Saturday, December 31, 2005

Why Inefficiency Persists?

Arnold Kling at the EconLog wrote that, "Or consider health care. If the goal is to help people who cannot "afford" health care, then national health care is horrendously inefficient compared with a voucher system that targets the poor."

Read the whole post here.

The real puzzle is: If national health care is indeed that "inefficient" as Arnold claimed. Why is it so prevalent across the world, and why it is so difficult to get rid of?

I don't have a definite answer, but here are some possible ones:

1) National health care, though seemingly inefficient, actually is pretty good compared with the alternatives. This is the good old Chicago, "What is, is efficient" type argument;

2) The costs of reforming the national health care are high. Therefore, whatever benefits one can get from an alternative system are overwhelmed by the high reform costs. Indeed, this is only a variant of the "What is, is efficient" argument;

3) People are stupid, they do not know the national health care system is inefficient.

Inefficiency means unexploited gains from trade. Whenever inefficiency persists, like national health care, what that implies is somehow economic agents fail to realize gains from trade. And that troubles me to say the least.

1 comment:

Mike Linksvayer said...

Political allocation (eg nationalized health care) is outside the realm of voluntary trade. By what means would agents take advantage of unexploited gains from trade in such a context?

As to why voters would choose an inefficient program, voters don't care about outcomes, they care about expression, rationally. Free health care for everyone (scare quotes left out as I'd need them around every world) is a feel good vote.