Tag Archives: Price Fixing

What economic policies do left-wing and right-wing economists agree on?

This article is from Harvard economist Greg Mankiw. (H/T Michael)


Here is the list, together with the percentage of economists who agree:

  1. A ceiling on rents reduces the quantity and quality of housing available. (93%)
  2. Tariffs and import quotas usually reduce general economic welfare. (93%)
  3. Flexible and floating exchange rates offer an effective international monetary arrangement. (90%)
  4. Fiscal policy (e.g., tax cut and/or government expenditure increase) has a significant stimulative impact on a less than fully employed economy. (90%)
  5. The United States should not restrict employers from outsourcing work to foreign countries. (90%)
  6. The United States should eliminate agricultural subsidies. (85%)
  7. Local and state governments should eliminate subsidies to professional sports franchises. (85%)
  8. If the federal budget is to be balanced, it should be done over the business cycle rather than yearly. (85%)
  9. The gap between Social Security funds and expenditures will become unsustainably large within the next fifty years if current policies remain unchanged. (85%)
  10. Cash payments increase the welfare of recipients to a greater degree than do transfers-in-kind of equal cash value. (84%)
  11. A large federal budget deficit has an adverse effect on the economy. (83%)
  12. A minimum wage increases unemployment among young and unskilled workers. (79%)
  13. The government should restructure the welfare system along the lines of a “negative income tax.” (79%)
  14. Effluent taxes and marketable pollution permits represent a better approach to pollution control than imposition of pollution ceilings. (78%)

I wonder which political party believes in most or all of these positions?


MUST-READ: How Obama reduces the supply of medical care

I had written about the so-called doc-fix before, which is the problem of doctors being underpaid by the government for things like Medicare and Medicaid when they provide services to patients. Obama chose not to “fix” these low reimbursements in his health care bill, in order to hide the true costs of socializing medicine. But he has a plan now to fix the problem of government-run medicine not reimbursing doctors adequately.

And it isn’t what you might think.

From Laura at Pursuing Holiness. (H/T ECM)


Conservatives were outraged by the chicanery of separating physician payment increases from the health care reform (that’s three lies for the price of one) bill Congress recently rammed through.  The “doc fix” was separate legislation so that physician payments could be increased without adding to the total cost of the main bill, so that Democrats could dishonestly claim the bill reduced the deficit.  Now, however, we are seeing the real “doc fix.”

Some Idaho orthopedists grew weary of the low reimbursement rates the government gave them for caring for worker’s comp patients.  So they got together and agreed not to treat those patients anymore.  They hoped that their boycott would force the Idaho Industrial Commission to increase the fee schedule – their payments.  While they were at it, they decided to stop working with Blue Cross of Idaho – also a notorious underpayer – until a better deal could be negotiated.  Unions behave this way all the time, and it’s often very effective.

In a similar case in Colorado last February, the Federal Trade Commission stepped in and charged the doctors with price-fixing.

Those doctors lost, and if they want to continue to work as physicians, they will do so at the prices set by the government.

Now the Obama administration has stepped it up a notch. The FTC only deals with civil complaints. In order to deal with the Idaho orthopedists, Obama sent in Eric Holder and the Justice Department, which is at liberty to file criminal charges.  You see, those Idaho orthopedists collectively agreeing that they had enough and weren’t going to take it anymore, were actually engaged in two antitrust conspiracies.

Read the rest. This is another first class post by Laura, and a great find by ECM. (Laura also sides with me on women taking responsibility for their own actions, which is why men like her)

So, it sounds like the Obama administration is heading towards Canada’s system where the private practice of medicine is a criminal offense. Doctors will not be able to set prices for their services. A patient giving money directly to a doctor, without government approval of the price (price controls), will become illegal. That’s the way that socialists roll.They love to fix prices.

And do you know what happens when doctors make less money than government clerks but have to work 80 hour weeks? That’s right – you have a shortage of doctors! Just like in Canada! And do you know what happens when there is a shortage of doctors? That’s right – you pay for the privilege of dying on a waiting list. (Unless you want an abortion, IVF or a sex change, I guess – because that’s politically correct in Canada)

This is why there are waiting lists in every country that has tried socialized medicine. Fewer doctors means fewer claims to the government – rationing. It’s the real way that government cuts costs. Well, that and euthanasia. Once government starts to regulate the practice of medicine, and to fix prices, you choke off the supply. And then you have to start killing people to avoid bankrupting the system, without or without their consent.

MUST READ: How Nancy Pelosi plans to bankrupt private medical insurers

Story here at Director Blue. (H/T Fausta’s Blog via ECM)

Here’s section 2714 of the health care reform bill.

(a) In General- Each health insurance issuer that offers health insurance coverage in the small or large group market shall provide that for any plan year in which the coverage has a medical loss ratio below a level specified by the Secretary (but not less than 85 percent), the issuer shall provide in a manner specified by the Secretary for rebates to enrollees of the amount by which the issuer’s medical loss ratio is less than the level so specified.

Unless I am mistaken, this means that medical insurers will be forced to pay out 85% of premiums collected as either losses (claims) or as rebates to customers.

So, private medical insurers will only be able to use 15% of all premium collected for operating expenses, such as salaries, rate dvelopment, claims processing, etc. But is 15% of income from premiums enough to keep a business afloat?

Director Blue writes:

Why would a loss ratio that permits only a 15% administrative margin for insurers cause companies to fail? Consider that the administrative expenses include collecting premiums; processing and paying claims; monitoring patient care; staffing customer service functions; paying costs to state and federal regulators; paying sales agents; and general overhead (rent, power, heat, light); etc.

I repeat: No company has ever survived with a loss ratio approaching 85%.

What are we to make of Obama’s claim that we could keep our health plan if we liked it, in light of this new evidence? If what Director Blue has argued is true, you will be depending on the federal government for health care. You will have no choice. And whatever they tell you to do, you will do it. They will be the sole provider of health care for you  and your family. This is how liberty dies – to thunderous applause.

What the Democrat’s health care bill means to you

Director Blue also has a post up about what the Democrat health care bill means to you, in 90 seconds.


The CBO now estimates health bill spending at $3 trillion over 10 years. Since the CBO historically underestimates expenses, assume massive new deficits for a country that can ill afford them.

You’ll be required to buy a ‘qualified’ health plan. A family earning $102K a year will pay $1,700 a month in premium and out-of-pocket expenses. ‘Willful’ failure to buy a plan will result in a fine of up to $250,000 and ‘imprisonment of up to five years’. Illegal immigrants are exempt from fines and imprisonment.

Every business in America must provide a ‘qualified plan’ for employees and pay 72.5% of the cost. Failure to do so results in an 8% payroll tax.

Read the rest. I would think that some people who worked for medical insurers voted for Obama. Actually, one of the strongest Democrats I know actually left our company recently to go work for a medical insurer. He said that health care was a safe industry during a recession. He’s going to learn the importance of studying economics if this bill passes.

How the Democrats got endorsements from the AMA and AARP

One last thing. ECM also sent me this article on how the Democrats were able to get endorsements from the AMA and the AARP.

Thomas Sowell explains the economics of cutting health care costs

The Democrats are talking a lot of about their plan to reduce the costs of health care. And they think that the way to do that is by having government take a bigger role in health care provision. Well, Thomas Sowell doesn’t like the idea that the government can reduce health care costs by using govenrment, and he’s written a four part series on it.

Here’s a quote from the first part about how Democrats attack the suppliers of health care products and services:

Despite all the demonizing of insurance companies, pharmaceutical companies or doctors for what they charge, the fundamental costs of goods and services are the costs of producing them.

If highly paid chief executives of insurance companies or pharmaceutical companies agreed to work free of charge, it would make very little difference in the cost of insurance or medications. If doctors’ incomes were cut in half, that would not lower the cost of producing doctors through years of expensive training in medical schools and hospitals, nor the overhead costs of running doctors’ offices.

What it would do is reduce the number of very able people who are willing to take on the high costs of a medical education when the return on that investment is greatly reduced and the aggravations of dealing with government bureaucrats are added to the burdens of the work.

Britain has had a government-run medical system for more than half a century and it has to import doctors, including some from Third World countries where the medical training may not be the best.

And a quote from the second part about how reducing costs means rationing:

There is no question that you can reduce the payments for medical care by having either a lower quantity or a lower quality of medical care. That has already been done in countries with government-run medical systems.

In the United States, the government has already reduced payments for patients on Medicare and Medicaid, with the result that some doctors no longer accept new patients with Medicare or Medicaid. That has not reduced the cost of medical care. It has reduced the availability of medical care, just as buying a pint of milk reduces the payment below what a quart of milk would cost.

Letting old people die instead of saving their lives will undoubtedly reduce medical payments considerably. But old people have that option already— and seldom choose to exercise it, despite clever people who talk about a “duty to die.”

A government-run system will take that decision out of the hands of the elderly or their families, and thereby “bring down the cost of medical care.” A stranger’s death is much easier to take, especially if you are a bureaucrat making that decision in Washington.

[…]You can even save money by cutting down on medications to relieve pain, as is already being done in Britain’s government-run medical system.

You can save money by not having as many high-tech medical devices like CAT scans or MRIs, and not using the latest medications. Countries with government-run medical systems have less of all these things than the United States has.But reducing these things is not “bringing down the cost of medical care.” It is simply refusing to pay those costs— and taking the consequences.

And a quote from the third part talks about free markets versus government price controls:

If you think the government can lower medical costs by eliminating “waste, fraud and abuse,” as some Washington politicians claim, the logical question is: Why haven’t they done that already?

Over the years, scandal after scandal has shown waste, fraud and abuse to be rampant in Medicare and Medicaid. Why would anyone imagine that a new government medical program will do what existing government medical programs have clearly failed to do?

If we cannot afford to pay for doctors, hospitals and pharmaceutical drugs now, how can we afford to pay for doctors, hospitals and pharmaceutical drugs, in addition to a new federal bureaucracy to administer a government-run medical system?

And a quote from the fourth part talks about equality versus liberty in health care:

What about insurance companies denying reimbursements for treatments? Does anyone imagine that a government bureaucracy will not do that?

Moreover, the worst that an insurance company can do is refuse to pay for medication or treatment. In some countries with government-run medical systems, the government can prevent you from spending your own money to get the medication or treatment that their bureaucracy has denied you. Your choice is to leave the country or smuggle in what you need.

However appalling such a situation may be, it is perfectly consistent with elites wanting to control your life. As far as those elites are concerned, it would not be “social justice” to allow some people to get medical care that others are denied, just because some people “happen to have money.”

But very few people just “happen to have money.” Most people have earned money by producing something that other people wanted. But getting what you want by what you have earned, rather than by what elites will deign to allow you to have, is completely incompatible with the vision of an elite-controlled world, which they call “social justice” or other politically attractive phrases.

What’s frustrating to me is how quickly people think of growing government as the solution to their problems. They don’t want to deal with paying for health care themselves. But what the government does to solve the high prices is fix prices and regulate the producers of health care, like doctors and medical device manufacturers. They make the supply smaller. But when the cost apparently goes down, people are signaled to use more health care. That makes the demand larger. And this is why there is a shortage of health care in countries that have health care provisioning highly regulated by the government.

You can even save money by cutting down on medications to relieve pain, as is already being done in Britain’s government-run medical system.

You can save money by not having as many high-tech medical devices like CAT scans or MRIs, and not using the latest medications. Countries with government-run medical systems have less of all these things than the United States has.But reducing these things is not “bringing down the cost of medical care.” It is simply refusing to pay those costs— and taking the consequences.

How changing prices signal buyers and sellers in a free market economy

Here’s a lesson in capitalism from the New York Times. (H/T ECM)


The oil industry has been on a hot streak this year, thanks to a series of major discoveries that have rekindled a sense of excitement across the petroleum sector, despite falling prices and a tough economy.

These discoveries, spanning five continents, are the result of hefty investments that began earlier in the decade when oil prices rose, and of new technologies that allow explorers to drill at greater depths and break tougher rocks.

“That’s the wonderful thing about price signals in a free market — it puts people in a better position to take more exploration risk,” said James T. Hackett, chairman and chief executive of Anadarko Petroleum.

And what do we learn from this? Do oil prices go up because of greed? No.

When supply is low or uncertain, but demand is high, then prices must rise. Rising oil prices signal consumers to curtail their consumption, and they signal producers to invest more and take more risks to find more oil.

The government must not interfere to set prices lower when prices rise due to a shortage. Lower prices means that producers will not invest or take risks in order to find more oil for consumers. We have to let producers have their profits in order to for them to invest and take risks to find more oil. And when more oil is found, the price of oil will go down naturally, without the government having to get involved. The more government gets involved, the more opportunity there is for corruption.