Food for thought…

Why markets can’t cure healthcare

Judging both from comments on this blog and from some of my mail, a significant number of Americans believe that the answer to our health care problems — indeed, the only answer — is to rely on the free market. Quite a few seem to believe that this view reflects the lessons of economic theory.

Not so. One of the most influential economic papers of the postwar era was Kenneth Arrow’s Uncertainty and the welfare economics of health care, which demonstrated — decisively, I and many others believe — that health care can’t be marketed like bread or TVs. Let me offer my own version of Arrow’s argument.

There are two strongly distinctive aspects of health care. One is that you don’t know when or whether you’ll need care — but if you do, the care can be extremely expensive. The big bucks are in triple coronary bypass surgery, not routine visits to the doctor’s office; and very, very few people can afford to pay major medical costs out of pocket.

This tells you right away that health care can’t be sold like bread. It must be largely paid for by some kind of insurance. And this in turn means that someone other than the patient ends up making decisions about what to buy. Consumer choice is nonsense when it comes to health care. And you can’t just trust insurance companies either — they’re not in business for their health, or yours.

This problem is made worse by the fact that actually paying for your health care is a loss from an insurers’ point of view — they actually refer to it as “medical costs.” This means both that insurers try to deny as many claims as possible, and that they try to avoid covering people who are actually likely to need care. Both of these strategies use a lot of resources, which is why private insurance has much higher administrative costs than single-payer systems. And since there’s a widespread sense that our fellow citizens should get the care we need — not everyone agrees, but most do — this means that private insurance basically spends a lot of money on socially destructive activities.

The second thing about health care is that it’s complicated, and you can’t rely on experience or comparison shopping. (“I hear they’ve got a real deal on stents over at St. Mary’s!”) That’s why doctors are supposed to follow an ethical code, why we expect more from them than from bakers or grocery store owners.

You could rely on a health maintenance organization to make the hard choices and do the cost management, and to some extent we do. But HMOs have been highly limited in their ability to achieve cost-effectiveness because people don’t trust them — they’re profit-making institutions, and your treatment is their cost.

Between those two factors, health care just doesn’t work as a standard market story.

All of this doesn’t necessarily mean that socialized medicine, or even single-payer, is the only way to go. There are a number of successful health-care systems, at least as measured by pretty good care much cheaper than here, and they are quite different from each other. There are, however, no examples of successful health care based on the principles of the free market, for one simple reason: in health care, the free market just doesn’t work. And people who say that the market is the answer are flying in the face of both theory and overwhelming evidence.

Jealous? My library is so great.

http://catholicanarchy.org/?p=982

Intro to Ideas about Globalization

Globalization is fodder for no casual opinions. Loved by most economists and loathed by many (most?) politicians and social thinkers, globalization is a phenomenon that affects everyone. I put opinions about globalization into these categories.

1) Maximizing wealth argument (Free-trade)
2) America supremacy argument (GM style protectionism)
3) Local supremacy (Michael Pollen consumer choice protectionism)
4) Third-world sweat shop argument (Fair-trade)
5) Third-world sweat shop argument (Marxists anti-corporation)
6) Third-world sweat shop argument (Free-trade)
7) Ecological argument (semi-protectionism)

I don’t think I need to put too much explanation into these given that many are likely familiar with most of these arguments and talking points. The first is the unsalable idea that each nation is better off through free trade , though certain individuals and groups may not be. The second is the backward idea all too present in modern politics to “protect American jobs” by subsidizing American companies through tariff privileges. The third argument is an interesting approach in which consumers preference local over global according to personal social and sustainability concerns, instead of cost or technical quality.

Arguments 4-6 are based on a talking point used to defend a spectrum of political and economic starting points. Fair Trade says the workers of the world are often paid too little and consumers should choose goods produced by companies that pay their workers a decent wage. The Anti-corporation argument says that corporations are using their power to extract a surplus from the proletariat of the world. The Free-Trade argument says only by trading with these companies will the poor of the world have the jobs they need to claw out of poverty. Last of all, the ecological argument says that corporations seek out nations with lightly regulated natural resources they can plunder and sell to other countries with highly regulated natural resources.

I personally see categories 1, 3, 6, and 7 as valid arguments or concerns. Category 2 is rightfully shunned by most economists, 4 is like putting duck tape on a broken table leg, and 5 needs some help. The Marxist argument and the ecological argument will come into play with my argument showing how wage slavery is related to globalization.

Wage Slavery and Globalization

My argument is that globalization makes third world countries richer but less sustainable while exacerbating class separation. The proletariat are only marginally better off or, in some cases, worse off.

Third world countries are richer because category 1 above is valid. Due to comparative advantages, countries that trade are better off than countries that don’t trade in net aggregate wealth. This is a fact and essentially uncontested by professional economists.

Countries that trade freely tend to be less sustainable because category 7 is valid above. Free trade is not ecologically neutral. Country A may levy any number of fees or regulations to normalize ecological externalities from business activity, all of which come at a cost to businesses in country A, but if Country B does not keep the same level of fees and regulations, then free trade between countries A and B will cause country B’s natural resources to be plundered for the benefit of country A in so far as there is marginal benefits to doing so. In short, free trade is just like removing boarders. If west Canada prohibits logging while east Canada does not, you can be assured that logging from the east will move west. Likewise between Canada and the US if no tariffs are levied. In this regard, nations with strong environmental laws effectively force the increase of environmental degradation in other countries – third world countries in particular.

Class separation follows from category 1 above due to the rent argument I laid out in the original post. As nations grow wealthier, property is bid up such as to eat up the lion’s share of the increase in wages to the proletariat. The proletariat is often marginally better off in the long run and may be exceptionally better off in the short run depending on the situation and the culture. China, for example, had a booming middle class through the early 2000’s followed by exploding rents. Those lucky enough to have locked in rents early via 30year mortgages and the like will be better off in the long run. Late arrivers will be worse off even if their wages are comparable or better. In the end, though, early owners of capital, real property in particular, will be overwhelming better off by large margins compared to the proletariat. Hence the class separation. Hence the “wage slavery”. Though the proletariat may very well be producing exponentially more than before industrialization, their net wages after rent will likely only be marginally better. Like slavery, they are not able to free themselves from these chains of injustice.