Every word the Wall Street Journal op-ed page says about Capital in the Twenty-First Century is false, including “and” and “the”

Red border, 'CAPITAL' in red, everything else in black. Nicely modern font (Futura, maybe?) I was just minding my own, Googling for an image of the cover of Capital in the Twenty-First Century for inclusion in an eventual review, when I happened upon the Wall Street Journal getting it horribly, horribly wrong, and I was awoken from my dogmatic slumbers. I guess I’ll be writing that review now, then.

I really cannot emphasize this enough: there is nothing in that Journal piece that gets Piketty even half right. That the piece contains the phrase “this book is less a work of economic analysis than a bizarre ideological screed” is proof on its own that the author wasn’t even reading the same book that the rest of the literate Anglophone world was.

The best thing you can do to combat the Journal piece is to go read Piketty himself. Really, you need to do that. If people aren’t still citing Piketty himself in 30 years, they will be citing works that would not have existed without him; it’s really that good.

If you don’t read Piketty, what you need to know is the single mathematical statement that dominates the whole book: the rate of return on invested capital historically exceeds the rate of growth of the economy. If that continues over a long enough time scale, the weight of the past (in the form of inherited fortune) comes to dominate the present (in the form of new growth, entrepreneurship, etc.). Over long time scales, the rate of return on capital has exceeded the economy’s rate of growth; the only times when capital’s share of national wealth has dropped have been times of global-scale war. War made necessary the systems of income taxation that we have today; war destroyed capital, in the form of land and factories. In normal eras, inheritance comes to be viewed as the only way to “make it”: entering “the professions” (law, medicine) and working hard is not going to get you into the 1%. In short: under ordinary circumstances, everyone knows that the only way to become part of the aristocracy is to marry an heiress. That’s why the works of Austen and Balzac play such a central role in Piketty’s book: they illustrate what everyone knew in their guts in the 18th and 19th centuries, even when they didn’t necessarily have economic data to back it up.

And we’re heading back to that world: the basic depressing thrust of Capital in the Twenty-First Century is that we’ll almost inevitably end up in the land of “marry an heiress” whenever the rate of return on capital exceeds the economy’s rate of growth, which it almost always does.

You can choose to respond to this, or not. Piketty has his doubts that a society in which the wealthiest 1% own 90-plus percent of the assets is politically stable. As an economist with some humility, and with a great many critical things to say about his discipline, he is at pains — again and again and again — to observe that the problems of whether and how to respond to growing inequality are not merely technocratic problems of optimal tax policy to be solved by convex maximization; they must be solved by democratic polities in command of all the facts. And every generation encounters different variations of the governance problem, which require constant democratic engagement to handle them. One problem our generation faces is the increasing mobility of capital, which makes taxation by a single nation-state feel increasingly toothless. Even measuring the problem we’re trying to solve, Piketty observes, is getting harder: the wealthy seem to be hiding an astonishingly large quantity of money in offshore tax havens.

To sum up, then: inequality may be a problem; if it’s a problem, it cannot be solved by infinitely wise economists, but must instead be solved at the ballot box; if it’s going to be solved at the ballot box, the electorate must know the extent of the problem it’s solving; and increasingly, multinational capital flows make it hard for the electorate to know the extent of the problem it’s solving.

One of Piketty’s solutions is a modest tax on assets, in large part just to get some record of how large inequalities are. This would require some international coordination, of course; money hiding in Swiss banks needs to be exposed to the sunlight. As Piketty archly notes, it’s no more utopian to expect this to happen than it is to expect European nations to come together and agree on a common currency in the absence of a common government, yet somehow they’ve managed to do that.

As you might expect, it’s the modest asset tax that gets the Journal author’s panties in a bunch. Wealthy people don’t want to pay more money, and the cossacks have always worked for the czar; so it shouldn’t surprise anyone that the Journal would be upset. And it may well be a safe bet that most people aren’t going to read a 600-page work on the economics of inequality, so maybe the Journal will win by default. You, my intelligent reader, won’t allow that to happen, will you? The Journal has been blinded by tears of rage, to the point of actual illiteracy. On the one side I might quote Upton Sinclair: “It is difficult to get a man to understand something when his salary depends upon his not understanding it.” On the other, more hopeful side, I’ll quote Jefferson: “let them stand undisturbed as monuments of the safety with which error of opinion may be tolerated where reason is left free to combat it.” Let’s approach the Wall Street Journal as Jefferson would have, if for no other reason than that I think that’s what Piketty would want us to do.

The final thing to say about Piketty’s masterpiece is that its very durability derives from the fact that it is exactly the opposite of the “screed” that the Wall Street Journal has manufactured out of whole cloth. Whenever possible, Piketty maps out all branches on the road ahead, and makes clear that the choice of path is not up to him; it’s up to democracies. He’s fair to a shocking and refreshing degree. As soon as the ideologues at the Journal are done hyperventilating, perhaps they’ll be able to see that Capital in the Twenty-First Century is an astoundingly fair book, with ammunition aplenty for all sides in the debate. Indeed, much of what Piketty is saying is that democracies require knowledge for their effective functioning — not because that knowledge arms one side or the other, but because everyone on all sides needs it. Our perspective on inequality is a moral judgment that should be based on the soundest of reasons, and those reasons should be based on facts. Piketty doesn’t supply the judgment, but he does supply the facts.

P.S.: There’s really so much more to say about the book. For one thing, Piketty makes the point that you really need to distinguish between labor income and capital income in any analysis of inequality, so that naïve measures like the Gini coefficient hide more than they illuminate. And when you pick apart the numbers in this way, you find that the U.S. distribution of labor income — labor, not capital — is more unequal than at probably any other time or any other place in recorded history, because the wealthiest people are largely a new class of “supermanagers” rather than the basketball players or world-famous musicians that we might imagine. You really need to be in the top 0.1% or 0.01% before you find people largely living more off of capital assets than they are off of their labor.

Rather than explore all of the reasons why you should read this book, and all of the things that you’d learn, I’d just strongly recommend that you read it yourself. It’s seriously worth your time — again, because Piketty’s role is to inform democratic debate.

P.P.S.: Having now made up my own mind about Piketty, I can go and read the reviews I’ve been waiting to read, like Krugman’s.

P.P.P.S.: The title of the post, by the way, is a hat tip to Mary McCarthy.

Landed on an old interview with Charles Stein for some reason

I remember reading this interview between Morrie DeGroot and Charles Stein back in the day, probably when I was an undergrad at the department DeGroot founded. I was struck in particular by this bit:

This doesn’t answer the question, “When I say the probability is 1/6 that this die will come up 6 on the next toss, what does that statement mean?” But then in no serious work in any science do we answer the question, “What does this statement mean?” It is an erroneous philosophical point of view that leads to this sort of question.

Reminds me of the bit by Gellner describing reductionism:

Reductionism, roughly speaking, is the view that everything in this world is really something else, and that the something else is always in the end unedifying. So lucidly formulated, one can see that this is a luminously true and certain idea. The hope that it could ever be denied or refuted is absurd. One day, the Second Law of Thermodynamics may seem obsolete; but reductionism will stand for ever.

Oh, and then there’s this line of Stein’s; think “big data” when you read it:

There are so many more possibilities for computation, and some of them are clearly useful. People can find things by using somewhat arbitrary computational methods that could not be found by using traditional statistical methods. On the other hand, they can also find things that probably aren’t really there.

The interview was from 1986.

Placeholder for a forthcoming Piketty review

I will only say here of the Piketty book that practically almost absolutely everybody is talking about: it really is that good. I’m most of the way through it, hopefully to finish today. It’s just … hard to call it anything short of a landmark. It consolidates everything you’ve read or thought about inequality into a single work, complete with analytical support for nearly everything (though oddly lacking citations in nearly all of its footnotes).

This is just a downpayment on a review. You really want to read the book, though.

“This graduation speech teaches you everything you need to know about economics in 297 words” — no it doesn’t

Whoever wrote this headline decided to annoy a whole lot of people. Indeed, the whole thing is probably a nice big exercise in trolling. So rather than feed the trolls, I will reply in kind with very little text.

Whenever you read about how individuals behave in an economic sense, you should immediately come back with at least one question:what happens if everyone behaves that way? So for instance, that speech talks all about incentives, which are economists’ favorite things. I have an incentive to go to college, say, because doing so increases my expected lifetime income. But what if everyone goes to college? If everyone’s education increases by the same amount, will everyone’s income go up by the same amount?

Or similarly: we all have an incentive, let’s say, to live in a quiet place on the water. But since we all have that incentive, we all decide to move to a quiet place on the water. Now we all live on the water, crowded in with each other, and it’s no longer quiet or peaceful.

Or we all would like our kids to be able to walk to school safely. But they won’t be able to walk safely unless our neighbors believe that it’s safe. So some of us decide to drive our kids to school. Now there’s no safety in numbers, so our kids aren’t safe. So everyone drives their kids to school. So it’s no longer safe for our kids to walk to school.

Or see Klinenberg: used to be that, during heat waves, thousands of people would leave their homes and go sleep in public parks in Chicago. That little wave of revulsion you just felt explains why no one does that anymore. And since no one does that anymore, people have to sleep indoors during heat waves, because they no longer have safety in numbers outside. But lots of people can’t afford air conditioning; in particular, the most marginalized populations cannot afford air conditioning. So they die alone in their apartments.

The moral here should be entirely obvious: what I do depends upon what you do. It makes very little sense, in a lot of contexts, to talk about what you want — what your “incentives” are — without talking also about what I want, or vice versa.

Shorter version of all of the above: read Tom Slee. Really. Go read him as soon as you can. His book is a necessary corrective to the trite Sargent speeches (and, I’m coming to worry, to the Voxes) of the world.

If you get a big tax refund, you’re doing it wrong

This probably gets said to everyone every year, but I feel I need to repeat it: if you get back a big tax refund, it’s not like you’ve outsmarted The Man, or like you’ve gotten a big windfall; it’s just that you paid the government more throughout the year than you needed to, and they’re giving you back what you overpaid.

I really think many people don’t understand what they’re doing when they file their taxes. They’re computing on the one hand how much they should have paid during the previous year, and on the other hand how much they actually did pay. Subtract what you did pay from what you were supposed to pay. If the result is a number greater than zero, then you underpaid during the year, and you need to pay to make up the difference; if it’s less than zero, you overpaid, and the IRS owes you back some of your own money.

When you underpay throughout the year, you can take the extra money from every paycheck and put it in a bank account and earn interest, or you can invest it and (if you’re lucky) earn a positive return. Whereas if you overpay, the government doesn’t pay you interest at the end of the year. So by overpaying throughout the year and receiving a refund at the end of the year, you’ve given the Federal government an interest-free loan throughout the year.

The optimal strategy, then, is to do two things:

  1. Estimate, early in the year, roughly how much you’re going to owe in taxes.
  2. Underpay throughout the year by just enough that the IRS never gets mad.

Actually, 2. isn’t quite right. It’s okay to get them mad, because when they get mad they just charge you money. If you know your tax situation well enough, you can have them charge you just enough money that you still end up ahead. Suppose they charge you $1.05 for every dollar you underpaid. Well, if you can get a 6% return on your money by investing it rather than paying it to the IRS, you should just invest that money, earn 6%, then pay the 5% penalty. You’ll still end up ahead.

But presumably they don’t just charge you some fixed low rate of interest for every dollar by which you underpaid throughout the year. I don’t know, but I would imagine you pass some threshold where your underpayment makes them really unhappy (we might say that their response is “nonlinear”). So the optimal strategy would be to underpay such that the marginal dollar of underpayment is just offset by a marginal dollar of fines from the IRS.

I realize this takes all the fun out of why people like tax refunds. They like seeing a nice big check. And I think a lot of people don’t believe they have the self-control to set aside a few dollars with every paycheck; they believe they could handle a windfall better. If that’s how you feel, then go you. Empirically, I wonder if it’s true that people can handle a windfall in their taxes any better than they can handle a small regular payment.

Generally speaking, I don’t understand why people find taxes so vexing. For most of us, it’s simple:

  1. Add up all the money you made during the year.
  2. Subtract exemptions for yourself and your dependents.
  3. Subtract deductions for your house and charitable contributions.
  4. Use the tax tables to figure out what you owe.

Some people do have it hard. Small-business owners, I would wager, will find this particularly tricky. If you have lots of complicated financial assets, it’s probably annoying. I’d like to look it up empirically, but here’s a quick observation: most people don’t itemize their deductions. If you take that as a measure of how complicated most people’s returns are, you have your answer: most people’s returns aren’t complicated.

And if the pain of filing your taxes is that you’re sending money to the IRS, you can eliminate this pain by just setting up your withholdings properly throughout the year. Set it up so that you owe nothing, and are owed nothing, at the end of the year. If you’re like 2/3 of Americans, this isn’t hard: you’re not even going to be itemizing the deduction for the home you own.

Indeed, most Americans would be just fine letting the IRS handle their taxes for them, if we had such a thing; we’d be more likely to have such a thing if tax preparers weren’t lobbying against it. Your employer would submit your salary to the IRS; your bank would submit your interest income; your mortgage company would submit any interest payments you made; the IRS would tell you what you owe, and you’d be done with it.

For most people, though, I just don’t see what the big deal is.

Tiny adventures in home improvement: the Nest thermostat and smoke detector

Attention conservation notice: 1800 words on how-to instructions for Nest products, leading into some thoughts on being afraid of things you don’t know how to do, leading into some thoughts on needing a mentor, leading into an idea for a bartered mentoring scheme.

Me, I’m not so good at the handyman stuff. Which is something of a shame, because I’m sort of the landlord-in-residence at the apartment that I rent from my friends. But the smoke detectors needed to be upgraded: the existing ones start screaming when the wind blows the wrong way, and the Nests promise that you can silence them easily when all you’re doing is burning some toast (they call this the “Nest Wave”; they’ve recently remotely disabled it).

Marco Arment doesn’t think the Nest Protect solves any real problem, because “If your smoke detector has too many false alarms, moving it is going to be a far more effective upgrade. And if you can’t move it, you probably also can’t replace it.” It’s a fair cop. It’s even fairer to note that the existing crappy Kidde smoke detectors already had a “hush mode”, which was supposed to do what the Nest Wave does. My only hope here is that a higher-end product, from a company that seems to want to establish a relationship with its customers, is more likely to deliver on the promise.

Add to this the fact that everyone who owns a Nest thermostat loves it, and that (I assume) there are increasing returns to owning more Nest devices: if nothing else, the Nest smoke detectors can communicate with each other wirelessly. Altogether, it seemed like there were good reasons to go all-in on Nest products: I bought seven of the smoke detectors and one thermostat.

Before I go into the handyman aspect of this, which is the whole point of the post, let me just note that the thermostat is beautiful. It’s packaged with the same loving care that Apple puts into their products; the product is elegantly simple (again, like an Apple product); and it has a remarkably pleasing weight.

Installing the thermostat was really quite easy. The basic gist of the installation routine is just

  1. Pay attention to which color wires go into which marked terminals (Y1, G, Rh, etc.). Take a photo with your phone.
  2. Turn off the power to your house, so that you don’t die. (I think I could have just killed the power to the furnace, but I didn’t know for sure.)
  3. Remove the old thermostat.
  4. Put the new thermostat base on, and level it with the handily included bubble level.
  5. Plug the wires into the appropriate terminals.
  6. Put the new thermostat on the base.
  7. Turn the power back on.
  8. Go through a little dance to configure it.

Nice short, straight, perfectly vivid segments of wire, not much at all like what I encountered It was basically painless. The only pain, really, was that I had to strip some wires. The wiring diagram from Nest (included at right) suggests that your segments of wire will be perfectly straight, will be cut to exactly the lengths you need, and will have the appropriate lengths of exposed copper. Mine did not meet these criteria. The first couple times I tried wiring it up and turning the power back on, I got the dreaded error 24, which seemed to mean that I hadn’t wired things up properly. This has to do with the Rh wire, apparently. I gather that the ‘h’ stands for ‘heating’. Unsure what the ‘R’ stands for. Now that I’ve played with this stuff, I would like to understand more about what I just did. If anyone has any books you’d recommend here, do let me know.

In any case, I had to shorten some wires so that they’d make nice straight segments. Then I had to strip the shielding off the ends, so that they’d conduct when put in contact with the terminals. With that done, everything went smoothly.

The Nest UI is really cool. One of the screens showed me which wires were connected to which terminals, thereby revealing to me that my Nest wasn’t ready to control the apartment’s air conditioning. (Maybe it was the Y1 wire? I forget.) So I took off the thermostat, killed the power — probably excessive, but still — stripped a bit more shielding, put the wire back in, put the thermostat back on, and voilà: the device showed me that it now saw a wire where it expected to find one, and told me on another screen that it could now control the A/C. Brilliant.

Putting in a smoke detector was even easier, though it was exhausting to bend my head back to look up at the ceiling and screw a bunch of stuff in above my head; I now know exactly how Michelangelo felt.

Here the only steps were

  1. Kill the power.
  2. Take the old backplate to the old smoke detector off the ceiling.
  3. Screw in the new backplate.
  4. Remove the old wire nuts that connect the existing black, white, and red wires.
  5. Pair the new Nest black wire with the existing black wire and the new white wire with the existing white wire, and put the new wire nuts on over the existing wires. Then put a wire nut over the existing red interconnect wire: the Nest thermostat doesn’t need it; Nest uses 802.15.4 to connect devices wirelessly. I seem to recall reading that it uses your home WiFi to connect until all the thermostats are Nest, but that doesn’t 100% make sense to me: what happens if your WiFi router is down? In any case, Nest doesn’t use the red wire.
  6. Install the Nest smartphone app and tell it that you want to add a smoke detector. It’ll ask you to take a photo of the QR code on the back of the device. After you’ve done that, it’ll tell you the ESSID of the device’s ad-hoc wireless network; connect to that ESSID through your phone’s WiFi control. (You may need to press the button on the smoke detector; the blue ring will light up, and within a few seconds the ad-hoc network will show up on your phone.)
  7. Connect the power cable (which is hanging off the black and white wires) to the Nest.
  8. Tuck all the cables away in the ceiling, and twist the Nest onto the ceiling.

And you’re done! There’s a little smartphone-app / website dancing to do here, but that’s all obvious.

I’ll admit to you that I was a little scared of installing this. What if I do something wrong? What if I disable our smoke detectors? It helped me a little that our existing smoke detectors were all but disabled, because they went off too often to do anyone any good.

As a general matter I think I’m too scared in my life of doing things wrong. This fear leads often to procrastination, which of course only makes the problem worse: you’re still scared of doing things wrong, but now you’re just going to have to worry about it for longer. And if it’s like most things in your life, the obligation won’t go away; that thing at work that you’re concerned you might fail on is now something that you might fail on after having avoided it for too long. So now you have other people thinking you can’t do it, which makes you look stupid or incapable in front of other people, which is (to my mind) worse than merely fearing your own incapacity.

You see how badly this turns out. In many cases I think I need a mentor to help me get over the hurdle: someone who will show me the ropes and convince me that in fact I know what I’m doing. Mentors are incredibly valuable; had I gone off on my own to learn Linux, without Adam watching over my shoulder, the whole bizarre Unix universe would have probably seemed too daunting to get started on, and I might have ditched it. And I wouldn’t have built the reasonably successful career I’ve been on ever since.

So it is with home-repair stuff. It’d be fun to put together a list of things I want to do around this apartment, then invite someone over to be by my side while I do them. They’d tell me things I should do differently, the corners I could cut, the shortcuts I could take, the extra little bit of hardware that, if I bought it (or borrowed it from a municipal library), would radically speed up my work. That would lower the difficulty of tasks in the future, which would lower my fear, which would mean I could do more on my own. Increasing returns! Indeed, this home-improvement coach would hopefully be someone who could tell me all the things that could be improved in my apartment that I just don’t see because I’ve not been trained. Hiring someone to train you on these things — without going to a vo-tech school, say — would be hugely great. I believe there are bicycle shops in Cambridge that do that: you can pay them $n to repair your bike, or pay them $m (where 0 <= m < n) to teach you how to repair your own.

Jeez. Writing this out puts me in a mind to construct some kind of community mentoring scheme. I could mentor people in what I know well (computer stuff, say); they could mentor me in what they know well and that I need help on, like carpentry or interior decorating or electrical work or plumbing. The first retort that comes to mind on this is “How do you know you’re getting the right training from these people?” In principle you should ask the same question of Harvard or MIT professors, but those institutions are assumed to have vetted their staff properly. As for the Adams of the world, teaching people Linux … well, I knew Adam, so that solved that. In any case, the proper solution here would be Yelp for education, essentially. I teach you about Linux, and you rate how well you liked my teaching. Or maybe we find some more objective way to evaluate whether you learned what I ostensibly taught. E.g., you should be able to answer the question “how do you list the contents of a directory at the Unix shell?” after I’m done teaching you. And so forth. Combine a community mentoring scheme with a community library of tools (borrow a drill for an hour from the library, say), and you’ve got something really cool.

Yes, in some sense this is recapitulating the idea of “school”, but in important ways I think it’s different. It’s a you-scratch-my-back-I-scratch-yours kind of system. And as described, it sounds a lot like like barter.

(Is ‘skill-share’ a generic term for this? A moment’s Googling suggests it may be.)

I dunno. I think this is worth doing. It’s all in the pursuit of reducing fear.

Does Heartbleed mean that C should die?

The “Does that pretty much wrap it up for C?” piece (via my man Jamie Forrest) is interesting, but I think he needs to talk it out a bit more. I mean, at some level, someone is going to have to do memory allocation on bare metal. And what do we do then? And there are always going to be functions that need high performance, because they’re in the middle of some tight inner loop. Or in the SSL case, someone is going to need to do very specific things with memory, like making sure it’s not holding any sensitive data.

My understanding of modern malloc implementations is that they include all kinds of sophisticated ways to prevent buffer-overflow attacks. When you request a block of memory, they set it up such that requests past the end of your block cause a segfault. Or they randomize the blocks they give you, so that you can’t just grab the next few bytes and expect there to be anything there.

I’m not a C programmer (I really need to know it, I think, to be a complete programmer), but all of this says a couple things to me:

  1. If you use the right libraries, you should be protected against a lot of stupid behavior. Makes you wonder, for instance, why the OpenSSL team wasn’t using tcmalloc or ptmalloc. I’m sure there’s a reason; I just don’t know the problem space well enough to say.
  2. Any serious software system, whether down at the bare metal like C or higher up like Python, is going to require lots of testing, regardless of whether it’s got compile-time type safety. There should be lots of unit tests. Ideally, the unit tests would also be able to simulate other components, using mock objects and whatnot. And then you need integration tests to see how well your component integrates with others. And then, in the case of a secure system, you probably need to bombard it with very focused buffer-overflow attacks, written by dudes who know the code inside and out. (Sort of like penetration testing within a company, on the assumption that you’re most vulnerable to your own employees.) And for performance reasons, you should also test it by bombarding it with millions of requests per second and seeing where it breaks. Testing is hard. QA is hard, and is very often not respected as a peer of engineering. Engineering is sexier. If you’re really good at QA, you’re spending your time writing systems to test many thousands of cases rather than just grinding out the same manual test over and over, and you’d probably rather be off building something new. Engineers also feel this way: they’d rather be writing new versions of the code than maintaining the old stuff.
  3. An ideal team will learn from its mistakes and build systems that prevent the same bug — or similar bugs — from reappearing.
  4. Building good software requires a good organization and good management (whether by “management” we mean someone who’s controlling the work product of his direct reports, or something broader like “group structure”). This is a variant of Conway’s Law: “Organizations which design systems are constrained to produce systems which are copies of the communications structures of these organizations.”

Let me be clear that I say all of this with absolutely no understanding of the OpenSSL code base, much less an understanding of the OpenSSL team’s structure. But it just strikes me that blaming an OpenSSL bug on the C language doesn’t really get at the problem. A successful software system will fix this mistake and ensure that it never happens again. A successful open-source software system will take community direction to build such a resilient system, and will do it all with a fully open process. That goes beyond narrow issues of language choice.

Why doesn’t Blue Cross fly me to Nebraska?

This paragraph in a Vox post about Vermont’s single-payer plan pokes at a question I’ve had for a long time:

American doctors spend lots of money dealing with insurers because there are thousands of them, each negotiating their own rate with every hospital and doctor. An appendectomy, for example, can cost anywhere from $1,529 to $186,955, depending on how good of a deal an insurer can get from a hospital.

My mental model of this part of health care is that there are four players: the patient, the insurer, the employer, and the provider. The insurer negotiates a price with the provider for a given procedure. The employer picks an insurer, based on price and various other things. (I’m ignoring the VA Medical System, which is like the UK’s National Health System; I’m ignoring Medicare, which is like Canadian single-payer; I’m ignoring the individual market; etc.) I … well, I just work where I work, and in practice I’m not going to pick my employer based on how cheap a deal they get on appendectomies.

Now then. Who has the incentive to keep things cheap? Well, I do, I guess, inasmuch as I have some “skin in the game”, which is why the terrible state of the art in health insurance is that I pay more and more and have a very large deductible. (Hey, at least I won’t go bankrupt! I mean that half-seriously.) My employer does, to some extent. For one thing, they pay the majority of my health-insurance premium; they’d like to pay less of that. For another, every dollar they pay toward health insurance is a dollar they can’t pay toward salaries, and every dollar they take away from salaries decreases their odds of getting good candidates.

Where the rubber really hits the road on prices is the insurer. The less the insurer can pay for appendectomies, the more profit they make. To the extent that the insurer can just pass costs along to the patient, the insurer doesn’t really care what it’s paying for appendectomies. The more urgent the care, the more the insurer can pass it along to the customer, maybe. (I’ll gladly bankrupt myself to pay for an emergency appendectomy.)

Let’s assume that the insurer can’t just pass costs directly along to the patient. And let’s assume that neither the insurer nor the provider has unlimited bargaining power: the insurer can’t pay $0.01 for an appendectomy, and the provider can’t charge $1 million for it.

If the insurer negotiates a rate of $100,000 with one provider for a given procedure, and negotiates a rate of $1500 with another … why not pay me to fly to the cheap hospital? Suppose it’s in North Dakota while I’m in Boston. Why not pay for the plane ticket, pay for the airfare, and — hell — compensate my employer for the value they lost while I was gone. If I estimated that all of that together, plus the cost of the procedure at the cheap hospital, would cost the insurer $10,000, I think I’d be radically overestimating it. But that’s $90,000 less than they were going to have to pay. So: good for them!

Maybe emergency procedures are a bad example: if you need them now, you need them now. Even there, though, I wonder whether it would be medically justified to stick me in a chartered flight to North Dakota. Maybe there’d be a whole fleet of medical airplanes run by the insurance companies. Just spitballing here!

Two other notes:

  1. All of the above, I think, shows that “consumer-directed health care” is nonsense. The insurer is still going to be the locus of the cost savings, under any system (and whether that insurer is the U.S. government or a private company). There’s just no reason to expect that the consumer can do anything here. Maybe consumer-directed health care means that I’ll go to my podiatrist a little less often. If I need that appendectomy, though, I need that appendectomy.

  2. Somehow that Vox piece goes through 3,000-plus words, by my count, without once explaining what has to be the most interesting question about single payer in Vermont: how did they bring the insurers and the hospitals on board? How did they get around the hospitals? There are vague nods in the direction of Vermont being liberal, and the movement being grassroots. And they mention that the hospitals aren’t happy with this. (Really?) But how did they neuter the hospitals here? How did they neuter the private insurers? Or did they? I’m worried that skipping this part of the story is an occupational hazard at Vox. They’re trying very hard to explain “just the facts”, and there are only so many words they can pack in. If we get to the level of What Is The World Wide Web? it’s going to take us a while to get up to “how did Vermont and Canada claim victory over the pre-existing health-industry power structure?” I’ll wait patiently, but that kind of depth seems a ways off.