Tag Archives: competition

We Are Number Five!

Jeremiah briefly joined a discussion yesterday on this CNN report from Davos.  His purpose, apropos the World Economic Forum, was to remind readers that competitiveness is a fact of life – and that this fact determines our standard of living.

According to the WEF survey, America ranks fifth in global competiveness – behind Switzerland, Singapore, Finland, and Germany.  It’s no coincidence Jeremiah often writes about these countries.  Finland has The Smartest Kids in the World, and Germany and Singapore both lead in vocational training.  We are lucky still to be number five, because our educational ranking – depending on which survey – is roughly 30.

America’s weakest area is the macroeconomic environment, where our debt, deficits, and trade balance place us near the bottom of 148 countries surveyed.

WEF Chart 2013

This chart shows the biggest problems cited by survey respondents.  Note the top three.  The reason new jobs are not being created in your town is, in a word, our bloated (and scary) government.   Jeremiah recommends scaling back the central government, and letting the states do more on their own – particularly with education reform – or next year we’ll be looking up at Hong Kong.

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Poder a Los Estudiantes

Dear President Bachelet, we read in The Economist about your plan to nationalize the universities and provide free education.  This is a laudable goal, and we are writing to you with some advice based on what we have seen in the United States.  Our educational system is very expensive, and it produces poor results.  This is confirmed by international surveys.

If your government supports the universities directly, then you will see quality go down and expenses go up.  In the U.S., we have seen this result in both primary education which is directly supported, and in universities which are supported through government loans.

The important thing is that the schools are paid only by the students.

If you want to provide a good education to your citizens, then the schools must be exposed to competition.  Through competition, the students themselves will enforce standards of quality and cost.  The way to do this is to provide financial assistance directly to the students.

Current payments are best.  If you use loans, and the loans are below a market rate, then the universities will game them as they have done here.

You may distribute aid to the students using any criteria you wish.  You may choose which taxes or efficiencies will fund it.  The important thing is that the schools are paid only by the students.   You might also want to encourage the development of vocational schools, like they have in Germany.

See also:  The Education-Industrial Complex

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How To Control Health Costs

Early in Jeremiah’s career, he was introduced to “Medicare optimization.”  Hospitals hire these consultants to review their Medicare claims, and make sure they’re billing the legal maximum.   Today, most hospitals have specialist staff and computer systems for this.  A cynic might say the hospitals are gaming the system, but – their financial health is at stake.

He also had the opportunity to work with a major health insurer, where the gimlet-eyed “utilization review” team scrutinized their hospital bills.  Who do you think does a better job of controlling hospital fees – a government agency with a price list, or a private insurer with a profit motive?

Patients may prefer Medicare where  its coverage is more generous, but that’s only because the government has “unlimited” money to spend.  Tax-funded generosity only encourages runaway spending.  This is the root cause of the housing bubble, the college tuition bubble, and the health care bubble.

But Jeremiah, you ask, won’t the hospitals just reduce their quality of care?  Won’t the insurers just pass on their rising costs?  Won’t the patient, at the bottom of this hierarchy, still get the shaft?  Not if the patient is also the customer.

All the pundits want somebody else to pay for your health insurance, whether it’s your employer or the government , but this is a scam.  The money still comes out of your pocket – or your grandkids’ – one way or another.   The scam is that you’re not calling the shots.  You can’t fire your insurer if they give you lousy service or skimpy coverage.  You can’t shop around for better rates, as you can with every other kind of insurance.

A few more reforms are needed to create a free market in health care:

  • End the tax deduction for employer-paid health insurance, so that everyone is shopping in the same market.  You pay for this “savings” in your taxes, anyway.
  • Reform the tort system, so that hospitals aren’t the prey of specialist lawyers.
  • Require everyone to buy health insurance.  This has recently been approved by the Supreme Court.
  • Allow insurers to consider your health when issuing a policy, just as life insurers do.  Competition with other insurers will limit the up charge for your smoking habit.
  • Allow insurers to compete nationally across state lines.
  • Allow prescription drugs to be re-imported, if they’re cheaper in Canada.

Finally, we should subsidize premiums for the poor and the sick.  This allows us to help them without distorting the market.

Competition will spur innovation and drive down costs in health care, as it has in every other industry.  Health care is only expensive because it is glutted with phony savings, perverse incentives, and special interests.  Insert “sclerosis” metaphor here.

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Publish Hospital Prices

Debate over wealth redistribution is often sidetracked by the question of morality.  Is it right for one class of people to pay extra so that another class can enjoy free health care?  That’s not the question.  The question is, will it work?

Is it right for one class of people to pay extra so that another class can enjoy free health care?

People on all sides of the debate agree that the root problem with health care is that it costs too much.  Burying this problem underneath a government program is not going to fix it.  The only mechanism for cost control is competition, and competition requires published prices.

Have you ever asked about prices in the hospital?  Why not?  It’s basically an overpriced hotel with bad service.  How much is that worth?  Oh, and a random doctor stops by for forty seconds still wearing his cleats.  That’s a thousand dollars a night?  Jeremiah would rather be in the Bellagio.  Everybody we know has a horror story about receiving a five-figure bill for a simple procedure.

Seriously, if you ask about price in the hospital, you will get a very disturbing answer – it depends on who’s paying!  They charge private insurers extra to make up for the discounts the government gets.  This may sound like a bargain for Medicaid, but it also sounds pretty shady.  Odds are the government is getting screwed, too.

Congress could easily pass a law requiring clinics and hospitals to publish their price lists.  No one would complain about that, except clinics and hospitals who profit from covert pricing.  If they complain that health pricing is “too complicated” to predict, then Congress could require them to publish non-binding reference lists of last year’s charges.

Thanks to deductibles and health-saving accounts, patients are ready to do comparison shopping.  This is something we are good at.  Force them to talk price with us, and we will chisel them down.

See also: Jeremiah’s Health Care Plan

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On Unions

Unions are a vital part of American capitalism.  Conservatives today see them as an enemy, but unions historically have strengthened capitalism by providing a way for workers to participate in the system.

In the early days of industrialization, factory owners exploited the workers.  Wages were low, hours were long, and working conditions were unsafe.  The free market system enforced this exploitation.  If one factory offered higher wages, they would lose business to a lower-priced competitor.  It was a “race to the bottom,” with no protection for the workers.

The Marxist solution was for workers to take over the factories.  This idea turned out to be a failure, and Russian workers soon ended up worse off than before.  The “workers” that took over were just as ruthless as the old bosses, and less competent.

Marx thought that capitalism itself was to blame.  He can be forgiven, based on what he saw in the late nineteenth century.  It was not a glorious period in the development of capitalism.

In America, workers were able to effect change within the system.  They formed unions and demanded their rights through collective action.  Without unions, capitalism in America might have suffered the same fate as in Russia.  Indeed, many union organizers were Marxists.  The triumph of American capitalism was in achieving a balance between the needs of factory workers and owners.

Rather than collectivize the whole economy, as Marx advocated, unions are a little bit of collectivism within our free market system.  They allow the workers to protect themselves instead of demanding, say, wages fixed by the government.

One of the principal functions of the National Labor Relations Board (NLRB) is to determine, through secret-ballot elections, the free choice of employees regarding whether or not they wish to be represented by a union in dealing with their employers, and if they do wish to be, by which union. 

Today, all managers know that good business depends on good labor relations.  Even where there is no union, there are practical reasons to keep workers happy.  The German economy is a wonderful example of labor and management working together, and competing successfully against foreign companies.

Policy makers wishing to protect our capitalist system (Republicans) often assume this means protecting “management.”  That’s not always true.  Labor and management must work together.  The role of public policy is to keep the playing field level.  Just as government must not choose winners and losers among companies, it must not upset the balance between labor and management.

Democrats make the same mistake.  They assume that protecting the workers means protecting the unions.  In the construction industry, unions are entrenched and block entry to new workers.  This is a case where the union may be good for its members, but not workers in general.

Union power can become unbalanced in various ways, including – too weak, too strong, two-tier unions, and public sector unions.

In the case of General Motors, the UAW became too strong and killed the golden goose.  The company went bankrupt because management made concessions they could not afford.  In other industries, like food processing, unions are weak and working conditions are dangerous.  The food industry also takes advantage of illegal immigrants.

To address the problem of too-costly concessions, the UAW and other unions have adopted a “two tier” approach.  In a two-tier union, older members enjoy the benefit of certain concessions not shared with new members.  If these second-tier members conclude that the union does not represent their interests, they may split and form a new union.  Here again, what’s good for the union is not always what’s good for the worker.

Finally, we have public sector unions, which represent people in government jobs.  This situation presents a moral hazard because the “managers” are elected officials and the “owners” are taxpayers.  Many state governments have gotten into dire financial trouble as a result.

Various agencies, such as the NLRB, EEOC, OLMS and OSHA, are charged with protecting American workers and maintaining a balance of power with management.  As these agencies become politicized, and overstep their legal mandate – then American capitalism will suffer, and the workers will suffer, too.

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Don’t Blame Sanjay

Once upon a time, Jeremiah was a student in America’s dismal public-school system.  There were a few talented young students, and not all of them were singled out for abuse.  Academic excellence might be tolerated, as long as the evidence could be concealed.  Overt signs of ambition – reading, homework, respect for teachers – were met with sanctions ranging from ostracism to actual violence.

The only sensible thing, in such a milieu, is to enjoy the ready availability of sex, drugs, and other diversions – and hope for the best after graduation.

Some years later, an immigrant Indian student showed Jeremiah the string he was wearing, wound confusedly over his shoulders and around his back.  This simple cotton string was important to young Sanjay – a reminder of his role as a full-time student.  Later, Sanjay explained, he would be a husband and a father and a successful doctor.  But first, he must give top priority to doing well in school.

There is, of course, this stereotype that Asians from South to East are lifeless drones with no spunk and no sense of fun.  American kids can justly feel smug about that, while washing Sanjay’s Mercedes.

See also:  R.I.P. Derrion Albert

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Public Option Still a Bad Idea

Senator Max Baucus deserves credit for putting together a half-decent bill on health care reformSenator Snowe, too, for having the “public option” removed.  A Democrat and a Republican, respectively, they showed good bi-partisan cooperation.  Unfortunately, there is no such spirit in the House, where Nancy Pelosi has vowed to bring back the provision.  Even President Obama, an early supporter of “public option,” has signaled he will sign a bill without it.

Ms. Pelosi, and others in the House, describes the provision as stick with which to beat the health insurers.  These are people who don’t believe in the free enterprise system.  Certainly, insurers need to feel the pinch –but all that’s required is to remove distortions from the health insurance market.  Create a binding individual mandate, end the deductibility of employer-paid plans, and allow interstate competition.  Once the free market goes to work, we’ll see insurers beating each other – without government help – like GEICO and Progressive.

House Socialists also like public option as a vehicle for income redistribution.  The “rich” would pay a hefty surcharge, to subsidize care for the poor.  The Baucus plan is upfront about redistribution, and accounts for it, instead of burying it in a vast new bureaucracy.  Not everyone is a fan of redistribution, but at least our leaders could be honest about it.

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