At the beginning of the 19th century there was almost no vestige of Protestantism in Brazil. From the 16th century the country was colonized basically only by Portuguese, who resisted the advance of Protestantism during the same period. Huguenots and Dutch Reformers tried to colonize parts of Brazil in the 16th and 17th centuries, but with little or no lasting effects. Only after the arrival of the Portuguese royal family in 1808 did this picture begin to change.
First came the English Anglicans. England rendered a great help to Portugal in the context of the Napoleonic Wars, and thus the subjects of the English crown gained religious freedom on Brazilian soil. This freedom soon extended to German Lutheran immigrants who settled mainly in the south of the country from the 1820s. However, it was only with the American missionary work, from the 1840s and 1850s, that Protestantism really began to settle in Brazil.
James Cooley Fletcher was one of the people who contributed most to the establishment of Protestantism in Brazil. Quoted frequently by historians, he is, however, little understood by most of them and little known by the general public. Born April 15, 1823 in Indianapolis, Indiana, he studied at the Princeton, Paris, and Geneva Seminary between 1847 and 1850 and first came to Brazil in 1852. In 1857 he published the first edition of The Brazil and the Brazilians, a book which for many decades would be the main reference regarding Brazil in the English language.
Fletcher first came to Brazil as chaplain of the American Seamen’s Friend Society and a missionary of the American and Foreign Christian Union. However, shortly after his arrival in the country, he made it his mission to bring Protestantism to the Brazilians. His performance, however, would be indirect: instead of preaching himself to the Brazilians, Fletcher chose to prepare the ground for other missionaries. For this he became friends with several members of the Brazilian elite, including Emperor Dom Pedro II. Through these friendships, he managed to influence legislation favorable to the acceptance of Protestantism in Brazil.
Although Fletcher anticipated and aided missionaries who would work directly with the conversion of Brazilians to Protestantism, his relationship with these same missionaries was not always peaceful. Some of the missionaries who succeeded Fletcher were suspicious of him because of his contacts with Brazilian politicians. It is true, Fletcher had an agenda not always identical with that of other missionaries: while others wished to focus only on the conversion of Brazilians, he understood that Protestantism and liberalism were closely linked, and that the implementation of the first in Brazil would lead to the progress propelled by the second. For this very reason, Fletcher had no problem engaging in activities that at first glance would seem oblivious to purely evangelistic work. He promoted, for example, the immigration of Americans to Brazil, the establishment of ship lines linking the two countries, the end of slavery in Brazil and commercial freedom.
James Cooley Fletcher is generally little remembered by Brazilian Protestants, although he has contributed decisively to the end of the Roman Catholic monopoly in the country. He is also little remembered by historians, but this should not be so. Fletcher was one of the people who contributed most to the strengthening of religious freedom in Brazil, and also to a combination of religious, political, and economic beliefs. It was precisely because of his religious beliefs that he believed in the political and economic strength of liberalism to transform any country, including Brazil.
According to The Economist, the latest US federal budget includes incentives for “congestion pricing” of roads.
Ostensibly, this is about reducing congestion. But some municipalities like the idea of charging for roads because it represents a new revenue stream. This creates an incentive to charge a price above cost. When a firm does this, we call it a “monopoly price.”
But when a government monopoly forces you to pay a fee to use a good or service, do not call it a price. It is a fee that a government collects by fiat. In other words, it is a tax.
A price is a voluntary exchange of money for a good or service. The emphasis on voluntary is important, because it is this aspect of the price that enables economic calculation for what people really want. Even a free market “monopolist” (however unlikely or conceptually vague it may be) engages in voluntary exchange.
On the other hand, a bureaucrat “playing market” by imposing fees on government-controlled goods and services will not have the same results as a market process. For starters, unlike a person making decisions on their own behalf, a government bureaucrat has to guess at costs. Under a voluntary system, a cost is the highest valued good or service you voluntarily give up in order to attain a goal. But the bureaucrat is dealing with other people’s money.
To “objectively” determine costs, in order to set “fair” prices, is a chimera. In the words of Ludwig von Mises, “[a] government can no more determine prices than a goose can lay hen’s eggs.”
I see my craft as an economic historian as a dual mission. The first is to answer historical question by using economic theory (and in the process enliven economic theory through the use of history). The second relates to my obsessive-compulsive nature which can be observed by how much attention and care I give to getting the data right. My co-authors have often observed me “freaking out” over a possible improvement in data quality or be plagued by doubts over whether or not I had gone “one assumption too far” (pun on a bridge too far). Sometimes, I wish more economists would follow my historian-like freakouts over data quality. Why?
In that paper, Michael Clemens (whom I secretly admire – not so secretly now that I have written it on a blog) criticizes the recent paper produced by George Borjas showing the negative effect of immigration on wages for workers without a high school degree. Using the famous Mariel boatlift of 1980, Clemens basically shows that there were pressures on the US Census Bureau at the same time as the boatlift to add more black workers without high school degrees. This previously underrepresented group surged in importance within the survey data. However since that underrepresented group had lower wages than the average of the wider group of workers without high school degrees, there was an composition effect at play that caused wages to fall (in appearance). However, a composition effect is also a bias causing an artificial drop in wages and this drove the results produced by Borjas (and underestimated the conclusion made by David Card in his original paper to which Borjas was replying).
This is cautionary tale about the limits of econometrics. After all, a regression is only as good as the data it uses and suited to the question it seeks to answer. Sometimes, simple Ordinary Least Squares are excellent tools. When the question is broad and/or the data is excellent, an OLS can be a sufficient and necessary condition to a viable answer. However, the narrower the question (i.e. is there an effect of immigration only on unskilled and low-education workers), the better the method has to be. The problem is that the better methods often require better data as well. To obtain the latter, one must know the details of a data source. This is why I am nuts over data accuracy. Even small things matter – like a shift in the representation of blacks in survey data – in these cases. Otherwise, you end up with your results being reversed by very minor changes (see this paper in Journal of Economic Methodology for examples).
This is why I freak out over data. Maybe I can make two suggestions about sharing my freak-outs.
The first is to prefer a skewed ratio of data quality to advanced methods (i.e. simple methods with crazy-data). This reduces the chances of being criticized for relying on weak assumptions. The second is to take a leaf out of the book of the historians. While historians are often averse to advantaged data techniques (I remember a case when I had to explain panel data regressions to historians which ended terribly for me), they are very respectful of data sources. I have seen historians nurture datasets for years before being willing to present them. When published, they generally stand up to scrutiny because of the extensive wealth of details compiled.
This is an extremely interesting point, the worth of fighting pirates and guerre de course seems difficult but is completely worth the effort. Strangely, just before reading this post, I finished the book To Rule The Waves by Arthur Herman, which asserts that the rise of large-scale trade went hand in hand with the growth of British naval strength, and points very specifically to the 18th and 19th centuries. On page 402, he asserts that it was only naval protection that enabled British trade to grow considerably during the Napoleonic wars (over 11,000 British merchants were captured by the French from 1793-1815 and far more would have been but for the British blockades and convoy protection). How much can one measure the cost-to-yield of maintaining peaceful trade against such depredation?
Herman also argues that Naval research and technology drove the development of far better seagoing technologies without which large-scale merchant ventures would have had far lower yield (perhaps the most famous example is the Longitude Prize) and the demand for iron and ship production was a major driver of the early Industrial Revolution. While I think that both of these arguments are very vulnerable to crowding out arguments, it seems to me that there were nuanced interconnections between technology, trade, and naval power that each had positive feedback into the others. It seems to me that by examining the very large investment made by the British East India Company in their merchant marine in this very period gives a parallel in which private interests made similar investments in protection of sea trade routes, showing its probable positive return on investment.
I am glad to see that you have recognized that naval production was almost always based on relative strengths of navies. The huge decomissioning trends of the mid-19th century in Britain was exceeded by that of their enemies/rivals (the Dutch had been weak since the late 1600s, the French were exhausted completely, and the Spanish and Portuguese were on a long decline worsened by French occupation). However, there is one major aspect to consider in examining naval strength longitudinally: complete revolution in ship technology. Steam, iron plating, and amazing advances in artillery picked up hugely after 1815, and the British navy in the Crimean War would have been unrecognizable to Nelson. I am not sure how this would affect your analysis, because navies became simultaneously more expensive and more effective, and GDP was exploding fast enough to support such high-tech advances without bankrupting the Brits. I am sure this is not an original problem, but I am interested in seeing how historical economists can control for such changes.
Good luck on this paper, it seems like an extremely useful examination with a lot of interesting complications and a fundamentally important commentary on the balance between maintaining law and allowing market determination of resource distribution.
This Wednesday, O Globo, one of the newspapers of greater audience in Brazil, leaked information obtained by the Federal Policy implicating president Michel Temer and Senator Aécio Neves in a corruption scandal. Temer was recorded supporting a bribe for former congressman Eduardo Cunha, now under arrest, so that Cunha would not give further information for the police. Aécio, president of PSDB (one of the main political parties in Brazil), was recorded asking for a bribe from a businessman from JBS, a company in the food industry. The recordings were authorized by the judiciary and are part of the Operation Lava Jato.
In the last few years Oparation Lava Jato, commanded by Judge Sérgio Moro and inspired by the Italian Oparation Clean Hands, brought to justice some of the most important politicians in Brazil, including formed president Luis Inácio Lula da Silva. However, supporters of president Lula, president Dilma and their political party (PT) complained that Moro and his team were politically biased, going after politicians from the left, especially PT, and never form the right – especially PSDB. PSDB is not actually a right-wing party, if we consider right wing only conservatives and libertarians. PSDB, as it name implies, is a social democratic party, i.e., a left wing one. However, since the late 1980s and especially mid-1990s, PSDB is the main political adversary for PT, creating a complicated scenario that PT usually explores politically in its own benefit. In any way, it is clear now (although hardcore Lula supporters will not see this) that Operation Lava Jato is simply going after corrupt politicians, regardless if their political parties or ideologies.
With president Michel Temer directly implicated in trying to stop Operation Lava Jato, his government, that already lacked general public support, is held by a string. Maybe Temer will resign. Other possibility is that the Congress will start an impeachment process, such as happened with Dilma Rousseff just a year ago. In one way or another, the Congress will have to call for a new presidential election, albeit an indirect one: the Congress itself will elect a new president and virtually anyone with political rights in Brazil can be candidate. This new president would govern only until next year, completing the term started by Dilma Rousseff in 2014. There is also another possibility in the horizon: the presidential ticket that brought both Dilma Rousseff and Michel Temer to Brasília is under investigation and it is possible that next June Temer will be declared out of office by the electoral justice.
Politicians from the left, especially REDE and PSOL, want a new presidential election with popular vote. In case Temer simply resigns or is impeached, this would require an amendment to the already tremendously amended Brazilian constitution. This new election might benefit Marina Silva, virtual candidate for REDE and forerunner in the 2010 and 2014 presidential elections. Without a solid candidate, it is possible that PSOL will support Marina, or at least try a ticket with her. A new presidential election with popular vote could also benefit Lula, still free, but under investigation by Moro and his team. Few people doubt that Lula will be in jail very soon, unless he escapes to the presidential palace where he would have special forum.
Temer already came to public saying that he will not resign. Although a corrupt, as it is clear now, Temer was supporting somewhat pro-market reforms in Brazil. In his current political predicament it is unlikely that he will be able to conduct any reform. The best for Brazil is that Temer resigns as soon as possible and that the Congress elects equally fast a new president, someone with little political connections but able to run the government smoothly until next year. Unfortunately, any free market reform would have to wait, but it would also give time for libertarian, classical liberal and conservative groups to grow support for free market ideas among the voters until the election. A new presidential election with popular vote would harm everyone: it would be the burial of democratic institutions in Brazil. Brazil needs to show the World that it has institutions that are respected, and to which people can hold in times of trouble, when the politicians behave as politicians do.
This question is the one that me and Phil Magness have been asking for some time and we have now assembled our thoughts and measures in the first of a series of papers. In this paper, we take issue with the quality of the measurements that will be extracted from tax records during the interwar years (1918 to 1941).
More precisely, we point out that tax rates at the federal level fluctuated wildly and were at relatively high levels. Since most of our inequality measures are drawn from the federal tax data contained in the Statistics of Income, this is problematic. Indeed, high tax rates might deter honest reporting while rapidly changing rates will affect reporting behavior (causing artificial variations in the measure of market income). As such, both the level and the trend of inequality might be off. That is our concern in very simple words.
To assess whether or not we are worrying for nothing, we went around to find different sources to assess the robustness of the inequality estimates based on the federal tax data. We found what we were looking for in Wisconsin whose tax rates were much lower (never above 7%) and less variable than those at the federal levels. As such, we found the perfect dataset to see if there are measurement problems in the data itself (through a varying selection bias).
From the Wisconsin data, we find that there are good reasons to be skeptical of the existing inequality measured based on federal tax data. The comparison of the IRS data for Wisconsin with the data from the state income tax shows a different pattern of evolution and a different level (especially when deductions are accounted for). First of all, the level is always inferior with the WTC data (Wisconsin Tax Commission). Secondly, the trend differs for the 1930s.
I am not sure what it means in terms of the true level of inequality for the period. However, it suggests that we ought to be careful towards the estimations advanced if two data sources of a similar nature (tax data) with arguably minor conceptual differences (low and stable tax rates) tell dramatically different stories. Maybe its time to try to further improve the pre-1945 series on inequality.
Intelligence sharing in regards to the global war on Islamic peoples terrorism has been an ongoing affair for numerous states since the collapse of socialism in 1989. Russia, the US, Europe, Israel, states in the Near East, and China have all shared intelligence in this regard.
Here’s what’s happening in the US: the American Left needs a foreign boogeyman to harp on the Right. The Right uses Muslims, immigrants, and China to harp on the Left, but the Left counters with charges of racism and xenophobia. The Left still needs a foreign boogeyman (voters love foreign scapegoats) and Russia’s political class is white, conservative, and Christian. Traditionally (at least in my time) the Left’s foreign boogeyman has been Israel and its political class (white and conservative but not Christian), but populism in Russia has produced a product that the American left just couldn’t resist.
I have been trying, for some time now, to circle an issue that we can consider to be a cousin of the emerging “state capacity” literature (see Mark Koyama’s amazing summary here). This cousin is the literature on “empire effects” (here and here for examples).
The core of the “empire effect” claim is that empires provide global order which we can consider as a public good. A colorful image would be the British Navy roaming the seas in the 19th century which meant increased protection for trade. This is why it is a parent of the state capacity argument in the sense that the latter concept refers (broadly) to the ability of a state to administer the realm within its boundaries. The empire effect is merely the extension of these boundaries.
I still have reservations about the nuances/limitations of state capacity as an argument to explain economic growth. After all, the true question is not how states consolidate, but how they create constraints on rulers to not abuse the consolidated powers (which in turn generates room for growth). But, it is easy to heavily question its parent: the empire effect.
Shipping is one of the industry that is most likely to be affected by large empires – positively or negatively. Indeed, the argument for empire effects is that they protect trade. As such, the British navy in the 19th century protected trade and probably helped the shipping industry become more productive. But, achieving empire comes at a cost. For example, the British navy needed to grow very large in size and it had to employ inputs from the private sector thus crowding-it out. In a way, if a security effect from empire emerged as a benefit, there must have been a cost. The cost we wish to highlight is the crowding-out one.
In the paper (written with Jari Eloranta of Appalachian State University and Vadim Kufenko of University of Hohenheim), I argue that, using the productivity of the Canadian shipping industry which was protected by the British Navy, the security effect from a large navy was smaller than the crowding-out from high-levels of expenditures on the navy.
While it is still a working paper which we are trying to expand and improve, our point is that what allowed the productivity of the Canadian shipping industry (which was protected by Britain) to soar was that the British Navy grew smaller in absolute terms. While the growth of the relative strength of the British Navy did bolster productivity in some of our tests, the fact that the navy was much smaller was the “thing in the mix that did the trick”. In other words, the empire effect is just the effect of a ramping-down in military being presented as something else than it truly is (at least partly).
That’s our core point. We are still trying to improve it and (as such) comments are welcomed.
10% of DR Congo’s landmass is dedicated to national parks and other protected environmental areas. Guess how well they’re protected. Privatization might not work here, though. Why not go through traditional “tribal” property rights first, and then, eventually, mix up the customary land rights with private property rights?
A recent article in the Economist describes the results from a study of an interesting Japanese custom. Traditionally (and according to the civil code until 1945), company ownership and leadership were passed on through primogeniture. This custom has continued to be practiced, and the study found solid evidence that family-managed companies outperform professionally managed companies. It could be argued that family unofficial training, continuity, and trust are at the root of this, but the authors find a different reason: adoption.
Japan and the US lead the world in adoption rate, but Japanese adoption is not necessarily what you would think. Over 90% of Japanese adoptions are of adults, who are usually men adopted into childless (or more specifically son-less) families for business purposes. This is also quite traditional, and since Japanese birth rates are extremely low, Japanese businessmen are likely to continue adopting talented, ambitious single men. This is often also accompanied by marriage to the daughter of the businessman (while women participate in business in Japan, they are more rarely the executives), which is referred to as mukoyoshi and combines familial with business ties.
This practice has the advantage of allowing for the trust, mutual investment, and long-term planning and teaching based on family relationship while avoiding the risk of having an unfit successor. In fact, in reading this, I am reminded of another culture’s custom of adoption: ancient Rome.
Ancient Rome also had a custom of adoption among its upper classes because of the prestige associated with old patrician family names and the incentives of inheritance laws (for a time it also served as a political means of a patrician gaining the tribuneship, as the Gracchi did). Similarly to the Japanese businessmen, adopted sons tended to excel (the earliest and best example is the Republican general Scipio Aemilianus), and it served as a method of political alliance and developing shared interest. It also became a typical method of succession for Roman emperors in the case that no son was available, a deal needed to be made between factions, or an emperor had a favored successor to whom he was not related. Adopted emperors included Trajan (adopted by Nerva as deal with the army, successful and beloved military leader), Hadrian (great builder and patron of the arts), and Marcus Aurelius (famed general and philosopher), and were generally well-reputed and effective leaders. In contrast, the sons of emperors (such as Domitian and Commodus, who were both infamously insane and harmful, or Maxentius, whose usurpation followed a blood-based claim) or blood-based successors (such as Caligula, who was blood-thirsty and childish, Nero, who was brutal and wasteful, and Elegabalus, who had was more interested in orgies than leadership).
It seems that the same potential reasons underlying Japanese business success through adoption were also at work in antiquity: emperors who were chosen and bred based on their abilities provided the continuity associated with heredity but with the advantage of meritocratic selection. This raises the question of whether this advantage has somehow been passed over by the Western world in those cases where we have avoided family-based succession in business (based on worries about nepotism and/or to gain the advantages of meritocratic selection). Even more interesting, does the adoption practice maintain the freedom of choice and opportunity found in Western careers while also conferring the ability to maintain trust and continuity that family-based succession offers?
Before I go any further let me be clear that I am not arguing against the use of Spanish generally. Nor am I arguing against providing Spanish translations in public spaces. My concern is about the conflation of Hispanics and migrants.
I had the pleasure of being educated in bilingual classrooms during my early childhood. My entire life I have alternated between English and Spanish. When I have kids (I can dream!) I plan to educate them in both languages plus either Chinese or Japanese. I absolutely love Spanish. However I often worry that it has become too prevalent among migrant circles.
When I visit migrant groups I notice many of them have Spanish names or sprinkle Spanish slogans among their material. The worst instances of this is when ‘la raza’, the race, is used as reference to the pan Hispanic community. I can understand why they do so, Hispanic migrants probably find such gestures to be in good will and are more willing to seek help when they need it. What however of non-Hispanic migrants?
We, Hispanic migrants, often make fun of white Americans for thinking that all Hispanics (plus Brazilians!) must be Mexicans.”Guatemala? Where is that in Mexico?” Yet we fall into the same trap of thinking that all migrants are Hispanics. How must Asian or African migrants feel when they search for help but are surrounded by Spanish? It is hard enough to learn one new language, let alone two.
As I’ve mentioned before, I grew up in Los Angeles’ Koreatown. As the name suggests the area has a sizeable Korean population. I interacted with them all the time, except when it came to migrant related events. Their absence was particularly notable in services for undocumented/illegal aliens. Koreans, unknown to most, make up a significant share of undocumented migrants. You’ll rarely see them at events though. Part of it is a taboo about discussing the issue in the Asian migrant community. I can’t help but feel that it is also that we, Hispanic migrants, have made them feel unwelcome in our groups.
If migrant groups care about inclusion they should avoid the use of Spanish where possible. By the same account, can we please stop linking Cinco de Mayo and other Hispanic-linked things with all migrants. By all means have Spanish translations of your material, but also have translations in Korean, Chinese, etc etc.
Since 1994, Brazilian presidential elections follow a pattern: PSDB and PT candidates are the main competitors, with a third candidate falling between the main leaders and countless dwarf candidates. Although this third candidate does not reach the presidency and does not even dispute the second round of the elections, its political influence tends to increase and its support happens to be disputed by the candidates of the PSDB and the PT. So it was mainly with Marina Silva in 2010 and 2014, and possibly will be so with Jair Bolsonaro in 2018.
After being defeated in 1989, 1994 and 1998, Luis Inacio Lula da Silva finally won the presidential election in 2002 and was re-elected in 2006. In 2002 Lula was benefited by the low popularity of President Fernando Henrique Cardoso (FHC), hurt by the circumstantial economic difficulties that the country was going through. FHC was practically absent from the campaign of his successor candidate, José Serra, apparently by common agreement of the incumbent and the possible successor. In addition, Lula and the PT had a radical change of stance that year, expressed mainly by the “Letter to the Brazilian People”. In this document Lula promised to abandon his historic struggle against free markets and to maintain the basic guidelines of FHC’s economic policy, which in the middle of the previous decade had taken the country from one of the worst economic crises in its history. The Brazilian economy left the circumstantial difficulty of 2002 and with this Lula secured his reelection in 2006. However, looking back, the arrival of Lula to the power was not accidental. Created in the late 1970s, the PT always faithfully (and not secretly) followed Antonio Gramsci’s guidelines of cultural Marxism: to come to power not by violence and also not by elections per se, but by cultural influence. This guideline guaranteed to Lula, even in the elections he lost, about 30% of the valid votes. The other 21% were electors dissatisfied (in the case of 2002) or excited (in the case of 2006) with the economic conditions of the moment. However, it is this same strategy of cultural Marxism that is now opening room for Jair Bolsonaro.
Bolsonaro is already an old congressman in Brazil, but has only really become famous in recent years. Elected for the first time in 1990, he fiercely criticized FHC’s free-market economic policy during the 1990s. In his view the then-president was a entreguista (something like a surrenderer) and the Brazilian economy needed to be protected against foreigners. Bolsonaro has also many times attenuated or even denied the fact that Brazil underwent a military dictatorship between 1964 and 1985. But what his followers (who call him Mito) really admire him for is the way he stands against political correctness, in a way reminiscent of Donald Trump. Bolsonaro became famous mainly for opposing the introduction of gender ideology as content in the country’s public schools. For this reason he is often accused of machismo and homophobia by his opponents. In recent statements Bolsonaro expresses greater support for the free market, but maintains his admiration for the military that governed Brazil in the past and a hard line against the politically correct.
Not only in Brazil, but in other parts of the world, the spell of cultural Marxism is turning against the sorcerer. When the facts refuted Marx’s economic theory (already brilliantly refuted by Mises) some Marxists, such as Oskar Lange, and more recently Thomas Piketty, sought a soft version of economic Marxism. Many others, however, took refuge in the cultural Marxism of Gramsci, Foucault, Herbert Marcuse, and others. The option was simple: instead of admitting that Marxism is not true, many Marxists decided that truth is relative. The main result of this is the identity politics that spread throughout the world. Everyone wants to identify themselves as members of minorities who are not represented by traditional politicians. It was only a matter of time before white middle-aged men began to complain that they were not represented. And so white middle-aged men have taken Britain out of the European Union, elected Trump US president and will shortly elect leaders in other countries or at least greatly annoy the globalist establishment.
Throughout the world there is a weakening of the semi-Marxist welfare state, and the same can be observed in Brazil. Important right-wing leaders have emerged in recent years, ranging from conservatism to libertarianism. In the case of Brazil, however, where the population is still largely socially conservative, there is a strong tendency towards a conservatism with which libertarians do not identify, and this trend is stopping the advance of communism in the country. Brazilians can accept Marxism in politics and economics, but they do not accept it in their bedrooms as easily. It is possible that Bolsonaro is accepting the basic premises of a free-market economy, but his main appeal is to be the most anti-Lula, anti-PT, anti-establishment and politically incorrect presidential candidate. Even if he is not elected president in 2018, or even reaches the second round of elections, Bolsonaro is already a political leader impossible to ignore.
This post is meant to help my non-economist friends think more clearly about how we pay for health care. I’ll talk about markets, but the truth is that the American system is built of deeply bastardized markets. If our car markets worked like our health markets, most of us would walk to work. I’m trying to focus on the essential logic of the situation which is going to sound Utopian because Congress isn’t going to give us any sort of logical policy any time soon. But we aren’t going to get a logical solution until we as voters understand the logic of health care finance.
I’ve got a few big points to make:
Trying to health insurance also work like charity is bound to end poorly for everyone.
A single-payer system has a lot of nice features for individuals, but a lot of systemic problems.
It’s fundamentally impossible to insure pre-existing conditions. Insurance is about sharing risk, not unavoidable expenses.
(This post is longer than I’d like, so thanks for your patience!)
The essence of markets is that they aggregate knowledge about the relative costs and benefits of different goods based on the preferences of the real people involved in producing and consuming those goods.
The demand side of markets provide information by giving you (as a consumer) a choice between more of something you like and more money to spend on other stuff. On the supply side they give you (as a supplier–probably of your own labor) the choice between providing more of what people are willing to pay for or having less money to buy the stuff you want. Markets crowdsource cost-benefit analysis.
Prices also give suppliers an incentive to produce things that consumers want while trying to save resources (i.e. cut costs). In other words, a price is a signal wrapped up in an incentive.
So what about fairness? The bad news is that markets are a system of “from each according to their ability, to each according to how much other people are willing to pay for the product of their ability.” (Not very catchy!) It’s mostly fair for most of us, but doesn’t do much good for people who are just unlucky (e.g. kids born with genetic defects). Here’s the good news: we can use charity alongside markets.
We can debate how much role government should play in charity some other time. For now, let’s whole-ass one thing instead of half-assing two things. We have to appreciate that interfering with markets interferes with the ability of those markets to function as sources of reliable information. It doesn’t matter how good our intentions are, we face a trade off here… unless we do something to establish a functioning charity system parallel to the health care finance system.
Single Payer
Anecdotes about the merits of a single-payer health care system are powerful because they shed light on the biggest benefit to such a system: individual convenience.
Part of the appeal has to do with the general screwiness of the American system. It’s a cathedral built of band-aids. But even in an idealized market system, a single-payer system has the advantage of not making me go through the work of evaluating which plan best suits my needs.
A single-payer system is, from an individual perspective, about as ideal as having your parents pay for it. But we don’t really want our parents buying our stuff for us.
Single payer system sacrifice the informational value of markets (probably even more so than America’s current system of quasi-price controls). Innovation would be harder as long as new treatments had to be approved by risk-averse bureaucrats (and again, we already face a version of this with Medicare billing codes and insurance companies).
Essentially, a single payer system creates a common pool problem: each of us gets the individual benefit of being able to be lazy. But then we’re left trusting bureaucrats, special interest groups, and think tanks to keep an eye on things. It could be an improvement over the current American system, but that’s like saying amputation is better than gangrene.
Insurance
Premium = expected cost + overhead
Consider two alternatives. In scenario A you start with $150, flip a coin, and if it comes up tails you lose $100. In scenario B you get $90. The expected value of A is $100, but most of us would still prefer the sure thing.
Here’s how insurance works: You start with $150, give $60 to the insurance company, then flip the coin. If it comes up tails, you lose $100, but the insurance company gives you back $40. You’ve just gotten the sure thing. And by taking on thousands of these bets the insurance company is able to make enough money to pay their employees.
But here’s the thing: the premium they charge is fundamentally tied to that expected value. Change the odds, or the costs (i.e. the claims they have to pay for) and you’ll change the premium.
(BTW, Tim Harford did a nice ~8 minute podcast episode on insurance that’s worth checking out.)
Pre-existing conditions are the equivalent of changing our thought experiment to a 100% chance of flipping tails. No amount of risk sharing that will get you to the $90 outcome you want. You can’t insure your car after you’ve been in an accident and you can’t insure a person against a loss they’ve already realized. If you’re Bill Gates, that’s no big deal, but for many people, this might mean depending on charity. That’s a bummer, but wishful thinking can’t undo that.
If we insist that insurance companies cover pre-existing conditions* the result can only be higher premiums. This is nice for people with these pre-existing conditions, but not so great for (currently) healthy poor people. Again, charity matters needs to be part of the debate, but it needs to be parallel to insurance markets.
Covering more contingencies also affects premiums. The more things a policy covers, the higher the expected cost, and therefore the higher the premium. We each have to decide what things are worth insuring and what risks we’re willing to face ourselves. Politics might not be the best way to navigate those choices.
High deductibles and catastrophic care
Actuaries think about the cost of insuring as a marginal cost. In other words, they know that the odds that you spend $100 in a year are much higher than the odds that you spend $1000. So the cost of insuring the first dollar of coverage is much higher than the cost of insuring the 5000th dollar. This is why high deductible plans are so much cheaper… they only pay out in the unlikely situation where something catastrophically bad happens to you. This is exactly why most of us want insurance. We aren’t afraid of the cost of band-aids and aspirin, we’re afraid of the cost of cancer treatment.
For those of us firmly in the middle class, what we really need is a high-deductible plan plus some money in the bank to cover routine care and smaller emergencies. (Personally, my version of this is a credit card.) Such a plan has the added benefit of encouraging us to be more cost conscious.
A big problem with our current system is that it’s set up like an all-you-can-eat buffet. You pay to get in (your premiums) but once you’re in the hospital, any expenses are the insurance company’s problem (read: everyone else on your health plan). The logic here is the same as with pollution. When I drive my car I get the benefits of a quick and comfortable commute but I also suffer a little bit more pollution. But I don’t have incentive to think about how that pollution affects you so I pollute more than would be ideal. Multiply that by millions of people and we can end up with smog.
tl;dr
If I were trying to put together a politically palatable alternative to our current system, I’d have an individual mandate with insurance vouchers for the poor (it’s not very libertarian, and it’s far from my Utopian ideal, but I think it would be a huge improvement over what we’ve got now). I would also expand the role of market competition by encouraging high deductibles plus flexible health savings accounts.
Reality is complicated, but I’m trying to get at the fundamental logic here. We don’t have a properly functioning market system. To get there we need competition, transparency, and a populace with the mental tools and mathematical literacy necessary to understand what their insurance can and can’t do. That’s a tall order, but it doesn’t mean we shouldn’t keep trying to move in that direction.
To have a fruitful debate we need to understand what we want from our healthcare system: help for the poor (charity), convenience, and efficiency from an individual and social perspective. By trying to lump all these things together we muddy the waters and make it harder to understand one another.
*I don’t know what the deal is with the idea that the AHCA will treat rape as a pre-existing condition. Some webpages give a bunch of random tweets as evidence of this, and others call bullshit. Let’s just leave it at this: in a competitive market this would be considered terrible marketing and savvy companies wouldn’t do it. The lesson then is to keep calling companies on bad marketing, and avoid protecting politically powerful companies from market competition.
The Latin American edition of the Liberty Forum took place in Buenos Aires, Argentina, last week. From almost all of the addresses delivered by the speakers, the attendees could single out two main patterns. The first one: a shift from mere utilitarianism to the acknowledgement of the importance of emotions and moral values in the defense of individual liberties. In this sense, the legacy of David Hume was present and I celebrate it. Moreover, we could expect that in a few years’ time we would get rid of an argumentation exclusively articulated in terms of instrumental reason and recover a sense of a substantive raison d’être of the case for liberty.
The second pattern the audience could guess from the speeches concerns the role of education in the formation of public opinion on liberty. Almost everyone agreed on the strong influence of education over the political ideas held by the citizenship. If you look up the state of the opinion, both in academia and the general public, the rest of the conclusions will follow…
Nevertheless, I consider the importance of academia and education in the articulation of public discourse to be overestimated. After all, what educational institutions of every sorts and levels provide to their pupils are adaptive devices to get -or remain- inserted into society. All that the educational system could do to change public opinion is make marginal contributions to be achieved only in the long term.
Since the public opinion is in the short run almost autonomous, the main matter refers to where it dwells. The television? The blogosphere? The radio? The public parks? (In Ancient Rome, by the way, people were very fond of the graffitis). Perhaps it could be a combination of all of them.
They -including education- are stages of the process of production of public opinion –superior stages, to express it in Austrian Economics terms. And if one takes Austrian Economics seriously, one will have to admit that the value of the superior goods is determined by the value of the final good -and not otherwise.
Last week, Rebecca Tuvel, an Assistant Professor of Philosophy, had her recent article in Hypatia, ‘In Defence of Transracialism’, denounced in an open letter signed by several professional scholars (among others). They accused her of harming the transgender community by comparing them with the currently more marginalized identity of transracialism. William Rein, on this blog, and Jason Brennan at Bleeding Heart Libertarians, have written valuable defences of Tuvel’s right to conduct academic research in this area even if some find it offensive.
Events have moved fast. The associate editors initially seemed to cave in to pressure and denounced the article they had only just published. The main editor, Sally Scholz, has since disagreed with the associate editors. Critically, Tuvel’s colleagues at Rhodes College have given her their support so it looks like the line for academic freedom might be holding in this case. Without wishing to engage too much in the hermeneutics of suspicion, I think there are grounds to doubt the depth of the critics’ attitudes. I base this on my reading of Judith Butler, who is one of the signatories to the open letter arguing for Tuvel’s article to be retracted.
Seven years ago, I managed to read Judith Butler’s Gender Trouble. Although there are many variations in the movement, Butler is a central figure in the post-structuralist , non-gender-essentialist, feminism that inspires much of the contemporary ‘social justice’ movement. When I got past Butler’s famously difficult prose, I found a great deal of ideas I agreed with. I wrote up a brief piece comparing Butler’s concerns with violently enforced gender conformity to classical liberal approaches to personal autonomy. I also identified some problems.
First, Butler’s critique of the natural sciences seems to completely miss the mark. Butler associates gender essentialism with the study of genetics, when, in fact, genetics has done more than almost anything else to explore the contingency and variation of biological sexual expression in nature. The same applies to race and ethnicity.
Second, more importantly, Butler insists that there is no underlying authentic gender or sexual identity. All identities are ultimately constituted by power relations and juridical discourses. You find this argument repeated among social justice proponents who insist all forms of identity are products of ‘social construction’ rather than ever being based on natural facts. As a result, all personal identity claims are only ever historical and strategic. They are attempts to disrupt power relations in order to liberate and empower the subaltern and oppressed albeit temporarily
I don’t think this is perfectly factually true but lets accept it for now as roughly true. This means that transracialism itself might become, or could already be, another example of the strategic disruption of contemporary juridical discourses, this time about race and ethnicity. The same people currently denouncing Tuvel could very easily insist on the acknowledgement of transracial identity in five or ten years time, and denounce those who hold their current views. From their own position, which explicitly rejects any ultimate restrictions on identity formation, we have no warrant to know otherwise.
In this sense, Tuvel might not be ‘wrong’ at all, just slightly ahead of the social justice curve. And her critics wouldn’t actually be changing their minds, just changing their strategies. Meanwhile, people who actually take their identities seriously should be wary of their academic ‘allies’. They can quickly re-orientate their attitude such that a previously oppressed identity comes to be re-configured as an oppressive and exclusionary construct.
If all claims in this area are strategic, rather than factual, as Butler claims, then why try to damage a philosopher’s career over it? Why provoke an academic journal almost to self-destruct? Rather than working out which ideas to denounce, we should critique the strategy of denouncement (or calling out) itself. In that vein, much as I disagree wholly with the stance of its editorial board, I think calling into question Hypatia’s status as an academic journal, is premature.
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