Coyote Blog

The other day, Kevin Drum wrote a post wondering why we had so few doctors per capital in the United States and observing, reasonably, that this might be one reason to explain why physician compensation rates were higher here than in other countries.

He and Matt Yglesisus argued that this smaller number of doctors and higher compensation rates were due to a physician-operated cartel.  This is a proposition I and most libertarians would agree with.  In fact I, and many others apparently, wrote to him saying yes there is a cartel, but ironically it owed its existence to government interventionism in the economy and health care.  In a true free market, such a cartel would only have value so long as it added value to consumers.

Drum seems to have missed the point.  In this post, he reacts to themany commenters who said that government power was at the heart of the cartel by saying no, it's not the government because doctors control the nuts and bolts decisions of the cartel.  Look!  Doctors are in all the key positions in the key organizations that control the cartel!

Well, no sh*t.  Of course they are.   Just as lawyers occupy all the key slots in the ABA.  But neither the ABA nor these doctors cartels would have nearly the power that they have if it were not for government laws that give them that power (e.g. giving the ABA and AMA monopoly power over licensing and school credentialing).  I had never heard of the RUC before, which apparently controls internship slots, but its ability to exercise this control seems pretty tied to the billions in government money of which it controls the distribution.

Let's get out of medicine for a second.  I am sure Best Buy wishes it had some mechanism to control new entrants into its business.  Theoretically (and it may have even done this) it could form the Association of Bricks and Mortar Electronics Retailers (ABMER).  It could even stake a position that it did not think consumers should shop at upstarts who are not ABMER members.  Take that Amazon!  Of course, without any particular value proposition to do so, consumers are likely to ignore the ABMER and go buy at Amazon.com anyway.

Such cartel schemes are tried all the time, and generally fail (the one exception I wonder about is the Visa/Mastercard consortium, but that is for another post).  Anyway, the only way the ABMER would really work is if some sort of government licensing law were passed that required anyone selling consumer electronics to be ABMER members.  And my guess is that the ABMER might not invite Amazon.com to join.  All of a sudden, Amazon is out of the electronics business.  Or maybe it just gets forced to deliver all its product through Best Buy stores, for a fee of course.

Crazy stupid, huh?  The government would never write licensing laws to protect a small group of incumbent retailers, right?  Well, tell that to Elon Musk.  Tesla has been trying for years to bring its cars to consumers in innovative ways, but have time and again run up against state auto dealership laws that effectively force all cars to be sold through the state dealer cartel.  Or you can talk to California wine growers, who have tried for years to sell directly to consumers in other states but get forced into selling through the state liquor wholesaler cartels.

All these cartels are controlled and manned by the industry, but they are enforced -- they are given their teeth -- by the government.

Here are a few off-the-top-of-my-head examples of cartel actions in the medical field admittedly initiated and supported and administered by doctors, that are enforced by state and federal law:

• Certificate of need laws prevent hospitals from expanding or adding new equipment without government permission.  The boards in this process are usually stacked with the most powerful local hospitals, who use the law to prevent competition and keep prices high.  This is a great example where Drum could say that the decisions are essentially being made by hospitals.  Yes they are, but they only have the power to do so because the government that grants them this licensing power over competitive capacity.  Without this government backing, new hospitals would just laugh at them.
• Government licensing laws let the AMA effectively write the criteria for licencing doctors, which are kept really stringent to keep the supply low.  Even if I wanted to only put in stitches all day to busted up kids, I would still have to go through 8 years of medical school and residency. Drum and Yglesias focus on the the number of medical schools and residencies.  I do not know if these are an issue or not.  But what clearly is an issue is the fact that one has to endure 8 expensive years or more just to be able to hand out birth control or stitch up a skinned knee.
• Government licensing laws help doctors fight a constant rearguard action against nurse practitioners and other less expensively trained folks who could easily do half or more of what doctors do today.
• The FDA and prescription drug law not only helps pharma companies keep profits up, but also increases business to doctors as people have to have a prescription for certain drugs they could easily buy on their own (e.g birth control pills, antibiotics).
• The government limits immigration and thus labor mobility, reducing the ability of doctors from other countries to move here.

I am sure there are more.

There is no denying that in the middle of every industry cartel are insiders who are maneuvering to increase the rents of the incumbent players.  In fact, I am sure that every industry has participants who dream about getting off the competitive treadmill and creating a nice industry cartel, and would be the first to sign up.  But none of these dreams are ever going to happen unless they are enabled by the coercive power of government.

Of course, the consistent answer is, well, we just have the wrong guys running things.  If we had the right guys, it would work great.  But this kind of co-option always happens.   Look at taxis and liquor license holders and the entire banking sector.  Five years ago I would bet that progressives thought they finally had that right guy in the administration.  And look what has happened.  Banking cronyism is as strong as ever.  Obama's signature health legislation is full of crony giveaways.  In 6 months the health insurers are going to be running the entire PPACA infrastructure to their own benefit.

update:  This post is verging on the "is cronyism capitalism's fault" argument.  Rather than go into that again, it is here.

Update #2:  Related

Arkansas orthodontist Ben Burris was hauled in front of the state dental board in September after dentists in northeast Arkansas complained that he was offering dental cleanings to the general public in his Braces by Burris orthodontics clinics. The price for dental cleanings was $98 for an adult and $68 for a child, which Burris has said is about half of what dentists in northeast Arkansas typically charge.

Burris said most of the patients who need cleanings don’t have a dentist, but are checked by one of the three orthodontists in his clinic. Also, Burris said he offered the service because it was good for his business and good for the public. Some of his competitors “have gone absolutely ballistic” over the price and complained to the board, Burris said.

MP: Of course, the Arkansas dental cartel has no basis to complain directly about the low prices for dental cleaning at Braces by Burris clinics, so they are instead complaining that the clinic’s low-cost teeth cleaning services violate the states Dental Practice Act, which prohibits orthodontists and other specialists from practicing “outside their specialty.”

An Australian MP brings a screaming toddler onto the floor of Parliament during a debate and is shocked when she is asked to take her kid out.  She demands a more family-friendly workplace  (there is some suggestion it was all a manufactured stunt).   The story is guaranteed to further piss off single people who already feel that they have to work extra to cover for their co-workers with kids.  I have two kids but have never expected the world to defer to me.  When I had my first kid, I had a job at McKinsey & Company that really wasn't compatible with how I wanted to raise my new child.  Rather than storm around about family friendly work places, I quit and found a job that did fit.   After all, having the kid was my choice, not theirs.

Here are a few scenes from Zimbabwe, stitched together form several posts by Cathy Buckle.  For all of those who support Hugo Chavez, and there are a surprising number in this country, this is exactly where Venezuela would be in a year if it wasn't for its oil.  And it may get there none-the-less (hat tip Q&O):

After three months of price controls the food situation in the country is
perilous and even those who were able to stock their pantries and cupboards are
now in trouble. In a main supermarket in my home town this week there was air
freshener, window cleaner, some vegetables, Indonesian toothpaste and imported
cornflakes from South Africa - one single packet costing more than half of a
teachers monthly salary.  There was also milk being sold from a bulk tank to
people who bring their own bottles and the queue went through the empty shop,
out the door and along the pavement. The line broke up suddenly before 10am when
the milk ran out and the huge shop was suddenly completely empty - nothing left
to sell, no more customers. This situation was a mirror image of conditions at
three other major supermarkets in the town and so we look desperately into
another week of struggle, praying for relief....

Milk is like gold in our town, as it is almost all over the country. When you
appreciate that the shops are empty and there is no food to buy, no protein, no
meat or eggs and now not even bread, you understand that people are desperate
for nourishment. A phone call to the local bulk dairy marketing outlet this week
went as follows:

Q: Hello, Do you have milk please?
A: Nothing.
Q: What about lacto (sour milk)?
A: Nothing.
Q: Any cheese?
A: (Bored) Nothing
Q: Ice Cream! ?
A: (Slightly annoyed) No, we have nothing. We are playing football in the car
park!
...

Standing outside over yet another smoky fire late one afternoon this week, a
Go-Away bird chastised me from a nearby tree. I'm sure this Grey Lourie is as
fed up of me intruding into its territory as I am of  being there - trying to
get a hot meal for supper. For five of the last six days the electricity has
gone off before 5 in the morning and only come back 16 or 17 hours later a
little before midnight. "Go Away! Go Away!" the Grey Lourie called out
repeatedly as my eyes streamed from the smoke and I stirred my little pot. My
hair and clothes stink of smoke, fingers are yellow and sooty but this is what
we've all been reduced to in Zimbabwe. Our government don't talk about the power
cuts anymore and don't even try and feed us with lame excuses about how the
power is being used to irrigate non-existent crops. We all know it's not true
and the proof is there in the empty fields for all to see.

Something else our government aren't talking about  anymore is the nationwide
non availability of bread and the  empty shops in all our towns and cities.
Everywhere you go people are struggling almost beyond description to try and
survive and yet the country's MP's, both from the ruling party and the
opposition, do nothing to put an end to this time of  horror. I have lost count
of how many weeks this has been going on for but it must be around three months.
None of the basics needed for daily survival are available to buy. There is no
flour to bake with, no pasta, rice, lentils, dried beans or canned goods. People
everywhere are hungry, not for luxuries like  biscuits or snack food but for the
staples  that fill your stomach. When you ask people nowadays how they are
coping, mostly they say that they are not, they say they are hungry, tired and
have little energy. This is a national crisis almost beyond description and
people say they are alive only because of " the hand of God."