Free Markets – Page 46 – artdiamondblog.com

“Unlike Pilots, Doctors Don’t Go Down with Their Planes”

(p. C1) With all the tools available to modern medicine — the blood tests and M.R.I.’s and endoscopes — you might think that misdiagnosis has become a rare thing. But you would be wrong. Studies of autopsies have shown that doctors seriously misdiagnose fatal illnesses about 20 percent of the time. So millions of patients are being treated for the wrong disease.
As shocking as that is, the more astonishing fact may be that the rate has not really changed since the 1930’s. “No improvement!” was how an article in the normally exclamation-free Journal of the American Medical Association summarized the situation.
. . .
But we still could be doing a lot better. Under the current medical system, doctors, nurses, lab technicians and hospital executives are not actually paid to come up with the right diagnosis. They are paid to perform tests and to do surgery and to dispense drugs.
There is no bonus for curing someone and no penalty for failing, except when the mistakes rise to the level of malpractice. So even though doctors can have the best intentions, they have little economic incentive to spend time double-checking their instincts, and hospitals have little incentive to give them the tools to do so.
. . .
(p. C4) Joseph Britto, a former intensive-care doctor, likes to compare medicine’s attitude toward mistakes with the airline industry’s. At the insistence of pilots, who have the ultimate incentive not to mess up, airlines have studied their errors and nearly eliminated crashes.
“Unlike pilots,” Dr. Britto said, “doctors don’t go down with their planes.”

For the full story, see:
DAVID LEONHARDT. “Why Doctors So Often Get It Wrong.” The New York Times (Weds., February 22, 2006): C1 & C4.

Vouchers Enable Choice, Competition, and Learning

John Tierney. Source of image: online version of NYT article cited below.
The New York Times Op-Ed education columnist offers a provocative evaluation of how Milton Friedman’s educational voucher proposal is working in Milwuakee:

The Journal Sentinel, which endorsed John Kerry in 2004, has parted company with the Democratic Party on the voucher issue. It backed Republican efforts this year to expand the program, which has led to the creation of dozens of new private schools in Milwaukee.
“We’ve seen what school choice can do,” said Gregory Stanford, an editorial writer and a columnist at the paper. “It’s impressive to go around to the voucher schools and see kids learning. Their parents are much more satisfied with these schools. And the fears that the public schools would be hurt have turned out to be wrong.”
In fact, the students in public schools have benefited from the competition. Two studies by Harvard researchers, one by Caroline Hoxby and another by Rajashri Chakrabarti, have shown that as the voucher program expanded in Milwaukee, there was a marked improvement in test scores at the public schools most threatened by the program (the ones with large numbers of low-income students eligible for the vouchers).
The competition spurred the public system to shift power from the central administration to individual schools, allowing councils of parents and teachers to decide who should teach there, instead of forcing the schools to accept incompetent teachers just because they had seniority.
“Poor teachers used to shuffle from one school on to another in what we called the dance of the lemons,” says Ken Johnson, the head of the school board. “But we couldn’t let that continue once our students had the option to go somewhere else. We had to react to students’ needs. We had to start seeing them as customers, not just seat-fillers.”
Some of the new voucher schools have flopped — but the advantage of a voucher program is that a bad private school can be shut down a lot faster than a bad public school. And while critics complain that there still isn’t definitive evidence that voucher students are doing better over all in their new schools, the results so far in Milwaukee and other cities are more than enough to declare vouchers a success.
“All the good research, including the voucher opponents’ work, shows that kids who accept vouchers are doing at least as well as their public school peers,” says Joseph Viteritti of Hunter College. “That’s remarkable, considering how much less money is being spent on the voucher students.”
In Milwaukee, where the public system spends more than $10,000 per student, private schools get less than $6,400 for each voucher student. But when you see what can be done for that money, you realize what’s wrong with Democrats’ favorite solution for education: more money for the public-school monopoly.
. . .
The school principal, Denise Pitchford, worked in the public schools, but she took a pay cut in exchange for less red tape. “I wanted the flexibility to give immediate personal attention to every student,” she said. “To me, it represented less money but a better opportunity.” Just like the whole voucher program.

For the full story, see:
JOHN TIERNEY. “City Schools That Work.” The New York Times (Tues., March 7, 2006): A25.
Note: This article was reprinted under the title “Vouchers Offer Many Positives.” in: Omaha World-Herald (Weds., March 8, 2006): 7B.

Farmer Ed Wiederstein Opposes Farm Subsidies

Opposing government subsidies to one’s own group is a good way to make enemies. Few have the guts or principles to do so. So it is worth pausing to salute farmer Ed Wiederstein:

. . . Ed Wiederstein of Audubon, Iowa, said direct payments reduce motivation for farmers to be self-sufficient and often give money to people who don’t need it.
“Do I deserve money from the government to, supposedly, support me any more than the Ace Hardware man in downtown Audubon, or the feed store, the local newspaper, the local flower shop or the funeral home?” Wiederstein said. “Is what they do really any less important than what I do?
“There are a lot of farmers with a million-dollar net worth receiving thousands of dollars of support. Somehow, that picture just doesn’t look right.”
Rep. Jerry Moran, R-Kan., called Wiederstein an “outside thinker.”
Peterson told Wiederstein, “If you were up in western Minnesota, you might run into some trouble right now.”
A number of people said there should be less reliance on price guarantees and more on entrepreneurship and the creativity of American farm families.

For the full story, see:
“Farm subsidies, imports debated at Ag Committee meeting.” Omaha World-Herald (Monday, March 6, 2006): 8B.

Lazear, New Chair of Council of Economic Advisors, Emphasizes Labor Market Flexibility

Ed Lazear was a labor economist at the University of Chicago during the time that I was a graduate student there, circa 1975-81. Sometimes in collaboration with the late Sherwin Rosen, he created models of the labor market that suggest ways of understanding otherwise puzzling labor market phenomena, for example in suggesting that CEOs might be highly paid to provide an incentive for all those who participate in the ‘rank-order tournament’ that results in the choice of CEO (see the Lazear-Rosen paper cited below).
Here is a brief excerpt from remarks by Ed Lazear following his being sworn in as Chair of the President’s Council of Economic Advisors on 3/6/06:

Healthy productivity growth over the past few years has been followed by impressive job creation and reductions in unemployment rates to levels that are low by historical standards. And we continue to improve. Much of the strength of the U.S. economy results from flexibility in labor and capital markets, and from keeping tax rates low.

For the full remarks, see: http://www.whitehouse.gov/news/releases/2006/03/20060306.html (Thanks to Gary Blank for providing me this link.)
One of Lazear’s most interesting papers:
Lazear, Edward, and Sherwin Rosen. “Rank-Order Tournaments as Optimum Labor Contracts.” Journal of Political Economy 89, no. 5 (1981): 841-864.

The Market Rewards the Unprejudiced

Source of book cover image: Amazon.com.

In his doctoral disseratation on the economics of discrimination, Gary Becker argued that those who discriminate in the labor market pay a price for their prejudice in the form of having to pay higher wages. Those who do not discriminate have open to them an additional pool of workers, whose talents will contribute to the firm’s bottom line. GE’s Jack Welch recounts a story that supports Becker’s claims:

(p. 212) Another idea I’ll leave behind is one that developed when I was visiting Japan in the fall of 2000. I had been going there for years and found it difficult to get the best male Japanese graduates (p. 213) to join us. We were having increasing success, but still had a long way to go. Finally, it dawned on me. One of our best opportunities to differentiate GE from Japanese companies was to focus on women. Women were not the preferred hires for Japanese companies, and few had progressed far in their organizations. Again, I got revved up. Fortunately, we had Anne Abaya, an ideal Japanese-speaking U.S. woman in a senior position at GE Capital. She agreed to go to Tokyo to become head of human resources for GE Japan. I gave her a million dollars for an advertising campaign to position GE as "the employer of choice for women. What I didn’t know was how much talent we already had in place. In May 2001, when Jeff and I were on a Japanese business trip, we had a private dinner with 14 of our high-potential women. They ranged from CFO of GE Plastics Japan, general manager of sales and marketing of GE Medical Systems Japan, marketing director of GE Consumer Finance Japan, to the heads of human resources for GE-Toshiba Silicones and GE Medical Systems. Jeff and I had never been with a more impressive young crowd. It confirmed for me how big the opportunity could be.

Source:

Welch, Jack. Jack: Straight from the Gut. New York: Warner Business Books, 2001.

For the revised version of Becker’s dissertation, see:

Becker, Gary S. The Economics of Discrimination. 2nd Rev. ed., Economic Research Studies. Chicago: University of Chicago Press, 1971.

Harry Browne Sought Freedom in an Unfree World

Source of book image: Amazon.com.
Harry Browne died Wednesday, on March 1, 2006, of Lou Gehrig’s disease.
Every semester I mention Browne to students in most of my classes. I tell them of his bestseller, How I Found Freedom in an Unfree World.
I have not read the book for many years. My memory is that Browne tells of how he was unhappy in a high-paying investment career because he did not like having to report to the job on set days, at set times, and to take orders he sometimes did not agree with, from bosses he did not always respect.
He did not feel free, and he he felt that being unfree was making him unhappy. So he quit, his job, divorced his wife, and headed west to write best-selling self-help books.
I tell my students that we don’t have to go as far as Browne did in order to sympathize with his wishing he was not constrained by the firm that had employed him. So I ask my students: given the appeal of Browne’s sentiments, why do we have firms? Why don’t we all just become independent contractors?
The answer, I tell them, is to be found in Ronald Coase’s article “The Theory of the Firm,” in which Coase suggests that firms reduce the transaction costs of team production activities.
I also mention, though, that developments in information technology and the internet, are reducing the transactions costs of creating production teams on a project-by-project basis, and hence are increasing the feasibility of more and more of us becoming independent contractors, or at least working for small firms.
In this regard, I refer them to an article co-authored by Brynjolfsson that argues that IT has differentailly benefitted the small firm, and I refer them to Daniel Pink’s Free Agent Nation. I also mention web sites like guru.com that make it possible for those who want to work as free-agents to find firms that want to hire them on a project-by-project basis. I tell them about the movie industry, that already pretty much assembles teams on a project-by-project basis.
The world may never be the way Harry Browne wanted it to be. But it may be possible to come closer to Browne’s vision, than Browne’s detractors imagined.
Besides his book Harry Browne served the cause of freedom in other ways as well, running for President in 1996 and 2000 on the Libertarian Party ticket.
I do not completely share Browne’s views: sometimes he seems to treat personal commitments too cavalierly. But he wrote well, he stimulated thought, and he sought to make the world a better place. Harry Browne, rest in peace.

Who Decides Treatment When Medicine is Socialized?

Ann Marie Rogers at High Court in London on Wed., Feb. 15, 2006. Image source: online version of NYT article quoted and cited below.

(p. A6) LONDON, Feb. 15 — When her local health service refused to treat her breast cancer with the drug Herceptin, 54-year-old Ann Marie Rogers sued. But on Wednesday, a High Court judge ruled against her.
In his decision the judge, David Bean, said that although he sympathized with Ms. Rogers’s predicament, the health service in Swindon, where she lives, had been justified in withholding the drug.
“The question for me is whether Swindon’s policy is irrational and thus unlawful,” Justice Bean wrote. “I cannot say it is.”
The ruling has potentially serious implications for patients across the taxpayer-financed National Health Service.
Despite health officials’ contention that decisions about treatment are based solely on clinical effectiveness, critics contend that with drugs growing ever more expensive, cost has become an increasingly important factor. They also say patients are at the mercy of the so-called postcode lottery, in which treatments are available in some postal zones but not others.

For the full story, see:
SARAH LYALL. “British Clinic Is Allowed to Deny Medicine; Decision on Cost Has Broad Impact.” The New York Times (Thurs., February 16, 2006): A6.

Protecting the “Dots”

Is it the free market, or big government, that is most likely to treat individual human beings as expendible “dots”?

One of the best conspiracy movies ever made is the perfect British classic, “The Third Man.” In the most haunting scene, the villain, played adroitly by Orson Welles, takes Joseph Cotten, the good guy, up in a Ferris wheel. The villain, named Harry Lime, has been selling adulterated penicillin in postwar Vienna, making a fortune and causing children to become paralyzed and die.
Mr. Cotten’s character, a pulp fiction writer named Holly Martins, asks him how he could do such an evil thing for money. The two men are at the top of the Ferris wheel, and the people below them look like tiny dots. Mr. Welles’s villain looks down and says, “Tell me, would you really feel any pity if one of those dots stopped moving forever? If I offered you £20,000 for every dot that stopped, would you really, old man, tell me to keep my money, or would you calculate how many dots you could afford to spare?”

BEN STEIN. “Everybody’s Business; When You Fly in First Class, It’s Easy to Forget the Dots.” The New York Times, Section 3 (Sunday, January 29, 2006): 3.

Solow’s Wit (But Not Wisdom): Treat Schumpeter “Like a Patron Saint”

(p. 195) As Robert Solow wrote acidly in 1994, commenting on a series of papes on growth and imperfect competition, “Schumpeter is a sort of patron saint in this field. I may be alone in thinking that he should be treated like a patron saint: paraded around one day each year and more or less ignored the rest of the time.”
Schumpeter was a most unwelcome guest at the neoclassical table. Yet it was hard for the mainstream to reject him out of hand, since Schumpeter was such a celebrant of capitalism and entrepreneurship. He thought it a superb, energetic, turbulent system, one that led to material betterment over time. He hoped it would triumph over socialism. He just didn’t believe it functioned in anything close to the way the Marshallians did, and he was appalled that economists could apply an essentially static model to something as profoundly dynamic as capitalism. Schumpeter wrote presciently, “Whereas a stationary feudal economy would still be a feudal economy, and a stationary socialist economy would still be a socialist economy, stationary capitalism is a contradiction in terms.” Its very essence, as the economic historian Nathan Rosenberg wrote, (p. 196) echoing Schumpeter, “lies not in equilibrating forces, but in the inevitable tendency to depart from equilibrium” every time an innovation occurs.

Source:
Kuttner, Robert. Everything for Sale: The Virtues and Limits of Markets. Chicago: University of Chicago Press, 1999.

“I would have fired me if I was him”

Warren Buffett. Source of image: online version of WSJ article cited below.
A couple of years ago, I think, in the mid-afternoon we went into a nearly deserted Dairy Queen near Dodge and 115th and walked by an old guy eating ice cream with a couple of others (I’m guessing his daughter and grandchild). I said to Jeanette and Jenny something like: if that guy wasn’t dressed so weirdly, I’d say he might be Warren Buffett. He was wearing some kind of overalls with the word WOODS printed in capitals on the back. Suddenly I remembered that I had seen in the paper that Buffett had caddied for Tiger Woods in some sort of celebrity tournament a few weeks earlier. We were tempted to ask for his autograph, but we let him eat his ice cream in peace.

(p. A1) He spends most of his day alone in an office with no computer. He makes swift investment decisions, steers clear of meetings and advisers, eschews set procedures and doesn’t require frequent reports from managers.
. . .
(p. A5A (sic)) Mr. Buffett tends to stick to investments for the long haul, even when the going gets bumpy. Mr. Sokol recalls bracing for an August 2004 meeting at which he planned to break the news to Mr. Buffett that the Iowa utility needed to write off about $360 million for a soured zinc project. Mr. Sokol says he was stunned by Mr. Buffett’s response: “David, we all make mistakes.” Their meeting lasted only 10 minutes.
“I would have fired me if I was him,” Mr. Sokol says.
“If you don’t make mistakes, you can’t make decisions,” Mr. Buffett says. “You can’t dwell on them.” Mr. Buffett notes that he has made “a lot bigger mistakes” himself than Mr. Sokol did.

For the full article, see:
SUSAN PULLIAM and KAREN RICHARDSON. “Warren Buffett, Unplugged; The hands-off billionaire shuns computers, leaves his managers alone, yet has notched huge returns. He just turned 75. Can anyone fill his shoes?” THE WALL STREET JOURNAL (Sat., November 12, 2005): A1 & A5A.

Source of graph: online version of WSJ article cited above.

French “regard the open economy with horror”

The French still regard the open economy with horror. A recent poll suggests that, while two-thirds of the population accepted that reform was necessary, they also wanted to keep the advantages of the present system — a short working week, early retirement for many, and almost invincible job protection. After years of assiduous propaganda, they believe that anything else will lead directly to the horrors of the United States: uninsured people dying of untreated diseases in the streets and, above all, riots.
The case of the state monopoly, EDF (Electricité de France) is instructive, and explains why any reform is so politically difficult. Employees of this vast organization work 32 hours per week; their meals are subsidized to the tune of 50%, their electricity and gas bills by 90%; they can retire at 55; they have the right to holidays at a fifth of their market value, and on average work the equivalent of eight months per year; and when their mother-in-law dies, they can take three days’ paid leave to celebrate. These are not all their privileges, only some; so it is hardly surprising that when the government proposed the privatization of EDF, they went on strike. (The government caved in.) They did so in the name of “the defense of public service” — and the French call the Anglo-Saxons hypocrites!
When a certain critical mass of such subsidy and special privilege for important sectors of the economy is reached, reform becomes impossible without explosion. The government has created an economic monster that it cannot tame, and that is now its master. In any case, periodic explosion has long been the means by which French society has undertaken major political and economic change. In the meantime, repression will become more necessary. For the moment, the banlieues are quiet: That is to say, only 100 cars a night are burned, and life elsewhere continues in its very pleasant way. But there is an underlying anxiety (the French take more tranquillizers than any other nation). No one believes that we have heard the last of les jeunes and of profound economic troubles. The last episode was but a very minor eruption of the social volcano. Every Frenchman believes that the question of a major eruption is not if, but when.

For the full commentary, see:
THEODORE DALRYMPLE. “An Update From France . . . (Remember Those Riots?).” The Wall Street Journal (Sat., February 11, 2006): A8.