Common Good (OR What private industry won’t do)

Related to my last post, and reinforced by this article from Ezra, is the simple fact that there are things which private industry will not do. Why? Because there’s no money in it. Companies exist to make money, they are motivated by what allows them to make the most money.

As Ezra details in his article, the Health Insurance market incentivises less and worse coverage:

[I]t’s natural that insurers — which are, after all, for-profit companies, not government agencies or public trusts — turn their attention to making deals with the most profitable among us and avoiding deals (or finding ways to break contracts) with the least profitable.

Matt also touches on this idea in a different industry:

My understanding is that the internet is radically faster in some Asian countries, notably South Korea and Japan, than it is here in part because the state has intervened in a more heavy-handed way to ensure that this is the case. Clearly, though, South Korea and Japan are not crushing the United States economically. One potential explanation for this is that all this talk about the Internet is way off-base, and digital communication isn’t actually all that important to the modern economy. I don’t find that especially plausible. Another explanation is the Cowen/Quiggen explanation—the consumer surplus associated with digital communication is only very partially captured as profits. That will predict that absent heavy-handed government intervention, capital markets will underfund broadband infrastructure and you’ll have less of it than would be socially optimal. This is, I think, a fairly reasonable interpretation of the broadband gap.

He comes at it from the perspective of productivity, but the idea is the same: private enterprise will only go so far. Matt has been reiterating that markets are not inherently better, they are only more efficient a lot lately, and I think that now is a really good time remember that.

President Obama touched on it during his campaign and in some of his speeches recently, particularly about the stimulus bill. For almost 30 years, we have been asking the service sector of our government to do more with less. Military spending is still through the roof, but infrastructure projects go unfunded and education requirements are created but not funded (see “No Child Left Behind”). Our electrical grid is antiquated and (as Rachel Maddow loves to point out) vulnerable to the most predicatable occurances like snow in winter. Or broadband infrastructure practically prehistoric in technological timeframes. And all the while our population grows, placing more dependence and stress on all facets of our infrastructure.

It’s obvious to me that the private sector would have been jumping all over these opportunities if there were profit to be had. Yet they haven’t, which seems to indicate that there’s no money there. Why should an ISP invest in upgrading their consumer grid when those same consumers will just expect better performance for the same price? Why should a power company improve the reliability and durability of their lines when customer will object to the higher costs?

This is where government’s role is, but the very idea of the value of government has been so besieged that we have silly debates about whether it’s wise to raise taxes on the riches 2% of the population. We’ve all heard and used the phrase “you get what you pay for”, but, somehow, it’s never applied to government. We’ve all complained about the efficacy of some governmental office (see DMV), but don’t really consider that they do the best they can, given the resources. We’ve probably all moaned a little about the exorbitant price of stamps (ohmigod! $.42), without really considering that for that price you we can send a letter anywhere in the coutry (or further) and have it arrive within a week.

And, since government is, in many ways, a service industry, the quality of those services can depend greatly on the quality of the employee providing it. When government offers 10-20% less salary for an equivalent private sector job, is it any wonder that the exemplary employees find themselves better paying jobs? But, that’s all the government can afford, because we’re so deathly afraid of the taxman.

This is not to say that there aren’t inefficiences in the way that government operates. There are, and we would be right to demand that those inefficiencies be sought out and corrected, which can be more difficult that in private industry because the bottom line is much fuzzier. But such a task costs money too, and we’ve starved our governments of that money for so long it’s almost amazing they manage to do as well as they do.

Here’s hoping that President Obama has a very successful administration, and that people stop being afraid of the big-bad-government monster for a while.

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7 Responses to Common Good (OR What private industry won’t do)

  1. the simple fact that there are things which private industry will not do. Why? Because there’s no money in it. Companies exist to make money, they are motivated by what allows them to make the most money.

    This is all quite true but it’s not actually an argument for doing anything in particular. After all I might just as well observe that “giving me, personally, $10 million dollars per year, for free” is a Thing Which Private Industry Will Not Do Because There’s No Money In It.

    But that mere observation alone isn’t actually a very good argument for the government stepping in and setting up a Giving Me, Personally, $10 Million Dollars Per Year, For Free program.

    The real problem with “health insurance” is actually spelled out in Ezra’s article – it’s not merely insurance, it’s pooling for price-smoothing. The problem is that not everyone wants to do this, and people like Ezra want them to be forced to do so anyway. I see no good argument there or here for forcing people to do things they don’t want to do in the name of some abstract concept like ‘there are things private industry won’t do’. Yes there are, like force people to cough up money for a service they don’t actually want and which is a net-bad deal for them.

    That is indeed the government’s role, sadly.

  2. Shane says:

    True, I should have said “there are things that should be done, which private industry won’t do.” I wasn’t necessarily arguing that government should do everything that private industry does not, just that we should not avoid doing what private industry does not just because private industry doesn’t do it.

    Discussions and arguments should be had regarding every service we’re asking our government to do. Ezra’s article certainly comes from the perspective that the government needs to intervene in the health insurance, and you can find his rationale for that at his blog.

    And it’s true, not every one wants to have health insurance. But it’s also true that everyone will, at some point, interact with the health care sector, and the expenses they incur will impact the prices for everyone else.

    As for whether insuring everyone is a net-bad deal, that would need to be evaluated over a lifetime, not on a monthly or yearly perspective. I imagine you’d argue that Social Security is a net negative, and it may be true that the odds that it would be are about even. In contrast, the odds that any given person will require significant (and expensive) health care at some point in his or her live is much, much greater.

    Some quick math… let’s say that throughout my working life, my employers and I pay $2000 a month to provide insurance. I have no idea how accurate that number is, and it seems high, but let’s go with it. That means we’re paying 24000 a year. Over a 45 year career we’ll have just topped $1 million.

    Sounds like a lot, but given the costs of treatments for some common, but expensive, illness (cancer, diabetes, renal failure) the odds are decent that I’ll incur that cost. Not to mention some of the more regular and accidental things that happen along the way (physicals, muscle, bone, and tissue damage, etc. Even pregnancy, were I female). It just doesn’t seem like a net negative to me, especially in exchange for the peace of mind in knowing that I needn’t worry about emergency medical costs ever.

  3. I wasn’t necessarily arguing that government should do everything that private industry does not, just that we should not avoid doing what private industry does not just because private industry doesn’t do it.

    True enough, but that phrasing doesn’t really go anywhere. I don’t think “because private industry doesn’t do it” is usually a reason anyone gives for opposing anything.

    As for whether insuring everyone is a net-bad deal,

    This wasn’t my claim. My claim was just that there are some individuals for whom insurance is net-bad – or who might perceive it to be so. You might disagree, but actually Ezra’s article is entirely premised on that fact. Because what he’s saying, not in so many words, is that he wants to be able to force net-payers into the health insurance system (so that insurance companies will have less incentive, or won’t be able to, kick out net-users0. Well, if you’re a net-payer for insurance, then insurance is, by definition, net-bad for you.

    Of course, you make the point that things might even out over a lifetime. Perhaps, thought not always. One well-known counterexample is black men + Social Security; black men pay into the Social Security system but their life expectancy is much much lower than other demographics, so at the margin you get cases where a guy pays all his life and drops dead at 63, the net result being that a black man was having his paycheck garnished to subsidize elderly white women.

    Another issue is just with timing. Perhaps it’s true that since everyone will need health care sooner or later, things even out. But why should people have no control over the timing of their payments? Suppose I’m a 22-year-old, just starting out, and I make a pittance of $18k/year in a mail-room job. To use your numbers, I should (with my employer) be forced to pay $2k/month on health care to cover those MRIs etc I’m going to need when I’m in my 70s. What if I decide I have better uses for that cash right now? What if I just got married and want to save up for a house? What if I make the calculation that I’m pretty healthy right now, my health care needs are minimal, I don’t make that much to begin with, and my best use for that cash now lies elsewhere – so what I’d really want to do is, say, pay less for health coverage now and make it up later when I have a better-paying job and am settled more in a house etc.? Oh sorry, that choice is taken away from me, by well-meaning busybodies like….Ezra Klein.

    The net result being that healthy 22-year-olds, rich or poor, subsidize hospital stays for 79-year-old white women, basically. Are there no fairness issues that arise for you?

    Now, I realize you didn’t want to focus so exclusively on this one issue, and had a larger point to make about market failures and the role of the public sector, but I do think this example does help illustrate some very valid issues with the lockstep expand-the-public-sector-because-of-private-sector-failures view. Best,

  4. Shane says:

    don’t think “because private industry doesn’t do it” is usually a reason anyone gives for opposing anything.

    Not in those words, but conservatives will often object to government intervention because it would infringe upon private industry. They argue that government shouldn’t do anything because it would prevent the private sector from doing it. They are, essentially, arguing that the private sector can and will meet all needs, and, by extension, if the private sector doesn’t do it, it’s not worth doing.

    The net result being that healthy 22-year-olds, rich or poor, subsidize hospital stays for 79-year-old white women, basically. Are there no fairness issues that arise for you?

    Objecting on the basis of “fairness” seems a bit tenuous, because of the specificity of the comparison. In general, yes, it might not seem fair for young and healthy people to subsidize the weak and frail. But that’s only one part of the picture. Is it fair for that young healthy person, who chooses to not purchase insurance, to avail himself of emergency services in an ER for which he cannot pay? Those very services being paid for by the weak and frail?

    And even that is a narrow reading of this scenario. Fairness can be conceived much more broadly. In the pursuit of fairness, shouldn’t we work to provide the same opportunities to all people in this country, regardless of individual circumstances? Wouldn’t those opportunities include the availability of health care, just as they should include the opportunity of quality education? Isn’t it more fair that everyone have access to the basic care that will keep them healthy and allow them to contribute to our society and economy?

    Part of why progressives seek universal health care is because it helps create a more equitable society; it is, on a larger scale, more fair. Another reason, of course, is that the costs need to be contained. The only way to truly do that is to ensure that everyone is in the same risk pool. Private insurance, as Ezra discussed, has distinct incentives to maximize profit. Increased costs can certainly translate to increase profits for insurers, if they can exclude those who will incur more expenses.

    As you say, though, there is a larger point. It’s not that the public sector should be expanded just because the private sector isn’t succeeding. It’s that we need to get past the objections that only the private sector can meet our needs. We need to be willing to embrace the idea that there are some things that the private sector cannot or will not do, but still need to be done.

  5. truth=freedom says:

    The entire premise of insurance is that some people will subsidize others. And really the problem here is the fact that unless you’re willing to stipulate that people who are less healthy, whether due to stupidity or bad luck or bad genes, get to suffer poverty as a result of this bad luck or, worse, to die from lack of care.

    Shane, I’ll wager, and I (I am authorized to speak for myself) are not willing to condemn the unlucky in this way. The rest is Just Details.

  6. Sorry for lateness getting back to this.

    They argue that government shouldn’t do anything because it would prevent the private sector from doing it. They are, essentially, arguing that the private sector can and will meet all needs, and, by extension, if the private sector doesn’t do it, it’s not worth doing.

    Hm. All I can say is, this is not a conservative POV I can recall encountering, not as such.

    Objecting on the basis of “fairness” seems a bit tenuous, because of the specificity of the comparison.

    Well any comparison of the effects at the margins will be ‘specific’. But if that disallows discussion over fairness then let’s just take all your money – any complaints from you, and I’ll just point out you’re being ‘specific’ ;-)

    Is it fair for that young healthy person, who chooses to not purchase insurance, to avail himself of emergency services in an ER for which he cannot pay?

    Well, no, it’s not fair, not really. Society chooses to treat him anyway. But this choice doesn’t render further unfairnesses acceptable.

    In the pursuit of fairness, shouldn’t we work to provide the same opportunities to all people in this country, regardless of individual circumstances?

    Yes, of course, as long as ‘opportunities’ is properly construed.

    Wouldn’t those opportunities include the availability of health care, just as they should include the opportunity of quality education? Isn’t it more fair that everyone have access to the basic care that […]

    Yes – again, as long as these things such as ‘availability’, ‘access’ and so on are properly defined.

    Part of why progressives seek universal health care is because it helps create a more equitable society; it is, on a larger scale, more fair.

    I recognize that belief is ‘why they seek’ it; in response, I would point out that the fairness of a thing cannot be assessed independently of how it is achieved and what the unseen effects are.

    Another reason, of course, is that the costs need to be contained. The only way to truly do that is to ensure that everyone is in the same risk pool.

    If this is true then why isn’t an analogous approach the ‘only way’ to contain costs in food distribution, housing, etc.? I don’t agree with the diagnosis asserting that the high costs of health care stem from private insurance and not enough risk-pooling.

    It’s that we need to get past the objections that only the private sector can meet our needs.

    Again, as I said in my previous comment, I’ve not really seen these objections (outside of perhaps hard-core libertarian circles). Your arguments here strike me as heavily laden with straw-men. I’ll stipulate that the private sector can’t and doesn’t meet all our needs; but as you’ve already recognized, that’s just not an argument for any particular public-sector endeavor.

    best,

  7. to truth=freedom:

    The entire premise of insurance is that some people will subsidize others.

    Not so. That’s the entire premise of welfare. The premise of insurance is the pooling and spreading of risk as a service, because it is beneficial to the people being insured.

    Folks who don’t want this or that insurance, by definition, don’t consider such an arrangement beneficial. Forcing them into the arrangement anyway is no longer insurance, it is welfare.

    ..unless you’re willing to stipulate that people who are less healthy, whether due to stupidity or bad luck or bad genes, get to suffer poverty as a result of this bad luck or, worse, to die from lack of care.

    No I don’t ‘stipulate’, if that’s the right word here, that people die from lack of care. Emergency rooms by law (EMTALA) must treat people in need, regardless.

    As for the point about whether sick people ‘get to suffer poverty’, I’m not sure what you mean exactly. A poor person who gets sick and needs subsidized treatment is already ‘suffering poverty’, what’s the alternative here?

    best

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