Health Care and Education-the new "commanding heights -"Kling and Schult

An interesting and insightful commentary by Arnold Kling and Mick Schult is found in the Summer issue of "National Affairs" and is entitled "The New Commanding Heights".The title is a play on the title of the book by Daniel Yergin and Joseph Stanislaw "entitled "The Commanding Heights:The battle for the world economy". See here for the Kling essay.

The term Commanding Heights was used by Lenin in a 1922 speech in which he refers to the dominate industries in Russia at the time indicating that they would be target of the central control of the communists. He gave up trying to control everything so he decided to control the key industries.These included heavy manufacturing,mining,electric generation and transportation.

Kling and Schult contend that those industries are now largely not controlled by the state in the United States and in western countries generally and while these sectors are important they present data showing they are no longer the major growth sectors in our economy.They argue convincingly that education and health care are the growth sectors in the United States.

History has made it clear that markets work. Market economies lead to prosperity,economic growth and innovation while central planning results in dismal and often tragic failures. Lenin promised to do what capitalism did plus eliminating waste, recessions, and inequality:what was produced was mass starvation and mass murder.

However, the authors warn markets advocates against premature celebration. Their thesis is that in the U.S., both in education and medical care, the new commanding heights, governmental controls are prevalent and growing and if the U.S. is to continues to grow and prosper, we need innovation in these areas? How much innovation occurs in government controlled economic sector?

Many (most?) discussions of the medical economy emphasize the overall
cost" of medical care and its growth ( it is a growth sector) and that it is a bad thing. Two comments are appropriate: 1) often overall costs are conflated with government costs ( i.e. Medicare and Medicaid) with overall costs 2) Costs are only one side of the accounting, one person's costs are another's income stream.

Controlling the amount of money that the government spends on health care or farm subsidies or foreign wars is one thing and is well within legitimate government activity, attempting to limit private spending on healthcare or cosmetics or anything other legal activity is quite something else.So with GDP not snapping back to previous more healthy levels do we really want to decrease activity in one of the two major economic growth centers?

Surprise-economic principles apply to old folks and Medicare costs

See here for a report on some data gathering that should be filed under the heading of "very bloody obvious". The link is to the 7/16/2011 blog entry from Dr. Mark J.Perry which tells us 1)Medicare utilization is about 50% higher than private health insurance utilization and 2) why Medicare patients see their doctor so (too?) much. Hint:it has something to do with spending someone's else money and the law of demand.

Economists are fond of saying "demand curves slope downward" which is their jargony way of saying that people buy more when the prices is lower and less when it is higher. Milton Friedman has been quoted as saying that economics is simple- just remember there is no free lunch and demand curves slope downward.

Economists ,for some obscure reason possibly found deep in the history of their discipline, place the dependent variables on the X-axis and the independent variable on the Y-axis. This is just the reverse of the practice of physicists and engineers and most other people who like to draw graphs. So they place price on the Y axis and quantity demanded on the X axis and thus the demand curves slope downward because folks buy more when the price is cheaper.

Medicare patients "buy" more health care because of the way Medicare works they get a really good deal on the price that CMS allows to be charged. It gets better, Medicare generally pay 80% of a significantly lower "allowed price" and many seniors have supplemental insurance which further amplifies the illusion of a free lunch.So,of course,Medicare users utilize more services and the reason is not that fee-for-service doesn't work. Blaming fee-for-service is the current battle cry on many in Congress and many of the organizations who allegedly represent the practicing physicians.

Some would conflate fee-for-service with free markets in medicine but there has been no free market in medical care for many years now (except for a few markets such as lasik surgery and some plastic surgery and much of alternative medicine) and the Medicare system is characterized by price controls and the demand side characterized by folks buying services with someone else's money,both of which are the products of central planning. What could possibly go wrong with that circumstance?

The list of problems in medical practice are not due to fee-for-service but rather what happens in a nominal fee-for-service setting when there are price controls namely shortages,long waiting lines,poor quality and various other forms of rationing by other than prices.As is often the case, the results of central planning are blamed on that heartless,run-away greed all the way down, free market.And as is also often the case the solution is more central planning,which is what Obama care is all about.

More on IPAB and the risk of regulatory capture

See here for a recent report on views of the IPAB.

Particularly interesting were comments of someone who has been there and done things in the setting of a very important and powerful governmental appointed post.

Bruce Vladecks, the former head of CMS under Bill Clinton, had this to say :

"In the short term, it might theoretically work," he said. But the history with other independent regulatory agencies, like the Interstate Commerce Commission and the Civil Aeronautics Board is that over time "the regulated industries tend to capture them; and they tend to do more to protect the regulated industries than they do to protect consumers."


Considering the legislative hurdles that Obamacare put in place for Congress to over ride the edicts of IPAB, capturing IPAB would be prize well worth capturing.

What is the moral case for Obamacare?

Is there one at all?This commentary by the economist John Goodman argues there is none. After Dr.Goodman made his case he invited readers to offer such a moral justification.I could find none in the forty reply to his article.

Several commentators ( including spokesmen for the ACP and the AMA ) claimed that Obamacare furthered social justice. So could that be the moral justification for Obamcare?

In regard to social justice Thomas Sowell said the following:

Their passionate arguments for particular results tend to obscure or distract attention from the question of the social processes by which these hoped-for results are to be pursued.


Goodman,in this most recent cited commentary, and in numerous others posting on his blog gives great detail of the various social process set in motion by Obamacare and the numerous apparently unintended consequences

In short, the various elements of this outlandish long bill do just about anything other than the putative hoped-for results which is "affordable , accessible health care for all" and instead offer a mind boggling array of counterproductive results and bizarre inequities and the frightening promise that many more such dystopian outcomes will arise from the hundreds ( more likely thousands) of pages yet to be written by agencies created by Obamacare and the incredible discretionary powers given to the Secretary of HHS.

Perhaps,spokesmen for the medical organizations who champion (yes, they still support it in spite of the increasing evidence that the bill is a very bad idea) can offer a moral justification .

Meta-analyses-money well spent?

I have blogged more than once ( see here and here )about meta-analyses (MA) and quoted Steve Goodman MD PhD more than once when he said that MAs are just observational studies in which the observed elements are studies. I would add and we just don't know what went on behind the curtain.

They are not super randomized trials as the prefix "meta" might imply but should rightly reside significantly under RCTs in the hierarchy of clinical research methods.

Since the views expressed conform nicely with my biases I was drawn to this commentary by Dr Wes.

"Wise Legislators " pass ACA with IPAB,their "good deed"

Henry J.Aaron,of the Brookings Institute, has written three commentaries in the Perspective section of the NEJM in the last year. He seems to be their go-to guy for IPAB issues.Here is a link to his latest.

He praises Congress for their willingness to "abstain from meddling in matters they are poorly equipped to handle." He seems to be aware of Public Choice theory (he has a PhD in Economics from Harvard) when he talks about the temptation of Congress to spend money for political ends but seems to have missed the point when he apparently assumes that the IPAB panelists would be immune to lobbying efforts.Clearly, he believes it is a good and desirable thing for Congress to delegate its powers to agencies and other bodies- a view somewhat in opposition to how James Madison thought things would work out.

This is in stark contrast with the friend of the court brief that the Pacific Legal Foundation has filed to challenge the constitutionality of the creation of IPAB. See here for their comments on IPAB and a reference link to their brief challenging IPAB.

Aarons likens the creation of IPAB to the creation of the Federal Reserve which was to be an entity not subject to congressional control.

This may not be the best analogy with the increasing efforts of Congress (and not just Ron Paul ) to at least exert some surveillance of what the Fed does.

July 4th, all about the right to vote or much more than that?

This commentary from the Coyote Blog is good fourth of July reading.

Warren Meyer,a libertarian entrepreneur and prolific writer, who writes the blog as well as being a contributor to Forbes list three principles more important than the right to vote. Here is the first one he discusses:


"The Rule of Law. For about 99% of human history, political power has been exercised at the unchecked capricious whim of a few individuals. The great innovation of western countries like the US, and before it England and the Netherlands, has been to subjugate the power of government officials to the rule of law. Criminal justice, adjudication of disputes, contracts, etc. all operate based on a set of laws known to all in advance and applying equally to all."

Meyer then points out the obvious contempt for the rule of law with the exemptions to certain provisions of the health care law .

More of the "social justice" fallout from ACA

As more and more inequities and unintended consequences of Obamacare are revealed as we learn more and more about the bill,we can see that the social justice Obamacare advocates (you know who you are )boasted about following its passage is a very strange type of justice.

See here for one of the latest revelations about how basically unfair various aspects of the bill turn out to to be. As the AP article explains two families with same income would pay significantly different health insurance premiums to the exchange based on what type of income they receive.This problem seems to be tied to the definition of income used in the statute.

But it gets even worse, more folks become eligible for Medicaid based on the law's wording.

Medicare's top number-cruncher is warning that up to 3 million middle-class people in households that get at least part of their income from Social Security could suddenly become eligible for nearly free coverage through Medicaid, the federal-state safety net program for the poor. Chief Actuary Richard Fosters says that situation "just doesn't make sense."

The progressive mind set worries about inequality just about everywhere

See here for David Henderson's remarks about a commentary from former white house adviser and Director of OMB and now VP of global banking at Goldman Sachs.Peter Orszag.

Here,Orszag worries that high tech advances will worsen the gap between the rich and poor in longevity. The various (endless?) parameters that can be used to illustrate the fact that the rich and the poor are different is many ways provide much source of professed worry and endless calls to action from the progressives.

His move to Goldman Sacs should do much to insure that he will be at the top of that gap so that any "solution" to this problem must involve raising up the poor and not lowering the rich although his commentary seemed to offer no practical solution to this worrisome gap .

We will never run out of gaps.Market economics is the engine of prosperity and also the engine of inequality according to Milton Friedman.

There is a body of literature and discourse which emphasizes the notion that inequality is a major problem in the western world, as least in the U.S., and the inequality per se is bad and harmful and therefore there should be continuing policy efforts to shrink the gaps. Here is a well reasoned counterargument to that notion.