Month: July 2009

Examples of free market health care

There are, however, no examples of successful health care based on the
principles of the free market, for one simple reason: in health care,
the free market just doesn’t work.

That's Paul Krugman.  I would frame this point a little differently.  There are in fact plenty of people who buy their health care in a more or less free market setting, most of all in Latin America but all over the world.  It's far from obvious that these markets fail in efficiency terms ("compared to what?" is the obvious follow-up).  For the wealthy in Latin America these markets seem to work well.  They work much less well for the poor but is that because of market failure or because these poor simply don't have much money to spend?

One possibility is that the main problem with these markets is distributional rather than efficiency.  (Krugman's third paragraph recognizes this, but he doesn't use the point to reorganize the analytics of his critique.  Also note some tricks.  When markets fail at providing insurance, ex ante this is a possible efficiency problem but ex post it will be a problem of distribution.)

Another way to state the health care problem is this: once we try to obtain distributional objectives, supply becomes less efficient.  That understanding might focus your attention on a voucher-like system, combined with deregulation. rather than government interference in provision.  Another option is for government to provide nudges to have better monitoring of HMOs or insurers, to make them more trustworthy.  Or maybe catastrophic-only insurance, to overcome the distributional problem where it is most severe.

You can understand the French system by citing the incentive for overtreatment and now we are back to the possibility of efficiency being the primary problem.  If you limit overtreatment, by organizing doctors into poorly paid, fixed salary co-ops, you keep costs down and make some parts of the distribution problem easier to solve. 

There are plenty of health care services in this country, such as laser
eye surgery
, or plastic surgery, which are supplied in more or less
market settings.  I don't consider their efficiency an open and shut case, but it's quite possible we'd be delighted if other areas of health care worked this well in terms of cost-lowering and innovation and even availability.  It could be that these services are more transparent or it could be they are simply less regulated and further removed from third-party payment.

Read this post of Bryan Caplan's and ask yourself whether the Arrow problems are in fact what motivate most of the health care intervention we observe in the U.S.  Maybe France is the country which took Arrow seriously.

It makes a difference whether you view the case against the market as starting with issues of efficiency or distribution and usually those concepts are jumbled together.

Sometimes I wonder how wealthy we all would have to be before we could just pay cash for our health care.  I call this the Pablo Escobar solution.  It's a long way away but is it imaginable at all?  Does it recede as we approach it?  Do we have to give up some distributional objectives to ever get there?  Do we simply embrace it when the poverty line is defined as standing at $200,000 a year?

Akst on Organ Buying and Selling

Daniel Akst has some good questions:

It's illegal in this country to buy or sell organs for transplant. This is an unjust law made and enforced by people who desperately need neither organs nor money. It condemns kidney-disease sufferers to death and potential organ donors to poverty. It's a law that I will unhesitatingly break if one of my children needs a kidney, and I hope you will have the decency to do the same if a member of your family is in a similar situation.

…The unearned piety of those who condemn these transactions strikes me as outrageous. If someone has the right to abort her own fetus, why does she not have the right to sell her own kidney? By what authority does the state tell me I cannot save myself or my family members by paying money I earned to a willing seller of a surplus item?

Assorted links

1. Critique of "the neg" — a long post.  Does it really make the woman feel bad?  (She might feel she is receiving attention from a high-status man.)  Still, I believe it is a suboptimal path to a happy marriage.

2. Via Chris Masse, open source won't do it, so abolish academic copyright.

3. Scott Sumner and John Cochrane, discussing monetary policy, self-recommending and indeed recommended (highly).

4. Via JM, Miss Teen South Carolina, on economics (SFW).

5. Via Jeff Sommer, review of the new Thomas Pynchon.

My favorite things Mars

This was a reader request, so here goes:

1. Song about: Venus and Mars, by Paul McCartney and Wings.  The melody is nice, the synthesizer is used well, and the song doesn't wear out its welcome.

2. Album about: David Bowie's Ziggy Stardust and the Spiders from Mars. Venus and Mars is not overall a good album; it is mostly dull and overproduced.  So Bowie is a clear winner here.

3. Novel about: The Martian Chronicles, by Ray Bradbury.  Worth a reread, especially if you first encountered it when young.  Red Mars by Kim Robinson is a runner-up.  What else am I missing?

4. Film about: Mission to Mars.  Underrated de Palma, much better on a big screen, where it has a nice poetry of motion.  I already know that some of you hate this movie, so there is no need to pillory me again on this count.  I have never seen The Eyes of Laura Mars.  What's that old science fiction movie modeled after The Tempest?

5. TV show about: Veronica Mars, especially season one.  Excellent dialogue, and it asks what family really consists of.  One of my favorite years of any TV show.  Is the British show Life on Mars good?  I vaguely recall My Favorite Martian from when I was a kid.  Was it actually about being gay?

6. Musician: Sun Ra.

7. Mars, painting of:  Jacques Louis David probably wins this oneThis image is from Pompeii.

8. Best Cato Institute essay about Martian economics: By Ed Hudgin.

The bottom line: It's not just a culture, they've got a whole planet to work with.

The mass sterilization of half of humanity

Bill, a loyal MR reader, asks:

A freak solar event "sterilizes" the half of the planet (people, animals, etc) facing the sun. What happens?

Putting aside, the "which half" question, I would predict the collapse of many fiat currencies and the immediate insolvency of most financial institutions.  Who could meet all those margin calls?  Unemployment would exceed 20 percent and martial law would be declared, food rationing and guys with rifles on street corners.  The affected countries would take in larger numbers of immigrants, especially young immigrants from poorer countries, to keep their societies going and to use and maintain the still-standing capital stock.  Many of those immigrants might be better off in the longer run, especially if they could internalize the norms of the host country by the time the original inhabitants perished.  If you let me "cheat," I'll postulate that genetic engineering is used to perpetuate the genes of the original inhabitants.

If a poor country were hit by this blast the eventual result probably would be mass starvation.  There is a chance that social order would collapse across the entire globe, due mostly to contagion effects, multiple equilibria, and bad expectations.

To some of you these mental exercises may seem silly.  Indeed they are silly.  But what's wrong with silly?  Such questions get at the stability of social order, the sources of that stability, and the general importance of demography and intergenerational relations.  Those are all topics we don't think enough about.  Because we're not silly enough.

Raising Rival’s Costs

Catherine Rampell at Economix is somewhat surprised that some employers have signed a petition supporting today's increase in the minimum wage.  Put aside the fact that this so-called petition is coming after the law is already passed–can anyone say cheap talk–it's really not surprising that some employers support the minimum wage.  Rather than a violation of Econ 101, as Rampell suggests, it's more an implication of Econ 101.  Simply take a look at why the employers say they are supporting the law.  Uniformly the responses go like this:

Social justice, honest day's labor, inequality…. followed by:

I have always paid above minimum wage.

I’m a small business owner but don’t have any minimum wage employees, nor would I ever.

I’ve always paid my workers, even unskilled laborers, more than minimum wage …

I’m one of those businesses that supports a so-called “living wage” and refuse to pay less than $12/hour…

Note that I don't think that these employers are being dishonest in their support for "social justice" but I do think that it's easy to be in favor of the minimum wage when it doesn't cost you anything. 

Indeed, these employers will benefit from an increase in the minimum wage because it will raise the costs of their rivals.  This is why unions have typically been in favor of the minimum wage even when their own workers make much more than the minimum.

Finally, note that the opinions of employers are quite irrelevant as to the effects of the minimum wage.  

When to stop reading a book

Kelly Jane Torrance has a very good article on this question.  This part is quoting yours truly:

"People have this innate view – it comes from friendship and marriage –
that commitment is good. Which I agree with," he says. That view
shouldn't, he says, carry over to inanimate objects.

It's not that he's not a voracious reader – he finishes more
than a book a day, not including the "partials." He just wants to make
the most of his time.

"We should treat books a little more like we treat TV
channels," he argues. No one has trouble flipping away from a boring

There is more:

"If I'm reading a truly, actively bad book, I'll throw it out," he
says. His wife will protest, but he points out that he's doing a public
service: "If I don't throw it out, someone else might read it." If that
person is one of the many committed to finishing a book once started,
he's actually doing harm.

Mr. Cowen, who says he couldn't finish Alexandre Dumas' "The
Three Musketeers" or John Dos Passos' "U.S.A.," offers a more direct
economic rationale. He notes that many up-and-coming writers complain
they can't break through in a best-seller-driven marketplace. "We're
also making markets more efficient," Mr. Cowen says. "If you can sample
more books, you're giving more people a chance."

Tall people are happy

Here is the abstract to a new paper by Angus Deaton and Raksha Arora.

According to the Gallup-Healthways Well-Being Index daily poll of the US population, taller people live better lives, at least on average. They evaluate their lives more favorably, and they are more likely to report a range of positive emotions such as enjoyment and happiness. They are also less likely to report a range of negative experiences, like sadness, and physical pain, though they are more likely to experience stress and anger, and if they are women, to worry. These findings cannot be attributed to different demographic or ethnic characteristics of taller people, but are almost entirely explained by the positive association between height and both income and education, both of which are positively linked to better lives.

 Now if I were in favor of redistribution

One reader request

Tim Gray asked:

You rarely write about race, yet I can't help but wonder–as a fellow
prof and a social scientist–what your thoughts are about the Henry
Louis Gates flap in Boston and what, if anything, you think it says
about the larger questions of race relations and psychology of

My view is simple: everyone involved will come out of the "flap" looking worse.  Most of all, engaging with the incident has been one of the few major tactical mistakes of the Obama Presidency.  Presidents (and many others) make big mistakes when they "respond" to people with much lower status than themselves, in this case the policeman and his ilk.  The net effect is to lower the status of the Presidency and this will prove especially important when Obama is trying to pass a controversial health care plan.  Today he looks less "post-racial" than he did a week ago and although it was only one slip it won't be easy to reverse that.

On the substance of the altercation I do not know the details but some time ago we decided, for better or worse, to give policemen a lot of discretion in intimidating individuals, including innocent individuals and especially African-Americans.  I don't think we chose an optimum but it is disingenuous to be suddenly shocked by what happened.

One reason I don't cover "race" more is because it often doesn't make for a very good discussion in the comments.  It's also hard to add to the material covered on other blogs.  It is a topic I read a good deal about, especially in the areas of the history of slavery, race and popular culture, race and sports, the economics of discrimination, and the history of Africa.  But I don't expect to do a lot of blogging in these areas anytime soon, interesting though they may be.