Greg Mankiw writes:
Consider the following question, which is not about healthcare per se: Would you favor a substantial increase in marginal tax rates for millions of middle and upper income Americans to provide more resources for those toward the bottom of the economic ladder?
Your answer to this question cannot be determined by positive economics without adding in some normative judgments. But your answer should strongly influence your view of the health reform bill. The bill moves us closer to much of Western Europe by favoring equality and paying the price of reduced efficiency from much higher marginal tax rates.
Showing posts with label incentives. Show all posts
Showing posts with label incentives. Show all posts
Thursday, November 12, 2009
Sunday, September 20, 2009
misplaced medical egalitarianism.
Martin Feldstein makes the following point:
"But budget considerations aside, health-economics experts agree that private health spending is too high because our tax rules lead to the wrong kind of insurance."
Due to scarcity rationing will always occur - the question is what process will be used.
The extremes of the continuum are liberty (decentralized agents interacting on their own knowledge) v. totalitarianism (Leviathan dictating allocation). As Boyes and I discuss over on Liberty, the current health care debate provides an outstanding example of the continuum of allocation methods and an opportunity to reflect on incentives and unintended consequences.
Feldstein discusses how tax rules (taxes are another example of increasing scale and scope of Leviathan in civil society as well as coercive power) lead to unintended consequences. Moreover, like regulations, these tax rules institutionalize in a very pernicious manner the power of the government and lead to a loss of liberty that may be permanent. (I am thinking now of the observation that the closest thing on earth to immortality is a government program). As more and more agents "accept" or become accustomed to the loss of liberty, the state has further room to grow.
"But budget considerations aside, health-economics experts agree that private health spending is too high because our tax rules lead to the wrong kind of insurance."
Due to scarcity rationing will always occur - the question is what process will be used.
The extremes of the continuum are liberty (decentralized agents interacting on their own knowledge) v. totalitarianism (Leviathan dictating allocation). As Boyes and I discuss over on Liberty, the current health care debate provides an outstanding example of the continuum of allocation methods and an opportunity to reflect on incentives and unintended consequences.
Feldstein discusses how tax rules (taxes are another example of increasing scale and scope of Leviathan in civil society as well as coercive power) lead to unintended consequences. Moreover, like regulations, these tax rules institutionalize in a very pernicious manner the power of the government and lead to a loss of liberty that may be permanent. (I am thinking now of the observation that the closest thing on earth to immortality is a government program). As more and more agents "accept" or become accustomed to the loss of liberty, the state has further room to grow.
Wednesday, August 19, 2009
"Government can not efficiently do these things."
My colleague Bill Boyes blogs over on Liberty in response to Megan McArdle's view of the safety standards:
"Government can not efficiently do these things."
I tend to read the evidence on standards in much the same way. That is standards are a cost the are imposed, rather than a response that emerges. As such, this type of tops down approach falls victim to The Fatal Conceit.
I cannot envision a standard writer would would have the knowledge in order to construct a standard to ensure safety. The regulatory burden then, is much greater than the overt cost, it includes the perverse consequences that result from the "crowding out" of decentralized agents and the process that allows solutions not designed to emerge.
But I think Bill's comment leads us to a much bigger concern - the increased scope and scale of government action in civil life. As I suggest, this increased scope and scale does tend to have the effect of eroding the underlying motivation for participants to seek solutions and to internalize the costs of their own behavior. I suppose I am trying to argue that the government efficiently does replace private and civil association as a fully functioning component of society, leaving behind a vacuum to be filled by the centralized power.
To the Higgs perspective, and I agree, that the imposition of standards is perhaps, short of war, the most effective way that the government can increase it power.
"Government can not efficiently do these things."
I tend to read the evidence on standards in much the same way. That is standards are a cost the are imposed, rather than a response that emerges. As such, this type of tops down approach falls victim to The Fatal Conceit.
I cannot envision a standard writer would would have the knowledge in order to construct a standard to ensure safety. The regulatory burden then, is much greater than the overt cost, it includes the perverse consequences that result from the "crowding out" of decentralized agents and the process that allows solutions not designed to emerge.
But I think Bill's comment leads us to a much bigger concern - the increased scope and scale of government action in civil life. As I suggest, this increased scope and scale does tend to have the effect of eroding the underlying motivation for participants to seek solutions and to internalize the costs of their own behavior. I suppose I am trying to argue that the government efficiently does replace private and civil association as a fully functioning component of society, leaving behind a vacuum to be filled by the centralized power.
To the Higgs perspective, and I agree, that the imposition of standards is perhaps, short of war, the most effective way that the government can increase it power.
Wednesday, August 12, 2009
Incentives
Bill Boyes over on Liberty blogs the relationship between incentives and performance.
Incentives matter. I think Boyes highlights a key application in economic reasoning, one that I have been reflecting on in the context of my summer reading as well as the current expansion of the state in our country.
Incentives come from the institutional framework of society. These institutions, as Douglass North tells us, can be formal or informal, and they are important in shaping the incentives that shape behavior. Boyes does a great job of exemplifying the impact of incentives and incentive changes in this post.
However, I am interested in the process by which both the institutions and the incentives change. In rereading North's challenging book - Understanding the Process of Economic Change - I encountered his concept of adaptive efficiency. North argues that the emergent and evolutionary process that characterizes change is shaped to a large extent by the degree of adaptive efficiency embedded in a society.
In addition, he argues that while formal institutions can be changed very quickly (the example that Boyes provides us - or the current effort to change the "rules of the game" for health care) while informal institutions (norms, beliefs, values, and shared cultural constructs) change very slowly, in his words this change is incremental and gradual.
So, what we seem to be seeing in contemporary political debate in the US is an effort to quickly change a formal institution in the face of no change in informal institutions. Stated differently, current political leaders seem to be attempting to share formal institutions in a way that conflicts with informal institutions.
This also seems to illustrate the adaptive efficiency of our society - that is a flexibility that encourages trial and error and failure. To the extent that the current political movement fails, there has been a higher order outcome and, tragedically, vice versa.
The relationship between Economics, Values and Organizations is the topic of a collection of essays that I might recommend.
So, Boyes challenges us to consider the impact of an attempt to change formal institutional structure in a rapid, tops down manner. I can't help but think about the alternative implied by Boyes - the emergent and evolutionary development of institutional structures described by Hayek.
Douglass North - Economic Performance Through Time
http://nobelprize.org/nobel_prizes/economics/laureates/1993/north-lecture.html
Arnold Kling on Adaptive Efficiency
http://www.tcsdaily.com/article.aspx?id=061807A
Benjamin Friedman - The Moral Consequences of Growth
Nathan Rosenberg - How the West Grew Rich
Opposing view - Megan McAardle
http://meganmcardle.theatlantic.com/archives/2009/08/did_big_government_save_us_fro.php
Incentives matter. I think Boyes highlights a key application in economic reasoning, one that I have been reflecting on in the context of my summer reading as well as the current expansion of the state in our country.
Incentives come from the institutional framework of society. These institutions, as Douglass North tells us, can be formal or informal, and they are important in shaping the incentives that shape behavior. Boyes does a great job of exemplifying the impact of incentives and incentive changes in this post.
However, I am interested in the process by which both the institutions and the incentives change. In rereading North's challenging book - Understanding the Process of Economic Change - I encountered his concept of adaptive efficiency. North argues that the emergent and evolutionary process that characterizes change is shaped to a large extent by the degree of adaptive efficiency embedded in a society.
In addition, he argues that while formal institutions can be changed very quickly (the example that Boyes provides us - or the current effort to change the "rules of the game" for health care) while informal institutions (norms, beliefs, values, and shared cultural constructs) change very slowly, in his words this change is incremental and gradual.
So, what we seem to be seeing in contemporary political debate in the US is an effort to quickly change a formal institution in the face of no change in informal institutions. Stated differently, current political leaders seem to be attempting to share formal institutions in a way that conflicts with informal institutions.
This also seems to illustrate the adaptive efficiency of our society - that is a flexibility that encourages trial and error and failure. To the extent that the current political movement fails, there has been a higher order outcome and, tragedically, vice versa.
The relationship between Economics, Values and Organizations is the topic of a collection of essays that I might recommend.
So, Boyes challenges us to consider the impact of an attempt to change formal institutional structure in a rapid, tops down manner. I can't help but think about the alternative implied by Boyes - the emergent and evolutionary development of institutional structures described by Hayek.
Douglass North - Economic Performance Through Time
http://nobelprize.org/nobel_prizes/economics/laureates/1993/north-lecture.html
Arnold Kling on Adaptive Efficiency
http://www.tcsdaily.com/article.aspx?id=061807A
Benjamin Friedman - The Moral Consequences of Growth
Nathan Rosenberg - How the West Grew Rich
Opposing view - Megan McAardle
http://meganmcardle.theatlantic.com/archives/2009/08/did_big_government_save_us_fro.php
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