Wednesday, January 28, 2009

Concentrated benefits and diffuse costs-no need for docs to fight each other over the pie

Alex de Tocqueville is quoted as saying:

The American republic will endure until the day congress discovers it can bribe the public with public's money.

Well, he was partly right. He implies that day will not be a good thing and that discovery would lead to much mischief and worse but he greatly underestimated how long a country could slog along with the congress doing that very thing as a major-perhaps the major- activity.He underestimated the economic power of a free country.

The notion of concentrated benefits and diffuse cost was given much academic credibility and stature by the works of Nobel prize winner, James Buchanan,who developed what has become known as Public Choice theory.

Here from an interview in Canada is the way Buchanan explained the concept.

We have a system of taxation that is fairly general, so the cost of something is borne by everybody. On the other side of the budget account, concentrated spending benefits go to particularized groups. Through trading among these groups, coalitions are built up to benefit from that spending but the costs are spread out through taxation. That spending is very concentrated and brings pressure to bear on your political leaders, who are pressured to pass special interest, sometime called "pork barrel" legislation. You can get a coalition of senators from particular states in my country, for example, who want to construct highways or dams or ports which may well be very inefficient. The taxes would be paid by the people over the whole country, but the benefits would go to the few people in those particular locations,

We talk about special interest groups, the founding fathers talked about factions.James Madison worried a lot about the matter of factions.

The economic stimulus-recovery package proposes some 20 billion dollars to provide electronic medical records to "most" American in the next five years. A feeding frenzy is likely underway to share in this opportunity.Maybe the benefits will accrue to the patient and things will be much easier for the physicians and quality will soar and costs will plummet or maybe the major beneficiaries will be the vendors of the systems to provide the EMRs, who needless to say are ramping up their lobbying efforts as I write.

With a economic stimulus package that supplies only 7% of the stimulus to be spent by the end of 2009 and only 110 of the 355 billion by the end of 2010 ( GBO figures) we will see the hoped-for stimulation after many economists believe the recession will be over anyway. So what is this about anyway? See this interpretation from the blog, Austrian Economists by Steve Horwitz) which argues that much of what is said to be a stimulus are usual suspects,i.e. the off- the- shelf ideas that were waiting for a crisis to get passed and not have any arguable stimulatory effect at all and certainly not in the relevant time frame.

Thomas Sowell describes the current plan this way:

Out of $355 billion newly appropriated, the Congressional Budget Office estimates that only $26 billion will be spent this fiscal year and only $110 billion by the end of 2010. Using long, drawn-out processes to put money into circulation to meet an emergency is like mailing a letter to the fire department to tell them that your house is on fire.

(Warning :"Irony and sarcasm alert")
Everyone who knows how things work in Washington and have the means to do so are scrabbling around to get their piece of the pie that is alleged to be a stimulus. For some recipients it will be a stimulus or at least a nice windfall. With that in mind, I have to think that this suggestion by a primary care doctor to increase primary care payments by taking money away from others in the health care business is not only doomed to failure but primary care docs' efforts would be better spent by doing what everyone else is doing in Washington, i.e. elbowing for the pie.It is a time honored technique.

1 comment:

The Intellectual Redneck said...

You can dig all you want, but there is no pony hiding under the Democrat's stimulus manure pile. There is no pony hiding in the stimulus "pile of manure"