Paul Krugman on the Ryan budget proposal:
And then there’s the much-ballyhooed proposal to abolish Medicare and replace it with vouchers that can be used to buy private health insurance….
…The House plan assumes that we can cut health-care spending as a percentage of G.D.P. despite an aging population and rising health care costs.
The only way that can happen is if those vouchers are worth much less than the cost of health insurance.
Well, this is just plain illiterate. In fact, the only way that can happen is if the voucher system affects people’s health care choices. Which is, you know, the whole point.
Krugman talks about “the cost of health insurance” as if it were an immutable number. But vouchers will affect health care choices (Do I really need to see the doctor every time I have a sniffle? Do I really need an insurance policy that covers that?) and will therefore bring down medical costs. Reasonable people can argue about the projected size of that effect (though my sense is that most economists specializing in health policy expect it to be huge). But nobody who writes what Krugman wrote should be mistaken for a person who is being reasonable.
So, the health care costs of non-Medicare Americans is growing much slower than the Medicare projections? You know, since they will ask each time if they really need that visit to the doctor. Seems this is implied in your statement. Is it true?
@Morton – that, unfortunately, is probably comparing apples with oranges. On the other hand, Steve does seem to be cherry-picking from the several critiques Krugman has posted of the Ryan plan.
“But vouchers will affect health care choices (Do I really need to see the doctor every time I have a sniffle? …) and will therefore bring down medical costs.
Timely medical intervention can reduce medical costs very significantly. These changes would not necessarily reduce medical costs.
The USA has the most expensive healthcare in the world, and its outcomes are not that outsdanding, so something should be done about it. It may be that these changes would reduce the expensive but less rewarding parts of the system, but it is not certain.
@Mike – what would be the evidence required to back up Steves claim then? And is it available? Since Steve mentions “huge” savings, is it just that people will prefer/be forced to spend less money on healtservices that are still expensive, so the saving is entirely due to less demand (maybe that old heart will last a few more years … never mind about that hip, wheelchaires can be fun). Is this really what the Republicans/Ryan want?
Forget Krugman. Nobel laureate? Yeah, so are Rigoberta Menchu, Yassir Arafat (PBUH), Jimmay Carter, Al “I took the initiative to create Global Warming” Gore, and BHO. Etc.
Here’s a “civility” story Paul K. hasn’t heard about —
http://www.pressherald.com/news/maine-lepage-threat-thomas-court.html
(My “Buckhead moment,” BTW.)
In the meantime, here are a few puzzles. Original, except (1) and (6).
(1) Via J.H. Conway: what’s the next line?
1
1 1
2 1
1 2 1 1
1 1 1 2 2 1
3 1 2 2 1 1
…
(2) Prove that
log(Gamma) log(Pi)
Pi = Gamma
(3) Prove that the product of any pair of twin primes, when increased by 1, always gives a perfect square.
(4) Prove that the following is true:
1 + 2 = 3
1*2 + 2*3 + 3*4 = 4*5
1*2*3 + 2*3*4 + 3*4*5 + 4*5*6 = 5*6*7
…
(5) Compute 1/49 to 12 digits, in your head.
(6) One of my all-time favorites: (all you need are the definitions; but it’s much harder)
Let G be a finite group having an automorphism of order 2 which fixes only the identity. Prove that G is abelian.
(7) 2 2 2 3 2 2 4 2 3 ?
Ugh. Formatting issues.
(2) Prove that
Gamma ^ Log(Pi) = Pi ^ Log(Gamma)
[ Where “Pi” is, y’know, Pi, and “Gamma” is the so-called Euler-Mascheroni constant (q.v.) — shades of e ^ i * Pi + 1 = 0, and all that. ]
@ Morten and Harold:
At the risk of getting into a foodfight, might I politely ask, “what is the evidence that more consumer involvement via vouchers would NOT have the impacts Professor Landsburg is mentioning?” Ought the burden of proof be on folks that start with the assumption that individuals are NOT economizers?
A second point: I am rather astounded by the “outrage” at the Ryan plan. Consider a plan where the government, today, spends the same amount of money targeting medical insurance support to its citizens. What these vouchers are talking about is putting more power in the hands of individuals. So what opponents seem to be grossly arguing is that no government policy is acceptable unless it is RUN by the government. Don’t go parading around talking about health outcomes or anything else as cover for this view. It reminds me of the “environmentalists” who are aghast! that the Chinese government is subsidizing green energy technologies.
Third: I am also skeptical that the effects Professor Landsburg mentions will be large. While yes, I do think that people will be more sensitive of when they go to the doctor, I do not believe (from my reading of the literature) that is where the cost savings will come from. And since the provider side is nearly incapable of dealing with patients as consumers, it will take some time for the real impacts to kick in.
Isn’t it amazing that the people who are happiest with their healthcare in this country are the people with a single payer Canada type system?
Isn’t it amazing that every other first world country spends far less on healthcare than the US?
I’ve lived in England and Japan and I never met anyone who thought the US healthcare system was better than the system of their country. Sure you can spend almost twice as much and get a little better healthcare but why would the people of England or Japan raise taxes so high for such a minor improvement.
Scientists should look at the evidence BEFORE forming an opinion. It is a pity that Professor Landsburg doesn’t let facts influence his opinion.
“what is the evidence that more consumer involvement via vouchers would NOT have the impacts Professor Landsburg is mentioning?” I am not sufficiently expert to asses the evidence – hence the lack of certainty expressed in my comment. The certainty was by Steve: “and will therefore bring down medical costs”. I was pointing out that avoiding trips to the doctor at an early stage can increase medical costs.
Different spending on healthcare may or may not provide different levels of health. Compared to no spending at all, we can get very significant health improvements at modest costs, such as using antibiotics. As we try to improve health more, then spending escalates for each incremental improvement in health. It is even possible for increased spending to reduce health, as in the overuse of x-rays or screening tests with a high false positive rate. The USA seems to be in this situation now. For whatever reason, there is lots of money being spent on these costly, low-return healthcare options.
The best solution is to reduce spending in these low-return areas, and shift it to the high return areas. This could allow lower costs with no reduction in overall health.
If it is impossible to separate out these high cost items, another way to reduce healthcare costs is to just have less of it, with a corresponding reduction in health.
What you have to be very careful to avoid is a reduction in the low-cost, high-return healthcare like antibiotics, whilst maintaining the expensive, low-return things. This will result in worse health for little saving.
My concern is that the voucher system will encourage people to avoid the early interventions which can provide the greatest health for your buck. This could result in lowering of health for little savings, which would be a bad thing. It may also encourage the avoidance of expensive, low return interventions, which would be a good thing.
I’m puzzled – reading this blog post, I get the impression that the vouchers are vouchers for *healthcare*. Reading PK, I get the impression that the vouchers are vouchers for *health insurance*. I suspect that this is very important difference – the ‘market for lemons’ and all that. So, what *are* the proposed vouchers actually for??
@Stumbo – I like your puzzles! Especially (2) and (3) :-) Hmm… I must try (6) now….
@Morten – you *could* look at the stats you mention to find evidence for or against Steve’s idea, but you’d have to *very very carefully* tease out all the confounding factors. And since this is a very politically charged issue, it’s doubtful that even good research on the matter would be accepted without a lot of controversy. I don’t think you’d have the answer by, say, November 2012.
I disagree with many, perhaps most things in the Ryan plan. However, like many others, I applaud the fact that he actually proposed something! At least there is something to throw rocks at now. Personally, I like the Bowles-Simpson proposal.
This article from the New York Times discusses precisely how Medicare encouraged more spending, to the detriment of the patient and his family.
http://nyti.ms/fydbeL
Harold – Could you specify which outcomes are not outstanding?
Prof. Landsburg:
“But vouchers will affect health care choices (Do I really need to see the doctor every time I have a sniffle? Do I really need an insurance policy that covers that?) and will therefore bring down medical costs.”
I understand how if 50 million seniors get vouchers for a fixed amount let’s say $ 5,000 per year, then insurers will sell policies for $ 5000 which may be less than current policies for seniors. However those policies might limit the type of care available to those 50 million seniors.
If 150 million people still have high cost policies paid for by employers that give them access to MRI’s, doctors when they have sniffling noses, etc. The effect could be that medical costs will continue to rise.
I understand how having a health care system where everyone gets a voucher and has to pay out of pocket (their own bank account and not their employer’s bank account) for additional care/policies would force a reduction in medical costs.
If the Paul Ryan plan proposes giving everyone a voucher and removing our employer paid system then I buy your point about reducing medical costs. Is this part of Paul Ryan’s plan?
If not, I just don’t see how giving seniors a fixed vouchers while everyone else uses an employer paid system will automatically reduce medical costs.
@Stumbo
1: 13112221 (seen before someone else can do the next line).
2: What do you mean by gamma?
3: if p and p+2 are prime then p(p+2) +1 = (p+1)^2
4: Can see this by grouping the first 2 terms and turning them into 1 term (e.g. 1*2*3 + 2*3*4 = 2* 3*(4+1) =2*3*5) and then grouping this term with the next one and repeating. Nice fact though :-)
6: Seen before and am not going to spoil it for anyone else.
5 and 7 I can’t see straight away and am goign to think about.
Here is one of my favorites. I am thinking of a polynomial with non-negetive integer coefficents. You may ask questions of the form “What is your polynomial evaluated at x?” for x algebraic. How many questions do you need to ask to find out my polynomial (no it does not depend on the degree).
Krugman talks about “the cost of health insurance” as if it were an immutable number. But vouchers will affect health care choices (Do I really need to see the doctor every time I have a sniffle? Do I really need an insurance policy that covers that?) and will therefore bring down medical costs.
No it won’t! Demand for healthcare for those with chronic conditions and senior citizens is inelastic. If they need a vital heart medication for example then they’re still going to buy it even if the price rose as much as an extra $500 a month. Ryan’s plan makes them poorer. And with a growing and aging population, I’d project costs to rise further despite a stupid voucher system. Sure, this would cause some people to shop for cheaper forms of coverage (an inferior good) but I doubt it would have a substantial impact.
Why not just cut defense and other forms of domestic non-defense spending while letting the current tax rates stick?
Prevention starts with eating a healthy diet, getting exercise, and getting yearly checkups, but the lifestyle choices play a much bigger role. Maybe we should pay people to exercise and eat right to save on health costs.
@ MikeH,
My understanding is that they are vouchers for insurance, not medical care. Medicare and Medicaid are governemnt sponsored social insurance programs that procure health care from the private sector. I believe this is a very important distinction and your question is a good one.
Over the last four decades or so, total national health spending has grown at an average annual rate exceeding the corresponding growth of GDP by more than two percentage points, althought the size of the differential varies from year to year.
The question is whether that differential will persist, and if so, for how long? And, is there any emperical reason to believe that consumer directed health care will bring health care into line as Steve is suggesting?
Here is a report on growth in prices for hospital care published by the American Health Insurance Plans, the national association of private health insurers in this country.
http://www.ahipresearch.org/pdfs/PricesCaliforniaOregon2010.pdf
Evidently, private insurers have not been able to prevent significant price increases. Based on what I read, I’d go with Krugman. The cost of health care for an aging population is going to increase, not decrease.
Krugman’s point is that “choice” being brought into the health care market has not shown itself to be a cost reducer.
Why do we need to talk about who is reasonable and what experts believe? Aren’t there ANY examples, programs, regulations, market studies you can cite that show this cost reducing effect for health care? We have 50 individual states. The world has over 190 independent countries. Why do we have zero examples?
The introduction of vouchers certainly affects choice. If combined with a health savings account (HSA), the choice will more often be “I’ll just take two aspirins and go to bed”, without many ill effects.
But let’s not disregard the supply side. Vouchers and HSA’s will certainly affect competition among sellers, leading to lower prices and higher quality services.
For example, falling prices for cosmetic and lasik surgery, which are not covered by insurance or medicare, are evidence of this effect.
So is the Ryan plan trying to take away government-paid *healthcare* from people who tend to be both sicker and less able to pay, and replace it with subsidised unregulated *health insurance*? What insurance company in their right profit-maximising mind is going to step up to the plate and give adequate cover to such people?
BTW – does the Ryan plan state that the vouchers are to be indexed to CPI or something so as to attempt to maintain their real value?
Indeed, Neil, though US healthcare is both costlier and inferior to the UK’s or Japan’s. Ryan’s is just a plan to rob and then kill the nutlos essers. Fixing US health care is easy. Get the private sector out of it. The universal experience of the whole world, including the USA, is that governments provide health care superior to the private sector, more efficiently, and at lower cost. The less health care is run like a business, the better and cheaper it is. US health care is expensive because the sector is infested with parasites called the health insurance industry, the medical industrial complex and big Pharma. The more business has intruded into pharmaceutical research, the slower progress has been, the fewer new drugs, even with the government subsidizing research. Of course, being empirical facts, followers of the mainstream economics religion will find the above entirely unintelligible.
@Josh
that is exactly what Michelle Obama has made a centerpiece of her advocacy.
@Disgusted
That is completely right. I would also say that all the followers of mainstream economics above prioritize individual choice and the power of money above all else. Although they say it is to the benefit of the whole community {however you want to define community, it could be the whole world), it tends to be to the benefit of the wealthy, and to the detriment of the poor. Not in actual numbers, of course. The theorems make it look like everyone will benefit. But in the real world, it tends to work for those who already have the money.
They also tend to ignore the fact that even if vouchers might save some people money, it will only increase the stresses on those who have little money to begin with. Of course, the wealthy will be fine, they will still have money to put towards healthcare, and they could subsidize it with their own money if necessary. The poor, however, could be forced to make unbearably hard choices. I remember an article from Professor Landsburg about how government should not have chosen to provide a ventilator. It would have been cheaper because she never would have chosen ventilator insurance. Yet, if she had to choose between food and ventilator insurance a month earlier, yes, she would have chosen food. But does that mean that she should just be left to die. Or is it the government’s role to assist with “unalienable rights” of “life, liberty, and the pursuit of happiness.”
As for the pursuit of happiness: is it or is it not the government’s role to assist, or at least not hinder this pursuit? That would be a basic philosophical difference. Economists, as I see it, would argue that the government has no role to play in happiness. Give people the choices, and if they spend their entire lives stressed and poor, that it their own fault, the had the choice. I I would say differently. People in the UK and Canada are much happier with their healthcare system, and why should this happiness not factor into the equation? Why can’t the money saved be one consideration, while the happiness of the populace is another?
You can prioritize your life in many ways:
Life, Liberty, the Pursuit of Happiness
Life, Liberty, money, power, the variety of other things economists tend to prioritize, and THEN pursuit of happiness.
Or, the pursuit of others’ happiness and liberty, life, personal liberty, personal pursuit of happiness
But that last one is, of course, sacrilege to economists. They don’t seem to believe that anyone would do anything except as it benefits his/herself.
LIFE IS SHORT, try to enjoy it. and just let others enjoy it.
You can’t take it with you.
Regardless of the arguments for or against government run health care, which indeed there are many on both sides, what it boils down to for me is that it requires force and the stripping away of individual liberty. Our system is crap, sure — but that’s because it’s not nearly a free market system. It’s a hodge podge of government intervention and crony capitalism and it doesn’t really make sense to use American health care as an example of free market profit making.
A great example of an affordable, well-run health care system with minimum government involvement can already be found in Singapore.
@ disgusted That is crap. Health outcomes are better under government run systems? Please. Do your research. There is no empirical evidence that suggests better survival rates for diseases or procedures overseas compared to the US. In fact, just the opposite- the US has the highest cancer survival rates in the world,especially for breast cancer (83.9 %), prostate cancer (91.9%), and colon cancer. Not to mention the demonstrable inferiority of technology, treatments, drugs, etc. in other countries, and the longer wait times and shortage of doctors. Yes, they spend less, because they provide less care.
The reason people live longer overseas is because 1)They’re not as obese 2)They have lower homicide rates 3)They have lower traffic accident fatality rates, and 4)They take better care of themselves in general. It has nothing to do with the quality or extent of care they receive.
Getting the private sector out of health insurance would be a disaster. Can you imagine one giant bureaucracy making health care decisions for 300+ million people? That’s 4-5 times larger than the systems of any European system, and almost triple the size of Japan’s. Everyone, regardless of individual needs, would get the same policy, limiting options and intruding on people’s lives. There would be lower pay for doctors, interference in medical decisions that would hinder doctors’ ability to practice medicine, and numerous other problems that would drive doctors out of the field, creating shortages. And, there would be no profit motive or competition, meaning care would not improve (or be very good to begin with).
Single payer systems spend less money on medical research, meaning medical advances (which the US crushes the rest of the world in, as evidenced by Nobel Prizes in medicine, new patents, and the size of its pharmaceutical industry) would stagnate, and the US pharmaceutical industry (71% of the world market) would collapse, meaning less medicine for everyone, not just Americans.
Horror stories also abound in European and Canadian medicine that rival the most lurid stories in Sicko.
In the UK, “Seriously ill patients are being kept in ambulances outside hospitals for hours so National Health Service trusts do not miss Government targets. Thousands of people a year are having to wait outside accident and emergency departments because trusts will not let them in until they can treat them within four hours, in line with a Labour pledge. The hold-ups mean ambulances are not available to answer fresh 999 calls. Doctors warned last night that the practice of ‘patient-stacking’ was putting patients’ health at risk. Figures obtained by the Liberal Democrats show that last year 43,576 patients waited longer than one hour before being let into emergency units….Liberal Democrat health spokesman Norman Lamb is writing to health secretary Alan Johnson to demand an urgent investigation in the practice….‘This is evidence of shocking systematic failure in our emergency services,’ he said.”
A man in Canada was told he would have to wait 5 years for a physical, so like tens of thousands of other foreigners, he went to the US to get it, choosing to pay out of pocket.
In Britain, 1,000,000 people who desperately need care are on waiting lists for hospital admission, and 200,000 are on waiting lists for waiting lists. 100,000 procedures are canceled there each year, and here is a source that shows Americans who don’t die in homicides or car accidents actually outlive their Western European counterparts:
Robert L. Ohsfeldt and John E. Schneider, The Business of Health:
The Role of Competition, Markets, and Regulation, Washington,
DC, AEI Press, October 3, 2006, http://www.aei.org/publications/
spubID.24974,filter.all/pub_detail.asp; David Gratzer, “A Canadian
Doctor Describes How Socialized Medicine Doesn’t Work” Investor’s
Business Daily, July 26, 2007, http://ibdeditorials.com/IBDArticles.
aspx?id=270338135202343
As for insuring the uninsured in America:
1) 10 million of the uninsured aren’t US citizens
2) 18 million make $50,000 or more a year, but choose not to purchase insurance because restrictions and regulations make it more expensive
3) 14 million qualify for Medicare, Medicaid, or SCHIP but aren’t enrolled.
There are roughly 8 million people who are truly unable to obtain any form of insurance, and only around 100,000 are denied insurance each year. 18,000 people die each year from lack of health insurance.
To remedy this:
1) Replace restrictions on out-of-state health insurance and mandates states place on health policies such as coverage for acupuncture and breast enhancement, which in some states must come on all policies. In Kentucky, it is possible for a 25-year old man to buy insurance for $960 a year, while in New Jersey he would pay at least $5,580 because of its excessive mandates and restrictions. This, as well as allowing people to buy “catastrophe only” policies or other policies tailored to their individual needs, would give young, healthy people the incentive to buy insurance rather than go without (as they are a large percentage of the uninsured), and would lower prices enough to allow those who can’t currently afford insurance or qualify for Medicaid afford it.
2) Encourage HSAs and other inexpensive health plans, and give states the ability to experiment with their Medicaid programs to allow flexibility and improve service. Also, enroll everyone who qualifies.
3) Malpractice and tort reform to stop defensive medicine and unnecessary testing that drives up costs and physicians’ fees.
4)End the tax preference for employer provided health insurance which masks costs from consumers, driving them up, and ties insurance to employment- meaning people lose their insurance when they lose their jobs.
5)Create a nationwide exchange (not state-wide) for people with pre-existing conditions and prohibit insurers from denying service to those with pre-existing conditions.
These reforms would lower costs of both treatment and insurance, would give consumers and doctors control over health decisions, and would not come at the expense of consumer safety. Nationwide regulations prohibiting fraud and denial of service to customers, etc. could be enacted to protect people without a full government takeover. People would be able to find affordable insurance and be protected from major catastrophes.
These reforms are plausible, simple to enact, and would not harm the vulnerable in any way. They would also preserve individual freedom and not make people dependent upon or subservient to an aloof, impersonal, bureaucratic state.
“Socialism, like the ancient ideas from which it springs, confuses the distinction between government and society. As a result of this, every time we object to a thing being done by government, the socialists conclude that we object to its being done at all. We disapprove of state education. Then the socialists say that we are opposed to any education. We object to a state religion. Then the socialists say that we want no religion at all. We object to a state-enforced equality. Then they say that we are against equality. And so on, and so on. It is as if the socialists were to accuse us of not wanting persons to eat because we do not want the state to raise grain.”
— Frédéric Bastiat (The Law)
Just a commentary on the frequent assertion by welfare-statists that if something needs to be done (help the poor, improvement of community or societal problems, etc.) that the government must do it. I am ideologically opposed to welfare-state type measures in general because instead of raising the needy up to independence and self-sufficiency (which the wealthy already have), they foster dependence and restrict people’s choices.
Individuals will help others and form community groups without government urging, and the aid these groups and individuals provide is flexible, personal, and more efficient because it is closer to the action, so to speak.
@tdp
Do you want to maybe tell us where you got all the information you posted? It becomes a rather one-sided argument when others can’t at least look through the studies themselves.
@tdp
You say you prefer community groups to provide services to the poor. While I don’t disagree that there should be private community groups, do you think this would be a completely effective system? It seems to me that most economists like the idea of private service in theory, but are many actually involved in this service? Or do they expect others to do it? That would be one of the problems with voluntary service, everyone will expect someone else to do it, and then it falls to the few people who feel passionate about the issue and would prefer attempting to save the world to living a comfortable lifestyle – also defying the economist’s believe that everyone will do only what is rationally best for his/herself.
@Me
It’s obvious that your welfare-statist mindset interferes with your ability to understand what others have written.
Why do you assume that community service must be provided by altruistic, selfless people who “would prefer attempting to save the world to living a comfortable lifestyle”? There may not even be any people like that, so it doesn’t work.
As tdp pointed out, people will help others and form community groups because it is mutually beneficial to all who do so. This is otherwise known as ‘people acting in their own self interest’.
It’s a good idea to ask yourself how people dealt with societal problems before there WERE government programs. In every case, the answer is mutual aid societies, community groups, churches, and other voluntary groups of people with similar needs and concerns.
Here’s a good place to start looking at this idea.
http://en.wikipedia.org/wiki/Benefit_society
Note especially the references available for further enlightenment. I highly recommend the two books by David T. Beito.
You asked about tdp’s sources. As you can see, one of them is Frédéric Bastiat’s “The Law”. I would highly recommend that you read that classic in its entirety. Also, please notice the two links tdp has also provided for reference. If you were to avail yourself of the information made available to you, perhaps you too could write thoughtful, informative comments like tdp has done, instead of asking people where they got their ideas.
@tdp. I am prepared to accept that USA healthcare is as good, and in some areas is better than the healthcare in other parts of the world. The trouble is, that Americans pay so much more for such a slight improvement. I do not believe that most Americans would really think this tiny improvement was worth the extra money. I think most would probably jump at the chance of paying only 50% of their healthcare costs for UK, French, Japanese or Canadian healthcare standards.
You point out that the USA system is not a free market system. I agree. The big problem is that it seems very difficult to get to a free market system. I concede that a prefectly working free market should produce the best outcome. However, we do not know that it is possible to get a free market system, even in principle. Individuals’ choices must be rational and consistent. We have seen from some of Steve’s very challenging and entertaining puzzles that individuals seem to make mistakes in their choices. It seems very likely that they will make these mistakes in complex, life-long choices about healthcare. This would make a perfectly operating system impossible, even in principle.
But what if these mistakes are not so serious, can we get a good enough operating system to give sufficient benefits? You talk of Singapore, where possibly this is close to reality, although it is a very small country. Instituting the reforms you mention would go some way towards this. However, instituting these reforms without other unseen costs would be a stunning political achievement. “Malpractice and tort reform” may meet a few vested interests along the way, as would the others.
I have said before there are many ways to run a healthcare system. Three of these are:
1) A totally free market one, which may provide the best outcome, but may be impossible.
2) A social model, which has been proved to work quite effectively in many countries, or
3) Whatever you may call the current USA system.
It may be that the best *achievable* option is the social model.
@Me
“That would be one of the problems with voluntary service, everyone will expect someone else to do it”
You would think, though, that this might become a moot point when you can already muster the democratic plurality necessary to see that policy to fruition. That is unless we’re operating under the illusion that all the wealthy fall on one side of the political fence and all the poor fall on the other side.
You’re right Harold, it may be the best achievable method. The problem is that glaring, “may.”
Not a single one of us has done, or has looked at, a serious evaluation of what would be the best system. Beyond this, there are a myriad of misinformed people out there spouting out the most ridiculous things.
The best that I have is knowing that around 24% of the reason why healthcare costs are so high in the United States is because of outpatient care – and that may be necessary spending.
Yet I still hear people on the news talking about how malpractice is running ramapant, “Don’t blindly trust the doctors!” The problem is that malpractice is but a tiny fraction of why our costs are so high.
So the radical wackos come out to blather their amorphos, metaphysical viewpoint without seriously looking into the situation. Then the majority of the attention gets put on them because they’re the crazy doomsday predictors everyone loves. Finally the circle of metaphsical myths continue.
@harold
Explain to me situations in which it is in the best interest of both parties to engage in and support community service? Mutual aid societies tended to assist only people that the benefactors felt some affinity to (usually of the same ethnic group). Do you think this is the best method by which to deal with the problems of today? As I believe Landsburg has stated on his blog before why should it make more sense to care about a stranger in another city as opposed to a stranger in China? How should this work with mutual aid societies? Mutual aid societies are the based on assumed affinity, but there is not actual relationship there. If these people are assumed to be strangers, as Lansburg seems to hope, then what cause would anyone have to try to help them?
And altruistic people do exist, they are rare, but they do exist. Economists cannot fathom it because they cannot imagine people who think differently than themselves.
Tdp QUOTES numerous anecdotes. Generally, when one quotes something, they should cite their quotations so that one can discern the point of view, and factuality, of the original author.
Also, in your comment directed at tdp, you state that people’s choices must be rational and consistent, and if they don’t it’s a “mistake.” I think this is where we differ more than anything else (although you might think that my welfare mindset is a bigger different). Why must people act rationally? And by calling not acting rationally a mistake, you are therefore assuming that someone who doesn’t act rationally is wrong? This seems misguided to me. Economists and others like them might do things only in the most rational manner, but that is not true for most of the people that I have met. If we call anything irrational a mistake, then most people could call their entire lives mistakes. Those times that they do act rationally we could call happy accidents. People do things for a variety of reasons and don’t always stop to think about it. If you need food NOW, that might lead you to make some stupid choices that are not the most rational, but feed your most basic desire at that moment. How can you account for that in a theorem? Also, assuming that everyone should and (eventually) will think in the exact same rational way will lead to a very boring world, and I don’t agree that it will make everyone all the more prosperous.
sorry, for whatever reason I thought Harold wrote both posts below my first one. The first part of my message is to Ron, the second part is to Harold.
@Me
“@harold
Explain to me situations in which it is in the best interest of both parties to engage in and support community service?”
I take it you didn’t read the Wiki reference I gave you; it would have helped answer this question. I will provide you with examples, and some links, but you will have to follow them yourself, as there isn’t room here, nor do I have time, to explain in detail to you. Where I have cited Wikipedia, note that it’s only intended as a general introduction, and you should check the references provided for further information. I will post the links at the end, so as not to distract you from the rest of this comment.
“Mutual aid societies tended to assist only people that the benefactors felt some affinity to (usually of the same ethnic group). Do you think this is the best method by which to deal with the problems of today?”
Yes, I do. What’s wrong with that? Do you favor “Multiculturalism”, and “Diversity”? If so, you must also agree with the idea of people joining together to help others like themselves.
“Mutual aid societies are the based on assumed affinity, but there is not actual relationship there. If these people are assumed to be strangers, as Lansburg seems to hope, then what cause would anyone have to try to help them?”
If I understand this correctly, you are asking why people would consider helping someone they have nothing in common with, living far away, and the answer is that they wouldn’t. All of us do share our humanity in common, however, and most of us are generous and caring. We are willing to help those who are in immediate need, before asking how they are like us. Those far away who are not like us, may also belong to a group whose members care for their shared needs, and it’s not necessary that we all, collectively, concern ourselves.
“Generally, when one quotes something, they should cite their quotations so that one can discern the point of view, and factuality, of the original author.”
I agree; but do you wish to know the source so that you can determine ahead of time whether or not you will read what’s presented? I sort of get that from your wording, but I could be mistaken.
You may be having trouble because you don’t read carefully, and don’t pay attention, as evidenced by your confusing me with Harold. But since you did, I will respond to some things you directed at him:
“Why must people act rationally?”
You may misunderstand the meaning of the word “rational”. People act rationally by deciding what choice or course of action is in their best interest, given the circumstances. (I know, you think self interest is evil)
“If you need food NOW, that might lead you to make some stupid choices that are not the most rational…”
But, eating now IS the rational choice. You have weighed starving against the possible future consequences of your actions, and you have rationally decided that surviving now is more important than avoiding possible punishment in the future. Most decisions we make are similar to this, although few are this dire.
And, I don’t think a boring world is something we need to be very concerned about.
Here are the references I promised you:
Independent Order of Foresters
Some interesting background on IOF
Elks
Moose
Landsmanshaft
Sons of Italy
This list is far from exhaustive, but I’m getting tired of typing. You should get the general idea from these. Note especially those groups that helped immigrants adapt and succeed in America during earlier times.
For much more on this, I again suggest This great book. At least “look inside” to get an idea what it’s about.
Keep in mind also, that labor unions, credit unions, the AMA, the ADA and others are examples of “mutual aid societies” organized to promote the common interests of their members.
Isn’t the main response to PK that he seems to be saying there is nothing that can be done about health insurance? Perhaps you should just demand he specify what he thinks its cost is going to be in a best case, worst case and reasonably likely case scenario and explain how he calculated each on?
«Mutual aid societies tended to assist only people that the benefactors felt some affinity to»
I am at odds as to how this post has led to a discussion on mutual aids, and I sure am not going to read all the comments. ;)
Anyhow, Mutual Aid, as the name points out, was not charity. It’s quid pro quo. You help me today, and I will help you tomorrow. They also served a social function, but let’s ignore that for now. The only reason why people tended know each other within the smaller ones was to mitigate moral hazard, the suspicion of people taking advantage of the fund.
@Me. I meant that for there to be a *perfect* market system, the actors must be rational, consistent and informed. Economic models do not work well if the actors are irrational, uninformed and inconsistent. In some of Steve’s posts, people often react one way initially, then when it is explained, they “get it” and say they would now act differently. We know that people are not entirely consistent because they react differently to the same choice put in different ways (the “framing effect” http://en.wikipedia.org/wiki/Framing_effect_%28psychology%29 ). One of the explanations offered by Steve is that people sometimes make mistakes. I agree that this is at least part of the explanation. We could put it another way, that they are not completely informed.
In summary, I think that the assumptions underying the economic model are not entirely correct. I would think that everyone would agree here, that at least to some extent people do not act in the way assumed by the models – otherwise no-one would answer A then B (an example of earlier puzzle). Where we may differ is in how large that discrepancy is, and to what extent it invalidates the model. In the case of healthcare, the big issues are consistency (across life), rationality and knowledge. As healthcare choices are likely to be very complicated, and extend over entire lifetimes, I think the chance of making the type of “mistake” illustrated by the puzzles is quite large.
This does not mean the economic model is useless, just that we must be very careful when applying it. It may be that the “free” market is not the best way to get to where we wopuld like to be.
@Harold: In nearly three decades of running economic experiments with human subjects, I do agree that individuals regularly violate predictions of models. That is, of course, why we empirically test models. Now, individual variations don’t necessarily prevent a marketplace of individuals from reaching that predicted by models. Heck, I have seen markets converge regularly to an equilibrium price that I find difficult to calculate (and I’m sure none of the subjects can calculate).
My colleagues see similar variations in individual behavior. But, I will note that I have never met an experimental economist who isn’t a strong supporter of free markets (although, I’m sure some exist). You see the beauty of how well they work on a regular basis.
David Wallin: very interesting point – the model that assumes certain individual behaviour still works even if the individual behaviour varies from that assumed. This could happen if the variations were insignificant – the model is robust to these variations. Alternatively, random variations would cancel out. Problems would only occur with large, systematic variations. I am sure that economic systems are fairly robust, and hence they do seem generally to work very well. What concerns me is if the experiments are of necessity stripped down versions of the real world. If this were the case, then large systematic variations that may be present in the world could be absent from experiments. These could have very significant effects. I am sure that these things are considered in the experiments you talk of.
Morten et al…
We have evidence for market efficiency in many areas that have not be distorted by government controls, price incentives or employer-employee-tax errors in social policy — cosmetic surgery, and vision generally including glasses and laser correction.