The Economy of Scale: Why European-style Health Care CAN'T Work in America
Dinosaurs were big. They were the largest land creatures to ever walk the Earth. The largest were nearly a hundred feet long. But as large as they were there is a good reason they didn't get any bigger. In fact, there is an absolute limit to the size an Earth-bound creature can grow without collapsing under its own weight.
Complex organisms like humans, bears, and dinosaurs are muscles hung on a skeleton. The skeleton supports the structure and the muscles make it move. As you'd expect, as the animal becomes larger the skeleton and muscles must become larger as well. While creatures can become large and strong, much larger than humans, the proportions at which they scale are not linear.
For example, if an animal evolves into a similar creature that is twice as tall, you might think that the bones would have to be twice as large. In fact, this doesn't hold. The strength of a bone is related to the cross-sectional area of the bone. However, weight of the bone is related to volume, and volume increases much faster than cross-sectional area. A bone twice as large will weigh four times as much. This means the bones get heavier faster than they get larger and stronger. Eventually, the bone will simply break. Bridges, skyscrapers, and other structures have similar limitations.
Economics is much like this. England has a population 51 million. A healthcare system large enough to service 51 million people won't necessarily scale to a country like the United States which has a population of 330 million; six times larger. This is true because the system won't necessarily have to be just six times larger, it may well have to be 36 times larger. Consider this example as you recall the previous example of the bone.
I build cabinets. I don't do this for a living but it is something I enjoy and we occasionally need cabinets at my house. And the scientist inside me likes holding tolerances to 1/64 of an inch. Regardless, I have a 12' x 20' shop in my backyard that is large enough to build one cabinet at a time. I can store the wood and the tools in the shop. Move the partially completed structure around in the shop at various stages of construction. Then, when I don't building it I can clean the shop thoroughly and move on to the finishing phase - which must be as dust free as possible. While I also use my shop to fix my trials motorcycles, clean guns, and do other odd jobs, I can pretty much only do one thing at a time in there.
Suppose I wanted to start a business building cabinets, something I've thought about from time to time. What would it take? At a minimum I'd have to build another building for the finishing because I can't finish and build at the same time. And finishing takes time as the paint, stain, and varnish cure. Time that I could use to start other projects.
As business picked up I'd have to build another building to store more wood or I'd be wasting all my time at Lowe's. And then increases the size of my small shop so I could work on multiple projects at one time. At some point I'd have to invest in larger tools that I wouldn't have to wheel around. Eventually I'd have to hire more people. While some of them would build cabinets, others would have to maintain the machinery and keep the shop clean or we'd be knee deep in sawdust. Others would go out and buy wood, sandpaper, glue, nails, stain, and deliver and install the completed units. Which means I'd also have to buy some trucks. Which would need more people for maintenance.
At this point I have enough employees that I need specialized employees to manage the employees and computers to streamline the workflow. Now I need IT guys to keep the computers working. And someone to keep track of the books. And people to keep tabs on them. My stain supply has gone from a gallon a year to a hundred gallons a month and Lowe's doesn't support that so I have to get someone to go out and find a supplier, then lawyers to draw up the contracts. And now I'm also sponsoring golf tournaments to keep the lawyers and executives happy - yes, people are part of this equation. Never forget that personal appetites are a part of EVERY equation.
Taking this example to the absurd, suppose I get so big that I become the supplier for every cabinet built in the country. I would now have to have a huge distribution system requiring thousands of people to maintain equipment, buy wood, transport raw materials and completed products, manage the people, manage the managers, and schmooze government officials who are breathing down my neck about where I'm going to dispose of the thousands of tons of sawdust and scrap wood. And just the buildings to house all the equipment and cabinet makers will cover hundreds of acres. I've got labor managers, facility managers, machinery managers, utility managers, benefits managers, administrative managers, environmental managers, manager managers, and an entire executive structure that now wants golf tournaments in Dubai. My business is a thousand times larger but the structure has grown much, much more than that, and is now full of corporate climbers, greedy executives, and self-serving lawyers who have multiplied the bureaucracy for their own ends. And everybody wonders why my cabinets suck now.
Healthcare is barking up the same tree. The bureaucracy that will be necessary to support this government acquisition will produce the same waste, inefficiency, complacency, and largesse that would obviously come from World Cabinet Makers International. That is why European-style healthcare can't work on a US scale. Sure it is great, I guess, that everybody gets to go to the doctor for free. But the best parts about these systems will scale far less quickly than the worst parts about these systems simply because of the law of Entropy. Everything in life is like this and you learn it in your gut by the time you're twelve years old. Don't ignore this simple fact of life now or we'll wind up with a huge, ravenous dinosaur that that will roar for more, and more, and more food but never be full. It won't be able to move because its bones are too large, nor can we let it die because it'd take a hundred years to rot, so we just have to keep bringing it more, and more, and more of our resources until the basic service it was born to serve will be so deeply buried in bureaucracy that you won't even be able to find it. There is no European healthcare system. There are separate, much smaller completelyt separate systems, in each of the various contries in Europe.
Obama knows this. So do the Capitol Hill morons who are pushing it. But they're not really interested in what the dinosaur will do for us. They're interested in what the dinosaur will do for them. For they are the dinosaur and it is their appetite for power and control that we'll be feeding. And once we've taken that step towards creating the paradise of Vol, there is no turning back.
Below is a brief list of Western European nations whose healthcare people like Obama and Barney Frank want to emulate, followed by their populations. Some of these countries actually have decent systems. The only free healthcare country I know of with a population close to the size of the United States was the former Soviet Union and NOBODY went there for healthcare unless they wanted to be dead.
Germany - 82 million
France - 65 million
Italy - 60 million
England - 51 million
Spain - 46 million
Canada - 33 million
Netherlands - 16 million
Belgium - 10 million
Portugal - 10 million
Sweden - 9 million
Austria - 8 million
Switzerland - 7 million
Denmark - 5 million
Norway - 4 million
Iceland - 319 thousand
United States - 330 million
Soviet Union - 293 million
Futbol Guru, http://mises.org/community/blogs/not-a-lemming