Noah Smith; Unleashing the hellbeasts of stone cold truth since 2011: Market priesthood: "Has economics really become less about 'free market priesthood'?
Well, I think academic econ has. But as for pop econ, there still seems to be a lot of it around. For example, Steve Levitt, one of the most popular pop economists in the world, recently had this to say about health care:
In their latest book, Think Like a Freak, co-authors Steven Levitt and Stephen Dubner tell a story about meeting David Cameron...They told him that the U.K.’s National Health Service--free, unlimited, lifetime heath care--was laudable but didn’t make practical sense. "We tried to make our point with a thought experiment," they write. "We suggested to Mr. Cameron that he consider a similar policy in a different arena. What if, for instance...everyone were allowed to go down to the car dealership whenever they wanted and pick out any new model, free of charge, and drive it home?" Rather than seeing the humor and realizing that health care is just like any other part of the economy, Cameron abruptly ended the meeting...
So what do Dubner and Levitt make of the Affordable Care Act, aka Obamacare, which has been described as a radical rethinking of America's health care system? "I do not think it's a good approach at all," says Levitt, a professor of economics at the University of Chicago. "Fundamentally with health care, until people have to pay for what they're buying it's not going to work. Purchasing health care is almost exactly like purchasing any other good in the economy. If we're going to pretend there's a market for it, let's just make a real market for it."
This is exactly what I call "free market priesthood". Does Levitt have a model that shows that things like adverse selection, moral hazard, principal-agent problems, etc. are unimportant in health care? Does he have empirical evidence that people behave as rationally when their health and life are on the line as when buying a car? Does he even have evidence that the British health system, specifically, underperforms? No. He doesn't. All he has is an instinctive belief in free markets. Of course David Cameron didn't "realize that health care is just like any other part of the economy" after a five minute conversation with Levitt. Levitt didn't bring any new ideas or evidence to the table. And it's not like Levitt's idea was new or creative or counterintuitive. Does anyone seriously believe that the question of "why is health care different from other markets" had never crossed David Cameron's mind before? Obviously it has, and obviously Levitt knew that when he asked his question. He wasn't offering policy advice--he was grandstanding. Levitt wants to present himself as "thinking like a freak"--offering insightful, counterintuitive, original thinking. But if this is "thinking like a freak", I'd hate to see what the normal people think like!
Surely it has not escaped Levitt's notice that the countries with national health systems spend far less than the United States and achieve better outcomes. How does he explain this fact? Does he think that there is an "uncanny valley" halfway between fully nationalized health systems and "real markets", and that the U.S. is stuck in that uncanny valley? If so, I'd like to see a model. But I don't think Levitt has a model. What he has is a simple message ("all markets are the same"), and a strong prior belief in that message. And he keeps repeating that prior in the face of the evidence.
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