5 ms·

This is spot on. I'd add to it this way: Humans have not been successful in identifying an explicit objective function for society and then building social, po

This is spot on. I'd add to it this way: Humans have not been successful in identifying an explicit objective function for society and then building social, political and economic mechanisms to support/enforce those. We point to the Former Soviet Union, Great Leap forward etc... as failed experiments in authoritarian enforcement of an objective function. As a result we have defaulted to the random walk and iterative nature of capital markets as the way of communicating, aggregating and forecasting individual objective functions into a collective function. It's clear however that, for a lot of reasons, this system optimizes for short term rewards and not for long term planning. That would make sense, since in effect the system is aggregating short time horizons and lack of capacity to plan long term. It's also fairly easy to hack parts of the system (marketing, arbitrage etc) for individual gain.

cs702 7y ago
After decades of outsourcing ever more social policy to the invisible hand of "the market," many important components of the system we have in the US -- political, regulatory, financial, educational, healthcare, etc. -- now appear to be stuck in lousy Nash equilibrium after lousy Nash equilibrium. Everyone is worse off than they could be, and fully aware of it (judging by opinion pieces like the OP), but no one has an incentive unilaterally to break out of it.
- bhupy 7y ago
  I'm not sure what to say if you think that American healthcare and eduction in 2020 is the result of "outsourcing policy to the invisible hand of the market".
  - pbourke 7y ago
    I agree with you. They both seem to be a worst-of-all-worlds approach.
  - throwanem 7y ago
    Aren't they? How else do you explain their subversion of the mechanisms of government to maximize their own profits without regard for societal cost?
    - bhupy 7y ago
      The current status quo in the US Healthcare system is a byproduct of the mechanisms of government. It's not some crazy accident of the market, rather it is the inevitable result of a series of policies passed at state, local, and federal levels over the past half century. The fact that health insurance isn’t portable, and is rather tied to employment is a consequence of 1) the WW2 era wage ceilings imposed on private corporations, which resulted in employers competing for labor by providing health benefits, followed by 2) the ability for employers to deduct insurance premiums from payroll taxes (which costs the government $280 billion per year), and finally, 3) the Federal government imposed mandate on employers to provide health insurance. This is in contrast with other countries that employ private insurance, like the Netherlands and Switzerland, where insurance is tied to the individual, not the employer. The lack of price transparency logically follows from the fact that patients never really care how much their treatments cost, since employer sponsored insurance covers everything anyway. Large corporations are less price sensitive than individuals, which exacerbates the price inflation over decades. Certificate of need laws, where local hospitals get to decide if a new, competing hospital may open (imagine Uber being able to decide if Lyft may ply), and the residency system requiring 10+ years of schooling to practice has resulted in inevitable supply constraints, further driving up costs[1]. Medicare, which provides healthcare for free for the elderly, removed the most engaged buyers from the market, suffocating price discovery for medical goods and services. Not only that, the elderly tend to be the richest people in the country - those above the age of 55 account for 73% of wealth in America. Boomers are disproportionately rich, and yet they also enjoy some of the most generous welfare on top of that. The resulting kafkaesque Frankenstein of a system was created through decades of well-intentioned government regulation at all levels of the Government. Healthcare is one of the least free markets in the US. University education costs as much as it does because the Federal government guarantees any loan for any degree, regardless of the expected ability to pay upon graduation. This causes inevitable inflation in University sticker price, because they're going to be paid the money anyway regardless of a student's financial outcome. The guaranteed loan results in zero skin in the game for Universities. [1] https://www.politico.com/agenda/story/2017/10/25/doctors-salaries-pay-disparities-000557/ https://www.politico.com/agenda/story/2017/10/25/doctors-sal...
  - cs702 7y ago
    I did not write that. Please don't attack a straw man. What I did write is that many important components of these systems appear to be stuck in lousy Nash equilibria, after decades during which the conventional wisdom in DC became that government should rely on markets to solve problems whenever possible. The systems we've ended up are best described as hodgepodges -- e.g., in healthcare: many insurers are for-profit but two (Medicare and Medicaid) are not; many hospitals are now part of for-profit chains but others are non-profit; most medical research is done by for-profit entities like pharmaceutical companies but a lot is also done by government-funded organizations like NIH. On and on it goes. BTW, while we're on the subject of healthcare, you might find the following article by Atul Gawande thought-provoking: https://www.newyorker.com/magazine/2009/06/01/the-cost-conundrum https://www.newyorker.com/magazine/2009/06/01/the-cost-conun...
    - bhupy 7y ago
      An equally thought provoking piece with a different perspective: https://www.econtalk.org/keith-smith-on-free-market-health-care/ https://www.econtalk.org/keith-smith-on-free-market-health-c...
daotoad 7y ago
IMO, this is where regulation and government come into play. Some things aren't ever going to be profitable if built and managed for the long run. These are things that should be government services. Other things can be profitable but need to be those doing them need to be persuaded to do them in a prosocial fashion. This is can be done by internalizing externalities. Negative externalities appear as taxes or fees, and positive ones as subsidies. Particularly harmful actions may be flat out forbidden, with stronger disincentives attached. The problem with this approach is that any significant regulatory system will have such a large economic impact that for many players, the most cost effective approach to regulation is cooption of the regulatory system.
- nickff 7y ago
  The government doesn't seem to be very good at long-term programs either. One example is ITER. Fusion power would be a fantastic low-pollution energy source. It is something that seemed achievable with a long-term commitment to research and development. Governments have been doing that for 50 years, and appear to be getting nowhere.
  - kwhitefoot 7y ago
    > Governments have been doing that for 50 years, and appear to be getting nowhere. Perhaps it is simply very difficult, or even impossible.
- BurningFrog 7y ago
  Government is far worse than the private sector at long term planning. Mostly, governments optimize for things to look good on the next election day. With 4 year terms, that's an average 2 years planning horizon.
  - pbourke 7y ago
    > Government is far worse than the private sector at long term planning. How many public companies have needed bailouts after spending most of their profits on stock buybacks, again? > Mostly, governments optimize for things to look good on the next election day. With 4 year terms, that's an average 2 years planning horizon. As opposed to public companies and the quarterly earnings cycle?
centimeter 7y ago
> It's clear however that, for a lot of reasons, this system optimizes for short term rewards and not for long term planning. This system optimizes for the aggregate weighted time preference of its participants. To whatever extent its imputed time preference might be too high, this is almost entirely due to inefficiencies introduced by fiat money and loose monetary policy. If your annualized discount rate is 3% and the fed offers you a loan for 0.25%, you're going to take it and consume now. This increases the effective societal time preference. Also, most people are probably a lot higher-time-preference than you are (inferring from the fact that you're on HN), so a lot of this is probably just you (and me) disagreeing with them.
- cambalache 7y ago
  > This system optimizes for the aggregate weighted time preference of its participants. As long as its participants have money or other kind of power. Vast swaths of the population lack both so are excluded from that "optimization" , an optimization which of course it is not weighted per capita but per money/influence.
  - centimeter 7y ago
    That's what I mean by "weighted". There are a lot of people with a little NPV and a few people with a lot of NPV, but the little people (in aggregate) grossly outweigh the big people. The preferences of people who make less than $80k/yr vastly dominate the preferences of people who make more than $80k/yr.
    - cambalache 7y ago
      But they dont, largely. Powerful people do what they want. Income inequality has increased dramatically in the last 40 years, same for net worth inequality, educational costs, medical costs, number of working hours needed to raise a family. Do you think this is the outcome of a system where the voice of the large majority is heard? Sorry, but that is a disingenuous or a naive take.
      - 7y ago

cs702 7y ago

After decades of outsourcing ever more social policy to the invisible hand of "the market," many important components of the system we have in the US -- political, regulatory, financial, educational, healthcare, etc. -- now appear to be stuck in lousy Nash equilibrium after lousy Nash equilibrium. Everyone is worse off than they could be, and fully aware of it (judging by opinion pieces like the OP), but no one has an incentive unilaterally to break out of it.

bhupy 7y ago
I'm not sure what to say if you think that American healthcare and eduction in 2020 is the result of "outsourcing policy to the invisible hand of the market".
- pbourke 7y ago
  I agree with you. They both seem to be a worst-of-all-worlds approach.
- throwanem 7y ago
  Aren't they? How else do you explain their subversion of the mechanisms of government to maximize their own profits without regard for societal cost?
  - bhupy 7y ago
    The current status quo in the US Healthcare system is a byproduct of the mechanisms of government. It's not some crazy accident of the market, rather it is the inevitable result of a series of policies passed at state, local, and federal levels over the past half century. The fact that health insurance isn’t portable, and is rather tied to employment is a consequence of 1) the WW2 era wage ceilings imposed on private corporations, which resulted in employers competing for labor by providing health benefits, followed by 2) the ability for employers to deduct insurance premiums from payroll taxes (which costs the government $280 billion per year), and finally, 3) the Federal government imposed mandate on employers to provide health insurance. This is in contrast with other countries that employ private insurance, like the Netherlands and Switzerland, where insurance is tied to the individual, not the employer. The lack of price transparency logically follows from the fact that patients never really care how much their treatments cost, since employer sponsored insurance covers everything anyway. Large corporations are less price sensitive than individuals, which exacerbates the price inflation over decades. Certificate of need laws, where local hospitals get to decide if a new, competing hospital may open (imagine Uber being able to decide if Lyft may ply), and the residency system requiring 10+ years of schooling to practice has resulted in inevitable supply constraints, further driving up costs[1]. Medicare, which provides healthcare for free for the elderly, removed the most engaged buyers from the market, suffocating price discovery for medical goods and services. Not only that, the elderly tend to be the richest people in the country - those above the age of 55 account for 73% of wealth in America. Boomers are disproportionately rich, and yet they also enjoy some of the most generous welfare on top of that. The resulting kafkaesque Frankenstein of a system was created through decades of well-intentioned government regulation at all levels of the Government. Healthcare is one of the least free markets in the US. University education costs as much as it does because the Federal government guarantees any loan for any degree, regardless of the expected ability to pay upon graduation. This causes inevitable inflation in University sticker price, because they're going to be paid the money anyway regardless of a student's financial outcome. The guaranteed loan results in zero skin in the game for Universities. [1] https://www.politico.com/agenda/story/2017/10/25/doctors-salaries-pay-disparities-000557/ https://www.politico.com/agenda/story/2017/10/25/doctors-sal...
- cs702 7y ago
  I did not write that. Please don't attack a straw man. What I did write is that many important components of these systems appear to be stuck in lousy Nash equilibria, after decades during which the conventional wisdom in DC became that government should rely on markets to solve problems whenever possible. The systems we've ended up are best described as hodgepodges -- e.g., in healthcare: many insurers are for-profit but two (Medicare and Medicaid) are not; many hospitals are now part of for-profit chains but others are non-profit; most medical research is done by for-profit entities like pharmaceutical companies but a lot is also done by government-funded organizations like NIH. On and on it goes. BTW, while we're on the subject of healthcare, you might find the following article by Atul Gawande thought-provoking: https://www.newyorker.com/magazine/2009/06/01/the-cost-conundrum https://www.newyorker.com/magazine/2009/06/01/the-cost-conun...
  - bhupy 7y ago
    An equally thought provoking piece with a different perspective: https://www.econtalk.org/keith-smith-on-free-market-health-care/ https://www.econtalk.org/keith-smith-on-free-market-health-c...

daotoad 7y ago

IMO, this is where regulation and government come into play. Some things aren't ever going to be profitable if built and managed for the long run. These are things that should be government services. Other things can be profitable but need to be those doing them need to be persuaded to do them in a prosocial fashion. This is can be done by internalizing externalities. Negative externalities appear as taxes or fees, and positive ones as subsidies. Particularly harmful actions may be flat out forbidden, with stronger disincentives attached. The problem with this approach is that any significant regulatory system will have such a large economic impact that for many players, the most cost effective approach to regulation is cooption of the regulatory system.

nickff 7y ago
The government doesn't seem to be very good at long-term programs either. One example is ITER. Fusion power would be a fantastic low-pollution energy source. It is something that seemed achievable with a long-term commitment to research and development. Governments have been doing that for 50 years, and appear to be getting nowhere.
- kwhitefoot 7y ago
  > Governments have been doing that for 50 years, and appear to be getting nowhere. Perhaps it is simply very difficult, or even impossible.
BurningFrog 7y ago
Government is far worse than the private sector at long term planning. Mostly, governments optimize for things to look good on the next election day. With 4 year terms, that's an average 2 years planning horizon.
- pbourke 7y ago
  > Government is far worse than the private sector at long term planning. How many public companies have needed bailouts after spending most of their profits on stock buybacks, again? > Mostly, governments optimize for things to look good on the next election day. With 4 year terms, that's an average 2 years planning horizon. As opposed to public companies and the quarterly earnings cycle?

centimeter 7y ago

> It's clear however that, for a lot of reasons, this system optimizes for short term rewards and not for long term planning. This system optimizes for the aggregate weighted time preference of its participants. To whatever extent its imputed time preference might be too high, this is almost entirely due to inefficiencies introduced by fiat money and loose monetary policy. If your annualized discount rate is 3% and the fed offers you a loan for 0.25%, you're going to take it and consume now. This increases the effective societal time preference. Also, most people are probably a lot higher-time-preference than you are (inferring from the fact that you're on HN), so a lot of this is probably just you (and me) disagreeing with them.

cambalache 7y ago
> This system optimizes for the aggregate weighted time preference of its participants. As long as its participants have money or other kind of power. Vast swaths of the population lack both so are excluded from that "optimization" , an optimization which of course it is not weighted per capita but per money/influence.
- centimeter 7y ago
  That's what I mean by "weighted". There are a lot of people with a little NPV and a few people with a lot of NPV, but the little people (in aggregate) grossly outweigh the big people. The preferences of people who make less than $80k/yr vastly dominate the preferences of people who make more than $80k/yr.
  - cambalache 7y ago
    But they dont, largely. Powerful people do what they want. Income inequality has increased dramatically in the last 40 years, same for net worth inequality, educational costs, medical costs, number of working hours needed to raise a family. Do you think this is the outcome of a system where the voice of the large majority is heard? Sorry, but that is a disingenuous or a naive take.
    - 7y ago