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Monday, August 01, 2011

MIT Prof discovers people like to spend other people's money

Amy Finkelstein,a PhD economist from MIT,has "discovered" that people when given a card that lets them buy something cheaper than they could otherwise buy more stuff. Thanks Dr. Michel  Accad at the blog, Alert and Oriented,for calling this discovery to my attention.

This link from a news story on the discovery briefly discusses her findings and the mind boggling claim that this finding will change thinking about health care spending. Yeah, it is that old
"demand curves slope downward" thing again. Note: this is not breaking news as her report and news items on it date back to 2007 but I have fallen way behind on my health wonk literature reading.

Here is a quote from the news report:

Already, Finkelstein's analysis is shaking up views across the political spectrum. "This is pathbreaking work," says Joseph R. Antos, a health economist at the conservative American Enterprise Institute. Adds the more liberal MIT economist Jonathan Gruber: "This really changes the whole landscape in the way we think about health economics." 

Wow! The economist ( Gruber)  who advised in regard to Romney-care and Obamacare seemingly was unaware that people tend to buy more of something when it costs less.

Wow again,  path-breaking work.Apparently no one heard or remembered what Milton Friedman had said about the ways people can spend.See here for that concept in Dr.Friedman's own words.The key point here is that when you spend someone else's money on yourself , you are not very careful about how much you spend.

Dr. Finkelstein work supports the notion that health care costs have increased in no small measure because millions of older American have Medicare insurance and they realize that they can get medical services much cheaper than otherwise when they show their card to various health care providers. The fact that some health care wonks thought her findings will change the way people will think about health care policy seems to mean that until now some health care experts believed that demand curves slope upward. Some admirers of Milton Friedman are celebrating the 99th anniversary of his birth. See here. Maybe health care economists might browse through some of his work.Perhaps an econometric demonstration of the absence of a free lunch might be forthcoming.

Addendum: 11/12/14 Minor changes  made re style , spelling  and one factual error in regard to Dr. Accad's first name.

1 comment:

Alert and Oriented said...

Perhaps a "no economist left behind" program will help us deal with this alarming level of illiteracy? :-)
Michel Accad