The Underappreciated Peril of Government Benefits
Sometimes, they stop without warning. The people left behind are not better off . . .
The BBC's Paul Mason goes to a pharmacy in Valencia, Spain that is almost out of medicine:
Paula, the pharmacist, has such a fringe, and a grin that suggests she not only understands English but could crack a few jokes in it. But she chooses to speak in Spanish. Because what is happening in Valencia is no fun.
The sign on the wall tells the story. "Important information. The government of Valencia owe this pharmacy for all the medicine we have dispensed to you in January, February, March, April and May".
And not just this pharmacy. The government of Valencia - which runs the health system - owes a grand total of half a billion euros to the region's pharmacies.
Paula guides me into that back room that exists in all pharmacies, where the prescription drugs are kept. The problem is, now, there are not many drugs left.
"Look, this drawer is usually full," she says, pointing to where the suppositories are kept. Now there are only two packets."
She opens the fridge. "Look," she says, "we are down to our last packs of insulin. We just have no money to buy the stock."
I ask: "What happens if several people come in on the same day for insulin?" She makes two fingers walk along the back of her wrist. "They have to go around the neighbourhood to see if anybody else has it. It is the same with drugs for heart disease, stroke, anti-retrovirals."
This is an underappreciated risk of government service provision: if the government really gets into trouble, the services stop. Instead of everyone consuming a little less of some goods--or even a few people consuming none--everyone gets next-to-nothing. Greece is having the same problem. When the pharmacies are completely dependent on government reimbursements to buy drugs, and the reimbursements stop, the drugs stop too.
Markets usually have a lot of redundancy built into them--multiple payers, multiple suppliers. When the government is the only player, you reduce the risk that some people will not be able to get services--but you raise the risk that almost no one will be able to get them. To put it in financial terms, you reduce the volatility, but increase the tail risk. Eventually, if the government cannot provide drugs, alternative markets will arise to provide them to at least some people. But that will take time--and insulin is one of those things that is hard to do without.
Of course, that's not necessarily an argument against government service provision. Has government intervention in Valencia helped more people than the current interruption is hurting? I don't know enough to say. But this is something that we should understand when we design government programs; the more intrusive the intervention, the more you raise that tail risk. If you think about what would happen to ObamaCare if the US government couldn't pay its bills, the picture is not pretty. But it's nowhere near as bad as what would happen to patients in Britain's NHS.