In Defense of Gouging

Kevin Drum writes,

There are lots of things to hate about our current medical system, and all of us have our own favorite things to hate. This is mine: the fact that the system massively overcharges you if you’re uninsured, and they do it just because they can. If you’re uninsured, you’ve got no leverage, no alternatives, no nothing. So you get screwed. It’s like the shopkeepers who charge twenty bucks for a pair of flashlight batteries after hurricanes. Maybe it’s the free market at work, but if so, that’s all the worse for the free market. In the healthcare biz, it just doesn’t work.

I see it’s time to roll up the sleeves.

First, let’s look at price gouging after a hurricane. I admit it — in a free market, that’s precisely what happens. People get charged much higher prices. And I actually don’t mind calling it gouging.

But do you know what happens when a disaster strikes in an unfree market? Forced appropriation by the politically well-connected. Instead of higher prices for everyone, you get free stuff for a privileged few — and nothing, or very little, for everyone else.

Let’s use the proper term here as well: theft. In a free market, you see gouging. In an unfree one, you see theft.

How this is an improvement is beyond me. Gouging, remember, is the first step toward its own remedy. Gouging is temporary. Gouging encourages everyone to return to the status quo ante, and it does so in the most direct way possible, by paying people until the goods are cheap again. The worse the gouging, the faster the return.

By contrast, theft actually discourages a return to normalcy. Few will bother producing under harsh conditions when, if times get tough, the state just appropriates and rations everything anyway. Life’s going to be miserable in a disaster. It’s the nature of the beast. But we do have a choice in how miserable it’s going to be, and for how long.

I’d suggest that the many, many regulations on U.S. health care actually make the unfree market the better analogy here. The government is already the dominant player in the health care industry, and it already sets prices to a degree unappreciated by the general public. Indeed, it’s difficult for consumers with low-deductible, employer-provided insurance (the “good” kind) even to consider the price of their health care, let alone to comparison-shop. The situation is still worse for those with government-funded health care. These are the beneficiaries of our mostly unfree market.

Should we be surprised, then, when the full price — that is, the price paid by the uninsured — keeps rising with no end in sight? There’s certainly a problem here, but it’s not a market problem.