Tuesday, June 7, 2011

Winning the Argument by Arguing in the Abstract

David Brooks' column this morning annoyed me.  In it, he argued that there is a fundamental difference between Democrats and Republicans in that Democrats believe in centralized control and Republicans believe the world is complicated and imperfect necessitating a market based approach.

This is nonsense.  At this level of abstraction the Republican viewpoint is the only logical viewpoint.  Put this way, other than a handful of hard-left bozos out there absolutely no one believes this.  When the decentralized market based approach works, it always works better than central planning.

But this isn't really the frame from which the Democrats are arguing health policy, try as hard as Republican leaning pundits might want to move this onto an abstract philosophical plane where they know they will win.  The main Democrat critique is one of practical, empirical policymaking vs. this kind of soft theorizing.  The simple fact is that health care systems that have heavy government intervention, such as the rest of the developed world, score overall much better and at much lower cost.  We actually have a close experiment of attempted privatization of the health system in the Chinese reforms, they had to abandon the market based approach due to poor results, even relative to the sorry state of the system before the reforms.  They exhibited startlingly similar flaws to the US as well, such as overinvestment in high technology of marginal medical value.  From this perspective, it seems readily apparent than any positivist has to insist on the superiority of the state based schemes, whether or not this is explicable through theory.

Of course, this result isn't inconsistent with theory, just not the one Brooks is insisting on using.  Shift the theoretical model away from a private vs. public model and into theories of market formation and functioning instead and we start getting more traction.  There are a number of features of the health care system that make it particularly difficult to regulate using market mechanisms.  I'd be writing all night if I tried to get into them, and would have to back it up with more research and citations than I have time to do at the moment to convince anyone.  But to take up just one aspect (this is influenced by reading North's Structure and Change in Economic History which I had some issues with for similar reasons*), there is the question about whether or not neoclassical assumptions about human behavior are sufficient for dealing with issues such as health care (or more generally, with structure and change in economic history).  I personally don't believe they are.  Neoclassical assumptions work great for the sphere of human activity generally regarded as economic.  For most any good, economic maximizing behavior is readily apparent in human behavior, at least over the long term (in short time periods cultural and other elements can interfere, but generally economic behavior comes to the fore over time).

However, in certain areas, other aspects of human behavior leave their mark and are apparent in the data, leading to a great deal of theorizing that doesn't use neoclassical behavioral assumptions.  This is where the sort of sharp public/private divide that so many mistake for a theory of markets shows its weaknesses.  Concerns over personal security, family identity, and behavioral stresses all begin to show up with health care (and when we're discussing non-life threatening conditions this tend to recede into the background and behavior begins to look more like what we'd expect using neoclassical assumptions).  This is the central critique, not always stated in these terms of course, that those that lean towards government intervention in health care have.  We don't believe that the behavior being displayed in regards to health care corresponds with market behavior, and lacking this we cannot expect economic analysis rooted in neoclassical assumptions to be predictive of outcomes.  There are just too many other aspects of human nature in play in health care for these assumptions to hold.

* As a bit of an aside, I tend to think that some social scientists try to be more Catholic than the Pope in regards to theorizing.  It is not necessary to have a set of assumptions that hold for both the state and for economic behavior, we can more narrowly define economic behavior so that we can recognize when neoclassical assumptions are appropriate and when they are not.  It is not necessary for theory to be falsifiable to have a theory of the state or of ideology that works with neoclassical assumptions.  Instead, it is simply necessary that the realm of human behavior that those assumptions hold for be carefully defined and that whatever theory is built with these assumptions play nice with other theoretical perspectives, such as more recent takes on the state or on culture.  My undergraduate background is biology, so this seems intuitive to me.  I find it perfectly rational to be able to have theories regarding cell behavior, genetics, physiology, and population dynamics (just to name a grab bag of different levels of analysis) that don't all share exactly the same assumptions (of course, biology doesn't have the problem of having its area of study being solely the same things doing the studying and can rely more on observation of things that don't get pissed off at being analyzed, well at least pissed off in a way that leads to erudite snappishness rather than toothy snappishness, but a physiologist doesn't have to care if he can't explain his results in cellular mechanisms and can instead rely on his observations of the whole organism, or the individual system under study and have it simply be the functioning of the whole system under the study, not something grounded firmly in protein folding).  I don't need to be able to explain the behavior of the state in neoclassical terms (such as state as wealth maximizing, which is obviously not the case if the sample size includes anything aside from early modern European history) any more than I need to be able to explain population dynamics in term of gene theory.  They may possibly reinforce each other, economic insights may inform state behavior just as an advance in genetics may solve a difficult to explain shift in behavior of two related but distinct populations, but this does not mean that there is a need to try to describe either using the assumptions of the other.  Human behavior is too complex, we need multiple theories that describe various aspects of our behavior, not some kind of unified field theory like physics. 

That little rant doesn't mean that North's book isn't good, it's very good and well worth reading.  My issue is with his application of neoclassical wealth maximizing assumptions to the state, which works for early modern Europe and to some extent for conquest regimes such as the Mughal, but doesn't work many other states, such as China's belief in storing wealth with the people (to paraphrase something I recently read in Perdue's China Marches West, another book I highly recommend).  When looked from the perspective as a major advance in using institutional analysis to explain economic change North's book is very strong.  My feeling is that it tries to explain too much and that his use of the idea of institutions is too narrow and too focus on property rights (I also feel property rights is not adequately defined, North seems to be describing certain groups as favoring strong property rights and others disfavoring them, but I see something closer to various groups struggling to define a constitutive norm in what is property.  For instance, North writes about the importance of intellectual property which indicates that he is willing to expand the notion of property to social constructs.  However, in defining the supposedly property favoring groups in Britain and the Netherlands, he seems to be setting these against groups such as the French aristocracy.  I don't really see this as accurate, the French aristocracy was quite concerned with trying to enforce an idea of property rights that included property in things such as government office, and to some degree social position.  How is this not as much a property right as is intellectual property?  I agree that the long run impacts of these two conceptions is different, but this is not an argument for and against property rights, it is simply an argument over what will, and what will not, constitute property.  This ties in with what I mentioned earlier as market formation.  It is not simply an issue of whether or not the state intervenes, it is an issue about what a society does, and does not, recognize as property.  The definition chosen has powerful long run impacts on the development of a society.  This definition is essentially arbitrary at a theoretical level.  Of course, at an empirical, practical level, the society that chooses to treat office holding as a form of private property is unlikely to thrive relative to one that does not.  But this is a different form of argument.)

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