Does Obamacare Put Too Much Faith in Markets?

Dec. 2 (Bloomberg) -- The idea of Obamacare was to harness the power of the market to deliver better health care. Perhaps the resulting monstrosity is our punishment for being so slow to see that markets aren’t the solution to everything.

When the kinks get worked out, the Patient Protection and Affordable Care Act will probably deliver benefits, particularly for many who would otherwise have no coverage at all. The system is so complicated because health-care markets are prone to failures and need all sorts of patches to work. We’re stuck with it because of ideological resistance to nonmarket solutions, especially anything resembling a system of national health care.

But the trouble goes deeper than ideology.

In 1976, economist Fred Hirsch argued that economists had made a profound mistake in thinking about how markets affect the world. Certainly, markets can improve efficiency by making possible beneficial exchanges that might otherwise be impossible. But markets also tend to change the way we think about and value things.

Hirsch called it the “commercialization effect”: Anything that can be bought and sold becomes just that -- a commodity. We could, for example, create markets for children, where those people most desirous of having children could buy them from others. Think only about efficiency, and the idea sounds great. Both parties to an exchange would benefit, one gaining a child and the other an amount of cash that they value more than they do the child (otherwise, they wouldn’t make the exchange).

Of course, most of us would protest. We’d actually all be worse off, because such a market would have a negative effect on our society, altering the way we think about and value children. Children would become objects with price tags, not human beings full of potential and in need of nurturing care, love and respect. The mere existence of a market can change human sentiment and social norms.

Shared Values

With health care, similar issues arise. Putting profit-seeking at the core of a health-care market may indeed stimulate innovative new technologies and cost savings. But the more caring for the sick comes to be seen as a simple profit opportunity, the more we risk losing or crowding out established nonmarket norms about caring for others, norms on which effective care really depends. Many if not most people in the medical profession still have a strong commitment to the well-being of their patients, a commitment that comes from their socialization as members of a profession with shared values and a duty. Those commitments don’t get established through markets.

Harvard University’s Michael Sandel recently revisited some of Hirsch’s arguments, making a broad case against the ever-widening use of markets as the key mechanism of social policy. Sandel makes the point that the question of whether it is wise to pursue a market-based solution in a certain setting isn’t a matter of economic analysis alone. Because analyses of economic efficiency always assume that markets do not alter how people view and value the objects exchanged within them, they miss what is most important. This necessarily brings questions of ethics and values to center stage.

Another important point can be found in the title of Hirsch’s book, “Social Limits to Growth.” Markets that harness rational self-interest to fuel economic growth may initially help societies meet their people’s basic needs for things such as food and shelter. Yet further growth, Hirsch suggested, tends to come through “positional goods” that benefit individuals in part through the power and status they confer over others. Think luxury cars or the latest iPad.

Ultimately, Hirsch predicted, the competition for comparative success would, if unchecked, erode the values of community and social cohesion that capitalist societies inherit from earlier times, displacing these norms with an “everyone for themselves” ethos.

Market Solutions

It may be a stretch to see signs of such decay in recent widening inequality, the rise of special-interest politics, or the discouraging squabbles over things such as the debt ceiling and Obamacare. But these trends do fit well with Hirsch’s vision of the competitive market gone too far.

Paradoxically, the fiercest critics of Obamacare -- such as self-professed small-government Republicans -- tend also to be the most ardent supporters of the market as a solution to anything. If you’ve decided in advance that health care has to head in the direction of a market, then something like Obamacare is what you get. The program, these critics should realize, is in large part a beast of their own making.

(Mark Buchanan, a theoretical physicist and the author of “Forecast: What Physics, Meteorology and the Natural Sciences Can Teach Us About Economics,” is a Bloomberg View columnist.)

To contact the writer of this article: Mark Buchanan at

To contact the editor responsible for this article: Mark Whitehouse at

    Before it's here, it's on the Bloomberg Terminal.