Another Mystery of the Universe
In an actual free market who would buy medical coverage from a company with a reputation for trying never to pay claims or dropping customers after they get sick?
The Market Doesn’t Ration
I want to give this one more shot.
When I buy a pound of apples rather than two pounds because I want to use my remaining money for other goods, it makes no sense to say the market rationed the apples. It also makes no sense to say that the grocer rationed the apples.
Similarly, if I am outbid for a quantity of steel because consumers are willing to pay more for my competitor’s final product than for mine, the market has not rationed steel.
Voluntary exchange has taken place. Not rationing.
We often talk about market’s rationing, but it is metaphorical not literal. Now, in the health care debate, that has come back to haunt us.
The market does not ration. Details here
A Market Based Approach?
I live in a small town, Garner, NC, which is right next to my state capital, Raleigh. There has been tremendous growth in the area. The other small towns are “revitalizing” their downtowns and, unfortunately, my town wants to do the same.
In a letter to the local newspaper, the Executive Director of the Garner Revitalization Association claimed that they were using a “market based approach.”
What does he based this claim upon?
He says, “First, we have enlisted experts to study the market to determine the types of retail, commercial and residential needs that are not currently being met.” So by hiring people to tell them what is “economically viable” they think that their approach is market based.
It doesn’t stop there. The Exec. Dir. further states that, “We have limited our planning to include only the amount of each of these products the local market can support – down to the square foot.”
So I suppose that only everything down to the square foot will be planned but anything smaller than that can be free! Thus, if you have a 11-square inch company, you can compete openly.
Honestly, do they really think that they know how many barber shops are viable in the downtown area? Yes, they really think they do. They know how many coffee shops there can be. They alone can determine the number of bakeries. Yes, this is the same market approach that Stalin used.
It is so sad to see that the lessons of history are being ignored in small town America. I guess the size of the town doesn’t matter, because all politicians can fall into the “Fatal Conceit.”
The Fallacy in Lowering Healthcare Costs
No one understands or explains healthcare economics better than John Goodman, president of the National Center for Policy Analysis. His latest brings some badly needed clear thinking to the subject of cost. Read it here.
A taste:
…the only “cost” that really matters is “social cost.” That is the cost to all of us collectively. I can always lower my private cost of care if I can get you to pay part of the bill. And you can always lower your private cost of care if you can find a way to shift some of your health care costs to me. These observations are both true and trivial. Social cost is society’s opportunity cost. It is what society as a whole must give up in order to be able to consume something.
Insurance for Abortion: What’s Wrong with This Picture?
The health-insurance nationalization bill that passed the House Saturday night has a lot of enemies. One reason for this is that in order to get a majority to support the bill, House Speaker Pelosi had to accept an amendment by Rep. Bart Stupak that would ban tax-funded abortions (except for rape, incest and danger to the mother’s life) under the “public option.” It would also bar people who get government insurance subsidies from buying policies with abortion coverage. However, AP reports: “Under the Stupak amendment, people who do not receive federal insurance subsidies could buy private insurance plans in the exchange that includes abortion coverage. People who receive federal subsidies could buy separate policies covering only abortions if they use only their own money to do it.”
To all those people who are upset by the amendment, I say: That’s what you get for inviting government to become involved in a personal matter like medical care.
But there’s a more fundamental point: How can there be such a thing as insurance coverage for elective abortions? Insurance emerged to protect one’s financial well-being against unlikely catastrophic happenings (as Thomas Szasz likes to call things that befall people). But an elective abortion (whatever your position on the issue) is not a happening. It’s a volitional act (which follows previous volitional act). How does a company insure against a volitional act? It can’t, but that doesn’t mean firms which we call insurance companies aren’t willing to appear to cover abortion by collecting payments from customers in advance. They are happy to do so, but only under the right circumstances. The key factor is that someone other than the insured person, such as an employer, must be willing to pay the premium. Of course when an employer pays the premium he reduces the employee’s cash wages, but most employees don’t understand that. So they think their insurance is paid for by someone else. But if the employee had to pay for her own insurance against elective abortion, I suspect she wouldn’t think it worth the price. That’s because the premium would consist of prepayment for possible future services plus costly administrative overhead. It would be a bad deal. What would she do if she decided she wanted an abortion? She’d pay out of savings or borrow the money. Insurance is a costly way to pay for things you (and the insurance company) know you may choose to buy one day.
Health Care and Medical Care
In the current Atlantic Megan McArdle discusses the flaws in using gross domestic product as a measurement of a country’s well-being and notes that a search is underway for alternative measures. (Actually Mark Skousen proposed one in The Freeman some years ago.) Her column contains this interesting paragraph:
One possible approach is to focus on hard indicators that we can measure in a fairly standard way. But these are scarce for some aspects of life, and even when they exist, can be tricky to interpret. Life expectancy, for example, seems pretty objective. It’s a metric on which the United States does relatively poorly, causing us endless consternation. A few years ago, however, the health-care economists Robert Ohsfeldt and John Schneider recalculated the numbers after controlling for deaths from homicides and traffic accidents. Because these things tend to strike very young people, they can have an outsize impact on mortality statistics. Those deaths reflect America’s crime policy and its driving habits more than the effectiveness of its health-care system. And if you remove them from the picture, say Ohsfeldt and Schneider, America jumps to the top of the life-expectancy tables.
Life-expectancy is often used to compare nations’ health-care systems, but it’s not a good measure, as McArdle points out. Thomas Sowell suggests we distinguish health care (our own efforts to take care of our health) from medical care (the services provided by doctors, nurses, and hospitals). Good idea.
Cash For Gold
I don’t remember seeing any commercials for “Cash for Gold” programs until the economic collapse last fall. Having not put any thought into the matter, I casually assumed people were simply hurting for cash and more willing to sell their gold. While this is probably true, after seeing yet another gold selling scheme hit the airwaves it occurred to me there could be more going on here. Check out the price of gold over the past year:
Hmmm. I knew it was going up, but that’s pretty impressive. I’m starting to rethink selling my bling. Maybe I’ll hang onto it for a little while longer. At least until there’s a “Cash for Gold” commercial on every air break. Anyone out there who knows about the gold market? Is this trend sustainable?
Distress Index Updated
FEE updated the Distress Index this morning to reflect the reported increase in GDP during 2009 Q3. As you might imagine the estimated increase of 3.5% in the GDP does not dramatically change our economic situation. GDP is still down -2.3% from a year and many of the gains were driven by unsustainable government stimulus.
The Family Tree of a Pencil
Many of you may be familiar with Leonard Read’s classic essay, “I, Pencil“.
A friend of mine recently drew a graphical representation of the I, Pencil story. He says,
I did not try to discount the essay by making this poster, but rather enhance it by conveying the point and theme in a different way with a different medium. My hope is that people will be stopped by the poster and first marvel at it; they will then hopefully question what makes our free market work so well and what either helps or hurts it. Obviously I hope they pick up “I, Pencil” as well. The work is done tongue-in-cheek as well as it is done on a flowchart, showing just how hard it is to merely map the flow of a pencil building process, let alone plan it. The tree form was chosen for two reasons – most obviously because it is a family tree, but also because the market is a living and growing organism, much like a tree.
The Leonard E Read Tribute, is formatted to 18 x 24 inches, standard poster size.
Cap and Trade 101
Paul Krugman is trying to lecture us about the economics of cap and trade this morning. He has a nice little graphic explaining the relationship between caps and costs. He insists that the blue “rents” in the chart should not be factored as costs because:
The creation of cap and trade means that emission permits command a market price, and the value of these permits — the blue rectangle — goes to someone. Under Waxman-Markey, some of it (a growing fraction over time) would be captured by the government through auctions, and used to cut or avoid increases in other taxes — in effect, recycled to consumers. The rest would be passed on to industry — but because the biggest recipients would be regulated utilities, much of this would also be passed on to consumers.
My very limited understanding of cap and trade, most of which was gained during my tenure at The Heartland Institute, is that the real issue is the stability of the permit price. Krugman’s basic explanation is plausible enough if the permit price is something stable and predictable. But in reality, the value of the permits will be determined solely by the emissions cap set by the EPA.
In other words, the alleged “market value” of tradable permits is subject to the whim of the government. This will make it impossible for energy producers to plan production beyond the next election cycle. Not a problem for politicians, but a BIG problem for business. Thus the “value” of permits will likely not factor into the production equation and therefore never be passed on to consumers, resulting in a cost increase for the end consumers.
