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Thomas Sowell on the difference between Price and Cost

“Prices not only help determine which particular things are produced, they are also one of the ways of rationing the inherent scarcity of all goods and services. However, prices do not create that scarcity, which will require some form of rationing under any other economic system. Simple as all this may seem, it goes counter to many policies and programs designed to make various goods and services “affordable” or to keep them from becoming “prohibitively expensive.” Being prohibitive is precisely how prices limit how much each person uses.

Free-market prices are not mere arbitrary obstacles to getting what people want. Prices are symptoms of an underlying reality that is not nearly as susceptible to political manipulation as the prices are. Prices are like thermometer readings—and a patient with a fever is not going to be helped by plunging the thermometer into ice water to lower the reading. On the contrary, if we were to take the new readings seriously and imagine that the patient’s fever was over, the dangers would be even greater, now that the underlying reality was being ignored.

Despite how obvious all this might seem, there are never-ending streams of political schemes designed to escape the realities being conveyed by prices—whether through direct price controls or by making this or that “affordable” with subsidies or by having the government itself supply various goods and services free, as a “right.

If everything were made affordable by government decree, there would still not be any more to go around than when things were prohibitively expensive. There would simply have to be some alternative rationing method. Whether that method was through ration coupons, political influence, black markets, or just fighting over things when they go on sale, the rationing would still have to be done, since artificially making things affordable does not create any more total output.”

–Thomas Sowell, Basic Economics

How this works for ObamaCare

In summary, without high prices, scarce commodities (commodities with a limited supply) are purchased faster and their supply diminishes to zero and there will be a shortage. But limited supplies are not a function of economic policy but nature itself. There are only so many doctors to go around.

The desire to make surgeries, time with doctors, medicine, and supplies “affordable” is of course noble. However, the desire to make them affordable for everyone amounts to the desire for a shortage of doctors, medicine, and supplies. If they are all cheap, then they will soon be sold out. If they are all so cheap that the sellers cannot recoup their costs, then the sellers will stop selling and the supply will go down.

Calling “health care” (really, health insurance) a “right” leads people to think that doctors, medicine, and supplies are unlimited commodoties. If these were unlimited, then they would simply need to be universally distributed.

In reality, the health insurance industry helps you to buy scarce time with doctors, medicine, and supplies because those commodities are so limited, and in such high demand, that they have become expensive. However, giving more people health insurance will not lower (it might actually raise) the prices of time with doctors, medicine, and supplies. It might also lower the number of people want to become doctors, as has happened with ObamaCare.

Now that the scarce commodity is formally available to all, it must be rationed by some alternative means than prices – and even Obama will not like those alternatives.