Excerpts from: Can Government Fight Epidemics? by Eric M. Staib from Mises Daily
Now that the vast undersupply of H1N1 vaccines has finally impacted the market, the latest debacle of government-supplied health production has been exposed. Millions of shots were produced but not distributed on time, and in some areas the majority of promised shots have not been delivered. The vast magnitude of this undersupply reveals not simple dysfunction in the Department of Health and Human Services (DHHS) but rather the necessary failure of central planning.
The problem began simply enough: the DHHS granted itself a monopoly on the production, pricing, and distribution of H1N1 flu vaccines. The price was decreed to be an affordable $25, ostensibly ensuring universal access to the vaccine. However, because American politicians must maintain a façade of support for a free-market system, the DHHS awarded the flu vaccine contract to a private firm, Novartis.
The health bureaucracy's monumental failure to provide H1N1 shots should be no surprise to students of Austrian production theory. The production and distribution of a flu vaccination requires the harmonious cooperation of many different types of entrepreneurs, scientists, laborers, and logistics managers across space and time. This structure of production must be guided by economic calculation, which, as Mises taught, is impossible under socialism.
It might seem that because the actual producer of the vaccines, Novartis, is a private firm, the socialist calculation problem would not impede vaccine production. However, deeper research reveals that the quantity, price, and timing of the flu vaccines were stipulated in advance by the DHHS.
This point is crucial; a central health bureaucracy is staffed chiefly by expert navigators of red tape, not by the best and most-experienced medical surveyors and epidemic experts. This is largely because such experts, unlike bureaucrats, contribute real value to a firm, so they are hired away by private health providers. Thus, the DHHS faces what Hayek termed a "knowledge problem" and will therefore be completely unable to calculate market-clearing quantities and prices.
In setting a price of $25 and a production capacity of 150 million units, the DHHS forced a severe shortage of vaccines. Such massive shortages do not occur in truly free markets, in which prices fluctuate to coordinate production with demand. . .
The legal monopoly and the revenue ceiling also functioned as impediments to excellence in the provision of healthcare. Because Novartis only faces a possible total reward of $486 million, and because they face literally no competition, they have no incentive to exceed their obligations to the government. . .
To destroy a market, a bureaucracy need not actually physically produce and disseminate the good in production. Any influence which uninformed, ill-equipped bureaucrats and politicians exercise over a market is sure to have disastrous effects.
This is an important principle to keep in mind when considering Obama's healthcare legislation. The prospect of central planners setting or even influencing claims levels, care-accessibility thresholds, and the distribution of medical technology ought to be enough to terrify any economically literate person. . .