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I think the problem is that the neoclassical theory of perfect competition is just flatly wrong, and markets actually tend to monopoly (oligopoly) pricing over

by js8 9y ago

I think the problem is that the neoclassical theory of perfect competition is just flatly wrong, and markets actually tend to monopoly (oligopoly) pricing over time. (So the "perfect competition" is more an exception than a rule in the real world.) There is plenty evidence for this, see e.g. Keen & Standish: http://www.albany.edu/~gs149266/Keen%20&%20Standish%20(2006).pdf http://www.albany.edu/~gs149266/Keen%20&%20Standish%20(2006)... One simple way to see this, really, is to consider a simple example (curiously omitted from economic textbooks) of a supply chain: You have two markets and three entities - producers, distributors and consumers, where producers sell to distributors and distributors sell to consumers. Now consider, in the case of competition, what should be the margin of the distributor in the equilibrium? That is, why should all the cost decrease be propagated to the consumers? In reality, "equilibrium" prices are probably oligopolistic determined by some "relative market power", which is really about how much you can "screw" your customers. And health care and education are matter of life and death for most people, so yeah, high prices, unless there is a big factor that will put an end to that (which happens outside the U.S. through regulation and government price negotiation).

Jabanga 9y ago
>And health care and education are matter of life and death for most people, so yeah, high prices Food is also a matter of life and death. The difference between food and healthcare/education is that the former is not as heavily subsidised as the latter. >And health care and education are matter of life and death for most people, so yeah, high prices, unless there is a big factor that will put an end to that (which happens outside the U.S. through regulation and government price negotiation). This is incorrect. The cost disease is a global phenomenon affecting most advanced economies.
- js8 9y ago
  > Food is also a matter of life and death. I think that's because you can grow your own food, and you can also buy it from abroad. Not so much with health care or education (because it's a service, not a physical product). So you can be (at least in the U.S.) screwed less over food than over health care. I agree that I don't have a complete picture, but at least, people should consider evidence for this theory. > The cost disease is a global phenomenon affecting most advanced economies. The problem is, the economies that have strong government actor working on behalf of consumers (either in the form of regulation, or a public corporation that competes in the market too) are actually affected less.
  - Jabanga 9y ago
    >The problem is, the economies that have strong government actor working on behalf of consumers (either in the form of regulation, or a public corporation that competes in the market too) are actually affected less. I don't see any evidence for that. A couple counter-examples: Singapore and developing countries like India and China have more market based healthcare systems than Western Europe and the US, and spend far less on healthcare as a percentage of GDP. India and China are making significant gains in life expectancy, but that may be explained away by the fact that they're starting from a lower level. Singapore however has a higher life expectancy than European countries. The US is the outlier, with approximately half of healthcare spending being private, yet spending a very high percentage of GDP on healthcare. But I would argue that much of this 'private' is quasi public, as it's a manufactured outcome as a result of significant intervention by state and federal governments, like tax incentives for employers to provide healthcare through large insurance companies, and state mandates requiring health insurance to be comprehensive. The fields of medicine in the US less subsidized via these kinds of interventions; cosmetic and laser eye surgery, have seen prices increase at below the rate of inflation. The key is that people pay out of pocket for cosmetic and laser eye surgery: http://healthblog.ncpa.org/why-cant-the-market-for-medical-care-work-like-cosmetic-surgery/ http://healthblog.ncpa.org/why-cant-the-market-for-medical-c... The government intervention in the private US healthcare system encourages exactly the opposite. Also with respect to US healthcare spending, it's worth mentioning the US is a higher income country than other OECD countries, and there seems to be a trend toward healthcare spending as a percentage of GDP increasing with level of wealth, independent of all other factors. The US does have a more capitalised healthcare system, with more diagnostic equipment and advanced treatment centres for things like neonatal care. Often not mentioned is that the US has some of the best cancer survival rates in the world. Mind you, the US is definitely suffering from the cost disease in healthcare, but the relatively higher wealth level of the US may explain the difference with Europe.
    - taneq 9y ago
      > A couple counter-examples: Singapore and developing countries like India and China have more market based healthcare systems than Western Europe and the US, and spend far less on healthcare as a percentage of GDP. I think this is far more to do with the fact that they're developing countries than the economic structure of their healthcare systems.
- taneq 9y ago
  > Food is also a matter of life and death. And we have a pretty well established cultural understanding that you don't let people starve, no matter how poor they are. And yet somehow the equivalent understanding that you don't let people die of preventable diseases, no matter how poor they are, is somehow controversial.
  - Jabanga 9y ago
    It's not the preventable diseases that are the most costly to treat. But regardless of semantics, I know what you mean. The reason is that the consequences of guaranteeing everyone enough food are different than the consequences of guaranteeing everyone top-of-the-line (i.e. doing everything we can to keep sick people alive) healthcare. Food has become so cheap that almost everyone can afford enough to eat without direct subsidies (e.g. indirect subsidies, like welfare payments, are enough). So such an understanding doesn't result in the creation of pervasive government programs that utterly dominate the market for food and inflict it with the cost disease.
BurningFrog 9y ago
"Cost disease" has affected some large sectors in the US economy for the last 5 or so decades, but not most other countries, and not the US before that. Your general assertion about competition not working proves too much. If true, it would affect all market economies all the time.
- js8 9y ago
  The claim is not about "competition not working", the claim is about the price. It's actually quite tricky to determine whether the price level corresponds to monopolistic or marginal cost price, because it depends (in neoclassical theory, at least) on supply and demand and these are often not known. So people can easily mistake the (actual) monopolistic price for the (expected by neoclassicals) price at marginal cost, and I would argue they often do. And there are other mechanisms, in play, too. For example, if there is friction in the market, and it often is, then the prices can be lower due to competition for market share.
  - BurningFrog 9y ago
    I still don't see anything in this argument that is specific to the affected sectors of the economy in the last half century US. If you're right, you might win a Nobel Prize in Economics, but I don't see how you've explained Cost Disease.
    - js8 9y ago
      IMHO, the affected sectors are specific because they are very hard to substitute. Ordinarily, when prices start to grow towards monopolistic price, the demand curve will shift (due to substitution) to counter this effect. But these sectors have demand curves that cannot be shifted easily, and so they seem as a special case, but in fact they are not. Speaking of Nobel prize, I think Steve Keen deserves one (and maybe two), but he will never get one, unfortunately.

by js8 9y ago

Jabanga 9y ago

>And health care and education are matter of life and death for most people, so yeah, high prices Food is also a matter of life and death. The difference between food and healthcare/education is that the former is not as heavily subsidised as the latter. >And health care and education are matter of life and death for most people, so yeah, high prices, unless there is a big factor that will put an end to that (which happens outside the U.S. through regulation and government price negotiation). This is incorrect. The cost disease is a global phenomenon affecting most advanced economies.

js8 9y ago
> Food is also a matter of life and death. I think that's because you can grow your own food, and you can also buy it from abroad. Not so much with health care or education (because it's a service, not a physical product). So you can be (at least in the U.S.) screwed less over food than over health care. I agree that I don't have a complete picture, but at least, people should consider evidence for this theory. > The cost disease is a global phenomenon affecting most advanced economies. The problem is, the economies that have strong government actor working on behalf of consumers (either in the form of regulation, or a public corporation that competes in the market too) are actually affected less.
- Jabanga 9y ago
  >The problem is, the economies that have strong government actor working on behalf of consumers (either in the form of regulation, or a public corporation that competes in the market too) are actually affected less. I don't see any evidence for that. A couple counter-examples: Singapore and developing countries like India and China have more market based healthcare systems than Western Europe and the US, and spend far less on healthcare as a percentage of GDP. India and China are making significant gains in life expectancy, but that may be explained away by the fact that they're starting from a lower level. Singapore however has a higher life expectancy than European countries. The US is the outlier, with approximately half of healthcare spending being private, yet spending a very high percentage of GDP on healthcare. But I would argue that much of this 'private' is quasi public, as it's a manufactured outcome as a result of significant intervention by state and federal governments, like tax incentives for employers to provide healthcare through large insurance companies, and state mandates requiring health insurance to be comprehensive. The fields of medicine in the US less subsidized via these kinds of interventions; cosmetic and laser eye surgery, have seen prices increase at below the rate of inflation. The key is that people pay out of pocket for cosmetic and laser eye surgery: http://healthblog.ncpa.org/why-cant-the-market-for-medical-care-work-like-cosmetic-surgery/ http://healthblog.ncpa.org/why-cant-the-market-for-medical-c... The government intervention in the private US healthcare system encourages exactly the opposite. Also with respect to US healthcare spending, it's worth mentioning the US is a higher income country than other OECD countries, and there seems to be a trend toward healthcare spending as a percentage of GDP increasing with level of wealth, independent of all other factors. The US does have a more capitalised healthcare system, with more diagnostic equipment and advanced treatment centres for things like neonatal care. Often not mentioned is that the US has some of the best cancer survival rates in the world. Mind you, the US is definitely suffering from the cost disease in healthcare, but the relatively higher wealth level of the US may explain the difference with Europe.
  - taneq 9y ago
    > A couple counter-examples: Singapore and developing countries like India and China have more market based healthcare systems than Western Europe and the US, and spend far less on healthcare as a percentage of GDP. I think this is far more to do with the fact that they're developing countries than the economic structure of their healthcare systems.
taneq 9y ago
> Food is also a matter of life and death. And we have a pretty well established cultural understanding that you don't let people starve, no matter how poor they are. And yet somehow the equivalent understanding that you don't let people die of preventable diseases, no matter how poor they are, is somehow controversial.
- Jabanga 9y ago
  It's not the preventable diseases that are the most costly to treat. But regardless of semantics, I know what you mean. The reason is that the consequences of guaranteeing everyone enough food are different than the consequences of guaranteeing everyone top-of-the-line (i.e. doing everything we can to keep sick people alive) healthcare. Food has become so cheap that almost everyone can afford enough to eat without direct subsidies (e.g. indirect subsidies, like welfare payments, are enough). So such an understanding doesn't result in the creation of pervasive government programs that utterly dominate the market for food and inflict it with the cost disease.

BurningFrog 9y ago

"Cost disease" has affected some large sectors in the US economy for the last 5 or so decades, but not most other countries, and not the US before that. Your general assertion about competition not working proves too much. If true, it would affect all market economies all the time.

js8 9y ago
The claim is not about "competition not working", the claim is about the price. It's actually quite tricky to determine whether the price level corresponds to monopolistic or marginal cost price, because it depends (in neoclassical theory, at least) on supply and demand and these are often not known. So people can easily mistake the (actual) monopolistic price for the (expected by neoclassicals) price at marginal cost, and I would argue they often do. And there are other mechanisms, in play, too. For example, if there is friction in the market, and it often is, then the prices can be lower due to competition for market share.
- BurningFrog 9y ago
  I still don't see anything in this argument that is specific to the affected sectors of the economy in the last half century US. If you're right, you might win a Nobel Prize in Economics, but I don't see how you've explained Cost Disease.
  - js8 9y ago
    IMHO, the affected sectors are specific because they are very hard to substitute. Ordinarily, when prices start to grow towards monopolistic price, the demand curve will shift (due to substitution) to counter this effect. But these sectors have demand curves that cannot be shifted easily, and so they seem as a special case, but in fact they are not. Speaking of Nobel prize, I think Steve Keen deserves one (and maybe two), but he will never get one, unfortunately.