A lesson in economics

This is somewhat tangential (at least the initial part) to HPC and storage, but it has significant similarities … its worth paying attention to. Much text, noise, and argumentation have surrounded things like Obamacare here in the US. This is, whether or not the proponents like to admit it or not, a push for a socialized medical system, with “controlled” costs, and all manner of other things. Yeah, we’ll hear how the US has “crappy” medical coverage, or country X is so much better because everyone gets coverage. I won’t point out the obvious fallacies in this (we get lots of Canadian citizens coming here to pay for care they can’t get in Canada under their socialized medical system, as well as medical tourists from other places with universal coverage). I will point out one of the side effects of this coverage. First, for the record, as a small business owner paying currently paying fully for my employees medical coverage, I am quite sensitive to the issue of who will pay what, and what level of coverage we will get. My wife had a brush with cancer in the last 8 months, and our coverage is stellar … I can’t say enough good things about Blue Cross/Blue Shield of Michigan. We had another provider before, and getting them to do what we wanted was an object lesson in how to raise blood pressure, waste time and resources, and only get get part of what was needed.

I am quite unsure of what Obamacare would do to either the cost or quality of our coverage. This is part of why I am not supportive of it … if it brings us back to what it was in the past, or worse (and I’ve had worse in the past), yeah, we can do without that. And since it is a government program, it will be, by definition, inefficient, bloated, wasteful, and people will be gaming the system. So its going to suck, no matter how well intentioned it is. And worse than that, you will be in trouble with the law for not participating in some level of coverage. You are required, by law, to purchase something. Or you will be (at minimum) fined. Moreover, it appears that there will be a picking of winners and losers (insurance companies/plans). Some are called “cadillac” plans (best of the best) and are expensive. So if I wanted to provide this to my employees as a way to retain them, and keep them happy for competitive reasons, I am … penalized … by higher taxes. All that said, I’ll focus upon one of the side effects of price controls on drugs. Its really basic economics. Fix the price to be X. If no one can make money producing the product to sell for X, you will get fewer producers. Stories out of Canada indicate that they’ve had drug (and other medical supply) shortages since the inception of the program. I believe that in the UK (and pretty much everywhere else with this same type of service) you have these shortages. From the article I am writing about:

Good manufacturing processes are terribly important for pharmaceuticals. Can’t compromise on that. Industry consolidation happens. But production cessation is driven (apart from quality issues) by economic issues. So if you constrain the profit in such a way that its not worth the investment to make the product in the first place …. This is one of the dangers of single payer systems is that there will be one customer for the product, and they may tell the drug maker “we are willing to pay X for this” where X is some number that may or may not work out for the drug maker. The drug maker has 2 options at that point. First is to produce the drug, and sell it for X. Their profit will be known, and probably pretty low. But they may make money. Their second option is to move on to a more profitable line. And when that happens enough times, when all the profits are removed from the manufacturing of generics and drugs in general, well, you get shortages when the demand for the drug outpaces the supply, and there is no legal mechanism for the drug maker to have the market set the price, rather than the pre-negotiated single payer set the price. You have to start doing triage, rationing, and other things that supporters of Obamacare roundly deny (but are side effects of the very thing they propose … just look at the existing programs in other countries that have tried this … its not widely publicized, but rationing and triage are very much on the agenda in those places). This is not to say that the goals of the program aren’t laudable. They are. The question is, how do we do this right? I know that one of the political parties here in the US was asking this for a long time, and have been discussing how to increase coverage and care as a way to lower overall costs (a healthier population would hopefully consume fewer health resources, lowering costs). The problem is that, in the normal political process here, what should have been a sequence of small patch bills that added up to a larger functional change in our kernel (government), wound up being a massive, unread, pork-lined turd with so many giveaways and so much crap … My hope is that the supreme court of the US (SCOTUS) will strike down the full law (lower courts have already done this in part), and tell congress to go back and do this right. The rationale for the striking has to do with the compulsory purchase, but heck, Al Capone was jailed for tax evasion. You take what works, and run with it. We do need coverage, but we need good coverage for all. The only place I’ve heard of that actually has good coverage for all in a social medicine context is Israel. I’ve not heard of long lines/waits for drugs, or to see specialists, etc. there. But I don’t know if what they are doing scales up to US population levels. Chris S often tells me how good Australia’s coverage is. Not sure if they have the long waits, rationing, and triage (like Canada and the UK). If not, then lets copy the good stuff from them as well. I know … this wasn’t about HPC. But it could be. Imagine, all your HPC done with a single provider. You pay their prices, you interact with their services. And if they suck, your work suffers. And if they triage, ration, … your work suffers. I am talking about this in a cloud context … a single provider or a single payer model is likely a broken model by design. We need more rationality, more freedom to travel and engage a provider we wish to engage on our own for our service, or even the option to do without the service. Interesting how markets rhyme … sort of like history. Mistakes in one place will be rhymed elsewhere unless we take care to prevent mistakes. Mucking with market economics is never a good thing. What I’d like to see are something like contracts from the feds (and other governments) for production supply of certain pharmaceuticals being bid on. You can create effectively a ‘free’ market contracting scenario for this, and have the federal government be nothing more than a participant in a market. Instead of setting an arbitrary low price, engage several manufacturers to bid, to offer them a chance to make a profit with a guaranteed minimum quantity for a specific window. Hold them accountable on quality, schedules etc. This is done now in government HPC bids and (ignoring the occasional program manager that has no real understanding of costs for a particular desired functionality or capacity) could work here as well. If the government dictates the price, suppliers will leave the market. If the government creates an opportunity for competition with at least guaranteed quantities, it creates a market. On the (very off) chance someone in government is reading this, yeah, the path to prosperity and job creation starts with wealth creation, and that requires competition between providers able to make a profit doing what they are doing. If this means that you (the government person) needs to park your redistributionist ideology somewhere else in order to do this … you might consider this. The other party running for control of the government understands this implicitly. FWIW: here in Michigan, we hired someone (@OneToughNerd) much like Mitt Romney in 2010 to head our state government. This has resulted in an amazing transformation in the state. We have more work to do, but things are definitely moving in the right direction after nearly a decade of failure here. Create these sorts of markets and get out of their way, and let the companies who produce the drugs create the jobs. If you set the prices of the drugs instead, they will do a number of things to control costs, and that includes shutting down production (which increases shortages), and removing jobs.