Nothing new with costs for getting old

The costs of caring for the elderly are rapidly increasing, and it is not simply because baby-boomers are aging. The average cost of individual care is much higher than it has ever been.

For a clue as to why that might be happening, look to other areas of the economy where prices are rapidly inflating.

Healthcare in general and education, at all levels, but especially at the university level, are two prime examples of the same phenomenon. In each case, the governments, federal, state, and local, are involved in a big way in the provision, funding, and/or over-regulation of the services. All goods and services, regardless of type, are provided by markets, and markets adjust behavior according to inputs, including political interference. It doesn’t matter if people with good intentions or overflowing compassion want it to be different. Life is subject to reality.

All markets, without fail, are subject to the laws of supply and demand. When the quantity of a good or service supplied increases or the quantity demanded decreases, the price decreases. When the quantity supplied decreases or quantity demanded increases, the price will go up. In fact, all three are in a dynamic relationship. When one is artificially manipulated, the other two adjust automatically. It might not be so clear-cut in reality because there are so many concurrent changes that the effects of one input might be masked for a time by others, but that idea is the most fundamental contribution that the field of economics has made to understanding how economies work, and it has been proven over the centuries, even helping to understand the behavior of ancient societies. The collapses of contemporary Venezuela and ancient Rome are comparable in many respects.

Various levels of quality and price develop for any good or service to meet a multitude of needs. New products, early computers for example, have a high price because few firms provide them. The buyers are usually wealthy, because others cannot afford them. The high price and resulting profits spur competition, and as new entrants innovate with product and processes, the production costs go down and prices decrease over time. The prices of an enhanced version ultimately become low enough for the general population to buy, with some type of computer now being within reach of nearly everyone.

Prices can be artificially manipulated through politics, with overt price controls as an example, and the quantities supplied and demanded adjust accordingly, resulting in shortages or gluts in the market. Supply and demand can also be manipulated in many clever ways by politicians. Suppliers of goods and services can be regulated out of the market, decreasing supply, or resources can be funneled into a market from the outside, artificially increasing demand.

It may come as a surprise, but there are people who would be willing to house and care for the elderly without bankrupting them. They are prevented from doing so by over-zealous regulators who, even if they actually do care about what happens to older people, are heavily influenced by large providers who have an interest in excluding competition. Such care used to be adequately provided on a wide scale by private individuals, but now every provider must jump through hoops that make it to difficult continue, and competition and innovation are thwarted.

An estimated two thirds of nursing home patients pay for their care with Medicaid. With so many billions of dollars being funneled into the industry, and with Medicaid-certified institutions being highly regulated in what they offer, demand is artificially increased while supply is decreased. Other competitive alternatives are have been closed because bureaucrats think they know better. They don’t know better. They only know how to interfere.

Dan McLaughlin, a Randolph resident, is the author of “Compassion and Truth – Why Good Intentions Don’t Equal Good Results.” Follow him at