So Congress ponied up an extra $2 billion last week for the Cash for Clunkers program.
Our elected solons were stunned at how popular the program turned out to be. And they’re apparently eager to placate an increasingly restive public, angered by government overspending, by … spending even more.
There’s a lesson in the Cash for Clunkers program that Congress should learn—but probably won’t—with regard to its massive health care reform effort: When the government hands out free money for something the public wants, it will nearly always underestimate the demand for that money.
Yes, those who have stalked Washington for many years can cite some programs where people didn’t take advantage of free money, but that’s usually because the restrictions and bureaucracy made it difficult to navigate the program. The Cash for Clunkers program wasn’t just free money, it was easy money.
Now, Congress and the Obama administration want to do the same for the health care system: lots of free and easy money to cover the uninsured.
The money to reimburse doctors and hospitals, by contrast, won’t be free and easy. It will be filled with caveats and restrictions to encourage them to provide the kind of care a bunch or unelected, non-physician bureaucrats think is appropriate.
The result is that the demand for care, subsidized by that free government money, will likely explode while the supply of care will be limited or even begin to retract.
That increased demand and limited supply will put upward pressure on prices—which Congress will have to meet if it wants to minimize the rationing.
In other words, within a very short space of time, Congress will have to allocate much more money than the projected $1 trillion to $1.5 trillion over 10 years.
Then Vice President Joe Biden will likely comment—before the White House shuts him up—to the effect that the administration “misread” the great need for medical care. Of course, officials didn’t “misread” anything; they just simply ignored what any beginning economics student knows by mid-semester.
So you can see the health care reform bill as a kind of Son of Cash for Clunkers, which, come to think of it, isn’t a half bad description.