Forgetting the Law of Scarcity

I wrote an article a while ago about the Law of Scarcity, and how it deals with healthcare. In a nutshell, there are three possible policy directions that can be taken with healthcare: price, quality, and universality. We can push any two of those policy directions, but always at the cost of the third. The fact of the matter is that this fact is not just true with healthcare, but with any commodity, good, or service.

The Law of Scarcity tells us that all goods, services, and commodities are scarce, which means that there is not enough of any commodity, good, or service to meet all potential demand. There is a direct correlation between the quality and price of something, and the demand for it. As an example, as the quality of cars improves and price comes down, demand for cars goes up. If you gave Bentleys and Porshes away for free, the demand for Bentleys and Porshes would grossly outstrip any ability to build Bentleys and Porshes.

Whether we are talking about medical care, breakfast cereal, eggs, cars, or haircuts, the same Law of Scarcity applies. We will never have enough of anything to satisfy all of the demand we would see if things were free.

In real life, we have to make tradeoffs. We cannot have high quality, low pricing, and universal access to anything. It is impossible to pursue all three of those things at the same time. We can push for better quality and lower pricing, but only if those who do not pay the lower pricing have no access. We can push for universal access and high quality, but it would be prohibitively expensive. We can push for lower cost and universality, but the quality would be horrendous.

Somehow, many people do not understand the Law of Scarcity. Somehow, many people do not understand that it is impossible to meet all possible demand of any commodity, good, or service, and that as such, some mechanism must be used to balance supply and demand.

Price will balance supply and demand at any quality level, for as the quality of a good or service drops, people are less willing to pay for it. Universality is possible if one is willing to pay enough (through taxes) and reduce quality enough to limit demand to levels that can be supplied.

In politics, sadly enough, any honest politician has to admit that it is impossible to have universal, low cost, high quality, anything, but it is unfortunately very possible to make political promises that are not possible to keep, and the easiest way to get elected is to promise what it is not possible to deliver.

Scarcity is as much a scientific law as is gravity, and as with gravity, if we do not make tradeoffs, tradeoffs are imposed upon us by the Law of Scarcity.

It never ceases to amaze me how many intelligent people on the political left use their intelligence, not to try and determine what the best tradeoffs possible might be, but to try and rationalize scarcity away. When the public listens to these people, we get policies that ignore the Law of Scarcity, and that usually leads to a very limited supply of low quality, high cost goods and services. Contrast that to free markets, which throw universality to the wind, focusing solely on quality and price.

A free market will make the best tradeoffs possible, often meeting a large number of different quality points at different prices. A rich person may be willing to buy a Bentley, whereas a middle class person may settle for a Ford. Someone just starting out in their working life might have to buy a used car. All get as much car as they can, or are willing to, afford, but nobody can get a car without paying for it unless someone is willing to give them a car for free.

There is no reason why this mechanism cannot be used for healthcare, breakfast cereal, and everything else. Various products can be offered at various price points, to make all goods and services available to the maximum number of people at whatever price point makes the most sense for them. In healthcare, a rich person might want a private room, whereas a poor person might be willing to be in a ward. Both get quality healthcare, but the rich person gets bells and whistles the poor person cannot afford. We do not need to make these kinds of tradeoffs as a matter of policy, because the markets, when left alone, make these tradeoffs for us, based on public demand.

It is possible to have a rational discussion with those who understand the Law of Scarcity, but who disagree on what the optimal tradeoff might be, or who believe it is possible to force better tradeoffs than free markets would create. Reasonable people can have different values and backgrounds, and can disagree on the ramifications of the same set of facts all the time. It is however impossible to have a rational discussion with those who deny that the Law of Scarcity exists.

We can only build a better world if we are rational. We need to understand, and respect the Law of Scarcity. We need the best tradeoffs possible.

We need free markets.

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