rising costs

(As short as I've tried to keep this reply, it's still too long to put into the comments section of my earlier post, so it gets to be its own blog entry.)

Do you know whether CMS also considered other factors in their study, such as increasing costs coming from new technology and new drugs that might not have been available during the earlier years of the data, but that raise costs?

I know nothing about CMS or their numbers or the JEC report that uses their numbers to report on the costs of regulation. I meant to use the graph as an illustration of a more basic principle, not as a smoking gun.

But I can definitely comment on the new technology fallacy.

I address this in my radio spectrum piece:

"The Big Broadcasters warned that such diversity would be a burden on the consumer, because radio receivers would have to be smarter and more precise and therefore more expensive. But cost doesn't drive price; demand drives cost. Hundreds of millions of consumers will quickly bring down the price of any technology in a competitive market of manufacturers."

The point is (a) that technology makes everything less expensive, not more -- the only complexity being in the relationship between technology and the price of labor, where short-term, one can displace the other, but long-term they rise together -- and (b) competition, free entry, the ability of the consumer to walk away, and the obligation of the consumer to bear the costs will drive prices lower. And only the more efficient technologies will survive this process.

(Of course, the question of patent law and drug prices is a very different can of worms. I'm against patents and see them as a form of political privilege, but they are more relevant and damaging in a "managed" market than they are in the unhampered variety.)

The new technology fallacy is really two deeper fallacies: (1) that technology raises prices, and (2) that we should have all the newest technology as soon as possible. Deeper fallacy #1 is just false. Deeper fallacy #2 requires a longer conversation on the nature of trade-offs and the best use of scarce resources. The summary is that only an unhampered price system can tell us where scarce resources are best directed to satisfy the most consumers to the greatest degree.

I suppose I am just wondering whether the fact that those two changes happened over the same period of time actually indicates a causal link.

This is a much longer conversation, and is debated among economists and philosophers throughout the world: What can experience show us about causation?

Can either history or logic tell us anything about how the world will work in the future? I obviously can't go into all of that here, but if you believe that either economic history or economic logic can guide us, then we already know that socializing medicine -- which is what national health insurance is, make no mistake -- will raise costs. If the government then tries to control costs through price controls, the costs don't go away: they just become non-monetary costs, such as lower supply, longer waits, poorer service.

Among economists -- those who don't work for the government or either major party -- these claims are very basic.