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1970s Gasoline in America and 20-teens Health-Care in “Progressive” Countries

Posted By Don Boudreaux On September 28, 2013 @ 5:24 pm In Health,Prices,Reality Is Not Optional,Regulation,Seen and Unseen | Comments Disabled

An incessant refrain of the “Progressive” left is to exclaim that many other governments have nationalized health care and that the average amounts spent on health care (or the list prices of health-care services) in those countries blessed by such government intervention are lower than are corresponding figures in the United States.

One familiar and perfectly appropriate response by more market-oriented types to such “Progressive” exclamations is to point out that health care in the the United States is not – and has not been for a long time – governed largely by free-market forces.  Perhaps health care in America isn’t as nationalized as it is in England or Canada, but it’s a looooooooong way from being anything remotely close to an industry driven by and governed by laissez-faire market institutions.  Any such comparison, therefore, of health care in the U.S. to health care in some other country tells us very little about whether or not it would be good or bad to move in a more market-oriented direction for the supply of health care.

Another response – also perfectly appropriate – is to challenge the data on health outcomes in those other countries, pointing out the many ways in which, for example, conventions for gathering and recording data often make health-care outcomes in other countries non-comparable (without significant adjustments to the data) to outcomes in the U.S.

Yet another response is that money prices in industries heavily controlled by government do not accurately reflects real costs or trade-offs.  (The BBC report on Venezuela [1] prompts me to emphasize this response.)

Were we to judge access to gasoline in the U.S. during the 1970s in the same way that “Progressives” judge access to medical services today in countries with more-nationalized health care, we would conclude that gasoline in the U.S. was in fact much less costly in the 1970s than it really was.  Analysts would look only at the official, capped prices of gasoline.  (“My, how inexpensive!  Weren’t those denizens of the Disco Decade fortunate?!”)  Indeed, had Uncle Sam in the 1970s capped the price of gasoline even lower, the estimate of Americans’ welfare in the 1970s would rise even higher.  If the price of gasoline were capped at $0.00 per gallon, that decade would today be the envy of everyone: “Wow!  Americans in the 1970s got gasoline for free!  Why can’t we legislate ourselves today to such a happy state of affairs?  It’s the civilized and progressive thing to do!”

Of course, the real price of gasoline in the 1970s was higher not only than the official “capped” price, but higher also than it would have been were there no price controls.  Hint as to why: price ceilings cause fewer units of the good or service in question to be brought to market, making each unit that is brought to market more scarce than it would be in the absence of the price ceiling.  Because price ceilings reduce the quantities supplied to the market, price ceilings cause the market values of each unit that is supplied to be higher than that value would be without the price ceiling.  Contrary to naive man-in-the-street (or politician-in-the-fancy-building) thinking, you don’t increase access to a good or service by imposing policies that prompt suppliers to bring fewer units to market; and you don’t make something less costly to consumers simply by declaring “Hear ye, hear ye!  From this point forward this good or service will be less costly because our good sovereign will punish anyone who charges money prices for it higher than the prices set by our good sovereign!”

Government can unquestionably reduce below what it would otherwise be the money price charged per unit of some good or service.  But government is no more able by such a declaration to reduce the real cost of each unit of that good or service than it is able to paint the moon with pink polka-dots by declaring that the moon shall be covered with pink polka-dots.  Quite the contrary.  Again, to the extent that government succeeds in enforcing such a price ceiling, the full cost to consumers of acquiring the price-capped good or service will be higher than it would be without the price cap.

The price caps in the 1970s caused notorious gasoline shortages, resulting in long queues and other non-price, mostly informal means of each person trying as best as possible to maximize his or her chances of getting precious gasoline [2].  These queues and other non-price means of competing for access to gasoline were costly, despite the fact that few of these means involved exchanges of money (and even fewer involved exchanges of money that were recorded in official statistics).

And so the lesson for comparing health-care costs across different political regimes is that, to do so sensibly, real access (rather than assumed access) and full costs of access – recorded monetary expenses and mostly unrecorded non-monetary expenses (such as long waiting times) – must be examined.

The fact that we Americans spent less money filling our cars in the 1970s than we would have spent if the price of gasoline weren’t capped by government doesn’t remotely imply that we Americans spent – all costs considered – less to fill our cars in the 1970s than we would have spent if the price of gasoline weren’t capped by government.  The price caps perhaps caused us to spend more in total on fueling our cars – and certainly more per gallon of fuel actually acquired - yet official data on how much we Americans of the 1970s spent to fill our cars show us spending less than than we would have spent (overall and per gallon of fuel) if the market for fuel back then were freer.  Data on money prices and monetary expenditures become meaningless – or at least grossly misleading – when prices are determined artificially by political rather than market forces.

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[1] The BBC report on Venezuela: http://cafehayek.com/2013/09/deserves-a-link-of-its-own-the-calamity-of-chavez.html

[2] other non-price, mostly informal means of each person trying as best as possible to maximize his or her chances of getting precious gasoline: http://cafehayek.com/2012/11/gouging-reality.html

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