How Economists Are Still Getting It Wrong

I felt inspired to write a reaction to Krugman's piece in the New York Times Sunday Magazine about how economists "got it wrong" in predicting this current economic downturn. Krugman blames economists for thinking that financial markets always behave rationally and he calls for a return to a traditional Keynesian viewpoint, namely, that massive government spending can get us back to steady economic growth.

However, in the midst of his blah blah blah about the ideological divides in macroeconomics, he does reveal one thing about the economic perspective: THEY ARE STILL GETTING IT WRONG.

Both sides of the debate, whether neo-classical or neo-Keynsian, are so focused on growth that none of the economists are paying any attention to what we are producing. Economists only care that we are producing more stuff. It could be anything. Really. We don't care. As long as it makes GDP higher.

It could be green energy.

It could be digging a ditch and filling it in again.

It could be land mines (see below)*

It could be new financial derivatives that use life insurance policies (nothing like gambling on when grandpa is going to kick the bucket to advance the growth of GDP).

Whatever.

But that's just it.

Economists should care.

Huh?

Personal consumption now drives nearly 70% of our GDP. Economists don't want to tell consumers what to consumer because they believe that consumers have sovereignty over their own decisions and those decision will be rational (that is the whole point of this market thingy). But if highly educated financiers are prone to irrational behavior leading to epic swings in the market, why would everyone else be so cool, calm, and collected about consumerism.

We are not. We are easily influenced. We can be driven to purchase things we don't really need or maybe even want--yeah that's right, I am saying that sometimes people buy things that they don't really want (listen up economists--buyers remorse is real, just ask anyone).

So my real question is, what good is GDP growth if we just end up getting a whole bunch of stuff we don't want?

Or worse. A whole bunch of stuff that will make us worse off in the future. GDP can measure our size, but what we produce and consume tells a lot about our soul as a country. And as we have already seen, size does not protect us from failure; however, meeting our true needs as a society will certainly make us more stable. And advertisers in our free market, and the flocks of consumers that follow do not necessarily know what they need.

Economists are not paying attention to our needs. They assume they will be met as soon as GDP starts going up. And that is why they are still getting it wrong.




*We're number one in the world at producing weapons with $38 billion dollars in sales contracts just this past year. Yup, it's a real growth industry in an economic downturn--don't you think. And we are creaming the competition: #2 Italy at just over $3 billion in sales #3 Russion with the same. We have ten times that suckas! Wahoo! See (NYT article).

Dalton Trumbo on PBS

Last night, I saw a PBS documentary about Dalton Trumbo, a blacklisted screenplay writer. One particular quote from his book, Johnny Got his Gun, struck me:

 

"If you make a war if there are guns to be aimed if there are bullets to be fired if there are men to be killed they will not be us. They will not be us the guys who grow wheat and turn it into food the guys who make clothes and paper and houses and tiles the guys who build dams and power plants and string the long moaning high tension wires the guys who crack crude oil down into a dozen different parts who make light globes and sewing machines and shovels and automobiles and airplanes and tanks and guns oh no it will not be us who die. It will be you.

"It will be you-you who urge us on to battle you who incite us against ourselves you who would have one cobbler kill another cobbler you who would have one man who works kill another man who works you who would have one human being who wants only to live kill another human being who wants only to live. Remember this. Remember this well you people who plan for war. Remember this you patriots you fierce ones you spawners of hate you inventors of slogans. Remember this as you have never remembered anything else in your lives.

"We are men of peace we are men who work and we want no quarrel. But if you destroy our peace if you take away our work if you try to range us one against the other we will know what to do. If you tell us to make the world safe for democracy we will take you seriously and by god and by Christ we will make it so. We will use the guns you force upon us we will use them to defend our very lives and the menace to our lives does not lie on the other side of a nomansland that was set apart without our consent it lies within our own boundaries here and now we have seen it and we know it.

"Put the guns into our hands and we will use them. Give us the slogans and we will turn them into realities. Sing the battle hymns and we will take them up where you left off. Not one not ten not ten thousand not a million not ten millions not a hundred millions but a billion two billions of us all the people of the world we will have the slogans and we will have the hymns and we will have the guns and we will use them and we will live. Make no mistake of it we will live. We will be alive and we will walk and talk and eat and sing and laugh and feel and love and bear our children in tranquility in security in decency in peace. You plan the wars you masters of men plan the wars and point the way and we will point the gun."

That was written in 1939, and you just don't see anything like this anymore. It's a shame.

The problem with numbers. . .

It's a classic story really.

Due to crazy rumors of government run death panels, man goes to passionately protest the new health care legislation.

Man gets into fight with local union members in favor of universal health care.

Man hurts his leg.

Because of some recent economic hardship, man has no health insurance so he must take up a collection with his fellow protesters.

The people who are so unwilling to save 50 million people from high health care costs are more than willing to save one.

We love our irony (see AP story).

When we talk about one person not getting access to health care, it is easy to get behind the movement. When we talk about 50 million, it is much easier to be selfish--in fact we often look for ANY reason to be selfish. Any at all. Even reasons that are untrue. Why should 50 million people get something? What about me?

It is the problem with numbers. Obama needs to focus this debate on the individual level. Forget about broad goals. Put a face to this legislation. Forget the techno-jargon. There are people that truly need help and that point is getting lost in death panels and socialism.

We need a poster child for health care reform. Call it cheap ploy, but it will help people understand what is at stake. Because what is at stake has nothing to do with whether a government bureaucrat is going to euthanize my grandmother.

Limits of Equality

“A society that wishes to be both ignorant and free, in a state of civilization, wants what never was, and never will be.”

—Thomas Jefferson

I am dedicated to the concept of equality in modern society. I have my own vision of what the manifestations of that equality should look like, but most of us would probably agree on the basic principles.

There is, however, something sinister lurking about in American society: the equality of opinion.

Sure, everyone's vote should be counted equally. Sure, everyone should be paid the same for the same work. However, if someone is poorly informed, that opinion should be discounted. Even better, that person should elect to pipe down and retain some dignity.

It's too bad that something as stupid as "keep your government hands off my Medicare" does not stand out these days. It's even worse to think a person like that would not have enough self-respect to keep his mouth shut. Sadly, even the most obtuse detritus is given full merit in a society ruled by gut reactions and gladiatorial debate.

So much for free speech in America.

Death ANDTaxes. . .

Life's little inevitabilities. . . now BOTH are brought to you be your friendly neighborhood government--yippee!

And now to the question of costs. Unfortunately, you are correct that having a public option is very expensive and Medicare costs appear to be on a endless upward trajectory as many of those boomers live well into their eighties and nineties. Being the biggest buyer of health care provides the government with a lot of clout over prices, but ultimately the government still has to come up with the cash. As government becomes a larger part of the market it must force suppliers to be more efficient through regulations and, at the same time, it must make sure that private insurance companies do not pawn off it's sick patrons.

As a buyer, government can regulate, but enforcement can be difficult. As a seller, the government controls the means of production and the costs directly. Maybe Marx's was right, socialized medicine is inevitable. But it's more than inevitable, it is already here. In fact, it's how we provide medical services to all of our serving men and women in the military.

If socialized medicine is bad, why do we insist on giving it to our men and women in uniform?

For one thing, ex-military people tend to have a lot of medical issue so no one is willing to do it at a reasonable price. Therefore, the government must provide the good. Is this some sort of vast socialist conspiracy? No. Not really. The government provides health care to soldiers because it is the right thing to do. And while the market does do a lot of things well, providing health care to our fellow service men and women is not one of them. The government can do the same for the rest of its citizens and at a cheaper cost than being just a big buyer.

The time will come when health care will be a lot like education. Everyone gets the health care equivalent of a high school diploma, but you can still buy a private school experience if you would like. That is, if you don't like waiting in line (By the way, I am in total agreement about your view of lines) .

Will we all die at the hands of the government in this system? Yes. But we will all die eventually. Besides, who would you rather have as an advocate during you last days: a corporate executive or your first grade teacher?

Socialism is for medicine. Capitalism is for Wall Street. Let's get it right people.

Too much health?

Yes, it is probably much better for us to tackle some of the individual problems of health care individually before attempting to unfurl master plans. It'll be much more interesting to ready, anyway.

First, I would like to point out that all of the challenges a universal health care system would face are very much present in our current system. Limited resources (beds, doctors, etc.) is a problem in the current system and are often rationed by paper pushers at your local HMO office. One can circumvent the process by paying for better insurance that gives more freedom, but the prices still go up if you choose to visit a relatively scarce expert like a specialist. And Steve Jobs recently reminded us that those with a private jet have a much better chance of finding a short line for that much needed organ transplant.

So let's make one thing clear: abuses and shortcomings of universal health care are really no different than those found in the current system. We're just making money less influential. It's an imperfect system for the masses rather than an ideal system for the few. But in a political system that is supposed to favor the majority, a new health care system should be a foregone conclusion.

But what to do?

Let's start by embracing the concept of government oversight. In the current market system, we hold our medical suppliers accountable through the legal system. If a doctor kills me through neglect (denial of services) or incompetence (faulty product) then my family can sue. Bad doctors are slowly removed from the system through the compilation of malpractice suits. Insurance companies, though much harder to get at, are also subject to these reviews. Government oversight is alive and well, only it takes place after the damage is done. In contrast, a universal health care system could allow for the speedy removal of inattentive or ineffective doctors. Even better, medical decisisons would not be based on the financial choices of the greedy few.

The key thing to realize in all of this is that health care is not the standard widget used in Economics. Health care is a means, not an end. When I purchase a new car, I know what I am getting, what the expectations are, and I can return the car if the promised results don't come to fruition. Health care, on the other hand, is intended to provide health, something it may or may not achieve. In either case, I can hardly "return" the care given to me if it fails to make me feel better. Doctors can't promise that a chronic condition will be cured or mitigated by the prescribed treatment. There are no knowns in the equation, and the all-powerful rational choice is denied to the consumer. Tell me, are there means for the economists to explain transactions in which so little is known by either party about the product exchanged?

Lines are the stuff nightmares are made of, but what's the harm? I don't think that medical services would be distributed on a first-come-first-serve basis, actually. Those seeking medical treatment would be evaluated at the first tier of the system. My itchy buttock would be deemed less crucial than your faulty heart valve, and I'd be in line after you. Presumably, you could visit your doctor 2 days after I did and still make it in line for treatment ahead of me. While my itchy buttock is frustrating, I daresay that I believe you should be ahead of me in line. But that supposes I value my community in a way that many Americans clearly do not.

So lines are precisely the way you address the issue, and to everyone's benefit. Yes, I have to wait for you to get heart surgery, but I also know that I'll be at the front of the line when my illness is life threatening. It's a concept so simple, so steeped in a basic fairness, that children would have implemented it long ago.

Such a system requires substantial resources, something I'm rather concerned about. How are we to fund such an enterprise, Anonymous Economist? Can we continue to assert international dominance and build such a comprehensive health care system at home? Must we keep our beating hearts wed to the market system if we are to survive?

How much is too much health care?

That is the central question of any redesign of the health care system. We only have so many doctors and hospital beds to go around so at some point we need to determine when care should be denied. Dealing with this issue is paramount and unavoidable (it is also ironic given the push for universal health care).

So how do we do it? Well suppose health care were completely free to the user but paid for by every member of society through taxes. Price or your luck with an employer would no longer be the rationing mechanism of health care (yippee!). Instead, health care would be rationed on a first come first serve basis, through the use of--you guessed it--lines. The biggest fear, of course, is the eventual overuse of the health care system to such an extent that many at Fox News and others would perish because of the long wait (thus fulfilling their own health care prophecy--on snap! Should have listened to Hannity when we had the chance).

Also, even if it is completely free to the user and assuming, for the moment, that it is completely free of corruption there still would be plenty of unequal access to health care based on an individual's proximity to shorter lines and proximity to health care of higher quality (sorry, Iowans, the Mayo clinic is a much longer drive for you).

Also, we know that overuse is a potential problem because Medicare recipients often misuse health care by going to the emergency room too often for medical assistance that could be administered more cheaply. When individuals are disconnected to the actual cost of services they are bound to overuse it. But that begs the question, how much, is too much health care?

When we use the market to ration the good, it all depends on the price people are willing and able to pay. Without price, it will depend on how long you are willing and able to wait.

Now, this could be just as effective--as long as you are not waiting for that defibrillator.

One final thought though, you could always have a bureaucrat or technocrat tell us how much health care is appropriate (brief pause while millions of Fox viewers gasp in horror). However, in many ways a bureaucrat might make better decisions than an insurance executive. After all, sick people can still bestow political power, but they are a total drain on health insurance company profits. Maybe that bureaucrat will have your best interest in mind (or your best interest in the sense that he or she needs to keep you just healthy enough to stuff the ballot box).

There is always rationing through random assignment. Heads I win, tails you get that colonoscopy you have always wanted.

So before you go diving in head first with your socialistic leanings, tell me truly, how are you going to prevent people from getting too much health care?