Nobel economist takes aim at rent-seeking banking and healthcare industries(marketwatch.com)
marketwatch.com
Nobel economist takes aim at rent-seeking banking and healthcare industries
http://www.marketwatch.com/story/nobel-economist-takes-aim-at-rent-seeking-banking-and-healthcare-industries-2017-03-06?siteid=rss
24 comments
That isn't the same article, it's just the same economist.
i did not say it is the same article. but if you read it, the Atlantic article/interview is more substantial than the Marketwatch article; and the topics are exactly same. also there already is a good discussion going on the other thread.
[deleted]
Why are there no national healthcare brands? Why are there no "budget" healthcare brands? Why does not a single goddamn hospital know how much a glass of orange juice costs? Where are the Walmarts, the Costcos, the Trader Joes of the healthcare industry? Why aren't we complaining about how Big Box hospitals are super inferior and bragging about the extra buck we spend to treat ourselves to an organic mom and pop MRI?
Is there any other industry like this? It's 16% of our economy and it doesn't seem like a single flicker of free market is left in it.
Is there any other industry like this? It's 16% of our economy and it doesn't seem like a single flicker of free market is left in it.
> Why aren't we complaining about how Big Box hospitals are super inferior and bragging about the extra buck we spend to treat ourselves to an organic mom and pop MRI?
There are people that do something very much parallel to this, but they are the people who can afford to hire elite, exclusive, low-client-load physicians who aren't on the short office meeting clock that common insurance reimbursement provides, and do similar things with other medical facilities.
It's just that it's not the middle class looking down on the working class over this, but a fairly narrow slice of the upper class looking down at the rest of society.
There are people that do something very much parallel to this, but they are the people who can afford to hire elite, exclusive, low-client-load physicians who aren't on the short office meeting clock that common insurance reimbursement provides, and do similar things with other medical facilities.
It's just that it's not the middle class looking down on the working class over this, but a fairly narrow slice of the upper class looking down at the rest of society.
There are small examples of people doing well working outside the system. The Surgery Center of Oklahoma is the biggest one I've heard of.
https://thinkprogress.org/how-one-oklahoma-hospital-is-drivi...
http://reason.com/reasontv/2012/11/15/the-obamacare-revolt-o...
https://thinkprogress.org/how-one-oklahoma-hospital-is-drivi...
http://reason.com/reasontv/2012/11/15/the-obamacare-revolt-o...
Here in Houston, with it's vaunted medical center - you can almost always get cheaper services with non-hospital affiliated services. Need an MRI? Bob's House of MRI will be cheaper than the hospital's location. Same for physical therapy, cancer treatment, or anything else. Hell, even all the new 24 hour emergency rooms are cheaper than the hospital. It's really not that hard to price around.
There are physicians who bill by items with set costs. They won't take insurance and you typically have to pay a yearly retainer fee.
This is a great question. My understanding of it is as follows:
There are legal requirements that force doctors and hospitals to offer only the state of the art care. A doctor who fails to do this can be sued for malpractice.
Imagine if a homeless person entered the ER and based on his perceived ability to pay doctors tried only $1K worth of interventions before giving up. This would be viewed as inhumane.
Most healthcare is paid for via health "insurance" which is heavily regulated. Via medicaid and medicare, the Federal government establishes baseline market prices for different services. This is done with a broad, public health perspective in mind, with the idea that the market for preventative care (largely primary care) should be larger than it would otherwise be, because treatments are generally much more cost-effective when problems are identified sooner and treatments initiated sooner.
It's important to note that the free market would not likely offer highly skilled primary care docs for most people, since the price would be prohibitive. Instead most people would see a less-trained person such as a nurse (or an NP or PA). This already happens today, but the liability loophole is solved by a process where the MD signs off on medical decision making.
When it comes to primary care, it's important to point out that the body is largely self-healing and many illnesses simply go away with no treatment. Often, treatment outcomes do no better than a placebo.
Due to this reality, the free market would lower the caliber of care available to most people who are not extremely ill, and without constraints on who may practice medicine we'd see all sorts of alternative therapies and unscientific therapeutic approaches elevated to the same status as those that are scientifically backed. The market would have no way of discerning the placebo effect from actual measurable effects (and it perhaps shouldn't matter).
For seriously ill patients, the quality of doctors matters immensely, but a free market system would certainly reduce the availability of highly competent practitioners, since those who need treatment for serious illnesses are not always able to pay for them, and few people anticipate needing them, so insurance premiums would increase due to lack of demand and a smaller, adversely selected risk pool.
In addition, for seriously ill patients in the US, a great deal of money is spent on end of life that has no public health benefit. We overpay for healthcare largely for the privilege of having our loved ones put through extreme end-of-life measures just in case another year of life can be obtained. France and Canada do not do this, and their cultural approach to end of life is better in tune with the probabilistic outcome of end of life interventions.
Put another way, in the US we consider it a greatly important volitional act to have every possible measure undertaken to keep us alive. Insurers cannot offer a lower tier plan that (say) mimics France's approach because of liability concerns.
It's not possible to imagine a free market for end of life care without a stance on the liability landscape for care that is anything less than the most aggressive (and costly) intervention currently known.
So what do we get in exchange for this convoluted system? Our doctors are selected out of a highly competitive group of motivated students and trained extensively. Most are overqualified for the vast majority of the work they do, but patients prefer the Cadillac doctor over the one who may seem only marginally qualified.
Thus we revere doctors and treatment seeks both a cure and a sanctioned course of action from a figure holding social authority. This phenomenon offers a fascinating look into the psycho-social aspect of illness and the need that patients have for validation of their plight from an authority figure. Just as a doctor's note is an excuse for missing work, a doctor's expert opinion offers validation for the sick in a society that prizes youth and vigor.
So we pay a premium both for the extra (usually unnecessary) training and also for authority. We get (in a sense) both a treatment and a blessing.
It is a uniquely American phenomenon, I believe. The hope that we feel when a surgeon agrees to do a risky surgery on our 90 year old family member is the same hope that we feel when spending our last quarter in a slot machine or risking everything to do an unlikely startup.
What does this sort of uniquely American healthcare look like in a totally free market system? I'm not sure. But I think it would more closely resemble a casino or a church. There would be more emphasis on hope, more emphasis upon meaning, more emphasis upon the authority figure aspect of healers of all kinds (not just trained physicians).
There are legal requirements that force doctors and hospitals to offer only the state of the art care. A doctor who fails to do this can be sued for malpractice.
Imagine if a homeless person entered the ER and based on his perceived ability to pay doctors tried only $1K worth of interventions before giving up. This would be viewed as inhumane.
Most healthcare is paid for via health "insurance" which is heavily regulated. Via medicaid and medicare, the Federal government establishes baseline market prices for different services. This is done with a broad, public health perspective in mind, with the idea that the market for preventative care (largely primary care) should be larger than it would otherwise be, because treatments are generally much more cost-effective when problems are identified sooner and treatments initiated sooner.
It's important to note that the free market would not likely offer highly skilled primary care docs for most people, since the price would be prohibitive. Instead most people would see a less-trained person such as a nurse (or an NP or PA). This already happens today, but the liability loophole is solved by a process where the MD signs off on medical decision making.
When it comes to primary care, it's important to point out that the body is largely self-healing and many illnesses simply go away with no treatment. Often, treatment outcomes do no better than a placebo.
Due to this reality, the free market would lower the caliber of care available to most people who are not extremely ill, and without constraints on who may practice medicine we'd see all sorts of alternative therapies and unscientific therapeutic approaches elevated to the same status as those that are scientifically backed. The market would have no way of discerning the placebo effect from actual measurable effects (and it perhaps shouldn't matter).
For seriously ill patients, the quality of doctors matters immensely, but a free market system would certainly reduce the availability of highly competent practitioners, since those who need treatment for serious illnesses are not always able to pay for them, and few people anticipate needing them, so insurance premiums would increase due to lack of demand and a smaller, adversely selected risk pool.
In addition, for seriously ill patients in the US, a great deal of money is spent on end of life that has no public health benefit. We overpay for healthcare largely for the privilege of having our loved ones put through extreme end-of-life measures just in case another year of life can be obtained. France and Canada do not do this, and their cultural approach to end of life is better in tune with the probabilistic outcome of end of life interventions.
Put another way, in the US we consider it a greatly important volitional act to have every possible measure undertaken to keep us alive. Insurers cannot offer a lower tier plan that (say) mimics France's approach because of liability concerns.
It's not possible to imagine a free market for end of life care without a stance on the liability landscape for care that is anything less than the most aggressive (and costly) intervention currently known.
So what do we get in exchange for this convoluted system? Our doctors are selected out of a highly competitive group of motivated students and trained extensively. Most are overqualified for the vast majority of the work they do, but patients prefer the Cadillac doctor over the one who may seem only marginally qualified.
Thus we revere doctors and treatment seeks both a cure and a sanctioned course of action from a figure holding social authority. This phenomenon offers a fascinating look into the psycho-social aspect of illness and the need that patients have for validation of their plight from an authority figure. Just as a doctor's note is an excuse for missing work, a doctor's expert opinion offers validation for the sick in a society that prizes youth and vigor.
So we pay a premium both for the extra (usually unnecessary) training and also for authority. We get (in a sense) both a treatment and a blessing.
It is a uniquely American phenomenon, I believe. The hope that we feel when a surgeon agrees to do a risky surgery on our 90 year old family member is the same hope that we feel when spending our last quarter in a slot machine or risking everything to do an unlikely startup.
What does this sort of uniquely American healthcare look like in a totally free market system? I'm not sure. But I think it would more closely resemble a casino or a church. There would be more emphasis on hope, more emphasis upon meaning, more emphasis upon the authority figure aspect of healers of all kinds (not just trained physicians).
[deleted]
In terms of rent-seeking watch out for Donald Trump's proposal on infrastructure spending. A massive tax break for private building and ownership of toll roads is the epitome of corporate welfare to rent-seekers.
Hasn't he moved away from that plan? I thought the spending plan was now to fund repairs on existing roads.
Well there hasn't been too much discussion about it as of late because of problems with the republican congress and DJT's notorious ambiguity. I did find this though:
>White House spokesman Sean Spicer said "strong public-private partnerships" would be key to rebuilding the nation's roads, bridges and airports. "Infrastructure used to be a point of American pride, but now an overbearing, ineffective regulatory system can keep projects in limbo for years," Spicer said. "The government has wasted too much of the taxpayers' money on inefficient and misguided projects." The White House sees infrastructure as a potential large job creator but officials have said the federal government cannot shoulder the entire burden. The administration is looking at toll roads, tax credits and other ways to spur private investment. Major real estate and private equity executives attended the meeting, including developer Richard LeFrak, Vornado Realty Trust Chief Executive Officer Steve Roth, and Apollo Global Management co-founder Josh Harris, the White House said.
http://www.reuters.com/article/us-usa-trump-infrastructure-m...
That would lead me to believe tax breaks for toll roads is still on the table.
>White House spokesman Sean Spicer said "strong public-private partnerships" would be key to rebuilding the nation's roads, bridges and airports. "Infrastructure used to be a point of American pride, but now an overbearing, ineffective regulatory system can keep projects in limbo for years," Spicer said. "The government has wasted too much of the taxpayers' money on inefficient and misguided projects." The White House sees infrastructure as a potential large job creator but officials have said the federal government cannot shoulder the entire burden. The administration is looking at toll roads, tax credits and other ways to spur private investment. Major real estate and private equity executives attended the meeting, including developer Richard LeFrak, Vornado Realty Trust Chief Executive Officer Steve Roth, and Apollo Global Management co-founder Josh Harris, the White House said.
http://www.reuters.com/article/us-usa-trump-infrastructure-m...
That would lead me to believe tax breaks for toll roads is still on the table.
[deleted]
The idea of rent seeking is becoming very popular and the best place to see it is Silicon Valley. Everything is becoming subscription based and housing is pretty much out of reach for everybody. Only way to afford anything is to rent it. Things my parent owned by the time they were 26 I have no choice to rent, since I couldn't even imagine right now buying them (even though I make 3x what they were making at the same age). For example I rent a house with friends ($5000 a month spilt by 4), a parking sport ($200), and lease a car ($200). I don't own any music or movies (Netflix and Spotify). Its a convenient way to live in terms of flexibility but you never feel like these things are yours and that leaves this sense of detachment. At any time these things could be taken away and you would have nothing. I grew up in the country and have the ultimate goal of buying myself land where I can build a house and workshop.
I'm not sure you understand what rent-seeking is. Rent-seeking is the deployment of resources by firms, organizations, or any concentrated special interest group to pass or preserve legislation that benefits its directly in the short-term and possibly long-term while harming progress, growth, and innovation in that field by being able to bargain for higher prices from people who need those services.
In less abstract and wonky terms, it's when you change laws in ways that benefit you directly but harm others who have to use what you're providing. Examples of rent-seeking occur in the beer industry where "regulation capture"--another beautiful term from the literature--restricts, I believe, the sale or transport of beers into states. The people who have established oligopolies within a particular state have access to the market whereas other smaller breweries have difficulty to making inroads on that market.
Deaton is talking about the legislation and policies that health care and finance are introducing that protects them from competition with the knowledge that others will still need to use their services. Usually, this sort of rent-seeking is done under the justification that it provides quality control over goods and services being provided which is, to be fair, sometimes the case or atleast a possible outcome. More often than not it is preserve advantages and create barriers to entry to prevent competition from eroding revenue and, of course, margins.
It's only business school that you learn about the powers of competition. In reality, businesses hate competition and they'll do whatever they can to prevent it from entering. Rent-seeking describes how that occurs.
In less abstract and wonky terms, it's when you change laws in ways that benefit you directly but harm others who have to use what you're providing. Examples of rent-seeking occur in the beer industry where "regulation capture"--another beautiful term from the literature--restricts, I believe, the sale or transport of beers into states. The people who have established oligopolies within a particular state have access to the market whereas other smaller breweries have difficulty to making inroads on that market.
Deaton is talking about the legislation and policies that health care and finance are introducing that protects them from competition with the knowledge that others will still need to use their services. Usually, this sort of rent-seeking is done under the justification that it provides quality control over goods and services being provided which is, to be fair, sometimes the case or atleast a possible outcome. More often than not it is preserve advantages and create barriers to entry to prevent competition from eroding revenue and, of course, margins.
It's only business school that you learn about the powers of competition. In reality, businesses hate competition and they'll do whatever they can to prevent it from entering. Rent-seeking describes how that occurs.
That's not rent-seeking as the term is usually used: https://en.wikipedia.org/wiki/Rent-seeking#Description It uses the word rent in a somewhat different sense.
Rent seeking is a transaction where the rent seeker accumulates money without contributing to the overall wealth of a society, basically getting paid without labor effort, offering a product or otherwise advancing innovation or the human condition in some way.
Land rent is the original example of rent seeking. SV rents would probably qualify, since the cost of rent in SV is more connected to the land and location, as well as the regulations on that land, versus the improvements on the property. Maybe $4000/mo of your rent is based on "rent-seeking" and $1000/mo is based on the property itself.
Land rent is the original example of rent seeking. SV rents would probably qualify, since the cost of rent in SV is more connected to the land and location, as well as the regulations on that land, versus the improvements on the property. Maybe $4000/mo of your rent is based on "rent-seeking" and $1000/mo is based on the property itself.
Right. As Henry George pointed out over a century ago [0], the increase in property values in urban areas as their populations grow is mostly caused not by investments made by the property owners, but simply by the network effects of having more people living in the area. So the ability of property owners, under the commonly used taxation schemes, to benefit from those network effects presents a golden opportunity for rent-seeking.
Looking for example at Silicon Valley, it's easy to see that rental property owners are sucking large amounts of wealth out of the region. It's not just rental property, though. Anyone who bought a house prior to the recent run-up in prices, and then sold it for a large gain, is effectively also removing wealth from the area, in the form of the mortgage payments the new owner has to pay.
George argues that wealth that is collectively created should be collectively enjoyed, and that the best way to make that happen is through a Land Value Tax (LVT) -- that taxes only the unimproved value of land, not that of any structures that may be built on it.
[0] http://www.henrygeorge.org/pcontents.htm
Looking for example at Silicon Valley, it's easy to see that rental property owners are sucking large amounts of wealth out of the region. It's not just rental property, though. Anyone who bought a house prior to the recent run-up in prices, and then sold it for a large gain, is effectively also removing wealth from the area, in the form of the mortgage payments the new owner has to pay.
George argues that wealth that is collectively created should be collectively enjoyed, and that the best way to make that happen is through a Land Value Tax (LVT) -- that taxes only the unimproved value of land, not that of any structures that may be built on it.
[0] http://www.henrygeorge.org/pcontents.htm
I think it would suffice. SV home owners are very much against new properly building. If that happens the supply increases and demand drops.
$5000 on rent is absurd. Wow!
$5000 on rent is absurd. Wow!
Per the sibling comments, here are some good examples of rent seeking.
From Wikipedia, a feudal lord puts a chain over a river and charges a toll to lower the chain. No value add, just money in the pocket of the lord.
And the contemporary version: an investment firm buys out the intellectual property of a medical delivery device. They charge additional royalties to the manufacturers of the device. No value added.
From Wikipedia, a feudal lord puts a chain over a river and charges a toll to lower the chain. No value add, just money in the pocket of the lord.
And the contemporary version: an investment firm buys out the intellectual property of a medical delivery device. They charge additional royalties to the manufacturers of the device. No value added.
It's interesting to see a right-libertarian argument in favor of a single-payer healthcare system. Single-payer would also support entrepreneurship by decoupling healthcare from employment.
Just a reminder that Nobel Prize in Economics is actually the Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel
https://news.ycombinator.com/item?id=13829793