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Sunday, April 23, 2017

It is all about politics

A very thoughtful piece on science and politics.

Perspective: It’s Not a War on Science

Sunday, April 9, 2017

The tyrannies of experts and the legacy of Woodrow Wilson

I am still in stunned. I, in no way anticipated a Trump victory in the Presidential race. He seemed like a clown to me, and a mean spirited one to boot. However, since I believed there was no way that he was going to be elected, I did not devote much time or attention to what he actually would pursue if he was elected. Press coverage did not especially help, in that it tended to cover polarizing and titillating elements such as Muslim bans and pussy grabbing.

Fast forward a few months and we have a Trump administration and despite wishful thinking of the Democratic Party, we likely have at least four years of this. The mid terms elections may sway the balance of power in Congress, but the executive branch is with us for the next four years. What does this mean? I am pretty sure I don't know but I suspect no one else really knows. I have been relatively quiet about Trump and his administration. I am inherently skeptical about everything political and for that reason I am skeptical of Trump while also skeptical of the anti-Trump movement, which appear to be monolithic in their opposition to him.

Beyond the outrageous and the titillation,  what are these guys all about? What are they trying to accomplish? Should I oppose everything they stand for? Recent coverage of the CPAC conference highlighted some brief video of Steve Bannon (Bannon) and he highlighted three major priorities; National Security, Economic Nationalism, and Deconstruction of the Administrative State. I will delve into national security at some later date, when I can say something intelligent, but must state emphatically that the mean-spirited xenophobia framed as a security concern is indefensible. Furthermore, I think Bannon and Trump are barking up the wrong tree in regards to economic nationalism, but I am out of sync with both political parties on this.

The issues raised on the Administrative State piqued by interest. I had not heard this term before but after I delved into this I realized I had given this much thought and in order to understand these issues, one must go back to the history of the Progressive movement and the works and impact of Woodrow Wilson in order to understand where this came from and how fundamentally this movement changed both how our government runs, and changed the role of experts in the private quasi-regulatory realm. Here lies much of the source of current political polarization. Do you place your faith in the state and administrative agencies (bigger government) or do you place more faith in markets and constitutional limitations which may limit the power of the state to do both good and mischief? Tough question but it is the question that must be addressed.

Please refer to the two videos below - one from Richard Epstein (Epstein) and one from the National Constitution Center (NCC).

Why markets do not work in health care

The reason that markets do not appear to work in healthcare is that there really few if any true markets deployed in healthcare. The question is, what are true markets and why do they tend to allocate resources so efficiently.

The realization I recently had focuses on a concept first put forth by Amos Tversky and Daniel Kahneman called loss aversion. Basically loss aversion means that people prefer avoiding losses as opposed to making gains. Any true market transaction must deal with loss aversion because market exchanges mean giving something up first in order to gain something. There is a complementary element to this called the endowment effect which means people place a higher value on what they already own.

What does this have to do with markets and specifically health care markets? For a transaction to happen in a free market, those undertaking the exchanges must view that they will be better off after the exchange occurs. That is a very high bar given these realities of loss aversion and endowment effect. Both parties need to hold a similar perception that they will both be better off after the exchange. Each will have to give up something they own and in market systems, what they give up is very clear to the parties undergoing the exchange. The initiation energy for the transaction has to overcome the loss aversion barrier, meaning that both parties need to be confident they are much better off after the exchange.

Health care markets are flawed markets at best. The major financial transactions happen on the front end before any services are even contemplated. They are in the form of deductions from salary, taxes, or premiums paid. These transactions do not pay for any specific health care service and they pay for some set of services which are poorly defined. Many if not people never see the money in the first place and really have no idea of what they have purchased.

This was constructed this way intentionally because if people were required to pay for premiums on a monthly basis they would experience loss aversion and push back on payment. Even with nominal charges for copays and deductibles, loss aversion prompts people to stint on their own care for the simple reason that they may perceive little value in what this money goes toward. The copays and deductibles are small fractions of the overall dollars washing around the system.

This is not unique to healthcare. Any long term investment generally has less than perfect buy in from the general public. People do not save for their retirements and Social Security is a form of forced savings. OK, it is not really savings and it is actuarially unsound, but the reason it was put in place is that because of the propensity of humans to not save for the future.

The use of insurance to pay for health care is another form of forced savings to pay for what most people will not or can not plan for. We could try to deploy more market based approaches to pay for health care but they are likely to fail miserably, or at least be viewed as failures, but not for the reasons you might think. They will fail because if people given adequate resources and are placed in charge of how they are spent, they will not view that investment in health care brings them sufficient value to invest the resources they control.  We do not trust markets in health care because we do not trust people to make the decisions that we view are best.

Let's say that instead of providing subsidies for health insurance we simply provided subsidies that people could spend as they please. We are probably right that large numbers would not spend their new found gains on health care if they were given a choice. Are those who fail to make decisions that we feel best for them short sighted of are we simply arrogant to assume that we know best?