Economics & Finance

The Public-Health Fallacy

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The discussion at this otherwise-good Instapundit post is typical.

The discussion is misframed. The question isn’t whether a specific medical procedure is a good idea. The question is who gets to make the decisions.

This is a comment that I left on a recent Neo-Neocon post:

It’s the public-health fallacy, the confusion (perhaps willful, on the part of socialized-medicine proponents) between population outcomes and individual outcomes. Do you know how expensive that mammogram would be if every woman had one? The implication is that individuals should make decisions based on averages, the greatest good for the greatest number.
 
The better question is, who gets to decide. The more free the system, the more that individuals can weigh their own costs and benefits and make their own decisions. The more centralized the system, the more that one size must fit all — someone else makes your decisions for you according to his criteria rather than yours.
 
In a free system you can have fewer mammograms and save money or you can have more mammograms and reduce your risk. Choice. In a government system, someone like Kathleen Sebelius will make your decision for you, and probably not with your individual welfare as her main consideration.

Even in utilitarian terms — the greatest good for the greatest number — governmental monopolies only maximize economic welfare if the alternative system is unavoidably burdened with free-rider issues. This is why national defense is probably best handled as a governmental monopoly: on an individual basis people benefit as much if they don’t pay their share for the system as if they do. But medicine is not so burdened, because despite economic externalities under the current system (if I don’t pay for my treatment its cost will be shifted to paying customers) there is no reason why the market for insurance and medical services can’t work like any other market, since medical customers have strong individual incentive to get the best treatment and (in a well-designed pricing system) value for their money. The problems of the current medical system are mostly artifacts of third-party payment and over-regulation, and would diminish if we changed the system to put control over spending decisions back into the hands of patients. The current Democratic proposal is a move in the opposite direction.

Real Medical Innovation, and Closed Systems

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One of the biggest follies in the health care legislation is assuming that America is a “captive system” or a “closed system”. In these sorts of models (probably Hawaii is a good example) you can implement change and individuals don’t have a lot of choices and thus fees or taxes can be used to subsidize wholesale change.

The truth is much more complex; individuals are intelligent, many choices exist, and people respond to incentives. In addition, companies and even entire countries take different approaches to profit from opportunities that arise from these sorts of captive assumptions.

This article from the Wall Street Journal titled “The Henry Ford of Heart Surgery” analyzes a company in India that is pioneering economies of scale in heart surgery by 1) building huge facilities, 2) focusing on reducing all costs throughout the system from medical equipment to sutures, 3) hiring surgeons and having them perform the same types of complex surgery over and over to become experts on that specific task and 4) changing the hours of use and of doctors so that expensive medical equipment has a higher utilization rate which reduces the average cost / use.

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Mathematics versus The Blob

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(…and so far, the blob seems to be winning)

Here’s a New York Daily News article on mathematical ignorance among City University of New York students:

During their first math class at one of CUNY’s four-year colleges, 90% of 200 students tested couldn’t solve a simple algebra problem, the report by the CUNY Council of Math Chairs found. Only a third could convert a fraction into a decimal.

And here’s Sandra Stotsky, discussing some of the reasons for poor math performance in America’s schools:

But the president’s worthy aims (to improve math and science education–ed) won’t be reached so long as assessment experts, technology salesmen, and math educators—the professors, usually with education degrees, who teach prospective teachers of math from K12—dominate the development of the content of school curricula and determine the pedagogy used, into which they’ve brought theories lacking any evidence of success and that emphasize political and social ends, not mastery of mathematics.

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Management Advice From George Eliot

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Fancy what a game of chess would be if all the chessman had passions and intellects, more or less small and cunning; if you were not only uncertain about your adversary’s men, but a little uncertain also about your own . . . You would be especially likely to be beaten if you depended arrogantly on your mathematical imagination, and regarded your passionate pieces with contempt. Yet this imaginary chess is easy compared with a game man has to play against his fellow-men with other fellow-men for instruments.

–George Eliot, in Felix Holt, the Radical (1866)

Lots of political leaders and their academic advisors, and also more than a few business executives, fail to understand this point about the kind of “chess” that they are playing.

See also investing advice from George Eliot.

Lies, Damn Lies and…

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One of my academic advisors used to say that any argument without numbers is a religious one. And we all know how productive they are.

Being a numbers jock and P-Chemist, that statement resonated with me. It still does.

But then I went into business, and for a while my job involved the quantitative prediction of consumer behavior. Entering into the social sciences like that, where there is no ideological bias, just a financial incentive to get the model right, was good for me. It trained me to look at the instrument that was used to derive the numbers. To ask if the questioner was asking the right questions.

So my brain perked up when I saw this article on the decline of newspapers:

Big whoop. After several statistical triple back-flips, we now know that 96 percent of newspaper reading is done in the printed product. That’s like talking about modern transportation by pointing out that 96 percent of buggy drivers use buggy whips. Hello? We switched to cars 100 years ago.

Writing on the Nieman Journalism Lab Web site, Martin Langveld made some valid statistical conclusions about newspaper readership. The problem is that he was asking the wrong questions. It isn’t about newspapers; it’s about news.

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