Socialism reduces man to a science experiment; Communism reduces man to a number

Image result for bastiatImage result for fyodor dostoevskyImage result for solzhenitsyn
Over the last couple of months I have been reading three distinct books that uniquely and richly deal with a societal and political challenge that is ever before us: the tendency of mankind to place too much hope and power in class of rulers, and the tendency of those rulers to work to assume more power and decision-making authority over the ruled.  The books are 19th Century French Economist Claude Frederic Bastiat’s  The Law, Fyodor Dostoevsky’s Crime and Punishment, and Aleksandr Solzhenitsyn’s In the First Circle. The three books represent authors of different time eras, professional and political experiences, and in a couple of cases, imprisonment and exile. Each powerfully attacks these aforementioned societal and political challenges in such a way that still resonates in the modern Western era given our constant flirtation with socialism and of socialism’s growing popularity as a political response to Trumpist populism. I also find it fascinating and tragic that early prophets such as Bastiat and Dostoevsky foresaw the catastrophes that socialism would bring while Solzhenitsyn lived them. They key question for today is: are we still listening?

I begin with Bastiat from a chronological perspective as well as the fact that he served as an early prophet to the ills of socialism. Bastiat, as a French economist, philosopher, and statesman in France in the mid-1800s, is mostly known for his remarkable intellectual stands against mercantilism and protectionism. He also had to contend and argue against pervasive French dirigiste statism and had plenty of exposure and debates with leading philosophers and legislators who espoused Socialism. As such, he forewarns us of the ills of Socialism extensively in his book The Law. Here are a few notable excerpts:

How is it that the strange idea of making the law produce what it does not contain – prosperity, in a positive sense, wealth, science, religion – should ever have gained ground in the political world? The modern politicians, particularly those of the Socialist school, found their different theories upon one common hypothesis; and surely a more strange, a more presumptuous notion, could never have entered a human brain.

They divide mankind into two parts. Men in general, except one, form the first; the politician himself forms the second, which is by far the most important.

In fact, they begin by supposing that men are devoid of any principle of action, and of any means of discernment in themselves; that they have no initiative; that they are inert matter, passive particles, atoms without impulse; at best vegetation indifferent to its own mode of existence, susceptible of assuming, from an exterior will and hand an infinite number of forms, more or less symmetrical, artistic, and perfected….

…the Socialists look upon mankind as a subject for social experiments…the relations between mankind and the legislator appear to be the same as those that exist between the clay and the potter. Moreover, if they have consented to recognize in the heart of man a capability of action, and in his intellect a faculty of discernment, they have looked upon this gift of God as a fatal one, and thought that mankind, under these two impulses, tended fatally to ruin.

Whilst mankind tends to evil, they incline to good; whilst mankind is advancing towards darkness, they are aspiring to enlightenment; whilst mankind is drawn toward vice, they are attracted by virtue. And, this granted, they demand the assistance of force, by means of which they are to substitute their own tendencies for those of the human race. 

Bastiat has a number of retorts to this tendency of politicians to want to treat mankind as their own science experiment:

Truly it would be well if these visionaries, who think so much of themselves and so little of mankind, who want to renew everything, would only be content with trying to reform themselves, the task would be arduous enough for them…

…One of the strangest phenomena of our time, and one that will probably be a matter of astonishment to our descendants, is the doctrine that is founded upon this triple hypothesis: the radical passiveness of mankind – the omnipotence of the law – the infallibility of the legislator: this is the sacred symbol of the party that proclaims itself exclusively democratic: It is true that it professes to be social. So far as it is democratic, it has unlimited faith in mankind. So far as it is social, it places mankind beneath the mud.

Bastiat’s prescience is a marvel to behold, with the tragic exception to date on the part that descendants would scoff at, rather than continually marvel at, the impossible notion resting upon the triple hypothesis that we can achieve utopia through democratic socialism.

As a French statesmen, social scientist, and economist, one might expect Bastiat to have a great amount to say about the subject of Socialism. I am perhaps even more intrigued by what a 19th Century Tsarist era Russian novelist, once imprisoned and then forced to live in exile for “radicalism” (he joined a circle advocating for abolishing Russian serfdom), had to say on the subject given the horrors that would beset Russia a few decades after his eminence. The themes of anti-radicalism in general is a prominent theme throughout Dostoevsky novels. Recency of reading is perhaps the only reason a certain setting within Crime and Punishment resonates with me at present.  The setting itself is the makings of high drama – an investigator, Porfiry Petrovich, has suspicions of the main character, Raskolnikov, as a committer of a recent murder and is feeling him out in a normal social setting. One particular scene that helps Porfiry set the stage for a line of questioning on who has rights to judge and oppress whom on earth is set up by a debate between the investigator and Raskilnikov’s friend, Razumikhin, in which Porfiry goads him into attacking socialist thought in an attempt to get Raskilnikov’s own thoughts on the matter. It was common for Dostoevsky to speak through his characters. I believe Razumikhin speaks for Dostoevsky when he states this regarding socialists:

Their views are well known: crime is a protest against the abnormality of the social set-up – that alone and nothing more, no other causes are admitted…Hence if society itself is normally set up, all crimes will at once disappear, because there will be no reason for protesting and everyone will instantly become righteous. Nature isn’t taken into account, nature is driven out, nature is not supposed to be! With them, it’s not mankind developing all along in a historical, living way that will finally turn by itself into a normal society, but, on the contrary, a social system, coming out of some mathematical head, will at once organize the whole of mankind and instantly make it righteous and sinless.

One can sense not only Dostoevsky’s cynicism related to the “mathematical head” but also skepticism regarding the desire to use government means and rulers to try to reform and direct society in a vain attempt to eradicate human flaws.

Despite the prophecies of Dostoevksy, one can’t imagine he would have foreseen just how pernicious these “mathematical heads” would become in future Russian generations. These molders of mankind into lumps of clay would, to use Bastiat’s phrase, truly place man into the mud. Or as the statement attributed to Stalin goes, more than treating men as clay, men were treated as millions of broken eggs in a tragic attempt to create an omelette concocted in a “great” mathematician’s head. This tragic reality is captured throughout the corpus of Aleksandr Solzhenitsyn’s works with such masterpieces as One Day in the Life of Ivan Denisovich  and The Gulag Archipelago.  Perhaps there is no work in which Solzhenitsyn displays such profound sadness at a vain attempt at utopia gone horrifically wrong combined with clarity of moral purpose and tragic irony and wit as in his novel, In the First Circle.

The epic novel is far too rich and deep for me to describe in detail here (for a great podcast introduction to the book, visit EconTalk), but some key context: the novel’s name itself belies the artist’s craft and wit – the concept of the “First Circle” was adopted as a literary device from Dante’s Inferno. The first circle of hell was the highest and most painless level of hell in which philosophers and other world notables who did good but without knowing the true God were relegated. Similarly, the novel’s prison settings is the sharaska – a forced work-camp for those Russian political prisoners who had some particular skill (engineers, physicists) that allowed them to serve prison sentences in relatively livable conditions compared to the deprivations of the Siberian gulags.

There is a common chilling theme throughout the book, at one point expressed by one of the free women workers who toil alongside the male prisoners by day – “they (the state) can do anything they want to us.” But specifically to the point in my title, there is a powerful and pithy statement made by one of the prisoners that succinctly captures the essence of the horrors of communism. In this context, as new prisoners are brought into the camp, the speaker says to a fellow prisoner who happens to be a still committed communist:

What century are we living in? Numbers sewn on human beings? Tell me, Lev Grigorievich, is this what you call progress?

Indeed, a broader theme of the book is that everyone is trapped in this system – it is a prison to all, and all within the country are mere numbers, whether one was officially in prison or not. One diplomat in the book tells his sister-in-law:

You see this circle? That’s our country. That’s the first circle. Now here’s the second. A circle with a large diameter. That is mankind at large. You would think that the first forms a part of the second, wouldn’t you? Not in the least! There are barriers of prejudice. Not to mention barbed wire and machine guns. To break through, physically or spiritually, is well-nigh impossible. Which means that mankind, as such, does not exist. There are only fatherlands, everyone’s fatherland is alien to everyone else’s….”

I love when I see parallels of themes between books, and indeed, within In the First Circle  Solzhenitsyn echoes the point in the novel made (and captured above) by Bastiat about “reforming society” and whether we should focus on ourselves or of society:

Where should you start reforming the world? With other people? Or with yourself?

In summary – what I find so moving and powerful about the connections between these works of art from great authors is the healthy and much-needed skepticism regarding whether legislators or autocrats will solve humanity’s ills, that these ills are impossible to remove completely, that the best way to reduce them is setting men at liberty, and the captured fear and progression of what men will do to one another once they hold unrelenting and unlimited power over others – man turns into clay, mud, mathematical, numbers, slaves…

It also goes without saying that I recommend all three books for reading.



Aleksandr Solzhenitsyn’s Masterpiece – In the First Circle

I try to use the praise of “Masterpiece” sparingly, but Aleksandr Solzhenitsyn’s “In the First Circle” is worthy of the mantle. I have never read anything quite like it. Borrowing from a sentiment I once heard expressed regarding another powerful book, I am envious of those who may read it for the first time, as it is an experience I can never obtain again.
It’s theme is dark and tragic. The title itself is taken from Dante’s Inferno’s description of the first circle of hell. And yet, it is full of humor and irony. It will make you cry. It will make you laugh. It is polyphonic – meaning it has no singular character but captures the essence of the authoritarian prison-state of the Soviet Union through multiple and varied characters representing a wide range of backgrounds and current perspectives – everything from guards, diplomats, Secret Service officers, prisoners, wives separated from prisoners, non-communists, growing skeptics, committed communists, ex-soldiers, Christians, children of powerful men, powerful men thrown from power into prison, prosecutors, and more. It even spends significant text diving into the macabre psyche and motivations of Stalin. It is culturally and artistically rich, introducing well-placed quotes and references from Tolstoy, Turgenev, Hemingway, Liszt, Dostoevsky, Rimsky-Korsakov, to name a few. It is a spy-thriller, as the backdrop of the story that moves the narrative and connects many of the characters is related to the team of imprisoned engineers who are tasked with isolating the voice of a Soviet diplomat who attempts to reveal atomic bomb secrets to the Americans.
I have so many highlighted passages in my personal copy, but here is one snippet, in which one prisoner, who is awakened in prison to the hopeless evil of Communism, argues with one who still believes in the cause:
“Could you kindly explain these socialist ideals that you talk about? They’re nowhere to be seen at present. All right, maybe somebody’s botched the experiment, but when and where can we expect to see them; what do they amount to, eh? Socialism, of whatever variety, is a sort of caricature of the Gospel message. Socialism promotes only equality and a full belly, and that only by means of coercion…you’ll find equality and full bellies in any good pigsty! What a tremendous favor they have bestowed on us! Equality and plenty! Give us a moral society!”
A necessary book shopping tip is to make sure to get the full uncensored version In the First Circle as opposed to the author self-censored (in an attempt to get it past Soviet censors) The First Circle. I also recommend getting a physical copy, since the reader will appreciate the ability to flip back and forth to the notes on characters that begin the book.
Also – this EconTalk podcast is a great place to start to get a quick biography and background for the author as well as the historical context, meaning, and global impact and acclaim of the book at the time it started getting leaked to the West. The podcast also offers great practical tips for getting the most out of this rich and rewarding book. Perhaps most importantly, there are no spoilers in the podcast.

Russ Roberts on the Information Revolution, Politics, Yeats, and Yelling

One of my favorite Americans has long been Russ Roberts due to his towering intellect and the fact that he is a classically liberal/libertarian economist. Perhaps most importantly, he is a kind and thoughtful human being who can conduct an intellectual conversation without falling prey to outrage, which seems to be a lost art in today’s zeitgeist. I highly recommend his podcast EconTalk. In a recent episode, he did a rare monologue on the topic of our current divisive civil discourse in which he attributes our collective descent to a large degree on the information revolution and how we consume and relate to media, and even more troubling – how tribalism leads us as people to not be all that interested in objective truth so much as confirming our own views and biases and feeling outraged at a faceless enemy. He also indicates that today’s society at large lacks the ability to look at information with a healthy degree of skepticism.

In the interest of brevity I skip to his conclusions of how we can improve this situation as individuals while recommending listening to the full episode to get the depth and richness that only a full listen can provide. Still, his practical steps to take are worth posting as a summary for those who can’t devote an hour to the show:

  1. Humility – In Roberts’ words – We don’t know everything we think we do. I’ve learned to enjoy saying, ‘I don’t know.’ Admitting ignorance is bliss. Recognize, as Shakespeare suggested, ‘There are more things in heaven and earth than are dreamt of in your philosophy.’ Roberts is careful to point out with this topic that humility has its own risks if there is something that should be taken on with passion. Again, in Roberts’ words – “There ares some things we know. So we should stand by our principles. But we should be humble and aware of the possibility that some of those principles may not be correct.”
  2. Follow people on Facebook and Twitter who you don’t agree with, but try to make sure they are people who are relatively civil, or you risk sparking your own anger and outrage.
  3. Hold your anger for a day. This is a common theme from Roberts and one I have personally benefited from and adopted. I stand by it. If you feel anger and outrage coming into a post – hold it for a day and return to it. Almost every time I have either decided not to post the comment by modifying it or just ignoring it. It’s all right to ignore and not respond to outrage!
  4. Spend less time on the Internet, more time with human beings. This is my favorite of the advice Roberts gives.
  5. Try to notice when you enjoy outrage. “Just be aware of the fact that you may have that personality trait. I think many of us do. Then, when you find yourself feeling the sweetness of that anger, to realize that that’s a very unhealthy emotion, and that you should keep an eye on it.”

Reasons to care about our American health care crisis – 300 million personal and 3 trillion dollars of them

Image result for healthcare as percentage of gdp projections graph

Image result for healthcare as percentage of gdp projections graph

The Compelling Case for Change

Every individual in this country has a personal story of how they have witnessed dysfunction and brokenness in our American health care system. All 300 million+ Americans have in the very least suffered a really screwed up and indecipherable bill (or set of bills from an uncoordinated system for the same service) with little price transparency and with lack of clarity on what services were actually offered and why. Many of us have been subjected to the extremely frustrating lack of coordination across systems, forcing us to attempt to connect the pieces together. A depressing amount of us have even witnessed ourselves or a loved one being harmed by a medical error or a health system acquired infection. A doleful companion to these visible operational challenges is the fact that we are all increasingly paying inordinately growing sums, over $3 trillion and counting, into health care, while getting increasingly little in return.  The 18th Century Scottish philosopher, economist, and essayist David Hume once observed of public debt that, “It must, indeed, be one of these two events; either the nation must destroy the public credit, or public credit will destroy the nation. It is impossible that they both can subsist, after the manner they have been hitherto managed…” One can easily substitute Hume’s concerns with public debt to its modern American equivalent of health expenditures to develop the same sense of urgency. In fact, as the above graphs on cumulative projections of American health care costs and government spending on health entitlements reveals, public credit and health care expenditures are inextricably linked, unsustainable, and crowding out all other areas of government expenditure as well as crowding out what we as consumers would otherwise prefer to spend our dollars on.  As will be discussed later, the great tragedy is that we are pouring money into reactive systems of care that do little ultimately to increase our quality of life and life span. It is largely non-value added money that is siphoned off from other valuable areas of the economy. This has to change.

We have a crisis on our hands, and it will take a concerted and united effort combined with a sense of urgency to destroy it. Lately, I have been drawing a tremendous amount of inspiration and sense of personal urgency through the reading of David Goldhill’s Catastrophic Care: Why Everything We Think We Know about Health Care Is Wrong.  For those like myself who are industry insiders, consider this a scathing and devastating indictment that we need to absorb, comprehend, and become devoted in our own little corners to remedying. Think of this book as the prosecution’s case against our industry. Do we have a defense? If not, how do we respond? Otherwise, I am afraid that the unsustainable industry as it stands today will be forced to deal with remarkable disruption and disintermediation when consumers and/or governments finally do revolt and demand change of a significant magnitude that will by then be required. Complacency should cease to be an option. For those who believe they are woefully inadequate to the task of understanding the complexity of health care (this group does not have to be mutually exclusive from the previously mentioned one of industry insiders), consider this book a remarkably easy layman’s guide that details what ails our health care system and why it should matter to you. In short, I find this book to be highly accessible and critical for all Americans to read. If it does not apply to you as a prosecution’s case, then it should easily apply to you as an easy to read and understand textbook that covers the range of issues that you as a consumer and voter should be familiar with as it relates to our broken health care systems.

The Prosecution’s Case

In of itself, Goldhill’s introduction is packed with enough vignettes and charges to make one think and feel deeply about the industry. Beginning with the visceral experiences, he presents his own personal stories of fears, frustration, and loss in the forms of how his son and father experienced health care. The former is a tragicomic string of inefficiencies, complacency, and poorly performing systems through an appendectomy, the latter a much more unfortunate set of circumstances that culminated in a hospital acquired infection and ultimately death. Along the way, Goldhill observes both technical and life-saving brilliance incongruously combined with administrative and operational incompetence. His pointed question, which should be our industry-wide challenging refrain is, “why does therapeutic excellence often exist side by side with such backwardness?”

It isn’t just the performance aspects of our health care system that causes alarm. The other side of the formula is the price of health care. It would be one thing if we could say, “sure, it’s bad, but at least it’s cheap!” But with health care creeping up on 20% of GDP, that is appallingly and depressingly not the case. Here is a thought experiment: what would be going on in the streets and in the media if we woke up tomorrow to $15.00 per gallon gasoline prices? I dare say this would inevitably become the subject for major political and social upheaval. And yet, this is exactly the type of inflation that has occurred over the last few decades in American health care. The critical distinction is that the dramatic inflation has been hidden from us, even though it still has just as significant of an impact to our bottom-line, take-home cash. In the book, Goldhill uses the simple example of a woman named Becky who works at his company: “Becky will actually contribute over $10,000 into American’s health care system this year – most of it through payments she is not aware of…even if we somehow tame the explosive growth in health care costs (literally reducing cost growth to zero), our system already assumes that Becky will pay well more than $1.2 million over her lifetime. And that’s assuming she never has a major illness, in which case she will almost certainly pay much more. Becky is pouring far more money into our health care system than she imagines.” Indeed, I would add that this out of sight and out of mind aspect of funding health care access is the primary reason we have increasing take home pay inequality in America, as I covered in a separate blog post.

“Why does therapeutic excellence often exist side by side with such backwardness?”

The Foundational Industry/Government Error

Goldhill articulates what he believes to be the primary culprit in our combined system of rising costs and operational backwardness – a funding and care selection model he indicates is defined by what he calls “Surrogates.” In this group, you could lump commercial insurers as well as government models such as Medicare and Medicaid. Goldhill observes that, “The dominant health insurance model requires us to turn over our role as consumers to what I call Surrogates: private insurers, Medicare, and Medicaid. The theory is that only the Surrogates have enough knowledge to control excess care, enough market power to discipline rising prices, and enough vested interest in our health to drive greater safety and quality. But the past fifty years suggest the theory is wrong; the Surrogates themselves create many of the incentives for bad behavior in health care…American health care relentlessly expands the definition of medical need, engages in administratively complex and nontransparent practices, and overinvests in expensive technologies because these actually serve the institutional (and financial) needs of the Surrogates. Conversely, the health care industry underinvests in service, safety, and efficiency, because these are not the Surrogates’ priorities (even if they are our priorities).” Of course, there is a lengthy history here on how we got to this point of over-reliance on Surrogates, some of which is covered in a separate post, where I will admit to relying heavily on Milton Friedman, and another separate post where I borrow heavily from Dr. Michael Accad’s wonderful  Alert and Oriented blog.

The Insulated Island of Health Care

A large part of the appeal and readability of Goldhill’s account is that his analogies, connections, and consistently simplistic and relatable terms he coins keeps the reader engaged and understanding of typically complex themes. One such term is “The Island of Health Care.” Any time you see this, you know you are entering into the zone of incomprehensible and nonsensical ways of doing and defending the ways in which health care operates. On this topic, Goldhill levels these charges:

Health care experts often make confident, absolutist assertions that appear truly ridiculous when held up to the mirror of the world outside health care. For example, they write about how technology is inexorably driving up the cost of care, often while working on a powerful laptop for which they paid a few hundred dollars. The secretary of health and human services says that catastrophic health insurance isn’t real insurance because it doesn’t pay for routine expenses; apparently, she’s never had an auto or homeowner’s policy. Truly brilliant analysts argue that health care can never be a normal industry because the need for care is so concentrated that in any given year roughly 70 percent of care is used by only 10 percent of the population. But a far greater concentration of spending in any given year is the rule for almost every other universally-consumed expensive good or service; surely, they know that we don’t use insurance to pay for purchases of homes, cars, weddings, and college educations?…
…Sure a person hit by a bus or having a heart attack has a unique ‘demand curve’ for medical services. But the fact that some health care is truly urgent doesn’t mean that all of it is…most care is no longer of this type; the biggest share we spend on health care now goes toward identifying and managing long-term conditions…Yet this new reality as barely intruded into the way we think about, pay for, and manage care. It’s like organizing the entire care-service business to protect us against only the possibility of a tire blowout on a highway…
…Forget the rhetoric: our health care system isn’t an example of ‘socialism’ or ‘profit-driven medicine.’ In fact, it is such a strange beast, I’m not even sure we have an appropriate label for it. The best analogy might be the Galapagos Islands, set so far offshore from the mainland of industry evolution and economic laws that is has produced odd, anomalous creatures of policy and regulation.
All I can say to this litany is “Indeed!”

The “Imperial” Health System

“Imperial Health System” is another one of Goldhill’s lexicographical innovations. What I enjoy most about this section is his focus on what actually matters to our health, largely forgotten and neglected in all of our political rhetoric and tug of war – our society and our lifestyles. This is what health care industry parlance is increasingly calling “Population Health,” although a fair amount of this term is still very much being used for inside the four walls of the hospital activities. Speaking of the Imperial Health System, Goldhill states that, “of the 34 rich countries in the OECD, the United States ranks a low 27 in life expectancy. Whenever a new study on comparative life span is published, most commentators draw conclusions about the weaknesses of our health care system, especially our unique lack of guaranteed universal access. Many note that we rank low in life expectancy (and other measures of general health) ‘despite’ spending so much more on care than any other country. This casual and universal conflation of health care and health represents the greatest triumph of imperial health care – a true hijacking of language. Despite all truly extraordinary achievements of medicine – and its promise for our future – health care remains a relatively small factor in determining life spans. We know what really matters in both length of life and physical well-being: income and education; minimization of smoking and substance abuse; diet and exercise; family life and public safety. The reason Swedes, Japanese, and Italians live so long isn’t their (very different) health care systems; it’s that they live like Swedes, Japanese, and Italians. And the reason Americans and Britons are on the lower end of longevity rankings isn’t our (again very different) health care systems. It’s that we live – and eat and exercise – like Americans and Britons.”

One interesting tidbit that Goldhill serves up is the fact that although he is a lifelong Democrat, his stance on the Affordable Care Act is that it doubled down on everything that already existed that was wrong with health care. His skepticism is made evident when he indicates that, “The whole bill is based on the fundamentally weird (but apparently bi-partisan) idea that ever more expensive health care can somehow be made affordable to all by clever financial engineering. The ACA is less a reform of our health care system than an extension of its past principles to their logical end.”

Like it or not, health care is an industry…

It may seem jarring and unseemly to think of institutions chartered with providing life-giving and life-saving care as also an industry focused on making money, but this is a reality and I would argue is a benevolent, not a malevolent force and we need to use it even more and in more transparent and consumer-driven ways. I could do a whole section on the fact that industry combines the virtue of profit-making prudence with many other virtues such as generosity, justice, mercy, etc., but for expediency I direct the interested reader to check out Deirdre McCloskey’s book Bourgeois Virtues for more on that topic. For his part, Goldhill states that, “We may not like thinking of health care as an industry, but it is one. Roughly 15 million Americans now earn their living from health care; forty-eight of the Fortune 500 largest companies are in the health business. The majority of people in this industry are motivated by a desire to do good, to help others. But they are also driven by their economic incentives. As a business, health care has done very well by the conventional wisdom that care is fundamentally different from everything else (can you imagine anyone proposing with a straight face that antitrust laws be suspended so that a region’s oil producers, refiners, and distributors be allowed to cooperate to achieve lower prices? Well, that’s essentially the premise behind Accountable Care Organizations, a key structural reform in the ACA

The reason Swedes, Japanese, and Italians live so long isn’t their (very different) health care systems; it’s that they live like Swedes, Japanese, and Italians. And the reason Americans and Britons are on the lower end of longevity rankings isn’t our (again very different) health care systems. It’s that we live – and eat and exercise – like Americans and Britons.”

…so we need to create true consumers for the industry to function properly 

This post has the great risk of parting the reader into a natural left versus right camp, but one benefit of Goldhill’s book is that I sincerely believe he is trying to find and articulate a consumer-driven solution that might appeal to both the sides of the left/right political spectrum.  Goldhill consistently returns to the necessary role of consumers making decisions in the market in any industry, and no less so than in health care. He holds up the example of Singapore above all as the health care model he appreciates the most. There is a role for insurers there, but they are not the comprehensive surrogates that they have become in America. In other words, they actually function like insurance companies. Singapore subsidizes health care funding for the poor, but the consumers themselves make decisions on how to spend those dollars across all income spectrums. The contemporary equivalent of this in American policy debates would be funded health savings accounts for Medicare and Medicaid. To these ends, Goldhill strikes his balance between left and right forces here, and adds his observations on just how bad for consumers this market is today. Here is one health care consumer analogy that Goldhill pulls out that would be amusing if it were not so tragically true of how health care interacts with consumers: “Can you imagine taking your care to a body shop and, moths later, receiving a separate bill from the guy who reattached the fender? And the shop saying it couldn’t discuss the matter with you? The real premise behind restoring the primacy of customers is to force providers to chase us with lower prices, fewer errors, and better service. On the Mainland, we actually do relatively shopping around; sellers offering discounts and better service find us. It’s our current Surrogate-driven system that forces us to do the work and get pre-approval for reimbursement, to discover which facility is good at which treatments, to find a doctor, to coordinate the work of specialists, to negotiate price, to uncover safety records. Simply put, health care performs badly because it can get away with it.”

I really like this point about sellers here. Too often, health care experts make the point that consumers are not educated enough to make their own decisions. This assumes that consumers have to be perfectly informed, and since they can’t be, they might as well rely entirely on the Surrogates. Goldhill makes the point that we don’t have to be perfectly informed for a functioning market. In a consumer-driven market, sellers will be forced to innovate on the marketing and outreach and customer services aspects as well on the actual performance of their business. They will have it in their interests (of survival) to educate and inform the consumers. Competition will be driven by pricing and outcomes transparency. Only in this type of market paradigm will we see prices hurtle down and outcomes increase.

The ACA is less a reform of our health care system than an extension of its past principles to their logical end.

The Policy and Industry Changes Required

The health care mess is so complex and is several layers thick that there are many ways to propose consumer-driven corrections. Many of these that I am personally favorable to were highlighted in the early days of Paul Ryan’s “Better Way” set of plans for health care reform. Goldhill lays out his own proposals that I think have the merits of threading the left/right needle that might make it politically feasible. Much remains to be seen on what will come out of the united GOP’s ACA repeal and replace plans, and Goldhill’s ideas preceded the contemporary debates by a few years and may not have any impact on the debate. Still, given the choice between the status quo (assuming failure of the GOP to move replace all the way through), I would take Goldhill’s prescriptions, including government oversight and management of some forms of catastrophic insurance, any day of the week. The important factor is that the majority of the market should move to consumer-driven decision-making, which is the benefit of a Health Savings Account driven reform model. In Goldhill’s words, “…to recognize that change is inevitable and unpredictable; choice, dynamism, and competition of ideas (and business models) are essential to progress. Ironically, in the one service where the potential human benefit from innovation is greatest – health care – all our impulses have been to enact policies that impede choice, competition, and all the dynamism they unleash….Creating a more prominent role for consumers doesn’t mean eliminating that of the government’s: it means making consumers, rather than industry, the government’s partner in pursuing health policy. Even in Singapore, government plays an essential role in health care. Critics often label this attempt to rebalance forces as ‘free-market health care.’ Well, this book proposes national cradle-to-grave catastrophic health insurance, mandatory health savings accounts, large-scale health grants for the needy, rigorous enforcement of price transparency and antitrust legislation, and a national health database. Only on the Island of Health Care could this be described as ‘free market.'”

This effectively means allowing government a role in ensuring that the person who has that urgent accident or that fatal disease are well-taken care of. It also means that the much more significant impact consumer, the one with diabetes and heart failure, begins to be a conscious consumer of how they interact with and the value they get out of the health system. Furthermore, it starts to provide the much-needed incentives to both consumers and health care industry players to actively seek and reward healthy lifestyle choices in much more meaningful ways than the current policy of tinkering at the margins with value-based payments.

For the industry’s part, much of the current market direction and focus is on interoperability of systems, cognitive computing/artificial intelligence, predictive analytics, and preventive care. Let’s hope that the bulk of these efforts and industry innovation focuses less around volume targeting and billing/revenue optimization (where much of “innovation” has occurred in the recent past) and more around the health, wellness, and fabric of our community/social determinants of health that matter. Let Americans become more like the Japanese and Swedish, and let’s slay this health care monster, before it slays us.

Painful Lessons in the Executive Office

If history repeats itself, first as tragedy, and then as farce, we are reaping a decades-in-the-making painful lesson in the great risks of creating an executive branch that is far too powerful. I believe we are also witnessing the risks of putting an amoral man into the presidency in a Faustian bargain to attempt to advance our own specific causes. The trouble with Faustian bargains is they are the surest path to hell.
My desire is that in four years the majority of Americans will long for a return to humility and forbearance in the Executive Office. The ideal example should be the manner, style, and substance of a Calvin Coolidge and presidents that preceded him. In short, the President should be a man/woman of virtue who largely leaves us alone who is of limited consequence to our daily lives. Their primary focus should be on removing obstacles to and the promotion of our liberty, peace, prosperity, and freedom of assembly, religion, and speech.

To reduce earnings inequality, we must first reduce healthcare insurance coverage costs

Given the tremendous amount of focus on income inequality these days and the common knee-jerk reaction to push harmful and counterproductive wealth redistribution policies as a palliative, it is timely and important that Mark Warshawsky of the Mercatus Center at George Mason University recently published a working paper exploring the largely heretofore ignored impact to earnings inequality of employer-based healthcare coverage as a component of total compensation.

The punchline is this: healthcare coverage costs have consistently risen faster than wages for most Americans over the past four decades. Given that healthcare coverage is relatively equal across the income ranges (it is roughly the same cost to an employer to cover a family of four in the lower 30th decile of earners as that of a family of four in the highest 10th decile of earners), rising healthcare costs will harm and encroach more grievously on the employer’s ability to increase take home earnings for lower income earners. In other words, increasing healthcare costs, even if growing at the same rate for lower income workers as higher income workers, will eat up more of a percentage of total compensation and restrain actual take-home earnings for lower income workers. Furthermore, most studies, including the high- visibility and high impact to public policy book by Thomas Piketty, Capital in the Twenty-first Century, have used after-tax earnings data to compare wealthy and poor, resulting in loud alarm bells on inequality. The impact? Politicians across the globe, including President Obama, declared income inequality the defining issue of our time, but based upon partially constructed data! Warshawky’s research more appropriately focuses on total compensation, which provides a more comprehensive assessment of what is going on, and in this picture is revealed a more tightly coupled growth between the income poles. This is not to say that inequality in earnings is not a problem we should address, it is more to say that policies to address it should focus on the actual cause – which is not the perceived ability of the wealthy to extract wealth at the expense of the poor, but a direct result of the pernicious impact of rising healthcare coverage costs that crowd out earnings growth for those in lower income categories.

Warshawsky uniquely pulls directly from the Bureau of Labor Statistics, which provides a full assessment of the total compensation aspects of American workers. Contrast that with most studies’ data sources from the IRS and Social Security that only include cash earnings, and one develops an understanding that Warshawsky has the superior data set. In previous research using BLS data from 1999-2006, Warshawsky was able to demonstrate that if it had not been for increases in healthcare coverage costs, earnings growth between income levels would have been roughly the same. In order to understand and present the data more clearly and in layman’s terms, I have taken Warshawsky’s data and plugged in and extrapolated where I could while backing into implicit assumption numbers on baseline earnings, healthcare coverage costs, and fringe benefits for middle decile income and comparing them to top 1% incomes from 1999-2006. The patterns revealed are that while overall total compensation increased in the same percentage range over the course of seven years (34% for middle income earners and 36% for high income earners), the differences were more substantial and divergent within the earnings and healthcare coverage components of total compensation. Whereas for middle income earners wages increased only 3.5% per year, wages increased by 4.4% per year for high-income earners. This may not seem like much for any given year, but over time the differences become pronounced – over the course of seven years, the compounded gain for high income earners was 35% growth in take home earnings compared to only 27% for lower income earners. The key constraint in earnings growth for middle income earners is the fact that healthcare coverage costs rose much faster as a percentage of total compensation – rising at an annual rate of 9.9% compared to a more modest 6% for higher income levels. As Warshawsky indicates, this meant a rise in healthcare coverage as a percentage of total compensation for middle income earners from 7.2% in 1999 to 10.4% by 2006. In comparison, higher wage earners saw a modest increase of 4.0% to 4.3%.Graphs 1 and 2 visually show the impacts. While the slopes of the topline are similar between the two income groups (both rising at annual rates just over 4%), the relative mix of earnings, healthcare coverage, and fringe benefits is dissimilar; healthcare coverage costs are constraining earnings increases for middle income earners. Graphs 3 and 4 represent the percentage of total compensation aspects of the different components of total compensation, further visual evidence of the forces at play here – healthcare coverage increases for middle income earners takes up a larger percentage of total income and constrains earnings growth.

Graph 1


Graph 2


Graph 3


Graph 4


For anyone interested in a more fulsome review of the examples and scenarios I have created on top of Warshawsky’s values, I have attached the spreadsheet at health-care-costs-inequality. The detailed numbers simply provide another view in support of what Warshawsky states in the working paper, “Though rising healthcare costs eat away at wage growth for everyone, the effects will be largest for the working and middle classes because their healthcare costs are so large relative to the rest of their compensation package.”

In the rest of the paper, Warshawsky provides empirical evidence updates dating through 2014 using the same BLS approach as well as discussing supporting and conflicting studies. The conclusion is the same as the data above that cuts off in 2006, so I won’t drone on at length on it here. The policy implications are much the same as well – relief from healthcare coverage costs and decoupling health insurance from employer-based coverage, allowing American citizens to demand and receive higher wages with which they can then decide how to spend will do more for the lower and middle classes than any economically distorting wealth redistribution program.




“What I learned in 2016”

Since I think that most news is overblown fluff, I have little sympathy for the endless pieces about “What we’ve learned about the world in 2016.”  Against the background of all of human history, 2016 taught us next to nothing.  If you just discovered that horrible people often gain vast political power with widespread popular support, you’re in dire need of remedial history.  If you’ve just discovered that politicians’ personalities matter at least as much as their policy views, you’re in dire need of remedial political science.  If you’ve just discovered that demagogic appeals to national identity work, you’re in dire need of remedial psychology.  I am only a messenger.

Still, if you compelled me to articulate what I learned in 2016, here is the most I’ll admit.

1. American voters are at the moment even more irrational than I thought they were in 2015.

2. Republicans are at the moment even more nationalist than I thought they were in 2015.

3. Democrats are at the moment even more socialist than I thought they were in 2015.

From Economist Bryan Caplan from George Mason University at his Econlog blog. I concur!


A Fatuous Defense of the Affordable Care Act

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“There are three kinds of lies: lies, damned lies, and statistics.” – Benjamin Disraeli

The L.A. Times provides a nice set of cherry picked data to justify the Affordable Care Act. The author is also fond of the word fatuous to describe Republican plans to repeal and replace Obamacare, so I feel compelled to maintain usage of the word my thoughts on the matter.Ignoring the long descent that healthcare has been on for decades now, and then claiming that slowing the growth rate of healthcare spend, while it still moves above the general rate of inflation and much of the decrease in observed to expected growth is related to the recession, is analogous to giving a kid a blindfold and a bat and told to hit the piñata in the tree in your backyard, meantime you have tied the piñata to a forest in the park two miles away. When the kid swings and misses, you take the blindfold off and tell him to try again, and declare success when he at least swings level at the air. The point being, even if Obamacare impacted these selective statistics, it is still miles from being where it needs to be.

To wit, there is many citations of costs decreasing, but the author conveniently ignores that those costs are going back up and projected to once again hit their stride of 6% a year, double the rate of inflation, for the foreseeable future. The recession was a temporary halt in healthcare spend, so it is really convenient to leave that fact out. Consider that in 1946 the average inflation adjusted hospital stay was $30 per day whereas today it is an astounding $2,200, a 70-fold increase. Trumpeting a modest decrease in this awful record is quite a bit like missing the forest for the trees.

Plus, while there is a lot of current debate about the tactics of repeal and replace given the slim Senate majority and how to use arcane Senate rules on budget reconciliation, Paul Ryan and others have come up with plans on replacing Obamacare, all under the banner of the Better Way moniker, which I detail in further detail elsewhere. Apparently this journalist is too lazy to look that up. But yes, I do hope that Republicans don’t take the risk of getting repeal without replace and do both at once. I honestly am not holding my breath given Republican ineptitude in the past.

It’s nice that the uninsured rate is going down, but of course a federal mandate to buy health insurance upon pain of hefty tax penalties is going to increase insurance rates. Would you praise a parent who upon their child spilling a drink or dropping food forced them to do 40 push-ups before eating again and then declaring to Facebook, “my child can do 40 pushups!”? No, I think not. At any rate, the real question is whether this metric on its own is the most important one and decoupled from the irrefutable evidence that healthcare costs and insurance premiums continue to skyrocket at a double-digit pace. Plus, recent research from economist Mark Warshawsky indicates that skyrocketing health insurance premiums have held down take home wages, as health insurance coverage has gone up for the lower and middle classes as a percentage of their total compensation from 4% to 12% in just a couple of decades – meaning they are not getting raises in take home pay because it is getting swallowed up in health insurance. Since inequality is a focus these days, look at the failures in our government run healthcare system as a main culprit.

If we are concerned with people not seeing the doctor, providing a stipend for catastrophic insurance and flexible Health savings accounts would have done the same thing without the enormous bureaucratic bloat that has led to skyrocketing premiums. And uncompensated care is an important gap to close, but this is all a bunch of cost shifting. What used to be covered through disproportionate share payments at the county and state levels, where great board oversight could be applied with local knowledge, is now being soaked up by cross-subsidies through the federal tax code – out of sight, out of mind, no accountability, and requiring hospitals to create a new administrative burden to work through the ACA and all its complexity.

This also ignores the many blatant failures of Obamacare, which I helpfully capture here.

“Medicaid reform, the elephant in the room”

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The American Enterprise Institute recently published a thought-provoking and helpfully brief primer on how Medicaid funding works, what it means to shift to state block grants, and why politically such a move will be tremendously challenging.

Alas, something much more radical would actually give the poor better access and would drive the competition in the marketplace that would start to incent health care delivery systems and insurers to compete for their dollars. To wit, why not simply focus on an individual income basis and fund catastrophic insurance for unexpected events (what insurance is designed to do in every other industry save healthcare) complemented with funding for a flexible with annual rollover features Health Savings Account? This seems to me to be the ultimate path out of Medicaid and all of its challenges, such as those raised in this post. It would provide purchasing power directly to individuals, get them out of narrow networks defined by states, and remove the massive costs of administering programs through federal and state bureaucracies.


The World is Full of Good News too

Turning on the nightly news, whether it be local or global, is bound to be an exercise in depressing futility. Whether it is a twelve car pileup, the local restaurant who failed its health exam, a case of road rage, a corrupt politician caught with his hands in the proverbial pot, despair and protest over Trumps’ latest tweet, acts of terrorism, or perhaps even the more provincial annual outrage over the grinch who stole Christmas by taking the yard inflatable Santa and his reindeer out of someone’s yard. For sure, the element of the depravity of mankind is ever with us, but that should not stop us from celebrating and recognizing that the times we live in are better than ever on a tremendous amount of fronts.

Take for instance the “Notable and Quotable” section out of today’s Wall Street Journal, in which Johan Norberg points out that since 1990, actual poverty, defined as living on $1.9 per day or less and adjusted for inflation and local purchasing power parity, has fallen from 37 percent of the world population to less than 10 percent today. That’s a rate of 138,000 people escaping poverty every day.

In a more fulsome article on the subject within The Spectator back in August of 2016, Norberg elaborates on the points of the golden age we live in and the reasons for people’s doom and gloom pessimism.

If you think that there has never been a better time to be alive — that humanity has never been safer, healthier, more prosperous or less unequal — then you’re in the minority. But that is what the evidence incontrovertibly shows. Poverty, malnutrition, illiteracy, child labour and infant mortality are falling faster than at any other time in human history. The risk of being caught up in a war, subjected to a dictatorship or of dying in a natural disaster is smaller than ever. The golden age is now…

…Look at 1828, when The Spectator was first published. Most people in Britain then lived in what is now regarded as extreme poverty. Life was nasty (people still threw their waste out of the window), brutish (corpses were still displayed on gibbets) and short (30 years on average). But even then things had been improving. The first iteration of The Spectator, in 1711, was published in a Britain whose people subsisted on average on fewer calories than the average child gets today in sub-Saharan Africa.

Karl Marx thought that capitalism inevitably made the rich richer and the poor poorer. By the time Marx died, however, the average Englishman was three times richer than at the time of his birth 65 years earlier — never before had the population experienced anything like it.

Fast forward to 1981. Then, almost nine in ten Chinese lived in extreme poverty; now just one in ten do. Then, just half of the world’s population had access to safe water. Now, 91 per cent do. On average, that means that 285,000 more people have gained access to safe water every day for the past 25 years.

But what about the plights facing the world of today? Norberg’s advice is sound:

Times have been rough since the financial crisis, yet for all the talk of Americans ‘left behind by globalisation’, median income for low- and middle-income US households has increased by more than 30 per cent since 1970. And this excludes all the things you can’t put a price on, such as advances in medicine, an extra ten years of life expectancy, the internet, mass entertainment, and cleaner air and water…

…Parts of the world are falling to pieces but fewer parts than before. Conflicts always make the headlines, so we assume that our age is plagued by violence. We obsess over new or ongoing fights, such as the horrifying civil war in Syria — but we forget the conflicts that have ended in countries such as Colombia, Sri Lanka, Angola and Chad. We remember recent wars in Afghanistan and Iraq, which have killed around 650,000. But we struggle to recall that two million died in conflicts in those countries in the 1980s. The jihadi terrorist threat is new and frightening — but Islamists kill comparatively few. Europeans run a 30 times bigger risk of being killed by a ‘normal’ murderer — and the European murder rate has halved in just two decades.

But inequality is growing faster than ever, you might retort. I am going to refute much of notions of how many studies focus on inequality and why they are flawed in a post later on this week, but for now I will point back to an earlier post as to why this is the wrong focus. Also, just as a gentle reminder – the politics of envy and the urge to give government power to address it is beset with problems. Namely, envy of a neighbor who has a mansion is just that, a base and unvirtuous feeling. He can do nothing further to me than invoke feelings and emotions. In contrast, the government leveler with the monopoly of violence can do far more harm.