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Musings Report #5 1-31-15 Healthcare and the Tragedy of the Commons
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The Musings are my favorite project of the week because I get to expand ideas that I'm not yet ready to unleash on the public blog. In this way, the Musings are brainstorming within the Inner Circle, as I often draw upon emails or ideas from Musings correspondents. On some occasions, the ideas shared here are too complex for the blog, which attempts to simplify complicated subjects for a general audience.
I also get to discuss investment/financial charts and ideas that I keep off the blog. Lastly, I curate the hundreds of links I receive/review every week into a dozen or so "From Left Field" recommended reading. I strive to include a variety of topics, and will often loosely organize a few of the links around a theme.
Healthcare and the Tragedy of the Commons
Non-U.S. readers may assume this essay will be U.S.-centric, but bear with me because I think the lessons drawn from the U.S. healthcare mess can be fruitfully applied to a variety of other large-scale problems around the world.
Let's start with an insightful look at the fixes that have largely failed to rein in costs and improve actual care/health.
Dilemma over deductibles: Healthcare costs crippling middle class:
"Physician Praveen Arla is witnessing a reversal of health care fortunes: Poor, long-uninsured patients are getting Medicaid through Obamacare and finally coming to his office for care. But middle-class workers are increasingly staying away.
"It's flip-flopped," says Arla, who helps his father run a family practice in Hillview, Ky. Patients with job-based plans, he says, will say: " 'My deductible is so high. I'm trying to come to the doctor as little as possible. … What is the minimum I can get done?' They're really worried about cost."
It's a deep and common concern across the USA, where employer plans cover 60% of working-age Americans, or about 150 million people. Coverage long considered the gold standard of health insurance now often requires workers to pay so much out-of-pocket that many feel they must skip doctor visits, put off medical procedures, avoid filling prescriptions and ration pills — much as the uninsured have done."
The average hourly wage is nearly identical to what it was 50 years ago in today's dollars: $19.18 in 1964 compared with $20.67 in 2014, according to U.S. Bureau of Labor data analyzed by the Pew Research Center. Meanwhile, U.S. health spending ballooned from 5% of gross domestic product in 1960 to 17% in 2013."
While I have often discussed unintended consequences of centralized policies such as ObamaCare, my focus today is how U.S. healthcare perversely reflects the Tragedy of the Commons, the seminal paper by Garrett Hardin which described the failure of the market to value/price communally owned essential assets, i.e. "the commons."
Here is a basic example of the dynamic: Each individual farmer will graze his cattle/sheep on the communally owned pastures ("the commons") to boost his own profit, since the commons are "free". This exploitation of what the market has determined is "free" leads to overgrazing and the destruction of the commons--a huge loss to the entire community as well as to the farmers who were grazing their animals in the commons.
When everyone sees the commons as "free for the taking," then the commons is soon destroyed for all.
To the degree that Central State (federal) revenue is a form of public commons (since it is collected from taxpayers), the siphoning of that resource to serve individual gain leads to the loss of the commons, as well as the loss of any notion of the "common good."
This dynamic is reflected in the extraordinary expansion of healthcare's share of the national economy, from 5% to 17% (and soon to 20%). While healthcare on the ground is about patients, from the financial point of view, healthcare is focused on increasing revenues and profits by whatever means are necessary.
Financially, the commons (tax revenues) are being stripped by those with the most political power.
Though we don't normally think of the health of a nation's citizens as a sort of commons, I think this makes a lot of sense. After all, the healthier a population is, the more productive and happy it will be, and that serves the interests of all residents.
From this perspective, we have to ask if the enormous expense of healthcare is improving the health and happiness of the populace as much as it could, were it spent more effectively. I think it is fair to say (and there is statistical evidence for this) that the overall health of the U.S. populace is actually declining, despite modest advances in longevity and survival rates.
This does not reflect any lack of effort from the often-overworked providers--rather, it seems to reflect a deterioration of the populace's own habits and lifestyles, and the lack of focus and accountability of the entire system.
We can trace this failure to the Tragedy of the Commons: when every participant is driven to seek maximum gain from exploiting the commons for their own interests, no one is accountable for protecting the commons as a whole.
When we ask, who is responsible for improving the day-to-day health of the citizens, we get an answer that boils down to: everyone and no one.
When the system is set up to encourage maximizing self-interest, accountability for the whole is lost. And once accountability for the effectiveness and health of the whole system is lost, the system will degrade and eventually collapse, for the same reason that unrestricted grazing by individuals eventually destroys the commons.
Put another way: if I concern myself with the health of the commons (or the overall health of the populace), I earn nothing for this work. Even worse, while I devoted myself to the common good, someone else increased his herd grazing the commons. I will eventually be forced to either join in the exploitation or go broke.
That's the Tragedy of the Commons dynamic, and I think it applies to many systems in many countries.
Summary of the Blog This Past Week
The Brutal Economics of Blogging 1/31/15
Looks Like I'll Be Able to Retire Comfortably at Age 91 1/30/15
Could the U.S. Become the Unrivaled Superpower Again? 1/29/15
The Surprising Consequences of the Global Frenzy for Positive Yield 1/28/15
Greece at the Crossroads: the Oligarchs Blew It 1/27/15
The Federal Reserve Has Declared the Winner in the Generational Financial War 1/26/15
Best Thing That Happened To Me This Week
Being in the airliner that was #2 in line for take-off rather than being in the one that blew a tire and aborted take-off.
Market Musings: Liquidity and Risk
Relatively obscure federal financial reports often contain gems that never reach a wide audience because they are too sobering.
A good example is the 2014 Annual Report of the U.S. Treasury's Office of Financial Research (164 pages). Admittedly, parts of the report are heavy going, and other parts are only of interest to those toiling away in federal regulatory agencies, but these statements caught my attention:
"During a protracted period of low interest rates and the Federal Reserve’s quantitative easing, investors may have taken low volatility for granted and underestimated the potential for a reversal. While quantitative easing policies are intended to encourage investors to buy risky assets, there is also a risk that the perceived reversal of such policies will lead investors to turn the other way, triggering market instability.
Similarly, investors may have become too sanguine about the availability of market liquidity — the ability to transact in size without having a significant impact on price — during both good times and bad.
Although the dislocation that peaked in mid-October was fleeting, we believe there is a risk of a repeat occurrence, given the increased prevalence of algorithmic trading, a shift in risk preferences by broker-dealers, and the persistent incentives for risk-taking."
In simple terms: unlimited liquidity might not always be present, and risk-taking may exceed the boundaries of prudence. Together, these two factors create the potential for a bidless market--that is, a market in which buyers vanish and sellers can't dump their shares, contracts and bonds at any price.
We can discern an increase in volatility in this weekly chart of the VIX index. It is not coincidental that the VIX hit its annual lows in July, when the market--and more importantly, many indicators other than price--were hitting peaks.
All this suggests removing assets from exposure to increasing volatility (i.e. liquidate stocks and hold cash) and limiting speculation to volatility itself, which appears to be increasing in amplitude.
From Left Field
Supermarket prank: fresh sausage (5:37) (via U. Doran) -- good recruiting tool for vegans...
Investment Riches Built on Subprime Auto Loans to Poor (via Joel M.) -- 23.74% interest loan for a used car, bundled and sold as a safe high-yield investment...Wall Street predation at work....
Middle Class Shrinks Further as More Fall Out Instead of Climbing Up (via Joel M.) -- been said before, but a good summary....
Behind Drop in Oil Prices, Washington’s Hand -- interesting essay on the government's role in shale oil technology....
Where School Dollars Go to Waste -- not surprised that Calif. is #1 in waste--no accountability in most school districts....
The World's Next Mortgage Crisis? How the rise of the Swiss franc could destabilize Europe -- unintended consequences of US dollar strength....
As China's Offshore Yuan Crashes To A 2 Year Low, Beijing Warns Its Citizens: "Don't Buy Dollars" -- see above comment....
Tangerine: The Sundance Film Festival trans movie shot entirely on an iPhone 5S (via Lew G.) -- who knew?
The Bechdel Test for Women in Movies -- fascinating 3-question test for any film; first time I ran across this....
The Unwelcome Visitor by Karoline Kan -- longform personal essay on the Chinese policy of fomenting hatred of Japan and Japanese people-- highly recommended for anyone who wants to truly understand the Chinese system and mindset....
Candice Ding: A Family Scales Up -- living comfortably in a very small home (via John D.)
The 10 most beautiful bicycles (via Joel M.) -- not sure I like any of these, but experimentation is good...
"The question is not what you look at, but what you see." Henry David Thoreau
Thanks for reading--
charles |
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