From: starr@genie.slhs.udel.edu (Tim Starr)
Subject: Re: HIAA and Reform
Organization: UDel, School of Life & Health Sciences
Date: Thu, 17 Dec 1992 10:33:06 GMT

In article <92351.101620DGS4@psuvm.psu.edu> DGS4@psuvm.psu.edu writes:
}One of the implications of public choice is that much government
}intervention is the result of privately rational actions by private
}individuals and firms and public officials and agencies.  The key point
}I have been trying to make is that it is impossible to separate the
}"private market" from "government".  Even if libertarians could construct
}their theoretically limited state, it would be under constant pressure
}to become more involved in the economy.

It is, too, possible, by the principle of the initiation of force and fraud,
called coercion as a term of art.  Those things which are done without
coecion are free-market.  Those which are done with it aren't.

However, there are two further comments to be made: 1) David Friedman
argues precisely on public choice grounds that libertarianism will tend to
be favored; and 2) public choice theory assumes economic self-interest as
sole motivation for human actors, which is questionable.  Many are moved
by other factors, such as ethical considerations.  If most thought it
wrong for the State to intervene in the economy, and this moved them to
oppose it, then this would lend support to libertarianism.

}>I HIGHLY suspect that the crux here is the "efficient market" definition.
}>Care
}>to explicate this assumption?
}
}It is not really an assumption, but a definition.

The assumption is that this is the standard for the evaluation of policy.

An efficient market system
}is one in which marginal benefits are equated to marginal costs.

What?  Please forgive me, but I still don't get it.

The problem
}B&E point out, which I feel many libertarians fall into, is comparing the
}operation of a real system to a hypothetical market system.  The real question
}concerning any public policy is whether its removal improves or does not
}improve the efficiency of the real system.  Take our licensing example.
}You argue that licensing raises costs.  I agree with that.  I also point
}out that licensing can affect the demand curve,

This last is also something I still don't get.  By what mechanism?  I don't
get graphical curve explanations very well.

which might increase
}prices as costs fall, because it might increase the monopoly power
}of firms by raising search costs, thus reducing search.  Licensing
}might also provide consumers with an indication of quality.  On net,
}which do consumers prefer?  It seems to me that you are arguing that
}the rich and the physicians impose this policy of licensing on the
}rest of us. Yet, I see little indication that many Americans want to get rid of
}the licensing system.  I'm inclined to believe that the relationship
}between physicians, the rich, and the state is reinforced by an agreement
}by many other consumers that licensing provides benefits beyond costs.

I see other factors which I think have greater significance: many have
bought the rationale for licensure, incorrectly in my opinion, and there's
part of the capture theory of regulation (which is only a matter of
entrepreneurship on the part of regulators and the industry) which covers
"rational ignorance" and or "rational acceptance" of such policies: most
consumers stand to gain very little from opposing the policy, and the
industry has the most to gain from capture, and regulators have much to
gain from industry.

}I would argue that
}the libertarian conclusion that lowered costs=more consumer welfare
}applies primarily to a
}hypothetical world of perfect competition

I'm certain this isn't a shared assumption.  "Perfect competition" is not
well-liked amongst Austrian economists.  I'm still learning about their
critique of it, though.

where all goods are homogeneous,
}there exist numerous producers and consumers, information is symmetric
}and meaningful about prices and quality, there is free entry and exit,
}and there are no externalities.  When such conditions are not holding then
}it is not appropriate to assess the efficiency of the market by comparing it
}to perfect competition.  The theory of the second best argues that it
}cannot be shown that if some distortion (in the sense that P not equal to
}MC) is removed, consumers will move closer to the Pareto frontier if
}other distortions are present.

I don't get this last bit about the theory of the second best, either.

}My argument is that some of the "distortions" in health care are
}not the result of government policy, but the result of fundamental
}elements (i.e. the uncertainty, externalities, asymmetries, I mentioned
}above) that will exist even in the absence of government policies.

To you, they're distortions.  To me, they're general conditions of human
existence.  Intervention by the State distorts.

}To me the government policies reflect not only attempts by private
}parties to capture profits through legal restrictions, but attempts
}by consumers to create social structures that deliver welfare in
}areas when markets do not (Arrow's "Uncertainty and Welfare Economics
}of Medical Care) meet expectations or desires.

You posit much more power in the hands of consumers as voters than I.

}The arguments of libertarians about the removal of legal restrictions
}IMHO fails to address either the underlying distortions or the
}possibility that the legal restrictions may, in fact, reflect consumer
}desires.

Consumers want deviant medical practitioners to be persecuted?  Tough.
Nazis want Jews persecuted, too.  Violations of individual rights are
impermissible.

Tony asked a questions a while back on whether a fully informed
}consumer should be allowed to contract with any medical provider (I think
}I have that right).  Tony chided me for my answer, when, in fact, I think
}he misunderstood it.  How can a consumer be fully informed, when the actual
}transaction that takes place between the consumer and the provider is
}information (about the condition, about the productivity of various
}alternatives, etc.)?

Uncertainty is inevitable.

}Your old friend Stiglitz showed that when there are asymmetries of
}information of this sort, a competitive equilibrium may not even
}exist. Public policy may establish rules which allow a market to
}develop.  While you probably want to set up a system that involves as
}little government intervention as possible, when such distortions
}exist, they may require public involvement for any market activity to
}occur at all.

Stiglitz?  You mean Stigler?

}"Professionalism"  is one way in which societies have, in fact, tried to
}create a class of individuals who do not take advantage of the
}information asymmetry (with varying degrees of success).  What are some
}of the alternatives?  What would your system do to make sure that
}providers fully inform consumers?  I'll tell you at the outset that
}I do not think relying on a tort system (public
}or private) to penalize negligence will work.  There is simply too much
}uncertainty about the productivity of medical care.  Studies of the tort
}system show that only about 5% of those injured ever receive any compensation.
}What would you do?  Would you re-define negligence?

I'm working on this, I'm working on it.  Haven't come up with an answer yet,
but apparently the only libertarian proposal there is is Epstein's "Theory
of Strict Liability," which I know I've mentioned previously.

}>Pheh.  Suppose our positions were reversed: we all had free markets in this,
}>and you were challenged to support your claim that state intervention could
}>improve things without recourse to theory or "hypothetical but nonexistent"
}>states of affairs.  You couldn't do it, because it's impossible.  Isn't
}>this merely Institutionalist empiricism to the point of abandoning theory
}>for "data"?
}
}I have explained in detail both in theory and in reality why I think a system
}with significant government involvement is better.

You can't argue that free markets which don't exist are worse than statist
regimes any more than I can argue that they're better without "hypotheticals."


Tim Starr - Renaissance Now! - Think Universally, Act Selfishly
starr@genie.slhs.udel.edu

"True greatness consists in the use of a powerful understanding to enlighten
oneself and others." - Francois Marie Arouet Voltaire
Newsgroups: talk.politics.medicine