Tag: free markets

Net Neutrality vs Open Infrastructure

Post author By David
Post date November 12, 2014
No Comments on Net Neutrality vs Open Infrastructure

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Image by Steve Rhodes

Adam Kenigsberg did a very brave thing in posting a case against Net Neutrality and inviting his friends to “start a vigorous debate in the comment thread.” As someone who has long been interested in Net Neutrality and who has vacillated between favoring it, opposing it, and being undecided about it I was interested in what would follow before I even saw the comment thread.

Notes and Context

The case against Net Neutrality was written by David Veksler who has written quite a number of interesting cases for and against a variety of things. If you enjoy thoughtful consideration of issues his cases deserve a look. I wanted to make that clear lest anyone think that my deconstruction of his case indicated any lack of respect for his approach to this or any other topic. I would also note that his case was written more than 7 years ago. Much has changed about the internet and the surrounding industries in that time. For example, AOL was still merged with Time Warner at the time and Facebook had been open to the public for less than a year and wouldn’t have its IPO for another five years after this case was published.

Tags free markets, internet, Net Neutrality, regulation

General

Public to Private is a One Way Economic Street

Post author By David
Post date December 31, 2009
1 Comment on Public to Private is a One Way Economic Street

photo credit: taberandrew

A post entitled The New Robber Barons got me thinking about what happens when public and private enterprises compete in a marketplace. Thinking about that led to some interesting observations. The first of which is that progressives are right in their assertion that public and private enterprises can compete without eradicating each other. The problem is that the progressives don’t seem to recognize that this only works in limited cases. They like to point to the post office as an example – let’s go explore that.

Tags connections, economics, Elevated, free markets, government, KVNU FTP, questions, thoughts

General

How Economies Work

photo credit: unforth

When Adam Smith wrote The Wealth of Nations he was not writing about how economies and markets should work, he was writing about how they do work. Anyone who wants to know how they do work must read that book. Be prepared – it’s long and very detailed and you must be committed to doing a good deal of intellectual work if you are going to really understand it. The copy I have been reading is over 400 pages of small print and it is completely lacking in filler material.

I could not even pretend to give a summary of the book (as Wikipedia does) but I would like to point out one crucial detail that few people seem to realize and which shreds virtually every economic move our government makes. Money is a representation of value. Value is a representation of work and the only accurate determiner of price. Price controls and subsidies cannot alter the actual value of goods and services – all they can do is distort the representation of value and confuse the consumer by manipulating the data. Anytime there is a manipulative force in an economy the economy will respond, it will conform to the manipulation, but it still operates on the same universal laws.

I can easily understand how people today would be confused about the laws of economics because we have pundits, professionals, and even many economists who talk about the forces of economics as if they were under the control of men. The fact is that men can operate in accordance with those laws or they can try to manipulate them, but regardless of what we may observe the laws of economics will be obeyed and we will receive the consequences of our actions even if we are not sophisticated enough or have long enough lives to recognize those consequences. No matter how hard or how high we throw a ball – even into (or out of) orbit, it still must obey the laws of gravity.

The laws of economics are exactly as universal as the laws of physics. You can stand around all day arguing with a physicist about how gravity operates but at the end of the argument gravity will be unchanged. In your argument you can propose many great new ideas about how gravity should work, but gravity will be unchanged. If you have a misunderstanding of how gravity does work and operate based on that misunderstanding it will not preclude the possibility that you could design an airplane that flies, but designing an airplane that has not crashed yet does not prove that your understanding of gravity is correct and odds are pretty good that if your understanding is flawed the plane will have a flaw in its design that will either cause a crash or make the plane less functional than a plane designed by someone who understands the laws of physics.

What we have today in Washington – among both political parties – are a bunch of people most of whom grossly misunderstand the laws of economics and who believe that the laws of economics are no less subject to revision than the speed limit on an interstate highway. They mistake the reference to an invisible hand and believe that it refers to sleight of hand. The do not recognize the fact that there is nothing tricky or supernatural about the laws that Smith explained centuries ago. He did not make them up, he simply wrote them down after decades of study and observation – like any good scientist. In fact, the name of the book is “An Inquiry into the Nature and Causes of the Wealth of Nations.”

Tags economics, free markets, government, history, laws, money

General

Economic Contradiction

Paul Krugman and I agree on little politically (I have at times agreed with him when he was arguing that TARP was a bad idea – although we disagreed on the reasons why) and despite the fact that my assumptions about the nature of sound economics differ from his most of the time I recognize that he has a lot of expertise in the field that I can learn from. For example, I have not known enough about economics to be aware of the Setser point that he is looking at. For those like me who are new to the term, the idea is this:

high government borrowing is more than offset by net negative borrowing from the private sector

As far as I can tell, Krugman is among those who believe that the flow of money defines the health of the economy – the more the money moves (borrowing, spending, and creating) the healthier the economy. Krugman and those who believe like him will doubtless argue that when the private sector borrowing declines governments must borrow more to keep the economy healthy. In other words, lower private sector borrowing causes (or rather necessitates) higher government borrowing. Unfortunately for them the numbers appear to paint a different story. If the cause and effect relationship is not simply the reverse of that assertion then the relationship is at least symbiotic with governments trying to manage or compensate for the actions of the private sector causing an opposite, but more than equal, reaction as the private sector tries to outguess the government.

On the other hand, I believe that people in the aggregate (meaning many individuals over a sustained period of time) make economically beneficial decisions (not always the best decisions necessarily, but better than rolling government loaded dice).

What the Setser point tells me is that government borrowing drags the economy down because of the opposite but more than equal principle noted by Sester and Krugman and it prolongs the agony when those in the private sector – for whatever reason – determine that we need to slow the borrowing to set the economy back on a fundamentally sound foundation.

Tags economics, free markets, government, money, New York Times, Paul Krugman

culture National technology

D-TV Switch

That would be D as in "Delay " not D as in digital.

I have had the opportunity to drive to work for the last couple of days and have been listening to the radio as they discussed this issue. I used to wonder why television stations should be forced to switch to digital signals. Now I recognize that Congress has been holding them back from switching to digital signals exclusively. That leaves me with the question of why it is so important that everybody be able to receive a television signal.

I know I’m odd in the fact that I never watch television (since the middle of 2000), but I really don’t understand why television stations should be forced to serve people through analog. Some will argue that television is an important news source. I argue that the "news" that comes on television is somewhere between uninformative and misinformative most of the time. Some will argue that the entertainment is important. Though I find little television entertainment worth watching (yes, I still do have a vague idea of what’s offered), none of it is necessary and why should Congress be involved in mandating our entertainment options? (I can’t seem to find that section in my pocket Constitution.) Next thing you know, Uncle Sam will be giving away 5 free movie tickets per person per year – like they do in New Zealand (I may be wrong on the exact quantity).

Considering what I heard about how much cheaper it is for stations to broadcast in digital I would bet that, if left to themselves, the television broadcasters would figure out a way to offer the financial incentive necessary to get their customers to switch to digital. But that would be a free market and <sarcasm>we wouldn’t want to try that – free market’s aren’t stable.</sarcasm>

Tags change, change congress, free markets, laws, media, television

National State

“Free Market” Health Care

The call for Lawyers to join health-reform efforts was a not so subtle reminder to me about how "free" our health care market is currently. We can’t really pretend that the cost of services or the services rendered are determined by patients and providers. In fact, they are not even determined by a combination of patients, providers, and insurance interests.

Malpractice lawsuits, whether as threat or reality, skew a provider’s treatment decisions to the legal safe side, members of the Legislature’s Health Care System Reform Task Force were told Tuesday. That approach, in turn, adds to the amount of redundant testing and is a significant but so far unaddressed factor in the reform process.

The cost of malpractice-insurance premiums for providers also is rising rapidly, Rep. Gregory Bell, R-Fruit Heights, and an attorney, told fellow task force members.

We have developed a pricing and practice environment based on a staggering concoction of laws, medical knowledge, middlemen, and advertising. Patients may demand unnecessary services or medications based on what they hear from advertisements. They may also have unreasonable expectations regarding how flawless our medical system is or should be – in other words, they may feel entitled to compensation for unavoidable tragedies. Governments step in to define what "unavoidable" means by specifying standards of practice which may bear little connection to medical necessity. Insurance companies can, by choice or accident, inflate the costs by demanding standards of practice and levels of compensation that can’t possibly take into account all the factors that should define the practice of health care and the commensurate compensation for care.

Care must cost more when malpractice insurance rates rise. Prices will increase when the salaries and profits of insurance companies must also be covered in the process of receiving health care. Checks against unnecessary care will disappear when those receiving care are not sensitive to the costs of individual procedures. Medical decisions will be skewed when manufacturers provide kickbacks to doctors and advertise their wares directly to customers who have no medical background.

While we use the Brass Serpent (the Nehushtan) as the symbol for the field of medicine we might find it convenient to use the Hydra as a symbol of the cost of health care.

The Hydra - photo by Craig Stephen
Hydra – photo by Craig Stephen

Somehow we need to slay this monster but while the sword of government may have a place in the battle it is not sufficient to complete the task – by itself the sword of government makes the monster more dangerous.

Tags Deseret News, economics, free markets, government, health care, issues, laws

National

Laboratories of Democracy

I have been thinking about the full faith and credit clause of the Constitution (FF&C) and how that has played out in some areas of public policy. Specifically I have been thinking about how some areas of policy allow for states to pick and choose what faith and credit they apply to the policies of other states and how that contributes to the laboratories of democracy that out states were expected to become within our nation.

Specifically I woke up thinking about gun rights. This is not because I carry a gun for my own protection, although I fully support a broad interpretation to the 2nd Amendment, it is simply because it provided a convenient illustration of the issue.

Full faith and credit might be used to argue that every state should be required to accept a concealed carry permit issued by any other state. In fact they do not. Each state is able to set their own requirements to carry such a permit and also to permit reciprocity of permit recognition with other states on a state-by-state basis. The thing that got me thinking of that is that Utah’s permit is one of the most widely recognized permits in the nation.

This lack of uniformity among the various states allows people to experiment with different approaches to problems and different variations on legislation. Each state is then able to recognize and/or duplicate what they see as successful in other states. This is true of individuals as well as states. For example, gays who wish to marry are free to move to Massachusetts while residents of Massachusetts may choose to leave the state if they find themselves in the minority and do not like the side effects of legalized homosexual marriage.

This kind of legislative experimentation was short circuited in the abortion debate when the Supreme Court stepped in and eliminated a wide range of available positions that had been adopted by many of the states. The Defense of Marriage Act was passed specifically in an effort to ensure that the debate about what constituted legal marriage would be allowed to follow its natural course between states rather than ahving that debate hijacked by the courts or by the argument of FF&C combined with a Massachusetts choosing to be the first to recognize a form of marriage that was prohibited elsewhere.

I don’t think we will be able to solve our national issues in any reasonable time frame unless we quit thinking that we have to solve everything from the top down with one unified solution for each issue. We should allow each state to decided which problems they feel are the most pressing and to push for solutions on those issues. That allows all the issues to be addressed simultaneously and for different approaches to be tested on each issue. If we had ten major issues that were widely considered to be our most pressing we might find that there are four to six states choosing to tackle each issue allowing us to test four to six approaches to each problem simultaneously. The other 44 to 46 states can adopt their favorite approach, or mix and match for a second round of experimentation.

It seems to me that there is only one truly federal problem that we face – that is our overspending habit by the federal government. The solution to that one problem is simple – start spending less by getting out of the business of trying to solve all the problems of the country. Start acting like a coach managing the strategy direction and development of the team (which includes states on defense and private enterprise on offense) rather than trying to be the star player trying to single-handedly carry the team to a championship.

Tags democracy, elevate, experiments, free markets, government, marriage, political philosophy

National

Delving Into “Six Steps”

Joe Jarvis is a doctor and a candidate for the Utah legislature. I was very interested in exploring the six steps to bring about true health-care reform in Utah that he outlined in the Salt Lake Tribune. He has been kind enough to answer some of my questions and I want to share what I have learned from him and from digging into his sources.

Health underwriting

Every critically ill or injured person will be treated in our health system whether they have health insurance or not.

The realization that doctors and hospitals are obligated under the law to treat people in need should really change the way we look at the issue of universal coverage and the underwriting process. It deserves to be one of the areas we look at to make fundamental change to improve our health care system.

Unsafe hospital practices

Another cause of inefficiency in the system. Dr. Jarvis pointed me to studies by the Institute of Medicine demonstrating the statistical results of accidents and poor industry practices. (I say statistical to make it clear that the above link does not lead to grotesque images of hospital injuries.)

Inappropriate care

Inappropriate care seems to be the symbol of all that is wrong with our system. It appears to be a direct result of a medical industry that is being controlled by the insurance industry which is more interested in avoiding legal repercussions than in keeping people healthy

Perverse incentives

Dr. Jarvis quoted an article from the Wall Street Journal on April 5. I was unable to find that article to confirm the numbers he quoted (“if everyone in America went to the Mayo Clinic, our annual health-care bill would be 25 percent lower (more than $500 billion) and the average quality of care would improve.”) I did find an article from April 7th in the Wall Street Journal, More Choices Drive Cost of Health Care, that appeared to be the same except that it had different numbers ($50 billion saved over 5 years). (Follow the link here to see more than the free preview.) While I could not verify the numbers he quoted, the concept that we must eliminate the perverse incentives that drive the health care system is sound.

Market-based health policy

Dr. Jarvis argues that “health care is not subject to market forces, such as a lowered price increasing demand. No one ever had an appendectomy because the price was right. The occurrence of illness and injury primarily determine demand for health services.” While I would agree with him in the case of an appendectomy there are services (lasik, orthodontics, or well child checkups for example) where demand will rise as prices fall. Besides that, the WSJ article cited above indicates that many people, fueled by a “more is better” attitude, will indulge in available health services that are unnecessary. This would probably not be the case if they had to pay more than a token amount for those extra procedures. Also, at times when the patient is not the driving force behind extra procedures the findings are that

More office visits, hospital stays and diagnostic procedures likely indicate poor coordination among doctors and facilities that can lead to worse care and outcomes.

So far I am not convinced that real market forces do not have a significant role to play in radically improving our health care system.

Benefit denial

I had never previously considered the cost associated with claim denials, but Dr. Jarvis provided some eye opening data. In his article he stated that “Claims costs are at least 10 percent higher in Utah than would be optimally efficient.” He was gracious enough to allow me to look through the data he used to arrive at that figure and answer my questions to help me understand what I was seeing.

Here’s what I learned; the claims cost is the percentage of the insurance company’s revenue that is spent in evaluating and denying claims – it does not count the cost of claims paid, just the cost of processing the claims. The 10% figure is a bit misleading. Let me try to clarify the numbers. The most efficient insurance provider in Utah is apparently the Public Employees Health Plan (PEHP) which spends nearly 4% of revenue in processing claims. The data from the other major health insurance providers (IHC, Blue Cross, Altius, and UHC) shows that they spend between 12% and 19% of revenue on the processing of claims. To put that in perspective, PEHP spends 1 of every 25 dollars in claims processing while the other providers spend between 1 in 8 and 1 in 5 dollars. That is 3 to 5 times higher than optimal. It is a difference of 10% of their revenue but it is not evidence that they spend 1.1 times the optimal amount on claims processing.

Conclusion

Even where I do not fully agree with the details of Dr. Jarvis’ claims about these six steps I do agree that all six of these steps are important issues to address if we are to come up with a decent approach to improving health care in our state. I also agree wholeheartedly with Dr. Jarvis that the system requires a major overhaul, not just some tinkering if we are to avoid the looming crisis in the health care system.

Tags connections, free markets, health care, Utah

National

Health Care Suggestions

Michael Cannon, a self-described conservative turned libertarian at the Cato Institute has some very good ideas on what health care reform should look like. (Hat tip Scott) Some of his suggestions seem like they would appeal to most reasonable people (“think freedom, not universal coverage” and “health-savings accounts are not enough”) while others look like they are ripe targets for those who have been working to “reform” our health care system for 15 years already (most notably “don’t ‘improve’ welfare programs — cut them”). It is important to dig deeper into such suggestions before dismissing such libertarian ideas as heartless. In this case, digging deeper means nothing more than reading the rest of the paragraph:

At the behest of conservatives, Jeb Bush and other governors have made Medicaid more consumer-friendly. The only problem is that Medicaid and SCHIP are welfare programs, and making welfare more attractive leads to…more welfare.

After all what is more heartless, finding ways to help people become more self-sufficient, or teaching them to be dependent on the contributions of people they don’t even know? (The second one sounds like a very precarious position to be in.)

Mr. Cannon also throws in gems like “The lefties aren’t always wrong.” Only a libertarian would say that to a conservative – and the conservatives need to hear it. My personal favorite though (because it’s too easy to forget sometimes) is this – “private markets are not necessarily free markets.” That’s the thing that has worried me about so many of the plans proposed by many leading conservatives. They pat themselves on the back for turning to private markets but they do nothing to ensure that the market is actually free. That difference is why “the health-care industry does not want free markets.” They are all for private markets where they can make their private fortunes, but those who are thriving in a market that is not free have little incentive to make the market free.

Some people will argue that the rising cost of health care is driven by the rising costs of running health care related businesses, but rising costs are easy to accept when you know that nothing short of releasing a drug that leads to fatal consequences is going to put you out of business. Health care is probably more stable than real-estate – and almost as stable as alcohol, tobacco, and pornography.

I’ve strayed from my original point – go read the article by Michael Cannon.

Tags connections, free markets, health care, issues