My gut instincts point me in a different direction that Professor Cutler’s do, but I think we agree on what the big problems are and on what would count as solutions. I think almost all economists would agree on that much, and that’s a lot.
Here is Arnold:
My disagreement with Cutler is more than mere gut instinct. Cutler and I might agree that there is overuse of medical procedures with high costs and low benefits. We might agree that incentives affect this. However, Cutler is confident that central planning represents the solution, not the problem. He believes that remote bureaucrats can measure health care quality well enough and implement compensation schemes that are fine-grained enough to achieve significant improvement.
For the record, Arnold and I are saying the same thing, though I tried to say it a little more politely. David Cutler, Arnold Kling and I all agree that incentives matter and that it’s important to get them right. Arnold Kling and I agree that David Cutler probably doesn’t know how to do that.
Cutler, for example, believes we can realize huge savings by streamlining hospital adminstration but has absolutely no story to tell about why hospitals haven’t chosen to realize those savings for themselves. Here’s what I said yesterday:
First, he talked about the explosion in administrative costs in American hospitals. Duke University Hospital, for example—one of the finest hospitals in the nation—has 900 beds and 1300 billing clerks. We have to give them an incentive to do better, he said. When I asked why they don’t already have all the incentive they need to save money, his first response was that “hospitals are mostly non-profits”. That’s of course an economist’s answer, but I found it deeply unsatisfying—even at a non-profit, there’s always some alternative use for funds, and usually someone with an incentive to economize in favor of that alternative use. So more than Professor Cutler, I am inclined to suspect that those 1300 billing clerks might actually be doing something useful.
If Professor Cutler can’t explain why Duke chooses to employ all those billing clerks, how can he possibly know how well we can get by without them?
So don’t worry, Arnold; we’re on the same side. William F. Buckley once said he’d rather be governed by 100 people chosen at random than by the Harvard economics faculty. I’m not sure I’d go that far, but if I had to be governed by an economics faculty I’d choose George Mason over Harvard in a heartbeat.