by Mitch Kokai
Senior Political Analyst, John Locke Foundation
… [A]lmost all of the consumer-price inflation we’ve experienced in recent years — 88 percent of it — has come from four heavily regulated, partly government-run sectors: health-care services, housing, education, and prescription drugs. Of the four, health-care services is easily the most significant driver of inflation, followed by (in order) housing, education, and prescription pharmaceuticals. P. J. O’Rourke’s famous prediction about health care — “If you think it’s expensive now, wait until it’s free” — is turning out to be prescient, and the hilariously misnamed Affordable Care Act is expected to drive many medical expenses higher, including (the sums are staggering) the expense of Medicaid fraud.
The perverse fact is that government efforts to make politically important goods such as education and health care less expensive make them more expensive. This is because most government programs are designed as though supply and demand do not actually exist, or as though they are optional. Consider not only Obamacare but all of the other efforts we’ve made over the past several decades to make health care more affordable. None of those programs subtracts from the number of Americans needing or desiring medical services; none of them adds to the number of physicians, dentists, nurses, or pharmacists available to meet that demand, or to the number of hospital beds, clinics, or pharmaceutical factories. Demand is what it is, and supply is what it is, and the government simply dumps money into the equation. A larger quantity of money chasing an unchanged supply of goods is something close to the classical definition of inflation, so it is no surprise to see medical prices increasing far more rapidly than those of other consumer goods.
A similar dynamic is at work in higher education. The University of Texas, to take one example, has x number of undergraduate slots available, and nothing changes that. The federal government’s answer to that is to make free money available to consumers in the form of loans with no underwriting standards and concessionary interest rates. The University of Texas is run by clever people — some years ago, the then-chancellor caused a furor by inadvisedly confessing in public what everybody already knew, that the UT system has no financial need to charge tuition at all but simply uses the fee as a population-control measure. Throw more money at the universities and the clever men in Austin will discover new and exciting ways to soak it up. For Hillary Rodham Clinton, the answer to that problem is — surprise — yet more free money, and loans with even lower credit standards and more deeply discounted interest rates. You know what the universities will do in response? They’ll raise prices.