So, you get your economists who are saying, “competition will always reduce costs!”. Yet that is quite clearly incorrect for at least two places where the United States has more competition than in any other nation on the planet — healthcare, and higher education. WTF is going on here?!
The deal is that old criticism of economists — that they know the price of everything, and the value of nothing. If you have a life-threatening illness, the value of a cure for that illness is practically infinite to you. You’re not looking for the cheapest doctor. You’re looking for the doctor that can cure you — that has the latest certifications, the latest equipment, prescribes the latest medications, you’re going to pay for the best you can get. Because if you’re not cured, you’re *dead*. What good is saving money if you’re dead? So hospitals and doctors compete for your business not by being cheap. They compete by getting the latest certifications, the latest equipment, prescribing the latest medications. The fact that this results in an oversupply of doctors with that certification and equipment, and results in demand for that medication that allows its manufacturer to hike its price, is irrelevant to the doctors because they’re not paying the bill — patients (and their insurers) are, through higher prices and through overprescribing diagnostic tests.
The same is true of higher education, to a certain extent. Economists know the cost of higher education. But they don’t know the value of higher education. Education is your future. So you’re going to try to get the best education you can get, regardless of cost, because the better your education, the better your future will get. So colleges compete with each other based on how many high-priced “big name” scientists they have on staff, how much equipment they have in their labs, the plushness of their dormitories, the gleam of their shiny bright new classroom buildings and football stadiums, rather than competing with each other based on price.
Now: you and I both know that shiny isn’t always best. I graduated from a somewhat shabby state university with minimal college debt. I get paid the same as the people who graduated from Stanford or Cal-Berkeley that same year who will still be paying off their college debt a decade from now. Unfortunately, outcomes information is almost impossible to come by. So people use proxies such as the labs having the latest and greatest equipment, even if cheaper equipment would be just as good for their purposes. Which brings up another point that the “competition will always reduce costs!” guys just don’t get: they assume a world in which everybody has perfect information, where it actually is possible to tell that doctors A and B have equal results but doctor A is cheaper. But we don’t have perfect information. Hell, for a lot of things, we don’t have any information — we don’t have the outcomes information needed to know that doctors A and B have equal results, and it’s absolutely impossible to get pricing information out of doctors, they shrug and refer you to their back end billing people who then ask who your insurer is and tell you that it’d require submitting a claim etc. to know, literally nobody in that whole entire office knows how much your treatment will cost.
But the question of information is a topic for a post in and of itself, so I’ll leave you with the final takeaway: Competition does not always result in lower costs. In fact, we’ve proven with both healthcare and higher education that it can increase costs.
So take that and stick it up your ass crack and light it, neoliberal economists. Because reality simply *is* — and your “reality”, laughably, isn’t.
– Badtux the Economics Penguin