Public Policy and the Quality of Life: Market Incentives versus Government Planning
Holcombe Discredits the Solutions He Favors
DECEMBER 01, 1995 by JANE M. ORIENT M.D.
This book asks a lot of the right questions. On general issues, it is a primer on free-market solutions. It considers how private regulatory mechanisms might work. It shows how market incentives could be harnessed to protect the environment and reduce pollution. It highlights important political insights: “political victories are never permanent . . . with government ownership, there is no way to prevent those with political power from using it to gain access to publicly owned resources.”
When it gets to specifics, however, the book is a real disappointment, and in fact could be detrimental to the cause. The author is apparently not very well informed about either medical or environmental issues and thus discredits the very solutions that he favors.
The American Medical Association is not the answer to regulation of the medical profession. The AMA is allied with the government in preserving a medical cartel. Because of the AMA’s help, destructive governmental interference, such as the price controls called the “Resource-Based Relative Value Scale,” gain a credibility they otherwise could never earn. The AMA would indeed like to be involved in “policing” the profession by coercive governmental means. It would like to have absolute immunity for establishment “peer reviewers.” In fact, California does grant absolute immunity, even for actions taken in bad faith for anti-competitive motives. When “private” regulators can tell malicious lies with impunity, the resulting House of Peers can become at least as corrupt as the government.
This is not to say that private regulation could not work. It already does, to some extent. The bulwark against bad doctors is informed patients. And patients should inform themselves not by asking the AMA but by asking a nurse, another doctor, a malpractice lawyer, or family and friends.
The author gets even further off track when he states that Health Maintenance Organizations offer “improved” incentives. Actually, HMOs put physicians and patients in an automatic conflict of interest. Furthermore, the author confuses “traditional fee for service” (in which the patient paid most bills directly) with prepayment for consumption (most bills paid by third parties), erroneously called “insurance.”
On environmental issues, the book gets the principles right but the technical details wrong. For example: “the elimination of lead and asbestos from the environment is a legitimate public health goal because those substances have been linked to noncommunicable health problems.” First, it is impossible to eliminate these natural substances from the environment. Second, efforts to reduce the amounts to lower and lower levels have led to absurdities that actually increase risk, if by no other mechanism than wasting money that might have been spent in a productive way.
This book may help to balance an academic reading list. But its dry professorial prose is unlikely to inspire the layman. The majority of Freeman readers could better invest both their time and their money in reading the classics. 
Dr. Orient is an internist in solo private practice. She serves as the Executive Director of the Association of American Physicians and Surgeons. She wrote Your Doctor Is Not In, Healthy Skepticism about National Health Care (Crown, 1994).