Health Costs

The fundamental problem in the health system is a gross misalignment of incentives. Neither the patient nor the doctor directly bears the burden of the medical expenses they incur. Consequently, their incentive to minimize the expense, or at least to recognize the notion of a cost-benefit trade-off, is heavily diluted. The failure to recognize a cost-benefit paradigm by juries at malpractice trials also distorts incentives and causes doctors and patients to demand too many medical services. Socialization will not correct this incentive issue; instead of a better alignment of incentives, it will only create a different misalignment.

Given the pace and nature of technological advance in this field (which is the prime cause of the vast increase in health costs) over the last few decades, assuming technology fails to provide any significant countervailing trends that reduce costs (eg, automation), America is on a path to becoming a well-armed nursing home.

But, we should bear in mind that we are by far the greatest source of innovation in this tremendously important field. And a vital part of this competitive advantage is clearly attributable to the element of private sector profit-seeking. This innovation benefits America enormously and its influence in the world is actually one of the greatest practical forms of American philanthropy. The two primary costs of socialization (and financial realities make this virtually inevitable sometime in the next 20 years) that we should seek to minimize are the diminution of personal liberty and the slow death of the culture of innovation.