Jim Henley, Ezra, et al, want to know why I am worried about the effect on innovation of government price controls, but not the effect on innovation of cutting Medicare benefits. Says young Ezra Klein:
For a long time, I took questions about stifling innovation very seriously. So did a lot of liberals. But then I realized that the people making those arguments wanted to do things like means-test Medicare, or increase cost-sharing across the system, and generally reduce costs in this or that way, which would cut innovation in exactly the same way that single-payer would hypothetically cut innovation: by reducing profits.
I also found that I couldn't get an answer to a very simple question: What level of spending on health care was optimal for innovation? Should we double spending? Triple it? Cut it by 10 percent? Simply give a larger portion of it to drug and device manufacturers? I'd be interested in a proposal meant to maximize medical innovation. I've not yet seen one.It turned out that concerns about innovation weren't really about innovation at all. They were just about attacking universal health care ideas of a certain sort. Which is why I stopped taking them seriously. As it is, I'm less worried about squeezing out medical innovation than I am about rising medical costs squeezing out innovation in every other sector of society. Maybe some day the situation will change, and so too will those concerns. But we're not there yet.
This seems like a fair question, except, no, it's not, it's a crazy question. And it's especially shocking coming from Jim Henley, who was, until recently, a libertarian.
Let's take off our magic health care glasses, which make stupid questions about market and governments look reasonable, and apply this logic to some other policy areas.
Libertarians are often, even usually, the kind of geeks who want to go into space. Shouldn't libertarians support increasing NASA's budget to $7 trillion?
Libertarians tend to be quite fond of new computer technology. Why don't the libertarians want a gigantic government agency with a $3 trillion budget to invent electronic devices?
Libertarians like eating. Isn't it hypocritical, then, that they oppose a US agricultural policy that makes many kinds of food, particularly corn-fed animal flesh, much cheaper?
Why . . . it's almost as if libertarians think that government spending is different from private spending!
Liberals get mad when conservatives call them socialists, and I do too, because it doesn't exactly enhance the tone of the debate. But then they go and ask questions like this, which seem to indicate that everyone kind of missed the socialist calculation debate, and for that matter, the fall of the Soviet Union. I like new pharmaceuticals in the context of a market where supply is matched to consumer demand through a price mechanism. If people, in their role as consumers, decide that the new pharmaceuticals coming out aren't worth their price, and decline to buy them, I like that too.
What I don't like is the government stepping in and deciding what drugs are worth how much money. The government does not do a good job at setting prices. How do we know this? Generations of attempts at wage and price controls. Price controlled markets don't work well, whether the price controls are a ceiling or a floor.
It's kind of embarrassing to have to explain this, because it's a pretty elementary and widely understood component of the classical liberal analytical framework. I frequently disagree with liberals (obviously). But I hope I don't often airily proclaim that I don't take them seriously, because after all, they don't really mean anything they say about market failures--it's all just a fig leaf for their ideological mission to destroy the private sector.