Friday, November 6, 2009

Health-Care Debate Economic Confusion

It strikes me that one reason Democratic plans to "reform" health care cannot be made to work financially is that they make the common progresssive mistake of confusing economics inputs with economic outputs.

In the standard micro-economic model, we have three properties: supply, demand, and price. The first two are properly thought of not as single values, but as curves. Their intersection point determines the prevailing price (and the amount of goods sold at that price). Thus, supply and demand are inputs; price is the output.

Progressives imagine that they can fiddle with these three properties independently. In health care, they want, simultaneously, to increase the quantity of goods sold while reducing price. Fine: this can be done by increasing supply. But they also want to restrict supply. And that's just not possible, any more than it's possible to repeal the laws of thermodynamics.

Although given Democrat energy policies, maybe there is a parallel here...

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