Creeping Anarchy

I think it was my good friend Justin who recently pointed out to me that one Anarchist viewpoint is that societies are largely self-organizing -- and government is a sham. There's something interesting in this argument, though I am not yet ready to accept it in total. It's an empirical statement, and as such it's either right or wrong.

I DO think that our would be overlords are generally helpless to impose unpopular policies, thanks to our democratic institutions. And no matter how you poll it, healthcare reform is hugely unpopular.This recent AP News blurb documents the likely shedding of still more features from the planned healthcare legislation package. Correct me if I'm wrong, but doesn't that mean there is no meaningful healthcare reform left in either of the bills? Sure there's that thing about how the states should maybe do something about the lack of competition in the market for health insurance, but that doesn't count, especially compared against what was planned but has since gone missing: the public option, a requirement that large companies provide health insurance, regulation of insurance, elimination of the tax break on employer provided plans, meaningful provision of aid for the poor, any means for containing costs, and funding.

I think this all has to do with the fact that,

"...rules are hard to change (because they) reflect the values that are embedded in a culture."

Sound wisdom.

The Future of Labor

In 1850 about 50% of Americans made their living as farmers or farm laborers. In 2000 it was about 1%. Increases in productivity can dramatically decrease the demand for labor in a particular part of the economy. This is all for the best, but it is difficult for the displaced laborers.

I haven't seen data to support it, but the conventional wisdom is that demand for unskilled labor is in steady decline. One story to illustrate this idea is that increased automation in factories eliminates unskilled positions, but may increase the number of skilled positions in the form of an expanded technical staff who develops and maintains the automation equipment. I think that story is at best an oversimplification of reality (e.g. increasing automation may mean that a factory doesn't eliminate jobs but trades skilled labor, like machinists, for unskilled labor in the form of machine operators who only need to push some buttons and measure parts), but even if it's accurate it doesn't tell us what's happening to the number of unskilled labor positions in the overall economy.

Productivity increases in an industry lower the cost of production for that industry, meaning that society can spend less on that industry's products. That's why I spend a smaller percentage of my income on food than did my grandfather, and why fewer people are working on farms today than were in 1850. As we've gotten to be better at producing food we have saturated demand. The US produces more food than it knows how to consume. You can just as easily blame farm worker displacement on the 'low' demand for food as on high farm worker productivity.

Interestingly, increases in farm worker productivity have lowered the costs of non-farm products as well, because all that displaced farm labor was freed up to be used to produce more valuable items like cars and houses. And now we're choking on too much supply of those items as well (due to increasing productivity), and workers are again being displaced.

As Arnold Kling puts it:

"...before you tell me that we are outsourcing to China, you should remember that (a) our manufacturing output has been increasing, even though the number of people working in that sector is declining; and (b) employment in China's manufacturing sector has been shrinking, also."

So what is the future of labor, skilled and unskilled? Continual displacement from one industry to another, and a falling cost of necessities and luxuries. These are near certainties. But what else? Will the unskilled be left behind? The unskilled will always earn less and be less productive than the skilled, but I don't see any evidence that they are simply being left without work. I do see that average, middle class people are spending more of their income on paying someone else to care for their lawns, to service their cars, and to clean and repair their homes.

One day cars will be rolling off of 'lights off' manufacturing lines, with only a handful of humans monitoring entire factories. I don't believe that we'll have high unemployment, or (more to the point) a human welfare crisis when that day arrives.

Cost of Health Care

Why is the cost of health care so high? There are a number of therories.

*Not enough competition in the market for insurance (insurers are taking us for a ride). One explanation for why this might be true is that regulation prevents competition across state boundaries, and that health insurance companies enjoy an exemption from anti-trust policy. This has been the focus of Obama's health care reform argument. Scott Harrington discusses the angle here.

*Not enough competition in the market for care (health care providers are taking us for a ride). The argument here is that health care is an inherently local market, which can result in natural monopolies. This explanation seems to work best for care that is provided through hospitals, and less well for care provided through small clinics. Ezra Klein has some interesting charts to support this argument.

*Medical technology is highly valuable, and highly expensive (the best care doesn't come cheap). This idea can get very complicated very quickly. Patents on drugs and devices, the costs of R&D and FDA evaluation, the relative benefits (if any) of the latest technology over standard technology, the carrying costs of an expensive new machine that will only be used by a small number of patients each year versus the need to provide state of the art care, all play into this argument. Tyler Cowen links to some evidence that the health care system in the US is providing substantial benefits.

*Medical technology companies use monopoly power to inflate prices (drug and medical device companies are taking us for a ride). Similar to above, but with more emphasis on price, and less on value. Robert Reich notes how the whole issue is politically charged. Ira Glass discusses some ways in which drug companies extract inflated profits from insurers in this episode of This American Life.

*The incentive to over-consume health care (patients are taking us for a ride). Because copays are low, the argument goes, too many people visit their doctor for every minor head cold. Arnold Kling makes the argument here, and disambiguates this hypothesis from some of the others. Don Boudreaux makes essentially the same argument in more aggressive terms here.

*Costs of the uninsured (the poor/unemployed/illegal immigrants are taking us for a ride). The argument is that the uninsured are free-riding on the policies of the insured. Whether this is a good thing or a bad thing depends on who you ask. Whose fault it is is also up for debate. (More here.)

*Costs of the underfunding of Medicare (the government is taking us for a ride). That's right! Because the government is the government, it can require hospitals and doctors to treat Medicare patients, but not pay the going rate for their care. So who pays the difference? Well, the story is that health care providers make it up by charging privately insured patients more. So, potentially this practice could cost the health care provider some profit margin, or it could cost the insurer some profit margin, or it could come out of the pockets of privately insured individuals in the form of higher premiums (or some combination of the three). Uwe Reinhardt rebuts this argument, but to my mind his rebuttal lacks nuance on the question of who makes the price in each market. Remember that the market for health care for Medicare recipients is different from the market for health care for privately insured people (because the rules are different for each of these markets), and that the market for health insurance is a separate market still. In each of these three markets different players hold relative market power, and so have differing abilities to make prices. What I'm getting at is that maybe it IS true that the government sets the price in the first market, the hospital sets the price in the second market, and the insurer sets the price in the third market, with the end result being that the costs are shifted from market to another.

*Insufficient supply of doctors/surgeons/specialists (doctors are taking us for a ride). Regulation and licensing of health care professionals creates a barrier to entry to the health care provider market, keeping salaries artificially inflated, and thereby inflating costs of care. So do Doctors earn too much? Doctors say no. Alex Berenson says yes, as does Ezra Klein. In any case, greater utilization of Physician Assistants could help, especially in routine care where all that specialized training may be under used.

So, what do I think? I think costs are the symptom, not the problem. If the symptoms threaten the patient, then please treat the symptoms! But eventually the underlying illness has to be addressed. More on that in a later post.

Scientific Claims and Falsifiability

In my previous post I argued against an economist's criticisms of scientist's claims on truth. Arnold Kling does a much better job of making a similar criticism stick.

Arnold's argument boils down to this: Scientists sometimes claim that they will soon make particular discoveries or uncover particular knowledge, when in fact there is great doubt about whether they will.

These claims of impending success are common, and commonly wrong. More to the point (as Arnold suggests) these claims are unscientific, and therefore unbecoming to professed scientists, precisely because they are non-falsifiable. There is no theoretically possible method to disprove these claims (at the time they are made).

Science deals exclusively with claims that are (in principle) falsifiable. This is an extremely important part of why science works at all. By limiting scientific inquiry to falsifiable claims science is made testable and, ultimately, meaningful. If I believe that a scientific claim is false, I need only devise an experiment that will demonstrate a conflict or contradiction in order to prove that it is false.

Imagine what would happen if non-falsifiable claims were included under the domain of science. Under such a system scientists would concern themselves with claims that are mutually exclusive, but with no ability to distinguish between the truth or falseness of either. The discovery of knowledge would slow as time and effort were consumed in pointless and unending argument...

This is a concept that I'm sure all scientists are taught at some point early in their education. However, as important and fundamental as falsifiability is, many scientists seem to forget about it, or even become confused about what it means. Take, for example, Richard Dawkins' invocation of Russell's Teapot in support of militant Atheism. The bizarre thing here is that Dawkins uses Russell's Teapot as an example of a non-falsifiable claim, and therefore outside of scientific notice, while he simultaneously argues in favor of militant Atheism - which is a non-falsifiable claim as well. How can a scientist of such standing be so confused about one of science's founding principles?

Note: It  is important to recognize that Russell's Teapot may actually be a falsifiable claim, and therefore within  the purview of science. If you claim that there is a teapot in orbit, AND describe the orbit and the teapot in sufficient detail, then the claim is clearly falsifiable because the absence of the teapot in the specified orbit could, in principle, be observed. Militant Atheism, however is not a falsifiable claim because it is not possible, even in principle, to observe the absence of a god who can tweak the universe and human observation to achieve whatever end he/she/it desires. Militant Atheism must perforce fall outside of the notice of science.