Economic Understanding

Economic Understanding is one of the key dimensions, but what is so important about it?  I have given several examples over the years showing how people make poor decisions when they fail to connect outside spending with their own financial welfare:  insurance claims raising the cost of insurance for everyone, legal settlements driving up the prices we pay, shoplifting affecting honest shoppers, businesses passing along the cost of government regulations, etc.

Another side of economic understanding is being able to predict unintended consequences of artificial interference in the normal course of business.  I have written several times about more insurance not being the answer to high medical costs, whether it be the current plan or some alternative.  (See April 16, 2012, September 10, 2012, February 22, 2013, October 28, 2013)  This prediction continues to come true.

A recent Huffington Post article tells of the impending doctor shortage.  How do you add millions of people to patient roles (by providing them with subsidized insurance) without adding more primary care physicians?  Doctors’ time doesn’t magically expand; new doctors don’t magically appear.  They must be trained and hired.  “According to the Association of American Medical Colleges (AAMC), unless something changes rapidly, there will be a shortage of 45,000 primary care doctors in the United States (as well as a shortfall of 46,000 specialists) by 2020.”

Using our economic understanding we can predict that hospitals will be bidding for those few doctors which will drive their costs up.  Patients will be forced to “pay” through extended waiting times or searching among the dwindling number of doctors who are accepting new patients.  “Many primary care doctors and dentists do not accept Medicaid patients because of low reimbursement rates, and many of the newly insured will be covered through Medicaid. Many psychiatrists refuse to accept insurance at all.”

On the surface the proposals look so enticing:  Insurance for everyone must be a good thing, caring and compassionate.  In the richest country in the world, why doesn’t everyone have access to quality health care?  The argument is compelling, but economic reality provides a brutal wake-up call.  Notice what happened about ten years after the government decided to make home ownership, “the American Dream,” available to more families.  Notice that college prices continued to climb even after the introduction of grants and “subsidized” loans – leaving graduates today with $29,000 debts.  It was not until colleges saw a reduction of state support and viable competition from tech schools and especially on-line courses, in other words real economic pressures, that they felt a need to drive down tuition costs.  The well-meaning proposals and programs often have the opposite effect.

If politicians and the voters they appeal to had a better economic understanding, some of these decisions, innocent and caring as they may appear, might have been questioned based on predictable negative consequences.