Wednesday, October 11, 2017

But ... so what? The Economics of Ambiguity and Threat

Threats -- the subject I addressed in a previous blog -- are interesting, I tried to argue, from an economic perspective. They are used when one lacks other resources and are, as it were, a currency through which a leader (on behalf of his or her country or party or ruling group, etc.) tries to buy (as it were) things. The currency of threat is both internal and external. Internally, a threat may be good for the leader. It may buy him or her support or praise, particularly if their support is shaky. Thus, and just as an example, the North Korean leadership continually threatens other countries (using its control of the media) both to try to win it international respect (that it has no other means of attaining) and to ensure its support at home. This, too, it has little other means of attaining other than through censorship (which, sooner or later, will fail).

Recently, as I read over the news, I noticed a Washington Post story that Donald Trump planned to declare the Iran nuclear deal bad for the American "national interest." You can find the story here. He also, apparently, however, would not say whether or not he would, on behalf of the US, abandon the deal. That story is here. What does this mean? There are a range of different ways of assessing these statements but if we look at them from an economic perspective and think about their relationship to the economics of threat, we can use such statements as examples that serve to illustrate broader patterns (as opposed to something that is valuable in itself). What is that broader pattern?

One of the problems with threats, I suggested, is that they have a shelf life. This does not mean that you cannot take them out, dust them off, and use them again down the road, after memory has faded a bit. In fact, if you look at North Korea, this is what its government has tended to do. What of Trump? How do his threats work? These threats noted above are interesting from this economic perspective because they show us two things.

First, Trumpian threats are backed up by something vaguely ominous but unclear. This is different the Trump administration's approach to environmental protection legislation. They simply try to get rid of it. They don't threaten anyone. They just move ahead and do it. (I'm not saying that is good. I'm saying it is action that is characterized by a lack of public threatening.) In the case of the Iran nuclear deal, a very different tact has been taken. What happens to the deal if Trump "declares" that it is not in the American "national interest?" It sounds bad, but is it? Does this declaration have any criteria that go with it? Who gets to decide what is and is not in the national interest? Are any laws passed because of this declaration? Does it have any effect on Iran?

Said differently, we have what looks like a definitive statement cum threat that, when looked at closely, is more akin to a house of cards.  Having Trump declare that a nuclear deal with Iran not in the national interest is not like establishing a no fly zone in Iraq or Kosovo. It is not like a certification has been revoked, nor a trade agreement scuttled, nor even a soccer tournament canceled. Trump makes a statement -- some people like it, others criticize it, talking heads chatter over it -- but ... and this is the point, nothing really happens afterward ...  except ...

And, it is that "except" that is vital to the Trump administration's economics of threat. The except is that we don't know.  Will this mean that the US will abandon its deal with Iran? And, what are the implications of abandoning it? Again, it does not sound good but we don't know. This is important because knowing removes the threat. If, for instance, the US stated clearly that it was pulling out of the deal, the Iranian government would say "that is a drag" and go back to their old program. The US might want a new deal but negotiations would have to begin anew. And, as we saw from the first deal, the US does not have a lot of leverage. It could make a stronger threat, say military action, but does anyone seriously believe that they would follow through with that?

Thus, ambiguity is needed for the threat -- or, in this case implied threat -- to actually work. The ambiguity creates pressure and sounds like it creates negative consequences that the other party seeks to avoid. And, from Iran's perspective, seeking to avoid a broken deal might be a good thing and so the treat gains some leverage. But, at the exact minute it stops being ambiguous, the threat loses its leverage, forces Iran to make decisions (whatever these might be) and, because of that, because it convinces Iran that decisions must be made, the US government loses its traction (regardless of what the decision actually is). It can threaten but what if those threats are taken seriously? It now must "fish or cut bait." The beauty of the ambiguity Trump creates is that right now, at least, it need do neither. In other words, to maximize its leverage, the US government needs ambiguity and it needs irresolution.

This is, btw, exactly the same approach the US government has followed with regard to NAFTA. What is the US position on NAFTA? It wants to renegotiate it, but this desire for renegotiation is periodically interrupted by musings out loud about ditching the deal. We can ask in another post, what happens if that were actually the case, but you see the point with regard to the economics of threat. The ambiguity is better than a defined position. Looking at just at Canada, if the US ditches NAFTA (which, it might, of course), that removes the ambiguity and Canada needs to make decisions about what it does with its US trade. Canada makes those decisions on the basis of what is good for Canada. Ditching NAFTA outright, in other words, does not win the US any concessions from Canada. But, ambiguity might. In order to maintain the deal, Canada might be willing to make concessions (say, limiting the export of softwood lumber, or buying even more dairy, or purchasing some military equipment from Boeing). Canada might do this because it is worth something, to the Canadian government and Canadian business, to avoid disruption. But, once that disruption has occurred, the Canada government enters into a different series of calculations. One looks for different markets, rethink energy proportionality, expands supply management programs, etc. Ambiguity, in other words, serves people well in negotiations.

Now, I am not trying to say that the Trump administration is filled with geniuses.  What I am trying to say is that there is an economics to threat and it is different in this case than in the case of North Korea (where a different but similar economics is at play). In both cases irresolution works to advance the state objectives except that North Korea is really looking for either (a) permanent irresolution or (b) the attainment of their aims (which seems unlikely). The US government, one assumes, is looking to attain certain aims and long-term irresolution will not work to meet its aims. This ambiguity with regard to NAFTA has, in this sense, a time limit because sooner or later the US government will want to show results, if for no other reason than to get re-elected.

Same thing with the Iran deal. The deal with Iran might be bad. It might be good. That point is irrelevant. The US wants a deal because it does not want to deal with nuclear proliferation. That was, after all, why it signed the deal in the first place. The current administration is gambling that ambiguity can help it meet its goals in that renegotiation as well. Ambiguity, in this sense, becomes a currency that it is using to try to buy its objectives.

Thursday, August 10, 2017

North Korea and the Economics of Threat

North Korea is in the news so much ... that no one pays attention to it. And, in my view, rightly so. Yes, some people have to pay attention. The US government has to say something about threats, if for no other reason than they don't want them to escalate, the UN has to say something, South Korea, Japan, China, but one has the sense that one is trapped in a deja vu all over again. I guess Trump provided a moment of entertainment by sounding a bit like a Kim Jung-un (which earned Trump moderate but near universal condemnation) but other than that ... really? The latest, I gather, is that North Korea will attack Guam sometime in the next X months.

There is not much to say about this that has not been said. North Korea is clearly an odd place run by odd people. So, we might be better off trying to riff on this latest flare up to ask a question that emerges out of it: what are the economics of threat? Since I've been burbling on about the economics of health care, this seems like a natural connection. Is there an economics of threat that we can use to assess not simply this situation but others?

The short answer is that I don't know. I'm not well versed in this subject, in North Korea politics, in the risk/trust literature and the like. But, it seems to me that there might be an unusual rationality to what North Korea is doing. Let us assume that the North Korean government is looking to get something out of its threats. What might this be? Well, it could be all manner of things. It could be favourable trade agreements, international respect, increased longevity for itself, since as a non-democratic regime it must face some international opposition (no matter how well it is repressed).

Can threats advance objectives? There is an interesting connection to Trump here, as well. The Trump government has initially attempted to get what it wants (whatever that might be) by threat. If you don't build a factory in the US, we will impose a tax on your product.

Moreover, threats are not confined to governments. I've been involved in organizations that worked with threats and implied threats. For instance, I was on strike. The threat is there: "if we do not get what we want, we will withhold services." In part, we reacted to an implied threat: "do X or something worse will happen," as a negotiating position from my employer. There were threats all around, even if no one actually used the precise word "threat."  Parents threaten children ... clean your room or you are grounded.

Threats then are not confined to North Korea (even if theirs are a lot more grave by an order of magnitude). We use threats because they work. In economic terms, the threat is a currency that allows us to buy something: better labour relations (ideally), chores done, higher domestic employment. Most of the time, threats lurk in the background. Indeed, polite people are not supposed to really threaten someone else. Its not really considered ... well ... appropriate. So, we leave the implication of the threat floating there, in the air, so that people are aware of it, but no one is really saying it. The difference (or, one difference) with North Korea, and to a lesser extent Trump, is that threats are part of the regular political arsenal. (By contrast to Trump, the Bush, Jr., regime thought up a whole new language to disguise threats ["regime change," "pre-emptive defense," "coalition of the willing"]).

The problem with threats -- and I suppose implied threats -- from what I can see is that they have a short shelf life. They might produce immediate results but ultimately, they tend to produce only limited results. Why? Well, because they are not economically efficient.

For instance, imagine that I am running a government and I decide that I will cave in to North Korea's demands (whatever they happen to be) and agree to, say, ease trade sanctions. I have not done this not because I *wanted* to. I've done it because of the threat.  What happens when you do something you don't want to? Well, you do it as little as possible. In other words, I might cave, but I don't want to cave in a big way. I might be willing to ease sanctions but I am not going to offer any development aid or IMF loans or a lessening of troops along the border. I'll do precisely -- and only -- what I have to do to respond to that threat.

And, I bet you folks knew that already. After all ... if you threaten to ground your child, how much effort do they spend on cleaning up their room? They meet the basic demand and that is all.  (I strongly suspect Trumpian economics will be like this because they are founded on the same false idea that threats work well to accomplish objectives, but that is an issue for another day). Thus, for instance, if we assume North Korea has objectives, its threats help it meet those objectives *but just barely.* Its government might get a bit of international respect (it is involved in international negotiations -- other governments have to talk to it -- at least with regard to scaling back its threats, but that is all. It is not welcomed into the UN Security Council, no one rushes to side a free trade agreement with it, it garners no international free passes to cultural or athletic events, etc.).

What this means is that the threat is actually less economically efficient than other methods of attaining aims. For instance, there are other ways of winning international respect or attracting investment that produce more long-lasting effects. For instance, capacity is important. The US is invited to a host of international fora not because it threatens to get in the door but because it has the capacity to actually effect changes (be these medical care in Africa, famine or natural disaster relief, international athletics, the arts, scientific developments, post-secondary education, etc.). This runs against the grain of much neo-realist thinking with regard to power and the military but the US is not invited to international hockey tournaments because of its army. It is invited because it has a good team (aka, capacity). Its scientists are invited to international conferences because they are good (aka, capacity) not because its leadership had a fit on TV and makes demands. Threats become, in other words, a substitute for other capacity which is, actually, what North Korea lacks (capacity). Hence, it reverts to threats and these then compound the problems.

The other economic issue with a threat is that it is does not circulate endlessly. Sooner or later, other countries get tired of threats and say, in effect, "shit or get off the pot." Said differently, if you don't act on a threat, people start to think you are bluffing. Then ... what do you do? This means that if you rely on threats you either (a) have to act on it or (b) look like a dufus and back off. In the case of  North Korea, neither option is particularly good. Imagine if the goal of North Korea's threats is to help the regime stay in power by creating an evil other against which the population will rally. Well, this works ... until they actually launch a missile. After that, the regime's time in office is numbered in the days. Hence, acting on the threat is economically irrational because it will produce the opposite of the desired effect. But B is equally unpalatable because the threats are intended to win respect, the opposite of being seen as a dufus. Either way, threats make bad sense.

So, what does one do? Well, in the case of North Korea, I don't know. In the case of the US, I have some ideas but in the case of North Korea, the absence of capacity in other areas and the fact that its government has transformed itself into a pariah state creates serious problems. There is no easy out, but I don't want you to miss my point. There is no easy out because of the economics of threats. In the longer run, they have a shelf life and if I were running a government, I'd recognize that and try to make sure I had some other -- more efficient -- way of meeting my goals.

Tuesday, August 08, 2017

A Refresher on Markets and Costs

In a capitalist society, people make mistakes about markets. I've blogged on this before. They attribute all sorts of erroneous things to markets: moral purpose, ethics, innovation, savings, the promotion of equality, the maintenance of democracy, etc. Some of this is not surprising. After all, if you live in a capitalist society, you tend to think that capitalism -- the use of markets -- is a good in and of itself that must be related to other goods. The problem is ... that these connections are problematic and tenuous. Markets do certain things. They have their uses and, even when they don't, there may be good reasons to not overly interfere with them because a high level of interference may hamper democracy. But, if we are going to effectively assess public policy -- the choices that we have before us as a society -- it is likely a good thing  for us to know what markets are all about and what they can and cannot do.

First, there is no necessary connection between markets and innovation.  Market theorists make this connection because they assume that everyone is motivated by a desire for cash. They call this self-interest as in we all want to be rich. This is actually problematic in terms of its veracity (but this is a discussion for another day).  This issue, like so many other issues related to markets, is an empirical question and not a theoretical question. Why? Because if we leave it a theoretical question ... what happens when we change theory? We get a different answer. If it is an empirical question, we at least have a chance of having a consistent answer. So ... do markets innovate?  The short answer is: not necessarily. There are been great innovations in human history without free markets (read over William Fogel's _Without Consent or Contract_). There have been amazing scientific discoveries (think Galileo) advances in mathematics and medicine, biology, genetics, amazing works of art were made and poems written. Today, perhaps the most innovative sector of the economy comes from the open source movements in software. Some people make money from this but others -- likely tens of thousands of others -- don't. Market economics can be innovative but so have been other economic systems and sectors of society that are de-commoditized.

Second, markets are efficient, as I have mentioned before, only if you use a specific definition of efficiency. For market economics, efficiency is getting a good to a person who is willing and able to pay for that good at the given price. It does not necessarily mean that more people get that good. To say this again, efficiency is allocation on the basis of desire and ability to pay. If I cannot pay for the good and don't get it ... that is actually a market efficiency. Sounds odd, I know, that impeding access to a good could be considered efficient but if you use the definition of efficiency used in capitalist economics, it is at least consistent.

An example a friend of mine used to explain this to me was downloading music for free (aka, pirating music). My friend argued that economists should, in fact, be happy with this because pirating music (aka, not paying for it), allowed people to make up their minds on the music to which they wanted to listen on the basis of the music (as opposed to having a cost intrude). He -- my friend -- did not expect free downloading to hurt innovation in music at all since, he believed, musicians would keep making music because that was what they did. Whether or not they were paid a lot for it, he said, would not affect the supply of new music since people will always make music. Hence, he was saying, the argument that we need to pay for music because otherwise people will not make it, was bogus.

What you can see in this example is that the argument for paying for music, then, has little to do with maximizing the distribution of music. Instead, it has to do with ensuring that those who can pay for music (a good) and like the music can get it. Thus, ability to pay is a key element of a market.

But, surely, at this point, someone says, markets lower the price of goods, increasing access to them. This is a key misunderstanding. Markets can work in this way, but there are limits. An example that is often used is one where there is no specific good in question. It goes like this: Company X produces good 1 and sells it for $1.00 per good, making a lot of money. The good is popular and there is, in fact, excess demand. Other companies notice X making money by selling good 1 and so they are drawn to the market and, because they are self-interested (aka greedy), they make the same good and lower their price in order to capture some of the market.  Company Z sells the good for $0.90 in order to undersell Company X. This forces company X to lower its price to $0.90. Thus everyone benefits. Because company X and Z are now making good 1, more of the good is make and the price is lower.

And, this can happen. But, not always. There are some instances where it might be good to *not* have new companies entering a market.  A key example might be industries that have something to do with national security. This could be weapons or anti-hacking software. Said differently, there may be security reasons to limit market access. This might not just involve the military. We might not care very much if there is a serious competition over companies looking to make toys for McHappy meals (although we want these to be safe), but companies that make airplanes or that run airports or make medicine are other matters.

In addition, there may be markets where the entrance costs are really high. Medicine is a key example of this. If you need the latest MRI or CT machine in your hospital ... well ... those are big start up costs. Running an airline (as we have seen in Canada) is another example. How many airlines have, in fact, failed in Canada (in one way or the other) over the last 20 years? Likewise, to continue this example, there can be markets where one product is connected to another and that connection cannot be broken. Think about the airports I mentioned earlier. Not only do these need to be heavily regulated for security reasons (meaning that you can't just open one up without some sort of government involvement), not only are there serious start up costs (how many of us have the money to just start an airport?), but the success of my airport depends on whether or not airlines use it and airlines will only use it if I have approval from government to run and airport, if it is safe, etc. In other words, I can't just open the Sackville International Airport and wait  for Air Canada to knock at the door.

I should note that I am not criticizing this. I am explaining the way things are. In general, I don't disagree with the restrictions on airports or the need for proper security matters. The point is to note the way in which there can be markets with very limited access owing to security, necessary connections to other products, the need for safety, and very high entrance costs (some things are simply expensive to build). What this means is that competitive markets become very limited or non-existent in some areas ...

... and health care, btw, is one of those areas.  There are all sorts of limits to market access in health care from the need to recruit highly qualified people, to building costs, to the costs of equipment, to the need for state oversight, to policing (we don't want people just strolling in and taking drugs and selling them on the street).

Third, markets are not about morality but are, in fact, a-moral. They do what they do without recourse to morality.  Sometimes, this means that markets will supply consumers despite the morality of those markets. Examples: dangerous and addictive drugs and child pornography.

In other instances, they do not lower prices or increase access (remember, again, they can but this is not an "always" situation). Can I give you an example? Yes, university tuition is the example I usually use. Imagine a university that has 100 students and charges $100.00 in tuition. It has a total revenue of $10 000. Imagine, further, that various costs (faculty, books for the library, grounds keeping, etc.) cost $9000.00. Our hypothetical university makes a profit of $1000.00 and it is happy. But, it can make more, It discovers that there are some people who really want a university degree and are willing to pay a lot for it (there could be all sorts of reasons for this, such as labour market integration).  It discovers that these people will pay not $100 in tuition, but $200.00.  The university now needs fewer students to make the same amount of money. Instead of having 100, students, it now needs to recruit only 50 students for make the same $10 000.00 in revenue. Moreover, because it only has half the number of students, a whole bunch of other costs can be lowered.  Our fictional university -- run on a market basis -- needs fewer recruiters, less books in the library, fewer dorm rooms, fewer faculty. In other words, it can cut its costs. Because these costs were realized on an economy of scale (see my post on 31 July about this concept), saving are not 1:1 but let's assume 25%. So instead of $9000.00, costs are $6750.00. Profits surge from $1000.00 to $3250.00.

All this was realized by actually reducing access and increasing costs. It is an example so before some says "you didn't calculate the cost of paper" or something like that, I know. The example is intended to illustrate a point and one that others have discovered already (this is Apple's model: they do not compete for what they view as "low end" markets). Fewer customers spending more can allow a company to realize a higher profit without any new investment. Our university could go the other way. It could try to increase student numbers to realize a profit but that would involve hiring more recruiters and faculty and building new dorm space, and the like. In other words, it needs to start competing in other markets that might have their own barriers to entry (you can only build new dorms, for instance, if you have land; if you don't, you need to buy it and if it is not available ... ).

Again, my goal here is not to say "here is everything that is wrong with markets" but to talk realistically about what markets can and cannot do.  They may promote innovation but innovation will occur regardless of markets and occurs for reasons other than the profit motive. Market economics promote efficiency but use a specific definition of efficiency that is different from common sense. These are confused at one's peril. Markets are not inherently connected to morality. Markets can facilitate immorality (in the case of child porn) or can focus on making money, which does not necessarily work to solve other problems. Where money can be made by lowering access and increasing costs (as opposed to broadening access and lowering costs), that can be a market stimulated choice.

There is more that could be said but I'll leave off at this point. There is an upshot to it, however, and that upshot is, in fact, the reason all governments seek state involvement in the economy. They do so in various ways and I am well aware that right-wing opposition politicians often talk about limiting state involvement in the economy. Once they get into power, however, and have to implement their policies, they discover that their discourse was just that: discourse. Barriers to market entry, security issues, morality, the need to deliver election promises, expanding capacity, providing further grounds for economic development (increased access to higher education), all begin to affect government decisions and even right-wing governments come to understand why we have a state and why that state needs to be involved in the economy.

Health care, as I said in my previous blog in the US, is a case in point. Here, premiums can be lowered by limited the access to health care if that access impedes profits or raises premiums. Unfortunately, the thing that increases costs in health care is sick people ... the very people who need the product.

Thursday, August 03, 2017

The Economics of Health Care or, the Return of the Repressed

The upshot of my last -- none Jays -- post is general and specific. General:  democracy as now practiced works in a way that creates a disjuncture between reality and image. Specific: in the case of health care in the US, this leads people to (a) see problems where their might not be, (b) draw the wrong conclusions about the character and nature of needed reforms, and (c) believe that they can "get something for nothing." What I'd like to pick up on in this post is to look at the idea of getting something for nothing and how it is presented in contemporary public discourse.  How is this idea -- that you can get something for nothing -- presented to people during election campaigns? How is it organized in public discourse? And, what is the effect?

"There is no free lunch." We've all heard the expression but, as my last post suggests, we don't actually understand what it means. If we use the concept of "opportunity cost" (see my last post), then we understand that it does not mean that you did (or, did not) pay cash for the lunch you just ate. It means that you paid something. The person buying you lunch may have wanted your time. They were willing to shell out for a lunch for you and you were willing to accept it because, heck, it was just an hour but that was the cost. You had to listen to them for an hour or could not take a nap or paint the shed or whatever else you were going to do.  In other words, everything has a cost, whether in cash or time or annoyance or incurred obligation or whathaveyou. Costs are not bad. They are part of life and, as adults, we recognize this. As kids, we might not. I remember my daughter saying "just go get more money out of that machine" when I explained to her I could not buy something because I did not have enough money. To her, at that age, money was magical. It came out of a machine and it was free for the asking. As adults, we know this is not true ....

And, yet, we let a bunch of people tell us it is true, at times on the basis of shockingly little evidence. Think about health care and premiums or taxes as an example.  Politicians running for election fall all over themselves to try to say "I have found a free lunch for you." They don't use precisely those words but that is the import of what they are saying. Every time someone says "waste is the problem" or "unneeded tests" or ... lazy doctors or nurses ... what they are saying is this:  I have found a way for you to get something for nothing. They say "we have to eliminate the waste" or "this is a case of government mismanagement" or "it is those sick people's fault that they are sick and so we should not really pay for them." Or, whatever stock line you prefer.

The key thing to note about this line of argument is that it is not new. I've been listening to "waste is the problem" my entire life. Governments have been "cutting the fat" (aka eliminating waste) as long as I can remember. In Canada, I remember Mulroney campaigning on it, Chretien, Harper. They don't always use precisely this language but this is the substance: the other guys have allowed too much waste, too many people feeding from the trough, and the like. Just about every provincial election carries the same discourse. Sometimes people say "this is typical state mismanagement" or something like that: "the private sector is more efficient." But, the substance is the same and the message sent to the electorate is the same: you can get something for nothing or, you are not getting something for nothing because someone else is ripping you off. (This discourse often takes on nasty xenophobic dimensions when immigrants or Mexicans or Blacks are blamed for economic malaise as if, if there were not so many Mexicans going to school, school would cost less.) And, again, it is not new. In fact, it is old.

I make the point about its age because ... well ... history is against this argument. Those governments that were most effective at controlling the debt (Chretien in Canada and Clinton in the US) tended to make less use of this discourse than their political opponents and tended to focus on other means to address the provision of state services (Chretien's government, for instances, downloaded a lot of them).  History is against this argument because people keep saying it despite the fact that repeatedly the great plan to address waste and make us all rich comes to naught. Real wages are not rising and have not been for some time, for example. Thus, for those interested in an empirical test, the idea that "waste is the problem" runs into an empirical problem. It does not seem to be true,

And, yet, people believe it. Or, perhaps, they want to believe it because the answer "you can get something for nothing" sounds preferable to "you have to pay for what you want."  There is, I think, a reason why no one campaigns on the "vote for me and your taxes might actually increase" line. If given a choice, people will vote for the person promising the free lunch, even after they recognize that that lunch is not free ... because they keep hoping that it will be ... one of these days.

If waste is not faulted for the problem, mismanagement, immigrants, women, ethnic minorities, etc. are often faulted. Here in NB, about once a year someone will say "if we did not have bilingualism, we could save money." AKA, what they mean is that if French-speaking citizens were not treated equally, well, that would be cheaper than equality (because, I guarantee, none of the opponents of bilingualism are thinking about getting rid of English as an official language). Said differently, the argument is always that there is a free lunch if we just reign in women, immigrants, Muslims, whoever ... trans-gendered soldiers.  In my last post, I noted that this discourse periodically resorts to unabashed metaphysics when they start talking about things like "entrepreneurial spirit."  The private sector will save us money ... how? Asking this question, btw, is not irrational, socialistic, lefty or whatever. It is democratic. If I am going to vote for you or your party, I have the right to know how your policies are going to work, particularly if you are asking me to stake my health and that of my family on something as vague as "spirit". If someone cannot explain their policies to you ... I'd argue that you should reconsider voting for them because their policies might not be explainable.

Where does this leave the health care debate in the US? There are may reasons why health care costs money and saving on waste, limiting super-profits and the like are likely ethically sound and good policies to follow. I'd recommend them. But, they will not by themselves limit health care costs enough to make a difference. It is like getting rid of welfare bums, something else all political parties promise to do and something else I've been listening to my entire adult life. Yet, getting rid of welfare bums does not really help the bottom line of the state's budget does it? We've been getting of them for 30 years and governments are still running in the red.

And, I would argue, Republicans in the US know this. They know that the problem is not waste, state involvement, or Obama. They know that the reason there there are health care costs is sick people. That sounds simplistic, I know, but think about it. What causes medical costs? By and large: illness. I go to the doctor (incur a cost) because I am sick. I don't go to chat about our kids badminton team.  Better preventative medicine will help, too, but that is an immediate cost designed to save money long-term. It is not white and black, this will save money. There are costs involved.

Republicans know that they cannot save money through "entrepreneurial spirit," or better management or free markets, etc., in their hearts of hearts and this is why they are trying to de-insure people -- about 35 million at last count. They are trying to de-insure people because they know that this is the only way to limit health care costs: limit the number of sick people. And, in the US, the only way to do this is to deprive these sick people of health insurance.

Let me illustrate what I mean with an example. Imagine you serve sandwiches for lunch. There are 100 people and each sandwich costs $1.00. The total you need, then, is $100.00. Now, imagine you raise this $100.00 via taxes.  It is election time and the opposition says "$100.00 is too much. We will do it for $90.00 and you good taxpayers will get $10.00 back. You will get something for nothing. No service will be lost." And ... the opposition wins. They get into office and discover that there are reasons -- other than the previous government's mismanagement -- that sandwiches cost $1.00. They cost $1.00 each because that is what they cost. The bread costs so much, as does the cheese or jam and the people who make the sandwiches need to be paid. So, try as they might, they can't find a 10% saving on labour or resources. So, how do they solve the problem? Well, there is only one way: lower the number of people eating sandwiches. If they can get the number of people eating sandwiches to drop from 100 to 90 ... well, they save the 10%. This means 10 people go without sandwiches ... that is: are de-insured.

This is what is going on with Republican health care policy. The only way to get costs down is to cut people's access to health. This is why every Republican proposal for "reform" is also a proposal for cuts, or de-insuring.

Having a section of the population, in effect, without health care is the price of lowered costs. There are further implications to this. For instance, Republicans, I am sure, expect more people to use "free clinics." That is, they plan to off load costs because sick people will seek out medical care even if they are de-insured. They might rely on the charity of doctors: that is, to see how many people there are out there who will work for free or below market costs. But, make no mistake about it, sick people are the repressed and the repressed will return. Any proposal to reform Obamacare in the US will involve some cut, some section of the population that will go uninsured and, hence, without health care.  It is not just Republicanism but simple economics.

Don't believe me? ... watch.

Tuesday, August 01, 2017

Diversion ... What are the Jays Talking About?

I am pretty sure Ross Atkins has a tough job. I don't want to pretend that I could run a baseball team let alone create a winning one. Ross Atkins is the GM of the Toronto Blue Jays and what makes his job difficult is three things:
  • He's not really a GM. Instead he reports to an activist team president (Mark Shapiro) who really makes all key decisions. Hence, he is more like an Assistant GM. He has a position but not a lot of power.
  • He is presiding over a team that is not very good. This is no secret. 
  • He has to be upbeat and, most particularly, he has to avoid throwing any particular players or coaches under the bus all the while proclaiming confidence in a team that is not competitive and, hence, cannot really inspire confidence.
This just can't be easy to do. As I listened to Atkins talk about the supposed upside to the trade deadline for the Jays yesterday, however, I had a feeling that I'd entered a sort of Trumpian world where white was black, yes was no, a bizarre world where appearance and reality were different sides of the same coin.

For instance, Atkins explained that the Jays had learnt a lot from discussions at the trade deadline. Really? What did they learn and why didn't they know it before hand? I sure hope that the people who run this team aren't learning things about their own organization or players in other organizations that they'd like to obtain at the trade deadline. Is that not what a scouting and analytics staff is for? How could anyone think that this could be a positive take away from trade deadline talks with other teams: we have learned things? Is that not what you are actually paid to know before hand? Think about this. If you had to learn about, say, other teams' prospects ... how would you have known before that date about the players who might help your organization? If you don't know who you want to trade for ... how can you make a trade?

Atkins also expressed confidence in the Jays and stated that he believed that they had secured some good players in their two minor deals. Maybe ... but the truth is that this none of the players the Jays obtained are top drawer prospects and that is likely an accurate reflection of what the Jays were trading. They simply did not have anyone on the block who could attract top prospects from other teams. So, is this what they learned? That a player they obtained is actually better than others think and, if so, why not make that point and tell us how?

As to confidence in the Jays ... OK, I get it.  It is likely bad form to shoot down players or coaches one has on your employ right now. And, I would not do it, but has anyone actually thought about the opposite? What does expressing confidence in a team that is sub .500 and has such obvious problems suggest about the people running the team?

The Jays have obvious problems. Why not say "look, we are going to address these problems" rather than saying "we have confidence in our team and its direction?" After all, its direction is losing. The team is getting worse; not better.

I will confess that I did not expect much at the trade deadline because, frankly, there was not much to expect. The Jays had few pieces that they could trade and what they could trade was not going to attract a lot of attention. Still, one might expect something other than we learned and we have confidence to be the lessons from the year so far. I am not at all certain that Trumpian disinformation helps the Jays either. 

Monday, July 31, 2017

Democracy's Disjuncture: Money, Economics, Health Care and Politics

In my last post, I tried to pick up a thread from over a year ago where I looked at Trumpism for what it tells us about the shifting dynamics of American public life. This is not a discussion of whether Trump is right or wrong; good or bad. We have to engage empirical issues in any analysis. That is life and if you don't believe that ... well ... you and I have different conceptions of what constitutes analysis.  But, if we put the question of Trump's merits or demerits on hold and look at what the discourses associated with his government tell us about American public life (or, the changing character of American public life), we can, I think, produce both interesting, nuanced and accurate treatments of this subject. This analysis may have some implications for Canada as well.

Last post I tried to argue that there were important implications to the disjuncture between image and reality in American public life with regard to health care. The right-wing discourse of the problems of Obamacare, for instance, focused on a failure that was, in important ways, difficult to specify.  The American health care system has its problems. No one debates that but, overall, the issue of the cost of health care -- associated by Republicans in the US with Obamacare -- is intensely problematic because it fails to understand why health care costs have increased. There are a number of reasons for this, but one reason is that health care is expensive. I've made this point with regard to Canada.  Canadians periodically complain about taxes being too high (which is both an empirical and philosophic issue) but those doing the complaining fail to tell us what those taxes dollars have done. And, one thing they have done is improve the health of the country.  We now, for instance, live longer than we used and not by a little bit. By a lot. Moreover, the recovery from serious health problems -- say, heart attacks or strokes -- is astronomically better than it was when I was a kid. Said differently, we are getting things for our dollars.

Does this mean  that one cannot have health care "reform." Of course not, but it does mean that if you start from the wrong premise, you get the wrong answer.  If you begin, for example, from the assumption that the cost of health care is *not* related to its increasingly high tech nature and increased costs but must, instead, be related to something the government is doing, one begins to toy around with policy when, in fact, that might *not* be the thing to do.

In this blog, let me take a long diversion to make a point about taxes, honesty, and democracy. Trump and his crew may have problems with honesty. Frankly, I think they believe their own propaganda. But, ultimately, I want to suggest that on economic issues there is a disjuncture built into democracy between reality and ... well ... image, for lack of a better term. We can use the health care debate in the US to illustrate this point.

This is an important consideration for the US because we key proponents in the health care debate tell people something that is not true. I've complained about this before. The anti-tax perspective in Canada, for example, tends to ignore the costs of not paying taxes? There is a cost to not paying taxes?! Does not lower taxes, in fact, save us money?  As anyone who has taken economics 101 will tell you -- and this is the reason that there were so few economists on board with ant-tax think tanks -- there is a cost to everything. This is called, in economics, "opportunity cost" and it is a basic principle of economics. It is not, in other words, some fancied up confusing newfangled idea. It is a basic foundation upon which the discipline is built.

What is it? In effect, the principle of opportunity cost states that there is a price for everything. Money is a valuation of that price but it is a valuation only. Saving money saves you money but it also comes at a price. What is that price? You give up what you otherwise would have done with that money. Let me give you an example or two. Imagine that I have a dollar and I can buy a hamburger for that dollar. I decide to not buy the hamburger and keep the dollar. What is that price of that dollar? The hamburger I could have had. So, I have a dollar in my pocket -- money I have "saved" -- but I am hungry. Likewise, I go to work to make money. The price of going to work (even if I like my job) is what I could have done outside that job (say, go for a hike, weed my garden, sit in my hot tub, etc.).

This relates to taxes in this sense: the issue is not "how much money would you have if you had not paid taxes" but what is the cost of not paying those taxes?  What does our society -- and the people in it -- not have that they otherwise would have had? In Canada, these costs are big. Taxes are used to pave roads (which are often, btw, needed for business development), make sure the medicines we buy are safe to use, pay the coast guard, repair the water supply, maintain schools, keep electricity flowing, make sure I don't get mugged walking down the street, etc. Said differently, we can give up on taxes but we also have to give up on all the things that we get from those taxes. That is the cost of *not* paying taxes.

What this means is that for most people, there are good reasons to pay taxes. Some people -- say, just about everyone who lives in New Brunswick -- is a net beneficiary of the tax system. That is, what is being purchased through taxes is fairly valuable and are things that we don't want to give up. Moreover, because we do them collectively, we realize something called "an economy of scale". This is another important concept that is also *not* fancied up. An economy of scale is something you all know. That is: it is less expensive per item to do things on a big scale. For instance, if I am making shirts, one shirt costs a lot to make. If I am making 1000 shirts, however, the cost per shirt falls because I can get a deal of raw materials, set up an assembly line, etc. Thus, while making one shirt might cost per shirt $25.00. The per unit cost of a 1000 shifts might fall to $15.00. Making things on a big scale, in other words, for a lot of people, allows those lot of people to benefit.

Taxes can be like this. If we all pay into a central fund and organize, say, our health care or education or road paving or electrical supply collectively, we can all save money. Yes, we have to pay taxes but those taxes are buying us something at a lower rate than if we tried to go out an buy it individually.

I don't want to get more deeply into this at this point in time. What I am trying to indicate, however,  is, I hope, by now clear. Taxes are not just a loss. There is a price to lowering taxes and that price might be significant. Moreover, there are good reasons to have central purchasing of some product because they allow us to realize an economy of scale, thus lowering the per unit costs for everyone. Said differently, taxes can actually save you money if you get a product that you would otherwise have bought for less. Health care is an obvious example. In Canada we buy it collectively and it costs us less than it does for Americans who buy it individually (through insurance premiums). Why? Economies of scale.

I've taken too long to get to my point but bear with me just a nick longer.  What does all this have to do with the health care debate in the US? If you use these simple tools of economics, you start to realize that the debate is on the wrong track. The anti-Obamacare people do not explain in their discussion that if you get rid of Obamacare, there is a cost and that cost is health care. Yes, you will pay less. But, you also will not get the same product. And, why would you? We live in a capitalist society and you have to pay for what you get, right? That is the nature of capitalism.* (*I will provide a refresher on markets and lower costs in a future blog.)

What this means, for the federal governments and an increasingly section of the population (as they come to understand the issues) is this: you can't get something for nothing. I recognize that that is not an ethical position that, if you are a politician, wins elections. If I come out and say to people -- in the US or Canada -- look, I am running for election and what I have to tell you is that you have to pay taxes *if* you want certain things -- roads, health care, a military, disease control, schools, police officers, fire departments, electricity, etc. -- and, because of that, if you elect me, I will not lower taxes, I doubt I will win. The person who says "I have found a way to save you money" and this will mean that you will get to keep all you are getting now and still have more money in your pockets, will have a better chance of winning. If they say, I will lower taxes and you will still have good roads (in fact, I'll make them better), you will still have health care (in fact, I will make sure its cheaper), you will still have a military (in fact, I will rearm), etc. ... which position will sound better to the average Joe? This person is the person more likely to get elected even if they are not telling the whole truth?

What this means is that here is a bit of a disjuncture built into democracy. When it comes to economic issues, like taxes, there is a strong incentive to not tell the whole truth. Now, I recognize some people don't tell the whole truth because they believe something other than this. They believe, for instance, that "entrepreneurial spirit" will lower taxes. Exactly what this is, is never explained and I, myself, am deeply concerned about things that are not -- or, cannot -- be explained. I recognize that someone who believes in this might say "gee, Andrew, if you were a business person you would understand" but I have a brain. Explain it to me. I've never been to the moon and I can understand what the moon is like when a scientist explains it to me. Don't tell me "you can't understand because you are not X" because that basically says only people X  can understand and, that being the case, why would anyone believe you? The only thing we can do -- if we cannot understand -- is accept it on faith and that is the definition of metaphysics.  And, I, personally, think metaphysics is not a good ground on which to build a polity.

What this means, though, is that democracy suffers from a problem. It suffers  from a disjuncture between reality and image and that is connected to electoral politics.

Friday, July 28, 2017

Twitter Politics: Health Care and Being Voted Off the Island

I was going to begin this post by saying that at least American politics is interesting but it really might not be. I suspect it is interesting both to the partisans of American politics and to those interested in the changing character and nature of US public life. In a previous series of blogs, I tried to suggest that one should avoid the pro/con dialogue on Trump in favour of an analysis that looked at what his rise (and I would have said this whether or not he "won" the presidential election) told us about the changing nature of US politics. I suggested that it said something about: the nature of American Christianity, the public culture of economics in the US, and disturbing trends in the increased legitimacy of racialized politics. Trumpism, in other words, benefited from a series of cultural changes that overtook a section of the US population.

A year later I see no reason to change my mind. The recent debate over health care and the tweet regarding trans-gendered people in the military epitomizes these changes and the culture that upholds them. What do I mean?

Before getting into that I should say that I am no expert on the United States or American politics and I think this is an important consideration. Canadians can find it all too easy to look across the border and make quick comments about the bizarre and retrogressive character of American politics. The fact that this retrogressive character actually seems to be ringing true lends some force to these comments. But, we also need to understand why Canadians make these comments on a regular basis when, in fact, they are often preaching to converted. This can be the subject of another blog. For now, it is a warning.

Instead of criticizing Trumpism, it is important to understand it, at least from an academic point of view, because that is what we do. Our analysis should strive for the same level of nuance, care, and precision that we bring to other analyses. That is: instead of simply dismissing Trump and his politics, we need to grapple with what motivates them. (I fully concede, too, that sometimes what motivates these politics can be disturbing.)  In this light, what is going on?  Let's take a quick look at healthcare first to illustrate what I am arguing is a broader trend.

The debate over health care illustrates a disjuncture between reality and discourse that pervades part of American public life. Make no mistakes about it. The Republicans will eventually get rid of Obamacare. It has not been saved. By this time next year millions of Americans will be without healthcare insurance and those that have it will be paying higher premiums. The Affordable Healthcare Act has a reprieve but that is all.  The key to the disjuncture here is that millions of Americans have now discovered that (a) while they don't like Obamacare, they (b) don't actually know why and, (c) no one can really tell them, and (d) the alternatives aren't very good (and hence the interest in single payer).

Republicans, for their part, have discovered that the United States is divided on this issue. For political reasons, they will try to blame Democrats (and politically, Democrats might be wise to let them but that is a discussion for another day), but they have also discovered that the Democrats are not going down without a fight, that they -- the Republicans -- don't really have an alternative policy that withstands close scrutiny (why? because their plan to lower premiums involved un-insuring people: the poor, the ill, the elderly). Hence, the idea that Obama had somehow personally screwed Americans and taken money from their pockets for no good reason ... well ... that idea has run aground on the reality of the contemporary economics of health care.

In this sense the question is not "is there a disjuncture between reality and discourse" but which prevails? Republicans sold their plan on health care to their constituents -- not all Americans -- by promising lower premiums and by working with a bit of nostalgia for a world that no longer exist. They never explained why those premiums would be lower and hearkened back to an ideal of a small town doctor charging reasonable prices to middle class people just so long as the government did not get involved and "force" him to charge more. A kindly man in a white coat fixed you and your kids. The fact that that world no longer existed does not really matter in the politics of image.  They said over and over again that Obamacare had destroyed America ... but how had it? What was actually wrong with it? Like most matters of public policy, the issue is not white and black and there are pros and cons. But what are those? Could the average Republican voter actually tell you?

What is wrong with this disjuncture is not just that it is politicized but that it is dishonest and prevents a real engagement with the issue of health care and its meaning and importance. How is it dishonest? Without being shocked that a politician stretched the truth, it is dishonest not just because it claims that Obamacare had destroyed America without explaining why but because it never explained why healthcare costs money. After all, recall that nice nostalgic image of the kindly town doctor. He didn't charge too much, did he?

Maybe he didn't, but that is not the healthcare world in which we live today. In the US, some healthcare costs are high because some people are making mega profits off of it. There is an expectation of remarkable wealth, at least on the part of some people, and there are a chain of people who actually benefit from the mega healthcare profits (again, something we can get to later). But, another reason healthcare has increased in cost is because ... well ... it got more expensive. I know that sounds simple but consider how high tech medicine has gotten.

For good or ill, I've had some health problems of late and have had to go through some tests over the last few years.  The tests I get are remarkably more sophisticated than they were when I was a kid. People are, by and large, living longer.  The machines we have in our hospitals tell us more than the machines we used to have and the medicines we have do more for us than the ones we used to have.

All of these things cost money. I cited Canadian data above re life expectancy, but US data will show us the same thing. This is a good news story that is not just happening by itself. It has happening because society -- through their governments -- are investing a lot of money into keeping people alive. There is much more that we could do and I am not talking about heroic and unusual intervention here. I am talking about progress on improving survival rates for people who have serious diseases that would have killed in a short time when I was a kid.

These are good costs. I am glad we have paid for them and I hope we -- and the folks in the US -- continue to pay for them. I think investing in people's lives is a good thing to do viz investing in, say, more consumer goods that we don't really need. But, and this is the point I want to make, these things cost money. The machines we use for tests are expensive. Training the highly qualified people who look after these tests and who provide care to us is expensive. My complaint is not that they are expensive. In fact, I'm not even complaining. I am analyzing. And, what this analysis points to is this: many Americans don't understand why healthcare is so expensive. They work with an idealized and antedated (even if nostalgically pleasing) image of what healthcare actually is. They don't understand that the money we have paid for healthcare on a social level has worked. It has improved quality of life and it has improved life expectancy. It is not perfect, but if one understood reality, one might start to think again about those promising to "fix" a problem that, in reality, might not exist in the fist place. Or, more exactly, not in the same way it has been presented.

What does all this have to do with American public life. It highlights the problem of the disjuncture between reality and discourse. Because Americans are not grappling with the real reasons why healthcare has increased in cost, they cannot have a real -- as in potentially effective -- debate about good healthcare policy. Hence, rather than celebrating the improved quality of life and longer life and socially broader health care, they see only problems that are not the problems that they really need to address. Instead, they approach a healthcare debate not in a manner that looks forward and asks "how do we keep the ball rolling?" but instead in a manner of trying to figure out who will be voted off the island.

But ... so what? The Economics of Ambiguity and Threat

Threats -- the subject I addressed in a previous blog -- are interesting, I tried to argue, from an economic perspective. They are used when...