Categories:
Economics of Health Care
Alex Tabarrok wants the freedom to buy drugs without having to beg a doctor’s permission, and I couldn’t agree more. When I mentally review my last five doctor’s visits, virtually the sole benefit I got was access to a drug that I already knew I needed.
“But if you didn’t need a prescription, you probably wouldn’t go to the doctor!” Yes, that’s the whole point. Without the power of the prescription pad, what doctors have to sell usually isn’t worth my time. And my laziness cuts your insurance premiums in the bargain!
READER COMMENTS
Jared Westbroek
Jul 19 2005 at 8:35pm
I feel the same way about having to be admitted to the Bar when I am done with law school. A bunch of lawyers got together and created a situation that effectively created an artificial supply ceiling. Thus ensuring job security for most lawyers.
I brought this up with one of my professors once and he absolutely refused to see my point. He kept saying how it was necessary for the bar to filter out unqualified, wannabe practitioners of the law. I kept trying to tell him that reputation would do that but he would have no part of it.
Besides, the risk of hiring a certain lawyer falls on the consumer, not government. I told him that if a private bar association wished to charge a fee and have people gain their endorsement by meeting their qualifications, i.e. law school graduation, test passing, then a lawyer could market himself as being endorsed by so and so. It would solve the problem of asymmetrical information and shift the assumable risk to the consumers of the work of lawyers.
Christopher Rasch
Jul 20 2005 at 12:31am
Not surprising that he refused to see your perspective. To do so would admit that he belongs to a cartel, whose primary purpose is to artificially raise their own salaries by forcibly preventing anyone else from competing.
John P.
Jul 20 2005 at 11:05am
First, full disclosure: I’m a lawyer in private practice.
There are some important differences between doctor licensing and lawyer licensing that should be taken into account. (These differences may not be enough to make lawyer licensing economically efficient, but they are at least things that should be considered in any argument to do away with lawyer licensing.)
(1) Crappy lawyers can do a lot of expensive damage. The quality of judicial decisions depends to a surprisingly large extent on the quality of the lawyering that gives rise to the decisions. If we do away with licensing and thus open the door to anyone, we will need more judges and more public employees to assist judges in compensating for the lowered quality of the research and thought that goes into what is presented to judges for decision.
(2) A lawyer’s license is the best weapon that courts have to keep the lawyer in line. If your license is suspended or yanked (which the court system has the power to do), you lose your livelihood. Thus, most lawyers would much rather displease a client than risk court discipline. This is important because (believe it or not) lawyers do keep a lot of garbage out of the legal system, by rejecting clients’ bad ideas.
(3) (probably of least significance) By ensuring that lawyers have some minimal level of competence, our legal system can be more ruthless about holding litigants accountable for the mistakes of their lawyers. If your lawyer does a bad job representing you, tough luck. You don’t get a second chance. Courts would be less willing to take this position if people could be represented by anybody with any training.
Right now, the increased costs of legal services attributable to lawyer licensing are borne initially by the litigants themselves. This can be beneficial because it decreases the incentive to litigate and thus to place greater demand on public resources for which everyone pays. This also can have the effect of making people more sensitive to overregulation, because the costs (in terms of hiring lawyers) are felt more directly than if lawyering were cheap but the court system more costly.
Geoffrey Brand
Jul 20 2005 at 1:59pm
John P.
Your argument appears to be the standard rational for all coercive licensing by government and is used by all professions that want to form a cartel.
Each group seems to think that for some reason that there services are important enough to make them somehow different (honestly no offense) but on principle they are not.
All of your reasons for licensing can be accomplished by reputation and voluntary endorsements (such as a Bar Seal of Approval) … without resorting coercive government action
Geoffrey
John P.
Jul 20 2005 at 4:31pm
Geoffrey,
Reputation and voluntary endorsements would clearly deal with the “protect the consumer” rationale that is most often offered by guilds. However, the point I was trying to make is that bad lawyering has externalities that greatly exceed the effects of bad doctoring, bad hairdressing, bad lens-grinding, etc. (Bad engineering probably exceeds lawyering in terms of externalities, but the externalities there are of a quite different sort.)
Bad doctoring, for example, affects only the patient who, for whatever reason, has chosen to go to the bad doctor. The bad doctor’s incompetence or fraud does not affect those of us who are smart enough not to go to him (at least, if we leave out of the picture government programs like Medicare). However, bad lawyering stands to impose costs not only on the bad lawyer’s customers (clients) but also on all taxpayers, by either lowering the quality of the output of the legal system (i.e., judicial decisions, which have effect beyond the immediate participants) or raising the government’s cost in administering the legal system (in order to achieve the same quality of output).
The unknown is whether the higher prices caused by the lawyer cartel are ultimately more costly for the whole economy than would be the externalities from worse lawyering if the lawyer cartel were abolished. To pin down that unknown we would need numbers that probably don’t exist.
Geoffrey Brand
Jul 21 2005 at 10:59am
John P.
Implicit in your arguments is that quality is better under a coercive licensing system.
(Again, I cannot stress that it is the same rationalization that all legal cartels use from doctors to hairdressers)
I disagree with the assumption.
Yes, people will be able to buy lessor quality but cheaper services, perhaps more people might seek legal advice from somebody with a paralegal credentials or even less.
That is a good thing. That might be all the quality that they want. More choice always leads to higher economic efficiency.
Reputation is not costless to maintain. Consumers of legal services will have larger incentives to be more diligent when buying. Thus creating incentives for providers of legal services at all levels to increase quality and decrease costs.
Competing legal endorsement agencies, will have to be more diligent in policing their members or face loss of reputation (and the value of any fees they could charge for such endorsements). That incentive is not present in government licensing.
Pretty much like all markets for goods and services. Removing a legal monopoly, creating incentives, and increasing competition increases quality and decreases costs.
In principle, it is impossible to argue that the legal profession is somehow different. (and yet, all legal cartels do try to come up with reasons why their market is somehow special).
Yes, a good legal system and access to legal services is necessary for a good functioning society.
However, I don’t see additional costs of the legal system or degradation of quality being imposed by getting rid of government licensing. Actually quite the opposite.
Geoffrey
Tom
Jul 21 2005 at 12:58pm
I’m all for selling all drugs over the counter and for ending the AMA’s monopoly on the supply of doctors, but…
You overstate the case by implying that doctors are useless. Without going to a doctor, I wouldn’t have known about the “silent killers” lurking in my body: high blood pressure an high cholesterol level. My son’s non-cancerous but life-threatening brain tumor wouldn’t have been diagnosed and excised with resorting to doctors. I’m sure that many other readers can cite similar experiences.
Don’t make the mistake of extrapolating from your own experience. Unscientific. Tut, tut!
John P.
Jul 21 2005 at 1:19pm
Geoffrey,
I grant all of your premises except for the one that quality would be the same or better without licensing. Unless you’re willing to admit (and maybe you are) that legal education and bar exams have no connection with the ability to provide legal services, then those requirements must mean that the people who complete them are better able to provide legal services than those who do not or cannot complete them. Again, I’m not saying that the difference in skill level is necessarily worth the cost of the cartel; I’m just saying that the added cost is accompanied by some added ability (quality of output).
I don’t think that you’ve really addressed the rest of my argument. Just because members of all cartels argue that their cartel is somehow different doesn’t mean that some of them may not in fact be different. Consider engineering, a field in which I have no financial interest. The fact that the state requires a building design to be approved by an engineer who has been licensed by the state must increase the cost of building (and increase the fees of licensed engineers). But (not having any data) I would be willing to guess that those costs are efficient for society because the alternative — living in an environment with no uniform gatekeeping as to the quality of its structures — would be too risky and would entail too much information-gathering on my part whenever I went to someone’s office, drove down an unfamiliar highway, etc.
With respect to the lawyer cartel, I’m not willing to guess that the added costs are less than the costs of the externalities of bad lawyering. But I do stand by two propositions: (1) As I said above, the lawyer licensing system does increase the average quality of the lawyering that is done; and (2) Bad lawyering has externalities akin to (but less concrete than) the externalities of bad engineering. I explained those externalities above and won’t bore you with them again.
Since you and I seem to be the only ones interested in this issue, I won’t bother making any further attempts to persuade you of my position. Thanks for your thoughts.
Rafal Smigrodzki
Jul 22 2005 at 3:04am
I am a practicing physician, and of course I don’t think I am useless (:-) but I do agree that physician licensing by the state, and even more so the prescription drug laws, are clearly detrimental to the economy. Where they save a tiny minority of gullible citizens from being exploited by snake-oil salesmen, they squander enormous resources, artificially driving up prices of medical care.
I can only hope that one day more citizens will learn to think like economists and the whole professional cartel scheme will come crashing down.
FishEpid
Jul 22 2005 at 9:26am
If only it were so simple. Based on FDA drug law (I’m not an economist, lawyer or physician nor do I work for the pharmaceutical industry or the FDA nor am I a fan of either), Tabarrok is either being more than a little disingenuous (agenda?) or he doesn’t know what he is talking about (more dangerous?). The Congress recognized the potential monopoly problem when they wrote that part of the FDA law. It requires that if sufficient directions could be written that the non-physician could use the drug safely, the company had to do so. No if’s, and’s or but’s. For all the economic reasons cited in previous posts, for many drugs companies would do that in a heart beat.
It also seems to me that those who claim that they have a particular clear view of a better world are really building sand castles on scant evidence. There is a lot being selectively overlooked in these proposals. First is the history of medicine – why we are where we are with drugs and medical licensing. You really want to go back to the days of snake oil? Second, we already have some 40% of people using alternative medicine – acupuncture, chiropractors, homeopathy, aromatherapy – so what is the evidence about how well people can discern quality and efficacy in that arena in making their choices? Third, physicians are trained in educational systems in other countries with much lower if any licensing standards compared to the US. What is the evidence on medical outcomes and on consumer choice under those circumstances? How about an honest search for and critical evaluation the empirical evidence at hand as opposed to abstract hypothesis mongering?
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