Coyote Blog

I can think of at least two ways goods are allocated when there are no prices

• By use of force.  In modern societies, use of force is generally limited to the government so in practice this means that goods without prices will tend to flow to those with government power or who are cronies of those in power.  A great example were the special stores in the Soviet Union for party officials, but examples great and small abound today.  Here is one small one.
• By queuing or time spent searching.  The examples of this are all around us, though they frequently are not strictly of things without prices but of things that have been priced far below their market clearing price.  I think back to my days queuing in physical lines (long before Ticketmaster and the Internet) for concert tickets that were not free but were priced so far below market clearing prices that one had to wait in long lines to get them.  The gasoline lines of the 1970's and the time spent driving around looking for a gas station that had gas is another example.  A more recent example would be long hospital emergency room lines created by people who get care "free" at emergency rooms.

It was in this context that I read this article on finding parking in New York City.  Residential street parking in NYC is an extremely valuable resource for which there is no monetary charge.  So there is a lot more demand than supply.  So people spend scores of hours a year searching and queuing for spaces.

To some extent, this time cost is sort of like a money cost -- when the cost gets too high in relation to the value people assign to having a car, people give up their cars and bring supply and demand in balance.  But while people may vary in the amount they value having a car, one perverse aspect of any queuing system is that it will tend to allocate goods to the people with the lowest marginal value for their time.   The lower the marginal value one assigns to one's time and labor, the more hours one might be willing to queue and search.

This is a large reason why I have always thought price controls during emergencies - e.g. the "no price gouging during hurricanes" sorts of laws - are particularly destructive.  In the aftermath of a disaster like a hurricane there will be those who are mainly just sitting at home waiting things out, wondering how many days they will get off work and school; and there will be those who have a ton to do - roof repairers, tree cutters, etc.  Think about gasoline, where there is often a temporary supply shortfall after a hurricane.  Prices should rise to bring things in balance but laws do not allow this, so queuing results.  Who is most able to afford to sit in these queues - the person who is just sitting around waiting for things to reopen or the person who is totally bombarded with work and needs to be 23 places at once?  Do we really want roof repairers sitting 2 hours in line for gas behind three teenagers** who had nothing else to do so their parents sent them to top of the tank "just in case"?

** Growing up in Houston through several hurricanes, I have been this teenager and assigned exactly this task.

Well, it turns out that the laws of supply and demand do indeed apply in the health care field.  Obamacare and before it Romneycare combine government subsidies of demand with cost controls mainly consisting of price caps on suppliers.  The results are exactly what any college student could predict after even one week of microeconomics 101:  shortages.

First, from the WSJ

A new survey released yesterday by the Massachusetts Medical Society reveals that fewer than half of the state's primary care practices are accepting new patients, down from 70% in 2007, before former Governor Mitt Romney's health-care plan came online. The average wait time for a routine checkup with an internist is 48 days. It takes 43 days to secure an appointment with a gastroenterologist for chronic heartburn, up from 36 last year, and 41 days to see an OB/GYN, up from 34 last year....

Massachusetts health regulators also estimate that emergency room visits jumped 9% between 2004 and 2008, in part due to the lack of routine access to providers. The Romney-Obama theory was that if everyone is insured by the government, costs would fall by squeezing out uncompensated care. Yet emergency medicine accounts for only 2% of all national health spending.

The emergency room data is fascinating, as crowded emergency rooms supposedly overwhelmed by the uninsured was such an important image in the campaign to pass Obamacare.  More on this from Q&O:

Hospital emergency rooms, the theory goes, get overcrowded because people without health insurance have no place else to go.

But that’s not the view of the doctors who staff those emergency departments.
The real problem, according to a new survey from the American College of Emergency Physicians,isn’t caused by people who don’t have insurance — it’s caused by people who do, but still can’t find a doctor to treat them.

A full 97 percent of ER doctors who responded to the ACEP survey said they treated patients "daily" who have Medicaid (the federal-state health plan for the low-income), but who can’t find a doctors who will accept their insurance…."The results are significant," said ACEP President Sandra Schneider in prepared comments. "They confirm what we are witnessing in Massachusetts — that visits to emergency rooms are going to increase across the country, despite the advent of health care reform, and that health insurance coverage does not guarantee access to medical care."

As I have been saying for a long time, the Obama health care nuts do not have any secret, magical idea or plan for cutting health care costs.  In fact, as I have written here and here, we should expect Federalization to exacerbate the bad information and incentives that make health care more expensive.  The only idea they have, in fact, is the only one that anyone ever has in government for this kind of thing -- price controls

Over the weekend, The Washington Postpublished a Q&A-style explainer on the Independent Payment Advisory Board—the panel of federal health care technocrats charged with keeping down spending growth on Medicare.

The details are complicated, but the gist is simple: If spending on Medicare is projected to grow beyond certain yearly targets, then it’s IPAB to the rescue: The 15-member panel appointed by the president has to come up with a package of cuts that will hold Medicare’s growth in check. If Congress want to override that package, it only has two options: Vote to pass a different but equally large package of cuts or kill the package entirely with a three-fifths supermajority in the Senate.

The Post lays out the basic framework above. But what it doesn’t explain in any detail is exactly how those cuts will be achieved. And that, of course, is where the difficulty begins: Here’s how The Wall Street Journal’s editorial board explained it last month: “Since the board is not allowed by law to restrict treatments, ask seniors to pay more, or raise taxes or the retirement age, it can mean only one thing: arbitrarily paying less for the services seniors receive, via fiat pricing.” Medicare already centrally sets the prices it pays for the services of doctors and hospitals. Given the board's limitations, the most likely cuts we’ll see from IPAB, then, will be arbitrary, quality-blind reductions in these payments (though hospitals will be exempt from cuts for the first couple years).

We know what happens next: Providers stop taking on new Medicare patients, or drop out of the system entirely. In Medicaid, which pays far lower rates than Medicare (which pays somewhat lower rates than private insurance), this is already common: As one emergency physician recently told The New York Times, “Having a Medicaid card in no way assures access to care.” If IPAB cuts Medicare provider payments down to the bone, it could end up transforming Medicare into a seniors’-version of Medicaid.

For the last three weeks, I have been writing about the information, incentive, and rent-seeking issues that will doom Obamacare -- for example, how its impossible for a centralized board to set prices, and why a complete end to individual shopping will doom us to both rising prices and increasing frivolous demand.

I really didn't have to bother, though, because it is unnecessary to hypothesize -- we can just look at Massachusetts, which embarked on a proto-Obamacare several years ago.  John Calfee has a great column in the WSJ today.  Some excerpts

• On costs

Massachusetts reformers deferred cost control to the vague prospect of a "Round 2" of reform—much as congressional Democrats did a year ago when they passed ObamaCare. Meanwhile, economists John Cogan, Glenn Hubbard and Daniel Kessler reported in the Forum for Health Economics & Policy (2010) that insurance premiums for individuals (alone or in employer-sponsored group plans) increased 6% to 7% beyond what they would have without the reform. For small employers, the increases are about 14% beyond those in the rest of the nation. Four years after reform, Massachusetts still has the highest insurance premiums in the nation, and the gap is getting wider.

In 2010, insurance firms announced premium increases of 10% to 30% in the individual and small-group market. Gov. Patrick, on the verge of a tough re-election race, had the state insurance commissioner deny the higher rates.

• On frivolous demand

But the number of emergency room visits, which everyone expected to drop once people had to purchase insurance, is still going up. Surveys show roughly half the visits are unnecessary. Surveys also indicate that finding a primary care physician is becoming more difficult.

• On the end game of a centralized price-control regime

Last month Round 2 arrived. Gov. Patrick introduced a bill that will impose de facto price controls on everyone from solo primary care doctors to prestigious academic hospital systems. An 18-member board will decide how and how much providers should be paid, and the bill gives regulators the power to force private insurers to accept these fiats. Some 30 states experimented with such rate-setting in the 1970s and '80s. Except for Maryland, all of them—including Massachusetts—deregulated in the 1990s because costs rose even as quality and choice declined

• On politicization of decision-making

Insurance firms protested that they increased premiums because they had to deal with entrenched providers, especially hospitals, most notably the academic giants of Boston and Cambridge. Then the state prepared to introduce highly intrusive price controls over those providers—only to discover that this would provoke formidable political opposition while encountering myriad practical difficulties

To the last point, what happens to prices when providers know that a) consumers aren't shopping any more; b) consumers will take the service at any price, because they aren't paying; and c) insurance companies have to pay the bill, not matter how high, based on government rules.  Of course prices go up, because the entire price-discovery mechanism has been eliminated by government fiat.  Then the government has to step in with a doomed-to-failure price-setting plan.  In the end, those with political connections get the prices they want, and those who do not get throttled to make up the difference.

The next great danger to western civilization is ... wood burning fireplaces.

“The smoke from a fire smells very nice,” said Diane Bailey, a senior scientist with the Natural Resources Defense Council in San Francisco. “But it can cause a lot of harm.” The tiny particles, she said, “can cause inflammation and illness, and can cross into the bloodstream, triggering heart attacks” as well as worsening other conditions....

Not surprisingly, the green community has been sounding the alarm for some time. For the last several years,TheDailyGreen.com, an online magazine, has advocated replacing all wood-burning fireplaces with electric ones; an article published in September by Shireen Qudosi, entitled “Breathe Easier With a Cleaner Fireplace,” argued that there is no such thing as an environmentally responsible fire: “Switching out one type of wood for another is still use of a natural resource that otherwise could have been spared,” Ms. Qudosi wrote. And last fall, an article on the Web site GreenBlizzard.com, “Cozy Winter Fires — Carbon Impact,” called wood-burning fires “a direct pollutant to you, your family and your community.”...

Karen Soucy, an associate publisher at a nonprofit environmental magazine, isn’t swayed by that argument. She refuses to enter a home where wood has been burned, even infrequently.

Ms. Soucy, 46, blames fumes from a wood fire for sending her to the emergency room 25 years ago with a severe asthma attack. She had been staying at a friend’s house in Stowe, Vt., for about a day, she said, when her lungs seized up. She was taken to a hospital in an ambulance, and got two shots of adrenalin; the doctors blamed her friend’s cat.

“It was only later, working with a team of allergy doctors and pulmonologists, did we determine the culprit to be the wood-burning fumes from the various fireplaces,” Ms. Soucy said.

Now her husband scouts out any place they go in advance, to be sure it’s free of fireplaces, and she passes up countless dinners and parties. “I’m the one who feels guilty for always being the one to decline invitations or for making people go out of their way to clean their home,” she said. Even then, she added, “the smell lingers on everything.”

Absolutely, if you are worried about CO2 emissions, make sure you use an electric heater (some of the most inefficient sources of heat on the planet) powered by a big honking coal plant.  Because after all, in you hadn't burned that tree, it would have just fallen over and decomposed into ..uh.. Co2.  Which is why I personally advocate shrink-wrapping all Christmas trees after use and burying them deep, rather than mulching them as most cities do, to save the planet.

We often hear that one of the reasons health care "reform" is necesary in the US is because the uninsured overwhelm emergency rooms.  We hear horror stories of overcrowded emergency rooms with long wait times, which would only be better if we had a national health care system like Canada.

A couple of interesting facts:

Average US emergency room wait time:  4.05 hours

Average Canada emergency room wait time:  8.9 to 23 hours

I confess the numbers are not apples-apples, but they are certainly in the ballpark and highly illustrative.   Have any commenters seen a direct comparison?

Update: OK, the numbers are more apples-apples than I thought.  The US 4 hour number is total time from coming in the door to leaving or getting a bed, the same as the Canadian numbers.  The CNN report linked above got their data from here.

Despite seeing all kinds of major problems in tort law today, I have never been a huge proponent of many tort law reforms (though I support loser pays).  I don't see why my ability to pursue legitimate damages in court should be curtailed.  What all these tort law reforms never get at is this:

A Glendale jury on Friday cleared an emergency room doctor of
negligence and liability in John Ritter's death, holding he did
everything he could to save the comic actor. ... Jurors, who voted 9 to
3 against liability for Lee and Lotysch, said they were torn between
sympathy for Ritter's wife and children and their conviction that the
doctors were blameless.

The fact that the jury is at all conflicted on this point represents a huge miscarriage of justice, but this goes on every day in court.  In fact, if the doctors had worked for Exxon, you can bet Exxon would have been paying despite being blameless.

What patients (and juries) really seam to want is bad outcomes insurance rather than malpractice insurance.  This is in part born out by the fact that researchers can usually find little statistical relationship between truly bad doctors and the size of court malpractice payouts.  Maybe the answer to malpractice insurance is to convert it to a workers-comp-like no-fault insurance systems that pays off on bad/unexpected outcomes following a fixed schedule and keeps everything out of court.  The reduction in legal costs alone would be staggering.

I am not sure what causes this, but my otherwise healthy children always seem to get violently ill on vacation.  On various "vacations" past we have had several trips to the emergency room, on 3-day stay in intensive, and any number of barfing incidents.  Sure enough, my poor daughter is now vilently ill.

For those who still hold out belief that the tort system today is still primarily about justice rather than just hijacking deep pockets, read this post at overlawyered.com.  From an online ad:

We will show you how to prove you had taken Vioxx, to prove that you had related side effects, and to find a good lawyer to win your case. There are still places selling Vioxx after the recall, you can find them online. Merck is still 100% fully responsible for any side effect. If you purchase Vioxx now, not only you can sue Merck, you can also sue the pharmacy store for selling recalled products. The purchase is risk free, as Merck will pay you every penny you spend on Vioxx including tax and shipping fees.

Quick, buy some before they take it off the shelf, so you too can get in on the lawsuit!

By the way, this little tidbit, also via Overlawyered.com, gave me a chuckle.  A woman is suing a railroad for hitting her when she was walking down the railroad tracks.  In part, she is suing the train for "failure of its engineer to...yield the right of way".  LOL - I can't believe the train didn't swerve out of the way.

UPDATE #1

Legal Underground has a post critical of this article:

As grist for its anti-lawyer message, Overlawyered.com is featuring this obvious Internet hoax: "Get Your Million Dollars from Vioxx Lawsuit."  Does Walter Olson really think his readers are so gullible?

In the comments section, I responded as follows:

Hmmm. I am one of the listed disciples (lol). I am willing to believe the ad is non-serious, meaning that it was aimed more at getting traffic and probably was not written by a law firm, and am posting an update as such with a link to this site.

Hoax? In my mind, its a hoax only if the legal advice is wrong or if you think no one would respond to the plea. I can't tell you if Vioxx can still be bought nowadays (that may be a hoax). However, if it was still on the shelf somewhere, ask yourself two honest questions:

1. Is there a lawyer out there who would happily try to make the case that a person who bought Vioxx after the recall can still be awarded damages?  Even if the attorney knew the person bought the Vioxx mainly to get in the class action?
2. Are there people out there who, if they thought it would get them in on a big class action, would go out today and load up on Vioxx solely to get a chance at having a lawsuit?

The honest answer is yes to both (just read the billboards in Florida). I mean, I would bet about any amount of money that someone out there has read this on the Internet and has tried to go buy Vioxx to get in on the jackpot. Guaranteed. Would any of you take the other side of this bet?

The fact that this ad may not be from a real lawyer does mean that I may have overstepped in painting law firms as being this bad (sorry), but I don't think its being fake in any way hurts the case that the notion of individual responsibility is on life support in this country.

By the way, after looking at Walter Olson's original post, I think he was pretty careful not to claim that the page was from a real law firm, and basically pointed to the same issues with the page's provenance that Legal Underground pointed out.

In the companies I have run, I have spent an inordinate amount of time dealing with a few really ridiculous lawsuits.  Here are two examples (that happened to companies I ran - this is not Internet hearsay or friend of a friend):

1. A visitor to one of our facilities claims to have stepped, while walking in his bare feet, on a nail that was on the ground.  He did not come to us for first aid, but called us later after he had left our facility.  He never could produce the nail, nor could we ever find one in the area, but we agreed to pay any small bills he had -- we assumed he might have gone to the emergency room for a tetanus shot or maybe to get a band-aid.  It turns out he eventually claimed that the injury caused him to - get ready -  experience sexual dysfunction, which he eventually sued us over when we refused to pay any treatment costs.
2. A woman came to our office at our facility limping, claiming to have fallen down the stairs and saying that we were gonna pay.  Despite the fact that it was a crowded area, no witnesses could be found.  We offered her a ride to the hospital which she refused.  Several of our employees thought we saw her come into the facility limping already.  Within the week, she was threatening to sue us for the cost of her knee operation.  Fortunately, since our employees saw her limping coming in, we did some more research, and members of her family told us she was also suing a restaurant she had visited the week before for the same injury.  It turns out she was uninsured, and had hurt her knee elsewhere, and was out trying to find some public business that she could get to pay for her operation. 

Given this experience, I am not going to apologize for believing that the referenced ad might be real.

UPDATE #2:

By the way, I don't think that Legal Underground was calling the train story a hoax, only the Vioxx.  By the way, the exact wording on the complaint against the railroad is even better than I thought:

"The [engineer] did not stop the train in a timely manner, and failed to yield the right of way to a pedestrian walking along the tracks in plain view"

A freight train's topping distance is measured in miles, even with full emergency braking.

She and her attorney's further argue:

that the railroad was negligent for failing to post signs warning 'of the dangers of walking near train tracks and that the tracks were actively in use

Lets leave aside the obvious point about individual responsibility, and ask what would happen if this were the legal standard, to have such signs.  To make sure someone saw one, you would have to have one say every 30 feet.  Since there are just over 200,000 miles of freight railroads in the North America that works out to a bit over 35,000,000 signs that need to be posted.  At $100 per sign this would cost $3.5 billion.

Here is the serious point:  Never would any legislature pass a law that said there had to be warning signs every 30 feet on railroads.  It would be way too costly for little benefit.  At grade crossings today, we have signs and flashing lights and even gates and still thousands of people a year drive in front of trains on grade crossings.  So, if we would never require it legislatively, how have we gotten to a point where a jury might effectively retroactively require such signs, and assess a multi-million dollar penalty for not doing it?

Today, we had another $300 workers compensation claim.

First, I will begin by saying "Thank God for the workers comp system in this country". Basically the philosophy of the system is this: Workers give up their right to sue their employer over workplace injuries in return for a guarantee of medical care and a defined benefit compensation system. Yeah, some states (like Florida, in particular) have some real fraud and management problems. In California last year, before reform, I was paying $20 in workers comp premiums for every $100 in wages -- and this despite having no claims the last few years. But, given the state of the lawsuit industry in this country, imagine the effect if workers could sue over every injury, large or small. Shudder.

As an aside, this issue has greatly affected the whole asbestos litigation situation, as detailed here. It can be argued that most workers' asbestos injuries are more likely due to poor protections on the job site, rather than any product problems from the asbestos makers. Asbestos using companies, after all, have known asbestos is dangerous since before WWII. In fact, navy shipyards in WWII were some of the worst offenders in terms of not using masks, poor ventilation, etc. But, since employers generally can't get sued over injuries (and its hard to sue the feds), lawyers concentrate on the "product labeling" argument and sue the asbestos makers into bankruptcy, which explains why litigation attorney's coach their clients like this.

Anyway, in many states, workers comp needs reform. Ahnold, for example, did a nice job of attacking this issue in California, and our company got an immediate 10% discount on our rates once the legislation passed. One thing that is never discussed and frustrates the heck out of me is the issue of deductibles. We get a lot of small claims (e.g. went to emergency room, got checked out, all was OK, went home). As with any kind of insurance policy, filing a lot of small claims this year is death on premiums next year. Workers comp is worse than most, as it has an experience mod system that guarantees that for every dollar in claims that goes out this year you pay an extra $1+ next year in premiums (in the next few days Coyote Blog will be starting a new series called "things they didn't teach me in business school" and the mechanics of workers comp will be one of the first posts).

Unfortunately, many states, such as Arizona, do not allow you to have a deductible on your workers comp policy. This is not an insurance company practice that might change with new competitors, but the law. So, we keep paying out small claims that probably drive up our premiums $2 for every dollar in claims.