Friday, May 27, 2011

The 2012 Election Hinges on Whether Voters Believe in the Free Lunch (The Parable of the Good King and His Wise Men)

Most of us understand that free time-share vacations and free dinners with investment advisers mean harassment, telephone calls at night, and worse. We know: “There is no such thing as a free lunch.” Yet, the “Free Lunch” scam prospers because benefits are clear, the costs are hidden.

The 2012 election may depend on whether voters understand that free lunches are not free. The Democrats version of Medicare “guarantees essential medical services” to senior citizens. The government, not they, pays out of payroll taxes. Medical care, they claim, is a free lunch. The benefits are alluring; the costs are hidden. Like the “free” time-share vacation, senior citizens will understand only when it is too late.

Let me offer a parable to illustrate the Medicare free lunch:

Once upon a time in a faraway kingdom, there lived a good king. Three quarters of his people are young, work, and pay taxes. One quarter is old and no longer work. The kingdom has two royal physicians. The good king decrees that the elderly have a “right” to medical care. He orders his two royal physicians to treat them for free and pays them from the taxes on the young.

The king’s healthy young subjects see the royal physicians once a year. They pay out of their own pocket. The older subjects come ten times a year. They come more partly because they have more illnesses, but also because someone else pays their bill. The average number of visits per year of young and old combined is 3.5.

Time passes in the kingdom. There are fewer babies, and the old people live longer. Now half are young, and half old. The two groups now visit the royal physicians an average of 5.5 times per year – an almost 60 percent increase. Worse, with only half his subjects working, the king collects less in taxes.

The good king tells his royal physicians that they must work 60 percent more, but he must pay them less. After all, he has guaranteed his older subjects free medical care. The royal physicians do not take this news well. Their wives are complaining. They are overworked and poorer. They leave refusing to work more for less.

The agitated good king seeks advice from his Committee of Wise Men. Their answer: “It is simple. We’ll decide who, among the old, deserves treatment. We’ll get the average number of visits back to where it was in the old days.” The king approves, and the Wise Men use wise rules to decide who can see the royal physicians.

Now the elderly come to the good king to complain: The wise men are denying them their rights to medical care. So many good people have died because the wise men did not permit them to see the royal physicians.

The good king weeps. He calls in his royal physicians and orders them to work more for less. Instead of complaining, they should raise their productivity. They are already well paid. They can afford to work for less.

The royal physicians return to work full of resentment against the good king. They unlock their door only for young patients. They open the door for old patients only if they bring live chickens or silver coins. They post signs welcoming foreign visitors passing through the land.

The good king is outraged when he sees lines of old people standing at the locked doors of the royal physicians. He sends the royal constable to threaten arrest unless they follow his orders.

In the night, the frightened physicians pack their bags and leave the kingdom forever.

The king convenes a meeting with his wise men. Surely we can train new physicians quickly, perhaps even five royal physicians? They answer: No one wants to be a royal physician. They can earn more as a butcher or a baker.

And everyone lives unhappily ever after.

1 comment:

  1. The expanding role of government could also increase quantity (with no significant utility or significant disutility) while reducing quality. Governments usually reward input and not performance. This feeds to the ‘quantity’ nature of medical practice under the government guidance. In most of the countries in transitions, the number of physicians have increased or maintained by reducing standards or not enforcing them. In some cases, selling grades and diplomas are so well-known, that the locals go to other countries for routine treatments. According a high medical official in Albania, the practice of healthcare is overrun by charlatans (with MD degrees) in every position. The so called doctors declare a patient to have a chronic and possibly deadly disease and, then, cure them after X number of visits; where, X maximizes the funds they receive from the government plus the informal payments they the obtain from the patient. In Albania, the practice of generating graduates with no real skills to practice medicine has led to a large number of MDs that are practicing everything and anything that generates money, but medicine-. When the trust is lost in the practice of medicine (a credence good) , getting it back will be a tough challenge that may take decades.