March 9, 2007 9:37AM

C’mon, the Invisible Hand Isn’t That Hard to See

Methinks Matthew Holt and one of his readers entirely missed my point regarding David Leonhardt and Adam Smith. 

Some states have mandated that hospitals publicly report certain quality indicators. Leonhardt wrote:

The funny thing is that while patients remain largely ignorant of the information that is already available, it has still inspired hospitals to make big changes. But maybe that shouldn’t be too surprising. Doctors and nurses, like most everyone else, apparently care what their peers think of them. As Dr. Wachter says, “I think people underestimate the role of pride.”

I wrote, “Leonhardt documents well how the Invisible Hand works even in health care.” My point was that, once the quality information exists, patients don’t even have to know about it. Other forces move doctors and hospitals in the right direction. Some of those forces originate inside the hospitals, some originate without.

Critics of free health care markets often argue that patients can’t be expected to make their own health care decisions because, darn it, health care is just too complicated. But Leonhardt showed that patients don’t need to possess information to benefit from it. The market protects the ignorant.

I did not claim that the Invisible Hand was responsible for the quality reporting. That would have been silly. Obviously, the “visible hand” of the states drove that. I did write that I am not convinced that a mandate is necessary to produce that information. There is a strong argument that price‐​sensitive patients would demand similar (or even more) quality reporting.

That’ll teach me to be subtle. (Opaque?)