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VA Waiting Times? Krugman Warned us Years Ago

June 3rd, 2014 · 4 Comments · Uncategorized

Module 8Note: This article refers to Professor Krugman, the economist and textbook author. Apparently there is a non-economist columnist with the same name. I apologize for the confusion.

Four days ago, the LA Times posted an article with the headline: “VA investigation turns up widespread problems with wait times.” In the piece, the VA is quoted as finding that “inappropriate scheduling practices are systemic.”

They’re right. It’s not a case of Obama or Shinseki being “defeated by bureaucracy.” It’s also not “a crisis of leadership.”

It’s systemic, and price ceilings are central to that system. Mandating below-market prices for the drugs and services they purchase and provide is largely how the VA is able to achieve “efficient” provision. Just Google “The Federal Ceiling Price (FCP)” and see what comes up.

Laymen and politicians have no issue with price ceilings. They tend to rely on folk economics (the intuitive economics of untrained people) to drive their policy choices. To them, the notion of “just price” is very appealing and even I have been guilty of succumbing to its charms.

To get beyond the simplistic thinking of folk econ, and to learn how price ceilings really work, I recommend the text “Essentials of Economics” by Krugman, Wells and Graddy. The most recent edition was published in 2011 (three years ago), but I am certain that in previous editions Krugman et al also outlined why price ceilings can’t lead to creating “The highest performing major system of providers that exists.”

Krugman sets us straight on what happens when politicians try to salve voter preferences for “just” prices by mandating ceilings by fiat. The default result is allocation by wait times (emphasis mine):

Another reason a price ceiling causes inefficiency is that it leads to wasted resources: people expend money, effort, and time to cope with the shortages caused by the price ceiling. Back in 1979, U.S. price controls on gasoline led to shortages that forced millions of Americans to spend hours each week waiting in lines at gas stations. The opportunity cost of the time spent in gas lines—the wages not earned, the leisure time not enjoyed—constituted wasted resources from the point of view of consumers and of the economy as a whole. Because of rent control, the Lees will spend all their spare time for several months searching for an apartment, time they would rather have spent working or engaged in family activities.

Another common distortion is simply to reduce quality to better align with the mandated price.

Yet another way a price ceiling causes inefficiency is by causing goods to be of inefficiently low quality. Inefficiently low quality means that sellers offer low-quality goods at a low price even though buyers would rather have higher quality and are willing to pay a higher price for it.

This Econ 101 chart from the Krugman text says it all. Price ceilings cause amount demanded to rise and amount supplied to fall, resting in a classical shortage. How do you deal with the mismatch? Make ‘em wait. Waiting not allowed? Makeem wait anyway.

Price ceilings

Why do our wise leaders do this to us? Krugman has the answer (emphasis mine):

A last answer is that government officials often do not understand supply and demand analysis! It is a great mistake to suppose that economic policies in the real world are always sensible or well informed.

So, the next time someone makes claims to the wonders of government efficiency, consider these wise words from the great professor (emphasis mine):

The alternative to a market economy is a command economy, in which there is a central authority making decisions about production and consumption. Command economies have been tried, most notably in the Soviet Union between 1917 and 1991. But they didn’t work very well. Producers in the Soviet Union routinely found themselves unable to produce because they did not have crucial raw materials, or they succeeded in producing but then found that nobody wanted their products. Consumers were often unable to find necessary items—command economies are famous for long lines at shops.

Market economies, however, are able to coordinate even highly complex activities and to reliably provide consumers with the goods and services they want. Indeed, people quite casually trust their lives to the market system: residents of any major city would starve in days if the unplanned yet somehow orderly actions of thousands of businesses did not deliver a steady supply of food. Surprisingly, the unplanned “chaos” of a market economy turns out to be far more orderly than the “planning” of a command economy.

Oh, BTW it’s not just the VA. The efficient systems of France, Sweden and Canada all suffer from long wait times too.

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4 responses so far ↓

  • 1 Steve Roth // Jun 3, 2014 at 7:49 am

    Explain:

    By one measure of wait times we’re right in the ball park with Netherlands, UK, Germany, and Switzerland. (The last two both better than us.)

    By the other measure we’re right in there with New Zealand, France, Switzerland, Netherlands, and Germany. (Germany never has four-month wait times.)

    Do price controls explain this? Are you curious? I’d very much like to know why that’s true.

  • 2 Steve Roth // Jun 3, 2014 at 8:03 am

    Here’s an actually “obvious” econ 101 explanation:

    Sending our boys to war increased demand for VA services.

    There was no planning for this, and only feeble after-the-fact budget allocation; supply didn’t increase to match demand.

    (Plus undoubtedly there was/is poor management as in almost every institution.)

    Realistic (leftish) economists said from the get-go that Iraq was gonna costs us $2-3 trillion.

    Hypocritically self-styled faux “fiscal conservatives” were estimating an order of magnitude lower. Who was right?

    The troops that those cowardly politi-hack chicken-hawks sent to war are bearing the terrible burden of their hypocrisy. The troops will tell you: it is always so.

  • 3 Steve Broback // Jun 8, 2014 at 9:02 pm

    Totally consistent with neoclassical econ — send 536,100 American soldiers to vietnam (thanks JFK and LBJ) and 40 years later the demand curve will get pushed out as these old timers need serious assistance. Embrace the magic “efficiencies” of price controls and rationing that folk economics embraces and instead of just wait times, you’ll get deadly and horrifying wait times.

    Trust me, this VA debacle will replace the tired old 70′s gas lines example in scores of modern Econ textbooks in the chapter on price ceilings.

    And it was totally predictable by the model. The oh-so-reliable “data” could only mask reality for so long.

  • 4 Steve Broback // Jun 8, 2014 at 9:14 pm

    What is the “we’re” you are referring to? I am focusing on the VA, not on medical delivery at large. Are you saying the VA wait times are the same as Netherlands, UK, Germany, and Switzerland? Certainly the horror stories our of the NHS rival that of the VA. At this stage I am certainly not assuming the NHS “data” is reliable. The NHS fakes theirs too, as the scientism-oriented crowd gobbles it up.

    I don’t remember the President of the Swiss Federation referring to their system as being “…dishonorable, it is disgraceful, and I will not tolerate it…”

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