The Gold-Plated Ambulance

by Kevin D. Williamson
The necessity of innovation and the social value of gazillionaires.

A few years ago, a friend of mine was mortally ill with little prospect of treatment for his condition. He learned that there was a newly developed experimental surgery that might be of help, but there were only a few doctors anywhere in the world performing it. But he was a man of considerable financial resources, so he tracked down the physician who had invented the procedure, negotiated terms, and flew him several thousand miles for the treatment. How much expense this entailed I do not know, but I assume it was somewhere between sobering and staggering.

Very wealthy people can do things like that — that is the definition of being very wealthy. The economist Tyler Cowen was denounced for his “sociopathic callousness” for arguing that realistic health-care reform means accepting the fact that “sometimes poor people will die just because they are poor.” Laura Clawson, who hails from the shallow end of the dime-deep intellectual pool at Daily Kos, spoke for the conventional liberal worldview in maintaining that this line of thinking is “monstrous. In the direct sense that you have to be a monster to think it, never mind publicly advocating it as policy. His equation of health care with ‘all sorts of other goods’ that the wealthy have and the poor don’t is a moral and ethical failing, not a logical one — he’s simply suggesting that the right to have treatment for asthma or diabetes is a moral equivalent with the right to have a gold-plated Rolls-Royce.”

But as in the example of my friend, sometimes health care is the equivalent of a gold-plated Rolls-Royce. The most generous national health-care program we can imagine is not going to have the resources to provide each and every one of the 314 million citizens of these United States with the same kind of health care that Bill Gates can access. There are financial limits, and there are physical limits as well: only so many doctors, so many hospital beds, so many doses, so many transplantable organs. Which is to say, sometimes poor people will die just because they are poor, and sometimes middle-class people will die because they are not millionaires, and sometimes millionaires will die because they are not billionaires. And if we can set aside the gold plating, the Rolls-Royce analogy turns out to be more apt than Ms. Clawson might imagine: The cost of a kidney transplant is about the same as that of the least expensive Rolls-Royce, starting at a bit over $250,000. An interesting aspect of our health-care economy is that kidney transplants are available to many people who are not in the market for a bespoke luxury sedan.

But we owe a little something to the Rolls-Royce crowd.

While the Left rages about economic inequality, a phrase with a very elastic meaning, few people understand what I like to call the Social Value of Gazillionaires (SVG). And it is easy to be so blinded by resentment and envy — to say nothing of good taste in the matter of a Donald Trump or a Paris Hilton — that one completely misses SVG. Seeing for sale a $130 million condominium in Manhattan, a $4 million sports car, or a $2.5 million wristwatch, and reflecting that there are very poor and miserable people in this world, it is very easy to make the intellectual error of believing that the latter is a consequence of the former. It is not. In fact, something very close to the opposite is the case.

For example, there is a well-established pattern in automobile innovation in which safety and performance features are developed for high-end cars and then work their way down through the lines until they become standard equipment on ordinary vehicles. (Sometimes these are developed for non-production vehicles, especially racing cars.) The technology that coordinates seatbelt pre-tensioning with airbag deployment was first developed for the seriously expensive Mercedes S-Class sedan in the early 1980s, and within a few years Porsche was offering a similar system as standard equipment. Chrysler joined in a year later, and today very modestly priced cars, such as the Ford Fiesta, are available with side airbags and related safety features that were not available at any price in the 1980s. That’s SVG in action. Things like antilock brakes and modern throttle systems have followed similar patterns of development. In the 1990s, a single high-end sports car, the Acura NSX, was responsible for introducing a half a dozen important technical innovations into the marketplace. How many non-rich people are alive today because rich people wanted a higher level of safety in 1981 — and were willing to pay for it — is anybody’s guess, but the number is surely large. There was no philanthropic motive there, to be sure, but the best social innovations do not rely on philanthropic motives, which are notoriously unreliable.

The unstated corollary here is: Sometimes, poor people will die in automobile accidents because they are poor. Some people cannot afford Volvos. But the cars they can afford are better, more reliable, and safer because of innovations born of the development of the cars they cannot afford.

Scarcity is real, and it cannot be negotiated away. The only real cure for it is prosperity. “Prosperity” is one of those words that politicians like to use in a vague way, but we can be more specific. One indicator of meaningful prosperity is the relatively rapid passing of goods and services originally developed for the highest end of the market into general consumption as former luxury goods become commonplace. That is a process that really only happens under free enterprise — and, particularly, where conditions are favorable to heavy investment in productive resources. In the case of health care, it is important to keep in mind that innovations that are not strictly medical have produced enormous health-care benefits. Everything from refrigeration to the development of synthetic polymers (two fields that turn out to be related) has unforeseen and unforeseeable medical applications. What that means is that health care does not depend upon a friendly investment environment for medical innovations, but a healthy investment environment overall.

Innovation is expensive, and much of it requires very high levels of investment in production facilities and other capital. Sometimes those costs can be recaptured through the development of a broad mass-market product, but very often innovative products enter the market through the high end. SVG helps to make that innovation possible. That is because wealthy people have more disposable income, whereas less affluent people must dedicate a larger share of their resources to necessities. But as we’ve seen with mobile phones and computers, what was a millionaire’s toy the day before yesterday is a necessity today, just as automobile safety features have gone from expensive option to standard equipment — often, legally mandatory standard equipment — in just a few years. But you cannot mandate the supplementary-restraint system until it has been invented and to some extent commercialized. Similarly, you cannot subsidize access to medical innovations until those innovations have been developed to such a point that subsidy is fruitful. Preemptive market controls, such as those imposed by the ACA and other federal health-care policy, impede the normal operation of markets and the normal course of innovation and the iterative improvements of products.

The alternative to such market operations, including the economic inequality that SVG implies, is the God Committee, which is what we called death panels before Sarah Palin popularized that evocative (and, in the end, accurate) term. When my sick friend needed his surgery, there were only a handful of doctors in the world — I believe the number was three — able to provide it. That is not entirely unlike the situation with kidney dialysis in 1962, when the Swedish Hospital in Seattle first began offering what was at the time a radical and experimental procedure for people suffering from renal failure. There were only so many dialysis machines, and only so many technicians able to operate them, meaning that only 17 patients could be treated in the first year. That is not a situation amenable to political management; Congress could have passed a law proclaiming that all Americans shall have access to dialysis (in fact, it did something rather similar a few years later, with predictably disastrous results) but there were only enough resources to treat 17 people. The dialysis project responded precisely the way the Obama administration has responded to scarcity in the general health-care market: by naming a committee.

Nicknamed the God Committee, it was faced with making life-or-death choices for real people. Such information as we have about its deliberations is not encouraging. It began by arbitrarily excluding everybody over 45 years of age, on the grounds that they were likely to suffer from other health problems, and then excluding children, who its members feared would be traumatized by the process. A 1962 Life magazine article found the committee members arguing over such things as which patients had the “highest potential of service to society,” about whether a widow with three children was more likely to remarry than one with six children and therefore less likely to present a “burden on society,” while one member noted that he was “impressed that his doctor took special pains to mention that this man is active in church work.” If that seems arbitrary, consider that the Affordable Care Act, still in the infancy of its implementation, has seen the creation of special subsidies for congressional staffers and a raft of exemptions and handouts for sundry political cronies. I wonder how many of the ACA’s enthusiasts would be comfortable seeing a man excluded from medical care because he had been insufficiently involved in his church. The decisions of the super-bureaucracy charged with administering Obamacare will be no less arbitrary than those of the Seattle God Committee, though they may be a good deal less honest about the underlying calculations of social value.

It is worth noting that the Seattle dilemma was created by Dr. Belding Scribner’s invention of a Teflon shunt that made dialysis a viable option for these patients. Teflon, a synthetic polymer, is the accidental byproduct of research conducted by a joint venture between General Motors and DuPont into yet another SVG-dependent millionaires’ extravagance grown into a commonplace necessity: automotive air conditioning. Automotive air conditioning is a luxury that made its first regular-production appearance in North America in the 1953 Chrysler Imperial, at the time by far the most expensive car Chrysler made, in inflation-adjusted dollars far more expensive than Chrysler’s current top-of-the-line sedan. And there is of course more to mobile cooling than ensuring the comfort of one’s chauffeur: Without refrigerated transportation, the delivery of medical supplies, organs for transplant, etc., becomes a much more difficult business, if not an impossible one. In 1954, moviegoers watching Humphrey Bogart and Audrey Hepburn in Sabrina were stunned by the telephone in Mr. Larrabee’s Rolls-Royce; today they use its descendant to call for help during a medical emergency, while hospitals use them to summon physicians and dispatch ambulances. The line from gold-plated Rolls-Royce to life-saving medical treatment is neither straight nor obvious, nor is it — most important — predictable, something utterly lost on those who believe that they can manage the U.S. health-care economy on a fly-by-wire basis from Washington. You never know where the next Teflon is going to show up — DuPont was more surprised than anybody — and the Obama administration’s record for picking promising technological investments is exceedingly poor. There is no reason to believe that a future Republican or Democratic administration would be any better.

One of the critical long-term problems with U.S. health care is that short-sighted political fixes such as the woefully misnamed Affordable Care Act are oriented toward subsidizing the consumption of medical goods and services while doing nothing to encourage their production, indeed discouraging their production through things like price controls and punitive taxes on medical devices. When a growing number of dollars are chasing a supply of goods that is if not fixed then not growing nearly as quickly, the likely result is higher prices rather than wider consumption. Which is to say, it will encourage a move away from the sort of prosperity contemplated above — and that, not the operation of markets, is what is actually monstrous, because it makes people’s lives unnecessarily worse in order to satisfy various kinds of political ambition. Example: The ACA will increase demand for primary-care physicians, but by 2020, the United States will be 45,000 general practitioners short of its medical needs, and 65,000 just five years after that. The political response to that economic reality, in the ACA and elsewhere, is to attempt a restitution through fixing prices, organizing producers into cartels under political discipline, and further inhibiting the operation of the market. We have been doing that to U.S. health care for more than a half-century now, and the cost of those decades of stupidity is manifest in the current dysfunction of our medical markets, in which there is no strong relationship between the price of goods and the ability of consumers to pay for them.

To revisit the automotive analogy, if we subsidized and mandated Rolls-Royce levels of consumption without accounting for the fact that the gentlemen in Goodwood produce only so many cars each year, the result will not be more Rolls-Royces; it will be Honda Civics that cost $100,000. And that is approximately where we are with health care.

The goals of health-care reform are general and qualitative: that everybody should have access to some minimum acceptable level of health care without running the risk of personal financial catastrophe. Note that this goal implicitly accepts what Professor Cowen explicitly expressed: that our resources are not infinite, and therefore, short of the abolition of voluntary exchange in the field of medicine, wealthy people can expect better outcomes than poor people. But the tools the ACA creates to achieve its vague and qualitative goals are very specific and quantitative: X must be covered by all private insurance plans, Y will not be. Obamacare’s God Committee is known as the Independent Payment Advisory Board, and its primary means of rationing — the law says that IPAB’s policies “shall not include any recommendation to ration health care,” but that is its plain purpose — is price-fixing. Which is to say, the central structure of the ACA regime is an attempt to control the price side of the equation — with little or no attention to what effects that will have on the more important supply side of the equation. The inevitable long-term outcome of that model is the inhibition of innovation, meaning lower-quality care and higher real prices for everybody in the long term. You can blow up the gold-plated Rolls-Royce, but you can’t drive the pieces.

— Kevin D. Williamson is a roving correspondent for National Review and author of The End Is Near and It’s Going to Be Awesome.