Economics – Page 202 – artdiamondblog.com

Solution to Problems in Health Care and Higher Education: Change the Incentive Structures

Vernon Smith, one of the 2002 recipients of the Nobel Prize in economics, advocates fundamental institutional reform:

Physicians and medical organizations face escalating administrative costs of complying with ever more detailed regulations. The system is overwhelmed by the administrative cost of attempting to control the cost of medical service delivery. In education, university budget requests are denied by the states who also limit the freedom of universities to raise tuition.
If there is a solution to this problem, it will take the form of changing the incentive structure: empowering the consumer by channeling third-party payment allowances through the patients or students who are choosing and consuming the service. Each pays the difference between the price of the service and the insurance or subsidy allowance. Since he who pays the physician or college calls the tune, we have a better chance of disciplining cost and tailoring services to the customer’s willingness to pay.
Many will say that neither the patients nor the students are competent to make choices. If that is true today, it is mostly due to the fact that they cannot choose and have no reason to become competent! Service providers are oriented to whoever pays: physicians to the insurance companies and the government; universities to their legislatures. Both should pay more heed to their customers — which they will if that is where they collect their fees.

For the full commentary, see:
VERNON L. SMITH. “Trust the Customer!” The Wall Street Journal (Weds., March 8, 2006): A20.

United States Still Has Vitality in Research and Innovation

Has the United States lost its vitality? No. Americans remain the hardest working people on the face of the earth and the most productive. As William W. Lewis, the founding director of the McKinsey Global Institute, wrote, ”The United States is the productivity leader in virtually every industry.” And productivity rates are surging faster now than they did even in the 1990’s.
Has the United States stopped investing in the future? No. The U.S. accounts for roughly 40 percent of the world’s R. & D. spending. More money was invested in research and development in this country than in the other G-7 nations combined.
Is the United States becoming a less important player in the world economy? Not yet. In 1971, the U.S. economy accounted for 30.52 percent of the world’s G.D.P. Since then, we’ve seen the rise of Japan, China, India and the Asian tigers. The U.S. now accounts for 30.74 percent of world G.D.P., a slightly higher figure.
What about the shortage of scientists and engineers? Vastly overblown. According to Duke School of Engineering researchers, the U.S. produces more engineers per capita than China or India. According to The Wall Street Journal, firms with engineering openings find themselves flooded with résumés. Unemployment rates for scientists and engineers are no lower than for other professions, and in some specialties, such as electrical engineering, they are notably higher.
Michael Teitelbaum of the Alfred P. Sloan Foundation told The Wall Street Journal last November, ”No one I know who has looked at the data with an open mind has been able to find any sign of a current shortage.” The G.A.O., the RAND Corporation and many other researchers have picked apart the quickie studies that warn of a science and engineering gap. ”We did not find evidence that such shortages have existed at least since 1990, nor that they are on the horizon,” the RAND report concluded.
. . .
. . . , the American workplace is so competitive, companies are compelled to promote lifelong learning. A U.N. report this year ranked the U.S. third in the world in ease of doing business, after New Zealand and Singapore. The U.S. has the second most competitive economy on earth, after Finland, according the latest Global Competitiveness Report. As Michael Porter of Harvard told The National Journal, ”The U.S. is second to none in terms of innovation and an innovative environment.”

For the full commentary, see:
DAVID BROOKS. “The Nation of the Future.” The New York Times (Thursday, February 2, 2006): A23.

Private Health Care Taking Root in Canada

TORONTO, Feb. 19 – The cracks are still small in Canada’s vaunted public health insurance system, but several of its largest provinces are beginning to open the way for private health care eventually to take root around the country.
Last week Quebec proposed to lift a ban on private health insurance for several elective surgical procedures, and announced that it would pay for such surgeries at private clinics when waiting times at public facilities were unreasonable.
The proposal, by Premier Jean Charest, who called for ”a new era for health care in Quebec,” came in response to a Supreme Court decision last June that struck down a provincial law that banned private medical insurance and ordered the province to initiate a reform program within a year.
The Supreme Court decision ruled that long waits for various medical procedures in the province had violated patients’ ”life and personal security, inviolability and freedom,” and that prohibition of private health insurance was unconstitutional when the public health system did not deliver ”reasonable services.”

For the full story, see:
CLIFFORD KRAUSS. “Ruling Has Canada Planting Seeds of Private Health Care.” The New York Times (Mon., February 20, 2006): A4.

The Market Solution to Email Spam

A COMPANY called Goodmail Systems thinks it has come up with a potential (and partial) solution to the problem of spam and fraud on the Internet. According to Goodmail, market forces are the answer, rather than the kinds of ineffective regulations that have so far failed to solve the problems.
. . .
What shocks me most about the opposition to Goodmail is that people who claim to believe in the free and open Internet, with its welcome attitude to innovation, want to shut down an idea. That’s wrong.
If people like those little stamps that mark their mail as safe and wanted or as commercial transactions, then let the customers have them. And let other companies compete with Goodmail to offer better and less expensive service.
Goodmail isn’t good because it’s new, but neither is it bad because it’s new. If it’s a good model, it will succeed and improve over time. If it’s a bad model, it will fail. Why not let the customers decide?

For the full commentary, see:
ESTHER DYSON. “You’ve Got Goodmail. The New York Times (Fri., March 17, 2006): A23.

Nuclear Power Looking “Increasingly Attractive”

(p. A2) Nuclear power has looked increasingly attractive in many nations amid advancing energy prices and concerns about rising emissions believed to cause global warming. Costs for energy sources such as coal have risen amid global expansion and China’s increasing need for raw materials. China and India, especially, are looking to nuclear power as their consumption expands.
Meanwhile, emissions of the gases believed to cause global warming have risen despite efforts in many nations to adhere to the targets set by the Kyoto Protocol.
At the same time, improved reactor design has led to increased interest in the long-dormant U.S. market, which dried up in the early 1980s amid public outcry about safety and investors’ dismay over high costs. Since then, manufacturers have continued to build reactors overseas in Asia and Europe, while the U.S. remains the most coveted market because of its economic might and hunger for new energy sources.

For the full article, see:
DENNIS K. BERMAN. “Toshiba to Buy Nuclear-Power Firm.” The Wall Street Journal (Tues., January 24, 2006): A2.
(Note: A somewhat different version of the article appeared in the online version of the WSJ, under the title: “Japan’s Toshiba Wins Nuclear-Power Assets; Purchase of Westinghouse May Open Door to Markets Like U.S., China and India.”)

The Case Against Privatizing the Post Office

The free market can be defended with a variety of plausible philosophical arguments. But most people care more about what "works" than what is "right." So in the constant struggle between free markets and the government, it may be useful to maintain the government’s monopoly in delivering first class mail. That way when someone suggests a new intervention by the government, the free marketer can refute them with two persuasive words: "post office."

When it comes to first-class mail, the U.S. still does things the old-fashioned way, with one Postal Service. Not so in places like New Zealand and Sweden, which have opened their mail systems to private companies. The latest is Britain, where the Royal Mail lost its 350-year monopoly on delivery. At least 14 companies are now competing to sort and transport mail. British regulators believe competition will be good for the mail system. Japan is soon to follow. With the recent rise in U.S. stamp prices, expect more calls for privatization here too.

Source:

Lyric Wallwork Winik. "Intelligence Report; Is the Mailman Endangered?" Parade (Sun., March 19, 2006): 25.

Fascism’s “Most Notable Achievement Was that It Survived as Long as it Did”

Source of image of book cover: Amazon.com.

Some experts on National Socialism have concluded that its economy was not as efficient as usually believed. According to a recent expert, facism also was not a very efficient economic system (in spite of its oft-mentioned reputation for the trains running on time):

(p. B36) Yet for all the personality cult, the regime’s most notable achievement, as Mr. Bosworth sees it, was that it survived as long as it did. Virtually irrespective of where it set its sights — culture, science, economics, let alone the military — its performance persistently fell short of its discredited Liberal predecessor’s.

Note: in the review, “liberal” refers to 19th-century liberals. E.g.:

(p. B36) Like their 19th-century peers from Belgium to Romania, Italian Liberals yearned for a common flag, parliament, economy, identity, even empire. To a point, the truths held to be self-evident north of the Alps worked in Italy, too. But the transition to constitutional government was a work in progress, where progress needed all the help it could get.
By 1914, it was clear that it would take more than a constitutional monarchy, a railroad, a gold-based currency and African colonies to overcome the limits imposed by geography, culture and history. Eager to play with the big powers, Italians were not only poor, illiterate and economically underdeveloped, they were also allergic to any state, modern or otherwise. This would include dictatorship.

For the full review, see:
DAVID SCHOENBAUM. “Books of The Times | ‘Mussolini’s Italy’; Where Fascism Was Stylish and Vicious, if Ineffectual.” The New York Times (Fri., March 3, 2006): B36.

The book is:
R. J. B. Bosworth. MUSSOLINI’S ITALY: Life Under the Fascist Dictatorship, 1915-1945. Penguin Press, 2006. Illustrated. 692 pages. $35. ISBN: 1594200785

R.J.B. Bosworth. Source of image: NYT book review quoted and cited above.

Occupational Licensing Does More Harm Than Good

Source of book cover image: http://www.upjohninst.org/publications/titles/lo.html

(p. C3) It is well known that doctors, dentists, and lawyers must be licensed to practice their professions. But what about occupational therapists, manicurists and barbers? How about fortune tellers, massage therapists, shampoo assistants, librarians, beekeepers, electrologists and movie projector operators? These are just a sampling of the hundreds of occupations that require a license in at least some states or counties.

In a new book, “Licensing Occupations: Ensuring Quality or Restricting Competition?” (Upjohn Institute, 2006), Morris M. Kleiner, an economist at the University of Minnesota, questions whether occupational licensing has gone too far. He provides much evidence that the balance of occupational licensing has shifted away from protecting consumers and toward limiting the supply of workers in various professions. A result is that services provided by licensed workers are more expensive than necessary and that quality is not noticeably affected.
. . .
Several studies have examined the effect of license requirements on performance in occupations like dentists and teachers. In one study, Professor Kleiner and a colleague, Robert T. Kudrle, found that stricter state licensing requirements for dentists did not noticeably affect the dental health of 464 Air Force recruits. Other studies have found at best weak evidence that students in classes taught by licensed teachers performed better than those taught by unlicensed teachers.
Summarizing the literature, Professor Kleiner concludes, “there is little to show that occupational regulation has a major effect on the quality of service received by consumers.”
At the same time, the hurdles imposed by occupational licensing reduce the supply of workers in many regulated professions, which drives up wages in those jobs and the price of services. Dentists, for example, were found to earn and charge 11 percent more in states with the most restrictive licensing requirements. While tough licensing standards may help higher-income consumers avoid low-quality providers, it also appears to prevent lower-income consumers from gaining access to some services.

For the full commentary, see:
Krueger, Alan B. “Economic Scene; Do You Need a License to Earn a Living? You Might Be Surprised at the Answer.” The New York Times (Thurs., March 2, 2006): C3.
(Note: ellipsis added.)

You want more evidence? OK, here’s more evidence:

(p. A20) BISMARCK, N.D., Oct. 10 (AP) – The State of North Dakota is exploring whether people who sell items on eBay for others must get standrd auctioneers’ licenses, a process that includes taking instruction in talking real fast.

To get a license in the stare, aplicants must pay a $35 fee, obtain a $5,000 bond and undergo training at one of eight approved auction schools, where the curriculum includes rapid-fie speaking, breathing control and reading hand gestures.
“I don’t think it offers any additional protection for the consumer,” said Mark Nichols, who runs a small consignment store in Crosby. “It just creates a lot of red tape for the business, as well as having to put out a lot of money.”

For the full story, see:
“North Dakota Weighs Auction License for Some eBay Sellers.” The New York Times (Tues., Oct. 11, 2005): A20.

For Kleiner’s book, see:
Morris M. Kleiner. Licensing Occupations: Ensuring Quality or Restricting Competition? Upjohn Institute, 2006.

The Centrally Planned Economy: “Why doesn’t Wuhan have heating?”

Li Qiao tries to stay warm in unheated apartment in Wuhan. Source of image: online version of WSJ article cited below.

(p. B1) WUHAN, China — As a winter wind howled through this central Chinese city, university lecturer Li Qiao settled down in his two-bedroom apartment for what should have been a cozy evening of reading. Around his apartment were signs of China’s new prosperity: a color television, refrigerator, washing machine and air conditioner. The only thing missing: heating.
Even though winter temperatures in Wuhan dip into the 30s with occasional snow, virtually none of the city’s homes are heated. “The cold is cutting into my bones,” lamented Mr. Li, who was bundled up in a down coat and a quilt, with an electric heater blowing warm air toward him. “Why doesn’t Wuhan have heating?”
Mr. Li isn’t the only one asking. Heating systems are one of the last areas that remain under China’s former centrally planned economy, with government regulators still setting the thermostat for homes, classrooms and offices across the country. Under the policy, which dates back to Mao Zedong in the 1950s, the government provides heat in the northern half of China, and, to save money, it provides no heat in the southern half. As a result, northerners often wilt in steaming apartments, while those in southern provinces shiver through the winter.
With no heat, even residents of modern cities like Shanghai spend much of the winter trying to get warm.
. . .
(p. B2) Mr. Li, the university teacher, and his wife ward off the cold air that seeps into their apartment at the university with an electrical heater, a hot-air fan and a wall unit air-conditioner that also blows out heat. At night, they wriggle into long underwear before piling under two sets of thick quilts. Although he has a three-hour lunch break, Mr. Li seldom goes back to his apartment, opting instead to hole up in his heated office.
His students aren’t so lucky. Classrooms aren’t heated, so they listen to his lectures swathed in down jackets, caps and gloves. Some students even carry hot-water bottles to keep their hands warm and cushions to place on the icy chairs.

For the full story, see:
Cui Rong. “China’s Winter of Discontent; Mao-Era Policy Provides Heat Up North but None in South; Shivering Citizens Are Fed Up.” The Wall Street Journal (Tues., March 14, 2006): B1 & B2.

Source of graphic: online version of WSJ article cited above.

Ethanol Serves Agricultural Lobby

The U.S. imposes a 54-cent-a-gallon tariff on Brazilian ethanol, to discourage competition with domestic ethanol, which receives a 54-cent subsidy from taxpayers. The European Union just slapped new duties on Pakistani ethanol.

This should lay bare the fraud that what’s going here has anything to do with energy security. It has only to do with the agricultural lobby masquerading its interests behind foolish and misleading rhetoric about energy security.

Take the pressure for flex-fuel mandates, requiring auto companies to build cars capable of running on 85% ethanol. Unmodified cars can already burn fuel comprised 10% of ethanol. If we were honestly keen on diversifying supply and squeezing out imported oil, we’d throw open our dense coastal markets to ethanol producers in Brazil, India, Pakistan, Nigeria and Thailand, displacing perhaps 10 billion gallons of current gasoline use without any vehicle modification or taxpayer subsidy at all.

For the full story, see:

HOLMAN W. JENKINS, JR. "BUSINESS WORLD; What’s Wrong with Free Trade in Biofuels?" The Wall Street Journal (Weds., February 22, 2006): A15.