Adam Smith on health policy

Today the Competitive Enterprise Institute published my OnPoint essay, “The Innovation Imperative: What Adam Smith Can Tell Us About Health.” This was adapted from my presentation at CEI’s 40^th anniversary celebration conference in Edinburgh, Scotland, a city closely associated with both Smith and with medical innovation.

Known as the father of economics, Smith’s central insight was that individuals acting in their own self-interest will unintentionally help society. In fact, he posited that acting in one’s own self-interest is the most effective means of increasing the general welfare.

In a time when so many suggest that government interventions are the only way to provide health care and to fuel the innovation that is key to improving health, Smith’s analysis reminds us that “innovation comes, most often, from individual self-interest working in free, private markets, not from government efforts undertaken for ‘the public good.’ Indeed, government interventions often make matters worse.”

Innovation reduces the price of health over time by improving existing treatments and providing previously unavailable treatments. Yet government price controls threaten to stifle the development of new, life-saving cures.

Government efforts to increase health insurance coverage have increased the amount of medical care used and spending, but had little impact on improving health. Other government health mandates and care delivery programs have fared no better, with wasteful spending and little or no improvement in the quality of health care or of the country’s health.

Health policy makers would do well to study Adam Smith. They would learn that,

Improvements in health have not come from increased health insurance coverage or even increased health care consumption and certainly not from government interventions. As Smith predicted, improvements in health have come from innovation, resulting from individuals acting “from their regard to their own interest” to benefit all.