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Sunday, July 8, 2012

Unifying particles and concepts

Our understanding of physics took a substantial step forward with the announcement of the Higgs Boson, the so called "God particle" this past week. This discovery is a testament to human intellectual creativity, extremely large pieces of equipment, and large sums of money. While I do not really understand the specifics of the discovery, what I do understand is that decades of observations have pointed to its existence and the announcement this week implies that we have crossed a threshold in terms of our knowledge of the underlying structure of the universe.

The study of complex systems is not limited to using particle accelerators and particle physics. Physics may be viewed as the most basic of sciences with other fields of study contain less of the "basic" elements, whether that be chemistry, climate science, biochemistry, clinical investigations, or the social sciences such as psychology and economics.  All aspire to borrow the most basic tools they can use to further their studies and take on as much of the basic elements as possible.

I read a very interesting piece this morning is a blog, The Unbroken Window (author Michael Rizzo)(http://theunbrokenwindow.com/2011/04/29/the-problem-with-economics/) which was entitled "The problem with economics". This essay resonated with me, articulating the unifying concepts in almost Higgs Boson fashion. I believe sections warrant reprinting:

The Complacency of Modern Economics
Our students have spent the entire year reading the works of Hayek. A major theme in his work is a condemnation of the complacency of 19th century liberals (in the good sense of the word) which allowed utilitarian ideas, unanchored from natural law and dismissive of evolved institutions, to dominate – thereby setting the stage for what Neal Stephenson describes in his 1999 novel,Cryptonomicon:
“The twentieth century was one in which limits on state power were removed in order to let the intellectuals run with the ball, and they screwed everything up and turned the century into an abattoir. . . . We Americans are the only ones who didn’t get creamed at some point during all of this. We are free and prosperous because we have inherited political and value systems fabricated by a particular set of eighteenth-century intellectuals who happened to get it right. But we have lost touch with those intellectuals.”
I blame many economists for a similar complacency in the 20th century. In promoting policy tweaks to perceived problems with markets, they have been assuming that people would understand and respect Adam Smith’s, David Hume’s, Adam Ferguson’s, David Ricardo’s ideas irrespective of whether they were widely read or taught today. Modern economists falsely assume that the failure of hot-blooded socialism permanently taught us to be humble regarding central planning in the presence of complex social processes.
The problem I am describing actually derives from a good faith effort by 20th century economists to identify the difficulties with currently accepted classical economic theories, by identifying “market failures” and sets of conditions for which these might be mitigated by enlightened policymakers. This is admirable and noble, especially if your audience respects the intellectual foundations that economics was built upon. But many intellectuals, and many in the lay public, are hostile to these ideas, and have been unwittingly handed a fulcrum that would make Archimedes blush to justify virtually any intervention into our peaceful, private voluntary associations.
Allow me to illustrate:
In modern economics, the very starting point of our first course, the very premise it begins with, is wrong. Our greatest minds and books start by asking, “What are the causes of poverty?” Note that Adam Smith never committed this error. The natural state of man is poverty. If you do nothing, you remain poor. Nothingness requires no explanation. It makes as much sense to ask what causes poverty as to ask “what caused Rizzo to miss that penalty shot during the New York Rangers hockey game last night?”
Even our most market friendly books then say, “poverty happens when we don’t have markets.” And then lay out unrealistic, undesirable and never existing conditions for what a “perfectly competitive market” would look like for it to work. This permits an easy attack on the assumptions without forcing opponents to attack the chains of logic which are the foundations of economics, not the assumptions of simplifying models.
For thousands of years nearly every human being lived in excruciating poverty, and despite the existence of some people today who said we were freer back then, or happier or better, it was risky, dangerous, lonely and scary. Life expectancy at time of Jesus was less than 25 years old and stayed that way until the 19th century, and for millennia average income was about $800 per year – imagine having $800 today and then imagine not even being able to spend it on anything that exists only today. The most powerful and wealthy people in the world saw half their children die before adulthood, they themselves died from simple infections, could not enjoy a cool drink on a hot day, nor do any of the thousands of things that even the poorest Americans take for granted each and every day today.
In the world of particle physics, we can set up experiments where we know when they start and end and we can add energy to systems and look at the effects. The experiments are controlled and occur in a time frame where we can discern start and end, cause and effect. In the world of the economics, the experiments are not controlled and the time frames extend for many generations. We are not capable of consistently understanding where our ancestors started from or distinguishing stellar near complete success from abject failure. We use carefully selected examples of failure to indict markets which have brought more wealth, comfort, and a better life to humans on this planet than any other human innovation in the history of man. 


Contemporary medicine is perhaps the worst of offenders in this domain. No other set of endeavors perhaps has benefited more from the extraordinary wealth generated by markets than has modern medicine. Modern medicine required so many recent innovations created by our market economy; energy needed for clean and climate controlled environments, technology in the form of medicinal chemistry and machinery, information technology, transportation, supply chain and I could go on and on. I can state with complete certainty that without the deployment of markets, the benefits of modern medicine and public health would not yet have happened. 


However, within the intellectual leadership of medicine, there is a palpable hostility to markets (see "You'll shoot your eye out" blog - http://georgiacontrarian.blogspot.com/2012/01/markets-cant-work-in-medicine-youll.html). There are some notable exceptions but for the most part critical minds within academic medicine are not so critical when thinking about markets. Just look at the stream of editorials and commentaries published in the NEJM over the past five years. Market enthusiasts are the exceptions and look like voices in the wilderness. 


Living within this world, it is easy to see why. We have made huge investments in physical and human capital which are dependent upon some continuity of the present, non-market based system. Present decision makers have much to lose if the disruptive market based approaches gain traction and undermine the present business model. This would most certainly entail huge changes in regulatory and licensing arrangements and disruption of the present guild-like structures that create scarcity.  Combine this with a pre-existing hostility to market based approaches and it is not surprising to find so few market enthusiasts. It would not the first time that limited self interest and a short attention span and time line results in a non-Pareto optimum. 


However, I believe that any effective approach must incorporate market based tools which can undermine the strategies of the past 50 years, which have valued spending more over everything else. Only markets which include cadres of educated consumers using their own resources have the power to drive down costs and increase value simultaneously. Top down approaches, particularly state driven ones, have shown themselves to be terrible allocation schemes.  Those experiments have been done and the results are unambiguous, although remarkably they appear to have been quickly forgotten. In the last century, we did double blind controlled studies where we took defined populations, divided them, placed them under different economic systems for 50+ years, and then looked at the results; North and South Korea, East and West Germany, Eastern and Western Europe. These studies were unintentional but we could not have created such a better comparison if we set out to do so. These were extremely expensive experiments (in terms of both money and  human lives), even more expensive than creation of the particle collider on the Swiss and French border. While I do not anticipate the world forgetting the recent Higgs Boson results, we are rapidly amnesic regarding the what happened last century with what I view as just as an important (although inadvertent) experiment. 


There is no reason to believe that medicine and health care are any different than all other endeavors which require allocation of scarce resources and coordination of human efforts to fulfill human needs.  The continued predominance of market denial within health care leadership will lead us to statist (North Korean) results where South Korean outcomes are very possible. I may sound like a broken record in that I keep repeating this message. Markets work better at allocation of scarce resources than any of the alternatives we have yet devised and health care is not different from the rest of human activities. More market based approaches in health care will likely result in better outcomes. The default should be market based aproaches first.    

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