Shrink's Views

ramblings of an unknown psychiatrist

Psychiatry and Principles of Economics

Posted by Dheeraj Kattula on May 4, 2009

In his book ‘Principles of Economics’  N. Gregory Mankiw highlights 10 essential economic principles. I had a few random thoughts on how these relate to psychiatry. Consider the fact that psychiatry deals with psychiatrists, patients, pharmaceutical companies and other allied health workers.principles-of-economics2

The 10 principles are

1. People Face Trade-offs.

2. The Cost of Something is What You Give Up to Get It.

3. Rational People Think at the Margin.

4. People Respond to Incentives.

5. Trade Can Make Everyone Better Off.

6. Markets Are Usually a Good Way to Organize Economic Activity.

7. Governments Can Sometimes Improve Market Outcomes.

8. A Country’s Standard of Living Depends on Its Ability to Produce Goods and Services.

9. Prices Rise When the Government Prints Too Much Money.

10. Society Faces a Short-Run Trade-off Between Inflation and Unemployment.

Let us consider these in detail with reference to psychiatry.

Most people do not have means to get what they want. But within the constraints of resources available, all people face trade-offs (scarcity). They have to decide what to give up for getting what they want(opportunity cost). Rationality helps them consider the marginal cost and marginal benefit before making a decision (marginal utility).

Technically, marginal benefits and costs are calculations made at the margin – with the aid of calculus. True, all of us have some sort of calculations. But, how far they correspond to the marginal concepts is still an open question in Economics. Recently, with advances in neuroeconomics, behavioural economics and game theory, such notion of rationality is being increasingly contested.

Since, Mankiw’s book adheres to the undergraduates, contradictions and controversies within the discipline of Economics are overlooked so as to provide a rosy picture of the discipline. Mental illness affects the way a person can make decisions. In psychopathological terms it is called ‘loss of judgement’, which can affect a person’s interaction with ‘psychiatry-market’ and also affect the person as an agent in the economy. For this, one does not require marginal benefit and costs analysis.

For example a schizophrenia patient may not want to come to mental health facility saying that doctors are poisoning him, a manic patient may spend thousands of rupees in a buying spree, an OCD patient may regularly buy large amounts of washing powder etc. What is the rationality of getting a heroin shot by sharing a needle, when one considers the risk of getting HIV, the risk of being caught by the police for drug related crime? Just A HIGH ? Are not the marginal costs ignored and marginal benefits considered badly necessary by a junkie?

Though, economists have termed these junkies as being irrational, it is possible to counter-argue that the process and way of calculating the marginal cost and benefit is different for the junkie. Different variants of rationality has been put forth in the literature – bounded rationality, unifying models, rule based behaviour, reciprocity, etc.

People respond to incentives though we are not certain how the incentives and behavior are connected. Their behaviour changes when costs or benefits change. When marketers use psychology in economics to tempt people to buy things they may not need, psychiatrists use economics in psychiatry to motivate patients to do what is needed!

A strategy used to treat negative symptoms in schizophrenic patients is called ‘token economy’. In child psychiatry incentives are used in treating behavioural problems.  All therapy is, to an extent altering the values placed by clients on different choices to promote a desired behavior.

Trade can make everyone better off (benefits of free trade). This includes patients, their relatives, health-care personnel, pharmaceuticals etc. People do not go to mental health services as they go to a theater. They have no choice not to go/trade if they understand their need. We have seen earlier that psychopathology can affect them from trading despite their need.

The asymmetry of information gives the doctors a lot of power on the economics of psychiatry. They are the ones who prescribe medicines. No one can question their decisions as they are board certified. Are they so sophisticated that they do not respond to incentives of pharmaceutical companies to push their drugs? Are their decisions based purely on clinical dimension? In the transactions there are not many risks on for the psychiatrists in the trade, except the case of a legal suit against them. On the other hand the patients have all the suffering- disease, drug costs and drug side effects. With escalating costs patients could be worse off!

It is traditionally believed that markets are a good way of organizing economic activity (laissez faire). It is assumed that households and firms that interact in market economies act as if they are guided by an “invisible hand” that leads the market to allocate resources efficiently. Consider the map of psychiatric services. They are always concentrated around urban areas. Supply usually goes to where there is demand with a greater paying capacity and not where there is ‘need’. Markets ought not to determine the activity in health-care.

When a market fails to allocate resources efficiently, the government can change the outcome through public policy (help for market failure). The government has to intervene and have its own services or has to finance people’s cost of care to some extent in needy areas. It should also give incentives to set up services in areas of need.

I do not find it easy to conceptualize the interaction between macroeconomics and psychiatry. I still attempt to do so.

Standard of living of people depends on the amount of goods and services they provide. As productivity grows, so does the average income. Though it is true that a service would earn more, when they produce larger service per unit time, in the case of psychiatric care, cutting down time or increasing work per staff would harm the very nature of care. Mass production of psychiatric service is not possible. So how would standard of living of those involved in supply improve, remains an economic problem. From the patient perspective, psychiatric services are good. They encourage occupational rehabilitation both for economic and therapeutic reasons. So psychiatry improves standard of living and quality of life of patients.

The value of the money falls, when a government prints large quantities of money (quantitative theory of money). As a result, prices increase, requiring more of the same money to buy goods and services. This makes care inaccessible for the mentally ill, who might not be in a very good earning state due to the disease itself.

The case where the Government printing a lot of money helps the patients and providers is when the Government does demand side financing for psychiatric services or provides subsidies. Few economists argue that the causal link between money supply and prices is debatable. Especially in today’s globalized world, an increase in money supply by printing money cannot/need not lead to an increase in prices.

Society faces short run trade-offs between unemployment and inflation (Philips curve) . This relationship is believed to be true by one section of economists belonging to the Neo-classical camp. It is not and should not be considered to be a universally valid proposition. In neo-classical understanding reducing inflation could cause a temporary rise in unemployment. This trade-off may be crucial for understanding the short-run effects of changes in taxes, government spending and monetary policy.

Prevalence of mental illness is not big enough to pull the rest of the economy in any direction. Inflationary effects on drug prices and service prices would have a negative impact on the ill and providers. Remember that inflation is a stress and can lead to ‘breakdown’ in people who are predisposed to it. One could argue the need to work can be a motivating factor for a mentally ill person in the light of rising prices. But consider the fact that motivation itself could be affected in mentally illness. For a patient inflation does not get him employed more than mental illness helps him get unemployed!

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