Thet’s yer problem right there

Obsidian Wings: The Ice Floes Are Crowded

Here’s an econ textbook quoted by Uwe Reinhardt:

“Prices ration scarce resources. If bread were free, a huge quantity of it would be demanded. Because the resources used to produce bread are scarce, the actual amount of bread has to be rationed among its potential users. Not everyone can have all the bread that they could possibly want. The bread must be rationed somehow; the price system accomplishes this in the following way: Everyone who is willing to pay the equilibrium price gets the good, and everyone who does not, does not.

The rest of the discussion is pretty interesting, complete with the 99-year-old grandmother who is an object lesson in why you don’t leave marginal-coverage issues to the mostly-unregulated marketplace.

But I was kinda amused by the fact that the original example Uwe Reinhardt quotes from his econ 10x textbook is completely contrary to fact. If the price of bread were zero, There’s no real evidence that people would demand much more of it than they do now. Some people might demand a little more, and people people who are too poor to eat non-free food might demand a lot more, but the solution to that part of the problem wouldn’t be some much about making bread more expensive as about making other foodstuffs more affordable for them.

Similarly, if medical care were free, some people might consume a little more — although let’s face it, it’s not generally a good that’s enjoyable to consume — and a few others, mainly those whose lives are such that they don’t have access to other means of maintaining or preserviing their health, would consume a lot more. But as any number of other countries have shown).

Why is this important? Because our current method of doing health-care rationing appears to produce costs trending toward infinity. It’s not about the demand curve at all, it’s about who gets to set prices, who sets the mix of goods and services available to be demanded, what the incentives for various people in the system are.


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