health care and the free market

Krugman's recent blog explains why free market principles just don't work well when it come to health care distribution. He's essentially summarizing an important paper Kenneth Arrow wrote way back in 1963, "Uncertainty and the Welfare Economics of Health Care". To summarize his summary, there are two key factors that make health care very different than things that the free market might be able to distribute more efficiently:

a) health care is completely unlike most good or services because it's largely unpredictable when we'll need it and when we do need it, it is very expensive. Hence, it requires some kind of insurance and consumer choice becomes largely a non-factor. (and insurance companies are not out to get you effective coverage but to minimize costs)
b) health care is far too complicated to allow us to do things that can make us effective agents in the marketplace, you can't rely on experience or comparison shopping.

I'd rant on about this but Krugman does a great job of summing up the situation in my opinion: "There are a number of successful health-care systems, at least as measured by pretty good care much cheaper than here, and they are quite different from each other. There are, however, no examples of successful health care based on the principles of the free market, for one simple reason: in health care, the free market just doesn’t work. And people who say that the market is the answer are flying in the face of both theory and overwhelming evidence."

Democrats' House Healthcare Bill

I haven't read the Dem's house bill on healthcare or even read much commentary, but with that caveat I will say that I'm pretty sure that imposing heavier burdens on businesses in terms of providing health care insurance, as this bill is apparently doing, really can't be the way to go. Health care costs are already severely undermining the ability of US companies to compete in the global marketplace. Compromise is often a laudable thing, but in the case of the US healthcare system, I think it's so badly broken that we really need to start over from scratch. My solution, of course, would be to implement a universal single payer system, I think the data shows that this is very efficient and effective. To see how this translates into global competitiveness one need only research the competitive advantage that Canadian car plants are afforded, as compared to their US counterparts, by the fact that they don't have to buy healthcare for each worker. But, even if my solution isn't the solution ultimately implemented, I'd argue that going further down the road of employer provided healthcare deepens the long term problem.

(And I apologize for sounding like a pro-business blowhard. I'm not a huge fan of globalization and in general, arguments about cutting benefits because the global marketplace demands it are unconvincing to me. But in this case I think the global marketplace is effectively underscoring a huge inefficiency in the US marketplace, an inefficiency that we ignore at our peril.)

Challenge problems

Apparently a team has reached the threshold in the Netflix contest to improve quality of viewer suggestions by 10% (for a $1 million prize!):

http://www.netflixprize.com//leaderboard

A blog on the process here:

http://bits.blogs.nytimes.com/2009/06/26/and-the-winner-of-the-1-million-netflix-prize-probably-is/

(and, somewhat tangentially, a nice "SVD/LSI [a method often used for recommendation systems] for dummies" article here: http://www.igvita.com/2007/01/15/svd-recommendation-system-in-ruby/ (including an implementation in Ruby as the URL suggests) )

This "bounty" system of development seems to be proving very effective and relatively inexpensive. See also the DARPA Grand Challenge effort that managed to produce an effective driverless vehicle system for a tiny, tiny fraction of what a full blown traditional DARPA program would have cost, assuming a traditional program would have managed to do it at all. My claim: This provides evidence that in a post-industrial society, and maybe in all, a gift economy is superior to a market economy for purposes of providing innovation, people valuing prestige and satisfaction of solving challenges even more highly than material gain. (While the prizes here are, prima facie, substantial, the actual reward to participants is likely far, far less than they'd have received in typical market production scenarios even if they were just being paid for their time. If one considers, for example, what a DARPA program would have paid for the person hours that the winning team alone would have cost in the Grand Challenge, I imagine it would have far exceeded the prize money actually paid out.)