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Posts Tagged ‘Costs’

Quick thoughts on a Monday. Springtime is the best season. By far. The first day of sundress season should be a national holiday.

Ahhhhh Sweet Spring

Anyone care to argue any of these claims?

1. The American health system has been broken for a long time.

2. This bill won’t improve quality of service.

3. It won’t decrease prices to patients.

4. It won’t decrease costs to doctors and hospitals.

5. It won’t reduce the deficit. It will follow ignominious history.

6. It isn’t constitutional.

7. The six-month enactment period will give lawyers for all conceivable parties AMPLE time to scout for plaintiffs, jurisdiction shop, and draft briefs and motions. This will lead to a period of litigation, lasting anywhere from three years to a decade.

8. If the Republicans do win control of either the House or the Senate, a bill will be introduced to repeal this law within the first two months of the new Congress.

9. Reihan Salam will be right: “Coming soon: the Democratic Dolchstoss strategy: “Of course it didn’t work. It was a moderate Republican bill! What we really need is …”

On Intrade, the prop bet that Republicans control the House after November has gained about 43% in just over a year. Given that, it’s bizarre that liberals are still haunted by the specter of libertarianism.

I watched the Maryland – Michigan State game in Baltimore in a bar full of Maryland fans, and it was heartbreaking. On State’s last possession, the clock didn’t start for about a half second. The buzzer beater went up with .4 on the clock. Brutal.

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Mmmm. Bacon.

Rochester Economics Professor Micheal Rizzo, who’s blog shares our affinity for Hayekian humility, had an excellent series of posts over the holidays. In the spirit of the Twelve Days of Christmas, he examined what the last century has shown us about the interaction of scarcity and productivity, and the effects on the cost of twelve resources, from salt and tin to cobalt and diamonds.

His point is that these goods are growing ever more scarce, yet generally the cost (computed in both work hours and real price) is much lower. He argues that this is not merely incidental to each commodity, but true as a general rule. Even something as fundamental as sweet delicious mouth-watering hickory smoked bacon.

He notes that the average American manufacturing worker earns a pound of bacon every 11 minutes, a decrease in real price of 73% since 1900. And all that despite nearly a century of farm policy that can best be described thus.

P.S. While googling ‘bacon’ images, these bacon-wrapped-scallops popped up. Set mouth to ‘water’.

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There’s an interesting post on the Economist blog today about TABOR, and how it has worked in Colorado and how it might, or might not, work in Maine.

Colorado’s TABOR mandated that taxation and state spending could grow no faster than inflation, adjusted for changes in state population, without approval by voter referendum.

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Peter Suderman does an excellent job of clarifying Ezra Klein’s misconceptions about health care.

This is the house they’ve built: an insurance market where plans are written for the healthy and all legal efforts are made to exclude the sick. That’s meant premiums are somewhat lower than they’d otherwise be, but only because the people who most need health-care insurance aren’t able to afford it, or in some cases, aren’t able to convince anyone to sell it to them. Now that arrangement is ending and they’re scared that they can’t provide an affordable product to the people who need it. They may be right, but it’s evidence of how deeply perverse their business has become, not of what’s wrong with health-care reform.

That’s one way to look at it. But Klein’s conclusion rests on the assumption that the insurance industry exists to provide inexpensive protection and support to those deemed “in need” rather than a service business built to help provide a safety net against genuine catastrophe—you know, insurance—to those who want to pay for it. Essentially, this view entails seeing insurance as a social good rather than as a business, which explains why many reform advocates see a single payer system as their ultimate goal.

Now, that’s par for the course for folks with a preexisting liberal worldview. And none of this is particularly surprising given that a) Americans tend to understand insurance as medical prepayment rather than actual insurance and b) the country has built its medical system around third-party payment.

I’ve never understood the concept of health care as a public good.  It’s not a resource, there’s no fount of endless good-health that we can dip into.  Health care and insurance are services, and in a service economy it’s clear that multiple providers and competitive pricing are the best discovered mechanisms for lowering costs and increasing access.

Consider cell phone service.  When the first bulky cell phones came out they cost an arm and a leg, had terrible reception, were ostentatious and you could only use them if you stood under a tower.

But competition and creative destruction have (and continue) to work their invisible hands in the cell phone industry, and now you can have a slim blackberry set to vibrate, and reasonably expect 3G coverage in the middle of Montana.  Google “cell phone providers” and see how many options you find.  True, most people you meet will have either At&t or Verizon, but that’s because by most standards they’re the best.  But the variety of carriers, and more importantly, the potential for increased variety, is intrinsic to the market.

When it comes to something as important as health care, we should be trying to actively promote that kind of diversity, expansion, and cost-cutting.  Baucus-care and its single-payer ilk won’t do any of these things, but Ezra Klein doesn’t care nearly as much for actually helping people as he does about bashing insurance companies for not operating as he’d like.

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California is collapsing.  The Guardian has an outsider’s perspective on the downfall of the world’s eighth largest economy.  The Golden State is fading.

California has a special place in the American psyche. It is the Golden State: a playground of the rich and famous with perfect weather. It symbolises a lifestyle of sunshine, swimming pools and the Hollywood dream factory.

But the state that was once held up as the epitome of the boundless opportunities of America has collapsed. From its politics to its economy to its environment and way of life, California is like a patient on life support. At the start of summer the state government was so deeply in debt that it began to issue IOUs instead of wages. Its unemployment rate has soared to more than 12%, the highest figure in 70 years. Desperate to pay off a crippling budget deficit, California is slashing spending in education and healthcare, laying off vast numbers of workers and forcing others to take unpaid leave. In a state made up of sprawling suburbs the collapse of the housing bubble has impoverished millions and kicked tens of thousands of families out of their homes. Its political system is locked in paralysis and the two-term rule of former movie star Arnold Schwarzenegger is seen as a disaster – his approval ratings having sunk to levels that would make George W Bush blush. The crisis is so deep that Professor Kevin Starr, who has written an acclaimed history of the state, recently declared: “California is on the verge of becoming the first failed state in America.”

California is screwed.  It’s a disaster, and it’s easy to point to a few reasons why.  The legislature has been staunchly Democratic since 1970, with one brief interlude of Republican control.  The state is the absolute paragon of liberalism, the fullest flower of the public-service/welfare state apparatus.  Republicans are a minority in every single voting district in the entire state, at all levels of government.

But you wouldn’t know that if you read some of the left’s critical analysis of California’s plight.

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Frequent contributor (and my brother-from-another-mother) Tom suggests we add an “ask a libertarian” section.  Now we are hardly mouthpieces for a wildly diverse movement that is part party, part philosophy, and we won’t try to be.

But we’re certainly glad to engage readers and try to shine some light on why we think freedom, limited government and private cooperation could lead us to a better world.  We can’t speak for everyone, but we can offer you our particular lens on an issue that concerns or interests you.

Hence, the inaugural Reader Questions.  The topic: Patents, exclusivity, and innovation.  Tom’s question is a good one, and I’ll reprint it in full:

I’m hesitant to form strong opinions on issues involving patents and intellectual property because, well, I’m not a lawyer. I have a hard time drawing the line between where patent laws encourage innovation and where patent laws change innovators’ focus from the act of innovating to milking patent protection to finding a balance with patent-assisted profits and further innovation, perhaps at the cost of further innovation.

I guess what I’m pondering, fueled by the role of pharmaceutical companies in American health care, is when do patent laws become a reverse incentive for innovation, artificially elevating prices and discouraging or eliminating competitive innovation for similar products?

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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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