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    February 2011

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    Maxine's Essays

    • 21st Century Regress
      Sometimes it seems like the world is going to hell and there's absolutely nothing a girl economist can do about it.
    • What Exactly Are We Crowding Out?
      The current economic downturn isn't a random draw of a black ball from an urn containing white balls and black balls. There's no sampling distribution. Very specific policies and actions landed us here. Now we must decide not only what policies need to be put in place to prevent it happening again, but also what policies would best drive us out of the ditch faster and sustainably.
    • I Wish It Were Only Butter
      We should be giving up some butter if we must. We should not give up education or health investment (or infrastructure or the environment (hello, BP). They may be the only legacies of any value that we pass on to our children and grandchildren.
    • Rational Health Investment?
      The obvious "market solution" is to improve the long run return on investments in health among the disadvantaged through meaningful and effective publicly funded education. The obvious short run "market solution" is to reduce the costs of investment and the shadow price of health for the disadvantaged by providing health insurance cover and reduced out-of-pocket costs.
    • The Socrates Parameter
      To the extent that our limbic systems respond to such engineering by over-riding the judgment of our frontal lobe and to the extent that our frontal lobe is deprived of the information it requires to make a rationally self-interested judgment, we are not only pigs and fools, we are slaves.
    • The Economic Rewards of Virtue
      If individual virtue tempers our "piggy" desires and conditions our choices to something that is both individually and socially better, then the economic rewards of virtue as embodied in and promoted by societal norms and institutions are far greater than we have ever suspected. As economists, we would do well to recognize this when we teach U max.
    • The Market for Morals
      Markets then are places where more is exchanged than goods and services, labor and product, credit, and interest. They are places where we also develop the personal virtues of temperance and prudence and the social virtues of benevolence and justice. When they function well, they produce trust, loyalty, and sympathy among those who trade there.
    • Post-Modern Applied Economics: It’s the Error Term, Stupid
      Maxine believes it’s time to refocus attention and discussion on the error term. It is often where much of the action is in our models. It is where unexpectedly catastrophic events dwell resulting in fat tails. It is where our animal spirits manifest and cause us to do the right thing or the wrong thing or the thing everyone else is doing rather than the self-interested, fully-informed rational thing. It is where God and miracles and chance dwell.
    • Intergenerational Win-Win: Health Insurance, Education, Environment, Infrastructure
      So when we’re talking about fiscal stimulus packages and we’re borrowing from our grandchildren to finance them, we should be thinking about how to use stimulus monies to create value for those grandchildren AND stimulate our economy.
    • Short-term Private Payoffs, Long-term Social Costs
      The real health reform discussion, the one we should be having, is “What must we do to create a health system that is both efficient and fair?” The answer will almost certainly include relegating the private sector to markets where market forces or regulation are effective at aligning short-term private incentives and goals with long-term societal interests. If such markets are scarce or non-existent in health, then the private health sector will be of limited value.
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    These are dangerous waters you are wading in, and that alone speaks volumes about the political paralysis gripping the US.

    The political debate is impossible in the current climate. We have people screaming that a railing against the ideal of national health insurance while advocating Medicare. It's not rational.

    Rational plays very little roll in health.

    I, like president Obama, smoke cigarettes. We know it's bad for our health, but we irrationally choose to remain addicted.

    Should you pay for any costs that we might inflict on society?

    I can argue that my pack of cigarettes weighs 2 ounces, yet a tank of gas weighs a few hundred pounds. Both burn up and produce harmful toxins, but I filter mine through my lungs first. This does not justify my smoking, but it does point out that the scope of what affects our health is often not looked at in the proper scope.

    The free market is a terrible model for dealing with health, but its so entrenched, that it is here to stay.

    "What's the treatment worth to you?"
    "I don't know, Doc; what do I have?"
    "You might die."

    48% of drug R&D is paid for using public money, yet companies are allowed to patent the drugs.

    If the government were to create a wall between drug manufacturing and drug R&D, then think how that could work:

    First, labs that only invented new drugs would want to invent as many drugs as they can. They would not use potential sales as the main motivation for choosing which drugs to develop, and hence, some of the less profitable diseases might stand a better chance of being developed.

    Labs could propose new drugs and petition the government for funds - not just the 48% it pays now, but the full 100%. The government would own the drug, placed in public escrow.

    Manufacturers who only build pills could then liscense the recipe from the government, and the fees would be used to fund new drugs.

    Manufacturers would compete in the free market, increasing margins through innovation and effiency just like any other product. The cost of branding a drug would be eliminated (which runs 2-3 times the cost of R&D), and we wouldn't have to watch so many commercials for words that have an excessive amount of x's, y's, and z's in them.

    More drugs treating more illnesses delivered to the market for less cost. In my opinion, that's the type of economics that have to be applied to health care.

    I agree with the previous commenter that "rational" simply doesn't apply to the way people approach health...for more reasons than I can list. It's also true that health care is the rare industry in which un-satisfied customers are more likely to become repeat customers than satisfied customers. This is another reason market economics simply can't be applied to health least not to any of the more meaningful parts of health care. Purely elective, non-life-threatening procedures that apply only to the moderately affluent (think Lasik or plastic surgery) are often trotted out among people who think markets can apply to health care. But the decision-making process around activities like that is completely different from the decision-making process when your spouse just passed out unconscious.

    As somebody who loves economics and believes in free markets in many situations, I'd love to believe there's some elegant way to apply basic principles of economics to health care. But all of the basic ingredients of efficient markets are lacking, so we can either keep trying to jam a square peg into a round hole, or we can try to tackle the problem for what it actually is. Of course, the second approach would require rational thinking, which is why I think the future of health care in this country is filled with square pegs.

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