In one of those turn-ups for the ages, we have the vision of Sen. Bernie Sanders, I-Vt., agreeing with Milton Friedman. They’re both telling us that the problem with the American medical system is that doctors and nurses just make too much money. Sure, they have different solutions to this difficulty, but their analysis is the same.
They might even both be right, too.
Friedman’s analysis should be well known to us all. He spent decades making the case rather forcefully. The power of the American Medical Association, of other medical unions, to restrict entry into those professions meant that wages were very much higher than they would be in a free market. It was this which made American healthcare so expensive, and it’s entirely true that medical professionals get very much higher incomes than their equivalents in other countries — still higher again than general wealth and income levels would suggest. One might say that successful application of union power does indeed increase the workers’ wages.
Which brings us to Sanders’ plan for Medicare for all. As Matt Bruenig has pointed out, some estimates say this is actually cheaper overall — all expenses paid by everyone together — than the current system, by some $2 trillion over a decade. It’s amusing, as Bruenig says, that it is a Koch brothers-funded report which tells us so.
However, Bruenig has missed the precise mechanism by which it is amusing. We’re simply going to cut the amount we pay for healthcare by 25-40 percent, dependent upon us talking about the amount we pay doctors or the amount we pay for a procedure. This amounts to $384 billion a year, or near $4 trillion over that same decade. More than all the savings come from just paying people less to do the healthcare. No, this isn’t getting rid of profit margins, and it’s not cutting out the insurance companies. This is just paying the workers less for their time.
Yes, fun, isn’t it? Progressives insisting the workers make too much money and that we’ve got to get the federal government to take over an entire industry in order to lower those wages. Actually, it’s more than fun. For their argument about the minimum wage is that employers have so much power over setting wages that there’s a monopsony: a single (or close enough) buyer of low-end labor giving that or those employers power over wage levels. Thus we must raise minimum wages to beat that market power.
In the health area, it’s exactly the same argument, but reversed. Wages are too high, thus we must have the one employer, the federal government, so we can lower wages. For if the government controls all healthcare spending, then they can indeed impose wage reductions upon people who supply healthcare, can they not?
Myself, I’d prefer Friedman’s answer. Crush the power of the medical unions to raise wages with their entry restrictions and licensure, and watch wages fall naturally. That’s better than the Sanders idea of giving the feds the power to determine wages for 14 percent of the entire economy. But, you know, maybe I’m just a bit picky about this capitalism and freedom stuff.
The thing is though, this really is true. Sanders’ plan to deal with healthcare includes making it all cheaper by cutting the wages paid to the healthcare workers. Maybe that’s a good idea, maybe it isn’t, but it does open up the space for my argument about how to bring back the 45-cent Big Mac. If we could just get back to President Franklin D. Roosevelt’s 25-cents-an-hour minimum wage that would help, wouldn’t it?
So what’s the difference between mine and Bernie’s plan? We’re both insisting that we can make things cheaper by cutting wages.
Tim Worstall (@worstall) is a contributor to the Washington Examiner‘s Beltway Confidential blog. He is a senior fellow at the Adam Smith Institute. You can read all his pieces at the Continental Telegraph.
