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March 16, 2006

Too Much Choice?

Hedge Fund Guy elegantly skewers the contention that we suffer if we have too much choice.

While it may actually be true that too much choice causes anxiety, markets in and of themselves help to solve this. An iPod actually does less than many other MP3 players and is by far the most popular.

He also makes the point that artificial restriction of choice means that we lose out on the productivity gains that we get from competition between those offering the different choices.

Which is where I’d start to get worried about Paul Krugman’s ideas for reform of the US health care system. He’s making all the noises that he’d like to see not just a single payer (ie national insurance) system but also, a single provider system. Something a little like the Veteran’s Administration. Or our own Glorious NHS (The Wonder of the World that it is).

Two problems with this.

1) Such a solution would, by removing that competition and those markets, reduce innovation. This affects not just Americans, for much of the world’s medical research is driven by the US market. We’d all suffer a reduction in medical innovation  if that market disappeared.

2) I’m not sure that the very idea of one single national health care delivery system has been properly thought through. The VA’s health care system employs some 220,000 people or so. Getting towards the upper end of the size of organization that we actually know how to manage in any centralized fashion. The NHS, as we know, employs some 1.3 million or so. We are forever worrying about how to manage an organization of that size. We are (or the powers that be are) belatedly realizing that this cannot be done in a centralized fashion. We have to open it up to competition, to markets, allow incentives to work so as to drive people’s behaviour.

In short, to make it less of a single provider system because we simply don’t know, no one does,  how to make such a behemoth actually work efficiently.

A single provider health care system in the USA would, if it simply took over the existing facilities and staff, employ 13.5 million people. That is not too far off the population of East Germany back in the old days. So here’s a question for those advocating a single provider health care system in the USA.

How are you going to manage it? Centrally? Really? An entire country’s worth of people managed by plan, from the centre, without the incentives of markets? Like that worked really well, right?

Or are you going to decentralize it? In which case, you need to have markets (even if you have a single payer system) to provide the incentives. Which means, of course, competing providers and thus you don’t actually have a single provider system at all.

Somehow I just don’t think this idea has been all that well thought out.

March 16, 2006 in Economics | Permalink


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Tracked on Mar 20, 2006 3:57:46 PM


Another flaw in the plan is that the Veteran’s Administration is able to buy drugs below the market rate which a national health provider would not be able to do.

Posted by: mark adams | Mar 16, 2006 3:13:52 PM

Your man certainly asserts something, but his greatest admirer would be hard pressed to say he 'elegantly skewers' the argument.


Posted by: james | Mar 17, 2006 5:05:15 PM