Prices also ration goods and services

Princeton bioethicist Peter Singer has an interesting piece in the NT Times Magazine about rationing health care. On the general point of "rationing", Singer says:

"There’s no doubt that it’s tough — politically, emotionally and ethically — to make a decision that means that someone will die sooner than they would have if the decision had gone the other way. But if the stories of Bruce Hardy and Jack Rosser lead us to think badly of the British system of rationing health care, we should remind ourselves that the U.S. system also results in people going without life-saving treatment — it just does so less visibly. Pharmaceutical manufacturers often charge much more for drugs in the United States than they charge for the same drugs in Britain, where they know that a higher price would put the drug outside the cost-effectiveness limits set by NICE. American patients, even if they are covered by Medicare or Medicaid, often cannot afford the copayments for drugs. That’s rationing too, by ability to pay."

While it seems painfully obvious, the point needs repeating: prices are used to ration goods. So the American healthcare system, which is largely based on individual ability to pay, rations healthcare in this way. Yes, most medical costs are payed by insurers, but insurance is expensive for individuals to buy and employer provided benefits are more generous for higher-payed workers.

No American should oppose any public health plan on the basis that it will ration care. Rather, we should judge policies based on how efficiently and ethically that care is rationed.

A little competition never hurt anyone

Robert Cringely had a strange editorial in the NY Times last week -- strange because its central thesis seemed to disregard 400 years of economic thought. Referring to the recent competition between Microsoft and Google, Cringely writes:

"This is all heady stuff and good for lots of press, but in the end none of this is likely to make a real difference for either company or, indeed, for consumers. It’s just noise — a form of mutually assured destruction intended to keep each company in check."

According to Cringely, competition between Microsoft and Google is more about posturing --Microsoft showing that it can compete in the search engine market and Google showing it can compete in the operating system market--than about innovation.

This begs the question, 'what's the difference?' Modern economics is largely founded on the idea that competition improves social welfare. So we should expect that Microsoft's new search engine Bing will push Google to make its search engine better and Google's Chrome OS should push Microsoft to make Windows better.

Of course, that's just theory. What does the empirical evidence say? According to the Atlantic Monthly, we're already seeing the fruits of competition:

"...Microsoft is hoping to launch a cheap, online version of its Office suite that doesn't include all the features of the paid-for version, to keep companies buying that product. But the company still claims that its software will provide "fuller service" than Google Apps, the free suite of online applications with about 15 million users. In short, Microsoft is trying to thread the needle here by creating a free online Office version with enough features to displace Google Docs, but not enough features to encourage companies to give up their lucrative Office purchases. That strikes me as a pretty significant challenge."

I seriously doubt that Microsoft the monopolist would launch an online version of its Office software; Microsoft the competitor, on the other hand, feels the need to answer Google's challenge. What will Google do to counter Microsoft? We consumers can only wait excitedly for the next innovation out of Mountain View, CA.

The point is simple: competition is good, monopoly is bad. If Microsoft had no competition, then they'd still be selling copies of Windows Vista, rather than working feverishly on Windows 7 -- and that's good for all of us.

Thoughts on the Waxman-Markey Bill

The Waxman-Markey bill is the US's first major attempt to control the emissions linked to global warming. As you might expect, it has elicited a fury of views from economists.

Greg Mankiw points out the bill's major shortcoming: that most of the emissions permits are given away for free. These permits were projected to bring in $1 trillion in revenue over the next ten years, money that could be used to pay down the debt or help fund healthcare reform; instead, the bulk of this value will simply be given away to business interests.

In spite of the shortcomings, however, Dean Baker and Paul Krugman support the bill because the cost of doing nothing is higher than the cost of a bad bill:

"Temperature increases on the scale predicted by the M.I.T. researchers and others would create huge disruptions in our lives and our economy. As a recent authoritative U.S. government report points out, by the end of this century New Hampshire may well have the climate of North Carolina today, Illinois may have the climate of East Texas, and across the country extreme, deadly heat waves — the kind that traditionally occur only once in a generation — may become annual or biannual events.In other words, we’re facing a clear and present danger to our way of life, perhaps even to civilization itself. How can anyone justify failing to act?"

Provocatively, Krugman calls failure to act against the "existential threat" of Global Warming treasonous.

Don Boudreaux takes issue with Krugman's accusation:

"It's more accurate to say that Mr. Krugman is committing treason against reasoned debate. One of the most compelling arguments against climate-change regulation is not that global warming isn't occurring but, rather, that the dangers of further regulation far outweigh its likely benefits. Government regulation inevitably is a political animal; it's never guided purely, or even largely, by disinterested science.

Is it treasonous to worry about the influence of interest-groups on regulation? Is it treasonous to fear that centralizing more power in Washington will result in unforeseen negative consequences? Is it treasonous to believe that the threat to our well-being posed by further constraints upon markets is worse than is the threat posed by higher temperatures?"

The interchange between Krugman and Boudreaux highlights the major ideological conflict surrounding attempts to curb Global Warming. Putting science aside for a moment, we are talking about the correct response to a market externality (carbon emissions). For Krugman, externalities can be dealt with through policy intervention, such as a tax (or a cap-and-trade bill, which has the same desired intent). Boudreaux, on the other hand, is a firm adherent of Public Choice Theory, and worries about interest groups capturing the policy process and stifling individual liberty. Theirs is a conversation that would be substantively the same if we were talking about subsidizing research, overfishing or any other commonly cited externality. Krugman is more worried about the externality and Boudreaux is more worried about the intervention.

Like anything else, we economists can easily boil the issues of our time down to the basics of "government vs. the market."