This is the first of a four-part series on rationing.
Rationing I: Price Distribution Is Not Rationing
Rationing II: The Definition and Application of Rationing
Rationing III: The Harm of Conflating Price Distribution with Rationing
Rationing IV: Politically-Controlled Insurance and Rationing
That the political health “reform” endorsed by Barack Obama and his supporters would entail rationing is indisputable. It is simply impossible to expand subsidized care and contain costs without rationing. For more on this point, see my article in the Colorado Springs Gazette, John Stossel’s article, or Martin Feldstein’s piece in the Wall Street Journal. No serious supporter of politicized “universal” health care denies this, and various supporters openly brag about the fact as a virtue of their proposals.
In response to the criticism about rationing, advocates of politicized medicine routinely reply that the market also “rations” health care, so the debate is merely about which form of rationing is best. Many critics of Obamacare agree to the terms of that debate and proceed to argue that political rationing is worse than market “rationing.”
But obtaining goods and services on an open market via the price system of supply and demand is not rationing at all. Claims that it is distort the language and obscure crucial distinctions between political rationing and market distribution.
Health care is a scarce resource, and all scarce resources are rationed in one way or another. In the United States, most health care is privately financed, and so most rationing is by price: you get what you, or your employer, can afford to insure you for. But our current system of employer-financed health insurance exists only because the federal government encouraged it by making the premiums tax deductible. That is, in effect, a more than $200 billion government subsidy for health care. In the public sector, primarily Medicare, Medicaid and hospital emergency rooms, health care is rationed by long waits, high patient copayment requirements, low payments to doctors that discourage some from serving public patients and limits on payments to hospitals.
On this point the Cato Institute’s Jim Harper quite agrees:
Health care is a scarce good, so it will always be rationed. The core question is whether government should take the dominant role in health care rationing over from insurance companies, or whether reform should restore rationing decisions to patients advised by doctors.
(See my July 12 article for an additional example and my preliminary reply.)
Price Distribution Versus Political Rationing
Let us begin by distinguishing clear cases of price distribution and political rationing. Suppose you walk into a department store and pay $20 for a pair of jeans. If the jeans had cost only $10 per pair, you would have purchased two or three pair, but instead you limit your purchase to one pair. If the jeans had cost $40, you wouldn’t have purchased the jeans. Is that “rationing?” No. It is simply a consumer deciding which goods to buy, and in what quantities, according to price and ability and willingness to pay.
It is obviously true that the more money you make (meaning the more wealth you produce), the more goods and services you can afford to purchase. The wealthy may shop at high-end stores; I do a lot of my shopping at Target and thrift stores. So a free market definitely entails a method of distributing goods and services, and this involves a person’s market wage rate as well as a person’s shopping preferences. Put another way, market distribution of goods and services depends on the supply and demand of labor as well as of goods and services.
In no way does price distribution constitute “rationing.” In contrast with the authoritarian distribution of political rationing, price distribution rests fundamentally on the rights of individuals to control their own resources and trade voluntarily with others.
Contrast the market system for distributing jeans with political rationing. What would rationing of jeans look like? One possible impetus for the rationing of jeans would be price controls. Let’s say politicians declared that jeans could not be sold for more than $10 per pair. The obvious result would be a shortage of jeans; amount demanded would jump and supply would fall. So politicians might issue ration cards for jeans; say, one pair per family or person.
Let us turn to the example of gasoline. True, the supply of gasoline is artificially suppressed by anti-productivity “environmentalist” controls. But gasoline is not rationed; consumers choose how much of it to buy depending on its price and their preferences and willingness and ability to pay. If you find gas to be too expensive, you cut back on your driving.
Contrast the price distribution of gasoline with rationing. Last year I found my great-grandmother’s gasoline ration card from World War II.
Here is part of the text:
Each coupon is good for ONE “A” UNIT of gasoline. The number of gallons which each coupon gives you the right to buy will depend upon the demands of the war program; therefore, the value of the unit may be changed. Any change in value will be publicly announced by the OPA [Office of Price Administration].
Do not loosen or tear coupons from the book. Detached coupons must not be honored by the dealer. When buying gasoline, hand the book to the dealer to remove coupons. He must remove enough coupons to cover the number of gallons of gasoline purchased… The dealer is permitted to deliver gasoline only into the tank of the vehicle described on the front over of this book, unless bulk transfer has been authorized by the War Price and Rationing Board.
1. Persons who do not observe the rationing rules and regulations of the Office of Price Administration may be punished by as much as 10 YEARS IMPRISONMENT OR $10,000 FINE, OR BOTH, and are subject to such other penalties as may be prescribed by law.
2. Gasoline obtained by use of this book must not be taken out of the fuel tank of the vehicle described on the front cover.
Those who would conflate political rationing with market pricing simply are not paying attention to the real and vast differences between the two.