The UWIRE Forum


Progressive response to ‘Transforming the way we do welfare
July 9, 2009, 11:14 am
Filed under: Uncategorized
Chris Burks

Chris Burks

Matt, Thanks for your article and I must say I agree with many of your impulses to support government programs that work.  However, an impulse being what it is, I think you go on to introduce assumptions from these impulses that lead you to less than sound public policy conclusions.

For instance, I agree that “subsidizing poor people to make their own choices in the marketplace” is a good start.

However, you go on to assert that programs such as Medicare, Medicaid, housing projects, and funding for local school districts “tend to underperform private alternatives.”  You further state that “nearly every American would choose private health insurance over going through the bureaucracy of Medicare.”

Each statement includes unnecessary assumptions and takes a narrow view that applies the rigorous lens of economics across less than the full spectrum of private activities.


As for your first assertion about underperformance, the opposite conclusion is correct. Medicare actually performs more efficiently than private alternatives when you control for inputs like income level and prior health history.  Whether it be the economy of scale or the ability to limit care to comparatively effective treatment, government-run insurance only lags behind in health outcome statistics when compared to private alternatives because private insurance can refuse treatment to certain categories of people.

Further, it is patently untrue that nearly every American would choose private health insurance over Medicare.  Health care polling is notoriously fluid, but a clear majority of Americans consistently prefer government managed programs like Medicare.

This line of analysis can continue to housing projects and schools as well.  I won’t defend many of the failed experiments in social engineering that arouse out of a desire to house all Americans, but, in the broad marketplace of those who demand shelter, the government could be doing much worse.  Further, the overwhelming evidence that vouchers for public housing work isn’t yet there.  I’m not saying it wont be, but the move from centralized projects to subsidized private housing and vouchers has had the near opposite effect in Memphis, Tennessee with crime going up and less people transitioning off such assistance after the move to more private forms of aid.

Also, public schools underperform private in some statistics because of the same reason that government managed healthcare seemingly does: public schools exist for the common good and admit all comers.  To further demonstrate why public options actually efficiently serve the marketplace, I’ll selectively apply some economics and go ahead and assert that private elementary schools underperform public schools in producing citizens with the values and emotional intelligence necessary for success in a multicultural world.  Surely one wouldn’t have to defend all the examples of egregious, unfair, and wasteful policies of private schools throughout our history?  The point is not so much that integrated and diverse public schools are more efficient incubators of our democracy in the marketplace of school choice, but that the marketplace is wide and we can’t just limit where to apply our analysis.

I’ll close with your assertion about doctors rejecting patients because the government will not treat them fairly.  I reject the assumption about this statement.  Doctors reject government patients because they don’t make as much in a reimbursement as they would from private insurance.  Fairness has nothing to do with reimbursement rates and, instead, this rejection is a function of an entirely rational decision on the part of the doctor to maximize their utility and make more money.  I don’t fault the doctor for looking out for his own interest because, fortunately, we all have a government that exists for the common good.

Such a polity full of individuals maximizing their utility has often rejected private social experiments many small government conservatives seem to suggest and the demand in the marketplace, call it a marketplace of ideas or a marketplace of votes, is for efficient programs that serve the common good.

This is exactly why progressives welcome competition and the market.  The American market wants progressive programs.

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“Medicare actually performs more efficiently than private alternatives…” – If you mean that Medicare spends less per patient, then you are correct. With reimbursement rates of approximately 70% of what doctors would get on the private markets and with less rigorous quality control mechanisms than the private market, Medicare is cheaper. It is not, however, a better value.

As for public housing, what parameters are you using to look at how effective public housing is? It is highly centralized housing for the poor. This means that a lot of poor people live in one neighborhood, with one school, one police department, one health clinic, and one set of neighborhood stores. It also centralizes… less savory aspects of poverty, like drug sales and prostitution. A neighborhood overburdened on every count with few resources and low poverty values is the last possible place that could be conducive for kids and adults to get out of poverty.

Private schools and Catholic schools in some areas that have adopted vouchers are required to take all applicants or institute lotteries to prevent merit-based discrimination, and other non-state schools opt to do the same even where it is not legally mandated. These schools still outperform government schools. Discipline tends to be better, greater autonomy for teachers and administrators breaks down bureaucratic inefficiencies, and the ability to set expectations freely means that students are not assumed to be incapable of learning. This is also the logic behind charter schools, which are a great start towards good school reform.

What is fair to doctors? That they should get the money that they request to cover their medical and personal costs and to make a comfortable living, or that they should be forced to take patients that cost them more than they can get back? It wouldn’t be fair to grocers or their families to make them take poor customers who would only pay 70% of food prices; I don’t see why it’s any better to commend the government for watching out for “the common good” by criticizing doctors who want to afford their costs and get a decent salary on top of that.

The marketplace of votes does not get the most efficient programs. We do not have the incentives to learn about efficiency in government services for a number of reasons. For one, we do not elect bureaucrats, we elect politicians who represent dozens of issues. No one elects a politician to be an expert on promoting efficient Medicare reimbursement schemes. We elect them to cut/raise taxes, start/end wars, and legalize/criminalize whatever. Additionally, we do not all make our own choices in government programs, and not all voices are heard equally. The people most likely to organize to influence, say, housing policies are not the homeless and not the social activists. They are the contractors, the constructors, and the landlords.

There is not a marketplace of political ideas that weeds out bad governance because there are no profits and losses, no price signals, no choices, and no competition. Markets may be imperfect, but it is extremely rare that the state will be less imperfect on economic grounds.

Comment by Matt

Matt, Thanks for the response. I’ll delve into many of your points, but, before I do so, I want to suggest that we hold different ideas on what constitutes a “market.” You seem to apply a “market” only when an individual has a direct “choice” about a program. I find this view limiting. For instance, when a consumer picks a stock broker, who then selects the stock of a company, which then selects which programs to allocate this capital raised from the stock sale, there is indeed an interaction of markets, market forces, and a large stock marketplace. To suggest that any involvement of secondary actors, or even the state, disallows notions of market economics is to take too narrow of a view.

To start with Medicare, Doctors can get more on the private market because of exclusion by private insurance. Medicare is only not a better value because of its inputs, not because private insurance is more efficient. The value we should be asking is the value for the taxpayer, not for the doctor.

As for housing, my point is simply that the evidence of effective decentralized voucher programs isn’t yet there. I agree that concentrated poverty seems to create the effect you described, but decentralized vouchers through federal grants have yet to produce an uptick in statistics. Anecdotal arguments aside, the numbers aren’t there. One possible explanation is the loss of community that occurs in incentivizing vouchers across a city, where the lack of community causes isolation of higher drop-out and drug use numbers. Whatever the reasons or ultimate shape of reform, and there are many, wholesale abandonment of government built housing is a poor choice.

As for schools, I think you’re argument is getting lost in the numbers. I agree that what most consider to be magnet and charter schools are a good general principle, but I disagree that private, parochial, and charter schools that admit all students outperform public schools in areas of discipline, graduation rates, or any such statistic. The numbers in the public policy research suggests otherwise.

It is fair to Doctors to pay them their true cost. This never happens because the insurance market is distorted by arbitrary tort reform caps, ordering of less than evidence based best practices, and many more examples of economic inefficiency some in medicine bring upon themselves in order to maximize their profit margin. A true market would not reflect your 70% statistic.

I think the political theory you espouse is limited. Saying, “no one elects a politician to be an expert on___” anything presumes a unified theory of vote choice that doesn’t exist. People vote for all kinds of reasons, and my Congressman Vic Snyder (D-Ark 2nd.) happens to be an expert on efficient Medicare reimbursement schemes. I’m sure that is one of the main reasons my father and many other physicians voted for him. Further, interest group theory does suggest that not all voices are heard equally, but that doesn’t mean that a market doesn’t exist. I understand a cynical view of interest group theory that holds that no individuals choice matters, but a majority of Americans who vote every year beleive otherwise and vote for minute program changes, big picture shifts, and every other reason under the sun.

Lastly, I looked to the American Prospect, Eduwonk, the Center on Budget and Policy Priorities, and the Progressive Policy Institute for much of what I assert as fact above. I might go back and cite everything in another article one day, but, as with my previous post, I fully feel like the burden is on no government libertarians or small government conservatives to persuade the American people otherwise. Clear majorities of Americans reject the social experiments many so-called market reform advocates espouse.

Comment by Chris Burks

Secondary actors can exist within markets, that is true. But markets must have entry and exit as choices. I cannot pick what stocks my broker buys on my behalf, but I can pick another broker or get my money out of the stock market if he is not performing the way I want. The state cannot function according to market principles because I cannot take my tax dollars and give them to another government if they are doing poorly. There is an economic incentive for middlemen to do well and act efficiently: you or I can make them lose money. The same is not true for the state. Even if it does lose money, it does not simply get out of that business. It takes more money or something until political will can be indirectly mobilized around that particular issue. In the case of non-hot buttons like agricultural subsidies, that change may never come.

Medicare: we should be asking for value for the taxpayer, but we cannot cheat the doctor to get it. We cannot simply plunder one another at will. Medicare is not cheaper because of its “inputs;” it takes the sickest, poorest Americans and insures them at rates less than the private market would offer. Humane? Yes. More efficient than private insurers aiming to maximize profit? No. You are also right to say that doctors would not be fairly compensated, even in more of a market system, because of tort reform caps and other practices that “some in medicine bring upon themselves.” Sure, but that’s why we allow people, doctors included, to freely arrange contracts and terms of service. A doctor will be better at negotiating his own wages with insurance companies than with Medicare’s administrators, who, again, can’t be opted out of, meaning there is no competition and no losses that can hurt.

Why should the government build housing? At best, you’re right and there is no conclusive evidence that voucher programs lower citywide crime rates (which, incidentally, are impacted by far more than just the amount of public housing). At worst, we have the government consolidating the poor and overburdening neighborhoods while trapping families. Even in utilitarian terms, public housing isn’t working – there are as many homeless people as a percentage of the population today as there were in the 1960’s when the Department of Housing and Urban Development came into existence.

As for education: according to an aggregate of academic outcome studies compiled by the Friedman Foundation, random assignment vouchers (money distributed to random students without regard to race, class, location, etc.) led to statistically certain better outcomes in 90% of studies. The report can be found here: http://www.friedmanfoundation.org/schoolchoice/myths/detailed_myth2.pdf

I am not aiming for cynicism in voting decisions; we are talking about incentives. In your average Senate race, you are one vote of 15 million, split between two candidates. Given those odds, you are not going to leave as a terribly happy customer. It’s as if there were two companies on Earth, and you could pick one of them to exclusively sell everything from bagels to computers to military hardware for your area. Even if there were 534 other such companies covering other areas and they had to agree on designs for the goods they sold and on service standards, that wouldn’t be competition, and it wouldn’t be efficient. Imagine instead a democracy where 300 million people pick between 15 million companies and themselves and any other arrangements they can make to get the things they want, and that companies that didn’t do what people wanted would lose money and eventually go bankrupt. The market is the only successful and sustainable true democracy in human history. That is no social experiment – it’s a spontaneous order that has developed over many centuries, and that keeps evolving thanks to increases in technology and a more global world. It is also extremely responsive and, if you don’t like it, you can up and leave and do your own thing.

Find me a government that sweet and I’ll start supporting more of a state.

Comment by Matt




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