can argue forever about this, but it's pretty empirically clear that the US system sucks, and costs a lot of money. The other systems suck less, and cost less. Which would you prefer?

michaeldhopkins 15y ago
I didn't say anything about US medicine, especially whether it has price problems and whether it could or does have price control problems. I only gave a specific answer to what happens when there is inelastic demand because of a government that can also regulate the suppliers. I see how "this is known" might be taken the wrong way, but all I meant by it was that the OP didn't need to wonder...it's found in any standard microecon textbook. I would like to think we could talk about cause and effect in isolation here without making everything a grand political statement.

Symmetry 15y ago

Unfortunatley we already have enough price control to be feeling the bite of price control problems. For instance, the ratio of what a general practitioner can charge in fees to what a surgical specialist can charge is set by the government. Its also set by a formula cooked up by a sociologist using the labor theory of value, for heaven's sake. And we do have production quotas for prescription drugs, issued by the FDA. Drug companies can set whatever prices they want but they can't change their production in response to market prices - producing more of drugs that have shown an unexpected demands. In many ways the current US healthcare system is the worst of both worlds.