Deconstructing Healthcare: Allocating Resources

In the first installment of my attempt to analyze how healthcare systems function I took at look at ways in which healthcare providers are compensated. I thought I’d continue in my efforts by posting about healthcare resources are allocated.

In the national discussion about healthcare reform I’ve begun to hear a lot about rationing. For example:

“Rationing.”

It is what many people say they fear most from an overhaul of the health care system — the prospect of the federal government’s limiting the medical care they can receive.

Even some people who now have private health insurance through their employers have expressed this concern in opinion polls and public forums. They say they worry that the enormous price tag for providing care to tens of millions of additional Americans will eventually force everyone else to make do with less.

Is that a realistic fear?

Policy experts say people are rightly concerned about the nation’s health care costs. But they also say there is nothing in the current proposals in Washington to suggest that the country is likely to embark on a system of medical rationing anytime soon.

Despite the author’s attempt to assuage concern by pooh-poohing the idea of rationing, rationing or resource allocation goes on all of the time whether by government, insurance companies, or by the relative preferences of individual healthcare producers and consumers. As long as wants are infinite and supplies are limited there are must be some mechanism for allocating the resource.

There are only three methods of allocating resources: fiat, the political process, and markets.

In a fiat (or command) economy resources are allocated according to the will of the all-powerful autocrat. It makes no difference whatever what the actual needs are or whether the allocation of resources according to that particular formula makes anybody but the autocrat happy. The autocrat might be a king, a monopoly, a technocrat, or a commisar. It makes no difference. It’s still a command system.

In most developed countries the political process allocates healthcare resources. Most European countries have a broad political consensus that supports allocating healthcare resources according to some formula arrived at through a combination of the healthcare technocrats, politicians, and private companies but it’s fundamentally a political process. There can be no mistaking that when you hear MP’s raising questions about the availability or quality of healthcare in their districts at question time, as frequently occurs.

The third method for allocating healthcare resources is via the market. One of the great contributions of classical economics is the description of the process of the market as a method for maximizing happiness or welfare, as it’s usually called by economists. I have eggs; you want eggs. We agree on a price and both of us are happier as a result of the transaction.

Critics of a market system point to the asymmetric nature of transactions. I, a poor man, am starving. You, a rich man, have food. You’ll exploit me by charging a ruinous price, knowing I have no choice but to pay it. This is a fallacy on any number of grounds.

First, it presumes that there is a true price. There isn’t. The price doesn’t determine the transaction, the transaction determines the price.

Second, it’s a red herring, irrelevant. Both parties in the transaction are still happier than they would have been had they not entered into the transaction. Pointing to exploitation is suggesting some hypothetical and unknowable level of happiness that might have been achieved under some unprovable conditions.

The market maximizes welfare.

We do not have a market system. Our system, like those of most other developed countries is a hybrid. Indeed, it’s a command system and a system based on the political process and a system based on the market. The mix may be a little different here than elsewhere but we have a hybrid system nonetheless. You see the fiat system, for example, in the workings of the court in a malpractice suit. The outcome of a malpractice suit is an allocation of healthcare resources by fiat. There are dozens of other examples including the operations of local or national monopolies in insurance, hospitals, medical equipment, pharmaceuticals, and so on.

If you do not recognize that the political process is a powerful allocator of healthcare resources you simply have not been paying attention. Medicare, Medicaid, the Veteran’s Administration, and a horde of other institutions, large and small, are all examples of allocating healthcare resources through the political process.

We also have a market in healthcare. In my view it’s relatively small and most obvious in the areas where the system is least regulated, e.g. food supplements.

There are two very important things to recognize. There is no system of allocation by need. Anywhere. Some systems may claim to be an allocation by need but it’s a lie. They are allocations according to fiat, politics, or the market. There’s no other alternative.

The second thing is that in any system other than a pure market system there will be a deadweight loss. That’s the difference in production and, consequently, welfare that results from allocating more or fewer resources than the market would have arrived at. Fiat systems, in particular, are notorioius for producing shortages at some times, surpluses at others. That is deadweight loss.

24 comments… add one
  • Sam Link

    To claim that markets are efficient is to claim that we know everything there is to know about human psychology. Markets, functioning in a vacuum, run autonomously by computers without human involvement might be efficient, but throw a person in there, with tendencies to follow the crowd into bad investments and overreact when they are down, I don’t think you can call it efficient anymore. Combine this with human emotions of greed, jealousy and envy, a genuine free market is unsustainable in any system of government.
    In health care, there’s some people that aren’t happy – those that can’t get it. A free market system may be content to just not sell it to people who can’t afford it and pave the streets with their bones, but our market functions inside a Democracy and some people’s feelings might be hurt by this.

  • Of course. That’s why we, like every other developed economy, have a hybrid system. IMO the most appropriate role for government WRT the economy is to promote the conditions that make markets most efficient and most free.

    But it’s important to remember that free markets are artifacts.

  • What people fear is political rationing, and with good reason. Look at how resources we allocated in places like the former Soviet Union and Eastern Europe. People at the top and with good political connections get what they want while the rest go without. The whole system made a mockery of “from each according to his ability and to each according to his need.”

    [Side note: Its amazing after so much empirical evidence some still think there is a pony in such a system of allocating resources.]

    The market/price mechanism is a method of allocating resources just one that is done via ability to pay and is completely decentralized. And before people show up with righteous indignation and bemoan the awful state of health care in the U.S., please pull your head out of your fourth point of contact. The U.S. does not have a system that is entirely market driven. In fact, a huge chunk of it is not market driven at all.

    Yes you have problems with recission for example, but how much of that is due to creating smaller sub-markets vs. a national market? Each state has its own health care rules and regulations and regulatory bodies. This creates barriers to entry and that reduces market participants. This in turn drives up market power (and profits). Removing barriers to entry would increase the number of participants, reduce prices and lower profits. Could this be one possible way of dealing with recission? I don’t know, but it might be worth looking at.

    How would it work? Suppose we have a market with 100 competing sellers and millions of buyers. Most consumers see recission as a bad thing, so they’d like to avoid it. If recission is taking place on completely bogus grounds then it strikes me as creating possible profit opportunities for those companies that don’t engage in the practice (at least for bogus reasons). Now if you have only 2 competitors in the market then they might reach and equilibrium in the “game” they are playing where they each engage in recission and don’t try to compete against each other on this front (think of a repeated prisoner’s dilemma). Such coordination gets harder to maintain when you have a larger number of players.

    Of course, it could be possible that it never pays to not practice recission on bogus grounds in which case increased competition wont help this. Still it has potential and we don’t have to resort to government fiat to solve the problem.

    To claim that markets are efficient is to claim that we know everything there is to know about human psychology. Markets, functioning in a vacuum, run autonomously by computers without human involvement might be efficient, but throw a person in there, with tendencies to follow the crowd into bad investments and overreact when they are down, I don’t think you can call it efficient anymore. Combine this with human emotions of greed, jealousy and envy, a genuine free market is unsustainable in any system of government.

    Nonsense. Markets provide the vast bulk of our consumer goods today. The type of efficiency you are describing is that of the engineers and it is the wrong definition. Further, a quick scan of countries where the government is in charge shows systems of allocating resources that are far, far worse.

    In health care, there’s some people that aren’t happy – those that can’t get it. A free market system may be content to just not sell it to people who can’t afford it and pave the streets with their bones, but our market functions inside a Democracy and some people’s feelings might be hurt by this.

    This is also nonsesne in that it leaves out so damned much.

    First, health care is not the same as health insurance. The latter is how many people make sure they can get the former when they need it–well that is the classical definition, nowadays for most people the two are synonymous which is why health insurance premiums are so high. Second, some of the people without health insurance have made a decision not to obtain it even though they could afford it. Finally, how do we know that having some people uninsured isn’t the efficient outcome. If it is, then setting up the system so everyone has health insurance is actually a move in favor on inefficiency.

    Dave,

    You misread Sam. He is saying that the market will never work in any system of government, hence your answer is really a non-answer.

  • I guess it’s that I’m not a purist.

    Markets don’t need to be perfect to be better than the alternatives. Of course, if you’re the all-powerful autocrat or can manage a permanent political majority fiat systems or pure political systems can look pretty nice, too. For you.

    For some reason people never seem to imagine themselves on the excluded end of a command system or a political one.

  • Drew Link
  • Sam Link

    @Dave – Unfortunately any move the removes the veil and shows an individual the true cost is unpopular to an unacceptable percentage of the population. When is the last time common sense prevail AND it was popular? Now we have the conservative party positioning themselves as the defenders of an entitlement that they didn’t want in the first place. It’s really very amusing.

  • Now we have the conservative party positioning themselves as the defenders of an entitlement that they didn’t want in the first place. It’s really very amusing.

    But what does it tell you about the process? It tells you that the politicians really aren’t wonderful people, but bad people, IMO. Further, that if you are looking to this process for salvation you are likely to be disappointed, as a general rule.

    My guess is that no improvements will be made and the system will eventually collapse and oh boy…that wont be pretty.

    And yes Drew, a good read.

  • Sam Link

    @Steve – It tells me that “democracy is the worst form of government except all the others that have been tried”

  • Brett Link

    There are two very important things to recognize. There is no system of allocation by need. Anywhere.

    Some places get pretty close. At least from what I hear from Canadians, getting a doctor’s appointment is usually based on need – if your condition isn’t particularly serious, you’ll wait, but if you have a major emergency you go right to the front. One told me he waited about six months to get his hernia operated on because it wasn’t particularly serious, whereas a guy with a more serious hernia got treated immediately.

    The U.S. does not have a system that is entirely market driven. In fact, a huge chunk of it is not market driven at all.

    So what? I’ve pointed out elsewhere that there are reasons why this isn’t the case – society generally frowns upon letting people die for lack of emergency care, and you’d be hard-pressed to find even a diehard Republican politician who will openly admit that he’d rather let people die for lack of insurance coverage than pay for it somehow.

    If recission is taking place on completely bogus grounds then it strikes me as creating possible profit opportunities for those companies that don’t engage in the practice (at least for bogus reasons).

    Recission is about finding niggling technicalities like an unmentioned condition on the application. By definition, there’s no “completely bogus” reason for doing so – the practice is condemned not because it’s illegal, but because it’s considered to be rather unpleasant and unethical.

    Moreover, you’re assuming that people will actually consider the possibility of recission when choosing health insurance. I’ve seen no evidence supporting such a statement.

    Second, some of the people without health insurance have made a decision not to obtain it even though they could afford it.

    Which is actually a failure of the market, since their costs still end up falling on the rest of society anyways if they get a major cost uninsured.

    Finally, how do we know that having some people uninsured isn’t the efficient outcome.

    Efficient, maybe – since that means that the resources can flow to those with the money to pay for them individually.

    But not socially optimal, unless you saying that leaving a subset of people unable to purchase health care coverage (risking bankruptcy at best and death at worst) at risk (along with those with under-insurance) is a socially optimal situation.

    Unfortunately any move the removes the veil and shows an individual the true cost is unpopular to an unacceptable percentage of the population. When is the last time common sense prevail AND it was popular?

    We’ve already experienced that throughout most of human history and up to the early part of the twentieth century, where if you had money to pay for medical help, you got it – and if not, well, too bad for being poor. I think we can do better than “fuck the poor” as a society, though.

  • PD Shaw Link

    Dave, there certainly has to be a better example of the coercive influence of government than coercing malpractice claims. If I buy food from you, but in return for my money you deliver either nothing or poisoned food, my use of legal process to seek recourse certainly would require government coercion. But it’s essentially a truism that the marketplace exists nowhere without the government’s backing.

    Closer to your point I believe is that the government has for hundreds of years imposed extra-contractual duties on physicians in exchange for legal guild protection. I cannot hire a doctor to perform sub-standard medical care in exchange for reduction in price. The doctor must provide guild-level care irregardless. In contrast, there is a lot of bargaining space in areas like the construction industry to contract for various levels of quality.

    This notion of legally protected guild (licensing) subject to enforceable guild standards (extra-ordinary lawsuits) goes back IIRC to Henry VIII. It would be at that point, I believe we no longer were operating under normal market conditions.

  • Some places get pretty close. At least from what I hear from Canadians, getting a doctor’s appointment is usually based on need – if your condition isn’t particularly serious, you’ll wait, but if you have a major emergency you go right to the front.

    That’s genuinely not the way I interpret things, Brett. The way I see it there’s a two-fold consensus in Canada. The first component of the consensus is that the government should manage healthcare. The second component is that Canadians should be willing to regulate their demands on the system.

    There’s no such consensus here. If the healthcare debate demonstrates nothing else, it should be that. There’s a tenuous consensus that the rest of us should be willing to pay for the healthcare of the poor and the elderly but my sense is that consensus, too, is shaky. I see no general support for the idea that the government should be managing a lot more in healthcare or that we should be willing to accept a lot less.

    As Elbert Hubbard put it a century ago “When 51% of the people are willing to give rather than get, I’ll be a socialist”. For good or ill I see more people with their hands out than reaching for their wallets.

  • So what? I’ve pointed out elsewhere that there are reasons why this isn’t the case – society generally frowns upon ….

    Okay you missed the point. The point is that complaining that our system is messed up and that market based reforms don’t work because our system is messed up isn’t particularly stellar logic…but people use it all the time.

    Now that you’ve admitted the U.S. is not really a free market, what are your objections to implementing market based reforms when the conditions hold:

    1. Care is not denied.
    2. Quality of care is not reduced.
    3. Costs are reduced and/or the growth of costs are reduced.

    If we have a situation where all thre obtain what is the problem? The only rational argument I can see is that a non-market based approach does better. Other than that objections are purely irrational.

    Recission is about finding niggling technicalities like an unmentioned condition on the application. By definition, there’s no “completely bogus” reason for doing so – the practice is condemned not because it’s illegal, but because it’s considered to be rather unpleasant and unethical.

    Then it is bogus, by bogus I wasn’t saying it isn’t true, but that the reason is invalid. It is like me saying I hate you because your name starts with a B. Its true, your name starts with a B, but most people would consider that a crazy reason to hate anyone.

    Moreover, you’re assuming that people will actually consider the possibility of recission when choosing health insurance. I’ve seen no evidence supporting such a statement.

    If people are foolish when entering a contract then they should be held accountable for their foolishness. Entering into a contract where the costs are very large and you don’t read through the fine print? Really? Next you’ll tell me that people who treated their homes like ATM machines and bought jet skis, HDTVs, and went on a european vacation were unwitting dupes of unscruplus lenders and that Bernard Madoff’s victims weren’t really willing to delude themselves about that 10% year-in-year-out return.

    Besides, if I was one of those insurance companies seeing a profit opportunity by pointing out a competitor engages in recission…I would. “Come on over to Verdon Health Insurance where we don’t practice recission and cut of your health coverage when you need it most!”

    Here is a final lesson–not all advertising is evil.

    Which is actually a failure of the market, since their costs still end up falling on the rest of society anyways if they get a major cost uninsured.

    No it isn’t. If they make that decision then that is not a market failure. That any medical costs they incur are again not a market failure since we have passed laws that prevent the market from doing what it would normally do…not provide them medical care save via charity. And charity is not a market failure either.

    Efficient, maybe – since that means that the resources can flow to those with the money to pay for them individually.

    No it means that the only way to make one person better off is to make one or more person(s) worse off. That is what economic efficiency means. You have to robe Peter, Paul, and Betty to pay Veronica, to put it more simply.

    But not socially optimal, unless you saying that leaving a subset of people unable to purchase health care coverage (risking bankruptcy at best and death at worst) at risk (along with those with under-insurance) is a socially optimal situation.

    Must not let the snark come through……Okay there got it under control.

    We do this all the time. As a society we accept that people are going to die needlessly and we are fine with that. This is why the speed limit on freeways is 65mph, why the speed limit in a residential neighborhood is 25mph, why we let people buy things like insecticides, have electricity in their homes, and 5 gallon buckets (do you know how many babies die each year in 5 gallon buckets?). Why should health care be any different? Why should it be a right, but not make it a right for a child to not be killed by a car when chasing a ball into the street? We could make the speed limit 5mph in a residential neighborhood after all.

    Defining the notion of a social optimum is very difficult. Kenneth Arrow tried and failed. In fact, he not only failed he showed that under a generalized set of assumptions it was not possible at all (and it was one of the things that helped get him a Nobel).

    PD Shaw,

    But it’s essentially a truism that the marketplace exists nowhere without the government’s backing.

    Well, anarcho-capitalists have argued that the Old West didn’t have much government and there were markets. Also, some have pointed to early Pennsylvania when for a period of time its government was virtually non-existent, again markets existed. Enforcement of contracts can become problematic, but there have been suggestions on how a market could overcome these problems.

  • The problem with markets in health care is that consumers are at (a) a disadvantage of knowledge — health care is a pretty specialized subject, and caregivers know a lot more about pros/cons than the average person (b) a disadvantage of leverage: you can’t exactly negotiate the price of treatment when you’re in the middle of having a heart attack.

    In theory, this is why we should be relying on insurance companies. But health insurance company incentives, unlike other types of insurance which typically cover one-time events, don’t really run in the direction of paying claims.

  • Brett Link

    That’s genuinely not the way I interpret things, Brett. The way I see it there’s a two-fold consensus in Canada. The first component of the consensus is that the government should manage healthcare. The second component is that Canadians should be willing to regulate their demands on the system.

    There’s generally a consensus that the government should be involved in promoting universal care (although this usually amounts to working on the “demand” side, since that’s what the Canadian system is – single-payer – and it works heavily on the provincial level as well), but I’ve never heard of anything on the level of the latter.

    There’s a tenuous consensus that the rest of us should be willing to pay for the healthcare of the poor and the elderly but my sense is that consensus, too, is shaky.

    I’d say Americans are more hypocritical and self-divided than anything else – they won’t really, openly take the position that health care of the poor and elderly shouldn’t be their problem for the most part, but they’re reluctant to actually pay for it.

    Now that you’ve admitted the U.S. is not really a free market, what are your objections to implementing market based reforms when the conditions hold:

    1. Care is not denied.
    2. Quality of care is not reduced.
    3. Costs are reduced and/or the growth of costs are reduced.

    Weren’t you just complaining about how the system does not in any way resemble a free market in health care? The above reforms, and the means necessary to reach them, won’t create one.

    Then it is bogus, by bogus I wasn’t saying it isn’t true, but that the reason is invalid. It is like me saying I hate you because your name starts with a B. Its true, your name starts with a B, but most people would consider that a crazy reason to hate anyone.

    You missed my point, which was that while it is considered rather unethical to do recission like the above, legally there’s often nothing wrong with it. That’s why I said, technically speaking, there usually aren’t totally bogus recissions, since it’s based around finding gray areas in the contract.

    If people are foolish when entering a contract then they should be held accountable for their foolishness.

    Few people give a shit when somebody gets themselves in debt over a self-inflicted wound by buying a television they can’t afford. They tend to care more when their life is on the line, due to a condition they often had little power to avoid. It’s a matter of minimizing human suffering.

    And charity is not a market failure either.

    True, but I wouldn’t think it’s some magic bullet to save you from the human consequences. We had largely charitable care in the 19th century, and there’s a reason why we started moving toward government programs on the federal and state levels (not to mention that many of the bigger charities are heavily dependent on government grants for funding – look up United Way’s funding sources, for example).

    Must not let the snark come through……Okay there got it under control.

    I imagine that as a libertarian, you would find that type of thing amusing. Libertarians aren’t known for compassion.

    Why should health care be any different?

    It all comes down to choice, Steve – people don’t generally choose to get seriously ill, whereas you choose to run that risk whenever you get in a car.

    And even then, society frequently does try to limit needless death. Notice how we don’t allow dueling anymore as a way of settling disputes, or have regulations on what type of meat and food can be sold and in what condition?

    Defining the notion of a social optimum is very difficult. Kenneth Arrow tried and failed. In fact, he not only failed he showed that under a generalized set of assumptions it was not possible at all (and it was one of the things that helped get him a Nobel).

    I generally try to reach a conclusion that leaves the greatest aggregate of people within a society the most well off.

    Well, anarcho-capitalists have argued that the Old West didn’t have much government and there were markets.

    There’s trade without any real type of enforcement mechanism, but usually markets won’t work without one (even if that mechanism amounts to “steal my stuff and I and the whole community will lynch you”).

  • The problem with markets in health care is that consumers are at (a) a disadvantage of knowledge — health care is a pretty specialized subject, and caregivers know a lot more about pros/cons than the average person (b) a disadvantage of leverage: you can’t exactly negotiate the price of treatment when you’re in the middle of having a heart attack.

    Lots of things have specialized knowledge yet we have functioning markets. This is, at best, an argument for regulation, not displacement. Or if you are going to argue displacement I’d suggest you’d better have lots of evidence to back you up…which you don’t.

    When you look at Europe the better systems, both in terms of costs and outcomes, tend to be those with the more market oriented systems–e.g. the Netherlands, Switzerland, France, etc.

    In theory, this is why we should be relying on insurance companies. But health insurance company incentives, unlike other types of insurance which typically cover one-time events, don’t really run in the direction of paying claims.

    This can be changed so that insurance contracts go from period to period. This objection is like noting that optimization problems of several time periods is hard to do, but amazingly mathematicians have come up with such techniques. And before anyone starts to complain about insurance not being math…talk to an actuary, people who “major” in that in college also fall into the major known as “math”.

    For example, here is John Cochrane’s idea.

    But what about pre-existing conditions?

    A truly effective insurance policy would combine coverage for this year’s expenses with the right to buy insurance in the future at a set price. Today, employer-based group coverage provides the former but, crucially, not the latter. A “guaranteed renewable” individual insurance contract is the simplest way to deliver both. Once you sign up, you can keep insurance for life, and your premiums do not rise if you get sicker. Term life insurance, for example, is fully guaranteed renewable. Individual health insurance is mostly so. And insurers are getting more creative. UnitedHealth now lets you buy the right to future insurance—insurance against developing a pre-existing condition.

    I’ve argued that one thing intellecutal property laws do is limit inovation….well okay it is an argument put forward by Michele Boldrin and David Levine, but the argument and evidence they present is pretty compelling.

    I’d go another step, anything that reduces competition (and intellectual property laws do just that by creating a temporary monopoly) in all likelihood reduces innovation. If you have a monopoly and monopoly profits gauranteed for a period of time why innovate? You’ve got a cash cow, enjoy. On the other hand if you have lots of competition who probably will start imitating you, then you have to inovate to stay ahead. Young new industries where intellectual property laws are not in place tend to be much more innovative than older industries that have built up intellectual property laws.

    How does this relate to insurance? Each state has its own set of regulations and regulators. To the extent that it requires special knowledge and that rent seeking by incumbents can adversely impact entrants it limits competition and would thus stifle inovation.

    This doesn’t mean we need to get rid of the state regulations and regulators, but make them as similar as possible or create a nationwide set of regulations. I’ve argued the same thing for gasoline blends as well. More competition usually means more innovation, lower prices, and greater consumer choice. Less competition means less inovation, higher prices and less choice. Which is better seems pretty obvious to me. Do we see Obama and his cronies proposing something like this? I’m not aware of it. Maybe its because him and his cronies don’t want to upset insurance companies…they can be powerful friends and good donors after all.

  • Brett,

    Weren’t you just complaining about how the system does not in any way resemble a free market in health care?

    No, I was merely noting that our system is not just a free market system, but one with massive government involvement already. Hence objections to market oriented reforms are due either to dishonesty or irrationality.

    You missed my point, which was that while it is considered rather unethical to do recission like the above, legally there’s often nothing wrong with it. That’s why I said, technically speaking, there usually aren’t totally bogus recissions, since it’s based around finding gray areas in the contract.

    Whatever, it still doesn’t address my point that greater competition could be one way of addressing the problem. What happens if a car insurance company drags its feet paying claims? My guess is people look for a new insurance company. I know I would.

    Few people give a shit when somebody gets themselves in debt over a self-inflicted wound by buying a television they can’t afford. They tend to care more when their life is on the line, due to a condition they often had little power to avoid. It’s a matter of minimizing human suffering.

    If I’m going to be on the hook financially for someone not reading the fine print you can expect me to treat them like a f*cking moron, even if their life is on the line.

    True, but I wouldn’t think it’s some magic bullet to save you from the human consequences.

    Do you walk to work or carry a lunch? Seriously, I never said charity was any kind of bullet magical or otherwise. My point is that market failures are not people making a decision they later regret nor is it described by charity. That is all.

    I imagine that as a libertarian, you would find that type of thing amusing. Libertarians aren’t known for compassion.

    It has nothing to do with compassion, but your inability to grasp reality. As I noted, society has put a finite price on a human life and as a result engage in policies that result in needless deaths.

    It all comes down to choice, Steve – people don’t generally choose to get seriously ill, whereas you choose to run that risk whenever you get in a car.

    I disagree. It isn’t just about risks that people make decisions about, but other risks as well. Two things, health care also deals with people who do decide to take risks (driving cars, sky diving, snow boarding, etc. can all lead to injury and a need for health care). Also there are things like poor life style choices like consuming too much salt, drinking too much, or being too sedentary. And as a society we don’t to make reimbursements to people who die taking no risks either. If a child is shot by some nitwit who shot his gun up into the air 2 miles away…we don’t run around taxing everyone else to compensate for that loss.

    I generally try to reach a conclusion that leaves the greatest aggregate of people within a society the most well off.

    So you’d be in favor of policy that made 90% of the people better off but killed 10% of the people? That type of social welfare function is not usually considered a very good one, it is rather utilitarian which could lead you to being rather like a libertarian. Where is your compassion? :p

    There’s trade without any real type of enforcement mechanism, but usually markets won’t work without one (even if that mechanism amounts to “steal my stuff and I and the whole community will lynch you”).

    Precisely, and its not government. That is what anarcho-capitalists argue, that private courts and even police forces could arise without government, or if you favor David Friedman’s view, we’d go from our current situation to anarcho-capitalism gradually, so that private systems would supplant the government ones. The arguement is not that there should be no enforcement mechanism, but that government isn’t necessary for there to be an enforcement mechanism.

  • Now that you’ve admitted the U.S. is not really a free market, what are your objections to implementing market based reforms when the conditions hold:

    1. Care is not denied.
    2. Quality of care is not reduced.
    3. Costs are reduced and/or the growth of costs are reduced.

    If we have a situation where all thre obtain what is the problem?

    By the way Brett you never answered the question. It wasn’t merely rhetorical. If you have objections and don’t think they are irrational, I’d love to see them.

  • steve Link

    I think Drew’s insistence on first principles is what worries me about free market reform, and why I would like to see a functioning model first. Alex mentioned asymmetry in knowledge, but it is also joined with asymmetry in power (or leverage as Alex would say), real time limitations and the problem that both parties are not free to walk away if they choose. I cannot think of any other product that meets these conditions.

    Lots of medical care is elective. The more elective it is, the more it is amenable to free market solutions. That is what makes Lasik and plastics work well. When care is not really elective, it works much less like a market. This is true in more than just time and knowledge limitations, it also works in geographical limitations. How will you provide for competition in small towns where there are only one or two general surgeons? Larger towns may have just one orthopedic group. Monopolies you say? Call coverage they will claim, and often rightfully so. Who wants to be on call every third night at 60 y/o.

    Finally, remember that so much health care consumption occurs when we are not at our best. Suppose we achieve the libertarian wet dream of eradicating Medicare. Now I get to have 85 y/o’s with newly diagnosed cancer making the best free market decision? You really think that they are going to go on-line and research? Trust me (I’m a Doctor LOL), even people in their 40’s and 50’s making decisions under the duress of a new bad diagnosis are very often not rational (in the economic sense). Throw in a smidge of time pressure and it is worse.

    Drew-The Goldhill article had many flaws. I would not cite the whole thing, just use excerpts where he was actually correct.

    Steve

  • Brett Link

    By the way Brett you never answered the question. It wasn’t merely rhetorical. If you have objections and don’t think they are irrational, I’d love to see them.

    I don’t really have objections, aside from my belief that you do require some type of mandate to buy insurance, otherwise you will get some free-riders who will not buy insurance out of short-term self-interest, get sick, and then end up dumping the burden of their illness on the unwitting hospital.

    If a child is shot by some nitwit who shot his gun up into the air 2 miles away…we don’t run around taxing everyone else to compensate for that loss.

    Aside from the money collected to try his stupid ass, as well as any children-health care funded by the state (assuming they qualify).

    So you’d be in favor of policy that made 90% of the people better off but killed 10% of the people?

    I’m more of what you could call a “Rule Utilitarian”, in that I believe that society should try to promote the long-term welfare of all (or if that won’t work, as many as possible) its citizens by setting up rules to promote it.

    Precisely, and its not government. That is what anarcho-capitalists argue, that private courts and even police forces could arise without government,

    I’m rather skeptical that that could work beyond the level of “small community”, where you have factors like social pressure and the like to create conformity to laws and norms.

    Once you get beyond that, what you see emerging in human history is usually some type of agent (be it a landlord, aristocrat, or state) that offers protection against others as well as providing certain services. It’s happened countless times, in pretty much every environment from the collapse of the Western Roman Empire to drug ganglands.

    Not that that agent is entirely beneficial – quite the opposite in fact. The local aristocrat might protect your crops from getting stolen every August, but he also takes half of your week in required labor, and views you as little more than an animal.

    That is what anarcho-capitalists argue, that private courts and even police forces could arise without government, or if you favor David Friedman’s view, we’d go from our current situation to anarcho-capitalism gradually, so that private systems would supplant the government ones. The arguement is not that there should be no enforcement mechanism, but that government isn’t necessary for there to be an enforcement mechanism.

    I usually ask these questions of every person I come across who advocates this, so I’ll ask you – what, in this system, is preventing

    A)disparities of power leading to the re-consolidation of “government” in some form or another? That’s what historically happened, after all – groups with more power (and usually who were better at organized violence) conquered, assimilated, or drove out groups who weren’t so competent.

    B)the private security forces, presumably unchained by any greater authority (that’s usually the difference between anarcho-capitalists and libertarians – libertarians usually recognize the need for a greater state with enforcement capabilities), from basically turning into local rackets? I could easily see a situation where the local security groups hammer out a “gentlemen’s agreement” to carve up the local neighborhood into respective “fiefs”.

    I mean, think about the second situation. Let’s suppose you’re John Everyman, living in a certain town, and you’re with IronGuard Security. Its men, however, have basically turned into corrupt thugs who shake down the people who live in their areas and provide minimal security. You hear good things about Security Co, though – they have a longer response time, but a reputation for being professionals. IronGuard gets word that you might be switching, and they show up and tell you that if you stop doing business with them, they’ll break your knees. What do you do?

    This doesn’t happen in real life because ultimately, existing private security forces can be brought to justice by public police, who are themselves under the control of the government (although I won’t pretend they’re saints), and usually under the greater control of the state as a whole (if the police got too disloyal, the US could always authorize the army to put them in their place). But in this situation, there’s really no one to bring a corrupt group to justice aside from the community (which works on a small scale, and if you have a communal effort for policing you’re basically getting back to public police), and other security groups, who may or may not have incentives to do so (particularly if the corrupt group is well-armed and could inflict casualties on them for trying to “cut in”).

  • Alex mentioned asymmetry in knowledge, but it is also joined with asymmetry in power (or leverage as Alex would say), real time limitations and the problem that both parties are not free to walk away if they choose.

    Isn’t this even more true with government? Walk away from the guys with guns and the legal authority to incarcerate you, and going by Alex Knapp’s post at OTB today, even execute…yes even if you are innocent?

    Finally, remember that so much health care consumption occurs when we are not at our best. Suppose we achieve the libertarian wet dream of eradicating Medicare. Now I get to have 85 y/o’s with newly diagnosed cancer making the best free market decision?

    Or how about this:

    84 year old woman has a bypass operation. But she also has a bad heart valve that they can’t operate on. So the bypass operation has a marginal effect at best on her overall condition. Is that a wise allocation of resources? By the way you and I and other tax payers paid for her surgery. A co-worker of mine told me about how his dying father had surgery to remove a cataract in one of his eyes. A wise allocation of resources? Again, taxpayer funded.

    And since resrouces were used in both surgeries that means those resources were not available for others. Give 85 year old grandma an operation you may end up preventing the 45 year old dad from getting one.

    Do we really want to subject these decisions to the political process? Shall we turn it over to a pupular vote to see who gets the operation? My great-grandfather went in for minor surgery, he ended up aspirating his own vomit and developed pnumonia and ended up intubated with a machine breathing for him. Now, my grandmother could have done two things:

    1. Tell the doctors to do everything for him–i.e. keep him alive for who knows how long with the machine breathing for him.

    2. Take him home, make him comfortable until he passed.

    For my grandmother the decision was made easier for her because my great-grandfather had stipulated in his will no less than 3 times that he didn’t want anything like 1. So they brought him home, kept him comfortable with medication until he passed. He died surrounded by his family–it wasn’t big considering his age and the suddeness of it all, but its what he wanted and it was also a good decision in another way I like to think. He wasn’t using up resources that could have been used for somebody younger who could very well go on to live for decades more.

    Brett,

    Aside from the money collected to try his stupid ass, as well as any children-health care funded by the state (assuming they qualify).

    Well I don’t even know if I’d call that compensation. But you get my drift, even the “acts of God” don’t always result in government stepping in.

    I’m rather skeptical that that could work beyond the level of “small community”, where you have factors like social pressure and the like to create conformity to laws and norms.

    Maybe, maybe not. In any event we are moving away from that type of society towards the other end of the spectrum with an ever increasing government–increasing in both size and scope.

    A)disparities of power leading to the re-consolidation of “government” in some form or another? That’s what historically happened, after all – groups with more power (and usually who were better at organized violence) conquered, assimilated, or drove out groups who weren’t so competent.

    While I find the arguments and logic of anarcho-capitalism intriguing and interesting, it isn’t something I’m terribly gung-ho about. But, here are my responses….

    I don’t know, but consider what you just wrote. You’ve implicitly admitted that our government is good at organize violence. Not just at external threats but its very own citizens. And I’m not talking actual criminals here. Seriously, go to OTB and on the front page is an article about an innocent man being executed in Texas. To make it even worse, the accused of him of killing his own children, then killed him. Or go to radgeek.com and read there about the abuse of power.

    B)the private security forces, presumably unchained by any greater authority (that’s usually the difference between anarcho-capitalists and libertarians – libertarians usually recognize the need for a greater state with enforcement capabilities), from basically turning into local rackets? I could easily see a situation where the local security groups hammer out a “gentlemen’s agreement” to carve up the local neighborhood into respective “fiefs”.

    But we do this already. We call them states, cities, counties, etc. You’re complaining that we could end up with what we have now? Maybe we would, maybe its human nature to not want to have as much liberty as we want, but to be treated like part of a group and told what to do and be taken care of.

    I mean, think about the second situation. Let’s suppose you’re John Everyman, living in a certain town, and you’re with IronGuard Security. Its men, however, have basically turned into corrupt thugs who shake down the people who live in their areas and provide minimal security. You hear good things about Security Co, though – they have a longer response time, but a reputation for being professionals. IronGuard gets word that you might be switching, and they show up and tell you that if you stop doing business with them, they’ll break your knees. What do you do?

    You’d also be free to initiate the use of deadly force against them. Especially if they make this threat, leave and come back when you cancel and meet them getting out their car with deadly force. In an anarcho-capitalist society you could, if you could get it, meet them with over-whelming deadly force–i.e. if they got out armed with shotguns and side arms and you came out with a mini-gun and laid waste to them and their vehicle, my understanding is that you’d be well within your rights.

    Also, once you contracted with Security Co. they could respond to IronGuard Secruity. My guess is IronGuard would be less than thrilled to be dealing with a professional and well armed group vs. just John Everyman the not so well armed/professional.

    This doesn’t happen in real life because ultimately, existing private security forces can be brought to justice by public police, who are themselves under the control of the government (although I won’t pretend they’re saints), and usually under the greater control of the state as a whole (if the police got too disloyal, the US could always authorize the army to put them in their place).

    Do you know what happens when a cop decides to break the law? Jail? No. Fired? No. The problem is that our police forces already act in at least one way like many criminal organizations: report wrong doing by fellow police officers and you are harrassed, intimidated and eventually fired. This “control” you speak of is largely illusory. Now if it gets big enough and bad enough then something might be done, but generally speaking if a cop goes off the rails it takes quite a bit before something is done about him.

    Seriously, go to radgeek.com and read for about an hour. This one made me sick. Here’s a taste…

    Last week, Johnnie K. Hicks, a cop working for the Newport News city government’s police force on the “South Preinct High Impact Patrol Unit,” was arrested for assaulting a woman in her home around 2:00am and brandishing a gun. While the Incident is being Internally Investigated by his coworkers, Hicks is being given a paid vacation at taxpayer expense.

    […]

    Sam Parker, a cop formerly working for the Lafayette city government’s police force, is currently on trial on charges he abducted and murdered his ex-wife, Theresa Parker. The story this past Friday was that a former coworker, a Lafayette cop named Stacey Meeks, testified that Officer Sam Parker spent years openly bragging about killing people while on the job, and kept trophies to show off from people he had killed, such as the lethal bullet and crime scene photos from the killing. According to Meeks, Officer Sam Parker also carried a loaded weapon to the Grand Jury and said he planned to go out in a hail of bullets rather than get arrested if the jury voted to indict. After another Incident in 2003 where Officer Sam Parker fired off his gun on the job, several shrinks ruled him homicidal; Officer Sam Parker bragged about that with his coworkers, too. He also repeatedly watch Officer Sam Parker use chokeholds to “take people down” while on the job. None of this deranged, attention-seeking, hyperviolent behavior seems to have endangered his position with the Lafayette city government’s Police Department, or to have caused any legal consequences whatsoever for Officer Sam Parker; I wouldn’t be surprised if he expected no more consequences when he went on to murder his wife.

    […]

    Earlier this month, n unnamed Bexar County sheriff’s deputy used his uniform and gun to pull a woman aside while she was walking down the street on the south side of San Antonio. He claimed (falsely) that she had an outstanding warrant for her arrest, and ordered her to get into his patrol car. Then he drove back to her house and then he grabbed her by the neck and forced her to have sex with him. As of the most recent news reports I could find (from about a week ago), the survivor had bruises around her neck, had been hospitalized for her injuries, and was being treated in a hospital psych ward for post-traumatic stress. The deputy, who was caught naked on the survivor’s couch by the San Antonio city government’s police, claims that the “sexual relationship” was “consensual”. So far, the San Antonio city government has filed no charges against the rapist deputy, although his own bosses at the Bexar County government’s Sheriff’s Office have forced him to take a vacation from his job while he is under investigation.

    […]

    In 2006, serial rapist Officer Billy Ray White, of the Louisville Metro Police Department, was found guilty of raping a woman at gunpoint in front of her 9 month old daughter of threatening to kill her if she reported it, and of using the threat of jail to coerce sex from another woman that he had arrested. The story is in the news again because an appeals court judge recently threw out Billy Ray White’s conviction and ordered a new trial, on the grounds (1) that the coerced sexual relationship with a woman he had arrested, conducted under the threat of imprisonment, was in some sense of the word “consensual” (?) and so different enough from the forcible rape that the joinder of the cases as “impermissibly prejudicial,” and (2) that the trial judge should not have allowed testimony from several women about Officer Billy Ray White’s repeated and insistent use of his badge and uniform to stalk and try coerce sex from them after an arrest. According to Honorable government judge Thomas B. Wine, evidence that the Officer Billy Ray White, a heavily-armed, legally-privileged enforcer for the state, while acting in uniform and under color of authority over women under his legal power, “was constantly on the prowl to use his uniform in furtherance of his lust,” has little probative value in determining whether or not the man had a propensity to force sex on unwilling women. As a result of the reversal of the conviction, the new trial judge, rather than scheduling a trial date, told the government prosecutor to cut a plea bargain with White; they eventually agreed that this serial-rapist would cop a plea, get sentenced to time served, and get back out on the street.

    […]

    You’re right, it is oh so much better when the government provides the thugs.

  • Here’s a fun one. The State obviously knows whats best. This one had her entire life stolen from her.

  • Drew Link

    Guys –

    So much commentary, so little time. My business has heated up, so I can only spend so much time here. But I do want to say: I found Alex’s comments to be weak and simplistic. I know Steve (not Steve V) tried to amplify, and I’d like to engage on this at a more advanced level than Alex proposed, but time, time, time.

    I would like to re-emphasize: if you can read the link I provided I think it is worthwhile. Some of you may find it the same old, same old. I found it at times overly hyperbolic. But the essential thrust comports with my understanding and experience. It may not be the whole truth, but its a damned good essay worthy of consideration if you ask me.

    Certainly better than 95% of current public discourse.

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