Are Patients Too Dumb to Make Good Choices?



Austin Frakt refers us to this statement from a study of complexity in various markets:

The idea of consumer-directed health care, however, is going in the opposite direction in that it increases complexity for consumers, and possibly for clinicians. Using other markets as benchmarks, we would expect this push to fail, or at least to have limited success. Thus the goal should be to increase the complexity of health care where it can be managed in order to reduce complexity for patients, their families, physicians, nurses, and other clinicians.

He then piles on with an observation of his own:

One additional consideration is the cost of a complexity-induced mistake in each sector. The cost of a consumer making a poor choice of cellphone or plan is of a different order of that of making a poor choice of health care treatment. One way we manage telecom’s complexity is learning from experience. There’s a good chance you won’t make the same bad choice twice. How many times do you get to choose where to have heart surgery?

Can you spot what’s missing in all this? Remember what is happening in health care. We pit bureaucratic payers against bureaucratic providers. At least that’s the way we used to describe it. Now it’s software against software. On the physician side alone, there are 7,500 tasks Medicare pays doctors to perform and the number is expanding to many thousand more. So providers buy computer programs to help them maximize against the payment formulas. Then the payers buy programs to help defend against the provider programs. Then we get another iteration, with better programs and better defenses, etc. How could this not be complicated?

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New York Times Wrong about Government Childcare Delivery



5774491_SWhen it comes to government-run childcare and preschool, the delivery is worth all the labor pains—so says University of Massachusetts, Amherst, economics professor emerita Nancy Folbre in her recent New York Times article.

Folbre’s sentiment reflects that of House Democratic Leader Nancy Pelosi, who insists America has an early childcare and education “crisis” that threatens our economy. The solution, according to Pelosi and Folbre, is to adopt President Obama’s universal government-run preschool and childcare plan for all three- and four-year-olds.

Yet there’s scant evidence that expanding government would improve the quality of care, student learning, or affordability—much less the economy.

Three out of five mothers with preschool age children are employed, the vast majority of full-time. Almost half of all young children with employed mothers are cared for by relatives—a consistent pattern for decades. But is this situation a “crisis,” as Pelosi suggests, or a choice?

Parents from all walks of life choose child care based on their desire for nurturing providers, safe environments, convenient locations, and educational activities. Not surprisingly, employed mothers actively choose family members to watch their young children—especially in light of research indicating that children who spend extended periods in day care are more likely to display aggression and other problem behaviors.

The Democrats’ plan also ignores the preschool preferences of employed mothers. Fully 68 percent of preschoolers with employed mothers are in programs already, and most (64 percent) are enrolled full time. There’s no evidence to suggest that the rest of employed mothers even want their children in school at such a young age.

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All I Really Need to Know I Learned from Reading Higgs



“CRISIS AND LEVIATHAN is an important, powerful, and profoundly disturbing book.” —James M. Buchanan, Nobel Laureate in Economic SciencesFurther to Bob Higgs’s earlier post, Thinking Is Research, Too!, down in Texas, the Chairman of the Dallas Fed has the odd practice of looking beyond government stats and actually (gasp!) asking real people how they think the economy is going.

From a profile of the President and CEO of the Dallas Fed, Richard Fisher, “Money Makes the World Go Round:”

Every few months, Fisher calls a couple dozen CEOs to ask them how things are going. He told me that when he asks this informal focus group why they haven’t been hiring more quickly, they tell him that they want more clarity from Washington, about what their tax rates will be, about what federal spending will look like, and about what it will cost to implement new laws like the Affordable Care Act. And so the problem, in Fisher’s view, is with Congress and the president, who haven’t done enough to mitigate the uncertainty constraining the private sector.

Now, go to the little box in the upper right headed “Search,” and type in “regime uncertainty.” Read a few of the items returned, and you, too, will come to the realization that Higgs told us so, 16 years ago. Until we get Washington to listen, we can’t expect to see any change from the dismal record of the long-drawn-out Great Depression—which did not end until after World War II—now being repeated in the current Great Recession.

Thinking Is Research, Too!



22087749_SBill Parker, an old friend of mine who died in 2000, was director of graduate studies in economics at Yale for thirteen years. He told me once about his struggles with his colleagues, who, he believed, were spending too much time on technique and not enough time on substance in teaching their courses. The recalcitrant colleagues maintained that they were teaching the students how to think, but Bill demurred: the students might be learning how to think, he told his colleagues, but they were not learning anything to think about.

This recollection fits in the same corner of my brain with something my old and deeply cherished friend (and my colleague as a fellow at Oxford University in 1971-72 and earlier in team-teaching a graduate seminar at the University of Washington in the summer of 1969) Max Hartwell told me more than forty years ago. His colleagues, he complained, groused that he did not do enough research, by which they meant the usual cranking out of mathematical-theoretical models and related econometric effluent. Max’s response was to insist that “thinking is research, too!” At the time, occupied as I was in trying to meet the profession’s prevailing expectations, I had my doubts—it seemed like too easy an excuse—yet, as my own career has proceeded, I have become more and more convinced that Max had hit the target at its dead center.

I return to this thought frequently, never more so than when I consider how the economics profession has received—or, in far greater degree, not received—my research and writing on what I call regime uncertainty. I first wrote about this topic in 1997 in an article in the first volume of a new journal that I was editing, The Independent Review. Although the article contains some material that noneconomists might not understand immediately, it is for the most part nontechnical. It contains no formal mathematical model and no formal econometric estimation. Yet it does contain a great deal of empirical evidence and, to my mind, an analytical argument that has both theoretical substance and a respectable pedigree.

Although this article did not go entirely unnoticed, the mainstream profession paid little or no attention to it. My fellow Austrian economists seemed to find it persuasive, as did some economic historians, but mainstream macroeconomists, so far as I was aware, remained blissfully oblivious to it for many years. Eventually, during the past few years, a few such mainstream analysts took note of it, usually in passing. Meanwhile, the topic of policy uncertainty (a subset of my concept of regime uncertainty) was attracting growing interest from macroeconomists as recovery from the contraction of 2007-2009 proved so slow and, thus far, incomplete.

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Community Rating and the Pathology of Price Controls



If there is a single issue that most divides economists from non-economists, it’s the way they view prices. Economists view prices as creators of incentives for buyers and sellers. When prices change behavior changes. As a result, prices are mechanisms for determining the allocation of resources. If they are not allowed to perform this role, bad things will typically happen on both sides of the market.

Non-economists too often ignore this very important social function. Many tend to view prices as merely reflective of power. A powerful buyer can push a price down. A powerful seller can push a price up. And since government is the most powerful entity of all, the non-economic way of thinking often looks to government to set prices. Many non-economists believe you can push a price up (such as a wage or the price of a farm commodity) or push a price down (such as the price of gasoline or housing rents) and nothing bad will happen. And of course the non-economist would be right, if prices didn’t influence behavior and if they didn’t allocate resources.

Everyone is aware that when government changes a price, there will be winners and losers. But many non-economists think this is all that happens. They think one man’s gain is another man’s loss and that there are no other social consequences of price changes.

Nowhere is this difference in thinking more apparent than with respect to community rating.

It’s hard to think of a public policy that more completely ignores the lessons of economic theory than community rating. In a free market for health insurance, premiums will reflect risks. To join an insurance pool, a buyer will have to pay a premium equal to the expected costs he brings to the pool. Since everyone is different, in principle you could have a different premium for every enrollee. With community rating, however, everyone pays the same premium. That means that virtually every price is the wrong price. Every buyer is paying the wrong amount and every seller is receiving the wrong amount.

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America’s Prisons: The Worst National Disgrace



11589127_SThe U.S. correctional system is the worst of America’s domestic disgraces. More people languish behind bars in the United States than in any other country, except perhaps China if we factor in the unknown numbers in labor camps. As the Economist summed it up:

America has around 5% of the world’s population, and 25% of its prisoners. Roughly one in every 107 American adults is behind bars, a rate nearly five times that of Britain, seven times that of France and 24 times that of India. Its prison population has more than tripled since 1980. The growth rate has been even faster in the federal prison system: from around 24,000—its level, more or less, from the 1940s until the early 1980s—to more than 219,000 today.

Much of the blame for this falls on the war on drugs, particularly the policies spearheaded by the Reagan administration, escalating through the George H.W. Bush and Clinton administrations. But ending the drug war will not address the whole problem. Drug offenses account for about half of federal inmates but closer to a quarter of state inmates. Many others face punishment for non-violent property crimes. Even some of the truly vicious criminals, however, experience conditions that the state should never inflict on anybody.

In practice, U.S. imprisonment has become an institution of slavery, torture, and rape. New studies indicate that about two hundred thousand inmates fall victim to sexual abuse each year. The rates are highest in the juvenile system. What’s more, the assailants are not who you might think they are:

The new studies confirm previous findings that most of those who commit sexual abuse in detention are corrections staff, not inmates. That is true in all types of detention facilities, but especially in juvenile facilities.

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They Should Change Their Motto From “To Serve and Protect” to “If You Misbehave, We’ll Beat You Up, and Maybe Kill You”



A few weeks ago I wrote about a case in my neighborhood where the police beat up a petite woman who had an accident and was suspected of DUI. The case got no publicity until a video of the incident surfaced. The case produced lots of letters to the editor of the local newspaper, some of which were critical of the police, and others that said the woman was in the wrong and her actions led to her beating. I would not defend her behavior (nor did letter writers critical of the police); rather, I would say that her misbehavior was no real threat to the police and that the police should not beat people up because they misbehave. You can watch the video yourself and decide.

Cases like these are not that uncommon. After my last post, Anthony Gregory alerted me to this website with lots of reports of police misconduct.

The police in this incident were not serving and protecting. They were beating up a defenseless woman who was no threat to anyone. But, others fare even worse. In the widely-publicized story about the woman who rammed the security barriers near the White House with her car and then drove off, “Police then killed the driver after she got out of her vehicle and tried to flee.” Yes, she was behaving badly. But when the police killed her, she was on foot and no threat to anyone. Does anyone think that the right way to deal with people like this is to kill them on the spot?

Retroactive Pay for Furloughed Government Workers?



I have mixed feelings about the Bill passed by the House of Representatives Friday to retroactively pay furloughed government workers after the current “shutdown” ends. On the one hand, I think it would be unfair to those workers for them to lose that pay over the farcical disputes that have created the “shutdown.” But, if they are going to be paid, it would seem that they should be on the job and earning that pay that will eventually be coming their way (pending the approval of the Senate and president). Why should federal workers be given a paid vacation while people who want passports and visas are inconvenienced, national park are closed, and so on?

But, if the workers who will receive retroactive pay were all back on the job, there would be no shutdown. The whole thing makes it obvious that the motive behind the shutdown is to penalize citizens because their representatives cannot agree.

Of course, they choose to shut down things that inconvenience citizens, because otherwise who would care about this political theater? We want to visit the national parks. Would anybody protest if they defunded the NSA until their impasse was resolved? But, they can’t inconvenience citizens too much. The last time they did this they furloughed air traffic controllers, resulting in a citizen backlash. This time, those air traffic controllers, and the TSA, have moved from “nonessential” to “essential” employees. A dozen years ago we didn’t even have a TSA, and now it is “essential.” From this citizen’s standpoint, they are shutting down the wrong parts of government, but of course, that’s the whole idea.

If they are telling workers they will get paid, they should also be telling them they have to show up to work to get that pay. Congress won’t do that, because it would lower public awareness of the political drama they are trying to create. Our elected representatives are telling us, “We are behaving badly, so we are going to punish you.”

Call Me Uncharitable, But...



... I have little sympathy for people who complain that they are suffering hardship because government isn’t giving them enough aid.

I was reading this story about the possibility that the Women, Infants, and Children (WIC) program might run out of money due to the federal government shutdown. In it, Cierra Schoeneberger laments that should this happen, it will be tough for her to buy formula for her son Jacob.

“What’s going to happen to my baby?” asked Jacob’s mother, Cierra Schoeneberger, as she fed him a bottle of formula bought with her WIC voucher. “Am I going to have to feed him regular milk, or am I going to have to scrounge up the little bit of change I do have for formula or even baby food?”

I have three children, who I’ve fed by spending my own income, and it appears that Ms. Schoeneberger thinks that not only should I pay to feed my children, I should also pay (with my tax dollars) to feed hers. My view is that people should have children only if they have the means to take care of them.

I know nothing about Ms. Schoeneberger but what I’ve read in this article, and my reaction may be completely unfair. In fact, I think of myself as charitable, and if people unexpectedly fall on hard times, maybe because they’ve lost their jobs in a tough economy, or lost their jobs because of unforeseen health problems, we ought to help them get back on their feet. (I am not sure doing so through government is the best way, though.)

Maybe something like that has happened to Ms. Schoeneberger, but the article does not present her case that way. Rather, it presents the benefits she receives from WIC as an entitlement that is at risk of being suspended. It’s the idea that some people are entitled to receive income transfers and that others are forced to pay for them that makes me quite unsympathetic to individuals in stories like this.

Which Is Better: Mini-Med Plans or Obamacare?



McDonald’s. Home Depot. Disney. CVS Caremark. Staples. Blockbuster. These are just a few of the employers who have been offering mini-med plans to their employees. A typical plan limits the health insurance benefit to $2,000. But McDonald’s, for example, gives employees the option to pay a higher premium and get $3,000 or $4,000 of coverage. Some plans have much higher benefits; for example, TennCare used mini med plans with a $25,000 annual cap on benefits.

Mini-med plans typically have no deductible. They usually charge a modest copayment for physician visits and drugs. But if a McDonald’s employee goes into a hospital, the co-insurance rate is 30% and the plan’s benefit cap will probably be blown right through after the first 30 minutes of admission.

These plans are being abolished under Obamacare, and if the employees end up in one of the new health insurance exchanges they will get subsidized insurance that will look very different. For one thing, the premium the employee pays will double, and for many it will more than double. Then they will face, say, a $1,500 deductible for individual coverage. Surprisingly, if the employee goes into a hospital he faces a 20% copayment (comparable to the mini-med plans!), but the total out of pocket exposure is limited to $2,250.

Now, which of these plans is better? For the orthodox health policy community, this isn’t even a serious question. That’s because they live in neighborhoods and associate with people who would never even consider buying mini-med coverage. And, remember, imposing one’s worldview on others is 90% of what liberalism is all about.

But would you be surprised to learn that there are many people who would find the mini-med plan more attractive?

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