Economies of Scale

This news is disturbing but hardly surprising – our existing entitlement programs are unsustainable in the long term. The more I think about it the more I realize that this is like a lesson I learned as a child about ants. There’s an old movie that depicts 25-foot tall ants attacking people. What I learned as a child was that ants could not exist at that scale.

Ants at their existing scale are extremely strong. They can carry many times their body weight with their little exoskeletal bodies. Ants at the scale depicted in the movie would collapse under their own weight. As it turns out, people are the same way. I remember watching a documentary on giants and one thing that really caught my attention is that they have extra health problems because of their size. In fact, their life expectancy is decades shorter society as a whole because their organs tend to fail trying to maintain bodies that are larger than human organs are meant to support.

What I am realizing now is that the same principles of scale hold true for governments as well. Large, intrusive governments are unsustainable over time. The larger a government is, meaning the more it tries to do for citizens, the shorter it can remain stable. Either it must be scaled back or it will collapse. In our case we are staring at the possibility of economic collapse, but sometimes the collapse is a societal collapse.

If you want more proof that there exists a natural law of scale just remember that all the largest elements that have been “discovered” in the last few decades have actually been manufactured in labs. Without exception they rapidly decay into smaller elements because atoms larger than Uranium (weight 238 au) are not sustainable.

7 comments for “Economies of Scale

  1. August 16, 2007 at 9:51 pm

    I’m about half way through a book called “The Cure: How Capitalism Can Save American Health Care”. As noted in the book, one state governor admitted that the majority of the people on Medicaid in his state could purchase private health plans that would be less expensive if the government allowed it. Some states are spending 35% of their entire budgets on health insurance and health care programs.

    It is spiraling out of control. And ironically, liberals think that means we need to have more government control. That’s what started the problem in the first place!!!

  2. August 16, 2007 at 10:26 pm

    It is ironic that they think the cause of the malady should be the cure. Unfortunately I think liberals have the edge when it comes to debating this issue because most people do not understand how government involvement in health care causes prices to increase.

    What we need to do is wean our society off of this system. I have begun to think that a possible first step to do that would be to pass a law requiring that anyone offering health coverage (employers, insurance companies, anyone) must offer a High Deductible plan option with accompanying Health Savings Accounts. This should be followed by an education program to help people learn about the benefits of these plans. If more people were taking more control over how their money is spent on health care (which is what these plans do) we would see less unnecessary spending and lower costs. Of course this is not what the industry wants.

    What do you think – would this be a good step?

  3. Jason Black
    August 17, 2007 at 7:03 am


    I agree with your feeling that “If more people were taking more control over how their money is spent on health care we would see less unnecessary spending and lower costs”, but I disagree that the government ought to require that employers offer high deductible plans. The government should allow that market forces determine what is and what isn’t offered.

    My employer does not offer a high deductible plan – ours is a no-deductible, no-coinsurance plan that covers everything. You couldn’t ask for better coverage. However, the premiums for my family were above $1,000 monthly. I dropped the plan and bought my own coverage, which is an HSA tied high-deductible plan. I spend less than 1/3 my previous premium, and almost never exceed my deductible, so I save money hand-over fist, and still get great coverage.

    Should my employer be forced to offer more options? If they did, I’d be able to get my current health care at an even more reduced cost to myself. However, the more offerings an employer gives, the more diluted their bargaining power becomes with the various insurance providers. That increases their costs, which they pass on to employees. It could be a wash in the end, or it might benefit the end user. But it’s not (or should not be) the prerogative of government to decide what my employer ought to offer as part of non-monetary compensation to its employees. If a majority of employees clamor for change, the employer can make changes that will allow for keeping good employees, and attracting other good candidates. If not, they should be allowed to stick with what works for them.

    The first step the government should take to phase out health related entitlement programs is to remove economically harmful restrictions on insurance providers so that it can again become more affordable to people. The second step is to cut out medicare and medicaid programs, and help with (not provide entirely) premiums of the poor in their private health care plans.

  4. August 17, 2007 at 7:28 am


    First, which economically harmful restrictions are you thinking the government should lift?

    Second, do you really believe that we will ever be able to sell the voters or lawmakers on the idea of ending medicare and medicaid before we reach the financial disaster that they promise to bring?

    I guess I don’t have enough faith in the rationality of the American people to choose real insurance after being sold for so long on the idea that they should prepay for their basic medical expenses in premiums and then try to recoup their huge premiums by taking every medical service offered (which drives up prices in the market). I fear that they will never open their eyes to the fact that insurance should be, “You take care of the maintenance (like well-child visits and medications or procedures which address non-critical issues) and the insurance will be there to cover you in the event of an emergency.”

    People don’t realize that health insurance should operate more like car insurance (which doesn’t pay for oil changes or for damage caused by not doing oil changes). Instead they want their health insurance to pay for their band-aids because “I’m paying $1000 a month in premiums and I should get something out of that.”

  5. Jason Black
    August 17, 2007 at 11:22 am

    I’ll answer your second question first, because it has a shorter answer.

    I really believe that voters (perhaps not lawmakers) will be able to handle the change I mentioned. It doesn’t leave anyone without insurance. It simply requires people to take care of getting their own private insurance. I’d rather have none of it paid for by the government, but I know that would never happen. But if the government pitched in with the cost of premiums for those that can’t afford their entire premium, then I think it could go through.

    The first question above requires more detail. There are a number of government created reasons that health care costs so much. Lift the restrictions, costs fall. Below are two examples. There are more, and I’ll be happy to share them, but they take some doing to explain. These are the most simple to describe:

    1. Regulation on drugs and medical equipment – Currently the FDA gets to decide if a drug or device is safe. This takes lots of time and costs lots of money (both to the government and to the manufacturers), increasing costs to you and me. Let market forces (such as competition, product/brand loyalty, fear of malpractice suits, etc.) be the decider of what’s safe and what isn’t.

    2. Barriers to market entry – Currently medical professionals (whether doctors, nurses or pharmacists) and medical schools and hospitals all have to jump through government imposed licensing hoops to enter and remain in the profession. They’re supposedly there to protect us from quacks, but we can decide for ourselves who the quacks are. What the license restrictions do instead is limit the number of available health professionals, driving down competition and driving prices up. Let a private organization offer accreditation (much the way the Bar association does for attorneys). The government shouldn’t be deciding who can and can’t be a doctor, just like they shouldn’t decide if you can or can’t be an author – if you write poorly, nobody buys your books. If you’re a lousy doctor, nobody will go see you.

    The market generates products and prices more in tune with the wishes of consumers than anything the government will ever be able to provide. If Medicare and Medicaid programs are phased out in favor of private care, people will begin to see the improvements and lower costs, and will allow the phase-out to continue.

    If we don’t drop social health care programs, the government will bankrupt itself in a couple of decades. When that forced cut of health care comes, I doubt anybody will be happier than if there’s a gradual change.

  6. August 17, 2007 at 2:03 pm

    I fully agree with you on this. I wonder if you could actually convince people to abandon the sense of security they might feel with the FDA. If we remove that they would not know who to blame/sue/trust. As for the certification of medical professionals – you might not want to compare them to lawyers because I can think of lots of people who would rather not model the medical profession on the legal one as far as regulation and certification go. On the other hand, nobody can complain about a shortage of lawyers.

    The reason I wrote about this was that I am convinced that our options are to back off in a controlled manner from our social health care programs or else drop them in a financial crisis. I would hate to see the outrage and panic that would happen if we take the crisis course.

  7. August 18, 2007 at 7:44 am

    I just noticed a great post by Frank that links back here. He has some good insights to add.

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