About Peter Radford

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Healthcare Chaos

Here we are one day before the ascension of Trump to the White House and already the policy chaos has begun. To be fair to Trump this particular chaos is not necessarily of his own doing entirely. The Republicans in Congress are also responsible. So hell bent are they in expunging all things Obama from the record that they have charged into the valley of death known as health care reform. Or, in this case, un-reform.

Having spent vast amounts of hours and taxpayer money in pointless votes to eliminate the Affordable Health Care act, and its eradication having become a totem of party loyalty, the Republicans jumped for joy when they finally gained enough control of Congress to make this wish come true. This is the moment their extremists have been waiting for.

And it’s terrifying the entire party except for those so clueless that they imagine getting rid of Obamacare is easy.

The source of this terror is the realization that they are now responsible for the consequences of their quixotic crusade. They will be accountable. It was all well and good to tilt at windmills when everyone knew that their efforts would be foiled, but now the public is looking at them as the legislative power. What happens over the next few years in our health care marketplace is entirely the doing of the Republican party.

Gulp.

The problem is that they are caught in an exquisite political vice. They can, if they wish, simply repudiate the wishes of the public and say that America, despite its status as the world’s richest nation, cannot afford to provide healthcare to its citizens and so abandon the notion of extending insurance to the poorest of people or those with uninsurable conditions — prior to Obamacare that was a group some 59 million strong. Or they can swallow their pride and admit that Obamacare is the way in which to meet that goal.

They cannot have it both ways.

The issue is that the basic arithmetic of insurance is stacked up against the Republicans. They are only now realizing that elementary fact. Quite what took so long is beyond me. Perhaps it was their anti-Obama zealotry and determination to keep America divided on what ought to be a unifying objective. Perhaps it was simply ignorance. Or, and this is my bet, it was a little of both.

Anyway, they are now stuck.

Here’s why:

In order to provide healthcare to people who otherwise could not afford it, either because they are too poor to afford insurance or they are afflicted with some uninsurable condition, we need to do several things.

First, we need to force insurance companies to provide insurance in circumstances where they would prefer not to. Privately owned businesses are not going to provide insurance to people they already know are sick — it’s a sure loss. So they need to be coerced into doing so.

Second, and because of that first point, we need to make sure the insurance pool includes lots of healthy people who will pay premiums and yet not make claims. All private insurance sits in this principle. That means making sure healthy people don’t avoid paying for insurance until they think they are sick and/or need it. This was the purpose of the dreaded “mandate” in Obamacare that roiled those libertarian sensitivities so much. It wasn’t an instance of socialism, it was an instance of actuarial mathematics.

Thirdly, since the above may still produce premium prices too high for some people to afford, we need an element of subsidy for the poorest of our fellow citizens.

These are the infamous three legs of the Affordable Healthcare Act, and here’s the rub: you need all three. Kick away one and the entire plan collapses.

So any replacement of Obamacare has to have these three features in order to be viable. Hence the feelings of terror as the Republicans struggle to defy gravity and invent a plan that doesn’t include a mandate or the redistribution of incomes implied in the subsidies.

Of course, as I said above, they can simply walk away from the notion of providing coverage for all. That means undoing Obamacare and not replacing it.

Fortunately this week we learned the consequences of such an alternative: the Congressional Budget Office, right on cue, produced a report outlining the costs of abandoning and not replacing Obamacare: 18 million people would lose coverage immediately. That figure would rise through time so that we would be back to about 60 million uncovered in a few years. Also: the cost of insurance would climb dramatically, with increases of 25% along the way, and even more for those unfortunate enough to have pre-existing conditions.

This would be a political train wreck, and the GOP leadership knows it. Apparently, though, many of their extremist colleagues are blissfully unaware of this. Hence the added terror now gripping the Republicans.

Rumors are swirling that they are reaching out to Democrats to help do their dirty work. Fortunately the Democrats are holding the line: this is something the Republicans own.

Meanwhile Trump has promised that his own plan will provide complete coverage at lower costs than presently available. It will, in his own words, be a beautiful plan. This magical plan has yet to see the light of day, and is unlikely to since it cannot do what he says it will. Even Trump cannot defy gravity.

All this is chaos and sudden scurrying for cover will dominate the first few weeks of the Trump presidency. Trump seems to have no idea how the legislative process works — he imagines repeal and replace is a matter of a few weeks work. The GOP has no idea how healthcare works. And the zealots are baying for blood.

These will be good times to sit and watch as the Republicans get their comeuppance.

Enjoy the show. And let’s all wait for the slow realization to set in: single payer healthcare is the only solution to our healthcare crisis.

But that’s for another day.

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A Naive Framework For Understanding Change

A few days ago I added a copy of a framework I use to the end of an article. Some of you have asked for a brief discussion of it. So here it is again:

The purpose of this simple framework is to make us consider all the aspects of an economy that affect growth, especially during times of change. It began, like a lot of the things I do, as a checklist to go through whilst building business strategies, but I have also used it in the context of explanations for economic growth.

The central point is that economic potential is limited by certain factors, but is also accelerated by others. The relationships between those inhibiting and those encouraging growth and/or change determine what happens. You cannot build a theory of growth without examining the tension that exists amongst all these factors.

So, for instance, what I call “Locale” is a very broad category that includes access to natural resources, access to lines of communication, geographical size, and other physical phenomenon. This is hardly revolutionary, but it is sometimes overlooked. It also would include access to and uses of sources of energy, which to me is a ‘factor of production’ far more fundamental than any of those used in traditional economics. Call me naive, but absence of energy makes the study various combinations of capital and labor a far less interesting or relevant discussion.

Speaking of factors of production that make sense, by “Knowledge” I mean the base of propositional knowledge that exists within the society whose economy we are looking at. I realize that basic science is oftentimes a laggard behind the use of some form of technology — the steam engine is the iconic example of this, the scientific explanation of steam power lagged well behind the initial use of steam in industry — but the entire corpus of propositional knowledge ultimately is the arbiter of a society’s long term opportunity to create prosperity. With the definition of prosperity being elastic enough to include living standards as well as material standards.

The “Institutional” constraint is well discussed, but is also very often overlooked in standard growth analysis. The concept of an ‘institution’ is a very broad one indeed, and drawing a line between culture and institution can often be arbitrary. Nonetheless I see institutions as the ‘baked in’ version of past decisions on how a society wants to channel behavior. So the legal system, and in the context of growth especially things like property rights, are vital either as constraints or accelerants of growth. So too are other institutions such as the political system, various religious entities, and the whole host of others that fill libraries of analysis. For our purposes we can be naive and accept that in any society there is a prejudice towards or against growth in its institutional arrangements.

Taken together, then, these three categories — Locale, Knowledge, and Institutions — set a limit on the potential a society can open up for itself. Obviously this needs modification because there other significant factors that come into play, such as the aforementioned cultural and technological influences that modify how a society can access its potential.

I identify three such additional factors:

“Culture” is very much a topic of discussion at the moment. There have been a number of books recently talking about the role of cultural shifts as a foundational aspect of modern growth. I would agree with this idea. The most important aspect of culture that we need to take into account is oftentimes overlooked: it is the social acceptance that change is both possible and/or desirable. Attitudes in our modern era stand in stark contrast to the resignation, fatalism, and outright rejection of the possibility or desirability of change in prior eras. Even today in some parts of the world the older cultural opposition to change and growth place severe limits on the practical access of potential in those areas. A culture that accommodates and welcomes change is one more likely to experience a rise in prosperity, so it plays a significant role in our overall framework.

Next, obviously, is “Technology”. It constantly amazes me that it took mainstream economics so long to account for technology as a driver of growth. This despite all that had been written and all the very evident change going on within the economy. I simply treat this prolonged oversight as an example of how the methodological myopia of a discipline can constrain its ability to develop ideas that, to an outsider not so constrained, can appear obvious. In any case: technology  — what we can call ‘prescriptive’ knowledge — is a primary agent in making what is potential a true possibility. By this I mean that technology makes actually possible things that previously were simply theoretically possible.

Finally, in this very brief tour of my naive framework, I have “Networks”. This is also often overlooked. By networks I mean all the various physical, logical, and social ways that information, norms, cultural attitudes, energy, materials and so on can be moved around. Networks place a great limit on the opportunity to access potential: there is no advantage in having great natural resources if they are locked away in some inaccessible location. Nor is there much opportunity for a child who grows up without access to the advantages of a good education or who is precluded form such access by lack of social standing or physical transportation. Under this heading we can also discuss the relative centralization of decentralization of control within an economy, and the relative openness of the power structures of society to novelty.

So this is my framework. I don’t claim it as anything other than a way of articulating my thoughts about growth, its desirability and likelihood.

It is naive. But then again, as I have argued before, so is all economics.

 

 

 

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Trump and Economics

I don’t want to spend much time on Trump and his version of economics primarily because I am not sure what it is. Nor, I think, does he.

One thing worth mentioning is that there is an unprecedented disconnect between the economics profession and the incoming President. Just about every economist I know says that Trump will be bad for the economy, and that the best we can hope for is that his notoriously poor attention span will prevent him from doing much.

For a much more detailed discussion of this disconnect go and read Justin Wolfers article in the New York Times.

What intrigues me is that this near complete separation between the economics profession, of all political persuasions, and the incoming administration is in stark contrast to that between Trump and both Wall Street and small business owners.

Is this because Wall Street and small business has a better handle on the economy? Or is it because they are deluded and are thus in for an ugly surprise?

There’s a part of me that would argue that Wall Street and small business are better informed than economists are about the economy. This opinion is based on my continued amazement at the extraordinarily strange convolutions that economics puts itself through in order to “prove” its various propositions. They are, frankly, absurd. So much so that any conclusions economists draw from their mathematics ought be taken with bucket loads of salt. Economists are steadfastly incapable and unwilling to amend their ideas and are still stuck in major reconsideration mode after the real world repudiation of their confidence and theories that the Great Recession represented. Suffice to say that were I a politician trying to steer the ship of state through these turbulent times, the last place I would look for economic advice is to a profession that still — despite the evidence — builds its theories on the quicksands of rationality, perfect information and so on.

Those ideas have been debunked by serious scientists a long time ago. Economics, though, appears determined to become ever more irrelevant.

This is not to say that there aren’t plenty of economists who have begun to cleave away from the mainstream. The problem is that those folk are poorly represented in the halls of the most prestigious institutions and are thus unlikely to get called upon to give advice. There is a real world economics out there, it isn’t coherent, and it isn’t in the major text books. Let’s hope it makes more progress during the next few years. Or else the demise of economics will simply accelerate.

I am more and more of the opinion that the economics profession is, itself, a barrier to strong economic growth based as it is on ideas and concepts that relate to industrial economies the likes of which we haven’t seen for decades. That, and the complete inability to deal with realities such as uncertainty, real world human behavior, and so on, make mainstream economics an exercise in self-reflection rather than a serious attempt to understand the world. In terms of a self-reflective activity it is a brilliant and exhilarating discipline. In terms of a place to go for understanding real human economic activity, not so much.

But that’s an old discussion we need not reprise. Economics is what it is. Relevant or not it still is held in esteem by many who do not grasp its almost satirical qualities.

And the total snub given to the profession by the incoming administration is simply further confirmation of the way in which the last few years have dealt a body blow to its intellectual reputation.

But really?

Do we honestly think that Wall Street or small business owners have a better grasp of the actual economy?

Wall Street absolutely not. It is driven by whims, fads, herd instincts, and other strange forces. Plus it is entirely self-interested and self-obsessed. Wall Street cares not one jot about the economy except what profit opportunities lie within it.

This, of course, is a classic case of the self-interest that is supposed to underlie the “hidden hand” of free markets: isn’t all that market magic driven by such venal instincts? The disconnect being, naturally, that economists have convinced themselves that market magic will drive out the naughty people and that only the virtuous — in a self-interested way — will survive. Except that naughty people seem to thrive. In abundance. As in the financial melt down of 2007.

Venal is venal. It takes the naivety of economics to make it pure.

No wonder Trump, who surely recognizes venal when he sees it, has no time for economics.

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Putney Debates and The Trump Adminstration

Here’s a well known quote:

“For really I think that the poorest he that is in England hath a life to live, as the greatest he; and therefore truly, sir, I think it’s clear, that every man that is to live under a government ought first by his own consent to put himself under that government … and I do think that the poorest man in England is not bound in a strict sense to that government that he hath not had a voice to put himself under.”

Thus spoke Colonel Rainsborough at Putney in 1647.

This is an early instance of the rise of the modern liberal view of government. Rainsborough lost the argument with Cromwell and Ireton because the issue of property ownership intruded into the debate. That issue revolved around the question of the likelihood that those who owned no property would infringe on the rights of those who did, were the former allowed to participate in their own governance. So even at this formative moment in modern constitutional development the possibility that a liberal stance could evolve down two parallel tracks was clear.

Liberalism was subject to division at its inception.

One track, the one that dominated early on and which echoes strongly to this day, argues that for a person to have a voice in their own government they ought to have an overt stake in society. And the most obvious and material such stake is the ownership of property.

Prior to the modern liberal age it was the norm for landowners to dominate society. Land was, after all, the primary source of wealth and hence power. So the early self-assertion of the modern bourgeois class naturally gravitated towards being able to protect their recently won or earned property from arbitrary sequester by the monarchic state. Wars were fought to establish this protection and property rights became central to any thoughts of liberal self-governance.

So when Ireton and Cromwell replied to Rainsborough that the soldiers who fought against the Crown had fought to limit the prerogative of the Crown to infringe on their personal rights, but had not fought to be involved directly in their own self government, property was very much in their minds.

This view is reinforced by another of the reasons Ireton and Cromwell gave: they argued that the rebellion’s soldiers had also fought to establish for themselves the freedom to trade, earn money, and thus buy the estates that would earn them political rights.

Our modern predicament is presaged in that exchange at Putney three hundred and seventy years ago.

As modern liberalism split inexorably into a view of freedom based upon property — our modern version is called capitalism — and the alternative view that freedom hinged on self-governance independent of property ownership — our modern version is called democracy — the tension we experience today was made a permanent feature of liberty.

Of course both have evolved mightily since 1647. Capitalism has run through many variations since then, and has appeared to be on the brink of self-destruction almost permanently. Democracy was a much slower starter and only reached its contemporary form in recent decades after the extension of voting rights to entire populations including those who had previously been legally excluded from liberation of any form.

And it was only when democracy began to emerge as a strong alternative to its capitalist liberal sibling that societies were able, at last, to fulfill the promise of what people like Rainsborough envisaged.

That is to say: true freedom finally became a real rather than hypothetical promise for everyone.

For, prior to such freedom, it was only natural for property owners to govern in the interests of property. They saw the interests of property as the interests of state and of the nation. They saw the privileges accorded property as a rightful reward for the risks that property owners take. They asserted that because property owners put their livelihoods at risk when they establish business and employ others, they ought — justifiably and morally  — be given deference.

After all, as Ireton and Cromwell argued successfully, the liberal uprising against monarchic tyranny was partly driven by the desire to allow anyone, not just traditional aristocratic or religious authorities, to have the right to earn and own property.

The essence of bourgeois liberty is thus both a freedom from arbitrary invasion of property and a freedom to the right to own property.

It wasn’t until much later, after the arrival of industrialization and urbanization, and the squalor that both produced, that the non-property version of freedom began to be more forcefully argued. By then the newly free property-owning class had taken on some of the more aggressive and hated characteristics of the old monarchic, aristocratic, and religious landowning class that the liberal rebellion had sought to toss out. Instead of feudal landowners exploiting their workers, now factory owners did. The rebellion had  produced a lopsided and narrow victory that needed to be made more broad.

So thus it was that the fight for worker’s rights, for trade unions, for higher wages, workplace regulation, and eventually for full emancipation became the primary characteristic of late 1800’s and early 1900’s politics.

So as we enter a regressive administration populated entirely of plutocrats we must all recall that the fight for democratic freedom was a very recent one indeed. Our grandparents were born before democracy became what we know it as today. It is a fragile and novel experiment. It can be taken away from us with ease if we fall for the toxic arguments of those with excessive wealth or property. They are only seeking to protect themselves. They brook us no equality since they believe they “earned” what they have, and therefore for us to stake a claim to what we see as our joint prosperity is necessarily, in their eyes, an arbitrary seizure of what they justifiably own.

We are back to 1647.

Only this time Rainsborough’s argument must win. Otherwise our democracy is gone.

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Tectonics and Growth

My wife is reading Kahneman’s “Thinking Fast and Slow”, somewhere in which he relates his reaction when he first came across the bedrock of mainstream economics: rational microeconomic behavior. I must admit I had a very similar reaction. The description of human behavior that underpins modern economics is so bizarre that my first thought was that it must be some form of Monty Pythonesque satire. Surely, I thought, this is a joke and in a few pages all will be revealed. But no. Economics really is built on a foundation that to outside eyes is not just odd, but what appears to be a deliberate spoof.

What is even more strange, and those of you who listen to economists and take them seriously  please suspend your sense of humor at this point, is that this total perversion of humanity is then taken as the essential starting point for all subsequent theorizing. Economists are all brought up nowadays to repeat the mantra that all “good” theorizing about the economy at higher levels — what economists call macroeconomic theory — has to be based on a foundation of theorizing at a lower level — what economists call microeconomics. So in the literature and in conversation it is common to come across the phrase that some higher level idea is based upon “micro foundations”.

Except that foundation is exactly what Kahneman and others laugh at.

You would too if you spent any time at all thinking about it.

Which brings me to another point: economics is full of these oddities that anyone outside the profession would dismiss a priori as some form of ludicrous joke.

Take general equilibrium. You may have heard of it. Economists love to talk about equilibrium. It’s one of those early importations from 19th century physics that economists took on board so as to make their work look more scientific. And it fits neatly with Adam Smith’s casual observation that an economy appears to exhibit a mysterious sort of order. My interpretation of Smith is that he was simply saying that stuff seems to get done, and isn’t that wonderful. Unfortunately subsequent economists turned his almost flippant comment into a sort of holy grail and started looking for ways to prove the existence of such a general equilibrium. Their final triumph came with what is known as the Arrow-Debreu work not long after World War II, with that work proving the existence of a configuration of the economy that is indeed a general equilibrium. For those of you whose eyes are glazing over at this moment: economics has two sorts of equilibrium, one is “partial” in which stuff still is in motion in a general sense, but a small isolated sliver of the economy appears to have reached a nice balance; the other is “general” in which the entire economy has arrived at such a nice balance. Whilst partial equilibrium is sort of sensible because it is easy to understand that a small sliver of an economy could be in a balance, the idea that entire economy could end up in such a magical place is, well, magical.

Anyway, and here’s the satire, the so-called proof of general equilibrium is so ridiculous and other-worldly that no one in their right mind could ever take the concept of general equilibrium seriously. Even Ken Arrow, of Arrow-Debreu fame, said as much. But economists do. Yes they actually study it. Perhaps they study unicorns too.

One consequence of economics being packed full of all this self-satirical nonsense is that it has great difficulty in explaining real world situations. The entire body of thought of economics includes useful tidbits that anyone can pick up and play with because they are common-sensical. But when we rely on economics to explain big important questions it begins to stutter and creak under the weight of all that absurdity.

Which is why it fails to explain long term, or what I call tectonic, shifts.

Remember that economics only as recently as the late 1980’s bothered to contemplate technology as a factor explaining growth. You and I, steeped as we are in real world experience may have taken on board the idea that maybe, just maybe, technology was vaguely related to growth. Indeed we probably took it for granted. But economists arrived at that particular idea a full century and a half into the technological explosion we grandly call the Industrial Revolution. Up until the late 1980’s economists simply looked at technological change as something that sort of happened outside an economy.

Let me give you another example: economics had a hard time explaining economic growth at all until Robert Solow invented something called “Growth Theory” in the 1950’s. And even his breakthrough, which is treated, properly in the context, with awe and monumental respect inside the profession, left giant chunks of growth unexplained. Naturally economists came up with jargon to describe this unexplained chunk — they called it “Total Factor Productivity” — which is another of those spoofs I mentioned above. For all their subsequent efforts, including the aforementioned sudden realization that technology might have something to do with it, economists are still at sea when asked to explain growth, why it suddenly took off in the late 1800’s, and why it might be slowing down now.

This is all very relevant because we are now in a moment when growth rates in economies are very much a political topic. Here in the US, Trump made a big deal of it in the election. Worldwide there is much hand wringing over the possibility that we have fallen into stagnation and that all that fast growth since 1870 is now over. The socio-economic and socio-political consequences of stagnation as a longer term reality are enormous, and it would be nice if economics could say something other than wallow around in its self-satirical references to equilibrium and rationality.

So, in the spirit of helping you frame your own thoughts about growth, and to help you ponder the tectonic shifts underway down beneath the froth of the surface phenomena of economics, here is the diagram I keep in front of me to remind where to look for problems and solutions. It is not a theory, it is a framework:

I apologize for the poor presentation, I haven’t reduced that file size for years. But this is the way I have been looking at growth since that late 1990’s. I will devote more time to it in future.

Meanwhile: chin up. This too shall pass.

 

 

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