LINKS
April 9, 2011 5 Comments
Things I’ve flagged as worth linking to since the last time I wrote a blog post linking to stuff:
- South Bend Seven on how narrative bias makes all fiction left-wing.
- Ferris Bueller’s Day Off as a 2000s indie film, via threedonia:
- Lessons from Libya for Dictators in Distress
- Via Dr. Sanity, an honest Berkeley scientist rips the Climategate ‘scientists’ a new one:
- Foseti on budgets and the kabuki fiction of ‘debate’.
- Via Econlog, the lottery as the ultimate example of inequality that ‘progressives’ should oppose but don’t.
- The Love Potion of Socialized Medicine.
- DeLong and Krugman Don’t Get It by Falkenstein.
- The Failure of American Power by Whiskey.
- Wil Wheaton on a Stand By Me reunion, and River Phoenix.
- mkfreeberg identifies a truly irritatingly offensive phrase.
- Borepatch on our technocratic mandarins.
- Via Half Sigma, a feedback loop: the poor want to live in cities, which makes them more poor-friendly, which makes more poor people want to live in them, which makes them poor.
- Dafydd ab Hugh asks what happens if Qaddafi wins?
- Barack Obama, sham intellectual. What, President Obama actually seems smart to you? Oh my. How embarrassing for you.
- Bryan Caplan asks would you give up your health insurance for the cash equivalent? In other words, do you want to actually get your full salary in the form of money? Money can be spent on a variety of goods and services. Why is this even a hard question?
- “…redistributionists (liberals) are more racist, angrier, less altruistic, and less happy than anti-redistributrionists”.
- dissention says that real-life friends are useless.
Re the health insurance question: if economics is at all correct then very few people should be willing to give up their health insurance in exchange for cash. After all, they negotiated payment that included health insurance which means that they preferred insurance to the extra money. You’d have to give them more than the value of the insurance to induce them to give it up – possibly much more for some people.
This is the consumer surplus.
But the government uses the tax code to incentivize paying people partly in Health-Plan, so the fact that people take jobs instead of not-taking-jobs (which is essentially all you’re pointing out), doesn’t reveal any sort of preference for being paid partly in Health-Plan, or for anything else, other than having-a-job over not.
You’re right that you may have to give more money than the value of the Health-Plan for some people to make the switch. That’s why it’s a question, and an empirical one. People differ. Two things though.
One, we know that being paid in X worth of Health-Plan is automatically less valuable than being paid in X worth of cash. That is because cash contains the embedded option ‘I could spend it on other stuff’ while Health-Plan does not. And options are valuable; they have nonzero value. So a Health-Plan really has to be worth X+Y in order for the tradeoff to be worth it, where Y is the value of that option. To some people, maybe that value is very small (so they’ll almost surely pick Health-Plan); to others not.
But second of all, the first group of people could be irrational in how they are valuing that option. Maybe a lot of people would pick Health-Plan, because they are lazy to just find their own Health-Plan, or think “Y” is smaller than it is, or whatever, and they are dumb to have this preference. This cannot be ruled out. Just because different people have different answers to the question doesn’t mean they’re all intelligent or well-informed.
Finally, obviously peoples’ answers will be colored by the fact that in reality the choice isn’t X cash vs X Health-Plan, because the government warps the market in favor of Health-Plan using tax incentives, so the employer can buy more Health-Plan for the employee than he can pay him in cash. But this just means that the government reduces our net utility by penalizing some options (=being paid one’s salary fully in the form of Money) that under fully free exchange some people would prefer. Unless one is going to claim that absolutely no one would prefer that – but this has, I think, been disproven by the thread linked above.
best,
Government distorts the market via taxes – true enough but really small compared to the other distortions that government introduces. What government really does to ensure that the market functions in this truly bizarre fashion is that they’ve regulated / protected the insurers by both allowing / requiring them to basically only sell “health insurance” as a package deal with all sorts of options (like say, birth control pills) and disallowing individual sales. They didn’t say they were disallowing selling insurance to individuals but with the rules in place (apparently only made worse by Obama care (but then again, who even knows what that law will actually be – the regulators haven’t decided yet)) it’s impossible to profitably sell insurance to individuals. What winds up happening is that there are some huge bureaucracies that interact (regulators and insurers, corporate HR and insurers, insurers and hospitals / medical practices / etc.) and employ loads of people doing basically useless work that really does nothing but protect the massive interlocking bureaucracies. Evidence? Look at a hospital bill if you’re paying cash – it’s insane. The hospital, of course, will heavily discount that for an insurer.
In other words, the hospitals are propping up the insurers by making it impossible to go elsewhere. At the same time hospitals don’t exactly compete on price – the insurance companies protect them from that. If hospitals would charge lower rates or compete on price some consumers would opt out of the whole insurance market. That the insurance companies have to write big checks to the hospitals just means that they can turn around and demand big checks from HR departments. Corporate HR gets to have jobs negotiating marginal differences in the insurance offerings – they’re the ones supplying the money to fund the whole process so they’re the most protected – insurers won’t sell insurance to individuals. Basically a whole huge number of people have inserted themselves in the middle of a fairly common transaction so they get to be employed.
The whole matter really illustrates how far the models set out by economics are from the reality that exists. Would people rather have the money? What money? The amount their employer turns over to an insurance company in their name? Does that amount bear any relationship to anything that could be called a market price when everyone involved has the incentive to make it as large as possible? How can you even meaningfully consider the question?
On the other hand and ignoring all that economists can tell you that people will negotiate pay with employers on the margins – the market for employees being competitive. Because they do so if people preferred to get more compensation in cash and less in health care they’d provide it or lose employees to someone who did. As a result, employees will value health insurance at a higher dollar value than employers pay for it. Blah blah blah.
We’re both right. Government distorts things in the way I stated and in the way you stated. I don’t know how you can say the tax distortion is ‘really small’ though. It is basically the only reason anyone gets their health care through their employer or that the two are connected at all.
As for whether people prefer cash to health care in a competitive market, again, my point was that this result is distorted (i.e. paying people partly in Health-Plan is given a headstart) by the differential tax treatment. Let me know if you disagree.
Having worked in health care and seen how billing works up close, I do agree with all the distortions you point out however.
best
I guess I’m agnostic on the (present) issue of the tax distortions.
When the tax distortions were created they pushed everyone into the relationships I described above but if you were to eliminate the distortions today the bureaucracies that they created are so entrenched that nothing would change. I.e., tax policy is what started the process but changing the tax policy won’t undo any of the later changes.