Books – Page 173 – artdiamondblog.com

Hugely Wasteful Health-Care Spending

Source of book image: http://www.encounterbooks.com/books/cure/

Milton Friedman is gone now, but the new book reviewed below, includes a forward written by him. Friedman can be praised for many reasons; a minor one is that he was tireless and generous in offering praise and support for others who were seeking to better understand free markets.

About 10 years ago, I broke my leg playing basketball. After I came out of surgery, with a cast stretching from my ankle to the top of my leg, an orderly asked me whether I had ever used crutches before. I hadn’t, so he showed me what to do, swinging through them from one end of the room to the other. The whole lesson lasted about 90 seconds. When I got my hospital bill, I saw that I had been charged $150 for "gait training on crutches." I did what all insured Americans do: I forwarded the bill to my insurance company. Why should I care? I wasn’t paying for it.

One of the problems with American health care, as David Gratzer notes in "The Cure," is precisely a payment system that takes the patient out of the equation. In the early 1960s, the average American paid out of pocket one of every two dollars that he spent on health care; today the figure is one dollar in seven. The inevitable effect is hugely wasteful spending (and inflated hospital bills like mine). In fact, per-patient costs have gone up almost exactly in inverse proportion to the share of spending borne by the consumer.

Dr. Gratzer cites a remarkable Rand Corp. study that tracked health-care spending by 2,000 families over eight years. The families who got free health care spent 40% more than the families with cost-sharing arrangements. And yet the health outcomes for the two groups were the same. The lesson: Market-based health insurance systems, such as health savings accounts, cut out inefficiencies and lower costs without compromising quality.

. . .

. . . : America is clearly at a crossroads in medical care. Within the next decade we will get either some version of Hillary-care or more free-market medicine, starting with universally available health savings accounts. Let’s hope that our nation’s policy makers read "The Cure" before they decide. They will learn that the government route flattens costs only by holding back the pace of technology, artificially controlling its price and rationing its use. That is not a prescription for better health.

For the full review, see:

STEPHEN MOORE. "BOOKS; The Market and Its Medicine." The Wall Street Journal (Tues., By December 5, 2006; Page D6.

The reference to the book under review, is:

Dr. David Gratzer. The Cure: How Capitalism Can Save American Health Care. Encounter Books, 2006. (233 pages, $25.94)

“Drawing the Best Minds into a Whirlpool of Mathematical Solipsism”

Source of book image: http://www.houghtonmifflinbooks.com/catalog/titledetail.cfm?titleNumber=689539

Physicists rightly feel uneasy about descriptions of the physical world that divide it into discrete clusters of equations and axioms, each cluster explaining one part of existence but not another. Better would be finding a Theory of Everything capable of conjoining, in a few equations, planet-pulling gravitation and the microcosmic weirdness that goes on in the quantum world of atoms and particles. Physicists would like to stitch time and space together as well.

Einstein tried and failed. In recent years, "string theory" has been the favored means of attempting to tie everything together, but it has unraveled into mathematical frippery, positing ever more intricate elaborations extending into anywhere from 10 to 26 dimensions, some arising from themselves, some hidden in ways so baroquely scrolled that you can get a migraine just thinking about thinking about them. Little wonder that, as an experimental science, string theory seems to have nowhere to go.

That is the problem that Lee Smolin identifies in "The Trouble With Physics." He laments a kind of sociological imperative drawing the best minds into a whirlpool of mathematical solipsism.

For the full review, see:

RUSSELL SEITZ. "BOOKS; Untangling the Knots in String Theory." The Wall Street Journal (Sat., December 2, 2006): P9.

The reference to the book under review, is:

Lee Smolin. The Trouble With Physics: The Rise of String Theory, the Fall of a Science, and What Comes Next. Houghton Mifflin, 2006. (392 pages, $26)

Coolidge: A Popular Pro-Business, Small Government, President

Source of book image: http://images.barnesandnoble.com/images/11530000/11530321.jpg

"Silent Cal" was a pro-business, small-government president to a degree beyond the wildest dreams of today’s conservatives. The tax cuts effected by Coolidge and by his Treasury secretary, Andrew Mellon ("under whom three presidents served," goes the old quip), were so effective that, as Mr. Greenberg reports, "by the end of Coolidge’s second term most Americans paid no federal income taxes at all." William Humphrey, who was Coolidge’s appointee to the Federal Trade Commission, described the FTC as "an instrument of oppression and disturbance and injury" to U.S. industry. Americans liked Coolidge’s policies because of the great prosperity that resulted. Inflation-adjusted GNP grew 49% during the Harding and Coolidge presidencies, the highest growth on record. Inflation and unemployment statistics were just as impressive.

. . .

In 1994 John Coolidge, the president’s older son, told me: "My father could not possibly be elected to anything today." That is surely true. Looking at the people who do get elected to our republic’s highest offices today, it is also regrettable.

For the full review, see:

JOHN DERBYSHIRE. "BOOKS; A Quiet Man in a Roaring Time." Wall Street Journal (Tues., December 12, 2006): D8.

(Note: ellipsis added.)

Risk Diversification Only Works If Risks are Random

Source of book image: http://www.inbubblewrap.com/2006/08/should_i_do_it_should_i.php

According to Mr. Apgar, managing director of the Corporate Executive Board and a former McKinsey consultant, the problem is that our traditional tool set deals only with random risk. Equity prices, interest rates, natural catastrophes — all operate, more or less, as perfect markets, distributing risk with equal probability among all the players. No one consistently knows more about what drives these phenomena than anyone else. We can bear or hedge these risks in the secure sense that competitors don’t have an inside lead on the future.

. . .

In real business, though, many of the risks that can potentially wipe us out are non-random — what Mr. Apgar calls "learnable risks" — involving customers, technologies, marketing strategies, supplier relationships and so on. The challenge is not just to learn, quickly, enough about them to survive but to determine whether someone else can learn about them even faster and thus put us out of business.

. . .

. . . Mr. Apgar also explains how to perform a "risk audit," judging a company’s current projects by how they diversify total risk or demonstrate risk intelligence. Here is where his program differs most widely from conventional wisdom — because, as he notes, risk diversification is no virtue if the risks are non-random and we have little intelligence of any of them. If you don’t know much about poisonous snakes, keeping several different species won’t make you any safer.

Like liberty, risk intelligence demands eternal vigilance — and for the same reason: threats evolve. Mr. Apgar’s analysis of the life cycle of a business risk is particularly fruitful. He notes that a successful company needs to maintain a risk pipeline, constantly probing into areas where it has higher risk intelligence and opportunities for real diversification — just as technology and pharmaceutical companies need a proportion of blue-sky research to innovate into the future.

For the full review, see:

MICHAEL KAPLAN. "BOOKS; The Hazards of Fortune." Wall Street Journal (Fri., December 8, 2006): W6.

(Note: ellipses added.)

Feynman: Nothing in Biology Requires Us to Die

Source of book image: http://stochastix.wordpress.com/files/2006/08/the-pleasure-of-finding-things-out.gif

(p. 100) It is one of the most remarkable things that in all of the biological sciences there is no clue as to the necessity of death. If you say we want to make perpetual motion, we have discovered enough laws as we studied physics to see that it is either absolutely impossible or else the laws are wrong. But there is nothing in biology yet found that indicates the inevitability of death. This suggests to me that it is not at all inevitable, and that it is only a matter of time before the biologists discover what it is that is causing us the trouble and that that terrible universal disease or temporariness of the human’s body will be cured.

Source:

Feynman, Richard P. The Pleasure of Finding Things Out: The Best Short Works of Richard P. Feynman. New York: Perseus Books, 1999.

Goverment Planning Destroys Poor People’s Chance to Develop Themselves: More on Why Africa is Poor

The refuse from homes demolished by the Abuja city government as part of their master plan. Source of photo: online version of the NYT article cited below.

The story below, alas, is not an isolated example. The lessons from Hernando de Soto’s The Other Path, have still not been learned.

“They don’t want to see the common man, the poor man,” said Comrade Daniel, a motorcycle taxi driver, standing in the rubble of his neighborhood. He lost first his home and then his livelihood to a recent campaign to rid this stately capital of the blemishes of poverty. “They only care for themselves,” he said.

Mr. Daniel and others who live on the unruly edge of this tidy city in the mossy hills of central Nigeria say that Abuja has declared war on its poorest citizens.

. . .

. . . the city’s master plan was ignored for years by corrupt officials who allowed illegal neighborhoods to blossom, unauthorized street markets to spread and torpedo-like motorcycle taxis, called okada, often driven by illiterate young men, to choke the streets.

Much of that expansion was sanctioned — or at least overlooked — by the rulers of the day, and deeds were obtained by many of those who have lost their homes in the recent cleanup. Mr. Daniel, the motorcycle taxi driver, had a deed to his land, having paid about $160 for a small plot.

In 2003, a new minister was appointed to run the capital, and he declared his intention to hew strictly to the old master plan. Many political leaders cheered the decision, fretting that Abuja, built at enormous expense as an antidote to Lagos, was headed to the same chaotic fate.

But the declaration effectively rendered much of the daily life of millions of people illegal. As with most Africans, Nigerians deal mostly in the informal economy, the vast, unregulated, untaxed network that emerges, through the inexorable logic of the marketplace, to fill vital needs left unmet by government and the formal economy.

. . .

The master plan’s housing estates unfurl with the orderliness of a planned subdivision: town houses and apartments for the well heeled, tract homes and villas for the even better heeled. But there is little provision for the army of civil servants, whose low wages place the graceful homes of Abuja out of reach.

As for the maids, drivers, security guards and laborers without whom this city would cease to function — people like Mr. Daniel and his sister — there is no place for them at all. Many have moved farther still, commuting for hours from neighboring states to escape the bulldozers.

The government has said it plans to help resettle those displaced by the demolition, estimated to be in the tens of thousands, but those who have lost their homes say no one has offered them any compensation or a new place to live. And so they are left with the bitter knowledge that their capital has no place for them.

With their home reduced to rubble, Vashti and Comrade Daniel have moved into the back room of a cousin’s house. The house they lost was not some tin shack, but a proper house of bricks and mortar. Mr. Daniel’s income has been slashed by two-thirds by the ban on okada, and he does not know how he will rebuild.

“They say they want to make Abuja like London, but London wasn’t built in a day,” he said. “Once upon a time they had poor people in London, but they developed themselves. We just want that chance.”

For the full story, see:

LYDIA POLGREEN. "ABUJA JOURNAL; In a Dream City, a Nightmare for the Common Man." The New York Times (Weds., December 13, 2006): A4.

(Note: ellipses added.)

The reference to de Soto’s book is:

Soto, Hernando de. The Other Path. New York: Harper and Row, 1989.

"Okada" are the motorcycle taxis that the city government of Abuja is trying to ban. Source of photo: online version of the NYT article cited above.

Source of map: online version of the NYT article cited above.

Publishing Pretty Papers Full of Clever Mathematical Tricks

Source of book image: http://images.amazon.com/images/P/0738203491.01.LZZZZZZZ.jpg

In his elegant and thoughtful foreward, physicist, futurist, and guru Freeman Dyson writes:

(p. viii) Before I met Feynman, I had published a number of mathematical papers, full of clever tricks but totally lacking in im-(p. ix)portance. When I met Feynman, I knew at once that I had entered another world. He was not interested in publishing pretty papers. He was struggling, more intensely than I had ever seen anyone struggle, to understand the workings of nature by rebuilding physics from the bottom up.

The reference to the book, is:

Feynman, Richard P. The Pleasure of Finding Things Out: The Best Short Works of Richard P. Feynman. New York: Perseus Books, 1999.

Schumpeter’s “Sarcastic Remark” on Mathematics in Economics

Erich Schneider had been a student of Schumpeter’s at the University of Bonn in the late 1920s. The following sentences are from his lectures on Schumpeter that he published in German in 1970, and that were were translated into English by W.E. Kuhn and published in that form in 1975.

(p. 41) When, after many years of separation, I saw Schumpeter again at Harvard in the fall of 1949 and heard his lectures on economic theory–which he gave at 2 p.m., as in Bonn–I found him to be exactly the same man as before. On that afternoon he talked about the nature of dynamic analysis and about the role of difference equations in the framework of such an analysis.

To the above passage, Schneider adds footnote 3:

(p. 59) He dropped the sarcastic remark: "There are economists who do not know what a difference equation is; but there are also those who know nothing else."

Schneider, Erich. Joseph A. Schumpeter: Leben Und Werk Eines Grossen Sozialokonomen (Life and Work of a Great Social Scientist). Lincoln, Neb.: University of Nebraska–Lincoln Bureau of Business Research, 1975.

Silicon Graphics’ Jim Clark Understood Disruptive Innovation

There’s a great passage in The New, New Thing about Jim Clark trying to convince Silicon Graphics to produce a PC. Clark talks about how hard it is for a company to create a product that competes with itself.

Shades of Clayton Christensen:

Clark thought that Silicon Graphics had to "cannibalize" itself. For a technology company to succeed, he argued, it needed always to be looking to destroy itself. If it didn’t, someone else would. "It’s the hardest thing in business to do," he would say. "Even creating a lower-cost product runs against the grain, because the low-cost products undercut the high-cost, more profitable products." Everyone in a successful company, from the CEO on down, has a stake in whatever the company is currently selling. It does not naturally occur to anyone to find a way to undermine that creative destruction, and he was prepared to do the deed. He wanted Silicon Graphics to operate in the same self-corrosive spirit. (p. 66 of hb edition)

The reference to The New, New Thing is:

Lewis, Michael. The New New Thing: A Silicon Valley Story. New York: W. W. Norton & Company, 2000.

Christensen’s most important book is:

Christensen, Clayton M., and Michael E. Raynor. The Innovator’s Solution: Creating and Sustaining Successful Growth. Boston, MA: Harvard Business School Press, 2003.

“The Referee Should Not Be Too Quick With His Whistle”

I found the following wise comments while reading a short review of an old book by Edgar Monsanto Queeny, who followed his father as CEO of the Monsanto corporation, and who wrote a book called The Spirit of Enterprise which Schumpeter praised in a letter to Queeny.

(The abbreviation T.N.E.C. stands for the Temporary National Economic Committee, which I believe was an ad hoc congressional committee during part of F.D.R.’s presidency.)

Mr. Queeny does not give us a satisfactory analysis of the T.N.E.C. reports but his observations are always commonsensical and suggestive. What emerges, and what is important, is that the positive Liberal State should not aim at too subtle a plan for freedom. The referee should not be too quick with his whistle nor too ready to order players off the field. The rules of the game may well allow for a little hurly-burly. Economists like Professor Hutt, who are working out the rules of the game of free enterprise, deserve the highest praise. But they should realize that refinement has its price as well as simplicity, and of the two simplicity costs the less.

Shenfield, A. A. "Review of the Spirit of Enterprise by Edgar M. Queeny." Economica 12, no. 48 (November 1945): 264.

The reference to Queeny’s book is:

Queeny, Edgar M. The Spirit of Enterprise. New York: Charles Scribner’s Sons, 1943.

Feynman: What Biology Needs is Not More Math, But to See Better at the Atomic Level

A very bright, and very mathematically competent, fellow, grants that math is not the source of all knowledge. So is economics more like physics, or more like biology?

(p. 124) We have friends in other fields–in biology, for instance. We physicists often look at them and say, "You know the reason you fellows are making so little progress?" (Actually I don’t know any field where they are making more rapid progress than they are in biology today.) "You should use more mathematics, like we do." They could answer us–but they’re so polite, so I’ll answer for them: "What you should do in order for us to make more rapid progress is to make the electron microscope 100 times better."

What are the most central and fundamental problems of biology today? They are questions like: What is the sequence of bases in the DNA? What happens when you have a mutation? How is the base order in the DNA connected to the order of amino acids in the protein? What is the structure of the RNA: is it a single-chain or double-chain, and how is it related in its order of bases to the DNA? What is (p. 125) the organization of the microsomes? How are proteins synthesized? Where does the RNA go? How does it sit? Where do the proteins sit? Where do the amino acids go in? In photosynthesis, where is the chlorophyll; how is it arranged; where are the carotenoids involved in this thing? What is the system of the conversion of light into chemical energy?

It is very easy to answer many of these fundamental biological questions; you just look at the thing! You will see the order of bases in the chain; you will see the structure of the microsome. Unfortunately, the present microscope sees at a scale which is just a bit too crude. Make the microscope one hundred times more powerful, and many problems of biology would be made very much easier. I exaggerate, of course, but the biologists would surely be very thankful to you–and they would prefer that to the criticism that they should use more mathematics.

Source:

Feynman, Richard P. The Pleasure of Finding Things Out: The Best Short Works of Richard P. Feynman. New York: Perseus Books, 1999.