If people are so inept, then why would we think a democratic political process would result in them establishing a system that would work effectively?

Michael Schermer of Skeptic magazine appeared this weekend on BookTV, speaking before Cato in DC. One of his themes (which appeared to not be immediately absorbed by the audience, judging from the question session) was the "myth" of the Rational Actor, both in economics and politics.

> The Cato employees of the
> world -- Tyler is not one,
> incidentally -- simply have a
> much more optimistic take on
> the individual's mastery over
> his sphere.

What is the minimum salary for a Cato Fellow? $250,000?[1] Do they have a group health insurance plan? Or are they like the right-wing economics professors who fail to refuse tenure when it is offered?

Cranky

[1] Not the 22 y.o. interns who are probably pretty healthy in any case; the big dudes.

yes....a good day to put aside divisions and strife.

take a quiet walk and look at the sky and winter branches, read some of the magnificent poetry of langston hughes, and exuberantly prepare a warming and enjoyable dinner for tonight!

What about luck? What about being born with or developing some chronic disease, like Crohn's? Libertarians say: Sucks to be you.

If people are so inept, then why would we think a democratic political process would result in them establishing a system that would work effectively?

You might as well ask why, if the average guy on the street can't perform a tonsillectomy, why do you expect a doctor to be able to?

Screw-ups generally aren't random and chaotic. If I went to a restaurant that served meat past its sell-by date, it wouldn't be because I have a perverse desire for self-destruction, it would be because there are 15 restaurants in town and I don't have time to personally check on the kitchens of every one of them and I might not know what to look for anyway. If we make it someone's full-time job to inspect restaurants, though, it's much more likely to get done competently. Do you disagree?

> Namely, as I understand
> Tyler's worldview, he thinks
> individuals are a whole lot
> more rational and
> economically capable than I
> do. I think folks, in many
> circumstances, need a bit
> more help, and that, as
> beings fairly aware of our
> own irrationality, lapses in
> long-term attention, and
> assorted other deficits and
> shortcomings, we often
> smartly conclude that the whole is stronger
> and wiser than the one, and build communal
> institutions that sacrifice some autonomy but
> create structures better fitted to the messy
> and occasionally disappointing ways in
> which we actually engage the world.

There is also the entire question of whether human beings are perfectly moral and fair, or whether there is a subset of humans (some of whom might be highly intelligent and/or capable) who shade the rules, cheat, or outright steal when they have the chance. And how these millions of atomistic perfect consumers would deal with it when it happens to them.

Cranky

PS Can you widen up the comments box a bit?

I think the difference between libertarians and social democrats is their posture toward empirical evidence. Unlike Tyler Cowan and Cato, social democratic have actual evidence that universal, single payer healthcare works (e.g. cheaper, better healthcare in Europe).

On the other hand, Libertarians have *theories* about why the free market should work. The only real world examples of the small government paradise they love are the pre-modern era, the gilded age, or sub-Saharan Africa. If they want to win an argument, it's better for them to stick to theory!

The reason economists tend to hold this view is they've seen plenty of data where mass groups of people actually do act rationally.

You're saying people can't plan ahead of HSA's, so why is it they take out loans on cars and houses, and typically pay it all back? They actually choose to buy life insurance, homeowner's insurance, etc. These are all activities loaded with future predictions and foresight. While there are plenty of well-publicized failures, most of the above works very well for most people.

As an aside, I'm for universal care on the premise that it's a special case, as a practical matter you'll never get the politics and regulation out of it, and there will never be a Cato-esque solution that isn't deeply warped and flawed by politicians. I think a case can be made that the least bad solution is a France-like government-plus-private insurance system - or at least, it's worth a try.

> You're saying people can't
> plan ahead of HSA's, so why is
> it they take out loans on
> cars and houses, and typically
> pay it all back? They
> actually choose to buy life
> insurance, homeowner's
> insurance, etc.

Those are single, large scale transactions that are completed on one intense burst. Qualified assistance is either provided or required to be obtain (e.g. homeowners insurance is required for a mortgage and must be purchased through a licensed broker). These transactions do involve some forward planning but they are not repeated hundreds of times throughout a year under conditions where one mistake can lead to disaster.

In any case (a) it is not clear that buying a house using a 30 year mortgage is rational, esp before the age of 30 yet many people do it (b) pointing to the home mortgage market as an example of long-term rationality and good forward planning/risk assessment is a bit problematic right now.

Cranky

Re: insurance

I wouldn't be so quick to use this as an example of rationality in action. I am an attorney and my wife is a tenure-track academic (i.e., we're both well-educated and reasonably affluent), and for years, the only insurance we had was health (provided through work) and auto (required by law).

We only got homeowners insurance when it was required by our lender (we didn't have renters insurance before that), and I didn't buy life insurance until my daughter was born.

I think much of the libertarian worldview is the product of projection: Most of them are much more rational thinkers than average, and they make the cardinal mistake of assuming that everyone can be just as rational. This is wrong and is not a matter of opinion. I would even go so far to say that Tyler Cowen and Cato types and the people who read them are of above average intelligence and are much better at being "doctors, stockbrokers, bond traders, pension planners, and much else" than most of the rest of us. It is their failure to acknowledge that fact that is the undoing of libertarianism as a philosophy.

Ezra is a sharp guy and a rational thinker, and he too can play well the many roles demanded of him by the current world he lives in. But he acknowledges that not everyone can do as well as he, it informs his worldview, and on the whole makes him a more compassionate and realistic person.

I don't wish to say that most people are dumb nitwits and aren't capable of anything, but I do believe most people can't be good at most things because they simply lack the time or discipline or means to become competent at them, even important things like managing their finances. (Many adults can't even make change from round dollar amount, like $40. Forget exponential growth.) So I don't think I think too little of people. I do, however, think that a philosophy where people like Tyler Cowen basically say, "Why can't people think more like me?" is asking too much of people. Tyler is an outlierm, and the libertarians are living in a pipe dream.

In this debate, he is simply wrong and Ezra is right. Given the policy implications, this is actually a moral issue and speaks to the morality of Ezra and Tyler.

The rationality goes only so far. No matter how logical you are, there is no way to make decisions which will insulate you from the vagaries of the future. The uncertainty of the future events is the most significant part of the equation, and even though it is possible to maximize the expected benefit in the future at a given time, as the future unfolds your assumptions about the uncertainties may be prove to be catastrophically wrong and you may ultimately end up in New Jersey despite your most superior reasoning abilities.

It seems to me that catastrophic outcomes are a feature for the libertarian. The thinning of the herd concentrates the minds of those remaining so that they make better decisions. The Cato-ites are not really that optimistic about many of us. They figure some percentage of us will be obliterated and thus motivate some number of the rest of us who wouldn't have otherwise been saved. Cato-ites fancy they are in neither of those two groups.

You're saying people can't plan ahead of HSA's, so why is it they take out loans on cars and houses, and typically pay it all back? They actually choose to buy life insurance, homeowner's insurance, etc.

Actually, they buy car insurance and homeowner's insurance because they are forced to. All mortgage holders make homeowner's insurance a requirement for maintaining a loan. Just try and let your insurance lapse! A lot of the poor people in New Orleans owned houses that had been in the family for generations and had no homeowner's insurance since they owned the houses without mortgages. That's part of the NOLA reconstruction problem.

I'm afraid that this sort of argument concedes too much to the libertarian. We don't advocate resource redistribution to protect individuals from their faulty decision-making processes, we do so based on the overwhelming empirical evidence that it maximizes desirable outcomes.

I'm with Ezra, anytime anyone starts talking about 'rational actors', I immediately tune them out. There is no surer sign that someone knows absolutely nothing about human nature than their repetition of the 'rational actor' fallacy.

There is no surer sign that someone knows absolutely nothing about human nature than their repetition of the 'rational actor' fallacy.

Thank you.

Want to debunk any lingering rational actor fallacies in your own sphere? Have a few children. Hell, have one.

As PeaDub, I also think this argument is far too kind on the libertarians.

For me a central point is that in many cases rationality is not enough to achieve a good result. We also need coordination.

There are plenty of empirical examples of perfectly rational people achieving less than the optimal outcome (e.g. overfishing). There are also solidly (game) theoretical underpinnings of this (for instance the prisoner's dilemma).

The solution is of course for the actors to get together and coordinate and - if necessary - regulate and legislate their ways out of the problems. That is called government, and it is the rational way to solve problem. That is what libertarians just don't get.

The thing that bothers me is the error correction.
Hire a fraudulent contractor? Sue him. Buy a car that's a lemon. Fine.
Hire a shoddy corner-cutting private fire department? Rebuild six buildings and bring three children back from the dead with the insurance money.
Eliminate the FDA? After seventy people die, the damage suits will force the company out of business! Hooray! The system works!

the bad part of the market is fixed, and the system improves, but people are still dead and wounded. They're not wood shavings.

I would rather have a sytsem that prevented death and ruin for its people, even if it's a bit less efficient, rather than a system whose efficiency is achieved over broken bodies and ruined lives. I would rather have a system that doesn't kill you if you're gullible, or trusting, or dumb, or unlucky.

But that's just me.

Well said Steve C. I also would support a single payer that would attempt to reduce USA healthcare spending to the level of French healthcare spending. One thing that makes me fear supporting single payer in the USA is that many democrat posters here on this board continue to advocate for more spending on schools, schools that IMHO already are already over funded. IMO since government in the USA already spends more per capita than the French government does we should just demand that our corrupt politicians figure a way to extend coverage to everyone with increasing government spending. But will this lead to demands that spending increase because the poor do not live as long as the rich? Would it lead to demand that doctors and nurses be paid more as they do today with teachers? The left seems uninterested in saving money of the tax payer and to me that is the only likely benefit of single payer healthcare.

There are some who say sure people are stupid but in the long run society is smart. Thus norms are built up that enforce certain behavior. See some of research on not eating cows in India.

We don't advocate resource redistribution to protect individuals from their faulty decision-making processes, we do so based on the overwhelming empirical evidence that it maximizes desirable outcomes.

Tomayto, tomahto.

Economics is fundamentally fraudulent. Just because they give out a FAKE Nobel Prize doesn't mean it's a legitimate science.

Economics purports to scientifically investigate something that is a human creation, not a natural phenomenon. Economists rely on assumptions about human psychology but they are not psychologists. There are normative concepts intractably intermingled with supposedly descriptive theories. It's just a gigantic mess.

"What about luck? What about being born with or developing some chronic disease, like Crohn's? Libertarians say: Sucks to be you."

Amen to that! My mother-in-law believes in the major food groups: nicotine, caffeine, sugar and fat. She's going strong at 81. I haven't been able to sit cross-legged on the floor in 20 years--osteoarthritis of the hip runs in my family. All my healthy eating, healthy living, yoga, etc. etc. has not done much for me in the health sweepstakes. I suppose libertarians would have made sure that no one in my family reproduced, thus weeding out duds like me.

If you want to fix health care, get baby boomers to exercise two hours a day. I imagine such a program would bring health costs in line with the economy.

Matt from what I have read that would extend life and end up costing us more (heart attacks are cheaper than cancer).

Matt,

That would require some personal responsibility on the part of individuals. The liberal left would never go for that.

I wouldn't be so quick to use this as an example of rationality in action. I am an attorney and my wife is a tenure-track academic (i.e., we're both well-educated and reasonably affluent), and for years, the only insurance we had was health (provided through work) and auto (required by law).

We only got homeowners insurance when it was required by our lender (we didn't have renters insurance before that), and I didn't buy life insurance until my daughter was born.

Sounds rational to me. Insurance is a near-guaranteed loss, unless you're the insurance company. The kind of pure rationalists naive economists like to theorize about would never get it because its expected value is *always* negative.

The prosperity of insurance companies is a testament to human irrationality (and government subsidies and mandates).

You have far more patience for the libertarian mind set that I do.

The problem is not that we are not rational. The problem is that hard work and judgment are no guarantee of good outcomes. For instance start a business: things that can go wrong include corruption and wealthy interest. Even the best researched business plan just sometimes doesn't work. Work for salary: downsizing, layoffs and sometimes capricious management. Health outcomes can be influenced in a positive direction by proper diet and exercise but that is certainly no guarantee.

Picture the typical middle class person facing these possibilities. How does he balance a reasonable living standard and providing for himself and his family versus saving against future risk. Potentially he could live in effective poverty and still not have enough when the disaster hits. Better he pays a few more dollars in taxes for which the government provides a safety net.

"maximizes desirable outcomes."

This is preposterous. According to whom? I wasn't aware that there is a defined set of universally agreed upon desirable outcomes. I don't know whether to charge you with conceit or ignorance. Either way, it isn't pretty.

""What about luck? What about being born with or developing some chronic disease, like Crohn's? Libertarians say: Sucks to be you.""

Seriously, try thinking about this for just a couple of minutes. Pose this as a problem to yourself: if insurance wasn't mandated, how would I protect myself against this risk? How would I protect my unborn child against such a risk?

I would rather have a sytsem that prevented death and ruin for its people...

No 'system' does that, nor can it!

most of us know that we're not nearly as assiduous as we should be about saving for retirement and putting money in our health savings accounts, we're wise to understand that we do a poor job planning for risk, and so should preemptively enter into agreements that radically reduce the level of insecurity in our lives.

By all means, feel free to do so. Enter into all the agreements you like. Which part of this was supposed to constitute an argument for compulsory nationalized health-care for everybody, though?

A comment from Kevin Drum's post on this debate:

Are people mostly responsible for their own fate or are they mostly products of their environment?

This is the wrong question, and it's the wrong kind of question. The question is, are we all in this together, or not? Not "Am I my brother's keeper" but "do I have any empathy?"

Conservatives, on balance, do not. Liberals, more so.

Posted by: craigie on January 21, 2008 at 12:44 PM

One thing that hasn't been mentioned enough on this thread is that insurance is a necessary part of the infrastructure of entrepreneurial capitalism, because without it individual risks would be too crushing for anyone to try out anything new. Insurance plays a role similar to the protection afforded by limited liability. Without shipping insurance, trade with the Far East and the Americas would never have gone anywhere. Currently, the lack of portability of insurance is a significant drag on labor mobility in the American market: people will turn down jobs which pay better, and where their labor would thus be more productive, because they can't take their insurance coverage with them. That's just one of the harms universal insurance would remediate.

"That's just one of the harms universal insurance would remediate."

Is that the ONLY way to fix the portability problem? We could fix the portability problem by mandating everyone stay in one job for life too, but that's not much of a solution either.

do I have any empathy?

Some empathy. Liberals want to express their empathy with other people's money. Your so-called kindness is killing me.

people will turn down jobs which pay better, and where their labor would thus be more productive, because they can't take their insurance coverage with them.

Huh? If job 2 "pays better" then job 1, a job that already has a health plan, I assume job 2 or enough extra salary to buy one's own health plan.

Or if by "pay better" you just mean "has a higher nominal salary", and job 1 is actually better compensated when health care is taken into account, then job 2 doesn't actually pay better does it?

(should have read "job 2 has a health plan or..."

Uh...if by "fix" you mean "exacerbate". The particular problem I was noting was that productivity is held back because people fail to take higher-paying, i.e. more productive, jobs if they will lose their insurance by switching. Forcing everyone to stay in the same job obviously just makes this worse.

Decoupling insurance from the workplace can be accomplished in several ways. One would be eliminating the employer health tax break. This would blow up premiums for almost everyone. Another would be Hillarycare '94: create insurance purchasing alliances. There was actually nothing wrong with this plan, but it's no longer on the table. Another okay solution is to force all large employers to provide adequate insurance and have a state-funded subsidized plan for small employers and individuals. That's Clinton, Edwards and Obama (and the Netherlands and various other Euro countries). A final solution is single-payer, either with private insurers behind the payment authority (France) or without (Canada).

And that's it.

Huh? If job 2 "pays better" then job 1, a job that already has a health plan, I assume job 2 or enough extra salary to buy one's own health plan. - xmath

You assume wrong. If job 1 is with a firm that has 20,000 employees, they may have an excellent low-cost health plan. If job 2 is with a firm that has 30 employees, their health plan probably costs more and is worse, because insurers offers worse deals to smaller groups, for obvious reasons. Unless you believe that large firms are intrinsically more efficient than small ones, then the savings on insurance granted to large firms is an artifact not related to their productivity.

Brooksfoe -

My suggestion to force everyone to keep the same job was facetious.

"That's it"

Here are some alternatives you don't seem to have thought of: (1) eliminate the employer tax break but transfer it to individuals. (2) End state coverage mandates (which are a huge reason insurance can cost so much from state to state). The insurance I carry for myself and child is inexpensive and designed to kick in for rare, catastrophic events.

brooksfoe,

Look. Seems to me a person who tells me he turned down higher-salaried job 2 because he deemed its health insurance *that much* worse than job 1's is telling me, in effect, nothing more and nothing less than that job 2 is NOT BETTER compensated than job 1. The big problem you think exists just self-negates every time I try to think about it. I literally don't know what you mean by a job 2 that is better compensated than job 1 yet which large numbers of people would turn down because they value job 1's health plan much more than job 2's, unless of course you're conflating salary with compensation, as I suspect.

Thank goodness there are so many caring people who understand that we need to be protected from our silly, irrational selves. And, thank goodness that we have an honest-to-goodness democratic government that takes that concern & turns it into a caring & well-thought-out solution.

Just think, if not for the new energy bill, we wouldn't be using nearly as much ethanol as what is good for us. Or, worse yet, we'd be using that nasty stuff they make in Brazil. Or, take Social Security. For only 12% of my income, I can rest assured that I will receive a healthy return on my savings, and the program will only use the best accounting & reporting procedures, and I can rest easy knowing that the rules won't change on me, or that my contributions or distributions won't be changed arbitrarily. And, thank goodness that we have those reasonable minds in Washington to use our money to build just the right roads in just the right places, because as states & towns, we are just so silly that we can't figure out where we would want to drive if they didn't help us out. Gosh, the successes are so numerous, I can't even begin to count them all. Just think "President Bush" & the mind boggles with examples of much needed competency.

I'm astonished that someone as bright as you Ezra would even begin to take a "libertarian" seriously. Really, there are no sillier people in the universe. Anyone who is still a libertarian past the age of 15 knows virtually nothing of the world.

And the notion that you have lots in common with them -- doubtful.

xmath: if you insist on not reading what I write, then, yes, you will fail to understand what I'm saying. First of all, large companies get much cheaper insurance for their employees than small companies or individuals. This has nothing to do with how well you're being paid; it has to do with the fact that the company you're working for can get a better deal on a commodity it will compensate you with. This is similar to the old Soviet deal in which people with engineering Ph.D.'s preferred working in meat factories to working in aircraft design bureaus because in a meat factory you had access to meat. It's a model of inefficiency.

Secondly, individuals with anything an insurance company considers a "pre-existing condition", a constantly expanding list of which you probably have several you didn't even know about, can be flat-out turned down for insurance when they move to their new employer. They will thus lose their employer-provided coverage and have to try to insure themselves privately; again, if they have a prior condition they will either be rejected flat-out or charged exorbitant rates. Exorbitant rates. I have no idea what David Andersen considers "inexpensive", but my freelancer friends in the US are spending fantastic sums, in one case $20,000 a year for self and child for the cheapest plan that would give her access to a wide range of hospitals when she delivers her second child. In other words, where Harper & Row could pay her $50,000 a year and put her on the company's $5000 a year insurance plan, a small firm like Verso would have to pay her $75,000 a year (before taxes) so she could buy an equivalent insurance plan for $20,000.

If you still don't understand this, you are either functionally illiterate or an insurance company employee.

I understand the large/small company thing fine, it's just that it doesn't matter to what I was saying. If I'm at a large co. with a cheap/good ins. plan, and SmallCo has a bad ins. plan (or whatever!), then either their salary offer will be higher enough to attract me away, all things considered, or it will not. Health insurance, when offered, is part of compensation.

To apply to your friend's case: what you are saying is precisely that the Verso job would be better compensated than the Harper job if and only if it paid more than 75k. If she did get an offer for 76k, would she not take it, and why not? From your example numbers, she could buy her own health care for 20k and the remaining take-home would be better than at Harper's. What's this weird limbo I'm supposed to worry about where Verso supposedly "pays better" but she turns it down because of the health care? Again: If they offer 75k or more, they're paying better, and she can buy her own health care, and she'd take the job. If they don't, they're NOT, and she wouldn't, rightly.

There's no such thing as job 2's compensation being simultaneously higher (pays better) and lower (she turns it down because when you take health insurance into account, job 1 is a better deal.)

The pre-existing condition problem is more what I expected to hear, and surely there are ways to address the problem short of compulsory nationalized health care. Thanks,

Brooksfoe,

Your 'facts' about the state of the costs of health insurance at various sized firms are not born of broad enough experience because everything you've stated has not been my experience in the numerous small and large firms I've worked. I can elaborate if interested.

I am now a freelancer and I pay $120 a month for coverage for myself and daughter. We have an annual family deductible of $5200. This is insurance as it's intended - covering catastrophic risk only, not every visit to the clinic. BTW, I put $5000 a year into an HSA.

I'm not surprised that some of your US friends pay that much. They might very well be unfortunate enough to live in a state (like New Jersey) that forces minimum coverages which naturally increase the premium costs. Not so in my state (Iowa), thus the reasonable premiums.

I suggest you inform yourself far better before being so dismissive.

I understand the large/small company thing fine, it's just that it doesn't matter to what I was saying. If I'm at a large co. with a cheap/good ins. plan, and SmallCo has a bad ins. plan (or whatever!), then either their salary offer will be higher enough to attract me away, all things considered, or it will not. Health insurance, when offered, is part of compensation.

The particular point in this case is that health insurance becomes a cost issue for firms that has nothing to do with their underlying business and forces them to offer higher compensation to their employees than a comparable firm would. In some cases this is because a larger firm gets a better deal on health insurance. In other cases it's because a firm has an older base of employees, and thus is charged higher rates by insurers. What will happen in practice is that Verso will offer not $76,000 but $60,000, and the friend won't take the job, even though her job at Verso (presuming the company knows its business) would be generating at least $60,000 in economic activity where her job at Harper's only generates $50,000. That's because the insurance company is charging Verso so much more than Harper's, because of its assessment of risk and its assessment of its bargaining power vis-a-vis smaller pools. Hence creating suckitude for everyone.

At least among the libertarians I know, most take a dim view of human rationality amongst the general population.

And I certainly believe it's true that people make wasteful, irrational, and shortsighted decisions.

But at least if decisions are left up to the individual, and if individuals enjoys both the benefits and pay the costs of their choices, individuals have a strong incentive to make sure they make the best choice they can.

Socialist schemes, on the other hand, diffuse responsibility, costs, and benefits over a wide population. If humans are irrational and wasteful with their own money, just imagine how they spend other people's money.

Moreover, an individual's bad decisions primarily only affect them. The decisions of the irrational rabble affect everyone -- there is no escape.

Therefore, that many people are shortsighted and irrational seems to be an argument against giving them power over me.

In a nutshell, libertarians are smarter than everyone else. And healthier too I guess.

Like I said -- fifteen year olds.

Sir Charles,

The only one here who has demonstrated his penchant for sophomoric behavior is you.

Actually, considering you couldn't get a pretty simple economic model above, and now are reduced to attacking that says a lot David.

What are you talking about akaison? Maybe you should read prior comments (esp. Sir Charles) before writing. As for getting 'a simple economic model' I have no idea to what you are referring. I can see the standards of debate are high here.

Sir Charles, it's not that we libertarians think we're so smart, it's that we don't think that you are any smarter. So we're reluctant to "sacrifice our autonomy" to officials elected by you.

It's curious that so many Democrats, having endured 6+ years of the Bush administration, have such great confidence in the ability of the irrational masses to elect wise and righteous leaders.

Brooksfoe – it only solves the problem if insurance stays cheap. One logical explanation for why the new job pays more is it doesn’t offer as good of insurance. If you implement UHC and everyone’s cost of insurance skyrockets not only have you wiped out those high paying jobs you also ruined the lower paying job with good benefits. HIPAA already provides for portability as long as the new job offers insurance. Either their offering no insurance or it’s not as good, the problem is never portability when it comes to employer sponsored benefits in the situation you described.

Our current employer based system would accomplish every thing we need if the Democrats would let Association Health Plans for small employers pass. They have blocked it for 10 years to protect Unions. Lay off the mandates to keep cost from skyrocketing and tell Congress to stop forcing people into HMOs and problem solved.

Will Liberals and Progressives pushing for eliminating employer based coverage please take two seconds to compare the distribution cost of selling insurance to 5 million employers versus selling it to 100 million families. I know you like to over look this fact but selling one policy to an employer with 20,000 employees is far cheaper then selling policies to 20,000 families one at a time.

If Big Bad insurance company denies your claim and you are an individual good luck fighting them. Go to the HR department of your 20K employer and see how much faster it gets resolved. Free Markets work better when the buyer and seller are of an equal stature.

Brooksfoe your lack of knowledge in insurance is getting worse with each post. If you enroll with your new employer within 30 days of your effective date you can not be turned down in most states. Not to mention those large employers you claim have the best rates write their policies so you are not turned down. Just to pile on a tad bit more, please read up on HIPAA, federal law strictly states if you don’t have a gap in coverage over 63 days they CAN NOT apply any pre existing limitations to you. Just because your getting testy with other people questioning their knowledge you need smacked down even further. Most Liberal leaning states have already passed small group reform. In those states any employer with less then 50 employees can purchase policies which are community rated or written with very narrow underwriting discretion. Even further prove you have no idea what you are talking about most major cities of chamber of commerce who sponsor guarantee issue plans with set rates.

The particular point in this case is that health insurance becomes a cost issue for firms that has nothing to do with their underlying business and forces them to offer higher compensation to their employees than a comparable firm would.

That's a fair point about government policy having a disparate impact on large v small firms etc., essentially throwing up a barrier to entry for smaller firms thus protection for larger firms. Sounds like a decent argument for decoupling health insurance from employment (why should they be connected at all?) and eliminating the tax incentive to offer part of employee compensation in the form of health insurance, so at least there'd be a level playing field for firms that couldn't 'get good deals' from health insurance companies.

Don't see what that has to do with an argument for nationalizing health care so much.

What will happen in practice is that Verso will offer not $76,000 but $60,000, and the friend won't take the job,

Right. And my point was, in such a case - the case you worry about - Verso isn't "paying more" in the first place, when you take all compensation into account. Making your hypothetical self-negate. Reread my first comment to you. best,

I can cope with the 'rational actor' theory as long as you define actor in the theatrical sense.

Sir Charles, it's not that we libertarians think we're so smart, it's that we don't think that you are any smarter. So we're reluctant to "sacrifice our autonomy" to officials elected by you.

No, it's that you believe that you had any "autonomy" to sacrifice in the first place.

I find it hilarious that libertarians first pretend they know something about economics. Then when they are proven wrong with reams of empirical, real world studies, by hard nosed neoliberal economists, that show how adverse selection, moral hazards, public goods, marginal social costs, and so forth, actually work, they turn to the moral argument: "but its my money, and people choose to be fat!"

But I'm being generous. Most libertarians haven't even heard of these economic terms, or taken a course in basic economics. They just don't like taxes, or are misanthropes.

Libertarianism: proven wrong by *facts.*

The irationality runs the other way we are in general over insured. Also in general we over consume healthcare. One should only insure against large disasters. Further the young should be insured against expensive health problems the old should rely on savings, family and friends.

I meant to include risk pooling, and net social benefit, externalities, and cost-benefit as concepts that libertarians don't understand.

GFW, I find it hilarious that you pretend to know something about libertarians. In general, I also find brazen, hyperbolic comments like yours hilarious. You are a laugh a minute.

"No, it's that you believe that you had any "autonomy" to sacrifice in the first place."

Wow. Do you think before writing?

I try to spend as little time as possible considering arguments that can be reduced to a three-year-old's protestations of: "But it's MY money. MINE, MINE, MINE, MINE. NO FAIR."

"I try to spend as little time as possible considering..."

That I believe.

David,

Prove me wrong, why dontcha?

The burden is not on me to prove to you that you don't know much about libertarians. It's obvious to me and I could care less that you choose to wallow in ignorance.

Even when you are stronger and more rational--alone or as part of a group--please try not to enforce the obedience of those of us who are weaker and and less rational.

Please do try to educate and persuade us. However, if your peaceful methods fail then please try to tolerate our "messy and occasionally disappointing" irrational beliefs, words and actions. We are defined by both our successes and our failures; sometimes we even learn more from our failures. Our "deficits and shortcomings" are inseparable parts of our humanity.

This libertarian ideal of peaceful toleration does not require any assumptions about how rational or economically capable either of us is. Instead, it only requires that we try to limit our use of force to defense aggression.

Of course the world is a complicated place, so ideals like this are not always easy to apply. Think of it as being the "north" on a political compass. You may need to adapt your path to the terrain of the real world, but you can still try to go generally in the right direction.

Fantastic answer, David.

Everyone should pay attention! This has happened in uncountable threads before, but people often forget:

Mention something economics-related, like, say, the tragedy of the commons, and all you'll get from a libertarian is a blank stare, like a cow's.

Yeah GFW, you showed me. Because I don't want to spend the time discussing basic econ with you to prove I'm worthy and that you're a fool, I must know nothing.

As I recall, you're the one who painted with a broad brush claiming libertarians know nothing about econ. Any nitwit with a browser and a search engine can quickly prove that asinine assertion wrong, so my conclusion is that you're not worth the time; you're hopelessly and willfully ignorant.

There are plenty of empirical examples of perfectly rational people achieving less than the optimal outcome (e.g. overfishing). There are also solidly (game) theoretical underpinnings of this (for instance the prisoner's dilemma).

The solution is of course for the actors to get together and coordinate and - if necessary - regulate and legislate their ways out of the problems. That is called government, and it is the rational way to solve problem. That is what libertarians just don't get.

This is one of many examples of misinterpretation of libertarian ideals. Libertarians are not for *no* government; they are for less of it, especially the counterproductive parts. I have been a centrist-libertarian for a long time, but I never advocated abolishing government. I think libertarianism is really just politics better informed by economics. It's old-style republicanism minus the religious zealotry.

The example of the tragedy of the commons you give is a good one; of course some sort of coordination is necessary to prevent that kind of failure. However the mainstream reaction (e.g. for overfishing) to that is to set a fishing quota, or even ban it altogether. I think this is at best an imperfect solution, at worst, not a solution at all. Chances are the quota is either too low or too high, simply because there is way too much information that must be processed for a committee to be able to arrive at the correct amount. A better solution, I think, would be to auction of private licensing rights to a single, separate company for each species of fish. That company may sell as many or as few licenses to fish that species as it wants. The company then has the proper incentives to find the right number of fish to allow to be caught that maintains the population and maximizes the long-term number of fish caught. They might even spend some money on defending those fish from other threats, such as pollution.

Different problems have different solutions. For CO2 pollution I personally like cap-and-trade, although I think a better system would allow private companies to trade carbon-emission and carbon-absorption credits. Over time, the numbers of each issued (presumably by the government) would become equal. By absorbing 10 tons of carbon per year (by planting trees, for example) one could receive as much cash as another entity pays to emit 10 tons of carbon. Obviously individual owners of vehicles wouldn't want to have to deal with buying such credits; but it could be charged to refineries, since the assumption is that 99.9% of gasoline will be burned and emitted. The price would be passed on. This way, companies that really must emit, for whatever reason or another, could still operate. They would merely have to pay someone else the fair market price to clean it up.

This is my first post to this blog; I'm a regular reader of marginal revolution and find it to be quite educational. I'm going to come back here and take a look once in a while, since I find intelligent discourse from the opposite viewpoint refreshing and illuminating as well.

Libertarians are not for *no* government; they are for less of it, especially the counterproductive parts. I have been a centrist-libertarian for a long time, but I never advocated abolishing government. I think libertarianism is really just politics better informed by economics.

I don't think anyone is FOR counterproductive government. I am certainly not. But I probably have a very different concept of, at what point government becomes counter productive. I have had plenty of debates with libertarians thinking that a government doing pretty much anything beyond enforcing contracts and providing a minimum of physical security is "counter productive". Such people would have me believe that negative externalities do not exist, only insufficient property rights. This is obviously ridiculous, and perhaps you are more moderate than that.

However, your solution to the problem of overfishing seems to me a silly exercise in going to the most extreme lengths to solve problems in a way that is not "government", but without gaining any actual benefit from it.

The first problem is that you would still require government to be the prime mover, i.e. deny the fishing rights of current fishers and instead auction the license. That is not LESS government involvement, it is just DIFFERENT government involvement. In some ways it is much more excessive government because it potentially takes away the livelihood of many people unless they can afford to bid for the license (presumably there is no guarantee the winner of the license will ask these people to do the fishing).I think many fishermen wouldn't like the idea of having to purchase a license for what was previously free.

Secondly - and more seriously - your solution does not solve the alleged problem of too much information to be solved. Instead you simply move the problem of processing this information from a government committee to the board room of a private company. The complexity of the calculations remains exactly the same, and ultimately it will still be human beings which have to crunch the numbers and mistakes may happen.

Thirdly, there is a potential problem of perverse incentives. Unless the license is for ALL time (which would be an absurdly scary prospect) it will have to expire at some point. When the license period is coming to an end the company owning the license will be facing a pretty dramatic incentive to massively over-fish to achieve the maximum profit possible. After all, why try to preserve the population if there is competition for the new license and no guarantee your company will win it again?

Besides, you will probably still need government to enforce whatever standards this company sets. So what was the point to begin with?

Ezra,

Yes, ordinary people frequently behave differently from rational actor type economic models.

Does this imply that anyone may use coercion, or only people in governments? If the latter, why are people in governments a special case?