Public Option

For those in favor of a public option (i.e. government provided) in health care, I wonder what makes them think the government will be able to manage better than they have proven in the past.

Some point to the military as example of a well-managed government organization.  Others have used the Post Office, though even President Obama has pointed out that it has its troubles.  I’m surprised nobody has mentioned public libraries.  Public libraries offer free loaners on books and other media and access to the Internet.  I really like my public library (though I would appreciate Sunday hours).  And, even with public libraries where you can borrow books for free, private booksellers, such as Amazon.com, still sell lots of books.

But, I see several problems with these examples that someone who thinks beyond stage one (from Thomas Sowell’s book, Applied Economics Thinking Beyond Stage One) should be able to understand.

First, I don’t know what I’m missing.

The presence of a postal service or library that “isn’t that bad” doesn’t tell me whether a privately run option to these could be better.

Same for the library.  While I’m happy with my library service, who knows what a privately run library could offer?  It’s hard to imagine because you never can predict what innovation or service enhancement will resonate with users (i.e. add value), but I might imagine that a private library might look something like Blockbuster, Netflix, RedBox or Amazon’s Kindle.

Second, there are some differences in the incentive structures in these organizations that might have something to do with their outcomes and we should carefully evaluate these differences when making comparisons to something like health care.

Consider the military.  The military does not provide an individualized service to customers or patients.  It defends the country and wins or loses conflicts.  Further, it has very clear, positive and negative feedback loops.  In other words, its very clear whether the military met its objectives successfully or not.  At the high level (what economists call macro) it either wins conflicts or loses.  On the micro level , it either executes well and saves lives or poorly and loses lives.  Responding to these immediate, direct and clear feedback loops are important to the success of the military.   But, even with that, many from military backgrounds  readily admit that there is much room for improvement in the way the military is managed.

Now consider the post office and public libraries.  Both do serve customers, so in this sense they are better comparisons to use for health care.  But, we still need to think about what’s different.

One difference in the post office is that the majority of its costs have are covered by its users in the postage rates, also known as first party payments.  This is an important, positive-reinforcing loop.  One that’s being heard loud and clear by post office management in their bottom line at present.

In health care, most plans I hear about are based on third party payments – that is taxpayer funds being routed to medical providers via some government bureaucracy rather than paid by patients.  Replacing the positive reinforcement of that first party feedback loop is dangerous.

So, that leaves public libraries.   Public libraries serve individuals (library patrons) and operate primarily on third party payments (usually property tax passed through local government to the operating group).

So, at first blush, public libraries may offer the best comparison to a proposed health care system.  Or maybe not.  There’s one important difference between libraries and a national health care system.  The library system is not nationalized.  It’s funded and operated at a local level and there are many library groups across the country.   This creates several important distinctions.

First, it allows the local libraries autonomy to best meet the needs of their communities within their budget. Second, it allows local citizens to evaluate whether the library is worth their tax dollars or not.  Third,  autonomous libraries provide a good bottoms-up laboratories for innovation, which is the best kind.   Fourth, libraries still compete with

And, when one of these laboratories hits on something worthwhile, others can adopt.  Consider if the library system were nationalized.  Rather than bottoms-up laboratories, we’d have top-down rule books. Who’s to say the one’s writing the rules know anything?  Innovation frequently happens by accident and rarely comes from the top.  This bottoms up nature of innovation is why larger companies find it difficult to innovate while young upstarts often take their cake.

To recap, the comparisons made to convince me that national health care is a good idea don’t work for me.  The military doesn’t serve end users and it is governed by clear feedback loops.  The post office is primarily supported by first party payments, which gives it clear feedback loops.   Libraries, while third party funded, are funded and managed at a local level and with ample competition, giving it several positive feedback loops.

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State Your Position in 10 Seconds

Twice over the past week I saw local TV news reporting from outside a health care town hall forum.  I’ll give them the benefit of the doubt that they grab random people from both sides of the issue, but I wouldn’t be surprised if they are a bit more selective.

So far, those chose to voice why they oppose government health care have not impressed me.  But seeing the coverage made me think, if asked to explain why I oppose government health care in 10 seconds, what would I say?  I think that would be something good to be ready to answer because you never know when you might get 10 seconds and trying to come up with the 10 second version of your view on the fly will probably be as disastrous as what I’ve seen so far.

So, here are a few options I’ve started to think about.

10 Second Version

I want the best health care to be available to everyone.   While well-intentioned, government health care isn’t the best answer.  The problems in today’s health care industry are caused by government.  Getting the government more involved will make it worse.

50 Second Version

[Show my iPod.]  It would take a wall in a room of my house to store as much music as this thing holds and makes available with a few finger taps.  I can also use it to check the weather, show photos of my latest vacation, plot a route to my next destination, e-mail friends, update facebook, download more music, videos, podcasts or books at Starbucks, or pass the time playing Tic-Tac-Toe and Checkers with my son.  I got all this for less than $300.  There are other versions of this product that can do pretty many of these things for around $100.

The government was not involved in making this product. Fifteen years ago while alphabetizing my CD collection in wood crates to make it easier for me to find the music I want to listen to, I would never imagine the iPod.  It does all this for me and I can carry it in my pocket.

I can imagine if the government were involved in its development, I would probably still be muddling through those wood crates.  Not bad by any means, but not a small percentage as good as this.

Two Good Questions

1.  Why should the government provide protection of individual liberty?

2. Have our system of checks and balances failed since the government has grown so large?

Eye Popper

I enjoy reading Alan Reynolds.  He has a rare ability to spin facts and figure into compelling stories.  I really liked his latest guest column in Forbes magazine on health care, Hey, Big Spender.  He contends that government spending on health care is responsible for the runaway costs.   

The second paragraph below made my eyes pop.

You can see the bloating influence of government by looking at medical goods and services that are almost never financed by “free” government money: dental care, over-the-counter drugs, hearing aids and eyeglasses. In such cases nobody frets about inadequate competition, poor service or “runaway inflation.”

Hospital fees are another matter, having risen nearly twice as fast as overall medical care. That is no surprise: Government agencies pay nearly 60% of hospital bills, while private insurance (with more incentive to be careful) pays 36% and consumers pay 3% out of pocket.

He also shows that the health care spending has grown as a percent of GDP when government health care spending has grown.

I do disagree with one point he made.  He says that the CPI tends to grow faster in all labor intensive service industries.  I disagree.  I think CPI grows faster in all third party paid industries.

"It's My Own Damn Fault"

This column from Thomas Sowell, titled The Great Escape, reminded me of Jimmy Buffett’s classic Margaritaville, where the singer of the song comes to the progressive realization that all his troubles is his fault.

That’s an empowering realization.  Consider this passage from Sowell:

Education is usually discussed in terms of the money spent on it, the teaching methods used, class sizes or the way the whole system is organized. Students are discussed largely as passive recipients of good or bad education.

But education is not something that can be given to anybody. It is something that students either acquire or fail to acquire. Personal responsibility may be ignored or downplayed in this “non-judgmental” age, but it remains a major factor nevertheless.

After many students go through a dozen years in the public schools, at a total cost of $100,000 or more per student– and emerge semi-literate and with little understanding of the society in which they live, much less the larger world and its history– most discussions of what is wrong leave out the fact that many such students may have chosen to use school as a place to fool around, act up, organize gangs or even peddle drugs.

My guess is very few students understand that they are getting something that cost that much.  I didn’t.  Perhaps a seat in a classroom should be treated as something that is earned by students rather than given to them.

Political Know-It-Alls

Is there any subject where so many people are experts as politics?

What is it the prevents people from considering that they don’t know everything when it comes to politics?  On so many other topics we are open and willing to learn from others.  I know excellent gardeners who are open to new tips and tricks to improve their own gardens and athletes looking for ways to improve their training programs. 

But, when it comes to politics people are cemented in their views.  All stuff from the other side is bad and all stuff from their side is good.  Someone starts to stay something that doesn’t jive with our worldview and we tune them out never considering that they might have a good point and they may not be as far from our own view as we think.

I’m not sure why this is.  My political views have changed significantly over my lifetime.   I think part of the reason is that I’ve tried not to let my views become cemented.  Like a good gardener, I’m much more interested in finding out about the stuff that works. 

Something that doesn’t happen often in political discussions is for one side to pause and simply ask, “why do you believe that?”.

Great Question – Part 2

As a reminder, the great question is, “How does Germany spend less on health care and have a longer life expectancy?”

Please read this timely post from Marginal Revolution.  If you have more time, read the full paper (linked on MR).  It dives into life expectancy statistics and presents potential reasons for country-level life expectancy differences that are not associated with health care.

Further,  the authors of the paper make direct country-level comparisons of statistics that are more closely associated with the quality of health care, things like the effectiveness of screening for cancer, cancer survival rates and so on, the type of statistics that you yourself might be interested in if you need treatment for a specific ailment.

This leads to one possible answer to the great question, “How does Germany spend less on health care and have longer life expectancy?”  Perhaps the cause and effect relationship between health care quality and life expectancy isn’t very strong and other factors are more important.

Unfortunately, to be fair, that might be good news for those who believe government health care will lower quality since lower quality health care may not lower life expectancy.  Although, that probably won’t give much comfort to those with specific ailments.

This is just one possible answer to this great question.  I will explore more in future posts.

Doers

Here’s a great podcast from EconTalk with Paul Graham on Start-Ups, Innovation and Creativity.

Graham works in a group called Y Combinator that invests money early on with new business ideas to get them going.  He makes judgment calls on business ideas and people and has  interesting thoughts on the subject and it made me think of a dimension we often neglect when hiring people: creativity.

When hiring we put a premium on those who can get things done, aka doers, and ignore creativity neglecting the fact that most organizations were started by creative people, many game changing ideas come from creative minds and many of your smaller competitors have more creative people.

Many large organizations repel creativity.  Does yours?

Attracting and retaining creative people takes more than putting a Fooz-Ball table in the break room.  It’s really about giving them a bit of rope and seeing what they can do with it and expecting that some things simply aren’t going to work.

At the business where I work, for example, I often hear people try to sell others on a new business model which usually leads to a discussion between smart people on why it will or will not work, but there is no mechanism for someone to go out and give it a try.

Giving it a try entails pushing the idea through the gauntlet of doers who all put their own rider on the idea, making what comes out the other end look like a Rube Goldberg device.  Surprise surprise, the idea fails.  But few people question whether the idea was bad or the execution made impossible by the gauntlet.

Perhaps giving it a try should look more like a leader handing the person with the idea a bag of money, telling them to not break the law or make the company look bad and report back in a few months or a year to see how the experiment is working.   After all, that’s pretty much how most large organizations were started.

Government Run Entertainment?

If government run health care is such a great idea, why not apply that model to other industries?  I wonder what the people in Hollywood would think about government run entertainment?  Is that a good idea?  Why or why not?

The government would collect taxes from everybody, or maybe just the rich or perhaps just the rich entertainers, and appoint a government bureacracy to decide which entertainment projects to fund with that tax money.  Then those projects would be free for all to enjoy.

Sounds like a plan.  Do you like it?  I would be really interested in what people in the entertainment would think of such a plan?  I wonder if they think it might work to improve the entertainment industry?  I’d love to hear their thoughts on potential drawbacks and benefits of a single payer entertainment industry.

Great Question

“How does Germany spend less on health care than the U.S. and have a higher life expectancy?”

I ran across this question on a random blog.  I think it’s a great question. I think the health care debate could be much more productive if we could focus on anwering this question without resorting to name calling, ad hominem attacks and other typical second grade tactics we use to keep us from having to think beyond our current belief system and confronting facts and reality that we find uncomfortable.

In future posts I will address my thoughts on this question.