Home Thinking Aloud No Logical Relation Between Employment And Health Care: Kenneth Arrow

No Logical Relation Between Employment And Health Care: Kenneth Arrow


by Cara Wick, President of Wick Financial

As healthcare makes headlines, I wish more people listened to Nobel Prize-winning economistKenneth Joseph Arrow. Born in New York City in 1921, at 51, Mr. Arrow was the youngest person ever to receive the award.

Famous for his “possibility theorem” which says it’s impossible to construct a social welfare function out of individual preference, Mr. Arrow’s insights are why economists today are almost unanimously against price controls.

Applying his research to healthcare, however, Mr. Arrow found “the laissez-faire solution for medicine is intolerable.” Government must intervene to correct market deviations. A centralized system would be simpler (yeah!), and through economies of scale, cheaper.

In a 1995 interview with the Minneapolis Fed, Mr. Arrow said:

There’s really no logical relation whatever between employment and health care and the insurance that goes with that…

I think we need basically a single-payer system… The financing, as is known already from Medicare and certainly from Social Security payments from a centralized system, can be done much more cheaply than when you have many competitive insurance plans… The cost of administering the present plans is large and there are big economies of scale…

So I think that systems that are based on employment are illogical and attempts to meet them create all sorts of unnecessary complexities.

[Image credit: Biography.com]


Cara Wick started her banking career in 2001. Today, she is President of Wick Financial, a strategic marketing firm that helps community banks improve performance. Cara holds a B.A from Williams College and an MBA from the University of Iowa. Read more at her blog www.bankersnotes.com.