Why are only government-driven spending cuts bad?

Matt Yglesias has an excellent post up on how many opponents of single-payer eventually find themselves making an argument that breaks down to this: if you spend less, you get less innovation.

After all, if you ask a liberal true believer about health care policy and health care costs, they’re likely to inform you that Medicare is much cheaper per capita than private insurance and that European single-payer systems are even cheaper than Medicare. The liberal true believer position is that if we had a more Europe-esque system and financed it with Europe-esque higher taxes then we’d all be better off. The smart conservative reply to this is to point out that though liberals like to tell themselves these European savings largely come out of the pockets of insurance executives and shareholders, that in fact it largely comes from the use of monopsony buying power as a kind of soft price control. To this a liberal may reply “so what?” you get universal coverage and lower prices. To that the smart conservative reply is supposed to be that reducing the prices you pay for health care services will reduce the pace of technological innovation in the health care sector.

The problem is that if your fear of single-payer is driven by a fear that the government will reduce spending and that will lead to less innovation, then how does any reduction in spending not lead to the same outcome of less innovation. In other words, how can you be for reduced spending at all?

Specifically, all this bad stuff that conservatives say would result from a European-style system is a necessary consequence of any effort to reduce health care spending. If we cut Medicaid so that poor people need to reduce their consumption of health care services, this will reduce profits and therefore innovation in the health care sector. If we cut Medicare so that elderly people need to pay a higher share of their health care costs, this will presumably decrease their consumption of health care services and therefore profits and therefore innovation in the health care sector. Any effort to reduce health care spending necessarily has the consequence of decreasing the amount of private capital that flows into the health care sector.

If you’re interested, I made this same argument in the heat of health care reform. As did others. Why are some people concerned about innovation being stifled only by government-driven reduced spending?

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