A quick recap
I believe that conservative healthcare proposals are going to involve some type of “vouchers.” For instance, we might end Medicare as a direct payment from the government to your doctor. Instead, we give everyone 65 and older a voucher to purchase health insurance. The theory is that when ordinary people, acting as healthcare “consumers,” buy health insurance, they will negotiate the best deal possible, which will reduce the costs of healthcare and increase its quality. In order to argue against this approach, you have to first understand why it might work.
So, in Part 1, we looked at a market for hats, and we found that each individual trade results in more net happiness, because the win/win trades that happen in markets make each trader happier, without increasing the goods needed to trade, the hats. Our measure of success comes from adding up the individual happiness for each individual. When the change in the sum of individual utility is positive, then you have a morally good thing. Your people, at the level of the individual, are happier.
In Part 2, we looked at the dark side of this result. Poor Ed, with his head condition, is going to die because no one will trade with him for a protective hat, no matter how much we want this to happen. That is because there is no “we” in the marketplace.
And when someone gets dealt an untradeable hat, of solid lead, there is nothing they can do to trade their way out of their poverty. That is because markets overweight the prevailing distribution of resources.
In Part 3, we identified the third fundamental flaw of markets – they turn the intrinsic into the instrumental. There is a difference between driving a friend to the airport or being a taxi driver and doing the same thing. In other words, motive counts. For instance, in healthcare, there is a difference between taking care of people in order to make money, as do for profit hospitals, or making money in order to take care of people, as do mission driven not for profit hospitals.
We are getting closer to our conclusions, but we still need to understand something important about how markets work. For that, we propose a market for bicycles.
Two bicycle producers
Assume we live in a marketplace that has exactly two bicycle producers, Afshan and Gabby. Afshan produces a very good bicycle, and sells them for $800. Gabby produces an absolutely wonderful bicycle for the same $800. Afshan is a good producer, but Gabby is more efficient, because she produces a great bicycle for the same amount of money.
Which bicycle would you buy, the good one or the great one?
Right, even Afshan would probably buy a bicycle from Gabby. So, very quickly, Afshan is removed from the market, as everyone buys their bikes from Gabby. Now, what does Gabby do? Well, she has control over price, which is the technical definition of “monopoly.” There is no price pressure on her anymore. As would anyone, Gabby raises her prices.
In fact, since she is now making so much money from each bicycle, she decides to open up other factories, because it is worth her investment to double or triple her production.
This is a good thing, because it increases production by the high efficiency, high quality bicycle producer. Gabby hires lots of people to work in these new factories, and we all benefit from having better bicycles available. Ii is a good thing for the society as a whole when efficiency and quality are rewarded.
If you follow the story so far, you now have gotten to the point of understanding the underlying theory of “trickle down” economics. When we reward the productive people at the top, the benefits accrue to us all as they trickle down.
Of course, the story might have ended there if we were talking about America in the Fifties. Rewarding the “job creators”of the 1950's with special deals and tax cuts made work in manufacturing for many, many people, and the middle class (thanks, in part, to unionizing) grew in size and wealth. This is what Obama means when he says we grew the country outwards from the middle, rather than from the top down.
It’s not the Fifties anymore
But this isn’t the Fifties. At some point, Gabby’s brother-in-law comes to her and says “Why are you doing your manufacturing in Chicago? The union wages are killing you. You should move to Tennessee.” A couple of years later, the brother-in-law talks Gabby into moving again, this time oversees. The wealth might be trickling down, but it is doing so in sweat shops in China or Viet Nam, not in Illinois or anywhere in America. The people at the top continue to make millions, but the benefits are no longer “on shore.”
It doesn’t stop there. A couple of years ago, Gabby’s brother-in-law tells her that she is a fool for trying to make money in manufacturing. The big money, he tells her, is in derivatives. He convinces her to sell her bicycle factories to a foreign entity and put her money into the financial market.
So, now the riches made from bicycles accrues to the foreign owners, and the jobs go to poor Chinese. And Gabby is now making more and more money trading paper fantasies, which make her richer and richer, and provide no benefits for the rest of us.
Three concepts
This story illustrates three important concepts: “the invisible hand,” “consumer sovereignty,” and “voodoo economics.”
Note that we didn’t need a study or a committee or a bicycle commissar to decide who to reward with our bicycle purchasing. The free market allowed everyone to make their own choices, and we rewarded the high efficiency, high quality bicycle producer, “as if by an invisible hand.”
When people say that we should empower the marketplace in healthcare, this is what they intend. If patients purchased their care from the high efficiency, high quality medical providers, healthcare costs would go down, and healthcare quality would go up. No need for government intervention; the “invisible hand” takes care of this.
However, that only works if the patients are the ones paying for the care. “Consumer sovereignty” is the notion that the quality, price and quantity of a good or service in a market is determined by the demand for those services. In a well-functioning market, with consumer sovereignty, the consumer will purchase the goods they want from whom they want, and that will set the price for the goods, as well as the quality that the consumer demands. And smart providers will manufacturer enough goods to meet demand, but no more than that. In our bicycle market, we all exercised our consumer sovereignty, and we drove the low efficiency, low quality producer out of the market, and rewarded the high efficiency, high quality producer.
But who actually buys healthcare? Do you or I? Nope.
About 60% of the people with insurance in the US get their insurance from their employer. Almost all the rest get their coverage through government (e.g., Medicare, Medicaid, the VHA, or the Children’s Health Insurance Program). Almost no patients actually buy their healthcare directly. (Millions of people have purchased insurance on the ACA’s exchanges. But they represent only two or three percent of the entire population.) So, patients are not the “consumers” in the marketplace. The healthcare “consumer” is actually our employers and the federal government, because they buy the healthcare.
And from whom do they buy healthcare? Mostly from insurance companies (although some government programs, like Medicare not run through a Medicare Advantage program, make payments directly to the healthcare providers). So, the healthcare “providers” are actually the insurance companies. Then, they sub-contract out this demand by contracting with healthcare professionals and hospitals and the pharmaceuticals.
You and me? We are merely wards of this system.
And the promise of all of that “trickling down?” Well, that is the “voodoo economics” that George H. W. Bush warned us about before he tossed his lot with Reagan in 1980. Now that we are no longer in the Fifties, there is no evidence that cutting taxes and making sweetheart deals for the rich benefit us all. It benefits the rich. And it encourages them to play fantasy economics in the financial sector, which makes them richer, and then causes millions of us to lose our homes and jobs when the unintended but completely foreseeable consequences of their games are realized.
Markets work, but only for some things
Markets do work, and they work well. . . for some goods and services. Would I want a government sponsored distribution of hamburgers? No, that is perfect for the marketplace. Probably bicycles as well. But should we treat healthcare as a market commodity?
Well, 32 of the 33 industrialized countries have asked that very question. And they answered “No, healthcare is a right, not a commodity or a privilege. Therefore, we can’t use markets to allocate it.”
Rights only exist at the level of “the community.” We talk of “individual rights,” but these are a function of what rights are recognized by the community. And they are only guaranteed by concerted action on the part of the community. Therefore, they must be allocated by the community. And the standard agent of the community is government.
Therefore, healthcare, these 32 developed democracies decided, should be allocated by government.
But that turns out not to end the analysis. Because there are problems with government systems, too. In fact, just as there are three fundamental flaws of every market, there are three fundamental flaws for every government allocation system. We need to look at those before we are able to finally examine the promise of healthcare vouchers.
That is our next topic.
Sunday, February 28, 2016
Monday, February 8, 2016
My heart says Sanders. But so does my head.
We are being told that even though our hearts are attracted to Bernie Sanders’ message, we should vote with our head, and support Clinton. Herewith is my head’s response for why thoughtful people should support Sanders.
It all comes down to what you think is necessary to address the public policy problems we face:
• a policy debate that has shifted dramatically towards the right
• a dysfunctional Congress dominated by right-wing rhetoric and moneyed interests not acting in the face of climate change, economic inequality, institutionalized racism, the need for real healthcare reform
• campaign financing rules that give the rich way too much access to policy debates
• an economic system that purports to build from the top down but merely lifts yachts
• the making of district boundaries that assure conservative control over the House for the foreseeable future
• a mindless national press corps that parrots the talking points of the oligarchs
• a Supreme Court dominated by manipulative ideologues
• political discourse that presents no room for a positive role for government
My heart tells me that Sanders could lead us in addressing these problems.
Will Clinton solve these problems?
So, my head wants to know — What do you think Hillary Clinton will do to solve these problems? In spite of her protests to the contrary, she is, of course, utterly a creature of the establishment. Made rich by courting the rich. Playing the games of Washington. Carefully triangulating every position. Yes, she is the first woman to come this close, but she is not someone who will change the substance or the ground of political debate. More of the same, but in a pants suit.
Hillary proposes to right the country’s wrongs by doing pretty much the same thing as has President Obama, only better. We have no evidence that she will do things better than he, but more importantly, neither he nor she seems to understand that playing the game inside of Washington, only more exquisitely, is not the solution to any of the above problems. These are battles that can only be won out among the public, building a social movement that will trump the establishment and its rich, conservative benefactors. Obama never understood that; Clinton doesn’t either.
Maybe she will do less well
And I think there is evidence that Clinton would do less well than Obama. It has to do with how good you are at chess.
Me, I am not a good chess player. I have difficulty thinking that far ahead. Move, counter-move, counter to that, and so on, ten or twenty moves down the road.
Yet that is exactly the strategic capacity we need in a president. To understand the nature of the real domestic political fight ahead of us. And to represent America in foreign policy by thinking deep into the moves and counter-moves of international strategy.
So, there is Clinton, serving as Secretary of State, knowing full well that she is going to be running for President in a couple of years, and she decides to handle her email on her own personal account. She must know that this is going to be just the sort of thing that will plague her during her coming campaign, yet she does it anyway. Or worse, she hasn’t thought it through far enough ahead of time. How could she do that? I don’t think she needs to apologize for using her personal email. The apology she owes us is for not thinking more strategically about the implications of doing so.
And there is Clinton, having left the Administration, now actively planning her race for president, but also ready to work with her husband in his successful efforts to cash in on their cache. She takes $225,000 from Goldman Sachs for each of three talks. And she doesn’t realize that this will be a problem when she is running? She hasn’t thought that far ahead? Or maybe she is so deeply acculturated to the corruption of Washington that she doesn’t even see the problem? “Well,” she offers, “that is what they offered me.”
And she gets taken by surprise when a reporter asks to see the transcripts of these talks. Come on now – didn’t she see that coming? I mean, I didn’t see that coming, but I am not running for president, either. We need better.
I want a president who is a whole lot better than I am at thinking through the deeper moves in strategic analyses. I don’t think Clinton is that person.
But that is not the point
But actually, this is a digression. Because the real reason she isn’t the right person is because we don’t need more of Obama. We need to do what he wasn’t willing to do, which is create a movement that goes “over the head” of the corruption in Washington, that empowers politicians to reconstruct our institutions and actually address our problems. Barack Obama made the mistake of not seeing this necessity. Nor does Hillary Clinton.
What is wrong with America is not a new thing. It has been forming for more than 50 years. The conservative movement has been strategizing, planning, building for decades. The fact that the center of gravity of our political discourse has moved so far to the right didn’t just happen. It has been a concerted effort, executed over many years by thoughtful people on a mission. A mission to delegitimize government, to play off of the anger of people frustrated by a changing economy, a changing culture, and a changing world. And to exploit racism as a political tool, as Southern politicians became the leaders of the new Republican Party after Nixon’s successful “Southern strategy.”
Not sure that is what really happened? Yet, this is the story told by Jane Mayer in A Dark Money: The Hidden History of the Billionaires Behind the Rise of the Radical Right and E. J. Dionne in Why the Right Went Wrong: Conservatism from Goldwater to the Tea Party and Beyond.
And Hillary Clinton is part of the problem, not the solution. She was an integral part of this history. By working with her husband to pull the Democratic Party to the right in the 90's, allowing the rightward current to carry them along, rather than acting as a counter-balance to that trend. And as a favorite dart board target for conservatives, distracting us and the public from facing our real problems, a dynamic which won’t stop if she is elected President.
A counter-revolution
Bernie Sanders is almost right when he asks us if we are ready for a political revolution. But what he really is proposing to lead is a counter-revolution, an attempt to bring things back to an equilibrium where government is seen as a positive force in the lives of Americans, not by excluding the market, but by accompanying it. Yes, some things are best left to the market to allocate, like hats and bicycles. But other things should not be “marketed,” like healthcare and
protection of our common resources.
A respect for government. That alone would be enough. After all, some of our problems are problems that exist only at the level of “community,” like justice, racism and environmental decay. These aren’t problems of the individual. These are problems that will only be solved by the community acting upon them. And the legitimate agent of the community is the government.
Yes, the Declaration of Independence emphasizes the right to life, liberty and the pursuit of happiness. But the next phrase is too often ignored: “That to secure these rights, governments are instituted among [people], deriving their just powers from the consent of the governed.”
What is needed is a social movement that moves us toward more justice, less prejudice, a respect for “waging peace.” A respect for the legitimacy of collective action, made possible through government.
This counter-revolution is what will be necessary to go “over the heads” of Congress and the Washington press, to confront directly the oligarchs. To succeed, this social movement needs leadership and intensity. Leadership must be based on authenticity and intensity will come from rousing people’s frustrations with the corruption of the present and their spirited belief in a better future.
What Sanders is saying
And Sanders has been saying exactly what that would entail:
Returning to a progressive income tax
Recognizing the right to healthcare
Reforming our campaign finance system
Redistricting that is non-partisan
Restructuring our energy production system
Building prosperity by supporting the broad middle of the economy, not rewarding the rich and hoping it will “trickle down”
Preparing to keep us safe in a violent world, but also becoming a voice of peace and justice in that world
Electing progressive Senators, Congresspeople, Governors and State Representatives around the country
My heart and my head
My heart is lifted by this call. But, in addition, my head is clear that Hillary Clinton will never achieve any of these things, not because she is a bad person, but because she is utterly a creature of the problematic present, not someone who can lead us into that future. She has neither the authenticity nor the vision to rouse our spirits.
Let me be clear about something. If Hillary Clinton is the Democratic nominee, I will work for and pray for her success. It would be far worse to have any of the current Republicans as president. And I am not oblivious to the danger of supporting Sanders.
But my head tells me that Hillary is no more likely to win than Bernie. Democrats have a substantial Electoral College advantage. And Sanders has shown himself to be a powerful political force. Will he be attacked as a Jewish, non-religious, socialist? Of course. But won’t Hillary suffer from the brutalizing that has marked her continuous battles with the right-wing?
If neither Sanders nor Clinton win, woe to us. But if Clinton wins, we will not heal the gaping wounds of our body politic. There are not enough bandaids to apply.
So, there it is. My heart tells me that Sanders is speaking truths of great consequence. And my head says that following those truths is the only way to promote justice and fight corruption, to reverse the rightward movement of our policy discourse, to relegitimize a balance between government and the market, to allow me to be proud again of our policy making.
Bernie Sanders for President. Sounds right.
It all comes down to what you think is necessary to address the public policy problems we face:
• a policy debate that has shifted dramatically towards the right
• a dysfunctional Congress dominated by right-wing rhetoric and moneyed interests not acting in the face of climate change, economic inequality, institutionalized racism, the need for real healthcare reform
• campaign financing rules that give the rich way too much access to policy debates
• an economic system that purports to build from the top down but merely lifts yachts
• the making of district boundaries that assure conservative control over the House for the foreseeable future
• a mindless national press corps that parrots the talking points of the oligarchs
• a Supreme Court dominated by manipulative ideologues
• political discourse that presents no room for a positive role for government
My heart tells me that Sanders could lead us in addressing these problems.
Will Clinton solve these problems?
So, my head wants to know — What do you think Hillary Clinton will do to solve these problems? In spite of her protests to the contrary, she is, of course, utterly a creature of the establishment. Made rich by courting the rich. Playing the games of Washington. Carefully triangulating every position. Yes, she is the first woman to come this close, but she is not someone who will change the substance or the ground of political debate. More of the same, but in a pants suit.
Hillary proposes to right the country’s wrongs by doing pretty much the same thing as has President Obama, only better. We have no evidence that she will do things better than he, but more importantly, neither he nor she seems to understand that playing the game inside of Washington, only more exquisitely, is not the solution to any of the above problems. These are battles that can only be won out among the public, building a social movement that will trump the establishment and its rich, conservative benefactors. Obama never understood that; Clinton doesn’t either.
Maybe she will do less well
And I think there is evidence that Clinton would do less well than Obama. It has to do with how good you are at chess.
Me, I am not a good chess player. I have difficulty thinking that far ahead. Move, counter-move, counter to that, and so on, ten or twenty moves down the road.
Yet that is exactly the strategic capacity we need in a president. To understand the nature of the real domestic political fight ahead of us. And to represent America in foreign policy by thinking deep into the moves and counter-moves of international strategy.
So, there is Clinton, serving as Secretary of State, knowing full well that she is going to be running for President in a couple of years, and she decides to handle her email on her own personal account. She must know that this is going to be just the sort of thing that will plague her during her coming campaign, yet she does it anyway. Or worse, she hasn’t thought it through far enough ahead of time. How could she do that? I don’t think she needs to apologize for using her personal email. The apology she owes us is for not thinking more strategically about the implications of doing so.
And there is Clinton, having left the Administration, now actively planning her race for president, but also ready to work with her husband in his successful efforts to cash in on their cache. She takes $225,000 from Goldman Sachs for each of three talks. And she doesn’t realize that this will be a problem when she is running? She hasn’t thought that far ahead? Or maybe she is so deeply acculturated to the corruption of Washington that she doesn’t even see the problem? “Well,” she offers, “that is what they offered me.”
And she gets taken by surprise when a reporter asks to see the transcripts of these talks. Come on now – didn’t she see that coming? I mean, I didn’t see that coming, but I am not running for president, either. We need better.
I want a president who is a whole lot better than I am at thinking through the deeper moves in strategic analyses. I don’t think Clinton is that person.
But that is not the point
But actually, this is a digression. Because the real reason she isn’t the right person is because we don’t need more of Obama. We need to do what he wasn’t willing to do, which is create a movement that goes “over the head” of the corruption in Washington, that empowers politicians to reconstruct our institutions and actually address our problems. Barack Obama made the mistake of not seeing this necessity. Nor does Hillary Clinton.
What is wrong with America is not a new thing. It has been forming for more than 50 years. The conservative movement has been strategizing, planning, building for decades. The fact that the center of gravity of our political discourse has moved so far to the right didn’t just happen. It has been a concerted effort, executed over many years by thoughtful people on a mission. A mission to delegitimize government, to play off of the anger of people frustrated by a changing economy, a changing culture, and a changing world. And to exploit racism as a political tool, as Southern politicians became the leaders of the new Republican Party after Nixon’s successful “Southern strategy.”
Not sure that is what really happened? Yet, this is the story told by Jane Mayer in A Dark Money: The Hidden History of the Billionaires Behind the Rise of the Radical Right and E. J. Dionne in Why the Right Went Wrong: Conservatism from Goldwater to the Tea Party and Beyond.
And Hillary Clinton is part of the problem, not the solution. She was an integral part of this history. By working with her husband to pull the Democratic Party to the right in the 90's, allowing the rightward current to carry them along, rather than acting as a counter-balance to that trend. And as a favorite dart board target for conservatives, distracting us and the public from facing our real problems, a dynamic which won’t stop if she is elected President.
A counter-revolution
Bernie Sanders is almost right when he asks us if we are ready for a political revolution. But what he really is proposing to lead is a counter-revolution, an attempt to bring things back to an equilibrium where government is seen as a positive force in the lives of Americans, not by excluding the market, but by accompanying it. Yes, some things are best left to the market to allocate, like hats and bicycles. But other things should not be “marketed,” like healthcare and
protection of our common resources.
A respect for government. That alone would be enough. After all, some of our problems are problems that exist only at the level of “community,” like justice, racism and environmental decay. These aren’t problems of the individual. These are problems that will only be solved by the community acting upon them. And the legitimate agent of the community is the government.
Yes, the Declaration of Independence emphasizes the right to life, liberty and the pursuit of happiness. But the next phrase is too often ignored: “That to secure these rights, governments are instituted among [people], deriving their just powers from the consent of the governed.”
What is needed is a social movement that moves us toward more justice, less prejudice, a respect for “waging peace.” A respect for the legitimacy of collective action, made possible through government.
This counter-revolution is what will be necessary to go “over the heads” of Congress and the Washington press, to confront directly the oligarchs. To succeed, this social movement needs leadership and intensity. Leadership must be based on authenticity and intensity will come from rousing people’s frustrations with the corruption of the present and their spirited belief in a better future.
What Sanders is saying
And Sanders has been saying exactly what that would entail:
Returning to a progressive income tax
Recognizing the right to healthcare
Reforming our campaign finance system
Redistricting that is non-partisan
Restructuring our energy production system
Building prosperity by supporting the broad middle of the economy, not rewarding the rich and hoping it will “trickle down”
Preparing to keep us safe in a violent world, but also becoming a voice of peace and justice in that world
Electing progressive Senators, Congresspeople, Governors and State Representatives around the country
My heart and my head
My heart is lifted by this call. But, in addition, my head is clear that Hillary Clinton will never achieve any of these things, not because she is a bad person, but because she is utterly a creature of the problematic present, not someone who can lead us into that future. She has neither the authenticity nor the vision to rouse our spirits.
Let me be clear about something. If Hillary Clinton is the Democratic nominee, I will work for and pray for her success. It would be far worse to have any of the current Republicans as president. And I am not oblivious to the danger of supporting Sanders.
But my head tells me that Hillary is no more likely to win than Bernie. Democrats have a substantial Electoral College advantage. And Sanders has shown himself to be a powerful political force. Will he be attacked as a Jewish, non-religious, socialist? Of course. But won’t Hillary suffer from the brutalizing that has marked her continuous battles with the right-wing?
If neither Sanders nor Clinton win, woe to us. But if Clinton wins, we will not heal the gaping wounds of our body politic. There are not enough bandaids to apply.
So, there it is. My heart tells me that Sanders is speaking truths of great consequence. And my head says that following those truths is the only way to promote justice and fight corruption, to reverse the rightward movement of our policy discourse, to relegitimize a balance between government and the market, to allow me to be proud again of our policy making.
Bernie Sanders for President. Sounds right.
Wednesday, December 30, 2015
Vouching for healthcare, Part 3
We have already discussed the two benefits of markets – efficiency and liberty. Win/win trades increase output, in terms of net happiness as measured at the level of the individual, by using the same inputs. And they allow us to decide freely with whom we will trade and for what.
And we have talked about two of the three fundamental flaws of markets. They overweight the individual over the group. No matter how much we want to protect the sick, markets have no mechanism for responding to that group-level desire; they only respond to individualistic interests. And markets overweight the prevailing distribution of resources, meaning that who will trade with whom is a function of what we each have to begin with . If you are stuck with the lead hat, no one will trade with you. There is no mechanism within a market to allow the poor to trade their way to wealth.
Now we look at the third fundamental flaw of all markets.
Favoring the instrumental over the intrinsic
If you were my friend, and you had a car and I didn’t, would you drive me to the airport? I think you probably would, if you had the time.
And when we got to the airport, and I pulled out $40 to pay for your time, what would be your response? If you were a struggling graduate student, you might say something like “Naw, just give me a couple of bucks for gas.” But would you take the money I was offering to compensate you for your time and effort?
Some of you might, but my guess is that the vast majority of people would not take the money. In fact, if I insisted, I would predict that most of you would feel somewhat insulted by the offer. “I didn’t drive you to the airport to make money. I did it because I was your friend, and you needed my help.” The motive for your efforts was the intrinsic value of friendship, not the instrumental value of making money. And, when I offered you the money, you felt badly by the reduction of that friendship into some kind of payback.
If you are an economist, you are probably thinking right now “Well, I would take you to the airport in exchange for the possibility that you might take me some place in the future.” Seeing everything as a matter of an exchange is one of the downsides of spending too much time studying markets, where everything is a trade.
Is that why you drove me, in order to have an option on my future energy to call upon? If so, then you would only pick friends with sufficient resources to make the friendship “worthwhile.” Is that how you pick your friends? I think not.
I remember sitting in a room filled with economists who were listening to a presentation by a budding economist who had discovered that women whose first child was a boy had gained 15 pounds more weight by the time they were forty than women whose first child was a girl. The question on the table was “Why is this the case?” The answer that most of the people in the room liked was that a women with a boy child had a stronger bargaining position vis-a-vis her husband, and so could “afford” to gain a bit more weight without threatening her position.
Really? I said. Is that how you all see marriage? When I questioned this theory, I was told by the roomful of economists that there is plenty of scientific evidence that marriage is just such a bargaining process.
While I believe strongly in the give and take that is marriage and while there is no doubt a lot of financial aspects of being married, I am not fond of thinking of it like a marketplace bargain. Isn’t something lost in the conversion of the intrinsic value of a marriage into the instrumental value of a financial bargain?
Yes. So, I believe that you answered my need because you are my friend, and you acted out of friendship, not because it was a good investment strategy.
What if you were a taxi driver?
OK, now imagine that you are a taxi driver, and you drive me to the airport. When we get there, I take your hand warmly and give you a big smile. “That was a great time,” I say, “let’s do this again soon. Maybe with the families next time?”
Sorry, but you want your $40. Not because you didn’t have a good time, and not because you don’t think I am a fine person, but because your motive was the instrumental value of “making a living.” You didn’t drive me to the airport because I was your friend, but because I was your customer in an exchange relationship.
And the point is that “Motive counts!” There is nothing wrong with being a taxi driver, but it is different from being a friend.
The motive behind Medicare
This is what we miss when we thoughtlessly decide to “privatize” programs that were otherwise motivated by concern for “the other.” In the middle part of the 20th Century, a large number of poor people in the US were the aged, struggling to meet their increased healthcare needs, and ruining their financial condition in the process. We passed Medicare in 1965 in part because we cared about these people and wanted to provide them a way to avoid poverty caused by medical need.
How cynical do you want to be? Because you can see the passage of Medicare as a step toward more governmental control over the economy, as a means of spending tax money to support hospitals and doctors, as a hand-out to the elderly by politicians who know that the elderly vote in disproportionate numbers, as a way for “forty-somethings” to avoid having to pay for Mom and Dad’s medical bills. In other words, you can interpret this action as an instrumentality; we passed Medicare for the elderly so that the rest of us could realize some gain.
But you can also see it as a caring effort by the community, through its agent, the government, to lift our parents out of poverty. And, at that level, Medicare has been a stunning success, as the elderly are no longer a large portion of the poor. And we ought to feel Good about that, the creation of our intrinsic commitment to that population.
The third fundamental flaw
So, when we privatize Medicare, as the right wing are proposing, we are taking that intrinsic value and turning it into an instrumental exchange relationship.
That’s the third fundamental flaw of all markets. Because the basis of all markets is “voluntary exchange,” they have no mechanism for valuing things for themselves (“intrinsic”) but only for what they can get you in exchange (“instrumental”).
Yet, motive counts.
Do you want to get your healthcare from a person or a hospital that you believe is motivated largely by the desire to care for you? Or would you get the same or better care from a doctor who was a shrewd bargainer and saw you as a means to make more money?
I propose that there is a difference between “Making money in order to care for people” and “Taking care of people in order to make money.” Sure, the caring doctor or hospital has to worry about the bottom line, but the making of money is the means to the end of caring. While the for profit hospital is using the provision of healthcare as a means to the end of profit.
Motive counts. And if markets only respond to the instrumental, then they are probably a poor choice for allocating healthcare motivated by the intrinsic desire to be a more caring society.
Getting closer
OK, we are getting closer to being able to apply all of this to a proposal to convert Medicare from a universal, single payer system for our elderly into a market-like transaction through issuing vouchers for the purchase of private insurance.
But first we need to spend some time talking about bicycles. Because markets only work if there is “consumer sovereignty,” and, in the next part blog posting, we will look at a market for bicycles in order to illustrate that point.
And we have talked about two of the three fundamental flaws of markets. They overweight the individual over the group. No matter how much we want to protect the sick, markets have no mechanism for responding to that group-level desire; they only respond to individualistic interests. And markets overweight the prevailing distribution of resources, meaning that who will trade with whom is a function of what we each have to begin with . If you are stuck with the lead hat, no one will trade with you. There is no mechanism within a market to allow the poor to trade their way to wealth.
Now we look at the third fundamental flaw of all markets.
Favoring the instrumental over the intrinsic
If you were my friend, and you had a car and I didn’t, would you drive me to the airport? I think you probably would, if you had the time.
And when we got to the airport, and I pulled out $40 to pay for your time, what would be your response? If you were a struggling graduate student, you might say something like “Naw, just give me a couple of bucks for gas.” But would you take the money I was offering to compensate you for your time and effort?
Some of you might, but my guess is that the vast majority of people would not take the money. In fact, if I insisted, I would predict that most of you would feel somewhat insulted by the offer. “I didn’t drive you to the airport to make money. I did it because I was your friend, and you needed my help.” The motive for your efforts was the intrinsic value of friendship, not the instrumental value of making money. And, when I offered you the money, you felt badly by the reduction of that friendship into some kind of payback.
If you are an economist, you are probably thinking right now “Well, I would take you to the airport in exchange for the possibility that you might take me some place in the future.” Seeing everything as a matter of an exchange is one of the downsides of spending too much time studying markets, where everything is a trade.
Is that why you drove me, in order to have an option on my future energy to call upon? If so, then you would only pick friends with sufficient resources to make the friendship “worthwhile.” Is that how you pick your friends? I think not.
I remember sitting in a room filled with economists who were listening to a presentation by a budding economist who had discovered that women whose first child was a boy had gained 15 pounds more weight by the time they were forty than women whose first child was a girl. The question on the table was “Why is this the case?” The answer that most of the people in the room liked was that a women with a boy child had a stronger bargaining position vis-a-vis her husband, and so could “afford” to gain a bit more weight without threatening her position.
Really? I said. Is that how you all see marriage? When I questioned this theory, I was told by the roomful of economists that there is plenty of scientific evidence that marriage is just such a bargaining process.
While I believe strongly in the give and take that is marriage and while there is no doubt a lot of financial aspects of being married, I am not fond of thinking of it like a marketplace bargain. Isn’t something lost in the conversion of the intrinsic value of a marriage into the instrumental value of a financial bargain?
Yes. So, I believe that you answered my need because you are my friend, and you acted out of friendship, not because it was a good investment strategy.
What if you were a taxi driver?
OK, now imagine that you are a taxi driver, and you drive me to the airport. When we get there, I take your hand warmly and give you a big smile. “That was a great time,” I say, “let’s do this again soon. Maybe with the families next time?”
Sorry, but you want your $40. Not because you didn’t have a good time, and not because you don’t think I am a fine person, but because your motive was the instrumental value of “making a living.” You didn’t drive me to the airport because I was your friend, but because I was your customer in an exchange relationship.
And the point is that “Motive counts!” There is nothing wrong with being a taxi driver, but it is different from being a friend.
The motive behind Medicare
This is what we miss when we thoughtlessly decide to “privatize” programs that were otherwise motivated by concern for “the other.” In the middle part of the 20th Century, a large number of poor people in the US were the aged, struggling to meet their increased healthcare needs, and ruining their financial condition in the process. We passed Medicare in 1965 in part because we cared about these people and wanted to provide them a way to avoid poverty caused by medical need.
How cynical do you want to be? Because you can see the passage of Medicare as a step toward more governmental control over the economy, as a means of spending tax money to support hospitals and doctors, as a hand-out to the elderly by politicians who know that the elderly vote in disproportionate numbers, as a way for “forty-somethings” to avoid having to pay for Mom and Dad’s medical bills. In other words, you can interpret this action as an instrumentality; we passed Medicare for the elderly so that the rest of us could realize some gain.
But you can also see it as a caring effort by the community, through its agent, the government, to lift our parents out of poverty. And, at that level, Medicare has been a stunning success, as the elderly are no longer a large portion of the poor. And we ought to feel Good about that, the creation of our intrinsic commitment to that population.
The third fundamental flaw
So, when we privatize Medicare, as the right wing are proposing, we are taking that intrinsic value and turning it into an instrumental exchange relationship.
That’s the third fundamental flaw of all markets. Because the basis of all markets is “voluntary exchange,” they have no mechanism for valuing things for themselves (“intrinsic”) but only for what they can get you in exchange (“instrumental”).
Yet, motive counts.
Do you want to get your healthcare from a person or a hospital that you believe is motivated largely by the desire to care for you? Or would you get the same or better care from a doctor who was a shrewd bargainer and saw you as a means to make more money?
I propose that there is a difference between “Making money in order to care for people” and “Taking care of people in order to make money.” Sure, the caring doctor or hospital has to worry about the bottom line, but the making of money is the means to the end of caring. While the for profit hospital is using the provision of healthcare as a means to the end of profit.
Motive counts. And if markets only respond to the instrumental, then they are probably a poor choice for allocating healthcare motivated by the intrinsic desire to be a more caring society.
Getting closer
OK, we are getting closer to being able to apply all of this to a proposal to convert Medicare from a universal, single payer system for our elderly into a market-like transaction through issuing vouchers for the purchase of private insurance.
But first we need to spend some time talking about bicycles. Because markets only work if there is “consumer sovereignty,” and, in the next part blog posting, we will look at a market for bicycles in order to illustrate that point.
Monday, December 21, 2015
Vouching for healthcare, Part 2
Medicare vouchers?
Should we give people 65 and over a voucher to buy health insurance, rather than pay for their care through Medicare? Take note, because this is what some conservatives are going to propose as a market-like alternative to traditional Medicare. To see why this is a bad idea, you really need to dig down a bit into how markets work and how, sometimes, they don’t work. I started this in Part 1; given how long ago it was that I posted that essay, you may want to go back and reread it.
What we saw in Part 1 is that after two people trade in our “hat marketplace,” they are both happier, and that means that the total amount of happiness within the market goes up. After two trades, our total happiness, as measured by Δ∑IUj (“the change in the sum of all individual utility, from the first person to the last person”) went up from 9 to 25.
How markets work
This is how markets are expected to work. Voluntary exchange leads to win/win trades, which means that both parties to the trade end up happier, and so the net happiness of all of us in the market is improved.
At Time 1, total utility went up, but we still had the same 9 hats. At Time 2, after the second trade, total utility went up again, but again we got the increase in utility from the same 9 hats.
If a particular process increases the amount of output (additive happiness) while maintaining a level amount of input (9 hats), we call the result “efficiency.” We are getting more production from the same amount of input. Here is how that looks:
T0: 9 units of happiness
9 hats
T1: 16 units of happiness
9 hats
T2: 25 units of happiness
9 hats
Each trade leads to more individual happiness, but the happiness still comes from the same number of hats.
This is why, when markets work well, they promote efficiency. Win/win trades do this automatically. And markets promote liberty, because they run on voluntary exchange. If the main things you want from your allocation system are liberty and efficiency, markets are an excellent choice.
How do we help Ed?
But Ed is dying from his head condition, without a hat to protect him. All of us in the market place see his plight, and most of us feel badly for him. Ed notices that your hat is made of hard plastic, and would give him just the protection he needs. He approaches you to trade, but you value your hat fairly highly (+7) and don’t like his hat at all. You see his problem, but you didn’t cause it and don’t see any obligation to help him by giving up your hat for him.
All of us in the marketplace see this dynamic and, if asked, would urge you to trade, for Ed’s safety. A few of us approach you and suggest that you trade. You decline. More and more of us implore you to act, but you say “let Ed solve his own problems, or look to charity from someone else.”
Apparently, you are a Republican.
(I have been telling that joke for more than 30 years. At the beginning, it got laughs. By the late 80's, after years of the Reagan presidency, a growing number of students were vaguely offended, and the laughter of some was a bit embarrassed. More recently, I run into much less knee-jerk sympathy for Republicans. Probably a change for the Good.)
There is no "us"
Why don’t all of us in the market get together and make you trade? Well, that doesn’t happen in a market. In fact, it can’t happen. There is no concerted group action within markets and there is no political power to “make” any one do anything. The best markets deliver efficiency and liberty by being “free.” No coercion.
And no “us.” Note that the expression we have been using to sum up utility in our market only asks people, as individuals, to judge their individual circumstance. There is no “we” in Δ∑IUj.
Markets overweight the individual over the group
So, we have now run into the first “fundamental flaw” of all markets. Every market overweights individual values over the priorities of the group. Since markets are based entirely on individual win/win trades, there is no medium for expressing what the community might want. We may be saddened, as a group, for your refusal to come to Ed’s assistance, but there is no mechanism within a market for us to do anything about it.
And what about Tracy, who was stuck with the solid lead hat? She would love to trade, but no one will trade with her. How will she remedy her situation?
Well, she won’t. She has no way to trade herself upwards because she has no goods to trade. You can’t pull yourself up by your bootstraps if you don’t own boots.
Markets overweight the prevailing distribution of resources
Here is the second “fundamental flaw” of all markets – they inevitably overweight the prevailing distribution of resources. In other words, at any given moment, who has what within the market will, to a large extent, determine the trades that will take place. If you start with nothing to trade, the market will by-pass you entirely.
The rich will, therefore, stay rich and the poor will, perforce, stay poor.
So, we see that the sick and the poor (Ed and Tracy) have no way to use the market to address their needs, due to these fundamental flaws of the market.
In Part 3, we look at the third fundamental flaw of any market, that markets “overweight the instrumental over the intrinsic.” It all has to do with the difference between being my friend and being my taxi driver. But more on that in the next posting.
Should we give people 65 and over a voucher to buy health insurance, rather than pay for their care through Medicare? Take note, because this is what some conservatives are going to propose as a market-like alternative to traditional Medicare. To see why this is a bad idea, you really need to dig down a bit into how markets work and how, sometimes, they don’t work. I started this in Part 1; given how long ago it was that I posted that essay, you may want to go back and reread it.
What we saw in Part 1 is that after two people trade in our “hat marketplace,” they are both happier, and that means that the total amount of happiness within the market goes up. After two trades, our total happiness, as measured by Δ∑IUj (“the change in the sum of all individual utility, from the first person to the last person”) went up from 9 to 25.
How markets work
This is how markets are expected to work. Voluntary exchange leads to win/win trades, which means that both parties to the trade end up happier, and so the net happiness of all of us in the market is improved.
At Time 1, total utility went up, but we still had the same 9 hats. At Time 2, after the second trade, total utility went up again, but again we got the increase in utility from the same 9 hats.
If a particular process increases the amount of output (additive happiness) while maintaining a level amount of input (9 hats), we call the result “efficiency.” We are getting more production from the same amount of input. Here is how that looks:
T0: 9 units of happiness
9 hats
T1: 16 units of happiness
9 hats
T2: 25 units of happiness
9 hats
Each trade leads to more individual happiness, but the happiness still comes from the same number of hats.
This is why, when markets work well, they promote efficiency. Win/win trades do this automatically. And markets promote liberty, because they run on voluntary exchange. If the main things you want from your allocation system are liberty and efficiency, markets are an excellent choice.
How do we help Ed?
But Ed is dying from his head condition, without a hat to protect him. All of us in the market place see his plight, and most of us feel badly for him. Ed notices that your hat is made of hard plastic, and would give him just the protection he needs. He approaches you to trade, but you value your hat fairly highly (+7) and don’t like his hat at all. You see his problem, but you didn’t cause it and don’t see any obligation to help him by giving up your hat for him.
All of us in the marketplace see this dynamic and, if asked, would urge you to trade, for Ed’s safety. A few of us approach you and suggest that you trade. You decline. More and more of us implore you to act, but you say “let Ed solve his own problems, or look to charity from someone else.”
Apparently, you are a Republican.
(I have been telling that joke for more than 30 years. At the beginning, it got laughs. By the late 80's, after years of the Reagan presidency, a growing number of students were vaguely offended, and the laughter of some was a bit embarrassed. More recently, I run into much less knee-jerk sympathy for Republicans. Probably a change for the Good.)
There is no "us"
Why don’t all of us in the market get together and make you trade? Well, that doesn’t happen in a market. In fact, it can’t happen. There is no concerted group action within markets and there is no political power to “make” any one do anything. The best markets deliver efficiency and liberty by being “free.” No coercion.
And no “us.” Note that the expression we have been using to sum up utility in our market only asks people, as individuals, to judge their individual circumstance. There is no “we” in Δ∑IUj.
Markets overweight the individual over the group
So, we have now run into the first “fundamental flaw” of all markets. Every market overweights individual values over the priorities of the group. Since markets are based entirely on individual win/win trades, there is no medium for expressing what the community might want. We may be saddened, as a group, for your refusal to come to Ed’s assistance, but there is no mechanism within a market for us to do anything about it.
And what about Tracy, who was stuck with the solid lead hat? She would love to trade, but no one will trade with her. How will she remedy her situation?
Well, she won’t. She has no way to trade herself upwards because she has no goods to trade. You can’t pull yourself up by your bootstraps if you don’t own boots.
Markets overweight the prevailing distribution of resources
Here is the second “fundamental flaw” of all markets – they inevitably overweight the prevailing distribution of resources. In other words, at any given moment, who has what within the market will, to a large extent, determine the trades that will take place. If you start with nothing to trade, the market will by-pass you entirely.
The rich will, therefore, stay rich and the poor will, perforce, stay poor.
So, we see that the sick and the poor (Ed and Tracy) have no way to use the market to address their needs, due to these fundamental flaws of the market.
In Part 3, we look at the third fundamental flaw of any market, that markets “overweight the instrumental over the intrinsic.” It all has to do with the difference between being my friend and being my taxi driver. But more on that in the next posting.
Thursday, September 17, 2015
Vouching for healthcare, Part 1
Author’s aside:
I have a number of things I want to say about public policy making. Some of it seems a bit “academic” and some of it is right out of the pages of yesterday’s Times. Apparently, the second type of posting is more popular than the first type, based upon the pageviews the postings get. But I don’t want to give up on the slightly deeper ideas that have helped me, and the thousands of students I have taught over the years, to understand what might really be happening in public policy making. However, I also don’t want to put lots of you to sleep. So, I am going to try to publish at least two posts per month, one on “current events” and one on ideas that illuminate the import of those events. I hope you all read both, but “to each his own.” If you are new to the blog, you might want to go back and check out some of the earlier “ideas” stuff.
Tomorrow, I'll post on why we shouldn't give up on working for progressive change, no matter how badly some of the current participants stink. Today, markets.
So, lets talk ideas.
One of the ideas that the right wing is going to pursue in the next few years is replacing Medicare’s simple single-payer system, used successfully and cheaply throughout the developed world, with a voucher system. (Yes, they balk at calling it a voucher system, but we know what they mean!)
If you live in Wisconsin or Cleveland or a handful of other jurisdictions in the US, you have seen something similar to this in vouchers for public education. Here is how Medicare vouchers are supposed to work.
Everyone over the age of 64 will get a voucher from the government, and they will be told to go out and purchase their own health insurance with that voucher. If they want to spend only the value of the voucher, they will get a bronze (or maybe tin?) insurance policy. If they wish to spend more money on their healthcare insurance, they could get a gold or platinum policy, limited only by their desires and their resources available to meet those desires.
Then, we will have set up a market place for health insurance for the elderly. And (irony alert) we all know that markets are the best way to allocate any resource. Markets, we know, are the most efficient allocation system, and the most supportive of individual freedom. We also know that government programs, like Medicare and Medicaid (and all those programs in the 32 other developed countries with centrally-controlled payer systems), are inherently inefficient and will provide awful care, and make us take whatever care we are given, usually from a terrible doctor that we have to wait months to see.
How much of that last paragraph is true? How well do markets work to allocate health care? Are they inherently preferable to government-run systems?
I want to spend a few blog posts trying to talk about this policy debate: what to allocate through markets and what to allocate through government. If you want to read more about what we will be talking about, check out Tragic Choices by Calabresi and Bobbitt, as the central themes of the following analysis is taken from that book. Not the most interesting book you will ever read, but it made me think, when I first read it almost 40 years ago. Or just keep reading here.
Our marketplace for hats
First, we have to understand how markets work. Lets see if we can use a small barter-based market for hats to gain some insight. We will see that markets are, indeed, efficient and promote liberty. But at a cost, because they don’t allow us to achieve common goals, they overweight the prevailing distribution of resources (the rich get richer. . . ) and they can’t deal with things that are “intrinsically” valuable, and insist upon trying to turn them into things that are “instrumentally” valuable.
To pursue these ideas, we have to start by thinking small, because large markets are notoriously difficult to understand. Lets start with this market for hats.
Assume that you and I are part of a group of nine people who each have a hat. They come in all sizes, shapes, designs and levels of utility. We are about to start a market place for these hats, but before we do, we want to know how happy each person is with their hat.
So, all of us value our hat, maybe on a scale of -10 to +10. I like my hat. It is vaguely referential to Indiana Jones, and fits me perfectly. I would value my hat at 7.
Wait. Seven what? We can’t say “seven dollars,” because we haven’t introduced money into our market place. Economists talk about “utility,” the value that individuals gain from possessing some resource. We could call it “seven utils,” but lets just say that I value my hat at 7 points. Or, I have seven units of happiness.
You have a silly-looking hat, in my opinion. But you seem to really like it. It covers your head well, it seems to provide some protection against the elements. I would trade that hat in a second, but I don’t think you are going to want to. To each his own. You value your hat at 7, too.
Nadiah has a solid gold hat. She is very happy. Very. It doesn’t feel all that great to wear, but it is solid gold, and she knows she is set for life. This hat, thinks Nadiah, is a solid 10.
Tracy has a hat made of lead. She is very unhappy. The hat has no use whatsoever. Tracy values it as -9. (She is saving minus ten for when she gets stuck with a radioactive hat.)
Ed has a head condition. He is not well. And the condition is getting worse. It is the sort of thing that could be fixed if he had a protective hat, one that covered his whole head and would protect him from the elements. But he has a feathery, froo froo thing. -10.
Paul values his hat at +1. Not great. Could be worse. A bit too small.
Sherry values her hat at +4. Above average, she supposes. But she really likes my hat, and hers suffers in comparison.
Celia doesn’t particularly care for her hat. It scratches a bit, because she has a small head, and it doesn’t fit well. -1.
Patrick has a hat that doesn’t suit his personality well, as far as he sees. It is sporty, and he is a bit of a nerd. But it keeps the rain off. +2.
So, where are we in our nine person marketplace?
Values at Time 0
Person IU
You +7
Me +7
Nadiah +10
Tracy -9
Ed -10
Paul +1
Sherry +4
Celia -1
Patrick +2
Total 9
Here comes the magic
In the table we have the utility that each individual assigns to their hat at the beginning, which we will call Time 0. Lets call the value each person has “IU,” for “individual utility.” If we want to know how much our marketplace values our hat resources, we just add up everyone’s individual utility. The math expression of this is:
∑IUj
This is the “sum of the individual utility, starting from the first person in the group and going to the last person, or the 'jth' person.” It is a way of describing, in a mathematical expression, the total value of what you get when you add the individual values of a group of things.
In our example, we have 9 points of utility in our market place.
Now lets see what happens when we let people start trading. Because trading is what markets are all about. The key to understanding markets is to follow the impact of “voluntary exchange.” If you don’t have voluntary exchange, you don’t have a market.
The first person who wants to trade is Sherry. She wants to trade with me, because she loves my hat, and only likes her hat. I look at her hat and value it at -1. Sorry, no trade.
Sherry then looks around some more, and she sees the solid gold hat. Of course, she wants to trade, but Nadiah isn’t trading with anyone in our market.
Finally, Sherry approaches Patrick. She offers to trade. Patrick accepts. He thinks her hat is just his style, and she likes the way his hat looks on her head. Patrick now values his new hat at +6, a step up. And Sherry is happier, too, at +7.
Did you notice what just happened? Nobody forced Sherry and Patrick to trade. This was a voluntary exchange. And Sherry could only trade with someone that wanted to trade with her. Yet, after their trade, something magical happens. ∑IUj goes up!
Patrick gained 4 points of IU. And Sherry gained 3 points. At Time 0, our little marketplace had 9 units of value. But now, at Time 1 after our first trade, we have 16. We have the 9 that we started with and the extra seven that came about because of the trade.
So, at Time 1, after the first trade, something special happened to ∑IUj. It got bigger. We can express this change like this:
Δ∑IUj = 7
Delta is the math symbol for change. So, at Time 1, the change in the sum of the individual utility in our marketplace, through all of the people, equals 7.
The magic happens again
Let’s see that happen again. Celia has a hat that is too big, and Paul has a hat that is too small. At Time 2, they trade. Notice that nobody made them do it. Strictly voluntary. Celia is 4 points happier, and Paul is 5 points happier.
Δ ∑IUj = 9
And the magic happens again. From Time 1, after the first trade, where our total added up happiness was 16, our total now adds up to 25.
It seems that every time two people engage in voluntary exchange, the change in the sum of individual utility goes up. That is expressed as:
Δ∑IUj > 0
Every time a trade takes place in the market, the change in the sum of the individual utility is positive, greater than zero. And that makes perfect sense, because, since this is all about voluntary exchange, only win/win trades are going to take place. No one would trade unless they perceived a gain from it, so all parties are always happier after the trade.
This is, indeed, one of the marvels of the marketplace. But of course, there is a darkness embedded in our little scenario. How shall Ed live? More on that in the next blog in this series.
I have a number of things I want to say about public policy making. Some of it seems a bit “academic” and some of it is right out of the pages of yesterday’s Times. Apparently, the second type of posting is more popular than the first type, based upon the pageviews the postings get. But I don’t want to give up on the slightly deeper ideas that have helped me, and the thousands of students I have taught over the years, to understand what might really be happening in public policy making. However, I also don’t want to put lots of you to sleep. So, I am going to try to publish at least two posts per month, one on “current events” and one on ideas that illuminate the import of those events. I hope you all read both, but “to each his own.” If you are new to the blog, you might want to go back and check out some of the earlier “ideas” stuff.
Tomorrow, I'll post on why we shouldn't give up on working for progressive change, no matter how badly some of the current participants stink. Today, markets.
So, lets talk ideas.
One of the ideas that the right wing is going to pursue in the next few years is replacing Medicare’s simple single-payer system, used successfully and cheaply throughout the developed world, with a voucher system. (Yes, they balk at calling it a voucher system, but we know what they mean!)
If you live in Wisconsin or Cleveland or a handful of other jurisdictions in the US, you have seen something similar to this in vouchers for public education. Here is how Medicare vouchers are supposed to work.
Everyone over the age of 64 will get a voucher from the government, and they will be told to go out and purchase their own health insurance with that voucher. If they want to spend only the value of the voucher, they will get a bronze (or maybe tin?) insurance policy. If they wish to spend more money on their healthcare insurance, they could get a gold or platinum policy, limited only by their desires and their resources available to meet those desires.
Then, we will have set up a market place for health insurance for the elderly. And (irony alert) we all know that markets are the best way to allocate any resource. Markets, we know, are the most efficient allocation system, and the most supportive of individual freedom. We also know that government programs, like Medicare and Medicaid (and all those programs in the 32 other developed countries with centrally-controlled payer systems), are inherently inefficient and will provide awful care, and make us take whatever care we are given, usually from a terrible doctor that we have to wait months to see.
How much of that last paragraph is true? How well do markets work to allocate health care? Are they inherently preferable to government-run systems?
I want to spend a few blog posts trying to talk about this policy debate: what to allocate through markets and what to allocate through government. If you want to read more about what we will be talking about, check out Tragic Choices by Calabresi and Bobbitt, as the central themes of the following analysis is taken from that book. Not the most interesting book you will ever read, but it made me think, when I first read it almost 40 years ago. Or just keep reading here.
Our marketplace for hats
First, we have to understand how markets work. Lets see if we can use a small barter-based market for hats to gain some insight. We will see that markets are, indeed, efficient and promote liberty. But at a cost, because they don’t allow us to achieve common goals, they overweight the prevailing distribution of resources (the rich get richer. . . ) and they can’t deal with things that are “intrinsically” valuable, and insist upon trying to turn them into things that are “instrumentally” valuable.
To pursue these ideas, we have to start by thinking small, because large markets are notoriously difficult to understand. Lets start with this market for hats.
Assume that you and I are part of a group of nine people who each have a hat. They come in all sizes, shapes, designs and levels of utility. We are about to start a market place for these hats, but before we do, we want to know how happy each person is with their hat.
So, all of us value our hat, maybe on a scale of -10 to +10. I like my hat. It is vaguely referential to Indiana Jones, and fits me perfectly. I would value my hat at 7.
Wait. Seven what? We can’t say “seven dollars,” because we haven’t introduced money into our market place. Economists talk about “utility,” the value that individuals gain from possessing some resource. We could call it “seven utils,” but lets just say that I value my hat at 7 points. Or, I have seven units of happiness.
You have a silly-looking hat, in my opinion. But you seem to really like it. It covers your head well, it seems to provide some protection against the elements. I would trade that hat in a second, but I don’t think you are going to want to. To each his own. You value your hat at 7, too.
Nadiah has a solid gold hat. She is very happy. Very. It doesn’t feel all that great to wear, but it is solid gold, and she knows she is set for life. This hat, thinks Nadiah, is a solid 10.
Tracy has a hat made of lead. She is very unhappy. The hat has no use whatsoever. Tracy values it as -9. (She is saving minus ten for when she gets stuck with a radioactive hat.)
Ed has a head condition. He is not well. And the condition is getting worse. It is the sort of thing that could be fixed if he had a protective hat, one that covered his whole head and would protect him from the elements. But he has a feathery, froo froo thing. -10.
Paul values his hat at +1. Not great. Could be worse. A bit too small.
Sherry values her hat at +4. Above average, she supposes. But she really likes my hat, and hers suffers in comparison.
Celia doesn’t particularly care for her hat. It scratches a bit, because she has a small head, and it doesn’t fit well. -1.
Patrick has a hat that doesn’t suit his personality well, as far as he sees. It is sporty, and he is a bit of a nerd. But it keeps the rain off. +2.
So, where are we in our nine person marketplace?
Values at Time 0
Person IU
You +7
Me +7
Nadiah +10
Tracy -9
Ed -10
Paul +1
Sherry +4
Celia -1
Patrick +2
Total 9
Here comes the magic
In the table we have the utility that each individual assigns to their hat at the beginning, which we will call Time 0. Lets call the value each person has “IU,” for “individual utility.” If we want to know how much our marketplace values our hat resources, we just add up everyone’s individual utility. The math expression of this is:
∑IUj
This is the “sum of the individual utility, starting from the first person in the group and going to the last person, or the 'jth' person.” It is a way of describing, in a mathematical expression, the total value of what you get when you add the individual values of a group of things.
In our example, we have 9 points of utility in our market place.
Now lets see what happens when we let people start trading. Because trading is what markets are all about. The key to understanding markets is to follow the impact of “voluntary exchange.” If you don’t have voluntary exchange, you don’t have a market.
The first person who wants to trade is Sherry. She wants to trade with me, because she loves my hat, and only likes her hat. I look at her hat and value it at -1. Sorry, no trade.
Sherry then looks around some more, and she sees the solid gold hat. Of course, she wants to trade, but Nadiah isn’t trading with anyone in our market.
Finally, Sherry approaches Patrick. She offers to trade. Patrick accepts. He thinks her hat is just his style, and she likes the way his hat looks on her head. Patrick now values his new hat at +6, a step up. And Sherry is happier, too, at +7.
Did you notice what just happened? Nobody forced Sherry and Patrick to trade. This was a voluntary exchange. And Sherry could only trade with someone that wanted to trade with her. Yet, after their trade, something magical happens. ∑IUj goes up!
Patrick gained 4 points of IU. And Sherry gained 3 points. At Time 0, our little marketplace had 9 units of value. But now, at Time 1 after our first trade, we have 16. We have the 9 that we started with and the extra seven that came about because of the trade.
So, at Time 1, after the first trade, something special happened to ∑IUj. It got bigger. We can express this change like this:
Δ∑IUj = 7
Delta is the math symbol for change. So, at Time 1, the change in the sum of the individual utility in our marketplace, through all of the people, equals 7.
The magic happens again
Let’s see that happen again. Celia has a hat that is too big, and Paul has a hat that is too small. At Time 2, they trade. Notice that nobody made them do it. Strictly voluntary. Celia is 4 points happier, and Paul is 5 points happier.
Δ ∑IUj = 9
And the magic happens again. From Time 1, after the first trade, where our total added up happiness was 16, our total now adds up to 25.
It seems that every time two people engage in voluntary exchange, the change in the sum of individual utility goes up. That is expressed as:
Δ∑IUj > 0
Every time a trade takes place in the market, the change in the sum of the individual utility is positive, greater than zero. And that makes perfect sense, because, since this is all about voluntary exchange, only win/win trades are going to take place. No one would trade unless they perceived a gain from it, so all parties are always happier after the trade.
This is, indeed, one of the marvels of the marketplace. But of course, there is a darkness embedded in our little scenario. How shall Ed live? More on that in the next blog in this series.
Tuesday, September 8, 2015
Are Trump’s followers just stupid?
I found myself last week getting pretty depressed about the state of politics in the US. Really? More than half of the Republicans would prefer the next President to be either Trump or Carson? Really?
In one of my undergrad classes, I let slip that I was worried that the American public might just be getting more stupid. Not a pedagogically sound statement, but I am worried about the possibility. My apologies in advance for the harsh language, but I think it is important to use it to make the point.
Not polite to use this word
I know it isn’t polite, but let’s face it, some percentage of any population is not very smart. Might this proportion be increasing? I used to call this fear the “Dukes of Hazards” concern. There was a time in TV history where the number one TV show was an inanity about two “country boys,” their ridiculous, gas guzzling car, and their scantily clad female cousin. All of which had to be insulting to any self-respecting rural resident. If that is what the American people most want to watch, something was seriously wrong.
Today, according to PPP, the polling company, 54% of Republicans think Obama is a Muslim, and another 32% said they weren’t sure. Last year, Gallup found that more than 4 in every 10 Americans believe that God created the Earth in a week, in its present form and about 10,000 years ago.
The good news is that a majority of American’s believe in the necessity to act on climate change. But according to HuffPo, more people believe Fox News’ views on climate change than believe President Obama’s.
We could go on. I am guessing you all have your own data points that cause you incredulity. There does seem to be evidence that the country is getting more and more stupid.
Maybe something else is going on
But today I retracted my statement in class. I don’t think this is necessarily evidence of an increasing portion of Americans with limited critical thinking skills. More likely, this is the result of 50 years of the right wing learning to reach out to, to incite and to activate whatever the portion of American’s that are stupid.
That is one of the main things they have been doing for the last many decades. Opposing Medicare as the greatest threat to our freedom back in 1962. Championing “state’s rights” (with all its racist overtones) in the mid-60's. Promising peace with honor in Viet Nam, and then delivering neither. Reagan promising to triple the defense budget, balance the federal budget and decrease taxes, all at the same time. George H.W. Bush wanting us to address our pressing social needs with voluntarism. George W. Bush and Cheney misleading us into the worst foreign policy blunder certainly in 100 years, maybe of all time. Palin saying almost everything she has ever said. Every rightist economist and politician telling us that the problem with our economy is taxes, “Taxes I tell you!” Trump promising to round up 11 million people and send them “away.”
None of these are going to be attractive positions to people with critical thinking skills. (OK, lots of really smart people bought W’s and Cheney’s malarkey. The exception that proves the rule, I suppose.) In a myriad ways, the right has been selling anger and frustration and hate to the not very smart, and it has worked well for them.
Trump might be their Frankenstein’s monster
But they are possibly going to rue that strategy. Trump’s success is the peak of this decades-long campaign to activate the stupid. He might end up being their Frankenstein’s monster. His campaign is likely to dim the Republican brand, and if he were to win the nomination, he is very unlikely to win in the general election. (Of course, I and many others said the same thing about Reagan in the summer of of 1980. If Trump does become President, all bets are off, and I might go back to my original hypothesis. Canada, maybe?)
So, my new hypothesis is that American’s aren’t getting any more stupid. It is just that that group has been empowered by the right-wing in this country, been handed a platform and a megaphone, and we are just hearing from them more.
Still, it is a dire set of events. If right wing positions are based primarily on ignorance and lack of education, we can try to provide facts and instruction. But if the leading edge is stupid, that is a much bigger problem.
There is a tendency toward hopelessness faced with such a problem. But we who are not stupid can’t give up, can’t allow ourselves to give in. We still have to fight, and maintain hope that the large majority of the people who respond to facts and to rationality and to science can be organized to oppose a government that caters to the stupid.
Stupidity is probably not growing, and is probably not insurmountable. It is just another thing we have to overcome, along the way.
In one of my undergrad classes, I let slip that I was worried that the American public might just be getting more stupid. Not a pedagogically sound statement, but I am worried about the possibility. My apologies in advance for the harsh language, but I think it is important to use it to make the point.
Not polite to use this word
I know it isn’t polite, but let’s face it, some percentage of any population is not very smart. Might this proportion be increasing? I used to call this fear the “Dukes of Hazards” concern. There was a time in TV history where the number one TV show was an inanity about two “country boys,” their ridiculous, gas guzzling car, and their scantily clad female cousin. All of which had to be insulting to any self-respecting rural resident. If that is what the American people most want to watch, something was seriously wrong.
Today, according to PPP, the polling company, 54% of Republicans think Obama is a Muslim, and another 32% said they weren’t sure. Last year, Gallup found that more than 4 in every 10 Americans believe that God created the Earth in a week, in its present form and about 10,000 years ago.
The good news is that a majority of American’s believe in the necessity to act on climate change. But according to HuffPo, more people believe Fox News’ views on climate change than believe President Obama’s.
We could go on. I am guessing you all have your own data points that cause you incredulity. There does seem to be evidence that the country is getting more and more stupid.
Maybe something else is going on
But today I retracted my statement in class. I don’t think this is necessarily evidence of an increasing portion of Americans with limited critical thinking skills. More likely, this is the result of 50 years of the right wing learning to reach out to, to incite and to activate whatever the portion of American’s that are stupid.
That is one of the main things they have been doing for the last many decades. Opposing Medicare as the greatest threat to our freedom back in 1962. Championing “state’s rights” (with all its racist overtones) in the mid-60's. Promising peace with honor in Viet Nam, and then delivering neither. Reagan promising to triple the defense budget, balance the federal budget and decrease taxes, all at the same time. George H.W. Bush wanting us to address our pressing social needs with voluntarism. George W. Bush and Cheney misleading us into the worst foreign policy blunder certainly in 100 years, maybe of all time. Palin saying almost everything she has ever said. Every rightist economist and politician telling us that the problem with our economy is taxes, “Taxes I tell you!” Trump promising to round up 11 million people and send them “away.”
None of these are going to be attractive positions to people with critical thinking skills. (OK, lots of really smart people bought W’s and Cheney’s malarkey. The exception that proves the rule, I suppose.) In a myriad ways, the right has been selling anger and frustration and hate to the not very smart, and it has worked well for them.
Trump might be their Frankenstein’s monster
But they are possibly going to rue that strategy. Trump’s success is the peak of this decades-long campaign to activate the stupid. He might end up being their Frankenstein’s monster. His campaign is likely to dim the Republican brand, and if he were to win the nomination, he is very unlikely to win in the general election. (Of course, I and many others said the same thing about Reagan in the summer of of 1980. If Trump does become President, all bets are off, and I might go back to my original hypothesis. Canada, maybe?)
So, my new hypothesis is that American’s aren’t getting any more stupid. It is just that that group has been empowered by the right-wing in this country, been handed a platform and a megaphone, and we are just hearing from them more.
Still, it is a dire set of events. If right wing positions are based primarily on ignorance and lack of education, we can try to provide facts and instruction. But if the leading edge is stupid, that is a much bigger problem.
There is a tendency toward hopelessness faced with such a problem. But we who are not stupid can’t give up, can’t allow ourselves to give in. We still have to fight, and maintain hope that the large majority of the people who respond to facts and to rationality and to science can be organized to oppose a government that caters to the stupid.
Stupidity is probably not growing, and is probably not insurmountable. It is just another thing we have to overcome, along the way.
Sunday, August 16, 2015
What do Trump and Sanders have in common?
It certainly isn’t their policy positions. But I think they do have something very compelling in common. One way to explain it is to characterize what their opponents are doing.
Painting by number
Hillary and Jeb are engaged in “paint by number.” Remember this activity? You were given a drawing with spaces containing little numbers, and you would fill in the numbered areas with the paints that had the corresponding number. Your only challenge was to stay within the lines. The result is a simulacrum of a painting. Here’s an example:
https://www.google.com/search?q=%22paint+by+number%22&tbm=isch&tbo=u&source=univ&sa=X&ved=0CGIQ7AlqFQoTCPi5kMqsrscCFQhJkgodkBMBNA&biw=1280&bih=689#imgrc=NIDdOR_tpkxRGM%3A
It’s not a horrible thing to look at, but it is a bit sad. Actually, more than a bit.
And that is what Jeb and Hillary are doing, painting by number. They find out, from polling and focus groups and campaign strategists, what people want to hear or how best to phrase their own views, and then offer us a sad portrait of themselves.
Actual leaders
But Trump and Bernie are actual leaders. They actually say what they think. And that is why they are so popular at the moment, because the American public wants leaders, and wants them desperately.
The last time we saw this phenomenon was in 1992, when George H.W. Bush, a “paint by number” politician and Bill Clinton, probably the best paint by number guy EVER, were opposed by Ross Perot. Perot was a feisty rich guy who said what he thought, which was often a bit odd and always caustic, yet he got lots of support, because we want actual leaders who tell us what they really think, not what they think we want to hear. At the time, I said that the American people were so thirty for leadership that they would drink battery acid!
Interestingly, sometime during the campaign, Perot’s “serious people” suggested to him that he might actually win! And so he started hemming and hawing, giving the kind of “no answer answer” that sounds so familiar to us all. And his popularity plummeted. Yet, he still got almost 19% of the popular vote.
Far from paint by number mediocrity, Trump is like a Jackson Pollack manqué, throwing splotches of paint all over the place, leaving a mess. But it is an original mess, a mess he appears to be authentic about, “his mess.”
And Bernie is saying what he really thinks, with force and commitment. He may not be painting a masterpiece, but the result is something that comes from his head AND his heart, and people can hear that.
Trying to lead
So much of the beltway media, horribly removed from the average American, have been trying to make sense of Trump and Sanders by attempting to identify that portion of the Republican and Democratic coalitions to which they are appealing. Whose numbers, they wonder, are they painting?
But I believe their appeal is much more basic. They are painting their own pictures, not bothering to consult with “serious people” or pollsters. They are trying to lead.
By the way, isn’t this also why such oddities as Ben Carson and Carly Fiorina are getting their 15 minutes now? They, too, sound like they are offering an honest picture.
Could Hillary and Jeb learn this and actually become the leaders they say that they are? I think not. Both have spent too much time learning to exquisitely paint by numbers, and would have no idea of what to do with a blank canvas.
If history repeats itself, Jeb and Hillary will become the candidates, and one of them will become President. Of course, I hope that is Hillary. But I would really prefer to support someone with a flair for painting, someone with an authentic picture to offer us, someone, like Bernie, who will lead by telling us what they really believe, and then let us decide to follow them.
That is the lesson that the political class could learn from Trump’s and Sanders’ successes. But, instead, they are too busy trying to figure out if we want a number 5 on the tree trunk or a number 6.
Sigh.
Painting by number
Hillary and Jeb are engaged in “paint by number.” Remember this activity? You were given a drawing with spaces containing little numbers, and you would fill in the numbered areas with the paints that had the corresponding number. Your only challenge was to stay within the lines. The result is a simulacrum of a painting. Here’s an example:
https://www.google.com/search?q=%22paint+by+number%22&tbm=isch&tbo=u&source=univ&sa=X&ved=0CGIQ7AlqFQoTCPi5kMqsrscCFQhJkgodkBMBNA&biw=1280&bih=689#imgrc=NIDdOR_tpkxRGM%3A
It’s not a horrible thing to look at, but it is a bit sad. Actually, more than a bit.
And that is what Jeb and Hillary are doing, painting by number. They find out, from polling and focus groups and campaign strategists, what people want to hear or how best to phrase their own views, and then offer us a sad portrait of themselves.
Actual leaders
But Trump and Bernie are actual leaders. They actually say what they think. And that is why they are so popular at the moment, because the American public wants leaders, and wants them desperately.
The last time we saw this phenomenon was in 1992, when George H.W. Bush, a “paint by number” politician and Bill Clinton, probably the best paint by number guy EVER, were opposed by Ross Perot. Perot was a feisty rich guy who said what he thought, which was often a bit odd and always caustic, yet he got lots of support, because we want actual leaders who tell us what they really think, not what they think we want to hear. At the time, I said that the American people were so thirty for leadership that they would drink battery acid!
Interestingly, sometime during the campaign, Perot’s “serious people” suggested to him that he might actually win! And so he started hemming and hawing, giving the kind of “no answer answer” that sounds so familiar to us all. And his popularity plummeted. Yet, he still got almost 19% of the popular vote.
Far from paint by number mediocrity, Trump is like a Jackson Pollack manqué, throwing splotches of paint all over the place, leaving a mess. But it is an original mess, a mess he appears to be authentic about, “his mess.”
And Bernie is saying what he really thinks, with force and commitment. He may not be painting a masterpiece, but the result is something that comes from his head AND his heart, and people can hear that.
Trying to lead
So much of the beltway media, horribly removed from the average American, have been trying to make sense of Trump and Sanders by attempting to identify that portion of the Republican and Democratic coalitions to which they are appealing. Whose numbers, they wonder, are they painting?
But I believe their appeal is much more basic. They are painting their own pictures, not bothering to consult with “serious people” or pollsters. They are trying to lead.
By the way, isn’t this also why such oddities as Ben Carson and Carly Fiorina are getting their 15 minutes now? They, too, sound like they are offering an honest picture.
Could Hillary and Jeb learn this and actually become the leaders they say that they are? I think not. Both have spent too much time learning to exquisitely paint by numbers, and would have no idea of what to do with a blank canvas.
If history repeats itself, Jeb and Hillary will become the candidates, and one of them will become President. Of course, I hope that is Hillary. But I would really prefer to support someone with a flair for painting, someone with an authentic picture to offer us, someone, like Bernie, who will lead by telling us what they really believe, and then let us decide to follow them.
That is the lesson that the political class could learn from Trump’s and Sanders’ successes. But, instead, they are too busy trying to figure out if we want a number 5 on the tree trunk or a number 6.
Sigh.
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