> But blaming the clinics doesn't work, because the actual problem was the government set things up so that the rise of clinics to exploit the rules was legal and inevitable.
The obvious solution would be for the government to punish the clinics for acting against the spirit of the law. But that approach brings in a huge potential for abuse. We're in a bind.
If we can solve this, this will be the biggest breakthrough for civilization ever since the invention of hierarchical structures many millennia ago. Hierarchies and codified laws were what allowed us to stop living as isolated groups of ~150 people[0] and go on to build a global civilization. But these came at the cost of not being able to exploit our innate social skills to cooperate with each other. Bureaucracies, rules and metrics are thus an inefficient and barely adquate mechanical substitute for trust.
If we could somehow scale trust, scale social skills, so that people would naturally respond to incentives that are uncomputable and not expressible through bureaucratic apparatus - like "don't do stupid shit", or "really, don't cheat" - we'd enter a golden age.
Alas, I have no clue how to do that.
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[0] - Yes, the Dunbar's number. Past which you no longer have the case that everyone knows everyone else, and interpersonal dynamics stop being strong enough to ensure mutual cooperation.
I agree with what you write, but I'm also spitballing stopgap measures: Are there downsides to having governments instead contract healthcare capacity? Has this been tried?
By this I mean that instead of the government paying each hospital (or in this case dentist) for each procedure, the government pays each hospital (or dentist) to keep a certain capacity for each kind of procedure available. The hospitals are obliged to provide up to that capacity at no extra cost to the government. Any demand beyond it, goes into the backlog (and turns into a political issue).
We do this where I work (municipal social work and housing with care) and it really does remove some of the incentives to up-code and over-produce on the part of the provider in the short term.
In the long term there's still some incentive to take on extra clients for the care providers so they have a better negotiating position for their next contact.
I think you might run into the issue of whether or not that capacity is actually being provided or just reported. You can definitely track that a procedure was done: you have the patient that you can contact to verify, bills for the materials that were needed, and bookings that guarantee no one was operating on multiple patients at once. If you just pay for capacity regardless of whether or not it's used, how do you know that they aren't just turning half of all patients away at the door and claiming that they provide the full capacity? There's political unrest about not enough capacity but your healthcare providers are saying no one's coming in and still taking the full amount of money.
The free market is a really simple feedback system that, in any real-world implementation, can just as quickly lose the "mutual self-interest" part, or replace "cooperation" with "coercion". The very problem with the clinics you described - that's the free market in action.
The problem here is that there is no way for society at large to send corrective feedback, "holy shit you're totally abusing the rules and what you do is immoral", and have it actually impact said clinics' behavior. This mechanism exists naturally in small groups, but money and scale destroys it.
Government is not spending its own money but that of taxpayers present and future - an agency-style conflict of interest. This is then made worse by the fact that the party who receives the services purchased (the patient) is someone different again who has no skin in the game at all.
This is a recipe for market failure and not something I'd describe as a "free" market, even if it is a market.
> Government is not spending its own money but that of taxpayers present and future - an agency-style conflict of interest.
The government is spending its own money it collected in taxes[0]. Whether it is more like a thug or more like an embodiment of the collective will of society is immaterial. It's just another customer on the market.
> This is then made worse by the fact that the party who receives the services purchased (the patient) is someone different again who has no skin in the game at all.
This is the exact same scenario as an advertiser paying a company to expose me to advertising; I have no skin in that game either, and I'm subjected to something I do not necessarily want. But nobody would say it's not "free market". Hell, in the case of the clinics, the situation would be identical if the party paying for the procedures was not the government, but a billionaire philanthropist.
In fact, nothing about a free market precludes such scenarios, where the choices available to a buyer are dependent on the deals made between the seller and some third parties.
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[0] - The concept that "government has no money" is silly outside the quite obvious reminder that government is mostly funded by its subjects.
I'm not trying to make a moral point about whether taxes are right or wrong, simply that people behave differently when spending other people's money rather than their own. Government spending taxpayers' money is exactly the same conflict in this sense as company management spending shareholders' money. These agency conflicts can an do often lead to bad outcomes and when this happens it's generally viewed as a form of market failure.
Considering you are talking about the health care system where insurance companies spend money on behalf of their customers. At no point did the customer of the doctor or dentist spend his or her hard earned money. It was always a large, authoriative corporation.
Why would it matter if the corporation is the government or an insurance company? Also, are you implying that you can't have a free market if you have insurance companies?
It is indeed a problem with insurance as well where it's more commonly called moral hazard. With insurance traditionally there are a number of mechanisms which can help mitigate this eg copays, deductibles, etc. - and there is (sometimes) a market for pricing of policy premiums and terms.
But it's far from perfect, especially in the US (at least as I understand the American system).
I'm also not trying to make a moral point. I'm trying to show that these kinds of problems are one of the possible failure modes on the free market, and whether one of the actors happens to be a government is immaterial - you could (like you personally just did) draw an equivalent scenario involving only private businesses.
When people talk about "free" markets it usually means markets where these types of problems are effectively managed or mitigated, not "markets with no rules".
There's of course lots of debate about what the right policies to manage and mitigate these are but it doesn't mean that markets aren't a good mechanism just because there might be trade-offs or imperfect solutions.
I always understood "free" markets to be ones run by supply and demand, without authoritarian interference. That does not exclude principal-agent problems, though.
I'm also not saying markets aren't a good idea. Just I don't believe they're the core of the solution to the problem I outlined upthread.
The government’s money are unearned money, confiscated from taxpayers. There is a saying about this kind of income: "easy come, easy go". You can be sure that "the subjects" this money was taken from would be much more careful about spending it.
Not convinced? Just look at the way government borrows: no sane person would sell her future like that. Also, just ask a politician how worried he is about spending money "for his constituents". I know stadiums made for tiny towns, boulevards for undriven neighborhoods, and so on and so forth...
Sure. But that's neither here nor there, as the market is an equal opportunity institution. It doesn't ask whether you got your money by providing goods in exchange, or confiscated it from your subjects, or won it in a casino, or robbed a bank, or stole it from your employees' pension fund, ...
Sure, but that does not apply to the case we're discussing - which is a government paying clinics for procedures. You could substitute "a billionaire philanthropist" for "a government" and the outcome would be exactly the same.
Now if you want to talk free markets in general, then I want to point out that in the real world, a free market cannot thrive without some sort of government that ensures social stability and enforces contracts. Without such government, the market would quickly degenerate into trading violence alongside currency, and either disintegrate or... end up producing a government. Ultimately, "private enterprise" and "public governance" don't have a clear boundary between them - they're two modes of the same phenomenon, people negotiating with each other.
There is no billionaire who can even remotely approach the purchasing power of a government. If billionaires could truly influence markets, we'd have seen it on the stock market. Instead, we saw the Fed.
I am not proposing to get rid of the government, that leads to anarchy. A government is required to uphold the rule of law and, for markets, to sustain contracts. I would also argue that they should tax externalities. The trouble starts when governments go beyond that and start regulating and influencing the markets, ending up corrupting them.
Free markets can only exist in this way until they are much smaller than the whole economy. The moment they are the economy they are heavily prone to monopolisation.
Wealth begets wealth. It compounds. The larger the market, the more space there is for a company to take the lead, put up barriers to entry, and focus on snuffing out any would-be competitors.
Not true. See [0] for a list of examples, which contains several cases of barriers to entry that do not involve governments in any way (except as the entity that allows contracts to be enforced and the market to exist in the first place).
Half of those examples need to be sustained by the government to actually act as barriers. And all of them ignore the creativity of the entrepreneurial mind when incentivized by the fabulous profits to be had in a monopolized market. A nice example:
The obvious solution would be for the government to punish the clinics for acting against the spirit of the law. But that approach brings in a huge potential for abuse. We're in a bind.
If we can solve this, this will be the biggest breakthrough for civilization ever since the invention of hierarchical structures many millennia ago. Hierarchies and codified laws were what allowed us to stop living as isolated groups of ~150 people[0] and go on to build a global civilization. But these came at the cost of not being able to exploit our innate social skills to cooperate with each other. Bureaucracies, rules and metrics are thus an inefficient and barely adquate mechanical substitute for trust.
If we could somehow scale trust, scale social skills, so that people would naturally respond to incentives that are uncomputable and not expressible through bureaucratic apparatus - like "don't do stupid shit", or "really, don't cheat" - we'd enter a golden age.
Alas, I have no clue how to do that.
--
[0] - Yes, the Dunbar's number. Past which you no longer have the case that everyone knows everyone else, and interpersonal dynamics stop being strong enough to ensure mutual cooperation.