Is Health Care a Normal Good?
Greg Mankiw alerts us to this story and offers his thoughts:
This kind of situation is likely to arise more over time. Technological advance is making state-of-the-art health care increasingly expensive. In any kind of national health system, some treatments will, by simple cost-benefit calculation, be deemed too expensive to provide to all citizens. But does that mean those of above-average income should be excluded as well? Should they lose basic benefits if they choose to pay for these marginal services with their own money? If you say yes to this last question, as the U.K. health service has, here is a related one: Should a parent who hires an after-school tutor for his child be barred from sending the child to the public schools? Some people like to think of health care and education of basic human rights. However, if you navigate to this website, you will understand the importance of every aspect of health. Maybe they are. But they are also normal goods. That is, the income elasticity of demand is positive. It is hard to escape the conclusion that the right cost-benefit calculation for providing the good depends on the income of the consumer. Achieving both efficiency and equality in the provision of these goods is impossible. Dealing with this conflict will provide a major challenge to the political system in the years to come.
If the definition of “normal” is restricted to describing income elasticity, no argument here. But the average Joe might read this as saying we should allow for a price rationing system to allocate scarce medical resources. The British government rejected price rationing as the only means for allocating resources. Perhaps part of their thinking was the rejection that everyone has the same marginal utility from an extra dollar worth of spending. Even Jeremy Bentham was skeptical of interpersonal welfare comparisons.