Health insurance and sports

On Marginal Revolution, it is asked which system should be redesigned from scratch?

My first answer: health insurance.

Many problems in health care (like cost inflation) and employment stems from one simple design flaw: the tax benefit companies receive for buying health insurance that individuals do not receive when they purchase it on their own.

This has caused an unproductive melding of health insurance and employment that aliens would find strange, but we accept as normal.

We don’t expect companies to provide home and auto insurance and those markets are not nearly as mucked up.

My second answer is soccer in the U.S.

Somehow, unlike most of the rest of the world, we wedded sports and schools together from about high school on, including soccer.

I don’t have much problem with it for American sports that are not played widely around the world.

But, it has been detrimental to soccer development. If anyone wonders why the U.S. isn’t in the World Cup and, when we do qualify, we don’t make it far, I believe part answer is school sports.

Our youth soccer culture has emerged to prep players for college soccer rather than World Cup competition, which is a different game (the checkers/chess analogy applies), in several dimensions.

It also changes how the market for players and development of players works at crucial ages.

The U.S. is the Galapagos Islands of soccer.

To the inattentive, it looks like to the sport played elsewhere.

But, being cut off from the rest of the world in various ways has caused it to evolve along a slightly different path, which happens to not be optimized for producing the chess players that operate on the world stage.

Iceland is a good example of a country that went another way. Literally an island, it opened itself up to the soccer cultures of soccer-playing countries and from its tiny population has produced a World Cup team that played to a draw against Argentina last week, which is like Emporia State beating KU in basketball.

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Why is there no Milton Friedman today?

This question was put to economists recently. Tyler Cowen, of Marginal Revolution, responded here.

Here’s an excerpt of his response:

In some respects, if there is a Milton Friedman of today, it is Paul Krugman, who both has a Nobel Prize and has a very large popular audience and considerable skills as a communicator. Of course Friedman’s contributions as an economist were far more fundamental. Arguably Friedman deserves three or four distinct Nobel Prizes, while no one would say the same about Krugman, even though most of his serious critics readily would grant he deserves the one.

What about the differences in political orientation? The great policy battles of Friedman’s day were defeating communism and planning, moving away from naive Keynesianism, privatizing, and overcoming an excessive belief in regulation. And today what goals are perceived (correctly or not) as comparably important? Improving income inequality, fixing health care, and reining in the banks. The cynic might toss in ‘fighting austerity and returning to naive Keynesianism.’ It should be no surprise that today’s closest equivalent to Milton Friedman—in terms of being an iconic, popular, Nobel Prize-winning economist—should come from the left rather than from a conservative or a libertarian viewpoint.

I agree, but I would add a few observations. The differences between Friedman and Krugman run deeper than political orientation.

Friedman encouraged and facilitated productive discussion. He didn’t (at least to my knowledge) personally attack his critics. He engaged them and made his points on merit. Friedman got people to think and changed minds.

Krugman muddies the discussion with personal attacks and straw men representations of his opponents’ positions. He doesn’t encourage or facilitate productive discussion. Rather, he polarizes.

As a lad, I saw Friedman on the Phil Donahue show. I had no idea who he was. In fact, I had no cognizant recollection of seeing him on Donahue until I watched Youtube videos of those appearances in the last few years.

But, when I re-watched them, I was taken back to my pre-AC and pre-cable TV days. On a hot summer afternoon, with five channels on TV, Donahue was a last resort from boredom…usually coming after watching Beverly Hillbilly and I Love Lucy re-runs for the umpteenth time.

While I didn’t have much idea what he was talking about, I found his style refreshing. He didn’t get sidetracked with fallacies or caught up with noise making. He simply presented his case. When challenged, he addressed the challenge instead of avoiding it, which stood out to me.

He also struck me as someone, if given a challenge that he had handled a hundred times before, would stop and think about it and give it due consideration.

 

Even at that young age I seemed to notice that productive discussion was rare. That when challenged, folks just repeated their talking points (perhaps with more fervor), but thought it best to not acknowledge the challenge.

So, while Krugman may be today’s Friedman when applying a simple filter (an economist, with a Nobel Prize and a large popular audience that matches with the political trends of the day), he doesn’t have Friedman’s penchant for productive discussion. I don’t get the sense that Krugman changes minds to his way of thinking. Rather, he provides cover for people who already think his way.

Learning by doing

Alex Tabbarok of Marginal Revolution thinks apprenticeships deserve more respect, as he links to and quotes from a Financial Times article about German apprenticeships. I agree.

According to the article, more than 40% of Germans become apprentices compared with 0.3% of Americans.

I think many Americans go through informal apprenticeships. It’s better known as on-the-job training. It’s just that we usually start these much later life than we need to. We should and could start at around 16 or 17 years old, but we generally delay it into the 20s occupying the ensuing 5 or 6 years with a heavy dose of marginally productive liberal arts programming sold on the notion it produces well-rounded individuals.

However, I’ve met plenty of well-rounded individuals who skipped the formal programming. They became well-rounded by pursuing their interests and fulfilling their curiosities, rather than checking off a list produced by unproductive do-gooders.

The Hayek and Polyanyi lesson

I learned from this Marginal Revolution post (and its comments) what to call the idea that many successful companies that have emerged in the free market because customers value what they provide would not exist if they had to rely on bureaucrats to approve them.

It’s called the Hayek and Polanyi lesson. Though, this Polanyi is interesting, too.

Innovative. Free. Very cool.

Tyler Cowen and Alex Tabarrok, George Mason University economists and co-bloggers at Marginal Revolution announced today that they will offer a free, online Developmental Economics course at their new online university, MRUniversity. Sign-up today.

I have a course suggestion: Drawing Conclusions from Comparisons.

This is a weakness I see at all levels, even the well-educated, who should know better. We often make comparisons between two populations and draw conclusions about the differences that happen to fit our biases and give too little thought to alternative explanations.

One example: Homeowners appear to be more responsible than non-homeowners. If we make it easier to buy a home, we’ll make a lot more people responsible.

Cue 2008 mortgage crisis that people are still trying to figure out, or still trying to blame on  free markets or deregulation.

Alternative explanation: Turns out before we relaxed the standards, responsible people were more likely to become home owners and that’s what explained the difference in responsibility between these two groups.

Folks who were able to meet the requirements to own a home did so by being responsible before they owned a home.

Short circuiting home ownership qualification tests (like being responsible enough to exercise financial discipline and save a down payment) ended bad. It allowed irresponsible people to own homes, and surprise, they continued being irresponsible.

It would have been nice to consider alternative explanations to the idea that started it all — that home ownership causes responsibility — before committing to it.

Why we do the things we do

This Marginal Revolution post reminded me of something I encounter frequently, even with myself. The post excerpts a study:

In fact our conscious brain has surprisingly little grasp of what makes us decide to do one thing rather than another.  A telling example of this ignorance has been provided by Joe LeDoux and Michael Gazzaniga, two neuroscientists who conducted a study of patients with a severed corpus callosum, the bundle of nerve fibers connecting the two hemispheres of the brain, leaving the two sides of the brain unable to communicate with each other.  LeDoux and Gazzaniga gave instructions to these patients, via their right hemisphere (hemispheres can be targeted with instructions shown to either the left or right visual field), to giggle or wave a hand, then asked them, via the left hemisphere, why they were laughing or waving.  The patients’ left hemisphere had no knowledge of the instructions given to their right hemisphere, but the patients would nonetheless venture an explanation, saying that they were laughing because the doctors looked so funny or waving because they thought they saw a friend.  However implausible the answer, the patients were convinced they knew why they were acting in the way they were; but they were deluded in thinking so.  Their self-understanding was pure confabulation.

I often find myself in discussions with folks who can’t override their urge to start jabbing their mouth and simply say, I don’t know, why do you think what you think?

I, too, often find myself doing things that I find odd and when I search for an explanation, I find that my first explanation is usually one that would satisfy an external observer. But, then I dive deeper and find other reasons that weren’t intuitive, but were probably more important than the externally acceptable reason.

I’m cheap. I was a loyal shopper of Walmart, until Target opened across the street from it. Then I found myself in Target more often. Why? I’m cheap. I’m supposed to like the lower prices. And, at the time, there was a visible difference in most prices.

So, on several trips to Walmart and Target I “observed” myself. I asked myself questions. What’s keeping me from going to Walmart? Why am I going to Target?

Many things popped up. The Target parking lot isn’t as packed. I don’t have to walk as far. Target’s parking was clean. The store was cleaner and updated. The product displays were always in good order and the products were well presented. I would have to wait a long time to checkout at Walmart. At Walmart, it seemed like they shoved the products on the shelves.Target had some different products that I would like to browse. I wasn’t scared of the folks who shopped at Target. The folks who worked at Target seemed a bit less tired and a bit more engaged.

I came to find that it just wasn’t one reason. There were many. Some would say it was the overall experience. Maybe some mattered more than others, but they all mattered.

Walmart recognized this, too. They responded by improving on many of these things and have won me back, sometimes.

The depth and breadth of these reasons surprised me. I didn’t put conscious thought into any of these things until I first noticed my behavior was odd (not always going for the lowest price) and then decided to “observe” my behavior.

That exercise alone humbled me into being more willing to say, I don’t know, recognizing that he world is complex and the simple answer is often not the whole story. That reminds me of a favorite Oliver Wendell Holmes quote:

I would not give a fig for the simplicity this side of complexity, but I would give my life for the simplicity on the other side of complexity. -Oliver Wendell Holmes, Jr., Supreme Court Justice, 1902 – 1932

Not sure I’d give my life for it, but it’s definitely worth more.

Related articles

• Consciousness (brainexperiments.wordpress.com)

A pretty penny saved is a pretty penny earned

On Marginal Revolution, Tyler Cowen linked to this page with pictures of some extravagant public libraries.

While these libraries are beautiful, I think they also demonstrate the careless spending that takes place when bureaucrats get a hold of other people’s money.

It reminds me of this post of mine where I eventually get around to suggesting that if libraries were not paid for by third parties through tax dollars and donations, we would likely still have libraries, but they’d look less like jobs programs for architects and artists and more like Blockbuster, Netflix and Redbox.

I’m sure all of these libraries have fans who can’t imagine the world without them, but it’s easy to treasure something that you didn’t pay for directly.  If these folks were asked to cover the cost of the library, few would.

Great ground rules for dinner table discussions

From Bertrand Russell (via Alex Tabarrok of Marginal Revolution via Brainpickings)

1. Do not feel absolutely certain of anything.
2. Do not think it worth while to proceed by concealing evidence, for the evidence is sure to come to light.
3. Never try to discourage thinking for you are sure to succeed.
4. When you meet with opposition, even if it should be from your husband or your children, endeavour to overcome it by argument and not by authority, for a victory dependent upon authority is unreal and illusory.
5. Have no respect for the authority of others, for there are always contrary authorities to be found.
6. Do not use power to suppress opinions you think pernicious, for if you do the opinions will suppress you.
7. Do not fear to be eccentric in opinion, for every opinion now accepted was once eccentric.
8. Find more pleasure in intelligent dissent that in passive agreement, for, if you value intelligence as you should, the former implies a deeper agreement than the latter.
9. Be scrupulously truthful, even if the truth is inconvenient, for it is more inconvenient when you try to conceal it.
10. Do not feel envious of the happiness of those who live in a fool’s paradise, for only a fool will think that it is happiness.

If we had a course or two in critical thinking and discussion in the junior high or high school curriculum designed to teach mastery of these ten ground rules plus some common fallacies, politically we’d be in better shape.

Similarly, an oath from Bryan Caplan of EconLog:

Blathering talk surrounds us, but I will take no part in it.  My word is my bet; I will always put my money where my mouth is.  When challenged, I will bet on my words, refine them, or recant.  When no one is present to challenge me, I will weigh my words and thoughts as if my fellow oath-takers were listening.

Similarly, several years ago a friend told me of a rule his workplace had implemented. It went like this:

If you are to point out a problem, you must follow it with, “…and this means we should do…” to show that not only have you discovered a problem, but you thought of a solution and you are willing to publicly advocate that solution.

At first blush, it may not be apparent how this last one is similar to the first two.

But, I’ve worked in companies that rewarded problem detection rather than problem solving. That led to a lot of, to use Caplan’s words, blathering talk as many people floated trial balloons of  problem detection in order to be rewarded for finding a problem. And, of course, they were not punished if it turned out that the problems they found were not problems at all. They were given credit for “at least, trying.”

My friend’s company had a similar problem. The leaders recognized it and put the new rule in place. It significantly cut the blathering talk. They correctly reasoned that if people were to have to present solutions along with their problems, that would be like asking people to put their money where their mouth was.

Why? Because it’s easy to see whether a solution solves a problem or not.

In other words, it’s easy to be a critic when you have nothing on the line.

One more story…I coach my kid’s soccer team. After a loss where our team looked scared of the ball, one grandparent told me after the game “You need to get them more aggressive, Coach.” I said, “I’d love to. Do you have any suggestions on how to do that? If so, I’m all ears.” He laughed and said “Nah” and I believe he realized that talk is cheap and it’s easy to criticize with nothing at stake.

How much of what you advocate, especially strongly advocate, would you bet on? Our opinions are typically much more refined in topics where we pay the direct costs of being wrong.

Through trial and error, I learned that paying a plumber to do what they know best is well worth the cost. It saves time, headaches and future catastrophes.

But, I can go on a whole lifetime holding damaging political beliefs, mainly because I never directly pay for the damage it causes. I can claim good intentions, without ever knowing whether those intentions actually ever helped.

Exit is more powerful than voice

In this post, I wrote about how competition and choice is important for encouraging bottom-up innovation. When we say things like “roads are socialized” we gloss over something very important. There isn’t a single road department. There are many. We have Federal highways, state highways, county roads and city roads.

Each department operates somewhat independently and tries different things to solve the problems they face. Every now and then, one happens across an improvement that works well and other road departments can choose to adopt it. That type of innovation would not happen as often if there was a single road department that pushed one set of standards.

Alex Tabarrok of Marginal Revolution makes this point well in this post about how education was rebuilt in New Orleans after Katrina, when describing the source of innovation in education:

What really drives innovation, however, is not a simple substitution of private for public but a system substitution of competition for monopoly.

I agree. In the comments of his post, I suggested re-framing this in terms of the benefit to the user (edited slightly here):

It is not a simple substitution of a choice between free-to-the user public and cost-to-the-user private, but a system substitution of more choice by the user.’

We often get hung up on the public/private distinction. That doesn’t matter as much as how free the users — the direct beneficiaries — are to make a choice.

The freer the users are to choose to exit their current option if it isn’t working for them, the better.

This dynamic drives innovation. Why, you might ask? Because the freer your users are to leave you, the harder competitors will try to give your users what they want to encourage them to leave and the more honest soul-searching you may do to figure out why your users are leaving you. If you can’t figure it out, you end up going away.

My parents decided to move to exit a school district that wasn’t giving them what they wanted. That choice was much more powerful than their voice would have been had they decided to stay and try to change the direction of the school district.

So, whenever we think about why one system works and another doesn’t, maybe we should think in terms of how free users are to choose.

Something to consider when evaluating business opportunities

From Blake Masters’ notes of Peter Thiel’s (founder of PayPal) class on startups (emphasis added).

Suppose you want to start a restaurant in Palo Alto that will serve only British food. It will be the only such restaurant in Palo Alto. “No one else is doing it,” you might say. “We’re in a class of our own.” But is that true? What is the relevant market? Is it the market for British food? Or the restaurant market in general? Should you consider only the Palo Alto market? Or do people sometimes travel to or from Menlo Park or Mountain View to eat?

These questions are hard, but the bigger problem is that your incentive is not to ask them at all. Rather, your incentive is to rhetorically shrink the market. If a bearish investor reminds you that 90% of restaurants fail within 2 years, you’ll come up with a story about how you’re different. You’ll spend time trying to convince people you’re the only game in town instead of seriously considering whether that’s true.

You should wonder whether there are people who eat only British food in Palo Alto. In this example, those are the only people you have pricing power over. And it’s very possible that those people don’t exist.

Many bad business decisions are based on bad market analysis. There may be a reason why you’d be the only British food restaurant around — nobody wants it.

I see this mistake made often in the business world. Business leaders see something like ‘no British food restaurants around’ and mistake that opportunity for an opportunity like ‘the world really needs an iPod.”

Granted. It is hard to tell those two types of opportunities apart. But, so often is the case that the person making the decision doesn’t consider that they might be wrong, or see if it has already been tried and, if so, consider why it didn’t work the other times it was tried.

They should also deeply consider who will value their product and why, which gets to Thiel’s comment about pricing power. These are the only people who want it.

I can do without potato chips. They don’t do much for me. I never buy them for myself. I sometimes eat them if they come with a meal that was provided for me or if I just feel too lazy to ask for a substitution.

Potato chip companies have no pricing power over me. They can raise and lower their prices all they want, that won’t make me buy any less or any more potato chips. Fortunately, for them, there are plenty of people who do value potato chips and are willing to buy them.

(HT: Marginal Revolution)