Robin Sloan's Iran News Superfilter
links for 2009-06-22

Paul Krugman Urges Greg Mankiw to Pay More Attention to Quality Control

There are very good health economists at Harvard--Newhouse, Cutler. He doen'ty have to manufacture his opinions on health care out of faxed Republican talking points.

Paul Krugman:

Live long and prosper: Via Andrew Gelman, Greg Mankiw describes the use of international comparisons of life expectancy as part of the argument for reform as “schlocky.” Grrr. Not many serious advocates of reform use the life expectancy differences to argue that health care is clearly better in other advanced countries than it is in the United States; when it comes to care, the general assessment seems to be that it’s comparable, with no advanced country having a clear advantage. The reform argument actually goes like this:

  1. Every other advanced country has universal coverage, protecting its citizens from the financial risks of uninsurance as well as ensuring that everyone gets basic care.
  2. They do this while spending far less on health care than we do.
  3. Yet they don’t seem to do worse in overall health results.

So Greg suggests that maybe it’s all because we have an unhealthier lifestyle — what Ezra Klein calls the well-we-eat-more-cheeseburgers argument.... [W]e’re spending 6 or 7 percent of GDP more on health care than other countries — call it a trillion dollars a year — without any clear advantage. That’s not the sort of thing you wave away with a casual suggestion that maybe we have bad habits.... [Second,] people have thought about this — and tried hard to measure it... the huge McKinsey Research Institute... tried to quantify the costs of lifestyle-related issues — and found that it didn’t explain much. Third, read Atul Gawande!

Bottom line: this is the most important domestic policy issue we face. It deserves more than casual just-so stories about how the kids American health care might, despite all appearances, be alright.

To me, the thing to note about the economists--the Mankiws, the Lucases, the Beckers, the Barros, and all the rest--who have pledged allegiance to the Republican Party this year is how much they hagve stopped thinking like economists. When an economist thinks about American health care, he or she begins with what we give up and what we get: we give up $1 trillion dollars in real resources a year relative to other countries, and we get... what?... not much. But this is not how Mankiw or Becker approach it. When an economist thinks about nominal demand, he or she thinks about (a) the money stock and (b) the determinants of velocity--the incentives people have to spend their money quickly or to tend to hoard it. But that is not how Lucas or Barro think when they claim that fiscal policy cannot affect nominal demand.

I still remember being convinced by Rick Ericson when I had just turned 18 that thinking like an economist required that one always pay attention to three key principles: market equilibrium, individuals responding to incentives, cost-benefit tradeoffs. And I remember him convincing me that if you kept those three principles in mind always you could do a much better job in understanding the world. I thought that Chicago-School economists believed in these principles too. But someone--was it Mark Lemley?--told me more recently that intellectual principles almost always weigh much less in the balance than political allegiances.