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Archive for August, 2009

Tear up the existing bills and write a clean one — Obamacare 2.0 — promulgating draconian health-insurance regulation that prohibits (a) denying coverage for preexisting conditions, (b) dropping coverage if the client gets sick and (c) capping insurance company reimbursement.

What’s not to like? If you have insurance, you’ll never lose it. Nor will your children ever be denied coverage for preexisting conditions.

The regulated insurance companies will get two things in return. Government will impose an individual mandate that will force the purchase of health insurance on the millions of healthy young people who today forgo it. And government will subsidize all the others who are too poor to buy health insurance. The result? Two enormous new revenue streams created by government for the insurance companies.

And here’s what makes it so politically seductive: The end result is the liberal dream of universal and guaranteed coverage — but without overt nationalization. It is all done through private insurance companies. Ostensibly private. They will, in reality, have been turned into government utilities. No longer able to control whom they can enroll, whom they can drop and how much they can limit their own liability, they will live off government largess — subsidized premiums from the poor; forced premiums from the young and healthy.

That’s from Washington Post columnist Charles Krauthammer’s op-ed on the  depressing future of the health care debate.  My question is, aren’t ‘government utilities’ who can’t set any standards about who is in and who is out and mandated subsidies exactly the guidelines applied to FannieMae and FreddieMac?  That turned out well.

For a critique of Krauthammer by the Post’s Ezra Klein, and a critique of Klein’s critique, see Ronald Bailey over at Hit & Run.

What’s not to like? If you have insurance, you’ll never lose it. Nor will your children ever be denied coverage for preexisting conditions.

The regulated insurance companies will get two things in return. Government will impose an individual mandate that will force the purchase of health insurance on the millions of healthy young people who today forgo it. And government will subsidize all the others who are too poor to buy health insurance. The result? Two enormous new revenue streams created by government for the insurance companies.

And here’s what makes it so politically seductive: The end result is the liberal dream of universal and guaranteed coverage — but without overt nationalization. It is all done through private insurance companies. Ostensibly private. They will, in reality, have been turned into government utilities. No longer able to control whom they can enroll, whom they can drop and how much they can limit their own liability, they will live off government largess — subsidized premiums from the poor; forced premiums from the young and healthy.

It’s the perfect finesse — government health care by proxy. And because it’s proxy, and because it will guarantee access to (supposedly) private health insurance — something that enjoys considerable Republican support — it will pass with wide bipartisan backing and give Obama a resounding political victory.

It’s the perfect finesse — government health care by proxy. And because it’s proxy, and because it will guarantee access to (supposedly) private health insurance — something that enjoys considerable Republican support — it will pass with wide bipartisan backing and give Obama a resounding political victory.

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Take a look at this video.

The video is useful because the producer really tries to strip away many confusing aspects of the health care industry, and in doing so, presents a very clear case for single-payer, government-run, socialized health care. The clarity is a strength and a weakness, because the argument is exposed for its wrongness and illogic.

The video lists water treatment, police, fire, postal service, and the coast guard as being provided for by the government, just because they are essential services, services that we need just to get by. I’m willing to accept that explanation perhaps, but a simple historical explanation would suffice. The government has opted to provision and run such services. The producer claims that these services that are government run because they are essential, and health care is just as essential, so it should be government run. Do you see the fallacy yet?

By the way, the post office is a particularly terrible example, because of how obviously inefficient it is. Milton Friedman demolished the case for a government-run postal service in Capitalism and Freedom, and let’s not forget the story of Lysander Spooner. Strangely, even President Obama seems to understand this.

Anyway, the fallacy is pointing to unrelated sectors with completely different characteristics as evidence that the government can run one more sector. What counts as essential, anyway? Is food essential? A market provisions food quite efficiently, even when correcting for insane distortions from agricultural subsidies.

The problem with the video’s argument is that it proves too much. What isn’t essential? What shouldn’t be provided for? If everyone pays everything they have to the government, everyone can have everything! Margaret Thatcher was correct when she noted that the problem with socialism was running out of other people’s money.

The producer demonizes profit. On a market, profit is not money that is being skimmed out of the product that would otherwise go to producing something of value for consumers. Profit is a signal to a producer that they are producing something of value to a consumer. Loss is a signal to a firm that they are not doing something of value and that resources should be put to other uses. The problem with government provision of services is that they don’t respond to such signals. Maybe the fire department is a small enough portion of the economy that this doesn’t matter, but to say that the police and the criminal justice system function fine without these signals is laughable.

Why would a self-interested agent sell insurance if they were not getting something for it? The mistake here is a common one from the American left. The mistake is considering only the utility of consumers and not producers. Leftists forget that consumers on a market are also producers if they own a company or work for a wage. So, it’s silly to expect people not to engage in mutual voluntary exchange, which creates value. The instigation of class warfare by labeling investors as rich people is unfortunate as well.

Also, even if profit were immoral and unjustifiably selfish, this leftist sentiment of trusting agents in the government as somehow not responding to incentives is bizarre. People in government are just as self-interested as private agents, but troublingly, they have access to public power that makes them less accountable.

This video also has the same mistake that I’m seeing everywhere in discussions about health care reform. The purpose of insurance is not to provide care for customers that would otherwise not be able to pay for such care. An insurance firm does not aim to redistribute from healthy types of clients to sickly types of clients. They buy off risk and distribute it into their pool of clients so that they can turn a profit.

The whole discussion about health care reform in the media is frustratingly muddled. There are a few separate issues on the table which are often conflated. Lowering costs is a separate issue from increasing access. Indeed; these two goals are at odds. I cringe when I hear someone preach about a panacea that could feasibly accomplish both for the long-term. The claim is just absurd on its face.

Now, it’s true that insurance companies sometimes aim for profit by denying coverage in really seedy ways. Such behavior is to be expected from a highly regulated industry with all sorts of distorted incentives and firms that don’t have answer to market discipline. Still, that kind of behavior has little to do with the rise in costs. Joseph Newhouse’s 1992 paper attributes the rise in costs to advances in technology, correcting for all the usual suspects, such as aging, moral hazard from increased insurance, increased income, supplier-induced demand, and factor productivity from the fact that much of the sector is a service industry. Think of all the wonderful yet expensive technologies today that we have that did not exist in the 1960s.

The video ends with an amusing analogy of how fire departments might work if they looked like insurance companies. It’s effective because this is a false analogy. Insurance companies are subject to all sorts of distortional regulation that explain their actions, but none of that applies to fire departments. Economists have the difficult job of trying to show effects that are not easily seen. See Bastiat.

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Evolutionary Depression

Interesting article from Scientific American on possible evolutionary benefits of depression.  According to the report, depression occurs to roughly 30% to 50% of the population at some point in time, which means its far too common to be a malfunction, like another mental illnesses.

The article points to physiological changes that occur in sufferers, which allow them to bring intense focus to bear.

This analytical style of thought, of course, can be very productive. Each component is not as difficult, so the problem becomes more tractable. Indeed, when you are faced with a difficult problem, such as a math problem, feeling depressed is often a useful response that may help you analyze and solve it. For instance, in some of our research, we have found evidence that people who get more depressed while they are working on complex problems in an intelligence test tend to score higher on the test.

Analysis requires a lot of uninterrupted thought, and depression coordinates many changes in the body to help people analyze their problems without getting distracted. In a region of the brain known as the ventrolateral prefrontal cortex (VLPFC), neurons must fire continuously for people to avoid being distracted. But this is very energetically demanding for VLPFC neurons, just as a car’s engine eats up fuel when going up a mountain road. Moreover, continuous firing can cause neurons to break down, just as the car’s engine is more likely to break down when stressed. Studies of depression in rats show that the 5HT1A receptor is involved in supplying neurons with the fuel they need to fire, as well as preventing them from breaking down. These important processes allow depressive rumination to continue uninterrupted with minimal neuronal damage, which may explain why the 5HT1A receptor is so evolutionarily important.

Many other symptoms of depression make sense in light of the idea that analysis must be uninterrupted. The desire for social isolation, for instance, helps the depressed person avoid situations that would require thinking about other things. Similarly, the inability to derive pleasure from sex or other activities prevents the depressed person from engaging in activities that could distract him or her from the problem. Even the loss of appetite often seen in depression could be viewed as promoting analysis because chewing and other oral activity interferes with the brain’s ability to process information.

The authors’ conclusion is that

When one considers all the evidence, depression seems less like a disorder where the brain is operating in a haphazard way, or malfunctioning. Instead, depression seems more like the vertebrate eye—an intricate, highly organized piece of machinery that performs a specific function.

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Live and Don’t Learn

“By any measure, my administration has inherited a fiscal disaster.”  – President Obama, March 14th.

So let’s get this straight.  Obama has been blaming President Bush since the start of campaigning.  We keep hearing the misleading meme that this has been the worst economy since the Great Depression.

Well if all that’s true, let’s clean up Bush’s mess!  And let’s give the broom too … Bush’s … Federal Reserve Chairman?

I’m sure everyone is as excited as I am about this news.  Bernanke’s back, back again, tell a friend.  As always the NYT is a great source of unintentional comedy.

Supporters of Mr. Bernanke, including many current and former Fed officials, said his academic background provided almost perfect preparation for the financial crisis that began when panic over mortgage-backed securities began spreading through the broader credit markets in late July 2007.

Unless the economy suffers another big shock, Mr. Bernanke is all but certain to win Senate confirmation for another term.

The financial system, which nearly collapsed last September after the bankruptcy of Lehman Brothers, is now in far better shape and credit markets have been operating much closer to normal for the last several months.

Nonetheless, some analysts caution that the economy is still so fragile that financial markets would react badly if President Obama decided to install new leadership at the Fed anytime soon.

I can’t find any logical connection in the article between Bernanke and the presumed recovery.  The writers go out of their way to put outcomes next to suppostions, and hope that the reader will infer some causality. Oh and the announcement was made on Martha’s Vinyard, a day after the White House asked that the first family’s privacy be respected.

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At Cafe Hayek, a reader asked Russ Roberts how the elderly would be able to purchase health insurance on a free market, one without Medicare or Medicaid.

Tom’s question is interesting. But it’s the wrong question. And that Tom asks it and that everyone answered it is fascinating in and of itself.

It’s the wrong question because when you’re 65 the problem isn’t getting insurance. It’s paying for health care. But the public debate has become so obsessed with health care insurance we’ve forgotten what the real issues are.

When you turn 65, the high cost of insurance isn’t the problem. The problem is that you’re old. A lot more things are going to go wrong. Yes insurance is going to be costly. But that’s because so many things are more likely to break in your body. The high cost of insurance at that point is just a result of the problem. It’s not the problem itself.

It’s like saying that if you drive your car in a demolition derby, it’s hard to get coverage for collision damage. No kidding.

What’s funny (well not funny, really) is that we’ve totally forgotten the point of insurance and why it’s economically sensible. Insurance is designed for the unpredicatable. There’s nothing unpredictable about bad health when you get old.

Read the whole post.  This explanation is quite consistent with my observation that many people discussing health care policy today ignore or do not understand what the purpose of insurance is.

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For Radley Balko.  The Whole Foods boycott is moronic.  Why is it the same people who claim to want an open, civil debate are the same ones offended by a simple policy proposal, backed by empirical data?

2) The reason the boycott is moronic is that you’re punishing a company that does everything the left thinks a company should do in just about every other area (save for a few, noted below) solely because its CEO expressed opinions about health care that you don’t like. And I don’t mind that you disagree with Mackey’s opinions. But if they offend you, you’re way too damned sensitive. He didn’t say, “I think all Americans should have access to health care . . . except for black people.” That would be offensive. He put forth some proposals that he thinks would make the health care system more efficient. You can disagree with those proposals. But if you’re offended by them, you really have a low tolerance for offense.

Radley’s blog is a great daily read.

Read all of Mackey’s original proposal here.

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1930 OWHolmes

Certainly the one who did the most damage to the federalist character of the Republic.  I came across H.L. Mencken’s criticism of Holmes, and it put me in mind of a Reeses’ cup.  The combo of Mencken’s wit, scorn, and insight is the chocolate paired perfectly against Holmes’ rhetorical peanut butter.  You know, if peanut butter were made of illogical hogwash.

Mencken is exactly right to suggest that Holmes deference to legislative will incorrectly supposes that the legislature is the voice of the people.

The weak spot in his reasoning, if I may presume to suggest such a thing, was his tacit assumption that the voice of the legislature was the voice of the people. There is, in fact, no reason for confusing the people and the legislature: the two, in these later years, are quite distinct. The legislature, like the executive, has ceased, save indirectly, to be even the creature of the people: it is the creature, in the main, of pressure groups, and most of them, it must be manifest, are of dubious wisdom and even more dubious honesty. Laws are no longer made by a rational process of public discussion; they are made by a process of blackmail and intimidation, and they are executed in the same manner. The typical lawmaker of today is a man wholly devoid of principle- a mere counter in a grotesque and knavish game. If the right pressure could be applied to him he would be cheerfully in favor of polygamy, astrology or cannibalism.

And that was written in 1930.  The more things change, the more they stay the same.

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