 I'm hoping to have some room for questions toward the end. So I will get through this as efficiently as I can, but there's a lot of material here, because of course, this is a massive topic. I can't do more than maybe hit a few high points. And I'm hoping to have a little time afterward to answer any questions you might have when we're done. This is a talk that has evolved over several years that I've been giving it at Mises You. And it's one that I've got a personal interest and connection to, because my father was a physician. And he and I would talk about a lot of these things, me from the economist standpoint, and him from the physician standpoint. And it was really enlightening to see from his kind of clinical perspective some of the things that were happening that government had done to the medical profession and to see how bad economics, bad economic policy related to medical care had so adversely affected not only him as a doctor, but more importantly, his patients. And so I hope that I'm going to do this justice, because it is something that I think all of us, to some extent, even if we're not involved in the medical profession are going to be affected by. I think there are four principles that rise to the top of where we can reform medical care and make it better. As I go through this, you're going to see some of this that's like, well, that's politically, that's never going to happen. Well, maybe not immediately. But I think we need to have a clear view of what we can work toward and not immediately dismiss something simply because it's politically maybe difficult to put into practice. The first thing I want to talk about here today is free pricing. We have a medical care system in the United States, and I would say in most other countries, that is not a free market medical care system. And I wanted to say that right off at first, because too often I hear people talking about the American medical care system as though it is somehow an example of free market medical care and then, oh, wouldn't it be better if we moved away from the free market towards something that would be a little more government controlled? And of course, that's not at all what we have here. It is not a free market medical care system in the US and has not been for some time. The lack of free pricing is an example of this. It's standard, fair, and any principles of micro-course to get a discussion of price controls into the class, usually toward the beginning. And we know from those principles lectures that if you hold a price below the equilibrium, you're going to get a shortage. It also tends to reduce incentives to create innovative solutions. I was listening to Per Bilan's talk yesterday on regulation. That very much applies here as well. If you regulate medical care, you're going to distort the medical innovations that otherwise might have occurred. They're not going to happen. You may get different innovations, but they're not necessarily going to be in line with consumer preferences. We know that low prices mean that people are not going to reduce their consumption of a good, even when it would make sense to do so. So we see shortages partly because we run out of things that people have a great need for. And then two, the expectation that prices will be capped by government discourages stockpiling for emergencies. And we've just seen that recently. If you don't even have to put a price control on something, if there is the implicit threat that a price control is going to be applied, that itself will restrain markets from pricing things efficiently. So we can think about the great toilet paper hand sanitizer in 95 mass shortages of 2020. And we are still seeing some shortages of various things. And I would argue that a large part of these shortages was the inability of the price system to adequately adapt to the new situation. So this is a typical supply and demand diagram, like you'd see in a principal's class. Downward sloping demand curve, upward sloping supply curve. Maybe this is, I mean, we're talking about medical care here, but toilet paper would be a good example of what happens when you try to limit a market and there are other things, medical equipment, ventilators, and so forth, where we saw similar kinds of problems. So what happened in 2020 is, number one, you get a massive increase in demand for certain things. We all of a sudden wanted a lot more latex gloves and 95 masks and hand sanitizer and a lot of other things. So the demand curve is going to shift to the right. And then we also had supply problems. I really don't like the word supply chain. I'm trying to wean myself from that and use supply network instead, because a network implies substitutability, whereas a chain implies you've got this rigid kind of line that entrepreneurs can't work their way around. But anyway, so we've got these supply network problems as well. I mean, toilet paper manufacturers were used to making a lot of commercial grade toilet paper with massive roles made to fit in commercial dispensers. And they weren't making household toilet paper. And all of a sudden, everybody wants household toilet paper. So we get a rightward shift in the demand curve. And at the same time, the supply network problems lead to a leftward shift in the supply curve. Not to mention, people being told, you need to go home means that you've got factories that can't operate as they normally would. So we get a leftward shift in supply, rightward shift in demand, a new equilibrium with a higher price. And yet, we didn't really see the prices rising to that level, at least not what I would have expected to see anyway. And stores are running out. You'd find people at Costco, at least in my area, who were lining up outside right before they opened up and hoping to rush to the back to find the toilet paper section and wipe out the bad choice of words, to secure for themselves these products that they expected would be gone within 15 minutes. And they often were gone. So what we ended up with was a shortage here, where the quantity supplied was far less than the quantity demanded. That by itself is evidence that there probably was too low of a price. So when we're looking for medical care, if you've got price controls on medical care of any type, that's going to tend to create shortages. If people are not paying the equilibrium price, if they're paying something below that because government has affected the market, then it's going to tend to create that kind of problem. Number two, I think one of the things that we could work toward is the elimination of occupational licensure. If you could say that the COVID pandemic had some kind of silver lining to it, it might be that occupational licensure regulations were weakened. And they're still around, of course, but people did begin to see that maybe in a crisis situation, these don't work so well. Well, now with the crisis past, there's an extension of these weakening of these policies that have weakened the occupational licensure laws. And maybe we'll see a permanent shift away from occupational licensure. So what occupational licensure does is limit competition. Even if you are competent to do some job, you won't be allowed to do that job unless you have a license from the state. And this puts the state in the position of determining who's competent and who's not, which means that the state is putting itself in the position of being the arbiter of good and bad science. We see a reduction of innovation because without competition, without the freedom to enter a market and say, hey, I've got a new way of doing things, it doesn't really match the status quo. You get this ossification if you don't have that ability to compete with the mainstream. We'll talk about this in a minute, but under pandemic conditions, we saw some of these problems where people who might have left an occupation, like maybe they were a nurse, and they left the nursing profession a year or two before. Maybe they let their license lapse, but they're still competent. And yet they couldn't immediately get back in when the medical professor was screaming for qualified people to staff hospitals and to handle this emergency. So that limited the ability of the market to adjust to a higher demand. Also, skilled people who are able to perform a function but are legally restricted to another group are unable to step in where they might be able to fill some kind of need. So maybe I've got a lot of medical training, but because of the licensure barrier, I'm not allowed to move slightly outside of that and do some tasks that I might be perfectly capable of doing but I'm not allowed to do by law. Then you've got people that maybe they're a weak short of graduating from medical school and they've got a lot of the competency that they might gain from medical school but they're not allowed to step in even in an emergency. We did see some weakening of these kinds of rules like telemedicine, for example. You could start offering your medical services across state lines on Zoom or something and that was helpful, right? So that starts to weaken the state line barriers. If I'm not licensed in another state, can I still do telemedicine with a client in another state? I mean, I got a driver's license from South Carolina but North Carolina allows me to drive on their roads even though I didn't pass North Carolina's specific set of driver tests. North Carolina deems me competent because they have a reciprocal arrangement with South Carolina, et cetera. So why we can't do this with medical care is unclear. Medical licensure is actually quite old but it started out as an anti-competitive kind of practice. The American Medical Association controls medical schools. Now, keep in mind the American Medical Association is a group of doctors. If you are a doctor and you want to preserve your income, what don't you want? More doctors. So the American Medical Association can use the medical education apparatus as a way of constricting the number of new doctors that enter the profession. And this is something that goes back a very long time. The AMA uses the Liaison Committee on Medical Education to do this. You can only get a medical license if you graduate from one of their approved medical schools. And so when this started to happen, medical schools, of course, had a limited number of seats, limited number of new doctors. Of course, that restraint on supply forces prices up. I skipped ahead one slide, but Ronald Hamaway in a very useful brief history of the American medical licensure way the American medical profession has developed over the last couple of centuries, says that competition actually produced a lot of progress. The fact that we did not for a long time try to restrict who was able to be a doctor and try to impose these licensure examinations on doctors meant that if you've got a different idea about how you want to practice medicine, you could do that. And if your new idea doesn't work, it doesn't actually make patients better or maybe it actually makes patients worse, then patients are gonna stop using your new method and it will die off. I mean, nobody's gonna continue down that path. If you've got a new successful method or one that's less harmful to patients than the status quo, then that experimentation that's allowed by competition will promote that new path. And so Hamaway points out that by the 1870s in the United States, mainstream medicine had reduced its dependence on practices we now regard as barbaric, bloodletting, giving people arsenic, and it began to use more botanical drugs. A lot of our drugs are botanical in origin. Aspirin is a botanical type of drug. And alternative schools of thought that were more successful began to prosper. Well, by the late 1800s, this had produced a medical profession in the United States that had expanded to the point where the United States had the highest numbers of physicians per capita in the world. This is good for consumers. This means that costs are low. This means that if you're a physician, you've got to worry about your patients going to somebody who's using a better technique. So you've got to keep up. You've got to pay attention to what is happening in your discipline, because you don't want to fall behind. Someone else will step in and take your practice, take your patients. But if you're in the medical profession, you might not want to see this kind of pressure on yourself. So there was an effort by the American Medical Association to try to reduce the number of doctors. And they would do this by reducing the number of medical students. They said, well, if we have fewer students, then we can sort of concentrate on them and we can make sure that they're learning. We're giving them the best education possible because we're not trying to teach so many students. It's going to be quality, not quantity. Well, in 1910, Abraham Flexner produced a famous report, a commissioned report that was sponsored by, funded by the Carnegie Foundation. And the report suggested closure of most medical schools going from 155 medical schools down to 31. Medical education would be standardized, homogenized. No more of this experimentation with different techniques or different practices. Any new medical school would have to be approved by the state government and there would be some additional state licensure regulation. So that leads us to where we are today after those recommendations were in part adopted. Prices of medical care went up. Schools of alternative medicine were almost all closed. You still do see some alternative medicine, but it's been herded into a corner and a side effect, well, I'll say it's a side effect. Maybe it was in part intentional, but the changes that the Flexner report brought about resulted in fewer women and fewer African-Americans in medical education. So this was the origin of a kind of ossified medical establishment that we've got today. And it's one that has not, my father was a very traditional doctor in many ways. He had an MD, he was a family physician, he was not into a lot of alternative medicine, but he did see that these alternatives should be allowed to exist and to make efforts at improving patient care. And if you're a competent physician, you shouldn't fear that. You should be willing to accept those alternative schools for whatever they can offer. So thinking about COVID and medical licensure in a crisis, the rules of medical licensure were weakened, as I said, some states loosened or lifted their occupational licenses. And in some states, we are still in that period of time where these occupational licensure rules are less stringently applied than they once were. I haven't mentioned here certificate of need laws or con laws, but that's another factor here when we're looking at a crisis. Certificate of need law is a regulation that says that if you want to build a new hospital, you have to get permission from a committee at I think the local or maybe the state level. And without that certificate where the committee has decided that there is a need for a new hospital, you can't build one. I went to graduate school here at Auburn. My first child was born at East Alabama Medical Center here in Lee County. At the time that I was here, I don't, that I was living here, I don't know about now, but at the time EAMC was crowded. They had times when there were patients in the hallways because they didn't have room for them, to have a room for them. And there was, as I recall, an effort to start a new hospital. And yet the certificate of need could not be obtained. And I asked somebody yesterday, and there's still just one hospital here in Lee County, EAMC. So the temptation to use this kind of regulation as a way to prevent competition is enormous. And when you have a crisis of some kind, it doesn't have to be COVID, it could be whatever. And you all of a sudden need new hospital rooms, you can't build a hospital overnight. This is a long and expensive process. So certificate of need laws may not seem to be as restrictive during normal circumstances, but when all of a sudden you need a lot of new ICU beds, where are they? They're not there because con laws stood in the way. Third, I think we could work toward dismantling barriers to innovation. And here I'm gonna pick on the FDA, Food and Drug Administration, they're kind of an easy target. They make it easy. So the FDA creates barriers to entry for new drugs, which means if you've got an existing drug that's already passed the FDA's hurdle and it's on the market, you are protected to a large degree from competition. I'll talk about patents maybe in a minute, but it's not just patents, it's the fact that it can take a billion dollars or so to get a new drug through the process of research and development and passing the FDA's requirements. So during that time, and it's a shorter time than it once was, it used to be eight to 10 years that it would take to get a drug past the FDA's, requirements, but during that period of time, even though it's now shorter, you have people who would have been helped by a new drug who are not helped. And they may die if it was a drug that could have saved their lives. I'll give you an example or two in a minute, but one of the things the FDA is not capable of doing is assessing the willingness of a patient to take a risk. I mean, it's an all or nothing with the FDA, basically. It's like either the drug is approved or it's not approved. Now, under the Trump administration, there was a weakening of this where you could take a drug, if you fell into, you know, met certain qualifications, you could take a drug that was in a kind of an experimental status. It was called a right to try bill. So this was a step in the right direction, I think, where you didn't have to wait until full approval if you met the characteristics under right to try. So that, again, that's a step in the right direction, but as long as you're delaying a new drug, you run the risk of people who would have been helped by that new drug suffering, maybe even dying depending on what the drug is. And the FDA doesn't know how much of a risk a given individual is willing to take. Maybe the drug just came out of the lab and I don't know whether it's gonna help me or hurt me or what, but I'm in a very desperate situation and I'm willing to take a risk and I'm not willing to wait around three years for lab scientists to run the full battery of tests. If I'm willing to take that risk, that's my risk. Now that's kind of an extreme. I doubt anybody in this room would be willing to take a drug fresh out of the lab like that, but the FDA doesn't know where you are on that spectrum of risk, being very risk averse or being the sort of person who will try anything. And there's been some pushback on this, like back in the 1980s, the drug AZT, which was, I think originally it was an anti-cancer drug, but it was apparently, it was useful in treating AIDS and there was pushback from people who are at high risk of getting AIDS and they said, well, look, as far as we can tell at this point, we're under a death sentence and we're desperate here. We can't wait around eight or 10 years for the FDA to make up to mind about this drug. Might not be around to benefit from the drug. So let me try it. And so there wasn't enough pressure put that it compressed the timeline the FDA did, but not all drugs have that kind of focused, well-organized interest group to kind of push for that drug to be accepted into the market quickly. And then finally, costs and delays can cause drug loss and drug lag. Some drugs may not show up in the market at all because the drug manufacturer says, well, this is gonna cost us however many hundreds of millions of dollars to get it past the FDA. The drug's not gonna ever make us that much money on the market once we sell it, so it's just not a, it's a no-go from the very start. So we're just not even gonna try. I remember a story from years ago, a doctor at the Children's Hospital in Boston who was aware that there was a nutritional supplement for premature babies that was apparently very helpful and was being used in Europe. He wanted to use it in the United States, but had not been approved for widespread use by the FDA. And from what he could tell, it was very effective. That was kind of his specialty of dealing with premature infants. And the drug company that made this and was selling it in Europe was not even going to push to try to have it fully approved in the US because they said, well, we've got another drug in the pipeline that we're developing and if we're gonna spend all this money to get it past the FDA, we're gonna spend it on this other one, not on the one that we're currently approved to use in Europe. So it was a loss. We never were able to get that drug into the market. So SEPTRA, this is an antibiotic. There was a five-year delay in introducing this antibiotic to the US market and an estimate by Nobel Laureate George Hitchings said that this delay cost 80,000 lives in the United States. We don't know exactly who those people are, but we knew about how effective this antibiotic was and a certain fraction of the patients that could have benefited from it died. Beta blockers. There was a lag in FDA approval there that may have cost 250,000 lives because people who died of cardiovascular problems that would have been helped by these beta blockers were unable to get it until it was fully approved. Mary Ruart, who's written on this says that at least half of pharmaceutical innovations get shelved because the cost to take a drug through the regulatory testing process makes those drugs uneconomic for drug developers to pursue. Even with very conservative assumptions, she found that the years of life lost due to FDA clinical demands is in the millions. Years of lives lost are in the millions. Tom DiLorenzo, who you heard from in the previous session says that advertising restrictions by the FDA can cost lives. So if you find out that you've got an existing drug but maybe it's useful for a new purpose, then you're not allowed to advertise for that purpose. And therefore people don't find out about it as easily. And so you've got people who may die or suffer because they weren't allowed to tell you that maybe I'm not saying that this is the current science. I don't know what the rule is on this now, but aspirin apparently was useful in low doses to prevent second heart attacks, something like that. Sure that someone with medical knowledge can correct me on that, but I think that's what I've read. And yet aspirin couldn't be advertised for that purpose until the FDA said, yes, you can now say that this is useful for that. Again from Mary Rewart, in the early 1980s, several reports of medical journals indicated that the B vitamin folic acid taking early in pregnancy could prevent a number of birth defects. Folic acid would have to go through the expensive drug development process if the manufacturers wish to advertise its benefits to young women. Had US folic acid manufacturers been permitted to advertise, we might have seen an increase in supplementation in the United States and a decline in birth defects. Instead, approximately 10,000 American babies were born with deformities more horrific than thalidomide. Thalidomide, by the way, is the FDA's, what they consider their triumph. Like, well, if you didn't have us keeping people from using thalidomide, then you would have had the birth defects that thalidomide caused. And this is looking at a, if you're thinking about birth defects avoided from thalidomide, are they also gonna tell you about the 250,000 lives lost because of the same FDA kind of conservatism on admitting new drugs to the market? That conservatism works two ways, right? I mean, it'll hold a drug off the market that later turns out to have some pretty bad side effects, but it'll also hold drugs off the market that would have been very helpful. And you don't know which ones those are at first. So you can't have one without the other. And the FDA's incentive, being a bureaucratic organization, is to be very conservative about this because those who are damaged or killed by a drug's side effects form an interest group that can put focused pressure on the FDA, whereas we don't know who the 80,000 people are who would have been saved by septra. We don't know who the 250,000 people are who would have been saved by beta blockers because it was a probability issue. So that group, not knowing if you're one of the ones that would have been saved, you're not as motivated to criticize the FDA for holding a drug off the market. It's not as easy for you to organize and put pressure on the FDA. So the FDA's incentive is to behave conservatively and mandate more testing and longer testing and more expensive testing and otherwise would be appropriate. COVID-19, again, if we look at how the FDA in conjunction with the CDC affected this crisis, according to Charles Silver and David Hyman, the federal government botched the process for creating and administering coronavirus tests because SARS-CoV-2 is a new variant and new tests was needed to track its spread. German researchers developed one in mid-January, this would have been 2020, but the CDC decided not to use it instead pressing ahead with the development of a separate test. When that test was released in late January, it proved faulty and the FDA prevented private laboratories from developing tests of their own. The CDC also distributed its few test kits equally to labs across the country without regard to the size of local populations which resulted in a dramatic shortage of valid tests in populous areas which created the false impression that the number of cases in the US was low. In early March, again, 2020, facilities in the US had administered 3,099 tests by comparison, South Korea, a much smaller country whose epidemic started the same day as ours had administered 188,000. Now the idea that the market is completely helpless in the face of something like an epidemic or a pandemic is a very popular notion. I see this all the time. I mean, it shows up in textbooks that, well, there's the externality problem. And because of externalities, we can't use markets, we have to use government to handle these kinds of situations. Well, I mean, it turns out that there's some evidence to the contrary. A recent article by Byron Carson from 2020 looked at malaria prevention in the United States in the early 1920s. And he starts off his article with this quotation from Jeffrey Hammer, which is a very prevalent view of this kind of episode. He says, Hammer says, for some anti-malarial operations such as mosquito control, the service provided is a pure public good. If the public did not provide it, meaning the government, it would not get done at all. Funny how Hammer apparently equates the public with the government, like anyway. So Carson says, no, that's not actually what happened. I mean, we actually did get a suppression of malaria, not because the government came around and launched some massive anti-malarial program, but because private citizens saw it in their interest to take steps to prevent the breeding of mosquitoes which transmitted malaria. So Carson says, when individuals tied the collective good of prevention with a private good, when individuals can form organizations like associations or firms, private prevention or provision of mosquito control and malaria prevention is encouraged. So we're not just helpless in the face of an epidemic or pandemic without government to ride to the rescue. And as we know very well, I think when government does intervene in an epidemic or pandemic, they can make things worse instead of better. One study from last year looked at the connection between economic freedom and pandemics. When you enlist government to do anything, it's hard to enlist it to do only one thing. You end up with a wide variety of government interventions and it's extremely difficult to keep government limited to the one task that you envision that it might be able to help with. Skeptical even of those isolated incidents, but Candela and Galosso said that a society that is relatively free economically offers economic actors greater flexibility to adapt to pandemics. We argue that societies that are more economically free will be more robust to the impact from pandemics illustrated by shorter time for economic recovery. If you've got a more free society in general, you've got room for entrepreneurs to maneuver. You've got room for markets to make adjustments. You've got room for innovation. You've got room for these private sector adjustments to the new situation. When you foreclose those kinds of private sector adjustments in favor of a government program, you may have a worse outcome, both in terms of the spread of the disease and also a worse outcome for the broader economy. The last thing I'll mention here is that we need to start moving toward putting patients instead of government in charge of care. Or I should say maybe put patients back in charge of care because that's where we once were. When you have third party payers, which is increasingly government but also in the United States is private insurance, then you're creating a moral hazard effect that leads to regulation and rationing. I'm gonna skip over my little vocabulary lesson on social lives versus universal coverage versus single payer. You wanna talk about that later, maybe we can. But what we've seen over the long term in the United States is an increase in third parties paying for medical care and a decrease in out-of-pocket payments. And you think, well, medical care is expensive, so therefore we wouldn't wanna have to pay for this out-of-pocket. You know what that MRI would cost out-of-pocket. And yes, it costs a lot, but it costs a lot partly because third parties are paying. I remember the one time I had to get an MRI and I didn't even look at the cost because I knew my insurance company was picking up the tab. I didn't care. And if I had to pay what the MRI cost or even half of that or a fourth of that, I would have gone back to the doctor and I would have said, can you get by with an X-ray? Not feeling that bad. And one way we can see this impact of third party payers is to look at a segment of the medical market where third parties are not paying for the most part and that's cosmetic surgery, cosmetic procedures. This table here is looking at plastic surgery procedures ranked by popularity in 2016 and the increase in prices from 1998. And you can see at the top of the table there, the CPI for medical care services overall increased by 100% from 1998 to 2016. For all items, the CPI went up by 47% over that same period. So what are we seeing in cosmetic procedures? There are none of these procedures that exceeded the CPI for medical care services in general and most did not exceed the CPI increase over that time period. People are paying out of pocket for these procedures. There is a lot of competition in this market. Patients are very price sensitive and it's not like the procedures aren't happening and it's not like some of these aren't quite expensive but because third parties are not involved, the providers are motivated to keep their costs down, to pursue cost saving technology where they can and so forth. Studies have found that a fully insured population spends about 40 to 50% more than a population with a large deductible and their status is not measurably improved by the additional services. Now the United States is famous for spending a lot of money on medical care but in a lot of cases we are spending this money on medical care services that have diminishing returns. We are spending a lot of money on things that might provide a very slight increase in outcomes but they're tremendously expensive like my MRI for example. So why are we doing this? Well because patients don't care about the cost and neither does the doctor. The doctor is not motivated either to care much about the cost. This, there's a famous study, the Argon experiment that was published in 2013 that found that Medicaid coverage generated no significant improvements in health outcomes in the first two years despite increased use of prescription drugs, increased office visits, preventive care services and annual spending per individual in excess of $1,100. A lot of money spent. The only positive outcome of that seemed to be a lower level of stress and I think a lower level of depression among people who were in the group that received additional Medicaid funding. So this study from 2014 says that technological change has increased healthcare costs in many cases but has not improved outcomes. Medical insurance in its current state discourages individuals from economizing on healthcare decisions and incentivizes the adoption of services with progressively diminishing returns. So what's the alternative? I mean, you say, well, get rid of insurance. If you've got patients who have skin in the game so to speak, when they've got a motivation to watch the expenditures, then that tends to reduce their expenditures on unnecessary things while maintaining expenditures on things that are more necessary. One way to do this that is used to some degree in the US is the HSA account or healthcare savings account. And with that, you get a tax-favored account sort of like an IRA and you can put money into that account and it's tax deferred so you don't have to pay taxes whenever you put into that account. And if you're spending money out of that account on medical services, you don't have to pay taxes when you take it out either, even if the account grows over time. So that is typically paired with a very large deductible medical insurance plan that covers catastrophic kinds of expenditures. So you get whatever's in the healthcare savings account or HSA to cover smaller things that account for a lot of our expenses and then if something truly catastrophic happens, that's when the insurance kicks in. But the key is that if you don't spend the money in the HSA, it remains yours. Unlike an insurance plan with a low deductible where if you don't spend the money out of the insurance company's pocket, then you don't get the residual. It's not yours to have. So in HSA, if the money ends up not being used, it's still accessible to you. I think the way the rules operate once you reach retirement age, you can take it out tax-free. I'd have to check on that again, but I think that's the way that works. So you've got an incentive to hold back on expenses that aren't truly necessary for you and to watch the prices that you're being charged for medical procedures. Well, I wish I had time to go through the ACA, the Affordable Care Act and a lot of those kinds of things, but as usual, I found myself running out of time before I run out of slides. So thank you very much and I'll be happy to stick around and answer questions later. Thank you.