Economics is About Managing Scarcity

Economics is About Managing ScarcityI recently read the tragic story of Laura Hiller. Laura died from Leukemia even though she had bone marrow transplant donors ready and willing to go. The reason? There were not enough hospital beds for transplant patients in Ontario where she lived. This is apparently an on-going problem in Canada.

One of the mantras of those seeking to establish a Canadian-like nationalized healthcare system in the United States is that no one should be denied a life-saving medical procedure because they are unable to pay for it. Setting aside how often that actually happens, is that worse than being denied such a procedure because you’re in the wrong place on a waiting list?

Those who think government can just supply things “free” to everyone who wants them don’t understand the concept of scarcity in economics. Scarcity says there are always more people who want a good or service than can be provided with it. Always. That remains true no matter what economic system is in play – whether capitalism or socialism. The only difference is the mechanism used to allocate resources.

In a capitalist system, the mechanism is the free market. Prices determine who gets what, when. Of course that means some people will not get some things, even important things, because they don’t have enough money to buy them. The fallacy is that when government makes things free, that problem goes away.

In a socialist system, the mechanism for allocating resources, while purported to be the government, is in reality things like time and proximity. It’s not those who have the most money who can obtain things but those who have the most time to wait in line or who live closest to the store so they can be at the front of the line when the doors open.

Think of it this way, if next week Apple raised the price of a MacBook Pro to $25,000, they would be out of reach of many people. But, here’s the rub – the same would be true if next week Apple lowered the price of a MacBook Pro to $25. Assuming their inventory is not unlimited, they would run out of computers in a matter of minutes. Again, the only difference is the people who get one in the second case are those at the front of the line rather than those who have $25,000 to spend.

Here’s the question: Is one of those situations more moral than the other? Is it better for people to be denied a good or service because they don’t have enough money or because they don’t have enough time or proximity? Either way, some people don’t get what they want.

So back to healthcare. Is it better for someone to die because they cannot afford to pay for a procedure or because they cannot get access to the procedure? Is one less dead than the other?

A better question is which of the two allocation methods allows for the most people to have access to the things they want or need and history has shown us over and over that it is capitalism and the free market that does that.


Photo credit: LendingMemo via / CC BY

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