4 ms·

The invisible hand operates under the assumption that there are no information assymetries. http://en.wikipedia.org/wiki/Invisible_hand http://en.wikipedia.org

The invisible hand operates under the assumption that there are no information assymetries. http://en.wikipedia.org/wiki/Invisible_hand http://en.wikipedia.org/wiki/Invisible_hand This is obviously not the case in patient-doctor relationships. The standard Austrian response for those information assimetries are that an independent third party will arise that will offer an unbiased opinion (usual example is Underwriters Laboratory or UL). A more government-based approach would say that more regulatory oversight is needed. However, in practice, I haven't seen this happening, I'm not an economist but I see there are agency problems, regulatory capture problems, etc.. Stiglitz said: "the reason that the invisible hand often seems invisible is that it is often not there. Whenever there are "externalities"—where the actions of an individual have impacts on others for which they do not pay, or for which they are not compensated—markets will not work well... recent research has shown that these externalities are pervasive, whenever there is imperfect information or imperfect risk markets—that is always"

Retric 13y ago
There are always information asymmetries. Walmart knows a lot about it's suppliers, but the suppliers still know more about what there selling and how much it costs them to make it. A better breakdown might be insurance as it completely destroys the concept of a market though a dramatic subsidization of coverage. It would be like your company buying your car for you sight unseen. Sure, you want a nice car(heath outcome) but you have a lot less incentive to research BMW vs Acura resale value as your not paying full price for it. So after minimal research your far more willing to go along with what the sales guy(doctor) says.
netcan 13y ago
This isn't quite a straw man, but it is a little straw man-ish Adam Smith coined the term invisible hand, so lets use him to take the place of the strawish man. Apart from 'Wealth of Nations' he also wrote 'A Theory of Moral Sentiments.' He was a moral philosopher at least as much as he was a economist. The invisible hand does not assume people are profit maximising robots in a theoretically perfect world. Since Smith was very much talking human beings, he dealt with all sorts of motivations: selfishness, selflessness, empathy and a bunch of socially mitigated motivations like the desire to be held in esteem. He uses words like "often" not "always" to describe helpful outcomes from self interested motives. He isn't a fundamentalist at all. So from a Smithian perspective I would say that immoral doctors are arseholes. Honestly, I think this case just shows that nothing is perfect.
- reillyse 13y ago
  Well I think it shows that one thing is far from perfect, namely the American healthcare system which is the point of the article.
jjoonathan 13y ago
> However, in practice, I haven't seen this happening, I'm not an economist but I see there are [worse] agency problems, regulatory capture problems, etc.. Socialized medicine certainly has its problems, but I suspect that you might have dismissed the possibility on principle (as opposed to giving it a thorough look) because we actually do have a basis for comparison, the international community, and the overall trend doesn't agree with your supposition. Single-payer systems in other countries manage to provide comparable care (in terms of outcomes) at half the cost [1], without leaving 15% of the population completely in the lurch [2], and without increasing barriers-to-entry for aspiring entrepreneurs. If our care providers matched that level of efficiency (cost per GDP per capita), the medicare and medicaid budgets would suffice to cover universal health care. Say what you will about theoretical waste and efficiency, but keep in mind that the experiment has already been run and the results are in: single-payer systems are more efficient. Not by 5% or 10% or a standard deviation, but by a factor of 2. I like to compare free market health care to the GNU Hurd. It's a great idea in theory because it applies a solid, generalizable principle to an important problem but in practice devolves into a rat's nest of practical issues that frustrate the vision (I can talk about these at great length if anyone is interested: the problems are concrete and intuitive, but complicated). In this analogy, single-payer health insurance plays the role of Linux: a perfectly workable, well-tested alternative that performs better and with fewer bugs, even if it doesn't hold the same alluring promise of eventual simplicity and possible eventual superiority. The US is like the hacker that sacrifices his career in order to stick exclusively with the Hurd. Except when it comes to health care the cost for "sticking with it" is ~$1.3T (50% of 2.7T) and 45,000 lives per year [3]. I'd rather cut our losses and go with single-payer. EDIT: [2] is an excellent compilation of work on the subject ("work" as in "papers that include actual numbers and well-reasoned arguments as opposed to philosophical musings") [1] http://en.wikipedia.org/wiki/List_of_countries_by_total_health_expenditure_%28PPP%29_per_capita http://en.wikipedia.org/wiki/List_of_countries_by_total_heal... [2] http://www.pnhp.org/facts/single-payer-resources http://www.pnhp.org/facts/single-payer-resources [3] http://news.harvard.edu/gazette/story/2009/09/new-study-finds-45000-deaths-annually-linked-to-lack-of-health-coverage/ http://news.harvard.edu/gazette/story/2009/09/new-study-find...
- chrisbennet 13y ago
novalis78 13y ago
Correct. This lack of information ("lack of price transparency") has come to the forefront just in recent months. Dr. Keith Smith in Oklahoma and just the other day Regency hospital in NYC are examples that once you solve this lack of information you do indeed see prices fall. Granted, this works especially well for procedures that can be scheduled in advance but it is amazing in its own right given the current disastrous situation in general. I think they are on to something. Now, if we would couple this with direct primary care memberships supporting practices directly we would be able to offer high quality general health care at a minimum of the cost we see impacted by layer upon layer of health-administration.
joshuaheard 13y ago
This is true for any specialized service, for instance a plumber. The market solution is competition. You get three estimates to see who is providing services for how much then make a decision. This doesn't happen in the health care industry because it is a third-party payer system. That is, the insurance company pays for it, so the consumer has no incentive to shop for the best service/price.
- pyoung 13y ago
  If you need a certain drug to treat an illness and the drug company has a 20 year patent on that drug, how do you propose to get it for cheaper? If you need a rare but specialized surgery and there is only one or two surgeons in the country that can perform the operation, how exactly will you price shop? If you get in a horrible accident, will you go to 3 different ER's to check their prices first? Also who gets priority in the ER waiting room? The person who can pay the most or the person who is in most need? I went in to the ER a few years back for a broken nose. I got cut in line by a guy who got shot and two guys who got stabbed. My guess is none of them had insurance, but considering they could die from their untreated wounds, I did not complain.

Retric 13y ago

There are always information asymmetries. Walmart knows a lot about it's suppliers, but the suppliers still know more about what there selling and how much it costs them to make it. A better breakdown might be insurance as it completely destroys the concept of a market though a dramatic subsidization of coverage. It would be like your company buying your car for you sight unseen. Sure, you want a nice car(heath outcome) but you have a lot less incentive to research BMW vs Acura resale value as your not paying full price for it. So after minimal research your far more willing to go along with what the sales guy(doctor) says.

netcan 13y ago

This isn't quite a straw man, but it is a little straw man-ish Adam Smith coined the term invisible hand, so lets use him to take the place of the strawish man. Apart from 'Wealth of Nations' he also wrote 'A Theory of Moral Sentiments.' He was a moral philosopher at least as much as he was a economist. The invisible hand does not assume people are profit maximising robots in a theoretically perfect world. Since Smith was very much talking human beings, he dealt with all sorts of motivations: selfishness, selflessness, empathy and a bunch of socially mitigated motivations like the desire to be held in esteem. He uses words like "often" not "always" to describe helpful outcomes from self interested motives. He isn't a fundamentalist at all. So from a Smithian perspective I would say that immoral doctors are arseholes. Honestly, I think this case just shows that nothing is perfect.

reillyse 13y ago
Well I think it shows that one thing is far from perfect, namely the American healthcare system which is the point of the article.

jjoonathan 13y ago

> However, in practice, I haven't seen this happening, I'm not an economist but I see there are [worse] agency problems, regulatory capture problems, etc.. Socialized medicine certainly has its problems, but I suspect that you might have dismissed the possibility on principle (as opposed to giving it a thorough look) because we actually do have a basis for comparison, the international community, and the overall trend doesn't agree with your supposition. Single-payer systems in other countries manage to provide comparable care (in terms of outcomes) at half the cost [1], without leaving 15% of the population completely in the lurch [2], and without increasing barriers-to-entry for aspiring entrepreneurs. If our care providers matched that level of efficiency (cost per GDP per capita), the medicare and medicaid budgets would suffice to cover universal health care. Say what you will about theoretical waste and efficiency, but keep in mind that the experiment has already been run and the results are in: single-payer systems are more efficient. Not by 5% or 10% or a standard deviation, but by a factor of 2. I like to compare free market health care to the GNU Hurd. It's a great idea in theory because it applies a solid, generalizable principle to an important problem but in practice devolves into a rat's nest of practical issues that frustrate the vision (I can talk about these at great length if anyone is interested: the problems are concrete and intuitive, but complicated). In this analogy, single-payer health insurance plays the role of Linux: a perfectly workable, well-tested alternative that performs better and with fewer bugs, even if it doesn't hold the same alluring promise of eventual simplicity and possible eventual superiority. The US is like the hacker that sacrifices his career in order to stick exclusively with the Hurd. Except when it comes to health care the cost for "sticking with it" is ~$1.3T (50% of 2.7T) and 45,000 lives per year [3]. I'd rather cut our losses and go with single-payer. EDIT: [2] is an excellent compilation of work on the subject ("work" as in "papers that include actual numbers and well-reasoned arguments as opposed to philosophical musings") [1] http://en.wikipedia.org/wiki/List_of_countries_by_total_health_expenditure_%28PPP%29_per_capita http://en.wikipedia.org/wiki/List_of_countries_by_total_heal... [2] http://www.pnhp.org/facts/single-payer-resources http://www.pnhp.org/facts/single-payer-resources [3] http://news.harvard.edu/gazette/story/2009/09/new-study-finds-45000-deaths-annually-linked-to-lack-of-health-coverage/ http://news.harvard.edu/gazette/story/2009/09/new-study-find...

chrisbennet 13y ago

novalis78 13y ago

Correct. This lack of information ("lack of price transparency") has come to the forefront just in recent months. Dr. Keith Smith in Oklahoma and just the other day Regency hospital in NYC are examples that once you solve this lack of information you do indeed see prices fall. Granted, this works especially well for procedures that can be scheduled in advance but it is amazing in its own right given the current disastrous situation in general. I think they are on to something. Now, if we would couple this with direct primary care memberships supporting practices directly we would be able to offer high quality general health care at a minimum of the cost we see impacted by layer upon layer of health-administration.

joshuaheard 13y ago

This is true for any specialized service, for instance a plumber. The market solution is competition. You get three estimates to see who is providing services for how much then make a decision. This doesn't happen in the health care industry because it is a third-party payer system. That is, the insurance company pays for it, so the consumer has no incentive to shop for the best service/price.

pyoung 13y ago
If you need a certain drug to treat an illness and the drug company has a 20 year patent on that drug, how do you propose to get it for cheaper? If you need a rare but specialized surgery and there is only one or two surgeons in the country that can perform the operation, how exactly will you price shop? If you get in a horrible accident, will you go to 3 different ER's to check their prices first? Also who gets priority in the ER waiting room? The person who can pay the most or the person who is in most need? I went in to the ER a few years back for a broken nose. I got cut in line by a guy who got shot and two guys who got stabbed. My guess is none of them had insurance, but considering they could die from their untreated wounds, I did not complain.