I’m beginning to think that it’s an almost guaranteed mistake and waste of time to read mainstream newspapers if one wishes to get an understanding of the world. The only understanding I seem to get is how ignorant people are of economics and not-so-common sense. For my example of the day, I point to Alana Semuels’ article regarding flu shots.
Here is the first sentence (taken from the local paper, which is slightly different from the online version):
Among the long list of reasons the fearful give for reasons they’re not getting a flu shot (hatred of needles, skepticism about vaccines, laziness), there’s one that relates more closely to economics: It’s not free.
First of all (and maybe I don’t merit the ability to criticize this), this sentence contains a bad choice of words: “Among the long list of reasons the fearful give for reasons…”? If brevity is the soul of wit, this sentence surely doesn’t demonstrate wit. I usually hate to use the same word more than once in a sentence if it’s not necessary. I’m surprised that an award winner in journalism would have such a opening for an article.
But let us set aside the less relevant and get more to the point. Economics is not solely about money. Fear of needles is indeed a real cost; it’s not unimaginable that one could have such a fear of needles that he would be willing to bear the risk of getting the flu in order to avoid getting the shot. Such calculations are indeed economic, and yet money is not part of the equation. So I hope Ms. Semuels can take this as a lesson: hatred of needs, skepticism about vaccines, laziness, etc. are all costs that go into economic decision making, no less so than monetary costs. It’s all closely related to economics.
So why aren’t they free or nearly free? After all, they’ve been around for a while, and there’s a lot of demand. Isn’t it about time flu shots cost the same as, say, generic Tylenol?
I’m not sure if I’m completely missing her logic here, but the fact that some product has been around for a while and that there is a lot of demand for it does not lead to it being free or nearly free. Indeed, don’t most people recognize that the law of demand states that, all other things being equal, greater demand is associated with higher prices?
The reason for its cost is that the process of manufacturing and distributing the flu shot is a huge headache…the handful of pharmaceutical companies that make the vaccine have to estimate how many doses to make. Make too many, and they’ll have to throw away a bunch if people don’t get the flu shot; make too few, and they’ll cause a panic about vaccine shortages…And there are no regulations saying people have to get flu vaccines, meaning it’s difficult for companies to estimate how many they should make.
And just how does this make vaccine distribution any different from just about any other product? No manufacturer wants to produce so much that he or she sells at a loss. Neither do they want to produce less than what would maximize their profit. But it’s the last sentence that really gets me. I think only one who has little or no understanding of economics would make it. There are relatively few products or services that people are forced by government to buy: police “protection”, fire departments, roads, schools, health insurance, etc. Entrepreneurs have to make educated guesses and are rewarded for being correct and making efficient uses of resources. Semuels seems to have this notion that markets require some top-down approach, that there is no way private sellers and buyers could possibly manage to meet their needs without government oversight, or at least not nearly as well. And yet all one has to do is open her eyes and LOOK to see that this is not the case in the real world.
“It can be a risky business,” Allen said. “They have to make a decision on the number of doses to make many, many months before the flu season actually happens,” he said.
Allen, who is a spokesman for the Centers of Disease Control and Prevention, follows Semuels in making a quite useless observation, in the sense that it does not help distinguish what makes manufacturing vaccines unique. Austrian economists put a large emphasis on the time it takes for something to be produced when we go from building capital equipment (such as machinery) all the way down to selling the product that such equipment creates. Anyone investing in capital has to make a prediction on the number of widgets they think will be demanded many months, or even years, in the future before they start. Vaccine producers are in no way unique in this regard.
This year, companies produced about 145 million doses, he said. Only about 129 million have been distributed. Last year, companies lost even more on the flu vaccine because it was such a light flu season and fewer people decided to get the shot…Still, there might be an economics argument for giving away the vaccine for free, even if it is already cheap. The province of Ontario, in Canada, tried that in 2000 and found that giving away the vaccine for free reduced influenza cases by 61% and decreased the cost of healthcare services by 52%, a study shows.
This argument is more from paternalism than from economics. If the vaccine is so cheap, and the benefits so enormous, how do they explain the fact that many people forgo it? The cited study states that 500,000 individuals die every year from influenza. Why wouldn’t people pay $10 to $16 to prevent that? I don’t know. What I can say is that I have never received a flu shot and have never gotten the flu, even though I’ve only resided in states that border Canada.
I can also say that Ms. Semuels is very imprecise in how she presents the study. The relevant text from the study states that
In Ontario, 22,457 cases of influenza were observed on average per season after the introduction of the universal immunization program. If TIIP had been continued, the expected average number of cases per season was estimated to be 56,998. UIIP therefore prevented 34,541 influenza cases (61% of all cases each season).
Ontario’s UIIP also prevented 111 deaths, a 28% reduction in mortality. This resulted in a projected 1,134 QALYs gained in total or 0.09 quality-adjusted life days per person vaccinated. Approximately half of all health gains (QALYs) were associated with a reduction of influenza mortality; the other half was associated with reduction in influenza-related morbidity.
The program costs of UIIP are high, approximately double that of a targeted program ($40 million versus $20 million). However, UIIP was estimated to prevent 786 influenza-related hospitalizations, 7,745 influenza-related ED visits, and 30,306 office visits per season. Preventing influenza cases effectively reduced influenza-related health care costs by 52%, saving the health care system approximately $7.8 million per season, so that the net cost of the UIIP program is $12.2 million, or $2.60 per person vaccinated.
The first part is baffling to me is that the report starts off in its introduction with, “Influenza vaccines are generally safe and effective.” Perhaps I’m quite ignorant of medicine, but 22,457 cases with universal immunization seems like a large number. Also, the estimated savings are not from a free market of vaccinations where people choose for themselves, but from another government program of targeted vaccinations. The study also acknowledges that:
A UIIP may be an appealing intervention in high-income jurisdictions with comparable demographic characteristics (age distribution, risk profile, density) where influenza transmission can be expected to be reasonably similar to the population analyzed. A health care system similar to Ontario’s (i.e., health care systems with one major payer), where the costs of the immunization program and the costs of treating influenza cases are both in the payer’s budget, will enable the universal program costs to be partly offset by savings in health care cost.
So there you go. At best, Ontario found a government policy that was less efficient than another government policy. Yippee. We also have more arguments for why the government should be able to force what it wants into your bloodstream.
But let us not forget that freedom works. People can take care of themselves without a nanny state telling them to get their shots and forcing them to pay for it, whether they like it or not.