Tuesday, January 5, 2010

The fatal flaws in healthcare reform (5)

A few weeks ago I posted a list of four fatal flaws in healthcare reform.

The fourth flaw is so gigantic and obvious that it promises to be the driving force behind a new political movement that is already expressing itself via Tea Parties. It could well prove to be The End of Big Government As We Know It. It is this: our economy is now so large and complex that it is impossible for government planning to reform any industry for the better. 

Eric Raymond has written a very good essay on this subject ("Escalating Complexity and the Collapse of Elite Authority") which complements Don Boudreaux's essay that I linked to and cited in my post. Here are some excerpts, but please read the whole thing:

Our “educated classes” ... have run the economy onto recessionary rocks with overly-clever financial speculation and ham-handed political interventions. Republicans have been scarcely less guilty than Democrats.

When I look at the pattern of failures, I am reminded of something I learned from software engineering: planning fails when the complexity of the problem exceeds the capacity of the planners to reason about it. And the complexity of real-world planning problems almost never rises linearly; it tends to go up at least quadratically in the number of independent variables or problem elements.

I think the complexifying financial and political environment of the last few decades has simply outstripped the capacity of our “educated classes”, our cognitive elite, to cope with it. The “wizards” in our financial system couldn’t reason effectively about derivatives risk and oversimplified their way into meltdown; [and] regulators failed to foresee the consequences of requiring a quota of mortgage loans to insolvent minority customers ...

The “educated classes” are adrift, lurching from blunder to blunder in a world that has out-complexified their ability to impose a unifying narrative on it, or even a small collection of rival but commensurable narratives. They’re in the exact position of old Soviet central planners ...

What do we do next?

The answer is, I think implied by three words: adapt, decentralize, and harden. Levels of environmental complexity that defeat planning are readily handled by complex adaptive systems. A CAS doesn’t try to plan against the future; instead, the agents in it try lots of adaptive strategies and the successful ones propagate. This is true whether the CAS we’re speaking of is a human immune system, a free market, or an ecology.

Since we can no longer count on being able to plan, we must adapt. When planning doesn’t work, centralization of authority is at best useless and usually harmful. And we must harden: that is, we need to build robustness and the capacity to self-heal and self-defend at every level of the system.

... the elite planner’s response to threats like underwear bombs is to build elaborate but increasingly brittle security systems in which airline passengers are involved only as victims. The CAS response would be to arm the passengers, concentrate on fielding bomb-sniffers so cheap that hundreds of thousands of civilians can carry one, and pay bounties on dead terrorists.
As I and many others have said before, the only real solution to our healthcare problem must begin with steps designed to reintroduce competitive, market forces to the healthcare industry. That includes fixing the tax code so that employer-provided health care is no longer tax-advantaged over individually-funded healthcare, removing interstate barriers to selling healthcare insurance, and eliminating government-imposed mandates on healthcare insurance, among others. Only market forces are capable of improving the healthcare industry, but we've got to give them a chance.

HT: Glenn Reynolds

6 comments:

W.E. Heasley said...

Excellent post.

One item over looked is that private health insurance, or private insurance of any type, is actually a private welfare system.

Private welfare systems work much better and at a lower cost than public welfare systems. Or restated, private insurance systems work much better than social insurance. That’s an axiom in the study of insurance and the study of private/public welfare systems. Its empirically studied and proven.

There are those cases such as flood insurance that can only be handled by public backing due to anti-selection. Surely people with pre-existing conditions that can’t be absorbed by the Private Welfare System due to anti-selection needs addressed.

However, to continue to build a public welfare system (public insurance/socialized medicine) based on price controls is foolish. Price controls leads to lack of supply. Price controls have absolutely nothing to do with cost containment. Cost containment is the real issue.

Regarding your post mentioning the “educated classes”, you might take a look at Thomas Sowell and his book Intellectuals and Society.

bob wright said...

Call me a cynic.

No matter how much people protest and argue against health care reform, the current political leadership is intent on cramming this down the collective throats of the American people.

They make back room deals.
They pay off opponents in a style that would make the good fellas blush.
They won't hold the debate in the open, on C SPAN.

They don't listen.
They don't hear.
They don't care.

Throw the bums out.

Thomas B said...

Indeed an interesting article by Eric Raymond, one of the leaders of the open source movement in software development.

I am reading Nicole Gelinas "After The Fall, Saving Capitalism from Wall Street - and Washington" (recommended reading). I am not sure that the solutions to the financial markets problems are all that hard to figure out. It seems some knew what was wrong all along: the political class simply lacked the will and succumbed to prevailing interests in Washington and on Wall Street.

Where Raymond strikes me as being spot on is the inability, I would say arrogance, by the political class in justifying its actions. We are told that the health care legislation is "historic", that we will understand it later. They seem to believe that there is no need to justify their actions or to enter into a meaningful debate about the merits of the legislation.

The question to my mind is whether they themselves understand the problems they have set out to solve and whether they have the will to solve them.

Similarly, we are told that government security agencies "screwed up" regarding the Nigerian bomber and must do a better job in the future. The simple truth is that searching for weapons is a fool's errand. The TSA has been given the wrong task, and should instead be looking for terrorists. Even if they are able to pacify all airline passengers, and hence prevent explosives from entering the cabin, this would not be much help. Looking for what you expect isn't all that hard. Discovering the unexpected (e.g. 911) a bit of a challenge.

The problem regarding terrorism is easy to comprehend. The issue is that the types of solutions the government looks for, using massive numbers of people and increasingly brittle technology and systems, is the wrong approach applied to the wrong problem, i.e. finding weapons rather than terrorists.

It is not hard to understand what needs to be done, and good solutions are not all that complicated. I agree with Raymond that the solutions proposed by the government, especially to security, are too complex and inherently prone to failure. I agree that a CAS type approach is the right direction.

It is clear that the current political class has failed. This problem can however be fixed rather easily. The genius of democracy is that we can get rid of the bastards! It all comes down to fielding and electing the right people! A rather simple solution.

Benjamin said...

Free marketeers, and I am one, would have more credibility if we led our argument with proposals to free up of agriculture sector.
Right now, agriculture is virtually a creature of the federal government, heavily subsidized and regulated and guided and advantaged by the federal government.
If memory serves, there are more than 7,000 agricultural extensiobn officers nationwide guiding local farmers, in addtion to ag schools, and then regs on output, and of course crop subsidies. In whole states, such as Montana, farmers make more from the feds than from free enterprise.
Yet, usually, the right-wing holds up US farmers as the best in the world, and worthy of imitation.
The R-Party is very tight with the ag sector.
But now, we free marketeers tell the voting public that the feds simply cannot enter health care with good results.
In general, the right-wing also holds up the defense sector, again totally a creature of the federal government, as a paragon of virtue and integrity.
And we wonder why many think we lack credibiity

Paul said...

Benjamin,

I don't know what you're talking about regarding agriculture. I don't know any right-wingers who support ag subsidies, are you talking about politicians? If that's the case, then Democrats are just as guilty. I give you the execrable Tom Harkin as just one example.

Benjamin said...

Paul-
No doubt any elected pol from a rural region of the US supports the entire and extensive panoply of rural subsidies in place. We have created an entire enfeebled and knock-kneed rural culture, dependent on subsidies to survive, and demanding more every year. Power, water, postal services, airline and train connections, highways and phone service are all cross-subsidized, and of course, crops are subsidized.
The sad fact is that the R-Party has come to dominate rural America, and so is deeply supportive of even more rural lard every year.
I might agree with you if you say the modern-day R-Party is not truly conservative or "right-wing," depending on how you define those terms.
I would like to vote for some real conservatives, in fact.