Thursday, May 15, 2014

Market priesthood

Has economics really become less about "free market priesthood"? Well, I think academic econ has. But as for pop econ, there still seems to be a lot of it around. For example, Steve Levitt, one of the most popular pop economists in the world, recently had this to say about health care:
In their latest book, Think Like a Freak, co-authors Steven Levitt and Stephen Dubner tell a story about meeting David Cameron...They told him that the U.K.’s National Health Service -- free, unlimited, lifetime heath care -- was laudable but didn’t make practical sense.  
"We tried to make our point with a thought experiment," they write. "We suggested to Mr. Cameron that he consider a similar policy in a different arena. What if, for instance...everyone were allowed to go down to the car dealership whenever they wanted and pick out any new model, free of charge, and drive it home?" 
Rather than seeing the humor and realizing that health care is just like any other part of the economy, Cameron abruptly ended the meeting... 
So what do Dubner and Levitt make of the Affordable Care Act, aka Obamacare, which has been described as a radical rethinking of America's health care system?  
"I do not think it's a good approach at all," says Levitt, a professor of economics at the University of Chicago. "Fundamentally with health care, until people have to pay for what they're buying it's not going to work. Purchasing health care is almost exactly like purchasing any other good in the economy. If we're going to pretend there's a market for it, let's just make a real market for it."
This is exactly what I call "free market priesthood". Does Levitt have a model that shows that things like adverse selection, moral hazard, principal-agent problems, etc. are unimportant in health care? Does he have empirical evidence that people behave as rationally when their health and life are on the line as when buying a car? Does he even have evidence that the British health system, specifically, underperforms?

No. He doesn't. All he has is an instinctive belief in free markets. Of course David Cameron didn't "realize that health care is just like any other part of the economy" after a five minute conversation with Levitt. Levitt didn't bring any new ideas or evidence to the table.

And it's not like Levitt's idea was new or creative or counterintuitive. Does anyone seriously believe that the question of "why is health care different from other markets" had never crossed David Cameron's mind before? Obviously it has, and obviously Levitt knew that when he asked his question. He wasn't offering policy advice - he was grandstanding. Levitt wants to present himself as "thinking like a freak" - offering insightful, counterintuitive, original thinking. But if this is "thinking like a freak", I'd hate to see what the normal people think like!

Surely it has not escaped Levitt's notice that the countries with national health systems spend far less than the United States and achieve better outcomes. How does he explain this fact? Does he think that there is an "uncanny valley" halfway between fully nationalized health systems and "real markets", and that the U.S. is stuck in that uncanny valley? If so, I'd like to see a model.

But I don't think Levitt has a model. What he has is a simple message ("all markets are the same"), and a strong prior belief in that message. And he keeps repeating that prior in the face of the evidence.


Here is a review of Think Like a Freak.

Here is Paul Krugman with more evidence that America's health care system performs worse than nationalized ones. This evidence, like the evidence I linked to before, is not conclusive proof that freer markets make health care worse, but Levitt should at least make an attempt to engage with these facts.


  1. Anonymous3:51 PM

    Who in their right mind thought Levitt had anything informed or interesting about health care to say in the first place? (other than the luminaries at yahoo finance) Dude doesn't even understand the benefit of employer-sponsored insurance (access to favorable group premiums)

    1. You are actually wrong on this. There is no need for insurance to be tied to employment for there to be risk pooling. After all, this only benefits the working! Much as Levitt is overall wrong, he is right in that pretty much every economist agrees that tying health insurance to employment is a bad idea. In fact the slight adverse effect of ACA on employment comes from people who were only working in order to get insurance, and would not have been working otherwise.

  2. Does he have empirical evidence that people behave as rationally when their health and life are on the line as when buying a car? Does he even have evidence that the British health system, specifically, underperforms?

    No. He doesn't. All he has is an instinctive belief in free markets.

    I wouldn't say 'instinctive belief', necessarily.

    Hebrews 11:1 Now faith is the substance of things hoped for, the evidence of things not seen.

  3. Levitt doesn't seem to be familiar with the concept of insurance.

  4. Anonymous4:44 PM

    I agreed with every word Iuntil I got yo the 2nd last paragraph.

    1. I don't like the "point of intervention' measurement Roy recommends, since intervention itself is endogeous. But also, there are health outcomes besides life expectancy, like obesity, disability, etc., and I think we do worse on essentially all of these.

      Plus, spending 2x as much to get the same outcome, even if the outcome were the same, sounds like a bad deal to me.

    2. Nathanael6:43 PM

      Yes, we do extra specially poorly on quality-of-life measures. Americans have lots of poorly treated or untreated chronic disease. Not as true in single-payer systems.

    3. Anonymous7:35 PM

      Agreed, great article until 2nd to last paragraph.

    4. Alex H.12:14 AM

      The causal effect of healthcare on obesity and disability is negligible (as with other common measures of health rates like smoking, cancer, and heart disease). That's just plain common sense - they're conditions that are largely driven by cultural and demographic factors. The idea that healthcare is some great panacea for so many things is largely a modern myth. Most of the major advances in medicine that significantly increased life-expectancy took place decades ago. To the extent that there is a small positive causal effect of healthcare on the above mentioned factors - ignoring for the moment any possible counter-balancing moral hazard effects - it would primarily be through an educational channel. I can think of a lot more efficient ways to inform people about unhealthy eating and lifestyle habits than a costly healthcare system.

    5. Yes, too funny. Obamacare is going to fix obesity due to its clever economists.
      Yes, we do pay twice as much, but we pay for all the new medical technology in the world. Europe and others pay only for the marginal production cost. In a R&D heavy industry, it's a total joke. Yes, it's easy to fix our cost problem. Tell the world to start paying for their medications for a change.

    6. Research spending is actually only about 8% of US health spending...

    7. Yes, the tired "the rest of the world is free-riding on American medical R&D spending" is another myth that crumbles in the face of data. Life sciences R&D spending (which includes development of pharmaceuticals and medical devices as well as basic research) accounts for 0.6% of our GDP, while total healthcare spending in the US is 17.9% of GDP, compared to just 9.4% in the UK, and 10.9% for Canada. Even if those countries spent exactly the same on the R&D relative to the size of their economy as we do, it's still not close: Their systems would still be more cost-effective when taking technological development into account. (Sources: World Bank, Battelle)

    8. Not R&D spending, total spending on pharmaceuticals and medical devices. We basically pay half of the global total. I know all this extra spending is not needed, since pharmaceutical companies are just wasteful and you know full well how much less money should be spent on all those things. That's also why you already formed your own companies to smash the cozy cartel.

    9. Anonymous3:59 AM

      Noah, I posted this link. I agree with your unease with the point of intervention measure. I really meant, and should have highlighted, the correction for fatal injuries.

    10. Anonymous5:26 AM

      Yes, we do pay twice as much, but we pay for all the new medical technology in the world.

      Is that through taxes? In terms of private sector investment, there a lot of major Japanese, German, Swiss and UK medical equipment and pharmaceutical firms - Bayer, Olympus, Roche, Novartis, ..

    11. Oh mate, the main news in the UK this week is...Pfizer's takeover bid for Astra Zeneca, and whether the government should veto it for fear Pfizer will guzzle the patent portfolio and then dump the UK R&D centres.

      Whatever your view on the bid, you can hardly claim that all the pharma research is in the US in the same week that a US pharma company tries to buy a British-Swedish one - you know, two countries with national healthcare and between them they have a monster drug company!

      Actually, come to think of it, this is a really strange contention in general. Nobody thinks the US doesn't do any aerospace R&D because it has a huge air force.

    12. Anonymous7:32 AM

      Pfizer's desire for a headquarters location that drives more a more favorable tax situation doesn't change the fact that a disproportionate share of the revenues and earnings of AZ, and of Pfizer (PfiAZer?), come from the US.

    13. I have seen that link before. It is Flat Out Wrong. It's a persistent zombie statistic.

      Low US life expectancy is not a myth. The study the forbes link cites does not at all try to remove the effect of accidents and homicides from the US life expectancy statistics. Instead, it uses a simple linear regression to predict US life expectancy from a variety of covariates. Firstly, the model they have is heavily overfit, Secondly, the interpretation of the result as implying that the US would have a high life expectancy without homocides is incorrect. The model actually shows that the US is *expected* to have a high life expectancy, given its large income.

      What is actually happening in the model is that the US's high homicide and fatal injury level is allowing that variable to act effectively as a 'isAmerica' indicator variable. Because there are no other developed countries without socialised healthcare in the dataset, that variable absorbs the effects of lack of healthcare and basically every other unique thing about the US. A proper analysis of the statistics would be to actually go through the US mortality tables and take out deaths from fatal injuries, to produce a demographic pattern where the injured parties did not die. Do that and you will see quite clearly that it is absolutely impossible for fatal injuries to account for the difference in life expectancy. There simply isn't enough dead people dying young enough to make it work. Similarly, you can take out obesity related deaths and so, and still the US underperforms.

      From a reasonable look at the statistics, the only proper conclusion is that the US healthcare system is crap. There are multiple peer reviewed articles on the topic. Your Forbes report of an un-reviewed linear regression is worthless.

    14. Anonymous10:45 AM

      Yeah, note that some readers caught an absurdity in the chart of life expectancy w/o accidents and homicides and called Roy on it - how can life expectancies in other countries go DOWN when you pull out a cause of premature death? HIs answer is gibberish.

      Also, although he argues that life expectancy is correlated with wealth, his data show the reverse: once you get above GDP per capita of $20,000, there is no correlation at all between wealth and life expectancy.

    15. Anonymous1:12 PM

      An other version of the Forbes chart:
      US is not exactly on top of life expectancy, especially if you compare it with GDP.

    16. Anonymous2:29 PM

      I have lived in England and Japan. People complain about the government not spending enough on health care. But that is all it is: complaining.

      If they wanted to spend more on health care then they WOULD spend more on health care.

      Avik Roy can't begin to explain why the US spends almost twice as much on health care and, even using his stats, gets marginally better results.

      How many politicians in Canada or England run for election by saying they want to ditch their health care system and copy what we have in the USA?

      Answer: ZERO

    17. Anonymous3:09 PM

      "Yes, we do pay twice as much, but we pay for all the new medical technology in the world."

      So last month I was about to get my torn retina lasered down here in Houston and I noticed that the laser machine was made in Italy. So I said something brilliant to the doctor: "Hey, this laser machine is made in Italy." And she told me that the Italians pioneered advanced eye laser surgery and make the best laser machines.

    18. Anonymous3:38 PM

      Knee and hip prosthesis surgeries were developed in the UK.

    19. I guess some people have trouble understanding a couple simple facts. It doesn't matter where the R&D and related functions happen. What matters is who pays for it, and it's not Europeans, but us, Americans. If a new technology gets developed in Switzerland or Britain, given that majority of their revenues comes from the US means that we pay for it.

      Europeans can merrily continue paying marginal production cost while we pay the bulk of development cost. That's the mystery of their low, low prices for pharmaceuticals. Yes, governmental price controls work, especially when sombody elese pays for it.

    20. U.S. R&D on healthcare is less than a third of the world total, and declining as a share of the total.

    21. Anonymous7:54 PM

      Krzys, are you trying to imply that drug companies and medical device manufacturers are barely breaking even? Because you'd have to be implying that if you think the US is subsidizing R&D costs in a way that *allows* those companies to function.

      I'm pretty sure they're making huge profits; they're more than recouping all costs. They'd be recouping all costs even if the US paid less. So we aren't subsidizing their R&D by paying as much as we do, we're subsidizing the executives' access to hookers and blow.

    22. Really? Pharma is just an easy business with huge margins. Well, start your own company and enjoy the hookers and blow. What are you waiting for? It should be easy.

  5. Anonymous5:10 PM

    If healthcare in general is anything like health IT, the rules are complex and ever changing with loads of issues and built in costs.

    So I'd guess that that plays a part in why US healthcare is expensive. Plus there are random delays. Look at the ICD9 to ICD10 transition delay. Huge amounts of money and staff time poured into something that has to be reverted because the ONC changed its mind.

    Or the lack of innovation. Check out some of the major CEHRTs around, and tell me that doesn't look like a store page from the 90s.

    Or the rules. You know what counts as PHI? It has nothing to do with the data, and everything to do with who collected it. If you set up a form on your site asking for people's vitals, not PHI, no requirements. A doctor? PHI. The difference in cost for storing the same information is staggering.

    Compliance is expensive. Not security, compliance. Security can be expensive, but for most companies a managed security suite for their IT infrastructure is a few hundred bucks a month. Getting certified as an EHRT? Ludicrously expensive and filled with fiddly gotchas that don't do all that much to improve security. Your real gains come from security suite, AV, strict identy based access management, separation of application tiers and MFA. Not figuring out where the dang silicon for a particular server came from.

    1. Nathanael6:45 PM

      Other countries have simpler health care IT rules, too. And their IT is more effective. Because single-payer -- means a single IT system.

    2. "Or the rules. You know what counts as PHI? It has nothing to do with the data, and everything to do with who collected it. If you set up a form on your site asking for people's vitals, not PHI, no requirements. A doctor? PHI. The difference in cost for storing the same information is staggering. "

      In my (professional) experience, that's not true - PHI is defined by identifiability.

  6. Anonymous5:39 PM

    Thanks for commenting on this. I'm sure that many amateur economists (particularly those in my undergrad classes) will take the observations in this book as gospel. Keep the commentary coming!

  7. Anonymous5:43 PM

    I recently heard a discussion on the radio (different topic: the future of the Canadian Broadcasting Corporation) wherein one of the contributors (Gerry Nicholls) joked that he worships at the alter of the free market, which I thought summed up too much of this kind of discussion. It really does seem to be a matter of faith for many people.

  8. Anonymous6:14 PM

    Wow. There are so many things wrong with this. For example:

    (1) Why was Levitt consulting with David Cameron, and was it about health care policy in Britain? If it wasn't, why did he bring it up? If it was, is that seriously the best argument he could make with extensive preparation before meeting with a powerful British official?

    (2) Isn't this The Worst Argument In the World? ( Health insurance is like giving everyone a free car!

    (3) He implies Cameron ended the meeting, "abruptly," because Levitt was speaking too much awesome. But see (1)--why would Cameron bother to waste his time with a guy who couldn't stay on topic or who had only brought this tripe to the table?


    1. Nathanael6:46 PM

      This story increases my respect for David Cameron. And I didn't have much respect for David Cameron. But he knew enough to show a blithering right wing idiot to the door. Good for Cameron.

    2. 1) Our government has a distressing habit of bringing in public policy big thinkers (ranging from Nassim Taleb to Cass Sunstein to Ben Goldacre - basically if you have good sales in airports), playing around with them for a while, then losing interest in them like a kid who gets a puppy for Christmas. Levitt was the latest delivery from the Guru-Of-The-Month Club, and he appears to have prepared for his meeting roughly as thoroughly as for the average book tour appearance.

      2) It is genuinely terrible, yes. Wouldn't like to say "the worst in the world" because christ, morons are so creative.

      3) I thought the strong implication was that Cameron had started looking round for the hidden camera and suspecting he was on some Ali G Show type parody.

    3. Cameron is an idiot. So is his boy Osborne. Does anyone really think Cameron ended the meeting just because Levitt is a corrupt idiot? After all, Cameron is one too. Cameron probably had a tight schedule.

  9. James6:14 PM

    What I find scary is that this faith-based ideologue is being allowed, by a supposedly reputable university, to pass himself off as an economist, and to impose his fundamentalist belief system on young and impressionable people.

  10. Anonymous6:15 PM

    Ah, the time-honored cry of the oligopolist: "Buh, buh, buht, this is a Speshul Market!" Standard Oil and AT&T would have been proud of you, Noah.

    Most economists would think that the solution to high prices is high prices -- meaning that more competition... is good! And lowers costs! And raises quality! Has the US ever tried introducing more, rather than less, competition? Standard Oil? AT&T?

    Nah, medicine is super-cereal-special, huh. It's "just so"!

    (And yes, re-mutualization of health insurance companies would help IMHO.)

    1. Nathanael6:48 PM

      AT&T was a natural monopoly. Breaking it up... led to it re-forming again a few years later.

      Worshipping competition is as bad as worshipping markets. It doesn't always work.

    2. Anonymous7:15 PM

      The people claiming that medicine is a special market that cannot be treated blithely like others are generally the ones presenting the data supporting their positions. Like Levitt above, you're either presenting Derp or The Worst Argument In The World, not data. It's strange that you're arguing the other side is the ones saying "just so," when Noah's point is the exact reverse.

      Additionally, countries may have an interest in providing accessible healthcare to their populations that is not directly connected to market efficiency.

    3. Anonymous7:41 PM

      Sorry, the burden of proof is always on those who wish to assume away the base case of normal supply, demand and price, and it's a very, very, high hurdle -- not just blithe Derp Derp.

      Besides, where is this phenomenal data you speak of? Tweaking degrees of freedom from an inefficient equilibrium to establish some slight efficiency gain would be unimpressive, and prove nothing. From a rational policy standpoint, much better to find the competitive market equilibrium, and then correct problems.

      Always remember JDR's immoral words, “Competition is a sin!” (To rent-seeking oligopolies, that is.)

    4. Ah, the time-honored cry of the oligopolist: "Buh, buh, buht, this is a Speshul Market!" Standard Oil and AT&T would have been proud of you, Noah. "

      I thought the argument was about single payer healthcare/Obamacare. Was there an argument about oligopoly?

    5. Anonymous9:01 AM

      "Sorry, the burden of proof is always on those who wish to assume away the base case of normal supply, demand and price, and it's a very, very, high hurdle -- not just blithe Derp Derp. "

      Single payer systems are cheaper and have about as good health outcomes. Those are the facts.

      My guess is that this is due to single payers ability to:

      -put pressure on doctor salaries
      -reign in pharmaceutical prices
      -reign in expensive/low value treatments and tests
      -low administrative overhead/ no need for advertisements

      compared to the private insurance system that we currently have.

    6. Er, isn't AT&T evidence that the solution to high prices... is government intervention, and not actually high prices in itself? Competition did not magically appear just because they charged a high price. Rather the evidence seems to suggest that monopolies can be pretty stable.

      The point of socialised healthcare isn't getting rid of competition. It's about changing the structure of incentives. A single, profit maximising healthcare provider would be similarly hazardous.

    7. Anonymous12:30 PM

      csning, Healthcare markets are suffering from oligopolistic pricing: a lack of competition among insurance companies, big pharma, and tax-free employer benefits. The consumption of medical services is divorced from costs, and there is no ability to compare prices in a competitive marketplace. Obamacare reinforces and strengthens the healthcare oligopoly by limiting competition.

      A, if you are interested in reining in costs, competition works much better than single-payer government dictats (which are grossly influenced by big-corporation lobbyist cash). I too somewhat blame private (that is, stockholder-owned) insurance. Mutual aid societies -- where the policyholder is also the owner -- is a much more desirable business model for insurance, rather than "we profit if we don't pay" stockholder owned insurance companies or DMV-like public healthcare (a false choice).

      Fangz, do you remember the era of yellow dial-up telephones? They had a monopoly, which crushed years of potential telco innovation. Breaking up AT&T's monopoly (not necessarily AT&T the entity, Nath!) led directly to your cool iphone.

      They created a economic desert and called it stability.

    8. @Anonymous
      Sorry, the burden of proof is always on those who wish to assume away the base case of normal supply, demand and price, and it's a very, very, high hurdle -- not just blithe Derp Derp.

      No, the burden of proof is on you to prove that things work as they're predicted to in microeconomic models - it's not the default.

      My guess is that this is due to single payers ability to:

      -put pressure on doctor salaries
      -reign in pharmaceutical prices
      -reign in expensive/low value treatments and tests
      -low administrative overhead/ no need for advertisements

      Doctors' salaries is the biggest one there, probably. Doctors in the US are incredibly well-paid in the US compared to other rich countries, and most of that is because they've more or less captured most of the regulatory system overseeing the production and training of doctors.

      For some reason, doctors' associations in the US proved more powerful in the face of pressure for a more universal system with socialistic elements than elsewhere. The Canadian Medical Association fought the passage and imposition of single-payer care in Canada pretty hard, but lost by comparison.

    9. Anonymous1:10 PM

      These doctors are well compensated, and yet provide services for 1/6 to 1/8 of the oligopoly price. What's the difference?

    10. Anonymous7:23 AM

      "Sorry, the burden of proof is always on those who wish to assume away the base case of normal supply, demand and price, and it's a very, very, high hurdle -- not just blithe Derp Derp."
      You've just proved that you belong to the "free market priesthood".
      Something is checked against empirical reality, data, not supply and demand or whatever. The base case is reality, dude.

    11. Anonymous9:20 AM

      There is a discipline called Economics. It's learned a few things. If you want to re-calculate whether the sun will rise every day, you will waste your time. Instead, the base case is that it rises. That's reality.

    12. Nathanael10:37 PM

      Derp derp derp!

      Yeah, economics has figured out a few things -- like Ken Arrow's 1963 paper on health care economics, which you haven't read, hence your derp derp derp responses to intelligent people.

  11. The British system has notably worse 5 year survival rates for breast cancer. If stage 1 cancer, the US 5 year survival rate is 97 percent but only 78 percent in the UK. For all stages, the 5 year survival rate is 85 percent in the US and 74 percent in the UK.

    For colon cancer, the US 5 year survivability for stages 1 and 2 is the same in the US and UK but the US has a higher stage 3 5 year survivability of 64 percent versus 48 percent in the UK

    I don't have statistics but Japan's mental health care is considered to be far behind that of the US. And Japanese aren't nearly as obese as Americans because the walk more and aren't wolfing down triple cheeseburgers -- usually.

    1. Then again, 45000 deaths in America were linked to lack of health insurance

      Rich people in the UK can pay for private health insurance, but no one in the UK dies because they can't afford basic healthcare.

      Also, for things like colon cancer, the US treats far more people for colon cancer than in the UK, treating people who would probably never suffer symptoms: what this report calls "overdiagnosis at the expense of over treatment" - that's at least partly why more Americans survive.

      Crude comparisons of international healthcare outcomes are usually going to be misleading.

    2. @hey

      Please do read the following article:

      Five year survival rates can mislead | BMJ

      " While running for president of the United States the former New York mayor Rudy Giuliani announced in a 2007 campaign advertisement, “I had prostate cancer, 5, 6 years ago. My chance of surviving prostate cancer — and thank God, I was cured of it — in the United States? Eighty-two percent. My chance of surviving prostate cancer in England? Only 44% under socialized medicine.”

      To Giuliani this meant that he was lucky to be living in New York and not in York, because his chances of surviving prostate cancer seemed to be twice as high in New York. Yet despite this impressive difference in the 5-year survival rate, the mortality rate was about the same in the U.S. and the U.K.

      Why is an increase in survival from 44% to 82% not evidence that screening saves lives? For two reasons. The first is lead time bias. Earlier detection implies that the time of diagnosis is earlier; this alone leads to higher survival at 5 years even when patients do not live any longer. The second is overdiagnosis. Screening detects abnormalities that meet the pathological definition of cancer but that will never progress to cause symptoms or death (non-progressive or slow-growing cancers). The higher the number of overdiagnosed patients, the higher the survival rate. In the U.S. a larger proportion of men are screened by prostate-specific antigen testing than in the U.K., contributing to the U.S.’s higher survival rate."

    3. Anyone can cherry pick some cases to justify any position. Should we be surprised that the US would beat [one particular country] on [one particular measure] for [one particular illness]? You need to take as broad a view as possible.

      There have been studies into the impact of obesity on US life expectancy, and they've generally concluded that it is insufficient to explain the difference. See e.g.

    4. Did someone seriously cite that David Gratzer study that Guiliani was going off of? The study authors of the study that Gratzer himself drew up have said that he grossly distorted their report, as Factcheck pointed out back in 2007.

  12. The contrapositive is the case. We can't make a market of it, so we shouldn't pretend we can.

  13. Anonymous6:40 PM

    Noah, "Why is health care different from other markets?" I believe you may be guilty of a fallacy of composition here.

    Real consumption of medical services appears to move inverse to medical prices: higher relative prices -> less relative consumption. The healthcare market is "normal", i.e. "not different" in other words.

    1. Nathanael6:50 PM

      That isn't the way in which the process of buying healthcare is different from other markets. It is, however, a different and "not normal" market.

      Please read Kenneth Arrow's classic paper on the market failures for healthcare. He catalogs the ways in which it isn't normal. Starting with the fact that the "customer" is under extreme duress most of the time.

    2. Anonymous7:24 PM

      Nathanael, to be sure, the state of the art in economics has progressed since 1963.

      And frankly, it's an OK paper, but a bad policy guide: Arrow's critiques (as he clearly states), apply to all professional relationships with consumers. Why medicine was "more special" was never proven. How about Obamacare for law? For auto mechanics? For real estate? Bottom line, your assertions of "difference" are not unique to medicine. Even Arrow admitted as much.

      Still guilty of logical fallacy.

    3. Even if this weren't egregious goalpost-moving ("Healthcare is a normal market." "Um, wrong; it isn't and it's full of market failure." "OK, it's full of market failure but so is law so nyah nyah here's some bogus reductionist socialism") it'd still be wrong: Arrow specifically addresses why medicine is different for the average consumer.

      "Medical services, apart from preventive services, afford satisfaction only in
      the event of illness, a departure from the normal state of affairs. It is
      hard, indeed, to think of another commodity of significance in the
      average budget of which this is true. A portion of legal services, devoted to defense in criminal trials or to lawsuits, might fall in this category but the incidence is surely very much lower...Further, the amount of
      uncertainty, measured in terms of utility variability, is certainly much
      greater for medical care in severe cases than for, say, houses or automobiles..."

    4. Patrick Caldon8:51 PM

      One reason why health care is different:

      What if, for instance, everyone were able to to go down to the hospital whenever they wanted and have a leg amputation, free of charge, and then a free prosthetic and rehabilitation?

      In this instance you get practically zero additional leg amputation consumption. But if you replace "leg amputation" with "car" you get a lot more car consumption.

    5. Anonymous8:51 PM

      Seriously. What may be true for individuals is not necessarily true for markets. The Ford Foundation ought to have hired an editor for Arrow who had a grasp of logical fallacy.

    6. Laughably dumb. The behavior of the market for healthcare (Arrow is particularly speaking of emergency and other urgent care) is a partially a function of the demand for healthcare, which is a function of "what is true for individuals." One of Arrow's points here is that it is far easier for consumers to understand the utility that, say, lawn mowers bring them, where the unpredictable nature of illness (your sore throat could get better tomorrow, or you could have a nice case of Strep A septicemia) means that the decision to consume or not to consume many, many medical services is fraught with risk. What Arrow is pointing out is that this influences demand and prices and so forth in ways that do not exist in markets for typical goods and services.

    7. Anonymous9:28 PM

      BW, I think that driving a car is sometimes unpredictable. My decision to drive or not to drive many, many roads and byways is fraught with risk. So what? I buy insurance. This also influences demand and prices and so forth, but it ain't special.

    8. *** in ways that do not exist in markets for typical goods and services.***

      The risk that your car might be destroyed tomorrow and you'd need a new one != the risk that you might suffer death or permanent disfigurement preventing you from ever living a normal life again. Again, this is just a ridiculously bad misrepresentation of what Arrow's paper says.

    9. I find your assertions about the similarity between the health care market and the car market unconvincing. They are different foremost because you don't have to have a car to prevent you from dying. The chance one may die from an untreated disease has no equivalent in the car market. Fear of death is a significant driver of health care consumption (see the rates of expenditure for end-of-life care relative to everything else). Second, the range of choices one has for a given situation is typically far more limited, particularly since sometimes the answer is, "without spending hundreds of thousands of dollars you don't have, you will die/be horribly disfigured/be permanently disabled." And you might even cost that much and still suffer that way.

      Honestly, though, I don't care about market solutions for health care, because people's life outcomes are strongly affected by the health care that's available to them, and as a matter of morality I believe we, collectively, should have each other's backs.

      I'm all for making *that* system work as cheaply as possible.

    10. If you are correct, you have only succeeded in showing that healthcare is similar in one, single, specific sense - that consumption and prices are inversely correlated. (Not that I think you are actually correct. It is perverse to measure healthcare consumption in monetary expenditure terms. Using such a graph basically focuses all attention on a number of high-cost elective interventions, which is precisely *not* what people talking about market failures in healthcare find important.)

      But anyway this is nowhere near sufficient to equate healthcare to buying cars.

    11. Anonymous12:44 PM

      Each of these "special market" reasons I see in this thread are at root an appeal to emotion, with vivid images of "death, or permanent disfigurement preventing you from ever living a normal life again" which clouds the logical fact that these are "just so" rationales for why medicine is different. It's emotive bloody-shirt-waving, not market logic.

      Break up the medical oligopolies, outlaw collusive price fixing, introduce competition, and catastrophic insurance to prevent "death, or permanent disfigurement preventing you from ever living a normal life again" will become as boring as every other kind of insurance for life, home, car, travel, you name it. Buy insurance in a competitive market, get services. Simple. Not complex.

    12. If only 'introduce competition' can be accomplished as easily as simply saying so.

    13. Anonymous2:15 PM

      Anonymous doesn't seem to be familiar with several types of market failures: 1. asymmetric information. This is much bigger in health care than in the car market (although it does exist there). Most people want to trust their doctors, and really have no little other choice. This is also the person they are paying for care. 2. Positive externalities. Health care has a greater benefit to society than it does to the individual. 3. Lack of substitutes. On some level, I have alternatives to buying a car. I don't have an alternative to getting health care. This means the demand curve is almost perfectly inelastic. This is probably the main reason that our market system has much higher costs than the more regulated or completely single payer systems in Europe.

      Ultimately, I think society must provide health care for moral reasons, independent of the Economics. But it's pretty clear that the market arguments are wrong.

    14. Anonymous2:39 PM

      Fellow Anonymous, we live in a time when information technology has shrunk these market failures considerably. They are less relevant now than at any point in the past. I rate doctors, compare health plans, can shop around for prices at a touch of a button. Sorry, but rationale failure. Why ought not we take advantage of this incredible technological market opportunity!

      The US does not have a healthcare market system! We have an uncompetitive oligopolistic system, where outlandish prices are set by collusive anticompetitive practices. How is this not clear? It's quite a rhetorical trick to blame the free market. Thanks, Market!

    15. What is (vastly) different is that, with adverse selection, the marginal cost curve is falling in consumption. That is, the lower is the price of healthcare, the more will healthy people buy it, so average cost per user is falling. The supply curve is then falling, the demand curve is standard.

      Einav & Finkelstein in their Economic Perspectives paper (2011 I believe) explain this very well. Note that this assumes a high correlation of risk and marginal willingness to pay for healthcare but that's the main point of adverse selection.

    16. Anonymous4:12 PM

      Ok. Now shop for the best ER/heart surgeon on your computer while having a heart attack.

    17. Anonymous4:28 PM

      All you've said is that a heart attack is a special case: not generalizable to all healthcare needs, but I'm certain you know this. Shop around, buy insurance, go to the ER with the comfort that you've insured yourself. Pectus dolor reductio ad absurdum.

      How about shopping here first.

    18. Most things that kill people more closely resemble heart attacks than the sort of elective procedures that allow for comparison shopping; heart attacks are not a unique case, they're part of a very large class of similar events. You cannot have a health system that doesn't provide a way to handle them. But more than that, something else that makes the healthcare market different than the car market is that demand is completely inelastic, *and typically costs more than people can afford*; if you need a stint put in or have cancer, and you don't get to opt out, except by dying. And it's not something that can be solved without insurance.

      But the second you fall back on the need to purchase insurance and then have that insurance pay for necessary treatments, you've already ceded the argument.

      Insurance markets do not behave like normal markets, as a whole; buying or selling a car is not like buying or selling insurance. The incentives are different, and the ways you maximize benefits while minimizing costs is completely backwards from a normal market. An individual insurance firm will maximize their profits by denying as much service as possible while getting as much in premiums as possible, creating waste, and you get the maximum cost sharing and negotiating power, and thus optimal premiums for the whole population, by having the largest most diverse pool of people paying in; single payer will always be cheaper than a competitive market for insurance, for a population as a whole, because it's run at or close to cost and covers the broadest most diverse population pool possible.

      And all of the cost data on singlepayer systems back this up.

    19. Well summarized, Eol. Is funny how the only response Anonymous has to that is, "rationing! ZOMG!" Well, we could still allow you to shop around for the procedure you want at the price you want to pay. I don't think I hear many objections to that. I wouldn't care if doctors chose to take paying clients, either. I think we'd end up with a bargain. All y'all rich folks can pay for the development of the technology your own damn selves.

    20. Anonymous9:34 PM

      *Tautology Alert*: yes, most things that kill people kill people. Sudden inelastic-demand catastrophe? Insurance has been around since Sumer. Catastrophe is what it's for: not special, not even for health events. The solution exists, and in a free market is entirely on offer: reductio ad absurdum again.

      But, you seem brighter than 99% on this thread, so I'll bite. Buying insurance is commonplace and boring, the fact that insurance exists and can be voluntarily purchased does not cede any arguments, except in your own mind.

      I fully agree that for-profit insurance is a contradiction in terms: blame the demutualization of the insurance industry rather than point toward "market failure". Re-mutualize!

      The "largest pool" argument is not unique to healthcare, you can make the same argument for every insurance under the sun. Autos, ships, life, home, travel, pet, flight, anything: Healthcare pools are not unique, nor do they require special oversight as such.

      The problem is that you assume a static world: it's preferable to build a better insurance mousetrap, create lower costs and better coverage, attract a larger pool, and force your competitors to do the same. Call it your "Lump of Insurance Fallacy". Bigger pools come from innovation and superior service.

      Creating large pools at the point of a gun is suboptimal.

      Instead, costs are clearly the biggest problem. Outlaw collusive anticompetitive price-fixing by insurance companies would be the most practical first step. Medical prices are set by pure arbitrary racketeering that has no connection with marginal costs of production. Correct this problem, and let a million flowers bloom.

      Apply the Sherman Act against these trade-restraining, price-fixing scumbags and have them publicly disclose all billing prices and agreements :

      "Every contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several States, or with foreign nations, is declared to be illegal. Every person who shall make any contract or engage in any combination or conspiracy hereby declared to be illegalshall be deemed guilty of a felony, and, on conviction thereof, shall be punished by fine not exceeding $100,000,000 if a corporation, or, if any other person, $1,000,000, or by imprisonment not exceeding 10 years, or by both said punishments, in the discretion of the court."

    21. Nathanael10:46 PM

      Derp derp derp! Derp derp derp! Derp derp derp!

      Insurance is a natural monopoly, *and* has severe asymmetric information problems, *and* has severe agent-principal problems. Insurance markets don't work right. This is why we have state insurance commissioners who apply extreme forms of regulation, right up to and including specifying the terms of insurance policies, specifying the price of insurance policies, requiring that people buy insurance polices, setting up state-controlled monopoly insurers, and so on; it's treated as a regulated utility.

      Even so, people get cheated on insurance routinely due to the asymmetric information.

      Given your fetishistic worship of "markets" and "competition", I assume you're going to respond to these facts with DERP DERP DERP, as you have to all the other facts presented to you so far.

    22. Nathanael10:51 PM

      By the way:
      (a) there are studies on why the insurance industry demutualized. In short, principal-agent problems: it benefits the *CEOs*.
      (b) If you outlaw privately-owned insurance companies and require all insurance companies to be mutual, you still face the facts that there are economies of scale, and network effects, and so insurance ends up being a natural monopoly. Eventually you have a SINGLE mutual insurance company owned by EVERYONE. A "single payer".

      We have another name for that. It's called "democratically elected government".

  14. GrkStav6:50 PM

    One can have a system of disincentives/incentives for 'consumers' of health-care services aimed at maximizing positive health-care outcomes without ANY of the costs and benefits thereof being 'scooped up' by the health-care providers or administrators of health-care programs. It wouldn't be a 'market' for health-care, but optimum health-care outcomes could become more likely. Especially, if the providers and adminstrators are paid by a floating fiat currency issuer, as is the case in the U.K. (despite the useful mythology that it is taxes and 'borrowing' that pay for the NHS).

  15. Anonymous6:56 PM

    Heck, buying a car isn't rational, otherwise asymmetric dominance would never have worked. If something so simple is so suboptimally calculated, something as complicated as healthcare would be so much worse. In FACT, Eric Johnson has data that on health care choice that shows that people are very, very bad at allocating resources when it comes to selecting and paying for healthcare when they need to optimize resources. They do get better with practice, but we're actively wondering how much, how quickly.

  16. Strangely, in Australia the current government is moving away from the single-payer model. The budget released yesterday proposes to charge $7 for a visit to a general practitioner, when currently many GPs charge nothing to the patient (we all it buk-billling).

    I've commented on how health care and medical services are not like other products we buy here. Particularly the idea that medical services are credence goods.

    1. "Strangely, in Australia the current government is moving away from the single-payer model. "

      Not strangely; I'm sure that there are people seeking to make huge profits paying for the move - or rather, paying to have the government pay for the move.

    2. This is not strange at all. The textbook optimal treatment of health insurance is to have the consumer be exposed to the cost for low levels of cost, so that there is no overconsumption. Deductibles and copays serve exactly that purpose.

    3. Anonymous8:45 PM

      I'd question whether overconsumption of GP visits is *ever* a serious issue. *Under* consumption on the other hand most certainly is.

    4. In this country sure, but it's not always the case. In the UK for instance GP really is the first point of contact, could be the same in Australia.

  17. Free market priesthood sells books, and gets political votes, including from people who come out worse off under free market. That's the price of dreaming about crazy riches - not likely to happen to average Joe, but no Joe ever considers themselves average.

    As far as free medicine: it is nothing like giving away free cars, but it should also not be free. Not if we want people to think about it in a reasonable way. Insurance, whether commercial or government-provided, makes it look free, which is wrong.

    1. I have a genetic disease that costs $20,000 per shot for a treatment. My out of pocket expenses were $800 for the last shot I received a bill for. How precisely is that free? How should the system be changed so that I'm more careful to avoid treatment when I need it?

  18. Anonymous8:00 PM

    This just seems like another variant of the same old syndrome that is at work in the Rand cult. "Thinking like a freak" means thinking in a way which all those decent, boring old people find selfish, socially irresponsible, and maybe even psychopathic, but which economic science in its higher coolness shows really, really, really, really works. It means you're dangerous, man: not afraid to kick the dust of conventional morality and political correctness off those old shoes and jump into the brave ranks of the Nietzschean overboys. Even the chicks will dig it, because thinking like a freak makes you a "bad boy". Even if the fign the cold shoulder, they'll want to feel the muscles of your buff intellectual physique after you throw down some ruthless, kickass wisdom at the dinner table about the need for pure market triage solutions to granny's osteoporosis.

    1. Anonymous8:10 PM

      Awesome! Oh, and by the way, would you please sit down and write me a check for say, $5,000, mkay? I need an x ray, and don't have the cash. Guess what they said about smoking was right, huh? I may be back for more, so keep that checkbook handy!

      It's OK if you don't want to, I'll just have some guys put a lien on your house if you don't pay up, mkay? "Kickass wisdom", LOL!

    2. So, I'm not clear on what you are saying. Should we let you die because you had the misfortune to be poor and get sick? Or will we hold a trial to determine your guilt or innocence in becoming sick and let you die if you are poor and got sick from something you could have avoided?

    3. James9:23 PM

      what a truly idiotic response.

    4. James9:24 PM

      above directed at anonymous.

  19. Would Leavitt prefer to be attended to by a doctor who was mainly focused on profit? I believe it was Montaigne who said that if doctors are paid to amputate legs at some point they will decide that they need their fee more than you need your leg.

    1. Anonymous8:39 PM

      Would you prefer to be attended to by a lawyer who was mainly focused on profit?

      A lawyer could decide that he'd benefit by keeping you paying through a trial, and you may go to prison for 30 years. I am very eager to hear your ObamaLaw proposals!

      This is the very definition of professional: professionals get paid a premium in order to take on a client's fiduciary responsibility in matters of grave importance.

      Why doctors uniquely put up with it is the more pertinent question. (Actually not. They are leaving the profession in droves. They are not serfs, after all.)

    2. Anonymous8:50 PM

      Hahahahahah, whooo, hahahah, this one is an instant classic!

      You've generated a truly amazing pile of response in only four sentences!

    3. Nope. They are not leaving in droves. Or even in dribbles.


    4. Gridlock4:22 PM

      Idiot. You're Obamahatred is showing. Obamacare addresses access to health insurance, nothing more. You're still free to purchase health insurance in the free market. Obamacare doesn't dictate the price of the insurance, just the need to have it.

    5. Anonymous4:44 PM

      Oh, Gridlock, you charmer. Obamacare restricts insurance plans to its plat-gold-silver packages. It's like saying you can only buy a brown Trabant or a brown Lada, nothing else: every other car model has been crushed and junked. There is no free market. They all offer the same plans.

    6. Gerard MacDonell5:42 PM


      It seems like you are using metaphor to imply that Obamacare is like Soviet Russian communism. It must have taken a while to come up with that.

      Anyhow, to sustain your metaphor, the Ocare regs actually rule out pretending to have a car if it is just a Lada or Trabant.

      To avoid tripping up in the future, try arguing the actual case.

    7. Anonymous6:46 PM

      GM, Obamacare regulations that make it... Wait for it!

      Not a free market! Ladies and gents, a round of applause.

      And no, it's spontaneous and called wit.

      Tell me, is war peace in your world? Freedom slavery? Ignorance strength?

  20. Anonymous8:36 PM

    > "Fundamentally with health care, until people have to pay for what they're buying it's not going to work."

    Notwithstanding the fact that it has worked for many decades in most first world nations, and works much better than the U.S. system. I think I'm going to rush right down and get some open heart surgery today, because it's "free".

  21. Anonymous8:49 PM

    "What if, for instance...everyone were allowed to go down to the car dealership whenever they wanted and pick out any new model, free of charge, and drive it home"

    Anyone who has ever lived in the UK would know this is not a good analogy to how the NHS works.

    Its more like: Let people go down to the bus station and line up for several hours to get on a bus. When they finally get to the front of the line they are told "you don't really need to travel come back next month if you still want to". If someone shows signs of really needing to travel (after having returned a few times) they will be put on a really old , overcrowded bus (but with really friendly stewards and a very skilled driver), and will probably get to their destination just before its too late.

    1. I see you have never lived in the UK, because you plainly don't know what you are talking about.

    2. Anonymous9:50 AM

      FYI: I am British and lived in the UK until 15 years ago.

      Like most Brits I have an affection for the NHS (that I certainly don't feel towards my current private US healthcare provider) but (and I don't think things have changed that much in the past 15 years) my parody is exaggerated but that far from the reality.

    3. Anonymous9:51 AM

      "but NOT that far from the reality

    4. "(and I don't think things have changed that much in the past 15 years) "

      Then you are just wrong, then.

      This is actually the benefit of a public system - this data is actually collected, and acted upon. It's quite plausible that the waiting time situation is just as bad in the US - only no independent body is collecting the data and the providers have a profit incentive not to cooperate.

    5. Anonymous11:07 AM

      My sister suffered years of pain due to an arthritic hip, but was repeatedly told she did not qualify to even go on the waiting list as she was too young for a hip replacement.

      Last year she became covered by a private scheme and got immediate clearance for the operation and she is now pain free and able to walk again.

      Anecdotal - but hardly a ringing endorsement of the system is it ?

    6. Well done, you have an anecdote.


    8. Anonymous12:09 PM

      OK, I will at least concede that was funny.

    9. Anonymous for the last few years I've been living in the UK. You are perfectly right with your analogy. I come from another European country and I am not impressed at all with the NHS! Sorry but it is nothing to be proud off. Maybe just in comparison to the American medical mess

  22. So I can go down to the dealership, er, hospital whenever I want and get free, life-risking heart surgery? Oooh, sign me up for that.

  23. Alex H.9:16 PM

    You can come up with special characteristics that rationalize intervention in any market, even those that we tend to think of as classical "free market" cases. Levitt's reasoning doesn't have to be based on a complete ignorance of those theories. In truth, it's probably based on a particular weighting of the importance of those aspects (small weights, to be sure), which is what I take to be the case for any reasonable person. In any case, if that particular weighting can be described as "free-market priesthood", then why should the guy who places greater weight on the adverse selection, MH, and PA problems, and less weight on the political economy aspects, not be described by the phrase "government priesthood"?

    And is it really that inconceivable that there isn't a framework in which a third-party payment system drives costs up more rapidly than both a centralized system and an out-of-pocket system? This seems to me to be straightforward.

    It's becoming comical how many of these posts demonstrate such a lack of self-awareness. I could go through your entire post and replace the word "free market" with "government", throw in a few hitches here and there, replace Levitt with P.K. (or heck, even you), and voila, have the same post for "government priesthood". There's no more substance to this post than to the antics your criticizing Levitt of.

    1. The biggest problem here is that, as you point out, you can complain of all the inefficiencies of the various market solutions, but to fix it you would require a pretty robust understanding of the (near) optimal structure. Forget that, you would have to understand how whatever improvements you have in mind would play out. In a field, when even the basic facts about insurance are disputed- just look at Oregon versus Massachusetts studies - the "engineering" confidence is highly misplaced.

      The reliance on markets grows from its ability to discipline information extraction through the price mechanism. it does not mean any design works and there are tough choices, but humility comes first.

      Not to mention, watching the political comedy of Obamacare rule suspensions should give anybody a pause about social optimization.

    2. Not to mention, watching the political comedy of Obamacare rule suspensions should give anybody a pause about social optimization.

      To optimize, you have to have in mind an optimum. Is it economic efficiency? Winning elections? The greatest good for the greatest number -- and on which definition of 'good'?

      Some people might find the consequences of social optimization grotesque -- but the consequences of balls-to-the-wall pursuit of economic efficiency might strike other people as equally grotesque.

    3. Anonymous12:49 PM

      The US has gotten so far off the market equilibrium for medical services. The medicare prices versus the market prices are insane.

      It's far better to re-establish market prices, and then try to fix the social optimization problems afterward.

  24. Anonymous9:25 PM

    Med student here. My thoughts that I posted in response to a friends comments:

    I do think it is a unique market with many imperfections. That's not to say that market incentives have no place in healthcare; its hard to imagine that the productivity and customer service enhancing innovations which continuously improve products in the general economy can not work in healthcare by definition. In fact we know this is not true, look at Lasix for example (not a really life and death thing but you get the point). That being said, there are some situations (emergency medicine and trauma surgery among them) where there really is no consumer sovereignty and thus no appreciable market forces. Informations asymmetry between providers and patient is also rife in other less acute settings, but this may become less so with easily available info on the internet. The biggest difference between any other commodity and health, however, is the fact that there seems to be a general consensus, one that I share, that says people should not have less access to life saving technology and intervention simply because they are poor or have a pre-existing condition. So the task becomes preserving this egalitarianism while still trying to get value in healthcare.

    1. Yes exactly, but the pharmaceutical IP mess (there really must be a better solution) is probably the biggest single problem with medical costs.

    2. Anonymous8:07 AM

      > Yes exactly, but the pharmaceutical IP mess (there really must be a better solution) is probably the biggest single problem with medical costs.

      Really? At 9-12% of total healthcare spending in the US?

  25. Not that I agree with Levitt's solution, but any comparison between the American healthcare system's outcomes to the European's outcomes is a fool's errand. Nothing else is "ceterus paribus" here. We here in America generally eat less healthy foods, drive our cars more, walk around cities less, etc. Obviously we have to spend more on healthcare per capita to keep up with Europe!

    1. Um, have you been to France? They smoke like chimneys and half their food is cooked in butter. The idea that we spend more mainly because our actual health is worse is a sign that you've never studied the data on how US health care dollars actually get spent.

  26. Rob Rawlings9:45 PM

    "Does Levitt have a model that shows that things like adverse selection, moral hazard, principal-agent problems, etc. are unimportant in health care? "

    I think he probably does. I think you should check before assuming he doesn't. Have you asked him ?

    1. I think he probably doesn't. There's no proof either way, but the fact that he thinks 1) This is about buying healthcare (it's not exactly - it's health insurance) and 2) A complete lack of awareness of the above problems, which are especially prevalent in insurance markets - seem to hint of a lack of awareness and/or knowledge. It's reasonable given the above to assume he doesn't until proven otherwise.

    2. Rob Rawlings9:14 AM

      Is the implication of this post that any industry where adverse selection, moral hazard, principal-agent problems are potential issues should be socialized like the NHS ?

    3. The implication of this post is that these factors need to be considered and the 'free market is the best' prescription cannot be automatic.

    4. Rob Rawlings10:58 AM

      Plus there are widely known free market answers to adverse selection, moral hazard, principal-agent problems. It would be amazing if Levitt was not aware of them.

    5. There are also widely known non-free market answers, and objections to the free market answers.

      The situation here is that there is evidence of widespread market failure in healthcare, on the metrics people care about socialised healthcare systems far outperform private systems, and there exist theoretical objections to private healthcare systems.

      Your defense of Levitt declaring that socialised healthcare can't *possibly work* because free market is always and anywhere the best, is "oh Levitt is a smart guy, he must have mysterious persuasive reasons why". This is a laughable case to make.

    6. The situation here is that there is evidence of widespread market failure in healthcare...

      There's a problem in the debate -- one side of it doesn't admit that there's such a thing as 'market failure'. The Market, blessed be It, is the yardstick by which the success or failure of other things is measured.

      Complaining about 'market failures' is like complaining about the meter being too long. A meter is a meter long. And it tells us how long other things are.

    7. Rob Rawlings12:24 PM

      I am neither endorsing nor condemning Levitt view's on healthcare.

      I am however critical of Noah's post - rather than addressing arguments why a free market for healthcare may be a good idea he is just dismissing such ideas as "free market priesthood" , and implying that Levitt had never considered the standard objections that would be raised in opposition.

      I like Noah's blog - but this just struck me as lazy and playing to the crowd.

    8. Rob Rawlings12:26 PM

      Levitt's views

    9. Rob Rawlings12:47 PM

      And is Levitt even advocating that the NHS be scrapped and replaced with a free-market alternative, or merely that market-style incentives be brought in to optimize its functioning ?

      Huge difference.

  27. The articles I was supposed to read did not address the issues I raised. Notice that I kept prostate cancer out of it. The early detection argument doesn't apply to colon and breast cancer. The article humorously states that the US breast cancer death rate of 19 in 100,000 really isn't that different from 24 in 100,000 in the UK. But those numbers aren't the issue, survival rates are. Some "science" blog article... Noah was a physics guy -- he should be able to see this.

    1. " The early detection argument doesn't apply to colon and breast cancer"

      And the reason for that? More diagnoses means more false positives. More false positives => Higher survival rates!

      Finally note breast cancer grows in usually very slowly. Same applies to colon cancer (7-10 years to become invasive!). Hence 5 year survival rates in both cases are rubbish.

      " Notice that I kept prostate cancer out of it."

      They are mentioned in those two articles (written by the same author - expert of the field of risk communication)

      "But those numbers aren't the issue, survival rates are"

      Survival rates are not the issue. Mortality rates are.

    2. A direct comparison of mortality rates assumes the incident rates are equal. again, that article is talking about prostate cancer not colon or breast cancer, which most certainly are fast growing killers. If someone gets a false positive with breast cancer then that person is not counted in the 5 year survivability stats.

      Not that it matters that I have said I'm not talking about prostate cancer", someone will show me yet another article on how Guliani was wrong.

    3. "not colon or breast cancer, which most certainly are fast growing killers"

      Most colorectal cancers develop slowly over several years

      In general, colorectal cancers tend to be slow growing, gradually enlarging and eventually penetrating the bowel wall

      Obviously you have not read the articles I've attached.

      "When the British Office for National Statistics reported on cancer-survival trends that 5-year survival for colon cancer was 60% in the USA compared to 35% in the United Kingdom, experts dubbed this finding “disgraceful” and called for the government to double its spending on cancer treatment. Prime Minister at the time, Tony Blair, set a target to increase survival rates by 20% over the next 10 years, saying: “We don’t match other countries in its prevention, diagnosis and treatment.”7 Despite the differences in survival rates, the mortality rate for colon cancer in the United Kingdom is about the same as in the USA."

      "The third strategy is to use another misleading statistic: five year survival rates. It is well known that these rates say nothing about mortality. In fact, increases in survival rates are not even correlated with decreases in mortality rates, r=0.0."


      Over and out - not worth spending more time replying to you

    4. Hey, hey- you don't seem to have read the response. I direct your attention to: "Finally note breast cancer grows in usually very slowly. Same applies to colon cancer (7-10 years to become invasive!). Hence 5 year survival rates in both cases are rubbish."

      Your statement that a false positive for breast cancer is not included in the 5 year survivability stats is simply wrong. A false positive is treated as cancer- because there is no simple way to determine that it IS a false positive. When my sister was diagnosed, for instance, I read up in detail on the prognosis for people with her medical findings. I discovered that her condition would not have been treated in most European countries, and to the best of anyone's knowledge 90% of women with that kind of finding never develop cancer. But being in the US she was offered and opted for treatment - removal of a very small amount of breast tissue followed by radiation- and is now included in the 5 year cancer survival rates.

    5. Sigh... Again, the problem with comparing mortality rates is that it assumes incident rates are equivalent. Despite the claim that 19 out of 100,000 deaths for breast cancer in the US is about the same as 24 out of 100,000 in the UK is ridiculous. The US homicide rate per 100,000 is 4.8 while the UK is 1.2 per 100,000 "'But those are really small numbers so about the same..."

      Nether breast cancer nor colon cancer grow very slowly compared to something like prostrate cancer where many older people will die of something else.

      When I looked up over-diagnosis of breast cancer in the US, one study said about 0.5%, which is near zero; another study concluded 10% for those screened between 55 and 69. But there is apparently over diagnosis in the UK as well but couldn't easily find those numbers. Even assuming over diagnosis is higher in the US, it doesn't come close to closing the gap for the 5 year survival rates.

      Again, just taking mortality rates, and the UK has a 25% higher mortality rate from breast cancer as the US. For colon cancer, mortality in the US is 18 per 100,000 and 25 per 100,000 in the UK, so the UK has a 40% high mortality rate. How is 40% higher mortality rate for colon cancer "about the same" as the article stated?

  28. Anonymous11:08 PM

    One other thing: there is not free unlimited healthcare in the UK. Ever heard of NICE?

  29. Ferdinand11:27 PM

    Oh dear.

    I really hope Levitt didnt try to walk David Cameron through that infantile "thought experiment" like the British Prime Minister is an Econ 101 student.

    What reaction did Levitt expect?

    David Cameron probably wanted a serious discussion and Levitt acted like he was giving a TED talk.

    I guess some people just get too caught up in their own public personna and lose all sense of circumstance.

  30. So, we had success with auctions, ergo we are ready to jump into reforming whole markets. Engineering, I see. We just need a ton more variables to model all those complexities. I guess I understand why you make your money in academic Finance.

  31. Anonymous2:10 AM

    "I don't think Levitt has a model". Well boo-hoo. I'll be Levitt doesn't give a shit about a model. Free market rulez & gooberment drools.

  32. Anonymous2:17 AM

    Don't hate on Levitt b/c you're jealous of his success in academia and the public forum. P.S.: your Jew-fro rocked in old pictures, bring that shit back b/c let us be honest, you'll never have to worry about your public appearance from notoriety stemming from success like Levitt. This post makes your grad advisor weep. I haven't read this many half-assed assumptions since reading the econ blog turned biased-political-commentary-blog from Krug-tron 5000 the Invincible.

    1. This borders on abuse and adds nothing to the conversation.

    2. Anonymous1:35 PM

      Lookit, Honest Levitt's mom's on the internet!

  33. "What if, for instance...everyone were allowed to go down to the car dealership whenever they wanted and pick out any new model, free of charge, and drive it home?" – Levitt and Dubner

    Yeah! And what if colonoscopies were free? Everyone would run down to their doctors every week to get a free tube shoved up their ass! And appendectomies? Hey, you'd get 10 or 20 a year. And of course you'd stop by the Walgreens three or four times a week on your lunch hour to get those free flu shots and polio vaccinations. And don't even get me started on root canals. People will be beating down the doors for those.

    Obviously not, and obviously Levitt and Dubner, as economic professors at a top university, know better what's taught to anyone by undergrad intermediate micro, if not micro 101. They're obviously intentionally misleading, and there's a good chance it's to trick people into giving greater support to their libertarian or plutocratic ideology.

    Putting this technically, a lot of goods have inelastic demand. This is actually a big topic in Brynjolffson and McAfee's seminal new book, "The Second Machine Age". There are a lot of goods that respond little or not at all to even a big drop in price. If your appendix is about to burst, you spend pretty much anything to get an appendectomy. And it doesn't matter how low the price goes, you don't get a second, or third, or 100th because it's priced way below cost, or even "free". And the quotes here are because it may be free in money, but that's far from the only cost. It's not free at all in pain and suffering, lost work, and time.

    And this is an absolutely crucial point here that you almost never hear made, including by Noah above. With medical, the time, and pain and suffering, and just unpleasantness and inconvenience costs are huge, and these goods and services are highly price inelastic to start with. Even if medical care is free money-wise, these other costs are so high that if you don't really need it, few people will do it (And, of course, how is the average person going to know if it's really necessary anyway, without an M.D. in the particular specialty? It's sometimes doable, but to a large extent and very often not and not easy).

    In fact, when you include the self-discipline it takes to do something unpleasant for delayed, or very delayed, and vague odds-wise, gratification, even if it's free, a lot of people will actually obtain less than the efficient amount. And a lot of people are scared to go to the doctor because they don't want to hear terrible news.

    From what I've seen, even if medical care were 100% free, and just regulated against physicians giving unnecessary care (not far from what every advanced democracy but us has), the problem would be more with people using too little medical care than too much – people not getting the recommended colonoscopy after 50 (some say 40), not getting their vaccine shots, not having the funny sore looked at when it could be removed cheaply and save their life, and instead waiting until it grows into something so painful they have to go, and now they need hundreds of thousands of dollars in treatment they wouldn't have needed, and they can no longer earn an income (or possible live).

    But, of course, libertarians and plutocrats don't want you to know these things that have been long established in economics and are taught at every major university.

    1. University of Chicago - along with Casey Mulligan. Why do we need clowns when we have these guys?

    2. Anonymous11:49 AM

      Undoubtedly, there are some people who over-utilize medical services because they are free. But there are other people who under-utilize preventive services due to cost, and they (and their children) become sicker and more costly to treat. You'd need to analyze data to determine how these two contrary trends influence overall utilization (at different co-pay levels and for different income groups). You can't just do a thought experiement about cars. Surprise!

  34. Anonymous6:34 AM

    British person here.

    Any American claiming their health care system is better than ours can just fuck off. Our NHS is the most civilised healthcare system in the world. Everybody contributes a small percentage of their wage to the national healthcare fund and anybody can draw from it what they NEED. A low wage earner who needs an operation costing £100,000 will have it paid for by the NHS completely. They won't have to pay a single penny more than they've already contributed with their taxes which is likely to be far less than the cost of the operation.

    This is just the way something essential as healthcare should be. A person's ability to use the service shouldn't depend on how much money they happen to have in their bank account. Healthcare is something we all NEED.

    1. See, to the Levitts of the world, those poor people must not truly /want/ that surgery, or they would pay for it in the free market for healthcare (whatever that is).

      I think Mr Serlin's point above about the motivations of these people is apt. I'd add that we would likely get past all of this nonsense if fewer economists were drawn from the ranks of the privileged.

    2. Fine, keep your NHS, just make sure not to use any medical technology developed in the last 20 years. If you do,you are just stealing from us Americans.

    3. Anonymous5:07 AM

      @ Krzys

      Don't be childish. I understand there's a role for the free market to play in the development of medical technology. What I'm saying is that the free market model shouldn't be used at the point of use of healthcare services. People don't have operations because they *want* them but because they *need* them. It's a completely different system to, say, the car market.

  35. Anonymous med student above gets at the heart of the matter, I think. It's not that market forces have no place in healthcare, but if we believe that broad-based access to medical care is vital, then it can't be guided by market forces alone.

    If you make $20,000/year and want a Lexus, I'm happy to tell you "too bad". I'm much less inclined to say the same to a person diagnosed with mesothelioma who wants chemotherapy.

  36. It seems that in the field of economics there is an over-reliance upon theoretical models coupled with an under-reliance upon empirical data. A good example of this can be seen in discussions about raising the minimum wage. The theorists argue that the standard model predicts that raising the minimum wage will increase unemployment as companies with skimpy profit margins will shed workers at the new higher base pay. Yet the best empirical data available — Arindrajit Dube's work comparing adjacent counties in different states where only one county raises the minimum wage — indicates that the assumed disemployment effect of minimum wage hikes cannot be seen in the real world. Similar disparities have been seen between models that predict the increase in the Money Supply via QE would necessarily lead to higher inflation. A five year long real world test shows this theory to be false. And the linked graph shows why this theory hasn't panned out. The increase in the Monetary Base is paralleled by a like increase in Excess Reserves. Thus no new net circulating funds are due to QE. And yet the inflation hawks still cling to their models in the face of established empirical evidence.

    1. Anonymous12:53 PM

      You might be interested in this.

  37. Here's the link...

  38. Both supply and demand are pretty much beyond free-market ministrations.

    Demand: 1. Nobody wants more healthcare than is absolutely necessary -- you try to leave the hospital as quickly as possible. Therefore demand is not infinite -- far from it. In fact total demand for basic healthcare is fixed with the size of the population, more or less. (We exclude elective and cosmetic procedures.) 2. Few people are qualified to judge healthcare quality beforehand, and in an emergency such a "consumer decision" is usually impossible. 3. Morally we want everybody to be covered, regardless of age, money or station in life.

    Supply: 1. The lead time to train doctors and nurses is much longer than in manufacturing a consumer product. 2. Technological progress is making healthcare more expensive -- unlike technological progress in other major industries, which tends to make things cheaper over time.

    That last one might start to change, and I think we may start to see it soon if not already in declining healthcare costs: A) After millennia of accidental medical discovery, the new combination of biotech, nanotech, massive computation and genomics seems finally to be the right tool for the job. This may lead to cures the marginal production of which tends to pennies. If healthcare becomes cheap as chewing gum, then it can be a free market.

    B) Internet is allowing people with cognitive skills to research their symptoms before deciding whether to go to the doctor. True story: A few years after Google came on line, I suddenly went numb and lost about 50% of my hearing. Frightened, I ran and typed all of my symptoms into Google (headache, tremors, tinnitus, stiff neck, sleepless nights, pains in gut, numbness in extremities, loss of hearing) because you can type-in as many words as you want -- I hit "return", and saw: a list of every diabetes website on the planet. What a wake-up call, both medically and internetally! (At that time the Australians had the best website, by a long shot. U.S. was way, way behind.) Turns out to have been highly useful: I am pre-diabetic, adjusted my lifestyle, feeling much better thanks. Observe: independently-informed lifestyle changes; medical costs go down.

    I have recently heard two anecdotes from different doctors that, due to the internet, a significant sliver of their patients now comes in well-informed, articulate about their symptoms, and ready with helpful lines of inquiry. Observe: less physician time consumed; medical costs go down.

    Coming up next , expert computer systems are going to diagnose about 99.99% of all problems at the local pharmacy staffed by a PA (Physician's Assistant) with a hot-line to necessary hospital intake. Observe: ...well, you get the picture.

    Meanwhile weren't Levitt and Dubner the same ones who wrote a stupid chapter on ideas and preferences about climate change? Oh yes, Brad Delong ran a series on it, here is one:

    1. Anonymous12:58 PM

      Sorry, these are all assumptions and anecdotes: unfalsifiable narratives. Proves noting, especially for policy purposes. Do you have any evidence for your priors?

    2. For every one of them. Where do you want to begin?

  39. I haven't read all the comments above, so sorry if this point has been made already. But Levitt's analogy about cars isn't just bad because the health market is different from the car market. It also misdescribes the extent to which healthcare in the UK is limitless and free. We can't just choose any treatment we like, whenever we like; we can have treatments if a doctor decides we need them and NICE has decided it's cost-effective enough for the NHS to offer it. Also, there are waiting times for a lot of treatments. This isn't like getting whatever car you like whenever you like. It's more like being able to go on a waiting list to receive one of a range of pre-approved cars, once your old car has broken down. If you wanted a nicer car, you'd have to pay for it yourself, as with treatments the NHS doesn't offer. That system would probably make people more careless with their cars, but it wouldn't be as obviously ruinous as the system Levitt described.

    1. Anonymous1:47 PM

      To some extent I think we do do this for the transport market anyway. If you're considered unable to drive for medical reasons or just old, you get free bus travel provided by the government.

      We do this because it makes old people more mobile (benefiting them) but also because it means they're not forced to drive as much (which benefits wider society because old people driving can be unsafe.)

      So yeah. We already give people needs based transport assistance in the UK.

  40. Anonymous12:48 PM

    I find it odd that Levitt would have to resort to a thought experiment to "prove" that the NHS is impractical, since the NHS has been in operation since 1948. Any problems with the practicality of the NHS (and there are some, although I still think it is better than the American system) will have emerged from real-life experience by now. No need for thought experiments there.

    1. Kenneth Almquist2:13 AM

      Well put. I think Noah said the same thing, but you expressed it more succinctly.

    2. Anonymous7:30 PM

      I read the other day that 2 out of every 3 people in England have some form of private health insurance. If that is true, there is no need for a thought experiment.

  41. Noah, this one is for you: I wonder how much do-it-yourselfing will affect the GDP?

    To illustrate, here is another true story from March: I drive a very old truck. My expert mechanic recently retired and is unavailable to consult. The water pump started leaking. I was frantic, because of course you can't even drive a block without a cooling system.

    I watched a YouTube video, "how to change a water pump", running back and forth from my little garage to my desktop (no wifi in the garage for my Android) and changed the water pump in 8 hours on a Sunday.

    (You have to take the front of the motor off: loosen the alternator, remove the fan belt, take off the fan, drop the goddamn radiator on this model, which means you will drain the transmission fluid -- as I discovered in mid-heave. And don't put the fan shield in backward: like me you will lose an hour.)

    There is an auto parts chain open on Sundays a half-mile away. I did it on foot. Luckily water pumps were standard on Dodge trucks for decades; it was in stock.

    So here is my question: There are ten thousand hits on that video. There are hundreds or thousands of car repair videos, with tens of thousands of hits. There are videos on everything else: How to hook up a gas line to your stove. How to fold napkins. How to change the ignition key cylinder on the steering column. How to wire a lamp. How to fix a wall outlet. How to clean your rain gutters. How to do, like, anything.

    And there are getting to be thousands and tens of thousands of hits on all of these videos.

    From my experience, I deduce from those view numbers that a lot of people are doing things themselves: they cannot find an expert, or they don't want to spend the money, or they don't have the money. Especially in a recession.

    YouTube enables millions of people to do this. Work is performed, items are purchased at stores, things are repaired. Yet no income for skilled labor is changing hands.

    So Noah, my question is this: do you think YouTube could have a significant negative impact on the GDP, indeed could it prolong a recession?

  42. "and catastrophic insurance to prevent "death, or permanent disfigurement preventing you from ever living a normal life again" "

    And thus unwittingly making everyone else's point. You're not too bright, are you?

    That's why medicine is different: not because death "feels" emotionally scarier than having your BMW wrecked, but because practically all other insurable situations can be more-or-less adequately served by the market through money. Your car's gone? Here's some money, buy a new one. Your house burned down? Here's some money, build yourself a new one. The apartment you were renting got robbed? Here's some money, go get yourself another TV and whatever. You got crushed by a delivery van and can't use your legs or arms and can barely speak? Oh, good thing we sold you this catastrophic insurance to give you some money yourself a bunch more TVs, I guess, because you still probably won't be able to walk or write or speak for the rest of your life.


  43. Ferdinand3:56 PM

    Still cant believe Levitt tried that ridiculous "thought experiment" on the British Prime Minister.

    What a disaster.

    You go in to have a serious conversation with one of the most powerful people in the world and the best you can do is talk to him like he is a student in your Introductory Economics class?

    Why does he not seem to realize that thats a very naive approach?

  44. Market priesthood? Uh, did you miss the part where your side believes that congresspeople are omniscient? That's some voodoo shit right there. Maybe you can post an entry in which you disclaim this belief? Nope, you won't because you can't. If you take away Samuelson's model...then what are you left with? The median voter model? LOL

    See...there's this thing called "economics" where we try and figure out what we should do with these things called "resources". The objective isn't just to avoid wasting's to put them to their most valuable uses. This would be easy enough to accomplish if everybody valued everything equally. But in reality, preferences are heterogeneous. How does your cult try and address this fact of life? By pretending that your priests are omniscient. You "solve" the problem by assuming it away. You've figured out the most valuable supply simply by assuming the demand.

    Yet, here you are accusing the other side of being religious fanatics. That's really crazy stuff. Like you just munched on a bunch of Brugmansia crazy.

    1. "But in reality, preferences are heterogeneous."

      That sounds rather religiously omniscient! Yet in the entirety of reality, we may doubt it. There is a large class of preferences which are almost homogenous. Almost anything that has resulted in an institution, for example.

      Even the market, itself an institution, espouses an homogenous set of preferences about what market technologies to use: we agree to the use of money, prices, private property, contract law... We prefer to use these things because they reduce transaction costs.

      There are other kinds of homogenous preferences which lead, or can lead, to other kinds and levels of institutions.

      There is a widely-held social preference for universal access to healthcare without corporate obstruction, for example.

      Universal healthcare could easily evolve, through Hayekian spontaneous organization, into a simple institution that 1. reduces certain kinds of transactions costs, and thus increases some sorts of social efficiency. And 2. is incorporated into the individual preferences in the market system in such a way that everybody understands and uses.

    2. That sounds rather religiously omniscient!

      Do you think that taxpayers should have the option to have their taxes spent on other public goods instead of war? If not, then you're a religious nut job. If you fail to appreciate just how crazy you are...then go around the grocery store and switch out items in random stranger's shopping carts.

    3. Grocery shopping is different than universal access to healthcare.

  45. I forgot to put up a prostate mortality comparison. One guy calculated to refute a BBC report that a Brit was 6 times as likely to die of prostrate cancer than an American; more like just 90% greater chance. He adds that not surprisingly the elderly are the hardest hit in the UK due to the rationing system.

    My focus was on breast and colon cancer. link at bottom:

    The age adjusted colon cancer mortality rate for *men* per 100,000:

    Canada 14.4 (45% higher mortality than in the US)
    UK 13.9 (40% higher mortality than in the US)
    US 9.9

    for women per 100,000

    Canada 9.4 (22% higher mortality than in the US)
    UK 9.1 (18% higher mortality than in the US)
    US 7.7

    (Overall UK mortality for colon cancer is about 35% higher than in the US)

    Breast cancer:

    UK 18.6 (27% higher mortality than in the US)
    Canada 15.6 (6% higher mortality than in the US)
    US 14.7 (switch to "breast" for that data

    I'm sure Noah would love to respond, but he's busy typing up a new blog entry...

    1. However, aren't you concerned that those numbers are not directly comparable? For Canada, for example, the incidence of colon cancer (men) is roughly 50% higher so, after adjusting for incidence, Canada is only 10% worse. For women, Canada is roughly 5% better.

      On the other hand, compared to Europe, the US is clearly better even after adjusting or incidence.

    2. I'm not sure which stats you are using but the world comparison site I linked to has Canada at 26% higher incidence of male colon cancer , not 50% higher as you wrote.

      And I wasn't comparing to Europe with different health care systems, but the UK, which has only a 6% higher male colon cancer incidence rate. For male colon cancer cases, the incidence rate doesn't come close to narrowing the gap much and about zero in the UK/US comparison. Adjusted for age and incidence rates the UK male colon cancer mortality rate is 38% higher than the US. For female colon cancer, this adjustment keeps it about the same as what I wrote, around 22%.

      For breast cancer, the incidence rate is only 15% higher in the UK than in the US, so once again doesn't close the 27% gap much: Adjusting for that means women still have an age-incident adjusted mortality rate that is 22% higher than the US.

    3. Those percentages don't mean anything at all. Relative risks don't matter absolute risks do! And the marginally lower mortality rates in some types of cancer don't take into consideration the number the of patients dying due to being over-treated in the US.

      Consider breast cancer. In an investigation of 26000 women who underwent mammography for the first time only 1 out of 10 who tested positive was found to have a cancer during the 13-month period thereafter. That means 90% false positives! Yet they have all been exposed to the radiation of the mammogram. Some of them multiple times as a positive result means repeated examination. And the risk peaks 15-20 years after the exposure! According to the estimates out of 100000 women at the age of 40 about 30-40 will develop radiation induced cancer. But you think the cherry-picked marginal difference between US and Canada of 3 out of 100000 (which you presented in relative % terms - which is what people do when they want to fool others) is significant. No it is not! It is actually too small to compensate for all the deaths (around 40 of them just by the mammogram!) induced by the radiation exposure and the consequent over-treatment.

    4. Sigh (again)...

      You are confusing a lot. First you say 30 to 40 out of 100,000 women will get cancer from the mammogram, then you say 40 will *die* from cancer from the mammogram. Which is it?

      But fortunately it is not true that 30-40 women will get cancer from a mammogram. That estimate is only derived by using the long out- dated Linear No Threshold guidelines or measuring cancer risk due to radiation. That is, even the tiniest amount of radiation (background level in Japan, three times lower than the tiny background radiation in the US) causes cancer. it doesn't. Neither do mammograms.

      The length some go to deny that for breast, colon and prostate cancer, a person is notably better off being treated in the US than in the UK...

    5. Sorry around 10 out of the will die because of it. And I do not count those that will die from the subsequent mammographies nor the ones that will die from the subsequent invasive treatments nor the psychological distress from having a positive test (while you chances of having something serious conditional on the results of the test are less than 10%!). As for the numbers this is the best evidence we've got. Please attach an article that claims something different.

  46. What's interesting here is that Noah is the only one using the term "free market".

  47. Anonymous4:49 PM

    Some supporters of the US model here are arguing that its outcomes are worse largely because of American eating habits. If that is the case: shouldn't people within a private healthcare system have much greater incentives to live a more healthy live, and thus reduce their expected medical costs?

    Using Levitt's "brilliant" car example: if I gave people a free car every time their old car is broken, wouldn't they -on average- break it more often?

    Well, evidence appears to show that's not the case in the healthcare market. So it doesn't appear to be a "normal" market regardless of how you look at it.

    1. Anonymous5:03 PM

      Sorry, can you show this evidence to us?

  48. The assumption is that a market (even if efficient) will distribute goods in some optimal way. This is a baseless assumption. Markets are usually better than other ways to allocate resources but they need not be socially optimal. The market assumptions also assumes some basic distributional equality. If income were only predicated on ability a market would more likely be optimal.

    There is the case of rationing during WWII. Ration cards allowed a more socially beneficial outcome and those in really dire need had the black market as a pressure valve. This prevented hoarding and allowed transferring productive capacity to the war effort without causing major harm to the poor. Otherwise there is a justice issue when the rich can outbid the poor.

    Perhaps it would be preferable to auction healthcare services by some personal marginal utility say as a percentage of income. I'll bid my 1% of next years income against someone else's. Something like that may be a more justified market.

    All the arguments reduce down to justice arguments in the end.

  49. Anonymous10:49 PM

    Is the John Bates Clark medal given to the best pop economist under 40?

  50. Anonymous1:19 AM

    Looks like another Noahttempt to get noticed by sloppily attacking another economist who is more successful (similar to your recent Tyler Cowen piece). I hope your research isn't this biased/myopic/subjective. Do you publish? Quick search yielded no results..........

  51. In Levitt world, the used car salesman gifts the car to the customer. In the real world of single payer and national health care, there are gatekeepers, called primary care physicians who take care of the basics and steer the patient to the facilities and specialists they need.

    Steve Levitt needs to take another walk from his office, down E 59th Street to S. Maryland, take a right and go to the Center for Health and the Social Sciences. Of course, given the quality of Levitt's work, they might want to keep the conversation off the record.

    1. Anonymous11:14 AM

      ...and the single-paying government is slowly bankrupted by out of control health costs that are politically untouchable. Havent you been reading?

    2. For over fifty years. Somehow it does not happen.

    3. Anonymous1:42 PM

      Fifty years of liquidating the UK military, and that's just about done now. The best way to unilaterally disarm a society is introduce single-payer government health care. Also, a correction: "is happening". That's the premise for the visit to Cameron.

    4. US$20 trillion or more printed by central backs around the Atlantic rim to bailout the financial sector. Yet somehow a monopsony in healthcare will "unilaterally disarm a society". Because gobbledegook: Freemarket roolz! If this is the level of the Anonnnymuus' "priors" then the only dictionary definition, "previous criminal convictions" seems correct.

    5. Anonymous5:24 PM

      Hey, if you wanted data, you just had to ask, Lee. Silly goose.

    6. Given the bloated US military spending not a bad idea, but still the idea that universal health care is at fault founders on Germany, France and everywhere else.

    7. Picking a chart that omits UK & US monetary policy is the best way for you to "unilaterally disarm" your own argument.

    8. Oh now I see what you are saying: that the cause of military spending decline is increased healthcare spending. But no, it could be totally unrelated.

  52. How much money we spend on the insurance *is*the salient political question. So far we've shamed ourselves into Medicare and Medicaid. When we finally accept our moral compass points true, we'll spend more than we do today, not much though, and we'll get much better results.

  53. Ian Maitland/imaitland@umn.edu4:17 PM

    "Does Levitt have a model that shows that things like adverse selection, moral hazard, principal-agent problems, etc. are unimportant in health care?"

    Does Noah Smith have a model that shows that things like adverse selection, moral hazard, principal-agent problems, etc. are unimportant in other markets?

    Of course not. And yet markets work.

    It is time to recognize that our toxic brew of public programs, government subsidies and tax breaks, professional monopoly, government regulation, and endless political meddling have failed us. Let's try market forces for a change. .

    1. I don't understand this argument, on two counts:

      1. "are unimportant in other markets?" Doesn't matter. The fact that markets have market failures is not uniform: some have different degrees or kinds. Markets don't necessarily work the same for everything.

      2. "Let's try market forces for a change." --That's how we got to Here and Now. In fact Western governments have been deregulating markets since the 1980's, more or less.

    2. It suddenly dawns on me that some sorts of deregulation could be listed under "government failure", due to capture by private corporate interests.

  54. I don't know why people are so convinced the evidence is in favor of socialized medicine. The few experiments with free markets in medicine have been very successful.

    Does this mean that markets work in health care?

    No. But, you and Krugman should stop chastising others for "ignoring the evidence" if you guys are going to ignore contrary evidence as welll.

    1. Because you are confusing co-pays with a free market system? Singapore has a mixed system, with most people being insured through the government system. RTFW

    2. Excerpt From, " What Do Conservatives Like About Health Care in Singapore?"
      By Matthew Yglesias
      "....from Singapore's Health Ministry:
      — Singapore has "multiple tiers of protection to ensure that no Singaporean is denied access to basic healthcare because of affordability issues."

      — "The first tier of protection is provided by heavy Government subsidies of up to 80% of the total bill in acute public hospital wards, which all Singaporeans can access."

      — "The second tier of protection is provided by Medisave, a compulsory individual medical savings account scheme ... Singaporeans and their employers contribute a part of the monthly wages into the account to save up for their future medical needs."

      — As best I can tell, these Medisave accounts are deposited into the Central Provident Fund, a government-run investment pool, rather than constituting private savings as we would understand them.

      — "The third level of protection is provided by MediShield, a low cost catastrophic medical insurance scheme" supplemented if like by private insurance called Integrated Shield plans and "Singaporeans must subscribe to the basic MediShield product before they can purchase the add-on private Integrated Shield Plans."

      — "Finally, Medifund is a medical endowment fund set up by the Government to act as the ultimate safety net for needy Singaporean patients who cannot afford to pay their medical bills despite heavy subsidies, Medisave and MediShield."

  55. Bill Ellis10:51 PM

    The thing is you can't just go get a new car's worth of healthcare anytime you want. If you go to the doctor demanding healthcare you don't need, you don't get it. (most of the time)