Tuesday, March 31, 2009

Universal Health Care and Diseconomies of Scale

Companies often merge with one of the advantages being "economy of scale". What this means is that merged companies can save the cost of paying for duplicate functions, departments and divisions.

However, it is possible to grow to the point that an organization experiences "diseconomy of scale". Some of the math behind this is described in my posting, Why Can't Nine Woman Have a Baby in One Month.

I just finished the book "The Conscience of a Liberal" by Paul Krugman. I read it based on the advice "Keep your friends close and your enemies closer". Paul Krugman is the recipient of the 2008 Nobel Prize for Economics. Coupled with Al Gore's 2007 Nobel Peace Prize, I have found the Nobel Prize committee is losing credibility in my eyes.

Mr. Krugman is a strong proponent of universal health care (he also things that Congress and Obama haven't gone nearly far enough with the recent bailouts). This is my argument against his views.

First, he compares the poor state of U.S health care (based on cost per person) to the wonderful systems in Canada and elsewhere. It's interesting to compare size of a country (or state) based on population and GDP (Gross Domestic Product). The chart below is sorted by population size.

Based on this chart:
  • The U.S. blows away any country based on GDP
  • The U.S. is the 3rd largest country (based on population)
  • It makes more sense to compare Canada to California or Texas
  • It makes more sense to compare the U.S. to China, India or Brazil, where the per capita incomes are $865, $2,842 and $442 respectively. It's $33,000 for the U.S.
  • How long can the U.S. maintain such a high living standard for so many people as compared to other large countries?
  • After the "change" we are experiencing in Washington D.C.:
    • It will probably make even more sense to compare the U.S. to China, India or Brazil
    • "Spreading the wealth" will probably take on a global meaning.

At 15% of our GDP, U.S. health care costs are the most expensive in the world and need to be fixed. I think part of the problem is greed in the industry.

However, if universal health care is inevitable, I think it makes more sense at the State level than Federal level (and I think the U.S. Constitution would agree with me). I don't think I would want to depend on the health care systems of China, India or Brazil (though India's health care system is controlled by the States, not the central government). Also, I've lived in Brazil and received medical treatment there. I love Brazil, but I wouldn't want to depend on the Government providing health care as I saw countless people on the streets desperately in need of medical treatment.

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