Tuesday, September 06, 2005

The Moral Hazard Hazard

The voice in your head that orders you to do bad things is not necessarily a demon or a black dog. In many cases it turns out to be some theoretical conclusion you learned in school. Economists, for example, have internalized a notion of how markets are supposed to function that is far more attractive than mere empirical information. “Who you gonna believe? Conclusions that follow validly from convenient axioms or your lying eyes?” Back before the California energy crunch, proponents of deregulation made calculations from reasonable assumptions that putting up with occasional blackouts was worth it if it made the system more efficient overall. In the event, however, people just would not put up with unreliable service; and it turned out that the “reasonable assumptions” had only been reasonable on somebody’s blackboard. Politically, they were simply impossible. What’s going on with New Orleans is similar. The social Darwinists of the administration have been brought up short by the sudden revelation that the nation as a whole thinks of itself as a nation and doesn’t think that even poor blacks are disposable at 3/5ths a head. As a result, we’ve learned how fast even an incompetent government can act when confronted with a catastrophic public relation’s disaster.

Certain ideas mesmerize their thinkers. They are like drugs. For example, discussions of the state of America’s health system almost always get caught up on the issue of moral hazard, the terrifying prospect that adequate health care insurance would encourage people to go to the doctor too often. Such an eventuality is certainly possible since making anything cheaper is liable to increase demand, but the issue has got to be the reddest red herring of them all in a country where, on the evidence, the current incentives often discourage people from going to the doctor when they should and the largest single reason we pay more for health care is the expense of maintaining an enormous bureaucracy dedicated to keeping people from getting care. Whatever the notional cost of moral hazard, the real—and staggering—costs arise from the levees and dykes erected to hold it off. Meanwhile, the nations that have capitulated to universal care and succumbed to a terminal case of moral hazard have been penalized with better medicine at a much lower cost, a fact that, unfortunately, is no match for a fascinating idea.

Monday, September 05, 2005

The Law of Intended Consequences

It gives the play a lousy plot, but much of what happens is simply what somebody wanted. They may not like it when they get it, but that’s a separate issue. For example, I don’t doubt that many Republicans were momentarily unhappy to read that poverty had increased in every year of the Bush administration as it routinely does in Republican administrations; but that result, though unedifying, began life as an intention. One can imagine a universe in which destroying unions, eliminating public services, and promoting lower wages ironically results in general prosperity, but that’s an alternative reality. In our world, if the ruling party sets out to benefit its people at the expense of those people, it’s very likely to succeed.

Liberals and moderates like to argue about policies, but often what matters is not how the law reads but who administers it. One is reminded of the old and thankfully obsolete joke about the German daddy who complained that when he followed the directions on assembling his son’s bicycle, it always turned out to be a machine gun.

Sometimes it is a fallacy not to argue ad hominem.
A Hopeful Note

Maybe things really will get better in Iraq. The Bush administration is notorious for rewarding failure and ineptitude, but this policy is finally running up against its natural limit. In several cases there is simply no honor or office left to give to the incompetents so that people like Condi Rice may no longer motivated to invite fresh catastrophic terrorist attacks through their negligence or to promote another disastrous and illegal war by lying to the public. Unfortunately, the law of effect takes time to alter behavior; and sheer momentum may produce further calamities just as Katrina remained a destructive storm for a long time after it made landfall. Nevertheless, though the administration is still made up of people immune to the bad consequences of their own behavior, malfeasance is no longer a guarantee of further riches and higher offices so perhaps some of them will at last learn.