Air Vulgaria

National Public Radio recently weighed in on the economics of government health care with a metaphor that was so widely panned by listeners the producers ended up trying to apologize for it.

In a piece called "What does 'public plan' mean in health debate," NPR postulated that "President Obama wants all Americans to get to 'Healthyville'" and that private plans are like private airlines, but that since not everyone can afford those planes to Healthyville, "the President wants to create, say, 'Government Air': it's just as sturdy as those other guys, probably a 737, but it might lack a few of the perqs. It might be a little more crowded, and there will probably not be free meals on the public plane, but you will have a seat, and you will get to your destination: Healthyville."

The NPR editor narrating this story, April Fulton, then engaged in a bit of economic analysis, speculating that the current carriers (private planes to Healthyville) will begin to get worried, but "like good capitalists the current carriers must start cutting their prices to attract their customers back. Because demand is high for lower prices, the market will produce lower prices! And then perhaps the cost of healthcare stops skyrocketing into the stratosphere, which was President Obama's hope, all along."

This ham-handed attempt to portray government-run healthcare as a plane to Healthyville that will bring down prices without the loss of anything but a bit of legroom and heated towels for your face (actual examples used in the NPR metaphor) backfired so strongly with listeners that NPR ran a sort of apology two days later which condescendingly explained that "it was not clear to listeners what the piece was attempting to do" and that because the piece was not introduced properly, "it was not clear what the piece was trying to convey" and that therefore "it's easy to see that some listeners might interpret" it the wrong way.

To the contrary, it was quite easy to see what the piece was trying to convey, as even a cursory listen to the actual broadcast will demonstrate. The problem was that the metaphor was terrible and the economic analysis ludicrous.

April Fulton's statement that if "demand is high for lower prices" companies will have to provide lower prices is simply a gross misinterpretation of Economics 101. Prices are a result of the intersection of the supply curve and the demand curve. You cannot dictate that it will be lower without affecting either the supply or the demand (or both). What she is really saying is that she would like to see the government dictate that the price will be lower, and that this will make it happen. What will actually happen, however, is that supply will fall, or that the government will have to restrict demand through forcible rationing.

We'd like to note, however, that the metaphor could be fixed, as demonstrated in the video above, from the classic movie Chitty Chitty Bang Bang (based on a children's story written by Ian Fleming, a former British Naval intelligence officer and World War II commando and the creator of James Bond -- someone who knew a thing or two about countries that sharply restricted economic and human freedom).

In that wonderful little clip, the freedom-loving Englishman who is hijacked by Baron Bombast of Vulgaria is along for the ride involuntarily, and his trip conditions are somewhat less rosy than those depicted by Ms Fulton in her imagined public plane to Healthyville.

Most striking, of course, is the necessity of throwing a few things overboard -- including two passengers! While the NPR story tried to employ economic terms like "demand" and "produce" to support their metaphor, the actual function of supply and demand to bear in mind in this scenario is that whenever something good (in this case, healthcare) is offered for free, the amount that is demanded will be infinite. Because there is not an infinite supply of this good, the most likely response at that point will be the restriction of the demand (in this case, by stopping people from asking for it).

This truth has been well documented in countries that have tried to provide healthcare using government control rather than market controls. The Wall Street Journal recently ran an article detailing the restrictions on access to medical procedures enacted in the United Kingdom, which include refusal to provide biotech drugs that prolong the life of patients with forms of stomach cancer and breast cancer, as well as limitations on biotech drugs which halt macular degeneration. In the case of the macular degeneration treatments, about one in five patients can actually have access to the drug, but only for one eye -- the other eye must be sacrificed for the sake of cost.

If the image of the dictatorial Vulgarians throwing passengers over the side of their airship and into the ocean isn't a good metaphor for the kind of medical treatment documented in that story, we don't know what is.

It is also worth noting that the drugs mentioned in that Wall Street Journal article were developed in the United States, by private biotech company Genentech (recently acquired by Roche*). Treatments like these are rarely -- if ever -- produced in countries dominated by government control of health care, because there are no market incentives to reward the tremendous cost and risk that go into discovering such drugs. This is yet another economic reality ignored in NPR's one-sided story.

In fact, many of the problems with access to and cost of health care in the United States today are the product of extensive government intrusion into the industry, which eliminate choices for providers and potential customers.

The parts of the healthcare system in which such choice takes place demonstrate this truth. For example, the cost of LASIK eye surgery (which is not covered by Medicare and where the government does not control the market) has fallen rapidly, and the availability of this procedure has risen dramatically. Compare this to the example of Magnetic Resonance Imaging, a market in which the government does regulate reimbursement. The cost and availability of MRIs have not budged in ten years.

The entire fiasco with NPR's embarrassing airplane piece is itself a good metaphor for the problems with government intrusion into industries that should be left to free enterprise. NPR is a market participant that is supported by tax revenues, and therefore does not have to worry about quality the way a free enterprise would have to do. The results, unfortunately, are sadly predictable.

* The principals of Taylor Frigon Capital Management do not own securities issued by Roche.

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