Thursday, June 9, 2011

Brief Clarification on my Earlier Post

After some brief consideration I decided my post yesterday on Brooks' health care column was unusually rambling.  I thought I would briefly lay out why I thought this, without wading into the more complicated argument.

To put it succinctly, Brooks seems to be basically repeating Hayek's argument in the "Road to Serfdom" about centralized planning vs. market decision making.  This is accurate as far as it goes.

There are two general problems I have with this thinking generally, which can be extended to health care.  The first problem is that Hayek's argument is essentially ahistorical.  In my opinion, the idea that the government just needs to get out of the way is starting the story of market formation in the penultimate chapter.  There's quite a bit of research on early markets, these show that marketization is a highly complex, negotiated process (for an example I recently read, Perdue's China Marches West has an excellent section on Chinese efforts to get private traders to play a greater role in supplying settlements in the steppe territories.  The Chinese have known for many centuries how much more efficient markets are, but are more honest about the difficulties of getting markets to work.  The process is anything but spontaneous.  Also, while not as explicitly, he details how other social factors compete with economic growth, such as the need to secure the northern provinces requiring non-market intervention to attain horses which the Ming could not obtain in sufficient numbers through private traders (though they still fell short with non-market expedients as well), partially due to under-monetization, a problem that wouldn't be resolved till the Qing despite strenuous efforts, and how the inability to attain these horses undermined efforts to contain nomadic raiding which weakened the northern economy (not that this stopped traders from obtaining high quality horses for sale elsewhere, the benefits were accrued by the merchant and the end purchaser but ultimately at a high cost to many others as the lack of horses for military response depopulated northern areas and weakened overall economic growth).  This is obvious with a more developed theory of the process of market exchange, markets are little more than a communication device that relies on a mutual understanding (more technically, a set of constitutive norms) of what information the price signal conveys and a mutual agreement to leave out extraneous information.  For most purposes, once a market has developed, intermediate institutions (such as the state, but also including ethnic groups and other social institutions depending on the market under discussion) can largely get out of the way and the market will continue to be self-sustaining.  At this stage, once the constitutive norms have been set, then the further extension of markets exhibits spontaneous collaboration.  But this is the late stage, after the heavy lifting has already been done.  It doesn't occur on its own in isolation.  This is easily seen by looking at primitive societies, absent state intervention trade and economic relations look nothing like modern markets.  It is only after a great deal of work has been done that market cooperation occurs.  Health care is a peculiar area where for a number of reasons the normal spontaneous transitive process of marketization did not occur properly as it did with most other sectors.  This requires an outside entity to step in and properly set the rules of the game, and to bring the players into line to equalize power disparities, so that a functioning market can be formed.  While this may happen on its own with time, the time we're talking about is a very long period of time, which does little for people living today.  I don't much care if left to its own the various parties involved will reach an optimally efficient level of organization in a 100 years or so, I can't wait that long (assuming this would happen at all, which I doubt).

The second issue is that for economic reasoning to work, economic assumptions of human behavior have to hold.  This is a major problem with health care.  Home economus is a pretty good description of human behavior as it applies to economic transactions.  It is not a good description of how humans form personal relationships, how we act when scared, our desires for personal security, or how identity is formed.  This is normally widely accepted, aside from some people with too much specialized education, most people realize that human relationships and political concerns are only partially connected to our economic actions and interests.  We have multiple identities that only have partial interaction with each other.

Health care being a big exception to this (other areas, such as land ownership, do display this to some degree, this is related to what I mentioned above about market formation, markets in goods that functioned similarly to modern markets significantly predated free markets in land for this very reason, and since health care displays even more of these properties if a free market in health care is the ultimate teleological development then we should expect that it will be an even longer, more drawn out process than markets in land and labor were and to display an even greater need for interventionist policies to get to that penultimate stage where the state can get out of the way).  Health care impacts on too many other areas of human interest that fall outside of neoclassical, utility maximizing assumptions.  It impacts identity, we here a lot about the basic dignity of human life with health care, we hear a lot less about this with labor or land markets and not at all with luxury car markets.  We hear of personal security, we never act as economic maximizers in regards to physical security if it involves someone with a gun, we shouldn't expect to do so with regards to cancer either.  Family plays a much larger role here than with most economic decisions, with the big expensive stuff the individual is not going to often be the best unit for analysis as it is for most economic transactions.  I could go on quite a bit, but the general point I am making is obvious, there are too many aspects of human life impinging on this sector for normal economic assumptions to hold.

This leads to why the state has to play a larger role.  In modern society, the state has assumed most of the roles that other social actors once played in responding to non-economic actions of the people making up the society.  There just isn't any other entity that can respond to anxieties about the impact on the family (such as an elderly person using up what would otherwise have gone to their children on medical care, often because they are no longer able to make a decision themselves and family members authorize a spare no expense approach individually to signal the value of family and family solidarity to others), buyers remorse regarding care received (people regretting authorizing aggressive treatment rather than hospice is extremely common, when emotionally overwrought it's simply a human reaction to over-respond and to regret it later, the state can pick up on this but market interactions by their nature are limited to the time of interaction between contracting parties), etc.  There is just too much evidence that the health care sector is not displaying the properties of modern markets to think that state withdrawal would make it function according to these assumptions better and too much input from aspects of human nature that do not conform to neoclassical assumptions for the frame of centralized vs. decentralized decision making to hold properly.  Applying neoclassical assumptions to the health care sector is simply inappropriate giving the social institutions we are currently living with.  At some point the state may be able to get out of the way, but that point is very, very far off yet.  What the comparative evidence keeps saying is we're just not there yet.

1 comment:

  1. I actually don't think there's much of a constituency for getting the government out of healthcare. Political writers and practitioners tend to be glib, careless and shallow but I think the "central planning" case on ACA is unusually rhetorical. Even the Clinton proposal had regional planning bodies.