Josef Stalin for Sugeon General!

Great timing. Just as I thought to establish my Healthcare Clearinghouse posts, Prof. Mankiw promptly provides fodder to add to it by linking to David Leonhardt's dishonest and stunningly blind column where he advocates universal healthcare coverage.

The article opens reasonably enough, talking about broad variations in the instance of certain medical procedures across geographies. Indeed there are such variations and, in theory, there shouldn't be - medical knowledge ought to disperse throughout the profession fairly quickly and diagnoses and treatment ought to be fairly uniform. The reality is quite different. To begin with, some doctors stay scrupulously current with the medical state-of-the-art. Others do not. Some doctors are philosophically inclined to recommend surgery, others to council against it. Differences in the demographic characteristics of local population can also result in wide variations in surgical incidence. A young population is more likely to have higher proportion of certain surgeries than a retirement community as young people can handle the trauma of surgeries better than older people. Young people also opt for elective surgery more often, as they have more years ahead of them in which to reap the benefits. In addition, certain cities get a reputation for leadership in certain fields, sometimes simply becase a renowned surgeon chooses to live there, or a local wealthy donor establishes a center of excellence in a field (example here). My point is that there are complex reasons for these variations. To interpret these numbers as evidence of wasteful consumption of healthcare is preposterous. Furthermore, Leonhardt's example of Idaho Falls is a thin reed. Idaho Falls has roughly 53,000 residents (Bonneville County close to 100,000), implying that there may not be more than 5 or 6 neurosurgeons there who can do lumbar fusion procedures. One especialy renowned surgeon residing there can skew the numbers drastically.

This is not to say that wasteful medical spending does not occur. It does. Alot. There is a vast and well-established economic literature on overconsumption and the economics profession has identified a reliable culprit of overconsumption, the presence of a third party payer - precisely what Leonhardt advocates. It is evidence of messianism that Leonhardt omits any discussion of the well-known effects of a third-party payer on oversonsumption, even more so that he tries to pin the source of the problem on local communities.

Now that Leonhardt has set up his reader with a dishonest premise, he can get into the nitty-gritty, his third party payer policy nirvana - universal healthcare coverage. His preferred approach is, well, stunning:
"Along these lines, the three leading Democratic candidates have quietly come up with nearly identical ideas. Deep inside their health care plans, Mrs. Clinton, Mr. Edwards and Mr. Obama have each called for the creation of a national institute to figure out which kinds of medical care actually work. This institute would sort through the scientific research on, say, spinal fusion and help people understand when it may make sense and when it’s likely to be just another big medical expense that doesn’t solve anything."

Got that, it's an "institute." Not a government bureaucracy, but an institute (although given the vast size and complexity of the medical world, can anybody reasonably claim that this institute would not become another large bureaucracy). This institute would determine what treatments are approriate and not appropriate for you and me, and it would dictate prices to that other large government bureaucracy, Medicare, and the private market (we know, quite clearly, what centralized price-setting results in - shortages at worst and misallocation of resources at best). What is stunning about this is how closely it resembles the fascination that economists of FDR's day had with Soviet central planning:
"The group was dazzled by the Soviets' economic planning. Stuart Chase, a founder of Consumers' Research (which would become Consumer Reports), reported that "sixteen men salt down the whole economic life of 146 million people for a year in advance as calmly as a Gloucester man salts down his fish...and...the actual performance for the year 1928 will not be so very far from the prophecies.... One suspects that even Henry Ford would quail before the order."
Finally, this institute is redundant. It exists today, except that it is not one institute but many institutes and institutions that do exactly what Leonhardt feels needs to be done. The difference is that they compete to deliver the most reliable output. One would have to be ignorant or blind to the last 50 years of economic thought and actual history to think that centralizing the authorization process for medical procedures would result in optimal healthcare outcomes. It clearly wouldn't and Leonhardt doesn't make claims that it would, it's all about expunging costs from the system. The word for this is rationing. What Leonhardt wants is a large bureaucracy engaged in rationing on a massive scale, indifferent to the particular circumstances of your and my health.
Leonhardt ends with this: "The simple truth is that medical spending can’t continue to rise at its current rate. Somehow, we need to make choices."
What he means, of course, is that he and a small band of elitists needs to make choices. Choices for you and me.