Free markets reduce conflict

As Obamacare nears, I’m reminded of this post and one of favorite Walter Williams’ columns, Conflict or Cooperation (accessible through the linked post).

It’s good to remember, majority rule creates conflict, free markets reduces it.

How distortions shape expectations

I recently suffered an injury to my foot. I got in to see my doctor the next day. They took and x-ray and confirmed no broken bones, just damaged soft tissue that should heal in a few weeks. I saw the x-ray image less than 2 minutes after it was taken. I was amazed at the clarity.

I expected to pay hundreds of dollars from my HSA account for that care, since I had not reached my deductible for the year. But, I thought it was worth it to know that I had no broken bones. I was pleasantly surprised to receive the bill. The total cost for the doctor visit and x-ray: $83.

Some say, sure, that’s the rate your insurance company had negotiated. I say, that’s closer to the rate you’d see in a competitive market where more costs are paid by patients out-of-pocket and that’s similar to what we pay plumbers and HVAC repairmen for a basic service call.

But, our expectations are different for those services, shaped by decades old market distortions of tax-deductible employer plans and third-parties paying the bills.

We might grumble about paying for plumbing or HVAC repair, but we haven’t adopted the expectation that some third-party insurance company pay that cost for us.

You’ve made your bed…

I agree with Thomas Sowell’s latest column, High Risk, Low Yield, regarding recent Republican tactics. Especially this part:

The world is full of things that ought to be done but cannot in fact be done.

The time, effort and credibility that Republicans are investing in trying to defund ObamaCare is a high risk, low yield investment.

If I were Republican politician, I might say:

America, I hope Obamacare works out for you. But, if it doesn’t, remember, this is your own doing.

Soon, you may discover that Obamacare increases your health care costs and reduces quality and availability.

You may realize that you have less choice about health care than you did before.

You may find government bureaucrats have taken a keen interest in your personal health habits, to the extent you may feel violated and they may deem you not fit to receive priority care.

If you are bothered by any of that, you should consider who you voted for and why. If you want different results, perhaps you should think about voting differently and holding some frank discussions at the dinner table to help convince others you know to do the same.

Fragile society

Bad stuff happens. It’s how you respond and adapt to that bad stuff that matters.

Nassim Taleb coined the term Anti-Fragile in his latest book, Anti-Fragile: Things That Gain From Disorder. It’s a concept worth remembering.

I recognized anti-fragility around the time of Enron. While people were wringing their hands about how something like Enron could happen, I pointed out that corruption, deceit and failure happen all the time in every form of society.

The results are not pretty. But, we were lucky in capitalism that it was contained to a small segment of the economy and didn’t have much impact on overall society. In fact, the economy was resilient enough that it was hardly a blip.

Not only that, but we learned from it.

People learned the important anti-fragile lesson of not putting all your eggs in one basket, as many Enron employees had done by investing all of their 401k’s in Enron stock.

We also learned to be even more skeptical of things that seem too good to be true.

Those are good lessons in any form of society.

Contrast that with the Soviet Union. When it went down, the whole ship sunk.

As we make government more central in our lives, we should recognize that we also make society more fragile, less anti-fragile.

Sports

For a change of pace, on this week’s EconTalk podcast Russ Roberts interviews David Epstein about his book, The Sports Gene. It is worth a listen.

I don’t recall there being a boring part to it and I think it will have wide appeal for sports fans, anybody who has played sports or just ran around the yard playing tag and anybody with kids who are interested or not interested in sports.

I learned things about what my body type is well-suited for that fits with my experience. You might, too.

It has lots of good discussion on nature/nurture, gaining 10,000 hours of deliberate experience and what we think we know about what makes us better at something isn’t necessarily true.

There was also some debunking on what we think makes a good hitter in baseball. Perhaps my micro teacher gave up too soon. He played in the minors and said he decided to quit when a fellow batter, who happened to be a good hitter, told him the secret was watching the ball to see where the spot was.

It turns out that nobody quite has reflexes for that. It’s more about reading visual cues of the wind up and release and projecting the path of the ball based on that.

That reminds me of a sports science show that tested something similar with soccer player Cristiano Ronaldo. They shut the lights out as soon as someone kicked a ball across the net to see if he could still play it into the net. He could. Why? Because of experience. He’s reacted to a ball tens if not hundreds of thousands of times and his body has a good sense of the path of the ball based on what he sees from the kick.

I wonder how many players quit too soon because some player told them something untrue like that. Perhaps the answer is more about practice than anything.

Incentives matter: Work and welfare edition

The Wall Street Journal has a must-read interview with Bob Funk, CEO of Express Employment Services — a $2.5 billion employment services agency. There’s also a good companion piece, Won’t Work for Food Stamps.

Funks covers some key points from a report his company plans to publish on Monday called, The Great Shift.

Here are snippets:

[Funk believes] “anyone who really wants a job in this country can have one.” With 20 million Americans unemployed or underemployed, how can that be?

To land and keep a job isn’t hard, he says, but you have to meet three conditions: “First you need integrity; second, a strong work ethic; and, third, you have to be able to pass a drug test.” If an applicant can meet those minimal qualifications, he says, “I guarantee I can find employers tomorrow who will hire you.”

He thinks the notion of the “dead-end job” is poisonous because it shuts down all sense of possibility and ambition. One of his lifelong themes, Mr. Funk says, is that “a job—any job—is by far the best social program in America and the ladder to success.”

The primary jobs problem today, Mr. Funk says, is that too many workers are functionally unemployable because of attitude, behavior or lack of the most basic work skills. One discouraging statistic is that only about one of six workers who comes to Express seeking employment makes the cut. He recites a company statistic that about one in four applicants can’t even pass a drug test.

“In my 40-some years in this business, the biggest change I’ve witnessed is the erosion of the American work ethic. It just isn’t there today like it used to be,” Mr. Funk says. Asked to define “work ethic,” he replies that it’s fairly simple but vital on-the-job behavior, such as showing up on time, being conscientious and productive in every task, showing a willingness to get your hands dirty and at times working extra hours.

He fears that too many of the young millennials who come knocking on his door view a paycheck as a kind of entitlement, not something to be earned. He is also concerned that the trendy concept of “life-balancing” is putting work second behind leisure.

Funk admits to a prejudice (emphasis added):

“I guess I’m a little prejudiced to the immigrants and especially Hispanics,” he says. “They have an amazing work ethic. They don’t want handouts and are grateful to have a job. Our company has a great success rate with these workers.” This focus on work effort is seldom, if ever, discussed by policy makers or labor economists when they ponder what to do about unemployment. To most liberals, the very topic is taboo and is disparaged as blaming the economy’s victims.

The author of the WSJ piece includes some eye-opening stats to back Funk’s claims. There are 47 million people receiving food stamps, 14 million people collect disability benefits and with unemployment insurance extended to 90 weeks, Funk calls these:

…[the] vast social welfare state programs that have become a substitute for work. There’s a prevalent attitude of a lot of this generation of workers that the government will always be there to take care of them. It’s hard to get people to take entry-level jobs when they can get unemployment benefits, health care, food stamps and the rest.

The companion piece shows the sharp rises in such social welfare programs. The cost of food stamps has more than doubled since 2008 to $83 billion and one in seven Americans receive food stamps. The government spends ‘roughly $40 million a year…to convince to enroll’ in food stamps.

Localism

Something Nassim Taleb said in his EconTalk podcast reminded of a point Daniel Hannan made in his book, The New Road to Serfdom that I wrote about it here.

Taleb makes the point that local government is more effective than national government and one reason is that at the local level there is some skin in the game in the form of shame. That is, if you take advantage of your neighbors, they’ll frown upon it. But, at the national level, government is more about taking skin out of the game through bail-outs and insurance. Here is Taleb:

And government can be a local, neighborhood union. And then let’s figure it out from the history of countries that have been very successful, like Switzerland or Sweden, places like that. That people making the decisions are usually embedded in a community. And their skin in the game is typically shame. Because they are socialized by the community. Their skin in the game is shame. Whatever government official in Washington can make a mistake, and it’s a spreadsheet looking at him. It’s not someone in church on Sunday looking at him and making him feel shame. And that’s where the main difference is.

So let me go back to the point about government. It’s true, at the local, local level, there are some natural incentives. But at the national level, say in the United States, a lot of what government does is to remove skin in the game–bailouts, insurance policies, do-overs, ad hoc interventions.

Here’s Hannan’s version:

…localism under-girds the notion of responsibility: our responsibility to support ourselves if we can, and our responsibility to those around us–not an abstract category of the “the underprivileged,” but the visible neighbors–who, for whatever reason, cannot support themselves.  No longer is this obligation discharged when we have paid our taxes.  Localism, in short, makes us better citizens.

Update: The title of the post made me think of an inconsistency. The folks who advocate ‘buying local’ rarely seem to advocate ‘governing local’. Perhaps they should.