Friday, March 13, 2015

The Geography of Supply and Demand

Where supply and demand comes from matters.

Theme: Ironic demographics

Subject Article: "Reggie Jackson and the Cost of Health Care."

Other Links: 1. "Mayo Clinic and the teleconference that saves lives."

Postscript: Geography is just one variable characterizing the quality of supply and demand in any market. For example, the labor market in Rochester, New York:

While the path has been uneven, the Rochester region in fact has added private-sector jobs over the last quarter-century. But this fact says little about the quality of those jobs.

Qualitative assessments, of course, are a matter of interpretation. Not everyone would define a “good job” the same way.

A recent report from the Brookings Institution’s Metropolitan Policy Program, however, provides a solid benchmark for a healthy local economy by examining its advanced industries sector. These industries—characterized by technology research and development and workers with science, technology, engineering and math skills—not only pay more, but also generate more value per worker than those outside this sector.

Overall, Rochester's job growth may look anemic. But certain employment can have out-sized economic impact, which typical metrics fail to capture. We are left with a sad tale at odds with reality.

I've been down this road before, using Pittsburgh instead of Rochester. Employers are willing to pay higher wages for unique talent. See the analogy of Reggie Jackson for the high cost of health care. In an era of demographic decline, the quality of demand for labor is more important than the quantity of demand.

1 comment:

Anonymous said...

Fact of the matter, Mayo can charge more for most procedures than other hospitals in the United States. As any libertarian would point out, other supply of health care services would undercut the higher prices. However, such an assertion would fail to account for the geography of supply and demand.

You are correct to point out that it's a matter of what kind of supply, what kind of demand and that where it's occurring makes a difference. And I understand that you're trying to be succinct. Nevertheless, you take some liberties that are wrong.

a) No one that I know of in the Austrian school of economics arena would argue that more supply overall will lower prices for one specific product. You at least imply that they do.

b) No one that I know of in the Austrian school of economics arena would argue that supply and demand do not have a geography component, especially for labor intensive services. You at least imply that they don't take that on.

c) We've got 3 levels of detail going on that shouldn't be compared to each other. The Mayo Clinic is an individual hospital, the lowest level. Then you jump to the highest of levels, the 200,000 foot view to mis-assert that "any libertarian would..." in regards to supply and demand. Then you jump back down the middle level view, the next gradation of detail, to bring geography in the picture. While it's an understandable mistake, that's pretty sloppy, IMHO.

I'm glad that you're reminding people that there's a lot behind supply and demand, including the location of the demand and the location of demand. I understand that this isn't meant to be a detailed dive in health care policy proposals from libertarian think tanks. But maybe next time just remind of the role of things like geography instead of knocking down flimsy paper caricatures?